- Fourth quarter sales down 10 percent
year over year; down 2 percent organically
- Fourth quarter Adjusted EPS of $1.57;
diluted EPS of $1.50
- Full year Adjusted EPS of $6.40, up 4
percent despite 5 percent lower sales; diluted EPS of $6.09
- Record fiscal year free cash flow and
ROIC
- Company increases dividend 12
percent
- Company provides fiscal 2016 Adjusted
EPS guidance of $5.90 - $6.40
Rockwell Automation, Inc. (NYSE: ROK) today reported fiscal 2015
fourth quarter sales of $1,607.5 million, down 9.8 percent from
$1,781.8 million in the fourth quarter of fiscal 2014. Organic
sales decreased 2.3 percent, and currency translation reduced sales
by 7.6 percent.
Fiscal 2015 fourth quarter Adjusted EPS was $1.57, down 16
percent compared to Adjusted EPS of $1.86 in the fourth quarter of
fiscal 2014. Total segment operating earnings were $335.8 million
in the fourth quarter of fiscal 2015, down 15 percent compared to
$395.8 million in the same period last year. Results in the fourth
quarter of fiscal 2015 included $12 million of restructuring
charges. Total segment operating margin decreased to 20.9 percent
from 22.2 percent a year ago, primarily due to lower operating
margin in the Architecture & Software segment.
On a GAAP basis, fiscal 2015 fourth quarter net income was
$201.3 million or $1.50 per share, compared to $248.7 million or
$1.79 per share in the fourth quarter of fiscal 2014. Pre-tax
margin decreased to 17.3 percent from 19.0 percent in the same
period last year.
Full Fiscal Year 2015
Sales were $6,307.9 million in fiscal 2015, down 4.8 percent
compared to $6,623.5 million in fiscal 2014. Organic sales
increased 1.1 percent, and currency translation reduced sales by
6.0 percent.
Fiscal 2015 Adjusted EPS was $6.40, up 3.7 percent compared to
Adjusted EPS of $6.17 in fiscal 2014. Total segment operating
earnings increased to $1,360.5 million in fiscal 2015 compared to
$1,352.0 million in fiscal 2014. Total segment operating margin
increased to 21.6 percent from 20.4 percent a year ago, primarily
due to higher organic sales and strong productivity.
On a GAAP basis, fiscal 2015 net income was $827.6 million or
$6.09 per share, compared to $826.8 million or $5.91 per share in
fiscal 2014. Pre-tax margin increased to 17.9 percent from 17.1
percent a year ago.
Commenting on the results, Keith D. Nosbusch, chairman and chief
executive officer, said, “Both sales and earnings were below our
expectations in the quarter. Sales softened through the quarter and
September was especially weak, particularly in the U.S.
“For the full year, we overcame significant headwinds from heavy
industry end markets and delivered organic growth of 1.1 percent. I
am pleased that segment operating margin expanded 120 basis points.
Strong productivity, particularly in the Control Products &
Solutions segment, was a key contributor. I am also pleased that we
were able to grow our earnings per share despite lower sales.
“We generated record free cash flow of about $1.1 billion and
continued our track record of returning cash to shareowners. We
returned over $950 million in fiscal 2015, a 19 percent increase
compared to fiscal 2014. And today we are announcing a 12 percent
dividend increase, the seventh consecutive double-digit percentage
increase since the beginning of 2010. This increase reflects
confidence in our sustainable cash generation.
"I would like to thank our employees, partners and suppliers for
their continued commitment to serve our customers. Their dedication
is key to our success.”
Outlook
Commenting on the outlook, Nosbusch added, "We are experiencing
weak market conditions as we enter fiscal 2016. Heavy industry end
markets including oil and gas have not yet stabilized, and we see
continued softness in key emerging markets. In our largest market,
the U.S., the strong dollar is adversely affecting producers and
OEMs. As a result, our customers are being more cautious with
capital expenditures and operating spending. We therefore expect a
particularly weak start to the fiscal year and don't believe we
will see year-over-year growth until later in fiscal 2016.
“Based on these factors, we are projecting fiscal 2016 organic
sales to be flat to down 4 percent year over year. Including the
impact of currency, we are initiating fiscal 2016 sales guidance of
approximately $6.0 billion and Adjusted EPS guidance of $5.90 to
$6.40.
“We have a proven track record of managing costs while
protecting our technology investments and domain expertise during
challenging market conditions. We have already initiated
restructuring actions and will continue to balance short-term
financial performance with investments that will enable long-term
growth and sustainable competitive differentiation.
“The long-term prospects for Rockwell Automation are very
attractive. The secular drivers for industrial automation and
information remain intact, and we will continue to expand the value
we provide our customers and gain market share.”
Following is a discussion of fourth quarter and full year
results for both segments.
Architecture & Software
Architecture & Software fiscal 2015 fourth quarter sales
were $683.9 million, a decrease of 8.5 percent from $747.4 million
in the same period last year. Organic sales decreased 0.4 percent,
and currency translation reduced sales by 8.1 percent. Segment
operating earnings were $186.5 million in the fourth quarter of
fiscal 2015 compared to $232.7 million in the fourth quarter of
fiscal 2014. Segment operating margin decreased to 27.3 percent in
the fourth quarter of fiscal 2015 from 31.1 percent a year ago,
primarily due to unfavorable currency effects and increased
research and development project spending.
Architecture & Software fiscal 2015 sales were $2,749.5
million, a decrease of 3.4 percent from $2,845.3 million last year.
Fiscal 2015 organic sales were up 3.1 percent, and currency
translation reduced sales by 6.6 percent. Segment operating
earnings were $808.6 million in fiscal 2015 compared to $839.6
million in fiscal 2014. Segment operating margin was 29.4 percent
in fiscal 2015 compared to 29.5 percent in fiscal 2014.
Control Products &
Solutions
Control Products & Solutions fiscal 2015 fourth quarter
sales were $923.6 million, a decrease of 10.7 percent from $1,034.4
million in the same period last year. Organic sales decreased 3.6
percent, and currency translation reduced sales by 7.2 percent.
Segment operating earnings decreased 8.5 percent to $149.3 million
in the fourth quarter of fiscal 2015 compared to $163.1 million in
the fourth quarter of fiscal 2014. Segment operating margin was
16.2 percent in the fourth quarter of fiscal 2015, compared to 15.8
percent a year ago.
Control Products & Solutions fiscal 2015 sales were $3,558.4
million, a decrease of 5.8 percent from $3,778.2 million last year.
Organic sales decreased 0.4 percent, and currency translation
reduced sales by 5.6 percent. Segment operating earnings increased
to $551.9 million in fiscal 2015 compared to $512.4 million in
fiscal 2014. Despite lower sales, segment operating margin was 15.5
percent in fiscal 2015 compared to 13.6 percent a year ago,
primarily due to very strong productivity.
Other Information
Free cash flow was $308.5 million in the fourth quarter of
fiscal 2015. Cash flow provided by operating activities was $348.0
million in the fourth quarter of fiscal 2015. Full fiscal year 2015
free cash flow was $1,077.2 million, 124 percent of Adjusted
Income. Cash flow provided by operating activities for the full
fiscal year 2015 was $1,187.7 million. Return on invested capital
was 32.6 percent.
Fiscal 2015 fourth quarter general corporate net expense was
$19.5 million compared to $22.3 million in the fourth quarter of
2014. General corporate net expense was $85.6 million for the full
fiscal year 2015 compared to $81.0 million in fiscal 2014.
The Adjusted Effective Tax Rate for the fourth quarter of fiscal
2015 was 28.2 percent compared to 27.0 percent in the fourth
quarter of 2014. The Adjusted Effective Tax Rate for the full
fiscal year 2015 was 27.0 percent compared to 27.5 percent in
fiscal 2014.
The effective tax rate for the fourth quarter of fiscal 2015 was
27.8 percent compared to 26.6 percent in the fourth quarter of
2014. The effective tax rate for the full fiscal year 2015 was 26.6
percent compared to 27.1 percent in fiscal 2014.
During the fourth quarter of fiscal 2015, the Company
repurchased 1.8 million shares of its common stock at a cost of
$196.5 million. During fiscal year 2015, the Company repurchased
5.4 million shares of its common stock at a cost of $606.2 million.
As of September 30, 2015, $445.2 million remained available
under the existing share repurchase authorization.
Today the Board of Directors declared a quarterly dividend of
72.5 cents per share on the Company's common stock, payable on
December 10, 2015 to shareowners of record at the close of business
on November 23, 2015.
Organic sales, total segment operating earnings, total segment
operating margin, Adjusted Income, Adjusted EPS, Adjusted Effective
Tax Rate, free cash flow and return on invested capital are
non-GAAP measures that are reconciled to GAAP measures in the
attachments to this release.
Conference Call
A conference call to discuss our financial results will take
place at 8:30 a.m. Eastern Time on Tuesday, November 10, 2015.
The call and related financial charts will be webcast and
accessible via the Rockwell Automation website
(http://www.rockwellautomation.com/investors/).
This news release 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, commodity prices, 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, solutions and
services and pricing pressures, and our ability to provide high
quality products, solutions and services;
- a disruption of our business due to
natural disasters, pandemics, acts of war, strikes, terrorism,
social unrest or other causes;
- our ability to manage and mitigate the
risk related to security vulnerabilities and breaches of our
products, solutions and services;
- intellectual property infringement
claims by others and the ability to protect our intellectual
property;
- the uncertainty of 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, solutions and services we sell;
- our ability to manage and mitigate the
risks associated with our solutions and services businesses;
- 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 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. (NYSE: ROK), the world’s largest
company dedicated to industrial automation and information, makes
its customers more productive and the world more sustainable.
Headquartered in Milwaukee, Wis., Rockwell Automation employs over
22,500 people serving customers in more than 80 countries.
ROCKWELL AUTOMATION, INC.
SALES AND EARNINGS INFORMATION
(in millions, except per share
amounts)
Three Months Ended Twelve
Months Ended September 30, September 30,
2015 2014 2015 2014 Sales
Architecture & Software (a) $ 683.9 $ 747.4 $ 2,749.5 $ 2,845.3
Control Products & Solutions (b) 923.6 1,034.4
3,558.4 3,778.2 Total sales (c) $ 1,607.5 $
1,781.8 $ 6,307.9 $ 6,623.5 Segment operating
earnings Architecture & Software (d) $ 186.5 $ 232.7 $ 808.6 $
839.6 Control Products & Solutions (e) 149.3 163.1
551.9 512.4 Total segment operating earnings1
(f) 335.8 395.8 1,360.5 1,352.0 Purchase accounting depreciation
and amortization (5.2 ) (5.7 ) (21.0 ) (21.6 ) General corporate —
net (19.5 ) (22.3 ) (85.6 ) (81.0 ) Non-operating pension costs
(15.5 ) (13.8 ) (62.7 ) (55.9 ) Interest expense (16.7 ) (15.0 )
(63.7 ) (59.3 ) Income before income taxes (g) 278.9 339.0 1,127.5
1,134.2 Income tax provision (77.6 ) (90.3 ) (299.9 ) (307.4 ) Net
income $ 201.3 $ 248.7 $ 827.6 $ 826.8
Diluted EPS $ 1.50 $ 1.79 $ 6.09 $ 5.91
Adjusted EPS2 $ 1.57 $ 1.86 $ 6.40
$ 6.17 Average diluted shares 134.3
138.5 135.7 139.7 Segment operating
margin Architecture & Software (d/a) 27.3 % 31.1 % 29.4 % 29.5
% Control Products & Solutions (e/b) 16.2 % 15.8 % 15.5 % 13.6
% Total segment operating margin1 (f/c) 20.9 % 22.2 % 21.6 % 20.4 %
Pre-tax margin (g/c) 17.3 % 19.0 % 17.9 % 17.1 % 1
Total segment operating earnings and total segment operating margin
are non-GAAP financial measures. We exclude purchase accounting
depreciation and amortization, general corporate – net,
non-operating pension costs, interest expense and income tax
provision because we do not consider these costs to be directly
related to the operating performance of our segments. 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 Company. Our measures of total
segment operating earnings and total segment operating margin may
be different from those used by other companies. 2 Adjusted
EPS is a non-GAAP earnings measure that excludes the non-operating
pension costs and their related income tax effects. See "Other
Supplemental Information - Adjusted Income, Adjusted EPS and
Adjusted Effective Tax Rate" section for more information regarding
non-operating pension costs and a reconciliation to GAAP measures.
ROCKWELL AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
(in millions)
Three Months Ended Twelve
Months Ended September 30, September 30,
2015 2014 2015 2014 Sales
$ 1,607.5 $ 1,781.8 $ 6,307.9 $ 6,623.5 Cost of sales (943.3 )
(1,028.9 ) (3,604.8 ) (3,869.6 ) Gross profit 664.2 752.9 2,703.1
2,753.9 Selling, general and administrative expenses (360.7 )
(397.8 ) (1,506.4 ) (1,570.1 ) Other (expense) income (7.9 ) (1.1 )
(5.5 ) 9.7 Interest expense (16.7 ) (15.0 ) (63.7 ) (59.3 ) Income
before income taxes 278.9 339.0 1,127.5 1,134.2 Income tax
provision (77.6 ) (90.3 ) (299.9 ) (307.4 )
Net income $
201.3 $ 248.7 $ 827.6 $ 826.8
ROCKWELL AUTOMATION, INC.
CONDENSED BALANCE SHEET
INFORMATION
(in millions)
September 30, September
30, 2015 2014 Assets Cash and cash
equivalents $ 1,427.3 $ 1,191.3 Short-term investments 721.9 628.5
Receivables 1,041.0 1,215.8 Inventories 535.6 588.4 Property, net
605.6 632.9 Goodwill and intangibles 1,258.3 1,296.8 Other assets
815.0 670.6 Total $ 6,404.7 $ 6,224.3
Liabilities
and Shareowners’ Equity Short-term debt $ — $ 325.0 Accounts
payable 521.7 520.6 Long-term debt 1,500.9 900.4 Other liabilities
2,125.3 1,820.2 Shareowners’ equity 2,256.8 2,658.1 Total $
6,404.7 $ 6,224.3
ROCKWELL AUTOMATION, INC.
CONDENSED CASH FLOW INFORMATION
(in millions)
Twelve Months Ended September
30, 2015 2014 Operating activities:
Income from continuing operations $ 827.6 $ 826.8 Depreciation and
amortization 162.5 152.5 Retirement benefits expense 141.3 132.9
Pension contributions (41.0 ) (42.1 )
Receivables/inventories/payables 88.2 (61.5 ) Advanced payments
from customers and deferred revenue 20.7 (8.4 ) Compensation and
benefits (33.9 ) 43.3 Income taxes (2.0 ) (5.4 ) Other 24.3
(4.8 ) Cash provided by operating activities 1,187.7 1,033.3
Investing activities: Capital expenditures (122.9 )
(141.0 ) Acquisition of businesses, net of cash acquired (21.2 )
(81.5 ) Purchases of short-term investments (867.6 ) (705.7 )
Proceeds from maturities of short-term investments 762.7 447.8
Proceeds from sale of property 2.1 0.4 Other investing activities —
(3.4 ) Cash used for investing activities (246.9 ) (483.4 )
Financing activities: Net (repayment) issuance of short-term
debt (325.0 ) 146.0 Issuance of long-term debt, net of discount and
issuance costs 594.3 — Cash dividends (350.1 ) (320.5 ) Purchases
of treasury stock (598.4 ) (485.7 ) Proceeds from the exercise of
stock options 60.3 108.5 Excess income tax benefit from share-based
compensation 12.4 29.9 Other financing activities (1.6 ) —
Cash used for financing activities (608.1 ) (521.8 ) Effect of
exchange rate changes on cash (96.7 ) (37.7 ) Increase (decrease)
in cash and cash equivalents $ 236.0 $ (9.6 )
ROCKWELL AUTOMATION, INC. OTHER
SUPPLEMENTAL INFORMATION (in millions)
Organic Sales
Our press release contains information regarding sales excluding
the effect of changes in currency and organic sales, which we
define as sales excluding the effect of changes in currency
exchange rates and acquisitions. We believe these non-GAAP measures
provide useful information to investors because they reflect
regional and operating segment performance from our activities
without the effect of changes in currency exchange rates and/or
acquisitions. We use organic sales and sales excluding the effect
of changes in currency as two measures to monitor and evaluate our
regional and operating segment performance. We determine the effect
of changes in currency exchange rates by translating the respective
period’s sales using the currency exchange rates that were in
effect during the prior year. When we acquire businesses, we
exclude sales in the current year for which there are no comparable
sales in the prior period. Organic sales growth is calculated by
comparing organic sales to reported sales in the prior year. Sales
are attributed to the geographic regions based on the country of
destination.
The following is a reconciliation of reported sales to organic
sales for the three and twelve months ended September 30, 2015
compared to sales for the three and twelve months ended
September 30, 2014:
Three Months Ended September 30, 2015
2014 Sales Excluding Effect of
Effect of Changes in Changes in Effect of Organic Sales Currency
Currency Acquisitions Sales Sales United States $ 874.4 $ 1.5 $
875.9 $ (1.7 ) $ 874.2 $ 899.4 Canada 87.7 17.2 104.9 — 104.9 116.0
Europe, Middle East, Africa 305.8 58.0 363.8 — 363.8 350.7
Asia-Pacific 212.9 17.6 230.5 — 230.5 256.2 Latin America 126.7
41.1 167.8 — 167.8 159.5 Total $
1,607.5 $ 135.4 $ 1,742.9 $ (1.7 ) $ 1,741.2
$ 1,781.8 Year Ended September
30, 2015 2014 Sales
Excluding Effect of Effect of Changes in Changes in Effect of
Organic Sales Currency Currency Acquisitions Sales Sales United
States $ 3,446.8 $ 4.2 $ 3,451.0 $ (6.1 ) $ 3,444.9 $ 3,414.6
Canada 366.6 47.3 413.9 — 413.9 437.0 Europe, Middle East, Africa
1,174.0 208.6 1,382.6 (2.7 ) 1,379.9 1,351.8 Asia-Pacific 834.5
39.5 874.0 — 874.0 884.0 Latin America 486.0 97.6
583.6 — 583.6 536.1 Total $ 6,307.9 $
397.2 $ 6,705.1 $ (8.8 ) $ 6,696.3 $ 6,623.5
The following table reconciles reported sales to organic sales
for our operating segments for the three and twelve months ended
September 30, 2015 compared to sales for the three and twelve
months ended September 30, 2014:
Three Months Ended September 30, 2015
2014 Sales Excluding Effect of
Effect of Changes in Changes in Effect of Organic Sales Currency
Currency Acquisitions Sales Sales Architecture & Software $
683.9 $ 60.6 $ 744.5 $ — $ 744.5 $ 747.4 Control Products &
Solutions 923.6 74.8 998.4 (1.7 ) 996.7
1,034.4 Total $ 1,607.5 $ 135.4 $ 1,742.9 $
(1.7 ) $ 1,741.2 $ 1,781.8 Year Ended
September 30, 2015 2014 Sales
Excluding Effect of Effect of Changes in Changes in Effect
of Organic Sales Currency Currency Acquisitions Sales Sales
Architecture & Software $ 2,749.5 $ 185.6 $ 2,935.1 $ (2.2 ) $
2,932.9 $ 2,845.3 Control Products & Solutions 3,558.4
211.6 3,770.0 (6.6 ) 3,763.4 3,778.2 Total $
6,307.9 $ 397.2 $ 6,705.1 $ (8.8 ) $ 6,696.3
$ 6,623.5
ROCKWELL AUTOMATION, INC. OTHER
SUPPLEMENTAL INFORMATION (in millions, except per share
amounts and percentages)
Adjusted Income, Adjusted EPS and
Adjusted Effective Tax Rate
Our press release contains financial information and earnings
guidance regarding Adjusted Income, Adjusted EPS and Adjusted
Effective Tax Rate, which 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 impact 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 are the components of operating and non-operating
pension costs for the three and twelve months ended
September 30, 2015 and 2014 (in millions):
Three Months Ended
Twelve Months Ended
September 30,
September 30,
2015
2014
2015
2014
Service cost $ 21.2 $ 19.5 $ 85.7 $ 78.5 Amortization of prior
service credit (0.7 ) (0.6 ) (2.7 ) (2.7 ) Operating pension costs
20.5 18.9 83.0 75.8 Interest
cost 41.6 43.4 167.2 174.2 Expected return on plan assets (55.6 )
(54.4 ) (223.2 ) (217.9 ) Amortization of net actuarial loss 29.5
24.9 118.7 99.7 Settlements — (0.1 ) — (0.1 )
Non-operating pension costs 15.5 13.8 62.7
55.9 Net periodic pension cost $
36.0 $ 32.7 $ 145.7 $ 131.7
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 (in millions, except per share amounts and
percentages):
Three Months Ended Twelve
Months Ended September 30, September 30,
2015 2014 2015 2014
Income from continuing operations $ 201.3 $ 248.7 $ 827.6 $ 826.8
Non-operating pension costs 15.5 13.8 62.7 55.9 Tax effect of
non-operating pension costs (5.5 ) (4.9 ) (21.9 ) (20.0 ) Adjusted
Income $ 211.3 $ 257.6 $ 868.4 $ 862.7
Diluted EPS from continuing operations $ 1.50 $ 1.79 $ 6.09
$ 5.91 Non-operating pension costs per diluted share 0.11 0.10 0.46
0.40 Tax effect of non-operating pension costs per diluted share
(0.04 ) (0.03 ) (0.15 ) (0.14 ) Adjusted EPS $ 1.57 $ 1.86
$ 6.40 $ 6.17 Effective tax rate 27.8 %
26.6 % 26.6 % 27.1 % Tax effect of non-operating pension costs 0.4
% 0.4 % 0.4 % 0.4 % Adjusted Effective Tax Rate 28.2 % 27.0 % 27.0
% 27.5 %
Fiscal 2016 Guidance Diluted EPS from
continuing operations $5.53 - $6.03 Non-operating pension costs per
diluted share 0.58 Tax effect of non-operating pension costs per
diluted share (0.21) Adjusted EPS $5.90 - $6.40
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.
We account for share-based compensation under U.S. GAAP, which
requires that we report the excess income tax benefit from
share-based compensation as a financing cash flow rather than as an
operating cash flow. We have added this benefit back to our
calculation of free cash flow in order to generally classify cash
flows arising from income taxes as operating cash flows.
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 defined, 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 Dec. 31, Mar. 31, Jun.
30, Sep. 30, Dec. 31, Mar. 31, Jun. 30,
Sep. 30, 2013 2014 2014 2014 2014 2015 2015 2015 Cash
provided by continuing operating activities $ 203.5 $ 202.8 $ 301.1
$ 325.9 $ 268.2 $ 285.2 $ 286.3 $ 348.0 Capital expenditures (35.6
) (22.7 ) (38.1 ) (44.6 ) (40.0 ) (18.0 ) (25.2 ) (39.7 ) Excess
income tax benefit from share-based compensation 10.7 7.9
10.5 0.8 4.4 2.2 5.6 0.2
Free cash flow $ 178.6 $ 188.0 $ 273.5
$ 282.1 $ 232.6 $ 269.4 $ 266.7 $ 308.5
Return On Invested
Capital
Our press release contains information regarding Return On
Invested Capital (ROIC), which is a non-GAAP financial measure. We
believe that ROIC is useful to investors as a measure of
performance and of the effectiveness of the use of capital in our
operations. We use ROIC as one measure to monitor and evaluate
performance. Our measure of ROIC may be different from that used by
other companies. We define ROIC as the percentage resulting from
the following calculation:
(a) Income from continuing operations,
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, and
accumulated amortization of goodwill and other intangible assets,
minus cash and cash equivalents and short-term investments,
multiplied by;
(c) one minus the effective tax rate for
the period.
ROIC is calculated as follows (in millions, except
percentages):
Twelve Months Ended September
30, 2015 2014 (a) Return Income
from continuing operations $ 827.6 $ 826.8 Interest expense 63.7
59.3 Income tax provision 299.9 307.4 Purchase accounting
depreciation and amortization 21.0 21.6 Return
1,212.2 1,215.1
(b) Average invested capital
Short-term debt 166.6 275.5 Long-term debt 1,261.9 905.3
Shareowners’ equity 2,521.3 2,680.7 Accumulated amortization of
goodwill and intangibles 792.6 772.7 Cash and cash equivalents
(1,376.1 ) (1,210.6 ) Short-term investments (639.3 ) (485.2 )
Average invested capital 2,727.0 2,938.4
(c)
Effective tax rate Income tax provision 299.9 307.4 Income from
continuing operations before income taxes $ 1,127.5 $
1,134.2 Effective tax rate 26.6 % 27.1 %
(a) / (b) *
(1-c) Return On Invested Capital 32.6 % 30.1 %
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