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)
| December 31, 2023 | September 30, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 439.5 | $ | 1,071.8 | |||||||
| Receivables | 1,934.9 | 2,167.4 | |||||||||
| Inventories | 1,474.0 | 1,404.9 | |||||||||
| Other current assets | 287.5 | 266.7 | |||||||||
| Total current assets | 4,135.9 | 4,910.8 | |||||||||
| Property, net of accumulated depreciation of $1,866.3 and $1,828.3, respectively | 705.0 | 684.2 | |||||||||
| Operating lease right-of-use assets | 350.1 | 349.4 | |||||||||
| Goodwill | 3,966.7 | 3,529.2 | |||||||||
| Other intangible assets, net | 1,190.4 | 852.4 | |||||||||
| Deferred income taxes | 461.8 | 459.3 | |||||||||
| Long-term investments | 161.9 | 157.1 | |||||||||
| Other assets | 361.5 | 361.6 | |||||||||
| Total | $ | 11,333.3 | $ | 11,304.0 | |||||||
| LIABILITIES AND SHAREOWNERS’ EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Short-term debt | $ | 501.4 | $ | 94.7 | |||||||
| Current portion of long-term debt | 9.9 | 8.6 | |||||||||
| Accounts payable | 935.0 | 1,150.2 | |||||||||
| Compensation and benefits | 269.9 | 499.9 | |||||||||
| Contract liabilities | 595.3 | 592.5 | |||||||||
| Customer returns, rebates and incentives | 390.8 | 452.0 | |||||||||
| Other current liabilities | 608.6 | 567.4 | |||||||||
| Total current liabilities | 3,310.9 | 3,365.3 | |||||||||
| Long-term debt | 2,863.0 | 2,862.9 | |||||||||
| Retirement benefits | 513.4 | 503.6 | |||||||||
| Operating lease liabilities | 277.9 | 285.3 | |||||||||
| Other liabilities | 581.0 | 543.5 | |||||||||
| 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 | 2,111.3 | 2,102.5 | |||||||||
| Retained earnings | 9,326.5 | 9,255.2 | |||||||||
| Accumulated other comprehensive loss | (729.8) | (790.1) | |||||||||
| Common stock in treasury, at cost (shares held: 66.8 and 66.6, respectively) | (7,281.7) | (7,187.4) | |||||||||
| Shareowners’ equity attributable to Rockwell Automation, Inc. | 3,607.7 | 3,561.6 | |||||||||
| Noncontrolling interests | 179.4 | 181.8 | |||||||||
| Total shareowners’ equity | 3,787.1 | 3,743.4 | |||||||||
| Total | $ | 11,333.3 | $ | 11,304.0 |
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
| Three Months Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Sales | |||||||||||||||||||||||
| Products and solutions | $ | 1,833.2 | $ | 1,789.7 | |||||||||||||||||||
| Services | 218.9 | 191.3 | |||||||||||||||||||||
| 2,052.1 | 1,981.0 | ||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Products and solutions | (1,130.1) | (1,044.7) | |||||||||||||||||||||
| Services | (127.4) | (122.7) | |||||||||||||||||||||
| (1,257.5) | (1,167.4) | ||||||||||||||||||||||
| Gross profit | 794.6 | 813.6 | |||||||||||||||||||||
| Selling, general and administrative expenses | (513.7) | (469.5) | |||||||||||||||||||||
| Change in fair value of investments | 3.1 | 140.6 | |||||||||||||||||||||
| Other income (Note 11) | 8.9 | 17.3 | |||||||||||||||||||||
| Interest expense | (33.3) | (34.1) | |||||||||||||||||||||
| Income before income taxes | 259.6 | 467.9 | |||||||||||||||||||||
| Income tax provision (Note 14) | (46.9) | (89.2) | |||||||||||||||||||||
| Net income | 212.7 | 378.7 | |||||||||||||||||||||
| Net loss attributable to noncontrolling interests | (2.5) | (5.3) | |||||||||||||||||||||
| Net income attributable to Rockwell Automation, Inc. | $ | 215.2 | $ | 384.0 | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 1.87 | $ | 3.33 | |||||||||||||||||||
| Diluted | $ | 1.86 | $ | 3.31 | |||||||||||||||||||
| Weighted average outstanding shares: | |||||||||||||||||||||||
| Basic | 114.6 | 114.8 | |||||||||||||||||||||
| Diluted | 115.2 | 115.5 |
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(in millions)
| Three Months Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net income | $ | 212.7 | $ | 378.7 | |||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Pension and other postretirement benefit plan adjustments (net of tax benefit of $0.0 and $0.4) | 0.1 | (0.4) | |||||||||||||||||||||
| Currency translation adjustments | 84.2 | 85.8 | |||||||||||||||||||||
| Net change in cash flow hedges (net of tax benefit of $9.0 and $8.9) | (23.9) | (21.1) | |||||||||||||||||||||
| Other comprehensive income | 60.4 | 64.3 | |||||||||||||||||||||
| Comprehensive income | 273.1 | 443.0 | |||||||||||||||||||||
| Comprehensive loss attributable to noncontrolling interests | (2.4) | (5.3) | |||||||||||||||||||||
| Comprehensive income attributable to Rockwell Automation, Inc. | $ | 275.5 | $ | 448.3 |
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in millions)
| Three Months Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating activities: | |||||||||||
| Net income | $ | 212.7 | $ | 378.7 | |||||||
| Adjustments to arrive at cash provided by operating activities | |||||||||||
| Depreciation | 38.8 | 29.0 | |||||||||
| Amortization of intangible assets | 38.1 | 28.8 | |||||||||
| Change in fair value of investments | (3.1) | (140.6) | |||||||||
| Share-based compensation expense | 24.2 | 18.4 | |||||||||
| Retirement benefit expense (income) | 4.5 | (1.7) | |||||||||
| Net loss on disposition of property | 0.2 | 0.9 | |||||||||
| Pension contributions | (5.9) | (7.0) | |||||||||
| Changes in assets and liabilities, excluding effects of acquisitions and foreign currency adjustments | |||||||||||
| Receivables | 280.4 | (32.6) | |||||||||
| Inventories | (27.7) | (175.3) | |||||||||
| Accounts payable | (200.3) | (29.8) | |||||||||
| Contract liabilities | 13.8 | 52.7 | |||||||||
| Compensation and benefits | (243.4) | (40.2) | |||||||||
| Income taxes | 1.6 | 73.1 | |||||||||
| Other assets and liabilities | (101.3) | (88.1) | |||||||||
| Cash provided by operating activities | 32.6 | 66.3 | |||||||||
| Investing activities: | |||||||||||
| Capital expenditures | (67.9) | (24.2) | |||||||||
| Acquisition of businesses, net of cash acquired | (748.7) | (133.8) | |||||||||
| Proceeds from sale of investments | — | 144.8 | |||||||||
| Other investing activities | (0.8) | (5.1) | |||||||||
| Cash used for investing activities | (817.4) | (18.3) | |||||||||
| Financing activities: | |||||||||||
| Net issuance of short-term debt | 409.0 | 206.9 | |||||||||
| Repayment of short-term debt | — | (18.8) | |||||||||
| Cash dividends | (144.0) | (135.9) | |||||||||
| Purchases of treasury stock | (120.3) | (156.8) | |||||||||
| Proceeds from the exercise of stock options | 11.6 | 13.4 | |||||||||
| Other financing activities | (22.1) | (14.1) | |||||||||
| Cash provided by (used for) financing activities | 134.2 | (105.3) | |||||||||
| Effect of exchange rate changes on cash | 9.7 | 18.0 | |||||||||
| Decrease in cash, cash equivalents, and restricted cash | (640.9) | (39.3) | |||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 1,080.4 | 507.9 | |||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 439.5 | $ | 468.6 | |||||||
| Components of cash, cash equivalents, and restricted cash | |||||||||||
| Cash and cash equivalents | $ | 439.5 | $ | 460.0 | |||||||
| Restricted cash, current (Other current assets) | — | 8.6 | |||||||||
| Total cash, cash equivalents, and restricted cash | $ | 439.5 | $ | 468.6 |
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 September 30, 2023 | $ | 181.4 | $ | 2,102.5 | $ | 9,255.2 | $ | (790.1) | $ | (7,187.4) | $ | 3,561.6 | $ | 181.8 | $ | 3,743.4 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | 215.2 | — | — | 215.2 | (2.5) | 212.7 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 60.3 | — | 60.3 | 0.1 | 60.4 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued (including share-based compensation impact) | — | 8.8 | — | — | 26.9 | 35.7 | — | 35.7 | ||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | (121.2) | (121.2) | — | (121.2) | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared (1) | — | — | (143.9) | — | — | (143.9) | — | (143.9) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | 181.4 | $ | 2,111.3 | $ | 9,326.5 | $ | (729.8) | $ | (7,281.7) | $ | 3,607.7 | $ | 179.4 | $ | 3,787.1 |
| 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, 2022 | $ | 181.4 | $ | 2,007.1 | $ | 8,411.8 | $ | (917.5) | $ | (6,957.2) | $ | 2,725.6 | $ | 291.1 | $ | 3,016.7 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | 384.0 | — | — | 384.0 | (5.3) | 378.7 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 64.3 | — | 64.3 | — | 64.3 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued (including share-based compensation impact) | — | 8.6 | — | — | 24.2 | 32.8 | — | 32.8 | ||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | (156.0) | (156.0) | — | (156.0) | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared (1) | — | — | (135.9) | — | — | (135.9) | — | (135.9) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 181.4 | $ | 2,015.7 | $ | 8,659.9 | $ | (853.2) | $ | (7,089.0) | $ | 2,914.8 | $ | 285.8 | $ | 3,200.6 |
(1) Cash dividends were $1.25 per share and $1.18 per share in the three months ended December 31, 2023 and 2022, respectively.
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, 2023. The results of operations for the three months ended December 31, 2023, 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 recorded net of an allowance for doubtful accounts of $19.3 million at December 31, 2023, and $16.8 million at September 30, 2023. The changes to our allowance for doubtful accounts during the three months ended December 31, 2023 and 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 December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net income attributable to Rockwell Automation, Inc. | $ | 215.2 | $ | 384.0 | |||||||||||||||||||
| Less: Allocation to participating securities | (1.0) | (1.5) | |||||||||||||||||||||
| Net income available to common shareowners | $ | 214.2 | $ | 382.5 | |||||||||||||||||||
| Basic weighted average outstanding shares | 114.6 | 114.8 | |||||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
| Stock options | 0.6 | 0.6 | |||||||||||||||||||||
| Performance shares | — | 0.1 | |||||||||||||||||||||
| Diluted weighted average outstanding shares | 115.2 | 115.5 | |||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 1.87 | $ | 3.33 | |||||||||||||||||||
| Diluted | $ | 1.86 | $ | 3.31 |
For the three months ended December 31, 2023 and 2022, there were 0.5 million and 0.6 million shares, respectively, 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 $20.5 million and $32.9 million were accrued within Accounts payable and Other current liabilities at December 31, 2023 and 2022, respectively. At December 31, 2023 and 2022, respectively, there were $1.1 million and $0.8 million of outstanding common stock share repurchases recorded in Accounts payable that did not settle until the next 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)
Supplier Financing Arrangements
The Company maintains agreements with third-party financial institutions that offer voluntary supply chain financing (SCF) programs to suppliers. The SCF programs enable suppliers, at their sole discretion, to sell their receivables to third-party financial institutions in order to receive payment on receivables earlier than the negotiated commercial terms between suppliers and the Company. Supplier sale of receivables to third-party financial institutions is on terms negotiated between the supplier and the respective third-party financial institution. The Company agrees on commercial terms for the goods and services procured from suppliers, including prices, quantities, and payment terms, regardless of whether the supplier elects to participate in the SCF programs. A supplier’s voluntary participation in the SCF programs has no bearing on the Company's payment terms and the Company has no economic interest in a supplier’s decision to participate in the SCF programs. The Company agrees to pay participating third-party financial institutions the stated amount of confirmed invoices from suppliers on the original maturity dates of the invoices. Amounts outstanding related to SCF programs are included in Accounts payable in the Consolidated Balance Sheet and in changes in Accounts payable on the Consolidated Statement of Cash Flows. Accounts payable included approximately $117.5 million and $126.7 million related to these agreements as of December 31, 2023, and September 30, 2023, respectively. The impact of these programs is not material to the Company's overall liquidity.
Recently Adopted Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board (FASB) issued a new standard that requires companies to apply Accounting Standards Codification (ASC) 405-50 to disclose supplier finance program obligations. We adopted the new standard as of October 1, 2023. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued Accounting Standards Update (ASU) 2023-08, which requires expanded interim and annual disclosures of segment information regularly provided to the chief operating decision maker (CODM), the title and position of the CODM, an explanation of how the CODM uses the information in assessing segment performance and deciding how to allocate resources, and an amount for other segment items by reportable segment and a description of its composition. We will expand our disclosures in our fiscal 2025 Annual Report on Form 10-K when the standard becomes effective for us.
In December 2023, the FASB issued ASU 2023-09, which requires expanded annual disclosures to the income tax rate reconciliation and the amount of income taxes paid. We will expand our disclosures in our fiscal 2026 Annual Report on Form 10-K when the standard becomes effective for us.
We do not expect any other recently issued accounting pronouncements to have a material impact on our Consolidated Financial Statements and related disclosures.
2. Revenue Recognition
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, the Software & Control segment, and the 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.
In most countries, we sell primarily through independent distributors in conjunction with our direct sales force. We sell large systems and service offerings principally through our direct sales force, though opportunities are sometimes identified through distributors.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Unfulfilled Performance Obligations
As of December 31, 2023, we expect to recognize approximately $1,121 million of revenue in future periods from unfulfilled performance obligations from existing contracts with customers. We expect to recognize revenue of approximately $716 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 December 31, 2023.
Disaggregation of Revenue
The following table presents 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 December 31, 2023 | Three Months Ended December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Intelligent Devices | Software & Control | Lifecycle Services | Total | Intelligent Devices | Software & Control | Lifecycle Services | Total | ||||||||||||||||||||||||||||||||||||||||
| North America | $ | 604.3 | $ | 386.6 | $ | 256.2 | $ | 1,247.1 | $ | 567.4 | $ | 384.1 | $ | 227.4 | $ | 1,178.9 | |||||||||||||||||||||||||||||||
| Europe, Middle East, and Africa | 166.6 | 99.8 | 121.9 | 388.3 | 171.2 | 85.8 | 115.8 | 372.8 | |||||||||||||||||||||||||||||||||||||||
| Asia Pacific | 97.9 | 79.0 | 98.7 | 275.6 | 131.3 | 68.4 | 96.8 | 296.5 | |||||||||||||||||||||||||||||||||||||||
| Latin America | 58.5 | 38.2 | 44.4 | 141.1 | 66.3 | 35.0 | 31.5 | 132.8 | |||||||||||||||||||||||||||||||||||||||
| Total Company Sales | $ | 927.3 | $ | 603.6 | $ | 521.2 | $ | 2,052.1 | $ | 936.2 | $ | 573.3 | $ | 471.5 | $ | 1,981.0 |
Contract Liabilities
Contract liabilities primarily relate to consideration received in advance of performance under the contract.
Below is a summary of our Contract liabilities balance, the portion not expected to be recognized within twelve months is included within Other liabilities in the Consolidated Balance Sheet (in millions):
| December 31, 2023 | December 31, 2022 | ||||||||||
| Balance as of beginning of year | $ | 653.6 | $ | 541.3 | |||||||
| Balance as of end of period | 673.9 | 602.4 |
The most significant changes in our Contract liabilities balance during both the three months ended December 31, 2023 and 2022, were due to amounts billed, partially offset by revenue recognized that was included in the Contract liabilities balance at the beginning of the period and revenue recognized on amounts billed during the period.
In the three months ended December 31, 2023, we recognized revenue of approximately $237.8 million that was included in the Contract liabilities balance at September 30, 2023. In the three months ended December 31, 2022, we recognized revenue of approximately $200.9 million that was included in the Contract liabilities balance at September 30, 2022. We did not have a material amount of revenue recognized in the three months ended December 31, 2023 and 2022, 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 $24.2 million and $18.4 million of pre-tax share-based compensation expense during the three months ended December 31, 2023 and 2022, respectively. Our annual grant of share-based compensation takes place during first quarter of each year. The number of shares granted to employees and non-employee directors and the weighted average fair value per share during the periods presented were (in thousands, except per share amounts):
| Three Months Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Grants | Wtd. Avg. Share Fair Value | Grants | Wtd. Avg. Share Fair Value | ||||||||||||||||||||
| Stock options | 217 | $ | 85.91 | 233 | $ | 77.62 | |||||||||||||||||
| Performance shares | 79 | 295.06 | 66 | 340.77 | |||||||||||||||||||
| Restricted stock units | 235 | 276.46 | 211 | 259.67 | |||||||||||||||||||
| Unrestricted stock | 5 | 279.50 | 6 | 259.81 |
4. Inventories
Inventories consist of (in millions):
| December 31, 2023 | September 30, 2023 | ||||||||||
| Finished goods | $ | 569.9 | $ | 545.9 | |||||||
| Work in process | 367.5 | 395.7 | |||||||||
| Raw materials | 536.6 | 463.3 | |||||||||
| Inventories | $ | 1,474.0 | $ | 1,404.9 |
5. Acquisitions
2024 Acquisitions
In October 2023, we acquired Clearpath Robotics, Inc. (Clearpath), a company that specializes in autonomous robotics for industrial applications, headquartered in Ontario, Canada. We recorded assets acquired and liabilities assumed in connection with this acquisition based on their estimated fair values as of the acquisition date of October 2, 2023. The preliminary aggregate purchase price allocation is as follows (in millions):
| Purchase Price Allocation | ||||||||
| Receivables | $ | 8.2 | ||||||
| Inventory | 22.1 | |||||||
| Goodwill | 267.0 | |||||||
| Intangible assets | 313.1 | |||||||
| All other assets | 10.8 | |||||||
| Total assets acquired | 621.2 | |||||||
| Less: Liabilities assumed | (12.7) | |||||||
| Net assets acquired | $ | 608.5 | ||||||
| Purchase Consideration | ||||||||
| Cash consideration, net of cash acquired | $ | 565.5 | ||||||
| Contingent consideration | 43.0 | |||||||
| Total purchase consideration, net of cash acquired | $ | 608.5 |
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Intangible assets identified include $269.6 million of technology, $41.6 million of trademarks, and $1.9 million of customer relationships. We assigned the full amount of goodwill and all other assets acquired to our Intelligent Devices segment. The goodwill recorded represents intangible assets that do not qualify for separate recognition. This goodwill arises because the purchase price for Clearpath reflects a number of factors including the future earnings and cash flow potential for the business and resulting synergies from the business portfolio and industry expertise. 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 technology asset was the obsolescence factor, where we estimated a phase out over 12 years; other assumptions included forecasted revenue growth rates and margin and the discount rate. The key assumption requiring the use of judgement in the valuation of the trademarks asset was the weighted average royalty rate of 2.05 percent; other assumptions included forecasted revenue growth rates and the discount rate.
The purchase price includes up to $50 million in contingent consideration dependent on future Clearpath revenue performance. We developed various risk-based scenarios and a probability outcome model to measure the fair value of the contingent consideration, which is considered a level 3 measurement under the U.S. GAAP fair value hierarchy. At the acquisition date and December 31, 2023, we determined the fair value of the contingent consideration to be $43.0 million, of which $17.5 million is recorded in Other current liabilities and $25.5 million in Other liabilities on the Consolidated Balance Sheet.
In November 2023, we acquired Verve Industrial Protection (Verve), a cybersecurity software and services company that focuses specifically on industrial environments. We recorded assets acquired and liabilities assumed in connection with this acquisition based on their estimated fair values as of the acquisition date of November 1, 2023. The preliminary aggregate purchase price allocation is as follows (in millions):
| Purchase Price Allocation | ||||||||
| Receivables | $ | 8.0 | ||||||
| Goodwill | 133.0 | |||||||
| Intangible assets | 47.0 | |||||||
| All other assets | 1.4 | |||||||
| Total assets acquired | 189.4 | |||||||
| Less: Liabilities assumed | (6.2) | |||||||
| Net assets acquired | $ | 183.2 | ||||||
| Purchase Consideration | ||||||||
| Total purchase consideration, net of cash acquired | $ | 183.2 |
We assigned the full amount of goodwill to our Lifecycle Services segment. We expect the goodwill to be deductible for tax purposes. The goodwill recorded represents intangible assets that do not qualify for separate recognition.
The allocations of the purchase prices 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.
Pro forma consolidated sales for the three months ended December 31, 2023 and 2022, were $2.1 billion and $2.0 billion, respectively, and the impact on earnings was not material. The preceding pro forma consolidated financial results of operations are as if the preceding 2024 acquisitions occurred on October 1, 2022. 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)
Total sales from all of the above 2024 acquisitions in the three months ended December 31, 2023 were $17.2 million. Total acquisition-related costs from all of the above 2024 acquisitions in the three months ended December 31, 2023, were not material.
2023 Acquisitions
In October 2022, we acquired CUBIC, a company that specializes in modular systems for the construction of electrical panels, headquartered in Bronderslev, Denmark. We assigned the full amount of goodwill related to this acquisition to our Intelligent Devices segment.
In February 2023, we acquired Knowledge Lens, a services and solutions provider headquartered in Bengaluru, India. We assigned the full amount of goodwill related to this acquisition to our Lifecycle Services segment.
We recorded assets acquired and liabilities assumed in connection with these acquisitions based on their estimated fair values as of the acquisition dates of October 31, 2022, and February 28, 2023, respectively. The aggregate purchase price allocation is as follows (in millions):
| Purchase Price Allocation | ||||||||
| Receivables | $ | 23.8 | ||||||
| Inventories | 17.7 | |||||||
| Property | 27.5 | |||||||
| Goodwill | 111.3 | |||||||
| Other intangible assets | 54.1 | |||||||
| All other assets | 21.0 | |||||||
| Total assets acquired | 255.4 | |||||||
| Less: Liabilities assumed | (12.6) | |||||||
| Less: Deferred income taxes | (56.6) | |||||||
| Net assets acquired, excluding cash | $ | 186.2 | ||||||
| Purchase Consideration | ||||||||
| Total purchase consideration, net of cash acquired | $ | 186.2 |
Pro forma consolidated sales for the three months ended December 31, 2022, were $2.0 billion, and the impact on earnings was not material. The preceding pro forma consolidated financial results of operations are as if the preceding 2023 acquisitions occurred on October 1, 2022. 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.
Total sales from all of the above 2023 acquisitions in the three months ended December 31, 2023 and 2022, were $26.8 million and $13.7 million, respectively. Total acquisition-related costs from all of the above 2023 acquisitions in the three months ended December 31, 2022, were not material.
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 three months ended December 31, 2023, were (in millions):
| Intelligent Devices | Software & Control | Lifecycle Services | Total | ||||||||||||||||||||
| Balance as of September 30, 2023 | $ | 595.8 | $ | 2,420.1 | $ | 513.3 | $ | 3,529.2 | |||||||||||||||
| Acquisition of businesses | 267.0 | — | 133.0 | 400.0 | |||||||||||||||||||
| Translation | 16.9 | 13.5 | 7.1 | 37.5 | |||||||||||||||||||
| Balance as of December 31, 2023 | $ | 879.7 | $ | 2,433.6 | $ | 653.4 | $ | 3,966.7 | |||||||||||||||
| Gross carrying value of goodwill | 879.7 | 2,433.6 | 810.9 | 4,124.2 | |||||||||||||||||||
| Accumulated impairment losses | — | — | (157.5) | (157.5) | |||||||||||||||||||
| Goodwill | $ | 879.7 | $ | 2,433.6 | $ | 653.4 | $ | 3,966.7 |
We perform our annual evaluation of goodwill and indefinite life intangible assets for impairment 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. We assessed the changes in events and circumstances during the first quarter of 2024 and concluded that no triggering events, which would require interim quantitative testing, occurred.
Other intangible assets consist of (in millions):
| December 31, 2023 | |||||||||||||||||
| Carrying Amount | Accumulated Amortization | Net | |||||||||||||||
| Amortized intangible assets | |||||||||||||||||
| Software products | $ | 105.1 | $ | 67.8 | $ | 37.3 | |||||||||||
| Customer relationships | 618.4 | 152.2 | 466.2 | ||||||||||||||
| Technology | 737.6 | 194.8 | 542.8 | ||||||||||||||
| Trademarks | 133.0 | 33.1 | 99.9 | ||||||||||||||
| Other | 5.7 | 5.2 | 0.5 | ||||||||||||||
| Total amortized intangible assets | 1,599.8 | 453.1 | 1,146.7 | ||||||||||||||
| Allen-Bradley® trademark not subject to amortization | 43.7 | — | 43.7 | ||||||||||||||
| Other intangible assets | $ | 1,643.5 | $ | 453.1 | $ | 1,190.4 |
| September 30, 2023 | |||||||||||||||||
| Carrying Amount | Accumulated Amortization | Net | |||||||||||||||
| Amortized intangible assets | |||||||||||||||||
| Software products | $ | 100.4 | $ | 65.1 | $ | 35.3 | |||||||||||
| Customer relationships | 606.1 | 141.3 | 464.8 | ||||||||||||||
| Technology | 424.1 | 173.1 | 251.0 | ||||||||||||||
| Trademarks | 86.3 | 29.3 | 57.0 | ||||||||||||||
| Other | 6.0 | 5.4 | 0.6 | ||||||||||||||
| Total amortized intangible assets | 1,222.9 | 414.2 | 808.7 | ||||||||||||||
| Allen-Bradley® trademark not subject to amortization | 43.7 | — | 43.7 | ||||||||||||||
| Other intangible assets | $ | 1,266.6 | $ | 414.2 | $ | 852.4 |
Estimated total amortization expense for all amortized intangible assets is $153.5 million in 2024, $150.0 million in 2025, $148.7 million in 2026, $140.6 million in 2027, and $127.8 million in 2028.
ROCKWELL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
7. Short-Term and Long-Term Debt
Our Short-term debt as of December 31, 2023, includes commercial paper borrowings of $407.0 million, with a weighted average interest rate of 5.41 percent, and a weighted average maturity period of 13 days. We had no commercial paper borrowings as of September 30, 2023. In December 2022, Sensia entered into an unsecured $75.0 million line of credit. As of December 31, 2023, and September 30, 2023, included in Short-term debt was $70.0 million borrowed against the line of credit with an interest rate of 6.25 percent and 6.29 percent, respectively. Also included in Short-term debt as of December 31, 2023, and September 30, 2023, is $23.5 million of interest-bearing loans from Schlumberger (SLB) to Sensia due December 31, 2024.
The following table presents the carrying amounts and estimated fair values of Long-term debt in the Consolidated Balance Sheet (in millions):
| December 31, 2023 | September 30, 2023 | |||||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||
| Current portion of long-term debt | $ | 9.9 | $ | 9.9 | $ | 8.6 | $ | 8.6 | ||||||||||||||||||
| Long-term debt | 2,863.0 | 2,623.1 | 2,862.9 | 2,442.6 |
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):
| December 31, 2023 | September 30, 2023 | ||||||||||
| Unrealized losses on foreign exchange contracts | $ | 26.5 | $ | 10.8 | |||||||
| Product warranty obligations | 19.0 | 18.3 | |||||||||
| Taxes other than income taxes | 48.8 | 56.9 | |||||||||
| Accrued interest | 38.1 | 18.6 | |||||||||
| Income taxes payable | 262.1 | 248.6 | |||||||||
| Operating lease liabilities | 91.3 | 83.4 | |||||||||
| Other | 122.8 | 130.8 | |||||||||
| Other current liabilities | $ | 608.6 | $ | 567.4 |
9. Investments
Our investments consist of (in millions):
| December 31, 2023 | September 30, 2023 | |||||||||||||
| Fixed income securities | $ | 0.6 | $ | 0.6 | ||||||||||
| Equity securities (other) | 98.5 | 96.0 | ||||||||||||
| Other | 63.4 | 61.1 | ||||||||||||
| Total investments | 162.5 | 157.7 | ||||||||||||
| Less: Short-term investments (1) | (0.6) | (0.6) | ||||||||||||
| Long-term investments | $ | 161.9 | $ | 157.1 |
(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 (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 December 31, 2023, and September 30, 2023, include cumulative upward adjustments from observed price changes of $20.0 million and $17.5 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 December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net gain on equity securities (level 1) | $ | — | $ | 141.0 | |||||||||||||||||||
| Net gain on equity securities (other) | 2.5 | — | |||||||||||||||||||||
| Equity method gain (loss) on Other investments | 0.6 | (0.4) | |||||||||||||||||||||
| Change in fair value of investments | 3.1 | 140.6 | |||||||||||||||||||||
| Total net realized gain on equity securities | — | 33.9 | |||||||||||||||||||||
| Total net unrealized gain on equity securities | $ | 2.5 | $ | 107.1 |
Net gain on equity securities (level 1) in the prior year consisted of the change in fair value and gain on sale of shares of PTC Inc. (PTC) common stock (PTC Shares). As of September 30, 2023, all PTC Shares have been sold.
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 pension and postretirement benefit cost (credit) were (in millions):
| Pension Benefits | |||||||||||||||||||||||
| Three Months Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Service cost | $ | 9.3 | $ | 10.6 | |||||||||||||||||||
| Interest cost | 36.6 | 39.2 | |||||||||||||||||||||
| Expected return on plan assets | (42.2) | (51.3) | |||||||||||||||||||||
| Amortization of net actuarial gain | (0.3) | (1.0) | |||||||||||||||||||||
| Net periodic pension benefit cost (credit) | $ | 3.4 | $ | (2.5) |
| Other Postretirement Benefits | |||||||||||||||||||||||
| Three Months Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Service cost | $ | 0.1 | $ | 0.1 | |||||||||||||||||||
| Interest cost | 0.6 | 0.6 | |||||||||||||||||||||
| Amortization of net actuarial loss | 0.4 | 0.1 | |||||||||||||||||||||
| Net periodic postretirement benefit cost | $ | 1.1 | $ | 0.8 |
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 in the Consolidated Statement of Operations.
11. Other Income
The components of Other income were (in millions):
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Interest income | $ | 5.0 | $ | 1.3 | ||||||||||||||||||||||
| Royalty income | 2.8 | 2.5 | ||||||||||||||||||||||||
| Legacy product liability and environmental charges | (5.0) | (2.8) | ||||||||||||||||||||||||
| Non-operating pension and postretirement benefit credit | 4.9 | 12.4 | ||||||||||||||||||||||||
| Other | 1.2 | 3.9 | ||||||||||||||||||||||||
| Other income | $ | 8.9 | $ | 17.3 |
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 December 31, 2023 | Pension and other postretirement benefit plan adjustments, net of tax | Accumulated currency translation adjustments, net of tax | Net unrealized losses on cash flow hedges, net of tax | Total accumulated other comprehensive loss, net of tax | |||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | (407.1) | $ | (364.9) | $ | (18.1) | $ | (790.1) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | — | 84.1 | (17.7) | 66.4 | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 0.1 | — | (6.2) | (6.1) | |||||||||||||||||||||||||
| Other comprehensive income (loss) | 0.1 | 84.1 | (23.9) | 60.3 | |||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | (407.0) | $ | (280.8) | $ | (42.0) | $ | (729.8) | |||||||||||||||||||||
| Three Months Ended December 31, 2022 | Pension and other postretirement benefit plan adjustments, net of tax | Accumulated currency translation adjustments, net of tax | Net unrealized losses on cash flow hedges, net of tax | Total accumulated other comprehensive loss, net of tax | |||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | (447.8) | $ | (465.0) | $ | (4.7) | $ | (917.5) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | — | 85.9 | (12.0) | 73.9 | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | (0.5) | — | (9.1) | (9.6) | |||||||||||||||||||||||||
| Other comprehensive (loss) income | (0.5) | 85.9 | (21.1) | 64.3 | |||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | (448.3) | $ | (379.1) | $ | (25.8) | $ | (853.2) |
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 December 31, | Affected Line in the Consolidated Statement of Operations | ||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||
| Pension and other postretirement benefit plan adjustments (1) | |||||||||||||||||||||||||||||
| Amortization of net actuarial loss (gain) | $ | 0.1 | $ | (0.9) | Other income | ||||||||||||||||||||||||
| 0.1 | (0.9) | Income before income taxes | |||||||||||||||||||||||||||
| — | 0.4 | Income tax provision | |||||||||||||||||||||||||||
| $ | 0.1 | $ | (0.5) | Net income attributable to Rockwell Automation, Inc. | |||||||||||||||||||||||||
| Net unrealized (gains) losses on cash flow hedges | |||||||||||||||||||||||||||||
| Forward exchange contracts | $ | (1.3) | $ | (1.0) | Sales | ||||||||||||||||||||||||
| Forward exchange contracts | (8.1) | (12.9) | Cost of sales | ||||||||||||||||||||||||||
| Forward exchange contracts | — | 0.3 | Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Treasury locks related to 2019 and 2021 debt issuances | 0.9 | 0.9 | Interest expense | ||||||||||||||||||||||||||
| (8.5) | (12.7) | Income before income taxes | |||||||||||||||||||||||||||
| 2.3 | 3.6 | Income tax provision | |||||||||||||||||||||||||||
| $ | (6.2) | $ | (9.1) | Net income attributable to Rockwell Automation, Inc. | |||||||||||||||||||||||||
| Total reclassifications | $ | (6.1) | $ | (9.6) | 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 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 caused by our products. 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 for many years into the future. 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 December 31, 2023, 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.
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 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 18.1 percent for the three months ended December 31, 2023, compared to 19.1 percent for the three months ended December 31, 2022. The effective tax rate was lower than the U.S. statutory rate of 21 percent for the three months ended December 31, 2023, and December 31, 2022, primarily due to the geographical mix of pre-tax income.
An income tax liability of $175.3 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 December 31, 2023, and September 30, 2023, is recorded in Other liabilities in the Consolidated Balance Sheet.
Unrecognized Tax Benefits
The amount of gross unrecognized tax benefits was $10.8 million at December 31, 2023, and $9.8 million at September 30, 2023, of which the entire amount would reduce our effective tax rate if recognized.
Accrued interest and penalties related to unrecognized tax benefits were $1.0 million at December 31, 2023, and $0.9 million at September 30, 2023. 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 $2.3 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 $3.1 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, state and local income tax examinations for years before 2014, and foreign income tax examinations for years before 2008.
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 December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Sales | |||||||||||||||||||||||
| Intelligent Devices | $ | 927.3 | $ | 936.2 | |||||||||||||||||||
| Software & Control | 603.6 | 573.3 | |||||||||||||||||||||
| Lifecycle Services | 521.2 | 471.5 | |||||||||||||||||||||
| Total | $ | 2,052.1 | $ | 1,981.0 | |||||||||||||||||||
| Segment operating earnings | |||||||||||||||||||||||
| Intelligent Devices | $ | 150.2 | $ | 209.4 | |||||||||||||||||||
| Software & Control | 151.0 | 167.3 | |||||||||||||||||||||
| Lifecycle Services | 54.3 | 24.3 | |||||||||||||||||||||
| Total | 355.5 | 401.0 | |||||||||||||||||||||
| Purchase accounting depreciation and amortization | (35.6) | (26.0) | |||||||||||||||||||||
| Corporate and other | (40.0) | (27.3) | |||||||||||||||||||||
| Non-operating pension and postretirement benefit credit | 4.9 | 12.4 | |||||||||||||||||||||
| Change in fair value of investments | 3.1 | 140.6 | |||||||||||||||||||||
| Interest expense, net | (28.3) | (32.8) | |||||||||||||||||||||
| Income before income taxes | $ | 259.6 | $ | 467.9 |
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, change in fair value of investments, 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 December 31, 2023, the related consolidated statements of operations, comprehensive income, cash flows and shareowners’ equity for the three-month periods ended December 31, 2023, and 2022, 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, 2023, 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 8, 2023, 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, 2023, 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
January 31, 2024
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