Rockwell Automation: Final Results
MILWAUKEE--
Rockwell Automation Reports Fourth Quarter and Full Year Results
Expects fiscal year 2004 diluted EPS in the range of $1.35 to $1.45 on
improving business outlook
Rockwell Automation, Inc. , a leading global provider of
industrial automation power, control and information solutions, today
reported fiscal 2003 fourth quarter net income of $67 million (35
cents per share) and full year 2003 net income of $217 million ($1.14
per share), excluding the third quarter tax benefit. This result
includes two items related to businesses no longer owned by the
company:
-- Income of $7 million ($4 million after-tax, or 2 cents per share),
reflected in discontinued operations, from a favorable determination
in a legal proceeding related to the company's former operation of the
Rocky Flats facility of the Department of Energy; and
-- A charge of $5 million ($3 million after-tax, or 2 cents per
share), reflected in general corporate-net, due to higher estimated
future costs for environmental remediation near the Russellville, Ky.
facility of the company's former Measurement and Flow Control
business.
Fourth Quarter 2003
Fiscal 2003 fourth quarter income from continuing operations, which
excludes the income from the legal proceeding determination reflected
in discontinued operations, was $63 million (33 cents per share). This
result compares to fiscal 2002 fourth quarter income from continuing
operations and net income of $49 million (26 cents per share).
Sales for the fourth quarter were $1,058 million, up 4 percent
compared to $1,017 million in the fourth quarter of 2002. Three
percentage points of the growth was due to the effect of currency
translation. Segment operating earnings in the fourth quarter were
$132 million, up 32 percent compared to $100 million in the fourth
quarter of 2002.
Full Year 2003
Full year 2003 income from continuing operations before accounting
change was $282 million ($1.49 per share) compared to $226 million
($1.20 per share) in 2002. These results include various items listed
on the attached Supplemental Sales and Earnings Information chart.
Excluding the income tax benefits in both years, income was $213
million ($1.12 per share) in 2003 compared to $178 million (94 cents
per share) in 2002.
Sales for the full year were $4,104 million, up 5 percent compared to
$3,909 million in fiscal 2002. Three percentage points of the growth
was due to the effect of currency translation. Segment operating
earnings for fiscal 2003 were $453 million, up 19 percent compared to
$381 million in 2002.
Don H. Davis, chairman and chief executive officer, said, "We are very
pleased with the results we achieved in a difficult environment
throughout the year, which was somewhat weaker than we had originally
expected. Our sales grew faster than our markets, and the profit
conversion on the increased sales was extremely strong, due in part to
our continuing focus on cost management. Cash flow was outstanding,
reflecting the quality of our earnings."
Davis continued, "I am extremely proud of the performance delivered by
this management team. The continued execution of our Lean Enterprise
initiatives gives Rockwell Automation substantial operating leverage.
More importantly, the success of our many growth initiatives, based on
the strength of our Logix architecture, positions us for attractive
long-term growth."
Davis concluded, "Customer demand has strengthened since early
September and we have begun to see a broad improvement across our
markets. We are confident that these early signs are indicative of an
emerging upward trend and are optimistic that this trend will be
sustainable. Until further evidence emerges, we are planning for
revenue growth in fiscal 2004 in the mid-single digits and we expect
diluted EPS in the range of $1.35 to $1.45."
Following is a discussion of results by business for the fourth
quarter and full year.
Control Systems
Control Systems fourth quarter sales were up 6 percent to $846 million
from $800 million in 2002. Four percentage points of the growth was
due to the effect of currency translation and substantially all of the
remaining increase relates to higher non-U.S. sales. Segment operating
earnings were $116 million, up 36 percent compared to $85 million in
2002's fourth quarter. Control Systems return on sales was 13.7
percent in 2003's fourth quarter compared to 10.6 percent in 2002.
Sales for the full year were up 7 percent to $3,287 million from
$3,060 million. Three percentage points of the growth was due to the
effect of currency translation and most of the remaining sales growth
occurred outside of the U.S. Both the Logix and Process Solutions
businesses increased sales in 2003 by approximately 30 percent; Global
Manufacturing Solutions sales grew by 5 percent. Segment operating
earnings for 2003 were $398 million, an increase of 23 percent
compared to $324 million in 2002. Control Systems return on sales for
the year was 12.1 percent compared to 10.6 percent in 2002.
Power Systems
Power Systems fourth quarter sales were $179 million compared to $184
million in last year's fourth quarter. Mechanical sales were up 6
percent, while Electrical sales decreased approximately 11 percent.
Fourth quarter segment operating earnings were $15 million in both
2003 and 2002. The continued benefits resulting from productivity and
cost reduction initiatives were offset by increased customer
incentives and the volume decline. Power Systems return on sales was
8.4 percent versus 8.2 percent last year.
Sales for the full year were $705 million compared to $716 million in
2002. Mechanical sales increased 3 percent while Electrical sales
decreased 5 percent. Segment operating earnings were $54 million (7.7
percent return on sales) compared to $53 million (7.4 percent return
on sales) in 2002.
FirstPoint Contact
FirstPoint Contact sales were $33 million in the fourth quarter of
both 2003 and 2002. Operating earnings for the quarter were $1 million
compared to break even results in the fourth quarter of 2002. Fourth
quarter 2003 results include a charge of $2 million ($1 million
after-tax, or 1 cent per share) related to a workforce reduction,
while fourth quarter 2002 results include a charge of $4 million ($3
million after-tax, or 2 cents per share) related to a workforce
reduction and an asset impairment.
Full year 2003 sales and segment operating earnings were $112 million
and $1 million, respectively, compared to $133 million and $4 million
in 2002.
General Corporate - Net
Fourth quarter general corporate expenses were $24 million. This
result includes a charge of $5 million ($3 million after-tax, or 2
cents per share) due to the higher environmental remediation costs in
Russellville, Ky. The fourth quarter of 2002 general corporate
expenses were $14 million, which includes income from intellectual
property settlements of $4 million ($3 million after-tax, or 2 cents
per share).
General corporate expenses for the full year were $67 million,
including the $5 million environmental remediation charge. Corporate
expenses for 2002 were $57 million and included $9 million ($7 million
after-tax, or 4 cents per share) of income related to the favorable
settlement of intellectual property matters.
Income Tax Benefits
Income taxes in fiscal 2003 include a benefit of $69 million (37 cents
per share) related to a settlement of a U.S. federal research and
experimentation credit refund claim and related matters. Income taxes
in fiscal 2002 include a benefit of $48 million (26 cents per share)
from the resolution of certain tax matters for the period 1995-1999.
Cash Flow
Full year 2003 free cash flow from continuing operations was $327
million. Rockwell Automation defines free cash flow as cash flows from
operating activities reduced by capital expenditures.
Following are additional business developments:
-- Rockwell Automation's integrated Logix architecture continued to
fuel growth and expand the company's served markets. Key wins include:
-- A $1.4 million contract with Daewoo Shipbuilding Marine
Engineering, a major shipbuilding OEM, for the construction of an
offshore platform. A variety of products, including
ControlLogix(R) and IntelliCENTER(R) Motor Control Centers, will
be used on the project.
-- A $1.2 million process solutions contract with Setal Engineering,
a Brazilian OEM, for an Oil & Gas compressor control system that
will be used by Petrobras (Petroleo Brasileiro S.A.), one of South
America's largest oil producers.
-- Orders totaling Euro 2.8 million with Officine Meccaniche G.
Cerutti SpA, an Italian OEM, for automation controls used in
printing "La Repubblica", one of Italy's largest daily newspapers.
-- A $1.3 million process order with a leading pharmaceutical company
for time and expense validation services. These solutions will
help them meet regulatory compliance and audit requirements
specified under the FDA rules outlined in 21 CFR Part 11.
-- A major project with Oshkosh Truck Corp. on the Hemtt A3 electric
hybrid vehicle for the application of ControlLogix(R) controls and
high-efficiency custom liquid-cooled Allen-Bradley(R) drives
featuring PowerFlex(TM) technology. Production on the high-tech
military vehicle is slated to begin in 2006.
-- Rockwell Automation Global Manufacturing Solutions won new business
from leading food and beverage companies. Highlights include:
-- A Euro 1 million contract with a major Europe-based food company
for a turnkey MES solution. The project will integrate their SAP
system with RSBizWare(TM) and other Rockwell Software(R) products.
-- An $800,000 contract with SABMiller for Rockwell Software(R)
products and services to be used in five brewery sites in South
Africa which will help to improve plant efficiency and
visualization.
-- General Motors announced that it will standardize on EtherNet/IP
for its vehicle manufacturing operations. EtherNet/IP is an open
standard providing real-time communication between plant floor and
business systems. Rockwell Automation is a leader in EtherNet/IP
network technology. GM will apply the technology in 60 plants around
the world.
A conference call to discuss Rockwell Automation's financial results
will take place at 10:00 A.M. Eastern Time on November 6. The call
will be webcast and accessible via the Rockwell Automation website
(www.rockwellautomation.com).
This news release contains statements (including certain projections
and business trends) accompanied by such phrases as "believes,"
"estimates," "expect(s)," "anticipates," "will," "intends" and other
similar expressions, that are "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Actual
results may differ materially from those projected as a result of
certain risks and uncertainties, including but not limited to economic
and political changes in international markets where the company
competes, such as currency exchange rates, inflation rates, recession,
foreign ownership restrictions and other external factors over which
the company has no control; demand for the market acceptance of new
and existing products, including levels of capital spending in
industrial markets; successful development of advanced technologies;
competitive product and pricing pressures; future terrorist attacks;
epidemics; and the uncertainties of litigation, as well as other risks
and uncertainties, including but not limited to those detailed from
time to time in the company's Securities and Exchange Commission
filings. These forward-looking statements are made only as of the date
hereof, and the company undertakes no obligation to update or revise
the forward-looking statements, whether as a result of new
information, future events or otherwise.
Rockwell Automation, Inc. , is a leading global provider of
industrial automation power, control and information solutions that
help customers meet their manufacturing productivity objectives. The
company brings together leading brands in industrial automation for
Complete Automation solutions, including Allen-Bradley(R) controls and
services, Dodge(R) mechanical power transmission products, Reliance(R)
motors and drives, and Rockwell Software(R) factory management
software. The company also is a provider of contact management
technologies and applications that help companies more efficiently
manage interaction with their own customers. Headquartered in
Milwaukee, Wis., the company employs about 21,500 people serving
customers in more than 80 countries.
ROCKWELL AUTOMATION, INC.
SALES AND EARNINGS INFORMATION
(in millions, except per share amounts)
Quarter Ended Year Ended
September 30, September 30,
--------------- ---------------
2003 2002 2003 2002
------- ------- ------- -------
Sales
Control Systems $846 $800 $3,287 $3,060
Power Systems 179 184 705 716
FirstPoint Contact 33 33 112 133
------- ------- ------- -------
Total Sales $1,058 $1,017 $4,104 $3,909
======= ======= ======= =======
Segment Operating Earnings
Control Systems $116 $85 $398 $324
Power Systems 15 15 54 53
FirstPoint Contact 1 - 1 4
------- ------- ------- -------
Total Segment Operating Earnings 132 100 453 381
Purchase Accounting Amortization (7) (6) (27) (25)
General Corporate - Net (See Note 1) (24) (14) (67) (57)
Loss on Disposition of a Business (see
Note 2) - - (8) -
Interest Expense (11) (16) (52) (66)
Income Tax Provision (see Note 3) (27) (15) (17) (7)
------- ------- ------- -------
Income from Continuing Operations
Before Accounting Change 63 49 282 226
Income from Discontinued Operations
(see Note 4) 4 - 4 3
Cumulative Effect of Accounting Change
(see Note 5) - - - (108)
------- ------- ------- -------
Net Income $67 $49 $286 $121
======= ======= ======= =======
Diluted Earnings Per Share:
Continuing Operations Before
Accounting Change $0.33 $0.26 $1.49 $1.20
Discontinued Operations 0.02 - 0.02 0.02
Cumulative Effect of Accounting
Change - - - (0.58)
------- ------- ------- -------
Net Income $0.35 $0.26 $1.51 $0.64
======= ======= ======= =======
Average Diluted Shares 190.7 189.4 190.1 188.8
======= ======= ======= =======
----
(1) Includes a charge of $5 million ($3 million after-tax, or 2 cents
per share) in the fourth quarter and full year 2003 due to higher
estimated costs for environmental remediation near the
Russellville, Kentucky facility of the Company's former
Measurement and Flow Control business.
(2) The loss on disposition of a business relates to the sale of a
majority of the company's ownership interest in Reliance Electric
Limited Japan.
(3) Includes a benefit of $69 million for the full year 2003 related
to a settlement of a U.S. federal research and experimentation
credit refund claim and a benefit of $48 million for the full
year 2002 from the resolution of certain tax matters for the
period 1995-1999.
(4) Includes income of $7 million ($4 million after-tax, or 2 cents
per share) from a favorable determination in a legal proceeding
related to the Company's former operation of the Rocky Flats
facility of the Department of Energy.
(5) The cumulative effect of accounting change relates to impairment
charges resulting from the adoption of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible
Assets.
ROCKWELL AUTOMATION, INC.
CONDENSED BALANCE SHEET
(in millions)
September 30,
-------------
2003 2002
--------- -------
ASSETS
Cash and cash equivalents $226 $289
Receivables 684 645
Inventories 542 557
Deferred income taxes 164 157
Other current assets 120 109
--------- -------
Total current assets 1,736 1,757
Property 925 988
Goodwill 798 778
Other intangible assets 344 346
Other assets 183 137
--------- -------
Total $3,986 $4,006
========= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term debt $9 $162
Accounts payable 327 325
Compensation and benefits 171 161
Income taxes payable 15 44
Other current liabilities 298 274
--------- -------
Total current liabilities 820 966
Long-term debt 764 767
Retirement benefits 657 381
Deferred income taxes 37 140
Other liabilities 121 143
Shareowners' equity 1,587 1,609
--------- -------
Total $3,986 $4,006
========= =======
ROCKWELL AUTOMATION, INC.
CONDENSED CASH FLOW INFORMATION
(in millions)
Year Ended
September 30,
-------------------
2003 2002
----------- -----
CONTINUING OPERATIONS:
OPERATING ACTIVITIES:
Income from continuing operations before accounting
change $282 $226
Adjustments to arrive at cash provided by operating
activities:
Depreciation 172 184
Amortization of intangible assets 26 22
Tax benefit from research and experimentation
credit refund claim (69) -
Retirement benefit expense 71 53
Pension trust contributions (66) (36)
Net loss on disposition of property and
businesses 12 3
Income tax benefit from the exercise of stock
options 21 6
Receivables (9) 70
Inventories 26 53
Accounts payable 7 (26)
Compensation and benefits 6 (30)
Changes in other assets and liabilities (43) (49)
----------- -----
Cash provided by operating activities 436 476
----------- -----
INVESTING ACTIVITIES:
Capital expenditures (109) (104)
Acquisitions of businesses, net of cash acquired (26) (71)
Other investing activities 2 -
----------- -----
Cash used for investing activities (133) (175)
----------- -----
FINANCING ACTIVITIES:
Repayments of debt (153) -
Cash dividends (122) (122)
Purchases of treasury stock (128) -
Proceeds from the exercise of stock options 70 25
Other financing activities (2) -
----------- -----
Cash used for financing activities (335) (97)
----------- -----
Effect of exchange rate changes on cash (31) -
----------- -----
Cash (used for) provided by continuing operations (63) 204
Cash used for discontinued operations - (36)
----------- -----
(Decrease) increase in cash and cash equivalents $(63) $168
=========== =====
FREE CASH FLOW:
Cash provided by operating activities $436 $476
Capital expenditures (109) (104)
----------- -----
Free cash flow (see Note 1) $327 $372
=========== =====
----
(1) The company's definition of free cash flow, which is an internal
performance measurement, may be different from definitions used by
other companies.
ROCKWELL AUTOMATION, INC.
SUPPLEMENTAL SALES AND EARNINGS INFORMATION
(in millions, except per share
amounts)
Income (Expense)
------------------------------
Quarter Ended Year Ended
September 30, September 30,
-------------- ---------------
2003 2002 2003 2002
------- ------ ------- -------
NET INCOME
Items included in net income include:
Income from continuing operations before accounting change
----------------------------------------------------------
Russellville environmental remediation -
additional future costs $(3) $- $(3) $-
Loss on sale of ownership interest in
Reliance Electric Limited Japan - - (3) -
Research and experimentation income tax
credit refund claim - - 69 -
Resolution of 1995-1999 income tax
matters - - - 48
Intellectual property settlements - 3 - 7
FirstPoint Contact workforce reduction
and asset impairment charges (1) (3) (1) (3)
Discontinued operations
-----------------------
Rocky Flats favorable determination in
legal proceeding $4 $- $4 $-
Resolution of obligations related to
divested businesses - - - 3
Cumulative effect of accounting change
--------------------------------------
Adoption of accounting standard - SFAS 142 $- $- $- $(108)
DILUTED EARNINGS PER SHARE
Items included in the computation of diluted earnings per share
include:
Income from continuing operations before accounting change
----------------------------------------------------------
Russellville environmental remediation -
additional future costs $(0.02) $- $(0.02) $-
Loss on sale of ownership interest in
Reliance Electric Limited Japan - - (0.01) -
Research and experimentation income tax
credit refund claim - - 0.37 -
Resolution of 1995-1999 income tax
matters - - - 0.26
Intellectual property settlements - 0.02 - 0.04
FirstPoint Contact workforce reduction
and asset impairment charges (0.01) (0.02) (0.01) (0.02)
Discontinued operations
-----------------------
Rocky Flats favorable determination in
legal proceeding $0.02 $- $0.02 $-
Resolution of obligations related to
divested businesses - - - 0.02
Cumulative effect of accounting change
--------------------------------------
Adoption of accounting standard - SFAS 142 $- $- $- $(0.58)
ROCKWELL AUTOMATION, INC.
OTHER SUPPLEMENTAL INFORMATION
(in millions)
Income Excluding Income Tax Benefits
------------------------------------
The company's press release contains information regarding income
excluding the income tax benefit in 2003 related to the settlement of
a U.S. federal research and experimentation credit refund claim and
the income tax benefit in 2002 from the resolution of certain tax
matters for the period of 1995-1999, which are non-GAAP financial
measures. Management believes that income excluding such income tax
benefits is useful to investors since the benefits relate to tax
returns filed in prior periods and they are not indicative of the
magnitude of tax benefits the company may recognize in the future.
Management uses income excluding such income tax benefits to monitor
the performance of the company.
Free Cash Flow
--------------
The company's press release contains information regarding free cash
flow, which is a non-GAAP financial measure. The company's definition
of free cash flow takes into consideration capital investment required
to maintain the operations of the company and execute its strategy.
Management believes that free cash flow provides useful information to
investors regarding the company's ability to generate cash from
business operations that is available for acquisitions and other
investments, debt service, dividends and share repurchases. Management
uses free cash flow as one measure to monitor and evaluate the
performance of the company.
The following table summarizes free cash flow by quarter for the
company:
Quarter Ended
----------------------------------------------------
Dec. 31, March June Sept. Dec. March June Sept.
31, 30, 30, 31, 31, 30, 30,
2001 2002 2002 2002 2002 2003 2003 2003
-------- ----- ----- ----- ----- ----- ------ ------
Cash provided by
operating
activities $87 $62 $146 $181 $104 $97 $77 $158
Capital
expenditures (19) (28) (24) (33) (15) (27) (29) (38)
-------- ----- ----- ----- ----- ----- ------ ------
Free cash flow $68 $34 $122 $148 $89 $70 $48 $120
======== ===== ===== ===== ===== ===== ====== ======
Regional Sales
--------------
The company's press release contains information regarding regional
sales excluding currency translation which is a non-GAAP financial
measure. Management believes this provides useful information to
investors since it reflects regional performance from the company's
activities without the effect of changes in currency rates, which is
outside the control of management. Management uses sales excluding
translation to monitor and evaluate the company's regional
performance.
The following is a reconciliation for the Control Systems segment of
reported sales to sales excluding translation for 2003:
Quarter Ended September 30, Fiscal Year Ended
2003 September 30, 2003
--------------------------- --------------------------
Sales Sales
Excluding Excluding
Currency Currency Currency Currency
Sales Trans- Trans- Sales Trans- Trans-
lation lation lation lation
------- -------- ---------- ------- -------- ---------
US $477 $- $477 $1,893 $- $1,893
Canada 74 (9) 65 268 (20) 248
Europe, Middle
East, Africa 171 (21) 150 669 (99) 570
Asia-Pacific 84 (5) 79 326 (17) 309
Latin America 40 1 41 131 34 165
------- -------- -------- ------- -------- ---------
Total $846 $(34) $812 $3,287 $(102) $3,185
======= ======== ======== ======= ======== =========
The following is a reconciliation for the company of reported sales to
sales excluding translation for 2003:
Quarter Ended September 30, Fiscal Year Ended
2003 September 30, 2003
--------------------------- --------------------------
Sales Sales
Excluding Excluding
Currency Currency Currency Currency
Sales Trans- Trans- Sales Trans- Trans-
lation lation lation lation
------- ------------------- ------- ------------------
US $663 $- $663 $2,613 $- $2,613
Canada 85 (10) 75 305 (22) 283
Europe, Middle
East, Africa 182 (22) 160 711 (104) 607
Asia-Pacific 85 (4) 81 333 (18) 315
Latin America 43 1 44 142 35 177
------- -------- -------- ------- -------- ---------
Total $1,058 $(35) $1,023 $4,104 $(109) $3,995
======= ======== ======== ======= ======== =========
