Rockwell Automation Reports Third Quarter Results
MILWAUKEE--July 26, 2006--Rockwell Automation, Inc. :-- Diluted EPS from continuing operations increased 22 percent to $0.83
-- Organic revenue growth of 13 percent
-- Free Cash Flow of $154 million
-- Trailing four quarter after-tax ROIC increased nearly 4 percentage points to over 21 percent
Rockwell Automation, Inc. , a leading global provider of industrial automation power, control and information solutions, today reported fiscal 2006 third quarter income from continuing operations of $149.0 million ($0.83 per share) compared to $127.3 million ($0.68 per share) in fiscal 2005.
Sales for the third quarter were $1,428.4 million, up 13 percent compared to $1,264.7 million in the third quarter of 2005. Adjusted for the impact of currency translation, sales increased 12 percent. Segment operating earnings in the third quarter were $258.7 million, up 17 percent compared to $221.2 million in the third quarter of 2005.
Keith D. Nosbusch, chairman and chief executive officer, said, "Our solid third quarter results again validate the strength and durability of our business model. We saw increasing evidence that previous growth investments targeted at expanding our served market and enhancing market access are delivering results. Our businesses again captured share and outperformed our underlying global markets. During the quarter we further increased the level of reinvestment in order to accelerate and extend organic growth. The benefits of these investments will occur in future periods."
Nosbusch continued, "Our entire organization is focused on driving organic growth. Rockwell Automation's high-return business model makes maximizing organic revenue growth our most potent value creation strategy. Sustaining above-market rates of growth requires that we supplement the current extraordinary growth in our power-centric end markets with more diverse and less cyclical sources of revenue. We are redoubling our efforts to drive more growth from consumer-facing end markets, emerging economies and our integrated control and information platform."
Outlook
The Company now expects its full year 2006 results to modestly exceed its prior guidance of 11% revenue growth and EPS from continuing operations of $3.25.
Following is a discussion of third quarter results for each business.
Control Systems
Control Systems third quarter sales were $1,166.1 million, an increase of 13 percent compared to $1,035.4 million in 2005. Currency translation increased reported revenue growth by about 1 percentage point. Growth remained very strong in the U.S., Latin America, China and India, and results improved significantly in Europe. The Logix integrated architecture platform grew by more than 20 percent in the quarter and is now up approximately 22 percent for the year. Segment operating earnings were $216.3 million, an increase of 15 percent compared to $188.6 million in the third quarter of 2005. Profitability benefited from volume, productivity efforts, and price, partially offset by higher spending on growth initiatives, inflation, and unfavorable mix. Control Systems return on sales was 18.5 percent in the third quarter of 2006 compared to 18.2 percent in 2005.
Power Systems
Power Systems third quarter sales were $262.3 million, an increase of 14 percent compared to sales of $229.3 million in the 2005 third quarter. Segment operating earnings increased 30 percent to $42.4 million, compared to $32.6 million in the third quarter of 2005. The increase in segment operating earnings was attributable to higher volume, productivity improvements, and net price increases, partially offset by inflation. Power Systems return on sales was 16.2 percent in the third quarter of 2006 compared to 14.2 percent in 2005.
In June, the Company announced that it intends to divest the Dodge mechanical and Reliance Electric motors and motor repair services businesses that comprise nearly all of the Power Systems reporting segment. The divestiture process is underway and is progressing as expected.
General Corporate - Net
Third quarter general corporate expenses were $21.2 million compared to $15.9 million in the 2005 third quarter. Contributing to the increase was the inclusion of stock compensation expense.
Income Taxes
The effective tax rate for the third quarter of 2006 was 32.1 percent versus an effective tax rate for the third quarter of 2005 of 33.4 percent. For the full year 2006 the company expects an effective tax rate of approximately 33 percent.
Free Cash Flow
Free cash flow for the third quarter of 2006 was $154.1 million, compared to $157.7 million in the third quarter of 2005. Higher earnings were offset by increased working capital and capital spending.
Free cash flow and ROIC are non-GAAP measures that are defined in the attachments to this release under "Other Supplemental Information".
A conference call to discuss financial results will take place at 10 a.m. EDT July 26. 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 "believe", "estimate", "expect", "anticipate", "will", "intend" 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, many of which are beyond our control, including but not limited to:
-- economic and political changes in global markets where we compete, such as currency exchange rates, inflation rates, interest rates, recession, local laws, regulations and policies of foreign governments and other external factors we cannot control;
-- successful development of advanced technologies, demand for and market acceptance of new and existing products;
-- general global and regional economic, business or industry conditions, including levels of capital spending in industrial markets;
-- the availability, effectiveness and security of our information technology systems;
-- competitive product and pricing pressures;
-- disruption of our operations due to natural disasters, acts of war, strikes, terrorism, or other causes;
-- intellectual property infringement claims by others and the ability to protect our intellectual property;
-- regulatory and legislative changes related to the reporting and funding of pension and health care obligations;
-- our ability to successfully address claims by taxing authorities in the various jurisdictions where we do business;
-- our ability to attract and retain qualified personnel;
-- the uncertainties of litigation;
-- disruption of our North American distribution channel;
-- the availability and price of components and materials; and
-- other risks and uncertainties, including but not limited to those detailed from time to time in our Securities and Exchange Commission filings.
These forward-looking statements reflect our beliefs as of the date of filing this release. We undertake no obligation to update or revise any forward-looking statement, 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. Headquartered in Milwaukee, Wisc., the company employs about 21,000 people serving customers in more than 80 countries.
ROCKWELL AUTOMATION, INC.
SALES AND EARNINGS INFORMATION
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Sales
Control Systems $1,166.1 $1,035.4 $3,362.5 $3,019.5
Power Systems 262.3 229.3 745.2 648.5
--------- --------- --------- ---------
Total sales $1,428.4 $1,264.7 $4,107.7 $3,668.0
========= ========= ========= =========
Segment Operating Earnings
Control Systems $216.3 $188.6 $644.5 $565.4
Power Systems 42.4 32.6 121.0 88.1
--------- --------- --------- ---------
Total segment operating
earnings 258.7 221.2 765.5 653.5
Purchase accounting
depreciation and amortization (3.6) (2.4) (10.6) (12.6)
General corporate - net (21.2) (15.9) (68.3) (55.2)
Interest expense (14.3) (11.7) (42.3) (34.3)
--------- --------- --------- ---------
Income from continuing
operations before income
taxes 219.6 191.2 644.3 551.4
Income tax provision (70.6) (63.9) (200.1) (159.5)
--------- --------- --------- ---------
Income from continuing
operations 149.0 127.3 444.2 391.9
Income from discontinued
operations - - (3.0) 18.8
--------- --------- --------- ---------
Net income $149.0 $127.3 $441.2 $410.7
========= ========= ========= =========
Diluted Earnings Per Share
Continuing operations $0.83 $0.68 $2.46 $2.08
Discontinued operations - - (0.02) 0.10
--------- --------- --------- ---------
Net Income $0.83 $0.68 $2.44 $2.18
========= ========= ========= =========
Average Diluted Shares 179.8 186.4 180.9 188.2
========= ========= ========= =========
ROCKWELL AUTOMATION, INC.
CONDENSED BALANCE SHEET
(in millions)
June 30, September 30,
2006 2005
------------- -------------
Assets
Cash and cash equivalents $338.9 $463.6
Receivables 867.9 799.6
Inventories 614.2 569.9
Deferred income taxes 189.0 169.4
Other current assets 176.8 184.0
------------- -------------
Total current assets 2,186.8 2,186.5
Property, net 650.3 774.5
Goodwill 834.9 811.9
Other intangible assets, net 327.7 307.0
Deferred income taxes 73.4 66.3
Prepaid pension 607.3 200.5
Other assets 133.9 178.4
------------- -------------
Total $4,814.3 $4,525.1
============= =============
Liabilities and Shareowners' Equity
Short-term debt $152.2 $1.2
Accounts payable 395.3 388.5
Compensation and benefits 173.5 214.4
Income taxes payable 38.3 5.4
Other current liabilities 422.5 331.3
------------- -------------
Total current liabilities 1,181.8 940.8
Long-term debt 745.1 748.2
Retirement benefits 1,000.0 977.5
Other liabilities 251.2 209.5
Shareowners' equity 1,636.2 1,649.1
------------- -------------
Total $4,814.3 $4,525.1
============= =============
ROCKWELL AUTOMATION, INC.
CONDENSED CASH FLOW INFORMATION
(in millions)
Nine Months Ended
June 30,
-------------------
2006 2005
---------- --------
Continuing Operations:
Operating Activities:
Net income $441.2 $410.7
Loss (income) from discontinued operations 3.0 (18.8)
---------- --------
Income from continuing operations 444.2 391.9
---------- --------
Adjustments to arrive at cash provided by
operating activities:
Depreciation 97.8 111.2
Amortization of intangible assets 18.5 16.0
Share-based compensation expense 21.9 -
Retirement benefit expense 88.2 66.7
Pension trust contributions (466.5) (62.9)
Net loss on disposition of property and
business 2.5 2.0
Income tax benefit from the exercise of stock
options 1.0 59.3
Excess income tax benefit from the exercise of
stock options (45.9) -
Changes in assets and liabilities, excluding
effects of foreign currency adjustments:
Receivables (57.5) (15.0)
Inventories (44.2) (17.7)
Accounts payable (1.0) (30.8)
Compensation and benefits (41.9) (44.4)
Income taxes 108.8 7.1
Other assets and liabilities 12.6 (17.9)
---------- --------
Cash provided by operating activities 138.5 465.5
---------- --------
Investing Activities:
Capital expenditures (93.7) (85.7)
Acquisition of businesses (39.5) -
Proceeds from sale of property and business 171.0 7.5
Other investing activities (6.4) (0.7)
---------- --------
Cash provided by (used for) investing activities 31.4 (78.9)
---------- --------
Financing Activities:
Net issuance of short-term debt 151.0 -
Cash dividends (120.1) (102.0)
Purchases of treasury stock (424.4) (390.3)
Proceeds from the exercise of stock options 56.7 87.8
Excess income tax benefit from the exercise of
stock options 45.9 -
Other financing activities (0.5) (1.2)
---------- --------
Cash used for financing activities (291.4) (405.7)
---------- --------
Effect of exchange rate changes on cash (3.2) (5.8)
---------- --------
Cash used for continuing operations (124.7) (24.9)
Discontinued Operations:
Cash provided by discontinued operating activities - 19.9
---------- --------
Decrease in cash and cash equivalents $(124.7) $(5.0)
========== ========
ROCKWELL AUTOMATION, INC.
OTHER SUPPLEMENTAL INFORMATION
(in millions)
Free Cash Flow
---------------
Our definition of free cash flow, which is a non-GAAP financial
measure, takes into consideration capital investments required to
maintain the operations of our businesses and execute our strategy. In
the first quarter of 2006 we adopted SFAS 123(R), which requires that
we report excess tax benefits from the exercise of stock options as a
financing cash flow rather than as an operating cash flow. We have
added this benefit back to our operating cash flow to present free
cash flow on a basis that is consistent with our historical
presentation.
In our opinion, free cash flow provides useful information to
investors regarding our ability to generate cash from business
operations that is available for acquisitions and other investments,
service of debt principal, dividends and share repurchases. We use
free cash flow as one measure to monitor and evaluate performance. Our
definition of free cash flow may be different from definitions used by
other companies.
The following table summarizes free cash flow by quarter:
Quarter Ended
-------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30,
2005 2005 2005 2006 2006
--------- --------- -------- --------- ----------
Cash provided by
(used for)
operating
activities 181.0 173.4 (197.5) 155.1 180.9
Capital expenditures (23.3) (38.4) (27.2) (32.1) (34.4)
Tax benefit from
stock option
exercises - - 11.3 27.0 7.6
--------- --------- -------- --------- ----------
Free cash flow $157.7 $135.0 $(213.4) $150.0 $154.1
========= ========= ======== ========= ==========
Effect of Changes in Currency Exchange Rates on Sales
------------------------------------------------------
Our press release contains information regarding the effect of changes
in currency exchange rates on sales, which is a non-GAAP measure.
Management believes this provides useful information to investors
because it reflects regional performance from our activities without
the effect of changes in currency rates. Management uses sales
excluding the effect of changes in currency exchange rates as one
measure to monitor and evaluate our regional performance. Sales are
attributed to the geographic regions based on the country of
destination.
The following is a reconciliation of reported sales to sales excluding
the effect of changes in currency exchange rates for the three and
nine months ended June 30, 2006 compared to sales for the three and
nine months ended June 30, 2005:
Three Months Ended June 30,
------------------------------------------------
2006 2005
------------------------------------ -----------
Sales
Excluding
Effect of Effect of
Changes in Changes in
Sales Currency Currency Sales
---------- -------------------------------------
United States and
Canada $986.9 $(12.4) $974.5 $871.3
Europe, Middle East,
Africa 221.6 0.8 222.4 208.0
Asia-Pacific 147.1 0.2 147.3 126.7
Latin America 72.8 (2.7) 70.1 58.7
---------- ------------- ----------- -----------
Total $1,428.4 $(14.1) $1,414.3 $1,264.7
========== ============= =========== ===========
Nine Months Ended June 30,
------------------------------------------------
2006 2005
------------------------------------ -----------
Sales
Excluding
Effect of Effect of
Changes in Changes in
Sales Currency Currency Sales
---------- -------------------------------------
United States and
Canada $2,863.9 $(23.3) $2,840.6 $2,503.8
Europe, Middle East,
Africa 617.3 34.5 651.8 621.7
Asia-Pacific 414.4 1.6 416.0 374.4
Latin America 212.1 (13.1) 199.0 168.1
---------- ------------- ----------- -----------
Total $4,107.7 $(0.3) $4,107.4 $3,668.0
========== ============= =========== ===========
The following is a reconciliation for the Control Systems segment of
reported sales to sales excluding the effect of changes in currency
exchange rates for the three and nine months ended June 30, 2006
compared to sales for the three and nine months ended:
Three Months Ended June 30,
------------------------------------------------
2006 2005
------------------------------------ -----------
Sales
Excluding
Effect of Effect of
Changes in Changes in
Sales Currency Currency Sales
---------- -------------------------------------
United States and
Canada $750.8 $(11.0) $739.8 $662.8
Europe, Middle East,
Africa 217.2 0.9 218.1 202.6
Asia-Pacific 131.8 0.5 132.3 118.4
Latin America 66.3 (2.7) 63.6 51.6
---------- ------------- ----------- -----------
Total $1,166.1 $(12.3) $1,153.8 $1,035.4
========== ============= =========== ===========
Nine Months Ended June 30,
------------------------------------------------
2006 2005
------------------------------------ -----------
Sales
Excluding
Effect of Effect of
Changes in Changes in
Sales Currency Currency Sales
---------- -------------------------------------
United States and
Canada $2,188.0 $(20.6) $2,167.4 $1,909.2
Europe, Middle East,
Africa 603.8 34.3 638.1 609.8
Asia-Pacific 382.1 2.2 384.3 350.3
Latin America 188.6 (12.7) 175.9 150.2
---------- ------------- ----------- -----------
Total $3,362.5 $3.2 $3,365.7 $3,019.5
========== ============= =========== ===========
ROCKWELL AUTOMATION, INC.
OTHER SUPPLEMENTAL INFORMATION
(in millions)
Return On Invested Capital
---------------------------
Our press release contains information regarding Return On Invested
Capital (ROIC), which is a non-GAAP financial measure. Management
believes that ROIC is useful to investors as a measure of performance
and of the effectiveness of the use of capital in its operations.
Management uses ROIC as one measure to monitor and evaluate the
performance of the company. Our measure of ROIC is likely to differ
from that used by other companies. We define ROIC as the percentage
resulting from the following calculation:
(a) Income from continuing operations before accounting change, if
any, and before interest expense, income tax provision, and
purchase accounting depreciation and amortization, divided by;
(b) average invested capital for the year, calculated as a five
quarter rolling average using the sum of short-term debt,
long-term debt, shareowners' equity, cumulative impairments of
goodwill and intangibles required under SFAS No. 142, and
accumulated amortization of goodwill and other intangible assets,
minus cash and cash equivalents, multiplied by;
(c) one minus the adjusted effective tax rate for the period, the
adjusted effective tax rate is calculated by excluding the effect
of extraordinary separately reported tax items in continuing
operations.
ROIC is calculated as follows:
Twelve Months Ended
June 30,
---------------------
2006 2005
---------- ----------
(a) Return
Income from continuing operations $570.8 $491.6
Interest expense 54.0 45.2
Income tax provision 259.1 186.5
Purchase accounting depreciation and
amortization 12.7 19.4
---------- ----------
Return 896.6 742.7
---------- ----------
(b) Average Invested Capital
Short-term debt 71.7 0.2
Long-term debt 747.6 754.4
Shareowners' equity 1,686.6 1,875.7
Impairments of goodwill and intangibles 108.0 108.0
Accumulated amortization of goodwill and
intangibles 675.8 656.5
Cash and cash equivalents (364.1) (444.9)
---------- ----------
Average invested capital 2,925.6 2,949.9
---------- ----------
(c) Adjusted Effective Tax Rate
Income tax provision 259.1 186.5
Separately reported tax items in continuing
operations - 19.7
---------- ----------
Income tax provision before separately
reported tax
items in continuing operations 259.1 206.2
---------- ----------
Income from continuing operations before income
taxes $829.9 $678.1
---------- ----------
Adjusted effective tax rate 31.2% 30.4%
---------- ----------
(a) / (b) x (1-c) Return On Invested Capital 21.1% 17.5%
========== ==========