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ROCKWELL AUTOMATION, INC - Quarter Report: 2020 March (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_________________________________________
FORM 10-Q 
_________________________________________
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2020
OR

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
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 
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
_________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock ($1.00 par value)
 
ROK
 
New York Stock Exchange
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  ☑
115,823,960 shares of registrant’s Common Stock were outstanding on March 31, 2020.


INDEX
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



3
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ROCKWELL AUTOMATION, INC.

CONSOLIDATED BALANCE SHEET
(Unaudited)
(in millions, except per share amounts)
 
March 31,
2020
 
September 30,
2019
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
641.8

 
$
1,018.4

Receivables
1,301.1

 
1,178.7

Inventories
629.0

 
575.7

Other current assets
186.3

 
212.9

Total current assets
2,758.2

 
2,985.7

Property, net of accumulated depreciation of $1,616.3 and $1,566.0, respectively
560.8

 
571.9

Operating lease right-of-use assets
318.5

 
—

Goodwill
1,362.3

 
1,071.1

Other intangible assets, net
433.0

 
194.1

Deferred income taxes
369.3

 
364.1

Long-term investments
716.3

 
793.9

Other assets
147.5

 
132.2

Total
$
6,665.9

 
$
6,113.0

LIABILITIES AND SHAREOWNERS’ EQUITY
Current liabilities:
 
 
 
Short-term debt
$
81.5

 
$
—

Current portion of long-term debt
—

 
300.5

Accounts payable
742.5

 
694.6

Compensation and benefits
135.5

 
239.0

Contract liabilities
326.2

 
275.6

Customer returns, rebates and incentives
194.5

 
199.2

Other current liabilities
281.8

 
227.9

Total current liabilities
1,762.0

 
1,936.8

Long-term debt
1,970.2

 
1,956.4

Retirement benefits
1,198.8

 
1,231.9

Operating lease liabilities
253.5

 
—

Other liabilities
543.5

 
583.7

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
1,791.2

 
1,709.1

Retained earnings
6,795.8

 
6,440.2

Accumulated other comprehensive loss
(1,625.8
)
 
(1,488.0
)
Common stock in treasury, at cost (shares held: 65.6 and 65.7, respectively)
(6,521.8
)
 
(6,438.5
)
Shareowners’ equity attributable to Rockwell Automation, Inc.
620.8

 
404.2

Noncontrolling interests
317.1

 
—

Total shareowners’ equity
937.9

 
404.2

Total
$
6,665.9

 
$
6,113.0

See Notes to Consolidated Financial Statements.

4

CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2020
 
2019
 
2020
 
2019
Sales
 
 
 
 
 
 
 
Products and solutions
$
1,506.0

 
$
1,466.8

 
$
3,014.9

 
$
2,924.4

Services
175.3

 
190.4

 
350.9

 
375.1

 
1,681.3

 
1,657.2

 
3,365.8

 
3,299.5

Cost of sales
 
 
 
 
 
 
 
Products and solutions
(867.9
)
 
(823.6
)
 
(1,733.9
)
 
(1,606.0
)
Services
(114.6
)
 
(125.4
)
 
(230.2
)
 
(246.6
)
 
(982.5
)
 
(949.0
)
 
(1,964.1
)
 
(1,852.6
)
Gross profit
698.8

 
708.2

 
1,401.7

 
1,446.9

Selling, general and administrative expenses
(352.0
)
 
(385.0
)
 
(755.2
)
 
(771.7
)
Change in fair value of investments
(144.8
)
 
98.2

 
(73.8
)
 
(114.5
)
Other (expense) income
(9.1
)
 
4.7

 
(18.8
)
 
6.9

Interest expense
(25.5
)
 
(23.7
)
 
(51.9
)
 
(44.4
)
Income before income taxes
167.4

 
402.4

 
502.0

 
523.2

Income tax provision (Note 14)
(37.5
)
 
(56.4
)
 
(56.7
)
 
(96.9
)
Net income
129.9

 
346.0

 
445.3

 
426.3

Net (loss) income attributable to noncontrolling interests
(2.3
)
 
—

 
2.4

 
—

Net income attributable to Rockwell Automation, Inc.
$
132.2

 
$
346.0

 
$
442.9

 
$
426.3

Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.14

 
$
2.91

 
$
3.82

 
$
3.56

Diluted
$
1.13

 
$
2.88

 
$
3.80

 
$
3.53

Weighted average outstanding shares:
 
 
 
 
 
 
 
Basic
116.0

 
118.9

 
115.8

 
119.6

Diluted
116.6

 
120.0

 
116.6

 
120.7

See Notes to Consolidated Financial Statements.


5

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

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2020
 
2019
 
2020
 
2019
Net income
$
129.9

 
$
346.0

 
$
445.3

 
$
426.3

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Pension and other postretirement benefit plan adjustments (net of tax (expense) of ($8.0), ($4.3), ($15.8), and ($8.6))
27.4

 
14.2

 
54.8

 
28.0

Currency translation adjustments
(74.3
)
 
19.0

 
(52.2
)
 
(9.5
)
Net change in unrealized gains and losses on cash flow hedges (net of tax (expense) benefit of ($2.6), ($0.5), ($1.5), and $6.0)
4.5

 
2.5

 
2.0

 
(18.3
)
Net change in unrealized gains and losses on available-for-sale investments (net of tax (expense) of ($0.0), ($0.2), ($0.0), and ($0.3))
—

 
0.9

 
—

 
1.4

Other comprehensive (loss) income
(42.4
)
 
36.6

 
4.6

 
1.6

Comprehensive income
87.5

 
382.6

 
449.9

 
427.9

Comprehensive (loss) income attributable to noncontrolling interests
(3.2
)
 
—

 
1.8

 
—

Comprehensive income attributable to Rockwell Automation, Inc.
$
90.7

 
$
382.6

 
$
448.1

 
$
427.9

See Notes to Consolidated Financial Statements.


6

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

 
Six Months Ended
March 31,
 
2020
 
2019
Operating activities:
 
 
 
Net income
$
445.3

 
$
426.3

Adjustments to arrive at cash provided by operating activities:
 
 
 
Depreciation
60.2

 
62.1

Amortization of intangible assets
24.0

 
13.2

Change in fair value of investments
73.8

 
114.5

Share-based compensation expense
22.4

 
21.8

Retirement benefit expense
63.4

 
34.4

Pension contributions
(17.3
)
 
(15.1
)
Net (gain) loss on disposition of property
(1.2
)
 
1.7

Settlement of treasury locks
—

 
(35.7
)
Changes in assets and liabilities, excluding effects of acquisitions and foreign
currency adjustments:
 
 
 
Receivables
(134.2
)
 
(41.5
)
Inventories
(12.1
)
 
(86.0
)
Accounts payable
50.9

 
(12.1
)
Contract liabilities
52.4

 
41.2

Compensation and benefits
(99.1
)
 
(90.5
)
Income taxes
(79.2
)
 
(66.7
)
Other assets and liabilities
(0.8
)
 
(11.8
)
Cash provided by operating activities
448.5

 
355.8

Investing activities:
 
 
 
Capital expenditures
(56.6
)
 
(80.9
)
Acquisition of businesses, net of cash acquired
(259.3
)
 
(20.7
)
Purchases of investments
(2.6
)
 
(2.8
)
Proceeds from maturities of investments
5.4

 
219.2

Proceeds from sale of investments
37.9

 
—

Proceeds from sale of property
1.6

 
3.3

Cash (used for) provided by investing activities
(273.6
)
 
118.1

Financing activities:
 
 
 
Net issuance (repayment) of short-term debt
81.5

 
(549.7
)
Issuance of long-term debt, net of discount and issuance costs
—

 
987.6

Repayment of long-term debt
(300.0
)
 
—

Cash dividends
(236.3
)
 
(232.5
)
Purchases of treasury stock
(213.7
)
 
(535.2
)
Proceeds from the exercise of stock options
133.7

 
23.8

Other financing activities
0.8

 
—

Cash used for financing activities
(534.0
)
 
(306.0
)
Effect of exchange rate changes on cash
(17.5
)
 
(6.7
)
(Decrease) increase in cash and cash equivalents
(376.6
)
 
161.2

Cash and cash equivalents at beginning of period
1,018.4

 
618.8

Cash and cash equivalents at end of period
$
641.8

 
$
780.0

See Notes to Consolidated Financial Statements.

7

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 December 31, 2019
 
$
181.4

 
$
1,775.5

 
$
6,782.0

 
$
(1,584.3
)
 
$
(6,437.6
)
 
$
717.0

 
$
319.5

 
$
1,036.5

Net income
 
—

 
—

 
132.2

 
—

 
—

 
132.2

 
(2.3
)
 
129.9

Other comprehensive income (loss)
 
—

 
—

 
—

 
(41.5
)
 
—

 
(41.5
)
 
(0.9
)
 
(42.4
)
Common stock issued (including share-based compensation impact)
 
—

 
16.8

 
—

 
—

 
22.0

 
38.8

 
—

 
38.8

Share repurchases
 
—

 
—

 
—

 
—

 
(106.2
)
 
(106.2
)
 
—

 
(106.2
)
Cash dividends declared (1)
 
—

 
—

 
(118.4
)
 
—

 
—

 
(118.4
)
 
—

 
(118.4
)
Change in noncontrolling interest
 
—

 
(1.1
)
 
—

 
—

 
—

 
(1.1
)
 
0.8

 
(0.3
)
Balance at March 31, 2020
 
$
181.4

 
$
1,791.2

 
$
6,795.8

 
$
(1,625.8
)
 
$
(6,521.8
)
 
$
620.8

 
$
317.1

 
$
937.9

 
 
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 December 31, 2018
 
$
181.4

 
$
1,674.4

 
$
6,167.6

 
$
(976.9
)
 
$
(5,772.2
)
 
$
1,274.3

 
$
—

 
$
1,274.3

Net income
 
—

 
—

 
346.0

 
—

 
—

 
346.0

 
—

 
346.0

Other comprehensive income (loss)
 
—

 
—

 
—

 
36.6

 
—

 
36.6

 
—

 
36.6

Common stock issued (including share-based compensation impact)
 
—

 
12.3

 
—

 
—

 
18.7

 
31.0

 
—

 
31.0

Share repurchases
 
—

 
—

 
—

 
—

 
(236.0
)
 
(236.0
)
 
—

 
(236.0
)
Cash dividends declared (1)
 
—

 
—

 
(115.6
)
 
—

 
—

 
(115.6
)
 
—

 
(115.6
)
Balance at March 31, 2019
 
$
181.4

 
$
1,686.7

 
$
6,398.0

 
$
(940.3
)
 
$
(5,989.5
)
 
$
1,336.3

 
$
—

 
$
1,336.3

(1) Cash dividends were $1.02 per share and $0.97 per share in the three months ended March 31, 2020 and 2019, respectively.
See Notes to Consolidated Financial Statements.

8

CONSOLIDATED STATEMENT OF SHAREOWNERS’ EQUITY (continued)
(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, 2019
 
$
181.4

 
$
1,709.1

 
$
6,440.2

 
$
(1,488.0
)
 
$
(6,438.5
)
 
$
404.2

 
$
—

 
$
404.2

Net income
 
—

 
—

 
442.9

 
—

 
—

 
442.9

 
2.4

 
445.3

Other comprehensive income (loss)
 
—

 
—

 
—

 
5.2

 
—

 
5.2

 
(0.6
)
 
4.6

Common stock issued (including share-based compensation impact)
 
—

 
33.1

 
—

 
—

 
123.1

 
156.2

 
—

 
156.2

Share repurchases
 
—

 
—

 
—

 
—

 
(206.4
)
 
(206.4
)
 
—

 
(206.4
)
Cash dividends declared (1)
 
—

 
—

 
(236.3
)
 
—

 
—

 
(236.3
)
 
—

 
(236.3
)
Adoption of accounting standards
 
—

 
—

 
149.0

 
(146.8
)
 
—

 
2.2

 
—

 
2.2

Change in noncontrolling interest
 
—

 
49.0

 
—

 
3.8

 
—

 
52.8

 
315.3

 
368.1

Balance at March 31, 2020
 
$
181.4

 
$
1,791.2

 
$
6,795.8

 
$
(1,625.8
)
 
$
(6,521.8
)
 
$
620.8

 
$
317.1

 
$
937.9

 
 
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, 2018
 
$
181.4

 
$
1,681.4

 
$
6,198.1

 
$
(941.9
)
 
$
(5,501.5
)
 
$
1,617.5

 
$
—

 
$
1,617.5

Net income
 
—

 
—

 
426.3

 
—

 
—

 
426.3

 
—

 
426.3

Other comprehensive income (loss)
 
—

 
—

 
—

 
1.6

 
—

 
1.6

 
—

 
1.6

Common stock issued (including share-based compensation impact)
 
—

 
5.3

 
—

 
—

 
40.8

 
46.1

 
—

 
46.1

Share repurchases
 
—

 
—

 
—

 
—

 
(528.8
)
 
(528.8
)
 
—

 
(528.8
)
Cash dividends declared (1)
 
—

 
—

 
(232.5
)
 
—

 
—

 
(232.5
)
 
—

 
(232.5
)
Adoption of accounting standard
 
—

 
—

 
6.1

 
—

 
—

 
6.1

 
—

 
6.1

Balance at March 31, 2019
 
$
181.4

 
$
1,686.7

 
$
6,398.0

 
$
(940.3
)
 
$
(5,989.5
)
 
$
1,336.3

 
$
—

 
$
1,336.3

(1) Cash dividends were $2.04 per share and $1.94 per share in the six months ended March 31, 2020 and 2019, respectively.
See Notes to Consolidated Financial Statements.


9
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, 2019. The results of operations for the three and six months ended March 31, 2020, 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 $20.7 million at March 31, 2020, and $17.4 million at September 30, 2019. In addition, receivables are stated net of an allowance for certain customer returns, rebates and incentives of $9.3 million at March 31, 2020 and $12.4 million at September 30, 2019.
Earnings Per Share
The following table reconciles basic and diluted earnings per share (EPS) amounts (in millions, except per share amounts):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2020
 
2019
 
2020
 
2019
Net income attributable to Rockwell Automation
$
132.2

 
$
346.0

 
$
442.9

 
$
426.3

Less: Allocation to participating securities
—

 
(0.4
)
 
(0.4
)
 
(0.4
)
Net income available to common shareowners
$
132.2

 
$
345.6


$
442.5

 
$
425.9

Basic weighted average outstanding shares
116.0

 
118.9

 
115.8

 
119.6

Effect of dilutive securities
 
 
 
 
 
 
 
Stock options
0.6

 
1.0

 
0.8

 
1.0

Performance shares
—

 
0.1

 
—

 
0.1

Diluted weighted average outstanding shares
116.6

 
120.0

 
116.6

 
120.7

Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.14

 
$
2.91

 
$
3.82

 
$
3.56

Diluted
$
1.13

 
$
2.88

 
$
3.80

 
$
3.53


For each of the three and six months ended March 31, 2020, 2.3 million shares related to share-based compensation awards were excluded from the diluted EPS calculation because they were antidilutive. For each of the three and six months ended March 31, 2019, 1.8 million shares related to share-based compensation awards were excluded from the diluted EPS calculation because they were antidilutive.
Non-Cash Investing and Financing Activities
Capital expenditures of $18.5 million and $11.1 million were accrued within accounts payable and other current liabilities at March 31, 2020 and 2019, respectively. At March 31, 2020 and 2019, there were $2.0 million and $11.9 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.
Leases
We have operating leases primarily for real estate, vehicles, and equipment. We determine if a contract is, or contains, a lease at contract inception. A right-of-use (ROU) asset and a corresponding lease liability are recognized at commencement for contracts that are, or contain, a lease with an original term greater than 12 months. ROU assets represent our right to use an underlying asset during the lease term, including periods for which renewal options are reasonably certain to be exercised, and lease liabilities represent our obligation to make lease payments arising from the lease. Lease expense is recognized on a straight-line basis over the lease term for operating leases with an original term of 12 months or less.

10
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)



Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance and tax payments. A portion of our real estate leases is generally subject to annual changes based upon an index. The changes based upon the index are treated as variable lease payments. The variable portion of lease payments is not included in our ROU assets or lease liabilities and is expensed when incurred. We elected to not separate lease and nonlease components of contracts for all underlying asset classes. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.
Lease liabilities are recognized at the contract commencement date based on the present value of remaining lease payments over the lease term. To calculate the lease liabilities we use our incremental borrowing rate. We determine our incremental borrowing rate at the commencement date using our unsecured borrowing rate, adjusted for collateralization and lease term. For leases denominated in a currency other than the U.S. dollar, the collateralized borrowing rate in the foreign currency is determined using the U.S. dollar and foreign currency swap spread. Long-term lease liabilities are presented as Operating lease liabilities and current lease liabilities are included in Other current liabilities in the Consolidated Balance Sheet.
ROU assets are recognized at the contract commencement date at the value of the related lease liability, adjusted for any prepayments, lease incentives received and initial direct costs incurred. Operating lease ROU assets are presented as Operating lease right-of-use assets in the Consolidated Balance Sheet.
Lease expenses for operating leases are recognized on a straight-line basis over the lease term and recorded in Cost of sales and Selling, general and administrative expenses in the Consolidated Statement of Operations.
Recently Adopted 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 adopted the new standard using the modified retrospective transition method, which resulted in an immaterial cumulative-effect adjustment to the opening balance of retained earnings as of October 1, 2019, our adoption date. The amount of lease right-of-use assets and corresponding lease liabilities recorded in the Consolidated Balance Sheet upon adoption was $316 million and $329 million, respectively. We have implemented necessary changes to accounting policies, processes, controls and systems to enable compliance with this new standard.

In February 2018, the FASB issued a new standard regarding the reporting of comprehensive loss, which gives entities the option to reclassify tax effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) stranded in accumulated other comprehensive loss into retained earnings. We adopted the new standard as of October 1, 2019, and elected to reclassify tax effects of $146.8 million from accumulated other comprehensive loss into retained earnings.
Acquisition Announcements
In February 2020, we announced that we entered into an agreement to acquire Italy-based ASEM, S.p.A. (ASEM), a leading provider of digital automation technologies. ASEM provides a complete range of Industrial PCs (IPCs), Human-Machine Interface (HMI) hardware and software, remote access capabilities, and secure Industrial IoT gateway solutions. In February 2020, we also announced that we entered into an agreement to acquire Kalypso, LP, a U.S.-based software delivery and consulting firm specializing in the digital transformation of industrial companies with a strong client base in life sciences, consumer products, and industrial high-tech. Both transactions are expected to close in the next few weeks, subject to receipt of regulatory approvals and satisfaction of other customary closing conditions.
Subsequent Event

On April 20, 2020, we entered into a $400 million senior unsecured 364-day term loan credit agreement and were advanced the full loan amount. This agreement is in addition to our existing $1.25 billion unsecured revolving credit facility expiring in November 2023, which remains available and undrawn. Borrowings under this term loan bear interest based on short-term money market rates in effect during the period the borrowings are outstanding. The term loan agreement contains covenants similar to those under our $1.25 billion unsecured revolving credit facility, under which we agree to maintain an EBITDA-to-interest ratio of at least 3.0 to 1.0. The EBITDA-to-interest ratio is defined in the term loan agreement as the ratio of consolidated EBITDA (as defined in the term loan agreement) for the preceding four quarters to consolidated interest expense for the same period.

11
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

2. Revenue Recognition
Unfulfilled Performance Obligations
As of March 31, 2020, 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 $310 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 March 31, 2020.
Disaggregation of Revenue
The following series of tables present our revenue disaggregation by geographic region and types of products or services, and also present these disaggregation categories for our two operating segments. We attribute sales to the geographic regions based on the country of destination.
The following reflects the disaggregation of our revenues by operating segment and by geographic region (in millions):
 
Three Months Ended March 31, 2020
 
Six Months Ended March 31, 2020
 
Architecture & Software
 
Control Products & Solutions
 
Total
 
Architecture & Software
 
Control Products & Solutions
 
Total
North America
$
447.9

 
$
574.2

 
$
1,022.1

 
$
888.1

 
$
1,140.9

 
$
2,029.0

Europe, Middle East and Africa (EMEA)
162.3

 
171.3

 
333.6

 
311.2

 
332.5

 
643.7

Asia Pacific
98.8

 
102.0

 
200.8

 
210.2

 
220.2

 
430.4

Latin America
48.1

 
76.7

 
124.8


99.2

 
163.5

 
262.7

Total Company Sales
$
757.1

 
$
924.2

 
$
1,681.3

 
$
1,508.7

 
$
1,857.1

 
$
3,365.8

 
Three Months Ended March 31, 2019
 
Six Months Ended March 31, 2019
 
Architecture & Software
 
Control Products & Solutions
 
Total
 
Architecture & Software
 
Control Products & Solutions
 
Total
North America
$
423.1

 
$
564.0

 
$
987.1

 
$
865.9

 
$
1,120.0

 
$
1,985.9

Europe, Middle East and Africa (EMEA)
176.0

 
155.1

 
331.1

 
331.5

 
294.0

 
625.5

Asia Pacific
97.8

 
116.9

 
214.7

 
199.1

 
230.0

 
429.1

Latin America
42.8

 
81.5

 
124.3

 
96.3

 
162.7

 
259.0

Total Company Sales
$
739.7

 
$
917.5

 
$
1,657.2

 
$
1,492.8

 
$
1,806.7

 
$
3,299.5




12
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


The following reflects the disaggregation of our revenues by operating segment and by major types of products or services (in millions):
 
Three Months Ended March 31, 2020
 
Six Months Ended March 31, 2020
 
Architecture & Software
 
Control Products & Solutions
 
Total
 
Architecture & Software
 
Control Products & Solutions
 
Total
Products
$
757.1

 
$
379.0

 
$
1,136.1

 
$
1,508.7

 
$
767.7

 
$
2,276.4

Solutions & Services
—

 
545.2

 
545.2

 
—

 
1,089.4

 
1,089.4

Total Company Sales
$
757.1

 
$
924.2

 
$
1,681.3

 
$
1,508.7

 
$
1,857.1

 
$
3,365.8

 
Three Months Ended March 31, 2019
 
Six Months Ended March 31, 2019
 
Architecture & Software
 
Control Products & Solutions
 
Total
 
Architecture & Software
 
Control Products & Solutions
 
Total
Products
$
739.7

 
$
372.3

 
$
1,112.0

 
$
1,492.8

 
$
745.2

 
$
2,238.0

Solutions & Services
—

 
545.2

 
545.2

 
—

 
1,061.5

 
1,061.5

Total Company Sales
$
739.7

 
$
917.5

 
$
1,657.2

 
$
1,492.8

 
$
1,806.7

 
$
3,299.5


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 March 31, 2020.

Below is a summary of our contract liabilities balance:
 
March 31, 2020
 
March 31, 2019
Balance as of beginning of fiscal year
$
275.6

 
$
268.6

Balance as of end of period
326.2

 
308.9


The most significant changes in our contract liabilities balance during the six months ended March 31, 2020, were due to amounts billed, partially offset by revenue recognized that was included in the contract liabilities balance at the beginning of the period.

In the six months ended March 31, 2020, we recognized revenue of approximately $171.3 million that was included in the opening contract liabilities balance. We did not have a material amount of revenue recognized in the six months ended March 31, 2020, from performance obligations satisfied or partially satisfied in previous periods.

13
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

3. Share-Based Compensation
We recognized $10.9 million and $22.4 million of pre-tax share-based compensation expense during the three and six months ended March 31, 2020, respectively. We recognized $10.8 million and $21.8 million of pre-tax share-based compensation expense during the three and six months ended March 31, 2019, 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):
 
Six Months Ended March 31,
 
2020
 
2019
 
Grants
 
Wtd. Avg.
Share
Fair Value
 
Grants
 
Wtd. Avg.
Share
Fair Value
Stock options
970

 
$
35.78

 
946

 
$
32.48

Performance shares
37

 
265.04

 
57

 
155.04

Restricted stock and restricted stock units
49

 
192.60

 
41

 
171.03

Unrestricted stock
7

 
171.51

 
6

 
183.02



4. Inventories
Inventories consist of (in millions):
 
March 31,
2020
 
September 30,
2019
Finished goods
$
280.8

 
$
223.7

Work in process
174.9

 
178.4

Raw materials
173.3

 
173.6

Inventories
$
629.0

 
$
575.7



14
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5. Acquisitions
Sensia joint venture
On October 1, 2019, we completed the formation of a joint venture, Sensia, a fully integrated digital oilfield automation solutions provider. Rockwell Automation owns 53% of Sensia and Schlumberger owns 47% of Sensia. As part of the transaction, we made a $250 million payment to Schlumberger, which was funded by cash on hand. We control Sensia and, as of October 1, 2019, have consolidated Sensia in our financial results.
Rockwell Automation recorded assets acquired and liabilities assumed in connection with the formation of Sensia based on their estimated fair values as of the October 1, 2019, acquisition date. The preliminary purchase price allocation is as follows (in millions):
 
 
Purchase Price Allocation
Cash
 
$
16.2

Accounts receivable
 
22.6

Inventory
 
62.6

Other current assets
 
1.2

Property, plant and equipment
 
9.8

Other assets
 
6.2

Goodwill
 
291.7

Intangible assets
 
254.1

Total assets acquired
 
664.4

Less: Liabilities assumed
 
(37.0
)
Less: Deferred income taxes
 
(2.7
)
Less: Noncontrolling interest portion
 
(293.8
)
Net assets acquired
 
$
330.9

 
 
 
 
 
Purchase consideration
Cash
 
$
250.0

Noncontrolling interest portion of Rockwell Automation's contributed business
 
21.5

Additional paid in capital adjustment
 
52.4

Other
 
7.0

Net purchase consideration
 
$
330.9

Intangible assets assigned include $254.1 million of customer relationships, technology, and trade names (approximately 11-year weighted average useful life). We assigned the full amount of goodwill and all other assets acquired to our Control Products & Solutions segment. Some of the goodwill recorded is expected to be deductible for tax purposes. The assets were valued using an income approach, specifically the relief from royalty method and multi-period excess earnings method. The relief from royalty method calculates value based on hypothetical payments that would be saved by owning an asset rather than licensing it. The multi-period excess earnings method is the isolation of cash flows from a single intangible asset and measures fair value by discounting them to present value. These values are considered level 3 measurements under accounting principles generally accepted in the United States (U.S. GAAP) fair value hierarchy. Key assumptions used in the valuation of these intangible assets included: (1) a discount rate of 11%, (2) the estimated remaining life of technology and trademarks of from 5 to 15 years, and (3) the customer attrition rate ranging from 7.5% to 25%.
The allocation of the purchase price to identifiable assets 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 dates becomes available, but not to exceed 12 months following the acquisition date. Adjustments in purchase price allocations may require a change in the amounts allocated to net assets acquired during the periods in which the adjustments are determined. The fair value of the noncontrolling interest of the contributed business upon acquisition was $293.8 million. The consolidated value of Sensia is recorded at fair value for Schlumberger's contribution and at carrying value for Rockwell Automation's contribution.

15
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Acquisition-related costs recorded as expenses in the year ended September 30, 2019, and in the three and six months ended March 31, 2020, were not material.
Pro forma consolidated sales for the three and six months ended March 31, 2019, are approximately $1.7 billion and $3.4 billion, respectively, and the impact on earnings is not material. The preceding pro forma consolidated financial results of operations are as if the October 1, 2019, formation of Sensia occurred on October 1, 2018. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the transaction occurred as of that time.
Other acquisitions
In October 2019, we acquired MESTECH Services, a global provider of Manufacturing Execution Systems / Manufacturing Operations Management, digital solutions consulting, and systems integration services. We assigned the full amount of goodwill related to this acquisition to our Control Products & Solutions segment.
In January 2020, we acquired Avnet Data Security, LTD, an Israel-based cybersecurity provider with over 20 years of experience providing cybersecurity services. We assigned the full amount of goodwill related to this acquisition to our Control Products & Solutions segment.
6. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the six months ended March 31, 2020, are (in millions):
 
Architecture &
Software
 
Control Products
& Solutions
 
Total
Balance as of September 30, 2019
$
432.3

 
$
638.8

 
$
1,071.1

Acquisition of businesses
—

 
304.5

 
304.5

Translation
(3.5
)
 
(9.8
)
 
(13.3
)
Balance as of March 31, 2020
$
428.8

 
$
933.5

 
$
1,362.3



16
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Other intangible assets consist of (in millions):
 
March 31, 2020
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
Computer software products
$
190.6

 
$
133.4

 
$
57.2

Customer relationships
305.4

 
77.6

 
227.8

Technology
152.0

 
75.1

 
76.9

Trademarks
53.9

 
27.5

 
26.4

Other
13.8

 
12.8

 
1.0

Total amortized intangible assets
715.7

 
326.4

 
389.3

Allen-Bradley® trademark not subject to amortization
43.7

 
—

 
43.7

Total
$
759.4

 
$
326.4

 
$
433.0

 
September 30, 2019
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
Computer software products
$
190.6

 
$
128.3

 
$
62.3

Customer relationships
110.5

 
69.2

 
41.3

Technology
110.4

 
69.5

 
40.9

Trademarks
31.4

 
26.4

 
5.0

Other
10.6

 
9.7

 
0.9

Total amortized intangible assets
453.5

 
303.1

 
150.4

Allen-Bradley® trademark not subject to amortization
43.7

 
—

 
43.7

Total
$
497.2

 
$
303.1

 
$
194.1


Estimated amortization expense is $47.9 million in 2020, $47.2 million in 2021, $44.3 million in 2022, $43.1 million in 2023 and $40.1 million in 2024.
We perform our annual evaluation of goodwill and indefinite life intangible assets for impairment as required by U.S. GAAP at the beginning of 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. For our annual evaluation of goodwill, we may perform a qualitative test to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount in order to determine whether it is necessary to perform a quantitative goodwill impairment test. When performing the quantitative goodwill impairment test, we determine the fair value of each reporting unit under a combination of an income approach derived from discounted cash flows and a market multiples approach using selected comparable public companies. Significant assumptions used in the income approach include: management’s forecasted cash flows, including estimated future revenue growth rates and margins, discount rate, and terminal value. Forecasted future revenue growth and margins are based on management’s best estimate about current and future conditions. Discount rates are determined using weighted average cost of capital adjusted for risk factors specific to the reporting unit level, with comparison to market and industry data. The terminal value is estimated following common methodology of calculating the present value of estimated perpetual cash flow beyond the last projected period assuming constant discount and long-term growth rates. Significant assumptions used in the market multiples approach include selection of the comparable public companies and calculation of the appropriate market multiples.
For our 2020 annual evaluation, we performed a qualitative test for our Architecture & Software reporting unit and our Control Products & Solutions (excluding Sensia) reporting unit. We performed a quantitative test for our Sensia reporting unit. We also assessed the changes in events and circumstances subsequent to our annual test, including those related to the COVID-19 pandemic and the impact of recent declines in oil prices. Based on those evaluations, we concluded these assets were not impaired.

17
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

7. Long-term and Short-term Debt
 
 
March 31,
2020
 
September 30, 2019
2.050% notes, payable in March 2020
 
$
—

 
$
299.4

2.875% notes, payable in March 2025
 
321.0

 
307.6

6.70% debentures, payable in January 2028
 
250.0

 
250.0

3.500% notes, payable in March 2029
 
425.0

 
425.0

6.25% debentures, payable in December 2037
 
250.0

 
250.0

4.200% notes, payable in March 2049
 
575.0

 
575.0

5.20% debentures, payable in January 2098
 
200.0

 
200.0

Unamortized discount and other
 
(50.8
)
 
(50.1
)
Total
 
1,970.2

 
2,256.9

Less current portion
 
—

 
(300.5
)
Long-term debt
 
$
1,970.2

 
$
1,956.4


Our short-term debt as of March 31, 2020, consisted of $58.0 million of commercial paper borrowings and $23.5 million of interest-bearing loans from Schlumberger to Sensia due September 30, 2020. The short-term loans were entered into following formation of Sensia. See Note 5 in the Consolidated Financial Statements for additional information on Sensia. The weighted average interest rate of the commercial paper outstanding at March 31, 2020, was 2.4 percent. There were no commercial paper borrowings outstanding at September 30, 2019.
In March 2020, we repaid our $300.0 million 2.050% notes which were classified as the current portion of long-term debt at September 30, 2019.
8. Other Current Liabilities
Other current liabilities consist of (in millions):
 
March 31,
2020
 
September 30,
2019
Unrealized losses on foreign exchange contracts
$
19.0

 
$
5.4

Product warranty obligations
22.8

 
25.2

Taxes other than income taxes
52.9

 
43.8

Accrued interest
15.1

 
15.5

Income taxes payable
27.4

 
62.9

Operating lease liabilities
88.4

 
—

Other
56.2

 
75.1

Other current liabilities
$
281.8

 
$
227.9


9. Investments
Our investments consist of (in millions):
 
 
March 31,
2020
 
September 30,
2019
Fixed income securities
 
$
0.6

 
$
43.9

Equity securities
 
647.7

 
721.5

Other
 
68.6

 
68.1

Total investments
 
716.9

 
833.5

Less: Short-term investments(1)
 
(0.6
)
 
(39.6
)
Long-term investments
 
$
716.3

 
$
793.9


(1) Short-term investments are included in Other current assets in the Consolidated Balance Sheet.

18
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Equity Securities
On July 19, 2018, we purchased 10,582,010 shares of PTC Inc. ("PTC") common stock (the "PTC Shares") in a private placement at a purchase price of $94.50 per share for an aggregate purchase price of approximately $1.0 billion (the "Purchase"). The PTC Shares are considered equity securities. For a period of approximately 3 years after the Purchase, we are subject to entity-specific transfer restrictions subject to certain exceptions. Since the first anniversary of the Purchase, the Company has had the ability to transfer, in the aggregate in any 90-day period, a number of 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.
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.
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.
The PTC Shares are classified as level 1 in the fair value hierarchy and recognized at fair value in the Consolidated Balance Sheet using the most recent closing price of PTC common stock quoted on Nasdaq. At March 31, 2020, the fair value of the PTC Shares was $647.7 million, which was recorded in long-term investments in the Consolidated Balance Sheet. For the three and six months ended March 31, 2020, we recorded losses of $144.8 million and $73.8 million related to the PTC Shares, respectively. For the three and six months ended March 31,2019, we recorded gains of $98.2 million and losses of $114.5 million related to the PTC Shares, respectively.

19
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

10. Retirement Benefits
The components of net periodic benefit cost are (in millions):
 
 
Pension Benefits
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2020
 
2019
 
2020
 
2019
Service cost
$
22.8

 
$
19.5

 
$
45.6

 
$
39.1

Interest cost
34.1


39.6


68.3


79.2

Expected return on plan assets
(61.2
)

(61.2
)

(122.4
)

(122.4
)
Amortization:
 
 
 
 
 
 
 
Prior service cost
0.3

 
0.3

 
0.5

 
0.6

Net actuarial loss
36.8


19.5


73.6


39.0

Settlements
(0.7
)
 
(0.2
)
 
(1.5
)
 
(0.4
)
Net periodic benefit cost
$
32.1

 
$
17.5

 
$
64.1

 
$
35.1

 
 
Other Postretirement Benefits
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2020
 
2019
 
2020
 
2019
Service cost
$
0.2

 
$
0.3

 
$
0.5

 
$
0.5

Interest cost
0.4

 
0.5

 
0.8

 
1.1

Amortization:
 
 
 
 
 
 
 
Prior service credit
(1.3
)
 
(1.3
)
 
(2.7
)
 
(2.7
)
Net actuarial loss
0.3

 
0.2

 
0.7

 
0.4

Net periodic benefit credit
$
(0.4
)
 
$
(0.3
)
 
$
(0.7
)
 
$
(0.7
)


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.


20
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

11. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss attributable to Rockwell Automation by component were (in millions):
Three Months Ended March 31, 2020
 
 
 
 
 
 
 
 
 
Pension and other postretirement benefit plan adjustments, net of tax
 
Accumulated currency translation adjustments, net of tax
 
Net unrealized gains (losses) on cash flow hedges, net of tax
 
Net unrealized gains (losses) on available-for-sale investments, net of tax
 
Total accumulated other comprehensive loss, net of tax
Balance as of December 31, 2019
$
(1,253.1
)
 
$
(315.7
)
 
$
(15.5
)
 
$
—

 
$
(1,584.3
)
Other comprehensive income (loss) before reclassifications
—

 
(73.4
)
 
8.8

 
—

 
(64.6
)
Amounts reclassified from accumulated other comprehensive loss
27.4

 
—

 
(4.3
)
 
—

 
23.1

Other comprehensive income (loss)
27.4

 
(73.4
)
 
4.5

 
—

 
(41.5
)
Balance as of March 31, 2020
$
(1,225.7
)
 
$
(389.1
)
 
$
(11.0
)
 
$
—

 
$
(1,625.8
)
 
 
 
 
 
 
 
 
 
 
Six Months Ended March 31, 2020
 
 
 
 
 
 
 
 
 
Pension and other postretirement benefit plan adjustments, net of tax
 
Accumulated currency translation adjustments, net of tax
 
Net unrealized gains (losses) on cash flow hedges, net of tax
 
Net unrealized gains (losses) on available-for-sale investments, net of tax
 
Total accumulated other comprehensive loss, net of tax
Balance as of September 30, 2019
$
(1,133.7
)
 
$
(341.3
)
 
$
(13.0
)
 
$
—

 
$
(1,488.0
)
Other comprehensive income (loss) before reclassifications
—

 
(51.6
)
 
9.7

 
—

 
(41.9
)
Amounts reclassified from accumulated other comprehensive loss
54.8

 
—

 
(7.7
)
 
—

 
47.1

Other comprehensive income (loss)
54.8

 
(51.6
)
 
2.0

 
—

 
5.2

Adoption of accounting standard/other
(146.8
)
 
3.8

 
—

 
—

 
—

Balance as of March 31, 2020
$
(1,225.7
)
 
$
(389.1
)
 
$
(11.0
)

$
—

 
$
(1,625.8
)

21
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
Pension and other postretirement benefit plan adjustments, net of tax
 
Accumulated currency translation adjustments, net of tax
 
Net unrealized gains (losses) on cash flow hedges, net of tax
 
Net unrealized gains (losses) on available-for-sale investments, net of tax
 
Total accumulated other comprehensive loss, net of tax
Balance as of December 31, 2018
$
(644.3
)
 
$
(314.5
)
 
$
(16.4
)
 
$
(1.7
)
 
$
(976.9
)
Other comprehensive income (loss) before reclassifications
—

 
19.0

 
5.2

 
0.9

 
25.1

Amounts reclassified from accumulated other comprehensive loss
14.2

 
—

 
(2.7
)
 
—

 
11.5

Other comprehensive income (loss)
14.2

 
19.0

 
2.5

 
0.9

 
36.6

Balance as of March 31, 2019
$
(630.1
)
 
$
(295.5
)
 
$
(13.9
)
 
$
(0.8
)
 
$
(940.3
)
 
 
 
 
 
 
 
 
 
 
Six Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
Pension and other postretirement benefit plan adjustments, net of tax
 
Accumulated currency translation adjustments, net of tax
 
Net unrealized gains (losses) on cash flow hedges, net of tax
 
Net unrealized gains (losses) on available-for-sale investments, net of tax
 
Total accumulated other comprehensive loss, net of tax
Balance as of September 30, 2018
$
(658.1
)
 
$
(286.0
)
 
$
4.4

 
$
(2.2
)
 
$
(941.9
)
Other comprehensive income (loss) before reclassifications
(0.3
)
 
(9.5
)
 
(14.0
)
 
1.4

 
(22.4
)
Amounts reclassified from accumulated other comprehensive loss
28.3

 
—

 
(4.3
)
 
—

 
24.0

Other comprehensive income (loss)
28.0

 
(9.5
)
 
(18.3
)
 
1.4

 
1.6

Balance as of March 31, 2019
$
(630.1
)
 
$
(295.5
)
 
$
(13.9
)
 
$
(0.8
)
 
$
(940.3
)



22
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
March 31,
 
Six Months Ended
March 31,
 
Affected Line in the Consolidated Statement of Operations
 
2020
 
2019
 
2020
 
2019
 
 
Pension and other postretirement benefit plan adjustments:
Amortization of prior service credit
$
(1.0
)
 
$
(1.0
)
 
$
(2.2
)
 
$
(2.1
)
 
(a)
Amortization of net actuarial loss
37.1

 
19.7

 
74.3

 
39.4

 
(a)
Settlements
(0.7
)
 
(0.2
)
 
(1.5
)
 
(0.4
)
 
(a)
 
35.4

 
18.5

 
70.6

 
36.9

 
Income before income taxes
 
(8.0
)
 
(4.3
)
 
(15.8
)
 
(8.6
)
 
Income tax provision
 
$
27.4

 
$
14.2

 
$
54.8

 
$
28.3

 
Net income attributable to Rockwell Automation
 
 
 
 
 
 
 
 
 
 
Net unrealized losses (gains) on cash flow hedges:
Forward exchange contracts
$
(0.1
)
 
$
(0.6
)
 
$
(0.2
)
 
$
(0.2
)
 
Sales
Forward exchange contracts
(7.0
)
 
(3.3
)
 
(12.0
)
 
(6.5
)
 
Cost of sales
Forward exchange contracts
0.5

 
—

 
0.6

 
0.5

 
Selling, general and administrative expenses
Treasury locks related to 2019 debt issuance
0.6

 
0.2

 
1.1

 
0.2

 
Interest expense
 
(6.0
)
 
(3.7
)
 
(10.5
)
 
(6.0
)
 
Income before income taxes
 
1.7

 
1.0

 
2.8

 
1.7

 
Income tax provision
 
$
(4.3
)
 
$
(2.7
)
 
$
(7.7
)
 
$
(4.3
)
 
Net income attributable to Rockwell Automation
Total reclassifications
$
23.1

 
$
11.5

 
$
47.1

 
$
24.0

 
Net income attributable to Rockwell Automation
(a) Reclassified from accumulated other comprehensive loss into other income (expense). These components are included in the computation of net periodic benefit cost (credit). See Note 10 in the Consolidated Financial Statements for further information.
12. Commitments and Contingent Liabilities
Various lawsuits, claims and proceedings have been or may be instituted or asserted against us relating to the conduct of our business, including those pertaining to product liability, environmental, safety and health, intellectual property, employment and contract matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, we believe the disposition of matters that are pending or have been asserted will not have a material effect on our business, financial condition or results of operations. The following outlines additional background for obligations associated with asbestos, divested businesses and intellectual property.
We (including our subsidiaries) have been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos that was used in certain components of our products many years ago, including products from divested businesses for which we have agreed to defend and indemnify claims. Currently there are a few thousand claimants in lawsuits that name us as defendants, together with hundreds of other companies. But in all cases, for those claimants who do show that they worked with our products or products of divested businesses for which we are responsible, we nevertheless believe we have meritorious defenses, in substantial part due to the integrity of the products, the encapsulated nature of any asbestos-containing components, and the lack of any impairing medical condition on the part of many claimants. We defend those cases vigorously. Historically, we have been dismissed from the vast majority of these claims with no payment to claimants.

23
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Additionally, we have maintained insurance coverage that includes indemnity and defense costs, over and above self-insured retentions, for many of these claims. We believe these arrangements will provide substantial coverage for future defense and indemnity costs for these asbestos claims throughout the remaining life of asbestos liability. The uncertainties of asbestos claim litigation make it difficult to predict accurately the ultimate outcome of asbestos claims. That uncertainty is increased by the possibility of adverse rulings or new legislation affecting asbestos claim litigation or the settlement process. Subject to these uncertainties and based on our experience defending asbestos claims, we do not believe these lawsuits will have a material effect on our business, financial condition or results of operations.
We have, from time to time, divested certain of our businesses. In connection with these divestitures, certain lawsuits, claims and proceedings may be instituted or asserted against us related to the period that we owned the businesses, either because we agreed to retain certain liabilities related to these periods or because such liabilities fall upon us by operation of law. In some instances the divested business has assumed the liabilities; however, it is possible that we might be responsible to satisfy those liabilities if the divested business is unable to do so. We do not believe these liabilities will have a material effect on our business, financial condition or results of operations.
In many countries we provide a limited intellectual property indemnity as part of our terms and conditions of sale. We also at times provide limited intellectual property indemnities in other contracts with third parties, such as contracts concerning the development and manufacture of our hardware and software products. As of March 31, 2020, we were not aware of any material indemnification claims that were probable or reasonably possible of an unfavorable outcome. Historically, claims that have been made under the indemnification agreements have not had a material impact on our business, financial condition or results of operations; however, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our business, financial condition or results of operations in a particular period.
13. Leases
We have operating leases primarily for real estate, vehicles and equipment. Our leases have remaining lease terms from less than one year to approximately 15 years. We do not have a material amount of finance leases.
We elected the package of practical expedients permitted under the transition guidance within the new standard which allows the Company to carry forward the historical assessments of whether contracts are, or contain, leases, lease classification and initial direct costs. We also elected to not record lease ROU assets or lease liabilities for leases with an original term of 12 months or less. We elected to use the remaining lease term for purposes of calculating the incremental borrowing rate upon transition.
The components of lease expense were as follows (in millions):
 
 
Three Months Ended March 31, 2020
 
Six Months Ended March 31, 2020
Operating lease expense(1)
 
$
25.7

 
$
51.0

Variable lease expense(2)
 
3.6

 
7.5

Total lease expense
 
$
29.3

 
$
58.5

(1) Operating lease expense includes short-term lease expense which was not material.
(2) Variable lease expense includes sublease income which was not material.

Supplemental balance sheet information related to leases was as follows (in millions):
 
 
March 31, 2020
Weighted average remaining lease term
 
5.9 years

Weighted average discount rate
 
1.98
%



24
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Maturities of lease liabilities as of March 31, 2020, were as follows (in millions):
2020 (excluding the six months ended March 31, 2020)
 
$
49.4

2021
 
85.0

2022
 
65.4

2023
 
48.1

2024
 
34.5

2025
 
21.5

Thereafter
 
59.8

  Total undiscounted lease payments
 
$
363.7

Less imputed interest
 
(21.8
)
   Total operating lease liabilities
 
$
341.9



Undiscounted maturities of operating leases accounted for under ASC 840 as of September 30, 2019, were as follows (in millions):
2020
 
$
90.6

2021
 
72.6

2022
 
51.8

2023
 
36.7

2024
 
26.4

Thereafter
 
63.8

  Total minimum lease payments
 
$
341.9



Supplemental cash flow information related to leases was as follows (in millions):
 
 
Six Months Ended March 31, 2020
Cash paid for amounts included in the measurement of operating lease liabilities
 
$
50.3

Operating right-of-use assets obtained in exchange for lease obligations
 
64.2


14. Income Taxes
At the end of each interim period, we estimate a base effective tax rate that we expect for the full fiscal year based on our most recent forecast of pre-tax income, permanent book and tax differences and global tax planning strategies. We use this base rate to provide for income taxes on a year-to-date basis, excluding the effect of significant unusual items and items that are reported net of their related tax effects in the period in which they occur.
The effective tax rate was 22.4 percent and 11.3 percent in the three and six months ended March 31, 2020, respectively, compared to 14.0 percent and 18.5 percent in the three and six months ended March 31, 2019. The effective tax rate was higher than the U.S. statutory rate of 21 percent in the three months ended March 31, 2020, primarily due to PTC investment adjustments offset by favorable discrete tax items. The effective tax rate was lower than the U.S. statutory rate of 21 percent in the six months ended March 31, 2020, primarily due to PTC investment adjustments offset by tax benefits recognizable upon the formation of the Sensia joint venture, excess income tax benefits of share-based compensation and other favorable discrete tax items. The effective tax rate was lower than the U.S. statutory rate of 21 percent in the three months ended March 31, 2019, primarily because of PTC investment adjustments. The effective rate was lower than the U.S. statutory rate of 21 percent in the six months ended March 31, 2019 primarily because we benefited from lower non-U.S. tax rates.
Income tax liabilities of $296.0 million and $327.2 million related to the U.S. transition tax under the Tax Act that are payable greater than 12 months from March 31, 2020, and September 30, 2019, respectively, are recorded in Other Liabilities in the Consolidated Balance Sheet.
We operate in certain non-U.S. tax jurisdictions under government-sponsored tax incentive programs, which may be extended if certain additional requirements are met. The program which generates the primary benefit will expire in 2032.

25
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Unrecognized Tax Benefits
The amount of gross unrecognized tax benefits was $25.6 million and $19.9 million at March 31, 2020 and September 30, 2019, respectively, of which the entire amount would reduce our effective tax rate if recognized.
Accrued interest and penalties related to unrecognized tax benefits were $3.7 million and $3.3 million at March 31, 2020, and September 30, 2019, respectively. 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 $24.1 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 $25.7 million.
We conduct business globally and are routinely audited by the various tax jurisdictions in which we operate. We are no longer subject to U.S. federal income tax examinations for years before 2016 and are no longer subject to state, local and foreign income tax examinations for years before 2009.
15. Business Segment Information
The following tables reflect the sales and operating results of our reportable segments (in millions):
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2020
 
2019
 
2020
 
2019
Sales
 
 
 
 
 
 
 
Architecture & Software
$
757.1

 
$
739.7

 
$
1,508.7

 
$
1,492.8

Control Products & Solutions
924.2

 
917.5

 
1,857.1

 
1,806.7

Total
$
1,681.3

 
$
1,657.2

 
$
3,365.8

 
$
3,299.5

Segment operating earnings
 
 
 
 
 
 
 
Architecture & Software
$
232.8

 
$
209.9

 
$
456.5

 
$
446.9

Control Products & Solutions
138.7

 
143.9

 
254.1

 
281.8

Total
371.5

 
353.8

 
710.6

 
728.7

Purchase accounting depreciation and amortization
(9.5
)
 
(4.3
)
 
(19.5
)
 
(8.4
)
General corporate – net
(17.7
)
 
(26.7
)
 
(50.5
)
 
(48.6
)
Non-operating pension and postretirement benefit (cost) credit
(8.6
)
 
2.6

 
(17.3
)
 
5.2

(Loss) gain on investments
(144.8
)
 
98.2

 
(73.8
)
 
(148.2
)
Valuation adjustments related to the registration of PTC Shares
—

 
—

 
—

 
33.7

Interest (expense) income - net
(23.5
)
 
(21.2
)
 
(47.5
)
 
(39.2
)
Income before income taxes
$
167.4

 
$
402.4

 
$
502.0

 
$
523.2


Among other considerations, we evaluate performance and allocate resources based upon segment operating earnings before income taxes, interest (expense) income - net, costs related to corporate offices, non-operating pension and postretirement benefit credit (cost), certain corporate initiatives, gains and losses on investments, valuation adjustments related to the registration of PTC Shares, gains and losses from the disposition of businesses, and purchase accounting depreciation and amortization. Depending on the product, intersegment sales within a single legal entity are either at cost or cost plus a mark-up, which does not necessarily represent a market price. Sales between legal entities are at an appropriate transfer price. We allocate costs related to shared segment operating activities to the segments using a methodology consistent with the expected benefit.

26

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 March 31, 2020, the related consolidated statements of operations, comprehensive income, and shareowners' equity for the three-month and six-month periods ended March 31, 2020 and 2019, and of cash flows for the six-month periods ended March 31, 2020 and 2019, 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, 2019, 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 12, 2019, 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, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Change in Accounting Principle
As discussed in Note 1 to the interim financial information, the Company has changed its method of accounting for leases effective October 1, 2019, due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), using the modified retrospective approach.

Basis for 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
April 28, 2020


27

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Forward-Looking Statements
This Quarterly Report contains statements (including certain projections, guidance and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Words such as “believe”, “estimate”, “project”, “plan”, “expect”, “anticipate”, “will”, “intend” and other similar expressions may identify forward-looking statements. Actual results may differ materially from those projected as a result of certain risks and uncertainties, many of which are beyond our control, including but not limited to:
•
the severity and duration of disruptions to our business due to pandemics, including the COVID-19 pandemic, natural disasters, acts of war, strikes, terrorism, social unrest or other causes, including the impacts of the COVID-19 pandemic and efforts to manage it on the global economy, liquidity and financial markets, demand for our hardware and software products, solutions and services, our supply chain, our work force, our liquidity and the value of the assets we own;
•
macroeconomic factors, including global and regional business conditions (including adverse impacts in certain markets, such as Oil & Gas), the availability and cost of capital, commodity prices, the cyclical nature of our customers’ capital spending, sovereign debt concerns and currency exchange rates;
•
laws, regulations and governmental policies affecting our activities in the countries where we do business, including those related to tariffs, taxation, and trade controls;
•
the availability and price of components and materials;
•
the successful execution of our cost productivity initiatives;
•
the availability, effectiveness and security of our information technology systems;
•
our ability to manage and mitigate the risk related to security vulnerabilities and breaches of our hardware and software products, solutions and services;
•
the successful development of advanced technologies and demand for and market acceptance of new and existing hardware and software products;
•
our ability to manage and mitigate the risks associated with our solutions and services businesses;
•
competitive hardware and software products, solutions and services and pricing pressures, and our ability to provide high quality products, solutions and services;
•
disruptions to our distribution channels or the failure of distributors to develop and maintain capabilities to sell our products;
•
the successful integration and management of strategic transactions and achievement of the expected benefits of these transactions;
•
intellectual property infringement claims by others and the ability to protect our intellectual property;
•
the uncertainty of claims by taxing authorities in the various jurisdictions where we do business;
•
our ability to attract, develop, and retain qualified personnel;
•
the uncertainties of litigation, including liabilities related to the safety and security of the hardware and software products, solutions and services we sell;
•
risks associated with our investment in common stock of PTC Inc., including the potential for volatility in our reported quarterly earnings associated with changes in the market value of such stock;
•
our ability to manage costs related to employee retirement and health care benefits; and
•
other risks and uncertainties, including but not limited to those detailed from time to time in our Securities and Exchange Commission (SEC) filings.
 
These forward-looking statements reflect our beliefs as of the date of filing this report. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. See Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, and Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, for more information.

28

Non-GAAP Measures
The following discussion includes organic sales, total segment operating earnings and margin, Adjusted Income, Adjusted EPS, Adjusted Effective Tax Rate and free cash flow, which are non-GAAP measures. See Supplemental Sales Information for a reconciliation of reported sales to organic sales and a discussion of why we believe this non-GAAP measure is useful to investors. See Results of Operations for a reconciliation of income before income taxes to total segment operating earnings and margin and a discussion of why we believe these non-GAAP measures are useful to investors. See Results of Operations for a reconciliation of net income attributable to Rockwell Automation, diluted EPS and effective tax rate to Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate, respectively, and a discussion of why we believe these non-GAAP measures are useful to investors. See Financial Condition for a reconciliation of cash flows from operating activities to free cash flow and a discussion of why we believe this non-GAAP measure is useful to investors.
Overview
Rockwell Automation, Inc. is a global leader in industrial automation and digital transformation. We connect the imaginations of people with the potential of technology to expand what is humanly possible, making the world more productive and more sustainable. Overall demand for our hardware and software products, solutions and services is driven by:
•
investments in manufacturing, including upgrades, modifications and expansions of existing facilities or production lines and new facilities or production lines;
•
investments in basic materials production capacity, which may be related to commodity pricing levels;
•
our customers’ needs for faster time to market, operational productivity, asset management and reliability, and enterprise risk management;
•
our customers’ needs to continuously improve quality, safety and sustainability;
•
industry factors that include our customers’ new product introductions, demand for our customers’ products or services and the regulatory and competitive environments in which our customers operate;
•
levels of global industrial production and capacity utilization;
•
regional factors that include local political, social, regulatory and economic circumstances; and
•
the spending patterns of our customers due to their annual budgeting processes and their working schedules.
Long-term Strategy
Our strategy is to bring The Connected Enterprise to life by integrating control and information across the enterprise. We deliver customer outcomes by combining advanced industrial automation with the latest information technology. Our growth and performance strategy seeks to:
•
achieve organic sales growth in excess of the automation market by expanding our served market and strengthening our competitive differentiation;
•
grow market share of our core platforms;
•
drive double digit growth in information solutions and connected services;
•
acquire companies that serve as catalysts to organic growth by increasing our information solutions and high-value services offerings and capabilities, expanding our global presence, or enhancing our process expertise;
•
enhance our market access by building our channel capability and partner network;
•
deploy human and financial resources to strengthen our technology leadership and our intellectual capital business model;
•
continuously improve quality and customer experience; and
•
drive annual cost productivity.
By implementing the above strategy, we seek to achieve our long-term financial goals, including above-market organic sales growth, EPS growth above sales growth, return on invested capital in excess of 20 percent and free cash flow equal to about 100 percent of Adjusted Income. We expect acquisitions to add a percentage point or more per year to long-term sales growth.
Our customers face the challenge of remaining globally cost competitive and automation can help them achieve their productivity and sustainability objectives. Our value proposition is to help our customers reduce time to market, lower total cost of ownership, improve asset utilization and manage enterprise risks.

29

U.S. Industrial Economic Trends
In the second quarter of fiscal 2020, sales in the U.S. accounted for over half of our total sales. The various indicators we use to gauge the direction and momentum of our served U.S. markets include:
•
The Industrial Production (IP) Index, published by the Federal Reserve, which measures the real output of manufacturing, mining and electric and gas utilities. The IP Index is expressed as a percentage of real output in a base year, currently 2012. Historically, there has been a meaningful correlation between the changes in the IP Index and the level of automation investment made by our U.S. customers in their manufacturing base.
•
The Manufacturing Purchasing Managers’ Index (PMI), published by the Institute for Supply Management (ISM), which indicates the current and near-term state of manufacturing activity in the U.S. According to the ISM, a PMI measure above 50 indicates that the U.S. manufacturing economy is generally expanding while a measure below 50 indicates that it is generally contracting.
The table below depicts trends in these indicators since the quarter ended September 2018. These figures are as of April 28, 2020 and are subject to revision by the issuing organizations. PMI and IP data have both deteriorated over the same quarter in the prior year. The forecast for IP projects significant deterioration in the second half of fiscal 2020. Demand for our hardware and software products, solutions and services is expected to be impacted by the economic effects of the COVID-19 pandemic and significant declines in oil prices.

 
IP Index
 
PMI
Fiscal 2020 quarter ended:
 
 
 
March 2020
107.4
 
49.1
December 2019
109.6
 
47.8
Fiscal 2019 quarter ended:
 
 
 
September 2019
109.5
 
48.2
June 2019
109.2
 
51.6
March 2019
109.8
 
54.6
December 2018
110.3
 
54.3
Fiscal 2018 quarter ended:
 
 
 
September 2018
109.3
 
59.5
Note: Economic indicators are subject to revision by the issuing organizations.

Non-U.S. Economic Trends
In the second quarter of fiscal 2020, sales to customers outside the U.S. accounted for less than half of our total sales. These customers include both indigenous companies and multinational companies with a global presence. In addition to the global factors previously mentioned in the "Overview" section, international demand, particularly in emerging markets, has historically been driven by the strength of the industrial economy in each region, investments in infrastructure and expanding consumer markets. We use changes in key countries' gross domestic product and IP as indicators of the growth opportunities in each region where we do business.
Macroeconomic conditions began to deteriorate during the second quarter, beginning with China and becoming broad based across all regions. Forecasts for Global IP and Global Manufacturing PMI project significant deterioration in the second half of fiscal 2020. Demand for our hardware and software products, solutions and services is expected to be impacted by the economic effects of the COVID-19 pandemic and significant declines in oil prices.

30

COVID-19 Pandemic
We are actively monitoring the impacts of the COVID-19 pandemic on all aspects of our business and geographies. While the duration and severity of those impacts are highly uncertain, they have had, and could continue to have, an adverse effect on our business, financial condition and results of operations. Our company is an essential business to support critical infrastructure because our customers cannot build their products at scale without automation.
We have a global supply chain, including a network of suppliers and distribution and manufacturing facilities. Our supply chain team is closely managing our end-to-end supply chain, from sourcing to production to customer delivery, and with a particular focus on all critical and at-risk suppliers and supplier locations globally.
We have implemented safety and hygiene processes at our manufacturing and distribution locations to keep our employees safe, including separation of shifts and workstations, temperature monitoring, and other recommended practices. We have also taken actions to help keep our non-manufacturing employees safe, including: directing employees to work from home, wherever possible, limiting and screening visitors to our facilities, travel restrictions, canceling events that involve large groups of people, encouraging social distancing best practices, and enhanced cleaning in our facilities and major locations. Some of the changes implemented have resulted in, and could continue to result in, operational inefficiencies.
Our solutions and services businesses include engineers and other employees who design and implement solutions through a combination of domain expertise and our technology. Physical access to customer facilities is often important as we deliver those solutions. As a result of COVID-19, access to customer facilities in some instances has been difficult. This has led to some project delays, as well as inefficiencies due to lower labor utilization.
On April 8, 2020, we announced several actions to address the current and anticipated economic conditions as a result of the global COVID-19 pandemic. We no longer expect a payout under our incentive plans for fiscal 2020, and we are adjusting our cost structure to help balance our financial strength and flexibility with protecting our most important investments to drive long-term differentiation. These actions include elimination of all discretionary spending, delays of non-critical investments, further adjustment of levels of contract labor, and deferral of any non-essential capital expenditures. We are also implementing the following temporary cost actions, effective beginning in May: salary reductions for all non-manufacturing employees globally; cash fee reductions for the Board of Directors; and temporary suspension of the 401(k) match for all U.S. employees. We have identified additional cost actions to implement if business conditions require.
While our overall cost structure is coming down, we have maintained and, in some cases, have selectively increased investments in some of our highest priority areas in order to increase differentiation and create long-term value for customers and shareowners.
Oil & Gas Industry
The COVID-19 pandemic has had a cascading effect on the Oil & Gas industry. Business closures and restrictions on people’s mobility has significantly decreased demand for oil and gas. In addition, major global producers have not sufficiently reduced production in light of current demand levels, which has resulted in global oversupply and declining oil prices. These factors have had, and could continue to have, adverse impacts to our Oil & Gas customers’ business operations and financial condition, which could lead to a decrease in their liquidity and/or industrial spending. This has resulted in, and could continue to result in, a decrease in demand for our hardware and software products, solutions and services, as well as impact such customers’ ability to pay for such hardware and software products, solutions and services.

31

Outlook
The COVID-19 pandemic and global efforts to respond to it are rapidly evolving.  The duration, severity, and geographic scope of its impacts on our supply chain, business operations and financial condition, and those of our suppliers, distributors, business partners and customers are highly uncertain. 
Based on the information available to us at the time of this report, the following table provides guidance for projected sales growth and earnings per share for fiscal 2020, including the previously announced acquisitions of ASEM, S.p.A. and Kalypso, LP, which are expected to close in the next few weeks. The midpoint of the guidance range assumes a reported sales decline in the third quarter of approximately 15 percent and an organic sales decline of approximately 20 percent, with sequential improvement in the fourth quarter of fiscal 2020:
Sales Growth Guidance
 
EPS Guidance
Reported sales growth
 
(6.5)% - (3.0)%
 
Diluted EPS
 
$6.05 - $6.85
Organic sales growth1
 
(9.5)% - (6.5)%
 
Adjusted EPS1
 
$6.90 - $7.70
     Inorganic sales growth2
 
4.0% - 4.5%
 
 
 
 
     Currency translation
 
~(1)%
 
 
 
 
1Organic sales growth and Adjusted EPS are non-GAAP measures. See Supplemental Sales Information and Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate Reconciliation for more information on these non-GAAP measures.
2Estimate for Sensia, MESTECH Services, Avnet Data Security, ASEM, S.p.A., and Kalypso, LP.

32

Summary of Results of Operations
Sales in the second quarter of fiscal 2020 increased 1.5 percent compared to the second quarter of 2019. Organic sales decreased 0.2 percent year over year. Currency translation decreased sales by 1.5 percentage points, and acquisitions increased sales by 3.2 percentage points.
Results from the quarter included:
 
•
Logix sales increased 6 percent year over year in the second quarter of fiscal 2020. Logix organic sales increased 8 percent year over year, and currency translation decreased sales by 2 percentage points.
•
Reported sales in emerging countries decreased 0.5 percent year over year in the second quarter of fiscal 2020. Organic sales in emerging countries decreased 3.9 percent year over year. Currency translation decreased sales in emerging countries by 4.3 percentage points, and acquisitions increased sales by 7.7 percentage points.


33

The following table reflects our sales and operating results (in millions, except per share amounts and percentages):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2020
 
2019
 
2020
 
2019
Sales
 
 
 
 
 
 
 
Architecture & Software (a)
$
757.1

 
$
739.7

 
$
1,508.7

 
$
1,492.8

Control Products & Solutions (b)
924.2

 
917.5

 
1,857.1

 
1,806.7

Total sales (c)
$
1,681.3

 
$
1,657.2

 
$
3,365.8

 
$
3,299.5

Segment operating earnings(1)
 
 
 
 
 
 
 
Architecture & Software (d)
$
232.8

 
$
209.9

 
$
456.5

 
$
446.9

Control Products & Solutions (e)
138.7

 
143.9

 
254.1

 
281.8

Total segment operating earnings(2) (f)
371.5

 
353.8

 
710.6

 
728.7

Purchase accounting depreciation and amortization
(9.5
)
 
(4.3
)
 
(19.5
)
 
(8.4
)
General corporate — net
(17.7
)
 
(26.7
)
 
(50.5
)
 
(48.6
)
Non-operating pension and postretirement benefit (cost) credit
(8.6
)
 
2.6

 
(17.3
)
 
5.2

(Loss) gain on investments
(144.8
)
 
98.2

 
(73.8
)
 
(148.2
)
Valuation adjustments related to the registration of PTC Shares
—

 
—

 
—

 
33.7

Interest (expense) income, net
(23.5
)
 
(21.2
)
 
(47.5
)
 
(39.2
)
Income before income taxes (g)
167.4

 
402.4

 
502.0

 
523.2

Income tax provision
(37.5
)
 
(56.4
)
 
(56.7
)
 
(96.9
)
Net income
129.9

 
346.0

 
445.3

 
426.3

Net (loss) income attributable to noncontrolling interests
(2.3
)
 
—

 
2.4

 
—

Net income attributable to Rockwell Automation
$
132.2

 
$
346.0

 
$
442.9

 
$
426.3

 
 
 
 
 
 
 
 
Diluted EPS
$
1.13

 
$
2.88

 
$
3.80

 
$
3.53

 
 
 
 
 
 
 
 
Adjusted EPS(3)
$
2.43

 
$
2.04

 
$
4.53

 
$
4.26

 
 
 
 
 
 
 
 
Diluted weighted average outstanding shares
116.6

 
120.0

 
116.6

 
120.7

 
 
 
 
 
 
 
 
Total segment operating margin(2) (f/c)
22.1
%
 
21.3
%
 
21.1
%
 
22.1
%
 
 
 
 
 
 
 
 
Pre-tax margin (g/c)
10.0
%
 
24.3
%
 
14.9
%
 
15.9
%
 
 
 
 
 
 
 
 
Architecture & Software segment operating margin (d/a)
30.7
%
 
28.4
%
 
30.3
%
 
29.9
%
 
 
 
 
 
 
 
 
Control Product & Solutions segment operating margin (e/b)
15.0
%
 
15.7
%
 
13.7
%
 
15.6
%
 
(1)
See Note 15 in the Consolidated Financial Statements for the definition of segment operating earnings.
(2)
Total segment operating earnings and total segment operating margin are non-GAAP financial measures. We exclude purchase accounting depreciation and amortization, general corporate – net, non-operating pension and postretirement benefit (cost) credit, gains and losses on investments, valuation adjustments related to the registration of PTC Shares, interest (expense) income - net and income tax provision because we do not consider these costs to be directly related to the operating performance of our segments. We believe total segment operating earnings and total segment operating margin are useful to investors as measures of operating performance. We use these measures to monitor and evaluate the profitability of our operating segments. Our measures of total segment operating earnings and total segment operating margin may be different from measures used by other companies.
(3)
Adjusted EPS is a non-GAAP earnings measure that excludes non-operating pension and postretirement benefit (cost) credit, net income (loss) attributable to noncontrolling interests, gains and losses on investments, and valuation adjustments related to the registration of PTC Shares, including their respective tax effects. See Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate Reconciliation for more information on this non-GAAP measure.

34

Three and Six Months Ended March 31, 2020, Compared to Three and Six Months Ended March 31, 2019
Sales
Sales increased 1.5 percent and 2.0 percent year over year in the three and six months ended March 31, 2020, respectively. Organic sales decreased 0.2 percent and 0.6 percent in the three and six months ended March 31, 2020, respectively. Currency translation decreased sales by 1.5 percentage points and 1.3 percentage points in the three and six months ended March 31, 2020, respectively. Acquisitions increased sales by 3.2 percentage points and 3.9 percentage points in the three and six months ended March 31, 2020, respectively.
Pricing contributed approximately 1 percentage point to sales growth in the three and six months ended March 31, 2020.
The table below presents our sales, attributed to the geographic regions based upon country of destination, and the percentage change from the same period a year ago (in millions, except percentages):
 
 
 
Change vs.
 
Change in Organic
Sales(1) vs.
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2019
North America
$
1,022.1

 
3.5
 %
 
1.4
 %
EMEA
333.6

 
0.8
 %
 
(1.9
)%
Asia Pacific
200.8

 
(6.5
)%
 
(6.4
)%
Latin America
124.8

 
0.4
 %
 
2.7
 %
Total Sales
$
1,681.3

 
1.5
 %
 
(0.2
)%
 
 
 
Change vs.
 
Change in Organic
Sales(1) vs.
 
Six Months Ended March 31, 2020
 
Six Months Ended
March 31, 2019
 
Six Months Ended
March 31, 2019
North America
$
2,029.0

 
2.2
%
 
(1.0
)%
EMEA
643.7

 
2.9
%
 
(0.3
)%
Asia Pacific
430.4

 
0.3
%
 
(0.3
)%
Latin America
262.7

 
1.4
%
 
0.9
 %
Total Sales
$
3,365.8

 
2.0
%
 
(0.6
)%
(1) Organic sales and organic sales growth exclude the effect of acquisitions, changes in currency exchange rates, and divestitures. See Supplemental Sales Information for information on these non-GAAP measures.

•
The change in North America sales in the three and six months ended March 31, 2020, compared to the prior periods were primarily driven by strength in Automotive and weakness in Oil & Gas.
•
EMEA sales increased year over year in the three and six months ended March 31, 2020, primarily due to acquisitions. EMEA organic sales decreased, but saw growth in Automotive, Food & Beverage, Life Sciences, and Semiconductors.
•
Sales in Asia Pacific decreased in the three months ended March 31, 2020, due to weakness driven by the impact of the COVID-19 pandemic in China. Excluding China, Asia Pacific sales increased.
•
Latin America sales increased in the three and six months ended March 31, 2020, due to Strong Oil & Gas performance, partially offset by a decline in Chemicals, Household & Personal Care, and Automotive.

35

Three and Six Months Ended March 31, 2020, Compared to Three and Six Months Ended March 31, 2019  
General Corporate - Net
General corporate - net expense was $17.7 million and $50.5 million in the three and six months ended March 31, 2020, respectively, compared to $26.7 million and $48.6 million in the three and six months ended March 31, 2019, respectively. The decrease in the three months ended March 31, 2020, was primarily due to benefit-related adjustments tied to changes in equity market values and our share price.
Income before Income Taxes
Income before income taxes decreased 58 percent and 4 percent year over year in the three and six months ended March 31, 2020, respectively. The decrease in income before income taxes in the three months ended March 31, 2020, was primarily due to the fair-value adjustments recognized in the second quarter of fiscal 2020 and 2019 in connection with our investment in PTC (the "PTC adjustments"). Total segment operating earnings increased 5 percent in the three months ended March 31, 2020, primarily due to lower incentive compensation expense, partially offset by the impact of currency. Total segment operating earnings decreased 2.5 percent in the six months ended March 31, 2020, due to lower organic sales, the impact of currency, and productivity, partially offset by lower incentive compensation expense.
Income Taxes
The effective tax rate for the three months ended March 31, 2020, was 22.4 percent compared to 14.0 percent for the three months ended March 31, 2019. The increase in the effective tax rate was primarily due to PTC adjustments. Our Adjusted Effective Tax Rate for the three months ended March 31, 2020, was 12.4 percent compared to 18.6 percent for the three months ended March 31, 2019. The decrease in the Adjusted Effective Tax Rate was primarily due to favorable discrete tax items in the current year.
The effective tax rate for the six months ended March 31, 2020, was 11.3 percent compared to 18.5 percent for the six months ended March 31, 2019. The decrease in the effective tax rate was primarily due to tax benefits recognizable upon the formation of the Sensia joint venture, excess income tax benefits of share-based compensation and favorable discrete tax items in the current year, partially offset by PTC investment adjustments. Our Adjusted Effective Tax Rate for the six months ended March 31, 2020, was 10.4 percent compared to 18.6 percent for the six months ended March 31, 2019. The decrease in the Adjusted Effective Tax Rate was primarily due to tax benefits recognizable upon the formation of the Sensia joint venture, excess income tax benefits of share-based compensation and favorable discrete tax items in the current year.
Diluted EPS and Adjusted EPS
Fiscal 2020 second quarter net income attributable to Rockwell Automation was $132.2 million or $1.13 per share, compared to $346.0 million or $2.88 per share in the second quarter of fiscal 2019. The decreases in net income attributable to Rockwell Automation and diluted EPS were primarily due to PTC adjustments. Fiscal 2020 second quarter Adjusted EPS was $2.43 in the second quarter of fiscal 2020, up 19 percent compared to $2.04 in the second quarter of fiscal 2019. The increase in Adjusted EPS was largely due to lower incentive compensation expense.
Net income attributable to Rockwell Automation was $442.9 million or $3.80 per share in the six months ended March 31, 2020, compared to $426.3 million or $3.53 per share in the six months ended March 31, 2019. The increases in net income attributable to Rockwell Automation and diluted EPS were primarily due to the decrease in income before income taxes, more than offset by a lower effective tax rate. Adjusted EPS was $4.53 in the six months ended March 31, 2020, up 6 percent compared to $4.26 in the six months ended March 31, 2019. The increase in Adjusted EPS was due to lower incentive compensation expense, a favorable tax rate and a lower share count, partially offset by lower organic sales, the impact of currency, and productivity.


36

Three and Six Months Ended March 31, 2020, Compared to Three Months Ended March 31, 2019
Architecture & Software
Sales
Architecture & Software sales increased 2.4 percent and 1.1 percent year over year in the three and six months ended March 31, 2020, respectively. Architecture & Software organic sales increased 4.0 percent and 2.3 percent in the three and six months ended March 31, 2020, respectively. Currency translation decreased sales by 1.7 percentage points and 1.3 percentage points in the three and six months ended March 31, 2020, respectively. An acquisition increased sales by 0.1 percentage points in each of the three and six months ended March 31, 2020. For both reported and organic sales, all regions experienced growth except for EMEA in the three and six months ended March 31, 2020.
Logix sales increased 6 percent and 1 percent year over year in the three and six months ended March 31, 2020, respectively. Logix organic sales increased 8 percent and 2 percent year over year in the three and six months ended March 31, 2020, respectively, while currency translation decreased Logix sales by 2 percentage points and 1 percentage point in the three and six months ended March 31, 2020, respectively.
Segment Operating Margin
Architecture & Software segment operating earnings increased 10.9 percent and 2.1 percent year over year in the three and six months ended March 31, 2020, respectively. Segment operating margin increased to 30.7 percent and 30.3 percent in the three and six months ended March 31, 2020, respectively, from 28.4 percent and 29.9 percent, respectively, in the same periods a year ago, primarily due to lower incentive compensation expense, partially offset by currency.
Control Products & Solutions
Sales
Control Products & Solutions sales increased 0.7 percent and 2.8 percent year over year in the three and six months ended March 31, 2020, respectively. Control Products & Solutions organic sales decreased 3.6 percent and 3.0 percent in the three and six months ended March 31, 2020, respectively. Currency translation decreased sales by 1.5 percentage points and 1.2 percentage points in the three and six months ended March 31, 2020, respectively. Acquisitions increased sales by 5.8 percentage points and 7.0 percentage points in the three and six months ended March 31, 2020, respectively.
Growth in reported sales in North America and EMEA more than offset declines in the other regions in the three months ended March 31, 2020. All regions experienced growth in reported sales except for Asia Pacific in the six months ended March 31, 2020. The decline in organic sales in the three and six months ended March 31, 2020, was broad-based across the regions, with the exception of organic growth in EMEA in the six months ended March 31, 2020.
Product sales decreased 4 percent and 5 percent year over year in the three and six months ended March 31, 2020, respectively. Product organic sales decreased by 3 percent and 4 percent in the three and six months ended March 31, 2020, respectively. Currency translation decreased sales by 1 percentage point in each of the three and six months ended March 31, 2020.
Sales in our solutions and services businesses increased 4 percent and 8 percent in the three and six months ended March 31, 2020, respectively. Organic sales in our solutions and services businesses decreased by 4 percent and 2 percent in the three and six months ended March 31, 2020, respectively. Currency translation decreased sales by 2 percentage points in each of the three and six months ended March 31, 2020. Acquisitions increased sales by 10 percentage points and 12 percentage points in the three and six months ended March 31, 2020.
Segment Operating Margin
Control Products & Solutions segment operating earnings decreased 3.6 percent and 9.8 percent year over year in the three and six months ended March 31, 2020, respectively. Segment operating margin decreased to 15.0 percent and 13.7 percent in the three and six months ended March 31, 2020, respectively, compared to 15.7 percent and 15.6 percent, respectively, in the same periods a year ago, primarily due to lower incentive compensation expense, more than offset by the impacts of lower organic sales, currency, and acquisitions.

37

Supplemental Segment Information
Purchase accounting depreciation and amortization and non-operating pension and postretirement benefit (credit) cost are not allocated to our operating segments because these costs are excluded from our measurement of each segment's operating performance for internal purposes. If we were to allocate these costs, we would attribute them to each of our segments as follows (in millions):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2020
 
2019
 
2020
 
2019
Purchase accounting depreciation and amortization
 
 
 
 
 
 
 
Architecture & Software
$
1.7

 
$
1.6

 
$
3.4

 
$
3.0

Control Products & Solutions
7.5

 
2.4

 
15.5

 
4.8

Non-operating pension and postretirement benefit (credit) cost
 
 
 
 
 
 
 
Architecture & Software
2.2

 
1.5

 
4.3

 
3.1

Control Products & Solutions
3.3

 
2.4

 
6.7

 
4.8



38

Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate Reconciliation

Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate are non-GAAP earnings measures that exclude non-operating pension and postretirement benefit cost (credit), net income (loss) attributable to noncontrolling interests, gains and losses on investments, and valuation adjustments related to the registration of PTC Shares, including their respective tax effects.

We believe that Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate provide useful information to our investors about our operating performance and allow management and investors to compare our operating performance period over period. Adjusted EPS is also used as a financial measure of performance for our annual incentive compensation. Our measures of Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate may be different from measures used by other companies. These non-GAAP measures should not be considered a substitute for net income attributable to Rockwell Automation, diluted EPS and effective tax rate.

The following are the components of operating and non-operating pension and postretirement benefit cost (credit) (in millions):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2020
 
2019
 
2020
 
2019
Service cost
$
23.0

 
$
19.8

 
$
46.1

 
$
39.6

Operating pension and postretirement benefit cost
23.0

 
19.8

 
46.1

 
39.6

 
 
 
 
 
 
 
 
Interest cost
34.5

 
40.1

 
69.1

 
80.3

Expected return on plan assets
(61.2
)
 
(61.2
)
 
(122.4
)
 
(122.4
)
Amortization of prior service credit
(1.0
)
 
(1.0
)
 
(2.2
)
 
(2.1
)
Amortization of net actuarial loss
37.1

 
19.7

 
74.3

 
39.4

Settlements
(0.7
)
 
(0.2
)
 
(1.5
)
 
(0.4
)
Non-operating pension and postretirement benefit cost (credit)
8.7

 
(2.6
)
 
17.3


(5.2
)
 
 
 
 
 
 
 
 
Net periodic pension and postretirement benefit cost
$
31.7

 
$
17.2

 
$
63.4

 
$
34.4



39

The following are reconciliations of net income attributable to Rockwell Automation, diluted EPS, and effective tax rate to Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate, respectively (in millions, except per share amounts and percentages):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2020

2019

2020

2019
Net income attributable to Rockwell Automation
$
132.2

 
$
346.0

 
$
442.9

 
$
426.3

Non-operating pension and postretirement benefit cost (credit)
8.6

 
(2.6
)
 
17.3

 
(5.2
)
Tax effect of non-operating pension and postretirement benefit cost (credit)
(2.4
)
 
0.4

 
(4.8
)
 
0.7

Change in fair value of investments1
144.8

 
(98.2
)
 
73.8

 
114.5

Tax effect of the change in fair value of investments1
—

 
—

 
—

 
(21.7
)
Adjusted Income
$
283.2

 
$
245.6

 
$
529.2

 
$
514.6

 
 
 
 
 
 
 
 
Diluted EPS
$
1.13

 
$
2.88

 
$
3.80

 
$
3.53

Non-operating pension and postretirement benefit cost (credit)
0.08

 
(0.02
)
 
0.14

 
(0.04
)
Tax effect of non-operating pension and postretirement benefit cost (credit)
(0.02
)
 
—

 
(0.04
)
 
0.01

Change in fair value of investments1
1.24

 
(0.82
)
 
0.63

 
0.94

Tax effect of the change in fair value of investments1
—

 
—

 
—

 
(0.18
)
Adjusted EPS
$
2.43

 
$
2.04

 
$
4.53

 
$
4.26

 
 
 
 
 
 
 
 
Effective tax rate
22.4
 %
 
14.0
%
 
11.3
 %
 
18.5
%
Tax effect of non-operating pension and postretirement benefit cost (credit)
0.2
 %
 
0.1
%
 
0.5
 %
 
—
%
Tax effect of the change in fair value of investments1
(10.2
)%
 
4.5
%
 
(1.4
)%
 
0.1
%
Adjusted Effective Tax Rate
12.4
 %
 
18.6
%
 
10.4
 %
 
18.6
%
1In the three and six months ended March 31, 2020, change in fair value of investments included a $144.8 million and $73.8 million loss, respectively, due to the change in value of our investment in PTC. In the three months ended March 31, 2019, change in fair value of investments included a $98.2 million gain due to the change in value of our investment in PTC, and in the six months ended March 31, 2019, change in fair value of investments included a $148.2 million loss due to the change in value of our investment in PTC and a $33.7 million gain due to the valuation adjustments related to the registration of PTC Shares.

40

 
 
Fiscal 2020 Guidance
 
 
Diluted EPS
 
$6.05 - $6.85
Non-operating pension and postretirement benefit cost
 
0.30
Tax effect of non-operating pension and postretirement benefit cost
 
(0.08)
Change in fair value of investments1
 
0.63
Tax effect of change in fair value of investments
 
—
Adjusted EPS2
 
$6.90 - $7.70
 
 
 
Effective tax rate
 
~ 13.5%
Tax effect of non-operating pension and postretirement benefit cost
 
~ 0.5%
Tax effect of change in fair value of investments1
 
~ (1.0)%
Adjusted Effective Tax Rate3
 
~ 13.0%
1The actual year-to-date adjustments, which are based on PTC's share price at March 31, 2020, are used for guidance, as estimates of these adjustments on a forward-looking basis are not available due to variability, complexity and limited visibility of these items.
2Fiscal 2020 guidance based on Adjusted Income, which excludes Schlumberger's noncontrolling interest in Sensia.
3Fiscal 2020 guidance includes the impact of a tax benefit recognized upon the formation of the Sensia joint venture on October 1, 2019. This tax benefit is expected to reduce the full year Effective tax rate and the Adjusted Effective Tax Rate by approximately 150 basis points.

41


Financial Condition
The following is a summary of our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows (in millions): 
 
Six Months Ended
March 31,
 
2020
 
2019
Cash provided by (used for):
 
 
 
Operating activities
$
448.5

 
$
355.8

Investing activities
(273.6
)
 
118.1

Financing activities
(534.0
)
 
(306.0
)
Effect of exchange rate changes on cash
(17.5
)
 
(6.7
)
(Decrease) increase in cash and cash equivalents
$
(376.6
)
 
$
161.2

The following table summarizes free cash flow (in millions), which is a non-GAAP financial measure:
 
Six Months Ended
March 31,
 
2020
 
2019
Cash provided by operating activities
$
448.5

 
$
355.8

Capital expenditures
(56.6
)
 
(80.9
)
Free cash flow
$
391.9

 
$
274.9

Our definition of free cash flow takes into consideration capital investments required to maintain our businesses' operations and execute our strategy. Cash provided by continuing operating activities adds back non-cash depreciation expense to earnings but does not reflect a charge for necessary capital expenditures. Our definition of free cash flow excludes the operating cash flows and capital expenditures related to our discontinued operations, if any. Operating, investing and financing cash flows of our discontinued operations, if any, are presented separately in our Consolidated Statement of Cash Flows. In our opinion, free cash flow provides useful information to investors regarding our ability to generate cash from business operations that is available for acquisitions and other investments, service of debt principal, dividends and share repurchases. We use free cash flow, as defined, as one measure to monitor and evaluate our performance, including as a financial measure for our annual incentive compensation. Our definition of free cash flow may differ from definitions used by other companies.
Cash provided by operating activities was $448.5 million for the six months ended March 31, 2020, compared to $355.8 million for the six months ended March 31, 2019. Free cash flow was $391.9 million for the six months ended March 31, 2020, compared to $274.9 million for the six months ended March 31, 2019. The year over year increases in cash provided by operating activities and free cash flow were primarily due to lower incentive compensation payments and a decrease in working capital in the first six months of fiscal 2020 compared to the first six months of fiscal 2019, and a payment to settle treasury locks in the first six months of fiscal 2019.
We repurchased approximately 1.1 million shares of our common stock under our share repurchase program in the first six months of fiscal 2020. The total cost of these shares was $206.2 million, of which $2.0 million was recorded in accounts payable at March 31, 2020, related to share repurchases that did not settle until April 2020. We had $9.3 million in unsettled share repurchases outstanding at September 30, 2019, that did not settle until October 2019. We repurchased approximately 3.2 million shares of our common stock in the first six months of fiscal 2019. The total cost of these shares was $528.8 million, of which $11.9 million was recorded in accounts payable at March 31, 2019, related to share repurchases that did not settle until April 2019. Our decision to repurchase shares in the remainder of 2020 will depend on business conditions, free cash flow generation, other cash requirements (including acquisitions) and stock price. On both September 6, 2018, and July 24, 2019, the Board of Directors authorized us to expend an additional $1.0 billion to repurchase shares of our common stock. At March 31, 2020, we had approximately $902.2 million remaining for share repurchases under our existing board authorizations. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, for additional information regarding share repurchases.

42

We expect future uses of cash to include working capital requirements, capital expenditures, additional contributions to our retirement plans, acquisitions of businesses and other inorganic investments, dividends to shareowners, repurchases of common stock, and repayments of debt. We expect to fund future uses of cash with a combination of existing cash balances and short-term investments, cash generated by operating activities, commercial paper borrowings or a new issuance of debt or other securities.
At March 31, 2020, the majority of our cash and cash equivalents were held by non-U.S. subsidiaries. As a result of the broad changes to the U.S. international tax system under the Tax Act, in fiscal year 2018 the Company began to account for substantially all of its non-U.S. subsidiaries as being immediately subject to tax, while still concluding that earnings are indefinitely reinvested for a limited number of subsidiaries.
In addition to cash generated by operating activities, we have access to existing financing sources, including the public debt markets and unsecured credit facilities with various banks.
At March 31, 2020, and September 30, 2019, our total current borrowing capacity under our unsecured revolving credit facility expiring in November 2023 was $1.25 billion. We can increase the aggregate amount of this credit facility by up to $750.0 million, subject to the consent of the banks in the credit facility. We did not borrow against this credit facility during the periods ended March 31, 2020 or September 30, 2019. Borrowings under this credit facility bear interest based on short-term money market rates in effect during the period the borrowings are outstanding. The terms of this credit facility contain covenants under which we agree to maintain an EBITDA-to-interest ratio of at least 3.0 to 1.0. The EBITDA-to-interest ratio is defined in the credit facility as the ratio of consolidated EBITDA (as defined in the facility) for the preceding four quarters to consolidated interest expense for the same period.
Among other uses, we can draw on our credit facility as a standby liquidity facility to repay our outstanding commercial paper as it matures. This access to funds to repay maturing commercial paper is an important factor in maintaining the short-term credit ratings set forth in the table below. Under our current policy with respect to these ratings, we expect to limit our other borrowings under our credit facility, if any, to amounts that would leave enough credit available under the facility so that we could borrow, if needed, to repay all of our then outstanding commercial paper as it matures.
On April 20, 2020, we entered into a $400 million senior unsecured 364-day term loan credit agreement and were advanced the full loan amount. This agreement is in addition to our existing $1.25 billion unsecured revolving credit facility expiring in November 2023, which remains available and undrawn. Borrowings under this term loan bear interest based on short-term money market rates in effect during the period the borrowings are outstanding. The term loan agreement contains covenants similar to those under our $1.25 billion unsecured revolving credit facility, under which we agree to maintain an EBITDA-to-interest ratio of at least 3.0 to 1.0. The EBITDA-to-interest ratio is defined in the term loan agreement as the ratio of consolidated EBITDA (as defined in the term loan agreement) for the preceding four quarters to consolidated interest expense for the same period. The proceeds of the borrowings under the term loan agreement will be used for general corporate purposes, including acquisition financing (including the acquisition of ASEM, S.p.A. and Kalypso, LP, which are expected to close in the next few weeks) and working capital.
Separate short-term unsecured credit facilities of approximately $214.9 million at March 31, 2020, were available to non-U.S. subsidiaries. Borrowings under our non-U.S. credit facilities at March 31, 2020 and 2019 were not significant. We were in compliance with all covenants under our credit facilities at March 31, 2020 and 2019. There are no significant commitment fees or compensating balance requirements under our credit facilities.
Our short-term debt as of March 31, 2020, consisted of $58.0 million of commercial paper borrowings and $23.5 million of interest-bearing loans from Schlumberger to Sensia due September 30, 2020. The short-term loans were entered into following formation of Sensia. See Note 5 in the Consolidated Financial Statements for additional information on Sensia. The weighted average interest rate of the commercial paper outstanding at March 31, 2020 was 2.4 percent. There were no commercial paper borrowings outstanding at September 30, 2019.
The following is a summary of our credit ratings as of March 31, 2020:
 
Credit Rating Agency
 
Short-Term Rating       
 
Long-Term Rating       
 
Outlook    
Standard & Poor’s
 
A-1
 
A
 
Stable
Moody’s
 
P-2
 
A3
 
Stable
Fitch Ratings
 
F1
 
A
 
Stable

43

Our ability to access the commercial paper market, and the related costs of these borrowings, is affected by the strength of our credit ratings and market conditions. We have not experienced any difficulty in accessing the commercial paper market to date for one-day maturities.  However, investor demand for maturities beyond one day has been limited due to the impacts of the COVID-19 pandemic on this market. If our access to the commercial paper market is adversely affected due to a change in market conditions or otherwise, we would expect to rely on a combination of available cash and our unsecured committed credit facility to provide short-term funding. In such event, the cost of borrowings under our unsecured committed credit facility could be higher than the cost of commercial paper borrowings.
We regularly monitor the third-party depository institutions that hold our cash and cash equivalents and short-term investments. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities.
We use foreign currency forward exchange contracts to manage certain foreign currency risks. We enter into these contracts to hedge our exposure to foreign currency exchange rate variability in the expected future cash flows associated with certain third-party and intercompany transactions denominated in foreign currencies forecasted to occur within the next two years. We also use these contracts to hedge portions of our net investments in certain non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. In addition, we use foreign currency forward exchange contracts that are not designated as hedges to offset transaction gains or losses associated with some of our assets and liabilities resulting from intercompany loans or other transactions with third parties that are denominated in currencies other than our entities' functional currencies. Our foreign currency forward exchange contracts are usually denominated in currencies of major industrial countries. We diversify our foreign currency forward exchange contracts among counterparties to minimize exposure to any one of these entities.
Net gains and losses related to derivative forward exchange contracts designated as cash flow hedges offset the related gains and losses on the hedged items during the periods in which the hedged items are recognized in earnings. During the three and six months ended March 31, 2020, we reclassified $6.0 million and $10.5 million, respectively, in pre-tax net gains related to cash flow hedges from accumulated other comprehensive loss into the Consolidated Statement of Operations. During the three and six months ended March 31, 2019, we reclassified $3.7 million and $6.0 million, respectively, in pre-tax net gains related to cash flow hedges from accumulated other comprehensive loss into the Consolidated Statement of Operations. We expect that approximately $18.4 million of pre-tax net unrealized gains on cash flow hedges as of March 31, 2020, will be reclassified into earnings during the next 12 months.
Information with respect to our contractual cash obligations is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. We believe that at March 31, 2020, there has been no material change to this information.


44

Supplemental Sales Information
We translate sales of subsidiaries operating outside of the United States using exchange rates effective during the respective period. Therefore, changes in currency exchange rates affect our reported sales. Sales by acquired businesses also affect our reported sales. We believe that organic sales, defined as sales excluding the effects of acquisitions and changes in currency exchange rates, which is a non-GAAP financial measure, provides useful information to investors because it reflects regional and operating segment performance from the activities of our businesses without the effect of acquisitions and changes in currency exchange rates. We use organic sales as one measure to monitor and evaluate our regional and operating segment performance. When we acquire businesses, we exclude sales in the current period for which there are no comparable sales in the prior period. We determine the effect of changes in currency exchange rates by translating the respective period’s sales using the same currency exchange rates that were in effect during the prior year. When we divest a business, we exclude sales in the prior period for which there are no comparable sales in the current period. Organic sales growth is calculated by comparing organic sales to reported sales in the prior year, excluding divestitures. We attribute sales to the geographic regions based on the country of destination.
The following is a reconciliation of our reported sales by geographic region to organic sales (in millions):
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
 
Sales
 
Effect of
Acquisitions(1)
 
Effect of
Changes in
Currency
 
Organic Sales      
 
Sales
North America
$
1,022.1

 
$
(22.0
)
 
$
0.6

 
$
1,000.7

 
$
987.1

EMEA
333.6

 
(19.3
)
 
10.4

 
324.7

 
331.1

Asia Pacific
200.8

 
(6.1
)
 
6.3

 
201.0

 
214.7

Latin America
124.8

 
(6.4
)
 
9.3

 
127.7

 
124.3

Total Company Sales
$
1,681.3

 
$
(53.8
)
 
$
26.6

 
$
1,654.1

 
$
1,657.2


 
Six Months Ended March 31, 2020
 
Six Months Ended March 31, 2019
 
Sales
 
Effect of
Acquisitions(1)
 
Effect of
Changes in
Currency
 
Organic Sales      
 
Sales
North America
$
2,029.0

 
$
(62.8
)
 
$
0.6

 
$
1,966.8

 
$
1,985.9

EMEA
643.7

 
(39.6
)
 
19.6

 
623.7

 
625.5

Asia Pacific
430.4

 
(11.8
)
 
9.4

 
428.0

 
429.1

Latin America
262.7

 
(13.0
)
 
11.7

 
261.4

 
259.0

Total Company Sales
$
3,365.8

 
$
(127.2
)
 
$
41.3

 
$
3,279.9

 
$
3,299.5

(1) Includes incremental sales resulting from the formation of the Sensia joint venture.



45

The following is a reconciliation of our reported sales by operating segment to organic sales (in millions): 
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
 
Sales
 
Effect of
Acquisitions
 
Effect of
Changes in
Currency
 
Organic Sales      
 
Sales
Architecture & Software
$
757.1

 
$
(0.4
)
 
$
12.5

 
$
769.2

 
$
739.7

Control Products & Solutions
924.2

 
(53.4
)
1 
14.1

 
884.9

 
917.5

Total Company Sales
$
1,681.3

 
$
(53.8
)
 
$
26.6

 
$
1,654.1

 
$
1,657.2

 
Six Months Ended March 31, 2020
 
Six Months Ended March 31, 2019
 
Sales
 
Effect of
Acquisitions
 
Effect of
Changes in
Currency
 
Organic Sales      
 
Sales
Architecture & Software
$
1,508.7

 
$
(1.1
)
 
$
20.2

 
$
1,527.8

 
$
1,492.8

Control Products & Solutions
1,857.1

 
(126.1
)
1 
21.1

 
1,752.1

 
1,806.7

Total Company Sales
$
3,365.8

 
$
(127.2
)
 
$
41.3

 
$
3,279.9

 
$
3,299.5

(1) Includes incremental sales resulting from the formation of the Sensia joint venture.

46

Critical Accounting Estimates
We have prepared the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. These estimates are based on our best judgment about current and future conditions, but actual results could differ from those estimates. Information with respect to accounting estimates that are the most critical to the understanding of our financial statements as they could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. We believe that at March 31, 2020, there has been no material change to this information except as noted below.
Acquisitions - Consolidation of Sensia Joint Venture
In determining whether to consolidate Sensia, U.S. GAAP requires that we evaluate our ability to control the significant financial or operating decisions of the joint venture. Determining the nature and extent of the noncontrolling interest holder's rights involves management judgment. We have evaluated the noncontrolling interest holder's rights and determined that we control and should consolidate Sensia in our financial results.
Acquisitions - Sensia Joint Venture Intangibles Valuation
The accounting for a business combination requires the excess of the purchase price for the acquisition over the net book value of assets acquired to be allocated to the identifiable assets of the acquired entity. Any unallocated portion is recognized as goodwill. We engaged an independent third-party valuation specialist for the fair value allocation of the purchase price paid in connection with the Sensia joint venture to intangible assets, which required the use of several assumptions and estimates. Although we believe the assumptions and estimates made were reasonable and appropriate, these estimates are based on historical experience and information obtained from the management of the acquired companies. The key assumption requiring the use of judgment was the customer attrition rate ranging from 7.5% to 25%. A change in the customer attrition rate of 250 basis points would result in a change of $40.4 million in intangible assets.
More information regarding this business combination is contained in Note 5 in the Consolidated Financial Statements.
Goodwill
The quantitative test of goodwill for impairment requires us to estimate the fair value of our reporting units. During the second quarter of 2020, we performed a quantitative impairment test for our Sensia reporting unit. We determined the fair value of the reporting unit under a combination of an income approach derived from discounted cash flows and a market multiples approach using selected comparable public companies.
Critical assumptions used in this approach included management’s estimated future revenue growth rates, estimated future margins, and discount rate. Estimated future revenue growth and margins are based on management’s best estimate about current and future conditions. Although we believe the assumptions and estimates made were reasonable and appropriate, these estimates are based on a number of factors including historical experience and information obtained from reporting unit management. Actual results could differ from these estimates, especially given the uncertainty over the duration and severity of impacts related to the COVID-19 pandemic, and the impact on our Oil & Gas customers which have been, and could continue to be, impacted by the recent declines in oil prices. We determined the discount rate using our weighted average cost of capital adjusted for risk factors specific to the reporting unit, with comparison to market and industry data. A hypothetical 10 percent decrease in the fair value of this reporting unit or our other reporting units would not impact our conclusion that goodwill was not impaired.
More information regarding goodwill is contained in Note 6 in the Consolidated Financial Statements.
Environmental Matters
Information with respect to the effect of compliance with environmental protection requirements and resolution of environmental claims on us and our manufacturing operations is contained in Note 16 in the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. We believe that at March 31, 2020, there has been no material change to this information.
Recent Accounting Pronouncements
See Note 1 in the Consolidated Financial Statements regarding recent accounting pronouncements.


47

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to our exposure to interest rate risk and foreign currency risk is contained in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. We believe that at March 31, 2020, there has been no material change to this information.
Item 4. Controls and Procedures
Disclosure Controls and Procedures: We, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of the fiscal quarter covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the fiscal quarter covered by this report, our disclosure controls and procedures were effective.
Internal Control Over Financial Reporting: There has not been any change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In the first quarter of fiscal 2020, we completed the formation of Sensia as described elsewhere in this report. We continue to integrate controls, policies, and procedures relating to this transaction and will continue to evaluate the impact of any related changes to our internal control over financial reporting.

48

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to our legal proceedings is contained in Item 3, Legal Proceedings, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. We believe that at March 31, 2020, there has been no material change to this information.

49

Item 1A. Risk Factors
Information about our most significant risk factors is contained in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. We believe that at March 31, 2020, there has been no material change to this information, except for the following two changes:
(1) The existing risk factor entitled “Adverse changes in business or industry conditions and volatility and disruption of the capital and credit markets may result in decreases in our sales and profitability.” is updated by adding the following as a new third paragraph:

The COVID-19 pandemic has had a cascading effect on the Oil & Gas industry. Business closures and restrictions on people’s mobility has significantly decreased demand for oil and gas. In addition, major global producers have not sufficiently reduced production in light of current demand levels, which has resulted in global oversupply and declining oil prices. These factors have had, and could continue to have, adverse impacts to our Oil & Gas customers’ business operations and financial condition, which could lead to a decrease in their liquidity and/or industrial spending. This has resulted in, and could continue to result in, a decrease in demand for our hardware and software products, solutions and services, as well as impact such customers’ ability to pay for such hardware and software products, solutions and services.
(2) The existing risk factor entitled “We face the potential harms of natural disasters, pandemics, acts of war, terrorism, international conflicts or other disruptions to our operations.” is updated in its entirety as follows:
We face the potential harms of natural disasters, pandemics, including the COVID-19 pandemic, acts of war, terrorism, international conflicts or other disruptions to our operations, the duration and severity of which are highly uncertain and difficult to predict.
Our business depends on the movement of people and goods around the world. Natural disasters, pandemics (including the COVID-19 pandemic), acts or threats of war or terrorism, international conflicts, power outages, fires, explosions, equipment failures, sabotage, political instability and the actions taken by governments could cause damage to or disrupt our business operations, our suppliers or our customers, and could create economic instability. Disruptions to our IT infrastructure from system failures, shutdowns, power outages, telecommunication or utility failures, and other events, including disruptions at third party IT and other service providers, could also interfere with or disrupt our operations. Although it is not possible to predict such events or their consequences, these events could decrease demand for our hardware and software products, solutions or services, increase our costs, or make it difficult or impossible for us to deliver products, solutions or services.
The outbreak of COVID-19 has spread globally and caused significant disruption to the global economy, including in all of the regions in which we, our suppliers, distributors, business partners and customers do business and in which our workforce is located. The COVID-19 pandemic and efforts to manage it, including those by governmental authorities, have had, and could continue to have, significant impacts on global markets. While the duration and severity of those impacts on our business are highly uncertain, they have had, and could continue to have, an adverse effect on our business, financial condition and results of operations in many ways, including, but not limited to, the following:
•
Our customers are, and continue to be, subject to significant risks and have had, and could continue to have, adverse impacts to their business operations and financial condition related to the COVID-19 pandemic, which could lead to a decrease in their liquidity and/or industrial spending. This has resulted in, and could continue to result in, a decrease in demand for our hardware and software products, solutions and services, as well as impact our customers' ability to pay for such hardware and software products, solutions and services.
•
The COVID-19 pandemic and responses to it have significantly limited or prevented the movement of goods and services worldwide, which has resulted in and could continue to result in disruptions in our supply chain and our difficulty in procuring or inability to procure components and materials necessary for our hardware and software products, solutions and services. The impact of the COVID-19 pandemic and responses to it has increased and could continue to increase the costs of making and distributing our hardware and software products, solutions and services or result in delays in delivering, or an inability to deliver, them to our customers.
•
Our workforce may be unable or unwilling to work on-site or travel as a result of event cancellations, facility closures, shelter-in-place, travel and other restrictions and changes in industry practice, or if they, their co-workers or their family members become ill or otherwise require care arrangements. These workforce disruptions have adversely affected and could continue to adversely affect our ability to operate, including to develop, manufacture, generate sales, promote, market and deliver our hardware and software products, solutions and services, and provide customer support.

50

•
Uncertainty over the duration and severity of the economic impact of the COVID-19 pandemic and effectiveness of efforts to manage it have caused significant volatility in the capital and other financial markets, which has adversely impacted, and could continue to adversely impact, global liquidity and asset values (including the price of our stock and the securities of other companies we own, such as the common stock we own in PTC Inc., and the fair value of our pension plans’ investments). This uncertainty and volatility could adversely affect our ability to, or the cost at which we may, access the capital and other financial markets, including the commercial paper market, or otherwise obtain debt or equity financing, which could adversely affect our financial condition or ability to satisfy our contractual obligations and fund our other business operations or future investment opportunities.
The unprecedented and continuously evolving nature of the COVID-19 pandemic make the duration and severity of its impacts increasingly difficult to predict, which could limit our ability to respond to those impacts. Additionally, the impacts described above and other impacts of the COVID-19 pandemic and responses to it could substantially increase the risk to us from the other risks described in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

51

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchases
The table below sets forth information with respect to purchases made by or on behalf of us of shares of our common stock during the three months ended March 31, 2020: 
Period
 
Total Number of Shares Purchased(1)
 
Average Price Paid Per Share(2)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Approx. Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(3)
January 1 - 31, 2020
 
170,087

 
$
201.21

 
170,087

 
$
974,181,486

February 1 - 29, 2020
 
181,313

 
200.17

 
181,313

 
937,887,465

March 1 - 31, 2020
 
228,719

 
155.83

 
228,719

 
902,246,277

Total
 
580,119

 
182.99

 
580,119

 
 

(1)
All of the shares purchased during the quarter ended March 31, 2020, were acquired pursuant to the repurchase programs described in (3) below.
(2)
Average price paid per share includes brokerage commissions.
(3)
On both September 6, 2018, and July 24, 2019, the Board of Directors authorized us to expend $1.0 billion to repurchase shares of our common stock. Our repurchase programs allow us to repurchase shares at management’s discretion or at our broker’s discretion pursuant to a share repurchase plan subject to price and volume parameters.


 

52

Item 6. Exhibits
(a) Exhibits:
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Exhibit 101
 
—
 
Interactive Data Files.
 
 
*
 
Management contract or compensatory plan or arrangement

53

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
ROCKWELL AUTOMATION, INC.
(Registrant)
 
 
 
 
Date:
April 28, 2020
 
By
 
/s/ PATRICK P. GORIS
 
 
 
 
 
Patrick P. Goris
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date:
April 28, 2020
 
By
 
/s/ TERRY L. RIESTERER
 
 
 
 
 
Terry L. Riesterer
Vice President and Controller
(Principal Accounting Officer)

54