ROCKWELL AUTOMATION, INC. Results of Operations Forward-Looking Statements This Quarterly Report contains statements (including certain projections 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 (including those as a result of climate change), 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 inflation, global and regional business conditions (including adverse impacts in certain markets, such as Oil & Gas), commodity prices, the cyclical nature of our customers' capital spending, sovereign debt concerns, and currency exchange rates; •the availability and cost of capital; •our ability to attract, develop, and retain qualified personnel; •the successful integration and management of strategic transactions and achievement of the expected benefits of these transactions; •laws, regulations, and governmental policies affecting our activities in the countries where we do business, including those related to tariffs, taxation, trade controls, and climate change; •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; •disruptions to our distribution channels or the failure of distributors to develop and maintain capabilities to sell our products; •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, 2021 , for more information. 24 -------------------------------------------------------------------------------- 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 growth and performance strategy seeks to: •achieve organic sales growth in excess of the automation market by expanding our served market and strengthening our competitive differentiation; •grow market share of our core platforms; •drive double digit growth in information solutions and connected services; •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. 25 -------------------------------------------------------------------------------- Table of Contents U.S. Economic Trends In the first quarter of fiscal 2022, 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 2017. 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 2020 . These figures are as ofJanuary 27, 2022 , and are subject to revision by the issuing organizations. The IP index continued to improve during the first quarter of fiscal 2022, climbing above the pre-pandemic level in November and remaining above that level in December. In the first quarter of fiscal 2022, PMI continued to be well above 50. The December PMI represents the nineteenth consecutive month of expansion in the overall economy. IP Index PMI Fiscal 2022 quarter ended: December 2021 101.7 58.7 Fiscal 2021 quarter ended: September 2021 100.7 61.1 June 2021 99.9 60.6 March 2021 98.3 64.7 December 2020 97.4 60.5 Fiscal 2020 quarter ended: September 2020 95.5 55.7 Non-U.S. Economic Trends In the first quarter of fiscal 2022, 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, IP, and PMI as indicators of the growth opportunities in each region where we do business. Industrial output and PMI outside theU.S. was mostly positive in the first quarter of fiscal 2022. Supply chain disruptions, labor shortages, and global inflation remain persistent in 2022, strong GDP growth is expected to continue in 2022 although decelerating from 2021 growth rates. 26 -------------------------------------------------------------------------------- Table of Contents Supply Chain We have a global supply chain, including a network of suppliers and distribution and manufacturing facilities. 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. COVID-19 Pandemic We continue to monitor the impacts of the COVID-19 pandemic on all aspects of our business and geographies. Uncertainty on the duration and severity of those impacts remain as new variants of the virus have emerged and the evolving nature of vaccine roll-outs and regulations. New regulations for vaccines and COVID-19 testing and health and safety requirements have been announced and additional regulations may be announced in the jurisdictions in which our business operates. We are continuously responding to the changing conditions created by the pandemic and evolving regulations and remain focused on our priorities including employee health and safety, our customer needs, and protecting critical investments to drive long-term differentiation. We continue to monitor and respond to the impacts on our businesses from macroeconomic effects including the ongoing impacts of the pandemic, supply chain constraints, and materials and labor shortages. Outlook The table below provides guidance for sales growth and earnings per share for fiscal 2022. Our guidance reflects strong demand as well as record backlog. Supply chain challenges remain dynamic, and our projections assume gradual improvement over the course of the year. Sales Growth Guidance EPS Guidance Reported sales growth 16% - 19% Diluted EPS$10.01 -$10.61 Organic sales growth (1) 14% - 17% Adjusted EPS (1)$10.50 -$11.10 Inorganic sales growth ~2% Currency translation ~0%
(1) Organic sales growth and Adjusted EPS are non-GAAP measures. See Supplemental Sales Information and Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate Reconciliation for more information on these non-GAAP measures.
27
--------------------------------------------------------------------------------
Table of Contents
Summary of Results of Operations
The following table reflects our sales and operating results (in millions,
except per share amounts and percentages):
Three Months Ended
December 31,
2021 2020Sales
Intelligent Devices (a)$ 900.3 $ 721.7 Software & Control (b) 513.9 441.0 Lifecycle Services (c) 443.1 402.6 Total sales (d)$ 1,857.3 $ 1,565.3 Segment operating earnings (1) Intelligent Devices (e)$ 213.0 $ 140.2 Software & Control (f) 117.6 133.1 Lifecycle Services (g) 24.5 36.0 Total segment operating earnings (2) (h) 355.1 309.3 Purchase accounting depreciation and amortization (26.1) (11.7) Corporate and other (29.4) (28.0) Non-operating pension and postretirement benefit credit (cost) 4.4 (7.0) Change in fair value of investments 7.6 390.4 Legal settlement - 70.0 Interest expense, net (29.1) (22.3) Income before income taxes (i) 282.5 700.7 Income tax provision (43.6) (110.3) Net income 238.9 590.4 Net loss attributable to noncontrolling interests (2.6) (2.9) Net income attributable to Rockwell Automation$ 241.5 $ 593.3 Diluted EPS$ 2.05 $ 5.06 Adjusted EPS (3)$ 2.14 $ 2.38 Diluted weighted average outstanding shares 117.3 117.1 Pre-tax margin (i/d) 15.2 % 44.8 % Intelligent Devices segment operating margin (e/a) 23.7 % 19.4 % Software & Control segment operating margin (f/b) 22.9 % 30.2 % Lifecycle Services segment operating margin (g/c) 5.5 % 8.9 % Total segment operating margin (2) (h/d) 19.1 % 19.8 % (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 credit (cost), change in fair value of investments, the$70 million legal settlement in fiscal 2021, interest expense, net, and income tax provision because we do not consider these costs to be directly related to the operating performance of our segments. We believe total segment operating earnings and total segment operating margin are useful to investors as measures of operating performance. We use these measures to monitor and evaluate the profitability of our operating segments. Our measures of total segment operating earnings and total segment operating margin may be different from measures used by other companies. (3)Adjusted EPS is a non-GAAP earnings measure. See Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate Reconciliation for more information on this non-GAAP measure. 28 -------------------------------------------------------------------------------- Table of Contents Three Months EndedDecember 31, 2021 , Compared to Three Months EndedDecember 31, 2020 Sales Sales increased 18.7 percent year over year in the three months endedDecember 31, 2021 . Organic sales increased 16.8 percent year over year in the three months endedDecember 31, 2021 . Currency translation decreased sales by 0.7 percentage points and acquisitions increased sales by 2.6 percentage points year over year in the three months endedDecember 31, 2021 . Pricing increased sales by approximately one percentage point in the three months endedDecember 31, 2021 . The table below presents our sales, attributed to the geographic regions based upon country of destination, and the percentage change from the same period a year ago (in millions, except percentages): Change in Organic Change vs. Sales (1) vs. Three Months Ended Three Months Ended Three Months Ended December 31, 2021 December 31, 2020 December 31, 2020 North America$ 1,100.7 20.7 % 15.9 % Europe, Middle East and Africa 354.7 10.6 % 14.8 % Asia Pacific 278.9 25.7 % 24.8 % Latin America 123.0 11.4 % 14.3 % Total Sales$ 1,857.3 18.7 % 16.8 % (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 inNorth America reported and organic sales in the three months endedDecember 31, 2021 , compared to the prior period was due to strong growth across discrete, process, and hybrid industries, including strength in Food & Beverage. •Europe,Middle East andAfrica reported sales and organic sales increased year over year in the three months endedDecember 31, 2021 , primarily due to strength in Food & Beverage, Tire, and Metals. •Reported and organic sales inAsia Pacific increased in the three months endedDecember 31, 2021 , primarily due to strength in Semiconductor, Food & Beverage, and Automotive. •Latin America reported and organic sales increased in the three months endedDecember 31, 2021 , led by Mining. Corporate and Other Corporate and other expense was$29.4 million and$28.0 million in the three months endedDecember 31, 2021 , and 2020, respectively. Income before Income Taxes Income before income taxes decreased to$282.5 million in the three months endedDecember 31, 2021 , from$700.7 million in the three months endedDecember 31, 2020 , primarily due to lower fair value gains recognized in fiscal 2022 versus fiscal 2021 in connection with our investment in PTC (the "PTC adjustments"). Total segment operating earnings increased 14.8 percent in the three months endedDecember 31, 2021 , primarily due to higher sales, partially offset by higher planned spend and input costs exceeding price realization. Income Taxes The effective tax rate for the three months endedDecember 31, 2021 , was 15.4 percent compared to 15.8 percent for the three months endedDecember 31, 2020 . Our Adjusted Effective Tax Rate for the three months endedDecember 31, 2021 , was 15.3 percent compared to 15.4 percent for the three months endedDecember 31, 2020 . Diluted EPS and Adjusted EPS Fiscal 2022 first quarter net income attributable toRockwell Automation was$241.5 million or$2.05 per share, compared to$593.3 million or$5.06 per share in the first quarter of fiscal 2021. The decreases in net income attributable toRockwell Automation and diluted EPS were primarily due to the PTC adjustments. Fiscal 2022 first quarter Adjusted EPS was$2.14 , down 10.1 percent compared to$2.38 in the first quarter of fiscal 2021, due to the$0.45 per share impact of the$70 million legal settlement gain in the first quarter of fiscal 2021. 29 -------------------------------------------------------------------------------- Table of Contents Intelligent Devices Sales Intelligent Devices sales increased 24.7 percent year over year in the three months endedDecember 31, 2021 . Intelligent Devices organic sales increased 25.6 percent year over year and currency translation decreased sales by 0.9 percentage points year over year in the three months endedDecember 31, 2021 . The growth in reported and organic sales in the three months endedDecember 31, 2021 , was broad-based across the regions. Segment Operating Margin Intelligent Devices segment operating earnings increased 51.9 percent year over year. Segment operating margin increased to 23.7 percent in the three months endedDecember 31, 2021 , from 19.4 percent in the same period a year ago, primarily due to higher sales, partially offset by input costs exceeding price realization. Software & Control Sales Software & Control sales increased 16.5 percent year over year in the three months endedDecember 31, 2021 . Software & Control organic sales increased 8.4 percent year over year in the three months endedDecember 31, 2021 . Currency translation decreased sales by 0.7 percentage points and acquisitions increased sales by 8.8 percentage points year over year in the three months endedDecember 31, 2021 . The growth in reported and organic sales in the three months endedDecember 31, 2021 , was broad-based across the regions. Segment Operating Margin Software & Control segment operating earnings decreased 11.6 percent year over year. Segment operating margin decreased to 22.9 percent in the three months endedDecember 31, 2021 , from 30.2 percent in the same period a year ago, primarily driven by higher planned spend, the impact of acquisition integration costs, and input costs exceeding price realization, partially offset by higher sales. Lifecycle Services Sales Lifecycle Services sales increased 10.1 percent year over year in the three months endedDecember 31, 2021 . Lifecycle Services organic sales increased 10.3 percent year over year in the three months endedDecember 31, 2021 . Currency translation decreased sales by 0.6 percentage points and an acquisition increased sales by 0.4 percentage points year over year in the three months endedDecember 31, 2021 . The growth in reported and organic sales in the three months endedDecember 31, 2021 , was broad-based across the regions. Segment Operating Margin Lifecycle Services segment operating earnings decreased 31.9 percent year over year in the three months endedDecember 31, 2021 . Segment operating margin decreased to 5.5 percent in the three months endedDecember 31, 2021 , from 8.9 percent in the same period a year ago, primarily due to higher planned spend, unfavorable project mix, and higher input costs, partially offset by higher sales. 30 -------------------------------------------------------------------------------- Table of Contents Supplemental Segment Information Purchase accounting depreciation and amortization and non-operating pension and postretirement benefit (credit) cost are not allocated to our operating segments because these costs are excluded from our measurement of each segment's operating performance for internal purposes. If we were to allocate these costs, we would attribute them to each of our segments as follows (in millions): Three Months Ended December 31, 2021 2020 Purchase accounting depreciation and amortization Intelligent Devices$ 0.7 $ 0.7 Software & Control 17.3 2.7 Lifecycle Services 7.9 8.0 Non-operating pension and postretirement benefit (credit) cost Intelligent Devices$ (2.1) $ 1.2 Software & Control (2.1) 1.2 Lifecycle Services (2.8) 1.5 31
--------------------------------------------------------------------------------
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 non-operating pension and postretirement benefit (credit) cost, change in fair value of investments, purchase accounting depreciation and amortization attributable toRockwell Automation , and net income (loss) attributable to noncontrolling interests, including their respective tax effects. Non-operating pension and postretirement benefit (credit) 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 December 31, 2021 2020 Net income attributable to Rockwell Automation$ 241.5 $ 593.3 Non-operating pension and postretirement benefit (credit) cost (4.4) 7.0
Tax effect of non-operating pension and postretirement benefit (credit) cost
0.8 (2.0)
Purchase accounting depreciation and amortization attributable to
23.1 8.7
Tax effect of purchase accounting depreciation and amortization
attributable to
(5.6) (2.1)
Change in fair value of investments (1) (7.6) (390.4)
Tax effect of change in fair value of investments (1) 3.5 64.2
Adjusted income $ 251.3 $ 278.7
Diluted EPS $ 2.05 $ 5.06
Non-operating pension and postretirement benefit (credit) cost (0.04) 0.06
Tax effect of non-operating pension and postretirement benefit (credit) cost
0.01 (0.02)
Purchase accounting depreciation and amortization attributable to
0.20 0.08
Tax effect of purchase accounting depreciation and amortization
attributable to
(0.05) (0.02)
Change in fair value of investments (1) (0.06) (3.33)
Tax effect of change in fair value of investments (1) 0.03 0.55
Adjusted EPS $ 2.14 $ 2.38
Effective tax rate 15.4 % 15.8 %Tax effect of non-operating pension and postretirement benefit (credit) cost
- % 0.1 %
Tax effect of purchase accounting depreciation and amortization
attributable to
0.8 % 0.2 %
Tax effect of change in fair value of investments (1) (0.9) % (0.7) %
Adjusted effective tax rate 15.3 % 15.4 %
(1) Primarily relates to the change in fair value of investment in PTC.
32--------------------------------------------------------------------------------
Table of Contents
Fiscal 2022 Guidance
Diluted EPS (1) $10.01 - $10.61
Non-operating pension and postretirement benefit credit (0.08)
Tax effect of non-operating pension and postretirement benefit credit
0.01
Change in fair value of investments (2) (0.06)
Tax effect of change in fair value of investments (2) 0.03
Purchase accounting depreciation and amortization attributable to
0.78
Tax effect of purchase accounting depreciation and amortization
attributable to
(0.19)
Adjusted EPS (1) $10.50 - $11.10
Effective tax rate ~ 16.5%Tax effect of non-operating pension and postretirement benefit credit
~ -%
Tax effect of change in fair value of investments (2) ~ -%
Tax effect of purchase accounting depreciation and amortization
attributable to
~ 0.5%
Adjusted Effective Tax Rate ~ 17.0%
(1) Fiscal 2022 guidance based on Adjusted Income attributable to Rockwell,
which includes an adjustment for Schlumberger's non-controlling interest in
Sensia .
(2) The actual year-to-date adjustments, which are based on PTC's share price at
December 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.
33
--------------------------------------------------------------------------------
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):
Three Months Ended
December 31,
2021 2020
Cash (used for) provided by:
Operating activities $ (12.0) $ 346.5
Investing activities (48.7) (310.1)
Financing activities (52.0) (37.2)
Effect of exchange rate changes on cash (9.5) 26.6
(Decrease) increase in cash, cash equivalents, and restricted cash $
(122.2)
The following table summarizes free cash flow, which is a non-GAAP financial
measure (in millions):
Three Months Ended
December 31,
2021 2020
Cash (used for) provided by operating activities $ (12.0) $ 346.5
Capital expenditures (37.1) (27.1)
Free cash flow $ (49.1) $ 319.4
Our definition of free cash flow takes into consideration capital investments
required to maintain our businesses' operations and execute our strategy. Cash
(used for) 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 used for operating activities was $12.0 million for the three months ended
December 31, 2021 , compared to cash provided by operating activities of $346.5
million for the three months ended December 31, 2020 . Free cash flow was a net
outflow of $49.1 million for the three months ended December 31, 2021 , compared
to a net inflow of $319.4 million for the three months ended December 31, 2020 .
The year over year decreases in cash (used for) provided by operating activities
and free cash flow were primarily due to higher incentive compensation payments,
increases in working capital, and higher income tax payments in the first three
months of fiscal 2022 compared to the first three months of fiscal 2021, as well
as the $70 million legal settlement in fiscal 2021 with no comparable amount in
fiscal 2022.
We repurchased approximately 0.2 million shares of our common stock under our
share repurchase program in the first three months of fiscal 2022. The total
cost of these shares was $49.4 million , of which $1.4 million was recorded in
accounts payable at December 31, 2021 , related to shares that did not settle
until January 2022 . At September 30, 2021 , there were $1.8 million of
outstanding common stock share repurchases recorded in accounts payable. We
repurchased approximately 0.4 million shares of our common stock in the first
three months of fiscal 2021. The total cost of these shares was $87.7 million ,
of which $4.2 million was recorded in accounts payable at December 31, 2020 ,
related to shares that did not settle until January 2021 . Our decision to
repurchase shares in the remainder of 2022 will depend on business conditions,
free cash flow generation, other cash requirements, 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 December 31, 2021 , we had
approximately $502.9 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.
34
--------------------------------------------------------------------------------
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 December 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, the Company accounts for taxes on
earnings of substantially all of its non-U.S. subsidiaries including both
non-U.S. and U.S. taxes. The Company has concluded that earnings of a limited
number of its non-U.S. subsidiaries are indefinitely reinvested.
Our short-term debt as of December 31, 2021 , and September 30, 2021 , includes
commercial paper borrowings of $580.0 million and $484.0 million , respectively,
with weighted average interest rates of 0.20 percent and 0.18 percent,
respectively, and weighted average maturity periods of 78 days and 90 days,
respectively. Also included in short-term debt as of December 31, 2021 , and
September 30, 2021 , is $23.5 million of interest-bearing loans from Schlumberger
to Sensia due December 31, 2022 . The short-term loans from Schlumberger were
entered into following the formation of Sensia in fiscal 2020.
At December 31, 2021 , and September 30, 2021 , 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 December 31, 2021 , or September 30, 2021 . 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 $205.9 million
were available to non-U.S. subsidiaries at December 31, 2021 . Borrowings under
our non-U.S. credit facilities at December 31, 2021 , and 2020, were not
significant. We were in compliance with all covenants under our credit
facilities at December 31, 2021 , and 2020. There are no significant commitment
fees or compensating balance requirements under our credit facilities.
During the fourth quarter of fiscal 2021, as a result of the additional leverage
added to fund the Plex acquisition, Standard & Poor's elected to downgrade our
Outlook from "Stable" to "Negative". No changes were made to existing ratings by
Moody's or Fitch. The following is a summary of our credit ratings as of
December 31, 2021 :
Credit Rating Agency Short-Term Rating Long-Term Rating Outlook
Standard & Poor's A-1 A Negative
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. 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.
35
--------------------------------------------------------------------------------
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.
On December 10, 2021 , the Company entered into a 10b5-1 plan related to our PTC
Shares, pursuant to which a broker will make periodic sales of some of our PTC
Shares on behalf of the Company, subject to the terms of the plan and consistent
with the transfer restrictions in our securities purchase agreement, as amended,
with PTC.
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 months ended December 31, 2021 , and 2020, we reclassified $1.8 million
and $4.3 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 $6.5 million of pre-tax net unrealized
gains on cash flow hedges as of December 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, 2021 . We believe that at December 31, 2021 , there has been no
material change to this information.
36
--------------------------------------------------------------------------------
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 December
Three Months Ended December 31, 2021 31, 2020
Effect of
Effect of Changes in
Sales Acquisitions Currency Organic Sales Sales
North America $ 1,100.7 $ (40.4) $ (3.2) $ 1,057.1 $ 912.3
Europe, Middle East and Africa 354.7 - 13.5 368.2 320.7
Asia Pacific 278.9 - (1.9) 277.0 221.9
Latin America 123.0 - 3.2 126.2 110.4
Total Company Sales $ 1,857.3 $ (40.4) $ 11.6 $ 1,828.5 $ 1,565.3
The following is a reconciliation of our reported sales by operating segment to
organic sales (in millions):
Three Months
Ended December
Three Months Ended December 31, 2021 31, 2020
Effect of
Effect of Changes in
Sales Acquisitions Currency Organic Sales Sales
Intelligent Devices $ 900.3 $ - $ 6.0 $ 906.3 $ 721.7
Software & Control 513.9 (38.9) 3.1 478.1 441.0
Lifecycle Services 443.1 (1.5) 2.5 444.1 402.6
Total Company Sales $ 1,857.3 $ (40.4) $ 11.6 $ 1,828.5 $ 1,565.3
37--------------------------------------------------------------------------------
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, 2021 . We believe that atDecember 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, 2021 . We believe that atDecember 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
