filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
ROCKWELL AUTOMATION, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in millions, except per share amounts)
| June 30, 2022 | September 30, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 482.9 | $ | 662.2 | |||||||
| Receivables | 1,702.2 | 1,424.5 | |||||||||
| Inventories | 989.1 | 798.1 | |||||||||
| Other current assets | 318.1 | 178.6 | |||||||||
| Total current assets | 3,492.3 | 3,063.4 | |||||||||
| Property, net of accumulated depreciation of $1,720.4 and $1,743.6, respectively | 568.5 | 581.9 | |||||||||
| Operating lease right-of-use assets | 339.5 | 377.7 | |||||||||
| Goodwill | 3,582.2 | 3,625.9 | |||||||||
| Other intangible assets, net | 936.3 | 1,021.8 | |||||||||
| Deferred income taxes | 367.3 | 380.9 | |||||||||
| Long-term investments | 1,201.0 | 1,363.5 | |||||||||
| Other assets | 312.8 | 286.5 | |||||||||
| Total | $ | 10,799.9 | $ | 10,701.6 | |||||||
| LIABILITIES AND SHAREOWNERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ | 601.5 | $ | 509.7 | |||||||
| Accounts payable | 989.2 | 889.8 | |||||||||
| Compensation and benefits | 283.7 | 408.0 | |||||||||
| Contract liabilities | 549.5 | 462.5 | |||||||||
| Customer returns, rebates and incentives | 340.0 | 237.8 | |||||||||
| Other current liabilities | 517.3 | 484.4 | |||||||||
| Total current liabilities | 3,281.2 | 2,992.2 | |||||||||
| Long-term debt | 3,464.1 | 3,464.6 | |||||||||
| Retirement benefits | 582.8 | 720.6 | |||||||||
| Operating lease liabilities | 279.9 | 313.6 | |||||||||
| Other liabilities | 506.3 | 516.5 | |||||||||
| Commitments and contingent liabilities (Note 13) | |||||||||||
| Shareowners’ equity: | |||||||||||
| Common stock ($1.00 par value, shares issued: 181.4) | 181.4 | 181.4 | |||||||||
| Additional paid-in capital | 1,985.9 | 1,933.6 | |||||||||
| Retained earnings | 8,072.8 | 8,000.4 | |||||||||
| Accumulated other comprehensive loss | (957.5) | (1,017.1) | |||||||||
| Common stock in treasury, at cost (shares held: 66.0 and 65.4, respectively) | (6,891.4) | (6,708.7) | |||||||||
| Shareowners’ equity attributable to Rockwell Automation, Inc. | 2,391.2 | 2,389.6 | |||||||||
| Noncontrolling interests | 294.4 | 304.5 | |||||||||
| Total shareowners’ equity | 2,685.6 | 2,694.1 | |||||||||
| Total | $ | 10,799.9 | $ | 10,701.6 |
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Sales | |||||||||||||||||||||||
| Products and solutions | $ | 1,768.4 | $ | 1,664.7 | $ | 5,063.6 | $ | 4,658.0 | |||||||||||||||
| Services | 200.3 | 183.5 | 570.5 | 531.6 | |||||||||||||||||||
| 1,968.7 | 1,848.2 | 5,634.1 | 5,189.6 | ||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Products and solutions | (1,042.7) | (962.7) | (3,061.8) | (2,665.2) | |||||||||||||||||||
| Services | (123.6) | (121.1) | (356.7) | (346.1) | |||||||||||||||||||
| (1,166.3) | (1,083.8) | (3,418.5) | (3,011.3) | ||||||||||||||||||||
| Gross profit | 802.4 | 764.4 | 2,215.6 | 2,178.3 | |||||||||||||||||||
| Selling, general and administrative expenses | (442.0) | (436.9) | (1,318.0) | (1,232.8) | |||||||||||||||||||
| Change in fair value of investments | (5.2) | 43.3 | (138.3) | 624.6 | |||||||||||||||||||
| Other income (expense) (Note 11) | 19.8 | (34.9) | (1.0) | 20.1 | |||||||||||||||||||
| Interest expense | (30.8) | (22.4) | (90.5) | (68.3) | |||||||||||||||||||
| Income before income taxes | 344.2 | 313.5 | 667.8 | 1,521.9 | |||||||||||||||||||
| Income tax provision (Note 14) | (49.4) | (44.5) | (84.7) | (252.2) | |||||||||||||||||||
| Net income | 294.8 | 269.0 | 583.1 | 1,269.7 | |||||||||||||||||||
| Net loss attributable to noncontrolling interests | (3.1) | (2.3) | (10.2) | (9.9) | |||||||||||||||||||
| Net income attributable to Rockwell Automation, Inc. | $ | 297.9 | $ | 271.3 | $ | 593.3 | $ | 1,279.6 | |||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 2.56 | $ | 2.34 | $ | 5.10 | $ | 11.01 | |||||||||||||||
| Diluted | $ | 2.55 | $ | 2.32 | $ | 5.06 | $ | 10.91 | |||||||||||||||
| Weighted average outstanding shares: | |||||||||||||||||||||||
| Basic | 116.0 | 116.0 | 116.1 | 116.0 | |||||||||||||||||||
| Diluted | 116.5 | 117.0 | 116.9 | 117.1 |
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(in millions)
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income | $ | 294.8 | $ | 269.0 | $ | 583.1 | $ | 1,269.7 | |||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Pension and other postretirement benefit plan adjustments (net of tax benefit (expense) of $22.3, ($142.9), ($49.6), and ($159.6)) | (72.9) | 426.5 | 131.4 | 482.1 | |||||||||||||||||||
| Currency translation adjustments | (62.0) | 23.0 | (91.3) | 58.9 | |||||||||||||||||||
| Net change in cash flow hedges (net of tax (expense) benefit of ($4.0), ($0.4), ($7.2), and $0.6) | 10.3 | 0.8 | 19.6 | (2.4) | |||||||||||||||||||
| Other comprehensive (loss) income | (124.6) | 450.3 | 59.7 | 538.6 | |||||||||||||||||||
| Comprehensive income | 170.2 | 719.3 | 642.8 | 1,808.3 | |||||||||||||||||||
| Comprehensive loss attributable to noncontrolling interests | (3.3) | (3.0) | (10.1) | (10.5) | |||||||||||||||||||
| Comprehensive income attributable to Rockwell Automation, Inc. | $ | 173.5 | $ | 722.3 | $ | 652.9 | $ | 1,818.8 |
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in millions)
| Nine Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating activities: | |||||||||||
| Net income | $ | 583.1 | $ | 1,269.7 | |||||||
| Adjustments to arrive at cash provided by operating activities: | |||||||||||
| Depreciation | 93.6 | 90.3 | |||||||||
| Amortization of intangible assets | 84.6 | 45.4 | |||||||||
| Change in fair value of investments | 138.3 | (624.6) | |||||||||
| Share-based compensation expense | 48.8 | 37.9 | |||||||||
| Retirement benefit expense | 61.7 | 117.8 | |||||||||
| Pension contributions | (23.1) | (26.7) | |||||||||
| Net loss on disposition of property | 0.4 | 0.6 | |||||||||
| Changes in assets and liabilities, excluding effects of acquisitions and foreign currency adjustments: | |||||||||||
| Receivables | (326.1) | (143.7) | |||||||||
| Inventories | (206.2) | (133.3) | |||||||||
| Accounts payable | 118.5 | 194.1 | |||||||||
| Contract liabilities | 96.8 | 81.0 | |||||||||
| Compensation and benefits | (114.9) | 141.6 | |||||||||
| Income taxes | (202.6) | (8.9) | |||||||||
| Other assets and liabilities | 70.8 | 15.7 | |||||||||
| Cash provided by operating activities | 423.7 | 1,056.9 | |||||||||
| Investing activities: | |||||||||||
| Capital expenditures | (100.3) | (76.6) | |||||||||
| Acquisition of businesses, net of cash acquired | (16.5) | (283.0) | |||||||||
| Purchases of investments | (48.5) | (9.1) | |||||||||
| Proceeds from sale of investments | 66.0 | — | |||||||||
| Other investing activities | 0.1 | (3.5) | |||||||||
| Cash used for investing activities | (99.2) | (372.2) | |||||||||
| Financing activities: | |||||||||||
| Net issuance of short-term debt | 301.8 | — | |||||||||
| Repayment of short-term debt | (210.0) | — | |||||||||
| Cash dividends | (390.4) | (372.9) | |||||||||
| Purchases of treasury stock | (218.5) | (238.5) | |||||||||
| Proceeds from the exercise of stock options | 46.1 | 122.7 | |||||||||
| Other financing activities | (7.5) | (14.1) | |||||||||
| Cash used for financing activities | (478.5) | (502.8) | |||||||||
| Effect of exchange rate changes on cash | (25.3) | 27.3 | |||||||||
| (Decrease) increase in cash, cash equivalents, and restricted cash | (179.3) | 209.2 | |||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 679.4 | 730.4 | |||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 500.1 | $ | 939.6 | |||||||
| Components of cash, cash equivalents, and restricted cash: | |||||||||||
| Cash and cash equivalents | $ | 482.9 | $ | 913.8 | |||||||
| Restricted cash, current (Other current assets) | 8.6 | 6.9 | |||||||||
| Restricted cash, noncurrent (Other assets) | 8.6 | 18.9 | |||||||||
| Total cash, cash equivalents, and restricted cash | $ | 500.1 | $ | 939.6 |
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF SHAREOWNERS’ EQUITY
(Unaudited)
(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 March 31, 2022 | $ | 181.4 | $ | 1,967.3 | $ | 8,035.1 | $ | (833.1) | $ | (6,718.5) | $ | 2,632.2 | $ | 297.7 | $ | 2,929.9 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | 297.9 | — | — | 297.9 | (3.1) | 294.8 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (124.4) | — | (124.4) | (0.2) | (124.6) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued (including share-based compensation impact) | — | 18.6 | — | — | 3.2 | 21.8 | — | 21.8 | ||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | (176.1) | (176.1) | — | (176.1) | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared (1) | — | — | (260.2) | — | — | (260.2) | — | (260.2) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | 181.4 | $ | 1,985.9 | $ | 8,072.8 | $ | (957.5) | $ | (6,891.4) | $ | 2,391.2 | $ | 294.4 | $ | 2,685.6 |
| 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 March 31, 2021 | $ | 181.4 | $ | 1,887.4 | $ | 7,899.3 | $ | (1,526.0) | $ | (6,624.9) | $ | 1,817.2 | $ | 311.5 | $ | 2,128.7 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | 271.3 | — | — | 271.3 | (2.3) | 269.0 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | 451.0 | — | 451.0 | (0.7) | 450.3 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued (including share-based compensation impact) | — | 22.2 | — | — | 17.8 | 40.0 | — | 40.0 | ||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | (60.6) | (60.6) | — | (60.6) | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared (1) | — | — | (248.7) | — | — | (248.7) | — | (248.7) | ||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | (0.6) | — | — | — | (0.6) | — | (0.6) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | 181.4 | $ | 1,909.0 | $ | 7,921.9 | $ | (1,075.0) | $ | (6,667.7) | $ | 2,269.6 | $ | 308.5 | $ | 2,578.1 |
(1) Cash dividends were $2.24 per share and $2.14 per share in the three months ended June 30, 2022 and 2021, respectively.
| 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, 2021 | $ | 181.4 | $ | 1,933.6 | $ | 8,000.4 | $ | (1,017.1) | $ | (6,708.7) | $ | 2,389.6 | $ | 304.5 | $ | 2,694.1 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | 593.3 | — | — | 593.3 | (10.2) | 583.1 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 59.6 | — | 59.6 | 0.1 | 59.7 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued (including share-based compensation impact) | — | 52.3 | — | — | 42.8 | 95.1 | — | 95.1 | ||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | (225.5) | (225.5) | — | (225.5) | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared (1) | — | — | (520.9) | — | — | (520.9) | — | (520.9) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | 181.4 | $ | 1,985.9 | $ | 8,072.8 | $ | (957.5) | $ | (6,891.4) | $ | 2,391.2 | $ | 294.4 | $ | 2,685.6 |
| 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, 2020 | $ | 181.4 | $ | 1,830.7 | $ | 7,139.8 | $ | (1,614.2) | $ | (6,509.9) | $ | 1,027.8 | $ | 319.0 | $ | 1,346.8 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | 1,279.6 | — | — | 1,279.6 | (9.9) | 1,269.7 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | 539.2 | — | 539.2 | (0.6) | 538.6 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued (including share-based compensation impact) | — | 78.9 | — | — | 82.5 | 161.4 | — | 161.4 | ||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | (240.3) | (240.3) | — | (240.3) | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared (1) | — | — | (497.5) | — | — | (497.5) | — | (497.5) | ||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | (0.6) | — | — | — | (0.6) | — | (0.6) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | 181.4 | $ | 1,909.0 | $ | 7,921.9 | $ | (1,075.0) | $ | (6,667.7) | $ | 2,269.6 | $ | 308.5 | $ | 2,578.1 |
(1) Cash dividends were $4.48 per share and $4.28 per share in the nine months ended June 30, 2022 and 2021, respectively.
See Notes to Consolidated Financial Statements.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Accounting Policies
In the opinion of management of Rockwell Automation, Inc. ("Rockwell Automation" or "the Company"), the unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly the financial position, results of operations, and cash flows for the periods presented and, except as otherwise indicated, such adjustments consist only of those of a normal, recurring nature. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. The results of operations for the three and nine months ended June 30, 2022, are not necessarily indicative of the results for the full year. All date references to years and quarters herein refer to our fiscal year and fiscal quarter, unless otherwise stated.
Receivables
We record an allowance for doubtful accounts based on customer-specific analysis and general matters such as current assessments of past due balances and economic conditions. Receivables are stated net of an allowance for doubtful accounts of $15.9 million at June 30, 2022, and $13.2 million at September 30, 2021. In addition, receivables are recorded net of an allowance for certain customer returns, rebates, and incentives of $11.9 million at June 30, 2022, and $6.7 million at September 30, 2021. The changes to our allowance for doubtful accounts during the three and nine months ended June 30, 2022, were not material and primarily consisted of current-period provisions, write-offs charged against the allowance, recoveries collected, and foreign currency translation.
Earnings Per Share
The following table reconciles basic and diluted earnings per share (EPS) amounts (in millions, except per share amounts):
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income attributable to Rockwell Automation, Inc. | $ | 297.9 | $ | 271.3 | $ | 593.3 | $ | 1,279.6 | |||||||||||||||
| Less: Allocation to participating securities | (1.0) | (0.4) | (1.9) | (2.1) | |||||||||||||||||||
| Net income available to common shareowners | $ | 296.9 | $ | 270.9 | $ | 591.4 | $ | 1,277.5 | |||||||||||||||
| Basic weighted average outstanding shares | 116.0 | 116.0 | 116.1 | 116.0 | |||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
| Stock options | 0.5 | 0.9 | 0.8 | 1.0 | |||||||||||||||||||
| Performance shares | — | 0.1 | — | 0.1 | |||||||||||||||||||
| Diluted weighted average outstanding shares | 116.5 | 117.0 | 116.9 | 117.1 | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 2.56 | $ | 2.34 | $ | 5.10 | $ | 11.01 | |||||||||||||||
| Diluted | $ | 2.55 | $ | 2.32 | $ | 5.06 | $ | 10.91 |
For the three and nine months ended June 30, 2022, there were 0.6 million and 0.4 million shares, respectively, related to share-based compensation awards that were excluded from the diluted EPS calculation because they were antidilutive. For each of the three and nine months ended June 30, 2021, there were 0.2 million shares related to share-based compensation awards that were excluded from the diluted EPS calculation because they were antidilutive.
Non-Cash Investing and Financing Activities
Capital expenditures of $15.5 million and $18.0 million were accrued within Accounts payable and Other current liabilities at June 30, 2022 and 2021, respectively. At June 30, 2022 and 2021, respectively, there were $8.8 million and $1.8 million of outstanding common stock share repurchases recorded in Accounts payable that did not settle until the next fiscal quarter. These non-cash investing and financing activities have been excluded from cash used for capital expenditures and treasury stock purchases in the Consolidated Statement of Cash Flows.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued a new standard that requires companies to utilize a current expected credit losses impairment (CECL) model for certain financial assets, including trade and other receivables. The CECL model requires that estimated expected credit losses, including allowance for doubtful accounts, consider a broader range of information such as economic conditions and expected changes in market conditions. We adopted the new standard as of October 1, 2020. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.
In October 2021, the FASB issued a new standard that requires companies to apply ASC 606 to recognize and measure contract assets and contract liabilities in a business combination. We retroactively adopted the new standard as of October 1, 2021. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.
2. Revenue Recognition
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, software, and configured-to-order products. Our solutions include custom-engineered systems and software. 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 Intelligent Devices segment, Software & Control segment, and Lifecycle Services segment. Revenue from the Intelligent Devices and Software & Control segments is predominantly comprised of product sales, which are recognized at a point in time. The Software & Control segment also contains revenue from software products, which may be recognized over time if certain criteria are met. Revenue from the Lifecycle Services segment is predominantly comprised of solutions and services, which are primarily recognized over time. See Note 15 for more information.
Unfulfilled Performance Obligations
As of June 30, 2022, we expect to recognize approximately $1,080 million of revenue in future periods from unfulfilled performance obligations from existing contracts with customers. We expect to recognize revenue of approximately $540 million from 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 June 30, 2022.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Disaggregation of Revenue
The following tables present our revenue disaggregation by geographic region for our three operating segments (in millions). We attribute sales to the geographic regions based on the country of destination.
| Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Intelligent Devices | Software & Control | Lifecycle Services | Total | Intelligent Devices | Software & Control | Lifecycle Services | Total | ||||||||||||||||||||||||||||||||||||||||
| North America | $ | 549.6 | $ | 437.8 | $ | 252.5 | $ | 1,239.9 | $ | 548.5 | $ | 302.9 | $ | 235.3 | $ | 1,086.7 | |||||||||||||||||||||||||||||||
| Europe, Middle East and Africa | 162.5 | 72.3 | 117.8 | 352.6 | 162.8 | 103.3 | 111.2 | 377.3 | |||||||||||||||||||||||||||||||||||||||
| Asia Pacific | 106.4 | 61.3 | 79.1 | 246.8 | 118.1 | 74.4 | 82.3 | 274.8 | |||||||||||||||||||||||||||||||||||||||
| Latin America | 59.8 | 35.5 | 34.1 | 129.4 | 53.5 | 29.0 | 26.9 | 109.4 | |||||||||||||||||||||||||||||||||||||||
| Total Company Sales | $ | 878.3 | $ | 606.9 | $ | 483.5 | $ | 1,968.7 | $ | 882.9 | $ | 509.6 | $ | 455.7 | $ | 1,848.2 |
| Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Intelligent Devices | Software & Control | Lifecycle Services | Total | Intelligent Devices | Software & Control | Lifecycle Services | Total | ||||||||||||||||||||||||||||||||||||||||
| North America | $ | 1,604.4 | $ | 1,104.9 | $ | 702.9 | $ | 3,412.2 | $ | 1,536.7 | $ | 878.5 | $ | 649.5 | $ | 3,064.7 | |||||||||||||||||||||||||||||||
| Europe, Middle East and Africa | 467.7 | 246.1 | 342.4 | 1,056.2 | 445.1 | 286.2 | 321.5 | 1,052.8 | |||||||||||||||||||||||||||||||||||||||
| Asia Pacific | 334.3 | 213.1 | 244.5 | 791.9 | 316.6 | 204.0 | 223.0 | 743.6 | |||||||||||||||||||||||||||||||||||||||
| Latin America | 180.8 | 91.6 | 101.4 | 373.8 | 156.4 | 84.2 | 87.9 | 328.5 | |||||||||||||||||||||||||||||||||||||||
| Total Company Sales | $ | 2,587.2 | $ | 1,655.7 | $ | 1,391.2 | $ | 5,634.1 | $ | 2,454.8 | $ | 1,452.9 | $ | 1,281.9 | $ | 5,189.6 |
Contract Balances
Contract liabilities primarily relate to consideration received in advance of performance under the contract. Contract assets primarily relate to performance under the contract prior to the consideration being received or due. We do not have significant contract assets as of June 30, 2022.
Below is a summary of our Contract liabilities balance (in millions):
| June 30, 2022 | June 30, 2021 | ||||||||||
| Balance as of beginning of fiscal year | $ | 462.5 | $ | 325.3 | |||||||
| Balance as of end of period | 549.5 | 413.2 |
The most significant changes in our Contract liabilities balance during the nine months ended June 30, 2022, were due to amounts billed, partially offset by revenue recognized on amounts billed during the period and revenue recognized that was included in the Contract liabilities balance at the beginning of the period. The most significant changes in our Contract liabilities balance during the nine months ended June 30, 2021, 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 nine months ended June 30, 2022, we recognized revenue of approximately $296.8 million that was included in the Contract liabilities balance at September 30, 2021. In the nine months ended June 30, 2021, we recognized revenue of approximately $217.6 million that was included in the Contract liabilities balance at September 30, 2020. We did not have a material amount of revenue recognized in the nine months ended June 30, 2022 and 2021, from performance obligations satisfied or partially satisfied in previous periods.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Share-Based Compensation
We recognized $17.6 million and $48.8 million of pre-tax share-based compensation expense during the three and nine months ended June 30, 2022, respectively. We recognized $13.5 million and $37.9 million of pre-tax share-based compensation expense during the three and nine months ended June 30, 2021, respectively. Our annual grant of share-based compensation takes place during the first quarter of each fiscal year. The number of shares granted to employees and non-employee directors and the weighted average fair value per share during the periods presented were (in thousands, except per share amounts):
| Nine Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Grants | Wtd. Avg. Share Fair Value | Grants | Wtd. Avg. Share Fair Value | ||||||||||||||||||||
| Stock options | 164 | $ | 87.68 | 196 | $ | 55.50 | |||||||||||||||||
| Performance shares | 37 | 481.28 | 44 | 298.10 | |||||||||||||||||||
| Restricted stock and restricted stock units | 214 | 307.31 | 181 | 248.16 | |||||||||||||||||||
| Unrestricted stock | 3 | 345.00 | 6 | 228.80 |
4. Inventories
Inventories consist of (in millions):
| June 30, 2022 | September 30, 2021 | ||||||||||
| Finished goods | $ | 301.9 | $ | 287.0 | |||||||
| Work in process | 312.9 | 229.3 | |||||||||
| Raw materials | 374.3 | 281.8 | |||||||||
| Inventories | $ | 989.1 | $ | 798.1 |
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Acquisitions
Fiscal 2022 Acquisitions
In November 2021, we acquired AVATA, a services provider for supply chain management, enterprise resource planning, and enterprise performance management solutions. We assigned the full amount of goodwill related to this acquisition to our Lifecycle Services segment.
In March 2022, we, through our Sensia affiliate, acquired Swinton Technology, a provider of metering supervisory systems and measurement expertise in the Oil & Gas industry. We assigned the full amount of goodwill related to this acquisition to our Lifecycle Services segment.
Fiscal 2021 Acquisitions
Plex acquisition
In August 2021, we acquired Plex Systems, a cloud-native smart manufacturing platform. Plex offers a single-instance, multi-tenant Software-as-a-Service manufacturing platform operating at scale, including advanced manufacturing execution systems, quality, and supply chain management capabilities.
We recorded assets acquired and liabilities assumed in connection with this acquisition based on their estimated fair values as of the acquisition date of August 31, 2021. The preliminary aggregate purchase price allocation is as follows (in millions):
| Purchase Price Allocation | ||||||||
| Accounts receivable | $ | 14.8 | ||||||
| All other assets | 28.4 | |||||||
| Goodwill | 1,728.2 | |||||||
| Intangible assets | 531.4 | |||||||
| Total assets acquired | 2,302.8 | |||||||
| Less: Contract liabilities | (29.2) | |||||||
| Less: Other liabilities assumed | (32.8) | |||||||
| Less: Deferred income taxes | (35.3) | |||||||
| Net assets acquired, excluding cash | $ | 2,205.5 | ||||||
| Purchase Consideration | ||||||||
| Total purchase consideration, net of cash acquired | $ | 2,205.5 |
Intangible assets identified include $276.4 million of customer relationships, $232.8 million of technology, and $22.2 million of trade names (approximately 12-year weighted average useful life). We assigned the full amount of goodwill and all other assets acquired to our Software & Control segment. The goodwill recorded represents intangible assets that do not qualify for separate recognition. This goodwill arises because the purchase price for Plex reflects a number of factors including the future earnings and cash flow potential of the business, the strategic fit and resulting synergies from the complementary portfolio of leading software-as-a-service applications, industry expertise, and market access. We do not expect the goodwill to be deductible for tax purposes. The intangible 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. The key assumption requiring the use of judgement in the valuation of the customer relationship intangible asset was the customer attrition rate of 5 percent; other assumptions included forecasted cash flows attributable to the existing customers and the discount rate. The key assumptions requiring the use of judgement in the valuation of the technology intangible asset were the royalty rate of 25 percent and the obsolescence factor estimating a phase out over 10 years; other assumptions included forecasted revenue growth rates and the discount rate.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The allocation of the purchase price to identifiable assets above is 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 date 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.
Other acquisitions
In October 2020, we acquired Oylo, a privately held industrial cybersecurity services provider based in Barcelona, Spain. We assigned the full amount of goodwill related to this acquisition to our Lifecycle Services segment.
In December 2020, we acquired Fiix Inc., a privately held, artificial intelligence enabled computerized maintenance management system (CMMS) company based in Toronto, Ontario, Canada. We assigned the full amount of goodwill related to this acquisition to our Software & Control 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 aggregate purchase price allocation for these acquisitions is as follows (in millions):
| Purchase Price Allocation | ||||||||
| Accounts receivable | $ | 6.0 | ||||||
| All other assets | 15.9 | |||||||
| Goodwill | 224.8 | |||||||
| Intangible assets | 69.6 | |||||||
| Total assets acquired | 316.3 | |||||||
| Less: Liabilities assumed | (25.5) | |||||||
| Less: Deferred income taxes | (3.7) | |||||||
| Net assets acquired, excluding cash | $ | 287.1 | ||||||
| Purchase Consideration | ||||||||
| Total purchase consideration, net of cash acquired | $ | 287.1 |
Intangible assets identified include $69.6 million of customer relationships, technology, and trade names (approximately 11-year weighted average useful life). We assigned $12.8 million of goodwill to our Lifecycle Services segment and $212.0 million of goodwill to our Software & Control segment, which represents intangible assets that do not qualify for separate recognition. We do not expect the goodwill to be deductible for tax purposes.
Total sales from the fiscal 2021 acquisitions and acquisition-related costs recognized in the three and nine months ended June 30, 2021, were not material. Pro forma consolidated sales for the three and nine months ended June 30, 2021, were approximately $1.9 billion and $5.3 billion, respectively, and the impact on earnings is not material. The preceding pro forma consolidated financial results of operations are as if all of preceding fiscal 2021 acquisitions occurred on October 1, 2020. 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.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
6. Goodwill and Other Intangible Assets
Changes in the carrying amount of Goodwill for the nine months ended June 30, 2022, were (in millions):
| Intelligent Devices | Software & Control | Lifecycle Services | Total | ||||||||||||||||||||
| Balance as of September 30, 2021 | $ | 543.1 | $ | 2,447.5 | $ | 635.3 | $ | 3,625.9 | |||||||||||||||
| Acquisition of businesses | — | — | 11.9 | 11.9 | |||||||||||||||||||
| Translation and other | (19.8) | (23.4) | (12.4) | (55.6) | |||||||||||||||||||
| Balance as of June 30, 2022 | $ | 523.3 | $ | 2,424.1 | $ | 634.8 | $ | 3,582.2 |
We performed our annual evaluation of Goodwill and indefinite life intangible assets for impairment during the second quarter of fiscal 2022 and concluded that these assets are not impaired. For our annual evaluation, we performed qualitative tests for our Intelligent Devices, Software & Control, and Lifecycle Services (excluding Sensia) reporting units and a quantitative test for our Sensia reporting unit. We also assessed the changes in events and circumstances subsequent to our annual test and concluded that no triggering events, which would require interim quantitative testing, occurred.
Other intangible assets consist of (in millions):
| June 30, 2022 | |||||||||||||||||
| Carrying Amount | Accumulated Amortization | Net | |||||||||||||||
| Amortized intangible assets: | |||||||||||||||||
| Software products | $ | 96.9 | $ | 55.6 | $ | 41.3 | |||||||||||
| Customer relationships | 593.3 | 104.4 | 488.9 | ||||||||||||||
| Technology | 412.0 | 104.0 | 308.0 | ||||||||||||||
| Trademarks | 74.7 | 20.9 | 53.8 | ||||||||||||||
| Other | 6.8 | 6.2 | 0.6 | ||||||||||||||
| Total amortized intangible assets | 1,183.7 | 291.1 | 892.6 | ||||||||||||||
| Allen-Bradley® trademark not subject to amortization | 43.7 | — | 43.7 | ||||||||||||||
| Other intangible assets | $ | 1,227.4 | $ | 291.1 | $ | 936.3 |
| September 30, 2021 | |||||||||||||||||
| Carrying Amount | Accumulated Amortization | Net | |||||||||||||||
| Amortized intangible assets: | |||||||||||||||||
| Software products | $ | 90.4 | $ | 43.2 | $ | 47.2 | |||||||||||
| Customer relationships | 595.9 | 75.4 | 520.5 | ||||||||||||||
| Technology | 420.8 | 71.7 | 349.1 | ||||||||||||||
| Trademarks | 73.8 | 13.3 | 60.5 | ||||||||||||||
| Other | 7.1 | 6.3 | 0.8 | ||||||||||||||
| Total amortized intangible assets | 1,188.0 | 209.9 | 978.1 | ||||||||||||||
| Allen-Bradley® trademark not subject to amortization | 43.7 | — | 43.7 | ||||||||||||||
| Other intangible assets | $ | 1,231.7 | $ | 209.9 | $ | 1,021.8 |
Estimated total amortization expense for all amortized intangible assets is $112.5 million in 2022, $111.3 million in 2023, $108.3 million in 2024, $105.9 million in 2025, and $104.2 million in 2026.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
7. Short-Term and Long-Term Debt
Our Short-term debt as of June 30, 2022, and September 30, 2021, includes $578.0 million and $484.0 million, respectively, of commercial paper borrowings with weighted average interest rates of 1.57 percent and 0.18 percent, respectively. Also included in Short-term debt as of June 30, 2022, and September 30, 2021, is $23.5 million of interest-bearing loans from Schlumberger to Sensia due December 31, 2022. The short-term loans from Schlumberger were entered into following the formation of Sensia in fiscal 2020.
The following table presents the carrying amounts and estimated fair values of Long-term debt in the Consolidated Balance Sheet (in millions):
| June 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||
| Long-term debt | $ | 3,464.1 | $ | 3,232.2 | $ | 3,464.6 | $ | 3,874.8 |
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. Refer to Note 9 for further information regarding levels in the fair value hierarchy. The carrying value of our short-term debt approximates fair value.
8. Other Current Liabilities
Other current liabilities consist of (in millions):
| June 30, 2022 | September 30, 2021 | ||||||||||
| Unrealized losses on foreign exchange contracts | $ | 18.4 | $ | 16.9 | |||||||
| Product warranty obligations | 17.1 | 18.0 | |||||||||
| Taxes other than income taxes | 61.6 | 59.8 | |||||||||
| Accrued interest | 38.3 | 17.8 | |||||||||
| Dividends payable | 130.1 | 0.2 | |||||||||
| Income taxes payable | 65.4 | 188.4 | |||||||||
| Operating lease liabilities | 86.9 | 89.9 | |||||||||
| Other | 99.5 | 93.4 | |||||||||
| Other current liabilities | $ | 517.3 | $ | 484.4 |
9. Investments
Our investments consist of (in millions):
| June 30, 2022 | September 30, 2021 | |||||||||||||
| Fixed income securities | $ | 6.2 | $ | 0.6 | ||||||||||
| Equity securities (level 1) | 1,065.6 | 1,267.6 | ||||||||||||
| Equity securities (other) | 81.1 | 27.1 | ||||||||||||
| Other | 54.3 | 68.8 | ||||||||||||
| Total investments | 1,207.2 | 1,364.1 | ||||||||||||
| Less: Short-term investments (1) | (6.2) | (0.6) | ||||||||||||
| Long-term investments | $ | 1,201.0 | $ | 1,363.5 |
(1) Short-term investments are included in Other current assets in the Consolidated Balance Sheet.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Equity Securities
Equity securities (level 1) consist of 10,020,234 and 10,582,010 shares of PTC Inc. ("PTC") common stock (the "PTC Shares") at June 30, 2022, and September 30, 2021, respectively. The PTC Shares are classified as level 1 in the fair value hierarchy, as described below, and are recognized at fair value in the Consolidated Balance Sheet using the most recent closing price of PTC common stock quoted on Nasdaq.
Equity securities (other) consist of various securities that do not have a readily determinable fair value, which we account for using the measurement alternative under U.S. GAAP. These securities are recorded at the investment cost, less impairment, plus or minus observable price changes (in orderly transactions) of an identical or similar investment of the same issuer in the Consolidated Balance Sheet. Observable price changes are classified as level 2 in the fair value hierarchy, as described below. The carrying values at June 30, 2022, and September 30, 2021, include cumulative upward adjustments from observed price changes of $17.0 million and $5.1 million, respectively.
We record gains and losses on investments within the Change in fair value of investments line in the Consolidated Statement of Operations. The gains and losses on investments we recorded for the following periods were (in millions):
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net (loss) gain on equity securities (level 1) | $ | (8.4) | $ | 38.2 | $ | (136.0) | $ | 619.5 | |||||||||||||||
| Net gain on equity securities (other) | 3.2 | 5.1 | 11.9 | 5.1 | |||||||||||||||||||
| Equity method loss on Other investments | — | — | (14.2) | — | |||||||||||||||||||
| Change in fair value of investments | (5.2) | 43.3 | (138.3) | 624.6 | |||||||||||||||||||
| Total net unrealized (loss) gain on equity securities | $ | (17.9) | $ | 43.3 | $ | (137.0) | $ | 624.6 |
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. |
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. We did not have any transfers between levels of fair value measurements during the period presented.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
10. Retirement Benefits
The components of net periodic benefit cost were (in millions):
| Pension Benefits | |||||||||||||||||||||||
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Service cost | $ | 15.4 | $ | 23.1 | $ | 56.1 | $ | 68.7 | |||||||||||||||
| Interest cost | 34.5 | 31.5 | 99.3 | 94.3 | |||||||||||||||||||
| Expected return on plan assets | (56.4) | (60.9) | (175.1) | (182.0) | |||||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Prior service cost | — | 0.3 | 0.8 | 1.0 | |||||||||||||||||||
| Net actuarial loss | 10.4 | 37.0 | 55.0 | 110.5 | |||||||||||||||||||
| Settlement and curtailment (benefit) charges | (0.7) | 27.2 | 24.2 | 26.8 | |||||||||||||||||||
| Net periodic benefit cost | $ | 3.2 | $ | 58.2 | $ | 60.3 | $ | 119.3 |
| Other Postretirement Benefits | |||||||||||||||||||||||
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Service cost | $ | 0.2 | $ | 0.3 | $ | 0.6 | $ | 0.8 | |||||||||||||||
| Interest cost | 0.3 | 0.3 | 0.9 | 0.9 | |||||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Prior service credit | (0.2) | (1.4) | (0.6) | (4.1) | |||||||||||||||||||
| Net actuarial loss | 0.2 | 0.3 | 0.5 | 0.9 | |||||||||||||||||||
| Net periodic benefit cost (credit) | $ | 0.5 | $ | (0.5) | $ | 1.4 | $ | (1.5) |
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 income (expense) in the Consolidated Statement of Operations.
In March and June 2022, we remeasured our U.S. pension plan assets and liabilities in accordance with U.S. GAAP settlement accounting rules. For the three and nine months ended June 30, 2022, we recognized settlement expense of $6.5 million and $31.4 million, respectively. Settlement accounting was required due to the amount of lump-sum payments made by the U.S. pension plan to retirees and other separated employees. Remeasurement of our U.S. pension plan assets and liabilities reduced our net benefit obligation by $86.6 million. The discount rate used for the remeasurement as of June 30, 2022, was 4.90 percent compared to 3.10 percent at our September 30, 2021, annual measurement date. We also recognized a curtailment benefit of $7.2 million for the three and nine months ended June 30, 2022, due to a pension plan freeze in one of our non-US pension plans.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
11. Other Income (Expense)
The components of Other income (expense) were (in millions):
| Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Interest income | $ | 0.6 | $ | 0.3 | $ | 1.6 | $ | 1.1 | ||||||||||||||||||
| Royalty income | 3.1 | 2.9 | 8.6 | 7.5 | ||||||||||||||||||||||
| Legacy product liability and environmental benefit (charges) | 0.8 | (4.0) | (6.6) | (9.4) | ||||||||||||||||||||||
| Non-operating pension and postretirement benefit credit (cost) | 11.9 | (34.3) | (5.0) | (48.3) | ||||||||||||||||||||||
| Legal settlement | — | — | — | 70.0 | ||||||||||||||||||||||
| Other | 3.4 | 0.2 | 0.4 | (0.8) | ||||||||||||||||||||||
| Other income (expense) | $ | 19.8 | $ | (34.9) | $ | (1.0) | $ | 20.1 |
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
12. Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss attributable to Rockwell Automation by component for the following periods were (in millions):
| Three Months Ended June 30, 2022: | Pension and other postretirement benefit plan adjustments, net of tax | Accumulated currency translation adjustments, net of tax | Net unrealized gains (losses) on cash flow hedges, net of tax | Total accumulated other comprehensive loss, net of tax | |||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | (489.8) | $ | (309.7) | $ | (33.6) | $ | (833.1) | |||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (81.0) | (61.7) | 15.5 | (127.2) | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 8.0 | — | (5.2) | 2.8 | |||||||||||||||||||||||||
| Other comprehensive (loss) income | (73.0) | (61.7) | 10.3 | (124.4) | |||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | (562.8) | $ | (371.4) | $ | (23.3) | $ | (957.5) | |||||||||||||||||||||
| Three Months Ended June 30, 2021: | Pension and other postretirement benefit plan adjustments, net of tax | Accumulated currency translation adjustments, net of tax | Net unrealized gains (losses) on cash flow hedges, net of tax | Total accumulated other comprehensive loss, net of tax | |||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | (1,215.6) | $ | (275.7) | $ | (34.7) | $ | (1,526.0) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 379.1 | 23.0 | (5.6) | 396.5 | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 48.1 | — | 6.4 | 54.5 | |||||||||||||||||||||||||
| Other comprehensive income | 427.2 | 23.0 | 0.8 | 451.0 | |||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | (788.4) | $ | (252.7) | $ | (33.9) | $ | (1,075.0) |
| Nine Months Ended June 30, 2022: | Pension and other postretirement benefit plan adjustments, net of tax | Accumulated currency translation adjustments, net of tax | Net unrealized gains (losses) on cash flow hedges, net of tax | Total accumulated other comprehensive loss, net of tax | |||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | (694.1) | $ | (280.1) | $ | (42.9) | $ | (1,017.1) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 70.7 | (91.3) | 24.2 | 3.6 | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 60.6 | — | (4.6) | 56.0 | |||||||||||||||||||||||||
| Other comprehensive income (loss) | 131.3 | (91.3) | 19.6 | 59.6 | |||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | (562.8) | $ | (371.4) | $ | (23.3) | $ | (957.5) | |||||||||||||||||||||
| Nine Months Ended June 30, 2021: | Pension and other postretirement benefit plan adjustments, net of tax | Accumulated currency translation adjustments, net of tax | Net unrealized gains (losses) on cash flow hedges, net of tax | Total accumulated other comprehensive loss, net of tax | |||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | (1,271.2) | $ | (311.5) | $ | (31.5) | $ | (1,614.2) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 379.7 | 58.8 | (18.2) | 420.3 | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 103.1 | — | 15.8 | 118.9 | |||||||||||||||||||||||||
| Other comprehensive income (loss) | 482.8 | 58.8 | (2.4) | 539.2 | |||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | (788.4) | $ | (252.7) | $ | (33.9) | $ | (1,075.0) |
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The reclassifications out of Accumulated other comprehensive loss in the Consolidated Statement of Operations were (in millions):
| Three Months Ended June 30, | Nine Months Ended June 30, | Affected Line in the Consolidated Statement of Operations | |||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
| Pension and other postretirement benefit plan adjustments (1): | |||||||||||||||||||||||||||||
| Amortization of prior service (credit) cost | $ | (0.2) | $ | (1.1) | $ | 0.2 | $ | (3.1) | Other income (expense) | ||||||||||||||||||||
| Amortization of net actuarial loss | 10.6 | 37.3 | 55.5 | 111.4 | Other income (expense) | ||||||||||||||||||||||||
| Settlement and curtailment (benefit) charges | (0.7) | 27.2 | 24.2 | 26.8 | Other income (expense) | ||||||||||||||||||||||||
| 9.7 | 63.4 | 79.9 | 135.1 | Income before income taxes | |||||||||||||||||||||||||
| (1.7) | (15.3) | (19.3) | (32.0) | Income tax provision | |||||||||||||||||||||||||
| $ | 8.0 | $ | 48.1 | $ | 60.6 | $ | 103.1 | Net income attributable to Rockwell Automation, Inc. | |||||||||||||||||||||
| Net unrealized (gains) losses on cash flow hedges: | |||||||||||||||||||||||||||||
| Forward exchange contracts | $ | (0.5) | $ | (0.1) | $ | (0.2) | $ | (1.3) | Sales | ||||||||||||||||||||
| Forward exchange contracts | (7.9) | 8.6 | (9.5) | 22.6 | Cost of sales | ||||||||||||||||||||||||
| Forward exchange contracts | 0.3 | (0.4) | 0.4 | (1.3) | Selling, general and administrative expenses | ||||||||||||||||||||||||
| Treasury locks related to 2019 and 2021 debt issuances | 0.9 | 0.5 | 2.7 | 1.5 | Interest expense | ||||||||||||||||||||||||
| (7.2) | 8.6 | (6.6) | 21.5 | Income before income taxes | |||||||||||||||||||||||||
| 2.0 | (2.2) | 2.0 | (5.7) | Income tax provision | |||||||||||||||||||||||||
| $ | (5.2) | $ | 6.4 | $ | (4.6) | $ | 15.8 | Net income attributable to Rockwell Automation, Inc. | |||||||||||||||||||||
| Total reclassifications | $ | 2.8 | $ | 54.5 | $ | 56.0 | $ | 118.9 | Net income attributable to Rockwell Automation, Inc. |
(1) These components are included in the computation of net periodic benefit cost. See Note 10 for further information.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
13. Commitments and Contingent Liabilities
Various lawsuits, claims, and proceedings have been or may be instituted or asserted against us relating to the conduct of our business, including those pertaining to product liability, environmental, safety and health, intellectual property, employment, and contract matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of unfavorably to us, we believe the disposition of matters that are pending or have been asserted will not have a material effect on our business, financial condition, or results of operations. 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 and at times in other contracts with third parties. As of June 30, 2022, 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. During the first quarter of fiscal 2021, we reached a favorable settlement agreement regarding litigation of a trademark infringement and false advertising matter and received $70 million. The settlement gain is recorded in Other income (expense) in the Consolidated Statement of Operations.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
14. Income Taxes
At the end of each interim period, we estimate a base effective tax rate that we expect for the full fiscal year based on our most recent forecast of pre-tax income, permanent book and tax differences, and global tax planning strategies. We use this base rate to provide for income taxes on a year-to-date basis, excluding the effect of significant unusual items and items that are reported net of their related tax effects in the period in which they occur.
The effective tax rate was 14.4 percent and 12.7 percent in the three and nine months ended June 30, 2022, respectively, compared to 14.2 percent and 16.6 percent in the three and nine months ended June 30, 2021, respectively. The effective tax rate was lower than the U.S. statutory rate of 21 percent in the three and nine months ended June 30, 2022, primarily due to non-U.S. tax rates and other favorable discrete tax items. The effective tax rate was lower than the U.S. statutory rate of 21 percent in the three months ended June 30, 2021, primarily because of non-U.S. tax rates and other favorable discrete tax items. The effective tax rate was lower than the U.S. statutory rate of 21 percent in the nine months ended June 30, 2021, primarily due to PTC investment adjustments and non-U.S. tax rates.
An income tax liability of $233.7 million and $264.8 million related to the U.S. transition tax under the Tax Cuts and Jobs Act of 2017 (the "Tax Act") that is payable greater than 12 months after June 30, 2022, and September 30, 2021, respectively, is recorded in Other liabilities in the Consolidated Balance Sheet.
Unrecognized Tax Benefits
The amount of gross unrecognized tax benefits was $4.3 million at both June 30, 2022, and September 30, 2021, of which the entire amount would reduce our effective tax rate if recognized.
Accrued interest and penalties related to unrecognized tax benefits were $1.5 million at both June 30, 2022, and September 30, 2021. We recognize interest and penalties related to unrecognized tax benefits in the income tax provision.
We believe it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $3.8 million in the next 12 months as a result of the resolution of tax matters in various global jurisdictions and the lapses of statutes of limitations. If 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 $5.3 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 2018 and are no longer subject to state, local, and foreign income tax examinations for years before 2014.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
15. Business Segment Information
Sales and operating results of our reportable segments were (in millions):
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Sales | |||||||||||||||||||||||
| Intelligent Devices | $ | 878.3 | $ | 882.9 | $ | 2,587.2 | $ | 2,454.8 | |||||||||||||||
| Software & Control | 606.9 | 509.6 | 1,655.7 | 1,452.9 | |||||||||||||||||||
| Lifecycle Services | 483.5 | 455.7 | 1,391.2 | 1,281.9 | |||||||||||||||||||
| Total | $ | 1,968.7 | $ | 1,848.2 | $ | 5,634.1 | $ | 5,189.6 | |||||||||||||||
| Segment operating earnings | |||||||||||||||||||||||
| Intelligent Devices | $ | 173.2 | $ | 193.6 | $ | 504.4 | $ | 535.8 | |||||||||||||||
| Software & Control | 190.6 | 128.3 | 439.7 | 411.2 | |||||||||||||||||||
| Lifecycle Services | 45.4 | 46.8 | 103.6 | 121.1 | |||||||||||||||||||
| Total | 409.2 | 368.7 | 1,047.7 | 1,068.1 | |||||||||||||||||||
| Purchase accounting depreciation and amortization | (25.9) | (12.9) | (78.1) | (37.7) | |||||||||||||||||||
| Corporate and other | (15.6) | (29.2) | (69.6) | (87.6) | |||||||||||||||||||
| Non-operating pension and postretirement benefit credit (cost) | 11.9 | (34.3) | (5.0) | (48.3) | |||||||||||||||||||
| Change in fair value of investments | (5.2) | 43.3 | (138.3) | 624.6 | |||||||||||||||||||
| Legal settlement | — | — | — | 70.0 | |||||||||||||||||||
| Interest expense, net | (30.2) | (22.1) | (88.9) | (67.2) | |||||||||||||||||||
| Income before income taxes | $ | 344.2 | $ | 313.5 | $ | 667.8 | $ | 1,521.9 |
Among other considerations, we evaluate performance and allocate resources based upon segment operating earnings before purchase accounting depreciation and amortization, corporate and other, non-operating pension and postretirement benefit credit (cost), change in fair value of investments, the $70 million legal settlement in fiscal 2021, interest expense, net, and income tax provision. 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 consistent with the methodology used by management to assess segment performance.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareowners of
Rockwell Automation, Inc.
Milwaukee, Wisconsin
Results of Review of Interim Financial Information
We have reviewed the accompanying consolidated balance sheet of Rockwell Automation, Inc. and subsidiaries (the “Company”) as of June 30, 2022, the related consolidated statements of operations, comprehensive income, and shareowners' equity for three-month and nine-month periods ended June 30, 2022 and 2021, and of cash flows for nine-month periods ended June 30, 2022 and 2021, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of September 30, 2021, and the related consolidated statements of operations, comprehensive income, cash flows and shareowners’ equity for the year then ended (not presented herein); and in our report dated November 9, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of September 30, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the 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 reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
July 27, 2022
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