10-KPeriod: FY2002

ROCKWELL AUTOMATION, INC Annual Report, Year Ended Sep 30, 2002

Filed November 25, 2002For Securities:ROK

Summary

Rockwell Automation, Inc.'s 2002 10-K filing details a company focused on industrial automation, power, control, and information products and services. The company has undergone significant divestitures in prior years, including its aerospace and defense, automotive, semiconductor systems, and avionics and communications businesses, to streamline its operations and concentrate on its core industrial automation segments. In fiscal year 2002, the company faced challenging market conditions, particularly in the manufacturing economy, which led to a decline in sales across its primary segments: Control Systems, Power Systems, and FirstPoint Contact. Despite these headwinds, Rockwell Automation made strategic acquisitions in its Control Systems segment to enhance its product offerings and market position, particularly in areas like machine safety and pharmaceutical manufacturing information systems. The company's financial performance in fiscal year 2002 was impacted by these market conditions, resulting in lower sales and segment operating earnings compared to the prior year. However, the adoption of SFAS 142 led to a significant impairment charge related to goodwill and trademarks, impacting net income. Management focused on cost management and operational efficiency, and the company maintained a solid free cash flow. Looking ahead, Rockwell Automation expressed a cautious outlook, anticipating continued soft business conditions but targeting earnings growth through cost reductions and modest market improvements.

Key Highlights

  • 1Divestitures of non-core businesses (aerospace, automotive, semiconductor, avionics) have strategically positioned Rockwell Automation as a focused industrial automation provider.
  • 2Fiscal year 2002 saw declining sales and operating earnings due to a weak manufacturing economy impacting all major segments (Control Systems, Power Systems, FirstPoint Contact).
  • 3Strategic acquisitions were made in the Control Systems segment (Tesch GmbH, Propack Data GmbH, Samsung Controller Division, SPEL) to strengthen product capabilities and market reach.
  • 4Adoption of SFAS 142 resulted in significant impairment charges for goodwill and trademarks, impacting net income in fiscal year 2002.
  • 5Despite revenue pressures, the company generated strong free cash flow in fiscal year 2002, supported by working capital improvements and controlled capital expenditures.
  • 6The company's outlook for fiscal year 2003 anticipates earnings growth of at least 15%, even if current soft business conditions persist, with potential for higher growth if conditions improve.

Frequently Asked Questions

The decline in sales and profitability in fiscal year 2002 was primarily attributed to weak business conditions and historically low plant capacity utilization in the manufacturing economy. This led to deferred capital investments by customers, directly impacting demand for Rockwell Automation's industrial automation products and services across its Control Systems, Power Systems, and FirstPoint Contact segments.

The adoption of SFAS 142, 'Goodwill and Other Intangible Assets,' on October 1, 2001, had a significant impact. It led to the discontinuation of goodwill and indefinite-lived intangible asset amortization and required impairment testing. Consequently, Rockwell Automation recorded impairment charges of $56 million for a trademark and $73 million for goodwill in fiscal year 2002, resulting in a cumulative effect of accounting change totaling $108 million after tax.

Rockwell Automation provided a cautious but optimistic outlook for fiscal year 2003. The company expects to deliver earnings growth of at least 15% (to $1.05 per share) even if soft business conditions persist. If market conditions improve modestly, the company anticipates achieving earnings growth of 25% (to $1.15 per share). This growth is expected to be driven by ongoing cost management and targeted reduction actions.

The spinoff of Rockwell Collins in June 2001 significantly restructured the company's financial reporting. The results of Rockwell Collins for prior periods were presented as 'income from discontinued operations.' The spinoff also involved a special payment of $300 million from Rockwell Collins to Rockwell Automation, which impacted cash flows and equity. Post-spinoff, Rockwell Automation's reported dividends per share also changed to reflect the standalone entity's dividend policy.