Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ROK > SEC Filings for ROK > Form 10-Q on 2-May-2013All Recent SEC Filings

Show all filings for ROCKWELL AUTOMATION INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ROCKWELL AUTOMATION INC


2-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Forward Looking Statement
This Quarterly Report contains statements (including certain projections and business trends) that are "forward looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Words such as "believe", "estimate", "project", "plan", "expect", "anticipate", "will", "intend" and other similar expressions may identify forward looking statements. 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:

macroeconomic factors, including global and regional business conditions, the availability and cost of capital, the cyclical nature of our customers' capital spending, sovereign debt concerns and currency exchange rates;

laws, regulations and governmental policies affecting our activities in the countries where we do business;

the successful development of advanced technologies and demand for and market acceptance of new and existing products;

the availability, effectiveness and security of our information technology systems;

competitive products, services and solutions and pricing pressures, and our ability to provide high quality products, services and solutions;

a disruption of our operations and supply chain due to natural disasters, acts of war, strikes, terrorism, social unrest or other causes;

our ability to protect confidential information and enforce our intellectual property rights;

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;

our ability to manage costs related to employee retirement and health care benefits;

the uncertainties of litigation, including liabilities related to the safety and security of the products, services and solutions we sell or to alleged intellectual property infringements;

our ability to manage and mitigate the risks associated with our solutions business;

a disruption of our distribution channels;

the availability and price of components and materials;

the successful integration and management of acquired businesses;

the successful execution of our cost productivity and globalization initiatives; and

other risks and uncertainties, including but not limited to those detailed from time to time in our Securities and Exchange Commission (SEC) filings.

These forward looking statements reflect our beliefs as of the date of filing this report. We undertake no obligation to update or revise any forward looking statement, whether as a result of new information, future events or otherwise. See Item 1A, Risk Factors of our Annual Report on Form 10-K for the fiscal year ended September 30, 2012 for more information. Non-GAAP Measures
The following discussion includes organic sales, total segment operating earnings and margin, Adjusted Income, Adjusted EPS, Adjusted Effective Tax Rate and free cash flow, which are non-GAAP measures. See Supplemental Sales Information for a reconciliation of reported sales to organic sales and a discussion of why we believe this non-GAAP measure is useful to investors. See Results of Operations for a reconciliation of income before income taxes to total segment operating earnings and margin and a discussion of why we believe these non-GAAP measures are useful to investors. See Results of Operations for a reconciliation of income from continuing operations, diluted EPS from continuing operations and effective tax rate to Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate and a discussion of why we believe these non-GAAP measures are useful to investors. See Financial Condition for a reconciliation of cash flows from operating activities to free cash flow and a discussion of why we believe this non-GAAP measure is useful to investors.


Table of Contents
ROCKWELL AUTOMATION, INC.

Overview
We are a leading global provider of industrial automation power, control and information solutions that help manufacturers achieve a competitive advantage for their businesses. Overall demand for our products, services and solutions is driven by:

investments in manufacturing, including upgrades, modifications and expansions of existing facilities or production lines, and the creation of new facilities or production lines;

investments in basic materials production capacity, partly in response to higher commodity pricing;

our customers' needs for productivity and cost reduction, sustainable production (cleaner, safer and more energy efficient), quality assurance and overall global competitiveness;

industry factors that include our customers' new product introductions, demand for our customers' products or services, and the regulatory and competitive environments in which our customers operate;

levels of global industrial production and capacity utilization;

regional factors that include local political, social, regulatory and economic circumstances; and

the spending patterns of our customers due to their annual budgeting processes and their working schedule.

Long-term Strategy
Our vision of being the most valued global provider of innovative industrial automation and information products, services and solutions is supported by our growth and performance strategy, which seeks to:

achieve growth rates in excess of the automation market by expanding our served market and strengthening our competitive differentiation;

diversify our revenue streams by broadening our portfolio of products, services and solutions, expanding our global presence and serving a wider range of customer applications;

grow market share by gaining new customers and by capturing a larger share of existing customers' spending;

enhance our market access by building our channel capability and partner network;

make acquisitions that serve as catalysts to organic growth by adding complementary technology, expanding our served market, increasing our domain expertise or continuing our geographic diversification;

deploy human and financial resources to strengthen our technology leadership and our intellectual capital business model; and

continuously improve quality and customer experience and drive annual cost productivity.

By implementing the strategy above, we seek to achieve our long-term financial goals that include revenue growth of 6-8 percent, double-digit EPS growth, return on invested capital in excess of 20 percent, free cash flow equal to about 100 percent of net income and 60 percent of our revenue outside the U.S, including 30 percent of revenue from emerging markets.


Table of Contents
ROCKWELL AUTOMATION, INC.

U. S. Industrial Economic Trends
In the second quarter of 2013, sales to U.S. customers accounted for 51 percent of our total sales. The various indicators we use to gauge the direction and momentum of our served U.S. markets include:

The Industrial Production Index (Total Index), published by the Federal Reserve, which measures the real output of manufacturing, mining, and electric and gas utilities. The Industrial Production Index is expressed as a percentage of real output in a base year, currently 2007. Historically there has been a meaningful correlation between the changes in the Industrial Production Index and the level of automation investment made by our U.S. customers in their manufacturing base.

The Manufacturing Purchasing Managers' Index (PMI), published by the Institute for Supply Management (ISM), which is an indicator of the current and near-term state of manufacturing activity in the U.S. According to the ISM, a PMI measure above 50 indicates that the U.S. manufacturing economy is generally expanding while a measure below 50 indicates that it is generally contracting.

Industrial Equipment Spending, which is an economic statistic compiled by the Bureau of Economic Analysis (BEA). This statistic provides insight into spending trends in the broad U.S. industrial economy. This measure over the longer term has proven to demonstrate a reasonable correlation with our domestic growth.

Capacity Utilization (Total Industry), which is an indicator of plant operating activity published by the Federal Reserve. Historically there has been a meaningful correlation between Capacity Utilization and levels of U.S. industrial production.

The table below depicts the trends in these indicators since the quarter ended September 2011. Improvements in the Industrial Production Index, Industrial Equipment Spending and Capacity Utilization, and the PMI remaining above 50 cause us to expect continued growth in the second half of our fiscal year.

                                       Industrial
               Industrial              Equipment        Capacity
               Production               Spending      Utilization
                  Index       PMI    (in billions)     (percent)
Fiscal 2013
Quarter ended:
March 2013           98.9    51.3            203.4           78.1
December 2012        97.7    50.2            203.4           77.5
Fiscal 2012
Quarter ended:
September 2012       97.1    51.6            198.0           77.4
June 2012            97.0    50.2            197.8           77.7
March 2012           96.3    53.3            190.7           77.6
December 2011        95.1    52.9            196.6           77.1
Fiscal 2011
Quarter ended:
September 2011       94.0    53.2            187.0           76.7

Note: Economic indicators are subject to revisions by the issuing organizations.


Table of Contents
ROCKWELL AUTOMATION, INC.

Non-U.S. Economic Trends
In the second quarter of 2013, sales to non-U.S. customers accounted for 49 percent of our total sales. These customers include both indigenous companies and multinational companies with expanding global presence. In addition to the global factors previously mentioned, international demand, particularly in emerging markets, has historically been driven by the strength of the industrial economy in each region, investments in infrastructure and expanding consumer markets.
We use changes in Gross Domestic Product (GDP) and Industrial Production Index as indicators of the growth opportunities in each region where we do business. After a period of moderating growth rates, modest acceleration is expected in the latter half of the year. Industrial markets remain uneven around the world. Western Europe continues to operate in a recessionary environment, showing few signs of improvement throughout the remainder of our fiscal year; while emerging markets in Europe, the Middle East and Africa (EMEA) are expected to continue to exhibit stronger growth. In Asia, China's recovery is slower than expected and India's economy is very weak with no sign of improvement in the near term. In Latin America, Mexico's economy remains strong and Brazil's economy has returned to positive growth. We still expect that emerging markets will be the fastest growing automation markets over the long term.


Table of Contents
ROCKWELL AUTOMATION, INC.

Summary of Results of Operations
Sales in the second quarter of 2013 decreased 2 percent compared to the second quarter of 2012. Solid growth in the Americas was offset by declines in EMEA and Asia-Pacific, consistent with underlying market conditions. We delivered strong earnings despite the sales declines, primarily due to strong productivity that more than offset the impact of lower volume. We continued to execute our key initiatives:

Sales related to our process initiative declined less than 1 percent in the second quarter of 2013.

Logix sales in the second quarter of 2013 were flat year over year.

Sales in emerging markets decreased 9 percent year over year, or 7 percent organically. Solid growth in Latin America was offset by declines in Asia-Pacific. Emerging markets represented 20 percent of total company sales in the second quarter of 2013.

The effective tax rate in the second quarter of 2013 was 22.5 percent compared to 24.9 percent in the second quarter of 2012. The Adjusted Effective Tax Rate in the second quarter of 2013 was 23.6 percent compared to 25.3 percent in the second quarter of 2012. We recognized net discrete tax benefits of $4.8 million in the second quarter of 2013, primarily related to the retroactive extension of the U.S. federal research and development tax credit.


Table of Contents
                           ROCKWELL AUTOMATION, INC.


The following table reflects our sales and operating results for the three and
six months ended March 31, 2013 and 2012 (in millions, except per share
amounts):

                                             Three Months Ended           Six Months Ended
                                                  March 31,                   March 31,
                                             2013          2012          2013          2012
Sales
Architecture & Software                   $   639.2     $   664.8     $ 1,296.7     $ 1,315.3
Control Products & Solutions                  883.6         896.3       1,715.3       1,719.7
Total sales (a)                           $ 1,522.8     $ 1,561.1     $ 3,012.0     $ 3,035.0
Segment operating earnings1
Architecture & Software                   $   169.9     $   170.6     $   353.1     $   359.8
Control Products & Solutions                  115.3         105.9         208.1         208.6
Total segment operating earnings2 (b)         285.2         276.5         561.2         568.4
Purchase accounting depreciation and
amortization                                   (5.0 )        (4.9 )       (10.2 )        (9.9 )
General corporate - net                       (18.1 )       (24.5 )       (36.6 )       (44.7 )
Non-operating pension costs3                  (19.7 )        (8.8 )       (39.4 )       (17.6 )
Interest expense                              (15.3 )       (15.0 )       (30.7 )       (30.0 )
Income before income taxes (c)                227.1         223.3         444.3         466.2
Income tax provision                          (51.2 )       (55.5 )      (107.0 )      (115.1 )
Net income                                $   175.9     $   167.8     $   337.3     $   351.1

Diluted EPS                               $    1.24     $    1.16     $    2.38     $    2.43

Adjusted EPS                              $    1.33     $    1.20     $    2.56     $    2.51

Diluted weighted average outstanding
shares                                        141.8         144.7         141.4         144.3

Total segment operating margin2 (b/a)          18.7 %        17.7 %        18.6 %        18.7 %

Pre-tax margin (c/a)                           14.9 %        14.3 %        14.8 %        15.4 %

(1) See Note 13 in the Condensed Consolidated Financial Statements for the definition of segment operating earnings.

(2) Total segment operating earnings and total segment operating margin are non-GAAP financial measures. We believe that these measures are useful to investors as measures of operating performance. We use these measures to monitor and evaluate the profitability of our operating segments. Our measures of total segment operating earnings and total segment operating margin may be different from measures used by other companies.

(3) Beginning in fiscal 2013, we redefined segment operating earnings to exclude non-operating pension costs. Non-operating pension costs were reclassified to a separate line item within the above table for all periods presented. These costs were previously included in segment operating earnings and in general corporate-net. We continue to include service cost and amortization of prior service cost in the business segment that incurred the expense as these costs represent the operating cost of providing pension benefits to our employees.


Table of Contents
                           ROCKWELL AUTOMATION, INC.


Purchase accounting depreciation and amortization and non-operating pension
costs are not allocated to our operating segments because these costs are
excluded from our measurement of segment's operating performance for internal
purposes. The following table reflects purchase accounting depreciation and
amortization and non-operating pension costs that are attributable to each of
our segments for the three and six months ended March 31, 2013 and 2012 (in
millions):
                                              Three Months Ended            Six Months Ended
                                                  March 31,                    March 31,
                                              2013          2012           2013          2012
Purchase accounting depreciation and
amortization
Architecture & Software                   $      1.0     $     1.2     $      2.1     $     2.5
Control Products & Solutions                     3.7           3.5            7.5           6.9
Non-operating pension costs
Architecture & Software                          6.9           2.9           13.8           5.8
Control Products & Solutions                    11.7           5.3           23.4          10.5

The increases in non-operating pension costs in both segments in the three and six months ended March 31, 2013 were primarily due to the decrease in our U.S. discount rate from 5.20 percent in 2012 to 4.15 percent in 2013.


Table of Contents
ROCKWELL AUTOMATION, INC.

Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate Reconciliation

Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate are non-GAAP earnings measures that exclude non-operating pension costs and their related income tax effects. We define non-operating pension costs as defined benefit plan interest cost, expected return on plan assets, amortization of actuarial gains and losses and the impacts of any plan curtailments or settlements. These components of net periodic benefit cost primarily relate to changes in pension assets and liabilities that are a result of market performance; we consider these costs to be unrelated to the operating performance of our business. We believe that Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate provide useful information to our investors about our operating performance and allow management and investors to compare our operating performance period over period. Our measures of Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate may be different from measures used by other companies. These non-GAAP measures should not be considered a substitute for income from continuing operations, diluted EPS and effective tax rate.

The following is a reconciliation of income from continuing operations, diluted EPS from continuing operations, and effective tax rate to Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate for the three and six months ended March 31, 2013 and 2012 (in millions, except per share amounts):

                                                    Three Months Ended         Six Months Ended
                                                        March 31,                 March 31,
                                                     2013         2012         2013        2012
Income from continuing operations                $   175.9      $ 167.8     $  337.3     $ 351.1
Non-operating pension costs                           19.7          8.8         39.4        17.6
Tax effect of non-operating pension costs             (7.1 )       (3.2 )      (14.3 )      (6.3 )
Adjusted Income                                  $   188.5      $ 173.4     $  362.4     $ 362.4

Diluted EPS from continuing operations           $    1.24      $  1.16     $   2.38     $  2.43
Non-operating pension costs per diluted share,
before tax                                            0.14         0.06         0.28        0.12
Tax effect of non-operating pension costs per
diluted share                                        (0.05 )      (0.02 )      (0.10 )     (0.04 )
Adjusted EPS                                     $    1.33      $  1.20     $   2.56     $  2.51

Effective tax rate                                    22.5 %       24.9 %       24.1 %      24.7 %
Tax effect of non-operating pension costs              1.1 %        0.4 %        1.0 %       0.4 %
Adjusted Effective Tax Rate                           23.6 %       25.3 %       25.1 %      25.1 %


Table of Contents
                           ROCKWELL AUTOMATION, INC.


Three and Six Months Ended 2013 Compared to Three and Six Months Ended 2012

                                            Three Months Ended                       Six Months Ended
                                                 March 31,                               March 31,
(in millions, except per share
amounts)                              2013          2012        Change        2013          2012        Change
Sales                              $ 1,522.8     $ 1,561.1     $ (38.3 )   $ 3,012.0     $ 3,035.0     $ (23.0 )
Income before income taxes             227.1         223.3         3.8         444.3         466.2       (21.9 )
Diluted EPS                             1.24          1.16        0.08          2.38          2.43       (0.05 )
Adjusted EPS                            1.33          1.20        0.13          2.56          2.51        0.05

Sales
Our sales decreased 2 percent and 1 percent in the three and six months ended March 31, 2013, respectively, compared to the three and six months ended March 31, 2012. Sales in our solutions and services businesses declined approximately 2 percent in the three months ended March 31, 2013. Product sales declined approximately 2 percent in the three months ended March 31, 2013. Sales in our solutions and services businesses and product sales were flat in the six months ended March 31, 2013. Pricing contributed less than 1 percentage point to growth during both periods.
The tables below present our sales, attributed to the geographic regions based upon country of destination, for the three and six months ended March 31, 2013 and the change from the same period a year ago (in millions, except percentages):

                                                                             Change in Organic
                                                            Change vs.           Sales vs.
                                                           Three Months        Three Months
                                  Three Months Ended      Ended March 31,     Ended March 31,
                                    March 31, 2013             2012                2012
United States                    $             776.9                  2  %                2  %
Canada                                         116.8                  -  %                1  %
Europe, Middle East and Africa                 317.1                 (5 )%               (5 )%
Asia-Pacific                                   188.3                (19 )%              (18 )%
Latin America                                  123.7                  2  %                6  %
Total Sales                      $           1,522.8                 (2 )%               (2 )%

                                                                             Change in Organic
                                                            Change vs.           Sales vs.
                                   Six Months Ended      Six Months Ended    Six Months Ended
                                    March 31, 2013        March 31, 2012      March 31, 2012
United States                    $           1,538.0                  4  %                4  %
Canada                                         223.1                  1  %                -  %
Europe, Middle East and Africa                 613.2                 (6 )%               (4 )%
Asia-Pacific                                   385.7                (13 )%              (14 )%
Latin America                                  252.0                  3  %                7  %
Total Sales                      $           3,012.0                 (1 )%                -  %

The United States and Canada performed relatively well in a low growth environment.

EMEA's sales declined primarily due to the ongoing recession in Western Europe, partially offset by performance in emerging markets with strong growth in the Middle East.

Asia-Pacific experienced sales declines across the region due to weak market conditions as evidenced by continued project delays.

Sales growth in Latin America was led by strong growth in Mexico, partially offset by negative impact from currency translation.


Table of Contents
ROCKWELL AUTOMATION, INC.

Three and Six Months Ended 2013 Compared to Three and Six Months Ended 2012 General Corporate - Net
General corporate - net expenses were $18.1 million and $36.6 million in the three and six months ended March 31, 2013, respectively, compared to $24.5 million and $44.7 million in the three and six months ended March 31, 2012, respectively. The decrease is primarily due to a $6.9 million charge related to two legacy environmental sites recognized in the three and six months ended March 31, 2012.
Income before Income Taxes
Income before income taxes increased 2 percent in the three months ended March 31, 2013, primarily due to an increase in segment operating earnings and lower general corporate-net expenses, partially offset by higher non-operating pension costs. Income before income taxes decreased 5 percent in the six months ended March 31, 2013, primarily due to a decrease in segment operating earnings and higher non-operating pension costs, partially offset by lower general corporate-net expenses. Total segment operating earnings increased 3 percent in the three months ended March 31, 2013, with strong productivity, favorable mix and lower variable compensation expense offsetting the impact of lower volume. Total segment operating earnings decreased 1 percent in the six months ended March 31, 2013 as productivity, favorable mix and lower variable compensation expense did not fully offset the impact of lower volume. These factors had a similar impact on operating earnings and operating margin in each segment.

Income Taxes
The effective tax rate in the second quarter of 2013 was 22.5 percent compared to 24.9 percent in the second quarter of 2012. Our Adjusted Effective Tax Rate . . .

  Add ROK to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ROK - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.