Rockwell Automation Reports Fourth Quarter and Full Year Results
MILWAUKEE--Nov. 4, 2004--Rockwell Automation, Inc. :-- Diluted earnings per share from continuing operations of $0.51 in the quarter
-- Revenue up 18 percent in the quarter; 16 percent excluding currency translation
-- Free cash flow of $202.9 million in the quarter; $498.9 million for the full year
-- Expects fiscal year 2005 diluted EPS in the range of $2.15 to $2.25
Rockwell Automation, Inc. , a leading global provider of industrial automation power, control and information solutions, today reported fiscal 2004 fourth quarter income from continuing operations of $96.6 million ($0.51 per share). This result includes the following items:
-- Charges of $26.3 million ($16.3 million after tax, or $0.09 per share) at Control Systems related to an ongoing facilities rationalization program; and
-- A net tax benefit of $7.5 million ($0.04 per share) related to a state tax refund.
Income from continuing operations in 2003 was $62.6 million ($0.33 per share).
Income from discontinued operations in the 2004 fourth quarter was $51.4 million ($0.27 per share) and was comprised of the following:
-- An after-tax gain on the sale of our FirstPoint Contact business of $32.1 million ($0.17 per share);
-- Net income of our FirstPoint Contact business of $0.9 million; and
-- A net tax benefit of $18.4 million ($0.10 per share) related to a state tax refund.
Net income for the 2004 fourth quarter was $148.0 million ($0.78 per share) compared to $67.6 million ($0.35 per share) in 2003.
Sales for the fourth quarter were $1,206.2 million, up 18 percent compared to $1,024.9 million in the fourth quarter of 2003. Currency translation accounted for two percentage points of the growth. Segment operating earnings in the fourth quarter were $172.9 million, up 32 percent compared to $131.0 million in the fourth quarter of 2003.
Full Year 2004
Full year 2004 income from continuing operations was $354.1 million ($1.85 per share) including tax benefits of $46.3 million ($0.24 per share). This result compares to income from continuing operations in 2003 of $281.4 million ($1.48 per share) including tax benefits of $69.4 million ($0.37 per share). Full year 2004 net income was $414.9 million ($2.17 per share) compared to $286.4 million ($1.51 per share) in 2003.
Sales for the full year were $4,411.1 million, up 10 percent compared to $3,992.3 million in fiscal 2003. Currency translation accounted for three percentage points of the growth. Segment operating earnings for fiscal 2004 were $595.4 million, up 32 percent compared to $452.2 million in 2003.
Free cash flow for the fourth quarter was $202.9 million, compared to $114.1 million in the fourth quarter of 2003. Free cash flow for the full year was $498.9 million compared to $312.3 million for the full year 2003.
Keith D. Nosbusch, president and chief executive officer, said, "Our performance in the fourth quarter again validates our balanced strategy of investing in sustainable growth, while working to maintain a competitive cost structure. Our strengthened global market presence allowed us to take advantage of the stronger demand in our end markets. I am proud of the efforts of our employees to deliver such excellent financial performance."
Outlook
Commenting on the outlook for 2005, Nosbusch continued, "Looking ahead, though growth rates will vary from quarter to quarter, we continue to see strong customer demand and improving conditions across our markets. While fourth-quarter customer capital investment and pent-up demand drove revenue to above-trend levels, we are optimistic that a gradual uptrend is sustainable." Nosbusch concluded, "I remain convinced that we have never been better positioned to meet customer needs and respond to the long-term factors driving manufacturing."
We expect 2005 revenue growth of 6 to 8 percent, excluding currency translation, and operating margins of approximately 15 percent. Accordingly, we expect diluted earnings per share to be in the range of $2.15 to $2.25 per share. Free cash flow in 2005 is expected to exceed net income, consistent with our long-term goal.
Earnings per share for the fiscal first quarter of 2005 is expected to be about $0.48 per share.
Following is a discussion of fourth quarter and full year results for each business.
Control Systems
Control Systems fourth quarter sales were $999.5 million, an increase of 18 percent compared to $845.8 million in the fourth quarter of 2003. Two percentage points of the growth was due to the effect of currency translation. The strong growth was seen across nearly all our businesses, including a 33 percent increase at the Logix platform business. From a regional perspective, sales in the U.S. increased 18 percent in the 2004 fourth quarter while non-U.S. sales increased 13 percent, excluding the effect of currency translation. Segment operating earnings were $151.6 million, an increase of 31 percent compared to $115.6 million in the fourth quarter of 2003. Segment operating earnings in the 2004 fourth quarter includes $26.3 million of charges associated with an ongoing facilities rationalization program. These charges were more than offset by earnings from higher volume and productivity improvements. Control Systems return on sales was 15.2 percent in the fourth quarter of 2004 compared to 13.7 percent in 2003.
Sales for the full year were $3,658.6 million, an increase of 11 percent compared to sales of $3,287.4 million in 2003. Four percentage points of the growth was due to the effect of currency translation. Segment operating earnings were $527.9 million, an increase of 33 percent compared to $397.6 million in 2003. Control Systems return on sales for the year was 14.4 percent compared to 12.1 percent in 2003.
Power Systems
Power Systems fourth quarter sales were $206.7 million, an increase of 15 percent compared to sales of $179.1 million in the 2003 fourth quarter. Segment operating earnings were $21.3 million, an increase of 38 percent compared to $15.4 million in the fourth quarter of 2003. The increase in segment operating earnings was driven by productivity improvements, higher volume, and price increases, the combination of which more than offset higher material costs. Power Systems return on sales was 10.3 percent in the fourth quarter of 2004 compared to 8.6 percent in 2003.
Sales for the full year were $752.5 million, an increase of 7 percent compared to $704.9 million in 2003. Segment operating earnings were $67.5 million, an increase of 24 percent compared to $54.6 million in 2003. Power Systems return on sales for the year was 9 percent compared to 7.7 percent in 2003.
General Corporate - Net
Fourth quarter general corporate expenses were $28.5 million compared to $24 million in the 2003 fourth quarter. Expenses in 2004 include a $5 million contribution to our charitable corporation and charges associated with environmental remediation at legacy sites that were $4.2 million higher than the fourth quarter of 2003.
General corporate expenses for the full year were $88.3 million compared to $66.8 million in 2003. Expenses in 2004 include environmental remediation charges that were $9.7 million higher than in 2003, contributions to our charitable corporation of $7 million, and $5 million of expenses associated with corporate staff changes.
Income Taxes
In 2004, we recognized the following tax benefits:
-- $4.3 million in the first quarter related to additional state tax benefits associated with the research and experimentation credit refund claim recorded in 2003;
-- $34.5 million in the third quarter resulting from the resolution of certain tax matters primarily related to former businesses; and
-- $7.5 million in the fourth quarter resulting from a state tax refund related to prior years.
The result of these tax benefits was a reduction of the effective tax rate in 2004 from 30 percent to 19 percent. The effective tax rate in 2005 is expected to be approximately 31 percent.
In 2003, we recognized a net tax benefit of $69.4 million related to the settlement of a U.S. research and experimentation credit refund claim.
Discontinued Operations
In September 2004, we sold our FirstPoint Contact business for cash and a note convertible into a minority interest in the buyer. The results of operations of FirstPoint Contact for all periods as well as the after-tax gain on sale of $32.1 million ($0.17 per share) are reflected in discontinued operations. Income from discontinued operations in 2004 also includes a tax benefit of $18.4 million ($0.10 per share) resulting from a state tax refund related to prior years, and 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 our former operation of the Rocky Flats facility of the Department of Energy.
Cash Flow
Free cash flow for the fourth quarter of 2004 was $202.9 million compared to $114.1 million in 2003. Full year 2004 free cash flow was $498.9 million compared to free cash flow of $312.3 million in 2003. The increase in free cash flow in 2004 was the result of higher pre-tax earnings, lower U.S. federal tax payments as a result of tax benefits related to the voluntary pension contributions and increased benefits from the exercise of stock options, and refunds from various taxing authorities related to prior years. These factors more than offset the higher voluntary contributions to our U.S. qualified pension trust which totaled $125 million in 2004 compared to $50 million in 2003. We expect cash tax payments to approach income tax expense going forward.
Rockwell Automation defines free cash flow as cash flows from operating activities reduced by capital expenditures.
A conference call to discuss our financial results will take place at 10:00 A.M. Eastern Time on November 4. The call will be webcast and accessible via the Rockwell Automation website (www.rockwellautomation.com).
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. 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 Year Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Sales
Control Systems $999.5 $845.8 $3,658.6 $3,287.4
Power Systems 206.7 179.1 752.5 704.9
--------- --------- --------- ---------
Total Sales $1,206.2 $1,024.9 $4,411.1 $3,992.3
========= ========= ========= =========
Segment Operating Earnings
Control Systems $151.6 $115.6 $527.9 $397.6
Power Systems 21.3 15.4 67.5 54.6
--------- --------- --------- ---------
Total Segment Operating
Earnings 172.9 131.0 595.4 452.2
Purchase accounting
amortization (6.8) (6.8) (27.3) (26.9)
General corporate - net (28.5) (24.0) (88.3) (66.8)
Loss on disposition of a
business - - - (8.4)
Interest expense (10.9) (11.1) (41.7) (52.5)
--------- --------- --------- ---------
Income from continuing
operations before income
taxes 126.7 89.1 438.1 297.6
Income tax provision (see
Note 1) (30.1) (26.5) (84.0) (16.2)
--------- --------- --------- ---------
Income from continuing
operations 96.6 62.6 354.1 281.4
Income from discontinued
operations (see Note 2) 51.4 5.0 60.8 5.0
--------- --------- --------- ---------
Net income $148.0 $67.6 $414.9 $286.4
========= ========= ========= =========
Diluted Earnings Per Share:
Continuing operations $0.51 $0.33 $1.85 $1.48
Discontinued operations 0.27 0.02 0.32 0.03
--------- --------- --------- ---------
Net income $0.78 $0.35 $2.17 $1.51
========= ========= ========= =========
Average Diluted Shares 189.6 190.7 191.1 190.1
========= ========= ========= =========
---
(1) See Supplemental Sales and Earnings Information for a summary of
separately reported tax items and the composition of income from
discontinued operations.
(2) In September 2004, the company sold its FirstPoint Contact
business. The results of operations of FirstPoint Contact are
included in discontinued operations for all periods presented.
ROCKWELL AUTOMATION, INC.
CONDENSED BALANCE SHEET
(in millions)
September 30, September 30,
2004 2003
------------- -------------
ASSETS
Cash $473.8 $226.4
Receivables 719.9 651.5
Inventories 574.3 536.1
Deferred income taxes 132.7 159.7
Other current assets 125.4 118.3
------------- -------------
Total current assets 2,026.1 1,692.0
Property 804.5 917.1
Goodwill 811.1 798.2
Other intangible assets 323.8 339.8
Other assets 235.7 192.8
------------- -------------
Total $4,201.2 $3,939.9
============= =============
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term debt $0.2 $8.7
Accounts payable 362.2 315.2
Compensation and benefits 202.3 163.4
Income taxes payable 8.3 15.0
Other current liabilities 290.6 273.4
------------- -------------
Total current liabilities 863.6 775.7
Long-term debt 757.7 764.0
Retirement benefits 505.6 656.7
Deferred income taxes 89.3 35.3
Other liabilities 124.0 121.4
Shareowners' equity 1,861.0 1,586.8
------------- -------------
Total $4,201.2 $3,939.9
============= =============
ROCKWELL AUTOMATION, INC.
CONDENSED CASH FLOW INFORMATION
(in millions)
Year Ended
September 30,
---------------------------
2004 2003
------------- -------------
CONTINUING OPERATIONS:
OPERATING ACTIVITIES:
Income from continuing operations $354.1 $281.4
Adjustments to arrive at cash provided by
operating activities:
Depreciation 159.7 168.5
Amortization of intangible assets 27.0 22.1
Pension trust contributions (157.3) (65.9)
Retirement benefits expense 92.6 70.7
Income tax matters (46.3) (69.4)
Net loss on disposition of property 24.3 3.8
Deferred income taxes 63.6 26.4
Changes in assets and liabilities,
excluding effects of acquisitions
and foreign currency adjustments:
Receivables (48.2) (13.0)
Inventories (28.5) 20.3
Accounts payable 37.1 6.9
Compensation and benefits 35.2 7.7
Income taxes 7.2 (32.8)
Changes in other assets and
liabilities 76.4 (6.8)
------------- -------------
Cash provided by operating activities 596.9 419.9
------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (98.0) (107.6)
Acquisitions of businesses, net of cash
acquired - (25.7)
Proceeds from sales of property and
businesses 32.4 6.6
Other investing activities 0.4 (4.7)
------------- -------------
Cash used for investing activities (65.2) (131.4)
------------- -------------
FINANCING ACTIVITIES:
Repayments of debt (8.4) (153.4)
Cash dividends (122.5) (122.4)
Purchases of treasury stock (258.4) (128.4)
Proceeds from the exercise of stock
options 78.5 70.4
Other financing activities (1.2) (1.5)
------------- -------------
Cash used for financing activities (312.0) (335.3)
------------- -------------
Effect of exchange rate changes on cash 1.8 (31.0)
------------- -------------
Cash provided by (used for) continuing
operations 221.5 (77.8)
Cash provided by discontinued operations 25.9 15.0
------------- -------------
Increase (Decrease) in cash and cash
equivalents $247.4 $(62.8)
============= =============
FREE CASH FLOW:
Cash provided by operating activities $596.9 $419.9
Capital expenditures (98.0) (107.6)
------------- -------------
Free cash flow (see Note 1) $498.9 $312.3
============= =============
---
(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)
Quarter Ended Year Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
INCOME TAXES
------------
The income tax provision included
the following separately reported items:
Research and experimentation
credit refund claim $- $- $4.3 $69.4
Resolution of certain tax
matters - - 34.5 -
State tax refund 7.5 - 7.5 -
--------- --------- --------- ---------
Total $7.5 $- $46.3 $69.4
========= ========= ========= =========
The following summarizes the
amounts per diluted share for
the tax items above:
Research and experimentation
credit refund claim $- $- $0.02 $0.37
Resolution of certain tax
matters - - 0.18 -
State tax refund 0.04 - 0.04 -
--------- --------- --------- ---------
Total $0.04 $- $0.24 $0.37
========= ========= ========= =========
INCOME EXCLUDING INCOME TAX BENEFITS
------------------------------------
The following is a reconciliation
of income from continuing
operations (as reported) to
income from continuing operations
excluding separately reported
tax benefits:
Income from continuing
operations (as reported) $96.6 $62.6 $354.1 $281.4
Deduct: Separately reported tax
benefits (7.5) - (46.3) (69.4)
--------- --------- --------- ---------
Income from continuing
operations excluding tax
benefits $89.1 $62.6 $307.8 $212.0
========= ========= ========= =========
The following is a reconciliation of income from continuing operations
per diluted share (as reported) to income from continuing operations
per diluted share excluding separately reported tax benefits:
Income from continuing
operations per diluted share
(as reported) $0.51 $0.33 $1.85 $1.48
Deduct: Separately reported tax
benefits per diluted share (0.04) - (0.24) (0.37)
--------- --------- --------- ---------
Income from continuing
operations excluding tax
benefits $0.47 $0.33 $1.61 $1.11
========= ========= ========= =========
DISCONTINUED OPERATIONS
-----------------------
Income from discontinued operations
included the following (all
amounts are after tax):
Gain on sale of FirstPoint
Contact $32.1 $- $32.1 $-
Net income from the operations
of FirstPoint Contact 0.9 0.6 5.7 0.6
State tax refund 18.4 - 18.4 -
Rocky Flats legal proceeding - 4.4 4.6 4.4
--------- --------- --------- ---------
Total $51.4 $5.0 $60.8 $5.0
========= ========= ========= =========
The following summarizes the amounts
per diluted share for the items above:
Gain on sale of FirstPoint
Contact $0.17 $- $0.17 $-
Net income from the operations
of FirstPoint Contact - - 0.03 0.01
State tax refund 0.10 - 0.10 -
Rocky Flats legal proceeding - 0.02 0.02 0.02
--------- --------- --------- ---------
Total $0.27 $0.02 $0.32 $0.03
========= ========= ========= =========
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 is a non-GAAP
financial measure. 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 as one measure to monitor and evaluate 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, Dec. 31,
2002 2003 2003 2003 2003
---------- --------- --------- --------- ---------
Cash provided by
operating activities $107.2 $89.1 $72.1 $151.5 $142.0
Capital expenditures (14.3) (26.7) (29.2) (37.4) (16.0)
---------- --------- --------- --------- ---------
Free cash flow $92.9 $62.4 $42.9 $114.1 $126.0
========== ========= ========= ========= =========
Quarter Ended
-----------------------------
March 31, June 30, Sept. 30,
2004 2004 2004
--------- --------- --------
Cash provided by operating activities $126.9 $85.7 $242.3
Capital expenditures (20.4) (22.2) (39.4)
--------- --------- --------
Free cash flow $106.5 $63.5 $202.9
========= ========= ========
Effect of Currency Translation on Sales
---------------------------------------
The company's press release contains information regarding the effect
of currency translation on sales, which is a non-GAAP measure.
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 as one measure 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 2004:
Quarter Ended September 30, 2004
-------------------------------------
Sales
Excluding
Currency Currency
Sales Translation Translation
----------- ------------ ------------
United States $741.3 $- $741.3
Canada 95.1 (4.7) 90.4
Europe, Middle East, Africa 206.4 (16.5) 189.9
Asia-Pacific 112.2 (2.7) 109.5
Latin America 51.2 2.4 53.6
----------- ------------ ------------
Total $1,206.2 $(21.5) $1,184.7
=========== ============ ============
Year Ended September 30, 2004
-------------------------------------
Sales
Excluding
Currency Currency
Sales Translation Translation
----------- ------------ ------------
United States $2,727.0 $- $2,727.0
Canada 339.8 (30.9) 308.9
Europe, Middle East, Africa 779.6 (83.1) 696.5
Asia-Pacific 400.4 (21.0) 379.4
Latin America 164.3 2.5 166.8
----------- ------------ ------------
Total $4,411.1 $(132.5) $4,278.6
=========== ============ ============
The following is a reconciliation for the Control Systems segment of
reported sales to sales excluding translation for 2004:
Quarter Ended September 30, 2004
-------------------------------------
Sales
Excluding
Currency Currency
Sales Translation Translation
----------- ------------ ------------
United States $561.8 $- $561.8
Canada 84.3 (4.1) 80.2
Europe, Middle East, Africa 203.6 (16.3) 187.3
Asia-Pacific 101.6 (2.7) 98.9
Latin America 48.2 2.2 50.4
----------- ------------ ------------
Total $999.5 $(20.9) $978.6
=========== ============ ============
The following is a reconciliation for the Control Systems segment of
reported sales to sales excluding translation for 2004:
Year Ended September 30, 2004
-------------------------------------
Sales
Excluding
Currency Currency
Sales Translation Translation
----------- ------------ ------------
United States $2,054.2 $- $2,054.2
Canada 302.4 (27.4) 275.0
Europe, Middle East, Africa 766.0 (81.6) 684.4
Asia-Pacific 382.9 (21.0) 361.9
Latin America 153.1 1.7 154.8
----------- ------------ ------------
Total $3,658.6 $(128.3) $3,530.3
=========== ============ ============