þ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Page No. | ||||||||
1 | ||||||||
FINANCIAL STATEMENTS: |
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3 | ||||||||
4 | ||||||||
5 | ||||||||
SUPPLEMENTAL SCHEDULE: |
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14 | ||||||||
15 | ||||||||
EXHIBITS: |
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Consents of Independent Registered Public Accounting Firms |
16 | |||||||
EX-99.A: CONSENT OF VIRCHOW, KRAUSE & CO., LLP | ||||||||
EX-99.B: CONSENT OF DELOITTE & TOUCHE LLP |
2006 | 2005 | |||||||
ASSETS |
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INVESTMENTS: |
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Defined Contribution Master Trust (Note 3) |
$ | 42,932,817 | $ | 42,927,024 | ||||
Participant Loans |
762,671 | 738,288 | ||||||
Total investments at fair value |
43,695,488 | 43,665,312 | ||||||
Adjustment from fair value to contract value
for interest in Defined Contribution Master Trust
relating to fully benefit-responsive investment contracts |
258,464 | 243,003 | ||||||
NET ASSETS AVAILABLE FOR BENEFITS |
$ | 43,953,952 | $ | 43,908,315 | ||||
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2006 | 2005 | |||||||
NET ASSETS AVAILABLE FOR BENEFITS,
BEGINNING OF YEAR |
$ | 43,908,315 | $ | 43,590,059 | ||||
ADDITIONS: |
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Income from investments: |
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Interest in income of Defined Contribution Master Trust |
3,340,229 | 2,529,307 | ||||||
Interest |
48,951 | 40,543 | ||||||
Total income from investments |
3,389,180 | 2,569,850 | ||||||
Contributions: |
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Employer |
433,631 | 482,401 | ||||||
Employee |
2,295,377 | 2,238,623 | ||||||
Total contributions |
2,729,008 | 2,721,024 | ||||||
Total additions |
6,118,188 | 5,290,874 | ||||||
DEDUCTIONS: |
||||||||
Payments to participants or beneficiaries (Note 6) |
6,061,110 | 4,969,849 | ||||||
NET INCREASE BEFORE TRANSFERS |
57,078 | 321,025 | ||||||
NET TRANSFERS |
(11,441 | ) | (2,769 | ) | ||||
NET INCREASE |
45,637 | 318,256 | ||||||
NET ASSETS AVAILABLE FOR BENEFITS,
END OF YEAR |
$ | 43,953,952 | $ | 43,908,315 | ||||
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1. | DESCRIPTION OF THE PLAN | |
The following brief description of the Rockwell Automation Savings and Investment Plan for Represented Hourly Employees (the Plan) is provided for general information purposes only. Participants should refer to the Plan document for more complete information. |
a. | General - The Plan is a defined contribution savings plan covering all represented hourly employees of Rockwell Automation, Inc. and its subsidiaries (Rockwell Automation) who elect to participate in the Plan and who are employees at a Rockwell Automation location to which participation has been extended. The Rockwell Automation Employee Benefit Plan Committee and the Plan Administrator control and manage the operation and administration of the Plan. Wells Fargo, N.A. (Wells Fargo) was the trustee of the Rockwell Automation, Inc. Defined Contribution Master Trust (the Defined Contribution Master Trust) through June 30, 2005. Effective July 1, 2005, all assets and trustee responsibilities of the Defined Contribution Master Trust were transferred to Fidelity Management Trust Company (the Trustee). The assets of the Plan are managed by the Trustee and several other investment managers. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). | ||
Effective July 1, 2005, Rockwell Automation added new investment options, eliminated certain investment options, and consolidated the Rockwell Automation Stock Funds. The new investment options include common stock and debt investment options in addition to a mutual fund brokerage account window. | |||
Participants in the Plan could have invested in seventeen investment funds through June 30, 2005. Effective July 1, 2005, the investment options expanded to include a suite of ten lifestyle mutual funds, ten core investment options and a mutual fund brokerage window. In addition, the following stock funds were available in 2005 and 2006 and are specific to the Plan: |
Rockwell Automation Stock Fund A (employer contributions) - Invests principally in the common stock of Rockwell Automation but may also hold cash and cash equivalents. Effective July 1, 2005, this fund was combined with Rockwell Automation Stock Fund B and renamed Rockwell Automation Stock Fund. | |||
Rockwell Automation Stock Fund B (employee contributions) - Invests principally in the common stock of Rockwell Automation but may also hold cash and cash equivalents. Effective July 1, 2005, this fund was combined with Rockwell Automation Stock Fund A and renamed Rockwell Automation Stock Fund. | |||
Boeing Stock Fund - Invests principally in the common stock of The Boeing Company but may also hold cash and cash equivalents. |
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ArvinMeritor Stock Fund - Invests principally in the common stock of ArvinMeritor, Inc. but may also hold cash and cash equivalents. | |||
Conexant Stock Fund - Invests principally in the common stock of Conexant Systems, Inc. but may also hold cash and cash equivalents. | |||
Rockwell Collins Stock Fund - Invests principally in the common stock of Rockwell Collins, Inc. but may also hold cash and cash equivalents. | |||
Skyworks Solutions Stock Fund Invests principally in the common stock of Skyworks Solutions, Inc. but may also hold cash and cash equivalents. | |||
Mindspeed Technology Stock Fund Invests principally in the common stock of Mindspeed Technologies, Inc. but may also hold cash and cash equivalents. |
The Boeing, ArvinMeritor, Conexant, Rockwell Collins, Skyworks Solutions and Mindspeed Technology Stock Funds are closed to any additional employer and employee contributions. Any dividends on common stock related to employer contributions received on behalf of these funds were paid to the Rockwell Automation Stock Fund. Any dividends on common stock related to employee contributions received on behalf of these funds were paid to the Stable Value Fund. | |||
Effective March 31, 2006, Rockwell Automation removed the following closed stock fund options from the Plan: Boeing Stock Fund, ArvinMeritor Stock Fund, Conexant Stock Fund, Rockwell Collins Stock Fund, Skyworks Solutions Stock Fund and Mindspeed Technology Stock Fund. Participants had the option to redirect their investments in these closed stock funds to any of the available investment options or elect to take a distribution. If a participant did not take action by March 31, 2006, the participants investments in the closed stock funds were automatically transferred to a Fidelity Freedom Fund based on the participants date of birth. | |||
b. | Participation - The Plan provides that eligible employees electing to become participants may contribute on a pre-tax basis up to a maximum of 25% of base compensation for non-highly compensated participants and up to 12% of base compensation for highly-compensated participants, as defined in the Plan document. In addition, highly-compensated participants may contribute up to an additional 4% on an after-tax basis. | ||
Rockwell Automation contributes an amount equal to 50% of the first 5% of base compensation contributed by the participant. Rockwell Automation contributions are made to the Stable Value Fund. Effective November 2002, participants who are vested may transfer a portion or all of their holdings in the Stable Value Fund to one or more of the other investment funds at any time. See also Note 7 related to plan changes. | |||
Effective June 2002, the Plan was amended due to the Economic Growth and Tax Relief Reconciliation Act of 2001, which made provisions for catch-up contributions to 401(k) plans to give employees who are at least age 50 and older the opportunity to save more for retirement. Employees must have been at least age 50 at December 31, 2005 to be eligible to make catch-up contributions in the current year. The 2006 and 2005 employee catch-up contribution amount allowed was an additional $5,000 and $4,000 in pre-tax contributions, respectively. |
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c. | Investment Elections - Participants may contribute to any or all of the funds that are available for contributions in 1% increments. Participants may change such investment elections on a daily basis. If a participant does not have an investment election on file, contributions were made to the Stable Value Fund through June 30, 2005. Effective July 1, 2005, contributions are made to one of the Fidelity Freedom Funds, based on the participants date of birth. | ||
Participants may invest in the Stable Value Fund, a common collective trust fund, which invests primarily in benefit-responsive guaranteed investment contracts (GICs) and money market investments. | |||
d. | Unit Values - Participants do not own specific securities or other assets in the various funds, but have an interest therein represented by units valued as of the end of each business day. However, voting rights are extended to participants in proportion to their interest in each stock fund and each mutual fund, as represented by common units. Participants accounts are charged or credited for Plan earnings or loss from investments, as the case may be, with the number of units properly attributable to each participant. | ||
e. | Vesting - Each participant is fully vested at all times in the portion of the participants account that relates to the participants contributions and earnings thereon. Vesting in the employer contribution portion of a participants account plus actual earnings thereon is based on the vesting schedule described in the Plan document. A participant is 100% vested after 60 months of vesting service. | ||
f. | Loans - A participant may obtain a loan in an amount as defined in the Plan document (not less than $1,000 and not greater than the lower of $50,000, reduced by the participants highest outstanding loan balance during the 12 month period before the date of the loans, or 50% of the participants vested account balance less any outstanding loans) from the balance of the participants account. Loans are secured by the remaining balance in the participants account. Interest is charged at a rate equal to the prime rate plus 1%. The loans can be repaid through payroll deductions over terms of 12, 24, 36, 48 or 60 months, or up to 120 months for the purchase of a primary residence, or repaid in full after a minimum of 12 months. Payments of principal and interest are credited to the participants account. Participants may have up to two outstanding loans at a time (one loan prior to November 2003). | ||
g. | Forfeitures - When certain terminations of participation in the Plan occur, the nonvested portion of the participants account represents a forfeiture as defined in the Plan document. Forfeitures remain in the Plan and subsequently are used to reduce Rockwell Automations contributions to the Plan in accordance with ERISA. However, if the participant is re-employed with Rockwell Automation and fulfills certain requirements, as defined in the Plan document, the participants account will be restored. | ||
h. | Plan Termination - Although Rockwell Automation has not expressed any current intent to terminate the Plan, Rockwell Automation has the authority to terminate or modify the Plan or suspend contributions to the Plan in accordance with ERISA. In the event that the Plan is terminated or contributions by Rockwell Automation are discontinued, each participants employer contribution account will be fully vested. Benefits under the Plan will be provided solely from Plan assets. |
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i. | Withdrawals and Distributions An active participant may withdraw certain amounts up to their entire vested interest when the participant attains the age of 59-1/2 or is able to demonstrate financial hardship. Participant vested amounts are payable upon retirement, death or other termination of employment. | ||
j. | Expenses - Plan fees and expenses, including fees and expenses associated with the provision of administrative services by external service providers, are paid by Rockwell Automation. |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
a. | New Accounting Pronouncement - As described in Financial Accounting Standards Board Staff Position, FSP AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP), investment contracts held by a defined-contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the plan. The Plan invests in investment contracts through a common collective trust held by the Defined Contribution Master Trust. As required by the FSP, the Statement of Net Assets Available for Benefits presents the fair value of the investment in the common collective trust as well as the adjustment of the investment in the common collective trust from fair value to contract value relating to the investment contracts. Prior year balances have been reclassified accordingly. The Statement of Changes in Net Assets Available for Benefits is presented on a contract value basis. | ||
b. | Valuation of Investments - The Plan has an interest in the assets of the Defined Contribution Master Trust. The assets of the Defined Contribution Master Trust are stated at fair value, except for the investment in the Stable Value Fund, which is stated at contract value. Purchases and sales of securities are recorded on a trade date basis. Interest income is recorded on an accrual basis. Dividends are recorded on the ex-dividend date. The loan fund is stated at cost which approximates fair value. | ||
c. | Use of Estimates - Estimates and assumptions made by the Plans management affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases to Plan assets during the reporting period. Actual results could differ from those estimates. | ||
d. | Payment of Benefits - Benefits are recorded when paid. | ||
e. | Risks and Uncertainties - The Plan invests in various investments. In general, investments are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investments, it is reasonably possible that changes in the values of certain investments will occur in the near term and that such changes could materially affect the amounts reported in the financial statements. |
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3. | DEFINED CONTRIBUTION MASTER TRUST | |
At December 31, 2006 and 2005, with the exception of the participant loan fund, all of the Plans investment assets were held in the Defined Contribution Master Trust account at the Trustee. Use of the Defined Contribution Master Trust permits the commingling of the trust assets of a number of benefit plans of Rockwell Automation and its subsidiaries for investment and administrative purposes. Although assets are commingled in the Defined Contribution Master Trust, the Trustee maintains supporting records for the purpose of allocating the net earnings or loss of the investment accounts to the various participating plans. | ||
The Defined Contribution Master Trust investments are valued at fair value at the end of each day. If available, quoted market prices are used to value investments. If quoted market prices are not available, the fair value of investments is estimated primarily by independent investment brokerage firms and insurance companies. | ||
The net earnings or loss of the accounts for each day are allocated by the Trustee to each participating plan based on the relationship of the interest of each plan to the total of the interests of all participating plans. | ||
The net assets of the Defined Contribution Master Trust at December 31, 2006 and 2005 are summarized as follows: |
2006 | 2005 | |||||||
Money market funds |
$ | 23,560,512 | $ | 42,987,654 | ||||
Cash |
1,763,797 | 878,749 | ||||||
Common stocks |
1,290,692,208 | 1,947,764,881 | ||||||
Mutual funds |
822,411,845 | 322,044,256 | ||||||
Brokeragelink accounts |
10,016,400 | 4,338,439 | ||||||
Corporate debt investments |
15,072,367 | 48,488,390 | ||||||
U.S. government securities |
30,444,387 | 9,058,239 | ||||||
Other fixed income investments |
3,610,587 | 3,844,480 | ||||||
Investments
in common collective trusts: |
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Fidelity U.S. Equity Index Commingled Pool |
138,482,454 | 130,213,723 | ||||||
Stable Value Fund |
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guaranteed investment contracts |
574,433,048 | 617,812,976 | ||||||
Accrued income |
856,605 | 1,786,974 | ||||||
Accrued fees |
(991,334 | ) | (1,269,612 | ) | ||||
Pending trades |
(1,829,037 | ) | 104,295 | |||||
Net assets at fair value |
2,908,523,839 | 3,128,053,444 | ||||||
Adjustment from fair value to contract value
for fully benefit-responsive investment contracts |
6,074,950 | 5,870,086 | ||||||
Net assets |
$ | 2,914,598,789 | $ | 3,133,923,530 | ||||
The Plan offers a Stable Value Fund option which, through the Defined Contribution Master Trust, invests primarily in guaranteed investment contracts (GICs) and money market investments. The GICs are benefit-responsive and are designed to allow the Stable Value Fund to maintain a constant net asset value (NAV) and to protect the funds in extreme circumstances. The contracts accrue interest using a formula called the crediting rate. The contracts use the crediting rate formula to convert market value changes in the covered assets into income distributions in order to minimize the difference between the market and contract value of the covered assets over time. Using the crediting rate formula, an estimated future market value is calculated by compounding the funds current market value at the funds current yield to maturity for a period equal to the funds duration. |
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The crediting rate is the discount rate that equates that estimated future market value with the funds current contract value. Crediting rates are reset quarterly. The contracts provide a guarantee that the crediting rate will not fall below 0%. The crediting interest rate for the Stable Value Fund was 4.42% and 4.14% at December 31, 2006 and 2005, respectively. The crediting interest rates on the underlying investments are reviewed on a quarterly basis for resetting. The average yield for the years ended December 31, 2006 and 2005 was 4.52% and 4.33%, respectively. | ||
The fair value of the Stable Value Fund equals the fair value of the underlying assets in the related common collective trust fund reported to the Plan by the Trustee. In determining the net assets available for benefits, the Stable Value Fund is recorded at contract value. As provided in the FSP, an investment contract is generally valued at contract value, rather than fair value, to the extent it is fully benefit-responsive. Contract value represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. There are currently no reserves against contract values for credit risk of the contract issuers or otherwise. | ||
Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include the following: (i) amendments to the Plan documents (including complete or partial plan termination or merger with another plan); (ii) changes to the Plans prohibition on competing investment options or deletion of equity wash provisions; (iii) bankruptcy of the plan sponsor or other plan sponsor events (e.g. divestitures or spin-offs of a subsidiary) which cause a significant withdrawal from the Plan, or (iv) the failure of the trust to qualify for exemption from federal income taxes or any required prohibited transaction exemption under Employee Retirement Income Security Act of 1974. The Plan Administrator does not believe that the occurrence of any such event, which would limit the Plans ability to transact at contract value with participants, is probable. | ||
An issuer may terminate a contract at any time. In the event that the market value of the funds covered assets is below their contract value at the time of such termination, the Trustee may elect to keep the wrap contract in place until such time as the market value of the funds covered assets is equal to their contract value. A wrap issuer may also terminate a wrap contract if the Trustees investment management authority over the fund is limited or terminated as well as if all of the terms of the wrap contract fail to be met. In the event that the market value of the funds covered assets is below their contract value at the time of such termination, the terminating wrap provider would not be required to make a payment to the fund. | ||
The Plans interest in the Stable Value Fund was approximately 4% at December 31, 2006 and 2005. |
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The net investment income of the Defined Contribution Master Trust for the years ended December 31, 2006 and 2005 is summarized as follows: |
2006 | 2005 | |||||||
Interest |
$ | 27,023,045 | $ | 28,518,879 | ||||
Dividends |
49,160,767 | 29,517,117 | ||||||
Net appreciation in fair value of investments: |
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Common stocks |
165,836,538 | 248,851,908 | ||||||
Mutual funds |
58,593,922 | 27,810,954 | ||||||
Investment in common collective trust - |
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Fidelity U.S. Equity Index Commingled Pool |
19,208,879 | 6,148,810 | ||||||
Brokeragelink accounts |
1,051,484 | | ||||||
Net investment income |
$ | 320,874,635 | $ | 340,847,668 | ||||
The Plans interest in the Defined Contribution Master Trust, as a percentage of net assets held by the Defined Contribution Master Trust, was approximately 1% at December 31, 2006 and 2005. While the Plan participates in the Defined Contribution Master Trust, the investment portfolio is not ratable among the various participating plans. As a result, those plans with smaller participation in the common stock funds recognized a disproportionately lesser amount of net appreciation in 2006 and 2005. | ||
The Defined Contribution Master Trusts investments that exceeded 5% of net assets as of December 31, 2006 and 2005 are as follows: |
Description of Investment | 2006 | 2005 | ||||||
Rockwell Automation, Inc. common stock |
$ | 622,339,111 | $ | 784,609,618 | ||||
Rockwell Collins, Inc. common stock |
| 429,878,867 | ||||||
Fidelity International Discovery Fund |
158,982,632 | |
Certain Defined Contribution Master Trust investments are shares of mutual funds managed by Wells Fargo or Fidelity Management Trust Company. Wells Fargo was the trustee until July 31, 2005, at which time it was transferred to Fidelity. Fidelity is now the trustee and recordkeeper as defined by the Defined Contribution Master Trust; therefore, these transactions qualify as party-in-interest transactions. Fees paid by the Defined Contribution Master Trust for investment management services were included as a reduction of the return earned on each fund. | ||
At December 31, 2006 and 2005, the Defined Contribution Master Trust held 10,188,918 and 13,262,502 shares, respectively, of common stock of Rockwell Automation, the sponsoring employer, with a cost basis of $78,473,232 and $92,966,323, respectively, and a fair value of $622,339,111 and $784,609,618, respectively. | ||
During 2006 and 2005, dividends on Rockwell Automation common stock paid to eligible plan participants were $10,733,813 and $10,614,199, respectively. |
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4. | NON-PARTICIPANT DIRECTED INVESTMENTS | |
Information about the net assets and the significant components of the changes in net assets relating to the Stable Value Fund for the years ended December 31, 2006 and 2005, respectively, is as follows: |
2006 | 2005 | |||||||
Net Assets, Beginning of Year |
$ | 7,123,939 | $ | 7,201,920 | ||||
Changes in net assets: |
||||||||
Contributions |
433,325 | 482,401 | ||||||
Interest |
306,495 | 304,176 | ||||||
Benefits paid to participants |
(957,028 | ) | (692,841 | ) | ||||
Transfers |
(39,689 | ) | (171,717 | ) | ||||
Total changes in net assets |
(256,898 | ) | (77,981 | ) | ||||
Net Assets, End of Year* |
$ | 6,867,041 | $ | 7,123,939 | ||||
* | These net assets are included in the Defined Contribution Master Trust. |
Information about the net assets and the significant components of the changes in net assets relating to the non-participant directed investments in the Rockwell Automation Stock Fund for the year ended December 31, 2006 and 2005 is as follows: |
2006 | 2005 | |||||||
Net Assets, Beginning of Year |
$ | 311,136 | $ | 244,996 | ||||
Changes in net assets: |
||||||||
Dividends |
4,808 | 1,852 | ||||||
Net appreciation |
10,620 | 62,954 | ||||||
Benefits paid to participants |
(36,935 | ) | (26,003 | ) | ||||
Transfers |
9,330 | 27,337 | ||||||
Total changes in net assets |
(12,178 | ) | 66,140 | |||||
Net Assets, End of Year* |
$ | 298,958 | $ | 311,136 | ||||
* | These net assets are included in the Defined Contribution Master Trust |
5. | TAX STATUS | |
The Internal Revenue Service has determined and informed Rockwell Automation by letter dated October 3, 2002, that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code of 1986, as amended (the IRC). The Plan has been amended since receiving the determination letter. The Plan Administrator believes that the Plan is currently designed and is being operated in compliance with the applicable provisions of the IRC and the Plan continues to be tax-exempt. Therefore, no provision for income taxes has been included in the Plans financial statements. | ||
6. | PARTICIPANT WITHDRAWALS | |
In November 2005, Rockwell Collins, Inc. allowed their employees with an account balance in the Plan to transfer this account balance to their Rockwell Collins Retirement Savings Plan. These withdrawals totaled $468,769 in 2005 and are included in Payments to participants or beneficiaries in the Plan financial statements. |
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2006 | ||||
Net assets available
for benefits reported in the financial statements |
$ | 43,953,952 | ||
Adjustment
from fair value to contract value for interest in Defined
Contribution Master Trust relating to fully benefit-responsive
investment contracts |
(258,464 | ) | ||
Net assets
available for benefits reported on Form 5500 |
$ | 43,695,488 | ||
2006 | |||||
Total
additions reported in the financial statements |
6,118,188 | ||||
Adjustment
from fair value to contract value for interest in Defined
Contribution Master Trust relating to fully benefit-responsive
investment contracts |
(258,464 | ) | |||
Total income
plus transfers in as reported on Form 5500 |
$ | 5,859,724 | |||
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Column A | Column B | Column C | Column D | Column E | ||||||||
Description of Investment, | ||||||||||||
Identity of Issuer, | Including Collateral, Rate | |||||||||||
Borrower, Lessor | of Interest, Maturity Date, | Fair | ||||||||||
or Similar Party | Par or Maturity Value | Cost | Value | |||||||||
* |
Fidelity Management. Trust Company |
Defined Contribution Master Trust |
$ | 32,064,466 | $ | 42,932,817 | ||||||
* |
Various participants |
Participant Loans; rates ranging between 5% and 9.25%, due 2007 to 2012 |
0 | 762,671 | ||||||||
Total assets (held at end of year) | $ | 32,064,466 | $ | 43,695,488 | ||||||||
* | Party-in-interest. |
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