Basis of Presentation and Accounting Policies

In the opinion of management of Rockwell Automation, Inc. ("Rockwell Automation" or "the Company"), the unaudited Condensed 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, 2016. The results of operations for the three and nine-month periods ended June 30, 2017, 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.

Cash and Cash Equivalents

Cash and cash equivalents include time deposits, certificates of deposit, and other fixed income securities with original maturities of three months or less at the time of purchase.

Short-term Investments

Short-term investments include time deposits, certificates of deposit and other fixed income securities with original maturities longer than three months at the time of purchase and less than one year from period end. All investments meeting the definition of a security are accounted for as available-for-sale and stated at fair value. All other investments are stated at cost, which approximates fair value.

Receivables

Receivables are stated net of an allowance for doubtful accounts of $24.5 million at June 30, 2017, and September 30, 2016. In addition, receivables are stated net of an allowance for certain customer returns, rebates and incentives of $9.6 million at June 30, 2017, and $7.9 million at September 30, 2016.

Earnings Per Share

The following table reconciles basic and diluted earnings per share (EPS) amounts (in millions, except per share amounts):



	Three Months Ended June 30,						Nine Months Ended June 30,
	2017			2016			2017			2016
Net income	$	216.9		$	191.0		$	621.1		$	544.5
Less: Allocation to participating securities	(0.3		)	(0.2		)	(0.7		)	(0.6		)
Net income available to common shareowners	$	216.6		$	190.8		$	620.4		$	543.9
Basic weighted average outstanding shares	128.4			129.8			128.5			130.7
Effect of dilutive securities
Stock options	1.2			0.9			1.2			0.9
Performance shares	0.3			0.1			0.3			—
Diluted weighted average outstanding shares	129.9			130.8			130.0			131.6
Earnings per share:
Basic	$	1.69		$	1.47		$	4.83		$	4.16
Diluted	$	1.67		$	1.46		$	4.77		$	4.13

For each of the three and nine months ended June 30, 2017, share-based compensation awards for 0.6 million and 0.8 million shares, respectively, were excluded from the diluted EPS calculation because they were antidilutive. For the three and nine months ended June 30, 2016, share-based compensation awards for 1.8 million and 2.6 million shares, respectively, were excluded from the diluted EPS calculation because they were antidilutive.

Non-Cash Investing and Financing Activities

Capital expenditures of $22.3 million and $19.3 million were accrued within accounts payable and other current liabilities at June 30, 2017 and 2016, respectively. At June 30, 2017 and 2016, there were $3.4 million and $8.4 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 Condensed Consolidated Statement of Cash Flows.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued a new standard on share-based compensation. This requirement is effective for us no later than October 1, 2017; however, we elected to adopt earlier as of October 1, 2016. This standard requires entities to record the excess income tax benefit or deficiency from share-based compensation within the income tax provision rather than within additional paid-in capital. This change reduced our income tax provision by $4.5 million and $24.7 million in the three and nine months ended June 30, 2017, respectively. The standard also requires this benefit or deficiency to be classified as an operating cash flow rather than as a financing cash flow. The requirement to record the benefit or deficiency within the income tax provision is effective on a prospective basis. We have elected to adopt the cash flow presentation requirement on a prospective basis. Our adoption of all other requirements under the new standard had no material impact on our financial statements.

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. This standard is effective for us for reporting periods beginning October 1, 2019. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements and related disclosures.

In May 2014, the FASB issued a new standard 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 will also require 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 will adopt this new standard in the first quarter of fiscal 2019 and have established a project plan and a cross-functional implementation team to adopt the new standard. We are in the process of identifying and implementing necessary changes to accounting policies, processes, controls and systems to enable compliance with this new standard. We continue to evaluate the impact the adoption of this standard will have on our consolidated financial statements and related disclosures.