Item 8. Financial Statements and Supplementary Data

CONSOLIDATED BALANCE SHEET

(in millions, except per share amounts)

	September 30,
	2020				2019
ASSETS
Current assets:
Cash and cash equivalents	$	704.6			$	1,018.4
Receivables	1,249.1				1,178.7
Inventories	584.0				575.7
Other current assets	148.1				212.9
Total current assets	2,685.8				2,985.7
Property, net of accumulated depreciation	574.4				571.9
Operating lease right-of-use assets	342.9				—
Goodwill	1,650.3				1,071.1
Other intangible assets, net	479.3				194.1
Deferred income taxes	415.6				364.1
Long-term investments	953.5				793.9
Other assets	162.9				132.2
Total	$	7,264.7			$	6,113.0
LIABILITIES AND SHAREOWNERS’ EQUITY
Current liabilities:
Short-term debt	$	24.6			$	—
Current portion of long-term debt	—				300.5
Accounts payable	687.8				694.6
Compensation and benefits	197.0				239.0
Contract liabilities	325.3				275.6
Customer returns, rebates and incentives	199.6				199.2
Other current liabilities	376.5				227.9
Total current liabilities	1,810.8				1,936.8
Long-term debt	1,974.7				1,956.4
Retirement benefits	1,284.0				1,231.9
Operating lease liabilities	274.7				—
Other liabilities	573.7				583.7
Commitments and contingent liabilities (Note 17)
Shareowners’ equity:
Common stock ($1.00 par value, shares issued: 181.4)	181.4				181.4
Additional paid-in capital	1,830.7				1,709.1
Retained earnings	7,139.8				6,440.2
Accumulated other comprehensive loss	(1,614.2		)		(1,488.0		)
Common stock in treasury, at cost (shares held: 2020, 65.2; 2019, 65.7)	(6,509.9		)		(6,438.5		)
Shareowners’ equity attributable to Rockwell Automation, Inc.	1,027.8				404.2
Noncontrolling interests	319.0				—
Total shareowners’ equity	1,346.8				404.2
Total	$	7,264.7			$	6,113.0

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF OPERATIONS

(in millions, except per share amounts)

	Year Ended September 30,
	2020				2019				2018
Sales
Products and solutions	$	5,663.6			$	5,938.5			$	5,930.5
Services	666.2				756.3				735.5
	6,329.8				6,694.8				6,666.0
Cost of sales
Products and solutions	(3,305.9		)		(3,313.6		)		(3,327.5		)
Services	(428.7		)		(481.1		)		(453.6		)
	(3,734.6		)		(3,794.7		)		(3,781.1		)
Gross profit	2,595.2				2,900.1				2,884.9
Selling, general and administrative expenses	(1,479.8		)		(1,538.5		)		(1,587.9		)
Change in fair value of investments	153.9				(368.5		)		90.0
Other (expense) income (Note 15)	(29.7		)		6.1				16.8
Interest expense	(103.5		)		(98.2		)		(73.0		)
Income before income taxes	1,136.1				901.0				1,330.8
Income tax provision (Note 16)	(112.9		)		(205.2		)		(795.3		)
Net income	1,023.2				695.8				535.5
Net (loss) attributable to noncontrolling interests	(0.2		)		—				—
Net income attributable to Rockwell Automation, Inc.	$	1,023.4			$	695.8			$	535.5
Earnings per share:
Basic	$	8.83			$	5.88			$	4.27
Diluted	$	8.77			$	5.83			$	4.21
Weighted average outstanding shares:
Basic	115.8				118.3				125.4
Diluted	116.6				119.3				126.9

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(in millions)

	Year Ended September 30,
	2020				2019				2018
Net income	$	1,023.2			$	695.8			$	535.5
Other comprehensive (loss) income:
Pension and other postretirement benefit plan adjustments (net of tax (expense) benefit of ($3.4), $150.0, and ($87.2))	9.3				(475.6		)		268.9
Currency translation adjustments	25.7				(55.3		)		(48.3		)
Net change in cash flow hedges (net of tax benefit (expense) of $6.6, $5.5, and ($6.6))	(18.5		)		(17.4		)		18.8
Net change in available-for-sale investments	—				2.2				(2.1		)
Other comprehensive (loss) income	16.5				(546.1		)		237.3
Comprehensive income	$	1,039.7			$	149.7			$	772.8
Comprehensive loss attributable to noncontrolling interests	(0.5		)		$	—			$	—
Comprehensive income attributable to Rockwell Automation, Inc.	$	1,040.2			$	149.7			$	772.8

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

	Year Ended September 30,
	2020				2019				2018
Continuing operations:
Operating activities:
Net income	$	1,023.2			$	695.8			$	535.5
Adjustments to arrive at cash provided by operating activities:
Depreciation	122.5				126.2				136.4
Amortization of intangible assets	50.2				26.0				28.2
Change in fair value of investments	(153.9		)		368.5				(90.0		)
Share-based compensation expense	46.1				43.1				38.5
Retirement benefit expense	129.5				70.7				114.0
Pension contributions	(84.1		)		(30.9		)		(50.3		)
Deferred income taxes	(65.7		)		(29.0		)		170.5
Net (gain) loss on disposition of property	(12.4		)		1.8				2.5
Settlement of interest rate derivatives	22.0				(35.7		)		—
Changes in assets and liabilities, excluding effects of acquisitions and foreign currency adjustments:
Receivables	(9.0		)		(10.4		)		(91.7		)
Inventories	30.4				(4.9		)		(37.4		)
Accounts payable	(5.0		)		14.5				67.2
Contract liabilities	43.3				12.1				12.9
Compensation and benefits	(44.6		)		(45.2		)		22.4
Income taxes	(11.8		)		(18.8		)		426.7
Other assets and liabilities	39.8				(1.8		)		14.6
Cash provided by operating activities	1,120.5				1,182.0				1,300.0
Investing activities:
Capital expenditures	(113.9		)		(132.8		)		(125.5		)
Acquisition of businesses, net of cash acquired	(550.9		)		(20.7		)		(9.9		)
Purchases of investments	(10.7		)		(5.1		)		(1,296.9		)
Proceeds from maturities of investments	6.0				312.8				1,106.1
Proceeds from sale of investments	37.9				66.3				155.3
Proceeds from sale of property	14.9				4.5				0.5
Other investing activities	(1.3		)		—				—
Cash (used for) provided by investing activities	(618.0		)		225.0				(170.4		)
Financing activities:
Net (repayment) issuance of short-term debt	—				(551.0		)		200.6
Issuance of short-term debt, net of issuance costs	423.6				—				—
Issuance of long-term debt, net of discount and issuance costs	—				987.6				—
Repayment of short-term debt	(400.0		)		—				—
Repayment of long-term debt	(300.7		)		—				(250.0		)
Cash dividends	(472.8		)		(459.8		)		(440.8		)
Purchases of treasury stock	(264.2		)		(1,009.0		)		(1,482.3		)
Proceeds from the exercise of stock options	214.4				47.4				81.8
Other financing activities	0.8				(1.1		)		1.8
Cash used for financing activities	(798.9		)		(985.9		)		(1,888.9		)
Effect of exchange rate changes on cash	8.4				(21.5		)		(32.8		)
(Decrease) increase in cash, cash equivalents, and restricted cash	(288.0		)		399.6				(792.1		)
Cash, cash equivalents, and restricted cash at beginning of year	1,018.4				618.8				1,410.9
Cash, cash equivalents, and restricted cash at end of year	$	730.4			$	1,018.4			$	618.8
Components of cash, cash equivalents, and restricted cash
Cash and cash equivalents	704.6				1,018.4				618.8
Restricted cash, noncurrent (Other assets)	25.8				—				—
Total cash, cash equivalents, and restricted cash	$	730.4			$	1,018.4			$	618.8

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF SHAREOWNERS’ EQUITY

(in millions, except per share amounts)

	Common stock				Additional paid-in capital				Retained earnings				Accumulated other comprehensive loss				Common stock in treasury, at cost				Total attributable to Rockwell Automation, Inc.				Noncontrolling interests				Total shareowners’ equity
Balance at September 30, 2017	$	181.4			$	1,638.0			$	6,103.4			$	(1,179.2	)		$	(4,080.0	)		$	2,663.6			$	—			$	2,663.6
Net income	—				—				535.5				—				—				535.5				—				535.5
Other comprehensive income (loss)	—				—				—				237.3				—				237.3				—				237.3
Common stock issued (including share-based compensation impact)	—				43.4				—				—				79.0				122.4				—				122.4
Share Repurchases	—				—				—				—				(1,500.5		)		(1,500.5		)		—				(1,500.5		)
Cash dividends declared(1)	—				—				(440.8		)		—				—				(440.8		)		—				(440.8		)
Balance at September 30, 2018	$	181.4			$	1,681.4			$	6,198.1			$	(941.9	)		$	(5,501.5	)		$	1,617.5			$	—			$	1,617.5
Net income	—				—				695.8				—				—				695.8				—				695.8
Other comprehensive income (loss)	—				—				—				(546.1		)		—				(546.1		)		—				(546.1		)
Common stock issued (including share based compensation impact)	—				27.7				—				—				63.0				90.7				—				90.7
Share Repurchases	—				—				—				—				(1,000.0		)		(1,000.0		)		—				(1,000.0		)
Cash dividends declared(1)	—				—				(459.8		)		—				—				(459.8		)		—				(459.8		)
Adoption of accounting standard	—				—				6.1				—				—				6.1				—				6.1
Balance at September 30, 2019	$	181.4			$	1,709.1			$	6,440.2			$	(1,488.0	)		$	(6,438.5	)		$	404.2			$	—			$	404.2
Net income	—				—				1,023.4				—				—				1,023.4				(0.2		)		1,023.2
Other comprehensive income (loss)	—				—				—				16.8				—				16.8				(0.3		)		16.5
Common stock issued (including share based compensation impact)	—				77.0				—				—				183.5				260.5				—				260.5
Share Repurchases	—				—				—				—				(254.9		)		(254.9		)		—				(254.9		)
Cash dividends declared(1)	—				—				(472.8		)		—				—				(472.8		)		—				(472.8		)
Adoption of accounting standard									149.0				(146.8		)						2.2				—				2.2
Change in noncontrolling interest	—				44.6								3.8				—				48.4				319.5				367.9
Balance at September 30, 2020	$	181.4			$	1,830.7			$	7,139.8			$	(1,614.2	)		$	(6,509.9	)		$	1,027.8			$	319.0			$	1,346.8

(1) Cash dividends were $4.08 per share in 2020; $3.88 per share in 2019; and $3.51 per share in 2018.

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Accounting Policies

Rockwell Automation, Inc. (“Rockwell Automation” or “the Company”) is a global leader in industrial automation and digital transformation. We connect the imaginations of people with the potential of technology to expand what is humanly possible, making the world more productive and more sustainable.

Basis of Presentation

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and controlled majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Investments in affiliates over which we do not have control but exercise significant influence are accounted for using the equity method of accounting. These affiliated companies are not material individually or in the aggregate to our financial position, results of operations or cash flows.

Use of Estimates

The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. We use estimates in accounting for, among other items, customer returns, rebates and incentives; allowance for doubtful accounts; excess and obsolete inventory; share-based compensation; acquisitions, including consolidation and intangible assets; goodwill impairment; product warranty obligations; retirement benefits; litigation, claims and contingencies, including environmental matters, conditional asset retirement obligations and contractual indemnifications; leases; and income taxes. We account for changes to estimates and assumptions prospectively when warranted by factually-based experience.

Revenue Recognition

On October 1, 2018, we adopted the new standard on revenue from contracts with customers using the modified retrospective method applied to contracts that were not completed as of October 1, 2018. Results for reporting periods beginning after October 1, 2018 are presented under the new standard, while prior period amounts have not been adjusted and continue to be reported in accordance with the previous standard. See Note 2 for our revenue recognition policy under the new standard. Our policy under the previous standard was as follows:

We recognize revenue when it is realized or realizable and earned. Product and solution sales consist of industrial automation and information solutions; hardware and software products; and custom-engineered systems. Service sales include multi-vendor customer technical support and repair, asset management and optimization consulting and training. All service sales recorded in the Consolidated Statement of Operations are associated with our Control Products & Solutions segment.

For approximately 85 percent of our consolidated sales, we record sales when all of the following have occurred: persuasive evidence of a sales agreement exists; pricing is fixed or determinable; collection is reasonably assured; and hardware and software products have been delivered and acceptance has occurred, as may be required according to contract terms, or services have been rendered. Within this category, we will at times enter into arrangements that involve the delivery of multiple hardware and software products and/or the performance of services, such as installation and commissioning. The timing of delivery, though varied based upon the nature of the undelivered component or service, is generally short-term in nature. For these arrangements, revenue is allocated to each deliverable based on that element’s relative selling price, provided the delivered element has value to customers on a standalone basis and, if the arrangement includes a general right of return, delivery or performance of the undelivered items is probable and substantially in our control. Relative selling price is obtained from sources such as vendor-specific objective evidence, which is based on our separate selling price for that or a similar item, or from third-party evidence such as how competitors have priced similar items. If such evidence is not available, we use our best estimate of the selling price, which includes various internal factors such as our pricing strategy and market factors.

We recognize substantially all of the remainder of our sales as construction-type contracts using either the percentage-of-completion or completed contract methods of accounting. We record sales relating to these contracts using the percentage-of-completion method when we determine that progress toward completion is reasonably and reliably estimable; we use the completed contract

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

method for all others. Under the percentage-of-completion method, we recognize sales and gross profit as work is performed using the relationship between actual costs incurred and total estimated costs at completion. Under the percentage-of-completion method, we adjust sales and gross profit for revisions of estimated total contract costs or revenue in the period the change is identified. We record estimated losses on contracts when they are identified.

We use contracts and customer purchase orders to determine the existence of a sales agreement. We use shipping documents and customer acceptance, when applicable, to verify delivery. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectibility based on the creditworthiness of the customer as determined by credit evaluations and analysis, as well as the customer’s payment history.

Shipping and handling costs billed to customers are included in sales and the related costs are included in cost of sales in the Consolidated Statement of Operations.

Returns, Rebates and Incentives

Our primary incentive program provides distributors with cash rebates or account credits based on agreed amounts that vary depending on the customer to whom our distributor ultimately sells the product. We also offer various other incentive programs that provide distributors and direct sale customers with cash rebates, account credits or additional hardware and software products, solutions and services based on meeting specified program criteria. Certain distributors are offered a right to return product, subject to contractual limitations.

We record accruals for customer returns, rebates and incentives at the time of revenue recognition based primarily on historical experience. Returns are presented on the Consolidated Balance Sheet as a right of return asset and refund liability. Incentives in the form of rebates are estimated at the individual customer level and are recorded as a reduction of sales. Customer incentives for additional hardware and software products, solutions and services to be provided are considered distinct performance obligations. As such, we allocate revenue to them based on relative standalone selling price. Until the incentive is redeemed, the revenue is recorded as a contract liability.

Taxes on Revenue Producing Transactions

Taxes assessed by governmental authorities on revenue producing transactions, including sales, value added, excise and use taxes, are recorded on a net basis (excluded from revenue).

Cash and Cash Equivalents

Cash and cash equivalents include time deposits, certificates of deposit, and other fixed income securities with original maturities of three months or less at the time of purchase.

Receivables

We record an allowance for doubtful accounts based on customer-specific analysis and general matters such as current assessments of past due balances and economic conditions. Receivables are recorded net of an allowance for doubtful accounts of $15.2 million at September 30, 2020 and $17.4 million at September 30, 2019. In addition, receivables are recorded net of an allowance for certain customer returns, rebates and incentives of $8.1 million at September 30, 2020 and $12.4 million at September 30, 2019.

Inventories

Inventories are recorded at the lower of cost or market using the first-in, first-out (FIFO) or average cost methods. Market is determined on the basis of estimated realizable values.

Investments

Investments include time deposits, certificates of deposit, other fixed income securities and equity securities. Investments with original maturities longer than three months at the time of purchase and less than one year from period end are classified as short-term. All other investments are classified as long-term. Fixed income securities meeting the definition of a security are accounted for as available-for-sale and recorded at fair value. Equity securities are recorded at fair value. All other investments are recorded at cost, which approximates fair value.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property

Property, including internal-use software, is recorded at cost. We calculate depreciation of property using the straight-line method over 5 to 40 years for buildings and improvements, 3 to 20 years for machinery and equipment and 3 to 10 years for computer hardware and internal-use software. We capitalize significant renewals and enhancements and write off replaced units. We expense maintenance and repairs, as well as renewals of minor amounts. Property acquired during the year that is accrued within accounts payable or other current liabilities at year end is considered to be a non-cash investing activity and is excluded from cash used for capital expenditures in the Consolidated Statement of Cash Flows. Capital expenditures of $27.2 million, $26.4 million and $43.2 million were accrued within accounts payable and other current liabilities at September 30, 2020, 2019 and 2018, respectively.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets generally result from business acquisitions. We account for business acquisitions by allocating the purchase price to tangible and intangible assets acquired and liabilities assumed at their fair values; the excess of the purchase price over the allocated amount is recorded as goodwill.

We perform our annual evaluation of goodwill and indefinite life intangible assets for impairment as required by U.S. GAAP during the second quarter of each year, or more frequently if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Any excess in carrying value over the estimated fair value is charged to results of operations. For our annual evaluation of goodwill, we may perform a qualitative test to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount in order to determine whether it is necessary to perform a quantitative goodwill impairment test. When performing the quantitative goodwill impairment test, we determine the fair value of each reporting unit under a combination of an income approach derived from discounted cash flows and a market multiples approach using selected comparable public companies. Significant assumptions used in the income approach include: management’s forecasted cash flows, including estimated future revenue growth rates and margins, discount rate, and terminal value. Forecasted future revenue growth and margins are based on management’s best estimate about current and future conditions. Discount rates are determined using weighted average cost of capital adjusted for risk factors specific to the reporting unit level, with comparison to market and industry data. The terminal value is estimated following common methodology of calculating the present value of estimated perpetual cash flow beyond the last projected period assuming constant discount and long-term growth rates. Significant assumptions used in the market multiples approach include selection of the comparable public companies and calculation of the appropriate market multiples.

We amortize certain customer relationships on an accelerated basis over the period of which we expect the intangible asset to generate future cash flows. We amortize all other intangible assets with finite useful lives on a straight-line basis over their estimated useful lives. Useful lives assigned range from 3 to 15 years for trademarks, 8 to 20 years for customer relationships, 2 to 17 years for technology and 5 to 30 years for other intangible assets.

Intangible assets also include costs of software developed or purchased by our software business to be sold, leased or otherwise marketed. Amortization of these computer software products is calculated on a product-by-product basis as the greater of (a) the unamortized cost at the beginning of the year times the ratio of the current year gross revenue for a product to the total of the current and anticipated future gross revenue for that product or (b) the straight-line amortization over the remaining estimated economic life of the product.

Impairment of Long-Lived Assets

We evaluate the recoverability of the recorded amount of long-lived assets, including property, operating lease right-of-use assets, and other intangible assets, whenever events or changes in circumstances indicate that the recorded amount of an asset may not be fully recoverable. Impairment is assessed when the undiscounted expected future cash flows derived from an asset are less than its carrying amount. If we determine that an asset is impaired, we measure the impairment to be recognized as the amount by which the recorded amount of the asset exceeds its fair value. We report assets to be disposed of at the lower of the recorded amount or fair value less cost to sell. We determine fair value using a discounted future cash flow analysis.

Derivative Financial Instruments

We use derivative financial instruments in the form of foreign currency forward exchange contracts to manage certain foreign currency risks. We enter into these contracts to hedge our exposure to foreign currency exchange rate variability in the expected future cash flows associated with certain third-party and intercompany transactions denominated in foreign currencies forecasted to occur within the next two years. We also use these contracts to hedge portions of our net investments in certain non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. Additionally, we use derivative financial instruments in the form of interest rate swap contracts to manage our borrowing costs of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

certain long-term debt and use treasury locks to manage our potential change in interest rates in anticipation of our fixed rate debt. We designate and account for these derivative financial instruments as hedges under U.S. GAAP.

Furthermore, we use foreign currency forward exchange contracts that are not designated as hedges to offset transaction gains or losses associated with some of our assets and liabilities resulting from intercompany loans or other transactions with third parties that are denominated in currencies other than our entities’ functional currencies. It is our policy to execute such instruments with global financial institutions that we believe to be creditworthy and not to enter into derivative financial instruments for speculative purposes. Foreign currency forward exchange contracts are usually denominated in currencies of major industrial countries.

Fair Value of Financial Instruments

We record various financial instruments at fair value. U.S. GAAP defines fair value as the price that would be received for an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. U.S. GAAP also classifies the inputs used to measure fair value into the following hierarchy:

Level 1:		Quoted prices in active markets for identical assets or liabilities.
Level 2:		Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3:		Unobservable inputs for the asset or liability.

We hold financial instruments consisting of cash and short-term debt. The fair values of our cash and short-term debt approximate their carrying amounts as reported in our Consolidated Balance Sheet due to the short-term nature of these instruments.

We also hold financial instruments consisting of long-term debt, investments and derivatives. The valuation methodologies for these financial instruments are described in Notes 7, 10, 11, and 14. The methods described in these Notes may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Foreign Currency Translation

We translate assets and liabilities of subsidiaries operating outside of the United States with a functional currency other than the U.S. dollar into U.S. dollars using exchange rates at the end of the respective period. We translate sales, costs and expenses at average exchange rates effective during the respective period. We report foreign currency translation adjustments as a component of other comprehensive income (loss). Currency transaction gains and losses are included in results of operations in the period incurred.

Research and Development Expenses

We expense research and development (R&D) costs as incurred; these costs were $371.5 million in 2020, $378.9 million in 2019 and $371.8 million in 2018. We include R&D expenses in cost of sales in the Consolidated Statement of Operations.

Income Taxes

We account for uncertain tax positions by determining whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. For tax positions that meet the more-likely-than-not recognition threshold, we determine the amount of benefit to recognize in the consolidated financial statements based on our assertion of the most likely outcome resulting from an examination, including the resolution of any related appeals or litigation processes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Earnings Per Share

We present basic and diluted earnings per share (EPS) amounts. Basic EPS is calculated by dividing earnings available to common shareowners, which is income excluding the allocation to participating securities, by the weighted average number of common shares outstanding during the year, excluding restricted stock. Diluted EPS amounts are based upon the weighted average number of common and common-equivalent shares outstanding during the year. We use the treasury stock method to calculate the effect of outstanding share-based compensation awards, which requires us to compute total employee proceeds as the sum of the amount the employee must pay upon exercise of the award and the amount of unearned share-based compensation costs attributed to future services. Share-based compensation awards for which the total employee proceeds of the award exceed the average market price of the same award over the period have an antidilutive effect on EPS, and accordingly, we exclude them from the calculation. Antidilutive share-based compensation awards for the years ended September 30, 2020 (1.6 million shares), 2019 (1.8 million shares) and 2018 (0.9 million shares) were excluded from the diluted EPS calculation. U.S. GAAP requires unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, to be treated as participating securities and included in the computation of earnings per share pursuant to the two-class method. Our participating securities are composed of restricted stock and non-employee director restricted stock units.

The following table reconciles basic and diluted EPS amounts (in millions, except per share amounts):

		2020				2019				2018
Net income attributable to Rockwell Automation		$	1,023.4			$	695.8			$	535.5
Less: Allocation to participating securities		(1.0		)		(0.7		)		(0.5		)
Net income available to common shareowners		$	1,022.4			$	695.1			$	535.0
Basic weighted average outstanding shares		115.8				118.3				125.4
Effect of dilutive securities
Stock options		0.7				0.9				1.3
Performance shares		0.1				0.1				0.2
Diluted weighted average outstanding shares		116.6				119.3				126.9
Earnings per share:
Basic		$	8.83			$	5.88			$	4.27
Diluted		$	8.77			$	5.83			$	4.21

Share-Based Compensation

We recognize share-based compensation expense for equity awards on a straight-line basis over the service period of the award based on the fair value of the award as of the grant date.

Product and Workers’ Compensation Liabilities

We record accruals for product and workers’ compensation claims in the period in which they are probable and reasonably estimable. Our principal self-insurance programs include product liability and workers’ compensation where we self-insure up to a specified dollar amount. Claims exceeding this amount up to specified limits are covered by insurance policies purchased from commercial insurers. We estimate the liability for the majority of the self-insured claims using our claims experience for the periods being valued.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Environmental Matters

We record liabilities for environmental matters in the period in which our responsibility is probable and the costs can be reasonably estimated. We make changes to the liabilities in the periods in which the estimated costs of remediation change. At third-party environmental sites where more than one potentially responsible party has been identified, we record a liability for our estimated allocable share of costs related to our involvement with the site, as well as an estimated allocable share of costs related to the involvement of insolvent or unidentified parties. If we determine that recovery from insurers or other third parties is probable and a right of setoff exists, we record the liability net of the estimated recovery. If we determine that recovery from insurers or other third parties is probable but a right of setoff does not exist, we record a liability for the total estimated costs of remediation and a receivable for the estimated recovery. At environmental sites where we are the sole responsible party, we record a liability for the total estimated costs of remediation. Ongoing operating and maintenance expenditures included in our environmental remediation obligations are discounted to present value over the probable future remediation period. Our remaining environmental remediation obligations are undiscounted due to subjectivity of timing and/or amount of future cash payments.

Conditional Asset Retirement Obligations

We record liabilities for costs related to legal obligations associated with the retirement of a tangible, long-lived asset that results from the acquisition, construction, development or the normal operation of the long-lived asset. The obligation to perform the asset retirement activity is not conditional even though the timing or method may be conditional.

Leases

We have operating leases primarily for real estate, vehicles, and equipment. We determine if a contract is, or contains, a lease at contract inception. A right-of-use (ROU) asset and a corresponding lease liability are recognized at commencement for contracts that are, or contain, a lease with an original term greater than 12 months. ROU assets represent our right to use an underlying asset during the lease term, including periods for which renewal options are reasonably certain to be exercised, and lease liabilities represent our obligation to make lease payments arising from the lease. Lease expense is recognized on a straight-line basis over the lease term for operating leases with an original term of 12 months or less.

Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance and tax payments. A portion of our real estate leases is generally subject to annual changes based upon an index. The changes based upon the index are treated as variable lease payments. The variable portion of lease payments is not included in our ROU assets or lease liabilities and is expensed when incurred. We elected to not separate lease and nonlease components of contracts for all underlying asset classes. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.

Lease liabilities are recognized at the contract commencement date based on the present value of remaining lease payments over the lease term. To calculate the lease liabilities we use our incremental borrowing rate. We determine our incremental borrowing rate at the commencement date using our unsecured borrowing rate, adjusted for collateralization and lease term. For leases denominated in a currency other than the U.S. dollar, the collateralized borrowing rate in the foreign currency is determined using the U.S. dollar and foreign currency swap spread. Long-term lease liabilities are presented as Operating lease liabilities and current lease liabilities are included in Other current liabilities in the Consolidated Balance Sheet.

ROU assets are recognized at the contract commencement date at the value of the related lease liability, adjusted for any prepayments, lease incentives received and initial direct costs incurred. Operating lease ROU assets are presented as Operating lease right-of-use assets in the Consolidated Balance Sheet.

Lease expenses, including amortization of ROU assets, for operating leases are recognized on a straight-line basis over the lease term and recorded in Cost of sales and Selling, general and administrative expenses in the Consolidated Statement of Operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued a new standard on accounting for leases that requires lessees to recognize ROU assets and lease liabilities for most leases, among other changes to existing lease accounting guidance. This standard also requires additional qualitative and quantitative disclosures about leasing activities. We adopted this standard using the modified retrospective transition method, which resulted in an immaterial cumulative-effect adjustment to the opening balance of retained earnings as of October 1, 2019, our adoption date. The amount of lease ROU assets and corresponding lease liabilities recorded in the Consolidated Balance Sheet upon adoption were $316 million and $329 million, respectively. We have implemented necessary changes to accounting policies, processes, controls and systems to enable compliance with this standard.

In February 2018, the FASB issued a new standard regarding the reporting of comprehensive loss, which gives entities the option to reclassify tax effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) stranded in accumulated other comprehensive loss into retained earnings. We adopted this standard as of October 1, 2019, and elected to reclassify tax effects of approximately $147 million from accumulated other comprehensive loss into retained earnings.

Recently Issued Accounting Pronouncements

We do not expect any recently issued accounting pronouncements to have a material impact on our consolidated financial statements and related disclosures.

2. Revenue Recognition

Adoption

On October 1, 2018, we adopted the new standard on revenue from contracts with customers using the modified retrospective method applied to contracts that were not completed as of October 1, 2018. Results for reporting periods beginning after October 1, 2018 are presented under the new standard, while prior period amounts have not been adjusted and continue to be reported in accordance with the previous standard.

We recorded a net increase to opening retained earnings of $6.1 million as of October 1, 2018, which reflects the cumulative impact of adopting the new standard. The primary drivers of the impact to retained earnings were changes to the capitalization and deferral of certain contract costs and the timing of revenue, net of costs, for software licenses bundled with services and projects previously accounted for on a completed contract basis. This impact was partially offset by a deferral of revenue, net of costs, related to the allocation of revenue to hardware and software products and services provided to our customers free of charge as incentives.

Nature of Products and Services

Substantially all of our revenue is from contracts with customers. We recognize revenue as promised products are transferred to, or services are performed for, customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those products and services. Our offerings consist of industrial automation and information products, solutions and services. Our products include hardware and software. Our solutions include engineered-to-order and custom-engineered systems. Our services include customer technical support and repair, asset management and optimization consulting, and training. Also included in our services is a portion of revenue related to spare parts that are managed within our services offering.

Our operations are comprised of the Architecture & Software segment and the Control Products & Solutions segment. See Note 19 for more information.

In North America, we sell primarily through independent distributors in conjunction with our direct sales force. In other countries, we sell through a combination of our direct sales force, and to a lesser extent, through independent distributors.

Performance Obligations

We use executed sales agreements and purchase orders to determine the existence of a customer contract.

For each customer contract, we determine if the products and services promised to the customer are distinct performance obligations. A product or service is distinct if both of the following criteria are met at contract inception: (i) the customer can benefit from the product or service on its own or together with other readily available resources, and (ii) our promise to transfer the product or perform the service is separately identifiable from other promises in the contract. The fact that we regularly sell a product or service separately is an indicator that the customer can benefit from a product or service on its own or with other readily available resources.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The objective when assessing whether our promises to transfer products or perform services are distinct within the context of the contract is to determine whether the nature of the promise is to transfer each of those products or perform those services individually, or whether the promise is to transfer a combined item or items to which the promised products or services are inputs. If a promised product or service is not distinct, we combine that product or service with other promised products or services until it comprises a bundle of products or services that is distinct, which may result in accounting for all the products or services in a contract as a single performance obligation.

For each performance obligation in a contract, we determine whether the performance obligation is satisfied over time. A performance obligation is satisfied over time if it meets any of the following criteria: (i) the customer simultaneously receives and consumes the benefits provided by our performance as we perform, (ii) our performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) our performance does not create an asset for which we have an alternative use and we have an enforceable right to payment for performance completed to date. If one or more of these criteria are met, then we recognize revenue over time using a method that depicts performance. If none of the criteria are met, then control transfers to the customer at a point in time and we recognize revenue at that point in time.

Our products represent standard, catalog products for which we have an alternative use, and therefore we recognize revenue at a point in time when control of the product transfers to the customer. For the majority of our products, control transfers upon shipment, though for some contracts control may transfer upon delivery. Our product revenue also includes revenue from software licenses. When these licenses are determined to be distinct performance obligations, we recognize the related revenue at a point in time when the customer is provided the right to use the license. Product-type contracts are generally one year or less in length.

We offer a wide variety of solutions and services to our customers, for which we recognize revenue over time or at a point in time based on the contract as well as the type of solution or service. If one or more of the three criteria above for over-time revenue recognition are met, we recognize revenue over time as cost is incurred, as work is performed, or based on time elapsed, depending on the type of customer contract. If none of these criteria are met, we recognize revenue at a point in time when control of the asset being created or enhanced transfers to the customer, typically upon delivery. More than half of our solutions and services revenue is from contracts that are one year or less in length. For certain solutions and services offerings, when we have the right to invoice our customers in an amount that corresponds to our performance completed to date, we apply the practical expedient to measure progress and recognize revenue based on the amount for which we have the right to invoice the customer.

When assessing whether we have an alternative use for an asset, we consider both contractual and practical limitations. These include: (i) the level and cost of customization of the asset that is required to meet a customer’s needs, (ii) the activities, cost, and profit margin after any rework that would be required before the asset could be directed for another use, and (iii) the portion of the asset that could not be reworked for an alternative use.

At times we provide products and services free of charge to our customers as incentives when the customers purchase other products or services. These represent distinct performance obligations. As such, we allocate revenue to them based on relative standalone selling price.

Most of our global warranties are assurance in nature and do not represent distinct performance obligations. See Note 9 for additional information and disclosures. We occasionally offer extended warranties to our customers that are considered a distinct performance obligation, to which we allocate revenue which is recognized over the extended warranty period.

We account for shipping and handling activities performed after control of a product has been transferred to the customer as a fulfillment cost. As such, we have applied the practical expedient and we accrue for the costs of shipping and handling activities if revenue is recognized before contractually agreed shipping and handling activities occur.

Unfulfilled Performance Obligations

As of September 30, 2020, we expect to recognize approximately $540 million of revenue in future periods from unfulfilled performance obligations from existing contracts with customers. We expect to recognize revenue of approximately $280 million of our remaining performance obligations over the next 12 months with the remaining balance recognized thereafter.

We have applied the practical expedient to exclude the value of remaining performance obligations for (i) contracts with an original term of one year or less and (ii) contracts for which we recognize revenue in proportion to the amount we have the right to invoice for services performed. The amounts above also do not include the impact of contract renewal options that are unexercised as of September 30, 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Transaction Price

The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring products to, or performing services for, a customer. We estimate the transaction price at contract inception, and update the estimate each reporting period for any changes in circumstances. In some cases a contract may involve variable consideration, including rebates, credits, allowances for returns or other similar items that generally decrease the transaction price. We use historical experience to estimate variable consideration, including any constraint.

The transaction price (including any discounts and variable consideration) is allocated between separate products and services based on their relative standalone selling prices. The standalone selling prices are determined based on the prices at which we separately sell each good or service. For items that are not sold separately, we estimate the standalone selling price using available information such as market reference points and other observable data.

We have elected the practical expedient to exclude sales taxes and other similar taxes from the measurement of the transaction price.

Significant Payment Terms

Our standard payment terms vary globally but do not result in a significant delay between the timing of invoice and payment. We occasionally negotiate other payment terms during the contracting process. We do not typically include significant financing components in our contracts with customers. We have elected the practical expedient to not adjust the transaction price for the period between transfer of products or performance of services and customer payment if expected to be one year or less.

For most of our products, we invoice at the time of shipment and we do not typically have significant contract balances. For our solutions and services as well as some of our products, timing may differ between revenue recognition and billing. Depending on the terms agreed to with the customer, we may invoice in advance of performance or we may invoice after performance. When revenue recognition exceeds billing we recognize a receivable, and when billing exceeds revenue recognition we recognize a contract liability.

Disaggregation of Revenue

The following series of tables present our revenue disaggregation by geographic region and types of products or services, and also present these disaggregation categories for our two operating segments. We attribute sales to the geographic regions based on the country of destination.

The following reflects the disaggregation of our revenues by operating segment and by geographic region (in millions):

	Year Ended September 30, 2020												Year Ended September 30, 2019
	Architecture & Software				Control Products & Solutions				Total				Architecture & Software				Control Products & Solutions				Total
North America	$	1,641.7			$	2,118.5			$	3,760.2			$	1,752.1			$	2,262.2			$	4,014.3
Europe, Middle East and Africa (EMEA)	606.8				642.5				1,249.3				654.2				595.6				1,249.8
Asia Pacific	419.7				449.0				868.7				426.4				482.2				908.6
Latin America	164.7				286.9				451.6				189.2				332.9				522.1
Total Company Sales	$	2,832.9			$	3,496.9			$	6,329.8			$	3,021.9			$	3,672.9			$	6,694.8

The following reflects the disaggregation of our revenues by operating segment and by major types of products or services (in millions):

	Year Ended September 30, 2020												Year Ended September 30, 2019
	Architecture & Software				Control Products & Solutions				Total				Architecture & Software				Control Products & Solutions				Total
Products	$	2,832.9			$	1,407.7			$	4,240.6			$	3,021.9			$	1,469.1			$	4,491.0
Solutions & Services	—				2,089.2				2,089.2				—				2,203.8				2,203.8
Total Company Sales	$	2,832.9			$	3,496.9			$	6,329.8			$	3,021.9			$	3,672.9			$	6,694.8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contract Balances

Contract liabilities primarily relate to consideration received in advance of performance under the contract. We do not have significant contract assets as of September 30, 2020.

Below is a summary of our contract liabilities balance:

		September 30, 2020				September 30, 2019
Balance as of beginning of fiscal year		$	275.6			$	268.6
Balance as of end of period		325.3				275.6

The most significant changes in our contract liabilities balance during the twelve months ended September 30, 2020 were due to amounts billed, partially offset by revenue recognized that was included in the contract liabilities balance at the beginning of the period.

In the twelve months ended September 30, 2020, we recognized revenue of approximately $216.9 million that was included in the opening contract liabilities balance. We did not have a material amount of revenue recognized in the twelve months ended September 30, 2020, from performance obligations satisfied or partially satisfied in previous periods.

Costs to Obtain and Fulfill a Contract

We capitalize and amortize certain incremental costs to obtain and fulfill contracts. These costs primarily consist of incentives paid to sales personnel, which are considered incremental costs to obtain customer contracts. We elected the practical expedient to expense incremental costs to obtain a contract when the contract has a duration of one year or less. Our capitalized contract costs, which are included in other assets in our Consolidated Balance Sheet, are not significant. There was no impairment loss in relation to capitalized costs in the period.

3. Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill were (in millions):

		Architecture & Software				Control Products & Solutions				Total
Balance as of September 30, 2018		$	422.3			$	653.2			$	1,075.5
Acquisition of businesses		14.6				—				14.6
Translation		(4.6		)		(14.4		)		(19.0		)
Balance as of September 30, 2019		432.3				638.8				1,071.1
Acquisition of business		161.2				390.7				551.9
Translation		15.9				11.4				27.3
Balance as of September 30, 2020		$	609.4			$	1,040.9			$	1,650.3

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other intangible assets consist of (in millions):

		September 30, 2020
		Carrying Amount				Accumulated Amortization				Net
Amortized intangible assets:
Computer software products		$	192.7			$	139.0			$	53.7
Customer relationships		351.3				92.5				258.8
Technology		165.8				84.0				81.8
Trademarks		71.7				31.3				40.4
Other		14.4				13.5				0.9
Total amortized intangible assets		795.9				360.3				435.6
Allen-Bradley® trademark not subject to amortization		43.7				—				43.7
Total		$	839.6			$	360.3			$	479.3

		September 30, 2019
		Carrying Amount				Accumulated Amortization				Net
Amortized intangible assets:
Computer software products		$	190.6			$	128.3			$	62.3
Customer relationships		110.5				69.2				41.3
Technology		110.4				69.5				40.9
Trademarks		31.4				26.4				5.0
Other		10.6				9.7				0.9
Total amortized intangible assets		453.5				303.1				150.4
Allen-Bradley® trademark not subject to amortization		43.7				—				43.7
Total		$	497.2			$	303.1			$	194.1

Computer software products represent costs of computer software to be sold, leased or otherwise marketed. Computer software products amortization expense was $10.2 million in 2020, $10.4 million in 2019 and $11.8 million in 2018.

Estimated amortization expense is $53.9 million in 2021, $51.0 million in 2022, $49.7 million in 2023, $46.8 million in 2024 and $44.6 million in 2025.

For our 2020 annual evaluation, we performed a qualitative test for our Architecture & Software and our Control Products & Solutions (excluding Sensia) reporting units. We performed a quantitative test for our Sensia reporting unit. Based on those evaluations, we concluded these assets were not impaired. We also assessed the changes in events and circumstances subsequent to our annual test, including those related to the COVID-19 pandemic and conditions within the Oil & Gas industry, and concluded that a triggering event which would require interim quantitative testing has not occurred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Acquisitions

Sensia joint venture

On October 1, 2019, we completed the formation of a joint venture, Sensia, a fully integrated digital oilfield automation solutions provider. Rockwell Automation owns 53% of Sensia and Schlumberger owns 47% of Sensia. As part of the transaction, we made $247.0 million of net cash payments to Schlumberger, which were funded by cash on hand. We control Sensia and, as of October 1, 2019, have consolidated Sensia in our financial results. As part of the joint venture operations, Sensia regularly transacts with Schlumberger, primarily relating to purchases and sales of goods and services. These transactions are not material to Rockwell Automation for the year ended September 30, 2020.

We recorded assets acquired and liabilities assumed in connection with the formation of Sensia based on their estimated fair values as of the acquisition date of October 1, 2019. The preliminary purchase price allocation is as follows (in millions):

		Purchase Price Allocation
Accounts receivable		$	31.2
Inventory		33.2
Other current assets		1.2
Property, plant and equipment		9.3
Other assets		6.2
Goodwill		307.4
Intangible assets		254.1
Total assets acquired		642.6
Less: Liabilities assumed		(18.3		)
Less: Deferred income taxes		(2.6		)
Less: Noncontrolling interest portion		(293.8		)
Net assets acquired		$	327.9
		Purchase Consideration
Cash, net of cash acquired		$	247.0
Noncontrolling interest portion of Rockwell Automation's contributed business		25.8
Additional paid in capital adjustment		48.1
Other		7.0
Total purchase consideration, net of cash acquired		$	327.9

Intangible assets assigned include $254.1 million of customer relationships, technology, and trade names (approximately 11-year weighted average useful life). We assigned the full amount of goodwill and all other assets acquired to our Control Products & Solutions segment. The majority of the goodwill recorded is expected to be deductible for tax purposes. The assets were valued using an income approach, specifically the relief from royalty method and multi-period excess earnings method. The relief from royalty method calculates value based on hypothetical payments that would be saved by owning an asset rather than licensing it. The multi-period excess earnings method is the isolation of cash flows from a single intangible asset and measures fair value by discounting them to present value. These values are considered level 3 measurements under the U.S. GAAP fair value hierarchy. Key assumptions used in the valuation of these intangible assets included: (1) a discount rate of 11%, (2) the estimated remaining life of technology and trademarks of from 5 to 15 years, and (3) the customer attrition rate ranging from 7.5% to 25%.

The fair value of the noncontrolling interest of the contributed business upon acquisition was $293.8 million. The consolidated value of Sensia at October 1, 2019, was recorded at fair value for Schlumberger's contribution and at carrying value for Rockwell Automation's contribution.

The total incremental sales resulting from the Sensia joint venture included in our consolidated results for the twelve months ended September 30, 2020, were approximately $191.0 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other acquisitions

In October 2019, we acquired MESTECH Services (MESTECH), a global provider of Manufacturing Execution Systems / Manufacturing Operations Management, digital solutions consulting, and systems integration services. We assigned the full amount of goodwill related to this acquisition to our Control Products & Solutions segment.

In January 2020, we acquired Avnet Data Security, LTD (Avnet), an Israel-based cybersecurity provider with over 20 years of experience providing cybersecurity services. We assigned the full amount of goodwill related to this acquisition to our Control Products & Solutions segment.

In April 2020, we acquired ASEM, S.p.A. (ASEM), a leading provider of digital automation technologies. We assigned the full amount of goodwill related to this acquisition to our Architecture & Software segment.

In April 2020, we also acquired Kalypso, LP (Kalypso), a privately-held U.S.-based software delivery and consulting firm specializing in the digital transformation of industrial companies with a strong client base in life sciences, consumer products and industrial high-tech. We assigned the full amount of goodwill related to this acquisition to our Control Products & Solutions segment.

We recorded assets acquired and liabilities assumed in connection with these acquisitions based on their estimated fair values as of the respective acquisition dates. The preliminary aggregate purchase price allocation for these acquisitions is as follows (in millions):

		Purchase Price Allocation
Accounts receivable		$	33.8
Inventory		9.6
Other current assets		1.0
Property, plant and equipment		5.9
Other assets		2.2
Goodwill		244.5
Intangible assets		76.5
Total assets acquired		373.5
Less: Liabilities assumed		(28.6		)
Less: Deferred income taxes		(14.4		)
Net assets acquired		$	330.5
		Purchase Consideration
Total purchase consideration, net of cash acquired		$	330.5

Intangible assets assigned include $76.5 million of customer relationships, technology, and trade names (approximately 10-year weighted average useful life). We assigned $161.2 million of goodwill to our Architecture & Software segment and $83.3 million of goodwill to our Control Products & Solutions segment. Approximately $69.0 million of the goodwill recorded is expected to be deductible for tax purposes. The purchase consideration includes $25.8 million of contingent consideration held in an escrow account and recorded in other assets as restricted cash in the Consolidated Balance Sheet.

The total sales included in our consolidated results from these four acquisitions for the twelve months ended September 30, 2020, were approximately $41.8 million.

The allocation of the purchase price to identifiable assets for all of the preceding acquisitions are based on the preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The measurement period for the valuation of net assets acquired ends as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but not to exceed 12 months following the acquisition date. Adjustments in purchase price allocations may require a change in the amounts allocated to net assets acquired during the periods in which the adjustments are determined.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Pro forma consolidated sales for the year ended September 30, 2019, are approximately $7.0 billion, and the impact on earnings is not material. The preceding pro forma consolidated financial results of operations are as if all of the preceding acquisitions occurred on October 1, 2018. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the transaction occurred as of that time.

Acquisition-related costs recorded as expenses for all of the preceding acquisitions in the year ended September 30, 2020, were not material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Inventories

Inventories consist of (in millions):

		September 30,
		2020				2019
Finished goods		$	243.0			$	223.7
Work in process		159.1				178.4
Raw materials		181.9				173.6
Inventories		$	584.0			$	575.7

6. Property, net

Property consists of (in millions):

		September 30,
		2020				2019
Land		$	4.8			$	4.1
Buildings and improvements		383.0				373.8
Machinery and equipment		1,220.7				1,154.5
Internal-use software		506.4				489.5
Construction in progress		134.4				116.0
Total		2,249.3				2,137.9
Less accumulated depreciation		(1,674.9		)		(1,566.0		)
Property, net		$	574.4			$	571.9

7. Long-term and Short-term Debt

Long-term debt consists of (in millions):

		September 30,
		2020				2019
2.050% notes, repaid in March 2020		$	—			$	299.4
2.875% notes, payable in March 2025		320.1				307.6
6.70% debentures, payable in January 2028		250.0				250.0
3.500% notes, payable in March 2029		425.0				425.0
6.25% debentures, payable in December 2037		250.0				250.0
4.200% notes, payable in March 2049		575.0				575.0
5.20% debentures, payable in January 2098		200.0				200.0
Unamortized discount, capitalized lease obligations and other		(45.4		)		(50.1		)
Total		1,974.7				2,256.9
Less current portion		—				(300.5		)
Long-term debt		$	1,974.7			$	1,956.4

Our short-term debt as of September 30, 2020, primarily consisted of $23.5 million of interest-bearing loans from Schlumberger to Sensia which were originally due September 30, 2020, and are now due September 30, 2021. The short-term loans from Schlumberger were entered into following formation of Sensia. See Note 4 for additional information on Sensia.

In April 2020, we entered into a $400.0 million senior unsecured 364-day term loan credit agreement and were advanced the full loan amount. This agreement was in addition to our existing $1.25 billion unsecured revolving credit facility expiring in November 2023, which remains available and undrawn. Interest on these borrowings was based on short-term money market rates in effect during the period the borrowings were outstanding. We repaid the $400.0 million term loan in September 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In February 2015, upon issuance of our notes payable in March 2020 (“2020 Notes”) and March 2025 (“2025 Notes”), we entered into fixed-to-floating interest rate swap contracts with multiple banks that effectively converted the $600.0 million aggregate principal amount to floating rate debt, each at a rate based on three-month LIBOR plus a fixed spread. Prior to settlement, the individual contracts were recorded in Other assets and Other current liabilities in the Consolidated Balance Sheet with corresponding adjustments to the carrying value of the underlying debt. In March 2020, we repaid the 2020 Notes which were classified as the current portion of long-term debt at September 30, 2019. In May 2020, we settled the interest swaps that were designated as a fair value hedge of the 2025 Notes and received $22.0 million from the counterparties. The $22.0 million gain on the settlement of the interest rate swaps was recorded as an adjustment to the carrying value of the 2025 Notes and is being amortized over the remaining term of those notes as an adjustment to interest expense in the Consolidated Statement of Operations. Additional information related to our interest rate swap contracts is included in Note 11.

In March 2019, we issued $1 billion aggregate principal amount of long-term notes in a registered public offering. The offering consisted of $425.0 million of 3.500% notes due in March 2029 (“2029 Notes”) and $575.0 million of 4.200% notes due in March 2049 (“2049 Notes”), both issued at a discount. Net proceeds to the Company from the debt offering were $987.6 million. We used these net proceeds primarily to repay our outstanding commercial paper, with the remaining proceeds used for general corporate purposes.

We entered into treasury locks to manage the potential change in interest rates in anticipation of the issuance of $1.0 billion of fixed rate debt in March 2019. Treasury locks are accounted for as cash flow hedges. The effective differentials paid on these treasury locks was initially recorded in Accumulated Other Comprehensive Loss, net of tax effect.

As a result of the changes in the interest rates on the treasury locks between the time we entered into the treasury locks and the time we priced and issued the 2029 Notes and 2049 Notes, the Company made a payment of $35.7 million to the counterparty on March 1, 2019. The $35.7 million loss on the settlement of the treasury locks was recorded in Accumulated Other Comprehensive Loss and is being amortized over the term of the 2029 Notes and 2049 Notes, and recognized as an adjustment to interest expense in the Consolidated Statement of Operations.

On November 13, 2018, we replaced our former five-year $1.0 billion unsecured revolving credit facility with a new five-year $1.25 billion unsecured revolving credit facility expiring in November 2023. We can increase the aggregate amount of this credit facility by up to $750.0 million, subject to the consent of the banks in the credit facility. We did not incur early termination penalties in connection with the termination of the former credit facility. We did not borrow against either facility during the periods ended September 30, 2020 or 2019. Borrowings under the new credit facility bear interest based on short-term money market rates in effect during the period the borrowings are outstanding. This credit facility contains covenants under which we agree to maintain an EBITDA-to-interest ratio of at least 3.0 to 1.0. The EBITDA-to-interest ratio is defined in the credit facility as the ratio of consolidated EBITDA (as defined in the facility) for the preceding four quarters to consolidated interest expense for the same period.

Interest payments were $101.7 million during 2020, $97.5 million during 2019 and $75.5 million during 2018.

Long-term debt is not recorded at fair value. The following table presents the carrying amounts and estimated fair values of long-term debt not recorded at fair value in the Consolidated Balance Sheet (in millions):

		September 30, 2020								September 30, 2019
		Carrying Value				Fair Value				Carrying Value				Fair Value
Current portion of long-term debt		$	—			$	—			$	300.5			$	300.1
Long-term debt		1,974.7				2,497.7				1,956.4				2,380.8

We base the fair value of long-term debt upon quoted market prices for the same or similar issues and therefore consider this a Level 2 fair value measurement. The fair value of long-term debt considers the terms of the debt excluding the impact of derivative and hedging activity. The carrying amount of a portion of our long-term debt is impacted by fixed-to-floating interest rate swap contracts that are designated as fair value hedges. Refer to Note 1 for further information regarding levels in the fair value hierarchy.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Other Current Liabilities

Other current liabilities consist of (in millions):

		September 30,
		2020				2019
Unrealized losses on foreign exchange contracts (Note 11)		$	24.3			$	5.4
Product warranty obligations (Note 9)		20.8				25.2
Taxes other than income taxes		58.5				43.8
Accrued interest		14.9				15.5
Income taxes payable		79.8				62.9
Operating lease liabilities		89.7				—
Other		88.5				75.1
Other current liabilities		$	376.5			$	227.9

9. 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 known and reasonably estimable.

Changes in product warranty obligations were (in millions):

		September 30,
		2020				2019
Beginning balance		$	25.2			$	27.9
Warranties recorded at time of sale		17.8				21.3
Adjustments to pre-existing warranties		(1.6		)		(5.6		)
Settlements of warranty claims		(20.6		)		(18.4		)
Ending balance		$	20.8			$	25.2

10. Investments

Our investments consist of (in millions):

		September 30,
		2020				2019
Fixed income securities		$	0.6			$	43.9
Equity securities		875.3				721.5
Other		78.2				68.1
Total investments		954.1				833.5
Less short-term investments		(0.6		)		(39.6		)
Long-term investments		$	953.5			$	793.9

We record investments in fixed income and equity securities, classified as available-for-sale investments or trading investments, at fair value.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Available-for-sale Investments

We invest in certificates of deposit, time deposits, commercial paper and other fixed income securities which are classified as available-for-sale. Unrealized gains and losses on available-for-sale investments are included in our Consolidated Balance Sheet as a component of accumulated other comprehensive loss, net of any deferred taxes. Realized gains and losses are included in net income.

Our available-for-sale investments consist of (in millions):

		September 30,
		2020				2019
Certificates of deposit and time deposits		$	0.6			$	0.6
Corporate debt securities		—				31.8
Government securities		—				6.3
Asset-backed securities		—				5.2
Total		$	0.6			$	43.9

Pre-tax gross realized and unrealized gains and losses on available-for-sale investments were not material in 2020 and 2019.

Classification of our available-for-sale investments as current or noncurrent is based on the nature of the investment and when the investment is reasonably expected to be realized. These investments were included in the following line items within the Consolidated Balance Sheet (in millions):

		September 30,
		2020				2019
Other current assets		$	0.6			$	39.6
Long-term investments		—				4.3
Total		$	0.6			$	43.9

Equity Securities

On July 19, 2018, we purchased 10,582,010 shares of PTC Inc. (“PTC”) common stock (the “PTC Shares”) in a private placement at a purchase price of $94.50 per share for an aggregate purchase price of approximately $1.0 billion (the “Purchase”). The PTC Shares are considered equity securities. For a period of approximately 3 years after the Purchase we are subject to entity-specific transfer restrictions subject to certain exceptions. Since the first anniversary of the Purchase, the Company has had the ability to transfer, in the aggregate in any 90-day period, a number of the PTC Shares equal to up to 1.0% of PTC’s total outstanding shares of common stock as of the first day in such 90-day period, but no more than 2.0% of PTC’s total outstanding shares of common stock in each of the second year and the third year after the Purchase.

The PTC Shares are recorded at fair value. At September 30, 2020, the fair value of the PTC Shares was $875.3 million, which was recorded in long-term investments in the Consolidated Balance Sheet. We recorded a gain of $153.9 million and a loss of $368.5 million related to the PTC Shares in the Consolidated Statement of Operations in the years ended September 30, 2020 and 2019, respectively.

Fair Value of Investments

We recognize all available-for-sale and trading investments at fair value in the Consolidated Balance Sheet. The valuation methodologies used for our investments measured at fair value are described below.

Certificates of deposit and time deposits — These investments are recorded at cost, which approximates fair value.

Commercial paper — These investments are recorded at amortized cost, which approximates fair value.

Corporate debt securities — Valued at either the yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks.

Government securities — Valued at the most recent closing price on the active market on which the individual securities are traded or, absent an active market, utilizing observable inputs such as closing prices in less frequently traded markets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Asset-backed securities — Valued using a discounted cash flow approach that maximizes observable inputs, such as current yields of benchmark instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks.

Equity securities — Prior to their registration in fiscal 2019, the PTC Shares were valued using the most recent closing price of PTC common stock quoted on Nasdaq, less a temporary discount for lack of marketability. The discount for lack of marketability was calculated using a put-option model which included observable and unobservable inputs and was categorized as Level 3 in the fair value hierarchy. As a result of the registration of the PTC Shares and reversal of the discount during fiscal 2019, these securities are now valued using the most recent closing price as quoted on Nasdaq and were transferred from Level 3 to Level 1.

Refer to Note 1 for further information regarding levels in the fair value hierarchy. We did not have any other transfers between levels of fair value measurements during the periods presented.

Fair values of our investments were (in millions):

		September 30, 2020
		Level 1				Level 2				Level 3				Total
Certificates of deposit and time deposits		$	—			$	0.6			$	—			$	0.6
Equity securities		875.3				—				—				875.3
Total		$	875.3			$	0.6			$	—			$	875.9

		September 30, 2019
		Level 1				Level 2				Level 3				Total
Certificates of deposit and time deposits		$	—			$	0.6			$	—			$	0.6
Corporate debt securities		—				31.8				—				31.8
Government securities		6.3				—				—				6.3
Asset-backed securities		—				5.2				—				5.2
Equity securities		721.5				—								721.5
Total		$	727.8			$	37.6			$	—			$	765.4

11. Derivative Instruments

We use foreign currency forward exchange contracts and foreign currency denominated debt obligations to manage certain foreign currency risks. We also use interest rate swap contracts and treasury locks to manage risks associated with interest rate fluctuations. The following information explains how we use and value these types of derivative instruments and how they impact our consolidated financial statements.

Additional information related to the impacts of cash flow hedges on other comprehensive income (loss) is included in Note 12.

Types of Derivative Instruments and Hedging Activities

Cash Flow Hedges

We enter into foreign currency forward exchange contracts to hedge our exposure to foreign currency exchange rate variability in the expected future cash flows associated with certain third-party and intercompany transactions denominated in foreign currencies forecasted to occur within the next two years (cash flow hedges). We report in other comprehensive income (loss) the effective portion of the gain or loss on derivative financial instruments that we designate and that qualify as cash flow hedges. We reclassify these gains or losses into earnings in the same periods when the hedged transactions affect earnings. To the extent forward exchange contracts designated as cash flow hedges are ineffective, changes in value are recorded in earnings through the maturity date. There was no impact on earnings due to ineffective cash flow hedges. At September 30, 2020, we had a U.S. dollar-equivalent gross notional amount of $855.7 million of foreign currency forward exchange contracts designated as cash flow hedges. We entered into treasury locks to manage the potential change in interest rates in anticipation of the issuance of $1.0 billion of fixed rate debt in March 2019. Treasury locks are accounted for as cash flow hedges since they hedge the risk of an increase in treasury rates for the forecasted interest payments of an anticipated fixed-rate debt issuance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The pre-tax amount of gains (losses) recorded in other comprehensive income (loss) related to cash flow hedges that would have been recorded in the Consolidated Statement of Operations had they not been so designated was (in millions):

		2020				2019				2018
Forward exchange contracts		$	(9.7	)		$	29.5			$	11.8
Treasury locks		—				(35.7		)		—

The pre-tax amount of gains (losses) reclassified from accumulated other comprehensive loss into the Consolidated Statement of Operations related to derivative forward exchange contracts designated as cash flow hedges, which offset the related gains and losses on the hedged items during the periods presented, was (in millions):

		2020				2019				2018
Sales		$	(0.7	)		$	1.0			$	2.4
Cost of sales		19.6				18.2				(17.2		)
Selling, general and administrative expenses		(1.4		)		(1.3		)		1.2
Interest expense		(2.1		)		(1.2		)		—
Total		$	15.4			$	16.7			$	(13.6	)

Approximately $7.6 million of pre-tax net unrealized losses on cash flow hedges as of September 30, 2020 will be reclassified into earnings during the next twelve months. We expect that these net unrealized losses will be offset when the hedged items are recognized in earnings.

Net Investment Hedges

We use foreign currency forward exchange contracts and foreign currency denominated debt obligations to hedge portions of our net investments in non-U.S. subsidiaries (net investment hedges) against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. For all instruments that are designated as net investment hedges and meet effectiveness requirements, the net changes in value of the designated hedging instruments are recorded in accumulated other comprehensive loss within shareowners’ equity where they offset gains and losses recorded on our net investments globally. To the extent forward exchange contracts or foreign currency denominated debt designated as net investment hedges are ineffective, changes in value are recorded in earnings through the maturity date. There was no impact on earnings due to ineffective net investment hedges. At September 30, 2020, we had a gross notional amount of $141.1 million of foreign currency forward exchange contracts designated as net investment hedges.

The pre-tax amount of (losses) gains recorded in other comprehensive income (loss) related to net investment hedges that would have been recorded in the Consolidated Statement of Operations had they not been so designated was (in millions):

		2020				2019				2018
Forward exchange contracts		$	(1.3	)		$	(4.9	)		$	1.1

Fair Value Hedges

We used interest rate swap contracts to manage the borrowing costs of certain long-term debt. In February 2015, we issued $600.0 million aggregate principal amount of fixed rate notes. Upon issuance of these notes, we entered into fixed-to-floating interest rate swap contracts that effectively converted these notes from fixed rate debt to floating rate debt. We designated these contracts as fair value hedges because they hedged the changes in fair value of the fixed rate notes resulting from changes in interest rates. The changes in value of these fair value hedges were recorded as gains or losses in interest expense and are offset by the losses or gains on the underlying debt instruments, which are also recorded in interest expense. In May 2020, we settled all outstanding interest rate swaps. Refer to Note 7 for further information regarding the settlement of the interest rate swaps.

The pre-tax amount of net gains (losses) recognized within the Consolidated Statement of Operations related to derivative instruments designated as fair value hedges, which fully offset the related net gains and losses on the hedged debt instruments during the periods presented, was (in millions):

		2020				2019				2018
Interest income (expense)		$	15.1			$	30.9			$	(19.3	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Derivatives Not Designated as Hedging Instruments

Certain of our locations have assets and liabilities denominated in currencies other than their functional currencies resulting from intercompany loans and other transactions with third parties denominated in foreign currencies. We enter into foreign currency forward exchange contracts that we do not designate as hedging instruments to offset the transaction gains or losses associated with some of these assets and liabilities. Gains and losses on derivative financial instruments for which we do not elect hedge accounting are recognized in the Consolidated Statement of Operations in each period, based on the change in the fair value of the derivative financial instruments. At September 30, 2020, we had a U.S. dollar-equivalent gross notional amount of $758.3 million of foreign currency forward exchange contracts not designated as hedging instruments.

The pre-tax amount of gains (losses) from forward exchange contracts not designated as hedging instruments recognized in the Consolidated Statement of Operations was (in millions):

		2020				2019				2018
Cost of sales		$	6.1			$	(0.4	)		$	1.0
Other (expense) income		(11.8		)		1.6				(0.1		)
Total		$	(5.7	)		$	1.2			$	0.9

Fair Value of Derivative Instruments

We recognize all derivative financial instruments as either assets or liabilities at fair value in the Consolidated Balance Sheet. We value our forward exchange contracts using a market approach. We use a valuation model based on inputs including forward and spot prices for currency and interest rate curves. We did not change our valuation techniques during fiscal 2020, 2019 or 2018. It is our policy to execute such instruments with major financial institutions that we believe to be creditworthy and not to enter into derivative financial instruments for speculative purposes. We diversify our foreign currency forward exchange contracts among counterparties to minimize exposure to any one of these entities. Our foreign currency forward exchange contracts are usually denominated in currencies of major industrial countries. The U.S. dollar-equivalent gross notional amount of our forward exchange contracts totaled $1,755.1 million at September 30, 2020. Currency pairs (buy/sell) comprising the most significant contract notional values were Euro/United States dollar (USD), USD/Mexican peso, USD/Canadian dollar, British pound/USD, and USD/Swiss franc. Refer to Note 1 for further information regarding levels in the fair value hierarchy.

We value interest rate swap contracts using a market approach based on observable market inputs including publicized swap curves.

The fair value of our derivatives and their location in our Consolidated Balance Sheet were (in millions):

				Fair Value (Level 2)
Derivatives Designated as Hedging Instruments		Balance Sheet Location		September 30, 2020				September 30, 2019
Forward exchange contracts		Other current assets		$	6.9			$	20.3
Forward exchange contracts		Other assets		1.0				3.0
Forward exchange contracts		Other current liabilities		(13.4		)		(4.5		)
Forward exchange contracts		Other liabilities		(3.2		)		(0.4		)
Interest rate swap contracts		Other assets		—				7.6
Interest rate swap contracts		Other current liabilities		—				(0.6		)
Total				$	(8.7	)		$	25.4

				Fair Value (Level 2)
Derivatives Not Designated as Hedging Instruments		Balance Sheet Location		September 30, 2020				September 30, 2019
Forward exchange contracts		Other current assets		$	6.1			$	4.8
Forward exchange contracts		Other current liabilities		(10.9		)		(0.9		)
Total				$	(4.8	)		$	3.9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Shareowners’ Equity

Common Stock

At September 30, 2020, the authorized stock of the Company consisted of one billion shares of common stock, par value $1.00 per share, and 25 million shares of preferred stock, without par value. At September 30, 2020, 17.3 million shares of authorized common stock were reserved for various incentive plans.

Changes in outstanding common shares are summarized as follows (in millions):

		2020			2019			2018
Beginning balance		115.7			121.0			128.4
Treasury stock purchases		(1.4	)		(6.1	)		(8.3	)
Common stock issued (including share based compensation impact)		1.9			0.8			0.9
Ending balance		116.2			115.7			121.0

At September 30, 2020, there were no outstanding common stock share repurchases recorded in accounts payable. At September 30, 2019, there were $9.3 million of outstanding common stock share repurchases recorded in accounts payable.

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss attributable to Rockwell Automation by component were (in millions):

		Pension and other postretirement benefit plan adjustments, net of tax (Note 14)				Accumulated currency translation adjustments, net of tax				Net unrealized gains (losses) on cash flow hedges, net of tax				Net unrealized gains (losses) on available-for-sale investments, net of tax				Total accumulated other comprehensive loss, net of tax
Balance as of September 30, 2017		$	(927.0	)		$	(237.7	)		$	(14.4	)		$	(0.1	)		$	(1,179.2	)
Other comprehensive income (loss) before reclassifications		188.4				(48.3		)		8.7				(2.1		)		146.7
Amounts reclassified from accumulated other comprehensive loss		80.5				—				10.1				—				90.6
Other comprehensive income (loss)		268.9				(48.3		)		18.8				(2.1		)		237.3
Balance as of September 30, 2018		$	(658.1	)		$	(286.0	)		$	4.4			$	(2.2	)		$	(941.9	)
Other comprehensive income (loss) before reclassifications		(532.1		)		(55.3		)		(5.3		)		2.2				(590.5		)
Amounts reclassified from accumulated other comprehensive loss		56.5				—				(12.1		)		—				44.4
Other comprehensive income (loss)		(475.6		)		(55.3		)		(17.4		)		2.2				(546.1		)
Balance as of September 30, 2019		$	(1,133.7	)		$	(341.3	)		$	(13.0	)		$	—			$	(1,488.0	)
Other comprehensive income (loss) before reclassifications		(100.2		)		26.0				(7.3		)		—				(81.5		)
Amounts reclassified from accumulated other comprehensive loss		109.5				—				(11.2		)		—				98.3
Other comprehensive income (loss)		9.3				26.0				(18.5		)		—				16.8
Adoption of accounting standard/other		(146.8		)		3.8				—				—				(143.0		)
Balance as of September 30, 2020		$	(1,271.2	)		$	(311.5	)		$	(31.5	)		$	—			$	(1,614.2	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The reclassifications out of accumulated other comprehensive loss to the Consolidated Statement of Operations were (in millions):

	Year Ended September 30,												Affected Line in the Consolidated Statement of Operations
	2020				2019				2018
Pension and other postretirement benefit plan adjustments(1):
Amortization of prior service credit	$	(4.5	)		$	(4.2	)		$	(4.9	)		Other (expense) income
Amortization of net actuarial loss	148.7				78.7				115.1				Other (expense) income
Settlements	—				1.2				0.7				Other (expense) income
	144.2				75.7				110.9				Income before income taxes
	(34.7		)		(19.2		)		(30.4		)		Income tax provision
	$	109.5			$	56.5			$	80.5			Net income
Net unrealized (gains) losses on cash flow hedges:
Forward exchange contracts	$	0.7			$	(1.0	)		$	(2.4	)		Sales
Forward exchange contracts	(19.6		)		(18.2		)		17.2				Cost of sales
Forward exchange contracts	1.4				1.3				(1.2		)		Selling, general and administrative expenses
Treasury locks related to 2019 debt issuance	2.1				1.2				—				Interest expense
	(15.4		)		(16.7		)		13.6				Income before income taxes
	4.2				4.6				(3.5		)		Income tax provision
	$	(11.2	)		$	(12.1	)		$	10.1			Net income
Total reclassifications	$	98.3			$	44.4			$	90.6			Net income

(1) These components are included in the computation of net periodic benefit costs. See Note 14 for further information.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Share-Based Compensation

During 2020, 2019 and 2018, we recognized $46.1 million, $43.1 million and $38.5 million of pre-tax share-based compensation expense, respectively. The total income tax benefit related to share-based compensation expense was $7.7 million, $6.9 million and $9.6 million during 2020, 2019 and 2018, respectively. We recognize compensation expense on grants of share-based compensation awards on a straight-line basis over the service period of each award recipient. As of September 30, 2020, total unrecognized compensation cost related to share-based compensation awards was $51.2 million, net of estimated forfeitures, which we expect to recognize over a weighted average period of approximately 1.9 years.

During 2020, we adopted, and our shareowners approved, our 2020 Long-Term Incentives Plan (“2020 Plan”), which replaced our 2012 Long-Term Incentives Plan, as amended (“2012 Plan”) and our 2003 Directors Stock Plan, as amended (“Directors Plan”). Our 2020 Plan authorizes us to deliver up to 13.0 million shares of our common stock upon exercise of stock options, upon grant, or in payment of stock appreciation rights, performance shares, performance units, restricted stock units or restricted stock. Our Directors Plan authorized us to deliver up to 0.5 million shares of our common stock upon exercise of stock options, upon grant, or in payment of restricted stock units. Shares relating to awards under our 2012 Plan that terminate by expiration, forfeiture, cancellation or otherwise without the issuance or delivery of shares or that are settled in cash in lieu of shares will be available for further awards under the 2020 Plan. Approximately 12.9 million shares under our 2020 Plan remain available for future grant or payment at September 30, 2020. We use treasury stock to deliver shares of our common stock under these plans. Our 2020 Plan does not permit share-based compensation awards to be granted after February 4, 2030.

Stock Options

We have granted non-qualified and incentive stock options to purchase our common stock under various incentive plans at prices equal to the fair market value of the stock on the grant dates. The exercise price for stock options granted under the plans may be paid in cash, already-owned shares of common stock or a combination of cash and such shares. Stock options expire ten years after the grant date and vest ratably over three years.

The per-share weighted average fair value of stock options granted during the years ended September 30, 2020, 2019 and 2018 was $35.80, $32.46 and $35.29, respectively. The total intrinsic value of stock options exercised was $151.6 million, $35.8 million and $71.0 million during 2020, 2019 and 2018, respectively. We estimated the fair value of each stock option on the date of grant using the Black-Scholes pricing model and the following assumptions:

		2020			2019			2018
Average risk-free interest rate		1.63	%		2.79	%		2.14	%
Expected dividend yield		2.08	%		2.27	%		1.75	%
Expected volatility		24	%		23	%		22	%
Expected term (years)		4.9			5.0			5.0

The average risk-free interest rate is based on U.S. Treasury security rates corresponding to the expected term in effect as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the grant date. We determined expected volatility using daily historical volatility of our stock price over the most recent period corresponding to the expected term as of the grant date. We determined the expected term of the stock options using historical data adjusted for the estimated exercise dates of unexercised options.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of stock option activity for the year ended September 30, 2020 is:

		Shares (in thousands)			Wtd. Avg. Exercise Price				Wtd. Avg. Remaining Contractual Term (years)		Aggregate Intrinsic Value of In-The-Money Options (in millions)
Outstanding at October 1, 2019		4,298			$	139.53
Granted		974			195.90
Exercised		(1,784	)		120.09
Forfeited		(77	)		181.58
Canceled		(7	)		170.82
Outstanding at September 30, 2020		3,404			164.81				7.2		$	190.2
Vested or expected to vest at September 30, 2020		2,115			141.77				5.8		166.9
Exercisable at September 30, 2020		1,606			139.70				5.7		130.0

Performance Share Awards

Certain officers and key employees are also eligible to receive shares of our common stock in payment of performance share awards granted to them. Grantees of performance shares will be eligible to receive shares of our common stock depending upon our total shareowner return, assuming reinvestment of all dividends, relative to the performance of companies in the S&P 500 Index over a three-year period. The number of shares actually earned will range from zero percent to 200 percent of the targeted number of performance shares for the three-year performance periods and will be paid, to the extent earned, in the fiscal quarter following the end of the applicable three-year performance period.

A summary of performance share activity for the year ended September 30, 2020 is as follows:

		Performance Shares (in thousands)			Wtd. Avg. Grant Date Share Fair Value
Outstanding at October 1, 2019		127			$	178.40
Granted(1)		36			265.04
Adjustment for performance results achieved(2)		(8	)		174.37
Vested and issued		(28	)		174.37
Forfeited		(3	)		188.26
Outstanding at September 30, 2020		124			204.92

(1)	Performance shares granted assuming achievement of performance goals at target.

(2)	Adjustments were due to the number of shares vested under fiscal 2017 awards at the end of the three-year performance period ended September 30, 2019 being lower than the target number of shares.

The following table summarizes information about performance shares vested during the years ended September 30, 2020, 2019 and 2018:

		2020				2019				2018
Percent payout		77		%		200		%		187		%
Shares vested (in thousands)		28				145				139
Total fair value of shares vested (in millions)		$	5.6			$	25.8			$	26.5

For the three-year performance period ending September 30, 2020, the payout will be 93 percent of the target number of shares, with a maximum of approximately 32,000 shares to be delivered in payment under the awards in December 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The per-share fair value of performance share awards granted during the years ended September 30, 2020, 2019 and 2018 was $265.04, $155.04 and $219.04, respectively, which we determined using a Monte Carlo simulation and the following assumptions:

		2020			2019			2018
Average risk-free interest rate		1.58	%		2.77	%		1.88	%
Expected dividend yield		2.06	%		2.24	%		1.72	%
Expected volatility		25	%		23	%		22	%

The average risk-free interest rate is based on the three-year U.S. Treasury security rate in effect as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the grant date. The expected volatilities were determined using daily historical volatility for the most recent three-year period as of the grant date.

Restricted Stock and Restricted Stock Units

We grant restricted stock and restricted stock units to certain employees, and non-employee directors may elect to receive a portion of their compensation in restricted stock units. Restrictions on employee restricted stock and employee restricted stock units generally lapse over periods ranging from one to five years. Director restricted stock units generally are payable upon retirement. We value restricted stock and restricted stock units at the closing market value of our common stock on the date of grant. The weighted average fair value of restricted stock and restricted stock unit awards granted during the years ended September 30, 2020, 2019 and 2018 was $200.36, $170.75 and $188.41, respectively. The total fair value of shares vested during the years ended September 30, 2020, 2019, and 2018 was $8.7 million, $7.8 million, and $7.2 million, respectively.

A summary of restricted stock and restricted stock unit activity for the year ended September 30, 2020 is as follows:

		Restricted Stock and Restricted Stock Units (in thousands)			Wtd. Avg. Grant Date Share Fair Value
Outstanding at October 1, 2019		142			$	160.14
Granted		71			200.36
Vested		(44	)		139.49
Forfeited		(6	)		180.80
Outstanding at September 30, 2020		163			$	182.66

We also granted approximately 6,900 shares of unrestricted common stock to non-employee directors during the year ended September 30, 2020. The weighted average grant date fair value of the unrestricted stock awards granted during the years ended September 30, 2020, 2019, and 2018 was $171.51, $182.39 and $183.76, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Retirement Benefits

We sponsor funded and unfunded pension plans and other postretirement benefit plans for our employees. The pension plans provide for monthly pension payments to eligible employees after retirement. Pension benefits for salaried employees generally are based on years of credited service and average earnings. Pension benefits for hourly employees are primarily based on specified benefit amounts and years of service. Effective July 1, 2010, we closed participation in our U.S. and Canada pension plans to employees hired after June 30, 2010. Employees hired after June 30, 2010 are instead eligible to participate in defined contribution plans. Effective October 1, 2010, we also closed participation in our U.K. pension plan to employees hired after September 30, 2010 and these employees are now eligible for a defined contribution plan. Benefits to be provided to plan participants hired before July 1, 2010 or October 1, 2010, respectively, are not affected by these changes. Our policy with respect to funding our pension obligations is to fund at a minimum the amount required by applicable laws and governmental regulations. We were not required to make contributions to satisfy minimum funding requirements in our U.S. pension plans in 2020, 2019 or 2018. We made a voluntary contribution of $50.0 million to our U.S. qualified pension plan in 2020. We did not make voluntary contributions to our U.S. qualified pension plan in 2019 or 2018.

We sponsor various defined contribution savings plans that allow eligible employees to contribute a portion of their income in accordance with plan specific guidelines. We contribute to savings plans and/or will match a percentage of the employee contributions up to certain limits. The Company contributions to defined contribution plans are based on age and years of service and range from 3% to 7% of eligible compensation. However, effective from May 2020 through November 2020, we temporarily suspended the 401(k) matching contribution for all U.S. employees to address the then-current and anticipated economic conditions resulting from the global COVID-19 pandemic. Expense related to these plans was $50.9 million in 2020, $53.1 million in 2019, and $47.0 million in 2018.

Other postretirement benefits are primarily in the form of retirement medical plans that cover certain employees in the U.S. and Canada and provide for the payment of certain medical costs of eligible employees and dependents after retirement. The postretirement benefit plan was closed to employees hired after December 31, 2004.

Net Periodic Benefit Cost

The components of net periodic benefit cost (income) are (in millions):

		Pension Benefits												Other Postretirement Benefits
		2020				2019				2018				2020				2019				2018
Service cost		$	91.1			$	78.2			$	88.9			$	1.0			$	0.9			$	1.3
Interest cost		136.4				158.3				155.3				1.6				2.3				2.4
Expected return on plan assets		(244.8		)		(244.7		)		(244.8		)		—				—				—
Amortization:
Prior service cost (credit)		0.9				1.2				0.6				(5.4		)		(5.4		)		(5.5		)
Net actuarial loss		147.3				77.8				113.4				1.4				0.9				1.7
Settlements		—				1.2				0.7				—				—				—
Net periodic benefit cost (income)		$	130.9			$	72.0			$	114.1			$	(1.4	)		$	(1.3	)		$	(0.1	)

The service cost component is included in Cost of sales and Selling, general and administrative expenses in the Consolidated Statement of Operations. All other components are included in Other (expense) income in the Consolidated Statement of Operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Significant assumptions used in determining net periodic benefit cost (income) are (in weighted averages):

		Pension Benefits									Other Postretirement Benefits
		2020			2019			2018			2020			2019			2018
U.S. Plans
Discount rate		3.30	%		4.35	%		3.90	%		2.90	%		4.15	%		3.40	%
Expected return on plan assets		7.50	%		7.50	%		7.50	%		—			—			—
Compensation increase rate		3.40	%		3.50	%		3.50	%		—			—			—
Non-U.S. Plans
Discount rate		1.60	%		2.48	%		2.30	%		2.65	%		3.30	%		3.20	%
Expected return on plan assets		5.11	%		5.22	%		5.19	%		—			—			—
Compensation increase rate		3.06	%		3.02	%		2.99	%		—			—			—

Net Benefit Obligation

Benefit obligation, plan assets, funded status and net liability information is summarized as follows (in millions):

		Pension Benefits								Other Postretirement Benefits
		2020				2019				2020				2019
Benefit obligation at beginning of year		$	4,907.3			$	4,259.5			$	60.7			$	62.4
Service cost		91.1				78.2				1.0				0.9
Interest cost		136.4				158.3				1.6				2.3
Actuarial losses (gains)		154.1				720.4				(1.4		)		4.7
Acquisitions		(0.6		)		—				—				—
Plan amendments		—				(4.9		)		—				—
Plan participant contributions		3.1				3.4				3.0				3.4
Benefits paid		(285.0		)		(263.1		)		(7.8		)		(12.8		)
Settlements		(10.5		)		(6.2		)		—				—
Currency translation and other		31.0				(38.3		)		(0.1		)		(0.2		)
Benefit obligation at end of year		5,026.9				4,907.3				57.0				60.7
Plan assets at beginning of year		3,753.1				3,754.8				—				—
Actual return on plan assets		266.0				263.6				—				—
Company contributions		84.1				30.9				4.8				9.4
Plan participant contributions		3.1				3.4				3.0				3.4
Benefits paid		(285.0		)		(263.1		)		(7.8		)		(12.8		)
Settlements		(10.5		)		(6.2		)		—				—
Currency translation and other		27.2				(30.3		)		—				—
Plan assets at end of year		3,838.0				3,753.1				—				—
Funded status of plans		$	(1,188.9	)		$	(1,154.2	)		$	(57.0	)		$	(60.7	)

Net amount on balance sheet consists of:
Other assets		$	27.9			$	6.5			$	—			$	—
Compensation and benefits		(13.9		)		(12.7		)		(5.8		)		(7.3		)
Retirement benefits		(1,202.9		)		(1,148.0		)		(51.2		)		(53.4		)
Net amount on balance sheet		$	(1,188.9	)		$	(1,154.2	)		$	(57.0	)		$	(60.7	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The actuarial losses recorded in 2020 were primarily the result of a decrease in the discount rate for U.S. Plans, which decreased from 3.30% in 2019 to 2.90% in 2020. The actuarial losses recorded in 2019 were primarily the result of a decrease in the discount rate for U.S. Plans, which decreased from 4.35% in 2018 to 3.30% in 2019. Approximately 76 percent of our 2020 global projected benefit obligation relates to our U.S. pension plan.

Amounts included in accumulated other comprehensive loss, net of tax, which have not yet been recognized in net periodic benefit cost are as follows (in millions):

		Pension Benefits								Other Postretirement Benefits
		2020				2019				2020				2019
Prior service cost (credit)		$	3.3			$	2.7			$	—			$	(4.1	)
Net actuarial loss		1,262.1				1,127.7				5.8				7.4
Total		$	1,265.4			$	1,130.4			$	5.8			$	3.3

During 2020, we recognized prior service credits of $4.5 million ($3.5 million net of tax) and net actuarial losses of $148.7 million ($113.0 million net of tax) in pension and other postretirement net periodic benefit cost, which were included in accumulated other comprehensive loss at September 30, 2019.

The accumulated benefit obligation for our pension plans was $4,638.1 million and $4,548.8 million at September 30, 2020 and 2019, respectively.

Information regarding our pension plans with projected benefit obligations in excess of the fair value of plan assets (underfunded plans) are as follows (in millions):

		2020				2019
Projected benefit obligation		$	4,482.0			$	4,607.4
Fair value of plan assets		3,265.2				3,446.7

Information regarding our pension plans with accumulated benefit obligations in excess of the fair value of plan assets (underfunded plans) are as follows (in millions):

		2020				2019
Accumulated benefit obligation		$	4,113.4			$	4,019.7
Fair value of plan assets		3,265.2				3,205.2

Significant assumptions used in determining the benefit obligations are (in weighted averages):

		Pension Benefits						Other Postretirement Benefits
		2020			2019			2020			2019
U.S. Plans
Discount rate		2.90	%		3.30	%		2.15	%		2.90	%
Compensation increase rate		3.40	%		3.40	%		—			—
Health care cost trend rate(1)		—			—			6.25	%		6.50	%
Non-U.S. Plans
Discount rate		1.56	%		1.60	%		2.20	%		2.65	%
Compensation increase rate		2.90	%		3.06	%		—			—
Health care cost trend rate(1)		—			—			4.50	%		4.50	%

(1)

The health care cost trend rate reflects the estimated increase in gross medical claims costs. As a result of the plan amendment adopted effective October 1, 2002, our effective per person retiree medical cost increase is zero percent beginning in 2005 for the majority of our postretirement benefit plans. For our other plans, we assume the gross health care cost trend rate will decrease to 5.00% in 2022 for U.S. Plans and will not change in 2021 for Non-U.S. Plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Estimated Future Payments

We expect to contribute $83.8 million related to our global pension plans and $5.8 million to our postretirement benefit plans in 2021.

The following benefit payments, which include employees’ expected future service, as applicable, are expected to be paid (in millions):

		Pension Benefits				Other Postretirement Benefits
2021		$	335.2			$	5.8
2022		324.6				5.7
2023		301.1				5.4
2024		302.3				5.1
2025		302.3				4.7
2026-2030		1,468.0				18.9

Plan Assets

In determining the expected long-term rate of return on assets assumption, we consider actual returns on plan assets over the long term, adjusted for forward-looking considerations, such as inflation, interest rates, equity performance and the active management of the plan’s invested assets. We also considered our current and expected mix of plan assets in setting this assumption. This resulted in the selection of the weighted average long-term rate of return on assets assumption. Our global weighted-average targeted and actual asset allocations at September 30, by asset category, are:

		Allocation				Target		September 30,
Asset Category		Range				Allocations		2020		2019
Equity securities		40%	–	65%		54%		50%		49%
Debt securities		30%	–	50%		38%		43%		44%
Other		0%	–	15%		7%		7%		7%

The investment objective for pension funds related to our defined benefit plans is to meet the plan’s benefit obligations, while maximizing the long-term growth of assets without undue risk. We strive to achieve this objective by investing plan assets within target allocation ranges and diversification within asset categories. Target allocation ranges are guidelines that are adjusted periodically based on ongoing monitoring by plan fiduciaries. Investment risk is controlled by rebalancing to target allocations on a periodic basis and ongoing monitoring of investment manager performance relative to the investment guidelines established for each manager.

As of September 30, 2020 and 2019, our pension plans do not directly own our common stock.

In certain countries where we operate, there are no legal requirements or financial incentives provided to companies to pre-fund pension obligations. In these instances, we typically make benefit payments directly from cash as they become due, rather than by creating a separate pension fund.

The valuation methodologies used for our pension plans’ investments measured at fair value are described as follows. There have been no changes in the methodologies used at September 30, 2020 and 2019.

Common stock — Valued at the closing price reported on the active market on which the individual securities are traded.

Mutual funds — Valued at the net asset value (NAV) reported by the fund.

Corporate debt — Valued at either the yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Government securities — Valued at the most recent closing price on the active market on which the individual securities are traded or, absent an active market, utilizing observable inputs such as closing prices in less frequently traded markets.

Common collective trusts — Valued at the NAV as determined by the custodian of the fund. The NAV is based on the fair value of the underlying assets owned by the fund, minus its liabilities then divided by the number of units outstanding.

Private equity and alternative equity — Valued at the estimated fair value, as determined by the respective fund manager, based on the NAV of the investment units held at year end, which is subject to judgment.

Real estate funds — Consists of the real estate funds, which provide an indirect investment into a diversified and multi-sector portfolio of property assets. Publicly-traded real estate funds are valued at the most recent closing price reported on the SIX Swiss Exchange. The remainder is valued at the estimated fair value, as determined by the respective fund manager, based on the NAV of the investment units held at year end, which is subject to judgment.

Insurance contracts — Valued at the aggregate amount of accumulated contribution and investment income less amounts used to make benefit payments and administrative expenses which approximates fair value.

Other — Consists of other fixed income investments and common collective trusts with a mix of equity and fixed income underlying assets. Other fixed income investments are valued at the most recent closing price reported in the markets in which the individual securities are traded, which may be infrequently.

Refer to Note 1 for further information regarding levels in the fair value hierarchy.

In accordance with ASC Subtopic 820-10, certain investments that are measured at fair value using the NAV (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents our pension plans’ investments measured at fair value as of September 30, 2020:

		Level 1				Level 2				Level 3				Total
U.S. Plans
Cash and cash equivalents		$	1.4			$	—			$	—			$	1.4
Equity securities:
Mutual funds		112.4				—				—				112.4
Common stock		947.7				—				—				947.7
Common collective trusts		—				467.4				—				467.4
Fixed income securities:
Corporate debt		—				699.3				—				699.3
Government securities		244.7				133.1				—				377.8
Common collective trusts		—				169.0				—				169.0
Other types of investments:
Insurance contracts		—				—				0.9				0.9
Total U.S. Plans investments in fair value hierarchy		$	1,306.2			$	1,468.8			$	0.9			2,775.9
U.S. Plans investments measured at NAV:
Private equity														23.5
Alternative equity														18.4
Total U.S. Plans investments														2,817.8
Non-U.S. Plans
Cash and cash equivalents		$	1.9			$	—			$	—			1.9
Equity securities:
Common stock		62.4				—				—				62.4
Common collective trusts		—				329.3				—				329.3
Fixed income securities:
Corporate debt		—				65.6				—				65.6
Government securities		1.1				—				—				1.1
Common collective trusts		—				350.9				—				350.9
Other types of investments:
Real estate funds		—				78.9				—				78.9
Insurance contracts		—				—				110.2				110.2
Other		—				—				4.6				4.6
Total Non-U.S. Plans investments in fair value hierarchy		$	65.4			$	824.7			$	114.8			1,004.9
Non-U.S. Plans investments measured at NAV:
Real estate funds														15.3
Total Non-U.S. Plans investments														1,020.2
Total investments measured at fair value														$	3,838.0

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents our pension plans’ investments measured at fair value as of September 30, 2019:

		Level 1				Level 2				Level 3				Total
U.S. Plans
Cash and cash equivalents		$	2.6			$	—			$	—			$	2.6
Equity securities:
Mutual funds		129.7				—				—				129.7
Common stock		919.7				—				—				919.7
Common collective trusts		—				419.0				—				419.0
Fixed income securities:
Corporate debt		—				698.7				—				698.7
Government securities		285.1				130.0				—				415.1
Common collective trusts		—				138.4				—				138.4
Other types of investments:
Insurance contracts		—				—				0.9				0.9
Total U.S. Plans investments in fair value hierarchy		$	1,337.1			$	1,386.1			$	0.9			2,724.1
U.S. Plans investments measured at NAV:
Private equity														31.6
Alternative equity														25.6
Total U.S. Plans investments														2,781.3
Non-U.S. Plans
Cash and cash equivalents		$	16.6			$	—			$	—			16.6
Equity securities:
Common stock		63.4				—				—				63.4
Common collective trusts		—				304.5				—				304.5
Fixed income securities:
Corporate debt		—				61.2				—				61.2
Government securities		1.3				—				—				1.3
Common collective trusts		—				329.7				—				329.7
Other types of investments:
Real estate funds		—				85.1				—				85.1
Insurance contracts		—				—				95.4				95.4
Other		—				—				4.5				4.5
Total Non-U.S. Plans investments in fair value hierarchy		$	81.3			$	780.5			$	99.9			961.7
Non-U.S. Plans investments measured at NAV:
Real estate funds														10.1
Total Non-U.S. Plans investments														971.8
Total investments measured at fair value														$	3,753.1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below sets forth a summary of changes in fair market value of our pension plans’ Level 3 assets for the year ended September 30, 2020:

		Balance October 1, 2019				Realized Gains (Losses)				Unrealized Gains (Losses)				Purchases, Sales, Issuances, and Settlements, Net				Balance September 30, 2020
U.S. Plans
Insurance contracts		$	0.9			$	—			$	—			$	—			$	0.9
Non-U.S. Plans
Insurance contracts		95.4				—				13.0				1.8				110.2
Other		4.5				—				0.1				—				4.6
		$	100.8			$	—			$	13.1			$	1.8			$	115.7

The table below sets forth a summary of changes in fair market value of our pension plans’ Level 3 assets for the year ended September 30, 2019:

		Balance October 1, 2018				Realized Gains (Losses)				Unrealized Gains (Losses)				Purchases, Sales, Issuances, and Settlements, Net				Balance September 30, 2019
U.S. Plans
Insurance contracts		$	0.9			$	—			$	—			$	—			$	0.9
Non-U.S. Plans
Insurance contracts		79.1				—				14.3				2.0				95.4
Other		4.6				—				(0.1		)		—				4.5
		$	84.6			$	—			$	14.2			$	2.0			$	100.8

15. Other (Expense) Income

The components of other (expense) income are (in millions):

		2020				2019				2018
Interest income		$	5.5			$	11.1			$	24.4
Royalty income		8.9				10.2				9.7
Legacy product liability and environmental (charges) benefit		(14.5		)		(22.1		)		2.6
Non-operating pension and postretirement benefit (cost) credit		(37.4		)		8.4				(23.8		)
Other		7.8				(1.5		)		3.9
Other (expense) income		$	(29.7	)		$	6.1			$	16.8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Income Taxes

Selected income tax data (in millions):

		2020				2019				2018
Components of income before income taxes:
United States		$	556.2			$	280.8			$	721.6
Non-United States		579.9				620.2				609.2
Total		$	1,136.1			$	901.0			$	1,330.8

Components of the income tax provision:
Current:
United States		$	68.1			$	105.6			$	475.3
Non-United States		96.6				112.1				131.4
State and local		13.9				16.5				18.1
Total current		178.6				234.2				624.8
Deferred:
United States		(32.8		)		(27.0		)		118.6
Non-United States		(24.7		)		(0.1		)		48.0
State and local		(8.2		)		(1.9		)		3.9
Total deferred		(65.7		)		(29.0		)		170.5
Income tax provision		$	112.9			$	205.2			$	795.3
Total income taxes paid		$	187.9			$	293.3			$	222.9

Effective Tax Rate Reconciliation

The reconciliation between the U.S. federal statutory rate and our effective tax rate was:

		2020			2019			2018
Statutory tax rate		21.0	%		21.0	%		24.5	%
State and local income taxes		0.8			0.1			1.0
Non-United States taxes		(5.2	)		(4.8	)		(4.4	)
Repatriation of foreign earnings		1.3			2.8			4.2
Foreign-derived intangible income		(1.0	)		(1.6	)		—
Impact of the Tax Act		—			—			36.6
Sensia formation		(1.1	)		—			—
Change in valuation allowance(a)		(2.7	)		7.6			0.7
Share-based compensation		(1.9	)		(0.9	)		(1.3	)
Research and development tax credit		(1.1	)		(1.2	)		(1.3	)
Other		(0.2	)		(0.2	)		(0.2	)
Effective income tax rate		9.9	%		22.8	%		59.8	%

(a) During fiscal year 2020, we reversed a portion of our valuation allowance against deferred tax assets associated with the change in fair value of the PTC Shares. This resulted in a decrease to the effective tax rate of 2.7% and a corresponding valuation allowance of $30.1 million, as described further in the table below.

We operate in certain non-U.S. tax jurisdictions under government-sponsored tax incentive programs. The program which generates the primary benefit has been extended, conditional upon meeting certain additional requirements, to 2032. The tax benefit attributable to these programs was $59.1 million ($0.51 per diluted share) in 2020, $55.1 million ($0.46 per diluted share) in 2019 and $52.3 million ($0.41 per diluted share) in 2018.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred Taxes

The tax effects of temporary differences that give rise to our net deferred income tax assets (liabilities) were (in millions):

		2020				2019
Deferred income tax assets:
Compensation and benefits		$	6.0			$	6.0
Inventory		10.5				11.1
Returns, rebates and incentives		34.5				29.8
Retirement benefits		306.8				298.5
Environmental remediation and other site-related costs		23.8				26.2
Share-based compensation		18.6				21.6
Other accruals and reserves		68.4				46.9
Investments		31.6				69.6
Net operating loss carryforwards		31.1				18.5
Tax credit carryforwards		17.3				16.5
Capital loss carryforwards		10.8				9.5
Other		16.8				10.7
Subtotal		576.2				564.9
Valuation allowance		(58.0		)		(93.8		)
Net deferred income tax assets		518.2				471.1
Deferred income tax liabilities:
Property		(48.0		)		(55.8		)
Intangible assets		(25.3		)		(24.4		)
Unremitted earnings of foreign subsidiaries		(28.3		)		(25.5		)
Other		(1.0		)		(1.3		)
Deferred income tax liabilities		(102.6		)		(107.0		)
Total net deferred income tax assets		$	415.6			$	364.1

We believe it is more likely than not that we will realize our deferred tax assets through the reduction of future taxable income, other than for the deferred tax assets reflected below.

Tax attributes and related valuation allowances at September 30, 2020 were (in millions):

Tax attributes and related valuation allowances		Tax Benefit Amount				Valuation Allowance				Carryforward Period Ends
Non-United States net operating loss carryforward		$	19.0			$	5.8			2021	-	2030
Non-United States net operating loss carryforward		4.9				4.0				Indefinite
Non-United States capital loss carryforward		10.8				10.8				Indefinite
United States credit carryforward		1.1				1.1				2021		2030
United States net operating loss carryforward		0.3				—				2021	-	2036
State and local net operating loss carryforward		6.9				1.4				2021	-	2038
State tax credit carryforward		16.2				0.7				2021	-	2035
Subtotal		59.2				23.8
Other deferred tax assets		34.2				34.2				Indefinite
Total		$	93.4			$	58.0

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unrecognized Tax Benefits

A reconciliation of our gross unrecognized tax benefits, excluding interest and penalties, is as follows (in millions):

		2020				2019				2018
Gross unrecognized tax benefits balance at beginning of year		$	19.9			$	20.1			$	31.1
Additions based on tax positions related to the current year		—				—				—
Additions based on tax positions related to prior years		5.6				—				3.0
Reductions based on tax positions related to prior years		—				—				(1.1		)
Reductions related to settlements with taxing authorities		—				—				(11.3		)
Reductions related to lapses of statute of limitations		—				(0.2		)		(1.6		)
Effect of foreign currency translation		—				—				—
Gross unrecognized tax benefits balance at end of year		$	25.5			$	19.9			$	20.1

The amount of gross unrecognized tax benefits that would reduce our effective tax rate if recognized was $25.5 million, $19.9 million and $20.1 million at September 30, 2020, 2019 and 2018, respectively.

Accrued interest and penalties related to unrecognized tax benefits were $4.0 million and $3.3 million at September 30, 2020 and 2019, respectively. We recognize interest and penalties related to unrecognized tax benefits in the income tax provision. Benefits (expense) recognized were ($0.7) million, ($0.8) million and $1.5 million in 2020, 2019 and 2018, respectively.

We believe it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $24.6 million in the next 12 months as a result of the resolution of tax matters in various global jurisdictions and the lapses of statutes of limitations. If all of the unrecognized tax benefits were recognized, the net reduction to our income tax provision, including the recognition of interest and penalties and offsetting tax assets, could be up to $26.8 million.

We conduct business globally and are routinely audited by the various tax jurisdictions in which we operate. We are no longer subject to U.S. federal income tax examinations for years before 2016 and are no longer subject to state, local and non-U.S. income tax examinations for years before 2009.

Income tax liabilities of $296.0 million and $327.2 million related to the U.S. transition tax under the Tax Act that are payable greater than 12 months from September 30, 2020, and 2019, respectively, are recorded in other liabilities in the Consolidated Balance Sheet.

17. Commitments and Contingent Liabilities

Environmental Matters

Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes and other activities affecting the environment have and will continue to have an effect on our manufacturing operations. Thus far, compliance with environmental requirements and resolution of environmental claims have been accomplished without material effect on our business, financial condition or results of operations.

We have been designated as a potentially responsible party at 13 Superfund sites, excluding sites as to which our records disclose no involvement or as to which our potential liability has been finally determined and assumed by third parties. In addition, various other lawsuits, claims and proceedings have been asserted against us seeking remediation of alleged environmental impairments, principally at previously owned properties.

Based on our assessment, we believe that our expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material effect on our business, financial condition or results of operations. We cannot assess the possible effect of compliance with future requirements. Environmental remediation cost liabilities, net of related expected recoveries, were $59.2 million and $56.3 million as of September 30, 2020 and 2019, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Conditional Asset Retirement Obligations

We accrue for costs related to a legal obligation associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, development or the normal operation of the long-lived asset. The obligation to perform the asset retirement activity is not conditional even though the timing or method may be conditional. Identified conditional asset retirement obligations include asbestos abatement and remediation of soil contamination beneath current and previously divested facilities. We estimate conditional asset retirement obligations using site-specific knowledge and historical industry expertise. There have been no significant changes in liabilities incurred, liabilities settled, accretion expense or revisions in estimated cash flows for the periods ended September 30, 2020 and 2019. Conditional asset retirement obligations, net of related expected recoveries, were $22.8 million and $21.5 million as of September 30, 2020 and 2019, respectively.

Other Matters

Various other lawsuits, claims and proceedings have been or may be instituted or asserted against us relating to the conduct of our business, including those pertaining to product liability, environmental, safety and health, intellectual property, employment and contract matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, we believe the disposition of matters that are pending or have been asserted will not have a material effect on our business, financial condition or results of operations. The following outlines additional background for obligations associated with asbestos, divested businesses and intellectual property.

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, including products from divested businesses for which we have agreed to defend and indemnify claims. Currently there are a few thousand claimants in lawsuits that name us as defendants, together with hundreds of other companies. 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.

Additionally, we have maintained insurance coverage that includes indemnity and defense costs, over and above self-insured retentions, for many of these claims. We believe these arrangements will provide substantial coverage for future defense and indemnity costs for these asbestos claims throughout the remaining life of asbestos liability. The uncertainties of asbestos claim litigation make it difficult to predict accurately the ultimate outcome of asbestos claims. That uncertainty is increased by the possibility of adverse rulings or new legislation affecting asbestos claim litigation or the settlement process. Subject to these uncertainties and based on our experience defending asbestos claims, we do not believe these lawsuits will have a material effect on our business, financial condition or results of operations.

We have, from time to time, divested certain of our businesses. In connection with these divestitures, certain lawsuits, claims and proceedings may be instituted or asserted against us related to the period that we owned the businesses, either because we agreed to retain certain liabilities related to these periods or because such liabilities fall upon us by operation of law. In some instances the divested business has assumed the liabilities; however, it is possible that we might be responsible to satisfy those liabilities if the divested business is unable to do so. We do not believe these liabilities will have a material effect on our business, financial condition or results of operations.

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 hardware and software products. As of September 30, 2020, we were not aware of any material indemnification claims that were probable or reasonably possible of an unfavorable outcome. Historically, claims that have been made under the indemnification agreements have not had a material impact on our business, financial condition or results of operations; however, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our business, financial condition or results of operations in a particular period.

18. Leases

We have operating leases primarily for real estate, vehicles and equipment. Our leases have remaining lease terms from less than one year to approximately 17 years. We do not have a material amount of finance leases.

We elected the package of practical expedients permitted under the transition guidance within the new standard on accounting for leases, which allows the Company to carry forward the historical assessments of whether contracts are, or contain, leases, lease classification and initial direct costs. We also elected to not record lease ROU assets or lease liabilities for leases with an original

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

term of 12 months or less. We elected to use the remaining lease term for purposes of calculating the incremental borrowing rate upon transition.

The components of lease expense were as follows (in millions):

		2020
Operating lease expense(1)		$	104.6
Variable lease expense(2)		15.6
Total lease expense		$	120.2

(1) Operating lease expense includes short-term lease expense which was not material.

(2) Variable lease expense includes sublease income which was not material.

Rental expense accounted for under the previous accounting standard was $119.0 million in 2019 and $120.3 million in 2018.

Supplemental balance sheet information related to leases was as follows (in millions):

		2020
Weighted average remaining lease term		6.3 years
Weighted average discount rate		1.84	%

Maturities of lease liabilities as of September 30, 2020, were as follows (in millions):

2021		$	93.7
2022		78.4
2023		60.6
2024		43.0
2025		28.2
Thereafter		83.1
Total undiscounted lease payments		$	387.0
Less imputed interest		(22.6		)
Total operating lease liabilities		$	364.4

Undiscounted maturities of operating leases accounted for under the previous accounting standard as of September 30, 2019, were as follows (in millions):

2020		$	90.6
2021		72.6
2022		51.8
2023		36.7
2024		26.4
Thereafter		63.8
Total minimum lease payments		$	341.9

Supplemental cash flow information related to leases was as follows (in millions):

		2020
Cash paid for amounts included in the measurement of operating lease liabilities		$	103.6
Operating right-of-use assets obtained in exchange for lease obligations		131.2

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. Business Segment Information

Rockwell Automation, Inc. is a global leader in industrial automation and digital transformation. We connect the imaginations of people with the potential of technology to expand what is humanly possible, making the world more productive and more sustainable. We determine our operating segments based on the information used by our chief operating decision maker, our Chief Executive Officer, to allocate resources and assess performance. Based upon this information, we organize our hardware and software products, solutions and services into two operating segments: Architecture & Software and Control Products & Solutions.

Architecture & Software

The Architecture & Software operating segment contains a comprehensive portfolio of automation and information platforms, including hardware and software. This integrated portfolio is capable of controlling our customers’ industrial processes and manufacturing, as well as providing connections to enterprise business systems.

Our automation platform is multi-discipline and scalable with the ability to handle applications in discrete, batch/hybrid and continuous process, drives control, motion control, machine safety and process safety. Our products include programmable automation controllers, design, visualization and simulation software, human machine interface products, networking products, industrial computers, sensing devices, machine safety devices, motion control products, and independent cart technology products.

Our information platform includes manufacturing execution system software and analytics software that enables customers to improve operational productivity and meet regulatory requirements. This platform enables enterprise visibility, reduction of unplanned downtime, and optimization of processes.

Control Products & Solutions

The Control Products & Solutions operating segment combines a comprehensive portfolio of intelligent motor control and industrial control products, value-added solutions and a complete portfolio of professionally delivered lifecycle services. This comprehensive portfolio includes:

•	Low and medium voltage electro-mechanical and electronic motor starters and AC/DC variable frequency drives, motor control and circuit protection devices, operator devices, signaling devices, termination and protection devices, relays and timers and electrical control accessories.

•	Value-added solutions ranging from pre-configured line to load power solutions, packaged drives, motor control centers, intelligent packaged power and engineered to order automation equipment solutions.

•

Professional lifecycle services combine technology and domain expertise to help maximize customers’ automation investment and provide total lifecycle support as they design, build, sustain and optimize their automation investments. This broad portfolio includes safety, security and digital transformation consulting, global automation and information project delivery capabilities, plant network, cloud, and cybersecurity services, asset management and predictive analytics, and remote, on-site and managed support services.

Starting in fiscal 2021, we have three operating segments: Intelligent Devices, Software & Control, and Lifecycle Services. The Intelligent Devices segment includes drives, motion, safety, sensing, industrial components, and configured-to-order products. The Software & Control segment includes control and visualization software and hardware, information software, and network and security infrastructure. The Lifecycle Services segment includes consulting, professional services and solutions, connected services, and maintenance services, as well as the Sensia joint venture.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables reflect the sales and operating results of our reportable segments (in millions):

		2020				2019				2018
Sales:
Architecture & Software		$	2,832.9			$	3,021.9			$	3,050.2
Control Products & Solutions		3,496.9				3,672.9				3,615.8
Total		$	6,329.8			$	6,694.8			$	6,666.0
Segment operating earnings:
Architecture & Software		$	795.2			$	874.8			$	897.9
Control Products & Solutions		462.7				598.8				543.9
Total		1,257.9				1,473.6				1,441.8
Purchase accounting depreciation and amortization		(41.4		)		(16.6		)		(17.4		)
General corporate - net		(98.9		)		(108.8		)		(100.0		)
Non-operating pension and postretirement benefit (cost) credit		(37.4		)		8.4				(23.8		)
Costs related to unsolicited Emerson proposals		—				—				(11.2		)
Gain (loss) on investments		153.9				(402.2		)		123.7
Valuation adjustments related to the registration of PTC Shares		—				33.7				(33.7		)
Interest (expense) income - net		(98.0		)		(87.1		)		(48.6		)
Income before income taxes		$	1,136.1			$	901.0			$	1,330.8

Among other considerations, we evaluate performance and allocate resources based upon segment operating earnings before purchase accounting depreciation and amortization, costs related to corporate offices, certain corporate initiatives, costs related to the unsolicited Emerson proposals in the first quarter of fiscal 2018, non-operating pension and postretirement benefit credit (cost), gains and losses on investments, valuation adjustments related to the registration of PTC Shares, interest (expense) income - net, income taxes, and gains and losses from the disposition of businesses. 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables summarize the identifiable assets at September 30, 2020, 2019 and 2018 and the provision for depreciation and amortization and the amount of capital expenditures for property for the years then ended for each of the reportable segments and Corporate (in millions):

		2020				2019				2018
Identifiable assets:
Architecture & Software		$	1,793.6			$	1,410.5			$	1,788.9
Control Products & Solutions		2,791.0				2,114.8				2,094.9
Corporate		2,680.1				2,587.7				2,378.2
Total		$	7,264.7			$	6,113.0			$	6,262.0
Depreciation and amortization:
Architecture & Software		$	61.5			$	63.8			$	72.5
Control Products & Solutions		68.0				69.6				72.4
Corporate		1.8				2.2				2.3
Total		131.3				135.6				147.2
Purchase accounting depreciation and amortization		41.4				16.6				17.4
Total		$	172.7			$	152.2			$	164.6
Capital expenditures for property:
Architecture & Software		$	33.3			$	57.7			$	29.4
Control Products & Solutions		61.6				68.9				38.5
Corporate		19.0				6.2				57.6
Total		$	113.9			$	132.8			$	125.5

Identifiable assets at Corporate consist principally of cash, net deferred income tax assets, prepaid pension and property. Property shared by the segments and used in operating activities is also reported in Corporate identifiable assets and Corporate capital expenditures. Corporate identifiable assets include shared net property balances of $258.2 million, $244.7 million and $234.4 million at September 30, 2020, 2019 and 2018, respectively, for which depreciation expense has been allocated to segment operating earnings based on the expected benefit to be realized by each segment. Corporate capital expenditures include $19.0 million, $6.2 million and $57.6 million in 2020, 2019 and 2018, respectively, that will be shared by our operating segments.

We conduct a significant portion of our business activities outside the United States. The following tables present sales and property by geographic region (in millions):

		Sales												Property
		2020				2019				2018				2020				2019				2018
North America		$	3,760.2			$	4,014.3			$	3,964.1			$	429.4			$	443.8			$	450.2
Europe, Middle East and Africa		1,249.3				1,249.8				1,286.8				81.9				60.5				53.3
Asia Pacific		868.7				908.6				933.3				42.8				41.9				42.9
Latin America		451.6				522.1				481.8				20.3				25.7				30.4
Total		$	6,329.8			$	6,694.8			$	6,666.0			$	574.4			$	571.9			$	576.8

We attribute sales to the geographic regions based on the country of destination. Sales in North America include $3,425.1 million related to the U.S.

In most countries, we sell primarily through independent distributors in conjunction with our direct sales force. In other countries, we sell through a combination of our direct sales force and to a lesser extent, through independent distributors. We sell large systems and service offerings principally through our direct sales force, though opportunities are sometimes identified through distributors. Sales to our largest distributor in 2020, 2019 and 2018, which are attributable to both segments, were approximately 10 percent of our total sales.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20. Quarterly Financial Information (Unaudited)

		2020 Quarters
(in millions, except per share amounts)		First				Second				Third				Fourth				2020
Sales		$	1,684.5			$	1,681.3			$	1,394.0			$	1,570.0			$	6,329.8
Gross profit		702.9				698.8				554.2				639.3				2,595.2
Income before income taxes		334.6				167.4				334.5				299.6				1,136.1
Net income attributable to Rockwell Automation, Inc.		310.7				132.2				317.8				262.7				1,023.4
Earnings per share:
Basic		2.68				1.14				2.74				2.26				8.83
Diluted		2.66				1.13				2.73				2.25				8.77

		2019 Quarters
(in millions, except per share amounts)		First				Second				Third				Fourth				2019
Sales		$	1,642.3			$	1,657.2			$	1,665.1			$	1,730.2			$	6,694.8
Gross profit		738.7				708.2				730.3				722.9				2,900.1
Income before income taxes		120.8				402.4				321.4				56.4				901.0
Net income		80.3				346.0				261.4				8.1				695.8
Earnings per share:
Basic		0.67				2.91				2.22				0.07				5.88
Diluted		0.66				2.88				2.20				0.07				5.83

Note: The sum of the quarterly per share amounts will not necessarily equal the annual per share amounts presented.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareowners and the Board of Directors of

Rockwell Automation, Inc.

Milwaukee, Wisconsin

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Rockwell Automation, Inc. and subsidiaries (the “Company”) as of September 30, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, cash flows, and shareowners’ equity for each of the three years in the period ended September 30, 2020, and the related notes and the schedule listed in the Index at Item 15 (a)(2) (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO*.*

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases effective October 1, 2019, due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), using the modified retrospective approach.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisitions - Sensia Joint Venture (Valuation of Customer Relationship Assets) - Refer to Note 4 to the financial statements

Critical Audit Matter Description

In conjunction with the Sensia joint venture formation, the Company applied the acquisition method of accounting to Schlumberger's contributed businesses. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including intangible assets of $254 million, of which $189 million related to customer relationship assets. Management estimated the fair value of the customer relationships using the income approach, specifically the multi-period excess earnings method. The fair value determination of the customer relationships required management to make significant estimates and assumptions related to forecasted cash flows attributable to the existing customers, customer attrition rates, and discount rates.

Attrition rates ranging from 7.5% to 25% were used in valuing the customer relationship assets. A change in the customer attrition rate of 250 basis points would result in a change of $40 million in intangible assets.

We identified the purchase accounting valuation of customer relationships as a critical audit matter due to subjective judgment required to evaluate the significant estimates made in determining fair value, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s key assumptions and estimates related to forecasts of cash flows attributable to the existing customers, customer attrition rates and discount rates.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the fair value of customer relationship assets contributed by Schlumberger to Sensia included the following, among others:

•	We tested the effectiveness of controls over the valuation of the customer relationship intangible assets, including management’s controls over the development of key judgments including forecasts of future cash flows and customer attrition rates and discount rates.

•	We assessed the reasonableness of the forecasts of future cash flows attributable to the existing customers by comparing the projections to historical results, industry data, and certain peer companies.

•

With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology; (2) customer attrition rates by testing the mathematical accuracy of the rate used and comparing it to historical customer attrition data; and (3) discount rates, which included testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.

Goodwill Valuation - Sensia Reporting Unit - Refer to Note 3 to the financial statements

Critical Audit Matter Description

The Company performed an impairment evaluation of the goodwill for the Sensia reporting unit by comparing the estimated fair value of the reporting unit to its carrying value. In order to estimate the fair value of the reporting unit, management is required to make significant estimates and assumptions related to the discount rate and forecasts of future revenues and Earnings Before Interest Taxes Depreciation & Amortization (“EBITDA”) margins. Changes in these assumptions could have a significant impact on the fair value of the reporting unit, the amount of any goodwill impairment charge, or both. The goodwill balance was $1,650 million as of September 30, 2020, of which $314 million related to the Sensia reporting unit. The Company tests for goodwill impairment during the second quarter of each year. As of the annual measurement date, the Company determined that the fair value of the Sensia reporting unit exceeded its carrying value and therefore no impairment was recognized.

We identified the impairment evaluation of goodwill for the Sensia reporting unit as a critical audit matter because of the inherent subjectivity involved in management’s estimates and assumptions related to the discount rate and forecasts of future revenues and EBITDA margins. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rate and forecasts of future revenues and EBITDA margins required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the selection of the discount rate and forecasts of future revenues and EBITDA margins for the Sensia reporting unit included the following, among others:

•	We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the selection of the discount rate and management’s development of forecasts of future revenues and EBITDA margins.

•	We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in analyst and industry reports for the Company and its peer companies, including the impact of economic factors on Sensia’s Oil & Gas customers.

•	We evaluated the impact of changes in management’s forecasts from the annual measurement date to September 30, 2020.

•	With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate by (1) testing the source information underlying the determination of the discount rate; (2) testing the mathematical accuracy of the calculations; and (3) developing a range of independent estimates and comparing those to the discount rate selected by management.

/s/ DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin

November 10, 2020

We have served as the Company’s auditor since 1967.