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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_________________________________________
FORM 10-Q 
_________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2018
Commission file number 1-12383
_________________________________________
Rockwell Automation, Inc.
(Exact name of registrant as specified in its charter)
_________________________________________
Delaware
 
25-1797617
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
1201 South Second Street,
Milwaukee, Wisconsin
 
53204
(Address of principal executive offices)
 
(Zip Code)
+1 (414) 382-2000
Registrant’s telephone number, including area code 
_________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer
☑
 
Accelerated Filer
☐
 
 
Non-accelerated Filer
☐
 
Smaller Reporting Company
☐
 
 
 
 
 
Emerging Growth Company
☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☑
119,543,966 shares of registrant’s Common Stock, $1.00 par value, were outstanding on December 31, 2018.


Table of Contents
ROCKWELL AUTOMATION, INC.


INDEX
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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

ROCKWELL AUTOMATION, INC.

CONSOLIDATED BALANCE SHEET
(Unaudited)
(in millions, except per share amounts)


 
December 31,
2018
 
September 30,
2018
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
632.3

 
$
618.8

Short-term investments
121.2

 
290.9

Receivables
1,188.7

 
1,190.1

Inventories
627.2

 
581.6

Other current assets
168.5

 
149.3

Total current assets
2,737.9

 
2,830.7

Property, net of accumulated depreciation of $1,545.1 and $1,561.4, respectively
559.7

 
576.8

Goodwill
1,064.1

 
1,075.5

Other intangible assets, net
208.2

 
215.2

Deferred income taxes
196.4

 
179.6

Long-term investments
1,060.0

 
1,288.0

Other assets
109.1

 
96.2

Total
$
5,935.4

 
$
6,262.0

LIABILITIES AND SHAREOWNERS’ EQUITY
Current liabilities:
 
 
 
Short-term debt
$
631.3

 
$
551.0

Accounts payable
648.2

 
713.4

Compensation and benefits
201.5

 
289.4

Contract liabilities
293.0

 
249.9

Customer returns, rebates and incentives
196.2

 
206.6

Other current liabilities
295.3

 
226.6

Total current liabilities
2,265.5

 
2,236.9

Long-term debt
1,235.4

 
1,225.2

Retirement benefits
593.1

 
605.1

Other liabilities
567.1

 
577.3

Commitments and contingent liabilities (Note 12)

 

Shareowners’ equity:
 
 
 
Common stock ($1.00 par value, shares issued: 181.4)
181.4

 
181.4

Additional paid-in capital
1,674.4

 
1,681.4

Retained earnings
6,167.6

 
6,198.1

Accumulated other comprehensive loss
(976.9
)
 
(941.9
)
Common stock in treasury, at cost (shares held: 61.8 and 60.3, respectively)
(5,772.2
)
 
(5,501.5
)
Total shareowners’ equity
1,274.3

 
1,617.5

Total
$
5,935.4

 
$
6,262.0

See Notes to Consolidated Financial Statements.

3
Table of Contents
ROCKWELL AUTOMATION, INC.


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


 
Three Months Ended
December 31,
 
2018
 
2017
Sales
 
 
 
Products and solutions
$
1,457.6

 
$
1,412.5

Services
184.7

 
174.1

 
1,642.3

 
1,586.6

Cost of sales
 
 
 
Products and solutions
(782.4
)
 
(780.5
)
Services
(121.2
)
 
(105.9
)
 
(903.6
)
 
(886.4
)
Gross profit
738.7

 
700.2

Selling, general and administrative expenses
(386.7
)
 
(386.6
)
Other (expense) income (Note 9)
(210.5
)
 
4.2

Interest expense
(20.7
)
 
(20.0
)
Income before income taxes
120.8

 
297.8

Income tax provision (Note 13)
(40.5
)
 
(534.2
)
Net income (loss)
$
80.3

 
$
(236.4
)
Earnings (loss) per share:
 
 
 
Basic
$
0.67

 
$
(1.84
)
Diluted
$
0.66

 
$
(1.84
)
Weighted average outstanding shares:
 
 
 
Basic
120.3

 
128.2

Diluted
121.5

 
128.2

See Notes to Consolidated Financial Statements.


4
Table of Contents
ROCKWELL AUTOMATION, INC.


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

 
Three Months Ended
December 31,
 
2018
 
2017
Net income (loss)
$
80.3

 
$
(236.4
)
Other comprehensive (loss) income, net of tax:
 
 
 
Pension and other postretirement benefit plan adjustments (net of tax expense of $4.3 and $7.4)
13.8

 
20.2

Currency translation adjustments
(28.5
)
 
(16.1
)
Net change in unrealized gains and losses on cash flow hedges (net of tax benefit of $6.5 and $0.3)
(20.8
)
 
0.5

Net change in unrealized gains and losses on available-for-sale investments (net of tax benefit of $0.1 and $0.3)
0.5

 
(1.1
)
Other comprehensive (loss) income
(35.0
)
 
3.5

Comprehensive income (loss)
$
45.3

 
$
(232.9
)
See Notes to Consolidated Financial Statements.


5
Table of Contents
ROCKWELL AUTOMATION, INC.


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

 
Three Months Ended
December 31,
 
2018
 
2017
Operating activities:
 
 
 
Net income (loss)
$
80.3

 
$
(236.4
)
Adjustments to arrive at cash provided by operating activities:
 
 
 
Depreciation
29.3

 
32.5

Amortization of intangible assets
6.6

 
7.1

Change in fair value of investments
212.7

 
—

Share-based compensation expense
11.0

 
8.6

Retirement benefit expense
17.2

 
28.3

Pension contributions
(6.1
)
 
(11.6
)
Net loss on disposition of property
1.3

 
—

Changes in assets and liabilities, excluding effects of acquisitions and foreign
currency adjustments:
 
 
 
Receivables
(6.1
)
 
(18.4
)
Inventories
(52.4
)
 
(19.2
)
Accounts payable
(31.2
)
 
(36.8
)
Contract liabilities
26.9

 
27.9

Compensation and benefits
(85.4
)
 
(77.0
)
Income taxes
12.2

 
508.0

Other assets and liabilities
(4.3
)
 
(0.3
)
Cash provided by operating activities
212.0

 
212.7

Investing activities:
 
 
 
Capital expenditures
(42.0
)
 
(34.1
)
Acquisition of businesses, net of cash acquired
—

 
(9.9
)
Purchases of investments
(2.8
)
 
(275.2
)
Proceeds from maturities of investments
185.6

 
234.5

Proceeds from sale of investments
—

 
51.5

Proceeds from sale of property
0.1

 
0.2

Cash provided by (used for) investing activities
140.9

 
(33.0
)
Financing activities:
 
 
 
Net issuance of short-term debt
80.3

 
489.6

Repayment of long-term debt
—

 
(250.0
)
Cash dividends
(116.9
)
 
(107.3
)
Purchases of treasury stock
(295.1
)
 
(190.8
)
Proceeds from the exercise of stock options
4.0

 
30.1

Other financing activities
—

 
1.8

Cash used for financing activities
(327.7
)
 
(26.6
)
Effect of exchange rate changes on cash
(11.7
)
 
(17.0
)
Increase in cash and cash equivalents
13.5

 
136.1

Cash and cash equivalents at beginning of period
618.8

 
1,410.9

Cash and cash equivalents at end of period
$
632.3

 
$
1,547.0

See Notes to Consolidated Financial Statements.

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ROCKWELL AUTOMATION, INC.


CONSOLIDATED STATEMENT OF SHAREOWNERS’ EQUITY
(Unaudited)
(in millions, except per share amounts)

 
Three Months Ended
December 31,
 
2018
 
2017
 
 
 
 
Common stock (no shares issued during years)
$
181.4

 
$
181.4

Additional paid-in capital
 
 
 
Beginning balance
1,681.4

 
1,638.0

Share-based compensation expense
10.3

 
7.8

Shares delivered under incentive plans
(17.3
)
 
(2.9
)
Ending balance
1,674.4

 
1,642.9

Retained earnings
 
 
 
Beginning balance
6,198.1

 
6,103.4

Adoption of accounting standard
6.1

 
—

Net income (loss)
80.3

 
(236.4
)
Cash dividends (2018, $0.97 per share; 2017, $0.835 per share)
(116.9
)
 
(107.3
)
Ending balance
6,167.6

 
5,759.7

Accumulated other comprehensive loss
 
 
 
Beginning balance
(941.9
)
 
(1,179.2
)
Other comprehensive income (loss)
(35.0
)
 
3.5

Ending balance
(976.9
)
 
(1,175.7
)
Common stock in treasury, at cost
 
 
 
Beginning balance
(5,501.5
)
 
(4,080.0
)
Purchases
(292.8
)
 
(208.6
)
Shares delivered under incentive plans
22.1

 
36.5

Ending balance
(5,772.2
)
 
(4,252.1
)
Total shareowners’ equity
$
1,274.3

 
$
2,156.2

See Notes to Consolidated Financial Statements.


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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, 2018. The results of operations for the three-month period ended December 31, 2018, are not necessarily indicative of the results for the full year. All date references to years and quarters herein refer to our fiscal year and fiscal quarter unless otherwise stated.
Receivables
Receivables are stated net of an allowance for doubtful accounts of $18.6 million at December 31, 2018, and $17.1 million at September 30, 2018. In addition, receivables are stated net of an allowance for certain customer returns, rebates and incentives of $13.1 million at December 31, 2018, and $8.7 million at September 30, 2018.
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,
 
2018
 
2017
Net income (loss)
$
80.3

 
$
(236.4
)
Less: Allocation to participating securities
(0.1
)
 
0.2

Net income available to common shareowners
$
80.2

 
$
(236.2
)
Basic weighted average outstanding shares
120.3

 
128.2

Effect of dilutive securities
 
 
 
Stock options
1.0

 
—

Performance shares
0.2

 
—

Diluted weighted average outstanding shares
121.5

 
128.2

Earnings (loss) per share:
 
 
 
Basic
$
0.67

 
$
(1.84
)
Diluted
$
0.66

 
$
(1.84
)

For the three months ended December 31, 2018, 1.8 million shares related to share-based compensation awards were excluded from the diluted EPS calculation because they were antidilutive. For the three months ended December 31, 2017, 2.8 million potential common shares related to share-based compensation awards were excluded from the diluted EPS calculation because we recorded a net loss. Of these shares, 1.9 million would have been included in the calculation had we recorded net income in the first quarter of fiscal 2018.
Non-Cash Investing and Financing Activities
Capital expenditures of $17.1 million and $13.0 million were accrued within accounts payable and other current liabilities at December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, there were $16.0 million and $17.8 million, respectively, 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.




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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

1. Basis of Presentation and Accounting Policies (continued)

Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard, referred to as Accounting Standards Codification (ASC) 606, on revenue recognition related to contracts with customers. This standard supersedes nearly all existing revenue recognition guidance and involves a five-step principles-based approach to recognizing revenue. The underlying principle is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The new standard also requires additional qualitative and quantitative disclosures about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized from the costs to obtain or fulfill a contract. We adopted the new revenue standard using the modified retrospective transition method, which resulted in an adjustment to the opening balance of retained earnings as of October 1, 2018, our adoption date. The prior period information has not been restated and continues to be reported under the accounting standards in effect for the period presented. See Note 2 in the Consolidated Financial Statements for additional accounting policy and transition disclosures.
In March 2017, the FASB issued a new standard regarding the presentation of net periodic pension and postretirement benefit costs. This standard requires the service cost component to be reported in the income statement in the same line item as other compensation costs arising from services rendered by the related employees during the period. The other components of net periodic benefit cost are required to be presented separately from the service cost component in either a separate line item or within another appropriate line item with disclosure of where those costs are recorded. This standard also requires that only the service cost component is eligible for capitalization, when applicable. We adopted the new standard as of October 1, 2018 and applied the standard retrospectively. As a result of applying the pension standard retrospectively, the following adjustments were made to the Consolidated Statement of Operations (in millions):
 
Three Months Ended December 31, 2017
 
As Reported
 
Impact of adoption
 
As Restated
Cost of sales
 
 
 
 
 
Products and solutions
$
(783.2
)
 
$
2.7

 
$
(780.5
)
Services
(106.3
)
 
0.4

 
(105.9
)
 
(889.5
)
 
3.1

 
(886.4
)
Gross profit
697.1

 
3.1

 
700.2

Selling, general and administrative expenses
(389.3
)
 
2.7

 
(386.6
)
Other income (expense)
10.0

 
(5.8
)
 
4.2


During the three months ended December 31, 2018, we realigned our reportable segments for a transfer of business activities between our segments. We also reclassified interest income from General corporate - net to Interest (expense) income - net. As a result, the prior period presentation of reportable segments has been restated to conform to the current segment reporting structure. These changes did not impact the Consolidated Statement of Operations. See Note 14 in the Consolidated Financial Statements for additional information about the restatements.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued a new standard on accounting for leases that requires lessees to recognize right-of-use assets and lease liabilities for most leases, among other changes to existing lease accounting guidance. The new standard also requires additional qualitative and quantitative disclosures about leasing activities. We intend to adopt this standard in the first fiscal quarter of 2020 and apply the new standard at the adoption date, and recognize a cumulative-effect adjustment to the opening balance of retained earnings.
We have established a project plan and a cross-functional implementation team to adopt and apply the new standard. We are in the process of identifying and implementing necessary changes to accounting policies, processes, controls and systems to enable compliance with this new standard. We continue to evaluate the impact the adoption of this standard will have on our consolidated financial statements and related disclosures.

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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

2. Revenue Recognition
Adoption
On October 1, 2018, we adopted the new standard on revenue from contracts with customers using the modified retrospective method applied to contracts that were not completed as of October 1, 2018. Results for reporting periods beginning after October 1, 2018 are presented under the new standard, while prior period amounts have not been adjusted and continue to be reported in accordance with the previous standard.
As a result of applying the modified retrospective method, the following adjustments were made to the Consolidated Balance Sheet as of October 1, 2018 (in millions):
 
September 30,
2018
 
Impact of Adoption
 
October 1,
2018
ASSETS
Current assets:
 
 
 
 
 
Receivables
$
1,190.1

 
$
4.5

 
$
1,194.6

Other current assets
149.3

 
17.7

 
167.0

Deferred income taxes
179.6

 
1.2

 
180.8

Other assets
96.2

 
11.4

 
107.6

LIABILITIES AND SHAREOWNERS’ EQUITY
Current liabilities:
 
 
 
 
 
Contract liabilities
$
249.9

 
$
18.7

 
$
268.6

Customer returns, rebates and incentives
206.6

 
4.4

 
211.0

Other current liabilities
226.6

 
5.6

 
232.2

Shareowners’ equity:
 
 
 
 
 
Retained earnings
6,198.1

 
6.1

 
6,204.2


We recorded a net increase to opening retained earnings of $6.1 million as of October 1, 2018, which reflects the cumulative impact of adopting the new standard. The primary drivers of the impact to retained earnings were changes to the capitalization and deferral of certain contract costs and the timing of revenue, net of costs, for software licenses bundled with services and projects previously accounted for on a completed contract basis. This impact was partially offset by a deferral of revenue, net of costs, related to the allocation of revenue to hardware and software products and services provided to our customers free of charge as incentives.
Nature of Products and Services
Substantially all of our revenue is from contracts with customers. We recognize revenue as promised products are transferred to, or services are performed for, customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those products and services. Our offerings consist of industrial automation and information products, solutions and services. Our products include hardware and software. Our solutions include engineered-to-order and custom-engineered systems. Our services include customer technical support and repair, asset management and optimization consulting, and training. Also included in our services is a portion of revenue related to spare parts that are managed within our services offering.
Our operations are comprised of the Architecture & Software segment and the Control Products & Solutions segment. See Note 16 in the Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, for more information.

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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Revenue Recognition (continued)

In most countries, we sell primarily through independent distributors in conjunction with our direct sales force. In other countries, we sell through a combination of our direct sales force, and to a lesser extent, through independent distributors.
Performance Obligations
We use executed sales agreements and purchase orders to determine the existence of a customer contract.
For each customer contract, we determine if the products and services promised to the customer are distinct performance obligations. A product or service is distinct if both of the following criteria are met at contract inception: (i) the customer can benefit from the product or service on its own or together with other readily available resources, and (ii) our promise to transfer the product or perform the service is separately identifiable from other promises in the contract. The fact that we regularly sell a product or service separately is an indicator that the customer can benefit from a product or service on its own or with other readily available resources.
The objective when assessing whether our promises to transfer products or perform services are distinct within the context of the contract is to determine whether the nature of the promise is to transfer each of those products or perform those services individually, or whether the promise is to transfer a combined item or items to which the promised products or services are inputs. If a promised product or service is not distinct, we combine that product or service with other promised products or services until it comprises a bundle of products or services that is distinct, which may result in accounting for all the products or services in a contract as a single performance obligation.
For each performance obligation in a contract, we determine whether the performance obligation is satisfied over time. A performance obligation is satisfied over time if it meets any of the following criteria: (i) the customer simultaneously receives and consumes the benefits provided by our performance as we perform, (ii) our performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) our performance does not create an asset for which we have an alternative use and we have an enforceable right to payment for performance completed to date. If one or more of these criteria are met, then we recognize revenue over time using a method that depicts performance. If none of the criteria are met, then control transfers to the customer at a point in time and we recognize revenue at that point in time.
Our products represent standard, catalog products for which we have an alternative use, and therefore we recognize revenue at a point in time when control of the product transfers to the customer. For the majority of our products, control transfers upon shipment, though for some contracts control may transfer upon delivery. Our product revenue also includes revenue from software licenses. When these licenses are determined to be distinct performance obligations, we recognize the related revenue at a point in time when the customer is provided the right to use the license. Product-type contracts are generally one year or less in length.
We offer a wide variety of solutions and services to our customers, for which we recognize revenue over time or at a point in time based on the contract as well as the type of solution or service. If one or more of the three criteria above for over-time revenue recognition are met, we recognize revenue over time as cost is incurred, as work is performed, or based on time elapsed, depending on the type of customer contract. If none of these criteria are met, we recognize revenue at a point in time when control of the asset being created or enhanced transfers to the customer, typically upon delivery. More than half of our solutions and services revenue is from contracts that are one year or less in length. For certain solutions and services offerings, when we have the right to invoice our customers in an amount that corresponds to our performance completed to date, we apply the practical expedient to measure progress and recognize revenue based on the amount for which we have the right to invoice the customer.
When assessing whether we have an alternative use for an asset, we consider both contractual and practical limitations. These include: (i) the level and cost of customization of the asset that is required to meet a customer's needs, (ii) the activities, cost, and profit margin after any rework that would be required before the asset could be directed for another use, and (iii) the portion of the asset that could not be reworked for an alternative use.
At times we provide products and services free of charge to our customers as incentives when the customers purchase other products or services. These represent distinct performance obligations. As such, we allocate revenue to them based on relative standalone selling price.
Most of our global warranties are assurance in nature and do not represent distinct performance obligations. See Note 8 in the Consolidated Financial Statements for additional information and disclosures. We occasionally offer extended warranties to our customers that are considered a distinct performance obligation, to which we allocate revenue which is recognized over the extended warranty period.

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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Revenue Recognition (continued)

We account for shipping and handling activities performed after control of a product has been transferred to the customer as a fulfillment cost. As such, we have applied the practical expedient and we accrue for the costs of shipping and handling activities if revenue is recognized before contractually agreed shipping and handling activities occur.
Unfulfilled Performance Obligations
As of December 31, 2018, we expect to recognize approximately $470 million of revenue in future periods from unfulfilled performance obligations from existing contracts with customers. We expect to recognize revenue of approximately $330 million of our remaining performance obligations over the next 12 months with the remaining balance recognized thereafter.
We have applied the practical expedient to exclude the value of remaining performance obligations for (i) contracts with an original term of one year or less and (ii) contracts for which we recognize revenue in proportion to the amount we have the right to invoice for services performed. The amounts above also do not include the impact of contract renewal options that are unexercised as of December 31, 2018.
Transaction Price
The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring products to, or performing services for a customer. We estimate the transaction price at contract inception, and update the estimate each reporting period for any changes in circumstances. In some cases a contract may involve variable consideration, including rebates, credits, allowances for returns or other similar items that generally decrease the transaction price. We use historical experience to estimate variable consideration, including any constraint.
The transaction price (including any discounts and variable consideration) is allocated between separate products and services based on their relative standalone selling prices. The standalone selling prices are determined based on the prices at which we separately sell each good or service. For items that are not sold separately, we estimate the standalone selling price using available information such as market reference points and other observable data.
We have elected the practical expedient to exclude sales taxes and other similar taxes from the measurement of the transaction price.
Significant Payment Terms
Our standard payment terms vary globally but do not result in a significant delay between the timing of invoice and payment. We occasionally negotiate other payment terms during the contracting process. We do not typically include significant financing components in our contracts with customers. We have elected the practical expedient to not adjust the transaction price for the period between transfer of products or performance of services and customer payment if expected to be one year or less.
For most of our products, we invoice at the time of shipment and we do not typically have significant contract balances.  For our solutions and services as well as some of our products, timing may differ between revenue recognition and billing. Depending on the terms agreed to with the customer, we may invoice in advance of performance or we may invoice after performance.  When revenue recognition exceeds billing we recognize a receivable, and when billing exceeds revenue recognition we recognize a contract liability.
Disaggregation of Revenue
The following series of tables present our revenue disaggregation by geographic region and types of products or services, and also present these disaggregation categories for our two operating segments. We attribute sales to the geographic regions based on the country of destination.

12
Table of Contents
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Revenue Recognition (continued)

The following reflects the disaggregation of our revenues by operating segment and by geographic region (in millions):
 
Three Months Ended December 31, 2018
 
Architecture & Software
 
Control Products & Solutions
 
Total
North America
442.8

 
556.0

 
998.8

Europe, Middle East and Africa (EMEA)
155.5

 
138.9

 
294.4

Asia Pacific
101.3

 
113.1

 
214.4

Latin America
53.5

 
81.2

 
134.7

Total Company Sales
$
753.1

 
$
889.2

 
$
1,642.3

The following reflects the disaggregation of our revenues by operating segment and by major types of products or services (in millions): 
 
Three Months Ended December 31, 2018
 
Architecture & Software
 
Control Products & Solutions
 
Total
Products
$
753.1

 
$
372.9

 
$
1,126.0

Solutions & Services
—

 
516.3

 
516.3

Total Company Sales
$
753.1

 
$
889.2

 
$
1,642.3


Contract Balances
Contract liabilities primarily relate to consideration received in advance of performance under the contract. We do not have significant contract assets as of December 31, 2018.

Below is a summary of our contract liabilities balance:
 
December 31,
 
2018
Balance as of beginning of fiscal year
$
268.6

Balance as of end of period
293.0



The most significant changes in our contract liabilities balance during the three months ended December 31, 2018 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 three months ended December 31, 2018, we recognized revenue of approximately $115 million that was included in the opening contract liabilities balance. We did not have a material amount of revenue recognized in the three months ended December 31, 2018 from performance obligations satisfied or partially satisfied in previous periods.

Costs to Obtain and Fulfill a Contract

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

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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Revenue Recognition (continued)

Dual Reporting
In accordance with ASC 606, the disclosure of the impact of adoption to the Consolidated Balance Sheet was as follows (in millions):
 
December 31, 2018
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
ASSETS
Current assets:
 
 
 
 
 
Receivables
$
1,188.7

 
$
(3.0
)
 
$
1,185.7

Other current assets
168.5

 
(16.4
)
 
152.1

Deferred income taxes
196.4

 
(1.2
)
 
195.2

Other assets
109.1

 
(10.9
)
 
98.2

LIABILITIES AND SHAREOWNERS’ EQUITY
Current liabilities:
 
 
 
 
 
Contract liabilities
$
293.0

 
$
(20.4
)
 
$
272.6

Customer returns, rebates and incentives
196.2

 
(3.0
)
 
193.2

Other current liabilities
295.3

 
(4.5
)
 
290.8

Shareowners’ equity:
 
 


 
 
Retained earnings
6,167.6

 
(3.8
)
 
6,163.8

Accumulated other comprehensive loss
(976.9
)
 
0.2

 
(976.7
)

In accordance with ASC 606, the disclosure of the impact of adoption to the Consolidated Statement of Operations was as follows (in millions):
 
Three Months Ended December 31, 2018
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
Sales
 
 
 
 
 
Products and solutions
$
1,457.6

 
$
4.6

 
$
1,462.2

Services
184.7

 
(9.2
)
 
175.5

Cost of sales
 
 


 
 
Products and solutions
(782.4
)
 
(1.1
)
 
(783.5
)
Services
(121.2
)
 
8.8

 
(112.4
)
Income tax provision
(40.5
)
 
(0.8
)
 
(41.3
)









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Table of Contents
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Revenue Recognition (continued)

In accordance with ASC 606, the disclosure of the impact of adoption to the Consolidated Statement of Comprehensive Income was as follows (in millions):
 
Three Months Ended December 31, 2018
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
Net income
$
80.3

 
$
2.3

 
$
82.6

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
Currency translation adjustments
(28.5
)
 
0.2

 
(28.3
)


In accordance with ASC 606, the disclosure of the impact of adoption to the Consolidated Statement of Cash Flows was as follows (in millions):
 
Three Months Ended December 31, 2018
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
Operating activities:
 
 
 
 
 
Net income
$
80.3

 
$
2.3

 
$
82.6

Receivables
(6.1
)
 
(1.3
)
 
(7.4
)
Contract liabilities
26.9

 
(1.1
)
 
25.8

Income taxes
12.2

 
0.6

 
12.8

Other assets and liabilities
(4.3
)
 
(0.5
)
 
(4.8
)


In accordance with ASC 606, the disclosure of the impact of adoption to the Consolidated Statement of Shareowners' Equity was as follows (in millions):
 
Three Months Ended December 31, 2018
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
Retained earnings
 
 
 
 
 
Beginning balance
$
6,204.2

 
$
(6.1
)
 
$
6,198.1

Net income (loss)
80.3

 
2.3

 
82.6

Accumulated other comprehensive loss
 
 


 
 
Other comprehensive (loss) income
(35.0
)
 
0.2

 
(34.8
)



15
Table of Contents
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

3. Share-Based Compensation
We recognized $11.0 million and $8.6 million of pre-tax share-based compensation expense during the three months ended December 31, 2018 and 2017 respectively. Our annual grant of share-based compensation takes place during the first quarter of each fiscal year. The number of shares granted to employees and non-employee directors and the weighted average fair value per share during the periods presented were (in thousands, except per share amounts):
 
Three Months Ended December 31,
 
2018
 
2017
 
Grants
 
Wtd. Avg.
Share
Fair Value
 
Grants
 
Wtd. Avg.
Share
Fair Value
Stock options
919

 
$
32.51

 
837

 
$
35.54

Performance shares
57

 
155.04

 
40

 
219.04

Restricted stock and restricted stock units
39

 
172.14

 
31

 
192.70

Unrestricted stock
4

 
188.01

 
5

 
180.70


4. Inventories
Inventories consist of (in millions):
 
 
December 31,
2018
 
September 30,
2018
Finished goods
$
246.8

 
$
224.3

Work in process
194.4

 
180.0

Raw materials
186.0

 
177.3

Inventories
$
627.2

 
$
581.6


5. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the three months ended December 31, 2018, are (in millions):
 
Architecture &
Software
 
Control Products
& Solutions
 
Total
Balance as of September 30, 2018
$
422.3

 
$
653.2

 
$
1,075.5

Translation
(2.7
)
 
(8.7
)
 
(11.4
)
Balance as of December 31, 2018
$
419.6

 
$
644.5

 
$
1,064.1



Other intangible assets consist of (in millions):
 
December 31, 2018
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
Computer software products
$
190.9

 
$
120.8

 
$
70.1

Customer relationships
111.2

 
66.2

 
45.0

Technology
106.1

 
64.8

 
41.3

Trademarks
31.2

 
24.2

 
7.0

Other
10.9

 
9.8

 
1.1

Total amortized intangible assets
450.3

 
285.8

 
164.5

Allen-Bradley® trademark not subject to amortization
43.7

 
—

 
43.7

Total
$
494.0

 
$
285.8

 
$
208.2



16
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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5. Goodwill and Other Intangible Assets (continued)
 
September 30, 2018
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
Computer software products
$
190.9

 
$
118.1

 
$
72.8

Customer relationships
112.9

 
66.2

 
46.7

Technology
106.8

 
64.0

 
42.8

Trademarks
32.0

 
24.0

 
8.0

Other
11.2

 
10.0

 
1.2

Total amortized intangible assets
453.8

 
282.3

 
171.5

Allen-Bradley® trademark not subject to amortization
43.7

 
—

 
43.7

Total
$
497.5

 
$
282.3

 
$
215.2


Estimated amortization expense is $24.5 million in 2019, $21.6 million in 2020, $20.9 million in 2021, $18.9 million in 2022 and $17.7 million in 2023.
We perform our annual evaluation of goodwill and indefinite life intangible assets for impairment as required by accounting principles generally accepted in the United States (U.S. GAAP) during the second quarter of each fiscal year.
6. Short-term Debt
Our short-term debt obligations primarily consist of commercial paper borrowings. Commercial paper borrowings outstanding were $630.0 million and $550.0 million at December 31, 2018 and September 30, 2018, respectively. The weighted average interest rate of the commercial paper outstanding was 2.61 percent and 2.27 percent at December 31, 2018 and September 30, 2018, respectively.
7. Other Current Liabilities
Other current liabilities consist of (in millions):
 
December 31,
2018
 
September 30,
2018
Unrealized losses on foreign exchange contracts
$
5.0

 
$
6.2

Product warranty obligations
26.4

 
27.9

Taxes other than income taxes
41.9

 
40.9

Accrued interest
15.5

 
12.3

Income taxes payable
108.2

 
74.4

Other
98.3

 
64.9

Other current liabilities
$
295.3

 
$
226.6



17
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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

8. Product Warranty Obligations
We record a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience. Most of our products are covered under a warranty period that runs for twelve months from either the date of sale or installation. We also record a liability for specific warranty matters when they become probable and reasonably estimable.
Changes in product warranty obligations are (in millions):
 
Three Months Ended
December 31,
 
2018
 
2017
Balance at beginning of period
$
27.9

 
$
28.5

Accruals for warranties issued during the current period
5.6

 
6.4

Adjustments to pre-existing warranties
(2.4
)
 
3.9

Settlements of warranty claims
(4.7
)
 
(4.9
)
Balance at end of period
$
26.4

 
$
33.9

 
9. Investments
Our investments consist of (in millions):
 
 
December 31,
2018
 
September 30,
2018
Fixed income securities
 
$
234.9

 
$
419.0

Equity securities
 
877.3

 
1,090.0

Other
 
69.0

 
69.9

Total investments
 
1,181.2

 
1,578.9

Less short-term investments
 
(121.2
)
 
(290.9
)
Long-term investments
 
$
1,060.0

 
$
1,288.0


We record investments in fixed income and equity securities, classified as available-for-sale investments or trading investments, at fair value.
Available-for-sale Investments
We invest in certificates of deposit, time deposits, commercial paper and other fixed income securities that are classified as available-for-sale. Unrealized gains and losses on available-for-sale investments are included in our Consolidated Balance Sheet as a component of Accumulated other comprehensive loss, net of any deferred taxes. Realized gains and losses are included in net income.
Our available-for-sale investments consist of (in millions):
 
 
December 31,
2018
 
September 30,
2018
Certificates of deposit and time deposits
 
$
3.7

 
$
169.6

Corporate debt securities
 
151.1

 
158.4

Government securities
 
59.0

 
65.8

Asset-backed securities
 
21.1

 
25.2

Total
 
$
234.9

 
$
419.0


Pre-tax gross unrealized gains and losses on available-for-sale investments were not material as of December 31, 2018. Pre-tax gross realized gains and losses on available-for-sale investments were not material for the three months ended December 31, 2018. At December 31, 2018, there were no outstanding purchases of available-for-sale investments recorded in accounts payable.


18
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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

9. Investments (continued)
We evaluated all available-for-sale investments for which the fair value was less than amortized cost for impairment on an individual security basis at December 31, 2018. This assessment included consideration of our intent and ability to hold the security and the credit risks specific to each security. We determined that the declines in fair value of these investments were not other than temporary as of December 31, 2018, and accordingly we did not recognize any impairment charges in net income.
The table below summarizes the contractual maturities of our investments as of December 31, 2018 (in millions). Actual maturities may differ from the contractual maturities below as borrowers may have the right to prepay certain obligations.
 
 
Fair Value
Less than one year
 
$
121.2

Due in one to five years
 
113.7

Total
 
$
234.9


Classification of our available-for-sale investments as current or noncurrent is based on the nature of the investment and when the investment is reasonably expected to be realized. These investments were included in the following line items within the Consolidated Balance Sheet (in millions):
 
 
December 31,
2018
 
September 30,
2018
Short-term investments
 
$
121.2

 
$
290.9

Long-term investments
 
113.7

 
128.1

Total
 
$
234.9

 
$
419.0


Trading Investments
On July 19, 2018, we purchased 10,582,010 shares of PTC Inc. ("PTC") common stock (the "PTC Shares") in a private placement at a purchase price of $94.50 per share for an aggregate purchase price of approximately $1.0 billion (the "Purchase"). The PTC Shares are considered equity securities. For a period of approximately 3 years after the Purchase, we are subject to entity-specific transfer restrictions subject to certain exceptions. Following the first anniversary of the Purchase, the Company will be allowed to transfer, in the aggregate in any 90-day period, a number of PTC Shares equal to up to 1.0% of PTC's total outstanding shares of common stock as of the first day in such 90-day period, but no more than 2.0% of PTC's total outstanding shares of common stock in each of the second year and the third year after the Purchase.
The PTC Shares are recorded at fair value and classified as trading securities. At December 31, 2018, the fair value of the PTC Shares was $877.3 million, which was recorded in long-term investments in the Consolidated Balance Sheet. For the three months ended December 31, 2018, a loss of $212.7 million related to the PTC Shares was recorded in Other income (expense) in the Consolidated Statement of Operations. During the three months ended December 31, 2018, the PTC Shares were registered by PTC under the Securities Act of 1933, as amended, and the discount for lack of marketability was reversed.
Fair Value of Investments
U.S. GAAP defines fair value as the price that would be received for an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. U.S. GAAP also classifies the inputs used to measure fair value into the following hierarchy:
Level 1:
 
Quoted prices in active markets for identical assets or liabilities.
Level 2:
 
Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3:
 
Unobservable inputs for the asset or liability.
We recognize all available-for-sale and trading investments at fair value in the Consolidated Balance Sheet. The valuation methodologies used for our investments measured at fair value are described as follows.

19
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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

9. Investments (continued)
Certificates of deposit and time deposits — These investments are stated at cost, which approximates fair value.
Commercial paper — These investments are stated at amortized cost, which approximates fair value.
Corporate debt securities — Valued at either the yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks.
Government securities — Valued at the most recent closing price on the active market on which the individual securities are traded or, absent an active market, utilizing observable inputs such as closing prices in less frequently traded markets.
Asset-backed securities — Valued using a discounted cash flow approach that maximizes observable inputs, such as current yields of benchmark instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks.
Equity securities — Prior to their registration, the PTC Shares were valued using the most recent closing price of PTC common stock quoted on Nasdaq, less a temporary discount for lack of marketability. The discount for lack of marketability was calculated using a put-option model which includes observable and unobservable inputs and was categorized as Level 3 in the fair value hierarchy. As a result of the registration of the PTC Shares and reversal of the discount during the three months ended December 31, 2018, these securities were transferred from Level 3 to Level 1.

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 other transfers between levels of fair value measurements during the periods presented.
Fair values of our investments were (in millions):
 
 
December 31, 2018
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Certificates of deposit and time deposits
 
$
—

 
$
3.7

 
$
—

 
$
3.7

Corporate debt securities
 
—

 
151.1

 
—

 
151.1

Government securities
 
48.9

 
10.1

 
—

 
59.0

Asset-backed securities
 
—

 
21.1

 
—

 
21.1

Equity securities
 
877.3

 
—

 
—

 
877.3

Total
 
$
926.2

 
$
186.0

 
$
—

 
$
1,112.2

 
 
September 30, 2018
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Certificates of deposit and time deposits
 
$
—

 
$
169.6

 
$
—

 
$
169.6

Corporate debt securities
 
—

 
158.4

 
—

 
158.4

Government securities
 
55.7

 
10.1

 
—

 
65.8

Asset-backed securities
 
—

 
25.2

 
—

 
25.2

Equity securities
 
—

 
—

 
1,090.0

 
1,090.0

Total
 
$
55.7

 
$
363.3

 
$
1,090.0

 
$
1,509.0



20
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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

9. Investments (continued)
The table below sets forth a summary of changes in the fair value of our Level 3 investments (in millions):
 
 
Fair Value
Balance September 30, 2018
 
$
1,090.0

Unrealized loss
 
(149.0
)
Transfer to Level 1 upon registration of PTC Shares on November 28, 2018
 
(941.0
)
Balance December 31, 2018
 
$
—


10. Retirement Benefits
The components of net periodic benefit cost are (in millions):
 
 
Pension Benefits
 
Three Months Ended
December 31,
 
2018
 
2017
Service cost
$
19.6

 
$
22.2

Interest cost
39.6


38.8

Expected return on plan assets
(61.2
)

(61.2
)
Amortization:
 
 
 
Prior service cost
0.3

 
0.2

Net actuarial loss
19.5


28.3

Settlements
(0.2
)
 
—

Net periodic benefit cost
$
17.6

 
$
28.3

 

 
Other Postretirement Benefits
 
Three Months Ended
December 31,
 
2018
 
2017
Service cost
$
0.2

 
$
0.3

Interest cost
0.6

 
0.6

Amortization:
 
 
 
Prior service credit
(1.4
)
 
(1.3
)
Net actuarial loss
0.2

 
0.4

Net periodic benefit credit
$
(0.4
)
 
$
—


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.


21
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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

11. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component were (in millions):
Three Months Ended December 31, 2018
 
 
 
 
 
 
 
 
 
Pension and other postretirement benefit plan adjustments, net of tax