B R I N G I N G T H E C O N N E C T E D E N T E R P R I S E T O L I F E
2016 A N N UA L R E P O R T & F O R M 10 - K
2 0 1 6 F I N A N C I A L H I G H L I G H T S
Dollars in millions, except per share amounts
Sales
Segment operating earnings1
Net income
Diluted earnings per share
Adjusted earnings per share1
Sales by segment:
Architecture & Software
Control Products & Solutions
Return on invested capital1
Free cash flow1
Sales dollars in millions
Architecture & Software
Control Products & Solutions
2013
$6,351.9
1,236.8
756.3
5.36
5.71
2,682.0
3,669.9
31.4%
900.5
2014
$6,623.5
1,352.0
826.8
5.91
6.17
2,845.3
3,778.2
30.1%
922.2
2015
$6,307.9
1,360.5
827.6
6.09
6.40
2,749.5
3,558.4
32.6%
1,077.2
2016
$5,879.5
1,188.7
729.7
5.56
5.93
2,635.2
3,244.3
33.0%
833.7
Adjusted EPS1
$5.71
$6.17
$6.40
$5.93
$6,351.9
$6,623.5
$6,307.9
$5,879.5
13
14
15
16
13
14
15
16
Return on
Invested Capital1
Free Cash Flow1
dollars in millions
31.4%
30.1%
32.6%
33.0%
$900.5
$922.2
$1,077.2
$833.7
13
14
15
16
13
14
15
16
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.
Featured on the report cover is the Rockwell Automation Factory Talk TeamONE smartphone app. TeamONE works without
a server and without any setup, and connects directly to plant floor Ethernet IP devices. Learn more at www.33seconds.io
2
“I am deeply honored to lead Rockwell Automation
at such an exciting time, as we work with customers
around the world to bring The Connected Enterprise
to life. The value we provide to industrial companies
enables superior financial returns, making us a
great investment for shareowners.”
Blake Moret » President and Chief Executive Officer
T O O U R S H A R E O W N E R S:
Fiscal 2016 was a year of opportunity
despite mixed business conditions, as
we developed even more ways to help
our customers be more competitive. Our
offerings enable industrial companies to
thrive amidst long-term global trends
that are also creating opportunity for us.
These trends include a growing middle
class in emerging markets, an aging
workforce that has created significant
skill gaps, globalization that is driving
fierce competition, and the rapid pace
of technology innovation.
These advancements in technology have
reduced the costs of connectivity, and
they have also unlocked opportunities
to utilize information created as a
natural by-product of plant floor control
processes. With our plant floor know-
how, innovative spirit and unmatched
partner network, Rockwell Automation
is extremely well positioned to team
with our customers to realize the most
value from these advancements. We
call the vision of greater productivity
from integrated control and information
The Connected Enterprise.
The Connected Enterprise unlocks
new value regardless of where our
customers are in their individual
journeys. Some are creating new
capacity, others have an aging installed
base and must soon update. However,
regardless of the industry or application,
our approach is consistent and it
involves three main elements:
• Understand our customers and the
best opportunities for productivity
in their industries and applications.
This understanding fosters loyalty.
• Combine our technology innovation
and domain expertise to deliver
positive business outcomes for
our customers. This combination
increases customer share, preserves
margins and reduces cyclicality.
• Simplify our customers’ experience,
because simplification drives
productivity for our customers
and for us.
Rockwell Automation at a Glance
WORLD’S LARGEST COMPANY
DEDICATED TO INDUSTRIAL
AUTOMATION & INFORMATION
80+
Countries
$5.9
Billion Fiscal 2016 Sales
113 Years
Serving
Customers for
INNOVATION (cid:127) DOMAIN EXPERTISE (cid:127) CULTURE
OF INTEGRITY & CORPORATE RESPONSIBILITY
22,000
Employees
AUTOMATION
SOLUTIONS
FOR A BROAD
RANGE OF INDUSTRIES
3
“These acquisitions further strengthen our technology differentiation,
increase our domain expertise, and expand market access.”
The Connected Enterprise becomes
meaningful to customers when the value
is described in their specific language. For
example, a food producer is concerned
about overall equipment efficiency gains
across multiple lines and multiple sites.
A pharmaceutical customer needs to
understand how we can help serialize
their product to comply with industry
regulations. Auto manufacturers care
about vehicle scheduling, a mining
customer wants to know about ore yield,
and an upstream oil and gas customer
cares about wellhead optimization. The
benefits of The Connected Enterprise
become tangible to customers when
we personalize its promise.
Fiscal 2016: We executed very
well in difficult conditions
Throughout fiscal 2016, we’ve talked
about significant declines in heavy
industry verticals, particularly oil and
gas, and mining. Weak heavy industry
performance impacted Process and
Logix performance, which were down
16 percent and 4 percent for the year,
respectively.2
Consumer verticals were up, which
reflects our continued success with
machine builders. After several
strong years, automotive continues
to grow, including the contribution
from our powertrain initiative. And we
saw double-digit growth in revenue
streams related to new value from
The Connected Enterprise.
With respect to financial performance,
we were able to keep our segment
operating margin3 above 20 percent
despite 7 percent lower reported sales.
We had another good year of free cash
flow conversion. We continued to return
cash to shareowners, almost $900 million
during fiscal 2016. On Nov. 2, 2016, we
announced a 5 percent increase in
the annual dividend. This reflects our
confidence in sustained free cash flow
through the cycle.
To accelerate the execution of our
strategy, we acquired three great
companies during fiscal 2016. These
acquisitions further strengthen our
technology differentiation, increase
our domain expertise, and expand
market access.
• MagneMotion adds to our
portfolio of innovative motion
control solutions for consumer
and transportation verticals.
• Automation Control Products adds
new value to our software offering
in applications across all industries.
• MAVERICK Technologies adds
expertise in chemical, consumer,
life sciences, and oil and gas
industry applications.
Strong Foundation,
Exciting Prospects
We’re increasing our value to customers,
beginning with new releases in our core
platforms. Information solutions and
connected services are set to grow at
an even faster rate, and acquisitions are
accelerating the execution of our strategy.
The high value we provide customers
drives our financial performance.
The results we’ve driven wouldn’t happen
without the passion and commitment of
our 22,000 talented employees. I couldn’t
be more proud to lead them. We have a
strong tradition of integrity and ethics in
our company—one that has led us to be
recognized for the eighth time as one of
the “World’s Most Ethical Companies” by
Ethisphere Institute.
During fiscal 2017, we’ll continue to build
on our great strengths. Our customers
are starting to see the tangible benefits
of The Connected Enterprise, and we’re
as committed as ever to helping them,
and us, successfully compete in the
global market. Finally, we’ll continue to
work hard to deliver superior returns for
your investment.
I believe these acquisitions will help
us grow market share.
Blake Moret
President and Chief Executive Officer
2 Excludes the impact of currency translation. Please see the Form 10-K for additional information on these measures.
3 Segment operating margin is a non-GAAP financial measure. Please see the Form 10-K for the definition and calculation of this measure.
4
Keith Nosbusch » Chairman of the Board
On June 30, 2016, Keith Nosbusch
stepped down after 12 years as CEO
of Rockwell Automation. His leadership,
vision and commitment positioned the
company for a strong and successful
future. As CEO, he grew the company’s
revenue above market growth, and
cumulative total shareowner return was
an exceptional 400 percent, almost three
times the total return of the S&P 500
during the same period.
Keith began his career in 1974 when he
joined Allen-Bradley as an application
engineer. He went on to serve in
important leadership roles, including
leading the company’s Architecture
and Software business where he was
responsible for launching Logix, the
company’s premier integrated control
and information platform.
The hallmark of Keith’s leadership has
always been his focus on innovation, his
unwavering commitment to customers,
and his belief that every day, in every
situation, we work with integrity.
Here are a few important highlights
from Keith’s leadership as CEO:
• Grew our global footprint and
diversified into a broader range
of industries and applications
to become the global leader in
industrial safety and a process
industry player.
• Created The Connected Enterprise
vision and strategy, transforming
Rockwell Automation into an industrial
software company with an intellectual
capital business model and named
one of the 25 best tech companies
in America by Business Insider.
• Expanded operating margins
significantly while increasing
R&D (research and development)
and optimized global business
processes leading to sustainable
profitable growth.
Understanding that driving customer
value comes from creating a culture
where every employee can do their
best work, Keith was committed to
fostering a globally diverse workforce.
His commitment to integrity is reflected
in Ethisphere Institute recognizing
Rockwell Automation as one of the
“World’s Most Ethical Companies” eight
times during Keith’s tenure.
In addition, Keith is widely known for
his focused philanthropic strategy
and advocacy of science, technology,
engineering and mathematics (STEM)
education to develop a future technical
pipeline for Rockwell Automation and
the industry.
Thousands of employees, customers,
partners and shareowners around
the world have benefited from Keith’s
leadership. He guided Rockwell
Automation through times of prosperity
and economic hardships, all the while
with a steady hand, clear vision and
commitment to quality. Thanks to Keith’s
leadership, Rockwell Automation has a
strong foundation for a prosperous future.
5
2 0 1 6 O F F I C E R S
Blake D. Moret
President and
Chief Executive Officer
Douglas M. Hagerman
Senior Vice President,
General Counsel and Secretary
Kenneth M. Champa
Senior Vice President
Frank C. Kulaszewicz
Senior Vice President
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
6
John P. McDermott
Senior Vice President
John M. Miller
Vice President and
Chief Intellectual
Property Counsel
Robert B. Murphy
Senior Vice President,
Operations and
Engineering Services
Susan J. Schmitt
Senior Vice President,
Human Resources
2 0 1 6 B O A R D O F D I R E C T O R S
Keith D. Nosbusch
Chairman of the Board
Betty C. Alewine
Retired President and
Chief Executive Officer,
COMSAT Corporation
J. Phillip Holloman
President and
Chief Operating Officer,
Cintas Corporation
Steven R. Kalmanson
Retired Executive
Vice President,
Kimberly-Clark Corporation
James P. Keane
President and
Chief Executive Officer,
Steelcase Inc.
Lawrence D. Kingsley
Former Chairman and
Chief Executive Officer,
Pall Corporation
William T. McCormick, Jr.
Retired Chairman and
Chief Executive Officer,
CMS Energy Corporation
Blake D. Moret
President and
Chief Executive Officer
Donald R. Parfet
Managing Director,
Apjohn Group, LLC
Lisa A. Payne
Chairman of the Board,
Soave Enterprises LLC
and President,
Soave Real Estate Group
Thomas W. Rosamilia
Senior Vice President,
IBM Systems
7
2 0 1 6 G E N E R A L I N F O R M A T I O N
Rockwell Automation
Global Headquarters
1201 South Second Street
Milwaukee, WI 53204
+1 (414) 382-2000
www.rockwellautomation.com
Investor Relations
Securities analysts should call:
Patrick Goris
Investor Relations
+1 (414) 382-8510
Corporate Public Relations
Members of the news media should call:
Kari B. Pfisterer
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. 7, 2017, at 5:30 p.m. CST.
A notice of the meeting and proxy materials will be furnished
to shareowners in December 2016.
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: +1 (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
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
8
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
+1 (800) 204-7800 or +1 (651) 450-4064
www.shareowneronline.com
Transfer Agent and Registrar
Wells Fargo Shareowner Services
PO Box 64874
St. Paul, MN 55164-0874
+1 (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: +1 (800) 552-3589
Fax: +1 (414) 382-8485
Email: ombudsman@ra.rockwell.com
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
555 East Wells Street, Suite 1400
Milwaukee, WI 53202
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
VISIT OUR ONLINE ANNUAL REPORT FOR COMPANY INFORMATION AND VISUAL CONTENT AT:
www.rockwellautomation.com/investors
9
2 0 1 6 R O C K W E L L A U T O M A T I O N F O R M 1 0 - K
10
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, 2016
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, 2016 was approximately $14.7 billion.
128,229,158 shares of registrant’s Common Stock, par value $1 per share, were outstanding on October 31, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of registrant to be held on February 7, 2017 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���������55
ITEM 9A Controls and Procedures ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������55
ITEM 9B Other Information ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������55
PART III
ITEM 10
ITEM 11
ITEM 12
ITEM 13
ITEM 14
PART IV
Directors, Executive Officers and Corporate Governance �����������������������������������������������������������������������������������������������������������������������56
Executive Compensation��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������56
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������56
Certain Relationships and Related Transactions, and Director Independence ��������������������������������������������������57
Principal Accountant Fees and Services ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������57
56
58
ITEM 15
Exhibits and Financial Statement Schedule �����������������������������������������������������������������������������������������������������������������������������������������������������������������������58
SIGNATURES ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������62
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
countries where we do business;
•• the successful development of advanced technologies and demand for
•• intellectual property infringement claims by others and the ability to
protect our intellectual property;
•• the uncertainty of claims by taxing authorities in the various jurisdictions
where we do business;
•• our ability to attract and retain qualified personnel;
•• our ability to manage costs related to employee retirement and health
care benefits;
•• the uncertainties of litigation, including liabilities related to the safety and
security of the products, solutions and services we sell;
•• our ability to manage and mitigate the risks associated with our solutions
and services businesses;
•• a disruption to our distribution channels;
•• the availability and price of components and materials;
and market acceptance of new and existing products;
•• the successful integration and management of acquired businesses;
•• the availability, effectiveness and security of our information technology
•• the successful execution of our cost productivity initiatives; and
systems;
•• competitive products, solutions and services and pricing pressures,
and our ability to provide high quality products, solutions and services;
•• a disruption of our business due to natural disasters, pandemics, acts
of war, strikes, terrorism, social unrest or other causes;
•• our ability to manage and mitigate the risk related to security vulnerabilities
and breaches of our products, solutions and services;
•• 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. (“Rockwell Automation” or “the Company”),
a leader in industrial automation and information, makes its customers
more productive and the world more sustainable. Our products, solutions
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”, “Rockwell Automation” or
the “Company” 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 7, 2017 (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 2016, our total sales were $5.88 billion. Our
Architecture & Software operating segment recorded sales of $2.64 billion
(45 percent of our total sales) in 2016. Our Control Products & Solutions
operating segment recorded sales of $3.24 billion (55 percent of our total
sales) in 2016.
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 share
a common sales organization and supply chain and conduct business
globally. Major markets served by both segments consist of consumer
industries, including food and beverage, home and personal care and
life sciences; transportation, including automotive and tire; and heavy
industries, including oil and gas, mining and metals.
Additional information with respect to our operating segments, including
a description of our operating segments and their contributions to sales
and operating earnings for each of the three years ended September 30,
2016, 2015 and 2014 is contained in Note 15 in the Financial Statements
and under the caption results of Operations in MD&A.
Geographic Information
In 2016, sales to customers in the United States accounted for 55 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 China, Canada, Mexico, Italy, the United Kingdom, 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.
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,
domain expertise, installed base, distribution network, quality of products,
solutions and services, global presence and price. 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 most countries, we sell primarily through independent distributors in conjunction with our direct sales force. In other 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 2016, 2015 and 2014 were approximately 10 percent of our total sales.
4
Rockwell Automation, Inc. - Form 10-K Part I
Item 1 Business
research and Development
Our research and development spending for the years ended September 30, 2016, 2015 and 2014 was $319.3 million, $307.3 million and $290.1 million,
respectively. Customer-sponsored research and development was not significant in 2016, 2015 or 2014.
Employees
At September 30, 2016, we had approximately 22,000 employees. Approximately 8,500 were employed in the United States.
raw Materials
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 consists of (in millions):
Architecture & Software
Control Products & Solutions
September 30,
2016
185.8 $
1,024.6
1,210.4 $
2015
165.1
999.5
1,164.6
$
$
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 2017 were approximately $199 million as of September 30, 2016.
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. See Item 1A. Risk Factors for a discussion of risks associated with liabilities and costs related to environmental remediation.
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.
Seasonality
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 “PowerFlex®” for our AC drives, and “Rockwell Software®” and
“FactoryTalk®” for our software offerings.
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 “Investors” 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.
5
Rockwell Automation, Inc. - Form 10-K
Part I
Item 1A Risk Factors
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 in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(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 of
the Board of Directors 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 us.
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 or defaults, 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 costs of borrowing are
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.
We sell to customers around the world and are subject
to the risks of doing business in many countries.
We do business in more than 80 countries around the world. Approximately
45 percent of our sales in 2016 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.
6
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 and labeling laws
and regulations. Our customers may also be required to comply with such
legislative and regulatory requirements. These requirements could increase
our costs and could potentially have an adverse effect on our ability to
ship our products into certain jurisdictions. 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.
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 products, solutions and services are used by our direct and indirect
customers in applications that may be subject to information theft, tampering
or sabotage. Among other industries, our products, solutions and services
are often employed in the control of critical infrastructure. Careless or
malicious actors could cause a customer’s process to be disrupted or
could cause equipment to operate in an improper manner that could result
in harm to people or property. While we continue to improve the security
attributes of our products, solutions and services, we can reduce risk, not
eliminate it. To a significant extent, the security of our customers’ systems
depends on how those systems are protected, configured, updated and
monitored, all of which are typically outside our control.
Our business uses development, engineering, manufacturing, sales,
accounting, support and IT resources on a dispersed, global basis. Our
vendors, partners, employees and customers have access to, and share,
information across multiple locations via various digital technologies. In
addition, we rely on partners and vendors for a wide range of outsourced
activities. Secure connectivity is important to these ongoing operations.
Also, our partners and vendors frequently have access to our confidential
information as well as confidential information about our customers,
employees and others.
Our information security efforts, under the leadership of our Chief Information
Security Officer, with the support of the entire management team, include
major programs designed to address security governance, identification
of critical assets, protection of critical assets, the human element/insider
risk, third-party relationships and cyber defense operations. We believe
these measures reduce, but cannot eliminate, the risk of an information
security incident.
Rockwell Automation, Inc. - Form 10-K Any significant security incidents 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.
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, the domain
expertise of our employees and partners, product performance, quality
of our products, solutions 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. In addition,
we continue to drive productivity to reduce our cost structure. If we fail
to achieve our objectives, to keep pace with technological changes or to
provide high quality products, solutions and services, we may lose business
or 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.
Our business depends on the movement of people and goods around
the world. 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 income tax expense and financial position.
We conduct business in many countries, which requires us to interpret
and comply with the income tax laws and rulings in each of those taxing
jurisdictions. Due to the ambiguity of tax laws among those jurisdictions
Part I
Item 1A Risk Factors
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. Difficulty attracting
and retaining 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.
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 various environmental regulations that are
concerned with 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. 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 for satisfying those
liabilities if the divested business is unable to do so.
7
Rockwell Automation, Inc. - Form 10-K Part I
Item 1A Risk Factors
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.
Our business requires that we buy equipment, components and services
including finished products, electronic components and commodities
such as copper, aluminum and steel. Our reliance on suppliers involves
certain risks, including:
•• poor quality or an insecure supply chain, which could adversely affect
the reliability and reputation of our products;
•• changes in the cost of these purchases due to inflation, exchange rates,
commodity market volatility or other factors;
•• intellectual property risks such as ownership of rights or alleged infringement
by suppliers;
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.
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;
•• legal and compliance issues;
•• difficulties implementing and maintaining consistent standards, controls,
procedures, policies and information systems; and
•• information security risks associated with providing confidential information
•• diversion of management’s attention from other business concerns.
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
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 38 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, 2016.
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, 2016.
Location
Monterrey, Mexico
Aarau, Switzerland
Twinsburg, Ohio, United States
Mequon, Wisconsin, United States
Cambridge, Canada
Shanghai, China
Harbin, 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
162,000
139,000
138,000
135,000
124,000
124,000
115,000
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
The information required by this Item is contained in Note 14 in the Financial Statements within the section entitled Other Matters.
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, 2016 are:
Name, Office and Position, and Principal Occupations and Employment
Blake D. Moret — President and Chief Executive Officer since July 1, 2016; Senior Vice President previously
Kenneth M. Champa — Senior Vice President since July 1, 2016; previously Vice President,
Finance, Control Products and Solutions and (from March 2015) Operations and Engineering Services
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
John P. McDermott — Senior Vice President
John M. Miller — Vice President and Chief Intellectual Property Counsel
Robert B. Murphy — Senior Vice President, Operations and Engineering Services since May 2, 2016;
Vice President, Manufacturing Operations previously
Susan J. Schmitt — Senior Vice President, Human Resources
Age
53
62
58
61
52
56
55
52
58
49
57
53
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, 2016, there were 18,205 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, 2016 and 2015:
Fiscal Quarters
First
Second
Third
Fourth
$
2016
High
111.03 $
115.62
120.60
123.11
Low
98.47 $
87.53
107.17
110.89
2015
High
118.32 $
118.96
127.05
126.77
Low
98.55
102.31
110.00
99.00
We declare and pay dividends at the sole discretion of our Board of Directors. During 2016 we declared and paid aggregate cash dividends of $2.90
per common share. During the first quarter of fiscal 2016, we increased our quarterly dividend per common share 12 percent to 72.5 cents per common
share effective with the dividend payable in December 2015 ($2.90 per common share annually). During 2015 we declared and paid aggregate cash
dividends of $2.60 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, 2016:
Total Number
of Shares
Purchased(1)
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(3)
1,037,423,371
983,352,795
945,043,797
Period
July 1 – 31, 2016
August 1 – 31, 2016
September 1 – 30, 2016
TOTAL
1,115,711
(1) All of the shares purchased during the quarter ended September 30, 2016 were acquired pursuant to the repurchase programs described in (3) below, except for 2,436 shares
323,275 $
462,436
330,000
323,275 $
460,000
330,000
1,113,275
Average Price
Paid Per Share(2)
116.81
117.55
116.09
116.91
that were acquired in August in connection with stock swap exercises of employee stock options.
(2) Average price paid per share includes brokerage commissions.
(3) On June 4, 2014, the Board of Directors authorized us to expend $1.0 billion to repurchase shares of our common stock. On April 6, 2016, the Board of Directors authorized us
to expend an additional $1.0 billion to repurchase shares of our common stock. Our repurchase programs allow us to repurchase shares at management’s discretion or at our
broker’s discretion pursuant to a share repurchase plan subject to price and volume parameters.
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 selected financial data below has been derived from our audited consolidated financial statements.
(in millions, except per share data)
Consolidated Statement of Operations Data:
Sales
Interest expense
Net income
Earnings per share:
Basic
Diluted
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
$
$
$
2016
5,879.5 $
71.3
729.7
5.60
5.56
2.90
7,101.2 $
448.6
1,516.3
1,990.1
116.9 $
143.3
28.9
Year Ended September 30,
2015
2014
2013
2012
6,307.9 $
63.7
827.6
6,623.5 $
59.3
826.8
6,351.9 $
60.9
756.3
6.15
6.09
2.60
5.98
5.91
2.32
5.43
5.36
1.98
6,404.7 $
—
1,500.9
2,256.8
122.9 $
133.1
29.4
6,224.3 $
325.0
900.4
2,658.1
141.0 $
122.5
30.0
5,844.6 $
179.0
905.1
2,585.5
146.2 $
113.8
31.4
6,259.4
60.1
737.0
5.20
5.13
1.745
5,636.5
157.0
905.0
1,851.7
139.6
103.9
34.7
ItEM 7 Management’s Discussion and analysis of Financial
Condition and results of Operations
results of Operations
Non-GaaP Measures
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,
respectively, 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.
Overview
Rockwell Automation, Inc., a leader in industrial automation and information,
makes its customers more productive and the world more sustainable.
Overall demand for our products, solutions and services is driven by:
12
•• 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;
•• our customers’ needs for faster time to market, lower total cost of
ownership, improved asset utilization and optimization, and enterprise
risk management;
•• our customers’ needs to continuously improve quality, safety and
sustainability;
•• 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.
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 organic sales growth 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;
•• acquire companies that serve as catalysts to organic growth by adding
complementary technology, expanding our served market, or enhancing
our domain expertise or market access;
•• 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 above strategy, we seek to achieve our long-term
financial goals, including above-market organic sales growth, EPS growth
above sales 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 a 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 it 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.
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. The emerging markets of Asia Pacific,
including China and India, Latin America, Central and Eastern Europe and
Africa are projected to be the fastest growing over the long term, 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 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.
All of these industries also generate maintenance repair order (MRO) and
ongoing services revenue related to the installed base.
Global Expansion
Outsourcing and Sustainability trends
As the manufacturing world continues to expand, we must be able to
meet our customers’ needs around the world. Approximately 60 percent
of our employees and 45 percent of our sales are outside the U.S. We
continue to expand our footprint in emerging markets.
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.
13
Rockwell Automation, Inc. - Form 10-K Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
We help our customers meet their sustainability needs pertaining to
energy efficiency, environmental and safety goals. Customers across all
industries are investing in more 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.
acquisitions
Our acquisition strategy focuses on products, solutions and services that
will be catalytic to the organic growth of our core offerings.
In September 2016, we acquired Maverick Technologies, a leading systems
integrator. This acquisition significantly enhances our expertise in key
process and batch applications that help our customers realize greater
productivity and improved global competitiveness through process control
and information management solutions.
In September 2016, we acquired Automation Control Products, a premier
provider in centralized thin client, remote desktop and server management
software. This acquisition strengthens our ability to provide our customers
with visual display and software solutions to manage information and
streamline workflows for a more connected manufacturing environment.
In March 2016, we acquired MagneMotion Inc., a leading manufacturer
of intelligent conveying systems. This acquisition continues our strategy
to build a portfolio of smart manufacturing technologies by expanding our
existing capabilities in independent cart technology.
In October 2014, we acquired the assets of ESC Services, Inc., a global
provider of lockout-tagout services and solutions. This acquisition enables
our customers to increase their asset utilization and strengthen their
enterprise risk management.
In January 2014, we acquired Jacobs Automation, a pioneer in intelligent
track motion control technology. This technology improves performance
across a wide range of packaging, material handling, and other applications
for global machine builders.
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 strengthens our ability to deliver end-to-end projects for the
oil and gas sector and accelerates our development of similar process
solutions and remote monitoring services for other industries globally.
We believe these acquisitions 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.
Our implementation of common global processes and an enterprise-
wide business system is nearly complete. 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 reduction
and improved asset utilization. Charges for workforce reductions and
facility rationalization may be required in order to effectively execute our
productivity programs.
U. S. Industrial Economic trends
In 2016, sales in the U.S. accounted for 55 percent of our total sales. The
various indicators we use to gauge the direction and momentum of our
served U.S. markets include:
•• The Industrial Production (IP) Index, published by the Federal Reserve,
which measures the real output of manufacturing, mining, and electric
and gas utilities. The IP Index is expressed as a percentage of real output
in a base year, currently 2012. Historically there has been a meaningful
correlation between the changes in the IP 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 indicates 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, compiled by the Bureau of Economic
Analysis, which 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), published by the Federal Reserve,
which measures plant operating activity. Historically there has been a
meaningful correlation between Capacity Utilization and levels of U.S. IP.
The table below depicts the trends in these indicators from fiscal 2014
to 2016. All macroeconomic indicators improved in the most recent
quarter except for PMI, indicating a recovery in the industrial economy.
Although PMI declined in September, the reading of 51.5 indicates that
the manufacturing sector is continuing to expand.
Fiscal 2016 quarter ended:
September 2016
June 2016
March 2016
December 2015
Fiscal 2015 quarter ended:
September 2015
June 2015
March 2015
December 2014
Fiscal 2014 quarter ended:
September 2014
June 2014
March 2014
December 2013
Note: Economic indicators are subject to revisions by the issuing organizations.
14
IP
Index
104.4
103.9
104.1
104.6
105.5
105.1
105.8
106.3
105.3
104.7
103.3
102.3
Industrial
Equipment
Spending
(in billions)
Capacity
Utilization
(percent)
228.2
227.3
222.2
224.7
219.8
222.7
216.4
216.5
222.9
218.5
212.4
204.0
75.5
75.2
75.4
75.8
76.6
76.6
77.7
78.6
78.4
78.4
77.6
77.3
PMI
51.5
53.2
51.8
48.0
50.0
53.1
52.3
55.1
56.1
55.7
54.4
56.5
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. Economic trends
Summary of results of Operations
In 2016, sales outside the U.S. accounted for 45 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 and IP as indicators of the
growth opportunities in each region where we do business.
Economic projections call for a higher rate of industrial production growth
in all regions in 2017 except for Europe, the Middle East and Africa (EMEA).
Current economic projections indicate stable conditions in Europe as we
proceed into 2017 but with some uncertainty associated with the ultimate
resolution of the United Kingdom’s decision to exit the European Union.
In Asia Pacific, China’s economic growth continues to be impacted by
elevated debt levels, although industrial output and new orders growth
have shown recent improvement; the Indian economy remains one of the
fastest growing globally. In Latin America, Brazil remains in recession but
with an improved outlook, and Mexico’s economy continues to be stable.
Canada’s outlook has also improved, as investment in resource-based
industries may have reached a bottom.
In 2016, sales were $5,879.5 million, a decrease of 6.8 percent year over
year. Organic sales decreased 3.9 percent, and currency translation reduced
sales by 3.0 percentage points. Growth in consumer and automotive
industries was more than offset by declines in heavy industries, particularly
oil and gas and mining.
The following is a summary of our results related to key growth initiatives:
•• Sales related to our process initiative decreased 19 percent in 2016
compared to 2015. Excluding the impact of currency translation, process
initiative sales decreased 16 percent year over year.
•• Logix sales decreased 7 percent year over year compared to 2015.
Logix organic sales decreased 4 percent.
•• Sales in emerging markets decreased 8.4 percent in 2016 compared to
2015. Organic sales in emerging countries increased 1.2 percent year
over year, and currency translation reduced sales in emerging countries
by 9.7 percentage points.
During 2016 we were able to hold pre-tax margin above 16 percent and
segment operating margin above 20 percent despite difficult market
conditions and lower reported sales.
The following table reflects our sales and operating results for the years ended September 30, 2016, 2015 and 2014 (in millions, except per share amounts):
Year Ended September 30,
2016
2015
2014
2,635.2 $
3,244.3
5,879.5
$
2,749.5 $
3,558.4
6,307.9
$
2,845.3
3,778.2
6,623.5
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
Interest expense
Income before income taxes (C)
Income tax provision
NET INCOME
DILUTED EPS
ADJUSTED EPS(3)
Diluted weighted average outstanding shares
TOTAL SEGMENT OPERATING MARGIN(2) (B/A)
PRE-TAX MARGIN (C/A)
(1) See Note 15 in the 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 exclude purchase accounting depreciation and amortization,
general corporate – net, non-operating pension costs, interest expense and income tax provision because we do not consider these costs to be directly related to the operating
performance of our segments. We believe that these measures are useful to investors as measures of operating performance. We use these measures to monitor and evaluate
the profitability of our operating segments. Our measures of total segment operating earnings and total segment operating margin may be different from measures used by other
companies.
5.91
6.17
139.7
20.4%
17.1%
21.6%
17.9%
20.2%
16.0%
$
$
$
$
$
$
$
$
$
695.0 $
493.7
1,188.7
(18.4)
(79.7)
(76.2)
(71.3)
943.1
(213.4)
729.7
5.56
5.93
131.1
808.6 $
551.9
1,360.5
(21.0)
(85.6)
(62.7)
(63.7)
1,127.5
(299.9)
827.6
6.09
6.40
135.7
839.6
512.4
1,352.0
(21.6)
(81.0)
(55.9)
(59.3)
1,134.2
(307.4)
826.8
(3) Adjusted EPS is a non-GAAP earnings measure that excludes the non-operating pension costs and their related income tax effects. 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,
2016
2015
3.9 $
13.5
26.9
42.0
4.3 $
15.7
22.6
35.3
2014
4.1
16.5
20.6
32.2
The increases in non-operating pension costs in both segments in fiscal 2016 were primarily due to our adoption of the new mortality table (RP-2014)
and mortality improvement scale (MP-2014) used to measure net periodic pension cost for our U.S. pension plans.
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. Non-operating pension costs
include 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 pension
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. Adjusted EPS is also used as a financial measure of
performance for our annual incentive compensation. 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, 2016, 2015 and 2014 (in millions):
Service cost
Amortization of prior service credit
Operating pension costs
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Special termination benefit
Settlements
Non-operating pension costs
NET PERIODIC PENSION COST
$
$
$
Year Ended September 30,
2016
88.0
(2.9)
85.1
169.5
(218.3)
124.5
0.5
—
76.2
161.3
2015
85.7
(2.7)
83.0
167.2
(223.2)
118.7
—
—
62.7
145.7
$
$
$
2014
78.5
(2.7)
75.8
174.2
(217.9)
99.7
—
(0.1)
55.9
131.7
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, respectively, for the years ended September 30, 2016, 2015 and 2014 (in millions, except per share amounts
and percentages):
$
Year Ended September 30,
2016
729.7
76.2
(27.5)
778.4
5.56
0.58
(0.21)
5.93
22.6%
1.0%
2015
827.6
62.7
(21.9)
868.4
6.09
0.46
(0.15)
6.40
26.6%
0.4%
$
$
$
$
$
$
$
23.6%
27.0%
2014
826.8
55.9
(20.0)
862.7
5.91
0.40
(0.14)
6.17
27.1%
0.4%
27.5%
Income from continuing operations
Non-operating pension costs
Tax effect of non-operating pension costs
ADJUSTED INCOME
Diluted EPS from continuing operations
Non-operating pension costs per diluted share
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
$
2016
5,879.5 $
943.1
5.56
5.93
2015
6,307.9 $
1,127.5
6.09
6.40
Change
(428.4)
(184.4)
(0.53)
(0.47)
2016 Compared to 2015
(in millions, except per share amounts)
Sales
Income before income taxes
Diluted EPS
Adjusted EPS
Sales
Sales in fiscal 2016 decreased 6.8 percent compared to 2015. Organic sales decreased 3.9 percent, and currency translation reduced sales by
3.0 percentage points. Pricing contributed less than one 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, 2016
and the percentage change from the same period a year ago (in millions, except percentages):
Change vs.
Year Ended
September 30, 2015
Change in Organic
Sales(1) vs. Year Ended
September 30, 2015
Year Ended
September 30, 2016
3,213.4
316.4
1,147.2
764.4
438.1
5,879.5
(6.9)%
United States
(6.8)%
Canada
1.8%
Europe, Middle East and Africa
(4.8)%
Asia Pacific
7.2%
Latin America
TOTAL SALES
(3.9)%
(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
(6.8)%
(13.7)%
(2.3)%
(8.4)%
(9.9)%
(6.8)%
$
$
measure.
•• Sales in the United States declined year over year, mainly due to weakness in heavy industries, particularly oil and gas.
•• Sales in Canada decreased due to the unfavorable impact of currency translation as well as declines in heavy industries, particularly oil and gas.
•• EMEA sales decreased due to the unfavorable impact of currency translation. Organic sales increased in both mature Europe and emerging countries.
•• Asia Pacific sales declined due to the unfavorable impact of currency translation as well as a decrease in organic sales in China.
•• Latin America sales decreased due to the unfavorable impact of currency translation. Organic sales growth in the region was led by Mexico.
General Corporate - Net
Income taxes
General corporate - net expenses were $79.7 million in fiscal 2016
compared to $85.6 million in fiscal 2015.
Income before Income taxes
Income before income taxes decreased 16 percent from $1,127.5 million
in 2015 to $943.1 million in 2016, primarily due to a decrease in segment
operating earnings. Total segment operating earnings decreased 13 percent
year over year from $1,360.5 million in 2015 to $1,188.7 million in 2016,
primarily due to lower organic sales and unfavorable currency effects.
The effective tax rate in 2016 was 22.6 percent compared to 26.6 percent
in 2015. The Adjusted Effective Tax Rate in 2016 was 23.6 percent
compared to 27.0 percent in 2015. The decreases in the effective tax rate
and the Adjusted Effective Tax Rate were primarily due to an incremental
benefit from the retroactive and permanent extension of the U.S. federal
research and development tax credit (U.S. research tax credit) in the first
quarter of 2016, a more favorable geographic mix of our pre-tax income
and discrete tax items.
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 2016 and 2015 affecting each year’s respective tax rates.
architecture & Software
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
$
2016
2,635.2
695.0
$
2015
2,749.5
808.6
$
Change
(114.3)
(113.6)
26.4%
29.4%
(3.0) pts
Sales
Operating Margin
Architecture & Software sales decreased 4.2 percent in 2016 compared to
2015. Organic sales decreased 1.5 percent, the effects of currency translation
reduced sales by 3.0 percentage points, and acquisitions contributed
0.3 percentage points to sales growth. Pricing contributed approximately
one percentage point to growth during the year. All regions experienced
a decline in sales during the year except EMEA. Excluding the impact of
currency translation, growth in Latin America and EMEA was more than offset
by decreases in the remaining regions. Logix sales decreased 7 percent
in 2016 compared to 2015. Logix organic sales decreased 4 percent year
over year, and currency translation reduced sales by 3 percentage points.
Architecture & Software segment operating earnings decreased 14 percent.
Operating margin was 26.4 percent in 2016 compared to 29.4 percent
in 2015, primarily due to unfavorable mix and currency effects as well as
lower organic sales.
17
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
Control Products & Solutions
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
Sales
$
2016
3,244.3
493.7
$
2015
3,558.4
551.9
$
Change
(314.1)
(58.2)
15.2%
15.5%
(0.3) pts
Control Products & Solutions sales decreased 8.8 percent in 2016 compared
to 2015. Organic sales decreased 5.8 percent, and currency translation
reduced sales by 3.0 percentage points. Pricing contributed less than one
percentage point to growth during the year. All regions experienced a year-
over-year decrease in sales. Excluding the impact of currency translation,
growth in Latin America was more than offset by declines in the remaining
regions.
Sales in our solutions and services businesses decreased 11 percent
year over year. Organic sales in our solutions and services businesses
decreased 8 percent during 2016, and currency translation reduced sales
by 3 percentage points.
Product sales decreased 5 percent year over year. Product organic sales
decreased 2 percent year over year in 2016, and currency translation
reduced sales by 3 percentage points.
Operating Margin
Control Products & Solutions segment operating earnings decreased
11 percent year over year. Segment operating margin was 15.2 percent
in 2016 compared to 15.5 percent a year ago, primarily due to lower
organic sales, partially offset by productivity.
2015 Compared to 2014
(in millions, except per share amounts)
Sales
Income before income taxes
Diluted EPS
Adjusted EPS
Sales
$
$
2015
6,307.9
1,127.5
6.09
6.40
$
2014
6,623.5
1,134.2
5.91
6.17
Change
(315.6)
(6.7)
0.18
0.23
Sales in fiscal 2015 decreased 4.8 percent compared to 2014. Organic sales increased 1.1 percent, and currency translation reduced sales by 6.0 percent.
Product sales decreased 3 percent year over year. Product organic sales increased 3 percent year over year in 2015, and currency translation reduced
sales by 6 percent. Pricing contributed approximately one 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, 2015
and the percentage change from the same period a year ago (in millions, except percentages):
Change vs.
Year Ended
September 30, 2014
Change in Organic
Sales(1) vs. Year Ended
September 30, 2014
Year Ended
September 30, 2015
3,446.8
366.6
1,174.0
834.5
486.0
6,307.9
0.9%
United States
(5.3)%
Canada
2.1%
Europe, Middle East and Africa
(1.1)%
Asia Pacific
8.9%
Latin America
TOTAL SALES
1.1%
(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-
0.9%
(16.1)%
(13.2)%
(5.6)%
(9.3)%
(4.8)%
$
$
GAAP measure.
•• Sales in the United States increased modestly, with strength in the consumer and automotive industries offset by weakness in heavy industries,
especially the oil and gas industry.
•• Sales in Canada declined due to the unfavorable impact of currency translation as well as declines in resource-based industries, particularly the oil
and gas industry.
•• EMEA sales decreased due to the unfavorable impact of currency translation. Organic sales growth was led by emerging countries with modest
growth in mature Europe.
•• Asia Pacific sales declined due to the unfavorable impact of currency translation as well as a decrease in organic sales in China, partially offset by
growth in India.
•• Latin America sales decreased due to the unfavorable impact of currency translation. Organic sales growth in the region was primarily driven by strong
sales growth in Mexico.
18
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
General Corporate - Net
Income taxes
General corporate - net expenses were $85.6 million in fiscal 2015 compared
to $81.0 million in fiscal 2014.
Income before Income taxes
Income before income taxes decreased 1 percent from $1,134.2 million
in 2014 to $1,127.5 million in 2015, primarily due to increases in non-
operating pension costs, general corporate - net expenses and interest
expense, partially offset by an increase in segment operating earnings.
Total segment operating earnings increased 1 percent year over year,
primarily due to strong productivity and higher organic sales, partially
offset by unfavorable currency effects and higher spending.
The effective tax rate for 2015 was 26.6 percent compared to 27.1 percent
in 2014. The Adjusted Effective Tax Rate in 2015 was 27.0 percent compared
to 27.5 percent in 2014. The decreases in the effective tax rate and the
Adjusted Effective Tax Rate were primarily due to the tax effect of foreign
dividends and the retroactive extension of the U.S. research tax credit for
calendar year 2014 during the first quarter of fiscal 2015, partially offset
by a difference in the mix of pre-tax income across regions.
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 2015 and 2014 affecting each year’s respective tax rates.
architecture & Software
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
$
2015
2,749.5
808.6
$
2014
2,845.3
839.6
$
Change
(95.8)
(31.0)
29.4%
29.5%
(0.1) pts
Sales
Operating Margin
Architecture & Software sales decreased 3.4 percent in 2015 compared
to 2014. Organic sales increased 3.1 percent, and the effects of currency
translation reduced sales by 6.6 percent. Pricing contributed approximately
one and a half percentage points to growth during the year. All regions
experienced a decline in sales during the year except the United States.
Excluding the impact of currency translation, Latin America was the
segment’s best performing region in 2015, with all other regions experiencing
sales growth except for Asia Pacific. Logix sales decreased 2.5 percent
in 2015 compared to 2014 and Logix organic sales increased 4.2 percent
year over year.
Control Products & Solutions
(in millions, except percentages)
Sales
Segment operating earnings
Segment operating margin
Architecture & Software segment operating earnings decreased 4 percent.
Operating margin was 29.4 percent in 2015 compared to 29.5 percent in
2014. The favorable impact of organic sales growth and productivity was
more than offset by higher spending and unfavorable currency effects.
$
2015
3,558.4
551.9
$
2014
3,778.2
512.4
$
Change
(219.8)
39.5
15.5%
13.6%
1.9 pts
Sales
Operating Margin
Control Products & Solutions sales decreased 5.8 percent in
2015 compared to 2014. Organic sales decreased 0.4 percent, and
currency translation reduced sales by 5.6 percent. Pricing contributed
slightly less than one percentage point to growth during the year. All
regions experienced a decline in sales except for the United States which
was flat year over year. Excluding the impact of currency translation,
growth in Latin America was more than offset by declines in Canada
with all other regions flat during 2015.
Sales in our solutions and services businesses decreased 8 percent
year over year. Organic sales in our solutions and services businesses
decreased 2 percent during 2015, and the net effect of currency translation
and acquisitions reduced sales by 6 percentage points.
Control Products & Solutions segment operating earnings increased
8 percent year over year. Segment operating margin was 15.5 percent in
2015 compared to 13.6 percent a year ago, primarily due to very strong
productivity.
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,
2016
2015
2014
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
$
$
947.3 $
(440.0)
(397.7)
(10.5)
99.1
$
1,187.7 $
(246.9)
(608.1)
(96.7)
236.0
$
The following table summarizes free cash flow (in millions), which is a non-GAAP financial measure:
1,033.3
(483.4)
(521.8)
(37.7)
(9.6)
2014
1,033.3
(141.0)
29.9
922.2
Year Ended September 30,
2016
947.3 $
(116.9)
3.3
833.7
$
2015
1,187.7 $
(122.9)
12.4
1,077.2
$
$
$
businesses, dividends to shareowners, repurchases of common stock and
repayments of debt. We expect capital expenditures in 2017 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 international operations, significant amounts of our cash,
cash equivalents and short-term investments (funds) are held by non-U.S.
subsidiaries where our undistributed earnings are indefinitely reinvested.
Generally, these funds would be subject to U.S. tax if repatriated. As of
September 30, 2016, approximately 95 percent of our funds were held by
these non-U.S. subsidiaries. The percentage of these funds held by non-U.S.
subsidiaries can vary from quarter to quarter with an average of approximately
90 percent over the past eight quarters. 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. Our short-term debt obligations are primarily
comprised of commercial paper borrowings. Commercial paper borrowings
outstanding were $448.6 million at September 30, 2016, with a weighted
average interest rate of 0.57 percent and weighted average maturity period
of 35 days. There were no commercial paper borrowings outstanding at
September 30, 2015. Our debt-to-total-capital ratio was 49.7 percent at
September 30, 2016 and 39.9 percent at September 30, 2015.
At September 30, 2016 and 2015, our total current borrowing capacity
under our unsecured revolving credit facility expiring in March 2020 was
$1.0 billion. We can increase the aggregate amount of this credit facility
by up to $350.0 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, 2016 or 2015. Separate short-term unsecured
credit facilities of approximately $121.2 million at September 30, 2016
were available to non-U.S. subsidiaries. Borrowings under our non-U.S.
credit facilities at September 30, 2016 and September 30, 2015 were not
significant. We were in compliance with all covenants under our credit facilities
at September 30, 2016 and September 30, 2015. Additional information
related to our credit facilities is included in Note 5 in the Financial Statements.
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 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.
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 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 from share-based compensation 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
our performance, including as a financial measure for our annual incentive
compensation. Our definition of free cash flow may differ from definitions
used by other companies.
Cash provided by operating activities was $947.3 million for the year
ended September 30, 2016 compared to $1,187.7 million for the year
ended September 30, 2015. Free cash flow was $833.7 million for the
year ended September 30, 2016 compared to $1,077.2 million for the
year ended September 30, 2015. The year-over-year decrease in cash
flow provided by operating activities and free cash flow was primarily due
to lower pre-tax income and less favorable working capital performance in
2016 compared to 2015.
We repurchased approximately 4.6 million shares of our common stock under
our share repurchase program in 2016 at a total cost of $500.2 million. In
2015, we repurchased approximately 5.4 million shares of our common stock
under our share repurchase program at a total cost of $606.2 million. At
September 30, 2016 and 2015 there were $5.3 million and $12.5 million,
respectively, of outstanding common stock share repurchases recorded
in accounts payable that did not settle until the next fiscal year. Our decision
to repurchase shares in 2017 will depend on business conditions, free cash
flow generation, other cash requirements and stock price. On April 6, 2016,
the Board of Directors authorized us to expend an additional $1.0 billion to
repurchase shares of our common stock. At September 30, 2016 we had
approximately $945.0 million remaining for share repurchases under our
existing board authorization. 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
20
Rockwell Automation, Inc. - Form 10-K
Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a summary of our credit ratings as of September 30, 2016:
Credit Rating Agency
Standard & Poor’s
Moody’s
Fitch Ratings
Short Term
Rating
A-1
P-2
F1
Long Term
Rating
A
A3
A
Outlook
Stable
Stable
Stable
Our ability to access the commercial paper market, and the related costs
of these borrowings, is affected by the strength of our credit ratings 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. We diversify
our cash and cash equivalents and short-term investments among
counterparties to minimize exposure to any one of these entities. Our
emphasis is primarily on safety and liquidity of principal and secondarily
on maximizing yield on those funds.
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 forecasted to occur within the next two
years. We also use these contracts to hedge portions of our net investments
in certain non-U.S. subsidiaries against the effect of exchange rate
fluctuations on the translation of foreign currency balances to the U.S. dollar.
In addition, we use foreign currency forward exchange contracts that are
not designated as hedges 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.
From 1975 to 1989, Rockwell International Corporation (RIC) operated
the Rocky Flats facility in Colorado for the U.S. Department of Energy
(DoE). In 1990, a class of landowners near Rocky Flats sued RIC and
Dow Chemical, another former operator of the facility. In May 2016, the
parties agreed to settle this case and the DoE authorized the settlement.
Under the settlement agreement, which is subject to court approval, we
and Dow Chemical will pay $375.0 million in the aggregate to resolve the
claims. We expect to be fully reimbursed by the DoE for our obligation
of $243.75 million under the settlement, either before or after we pay
the amounts due. We expect to pay up to $242.5 million within the next
12 months. We will promptly pursue reimbursement from the DoE; however,
it is uncertain whether the government indemnification and reimbursement
process will be completed by the time payment is due. Given our cash
and credit resources, we do not believe that the matter will have a material
adverse effect on our financial condition. Refer to Note 17 in the Financial
Statements for further discussion of the Rocky Flats settlement.
Cash dividends to shareowners were $378.2 million in 2016 ($2.90 per
common share), $350.1 million in 2015 ($2.60 per common share) and
$320.5 million in 2014 ($2.32 per common share). Our quarterly dividend
rate as of September 30, 2016 is $0.725 per common share ($2.90 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, 2016 is as follows (in millions):
Payments by Period
$
Thereafter
2,191.7
Long-term debt and interest(a)
62.5
Minimum operating lease payments
41.5
Postretirement benefits(b)
—
Pension funding contribution(c)
—
Purchase obligations(d)
—
Other long-term liabilities(e)
—
Unrecognized tax benefits(f)
—
Rocky Flats settlement(g)
2,295.7
TOTAL
(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 the
amounts to be paid or received under interest rate swap contracts, including the $19.5 million fair value adjustment recorded for the interest rate swap contracts at September 30,
2016 and the unamortized discount of $45.1 million at September 30, 2016. See Note 5 in the Financial Statements for more information regarding our long-term debt.
Total
3,041.0 $
335.9
86.9
49.2
104.1
89.0
37.6
242.5
3,986.2 $
2017
71.7 $
76.2
10.6
49.2
65.0
14.8
—
242.5
530.0 $
2021
51.4 $
33.7
5.7
—
2.6
—
—
—
93.4 $
2018
314.6 $
65.2
11.2
—
17.1
—
—
—
2020
354.0 $
45.5
7.0
—
9.8
—
—
—
2019
57.6 $
52.8
10.9
—
9.6
—
—
—
408.1 $
130.9 $
416.3 $
$
(b) Our postretirement benefit 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 2017 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 2017
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 contractual commitments for capital expenditures, certain materials purchases and long-term obligations under agreements with various service providers.
(e) Other long-term liabilities include environmental remediation costs, conditional asset retirement obligations and indemnification liabilities, net of related receivables. Amounts
subsequent to 2017 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.
(g) Refer to Note 17 in the Financial Statements for discussion of the Rocky Flats settlement.
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 acquired
businesses 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 by geographic region 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
3,213.4 $
316.4
1,147.2
764.4
438.1
5,879.5 $
Sales
3,446.8 $
366.6
1,174.0
834.5
486.0
6,307.9 $
Year Ended September 30, 2016
Sales Excluding
Changes in
Currency
Effect of
Changes in
Currency
Effect of
Acquisitions
2.1 $
25.1
49.1
31.7
83.0
191.0 $
3,215.5 $
341.5
1,196.3
796.1
521.1
6,070.5 $
Organic Sales
3,208.6
$
341.5
1,195.2
794.5
521.1
6,060.9
$
(6.9) $
—
(1.1)
(1.6)
—
(9.6) $
Year Ended September 30, 2015
Sales Excluding
Changes in
Currency
Effect of
Changes in
Currency
Effect of
Acquisitions
4.2 $
47.3
208.6
39.5
97.6
397.2 $
3,451.0 $
413.9
1,382.6
874.0
583.6
6,705.1 $
Organic Sales
3,444.9
$
413.9
1,379.9
874.0
583.6
6,696.3
$
(6.1) $
—
(2.7)
—
—
(8.8) $
The following is a reconciliation of our reported sales by operating segment to organic sales (in millions):
Year Ended September 30, 2016
Sales Excluding
Changes in
Currency
Effect of
Changes in
Currency
Effect of
Acquisitions
83.7 $
107.3
191.0 $
2,718.9 $
3,351.6
6,070.5 $
Organic Sales
2,709.6
3,351.3
6,060.9
$
$
(9.3) $
(0.3)
(9.6) $
Year Ended September 30, 2015
Sales Excluding
Changes in
Currency
Effect of
Changes in
Currency
Effect of
Acquisitions
185.6 $
211.6
397.2 $
2,935.1 $
3,770.0
6,705.1 $
Organic Sales
2,932.9
3,763.4
6,696.3
$
$
(2.2) $
(6.6)
(8.8) $
Year Ended
September 30, 2015
Year Ended
September 30, 2014
Year Ended
September 30, 2015
Year Ended
September 30, 2014
Sales
3,446.8
366.6
1,174.0
834.5
486.0
6,307.9
Sales
3,414.6
437.0
1,351.8
884.0
536.1
6,623.5
Sales
2,749.5
3,558.4
6,307.9
Sales
2,845.3
3,778.2
6,623.5
Architecture & Software
Control Products & Solutions
TOTAL COMPANY SALES
Architecture & Software
Control Products & Solutions
TOTAL COMPANY SALES
Sales
2,635.2 $
3,244.3
5,879.5 $
Sales
2,749.5 $
3,558.4
6,307.9 $
$
$
$
$
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 2016 was $161.3 million compared to
$145.7 million in 2015. Approximately 77 percent of our 2016 global pension
expense relates to our U.S. pension plan. The actuarial assumptions used to
determine our 2016 U.S. pension expense included the following: discount
rate of 4.55 percent (compared to 4.50 percent for 2015); expected rate of
return on plan assets of 7.50 percent (compared to 7.50 percent for 2015);
and an assumed long-term compensation increase rate of 3.75 percent
(compared to 3.75 percent for 2015).
In 2016, 2015 and 2014, we were not required to make contributions to
satisfy minimum statutory funding requirements in our U.S. pension plans.
The table below presents our estimate of net periodic benefit cost in 2017 compared to net periodic benefit cost in 2016 (in millions):
Service cost
Prior service credit amortization
Operating pension cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Special termination benefit
Non-operating pension cost
NET PERIODIC BENEFIT COST
$
$
2017
98.4 $
(3.8)
94.6
151.7
(225.7)
153.4
—
79.4
174.0
$
2016
88.0 $
(2.9)
85.1
169.5
(218.3)
124.5
0.5
76.2
161.3
$
Change
10.4
(0.9)
9.5
(17.8)
(7.4)
28.9
(0.5)
3.2
12.7
For 2017 our U.S. discount rate will decrease to 3.75 percent from
4.55 percent in 2016. 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 2017 our U.S.
long-term compensation increase rate will decrease to 3.50 percent from
3.75 percent in 2016. We established this rate by analyzing all elements
of compensation that are pension-eligible earnings.
For 2017 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 plan’s invested assets.
We also considered our current and expected mix of plan assets in setting
this assumption. The financial markets produced positive returns in 2016.
The plan’s debt securities return was positive and above the expected
return range in 2016, as lower market interest rates resulted in a strong
performance from bonds. The plan’s equity securities return was above
the expected return range in 2016, as U.S. and international equity returns
were positive for the year. The actual return for our portfolio of U.S. plan
assets was approximately 7.60 percent annualized for the 15 years ended
September 30, 2016, and was approximately 8.30 percent annualized for
the 20 years ended September 30, 2016.
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 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
$
140.3 $
—
(27.3)
Change in
Net Periodic
Benefit Cost(1)
13.5
6.1
(5.3)
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
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
products have been delivered and acceptance has occurred, as may be
required according to contract terms, or services have been rendered. 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. More information regarding our revenue recognition
policies is contained in Note 1 in the Financial Statements.
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, solutions 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 $7.9 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, solutions 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 $184.4 million at
September 30, 2016 and $181.4 million at September 30, 2015, of which
$7.9 million at September 30, 2016 and $9.2 million at September 30, 2015
was included as an offset to accounts receivable.
Litigation, Claims and Contingencies
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, including environmental indemnification
liabilities, was $68.7 million, net of $22.2 million of related receivables, and
$61.1 million, net of $32.9 million of related receivables, at September 30, 2016
and 2015, 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.
One of our principal self-insurance programs covers product liability where
we self-insure 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, including asbestos costs, was $20.1 million, net of
$11.1 million of related receivables, and $17.8 million, net of $10.4 million
of related receivables, as of September 30, 2016 and 2015, 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
Note 14 in the Financial Statements within the section entitled Other Matters,
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 Note 14 in the Financial Statements 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. We recorded these liabilities in the
Consolidated Balance Sheet, which totaled $0.7 million and $0.4 million in
other current liabilities at September 30, 2016 and 2015, respectively, and
$19.9 million and $19.8 million in other liabilities at September 30, 2016 and
2015, respectively.
More information regarding litigation, claims and contingencies is contained
in Note 14 in the Financial Statements.
Income taxes
Significant judgment is required in the determination of our income tax
expense, deferred tax assets and liabilities, and liabilities for unrecognized
tax benefits.
Deferred income taxes have been recorded for the temporary differences
between the tax basis of assets and liabilities and their reported amounts
in the Financial Statements. In evaluating our ability to recover our deferred
tax assets, we consider by jurisdiction all available positive and negative
evidence, including our recent historical operating results, expected future
24
Rockwell Automation, Inc. - Form 10-K Part II
Item 7 management’s Discussion and Analysis of Financial Condition and Results of Operations
taxable income, scheduled reversals of deferred tax liabilities, and tax-planning
strategies. Our assumptions about taxable income are consistent with the
plans and estimates of the underlying businesses. We record a valuation
allowance if we determine that it is more likely than not that the deferred
tax assets will not be realized.
We conduct business globally and are routinely audited by the various tax
jurisdictions in which we operate. 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 subjectivity of interpretations
of laws and rulings in each jurisdiction, as well as inherent uncertainty in
estimating the final resolution of complex tax audit matters, our estimates
of income tax liabilities may differ from actual payments of taxes. We record
unrecognized tax liabilities when it is more likely than not that the position will
be sustained upon examination, including the resolution of any appeals or
litigation processes. We adjust these liabilities when our judgment changes
as a result of the evaluation of new information not previously available.
We have not provided U.S. deferred taxes for $3,274.0 million of undistributed
earnings of certain non-U.S. subsidiaries, since these earnings have been
determined to be indefinitely reinvested outside the U.S. and thus are
not subject to U.S. income taxes and foreign withholding taxes. It is not
practicable to estimate the amount of additional taxes that may be payable
upon distribution of these earnings.
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 as well as 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 $10.2 million and a liability of $17.4 million at
September 30, 2016. 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 2016 and 2015, 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 2016 levels.
Certain of our locations have assets and liabilities denominated in currencies
other than their functional currencies. We enter into foreign currency
forward exchange contracts to offset the transaction gains or losses
Interest rate risk
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 $20.9 million.
We record all derivatives on the balance sheet at fair value regardless of the
purpose for holding them. The use of foreign currency forward exchange
contracts allows us to manage transactional exposure to exchange rate
fluctuations as the gains or losses incurred on these 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. There was no impact on earnings due to ineffective
hedges in 2016 or 2015. A hypothetical 10 percent adverse change in
underlying foreign currency exchange rates associated with the hedged
exposures and related 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 are primarily comprised of commercial
paper borrowings. Commercial paper borrowings outstanding were
$448.6 million at September 30, 2016, with a weighted average interest
rate of 0.57 percent and weighted average maturity period of 35 days.
There were no commercial paper borrowings outstanding at September
30, 2015. We have issued, and anticipate continuing to issue, additional
short-term commercial paper obligations as needed. Changes in market
interest rates on commercial paper borrowings affect our results of
operations. A hypothetical 50 basis point increase in average market
interest rates related to our short-term debt would not be significant to
our results of operations or financial condition.
We had outstanding fixed rate long-term debt obligations with a carrying
value of $1,516.3 million at September 30, 2016 and $1,500.9 million at
September 30, 2015. The fair value of this debt was $1,780.5 million at
September 30, 2016 and $1,682.6 million at September 30, 2015. The
potential reduction in fair value on such fixed-rate debt obligations from
a hypothetical 50 basis point increase in market interest rates would not
be significant to the overall fair value of our long-term 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.
In February 2015, we entered into interest rate swap contracts, which
we designated as fair value hedges. These interest rate swaps effectively
converted the $600.0 million aggregate principal amount of our 2.050 percent
notes payable in March 2020 (2020 Notes) and 2.875 percent notes
payable in March 2025 (2025 Notes) to floating rate debt, each at a rate
based on three-month LIBOR plus a fixed spread. The effective floating
interest rates were 1.281 percent for the 2020 Notes and 1.691 percent
for the 2025 Notes at September 30, 2016. The fair value of our interest
rate swap contracts at September 30, 2016 was a net unrealized gain of
$19.5 million. A hypothetical 50 basis point increase in average market
interest rates related to our interest rate swaps would not be significant
to our results of operations or financial condition.
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
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: 2016, 52.9; 2015, 49.0)
Total shareowners’ equity
TOTAL
See Notes to Consolidated Financial Statements.
September 30,
2016
2015
1,526.4 $
902.8
1,079.0
526.6
150.2
4,185.0
578.3
1,073.9
255.3
633.9
374.8
7,101.2
$
448.6 $
543.1
145.6
214.5
176.5
447.6
1,975.9
1,516.3
1,430.2
188.7
181.4
1,588.2
5,668.4
(1,538.8)
(3,909.1)
1,990.1
7,101.2
$
1,427.3
721.9
1,041.0
535.6
171.0
3,896.8
605.6
1,028.8
229.5
494.8
149.2
6,404.7
—
521.7
225.0
200.8
172.2
208.0
1,327.7
1,500.9
1,116.6
202.7
181.4
1,552.1
5,316.9
(1,334.6)
(3,459.0)
2,256.8
6,404.7
$
$
$
$
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,
2016
2015
2014
5,239.3 $
640.2
5,879.5
(2,982.1)
(421.9)
(3,404.0)
2,475.5
(1,467.4)
6.3
(71.3)
943.1
(213.4)
729.7
$
5.60 $
5.56 $
130.2
131.1
5,652.2 $
655.7
6,307.9
(3,157.2)
(447.6)
(3,604.8)
2,703.1
(1,506.4)
(5.5)
(63.7)
1,127.5
(299.9)
827.6
$
6.15 $
6.09 $
134.5
135.7
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
Consolidated Statement of Comprehensive Income
(in millions)
Net income
Other comprehensive loss:
Pension and other postretirement benefit plan adjustments
(net of tax benefit of $73.7, $106.6 and $27.6)
Currency translation adjustments
Net change in unrealized gains and losses on cash flow hedges
(net of tax (benefit) expense of ($6.7), $4.5 and $1.9)
Other comprehensive loss
COMPREHENSIVE INCOME
See Notes to Consolidated Financial Statements.
Year Ended September 30,
2016
729.7
$
2015
827.6 $
(142.7)
(42.5)
(19.0)
(204.2)
525.5 $
(187.7)
(199.9)
1.0
(386.6)
441.0 $
2014
826.8
(85.6)
(61.3)
16.6
(130.3)
696.5
$
$
28
Rockwell Automation, Inc. - Form 10-K
Consolidated Statement of Cash Flows
Part II
Item 8 Financial Statements and Supplementary Data
(in millions)
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 (gain) 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
and foreign currency adjustments:
Receivables
Inventories
Accounts payable
Advance payments from customers and deferred revenue
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 (repayment) of short-term debt
Issuance of long-term debt, net of discount and issuance costs
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
Increase (decrease) 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,
2016
2015
2014
$
729.7 $
827.6 $
826.8
143.3
28.9
40.5
157.1
(44.3)
(70.5)
1.7
—
(3.3)
(18.9)
4.6
32.3
11.7
(81.1)
(8.9)
24.5
947.3
(116.9)
(139.1)
(1,070.7)
886.3
0.4
—
(440.0)
448.6
—
(378.2)
(507.6)
36.2
3.3
—
(397.7)
(10.5)
99.1
1,427.3
1,526.4
$
133.1
29.4
41.5
141.3
(41.0)
(29.3)
(0.1)
—
(12.4)
73.4
(2.5)
17.3
20.7
(33.9)
27.3
(4.7)
1,187.7
(122.9)
(21.2)
(867.6)
762.7
2.1
—
(246.9)
(325.0)
594.3
(350.1)
(598.4)
60.3
12.4
(1.6)
(608.1)
(96.7)
236.0
1,191.3
1,427.3
$
122.5
30.0
42.5
132.9
(42.1)
(7.2)
0.6
0.1
(29.9)
(53.7)
12.9
(20.7)
(8.4)
43.3
1.8
(18.1)
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)
1,200.9
1,191.3
$
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 benefit from share-based compensation
Share-based compensation expense
Shares delivered under incentive plans
Ending balance
retained earnings
Beginning balance
Net income
Cash dividends (2016, $2.90 per share; 2015, $2.60 per share;
2014, $2.32 per share)
Shares delivered under incentive plans
Ending balance
accumulated other comprehensive loss
Beginning balance
Other comprehensive loss
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,
2016
181.4
$
2015
181.4
$
1,552.1
3.3
39.5
(6.7)
1,588.2
5,316.9
729.7
(378.2)
—
5,668.4
(1,334.6)
(204.2)
(1,538.8)
(3,459.0)
(500.4)
50.3
(3,909.1)
1,990.1
$
1,512.3
12.4
40.7
(13.3)
1,552.1
4,839.6
827.6
(350.1)
(0.2)
5,316.9
(948.0)
(386.6)
(1,334.6)
(2,927.2)
(606.4)
74.6
(3,459.0)
2,256.8
$
2014
181.4
1,456.0
29.8
41.6
(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
$
$
30
Rockwell Automation, Inc. - Form 10-K
Notes to Consolidated Financial Statements
Part II
Item 8 Financial Statements and Supplementary Data
NOtE 1
Basis of Presentation and accounting Policies
Rockwell Automation, Inc. (“Rockwell Automation” or “the Company”),
a leader in industrial automation and information, makes its customers
more productive and the world more sustainable.
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 and information solutions;
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 products have 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 our 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.
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, solutions 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.
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, solutions 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
Impairment of Long-Lived assets
Short-term investments include time deposits and certificates of deposit
with original maturities longer than three months but shorter than one
year at the time of purchase. These investments are stated at cost, which
approximates fair value.
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 $24.5 million at September 30,
2016 and $22.0 million at September 30, 2015. In addition, receivables
are stated net of an allowance for certain customer returns, rebates and
incentives of $7.9 million at September 30, 2016 and $9.2 million at
September 30, 2015.
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. Property acquired during the year that is accrued within
accounts payable or other current liabilities at year end is considered
to be a non-cash investing activity and is excluded from cash used for
capital expenditures in the Consolidated Statement of Cash Flows. Capital
expenditures of $29.9 million, $27.3 million and $24.6 million were accrued
within accounts payable and other current liabilities at September 30,
2016, 2015 and 2014, respectively.
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
our 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.
32
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
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.
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 forecasted to occur within the next two years. We also
use these contracts to hedge portions of our net investments in certain
non-U.S. subsidiaries against the effect of exchange rate fluctuations on
the translation of foreign currency balances to the U.S. dollar. Additionally,
we use derivative financial instruments in the form of interest rate swap
contracts to manage our borrowing costs of certain long-term debt. We
designate and account for these derivative financial instruments as hedges
under U.S. GAAP.
Furthermore, we use foreign currency forward exchange contracts that are
not designated as hedges 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. 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 (loss) income.
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 $319.3 million in 2016, $307.3 million in 2015 and $290.1 million
in 2014. 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.
Rockwell Automation, Inc. - Form 10-K Part II
Item 8 Financial Statements and Supplementary Data
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
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, 2016 (2.2 million shares), 2015 (1.4 million shares) and
2014 (0.8 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
Share-Based Compensation
$
$
$
$
$
$
2016
729.7
(0.7)
729.0
130.2
0.9
—
131.1
$
$
2015
827.6
(0.7)
826.9
134.5
1.1
0.1
135.7
5.60
5.56
$
$
6.15
6.09
$
$
2014
826.8
(1.1)
825.7
138.0
1.5
0.2
139.7
5.98
5.91
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.
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.
Product and Workers’ Compensation Liabilities
Conditional asset retirement Obligations
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
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 March 2016, the Financial Accounting Standards Board (FASB) issued
a new standard on share-based compensation. Among other changes to
the existing guidance, this standard requires entities to record the excess
income tax benefit or deficiency from share-based compensation within
the income tax provision rather than within additional paid-in capital. This
guidance is effective for us for reporting periods beginning no later than
October 1, 2017. We are currently evaluating the impact the adoption
of this guidance will have on our consolidated financial statements and
related disclosures.
In February 2016, the FASB issued a new standard on accounting for
leases which requires lessees to recognize right-of-use assets and
lease liabilities for most leases, among other changes to existing lease
accounting guidance. The new standard also requires additional qualitative
and quantitative disclosures about leasing activities. This guidance is
effective for us for reporting periods beginning October 1, 2019. 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
In November 2015, the FASB issued new guidance that requires all deferred
income taxes to be classified on the balance sheet as noncurrent assets
or liabilities rather than separating current and noncurrent deferred income
taxes based on the classification of the related assets and liabilities. This
requirement is effective for us no later than October 1, 2017; however, we
elected to adopt earlier as of December 31, 2015. Upon adoption of this
guidance we retrospectively reclassified $151.2 million of deferred income
taxes from current assets to noncurrent assets at September 30, 2015.
In May 2014, the FASB issued a new standard on revenue recognition
related to 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, 2018. We are currently
evaluating the impact the adoption of this guidance will have on our
consolidated financial statements and related disclosures.
NOtE 2
Goodwill and Other Intangible assets
Changes in the carrying amount of goodwill for the years ended September 30, 2016 and 2015 were (in millions):
Balance as of September 30, 2014
Acquisition of business
Translation
Balance as of September 30, 2015
Acquisition of businesses
Translation
BALANCE AS OF SEPTEMBER 30, 2016
Architecture
& Software
395.6 $
—
(7.6)
388.0
35.0
(8.5)
414.5 $
$
$
Control
Products &
Solutions
655.0
14.9
(29.1)
640.8
37.7
(19.1)
659.4
$
$
Total
1,050.6
14.9
(36.7)
1,028.8
72.7
(27.6)
1,073.9
During the year ended September 30, 2016, we recognized goodwill of $72.7 million and other intangible assets of $57.5 million resulting from three
acquisitions. In March 2016, we acquired MagneMotion Inc., a manufacturer of intelligent conveying systems. In September 2016, we acquired Automation
Control Products (ACP), a provider of centralized thin client, remote desktop and server management software, and Maverick Technologies (Maverick), a
systems integrator. We assigned the full amount of goodwill related to MagneMotion Inc. and ACP to our Architecture & Software segment and the full
amount of goodwill related to Maverick to our Control Products & Solutions segment. As of September 30, 2016, the purchase accounting and figures
associated with ACP and Maverick are preliminary and will be finalized within the permitted measurement period.
During the year ended September 30, 2015, we recognized goodwill of $14.9 million and other intangible assets of $5.4 million resulting from the
acquisition of the assets of ESC Services, Inc., a global provider of lockout-tagout services and solutions. We assigned the full amount of goodwill
related to ESC Services, Inc. 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
Allen-Bradley® trademark not subject to amortization
TOTAL
Amortized intangible assets:
Computer software products
Customer relationships
Technology
Trademarks
Other
Total amortized intangible assets
Allen-Bradley® trademark not subject to amortization
TOTAL
34
September 30, 2016
Accumulated
Amortization
Carrying
Amount
182.4 $
112.6
103.9
31.4
11.0
441.3
43.7
485.0 $
103.4 $
51.9
48.5
17.0
8.9
229.7
—
229.7 $
September 30, 2015
Carrying
Amount
Accumulated
Amortization
182.4 $
87.2
83.4
32.3
11.5
396.8
43.7
440.5 $
91.9 $
50.1
44.1
16.3
8.6
211.0
—
211.0 $
$
$
$
$
Net
79.0
60.7
55.4
14.4
2.1
211.6
43.7
255.3
Net
90.5
37.1
39.3
16.0
2.9
185.8
43.7
229.5
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Computer software products represent costs of computer software to
be sold, leased or otherwise marketed. Computer software products
amortization expense was $11.5 million in 2016, $9.4 million in 2015 and
$9.4 million in 2014.
Estimated amortization expense is $30.1 million in 2017, $25.1 million in
2018, $22.0 million in 2019, $19.0 million in 2020 and $18.4 million in 2021.
We performed our annual evaluation of goodwill and indefinite life intangible
assets for impairment as required by U.S. GAAP during the second quarter
of 2016 and concluded that these assets are not impaired.
NOtE 3
Inventories
Inventories consist of (in millions):
Finished goods
Work in process
Raw materials
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
2.050% notes, payable in March 2020
2.875% notes, payable in March 2025
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
$
$
$
$
$
$
September 30,
2016
215.8 $
158.0
152.8
526.6 $
2015
225.7
157.5
152.4
535.6
$
September 30,
2016
4.5
333.7
1,085.1
451.1
108.4
1,982.8
(1,404.5)
578.3
$
$
September 30,
2016
250.0
305.1
314.4
250.0
250.0
200.0
(53.2)
1,516.3
$
2015
4.5
319.0
1,042.3
441.3
97.6
1,904.7
(1,299.1)
605.6
2015
250.0
304.2
301.2
250.0
250.0
200.0
(54.5)
1,500.9
In February 2015, upon issuance of our notes payable in March 2020
(2020 Notes) and March 2025 (2025 Notes), we entered into fixed-to-
floating interest rate swap contracts with multiple banks that effectively
converted the $600.0 million aggregate principal amount to floating rate
debt, each at a rate based on three-month LIBOR plus a fixed spread. The
effective floating interest rates were 1.281 percent for the 2020 Notes and
1.691 percent for the 2025 Notes at September 30, 2016. The aggregate
fair value of the interest rate swap contracts at September 30, 2016 was
a net unrealized gain of $19.5 million. We have designated these swaps
as fair value hedges. The individual contracts are recorded in other assets
on the Consolidated Balance Sheet with corresponding adjustments to
the carrying value of the underlying debt. Additional information related
to our interest rate swap contracts is included in Note 8.
At September 30, 2016 and 2015, our total borrowing capacity under our
unsecured revolving credit facility expiring in March 2020 was $1.0 billion.
We can increase the aggregate amount of this credit facility by up to
$350.0 million, subject to the consent of the banks in the credit facility.
We have not borrowed against either credit facility during the years ended
September 30, 2016 or 2015. Borrowings under this credit facility bear
interest based on short-term money market rates in effect during the period
the 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 $121.2 million at September 30, 2016 were
available to non-U.S. subsidiaries. Borrowings under our non-U.S. credit
facilities at September 30, 2016 and 2015 were not significant. There are
no significant commitment fees or compensating balance requirements
under any of our credit facilities.
35
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Our short-term debt obligations are primarily comprised of commercial
paper borrowings. Commercial paper borrowings outstanding were
$448.6 million at September 30, 2016. The weighted average interest
rate of the commercial paper outstanding was 0.57 percent at
September 30, 2016. There were no commercial paper borrowings
outstanding at September 30, 2015.
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
Rocky Flats settlement (Note 17)
Other
OTHER CURRENT LIABILITIES
NOtE 7
Product Warranty Obligations
Interest payments were $69.2 million during 2016, $60.8 million during
2015 and $58.1 million during 2014.
September 30,
2016
15.6 $
28.0
43.1
16.9
28.6
242.5
72.9
447.6 $
2015
16.4
27.9
34.9
16.9
50.9
—
61.0
208.0
$
$
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 twelve 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.
Changes in product warranty obligations were (in millions):
Beginning balance
Warranties recorded at time of sale
Adjustments to pre-existing warranties
Settlements of warranty claims
ENDING BALANCE
September 30,
2016
27.9
25.0
1.2
$
(26.1)
28.0
$
2015
34.1
26.7
(4.5)
(28.4)
27.9
$
$
NOtE 8
Derivative Instruments and Fair Value Measurement
We use foreign currency forward exchange contracts and foreign currency denominated debt obligations to manage certain foreign currency risks. We
also use interest rate swap contracts to manage risks associated with interest rate fluctuations. The following information explains how we use and
value these types of derivative instruments and how they impact our consolidated financial statements.
Additional information related to the impacts of cash flow hedges on other comprehensive (loss) income is included in Note 9.
types of Derivative Instruments and Hedging activities
Cash Flow Hedges
We enter into foreign currency forward exchange 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 forecasted to occur within
the next two years (cash flow hedges). We report in other comprehensive
(loss) income 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. To the extent forward exchange
contracts designated as cash flow hedges are ineffective, changes in
value are recorded in earnings through the maturity date. There was no
impact on earnings due to ineffective cash flow hedges. At September 30,
2016, we had a U.S. dollar-equivalent gross notional amount of $663.2
million of foreign currency forward exchange contracts designated as
cash flow hedges.
36
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
The pre-tax amount of (losses) gains recorded in other comprehensive (loss) income related to cash flow hedges that would have been recorded in the
Consolidated Statement of Operations had they not been so designated was (in millions):
Forward exchange contracts
$
2016
(6.6)
$
2015
41.7
$
2014
16.9
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 (in millions):
Sales
Cost of sales
Selling, general and administrative expenses
TOTAL
$
$
2016
(5.5)
25.5
(0.9)
19.1
$
$
2015
(8.4)
44.6
—
36.2
$
$
2014
(2.3)
0.7
—
(1.6)
Approximately $5.4 million of pre-tax net unrealized losses on cash flow hedges as of September 30, 2016 will be reclassified into earnings during the
next 12 months. We expect that these net unrealized losses will be offset when the hedged items are recognized in earnings.
Net Investment Hedges
We use foreign currency forward exchange contracts and foreign currency
denominated debt obligations to hedge portions of our net investments
in non-U.S. subsidiaries (net investment hedges) against the effect of
exchange rate fluctuations on the translation of foreign currency balances
to the U.S. dollar. For all instruments that are designated as net investment
hedges and meet effectiveness requirements, the net changes in value of
the designated hedging instruments are recorded in accumulated other
comprehensive loss within shareowners’ equity where they offset gains
and losses recorded on our net investments globally. To the extent forward
exchange contracts or foreign currency denominated debt designated
as net investment hedges are ineffective, changes in value are recorded
in earnings through the maturity date. There was no impact on earnings
due to ineffective net investment hedges. At September 30, 2016, we
had a gross notional amount of $465.0 million of foreign currency forward
exchange contracts designated as net investment hedges.
The pre-tax amount of gains (losses) recorded in other comprehensive income (loss) related to net investment hedges that would have been recorded
in the Consolidated Statement of Operations had they not been so designated was (in millions):
Forward exchange contracts
Foreign currency denominated debt
TOTAL
Fair Value Hedges
$
$
2016
2.3
0.8
3.1
$
$
2015
(4.4)
1.0
(3.4)
$
$
2014
—
(0.3)
(0.3)
We use interest rate swap contracts to manage the borrowing costs of
certain long-term debt. In February 2015, we issued $600.0 million in
aggregate principal amount of fixed rate notes. Upon issuance of these
notes, we entered into fixed-to-floating interest rate swap contracts that
effectively convert these notes from fixed rate debt to floating rate debt.
We designate these contracts as fair value hedges because they hedge
the changes in fair value of the fixed rate notes resulting from changes in
interest rates. The changes in value of these fair value hedges are recorded
as gains or losses in interest expense and are offset by the losses or gains
on the underlying debt instruments, which are also recorded in interest
expense. There was no impact on earnings due to ineffective fair value
hedges. At September 30, 2016, the aggregate notional value of our
interest rate swaps designated as fair value hedges was $600.0 million.
The pre-tax amount of net gains recognized within the Consolidated Statement of Operations related to derivative instruments designated as fair value
hedges, which fully offset the related net losses on the hedged debt instruments during the periods presented, was (in millions):
Interest expense
Derivatives Not Designated as Hedging Instruments
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 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. Gains and losses on derivative financial
$
2016
14.1 $
2015
5.4
$
2014
—
instruments for which we do not elect hedge accounting are recognized in the
Consolidated Statement of Operations in each period, based on the change in
the fair value of the derivative financial instruments. At September 30, 2016, we
had a U.S. dollar-equivalent gross notional amount of $255.7 million of foreign
currency forward exchange contracts not designated as hedging instruments.
The pre-tax amount of gains (losses) from forward exchange contracts not designated as hedging instruments recognized in the Consolidated Statement
of Operations was (in millions):
Cost of sales
Other income (expense)
TOTAL
$
$
2016
0.9
(11.1)
(10.2)
$
$
2015
— $
20.8
20.8
$
2014
—
1.4
1.4
37
Rockwell Automation, Inc. - Form 10-K Part II
Item 8 Financial Statements and Supplementary Data
Fair Value of Financial Instruments
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.
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 2016, 2015 or 2014. 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 U.S. dollar-equivalent gross
notional amount of our forward exchange contracts totaled $1,383.9 million
at September 30, 2016. Currency pairs (buy/sell) comprising the most
significant contract notional values were United States dollar (USD)/euro,
USD/Swiss franc, USD/Canadian dollar, Swiss franc/euro, Swiss franc/
Canadian dollar, Singapore dollar/USD and Mexican peso/USD.
We value interest rate swap contracts using a market approach based on
observable market inputs including publicized swap curves.
Assets (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
Interest rate swap contracts
TOTAL
Balance Sheet Location
Other current assets
Other assets
Other current liabilities
Other liabilities
Other assets
Derivatives Not Designated as Hedging Instruments
Forward exchange contracts
Forward exchange contracts
TOTAL
Balance Sheet Location
Other current assets
Other current liabilities
Fair Value (Level 2)
September 30, 2016
5.2
0.6
(11.7)
(1.8)
19.5
11.8
$
$
September 30, 2015
32.6
1.7
(13.3)
(2.1)
5.4
24.3
$
$
Fair Value (Level 2)
September 30, 2016
4.4
(3.9)
0.5
$
$
September 30, 2015
20.3
(3.1)
17.2
$
$
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 fair value of long-term debt below
considers the terms of the debt excluding the impact of derivative and
hedging activity. The carrying amount of a portion of our long-term debt
is impacted by fixed-to-floating interest rate swap contracts that are
designated as fair value hedges.
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):
$
$
Carrying
Amount
1,526.4 $
902.8
448.6
1,516.3
Carrying
Amount
1,427.3 $
721.9
—
1,500.9
September 30, 2016
Total
1,526.4 $
902.8
448.6
1,780.5
Fair Value
Level 1
1,480.6 $
—
—
—
September 30, 2015
Total
1,427.3 $
721.9
—
1,682.6
Fair Value
Level 1
1,412.1 $
—
—
—
Level 2
45.8 $
902.8
448.6
1,780.5
Level 2
15.2 $
721.9
—
1,682.6
Level 3
—
—
—
—
Level 3
—
—
—
—
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
38
Rockwell Automation, Inc. - Form 10-K Part II
Item 8 Financial Statements and Supplementary Data
NOtE 9
Shareowners’ Equity
Common Stock
At September 30, 2016, 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, 2016, 13.1 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
2016
132.4
(4.6)
0.7
128.5
2015
136.7
(5.4)
1.1
132.4
2014
138.8
(4.1)
2.0
136.7
At September 30, 2016 and 2015 there were $5.3 million and $12.5 million, respectively, of outstanding common stock share repurchases recorded in
accounts payable that did not settle until the next fiscal year.
accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component for the years ended September 30, 2016, 2015 and 2014 were (in millions):
Pension and other
postretirement
benefit plan
adjustments, net
of tax (Note 11)
Accumulated
currency
translation
adjustments,
net of tax
Net unrealized
gains (losses)
on cash
flow hedges,
net of tax
Balance as of September 30, 2013
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive (loss) income
BALANCE AS OF SEPTEMBER 30, 2014
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive (loss) income
BALANCE AS OF SEPTEMBER 30, 2015
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive loss
BALANCE AS OF SEPTEMBER 30, 2016
$
$
$
$
$
(823.8) $
(143.9)
58.3
(85.6)
(909.4) $
(257.3)
69.6
(187.7)
(1,097.1) $
(216.5)
73.8
(142.7) $
(1,239.8) $
8.8 $
(61.3)
—
(61.3)
(52.5) $
(199.9)
—
(199.9)
(252.4) $
(42.5)
—
(42.5) $
(294.9) $
$
(2.7) $
14.2
2.4
16.6
13.9
36.7
(35.7)
1.0
14.9
(3.6)
(15.4)
(19.0) $
(4.1) $
$
Total
accumulated
other
comprehensive
loss, net of tax
(817.7)
(191.0)
60.7
(130.3)
(948.0)
(420.5)
33.9
(386.6)
(1,334.6)
(262.6)
58.4
(204.2)
(1,538.8)
39
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,
2016, 2015 and 2014 were (in millions):
Pension and other postretirement benefit plan adjustments:
Amortization of prior service credit
Amortization of net actuarial loss
Net unrealized losses (gains) on cash flow hedges:
Forward exchange contracts
Forward exchange contracts
Forward exchange contracts
TOTAL RECLASSIFICATIONS
Year Ended September 30,
2015
2014
Affected Line in the
Consolidated Statement
of Operations
$
$
$
$
$
(17.2)
123.2
106.0
(36.4)
69.6
8.4
(44.6)
—
(36.2)
0.5
(35.7)
33.9
$
$
$
$
$
(a)
(a)
Income before income taxes
Income tax provision
(12.9)
102.6
89.7
(31.4)
58.3 Net income
Sales
2.3
(0.7) Cost of sales
Selling, general and
administrative expenses
Income before income taxes
Income tax provision
—
1.6
0.8
2.4 Net income
60.7 Net income
2016
(14.0)
126.8
112.8
(39.0)
73.8
5.5
(25.5)
0.9
(19.1)
3.7
(15.4)
58.4
$
$
$
$
$
(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 2016, 2015 and 2014 we recognized $40.5 million, $41.5 million and
$42.5 million of pre-tax share-based compensation expense, respectively.
The total income tax benefit related to share-based compensation expense
was $12.9 million, $13.2 million and $12.9 million during 2016, 2015
and 2014, respectively. 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, 2016, total
unrecognized compensation cost related to share-based compensation
awards was $34.5 million, net of estimated forfeitures, which we expect
to recognize over a weighted average period of approximately 1.6 years.
Our 2012 Long-Term Incentives Plan, as amended (2012 Plan), authorizes
us to deliver up to 11.8 million shares of our common stock upon exercise
of stock options or upon grant or in payment of stock appreciation rights,
Stock Options
performance shares, 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 6.4 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,
2016. 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, 2016, 2015 and 2014 was $21.28, $26.70 and
$34.03, respectively. The total intrinsic value of stock options exercised was $21.9 million, $46.1 million and $108.1 million during 2016, 2015 and 2014,
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)
2016
1.76%
2.78%
29%
5.1
2015
1.61%
2.25%
31%
5.1
2014
1.52%
2.13%
41%
5.2
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.
40
Rockwell Automation, Inc. - Form 10-K A summary of stock option activity for the year ended September 30, 2016 is:
Part II
Item 8 Financial Statements and Supplementary Data
Outstanding at October 1, 2015
Granted
Exercised
Forfeited
Cancelled
OUTSTANDING AT SEPTEMBER 30, 2016
Vested or expected to vest at September 30, 2016
Exercisable at September 30, 2016
Performance Share awards
Shares
(in thousands)
4,574 $
1,167
(556)
(75)
(12)
5,098
4,918
3,049
Wtd. Avg.
Exercise Price
85.81
104.36
74.17
107.69
105.49
90.96
90.31
79.15
Wtd. Avg.
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value of In-The-
Money Options
(in millions)
6.7 $
6.6
5.4
160.0
157.5
131.7
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.
A summary of performance share activity for the year ended September 30, 2016 is as follows:
Performance
Shares
(in thousands)
Wtd. Avg.
Grant Date
Share Fair Value
103.33
87.64
98.15
98.15
100.01
98.73
Outstanding at October 1, 2015
Granted(1)
Adjustment for performance results achieved(2)
Vested and issued
Forfeited
OUTSTANDING AT SEPTEMBER 30, 2016
(1) Performance shares granted assuming achievement of performance goals at target.
(2) Adjustments were due to the number of shares vested under the fiscal 2016 awards at the end of the three-year performance period ended September 30, 2015 being lower
226 $
96
(5)
(67)
(10)
240
than the target number of shares.
The following table summarizes information about performance shares vested during the years ended September 30, 2016, 2015 and 2014:
Percent payout
Shares vested (in thousands)
Total fair value of shares vested (in millions)
2016
93%
67
7.1 $
2015
187%
154
17.2 $
2014
180%
127
14.2
$
For the three-year performance period ending September 30, 2016, the payout will be 10 percent of the target number of shares, with a maximum of
7,000 shares to be delivered in payment under the awards in December 2016.
The per-share fair value of performance share awards granted during the years ended September 30, 2016, 2015 and 2014 was $87.64, $103.70 and
$108.48, respectively, which we determined using a Monte Carlo simulation and the following assumptions:
Average risk-free interest rate
Expected dividend yield
Expected volatility
2016
1.21%
2.75%
22%
2015
0.96%
2.22%
24%
2014
0.60%
2.11%
33%
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.
41
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, 2016,
2015 and 2014 was $105.38, $115.02 and $109.69, respectively. The
total fair value of shares vested during the years ended September 30,
2016, 2015, and 2014 was $7.0 million, $8.0 million, and $6.4 million,
respectively.
A summary of restricted stock and restricted stock unit activity for the year ended September 30, 2016 is as follows:
Outstanding at October 1, 2015
Granted
Vested
Forfeited
OUTSTANDING AT SEPTEMBER 30, 2016
Restricted
Stock and
Restricted
Stock Units
(in thousands)
163 $
65
(67)
(5)
156
Wtd. Avg.
Grant Date
Share
Fair Value
98.22
105.38
80.17
107.86
108.63
We also granted approximately 10,000 shares of unrestricted common stock to non-employee directors during the year ended September 30, 2016.
The weighted average grant date fair value of the unrestricted stock awards granted during the years ended September 30, 2016, 2015, and 2014 was
$98.79, $111.43 and $108.86, respectively.
NOtE 11 retirement Benefits
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 U.K. pension
The components of net periodic benefit cost (income) are (in millions):
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. We
did not make voluntary contributions to our U.S. qualified pension plan
in 2016, 2015 or 2014. 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.
Other Postretirement Benefits
2016
$
1.3
3.3
—
2015
1.5
4.1
—
$
(11.1)
2.3
—
—
(4.2) $
(14.5)
4.5
—
—
(4.4) $
2014
2.0
6.5
—
(10.2)
2.9
—
—
1.2
$
Service cost
Interest cost
Expected return on plan assets
Amortization:
Prior service credit
Net actuarial loss
Special termination benefit
Settlements
NET PERIODIC BENEFIT COST (INCOME) $
Pension Benefits
2016
88.0 $
169.5
(218.3)
(2.9)
124.5
0.5
—
161.3 $
2015
85.7 $
167.2
(223.2)
(2.7)
118.7
—
—
145.7 $
2014
78.5 $
174.2
(217.9)
(2.7)
99.7
—
(0.1)
131.7 $
42
Rockwell Automation, Inc. - Form 10-K
Benefit obligation, plan assets, funded status and net liability information is summarized as follows (in millions):
Part II
Item 8 Financial Statements and Supplementary Data
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial losses (gains)
Plan amendments
Plan participant contributions
Benefits paid
Special termination benefit
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
2016
4,282.2
$
2015
4,236.6
$
$
88.0
169.5
515.4
(10.0)
4.3
(232.0)
0.5
(32.0)
4,785.9
3,262.5
394.3
44.3
4.3
(232.0)
(25.5)
3,447.9
(1,338.0) $
$
0.1
(11.6)
(1,326.5)
(1,338.0) $
85.7
167.2
230.2
(3.5)
4.9
(329.1)
—
(109.8)
4,282.2
3,591.0
29.5
41.0
4.9
(329.1)
(74.8)
3,262.5
(1,019.7) $
$
0.1
(11.3)
(1,008.5)
(1,019.7) $
$
$
$
2016
93.3 $
1.3
3.3
(0.2)
—
4.0
(14.9)
—
0.1
86.9
—
—
10.9
4.0
(14.9)
—
—
(86.9) $
— $
(10.5)
(76.4)
(86.9) $
2015
122.2
1.5
4.1
(20.1)
—
5.4
(17.7)
—
(2.1)
93.3
—
—
12.3
5.4
(17.7)
—
—
(93.3)
—
(11.4)
(81.9)
(93.3)
Amounts included in accumulated other comprehensive loss, net of tax, at September 30, 2016 and 2015 which have not yet been recognized in net
periodic benefit cost are as follows (in millions):
Prior service cost (credit)
Net actuarial loss
TOTAL
Pension Benefits
Other Postretirement Benefits
$
$
2016
4.9 $
1,235.1
1,240.0 $
2015
$
3.0
1,099.9
1,102.9
$
2016
(15.9) $
15.7
(0.2 ) $
2015
(22.9)
17.1
(5.8)
During 2016, we recognized prior service credits of $14.0 million ($8.9 million
net of tax) and net actuarial losses of $126.8 million ($82.7 million net of tax)
in pension and other postretirement net periodic benefit cost, which were
included in accumulated other comprehensive loss at September 30, 2015. In
2017, we expect to recognize prior service credits of $9.8 million ($6.5 million
net of tax), and net actuarial losses of $155.5 million ($102.1 million net of
tax) in pension and other postretirement net periodic benefit cost, which are
included in accumulated other comprehensive loss at September 30, 2016.
Net Periodic Benefit Cost assumptions
During 2015, we offered lump-sum distributions to certain deferred vested
participants in the U.S. defined benefit plans. Related payments totaled
$108.8 million. No settlement charge was required to be recorded.
The accumulated benefit obligation for our pension plans was $4,429.1 million
and $3,979.3 million at September 30, 2016 and 2015, respectively.
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,
2016
2015
2014
Other Postretirement Benefits
September 30,
2015
2016
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
4.55%
7.50%
3.75%
2.67%
5.21%
3.11%
4.50%
7.50%
3.75%
3.01%
5.31%
3.16%
5.05%
7.50%
3.75%
3.69%
5.33%
3.11%
3.85%
—
—
3.60%
—
—
3.65%
—
—
3.50%
—
—
2014
4.60%
—
—
4.20%
—
—
43
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,
2016
2015
Other Postretirement Benefits
September 30,
2016
2015
U.S. Plans
Discount rate
Compensation increase rate
Health care cost trend rate(1)
Non-U.S. Plans
3.60%
Discount rate
—
Compensation increase rate
Health care cost trend rate(1)
5.39%
(1) The health care 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 health
care cost trend rate will decrease to 5.50% in 2018 for U.S. Plans and 4.50% in 2017 for Non-U.S. Plans.
2.80%
—
4.95%
1.77%
2.86%
—
2.67%
3.11%
—
3.10%
—
6.50%
3.85%
—
7.00%
3.75%
3.50%
—
4.55%
3.75%
—
In October 2014, the U.S. Society of Actuaries released a new mortality
table (RP-2014) and new mortality improvement scale (MP-2014). We
used these mortality tables to measure our U.S. pension obligation as of
September 30, 2015. This change in mortality assumptions resulted in
a $222.1 million increase to our projected benefit obligation. In October
2015, the U.S. Society of Actuaries released a new mortality improvement
scale (MP-2015), which was used to measure our U.S. pension obligation
as of September 30, 2016. This change in mortality assumptions resulted
in a $28.0 million decrease to our projected benefit obligation.
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
40% – 65%
30% – 50%
0% – 15%
Target
Allocations
September 30,
2016
52%
39%
9%
50%
41%
9%
2015
48%
43%
9%
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, 2016 and 2015, our pension plans do not directly
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, 2016 and 2015.
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 (NAV) 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 NAV 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.
44
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, 2016:
Level 1
Level 2
Level 3
$
2.9 $
— $
— $
TOTAL PLAN INVESTMENTS
$
1,225.5 $
2,015.2 $
The following table presents our pension plans’ investments measured at fair value as of September 30, 2015:
Level 1
Level 2
Level 3
$
5.1 $
— $
— $
9.2
79.7
3.4
207.2 $
94.6
79.7
4.8
3,447.9
705.9
203.6
—
—
252.6
—
—
—
—
1.9
48.6
—
—
10.0
—
—
—
—
—
—
483.6
591.8
99.5
161.4
—
—
—
—
—
279.3
34.1
7.6
271.1
85.4
—
1.4
628.5
174.6
—
—
212.0
—
—
—
—
2.3
37.0
—
—
2.8
—
—
—
—
—
—
467.5
643.8
121.3
124.8
—
—
—
—
—
259.5
40.0
6.6
258.6
79.4
—
1.3
Total
2.9
705.9
203.6
483.6
591.8
352.1
161.4
57.1
56.9
0.9
1.9
48.6
279.3
34.1
17.6
271.1
Total
5.1
628.5
174.6
467.5
643.8
333.3
124.8
70.2
50.7
0.9
2.3
37.0
259.5
40.0
9.4
258.6
—
—
—
—
—
—
57.1
56.9
0.9
—
—
—
—
—
—
—
—
—
—
—
—
70.2
50.7
0.9
—
—
—
—
—
—
8.7
63.8
3.1
197.4 $
88.1
63.8
4.4
3,262.5
45
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 PLAN INVESTMENTS
$
1,062.3 $
2,002.8 $
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, 2016:
U.S. Plans
Private equity
Alternative equity
Insurance contracts
Non-U.S. Plans
Real estate
Insurance contracts
Other
Balance
October 1, 2015
Realized Gains
(Losses)
Unrealized
Gains (Losses)
Purchases, Sales,
Issuances, and
Settlements, Net
Balance
September 30, 2016
$
$
70.2 $
50.7
0.9
8.7
63.8
3.1
197.4 $
$
5.3
2.2
—
—
—
—
$
7.5
(13.3) $
(5.6)
—
0.5
14.5
—
(3.9) $
(5.1) $
9.6
—
—
1.4
0.3
6.2
$
57.1
56.9
0.9
9.2
79.7
3.4
207.2
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, 2015:
U.S. Plans
Private equity
Alternative equity
Insurance contracts
Non-U.S. Plans
Real estate
Insurance contracts
Other
Balance
October 1, 2014
Realized Gains
(Losses)
Unrealized
Gains (Losses)
Purchases, Sales,
Issuances, and
Settlements, Net
Balance
September 30, 2015
$
$
78.8 $
49.9
0.9
8.6
57.8
3.3
199.3 $
$
7.2
4.0
—
—
—
—
11.2
$
(11.0) $
1.7
—
0.1
11.3
0.1
2.2
$
(4.8) $
(4.9)
—
—
(5.3)
(0.3)
(15.3) $
70.2
50.7
0.9
8.7
63.8
3.1
197.4
Estimated Future Payments
We expect to contribute $49.2 million related to our worldwide pension plans and $10.6 million to our postretirement benefit plans in 2017.
The following benefit payments, which include employees’ expected future service, as applicable, are expected to be paid (in millions):
2017
2018
2019
2020
2021
2022 – 2026
$
Pension
Benefits
256.8 $
246.2
259.5
268.5
279.2
1,478.6
Other
Postretirement
Benefits
10.6
11.2
10.9
7.0
5.7
24.9
Other Postretirement Benefits
A one percentage point change in assumed health care 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 $
2.9
0.2 $
3.0
One Percentage Point Increase
2015
2016
One Percentage Point Decrease
2015
(0.2)
(2.6)
2016
(0.2) $
(2.5)
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, 2016 and 2015 are as follows (in millions):
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
46
$
2016
4,784.5 $
4,428.0
3,446.5
2015
4,281.0
3,978.3
3,261.2
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Defined Contribution Savings Plans
We also sponsor certain defined contribution savings plans for eligible employees. Expense related to these plans was $38.6 million in 2016, $46.3 million
in 2015 and $43.8 million in 2014.
NOtE 12 Other Income (Expense)
The components of other income (expense) are (in millions):
Interest income
Royalty income
Legacy product liability and environmental charges
Other
OTHER INCOME (EXPENSE)
$
$
2016
12.7
$
2.9
(12.7)
3.4
6.3
$
2015
10.7
$
2.9
(19.8)
0.7
(5.5) $
2014
9.5
2.5
(14.6)
12.3
9.7
Other income (expense) included an $8.0 million gain in 2014 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
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
Tax effect of foreign dividends
Foreign currency transaction loss
Research and development tax credit
Change in valuation allowances
Domestic manufacturing deduction
Adjustments for prior period tax matters
Other
EFFECTIVE INCOME TAX RATE
$
$
$
$
$
2016
2015
2014
512.1 $
431.0
943.1
$
660.5 $
467.0
607.3
526.9
1,127.5
$
1,134.2
175.9
91.7
16.3
283.9
(53.7)
(8.8)
(8.0)
(70.5)
213.4
299.8
$
$
$
2016
35.0%
0.6
(8.6)
0.1
(0.8)
(2.0)
(0.6)
(1.2)
0.4
(0.3)
22.6%
238.6
$
73.6
17.0
329.2
(30.3)
2.6
(1.6)
(29.3)
299.9
313.1
$
$
2015
35.0%
0.9
(7.9)
(0.2)
—
(0.6)
(0.5)
(1.2)
0.5
0.6
26.6%
219.4
85.3
9.9
314.6
(3.8)
(4.0)
0.6
(7.2)
307.4
323.8
2014
35.0%
0.8
(9.5)
0.5
—
(0.1)
(0.1)
(1.1)
1.0
0.6
27.1%
We operate in certain non-U.S. tax jurisdictions under government-sponsored tax incentive programs, the primary benefit of which will expire in 2019. These
programs may be extended with reduced incentives if certain additional requirements are met. The tax benefit attributable to these incentive programs
was $33.9 million ($0.26 per diluted share) in 2016, $36.5 million ($0.27 per diluted share) in 2015 and $42.9 million ($0.31 per diluted share) in 2014.
47
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Deferred taxes
The tax effects of temporary differences that give rise to our net deferred income tax assets (liabilities) at September 30, 2016 and 2015 were (in millions):
Deferred income tax assets:
Compensation and benefits
Inventory
Returns, rebates and incentives
Retirement benefits
Environmental remediation and other site-related costs
Share-based compensation
Other accruals and reserves
Net operating loss carryforwards
Tax credit carryforwards
Capital loss carryforwards
Other
Subtotal
Valuation allowance
Net deferred income tax assets
Deferred income tax liabilities:
Property
Intangible assets
Other
Deferred income tax liabilities
TOTAL NET DEFERRED INCOME TAX ASSETS
We have not provided U.S. deferred taxes for $3,274.0 million of undistributed
earnings of certain non-U.S. subsidiaries, since these earnings have been
determined to be indefinitely reinvested outside the U.S. and thus are
not subject to U.S. income taxes and foreign withholding taxes. It is not
practicable to estimate the amount of additional taxes that may be payable
upon distribution of these earnings.
2016
$
16.2
18.0
55.1
493.6
34.8
40.6
60.5
24.4
13.7
9.9
11.4
778.2
(17.3)
760.9
(63.5)
(54.9)
(8.6)
(127.0)
633.9
$
2015
28.4
15.3
50.8
371.2
31.1
35.5
48.9
25.9
8.5
13.6
15.9
645.1
(22.2)
622.9
(74.9)
(53.2)
—
(128.1)
494.8
$
$
We believe it is more likely than not that we will realize our deferred tax
assets through the reduction of future taxable income, other than for the
deferred tax assets reflected below.
Tax attributes and related valuation allowances at September 30, 2016 were (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
Unrecognized tax Benefits
Tax Benefit
Amount
7.7 $
6.1
9.9
2.8
2.5
7.8
11.2
48.0
0.6
48.6 $
$
$
Valuation
Allowance
4.4
1.6
9.9
—
—
0.2
0.6
16.7
0.6
17.3
Carryforward
Period Ends
2017-2026
Indefinite
Indefinite
2019-2033
2018-2037
2017-2033
2019-2031
Indefinite
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
$
$
2016
43.9
$
2.3
14.9
—
(27.1)
(1.6)
—
32.4
$
2015
38.9
$
2.1
11.6
(1.0)
(4.3)
(1.6)
(1.8)
43.9
$
2014
40.8
1.0
2.2
—
—
(4.2)
(0.9)
38.9
48
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
The amount of gross unrecognized tax benefits that would reduce our
effective tax rate if recognized was $32.4 million, $43.9 million and
$38.9 million at September 30, 2016, 2015 and 2014, respectively.
Accrued interest and penalties related to unrecognized tax benefits were
$5.2 million and $5.1 million at September 30, 2016 and 2015, respectively.
We recognize interest and penalties related to unrecognized tax benefits in
the income tax provision. Benefits (expense) recognized were $(0.1) million,
$2.4 million and $4.0 million in 2016, 2015 and 2014, respectively.
We do not expect the amount of gross unrecognized tax benefits to
change significantly in the next 12 months.
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 2014 and are no longer subject to
state, local and non-U.S. income tax examinations for years before 2003.
NOtE 14 Commitments and Contingent Liabilities
Obligations and expected recoveries related to environmental remediation costs, conditional asset retirement obligations and other recorded indemnification
matters as of September 30, 2016 and 2015 are as follows:
Environmental remediation costs
Conditional asset retirement obligations
Indemnification liabilities
Total recorded liabilities
Recorded probable expected recoveries
NET RECORDED LIABILITIES
2016
73.9
20.6
17.0
111.5
(22.5)
89.0
$
$
2015
61.4
20.2
32.6
114.2
(33.2)
81.0
$
$
As of September 30, 2016, we have estimated the total reasonably possible costs we could incur from these environmental remediation and indemnification
liabilities to be $133.6 million ($105.2 million, net of related receivables).
Environmental Matters
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 business, 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.
Environmental remediation cost liabilities and related expected recoveries at September 30, 2016 are as follows (in millions):
Other current liabilities
Other liabilities
Total recorded environmental remediation costs(1)
Receivables
Other assets
Total recorded probable expected recoveries
NET ENVIRONMENTAL REMEDIATION COSTS
2016
14.6
59.3
73.9
(1.8)
(9.6)
(11.4)
62.5
$
$
(1)
Includes $51.6 million related to discounted ongoing operating and maintenance expenditures.
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
business, 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 estimate conditional asset retirement obligations using site-specific
knowledge and historical industry expertise.
49
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
Conditional asset retirement obligations and related expected recoveries at September 30, 2016 and 2015 are as follows (in millions):
Other current liabilities
Other liabilities
Total recorded conditional asset retirement obligations
Receivables
Other assets
Total recorded probable expected recoveries
NET CONDITIONAL ASSET RETIREMENT OBLIGATIONS
2016
0.7
19.9
20.6
(0.1)
(0.2)
(0.3)
20.3
$
$
2015
0.4
19.8
20.2
—
(0.3)
(0.3)
19.9
$
$
There have been no significant changes in liabilities incurred, liabilities settled, accretion expense or revisions in estimated cash flows for the periods
ended September 30, 2016 and 2015, respectively.
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.
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.
We also have rights to historic insurance policies that provide indemnity and
defense costs, over and above self-insured retentions, for claims arising
out of certain asbestos liabilities relating to the divested measurement
and flow control business. We initiated litigation against several insurers
to pursue coverage for these claims, subject to each carrier’s policy
limits, and the case is now pending in Los Angeles County Superior
Court. In September 2016, we entered into settlement agreements with
certain insurance company defendants. In exchange for a lump sum
payment, Lamorak Insurance Company bought out its remaining liability
and has been released from further insurance obligations relating to the
measurement and flow control business. Certain Underwriters at Lloyd’s,
London and certain London Market Insurance Companies entered into
a cost share agreement to pay a portion of future defense and indemnity
costs for measurement and flow control asbestos claims. We believe this
arrangement will continue to provide partial coverage for these asbestos
claims throughout the remaining life of 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 business,
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.
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.
50
Rockwell Automation, Inc. - Form 10-K
Indemnification liabilities and related expected recoveries at September 30, 2016 and 2015 are as follows (in millions):
Part II
Item 8 Financial Statements and Supplementary Data
Other current liabilities
Other liabilities
Total recorded indemnification liabilities
Receivables
Other assets
Total recorded probable expected recoveries
NET INDEMNIFICATION LIABILITIES
2016
4.9
12.1
17.0
(3.5)
(7.3)
(10.8)
6.2
$
$
2015
3.2
29.4
32.6
(2.1)
(22.6)
(24.7)
7.9
$
$
Included in the above are certain environmental indemnification liabilities that are substantially indemnified by ExxonMobil Corporation for which we
have recorded a liability of $11.0 million and $26.0 million, and a related receivable of $10.8 million and $24.7 million, as of September 30, 2016 and
2015, respectively.
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, 2016, 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 business, financial
condition or results of operations; 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 business, financial condition or results of operations in a particular period.
Lease Commitments
Rental expense was $115.5 million in 2016, $117.0 million in 2015 and $121.6 million in 2014. As of September 30, 2016, minimum future rental
commitments under operating leases having noncancelable lease terms in excess of one year are payable as follows (in millions):
2017
2018
2019
2020
2021
Beyond 2021
TOTAL
$
$
76.2
65.2
52.8
45.5
33.7
62.5
335.9
Commitments from third parties under sublease agreements having noncancelable lease terms in excess of one year were not significant as of September
30, 2016. Most leases contain renewal options for varying periods, and certain leases include options to purchase the leased property.
NOtE 15 Business Segment Information
Rockwell Automation, a leader in industrial automation and information, makes its customers more productive and the world more sustainable. 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 organize our products, solutions and services into two operating segments: Architecture &
Software and Control Products & Solutions.
architecture & Software
Control Products & Solutions
The Architecture & Software segment contains all of the hardware, software
and communication components of our integrated control and information
architecture which are 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.
•• Software products that include configuration and visualization software
used to operate and supervise control platforms, advanced process
control software, manufacturing execution systems (MES) and information
solutions software that enables customers to improve operational
productivity and meet regulatory requirements.
•• Other products, including sensors, machine safety components and
linear motion control products.
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 and timers.
•• 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 information software.
•• 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.
51
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
The following tables reflect the sales and operating results of our reportable segments for the years ended September 30, 2016, 2015 and 2014 (in millions):
2016
2015
2014
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
Interest expense
INCOME BEFORE INCOME TAXES
$
$
$
$
$
$
$
2,635.2
3,244.3
5,879.5
695.0
493.7
1,188.7
(18.4)
(79.7)
(76.2)
(71.3)
943.1
$
$
$
$
2,749.5
3,558.4
6,307.9
808.6
551.9
1,360.5
(21.0)
(85.6)
(62.7)
(63.7)
1,127.5
$
2,845.3
3,778.2
6,623.5
839.6
512.4
1,352.0
(21.6)
(81.0)
(55.9)
(59.3)
1,134.2
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, 2016, 2015 and 2014 and the provision for depreciation and amortization and
the amount of capital expenditures for property for the years then ended 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
2016
2015
2014
$
$
$
$
$
$
2,054.3
2,034.6
3,012.3
7,101.2
75.0
77.3
1.5
153.8
18.4
172.2
24.7
41.5
50.7
116.9
$
$
$
$
$
$
1,790.5
2,078.1
2,536.1
6,404.7
69.7
70.3
1.5
141.5
21.0
162.5
29.4
56.8
36.7
122.9
$
$
$
$
$
$
1,874.5
2,273.7
2,076.1
6,224.3
64.8
65.9
0.2
130.9
21.6
152.5
33.6
51.2
56.2
141.0
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 $264.8 million, $266.8 million
and $294.1 million at September 30, 2016, 2015 and 2014, 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 $50.7 million, $36.7 million and
$56.2 million in 2016, 2015 and 2014, respectively, that will be shared
by our operating segments.
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
2016
3,213.4 $
316.4
1,147.2
764.4
438.1
5,879.5 $
2015
3,446.8 $
366.6
1,174.0
834.5
486.0
6,307.9 $
2014
3,414.6 $
437.0
1,351.8
884.0
536.1
6,623.5 $
2016
445.4 $
7.3
49.9
37.4
38.3
578.3 $
2015
472.1 $
7.3
50.4
41.9
33.9
605.6 $
2014
497.5
7.6
48.8
37.3
41.7
632.9
We attribute sales to the geographic regions based on the country of destination.
52
Rockwell Automation, Inc. - Form 10-K
Part II
Item 8 Financial Statements and Supplementary Data
In most countries, we sell primarily through independent distributors in
conjunction with our direct sales force. In other countries, we sell through
a combination of our direct sales force and to a lesser extent, through
independent 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 2016, 2015
and 2014, 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
1,426.6 $
612.7
236.9
185.5
2016 Quarters
Second
1,440.3 $
594.1
217.0
168.0
Third
1,474.0 $
616.8
252.3
191.0
Fourth
1,538.6 $
651.9
236.9
185.2
1.41
1.40
1.29
1.28
1.47
1.46
1.44
1.43
First
1,574.4 $
687.5
287.5
214.2
2015 Quarters
Second
1,550.8 $
673.2
276.5
206.0
Third
1,575.2 $
678.2
284.6
206.1
Fourth
1,607.5 $
664.2
278.9
201.3
1.58
1.56
1.53
1.51
1.53
1.52
1.51
1.50
2016
5,879.5
2,475.5
943.1
729.7
5.60
5.56
2015
6,307.9
2,703.1
1,127.5
827.6
6.15
6.09
Note: The sum of the quarterly per share amounts will not necessarily equal the annual per share amounts presented.
NOtE 17 rocky Flats Settlement
From 1975 to 1989, Rockwell International Corporation (RIC) operated
the Rocky Flats facility in Colorado for the U.S. Department of Energy
(DoE). In 1990, a class of landowners near Rocky Flats sued RIC and
Dow Chemical, another former operator of the facility. In May 2016, the
parties agreed to settle this case and the DoE authorized the settlement.
Under the settlement agreement, which is subject to court approval, we
and Dow Chemical will pay $375.0 million in the aggregate to resolve the
claims. Under RIC’s contract with the DoE and federal law, RIC is entitled
to indemnification by the DoE for the settlement amount. When RIC was
acquired by Boeing in 1996, we agreed to indemnify Boeing for RIC’s liabilities
related to Rocky Flats and received the benefits of RIC’s corresponding
indemnity rights against the DoE. We expect to be fully reimbursed by the
DoE for our obligation of $243.75 million under the settlement, either before
or after we pay the amounts due. We expect to pay up to $242.5 million
within the next 12 months. We will promptly pursue reimbursement from
the DoE; however, it is uncertain whether the government indemnification
and reimbursement process will be completed by the time payment is
due. At September 30, 2016, the liability is included within other current
liabilities in the Consolidated Balance Sheet. An indemnification receivable
of $243.75 million at September 30, 2016 is also included within other
assets in the Consolidated Balance Sheet.
53
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, 2016 and 2015,
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, 2016. 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, 2016, based on criteria established in Internal Control — Integrated
Framework (2013) 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, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended September 30,
2016, 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,
2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 15, 2016
54
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, 2016, 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, 2016.
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 (2013)
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, 2016.
The effectiveness of our internal control over financial reporting as of
September 30, 2016 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.
55
Rockwell Automation, Inc. - Form 10-K Part III
Item 10 Directors, executive Officers and Corporate Governance
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 “Investors”
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, 2016 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)
90.96(2)
n/a
90.96
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
6,657,783(3)
—
6,657,783
—
5,603,965
5,603,965(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 6,417,371 and 240,412 shares available for future issuance under our 2012 Long-Term Incentives Plan and our 2003 Directors Stock Plan, respectively.
56
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 Audit Matters in the Proxy Statement.
57
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, 2016 and 2015 .............................................................................................. 27
Consolidated Statement of Operations, years ended September 30, 2016, 2015 and 2014 .............................................. 28
Consolidated Statement of Comprehensive Income, years ended September 30, 2016, 2015 and 2014 ......................... 28
Consolidated Statement of Cash Flows, years ended September 30, 2016, 2015 and 2014 ............................................. 29
Consolidated Statement of Shareowners’ Equity, years ended September 30, 2016, 2015 and 2014 .............................. 30
Notes to Consolidated Financial Statements ........................................................................................................................ 31
report of Independent registered Public accounting Firm ................................................................................................ 54
(2) Financial Statement Schedule for the years ended September 30, 2016, 2015 and 2014
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-1
4-a-2
4-a-3
4-a-4
4-a-5
4-a-6
4-a-7
*10-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 June 8, 2016, filed as Exhibit 3.2 to the Company’s Current Report on
Form 8-K dated June 10, 2016, 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.
Form of certificate for the Company’s 2.050% Notes due March 1, 2020, filed as Exhibit 4.1 to the Company’s Current Report on
Form 8-K dated February 17, 2015, is hereby incorporated by reference.
Form of certificate for the Company’s 2.875% Notes due March 1, 2025, filed as Exhibit 4.2 to the Company’s Current Report on
Form 8-K dated February 17, 2015, 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.
* Management contract or compensatory plan or arrangement.
58
Rockwell Automation, Inc. - Form 10-K Part IV
Item 15 exhibits and Financial Statement Schedule
*10-a-2 Memorandum of Amendments to the Company’s 2003 Directors Stock Plan approved and adopted by the Board of Directors of the
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.
*10-a-3 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-5
*10-a-6
*10-a-4 Memorandum of Amendments to the Company’s 2003 Directors Stock Plan approved and adopted by the Board of Directors of
the 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.
Summary of Non-Employee Director Compensation and Benefits as of October 1, 2016, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, 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-1
*10-a-7
*10-b-2 Memorandum of Proposed Amendments to the Rockwell International Corporation 2000 Long-Term Incentives Plan approved and adopted
*10-b-3
by the Board of Directors of the Company on June 6, 2001, in connection with the spinoff of Rockwell Collins, Inc., 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-3
*10-c-4
*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.
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 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 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.
Copy of the Company's 2012 Long-Term Incentives Plan, as amended and restated through February 2, 2016, filed as Exhibit 4-c to the
Company's Registration Statement on Form S-8 (No. 333-209706), is hereby incorporated by reference.
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.
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.
Form of Performance Share Agreement under the Company's 2012 Long-Term Incentives Plan for performance shares awarded to
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.
*10-c-7
*10-c-5
*10-c-6
*10-c-8
*10-c-9
*10-d
* Management contract or compensatory plan or arrangement.
59
Rockwell Automation, Inc. - Form 10-K Part IV
Item 15 exhibits and Financial Statement Schedule
*10-e-1
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-h-3
10-h-2
10-h-1
*10-f-1
*10-f-2
*10-g-5
*10-g-4
*10-g-2
*10-g-1
*10-g-3
*10-e-2 Memorandum of Proposed Amendment and Restatement of the Company’s Deferred Compensation Plan approved and adopted by 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, 2016 between the Company and Blake D. Moret, filed as Exhibit 99.1 to the
Company’s Current Report on Form 8-K dated October 4, 2016, is hereby incorporated by reference.
Form of Change of Control Agreement dated as of September 30, 2016 between the Company and each of Theodore D. Crandall,
Douglas M. Hagerman, Frank C. Kulaszewicz and John P. McDermott and certain other corporate officers filed as Exhibit 99.2 to the
Company’s Current Report on Form 8-K dated October 4, 2016, 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.
Letter Agreement dated July 1, 2016 between Registrant and Blake D. Moret, filed as Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2016, 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.
$1,000,000,000 Five-Year Credit Agreement dated as of March 24, 2015 among the Company, the Banks listed on the signature pages
thereof, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Goldman Sachs Bank USA, as Syndication
Agents, 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 March 27, 2015, 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.
10-k-3
10-k-1
10-k-2
10-i-2
10-i-3
10-j-1
10-j-2
10-j-3
10-m
10-i-l
10-l
* Management contract or compensatory plan or arrangement.
60
Rockwell Automation, Inc. - Form 10-K Part IV
Item 15 exhibits and Financial Statement Schedule
10-n-1
10-n-2
12
21
23
24
31.1
31.2
32.1
32.2
101
Purchase Agreement, dated as of November 6, 2006, 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 (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, 2016.
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.
* Management contract or compensatory plan or arrangement.
61
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 15, 2016
Pursuant to the requirements of the Securities Exchange act of 1934, this report has been signed below on the 15th day of November 2016 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)
Blake D. Moret*
President and
Chief Executive Officer
(Principal Executive Officer)
and Director
Keith D. Nosbusch*
Chairman of the Board
Betty C. Alewine*
Director
J. Phillip Holloman*
Director
Steven R. Kalmanson*
Director
James P. Keane*
Director
Lawrence D. Kingsley*
Director
William T. McCormick, Jr.*
Director
Donald R. Parfet *
Director
Lisa A. Payne*
Director
Thomas W. Rosamilia*
Director
/s/ douglas M. hagerMan
Douglas M. Hagerman, attorney-in-fact**
authority of powers of attorney filed herewith
62
ItEM 15 Exhibits and Financial Statement Schedule
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, 2016, 2015 aND 2014
(in millions)
Description
*Year ended September 30, 2016
Allowance for doubtful accounts(a)
Valuation allowance for deferred tax assets
*Year ended September 30, 2015
Allowance for doubtful accounts(a)
Valuation allowance for deferred tax assets
*Year ended September 30, 2014
Allowance for doubtful accounts(a)
Valuation allowance for deferred tax assets
Balance at
Beginning of Year
Additions
Charged to
Costs and
Expenses
Charged
to Other
Accounts
Deductions(b)
Balance at
End of Year
$
$
$
24.8 $
22.2
22.2 $
27.8
25.3 $
28.3
10.9 $
1.0
8.1 $
2.5
6.5 $
4.0
— $
0.6
— $
—
— $
0.5
11.2 $
6.5
5.5 $
8.1
9.6 $
5.0
24.5
17.3
24.8
22.2
22.2
27.8
Includes allowances for current and other long-term receivables.
(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
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
Part IV
INDeX tO eXHIBItS
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, 2016.
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, Blake D. Moret, 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 15, 2016
/s/ Blake d. MoreT
Blake D. Moret
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 15, 2016
/s/ Theodore d. Crandall
Theodore D. Crandall
Senior Vice President and
Chief Financial Officer
E-3
Rockwell Automation, Inc. - Form 10-K Part IV
eXHIBIt 32�1
EXHIBIt 32.1 Certification of Periodic report
I, Blake D. Moret, President and Chief Executive Officer of Rockwell Automation, Inc. (the “Company”) 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, 2016 (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 15, 2016
/s/ Blake d. MoreT
Blake D. Moret
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”) 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, 2016 (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 15, 2016
/s/ Theodore d. Crandall
Theodore D. Crandall
Senior Vice President and
Chief Financial Officer
E-5
Rockwell Automation, Inc. - Form 10-K (This page intentionally left blank)
(This page intentionally left blank)
Rockwell Automation, Inc.
Supplemental Financial Information
Reconciliation of Non-GAAP Measures 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, 2016.
Reconciliation of Non-GAAP Measures
Adjusted EPS
Our annual report contains information regarding Adjusted EPS, which is a non-GAAP earnings measure that excludes non-operating
pension costs and their related income tax effects. Non-operating pension costs include 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 pension 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 allows management and investors to compare our
operating performance period over period. Adjusted EPS is also used as a financial measure of performance for our annual incentive
compensation. 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 is a reconciliation of diluted EPS from continuing operations to Adjusted EPS:
Diluted EPS from continuing operations
$
5.56 $
6.09 $
5.91 $
Non-operating pension costs per diluted share
Tax effect of non-operating pension costs per diluted share
0.58
(0.21)
0.46
(0.15)
0.40
(0.14)
Adjusted EPS
$
5.93 $
6.40 $
6.17 $
5.36
0.55
(0.20)
5.71
Year Ended September 30,
2016
2015
2014
2013
Free Cash Flow
Our annual report contains information regarding free cash flow, which is a non-GAAP financial measure that takes into consideration
capital investments required to maintain the operations of our businesses and execute our strategy. We account for share-based
compensation under U.S. GAAP, which requires that we report the excess income tax benefit from share-based compensation as a
financing cash flow rather than as an operating cash flow. We have added this benefit back to our calculation of free cash flow in order
to generally classify cash flows arising from income taxes as operating cash flows. In our opinion, free cash flow provides useful
information to investors regarding our ability to generate cash from business operations that is available for acquisitions and other
investments, service of debt principal, dividends and share repurchases. We use free cash flow, as defined, as one measure to monitor
and evaluate our performance, including as a financial measure for our annual incentive compensation. Our definition of free cash
flow may be different from definitions used by other companies.
The following is a summary of our cash flows from operating, investing and financing activities (in millions):
Year Ended September 30,
Cash provided by (used for):
2016
2015
2014
2013
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
$
947.3 $
1,187.7 $
1,033.3 $
1,014.8
(440.0)
(397.7)
(10.5)
(246.9)
(608.1)
(96.7)
(483.4)
(521.8)
(37.7)
(256.8)
(454.6)
0.6
Cash provided by (used for) continuing operations
$
99.1 $
236.0 $
(9.6) $
304.0
The following table summarizes free cash flow (in millions):
Cash provided by continuing operating activities
$
947.3 $
1,187.7 $
1,033.3 $
1,014.8
Capital expenditures
Excess income tax benefit from share-based compensation
(116.9)
3.3
(122.9)
12.4
(141.0)
29.9
(146.2)
31.9
Free cash flow
$
833.7 $ 1,077.2 $
922.2 $
900.5
Year Ended September 30,
2016
2015
2014
2013
This page does not constitute part of our Annual Report on Form 10-K for the fiscal year ended September 30, 2016.
Segment Operating Earnings
Our annual report contains information regarding total segment operating earnings, which is a non-GAAP financial measure. We exclude
purchase accounting depreciation and amortization, general corporate - net, non-operating pension costs, interest expense and income
tax provision because we do not consider these costs to be directly related to the operating performance of our segments. We believe
that this measure is useful to investors as a measure of operating performance. We use this measure to monitor and evaluate the
profitability of our operating segments. Our measure of total segment operating earnings may be different from measures used by
other companies.
The following table reflects our sales and operating results (in millions):
Sales
Architecture & Software
Control Products & Solutions
Total sales
Segment operating earnings
Architecture & Software
Control Products & Solutions
Total segment operating earnings
Purchase accounting depreciation and amortization
General corporate - net
Non-operating pension costs
Interest expense
Income before income taxes
Income tax provision
Net income
Year Ended September 30,
2016
2015
2014
2013
$
2,635.2 $
2,749.5 $
2,845.3 $
2,682.0
3,244.3
3,558.4
3,778.2
3,669.9
$ 5,879.5 $ 6,307.9 $ 6,623.5 $ 6,351.9
$
695.0 $
808.6 $
839.6 $
493.7
1,188.7
(18.4)
(79.7)
(76.2)
(71.3)
943.1
(213.4)
551.9
1,360.5
(21.0)
(85.6)
(62.7)
(63.7)
1,127.5
(299.9)
512.4
1,352.0
(21.6)
(81.0)
(55.9)
(59.3)
1,134.2
(307.4)
759.4
477.4
1,236.8
(19.3)
(97.2)
(78.5)
(60.9)
980.9
(224.6)
$
729.7 $
827.6 $
826.8 $
756.3
This page does not constitute part of our Annual Report on Form 10-K for the fiscal year ended September 30, 2016.
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 monitor and evaluate our performance, including as a financial measure for our annual incentive compensation. 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 and reconciled to GAAP measures as follows (in millions, except percentages):
Twelve Months Ended September 30,
2016
2015
2014
2013
(a) Return
Income from continuing operations
$
729.7
$
827.6
$
826.8
$
756.3
Interest expense
Income tax provision
Purchase accounting depreciation and amortization
Return
71.3
213.4
18.4
63.7
299.9
21.0
59.3
307.4
21.6
60.9
224.6
19.3
1,032.8
1,212.2
1,215.1
1,061.1
(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
248.2
1,509.0
2,164.1
811.8
(1,461.7)
(846.5)
2,424.9
166.6
1,261.9
2,521.3
792.6
(1,376.1)
(639.3)
2,727.0
275.5
905.3
2,680.7
772.7
(1,210.6)
(485.2)
2,938.4
209.0
905.0
2,086.7
775.2
(1,010.2)
(361.7)
2,604.0
213.4
299.9
307.4
224.6
Income from continuing operations before income taxes
$
943.1
$ 1,127.5
$ 1,134.2
$
980.9
Effective tax rate
(a)/(b)*(1-c) Return on Invested Capital
22.6%
33.0%
26.6%
32.6%
27.1%
30.1%
22.9%
31.4%
This page does not constitute part of our Annual Report on Form 10-K for the fiscal year ended September 30, 2016.
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, 2011 to September 30, 2016, assuming in each case a fixed investment of $100 at the respective closing prices on
September 30, 2011 and reinvestment of all dividends.
$300
$250
$200
$150
$100
$50
2011
2012
2013
2014
2015
2016
Fiscal Year Ended September 30
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, 2011 - 2016 plotted in
the above graph are as follows:
2011
2012
2013
2014
2015
2016
Rockwell Automation*
$ 100.00
$ 127.15
$ 199.85
$ 209.37
$ 197.89
$ 244.94
S&P 500 Index
100.00
130.20
155.39
186.05
184.91
213.44
S&P Electrical Components & Equipment
100.00
133.50
184.36
183.16
152.04
188.06
Cash dividends per common share
1.475
1.745
1.98
2.32
2.60
2.90
* 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, 2016.
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www.rockwellautomation.com
Rockwell Automation Headquarters
1201 South Second Street, Milwaukee, WI 53204-2496 USA, Tel: (1) 414.382.2000, Fax: (1) 414.382.4444
Publication ROK-BR017A-EN-P – December 2016
Copyright © 2016 Rockwell Automation, Inc. All rights reserved. Printed in USA.