ROCKWELL AUTOMATION, INC. 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; •the availability and price of components and materials; •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, 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; •the successful execution of our cost productivity initiatives; •competitive hardware and software products, solutions and services and pricing pressures, and our ability to provide high quality products, solutions and services; •our ability to attract, develop, and retain qualified personnel; •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; •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 ourSecurities 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 endedSeptember 30, 2020 , for more information. 27 -------------------------------------------------------------------------------- Table of Contents 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 toRockwell 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. OverviewRockwell 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 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; •drive double digit growth in annual recurring revenue; •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, increasing the portion of our total revenue that is recurring in nature, 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. 28 -------------------------------------------------------------------------------- Table of ContentsU.S. Industrial Economic Trends In the second quarter of fiscal 2021, sales in theU.S. accounted for over half of our total sales. The various indicators we use to gauge the direction and momentum of our servedU.S. markets include: •The Industrial Production (IP) Index, published by theFederal 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 ourU.S. customers in their manufacturing base. •The Manufacturing Purchasing Managers' Index (PMI), published by theInstitute for Supply Management (ISM), which indicates the current and near-term state of manufacturing activity in theU.S. According to the ISM, a PMI measure above 50 indicates that theU.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 endedSeptember 2019 . These figures are as ofApril 28, 2021 , and are subject to revision by the issuing organizations. In the second quarter of fiscal 2021, Manufacturing PMI improved compared to the prior quarter. The March PMI represents the tenth consecutive month of expansion in the overall economy. The IP index also improved during the quarter and was at the highest level since the COVID-19 pandemic began, although it is still below the pre-pandemic level. Continued sequential growth is projected for the IP Index in the third quarter of fiscal 2021. IP Index PMI Fiscal 2021 quarter ended: March 2021 105.5 64.7 December 2020 104.9 60.5 Fiscal 2020 quarter ended: September 2020 102.5 55.7 June 2020 93.7 52.2 March 2020 107.7 49.7 December 2019 109.6 47.8 Fiscal 2019 quarter ended: September 2019 109.5 48.2
Note: Economic indicators are subject to revision by the issuing organizations.
Non-U.S. Economic Trends In the second quarter of fiscal 2021, sales to customers outside theU.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. Industrial output outside theU.S. saw sequential growth in the second quarter of fiscal 2021. Manufacturing PMI readings improved in most countries during that same time period. The industrial output projection for the third quarter of fiscal 2021 is mixed, with some regions projected to grow sequentially and some projected to decline. 29 -------------------------------------------------------------------------------- Table of Contents Outlook 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. The supply chain is stressed by increased demand, along with pandemic-related and other global events that have put additional pressures on manufacturing output and freight lanes. This has resulted in and could continue to result in: •disruptions in our supply chain; •difficulty in procuring or inability to procure components and materials necessary for our hardware and software products, solutions and services; •increased costs for commodities, components, and freight services; and •delays in delivering, or an inability to deliver, our hardware and software products, solutions, and services. We are closely managing our end-to-end supply chain, from sourcing to production to customer delivery, with a particular focus on all critical and at-risk suppliers and supplier locations globally. We are updating our guidance considering our performance through the first half of the year, our expectation of continued orders strength, and anticipation of continued supply chain constraints. The following table provides guidance for projected sales growth and earnings per share for fiscal 2021: Sales Growth Guidance EPS Guidance Reported sales growth 9.0% - 12.0% Diluted EPS$12.53 -$12.93 Organic sales growth1 5.5% - 8.5% Adjusted EPS1$8.95 -$9.35 Inorganic sales growth ~1.5% Currency translation ~2.0% 1Organic sales growth and Adjusted EPS are non-GAAP measures. See Supplemental Sales Information and Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate Reconciliation for more information on these non-GAAP measures. 30 -------------------------------------------------------------------------------- Table of Contents Summary of Results of Operations The following table reflects our sales and operating results (in millions, except per share amounts and percentages). Information for the three and six months endedMarch 31, 2020 , has been recast to reflect our new operating segments. See Note 15 in the Consolidated Financial Statements for further information on our change in operating segments: Three Months Ended Six Months Ended March 31, March 31, 2021 2020 2021 2020 Sales Intelligent Devices (a)$ 850.2 $ 785.0 $ 1,571.9 $ 1,561.6 Software & Control (b) 502.3 448.2 943.3 900.7 Lifecycle Services (c) 423.6 448.1 826.2 903.5 Total sales (d)$ 1,776.1 $ 1,681.3 $ 3,341.4 $ 3,365.8 Segment operating earnings(1) Intelligent Devices (e)$ 202.0 $ 180.7 $ 342.2 $ 341.3 Software & Control (f) 149.8 136.8 282.9 277.2 Lifecycle Services (g) 38.3 54.0 74.3 92.1 Total segment operating earnings(2) (h) 390.1 371.5 699.4 710.6 Purchase accounting depreciation and amortization (13.1) (9.5) (24.8) (19.5) Corporate and other (30.4) (17.7) (58.4) (50.5)
Non-operating pension and postretirement benefit cost (7.0)
(8.6) (14.0) (17.3)
Gain (loss) on investments 190.9 (144.8) 581.3 (73.8)
Legal settlement - - 70.0 -
Interest (expense) income, net (22.8) (23.5) (45.1) (47.5)
Income before income taxes (i) 507.7 167.4 1,208.4 502.0
Income tax provision (97.4) (37.5) (207.7) (56.7)
Net income 410.3 129.9 1,000.7 445.3
Net (loss) income attributable to noncontrolling
interests (4.7) (2.3) (7.6) 2.4
Net income attributable to Rockwell Automation $ 415.0 $ 132.2 $ 1,008.3 $ 442.9
Diluted EPS $ 3.54 $ 1.13 $ 8.59 $ 3.80
Adjusted EPS(3) $ 2.41 $ 2.47 $ 4.79 $ 4.62
Diluted weighted average outstanding shares 117.1 116.6 117.1 116.6
Total segment operating margin(2) (h/d) 22.0 % 22.1 % 20.9 % 21.1 %
Pre-tax margin (i/d) 28.6 % 10.0 % 36.2 % 14.9 %
Intelligent Devices segment operating margin (e/a) 23.8 % 23.0 % 21.8 % 21.9 %
Software & Control segment operating margin (f/b) 29.8 % 30.5 % 30.0 % 30.8 %
Lifecycle Services segment operating margin (g/c) 9.0 % 12.1 % 9.0 % 10.2 %
(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, corporate and other, non-operating pension and postretirement
benefit cost, gains and losses on investments, the $70 million legal settlement
in fiscal 2021, certain corporate initiatives, 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 net income (loss)
attributable to noncontrolling interests, purchase accounting depreciation and
amortization expense attributable to Rockwell Automation , non-operating pension
and postretirement benefit cost, and gains and losses on investments, including
their respective tax effects. See Adjusted Income, Adjusted EPS and Adjusted
Effective Tax Rate Reconciliation for more information on this non-GAAP measure.
31
--------------------------------------------------------------------------------
Table of Contents
Three and Six Months Ended March 31, 2021 , Compared to Three and Six Months
Ended March 31, 2020
Sales
Sales increased 5.6 percent and decreased 0.7 percent year over year in the
three and six months ended March 31, 2021 , respectively. Organic sales increased
1.3 percent and decreased 4.2 percent in the three and six months ended
March 31, 2021 , respectively. Currency translation increased sales by 2.4
percentage points and 1.7 percentage points in the three and six months ended
March 31, 2021 , respectively. Acquisitions increased sales by 1.9 percentage
points and 1.8 percentage points in the three and six months ended March 31,
2021 , respectively.
Pricing did not have a significant impact on sales in the three and six months
ended March 31, 2021 .
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 in Organic
Change vs. Sales(1) vs.
Three Months Ended Three Months Ended Three Months Ended
March 31, 2021 March 31, 2020 March 31, 2020
North America $ 1,065.7 4.3 % 2.3 %
EMEA 354.8 6.4 % (7.1) %
Asia Pacific 246.9 23.0 % 15.6 %
Latin America 108.7 (12.9) % (8.2) %
Total Sales $ 1,776.1 5.6 % 1.3 %
Change in Organic
Change vs. Sales(1) vs.
Six Months Ended Six Months Ended Six Months Ended March
March 31, 2021 March 31, 2020 31, 2020
North America $ 1,978.0 (2.5) % (4.1) %
EMEA 675.5 4.9 % (7.5) %
Asia Pacific 468.8 8.9 % 3.5 %
Latin America 219.1 (16.6) % (9.9) %
Total Sales $ 3,341.4 (0.7) % (4.2) %
(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 increase in North America sales in the three months ended March 31, 2021 ,
compared to the prior period was led by significant growth in Food & Beverage,
e-Commerce, and Life Sciences, partially offset by Oil & Gas. The decrease in
North America sales in the six months ended March 31, 2021 , compared to the
prior period was primarily due to weakness in Oil & Gas, partially offset by
growth in Food & Beverage.
•EMEA sales increased year over year in the three and six months ended March 31,
2021 , primarily due to currency translation, acquisitions, and strength in Food
& Beverage. Organic sales decreased, driven by weakness in Oil & Gas and Metals,
partially offset by strength in Food & Beverage.
•Sales in Asia Pacific increased in the three and six months ended March 31,
2021 , due to currency translation as well as strength in Semiconductor, hybrid
industries, and Chemicals.
•Latin America sales decreased in the three and six months ended March 31, 2021 ,
due to currency translation and weakness in Oil & Gas.
32
--------------------------------------------------------------------------------
Table of Contents
Three and Six Months Ended March 31, 2021 , Compared to Three and Six Months
Ended March 31, 2020
Corporate and Other
Corporate and other expense was $30.4 million and $58.4 million in the three and
six months ended March 31, 2021 , respectively, compared to $17.7 million and
$50.5 million in the three and six months ended March 31, 2020 , respectively.
The increase was primarily due to mark-to-market adjustments related to our
deferred and non-qualified compensation plans.
Income before Income Taxes
Income before income taxes increased from $167.4 million and $502.0 million in
the three and six months ended March 31, 2020 , respectively, to $507.7 million
and $1,208.4 million in the three and six months ended March 31, 2021 ,
respectively. The increase in income before income taxes in the three and six
months ended March 31, 2021 , was primarily due to the fair-value adjustments
recognized in fiscal 2021 and fiscal 2020 in connection with our investment in
PTC (the "PTC adjustments") and a favorable legal settlement in the first
quarter of fiscal 2021. Total segment operating earnings increased 5.0 percent
in the three months ended March 31, 2021 , primarily due to favorable mix,
increased sales, and lower spend, partially offset by the reinstatement of
incentive compensation. Total segment operating earnings decreased 1.6 percent
in the six months ended March 31, 2021 , primarily due to lower sales and the
reinstatement of incentive compensation, partially offset by lower spend and
favorable mix.
Income Taxes
The effective tax rate for the three months ended March 31, 2021 , was 19.2
percent compared to 22.4 percent for the three months ended March 31, 2020 . The
decrease in the effective tax rate was primarily due to the tax effects of the
fair-value adjustments recognized in fiscal 2021 and fiscal 2020 in connection
with our investment in PTC, partially offset by other discrete items. Our
Adjusted Effective Tax Rate for the three months ended March 31, 2021 , was 16.7
percent compared to 12.6 percent for the three months ended March 31, 2020 . The
increase in the Adjusted Effective Tax Rate was primarily due to higher discrete
benefits in the prior year.
The effective tax rate for the six months ended March 31, 2021 , was 17.2 percent
compared to 11.3 percent for the six months ended March 31, 2020 . The increase
in the effective tax rate was primarily due to the effect of tax benefits
recognized upon the formation of the Sensia joint venture in fiscal 2020 and
other discrete tax items, partially offset by PTC adjustments. Our Adjusted
Effective Tax Rate for the six months ended March 31, 2021 , was 16.1 percent
compared to 10.6 percent for the six months ended March 31, 2020 . The increase
in the Adjusted Effective Tax Rate was primarily due to tax benefits recognized
upon the formation of the Sensia joint venture in fiscal 2020 and other discrete
tax items.
Diluted EPS and Adjusted EPS
Fiscal 2021 second quarter net income attributable to Rockwell Automation was
$415.0 million or $3.54 per share, compared to $132.2 million or $1.13 per share
in the second quarter of fiscal 2020. The increases in net income attributable
to Rockwell Automation and diluted EPS were primarily due to the PTC
adjustments. Fiscal 2021 second quarter Adjusted EPS was $2.41 in the second
quarter of fiscal 2021, down 2 percent compared to $2.47 in the second quarter
of fiscal 2020. Higher volume and favorable mix were offset by the reinstatement
of incentive compensation and a higher Adjusted Effective Tax Rate.
Net income attributable to Rockwell Automation was $1,008.3 million or $8.59 per
share in the six months ended March 31, 2021 , compared to $442.9 million or
$3.80 per share in the six months ended March 31, 2020 . The increases in net
income attributable to Rockwell Automation and diluted EPS were primarily due to
the PTC adjustments and a $70 million pre-tax favorable legal settlement in the
first quarter of fiscal 2021, partially offset by a higher tax rate. Adjusted
EPS was $4.79 in the six months ended March 31, 2021 , up 4 percent compared to
$4.62 in the six months ended March 31, 2020 . The increase in Adjusted EPS was
primarily due to lower spend, the legal settlement and favorable mix, partially
offset by lower sales and the reinstatement of incentive compensation.
33
--------------------------------------------------------------------------------
Table of Contents
Three and Six Months Ended March 31, 2021 , Compared to Three and Six Months
Ended March 31, 2020
Intelligent Devices
Sales
Intelligent Devices sales increased 8.3 percent and 0.7 percent year over year
in the three and six months ended March 31, 2021 , respectively. Intelligent
Devices organic sales increased 5.8 percent and decreased 1.0 percent in the
three and six months ended March 31, 2021 , respectively. Currency translation
increased sales by 2.5 percentage points and 1.7 percentage points in the three
and six months ended March 31, 2021 , respectively. The growth in reported sales
in the three and six months ended March 31, 2021 , was led by EMEA and Asia
Pacific , partially offset by declines in Latin America . Reported sales in North
America increased and were flat in three and six months ended March 31, 2021 ,
respectively. Organic sales in the three months ended March 31, 2021 , increased
in Asia Pacific and North America , were flat in EMEA, and declined in Latin
America . All regions except Asia Pacific experienced declines in organic sales
in the six months ended March 31, 2021 .
Segment Operating Margin
Intelligent Devices segment operating earnings increased 11.8 percent and 0.3
percent year over year in the three and six months ended March 31, 2021 ,
respectively. Segment operating margin increased to 23.8 percent and decreased
to 21.8 percent in the three and six months ended March 31, 2021 , respectively,
from 23.0 percent and 21.9 percent, respectively, in the same periods a year
ago. The increase in segment operating margin in the three months ended
March 31, 2021 was primarily due to higher sales and lower spend, partially
offset by the reinstatement of incentive compensation.
Software & Control
Sales
Software & Control sales increased 12.1 percent and 4.7 percent year over year
in the three and six months ended March 31, 2021 , respectively. Software &
Control organic sales increased 5.6 percent and decreased 0.3 percent in the
three and six months ended March 31, 2021 , respectively. Currency translation
increased sales by 2.6 percentage points and 1.7 percentage points in the three
and six months ended March 31, 2021 , respectively. Acquisitions increased sales
by 3.9 percentage points and 3.3 percentage points in the three and six months
ended March 31, 2021 , respectively. The growth in reported sales in the three
and six months ended March 31, 2021 , was broad-based across the regions, with
the exception of declines in Latin America . The growth in organic sales in the
three months ended March 31, 2021 was broad-based across the regions, with the
exception of flat organic sales in EMEA. All regions except North America
experienced declines in organic sales in the six months ended March 31, 2021 .
Segment Operating Margin
Software & Control segment operating earnings increased 9.5 percent and 2.1
percent year over year in the three and six months ended March 31, 2021 ,
respectively. Segment operating margin decreased to 29.8 percent in the three
months ended March, 31, 2021, from 30.5 percent in the same period a year ago,
primarily due to the reinstatement of incentive compensation partially offset by
higher sales. Segment operating margin decreased to 30.0 percent in the six
months ended March 31, 2021 , from 30.8 percent, in the same period a year ago,
primarily due to the reinstatement of incentive compensation partially offset by
lower spend.
34
--------------------------------------------------------------------------------
Table of Contents
Three and Six Months Ended March 31, 2021 , Compared to Three and Six Months
Ended March 31, 2020
Lifecycle Services
Sales
Lifecycle Services sales decreased 5.5 percent and 8.6 percent year over year in
the three and six months ended March 31, 2021 , respectively. Lifecycle Services
organic sales decreased 11.0 percent and 13.6 percent in the three and six
months ended March 31, 2021 , respectively. Currency translation increased sales
by 2.2 percentage points and 1.4 percentage points in the three and six months
ended March 31, 2021 , respectively. Acquisitions increased sales by 3.3
percentage points and 3.6 percentage points in the three and six months ended
March 31, 2021 , respectively. Both reported and organic sales declined in the
three and six months ended March 31, 2021 , in all regions except Asia Pacific .
Segment Operating Margin
Lifecycle Services segment operating earnings decreased 29.1 percent and 19.3
percent year over year in the three and six months ended March 31, 2021 ,
respectively. Segment operating margin decreased to 9.0 percent in the three
months ended March 31, 2021 , compared to 12.1 percent in the same period a year
ago, primarily due to lower sales and the reinstatement of incentive
compensation, partially offset by favorable mix and cost savings from actions
taken in the prior year. Segment operating margin decreased to 9.0 percent in
the six months ended March 31, 2021 , compared to 10.2 percent in the same period
a year ago primarily due to lower sales and the reinstatement of incentive
compensation, partially offset by lower spend, favorable mix and cost savings
from actions taken in the prior year.
35
--------------------------------------------------------------------------------
Table of Contents
Supplemental Segment Information
Purchase accounting depreciation and amortization and non-operating pension and
postretirement benefit 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 Six Months Ended
March 31, March 31,
2021 2020 2021 2020
Purchase accounting depreciation and amortization
Intelligent Devices $ 0.7 $ 0.7 $ 1.4 $ 1.4
Software & Control 4.0 1.2 6.7 2.4
Lifecycle Services 8.1 7.3 16.1 15.1
Non-operating pension and postretirement benefit cost
Intelligent Devices 1.1 1.6 2.3 3.3
Software & Control 1.1 1.6 2.3 3.3
Lifecycle Services 1.6 2.3 3.1 4.4
36--------------------------------------------------------------------------------
Table of Contents 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 net income (loss) attributable to noncontrolling interests, purchase accounting depreciation and amortization expense attributable toRockwell Automation , non-operating pension and postretirement benefit cost, and gains and losses on investments, including their respective tax effects. Non-operating pension and postretirement benefit cost is defined as all components of our net periodic pension and postretirement benefit cost except for service cost. See Note 10 in the Consolidated Financial Statements for more information on our net periodic pension and postretirement benefit cost. 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 toRockwell Automation , diluted EPS and effective tax rate. The following are reconciliations of net income attributable toRockwell 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 Six Months Ended March 31, March 31, 2021 2020 2021 2020 Net income attributable to Rockwell Automation$ 415.0 $ 132.2 $ 1,008.3 $ 442.9 Non-operating pension and postretirement benefit cost 7.0 8.6 14.0 17.3 Tax effect of non-operating pension and postretirement benefit cost (2.0) (2.4) (4.0) (4.8) Change in fair value of investments1 (190.9) 144.8 (581.3) 73.8 Tax effect of the change in fair value of investments1 46.1 - 110.3 - Purchase accounting depreciation and amortization attributable to Rockwell Automation 10.1 6.5 18.8 13.5
Tax effect of purchase accounting depreciation and
amortization attributable to
(1.6) (4.6) (3.2) Adjusted Income$ 282.8 $ 288.1 $ 561.5 $ 539.5 Diluted EPS$ 3.54 $ 1.13 $ 8.59 $ 3.80 Non-operating pension and postretirement benefit cost 0.06 0.08 0.12 0.15 Tax effect of non-operating pension and postretirement benefit cost (0.02) (0.02) (0.03) (0.04) Change in fair value of investments1 (1.63) 1.24 (4.96) 0.63 Tax effect of the change in fair value of investments1 0.39 - 0.95 - Purchase accounting depreciation and amortization attributable to Rockwell Automation 0.09 0.06 0.16 0.11 Tax effect of purchase accounting depreciation and amortization attributable to Rockwell Automation (0.02) (0.02) (0.04) (0.03) Adjusted EPS$ 2.41 $ 2.47 $ 4.79 $ 4.62 Effective tax rate 19.2 % 22.4 % 17.2 % 11.3 % Tax effect of non-operating pension and postretirement benefit cost 0.1 % 0.2 % 0.1 % 0.5 % Tax effect of the change in fair value of investments1 (2.9) % (10.2) % (1.5) % (1.5) % Tax effect of purchase accounting depreciation and amortization attributable to Rockwell Automation 0.3 % 0.2 % 0.3 % 0.3 % Adjusted Effective Tax Rate 16.7 % 12.6 % 16.1 % 10.6 %
1Primarily relates to the change in value of our investment in PTC.
37--------------------------------------------------------------------------------
Table of Contents
Fiscal 2021 Guidance
Diluted EPS $12.53 - $12.93
Non-operating pension and postretirement benefit cost 0.24
Tax effect of non-operating pension and postretirement benefit cost
(0.07)
Change in fair value of investments1 (4.96)
Tax effect of change in fair value of investments1 0.95
Purchase accounting depreciation and amortization attributable to
0.34
Tax effect of purchase accounting depreciation and amortization
attributable to
(0.08)
Adjusted EPS2 $8.95 - $9.35
Effective tax rate ~ 15.4%Tax effect of non-operating pension and postretirement benefit cost
~ 0.2%
Tax effect of change in fair value of investments1 ~ (1.8)%
Tax effect of purchase accounting depreciation and amortization
attributable to
~ 0.2%
Adjusted Effective Tax Rate ~ 14.0%
1The actual year-to-date adjustments, which are based on PTC's share price at
March 31, 2021 , 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 2021 guidance based on Adjusted Income attributable to Rockwell, which
includes an adjustment for Schlumberger's noncontrolling interest in Sensia
38
--------------------------------------------------------------------------------
Table of Contents
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,
2021 2020
Cash provided by (used for):
Operating activities $ 595.4 $ 448.5
Investing activities (336.7) (273.6)
Financing activities (339.1) (534.0)
Effect of exchange rate changes on cash 17.7 (17.5)
Decrease in cash, cash equivalents, and restricted cash
The following table summarizes free cash flow (in millions), which is a non-GAAP
financial measure:
Six Months Ended
March 31,
2021 2020
Cash provided by operating activities $ 595.4 $ 448.5
Capital expenditures (52.1) (56.6)
Free cash flow $ 543.3 $ 391.9
Our definition of free cash flow takes into consideration capital investments
required to maintain our businesses' operations and execute our strategy. Cash
provided by 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 $595.4 million for the six months
ended March 31, 2021 , compared to $448.5 million for the six months ended
March 31, 2020 . Free cash flow was $543.3 million for the six months ended
March 31, 2021 , compared to $391.9 million for the six months ended March 31,
2020 . The year over year increases in cash provided by operating activities and
free cash flow were primarily due to a decrease in incentive compensation
payments in the first six months of fiscal 2021 compared to the first six months
of fiscal 2020 and a $70 million pre-tax favorable legal settlement in the first
quarter of fiscal 2021.
We repurchased approximately 0.7 million shares of our common stock under our
share repurchase program in the first six months of fiscal 2021. The total cost
of these shares was $179.7 million , of which $2.8 million was recorded in
accounts payable at March 31, 2021 , related to shares that did not settle until
April 2021 . At September 30, 2020 , there were no outstanding common stock share
repurchases recorded in accounts payable. We repurchased approximately 1.1
million shares of our common stock 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 . Our decision to repurchase shares in the
remainder of 2021 will depend on business conditions, free cash flow generation,
other cash requirements (including acquisitions) and stock price. On 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, 2021 , we had
approximately $674.0 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.
39
--------------------------------------------------------------------------------
Table of Contents
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, cash generated by
operating activities, commercial paper borrowings or a new issuance of debt or
other securities. In addition, we have access to unsecured credit facilities
with various banks.
At March 31, 2021 , and September 30, 2020 , 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, 2021 , or September 30, 2020 . 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.
LIBOR is the primary basis for determining interest payments on borrowings under
our $1.25 billion credit facility. Banks currently reporting information used to
set U.S dollar LIBOR are currently expected to stop doing so during 2023.
Various parties, including government agencies, are seeking to identify an
alternative rate to replace LIBOR. We are monitoring their efforts, and we will
likely seek to amend contracts to accommodate any replacement rate where one is
not already provided.
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.
Separate short-term unsecured credit facilities of approximately $230.9 million
at March 31, 2021 , were available to non-U.S. subsidiaries. Borrowings under our
non-U.S. credit facilities at March 31, 2021 and 2020 were not significant. We
were in compliance with all covenants under our credit facilities at March 31,
2021 and 2020. There are no significant commitment fees or compensating balance
requirements under our credit facilities.
Our short-term debt as of March 31, 2021 , primarily consisted of $23.5 million
of interest-bearing loans from Schlumberger to Sensia which were originally due
September 30, 2020 , and are now due September 30, 2021 . There were no commercial
paper borrowings outstanding at March 31, 2021 , and September 30, 2020 .
The following is a summary of our credit ratings as of March 31, 2021 :
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
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. Conditions in the commercial paper market have improved since the
COVID-19 pandemic negatively affected this market in March and April 2020 , and
we have not experienced any difficulty in accessing the commercial paper 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.
At March 31, 2021 , 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.
40
--------------------------------------------------------------------------------
Table of Contents
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, 2021 , we reclassified $8.6 million and
$12.9 million , respectively, in pre-tax net losses 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, 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. We expect that approximately $13.3 million
of pre-tax net unrealized losses on cash flow hedges as of March 31, 2021 , 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, 2020 . We believe that at March 31, 2021 , there has been no
material change to this information.
41
--------------------------------------------------------------------------------
Table of Contents
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
Three Months Ended March 31, 2021 31, 2020
Effect of
Effect of Changes in
Sales Acquisitions Currency Organic Sales Sales
North America $ 1,065.7 $ (13.4) $ (6.4) $ 1,045.9 $ 1,022.1
EMEA 354.8 (18.7) (26.2) 309.9 333.6
Asia Pacific 246.9 - (14.8) 232.1 200.8
Latin America 108.7 (0.1) 6.0 114.6 124.8
Total Company Sales $ 1,776.1 $ (32.2) $ (41.4) $ 1,702.5 $ 1,681.3
Six
Months
Ended
March
Six Months Ended March 31, 2021 31, 2020
Effect of
Effect of Changes in
Sales Acquisitions Currency Organic Sales Sales
North America $ 1,978.0 $ (24.5) $ (7.7) $ 1,945.8 $ 2,029.0
Europe, Middle East and Africa 675.5 (37.2) (42.6) 595.7 643.7
Asia-Pacific 468.8 (0.3) (23.2) 445.3 430.4
Latin America 219.1 (0.1) 17.7 236.7 262.7
Total Company Sales $ 3,341.4 $ (62.1) $ (55.8) $ 3,223.5 $ 3,365.8
42
--------------------------------------------------------------------------------
Table of Contents
The following is a reconciliation of our reported sales by operating segment to
organic sales (in millions):
Three
Months
Ended
March
Three Months Ended March 31, 2021 31, 2020
Effect of
Effect of Changes in
Sales Acquisitions Currency Organic Sales Sales
Intelligent Devices $ 850.2 $ - $ (20.0) $ 830.2 $ 785.0
Software & Control 502.3 (17.3) (11.7) 473.3 448.2
Lifecycle Services 423.6 (14.9) (9.7) 399.0 448.1
Total Company Sales $ 1,776.1 $ (32.2) $ (41.4) $ 1,702.5 $ 1,681.3
Six
Months
Ended
March
Six Months Ended March 31, 2021 31, 2020
Effect of
Effect of Changes in
Sales Acquisitions Currency Organic Sales Sales
Intelligent Devices $ 1,571.9 $ - $ (26.4) $ 1,545.5 $ 1,561.6
Software & Control 943.3 (29.3) (16.2) 897.8 900.7
Lifecycle Services 826.2 (32.8) (13.2) 780.2 903.5
Total Company Sales $ 3,341.4 $ (62.1) $ (55.8) $ 3,223.5 $ 3,365.8
43--------------------------------------------------------------------------------
Table of Contents Critical Accounting Estimates We have prepared the Consolidated Financial Statements in accordance with accounting principles generally accepted inthe 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 endedSeptember 30, 2020 . We believe that atMarch 31, 2021 , there has been no material change to this information. 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 17 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 endedSeptember 30, 2020 . We believe that atMarch 31, 2021 , there has been no material change to this information. Recent Accounting Pronouncements See Note 1 in the Consolidated Financial Statements regarding recent accounting pronouncements.
© Edgar Online, source
