Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2011.
Commission file number 1-12383
Rockwell Automation, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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25-1797617 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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1201 South 2nd Street |
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Milwaukee, Wisconsin
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53204 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code:
(414) 382-2000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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Common Stock, $1 Par Value
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
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 whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). 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 registrants 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 a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large Accelerated Filer þ
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Accelerated Filer o
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Non-accelerated Filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of registrants voting stock held by non-affiliates of registrant
on March 31, 2011 was approximately $13.6 billion.
141,916,926 shares of registrants Common Stock, par value $1 per share, were outstanding on
October 31, 2011.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners
of registrant to be held on
February 7, 2012 is incorporated by reference into Part III hereof.
TABLE OF CONTENTS
PART I
FORWARD-LOOKING STATEMENTS
This Annual Report contains statements (including certain projections and business trends)
that are forward-looking statements as defined in the Private Securities Litigation Reform Act of
1995. Words such as believe, estimate, project, plan, expect, anticipate, will,
intend and other similar expressions may identify forward-looking statements. Actual results may
differ materially from those projected as a result of certain risks and uncertainties, many of
which are beyond our control, including but not limited to:
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macroeconomic factors, including global and regional business conditions, the
availability and cost of capital, the cyclical nature of our customers capital spending,
sovereign debt concerns and currency exchange rates; |
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laws, regulations and governmental policies affecting our activities in the countries
where we do business; |
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the successful development of advanced technologies and demand for and market acceptance
of new and existing products; |
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the availability, effectiveness and security of our information technology systems; |
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competitive product and pricing pressures; |
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a disruption of our operations due to natural disasters, acts of war, strikes,
terrorism, social unrest or other causes; |
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intellectual property infringement claims by others and the ability to protect our
intellectual property; |
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our ability to successfully address claims by taxing authorities in the various
jurisdictions where we do business; |
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our ability to attract and retain qualified personnel; |
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our ability to manage costs related to employee retirement and health care benefits; |
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the uncertainties of litigation; |
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a disruption of our distribution channels; |
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the availability and price of components and materials; |
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the successful execution of our cost productivity and globalization initiatives; and |
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other risks and uncertainties, including but not limited to those detailed from time to
time in our Securities and Exchange Commission (SEC) filings. |
These forward-looking statements reflect our beliefs as of the date of filing this report. We
undertake no obligation to update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise. See Item 1A. Risk Factors for more information.
2
General
Rockwell Automation, Inc. (the Company or Rockwell Automation) is a leading global provider of
industrial automation power, control and information solutions that help manufacturers achieve a
competitive advantage for their businesses. The Company continues the business founded as the
Allen-Bradley Company in 1903. The privately-owned Allen-Bradley Company was a leading North
American manufacturer of industrial automation equipment when the former Rockwell International
Corporation (RIC) purchased it in 1985. Our products and services are designed to meet our
customers needs to reduce total cost of ownership, maximize asset utilization, improve time to
market and reduce manufacturing business risk.
The Company was incorporated in Delaware in 1996 in connection with a tax-free reorganization
completed on December 6, 1996, pursuant to which we divested our former aerospace and defense
businesses (the A&D Business) to The Boeing Company (Boeing). In the reorganization, RIC
contributed all of its businesses, other than the A&D Business, to the Company and distributed all
capital stock of the Company to RICs shareowners. Boeing then acquired RIC. RIC was incorporated
in 1928.
We divested our Dodge mechanical and Reliance Electric motors and motor repair services
businesses in 2007. These were the principal businesses of our former Power Systems operating
segment. The results of operations of these businesses are reported in income from discontinued
operations in the Financial Statements for all periods presented.
As used herein, the terms we, us, our, the Company or Rockwell Automation include
subsidiaries and predecessors unless the context indicates otherwise. Information included in this
Annual Report on Form 10-K refers to our continuing businesses unless otherwise indicated.
Whenever an Item of this Annual Report on Form 10-K refers to information in our Proxy
Statement for our Annual Meeting of Shareowners to be held on February 7, 2012 (the 2012 Proxy
Statement), or to information under specific captions in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations (MD&A), or in Item 8. Financial
Statements and Supplementary Data (the Financial Statements), the information is incorporated in
that Item by reference. All date references to years and quarters refer to our fiscal year and
quarters unless otherwise stated.
3
Operating Segments
We have two operating segments: Architecture & Software and Control Products & Solutions. In
2011, our total sales were $6.0 billion. Financial information with respect to our operating
segments, including their contributions to sales and operating earnings for each of the three years
in the period ended September 30, 2011, is contained under the caption Results of Operations in
MD&A, and in Note 18 in the Financial Statements.
Our Architecture & Software operating segment is headquartered in Mayfield Heights, Ohio and
Singapore, and our Control Products & Solutions operating segment is headquartered in Milwaukee,
Wisconsin. Both operating segments conduct business globally. Products, solutions and services of
both segments are marketed primarily under the Rockwell Automation®,
Allen-Bradley®, A-B® and Rockwell Software® brand names. Major
markets served by both segments include food and beverage, transportation, oil and gas, metals,
mining, home and personal care, pulp and paper and life sciences.
Architecture & Software
Our Architecture & Software operating segment recorded sales of $2.6 billion (43 percent of
our total sales) in 2011. The Architecture & Software segment contains all of the hardware,
software and communication components of our integrated control and information architecture
capable of controlling the customers industrial processes and connecting with their manufacturing
enterprise. Architecture & Software has a broad portfolio of products, including:
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Control platforms that perform multiple control disciplines and monitoring of
applications, including discrete, batch and continuous process, drives control, motion
control and machine safety control. Products include controllers, electronic operator
interface devices, electronic input/output devices, communication and networking products
and industrial computers. The information-enabled Logix controllers provide integrated
multi-discipline control that is modular and scalable. |
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Software products that include configuration and visualization software used to operate
and supervise control platforms, advanced process control software and manufacturing
execution software (MES) that enables customers to improve manufacturing productivity and
meet regulatory requirements. |
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Other products, including rotary and linear motion control products, sensors and machine
safety components. |
Control Products & Solutions
Our Control Products & Solutions operating segment recorded 2011 sales of $3.4 billion (57
percent of our total sales). The Control Products & Solutions segment combines a comprehensive
portfolio of intelligent motor control and industrial control products, application expertise and
project management capabilities. This comprehensive portfolio includes:
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Low and medium voltage electro-mechanical and electronic motor starters, motor and
circuit protection devices, AC/DC variable frequency drives, push buttons, signaling
devices, termination and protection devices, relays, timers and condition sensors. |
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Value-added solutions ranging from packaged solutions such as configured drives and
motor control centers to automation and information solutions where we provide design,
integration and start-up services for custom-engineered hardware and software systems
primarily for manufacturing applications. |
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Services designed to help maximize a customers automation investment and provide total
life-cycle support, including multi-vendor customer technical support and repair, asset
management, training and predictive and preventative maintenance. |
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Geographic Information
In 2011, sales to customers in the United States accounted for 49 percent of our total sales.
Outside the United States, we sell in every region. The largest sales outside of the United States
on a country-of-destination basis are in Canada, China, Italy, the United Kingdom and Brazil. See
Item 1A. Risk Factors for a discussion of risks associated with our operations outside of the
United States. Sales and property information by major geographic area for each of the past three
years is contained in Note 18 in the Financial Statements.
Competition
Depending on the product or service involved, our competitors range from large diversified
corporations with business interests outside of industrial automation, to smaller companies that
specialize in niche industrial automation products and services. Factors that influence our
competitive position include the breadth of our product portfolio and scope of solutions,
technology leadership, knowledge of customer applications, installed base, distribution network,
quality of products and services, global presence and price. Our major competitors of both segments
include Siemens AG, ABB Ltd, Honeywell International Inc., Schneider Electric SA and Emerson
Electric Co.
Distribution
We sell our products, solutions and services through both independent distributors that
typically do not carry products that compete with Allen-Bradley® products, and our direct sales
force. In the United States, Canada and certain other countries, we sell primarily through the
independent distributors in conjunction with our direct sales force. In the remaining countries,
we sell through a combination of our direct sales force and to a lesser extent, through independent
distributors. Approximately 70% of our global sales are through independent distributors. Sales
to our largest distributor in 2011, 2010 and 2009 were approximately 10 percent of our total sales.
Research and Development
Our research and development spending for the years ended September 30, 2011, 2010 and 2009
was $254.4 million, $198.9 million, and $170.0 million, respectively. Customer-sponsored research
and development was not significant in 2011, 2010 or 2009.
Employees
At September 30, 2011 we had approximately 21,000 employees. Approximately 8,000 were
employed in the United States.
Raw Materials and Supplies
We purchase a wide range of equipment, components, finished products and materials used in our
business. The raw materials essential to the manufacture of our products generally are available
at competitive prices. Although we have a broad base of suppliers and subcontractors, we depend
upon the ability of our suppliers and subcontractors to meet performance and quality specifications
and delivery schedules. See Item 1A. Risk Factors for a discussion of risks associated with our
reliance on third party suppliers.
Backlog
Our total order backlog at September 30 was (in millions):
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2011 |
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2010 |
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Architecture & Software |
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160.3 |
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140.6 |
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Control Products & Solutions |
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1,016.8 |
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921.0 |
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1,177.1 |
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1,061.6 |
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Backlog is not necessarily indicative of results of operations for future periods due to the
short-cycle nature of most of our sales activities. Backlog orders scheduled for shipment beyond
2012 were approximately $107.2 million as of September 30, 2011.
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Environmental Protection Requirements
Information about the effect of compliance with environmental protection requirements and
resolution of environmental claims is contained in Note 17 in the Financial Statements and in Item
3. Legal Proceedings.
Patents, Licenses and Trademarks
We own or license numerous patents and patent applications related to our products and
operations. Various claims of patent infringement and requests for patent indemnification have
been made to us. We believe that none of these claims or requests will have a material adverse
effect on our financial condition. While in the aggregate our patents and licenses are important
in the operation of our business, we do not believe that loss or termination of any one of them
would materially affect our business or financial condition. See Item 1A. Risk Factors for a
discussion of risks associated with our intellectual property.
The Companys name and its registered trademark Rockwell Automation® and other
trademarks such as Allen-Bradley®, A-B® and PlantPAx Process Automation
SystemTM are important to both of our business segments. In addition, we own other
important trademarks that we use, such as ICS TriplexTM for our control products and
systems for industrial automation, and Rockwell Software® and
FactoryTalk® for our software offerings.
Seasonality
Our business segments are not subject to significant seasonality. However, the
calendarization of our results can vary and may be affected by the seasonal spending patterns of
our customers due to their annual budgeting processes and their working schedules.
Available Information
We maintain a website at http://www.rockwellautomation.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the Exchange
Act), as well as our annual report to shareowners and Section 16 reports on Forms 3, 4 and 5, are
available free of charge on this site as soon as reasonably practicable after we file or furnish
these reports with the SEC. All reports we file with the SEC are also available free of charge via
EDGAR through the SECs website at http://www.sec.gov. Our Guidelines on Corporate Governance and
charters for our Board committees are also available on our website. The information contained on
and linked from our website is not incorporated by reference into this Annual Report on Form 10-K.
6
In the ordinary course of our business, we face various strategic, operating, compliance and
financial risks. These risks could have an impact on our business, financial condition, operating
results and cash flows. Our most significant risks are set forth below and elsewhere in this
Annual Report on Form 10-K.
Our Enterprise Risk Management (ERM) process seeks to identify and address significant risks.
Our ERM process uses the integrated risk framework of the Committee of Sponsoring Organizations
(COSO) to assess, manage, and monitor risks. We believe that risk-taking is an inherent aspect of
the pursuit of our growth and performance strategy. Our goal is to manage risks prudently rather
than avoiding risks. We can mitigate risks and their impact on the company only to a limited
extent.
A team of senior executives prioritizes identified risks and assigns an executive to address
each major identified risk area and lead action plans to manage risks. Our Board of Directors
provides oversight of the ERM process and reviews significant identified risks. The Audit
Committee also reviews significant financial risk exposures and the steps management has taken to
monitor and manage them. Our other Board committees also play a role in risk management, as set
forth in their respective charters.
Our goal is to proactively manage risks in a structured approach in conjunction with strategic
planning, with the intent to preserve and enhance shareowner value. However, the risks set forth
below and elsewhere in this Annual Report on Form 10-K and other risks and uncertainties could
cause our results to vary materially from recent results or from our anticipated future results and
could adversely affect our business and financial condition.
Adverse changes in business or industry conditions and volatility and disruption of the capital
and credit markets may result in decreases in our revenues and profitability.
We are subject to macroeconomic cycles and when recessions occur, we may experience reduced
orders, payment delays, supply chain disruptions or other factors as a result of the economic
challenges faced by our customers, prospective customers and suppliers.
Demand for our products is sensitive to changes in levels of industrial production and the
financial performance of major industries that we serve. As economic activity slows, credit
markets tighten, or sovereign debt concerns linger, companies tend to reduce their levels of
capital spending, which could result in decreased demand for our products.
Our ability to access the credit markets, and the related costs of these borrowings, is
affected by the strength of our credit rating and current market conditions. If our access to
credit, including the commercial paper market, is adversely affected by a change in market
conditions or otherwise, our cost of borrowings may increase or our ability to fund operations may
be reduced.
We generate a substantial portion of our revenues from international sales and are subject to the
risks of doing business in many countries.
Approximately 51 percent of our revenues in 2011 were outside of the U.S. Future growth rates
and success of our business depend in large part on growth in our international sales. Numerous
risks and uncertainties affect our international operations. These risks and uncertainties include
increased financial, legal and operating risks, such as political and economic instability,
compliance with existing and future laws, regulations and policies, including those related to
tariffs, investments, taxation, trade controls, employment regulations and repatriation of
earnings, and enforcement of contract and intellectual property rights. In addition, we are
affected by changes in foreign currency exchange rates, inflation rates and interest rates.
New legislative and regulatory actions could adversely affect our business.
Legislative and regulatory action may be taken in the various countries and other
jurisdictions where we operate that may affect our business activities in these countries or may
otherwise increase our costs to do business. For example, we are increasingly required to comply
with various environmental and other material, product, certification, labeling and customer
requirements. These requirements could increase our costs and could potentially have an adverse
effect on our ability to ship our products into certain jurisdictions.
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An inability to respond to changes in customer preferences could result in decreased demand
for our products.
Our success depends in part on our ability to anticipate and offer products that appeal to the
changing needs and preferences of our customers in the various markets we serve. Developing new
products requires high levels of innovation and the development process is often lengthy and
costly. If we are not able to anticipate, identify, develop and market products that respond to
changes in customer preferences, demand for our products could decline.
Failures or security breaches of our products or information technology systems could have an adverse effect on our
business.
We rely heavily on information technology (IT) both in our products, solutions and services for customers and in
our enterprise IT infrastructure in order to achieve our business objectives. Government agencies and security experts
have warned about growing risks of hackers, cyber-criminals and other attacks targeting every type of IT system
including industrial control systems such as those we sell and serve and corporate enterprise IT systems.
Our portfolio of hardware and software products, solutions and services and our enterprise IT systems may be
vulnerable to damage or intrusion from a variety of attacks including computer viruses, worms or other malicious
software programs that access them. These attacks have sometimes been successful.
Despite the precautions we take, an intrusion or infection of software, hardware or a system that we sold or
serviced could result in the disruption of our customers business, loss of proprietary or confidential information, or
injuries to people or property. Similarly, an attack on our enterprise IT system could result in theft or disclosure
of trade secrets or other intellectual property or a breach of confidential customer or employee information. Any such
events could have an adverse impact on revenue, harm our reputation, cause us to incur legal liability and cause us to
incur increased costs to address such events and related security concerns.
We are implementing a global Enterprise Resource Planning (ERP) system that is resulting in redesigned processes,
organization structures and a common information system. Significant roll-outs of the system occurred at our U.S.
locations and certain non-U.S. locations in 2007 to 2011, and are scheduled to continue at additional locations in 2012
and beyond. As we continue to implement new systems, they may not perform as expected. This could have an adverse
effect on our business.
There are inherent risks in our solutions businesses.
Risks inherent in the sale of solutions include assuming greater responsibility for project
completion and success, defining and controlling contract scope, efficiently executing projects,
and managing the quality of our subcontractors. If we are unable to manage and mitigate these
risks, our results of operations could be adversely affected.
Our industry is highly competitive.
We face strong competition in all of our market segments in several significant respects. We
compete based on breadth and scope of our product portfolio and solution and service offerings,
technology differentiation, product performance, quality of our products and services, knowledge of
integrated systems and applications that address our customers business challenges, pricing,
delivery and customer service. The relative importance of these factors differs across the markets
and product areas that we serve. We seek to maintain acceptable pricing levels by continually
developing advanced technologies for new products and product enhancements and offering complete
solutions for our customers business problems. If we fail to keep pace with technological changes
or to provide high quality products and services, we may experience price erosion, lower revenues
and margins. We expect the level of competition to remain high in the future, which could limit
our ability to maintain or increase our market share or profitability.
We face the potential harms of natural disasters, terrorism, acts of war, international conflicts
or other disruptions to our operations.
Natural disasters, acts or threats of war or terrorism, international conflicts, political
instability and the actions taken by governments could cause damage to or disrupt our business
operations, our suppliers or our customers, and could create economic instability. Although it is
not possible to predict such events or their consequences, these events could decrease demand for
our products or make it difficult or impossible for us to deliver products.
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Intellectual property infringement claims of others and the inability to protect our intellectual
property rights could harm our business and our customers.
Others may assert intellectual property infringement claims against us or our customers. We
frequently provide a limited intellectual property indemnity in connection with our terms and
conditions of sale to our customers and in other types of contracts with third parties.
Indemnification payments and legal costs to defend claims could be costly.
In addition, we own the rights to many patents, trademarks, brand names and trade names that
are important to our business. The inability to enforce our intellectual property rights may have
an adverse effect on our results of operations. Expenses related to enforcing our intellectual
property rights could be significant.
We must successfully defend any claims from taxing authorities to avoid an adverse effect on our
tax expense and financial position.
We conduct business in many countries, which requires us to interpret the income tax laws and
rulings in each of those taxing jurisdictions. Due to the ambiguity of tax laws among those
jurisdictions as well as the subjectivity of factual interpretations, our estimates of income tax
liabilities may differ from actual payments or assessments. Claims by taxing authorities related
to these differences could have an adverse impact on our operating results and financial position.
Our business success depends on attracting and retaining qualified personnel while appropriately
managing costs related to employee benefits.
Our success depends in part on the efforts and abilities of our management team and key
employees. Their skills, experience and industry knowledge significantly benefit our operations
and performance. One important aspect of attracting and retaining qualified personnel is
continuing to offer competitive employee retirement and heath care benefits.
The amount of expenses we record for our defined benefit pension plans depends on factors such
as changes in market interest rates and the value of plan assets. Significant decreases in market
interest rates or the value of plan assets would increase our expenses. Expenses related to
employer-funded health care benefits continue to increase as well.
Increasing employee benefit costs or the failure to attract and retain members of our
management team and key employees could have a negative effect on our operating results and
financial condition.
Potential liabilities and costs from litigation (including asbestos claims and environmental
remediation) could reduce our profitability.
Various lawsuits, claims and proceedings have been or may be asserted against us relating to
the conduct of our business, including those pertaining to product liability, safety and health,
employment, contract matters and environmental remediation.
We have been named as a defendant in lawsuits alleging personal injury as a result of exposure
to asbestos that was used in certain of our products many years ago. Our products may also be used
in hazardous industrial activities, which could result in product liability claims. The
uncertainties of litigation (including asbestos claims) and the uncertainties related to the
collection of insurance coverage make it difficult to predict the ultimate resolution.
Our operations are subject to regulation by various environmental regulatory authorities
concerned with the impact of the environment on human health, the limitation and control of
emissions and discharges into the air, ground and waters, the quality of air and bodies of water,
and the handling, use and disposal of specified substances. Environmental laws and regulations can
be complex and may change. Our financial responsibility to clean up contaminated property or for
natural resource damages may extend to previously owned or used properties, waterways and
properties owned by unrelated companies or individuals, as well as properties that we currently own
and use, regardless of whether the contamination is attributable to prior owners. We have been
named as a potentially responsible party at cleanup sites and may be so named in the future, and
the costs associated with these current and future sites may be significant.
We have, from time to time, divested certain of our businesses. In connection with these
divestitures, certain lawsuits, claims and proceedings may be instituted or asserted against us
related to the period that we owned the businesses, either because we agreed to retain certain
liabilities related to these periods or because such liabilities fall upon us by operation of law.
In some instances, the divested business has assumed the liabilities; however, it is possible that
we might be responsible to satisfy those liabilities if the divested business is unable to do so.
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A disruption to our distribution channel could reduce our revenues.
In the United States and Canada, approximately 90 percent of our sales are through
distributors. In certain other countries, the majority of our sales are also through a limited
number of distributors. While we maintain the right to appoint new distributors, any unplanned
disruption to our existing distribution channel could adversely affect our revenues. A disruption
could result from the sale of a distributor to a competitor, financial instability of a
distributor, or other events.
We rely on vendors to supply equipment and components, which creates certain risks and
uncertainties that may adversely affect our business.
Our business requires that we buy equipment and components, including finished products, which
may include computer chips and commodities such as copper, aluminum and steel. Our reliance on
suppliers of these items involves certain risks, including:
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poor quality can adversely affect the reliability and reputation of our products; |
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the cost of these purchases may change due to inflation, exchange rates, commodity
market volatility or other factors; |
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we may not be able to recover any increase in costs for these purchases through price
increases to our customers; and |
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a shortage of components, commodities or other materials could adversely affect our
manufacturing efficiencies and ability to make timely delivery. |
Any of these uncertainties could adversely affect our profitability and ability to compete.
We also maintain several single-source supplier relationships, because either alternative sources
are not available or the relationship is advantageous due to performance, quality, support,
delivery, capacity, or price considerations. Unavailability or delivery delays of single-source
components or products could adversely affect our ability to ship the related products in a timely
manner. The effect of unavailability or delivery delays would be more severe if associated with
our higher volume and more profitable products. Even where substitute sources of supply are
available, qualifying the alternate suppliers and establishing reliable supplies could cost more or
could result in delays and a loss of revenues.
Our competitiveness depends on successfully executing our globalization and cost productivity
initiatives.
Our globalization strategy includes localization of our products and services to be closer to
our customers and identified growth opportunities. Localization of our products and services
includes expanding our capabilities, including supply chain and sourcing activities, product
design, manufacturing, engineering, marketing and sales and support. These activities expose us to
risks, including those related to political and economic uncertainties, transportation delays,
labor market disruptions, and challenges to protect our intellectual property. In addition, we
continue to invest in initiatives to reduce our cost structure. The failure to achieve our
objectives on these initiatives could have an adverse effect on our operating results and financial
condition.
Risks associated with acquisitions could have an adverse effect on us.
We have acquired, and will continue to acquire, businesses in an effort to enhance shareowner
value. Acquisitions involve risks and uncertainties, including:
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difficulties in integrating the acquired business, retaining the acquired business
customers, and achieving the expected benefits of the acquisition, such as revenue
increases, access to technologies, cost savings and increases in geographic or product
presence, in the desired time frames; |
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loss of key employees of the acquired business; |
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difficulties implementing and maintaining consistent standards, controls, procedures,
policies and information systems; and |
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diversion of managements attention from other business concerns. |
Future acquisitions could result in debt, dilution, liabilities, increased interest expense,
restructuring charges and amortization expenses related to intangible assets.
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Item 1B. |
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Unresolved Staff Comments |
None.
We operate manufacturing facilities in the United States and multiple foreign countries.
Manufacturing space occupied approximately 3.3 million square feet, of which 39 percent was in the
United States and Canada. Our world headquarters are located in Milwaukee, Wisconsin in a facility
that we own. We lease the remaining facilities noted below. Most of our facilities are shared by
operations in both segments and may be used for multiple purposes such as administrative,
manufacturing, warehousing and / or distribution.
The following table sets forth information regarding our headquarter locations as of September
30, 2011.
|
|
|
Location |
|
Headquarters |
|
|
|
Milwaukee, Wisconsin, United
States
|
|
Global and Control Products &
Solutions |
Mayfield Heights, Ohio, United
States
|
|
Architecture & Software |
Singapore
|
|
Architecture & Software |
Cambridge, Ontario, Canada
|
|
Canada |
Diegem, Belgium
|
|
Europe, Middle East and Africa |
Hong Kong
|
|
Asia-Pacific |
Weston, Florida, United States
|
|
Latin America |
|
The following table sets forth information regarding our principal manufacturing locations as
of September 30, 2011.
|
|
Location |
|
Manufacturing Square Footage |
|
|
|
Monterrey Guadalupe, Mexico |
|
637,000 |
Aarau, Switzerland |
|
284,000 |
Twinsburg, Ohio, United States |
|
257,000 |
Mequon, Wisconsin, United States |
|
240,000 |
Cambridge, Ontario, Canada |
|
216,000 |
Maldon, United Kingdom |
|
185,000 |
Singapore |
|
146,000 |
Shanghai, China |
|
141,000 |
Tecate, Mexico |
|
135,000 |
Shirley, New York, United States |
|
126,000 |
Ladysmith, Wisconsin, United States |
|
124,000 |
Richland Center, Wisconsin, United States |
|
124,000 |
Katowice, Poland |
|
95,000 |
There are no major encumbrances (other than financing arrangements, which in the aggregate are
not significant) on any of our plants or equipment. In our opinion, our properties have been well
maintained, are in sound operating condition and contain all equipment and facilities necessary to
operate at present levels.
11
|
|
|
Item 3. |
|
Legal Proceedings. |
McGregor, Texas NWIRP Facility Environmental Claim. RIC operated the Naval Weapons Industrial
Reserve Plant (NWIRP) in McGregor, Texas from 1958 through 1978 for the United States Navy.
Incident to Boeings acquisition of RIC in 1996, we agreed to indemnify RIC and Boeing for any
liability arising out of RICs activities at the NWIRP to the extent such liability is not assumed
or indemnified by the U.S. government.
On December 3, 2007, the United States Department of Justice (DOJ) notified RIC that the
United States Navy was seeking to recover environmental cleanup costs incurred at the NWIRP. The
DOJ asserted that it has incurred more than $50 million (excluding interest, attorneys fees and
other indirect costs) in environmental cleanup costs at the NWIRP, and it believes that it may have
a potential cause of action against RIC and other former contractors at the NWIRP for recovery of
those costs. In June 2011, RIC and one other former contractor at the NWIRP reached a settlement
with the DOJ and the United States Navy to resolve all claims in exchange for payment of $14
million. RIC will be responsible for half of the settlement amount. The parties negotiated the
terms of a Consent Decree that was reviewed and approved by the DOJ. The Consent Decree was
submitted to the District Court and once approved will completely resolve this claim.
Asbestos. We (including our subsidiaries) have been named as a defendant in lawsuits alleging
personal injury as a result of exposure to asbestos that was used in certain components of our
products many years ago. Currently there are a few thousand claimants in lawsuits that name us as
defendants, together with hundreds of other companies. In some cases, the claims involve products
from divested businesses, and we are indemnified for most of the costs. However, we have agreed to
defend and indemnify asbestos claims associated with products manufactured or sold by our Dodge
mechanical and Reliance Electric motors and motor repair services businesses prior to their
divestiture by us, which occurred on January 31, 2007. We also are responsible for half of the
costs and liabilities associated with asbestos cases against RICs divested measurement and flow
control business. But in all cases, for those claimants who do show that they worked with our
products or products of divested businesses for which we are responsible, we nevertheless believe
we have meritorious defenses, in substantial part due to the integrity of the products, the
encapsulated nature of any asbestos-containing components, and the lack of any impairing medical
condition on the part of many claimants. We defend those cases vigorously. Historically, we have
been dismissed from the vast majority of these claims with no payment to claimants.
We have maintained insurance coverage that we believe covers indemnity and defense costs, over
and above self-insured retentions, for claims arising from our former Allen-Bradley subsidiary.
Following litigation against Nationwide Indemnity Company (Nationwide) and Kemper Insurance
(Kemper), the insurance carriers that provided liability insurance coverage to Allen-Bradley, we
entered into separate agreements on April 1, 2008 with both insurance carriers to further resolve
responsibility for ongoing and future coverage of Allen-Bradley asbestos claims. In exchange for a
lump sum payment, Kemper bought out its remaining liability and has been released from further
insurance obligations to Allen-Bradley. Nationwide entered into a cost share agreement with us to
pay the substantial majority of future defense and indemnity costs for Allen-Bradley asbestos
claims. We believe this arrangement will continue to provide coverage for Allen-Bradley asbestos
claims throughout the remaining life of the asbestos liability.
The uncertainties of asbestos claim litigation make it difficult to predict accurately the
ultimate outcome of asbestos claims. That uncertainty is increased by the possibility of adverse
rulings or new legislation affecting asbestos claim litigation or the settlement process. Subject
to these uncertainties and based on our experience defending asbestos claims, we do not believe
these lawsuits will have a material adverse effect on our financial condition.
Other. Various other lawsuits, claims and proceedings have been or may be instituted or
asserted against us relating to the conduct of our business, including those pertaining to product
liability, environmental, safety and health, intellectual property, employment and contract
matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits,
claims or proceedings may be disposed of unfavorably to us, we believe the disposition of matters
that are pending or have been asserted will not have a material adverse effect on our business or
financial condition.
12
|
|
|
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, 2011 are:
|
|
|
|
|
Name, Office and Position, and Principal Occupations and Employment |
|
Age |
|
|
|
|
|
|
Keith D. Nosbusch Chairman of the Board and President and Chief Executive Officer |
|
|
60 |
|
Sujeet Chand Senior Vice President and Chief Technology Officer |
|
|
53 |
|
Kent G. Coppins Vice President and General Tax Counsel |
|
|
58 |
|
Theodore D. Crandall Senior Vice President and Chief Financial Officer since October
2007; Interim Chief Financial Officer from April 2007 to October 2007; Senior Vice
President previously |
|
|
56 |
|
David M. Dorgan Vice President and Controller |
|
|
47 |
|
Steven A. Eisenbrown Senior Vice President |
|
|
58 |
|
Steven W. Etzel Vice President and Treasurer since November 2007; Assistant Treasurer
from November 2006 to November 2007; Director, Finance previously |
|
|
51 |
|
Douglas M. Hagerman Senior Vice President, General Counsel and Secretary |
|
|
50 |
|
Frank C. Kulaszewicz Senior Vice President since April 2011; Vice President and
General Manager, Control and Visualization Business from October 2007 to April 2011;
Business Manager, Global Drive Systems previously |
|
|
47 |
|
John P. McDermott Senior Vice President |
|
|
53 |
|
John M. Miller Vice President and Chief Intellectual Property Counsel |
|
|
44 |
|
Blake D. Moret Senior Vice President since April 2011; Vice President and General
Manager, Customer Support and Maintenance from November 2007 until March 2011; Director,
Marketing previously |
|
|
48 |
|
Rondi Rohr-Dralle Vice President, Investor Relations and Corporate Development since
February 2009; Vice President, Corporate Development previously |
|
|
55 |
|
Robert A. Ruff Senior Vice President |
|
|
63 |
|
Susan J. Schmitt Senior Vice President, Human Resources since July 2007; Director,
Human Resources United Kingdom and European Functions, Kellogg Company (producer of
cereal and convenience foods) previously |
|
|
48 |
|
A. Lawrence Stuever Vice President and General Auditor |
|
|
59 |
|
Martin Thomas Senior Vice President, Operations and Engineering Services since
February 2007; Vice President, Operations and Engineering Services previously |
|
|
53 |
|
There are no family relationships, as defined by applicable SEC rules, between any of the
above executive officers and any other executive officer or director of the Company. 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.
13
PART II
|
|
|
Item 5. |
|
Market for the Companys Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities |
Our common stock is listed on the New York Stock Exchange and trades under the symbol ROK.
On October 31, 2011 there were 23,882 shareowners of record of our common stock.
The following table sets forth the high and low sales price of our common stock on the New
York Stock Exchange-Composite Transactions reporting system during each quarter of our fiscal years
ended September 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Fiscal Quarters |
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
First |
|
$ |
72.75 |
|
|
$ |
60.08 |
|
|
$ |
49.25 |
|
|
$ |
39.39 |
|
Second |
|
|
94.88 |
|
|
|
71.79 |
|
|
|
57.00 |
|
|
|
45.72 |
|
Third |
|
|
98.19 |
|
|
|
76.71 |
|
|
|
63.90 |
|
|
|
48.63 |
|
Fourth |
|
|
89.79 |
|
|
|
50.36 |
|
|
|
63.27 |
|
|
|
47.79 |
|
We declare and pay dividends at the sole discretion of our Board of Directors. During 2011 we
declared and paid aggregate cash dividends of $1.475 per common share. We increased our quarterly
dividend per common share 21 percent to 42.5 cents per common share effective with the dividend
payable in September 2011 ($1.70 per common share annually). During 2010 we declared and paid
aggregate cash dividends of $1.22 per common share.
The table below sets forth information with respect to purchases made by or on behalf of us of
shares of our common stock during the three months ended September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Maximum Approx. |
|
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
Dollar Value |
|
|
|
Total |
|
|
|
|
|
|
Part of Publicly |
|
|
of Shares that may |
|
|
|
Number |
|
|
Average |
|
|
Announced |
|
|
yet be Purchased |
|
|
|
of Shares |
|
|
Price Paid |
|
|
Plans or |
|
|
Under the Plans or |
|
Period |
|
Purchased |
|
|
Per Share(1) |
|
|
Programs |
|
|
Programs(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1 31, 2011 |
|
|
60,000 |
|
|
$ |
74.33 |
|
|
|
60,000 |
|
|
$ |
275,184,146 |
|
August 1 31, 2011 |
|
|
630,291 |
|
|
|
61.15 |
|
|
|
630,291 |
|
|
|
236,642,117 |
|
September 1 30, 2011 |
|
|
611,319 |
|
|
|
56.68 |
|
|
|
611,319 |
|
|
|
201,993,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,301,610 |
|
|
|
59.66 |
|
|
|
1,301,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Average price paid per share includes brokerage commissions. |
|
(2) |
|
On November 7, 2007, our Board of Directors approved a $1.0 billion share repurchase program.
Our repurchase program allows management to repurchase shares at its discretion. However,
during quarter-end quiet periods, defined as the period of time from quarter-end until two
days following the filing of our quarterly earnings results with the SEC on Form 8-K, shares
are repurchased at our brokers discretion pursuant to a share repurchase plan subject to
price and volume parameters. |
14
|
|
|
Item 6. |
|
Selected Financial Data |
The following table sets forth selected consolidated financial data of our continuing
operations. The data should be read in conjunction with MD&A and the Financial Statements. The
consolidated statement of operations data for each of the following five years ended September 30,
the related consolidated balance sheet data and other data have been derived from our audited
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2009(a) |
|
|
2008(b) |
|
|
2007(c) |
|
|
|
(in millions, except per share data) |
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
6,000.4 |
|
|
$ |
4,857.0 |
|
|
$ |
4,332.5 |
|
|
$ |
5,697.8 |
|
|
$ |
5,003.9 |
|
Interest expense |
|
|
59.5 |
|
|
|
60.5 |
|
|
|
60.9 |
|
|
|
68.2 |
|
|
|
63.4 |
|
Income from continuing operations |
|
|
697.1 |
|
|
|
440.4 |
|
|
|
217.9 |
|
|
|
577.6 |
|
|
|
569.3 |
|
Earnings per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
4.88 |
|
|
|
3.09 |
|
|
|
1.54 |
|
|
|
3.94 |
|
|
|
3.58 |
|
Diluted |
|
|
4.79 |
|
|
|
3.05 |
|
|
|
1.53 |
|
|
|
3.89 |
|
|
|
3.53 |
|
Cash dividends per share |
|
|
1.475 |
|
|
|
1.22 |
|
|
|
1.16 |
|
|
|
1.16 |
|
|
|
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data: (at end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,284.9 |
|
|
$ |
4,748.3 |
|
|
$ |
4,305.7 |
|
|
$ |
4,593.6 |
|
|
$ |
4,545.8 |
|
Short-term debt and current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.1 |
|
|
|
521.4 |
|
Long-term debt |
|
|
905.0 |
|
|
|
904.9 |
|
|
|
904.7 |
|
|
|
904.4 |
|
|
|
405.7 |
|
Shareowners equity |
|
|
1,748.0 |
|
|
|
1,460.4 |
|
|
|
1,316.4 |
|
|
|
1,688.8 |
|
|
|
1,742.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
120.1 |
|
|
$ |
99.4 |
|
|
$ |
98.0 |
|
|
$ |
151.0 |
|
|
$ |
131.0 |
|
Depreciation |
|
|
96.5 |
|
|
|
95.7 |
|
|
|
101.7 |
|
|
|
101.3 |
|
|
|
93.5 |
|
Intangible asset amortization |
|
|
34.8 |
|
|
|
31.6 |
|
|
|
32.4 |
|
|
|
35.2 |
|
|
|
24.4 |
|
|
|
|
(a) |
|
Includes costs of $60.4 ($41.8 million after tax, or $0.29 per diluted share) related to
restructuring actions designed to better align our cost structure with current economic
conditions. See Note 14 in the Financial Statements for more information. |
|
(b) |
|
Includes net costs of $46.7 million ($30.4 million after tax, or $0.21 per diluted share)
primarily related to restructuring actions designed to better align resources with growth
opportunities and to reduce costs as a result of current and anticipated market conditions.
See Note 14 in the Financial Statements for more information. |
|
(c) |
|
Includes costs of $43.5 million ($27.7 million after tax, or $0.17 per diluted share) related
to various restructuring activities designed to execute on our cost productivity initiatives
and to advance our globalization strategy. See Note 14 in the Financial Statements for more
information. |
15
|
|
|
Item 7. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Results of Operations
Non-GAAP Measures
The following discussion includes organic sales and free cash flow, which are non-GAAP
measures. See Supplemental Sales Information for a reconciliation of reported sales to organic
sales and a discussion of why we believe this non-GAAP measure is useful to investors. See
Financial Condition for a reconciliation of cash flows from operating activities to free cash flow
and a discussion of why we believe this non-GAAP measure is useful to investors.
Overview
We are a leading global provider of industrial automation power, control and information
solutions that help manufacturers achieve a competitive advantage for their businesses. Overall
demand for our products and services is driven by:
|
|
|
investments in manufacturing, including upgrades, modifications and expansions of
existing facilities or production lines, and the creation of new facilities or production
lines; |
|
|
|
our customers needs for productivity and cost reduction, sustainable production
(cleaner, safer and more energy efficient), quality assurance and overall global
competitiveness; |
|
|
|
industry factors that include our customers new product introductions, demand for our
customers products or services, and the regulatory and competitive environments in which
our customers operate; |
|
|
|
levels of global industrial production and capacity utilization; |
|
|
|
regional factors that include local political, social, regulatory and economic
circumstances; |
|
|
|
the seasonal spending patterns of our customers due to their annual budgeting processes
and their working schedule; and |
|
|
|
investments in basic materials production capacity, partly in response to higher
commodity pricing. |
Long-term Strategy
Our vision of being the most valued global provider of innovative industrial automation and
information products, services and solutions is supported by our growth and performance strategy,
which seeks to:
|
|
|
achieve growth rates in excess of the automation market by expanding our served market
and strengthening our technology and customer-facing differentiation; |
|
|
|
diversify our revenue streams by increasing our capabilities in new applications,
broadening our solutions and service capabilities, advancing our global presence and
serving a wider range of industries; |
|
|
|
grow market share by gaining new customers and by capturing a larger share of our
Original Equipment Manufacturer machine builders (OEMs) and end user customers spending; |
|
|
|
enhance our market access by building our channel capability and partner network; |
|
|
|
make acquisitions that serve as catalysts to organic growth by adding complementary
technology, expanding our served market, increasing our domain expertise or continuing our
geographic diversification; |
|
|
|
deploy human and financial resources to strengthen our technology leadership and our
intellectual capital business model; and |
|
|
|
continuously improve quality and customer experience, drive 3-4 percent annual cost
productivity, and optimize end-to-end business processes. |
By implementing the strategy above, we seek to achieve our long-term financial goals that include
revenue growth of 6-8 percent, double-digit EPS growth and 60 percent of our revenue outside the
U.S.
16
Our customers face the challenge of remaining globally cost competitive and automation can
help them achieve their productivity and sustainability objectives. In addition, increasingly
complex and volatile customer demand patterns drive the need for flexible manufacturing. Our value
proposition is to help our customers reduce time to market, lower total cost of ownership, increase
asset utilization and reduce business risks.
Differentiation through Technology and Domain Expertise
We seek a technology leadership position in all facets of industrial automation. We believe our
core technologies are the foundation for long-term sustainable growth.
Our integrated control and information architecture, with Logix at its core, is capable of
safely and efficiently controlling industrial processes while connecting the plant floor to the
enterprise systems and the external supply chain. This architecture is an important
differentiator and the anchor of our comprehensive automation offering. We complement the scalable
Logix platform with additional control solutions suited for less complex machine applications.
Investments in these technologies have expanded our served market beyond discrete control into
process, safety and plant-wide information.
We believe that process automation is the largest growth opportunity for our company. Our
Logix architecture enables us to compete effectively with traditional Distributed Control Systems
(DCS) providers for many process applications.
We have one of the most comprehensive safety offerings in the industry, including both machine
and process safety products and solutions. We see significant potential in the growing safety
market. We successfully integrated safety into the Logix platform with our launch of
GuardLogix® safety controllers. Our safety products are designed to bring a dual benefit
to our customers: a safe environment for their employees and productivity in their operations.
Through internal investment and acquisitions, we have expanded our software and communication
capabilities, both of which are critical components of our integrated architecture and key to
optimizing processes and assets while integrating the plant floor, the enterprise business system
and the supply chain.
Our broad power and motor control offering is one of our core competencies. Many of our motor
control products are intelligent and configurable and can be integrated seamlessly with the Logix
architecture. These products enhance the availability, efficiency and safe operation of our
customers critical and most energy-intensive plant assets.
We augment our product portfolio with solutions and service offerings. We have expanded our
portfolio of repeatable solutions, which enables us to gain efficiency, drive innovation and
improve the global deployment of our solutions to our customers. The combination of our leading
technologies with the industry-specific domain expertise of our people enables us to solve many of
our customers manufacturing challenges.
Global Expansion
As the manufacturing world continues to expand, we must be able to meet our customers
needs in emerging markets. We expect to continue to add solutions and services personnel and
expand our sales force in emerging markets over the long term. We currently have approximately 60
percent of our employees outside the U.S., and 51 percent of our revenues outside of the U.S.
As we expand in markets with considerable growth potential and shift our global footprint, we
expect to continue to broaden the portfolio of products, solutions and services that we provide to
our customers in these regions. We have made significant investments to globalize our
manufacturing, product development and customer facing resources in order to be closer to our
customers throughout the world. Growth in the emerging markets of Asia-Pacific, including China
and India, Latin America, central and eastern Europe and Africa is projected to exceed global Gross
Domestic Product (GDP) growth rates, due to higher levels of infrastructure investment and the
growing impact of consumer spending in these markets. We believe that increased demand for
consumer products in these markets will lead to manufacturing investment and provide us with
additional growth opportunities in the future.
Enhanced Market Access
OEMs represent another growth opportunity. The OEM market is large and we have an opportunity
to increase market share, particularly outside of North America. To remain competitive, OEMs need
to continually improve their costs and machine performance and reduce their time to market. Our
modular and scalable Logix offering, particularly when combined with motion and safety, can assist
OEMs in addressing these business needs. We also continue to expand our portfolio for less complex
OEM machines, which helps to expand our addressed market, especially in emerging economies.
17
We have developed a powerful network of channel partners, technology partners and commercial
partners that act as amplifiers to our internal capabilities and enable us to serve our customers
needs around the world.
Broad Range of Industries Served
We apply our knowledge of manufacturing applications to help customers solve their business
challenges. We serve customers in a wide range of industries, including consumer products,
resource-based and transportation.
Our consumer products customers are engaged in the food and beverage, home and personal care
and life sciences industries. These customers needs include new capacity, incremental capacity
from existing facilities, an increasingly flexible manufacturing environment and regulatory
compliance. These customers operate in an environment where product innovation and time to market
are critical factors.
We serve customers in resource-based industries, including oil and gas, mining, aggregates,
cement, metals, pulp and paper and water/wastewater. Companies in these industries typically
invest when commodity prices are relatively high and global demand for basic materials is
increasing.
In the transportation industry, factors such as geographic expansion, investment in new model
introductions and more flexible manufacturing technologies influence customers automation
investment decisions. Our sales in transportation are primarily to automotive and tire
manufacturers.
Outsourcing and Sustainability Trends
Demand for our products, solutions and services across all industries benefits from the
outsourcing and sustainability needs of our customers. Customers increasingly desire to outsource
engineering services to achieve a more flexible cost base. Our manufacturing application knowledge
enables us to serve these customers globally.
We help our customers meet their sustainability needs pertaining to energy efficiency,
environmental and safety goals. Higher energy prices have historically caused customers across all
industries to invest in more energy-efficient manufacturing processes and technologies, such as
intelligent motor control and energy efficient solutions and services. In addition, environmental
and safety objectives often spur customers to invest to ensure compliance and implement sustainable
business practices.
Acquisitions
Our acquisition strategy focuses on products, solutions or services that will be catalytic to
the organic growth of our core offerings. In May 2011, we purchased a majority stake in the equity
of Lektronix Limited and its affiliate (Lektronix), an independent industrial automation repairs
and service provider in Europe and Asia. In April 2011, we acquired certain assets and assumed
certain liabilities of Hiprom (Pty) Ltd and its affiliates (Hiprom), a process control and
automation systems integrator for the mining and mineral processing industry in South Africa. In
March 2009, we bought a majority of the assets and assumed certain liabilities of the automation
business of Rutter Hinz Inc., which expanded our business in Canada and in the oil and gas and
other resource-based industries. In January 2009, we bought the assets and assumed certain
liabilities of Xian Hengsheng Science & Technology Limited. This acquisition advanced our
globalization strategy and strengthened our ability to deliver project management and engineering
solutions primarily to our customers in China.
We believe the acquired companies will help us expand our market share and deliver value to
our customers.
Continuous Improvement
Productivity and continuous improvement are important components of our culture. We have
programs in place that drive ongoing process improvement, functional streamlining, material cost
savings and manufacturing productivity. We are in the process of developing and implementing common
global processes and an enterprise-wide information system. These are intended to improve
profitability that can be used to fund investment in growth and technology and to offset inflation.
Our ongoing productivity initiatives target both cost reduction and improved asset utilization.
Charges for workforce reductions and facility rationalization may be required in order to
effectively execute our productivity programs.
18
U. S. Industrial Economic Trends
In 2011, sales to U.S. customers accounted for 49 percent of our total sales. The various
indicators we use to gauge the direction and momentum of our U.S. served markets include:
|
|
|
The Industrial Production Index (Total Index), published by the Federal Reserve, which
measures the real output of manufacturing, mining, and electric and gas utilities. The
Industrial Production Index is expressed as a percentage of real output in a base year,
currently 2007. Historically there has been a meaningful correlation between the Industrial
Production Index and the level of automation investment made by our U.S. customers in their
manufacturing base. |
|
|
|
The Manufacturing Purchasing Managers Index (PMI), published by the Institute for
Supply Management (ISM), which is an indication of the current and near-term state of
manufacturing activity in the U.S. According to the ISM, a PMI measure above 50 indicates
that the U.S. manufacturing economy is generally expanding while a measure below 50
indicates that it is generally contracting. |
|
|
|
Industrial Equipment Spending, which is an economic statistic compiled by the Bureau of
Economic Analysis (BEA). This statistic provides insight into spending trends in the broad
U.S. industrial economy. This measure over the longer term has proven to demonstrate a
reasonable correlation with our domestic growth. |
|
|
|
Capacity Utilization (Total Industry), which is an indication of plant operating
activity published by the Federal Reserve. Historically there has been a meaningful
correlation between Capacity Utilization and levels of U.S. industrial production. |
The table
below depicts the trends in these indicators from fiscal 2009 to 2011.
Industrial production and capacity utilization have continued to increase. The PMI was
lower than the preceding quarter, but continued to indicate expansion of manufacturing activity. These indicators are among the factors that lead us to be cautiously
optimistic about a continued recovery with slower and potentially more uneven growth.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial |
|
|
|
|
|
|
Industrial |
|
|
|
|
|
|
Equipment |
|
|
Capacity |
|
|
|
Production |
|
|
|
|
|
|
Spending |
|
|
Utilization |
|
|
|
Index |
|
|
PMI |
|
|
(in billions) |
|
|
(percent) |
|
Fiscal 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2011 |
|
|
94.1 |
|
|
|
51.6 |
|
|
$ |
201.8 |
|
|
|
77.4 |
|
June 2011 |
|
|
92.9 |
|
|
|
55.3 |
|
|
|
186.5 |
|
|
|
76.6 |
|
March 2011 |
|
|
92.8 |
|
|
|
61.2 |
|
|
|
185.0 |
|
|
|
76.8 |
|
December 2010 |
|
|
91.7 |
|
|
|
58.5 |
|
|
|
178.0 |
|
|
|
76.1 |
|
Fiscal 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2010 |
|
|
91.0 |
|
|
|
55.3 |
|
|
|
172.9 |
|
|
|
75.5 |
|
June 2010 |
|
|
89.5 |
|
|
|
55.3 |
|
|
|
169.1 |
|
|
|
74.0 |
|
March 2010 |
|
|
88.0 |
|
|
|
60.4 |
|
|
|
154.5 |
|
|
|
72.3 |
|
December 2009 |
|
|
86.3 |
|
|
|
56.4 |
|
|
|
153.6 |
|
|
|
70.3 |
|
Fiscal 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2009 |
|
|
85.2 |
|
|
|
53.2 |
|
|
|
153.2 |
|
|
|
68.9 |
|
June 2009 |
|
|
84.1 |
|
|
|
44.7 |
|
|
|
155.2 |
|
|
|
67.7 |
|
March 2009 |
|
|
86.7 |
|
|
|
36.6 |
|
|
|
162.6 |
|
|
|
69.7 |
|
December 2008 |
|
|
92.6 |
|
|
|
33.3 |
|
|
|
189.2 |
|
|
|
73.6 |
|
Note: Economic indicators are subject to revisions by the issuing organizations.
19
Non-U.S. Regional Trends
In 2011, sales to non-U.S. customers accounted for 51 percent of our total sales. These
customers include both indigenous companies and multinational companies with expanding global
presence. In addition to the global factors previously mentioned, international demand,
particularly in emerging markets, has historically been driven by the strength of the industrial
economy in each region, investments in infrastructure and expanding consumer markets.
We use changes in GDP
as one indicator of the growth opportunities in each region where we do
business.
Growth in emerging markets continues to exceed global GDP growth rates, but has moderated during
fiscal 2011. In Europe, sovereign debt concerns have put downward pressure on industrial growth.
While these trends indicate slower growth than recently experienced, overall macroeconomic trends and forecasts make us
cautiously optimistic that the global recovery will continue into fiscal 2012.
20
Summary of Results of Operations
Sales in fiscal 2011 increased 24 percent compared to 2010. We continued to execute our key
initiatives well, which contributed to our positive performance:
|
|
|
Sales in emerging markets increased 31 percent as compared to 2010. Organic sales in
emerging markets increased 24 percent year over year as the effects of currency
translation and acquisitions contributed 7 percentage points to the total increase.
Emerging markets represented 22 percent of total company sales in fiscal 2011, and we
expect this proportion to continue to grow. |
|
|
|
Logix sales exceeded $900 million in 2011 and increased 29 percent compared to 2010. |
|
|
|
Sales related to our process initiative grew 18 percent year over year in 2011. |
|
|
|
Sales to our OEM customers, including sales of safety components and safety systems,
grew at a rate above the company average. |
The improvement in operating margin was primarily due to volume leverage, partially offset by
sales mix and increased spending to support growth.
General corporate expenses were net of a $3.8 million gain in 2011 resulting from the sale of
an investment.
21
The following tables reflect our sales and operating results for the years ended September 30,
2011, 2010 and 2009 (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Architecture & Software |
|
$ |
2,594.3 |
|
|
$ |
2,115.0 |
|
|
$ |
1,723.5 |
|
Control Products & Solutions |
|
|
3,406.1 |
|
|
|
2,742.0 |
|
|
|
2,609.0 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,000.4 |
|
|
$ |
4,857.0 |
|
|
$ |
4,332.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings (a)(b) |
|
|
|
|
|
|
|
|
|
|
|
|
Architecture & Software |
|
$ |
659.1 |
|
|
$ |
475.4 |
|
|
$ |
223.0 |
|
Control Products & Solutions |
|
|
368.5 |
|
|
|
241.8 |
|
|
|
206.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting depreciation and amortization |
|
|
(19.8 |
) |
|
|
(18.9 |
) |
|
|
(18.6 |
) |
General corporate net |
|
|
(80.7 |
) |
|
|
(93.6 |
) |
|
|
(80.3 |
) |
Interest expense |
|
|
(59.5 |
) |
|
|
(60.5 |
) |
|
|
(60.9 |
) |
Special items (b) |
|
|
|
|
|
|
|
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
867.6 |
|
|
|
544.2 |
|
|
|
273.9 |
|
Provision for income taxes |
|
|
(170.5 |
) |
|
|
(103.8 |
) |
|
|
(56.0 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
697.1 |
|
|
|
440.4 |
|
|
|
217.9 |
|
Income from discontinued operations (c) |
|
|
0.7 |
|
|
|
23.9 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
697.8 |
|
|
$ |
464.3 |
|
|
$ |
220.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
4.79 |
|
|
$ |
3.05 |
|
|
$ |
1.53 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
0.17 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4.80 |
|
|
$ |
3.22 |
|
|
$ |
1.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average outstanding shares |
|
|
145.2 |
|
|
|
144.0 |
|
|
|
142.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Information regarding how we define segment operating earnings is included in Note 18 in the
Financial Statements. |
|
(b) |
|
Segment operating earnings in 2009 includes restructuring charges of $60.4 million. See Note
14 in the Financial Statements for information about restructuring charges and special items. |
|
(c) |
|
See Note 13 in the Financial Statements for a description of items reported as discontinued
operations. |
22
2011 Compared to 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts) |
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
6,000.4 |
|
|
$ |
4,857.0 |
|
|
$ |
1,143.4 |
|
Income from continuing operations |
|
|
697.1 |
|
|
|
440.4 |
|
|
|
256.7 |
|
Diluted earnings per share
from continuing operations |
|
|
4.79 |
|
|
|
3.05 |
|
|
|
1.74 |
|
Sales
Our sales increased $1,143.4 million, or 24 percent, from $4,857.0 million in 2010 to $6,000.4
million in 2011. Sales in our solutions and services businesses increased 24 percent year over
year, and year-end backlog in these businesses was 12 percent higher than a year ago. Product
sales also grew 24 percent year over year reflecting continued improvement in customers spending
and increased OEM demand. Volume accounted for substantially all the organic sales growth during
the period as pricing contributed less than 1 percentage point to growth during the period.
The table below presents our sales for the year ended September 30, 2011 by geographic region
and the percentage change in sales from the year ended September 30, 2010 (in millions, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
Change vs. |
|
|
Organic Sales |
|
|
|
Year Ended |
|
|
Year Ended |
|
|
vs. Year Ended |
|
|
|
September 30, 2011(1) |
|
|
September 30, 2010 |
|
|
September 30, 2010(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
2,917.8 |
|
|
|
19 |
% |
|
|
18 |
% |
Canada |
|
|
396.2 |
|
|
|
23 |
% |
|
|
17 |
% |
Europe, Middle East and Africa |
|
|
1,267.6 |
|
|
|
28 |
% |
|
|
22 |
% |
Asia-Pacific |
|
|
910.6 |
|
|
|
26 |
% |
|
|
18 |
% |
Latin America |
|
|
508.2 |
|
|
|
38 |
% |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
6,000.4 |
|
|
|
24 |
% |
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We attribute sales to the geographic regions based upon country of destination. |
|
(2) |
|
Organic sales are sales excluding the effect of changes in currency exchange
rates and acquisitions. See Supplemental Sales Information for information on this
non-GAAP measure. |
|
|
|
Organic sales growth in the United States was driven by heavy and transportation
industries, as consumer industries lagged the region growth rate. |
|
|
|
Organic sales growth in Canada was driven primarily by heavy industries. |
|
|
|
Europes strong organic sales growth was driven primarily by transportation and consumer
industries, and strong OEM demand. |
|
|
|
Asia-Pacific organic sales growth was driven by strength in emerging markets, including
China and India with 23 and 26 percent growth, respectively.1 |
|
|
|
Latin America growth was driven by mining and oil and gas industries. |
Income from Continuing Operations before Income Taxes
Income from continuing operations before income taxes increased 58 percent from $440.4 million
in 2010 to $697.1 million in 2011. The increase was predominantly due to increased volume,
partially offset by increased spending to support growth. Selling, general and administrative
expenses increased by $137.9 million from $1,323.3 to $1,461.2, but decreased as a percentage of
sales by 2.8 points to 24.4 percent as volume increases outpaced spending increases.
General corporate expenses were net of a $3.8 million gain in 2011 resulting from the sale of
an investment.
|
|
|
1 |
|
Organic sales growth in China and India
exclude 4 and 3 percentage points from the effect of changes in currency,
respectively. |
23
Income Taxes
The effective tax rate for 2011 was 19.7 percent compared to 19.1 percent in 2010. The 2011
and 2010 effective tax rates were lower than the U.S. statutory rate of 35 percent because our sales outside of the U.S.
benefited from lower tax rates.
During 2011, we recognized net discrete tax benefits of $25.0 million related to the favorable
resolution of worldwide tax matters and the retroactive extension of the U.S. federal research
credit. During 2010, we recognized discrete tax benefits of $27.2 million primarily related to the
favorable resolution of tax matters, partially offset by discrete tax expenses of $9.6 million
primarily related to the impact of a change in Mexican tax law and interest related to unrecognized
tax benefits.
See Note 16 in the Financial Statements for a complete reconciliation of the United States
statutory tax rate to the effective tax rate and more information on tax events in 2011 and 2010
affecting the respective tax rates.
Discontinued Operations
Income from discontinued operations was $0.7 million in 2011 compared to $23.9 million in
2010. Income from discontinued operations in the prior year included a $21.3 million tax benefit
resulting from the resolution of a domestic tax matter relating to the January 2007 sale of our
Dodge mechanical and Reliance Electric motors and motor repair services businesses.
24
Architecture & Software
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except percentages) |
|
2011 |
|
|
2010 |
|
|
Change |
|
|
Sales |
|
$ |
2,594.3 |
|
|
$ |
2,115.0 |
|
|
$ |
479.3 |
|
Segment operating earnings |
|
|
659.1 |
|
|
|
475.4 |
|
|
|
183.7 |
|
Segment operating margin |
|
|
25.4 |
% |
|
|
22.5 |
% |
|
|
2.9 |
pts |
Sales
Architecture & Software sales increased 23 percent to $2,594.3 million in 2011 compared to
$2,115.0 million in 2010. Organic sales increased 20 percent, and the effects of currency
translation contributed 3 percentage points to the total increase. Substantially all of the
organic sales increase resulted from increased volume due to positive macroeconomic conditions in
most regions and industries. Pricing had an immaterial effect on revenue during the period.
Year-over-year sales increases in all regions other than the United States were greater than the
segment average rate of increase. Logix sales increased 29 percent in 2011 compared to 2010.
Operating Margin
Architecture & Software segment operating earnings were $659.1 million in 2011, up 39 percent
from $475.4 million in 2010. Operating margin increased 2.9 points to 25.4 percent in 2011 as
compared to 2010. The increase in operating margin was predominantly due to volume increases as a
result of higher worldwide levels of industrial production and capital spending by our customers,
partially offset by sales mix and increased spending to support growth.
Control Products & Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except percentages) |
|
2011 |
|
|
2010 |
|
|
Change |
|
|
Sales |
|
$ |
3,406.1 |
|
|
$ |
2,742.0 |
|
|
$ |
664.1 |
|
Segment operating earnings |
|
|
368.5 |
|
|
|
241.8 |
|
|
|
126.7 |
|
Segment operating margin |
|
|
10.8 |
% |
|
|
8.8 |
% |
|
|
2.0 |
pts |
Sales
Control Products & Solutions sales increased 24 percent to $3,406.1 million in 2011 compared
to $2,742.0 million in 2010. Organic sales increased 20 percent, and the effects of currency
translation and acquisitions contributed 3 percentage points and 1 percentage point, respectively,
to the total increase. The segments organic sales increase resulted from growth in both products
and solutions and services businesses, which grew at rates similar to the segment average. Latin
America, Asia-Pacific and EMEA reported year-over-year growth above the segment average, while
year-over-year sales increases in the United States and Canada were less than the segment average
growth rate. Pricing had an immaterial effect on revenue during the period.
Operating Margin
Control Products & Solutions segment operating earnings were $368.5 million in 2011, up 52
percent from $241.8 million in the same period of 2010. Operating margin increased 2.0 points to
10.8 percent in 2011 as compared to 2010. The increase was predominantly due to volume increases,
partially offset by sales mix and increased spending to support growth.
25
2010 Compared to 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
4,857.0 |
|
|
$ |
4,332.5 |
|
|
$ |
524.5 |
|
Income from continuing operations |
|
|
440.4 |
|
|
|
217.9 |
|
|
|
222.5 |
|
Diluted earnings per share from continuing operations |
|
|
3.05 |
|
|
|
1.53 |
|
|
|
1.52 |
|
Sales
Our sales increased $524.5 million, or 12 percent, from $4,332.5 million in 2009 to $4,857.0
million in 2010. An organic sales increase of 10 percent was enhanced by benefits from currency
translation of 2 percentage points. We had positive performance in our product businesses across
all regions, resulting from the recovery in worldwide macroeconomic conditions and industrial
production during 2010. Pricing contributed less than 1 percentage point to growth during the
period.
Organic sales to customers in the Asia-Pacific region increased 17 percent, led by strength in
the emerging markets, including China and India. Organic sales increased 11 and 7 percent in the
United States and Canada, respectively. Organic sales increased in Latin America by 11 percent as
recent growth offset declines earlier in the fiscal year. Organic sales increased 2 percent in
EMEA, as declines in our solutions and services businesses that have been slower to recover offset
growth in our product businesses.
Sales growth in our solutions and services business lagged the recovery in product sales. In
the first half of 2010, solutions and services sales declined year over year as a consequence of
declining order rates in the second half of fiscal 2009. Order rates began to improve in the first
half of fiscal 2010 resulting in year-over-year growth in solutions and services sales in the
second half of 2010. For the full year, sales in our solutions and services business declined 4
percent.
During 2010, sales in all of our end markets improved as the year progressed. For full-year
2010, the largest sales increases were to customers in the transportation industry.
Income from Continuing Operations before Income Taxes
Income from continuing operations before income taxes increased 102 percent from $217.9
million in 2009 to $440.4 million in 2010. Our strong performance reflects a continuing economic
recovery. Gross profit margin increased by 3.7 points to 39.9 percent in 2010. Increased volume,
restructuring savings and favorable mix contributed to the significant year-over-year margin
improvement, partially offset by cost increases related to employee compensation, pension and
postretirement expense and incremental spending to support growth.
We saved approximately $120 million in 2010 as compared to 2009 related to benefits realized
from restructuring actions taken in fiscal 2009, which was in line with our expectations. We
recorded $60 million less of restructuring charges during 2010 compared to 2009, which also
contributed to the year-over-year income improvement. These benefits were offset by increases of
approximately $200 million for employee compensation, a $41 million increase in pension and
postretirement expense and $50 million incremental spending to support growth in 2010 compared to
2009.
Our Architecture & Software segment contributed 44 percent of our total sales in 2010,
compared to 40 percent in 2009. During 2010 the Architecture & Software segments operating margin
was 22.5 percent. The increase in percentage of sales by our higher-margin Architecture & Software
segment caused a positive mix effect on operating margin.
General corporate expenses were $93.6 million in 2010 compared to $80.3 million in 2009. The
increase was primarily due to higher employee costs resulting from wage and salary increases as
well as performance-based compensation. Selling, general and administrative expense as a
percentage of sales decreased by 0.9 points to 27.2 percent as volume increases outpaced spending
increases.
26
Income Taxes
The effective tax rate for 2010 was 19.1 percent compared to 20.4 percent in 2009. The 2010
and 2009 effective tax rates were lower than the U.S. statutory rate of 35 percent because we
benefited from lower non-U.S. tax rates.
The 2010 rate was lower than 2009 because we benefited from a higher proportionate share of
income in lower tax rate jurisdictions as compared to 2009. We also recognized discrete tax
benefits of $27.2 million primarily related to the favorable resolution of tax matters, partially
offset by discrete tax expenses of $9.6 million primarily related to the impact of a change in
Mexican tax law and interest related to unrecognized tax benefits in 2010. During 2009, we also
recognized discrete tax benefits of $20.5 million related to the retroactive extension of the U.S.
federal research tax credit, the resolution of a contractual tax obligation and various state tax
matters, partially offset by discrete tax expenses of $4.2 million related to a non-U.S.
subsidiary.
See Note 16 in the Financial Statements for a complete reconciliation of the United States
statutory tax rate to the effective tax rate and more information on tax events in 2010 and 2009
affecting the respective tax rates.
Discontinued Operations
Income from discontinued operations increased $21.1 million in 2010 compared to 2009,
primarily due to a $21.3 million tax benefit resulting from the resolution of a domestic tax matter
relating to the January 2007 sale of our Dodge mechanical and Reliance Electric motors and repair
services businesses.
27
Architecture & Software
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except percentages) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
2,115.0 |
|
|
$ |
1,723.5 |
|
|
$ |
391.5 |
|
Segment operating earnings |
|
|
475.4 |
|
|
|
223.0 |
|
|
|
252.4 |
|
Segment operating margin |
|
|
22.5 |
% |
|
|
12.9 |
% |
|
9.6 |
pts |
Sales
Architecture & Software sales increased 23 percent to $2,115.0 million in 2010 compared to
$1,723.5 million in 2009. Organic sales increased 20 percent, and the effects of currency
translation contributed 3 percentage points to the total increase. Substantially all of the
organic sales increase was the result of an increase in volume due to improving macroeconomic
conditions in most regions and industries. Pricing had only a minor impact on revenue during the
period. Canada and Latin America year-over-year sales increases were greater than the segment
average rate of increase, while year-over-year sales increases to customers in the United States
and Asia-Pacific were consistent with the segment average rate of increase. Year-over-year sales
increases to customers in EMEA were slightly below the segment average rate of increase. Logix
sales increased 25 percent in 2010 compared to 2009.
Operating Margin
Architecture & Software segment operating earnings were $475.4 million in 2010, up 113 percent
from $223.0 million in 2009. Operating margin increased 9.6 points to 22.5 percent in 2010 as
compared to 2009. The increase was predominantly due to volume increases as a result of higher
worldwide levels of industrial production and capital spending by our customers. Approximately
half of the restructuring cost savings, additional employee compensation, additional pension and
postretirement expenses and incremental spending to support growth described above applied to the
Architecture & Software segment.
Control Products & Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except percentages) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
2,742.0 |
|
|
$ |
2,609.0 |
|
|
$ |
133.0 |
|
Segment operating earnings |
|
|
241.8 |
|
|
|
206.7 |
|
|
|
35.1 |
|
Segment operating margin |
|
|
8.8 |
% |
|
|
7.9 |
% |
|
0.9 |
pts |
Sales
Control Products & Solutions sales increased 5 percent to $2,742.0 million in 2010 compared to
$2,609.0 million in 2009. Organic sales increased 2 percent, and the effects of currency
translation and acquisitions contributed 2 percentage points and 1 percentage point, respectively.
The segments modest organic sales growth was primarily attributable to robust growth in the
products businesses in 2010 offset by declines in solutions and services sales reflecting the
decline in order rates that we experienced in the second half of 2009. While the decline in order
rates led to significant sales declines in the first half of 2010, order rates recovered and after
the normal lag associated with our solution and services sales, we began to see revenue increases
in these businesses in the second half of 2010. Asia-Pacific and Canada both reported double-digit
year-over-year overall segment growth, benefiting $2.7 million and $12.2 million, respectively,
from recent acquisitions. EMEA reported year-over-year overall segment sales declines during 2010,
while sales in the United States and Latin America increased consistent with the segment average.
The impact of pricing on the segments sales increase was insignificant.
Operating Margin
Control Products & Solutions segment operating earnings were $241.8 million in 2010, up 17
percent from $206.7 million in the same period of 2009. Operating margin increased 0.9 points to
8.8 percent in 2010 as compared to 2009. Approximately half of the restructuring cost savings,
additional employee compensation, additional pension and postretirement expenses and incremental
spending to support growth described above applied to the Control Products & Solutions segment.
Positive mix attributable to the shift toward product sales from solutions and services sales
contributed to the margin improvement.
28
Financial Condition
The following is a summary of our cash flows from operating, investing and financing
activities, as reflected in the Consolidated Statement of Cash Flows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Cash provided by: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
643.7 |
|
|
$ |
494.0 |
|
|
$ |
526.4 |
|
Investing activities |
|
|
(160.9 |
) |
|
|
(89.0 |
) |
|
|
(132.4 |
) |
Financing activities |
|
|
(297.9 |
) |
|
|
(241.4 |
) |
|
|
(307.4 |
) |
Effect of exchange rate changes on cash |
|
|
(5.8 |
) |
|
|
6.8 |
|
|
|
(24.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash provided by continuing operations |
|
$ |
179.1 |
|
|
$ |
170.4 |
|
|
$ |
62.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes free cash flow (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by continuing operating activities |
|
$ |
643.7 |
|
|
$ |
494.0 |
|
|
$ |
526.4 |
|
Capital expenditures of continuing operations |
|
|
(120.1 |
) |
|
|
(99.4 |
) |
|
|
(98.0 |
) |
Excess income tax benefit from share-based compensation |
|
|
38.1 |
|
|
|
16.1 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow |
|
$ |
561.7 |
|
|
$ |
410.7 |
|
|
$ |
430.8 |
|
|
|
|
|
|
|
|
|
|
|
Our definition of free cash flow, which is a non-GAAP financial measure, takes into
consideration capital investments required to maintain the operations of our businesses and execute
our strategy. Cash provided by continuing operating activities adds back non-cash depreciation
expense to earnings and thus does not reflect a charge for necessary capital expenditures. Our
definition of free cash flow excludes the operating cash flows and capital expenditures related to
our discontinued operations. Operating, investing and financing cash flows of our discontinued
operations are presented separately in our statement of cash flows. Our accounting for share-based
compensation requires us to report the related excess income tax benefit as a financing cash flow
rather than as an operating cash flow. We have added this benefit back to our calculation of free
cash flow in order to generally classify cash flows arising from income taxes as operating cash
flows. In our opinion, free cash flow provides useful information to investors regarding our
ability to generate cash from business operations that is available for acquisitions and other
investments, service of debt principal, dividends and share repurchases. We use free cash flow as
one measure to monitor and evaluate performance. Our definition of free cash flow may differ from
definitions used by other companies.
Free cash flow was a source of $561.7 million for the year ended September 30, 2011 compared
to a source of $410.7 million for the year ended September 30, 2010. Free cash flow for both 2011 and 2010 include
discretionary pre-tax contributions of $150 million to the
companys U.S. pension trust. The increase in free cash
flow is primarily due to improvements in current year earnings, partially offset by higher
compensation payments in 2011 compared to 2010. Incentive
compensation payments were lower than normal in 2010 as difficult economic conditions resulted in
reduced or zero earned incentives for 2009 in most of our employee incentive compensation plans.
Incentive compensation payments generally occur in the first quarter of the year following the year
in which the incentive is earned. We paid substantially all of the incentive compensation earned
for 2010 performance in the first quarter of 2011, and will pay substantially all of the incentive
compensation earned for 2011 in the first quarter of 2012.
Commercial paper is our principal source of short-term financing. At September 30, 2011 and
2010, we had no commercial paper borrowings outstanding and had no borrowings outstanding during either year.
On October 11, 2011, we contributed $300 million to our U.S. qualified pension trust. The
contribution was funded with a combination of cash on hand and $275 million of commercial paper
borrowings.
29
We repurchased approximately 4.0 million shares of our common stock in 2011. The total cost
of these shares was $299.2 million, of which $1.7 million was recorded in accounts payable at
September 30, 2011, related to 30,000 shares that did not settle until October 2011. In 2010, we
repurchased approximately 2.2 million shares of our common stock. The total cost of these shares
was $120.0 million, of which $1.2 million was recorded in accounts payable at September 30, 2010,
related to 19,700 shares that did not settle until October 2010. Our decision to repurchase stock
in 2012 will depend on business conditions, free cash flow generation, other cash requirements and
stock price. At September 30, 2011 we had approximately $202.0 million remaining for stock
repurchases under our existing board authorization. See Part II, Item 5, Market for the Companys
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, for
additional information regarding share repurchases.
We expect future uses of cash to include working capital requirements, capital expenditures,
additional contributions to our pension plans, acquisitions of businesses, dividends to
shareowners, repurchases of common stock and repayments of debt. We expect capital expenditures in
2012 to be about $140 million. We expect to fund these future uses of cash with a combination of
existing cash balances, cash generated by operating activities, commercial paper borrowings or a
new issuance of debt or other securities.
In addition to cash generated by operating activities, we have access to existing financing
sources, including the public debt markets and unsecured credit facilities with various banks. Our
debt-to-total-capital ratio was 34.1 percent at September 30, 2011 and 38.3 percent at September
30, 2010. This decrease is primarily due to the net increase in shareowners equity.
On March 14, 2011, we replaced our former three-year $267.5 million unsecured revolving credit
facility expiring in March 2012 and our former 364-day $300.0 million unsecured revolving credit
facility expiring in March 2011 with a new four-year $750.0 million unsecured revolving credit
facility. We did not incur early termination penalties in connection with the termination of our
former credit facilities. We have not drawn down under any of these credit facilities at September
30, 2011 or 2010. Borrowings under these credit facilities bear interest based on short-term money
market rates in effect during the period the borrowings are outstanding. The terms of these credit
facilities contain covenants under which we would be in default if our debt-to-total-capital ratio
was to exceed 60 percent. We were in compliance with all covenants under these credit facilities at
September 30, 2011 and 2010. Separate short-term unsecured credit facilities of approximately
$127.8 million at September 30, 2011 were available to non-U.S. subsidiaries.
The following is a summary of our credit ratings as of September 30, 2011:
|
|
|
|
|
|
|
Credit Rating Agency |
|
Short Term Rating |
|
Long Term Rating |
|
Outlook |
|
|
Standard & Poors
|
|
A-1
|
|
A
|
|
Stable |
Moodys
|
|
P-2
|
|
A3
|
|
Stable |
Fitch Ratings
|
|
F1
|
|
A
|
|
Stable |
Among other uses, we can draw on our credit facility as standby liquidity facility to repay
our outstanding commercial paper as it matures. This access to funds to repay maturing commercial
paper is an important factor in maintaining the commercial paper ratings set forth in the table
above. Under our current policy with respect to these ratings, we expect to limit our other
borrowings under our credit facility, if any, to amounts that would leave enough credit available
under the facility so that we could borrow, if needed, to repay all of our then outstanding
commercial paper as it matures.
Our ability to access the commercial paper market and the related costs of these borrowings
are affected by the strength of our credit rating and market conditions. We have not experienced
any difficulty in accessing the commercial paper market to date. If our access to the commercial
paper market is adversely affected due to a change in market conditions or otherwise, we would
expect to rely on a combination of available cash and our unsecured committed credit facility to
provide short-term funding. In such event, the cost of borrowings under our unsecured committed
credit facility could be higher than the cost of commercial paper borrowings.
We regularly monitor the third-party depository institutions that hold our cash and cash
equivalents. Our emphasis is primarily on safety and liquidity of principal and secondarily on
maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties
to minimize exposure to any one of these entities.
30
We enter into contracts to offset changes in the amount of future cash flows associated with
certain third-party sales and intercompany transactions denominated in foreign currencies
forecasted to occur within the next two years and to offset transaction gains or losses associated
with some of our assets and liabilities that are denominated in currencies other than their
functional currencies resulting from intercompany loans and other transactions with third parties
denominated in foreign currencies. Our foreign currency forward exchange contracts are usually denominated
in currencies of major industrial countries. We diversify our foreign currency forward exchange
contracts among counterparties to minimize exposure to any one of these entities.
Cash dividends to shareowners were $211.0 million in 2011 ($1.475 per common share). Cash
dividends to shareowners were $173.6 million in 2010 ($1.22 per common share). Cash dividends to
shareowners were $164.5 million in 2009 ($1.16 per common share). Our current quarterly dividend
rate is $0.425 per common share ($1.70 per common share annually), which is determined at the sole
discretion of our Board of Directors.
A summary of our projected contractual cash obligations at September 30, 2011 are (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments by Period |
|
|
|
Total |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
Thereafter |
|
Long-term debt and interest (a) |
|
$ |
2,131.9 |
|
|
$ |
56.9 |
|
|
$ |
56.9 |
|
|
$ |
56.9 |
|
|
$ |
56.9 |
|
|
$ |
56.9 |
|
|
$ |
1,847.4 |
|
Minimum operating lease payments |
|
|
356.1 |
|
|
|
75.7 |
|
|
|
58.8 |
|
|
|
48.8 |
|
|
|
37.0 |
|
|
|
27.8 |
|
|
|
108.0 |
|
Postretirement benefits (b) |
|
|
157.7 |
|
|
|
16.9 |
|
|
|
15.9 |
|
|
|
15.3 |
|
|
|
14.5 |
|
|
|
13.3 |
|
|
|
81.8 |
|
Pension funding contribution (c) |
|
|
339.1 |
|
|
|
339.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations (d) |
|
|
101.4 |
|
|
|
20.1 |
|
|
|
17.3 |
|
|
|
17.0 |
|
|
|
7.5 |
|
|
|
7.5 |
|
|
|
32.0 |
|
Other long-term liabilities (e) |
|
|
81.4 |
|
|
|
19.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits (f) |
|
|
92.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,259.6 |
|
|
$ |
528.0 |
|
|
$ |
148.9 |
|
|
$ |
138.0 |
|
|
$ |
115.9 |
|
|
$ |
105.5 |
|
|
$ |
2,069.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amounts for long-term debt assume that the respective debt instruments will be
outstanding until their scheduled maturity dates. The amounts include interest, but
exclude the unamortized discount of $45.1 million. See Note 6 in the Financial Statements
for more information regarding our long-term debt. |
|
(b) |
|
Our postretirement plans are unfunded and are subject to change. Amounts reported are
estimates of future benefit payments, to the extent estimable. |
|
(c) |
|
Amounts reported for pension funding contributions reflect current estimates of known
commitments. Contributions to our pension plans beyond 2012 will depend on future
investment performance of our pension plan assets, changes in discount rate assumptions and
governmental regulations in effect at the time. Amounts subsequent to 2012 are excluded
from the summary above, as these amounts cannot be estimated with certainty. The minimum
contribution for our U.S. pension plan as required by the Employee Retirement Income
Security Act (ERISA) is currently zero. We may make additional contributions to this plan
at the discretion of management. |
|
(d) |
|
This item includes long-term obligations under agreements with various service
providers. |
|
(e) |
|
Other long-term liabilities include environmental liabilities net of related
receivables, asset retirement obligations and indemnifications. Amounts subsequent to 2012
are excluded from the summary above, as we are unable to make a reasonably reliable
estimate of when the liabilities will be paid. |
|
(f) |
|
Amount for unrecognized tax benefits includes accrued interest and penalties. We are
unable to make a reasonably reliable estimate of when the liabilities for unrecognized tax
benefits will be settled or paid. |
Supplemental Sales Information
We translate sales of subsidiaries operating outside of the United States using exchange rates
effective during the respective period. Therefore, changes in currency rates affect our reported
sales. Sales by businesses we acquired also affect our reported sales. We believe that organic
sales, defined as sales excluding the effects of changes in currency exchange rates and
acquisitions, which is a non-GAAP financial measure, provides useful information to investors
because it reflects regional performance from the activities of our businesses without the effect
of changes in currency rates or acquisitions. We use organic sales as one measure to monitor and
evaluate our regional performance. We determine the effect of changes in currency exchange rates
by translating the respective periods sales using the currency exchange rates that were in effect
during the prior year. We determine the effect of acquisitions by excluding sales in the current
period for which there are no sales in the comparable prior period. Organic sales growth is
calculated by comparing organic sales to reported sales in the prior year. We attribute sales to
the geographic regions based on the country of destination.
31
The following is a reconciliation of our reported sales to organic sales (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
Year Ended September 30, 2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of |
|
|
Excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in |
|
|
Changes in |
|
|
Effect of |
|
|
Organic |
|
|
|
|
|
|
Sales |
|
|
Currency |
|
|
Currency |
|
|
Acquisitions |
|
|
Sales |
|
|
Sales |
|
United States |
|
$ |
2,917.8 |
|
|
$ |
(6.7 |
) |
|
$ |
2,911.1 |
|
|
$ |
(0.6 |
) |
|
$ |
2,910.5 |
|
|
$ |
2,456.2 |
|
Canada |
|
|
396.2 |
|
|
|
(21.5 |
) |
|
|
374.7 |
|
|
|
|
|
|
|
374.7 |
|
|
|
321.0 |
|
Europe, Middle East and Africa |
|
|
1,267.6 |
|
|
|
(42.8 |
) |
|
|
1,224.8 |
|
|
|
(15.8 |
) |
|
|
1,209.0 |
|
|
|
987.3 |
|
Asia-Pacific |
|
|
910.6 |
|
|
|
(52.4 |
) |
|
|
858.2 |
|
|
|
(0.3 |
) |
|
|
857.9 |
|
|
|
724.3 |
|
Latin America |
|
|
508.2 |
|
|
|
(30.4 |
) |
|
|
477.8 |
|
|
|
|
|
|
|
477.8 |
|
|
|
368.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company Sales |
|
$ |
6,000.4 |
|
|
$ |
(153.8 |
) |
|
$ |
5,846.6 |
|
|
$ |
(16.7 |
) |
|
$ |
5,829.9 |
|
|
$ |
4,857.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
Year Ended September 30, 2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of |
|
|
Excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in |
|
|
Changes in |
|
|
Effect of |
|
|
Organic |
|
|
|
|
|
|
Sales |
|
|
Currency |
|
|
Currency |
|
|
Acquisitions |
|
|
Sales |
|
|
Sales |
|
United States |
|
$ |
2,456.2 |
|
|
$ |
(7.2 |
) |
|
$ |
2,449.0 |
|
|
$ |
(1.5 |
) |
|
$ |
2,447.5 |
|
|
$ |
2,209.2 |
|
Canada |
|
|
321.0 |
|
|
|
(34.7 |
) |
|
|
286.3 |
|
|
|
(12.2 |
) |
|
|
274.1 |
|
|
|
257.1 |
|
Europe, Middle East and Africa |
|
|
987.3 |
|
|
|
(1.2 |
) |
|
|
986.1 |
|
|
|
|
|
|
|
986.1 |
|
|
|
962.1 |
|
Asia-Pacific |
|
|
724.3 |
|
|
|
(43.7 |
) |
|
|
680.6 |
|
|
|
(2.7 |
) |
|
|
677.9 |
|
|
|
579.3 |
|
Latin America |
|
|
368.2 |
|
|
|
(9.0 |
) |
|
|
359.2 |
|
|
|
|
|
|
|
359.2 |
|
|
|
324.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company Sales |
|
$ |
4,857.0 |
|
|
$ |
(95.8 |
) |
|
$ |
4,761.2 |
|
|
$ |
(16.4 |
) |
|
$ |
4,744.8 |
|
|
$ |
4,332.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of our reported sales by operating segment to organic
sales (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
Year Ended September 30, 2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of |
|
|
Excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in |
|
|
Changes in |
|
|
Effect of |
|
|
Organic |
|
|
|
|
|
|
Sales |
|
|
Currency |
|
|
Currency |
|
|
Acquisitions |
|
|
Sales |
|
|
Sales |
|
|
|
Architecture & Software |
|
$ |
2,594.3 |
|
|
$ |
(64.5 |
) |
|
$ |
2,529.8 |
|
|
$ |
|
|
|
$ |
2,529.8 |
|
|
$ |
2,115.0 |
|
Control Products & Solutions |
|
|
3,406.1 |
|
|
|
(89.3 |
) |
|
|
3,316.8 |
|
|
|
(16.7 |
) |
|
|
3,300.1 |
|
|
|
2,742.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company Sales |
|
$ |
6,000.4 |
|
|
$ |
(153.8 |
) |
|
$ |
5,846.6 |
|
|
$ |
(16.7 |
) |
|
$ |
5,829.9 |
|
|
$ |
4,857.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
Year Ended September 30, 2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of |
|
|
Excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in |
|
|
Changes in |
|
|
Effect of |
|
|
Organic |
|
|
|
|
|
|
Sales |
|
|
Currency |
|
|
Currency |
|
|
Acquisitions |
|
|
Sales |
|
|
Sales |
|
|
|
Architecture & Software |
|
$ |
2,115.0 |
|
|
$ |
(44.2 |
) |
|
$ |
2,070.8 |
|
|
$ |
|
|
|
$ |
2,070.8 |
|
|
$ |
1,723.5 |
|
Control Products & Solutions |
|
|
2,742.0 |
|
|
|
(51.6 |
) |
|
|
2,690.4 |
|
|
|
(16.4 |
) |
|
|
2,674.0 |
|
|
|
2,609.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company Sales |
|
$ |
4,857.0 |
|
|
$ |
(95.8 |
) |
|
$ |
4,761.2 |
|
|
$ |
(16.4 |
) |
|
$ |
4,744.8 |
|
|
$ |
4,332.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Critical Accounting Policies and Estimates
We have prepared the consolidated financial statements in accordance with accounting
principles generally accepted in the United States, which require us 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. We believe the following critical accounting policies
could have the most significant effect on our reported results or require subjective or complex
judgments by management.
Retirement Benefits Pension
Pension costs and obligations are actuarially determined and are influenced by assumptions
used to estimate these amounts, including the discount rate, the expected rate of return on plan
assets, the assumed annual compensation increase rate, the retirement rate, the mortality rate and
the employee turnover rate. Changes in any of the assumptions and the amortization of differences
between the assumptions and actual experience will affect the amount of pension expense in future
periods.
Our global pension expense in 2011 was $91.4 million compared to $75.0 million in 2010.
Approximately 77 percent of our 2011 global pension expense relates to our U.S. pension plan. The
actuarial assumptions used to determine our 2011 U.S. pension expense included the following:
discount rate of 5.60 percent (compared to 6.20 percent for 2010); expected rate of return on plan
assets of 8.00 percent (compared to 8.00 percent for 2010); and an assumed long-term compensation
increase rate of 4.00 percent (compared to 4.30 percent for 2010).
We changed our measurement date in 2009 from June 30 to September 30 as required by U.S. GAAP.
We recorded a reduction in retained earnings of $8.2 million ($5.3 million net of tax) in the
fourth quarter of 2009 related to this change.
The Pension Protection Act of 2006 was signed into law in August 2006. The Internal Revenue
Service (IRS) issued final guidance with respect to certain aspects of this law; and, our 2011
pension plan valuation has been completed based on the final guidance. Based on this valuation, no
minimum contributions were required in 2011.
We estimate our pension expense will be approximately $103.9 million in 2012, an increase of
approximately $12.5 million from 2011. For 2012, our U.S. discount rate will decrease to 5.20
percent. The discount rate was set as of our September 30 measurement date and was determined by
modeling a portfolio of bonds that match the expected cash flow of our benefit plans. We have
assumed a U.S. long-term compensation increase rate of 4.00 percent in 2012. We established this
rate by analyzing all elements of compensation that are pension-eligible earnings. Our expected
rate of return on U.S. plan assets will remain at 8.00 percent. In estimating the expected return
on plan assets, we considered actual returns on plan assets over the long term, adjusted for
forward-looking considerations, such as inflation, interest rates, equity performance and the
active management of the plans invested assets. We also considered our current and expected mix
of plan assets in setting this assumption. The target allocations and ranges of expected return
for our major categories of U.S. plan assets are as follows:
|
|
|
|
|
|
|
Asset Category |
|
Target Allocations |
|
|
Expected Return |
Equity Securities |
|
|
55 |
% |
|
9% 10% |
Debt Securities |
|
|
40 |
% |
|
4% 6% |
Other |
|
|
5 |
% |
|
6% 11% |
The financial markets were mixed in 2011. The plans Debt Securities return exceeded the
expected return range in 2011, as lower market interest rates resulted in higher bond values. The
plans Equity Securities return trailed the expected return range in 2011, largely due to lower
U.S. equity returns and negative international equity returns. While the financial markets
continue to experience volatility, we have not changed our expectation for long-term returns for
the asset categories in which our plan assets are invested. Actual return for our portfolio of
U.S. plan assets has approximated 7.50 percent annualized for the 15 years ended September 30,
2011, and has exceeded 8.50 percent annualized for the 20 years ended September 30, 2011.
33
The changes in our discount rate and return on plan assets have an inverse relationship with
our net periodic benefit cost. The change in our discount rate also has an inverse relationship
with our projected benefit obligation. The change in our compensation increase rate has a direct
relationship with our net periodic benefit cost and projected benefit obligation. The following
chart illustrates the estimated change in benefit obligation and annual net periodic pension cost
assuming a change of 25 basis points in the key assumptions for our U.S. pension plans (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Change in |
|
|
Change in |
|
|
|
Projected Benefit |
|
|
Net Periodic Benefit |
|
|
|
Obligation |
|
|
Cost |
|
Discount rate |
|
$ |
95.3 |
|
|
$ |
8.8 |
|
Return on plan assets |
|
|
|
|
|
|
6.0 |
|
Compensation increase rate |
|
|
18.5 |
|
|
|
3.8 |
|
More information regarding pension benefits is contained in Note 12 in the Financial
Statements.
34
Revenue Recognition
For approximately 85 percent of our consolidated sales, we record sales when all of the
following have occurred: an agreement of sale exists; pricing is fixed or determinable; collection
is reasonably assured; and product has been delivered and acceptance has occurred, as may be
required according to contract terms, or services have been rendered. Although the majority of our
sales agreements contain standard terms and conditions, our Control Product & Solutions business
also sells certain products, solutions and services that require separate delivery. We divide
these arrangements into separate deliverables and revenue is allocated to each deliverable based on
the relative selling price of each element provided the delivered elements have value to customers
on a standalone basis and delivery or performance of the undelivered items is probable and
substantially in our control.
We recognize substantially all of the remainder of our sales as construction-type contracts
using either the percentage-of-completion or completed contract methods of accounting. We record
sales relating to these contracts using the percentage-of-completion method when we determine that
progress toward completion is reasonably and reliably estimable; we use the completed contract
method for all others. Under the percentage-of-completion method, we recognize sales and gross
profit as work is performed using the relationship between actual costs incurred and total
estimated costs at completion. Under the percentage-of-completion method, we adjust sales and
gross profit for revisions of estimated total contract costs or revenue in the period the change is
identified. We record estimated losses on contracts when they are identified.
We use contracts and customer purchase orders to determine the existence of an agreement of
sale. We use shipping documents and customer acceptance, when applicable, to verify delivery. We
assess whether the fee is fixed or determinable based on the payment terms associated with the
transaction and whether the sales price is subject to refund or adjustment. We assess
collectibility based on the creditworthiness of the customer as determined by credit evaluations
and analysis, as well as the customers payment history.
Returns, Rebates and Incentives
Our primary incentive program provides distributors with cash rebates or account credits based
on agreed amounts that vary depending on the customer to whom our distributor ultimately sells the
product. We also offer various other incentive programs that provide distributors and direct sale
customers with cash rebates, account credits or additional products and services based on meeting
specified program criteria. Certain distributors are offered a right to return product, subject to
contractual limitations.
We record accruals for customer returns, rebates and incentives at the time of revenue
recognition based primarily on historical experience. Adjustments to the accrual may be required
if actual returns, rebates and incentives differ from historical experience or if there are changes
to other assumptions used to estimate the accrual. A critical assumption used in estimating the
accrual for our primary distributor rebate program is the time period from when revenue is
recognized to when the rebate is processed. If the time period were to change by 10 percent, the
effect would be an adjustment to the accrual of approximately $8.5 million.
Returns, rebates and incentives are recognized as a reduction of sales if distributed in cash
or customer account credits. Rebates and incentives are recognized in cost of sales for additional
products and services to be provided. Accruals are reported as a current liability in our balance
sheet or, where a right of offset exists, as a reduction of accounts receivable. The accrual for
customer returns, rebates and incentives was $162.0 million at September 30, 2011 and $135.9
million at September 30, 2010, of which $8.0 million at September 30, 2011 and $16.4 million at
September 30, 2010 was included as an offset to accounts receivable.
35
Litigation, Claims and Contingencies
We record liabilities for litigation, claims and contingencies when an obligation is probable
and when we have a basis to reasonably estimate the value of an obligation. We also record
liabilities for environmental matters based on estimates for known environmental remediation
exposures. The liabilities include accruals for sites we currently own or operate or formerly
owned or operated and third-party sites where we were determined to be a potentially responsible
party. At third-party environmental sites where more than one potentially responsible party has
been identified, we record a liability for our estimated allocable share of costs related to our
involvement with the site as well as an estimated allocable share of costs related to the
involvement of insolvent or unidentified parties. At environmental sites where we are the only
responsible party, we record a liability for the total estimated costs of remediation. We do not
discount future expenditures for environmental remediation obligations to their present value.
Environmental liability estimates may be 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 our environmental
liabilities may change.
Our reserve for environmental matters was $41.1 million, net of related receivables of $32.5
million, at September 30, 2011 and $37.1 million, net of related receivables of $25.0 million, at
September 30, 2010. Our recorded liability for environmental matters relates almost entirely to
businesses formerly owned by us (legacy businesses) for which we retained the responsibility to
remediate. The nature of our current business is such that the likelihood of new environmental
exposures that could result in a significant charge to earnings is low. As a result of remediation
efforts at legacy sites and limited new environmental matters, we expect that gradually, over a
long period of time, our environmental obligations will decline. However, changes in remediation
procedures at existing legacy sites or discovery of contamination at additional sites could result
in increases to our environmental obligations.
Our principal self-insurance programs include product liability where we are self-insured up
to a specified dollar amount. Claims exceeding this amount up to specified limits are covered by
policies issued by commercial insurers. We estimate the reserve for product liability claims using
our claims experience for the periods being valued. Adjustments to the product liability reserves
may be required to reflect emerging claims experience and other factors such as inflationary trends
or the outcome of claims. The reserve for product liability claims was $20.1 million at September
30, 2011 and $17.6 million at September 30, 2010.
Various lawsuits, claims and proceedings have been or may be instituted or asserted against us
relating to the conduct of our business. As described in Part I, Item 3. Legal Proceedings, we
have been named as a defendant in lawsuits alleging personal injury as a result of exposure to
asbestos that was used in certain components of our products many years ago. See Part I, Item 3
for further discussion.
We accrue for costs related to the legal obligation associated with the retirement of a
tangible long-lived asset that results from the acquisition, construction, development or the
normal operation of the long-lived asset. The obligation to perform the asset retirement activity
is not conditional even though the timing or method may be conditional. Identified conditional
asset retirement obligations include asbestos abatement and remediation of soil contamination
beneath current and previously divested facilities. We estimate conditional asset retirement
obligations using site-specific knowledge and historical industry expertise. A significant change
in the costs or timing could have a significant effect on our estimates. We recorded these
liabilities in the Consolidated Balance Sheet, which totaled $4.7 million in other current
liabilities and $23.9 million in other liabilities at September 30, 2011 and $7.9 million in other
current liabilities and $22.7 million in other liabilities at September 30, 2010.
In conjunction with the sale of our Dodge mechanical and Reliance Electric motors and motor
repair services businesses, we agreed to indemnify Baldor Electric Company for costs and damages
related to certain legacy legal, environmental and asbestos matters of these businesses arising
before January 31, 2007, for which the maximum exposure is capped at the amount received for the
sale. We estimate the potential future payments we could incur under these indemnifications may
approximate $16.2 million, of which $1.6 million and $6.4 million has been accrued in other current
liabilities and $10.1 million and $11.1 million has been accrued in other liabilities at September
30, 2011 and 2010, respectively. A significant change in the costs or timing could have a
significant effect on our estimates.
More information regarding litigation, claims and contingencies is contained in Note 17 in the
Financial Statements.
36
Income Taxes
We operate in numerous taxing jurisdictions and are subject to regular examinations by U.S.
Federal, state and foreign jurisdictions. Additionally, we have retained tax liabilities and the
rights to tax refunds in connection with various divestitures of businesses in prior years. Our
income tax positions are based on research and interpretations of the income tax laws and rulings
in each of the jurisdictions in which we do business. Due to the subjectivity of interpretations
of laws and rulings in each jurisdiction, the differences and interplay in tax laws between those
jurisdictions as well as the inherent uncertainty in estimating the final resolution of complex tax
audit matters, our estimates of income tax liabilities may differ from actual payments or
assessments.
While we have support for the positions we take on our tax returns, taxing authorities may
assert interpretations of laws and facts and may challenge cross jurisdictional transactions.
Cross jurisdictional transactions between our subsidiaries involving the transfer price for
products, services, and/or intellectual property as well as various U.S. state tax matters comprise
our more significant income tax exposures. The gross liability for unrecognized tax benefits,
excluding interest and penalties, was recorded in other liabilities in the Consolidated Balance
Sheet in the amount of $75.1 million at September 30, 2011 and $66.3 million at September 30, 2010.
The amount of net unrecognized tax benefits that would reduce our effective tax rate for continuing
operations if recognized was $30.2 million at September 30, 2011 and $9.5 million at September 30,
2010. We recognize interest and penalties related to unrecognized tax benefits in tax expense.
Total accrued interest and penalties were $16.9 million at September 30, 2011 and $26.6 million at
September 30, 2010. We believe it is reasonably possible that the amount of unrecognized tax
benefits could be reduced by up to $5.4 million during the next 12 months as a result of the
resolution of worldwide tax matters and the lapses of statutes of limitations.
We recorded a valuation allowance for a portion of our deferred tax assets related to net
operating loss, tax credit, and capital loss carryforwards (Carryforwards) and certain temporary
differences in the amount of $32.8 million at September 30, 2011 and $26.7 million at September 30,
2010 based on the projected profitability of the entity in the respective tax jurisdiction. The
valuation allowance is based on an evaluation of the uncertainty that the Carryforwards and certain
temporary differences will be realized. Our income would increase if we determine we will be able
to use more Carryforwards or certain temporary differences than currently expected.
At the end of each interim reporting period, we estimate a base effective tax rate that we
expect for the full fiscal year based on our most recent forecast of pretax income, permanent book
and tax differences and global tax planning strategies. We use this base rate to provide for income
taxes on a year-to-date basis, excluding the effect of significant unusual or extraordinary items
and items that are reported net of their related tax effects. We record the tax effect of
significant unusual or extraordinary items and items that are reported net of their tax effects in
the period in which they occur.
More information regarding income taxes is contained in Note 16 in the Financial Statements.
Recent Accounting Pronouncements
See Note 1 in the Financial Statements regarding recent accounting pronouncements.
37
|
|
|
Item 7A. |
|
Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to market risk during the normal course of business from changes in foreign
currency exchange rates and interest rates. We manage exposure to these risks through a
combination of normal operating and financing activities and derivative financial instruments in
the form of foreign currency forward exchange contracts. We sometimes use interest rate swap
contracts to manage the balance of fixed and floating rate debt.
Foreign Currency Risk
We are exposed to foreign currency risks that arise from normal business operations. These
risks include the translation of local currency balances of foreign subsidiaries, transaction gains
and losses associated with intercompany loans with foreign subsidiaries and transactions
denominated in currencies other than a locations functional currency. Our objective is to
minimize our exposure to these risks through a combination of normal operating activities and the
use of foreign currency forward exchange contracts. Contracts are usually denominated in
currencies of major industrial countries. The fair value of our foreign currency forward exchange
contracts is an asset of $29.6 million and a liability of $7.7 million at September 30, 2011. We
enter into these contracts with major financial institutions that we believe to be creditworthy.
We do not enter into derivative financial instruments for speculative purposes. We do not
hedge our exposure to the translation of reported results of foreign subsidiaries from local
currency to U.S. dollars. In 2011 and 2010, the relative weakening of the U.S. dollar versus
foreign currencies had a favorable impact on our revenues and results of operations. While future
changes in foreign currency exchange rates are difficult to predict, our revenues and profitability
may be adversely affected if the U.S. dollar strengthens relative to 2011 levels.
Certain of our locations have assets and liabilities denominated in currencies other than
their functional currencies. We enter into foreign currency forward exchange contracts to offset
the transaction gains or losses associated with some of these assets and liabilities. For such
assets and liabilities without offsetting foreign currency forward exchange contracts, a 10 percent
adverse change in the underlying foreign currency exchange rates would reduce our pre-tax income by
approximately $15 million.
We record all derivatives on the balance sheet at fair value regardless of the purpose for
holding them. The use of these contracts allows us 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. 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 loss until
the hedged item is recognized in earnings. We recognize the ineffective portion of a derivatives
change in fair value in earnings immediately. The ineffective portion was not significant in 2011
and 2010. A hypothetical 10 percent adverse change in underlying foreign currency exchange rates
associated with these contracts would not be significant to our financial condition or results of
operations.
38
Interest Rate Risk
In addition to existing cash balances and cash provided by normal operating activities, we use
a combination of short-term and long-term debt to finance operations. We are exposed to interest
rate risk on certain of these debt obligations.
Our short-term debt obligations relate to commercial paper borrowings and bank borrowings. We
had no outstanding commercial paper or bank borrowings at September 30, 2011 and 2010. In October
2011, we borrowed $275 million in commercial paper in order to partially fund a $300 million
discretionary contribution to our U.S. qualified pension trust. Due to the low level of
variable-rate borrowings in 2011 and 2010, interest rate changes would not have had a material
impact on interest expense.
We had outstanding fixed rate long-term debt obligations with carrying values of $905.0
million at September 30, 2011 and $904.9 million at September 30, 2011. The fair value of this
debt was $1,125.4 million at September 30, 2011 and $1,073.8 million at September 30, 2010. The
potential reduction 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. We currently have no plans to repurchase our outstanding fixed-rate instruments before their
maturity and, therefore, fluctuations in market interest rates would not have an effect on our
results of operations or shareowners equity.
39
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data |
CONSOLIDATED BALANCE SHEET
(in millions)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
ASSETS |
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
988.9 |
|
|
$ |
813.4 |
|
Receivables |
|
|
1,063.4 |
|
|
|
859.0 |
|
Inventories |
|
|
641.7 |
|
|
|
603.3 |
|
Deferred income taxes |
|
|
199.6 |
|
|
|
170.2 |
|
Other current assets |
|
|
181.5 |
|
|
|
140.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,075.1 |
|
|
|
2,586.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net |
|
|
561.4 |
|
|
|
536.9 |
|
Goodwill |
|
|
952.6 |
|
|
|
912.5 |
|
Other intangible assets, net |
|
|
218.0 |
|
|
|
217.3 |
|
Deferred income taxes |
|
|
336.2 |
|
|
|
324.5 |
|
Prepaid pension |
|
|
4.3 |
|
|
|
28.3 |
|
Other assets |
|
|
137.3 |
|
|
|
142.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,284.9 |
|
|
$ |
4,748.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREOWNERS EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
455.1 |
|
|
$ |
435.7 |
|
Compensation and benefits |
|
|
319.6 |
|
|
|
300.1 |
|
Advance payments from customers and deferred revenue |
|
|
189.0 |
|
|
|
184.9 |
|
Customer returns, rebates and incentives |
|
|
154.0 |
|
|
|
119.5 |
|
Other current liabilities |
|
|
212.2 |
|
|
|
182.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,329.9 |
|
|
|
1,222.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
905.0 |
|
|
|
904.9 |
|
Retirement benefits |
|
|
1,059.3 |
|
|
|
923.4 |
|
Other liabilities |
|
|
242.7 |
|
|
|
237.3 |
|
Commitments and contingent liabilities (Note 17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners equity |
|
|
|
|
|
|
|
|
Common stock (shares issued: 181.4) |
|
|
181.4 |
|
|
|
181.4 |
|
Additional paid-in capital |
|
|
1,381.4 |
|
|
|
1,344.2 |
|
Retained earnings |
|
|
3,382.8 |
|
|
|
2,912.4 |
|
Accumulated other comprehensive loss |
|
|
(992.9 |
) |
|
|
(841.2 |
) |
Common stock in treasury, at cost (shares held: 2011, 39.5; 2010, 39.7) |
|
|
(2,204.7 |
) |
|
|
(2,136.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareowners equity |
|
|
1,748.0 |
|
|
|
1,460.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,284.9 |
|
|
$ |
4,748.3 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
40
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Products and solutions |
|
$ |
5,430.8 |
|
|
$ |
4,357.9 |
|
|
$ |
3,886.7 |
|
Services |
|
|
569.6 |
|
|
|
499.1 |
|
|
|
445.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000.4 |
|
|
|
4,857.0 |
|
|
|
4,332.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
Products and solutions |
|
|
(3,224.0 |
) |
|
|
(2,576.2 |
) |
|
|
(2,454.5 |
) |
Services |
|
|
(386.0 |
) |
|
|
(344.4 |
) |
|
|
(308.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,610.0 |
) |
|
|
(2,920.6 |
) |
|
|
(2,763.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
2,390.4 |
|
|
|
1,936.4 |
|
|
|
1,569.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
(1,461.2 |
) |
|
|
(1,323.3 |
) |
|
|
(1,228.0 |
) |
Other expense (Note 15) |
|
|
(2.1 |
) |
|
|
(8.4 |
) |
|
|
(6.7 |
) |
Interest expense |
|
|
(59.5 |
) |
|
|
(60.5 |
) |
|
|
(60.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
867.6 |
|
|
|
544.2 |
|
|
|
273.9 |
|
Income tax provision (Note 16) |
|
|
(170.5 |
) |
|
|
(103.8 |
) |
|
|
(56.0 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
697.1 |
|
|
|
440.4 |
|
|
|
217.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations (Note 13) |
|
|
0.7 |
|
|
|
23.9 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
697.8 |
|
|
$ |
464.3 |
|
|
$ |
220.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
4.88 |
|
|
$ |
3.09 |
|
|
$ |
1.54 |
|
Discontinued operations |
|
|
|
|
|
|
0.17 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4.88 |
|
|
$ |
3.26 |
|
|
$ |
1.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
4.79 |
|
|
$ |
3.05 |
|
|
$ |
1.53 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
0.17 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4.80 |
|
|
$ |
3.22 |
|
|
$ |
1.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
142.7 |
|
|
|
142.0 |
|
|
|
141.6 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
145.2 |
|
|
|
144.0 |
|
|
|
142.4 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
41
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
697.8 |
|
|
$ |
464.3 |
|
|
$ |
220.7 |
|
Income from discontinued operations |
|
|
(0.7 |
) |
|
|
(23.9 |
) |
|
|
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
697.1 |
|
|
|
440.4 |
|
|
|
217.9 |
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive at cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
96.5 |
|
|
|
95.7 |
|
|
|
101.7 |
|
Amortization of intangible assets |
|
|
34.8 |
|
|
|
31.6 |
|
|
|
32.4 |
|
Share-based compensation expense |
|
|
39.5 |
|
|
|
36.3 |
|
|
|
27.8 |
|
Retirement benefit expense |
|
|
100.9 |
|
|
|
89.1 |
|
|
|
48.5 |
|
Pension trust contributions |
|
|
(184.7 |
) |
|
|
(181.2 |
) |
|
|
(28.8 |
) |
Deferred income taxes |
|
|
46.5 |
|
|
|
57.5 |
|
|
|
14.7 |
|
Net (gain) loss on dispositions of securities and property |
|
|
(0.9 |
) |
|
|
5.5 |
|
|
|
4.4 |
|
Income tax benefit from the exercise of stock options |
|
|
3.1 |
|
|
|
0.6 |
|
|
|
0.1 |
|
Excess income tax benefit from share-based compensation |
|
|
(38.1 |
) |
|
|
(16.1 |
) |
|
|
(2.4 |
) |
Changes in assets and liabilities, excluding effects of acquisitions, divestitures,
and foreign currency adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
(207.2 |
) |
|
|
(131.7 |
) |
|
|
228.2 |
|
Inventories |
|
|
(41.9 |
) |
|
|
(166.4 |
) |
|
|
127.5 |
|
Accounts payable |
|
|
15.0 |
|
|
|
117.2 |
|
|
|
(101.1 |
) |
Compensation and benefits |
|
|
16.9 |
|
|
|
143.9 |
|
|
|
(56.7 |
) |
Income taxes |
|
|
49.2 |
|
|
|
(22.7 |
) |
|
|
(55.5 |
) |
Other assets and liabilities |
|
|
17.0 |
|
|
|
(5.7 |
) |
|
|
(32.3 |
) |
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities |
|
|
643.7 |
|
|
|
494.0 |
|
|
|
526.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(120.1 |
) |
|
|
(99.4 |
) |
|
|
(98.0 |
) |
Acquisition of businesses, net of cash acquired |
|
|
(45.9 |
) |
|
|
|
|
|
|
(30.7 |
) |
Proceeds from sales of property and investments |
|
|
5.1 |
|
|
|
10.4 |
|
|
|
8.8 |
|
Purchases of short-term investments |
|
|
|
|
|
|
|
|
|
|
(8.4 |
) |
Other investing activities |
|
|
|
|
|
|
|
|
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
Cash used for investing activities |
|
|
(160.9 |
) |
|
|
(89.0 |
) |
|
|
(132.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments of short-term debt |
|
|
|
|
|
|
|
|
|
|
(100.0 |
) |
Cash dividends |
|
|
(211.0 |
) |
|
|
(173.6 |
) |
|
|
(164.5 |
) |
Purchases of treasury stock (See Note 10 for non-cash financing activities) |
|
|
(298.7 |
) |
|
|
(118.8 |
) |
|
|
(53.5 |
) |
Proceeds from the exercise of stock options |
|
|
174.0 |
|
|
|
35.2 |
|
|
|
11.3 |
|
Excess income tax benefit from the exercise of stock options |
|
|
38.1 |
|
|
|
16.1 |
|
|
|
2.4 |
|
Other financing activities |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
|
|
Cash used for financing activities |
|
|
(297.9 |
) |
|
|
(241.4 |
) |
|
|
(307.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(5.8 |
) |
|
|
6.8 |
|
|
|
(24.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by continuing operations |
|
|
179.1 |
|
|
|
170.4 |
|
|
|
62.1 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for discontinued operating activities |
|
|
(3.6 |
) |
|
|
(0.8 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
Cash used for discontinued operations |
|
|
(3.6 |
) |
|
|
(0.8 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
Increase in cash |
|
|
175.5 |
|
|
|
169.6 |
|
|
|
61.6 |
|
Cash and cash equivalents at beginning of year |
|
|
813.4 |
|
|
|
643.8 |
|
|
|
582.2 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
988.9 |
|
|
$ |
813.4 |
|
|
$ |
643.8 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
42
CONSOLIDATED STATEMENT OF SHAREOWNERS EQUITY
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Common stock (no shares issued during years) |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
181.4 |
|
|
$ |
181.4 |
|
|
$ |
216.4 |
|
Retirement of treasury shares (Note 10) |
|
|
|
|
|
|
|
|
|
|
(35.0 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
181.4 |
|
|
|
181.4 |
|
|
|
181.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
1,344.2 |
|
|
|
1,304.8 |
|
|
|
1,280.9 |
|
Income tax benefits from share-based compensation |
|
|
41.2 |
|
|
|
16.7 |
|
|
|
2.5 |
|
Share-based compensation expense |
|
|
38.7 |
|
|
|
35.8 |
|
|
|
27.2 |
|
Shares delivered under incentive plans |
|
|
(42.7 |
) |
|
|
(13.1 |
) |
|
|
(5.8 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
1,381.4 |
|
|
|
1,344.2 |
|
|
|
1,304.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
2,912.4 |
|
|
|
2,667.2 |
|
|
|
4,486.1 |
|
Net income |
|
|
697.8 |
|
|
|
464.3 |
|
|
|
220.7 |
|
Cash dividends (2011, $1.475 per share; 2010, $1.22 per share; 2009, $1.16 per share) |
|
|
(211.0 |
) |
|
|
(173.6 |
) |
|
|
(164.5 |
) |
Retirement of treasury shares (Note 10) |
|
|
|
|
|
|
|
|
|
|
(1,846.0 |
) |
Shares delivered under incentive plans |
|
|
(16.4 |
) |
|
|
(45.5 |
) |
|
|
(21.3 |
) |
Adjustment to adopt new accounting guidance related to defined benefit and
postretirement plans, net of tax of $4.4 (Note 12) |
|
|
|
|
|
|
|
|
|
|
(7.8 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
3,382.8 |
|
|
|
2,912.4 |
|
|
|
2,667.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
(841.2 |
) |
|
|
(727.5 |
) |
|
|
(319.0 |
) |
Other comprehensive loss |
|
|
(151.7 |
) |
|
|
(113.7 |
) |
|
|
(408.5 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
(992.9 |
) |
|
|
(841.2 |
) |
|
|
(727.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
(2,136.4 |
) |
|
|
(2,109.5 |
) |
|
|
(3,975.6 |
) |
Purchases |
|
|
(299.2 |
) |
|
|
(120.0 |
) |
|
|
(50.0 |
) |
Retirement of treasury shares (Note 10) |
|
|
|
|
|
|
|
|
|
|
1,881.0 |
|
Shares delivered under incentive plans |
|
|
230.9 |
|
|
|
93.1 |
|
|
|
35.1 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
(2,204.7 |
) |
|
|
(2,136.4 |
) |
|
|
(2,109.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareowners equity |
|
$ |
1,748.0 |
|
|
$ |
1,460.4 |
|
|
$ |
1,316.4 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
43
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Net income |
|
$ |
697.8 |
|
|
$ |
464.3 |
|
|
$ |
220.7 |
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized pension and postretirement benefit plan liabilities
(net of tax benefit of $93.2, $71.8 and $193.8) |
|
|
(178.7 |
) |
|
|
(126.6 |
) |
|
|
(360.3 |
) |
Currency translation adjustments |
|
|
23.4 |
|
|
|
4.4 |
|
|
|
(53.2 |
) |
Net change in unrealized gains and losses on cash flow hedges
(net of tax expense of $2.3, $5.0 and $3.1) |
|
|
3.9 |
|
|
|
8.3 |
|
|
|
4.8 |
|
Net change in unrealized gains and losses on investment securities, net of tax |
|
|
(0.3 |
) |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
(151.7 |
) |
|
|
(113.7 |
) |
|
|
(408.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
546.1 |
|
|
$ |
350.6 |
|
|
$ |
(187.8 |
) |
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Accounting Policies
Rockwell Automation, Inc. (the Company or Rockwell Automation) is a leading global provider of
industrial automation power, control and information solutions that help manufacturers achieve a
competitive advantage for their businesses.
Basis of Presentation
Except as indicated, amounts reflected in the consolidated financial statements or the notes
thereto relate to our continuing operations.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned and controlled majority owned subsidiaries. Intercompany accounts and transactions
have been eliminated in consolidation. Investments in affiliates over which we do not have the
ability to exert significant influence are accounted for using the equity or cost methods of
accounting. These affiliated companies are not material individually or in the aggregate to our
financial position, results of operations or cash flows.
Use of Estimates
The consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (U.S. GAAP), which require us 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. We use estimates in accounting for, among other items,
customer returns, rebates and incentives; allowance for doubtful accounts; excess and obsolete
inventory; share-based compensation; acquisitions; product warranty obligations; retirement
benefits; litigation, claims and contingencies, including environmental matters, conditional asset
retirement obligations and contractual indemnifications; and income taxes. We account for changes
to estimates and assumptions prospectively when warranted by factually based experience.
Revenue Recognition
Product and solution revenues consist of industrial automation power, control and information;
hardware and software products; and custom-engineered systems. Service revenues include
multi-vendor customer technical support and repair, asset management and optimization consulting
and training. All service revenue recorded in our results of operations is associated with our
Control Product & Solutions segment.
For approximately 85 percent of our consolidated sales, we record sales when all of the
following have occurred: an agreement of sale exists; pricing is fixed or determinable; collection
is reasonably assured; and product has been delivered and acceptance has occurred, as may be
required according to contract terms, or services have been rendered. Although the majority of our
sales agreements contain standard terms and conditions, our Control Product & Solutions business
also sells certain products, solutions and services that require separate delivery. We divide
these arrangements into separate deliverables and revenue is allocated to each deliverable based on
the relative selling price of each element provided the delivered elements have value to customers
on a standalone basis and delivery or performance of the undelivered items is probable and
substantially in our control.
We recognize substantially all of the remainder of our sales as construction-type contracts
using either the percentage-of-completion or completed contract method of accounting. We record
sales relating to these contracts using the percentage-of-completion method when we determine that
progress toward completion is reasonably and reliably estimable; we use the completed contract
method for all others. Under the percentage-of-completion method, we recognize sales and gross
profit as work is performed using the relationship between actual costs incurred and total
estimated costs at completion. Under the percentage-of-completion method, we adjust sales and
gross profit for revisions of estimated total contract costs or revenue in the period the change is
identified. We record estimated losses on contracts when they are identified.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Accounting Policies (Continued)
We use contracts and customer purchase orders to determine the existence of an agreement of
sale. We use shipping documents and customer acceptance, when applicable, to verify delivery. We
assess whether the fee is fixed or determinable based on the payment terms associated with the
transaction and whether the sales price is subject to refund or adjustment. We assess
collectibility based on the creditworthiness of the customer as determined by credit evaluations
and analysis, as well as the customers payment history.
Shipping and handling costs billed to customers are included in sales and the related costs
are included in cost of sales in the Consolidated Statement of Operations.
Returns, Rebates and Incentives
Our primary incentive program provides distributors with cash rebates or account credits based
on agreed amounts that vary depending on the customer to whom our distributor ultimately sells the
product. We also offer various other incentive programs that provide distributors and direct sale
customers with cash rebates, account credits or additional products and services based on meeting
specified program criteria. Certain distributors are offered a right to return product, subject to
contractual limitations.
We record accruals for customer returns, rebates and incentives at the time of sale based
primarily on historical experience. Returns, rebates and incentives are recognized as a reduction
of sales if distributed in cash or customer account credits. Rebates and incentives are recognized
in cost of sales for additional products and services to be provided. Accruals are reported as a
current liability in our balance sheet or, where a right of offset exists, as a reduction of
accounts receivable.
Taxes on Revenue Producing Transactions
Taxes assessed by governmental authorities on revenue producing transactions, including sales,
value added, excise and use taxes, are recorded on a net basis (excluded from revenue).
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and certificates of deposit with original
maturities of three months or less at the time of purchase.
Receivables
We record allowances for doubtful accounts based on customer-specific analysis and general
matters such as current assessments of past due balances and economic conditions. Receivables are
stated net of allowances for doubtful accounts of $26.1 million at September 30, 2011 and $17.9
million at September 30, 2010. In addition, receivables are stated net of an allowance for certain
customer returns, rebates and incentives of $8.0 million at September 30, 2011 and $16.4 million at
September 30, 2010.
Inventories
Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) or
average cost methods. Market is determined on the basis of estimated realizable values.
Property
Property, including internal use software, is stated at cost. We calculate depreciation of
property using the straight-line method over 15 to 40 years for buildings and improvements, 3 to 14
years for machinery and equipment and 3 to 10 years for computer hardware and internal-use
software. We capitalize significant renewals and enhancements and write off replaced units. We
expense maintenance and repairs, as well as renewals of minor amounts.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Accounting Policies (Continued)
Intangible Assets
Goodwill and other intangible assets generally result from business acquisitions. We account
for business acquisitions by allocating the purchase price to tangible and intangible assets
acquired and liabilities assumed at their fair values; the excess of the purchase price over the
allocated amount is recorded as goodwill.
We review goodwill and other intangible assets with indefinite useful lives for impairment
annually or more frequently if events or circumstances indicate impairment may be present. Any
excess in carrying value over the estimated fair value is charged to results of operations. We
perform an annual impairment test during the second quarter of our fiscal year.
We amortize certain customer relationships on an accelerated basis over the period of which we
expect the intangible asset to generate future cash flows. We amortize all other intangible assets
with finite useful lives on a straight-line basis over their estimated useful lives. Useful lives
assigned range from 2 to 10 years for trademarks, 7 to 20 years for customer relationships, 7 to 17
years for technology and 2 to 30 years for other intangible assets.
Intangible assets also include costs of software developed by our software business to be
sold, leased or otherwise marketed. Amortization of developed computer software products is
calculated on a product-by-product basis as the greater of (a) the unamortized cost at the
beginning of the year times the ratio of the current year gross revenue for a product to the total
of the current and anticipated future gross revenue for that product, (b) the straight-line
amortization over the remaining estimated economic life of the product or (c) one-fourth of the
total deferred software cost for the project.
Impairment of Long-Lived Assets
We evaluate the recoverability of the recorded amount of long-lived assets whenever events or
changes in circumstances indicate that the recorded amount of an asset may not be fully
recoverable. Impairment is assessed when the undiscounted expected future cash flows derived from
an asset are less than its carrying amount. If we determine that an asset is impaired, we measure
the impairment to be recognized as the amount by which the recorded amount of the asset exceeds its
fair value. We report assets to be disposed of at the lower of the recorded amount or fair value
less cost to sell. We determine fair value using a discounted future cash flow analysis.
Derivative Financial Instruments
We use derivative financial instruments in the form of foreign currency forward exchange
contracts to manage foreign currency risks. We use foreign currency forward exchange contracts to
offset changes in the amount of future cash flows associated with certain third-party sale and
intercompany transactions expected to occur within the next two years (cash flow hedges) and
changes in the fair value of certain assets and liabilities resulting from intercompany loans and
other transactions with third parties denominated in foreign currencies. Our accounting method for
derivative financial instruments is based upon the designation of such instruments as hedges under
U.S. GAAP. It is our policy to execute such instruments with global financial institutions that we
believe to be creditworthy and not to enter into derivative financial instruments for speculative
purposes. Foreign currency forward exchange contracts are usually denominated in currencies of
major industrial countries.
Foreign Currency Translation
We translate assets and liabilities of subsidiaries operating outside of the United States
with a functional currency other than the U.S. dollar into U.S. dollars using exchange rates at the
end of the respective period. We translate sales, costs and expenses at average exchange rates
effective during the respective period. We report foreign currency translation adjustments as a
component of other comprehensive loss. Currency transaction gains and losses are included in the
results of operations in the period incurred.
Research and Development Expenses
We expense research and development (R&D) costs as incurred; these costs were $254.4 million
in 2011, $198.9 million in 2010 and $170.0 million in 2009. We include R&D expenses in cost of
sales in the Consolidated Statement of Operations.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Accounting Policies (Continued)
Income Taxes
We account for uncertain tax positions by determining whether it is more likely than not that
a tax position will be sustained upon examination based on the technical merits of the position.
For tax positions that meet the more-likely-than-not recognition threshold, we determine the amount
of benefit to recognize in the financial statements.
Earnings Per Share
We present basic and diluted earnings per share (EPS) amounts. Basic EPS is calculated by
dividing earnings available to common shareowners, which is income excluding the allocation to
participating securities, by the weighted average number of common shares outstanding during the
year, excluding unvested restricted stock. Diluted EPS amounts are based upon the weighted average
number of common and common equivalent shares outstanding during the year. We use the treasury
stock method to calculate the effect of outstanding share-based compensation awards, which requires
us to compute total employee proceeds as the sum of (a) the amount the employee must pay upon
exercise of the award, (b) the amount of unearned share-based compensation costs attributed to
future services and (c) the amount of tax benefits, if any, that would be credited to additional
paid-in capital assuming exercise of the award. Share-based compensation awards for which the
total employee proceeds of the award exceed the average market price of the same award over the
period have an antidilutive effect on EPS, and accordingly, we exclude them from the calculation.
Antidilutive share-based compensation awards for the years ended September 30, 2011 (2.1 million
shares), 2010 (4.9 million shares) and 2009 (7.5 million shares) were excluded from the diluted EPS
calculation. U.S. GAAP requires unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents, whether paid or unpaid, to be treated as participating
securities and included in the computation of earnings per share pursuant to the two-class method.
Our participating securities are composed of unvested restricted stock and non-employee director
restricted stock units.
The following table reconciles basic and diluted EPS amounts (in millions, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Income from continuing operations |
|
$ |
697.1 |
|
|
$ |
440.4 |
|
|
$ |
217.9 |
|
Less: Allocation to participating securities |
|
|
(1.4 |
) |
|
|
(1.0 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareowners |
|
$ |
695.7 |
|
|
$ |
439.4 |
|
|
$ |
217.4 |
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
0.7 |
|
|
$ |
23.9 |
|
|
$ |
2.8 |
|
Less: Allocation to participating securities |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations available to common shareowners |
|
$ |
0.7 |
|
|
$ |
23.8 |
|
|
$ |
2.8 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
697.8 |
|
|
$ |
464.3 |
|
|
$ |
220.7 |
|
Less: Allocation to participating securities |
|
|
(1.4 |
) |
|
|
(1.1 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
Net income available to common shareowners |
|
$ |
696.4 |
|
|
$ |
463.2 |
|
|
$ |
220.2 |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average outstanding shares |
|
|
142.7 |
|
|
|
142.0 |
|
|
|
141.6 |
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
2.1 |
|
|
|
1.7 |
|
|
|
0.7 |
|
Performance shares |
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average outstanding shares |
|
|
145.2 |
|
|
|
144.0 |
|
|
|
142.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
4.88 |
|
|
$ |
3.09 |
|
|
$ |
1.54 |
|
Discontinued operations |
|
|
|
|
|
|
0.17 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4.88 |
|
|
$ |
3.26 |
|
|
$ |
1.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
4.79 |
|
|
$ |
3.05 |
|
|
$ |
1.53 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
0.17 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4.80 |
|
|
$ |
3.22 |
|
|
$ |
1.55 |
|
|
|
|
|
|
|
|
|
|
|
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of Presentation and Accounting Policies (Continued)
Share-Based Compensation
We recognize compensation expense on grants of share-based compensation awards on a
straight-line basis over the service period of each award recipient.
Product and Workers Compensation Liabilities
We record accruals for product and workers compensation claims in the period in which they
are probable and reasonably estimable. Our principal self-insurance programs include product
liability and workers compensation where we self-insure up to a specified dollar amount. Claims
exceeding this amount up to specified limits are covered by policies purchased from commercial
insurers. We estimate the liability for the majority of the self-insured claims using our claims
experience for the periods being valued.
Environmental Matters
We record accruals for environmental matters in the period in which our responsibility is
probable and the cost can be reasonably estimated. We make changes to the accruals in the periods
in which the estimated costs of remediation change. At third-party environmental sites for which
more than one potentially responsible party has been identified, we record a liability for our
estimated allocable share of costs related to our involvement with the site as well as an estimated
allocable share of costs related to the involvement of insolvent or unidentified parties. At
environmental sites for which we are the only responsible party, we record a liability for the
total estimated costs of remediation. We do not discount to their present value future
expenditures for environmental remediation obligations. If we determine that recovery from
insurers or other third parties is probable, we record a receivable for the estimated recovery.
Conditional Asset Retirement Obligations
We accrue for costs related to a legal obligation associated with the retirement of a tangible
long-lived asset that results from the acquisition, construction, development or the normal
operation of the long-lived asset. The obligation to perform the asset retirement activity is not
conditional even though the timing or method may be conditional.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (FASB) issued guidance to amend
and simplify the rules related to testing goodwill for impairment. The revised guidance allows an
entity to make an initial qualitative evaluation, based on the entitys events and circumstances,
to determine whether it is more likely than not that the fair value of a reporting unit is less
than its carrying amount. The results of this qualitative assessment determine whether it is
necessary to perform the currently required two-step impairment test. The new guidance is effective
for us beginning October 1, 2012. Early adoption is permitted. The adoption of this guidance will
not have a material effect on our consolidated financial statements and related disclosures.
In June 2011, the FASB issued new accounting guidance related to the presentation of
comprehensive income that eliminates the current option to report other comprehensive income and
its components in the statement of changes in equity. Under this guidance, an entity can elect to
present items of net income and other comprehensive income in one continuous statement or two
consecutive statements. This guidance is effective for us beginning October 1, 2012. The adoption
of this guidance will not have a material effect on our consolidated financial statements and
related disclosures.
In May 2011, the FASB issued updated accounting guidance related to fair value measurements
and disclosures that result in common fair value measurements and disclosures between U.S. GAAP and
International Financial Reporting Standards. This guidance includes amendments that clarify the
application of existing fair value measurements and disclosures, in addition to other amendments
that change principles or requirements for fair value measurements or disclosures. This guidance
is effective for us beginning January 1, 2012. The adoption of this guidance will not have a
material effect on our consolidated financial statements and related disclosures.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Acquisitions
In April 2011, we acquired certain assets and assumed certain liabilities of Hiprom (Pty) Ltd
and its affiliates (Hiprom), a process control and automation systems integrator for the mining and
mineral processing industry in South Africa. In May 2011, we purchased a majority stake in the
equity of Lektronix Limited and its affiliate (Lektronix), an independent industrial automation
repairs and service provider in Europe and Asia. The terms of this acquisition included mirroring
put and call options for a fixed price in December 2011 with respect to the remaining minority
shares. Accordingly, we recorded the Lektronix share purchase as an acquisition of all outstanding
equity interests with a corresponding liability of $10.9 million related to the put/call option as
of the acquisition date. The aggregate purchase price of the Hiprom and Lektronix acquisitions was
$58.8 million. We recorded goodwill of $34.8 million attributable to intangible assets that do not
meet the criteria for separate recognition, including an assembled workforce with industry-wide
technical expertise and customer service capabilities. We assigned the full amount of goodwill for
Hiprom and Lektronix to our Control Products & Solutions segment. None of the goodwill recorded is
expected to be deductible for tax purposes.
In 2009, our Control Products & Solutions segment acquired the assets and assumed certain
liabilities of Xian Hengsheng Science & Technology Company Limited (Hengsheng). Hengsheng delivers
automation solutions to the electrical power and other heavy process industries in central and
western China. Our Control Products & Solutions segment also acquired a majority of the assets and
assumed certain liabilities of the automation business of Rutter Hinz Inc. (Hinz). Hinz offers
industrial control systems engineering and related support, with domain expertise in industrial
automation, process control and power distribution for the oil and gas industry, and other
resource-based industries. The aggregate purchase price of these two acquisitions was $30.7
million. We recorded goodwill of $13.6 million resulting from the final purchase price allocations
of Hengsheng and Hinz. We expect $5.9 million of the goodwill to be deductible for tax purposes.
The fair values and weighted average useful lives that have been
assigned to the acquired identifiable intangible assets of these acquisitions are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2009 |
|
|
|
|
|
|
|
Wtd. Avg. |
|
|
|
|
|
|
Wtd. Avg. |
|
|
|
Fair |
|
|
Useful |
|
|
Fair |
|
|
Useful |
|
(in millions, except useful lives) |
|
Value |
|
|
Life |
|
|
Value |
|
|
Life |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
14.3 |
|
|
14 years |
| |
$ |
6.3 |
|
|
10 years |
|
Technology |
|
|
1.5 |
|
|
10 years |
|
|
|
1.2 |
|
|
8 years |
|
Trademarks |
|
|
1.3 |
|
|
2 years |
|
|
|
|
|
|
|
|
|
Other intangible assets |
|
|
0.6 |
|
|
4 years |
|
|
|
1.3 |
|
|
4 years |
|
The results of operations of the acquired businesses have been included in our Consolidated
Statement of Operations since the dates of acquisition. Pro forma financial
information and allocation of the purchase price are not presented as the effects of these
acquisitions are not material to our results of operations or financial position.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the years ended September 30, 2011 and 2010
were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control |
|
|
|
|
|
|
Architecture & |
|
|
Products & |
|
|
|
|
|
|
Software |
|
|
Solutions |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2009 |
|
$ |
386.8 |
|
|
$ |
526.4 |
|
|
$ |
913.2 |
|
Translation and other |
|
|
(1.3 |
) |
|
|
0.6 |
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2010 |
|
|
385.5 |
|
|
|
527.0 |
|
|
|
912.5 |
|
Acquisition of businesses |
|
|
|
|
|
|
34.8 |
|
|
|
34.8 |
|
Translation and other |
|
|
1.2 |
|
|
|
4.1 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2011 |
|
$ |
386.7 |
|
|
$ |
565.9 |
|
|
$ |
952.6 |
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets consist of (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Computer software products |
|
$ |
101.2 |
|
|
$ |
45.3 |
|
|
$ |
55.9 |
|
Customer relationships |
|
|
72.4 |
|
|
|
23.2 |
|
|
|
49.2 |
|
Technology |
|
|
85.1 |
|
|
|
44.0 |
|
|
|
41.1 |
|
Trademarks |
|
|
31.2 |
|
|
|
9.0 |
|
|
|
22.2 |
|
Other |
|
|
21.6 |
|
|
|
15.7 |
|
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible assets |
|
|
311.5 |
|
|
|
137.2 |
|
|
|
174.3 |
|
Intangible assets not subject to amortization |
|
|
43.7 |
|
|
|
|
|
|
|
43.7 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
355.2 |
|
|
$ |
137.2 |
|
|
$ |
218.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Computer software products |
|
$ |
160.1 |
|
|
$ |
107.3 |
|
|
$ |
52.8 |
|
Customer relationships |
|
|
59.6 |
|
|
|
16.6 |
|
|
|
43.0 |
|
Technology |
|
|
83.8 |
|
|
|
38.0 |
|
|
|
45.8 |
|
Trademarks |
|
|
32.5 |
|
|
|
7.6 |
|
|
|
24.9 |
|
Other |
|
|
23.6 |
|
|
|
16.5 |
|
|
|
7.1 |
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible assets |
|
|
359.6 |
|
|
|
186.0 |
|
|
|
173.6 |
|
Intangible assets not subject to amortization |
|
|
43.7 |
|
|
|
|
|
|
|
43.7 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
403.3 |
|
|
$ |
186.0 |
|
|
$ |
217.3 |
|
|
|
|
|
|
|
|
|
|
|
Computer software products represent costs of computer software to be sold, leased or
otherwise marketed. Computer software products amortization expense was $16.8 million in 2011,
$13.6 million in 2010 and $15.8 million in 2009.
The Allen-Bradley® trademark has an indefinite life, and therefore is not subject
to amortization.
Estimated amortization expense is $36.0 million in 2012, $32.3 million in 2013, $27.0 million
in 2014, $21.4 million in 2015 and $16.8 million in 2016.
We performed the annual evaluation of our goodwill and indefinite life intangible assets for
impairment during the second quarter of 2011 and concluded these assets are not impaired.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Inventories
Inventories consist of (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
Finished goods |
|
$ |
265.0 |
|
|
$ |
244.2 |
|
Work in process |
|
|
139.4 |
|
|
|
144.1 |
|
Raw materials, parts and supplies |
|
|
237.3 |
|
|
|
215.0 |
|
|
|
|
|
|
|
|
Inventories |
|
$ |
641.7 |
|
|
$ |
603.3 |
|
|
|
|
|
|
|
|
We report inventories net of the allowance for excess and obsolete inventory of $46.3 million
at September 30, 2011 and 2010.
5. Property, net
Property consists of (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
Land |
|
$ |
3.8 |
|
|
$ |
4.8 |
|
Buildings and improvements |
|
|
277.2 |
|
|
|
270.4 |
|
Machinery and equipment |
|
|
996.3 |
|
|
|
1,034.0 |
|
Internal-use software |
|
|
368.5 |
|
|
|
352.9 |
|
Construction in progress |
|
|
74.7 |
|
|
|
60.3 |
|
|
|
|
|
|
|
|
Total |
|
|
1,720.5 |
|
|
|
1,722.4 |
|
Less accumulated depreciation |
|
|
(1,159.1 |
) |
|
|
(1,185.5 |
) |
|
|
|
|
|
|
|
Property, net |
|
$ |
561.4 |
|
|
$ |
536.9 |
|
|
|
|
|
|
|
|
6. Long-term and Short-term Debt
Long-term debt consists of (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
5.65% notes, payable in 2017 |
|
$ |
250.0 |
|
|
$ |
250.0 |
|
6.70% debentures, payable in 2028 |
|
|
250.0 |
|
|
|
250.0 |
|
6.25% debentures, payable in 2037 |
|
|
250.0 |
|
|
|
250.0 |
|
5.20% debentures, payable in 2098 |
|
|
200.0 |
|
|
|
200.0 |
|
Unamortized discount and other |
|
|
(45.0 |
) |
|
|
(45.1 |
) |
|
|
|
|
|
|
|
Long-term debt |
|
$ |
905.0 |
|
|
$ |
904.9 |
|
|
|
|
|
|
|
|
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Long-term and Short-term Debt (Continued)
On March 14, 2011, we replaced our former three-year $267.5 million unsecured revolving credit
facility expiring in March 2012 and our former 364-day $300.0 million unsecured revolving credit
facility expiring in March 2011 with a new four-year $750.0 million unsecured revolving credit
facility. On March 15, 2010, we entered into a 364-day $300.0 million unsecured revolving credit
facility. We have not drawn down under any of these credit facilities at September 30, 2011 or
2010. Borrowings under these credit facilities bear interest based on short-term money market rates
in effect during the period the borrowings are outstanding. The terms of these credit facilities
contain covenants under which we would be in default if our debt-to-total-capital ratio was to
exceed 60 percent. We were in compliance with all covenants under these credit facilities at
September 30, 2011 and 2010. Separate short-term unsecured credit facilities of approximately
$127.8 million at September 30, 2011 were available to non-U.S. subsidiaries. There were no
significant commitment fees or compensating balance requirements under any of our credit
facilities. Borrowings under our credit facilities during fiscal 2011 and 2010 were not
significant.
Our short-term debt obligations primarily relate to commercial paper borrowings. At September
30, 2011 and 2010 we had no commercial paper borrowings outstanding.
Interest payments were $60.1 million during 2011, $59.4 million during 2010 and $62.8 million
during 2009.
7. Other Current Liabilities
Other current liabilities consist of (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
Unrealized losses on foreign exchange contracts (Note 9) |
|
$ |
6.3 |
|
|
$ |
18.9 |
|
Product warranty obligations (Note 8) |
|
|
38.5 |
|
|
|
37.3 |
|
Taxes other than income taxes |
|
|
40.0 |
|
|
|
33.3 |
|
Accrued interest |
|
|
15.6 |
|
|
|
15.6 |
|
Income taxes payable |
|
|
31.0 |
|
|
|
20.6 |
|
Other |
|
|
80.8 |
|
|
|
56.4 |
|
|
|
|
|
|
|
|
Other current liabilities |
|
$ |
212.2 |
|
|
$ |
182.1 |
|
|
|
|
|
|
|
|
8. Product Warranty Obligations
We record a liability for product warranty obligations at the time of sale to a customer based
upon historical warranty experience. Most of our products are covered under a warranty period that
runs for twelve months from either the date of sale or from installation to a customer. We also
record a liability for specific warranty matters when they become known and reasonably estimable.
Our product warranty obligations are included in other current liabilities in the Consolidated
Balance Sheet.
Changes in product warranty obligations are (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
Balance at beginning of period |
|
$ |
37.3 |
|
|
$ |
32.1 |
|
Warranties recorded at time of sale |
|
|
38.2 |
|
|
|
41.0 |
|
Adjustments to pre-existing warranties |
|
|
(3.9 |
) |
|
|
(1.8 |
) |
Settlements of warranty claims |
|
|
(33.1 |
) |
|
|
(34.0 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
38.5 |
|
|
$ |
37.3 |
|
|
|
|
|
|
|
|
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Derivative Instruments and Fair Value Measurement
We use foreign currency forward exchange contracts to manage certain foreign currency risks.
We enter into these contracts to offset changes in the amount of future cash flows associated with
certain third-party and intercompany transactions denominated in foreign currencies forecasted to
occur within the next two years (cash flow hedges). Certain of our locations have assets and
liabilities denominated in currencies other than their functional currencies resulting from
intercompany loans and other transactions with third parties denominated in foreign currencies. We
also enter into foreign currency forward exchange contracts that we do not designate as hedging
instruments to offset the transaction gains or losses associated with some of these assets and
liabilities.
We recognize all derivative financial instruments as either assets or liabilities at fair
value in the Consolidated Balance Sheet. We report in other comprehensive income (loss) the
effective portion of the gain or loss on derivative financial instruments that we designate and
that qualify as cash flow hedges. We reclassify these gains or losses into earnings in the same
periods when the hedged transactions affect earnings. Gains and losses on derivative financial
instruments for which we do not elect hedge accounting are recognized in the Consolidated Statement
of Operations in each period, based upon the change in the fair value of the derivative financial
instruments.
It is our policy to execute such instruments with major financial institutions that we believe
to be creditworthy and not to enter into derivative financial instruments for speculative purposes.
We diversify our forward exchange contracts among counterparties to minimize exposure to any one of
these entities. Most of our forward exchange contracts are denominated in currencies of major
industrial countries. The notional values of our forward exchange contracts outstanding at
September 30, 2011 were $725.1 million, of which $521.6 million were designated as cash flow
hedges. Currency pairs (buy / sell) comprising the most significant contract notional value were
United States dollar (USD) / euro, USD / Canadian dollar, Swiss franc / USD, Singapore dollar /
USD, Swiss franc / Canadian dollar and Swiss franc / euro. We value our forward exchange contracts
using a market approach. We use an internally developed valuation model based on inputs including
forward and spot prices for currency and interest rate curves. We did not change our valuation
techniques during fiscal 2011.
We also use foreign currency denominated debt obligations to hedge portions of our net
investments in non-US subsidiaries. The currency effects of the debt obligations are reflected in
accumulated other comprehensive loss within shareholders equity where they offset gains and losses
recorded on our net investments globally. At September 30, 2011 we had $14.1 million of foreign
currency denominated debt designated as net investment hedges.
U.S. GAAP defines fair value as the price that would be received for an asset or paid to
transfer a liability (exit price) in an orderly transaction between market participants in the
principal or most advantageous market for the asset or liability. U.S. GAAP also classifies the
inputs used to measure fair value into the following hierarchy:
|
|
|
Level 1: |
|
Quoted prices in active markets for identical assets or liabilities. |
|
|
|
Level 2: |
|
Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. |
|
|
|
Level 3: |
|
Unobservable inputs for the asset or liability. |
Assets and liabilities measured at fair value on a recurring basis and their location in our
Consolidated Balance Sheet were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value (Level 2) |
|
|
|
|
|
September 30, |
|
|
September 30, |
|
Derivatives Designated as Hedging Instruments |
|
Balance Sheet Location |
|
2011 |
|
|
2010 |
|
Forward exchange contracts |
|
Other current assets |
|
$ |
15.9 |
|
|
$ |
9.9 |
|
Forward exchange contracts |
|
Other assets |
|
|
1.6 |
|
|
|
2.7 |
|
Forward exchange contracts |
|
Other current liabilities |
|
|
(5.9 |
) |
|
|
(8.5 |
) |
Forward exchange contracts |
|
Other liabilities |
|
|
(1.4 |
) |
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
10.2 |
|
|
$ |
2.6 |
|
|
|
|
|
|
|
|
|
|
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Derivative Instruments and Fair Value Measurement (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value (Level 2) |
|
|
|
|
|
September 30, |
|
|
September 30, |
|
Derivatives Not Designated as Hedging Instruments |
|
Balance Sheet Location |
|
2011 |
|
|
2010 |
|
Forward exchange contracts |
|
Other current assets |
|
$ |
12.1 |
|
|
$ |
15.6 |
|
Forward exchange contracts |
|
Other current liabilities |
|
|
(0.4 |
) |
|
|
(10.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
11.7 |
|
|
$ |
5.2 |
|
|
|
|
|
|
|
|
|
|
The pre-tax amount of gains (losses) recorded in other comprehensive loss related to hedges
that would have been recorded in the Consolidated Statement of Operations had they not been so
designated was (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Forward exchange contracts (cash flow hedges) |
|
$ |
3.0 |
|
|
$ |
9.0 |
|
|
$ |
12.0 |
|
Foreign currency denominated debt (net investment hedges) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2.8 |
|
|
$ |
9.0 |
|
|
$ |
12.0 |
|
|
|
|
|
|
|
|
|
|
|
Approximately $10.0 million ($6.2 million net of tax) of net unrealized gains on cash flow
hedges as of September 30, 2011 will be reclassified into earnings during the next 12 months. We
expect that these net unrealized gains will be offset when the hedged items are recognized in
earnings.
The pre-tax amount of gains (losses) reclassified from accumulated other comprehensive loss
into the Consolidated Statement of Operations related to derivative forward exchange contracts
designated as cash flow hedges, which offset the related losses and gains on the hedged items
during the periods presented, was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Sales |
|
$ |
0.3 |
|
|
$ |
(2.2 |
) |
|
$ |
7.2 |
|
Cost of sales |
|
|
(3.5 |
) |
|
|
(2.2 |
) |
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(3.2 |
) |
|
$ |
(4.4 |
) |
|
$ |
4.1 |
|
|
|
|
|
|
|
|
|
|
|
The amount recognized in earnings as a result of ineffective hedges was not significant.
The pre-tax amount of gains (losses) from forward exchange contracts not designated as hedging
instruments recognized in the Consolidated Statement of Operations during the periods presented
was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Other expense |
|
$ |
6.2 |
|
|
$ |
(15.8 |
) |
|
$ |
11.7 |
|
Cost of sales |
|
|
0.4 |
|
|
|
(0.4 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6.6 |
|
|
$ |
(16.2 |
) |
|
$ |
11.6 |
|
|
|
|
|
|
|
|
|
|
|
We also hold financial instruments consisting of cash, accounts receivable, accounts payable
and long-term debt. The carrying value of our cash, accounts receivable and accounts payable as
reported in our Consolidated Balance Sheet approximates fair value. We base the fair value of
long-term debt upon quoted market prices for the same or similar issues. The following is a summary
of the carrying value and fair value of our long-term debt (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
September 30, 2010 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
905.0 |
|
|
$ |
1,125.4 |
|
|
$ |
904.9 |
|
|
$ |
1,073.8 |
|
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Shareowners Equity
Common Stock
At September 30, 2011, the authorized stock of the Company consisted of one billion shares of
common stock, par value $1.00 per share, and 25 million shares of preferred stock, without par
value. In 2009, we retired 35 million shares of common stock that we held in our treasury. These
shares are now designated as authorized and unissued. At September 30, 2011, 13.9 million shares
of common stock were reserved for various incentive plans.
Changes in outstanding common shares are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Beginning balance |
|
|
141.7 |
|
|
|
142.1 |
|
|
|
143.2 |
|
Treasury stock purchases |
|
|
(4.0 |
) |
|
|
(2.2 |
) |
|
|
(1.7 |
) |
Shares delivered under incentive plans |
|
|
4.2 |
|
|
|
1.8 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
141.9 |
|
|
|
141.7 |
|
|
|
142.1 |
|
|
|
|
|
|
|
|
|
|
|
During September 2011, we repurchased 30,000 shares of common stock for $1.7 million that did
not settle until October 2011. During September 2010, we repurchased 19,700 shares of common
stock for $1.2 million that did not settle until October 2010. These outstanding purchases were
recorded in accounts payable at September 30, 2011 and 2010.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
Unrecognized pension and postretirement benefit plan liabilities (Note 12) |
|
$ |
(1,033.6 |
) |
|
$ |
(854.9 |
) |
Accumulated currency translation adjustments |
|
|
35.5 |
|
|
|
12.1 |
|
Net unrealized gains on cash flow hedges |
|
|
5.2 |
|
|
|
1.3 |
|
Unrealized gains on investment securities |
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(992.9 |
) |
|
$ |
(841.2 |
) |
|
|
|
|
|
|
|
11. Share-Based Compensation
During 2011, 2010 and 2009 we recognized $39.5 million, $36.3 million and $27.8 million of
pre-tax share-based compensation expense, respectively. The total income tax benefit related to
share-based compensation expense was $12.9 million during 2011, $11.9 million during 2010 and $9.1
million during 2009. We recognize compensation expense on grants of share-based compensation
awards on a straight-line basis over the service period of each award recipient. As of September
30, 2011, total unrecognized compensation cost related to share-based compensation awards was $38.4
million, net of estimated forfeitures, which we expect to recognize over a weighted average period
of approximately 1.7 years.
Our 2008 Long-Term Incentives Plan, as amended (2008 Plan), authorizes us to deliver up to
11.2 million shares of our common stock upon exercise of stock options, or upon grant or in payment
of stock appreciation rights, performance shares, performance units, restricted stock units and
restricted stock. Our 2003 Directors Stock Plan, as amended, authorizes us to deliver up to 0.5
million shares of our common stock upon exercise of stock options or upon grant of shares of our
common stock and restricted stock units. Shares relating to awards under our 2008 Plan or our 2000
Long-Term Incentives Plan that terminate by expiration, forfeiture, cancellation or otherwise
without the issuance or delivery of shares will be available for further awards under the 2008
Plan. Approximately 5.0 million shares under our 2008 Plan and 0.3 million shares under our 2003
Directors Stock Plan remain available for future grant or payment at September 30, 2011. We use
treasury stock to deliver shares of our common stock under these plans. Our 2008 Plan does not
permit share-based compensation awards to be granted after February 6, 2018.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Share-Based Compensation (Continued)
Stock Options
We have granted non-qualified and incentive stock options to purchase our common stock under
various incentive plans at prices equal to the fair market value of the stock on the grant dates.
The exercise price for stock options granted under the plans may be paid in cash, shares of common
stock or a combination of cash and shares. Stock options expire ten years after the grant date and
vest ratably over three years.
The per share weighted average fair value of stock options granted during the years ended
September 30, 2011, 2010 and 2009 was $21.39, $13.59 and $7.75, respectively. The total intrinsic
value of stock options exercised was $157.3 million, $49.7 million and $7.4 million during 2011,
2010 and 2009, respectively. We estimated the fair value of each stock option on the date of grant
using the Black-Scholes pricing model and the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Average risk-free interest rate |
|
|
1.94 |
% |
|
|
2.15 |
% |
|
|
1.63 |
% |
Expected dividend yield |
|
|
2.37 |
% |
|
|
3.16 |
% |
|
|
2.47 |
% |
Expected volatility |
|
|
0.39 |
|
|
|
0.41 |
|
|
|
0.35 |
|
Expected term (years) |
|
|
5.5 |
|
|
|
5.5 |
|
|
|
5.4 |
|
The average risk-free interest rate is based on U.S. treasury security rates corresponding to
the expected term in effect as of the grant date. The expected dividend yield is based on the
expected annual dividend as a percentage of the market value of our common stock as of the grant
date. We determined expected volatility using daily historical volatility of our stock price over
the most recent period corresponding to the expected term as of the grant date. We determined the
expected term of the stock options using historical data adjusted for the estimated exercise dates
of unexercised options.
A summary of stock option activity for the year ended September 30, 2011 is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
|
Wtd. Avg. |
|
|
Intrinsic Value |
|
|
|
|
|
|
|
Wtd. Avg. |
|
|
Remaining |
|
|
of In-The-Money |
|
|
|
Shares |
|
|
Exercise |
|
|
Contractual |
|
|
Options |
|
|
|
(in thousands) |
|
|
Price |
|
|
Term (years) |
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 1, 2010 |
|
|
10,351 |
|
|
$ |
44.34 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,727 |
|
|
|
69.87 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(4,164 |
) |
|
|
41.46 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(126 |
) |
|
|
49.08 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
(7 |
) |
|
|
51.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2011 |
|
|
7,781 |
|
|
|
51.46 |
|
|
|
6.8 |
|
|
$ |
72.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at
September 30, 2011 |
|
|
7,480 |
|
|
|
51.40 |
|
|
|
6.8 |
|
|
|
69.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2011 |
|
|
3,911 |
|
|
|
50.01 |
|
|
|
5.3 |
|
|
|
37.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Share Awards
Certain officers and key employees are also eligible to receive shares of our common stock in
payment of performance share awards granted to them. Grantees of performance shares will be
eligible to receive shares of our common stock depending upon our total shareowner return,
assuming reinvestment of all dividends, relative to the performance of the S&P 500 over a
three-year period.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Share-Based Compensation (Continued)
A summary of performance share activity for the year ended September 30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wtd. Avg. |
|
|
|
Performance |
|
|
Grant Date |
|
|
|
Shares |
|
|
Share |
|
|
|
(in thousands) |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Outstanding at October 1, 2010 |
|
|
426 |
|
|
$ |
48.90 |
|
Granted |
|
|
77 |
|
|
|
87.00 |
|
Vested |
|
|
(104 |
) |
|
|
70.32 |
|
Forfeited |
|
|
(17 |
) |
|
|
48.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2011 |
|
|
382 |
|
|
|
50.70 |
|
|
|
|
|
|
|
|
|
Maximum potential shares to be delivered in payment under the fiscal 2011 and 2010 awards are
148,960 shares and 270,460 shares, respectively. There will be a 200 percent payout of the target
number of shares awarded in fiscal 2009, with a maximum of 345,432 shares to be delivered in
payment under the awards in December 2011. There were 42 percent and 13 percent payouts of the
target number of shares awarded in fiscal 2008 and 2007, with 43,767 and 10,618 shares delivered in
payment under the awards in December 2010 and December 2009, respectively.
The per share fair value of performance share awards granted during the years ended September
30, 2011, 2010 and 2009 was $87.00, $54.81 and $31.82, respectively, which we determined using a
Monte Carlo simulation and the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Average risk-free interest rate |
|
|
0.63 |
% |
|
|
1.22 |
% |
|
|
1.46 |
% |
Expected dividend yield |
|
|
2.01 |
% |
|
|
2.51 |
% |
|
|
2.47 |
% |
Expected volatility (Rockwell Automation) |
|
|
0.49 |
|
|
|
0.48 |
|
|
|
0.40 |
|
The average risk-free interest rate is based on the three-year U.S. treasury security rate in
effect as of the grant date. The expected dividend yield is based on the expected annual dividend
as a percentage of the market value of our common stock as of the grant date. The expected
volatilities were determined using daily historical volatility for the most recent three-year
period as of the grant date.
Restricted Stock and Restricted Stock Units
We grant restricted stock to certain employees, and non-employee directors may elect to
receive a portion of their compensation in restricted stock units. Restrictions on restricted
stock generally lapse over periods ranging from one to five years. We value restricted stock and
restricted stock units at the closing market value of our common stock on the date of grant. The
weighted average grant date fair value of restricted stock and restricted stock unit awards granted
during the years ended September 30, 2011, 2010 and 2009 was $69.00, $43.76 and $29.38,
respectively. The total fair value of shares vested during the years ended September 30, 2011,
2010, and 2009 was $4.5 million, $5.3 million, and $1.6 million, respectively.
A summary of restricted stock and restricted stock unit activity for the year ended September
30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
|
|
|
|
Stock and |
|
|
Wtd. Avg. |
|
|
|
Restricted |
|
|
Grant Date |
|
|
|
Stock Units |
|
|
Share |
|
|
|
(in thousands) |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Outstanding at October 1, 2010 |
|
|
294 |
|
|
$ |
44.56 |
|
Granted |
|
|
68 |
|
|
|
69.00 |
|
Vested |
|
|
(65 |
) |
|
|
64.05 |
|
Forfeited |
|
|
(21 |
) |
|
|
42.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2011 |
|
|
276 |
|
|
|
47.52 |
|
|
|
|
|
|
|
|
|
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Retirement Benefits
We sponsor funded and unfunded pension plans and other postretirement benefit plans for our
employees. The pension plans cover most of our employees and provide for monthly pension payments
to eligible employees after retirement. Pension benefits for salaried employees generally are
based on years of credited service and average earnings. Pension benefits for hourly employees are
primarily based on specified benefit amounts and years of service. Effective July 1, 2010 we
closed participation in our U.S. and Canada pension plans to employees hired after June 30, 2010.
Employees hired after June 30, 2010 are instead eligible to participate in employee savings plans.
The Company contributions are based on age and years of service and range from 3% to 7% of eligible
compensation. Effective October 1, 2010, we also closed participation in our UK pension plan to
employees hired after September 30, 2010 and these employees are now eligible for a defined
contribution plan. Benefits to be provided to plan participants hired before July 1, 2010 or
October 1, 2010, respectively, are not affected by these changes. Our policy with respect to
funding our pension obligations is to fund the minimum amount required by applicable laws and
governmental regulations. We may, however, at our discretion, fund amounts in excess of the
minimum amount required by laws and regulations, as we did in 2011 and 2010. Other postretirement
benefits are primarily in the form of retirement medical plans that cover most of our United States
employees and provide for the payment of certain medical costs of eligible employees and dependents
after retirement.
In 2009, we changed our measurement date to September 30 as required by U.S. GAAP. We recorded
a reduction in retained earnings of $12.2 million ($7.8 million net of tax) in the fourth quarter
of 2009 related to this change.
The components of net periodic benefit cost are (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement |
|
|
|
Pension Benefits |
|
|
Benefits |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
70.1 |
|
|
$ |
68.7 |
|
|
$ |
56.0 |
|
|
$ |
3.5 |
|
|
$ |
3.8 |
|
|
$ |
3.6 |
|
Interest cost |
|
|
163.9 |
|
|
|
159.7 |
|
|
|
154.7 |
|
|
|
10.2 |
|
|
|
12.5 |
|
|
|
13.3 |
|
Expected return on plan assets |
|
|
(204.5 |
) |
|
|
(192.1 |
) |
|
|
(191.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
|
(2.2 |
) |
|
|
(3.8 |
) |
|
|
(3.7 |
) |
|
|
(10.6 |
) |
|
|
(10.6 |
) |
|
|
(10.6 |
) |
Net transition obligation |
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
|
|
63.7 |
|
|
|
42.1 |
|
|
|
16.9 |
|
|
|
6.4 |
|
|
|
8.4 |
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
91.4 |
|
|
$ |
75.0 |
|
|
$ |
32.7 |
|
|
$ |
9.5 |
|
|
$ |
14.1 |
|
|
$ |
15.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Retirement Benefits (Continued)
Benefit obligation, plan assets, funded status, and net liability information is summarized as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement |
|
|
|
Pension Benefits |
|
|
Benefits |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Benefit obligation at beginning of year |
|
$ |
3,179.7 |
|
|
$ |
2,806.9 |
|
|
$ |
209.3 |
|
|
$ |
218.8 |
|
Service cost |
|
|
70.1 |
|
|
|
68.7 |
|
|
|
3.5 |
|
|
|
3.8 |
|
Interest cost |
|
|
163.9 |
|
|
|
159.7 |
|
|
|
10.2 |
|
|
|
12.5 |
|
Actuarial losses (gains) |
|
|
220.5 |
|
|
|
233.0 |
|
|
|
(46.0 |
) |
|
|
(13.4 |
) |
Plan amendments |
|
|
|
|
|
|
30.4 |
|
|
|
|
|
|
|
|
|
Curtailment loss |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
Plan participant contributions |
|
|
5.7 |
|
|
|
4.8 |
|
|
|
11.0 |
|
|
|
10.4 |
|
Benefits paid |
|
|
(182.4 |
) |
|
|
(140.5 |
) |
|
|
(30.2 |
) |
|
|
(23.4 |
) |
Currency translation and other |
|
|
25.1 |
|
|
|
16.2 |
|
|
|
(0.1 |
) |
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
|
3,482.6 |
|
|
|
3,179.7 |
|
|
|
157.7 |
|
|
|
209.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at beginning of year |
|
|
2,486.6 |
|
|
|
2,207.8 |
|
|
|
|
|
|
|
|
|
Actual return on plan assets |
|
|
50.3 |
|
|
|
213.8 |
|
|
|
|
|
|
|
|
|
Company contributions |
|
|
184.7 |
|
|
|
181.2 |
|
|
|
19.2 |
|
|
|
13.0 |
|
Plan participant contributions |
|
|
5.7 |
|
|
|
4.8 |
|
|
|
11.0 |
|
|
|
10.4 |
|
Benefits paid |
|
|
(182.4 |
) |
|
|
(140.5 |
) |
|
|
(30.2 |
) |
|
|
(23.4 |
) |
Currency translation and other |
|
|
28.0 |
|
|
|
19.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at end of year |
|
|
2,572.9 |
|
|
|
2,486.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plans |
|
$ |
(909.7 |
) |
|
$ |
(693.1 |
) |
|
$ |
(157.7 |
) |
|
$ |
(209.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount on balance sheet consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid pension |
|
$ |
4.3 |
|
|
$ |
28.3 |
|
|
$ |
|
|
|
$ |
|
|
Compensation and benefits |
|
|
(9.4 |
) |
|
|
(8.8 |
) |
|
|
(16.5 |
) |
|
|
(17.9 |
) |
Retirement benefits |
|
|
(904.6 |
) |
|
|
(712.6 |
) |
|
|
(141.2 |
) |
|
|
(191.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount on balance sheet |
|
$ |
(909.7 |
) |
|
$ |
(693.1 |
) |
|
$ |
(157.7 |
) |
|
$ |
(209.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Retirement Benefits (Continued)
Amounts included in accumulated other comprehensive loss, net of tax, at September 30, 2011
and 2010 which have not yet been recognized in net periodic benefit cost are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement |
|
|
|
Pension |
|
|
Benefits |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
$ |
(2.1 |
) |
|
$ |
(3.3 |
) |
|
$ |
(28.4 |
) |
|
$ |
(35.0 |
) |
Net actuarial loss |
|
|
1,038.0 |
|
|
|
834.4 |
|
|
|
26.2 |
|
|
|
58.6 |
|
Net transition (benefit) obligation |
|
|
(0.1 |
) |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,035.8 |
|
|
$ |
831.3 |
|
|
$ |
(2.2 |
) |
|
$ |
23.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2011, we recognized prior service credits of $12.9 million ($8.2 million net of tax),
net actuarial losses of $70.1 million ($44.8 million net of tax) and a net transition obligation
of $0.4 million ($0.3 million net of tax) in pension and other postretirement net periodic
benefit cost, which were included in accumulated other comprehensive loss at September 30, 2010.
In 2012 we expect to recognize prior service credits of $13.2 million ($8.4 million net of tax),
net actuarial losses of $97.1 million ($62.5 million net of tax) and a net transition obligation
of $0.2 million ($0.2 million net of tax) in pension and other postretirement net periodic
benefit cost, which are included in accumulated other comprehensive loss at September 30, 2011.
In
both 2011 and 2010, we made discretionary pre-tax contributions of $150.0 million to our U.S.
qualified pension plan trust. In October 2011, we made another discretionary pre-tax contribution
of $300.0 million to our U.S. qualified pension plan trust.
The accumulated benefit obligation for our pension plans was $3,264.9 million and $2,968.8
million at September 30, 2011 and 2010, respectively.
Net Periodic Benefit Cost Assumptions
Significant assumptions used in determining net periodic benefit cost for the period ended
September 30 are (in weighted averages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement |
|
|
|
Pension Benefits |
|
|
Benefits |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
U.S.
Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.60 |
% |
|
|
6.20 |
% |
|
|
6.75 |
% |
|
|
5.10 |
% |
|
|
6.00 |
% |
|
|
6.50 |
% |
Expected return on plan assets |
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation increase rate |
|
|
4.00 |
% |
|
|
4.30 |
% |
|
|
4.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
4.14 |
% |
|
|
4.67 |
% |
|
|
5.49 |
% |
|
|
4.75 |
% |
|
|
5.00 |
% |
|
|
6.00 |
% |
Expected return on plan assets |
|
|
6.07 |
% |
|
|
6.18 |
% |
|
|
6.30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation increase rate |
|
|
3.09 |
% |
|
|
2.88 |
% |
|
|
3.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Retirement Benefits (Continued)
Net Benefit Obligation Assumptions
Significant assumptions used in determining the benefit obligations are (in weighted averages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement |
|
|
|
Pension Benefits |
|
|
Benefits |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
U.S.
Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.20 |
% |
|
|
5.60 |
% |
|
|
4.90 |
% |
|
|
5.10 |
% |
Compensation increase rate |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
|
|
|
|
|
|
Healthcare cost trend rate(1) |
|
|
|
|
|
|
|
|
|
|
8.50 |
% |
|
|
9.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
4.15 |
% |
|
|
4.14 |
% |
|
|
4.10 |
% |
|
|
4.75 |
% |
Compensation increase rate |
|
|
3.03 |
% |
|
|
3.09 |
% |
|
|
|
|
|
|
|
|
Healthcare cost trend rate(2) |
|
|
|
|
|
|
|
|
|
|
7.12 |
% |
|
|
7.56 |
% |
|
|
|
(1) |
|
The healthcare cost trend rate reflects the estimated increase in gross medical claims
costs. As a result of the plan amendment adopted effective October 1, 2002, our
effective per person retiree medical cost increase is zero percent beginning in 2005 for
the majority of our postretirement benefit plans. For our other plans, we assume the
gross healthcare cost trend rate will decrease to 5.50% in 2017. |
|
(2) |
|
Decreasing to 4.50% in 2017. |
In determining the expected long-term rate of return on assets assumption, we consider
actual returns on plan assets over the long term, adjusted for forward-looking considerations, such
as inflation, interest rates, equity performance and the active management of the plans invested
assets. We also considered our current and expected mix of plan assets in setting this assumption.
This resulted in the selection of the weighted average long-term rate of return on assets
assumption. Our global weighted-average asset allocations at September 30, by asset category, are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation |
|
|
Target |
|
|
September 30, |
|
Asset Category |
|
Range |
|
|
Allocation |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities |
|
|
30% 65% |
|
|
|
55 |
% |
|
|
54 |
% |
|
|
56 |
% |
Debt Securities |
|
|
35% 50% |
|
|
|
41 |
% |
|
|
41 |
% |
|
|
40 |
% |
Other |
|
|
0% 25% |
|
|
|
4 |
% |
|
|
5 |
% |
|
|
4 |
% |
The investment objective for pension funds related to our defined benefit plans is to meet the
plans benefit obligations, while maximizing the long-term growth of assets without undue risk. We
strive to achieve this objective by investing plan assets within target allocation ranges and
diversification within asset categories. Target allocation ranges are guidelines that are adjusted
periodically based on ongoing monitoring by plan fiduciaries. Investment risk is controlled by
rebalancing to target allocations on a periodic basis and ongoing monitoring of investment manager
performance relative to the investment guidelines established for each manager.
As of September 30, 2011 and 2010, our pension plans do not own our common stock.
In certain countries where we operate, there are no legal requirements or financial incentives
provided to companies to pre-fund pension obligations. In these instances, we typically make
benefit payments directly from cash as they become due, rather than by creating a separate pension
fund.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Retirement Benefits (Continued)
The valuation methodologies
used for our pension plans investments measured at fair value are
described as follows. There have been no changes in the methodologies used at September 30, 2011
and 2010.
Common stock Valued at the closing price reported on the active market on which the individual
securities are traded.
Corporate debt Valued at either the yields currently available on comparable securities of
issuers with similar credit ratings or valued under a discounted cash flow approach that maximizes
observable inputs, such as current yields of similar instruments, but includes adjustments for
certain risks that may not be observable such as credit and liquidity risks.
Government securities Valued at the most recent closing price reported on the active market on
which the individual securities are traded.
Common collective trusts and registered investment companies Valued at the net asset value (NAV)
as determined by the custodian of the fund. The NAV is based on the fair value of the underlying
assets owned by the fund, minus its liabilities then divided by the number of units outstanding.
Private equity investments Valued at the estimated fair value, as determined by the respective
investment company, based on the net asset value of the investment units held at year end which is
subject to judgment.
Insurance contracts Valued at the aggregate amount of accumulated contribution and investment
income less amounts used to make benefit payments and administrative expenses which approximates
fair value.
Other Consists of other fixed income investments and real estate. Other fixed income investments
are valued at the most recent closing price reported on the active market on which the individual
securities are traded.
The methods described above may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. Furthermore, while we believe our valuation
methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could
result in a different fair value measurement at the reporting date. Refer to Note 9 for further
information regarding levels in the fair value hierarchy. The following table presents our pension
plans investments measured at fair value as of September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
23.8 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23.8 |
|
Common stock |
|
|
535.6 |
|
|
|
|
|
|
|
|
|
|
|
535.6 |
|
Corporate debt |
|
|
|
|
|
|
399.7 |
|
|
|
|
|
|
|
399.7 |
|
Government securities |
|
|
248.2 |
|
|
|
|
|
|
|
|
|
|
|
248.2 |
|
Common collective trusts |
|
|
|
|
|
|
887.1 |
|
|
|
|
|
|
|
887.1 |
|
Registered investment companies |
|
|
|
|
|
|
335.1 |
|
|
|
|
|
|
|
335.1 |
|
Private equity investments |
|
|
|
|
|
|
|
|
|
|
85.0 |
|
|
|
85.0 |
|
Insurance contracts |
|
|
|
|
|
|
|
|
|
|
27.8 |
|
|
|
27.8 |
|
Other |
|
|
|
|
|
|
22.6 |
|
|
|
8.0 |
|
|
|
30.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan investments |
|
$ |
807.6 |
|
|
$ |
1,644.5 |
|
|
$ |
120.8 |
|
|
$ |
2,572.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Retirement Benefits (Continued)
The following table presents our pension plans investments measured at fair value as of September
30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
71.6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
71.6 |
|
Common stock |
|
|
573.0 |
|
|
|
|
|
|
|
|
|
|
|
573.0 |
|
Corporate debt |
|
|
|
|
|
|
363.1 |
|
|
|
|
|
|
|
363.1 |
|
Government securities |
|
|
222.1 |
|
|
|
|
|
|
|
|
|
|
|
222.1 |
|
Common collective trusts |
|
|
|
|
|
|
803.5 |
|
|
|
|
|
|
|
803.5 |
|
Registered investment companies |
|
|
|
|
|
|
326.9 |
|
|
|
|
|
|
|
326.9 |
|
Private equity investments |
|
|
|
|
|
|
|
|
|
|
62.2 |
|
|
|
62.2 |
|
Insurance
contracts |
|
|
|
|
|
|
|
|
|
|
29.4 |
|
|
|
29.4 |
|
Other |
|
|
|
|
|
|
23.5 |
|
|
|
11.3 |
|
|
|
34.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan investments |
|
$ |
866.7 |
|
|
$ |
1,517.0 |
|
|
$ |
102.9 |
|
|
$ |
2,486.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth a summary of changes in fair market value of our pension plans
Level 3 assets for the year ended September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, |
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
Unrealized |
|
|
sales, |
|
|
Balance |
|
|
|
October 1, |
|
|
Realized |
|
|
gains |
|
|
issuances, and |
|
|
September 30, |
|
|
|
2010 |
|
|
gains |
|
|
(losses) |
|
|
settlements, net |
| |
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments |
|
$ |
62.2 |
|
|
$ |
3.2 |
|
|
$ |
13.3 |
|
|
$ |
6.3 |
|
|
$ |
85.0 |
|
Insurance contracts |
|
|
29.4 |
|
|
|
|
|
|
|
(4.7 |
) |
|
|
3.1 |
|
|
|
27.8 |
|
Other |
|
|
11.3 |
|
|
|
|
|
|
|
0.2 |
|
|
|
(3.5 |
) |
|
|
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
102.9 |
|
|
$ |
3.2 |
|
|
$ |
8.8 |
|
|
$ |
5.9 |
|
|
$ |
120.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth a summary of changes in fair market value of our pension plans Level 3
assets for the year ended September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, |
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
sales, |
|
|
Balance |
|
|
|
October 1, |
|
|
Realized |
|
|
Unrealized |
|
|
issuances, and |
|
|
September 30, |
|
|
|
2009 |
|
|
gains |
|
|
gains |
|
|
settlements, net |
|
|
2010 |
|
Private equity investments |
|
$ |
43.1 |
|
|
$ |
1.2 |
|
|
$ |
6.8 |
|
|
$ |
11.1 |
|
|
$ |
62.2 |
|
Insurance
contracts |
|
|
27.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
1.6 |
|
|
|
29.4 |
|
Other |
|
|
12.3 |
|
|
|
|
|
|
|
0.1 |
|
|
|
(1.1 |
) |
|
|
11.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
82.8 |
|
|
$ |
1.2 |
|
|
$ |
7.3 |
|
|
$ |
11.6 |
|
|
$ |
102.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Retirement Benefits (Continued)
Estimated Future Payments
We expect to contribute approximately $339 million related to our worldwide pension plans and
$17 million to our postretirement benefit plans in 2012.
The following benefit payments, which include employees expected future service, as
applicable, are expected to be paid (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
2012 |
|
$ |
200.7 |
|
|
$ |
16.9 |
|
2013 |
|
|
197.7 |
|
|
|
15.9 |
|
2014 |
|
|
201.5 |
|
|
|
15.3 |
|
2015 |
|
|
206.5 |
|
|
|
14.5 |
|
2016 |
|
|
210.3 |
|
|
|
13.3 |
|
2017 2021 |
|
|
1,190.0 |
|
|
|
54.8 |
|
Other Postretirement Benefits
A one-percentage point change in assumed healthcare cost trend rates would have the following
effect (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-Percentage |
|
|
One-Percentage |
|
|
|
Point Increase |
|
|
Point Decrease |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) to total of service and interest
cost components |
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
$ |
(0.1 |
) |
|
$ |
(0.2 |
) |
Increase (decrease) to postretirement benefit obligation |
|
|
2.7 |
|
|
|
2.3 |
|
|
|
(2.4 |
) |
|
|
(1.9 |
) |
Pension Benefits
Information regarding our pension plans with accumulated benefit obligations in excess of the
fair value of plan assets (underfunded plans) at September 30, 2011 and 2010 are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Projected benefit obligation |
|
$ |
3,064.4 |
|
|
$ |
2,912.9 |
|
Accumulated benefit obligation |
|
|
2,876.2 |
|
|
|
2,711.4 |
|
Fair value of plan assets |
|
|
2,172.7 |
|
|
|
2,195.7 |
|
Defined Contribution Savings Plans
We also sponsor certain defined contribution savings plans for eligible employees. Expense
related to these plans was $31.2 million in 2011, $23.3 million in 2010 and $30.5 million in 2009.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Discontinued Operations
During 2011, we recorded a net $0.7 million benefit from the settlement of an indemnification
of Baldor Electric Company and certain tax matters related to divested businesses, partially offset
by a change in estimate for an environmental matter pertaining to a discontinued business.
During 2010, we recorded a $21.3 million tax benefit as a result of the resolution of a
domestic tax matter relating to the January 2007 sale of our Dodge mechanical and Reliance Electric
motors and repair services businesses. We also recorded a net $2.6 million after-tax benefit
relating to changes in estimate for environmental and legal matters of our divested businesses.
During 2009, we recorded a benefit of $4.5 million ($2.8 million net of tax) related to a
change in estimate for legal contingencies associated with the former Rockwell International
Corporations (RICs) operation of the Rocky Flats facility for the U.S. Department of Energy.
14. Restructuring Charges and Special Items
During 2011, we paid substantially all of the $9.9 million accrual balance remaining as of
September 30, 2010. The amount of accrual adjustments and non-cash activity was insignificant.
During 2010, we recorded accrual adjustments of $8.1 million primarily related to severance
accruals as employee attrition differed from our original estimates. We recorded the adjustments
as a $5.0 million benefit to selling, general and administrative expenses and a $3.1 million
benefit to cost of sales.
During 2009, we recorded restructuring charges of $60.4 million ($41.8 million after tax, or
$0.29 per diluted share) related to actions designed to better align our cost structure with
then-current economic conditions. The majority of the charges related to severance benefits
recognized pursuant to our severance policy and local statutory requirements. In the Consolidated
Statement of Operations for the year ended September 30, 2009, we recorded $21.0 million of the
restructuring charges in cost of sales, and we recorded $39.4 million in selling, general and
administrative expenses.
During 2008, we recorded special items of $50.7 million ($34.0 million after tax, or $0.23 per
diluted share) related to restructuring actions designed to better align resources with growth
opportunities and to reduce costs as a result of current and anticipated market conditions. This
charge was partially offset by the reversal of $4.0 million ($3.6 million after tax, or $0.02 per
diluted share) of severance accruals established as part of our 2007 restructuring actions, as
employee attrition differed from our original estimates. The 2008 restructuring actions included
workforce reductions aimed at streamlining administrative functions, realigning selling resources
to the highest anticipated growth opportunities and consolidating business units. The majority of
the charges related to severance benefits recognized pursuant to our severance policy and local
statutory requirements. In the Consolidated Statement of Operations for the year ended September
30, 2008, we recorded $4.1 million of the special items in cost of sales, while $46.6 million was
recorded in selling, general and administrative expenses.
During 2007, we recorded special items of $43.5 million ($27.7 million after tax, or $0.17 per
diluted share) related to various restructuring actions designed to execute on our cost
productivity initiatives and to advance our globalization strategy. Actions included workforce
reductions, realignment of administrative functions, and rationalization and consolidation of
global operations. In the Consolidated Statement of Operations for the year ended September 30,
2007, $21.8 million of the special items was recorded in cost of sales, while $21.7 million was
recorded in selling, general and administrative expenses.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Restructuring Charges and Special Items (continued)
The following tables set forth a summary of restructuring activities during 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash |
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
Activity |
|
|
September 30, |
|
|
|
2009 |
|
|
|
|
|
|
Accrual |
|
|
and |
|
|
2010 |
|
Actions |
|
Accrual |
|
|
Payments |
|
|
Adjustments |
|
|
Currency |
|
|
Accrual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Manufacturing Globalization
Employee severance benefits |
|
$ |
9.1 |
|
|
$ |
(3.5 |
) |
|
$ |
(3.1 |
) |
|
$ |
(0.4 |
) |
|
$ |
2.1 |
|
2008 Reduce Cost Structure for Anticipated
Market Conditions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance benefits |
|
|
5.0 |
|
|
|
(3.5 |
) |
|
|
(0.6 |
) |
|
|
0.1 |
|
|
|
1.0 |
|
2009 Reduce Cost Structure for Global
Recession |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance benefits |
|
|
35.7 |
|
|
|
(23.1 |
) |
|
|
(4.4 |
) |
|
|
(1.4 |
) |
|
|
6.8 |
|
Asset impairments |
|
|
8.8 |
|
|
|
|
|
|
|
|
|
|
|
(8.8 |
) |
|
|
|
|
Lease exit costs |
|
|
2.2 |
|
|
|
(2.0 |
) |
|
|
|
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
60.8 |
|
|
$ |
(32.1 |
) |
|
$ |
(8.1 |
) |
|
$ |
(10.7 |
) |
|
$ |
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. Other Expense
The components of other expense are (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Net gain (loss) on dispositions of securities and property |
|
$ |
0.9 |
|
|
$ |
(5.5 |
) |
|
$ |
(4.4 |
) |
Interest income |
|
|
6.0 |
|
|
|
5.0 |
|
|
|
9.6 |
|
Royalty income |
|
|
3.6 |
|
|
|
2.4 |
|
|
|
3.7 |
|
Environmental charges |
|
|
(4.5 |
) |
|
|
(5.9 |
) |
|
|
(4.5 |
) |
Other |
|
|
(8.1 |
) |
|
|
(4.4 |
) |
|
|
(11.1 |
) |
|
|
|
|
|
|
|
|
|
|
Other expense |
|
$ |
(2.1 |
) |
|
$ |
(8.4 |
) |
|
$ |
(6.7 |
) |
|
|
|
|
|
|
|
|
|
|
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Income Taxes
Selected income tax data from continuing operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Components of income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
364.3 |
|
|
$ |
144.9 |
|
|
$ |
64.7 |
|
Non-United States |
|
|
503.3 |
|
|
|
399.3 |
|
|
|
209.2 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
867.6 |
|
|
$ |
544.2 |
|
|
$ |
273.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of the income tax provision: |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
51.0 |
|
|
$ |
9.7 |
|
|
$ |
15.8 |
|
Non-United States |
|
|
75.0 |
|
|
|
36.7 |
|
|
|
42.3 |
|
State and local |
|
|
(2.0 |
) |
|
|
(0.1 |
) |
|
|
(16.8 |
) |
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
124.0 |
|
|
|
46.3 |
|
|
|
41.3 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
46.6 |
|
|
|
41.2 |
|
|
|
11.0 |
|
Non-United States |
|
|
(5.2 |
) |
|
|
13.1 |
|
|
|
1.9 |
|
State and local |
|
|
5.1 |
|
|
|
3.2 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
46.5 |
|
|
|
57.5 |
|
|
|
14.7 |
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
$ |
170.5 |
|
|
$ |
103.8 |
|
|
$ |
56.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes paid |
|
$ |
118.6 |
|
|
$ |
100.7 |
|
|
$ |
115.2 |
|
|
|
|
|
|
|
|
|
|
|
During 2011, we recognized net discrete tax benefits of $25.0 million related to the favorable
resolution of worldwide tax matters and the retroactive extension of the U.S. federal research
credit.
During 2010, we recognized discrete tax benefits of $27.2 million primarily related to the
favorable resolution of tax matters, partially offset by discrete tax expenses of $9.6 million
primarily related to the impact of a change in Mexican tax law and interest related to unrecognized
tax benefits.
During 2009, we recognized discrete tax benefits of $20.5 million related to the retroactive
extension of the U.S. federal research tax credit, the resolution of a contractual tax obligation
and various state tax matters, partially offset by discrete tax expenses of $4.2 million related to
a non-U.S. subsidiary.
Effective Tax Rate Reconciliation
The reconciliation between the U.S. federal statutory rate and our effective tax rate was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Statutory tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and local income taxes |
|
|
0.7 |
|
|
|
0.3 |
|
|
|
(1.2 |
) |
Non-United States taxes |
|
|
(12.7 |
) |
|
|
(12.8 |
) |
|
|
(9.4 |
) |
Foreign tax credit utilization |
|
|
0.9 |
|
|
|
1.3 |
|
|
|
0.4 |
|
Employee stock ownership plan benefit |
|
|
(0.3 |
) |
|
|
(0.4 |
) |
|
|
(0.8 |
) |
Change in valuation allowances |
|
|
0.8 |
|
|
|
(3.2 |
) |
|
|
|
|
Domestic manufacturing deduction |
|
|
(0.8 |
) |
|
|
(0.2 |
) |
|
|
(1.1 |
) |
Resolution of prior period tax matters |
|
|
(2.9 |
) |
|
|
(4.1 |
) |
|
|
(7.8 |
) |
Other |
|
|
(1.0 |
) |
|
|
3.2 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
19.7 |
% |
|
|
19.1 |
% |
|
|
20.4 |
% |
|
|
|
|
|
|
|
|
|
|
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Income Taxes (Continued)
Deferred Taxes
The tax effects of temporary differences that give rise to our net deferred income tax assets
and liabilities were (in millions):
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Current deferred income tax assets: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
$ |
26.1 |
|
|
$ |
22.0 |
|
Product warranty costs |
|
|
14.1 |
|
|
|
14.0 |
|
Inventory |
|
|
57.3 |
|
|
|
50.8 |
|
Allowance for doubtful accounts |
|
|
15.2 |
|
|
|
14.6 |
|
Deferred credits |
|
|
9.4 |
|
|
|
10.5 |
|
Returns, rebates and incentives |
|
|
44.3 |
|
|
|
34.2 |
|
Self-insurance reserves |
|
|
2.2 |
|
|
|
2.5 |
|
Restructuring reserves |
|
|
1.1 |
|
|
|
2.4 |
|
Net operating loss carryforwards |
|
|
1.6 |
|
|
|
1.6 |
|
U.S. federal tax credit carryforwards |
|
|
8.4 |
|
|
|
0.7 |
|
State tax credit carryforwards |
|
|
|
|
|
|
0.3 |
|
Other net |
|
|
19.9 |
|
|
|
16.6 |
|
|
|
|
|
|
|
|
Current deferred income tax assets |
|
|
199.6 |
|
|
|
170.2 |
|
|
|
|
|
|
|
|
|
|
Long-term deferred income tax assets (liabilities): |
|
|
|
|
|
|
|
|
Retirement benefits |
|
$ |
335.4 |
|
|
$ |
316.9 |
|
Property |
|
|
(80.3 |
) |
|
|
(75.5 |
) |
Intangible assets |
|
|
(28.9 |
) |
|
|
(24.0 |
) |
Environmental reserves |
|
|
11.9 |
|
|
|
12.9 |
|
Share-based compensation |
|
|
33.6 |
|
|
|
36.9 |
|
Self-insurance reserves |
|
|
5.7 |
|
|
|
6.2 |
|
Deferred gains |
|
|
3.8 |
|
|
|
4.3 |
|
Net operating loss carryforwards |
|
|
41.6 |
|
|
|
44.2 |
|
Capital loss carryforwards |
|
|
18.3 |
|
|
|
11.7 |
|
U.S. federal tax credit carryforwards |
|
|
1.5 |
|
|
|
1.5 |
|
State tax credit carryforwards |
|
|
3.5 |
|
|
|
2.5 |
|
Other net |
|
|
22.9 |
|
|
|
13.6 |
|
|
|
|
|
|
|
|
Subtotal |
|
|
369.0 |
|
|
|
351.2 |
|
Valuation allowance |
|
|
(32.8 |
) |
|
|
(26.7 |
) |
|
|
|
|
|
|
|
Net long-term deferred income tax assets |
|
|
336.2 |
|
|
|
324.5 |
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets |
|
$ |
535.8 |
|
|
$ |
494.7 |
|
|
|
|
|
|
|
|
Total deferred tax assets were $682.8 million at September 30, 2011 and $627.1 million at
September 30, 2010. Total deferred tax liabilities were $114.2 million at September 30, 2011 and
$105.7 million at September 30, 2010.
We have not provided U.S. deferred taxes for $1,906.0 million of undistributed earnings of the
Companys subsidiaries, since these earnings have been, and under current plans will continue to
be, permanently reinvested in these subsidiaries. It is not practicable to estimate the amount of
additional taxes that may be payable upon distribution.
We believe it is more likely than not that we will realize current and long-term deferred tax
assets through the reduction of future taxable income, other than for the deferred tax assets
reflected below. Significant factors we considered in determining the probability of the
realization of the deferred tax assets include our historical operating results and expected future
earnings.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Income Taxes (Continued)
Tax attributes and related valuation allowances at September 30, 2011 are (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
Carryforward |
|
|
|
Benefit |
|
|
Valuation |
|
|
Period |
|
Tax Attribute to be Carried Forward |
|
Amount |
|
|
Allowance |
|
|
Ends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-United States net operating loss carryforward |
|
$ |
7.3 |
|
|
$ |
5.0 |
|
|
|
2012-2021 |
|
Non-United States net operating loss carryforward |
|
|
12.0 |
|
|
|
6.2 |
|
|
Indefinite |
Non-United States capital loss carryforward |
|
|
18.3 |
|
|
|
18.3 |
|
|
Indefinite |
United States net operating loss carryforward |
|
|
8.5 |
|
|
|
|
|
|
|
2019-2027 |
|
United States tax credit carryforward |
|
|
9.9 |
|
|
|
|
|
|
|
2018-2031 |
|
State and local net operating loss carryforward |
|
|
15.4 |
|
|
|
0.9 |
|
|
|
2012-2031 |
|
State tax credit carryforward |
|
|
3.5 |
|
|
|
|
|
|
|
2015-2026 |
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal tax carryforwards |
|
|
74.9 |
|
|
|
30.4 |
|
|
|
|
|
Other deferred tax assets |
|
|
2.4 |
|
|
|
2.4 |
|
|
Indefinite |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
77.3 |
|
|
$ |
32.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance increased $6.1 million in 2011 and decreased $17.1 million in 2010
primarily due to the utilization of a non-U.S. capital loss carryforward.
Unrecognized Tax Benefits
We operate in numerous taxing jurisdictions and are subject to regular examinations by various
U.S. federal, state and foreign jurisdictions for various tax periods. Additionally, we have
retained tax liabilities and the rights to tax refunds in connection with various divestitures of
businesses in prior years. Our income tax positions are based on research and interpretations of
the income tax laws and rulings in each of the jurisdictions in which we do business. Due to the
subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and
interplay in tax laws between those jurisdictions as well as the inherent uncertainty in estimating
the final resolution of complex tax audit matters, our estimates of income tax liabilities may
differ from actual payments or assessments.
A reconciliation of our gross unrecognized tax benefits, excluding interest and penalties, is
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Gross unrecognized tax benefits balance at beginning of year |
|
$ |
66.3 |
|
|
$ |
116.7 |
|
|
$ |
125.8 |
|
Additions based on tax positions related to the current year |
|
|
22.3 |
|
|
|
6.3 |
|
|
|
15.3 |
|
Additions based on tax positions related to prior years |
|
|
9.3 |
|
|
|
1.0 |
|
|
|
2.2 |
|
Reductions based on tax positions related to prior years |
|
|
(0.6 |
) |
|
|
(12.0 |
) |
|
|
(8.1 |
) |
Reductions related to settlements with taxing authorities |
|
|
(18.5 |
) |
|
|
(44.0 |
) |
|
|
(13.3 |
) |
Reductions related to lapses of statute of limitations |
|
|
(3.0 |
) |
|
|
(3.7 |
) |
|
|
(3.9 |
) |
Effect of foreign currency translation |
|
|
(0.7 |
) |
|
|
2.0 |
|
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits balance at end of year |
|
|
75.1 |
|
|
|
66.3 |
|
|
|
116.7 |
|
Offsetting tax benefits |
|
|
(44.9 |
) |
|
|
(51.1 |
) |
|
|
(49.1 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrecognized tax benefits |
|
$ |
30.2 |
|
|
$ |
15.2 |
|
|
$ |
67.6 |
|
|
|
|
|
|
|
|
|
|
|
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Income Taxes (Continued)
The amount of gross unrecognized tax benefits that would reduce our effective tax rate if
recognized was $75.1 million ($30.2 million net of offsetting tax benefits) as of September 30,
2011, $57.5 million ($9.5 million net of offsetting tax
benefits) as of September 30, 2010 and $85.2 million ($40.9
million net of offsetting tax benefits) as of September 30, 2009.
Offsetting tax benefits primarily consist of tax receivables and deposits that were recorded in
other assets and a foreign tax credit item that was recorded in deferred income taxes.
During 2011, there was no material change in the amount of gross unrecognized tax benefits.
During the next 12 months, we believe it is reasonably possible that the amount of gross
unrecognized tax benefits could be reduced by up to $5.4 million and the amount of offsetting tax
benefits could be increased by up to $2.4 million as a result of the resolution of worldwide tax
matters and the lapses of statutes of limitations.
We recognize interest and penalties related to unrecognized tax benefits in tax expense.
Accrued interest and penalties were $16.9 million and
$26.6 million at September 30, 2011 and 2010, respectively.
We recognized benefits (expense) related to interest and penalties of
$9.7 million, $0.9 million, and ($2.4) million during 2011, 2010 and
2009, respectively.
We conduct business globally and are routinely audited by the various tax jurisdictions in
which we operate. We are no longer subject to U.S. federal income tax examinations for years
before 2009 and are no longer subject to state, local and foreign income tax examinations for years
before 2003.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Commitments and Contingent Liabilities
Environmental Matters
Federal, state and local requirements relating to the discharge of substances into the
environment, the disposal of hazardous wastes and other activities affecting the environment have
and will continue to have an effect on our manufacturing operations. Thus far, compliance with
environmental requirements and resolution of environmental claims have been accomplished without
material effect on our liquidity and capital resources, competitive position or financial
condition.
We have been designated as a potentially responsible party at 14 Superfund sites, excluding
sites as to which our records disclose no involvement or as to which our potential liability has
been finally determined and assumed by third parties. We estimate the total reasonably possible
costs we could incur for the remediation of Superfund sites at September 30, 2011 to be $11.2
million, of which $3.4 million has been accrued.
Various other lawsuits, claims and proceedings have been asserted against us alleging
violations of federal, state and local environmental protection requirements, or seeking
remediation of alleged environmental impairments, principally at previously owned properties. As of
September 30, 2011, we have estimated the total reasonably possible costs we could incur from these
matters to be $85.3 million. We have recorded environmental accruals for these matters of $38.9
million. In addition to the above matters, certain environmental liabilities are substantially
indemnified by ExxonMobil Corporation. At September 30, 2011, we recorded a liability of $31.3
million and a receivable of $30.0 million for these matters. We estimate the total reasonably
possible costs that we could incur from these matters to be $36.7 million.
Based on our assessment, we believe that our expenditures for environmental capital investment
and remediation necessary to comply with present regulations governing environmental protection and
other expenditures for the resolution of environmental claims will not have a material adverse
effect on our liquidity and capital resources, competitive position or financial condition. We
cannot assess the possible effect of compliance with future requirements.
Conditional Asset Retirement Obligations
We accrue for costs related to a legal obligation associated with the retirement of a tangible
long-lived asset that results from the acquisition, construction, development or the normal
operation of the long-lived asset. The obligation to perform the asset retirement activity is not
conditional even though the timing or method may be conditional. Identified conditional asset
retirement obligations include asbestos abatement and remediation of soil contamination beneath
current and previously divested facilities. We estimated conditional asset retirement obligations
using site-specific knowledge and historical industry expertise. We recorded $4.7 million in other
current liabilities and $23.9 million in other liabilities for these obligations at September 30,
2011. At September 30, 2010, we recorded liabilities for these asset retirement obligations of
$7.9 million in other current liabilities and $22.7 million in other liabilities.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Commitments and Contingent Liabilities (Continued)
Lease Commitments
Rental expense was $111.5 million in 2011, $106.0 million in 2010 and $114.7 million in
2009. Minimum future rental commitments under operating leases having noncancelable lease terms in
excess of one year aggregated $356.1 million as of September 30, 2011 and are payable as follows
(in millions):
|
|
|
|
|
2012 |
|
$ |
75.7 |
|
2013 |
|
|
58.8 |
|
2014 |
|
|
48.8 |
|
2015 |
|
|
37.0 |
|
2016 |
|
|
27.8 |
|
Beyond 2016 |
|
|
108.0 |
|
|
|
|
|
Total |
|
$ |
356.1 |
|
|
|
|
|
Commitments from third parties under sublease agreements having noncancelable lease terms in
excess of one year aggregated $1.8 million as of September 30, 2011 and are receivable through 2017
at approximately $0.3 million per year. Most leases contain renewal options for varying periods,
and certain leases include options to purchase the leased property.
Other Matters
Various other lawsuits, claims and proceedings have been or may be instituted or asserted
against us relating to the conduct of our business, including those pertaining to product
liability, environmental, safety and health, intellectual property, employment and contract
matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits,
claims or proceedings may be disposed of unfavorably to us, we believe the disposition of matters
that are pending or have been asserted will not have a material adverse effect on our business or
financial condition.
We (including our subsidiaries) have been named as a defendant in lawsuits alleging personal
injury as a result of exposure to asbestos that was used in certain components of our products many
years ago. Currently there are a few thousand claimants in lawsuits that name us as defendants,
together with hundreds of other companies. In some cases, the claims involve products from
divested businesses, and we are indemnified for most of the costs. However, we have agreed to
defend and indemnify asbestos claims associated with products manufactured or sold by our former
Dodge mechanical and Reliance Electric motors and motor repair services businesses prior to their
divestiture by us, which occurred on January 31, 2007. We are also responsible for half of the
costs and liabilities associated with asbestos cases against RICs divested measurement and flow
control business. But in all cases, for those claimants who do show that they worked with our
products or products of divested businesses for which we are responsible, we nevertheless believe
we have meritorious defenses, in substantial part due to the integrity of the products, the
encapsulated nature of any asbestos-containing components, and the lack of any impairing medical
condition on the part of many claimants. We defend those cases vigorously. Historically, we have
been dismissed from the vast majority of these claims with no payment to claimants.
We have maintained insurance coverage that we believe covers indemnity and defense costs, over
and above self-insured retentions, for claims arising from our former Allen-Bradley subsidiary.
Following litigation against Nationwide Indemnity Company (Nationwide) and Kemper Insurance
(Kemper), the insurance carriers that provided liability insurance coverage to Allen-Bradley, we
entered into separate agreements on April 1, 2008 with both insurance carriers to further resolve
responsibility for ongoing and future coverage of Allen-Bradley asbestos claims. In exchange for a
lump sum payment, Kemper bought out its remaining liability and has been released from further
insurance obligations to Allen-Bradley. Nationwide entered into a cost share agreement with us to
pay the substantial majority of future defense and indemnity costs for Allen-Bradley asbestos
claims. We believe that this arrangement with Nationwide will continue to provide coverage for
Allen-Bradley asbestos claims throughout the remaining life of the asbestos liability.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Commitments and Contingent Liabilities (Continued)
The uncertainties of asbestos claim litigation make it difficult to predict accurately the
ultimate outcome of asbestos claims. That uncertainty is increased by the possibility of adverse
rulings or new legislation affecting asbestos claim litigation or the settlement process. Subject
to these uncertainties and based on our experience defending asbestos claims, we do not believe
these lawsuits will have a material adverse effect on our financial condition.
We have, from time to time, divested certain of our businesses. In connection with these
divestitures, certain lawsuits, claims and proceedings may be instituted or asserted against us
related to the period that we owned the businesses, either because we agreed to retain certain
liabilities related to these periods or because such liabilities fall upon us by operation of law.
In some instances the divested business has assumed the liabilities; however, it is possible that
we might be responsible to satisfy those liabilities if the divested business is unable to do so.
In connection with the spin-offs of our former automotive component systems business,
semiconductor systems business and Rockwell Collins avionics and communications business, the
spun-off companies have agreed to indemnify us for substantially all contingent liabilities related
to the respective businesses, including environmental and intellectual property matters.
In conjunction with the sale of our Dodge mechanical and Reliance Electric motors and motor
repair services businesses, we agreed to indemnify Baldor Electric Company for costs and damages
related to certain legal, legacy environmental and asbestos matters of these businesses arising
before January 31, 2007, for which the maximum exposure would be capped at the amount received for
the sale. We estimate the potential future payments we could incur under these indemnifications
may approximate $16.2 million, of which $1.6 million has been accrued in other current liabilities
and $10.1 million has been accrued in other liabilities at September 30, 2011. We recorded $6.4
million and $11.1 million in other current liabilities and other liabilities, respectively, at
September 30, 2010 for these indemnifications. Federal Pacific Electric, a non-operating entity
that had been retained following the sale of our Dodge mechanical and Reliance Electric motors and
motor repair services businesses, dissolved pursuant to Delaware law on March 31, 2011.
In many countries we provide a limited intellectual property indemnity as part of our terms
and conditions of sale. We also at times provide limited intellectual property indemnities in
other contracts with third parties, such as contracts concerning the development and manufacture of
our products, the divestiture of businesses and the licensing of intellectual property. Due to the
number of agreements containing such provisions, we are unable to estimate the maximum potential
future payments.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Business Segment Information
Rockwell Automation is a leading global provider of industrial automation power, control and
information solutions that help manufacturers achieve a competitive advantage for their businesses.
We determine our operating segments based on the information used by our chief operating decision
maker, our Chief Executive Officer, to allocate resources and assess performance. Based upon these
criteria, we organized our products and services into two operating segments: Architecture &
Software and Control Products & Solutions.
Architecture & Software
The Architecture & Software segment contains all of the hardware, software and communication
components of our integrated control and information architecture capable of controlling the
customers industrial processes and connecting with their manufacturing enterprise. Architecture &
Software has a broad portfolio of products including:
|
|
|
Control platforms that perform multiple control disciplines and monitoring of
applications, including discrete, batch, continuous process, drives control, motion control
and machine safety control. Our platform products include controllers, electronic operator
interface devices, electronic input/output devices, communication and networking products
and industrial computers. The information-enabled Logix controllers provide integrated
multi-discipline control that is modular and scalable. |
|
|
|
Software products that include configuration and visualization software used to operate
and supervise control platforms, advanced process control software and manufacturing
execution software (MES) that addresses information needs between the factory floor and a
customers enterprise business system. |
|
|
|
Other Architecture & Software products, including rotary and linear motion control
products, sensors and machine safety components. |
Control Products & Solutions
The Control Products & Solutions segment combines a comprehensive portfolio of intelligent
motor control and industrial control products, application expertise and project management
capabilities. This comprehensive portfolio includes:
|
|
|
Low and medium voltage electro-mechanical and electronic motor starters, motor and
circuit protection devices, AC/DC variable frequency drives, push buttons, signaling
devices, termination and protection devices, relays and timers and condition sensors. |
|
|
|
Value-added solutions ranging from packaged solutions such as configured drives and
motor control centers to automation and information solutions where we provide design,
integration and start-up services for custom-engineered hardware and software systems
primarily for manufacturing applications. |
|
|
|
Services designed to help maximize a customers automation investment and provide total
life-cycle support, including multi-vendor customer technical support and repair,
customized safety solutions, asset management, training and predictive and preventative
maintenance. |
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Business Segment Information (Continued)
The following tables reflect the sales and operating results of our reportable segments for
the years ended September 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Architecture & Software |
|
$ |
2,594.3 |
|
|
$ |
2,115.0 |
|
|
$ |
1,723.5 |
|
Control Products & Solutions |
|
|
3,406.1 |
|
|
|
2,742.0 |
|
|
|
2,609.0 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,000.4 |
|
|
$ |
4,857.0 |
|
|
$ |
4,332.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Architecture & Software |
|
$ |
659.1 |
|
|
$ |
475.4 |
|
|
$ |
223.0 |
|
Control Products & Solutions |
|
|
368.5 |
|
|
|
241.8 |
|
|
|
206.7 |
|
|
|
|
|
|
|
|
|
|
|
Total (a) |
|
|
1,027.6 |
|
|
|
717.2 |
|
|
|
429.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting depreciation and amortization |
|
|
(19.8 |
) |
|
|
(18.9 |
) |
|
|
(18.6 |
) |
General corporate-net |
|
|
(80.7 |
) |
|
|
(93.6 |
) |
|
|
(80.3 |
) |
Interest expense |
|
|
(59.5 |
) |
|
|
(60.5 |
) |
|
|
(60.9 |
) |
Special items |
|
|
|
|
|
|
|
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
$ |
867.6 |
|
|
$ |
544.2 |
|
|
$ |
273.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Segment operating earnings in 2009 includes restructuring charges of $60.4 million.
See Note 14 for more information. |
Among other considerations, we evaluate performance and allocate resources based upon segment
operating earnings before income taxes, interest expense, costs related to corporate offices,
certain nonrecurring corporate initiatives, gains and losses from the disposition of businesses and
incremental acquisition related expenses resulting from purchase accounting adjustments such as
intangible asset amortization, depreciation, inventory and purchased research and development
charges. Depending on the product, intersegment sales within a single legal entity are either at
cost or cost plus a mark-up, which does not necessarily represent a market price. Sales between
legal entities are at an appropriate transfer price. We allocate costs related to shared segment
operating activities to the segments using a methodology consistent with the expected benefit.
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Business Segment Information (Continued)
The following tables summarize the identifiable assets at September 30 and the provision for
depreciation and amortization and the amount of capital expenditures for property for the years
ended September 30 for each of the reportable segments and Corporate (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Identifiable assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Architecture & Software |
|
$ |
1,608.4 |
|
|
$ |
1,238.8 |
|
|
$ |
1,157.2 |
|
Control Products & Solutions |
|
|
2,116.1 |
|
|
|
1,897.1 |
|
|
|
1,723.5 |
|
Corporate |
|
|
1,560.4 |
|
|
|
1,612.4 |
|
|
|
1,425.0 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,284.9 |
|
|
$ |
4,748.3 |
|
|
$ |
4,305.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Architecture & Software |
|
$ |
60.0 |
|
|
$ |
54.0 |
|
|
$ |
59.6 |
|
Control Products & Solutions |
|
|
51.4 |
|
|
|
54.3 |
|
|
|
55.2 |
|
Corporate |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
111.5 |
|
|
|
108.4 |
|
|
|
115.5 |
|
Purchase accounting depreciation and amortization |
|
|
19.8 |
|
|
|
18.9 |
|
|
|
18.6 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
131.3 |
|
|
$ |
127.3 |
|
|
$ |
134.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for property: |
|
|
|
|
|
|
|
|
|
|
|
|
Architecture & Software |
|
$ |
28.1 |
|
|
$ |
33.0 |
|
|
$ |
15.7 |
|
Control Products & Solutions |
|
|
38.2 |
|
|
|
26.6 |
|
|
|
25.8 |
|
Corporate |
|
|
53.8 |
|
|
|
39.8 |
|
|
|
56.5 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
120.1 |
|
|
$ |
99.4 |
|
|
$ |
98.0 |
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets at Corporate consist principally of cash, net deferred income tax assets,
prepaid pension and property. Property shared by the segments and used in operating activities is
also reported in Corporate identifiable assets and Corporate capital expenditures. Corporate
identifiable assets include shared net property balances of $315.7 million, $293.2 million and
$204.4 million at September 30, 2011, 2010 and 2009, respectively, for which depreciation expense
has been allocated to segment operating earnings based on the expected benefit to be realized by
each segment. Corporate capital expenditures include $53.8 million, $39.1 million and $56.2
million in 2011, 2010 and 2009, respectively, that will be shared by our operating segments.
We conduct a significant portion of our business activities outside the United States. The
following tables present sales and property by geographic region (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
Property |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
United States |
|
$ |
2,917.8 |
|
|
$ |
2,456.2 |
|
|
$ |
2,209.2 |
|
|
$ |
446.1 |
|
|
$ |
424.9 |
|
|
$ |
413.7 |
|
Canada |
|
|
396.2 |
|
|
|
321.0 |
|
|
|
257.1 |
|
|
|
9.2 |
|
|
|
9.7 |
|
|
|
10.2 |
|
Europe, Middle East and Africa |
|
|
1,267.6 |
|
|
|
987.3 |
|
|
|
962.1 |
|
|
|
42.6 |
|
|
|
40.3 |
|
|
|
43.7 |
|
Asia-Pacific |
|
|
910.6 |
|
|
|
724.3 |
|
|
|
579.3 |
|
|
|
36.8 |
|
|
|
34.2 |
|
|
|
38.7 |
|
Latin America |
|
|
508.2 |
|
|
|
368.2 |
|
|
|
324.8 |
|
|
|
26.7 |
|
|
|
27.8 |
|
|
|
26.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,000.4 |
|
|
$ |
4,857.0 |
|
|
$ |
4,332.5 |
|
|
$ |
561.4 |
|
|
$ |
536.9 |
|
|
$ |
532.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We attribute sales to the geographic regions based on the country of destination.
In the United States, Canada and certain other countries, we sell our products primarily
through independent distributors. In the remaining countries, we sell products through a
combination of direct sales and sales through distributors. We sell large systems and service
offerings principally through a direct sales force, though opportunities are sometimes identified
through distributors. Sales to our largest distributor in 2011, 2010 and 2009 were approximately
10 percent of our total sales.
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Quarterly Financial Information
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Quarters |
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
2011 |
|
|
|
(in millions, except per share amounts) |
|
|
|
Sales |
|
$ |
1,365.8 |
|
|
$ |
1,464.1 |
|
|
$ |
1,516.2 |
|
|
$ |
1,654.3 |
|
|
$ |
6,000.4 |
|
Gross profit |
|
|
543.9 |
|
|
|
576.5 |
|
|
|
606.8 |
|
|
|
663.2 |
|
|
|
2,390.4 |
|
Income from continuing operations before
income taxes |
|
|
186.7 |
|
|
|
203.6 |
|
|
|
221.2 |
|
|
|
256.1 |
|
|
|
867.6 |
|
Income from continuing operations |
|
|
150.1 |
|
|
|
166.4 |
|
|
|
178.8 |
|
|
|
201.8 |
|
|
|
697.1 |
|
Income from discontinued operations (a) |
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
0.7 |
|
Net income |
|
|
150.1 |
|
|
|
166.4 |
|
|
|
179.5 |
|
|
|
201.8 |
|
|
|
697.8 |
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
1.06 |
|
|
|
1.16 |
|
|
|
1.24 |
|
|
|
1.41 |
|
|
|
4.88 |
|
Discontinued operations (a) |
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
Net income |
|
|
1.06 |
|
|
|
1.16 |
|
|
|
1.25 |
|
|
|
1.41 |
|
|
|
4.88 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
1.04 |
|
|
|
1.14 |
|
|
|
1.22 |
|
|
|
1.39 |
|
|
|
4.79 |
|
Discontinued operations (a) |
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
0.01 |
|
Net income |
|
|
1.04 |
|
|
|
1.14 |
|
|
|
1.23 |
|
|
|
1.39 |
|
|
|
4.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Quarters |
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
2010 |
|
|
|
(in millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
1,067.5 |
|
|
$ |
1,164.5 |
|
|
$ |
1,268.1 |
|
|
$ |
1,356.9 |
|
|
$ |
4,857.0 |
|
Gross profit |
|
|
426.8 |
|
|
|
473.1 |
|
|
|
507.3 |
|
|
|
529.2 |
|
|
|
1,936.4 |
|
Income from continuing operations before
income taxes |
|
|
97.3 |
|
|
|
133.6 |
|
|
|
155.5 |
|
|
|
157.8 |
|
|
|
544.2 |
|
Income from continuing operations |
|
|
77.8 |
|
|
|
111.9 |
|
|
|
119.4 |
|
|
|
131.3 |
|
|
|
440.4 |
|
(Loss) income from discontinued operations (a) |
|
|
(1.2 |
) |
|
|
25.1 |
|
|
|
|
|
|
|
|
|
|
|
23.9 |
|
Net income |
|
|
76.6 |
|
|
|
137.0 |
|
|
|
119.4 |
|
|
|
131.3 |
|
|
|
464.3 |
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
0.55 |
|
|
|
0.78 |
|
|
|
0.84 |
|
|
|
0.93 |
|
|
|
3.09 |
|
Discontinued operations (a) |
|
|
(0.01 |
) |
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
0.17 |
|
Net income |
|
|
0.54 |
|
|
|
0.96 |
|
|
|
0.84 |
|
|
|
0.93 |
|
|
|
3.26 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
0.54 |
|
|
|
0.77 |
|
|
|
0.83 |
|
|
|
0.91 |
|
|
|
3.05 |
|
Discontinued operations (a) |
|
|
(0.01 |
) |
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
0.17 |
|
Net income |
|
|
0.53 |
|
|
|
0.95 |
|
|
|
0.83 |
|
|
|
0.91 |
|
|
|
3.22 |
|
Note: The sum of the quarterly per share amounts will not necessarily equal the annual per
share amounts presented.
|
|
|
(a) |
|
See Note 13 for more information on discontinued operations. |
78
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareowners of
Rockwell Automation, Inc.
Milwaukee, Wisconsin
We have audited the accompanying consolidated balance sheets of Rockwell Automation, Inc. (the
Company) as of September 30, 2011 and 2010, and the related consolidated statements of
operations, shareowners equity, cash flows, and comprehensive income (loss) for each of the three
years in the period ended September 30, 2011. Our audits also included the financial statement
schedules listed in the Index at Item 15(a)(2). We also have audited the Companys internal control
over financial reporting as of September 30, 2011, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for these financial statements and financial
statement schedules, for maintaining effective internal control over financial reporting, and for
its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on these financial statements and financial statement schedules and an
opinion on the Companys internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis
for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles and
that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
79
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Rockwell Automation, Inc. as of September 30, 2011 and
2010, and the results of its operations and its cash flows for each of the three years in the
period ended September 30, 2011, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein. Also, in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of September 30,
2011, based on the criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 14, 2011
80
|
|
|
Item 9. |
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
|
|
|
Item 9A. |
|
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, we have evaluated the effectiveness, as of September
30, 2011, of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule
15d-15(e) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures were effective as of
September 30, 2011.
Managements Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability
of our financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Under the supervision and with the
participation of our management, including the Chief Executive Officer and Chief Financial Officer,
we evaluated the effectiveness of our internal control over financial reporting based on the
framework in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based upon that evaluation, management has
concluded that our internal control over financial reporting was effective as of September 30,
2011.
The effectiveness of our internal control over financial reporting as of September 30, 2011
has been audited by Deloitte & Touche LLP, as stated in their report that is included on the
previous two pages.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of the changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
As previously disclosed, we are in the process of developing and implementing common global
process standards and an enterprise-wide information technology system. In the fourth quarter of
2011, we deployed new business processes and functionality of the system related to our
engineering, manufacturing, order management and finance functions to certain locations. In doing
so, we modified and enhanced our internal controls over financial reporting (as such term is
defined in Exchange Act Rule 13a-15(f)) as a result of and in connection with the implementation of
the new system and processes. Additional implementations will occur to most locations of our
company over a multi-year period, with additional phases scheduled throughout fiscal 2012-2014.
There have not been any other changes in our internal control over financial reporting during
the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
|
|
|
Item 9B. |
|
Other Information |
None.
81
PART III
|
|
|
Item 10. |
|
Directors, Executive Officers and Corporate Governance |
Other than the information below, the information required by this Item is incorporated by
reference to the sections entitled Election of Directors, Information about Director Nominees and
Continuing Directors, Board of Directors and Committees and Section 16(a) Beneficial Ownership
Reporting Compliance in the 2012 Proxy Statement.
No nominee for director was selected pursuant to any arrangement or understanding between the
nominee and any person other than the Company pursuant to which such person is or was to be
selected as a director or nominee. See also the information about executive officers of the
Company under Item 4A of Part I.
We have adopted a code of ethics that applies to our executive officers, including the
principal executive officer, principal financial officer and principal accounting officer. A copy
of our code of ethics is posted on our Internet site at http://www.rockwellautomation.com. In the
event that we amend or grant any waiver from a provision of the code of ethics that applies to the
principal executive officer, principal financial officer or principal accounting officer and that
requires disclosure under applicable SEC rules, we intend to disclose such amendment or waiver and
the reasons therefor on our Internet site.
|
|
|
Item 11. |
|
Executive Compensation |
The information required by this Item is incorporated by reference to the sections entitled
Executive Compensation, Director Compensation and Compensation Committee Report in the 2012 Proxy
Statement.
|
|
|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Other than the information below, the information required by this Item is incorporated by
reference to the sections entitled Stock Ownership by Certain Beneficial Owners and Ownership of
Equity Securities by Directors and Executive Officers in the 2012 Proxy Statement.
The following table provides information as of September 30, 2011 about our common stock that
may be issued upon the exercise of options, warrants and rights granted to employees, consultants
or directors under all of our existing equity compensation plans, including our 2008 Long-Term
Incentives Plan, 2000 Long-Term Incentives Plan and 2003 Directors Stock Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
|
|
|
|
Remaining Available for |
|
|
|
Number of Securities to |
|
|
Weighted Average |
|
|
Future Issuance under |
|
|
|
be issued upon |
|
|
Exercise Price of |
|
|
Equity Compensation |
|
|
|
Exercise of |
|
|
Outstanding |
|
|
Plans (excluding |
|
|
|
Outstanding Options, |
|
|
Options, Warrants |
|
|
Securities reflected in |
|
|
|
Warrants and Rights |
|
|
and Rights |
|
|
Column (a)) |
|
Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved
by shareowners |
|
|
8,554,915 |
(1) |
|
$ |
51.46 |
|
|
|
5,310,691 |
(2) |
|
|
Equity compensation plans not approved
by shareowners |
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
8,554,915 |
|
|
$ |
51.46 |
|
|
|
5,310,691 |
|
|
|
|
(1) |
|
Represents outstanding options and shares issuable in payment of outstanding performance
shares and restricted stock units under our 2008 Long-Term Incentives Plan, 2000 Long-Term
Incentives Plan and 2003 Directors Stock Plan. |
|
(2) |
|
Represents 5,008,822 and 301,869 shares available for future issuance under our 2008
Long-Term Incentives Plan and our 2003 Directors Stock Plan, respectively. |
82
|
|
|
Item 13. |
|
Certain Relationships and Related Transactions, and Director Independence |
The information required by this Item is incorporated by reference to the sections entitled
Board of Directors and Committees and Corporate Governance in the 2012 Proxy Statement.
|
|
|
Item 14. |
|
Principal Accountant Fees and Services |
The information required by this Item is incorporated by reference to the section entitled
Proposal to Approve the Selection of Independent Registered Public Accounting Firm in the 2012
Proxy Statement.
83
PART IV
|
|
|
Item 15. |
|
Exhibits and Financial Statement Schedule |
(a) Financial Statements, Financial Statement Schedule and Exhibits
|
(1) |
|
Financial Statements (all financial statements listed below are those of the
Company and its consolidated subsidiaries) |
|
|
|
|
|
Consolidated Balance Sheet, September 30, 2011 and 2010 |
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations, years ended September 30, 2011, 2010 and 2009 |
|
|
|
|
|
|
|
|
|
Consolidated Statement of Cash Flows, years ended September 30, 2011, 2010 and 2009 |
|
|
|
|
|
|
|
|
|
Consolidated Statement of Shareowners Equity, years ended September 30, 2011, 2010 and 2009 |
|
|
|
|
|
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Consolidated Statement of Comprehensive Income (Loss), years ended September 30, 2011, 2010 and 2009 |
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Notes to Consolidated Financial Statements |
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Report of Independent Registered Public Accounting Firm |
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(2) |
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Financial Statement Schedule for the years ended September 30, 2011, 2010 and
2009 |
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Page |
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Schedule IIValuation and Qualifying Accounts |
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S-1 |
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Schedules not filed herewith are omitted because of the absence of conditions under
which they are required or because the information called for is shown in the
consolidated financial statements or notes thereto.
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3-a |
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Restated Certificate of Incorporation of the Company, filed as Exhibit
3 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
2002, is hereby incorporated by reference. |
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3-b |
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By-Laws of the Company, as amended and restated effective September 3,
2008, filed as Exhibit 3.2 to the Companys Current Report on Form 8-K dated
September 8, 2008, are hereby incorporated by reference. |
|
4-a-1 |
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Indenture dated as of December 1, 1996 between the Company and The
Bank of New York Trust Company, N.A. (formerly JPMorgan Chase, successor to The
Chase Manhattan Bank, successor to Mellon Bank, N.A.), as Trustee, filed as Exhibit
4-a to Registration Statement No. 333-43071, is hereby incorporated by reference. |
|
4-a-2 |
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|
Form of certificate for the Companys 6.70% Debentures due January 15,
2028, filed as Exhibit 4-b to the Companys Current Report on Form 8-K dated
January 26, 1998, is hereby incorporated by reference. |
|
4-a-3 |
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Form of certificate for the Companys 5.20% Debentures due January 15,
2098, filed as Exhibit 4-c to the Companys Current Report on Form 8-K dated
January 26, 1998, is hereby incorporated by reference. |
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4-a-4 |
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Form of certificate for the Companys 5.65% Notes due December 31,
2017, filed as Exhibit 4.1 to the Companys Current Report on Form 8-K dated
December 3, 2007, is hereby incorporated by reference. |
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* |
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Management contract or compensatory plan or arrangement. |
84
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4-a-5 |
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Form of certificate for the Companys 6.25% Debentures due December
31, 2037, filed as Exhibit 4.2 to the Companys Current Report on Form 8-K dated
December 3, 2007, is hereby incorporated by reference. |
|
*10-a-1 |
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Copy of resolution of the Board of Directors of the Company, adopted on December
4, 2002, amending the Companys Directors Stock Plan, filed as Exhibit 10.4 to
the Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
2003, is hereby incorporated by reference. |
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*10-a-2 |
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Copy of the Companys 2003 Directors Stock Plan, filed as Exhibit 4-d to the
Companys Registration Statement on Form S-8 (No. 333-101780), is hereby
incorporated by reference. |
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*10-a-3 |
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Form of Stock Option Agreement under Sections 7(a)(i) and 7(a)(ii) of the 2003
Directors Stock Plan, filed as Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2003, is hereby incorporated by
reference. |
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*10-a-4 |
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Memorandum of Amendments to the Companys 2003 Directors Stock Plan approved and
adopted by the Board of Directors of the Company on April 25, 2003, filed as
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, is hereby incorporated by reference. |
|
*10-a-5 |
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Summary of Non-Employee Director Compensation and Benefits as of October 1,
2011. |
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*10-a-6 |
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Memorandum of Amendments to the Companys 2003 Directors Stock Plan approved and
adopted by the Board of Directors of the Company on November 7, 2007, filed as
Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the quarter ended
December 31, 2007, is hereby incorporated by reference. |
|
*10-a-7 |
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Memorandum of Amendments to the Companys 2003 Directors Stock Plan approved and
adopted by the Board of Directors of the Company on September 3, 2008, filed as
Exhibit 10-b-16 to the Companys Annual Report on Form 10-K for the year ended
September 30, 2008, is hereby incorporated by reference. |
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*10-a-8 |
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Form of Restricted Stock Unit Agreement under Section 6 of the Companys 2003
Directors Stock Plan, as amended, filed as Exhibit 10.3 to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2008, is hereby incorporated by
reference. |
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*10-b-1 |
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Copy of the Companys 2000 Long-Term Incentives Plan, as amended through
February 4, 2004, filed as Exhibit 10-e-1 to the Companys Annual Report on Form
10-K for the year ended September 30, 2004, is hereby incorporated by reference. |
|
*10-b-2 |
|
|
Memorandum of Proposed Amendments to the Rockwell International Corporation 2000
Long-Term Incentives Plan approved and adopted by the Board of Directors of the
Company on June 6, 2001, in connection with the spinoff of Rockwell Collins, filed
as Exhibit 10-e-4 to the Companys Annual Report on Form 10-K for the year ended
September 30, 2001, is hereby incorporated by reference. |
|
*10-b-3 |
|
|
Forms of Stock Option Agreements under the Companys 2000 Long-Term Incentives
Plan, filed as Exhibit 10-e-6 to the Companys Annual Report on Form 10-K for the
year ended September 30, 2002, are hereby incorporated by reference. |
|
*10-b-4 |
|
|
Copy of resolutions of the Compensation and Management Development Committee of
the Board of Directors of the Company adopted December 5, 2001, amending certain
outstanding awards under the Companys 1995 Long-Term Incentives Plan and 2000
Long-Term Incentives Plan, filed as Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the quarter ended December 31, 2001, is hereby incorporated by
reference. |
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*10-b-5 |
|
|
Form of Restricted Stock Agreement under the Companys 2000 Long-Term Incentives
Plan, filed as Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q
for the quarter ended December 31, 2001, is hereby incorporated by reference. |
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*10-b-6 |
|
|
Memorandum of Amendments to the Companys 2000 Long-Term Incentives Plan, as
amended, filed as Exhibit 10.2 to the Companys Current Report on Form 8-K dated
April 7, 2005, is hereby incorporated by reference. |
|
*10-b-7 |
|
|
Memorandum of Amendments to the Companys 2000 Long-Term Incentives Plan, as
amended, filed as Exhibit 99.1 to the Companys Current Report on Form 8-K dated
November 4, 2005, is hereby incorporated by reference. |
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* |
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Management contract or compensatory plan or arrangement. |
85
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*10-b-8 |
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|
Form of Restricted Stock Agreement under the Companys 2000 Long-Term Incentives
Plan, as amended, filed as Exhibit 10.2 to the Companys Current Report on Form 8-K
dated November 4, 2005, is hereby incorporated by reference. |
|
*10-b-9 |
|
|
Memorandum of Proposed Amendment and Restatement of the Companys 2000 Long-Term
Incentives Plan, as amended, approved and adopted by the Board of Directors of the
Company on November 7, 2007, filed as Exhibit 10.4 to the Companys Quarterly
Report on Form 10-Q for the quarter ended December 31, 2007, is hereby incorporated
by reference. |
|
*10-b-10 |
|
|
Forms of Stock Option Agreement under the Companys 2000 Long-Term Incentives
Plan, as amended, for options granted to executive officers of the Company after
December 1, 2007, filed as Exhibit 10.5 to the Companys Quarterly Report on Form
10-Q for the quarter ended December 31, 2007, is hereby incorporated by reference. |
|
*10-b-11 |
|
|
Form of Restricted Stock Agreement under the Companys 2000 Long-Term
Incentives Plan, as amended, for shares of restricted stock awarded after December
1, 2007, filed as Exhibit 10.6 to the Companys Quarterly Report on Form 10-Q for
the quarter ended December 31, 2007, is hereby incorporated by reference. |
|
*10-b-12 |
|
|
Form of Performance Share Agreement under the Companys 2000 Long-Term
Incentives Plan, as amended, for performance shares awarded after December 1, 2007,
filed as Exhibit 10.7 to the Companys Quarterly Report on Form 10-Q for the
quarter ended December 31, 2007, is hereby incorporated by reference. |
|
*10-b-13 |
|
|
Copy of resolutions of the Board of Directors of the Company, adopted December
5, 2007 and effective February 6, 2008, amending the Companys 2000 Long-Term
Incentives Plan, as amended, filed as Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2008, is hereby incorporated by
reference. |
|
*10-c-1 |
|
|
Copy of the Companys 2008 Long-Term Incentives Plan, as amended and restated
through June 4, 2010, filed as Exhibit 99 to the Companys Current Report on Form
8-K dated June 10, 2010, is hereby incorporated by reference. |
|
*10-c-2 |
|
|
Form of Stock Option Agreement under the Companys 2008 Long-Term Incentives
Plan, filed as Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2008, is hereby incorporated by reference. |
|
*10-c-3 |
|
|
Form of Restricted Stock Agreement under the Companys 2008 Long-Term Incentives
Plan, filed as Exhibit 10-e-3 to the Companys Annual Report on Form 10-K for the
year ended September 30, 2008, is hereby incorporated by reference. |
|
*10-c-4 |
|
|
Forms of Stock Option Agreement under the Companys 2008 Long-Term Incentives
Plan for options granted to executive officers of the Company after December 1,
2008, filed as Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the
quarter ended December 31, 2008, is hereby incorporated by reference. |
|
*10-c-5 |
|
|
Form of Performance Share Agreement under the Companys 2008 Long-Term
Incentives Plan for performance shares awarded after December 1, 2008, filed as
Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q for the quarter ended
December 31, 2008, is hereby incorporated by reference. |
|
*10-c-6 |
|
|
Form of Restricted Stock Agreement under the Companys 2008 Long-Term Incentives
Plan for shares of restricted stock awarded after December 1, 2008, filed as
Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q for the quarter ended
December 31, 2008, is hereby incorporated by reference. |
|
*10-c-7 |
|
|
Form of Stock Option Agreement under the Companys 2008 Long-Term Incentives
Plan, as amended, for options granted to executive officers of the Company after
December 6, 2010, filed as Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the quarter ended December 31, 2010, is hereby incorporated by reference. |
|
*10-c-8 |
|
|
Form of Restricted Stock Agreement under the Companys 2008 Long-Term Incentives
Plan, as amended, for shares of restricted stock awarded to executive officers of
the Company after December 6, 2010, filed as Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended December 31, 2010, is hereby
incorporated by reference. |
|
*10-c-9 |
|
|
Form of Performance Share Agreement under the Companys 2008 Long-Term
Incentives Plan, as amended, for performance shares awarded to executive officers
of the Company after December 6, 2010, filed as Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the quarter ended December 31, 2010, is hereby
incorporated by reference. |
|
|
|
* |
|
Management contract or compensatory plan or arrangement. |
86
|
|
|
|
|
|
*10-d |
|
|
Copy of resolutions of the Compensation and Management Development
Committee of the Board of Directors of the Company, adopted February 5, 2003,
regarding the Corporate Office vacation plan, filed as Exhibit 10.5 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, is
hereby incorporated by reference. |
|
*10-e-1 |
|
|
Copy of the Companys Deferred Compensation Plan, as amended and restated
September 6, 2006, filed as Exhibit 10-f to the Companys Annual Report on Form
10-K for the year ended September 30, 2006, is hereby incorporated by reference. |
|
*10-e-2 |
|
|
Memorandum of Proposed Amendment and Restatement of the Companys Deferred
Compensation Plan approved and adopted by the Board of Directors of the Company on
November 7, 2007, filed as Exhibit 10.2 to the Companys Quarterly Report on Form
10-Q for the quarter ended December 31, 2007, is hereby incorporated by reference. |
|
*10-f |
|
|
Copy of the Companys Directors Deferred Compensation Plan approved
and adopted by the Board of Directors of the Company on November 5, 2008, filed as
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended
December 31, 2008, is hereby incorporated by reference. |
|
*l0-g-1 |
|
|
Copy of the Companys Annual Incentive Compensation Plan for Senior Executive
Officers, as amended December 3, 2003, filed as Exhibit 10-i-1 to the Companys
Annual Report for the year ended September 30, 2004, is hereby incorporated by
reference. |
|
*l0-g-2 |
|
|
Copy of the Companys Incentive Compensation Plan, filed as Exhibit 10 to the
Companys Current Report on Form 8-K dated September 7, 2005, is hereby
incorporated by reference. |
|
*10-g-3 |
|
|
Description of the Companys performance measures and goals for the Companys
Incentive Compensation Plan and Annual Incentive Compensation Plan for Senior
Executives for fiscal year 2010, contained in the Companys Current Report on Form
8-K dated December 14, 2009, is hereby incorporated by reference. |
|
*10-h-1 |
|
|
Change of Control Agreement dated as of September 27, 2010 between the Company
and Keith D. Nosbusch, filed as Exhibit 99.1 to the Companys Current Report on
Form 8-K dated September 27, 2010, is hereby incorporated by reference. |
|
*10-h-2 |
|
|
Form of Change of Control Agreement dated as of September 27, 2010 between the
Company and each of Theodore D. Crandall, Steven A. Eisenbrown, Douglas M.
Hagerman, Robert A. Ruff and certain other corporate officers filed as Exhibit 99.2
to the Companys Current Report on Form 8-K dated September 27, 2010, is hereby
incorporated by reference. |
|
*10-h-3 |
|
|
Letter Agreement dated September 3, 2009 between the Company and Keith D.
Nosbusch, filed as Exhibit 99.1 to the Companys Current Report on Form 8-K dated
September 8, 2009, is hereby incorporated by reference. |
|
*10-h-4 |
|
|
Letter Agreement dated September 3, 2009 between Registrant and Theodore D.
Crandall, filed as Exhibit 99.2 to the Companys Current Report on Form 8-K dated
September 8, 2009, is hereby incorporated by reference. |
|
*10-h-5 |
|
|
Description of relocation and expatriate package for Robert A. Ruff, contained
in the Companys Current Report on Form 8-K dated April 8, 2011, is hereby
incorporated by reference. |
|
10-i-1 |
|
|
Agreement and Plan of Distribution dated as of December 6, 1996, among Rockwell
International Corporation (renamed Boeing North American, Inc.), the Company
(formerly named New Rockwell International Corporation), Allen-Bradley Company,
Inc., Rockwell Collins, Inc., Rockwell Semiconductor Systems, Inc., Rockwell Light
Vehicle Systems, Inc. and Rockwell Heavy Vehicle Systems, Inc., filed as Exhibit
l0-b to the Companys Quarterly Report on Form 10-Q for the quarter ended December
31, 1996, is hereby incorporated by reference. |
|
10-i-2 |
|
|
Post-Closing Covenants Agreement dated as of December 6, 1996, among Rockwell
International Corporation (renamed Boeing North American, Inc.), The Boeing
Company, Boeing NA, Inc. and the Company (formerly named New Rockwell International
Corporation), filed as Exhibit 10-c to the Companys Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996, is hereby incorporated by reference. |
|
|
|
* |
|
Management contract or compensatory plan or arrangement. |
87
|
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|
10-i-3 |
|
|
Tax Allocation Agreement dated as of December 6, 1996, among Rockwell
International Corporation (renamed Boeing North American, Inc.), the Company
(formerly named New Rockwell International Corporation) and The Boeing Company,
filed as Exhibit 10-d to the Companys Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996, is hereby incorporated by reference. |
|
10-j-l |
|
|
Distribution Agreement dated as of September 30, 1997 by and between the Company
and Meritor Automotive, Inc., filed as Exhibit 2.1 to the Companys Current Report
on Form 8-K dated October 10, 1997, is hereby incorporated by reference. |
|
10-j-2 |
|
|
Employee Matters Agreement dated as of September 30, 1997 by and between the
Company and Meritor Automotive, Inc., filed as Exhibit 2.2 to the Companys Current
Report on Form 8-K dated October 10, 1997, is hereby incorporated by reference. |
|
10-j-3 |
|
|
Tax Allocation Agreement dated as of September 30, 1997 by and between the
Company and Meritor Automotive, Inc., filed as Exhibit 2.3 to the Companys Current
Report on Form 8-K dated October 10, 1997, is hereby incorporated by reference. |
|
10-k-1 |
|
|
Distribution Agreement dated as of December 31, 1998 by and between the Company
and Conexant Systems, Inc., filed as Exhibit 2.1 to the Companys Current Report on
Form 8-K dated January 12, 1999, is hereby incorporated by reference. |
|
10-k-2 |
|
|
Amended and Restated Employee Matters Agreement dated as of December 31, 1998 by
and between the Company and Conexant Systems, Inc., filed as Exhibit 2.2 to the
Companys Current Report on Form 8-K dated January 12, 1999, is hereby incorporated
by reference. |
|
10-k-3 |
|
|
Tax Allocation Agreement dated as of December 31, 1998 by and between the Company
and Conexant Systems, Inc., filed as Exhibit 2.3 to the Companys Current Report on
Form 8-K dated January 12, 1999, is hereby incorporated by reference. |
|
10-l-1 |
|
|
Distribution Agreement dated as of June 29, 2001 by and among the Company,
Rockwell Collins, Inc. and Rockwell Scientific Company LLC, filed as Exhibit 2.1 to
the Companys Current Report on Form 8-K dated July 11, 2001, is hereby
incorporated by reference. |
|
10-l-2 |
|
|
Employee Matters Agreement dated as of June 29, 2001 by and among the Company,
Rockwell Collins, Inc. and Rockwell Scientific Company LLC, filed as Exhibit 2.2 to
the Companys Current Report on Form 8-K dated July 11, 2001, is hereby
incorporated by reference. |
|
10-l-3 |
|
|
Tax Allocation Agreement dated as of June 29, 2001 by and between the Company and
Rockwell Collins, Inc., filed as Exhibit 2.3 to the Companys Current Report on
Form 8-K dated July 11, 2001, is hereby incorporated by reference. |
|
10-m |
|
|
$750,000,000 Four-Year Credit Agreement dated as of March 14, 2011
among the Company, the Banks listed on the signature pages thereof, JPMorgan Chase
Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent,
and Citibank, N.A., The Bank of New York Mellon and Wells Fargo Bank, National
Association, as Documentation Agents, filed as Exhibit 99 to the Companys Current
Report on Form 8-K dated March 15, 2011, is hereby incorporated by reference. |
|
l0-n |
|
|
Purchase and Sale Agreement dated as of August 24, 2005 by and between
the Company and First Industrial Acquisitions, Inc., including the form of Lease
Agreement attached as Exhibit I thereto, together with the First Amendment to
Purchase and Sale Agreement dated as of September 30, 2005 and the Second Amendment
to Purchase and Sale Agreement dated as of October 31, 2005, filed as Exhibit 10-p
to the Companys Annual Report on Form 10-K for the year ended September 30, 2005,
is hereby incorporated by reference. |
|
10-o-1 |
|
|
Purchase Agreement, dated as of November 6, 2006, by and among Rockwell
Automation, Inc., Rockwell Automaton of Ohio, Inc., Rockwell Automation Canada
Control Systems, Grupo Industrias Reliance S.A. de C.V., Rockwell Automation GmbH
(formerly known as Rockwell International GmbH) and Baldor Electric Company,
contained in the Companys Current Report on Form 8-K dated November 9, 2006, is
hereby incorporated by reference. |
|
|
|
* |
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Management contract or compensatory plan or arrangement. |
88
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|
10-o-2 |
|
|
First Amendment to Purchase Agreement dated as of January 24, 2007 by and among
Rockwell Automation, Inc., Rockwell Automation of Ohio, Inc., Rockwell Automation
Canada Control Systems, Grupo Industrias Reliance S.A. de C.V., Rockwell Automation
GmbH and Baldor Electric Company, filed as Exhibit 10.2 to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2007, is hereby incorporated by
reference. |
|
12 |
|
|
Computation of Ratio of Earnings to Fixed Charges for the Five Years
Ended September 30, 2011. |
|
21 |
|
|
List of Subsidiaries of the Company. |
|
23 |
|
|
Consent of Independent Registered Public Accounting Firm. |
|
24 |
|
|
Powers of Attorney authorizing certain persons to sign this Annual
Report on Form 10-K on behalf of certain directors and officers of the Company. |
|
31.1 |
|
|
Certification of Periodic Report by the Chief Executive Officer
pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
|
31.2 |
|
|
Certification of Periodic Report by the Chief Financial Officer
pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
|
32.1 |
|
|
Certification of Periodic Report by the Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
|
|
Certification of Periodic Report by the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
101 |
|
|
Interactive Data Files. |
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|
* |
|
Management contract or compensatory plan or arrangement. |
89
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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ROCKWELL AUTOMATION, INC. |
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By
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/s/ Theodore D. Crandall
Theodore D. Crandall
|
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Senior Vice President and |
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Chief Financial Officer |
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Dated:
November 14, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on the 14th day of November 2011 by the following persons on behalf of the registrant
and in the capacities indicated.
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By
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/s/ Theodore D. Crandall
Theodore D. Crandall
|
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Senior Vice President and |
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Chief Financial Officer |
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(Principal Financial Officer) |
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By
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/s/ David M. Dorgan
David M. Dorgan
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Vice President and Controller |
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(Principal Accounting Officer) |
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Keith D. Nosbusch * |
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Chairman of the Board, |
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President and |
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Chief Executive Officer |
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(Principal Executive Officer) |
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and Director |
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Betty C. Alewine* |
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Director |
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Verne G. Istock*
Director |
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Barry C. Johnson* |
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Director |
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Steven R. Kalmanson* |
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Director |
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James P. Keane* |
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Director |
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William T. McCormick, Jr.* |
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Director |
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Donald R. Parfet * |
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Director |
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David B. Speer* |
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Director |
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*By
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/s/ Douglas M. Hagerman
Douglas M. Hagerman, Attorney-in-fact**
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**By
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authority of powers of attorney filed herewith |
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90
SCHEDULE II
ROCKWELL AUTOMATION, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended September 30, 2011, 2010 and 2009
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Balance at |
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Additions |
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Beginning |
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Charged to |
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Charged to |
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Balance at |
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of |
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Costs and |
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Other |
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End of |
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Year |
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Expenses |
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Accounts |
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Deductions(b) |
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Year |
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(in millions) |
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Description |
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*Year ended September 30, 2011 |
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Allowance for doubtful accounts (a) |
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$ |
20.7 |
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$ |
10.2 |
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$ |
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$ |
2.0 |
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$ |
28.9 |
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Allowance for excess and obsolete inventory |
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46.3 |
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18.9 |
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18.9 |
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46.3 |
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Valuation allowance for deferred tax assets |
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26.7 |
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10.6 |
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4.5 |
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32.8 |
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*Year ended September 30, 2010 |
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Allowance for doubtful accounts (a) |
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$ |
24.6 |
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$ |
0.7 |
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$ |
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$ |
4.6 |
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$ |
20.7 |
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Allowance for excess and obsolete inventory |
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53.2 |
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20.4 |
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27.3 |
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46.3 |
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Valuation allowance for deferred tax assets |
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43.8 |
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2.3 |
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19.4 |
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26.7 |
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*Year ended September 30, 2009 |
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Allowance for doubtful accounts (a) |
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$ |
20.2 |
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$ |
10.1 |
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$ |
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$ |
5.7 |
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$ |
24.6 |
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Allowance for excess and |