ROCKWELL AUTOMATION, INC. Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q 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 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, currency exchange rates, the cyclical nature of our customers' capital spending, and sovereign debt concerns; •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 (including theRussia andUkraine conflict), 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; •our ability to attract, develop, and retain qualified personnel; •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 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 (including sanctions placed onRussia ), cybersecurity, and climate change; •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, pricing pressures, and our ability to provide high quality products, solutions, and services; •the availability and cost of capital; •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 year endedSeptember 30, 2022 , for more information. 23
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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 Summary of 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 Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate Reconciliation 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.
Overview
Rockwell 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(R) 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 (ARR);
•acquire companies that serve as catalysts to organic growth by increasing our information solutions and high-value services offerings and capabilities, advanced material handling, and expanding our global presence;
•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.
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U.S. Economic Trends
In the first quarter of 2023, sales in the U.S. accounted for over half of our
total sales. The various indicators we use to gauge the direction and momentum
of our served U.S. markets include:
•The Industrial Production (IP) Index, published by the Federal 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 our U.S. customers in their manufacturing base.
•The Manufacturing Purchasing Managers' Index (PMI), published by the Institute
for Supply Management (ISM), which indicates the current and near-term state of
manufacturing activity in the U.S. According to the ISM, a PMI measure above 50
indicates that the U.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 ended
September 2021 . These figures are as of January 26, 2023 , and are subject to
revision by the issuing organizations. The IP Index declined in the first
quarter of 2023 versus the fourth quarter of 2022. Manufacturing PMI results
also softened in the first quarter of 2023. The reading in the month of December
was the lowest of the quarter and the second consecutive month below 50.
IP Index PMI
2023 quarter ended:
December 2022 101.0 48.4
2022 quarter ended:
September 2022 101.7 50.9
June 2022 101.8 53.0
March 2022 101.1 57.1
December 2021 100.1 58.8
2021 quarter ended:
September 2021 98.8 60.5
Inflation in the U.S. has also had an impact on our input costs and pricing. We
used the Producer Price Index (PPI), published by the Bureau of Labor
Statistics , which measures the average change over time in the selling prices
received by domestic producers for their output. PPI for December 31, 2022 ,
September 30, 2022 , June 30, 2022 , March 31, 2022 , and December 31, 2021 ,
increased 6.2 percent, 8.5 percent, 11.2 percent, 11.7 percent, and 10.0
percent, respectively, compared to the same period a year ago. These figures are
as of January 26, 2023 , and are subject to revision by the issuing organization.
Although higher than historic measures, the PPI year over year increase has
declined over the past three quarters.
Non-
In the first quarter of 2023, 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 (GDP), IP, and PMI as indicators of the growth opportunities in each region where we do business. Industrial Output outside theU.S. was lower in the first quarter of 2023 versus the fourth quarter of 2022. PMI readings were mostly lower in the first quarter of 2023 and readings for many countries ended the quarter below 50. Supply chain disruptions, labor shortages, and global inflation remain persistent, along with elevated geopolitical instability. 25
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Supply Chain
We have a global supply chain, including a network of suppliers and distribution and manufacturing facilities. The supply chain has been stressed by increased demand, along with pandemic-related and other global events that have put additional pressures on manufacturing output. Although there has been a gradual improvement in the supply chain environment, this has resulted in and could continue to result in:
•challenges 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 and components; 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 have made large-scale investments to increase capacity across our network in support of our orders growth. Additional actions we are taking include:
•extending order visibility to our supply base to ensure we are appropriately planning for extended component lead times;
•securing longer-term supply agreements with critical partners;
•re-engineering of existing products to increase component supply resiliency;
•capacity investments, including redundant manufacturing lines and additional electronic assembly equipment; and
•qualification of additional suppliers to diversify our supplier base.
We believe these and other actions we are taking will over time normalize our product lead times and reduce our backlog.
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 remains due to the evolving nature of the pandemic, government responses to it, and regulations across the geographies 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.
Outlook
The table below provides guidance for sales growth and earnings per share for 2023 as ofJanuary 26, 2023 . Our updated guidance reflects first quarter performance and record backlog. It also assumes a gradually improving supply chain environment. Sales Growth Guidance EPS Guidance Reported sales growth 10.0% - 14.0% Diluted EPS$10.99 -$11.79 Organic sales growth (1) 11.0% - 15.0% Adjusted EPS (1)$10.70 -$11.50 Inorganic sales growth ~1.0% Currency translation ~(2.0)%
(1) Organic sales growth and adjusted EPS are non-GAAP measures. See Supplemental Sales Information and Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate Reconciliation for more information on these non-GAAP measures.
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Summary of Results of Operations
The following table reflects our sales and operating results (in millions, except per share amounts and percentages):
Three Months Ended
December 31,
2022 2021Sales
Intelligent Devices (a)$ 936.2 $ 900.3 Software & Control (b) 573.3 513.9 Lifecycle Services (c) 471.5 443.1 Total sales (d)$ 1,981.0 $ 1,857.3 Segment operating earnings (1) Intelligent Devices (e)$ 209.4 $ 213.0 Software & Control (f) 167.3 117.6 Lifecycle Services (g) 24.3 24.5 Total segment operating earnings (2) (h) 401.0 355.1 Purchase accounting depreciation and amortization (26.0) (26.1) Corporate and other (27.3) (29.4) Non-operating pension and postretirement benefit credit 12.4 4.4 Change in fair value of investments 140.6 7.6 Interest expense, net (32.8) (29.1) Income before income taxes (i) 467.9 282.5 Income tax provision (89.2) (43.6) Net income 378.7 238.9 Net loss attributable to noncontrolling interests (5.3) (2.6) Net income attributable to Rockwell Automation$ 384.0 $ 241.5 Diluted EPS$ 3.31 $ 2.05 Adjusted EPS (3)$ 2.46 $ 2.14 Diluted weighted average outstanding shares 115.5 117.3 Pre-tax margin (i/d) 23.6 % 15.2 % Intelligent Devices segment operating margin (e/a) 22.4 % 23.7 % Software & Control segment operating margin (f/b) 29.2 % 22.9 % Lifecycle Services segment operating margin (g/c) 5.2 % 5.5 % Total segment operating margin (2) (h/d) 20.2 % 19.1 %
(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, change in fair value of investments, interest expense, net, and
income tax provision because we do not consider these items 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.
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Three Months Ended
Sales
Sales increased 6.7 percent year over year in the three months endedDecember 31, 2022 . Organic sales increased 9.9 percent year over year in the three months endedDecember 31, 2022 . Currency translation decreased sales by 4.0 percentage points year over year in the three months endedDecember 31, 2022 . Acquisitions increased sales by 0.8 percentage points year over year in the three months endedDecember 31, 2022 . Pricing increased total company sales by approximately 7 percentage points in the three months endedDecember 31, 2022 , realized in the Intelligent Devices and Software & Control segments. 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). The results by region and segment were primarily impacted by component availability versus underlying demand. Change in Organic Change vs. Sales (1) vs. Three Months Ended Three Months Ended Three Months Ended December 31, 2022 December 31, 2021 December 31, 2021 North America$ 1,178.9 7.1 % 7.7 % Europe, Middle East and Africa 372.8 5.1 % 13.3 % Asia Pacific 296.5 6.3 % 16.0 % Latin America 132.8 8.0 % 6.3 % Total Company Sales$ 1,981.0 6.7 % 9.9 % (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.
Corporate and Other
Corporate and other expenses were
Income before Income Taxes
Income before income taxes was$467.9 million in the three months endedDecember 31, 2022 , compared to$282.5 million in the three months endedDecember 31, 2021 . The increase was primarily due to fair value adjustments recognized in 2023 compared to 2022 in connection with our investment in PTC (the "PTC adjustments") as well as higher sales, partially offset by higher input costs. Total segment operating earnings increased 12.9 percent in the three months endedDecember 31, 2022 , primarily due to higher sales, including pricing increases, partially offset by higher input costs and higher investment spend. Income Taxes The effective tax rate for the three months endedDecember 31, 2022 , was 19.1 percent compared to 15.4 percent for the three months endedDecember 31, 2021 . Our adjusted effective tax rate for the three months endedDecember 31, 2022 , was 17.1 percent compared to 15.3 percent for the three months endedDecember 31, 2021 . The increase in the effective tax rate and adjusted effective tax rate was primarily due to reduced excess income tax benefits from share-based compensation.
Diluted EPS and Adjusted EPS
2023 first quarter Net income attributable toRockwell Automation was$384.0 million or$3.31 per share, compared to$241.5 million or$2.05 per share in the first quarter of 2022. The increases in Net income attributable toRockwell Automation and diluted EPS were primarily due to the PTC adjustments and higher sales, partially offset by higher input costs. 2023 first quarter adjusted EPS was$2.46 , up 15.0 percent compared to$2.14 in the first quarter of 2022, primarily due to higher sales, partially offset by higher input costs. 28
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Table of Contents Intelligent Devices Sales Intelligent Devices sales increased 4.0 percent year over year in the three months endedDecember 31, 2022 . Intelligent Devices organic sales increased 6.6 percent year over year, currency translation decreased sales by 4.1 percentage points year over year, and the acquisition of CUBIC increased sales by 1.5 percentage points year over year in the three months endedDecember 31, 2022 . For the three months endedDecember 31, 2022 , reported and organic sales increased in all regions.
Segment Operating Margin
Intelligent Devices segment operating earnings decreased 1.7 percent year over year in the three months endedDecember 31, 2022 . Segment operating margin decreased to 22.4 percent in the three months endedDecember 31, 2022 , from 23.7 percent in the same period a year ago. The decrease from the prior year includes higher investment spend and an unfavorable currency impact, partially offset by the net positive impact from pricing increases.
Software & Control
Sales
Software & Control sales increased 11.6 percent year over year in the three months endedDecember 31, 2022 . Software & Control organic sales increased 15.5 percent year over year and currency translation decreased sales by 3.9 percentage points year over year in the three months endedDecember 31, 2022 . For the three months endedDecember 31, 2022 , reported sales increased inNorth America andLatin America but decreased in EMEA andAsia Pacific . All regions experienced organic sales growth in the three months endedDecember 31, 2022 .
Segment Operating Margin
Software & Control segment operating earnings increased 42.3 percent year over year in the three months endedDecember 31, 2022 . Segment operating margin increased to 29.2 percent in the three months endedDecember 31, 2022 , from 22.9 percent in the same period a year ago, primarily driven by higher sales, including pricing increases, and the favorable year-over-year impact from the Plex acquisition, partially offset by higher input costs.
Lifecycle Services
Sales
Lifecycle Services sales increased 6.4 percent year over year in the three months endedDecember 31, 2022 . Lifecycle Services organic sales increased 10.2 percent year over year, currency translation decreased sales by 4.2 percentage points year over year, and acquisitions increased sales by 0.4 percentage points year over year in the three months endedDecember 31, 2022 . All regions experienced growth in reported and organic sales in the three months endedDecember 31, 2022 , except forLatin America .
Segment Operating Margin
Lifecycle Services segment operating earnings decreased 0.8 percent year over year in the three months endedDecember 31, 2022 . Segment operating margin decreased to 5.2 percent in the three months endedDecember 31, 2022 , from 5.5 percent in the same period a year ago. 29 -------------------------------------------------------------------------------- Table of Contents Supplemental Segment Information Purchase accounting depreciation and amortization and non-operating pension and postretirement benefit credit 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, 2022 2021 Purchase accounting depreciation and amortization Intelligent Devices$ 1.0 $ 0.7 Software & Control 16.9 17.3 Lifecycle Services 7.8 7.9 Non-operating pension and postretirement benefit credit Intelligent Devices$ (3.9) $ (2.1) Software & Control (3.9) (2.1) Lifecycle Services (5.3) (2.8) 30
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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, purchase accounting depreciation and amortization attributable toRockwell Automation , change in fair value of investments, and Net loss attributable to noncontrolling interests, including their respective tax effects. Non-operating pension and postretirement benefit credit is defined as all components of our net periodic pension and postretirement benefit (credit) cost except for service cost. See Note 10 in the Consolidated Financial Statements for more information on our net periodic pension and postretirement benefit (credit) 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 to
Three Months Ended
December 31,
2022 2021
Net income attributable to Rockwell Automation $ 384.0 $ 241.5
Non-operating pension and postretirement benefit credit (12.4) (4.4)
Tax effect of non-operating pension and postretirement benefit credit
2.8 0.8
Purchase accounting depreciation and amortization attributable to
23.0 23.1
Tax effect of purchase accounting depreciation and amortization
attributable to
(5.6) (5.6)
Change in fair value of investments (1) (140.6) (7.6)
Tax effect of change in fair value of investments (1) 34.1 3.5
Adjusted income $ 285.3 $ 251.3
Diluted EPS $ 3.31 $ 2.05
Non-operating pension and postretirement benefit credit (0.10) (0.04)
Tax effect of non-operating pension and postretirement benefit credit
0.02 0.01
Purchase accounting depreciation and amortization attributable to
0.20 0.20
Tax effect of purchase accounting depreciation and amortization
attributable to
(0.05) (0.05)
Change in fair value of investments (1) (1.22) (0.06)
Tax effect of change in fair value of investments (1) 0.30 0.03
Adjusted EPS $ 2.46 $ 2.14
Effective tax rate 19.1 % 15.4 % Tax effect of non-operating pension and postretirement benefit credit
(0.1) % - %
Tax effect of purchase accounting depreciation and amortization
attributable to
0.5 % 0.8 %
Tax effect of change in fair value of investments (1) (2.4) % (0.9) %
Adjusted effective tax rate 17.1 % 15.3 %
(1) Primarily relates to the change in fair value of investment in PTC.
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Fiscal 2023 Guidance (3)
Diluted EPS (1) $10.99 - $11.79
Non-operating pension and postretirement benefit cost 0.04
Tax effect of non-operating pension and postretirement benefit cost
(0.01)
Purchase accounting depreciation and amortization attributable to
0.79
Tax effect of purchase accounting depreciation and amortization
attributable to
(0.19)
Change in fair value of investments (2) (1.22)
Tax effect of change in fair value of investments (2) 0.30
Adjusted EPS (1) $10.70 - $11.50
Effective tax rate ~ 18.0%Tax effect of non-operating pension and postretirement benefit cost
~ -%
Tax effect of purchase accounting depreciation and amortization
attributable to
~ 0.5%
Tax effect of change in fair value of investments (2) ~ (0.5)%
Adjusted effective tax rate ~ 18.0%
(1) Fiscal 2023 guidance based on adjusted income attributable to Rockwell,
which includes an adjustment for Schlumberger's non-controlling interest in
(2) The actual year-to-date adjustments, which are based on PTC's share price atDecember 31, 2022 , and year-to-date sales of PTC shares, 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.
(3) Guidance as of
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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,
2022 2021
Cash provided by (used for)
Operating activities $ 66.3 $ (12.0)
Investing activities (18.3) (48.7)
Financing activities (105.3) (52.0)
Effect of exchange rate changes on cash 18.0 (9.5)
Decrease in cash, cash equivalents, and restricted cash
The following table summarizes free cash flow, which is a non-GAAP financial
measure (in millions):
Three Months Ended
December 31,
2022 2021
Cash provided by (used for) operating activities $ 66.3 $ (12.0)
Capital expenditures (24.2) (37.1)
Free cash flow $ 42.1 $ (49.1)
Our definition of free cash flow takes into consideration capital investments
required to maintain the operations of our businesses and execute our strategy.
Cash provided by (used for) 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 be different from
definitions used by other companies.
Cash provided by (used for) operating activities was $66.3 million for the three
months ended December 31, 2022 , compared to $(12.0) million for the three months
ended December 31, 2021 . Free cash flow was $42.1 million for the three months
ended December 31, 2022 , compared to $(49.1) million for the three months ended
December 31, 2021 . The year over year increases in cash provided by (used for)
operating activities and free cash flow were primarily due to higher pre-tax
income and lower income tax payments in the first three months of 2022 compared
to the first three months of 2021, partially offset by increases in working
capital.
In December 2021 , the Company entered a 10b5-1 plan related to our PTC Shares,
pursuant to which a broker makes periodic sales of some of our PTC Shares on
behalf of the Company, subject to the terms of the plan. Starting in June 2022 ,
the Company made periodic sales of our PTC Shares in the open market, outside of
the parameters of the existing 10b5-1 plan. In December 2022 , the original
10b5-1 plan was completed and a new 10b5-1 plan related to our PTC Shares was
entered into by the Company. All of our sales of PTC are consistent with the
transfer restrictions in the securities purchase agreement, as amended, with
PTC. As of December 31, 2022 , the fiscal year-to-date sales of our PTC shares
under our 10b5-1 plan and open market sales resulted in a gross inflow of
$144.8 million . There were no fiscal year-to-date sales as of December 31, 2021 .
This excludes any tax liability related to the realized gain on investment.
These proceeds, and any proceeds from future sales, will support our future uses
of cash.
Our Short-term debt as of December 31, 2022 , and September 30, 2022 , includes
commercial paper borrowings of $462.0 million and $317.0 million , respectively,
with weighted average interest rates of 4.40 percent and 3.03 percent,
respectively, and weighted average maturity periods of 22 days at both
December 31, 2022 , and September 30, 2022 . During the quarter ended December 31,
2022 , Sensia entered into an unsecured $75.0 million line of credit and borrowed
$50.0 million , with an interest rate of 5.35 percent, which is also included in
Short-term debt. Also included in Short-term debt as of December 31, 2022 , and
September 30, 2022 , is $23.5 million and $42.3 million , respectively, of
interest-bearing loans from SLB to Sensia , due December 29, 2023 .
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We repurchased approximately 0.6 million shares of our common stock under our share repurchase program in the first three months of 2023. The total cost of these shares was$156.0 million , of which$0.8 million was recorded in Accounts payable atDecember 31, 2022 , related to shares that did not settle untilJanuary 2023 . AtSeptember 30, 2022 , there were$1.6 million of outstanding common stock share repurchases recorded in Accounts payable. We repurchased approximately 0.2 million shares of our common stock under our share repurchase program in the first three months of 2022. The total cost of these shares was$49.4 million , of which$1.4 million was recorded in Accounts payable atDecember 31, 2021 , related to shares that did not settle untilJanuary 2022 . Our decision to repurchase shares in the remainder of 2023 will depend on business conditions, free cash flow generation, other cash requirements, and stock price. On bothJuly 24, 2019 , andMay 2, 2022 , the Board of Directors authorized us to expend an additional$1.0 billion to repurchase shares of our common stock. AtDecember 31, 2022 , we had approximately$1,095.3 million remaining for share repurchases under our existing board authorizations. See Part II, Item 2. Unregistered Sales ofEquity Securities and Use of Proceeds, for additional information regarding share repurchases. 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 new issuances of debt or other securities. In addition, we have access to unsecured credit facilities with various banks. AtDecember 31, 2022 , the majority of our Cash and cash equivalents were held by non-U.S. subsidiaries. As a result of the broad changes to theU.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. andU.S. taxes. The Company has concluded that earnings of a limited number of its non-U.S. subsidiaries are indefinitely reinvested. InJune 2022 , we replaced our former$1.25 billion unsecured revolving credit facility with a new five-year$1.5 billion unsecured revolving credit facility, expiring inJune 2027 . 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 or the former credit facility during the periods endedDecember 31, 2022 , orSeptember 30, 2022 . 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 was the primary basis for determining interest payments on borrowings
under our former
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$217.2 million atDecember 31, 2022 , were available to non-U.S. subsidiaries, of which, approximately$30.8 million was committed under letters of credit. Borrowings under our non-U.S. credit facilities atDecember 31, 2022 andSeptember 30, 2022 , were not significant. We were in compliance with all covenants under our credit facilities atDecember 31, 2022 andSeptember 30, 2022 . There are no significant commitment fees or compensating balance requirements under our credit facilities.
The following is a summary of our credit ratings as of
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.
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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 theU.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 endedDecember 31, 2022 , we reclassified$12.7 million in pre-tax net gains related to cash flow hedges from Accumulated other comprehensive loss into the Consolidated Statement of Operations. During the three months endedDecember 31, 2021 , we reclassified$1.8 million in pre-tax net losses related to cash flow hedges from Accumulated other comprehensive loss into the Consolidated Statement of Operations. We expect that approximately$16.0 million of pre-tax net unrealized gains on cash flow hedges as ofDecember 31, 2022 , 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 year endedSeptember 30, 2022 . We believe that atDecember 31, 2022 , there has been no material change to this information. 35 -------------------------------------------------------------------------------- Table of Contents Supplemental Sales Information We translate sales of subsidiaries operating outside ofthe 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 reported sales to organic sales by geographic region (in millions):
Three Months
Ended December
Three Months Ended December 31, 2022 31, 2021
Effect of
Reported Less: Effect of Changes in
Sales Acquisitions Currency Organic Sales Reported Sales
North America $ 1,178.9 $ 1.2 $ (8.1) $ 1,185.8 $ 1,100.7
Europe, Middle East and Africa 372.8 11.7 (40.9) 402.0 354.7
Asia Pacific 296.5 2.7 (29.7) 323.5 278.9
Latin America 132.8 - 2.1 130.7 123.0
Total Company Sales $ 1,981.0 $ 15.6 $ (76.6) $ 2,042.0 $ 1,857.3 The following is a reconciliation of reported sales to organic sales by operating segment (in millions):
Three Months
Ended December
Three Months Ended December 31, 2022 31, 2021
Effect of
Reported Less: Effect of Changes in
Sales Acquisitions Currency Organic Sales Reported Sales
Intelligent Devices $ 936.2 $ 13.7 $ (37.6) $ 960.1 $ 900.3
Software & Control 573.3 - (20.2) 593.5 513.9
Lifecycle Services 471.5 1.9 (18.8) 488.4 443.1
Total Company Sales $ 1,981.0 $ 15.6 $ (76.6) $ 2,042.0 $ 1,857.3
36-------------------------------------------------------------------------------- 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 year endedSeptember 30, 2022 . We believe that atDecember 31, 2022 , 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 year endedSeptember 30, 2022 . We believe that atDecember 31, 2022 , there has been no material change to this information.
Recent Accounting Pronouncements
See Note 1 in the Consolidated Financial Statements regarding recent accounting pronouncements.
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