Exhibit 99
1201 S. Second Street
Milwaukee, WI 53204
USA
Fax: 414.382.5560
News Release
| | | | |
Contact | John Bernaden
Media Relations
Rockwell Automation
414.382.2555
| | Rondi Rohr-Dralle
Investor Relations
Rockwell Automation
414.382.8510 |
Rockwell Automation Reports Third Quarter 2009 Results
| | • | | Revenue down 31 percent compared to the third quarter of fiscal 2008, down 4 percent sequentially |
| | • | | Company reaffirms fiscal 2009 EPS guidance of $1.40 — $1.70 |
MILWAUKEE (July 28, 2009) – Rockwell Automation, Inc. (NYSE: ROK) today reported fiscal 2009 third quarter revenue of $1,010.8 million, down 31 percent compared to $1,475.0 million in the third quarter of fiscal 2008. Currency translation contributed 5 percentage points to the decline, partially offset by 1 percentage point of growth from acquisitions. Fiscal 2009 third quarter revenue was down 4 percent sequentially compared to the second quarter of this fiscal year. Fiscal 2009 third quarter net income was $32.8 million or $0.23 per share, compared to $152.6 million or $1.03 per share in the third quarter of fiscal 2008.
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Segment operating earnings were $86.3 million in the third quarter of fiscal 2009, down from $258.3 million in the same period of 2008. Earnings decreased primarily due to the significant revenue decline, partially offset by cost reductions. Segment operating margin in the third quarter of fiscal 2009 was 8.5 percent, 9.0 percentage points lower than the third quarter of fiscal 2008.
Third quarter of fiscal 2009 free cash flow from continuing operations was $168.5 million versus $151.2 million in the third quarter of fiscal 2008. Free cash flow in the quarter benefited primarily from working capital reductions and lower capital expenditures. Return on invested capital was 14.8 percent.
Free cash flow and return on invested capital are non-GAAP measures that are defined in the attachments to this release under “Other Supplemental Information”.
Commenting on the fiscal third quarter results, chairman and chief executive officer Keith D. Nosbusch said, “Revenue and earnings were largely in line with our expectations, although the revenue decline in our solutions business was somewhat higher than anticipated. Despite lower sequential revenue in the third quarter, segment operating margin improved, primarily due to favorable revenue mix and cost savings. We were pleased that we generated strong free cash flow again this quarter. Our employees have responded well in this challenging environment by remaining focused on our customers’ needs while delivering operational improvements.”
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Outlook
Commenting on the outlook for fiscal 2009, Nosbusch said, “Based on mixed results in macroeconomic indicators and stabilization in our own demand trends, it appears that we may be approaching the bottom of the cycle. However, the outlook for the global economy is still uncertain, and we have yet to see evidence of an upturn. We are reaffirming our fiscal 2009 earnings per share guidance of $1.40 to $1.70, excluding any restructuring charges related to actions that we may take in the fiscal fourth quarter.”
Nosbusch added, “In this difficult business environment, we remain focused on cost control and cash management while continuing to invest in our core technologies. As markets recover, we will benefit from the combination of our talented and dedicated employees and partners, differentiated technology, increasingly diverse revenue base and strong balance sheet.”
Following is a discussion of third quarter results for both segments.
Architecture & Software
Architecture & Software fiscal 2009 third quarter sales were $399.5 million, a decrease of 36 percent from $625.7 million in the third quarter of fiscal 2008. Currency translation contributed 5 percentage points to the decline. Fiscal 2009 third quarter sales were up 2 percent sequentially compared to $393.5 million in the second quarter of this fiscal year. Segment operating earnings were $43.3 million in the third quarter of fiscal 2009 compared to $154.7 million in the third quarter of fiscal 2008. Architecture & Software segment operating margin was 10.8 percent in the third quarter of fiscal 2009 compared to 24.7 percent in the same period of 2008.
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Control Products & Solutions
Control Products & Solutions fiscal 2009 third quarter sales were $611.3 million, a decrease of 28 percent from $849.3 million in the third quarter of fiscal 2008. Currency translation contributed 5 percentage points to the decline, partially offset by about 1 percentage point of growth from acquisitions. Fiscal 2009 third quarter sales were down 8 percent sequentially compared to $664.6 million in the second quarter of this fiscal year. Segment operating earnings were $43.0 million in the third quarter of fiscal 2009 compared to $103.6 million in the third quarter of fiscal 2008. Control Products & Solutions segment operating margin was 7.0 percent in the third quarter of fiscal 2009 compared to 12.2 percent in the same period of 2008.
General Corporate – Net
Fiscal 2009 third quarter general corporate net expense was $16.3 million, $5.6 million lower than the third quarter of fiscal 2008.
Income Taxes
The effective tax rate for the third quarter of fiscal 2009 was 34.7 percent, compared to 28.5 percent for the third quarter of fiscal 2008. The tax rate for the quarter was unfavorably impacted by tax on a dividend related to the planned disposal of a non-U.S. subsidiary. For fiscal 2009, the Company now expects the full year tax rate to be in the range of 22 to 25 percent.
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Conference Call
A conference call to discuss our financial results will take place at 8:30 A.M. Eastern Time on July 28. The call and related financial charts will be webcast and accessible via the Rockwell Automation website (www.rockwellautomation.com).
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This news release 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:
| | • | | economic changes in global markets where we compete, such as currency exchange rates, inflation rates, recession, interest rates and the volatility and disruption of the capital and credit markets for us, our customers and our suppliers; |
| | • | | laws, regulations and governmental policies affecting our activities in the countries where we do business; |
| | • | | successful development of advanced technologies and demand for and market acceptance of new and existing products; |
| | • | | general global and regional economic, business or industry conditions, including levels of capital spending in industrial markets; |
| | • | | the availability, effectiveness and security of our information technology systems; |
| | • | | competitive product and pricing pressures; |
| | • | | disruption of our operations due to natural disasters, acts of war, strikes, terrorism or other causes; |
| | • | | intellectual property infringement claims by others and the ability to protect our intellectual property; |
| | • | | 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; |
| | • | | the uncertainties of litigation; |
| | • | | disruption of our distribution channels; |
| | • | | the availability and price of components and materials; |
| | • | | successful execution of our cost productivity, restructuring 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 filings. |
These forward-looking statements reflect our beliefs as of the date of filing this release. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Rockwell Automation, Inc. (NYSE: ROK), the world’s largest company dedicated to industrial automation and information, makes its customers more productive and the world more sustainable. Headquartered in Milwaukee, Wis., Rockwell Automation employs about 20,000 people serving customers in more than 80 countries.
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ROCKWELL AUTOMATION, INC.
SALES AND EARNINGS INFORMATION
(in millions, except per share amounts)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| Sales | | | | | | | | | | | | | | | | |
| Architecture & Software | | $ | 399.5 | | | $ | 625.7 | | | $ | 1,299.4 | | | $ | 1,802.6 | |
| Control Products & Solutions | | | 611.3 | | | | 849.3 | | | | 1,958.7 | | | | 2,410.9 | |
| | | | | | | | | | | | | |
| Total sales | | $ | 1,010.8 | | | $ | 1,475.0 | | | $ | 3,258.1 | | | $ | 4,213.5 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Segment operating earnings | | | | | | | | | | | | | | | | |
| Architecture & Software | | $ | 43.3 | | | $ | 154.7 | | | $ | 186.1 | | | $ | 443.1 | |
| Control Products & Solutions | | | 43.0 | | | | 103.6 | | | | 164.0 | | | | 313.0 | |
| | | | | | | | | | | | | |
| Total segment operating earnings | | | 86.3 | | | | 258.3 | | | | 350.1 | | | | 756.1 | |
| | | | | | | | | | | | | | | | | |
| Purchase accounting depreciation and amortization | | | (4.4 | ) | | | (6.3 | ) | | | (14.2 | ) | | | (19.1 | ) |
| General corporate — net | | | (16.3 | ) | | | (21.9 | ) | | | (49.1 | ) | | | (52.7 | ) |
| Interest expense | | | (15.4 | ) | | | (16.6 | ) | | | (45.7 | ) | | | (52.1 | ) |
| Special items | | | — | | | | — | | | | 4.0 | | | | — | |
| | | | | | | | | | | | | |
| Income from continuing operations before income taxes | | | 50.2 | | | | 213.5 | | | | 245.1 | | | | 632.2 | |
| Income tax provision | | | (17.4 | ) | | | (60.9 | ) | | | (56.1 | ) | | | (180.2 | ) |
| | | | | | | | | | | | | |
| Income from continuing operations | | | 32.8 | | | | 152.6 | | | | 189.0 | | | | 452.0 | |
| Income from discontinued operations | | | — | | | | — | | | | 2.8 | | | | — | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net income | | $ | 32.8 | | | $ | 152.6 | | | $ | 191.8 | | | $ | 452.0 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Diluted earnings per share | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 0.23 | | | $ | 1.03 | | | $ | 1.33 | | | $ | 3.03 | |
| Discontinued operations | | | — | | | | — | | | | 0.02 | | | | — | |
| | | | | | | | | | | | | |
| Net income | | $ | 0.23 | | | $ | 1.03 | | | $ | 1.35 | | | $ | 3.03 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Average diluted shares | | | 142.4 | | | | 148.1 | | | | 142.2 | | | | 149.3 | |
| | | | | | | | | | | | | |
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ROCKWELL AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | | | | | |
| Sales | | $ | 1,010.8 | | | $ | 1,475.0 | | | $ | 3,258.1 | | | $ | 4,213.5 | |
| Cost of sales | | | (640.6 | ) | | | (869.4 | ) | | | (2,053.9 | ) | | | (2,461.1 | ) |
| | | | | | | | | | | | | |
| Gross profit | | | 370.2 | | | | 605.6 | | | | 1,204.2 | | | | 1,752.4 | |
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | (305.0 | ) | | | (377.6 | ) | | | (911.2 | ) | | | (1,084.5 | ) |
| Other income (expense) | | | 0.4 | | | | 2.1 | | | | (2.2 | ) | | | 16.4 | |
| Interest expense | | | (15.4 | ) | | | (16.6 | ) | | | (45.7 | ) | | | (52.1 | ) |
| | | | | | | | | | | | | |
| Income from continuing operations | | | 50.2 | | | | 213.5 | | | | 245.1 | | | | 632.2 | |
| Income tax provision | | | (17.4 | ) | | | (60.9 | ) | | | (56.1 | ) | | | (180.2 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Income from continuing operations | | | 32.8 | | | | 152.6 | | | | 189.0 | | | | 452.0 | |
| | | | | | | | | | | | | | | | | |
| Income from discontinued operations | | | — | | | | — | | | | 2.8 | | | | — | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income | | $ | 32.8 | | | $ | 152.6 | | | $ | 191.8 | | | $ | 452.0 | |
| | | | | | | | | | | | | |
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ROCKWELL AUTOMATION, INC.
CONDENSED BALANCE SHEET INFORMATION
(in millions)
| | | | | | | | | |
| | | June 30, | | | September 30, | |
| | | 2009 | | | 2008 | |
Assets | | | | | | | | |
| Cash and cash equivalents | | $ | 580.5 | | | $ | 582.2 | |
| Receivables | | | 740.7 | | | | 959.9 | |
| Inventories | | | 460.3 | | | | 575.5 | |
| Property, net | | | 525.8 | | | | 553.8 | |
| Goodwill and intangibles | | | 1,137.2 | | | | 1,165.8 | |
| Other assets | | | 719.5 | | | | 756.4 | |
| | | | | | | |
| | | | | | | | | |
| Total | | $ | 4,164.0 | | | $ | 4,593.6 | |
| | | | | | | |
| | | | | | | | | |
Liabilities and Shareowners’ Equity | | | | | | | | |
| Short-term debt | | $ | — | | | $ | 100.1 | |
| Accounts payable | | | 287.6 | | | | 437.3 | |
| Long-term debt | | | 904.8 | | | | 904.4 | |
| Other liabilities | | | 1,364.1 | | | | 1,463.0 | |
| Shareowners’ equity | | | 1,607.5 | | | | 1,688.8 | |
| | | | | | | |
| | | | | | | | | |
| Total | | $ | 4,164.0 | | | $ | 4,593.6 | |
| | | | | | | |
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ROCKWELL AUTOMATION, INC.
CONDENSED CASH FLOW INFORMATION
(in millions)
| | | | | | | | | |
| | | Nine Months Ended | |
| | | June 30, | |
| | | 2009 | | | 2008 | |
Continuing operations: | | | | | | | | |
| | | | | | | | | |
Operating activities: | | | | | | | | |
| Income from continuing operations | | $ | 189.0 | | | $ | 452.0 | |
| Depreciation and amortization | | | 98.8 | | | | 100.9 | |
| Retirement benefits expense | | | 36.4 | | | | 33.5 | |
| Pension trust contributions | | | (22.7 | ) | | | (31.6 | ) |
| Receivables/inventories/payables | | | 172.4 | | | | (150.0 | ) |
| Compensation and benefits | | | (56.8 | ) | | | (2.0 | ) |
| Other | | | (8.5 | ) | | | (50.5 | ) |
| | | | | | | |
| | | | | | | | | |
| Cash provided by operating activities | | | 408.6 | | | | 352.3 | |
| | | | | | | |
| | | | | | | | | |
Investing activities: | | | | | | | | |
| Capital expenditures | | | (67.5 | ) | | | (102.8 | ) |
| Acquisition of businesses, net of cash acquired | | | (30.1 | ) | | | (112.4 | ) |
| Proceeds from sale of property and securities | | | 3.0 | | | | 43.2 | |
| Purchases of short-term investments | | | (8.4 | ) | | | — | |
| Other investing activities | | | (4.1 | ) | | | (2.9 | ) |
| | | | | | | |
| | | | | | | | | |
| Cash used for investing activities | | | (107.1 | ) | | | (174.9 | ) |
| | | | | | | |
| | | | | | | | | |
Financing activities: | | | | | | | | |
| Net (repayment) issuance of debt | | | (100.0 | ) | | | 303.1 | |
| Cash dividends | | | (123.3 | ) | | | (128.4 | ) |
| Purchases of treasury stock | | | (53.5 | ) | | | (226.9 | ) |
| Proceeds from the exercise of stock options | | | 7.4 | | | | 12.2 | |
| Excess income tax benefit from share-based compensation | | | 1.3 | | | | 3.9 | |
| Other financing activities | | | (3.0 | ) | | | (0.3 | ) |
| | | | | | | |
| | | | | | | | | |
| Cash used for financing activities | | | (271.1 | ) | | | (36.4 | ) |
| | | | | | | |
| | | | | | | | | |
| Effect of exchange rate changes on cash | | | (31.6 | ) | | | 46.8 | |
| | | | | | | |
| | | | | | | | | |
| Cash (used for) provided by continuing operations | | | (1.2 | ) | | | 187.8 | |
| | | | | | | | | |
Discontinued operations: | | | | | | | | |
| Cash used for discontinued operations | | | (0.5 | ) | | | (6.1 | ) |
| | | | | | | |
| | | | | | | | | |
| (Decrease) increase in cash and cash equivalents | | $ | (1.7 | ) | | $ | 181.7 | |
| | | | | | | |
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ROCKWELL AUTOMATION, INC.
OTHER SUPPLEMENTAL INFORMATION
(in millions)
Organic Sales
Our press release contains information regarding sales excluding the effect of changes in currency and organic sales, which we define as sales excluding the effect of changes in currency exchange rates and acquisitions. We believe these non-GAAP measures provide useful information to investors because they reflect regional performance from our activities without the effect of changes in currency exchange rates and/or acquisitions. We use organic sales and sales excluding the effect of changes in currency as two measures to monitor and evaluate our regional performance. We determine the effect of changes in currency exchange rates by translating the respective period’s sales using the currency exchange rates that were in effect during the prior year. When we acquire businesses, we exclude sales in the current year 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. Sales are attributed to the geographic regions based on the country of destination.
The following is a reconciliation of reported sales to organic sales for the three and nine months ended June 30, 2009 compared to sales for the three and nine months ended June 30, 2008:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | |
| | | 2009 | | | 2008 | |
| | | | | | | | | | | Sales | | | | | | | | | | |
| | | | | | | | | | | Excluding | | | | | | | | | | |
| | | | | | | Effect of | | | Effect of | | | | | | | | | | |
| | | | | | | Changes in | | | Changes in | | | Effect of | | | Organic | | | | |
| | | Sales | | | Currency | | | Currency | | | Acquisitions | | | Sales | | | Sales | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | 518.2 | | | $ | 3.0 | | | $ | 521.2 | | | $ | (1.3 | ) | | $ | 519.9 | | | $ | 731.7 | |
| Canada | | | 60.3 | | | | 8.0 | | | | 68.3 | | | | (6.9 | ) | | | 61.4 | | | | 104.5 | |
| Europe, Middle East, Africa | | | 219.3 | | | | 32.2 | | | | 251.5 | | | | (0.5 | ) | | | 251.0 | | | | 338.4 | |
| Asia-Pacific | | | 144.7 | | | | 15.2 | | | | 159.9 | | | | (0.1 | ) | | | 159.8 | | | | 189.5 | |
| Latin America | | | 68.3 | | | | 14.8 | | | | 83.1 | | | | — | | | | 83.1 | | | | 110.9 | |
| | | | | | | | | | | | | | | | | | | |
| Total | | $ | 1,010.8 | | | $ | 73.2 | | | $ | 1,084.0 | | | $ | (8.8 | ) | | $ | 1,075.2 | | | $ | 1,475.0 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended June 30, | |
| | | 2009 | | | 2008 | |
| | | | | | | | | | | Sales | | | | | | | | | | |
| | | | | | | | | | | Excluding | | | | | | | | | | |
| | | | | | | Effect of | | | Effect of | | | | | | | | | | |
| | | | | | | Changes in | | | Changes in | | | Effect of | | | Organic | | | | |
| | | Sales | | | Currency | | | Currency | | | Acquisitions | | | Sales | | | Sales | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | 1,697.7 | | | $ | 13.5 | | | $ | 1,711.2 | | | $ | (4.1 | ) | | $ | 1,707.1 | | | $ | 2,120.1 | |
| Canada | | | 188.6 | | | | 38.8 | | | | 227.4 | | | | (6.9 | ) | | | 220.5 | | | | 296.6 | |
| Europe, Middle East, Africa | | | 712.5 | | | | 102.3 | | | | 814.8 | | | | (3.9 | ) | | | 810.9 | | | | 980.8 | |
| Asia-Pacific | | | 420.3 | | | | 51.5 | | | | 471.8 | | | | (0.2 | ) | | | 471.6 | | | | 518.4 | |
| Latin America | | | 239.0 | | | | 51.2 | | | | 290.2 | | | | — | | | | 290.2 | | | | 297.6 | |
| | | | | | | | | | | | | | | | | | | |
| Total | | $ | 3,258.1 | | | $ | 257.3 | | | $ | 3,515.4 | | | $ | (15.1 | ) | | $ | 3,500.3 | | | $ | 4,213.5 | |
| | | | | | | | | | | | | | | | | | | |
The following is a reconciliation of reported sales to organic sales for our operating segments for the three and nine months ended June 30, 2009 compared to sales for the three and nine months ended June 30, 2008:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | |
| | | 2009 | | | 2008 | |
| | | | | | | | | | | Sales | | | | | | | | | | |
| | | | | | | | | | | Excluding | | | | | | | | | | |
| | | | | | | Effect of | | | Effect of | | | | | | | | | | |
| | | | | | | Changes in | | | Changes in | | | Effect of | | | Organic | | | | |
| | | Sales | | | Currency | | | Currency | | | Acquisitions | | | Sales | | | Sales | |
| | |
| Architecture & Software | | $ | 399.5 | | | $ | 29.2 | | | $ | 428.7 | | | $ | (0.6 | ) | | $ | 428.1 | | | $ | 625.7 | |
| Control Products & Solutions | | | 611.3 | | | | 44.0 | | | | 655.3 | | | | (8.2 | ) | | | 647.1 | | | | 849.3 | |
| | | | | | | | | | | | | | | | | | | |
| Total | | $ | 1,010.8 | | | $ | 73.2 | | | $ | 1,084.0 | | | $ | (8.8 | ) | | $ | 1,075.2 | | | $ | 1,475.0 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended June 30, | |
| | | 2009 | | | 2008 | |
| | | | | | | | | | | Sales | | | | | | | | | | |
| | | | | | | | | | | Excluding | | | | | | | | | | |
| | | | | | | Effect of | | | Effect of | | | | | | | | | | |
| | | | | | | Changes in | | | Changes in | | | Effect of | | | Organic | | | | |
| | | Sales | | | Currency | | | Currency | | | Acquisitions | | | Sales | | | Sales | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Architecture & Software | | $ | 1,299.4 | | | $ | 101.4 | | | $ | 1,400.8 | | | $ | (6.9 | ) | | $ | 1,393.9 | | | $ | 1,802.6 | |
| Control Products & Solutions | | | 1,958.7 | | | | 155.9 | | | | 2,114.6 | | | | (8.2 | ) | | | 2,106.4 | | | | 2,410.9 | |
| | | | | | | | | | | | | | | | | | | |
| Total | | $ | 3,258.1 | | | $ | 257.3 | | | $ | 3,515.4 | | | $ | (15.1 | ) | | $ | 3,500.3 | | | $ | 4,213.5 | |
| | | | | | | | | | | | | | | | | | | |
Page 11
ROCKWELL AUTOMATION, INC.
OTHER SUPPLEMENTAL INFORMATION
(in millions)
Free Cash Flow
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. We account for share-based compensation under SFAS 123(R), 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 performance. Our definition of free cash flow may differ from definitions used by other companies.
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. Cash flows from the operating activities of our discontinued operations are reported in our statement of cash flows net of their separately calculated income tax effects. U.S. federal and state income taxes paid as a result of the gain on sale of the principal businesses of our former Power Systems operating segment have been classified within continuing operations consistent with the cash proceeds. These taxes paid in the second, third and fourth quarters of fiscal 2008 have been excluded from free cash flow to present free cash flow that is representative of the performance of our continuing businesses.
The following table summarizes free cash flow by quarter:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended | |
| | | Dec. 31, | | | March 31, | | | June 30, | | | Sept. 30, | | | Dec. 31, | | | March 31, | | | June 30, | |
| | | 2007 | | | 2008 | | | 2008 | | | 2008 | | | 2008 | | | 2009 | | | 2009 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash provided by continuing operating activities | | $ | 101.5 | | | $ | 58.6 | | | $ | 192.2 | | | $ | 244.5 | | | | 48.8 | | | | 169.9 | | | | 189.9 | |
| Capital expenditures of continuing operations | | | (26.3 | ) | | | (33.5 | ) | | | (43.0 | ) | | | (48.2 | ) | | | (27.4 | ) | | | (18.3 | ) | | | (21.8 | ) |
| Tax payments related to the gain on divestiture of Power Systems | | | — | | | | 6.1 | | | | 1.6 | | | | 0.2 | | | | — | | | | — | | | | — | |
| Excess income tax benefit from share-based compensation | | | 2.9 | | | | 0.6 | | | | 0.4 | | | | 0.7 | | | | 0.4 | | | | 0.5 | | | | 0.4 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Free cash flow | | $ | 78.1 | | | $ | 31.8 | | | $ | 151.2 | | | $ | 197.2 | | | $ | 21.8 | | | $ | 152.1 | | | $ | 168.5 | |
| | | | | | | | | | | | | | | | | | | | | | |
Return On Invested Capital
Our press release 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 performance. Our measure of ROIC is likely to differ from that used by other companies. We define ROIC as the percentage resulting from the following calculation:
(a) Income from continuing operations, before non-operating gains or losses, special items, 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, multiplied by;
(c) one minus the effective tax rate for the period.
ROIC is calculated as follows:
| | | | | | | | | |
| | | Twelve Months Ended | |
| | | June 30, | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
(a) Return | | | | | | | | |
| | | | | | | | | |
| Income from continuing operations | | $ | 314.6 | | | $ | 615.8 | |
| Interest expense | | | 61.8 | | | | 67.0 | |
| Income tax provision | | | 107.2 | | | | 247.6 | |
| Purchase accounting depreciation and amortization | | | 19.3 | | | | 26.0 | |
| Special items | | | 42.7 | | | | — | |
| | | | | | | |
| Return | | | 545.6 | | | | 956.4 | |
| | | | | | | |
| | | | | | | | | |
(b) Average invested capital | | | | | | | | |
| | |
| Short-term debt | | | 136.9 | | | | 384.3 | |
| Long-term debt | | | 904.5 | | | | 705.4 | |
| Shareowners’ equity | | | 1,679.6 | | | | 1,853.8 | |
| Accumulated amortization of goodwill and intangibles | | | 641.1 | | | | 609.3 | |
| Cash and cash equivalents | | | (608.4 | ) | | | (770.4 | ) |
| | | | | | | |
| Average invested capital | | | 2,753.7 | | | | 2,782.4 | |
| | | | | | | |
| | | | | | | | | |
(c) Effective tax rate | | | | | | | | |
| | |
| Income tax provision | | | 107.2 | | | | 247.6 | |
| | | | | | | | | |
| Income from continuing operations before income taxes | | $ | 421.8 | | | $ | 863.4 | |
| | | | | | | |
| | | | | | | | | |
| Effective tax rate | | | 25.4 | % | | | 28.7 | % |
| | | | | | | |
| | | | | | | | | |
(a) / (b) * (1-c) Return On Invested Capital | | | 14.8 | % | | | 24.5 | % |
| | | | | | | |
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