ROK-2013.12.31-10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_________________________________________
FORM 10-Q 
_________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2012
Commission file number 1-12383
_________________________________________
Rockwell Automation, Inc.
(Exact name of registrant as specified in its charter)
_________________________________________
Delaware
 
25-1797617
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
1201 South Second Street,
Milwaukee, Wisconsin
 
53204
(Address of principal executive offices)
 
(Zip Code)
+1 (414) 382-2000
Registrant’s telephone number, including area code 
_________________________________________
Indicate by check mark 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.    Yes  x    No  ¨
Indicate by check mark 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).    Yes  x    No  ¨
Indicate by check mark 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 x
 
Accelerated Filer ¨  
 
Non-accelerated Filer ¨
 
Smaller Reporting Company ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x
139,803,729 shares of registrant’s Common Stock, $1.00 par value, were outstanding on December 31, 2012.


Table of Contents
ROCKWELL AUTOMATION, INC.


INDEX
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

ROCKWELL AUTOMATION, INC.

CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(in millions)




 
December 31,
2012
 
September 30,
2012
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
954.3

 
$
903.9

Short-term investments
350.0

 
350.0

Receivables
1,125.7

 
1,187.3

Inventories
646.6

 
619.0

Deferred income taxes
200.5

 
208.6

Other current assets
115.5

 
118.7

Total current assets
3,392.6

 
3,387.5

Property, net of accumulated depreciation of $1,241.3 and $1,211.5, respectively
579.5

 
587.1

Goodwill
1,025.3

 
948.8

Other intangible assets, net
216.8

 
209.5

Deferred income taxes
345.3

 
351.1

Other assets
151.6

 
152.5

Total
$
5,711.1

 
$
5,636.5

LIABILITIES AND SHAREOWNERS’ EQUITY
Current liabilities:
 
 
 
Short-term debt
$
253.0

 
$
157.0

Accounts payable
481.2

 
547.6

Compensation and benefits
152.0

 
246.4

Advance payments from customers and deferred revenue
224.0

 
204.1

Customer returns, rebates and incentives
178.9

 
168.7

Other current liabilities
198.8

 
207.8

Total current liabilities
1,487.9

 
1,531.6

Long-term debt
905.0

 
905.0

Retirement benefits
1,109.9

 
1,105.8

Other liabilities
240.5

 
242.4

Commitments and contingent liabilities (Note 11)

 

Shareowners’ equity:
 
 
 
Common stock (shares issued: 181.4)
181.4

 
181.4

Additional paid-in capital
1,419.4

 
1,416.7

Retained earnings
3,949.5

 
3,858.8

Accumulated other comprehensive loss
(1,180.1
)
 
(1,225.3
)
Common stock in treasury, at cost (shares held: December 31, 2012 and September 30, 2012, 41.6)
(2,402.4
)
 
(2,379.9
)
Total shareowners’ equity
1,967.8

 
1,851.7

Total
$
5,711.1

 
$
5,636.5

See Notes to Condensed Consolidated Financial Statements.

3
Table of Contents
ROCKWELL AUTOMATION, INC.


CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)


 
Three Months Ended
December 31,
 
2012
 
2011
Sales
 
 
 
Products and solutions
$
1,334.2

 
$
1,325.5

Services
155.0

 
148.4

 
1,489.2

 
1,473.9

Cost of sales
 
 
 
Products and solutions
(774.8
)
 
(752.8
)
Services
(107.1
)
 
(102.4
)
 
(881.9
)
 
(855.2
)
Gross profit
607.3

 
618.7

Selling, general and administrative expenses
(373.5
)
 
(362.4
)
Other (expense) income
(1.2
)
 
1.6

Interest expense
(15.4
)
 
(15.0
)
Income before income taxes
217.2

 
242.9

Income tax provision
(55.8
)
 
(59.6
)
Net income
$
161.4

 
$
183.3

Earnings per share:
 
 
 
Basic
$
1.16

 
$
1.29

Diluted
$
1.14

 
$
1.27

 
 
 
 
Cash dividends per share
$
0.47

 
$
0.425

Weighted average outstanding shares:
 
 
 
Basic
139.3

 
141.8

Diluted
141.2

 
143.9

See Notes to Condensed Consolidated Financial Statements.


4
Table of Contents
ROCKWELL AUTOMATION, INC.


CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(in millions)

 
Three Months Ended
December 31,
 
2012
 
2011
Net income
$
161.4

 
$
183.3

Other comprehensive income (loss), net of tax:
 
 
 
Pension and other postretirement benefit plan adjustments
21.9

 
13.5

Currency translation adjustments
24.3

 
(45.8
)
Net unrealized losses on cash flow hedges
(1.0
)
 
(2.7
)
Other comprehensive income (loss)
45.2

 
(35.0
)
Comprehensive income
$
206.6

 
$
148.3

See Notes to Condensed Consolidated Financial Statements.




5
Table of Contents
ROCKWELL AUTOMATION, INC.


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in millions)

 
Three Months Ended
December 31,
 
2012
 
2011
Continuing operations:
 
 
 
Operating activities:
 
 
 
Net income
$
161.4

 
$
183.3

Adjustments to arrive at cash provided by operating activities:
 
 
 
Depreciation
27.0

 
23.9

Amortization of intangible assets
8.2

 
8.7

Share-based compensation expense
11.2

 
11.4

Retirement benefit expense
42.8

 
26.2

Pension trust contributions
(9.3
)
 
(309.2
)
Net loss on disposition of property and investments
—

 
0.1

Income tax benefit from the exercise of stock options
0.5

 
—

Excess income tax benefit from share-based compensation
(10.6
)
 
(9.8
)
Changes in assets and liabilities, excluding effects of acquisitions and foreign
currency adjustments:
 
 
 
Receivables
69.3

 
1.5

Inventories
(22.4
)
 
(45.1
)
Accounts payable
(60.7
)
 
3.1

Compensation and benefits
(90.4
)
 
(150.8
)
Income taxes
33.6

 
57.0

Other assets and liabilities
6.7

 
10.7

Cash provided by (used for) operating activities
167.3

 
(189.0
)
 
 
 
 
Investing activities:
 
 
 
Capital expenditures
(21.6
)
 
(31.6
)
Acquisition of businesses, net of cash acquired
(84.4
)
 
(10.9
)
Purchases of short-term investments
(87.5
)
 
(150.0
)
Proceeds from maturities of short-term investments
87.5

 
—

Proceeds from sale of property and investments
0.2

 
1.8

Cash used for investing activities
(105.8
)
 
(190.7
)
 
 
 
 
Financing activities:
 
 
 
Net issuance of short-term debt
96.0

 
350.0

Cash dividends
(65.5
)
 
(60.3
)
Purchases of treasury stock
(92.9
)
 
(9.7
)
Proceeds from the exercise of stock options
38.1

 
5.2

Excess income tax benefit from share-based compensation
10.6

 
9.8

Other financing activities
—

 
(0.1
)
Cash (used for) provided by financing activities
(13.7
)
 
294.9

 
 
 
 
Effect of exchange rate changes on cash
9.6

 
(19.9
)
 
 
 
 
Cash provided by (used for) continuing operations
57.4

 
(104.7
)
 
 
 
 
Discontinued operations:
 
 
 
Cash used for discontinued operating activities
(7.0
)
 
(0.2
)
Cash used for discontinued operations
(7.0
)
 
(0.2
)
 
 
 
 
Increase (decrease) in cash and cash equivalents
50.4

 
(104.9
)
Cash and cash equivalents at beginning of period
903.9

 
988.9

Cash and cash equivalents at end of period
$
954.3

 
$
884.0

See Notes to Condensed Consolidated Financial Statements.

6
Table of Contents
ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



1. Basis of Presentation and Accounting Policies
In the opinion of management of Rockwell Automation, Inc. (the Company or Rockwell Automation), the unaudited Condensed Consolidated Financial Statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented and, except as otherwise indicated, such adjustments consist only of those of a normal recurring nature. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. The results of operations for the three month period ended December 31, 2012 are not necessarily indicative of the results for the full year. All date references to years and quarters herein refer to our fiscal year and fiscal quarter unless otherwise stated.
Receivables
Receivables are stated net of allowances for doubtful accounts of $26.8 million at December 31, 2012 and $28.0 million at September 30, 2012. In addition, receivables are stated net of an allowance for certain customer returns, rebates and incentives of $8.1 million at December 31, 2012 and $7.9 million at September 30, 2012.
Earnings Per Share
The following table reconciles basic and diluted earnings per share (EPS) amounts (in millions, except per share amounts):
 
Three Months Ended
December 31,
 
2012
 
2011
Net income
$
161.4

 
$
183.3

Less: Allocation to participating securities
(0.2
)
 
(0.4
)
Net income available to common shareowners
$
161.2

 
$
182.9

Basic weighted average outstanding shares
139.3

 
141.8

Effect of dilutive securities
 
 
 
Stock options
1.6

 
1.7

Performance shares
0.3

 
0.4

Diluted weighted average outstanding shares
141.2

 
143.9

Earnings per share:
 
 
 
Basic
$
1.16

 
$
1.29

Diluted
$
1.14

 
$
1.27

For the three months ended December 31, 2012, share-based compensation awards for 2.2 million shares were excluded from the diluted EPS calculation because they were antidilutive. For the three months ended December 31, 2011, share-based compensation awards for 2.4 million shares were excluded from the diluted EPS calculation because they were antidilutive.

7
Table of Contents
ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

2. Share-Based Compensation
We recognized $11.2 million and $11.4 million of pre-tax share-based compensation expense during the three months ended December 31, 2012 and 2011, respectively. Our annual grant of share-based compensation takes place during the first quarter of each fiscal year. The number of shares granted to employees and non-employee directors and the weighted average fair value per share during the periods presented were (in thousands except per share amounts):
 
Three Months Ended December 31,
 
2012
 
2011
 
Grants
 
Wtd. Avg.
Share
Fair Value
 
Grants
 
Wtd. Avg.
Share
Fair Value
Stock options
1,064

 
$
25.11

 
1,378

 
$
23.50

Performance shares
79

 
98.15

 
93

 
101.57

Restricted stock and restricted stock units
61

 
79.58

 
80

 
73.83

Unrestricted stock
7

 
69.38

 
9

 
54.55

3. Acquisitions
In October 2012, we acquired certain assets of the medium voltage drives business of Harbin Jiuzhou Electric Co., Ltd. (Harbin) located in Harbin, China. The acquisition strengthened our presence in the Asia-Pacific motor control market by adding significant capabilities in design, engineering and manufacturing of medium voltage drive products. The purchase price of the acquisition was $84.8 million. We recorded goodwill of $70.7 million attributable to the assembled workforce with the technical expertise in designing, engineering, and manufacturing medium voltage drive products and served market expansion. We assigned the full amount of goodwill to our Control Products & Solutions segment. None of the goodwill recorded is expected to be deductible for tax purposes.
The fair values and weighted average useful lives that have been assigned to the acquired identifiable intangible assets of this acquisition are (in millions, except useful lives):

Fair Value
 
Wtd. Avg. Useful Life
Customer relationships
$
7.1

 
10 years
Technology
3.0

 
5 years
Other intangible assets
1.0

 
5 years
In May 2011, we purchased a majority stake in the equity of Lektronix Limited and its affiliate (Lektronix), an independent industrial automation repairs and service provider in Europe and Asia. We purchased the remaining minority shares for $10.9 million in December 2011.
The results of operations of the acquired businesses have been included in our Condensed Consolidated Statement of Operations since the dates of acquisition. Pro forma financial information and allocation of the purchase price are not presented as the effects of these acquisitions are not material to our results of operations or financial position.
4. Inventories
Inventories consist of (in millions):
 
 
December 31,
2012
 
September 30,
2012
Finished goods
$
276.5

 
$
262.5

Work in process
158.6

 
149.5

Raw materials, parts and supplies
211.5

 
207.0

Inventories
$
646.6

 
$
619.0


8
Table of Contents
ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


5. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the three months ended December 31, 2012 are (in millions):
 
Architecture &
Software
 
Control
Products &
Solutions
 
Total
Balance as of September 30, 2012
$
387.7

 
$
561.1

 
$
948.8

Acquisition of businesses
—

 
70.7

 
70.7

Translation
1.1

 
4.7

 
5.8

Balance as of December 31, 2012
$
388.8

 
$
636.5

 
$
1,025.3

Other intangible assets consist of (in millions):
 
December 31, 2012
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
Computer software products
$
127.4

 
$
64.5

 
$
62.9

Customer relationships
80.2

 
32.9

 
47.3

Technology
92.2

 
52.8

 
39.4

Trademarks
32.2

 
13.8

 
18.4

Other
22.5

 
17.4

 
5.1

Total amortized intangible assets
354.5

 
181.4

 
173.1

Intangible assets not subject to amortization
43.7

 
—

 
43.7

Total
$
398.2

 
$
181.4

 
$
216.8

 
September 30, 2012
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
Computer software products
$
123.4

 
$
61.2

 
$
62.2

Customer relationships
72.6

 
30.7

 
41.9

Technology
88.9

 
50.9

 
38.0

Trademarks
32.1

 
12.9

 
19.2

Other
21.4

 
16.9

 
4.5

Total amortized intangible assets
338.4

 
172.6

 
165.8

Intangible assets not subject to amortization
43.7

 
—

 
43.7

Total
$
382.1

 
$
172.6

 
$
209.5

The Allen-Bradley® trademark has an indefinite life, and therefore is not subject to amortization.
Estimated amortization expense is $32.6 million in 2013, $34.2 million in 2014, $28.5 million in 2015, $24.9 million in 2016 and $20.9 million in 2017.
We perform the annual evaluation of our goodwill and indefinite life intangible assets for impairment as required by accounting principles generally accepted in the United States (U.S. GAAP) during the second quarter of each year.

9
Table of Contents
ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

6. Short-term Debt
Our short-term debt obligations are comprised of commercial paper borrowings. Commercial paper borrowings outstanding were $253.0 million at December 31, 2012 and $157.0 million at September 30, 2012. At December 31, 2012, the weighted average interest rate and maturity period of the commercial paper outstanding were 0.27 percent and nine days, respectively. At September 30, 2012, the weighted average interest rate and maturity period of the commercial paper outstanding were 0.27 percent and six days, respectively.
7. Other Current Liabilities
Other current liabilities consist of (in millions):
 
December 31,
2012
 
September 30,
2012
Unrealized losses on foreign exchange contracts
$
13.0

 
$
21.5

Product warranty obligations
36.2

 
37.8

Taxes other than income taxes
36.9

 
37.1

Accrued interest
15.0

 
15.6

Income taxes payable
27.5

 
14.7

Other
70.2

 
81.1

Other current liabilities
$
198.8

 
$
207.8

8. Product Warranty Obligations
We record a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience. Most of our products are covered under a warranty period that runs for twelve months from either the date of sale or installation. We also record a liability for specific warranty matters when they become probable and reasonably estimable. Our product warranty obligations are included in other current liabilities in the Condensed Consolidated Balance Sheet.
Changes in the product warranty obligations for the three months ended December 31, 2012 and 2011 are (in millions):
 
Three Months Ended
December 31,
 
2012
 
2011
Balance at beginning of period
$
37.8

 
$
38.5

Accruals for warranties issued during the current period
8.2

 
9.6

Adjustments to pre-existing warranties
(1.0
)
 
3.1

Settlements of warranty claims
(8.8
)
 
(7.1
)
Balance at end of period
$
36.2

 
$
44.1

 

10
Table of Contents
ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

9. Derivative Instruments and Fair Value Measurement
We use foreign currency forward exchange contracts to manage certain foreign currency risks. We enter into these contracts to offset changes in the amount of future cash flows associated with certain third-party and intercompany transactions denominated in foreign currencies expected to occur within the next two years (cash flow hedges). Certain of our locations have assets and liabilities denominated in currencies other than their functional currencies resulting from intercompany loans and other transactions with third parties denominated in foreign currencies. We also enter into foreign currency forward exchange contracts that we do not designate as hedging instruments to offset the transaction gains or losses associated with some of these assets and liabilities.
We 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 the three months ended December 31, 2012. The notional values of our forward exchange contracts outstanding at December 31, 2012 were $1,011.1 million, of which $586.7 million were designated as cash flow hedges. Currency pairs (buy/sell) comprising the most significant contract notional values were United States dollar (USD)/euro, USD/Canadian dollar, Swiss franc/euro, Singapore dollar/USD, Swiss franc/USD, USD/Brazilian Real, Swiss franc/Canadian dollar and USD/Singapore dollar.
We also use foreign currency denominated debt obligations to hedge portions of our net investments in non-U.S. subsidiaries. The currency effects of the debt obligations are reflected in accumulated other comprehensive loss within shareholders’ equity where they offset gains and losses recorded on our net investments globally. At December 31, 2012 we had $14.7 million of foreign currency denominated debt designated as net investment hedges.
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.
 
Assets and liabilities measured at fair value on a recurring basis and their location in our Condensed Consolidated Balance Sheet were (in millions):
 
 
 
Fair Value (Level 2)
Derivatives Designated as Hedging Instruments
Balance Sheet Location
 
December 31,
2012
 
September 30,
2012
Forward exchange contracts
Other current assets
 
$
6.4

 
$
8.7

Forward exchange contracts
Other assets
 
0.3

 
1.3

Forward exchange contracts
Other current liabilities
 
(6.8
)
 
(8.4
)
Forward exchange contracts
Other liabilities
 
(1.3
)
 
(1.5
)
Total
 
 
$
(1.4
)
 
$
0.1

 
 
 
 
Fair Value (Level 2)
Derivatives Not Designated as Hedging Instruments
Balance Sheet Location
 
December 31,
2012
 
September 30,
2012
Forward exchange contracts
Other current assets
 
$
3.1

 
$
2.3

Forward exchange contracts
Other assets
 
—

 
0.1

Forward exchange contracts
Other current liabilities
 
(6.2
)
 
(13.1
)
Forward exchange contracts
Other liabilities
 
(0.3
)
 
—

Total
 
 
$
(3.4
)
 
$
(10.7
)

11
ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

9. Derivative Instruments and Fair Value Measurement (continued)





The pre-tax amount of losses recorded in other comprehensive income (loss) related to hedges that would have been recorded in the Condensed Consolidated Statement of Operations had they not been so designated was (in millions):
 
 
Three Months Ended
December 31,
 
2012
 
2011
Forward exchange contracts (cash flow hedges)
$
(0.7
)
 
$
(1.9
)
Foreign currency denominated debt (net investment hedges)
(0.1
)
 
—

Total
$
(0.8
)
 
$
(1.9
)
Approximately $0.4 million ($0.1 million net of tax) of net unrealized losses on cash flow hedges as of December 31, 2012 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.
The pre-tax amount of gains (losses) reclassified from accumulated other comprehensive loss into the Condensed Consolidated Statement of Operations related to derivative forward exchange contracts designated as cash flow hedges, which offset the related (losses) gains on the hedged items during the periods presented, was:
 
 
Three Months Ended
December 31,
 
2012
 
2011
Sales
$
(0.4
)
 
$
(0.2
)
Cost of sales
1.2

 
2.7

Total
$
0.8

 
$
2.5

The amount recognized in earnings as a result of ineffective hedges was not significant.
 
The pre-tax amount of gains (losses) from forward exchange contracts not designated as hedging instruments recognized in the Condensed Consolidated Statement of Operations during the periods presented was:
 
 
Three Months Ended
December 31,
 
2012
 
2011
Other (expense) income
$
0.3

 
$
(6.0
)


12
ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

9. Derivative Instruments and Fair Value Measurement (continued)




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 Condensed Consolidated Balance Sheet due to the short-term nature of these instruments. We base the fair value of long-term debt upon quoted market prices for the same or similar issues. The following table presents the carrying amounts and estimated fair values of financial instruments not measured at fair value in the Condensed Consolidated Balance Sheet (in millions):
 
 
December 31, 2012
 
 
 
Fair Value
 
Carrying Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
Cash and cash equivalents
$
954.3

 
$
954.3

 
$
846.3

 
$
108.0

 
$
—

Short-term investments
350.0

 
350.0

 
—

 
350.0

 
—

Short-term debt
253.0

 
253.0

 
—

 
253.0

 
—

Long-term debt
905.0

 
1,181.7

 
—

 
1,181.7

 
—


 
September 30, 2012
 
 
 
Fair Value
 
Carrying Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
Cash and cash equivalents
$
903.9

 
$
903.9

 
$
779.4

 
$
124.5

 
$
—

Short-term investments
350.0

 
350.0

 
—

 
350.0

 
—

Short-term debt
157.0

 
157.0

 
—

 
157.0

 
—

Long-term debt
905.0

 
1,187.9

 
—

 
1,187.9

 
—




13
Table of Contents
ROCKWELL AUTOMATION, INC.


10. Retirement Benefits
The components of net periodic benefit cost are (in millions):
 
 
Pension Benefits
 
Three Months Ended
December 31,
 
2012
 
2011
Service cost
$
23.1

 
$
17.9

Interest cost
40.2

 
41.9

Expected return on plan assets
(56.8
)
 
(57.0
)
Amortization:
 
 
 
Prior service credit
(0.6
)
 
(0.6
)
Net actuarial loss
36.3

 
23.7

Net periodic benefit cost
$
42.2

 
$
25.9

 
 
Other  Postretirement
Benefits
 
Three Months Ended
December 31,
 
2012
 
2011
Service cost
$
0.6

 
$
0.5

Interest cost
1.6

 
1.8

Amortization:
 
 
 
Prior service credit
(2.7
)
 
(2.6
)
Net actuarial loss
1.1

 
0.6

Net periodic benefit cost
$
0.6

 
$
0.3

In October 2011, we made a voluntary contribution of $300 million to our U.S. qualified pension plan trust.
 

14
Table of Contents
ROCKWELL AUTOMATION, INC.


11. Commitments and Contingent Liabilities
Various 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 the former Rockwell International Corporation’s (RIC’s) divested measurement and flow control business. But in all cases, for those claimants who do show that they worked with our products or products of divested businesses for which we are responsible, we nevertheless believe we have meritorious defenses, in substantial part due to the integrity of the products, the encapsulated nature of any asbestos-containing components, and the lack of any impairing medical condition on the part of many claimants. We defend those cases vigorously. Historically, we have been dismissed from the vast majority of these claims with no payment to claimants.
We have maintained insurance coverage that we believe covers indemnity and defense costs, over and above self-insured retentions, for claims arising from our former Allen-Bradley subsidiary. Following litigation against Nationwide Indemnity Company (Nationwide) and Kemper Insurance (Kemper), the insurance carriers that provided liability insurance coverage to Allen-Bradley, we entered into separate agreements on April 1, 2008 with both insurance carriers to further resolve responsibility for ongoing and future coverage of Allen-Bradley asbestos claims. In exchange for a lump sum payment, Kemper bought out its remaining liability and has been released from further insurance obligations to Allen-Bradley. Nationwide entered into a cost share agreement with us to pay the substantial majority of future defense and indemnity costs for Allen-Bradley asbestos claims. We believe that this arrangement with Nationwide will continue to provide coverage for Allen-Bradley asbestos claims throughout the remaining life of the asbestos liability.
 
The uncertainties of asbestos claim litigation make it difficult to predict accurately the ultimate outcome of asbestos claims. That uncertainty is increased by the possibility of adverse rulings or new legislation affecting asbestos claim litigation or the settlement process. Subject to these uncertainties and based on our experience defending asbestos claims, we do not believe these lawsuits will have a material effect on our financial condition or results of operations.
We have, from time to time, divested certain of our businesses. In connection with these divestitures, certain lawsuits, claims and proceedings may be instituted or asserted against us related to the period that we owned the businesses, either because we agreed to retain certain liabilities related to these periods or because such liabilities fall upon us by operation of law. In some instances, the divested business has assumed the liabilities; however, it is possible that we might be responsible to satisfy those liabilities if the divested business is unable to do so.
In connection with the spin-offs of our former automotive component systems 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 connection 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.
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, the divestiture of businesses and the licensing of intellectual property. Due to the number of agreements containing such provisions, we are unable to estimate the maximum potential future payments.

15
Table of Contents
ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

12. Income Taxes
At the end of each interim period, we estimate a base effective tax rate that we expect for the full fiscal year based on our most recent forecast of pre-tax income, permanent book and tax differences and global tax planning strategies. We use this base rate to provide for income taxes on a year-to-date basis, excluding the effect of significant unusual or extraordinary items and items that are reported net of their related tax effects. We record the tax effect of significant unusual or extraordinary items and items that are reported net of their tax effects in the period in which they occur.
The effective tax rate for the three months ended December 31, 2012 was 25.7 percent. The effective rate was lower than the U.S. statutory rate of 35 percent primarily because we benefited from lower non-U.S. tax rates.
The amount of gross unrecognized tax benefits was $70.0 million ($23.0 million net of offsetting tax benefits) at December 31, 2012 and $70.3 million ($23.3 million net of offsetting tax benefits) September 30, 2012. These unrecognized tax benefits would reduce our effective tax rate if recognized. Offsetting tax benefits primarily consist of tax receivables that were recorded in other assets and foreign tax credit items that were recorded in deferred income taxes.
There was no material change in the amount of unrecognized tax benefits in the first three months of 2013. We believe it is reasonably possible that the amount of unrecognized tax benefits could be reduced by up to $1.2 million and the amount of offsetting tax benefits could be reduced by up to $0.8 million during the next 12 months as a result of the resolution of worldwide tax matters and the lapses of statutes of limitations.
We recognize interest and penalties related to tax matters in tax expense. Accrued interest and penalties were $20.6 million and $20.1 million at December 31, 2012 and at September 30, 2012, respectively.
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 2009 and are no longer subject to state, local and foreign income tax examinations for years before 2003.

16
Table of Contents
ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

13. Business Segment Information
The following tables reflect the sales and operating results of our reportable segments (in millions):
 
 
Three Months Ended
December 31,
 
2012
 
2011
Sales
 
 
 
Architecture & Software
$
657.5

 
$
650.5

Control Products & Solutions
831.7

 
823.4

Total
$
1,489.2

 
$
1,473.9

Segment operating earnings
 
 
 
Architecture & Software
$
183.2

 
$
189.2

Control Products & Solutions
92.8

 
102.7

Total
276.0

 
291.9

Purchase accounting depreciation and amortization
(5.2
)
 
(5.0
)
General corporate – net
(18.5
)
 
(20.2
)
Non-operating pension costs1
(19.7
)
 
(8.8
)
Interest expense
(15.4
)
 
(15.0
)
Income before income taxes
$
217.2

 
$
242.9

1Beginning in fiscal 2013, we redefined segment operating earnings to exclude non-operating pension costs. Non-operating pension costs were reclassified to a separate line item within the above table for all periods presented. These costs were previously included in the operating earnings of each segment and in general corporate-net. Non-operating pension costs consist of defined benefit plan interest cost, expected return on plan assets, amortization of actuarial gains and losses and the impacts of any plan curtailments or settlements. These components of net periodic benefit cost primarily relate to changes in pension assets and liabilities that are a result of market performance; we consider these costs to be unrelated to the operating performance of our business. We continue to include service cost and amortization of prior service cost in the business segment that incurred the expense as these components of net periodic benefit cost represent the operating cost of providing pension benefits to our employees.
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.

17

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareowners of
Rockwell Automation, Inc.
Milwaukee, Wisconsin
We have reviewed the accompanying condensed consolidated balance sheet of Rockwell Automation, Inc. and subsidiaries (the “Company”) as of December 31, 2012, and the related condensed consolidated statements of operations, comprehensive income and cash flows for the three-month periods ended December 31, 2012 and 2011. These condensed consolidated interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Rockwell Automation, Inc. and subsidiaries as of September 30, 2012, and the related consolidated statements of operations, cash flows, shareowners’ equity, and comprehensive income for the year then ended (not presented herein); and in our report dated November 19, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2012 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 6, 2013


18
Table of Contents
ROCKWELL AUTOMATION, INC.


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Forward Looking Statement
This Quarterly 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, 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 and market acceptance of new and existing products;
•
the availability, effectiveness and security of our information technology systems;
•
competitive products, services and solutions and pricing pressures, and our ability to provide high quality products, services and solutions;
•
a disruption of our operations and supply chain due to natural disasters, acts of war, strikes, terrorism, social unrest or other causes;
•
our ability to protect confidential information and enforce our intellectual property rights;
•
our ability to successfully address 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, services and solutions we sell or to alleged intellectual property infringements;
•
our ability to manage and mitigate the risks associated with our solutions business;
•
a disruption of our distribution channels;
•
the availability and price of components and materials;
•
the successful integration and management of acquired businesses;
•
the successful execution of our cost productivity and globalization initiatives; and
•
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 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2012 for more information.
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 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.
 

19
Table of Contents
ROCKWELL AUTOMATION, INC.



Overview
We are a leading global provider of industrial automation power, control and information solutions that help manufacturers achieve a competitive advantage for their businesses. Overall demand for our products, services and solutions is driven by:
 
•
investments in manufacturing, including upgrades, modifications and expansions of existing facilities or production lines, and the creation of new facilities or production lines;
•
investments in basic materials production capacity, partly in response to higher commodity pricing;
•
our customers’ needs for productivity and cost reduction, sustainable production (cleaner, safer and more energy efficient), quality assurance and overall global competitiveness;
•
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 schedule.
Long-term Strategy
Our vision of being the most valued global provider of innovative industrial automation and information products, services and solutions is supported by our growth and performance strategy, which seeks to:
 
•
achieve growth rates in excess of the automation market by expanding our served market and strengthening our competitive differentiation;
•
diversify our revenue streams by broadening our portfolio of products, services and solutions, expanding our global presence and serving a wider range of customer applications;
•
grow market share by gaining new customers and by capturing a larger share of existing customers’ spending;
•
enhance our market access by building our channel capability and partner network;
•
make acquisitions that serve as catalysts to organic growth by adding complementary technology, expanding our served market, increasing our domain expertise or continuing our geographic diversification;
•
deploy human and financial resources to strengthen our technology leadership and our intellectual capital business model; and
•
continuously improve quality and customer experience and drive annual cost productivity.
By implementing the strategy above, we seek to achieve our long-term financial goals that include revenue growth of 6-8 percent, double-digit EPS growth, return on invested capital in excess of 20 percent, free cash flow equal to about 100 percent of net income and 60 percent of our revenue outside the U.S, including 30 percent of revenue from emerging markets.

20
Table of Contents
ROCKWELL AUTOMATION, INC.



U. S. Industrial Economic Trends
In the first quarter of 2013, sales to U.S. customers accounted for 51 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 Index (Total Index), published by the Federal Reserve, which measures the real output of manufacturing, mining, and electric and gas utilities. The Industrial Production Index is expressed as a percentage of real output in a base year, currently 2007. Historically there has been a meaningful correlation between the changes in the Industrial Production Index and the level of automation investment made by our U.S. customers in their manufacturing base.
•
The Manufacturing Purchasing Managers’ Index (PMI), published by the Institute for Supply Management (ISM), which is an indicator of the current and near-term state of manufacturing activity in the U.S. According to the ISM, a PMI measure above 50 indicates that the U.S. manufacturing economy is generally expanding while a measure below 50 indicates that it is generally contracting.
•
Industrial Equipment Spending, which is an economic statistic compiled by the Bureau of Economic Analysis (BEA). This statistic provides insight into spending trends in the broad U.S. industrial economy. This measure over the longer term has proven to demonstrate a reasonable correlation with our domestic growth.
•
Capacity Utilization (Total Industry), which is an indicator of plant operating activity published by the Federal Reserve. Historically there has been a meaningful correlation between Capacity Utilization and levels of U.S. industrial production.
The table below depicts the trends in these indicators since the quarter ended September 2011. Modest improvement in the Industrial Production Index and Industrial Equipment Spending, relatively stable Capacity Utilization, and the PMI remaining above 50 cause us to expect stronger growth in the second half of our fiscal year.
 
Industrial
Production
Index
 
PMI
 
Industrial
Equipment
Spending
(in billions)
 
Capacity
Utilization
(percent)
Fiscal 2013
 
 
 
 
 
 
 
Quarter ended:
 
 
 
 
 
 
 
December 2012
97.6

 
50.7

 
$202.8
 
78.5

Fiscal 2012
 
 
 
 
 
 
 
Quarter ended:
 
 
 
 
 
 
 
September 2012
97.4

 
51.5

 
198.0
 
78.6

June 2012
97.3

 
49.7

 
197.8
 
78.9

March 2012
96.7

 
53.4

 
190.7
 
78.7

December 2011
95.3

 
53.1

 
196.6
 
77.9

Fiscal 2011
 
 
 
 
 
 
 
Quarter ended:
 
 
 
 
 
 
 
September 2011
94.2

 
52.5

 
187.0
 
77.1

Note: Economic indicators are subject to revisions by the issuing organizations.
 

21
Table of Contents
ROCKWELL AUTOMATION, INC.


Non-U.S. Regional Trends
In the first quarter of 2013, sales to non-U.S. customers accounted for 49 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, 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 Gross Domestic Product (GDP) as one indicator of the growth opportunities in each region where we do business. After a period of global economic slowdown, worldwide GDP growth is expected to stabilize in 2013, with a modest acceleration expected in the latter half of the year. Western Europe continues to operate in a recessionary environment, with potential for an improved outlook in some countries later in the year. The emerging markets in Europe, the Middle East and Africa (EMEA) are expected to continue strong growth for the remainder of the year. In Asia, China's economy is stabilizing but India's economy is very weak with no sign of improvement in the near term. In Latin America, Mexico's economy remains strong and Brazil's economy is returning to positive growth. We still expect that emerging markets will be the fastest growing automation markets over the long term.

 


22
Table of Contents
ROCKWELL AUTOMATION, INC.



Summary of Results of Operations
Sales in the first quarter of 2013 increased 1 percent compared to the first quarter of 2012. Organic sales increased 1.5 percent and currency translation reduced sales by less than 1 percentage point in the quarter. Strong growth in the United States and Latin America of 6 and 7 percent, respectively, was mostly offset by declines in the other regions, consistent with underlying market conditions. The end markets with the strongest sales growth for the quarter were transportation and oil and gas. The end markets with the weakest sales growth for the quarter were metals and mining.
We continued to execute our key initiatives:
 
•
Sales related to our process initiative declined approximately 2 percent in the first quarter of 2013 due to low beginning solutions backlog and project delays.
•
Logix organic sales in the first quarter of 2013 increased 5 percent year over year.
•
Organic sales in emerging markets were essentially flat year over year. Strong growth in emerging EMEA and Latin America was mostly offset by declines in Asia Pacific, particularly China and India. Emerging markets represented 20 percent of total company sales in the first quarter of 2013.
Total segment operating margin of 18.5 percent in the first quarter of 2013 was in line with our full year guidance.
Our Adjusted Effective Tax Rate in the first quarter of 2013 was 26.6 percent compared to 24.9 percent in the first quarter of 2012.
The American Taxpayer Relief Act ("Act") of 2012 was enacted on January 2, 2013. Under the Act, the federal research and development credit was extended for amounts paid or incurred after December 31, 2011 through December 31, 2013. As a result, we now expect our full-year Adjusted Effective Tax Rate for 2013 to be between 25 to 26 percent, down slightly from our previous guidance of 26 percent.
 

23
Table of Contents
ROCKWELL AUTOMATION, INC.



The following table reflects our sales and operating results for the three months ended December 31, 2012 and 2011 (in millions, except per share amounts):
 
 
Three Months Ended
December 31,
 
2012
 
2011
Sales
 
 
 
Architecture & Software
$
657.5

 
$
650.5

Control Products & Solutions
831.7

 
823.4

Total sales (a)
$
1,489.2

 
$
1,473.9

Segment operating earnings1
 
 
 
Architecture & Software
$
183.2

 
$
189.2

Control Products & Solutions
92.8

 
102.7

Total segment operating earnings2 (b)
276.0

 
291.9

Purchase accounting depreciation and amortization
(5.2
)
 
(5.0
)
General corporate — net
(18.5
)
 
(20.2
)
Non-operating pension costs3
(19.7
)
 
(8.8
)
Interest expense
(15.4
)
 
(15.0
)
Income before income taxes
217.2

 
242.9

Income tax provision
(55.8
)
 
(59.6
)
Net income
$
161.4

 
$
183.3

 
 
 
 
Diluted EPS
$
1.14

 
$
1.27

 
 
 
 
Adjusted EPS
$
1.23

 
$
1.31

 
 
 
 
Diluted weighted average outstanding shares
141.2

 
143.9

Total segment operating margin2 (b/a)
18.5
%
 
19.8
%
 
(1)
See Note 13 in the Condensed Consolidated Financial Statements for the definition of segment operating earnings.
(2)
Total segment operating earnings and total segment operating margin are non-GAAP financial measures. We believe that these measures are useful to investors as measures of operating performance. We use these measures to monitor and evaluate the profitability of our operating segments. Our measures of total segment operating earnings and total segment operating margin may be different from measures used by other companies.
(3)
Beginning in fiscal 2013, we redefined segment operating earnings to exclude non-operating pension costs. Non-operating pension costs were reclassified to a separate line item within the above table for all periods presented. These costs were previously included in segment operating earnings and in general corporate-net. We continue to include service cost and amortization of prior service cost in the business segment that incurred the expense as these costs represent the operating cost of providing pension benefits to our employees.


24
Table of Contents
ROCKWELL AUTOMATION, INC.


Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate Reconciliation

Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate are non-GAAP earnings measures that exclude non-operating pension costs and their related income tax effects. We define non-operating pension costs as defined benefit plan interest cost, expected return on plan assets, amortization of actuarial gains and losses and the impacts of any plan curtailments or settlements. These components of net periodic benefit cost primarily relate to changes in pension assets and liabilities that are a result of market performance; we consider these costs to be unrelated to the operating performance of our business. We believe that Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate provide useful information to our investors about our operating performance and allow management and investors to compare our operating performance period over period. Our measures of Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate may be different from measures used by other companies. These non-GAAP measures should not be considered a substitute for income from continuing operations, diluted EPS and effective tax rate.

The following is 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 for the three months ended December 31, 2012 and 2011 (in millions, except per share amounts):
 
 
Three Months Ended
December 31,
 
 
2012
 
2011
Income from continuing operations
 
$
161.4

 
$
183.3

Non-operating pension costs
 
19.7

 
8.8

Tax effect of non-operating pension costs
 
(7.2
)
 
(3.1
)
Adjusted Income
 
$
173.9

 
$
189.0

 
 
 
 
 
Diluted EPS from continuing operations
 
$
1.14

 
$
1.27

Non-operating pension costs per diluted share, before tax
 
0.14

 
0.06

Tax effect of non-operating pension costs per diluted share
 
(0.05
)
 
(0.02
)
Adjusted EPS
 
$
1.23

 
$
1.31

 
 
 
 
 
Effective tax rate
 
25.7
%
 
24.5
%
Tax effect of non-operating pension costs
 
0.9
%
 
0.4
%
Adjusted Effective Tax Rate
 
26.6
%
 
24.9
%


25
Table of Contents
ROCKWELL AUTOMATION, INC.



2013 First Quarter Compared to 2012 First Quarter

 
 
Three Months Ended
December 31,
(in millions, except per share amounts)
 
2012
 
2011
 
Change
Sales
 
$
1,489.2

 
$
1,473.9

 
$
15.3

Income before income taxes
 
217.2

 
242.9

 
(25.7
)
Diluted EPS
 
1.14

 
1.27

 
(0.13
)
Adjusted EPS
 
1.23

 
1.31

 
(0.08
)
Sales
Our sales increased 1 percent in the three months ended December 31, 2012 compared to the three months ended December 31, 2011. Organic sales increased 1.5 percent, and currency translation reduced sales by less than 1 percentage point in the three months ended December 31, 2012. Sales in our solutions and services businesses grew approximately 2 percent in the three months ended December 31, 2012. Product sales grew approximately 1 percent in the three months ended December 31, 2012. Pricing contributed less than 1 percentage point to growth during the period.
The tables below present our sales, attributed to the geographic regions based upon country of destination, for the three months ended December 31, 2012 and the change from the same period a year ago (in millions, except percentages):
 
 
 
 
Change vs.
 
Change in Organic Sales vs.
 
Three Months Ended December 31, 2012
 
Three Months Ended December 31, 2011
 
Three Months Ended December 31, 2011
United States
$
761.1

 
6
 %
 
6
 %
Canada
106.3

 
1
 %
 
(2
)%
Europe, Middle East and Africa
296.1

 
(6
)%
 
(2
)%
Asia-Pacific
197.4

 
(7
)%
 
(9
)%
Latin America
128.3

 
4
 %
 
7
 %
Total Sales
$
1,489.2

 
1
 %
 
1.5
 %
 
•
Organic sales growth in the United States was driven primarily by transportation and oil and gas industries, as consumer industries lagged the region growth rate.
•
EMEA's organic sales declined due to flat OEM demand and lower beginning solutions backlog. EMEA emerging markets saw strong double-digit organic growth.
•
Asia-Pacific organic sales declined due to significant declines in China and India, partially offset by sales growth in the balance of the region.
•
Organic sales growth in Latin America was led by strong growth in Brazil.





26
Table of Contents
ROCKWELL AUTOMATION, INC.



2013 First Quarter Compared to 2012 First Quarter — (Continued)

Income before Income Taxes
Income before income taxes decreased 11 percent in the three months ended December 31, 2012, primarily due to declines in segment operating earnings and higher non-operating pension costs. Total segment operating margin was 18.5 percent in the three months ended December 31, 2012 compared to an unusually strong margin of 19.8 percent in the three months ended December 31, 2011. Operating earnings and margin declined as increased spending related to annualization of fiscal 2012 investments, operating pension costs and employee compensation outpaced volume increases. These factors had a similar impact on operating margins in both segments.

Income Taxes
The effective tax rate in the first quarter of 2013 was 25.7 percent compared to 24.5 percent in the first quarter of 2012. Our Adjusted Effective Tax Rate in the first quarter of 2013 was 26.6 percent compared to 24.9 percent in the first quarter of 2012. The increase in the Adjusted Effective Tax Rate was primarily due to the year-over-year decrease in the use of foreign tax credits.

Architecture & Software
 
 
Three Months Ended
December 31,
 
(in millions, except percentages)
 
2012
 
2011
 
Change
 
Sales
 
$
657.5

 
$
650.5

 
$
7.0

 
Segment operating earnings
 
183.2

 
189.2

 
(6.0
)
 
Segment operating margin
 
27.9
%
 
29.1
%
 
(1.2
)
pts
Sales
Architecture & Software sales increased 1 percent in the three months ended December 31, 2012 compared to the three months ended December 31, 2011. Year-over-year organic sales increased 2 percent and currency translation reduced sales by 1 percentage point in the three months ended December 31, 2012. Logix organic sales increased 5 percent, while currency translation reduced sales by 1 percentage point in the three months ended December 31, 2012. The United States was the best performing region for the segment in the quarter, reporting year-over-year organic sales growth above the segment average rate of increase. The balance of the regions reported sales declines in the three months ended December 31, 2012.
Operating Margin
Architecture & Software segment operating earnings were down 3 percent in the three months ended December 31, 2012 compared to the three months ended December 31, 2011. Segment operating margin was 27.9 percent in the three months ended December 31, 2012, down from an unusually strong margin of 29.1 percent a year ago. Operating margin was up 2.7 points sequentially.

27
Table of Contents
ROCKWELL AUTOMATION, INC.


2013 First Quarter Compared to 2012 First Quarter — (Continued)

Control Products & Solutions
 
 
Three Months Ended
December 31,
 
(in millions, except percentages)
 
2012
 
2011
 
Change
 
Sales
 
$
831.7

 
$
823.4

 
$
8.3

 
Segment operating earnings
 
92.8

 
102.7

 
(9.9
)
 
Segment operating margin
 
11.2
%
 
12.5
%
 
(1.3
)
pts
Sales
Control Products & Solutions year-over-year sales increased 1 percent in the three months ended December 31, 2012. Acquisitions and currency translation had a minimal impact.
Latin America was the best performing region for the segment with double digit year-over-year organic sales growth in the three months ended December 31, 2012. The United Sales organic sales growth was also above the segment average rate of increase. The balance of the regions reported sales declines in the three months ended December 31, 2012.
Operating Margin
Control Products & Solutions segment operating earnings were down 10 percent in the three months ended December 31, 2012. Segment operating margin declined from 12.5 percent in the three months ended December 31, 2011 to 11.2 percent in the three months ended December 31, 2012.

28
Table of Contents
ROCKWELL AUTOMATION, INC.



Financial Condition
The following is a summary of our cash flows from operating, investing and financing activities, as reflected in the Condensed Consolidated Statement of Cash Flows (in millions): 
 
Three Months Ended
December 31,
 
2012
 
2011
Cash provided by (used for):
 
 
 
Operating activities
$
167.3

 
$
(189.0
)
Investing activities
(105.8
)
 
(190.7
)
Financing activities
(13.7
)
 
294.9

Effect of exchange rate changes on cash
9.6

 
(19.9
)
Cash provided by (used for) continuing operations
$
57.4

 
$
(104.7
)
 
 
 
 
The following table summarizes free cash flow (in millions):
 
 
 
Cash provided by continuing operating activities
$
167.3

 
$
(189.0
)
Capital expenditures of continuing operations
(21.6
)
 
(31.6
)
Excess income tax benefit from share-based compensation
10.6

 
9.8

 
 
 
 
Free cash flow
$
156.3

 
$
(210.8
)
Our definition of free cash flow, which is a non-GAAP financial measure, takes into consideration capital investments required to maintain the operations of our businesses and execute our strategy. Cash provided by continuing operating activities adds back non-cash depreciation expense to earnings and thus 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. Our accounting for share-based compensation requires us to report the related excess income tax benefit as a financing cash flow rather than as an operating cash flow. We have added this benefit back to our calculation of free cash flow in order to generally classify cash flows arising from income taxes as operating cash flows. In our opinion, free cash flow provides useful information to investors regarding our ability to generate cash from business operations that is available for acquisitions and other investments, service of debt principal, dividends and share repurchases. We use free cash flow as one measure to monitor and evaluate performance. Our definition of free cash flow may differ from definitions used by other companies.
Free cash flow was a source of $156.3 million for the three months ended December 31, 2012 compared to a use of $210.8 million for the three months ended December 31, 2011. This increase in free cash flow is primarily due to the absence of a $300 million discretionary pre-tax contribution to our U.S. qualified pension trust and lower incentive compensation payments in the first quarter of 2013 compared to the first quarter of 2012.
We repurchased approximately 1.2 million shares of our common stock under our share repurchase program in the first three months of 2013. The total cost of these shares was $87.8 million, of which $2.5 million was recorded in accounts payable at December 31, 2012 related to 30,000 shares that did not settle until January 2013. We also paid $7.6 million in the first quarter of 2013 for unsettled share repurchases outstanding at September 30, 2012. We repurchased approximately 122,000 shares of our common stock in the first three months of 2012. The total cost of these shares was $8.0 million. We also paid $1.7 million in the first quarter of 2012 for unsettled share repurchases outstanding at September 30, 2011. Our decision to repurchase additional stock in the remainder of 2013 will depend on business conditions, free cash flow generation, other cash requirements and stock price. At December 31, 2012, we had approximately $848.9 million remaining for stock repurchases under our existing board authorization. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, for additional information regarding share repurchases.
We expect future uses of cash to include working capital requirements, capital expenditures, additional contributions to our retirement plans, acquisitions of businesses, dividends to shareowners, repurchases of common stock and repayments of debt. We expect capital expenditures in 2013 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.

29
Table of Contents
ROCKWELL AUTOMATION, INC.



Financial Condition — (Continued)
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 permanently reinvested. Generally, these funds would be subject to U.S. tax if repatriated. The percentage of such non-U.S. funds can vary from quarter to quarter with a range of approximately 70 percent to 90 percent over the past eight quarters. As of December 31, 2012, approximately 90 percent of our funds were held in such non-U.S. subsidiaries. We have not encountered and do not expect to encounter any difficulty meeting the liquidity requirements of our domestic and international operations.
In addition to cash generated by operating activities, we have access to existing financing sources, including the public debt markets and unsecured credit facilities with various banks. Commercial paper is our principal source of short-term financing. At December 31, 2012, commercial paper borrowings outstanding were $253.0 million, with a weighted average interest rate of 0.27 percent. At September 30, 2012, commercial paper borrowings outstanding were $157.0 million, with a weighted average interest rate of 0.27 percent. Our debt-to-total-capital ratio was 37.0 percent at December 31, 2012 and 36.4 percent at September 30, 2012.
At December 31, 2012 and September 30, 2012, our total current borrowing capacity under our unsecured revolving credit facility, which expires in March 2015, was $750.0 million. We have not borrowed against this credit facility at December 31, 2012 or September 30, 2012. 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. We were in compliance with all covenants under this credit facility at December 31, 2012 and September 30, 2012. Separate short-term unsecured credit facilities of approximately $121.7 million at December 31, 2012 were available to non-U.S. subsidiaries.
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.
The following is a summary of our credit ratings as of December 31, 2012:
 
Credit Rating Agency
    
Short-Term
 Rating       
    
Long-Term
   Rating       
    
Outlook    
Standard & Poor’s
    
A-1
    
A
    
Stable
Moody’s
    
P-2
    
A3
    
Stable
Fitch Ratings
    
F1
    
A
    
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. Our emphasis is primarily on safety and liquidity of principal and secondarily on maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities.
We enter into contracts to offset changes in the amount of future cash flows associated with certain third-party and intercompany transactions denominated in foreign currencies forecasted to occur within the next two years and to offset transaction gains or losses associated with some of our assets and liabilities that are denominated in currencies other than their functional currencies resulting from intercompany loans and other transactions with third parties denominated in foreign 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.
Information with respect to our contractual cash obligations is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. We believe that at December 31, 2012, there has been no material change to this information.


30
Table of Contents
ROCKWELL AUTOMATION, INC.



Supplemental Sales Information
We translate sales of subsidiaries operating outside of the United States using exchange rates effective during the respective period. Therefore, changes in currency exchange rates affect our reported sales. Sales by businesses we acquired also affect our reported sales. We believe that organic sales, defined as sales excluding the effects of changes in currency exchange rates and acquisitions, which is a non-GAAP financial measure, provides useful information to investors because it reflects regional and operating segment performance from the activities of our businesses without the effect of changes in currency exchange rates and acquisitions. We use organic sales as one measure to monitor and evaluate our regional and operating segment performance. We determine the effect of changes in currency exchange rates by translating the respective period’s sales using the same currency exchange rates that were in effect during the prior year. When we acquire businesses, we exclude sales in the current period for which there are no comparable sales in the prior period. Organic sales growth is calculated by comparing organic sales to reported sales in the prior year. We attribute sales to the geographic regions based on the country of destination.
The following is a reconciliation of our reported sales to organic sales (in millions):
 
 
 
Three Months Ended December 31, 2012
 
Three Months Ended December 31, 2011
 
Sales
 
Effect of
Changes  in
Currency
 
Sales
Excluding
Effect of
Changes in
Currency
 
Effect  of
Acquisitions
 
Organic
Sales      
 
Sales
 
 
 
 
 
United States
$
761.1

 
$
(0.9
)
 
$
760.2

 
$
(1.5
)
 
$
758.7

 
$
717.6

 
Canada
106.3

 
(3.2
)
 
103.1

 
—

 
103.1

 
105.2

 
Europe, Middle East and Africa
296.1

 
12.8

 
308.9

 
—

 
308.9

 
315.0

 
Asia-Pacific
197.4

 
(2.2
)
 
195.2

 
(1.7
)
 
193.5

 
213.2

 
Latin America
128.3

 
3.4

 
131.7

 
—

 
131.7

 
122.9

 
Total Company Sales
$
1,489.2

 
$
9.9

 
$
1,499.1

 
$
(3.2
)
 
$
1,495.9

 
$
1,473.9


The following is a reconciliation of our reported sales by operating segment to organic sales (in millions):
 
 
Three Months Ended December 31, 2012
 
Three Months Ended December 31, 2011
 
Sales
 
Effect of
Changes in
Currency
 
Sales
Excluding
Effect of
Changes in
Currency
 
Effect of
Acquisitions
 
Organic
Sales      
 
Sales
Architecture & Software
$
657.5

 
$
6.6

 
$
664.1

 
$
—

 
$
664.1

 
$
650.5

Control Products & Solutions
831.7

 
3.3

 
835.0

 
(3.2
)
 
831.8

 
823.4

Total Company Sales
$
1,489.2

 
$
9.9

 
$
1,499.1

 
$
(3.2
)
 
$
1,495.9

 
$
1,473.9




31
Table of Contents
ROCKWELL AUTOMATION, INC.


Critical Accounting Policies and Estimates
We have prepared the Condensed 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 Condensed Consolidated Financial Statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies that we believe could have the most significant effect on our reported results or require subjective or complex judgments by management is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. We believe that at December 31, 2012, there has been no material change to this information.
Environmental
Information with respect to the effect on us and our manufacturing operations of compliance with environmental protection requirements and resolution of environmental claims is contained in Note 17 of the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. We believe that at December 31, 2012, there has been no material change to this information.
Recent Accounting Pronouncements
None.

32
Table of Contents
ROCKWELL AUTOMATION, INC.



Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to our exposure to interest rate risk and foreign currency risk is contained in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. We believe that at December 31, 2012, there has been no material change to this information.
Item 4. Controls and Procedures
Disclosure Controls and Procedures: We, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of the fiscal quarter covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the fiscal quarter covered by this report, our disclosure controls and procedures were effective.
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.
As previously disclosed, we are in the process of developing and implementing common global process standards and an enterprise-wide information technology system. Additional implementations will occur at the remaining locations of our company throughout fiscal 2013-2014.



33
Table of Contents
ROCKWELL AUTOMATION, INC.


PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to our legal proceedings is contained in Item 3, Legal Proceedings, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. We believe that at December 31, 2012, there has been no material change to this information.
Item 1A. Risk Factors
Information about our most significant risk factors is contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. We believe that at December 31, 2012 there has been no material change to this information.

 

34
Table of Contents
ROCKWELL AUTOMATION, INC.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchases
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 December 31, 2012:
 
Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share(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(2)
October 1 - 31, 2012
 
560,000

 
$
69.88

 
560,000

 
$
897,540,191

November 1 - 30, 2012
 
269,407

 
77.62

 
269,407

 
876,628,368

December 1 - 31, 2012
 
340,000

 
81.58

 
340,000

 
848,891,536

Total
 
1,169,407

 
75.07

 
1,169,407

 
 
 
(1)
Average price paid per share includes brokerage commissions.
(2)
On June 7, 2012, the Board of Directors authorized us to expend up to $1.0 billion to repurchase shares of our common stock. Our repurchase program allows management to repurchase shares at its discretion. However, during quarterly “quiet periods,” defined as the period of time from quarter-end until two business days following the furnishing of our quarterly earnings results to the SEC on Form 8-K, shares are repurchased at our broker’s discretion pursuant to a share repurchase plan subject to price and volume parameters.



 

35
Table of Contents
ROCKWELL AUTOMATION, INC.


Item 6. Exhibits
(a) Exhibits:
 
Exhibit 10.1*
 
—
 
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.
Exhibit 10.2*
 
—
 
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.
Exhibit 10.3*
 
—
 
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.
Exhibit 15
 
—
  
Letter of Deloitte & Touche LLP regarding Unaudited Financial Information.
Exhibit 31.1
 
—
  
Certification of Periodic Report by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Exhibit 31.2
 
—
  
Certification of Periodic Report by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Exhibit 32.1
 
—
  
Certification of Periodic Report by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2
 
—
  
Certification of Periodic Report by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101
 
—
  
Interactive Data Files.
__________________________
* Management contract or compensatory plan or arrangement.

36

SIGNATURES
Pursuant to the requirements 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.
 
 
 
 
ROCKWELL AUTOMATION, INC.
(Registrant)
 
 
 
 
Date:
February 6, 2013
 
By
 
/s/ THEODORE D. CRANDALL
 
 
 
 
 
Theodore D. Crandall
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date:
February 6, 2013
 
By
 
/s/ DAVID M. DORGAN
 
 
 
 
 
David M. Dorgan
Vice President and Controller
(Principal Accounting Officer)

37

INDEX TO EXHIBITS
 
Exhibit No.
 
Exhibit
10.1*
 
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.
10.2*
 
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.
10.3*
 
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.
15
 
Letter of Deloitte & Touche LLP regarding Unaudited Financial Information.
31.1
 
Certification of Periodic Report by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2
 
Certification of Periodic Report by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1
 
Certification of Periodic Report by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Certification of Periodic Report by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
 
Interactive Data Files.
__________________________
* Management contract or compensatory plan or arrangement.


38