10-QPeriod: Q2 FY2001

ROCKWELL AUTOMATION, INC Quarterly Report for Q2 Ended Mar 31, 2001

Filed May 9, 2001For Securities:ROK

Summary

Rockwell International Corporation's (ROK) Q2 2001 filing indicates a mixed financial performance. While consolidated sales, including the soon-to-be-spun-off Rockwell Collins, saw an increase year-over-year, net income declined due to lower earnings from continuing operations, higher interest expenses, and increased amortization costs. The company is actively preparing for the spin-off of Rockwell Collins, expected in June 2001, which will result in a new, separately traded public company. For investors, the key takeaway is the strategic shift represented by the Rockwell Collins spin-off, which aims to create two more focused entities. The continuing operations, comprising Control Systems and Power Systems, faced challenges, particularly in North American markets, leading to reduced segment operating earnings. However, international sales growth in Control Systems provided some offset. The company anticipates that full-year earnings for the combined businesses will be near the high end of analyst estimates, contingent on market conditions improving in the latter half of the year.

Key Highlights

  • 1Consolidated net income for the three months ended March 31, 2001, was $125 million, down from $164 million in the prior year period.
  • 2Sales for the combined businesses (including discontinued Rockwell Collins) increased to $1,851 million in Q2 2001 from $1,784 million in Q2 2000.
  • 3The company announced its intention to spin off its Rockwell Collins avionics and communications business into a separate public company, expected to be completed in June 2001.
  • 4Income from continuing operations decreased to $71 million in Q2 2001 from $102 million in Q2 2000, reflecting lower segment operating earnings in Control Systems and Power Systems.
  • 5Short-term debt increased significantly to $412 million at March 31, 2001, from $16 million at September 30, 2000, primarily due to commercial paper borrowings used to fund acquisitions.
  • 6Control Systems segment sales remained stable year-over-year, but segment operating earnings decreased due to lower North American volume and planned lower capacity utilization.
  • 7Rockwell Collins' sales increased, driven by recent acquisitions, but segment operating earnings were impacted by a non-recurring charge for inventory write-off.

Frequently Asked Questions

The most significant strategic initiative is the planned spin-off of its Rockwell Collins avionics and communications business into a separate, publicly traded company. This transaction was expected to be completed in June 2001 and is intended to create two more focused businesses.

Sales for continuing operations remained stable at approximately $1.2 billion for the quarter. However, income from continuing operations decreased to $71 million from $102 million in the prior year. This decline was attributed to lower segment operating earnings in the Control Systems and Power Systems businesses, partly due to challenging market conditions in North America, and higher interest expenses.

Rockwell Collins is being presented as a discontinued operation, meaning its results are separated from the ongoing businesses. While Rockwell Collins' sales increased, its operating earnings were impacted by a non-recurring charge. The spin-off itself is a strategic move to unlock value and allow each business to pursue its own growth strategies.

Short-term debt saw a substantial increase, rising to $412 million from $16 million. This was primarily driven by increased commercial paper borrowings, a significant portion of which was used to fund the acquisition of Kaiser Aerospace and Electronics business for Rockwell Collins.