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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_________________________________________
FORM 10-Q 
_________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2019
Commission file number 1-12383
_________________________________________
Rockwell Automation, Inc.
(Exact name of registrant as specified in its charter)
_________________________________________
Delaware
 
25-1797617
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
1201 South Second Street,
Milwaukee, Wisconsin
 
53204
(Address of principal executive offices)
 
(Zip Code)
+1 (414) 382-2000
Registrant’s telephone number, including area code 
_________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer
 
Accelerated Filer
 
 
Non-accelerated Filer
 
Smaller Reporting Company
 
 
 
 
 
Emerging Growth Company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☑
118,362,039 shares of registrant’s Common Stock, $1.00 par value, were outstanding on March 31, 2019.



Table of Contents
ROCKWELL AUTOMATION, INC.


INDEX
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2

PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements

ROCKWELL AUTOMATION, INC.

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


 
March 31,
2019
 
September 30,
2018
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
780.0

 
$
618.8

Short-term investments
122.2

 
290.9

Receivables
1,244.4

 
1,190.1

Inventories
665.4

 
581.6

Other current assets
164.8

 
149.3

Total current assets
2,976.8

 
2,830.7

Property, net of accumulated depreciation of $1,556.9 and $1,561.4, respectively
557.8

 
576.8

Goodwill
1,086.4

 
1,075.5

Other intangible assets, net
207.7

 
215.2

Deferred income taxes
200.0

 
179.6

Long-term investments
1,111.9

 
1,288.0

Other assets
113.6

 
96.2

Total
$
6,254.2

 
$
6,262.0

LIABILITIES AND SHAREOWNERS’ EQUITY
Current liabilities:
 
 
 
Short-term debt
$
1.3

 
$
551.0

Current portion of long term debt
297.4

 

Accounts payable
660.9

 
713.4

Compensation and benefits
197.2

 
289.4

Contract liabilities
308.9

 
249.9

Customer returns, rebates and incentives
192.5

 
206.6

Other current liabilities
213.7

 
226.6

Total current liabilities
1,871.9

 
2,236.9

Long-term debt
1,932.4

 
1,225.2

Retirement benefits
587.0

 
605.1

Other liabilities
526.6

 
577.3

Commitments and contingent liabilities (Note 12)

 

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

 
181.4

Additional paid-in capital
1,686.7

 
1,681.4

Retained earnings
6,398.0

 
6,198.1

Accumulated other comprehensive loss
(940.3
)
 
(941.9
)
Common stock in treasury, at cost (shares held: 63.0 and 60.3, respectively)
(5,989.5
)
 
(5,501.5
)
Total shareowners’ equity
1,336.3

 
1,617.5

Total
$
6,254.2

 
$
6,262.0

See Notes to Consolidated Financial Statements.

3

Table of Contents
ROCKWELL AUTOMATION, INC.


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


 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2019
 
2018
 
2019
 
2018
Sales
 
 
 
 
 
 
 
Products and solutions
$
1,466.8

 
$
1,470.5

 
$
2,924.4

 
$
2,883.0

Services
190.4

 
180.7

 
375.1

 
354.8

 
1,657.2

 
1,651.2

 
3,299.5

 
3,237.8

Cost of sales
 
 
 
 
 
 
 
Products and solutions
(823.6
)
 
(836.1
)
 
(1,606.0
)
 
(1,616.6
)
Services
(125.4
)
 
(111.2
)
 
(246.6
)
 
(217.1
)
 
(949.0
)
 
(947.3
)
 
(1,852.6
)
 
(1,833.7
)
Gross profit
708.2

 
703.9

 
1,446.9

 
1,404.1

Selling, general and administrative expenses
(385.0
)
 
(386.6
)
 
(771.7
)
 
(773.2
)
Other income (expense) (Note 9)
102.9

 
(0.4
)
 
(107.6
)
 
3.8

Interest expense
(23.7
)
 
(17.3
)
 
(44.4
)
 
(37.3
)
Income before income taxes
402.4

 
299.6

 
523.2

 
597.4

Income tax provision (Note 13)
(56.4
)
 
(72.2
)
 
(96.9
)
 
(606.4
)
Net income (loss)
$
346.0

 
$
227.4

 
$
426.3

 
$
(9.0
)
Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
2.91

 
$
1.79

 
$
3.56

 
$
(0.07
)
Diluted
$
2.88

 
$
1.77

 
$
3.53

 
$
(0.07
)
Weighted average outstanding shares:
 
 
 
 
 
 
 
Basic
118.9

 
126.9

 
119.6

 
127.6

Diluted
120.0

 
128.5

 
120.7

 
127.6

See Notes to Consolidated Financial Statements.


4

Table of Contents
ROCKWELL AUTOMATION, INC.


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

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
346.0

 
$
227.4

 
$
426.3

 
$
(9.0
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Pension and other postretirement benefit plan adjustments (net of tax (expense) of ($4.3), ($7.4), ($8.6) and ($14.8))
14.2

 
20.2

 
28.0

 
40.4

Currency translation adjustments
19.0

 
76.5

 
(9.5
)
 
60.4

Net change in unrealized gains and losses on cash flow hedges (net of tax (expense) benefit of ($0.5), $0.3, $6.0 and $0.6)
2.5

 
(1.0
)
 
(18.3
)
 
(0.5
)
Net change in unrealized gains and losses on available-for-sale investments (net of tax (expense) benefit of ($0.2), $0.3, ($0.3) and $0.6)
0.9

 
(1.5
)
 
1.4

 
(2.6
)
Other comprehensive income
36.6

 
94.2

 
1.6

 
97.7

Comprehensive income
$
382.6

 
$
321.6

 
$
427.9

 
$
88.7

See Notes to Consolidated Financial Statements.


5

Table of Contents
ROCKWELL AUTOMATION, INC.


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

 
Six Months Ended
March 31,
 
2019
 
2018
Operating activities:
 
 
 
Net income (loss)
$
426.3

 
$
(9.0
)
Adjustments to arrive at cash provided by operating activities:
 
 
 
Depreciation
62.1

 
68.5

Amortization of intangible assets
13.2

 
14.3

Change in fair value of investments
114.5

 

Share-based compensation expense
21.8

 
18.8

Retirement benefit expense
34.4

 
56.7

Pension contributions
(15.1
)
 
(23.5
)
Net loss on disposition of property
1.7

 

Settlement of treasury locks
(35.7
)
 

Changes in assets and liabilities, excluding effects of acquisitions and foreign
currency adjustments:
 
 
 
Receivables
(41.5
)
 
(9.8
)
Inventories
(86.0
)
 
(7.9
)
Accounts payable
(12.1
)
 
7.2

Contract liabilities
41.2

 
42.8

Compensation and benefits
(90.5
)
 
(67.7
)
Income taxes
(66.7
)
 
508.6

Other assets and liabilities
(11.8
)
 
(4.9
)
Cash provided by operating activities
355.8

 
594.1

Investing activities:
 
 
 
Capital expenditures
(80.9
)
 
(56.2
)
Acquisition of businesses, net of cash acquired
(20.7
)
 
(9.9
)
Purchases of investments
(2.8
)
 
(276.6
)
Proceeds from maturities of investments
219.2

 
690.3

Proceeds from sale of investments

 
155.3

Proceeds from sale of property
3.3

 
0.4

Cash provided by investing activities
118.1

 
503.3

Financing activities:
 
 
 
Net repayment of short-term debt
(549.7
)
 
(41.9
)
Issuance of long-term debt, net of discount and issuance costs
987.6

 

Repayment of long-term debt

 
(250.0
)
Cash dividends
(232.5
)
 
(213.5
)
Purchases of treasury stock
(535.2
)
 
(661.7
)
Proceeds from the exercise of stock options
23.8

 
61.9

Other financing activities

 
1.8

Cash used for financing activities
(306.0
)
 
(1,103.4
)
Effect of exchange rate changes on cash
(6.7
)
 
29.0

Increase in cash and cash equivalents
161.2

 
23.0

Cash and cash equivalents at beginning of period
618.8

 
1,410.9

Cash and cash equivalents at end of period
$
780.0

 
$
1,433.9

See Notes to Consolidated Financial Statements.

6

Table of Contents
ROCKWELL AUTOMATION, INC.


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

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Common stock (no shares issued during years)
$
181.4

 
$
181.4

 
$
181.4

 
$
181.4

Additional paid-in capital
 
 
 
 
 
 
 
Beginning balance
1,674.4

 
1,642.9

 
1,681.4

 
1,638.0

Share-based compensation expense
10.5

 
9.6

 
20.8

 
17.4

Shares delivered under incentive plans
1.8

 
7.1

 
(15.5
)
 
4.2

Ending balance
1,686.7

 
1,659.6

 
1,686.7

 
1,659.6

Retained earnings
 
 
 
 
 
 
 
Beginning balance
6,167.6

 
5,759.7

 
6,198.1

 
6,103.4

Adoption of accounting standard

 

 
6.1

 

Net income (loss)
346.0

 
227.4

 
426.3

 
(9.0
)
Cash dividends ($0.97, $0.835, $1.94, and $1.67 per share)
(115.6
)
 
(106.2
)
 
(232.5
)
 
(213.5
)
Ending balance
6,398.0

 
5,880.9

 
6,398.0

 
5,880.9

Accumulated other comprehensive loss
 
 
 
 
 
 
 
Beginning balance
(976.9
)
 
(1,175.7
)
 
(941.9
)
 
(1,179.2
)
Other comprehensive income
36.6

 
94.2

 
1.6

 
97.7

Ending balance
(940.3
)
 
(1,081.5
)
 
(940.3
)
 
(1,081.5
)
Common stock in treasury, at cost
 
 
 
 
 
 
 
Beginning balance
(5,772.2
)
 
(4,252.1
)
 
(5,501.5
)
 
(4,080.0
)
Purchases
(236.0
)
 
(465.4
)
 
(528.8
)
 
(674.0
)
Shares delivered under incentive plans
18.7

 
24.3

 
40.8

 
60.8

Ending balance
(5,989.5
)
 
(4,693.2
)
 
(5,989.5
)
 
(4,693.2
)
Total shareowners’ equity
$
1,336.3

 
$
1,947.2

 
$
1,336.3

 
$
1,947.2

See Notes to Consolidated Financial Statements.


7

Table of Contents
ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



1. Basis of Presentation and Accounting Policies
In the opinion of management of Rockwell Automation, Inc. ("Rockwell Automation" or "the Company"), the unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented and, except as otherwise indicated, such adjustments consist only of those of a normal, recurring nature. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. The results of operations for the three- and six-month periods ended March 31, 2019, 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 $19.6 million at March 31, 2019, and $17.1 million at September 30, 2018. In addition, receivables are stated net of an allowance for certain customer returns, rebates and incentives of $13.5 million at March 31, 2019, and $8.7 million at September 30, 2018.
Earnings Per Share
The following table reconciles basic and diluted earnings per share (EPS) amounts (in millions, except per share amounts):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
346.0

 
$
227.4

 
$
426.3

 
$
(9.0
)
Less: Allocation to participating securities
(0.4
)
 
(0.2
)
 
(0.4
)
 

Net income (loss) available to common shareowners
$
345.6

 
$
227.2


$
425.9

 
$
(9.0
)
Basic weighted average outstanding shares
118.9

 
126.9

 
119.6

 
127.6

Effect of dilutive securities
 
 
 
 
 
 
 
Stock options
1.0

 
1.4

 
1.0

 

Performance shares
0.1

 
0.2

 
0.1

 

Diluted weighted average outstanding shares
120.0

 
128.5

 
120.7

 
127.6

Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
2.91

 
$
1.79

 
$
3.56

 
$
(0.07
)
Diluted
$
2.88

 
$
1.77

 
$
3.53

 
$
(0.07
)

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. For each of the three and six months ended March 31, 2018, 0.9 million shares related to share-based compensation awards were excluded from the diluted EPS calculation because they were antidilutive. For the six months ended March 31, 2018, 2.6 million potential common shares related to share-based compensation awards were excluded from the diluted EPS calculation because we recorded a net loss. Of these shares, 1.7 million would have been included in the calculation had we recorded net income for the six months ended March 31, 2018.
Non-Cash Investing and Financing Activities
Capital expenditures of $11.1 million and $14.0 million were accrued within accounts payable and other current liabilities at March 31, 2019 and 2018, respectively. At March 31, 2019 and 2018, there were $11.9 million and $12.3 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.
Joint Venture Announcement
On February 19, 2019, we announced that we have entered into an agreement to create a new joint venture, Sensia, the first fully integrated digital oilfield automation solutions provider. The transaction is expected to close in calendar 2019, subject to receipt of regulatory approvals and satisfaction of other customary conditions. Under the terms of the agreement, Sensia will operate as an independent entity, with Rockwell Automation owning 53% and Schlumberger owning 47% of the joint venture. As part of the

8

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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

1. Basis of Presentation and Accounting Policies (continued)

transaction, we will make a $250 million payment to Schlumberger at closing, which will be funded by cash on hand. We expect that we will consolidate Sensia in our financial results. Sensia is expected to generate initial annual revenue of approximately $400 million, slightly less than half of which relates to businesses to be contributed to the joint venture by Rockwell Automation.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard, referred to as Accounting Standards Codification (ASC) 606, on revenue recognition related to contracts with customers. This standard supersedes nearly all existing revenue recognition guidance and involves a five-step principles-based approach to recognizing revenue. The underlying principle is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The new standard also requires additional qualitative and quantitative disclosures about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized from the costs to obtain or fulfill a contract. We adopted the new revenue standard using the modified retrospective transition method, which resulted in an adjustment to the opening balance of retained earnings as of October 1, 2018, our adoption date. The prior period information has not been restated and continues to be reported under the accounting standards in effect for the period presented. See Note 2 in the Consolidated Financial Statements for additional accounting policy and transition disclosures.
In March 2017, the FASB issued a new standard regarding the presentation of net periodic pension and postretirement benefit cost. This standard requires the service cost component to be reported in the income statement in the same line item as other compensation costs arising from services rendered by the related employees during the period. The other components of net periodic benefit cost are required to be presented separately from the service cost component in either a separate line item or within another appropriate line item with disclosure of where those costs are recorded. This standard also requires that only the service cost component is eligible for capitalization, when applicable. We adopted the new standard as of October 1, 2018 and applied the standard retrospectively. As a result of applying the pension standard retrospectively, the following adjustments were made to the Consolidated Statement of Operations (in millions):
 
Three Months Ended March 31, 2018
 
Six Months Ended March 31, 2018
 
As Reported
 
Impact of adoption
 
As Restated
 
As Reported
 
Impact of adoption
 
As Restated
Cost of sales
 
 
 
 
 
 
 
 
 
 
 
Products and solutions
$
(838.8
)
 
$
2.7

 
$
(836.1
)
 
$
(1,622.0
)
 
$
5.4

 
$
(1,616.6
)
Services
(111.6
)
 
0.4

 
(111.2
)
 
(217.9
)
 
0.8

 
(217.1
)
 
(950.4
)
 
3.1

 
(947.3
)
 
(1,839.9
)
 
6.2

 
(1,833.7
)
Gross profit
700.8

 
3.1

 
703.9

 
1,397.9

 
6.2

 
1,404.1

Selling, general and administrative expenses
(389.2
)
 
2.6

 
(386.6
)
 
(778.5
)
 
5.3

 
(773.2
)
Other income (expense)
5.3

 
(5.7
)
 
(0.4
)
 
15.3

 
(11.5
)
 
3.8


Effective October 1, 2018, we realigned our reportable segments for a transfer of business activities between our segments. We also reclassified interest income from General corporate - net to Interest (expense) income - net. As a result, the prior period presentation of reportable segments has been restated to conform to the current segment reporting structure. These changes did not impact the Consolidated Statement of Operations. See Note 14 in the Consolidated Financial Statements for additional information about the restatements.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued a new standard on accounting for leases that requires lessees to recognize right-of-use assets and lease liabilities for most leases, among other changes to existing lease accounting guidance. The new standard also requires additional qualitative and quantitative disclosures about leasing activities. We intend to adopt this standard in the first fiscal quarter of 2020 and apply the new standard at the adoption date, and recognize a cumulative-effect adjustment to the opening balance of retained earnings.
We have established a project plan and a cross-functional implementation team to adopt and apply the new standard. We are in the process of implementing necessary changes to accounting policies, processes, controls and systems to enable compliance with this new standard. We continue to evaluate the impact the adoption of this standard will have on our consolidated financial statements and related disclosures.

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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

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

 
$
4.5

 
$
1,194.6

Other current assets
149.3

 
17.7

 
167.0

Deferred income taxes
179.6

 
1.2

 
180.8

Other assets
96.2

 
11.4

 
107.6

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

 
$
18.7

 
$
268.6

Customer returns, rebates and incentives
206.6

 
4.4

 
211.0

Other current liabilities
226.6

 
5.6

 
232.2

Shareowners’ equity:
 
 
 
 
 
Retained earnings
6,198.1

 
6.1

 
6,204.2


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

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ROCKWELL AUTOMATION, INC.

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

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

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ROCKWELL AUTOMATION, INC.

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

Unfulfilled Performance Obligations
As of March 31, 2019, we expect to recognize approximately $500 million of revenue in future periods from unfulfilled performance obligations from existing contracts with customers. We expect to recognize revenue of approximately $350 million of our remaining performance obligations over the next 12 months with the remaining balance recognized thereafter.
We have applied the practical expedient to exclude the value of remaining performance obligations for (i) contracts with an original term of one year or less and (ii) contracts for which we recognize revenue in proportion to the amount we have the right to invoice for services performed. The amounts above also do not include the impact of contract renewal options that are unexercised as of March 31, 2019.
Transaction Price
The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring products to, or performing services for a customer. We estimate the transaction price at contract inception, and update the estimate each reporting period for any changes in circumstances. In some cases a contract may involve variable consideration, including rebates, credits, allowances for returns or other similar items that generally decrease the transaction price. We use historical experience to estimate variable consideration, including any constraint.
The transaction price (including any discounts and variable consideration) is allocated between separate products and services based on their relative standalone selling prices. The standalone selling prices are determined based on the prices at which we separately sell each good or service. For items that are not sold separately, we estimate the standalone selling price using available information such as market reference points and other observable data.
We have elected the practical expedient to exclude sales taxes and other similar taxes from the measurement of the transaction price.
Significant Payment Terms
Our standard payment terms vary globally but do not result in a significant delay between the timing of invoice and payment. We occasionally negotiate other payment terms during the contracting process. We do not typically include significant financing components in our contracts with customers. We have elected the practical expedient to not adjust the transaction price for the period between transfer of products or performance of services and customer payment if expected to be one year or less.
For most of our products, we invoice at the time of shipment and we do not typically have significant contract balances. For our solutions and services as well as some of our products, timing may differ between revenue recognition and billing. Depending on the terms agreed to with the customer, we may invoice in advance of performance or we may invoice after performance. When revenue recognition exceeds billing we recognize a receivable, and when billing exceeds revenue recognition we recognize a contract liability.
Disaggregation of Revenue
The following series of tables present our revenue disaggregation by geographic region and types of products or services, and also present these disaggregation categories for our two operating segments. We attribute sales to the geographic regions based on the country of destination.
The following reflects the disaggregation of our revenues by operating segment and by geographic region (in millions):
 
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

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ROCKWELL AUTOMATION, INC.

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

The following reflects the disaggregation of our revenues by operating segment and by major types of products or services (in millions):
 
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, 2019.

Below is a summary of our contract liabilities balance:
 
March 31, 2019
Balance as of beginning of fiscal year
$
268.6

Balance as of end of period
308.9



The most significant changes in our contract liabilities balance during the six months ended March 31, 2019 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, 2019, we recognized revenue of approximately $185 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, 2019 from performance obligations satisfied or partially satisfied in previous periods.

Costs to Obtain and Fulfill a Contract

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

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ROCKWELL AUTOMATION, INC.

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

Dual Reporting
In accordance with ASC 606, the disclosure of the impact of adoption to the Consolidated Balance Sheet was as follows (in millions):
 
March 31, 2019
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
ASSETS
Current assets:
 
 
 
 
 
Receivables
$
1,244.4

 
$
(0.8
)
 
$
1,243.6

Other current assets
164.8

 
(15.2
)
 
149.6

Deferred income taxes
200.0

 
(3.0
)
 
197.0

Other assets
113.6

 
(10.5
)
 
103.1

LIABILITIES AND SHAREOWNERS’ EQUITY
Current liabilities:
 
 
 
 
 
Contract liabilities
$
308.9

 
$
(10.9
)
 
$
298.0

Customer returns, rebates and incentives
192.5

 
(2.2
)
 
190.3

Other current liabilities
213.7

 
(8.0
)
 
205.7

Shareowners’ equity:
 
 


 
 
Retained earnings
6,398.0

 
(8.6
)
 
6,389.4

Accumulated other comprehensive loss
(940.3
)
 
0.2

 
(940.1
)

In accordance with ASC 606, the disclosure of the impact of adoption to the Consolidated Statement of Operations was as follows (in millions):
 
Three Months Ended March 31, 2019
 
Six Months Ended March 31, 2019
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
Sales
 
 
 
 
 
 
 
 
 
 
 
Products and solutions
$
1,466.8

 
$
(2.0
)
 
$
1,464.8

 
$
2,924.4

 
$
2.6

 
$
2,927.0

Services
190.4

 
(7.2
)
 
183.2

 
375.1

 
(16.4
)
 
358.7

Cost of sales
 
 


 
 
 
 
 
 
 
 
Products and solutions
(823.6
)
 
(2.7
)
 
(826.3
)
 
(1,606.0
)
 
(3.8
)
 
(1,609.8
)
Services
(125.4
)
 
5.0

 
(120.4
)
 
(246.6
)
 
13.8

 
(232.8
)
Income tax provision
(56.4
)
 
2.0

 
(54.4
)
 
(96.9
)
 
1.3

 
(95.6
)



14

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ROCKWELL AUTOMATION, INC.

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

In accordance with ASC 606, the disclosure of the impact of adoption to the Consolidated Statement of Comprehensive Income was as follows (in millions):
 
Three Months Ended March 31, 2019
 
Six Months Ended March 31, 2019
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
Net income
$
346.0

 
$
(4.8
)
 
$
341.2

 
$
426.3

 
$
(2.5
)
 
$
423.8

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
19.0

 

 
19.0

 
(9.5
)
 
0.2

 
(9.3
)

In accordance with ASC 606, the disclosure of the impact of adoption to the Consolidated Statement of Cash Flows was as follows (in millions):
 
Six Months Ended March 31, 2019
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
Operating activities:
 
 
 
 
 
Net income
$
426.3

 
$
(2.5
)
 
$
423.8

Receivables
(41.5
)
 
(10.7
)
 
(52.2
)
Contract liabilities
41.2

 
15.4

 
56.6

Income taxes
(66.7
)
 
(1.4
)
 
(68.1
)
Other assets and liabilities
(11.8
)
 
(0.8
)
 
(12.6
)

In accordance with ASC 606, the disclosure of the impact of adoption to the Consolidated Statement of Shareowners' Equity was as follows (in millions):
 
Three Months Ended March 31, 2019
 
Six Months Ended March 31, 2019
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
 
As reported
 
Impact of Adoption
 
Balances without adoption of ASC 606
Retained earnings
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
6,167.6

 
$
(3.8
)
 
$
6,163.8

 
$
6,204.2

 
$
(6.1
)
 
$
6,198.1

Net income (loss)
346.0

 
(4.8
)
 
341.2

 
426.3

 
(2.5
)
 
423.8

Accumulated other comprehensive loss
 
 


 
 
 
 
 
 
 
 
Other comprehensive income
36.6

 

 
36.6

 
1.6

 
0.2

 
1.8




15

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ROCKWELL AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

3. Share-Based Compensation
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. We recognized $10.2 million and $18.8 million of pre-tax share-based compensation expense during the three and six months ended March 31, 2018, 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,
 
2019
 
2018
 
Grants
 
Wtd. Avg.
Share
Fair Value
 
Grants
 
Wtd. Avg.
Share
Fair Value
Stock options
946

 
$
32.48