FINANCIAL STATEMENTS:

 

 

 

 

SUPPLEMENTAL SCHEDULE:

 

 

 

EXHIBIT:

 

Consent of Independent Registered Public Accounting Firm

 

 

Investments in Master Trust (Note 3)

Notes receivable from participants

 

 

Total assets

 

Adjustment from fair value to contract value for interest in Master Trust relating to fully benefit-responsive investment contracts

 

 

 

 

NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF YEAR

 

 

Income:

Interest in income of Master Trust

Interest on notes receivable from participants

 

 

Total income

 

 

Contributions:

Employer

Employee

 

 

Total contributions

 

 

Total additions

 

 

Payments to participants or beneficiaries

 

 

Total deductions

 

 

NET (DECREASE) INCREASE

 

 

NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR

 

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 Summary Plan Description and Plan document for more complete information.

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. Fidelity Management Trust Company (the “Trustee”) is the trustee of the Rockwell Automation, Inc. Defined Contribution Master Trust (the “Master Trust”). 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”).

Participants in the Plan may invest in a suite of twelve lifestyle mutual funds, nine core investment options and a brokerage option. In addition, the Rockwell Automation Stock Fund was available in 2010 and 2009 and is specific to the Plan.

Participation — The Plan provides that eligible employees electing to become participants may contribute up to a maximum of 25% of base compensation, as defined in the Plan document. Participant contributions can be made either before or after United States federal taxation of the participant’s base compensation. However, pre-tax contributions by highly compensated participants are limited to 12% of the participant’s base compensation. 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 participants. Rockwell Automation contributions are made to the Stable Value Fund (as defined below). Participants 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.

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 are made to one of the Fidelity Freedom K Funds during 2010 and one of the Fidelity Freedom Funds during 2009, based on the participant’s projected retirement date.

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.

Vesting — Each participant is fully vested at all times in the portion of the participant’s account that relates to the participant’s contributions and earnings thereon. Vesting in the employer contribution portion of a participant’s 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.

Notes Receivable From Participants — 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 participant’s highest outstanding loan balance during the 12 month period before the date of the loans, or 50% of the participant’s vested account balance less any outstanding loans) from the balance of the participant’s account. Loans are secured by the remaining balance in the participant’s account. Interest is charged at a rate equal to the prime rate plus 1% as of the last day of the month before the loan is requested. 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 one month. Payments of principal and interest are credited to the participant’s account. Participants may have up to two outstanding loans at a time from the Plan.

Forfeitures — When certain terminations of participation in the Plan occur, the nonvested portion of the participant’s account represents a forfeiture, as defined in the Plan document. Forfeitures remain in the Plan and subsequently are used to reduce Rockwell Automation’s 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 participant’s account will be restored. As of December 31, 2010, there were no forfeited nonvested accounts. As of December 31, 2009, forfeited nonvested accounts totaled $35,752. During the year ended December 31, 2010, Rockwell Automation’s contributions were reduced by $36,738 from forfeited nonvested accounts. During the year ended December 31, 2009, Rockwell Automation’s contributions were not reduced by the forfeited nonvested accounts.

Effective August 1, 2010, the contract between Local 1111 of the United Electrical, Radio and Machine Workers of America, UE-Milwaukee, Wisconsin and Rockwell Automation was terminated and all remaining active employees were terminated. As a result, non-vested accounts for such participants were vested at 100%.

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 and to suspend contributions to the Plan in accordance with ERISA. If the Plan is terminated or contributions by Rockwell Automation are discontinued, each participant’s employer contribution account will be fully vested. Benefits under the Plan will be provided solely from Plan assets.

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. An active participant also may withdraw certain amounts when financial hardship is demonstrated. Participant vested amounts are payable upon retirement, death or other termination of employment.

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.

Valuation of Investments — The Plan has an interest in the assets of the Master Trust. The net assets of the Master Trust are stated at fair value. Benefit responsive investment contracts held in the Master Trust are then adjusted and stated at contract value. 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 (the “Stable Value Fund”) held by the Master Trust. The Statements of Net Assets Available for Benefits present 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. The Statements of Changes in Net Assets Available for Benefits are presented on a contract value basis.

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 dividend payable date.

Notes Receivable From Participants — In September 2010, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update (“ASU”) 2010.25, Reporting Loans to Participants by Defined Contribution Pension Plans. The ASU clarifies how loans to participants should be classified and measured by defined contribution benefit plans. Participant loans were previously classified as investments at fair value. The ASU requires that participant loans be classified as notes receivable from participants, which are segregated from plan investments and measured at their unpaid principal balance plus any accrued but unpaid interest. As required under the ASU, the Plan has retrospectively adopted the ASU as of December 31, 2009.

The adoption of the ASU impacted the classification of participant loans on the statements of net assets available for benefits, but had no impact on net assets available for benefits.

Fair Value Measurements — Accounting Standards Codification (“ASC”) Topic 820 establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under ASC Topic 820 are described below:

Quoted prices for similar assets or liabilities in active markets;

Quoted prices for identical or similar assets or liabilities in inactive markets;

Inputs other than quoted prices that are observable for the asset or liability;

Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Use of Estimates — Estimates and assumptions made by the Plan’s 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.

Payment of Benefits — Benefits are recorded when paid.

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.

Subsequent Events — Management has evaluated the impact of all subsequent events through June 22, 2011, the date the Plan’s financial statements were issued, and determined that all subsequent events have been appropriately recognized and disclosed in the accompanying financial statements.

The Plan’s investments are held in the Master Trust account at the Trustee. Use of the 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 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 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 Master Trust at December 31, 2010 and 2009 are summarized as follows:

 

Cash

Money market fund

Common stocks

Mutual funds

Brokeragelink accounts

Corporate debt investments

Asset and mortgage backed securities

U.S. government securities

Other fixed income investments

Investments in common collective trusts:

Fidelity U.S. Equity Index Commingled Pool

Mellon Rockwell EB Daily Fund

Stable Value Fund — guaranteed investment contracts

 

Total investments at fair value

Accrued income

Accrued fees

Pending trades (net)

 

Net assets at fair value

Adjustment from fair value to contract value for fully benefit-responsive investment contracts

 

Net assets

 

The following is a description of the valuation methodologies used for the Master Trust’s investments measured at fair value. There have been no changes in the methodologies during the years ended December 31, 2010 and 2009.

Money market fund — Valued at cost, which approximates the fair value of the net asset value of shares held at year end.

Common stocks — Valued at the closing price reported on the active market on which the individual securities are traded.

Brokeragelink accounts — Valued at the most recent closing price reported on the market on which the individual securities are traded.

Corporate debt investments — Valued at the most recent closing price reported on the market on which the individual securities are traded.

Asset and mortgage backed securities and other fixed income investments — Valued at the most recent closing price reported on the market on which individual securities are traded.

U.S. government securities — Valued at the closing price reported on the active market on which the individual securities are traded.

Common collective trust; Stable Value Fund — Valued at fair value, based on information provided by the trustee, by discounting the related cash flows based on current yields of similar instruments with comparable durations and considering the credit-worthiness of the issuer of the specific instruments held by the fund at year end.

Common collective trusts; Other — Valued at the net asset value of shares held at year end.

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 the Master Trust believes its 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.

The following tables set forth by level, within the fair value hierarchy, the fair value of the Master Trust’s investments as of December 31, 2010 and 2009:

 

Cash

Money market fund

Common stocks

Mutual funds

Brokeragelink accounts

Corporate debt

Asset and mortgage backed securities

U.S. government securities

Other fixed income investments

Common collective trusts

 

Total Master Trust Investments

 

 

Cash

Money market fund

Common stocks

Mutual funds

Brokeragelink accounts

Corporate debt

Asset and mortgage backed securities

U.S. government securities

Other fixed income investments

Common collective trusts

 

Total Master Trust Investments

 

The table below sets forth a summary of changes in fair market value of the Master Trust’s level 3 investments for the years ended December 31, 2010 and 2009:

 

Balance, beginning of year

Change in adjustment to fair value from contract value

Purchases, sales, issuances, and settlements, net

 

Balance, end of year

 

The Plan offers a Stable Value Fund option which, through the 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 fair value changes in the covered assets into income distributions in order to minimize the difference between the fair and contract value of the covered assets over time. Using the crediting rate formula, an estimated future fair value is calculated by compounding the fund’s current fair value at the fund’s current yield to maturity for a period equal to the fund’s duration. The crediting rate is the discount rate that equates that estimated future fair value with the fund’s 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 2.38% and 2.48% at December 31, 2010 and 2009, 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, 2010 and 2009 was 2.45% and 2.99%, 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. 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 Plan’s 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 Plan’s ability to transact at contract value with participants, is probable.

An issuer may terminate a contract at any time. In the event that the fair value of the fund’s 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 fair value of the fund’s covered assets is equal to their contract value. A wrap issuer may also terminate a wrap contract if the Trustee’s 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 fair value of the fund’s 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 Plan’s interest in the Stable Value Fund was approximately 4% at December 31, 2010 and 2009.

The net investment income of the Master Trust for the years ended December 31, 2010 and 2009 is summarized as follows:

 

Interest

Dividends

Net appreciation in fair value of investments:

Common stocks

Mutual funds

Debt investments

Investment in common collective trust —

Fidelity U.S. Equity Index Commingled Pool

Mellon Rockwell EB Daily Fund

Brokeragelink accounts

 

Net investment income

 

The Plan’s interest in the Master Trust, as a percentage of net assets held by the Master Trust, was approximately 1% at December 31, 2010 and 2% at December 31, 2009. While the Plan participates in the 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 2010 and 2009.

The Master Trust’s investments that exceeded 5% of net assets as of December 31, 2010 and 2009 are as follows:

 

Stable Value Fund

Rockwell Automation, Inc. common stock

Fidelity International Discovery Fund

Fidelity Freedom K 2020 Fund

Fidelity Freedom 2020 Fund

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, 2010 and 2009, respectively, is as follows:

 

Net Assets at Contract Value, Beginning of Year*

 

 

Changes in net assets:

Contributions

Interest

Benefits paid to participants

Transfers

 

Total changes in net assets at contract value

 

Net Assets at Contract Value, End of Year*

 

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 years ended December 31, 2010 and 2009 is as follows:

 

Net Assets, Beginning of Year*

 

 

Changes in net assets:

Contributions

Dividends

Net appreciation

Benefits paid to participants

Administrative expenses

Transfers

 

Total changes in net assets

 

 

Net Assets, End of Year*

 

The Internal Revenue Service (the “IRS”) has determined and informed Rockwell Automation by letter dated September 28, 2009, 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 Plan’s financial statements.

Accounting principles generally accepted in the United States of America require the Plan’s management to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits to be sustained upon examination by the IRS. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2010 and 2009, there were no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan Administrator believes the Plan is no longer subject to income tax examinations for years prior to 2007.

Certain Master Trust investments are shares of mutual funds managed by Fidelity Management Trust Company. Fidelity is the trustee and recordkeeper as defined by the Master Trust; therefore, these transactions qualify as party-in-interest transactions. Fees paid by the Master Trust for investment management services were included as a reduction of the return earned on each fund.

At December 31, 2010 and 2009, the Master Trust held 4,669,595 and 4,999,946 shares, respectively, of common stock of Rockwell Automation, the sponsoring employer, with a cost basis of $68,144,899 and $65,637,369, respectively, and a fair value of $334,856,657 and $234,897,476, respectively.

During 2010 and 2009, dividends on Rockwell Automation common stock, held in the Master Trust, paid and/or credited to eligible plan participants’ accounts totaled $6,193,369 and $6,038,846, respectively.

Reconciliation of net assets available for benefits reported in the financial statements to the net assets reported on line 1(l) of the 2010 Form 5500 Schedule H, Part I is presented below.

 

Net assets available for benefits reported in the financial statements

Adjustment from contract value to fair value for interest in Master Trust relating to fully benefit-responsive investment contracts

 

Net assets reported on Form 5500

 

Reconciliation of total additions to plan assets reported in the financial statements to the total income reported on line 2(d) of the 2010 Form 5500 Schedule H, Part II is presented below.

 

Total additions reported in the financial statements

Adjustment from contract value to fair value for interest in Master Trust relating to fully benefit-responsive investment contracts

 

Total income as reported on Form 5500

 

On May 4, 2011, the Rockwell Automation Employee Benefit Policy Committee approved a plan of consolidation under which the Rockwell Automation Retirement Savings Plan for Hourly Employees, Rockwell Automation Retirement Savings Plan for Represented Hourly Employees, and Rockwell Automation Savings and Investment Plan for Represented Hourly Employees would be merged with and into the Rockwell Automation Retirement Savings Plan for Salaried Employees. The merger is anticipated by the Plan Administrator to occur on July 21, 2011, at which time the Plan name will change to Rockwell Automation Retirement Savings Plan. The net assets of the Plans that would be merged with and into the Rockwell Automation Retirement Savings Plan for Salaried Employees totaled $75,671,090 as of December 31, 2010.

 

*

 

*

 

 

 

 

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