Rockwell Automation Reports Third Quarter Results and Raises Guidance
MILWAUKEE--July 28, 2004--Rockwell Automation, Inc. :-- Diluted earnings per share of $0.66, including tax benefits of $0.18
-- Revenue up 13 percent, 11 percent excluding currency translation
-- Free cash flow of $71.6 million in the quarter; $314.7 million year to date
-- Raising full year guidance for EPS, revenue growth and free cash flow
Rockwell Automation, Inc. , a leading global provider of industrial automation power, control and information solutions, today reported fiscal 2004 third quarter net income of $126.4 million, or $0.66 per share, including tax benefits of $34.5 million, or $0.18 per share. 2003 third quarter net income was $128.1 million, or $0.67 per share, including a net tax benefit of $69.4 million, or $0.36 per share.
Excluding the tax benefits, EPS increased 55 percent from $0.31 in the third quarter of 2003 to $0.48 in the third quarter of 2004.
Sales for the third quarter were $1,163.5 million, up 13 percent compared to $1,033 million in the third quarter of 2003, driven by double-digit growth at Control Systems and Power Systems. Two percentage points of the revenue growth were due to the effect of currency translation. Segment operating earnings were $168.5 million, an increase of 42 percent compared to $118.8 million in 2003's third quarter.
Free cash flow for the third quarter was $71.6 million, compared to $47.8 million in the third quarter of 2003. Free cash flow for the first nine months of 2004 was $314.7 million, compared to $206.8 million for the first nine months of 2003.
Keith D. Nosbusch, president and chief executive officer, commented, "Our results in the third quarter were excellent. We saw accelerated sales growth and higher operating margins in nearly all of our businesses. The sustained investment we have made in our product portfolio, Logix integrated architecture and solutions delivery capabilities has strengthened our competitive position, allowing us to take advantage of the stronger demand in our end markets."
Nosbusch continued, "These results also reaffirm our focus on operational efficiencies. We continue to demonstrate our strong operating leverage through the execution of our Lean Enterprise initiatives and implementation of cost reduction actions over the last several years. In particular, our Power Systems team delivered a strong combination of growth and productivity."
Nosbusch concluded, "This quarter's results reflected stronger customer demand and improving conditions across our markets, and accordingly, we have raised our guidance for EPS, revenue growth and free cash flow. Looking beyond this year, we are optimistic about the continuation of this upward trend."
Outlook
The company now expects to exceed its previous full-year guidance for diluted EPS, revenue growth and free cash flow. Full-year diluted EPS from continuing operations is now expected to be approximately $1.65, excluding $0.20 of tax benefits recorded in the first nine months of the year. This compares to previous guidance of $1.55 to $1.60, excluding the tax benefits recorded in the first quarter. Revenue growth is now expected to be 6 percent to 7 percent, excluding the effect of currency, compared to previous guidance of 4 percent to 6 percent. Free cash flow is now expected to be approximately $400 million compared to previous guidance of $300 million to $350 million.
Following is a discussion of third quarter results for each business.
Control Systems
Control Systems third quarter sales increased 13 percent to $933.3 million from $824.1 million in the third quarter of 2003. Two percentage points of the growth were due to the effect of currency translation. The increase in sales was driven by strong performance across nearly all businesses. In particular, adoption of the Logix integrated architecture platform accelerated in the quarter, resulting in revenue growth for this business of approximately 44 percent. The Logix platform business now represents nearly 10 percent of Control Systems sales. From a regional perspective, sales in the U.S. grew by 14 percent while sales outside of the U.S. grew by 13 percent (8 percent excluding the effect of translation).
Segment operating earnings were $143.8 million, an increase of 40 percent from $102.7 million in 2003's third quarter. The increase in segment operating earnings was due to higher volume, productivity improvements and favorable product mix. Control Systems return on sales was 15.4 percent in 2004's third quarter, compared to 12.5 percent in 2003.
A series of contract wins during the quarter across a breadth of industries and control disciplines confirms that the Logix integrated architecture continues to drive growth and expand the company's served markets. Key Logix wins during the quarter included a European steel industry OEM (original equipment manufacturer), a Switzerland-based OEM and a major French metal building OEM. The OEMs will use the Logix architecture for projects in China and Thailand. Another key win was to an oil company consortium for a project in Kazakhstan.
During the quarter, the Logix integrated architecture contributed to Rockwell Automation receiving Durr AG's Innovation Award, recognizing the collaborative efforts of Durr's Paint Systems business and Rockwell Automation. Durr is a leading supplier of turnkey architecture systems for the automotive industry. The award recognizes the successful development of a global standardized control platform using the Logix integrated architecture.
Power Systems
Power Systems third quarter sales increased 12 percent to $201.7 million from $180.4 million in last year's third quarter, driven by a 17 percent increase at the Dodge(R) mechanical business and a 6 percent increase at the Reliance(R) electrical business. Third quarter segment operating earnings were $23.3 million compared to $15.6 million in the third quarter of 2003. The increase in segment operating earnings was due to higher volume and productivity improvements. Power Systems return on sales was 11.6 percent versus 8.6 percent in the third quarter of 2003.
Rockwell FirstPoint Contact
Rockwell FirstPoint Contact sales were $28.5 million in the third quarter of 2004 and 2003. Segment operating earnings were $1.4 million for the quarter compared to $0.5 million in the third quarter of 2003.
Other Items
Third quarter 2004 general corporate expenses were $20.4 million compared to $16.5 million in the third quarter of 2003. The increase is primarily the result of charges due to higher estimated costs for environmental remediation at two legacy sites.
The company recognized a tax benefit of $34.5 million in the third quarter of 2004 resulting from the resolution of certain tax matters, in part related to former businesses. A majority of the benefits relate to non-U.S. tax matters in addition to an agreement with a taxing authority regarding the treatment of an investment. In the third quarter of 2003, the company recognized a net tax benefit of $69.4 million related to the settlement of a U.S. research and experimentation credit refund claim.
Cash Flow
Free cash flow for the third quarter was $71.6 million compared to $47.8 million in the third quarter of 2003. Free cash flow in the third quarter of 2004 includes a voluntary contribution to the company's U.S. qualified pension plan trust of $75 million compared to a contribution of $50 million in the 2003 third quarter. Free cash flow for the first nine months of 2004 was $314.7 million, including $125 million of voluntary pension contributions. This compares to free cash flow of $206.8 million for the first nine months of 2003, including a $50 million voluntary pension contribution. The strong cash flow performance in 2004 is the result of lower cash taxes compared to 2003 as well as continued capital spending discipline. In addition, through the first nine months of 2004, the company received net refunds from various taxing authorities of approximately $30 million. The company defines free cash flow as cash provided by operating activities reduced by capital expenditures.
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, Wisconsin, the company employs about 20,000 people serving customers in more than 80 countries.
ROCKWELL AUTOMATION, INC.
SALES AND EARNINGS INFORMATION
(in millions, except per share amounts)
Quarter Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Sales
Control Systems $933.3 $824.1 $2,659.1 $2,441.6
Power Systems 201.7 180.4 545.8 525.8
FirstPoint Contact 28.5 28.5 87.2 78.6
--------- --------- --------- ---------
Total Sales $1,163.5 $1,033.0 $3,292.1 $3,046.0
========= ========= ========= =========
Segment Operating Earnings
Control Systems $143.8 $102.7 $376.3 $282.0
Power Systems 23.3 15.6 46.2 39.2
FirstPoint Contact 1.4 0.5 7.9 0.1
--------- --------- --------- ---------
Total Segment Operating
Earnings 168.5 118.8 430.4 321.3
Purchase Accounting
Amortization (6.8) (6.8) (20.5) (20.1)
General Corporate - Net (20.4) (16.5) (59.8) (42.8)
Loss on Disposition of a
Business - - - (8.4)
Interest Expense (10.1) (11.6) (30.8) (41.4)
Income Tax (Provision) Benefit
(see Note 1) (4.8) 44.2 (57.0) 10.2
--------- --------- --------- ---------
Income from Continuing
Operations 126.4 128.1 262.3 218.8
Income from Discontinued
Operations (see Note 2) - - 4.6 -
--------- --------- --------- ---------
Net Income $126.4 $128.1 $266.9 $218.8
========= ========= ========= =========
Diluted Earnings Per Share:
Continuing Operations $0.66 $0.67 $1.37 $1.15
Discontinued Operations - - 0.02 -
--------- --------- --------- ---------
Net Income $0.66 $0.67 $1.39 $1.15
========= ========= ========= =========
Average Diluted Shares 190.5 189.8 191.7 189.9
========= ========= ========= =========
---
(1) 2004 includes a tax benefit of $34.5 million ($0.18 per share)
related to the resolution of certain tax matters recorded in the
third quarter and a net tax benefit of $4.3 million ($0.02 per
share) related to a research and experimentation credit refund
claim recorded in the first quarter. 2003 includes a $69.4 million
($0.36 per share) net tax benefit related to a research and
experimentation credit refund claim recorded in the third quarter.
(2) Includes income of $7.6 million ($4.6 million after-tax, or $0.02
per share) from a final judgment in a legal proceeding related to
the Company's former operation of the Rocky Flats facility of the
Department of Energy.
ROCKWELL AUTOMATION, INC.
CONDENSED BALANCE SHEET
(in millions)
June 30, September 30,
2004 2003
------------- -------------
ASSETS
Cash $329.7 $226.4
Receivables 709.4 683.7
Inventories 570.7 541.6
Deferred income taxes 152.1 164.2
Other current assets 106.6 120.5
------------- -------------
Total current assets 1,868.5 1,736.4
Property 857.2 925.4
Goodwill 809.6 798.2
Other intangible assets 334.7 344.1
Other assets 164.6 182.2
------------- -------------
Total $4,034.6 $3,986.3
============= =============
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term debt $0.3 $8.7
Accounts payable 338.0 327.1
Compensation and benefits 182.4 170.6
Income taxes payable 45.1 15.0
Other current liabilities 344.8 298.6
------------- -------------
Total current liabilities 910.6 820.0
Long-term debt 752.3 764.0
Retirement benefits 571.7 656.7
Deferred income taxes 3.1 37.4
Other liabilities 119.8 121.4
Shareowners' equity 1,677.1 1,586.8
------------- -------------
Total $4,034.6 $3,986.3
============= =============
ROCKWELL AUTOMATION, INC.
CONDENSED CASH FLOW INFORMATION
(in millions)
Nine Months Ended
June 30,
---------------------------
2004 2003
------------- -------------
CONTINUING OPERATIONS:
OPERATING ACTIVITIES:
Income from continuing operations $262.3 $218.8
Adjustments to arrive at cash provided by
operating activities:
Depreciation 121.1 128.9
Amortization of intangible assets 21.7 18.1
Pension trust contributions (144.2) (56.2)
Retirement benefits expense 66.2 55.5
Income tax matters (38.8) (69.4)
Loss on disposition of a business - 8.4
Changes in assets and liabilities,
excluding effects of acquisitions
and foreign currency adjustments:
Receivables (10.1) 15.3
Inventories (22.5) (2.5)
Accounts payable 4.5 (2.7)
Compensation and benefits 9.4 (7.3)
Income taxes 75.2 (43.4)
Changes in other assets and
liabilities 29.7 14.2
------------- -------------
Cash provided by operating activities 374.5 277.7
------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (59.8) (70.9)
Acquisitions of businesses, net of cash
acquired - (25.7)
Other investing activities 2.7 (6.8)
------------- -------------
Cash used for investing activities (57.1) (103.4)
------------- -------------
FINANCING ACTIVITIES:
Repayments of debt (8.4) (153.1)
Cash dividends (92.1) (91.8)
Purchases of treasury stock (174.0) (94.9)
Proceeds from the exercise of stock options 54.9 42.7
Other financing activities (1.0) (1.5)
------------- -------------
Cash used for financing activities (220.6) (298.6)
------------- -------------
Effect of exchange rate changes on cash (2.7) (39.0)
------------- -------------
Cash provided by (used for) continuing
operations 94.1 (163.3)
Cash provided by discontinued operations 9.2 -
------------- -------------
Increase (Decrease) in cash and cash
equivalents $103.3 $(163.3)
============= =============
FREE CASH FLOW:
Cash provided by operating activities $374.5 $277.7
Capital expenditures (59.8) (70.9)
------------- -------------
Free cash flow (see Note 1) $314.7 $206.8
============= =============
---
(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.
OTHER SUPPLEMENTAL INFORMATION
(in millions)
Income Excluding Income Tax Benefits
------------------------------------
The company's press release contains information regarding income
excluding income tax benefits in 2004 and 2003, which are non-GAAP
financial measures. Management believes that income excluding such
income tax benefits is useful to investors because the benefits 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 31, June 30, Sept. 30,
2002 2003 2003 2003
---------- --------- -------- ---------
Cash
provided
by operating
activities $103.8 $96.9 $77.0 $158.4
Capital
expenditures (14.8) (26.9) (29.2) (37.9)
---------- --------- -------- ---------
Free cash
flow $89.0 $70.0 $47.8 $120.5
========== ========= ======== =========
Quarter Ended
------------------------------
Dec. 31, March 31, June 30,
2003 2004 2004
--------- --------- --------
Cash
provided
by operating
activities $144.3 $135.9 $94.3
Capital
expenditures (16.2) (20.9) (22.7)
--------- --------- --------
Free cash
flow $128.1 $115.0 $71.6
========= ========= ========
Effect of Currency Translation on Sales
---------------------------------------
The company's press release contains information regarding the effect
of currency translation on sales. Management believes this provides
useful information to investors because it reflects performance of the
company 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 company of reported sales to
sales excluding translation for the third quarter of 2004:
Quarter Ended June 30, 2004
-----------------------------------
Sales
Excluding
Currency Currency
Sales Translation Translation
----------- ----------- -----------
United States $735.5 $- $735.5
Canada 81.9 (2.8) 79.1
Europe, Middle East, Africa 207.1 (12.6) 194.5
Asia-Pacific 101.7 (4.8) 96.9
Latin America 37.3 2.5 39.8
----------- ----------- -----------
Total $1,163.5 $(17.7) $1,145.8
=========== =========== ===========
The following is a reconciliation for the Control Systems segment of
reported sales to sales excluding translation for the third quarter of
2004:
Quarter Ended June 30, 2004
-----------------------------------
Sales
Excluding
Currency Currency
Sales Translation Translation
----------- ----------- -----------
United States $532.8 $- $532.8
Canada 72.2 (2.3) 69.9
Europe, Middle East, Africa 197.1 (11.6) 185.5
Asia-Pacific 96.9 (4.8) 92.1
Latin America 34.3 2.2 36.5
----------- ----------- -----------
Total $933.3 $(16.5) $916.8
=========== =========== ===========