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K
2014 Annual Report and Form 10-K
2014
FINANCIAL HIGHLIGHTS
Sales
$6,000.4
$6,259.4
$6,351.9
$6,623.5
2011
2012
2013
2014
Segment operating earnings1
1,048.8
1,163.9
Income from continuing operations
697.1
737.0
Diluted earnings per share from
continuing operations
Adjusted EPS1
Sales by segment:
Architecture & Software
Control Products & Solutions
Return on Invested Capital1
4.79
4.89
2,594.3
3,406.1
31.6%
5.13
5.29
2,650.4
3,609.0
30.3%
1,236.8
756.3
5.36
5.71
2,682.0
3,669.9
31.4%
1,352.0
826.8
5.91
6.17
2,845.3
3,778.2
30.1%
(dollars in millions, except per share amounts)
$6,259.4
$6,351.9
$6,623.5
$6,000.4
$6.17
$5.71
$5.29
$4.89
(
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2011
2012
2013
2014
2011
2012
2013
2014
Sales
Control Products & Solutions
Architecture & Software
Adjusted EPS1
31.6%
30.3%
31.4%
30.1%
$900.5
$922.2
$561.7
$597.6
2011
2012
2013
2014
2011
2012
2013
2014
Return on Invested Capital1
Free Cash Flow1, 2
2
1 Segment operating earnings,
Adjusted EPS, free cash flow and
return on invested capital are
non-GAAP financial measures.
Please see the Form 10-K and
supplemental section following
the Form 10-K for definitions and
calculations of these measures.
2 Free cash flow for 2011 includes a
discretionary pre-tax contribution
of $150 million to the company’s
U.S. pension trust. Free cash flow
for 2012 includes a discretionary
pre-tax contribution of $300 million
to the company’s U. S. pension trust.
(
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s
i
n
m
i
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l
i
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)
OUR UNWAVERING COMMITMENT TO INNOVATION ENABLES
US TO CONTINUALLY EXPAND THE BUSINESS VALUE
FOR OUR CUSTOMERS AND SUSTAIN THE COMPETITIVE
DIFFERENTIATION THAT DELIVERS SUPERIOR RETURNS
TO SHAREOWNERS.
Keith D. Nosbusch
Chairman & CEO
TO OUR SHAREOWNERS:
I am pleased to report that fiscal 2014 was another record year of sales and earnings for Rockwell Automation. On sales of
$6.62 billion, Adjusted EPS grew 8 percent to $6.17. For the second year in a row, we expanded segment operating margin
almost a point while continuing to invest for future growth. Free cash flow for the year was $922 million and our return on
invested capital was 30.1 percent.
With continued strength in U.S. markets, but increased geopolitical tension and uneven economic growth in other parts of
the world, our solid performance reflects the strength of our strategy, deep domain expertise, relentless focus on technology
innovation and passion for helping our customers succeed.
DELIVERING LONG-TERM VALUE
We have clearly outperformed the S&P 500
since the end of fiscal 2009. We delivered
23.5 percent annualized return to our
shareowners versus 15.7 percent for the
S&P 500. We attribute this performance
to our above-market sales growth, earnings
leverage, superior return on invested
capital and a disciplined approach to
cash deployment.
$350
$300
$250
$200
$150
$100
$50
Total Shareowner Return
2009
2010
2011
2012
2013
2014
Fiscal Year Ended September 30
S&P 500 Index
Rockwell Automation
EXPANDING OUR MARKETS
In fiscal 2014, we acquired vMonitor, a global technology leader for wireless solutions in the oil and gas industry, headquartered in the United
Arab Emirates. This acquisition enables us to grow into new applications and geographies, and increases our value to customers by providing a
broader portfolio of services and solutions.
We also acquired U.S.-based Jacobs Automation, a leader in intelligent track motion control for machine builders (OEMs). This acquisition adds to
our existing motion technology solutions, increasing our value to OEM customers.
3
AT A GLANCE
$6.62B
FISCAL 2014 SALES
22,500
EMPLOYEES
80+
COUNTRIES
During fiscal 2014, we continued our track record of returning cash in the form of
dividends and stock repurchases and investing in strategic acquisitions to enhance
our organic growth:
• Over $800 million in dividends and share repurchases
•
Increased our dividend per share by 12 percent
• Acquired Jacobs Automation and vMonitor
Over the past five years, we have more than doubled our dividend per share and
returned $2.8 billion to shareowners in dividends and share repurchases.
OUR STRATEGY: GROWTH AND PERFORMANCE
Our strategy has not changed. We remain focused on the execution of our growth
and performance strategy. Today, we are the world’s largest company dedicated to
industrial automation and we’re proud of our mission to improve the standard of
living and quality of life for everyone by making the world more productive
and sustainable.
We operate across all industries and our growth initiatives – process, OEMs
(Original Equipment Manufacturers or machine builders), emerging markets, safety
and services – enable us to continue to diversify our revenue streams. Every day
we are looking at new ways to expand our offerings so our customers can realize
tangible benefits to their business.
We estimate our served market to be more than $90 billion today and I believe
several global trends will continue to drive greater investments in automation.
They are:
• Developed markets need to invest in productivity, flexibility, safety, sustainability
and replacing an aging installed base
• Emerging markets will continue to invest in consumer goods manufacturing to
serve the growing middle class
Our strategy positions us to take advantage of these trends and will help us sustain
our growth in the long term. Our strategy also includes helping our customers
benefit from The Connected Enterprise.
CULTURE OF INTEGRITY
We were honored this year to
be named for the sixth time
to the Ethisphere Institute’s
annual “World’s Most Ethical
Companies” list. Our culture of
integrity remains a cornerstone
of everything we do.
NEXT GENERATION
OF TALENT
Our support of STEM (science,
technology, engineering and
math) and FIRST (For Inspiration
and Recognition of Science
and Technology) inspires and
provides opportunities for
young people to develop the
technical skills necessary for
the future workforce.
4
AUTOMATION SOLUTIONS
across all industries
SERVING
CUSTOMERS FOR
111 YEARS
■ Technology innovation
■ Domain expertise
■ Culture of integrity &
corporate responsibility
Leading global provider of industrial power, control and information solutions
OUR VISION: THE CONNECTED ENTERPRISE
The Connected Enterprise focuses on rapid value creation through tighter
integration between industrial assets and the rest of the enterprise value
chain. Tighter integration requires secure networks and ease of data collection
and management. Real-time data is converted into useful information that can
be shared across the organization and from suppliers to customers. The result
is an enterprise that can be optimized to drive quantified business value.
While it’s still early, customers have already started to realize benefits from The
Connected Enterprise, which is enabled by Integrated Control and Information
and enhanced by modern trends such as the Internet of Things (IoT). A key
driver for The Connected Enterprise is the convergence of information
technology (IT) and operations technology (OT).
To deliver The Connected Enterprise, we are making significant technology
investments in our three core platforms: Integrated Architecture, Intelligent
Motor Control, and Solutions and Services. These investments are expanding
the capability of our platforms from integrated control to Integrated Control
and Information. With this capability, we are able to bridge the divide
between IT and OT that exists with many of our customers today.
We also have implemented The Connected Enterprise in our own operations.
You will see later in this report the quantifiable value it has brought to us.
GROWING ON A STRONG FOUNDATION
We have a strong foundation of sustainable competitive differentiation
that includes a unique market access model, three market-leading core
platforms, and the world’s best partner network. Our future is built on
this strong foundation and allows us to gain market share and expand
our served markets.
This year, as we celebrate 111 years of an enduring legacy, I attribute our
success to our 22,500 talented and dedicated employees, and a deep-rooted
culture of integrity and social responsibility. You have my commitment that
we will continue to work hard and strive to deliver above-market returns for
your investment.
ROCKWELL
AUTOMATION
A GREAT INVESTMENT
AUTOMATION REMAINS
AN ATTRACTIVE MARKET
• Productivity required to remain
globally competitive
• Aging installed base
• Growing consumer demand in
emerging markets
COMPETITIVE DIFFERENTIATION
• Technology leader…focused on
innovation
• Domain expertise
• Unique market access model
• Singular focus on automation
INTEGRATED CONTROL
AND INFORMATION
• Enables The Connected
Enterprise
• Only scalable, multidiscipline,
information-enabled control
platform
• Provides real-time insights
• Increases the business value we
provide to customers
FINANCIAL STRENGTH /
DISCIPLINED CASH DEPLOYMENT
• Strong balance sheet, cash flow
generation and track record of
returning cash to shareowners
• Excellent ROIC; an intellectual
capital business
5
THE IMPLEMENTATION OF THE CONNECTED ENTERPRISE WILL DRIVE MORE CHANGE IN INDUSTRIAL
OPERATIONS IN THE NEXT 10 YEARS THAN IN THE PAST 50 YEARS.
THE CONNECTED ENTERPRISE
Companies continue to face challenging markets across all industries. With ever-increasing global competition,
our customers must find new ways to optimize operations and achieve higher levels of productivity.
Our customers want their automation investments to deliver quantified business value. We understand how
automation can help them achieve their business needs:
Faster time to market
Lower total cost
of ownership
Improved asset
utilization
Enterprise risk
management
Our vision for The Connected Enterprise will transform manufacturing and provide tangible business benefits.
CONVERGENCE OF IT AND OT
Central to achieving The Connected Enterprise is the convergence of information technology (IT) and operations
technology (OT). The starting point is the use of a common open industry standard and secure IP-based Ethernet
network infrastructure as the foundation for both IT and OT.
Today, less than 14 percent of manufacturers have connected their machines to the enterprise network and only
a few progressive manufacturers have bridged the IT and OT divide. Over the past few years, we have worked
to close this gap. Just as Rockwell Automation was at the forefront of open automation, we are now, along
with Cisco, leading the convergence of these two very different worlds. We see The Connected Enterprise as a
business imperative for our customers.
6
INTEGRATED CONTROL AND INFORMATION
Integrated Control and Information enables The Connected Enterprise, and modern technologies
are helping us connect information from smart industrial assets to the rest of the enterprise.
Individually, each of these technologies (depicted below) can add value to industrial processes.
But, when integrated together, we can build more powerful solutions that deliver transformational
business value.
We are integrating these modern technologies to provide actionable and insightful information. We
are improving user productivity through tools applicable across the customer’s entire investment
lifecycle – design, operate and maintain. And, we are applying our industrial expertise to help our
customers realize The Connected Enterprise through innovation of processes and business models
that result in tangible business value. In short, our portfolio is becoming smarter, more productive
and more secure.
This is what we refer to as Integrated Control and Information. It is how we will help our customers
achieve new levels of productivity and global competitiveness from their implementation of The
Connected Enterprise.
Integrated Control and Information...
...enabling The Connected Enterprise
7
THE CONNECTED
ENTERPRISE
INTEGRATED CONTROL
AND INFORMATION IN ACTION
OUR JOURNEY
We have implemented The Connected Enterprise right here at home. As a global manufacturer, we
encounter the same challenges our customers face. Several years ago, we embarked on our own
journey to connect our global manufacturing footprint to the rest of the enterprise.
It wasn’t easy. Our diverse product portfolio and plants are spread across the globe and use a
variety of manufacturing processes, with up to 200 different Stock Keeping Units (SKUs) per order
and an average product life of 20 years.
We decided to transform our manufacturing and supply chain to support our growth and
performance strategy and to meet lead time requirements for customers around the globe.
8
20 YEARS AVG PRODUCT LIFE PRODUCT TYPES • Stock + Configure to Order • Engineered to Order UP TO 200 SKUs PER ORDER 20 PLANTS 387, 000 SKUS OUR TRANSFORMATION
TO THE CONNECTED
ENTERPRISE
Our implementation utilized our own Integrated Control and Information software and hardware
products portfolio, including FactoryTalk® ProductionCentre® for MES (Manufacturing Execution
System), FactoryTalk® VantagePoint® for plant-wide metrics and dashboards, and the Logix platform
for multidiscipline control.
Partnering with Cisco, we built a secure network infrastructure so our smart assets could communicate
throughout the enterprise.
OUR RESULTS
Today, our connected enterprise enables us to:
• Provide increased agility and flexibility to more quickly handle the variety of manufacturing
processes and supply chains
• Make faster, smarter decisions to help control quality and manufacturing productivity because we
have the right data at the right time
•
Implement a standardized approach across our global facilities to gain consistent processes for
quality control, purchasing and manufacturing engineering
Today, we have full visibility into our production facilities; our operator certifications and quality levels
are automatically checked and updated for all plants. We successfully aligned our manufacturing and
supply chain to serve our customers wherever they are located.
All of this resulted in 4 to 5 percent annual improvement in manufacturing productivity. We did it
through our people, processes and technology. This is just the beginning. As our Integrated Control
and Information portfolio evolves, we’ll take advantage of it to improve and further optimize our plant
and supply networks globally.
The cornerstones of our vision for The Connected Enterprise are technology leadership, innovation
and deep domain expertise. These will continue to be our differentiators for our own company and
for our customers.
9
2014
OFFICERS
Keith D. Nosbusch
Chairman of the Board and
Chief Executive Officer
Sujeet Chand
Senior Vice President and
Chief Technology Officer
Theodore D. Crandall
Senior Vice President and
Chief Financial Officer
David M. Dorgan
Vice President
and Controller
Steven W. Etzel
Vice President
and Treasurer
Douglas M. Hagerman
Senior Vice President,
General Counsel
and Secretary
Frank C. Kulaszewicz
Senior Vice President
10
John P. McDermott
Senior Vice President
John M. Miller
Vice President and
Chief Intellectual
Property Counsel
Blake D. Moret
Senior Vice President
Rondi Rohr-Dralle
Vice President,
Investor Relations and
Corporate Development
Susan J. Schmitt
Senior Vice President,
Human Resources
Martin Thomas
Senior Vice President,
Operations and
Engineering Services
2014
BOARD OF DIRECTORS
Keith D. Nosbusch
Chairman of the Board and
Chief Executive Officer
Steven R. Kalmanson
Retired Executive Vice President,
Kimberly-Clark Corporation
Betty C. Alewine
Retired President and
Chief Executive Officer,
COMSAT Corporation
J. Phillip Holloman
President and
Chief Operating Officer,
Cintas Corporation
Verne G. Istock
Retired Chairman
and President,
Bank One Corporation
Barry C. Johnson, Ph.D.
Retired Dean,
College of Engineering,
Villanova University
James P. Keane
President and
Chief Executive Officer,
Steelcase Inc.
Lawrence D. Kingsley
Chairman and
Chief Executive Officer,
Pall Corporation
William T. McCormick, Jr.
Retired Chairman and
Chief Executive Officer,
CMS Energy Corporation
Donald R. Parfet
Managing Director,
Apjohn Group, LLC
11
2014
GENERAL INFORMATION
Rockwell Automation
Global Headquarters
1201 South Second Street
Milwaukee, WI 53204
+1 (414) 382-2000
www.rockwellautomation.com
Investor Relations
Securities analysts should call:
Rondi Rohr-Dralle
Investor Relations
+1 (414) 382-8510
Corporate Public Relations
Members of the news media should call:
John A. Bernaden
Corporate Communications
+1 (414) 382-2555
Annual Meeting
The company’s annual meeting of shareowners
will be held at our Global Headquarters,
1201 South Second Street, Milwaukee, Wisconsin,
on Tuesday, Feb. 3, 2015, at 5:30 p.m. CST.
A notice of the meeting and proxy materials will
be furnished to shareowners in December 2014.
Shareowner Services
Wells Fargo Shareowner Services, our transfer agent
and registrar, maintains the records for our registered
shareowners and can help you with a variety of
shareowner-related services. You can access your
shareowner account in one of the following three
ways:
Internet
Log on to www.shareowneronline.com for convenient
access 24 hours a day, 7 days a week for online services
including account information, change of address,
transfer of shares, lost certificates, dividend payment
elections and additional administrative services.
If you are interested in receiving shareowner
information electronically, enroll in eDelivery, a self-
service program that provides electronic notification
and secure access to shareowner communications. To
enroll, follow the eDelivery enrollment instructions
when you access your shareowner account via www.
shareowneronline.com
Telephone
Call Wells Fargo Shareowner Services at one
of the following numbers:
Inside the United States: (800) 204-7800
Outside the United States: +1 (651) 450-4064
In Writing
Correspondence about share ownership, dividend
payments, transfer requirements, change of address,
lost certificates and account status may be directed to:
Wells Fargo Shareowner Services
PO Box 64874
St. Paul, MN 55164-0874
Shareowners wishing to transfer stock should send
their written request, stock certificate(s) and other
required documents to:
Wells Fargo Shareowner Services
PO Box 64874
St. Paul, MN 55164-0874
12
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
555 East Wells Street, Suite 1400
Milwaukee, WI 53202
Transfer Agent and Registrar
Wells Fargo Shareowner Services
PO Box 64874
St. Paul, MN 55164-0874
(800) 204-7800 or +1 (651) 450-4064
Stock Exchange
Common Stock (Symbol: ROK)
New York Stock Exchange
Ombudsman
Questions or concerns about the company’s business
conduct, including compliance with laws, company
policies and accounting, internal control or auditing
matters should be reported to:
Ombudsman
Rockwell Automation, Inc.
1201 South Second Street
Milwaukee, WI 53204
Telephone: (800) 552-3589
Fax: +1 (414) 382-8485
Email: ombudsman@rockwell.com
You may contact the Ombudsman from any computer
or any device with a Web browser and if you wish
to remain anonymous, visit the following externally
hosted website:
https://rockwellautomationombudsman.alertline.com
Registered or overnight mail should be sent to:
Wells Fargo Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
A copy of our annual report (including Form 10-K) may
be obtained without charge by writing to:
Rockwell Automation
Shareowner Relations
1201 South Second Street, E-7F19
Milwaukee, WI 53204
Or call +1 (414) 382-8410. Other investor information
is available in the Investor Relations section of our
website at www.rockwellautomation.com
Shareowners needing further assistance should
contact Rockwell Automation Shareowner Relations
by telephone at +1 (414) 382-8410 or email at
shareownerrelations@ra.rockwell.com
Investor Services Program
Under the Wells Fargo Shareowner Services Plus Plan
for shareowners of Rockwell Automation, shareowners
of record may select to reinvest all or a part of their
dividends, to have cash dividends directly deposited
in their bank accounts and to deposit share certificates
with the agent for safekeeping. These services are
all provided without charge to the participating
shareowner.
In addition, the plan allows participating shareowners
at their own cost to make optional cash investments
in any amount from $100 to $100,000 per year or to
sell all or any part of the shares held in their accounts.
Participation in the plan is voluntary, and shareowners
of record may participate or terminate their
participation at any time. For full details of the program,
direct inquiries to:
Wells Fargo Shareowner Services
PO Box 64856
St. Paul, MN 55164-0856
(800) 204-7800 or +1 (651) 450-4064
www.shareowneronline.com
13
FORM 10-K
ROCKWELL AUTOMATION
14
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2014
Commission file number 1-12383
ROCKWELL AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
1201 South 2nd Street Milwaukee, Wisconsin
(Address of principal executive offices)
25-1797617
(I.R.S. Employer Identification No.)
53204
(Zip Code)
+1 (414) 382-2000
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class
Common Stock, $1 Par Value
Name of each exchange on which registered
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark
YES
NO
•• if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
•• if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
•• whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
•• whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files).
•• if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
•• whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions
of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller reporting company
•• whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
The aggregate market value of registrant’s voting stock held by non-affiliates of registrant on March 31, 2014 was approximately $17.1 billion.
135,771,159 shares of registrant’s Common Stock, par value $1 per share, were outstanding on October 31, 2014.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of registrant to be held on February 3, 2015 is
incorporated by reference into Part III hereof.
Table of Contents
PART I
3
Business ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������4
ITEM 1
ITEM 1A
Risk Factors ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������6
ITEM 1B Unresolved Staff Comments ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������9
Properties ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������9
ITEM 2
Legal Proceedings ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������10
ITEM 3
Executive Officers of the Company ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������10
ITEM 4A
PART II
11
ITEM 5
Market for the Company’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������11
Selected Financial Data ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������12
ITEM 6
ITEM 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations �����������12
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk �������������������������������������������������������������������������������������������������������������26
Financial Statements and Supplementary Data ����������������������������������������������������������������������������������������������������������������������������������������������������������27
ITEM 8
Consolidated Balance Sheet �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������27
Consolidated Statement of Operations ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������28
Consolidated Statement of Comprehensive Income ����������������������������������������������������������������������������������������������������������������������������������������������������������28
Consolidated Statement of Cash Flows �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������29
Consolidated Statement of Shareowners’ Equity ��������������������������������������������������������������������������������������������������������������������������������������������������������������������30
Notes to Consolidated Financial Statements ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������31
ITEM 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure���������54
ITEM 9A Controls and Procedures ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������54
ITEM 9B Other Information ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������54
PART III
ITEM 10
ITEM 11
ITEM 12
ITEM 13
ITEM 14
PART IV
Directors, Executive Officers and Corporate Governance �����������������������������������������������������������������������������������������������������������������������55
Executive Compensation��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������55
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������55
Certain Relationships and Related Transactions, and Director Independence ��������������������������������������������������56
Principal Accountant Fees and Services ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������56
55
57
ITEM 15
Exhibits and Financial Statement Schedule �����������������������������������������������������������������������������������������������������������������������������������������������������������������������57
SIGNATURES ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������61
2
Rockwell Automation, Inc. - Form 10-K Part I
PART I
Forward-Looking Statements
This Annual 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, 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
•• 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;
countries where we do business;
•• the successful integration and management of acquired businesses;
•• the successful development of advanced technologies and demand for
•• the successful execution of our cost productivity and globalization
and market acceptance of new and existing products;
initiatives; and
•• 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;
•• intellectual property infringement claims by others and the ability to
protect our intellectual property;
•• 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 for more information.
3
Rockwell Automation, Inc. - Form 10-K Part I
Item 1 Business
ItEM 1 Business
General
Rockwell Automation, Inc. (the Company or Rockwell Automation) is a
leading global provider of industrial automation power, control and information
solutions that help manufacturers achieve competitive advantages for
their businesses. Our products and services are designed to meet our
customers’ needs to reduce total cost of ownership, maximize asset
utilization, improve time to market and reduce enterprise business risk.
The Company continues the business founded as the Allen-Bradley Company
in 1903. The privately-owned Allen-Bradley Company was a leading
North American manufacturer of industrial automation equipment when
the former Rockwell International Corporation (RIC) purchased it in 1985.
The Company was incorporated in Delaware in connection with a tax-free
reorganization completed on December 6, 1996, pursuant to which we
divested our former aerospace and defense businesses (the A&D Business)
to The Boeing Company (Boeing). In the reorganization, RIC contributed
all of its businesses, other than the A&D Business, to the Company and
distributed all capital stock of the Company to RIC’s shareowners. Boeing
then acquired RIC. RIC was incorporated in 1928.
As used herein, the terms “we”, “us”, “our”, the “Company” or “Rockwell
Automation” include subsidiaries and predecessors unless the context
indicates otherwise. Information included in this Annual Report on Form 10-K
refers to our continuing businesses unless otherwise indicated.
Whenever an Item of this Annual Report on Form 10-K refers to information
in our Proxy Statement for our Annual Meeting of Shareowners to be held
on February 3, 2015 (the Proxy Statement), or to information under specific
captions in Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (MD&A), or in Item 8. Financial
Statements and Supplementary Data (the Financial Statements), the
information is incorporated in that Item by reference. All date references to
years and quarters refer to our fiscal year and quarters unless otherwise
stated.
Operating Segments
We have two operating segments: Architecture & Software and Control
Products & Solutions. In 2014, our total sales were $6.62 billion. Financial
information with respect to our operating segments, including their
contributions to sales and operating earnings for each of the three years
in the period ended September 30, 2014, is contained under the caption
results of Operations in MD&A, and in Note 15 in the Financial Statements.
Our Architecture & Software operating segment is headquartered in Mayfield
Heights, Ohio, and our Control Products & Solutions operating segment is
headquartered in Milwaukee, Wisconsin. Both operating segments conduct
business globally. Major markets served by both segments include food
and beverage, transportation, oil and gas, metals, mining, and life sciences.
architecture & Software
Our Architecture & Software operating segment recorded sales of $2.8 billion
(43 percent of our total sales) in 2014. The Architecture & Software
segment contains all of the hardware, software and communication
components of our integrated control and information architecture capable
of controlling the customer’s industrial processes and connecting with
their business enterprise. Architecture & Software has a broad portfolio
of products, including:
•• Control platforms that perform multiple control disciplines and monitoring
of applications, including discrete, batch and continuous process, drives
control, motion control and machine safety control. Our platform products
include controllers, electronic operator interface devices, electronic input/
output devices, communication and networking products and industrial
computers. The information-enabled Logix controllers provide integrated
multi-discipline control that is modular and scalable.
Geographic Information
•• Software products that include configuration and visualization software
used to operate and supervise control platforms, advanced process
control software and manufacturing execution software (MES) that
enables customers to improve manufacturing productivity and meet
regulatory requirements.
•• Other products, including rotary and linear motion control products,
sensors and machine safety components.
Control Products & Solutions
Our Control Products & Solutions operating segment recorded sales of
$3.8 billion (57 percent of our total sales) in 2014. The Control Products &
Solutions segment combines a comprehensive portfolio of intelligent
motor control and industrial control products, application expertise and
project management capabilities. This comprehensive portfolio includes:
•• Low and medium voltage electro-mechanical and electronic motor starters,
motor and circuit protection devices, AC/DC variable frequency drives,
push buttons, signaling devices, termination and protection devices,
relays, timers and condition sensors.
•• Value-added solutions ranging from packaged solutions such as configured
drives and motor control centers to automation and information solutions
where we provide design, integration and start-up services for custom-
engineered hardware and software systems primarily for manufacturing
applications.
•• Services designed to help maximize a customer’s automation investment
and provide total life-cycle support, including technical support and repair,
asset management, training, predictive and preventative maintenance,
and safety and network consulting.
In 2014, sales to customers in the United States accounted for 52 percent
of our total sales. Outside the United States, we sell in every region. The
largest sales outside the United States on a country-of-destination basis
are in Canada, China, the United Kingdom, Italy, Mexico, Germany, and
Brazil. See Item 1A. Risk Factors for a discussion of risks associated with
our operations outside the United States. Sales and property information
by major geographic area for each of the past three years is contained in
Note 15 in the Financial Statements.
4
Rockwell Automation, Inc. - Form 10-K Part I
Item 1 Business
Competition
Our competitors range from large diversified corporations that also have
business interests outside of industrial automation to smaller companies
that specialize in niche industrial automation products, solutions and
services. Factors that influence our competitive position include the breadth
of our product portfolio and scope of solutions, technology differentiation,
knowledge of customer applications, installed base, distribution network,
quality of products and services, global presence and price. Our major
competitors of both segments include Siemens AG, ABB Ltd, Schneider
Electric SA, Emerson Electric Co., Mitsubishi Electric Corp. and Honeywell
International Inc.
Distribution
In the United States, Canada and certain other countries, we sell primarily
through independent distributors in conjunction with our direct sales force.
In the remaining countries, we sell through a combination of our direct
sales force and to a lesser extent, through independent distributors.
Approximately 70 percent of our global sales are through independent
distributors. Sales to our largest distributor in 2014, 2013 and 2012 were
approximately 10 percent of our total sales. The independent distributors
typically do not carry products that compete with our products.
research and Development
Our research and development spending for the years ended September 30, 2014, 2013 and 2012 was $290.1 million, $260.7 million and
$247.6 million, respectively. Customer-sponsored research and development was not significant in 2014, 2013 or 2012.
Employees
At September 30, 2014, we had approximately 22,500 employees. Approximately 8,500 were employed in the United States.
raw Materials and Supplies
We purchase a wide range of equipment, components, finished products and materials used in our business. The raw materials essential to the
manufacture of our products generally are available at competitive prices. We have a broad base of suppliers and subcontractors. We depend upon
the ability of our suppliers and subcontractors to meet performance and quality specifications and delivery schedules. See Item 1A. Risk Factors for
a discussion of risks associated with our reliance on third party suppliers.
Backlog
Our total order backlog at September 30 was (in millions):
Architecture & Software
Control Products & Solutions
2014
159.3 $
1,074.8
1,234.1 $
2013
183.8
1,091.8
1,275.6
$
$
Backlog is not necessarily indicative of results of operations for future periods due to the short-cycle nature of most of our sales activities. Backlog
orders scheduled for shipment beyond 2015 were approximately $132 million as of September 30, 2014.
Environmental Protection requirements
Information about the effect of compliance with environmental protection requirements and resolution of environmental claims is contained in Note 14
in the Financial Statements and in Item 3. Legal Proceedings.
Patents, Licenses and trademarks
We own or license numerous patents and patent applications related to our
products and operations. While in the aggregate our patents and licenses
are important in the operation of our business, we do not believe that loss
or termination of any one of them would materially affect our business or
financial condition. Various claims of patent infringement and requests for
patent indemnification have been made to us. We believe that none of
these claims or requests will have a material adverse effect on our financial
condition. See Item 1A. Risk Factors for a discussion of risks associated
with our intellectual property.
The Company’s name and its registered trademark “Rockwell Automation®”
and other trademarks such as “Allen-Bradley®”, “A-B®” and “PlantPAx
Process Automation System™” are important to both of our business
segments. In addition, we own other important trademarks that we
use, such as “ICS Triplex™” for our control products and systems for
industrial automation, and “Rockwell Software®” and “FactoryTalk®” for
our software offerings.
5
Rockwell Automation, Inc. - Form 10-K
Part I
Item 1A Risk Factors
Seasonality
Our business segments are not subject to significant seasonality. However, the calendarization of our results can vary and may be affected by the
seasonal spending patterns of our customers due to their annual budgeting processes and their working schedules.
available Information
We maintain a website at http://www.rockwellautomation.com. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and any amendments to such reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (the Exchange Act), as well as our annual report to shareowners
and Section 16 reports on Forms 3, 4 and 5, are available free of charge
on this site through the “Investor Relations” link as soon as reasonably
practicable after we file or furnish these reports with the SEC. All reports
we file with the SEC are also available free of charge via EDGAR through
the SEC’s website at http://www.sec.gov. Our Guidelines on Corporate
Governance and charters for our Board committees are also available on
our website. The information contained on and linked from our website
is not incorporated by reference into this Annual Report on Form 10-K.
ItEM 1a risk Factors
In the ordinary course of our business, we face various strategic, operating,
compliance and financial risks. These risks could have an impact on our business,
financial condition, operating results and cash flows. Our most significant
risks are set forth below and elsewhere in this Annual Report on Form 10-K.
Our Enterprise Risk Management (ERM) process seeks to identify and address
significant risks. Our ERM process uses the integrated risk framework of
the Committee of Sponsoring Organizations (COSO) to assess, manage,
and monitor risks. We believe that risk-taking is an inherent aspect of the
pursuit of our growth and performance strategy. Our goal is to manage risks
prudently rather than avoiding risks. We can mitigate risks and their impact
on the Company only to a limited extent.
A team of senior executives prioritizes identified risks and assigns an
executive to address each major identified risk area and lead action plans
to manage risks. Our Board of Directors provides oversight of the ERM
process and reviews significant identified risks. The Audit Committee also
reviews significant financial risk exposures and the steps management has
taken to monitor and manage them. Our other Board committees also
play a role in risk management, as set forth in their respective charters.
Our goal is to proactively manage risks in a structured approach in conjunction
with strategic planning, with the intent to preserve and enhance shareowner
value. However, the risks set forth below and elsewhere in this Annual Report
on Form 10-K and other risks and uncertainties could cause our results to
vary materially from recent results or from our anticipated future results and
could adversely affect our business and financial condition.
Adverse changes in business or industry conditions and
volatility and disruption of the capital and credit markets
may result in decreases in our sales and profitability.
We are subject to macroeconomic cycles and when recessions occur, we
may experience reduced orders, payment delays, supply chain disruptions
or other factors as a result of the economic challenges faced by our
customers, prospective customers and suppliers.
Demand for our products is sensitive to changes in levels of industrial
production and the financial performance of major industries that we
serve. As economic activity slows, credit markets tighten, or sovereign
debt concerns linger, companies tend to reduce their levels of capital
spending, which could result in decreased demand for our products.
Our ability to access the credit markets, and the related costs of these
borrowings, is affected by the strength of our credit rating and current
market conditions. If our access to credit, including the commercial
paper market, is adversely affected by a change in market conditions
or otherwise, our cost of borrowings may increase or our ability to fund
operations may be reduced.
6
A substantial portion of our sales are to customers
outside the U.S. and we are subject to the risks of doing
business in many countries.
We do business in more than 80 countries around the world. Approximately
48 percent of our sales in 2014 were to customers outside the U.S. In
addition, many of our manufacturing operations, suppliers and employees
are located in many places around the world. The future success of
our business depends in large part on growth in our sales in non-U.S.
markets. Our global operations are subject to numerous financial, legal
and operating risks, such as political and economic instability; prevalence
of corruption in certain countries; enforcement of contract and intellectual
property rights and compliance with existing and future laws, regulations
and policies, including those related to tariffs, investments, taxation, trade
controls, product content and performance, employment and repatriation
of earnings. In addition, we are affected by changes in foreign currency
exchange rates, inflation rates and interest rates.
New legislative and regulatory actions could adversely
affect our business.
Legislative and regulatory action may be taken in the various countries
and other jurisdictions where we operate that may affect our business
activities in these countries or may otherwise increase our costs to do
business. For example, we are increasingly required to comply with
various environmental and other material, product, certification, labeling
and customer requirements. These requirements could increase our costs
and could potentially have an adverse effect on our ability to ship our
products into certain jurisdictions. Our customers may also be required
to comply with such legislative and regulatory requirements. Changes
in these requirements could impact demand for our products, solutions
and services.
An inability to respond to changes in customer preferences
could result in decreased demand for our products.
Our success depends in part on our ability to anticipate and offer products
that appeal to the changing needs and preferences of our customers in the
various markets we serve. Developing new products requires high levels of
innovation, and the development process is often lengthy and costly. If we are
not able to anticipate, identify, develop and market products that respond to
changes in customer preferences, demand for our products could decline.
Rockwell Automation, Inc. - Form 10-K Failures or security breaches of our products or
information technology systems could have an adverse
effect on our business.
We rely heavily on information technology (IT) both in our products, solutions
and services for customers and in our enterprise IT infrastructure in order
to achieve our business objectives. Government agencies and security
experts have warned about growing risks of hackers, cyber-criminals,
malicious insiders and other actors targeting every type of IT system
including industrial control systems such as those we sell and service and
corporate enterprise IT systems. These actors may engage in fraud, theft
of confidential or proprietary information, and sabotage.
Our portfolio of hardware and software products, solutions and services
and our enterprise IT systems may be vulnerable to damage or intrusion
from a variety of attacks including computer viruses, worms or other
malicious software programs. These attacks pose a risk to the security
of the products, systems and networks of our customers, suppliers and
third-party service providers, as well to the confidentiality of our information
and the integrity and availability of our data. While we attempt to mitigate
these risks through controls, due diligence, training, surveillance and other
measures, we remain vulnerable to information security threats.
Despite the precautions we take, an intrusion or infection of software,
hardware or a system that we sold or serviced could result in the disruption
of our customers’ business, loss of proprietary or confidential information,
or injuries to people or property. Similarly, an attack on our enterprise IT
system could result in theft or disclosure of trade secrets or other intellectual
property or a breach of confidential customer or employee information. Any
such events could have an adverse impact on sales, harm our reputation
and cause us to incur legal liability and increased costs to address such
events and related security concerns. As the threats evolve and become
more potent, we may incur additional costs to secure the products,
services and solutions that we sell, as well as our data and infrastructure
of networks and devices.
We have nearly completed the process of developing and directing the
implementation of a common global Enterprise Resource Planning (ERP)
system that has resulted in redesigned processes, organization structures,
and a common information system all with the objective of improving internal
control and our ability to manage and monitor our global operations. The
implementations, which were initiated by Rockwell Automation, Inc., the
U.S. parent company of our consolidated group, occurred in many locations
from 2007 to 2014. As the parent company completes this integration,
the system and processes may not perform as expected. This could have
an adverse effect on our business.
There are inherent risks in our solutions and services
businesses.
Risks inherent in the sale of solutions and services include assuming greater
responsibility for successfully delivering projects that meet a particular
customer specification, including defining and controlling contract scope,
efficiently executing projects, and managing the performance and quality
of our subcontractors and suppliers. If we are unable to manage and
mitigate these risks, we could incur cost overruns, liabilities, and other
losses that would adversely affect our results of operations.
Our industry is highly competitive.
We face strong competition in all of our market segments in several
significant respects. We compete based on breadth and scope of our
product portfolio and solution and service offerings, technology differentiation,
product performance, quality of our products and services, knowledge of
integrated systems and applications that address our customers’ business
challenges, pricing, delivery and customer service. The relative importance
of these factors differs across the markets and product areas that we serve.
We seek to maintain acceptable pricing levels by continually developing
advanced technologies for new products and product enhancements and
offering complete solutions for our customers’ business problems. If we fail
to keep pace with technological changes or to provide high quality products
Part I
Item 1A Risk Factors
and services, we may experience price erosion and correspondingly lower
sales and margins. We expect the level of competition to remain high in
the future, which could limit our ability to maintain or increase our market
share or profitability.
We face the potential harms of natural disasters,
pandemics, acts of war, terrorism, international conflicts
or other disruptions to our operations.
Natural disasters, pandemics, acts or threats of war or terrorism, international
conflicts, political instability, and the actions taken by governments could
cause damage to or disrupt our business operations, our suppliers or
our customers, and could create economic instability. Although it is not
possible to predict such events or their consequences, these events could
decrease demand for our products or make it difficult or impossible for
us to deliver products.
Intellectual property infringement claims of others and
the inability to protect our intellectual property rights
could harm our business and our customers.
Others may assert intellectual property infringement claims against us or our
customers. We frequently provide a limited intellectual property indemnity
in connection with our terms and conditions of sale to our customers and
in other types of contracts with third parties. Indemnification payments
and legal expenses to defend claims could be costly.
In addition, we own the rights to many patents, trademarks, brand
names and trade names that are important to our business. The inability
to enforce our intellectual property rights may have an adverse effect on
our results of operations. Expenses related to enforcing our intellectual
property rights could be significant.
Claims from taxing authorities could have an adverse
effect on our tax expense and financial position.
We conduct business in many countries, which requires us to interpret
the income tax laws and rulings in each of those taxing jurisdictions. Due
to the ambiguity of tax laws among those jurisdictions as well as the
uncertainty of how underlying facts may be construed, our estimates of
income tax liabilities may differ from actual payments or assessments. We
must successfully defend any claims from taxing authorities to avoid an
adverse effect on our operating results and financial position.
Our business success depends on attracting and
retaining highly qualified personnel.
Our success depends in part on the efforts and abilities of our management
team and key employees. Their skills, experience and industry knowledge
significantly benefit our operations and performance. Competition for
highly qualified management and technical personnel is particularly intense
in emerging markets. The failure to attract and retain members of our
management team and key employees could have a negative effect on
our business, operating results and financial condition.
Increasing employee benefit costs could have a
negative effect on our operating results and financial
condition.
One important aspect of attracting and retaining qualified personnel is
continuing to offer competitive employee retirement and health care benefits.
The expenses we record for our pension and other postretirement benefit
pension plans depend on factors such as changes in market interest rates,
the value of plan assets, mortality assumptions and health care trend
rates. Significant unfavorable changes in these factors would increase
our expenses. Expenses related to employer-funded health care benefits
depend on health care cost inflation. An inability to control costs related
to employee and retiree benefits could negatively impact our operating
results and financial condition.
7
Rockwell Automation, Inc. - Form 10-K Part I
Item 1A Risk Factors
Potential liabilities and costs from litigation (including
asbestos claims and environmental remediation) could
reduce our profitability.
Various lawsuits, claims and proceedings have been or may be asserted
against us relating to the conduct of our business, including those pertaining
to the safety and security of the products, solutions and services we sell,
employment, contract matters and environmental remediation.
We have been named as a defendant in lawsuits alleging personal injury as
a result of exposure to asbestos that was used in certain of our products
many years ago. Our products may also be used in hazardous industrial
activities, which could result in product liability claims. The uncertainties
of litigation (including asbestos claims) and the uncertainties related to the
collection of insurance coverage make it difficult to predict the ultimate
resolution.
Our operations are subject to regulation by various environmental regulatory
authorities concerned with the impact of the environment on human health,
the limitation and control of emissions and discharges into the air, ground
and waters, the quality of air and bodies of water, and the handling, use
and disposal of specified substances. Environmental laws and regulations
can be complex and may change. Our financial responsibility to clean up
contaminated property or for natural resource damages may extend to
previously owned or used properties, waterways and properties owned by
unrelated companies or individuals, as well as properties that we currently
own and use, regardless of whether the contamination is attributable to
prior owners. We have been named as a potentially responsible party at
cleanup sites and may be so named in the future, and the costs associated
with these current and future sites may be significant.
We have, from time to time, divested certain of our businesses. In connection
with these divestitures, certain lawsuits, claims and proceedings may be
instituted or asserted against us related to the period that we owned the
businesses, either because we agreed to retain certain liabilities related
to these periods or because such liabilities fall upon us by operation of
law. In some instances, the divested business has assumed the liabilities;
however, it is possible that we might be responsible to satisfy those liabilities
if the divested business is unable to do so.
A disruption to our distribution channel could reduce
our sales.
In the United States and Canada, approximately 90 percent of our sales
are through distributors. In certain other countries, the majority of our sales
are also through a limited number of distributors. While we maintain the
right to appoint new distributors, any unplanned disruption to our existing
distribution channel could adversely affect our sales. A disruption could
result from the sale of a distributor to a competitor, financial instability of
a distributor, or other events.
We rely on suppliers to provide equipment, components
and services, which creates certain risks and
uncertainties that may adversely affect our business.
Our business requires that we buy equipment, components and services
including finished products, which may include electronic components
and commodities such as copper, aluminum and steel. Our reliance on
suppliers involves certain risks, including:
•• information security risks associated with providing confidential information
to suppliers; and
•• shortages of components, commodities or other materials, which could
adversely affect our manufacturing efficiencies and ability to make timely
delivery.
Any of these uncertainties could adversely affect our profitability and ability
to compete. We also maintain several single-source supplier relationships,
because either alternative sources are not available or the relationship is
advantageous due to performance, quality, support, delivery, capacity,
or price considerations. Unavailability or delivery delays of single-source
components or products could adversely affect our ability to ship the
related products in a timely manner. The effect of unavailability or delivery
delays would be more severe if associated with our higher volume and
more profitable products. Even where substitute sources of supply are
available, qualifying the alternate suppliers and establishing reliable supplies
could cost more or could result in delays and a loss of sales.
We rely on strategic partners to expand our capabilities
and to provide more complete automation solutions
for our customers, which creates certain risks and
uncertainties that may adversely affect our business.
We have relationships with industry-leading strategic partners that provide
complementary technology, expertise and thought leadership to enable us
to enhance automation solutions for our customers. If we fail to maintain or
manage relationships with these third-party partner companies effectively,
or these partners are unable or unwilling to perform as expected, our ability
to execute our business strategy could be negatively affected.
Our competitiveness depends on successfully executing
our globalization and cost productivity initiatives.
Our globalization strategy includes localization of our products and services to
be closer to our customers and identified growth opportunities. Localization
of our products and services includes expanding our capabilities, including
supply chain and sourcing activities, product design, manufacturing,
engineering, marketing and sales and support. These activities expose
us to risks, including those related to political and economic uncertainties,
transportation delays, labor market disruptions, and challenges to protect
our intellectual property. In addition, we continue to invest in initiatives to
reduce our cost structure. The failure to achieve our objectives on these
initiatives could have an adverse effect on our operating results and
financial condition.
Risks associated with acquisitions could have an
adverse effect on us.
We have acquired, and will continue to acquire, businesses in an effort to
enhance shareowner value. Acquisitions involve risks and uncertainties,
including:
•• difficulties in integrating the acquired business, retaining the acquired
business’ customers, and achieving the expected benefits of the
acquisition, such as sales increases, access to technologies, cost
savings and increases in geographic or product presence, in the desired
time frames;
•• loss of key employees of the acquired business;
•• poor quality or an insecure supply chain, which could adversely affect
•• difficulties implementing and maintaining consistent standards, controls,
the reliability and reputation of our products;
procedures, policies and information systems; and
•• changes in the cost of these purchases due to inflation, exchange rates,
•• diversion of management’s attention from other business concerns.
commodity market volatility or other factors;
•• intellectual property risks such as ownership of rights or alleged infringement
by suppliers;
Future acquisitions could result in debt, dilution, liabilities, increased
interest expense, restructuring charges and amortization expenses related
to intangible assets.
8
Rockwell Automation, Inc. - Form 10-K ItEM 1B Unresolved Staff Comments
None.
Part I
Item 2 Properties
ItEM 2 Properties
We operate manufacturing facilities in the United States and multiple other countries. Manufacturing space occupied approximately 3.4 million square
feet, of which 35 percent was in the United States and Canada. Our global headquarters are located in Milwaukee, Wisconsin in a facility that we own.
We lease the remaining facilities noted below. Most of our facilities are shared by operations in both segments and may be used for multiple purposes
such as administrative, manufacturing, warehousing and / or distribution.
The following table sets forth information regarding our headquarter locations as of September 30, 2014.
Location
Milwaukee, Wisconsin, United States
Mayfield Heights, Ohio, United States
Cambridge, Canada
Capelle, Netherlands / Diegem, Belgium
Hong Kong
Weston, Florida, United States
Segment/Region
Global Headquarters and Control Products & Solutions
Architecture & Software
Canada
Europe, Middle East and Africa
Asia Pacific
Latin America
The following table sets forth information regarding our principal manufacturing locations as of September 30, 2014.
Location
Monterrey, Mexico
Aarau, Switzerland
Twinsburg, Ohio, United States
Mequon, Wisconsin, United States
Cambridge, Canada
Shanghai, China
Singapore
Katowice, Poland
Tecate, Mexico
Ladysmith, Wisconsin, United States
Richland Center, Wisconsin, United States
Jundiai, Brazil
Manufacturing Square Footage
637,000
284,000
257,000
240,000
216,000
196,000
155,000
138,000
135,000
124,000
124,000
94,000
There are no major encumbrances (other than financing arrangements, which in the aggregate are not significant) on any of our plants or equipment. In
our opinion, our properties have been well maintained, are in sound operating condition and contain all equipment and facilities necessary to operate
at present levels.
9
Rockwell Automation, Inc. - Form 10-K Part I
Item 3 Legal Proceedings
ItEM 3 Legal Proceedings
Asbestos. We (including our subsidiaries) have been named as a defendant
in lawsuits alleging personal injury as a result of exposure to asbestos
that was used in certain components of our products many years ago.
Currently there are a few thousand claimants in lawsuits that name us as
defendants, together with hundreds of other companies. In some cases, the
claims involve products from divested businesses, and we are indemnified
for most of the costs. However, we have agreed to defend and indemnify
asbestos claims associated with products manufactured or sold by our
Dodge mechanical and Reliance Electric motors and motor repair services
businesses prior to their divestiture by us, which occurred on January 31,
2007. We also are responsible for half of the costs and liabilities associated
with asbestos cases against RIC’s divested measurement and flow control
business. But in all cases, for those claimants who do show that they
worked with our products or products of divested businesses for which
we are responsible, we nevertheless believe we have meritorious defenses,
in substantial part due to the integrity of the products, the encapsulated
nature of any asbestos-containing components, and the lack of any
impairing medical condition on the part of many claimants. We defend
those cases vigorously. Historically, we have been dismissed from the vast
majority of these claims with no payment to claimants.
We have maintained insurance coverage that we believe covers indemnity
and defense costs, over and above self-insured retentions, for claims
arising from our former Allen-Bradley subsidiary. Following litigation against
Nationwide Indemnity Company (Nationwide) and Kemper Insurance
(Kemper), the insurance carriers that provided liability insurance coverage
to Allen-Bradley, we entered into separate agreements on April 1, 2008
with both insurance carriers to further resolve responsibility for ongoing
and future coverage of Allen-Bradley asbestos claims. In exchange for a
lump sum payment, Kemper bought out its remaining liability and has been
released from further insurance obligations to Allen-Bradley. Nationwide
entered into a cost share agreement with us to pay the substantial majority
of future defense and indemnity costs for Allen-Bradley asbestos claims. We
believe this arrangement will continue to provide coverage for Allen-Bradley
asbestos claims throughout the remaining life of the asbestos liability.
The uncertainties of asbestos claim litigation make it difficult to predict
accurately the ultimate outcome of asbestos claims. That uncertainty is
increased by the possibility of adverse rulings or new legislation affecting
asbestos claim litigation or the settlement process. Subject to these
uncertainties and based on our experience defending asbestos claims,
we do not believe these lawsuits will have a material effect on our financial
condition or results of operations.
Other. Various other lawsuits, claims and proceedings have been or may
be instituted or asserted against us relating to the conduct of our business,
including those pertaining to product liability, environmental, safety and
health, intellectual property, employment and contract matters. Although the
outcome of litigation cannot be predicted with certainty and some lawsuits,
claims or proceedings may be disposed of unfavorably to us, we believe
the disposition of matters that are pending or have been asserted will not
have a material effect on our financial condition or results of operations.
ItEM 4a Executive Officers of the Company
The name, age, office and position held with the Company and principal occupations and employment during the past five years of each of the executive
officers of the Company as of October 31, 2014 are:
Name, Office and Position, and Principal Occupations and Employment
Keith D. Nosbusch — Chairman of the Board and President and Chief Executive Officer
Sujeet Chand — Senior Vice President and Chief Technology Officer
Theodore D. Crandall — Senior Vice President and Chief Financial Officer
David M. Dorgan — Vice President and Controller
Steven W. Etzel — Vice President and Treasurer
Douglas M. Hagerman — Senior Vice President, General Counsel and Secretary
Frank C. Kulaszewicz — Senior Vice President since April 2011; Vice President and General Manager,
Control and Visualization Business previously
John P. McDermott — Senior Vice President
John M. Miller — Vice President and Chief Intellectual Property Counsel
Blake D. Moret — Senior Vice President since April 2011; Vice President and General Manager, Customer Support and
Maintenance previously
Rondi Rohr-Dralle — Vice President, Investor Relations and Corporate Development
Susan J. Schmitt — Senior Vice President, Human Resources
Martin Thomas — Senior Vice President, Operations and Engineering Services
Age
63
56
59
50
54
53
50
56
47
51
58
51
56
There are no family relationships, as defined by applicable SEC rules, between any of the above executive officers and any other executive officer or
director of the Company. No officer of the Company was selected pursuant to any arrangement or understanding between the officer and any person
other than the Company. All executive officers are elected annually.
10
Rockwell Automation, Inc. - Form 10-K Part II
Item 5 market for the Company’s Common equity, Related Stockholder matters and Issuer Purchases of equity Securities
PART II
ItEM 5 Market for the Company’s Common Equity,
related Stockholder Matters and Issuer Purchases
of Equity Securities
Our common stock is listed on the New York Stock Exchange and trades under the symbol “ROK.” On October 31, 2014 there were 19,856 shareowners
of record of our common stock.
The following table sets forth the high and low sales price of our common stock on the New York Stock Exchange-Composite Transactions reporting
system during each quarter of our fiscal years ended September 30, 2014 and 2013:
Fiscal Quarters
First
Second
Third
Fourth
$
2014
High
119.03 $
125.66
128.57
126.84
Low
102.98 $
108.83
115.21
109.80
2013
High
84.80 $
91.99
91.67
109.72
Low
68.30
83.58
80.60
83.59
We declare and pay dividends at the sole discretion of our Board of Directors. During 2014 we declared and paid aggregate cash dividends of $2.32 per
common share. During the first quarter of fiscal 2014, we increased our quarterly dividend per common share 12 percent to 58 cents per common
share effective with the dividend payable in December 2013 ($2.32 per common share annually). During 2013 we declared and paid aggregate cash
dividends of $1.98 per common share.
The table below sets forth information with respect to purchases made by or on behalf of us of shares of our common stock during the three months
ended September 30, 2014:
Total Number
of Shares
Purchased
Period
July 1 – 31, 2014
August 1 – 31, 2014
September 1 – 30, 2014
TOTAL
(1) Average price paid per share includes brokerage commissions.
(2) On June 7, 2012, the Board of Directors approved a $1.0 billion share repurchase program. On June 4, 2014, the Board of Directors authorized us to expend an additional
$1.0 billion to repurchase shares of our common stock. Our repurchase program allows us to repurchase shares at management’s discretion. However, during quarterly “quiet
periods,” defined as the period of time from quarter end until one business day following the furnishing of our quarterly earnings results to the SEC on Form 8-K, shares are
repurchased at our broker’s discretion pursuant to a share repurchase plan subject to price and volume parameters.
435,400 $
545,915
225,757
435,400 $
545,915
225,757
1,207,072
1,207,072
Average Price
Paid Per Share(1)
120.14
113.14
115.02
116.02
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Approx.
Dollar Value of Shares
that may yet be
Purchased Under the
Plans or Programs(2)
1,139,084,613
1,077,318,800
1,051,352,648
11
Rockwell Automation, Inc. - Form 10-K
Part II
Item 6 Selected Financial Data
ItEM 6 Selected Financial Data
The following table sets forth selected consolidated financial data of our continuing operations. The data should be read in conjunction with MD&A
and the Financial Statements. The consolidated statement of operations data for each of the following five years ended September 30, the related
consolidated balance sheet data and other data have been derived from our audited consolidated financial statements.
(in millions, except per share data)
Consolidated Statement of Operations Data:
Sales
Interest expense
Net income(1)
Earnings per share:
$
2014
6,623.5 $
59.3
826.8
Year Ended September 30,
2013
2012
2011
2010
6,351.9 $
60.9
756.3
6,259.4 $
60.1
737.0
6,000.4 $
59.5
697.8
4,857.0
60.5
464.3
Basic(2)
Diluted(2)
5.98
5.91
2.32
5.43
5.36
1.98
5.20
5.13
1.745
4.88
4.80
1.475
3.26
3.22
1.22
$
Cash dividends per share
Consolidated Balance Sheet Data:
(at end of period)
Total assets
Short-term debt
Long-term debt
Shareowners’ equity
Other Data:
Capital expenditures
Depreciation
Intangible asset amortization
(1) Net income includes $0.7 million and $23.9 million in income from discontinued operations for the years ended September 30, 2011 and 2010, respectively.
(2) Basic earnings per share includes $0.17 per share from discontinued operations for the year ended September 30, 2010. Diluted earnings per share includes $0.01 and
6,229.5 $
325.0
905.6
2,658.1
5,844.6 $
179.0
905.1
2,585.5
5,636.5 $
157.0
905.0
1,851.7
4,748.3
—
904.9
1,460.4
—
905.0
1,748.0
120.1 $
96.5
34.8
139.6 $
103.9
34.7
141.0 $
122.5
30.0
146.2 $
113.8
31.4
99.4
95.7
31.6
5,284.9 $
$
$0.17 per share from discontinued operations for the years ended September 30, 2011 and 2010, respectively.
ItEM 7 Management’s Discussion and analysis of Financial
Condition and results of Operations
results of Operations
Non-GaaP Measures
Overview
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.
We are a leading global provider of industrial automation power, control
and information solutions that help manufacturers achieve competitive
advantages for their businesses. Overall demand for our products, solutions
and services is driven by:
•• investments in manufacturing, including upgrades, modifications and
expansions of existing facilities or production lines, and new facilities
or production lines;
•• investments in basic materials production capacity, which may be related
to commodity pricing levels;
•• 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 schedules.
12
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Long-term Strategy
Our vision of being the most valued global provider of innovative industrial
automation and information products, solutions and services 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 sales streams by broadening our portfolio of products,
solutions and services, expanding our global presence and serving a
wider range of industries and 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, enhancing
our domain expertise or continuing our geographic diversification;
•• deploy human and financial resources to strengthen our technology
leadership and our intellectual capital business model;
•• 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 sales growth of 6-8 percent, double-digit EPS
growth, return on invested capital in excess of 20 percent and free cash
flow equal to about 100 percent of Adjusted Income.
Our customers face the challenge of remaining globally cost competitive
and automation can help them achieve their productivity and sustainability
objectives. Our value proposition is to help our customers reduce time
to market, lower total cost of ownership, improve asset utilization and
manage enterprise risks.
Differentiation through technology Innovation and
Domain Expertise
We seek a technology leadership position in industrial automation. We
believe that our three platforms - integrated architecture, intelligent motor
control and solutions and services - provide the foundation for long-term
sustainable competitive advantage.
Our integrated control and information architecture, with Logix at its core,
is an important differentiator. We are the only automation provider that
can support discrete, process, batch, safety, motion and power control
on the same hardware platform with the same software programming
environment. Our integrated architecture is scalable with standard open
communications protocols making it easier for customers to implement
more cost effectively.
Intelligent motor control is one of our core competencies and an important
aspect of an automation system. These products and solutions enhance
the availability, efficiency and safe operation of our customers’ critical and
most energy-intensive plant assets. Our intelligent motor control offering
can be integrated seamlessly with the Logix architecture.
Domain expertise refers to the industry and application knowledge required
to deliver solutions and services that support customers through the entire
life cycle of their automation investment. The combination of industry-specific
domain expertise of our people with our innovative technologies enables us
to help our customers solve their manufacturing and business challenges.
Global Expansion
As the manufacturing world continues to expand, we must be able to
meet our customers’ needs around the world. We continue to expand
our footprint in emerging markets. We currently have approximately
60 percent of our employees outside the U.S., and 48 percent of our
sales outside the U.S.
As we expand in markets with considerable growth potential and shift
our global footprint, we expect to continue to broaden the portfolio of
products, solutions and services that we provide to our customers in
these regions. We have made significant investments to globalize our
manufacturing, product development and customer facing resources
in order to be closer to our customers throughout the world. Growth in
the emerging markets of Asia Pacific, including China and India, Latin
America, Central and Eastern Europe and Africa is projected to exceed
global Gross Domestic Product (GDP) growth rates, due to higher levels
of infrastructure investment and the growing middle-class population. We
believe that increased demand for consumer products in these markets will
lead to manufacturing investment and provide us with additional growth
opportunities in the future.
Enhanced Market access
Over the past decade, our investments in technology and globalization have
enabled us to expand our addressed market to over $90 billion. Our process
initiative has been the most important contributor to this expansion and
remains our largest growth opportunity. Logix is the technology foundation
that enabled us to become an industry leader for batch process applications
and to compete effectively with traditional Distributed Control Systems
(DCS) providers for continuous process applications. We complement
that with a growing global network of engineers and partners to provide
solutions to process customers.
OEMs represent another area of addressed market expansion and an
important growth opportunity. To remain competitive, OEMs need to find
the optimal balance of machine cost and performance while reducing their
time to market. Our scalable integrated architecture and intelligent motor
control offerings, along with design productivity tools and our motion and
safety products, can assist OEMs in addressing these business needs.
We have developed a powerful network of channel partners, technology
partners and commercial partners that act as amplifiers to our internal
capabilities and enable us to serve our customers’ needs around the world.
Broad range of Industries Served
We apply our knowledge of manufacturing applications to help customers
solve their business challenges. We serve customers in a wide range of
industries, including consumer products, resource-based and transportation.
Our consumer products customers are engaged in the food and beverage,
home and personal care and life sciences industries. These customers’ needs
include new capacity, incremental capacity from existing facilities, flexible
manufacturing and regulatory compliance. These customers operate in an
environment where product innovation and time to market are critical factors.
We serve customers in resource-based industries, including oil and gas,
mining, aggregates, cement, metals, energy, pulp and paper and water/
wastewater. Companies in these industries typically invest in capacity
expansion when commodity prices are relatively high and global demand
for basic materials is increasing. In addition, there is ongoing investment
in upgrades of aging automation systems and productivity.
In the transportation industry, factors such as geographic expansion,
investment in new model introductions and more flexible manufacturing
technologies influence customers’ automation investment decisions. Our
sales in transportation are primarily to automotive and tire manufacturers.
Outsourcing and Sustainability trends
Demand for our products, solutions and services across all industries
benefits from the outsourcing and sustainability needs of our customers.
Customers increasingly desire to outsource engineering services to achieve
a more flexible cost base. Our manufacturing application knowledge
enables us to serve these customers globally.
We help our customers meet their sustainability needs pertaining to
energy efficiency, environmental and safety goals. Higher energy prices
have historically caused customers across all industries to invest in more
13
Rockwell Automation, Inc. - Form 10-K Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
energy-efficient manufacturing processes and technologies, such as
intelligent motor control and energy efficient solutions and services. In
addition, environmental and safety objectives often spur customers to
invest to ensure compliance and implement sustainable business practices.
reduction and improved asset utilization. Charges for workforce reductions
and facility rationalization may be required in order to effectively execute
our productivity programs.
acquisitions
Our acquisition strategy focuses on products, solutions or services that
will be catalytic to the organic growth of our core offerings. In January
2014, we acquired Jacobs Automation, a leader in intelligent track motion
control technology. This technology improves performance across a wide
range of packaging, material handling, and other applications for the global
machine builder market.
In November 2013, we acquired vMonitor LLC and its affiliates, a global
technology leader for wireless solutions in the oil and gas industry. This
acquisition is expected to strengthen our ability to deliver end-to-end
projects for the oil and gas sector and accelerate our development of
similar process solutions and remote monitoring services for water/
wastewater, mining and other industries globally.
In October 2012, we acquired certain assets of the medium voltage drives
business of Harbin Jiuzhou Electric Co., Ltd., a leading manufacturer of medium
voltage drives, direct current power supplies, switch gear and wind inverters,
headquartered in Harbin, China. The acquisition strengthened our presence
in the Asia-Pacific motor control market by adding significant capabilities in
design, engineering and manufacturing of medium voltage drive products.
In March 2012, we acquired certain assets and assumed certain liabilities
of SoftSwitching Technologies Corporation, an industrial power quality
detection and protection systems provider in the United States.
We believe the acquired companies will help us expand our served market
and deliver value to our customers.
Continuous Improvement
Productivity and continuous improvement are important components of our
culture. We have programs in place that drive ongoing process improvement,
functional streamlining, material cost savings and manufacturing productivity.
We are in the process of developing and implementing common global
processes and an enterprise-wide business system. These are intended
to improve profitability that can be used to fund investments in growth
and to offset inflation. Our ongoing productivity initiatives target both cost
U. S. Industrial Economic trends
In 2014, sales to U.S. customers accounted for 52 percent of our total
sales. The various indicators we use to gauge the direction and momentum
of our U.S. served markets include:
•• The Industrial Production Index (IP), 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 indication 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 from fiscal 2012 to
2014. The PMI increase in the fourth quarter of fiscal 2014 indicates expansion
in the U.S. manufacturing sector. Industrial Equipment Spending and the
Industrial Production Index have been improving, while Capacity Utilization
remained flat. Strength in the recently reported macroeconomic indicators
supports our expectation that market conditions in the U.S. will remain
healthy next year, though IP growth is expected to be somewhat lower. We
expect the U.S. growth in fiscal 2015 to be slightly lower than in fiscal 2014.
Industrial
Production
Index
104.5
103.6
102.2
101.3
100.1
99.4
99.0
98.0
97.4
97.0
96.1
95.1
Industrial
Equipment
Spending
(in billions)
Capacity
Utilization
(percent)
251.3
237.2
222.7
214.5
213.6
205.4
205.7
204.6
200.9
201.0
198.9
208.1
79.1
79.1
78.6
78.4
77.9
77.8
77.7
77.3
77.2
77.4
77.2
76.8
PMI
56.6
55.3
53.7
56.5
56.0
52.5
51.5
50.4
52.2
51.0
53.0
53.1
Fiscal 2014 quarter ended:
September 2014
June 2014
March 2014
December 2013
Fiscal 2013 quarter ended:
September 2013
June 2013
March 2013
December 2012
Fiscal 2012 quarter ended:
September 2012
June 2012
March 2012
December 2011
Note: Economic indicators are subject to revisions by the issuing organizations.
14
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Non-U.S. regional trends
Summary of results of Operations
In 2014, sales to non-U.S. customers accounted for 48 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 in the “Overview” section,
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 the respective countries’ Gross Domestic Product (GDP) and
Industrial Production as indicators of the growth opportunities in each
region where we do business.
Overall, economic projections call for higher rates of industrial production
growth in regions outside the U.S. in 2015 compared to 2014; however,
market conditions are expected to be mixed across and within regions. In
Europe, economic forecasts call for little to no growth in Western Europe
and moderate growth in emerging countries. In Asia Pacific, China’s
economic picture is mixed. Overcapacity and lack of liquidity are threats,
but exports and production are expected to improve. In Latin America,
Brazil is in a recession but Mexico’s economy remains strong. Canada
is expected to have continued low levels of economic growth as weak
commodity prices weigh on investment in resource-based industries.
Despite these current headwinds and inherently greater volatility of their
economic conditions, we continue to expect that emerging markets will
be the fastest growing automation markets over the long term.
In 2014, we achieved record sales of $6,623.5 million with sales growth
of 4.3 percent year over year. Organic sales increased 5.1 percent. All
regions, except for Canada, experienced organic sales growth year over
year, led by the United States with organic sales growth of 6.8 percent. The
end market with the strongest sales growth for the year was oil and gas.
The following is a summary of our results related to key growth initiatives:
•• Sales related to our process initiative increased approximately 4 percent
in 2014 compared to 2013.
•• Logix sales exceeded $1 billion in 2014 and grew 6 percent compared
to 2013. Logix organic sales increased 7 percent year over year.
•• Sales in emerging markets increased 3 percent in 2014 compared to
2013. Organic sales in emerging markets increased 6 percent year over
year, higher than the company average.
For the second year in a row we expanded segment operating margin by
almost a point while continuing to invest for growth.
The following tables reflect our sales and operating results for the years ended September 30, 2014, 2013 and 2012 (in millions, except per share amounts):
Year Ended September 30,
2014
2013
2012
2,845.3 $
3,778.2
6,623.5
$
2,682.0 $
3,669.9
6,351.9
$
2,650.4
3,609.0
6,259.4
Sales
Architecture & Software
Control Products & Solutions
TOTAL SALES (A)
Segment operating earnings(1)
Architecture & Software
Control Products & Solutions
$
$
$
Total segment operating earnings(2) (B)
Purchase accounting depreciation and amortization
General corporate — net
Non-operating pension costs(3)
Interest expense
Income before income taxes (C)
Income tax provision
NET INCOME
DILUTED EPS
ADJUSTED EPS(4)
Diluted weighted average outstanding shares
TOTAL SEGMENT OPERATING MARGIN(2) (B/A)
PRE-TAX MARGIN (C/A)
(1) See Note 15 in the 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 the company. Our measure of total segment operating earnings and total segment
operating margin may be different from those used by other companies.
5.13
5.29
143.4
18.6%
15.4%
19.5%
15.4%
20.4%
17.1%
$
$
$
839.6 $
512.4
1,352.0
(21.6)
(81.0)
(55.9)
(59.3)
1,134.2
(307.4)
826.8
5.91
6.17
139.7
$
$
$
759.4 $
477.4
1,236.8
(19.3)
(97.2)
(78.5)
(60.9)
980.9
(224.6)
756.3
5.36
5.71
140.9
$
$
$
714.4
449.5
1,163.9
(19.8)
(82.9)
(35.2)
(60.1)
965.9
(228.9)
737.0
(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.
(4) Adjusted EPS is a non-GAAP earnings measure that excludes the non-operating pension costs and their related income tax effect. See Adjusted Income, Adjusted EPS
and Adjusted Effective Tax Rate Reconciliation for more information on this non-GAAP measure.
15
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
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 each segment’s operating performance for internal purposes. If we were to allocate these costs, we would
attribute them to each of our segments as follows (in millions):
Purchase accounting depreciation and amortization
Architecture & Software
Control Products & Solutions
Non-operating pension costs
Architecture & Software
Control Products & Solutions
$
Year Ended September 30,
2014
2013
4.1 $
16.5
20.6
32.2
4.0 $
14.3
27.6
46.6
2012
5.0
13.8
11.6
20.9
The decreases in non-operating pension costs in both segments in fiscal 2014 were primarily due to the increase in the discount rate used to measure
net periodic pension cost for our U.S. pension plans. The rate increased from 4.15 percent in 2013 to 5.05 percent in 2014.
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 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 years ended September 30, 2014, 2013 and 2012 (in millions):
Service cost
Amortization of prior service credit
Operating pension costs
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Settlements
Non-operating pension costs
NET PERIODIC PENSION COST
$
$
Year Ended September 30,
2014
78.5 $
(2.7)
75.8
174.2
(217.9)
99.7
(0.1)
55.9
131.7
2013
92.1
(2.5)
89.6
160.2
(226.3)
144.6
—
78.5
168.1
$
$
$
2012
71.8
(2.3)
69.5
167.6
(228.1)
94.7
1.0
35.2
104.7
The following are reconciliations 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 years ended September 30, 2014, 2013 and 2012 (in millions, except per share amounts):
Year Ended September 30,
2014
826.8 $
$
55.9
(20.0)
862.7
5.91
0.40
(0.14)
6.17
27.1%
0.4%
$
$
$
2013
756.3
78.5
(28.5)
806.3
5.36
0.55
(0.20)
5.71
22.9%
1.0%
$
$
$
2012
737.0
35.2
(12.6)
759.6
5.13
0.25
(0.09)
5.29
23.7%
0.4%
24.1%
27.5%
23.9%
Income from continuing operations
Non-operating pension costs, before tax
Tax effect of non-operating pension costs
ADJUSTED INCOME
Diluted EPS from continuing operations
Non-operating pension costs per diluted share, before tax
Tax effect of non-operating pension costs per diluted share
ADJUSTED EPS
Effective tax rate
Tax effect of non-operating pension costs
ADJUSTED EFFECTIVE TAX RATE
$
$
$
$
16
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
$
2014
6,623.5 $
1,134.2
5.91
6.17
2013
6,351.9 $
980.9
5.36
5.71
Change
271.6
153.3
0.55
0.46
2014 Compared to 2013
(in millions, except per share amounts)
Sales
Income before income taxes
Diluted EPS
Adjusted EPS
Sales
Sales in fiscal 2014 increased 4.3 percent compared to 2013. Organic sales increased 5.1 percent, and currency translation reduced sales by
1.0 percent. Sales in our solutions and services businesses grew 2 percent year over year. Product sales grew 5 percent year over year. Pricing
contributed about 1 percentage point to growth.
The table below presents our sales, attributed to the geographic regions based upon country of destination, for the year ended September 30, 2014
and the change from the same period a year ago (in millions, except percentages):
6.8%
United States
(0.7)%
Canada
2.2%
Europe, Middle East and Africa
5.3%
Asia Pacific
6.0%
Latin America
TOTAL SALES
5.1%
(1) Organic sales are sales excluding the effect of changes in currency exchange rates and acquisitions. See Supplemental Sales Information for information on this non-GAAP measure.
6.6%
(6.8)%
5.2%
3.8%
(1.4)%
4.3%
$
$
Year Ended
September 30, 2014
3,414.6
437.0
1,351.8
884.0
536.1
6,623.5
Change vs.
Year Ended
September 30, 2013
Change in Organic
Sales vs. Year Ended
September 30, 2013(1)
•• Sales growth in the United States was realized broadly across industries, with the highest growth in the oil and gas and home and personal care industries.
•• Sales in Canada declined due to the unfavorable impact of foreign currency translation. Organic sales declined slightly due to continued weakness in
solutions and services in resource-based industries, partially offset by growth in our product businesses.
•• EMEA sales grew as a result of the favorable impact of currency translation, organic sales growth and a small contribution from acquisitions. Organic
sales were driven by growth in our products businesses.
•• Asia Pacific organic sales growth was driven by strong sales to OEM customers in China and a return to growth in India.
•• Latin America sales declined due to the unfavorable impact of currency translation. Organic sales growth in the region was driven by strong sales in
Brazil and Mexico that more than offset sales declines in the rest of the region.
General Corporate - Net
Income taxes
General corporate - net expenses were $81.0 million in fiscal 2014 compared
to $97.2 million in fiscal 2013. The year-over-year decrease was primarily
due to fiscal 2013 charges related to legacy environmental matters.
Income before Income taxes
Income before income taxes increased 16 percent from $980.9 million in
2013 to $1,134.2 million in 2014, primarily due to an increase in segment
operating earnings, lower non-operating pension costs and reduced general
corporate - net expenses. Total segment operating earnings increased
9 percent year over year, primarily due to higher sales and favorable mix,
partially offset by increased spending.
The effective tax rate for 2014 was 27.1 percent compared to 22.9 percent
in 2013. The 2014 and 2013 effective tax rates were lower than the
U.S. statutory rate of 35 percent primarily because we benefited from
lower non-U.S. tax rates. The Adjusted Effective Tax Rate in 2014 was
27.5 percent compared to 23.9 percent in 2013. The increases in the
effective tax rate and the Adjusted Effective Tax Rate were primarily due
to significant net favorable prior period tax matters recognized in fiscal
2013 and a smaller amount of net unfavorable similar items recognized in
fiscal 2014. We also recognized a significant benefit from the retroactive
extension of the U.S. federal research and development tax credit (U.S.
research tax credit) in fiscal 2013. The U.S. research tax credit expired
on December 31, 2013.
See Note 13 in the Financial Statements for a complete reconciliation
of the United States statutory tax rate to the effective tax rate and more
information on tax events in 2014 and 2013 affecting the respective tax rates.
17
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
architecture & Software
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
$
2014
2,845.3 $
839.6
29.5%
2013
2,682.0 $
759.4
28.3%
Change
163.3
80.2
1.2 pts
Sales
Operating Margin
Architecture & Software sales increased 6.1 percent in 2014 compared
to 2013. Organic sales increased 6.8 percent, and the effects of currency
translation reduced sales by 0.7 percent. Pricing contributed approximately
1 percentage point to growth during the year. All regions experienced
sales growth during the year except Latin America, which grew organically
but declined in total due to currency translation. Excluding the impact
of currency translation, Canada was the best performing region for the
segment in 2014. Logix sales increased 6 percent in 2014 compared to
2013 and Logix organic sales increased 7 percent year over year.
Control Products & Solutions
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
Architecture & Software segment operating earnings increased 11 percent.
Operating margin expanded 1.2 points to 29.5 percent in 2014 compared
to 28.3 percent in 2013, primarily due to higher sales, partially offset by
increased spending.
$
2014
3,778.2 $
512.4
13.6%
2013
3,669.9 $
477.4
13.0%
Change
108.3
35.0
0.6 pts
Sales
Operating Margin
Control Products & Solutions sales increased 3.0 percent in 2014 compared
to 2013. Organic sales increased 3.8 percent, and currency translation
reduced sales by 1.1 percent. Pricing contributed less than 1 percentage
point to growth during the year. The United States was the best performing
region for the segment in 2014. Excluding the impact of currency translation,
all regions experienced sales growth except Canada, where the solutions
business was adversely impacted by resource-based industries.
Control Products & Solutions segment operating earnings increased
7 percent year over year. Segment operating margin was 13.6 percent in
2014 compared to 13.0 percent a year ago, primarily due to higher sales,
partially offset by increased spending.
2013 Compared to 2012
(in millions, except per share amounts)
Sales
Income before income taxes
Diluted EPS
Adjusted EPS
Sales
$
$
2013
6,351.9
980.9
5.36
5.71
$
2012
6,259.4
965.9
5.13
5.29
Change
92.5
15.0
0.23
0.42
Sales in fiscal 2013 increased 1.5 percent compared to 2012. Organic sales increased 1.7 percent. Sales in our solutions and services businesses
grew 1 percent year over year. Fiscal 2013 year-end backlog in these businesses was 9 percent higher than at the end of last year. Product sales grew
2 percent year over year. Pricing contributed about 1 percentage point to growth.
The table below presents our sales, attributed to the geographic regions based upon country of destination, for the year ended September 30, 2013
and the change from the same period a year ago (in millions, except percentages):
4%
United States
2%
Canada
—%
Europe, Middle East and Africa
(10)%
Asia Pacific
12%
Latin America
TOTAL SALES
2%
(1) Organic sales are sales excluding the effect of changes in currency exchange rates and acquisitions. See Supplemental Sales Information for information on this non-GAAP
4%
1%
—%
(10)%
8%
1%
$
$
Year Ended
September 30, 2013
3,202.9
468.7
1,284.9
851.9
543.5
6,351.9
Change vs.
Year Ended
September 30, 2012
Change in Organic
Sales vs. Year Ended
September 30, 2012(1)
measure.
18
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
•• The United States and Canada had solid sales growth with oil and gas being the best performing end markets.
•• EMEA’s sales growth was flat this year but we continued to outperform the market, especially with OEMs.
•• Asia Pacific had a challenging year with sales declines in all countries, except Japan.
•• Latin America was the highest growth region, led by strong growth in Brazil and Mexico.
General Corporate - Net
Income taxes
General corporate - net expenses were $97.2 million in fiscal 2013 compared
to $82.9 million in fiscal 2012. The largest contributor to the year-over-year
increase was higher legacy environmental charges.
Income before Income taxes
Income before income taxes increased 2 percent from $965.9 million in 2012
to $980.9 million in 2013. The increase was primarily due to an increase
in segment operating earnings, partially offset by higher non-operating
pension costs. Total segment operating earnings increased 6 percent year
over year, primarily due to higher sales and strong productivity.
The effective tax rate for 2013 was 22.9 percent compared to 23.7 percent
in 2012. The 2013 and 2012 effective tax rates were lower than the
U.S. statutory rate of 35 percent because our sales outside of the U.S.
benefited from lower tax rates. The Adjusted Effective Tax Rate in 2013
was 23.9 percent compared to 24.1 percent in 2012. We recognized
net discrete tax benefits of $22.7 million in 2013, primarily related to the
favorable resolution of tax matters in various global jurisdictions and the
retroactive extension of the U.S. federal research and development tax credit.
See Note 13 in the Financial Statements for a complete reconciliation
of the United States statutory tax rate to the effective tax rate and more
information on tax events in 2013 and 2012 affecting the respective tax rates.
architecture & Software
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
$
2013
2,682.0 $
759.4
28.3%
2012
Change
2,650.4 $
714.4
27.0%
31.6
45.0
1.3 pts
Sales
Operating Margin
Architecture & Software sales increased 1 percent in 2013 compared
to 2012. Organic sales increased 2 percent, and the effects of currency
translation reduced sales by 1 percentage point. Pricing contributed
about 1 percentage point to growth during the year. Strong year-
over-year sales growth in the United States and EMEA was offset by
significant declines in Asia Pacific. Logix sales increased 4 percent in
2013 compared to 2012.
Control Products & Solutions
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
Architecture & Software segment operating earnings increased 6 percent.
Operating margin expanded 1.3 points to 28.3 percent in 2013 as compared
to 2012, primarily due to higher sales and strong productivity.
$
2013
3,669.9 $
477.4
13.0%
2012
Change
3,609.0 $
449.5
12.5%
60.9
27.9
0.5 pts
Sales
Operating Margin
Control Products & Solutions sales increased 2 percent in 2013 compared
to 2012. Organic sales increased 2 percent. Pricing contributed
less than 1 percentage point to growth during the year. Latin America
was the strongest performing region for the segment with double-digit
year-over-year sales growth during the year. The United States and
Canada experienced solid sales growth in 2013, while Asia Pacific
reported significant sales declines.
Control Products & Solutions segment operating earnings increased
6 percent. Operating margin expanded 0.5 point to 13.0 percent in 2013
as compared to 2012, primarily due to higher sales, strong productivity
and favorable mix.
19
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition
The following is a summary of our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash
Flows (in millions):
Year Ended September 30,
2014
2013
2012
Cash provided by (used for):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
CASH PROVIDED BY (USED FOR) CONTINUING OPERATIONS
$
$
1,033.3 $
(483.4)
(521.8)
(37.7)
(9.6) $
1,014.8 $
(256.8)
(454.6)
0.6
304.0
$
The following table summarizes free cash flow (in millions), which is a non-GAAP financial measure:
718.7
(503.2)
(282.7)
(16.8)
(84.0)
2012
718.7
(139.6)
18.5
597.6
Year Ended September 30,
2014
1,033.3 $
(141.0)
29.9
922.2
$
2013
1,014.8 $
(146.2)
31.9
900.5
$
$
$
common stock and repayments of debt. We expect capital expenditures
in 2015 to be about $150 million. We expect to fund future uses of cash
with a combination of existing cash balances and short-term investments,
cash generated by operating activities, commercial paper borrowings or
a new issuance of debt or other securities.
Given our extensive operations outside the U.S., a significant amount of
our cash, cash equivalents and short-term investments (funds) are held in
non-U.S. subsidiaries where our undistributed earnings are permanently
reinvested. Generally, these funds would be subject to U.S. tax if repatriated.
The percentage of such non-U.S. funds can vary from quarter to quarter
with an average of approximately 90 percent over the past eight quarters.
As of September 30, 2014, approximately 90 percent of our funds were
held in such non-U.S. subsidiaries. We have not encountered and do not
expect to encounter any difficulty meeting the liquidity requirements of our
domestic and international operations.
In addition to cash generated by operating activities, we have access to
existing financing sources, including the public debt markets and unsecured
credit facilities with various banks. Commercial paper is our principal
source of short-term financing. At September 30, 2014, commercial paper
borrowings outstanding were $325.0 million, with a weighted average interest
rate of 0.17 percent and weighted average maturity period of seven days.
At September 30, 2013, commercial paper borrowings outstanding were
$179.0 million, with a weighted average interest rate of 0.17 percent and
weighted average maturity period of five days. Our debt-to-total-capital
ratio was 31.6 percent at September 30, 2014 and 29.5 percent at
September 30, 2013. The increase in the debt-to-total-capital ratio is
primarily due to higher commercial paper balances.
At September 30, 2014 and 2013, our total borrowing capacity under
our five-year unsecured revolving credit facility expiring in May 2018 was
$750.0 million. We can increase the aggregate amount of this credit facility
by up to $250.0 million, subject to the consent of the banks in the credit
facility. We have not borrowed against this credit facility during the years
ended September 30, 2014 and 2013. Borrowings under this credit facility
bear interest based on short-term money market rates in effect during the
period borrowings are outstanding. The terms of this credit facility contain
covenants under which we would be in default if our debt-to-total-capital ratio
was to exceed 60 percent. Separate short-term unsecured credit facilities
of approximately $126.6 million at September 30, 2014 were available to
non-U.S. subsidiaries. Borrowings under our non-U.S. credit facilities during
fiscal 2014 and 2013 were not significant. We were in compliance with all
covenants under our credit facilities during the years ended September 30,
2014 and 2013. There were no significant commitment fees or compensating
balance requirements under any of our credit facilities.
Cash provided by continuing operating activities
Capital expenditures
Excess income tax benefit from share-based compensation
FREE CASH FLOW
Our definition of free cash flow takes into consideration capital investments
required to maintain the operations of our businesses and execute our
strategy. Cash provided by continuing operating activities adds back non-cash
depreciation expense to earnings but does not reflect a charge for necessary
capital expenditures. Our definition of free cash flow excludes the operating
cash flows and capital expenditures related to our discontinued operations.
Operating, investing and financing cash flows of our discontinued operations
are presented separately in our statement of cash flows. Accounting principles
generally accepted in the United States (U.S. GAAP) require the excess
income tax benefit to be reported 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 one measure to monitor and evaluate performance. Our definition of free
cash flow may differ from definitions used by other companies.
Cash provided by operating activities was $1,033.3 million for the year
ended September 30, 2014 compared to $1,014.8 million for the year ended
September 30, 2013. Free cash flow was a source of $922.2 million for the
year ended September 30, 2014 compared to a source of $900.5 million
for the year ended September 30, 2013. The increase in the cash flow
provided by operating activities and the increase in free cash flow are
primarily due to higher earnings, largely offset by higher tax payments.
We repurchased approximately 4.1 million shares of our common
stock under our share repurchase program in 2014. The total cost of
these shares was $483.8 million, of which $4.5 million was recorded in
accounts payable at September 30, 2014, related to 40,757 shares that
did not settle until October 2014. In 2013, we repurchased approximately
4.7 million shares of our common stock under our share repurchase program.
The total cost of these shares was $401.5 million, of which $6.4 million
was recorded in accounts payable at September 30, 2013, related to
60,000 shares that did not settle until October 2013. Our decision to
repurchase stock in 2015 will depend on business conditions, free cash
flow generation, other cash requirements and stock price. At September 30,
2014 we had approximately $1,051.4 million remaining for stock
repurchases under our existing board authorizations. See Part II, Item 5.
Market for the Company’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities, for additional
information regarding share repurchases.
We expect future uses of cash to include working capital requirements,
capital expenditures, additional contributions to our retirement plans,
acquisitions of businesses, dividends to shareowners, repurchases of
20
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Among other uses, we can draw on our credit facility as a standby liquidity
facility to repay our outstanding commercial paper as it matures. This
access to funds to repay maturing commercial paper is an important
factor in maintaining the short-term credit ratings set forth in the table
below. Under our current policy with respect to these ratings, we expect
The following is a summary of our credit ratings as of September 30, 2014:
to limit our other borrowings under our credit facility, if any, to amounts
that would leave enough credit available under the facility so that we
could borrow, if needed, to repay all of our then outstanding commercial
paper as it matures.
Credit Rating Agency
Standard & Poor’s
Moody’s
Fitch Ratings
Our ability to access the commercial paper market, and the related costs
of these borrowings, is affected by the strength of our credit rating and
market conditions. We have not experienced any difficulty in accessing
the commercial paper market to date. If our access to the commercial
paper market is adversely affected due to a change in market conditions
or otherwise, we would expect to rely on a combination of available cash
and our unsecured committed credit facility to provide short-term funding.
In such event, the cost of borrowings under our unsecured committed
credit facility could be higher than the cost of commercial paper borrowings.
We regularly monitor the third-party depository institutions that hold our
cash and cash equivalents and short-term investments. Our emphasis is
primarily on safety and liquidity of principal and secondarily on maximizing
yield on those funds. We diversify our cash and cash equivalents and
short-term investments among counterparties to minimize exposure to
any one of these entities.
Short Term
Rating
A-1
P-2
F1
Long Term
Rating
A
A3
A
Outlook
Stable
Positive
Stable
We use foreign currency forward exchange contracts to manage certain
foreign currency risks. We enter into these contracts to hedge our exposure
to foreign currency exchange rate variability in the expected future cash flows
associated with certain third-party sales and intercompany transactions
denominated in foreign currencies forecasted to occur within the next
two years. We also enter into these contracts to offset transaction gains
or losses associated with some of our assets and liabilities resulting
from intercompany loans or other transactions with third parties that are
denominated in currencies other than our entities’ functional currencies.
Our foreign currency forward exchange contracts are usually denominated
in currencies of major industrial countries. We diversify our foreign currency
forward exchange contracts among counterparties to minimize exposure
to any one of these entities.
Cash dividends to shareowners were $320.5 million in 2014 ($2.32 per
common share), $276.3 million in 2013 ($1.98 per common share) and
$247.4 million in 2012 ($1.745 per common share). Our quarterly dividend
rate as of September 30, 2014 is $0.58 per common share ($2.32 per
common share annually), which is determined at the sole discretion of
our Board of Directors.
A summary of our projected contractual cash obligations at September 30, 2014 are (in millions):
Payments by Period
$
Thereafter
1,947.8
Long-term debt and interest(a)
76.2
Minimum operating lease payments
49.9
Postretirement benefits(b)
—
Pension funding contribution(c)
12.0
Purchase obligations(d)
—
Other long-term liabilities(e)
—
Unrecognized tax benefits(f)
TOTAL
2,085.9
(a) The amounts for long-term debt assume that the respective debt instruments will be outstanding until their scheduled maturity dates. The amounts include interest, but exclude
Total
2,461.2 $
339.8
122.2
45.5
77.0
77.9
47.0
3,170.6 $
2019
42.8 $
31.4
13.2
—
9.4
—
—
96.8 $
2018
299.9 $
40.3
13.9
—
9.2
—
—
2017
56.9 $
51.1
14.6
—
9.1
—
—
2015
56.9 $
78.7
15.2
45.5
25.6
3.8
—
2016
56.9 $
62.1
15.4
—
11.7
—
—
225.7 $
146.1 $
131.7 $
363.3 $
$
the unamortized discount of $44.8 million. See Note 5 in the Financial Statements for more information regarding our long-term debt.
(b) Our postretirement plans are unfunded and are subject to change. Amounts reported are estimates of future benefit payments, to the extent estimable.
(c) Amounts reported for pension funding contributions reflect current estimates of known commitments. Contributions to our pension plans beyond 2015 will depend on future
investment performance of our pension plan assets, changes in discount rate assumptions and governmental regulations in effect at the time. Amounts subsequent to 2015
are excluded from the summary above, as these amounts cannot be estimated with certainty. The minimum contribution for our U.S. pension plan as required by the Employee
Retirement Income Security Act (ERISA) is currently zero. We may make additional contributions to this plan at the discretion of management.
(d) This item includes long-term obligations under agreements with various service providers and contractual commitments for capital expenditures.
(e) Other long-term liabilities include environmental liabilities, asset retirement obligations and indemnifications, net of related receivables. Amounts subsequent to 2015 are
excluded from the summary above, as we are unable to make a reasonably reliable estimate of when the liabilities will be paid.
(f) Amount for unrecognized tax benefits includes accrued interest and penalties. We are unable to make a reasonably reliable estimate of when the liabilities for unrecognized tax
benefits will be settled or paid.
21
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Supplemental Sales Information
We translate sales of subsidiaries operating outside of the United States
using exchange rates effective during the respective period. Therefore,
changes in currency exchange rates affect our reported sales. Sales by
businesses we acquired also affect our reported sales. We believe that
organic sales, defined as sales excluding the effects of changes in currency
exchange rates and acquisitions, which is a non-GAAP financial measure,
provides useful information to investors because it reflects regional and
operating segment performance from the activities of our businesses
without the effect of changes in currency exchange rates and acquisitions.
We use organic sales as one measure 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 same currency exchange rates that were in effect during the
prior year. When we acquire businesses, we exclude sales in the current
period 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. We attribute sales to the geographic regions based on
the country of destination.
The following is a reconciliation of our reported sales to organic sales (in millions):
United States
Canada
Europe, Middle East and Africa
Asia Pacific
Latin America
TOTAL COMPANY SALES
$
$
United States
Canada
Europe, Middle East and Africa
Asia Pacific
Latin America
TOTAL COMPANY SALES
$
$
Sales
3,414.6 $
437.0
1,351.8
884.0
536.1
6,623.5 $
Sales
3,202.9 $
468.7
1,284.9
851.9
543.5
6,351.9 $
Year Ended September 30, 2014
Sales Excluding
Changes in
Currency
Effect of
Acquisitions
3,422.3 $
465.6
1,323.5
896.9
576.3
6,684.6 $
Organic Sales
3,421.4
$
465.6
1,312.9
896.9
576.3
6,673.1
$
(0.9) $
—
(10.6)
—
—
(11.5) $
Effect of
Changes in
Currency
7.7
28.6
(28.3)
12.9
40.2
61.1
$
$
Year Ended September 30, 2013
Sales Excluding
Changes in
Currency
Effect of
Changes in
Currency
Effect of
Acquisitions
0.8 $
4.4
(2.9)
4.2
19.4
25.9 $
3,203.7 $
473.1
1,282.0
856.1
562.9
6,377.8 $
Organic Sales
3,201.6
$
473.1
1,282.0
845.4
562.9
6,365.0
$
(2.1) $
—
—
(10.7)
—
(12.8) $
The following is a reconciliation of our reported sales by operating segment to organic sales (in millions):
Year Ended September 30, 2014
Sales Excluding
Changes in
Currency
Effect of
Changes in
Currency
Effect of
Acquisitions
19.6 $
41.5
61.1 $
2,864.9 $
3,819.7
6,684.6 $
Organic Sales
2,864.0
3,809.1
6,673.1
$
$
(0.9) $
(10.6)
(11.5) $
Year Ended September 30, 2013
Sales Excluding
Changes in
Currency
Effect of
Changes in
Currency
Effect of
Acquisitions
10.7 $
15.2
25.9 $
2,692.7 $
3,685.1
6,377.8 $
Organic Sales
2,692.7
3,672.3
6,365.0
$
$
— $
(12.8)
(12.8) $
Year Ended
September 30, 2013
Year Ended
September 30, 2012
Year Ended
September 30, 2013
Year Ended
September 30, 2012
Sales
3,202.9
468.7
1,284.9
851.9
543.5
6,351.9
Sales
3,067.3
464.3
1,280.6
942.4
504.8
6,259.4
Sales
2,682.0
3,669.9
6,351.9
Sales
2,650.4
3,609.0
6,259.4
Architecture & Software
Control Products & Solutions
TOTAL COMPANY SALES
Architecture & Software
Control Products & Solutions
TOTAL COMPANY SALES
Sales
2,845.3 $
3,778.2
6,623.5 $
Sales
2,682.0 $
3,669.9
6,351.9 $
$
$
$
$
22
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical accounting Policies and Estimates
We have prepared the consolidated financial statements in accordance
with accounting principles generally accepted in the United States,
which require us to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated
financial statements and revenues and expenses during the periods
reported. Actual results could differ from those estimates. We believe
the following critical accounting policies could have the most significant
effect on our reported results or require subjective or complex judgments
by management.
retirement Benefits — Pension
Pension costs and obligations are actuarially determined and are influenced
by assumptions used to estimate these amounts, including the discount
rate, the expected rate of return on plan assets, the assumed annual
compensation increase rate, the retirement rate, the mortality rate and
the employee turnover rate. Changes in any of the assumptions and the
amortization of differences between the assumptions and actual experience
will affect the amount of pension expense in future periods.
Our global pension expense in 2014 was $131.7 million compared to
$168.1 million in 2013. Approximately 72 percent of our 2014 global pension
expense relates to our U.S. pension plan. The actuarial assumptions used to
determine our 2014 U.S. pension expense included the following: discount
rate of 5.05 percent (compared to 4.15 percent for 2013); expected rate
of return on plan assets of 7.50 percent (compared to 8.00 percent for
2013); and an assumed long-term compensation increase rate of
3.75 percent (compared to 4.00 percent for 2013).
In 2014, 2013 and 2012, we were not required to make contributions to
satisfy minimum statutory funding requirements in our U.S. pension plans.
However, we made voluntary contributions of $300.0 million to our U.S.
pension plans in 2012.
The table below presents our estimate of net periodic benefit cost in 2015 compared to net periodic benefit cost in 2014 (in millions):
Service cost
Prior service credit amortization
Operating pension cost
Interest cost
Expected return on plan assets
Net actuarial loss amortization
Settlement
Non-operating pension cost
NET PERIODIC BENEFIT COST
$
$
2015
88.0 $
(2.6)
85.4
169.5
(225.5)
120.6
—
64.6
150.0
$
2014
78.5 $
(2.7)
75.8
174.2
(217.9)
99.7
(0.1)
55.9
131.7
$
Change
9.5
0.1
9.6
(4.7)
(7.6)
20.9
0.1
8.7
18.3
For 2015 our U.S. discount rate will decrease to 4.50 percent from 5.05 percent
in 2014. The discount rate was set as of our September 30 measurement
date and was determined by modeling a portfolio of bonds that match
the expected cash flow of our benefit plans. For 2015 our U.S. long-term
compensation increase rate will remain 3.75 percent. We established this
rate by analyzing all elements of compensation that are pension-eligible
earnings.
For 2015 our expected rate of return on U.S. plan assets will remain 7.50
percent. In estimating the expected return on plan assets, we considered
actual returns on plan assets over the long term, adjusted for forward-looking
considerations, such as inflation, interest rates, equity performance and
the active management of the plans’ invested assets. We also considered
our current and expected mix of plan assets in setting this assumption.
The financial markets produced strong results in 2014. The plan’s debt
securities return exceeded the expected return range in 2014, as lower
market interest rates resulted in higher bond values. The plan’s equity
securities return exceeded the expected return range in 2014, largely
due to higher U.S. equity returns. The actual return for our portfolio of
U.S. plan assets was approximately 7.20 percent annualized for the
15 years ended September 30, 2014, and was approximately 9.50 percent
annualized for the 20 years ended September 30, 2014.
The target allocations and ranges of long-term expected return for our major categories of U.S. plan assets are as follows:
Asset Category
Equity securities
Debt securities
Other
Target
Allocations
55%
40%
5%
Expected Return
9% – 10%
4% – 6%
6% – 11%
The changes in our discount rate and return on plan assets have an inverse relationship with our net periodic benefit cost. The change in our discount
rate also has an inverse relationship with our projected benefit obligation. The change in our compensation increase rate has a direct relationship with
our net periodic benefit cost and projected benefit obligation.
The following chart illustrates the estimated approximate change in projected benefit obligation and annual net periodic benefit cost assuming a change
of 25 basis points in the key assumptions for our U.S. pension plans (in millions):
Discount rate
Return on plan assets
Compensation increase rate
(1) Change includes both operating and non-operating pension costs.
More information regarding pension benefits is contained in Note 11 in the Financial Statements.
Pension Benefits
Change in
Projected Benefit
Obligation
$
114.5 $
—
21.8
Change in
Net Periodic
Benefit Cost(1)
10.9
6.1
4.5
23
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
revenue recognition
Litigation, Claims and Contingencies
For approximately 85 percent of our consolidated sales, we record sales when
all of the following have occurred: persuasive evidence of a sales agreement
exists; pricing is fixed or determinable; collection is reasonably assured; and
product has been delivered and acceptance has occurred, as may be required
according to contract terms, or services have been rendered. Within this
category, we will at times enter into arrangements that involve the delivery
of multiple products and/or the performance of services, such as installation
and commissioning. The timing of delivery, though varied based upon the
nature of the undelivered component, is generally short-term in nature. For
these arrangements, revenue is allocated to each deliverable based on that
element’s relative selling price, provided the delivered element has value to
customers on a standalone basis and, if the arrangement includes a general
right of return, delivery or performance of the undelivered items is probable
and substantially in our control. Relative selling price is obtained from sources
such as vendor-specific objective evidence, which is based on the separate
selling price for that or a similar item, or from third-party evidence such as
how competitors have priced similar items. If such evidence is not available,
we use our best estimate of the selling price, which includes various internal
factors such as our pricing strategy and market factors.
We recognize substantially all of the remainder of our sales as construction-
type contracts using either the percentage-of-completion or completed
contract methods of accounting. We record sales relating to these contracts
using the percentage-of-completion method when we determine that
progress toward completion is reasonably and reliably estimable; we use
the completed contract method for all others. Under the percentage-
of-completion method, we recognize sales and gross profit as work is
performed using the relationship between actual costs incurred and total
estimated costs at completion. Under the percentage-of-completion
method, we adjust sales and gross profit for revisions of estimated total
contract costs or revenue in the period the change is identified. We record
estimated losses on contracts when they are identified.
We use contracts and customer purchase orders to determine the existence
of a sales agreement. We use shipping documents and customer acceptance,
when applicable, to verify delivery. We assess whether the fee is fixed or
determinable based on the payment terms associated with the transaction
and whether the sales price is subject to refund or adjustment. We assess
collectibility based on the creditworthiness of the customer as determined by
credit evaluations and analysis, as well as the customer’s payment history.
returns, rebates and Incentives
Our primary incentive program provides distributors with cash rebates or
account credits based on agreed amounts that vary depending on the
customer to whom our distributor ultimately sells the product. We also offer
various other incentive programs that provide distributors and direct sale
customers with cash rebates, account credits or additional products and
services based on meeting specified program criteria. Certain distributors
are offered a right to return product, subject to contractual limitations.
We record accruals for customer returns, rebates and incentives at the
time of revenue recognition based primarily on historical experience.
Adjustments to the accrual may be required if actual returns, rebates
and incentives differ from historical experience or if there are changes to
other assumptions used to estimate the accrual. A critical assumption
used in estimating the accrual for our primary distributor rebate program
is the time period from when revenue is recognized to when the rebate
is processed. If the time period were to change by 10 percent, the effect
would be an adjustment to the accrual of approximately $10.8 million.
Returns, rebates and incentives are recognized as a reduction of sales if
distributed in cash or customer account credits. Rebates and incentives
are recognized in cost of sales for additional products and services to be
provided. Accruals are reported as a current liability in our balance sheet
or, where a right of setoff exists, as a reduction of accounts receivable. The
accrual for customer returns, rebates and incentives was $195.6 million at
September 30, 2014 and $184.0 million at September 30, 2013, of which
$11.6 million at September 30, 2014 and $8.9 million at September 30,
2013 was included as an offset to accounts receivable.
We record liabilities for litigation, claims and contingencies when an obligation
is probable and when we have a basis to reasonably estimate its value.
We also record liabilities for environmental matters based on estimates for
known environmental remediation exposures. The liabilities include expenses
for sites we currently own or operate or formerly owned or operated and
third party sites where we were determined to be a potentially responsible
party. At third-party environmental sites where more than one potentially
responsible party has been identified, we record a liability for our estimated
allocable share of costs related to our involvement with the site, as well
as an estimated allocable share of costs related to the involvement of
insolvent or unidentified parties. If we determine that recovery from insurers
or other third parties is probable and a right of setoff exists, we record the
liability net of the estimated recovery. If we determine that recovery from
insurers or other third parties is probable, but a right of setoff does not
exist, we record a liability for the total estimated costs of remediation and
a receivable for the estimated recovery. At environmental sites where we
are the only responsible party, we record a liability for the total estimated
costs of remediation. Ongoing operating and maintenance expenditures
included in our environmental remediation obligations are discounted to
present value over the probable future remediation period. Our remaining
environmental remediation obligations are undiscounted due to subjectivity
of timing and/or amount of future cash payments. Environmental liability
estimates may be affected by changing determinations of what constitutes
an environmental exposure or an acceptable level of cleanup. To the extent
that the required remediation procedures or timing of those procedures
change, additional contamination is identified, or the financial condition
of other potentially responsible parties is adversely affected, the estimate
of our environmental liabilities may change.
Our accrual for environmental matters was $48.2 million, net of $39.7 million
of related receivables, and $47.5 million, net of $35.1 million of related
receivables, at September 30, 2014 and 2013, respectively. Our recorded
liability for environmental matters relates almost entirely to businesses
formerly owned by us (legacy businesses) for which we retained the
responsibility to remediate. The nature of our current business is such
that the likelihood of new environmental exposures that could result in
a significant charge to earnings is low. As a result of remediation efforts
at legacy sites and limited new environmental matters, we expect that
gradually, over a long period of time, our environmental obligations will
decline. However, changes in required remediation procedures or timing of
those procedures at existing legacy sites, or discovery of contamination at
additional sites, could result in increases to our environmental obligations.
Our principal self-insurance programs include product liability where we
are self-insured up to a specified dollar amount. Claims exceeding this
amount up to specified limits are covered by insurance policies issued by
commercial insurers. We estimate the reserve for product liability claims
using our claims experience for the periods being valued. Adjustments to
the product liability reserves may be required to reflect emerging claims
experience and other factors such as inflationary trends or the outcome
of claims. The reserve for product liability claims was $22.3 million and
$21.0 million as of September 30, 2014 and 2013, respectively.
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against us relating to the conduct of our business. As described
in Part I, Item 3. Legal Proceedings, we have been named as a defendant
in lawsuits alleging personal injury as a result of exposure to asbestos that
was used in certain components of our products many years ago. See
Part I, Item 3 for further discussion.
We accrue for costs related to the legal obligation associated with the
retirement of a tangible long-lived asset that results from the acquisition,
construction, development or the normal operation of the long-lived asset.
The obligation to perform the asset retirement activity is not conditional
even though the timing or method may be conditional. Identified conditional
asset retirement obligations include asbestos abatement and remediation
of soil contamination beneath current and previously divested facilities.
We estimate conditional asset retirement obligations using site-specific
knowledge and historical industry expertise. A significant change in
the costs or timing could have a significant effect on our estimates.
24
Rockwell Automation, Inc. - Form 10-K Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
We recorded these liabilities in the Consolidated Balance Sheet, which totaled
$0.3 million and $2.3 million in other current liabilities at September 30,
2014 and 2013, respectively, and $21.9 million and $22.0 million in other
liabilities at September 30, 2014 and 2013, respectively.
In conjunction with the sale of our Dodge mechanical and Reliance Electric
motors and motor repair services businesses, we agreed to indemnify Baldor
Electric Company for costs and damages related to certain legacy legal,
environmental and asbestos matters of these businesses arising before
January 31, 2007, for which the maximum exposure is capped at the
amount received for the sale. We estimate the potential future payments
we could incur under these indemnifications may approximate $9.2 million,
of which $0.8 million and $0.3 million has been accrued in other current
liabilities at September 30, 2014 and 2013, respectively, and $7.0 million
and $9.2 million has been accrued in other liabilities at September 30,
2014 and 2013, respectively. A significant change in the costs or timing
could have a significant effect on our estimates.
More information regarding litigation, claims and contingencies is contained
in Note 14 in the Financial Statements.
Income taxes
We operate in numerous taxing jurisdictions and are subject to regular
examinations by U.S. federal, state and non-U.S. taxing authorities.
Additionally, we have retained tax liabilities and the rights to tax refunds
in connection with various divestitures of businesses in prior years. Our
income tax positions are based on research and interpretations of the
income tax laws and rulings in each of the jurisdictions in which we do
business. Due to the ambiguity of laws and rulings in each jurisdiction,
the differences and interplay in tax laws between those jurisdictions, the
uncertainty of how underlying facts may be construed and the inherent
uncertainty in estimating the final resolution of complex tax audit matters,
our estimates of income tax liabilities may differ from actual payments or
assessments.
While we have support for the positions we take on our tax returns, taxing
authorities may assert interpretations of laws and facts and may challenge
cross-jurisdictional transactions. Cross-jurisdictional transactions between
our subsidiaries involving the transfer price for products, services, and/or
intellectual property as well as various U.S. state tax matters comprise our
more significant income tax reserves. The gross liability for unrecognized tax
benefits, excluding interest and penalties, was recorded in other liabilities
in the Consolidated Balance Sheet in the amount of $38.9 million and
$40.8 million at September 30, 2014 and 2013, respectively, of which the
entire amount would reduce our effective tax rate if recognized. Accrued
interest and penalties related to unrecognized tax benefits were $8.1 million
and $12.4 million at September 30, 2014 and 2013, respectively. We
recognize interest and penalties related to unrecognized tax benefits in the
income tax provision. If the unrecognized tax benefits were recognized,
the net impact on our income tax provision, including the recognition of
interest and penalties and offsetting tax assets, would be $22.9 million
as of September 30, 2014. We believe it is reasonably possible that the
amount of gross unrecognized tax benefits could be reduced by up to
$23.8 million in the next 12 months as a result of the resolution of tax matters
in various global jurisdictions and the lapses of statutes of limitations. If
the unrecognized tax benefits were recognized, the net reduction to our
income tax provision, including the recognition of interest and penalties
and offsetting tax assets, could be up to $9.1 million.
We recorded a valuation allowance for a portion of our deferred tax assets
related to net operating loss, tax credit, and capital loss carryforwards
(Carryforwards) and certain temporary differences in the amount of
$27.8 million at September 30, 2014 and $28.3 million at September 30,
2013 based on the projected profitability of the entity in the respective
tax jurisdiction. The valuation allowance is based on an evaluation of the
uncertainty that the Carryforwards and certain temporary differences will
be realized. Our income would increase if we determine we will be able
to use more Carryforwards or certain temporary differences than currently
expected. Conversely, our income would decrease if we determine we
are unable to realize our deferred tax assets in the future.
Our consolidated financial statements provide for tax liability on undistributed
earnings of our subsidiaries that will be repatriated to the U.S. As of
September 30, 2014, we have not provided U.S. deferred taxes for
$2,781.0 million of such earnings, since these earnings have been, and
under current plans will continue to be, permanently reinvested outside
the U.S.
At the end of each interim reporting period, we estimate a base effective
tax rate that we expect for the full fiscal year based on our most recent
forecast of pretax income, permanent book and tax differences and
global tax planning strategies. We use this base rate to provide for income
taxes on a year-to-date basis, excluding the effect of significant unusual
or extraordinary items and items that are reported net of their related tax
effects. We record the tax effect of significant unusual or extraordinary
items and items that are reported net of their tax effects in the period in
which they occur.
More information regarding income taxes is contained in Note 13 in the
Financial Statements.
recent accounting Pronouncements
See Note 1 in the Financial Statements regarding recent accounting pronouncements.
25
Rockwell Automation, Inc. - Form 10-K Part II
Item 7A Quantitative and Qualitative Disclosures About market Risk
ItEM 7a Quantitative and Qualitative Disclosures
about Market risk
We are exposed to market risk during the normal course of business from changes in foreign currency exchange rates and interest rates. We manage
exposure to these risks through a combination of normal operating and financing activities and derivative financial instruments in the form of foreign
currency forward exchange contracts. We sometimes use interest rate swap contracts to manage the balance of fixed and floating rate debt.
Foreign Currency risk
We are exposed to foreign currency risks that arise from normal business
operations. These risks include the translation of local currency balances
of foreign subsidiaries, transaction gains and losses associated with
intercompany loans with foreign subsidiaries and transactions denominated
in currencies other than a location’s functional currency. Our objective is
to minimize our exposure to these risks through a combination of normal
operating activities and the use of foreign currency forward exchange
contracts. Contracts are usually denominated in currencies of major industrial
countries. The fair value of our foreign currency forward exchange contracts
is an asset of $21.6 million and a liability of $6.2 million at September 30,
2014. We enter into these contracts with major financial institutions that
we believe to be creditworthy.
We do not enter into derivative financial instruments for speculative purposes.
In 2014 and 2013, the relative strengthening of the U.S. dollar against
foreign currencies had an unfavorable impact on our sales and results of
operations. While future changes in foreign currency exchange rates are
difficult to predict, our sales and profitability may be adversely affected if
the U.S. dollar further strengthens relative to 2014 levels.
Certain of our locations have assets and liabilities denominated in currencies
other than their functional currencies. We enter into foreign currency
Interest rate risk
forward exchange contracts to offset the transaction gains or losses
associated with some of these assets and liabilities. For such assets and
liabilities without offsetting foreign currency forward exchange contracts,
a 10 percent adverse change in the underlying foreign currency exchange
rates would reduce our pre-tax income by approximately $29.7 million.
We record all derivatives on the balance sheet at fair value regardless of
the purpose for holding them. The use of these contracts allows us to
manage transactional exposure to exchange rate fluctuations as the gains
or losses incurred on the foreign currency forward exchange contracts will
offset, in whole or in part, losses or gains on the underlying foreign currency
exposure. Derivatives that are not designated as hedges for accounting
purposes are adjusted to fair value through earnings. For derivatives
that are hedges, depending on the nature of the hedge, changes in fair
value are either offset by changes in the fair value of the hedged assets,
liabilities or firm commitments through earnings or recognized in other
comprehensive loss until the hedged item is recognized in earnings. We
recognize the ineffective portion of a derivative’s change in fair value in
earnings immediately. The ineffective portion was not significant in 2014
and 2013. A hypothetical 10 percent adverse change in underlying foreign
currency exchange rates associated with these contracts would not be
significant to our financial condition or results of operations.
In addition to existing cash balances and cash provided by normal
operating activities, we use a combination of short-term and long-term
debt to finance operations. We are exposed to interest rate risk on certain
of these debt obligations.
Our short-term debt obligations relate to commercial paper borrowings and
bank borrowings. Commercial paper borrowings outstanding at September 30,
2014 were $325.0 million with remaining maturities of seven days at
a weighted average interest rate of 0.17 percent. Commercial paper
borrowings at September 30, 2013 were $179.0 million with remaining
maturities of five days at a weighted average interest rate of 0.17 percent.
As these obligations mature, we issued, and anticipate continuing to issue,
additional short-term commercial paper obligations to refinance all or part
of these borrowings. Changes in market interest rates on commercial paper
borrowings affect our results of operations. In 2014 and 2013, a 100 basis
point increase in average market interest rates would have increased our
interest expense by $2.8 million and $2.1 million, respectively.
We had outstanding fixed rate long-term debt obligations with a carrying
value of $905.6 million at September 30, 2014 and $905.1 million at
September 30, 2013. The fair value of this debt was $1,119.4 million
at September 30, 2014 and $1,072.2 million at September 30, 2013. The
potential reduction in fair value on such fixed-rate debt obligations from
a hypothetical 10 percent increase in market interest rates would not be
material to the overall fair value of the debt. We currently have no plans
to repurchase our outstanding fixed-rate instruments before their maturity
and, therefore, fluctuations in market interest rates would not have an
effect on our results of operations or shareowners’ equity.
26
Rockwell Automation, Inc. - Form 10-K ItEM 8 Financial Statements and Supplementary Data
Part II
Item 8 Financial Statements and Supplementary Data
Consolidated Balance Sheet
(in millions, except per share amounts)
aSSEtS
Current assets:
Cash and cash equivalents
Short-term investments
Receivables
Inventories
Deferred income taxes
Other current assets
Total current assets
Property, net
Goodwill
Other intangible assets, net
Deferred income taxes
Other assets
TOTAL
LIaBILItIES aND SHarEOWNErS’ EQUItY
Current liabilities:
Short-term debt
Accounts payable
Compensation and benefits
Advance payments from customers and deferred revenue
Customer returns, rebates and incentives
Other current liabilities
Total current liabilities
Long-term debt
Retirement benefits
Other liabilities
Commitments and contingent liabilities (Note 14)
Shareowners’ equity:
Common stock ($1.00 par value, shares issued: 181.4)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Common stock in treasury, at cost (shares held: 2014, 44.7; 2013, 42.5)
Total shareowners’ equity
TOTAL
See Notes to Consolidated Financial Statements.
September 30,
2014
2013
1,191.3 $
628.5
1,215.8
588.4
163.5
146.7
3,934.2
632.9
1,050.6
246.2
205.7
159.9
6,229.5
$
325.0 $
520.6
277.7
196.5
184.0
188.3
1,692.1
905.6
767.9
205.8
181.4
1,512.3
4,839.6
(948.0)
(2,927.2)
2,658.1
6,229.5
$
1,200.9
372.7
1,186.1
615.4
189.5
115.3
3,679.9
616.0
1,023.0
212.8
147.3
165.6
5,844.6
179.0
546.7
236.8
210.9
175.1
196.2
1,544.7
905.1
595.9
213.4
181.4
1,456.0
4,333.4
(817.7)
(2,567.6)
2,585.5
5,844.6
$
$
$
$
27
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Consolidated Statement of Operations
(in millions, except per share amounts)
Sales
Products and solutions
Services
Cost of sales
Products and solutions
Services
Gross profit
Selling, general and administrative expenses
Other income (expense) (Note 12)
Interest expense
Income before income taxes
Income tax provision (Note 13)
NET INCOME
Earnings per share:
Basic
Diluted
Weighted average outstanding shares:
Basic
Diluted
See Notes to Consolidated Financial Statements.
$
$
$
$
Year Ended September 30,
2014
2013
2012
5,933.1 $
690.4
6,623.5
(3,391.3)
(478.3)
(3,869.6)
2,753.9
(1,570.1)
9.7
(59.3)
1,134.2
(307.4)
826.8
$
5.98 $
5.91 $
138.0
139.7
5,706.0 $
645.9
6,351.9
(3,326.4)
(451.7)
(3,778.1)
2,573.8
(1,537.7)
5.7
(60.9)
980.9
(224.6)
756.3
$
5.43 $
5.36 $
139.2
140.9
5,656.1
603.3
6,259.4
(3,315.9)
(420.8)
(3,736.7)
2,522.7
(1,491.7)
(5.0)
(60.1)
965.9
(228.9)
737.0
5.20
5.13
141.5
143.4
Consolidated Statement of Comprehensive Income
(in millions)
Net income
Other comprehensive income (loss):
Pension and other postretirement benefit plan adjustments
(net of tax (benefit) expense of ($27.6), $232.1, and ($103.1))
Currency translation adjustments
Net change in unrealized gains and losses on cash flow hedges
(net of tax expense (benefit) of $1.9, ($1.8), and ($3.1))
Other comprehensive income (loss)
COMPREHENSIVE INCOME
See Notes to Consolidated Financial Statements.
Year Ended September 30,
2014
826.8 $
2013
756.3 $
(85.6)
(61.3)
16.6
(130.3)
696.5 $
402.2
8.3
(2.9)
407.6
1,163.9 $
2012
737.0
(192.4)
(35.0)
(5.0)
(232.4)
504.6
$
$
28
Rockwell Automation, Inc. - Form 10-K
Consolidated Statement of Cash Flows
Part II
Item 8 Financial Statements and Supplementary Data
(in millions)
Continuing operations:
Operating activities:
Net income
Adjustments to arrive at cash provided by operating activities:
Depreciation
Amortization of intangible assets
Share-based compensation expense
Retirement benefit expense
Pension contributions
Deferred income taxes
Net loss on disposition of property
Income tax benefit from the exercise of stock options
Excess income tax benefit from share-based compensation
Changes in assets and liabilities, excluding effects of acquisitions, divestitures,
and foreign currency adjustments:
Receivables
Inventories
Accounts payable
Compensation and benefits
Income taxes
Other assets and liabilities
CaSH PrOVIDED BY OPEratING aCtIVItIES
Investing activities:
Capital expenditures
Acquisition of businesses, net of cash acquired
Purchases of short-term investments
Proceeds from maturities of short-term investments
Proceeds from sale of property
Other investing activities
CaSH USED FOr INVEStING aCtIVItIES
Financing activities:
Net issuance of short-term debt
Cash dividends
Purchases of treasury stock
Proceeds from the exercise of stock options
Excess income tax benefit from share-based compensation
Other financing activities
CaSH USED FOr FINaNCING aCtIVItIES
Effect of exchange rate changes on cash
Cash (used for) provided by continuing operations
Discontinued operations:
Cash used for discontinued operating activities
Cash used for discontinued operations
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
CASH AND CASH EQUIVALENTS AT END OF YEAR
See Notes to Consolidated Financial Statements.
Year Ended September 30,
2014
2013
2012
$
826.8 $
756.3 $
737.0
122.5
30.0
42.5
132.9
(42.1)
(7.2)
0.6
0.1
(29.9)
(53.7)
12.9
(20.7)
43.3
1.8
(26.5)
1,033.3
(141.0)
(81.5)
(705.7)
447.8
0.4
(3.4)
(483.4)
146.0
(320.5)
(485.7)
108.5
29.9
—
(521.8)
(37.7)
(9.6)
113.8
31.4
41.1
170.4
(41.3)
(6.5)
0.5
2.1
(31.9)
(12.3)
0.8
3.3
(8.5)
33.8
(38.2)
1,014.8
(146.2)
(84.8)
(372.2)
350.0
0.5
(4.1)
(256.8)
22.0
(276.3)
(402.7)
172.3
31.9
(1.8)
(454.6)
0.6
304.0
—
—
(9.6)
1,200.9
1,191.3
$
(7.0)
(7.0)
297.0
903.9
1,200.9
$
$
103.9
34.7
43.5
105.9
(341.1)
82.2
1.0
0.7
(18.5)
(135.7)
21.4
90.2
(67.0)
35.7
24.8
718.7
(139.6)
(16.2)
(487.5)
137.5
2.6
—
(503.2)
157.0
(247.4)
(259.4)
49.0
18.5
(0.4)
(282.7)
(16.8)
(84.0)
(1.0)
(1.0)
(85.0)
988.9
903.9
29
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Consolidated Statement of Shareowners’ Equity
(in millions, except per share amounts)
Common stock (no shares issued during years)
additional paid-in capital
Beginning balance
Income tax benefits from share-based compensation
Share-based compensation expense
Shares delivered under incentive plans
Ending balance
retained earnings
Beginning balance
Net income
Cash dividends (2014, $2.32 per share; 2013, $1.98 per share;
2012, $1.745 per share)
Shares delivered under incentive plans
Ending balance
accumulated other comprehensive loss
Beginning balance
Other comprehensive (loss) income
Ending balance
treasury stock
Beginning balance
Purchases
Shares delivered under incentive plans
Ending balance
TOTAL SHAREOWNERS’ EQUITY
See Notes to Consolidated Financial Statements.
Year Ended September 30,
2014
181.4
$
2013
181.4
$
1,456.0
41.6
29.8
(15.1)
1,512.3
4,333.4
826.8
(320.5)
(0.1)
4,839.6
(817.7)
(130.3)
(948.0)
(2,567.6)
(483.8)
124.2
(2,927.2)
2,658.1
$
1,416.7
34.0
40.2
(34.9)
1,456.0
3,858.8
756.3
(276.3)
(5.4)
4,333.4
(1,225.3)
407.6
(817.7)
(2,379.9)
(401.5)
213.8
(2,567.6)
2,585.5
$
2012
181.4
1,381.4
19.2
42.7
(26.6)
1,416.7
3,382.8
737.0
(247.4)
(13.6)
3,858.8
(992.9)
(232.4)
(1,225.3)
(2,204.7)
(265.3)
90.1
(2,379.9)
1,851.7
$
$
30
Rockwell Automation, Inc. - Form 10-K
PART II
Part II
Item 8 Financial Statements and Supplementary Data
ItEM 8 Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
NOtE 1
Basis of Presentation and accounting Policies
Rockwell Automation, Inc. (the Company or Rockwell Automation) is a
leading global provider of industrial automation power, control and information
solutions that help manufacturers achieve competitive advantages for
their businesses.
Basis of Presentation
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned and controlled majority-owned
subsidiaries. Intercompany accounts and transactions have been eliminated
in consolidation. Investments in affiliates over which we do not have control
but exercise significant influence are accounted for using the equity method
of accounting. These affiliated companies are not material individually or in
the aggregate to our financial position, results of operations or cash flows.
Use of Estimates
The preparation of consolidated financial statements in accordance
with U.S. GAAP requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
consolidated financial statements and revenues and expenses during the
periods reported. Actual results could differ from those estimates. We use
estimates in accounting for, among other items, customer returns, rebates
and incentives; allowance for doubtful accounts; excess and obsolete
inventory; share-based compensation; acquisitions; product warranty
obligations; retirement benefits; litigation, claims and contingencies,
including environmental matters, conditional asset retirement obligations
and contractual indemnifications; and income taxes. We account for
changes to estimates and assumptions prospectively when warranted
by factually based experience.
revenue recognition
We recognize revenue when it is realized or realizable and earned. Product
and solution sales consist of industrial automation power, control and
information; hardware and software products; and custom-engineered
systems. Service sales include multi-vendor customer technical support
and repair, asset management and optimization consulting and training.
All service sales recorded in the Consolidated Statement of Operations
are associated with our Control Products & Solutions segment.
For approximately 85 percent of our consolidated sales, we record sales
when all of the following have occurred: persuasive evidence of a sales
agreement exists; pricing is fixed or determinable; collection is reasonably
assured; and product has been delivered and acceptance has occurred,
as may be required according to contract terms, or services have been
rendered. Within this category, we will at times enter into arrangements
that involve the delivery of multiple products and/or the performance of
services, such as installation and commissioning. The timing of delivery,
though varied based upon the nature of the undelivered component,
is generally short-term in nature. For these arrangements, revenue is
allocated to each deliverable based on that element’s relative selling price,
provided the delivered element has value to customers on a standalone
basis and, if the arrangement includes a general right of return, delivery
or performance of the undelivered items is probable and substantially
in our control. Relative selling price is obtained from sources such as
vendor-specific objective evidence, which is based on the separate selling
price for that or a similar item, or from third-party evidence such as how
competitors have priced similar items. If such evidence is not available, we
use our best estimate of the selling price, which includes various internal
factors such as our pricing strategy and market factors.
We recognize substantially all of the remainder of our sales as construction-
type contracts using either the percentage-of-completion or completed
contract method of accounting. We record sales relating to these contracts
using the percentage-of-completion method when we determine that
progress toward completion is reasonably and reliably estimable; we use
the completed contract method for all others. Under the percentage-
of-completion method, we recognize sales and gross profit as work is
performed using the relationship between actual costs incurred and total
estimated costs at completion. Under the percentage-of-completion
method, we adjust sales and gross profit for revisions of estimated total
contract costs or revenue in the period the change is identified. We record
estimated losses on contracts when they are identified.
We use contracts and customer purchase orders to determine the
existence of a sales agreement. We use shipping documents and customer
acceptance, when applicable, to verify delivery. We assess whether the
fee is fixed or determinable based on the payment terms associated
with the transaction and whether the sales price is subject to refund or
adjustment. We assess collectibility based on the creditworthiness of the
customer as determined by credit evaluations and analysis, as well as the
customer’s payment history.
Shipping and handling costs billed to customers are included in sales
and the related costs are included in cost of sales in the Consolidated
Statement of Operations.
returns, rebates and Incentives
Our primary incentive program provides distributors with cash rebates or
account credits based on agreed amounts that vary depending on the
customer to whom our distributor ultimately sells the product. We also offer
various other incentive programs that provide distributors and direct sale
customers with cash rebates, account credits or additional products and
services based on meeting specified program criteria. Certain distributors
are offered a right to return product, subject to contractual limitations.
We record accruals for customer returns, rebates and incentives at the
time of sale based primarily on historical experience. Returns, rebates and
incentives are recognized as a reduction of sales if distributed in cash or
customer account credits. Rebates and incentives are recognized in cost
of sales for additional products and services to be provided. Accruals are
reported as a current liability in our balance sheet or, where a right of setoff
exists, as a reduction of accounts receivable.
taxes on revenue Producing transactions
Taxes assessed by governmental authorities on revenue producing
transactions, including sales, value added, excise and use taxes, are
recorded on a net basis (excluded from revenue).
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and certificates of deposit
with original maturities of three months or less at the time of purchase.
31
Rockwell Automation, Inc. - Form 10-K Part II
Item 8 Financial Statements and Supplementary Data
Short-term Investments
Short-term investments include time deposits and certificates of deposit
with original maturities longer than three months but no longer than one
year at the time of purchase. These investments are stated at cost, which
approximates fair value.
asset is impaired, we measure the impairment to be recognized as the
amount by which the recorded amount of the asset exceeds its fair value.
We report assets to be disposed of at the lower of the recorded amount
or fair value less cost to sell. We determine fair value using a discounted
future cash flow analysis.
receivables
We record an allowance for doubtful accounts based on customer-specific
analysis and general matters such as current assessments of past due
balances and economic conditions. Receivables are stated net of an
allowance for doubtful accounts of $19.4 million at September 30, 2014
and $22.5 million at September 30, 2013. In addition, receivables are stated
net of an allowance for certain customer returns, rebates and incentives of
$11.6 million at September 30, 2014 and $8.9 million at September 30, 2013.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) or average cost methods. Market is determined on the
basis of estimated realizable values.
Property
Property, including internal-use software, is stated at cost. We calculate
depreciation of property using the straight-line method over 5 to 40 years for
buildings and improvements, 3 to 20 years for machinery and equipment and
3 to 8 years for computer hardware and internal-use software. We capitalize
significant renewals and enhancements and write off replaced units. We
expense maintenance and repairs, as well as renewals of minor amounts.
Intangible assets
Goodwill and other intangible assets generally result from business
acquisitions. We account for business acquisitions by allocating the
purchase price to tangible and intangible assets acquired and liabilities
assumed at their fair values; the excess of the purchase price over the
allocated amount is recorded as goodwill.
We review goodwill and other intangible assets with indefinite useful lives
for impairment annually or more frequently if events or circumstances
indicate impairment may be present. Any excess in carrying value over
the estimated fair value is charged to results of operations. We perform
an annual impairment test during the second quarter of our fiscal year.
We amortize certain customer relationships on an accelerated basis over
the period of which we expect the intangible asset to generate future cash
flows. We amortize all other intangible assets with finite useful lives on a
straight-line basis over their estimated useful lives. Useful lives assigned range
from 3 to 15 years for trademarks, 8 to 20 years for customer relationships,
5 to 17 years for technology and 5 to 30 years for other intangible assets.
Intangible assets also include costs of software developed or purchased
by our software business to be sold, leased or otherwise marketed.
Amortization of these computer software products is calculated on a
product-by-product basis as the greater of (a) the unamortized cost at the
beginning of the year times the ratio of the current year gross revenue for
a product to the total of the current and anticipated future gross revenue
for that product or (b) the straight-line amortization over the remaining
estimated economic life of the product.
Impairment of Long-Lived assets
We evaluate the recoverability of the recorded amount of long-lived
assets whenever events or changes in circumstances indicate that the
recorded amount of an asset may not be fully recoverable. Impairment
is assessed when the undiscounted expected future cash flows derived
from an asset are less than its carrying amount. If we determine that an
Derivative Financial Instruments
We use derivative financial instruments in the form of foreign currency
forward exchange contracts to manage certain foreign currency risks.
We enter into these contracts to hedge our exposure to foreign currency
exchange rate variability in the expected future cash flows associated
with certain third-party and intercompany transactions denominated in
foreign currencies expected to occur within the next two years (cash flow
hedges). Our accounting method for derivative financial instruments is
based upon the designation of such instruments as hedges under U.S.
GAAP. We also enter into similar contracts that we do not designate as
hedges to offset transaction gains or losses associated with certain assets
and liabilities resulting from intercompany loans and other transactions with
third parties that are denominated in foreign currencies. It is our policy to
execute such instruments with global financial institutions that we believe
to be creditworthy and not to enter into derivative financial instruments for
speculative purposes. Foreign currency forward exchange contracts are
usually denominated in currencies of major industrial countries.
Foreign Currency translation
We translate assets and liabilities of subsidiaries operating outside of the
United States with a functional currency other than the U.S. dollar into
U.S. dollars using exchange rates at the end of the respective period. We
translate sales, costs and expenses at average exchange rates effective
during the respective period. We report foreign currency translation
adjustments as a component of other comprehensive income (loss).
Currency transaction gains and losses are included in results of operations
in the period incurred.
research and Development Expenses
We expense research and development (R&D) costs as incurred; these
costs were $290.1 million in 2014, $260.7 million in 2013 and $247.6 million
in 2012. We include R&D expenses in cost of sales in the Consolidated
Statement of Operations.
Income taxes
We account for uncertain tax positions by determining whether it is more
likely than not that a tax position will be sustained upon examination based
on the technical merits of the position. For tax positions that meet the
more-likely-than-not recognition threshold, we determine the amount of
benefit to recognize in the consolidated financial statements based on
our assertion of the most likely outcome resulting from an examination,
including the resolution of any related appeals or litigation processes.
Earnings Per Share
We present basic and diluted earnings per share (EPS) amounts. Basic
EPS is calculated by dividing earnings available to common shareowners,
which is income excluding the allocation to participating securities, by
the weighted average number of common shares outstanding during the
year, excluding unvested restricted stock. Diluted EPS amounts are based
upon the weighted average number of common and common equivalent
shares outstanding during the year. We use the treasury stock method to
calculate the effect of outstanding share-based compensation awards,
which requires us to compute total employee proceeds as the sum of
(a) the amount the employee must pay upon exercise of the award, (b) the
amount of unearned share-based compensation costs attributed to future
services and (c) the amount of tax benefits, if any, that would be credited
32
Rockwell Automation, Inc. - Form 10-K Part II
Item 8 Financial Statements and Supplementary Data
to additional paid-in capital assuming exercise of the award. Share-based
compensation awards for which the total employee proceeds of the award
exceed the average market price of the same award over the period have
an antidilutive effect on EPS, and accordingly, we exclude them from the
calculation. Antidilutive share-based compensation awards for the years
ended September 30, 2014 (0.8 million shares), 2013 (1.2 million shares) and
2012 (2.3 million shares) were excluded from the diluted EPS calculation.
U.S. GAAP requires unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents, whether paid
or unpaid, to be treated as participating securities and included in the
computation of earnings per share pursuant to the two-class method.
Our participating securities are composed of unvested restricted stock
and non-employee director restricted stock units.
The following table reconciles basic and diluted EPS amounts (in millions, except per share amounts):
Net income
Less: Allocation to participating securities
Net income available to common shareowners
Basic weighted average outstanding shares
Effect of dilutive securities
Stock options
Performance shares
Diluted weighted average outstanding shares
Earnings per share:
Basic
Diluted
$
$
$
$
2014
826.8 $
(1.1)
825.7 $
138.0
1.5
0.2
139.7
5.98 $
5.91 $
2013
756.3 $
(1.1)
755.2 $
139.2
1.5
0.2
140.9
5.43 $
5.36 $
2012
737.0
(1.4)
735.6
141.5
1.6
0.3
143.4
5.20
5.13
Share-Based Compensation
We recognize share-based compensation expense for equity awards on
a straight-line basis over the service period of the award based on the
fair value of the award as of the grant date.
Product and Workers’ Compensation
Liabilities
We record accruals for product and workers’ compensation claims in
the period in which they are probable and reasonably estimable. Our
principal self-insurance programs include product liability and workers’
compensation where we self-insure up to a specified dollar amount. Claims
exceeding this amount up to specified limits are covered by insurance
policies purchased from commercial insurers. We estimate the liability for
the majority of the self-insured claims using our claims experience for the
periods being valued.
Environmental Matters
We record liabilities for environmental matters in the period in which our
responsibility is probable and the costs can be reasonably estimated. We
make changes to the liabilities in the periods in which the estimated costs
of remediation change. At third-party environmental sites where more
than one potentially responsible party has been identified, we record a
liability for our estimated allocable share of costs related to our involvement
with the site, as well as an estimated allocable share of costs related to
the involvement of insolvent or unidentified parties. If we determine that
recovery from insurers or other third parties is probable and a right of setoff
exists, we record the liability net of the estimated recovery. If we determine
that recovery from insurers or other third parties is probable, but a right of
setoff does not exist, we record a liability for the total estimated costs of
remediation and a receivable for the estimated recovery. At environmental
sites where we are the sole responsible party, we record a liability for the
total estimated costs of remediation. Ongoing operating and maintenance
expenditures included in our environmental remediation obligations are
discounted to present value over the probable future remediation period.
Our remaining environmental remediation obligations are undiscounted
due to subjectivity of timing and/or amount of future cash payments.
Conditional asset retirement Obligations
We record liabilities for costs related to legal obligations associated with the
retirement of a tangible, long-lived asset that results from the acquisition,
construction, development or the normal operation of the long-lived asset.
The obligation to perform the asset retirement activity is not conditional
even though the timing or method may be conditional.
recent accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued a new
standard on revenue recognition from contracts with customers. This
standard supersedes nearly all existing revenue recognition guidance and
involves a five-step approach to recognizing revenue based on individual
performance obligations in a contract. The new standard will also require
additional qualitative and quantitative disclosures about contracts with
customers, significant judgments made in applying the revenue guidance,
and assets recognized from the costs to obtain or fulfill a contract. This
guidance is effective for us for reporting periods beginning October 1, 2017.
We are currently evaluating the impact the adoption of this guidance will
have on our consolidated financial statements and related disclosures.
33
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
NOtE 2
Goodwill and Other Intangible assets
The changes in the carrying amount of goodwill for the years ended September 30, 2014 and 2013 were (in millions):
Balance as of September 30, 2012
Acquisition of businesses
Translation and other
Balance as of September 30, 2013
Acquisition of businesses
Translation
BALANCE AS OF SEPTEMBER 30, 2014
Architecture
& Software
Control
Products &
Solutions
$
$
387.7 $
—
0.1
387.8
7.7
0.1
395.6 $
561.1 $
71.1
3.0
635.2
28.0
(8.2)
655.0
$
Total
948.8
71.1
3.1
1,023.0
35.7
(8.1)
1,050.6
During the year ended September 30, 2014, we recognized goodwill of $35.7 million and intangible assets of $41.4 million resulting from the acquisitions
of vMonitor LLC and its affiliates (vMonitor), a global technology leader for wireless solutions in the oil and gas industry, and Jacobs Automation (Jacobs),
a leader in intelligent track motion control technology. We assigned the full amount of goodwill related to vMonitor to our Control Products & Solutions
segment. We assigned the full amount of goodwill related to Jacobs to our Architecture & Software segment.
During the year ended September 30, 2013, we recognized goodwill of $71.1 million and intangible assets of $11.1 million resulting from the acquisition
of the medium voltage drives business of Harbin Jiuzhou Electric Co., Ltd. (Harbin) located in Harbin, China. The acquisition strengthened our presence
in the Asia-Pacific motor control market by adding significant capabilities in design, engineering and manufacturing of medium voltage drive products.
We assigned the full amount of goodwill to our Control Products & Solutions segment.
Other intangible assets consist of (in millions):
Amortized intangible assets:
Computer software products
Customer relationships
Technology
Trademarks
Other
Total amortized intangible assets
Intangible assets not subject to amortization
TOTAL
Amortized intangible assets:
Computer software products
Customer relationships
Technology
Trademarks
Other
Total amortized intangible assets
Intangible assets not subject to amortization
TOTAL
September 30, 2014
Accumulated
Amortization
Carrying
Amount
169.1 $
89.8
84.0
33.7
15.5
392.1
43.7
435.8 $
82.5 $
45.4
38.2
14.0
9.5
189.6
—
189.6 $
September 30, 2013
Accumulated
Amortization
Carrying
Amount
146.9 $
77.4
66.1
26.4
12.1
328.9
43.7
372.6 $
73.1 $
37.1
30.9
10.7
8.0
159.8
—
159.8 $
$
$
$
$
Net
86.6
44.4
45.8
19.7
6.0
202.5
43.7
246.2
Net
73.8
40.3
35.2
15.7
4.1
169.1
43.7
212.8
Computer software products represent costs of computer software to
be sold, leased or otherwise marketed. Computer software products
amortization expense was $9.4 million in 2014, $13.1 million in 2013 and
$15.9 million in 2012.
The Allen-Bradley® trademark has an indefinite life, and therefore is not
subject to amortization.
Estimated amortization expense is $30.7 million in 2015, $34.1 million in
2016, $30.0 million in 2017, $23.9 million in 2018 and $18.0 million in 2019.
We performed the annual evaluation of our goodwill and indefinite life
intangible assets for impairment as required by U.S. GAAP during the
second quarter of 2014 and concluded that these assets are not impaired.
We did not identify any impairment indicators during the remainder of fiscal
2014 that would require further impairment analysis.
34
Rockwell Automation, Inc. - Form 10-K
NOtE 3
Inventories
Inventories consist of (in millions):
Finished goods
Work in process
Raw materials, parts and supplies
INVENTORIES
NOtE 4
Property, net
Property consists of (in millions):
Land
Buildings and improvements
Machinery and equipment
Internal-use software
Construction in progress
Total
Less accumulated depreciation
PROPERTY, NET
NOtE 5
Long-term and Short-term Debt
Long-term debt consists of (in millions):
5.65% notes, payable in December 2017
6.70% debentures, payable in January 2028
6.25% debentures, payable in December 2037
5.20% debentures, payable in January 2098
Unamortized discount and other
LONG-TERM DEBT
Part II
Item 8 Financial Statements and Supplementary Data
September 30,
2014
240.3 $
156.9
191.2
588.4 $
2013
248.4
167.2
199.8
615.4
September 30,
2014
3.7 $
315.9
1,032.4
418.2
118.2
1,888.4
(1,255.5)
632.9
$
2013
3.7
304.5
1,041.5
388.9
90.2
1,828.8
(1,212.8)
616.0
September 30,
2014
250.0 $
250.0
250.0
200.0
(44.4)
905.6
$
2013
250.0
250.0
250.0
200.0
(44.9)
905.1
$
$
$
$
$
$
At September 30, 2014 and 2013, our total borrowing capacity under
our five year unsecured revolving credit facility expiring in May 2018 was
$750.0 million. We can increase the aggregate amount of this credit facility
by up to $250.0 million, subject to the consent of the banks in the credit
facility. We have not borrowed against this credit facility during the years
ended September 30, 2014 and 2013. Borrowings under this credit facility
bear interest based on short-term money market rates in effect during
the period borrowings are outstanding. The terms of this credit facility
contain covenants under which we would be in default if our debt-to-total-
capital ratio was to exceed 60 percent. Separate short-term unsecured
credit facilities of approximately $126.6 million at September 30, 2014
were available to non-U.S. subsidiaries. Borrowings under our non-U.S.
credit facilities during fiscal 2014 and 2013 were not significant. We were
in compliance with all covenants under our credit facilities during the
years ended September 30, 2014 and 2013. There were no significant
commitment fees or compensating balance requirements under any of
our credit facilities.
Our short-term debt obligations are primarily comprised of commercial
paper borrowings. Commercial paper borrowings outstanding were
$325.0 million at September 30, 2014 and $179.0 million at September 30,
2013. The weighted average interest rate of the commercial paper
outstanding was 0.17 percent at September 30, 2014 and 2013.
Interest payments were $58.1 million during 2014, $59.7 million during
2013 and $59.0 million during 2012.
35
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
NOtE 6
Other Current Liabilities
Other current liabilities consist of (in millions):
Unrealized losses on foreign exchange contracts (Note 8)
Product warranty obligations (Note 7)
Taxes other than income taxes
Accrued interest
Income taxes payable
Other
OTHER CURRENT LIABILITIES
September 30,
2014
5.8 $
34.1
37.2
15.6
41.0
54.6
188.3 $
2013
10.1
36.9
37.7
15.6
35.9
60.0
196.2
$
$
NOtE 7
Product Warranty Obligations
We record a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience. Most of our products
are covered under a warranty period that runs for 12 months from either the date of sale or installation. We also record a liability for specific warranty
matters when they become known and reasonably estimable. Our product warranty obligations are included in other current liabilities in the Consolidated
Balance Sheet.
Changes in product warranty obligations are (in millions):
Balance at beginning of period
Warranties recorded at time of sale
Adjustments to pre-existing warranties
Settlements of warranty claims
BALANCE AT END OF PERIOD
September 30,
2014
36.9 $
31.3
(5.3)
(28.8)
34.1
$
2013
37.8
32.0
0.8
(33.7)
36.9
$
$
NOtE 8
Derivative Instruments and Fair Value Measurement
We use foreign currency forward exchange contracts to manage certain
foreign currency risks. We enter into these contracts to hedge our exposure
to foreign currency exchange rate variability in the expected future cash
flows associated with certain third-party and intercompany transactions
denominated in foreign currencies expected to occur within the next
two years (cash flow hedges). Certain of our locations have assets and
liabilities denominated in currencies other than their functional currencies
resulting from intercompany loans and other transactions with third
parties denominated in foreign currencies. We also enter into foreign
currency forward exchange contracts that we do not designate as hedging
instruments to offset the transaction gains or losses associated with some
of these assets and liabilities.
We recognize all derivative financial instruments as either assets or liabilities
at fair value in the Consolidated Balance Sheet. We value our forward
exchange contracts using a market approach. We use a valuation model
based on inputs including forward and spot prices for currency and interest
rate curves. We did not change our valuation techniques during fiscal
2014, 2013, or 2012. We report in other comprehensive income (loss) the
effective portion of the gain or loss on derivative financial instruments
that we designate and that qualify as cash flow hedges. We reclassify
these gains or losses into earnings in the same periods when the hedged
transactions affect earnings. Gains and losses on derivative financial
instruments for which we do not elect hedge accounting are recognized
in the Consolidated Statement of Operations in each period, based upon
the change in the fair value of the derivative financial instruments.
It is our policy to execute such instruments with major financial
institutions that we believe to be creditworthy and not to enter into
derivative financial instruments for speculative purposes. We diversify
our foreign currency forward exchange contracts among counterparties
to minimize exposure to any one of these entities. Our foreign currency
forward exchange contracts are usually denominated in currencies of
major industrial countries. The notional values of our foreign currency
forward exchange contracts outstanding at September 30, 2014 were
$867.7 million, of which $641.2 million were designated as cash flow
hedges. Currency pairs (buy/sell) comprising the most significant contract
notional values were United States dollar (USD)/euro, Swiss franc/euro,
USD/Canadian dollar, Mexican peso/USD, Singapore dollar/USD and
Swiss franc/Canadian dollar.
We also use foreign currency denominated debt obligations to hedge portions
of our net investments in non-U.S. subsidiaries. The currency effects of the
debt obligations are reflected in accumulated other comprehensive loss
within shareowners’ equity where they offset gains and losses recorded
on our net investments globally. We had $14.7 million and $14.4 million of
foreign currency denominated debt designated as net investment hedges
at September 30, 2014 and 2013, respectively.
U.S. GAAP defines fair value as the price that would be received for an asset
or paid to transfer a liability (exit price) in an orderly transaction between
market participants in the principal or most advantageous market for the
asset or liability. U.S. GAAP also classifies the inputs used to measure fair
value into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices in active markets for similar assets or liabilities,
quoted prices for identical or similar assets or liabilities in markets
that are not active, or inputs other than quoted prices that are
observable for the asset or liability.
Level 3: Unobservable inputs for the asset or liability.
36
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Assets and liabilities measured at fair value on a recurring basis and their location in our Consolidated Balance Sheet were (in millions):
Derivatives Designated as Hedging Instruments
Forward exchange contracts
Forward exchange contracts
Forward exchange contracts
Forward exchange contracts
TOTAL
Derivatives Not Designated as Hedging Instruments
Forward exchange contracts
Forward exchange contracts
Forward exchange contracts
TOTAL
Balance Sheet Location
Other current assets
Other assets
Other current liabilities
Other liabilities
Balance Sheet Location
Other current assets
Other assets
Other current liabilities
$
$
$
$
Fair Value (Level 2)
September 30, 2014
September 30, 2013
13.1 $
5.0
(4.1)
(0.3)
13.7
$
4.8
0.2
(8.3)
(1.6)
(4.9)
Fair Value (Level 2)
September 30, 2014
September 30, 2013
3.5 $
—
(1.8)
1.7
$
4.9
0.7
(1.8)
3.8
The pre-tax amount of gains (losses) recorded in other comprehensive income (loss) related to hedges that would have been recorded in the Consolidated
Statement of Operations had they not been so designated was (in millions):
Forward exchange contracts (cash flow hedges)
Foreign currency denominated debt (net investment hedges)
TOTAL
$
$
2014
16.9
(0.3)
16.6
$
$
2013
1.8
0.2
2.0
$
$
2012
(1.7)
(0.5)
(2.2)
Approximately $9.0 million ($9.2 million after tax) of net unrealized gains on cash flow hedges as of September 30, 2014 will be reclassified into earnings
during the next 12 months. We expect that these net unrealized gains will be offset when the hedged items are recognized in earnings.
The pre-tax amount of (losses) gains reclassified from accumulated other comprehensive loss into the Consolidated Statement of Operations related
to derivative forward exchange contracts designated as cash flow hedges, which offset the related gains and losses on the hedged items during the
periods presented, was:
Sales
Cost of sales
TOTAL
$
$
2014
(2.3)
0.7
(1.6)
$
$
2013
1.6
4.9
6.5
$
$
2012
(1.1)
7.5
6.4
The amount recognized in earnings as a result of ineffective hedges was not significant.
The pre-tax amount of gains (losses) from forward exchange contracts not designated as hedging instruments recognized in the Consolidated Statement
of Operations during the periods presented was:
Other income (expense)
$
2014
1.4 $
2013
0.1
$
2012
(21.9)
We also hold financial instruments consisting of cash, short-term investments,
short-term debt and long-term debt. The fair values of our cash, short-term
investments and short-term debt approximate their carrying amounts as
reported in our Consolidated Balance Sheet due to the short-term nature
of these instruments. We base the fair value of long-term debt upon quoted
market prices for the same or similar issues. The following table presents
the carrying amounts and estimated fair values of financial instruments
not measured at fair value in the Consolidated Balance Sheet (in millions):
Cash and cash equivalents
Short-term investments
Short-term debt
Long-term debt
Cash and cash equivalents
Short-term investments
Short-term debt
Long-term debt
$
$
Carrying
Amount
1,191.3 $
628.5
325.0
905.6
Carrying
Amount
1,200.9 $
372.7
179.0
905.1
September 30, 2014
Total
1,191.3 $
628.5
325.0
1,119.4
Fair Value
Level 1
1,154.2 $
—
—
—
September 30, 2013
Total
1,200.9 $
372.7
179.0
1,072.2
Fair Value
Level 1
1,079.0 $
—
—
—
Level 2
37.1 $
628.5
325.0
1,119.4
Level 2
121.9 $
372.7
179.0
1,072.2
Level 3
—
—
—
—
Level 3
—
—
—
—
37
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
NOtE 9
Shareowners’ Equity
Common Stock
At September 30, 2014, the authorized stock of the Company consisted of one billion shares of common stock, par value $1.00 per share, and
25 million shares of preferred stock, without par value. At September 30, 2014, 10.1 million shares of authorized common stock were reserved for
various incentive plans.
Changes in outstanding common shares are summarized as follows (in millions):
Beginning balance
Treasury stock purchases
Shares delivered under incentive plans
ENDING BALANCE
2014
138.8
(4.1)
2.0
136.7
2013
139.8
(4.7)
3.7
138.8
2012
141.9
(3.7)
1.6
139.8
During September 2014, we repurchased 40,757 shares of common stock for $4.5 million that did not settle until October 2014. During September
2013, we repurchased 60,000 shares of common stock for $6.4 million that did not settle until October 2013. These outstanding purchases were
recorded in accounts payable at September 30, 2014 and 2013, respectively.
accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component for the years ended September 30, 2014, 2013 and 2012 were (in millions):
Pension and other
postretirement
benefit plan
adjustments, net
of tax (Note 11)
Accumulated
currency
translation
adjustments,
net of tax
Balance as of September 30, 2011
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Other comprehensive income (loss)
BALANCE AS OF SEPTEMBER 30, 2012
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Other comprehensive income (loss)
BALANCE AS OF SEPTEMBER 30, 2013
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Other comprehensive income (loss)
BALANCE AS OF SEPTEMBER 30, 2014
$
$
$
$
$
(1,033.6) $
(246.7)
54.3
(192.4)
(1,226.0) $
314.9
87.3
402.2
(823.8) $
(143.9)
58.3
(85.6) $
(909.4) $
35.5 $
(35.0)
—
(35.0)
0.5 $
8.3
—
8.3
8.8 $
(61.3)
—
(61.3) $
(52.5) $
Net unrealized
gains (losses)
on cash
flow hedges,
net of tax
5.2
(1.0)
(4.0)
(5.0)
0.2
1.2
$
$
(4.1)
(2.9)
(2.7) $
14.2
2.4
16.6
13.9
$
$
Total
accumulated
other
comprehensive
loss, net of tax
(992.9)
(282.7)
50.3
(232.4)
(1,225.3)
324.4
83.2
407.6
(817.7)
(191.0)
60.7
(130.3)
(948.0)
38
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
The reclassifications out of accumulated other comprehensive loss to the Consolidated Statement of Operations for the years ended September 30,
2014, 2013 and 2012 were (in millions):
Pension and other postretirement benefit plan adjustments:
Amortization of prior service credit
Amortization of net actuarial loss
Net unrealized (gains) losses on cash flow hedges:
Forward exchange contracts
Forward exchange contracts
TOTAL RECLASSIFICATIONS
Year Ended September 30,
2013
2014
2012
Affected Line in
the Consolidated
Statement of
Operations
$
$
$
$
$
(12.9) $
102.6
89.7
(31.4)
58.3
$
2.3
(0.7)
1.6
0.8
2.4
60.7
$
$
$
(13.2) $
149.0
135.8
(48.5)
87.3
$
(1.6) $
(4.9)
(6.5)
2.4
(4.1) $
(12.9)
(a)
97.1
(a)
Total before tax
84.2
(29.9) Provision for tax
After tax
54.3
Sales
1.1
(7.5) Cost of Sales
(6.4)
2.4
(4.0) After tax
Total before tax
Provision for tax
83.2
$
50.3 After tax
(a) Reclassified from accumulated other comprehensive loss into cost of sales and selling, general and administrative expenses. These components are included in the computation
of net periodic benefit costs. See Note 11 for further information.
NOtE 10 Share-Based Compensation
During 2014, 2013 and 2012 we recognized $42.5 million, $41.1 million and
$43.5 million of pre-tax share-based compensation expense, respectively.
The total income tax benefit related to share-based compensation expense
was $12.9 million during 2014, $12.5 million during 2013 and $13.8 million
during 2012. We recognize compensation expense on grants of share-
based compensation awards on a straight-line basis over the service period
of each award recipient. As of September 30, 2014, total unrecognized
compensation cost related to share-based compensation awards was
$38.3 million, net of estimated forfeitures, which we expect to recognize
over a weighted average period of approximately 1.7 years.
Our 2012 Long-Term Incentives Plan (2012 Plan) authorizes us to deliver up
to 6.8 million shares of our common stock upon exercise of stock options, or
upon grant or in payment of stock appreciation rights, performance shares,
Stock Options
performance units, restricted stock units and restricted stock. Our 2003
Directors Stock Plan, as amended, authorizes us to deliver up to 0.5 million
shares of our common stock upon exercise of stock options or upon grant
of shares of our common stock and restricted stock units. Shares relating to
awards under our 2012 Plan, 2008 Long-Term Incentives Plan, as amended,
or our 2000 Long-Term Incentives Plan, as amended, that terminate by
expiration, forfeiture, cancellation or otherwise without the issuance or
delivery of shares will be available for further awards under the 2012 Plan.
Approximately 4.2 million shares under our 2012 Plan and 0.3 million shares
under our 2003 Directors Stock Plan remain available for future grant or
payment at September 30, 2014. We use treasury stock to deliver shares
of our common stock under these plans. Our 2012 Plan does not permit
share-based compensation awards to be granted after February 7, 2022.
We have granted non-qualified and incentive stock options to purchase our common stock under various incentive plans at prices equal to the fair
market value of the stock on the grant dates. The exercise price for stock options granted under the plans may be paid in cash, already-owned shares
of common stock or a combination of cash and such shares. Stock options expire ten years after the grant date and vest ratably over three years.
The per-share weighted average fair value of stock options granted during the years ended September 30, 2014, 2013 and 2012 was $34.03, $25.18
and $23.49, respectively. The total intrinsic value of stock options exercised was $108.1 million, $131.7 million and $43.9 million during 2014, 2013
and 2012, respectively. We estimated the fair value of each stock option on the date of grant using the Black-Scholes pricing model and the following
assumptions:
Average risk-free interest rate
Expected dividend yield
Expected volatility
Expected term (years)
2014
1.52%
2.13%
41%
5.2
2013
0.66%
2.35%
43%
5.3
2012
1.06%
2.29%
43%
5.3
The average risk-free interest rate is based on U.S. treasury security rates corresponding to the expected term in effect as of the grant date. The
expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the grant date. We
determined expected volatility using daily historical volatility of our stock price over the most recent period corresponding to the expected term as of the
grant date. We determined the expected term of the stock options using historical data adjusted for the estimated exercise dates of unexercised options.
39
Rockwell Automation, Inc. - Form 10-K Part II
Item 8 Financial Statements and Supplementary Data
A summary of stock option activity for the year ended September 30, 2014 is:
Outstanding at October 1, 2013
Granted
Exercised
Forfeited
Cancelled
OUTSTANDING AT SEPTEMBER 30, 2014
Vested or expected to vest at September 30, 2014
Exercisable at September 30, 2014
Shares
(in thousands)
5,488 $
947
(1,836)
(75)
(1)
4,523
4,361
2,511
Wtd. Avg.
Exercise Price
64.53
109.07
58.95
92.06
72.52
75.65
75.04
62.48
Wtd. Avg.
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value of In-The-
Money Options
(in millions)
7.0 $
6.9
5.8
155.0
152.1
119.0
Performance Share awards
Certain officers and key employees are also eligible to receive shares of
our common stock in payment of performance share awards granted to
them. Grantees of performance shares will be eligible to receive shares of
our common stock depending upon our total shareowner return, assuming
reinvestment of all dividends, relative to the performance of companies in
the S&P 500 Index over a three-year period. The awards actually earned
will range from zero percent to 200 percent of the targeted number of
performance shares for the three-year performance periods and will be
paid, to the extent earned, in the fiscal quarter following the end of the
applicable three-year performance period. For the three-year performance
period ending September 30, 2014, the payout will be 187 percent of
the target number of shares, with a maximum of 154,000 shares to be
delivered in payment under the awards in December 2014.
A summary of performance share activity for the year ended September 30, 2014 is as follows:
Performance
Shares
(in thousands)
Wtd. Avg.
Grant Date
Share Fair Value
96.02
108.48
87.00
87.00
100.85
102.54
Outstanding at October 1, 2013
Granted(1)
Adjustment for performance results achieved(2)
Vested and issued
Forfeited
OUTSTANDING AT SEPTEMBER 30, 2014
(1) Performance shares granted assuming achievement of performance goals at target.
(2) Adjustments were due to the number of shares vested under the fiscal 2011 awards at the end of the three-year performance period ended September 30, 2013 being higher
233 $
69
57
(127)
(8)
224
than the target number of shares.
The following table summarizes information about performance shares vested during the years ended September 30:
Percent payout
Shares vested (in thousands)
Total fair value of shares vested (in millions)
2014
180%
127
14.2 $
2013
173%
232
18.7 $
2012
200%
345
25.8
$
The per-share fair value of performance share awards granted during the years ended September 30, 2014, 2013 and 2012 was $108.48, $98.15 and
$101.57, respectively, which we determined using a Monte Carlo simulation and the following assumptions:
Average risk-free interest rate
Expected dividend yield
Expected volatility
2014
0.60%
2.11%
33%
2013
0.32%
2.32%
36%
2012
0.39%
2.29%
43%
The average risk-free interest rate is based on the three-year U.S. treasury security rate in effect as of the grant date. The expected dividend yield is
based on the expected annual dividend as a percentage of the market value of our common stock as of the grant date. The expected volatilities were
determined using daily historical volatility for the most recent three-year period as of the grant date.
40
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
restricted Stock and restricted Stock Units
We grant restricted stock and restricted stock units to certain employees, and
non-employee directors may elect to receive a portion of their compensation
in restricted stock units. Restrictions on employee restricted stock and
employee restricted stock units generally lapse over periods ranging from
one to five years. Director restricted stock units generally are payable
upon retirement. We value restricted stock and restricted stock units at
the closing market value of our common stock on the date of grant. The
weighted average grant date fair value of restricted stock and restricted
stock unit awards granted during the years ended September 30, 2014,
2013 and 2012 was $109.69, $80.17 and $73.73, respectively. The total
fair value of shares vested during the years ended September 30, 2014,
2013, and 2012 was $6.4 million, $9.4 million, and $6.2 million, respectively.
A summary of restricted stock and restricted stock unit activity for the year ended September 30, 2014 is as follows:
Outstanding at October 1, 2013
Granted
Vested
Forfeited
OUTSTANDING AT SEPTEMBER 30, 2014
NOtE 11 retirement Benefits
Restricted
Stock and
Restricted
Stock Units
(in thousands)
199 $
53
(56)
(6)
190
Wtd. Avg.
Grant Date
Share
Fair Value
74.63
109.69
73.31
83.92
84.57
We sponsor funded and unfunded pension plans and other postretirement
benefit plans for our employees. The pension plans cover most of our
employees and provide for monthly pension payments to eligible employees
after retirement. Pension benefits for salaried employees generally are
based on years of credited service and average earnings. Pension benefits
for hourly employees are primarily based on specified benefit amounts
and years of service. Effective July 1, 2010 we closed participation in our
U.S. and Canada pension plans to employees hired after June 30, 2010.
Employees hired after June 30, 2010 are instead eligible to participate in
employee savings plans. The Company contributions are based on age
and years of service and range from 3% to 7% of eligible compensation.
Effective October 1, 2010, we also closed participation in our UK pension
plan to employees hired after September 30, 2010 and these employees
are now eligible for a defined contribution plan. Benefits to be provided to
plan participants hired before July 1, 2010 or October 1, 2010, respectively,
are not affected by these changes. Our policy with respect to funding our
pension obligations is to fund the minimum amount required by applicable
laws and governmental regulations. We were not required to make
contributions to satisfy minimum funding requirements in our U.S. pension
plans. However, we made voluntary contributions of $300.0 million to our
U.S. qualified pension plan in 2012. Other postretirement benefits are
primarily in the form of retirement medical plans that cover most of our
employees in the U.S. and Canada and provide for the payment of certain
medical costs of eligible employees and dependents after retirement.
The components of net periodic benefit cost are (in millions):
Service cost
Interest cost
Expected return on plan assets
Amortization:
$
Prior service credit
Net actuarial loss
Settlements
NET PERIODIC BENEFIT COST
Pension
Benefits
2013
92.1 $
160.2
(226.3)
(2.5)
144.6
—
2014
78.5 $
174.2
(217.9)
(2.7)
99.7
(0.1)
2012
71.8 $
167.6
(228.1)
(2.3)
94.7
1.0
$
131.7
$
168.1
$
104.7
$
Other Postretirement
Benefits
2014
2013
2.0 $
6.5
—
2.3 $
6.3
—
(10.2)
(10.7)
2.9
—
1.2
$
4.4
—
2.3
$
2012
2.2
7.2
—
(10.6)
2.4
—
1.2
41
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Benefit obligation, plan assets, funded status, and net liability information is summarized as follows (in millions):
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial losses (gains)
Plan amendments
Plan participant contributions
Benefits paid
Currency translation and other
Benefit obligation at end of year
Plan assets at beginning of year
Actual return on plan assets
Company contributions
Plan participant contributions
Benefits paid
Currency translation and other
Plan assets at end of year
FUNDED STATUS OF PLANS
Net amount on balance sheet consists of:
Other assets
Compensation and benefits
Retirement benefits
NET AMOUNT ON BALANCE SHEET
Pension
Benefits
Other Postretirement
Benefits
2014
3,804.8 $
78.5
174.2
431.5
1.2
5.4
(218.8)
(40.2)
4,236.6
3,367.0
425.2
42.1
5.4
(218.8)
(29.9)
3,591.0
2013
4,150.2 $
92.1
160.2
(401.0)
—
5.5
(198.0)
(4.2)
3,804.8
3,213.3
309.0
41.3
5.5
(198.0)
(4.1)
3,367.0
2014
150.2 $
2.0
6.5
14.2
(37.0)
8.2
(21.0)
(0.9)
122.2
—
—
12.8
8.2
(21.0)
—
—
(645.6) $
(437.8) $
(122.2) $
1.4 $
(12.2)
(634.8)
(645.6) $
10.3 $
(10.8)
(437.3)
(437.8) $
— $
(14.9)
(107.3)
(122.2) $
$
$
$
$
2013
172.5
2.3
6.3
(14.9)
—
9.4
(24.7)
(0.7)
150.2
—
—
15.3
9.4
(24.7)
—
—
(150.2)
—
(14.7)
(135.5)
(150.2)
Amounts included in accumulated other comprehensive loss, net of tax, at September 30, 2014 and 2013 which have not yet been recognized in net
periodic benefit cost are as follows (in millions):
Prior service cost (credit)
Net actuarial loss
Net transition benefit
TOTAL
Pension
2014
4.0 $
904.7
—
908.7
$
$
$
2013
1.4
812.2
(0.1)
813.5
$
$
Other Postretirement
Benefits
2014
(31.9) $
32.6
—
0.7
$
2013
(15.1)
25.4
—
10.3
During 2014, we recognized prior service credits of $12.9 million
($8.1 million net of tax) and net actuarial losses of $102.6 million ($66.4 million
net of tax) in pension and other postretirement net periodic benefit cost, which
were included in accumulated other comprehensive loss at September 30,
2013. In 2015, we expect to recognize prior service credits of $17.2 million
($10.8 million net of tax), and net actuarial losses of $126.0 million
($82.6 million net of tax) in pension and other postretirement net periodic
benefit cost, which are included in accumulated other comprehensive
loss at September 30, 2014.
The accumulated benefit obligation for our pension plans was $3,960.2
million and $3,563.2 million at September 30, 2014 and 2013, respectively.
Net Periodic Benefit Cost assumptions
Significant assumptions used in determining net periodic benefit cost included in the Consolidated Statement of Operations for the period ended
September 30 are (in weighted averages):
Pension Benefits
September 30,
2013
4.15%
8.00%
4.00%
3.37%
5.42%
3.03%
2014
5.05%
7.50%
3.75%
3.69%
5.33%
3.11%
2012
5.20%
8.00%
4.00%
4.15%
5.93%
3.03%
Other Postretirement Benefits
September 30,
2013
2014
4.60%
—
—
4.20%
—
—
3.85%
—
—
3.80%
—
—
2012
4.90%
—
—
4.10%
—
—
U.S. Plans
Discount rate
Expected return on plan assets
Compensation increase rate
Non-U.S. Plans
Discount rate
Expected return on plan assets
Compensation increase rate
42
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Net Benefit Obligation assumptions
Significant assumptions used in determining the benefit obligations included in the Consolidated Balance Sheet are (in weighted averages):
Pension Benefits
September 30,
2014
2013
Other Postretirement Benefits
September 30,
2014
2013
U.S. Plans
Discount rate
Compensation increase rate
Healthcare cost trend rate(1)
Non-U.S. Plans
4.20%
Discount rate
—
Compensation increase rate
Healthcare cost trend rate(2)
6.27%
(1) The healthcare cost trend rate reflects the estimated increase in gross medical claims costs. As a result of the plan amendment adopted effective October 1, 2002, our effective
per person retiree medical cost increase is zero percent beginning in 2005 for the majority of our postretirement benefit plans. For our other plans, we assume the gross
healthcare cost trend rate will decrease to 5.50% in 2017.
3.50%
—
5.83%
3.01%
3.16%
—
3.69%
3.11%
—
3.65%
—
7.00%
4.60%
—
7.50%
4.50%
3.75%
—
5.05%
3.75%
—
(2) Decreasing to 4.50% in 2017.
In determining the expected long-term rate of return on assets assumption, we consider actual returns on plan assets over the long term, adjusted for
forward-looking considerations, such as inflation, interest rates, equity performance and the active management of the plan’s invested assets. We also
considered our current and expected mix of plan assets in setting this assumption. This resulted in the selection of the weighted average long-term rate
of return on assets assumption. Our global weighted-average targeted and actual asset allocations at September 30, by asset category, are:
Asset Category
Equity securities
Debt securities
Other
Allocation Range
30% – 65%
35% – 50%
0% – 35%
Target
Allocations
September 30,
2014
55%
40%
5%
50%
42%
8%
2013
53%
40%
7%
The investment objective for pension funds related to our defined benefit
plans is to meet the plan’s benefit obligations, while maximizing the long-term
growth of assets without undue risk. We strive to achieve this objective by
investing plan assets within target allocation ranges and diversification within
asset categories. Target allocation ranges are guidelines that are adjusted
periodically based on ongoing monitoring by plan fiduciaries. Investment
risk is controlled by rebalancing to target allocations on a periodic basis
and ongoing monitoring of investment manager performance relative to
the investment guidelines established for each manager.
As of September 30, 2014 and 2013, our pension plans do not own our
common stock.
In certain countries where we operate, there are no legal requirements or
financial incentives provided to companies to pre-fund pension obligations.
In these instances, we typically make benefit payments directly from cash
as they become due, rather than by creating a separate pension fund.
The valuation methodologies used for our pension plans’ investments
measured at fair value are described as follows. There have been no
changes in the methodologies used at September 30, 2014 and 2013.
Common stock — Valued at the closing price reported on the active
market on which the individual securities are traded.
Mutual funds — Valued at the net asset value reported by the fund.
Corporate debt — Valued at either the yields currently available on
comparable securities of issuers with similar credit ratings or valued
under a discounted cash flow approach that maximizes observable inputs,
such as current yields of similar instruments, but includes adjustments for
certain risks that may not be observable such as credit and liquidity risks.
Government securities — Valued at the most recent closing price on the
active market on which the individual securities are traded or, absent an
active market, utilizing observable inputs such as closing prices in less
frequently traded markets.
Common collective trusts — Valued at the net asset value as determined
by the custodian of the fund. The NAV is based on the fair value of the
underlying assets owned by the fund, minus its liabilities then divided by
the number of units outstanding.
Private equity and alternative equity — Valued at the estimated fair value,
as determined by the respective fund manager, based on the NAV of the
investment units held at year end, which is subject to judgment.
Real estate funds — Consists of the real estate funds, which provide an
indirect investment into a diversified and multi-sector portfolio of property
assets. Publicly-traded real estate funds are valued at the most recent
closing price reported on the SIX Swiss Exchange. The remainder is
valued at the estimated fair value, as determined by the respective fund
manager, based on the NAV of the investment units held at year end,
which is subject to judgment.
Insurance contracts — Valued at the aggregate amount of accumulated
contribution and investment income less amounts used to make benefit
payments and administrative expenses which approximates fair value.
Other — Consists of other fixed income investments and common
collective trusts with a mix of equity and fixed income underlying assets.
Other fixed income investments are valued at the most recent closing
price reported in the markets in which the individual securities are traded,
which may be infrequently.
43
Rockwell Automation, Inc. - Form 10-K Part II
Item 8 Financial Statements and Supplementary Data
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.
Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies
or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Refer
to Note 8 for further information regarding levels in the fair value hierarchy. The following table presents our pension plans’ investments measured at
fair value as of September 30, 2014:
Level 1
Level 2
Level 3
$
1.9 $
— $
— $
TOTAL PLAN INVESTMENTS
$
1,213.8 $
2,177.9 $
The following table presents our pension plans’ investments measured at fair value as of September 30, 2013:
Level 1
Level 2
Level 3
$
3.7 $
— $
— $
8.6
57.8
3.3
199.3 $
88.9
57.8
5.9
3,591.0
U.S. Plans
Cash and cash equivalents
Equity securities:
Common stock
Mutual funds
Common collective trusts
Fixed income securities:
Corporate debt
Government securities
Common collective trusts
Other types of investments:
Private equity
Alternative equity
Insurance contracts
Non-U.S. Plans
Cash and cash equivalents
Equity securities:
Common stock
Common collective trusts
Fixed income securities:
Corporate debt
Government securities
Common collective trusts
Other types of investments:
Real estate funds
Insurance contracts
Other
U.S. Plans
Cash and cash equivalents
Equity securities:
Common stock
Mutual funds
Common collective trusts
Fixed income securities:
Corporate debt
Government securities
Common collective trusts
Other types of investments:
Private equity
Alternative equity
Insurance contracts
Non-U.S. Plans
Cash and cash equivalents
Equity securities:
Common stock
Common collective trusts
Fixed income securities:
Corporate debt
Government securities
Common collective trusts
Other types of investments:
Real estate funds
Insurance contracts
Other
Total
1.9
706.8
216.8
527.2
692.6
378.6
129.4
78.8
49.9
0.9
7.2
46.4
286.0
31.0
18.2
266.7
Total
3.7
711.8
196.3
561.5
535.7
357.0
128.6
80.4
42.1
0.8
19.0
41.6
286.4
39.9
17.6
239.0
—
—
—
—
—
—
78.8
49.9
0.9
—
—
—
—
—
—
—
—
—
—
—
—
80.4
42.1
0.8
—
—
—
—
—
—
706.8
216.8
—
—
231.4
—
—
—
—
7.2
46.4
—
—
3.3
—
—
—
—
—
—
527.2
692.6
147.2
129.4
—
—
—
—
—
286.0
31.0
14.9
266.7
80.3
—
2.6
711.8
196.3
—
—
240.8
—
—
—
—
19.0
41.6
—
—
3.9
—
—
—
—
—
—
561.5
535.7
116.2
128.6
—
—
—
—
—
286.4
39.9
13.7
239.0
44.6
—
3.0
TOTAL PLAN INVESTMENTS
$
1,217.1 $
1,968.6 $
44
8.3
45.5
4.2
181.3 $
52.9
45.5
7.2
3,367.0
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
The table below sets forth a summary of changes in fair market value of our pension plans’ Level 3 assets for the year ended September 30, 2014.
U.S. Plans
Private equity
Alternative equity
Insurance contracts
Non-U.S. Plans
Real estate
Insurance contracts
Other
Balance
October 1, 2013
Realized Gains
(Losses)
Unrealized
Gains (Losses)
Purchases, Sales,
Issuances, and
Settlements, Net
Balance
September 30, 2014
$
$
80.4 $
42.1
0.8
8.3
45.5
4.2
181.3 $
$
7.8
1.3
—
—
—
—
$
9.1
(3.5) $
2.8
—
0.3
14.1
—
13.7
$
(5.9) $
3.7
0.1
—
(1.8)
(0.9)
(4.8) $
78.8
49.9
0.9
8.6
57.8
3.3
199.3
The table below sets forth a summary of changes in fair market value of our pension plans’ Level 3 assets for the year ended September 30, 2013.
U.S. Plans
Private equity
Alternative equity
Insurance contracts
Non-U.S. Plans
Real estate
Insurance contracts
Other
Balance
October 1, 2012
Realized Gains
(Losses)
Unrealized
Gains (Losses)
Purchases, Sales,
Issuances, and
Settlements, Net
Balance
September 30, 2013
$
$
83.2 $
53.4
0.8
—
38.5
4.4
180.3 $
$
6.6
(1.1)
—
—
—
—
5.5
$
(10.8) $
4.1
—
0.4
1.0
0.2
(5.1) $
$
1.4
(14.3)
—
7.9
6.0
(0.4)
0.6
$
80.4
42.1
0.8
8.3
45.5
4.2
181.3
Estimated Future Payments
We expect to contribute $45.5 million related to our worldwide pension plans and $15.2 million to our postretirement benefit plans in 2015.
The following benefit payments, which include employees’ expected future service, as applicable, are expected to be paid (in millions):
2015
2016
2017
2018
2019
2020 – 2024
$
Pension
Benefits
238.4 $
221.9
227.1
235.5
238.7
1,375.2
Other
Postretirement
Benefits
15.2
15.4
14.6
13.9
13.2
30.8
Other Postretirement Benefits
A one-percentage point change in assumed healthcare cost trend rates would have the following effect (in millions):
Increase (decrease) to total of service and interest cost components $
Increase (decrease) to postretirement benefit obligation
0.2 $
3.0
0.2 $
2.1
One-Percentage Point Increase
2013
2014
One-Percentage Point Decrease
2013
(0.2)
(1.8)
2014
(0.1) $
(2.6)
45
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Pension Benefits
Information regarding our pension plans with accumulated benefit obligations in excess of the fair value of plan assets (underfunded plans) at
September 30, 2014 and 2013 are as follows (in millions):
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Defined Contribution Savings Plans
$
2014
3,919.1 $
3,651.5
3,277.8
2013
760.1
674.6
436.1
We also sponsor certain defined contribution savings plans for eligible employees. Expense related to these plans was $43.8 million in 2014, $40.9 million
in 2013 and $38.2 million in 2012.
NOtE 12 Other Income (Expense)
The components of other income (expense) are (in millions):
Net loss on disposition of property
Interest income
Royalty income
Environmental charges
Other
OTHER INCOME (EXPENSE)
$
$
2014
(0.6) $
9.5
2.5
(5.2)
3.5
9.7
$
2013
(0.5) $
9.8
3.3
(13.5)
6.6
5.7
$
2012
(1.0)
7.8
2.3
(9.3)
(4.8)
(5.0)
Other income included an $8.0 million gain in 2014 and a $19.2 million gain in 2013 from favorable resolutions of certain intellectual property and
commercial legal matters.
NOtE 13
Income taxes
Selected income tax data (in millions):
Components of income before income taxes:
United States
Non-United States
TOTAL
Components of the income tax provision:
Current:
United States
Non-United States
State and local
Total current
Deferred:
United States
Non-United States
State and local
Total deferred
INCOME TAX PROVISION
total income taxes paid
2014
2013
2012
$
$
$
$
$
607.3 $
526.9
1,134.2
$
219.4 $
85.3
9.9
314.6
(3.8)
(4.0)
0.6
(7.2)
307.4
323.8
$
$
513.5 $
467.4
980.9
$
164.5
$
51.1
15.5
231.1
(1.3)
(2.9)
(2.3)
(6.5)
224.6
203.9
$
$
469.6
496.3
965.9
71.3
72.3
3.1
146.7
76.8
0.4
5.0
82.2
228.9
167.5
During 2013, we recognized net discrete tax benefits of $22.7 million primarily related to the favorable resolution of tax matters in various global jurisdictions
and the retroactive extension of the U.S. federal research and development tax credit.
46
Rockwell Automation, Inc. - Form 10-K
Effective tax rate reconciliation
The reconciliation between the U.S. federal statutory rate and our effective tax rate was:
Statutory tax rate
State and local income taxes
Non-United States taxes
Foreign tax credit utilization
Employee stock ownership plan benefit
Change in valuation allowances
Domestic manufacturing deduction
Adjustments for prior period tax matters
Other
EFFECTIVE INCOME TAX RATE
Part II
Item 8 Financial Statements and Supplementary Data
2014
35.0%
0.8
(9.5)
0.5
(0.2)
(0.1)
(1.1)
1.0
0.7
27.1%
2013
35.0%
0.9
(9.6)
0.8
(0.2)
(0.4)
(1.1)
(2.0)
(0.5)
22.9%
2012
35.0%
0.8
(10.3)
0.4
(0.3)
(0.2)
(1.1)
(0.6)
—
23.7%
We operate in certain non-U.S. tax jurisdictions under various government sponsored tax incentive programs, which expire during 2016 through 2019
and may be extended if certain additional requirements are met. The tax benefit attributable to these incentive programs was $42.9 million ($0.31 per
diluted share) in 2014, $38.2 million ($0.27 per diluted share) in 2013 and $41.9 million ($0.29 per diluted share) in 2012.
Deferred taxes
The tax effects of temporary differences that give rise to our net deferred income tax assets and liabilities were (in millions):
Current deferred income tax assets:
Compensation and benefits
Product warranty costs
Inventory
Allowance for doubtful accounts
Deferred credits
Returns, rebates and incentives
Self-insurance reserves
Restructuring reserves
Net operating loss carryforwards
U.S. federal tax credit carryforwards
Other — net
Current deferred income tax assets
Long-term deferred income tax assets (liabilities):
Retirement benefits
Property
Intangible assets
Environmental reserves
Share-based compensation
Self-insurance reserves
Deferred gains
Net operating loss carryforwards
Capital loss carryforwards
U.S. federal tax credit carryforwards
State tax credit carryforwards
Other — net
Subtotal
Valuation allowance
Net long-term deferred income tax assets
TOTAL DEFERRED INCOME TAX ASSETS
$
$
$
2014
$
33.7
12.3
18.3
8.8
7.5
54.5
0.9
2.1
3.5
0.2
21.7
163.5
$
240.4
(81.9)
(50.2)
16.9
32.6
7.9
2.4
31.9
14.8
1.3
5.8
11.6
233.5
(27.8)
205.7
369.2
$
2013
26.4
13.0
48.0
9.8
9.3
49.7
2.5
3.1
3.7
—
24.0
189.5
177.4
(88.5)
(40.2)
18.0
33.8
7.0
2.8
37.6
14.2
2.1
4.7
6.7
175.6
(28.3)
147.3
336.8
47
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Total deferred tax assets were $529.1 million at September 30, 2014 and
$493.8 million at September 30, 2013. Total deferred tax liabilities were
$132.1 million at September 30, 2014 and $128.7 million at September 30,
2013.
We have not provided U.S. deferred taxes for $2,781.0 million of undistributed
earnings of the Company’s subsidiaries, since these earnings have been,
and under current plans will continue to be, permanently reinvested outside
the U.S. It is not practicable to estimate the amount of additional taxes
that may be payable upon distribution.
We believe it is more likely than not that we will realize current and long-
term deferred tax assets through the reduction of future taxable income,
other than for the deferred tax assets reflected below. Significant factors
we considered in determining the probability of the realization of the
deferred tax assets include our historical operating results and expected
future earnings.
Tax attributes and related valuation allowances at September 30, 2014 are (in millions):
Tax Attribute to be Carried Forward
Non-United States net operating loss carryforward
Non-United States net operating loss carryforward
Non-United States capital loss carryforward
United States net operating loss carryforward
United States tax credit carryforward
State and local net operating loss carryforward
State tax credit carryforward
Subtotal — tax carryforwards
Other deferred tax assets
TOTAL
There was no material change in the valuation allowance in 2014 and 2013.
Unrecognized tax Benefits
We operate in numerous taxing jurisdictions and are subject to regular
examinations by various U.S. federal, state and non-U.S. taxing authorities
for various tax periods. Additionally, we have retained tax liabilities and the
rights to tax refunds in connection with various divestitures of businesses
in prior years. Our income tax positions are based on research and
interpretations of the income tax laws and rulings in each of the jurisdictions
Tax Benefit
Amount
6.7 $
10.1
14.8
5.0
1.5
13.6
5.8
57.5
1.2
58.7 $
$
$
Valuation
Allowance
4.9
6.7
14.8
—
—
0.2
—
26.6
1.2
27.8
Carryforward
Period Ends
2015-2024
Indefinite
Indefinite
2019-2033
2018-2027
2015-2033
2025-2029
Indefinite
in which we do business. Due to the subjectivity of interpretations of laws
and rulings in each jurisdiction, the differences and interplay in tax laws
between those jurisdictions as well as the inherent uncertainty in estimating
the final resolution of complex tax audit matters, our estimates of income
tax liabilities may differ from actual payments or assessments.
A reconciliation of our gross unrecognized tax benefits, excluding interest and penalties, is as follows (in millions):
Gross unrecognized tax benefits balance at beginning of year
Additions based on tax positions related to the current year
Additions based on tax positions related to prior years
Reductions based on tax positions related to prior years
Reductions related to settlements with taxing authorities
Reductions related to lapses of statute of limitations
Effect of foreign currency translation
GROSS UNRECOGNIZED TAX BENEFITS BALANCE AT END OF YEAR
$
$
2014
40.8 $
1.0
2.2
—
—
(4.2)
(0.9)
38.9
$
2013
70.3 $
1.1
8.8
—
(36.2)
(1.2)
(2.0)
40.8
$
2012
75.1
—
3.3
—
(6.3)
(2.4)
0.6
70.3
The amount of gross unrecognized tax benefits that would reduce our
effective tax rate if recognized was $38.9 million, $40.8 million and $70.3
million at September 30, 2014, 2013 and 2012, respectively.
Accrued interest and penalties related to unrecognized tax benefits were
$8.1 million and $12.4 million at September 30, 2014 and 2013, respectively.
We recognize interest and penalties related to unrecognized tax benefits
in the income tax provision. Benefits (expense) recognized were $4.0
million, $6.7 million and $(3.1) million in 2014, 2013 and 2012, respectively.
If the unrecognized tax benefits were recognized, the net impact on our
income tax provision, including the recognition of interest and penalties and
offsetting tax assets, would be $22.9 million as of September 30, 2014.
We believe it is reasonably possible that the amount of gross unrecognized
tax benefits could be reduced by up to $23.8 million in the next 12 months
as a result of the resolution of tax matters in various global jurisdictions
and the lapses of statutes of limitations. If the unrecognized tax benefits
were recognized, the net reduction to our income tax provision, including
the recognition of interest and penalties and offsetting tax assets, could
be up to $9.1 million.
We conduct business globally and are routinely audited by the various tax
jurisdictions in which we operate. We are no longer subject to U.S. federal
income tax examinations for years before 2012 and are no longer subject to
state, local and non-U.S. income tax examinations for years before 2003.
48
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
NOtE 14 Commitments and Contingent Liabilities
Environmental Matters
Lease Commitments
Federal, state and local requirements relating to the discharge of substances
into the environment, the disposal of hazardous wastes and other activities
affecting the environment have and will continue to have an effect on
our manufacturing operations. Thus far, compliance with environmental
requirements and resolution of environmental claims have been accomplished
without material effect on our liquidity and capital resources, competitive
position, financial condition or results of operations.
We have been designated as a potentially responsible party at 13 Superfund
sites, excluding sites as to which our records disclose no involvement
or as to which our potential liability has been finally determined and
assumed by third parties. In addition, various other lawsuits, claims and
proceedings have been asserted against us seeking remediation of alleged
environmental impairments, principally at previously owned properties. As
of September 30, 2014, we have estimated the total reasonably possible
costs we could incur from these matters to be $105.0 million ($90.0 million,
net of related receivables). We have recorded an environmental liability of
$60.0 million ($47.0 million, net of related receivables) for these matters.
Of the $60.0 million recorded liability, $40.6 million relates to discounted
ongoing operating and maintenance expenditures. In addition to the above
matters, certain environmental liabilities are substantially indemnified by
ExxonMobil Corporation. At September 30, 2014, we recorded a liability
of $27.9 million and a receivable of $26.7 million for these matters. We
estimate the total reasonably possible costs that we could incur from
these matters to be $30.6 million.
Based on our assessment, we believe that our expenditures for environmental
capital investment and remediation necessary to comply with present
regulations governing environmental protection and other expenditures for
the resolution of environmental claims will not have a material effect on our
liquidity and capital resources, competitive position, financial condition or
results of operations. We cannot assess the possible effect of compliance
with future requirements.
Conditional asset retirement Obligations
We accrue for costs related to a legal obligation associated with the
retirement of a tangible long-lived asset that results from the acquisition,
construction, development or the normal operation of the long-lived asset.
The obligation to perform the asset retirement activity is not conditional
even though the timing or method may be conditional. Identified conditional
asset retirement obligations include asbestos abatement and remediation
of soil contamination beneath current and previously divested facilities.
We estimated conditional asset retirement obligations using site-specific
knowledge and historical industry expertise. As of September 30, 2014
and September 30, 2013, we have recorded $0.3 million and $2.3 million,
respectively, in other current liabilities and $21.9 million and $22.0 million,
respectively, in other liabilities for these obligations.
Rental expense was $121.6 million in 2014, $119.6 million in 2013
and $115.0 million in 2012. Minimum future rental commitments under
operating leases having noncancelable lease terms in excess of one year
aggregated $339.8 million as of September 30, 2014 and are payable
as follows (in millions):
2015
2016
2017
2018
2019
Beyond 2019
TOTAL
$
$
78.7
62.1
51.1
40.3
31.4
76.2
339.8
Commitments from third parties under sublease agreements having
noncancelable lease terms in excess of one year aggregated $0.8 million as
of September 30, 2014 and are receivable through 2018 at approximately
$0.2 million per year. Most leases contain renewal options for varying
periods, and certain leases include options to purchase the leased property.
Other Matters
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against us relating to the conduct of our business,
including those pertaining to product liability, environmental, safety and
health, intellectual property, employment and contract matters. Although
the outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of unfavorably to us,
we believe the disposition of matters that are pending or have been
asserted will not have a material effect on our business, financial condition
or results of operations.
We (including our subsidiaries) have been named as a defendant in lawsuits
alleging personal injury as a result of exposure to asbestos that was used
in certain components of our products many years ago. Currently there
are a few thousand claimants in lawsuits that name us as defendants,
together with hundreds of other companies. In some cases, the claims
involve products from divested businesses, and we are indemnified for
most of the costs. However, we have agreed to defend and indemnify
asbestos claims associated with products manufactured or sold by our
former Dodge mechanical and Reliance Electric motors and motor repair
services businesses prior to their divestiture by us, which occurred on
January 31, 2007. We are also responsible for half of the costs and liabilities
associated with asbestos cases against our former Rockwell International
Corporation’s divested measurement and flow control business. But in
all cases, for those claimants who do show that they worked with our
products or products of divested businesses for which we are responsible,
we nevertheless believe we have meritorious defenses, in substantial
part due to the integrity of the products, the encapsulated nature of any
asbestos-containing components, and the lack of any impairing medical
condition on the part of many claimants. We defend those cases vigorously.
Historically, we have been dismissed from the vast majority of these claims
with no payment to claimants.
49
Rockwell Automation, Inc. - Form 10-K
In connection with the spin-offs of our former automotive business,
semiconductor systems business and Rockwell Collins avionics and
communications business, the spun-off companies have agreed to
indemnify us for substantially all contingent liabilities related to the respective
businesses, including environmental and intellectual property matters.
In conjunction with the sale of our Dodge mechanical and Reliance Electric
motors and motor repair services businesses, we agreed to indemnify Baldor
Electric Company for costs and damages related to certain legal, legacy
environmental and asbestos matters of these businesses arising before
January 31, 2007, for which the maximum exposure would be capped at
the amount received for the sale. We estimate the potential future payments
we could incur under these indemnifications may approximate $9.2 million,
of which $0.8 million has been accrued in other current liabilities and $7.0
million has been accrued in other liabilities at September 30, 2014. We
recorded $0.3 million and $9.2 million in other current liabilities and other
liabilities, respectively, at September 30, 2013 for these indemnifications.
In many countries we provide a limited intellectual property indemnity as
part of our terms and conditions of sale. We also at times provide limited
intellectual property indemnities in other contracts with third parties,
such as contracts concerning the development and manufacture of our
products. As of September 30, 2014, we were not aware of any material
indemnification claims that were probable or reasonably possible of an
unfavorable outcome. Historically, claims that have been made under
the indemnification agreements have not had a material impact on our
operating results, financial position or cash flows; however, to the extent
that valid indemnification claims arise in the future, future payments by
us could be significant and could have a material adverse effect on our
results of operations or cash flows in a particular period.
Control Products & Solutions
The Control Products & Solutions segment combines a comprehensive
portfolio of intelligent motor control and industrial control products, application
expertise and project management capabilities. This comprehensive
portfolio includes:
•• Low and medium voltage electro-mechanical and electronic motor starters,
motor and circuit protection devices, AC/DC variable frequency drives,
push buttons, signaling devices, termination and protection devices,
relays, timers and condition sensors.
•• Value-added solutions ranging from packaged solutions such as configured
drives and motor control centers to automation and information solutions
where we provide design, integration and start-up services for custom-
engineered hardware and software systems primarily for manufacturing
applications.
•• Services designed to help maximize our customer’s automation investment
and provide total life-cycle support, including technical support and repair,
asset management, training, predictive and preventative maintenance,
and safety and network consulting.
Part II
Item 8 Financial Statements and Supplementary Data
We have maintained insurance coverage that we believe covers indemnity
and defense costs, over and above self-insured retentions, for claims
arising from our former Allen-Bradley subsidiary. Following litigation against
Nationwide Indemnity Company (Nationwide) and Kemper Insurance
(Kemper), the insurance carriers that provided liability insurance coverage
to Allen-Bradley, we entered into separate agreements on April 1, 2008
with both insurance carriers to further resolve responsibility for ongoing
and future coverage of Allen-Bradley asbestos claims. In exchange for a
lump sum payment, Kemper bought out its remaining liability and has been
released from further insurance obligations to Allen-Bradley. Nationwide
entered into a cost share agreement with us to pay the substantial majority
of future defense and indemnity costs for Allen-Bradley asbestos claims.
We believe that this arrangement with Nationwide will continue to provide
coverage for Allen-Bradley asbestos claims throughout the remaining life
of the asbestos liability.
The uncertainties of asbestos claim litigation make it difficult to predict
accurately the ultimate outcome of asbestos claims. That uncertainty is
increased by the possibility of adverse rulings or new legislation affecting
asbestos claim litigation or the settlement process. Subject to these
uncertainties and based on our experience defending asbestos claims,
we do not believe these lawsuits will have a material effect on our financial
condition or results of operations.
We have, from time to time, divested certain of our businesses. In connection
with these divestitures, certain lawsuits, claims and proceedings may be
instituted or asserted against us related to the period that we owned the
businesses, either because we agreed to retain certain liabilities related
to these periods or because such liabilities fall upon us by operation of
law. In some instances the divested business has assumed the liabilities;
however, it is possible that we might be responsible to satisfy those liabilities
if the divested business is unable to do so.
NOtE 15 Business Segment Information
Rockwell Automation is a leading global provider of industrial automation
power, control and information solutions that help manufacturers achieve
competitive advantages for their businesses. We determine our operating
segments based on the information used by our chief operating decision
maker, our Chief Executive Officer, to allocate resources and assess
performance. Based upon this information, we organized our products,
solutions and services into two operating segments: Architecture & Software
and Control Products & Solutions.
architecture & Software
The Architecture & Software segment contains all of the hardware, software
and communication components of our integrated control and information
architecture capable of controlling our customer’s industrial processes and
connecting with their business enterprise. Architecture & Software has a
broad portfolio of products including:
•• Control platforms that perform multiple control disciplines and monitoring
of applications, including discrete, batch and continuous process, drives
control, motion control and machine safety control. Our platform products
include controllers, electronic operator interface devices, electronic input/
output devices, communication and networking products and industrial
computers. The information-enabled Logix controllers provide integrated
multi-discipline control that is modular and scalable.
•• Software products that include configuration and visualization software
used to operate and supervise control platforms, advanced process
control software and manufacturing execution software (MES) that
addresses information needs between the factory floor and our customer’s
enterprise business system.
•• Other products, including rotary and linear motion control products,
sensors and machine safety components.
50
Rockwell Automation, Inc. - Form 10-K The following tables reflect the sales and operating results of our reportable segments for the years ended September 30 (in millions):
Part II
Item 8 Financial Statements and Supplementary Data
2014
2013
2012
2,845.3 $
3,778.2
6,623.5
$
2,682.0 $
3,669.9
6,351.9
$
2,650.4
3,609.0
6,259.4
Sales:
Architecture & Software
Control Products & Solutions
TOTAL
Segment operating earnings:
Architecture & Software
Control Products & Solutions
$
$
$
Total
Purchase accounting depreciation and amortization
General corporate-net
Non-operating pension costs(1)
Interest expense
INCOME BEFORE INCOME TAXES
(1) 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 the operating earnings of each segment and in general corporate-net. Non-
operating pension costs consist of 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 continue to include service cost and amortization of prior service cost in the business
segment that incurred the expense as these components of net periodic benefit cost represent the operating cost of providing pension benefits to our employees.
$
$
839.6 $
512.4
1,352.0
(21.6)
(81.0)
(55.9)
(59.3)
1,134.2
759.4 $
477.4
1,236.8
(19.3)
(97.2)
(78.5)
(60.9)
980.9
$
714.4
449.5
1,163.9
(19.8)
(82.9)
(35.2)
(60.1)
965.9
Among other considerations, we evaluate performance and allocate
resources based upon segment operating earnings before income taxes,
interest expense, costs related to corporate offices, non-operating pension
costs, certain nonrecurring corporate initiatives, gains and losses from
the disposition of businesses and purchase accounting depreciation
and amortization. Depending on the product, intersegment sales within a
single legal entity are either at cost or cost plus a mark-up, which does not
necessarily represent a market price. Sales between legal entities are at an
appropriate transfer price. We allocate costs related to shared segment
operating activities to the segments using a methodology consistent with
the expected benefit.
The following tables summarize the identifiable assets at September 30 and the provision for depreciation and amortization and the amount of capital
expenditures for property for the years ended September 30 for each of the reportable segments and Corporate (in millions):
Identifiable assets:
Architecture & Software
Control Products & Solutions
Corporate
TOTAL
Depreciation and amortization:
Architecture & Software
Control Products & Solutions
Corporate
Total
Purchase accounting depreciation and amortization
TOTAL
Capital expenditures for property:
Architecture & Software
Control Products & Solutions
Corporate
TOTAL
2014
2013
2012
$
$
$
$
$
$
1,874.5
2,273.7
2,081.3
6,229.5
64.8
65.9
0.2
130.9
21.6
152.5
33.6
51.2
56.2
141.0
$
$
$
$
$
$
1,653.4
2,200.0
1,991.2
5,844.6
68.1
57.7
0.1
125.9
19.3
145.2
31.5
52.8
61.9
146.2
$
$
$
$
$
$
1,648.4
2,270.7
1,717.4
5,636.5
61.6
57.1
0.1
118.8
19.8
138.6
24.6
55.3
59.7
139.6
Identifiable assets at Corporate consist principally of cash, net deferred
income tax assets, prepaid pension and property. Property shared by the
segments and used in operating activities is also reported in Corporate
identifiable assets and Corporate capital expenditures. Corporate identifiable
assets include shared net property balances of $294.1 million, $299.2 million
and $318.0 million at September 30, 2014, 2013 and 2012, respectively,
for which depreciation expense has been allocated to segment operating
earnings based on the expected benefit to be realized by each segment.
Corporate capital expenditures include $56.2 million, $61.9 million and
$59.7 million in 2014, 2013 and 2012, respectively, that will be shared
by our operating segments.
51
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
We conduct a significant portion of our business activities outside the United States. The following tables present sales and property by geographic
region (in millions):
United States
Canada
Europe, Middle East and Africa
Asia Pacific
Latin America
TOTAL
$
$
Sales
Property
2014
3,414.6 $
437.0
1,351.8
884.0
536.1
6,623.5 $
2013
3,202.9 $
468.7
1,284.9
851.9
543.5
6,351.9 $
2012
3,067.3 $
464.3
1,280.6
942.4
504.8
6,259.4 $
2014
497.5 $
7.6
48.8
37.3
41.7
632.9 $
2013
484.7 $
7.6
43.0
39.1
41.6
616.0 $
2012
458.8
8.6
41.6
39.4
38.7
587.1
We attribute sales to the geographic regions based on the country of
destination.
In the United States, Canada and certain other countries, we sell our
products primarily through independent distributors. In the remaining
countries, we sell products through a combination of direct sales and
sales through distributors. We sell large systems and service offerings
principally through our direct sales force, though opportunities are sometimes
identified through distributors. Sales to our largest distributor in 2014, 2013
and 2012, which are attributable to both segments, were approximately
10 percent of our total sales.
NOtE 16 Quarterly Financial Information (Unaudited)
(in millions, except per share amounts)
Sales
Gross profit
Income before income taxes
Net income
Earnings per share:
Basic
Diluted
(in millions, except per share amounts)
Sales
Gross profit
Income before income taxes
Net income
Earnings per share:
Basic
Diluted
$
$
First
1,591.7 $
663.7
272.8
198.1
2014 Quarters
Second
1,600.5 $
655.8
248.4
180.3
Third
1,649.5 $
681.5
274.0
199.7
Fourth
1,781.8 $
752.9
339.0
248.7
1.43
1.41
1.30
1.28
1.44
1.43
1.81
1.79
First
1,489.2 $
607.3
217.2
161.4
2013 Quarters
Second
1,522.8 $
616.4
227.1
175.9
Third
1,624.2 $
652.9
257.4
203.7
Fourth
1,715.7 $
697.2
279.2
215.3
1.16
1.14
1.25
1.24
1.46
1.45
1.55
1.53
2014
6,623.5
2,753.9
1,134.2
826.8
5.98
5.91
2013
6,351.9
2,573.8
980.9
756.3
5.43
5.36
Note: The sum of the quarterly per share amounts will not necessarily equal the annual per share amounts presented.
52
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
report of Independent registered Public accounting Firm
To the Board of Directors and Shareowners of
Rockwell Automation, Inc.
Milwaukee, Wisconsin
We have audited the accompanying consolidated balance sheets of Rockwell Automation, Inc. (the “Company”) as of September 30, 2014 and 2013,
and the related consolidated statements of operations, comprehensive income, cash flows, and shareowners’ equity for each of the three years in
the period ended September 30, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). We also have
audited the Company’s internal control over financial reporting as of September 30, 2014, based on criteria established in Internal Control — Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible
for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the Company’s
internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rockwell Automation,
Inc. as of September 30, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended September 30,
2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set
forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30,
2014, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 18, 2014
53
Rockwell Automation, Inc. - Form 10-K Part II
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ItEM 9 Changes in and Disagreements with accountants
on accounting and Financial Disclosure
None.
ItEM 9a Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated
the effectiveness, as of September 30, 2014, of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were
effective as of September 30, 2014.
Management’s report on Internal Control Over Financial reporting
We are responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rule 13a-15(f) under the
Exchange Act. Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
Under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, we
evaluated the effectiveness of our internal control over financial reporting
based on the framework in Internal Control — Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based upon that evaluation, management has
concluded that our internal control over financial reporting was effective
as of September 30, 2014.
The effectiveness of our internal control over financial reporting as of
September 30, 2014 has been audited by Deloitte & Touche LLP, as stated
in their report that is included on the previous two pages.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of the changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial reporting
There has not been any change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) during the fiscal
quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ItEM 9B Other Information
None.
54
Rockwell Automation, Inc. - Form 10-K Part III
Item 12 Security Ownership of Certain Beneficial Owners and management and Related Stockholder matters
Part III
ItEM 10 Directors, Executive Officers and Corporate Governance
Other than the information below, the information required by this Item is
incorporated by reference to the sections entitled Election of Directors,
Board of Directors and Committees and Section 16(a) Beneficial
Ownership Reporting Compliance in the Proxy Statement.
No nominee for director was selected pursuant to any arrangement or
understanding between the nominee and any person other than the
Company pursuant to which such person is or was to be selected as a
director or nominee. See also the information about executive officers of
the Company under Item 4A of Part I.
We have adopted a code of ethics that applies to our executive officers,
including the principal executive officer, principal financial officer and principal
accounting officer. A copy of our Code of Conduct is posted on our Internet
site at http://www.rockwellautomation.com under the “Investor Relations”
link. In the event that we amend or grant any waiver from a provision of
the code of ethics that applies to the principal executive officer, principal
financial officer or principal accounting officer and that requires disclosure
under applicable SEC rules, we intend to disclose such amendment or
waiver and the reasons therefor on our Internet site.
ItEM 11 Executive Compensation
The information required by this Item is incorporated by reference to the sections entitled Executive Compensation, Director Compensation and
Compensation Committee Report in the Proxy Statement.
ItEM 12 Security Ownership of Certain Beneficial Owners
and Management and related Stockholder Matters
Other than the information below, the information required by this Item is incorporated by reference to the sections entitled Ownership of Equity
Securities of the Company in the Proxy Statement.
The following table provides information as of September 30, 2014 about our common stock that may be issued upon the exercise of options, warrants
and rights granted to employees, consultants or directors under all of our existing equity compensation plans, including our 2012 Long-Term Incentives
Plan, 2008 Long-Term Incentives Plan, 2000 Long-Term Incentives Plan and 2003 Directors Stock Plan.
Number of Securities
to be issued
upon Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted Average
Exercise Price
of Outstanding
Options, Warrants
and Rights
(b)
75.65(2)
n/a
75.65
Number of Securities Remaining
Available for Future Issuance
under Equity Compensation
Plans (excluding Securities
reflected in Column (a))
(c)
Plan Category
Equity compensation plans approved by shareowners
Equity compensation plans not approved by shareowners
TOTAL
(1) Represents outstanding options and shares issuable in payment of outstanding performance shares (at maximum payout) and restricted stock units under our 2012 Long-Term
4,493,230(3)
—
4,493,230
—
5,000,574
5,000,574(1) $
$
Incentives Plan, 2008 Long-Term Incentives Plan, 2000 Long-Term Incentives Plan and 2003 Directors Stock Plan.
(2) Represents the weighted average exercise price of outstanding options and does not take into account the performance shares and restricted units.
(3) Represents 4,228,573 and 264,657 shares available for future issuance under our 2012 Long-Term Incentives Plan and our 2003 Directors Stock Plan, respectively.
55
Rockwell Automation, Inc. - Form 10-K
Part III
Item 13 Certain Relationships and Related transactions, and Director Independence
ItEM 13 Certain relationships and related transactions,
and Director Independence
The information required by this Item is incorporated by reference to the sections entitled Board of Directors and Committees and Corporate
Governance in the Proxy Statement.
ItEM 14 Principal accountant Fees and Services
The information required by this Item is incorporated by reference to the section entitled Proposal to Approve the Selection of Independent Registered
Public Accounting Firm in the Proxy Statement.
56
Rockwell Automation, Inc. - Form 10-K Part IV
Item 15 exhibits and Financial Statement Schedule
Part IV
ItEM 15 Exhibits and Financial Statement Schedule
(a) Financial Statements, Financial Statement Schedule and Exhibits
(1) Financial Statements (all financial statements listed below are those of the Company and its
consolidated subsidiaries)
Consolidated Balance Sheet, September 30, 2014 and 2013 .............................................................................................. 27
Consolidated Statement of Operations, years ended September 30, 2014, 2013 and 2012 .............................................. 28
Consolidated Statement of Comprehensive Income, years ended September 30, 2014, 2013 and 2012 ......................... 28
Consolidated Statement of Cash Flows, years ended September 30, 2014, 2013 and 2012 ............................................. 29
Consolidated Statement of Shareowners’ Equity, years ended September 30, 2014, 2013 and 2012 .............................. 30
Notes to Consolidated Financial Statements ........................................................................................................................ 31
report of Independent registered Public accounting Firm ................................................................................................ 53
(2) Financial Statement Schedule for the years ended September 30, 2014, 2013 and 2012
Schedule II—Valuation and Qualifying accounts ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� S-1
Schedules not filed herewith are omitted because of the absence of conditions under which they are required or
because the information called for is shown in the consolidated financial statements or notes thereto.
(3) Exhibits
3-a
3-b
4-a-3
4-a-2
4-a-1
Restated Certificate of Incorporation of the Company, filed as Exhibit 3 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002, is hereby incorporated by reference.
By-Laws of the Company, as amended and restated effective September 10, 2014, filed as Exhibit 3.2 to the Company’s Current Report
on Form 8-K dated September 15, 2014, are hereby incorporated by reference.
Indenture dated as of December 1, 1996 between the Company and The Bank of New York Trust Company, N.A. (formerly JPMorgan
Chase, successor to The Chase Manhattan Bank, successor to Mellon Bank, N.A.), as Trustee, filed as Exhibit 4-a to Registration
Statement No. 333-43071, is hereby incorporated by reference.
Form of certificate for the Company’s 6.70% Debentures due January 15, 2028, filed as Exhibit 4-b to the Company’s Current Report on
Form 8-K dated January 26, 1998, is hereby incorporated by reference.
Form of certificate for the Company’s 5.20% Debentures due January 15, 2098, filed as Exhibit 4-c to the Company’s Current Report on
Form 8-K dated January 26, 1998, is hereby incorporated by reference.
Form of certificate for the Company’s 5.65% Notes due December 31, 2017, filed as Exhibit 4.1 to the Company’s Current Report on
Form 8-K dated December 3, 2007, is hereby incorporated by reference.
Form of certificate for the Company’s 6.25% Debentures due December 31, 2037, filed as Exhibit 4.2 to the Company’s Current Report
on Form 8-K dated December 3, 2007, is hereby incorporated by reference.
Copy of the Company’s 2003 Directors Stock Plan, filed as Exhibit 4-d to the Company’s Registration Statement on Form S-8 (No. 333-101780),
is hereby incorporated by reference.
Form of Stock Option Agreement under Sections 7(a)(i) and 7(a)(ii) of the 2003 Directors Stock Plan, filed as Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, is hereby incorporated by reference.
*10-a-3 Memorandum of Amendments to the Company’s 2003 Directors Stock Plan approved and adopted by the Board of Directors of the
*10-a-1
*10-a-2
4-a-4
4-a-5
Company on April 25, 2003, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, is hereby incorporated by reference.
* Management contract or compensatory plan or arrangement.
57
Rockwell Automation, Inc. - Form 10-K Part IV
Item 15 exhibits and Financial Statement Schedule
*10-a-4
Summary of Non-Employee Director Compensation and Benefits as of October 1, 2013, filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2013, is hereby incorporated by reference.
*10-a-5 Memorandum of Amendments to the Company’s 2003 Directors Stock Plan approved and adopted by the Board of Directors of the
Company on November 7, 2007, filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December
31, 2007, is hereby incorporated by reference.
*10-a-6 Memorandum of Amendments to the Company’s 2003 Directors Stock Plan approved and adopted by the Board of Directors of the
*10-a-7
*10-a-8
*10-b-1
Company on September 3, 2008, filed as Exhibit 10-b-16 to the Company’s Annual Report on Form 10-K for the year ended September
30, 2008, is hereby incorporated by reference.
Form of Restricted Stock Unit Agreement under Section 6 of the Company’s 2003 Director’s Stock Plan, as amended, filed as Exhibit 10.3
to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, is hereby incorporated by reference.
Copy of the Company’s Directors Deferred Compensation Plan approved and adopted by the Board of Directors of the Company on
November 5, 2008, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008, is
hereby incorporated by reference.
Copy of the Company’s 2000 Long-Term Incentives Plan, as amended through February 4, 2004, filed as Exhibit 10-e-1 to the Company’s
Annual Report on Form 10-K for the year ended September 30, 2004, is hereby incorporated by reference.
*10-b-2 Memorandum of Proposed Amendments to the Rockwell International Corporation 2000 Long-Term Incentives Plan approved and
*10-b-3
adopted by the Board of Directors of the Company on June 6, 2001, in connection with the spinoff of Rockwell Collins, filed as Exhibit
10-e-4 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2001, is hereby incorporated by reference.
Forms of Stock Option Agreements under the Company’s 2000 Long-Term Incentives Plan, filed as Exhibit 10-e-6 to the Company’s
Annual Report on Form 10-K for the year ended September 30, 2002, are hereby incorporated by reference.
*10-b-4 Memorandum of Amendments to the Company’s 2000 Long-Term Incentives Plan, as amended, filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K dated April 7, 2005, is hereby incorporated by reference.
*10-b-5 Memorandum of Amendments to the Company’s 2000 Long-Term Incentives Plan, as amended, filed as Exhibit 99.1 to the Company’s
Current Report on Form 8-K dated November 4, 2005, is hereby incorporated by reference.
*10-c-4
*10-c-3
*10-c-1
*10-c-2
*10-b-7
*10-b-8
*10-b-6 Memorandum of Proposed Amendment and Restatement of the Company’s 2000 Long-Term Incentives Plan, as amended, approved
and adopted by the Board of Directors of the Company on November 7, 2007, filed as Exhibit 10.4 to the Company’s Quarterly Report
on Form 10-Q for the quarter ended December 31, 2007, is hereby incorporated by reference.
Forms of Stock Option Agreement under the Company’s 2000 Long-Term Incentives Plan, as amended, for options granted to executive
officers of the Company after December 1, 2007, filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2007, is hereby incorporated by reference.
Copy of resolutions of the Board of Directors of the Company, adopted December 5, 2007 and effective February 6, 2008, amending the
Company’s 2000 Long-Term Incentives Plan, as amended, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2008, is hereby incorporated by reference.
Copy of the Company’s 2008 Long-Term Incentives Plan, as amended and restated through June 4, 2010, filed as Exhibit 99 to the
Company’s Current Report on Form 8-K dated June 10, 2010, is hereby incorporated by reference.
Form of Stock Option Agreement under the Company’s 2008 Long-Term Incentives Plan, filed as Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, is hereby incorporated by reference.
Form of Restricted Stock Agreement under the Company’s 2008 Long-Term Incentives Plan, filed as Exhibit 10-e-3 to the Company’s
Annual Report on Form 10-K for the year ended September 30, 2008, is hereby incorporated by reference.
Forms of Stock Option Agreement under the Company’s 2008 Long-Term Incentives Plan for options granted to executive officers of
the Company after December 1, 2008, filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
December 31, 2008, is hereby incorporated by reference.
Form of Restricted Stock Agreement under the Company’s 2008 Long-Term Incentives Plan for shares of restricted stock awarded after
December 1, 2008, filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008,
is hereby incorporated by reference.
Form of Stock Option Agreement under the Company’s 2008 Long-Term Incentives Plan, as amended, for options granted to executive
officers of the Company after December 6, 2010, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2010, is hereby incorporated by reference.
Form of Restricted Stock Agreement under the Company’s 2008 Long-Term Incentives Plan, as amended, for shares of restricted stock
awarded to executive officers of the Company after December 6, 2010, filed as Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended December 31, 2010, is hereby incorporated by reference.
Form of Performance Share Agreement under the Company’s 2008 Long-Term Incentives Plan, as amended, for performance shares
awarded to executive officers of the Company after December 6, 2010, filed as Exhibit 10.3 to the Company’s Quarterly Report on Form
10-Q for the quarter ended December 31, 2010, is hereby incorporated by reference.
Form of Stock Option Agreement under the Company’s 2008 Long-Term Incentives Plan, as amended, for options granted to executive
officers of the Company after November 30, 2011, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2011, is hereby incorporated by reference.
*10-c-5
*10-c-7
*10-c-8
*10-c-9
*10-c-6
*10-c-10 Form of Restricted Stock Agreement under the Company’s 2008 Long-Term Incentives Plan, as amended, for shares of restricted stock
awarded to executive officers of the Company after November 30, 2011, filed as Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended December 31, 2011, is hereby incorporated by reference.
*10-c-11 Form of Performance Share Agreement under the Company’s 2008 Long-Term Incentives Plan, as amended, for performance shares
awarded to executive officers of the Company after November 30, 2011, filed as Exhibit 10.3 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended December 31, 2011 is hereby incorporated by reference.
* Management contract or compensatory plan or arrangement.
58
Rockwell Automation, Inc. - Form 10-K Part IV
Item 15 exhibits and Financial Statement Schedule
*10-c-12 Copy of the Company's 2012 Long-Term Incentives Plan, filed as Exhibit 4-c to the Company's Registration Statement on Form S-8
(No. 333-180557), is hereby incorporated by reference.
*10-c-13 Form of Stock Option Agreement under the Company's 2012 Long-Term Incentives Plan for options granted to executive officers of
the Company after December 5, 2012, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 2012, is hereby incorporated by reference.
*10-c-14 Form of Restricted Stock Agreement under the Company's 2012 Long-Term Incentives Plan for shares of restricted stock awarded to
executive officers of the Company after December 5, 2012, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 2012 is hereby incorporated by reference.
*10-c-15 Form of Performance Share Agreement under the Company's 2012 Long-Term Incentives Plan for performance shares awarded to
*10-d
*10-e-1
executive officers of the Company after December 5, 2012, filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 2012 is hereby incorporated by reference.
Copy of resolutions of the Compensation and Management Development Committee of the Board of Directors of the Company, adopted
February 5, 2003, regarding the Corporate Office vacation plan, filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2003, is hereby incorporated by reference.
Copy of the Company’s Deferred Compensation Plan, as amended and restated September 6, 2006, filed as Exhibit 10-f to the
Company’s Annual Report on Form 10-K for the year ended September 30, 2006, is hereby incorporated by reference.
*10-e-2 Memorandum of Proposed Amendment and Restatement of the Company’s Deferred Compensation Plan approved and adopted by
*10-f-1
*10-f-2
*10-g-1
*10-g-2
*10-g-3
*10-g-4
*10-g-5
10-h-1
10-h-2
10-h-3
10-i-l
10-i-2
10-i-3
10-j-1
10-j-2
10-j-3
10-k-1
10-k-2
10-k-3
the Board of Directors of the Company on November 7, 2007, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended December 31, 2007, is hereby incorporated by reference.
Copy of the Company’s Annual Incentive Compensation Plan for Senior Executive Officers, as amended December 3, 2003, filed as
Exhibit 10-h-1 to the Company’s Annual Report for the year ended September 30, 2004, is hereby incorporated by reference.
Copy of the Company’s Incentive Compensation Plan, filed as Exhibit 10 to the Company’s Current Report on Form 8-K dated
September 7, 2005, is hereby incorporated by reference.
Change of Control Agreement dated as of September 30, 2013 between the Company and Keith D. Nosbusch, filed as Exhibit 99.1 to
the Company’s Current Report on Form 8-K dated October 2, 2013, is hereby incorporated by reference.
Form of Change of Control Agreement dated as of September 30, 2013 between the Company and each of Theodore D. Crandall,
Frank C. Kulaszewicz, Blake D. Moret and Robert A. Ruff and certain other corporate officers filed as Exhibit 99.2 to the Company’s
Current Report on Form 8-K dated October 2, 2013, is hereby incorporated by reference.
Letter Agreement dated September 3, 2009 between the Company and Keith D. Nosbusch, filed as Exhibit 99.1 to the Company’s
Current Report on Form 8-K dated September 8, 2009, is hereby incorporated by reference.
Letter Agreement dated September 3, 2009 between Registrant and Theodore D. Crandall, filed as Exhibit 99.2 to the Company’s
Current Report on Form 8-K dated September 8, 2009, is hereby incorporated by reference.
Description of relocation and expatriate package for Robert A. Ruff, contained in the Company’s Current Report on Form 8-K dated April 8,
2011, is hereby incorporated by reference.
Agreement and Plan of Distribution dated as of December 6, 1996, among Rockwell International Corporation (renamed Boeing North
American, Inc.), the Company (formerly named New Rockwell International Corporation), Allen-Bradley Company, Inc., Rockwell Collins, Inc.,
Rockwell Semiconductor Systems, Inc., Rockwell Light Vehicle Systems, Inc. and Rockwell Heavy Vehicle Systems, Inc., filed as Exhibit l0-b
to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, is hereby incorporated by reference.
Post-Closing Covenants Agreement dated as of December 6, 1996, among Rockwell International Corporation (renamed Boeing North
American, Inc.), The Boeing Company, Boeing NA, Inc. and the Company (formerly named New Rockwell International Corporation), filed as
Exhibit 10-c to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, is hereby incorporated by reference.
Tax Allocation Agreement dated as of December 6, 1996, among Rockwell International Corporation (renamed Boeing North American,
Inc.), the Company (formerly named New Rockwell International Corporation) and The Boeing Company, filed as Exhibit 10-d to the
Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, is hereby incorporated by reference.
Distribution Agreement dated as of September 30, 1997 by and between the Company and Meritor Automotive, Inc., filed as Exhibit 2.1
to the Company’s Current Report on Form 8-K dated October 10, 1997, is hereby incorporated by reference.
Employee Matters Agreement dated as of September 30, 1997 by and between the Company and Meritor Automotive, Inc., filed as
Exhibit 2.2 to the Company’s Current Report on Form 8-K dated October 10, 1997, is hereby incorporated by reference.
Tax Allocation Agreement dated as of September 30, 1997 by and between the Company and Meritor Automotive, Inc., filed as
Exhibit 2.3 to the Company’s Current Report on Form 8-K dated October 10, 1997, is hereby incorporated by reference.
Distribution Agreement dated as of December 31, 1998 by and between the Company and Conexant Systems, Inc., filed as Exhibit 2.1
to the Company’s Current Report on Form 8-K dated January 12, 1999, is hereby incorporated by reference.
Amended and Restated Employee Matters Agreement dated as of December 31, 1998 by and between the Company and Conexant
Systems, Inc., filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K dated January 12, 1999, is hereby incorporated by reference.
Tax Allocation Agreement dated as of December 31, 1998 by and between the Company and Conexant Systems, Inc., filed as Exhibit
2.3 to the Company’s Current Report on Form 8-K dated January 12, 1999, is hereby incorporated by reference.
Distribution Agreement dated as of June 29, 2001 by and among the Company, Rockwell Collins, Inc. and Rockwell Scientific Company
LLC, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated July 11, 2001, is hereby incorporated by reference.
Employee Matters Agreement dated as of June 29, 2001 by and among the Company, Rockwell Collins, Inc. and Rockwell Scientific
Company LLC, filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K dated July 11, 2001, is hereby incorporated by reference.
Tax Allocation Agreement dated as of June 29, 2001 by and between the Company and Rockwell Collins, Inc., filed as Exhibit 2.3 to the
Company’s Current Report on Form 8-K dated July 11, 2001, is hereby incorporated by reference.
* Management contract or compensatory plan or arrangement.
59
Rockwell Automation, Inc. - Form 10-K Part IV
Item 15 exhibits and Financial Statement Schedule
10-l
10-m
10-n-1
10-n-2
12
21
23
24
$750,000,000 Four-Year Credit Agreement dated as of May 22, 2013 among the Company, the Banks listed on the signature pages
thereof, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and The Bank of New
York Mellon, BMO Harris Bank N.A., Citibank, N.A., Deutsche Bank Securities Inc., The Northern Trust Company, PNC Bank National
Association, U.S. Bank National Association, and Wells Fargo Bank, National Association, as Documentation Agents, filed as Exhibit 99
to the Company’s Current Report on Form 8-K dated May 28, 2013, is hereby incorporated by reference.
Purchase and Sale Agreement dated as of August 24, 2005 by and between the Company and First Industrial Acquisitions, Inc., including
the form of Lease Agreement attached as Exhibit I thereto, together with the First Amendment to Purchase and Sale Agreement dated
as of September 30, 2005 and the Second Amendment to Purchase and Sale Agreement dated as of October 31, 2005, filed as
Exhibit 10-p to the Company’s Annual Report on Form 10-K for the year ended September 30, 2005, is hereby incorporated by reference.
Purchase Agreement, dated as of November 6, 2006, by and among Rockwell Automation, Inc., Rockwell Automaton of Ohio, Inc.,
Rockwell Automation Canada Control Systems, Grupo Industrias Reliance S.A. de C.V., Rockwell Automation GmbH (formerly known as
Rockwell International GmbH) and Baldor Electric Company, contained in the Company’s Current Report on Form 8-K dated November 9,
2006, is hereby incorporated by reference.
First Amendment to Purchase Agreement dated as of January 24, 2007 by and among Rockwell Automation, Inc., Rockwell Automation
of Ohio, Inc., Rockwell Automation Canada Control Systems, Grupo Industrias Reliance S.A. de C.V., Rockwell Automation GmbH and
Baldor Electric Company, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, is
hereby incorporated by reference.
Computation of Ratio of Earnings to Fixed Charges for the Five Years Ended September 30, 2014.
List of Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney authorizing certain persons to sign this Annual Report on Form 10-K on behalf of certain directors and officers of the
Company.
Certification of Periodic Report by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Certification of Periodic Report by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Certification of Periodic Report by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Periodic Report by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Interactive Data Files.
31.1
31.2
32.1
32.2
101
* Management contract or compensatory plan or arrangement.
60
Rockwell Automation, Inc. - Form 10-K Part IV
Item 15 exhibits and Financial Statement Schedule
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: November 18, 2014
Pursuant to the requirements of the Securities Exchange act of 1934, this report has been signed below on the 18th day of November 2014 by
the following persons on behalf of the registrant and in the capacities indicated.
rOCKWELL aUtOMatION, INC.
By
/s/ Theodore d. Crandall
theodore D. Crandall
Senior Vice President and
Chief Financial Officer
By
By
*By
**By
/s/ Theodore d. Crandall
theodore D. Crandall
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ david M. dorgan
David M. Dorgan
Vice President and Controller
(Principal accounting Officer)
Keith D. Nosbusch*
Chairman of the Board,
President and
Chief Executive Officer
(Principal Executive Officer)
and Director
Betty C. Alewine*
Director
J. Phillip Holloman*
Director
Verne G. Istock*
Director
Barry C. Johnson*
Director
Steven R. Kalmanson*
Director
James P. Keane*
Director
Lawrence D. Kingsley*
Director
William T. McCormick, Jr.*
Director
Donald R. Parfet *
Director
/s/ douglas M. hagerMan
Douglas M. Hagerman, attorney-in-fact**
authority of powers of attorney filed herewith
ItEM 15 Exhibits and Financial Statement Schedule
61
Rockwell Automation, Inc. - Form 10-K
Part IV
Item 15 exhibits and Financial Statement Schedule
Schedule II
rockwell automation, Inc.
Valuation and Qualifying accounts
FOr tHE YEarS ENDED SEPtEMBEr 30, 2014, 2013 aND 2012
Additions
Balance at
Beginning of Year
Charged to
Costs and
Expenses
Charged
to Other
Accounts
Balance at
End of Year
Deductions(b)
$
(in millions)
Description
*Year ended September 30, 2014
Allowance for doubtful accounts(a)
Valuation allowance for deferred tax assets
*Year ended September 30, 2013
Allowance for doubtful accounts(a)
Valuation allowance for deferred tax assets
*Year ended September 30, 2012
Allowance for doubtful accounts(a)
Valuation allowance for deferred tax assets
(a)
(b) Consists of amounts written off for the allowance for doubtful accounts and adjustments resulting from our ability to utilize foreign tax credits, capital losses, or net operating
Includes allowances for current and other long-term receivables.
25.3 $
28.3
30.8 $
31.8
28.9 $
32.8
6.5 $
4.0
9.6 $
5.0
— $
0.5
2.8 $
2.3
7.8 $
1.0
— $
0.5
8.3 $
5.8
5.9 $
2.5
— $
—
22.2
27.8
30.8
31.8
25.3
28.3
$
$
loss carryforwards for which a valuation allowance had previously been recorded.
Amounts reported relate to continuing operations in all periods presented.
*
S-1
Rockwell Automation, Inc. - Form 10-K
Index to Exhibits*
Part IV
INDeX tO eXHIBItS
Exhibit No. Exhibit
12
21
23
24
31.1
31.2
32.1
32.2
101
*
Computation of Ratio of Earnings to Fixed Charges for the Five Years Ended September 30, 2014.
List of Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney authorizing certain persons to sign this Annual Report on Form 10-K on behalf of certain directors and officers
of the Company.
Certification of Periodic Report by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Certification of Periodic Report by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Certification of Periodic Report by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Periodic Report by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Interactive Data Files.
See Part IV, Item 15(a)(3) for exhibits incorporated by reference.
E-1
Rockwell Automation, Inc. - Form 10-K
Part IV
eXHIBIt 31�1
EXHIBIt 31.1 Certification
I, Keith D. Nosbusch, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Rockwell Automation, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: November 18, 2014
/s/ KeiTh d. nosbusCh
Keith D. Nosbusch
Chairman, President and
Chief Executive Officer
E-2
Rockwell Automation, Inc. - Form 10-K
Part IV
eXHIBIt 31�2
EXHIBIt 31.2 Certification
I, Theodore D. Crandall, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Rockwell Automation, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: November 18, 2014
/s/ Theodore d. Crandall
Theodore D. Crandall
Senior Vice President and
Chief Financial Officer
Rockwell
Automation, Inc. - Form 10-K E-3
Part IV
eXHIBIt 32�1
EXHIBIt 32.1 Certification of Periodic report
I, Keith D. Nosbusch, Chairman, President and Chief Executive Officer of Rockwell Automation, Inc. (the “Company”), hereby certify pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1)
the Annual Report on Form 10-K of the Company for the year ended September 30, 2014 (the “Report”) fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 18, 2014
/s/ KeiTh d. nosbusCh
Keith D. Nosbusch
Chairman, President and
Chief Executive Officer
E-4
Rockwell Automation, Inc. - Form 10-K
Part IV
eXHIBIt 32�2
EXHIBIt 32.2 Certification of Periodic report
I, Theodore D. Crandall, Senior Vice President and Chief Financial Officer of Rockwell Automation, Inc. (the “Company”), hereby certify pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1)
the Annual Report on Form 10-K of the Company for the year ended September 30, 2014 (the “Report”) fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 18, 2014
/s/ Theodore d. Crandall
Theodore D. Crandall
Senior Vice President and
Chief Financial Officer
Rockwell Automation, Inc. - Form 10-K E-5
(This page intentionally left blank)
Rockwell Automation, Inc.
Adjusted EPS, Return On Invested
Capital, and Comparison of Five-Year
Cumulative Total Return
This section does not constitute part of our Annual Report on
Form 10-K for the fiscal year ended September 30, 2014.
Supplemental Information
Adjusted EPS
Our annual report contains information regarding Adjusted EPS, which is a non-GAAP measure that excludes 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 com-
ponents 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 EPS provides useful
information to our investors about our operating performance and allow management and investors to compare our operating per-
formance period over period. Our measure of Adjusted EPS may be different from measures used by other companies. This non-GAAP
measure should not be considered a substitute for diluted EPS.
The following are the components of operating and non-operating pension costs (in millions):
Service cost
Amortization of prior service credit
Operating pension costs
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Other
Non-operating pension costs
Year ended September 30,
2014
$78.5
(2.7)
75.8
174.2
(217.9)
99.7
(0.1)
55.9
2013
$92.1
(2.5)
89.6
160.2
(226.3)
144.6
—
78.5
2012
$71.8
(2.3)
69.5
167.6
(228.1)
94.7
1.0
35.2
Net periodic pension cost
$131.7
$168.1
$104.7
2011
$70.1
(2.2)
67.9
163.9
(204.5)
63.7
0.4
23.5
$91.4
The following is a reconciliation of diluted EPS from continuing operations to Adjusted EPS:
Year Ended September 30,
2014
2013
2012
2011
Diluted EPS from continuing operations
Non-operating pension costs per diluted share, before tax
Tax effect of non-operating pension costs per diluted share
$5.91
0.40
(0.14)
$5.36
0.55
(0.20)
$5.13
0.25
(0.09)
$4.79
0.16
(0.06)
Adjusted EPS
$ 6.17
$ 5.71
$ 5.29
$ 4.89
This page does not constitute part of our Annual Report on Form 10-K for the fiscal year ended September 30, 2014.
Return On Invested Capital
Our annual report 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 moni-
tor 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)
(a) Return
Income from continuing operations
Interest expense
Income tax provision
Purchase accounting depreciation and amortization
Return
(b) Average Invested Capital
Short-term debt
Long-term debt
Shareowners’ equity
Accumulated amortization of goodwill and intangibles
Cash and cash equivalents
Short-term investments
Average invested capital
(c) Effective Tax Rate
Income tax provision
Income from continuing operations before income taxes
Effective tax rate
(a) / (b) * (1-c) Return On Invested Capital
Twelve Months Ended
September 30,
2014
2013
2012
2011
$826.8
$756.3
59.3
307.4
21.6
60.9
224.6
19.3
$737.0
60.1
228.9
19.8
1,215.1
1,061.1
1,045.8
275.5
905.3
2,680.7
772.7
209.0
905.0
2,086.7
775.2
(1,210.6)
(1,010.2)
(485.2)
(361.7)
207.2
905.0
1,881.5
751.0
(878.8)
(232.5)
$697.1
59.5
170.5
19.8
946.9
—
904.9
1,709.7
716.7
(922.7)
—
2,938.4
2,604.0
2,633.4
2,408.6
307.4
$1,134.2
27.1%
30.1%
224.6
$980.9
22.9%
228.9
$965.9
23.7%
31.4%
30.3%
170.5
$867.6
19.7%
31.6%
This page does not constitute part of our Annual Report on Form 10-K for the fiscal year ended September 30, 2014.
Comparison of Five-Year Cumulative Total Return
Rockwell Automation,
S&P 500 Index and S&P Electrical Components & Equipment
The following line graph compares the cumulative total shareowner return on our Common Stock against the
cumulative total return of the S&P Composite-500 Stock Index and the S&P Electrical Components & Equipment
Index for the period of five fiscal years from October 1, 2009 to September 30, 2014, assuming in each case a fixed
investment of $100 at the respective closing prices on September 30, 2009 and reinvestment of all dividends.
$350
$300
$250
$200
$150
$100
$0
2009
2010
2011
2012
2013
2014
Rockwell Automation
S&P 500 Index
S&P Electrical Components & Equipment
The cumulative total returns on Rockwell Automation Common Stock and each index as of each September 30, 2009 - 2014
plotted in the above graph are as follows:
2009
2010
2011
2012
2013
2014
Rockwell Automation*
$100.00
$148.25
$137.34
$174.60
$ 274.45
$287.53
S&P 500 Index
100.00
110.16
111.42
145.07
173.13
207.30
S&P Electrical Components & Equipment
100.00
132.87
111.69
149.11
205.91
204.58
Cash dividends per common share
1.16
1.22
1.475
1.745
1.98
2.32
* Includes the reinvestment of all dividends in our Common Stock.
This page does not constitute part of our Annual Report on Form 10-K for the fiscal year ended September 30, 2014.
ROCKWELL AUTOMATION
1201 South Second Street Milwaukee, WI 53204 USA
+1 (414) 382-2000 | www.rockwellautomation.com