ROCKWELL AUTOMATION, INC. Results of Operations
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 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, 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.
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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.
Differentiation through Technology Innovation and Domain Expertise
Our integrated control and information architecture, with Logix at its core, is an important differentiator. We are the only automation provider that can support discrete, process, batch, safety, motion, and power control on the same hardware platform with the same software programming environment. Our integrated architecture is scalable with standard open communications protocols making it easier for customers to implement it more cost effectively. Our information software portfolio, combined with the software made available as a result of our strategic alliance with PTC, is the most comprehensive and flexible information platform in the industry. Through the combination of this technology and our domain expertise we help customers to achieve additional productivity benefits, such as reduced unplanned downtime, improved energy efficiency, higher quality, and increased throughput yield.
Intelligent motor control is one of our core competencies and an important aspect of an automation system. These hardware and software products and solutions enhance the availability, efficiency and safe operation of our customers' critical and most energy-intensive plant assets. Our intelligent motor control offering can be integrated seamlessly with the Logix architecture.
Domain expertise refers to the industry and application knowledge required to deliver solutions and services that support customers through the entire life cycle of their automation investment. The combination of industry-specific domain expertise of our people with our innovative technologies enables us to help our customers solve their manufacturing and business challenges.
Global Expansion
As the manufacturing world continues to expand, we must be able to meet our customers' needs around the world. Approximately 66 percent of our employees and less than half of our total sales are outside theU.S. We continue to expand our footprint in emerging markets. As we expand in markets with considerable growth potential and shift our global footprint, we expect to continue to broaden the portfolio of hardware and software products, solutions, and services that we provide to our customers in these regions. We have made significant investments to globalize our manufacturing, product development and customer-facing resources in order to be closer to our customers throughout the world. The emerging markets ofAsia Pacific , includingChina andIndia ,Latin America , Central andEastern Europe andAfrica are projected to be the fastest growing over the long term, due to higher levels of infrastructure investment and the growing middle-class population. We believe that increased demand for consumer products in these markets will lead to manufacturing investment and provide us with additional growth opportunities in the future.
Enhanced Market Access
Over the past decade, our investments in technology and globalization have
enabled us to expand our addressed market to over
Original Equipment Manufacturers (OEMs) represent another area of addressed
market expansion and an important growth opportunity. To remain competitive,
OEMs need to find the optimal balance of machine cost and performance while
reducing their time to market. Our scalable integrated architecture and
intelligent motor control offerings, along with design productivity tools and
our motion and safety products, can assist OEMs in addressing these business
needs.
We have developed a powerful network of channel partners, technology partners
and commercial partners that act as amplifiers to our internal capabilities and
enable us to serve our customers' needs around the world.
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We apply our knowledge of manufacturing applications to help customers solve
their business challenges. We serve customers in a wide range of industries,
which we group into three broad categories: discrete, hybrid, and process.
Discrete Hybrid Process
Automotive Food & Beverage Oil & Gas
Semiconductor Life Sciences Mining
Warehousing & E-commerce Household & Personal Care Metals
General Industries Tire Chemicals
Printing & Publishing Eco Industrial Pulp & Paper
Marine Water / Wastewater Other Process
Glass Waste Management
Fiber & Textiles Mass Transit
Airports Renewable Energy
Aerospace
Other Discrete
Outsourcing and Sustainability Trends
Demand for our hardware and software products, solutions, and services across all industries benefits from the outsourcing and sustainability needs of our customers. Customers increasingly desire to outsource engineering services to achieve a more flexible cost base. Our manufacturing application knowledge enables us to serve these customers globally. We help our customers meet their sustainability needs pertaining to energy efficiency, environmental, and safety goals. Customers across all industries are investing in more energy-efficient manufacturing processes and technologies, such as intelligent motor control, and energy-efficient solutions and services. In addition, environmental and safety objectives, including those related to combating climate change, often spur customers to invest to ensure compliance and implement sustainable business practices. As customers seek to be more sustainable, our offering of hardware and software products provide strategic opportunities to appeal to their changing needs and preferences.
Acquisitions and Investments
Our acquisition and investment strategy focuses on hardware and software products, solutions, and services that will be catalytic to the organic growth of our core offerings.
InMarch 2022 , we, through ourSensia affiliate, acquired Swinton Technology, a provider of meeting supervisory systems and measurement expertise in the Oil & Gas industry.
In
In
InDecember 2020 , we acquiredFiix Inc. , a privately-held, artificial intelligence enabled computerized maintenance management system (CMMS) company based inToronto, Ontario, Canada . Fiix's cloud-native CMMS creates workflows for the scheduling, organizing, and tracking of equipment maintenance; connects seamlessly to business systems; and drives data-driven decisions.
In
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In
InApril 2020 , we also acquiredKalypso, LP , a privately-heldU.S. -based software delivery and consulting firm specializing in the digital transformation of industrial companies with a strong client base in life sciences, consumer products and industrial high-tech. InJanuary 2020 , we acquiredAvnet Data Security, LTD , anIsrael -based cybersecurity provider with over 20 years of experience. Avnet's combination of service delivery, training, research, and managed services enables us to serve more customers and accelerate our portfolio development. InOctober 2019 , we completed the formation of a joint venture,Sensia , a fully integrated digital oilfield automation solutions provider, with SLB. The joint venture leverages SLB's oil and gas domain knowledge and our automation and information expertise.Rockwell Automation owns 53% ofSensia and SLB owns 47% ofSensia . InOctober 2019 , we also acquired MESTECH Services, a global provider of Manufacturing Execution Systems / Manufacturing Operations Management, digital solutions consulting, and systems integration services. The acquisition of MESTECH expands our capabilities to profitably grow information solutions and connected services globally and accelerate our ability to help our customers execute digital transformation initiatives. InJanuary 2019 , we acquired Emulate3D, an innovative engineering software developer whose products digitally simulate and emulate industrial automation systems. This acquisition enables our customers to virtually test machine and system designs before incurring manufacturing and automation costs and committing to a final design. In addition, we make venture investments that enable access to complementary and leading edge technologies aligned with our strategic priorities, accelerating internal development efforts, reducing time to market, and as a hedge against disruptive technologies.
We believe these acquisitions and investments will help us expand our served market and deliver value to our customers.
Attracting, Developing, and Retaining Highly Qualified Talent
At
Our commitment to diversity, equity, and inclusion starts at the top. Our 11 board members include three female and twoAfrican American directors. In fiscal 2021, we hired our first chief diversity officer and made investments to accelerate our efforts to increase diversity, equity, and inclusion across the company. A culture of integrity is fundamental to Rockwell's core values, including a formal ethics and compliance organization and an Ombuds office that investigates ethical and legal concerns brought forth by employees. Our code of conduct, along with our partner code of conduct and supplier code of conduct prohibits corrupt acts, bribery, and anticompetitive behavior. Employee training is used to reinforce our values companywide, with participation in trainings related to ethics, environment, health and safety, and emergency responses at or near 100%. 19
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There are several ways in which we attract, develop, and retain highly qualified talent, including:
•we make the safety and health of our employees a top priority. We strive for zero workplace injuries and illnesses and operate in a manner that recognizes safety as fundamental toRockwell Automation being a great place to work. In fiscal 2022, we achieved 0.38 recordable cases per 100 employees. •we capture and act upon employee feedback through our annual employee engagement survey. It measures several engagement indicators and drivers and provides an overall employee engagement index (EEI) with external benchmark comparison. The latest survey, conducted inMarch 2022 , showed an EEI of 76, which was equal to a global norm for this index. Our global inclusion index score was 77, two points higher than the global benchmark of 75. •we invest in growth and development of our employees. As the pace of change increases, it is important we provide re-skilling and upskilling opportunities for our technical talent, along with soft skills and leadership development for all. We offer a portfolio of all employee, managerial, and leader training that spans on-demand, virtual, and live instructor-led formats. Our programs focus on basic as well as transformational skills. We take pride in our culture and in fiscal 2021 created an opportunity for our employees to participate in team-based culture workshops. In fiscal 2022, the majority of our employees completed one or more of our training programs representing over 500,000 learning hours. •we offer employee assistance and work life benefits to all global employees. Our comprehensive benefits include healthcare benefits, disability and life insurance benefits, paid time off, and leave programs. Rockwell offers plans and resources to help employees meet future savings goals through defined benefit and retirement savings plans. We offer flextime, remote work, and part-time arrangements whenever business conditions permit. We believe that face to face interaction is critical for our culture, innovation, people development, and engagement, and that flexible, virtual work arrangements help employees be more productive and engaged. During fiscal 2022, we launched our Hybrid Workplace Program, which combines the values of both physical workspaces and virtual work options, both of which are important for attracting, retaining, and developing talent and facilitating innovation, engagement, and productivity. We monitor employee retention and attrition rates by demographic factors including by gender, ethnicity, generation, years of service, career role, region, business, and function. We generally experienced higher attrition rates in fiscal 2022 as compared to fiscal 2021. We believe the increase is consistent with market trends experienced broadly across labor markets in fiscal 2022. We use attrition rate information to identify and address unfavorable trends to mitigate risk to our business. See Item 1A. Risk Factors for a discussion of risks relating to our inability to attract, develop, and retain highly qualified talent.
At
North America 10,000
Europe, Middle East and Africa 5,500
Asia Pacific 6,000
Latin America 4,500
Total employees 26,000
Our employees had the following global gender demographics based on voluntary
disclosure:
September 30, 2022
Women Men
All employees 32% 68%
Individual Contributors 33% 67%
People Managers 26% 74%
Technical Talent 17% 83%
Manufacturing Associates 48% 52%
20-------------------------------------------------------------------------------- Table of Contents OurU.S. employees had the following race and ethnicity demographics based on voluntary disclosure: September 30, 2022 Multiracial, Native American and Pacific Black / African American Asian Hispanic / Latinx White Islander Undisclosed All U.S. Employees 7% 9% 5% 73% 2% 4% Individual Contributors 7% 10% 5% 72% 2% 4% People Managers 6% 7% 5% 78% 1% 3% Technical Talent 6% 12% 6% 72% 2% 2% Manufacturing Associates 14% 13% 3% 54% 2% 14% Continuous Improvement Productivity and continuous improvement are important components of our culture. We have programs in place that drive ongoing process improvement, functional streamlining, material cost savings, and manufacturing productivity. These are intended to improve profitability that can be used to fund investments in growth and to offset inflation. Our ongoing productivity initiatives target both cost reduction and improved asset utilization. Charges for workforce reductions and facility rationalization may be required in order to effectively execute our productivity programs. 21 -------------------------------------------------------------------------------- Table of Contents U.S. Economic Trends
In 2022, sales in the
•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 the trends in these indicators from fiscal 2020 to 2022. These figures are as ofNovember 8, 2022 , and are subject to revision by the issuing organizations. The IP index rose 0.5, a slower rate of acceleration, in the fourth quarter of fiscal 2022 versus the third quarter of fiscal 2022. TheU.S. manufacturing sector continued to expand in the fourth quarter with PMI remaining above 50, however, this is the lowest rate since the pandemic recovery began, reflecting an easing of demand. IP Index PMI Fiscal 2022 quarter ended: September 2022 102.4 50.9 June 2022 101.9 53.0 March 2022 101.1 57.1 December 2021 100.1 58.8 Fiscal 2021 quarter ended: September 2021 98.8 60.5 June 2021 97.9 60.9 March 2021 96.7 63.7 December 2020 96.1 60.5 Fiscal 2020 quarter ended: September 2020 94.1 55.7 June 2020 84.6 52.2 March 2020 97.5 49.7 December 2019 101.7 47.8 During 2022, inflation in theU.S. has had an impact on our input costs and pricing. The Producer Price Index (PPI), published by theBureau of Labor Statistics , measures the average change over time in the selling prices received by domestic producers for their output. PPI forSeptember 30, 2022 ,June 30, 2022 ,March 31, 2022 , andDecember 31, 2021 , increased 8.5 percent, 11.3 percent, 11.7 percent, and 10.0 percent, respectively, compared toSeptember 30, 2021 ,June 30, 2021 ,March 31, 2021 , andDecember 31, 2020 . These figures are as ofNovember 8, 2022 , and are subject to revision by the issuing organization.
Non-
In 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 (GDP), IP, and PMI as indicators of the growth opportunities in each region where we do business. Industrial output outside theU.S. was mixed in the fourth quarter of fiscal 2022. Global GDP forecasts are mixed, withEurope ,Middle East , andAfrica andLatin America projected to see slowing growth from 2022 to 2023 andAsia projected to see flat to slightly higher growth. Supply chain disruptions, labor shortages, and global inflation are expected to remain persistent in 2023, along with elevated geopolitical instability. 22
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Supply Chain
We have a global supply chain, including a network of suppliers and manufacturing and distribution 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.
Our total order backlog consists of (in millions):
September 30,
2022 2021
Intelligent Devices $ 2,086.1 $ 1,052.8
Software & Control 1,456.8 618.2
Lifecycle Services 1,654.1 1,239.5
Total Company $ 5,197.0 $ 2,910.5 See Note 2 in the Consolidated Financial Statements for additional information on the nature of our products and services and revenue recognition.
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.
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Outlook
The table below provides guidance for sales growth and earnings per share for fiscal 2023 as ofNovember 8, 2022 . Our guidance reflects record backlog and assumes continued supply chain stabilization. Sales Growth Guidance EPS Guidance Reported sales growth 7.5% - 11.5% Diluted EPS$9.54 -$10.34 Organic sales growth (1) 9.0% - 13.0% Adjusted EPS (1)$10.20 -$11.00 Inorganic sales growth ~ 1.0% Currency translation ~ (2.5)%
(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.
Note: Guidance includes estimated impact of CUBIC acquisition in fiscal year 2023.
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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):
Year Ended
2022 2021 2020
Sales
Intelligent Devices (a) $ 3,544.6 $ 3,311.9 $ 2,956.0
Software & Control (b) 2,312.9 1,947.0 1,681.3
Lifecycle Services (c) 1,902.9 1,738.5 1,692.5
Total sales (d) $ 7,760.4 $ 6,997.4 $ 6,329.8
Segment operating earnings (1)
Intelligent Devices (e) $ 717.6 $ 702.1 $ 587.8
Software & Control (f) 666.7 531.0 473.8
Lifecycle Services (g) 158.3 158.2 196.3
Total segment operating earnings (2) (h) 1,542.6 1,391.3 1,257.9
Purchase accounting depreciation and amortization (103.9) (55.1) (41.4)
Corporate and other (104.7) (120.6) (98.9)
Non-operating pension and postretirement benefit cost (4.7) (63.8) (37.4)
Change in fair value of investments (136.9) 397.4 153.9
Legal settlement - 70.0 -
Interest expense, net (118.8) (93.0) (98.0)
Income before income taxes (i) 1,073.6 1,526.2 1,136.1
Income tax provision (154.5) (181.9) (112.9)
Net income 919.1 1,344.3 1,023.2
Net loss attributable to noncontrolling interests (13.1) (13.8) (0.2)
Net income attributable to Rockwell Automation $ 932.2 $ 1,358.1 $ 1,023.4
Diluted EPS $ 7.97 $ 11.58 $ 8.77
Adjusted EPS (3) $ 9.49 $ 9.43 $ 7.87
Diluted weighted average outstanding shares 116.7 117.1 116.6
Pre-tax margin (i/d) 13.8 % 21.8 % 17.9 %
Intelligent Devices segment operating margin (e/a) 20.2 % 21.2 % 19.9 %
Software & Control segment operating margin (f/b) 28.8 % 27.3 % 28.2 %
Lifecycle Services segment operating margin (g/c) 8.3 % 9.1 % 11.6 %
Total segment operating margin (2) (h/d) 19.9 % 19.9 % 19.9 %
(1) See Note 19 in the Consolidated Financial Statements for the definition of segment operating earnings.
(2) Total segment operating earnings and total segment operating margin are non-GAAP financial measures. We exclude purchase accounting depreciation and amortization, corporate and other, non-operating pension and postretirement benefit cost, 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 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. 25
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Table of Contents 2022 Compared to 2021 Sales Sales in fiscal 2022 increased 10.9 percent compared to 2021. Organic sales increased 11.3 percent. Currency translation decreased sales by 2.7 percentage points. Acquisitions increased sales by 2.3 percentage points. Organic annual recurring revenue atSeptember 30, 2022 , grew approximately 14 percent compared toSeptember 30, 2021 . See Organic Annual Recurring Revenue for information on this measure. Pricing increased sales in our Intelligent Devices and Software & Control operating segments by approximately 3.3 percentage points. The table below presents our sales for the year endedSeptember 30, 2022 , attributed to the geographic regions based upon country of destination, and the percentage change from the same period in 2021 (in millions, except percentages). The results by region, segment, and industry were primarily driven by component availability rather than the underlying demand. Change in Organic Change vs. Sales (1) vs. Year Ended Year Ended Year Ended September 30, 2022 September 30, 2021 September 30, 2021 North America $ 4,722.0 14.3 % 10.7 % Europe, Middle East and Africa 1,437.6 2.3 % 11.8 % Asia Pacific 1,088.0 7.5 % 10.8 % Latin America 512.8 14.8 % 15.8 % Total Company Sales $ 7,760.4 10.9 % 11.3 % (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 decreased to$1,073.6 million in 2022 from$1,526.2 million in 2021, primarily due to fair-value adjustments recognized in connection with our investment in PTC (the "PTC adjustments") and a$70 million pre-tax favorable legal settlement in the first quarter of fiscal 2021, partially offset by higher operating earnings. Total segment operating earnings increased to$1,542.6 million from$1,391.3 million in 2021, primarily due to higher sales, including price increases, and lower incentive compensation, partially offset by higher input costs and higher investment spend.
Income Taxes
The effective tax rate in 2022 was 14.4 percent compared to 11.9 percent in 2021. The Adjusted Effective Tax Rate in 2022 was 16.0 percent compared to 11.6 percent in 2021. The increases in the effective tax rate and the Adjusted Effective Tax Rate were primarily due to higher discrete benefits in the prior year.
See Note 16 in the Consolidated Financial Statements for a complete
reconciliation of
Diluted EPS and Adjusted EPS
Fiscal 2022 Net income attributable toRockwell Automation was$932.2 million or$7.97 per share, compared to$1,358.1 million or$11.58 per share in fiscal 2021. The decreases in Net income attributable toRockwell Automation and diluted EPS were primarily due to the PTC adjustments and a$70 million pre-tax favorable legal settlement in the first quarter of fiscal 2021, partially offset by higher operating earnings. Adjusted EPS was$9.49 in fiscal 2022, up 0.6 percent compared to$9.43 in fiscal 2021, primarily due to higher sales, including price increases, and lower incentive compensation, partially offset by higher input costs, higher investment spend, higher tax rate, and the prior year favorable legal settlement. 26
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Table of Contents Intelligent Devices Sales
Intelligent Devices sales increased 7.0 percent in 2022 compared to 2021. Organic sales increased 9.7 percent. The effects of currency translation decreased sales by 2.7 percentage points. All regions experienced sales increases.
Segment Operating Margin
Intelligent Devices segment operating earnings increased 2.2 percent year over year. Segment operating margin decreased to 20.2 percent in 2022 from 21.2 percent in 2021, primarily driven by higher input costs and higher investment spend, partially offset by higher sales, including pricing increases, and lower incentive compensation. Software & Control Sales Software & Control sales increased 18.8 percent in 2022 compared to 2021. Organic sales increased 13.8 percent. The effects of currency translation decreased sales by 2.7 percentage points and acquisitions increased sales by 7.7 percentage points. All regions experienced reported and organic sales increases, except for EMEA where organic sales increased but unfavorable currency translation reduced reported sales.
Segment Operating Margin
Software & Control segment operating earnings increased 25.6 percent year over year. Segment operating margin increased to 28.8 percent in 2022 from 27.3 percent in 2021, primarily due to higher sales, including pricing increases, and lower incentive compensation, partially offset by higher input costs, higher investment spend, and the impact of acquisitions.
Lifecycle Services
Sales
Lifecycle Services sales increased 9.5 percent in 2022 compared to 2021. Organic sales increased 11.4 percent. The effects of currency translation decreased sales by 2.5 percentage points and acquisitions increased sales by 0.6 percentage points. All regions experienced sales increases.
Segment Operating Margin
Lifecycle Services segment operating earnings increased 0.1 percent year over
year. Segment operating margin decreased to 8.3 percent in 2022 from 9.1 percent
in 2021, driven by supply chain constraints and higher investment spend,
partially offset by higher sales and lower incentive compensation.
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Table of Contents 2021 Compared to 2020 Sales Sales in fiscal 2021 increased 10.5 percent compared to 2020. Organic sales increased 6.7 percent of which pricing increased sales by approximately 1 percent. Currency translation increased sales by 2.3 percentage points. Acquisitions increased sales by 1.5 percentage points. Organic annual recurring revenue (ARR) atSeptember 30, 2021 grew approximately 18 percent compared toSeptember 30, 2020 . See Organic Annual Recurring Revenue for information on this measure. The table below presents our sales for the year endedSeptember 30, 2021 , 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. Year Ended Year Ended Year Ended September 30, 2021 September 30, 2020 September 30, 2020 North America $ 4,132.8 9.9 % 8.0 % Europe, Middle East and Africa 1,405.7 12.5 % 2.8 % Asia Pacific 1,012.2 16.5 % 10.3 % Latin America 446.7 (1.1) % (0.1) % Total Company Sales $ 6,997.4 10.5 % 6.7 % (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. •Reported and organic sales inNorth America increased in discrete and hybrid industries, partially offset by weakness in process industries, particularly Oil & Gas. •EMEA reported and organic sales increased primarily due to strength in Food & Beverage and Tire. Reported sales also increased due to currency translation and sales from acquisitions.
•Asia Pacific reported and organic sales increased year over year, primarily due to strength in Semiconductor, Life Sciences, and Tire. Reported sales also increased due to favorable currency translation.
•Reported and organic sales inLatin America decreased year over year, primarily due to weakness in Mining and Oil & Gas, partially offset by growth in Food & Beverage. Corporate and other
Corporate and other expenses were
Income before Income Taxes
Income before income taxes increased 34 percent from$1,136.1 million in 2020 to$1,526.2 million in 2021, primarily due to the PTC adjustments recognized in 2021 and 2020, higher operating earnings, and a$70 million pre-tax favorable legal settlement in the first quarter of fiscal 2021. Total segment operating earnings increased 11 percent year over year from$1,257.9 million in 2020 to$1,391.3 million in 2021, primarily due to higher sales, partially offset by the reinstatement of incentive compensation and the reversal of temporary pay actions taken in fiscal 2020.
Income Taxes
The effective tax rate in 2021 was 11.9 percent compared to 9.9 percent in 2020. The increase in the effective tax rate was primarily due to the effect of tax benefits recognized upon the formation of theSensia joint venture in fiscal 2020 and other discrete items. The Adjusted Effective Tax Rate in 2021 was 11.6 percent compared to 12.4 percent in 2020. The decrease in the Adjusted Effective Tax Rate was primarily due to higher discrete benefits in the current year.
See Note 16 in the Consolidated Financial Statements for a complete
reconciliation of
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Diluted EPS and Adjusted EPS
Fiscal 2021 Net income attributable toRockwell Automation was$1,358.1 million or$11.58 per share, compared to$1,023.4 million or$8.77 per share in fiscal 2020. The increase in Net income attributable toRockwell Automation and diluted EPS were primarily due to higher sales and the PTC adjustments, partially offset by the reinstatement of incentive compensation and the reversal of temporary pay actions taken in fiscal 2020. Fiscal 2021 Adjusted EPS was$9.43 , up 19.8% percent compared to$7.87 in fiscal 2020, primarily due to higher sales, partially offset by the reinstatement of incentive compensation and the reversal of temporary pay actions taken in fiscal 2020.
Operating Segments
The following is a discussion of our results by operating segment. See Note 19 in the Consolidated Financial Statements for additional information on each segment and our definition of segment operating earnings.
Intelligent Devices
Sales
Intelligent Devices sales increased 12.0 percent in 2021 compared to 2020. Organic sales increased 9.7 percent and the effect of currency translation increased sales by 2.3 percentage points. All regions experienced sales increases.
Segment Operating Margin
Intelligent Devices segment operating earnings increased 19.4 percent. Operating margin was 21.2% percent in 2021 compared to 19.9% percent in 2020, primarily due to higher sales, partially offset by the reinstatement of incentive compensation. Software & Control Sales
Software & Control sales increased 15.8 percent in 2021 compared to 2020. Organic sales increased 10.0 percent, the effect of currency translation increased sales by 2.5 percentage points, and acquisitions increased sales by 3.3 percentage points. All regions experienced sales increases.
Segment Operating Margin
Software & Control segment operating earnings increased 12.1 percent year over year. Segment operating margin was 27.3 percent in 2021 compared to 28.2 percent a year ago, primarily due to higher planned investment spend and the reinstatement of incentive compensation, partially offset by higher sales.
Lifecycle Services
Sales
Lifecycle Services sales increased 2.7 percent in 2021 compared to 2020. Organic sales decreased 1.8 percent. The effects of currency translation increased sales by 2.2 percentage points, and acquisitions increased sales by 2.3 percentage points. Reported sales increased in EMEA andAsia Pacific , were flat inNorth America , and decreased inLatin America . Organic sales decreased in all regions exceptAsia Pacific . Segment Operating Margin Lifecycle Services segment operating earnings decreased 19.4 percent year over year. Segment operating margin was 9.1 percent in 2021 compared to 11.6 percent a year ago, primarily due to the reinstatement of incentive compensation. 29
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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):
Year Ended
2022 2021 2020
Purchase accounting depreciation and amortization
Intelligent Devices $ 2.5 $ 2.7 $ 2.9
Software & Control 69.0 19.2 6.7
Lifecycle Services 31.4 32.1 30.8
Non-operating pension and postretirement benefit (credit) cost
Intelligent Devices $ (3.5) $ 14.1 $ 7.4
Software & Control (3.5) 14.1 7.4
Lifecycle Services (4.8) 18.8 9.9
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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 cost, 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 cost is defined as all components of our net periodic pension and postretirement benefit cost except for service cost. See Note 14 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 to
Year Ended
2022 2021 2020
Net income attributable to Rockwell Automation $ 932.2 $ 1,358.1 $ 1,023.4
Non-operating pension and postretirement benefit cost 4.7 63.8 37.4
Tax effect of non-operating pension and postretirement benefit cost
(1.9) (16.0) (10.1)
Purchase accounting depreciation and amortization attributable 91.9 43.2 29.4
to Rockwell Automation Tax effect of purchase accounting depreciation and amortization (22.3)
(10.5) (7.0)
attributable to Rockwell Automation
Change in fair value of investments (1) 136.9 (397.4) (153.9)
Tax effect of change in fair value of investments (1) (30.8) 64.7 -
Adjusted Income $ 1,110.7 $ 1,105.9 $ 919.2
Diluted EPS $ 7.97 $ 11.58 $ 8.77
Non-operating pension and postretirement benefit cost 0.04 0.55 0.32
Tax effect of non-operating pension and postretirement benefit cost
(0.02) (0.14) (0.09)
Purchase accounting depreciation and amortization attributable
to
0.78 0.37 0.25
Tax effect of purchase accounting depreciation and amortization
attributable to
(0.19) (0.09) (0.06)
Change in fair value of investments (1) 1.17 (3.39) (1.32)
Tax effect of change in fair value of investments (1) (0.26) 0.55 -
Adjusted EPS $ 9.49 $ 9.43 $ 7.87
Effective tax rate 14.4 % 11.9 % 9.9 %Tax effect of non-operating pension and postretirement benefit cost
0.1 % 0.5 % 0.6 %
Tax effect of purchase accounting depreciation and amortization
attributable to
0.6 % 0.4 % 0.4 %
Tax effect of change in fair value of investments (1) 0.9 % (1.2) % 1.5 %
Adjusted Effective Tax Rate 16.0 % 11.6 % 12.4 %
(1) Primarily relates to the change in fair value of investment in PTC.
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Fiscal 2023 Guidance
Diluted EPS $9.54 - $10.34
Non-operating pension and postretirement benefit cost 0.05
Tax effect of non-operating pension and postretirement benefit cost
(0.01)
Purchase accounting depreciation and amortization attributable to
0.81
Tax effect of purchase accounting depreciation and amortization
attributable to
(0.19)
Change in fair value of investments (1) -
Tax effect of change in fair value of investments (1) -
Adjusted EPS (2) $10.20 - $11.00
Effective tax rate ~ 17.7%Tax effect of non-operating pension and postretirement benefit cost
~ -%
Tax effect of purchase accounting depreciation and amortization
attributable to
~ 0.3%
Tax effect of change in fair value of investments (1) ~ -%
Adjusted Effective Tax Rate ~ 18.0%
(1) The year ended September 30, 2022 , included a loss on investment of $136.9
million primarily due to the change in fair value of investment in PTC. Fiscal
2023 guidance excludes estimates of these adjustments on a forward-looking basis
due to variability, complexity, and limited visibility of these items.
(2) Fiscal 2023 guidance based on Adjusted Income attributable to Rockwell,
which includes an adjustment for SLB's non-controlling interest in
Organic Annual Recurring Revenue
ARR is a key metric that enables measurement of progress in growing our
recurring revenue business. It represents the annual contract value of all
active recurring revenue contracts at any point in time. Recurring revenue is
defined as a revenue stream that is contractual, typically for a period of 12
months or more, and has a high probability of renewal. The probability of
renewal is based on historical renewal experience of the individual revenue
streams, or management's best estimates if historical renewal experience is not
available. Organic ARR growth is calculated as the dollar change in ARR,
adjusted to exclude the effects of currency translation and acquisitions,
divided by ARR as of the prior period. The effects of currency translation are
excluded by calculating Organic ARR on a constant currency basis. When we
acquire businesses, we exclude the effect of ARR in the current period for which
there was no comparable ARR in the prior period. Organic ARR growth is also used
as a financial measure of performance for our annual incentive compensation.
Because ARR is based on annual contract value, it does not represent revenue
recognized during a particular reporting period or revenue to be recognized in
future reporting periods and is not intended to be a substitute for revenue,
contract liabilities, or backlog.
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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):
Year Ended September 30,
2022 2021 2020
Cash provided by (used for)
Operating activities $ 823.1 $ 1,261.0 $ 1,120.5
Investing activities (7.8) (2,626.6) (618.0)
Financing activities (934.2) 1,297.8 (798.9)
Effect of exchange rate changes on cash (52.6) 16.8 8.4
Decrease in cash, cash equivalents, and restricted cash $
(171.5)
The following table summarizes free cash flow, which is a non-GAAP financial
measure (in millions):
Year Ended September 30,
2022 2021 2020
Cash provided by operating activities $ 823.1 $ 1,261.0 $ 1,120.5
Capital expenditures (141.1) (120.3) (113.9)
Free cash flow $ 682.0 $ 1,140.7 $ 1,006.6
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 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 operating activities was $823.1 million for the year ended
September 30, 2022 , compared to $1,261.0 million for the year ended
September 30, 2021 . Free cash flow was $682.0 million for the year ended
September 30, 2022 , compared to $1,140.7 million for the year ended
September 30, 2021 . The year-over-year decreases in cash provided by operating
activities and free cash flow were primarily due to increases in working
capital, including higher receivables and inventory to support business growth,
and higher incentive compensation payments in fiscal 2022 compared to fiscal
2021. Supply chain constraints have also negatively impacted our working capital
efficiency.
We repurchased approximately 1.3 million shares of our common stock under our
share repurchase program in 2022 at a total cost of $301.1 million and an
average cost of $223.05 per share. In 2021, we repurchased approximately 1.1
million shares of our common stock under our share repurchase program at a total
cost of $301.4 million and an average cost of $263.43 per share. At
September 30, 2022 , there were $1.6 million of outstanding common stock share
repurchases recorded in Accounts payable that did not settle until 2023. At
September 30, 2021 , there were $1.8 million of outstanding common stock share
repurchases recorded in Accounts payable that did not settle until 2022. Our
decision to repurchase shares in 2023 will depend on business conditions, free
cash flow generation, other cash requirements, and stock price. On both July 24,
2019 , and May 2, 2022 , the Board of Directors authorized us to expend an
additional $1.0 billion to repurchase shares of our common stock. At
September 30, 2022 , we had approximately $1,251.3 million remaining for share
repurchases under our existing board authorizations. See Item 5. Market for
Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities , for additional information regarding share repurchases.
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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 capital expenditures in 2023 to be approximately$190 million . Significant long-term uses of cash include the following (in millions): Payments by Period Total 2023 2024 2025 2026 2027 Thereafter
Long-term debt and interest (1)
395.8 98.8 82.8 59.6 40.7 29.8 84.1
Postretirement benefits (2) 44.2 6.6 6.1 5.5 5.0 4.5 16.5
Pension funding contribution (3) 26.1 26.1 - - - - -
Transition tax (4) 264.8 31.1 58.4 77.9 97.4 - -
Total $ 6,673.0 $ 875.6 $ 258.2 $ 549.6 $ 245.4 $ 136.6 $ 4,607.6
(1) The amounts for Long-term debt assume that the respective debt instruments
will be outstanding until their scheduled maturity dates and include interest
but exclude unamortized discount. See Note 7 in the Consolidated Financial
Statements for more information regarding our Long-term debt.
(2) Our postretirement benefit plans are unfunded and are subject to change. Amounts reported are estimates of future benefit payments, to the extent estimable.
(3) Amounts reported for pension funding contributions reflect current estimates. Contributions to our pension plans beyond 2023 will depend on future investment performance of our pension plan assets, changes in discount rate assumptions, and governmental regulations in effect at the time. Amounts subsequent to 2023 are excluded from the summary above, as we are unable to make a reasonably reliable estimate of these amounts. The minimum contribution for ourU.S. pension plan as required by the Employee Retirement Income Security Act (ERISA) is currently zero. We may make additional contributions to this plan at the discretion of management. (4) Under the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), the Company may elect to pay the transition tax interest-free over eight years, with 8% due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight. 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. AtSeptember 30, 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, we account for taxes on earnings of substantially all of our non-U.S. subsidiaries including both non-U.S. andU.S. taxes. We have concluded that earnings of a limited number of our non-U.S. subsidiaries are indefinitely reinvested. Our Short-term debt as ofSeptember 30, 2022 and 2021, includes commercial paper borrowings of$317.0 million and$484.0 million , respectively, with weighted average interest rates of 3.03 percent and 0.18 percent, respectively, and weighted average maturity periods of 22 days and 90 days, respectively. Also included in Short-term debt as ofSeptember 30, 2022 and 2021, are$42.3 million and 23.5 million, respectively, of interest-bearing loans from SLB toSensia , due inDecember 2022 . InAugust 2021 , we issued$1.5 billion aggregate principal amount of long-term notes in a registered public offering. The offering consisted of$600.0 million of 0.35% notes due inAugust 2023 ,$450.0 million of 1.75% notes due inAugust 2031 , and$450.0 million of 2.80% notes due inAugust 2061 , all issued at a discount. Net proceeds to the Company from the debt offering were$1,485.6 million . We used these net proceeds primarily to fund the acquisition of Plex. Refer to Note 4 in the Consolidated Financial Statements for additional information on this acquisition. InMarch 2019 , we issued$1.0 billion aggregate principal amount of long-term notes in a registered public offering. The offering consisted of$425.0 million of 3.50% notes due inMarch 2029 and$575.0 million of 4.20% notes due inMarch 2049 , both issued at a discount. Net proceeds to the Company from the debt offering were$987.6 million . We used these net proceeds primarily to repay our outstanding commercial paper, with the remaining proceeds used for general corporate purposes. 34
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We entered into treasury locks to manage the potential change in interest rates in anticipation of the issuance of the$1.5 billion aggregate notes inAugust 2021 and the$1.0 billion of fixed rate debt inMarch 2019 . These treasury locks were designated as and accounted for as cash flow hedges. The effective differentials paid on these treasury locks was initially recorded in Accumulated other comprehensive loss, net of tax effect. As a result of the changes in the interest rates on the treasury locks between the time we entered into the treasury locks and the time we priced and issued the notes, the Company made a net payment of$28.0 million to the counterparties from theAugust 2021 issuance and$35.7 million to the counterparty from theMarch 2019 issuance. The$28.0 million and$35.7 million net losses on the settlement of the treasury locks were recorded in Accumulated other comprehensive loss, net of tax effect, and are being amortized over the term of the corresponding notes, and recognized as an adjustment to Interest expense in the Consolidated Statement of Operations. InApril 2020 , we entered into a$400.0 million senior unsecured 364-day term loan credit agreement and were advanced the full loan amount. Interest on these borrowings was based on short-term money market rates in effect during the period the borrowings were outstanding. We repaid the$400.0 million term loan inSeptember 2020 . OnJune 29, 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 endedSeptember 30, 2022 and 2021. Borrowings under our new$1.5 billion 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$214.1 million atSeptember 30, 2022 , were available to non-U.S. subsidiaries, of which approximately$30.0 million was committed under letters of credit. Borrowings under our non-U.S. credit facilities atSeptember 30, 2022 and 2021, were not significant. We were in compliance with all covenants under our credit facilities atSeptember 30, 2022 and 2021. 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 ofSeptember 30, 2022 : 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
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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 and short-term investments among counterparties to minimize exposure to any one of these entities. OnDecember 10, 2021 , the Company entered 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. Starting inJune 2022 , the Company made periodic sales of our PTC Shares in the open market, outside of the parameters of the existing 10b5-1 plan. All of our sales of PTC are consistent with the transfer restrictions in the securities purchase agreement, as amended, with PTC. As ofSeptember 30, 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$202.4 million . 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. 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. Cash dividends declared to shareowners were$520.8 million in 2022 ($4.48 per common share),$497.5 million in 2021 ($4.28 per common share), and$472.8 million in 2020 ($4.08 per common share). Our quarterly dividend rate as ofSeptember 30, 2022 , is$1.12 per common share ($4.48 per common share annually), which is determined at the sole discretion of our Board of Directors.
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. 36
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The following is a reconciliation of reported sales to organic sales by geographic region (in millions):
Year Ended
September 30,
Year Ended September 30, 2022 2021
Effect of
Less: Effect of Changes in Organic
Reported Sales Acquisitions Currency Sales Reported Sales
North America $ 4,722.0 $ 152.0 $ (6.5) $ 4,576.5 $ 4,132.8
Europe, Middle East and Africa 1,437.6 6.8 (140.5) 1,571.3 1,405.7
Asia Pacific 1,088.0 0.4 (34.4) 1,122.0 1,012.2
Latin America 512.8 2.3 (6.6) 517.1 446.7
Total Company Sales $ 7,760.4 $ 161.5 $ (188.0) $ 7,786.9 $ 6,997.4
Year Ended
September 30,
Year Ended September 30, 2021 2020
Effect of
Less: Effect of Changes in Organic
Reported Sales Acquisitions Currency Sales Reported Sales
North America $ 4,132.8 $ 48.1 $ 24.6 $ 4,060.1 $ 3,760.2
Europe, Middle East and Africa 1,405.7 44.9 76.9 1,283.9 1,249.3 Asia Pacific 1,012.2 0.6 53.1 958.5 868.7 Latin America 446.7 0.3 (4.7) 451.1 451.6 Total Company Sales$ 6,997.4 $ 93.9$ 149.9 $ 6,753.6 $ 6,329.8
The following is a reconciliation of reported sales to organic sales by operating segment (in millions):
Year Ended
September 30,
Year Ended September 30, 2022 2021
Effect of
Less: Effect of Changes in Organic
Reported Sales Acquisitions Currency Sales Reported Sales
Intelligent Devices $ 3,544.6 $ - $ (89.8) $ 3,634.4 $ 3,311.9
Software & Control 2,312.9 150.6 (52.7) 2,215.0 1,947.0
Lifecycle Services 1,902.9 10.9 (45.5) 1,937.5 1,738.5
Total Company Sales $ 7,760.4 $ 161.5 $ (188.0) $ 7,786.9 $ 6,997.4
Year Ended
September 30,
Year Ended September 30, 2021 2020
Effect of
Less: Effect of Changes in Organic
Reported Sales Acquisitions Currency Sales Reported Sales
Intelligent Devices $ 3,311.9 $ - $ 70.5 $ 3,241.4 $ 2,956.0
Software & Control 1,947.0 54.8 42.1 1,850.1 1,681.3
Lifecycle Services 1,738.5 39.1 37.3 1,662.1 1,692.5
Total Company Sales $ 6,997.4 $ 93.9 $ 149.9 $ 6,753.6 $ 6,329.8
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Critical Accounting Estimates
We believe the following accounting estimates 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. Accounting principles generally accepted inthe United States 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. Refer to Note 1 in the Consolidated Financial Statements for information regarding our significant accounting policies.
The quantitative test of goodwill for impairment requires us to estimate the fair value of our reporting units. During the second quarter of fiscal 2022, we performed our annual quantitative impairment test for ourSensia reporting unit. As a result of ongoing supply chain constraints and market volatility, we identified a triggering event in the fourth quarter of fiscal 2022 for ourSensia reporting unit, which required an interim quantitative impairment test. We determined the fair value of the reporting unit for both tests under a combination of an income approach derived from discounted cash flows and a market multiples approach using selected comparable public companies. Critical assumptions used in this approach included management's estimated future revenue growth rates, estimated future margins, and discount rate. Estimated future revenue growth and margins are based on management's best estimate about current and future conditions. The revenue growth rate assumption reflects significant growth over the next five years before moderating back to a growth rate approximating longer term average inflationary rates. The forecasted near-term growth rate assumes that revenue will return to pre-pandemic levels due to the abatement of pandemic-related disruptions. Margin assumptions reflect that the cost pressure in the current year related to inflation and supply chain challenges will be compensated through pricing achieved on future orders. We believe the assumptions and estimates made were reasonable and appropriate, which are based on a number of factors, including historical experience, reference to external product available market and industry growth publications, analysis of peer group projections, and information obtained from reporting unit management, including backlog. Actual results and forecasts of revenue growth and margins for ourSensia reporting unit may be impacted by its concentration within the Oil & Gas industry and with its customer base. Demand forSensia hardware and software products, solutions, and services is sensitive to industry volatility and risks, including those related to commodity prices, supply and demand dynamics, production costs, geological activity, and political activities. If such factors impact our ability to achieve forecasted revenue growth rates and margins, the fair value of the reporting unit could decrease, which may result in an impairment. We determined the discount rate using our weighted average cost of capital adjusted for risk factors including risk associated with our above market revenue growth assumptions, historical performance, and industry-specific and economic factors. Based on these assumptions and estimates, the fair value of theSensia reporting unit exceeded its carrying value by approximately 20 percent in the second quarter and approximately 15 percent in the fourth quarter. Therefore, we deemed that no impairment existed during the year endedSeptember 30, 2022 , on$315.9 million ofGoodwill allocated to theSensia reporting unit.
More information regarding goodwill impairment testing is contained in Note 1 and Note 3 in the Consolidated Financial Statements.
Retirement Benefits - Pension
Pension costs and obligations are actuarially determined and are influenced by assumptions used to estimate these amounts, including the discount rate. Changes in any of the assumptions and the amortization of differences between the assumptions and actual experience will affect the amount of pension expense in future periods. Our global pension expense in 2022 was$74.4 million compared to$157.0 million in 2021. Approximately all of our 2022 global pension expense and 76 percent of our global projected benefit obligation relate to ourU.S. pension plan. The discount rate used to determine our 2022 U.S. pension expense was 3.86 percent, compared to 2.90 percent for 2021. For 2023, ourU.S. discount rate will increase to 5.65 percent from 3.86 percent in 2022. The discount rate was set as of ourSeptember 30 measurement date and was determined by modeling a portfolio of bonds that match the expected cash flow of our benefit plans. 38
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The changes in our discount rate has an inverse relationship with our net periodic benefit cost and projected benefit obligation. The following chart illustrates the estimated change in projected benefit obligation and annual net periodic benefit cost assuming a change of 25 basis points in the discount rate for ourU.S. pension plans (in millions): Pension Benefits Change in Projected Benefit Obligation Change in Net Periodic Benefit Cost (1) Discount rate$ 69.0 $ 5.3
(1) Change includes both operating and non-operating pension costs.
More information regarding pension benefits is contained in Note 14 in the Consolidated Financial Statements.
Revenue Recognition - Customer Incentives
We offer various incentive programs that provide distributors and direct sale customers with cash rebates, account credits, or additional hardware and software products, solutions, and services based on meeting specified program criteria. Customer incentives are recognized as a reduction of sales if distributed in cash or customer account credits. We record accruals at the time of revenue recognition as a current liability within Customer returns, rebates and incentives in our Consolidated Balance Sheet or, where a right of setoff exists, as a reduction of Receivables. Customer incentives for additional hardware and software products, solutions, and services to be provided are considered distinct performance obligations. As such, we allocate revenue to them based on relative standalone selling price. Until the incentive is redeemed, the revenue is recorded as a contract liability. Our primary incentive program provides distributors with cash rebates or account credits based on agreed amounts that vary depending on the customer to whom our distributor ultimately sells the product. A critical assumption used in estimating the accrual for this program is the time period from when revenue is recognized to when the rebate is processed. Our estimate is based primarily on historical experience. If the time period were to change by 10 percent, the effect would be an adjustment to the accrual of approximately$25.7 million .
More information regarding our revenue recognition and returns, rebates and incentives policies are contained in Note 1 and Note 2 in the Consolidated Financial Statements.
Acquisitions - Plex Intangible Assets Valuation
The accounting for a business combination requires the excess of the purchase price for the acquisition over the net book value of assets acquired to be allocated to the identifiable assets of the acquired entity. Any unallocated portion is recognized as goodwill. We engaged an independent third-party valuation specialist to assist with the fair value allocation of the purchase price paid for the acquisition of Plex to intangible assets. This required the use of several assumptions and estimates including the customer attrition rate, forecasted cash flows attributable to existing customers, and the discount rate for the customer relationship intangible asset and the royalty rate, forecasted revenue growth rates, and the discount rate for the technology intangible asset. Although we believe the assumptions and estimates made were reasonable and appropriate, these estimates require judgment and are based in part on historical experience and information obtained from Plex management. The key assumption requiring the use of judgement in the valuation of the customer relationship intangible asset was the customer attrition rate of 5 percent. This rate was selected based on historical experience and information obtained from Plex management. A change in the customer attrition rate of 250 basis points would result in a change of$63 million in intangible assets. The key assumptions requiring the use of judgement in the valuation of the technology intangible asset were the royalty rate of 25 percent and the obsolescence factor. The royalty rate was based on a detailed analysis considering the importance of the technology to the overall enterprise and market royalty data. A change in the royalty rate of 500 basis points would result in a change of$47 million in intangible assets. The obsolescence factor was calculated assuming phase out over ten years based on discussions with Plex management, the nature of the technology, its integration into customers' manufacturing systems, and other third-party information for similar transactions. A two-year change in this assumption would result in a change of$52 million in intangible assets.
More information regarding this business combination is contained in Note 4 in the Consolidated Financial Statements.
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Acquisitions - Sensia Joint Venture Intangible Assets Valuation
We recorded assets acquired and liabilities assumed in connection with the formation ofSensia based on their estimated fair values as of the acquisition date ofOctober 1, 2019 . The accounting for a business combination requires the excess of the purchase price for the acquisition over the net book value of assets acquired to be allocated to the identifiable assets of the acquired entity. Any unallocated portion is recognized as goodwill. We engaged an independent third-party valuation specialist to assist with the fair value allocation of the purchase price paid in connection with formation of theSensia joint venture to intangible assets, which required the use of several assumptions and estimates. Although we believe the assumptions and estimates made were reasonable and appropriate, these estimates are based on historical experience and information obtained fromSensia management. The key assumption requiring the use of judgment was the customer attrition rates ranging from 7.5 percent to 25 percent. A change in the customer attrition rate of 250 basis points would result in a change of$40.4 million in intangible assets.
Recent Accounting Pronouncements
See Note 1 in the Consolidated Financial Statements regarding recent accounting pronouncements.
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