Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. ROCKWELL AUTOMATION INC (1024478) 10-Q published on Jul 27, 2018 at 9:17 am
Reporting Period: Jun 29, 2018
The Purchase Agreement, which was a firm commitment as of June 11, 2018, was determined to be a forward contract which was recorded at fair value and designated as a trading security. For the three months ended June 30, 2018, losses of $76.8 million related to this forward contract were recorded in other (expense) income in the Condensed Consolidated Statement of Operations. The forward contract was valued using the difference between the purchase price of $94.50 per share of PTC common stock and the most recent closing price of PTC common stock quoted on Nasdaq, resulting in losses of $7.3 million, less a temporary discount for lack of marketability calculated using a put-option model, resulting in losses of $69.5 million. The discount is due to an instrument-specific restriction as the Shares will be issued as private placements but are contractually required to be registered by PTC under the Securities Act of 1933 within one year, at which time the discount will be reversed. As of June 30, 2018, a corresponding liability is recorded in other current liabilities in the Condensed Consolidated Balance Sheet.
Forward contract — Valued using the difference between the PTC purchase price of $94.50 per share of PTC common stock and the most recent closing price of PTC common stock quoted on Nasdaq, less a temporary discount for lack of marketability. The discount for lack of marketability, which will reverse upon registration of the PTC securities, is calculated using a put-option model which includes observable and unobservable inputs and is categorized as Level 3 in the fair value hierarchy. The primary inputs include historical and implied PTC common stock volatility and the restriction term.
Recent industrial production forecasts continue to project growth in all regions for the remainder of fiscal 2018. In Asia Pacific, credit tightening in China could result in slightly lower growth this calendar year, but India’s economic outlook continues to strengthen. Presidential elections and trade agreement negotiations are creating some uncertainty in Latin America, and economic indicators in EMEA have weakened recently due to rising oil prices and a slowdown in foreign trade. However, both regions are still expected to report growth this year, despite these headwinds.
We own common stock in PTC Inc. and are exposed to the volatility, liquidity and other risks inherent in holding that stock.
We own common stock of PTC Inc. (PTC) that we acquired for an aggregate purchase price of approximately $1.0 billion. We present this investment on our Consolidated Balance Sheet at its fair value at the end of each reporting period, less a valuation adjustment pending registration of our shares of PTC common stock (Shares) under the Securities Act of 1933, which, per a registration rights agreement entered into with PTC, must occur no later than July 19, 2019. The fair value of the Shares is subject to fluctuation in the future due to the volatility of the stock market, changes in general economic conditions, and changes in the financial performance of PTC. We will recognize all changes in the fair value of the Shares (whether realized or unrealized) as gains or losses in our Consolidated Statement of Operations. Accordingly, changes in the fair value of the Shares can materially impact the earnings we report, which introduces volatility in our earnings that is not associated with the results of our business operations. In particular, significant declines in the fair value of the Shares would produce significant declines in our reported earnings.
While there is an established trading market for shares of PTC common stock, there are limitations on our ability to dispose of some or all of the Shares that we own should we wish to reduce our investment. For a period of approximately 3 years, we are subject to contractual restrictions on our ability to transfer the Shares, subject to certain exceptions. In addition, we are subject to certain restrictions on our ability to transfer the Shares under the securities laws. Further, the reported value of our Shares does not necessarily reflect their lowest current market price. If we were forced to sell some or all the Shares in the market, there can be no assurance that we will be able to sell them at prices equivalent to the value of the Shares that we have reported on our Consolidated Balance Sheet, and we may be forced to sell them at significantly lower prices.