10-QPeriod: Q1 FY2002

ROCKWELL AUTOMATION, INC Quarterly Report for Q1 Ended Dec 31, 2001

Filed February 8, 2002For Securities:ROK

Summary

Rockwell Automation, Inc. (ROK) reported a net loss of $6 million for the quarter ended December 31, 2001, a significant decline from a net income of $134 million in the prior year period. This downturn was primarily driven by a substantial decrease in sales, which fell to $938 million from $1,111 million year-over-year, reflecting challenging market conditions, particularly in the United States for its Control Systems segment. The company also adopted new accounting standards (SFAS 142) which resulted in a one-time impairment charge of $35 million after-tax for a trademark and the discontinuation of goodwill and indefinite-lived intangible asset amortization. While operating earnings from continuing operations showed a decrease, the company highlights improvements in free cash flow generation and a reduction in inventory and accounts receivable levels. Despite the reported net loss and declining sales, management believes the first quarter of fiscal 2002 represents the low point for business activity in the current economic cycle. The company is focused on cost reduction initiatives and expects modest earnings improvement in the second quarter, assuming sales remain steady. Investors should note the ongoing transition to SFAS 142 and the potential for an additional goodwill impairment charge, as well as the company's cautious outlook for near-term recovery in its core markets.

Key Highlights

  • 1Reported a net loss of $6 million for the quarter ended December 31, 2001, compared to a net income of $134 million in the prior year.
  • 2Sales decreased significantly to $938 million from $1,111 million year-over-year, impacted by weak market conditions, especially in the Control Systems segment.
  • 3Adopted SFAS 142, leading to a $35 million after-tax impairment charge on a trademark and the cessation of goodwill/intangible asset amortization.
  • 4Income from continuing operations before accounting change was $29 million ($0.16/share), down from $69 million ($0.38/share) in the prior year.
  • 5Generated $87 million in cash from operating activities, an improvement from $26 million in the prior year period, with free cash flow increasing significantly.
  • 6Anticipates a potential goodwill impairment charge of up to $100 million in fiscal 2002 related to the Power Systems reporting unit.
  • 7Management expects the current quarter to be the low point for business activity in the economic cycle, with a modest earnings improvement anticipated for the next quarter.

Frequently Asked Questions

The net loss of $6 million was primarily driven by a substantial decrease in sales, particularly in the Control Systems segment due to depressed market conditions in the United States. Additionally, the adoption of SFAS 142 resulted in a $35 million after-tax impairment charge related to a trademark, which impacted the reported net loss.

SFAS 142, 'Goodwill and Other Intangible Assets,' requires companies to stop amortizing goodwill and other indefinite-lived intangible assets and instead test them for impairment annually. Rockwell Automation adopted this standard, which led to a $35 million impairment charge for a trademark and the discontinuation of prior amortization expenses. The company also anticipates a potential goodwill impairment charge of up to $100 million in fiscal 2002.

The company reported a strong increase in cash generated by operating activities, rising to $87 million from $26 million in the prior year period. Free cash flow also saw a significant increase, reflecting improvements in working capital management, particularly reductions in accounts receivable and inventories.

Management believes the recently ended quarter represents the low point for business activity in the current economic cycle. They are assuming second quarter 2002 sales will be similar to the first quarter, with a modest improvement in earnings expected due to ongoing cost reduction actions. However, they have not yet seen sustained evidence of a broad recovery.