Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Forward-Looking Statements

This Quarterly Report contains statements (including certain projections and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Words such as “believe”, “estimate”, “project”, “plan”, “expect”, “anticipate”, “will”, “intend”, and other similar expressions may identify forward-looking statements. Actual results may differ materially from those projected as a result of certain risks and uncertainties, many of which are beyond our control, including but not limited to:

• the availability and price of components and materials;

• 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 the Russia and Ukraine 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;

• macroeconomic factors, including inflation, global and regional business conditions (including adverse impacts in certain markets, such as Oil & Gas), commodity prices, the cyclical nature of our customers’ capital spending, sovereign debt concerns, and currency exchange rates;

• the availability and cost of capital;

• our ability to attract, develop, and retain qualified personnel;

• the successful integration and management of strategic transactions and achievement of the expected benefits of these transactions;

• laws, regulations, and governmental policies affecting our activities in the countries where we do business, including those related to tariffs, taxation, trade controls (including sanctions placed on Russia), and climate change;

• the availability, effectiveness, and security of our information technology systems;

• our ability to manage and mitigate the risk related to security vulnerabilities and breaches of our hardware and software products, solutions, and services;

• the successful development of advanced technologies and demand for and market acceptance of new and existing hardware and software products;

• our ability to manage and mitigate the risks associated with our solutions and services businesses;

• the successful execution of our cost productivity initiatives;

• competitive hardware and software products, solutions, and services, pricing pressures, and our ability to provide high quality products, solutions, and services;

• disruptions to our distribution channels or the failure of distributors to develop and maintain capabilities to sell our products;

• intellectual property infringement claims by others and the ability to protect our intellectual property;

• the uncertainty of claims by taxing authorities in the various jurisdictions where we do business;

• the uncertainties of litigation, including liabilities related to the safety and security of the hardware and software products, solutions, and services we sell;

• risks associated with our investment in common stock of PTC Inc., including the potential for volatility in our reported quarterly earnings associated with changes in the market value of such stock;

• our ability to manage costs related to employee retirement and health care benefits; and

• other risks and uncertainties, including but not limited to those detailed from time to time in our Securities and Exchange Commission (SEC) filings.

These forward-looking statements reflect our beliefs as of the date of filing this report. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. See Item 1A. Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, for more information.

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 O****perations 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 to Rockwell 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;

• acquire companies that serve as catalysts to organic growth by increasing our information solutions and high-value services offerings and capabilities, expanding our global presence, or enhancing our process expertise;

• enhance our market access by building our channel capability and partner network;

• deploy human and financial resources to strengthen our technology leadership and our intellectual capital business model;

• continuously improve quality and customer experience; and

• drive annual cost productivity.

By implementing the above strategy, we seek to achieve our long-term financial goals, including above-market organic sales growth, increasing the portion of our total revenue that is recurring in nature, EPS growth above sales growth, return on invested capital in excess of 20 percent, and free cash flow equal to approximately 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.

U.S. Economic Trends

In the second quarter of fiscal 2022, 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 2020. These figures are as of May 3, 2022, and are subject to revision by the issuing organizations. The IP Index continued to improve during the second quarter of fiscal 2022, supported by continued strong demand. In the second quarter of fiscal 2022, manufacturing PMI fell slightly compared to the prior quarter but continued to be well above 50. The March 2022 PMI represents the twenty-second consecutive month of expansion in the overall economy.

			IP Index						PMI
Fiscal 2022 quarter ended:
March 2022			103.6						57.1
December 2021			101.6						58.8
Fiscal 2021 quarter ended:
September 2021			100.7						60.5
June 2021			99.9						60.9
March 2021			98.3						63.7
December 2020			97.4						60.5
Fiscal 2020 quarter ended:
September 2020			95.5						55.7

During fiscal 2022, 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 March 31, 2022, and December 31, 2021, increased 11.2 percent and 10.0 percent, respectively, compared to March 31, 2021, and December 31, 2020. These figures are as of May 3, 2022, and are subject to revision by the issuing organization.

Non-U.S. Economic Trends

In the second quarter of fiscal 2022, sales to customers outside the U.S. accounted for less than half of our total sales. These customers include both indigenous companies and multinational companies with a global presence. In addition to the global factors previously mentioned in the "Overview" section, international demand, particularly in emerging markets, has historically been driven by the strength of the industrial economy in each region, investments in infrastructure, and expanding consumer markets. We use changes in key countries' gross domestic product, IP, and PMI as indicators of the growth opportunities in each region where we do business.

Industrial output and PMI outside the U.S. were mostly positive in the second quarter of fiscal 2022. Supply chain disruptions, labor shortages, and global inflation remain persistent in 2022, along with elevated geopolitical instability. Strong GDP growth is expected to continue in 2022 although decelerating from 2021 growth rates.

Supply Chain

We have a global supply chain, including a network of suppliers and distribution and manufacturing facilities. The supply chain is stressed by increased demand, along with pandemic-related and other global events that have put additional pressures on manufacturing output and freight lanes. This has resulted in and could continue to result in:

• disruptions in our supply chain;

• difficulty in procuring or inability to procure components and materials necessary for our hardware and software products, solutions, and services;

• increased costs for commodities, components, and freight services; and

• delays in delivering, or an inability to deliver, our hardware and software products, solutions, and services.

We are actively 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 are also actively redesigning products to increase resiliency in our sources of components.

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 fiscal 2022. Our guidance reflects our strong demand and record backlog along with our latest view of supply chain constraints. However, the global supply chain remains volatile with new pressures from COVID-19 related shutdowns in China and war in Ukraine that are difficult to quantify.

Sales Growth Guidance												EPS Guidance
Reported sales growth						11% - 15%						Diluted EPS						$7.60 - $8.20
Organic sales growth (1)						10% - 14%						Adjusted EPS (1)						$9.20 - $9.80
Inorganic sales growth						~2.5%
Currency translation						~(1.5)%

(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.

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 March 31,												Six Months Ended March 31,
			2022						2021						2022						2021
Sales
Intelligent Devices (a)			$	808.6					$	850.2					$	1,708.9					$	1,571.9
Software & Control (b)			534.9						502.3						1,048.8						943.3
Lifecycle Services (c)			464.6						423.6						907.7						826.2
Total sales (d)			$	1,808.1					$	1,776.1					$	3,665.4					$	3,341.4
Segment operating earnings (1)
Intelligent Devices (e)			$	118.2					$	202.0					$	331.2					$	342.2
Software & Control (f)			131.5						149.8						249.1						282.9
Lifecycle Services (g)			33.7						38.3						58.2						74.3
Total segment operating earnings (2) (h)			283.4						390.1						638.5						699.4
Purchase accounting depreciation and amortization			(26.1)						(13.1)						(52.2)						(24.8)
Corporate and other			(24.6)						(30.4)						(54.0)						(58.4)
Non-operating pension and postretirement benefit cost			(21.3)						(7.0)						(16.9)						(14.0)
Change in fair value of investments			(140.7)						190.9						(133.1)						581.3
Legal settlement			—						—						—						70.0
Interest expense, net			(29.6)						(22.8)						(58.7)						(45.1)
Income before income taxes (i)			41.1						507.7						323.6						1,208.4
Income tax benefit (provision)			8.3						(97.4)						(35.3)						(207.7)
Net income			49.4						410.3						288.3						1,000.7
Net loss attributable to noncontrolling interests			(4.5)						(4.7)						(7.1)						(7.6)
Net income attributable to Rockwell Automation			$	53.9					$	415.0					$	295.4					$	1,008.3
Diluted EPS			$	0.46					$	3.54					$	2.51					$	8.59
Adjusted EPS (3)			$	1.66					$	2.41					$	3.79					$	4.79
Diluted weighted average outstanding shares			117.1						117.1						117.2						117.1
Pre-tax margin (i/d)			2.3		%				28.6		%				8.8		%				36.2		%
Intelligent Devices segment operating margin (e/a)			14.6		%				23.8		%				19.4		%				21.8		%
Software & Control segment operating margin (f/b)			24.6		%				29.8		%				23.8		%				30.0		%
Lifecycle Services segment operating margin (g/c)			7.3		%				9.0		%				6.4		%				9.0		%
Total segment operating margin (2) (h/d)			15.7		%				22.0		%				17.4		%				20.9		%

(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 cost, change in fair value of investments, the $70 million legal settlement in fiscal 2021, interest expense, net, and income tax benefit (provision) because we do not consider these costs to be directly related to the operating performance of our segments. We believe total segment operating earnings and total segment operating margin are useful to investors as measures of operating performance. We use these measures to monitor and evaluate the profitability of our operating segments. Our measures of total segment operating earnings and total segment operating margin may be different from measures used by other companies.

(3) Adjusted EPS is a non-GAAP earnings measure. See Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate Reconciliation for more information on this non-GAAP measure.

Three and Six Months Ended March 31, 2022, Compared to Three and Six Months Ended March 31, 2021

Sales

Sales increased 1.8 percent and 9.7 percent year over year in the three and six months ended March 31, 2022, respectively. Organic sales increased 1.3 percent and 8.6 percent year over year in the three and six months ended March 31, 2022, respectively. Currency translation decreased sales by 1.8 percentage points and 1.3 percentage points year over year in the three and six months ended March 31, 2022, respectively. Acquisitions increased sales by 2.3 percentage points and 2.4 percentage points year over year in the three and six months ended March 31, 2022, respectively.

Pricing increased sales by approximately one percentage point in the three and six months ended March 31, 2022.

The table below presents our sales, attributed to the geographic regions based upon country of destination, and the percentage change from the same period a year ago (in millions, except percentages):

									Change vs.						Change in Organic Sales (1) vs.
			Three Months Ended March 31, 2022						Three Months Ended March 31, 2021						Three Months Ended March 31, 2021
North America			$	1,071.6					0.6		%				(3.2)		%
Europe, Middle East and Africa			348.9						(1.7)		%				5.9		%
Asia Pacific			266.2						7.8		%				9.3		%
Latin America			121.4						11.7		%				12.9		%
Total Sales			$	1,808.1					1.8		%				1.3		%

									Change vs.						Change in Organic Sales (1) vs.
			Six Months Ended March 31, 2022						Six Months Ended March 31, 2021						Six Months Ended March 31, 2021
North America			$	2,172.3					9.8		%				5.6		%
Europe, Middle East and Africa			703.6						4.2		%				10.1		%
Asia Pacific			545.1						16.3		%				16.6		%
Latin America			244.4						11.5		%				13.6		%
Total Sales			$	3,665.4					9.7		%				8.6		%

(1) Organic sales and organic sales growth exclude the effect of acquisitions, changes in currency exchange rates, and divestitures. See Supplemental Sales Information for information on these non-GAAP measures.

• The increase in North America reported sales in the three months ended March 31, 2022, compared to the prior period was primarily due to acquisitions. Organic sales in the three months ended March 31, 2022, decreased year over year primarily due to Intelligent Devices. Reported and organic sales increased in the six months ended March 31, 2022, due to strong growth in the first quarter of fiscal 2022 across discrete, process, and hybrid industries.

• Europe, Middle East and Africa (EMEA) reported sales decreased year over year in the three months ended March 31, 2022, primarily due to the effects of currency translation. Organic sales increases year over year in the three months ended March 31, 2022, and reported and organic sales increases year over year in the six months ended March 31, 2022, were broad-based across industries.

• Reported and organic sales in Asia Pacific and Latin America increased in the three and six months ended March 31, 2022, compared to the prior periods, with broad-based demand across industries.

Corporate and Other

Corporate and other expense was $24.6 million and $54.0 million in the three and six months ended March 31, 2022, respectively, compared to $30.4 million and $58.4 million in the three and six months ended March 31, 2021, respectively. The decreases in Corporate and other expense were primarily due to mark-to-market adjustments related to our deferred and non-qualified compensation plans.

Income before Income Taxes

Income before income taxes decreased to $41.1 million and $323.6 million in the three and six months ended March 31, 2022, respectively, from $507.7 million and $1,208.4 million in the three and six months ended March 31, 2021, primarily due to lower fair value gains recognized in fiscal 2022 compared to fiscal 2021 in connection with our investment in PTC (the "PTC adjustments"). Total segment operating earnings decreased 27.4 percent in the three months ended March 31, 2022, primarily due to higher input costs and higher investment spend, partially offset by lower incentive compensation and better price realization. Total segment operating earnings decreased 8.7 percent in the six months ended March 31, 2022, primarily due to higher input costs and higher investment spend, partially offset by higher sales, lower incentive compensation, and better price realization.

Income Taxes

The effective tax rate for the three months ended March 31, 2022, was (20.2) percent compared to 19.2 percent for the three months ended March 31, 2021. The decrease in the effective tax rate was primarily due to PTC investment adjustments. Our Adjusted Effective Tax Rate for the three months ended March 31, 2022, was 16.0 percent compared to 16.7 percent for the three months ended March 31, 2021. The decrease in the Adjusted Effective Tax Rate was primarily due to non-U.S. tax rates.

The effective tax rate for the six months ended March 31, 2022, was 10.9 percent compared to 17.2 percent for the six months ended March 31, 2021. Our Adjusted Effective Tax Rate for the six months ended March 31, 2022, was 15.6 percent compared to 16.1 percent for the six months ended March 31, 2021. The decreases in the effective tax rate and the Adjusted Effective Tax Rate were primarily due to higher discrete benefits in the current year and non-U.S. tax rates.

Diluted EPS and Adjusted EPS

Fiscal 2022 second quarter Net income attributable to Rockwell Automation was $53.9 million or $0.46 per share, compared to $415.0 million or $3.54 per share in the second quarter of fiscal 2021. The decreases in Net income attributable to Rockwell Automation and diluted EPS were primarily due to the PTC adjustments. Fiscal 2022 second quarter Adjusted EPS was $1.66, down 31.1 percent compared to $2.41 in the second quarter of fiscal 2021, primarily due to higher input costs and higher investment spend, partially offset by lower incentive compensation and better price realization.

Net income attributable to Rockwell Automation was $295.4 million or $2.51 per share in the six months ended March 31, 2022, compared to $1,008.3 million or $8.59 per share in the six months ended March 31, 2021. The decreases in Net income attributable to Rockwell Automation and diluted EPS were primarily due to the PTC adjustments. Adjusted EPS was $3.79 in the six months ended March 31, 2022, down 20.9 percent compared to $4.79 in the six months ended March 31, 2021. The decrease in Adjusted EPS was primarily due to higher input costs, higher investment spend, and the $0.45 per share impact of the $70 million legal settlement gain in the first quarter of fiscal 2021, partially offset by higher sales, lower incentive compensation, and better price realization.

Intelligent Devices

Sales

Intelligent Devices sales decreased 4.9 percent and increased 8.7 percent year over year in the three and six months ended March 31, 2022, respectively. Intelligent Devices organic sales decreased 3.0 percent and increased 10.1 percent year over year in the three and six months ended March 31, 2022, respectively. Currency translation decreased sales by 1.9 percentage points and 1.4 percentage points year over year in the three and six months ended March 31, 2022, respectively. For the three months ended March 31, 2022, reported sales decreased in all regions except for Latin America. Organic sales in the three months ended March 31, 2022, decreased in North America and Asia Pacific but increased in Latin America and EMEA. All regions experienced reported and organic sales growth in the six months ended March 31, 2022.

Segment Operating Margin

Intelligent Devices segment operating earnings decreased 41.5 percent year over year in the three months ended March 31, 2022. Segment operating margin decreased to 14.6 percent in the three months ended March 31, 2022, from 23.8 percent in the same period a year ago, driven by higher input costs, higher investment spend, and lower sales.

Intelligent Devices segment operating earnings decreased 3.2 percent year over year in the six months ended March 31, 2022. Segment operating margin decreased to 19.4 percent in the six months ended March 31, 2022, from 21.8 percent in the same period a year ago, driven by higher input costs and higher investment spend, partially offset by higher sales.

Software & Control

Sales

Software & Control sales increased 6.5 percent and 11.2 percent year over year in the three and six months ended March 31, 2022, respectively. Software & Control organic sales increased 0.7 percent and 4.3 percent year over year in the three and six months ended March 31, 2022, respectively. Currency translation decreased sales by 1.8 percentage points and 1.3 percentage points year over year in the three and six months ended March 31, 2022, respectively. Acquisitions increased sales by 7.6 percentage points and 8.2 percentage points year over year in the three and six months ended March 31, 2022, respectively. For the three months ended March 31, 2022, reported sales increased in all regions except for EMEA. Organic sales in the three months ended March 31, 2022, increased in Asia Pacific and Latin America but decreased in EMEA and North America. All regions except for EMEA experienced reported sales growth in the six months ended March 31, 2022, and all regions experienced organic sales growth in the six months ended March 31, 2022.

Segment Operating Margin

Software & Control segment operating earnings decreased 12.2 percent and 11.9 percent year over year in the three and six months ended March 31, 2022, respectively. Segment operating margin decreased to 24.6 percent and 23.8 percent in the three and six months ended March 31, 2022, respectively, from 29.8 percent and 30.0 percent, respectively, in the same periods a year ago, primarily driven by higher investment spend, higher input costs, and the impact of acquisition integration costs.

Lifecycle Services

Sales

Lifecycle Services sales increased 9.7 percent and 9.9 percent year over year in the three and six months ended March 31, 2022, respectively. Lifecycle Services organic sales increased 10.8 percent and 10.6 percent year over year in the three and six months ended March 31, 2022, respectively. Currency translation decreased sales by 1.7 percentage points and 1.2 percentage points year over year in the three and six months ended March 31, 2022, respectively. Acquisitions increased sales by 0.6 percentage points and 0.5 percentage points year over year in the three and six months ended March 31, 2022, respectively. The growth in reported and organic sales in the three and six months ended March 31, 2022, was broad-based across the regions.

Segment Operating Margin

Lifecycle Services segment operating earnings decreased 12.0 percent and 21.7 percent year over year in the three and six months ended March 31, 2022, respectively. Segment operating margin decreased to 7.3 percent and 6.4 percent in the three and six months ended March 31, 2022, respectively, from 9.0 percent in each of the same periods a year ago, driven by lower labor utilization caused by supply chain constraints, partially offset by higher sales and lower incentive compensation.

Supplemental Segment Information

Purchase accounting depreciation and amortization and non-operating pension and postretirement benefit cost are not allocated to our operating segments because these costs are excluded from our measurement of each segment's operating performance for internal purposes. If we were to allocate these costs, we would attribute them to each of our segments as follows (in millions):

			Three Months Ended March 31,												Six Months Ended March 31,
			2022						2021						2022						2021
Purchase accounting depreciation and amortization
Intelligent Devices			$	0.7					$	0.7					$	1.4					$	1.4
Software & Control			17.2						4.0						34.5						6.7
Lifecycle Services			7.9						8.1						15.8						16.1
Non-operating pension and postretirement benefit cost
Intelligent Devices			$	4.9					$	1.1					$	2.8					$	2.3
Software & Control			4.9						1.1						2.8						2.3
Lifecycle Services			6.5						1.6						3.7						3.1

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, change in fair value of investments, purchase accounting depreciation and amortization attributable to Rockwell Automation, 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 10 in the Consolidated Financial Statements for more information on our net periodic pension and postretirement benefit cost.

We believe that Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate provide useful information to our investors about our operating performance and allow management and investors to compare our operating performance period over period. Adjusted EPS is also used as a financial measure of performance for our annual incentive compensation. Our measures of Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate may be different from measures used by other companies. These non-GAAP measures should not be considered a substitute for Net income attributable to Rockwell Automation, diluted EPS, and effective tax rate.

The following are reconciliations of Net income attributable to Rockwell Automation, diluted EPS, and effective tax rate to Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate, respectively (in millions, except per share amounts and percentages):

			Three Months Ended March 31,												Six Months Ended March 31,
			2022						2021						2022						2021
Net income attributable to Rockwell Automation			$	53.9					$	415.0					$	295.4					$	1,008.3
Non-operating pension and postretirement benefit cost			21.3						7.0						16.9						14.0
Tax effect of non-operating pension and postretirement benefit cost			(5.5)						(2.0)						(4.7)						(4.0)
Purchase accounting depreciation and amortization attributable to Rockwell Automation			23.1						10.1						46.2						18.8
Tax effect of purchase accounting depreciation and amortization attributable to Rockwell Automation			(5.6)						(2.5)						(11.2)						(4.6)
Change in fair value of investments (1)			140.7						(190.9)						133.1						(581.3)
Tax effect of change in fair value of investments (1)			(33.4)						46.1						(29.9)						110.3
Adjusted Income			$	194.5					$	282.8					$	445.8					$	561.5
Diluted EPS			$	0.46					$	3.54					$	2.51					$	8.59
Non-operating pension and postretirement benefit cost			0.19						0.06						0.15						0.12
Tax effect of non-operating pension and postretirement benefit cost			(0.05)						(0.02)						(0.04)						(0.03)
Purchase accounting depreciation and amortization attributable to Rockwell Automation			0.20						0.09						0.39						0.16
Tax effect of purchase accounting depreciation and amortization attributable to Rockwell Automation			(0.05)						(0.02)						(0.10)						(0.04)
Change in fair value of investments (1)			1.20						(1.63)						1.14						(4.96)
Tax effect of change in fair value of investments (1)			(0.29)						0.39						(0.26)						0.95
Adjusted EPS			$	1.66					$	2.41					$	3.79					$	4.79
Effective tax rate			(20.2)		%				19.2		%				10.9		%				17.2		%
Tax effect of non-operating pension and postretirement benefit cost			15.7		%				0.1		%				0.8		%				0.1		%
Tax effect of purchase accounting depreciation and amortization attributable to Rockwell Automation			1.0		%				0.3		%				0.9		%				0.3		%
Tax effect of change in fair value of investments (1)			19.5		%				(2.9)		%				3.0		%				(1.5)		%
Adjusted Effective Tax Rate			16.0		%				16.7		%				15.6		%				16.1		%

(1) Primarily relates to the change in fair value of investment in PTC.

						Fiscal 2022 Guidance
Diluted EPS (1)						$7.60 - $8.20
Non-operating pension and postretirement benefit cost						0.17
Tax effect of non-operating pension and postretirement benefit cost						(0.04)
Change in fair value of investments (2)						1.14
Tax effect of change in fair value of investments (2)						(0.26)
Purchase accounting depreciation and amortization attributable to Rockwell Automation						0.78
Tax effect of purchase accounting depreciation and amortization attributable to Rockwell Automation						(0.19)
Adjusted EPS (1)						$9.20 - $9.80
Effective tax rate						~ 15.5%
Tax effect of non-operating pension and postretirement benefit cost						~ 0.5%
Tax effect of change in fair value of investments (2)						~ 0.5%
Tax effect of purchase accounting depreciation and amortization attributable to Rockwell Automation						~ 0.5%
Adjusted Effective Tax Rate						~ 17.0%

(1) Fiscal 2022 guidance based on Adjusted Income attributable to Rockwell, which includes an adjustment for Schlumberger's non-controlling interest in Sensia.

(2) The actual year-to-date adjustments, which are based on PTC's share price at March 31, 2022, 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.

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):

			Six Months Ended March 31,
			2022						2021
Cash provided by (used for):
Operating activities			$	78.8					$	595.4
Investing activities			(144.7)						(336.7)
Financing activities			(142.5)						(339.1)
Effect of exchange rate changes on cash			(10.8)						17.7
Decrease in cash, cash equivalents, and restricted cash			$	(219.2)					$	(62.7)

The following table summarizes free cash flow, which is a non-GAAP financial measure (in millions):

			Six Months Ended March 31,
			2022						2021
Cash provided by operating activities			$	78.8					$	595.4
Capital expenditures			(82.0)						(52.1)
Free cash flow			$	(3.2)					$	543.3

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 $78.8 million for the six months ended March 31, 2022, compared to cash provided by operating activities of $595.4 million for the six months ended March 31, 2021. Free cash flow was a net outflow of $3.2 million for the six months ended March 31, 2022, compared to a net inflow of $543.3 million for the six months ended March 31, 2021. The year over year decreases in cash provided by operating activities and free cash flow were primarily due to higher incentive compensation payments, lower pre-tax income, higher income tax payments, and increases in working capital in the first six months of fiscal 2022 compared to the first six months of fiscal 2021, as well as the $70 million legal settlement in fiscal 2021 with no comparable amount in fiscal 2022.

We repurchased approximately 0.2 million shares of our common stock under our share repurchase program in the first six months of fiscal 2022. The total cost of these shares was $49.4 million. At March 31, 2022, there were no outstanding common stock share repurchases recorded in Accounts payable. At September 30, 2021, there were $1.8 million of outstanding common stock share repurchases recorded in Accounts payable. We repurchased approximately 0.7 million shares of our common stock in the first six months of fiscal 2021. The total cost of these shares was $179.7 million, of which $2.8 million was recorded in Accounts payable at March 31, 2021, related to shares that did not settle until April 2021. Our decision to repurchase shares in the remainder of 2022 will depend on business conditions, free cash flow generation, other cash requirements, and stock price. On July 24, 2019, the Board of Directors authorized us to expend $1.0 billion to repurchase shares of our common stock. At March 31, 2022, we had approximately $502.9 million remaining for share repurchases under our existing board authorizations. On May 2, 2022, the Board of Directors authorized us to expend an additional $1.0 billion to repurchase shares of our common stock. See Part II, Item 2. Unregistered Sales of Equity 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.

At March 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 the U.S. international tax system under the Tax Act, the Company accounts for taxes on earnings of substantially all of its non-U.S. subsidiaries including both non-U.S. and U.S. taxes. The Company has concluded that earnings of a limited number of its non-U.S. subsidiaries are indefinitely reinvested.

Our Short-term debt as of March 31, 2022, and September 30, 2021, includes commercial paper borrowings of $617.0 million and $484.0 million, respectively, with weighted average interest rates of 0.49 percent and 0.18 percent, respectively, and weighted average maturity periods of 26 days and 90 days, respectively. Also included in Short-term debt as of March 31, 2022, and September 30, 2021, is $23.5 million of interest-bearing loans from Schlumberger to Sensia due December 31, 2022. The short-term loans from Schlumberger were entered into following the formation of Sensia in fiscal 2020.

At March 31, 2022, and September 30, 2021, our total current borrowing capacity under our unsecured revolving credit facility expiring in November 2023 was $1.25 billion. We can increase the aggregate amount of this credit facility by up to $750.0 million, subject to the consent of the banks in the credit facility. We did not borrow against this credit facility during the periods ended March 31, 2022, or September 30, 2021. Borrowings under this credit facility bear interest based on short-term money market rates in effect during the period the borrowings are outstanding. The terms of this credit facility contain covenants under which we agree to maintain an EBITDA-to-interest ratio of at least 3.0 to 1.0. The EBITDA-to-interest ratio is defined in the credit facility as the ratio of consolidated EBITDA (as defined in the facility) for the preceding four quarters to consolidated interest expense for the same period.

LIBOR is the primary basis for determining interest payments on borrowings under our $1.25 billion credit facility. Banks currently reporting information used to set U.S dollar LIBOR are currently expected to stop doing so during 2023. Various parties, including government agencies, are seeking to identify an alternative rate to replace LIBOR. We are monitoring their efforts, and we will likely seek to amend contracts to accommodate any replacement rate where one is not already provided.

Among other uses, we can draw on our credit facility as a standby liquidity facility to repay our outstanding commercial paper as it matures. This access to funds to repay maturing commercial paper is an important factor in maintaining the short-term credit ratings set forth in the table below. Under our current policy with respect to these ratings, we expect to limit our other borrowings under our credit facility, if any, to amounts that would leave enough credit available under the facility so that we could borrow, if needed, to repay all of our then outstanding commercial paper as it matures.

Separate short-term unsecured credit facilities of approximately $220.6 million were available to non-U.S. subsidiaries at March 31, 2022. Borrowings under our non-U.S. credit facilities at March 31, 2022, and 2021, were not significant. We were in compliance with all covenants under our credit facilities at March 31, 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 of March 31, 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.

We regularly monitor the third-party depository institutions that hold our cash and cash equivalents and short-term investments. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities.

On December 10, 2021, the Company entered a 10b5-1 plan related to our PTC Shares, pursuant to which a broker will make periodic sales of some of our PTC Shares on behalf of the Company, subject to the terms of the plan and consistent with the transfer restrictions in our securities purchase agreement, as amended, with PTC.

We use foreign currency forward exchange contracts to manage certain foreign currency risks. We enter into these contracts to hedge our exposure to foreign currency exchange rate variability in the expected future cash flows associated with certain third-party and intercompany transactions denominated in foreign currencies forecasted to occur within the next two years. We also use these contracts to hedge portions of our net investments in certain non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. In addition, we use foreign currency forward exchange contracts that are not designated as hedges to offset transaction gains or losses associated with some of our assets and liabilities resulting from intercompany loans or other transactions with third parties that are denominated in currencies other than our entities' functional currencies. Our foreign currency forward exchange contracts are usually denominated in currencies of major industrial countries. We diversify our foreign currency forward exchange contracts among counterparties to minimize exposure to any one of these entities.

Net gains and losses related to derivative forward exchange contracts designated as cash flow hedges offset the related gains and losses on the hedged items during the periods in which the hedged items are recognized in earnings. During the three and six months ended March 31, 2022, we reclassified $1.2 million in pre-tax net gains and $0.6 million in pre-tax net losses, respectively, related to cash flow hedges from accumulated other comprehensive loss into the Consolidated Statement of Operations. During the three and six months ended March 31, 2021, we reclassified $8.6 million and $12.9 million, respectively, 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 $9.2 million of pre-tax net unrealized losses on cash flow hedges as of March 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 fiscal year ended September 30, 2021. We believe that at March 31, 2022, there has been no material change to this information.

Supplemental Sales Information

We translate sales of subsidiaries operating outside of the United States using exchange rates effective during the respective period. Therefore, changes in currency exchange rates affect our reported sales. Sales by acquired businesses also affect our reported sales. We believe that organic sales, defined as sales excluding the effects of acquisitions and changes in currency exchange rates, which is a non-GAAP financial measure, provides useful information to investors because it reflects regional and operating segment performance from the activities of our businesses without the effect of acquisitions and changes in currency exchange rates. We use organic sales as one measure to monitor and evaluate our regional and operating segment performance. When we acquire businesses, we exclude sales in the current period for which there are no comparable sales in the prior period. We determine the effect of changes in currency exchange rates by translating the respective period’s sales using the same currency exchange rates that were in effect during the prior year. When we divest a business, we exclude sales in the prior period for which there are no comparable sales in the current period. Organic sales growth is calculated by comparing organic sales to reported sales in the prior year, excluding divestitures. We attribute sales to the geographic regions based on the country of destination.

The following is a reconciliation of reported sales to organic sales by geographic region (in millions):

			Three Months Ended March 31, 2022																								Three Months Ended March 31, 2021
			Reported Sales						Less: Effect of Acquisitions						Effect of Changes in Currency												Organic Sales						Reported Sales
North America			$	1,071.6					$	39.9					$	—											$	1,031.7					$	1,065.7
Europe, Middle East and Africa			348.9						0.8						(27.5)												375.6						354.8
Asia Pacific			266.2						—						(3.6)												269.8						246.9
Latin America			121.4						—						(1.3)												122.7						108.7
Total Company Sales			$	1,808.1					$	40.7					$	(32.4)											$	1,799.8					$	1,776.1

			Six Months Ended March 31, 2022																								Six Months Ended March 31, 2021
			Reported Sales						Less: Effect of Acquisitions						Effect of Changes in Currency												Organic Sales						Reported Sales
North America			$	2,172.3					$	80.3					$	3.2											$	2,088.8					$	1,978.0
Europe, Middle East and Africa			703.6						0.8						(41.0)												743.8						675.5
Asia Pacific			545.1						—						(1.7)												546.8						468.8
Latin America			244.4						—						(4.5)												248.9						219.1
Total Company Sales			$	3,665.4					$	81.1					$	(44.0)											$	3,628.3					$	3,341.4

The following is a reconciliation of reported sales to organic sales by operating segment (in millions):

			Three Months Ended March 31, 2022																								Three Months Ended March 31, 2021
			Reported Sales						Less: Effect of Acquisitions						Effect of Changes in Currency												Organic Sales						Reported Sales
Intelligent Devices			$	808.6					$	—					$	(16.1)											$	824.7					$	850.2
Software & Control			534.9						38.3						(9.0)												505.6						502.3
Lifecycle Services			464.6						2.4						(7.3)												469.5						423.6
Total Company Sales			$	1,808.1					$	40.7					$	(32.4)											$	1,799.8					$	1,776.1

			Six Months Ended March 31, 2022																								Six Months Ended March 31, 2021
			Reported Sales						Less: Effect of Acquisitions						Effect of Changes in Currency												Organic Sales						Reported Sales
Intelligent Devices			$	1,708.9					$	—					$	(22.1)											$	1,731.0					$	1,571.9
Software & Control			1,048.8						77.2						(12.1)												983.7						943.3
Lifecycle Services			907.7						3.9						(9.8)												913.6						826.2
Total Company Sales			$	3,665.4					$	81.1					$	(44.0)											$	3,628.3					$	3,341.4

Critical Accounting Estimates

We have prepared the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. These estimates are based on our best judgment about current and future conditions, but actual results could differ from those estimates. Information with respect to accounting estimates that are the most critical to the understanding of our financial statements as they could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. We believe that at March 31, 2022, there has been no material change to this information, except as noted below.

Goodwill - Sensia Reporting Unit

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 a quantitative impairment test for our Sensia reporting unit. We determined the fair value of the reporting unit 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 four 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 and information obtained from reporting unit management, including backlog. Actual results and forecasts of revenue growth and margins for our Sensia reporting unit may be impacted by its concentration within the Oil & Gas industry and with its customer base. Demand for Sensia 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 significant revenue growth assumptions, with comparison to market and industry data. Based on these assumptions and estimates, the fair value of the Sensia reporting unit exceeded the carrying value by approximately 20 percent. Therefore, as of March 31, 2022, we deemed that no impairment existed on $317.9 million of Goodwill allocated to the Sensia reporting unit.

Retirement Benefits — Pension

In March 2022, we remeasured our U.S. pension plan assets and liabilities in accordance with U.S GAAP settlement accounting rules. The discount rate used in the remeasurement was 4.00 percent compared to 3.10 percent at our September 30, 2021, annual measurement date. The 4.00 percent discount rate was set as of a March 31, 2022, measurement date and was determined by modeling a portfolio of bonds that match the expected cash flow of our benefit plans. See Note 10 in the Consolidated Financial Statements for additional information regarding the settlement accounting.

Environmental Matters

Information with respect to the effect of compliance with environmental protection requirements and resolution of environmental claims on us and our manufacturing operations is contained in Note 17 in the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. We believe that at March 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.