UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Rockwell Automation, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		25-1797617 (I.R.S. Employer Identification No.)
1201 South 2nd Street, Milwaukee, Wisconsin (Address of principal executive offices)		53204 (Zip Code)

(414) 382-2000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer þ Accelerated Filer o Non-accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

175,936,847 shares of registrant’s Common Stock, $1.00 par value, were outstanding on June 30, 2006.

 

 

ROCKWELL AUTOMATION, INC.

INDEX

						Page No.
PART I.		FINANCIAL INFORMATION
		Item 1.		Condensed Consolidated Financial Statements:
				Condensed Consolidated Balance Sheet— June 30, 2006 and September 30, 2005			2
				Condensed Consolidated Statement of Operations— Three and Nine Months Ended June 30, 2006 and 2005			3
				Condensed Consolidated Statement of Cash Flows— Nine Months Ended June 30, 2006 and 2005			4
				Notes to Condensed Consolidated Financial Statements			5
				Report of Independent Registered Public Accounting Firm			19
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk			33
		Item 4.		Controls and Procedures			33
PART II.		OTHER INFORMATION
		Item 1.		Legal Proceedings			34
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			34
		Item 6.		Exhibits			35
Signatures							36
EX-12: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
EX-15: LETTER OF DELOITTE & TOUCHE LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ROCKWELL AUTOMATION, INC.

CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(in millions)

		June 30,				September 30,
		2006				2005
ASSETS
Current assets:
Cash and cash equivalents		$	338.9			$	463.6
Receivables			867.9				799.6
Inventories			614.2				569.9
Deferred income taxes			189.0				169.4
Other current assets			176.8				184.0
Total current assets			2,186.8				2,186.5
Property, net			650.3				774.5
Goodwill			834.9				811.9
Other intangible assets, net			327.7				307.0
Deferred income taxes			73.4				66.3
Prepaid pension			607.3				200.5
Other assets			133.9				178.4
TOTAL		$	4,814.3			$	4,525.1
LIABILITIES AND SHAREOWNERS’ EQUITY
Current liabilities:
Short-term debt		$	152.2			$	1.2
Accounts payable			395.3				388.5
Compensation and benefits			173.5				214.4
Income taxes payable			38.3				5.4
Other current liabilities			422.5				331.3
Total current liabilities			1,181.8				940.8
Long-term debt			745.1				748.2
Retirement benefits			1,000.0				977.5
Other liabilities			251.2				209.5
Commitments and contingent liabilities (Note 12)
Shareowners’ equity:
Common stock (shares issued: 216.4)			216.4				216.4
Additional paid-in capital			1,184.3				1,122.7
Retained earnings			2,693.4				2,493.5
Accumulated other comprehensive loss			(490.2	)			(501.5	)
Unearned restricted stock compensation			—				(1.7	)
Common stock in treasury, at cost (shares held:
June 30, 2006, 40.5; September 30, 2005, 36.7)			(1,967.7	)			(1,680.3	)
Total shareowners’ equity			1,636.2				1,649.1
TOTAL		$	4,814.3			$	4,525.1

See Notes to Condensed Consolidated Financial Statements.

ROCKWELL AUTOMATION, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Sales		$	1,428.4			$	1,264.7			$	4,107.7			$	3,668.0
Cost of sales			(863.2	)			(783.7	)			(2,479.1	)			(2,282.0	)
Gross profit			565.2				481.0				1,628.6				1,386.0
Selling, general and administrative expenses			(330.7	)			(286.6	)			(948.8	)			(812.9	)
Other (expense) income			(0.6	)			8.5				6.8				12.6
Interest expense			(14.3	)			(11.7	)			(42.3	)			(34.3	)
Income from continuing operations before income taxes			219.6				191.2				644.3				551.4
Income tax provision			(70.6	)			(63.9	)			(200.1	)			(159.5	)
Income from continuing operations			149.0				127.3				444.2				391.9
(Loss) income from discontinued operations			—				—				(3.0	)			18.8
Net income		$	149.0			$	127.3			$	441.2			$	410.7
Basic earnings per share:
Continuing operations		$	0.84			$	0.70			$	2.50			$	2.13
Discontinued operations			—				—				(0.01	)			0.10
Net income		$	0.84			$	0.70			$	2.49			$	2.23
Diluted earnings per share:
Continuing operations		$	0.83			$	0.68			$	2.46			$	2.08
Discontinued operations			—				—				(0.02	)			0.10
Net income		$	0.83			$	0.68			$	2.44			$	2.18
Cash dividends per share		$	0.45			$	0.45			$	0.90			$	0.78
Weighted average outstanding shares:
Basic			176.6				182.7				177.5				183.9
Diluted			179.8				186.4				180.9				188.2

See Notes to Condensed Consolidated Financial Statements.

ROCKWELL AUTOMATION, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in millions)

		Nine Months Ended
		June 30,
		2006				2005
Continuing Operations:
Operating Activities:
Net income		$	441.2			$	410.7
Loss (income) from discontinued operations			3.0				(18.8	)
Income from continuing operations			444.2				391.9
Adjustments to arrive at cash provided by operating activities:
Depreciation			97.8				111.2
Amortization of intangible assets			18.5				16.0
Share-based compensation expense			21.9				—
Retirement benefits expense			88.2				66.7
Pension trust contributions			(466.5	)			(62.9	)
Net loss on disposition of property and business			2.5				2.0
Income tax benefit from the exercise of stock options			1.0				59.3
Excess income tax benefit from the exercise of stock options			(45.9	)			—
Changes in assets and liabilities, excluding effects of foreign currency adjustments:
Receivables			(57.5	)			(15.0	)
Inventories			(44.2	)			(17.7	)
Accounts payable			(1.0	)			(30.8	)
Compensation and benefits			(41.9	)			(44.4	)
Income taxes			108.8				7.1
Other assets and liabilities			12.6				(17.9	)
Cash Provided by Operating Activities			138.5				465.5
Investing Activities:
Capital expenditures			(93.7	)			(85.7	)
Acquisition of businesses, net of cash acquired			(39.5	)			—
Proceeds from sale of property and business			171.0				7.5
Other investing activities			(6.4	)			(0.7	)
Cash Provided by (Used for) Investing Activities			31.4				(78.9	)
Financing Activities:
Net issuance of short-term debt			151.0				—
Cash dividends			(120.1	)			(102.0	)
Purchases of treasury stock			(424.4	)			(390.3	)
Proceeds from the exercise of stock options			56.7				87.8
Excess income tax benefit from the exercise of stock options			45.9				—
Other financing activities			(0.5	)			(1.2	)
Cash Used for Financing Activities			(291.4	)			(405.7	)
Effect of exchange rate changes on cash			(3.2	)			(5.8	)
Cash Used for Continuing Operations			(124.7	)			(24.9	)
Discontinued Operations:
Cash Provided by Discontinued Operating Activities			—				19.9
Cash Provided by Discontinued Operations			—				19.9
Decrease in Cash and Cash Equivalents			(124.7	)			(5.0	)
Cash and Cash Equivalents at Beginning of Period			463.6				473.8
Cash and Cash Equivalents at End of Period		$	338.9			$	468.8

See Notes to Condensed Consolidated Financial Statements.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.		Basis of Presentation and Accounting Policies
		In the opinion of management of Rockwell Automation, Inc. (the Company or Rockwell Automation), the unaudited condensed consolidated financial statements contain all adjustments, consisting solely of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2005. The results of operations for the three- and nine-month periods ended June 30, 2006 are not necessarily indicative of the results for the full year. All date references to years and quarters herein refer to our fiscal year and fiscal quarter unless otherwise stated.
		In June 2006, we announced our intention to explore the possible divestiture of our Dodge® mechanical and Reliance Electric™ motors and motor repair services businesses. These businesses are reflected in continuing operations for all periods presented as the criteria for discontinued operations have not been met.
		Cash and Cash Equivalents
		Cash and cash equivalents include time deposits and certificates of deposit with original maturities of three months or less.
		Receivables
		Receivables are stated net of allowances for doubtful accounts of $16.8 million at June 30, 2006 and $18.4 million at September 30, 2005. In addition, receivables are stated net of an allowance for certain customer returns, rebates and incentives of $10.2 million at June 30, 2006 and $9.4 million at September 30, 2005.
		Property
		Property is stated net of accumulated depreciation of $1,406.0 million at June 30, 2006 and $1,405.1 million at September 30, 2005.
		Income Taxes
		At the end of each interim reporting period, we estimate a base effective tax rate, which is the effective tax rate that we expect for the full fiscal year based on our most recent forecast of pretax income, permanent book and tax differences and global tax planning strategies. We use this base rate to provide for income taxes on a year-to-date basis, excluding the effect of significant unusual or extraordinary items or items that are reported net of their related tax effects. We recognize the tax effect of significant unusual or extraordinary items in the period in which they are realizable.
		Earnings Per Share
		We present basic and diluted earnings per share (EPS) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the applicable period. Diluted EPS amounts are based upon the weighted average number of common and common equivalent shares outstanding during the applicable period. The difference between basic and diluted EPS is attributable to share-based compensation awards. We use the treasury stock method to calculate the effect of outstanding shares, which requires us to compute total employee proceeds as the sum of (a) the amount the employee must pay upon exercise of the award, (b) the amount of unearned share-based compensation costs attributed to future services, and (c) the amount of tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of the award. Share-based compensation awards for which total employee proceeds exceed the average market price over the applicable period have an antidilutive effect on EPS, and accordingly, are excluded from the calculation of diluted EPS. For the three and nine months ended June 30, 2006, share-based compensation awards of 75,600 and 877,883 shares, respectively, were excluded from the diluted EPS calculation because they were antidilutive. For the three and nine months ended June 30, 2005, share-based compensation awards of 18,000 and 14,767 shares, respectively, were excluded from the diluted EPS calculation because they were antidilutive.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.		Basis of Presentation and Accounting Policies — (Continued)
		The following table reconciles basic weighted average outstanding shares to diluted weighted average outstanding shares (in millions, except per share amounts):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Net income		$	149.0			$	127.3			$	441.2			$	410.7
Weighted average outstanding shares
Basic weighted average outstanding shares			176.6				182.7				177.5				183.9
Effect of dilutive securities
Stock options			3.1				3.7				3.3				4.3
Restricted stock			0.1				—				0.1				—
Diluted weighted average outstanding shares			179.8				186.4				180.9				188.2
Earnings per share:
Basic		$	0.84			$	0.70			$	2.49			$	2.23
Diluted		$	0.83			$	0.68			$	2.44			$	2.18

		Recent Accounting Pronouncements
		In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 will be effective for us beginning in fiscal 2007. We are evaluating the interpretation to determine the effect on our financial statements and related disclosures.
		In March 2005, the FASB issued Interpretation No. 47 (FIN 47) to clarify the guidance included in Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations. FIN 47 requires companies to recognize a liability for the fair value of a legal obligation to perform asset retirement activities that are conditioned on a future event if the amount can be reasonably estimated. If amounts cannot be reasonably estimated, the interpretation requires certain disclosures about the unrecognized asset retirement obligations. We must adopt the interpretation in the fourth quarter of 2006. We are evaluating the interpretation to determine the effect on our financial statements and related disclosures.
2.		Share-Based Compensation
		Effective October 1, 2005, we adopted SFAS 123(R), Share-Based Payment (SFAS 123(R)), using the modified prospective application transition method. Before we adopted SFAS 123(R), we accounted for share-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Other than for restricted stock, no share-based employee compensation cost was reflected in net income before October 1, 2005. SFAS 123(R) requires us to report the tax benefit from the tax deduction related to share-based compensation that is in excess of recognized compensation costs (excess tax benefits) as a financing cash flow rather than as an operating cash flow. Before October 1, 2005 we reported the entire tax benefit related to the exercise of stock options as an operating cash flow.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.		Share-Based Compensation — (Continued)
		During the three- and nine-month periods ended June 30, 2006, we recognized approximately $7.5 and $21.9 million, respectively, in share-based compensation expense. The total income tax benefit recognized related to share-based compensation for the three- and nine-month periods ended June 30, 2006 was approximately $2.5 and $7.6 million, respectively. We recognize compensation expense on grants of share-based compensation awards on a straight-line basis over the service period of each award recipient. As of June 30, 2006, total unrecognized compensation cost related to share-based compensation awards was approximately $38.4 million, net of estimated forfeitures, which we expect to recognize over a weighted average period of approximately 1.5 years.
		We are authorized to deliver up to 24 million shares of our common stock upon exercise of stock options, or upon grant or in payment of stock appreciation rights, performance shares, performance units and restricted stock, under our 2000 Long-Term Incentives Plan and up to 0.5 million shares of our common stock upon exercise of stock options or upon grant of shares of our common and restricted stock under our 2003 Directors Stock Plan. Approximately 5.7 million shares under our 2000 Long-Term Incentives Plan and 0.4 million shares under our 2003 Directors Stock Plan were available for future grant or payment at June 30, 2006. We use treasury stock to deliver shares of our common stock under these plans. Our 2000 Long-Term Incentives Plan does not permit share-based compensation awards to be granted after November 30, 2009.
		Stock Options
		We have granted non-qualified and incentive stock options to purchase our common stock under various incentive plans at prices equal to the fair market value of the stock on the grant dates. The exercise price for some options granted under the plans may be paid in cash, shares of common stock or a combination of cash and shares. Stock options expire ten years after the grant date and vest ratably over three years.
		The per share weighted average fair value of stock options granted during the nine-month period ended June 30, 2006 and 2005 was $17.67 and $12.60, respectively. We estimated the fair value of each stock option on the date of grant using the Black-Scholes pricing model and the following assumptions:

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Average risk-free interest rate			4.88	%			3.59	%			4.35	%			3.59	%
Expected dividend yield			1.54	%			1.50	%			1.56	%			1.50	%
Expected volatility			0.32				0.31				0.32				0.31
Expected term (years)			5.3				5.0				5.3				5.0

The average risk-free interest rate is based on the five-year U.S. treasury security rate in effect as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the grant date. We determined expected volatility using a weighted average of daily historical volatility (90 percent) of our stock price over the past four years (the period since our spin-off of Rockwell Collins, Inc.) and implied volatility (10 percent) based upon exchange traded options for our common stock. We determined that a blend of historical volatility and implied volatility better reflects future market conditions and better indicates expected volatility than purely historical volatility. We determined the expected term of the stock options using historical data adjusted for the estimated exercise dates of unexercised options.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.		Share-Based Compensation — (Continued)
		A summary of stock option activity during the nine months ended June 30, 2006 is:

										Wtd. Avg.				Aggregate
						Wtd. Avg.				Remaining				Intrinsic
		Shares				Exercise				Contractual				Value
		(in thousands)				Price				Term (years)				(in millions)
Number of shares under option:
Outstanding at beginning of period			10,702			$	25.12
Granted			1,566				56.87
Exercised			(2,994	)			19.17
Forfeited			(104	)			39.28
Outstanding at end of period			9,170				32.26				7.0			$	364.5
Exercisable at end of period			5,083				21.87				5.7				254.9

The table below presents stock option activity for the nine months ended June 30, 2006 and 2005 (in millions):

		Nine Months Ended
		June 30,
		2006				2005
Total intrinsic value of stock options exercised		$	131.6			$	174.8
Cash received from stock option exercises			56.7				87.8
Income tax benefit from the exercise of stock options			46.9				59.3
Total fair value of stock options vested			19.7				12.3

		Performance Share Awards
		Certain officers and key employees are also eligible to receive shares of our common stock in payment of performance share awards granted to them. During the nine months ended June 30, 2006, 143,100 performance share awards were granted (for which up to 286,200 shares of our common stock could be delivered in payment). Grantees of performance shares will be eligible to receive shares of our common stock depending upon our total shareowner return, assuming reinvestment of all dividends, relative to the performance of the S&P 500 over a three-year period. No performance share awards were outstanding as of October 1, 2005. At June 30, 2006, 142,200 performance shares were outstanding.
		The per share fair value of performance shares granted during the nine months ended June 30, 2006 was $63.24 which we determined using a Monte Carlo simulation and the following assumptions:

Average risk-free interest rate			4.41	%
Expected dividend yield			1.56	%
Expected volatility (Rockwell Automation)			0.32
Expected volatility (average S&P500 firm)			0.36

The average risk-free interest rate is based on the three-year U.S. treasury security rate in effect as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the grant date. We determined expected volatility using a weighted average of daily historical volatility (90 percent) of our stock price over the past four years (the period since our spin-off of Rockwell Collins, Inc.) and implied volatility (10 percent) based upon exchange traded options for our common stock. We determined that a blend of historical volatility and implied volatility better reflects future market conditions and better indicates expected volatility than purely historical volatility. We determined the average S&P 500 expected volatility using daily historical volatility for the period from January 2002 through December 2004.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.		Share-Based Compensation — (Continued)
		Restricted Stock
		We also grant restricted stock awards to certain employees. Restrictions lapse over periods ranging from three to five years. We value restricted stock awards at the closing market value of our common stock on the date of grant.
		A summary of restricted stock activity for the nine months ended June 30, 2006 is:

						Wtd. Avg				Aggregate
		Shares				Share				Intrinsic Value
		(in thousands)				Fair Value				(in millions)
Restricted stock balance at October 1, 2005			119			$	34.67
Granted			94				58.10
Restrictions lapsed			(1	)			64.49
Forfeited			(6	)			40.31
Restricted stock balance at June 30, 2006			206				45.22			$	14.9

		Prior Year Pro Forma Expense
		The following table illustrates the effect on net income and earnings per share as if the fair value-based method provided by SFAS No. 123, Accounting for Stock-Based Compensation, had been applied for all outstanding and unvested awards for periods before we adopted SFAS 123(R) (in millions, expect per share amounts):

		Three Months Ended				Nine Months Ended
		June 30, 2005				June 30, 2005
Net income, as reported		$	127.3			$	410.7
Add: Share-based employee compensation expense included in reported net income, net of related tax effects			0.2				0.4
Deduct: Total share-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects			(3.9	)			(15.1	)
Pro forma net income		$	123.6			$	396.0
Earnings per share:
Basic — as reported		$	0.70			$	2.23
Basic — pro forma		$	0.68			$	2.15
Diluted — as reported		$	0.68			$	2.18
Diluted — pro forma		$	0.66			$	2.10

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3.		Acquisitions and Divestitures
		In May 2006, our Control Systems segment acquired GEPA mbH, a provider of change management software for industrial automation, process control and industrial information technology. In January 2006, our Control Systems segment acquired Caribbean Integration Engineers, Inc. (CIE). CIE offers engineering services in control systems integration, process automation, computer system validation and IT solutions. Our Control Systems segment also acquired Datasweep Inc., a provider of production management software, in December 2005. See Note 5 for goodwill and intangible assets acquired in connection with these acquisitions.
		The results of operations of the acquired businesses have been included in the Condensed Consolidated Statement of Operations since the dates of acquisition. Pro forma financial information and allocation of the purchase price is not presented as the effects of these acquisitions are not material to our results of operations and financial position.
		In March 2006, our Control Systems segment sold the assets of our ElectroCraft Engineered Solutions business. Discontinued operations related to this sale are not presented as the effect of this divestiture was not material to our results of operations and financial position.
4.		Inventories
		Inventories consist of (in millions):

		June 30,				September 30,
		2006				2005
Finished goods		$	204.8			$	189.6
Work in process			158.0				149.3
Raw materials, parts, and supplies			251.4				231.0
Inventories		$	614.2			$	569.9

We report inventories net of the allowance for excess and obsolete inventory of $44.7 million at June 30, 2006 and $45.9 million at September 30, 2005.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5.		Goodwill and Other Intangible Assets
		Changes in the carrying amount of goodwill for the nine months ended June 30, 2006 are (in millions):

		Control Systems				Power Systems				Total
Balance as of September 30, 2005		$	662.4			$	149.5			$	811.9
Acquisition of businesses (Note 3)			18.5				—				18.5
Translation and other			6.8				(2.3	)			4.5
Balance as of June 30, 2006		$	687.7			$	147.2			$	834.9

Other intangible assets consist of (in millions):

		June 30, 2006
		Carrying				Accumulated
		Amount				Amortization				Net
Amortized intangible assets:
Distributor networks		$	120.2			$	88.6			$	31.6
Computer software products			141.7				82.1				59.6
Patents			39.3				37.0				2.3
Other			101.5				80.0				21.5
Total amortized intangible assets			402.7				287.7				115.0
Intangible assets not subject to amortization			212.7				—				212.7
Total		$	615.4			$	287.7			$	327.7

		September 30, 2005
		Carrying				Accumulated
		Amount				Amortization				Net
Amortized intangible assets:
Distributor networks		$	117.7			$	87.1			$	30.6
Computer software products			123.9				69.9				54.0
Patents			39.3				36.3				3.0
Other			84.1				75.5				8.6
Total amortized intangible assets			365.0				268.8				96.2
Intangible assets not subject to amortization			210.8				—				210.8
Total		$	575.8			$	268.8			$	307.0

		During the three months ended June 30, 2006, in connection with the final purchase price allocations of Datasweep, Inc. and CIE (see Note 3), we recorded intangible assets of $19.3 million, of which $9.0 million was assigned to computer software products and $1.9 million to intangible assets not subject to amortization. The remainder is classified as other intangible assets. Other intangible assets also includes the amount assigned from our preliminary purchase price allocation associated with our acquisition of GEPA mbH.
		We have determined that the Allen-Bradley, Reliance, Dodge and CIE trademarks have an indefinite life, and therefore are not subject to amortization.
		Estimated amortization expense is $24.7 million in 2006, $20.0 million in 2007, $17.8 million in 2008, $13.0 million in 2009 and $11.0 million in 2010.
		We performed the annual evaluation of our goodwill and indefinite life intangible assets for impairment as required by SFAS No. 142, Goodwill and Other Intangible Assets, during the second quarter of 2006 and concluded that no impairments existed.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6.

Other Current Liabilities

Other current liabilities consist of (in millions):

		June 30,				September 30,
		2006				2005
Advance payments from customers and deferred revenue		$	105.8			$	78.2
Customer returns, rebates and incentives			113.8				108.2
Accrued interest expense			22.4				10.2
Unrealized losses on foreign exchange contracts			6.8				4.0
Product warranty obligations			37.9				36.3
Dividends payable			39.6				—
Taxes other than income taxes			40.6				42.8
Other			55.6				51.6
Other current liabilities		$	422.5			$	331.3

7.		Product Warranty Obligations
		We record a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience. Most of our products are covered under a warranty period that runs for twelve months from either the date of sale or from installation to an end-user or OEM customer. We also record a liability for specific warranty matters when they become known and reasonably estimable. Our product warranty obligations are included in other current liabilities in the Condensed Consolidated Balance Sheet.
		Changes in the product warranty obligations for the nine months ended June 30, 2006 and 2005 are (in millions):

		Nine Months Ended
		June 30,
		2006				2005
Balance at beginning of period		$	36.3			$	28.9
Warranties recorded at time of sale			38.5				33.4
Adjustments to pre-existing warranties			—				(0.4	)
Payments			(36.9	)			(28.9	)
Balance at end of period		$	37.9			$	33.0

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8.		Debt
		Long-term debt consists of (in millions):

		June 30,				September 30,
		2006				2005
6.15% notes, payable in 2008		$	340.2			$	343.7
6.70% debentures, payable in 2028			250.0				250.0
5.20% debentures, payable in 2098			200.0				200.0
Unamortized discount			(45.1	)			(45.5	)
Subtotal			745.1				748.2
Less current portion			—				—
Long-term debt		$	745.1			$	748.2

		In September 2002, we entered into an interest rate swap contract (the Swap) that effectively converted our $350 million aggregate principal amount of 6.15% notes, payable in 2008, to floating rate debt based on six-month LIBOR. The floating rate was 7.14 percent at June 30, 2006 and 6.23 percent at September 30, 2005. As permitted by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as amended, we have designated the Swap as a fair value hedge. Accordingly, the fair value of the Swap was recorded in other liabilities on the Condensed Consolidated Balance Sheet with a corresponding adjustment to the carrying value of the underlying debt. The fair value of the Swap, based upon quoted market prices for contracts with similar maturities, was a liability of $9.8 million at June 30, 2006 and $6.3 million at September 30, 2005.
		On October 26, 2004, we entered into a five-year $600 million unsecured revolving credit facility. Borrowings under our credit facility bear interest based on short-term money market rates in effect during the period the borrowings are outstanding. The terms of our credit facility contain a covenant under which we would be in default if our debt-to-total capital ratio were to exceed 60 percent. In addition to our $600 million credit facility, short-term unsecured credit facilities of approximately $119 million at June 30, 2006 were available to foreign subsidiaries. There were no significant commitment fees or compensating balance requirements under any of our credit facilities. Borrowing under our credit facilities during the nine months ended June 30, 2006 and 2005 were not significant.
		Our short-term debt obligations primarily relate to commercial paper borrowings. Commercial paper borrowings outstanding were $152.0 million at June 30, 2006. At September 30, 2005, we had no commercial paper borrowings outstanding. At June 30, 2006 the weighted average interest rate and maturity period of the commercial paper outstanding were 5.39 percent and 3 days, respectively. During the nine months ending June 30, 2005, we had no commercial paper borrowings.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9.

Retirement Benefits

The components of net periodic benefit cost are (in millions):

		Pension Benefits
		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Service cost		$	18.8			$	15.2			$	55.9			$	45.7
Interest cost			31.2				29.9				93.1				90.2
Expected return on plan assets			(42.0	)			(33.1	)			(125.4	)			(99.8	)
Amortization:
Prior service cost			(1.1	)			0.4				(3.3	)			1.3
Net transition asset			—				(0.1	)			—				(0.2	)
Net actuarial loss			13.8				3.7				41.3				10.9
Net periodic benefit cost		$	20.7			$	16.0			$	61.6			$	48.1

		Other Postretirement Benefits
		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Service cost		$	2.1			$	1.2			$	6.3			$	3.8
Interest cost			5.1				5.4				15.4				15.7
Amortization:
Prior service cost			(3.3	)			(3.4	)			(9.9	)			(10.0	)
Net actuarial loss			5.0				3.0				14.8				9.1
Net periodic benefit cost		$	8.9			$	6.2			$	26.6			$	18.6

In the first nine months of 2006, we made a voluntary contribution of $450.0 million to our U.S. qualified pension plan trust, which has been recorded as a prepaid pension asset in the Condensed Consolidated Balance Sheet. We also made a voluntary contribution of $50.0 million to our U.S. qualified pension plan trust in the first nine months of 2005. We made both the 2006 and 2005 contributions in the first quarter.

10.		Comprehensive Income
		Comprehensive income consists of (in millions):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Net income		$	149.0			$	127.3			$	441.2			$	410.7
Other comprehensive income:
Currency translation adjustments			23.7				(26.5	)			21.7				0.2
Net unrealized (losses) gains on cash flow hedges			(10.6	)			5.9				(8.6	)			5.8
Other			(2.8	)			0.8				(1.8	)			(0.5	)
Other comprehensive income (loss)			10.3				(19.8	)			11.3				5.5
Comprehensive income		$	159.3			$	107.5			$	452.5			$	416.2

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11.		Related Party Transactions
		We own 50 percent of Rockwell Scientific Company LLC (RSC). This ownership interest is accounted for using the equity method. Our investment in RSC totaled $57.9 million at June 30, 2006 and $58.8 million at September 30, 2005. During the three months ended June 30, 2006, we changed the classification of the investment balance to other current assets from other assets in the Condensed Consolidated Balance Sheet because we expect to sell this investment within the next twelve months. We received a dividend of $2.5 million in February 2006 from RSC, which was recorded as a reduction of our investment.
		We have an agreement with RSC pursuant to which RSC performs research and development services for us. We incurred $0.5 million and $1.5 million in the three- and nine-month periods ended June 30, 2006, and $0.7 million and $2.1 million in the three- and nine-month periods ended June 30, 2005, for research and development services performed by RSC. At June 30, 2006 and September 30, 2005, the amounts due to or from RSC were not significant.
		We share equally with Rockwell Collins, Inc. (Rockwell Collins), which owns 50 percent of RSC, in providing a $6.0 million line of credit to RSC that bears interest at the greater of our or Rockwell Collins’ commercial paper borrowing rate. No borrowings on the line of credit were outstanding at June 30, 2006 or September 30, 2005. In addition, we and Rockwell Collins each guarantee one-half of a lease agreement for one of RSC’s facilities. The total future minimum lease payments under the lease are $4.2 million as of June 30, 2006. The lease agreement has a term that ends in December 2011.
		In March 2006, we sold a portion of our ownership interest in CoLinx, LLC (CoLinx), a company that provides logistics and e-commerce services, resulting in a gain of $0.8 million, and reducing our ownership interest from 25 percent to 20 percent. We account for this ownership interest using the equity method. We paid CoLinx $5.5 million and $15.5 million in the three- and nine-month periods ended June 30, 2006, and $5.0 million and $13.5 million in the three- and nine-month periods ended June 30, 2005, primarily for logistics and e-commerce services. In addition, CoLinx paid us $0.8 million and $3.1 million in the three- and nine-month periods ended June 30, 2006, and $0.7 million and $2.1 million in the three- and nine-month periods ended June 30, 2005 for the use of facilities we own and other services. At June 30, 2006, the amount due to CoLinx for logistics and e-commerce services was $0.6 million. At June 30, 2006, the amount due from CoLinx for the use of facilities and other services was not significant. The amounts due to or from CoLinx at September 30, 2005 were not significant.
12.		Commitments and Contingent Liabilities
		Various lawsuits, claims and proceedings have been or may be instituted or asserted against us relating to the conduct of our business, including those pertaining to product liability, safety and health, intellectual property, employment and contract matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, we believe the disposition of matters that are pending or asserted will not have a material adverse effect on our business or financial condition.
		We (including our subsidiaries) have been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos that was used in certain components of our products many years ago. Currently there are thousands of claimants in lawsuits that name us as defendants, together with hundreds of other companies. The great bulk of the complaints, however, do not identify any of our products or specify which of these claimants, if any, were exposed to asbestos attributable to our products; and past experience has shown that the vast majority of the claimants will never identify any of our products. In addition, when our products appear to be identified, they are frequently from divested businesses, and we are indemnified for most of the costs. For those claimants who do show that they worked with our products, we nevertheless believe we have meritorious defenses, in substantial part due to the integrity of our products, the encapsulated nature of any asbestos-containing components, and the lack of any impairing medical condition on the part of many claimants. We defend those cases vigorously. Historically, we have been dismissed from the vast majority of these claims with no payment to claimants.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

12.		Commitments and Contingent Liabilities — (Continued)
		We have maintained insurance coverage that we believe covers indemnity and defense costs, over and above self-insured retentions, for most of these claims. We initiated litigation in the Milwaukee County Circuit Court on February 12, 2004 to enforce the insurance policies against Nationwide Indemnity Company and Kemper Insurance, the insurance carriers that provided insurance coverage to our former Allen-Bradley subsidiary. As a result, the insurance carriers have paid some past defense and indemnity costs and have agreed to pay the substantial majority of future defense and indemnity costs for Allen-Bradley asbestos claims, subject to policy limits. If either carrier becomes insolvent or the policy limits of either carrier are exhausted, our share of future defense and indemnity costs may increase. However, coverage under excess policies may be available to pay some or all of these costs.
		The uncertainties of asbestos claim litigation and the long term solvency of our insurance carriers make it difficult to predict accurately the ultimate outcome of asbestos claims. That uncertainty is increased by the possibility of adverse rulings or new legislation affecting asbestos claim litigation or the settlement process. Subject to these uncertainties and based on our experience defending asbestos claims, we do not believe these lawsuits will have a material adverse effect on our financial condition.
		In connection with the divestiture of our former aerospace and defense businesses (the A&D Business) to The Boeing Company (Boeing), we agreed to indemnify Boeing for certain matters related to operations of the A&D Business for periods prior to the divestiture. In connection with the spin-offs of our former automotive component systems business, semiconductor systems business and Rockwell Collins avionics and communications business, the spun-off companies have agreed to indemnify us for substantially all contingent liabilities related to the respective businesses, including environmental and intellectual property matters.
		We have, from time to time, divested certain of our businesses. In connection with such divestitures, lawsuits, claims and proceedings may be instituted or asserted against us related to the period that we owned the businesses.
		Rockwell International Corporation, a predecessor of the Company that is now part of The Boeing Company (RIC), operated the Rocky Flats Plant (the Plant), Golden, Colorado, from 1975 through 1989 for the U.S. Department of Energy (DOE). Incident to Boeing’s acquisition of RIC in 1996, we assumed and agreed to indemnify RIC and Boeing for any liability arising out of RIC’s activities at the Plant to the extent such liability is not assumed or indemnified by the government, and RIC and Boeing assigned to us the right to any reimbursements or other proceeds to which they might be entitled under RIC’s Rocky Flats contracts with the DOE.
		In January 1990, a class action was filed in the U.S. District Court in Colorado against RIC and another former operator of the Plant. The action alleges the improper production, handling and disposal of radioactive and other hazardous substances, constituting, among other things, violations of various environmental, health and safety laws and regulations, and misrepresentation and concealment of the facts relating thereto. In February 2006, a jury found the contractor defendants liable for trespass and nuisance, and awarded $176 million in compensatory damages and $200 million in punitive damages against the two defendants collectively. No appealable judgment has been entered on the jury verdict, in part because the court has yet to decide how the damages are to be allocated between the defendants and among the plaintiff class members. Appeals are likely after judgment is entered. Based on a variety of uncertainties surrounding the outcome, we have concluded that liability is neither probable nor reasonably estimable. Effective August 1, 1996, the DOE assumed control of the defense of RIC in the action and has either reimbursed or paid directly the costs of RIC’s defense. We believe that RIC is entitled under applicable law and its contract with the DOE to be indemnified for the verdict and other costs associated with this action, and therefore we do not expect that the action will have a material effect on our operating results or financial condition.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

12.		Commitments and Contingent Liabilities — (Continued)
		In many countries we provide a limited intellectual property indemnity as part of our terms and conditions of sale. We also at times provide limited intellectual property indemnities in other contracts with third parties, such as contracts concerning: the development and manufacture of our products; the divestiture of businesses; and the licensing of intellectual property. Due to the number of agreements containing such provisions, we are unable to estimate the maximum potential future payments. However, we believe that future payments, if any, would not be material to our business or financial condition.
		Lease Commitments
		In November 2005, we completed a sale-leaseback transaction of 24 properties, including the land, buildings and improvements affixed to the properties. The lease terms vary from five to fifteen years depending on the property and are classified as operating leases. The net proceeds on sale were approximately $147.5 million. Three of the sold properties resulted in a loss of $1.8 million that we recognized in the nine months ending June 30, 2006, with the remaining properties resulting in a gain on sale of $36.9 million that will be amortized to rent expense over the term of the respective leases. The net book value of the sold assets have been removed from our balance sheet, except for four properties where we have retained a right to re-acquire a subdivided portion of adjacent vacant land. For these properties, we will remove the assets from our balance sheet upon re-conveyance of the vacant land or termination of our right. The net proceeds related to these four properties of $26.1 million are reported in other non-current liabilities in the Condensed Consolidated Balance Sheet.
		Our minimum future rental commitments under operating leases having noncancelable lease terms in excess of one year aggregated $338.4 million as of June, 2006 and are payable as follows (in millions):

2006 (3 months)		$	16.1
2007			59.7
2008			52.3
2009			40.8
2010			28.1
Beyond 2010			141.4
Total		$	338.4

		Most of our operating leases contain renewal options for varying periods, and certain leases include options to purchase the leased property. Commitments from third parties under sublease agreements having noncancelable lease terms in excess of one year aggregated $10.9 million as of June 30, 2006 and are receivable through 2009 at approximately $3.3 million per year.
13.		Discontinued Operations
		During the nine months ended June 30, 2006, we recorded a $5.0 million ($3.0 million after-tax) accrual for legal contingencies related to our predecessor company’s former operation of the Rocky Flats facility for the U.S. Department of Energy.
		We recorded a net tax benefit of $18.8 million during the nine months ended June 30, 2005 for the resolution of certain prior year tax matters and a state tax refund that we received related to a divested business.
		During the first nine months of 2005, we received $25.8 million in cash related to a state tax refund for prior periods. We recognized the corresponding income in the fourth quarter of 2004 and first quarter of 2005. This amount is included in the Condensed Consolidated Statement of Cash Flows as Cash Provided by Discontinued Operations.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

14.		Income Taxes
		The actual effective tax rate for the third quarter of 2006 is 32.1 percent and includes a $12.8 million benefit from the reversal of valuation allowances related to capital loss carryforwards as it has become more likely than not that we will be able to use these carryforwards. The base tax rate determined as provided under Income Taxes in Note 1 (and which excludes the effect of significant unusual or extraordinary items or items that are reported net of their related tax effects) for the full year is estimated at 37 percent based on our current forecast of pretax income, permanent book and tax differences and global tax planning strategies.
15.		Segment Information
		The following tables reflect the sales and operating results from our reportable segments (in millions):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Sales
Control Systems		$	1,174.8			$	1,043.2			$	3,388.2			$	3,042.7
Power Systems			268.4				233.8				762.8				662.1
Intersegment sales			(14.8	)			(12.3	)			(43.3	)			(36.8	)
Total		$	1,428.4			$	1,264.7			$	4,107.7			$	3,668.0
Segment Operating Earnings
Control Systems		$	216.3			$	188.6			$	644.5			$	565.4
Power Systems			42.4				32.6				121.0				88.1
Total			258.7				221.2				765.5				653.5
Purchase accounting depreciation and amortization			(3.6	)			(2.4	)			(10.6	)			(12.6	)
General corporate – net			(21.2	)			(15.9	)			(68.3	)			(55.2	)
Interest expense			(14.3	)			(11.7	)			(42.3	)			(34.3	)
Income tax provision			(70.6	)			(63.9	)			(200.1	)			(159.5	)
Income from continuing operations		$	149.0			$	127.3			$	444.2			$	391.9

Among other considerations, we evaluate performance and allocate resources based upon segment operating earnings before income taxes, interest expense, costs related to corporate offices, certain nonrecurring corporate initiatives, gains and losses from the disposition of businesses, earnings and losses from equity affiliates that are not considered part of the operations of a particular segment and incremental acquisition related expenses resulting from purchase accounting adjustments such as intangible asset amortization, depreciation, inventory and purchased research and development charges. Depending on the product, intersegment sales are either at a market price or cost plus a mark-up, which does not necessarily represent a market price.

16.		Subsequent Event
		On July 26, 2006, the Company and Rockwell Collins, Inc. entered into a definitive agreement to sell RSC for $167.5 million in cash, of which we will receive 50 percent of the selling price less expenses and certain retained liabilities. As part of the transaction, among other things, we will retain certain licenses for intellectual property owned by RSC. The transaction is subject to customary closing conditions, including regulatory approval, and is expected to close within 90 days. Our investment in RSC at June 30, 2006 is approximately $57.9 million.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareowners of
Rockwell Automation, Inc.
Milwaukee, Wisconsin:

We have reviewed the accompanying condensed consolidated balance sheet of Rockwell Automation, Inc. and subsidiaries (the “Company”) as of June 30, 2006, and the related condensed consolidated statements of operations for the three-month and nine-month periods ended June 30, 2006 and 2005, and cash flows for the nine-month periods ended June 30, 2006 and 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of September 30, 2005, and the related consolidated statements of operations, shareowners’ equity, cash flows and comprehensive income for the year then ended (not presented herein); and in our report dated November 10, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2005 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

As described in Note 2 to the Condensed Consolidated Financial Statements, on October 1, 2005, the Company adopted Statement of Financial Accounting Standard No. 123 (revised 2004), “Share-Based Payment.”

DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin

July 26, 2006

ROCKWELL AUTOMATION, INC.

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

Results of Operations

Forward-Looking Statement

     This Quarterly Report contains statements (including certain projections and business trends) accompanied by such phrases as “believe”, “estimate”, “expect”, “anticipate”, “will”, “intend” and other similar expressions, that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. 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:

	•		economic and political changes in global markets where we compete, such as currency exchange rates, inflation rates, interest rates, recession, local laws, regulations and policies of foreign governments and other external factors we cannot control;
	•		successful development of advanced technologies, demand for and market acceptance of new and existing products;
	•		general global and regional economic, business or industry conditions, including levels of capital spending in industrial markets;
	•		the availability, effectiveness and security of our information technology systems;
	•		competitive product and pricing pressures;
	•		disruption of our operations due to natural disasters, acts of war, strikes, terrorism or other causes;
	•		intellectual property infringement claims by others and the ability to protect our intellectual property;
	•		regulatory and legislative changes related to the reporting and funding of pension and health care obligations;
	•		our ability to successfully address claims by taxing authorities in the various jurisdictions where we do business;
	•		our ability to attract and retain qualified personnel;
	•		the uncertainties of litigation;
	•		disruption of our North American distribution channel;
	•		the availability and price of components and materials; and
	•		other risks and uncertainties, including but not limited to those detailed from time to time in our Securities and Exchange Commission 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. Information about our most significant risk factors is contained in Item 1 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2005. We believe that at June 30, 2006, there has been no material change to this information.

Non-GAAP Measures

     The following discussion includes sales excluding the effect of changes in currency exchange rates and free cash flow, which are non-GAAP measures. See Supplemental Sales Information for a reconciliation of reported sales to sales excluding the effect of changes in currency exchange rates in addition to a discussion of why we believe this non-GAAP measure is 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.

ROCKWELL AUTOMATION, INC.

Overview

     We are a leading global provider of industrial automation power, control and information products and services. We have two operating segments: Control Systems and Power Systems. Control Systems supplies industrial automation products, systems, software and services and includes two main business groups: the Components and Packaged Applications Group (CPAG) and the Automation Control and Information Group (ACIG). In addition, Control Systems’ offerings include services and solutions. Power Systems is a supplier of mechanical power transmission products and industrial motors and drives and consists of two business groups: Dodge mechanical (Mechanical) and Reliance electrical (Electrical).

     Overall demand for our products is driven by:

	•		Investments in manufacturing capacity, including upgrades, modifications, and expansions of existing manufacturing facilities, and the creation of new manufacturing facilities;
	•		Industry factors that include our customers’ new product introductions, trends in the actual and forecasted demand for our customers’ products or services, and the regulatory and competitive environments in which our customers operate;
	•		Levels of global industrial production; and
	•		Regional factors that include local political, social, regulatory and economic circumstances.

     Our results can be effected by the seasonal capital spending patterns of our customers due to their annual capital budgeting processes and their working schedules combined with seasonal changes in the composition of the products and services our customers purchase.

U.S. Industrial Economic Trends

     In the third quarter of 2006, sales in the U.S. accounted for approximately 63 percent of our total sales. The trend of improving conditions experienced in the U.S. manufacturing economy during 2004 and 2005 continued into the third quarter of 2006, as reflected in the various indicators we use to gauge the direction and momentum of our served markets. These indicators include:

	•		Industrial Equipment Spending, which is an economic statistic compiled by the Bureau of Economic Analysis (BEA). This statistic provides insight into spending trends in the broad U.S. industrial economy, which includes our primary customer base. This measure, over the longer term, has proven to have reasonable predictive value and to be a good directional indicator of our growth trend.
	•		Capacity Utilization, which is an indication of plant operating activity published by the Federal Reserve. Historically, there has been a meaningful correlation between Capacity Utilization and the level of capital investment made by our customers in their manufacturing base.
	•		The Purchasing Managers’ Index (PMI), as published by the Institute for Supply Management (ISM), which is an indication of the level of manufacturing activity in the U.S. According to the ISM, a PMI measure above 50 indicates that the manufacturing economy is generally expanding while a measure below 50 indicates that it is generally contracting.

ROCKWELL AUTOMATION, INC.

U. S. Industrial Economic Trends (Continued)

     The table below depicts the continued gradual improvement in U.S. Industrial Equipment Spending and Capacity Utilization, and the sustained strength in the PMI since September 2004.

		Industrial
		Equipment				Capacity
		Spending				Utilization
		(in billions)				(percent)				PMI
Fiscal 2006
June 2006		$170.8					82.4				53.8
March 2006			163.4				81.3				55.2
December 2005			163.9				81.1				55.6
Fiscal 2005
September 2005			157.0				79.1				58.0
June 2005			149.5				80.3				54.0
March 2005			150.1				79.9				55.3
December 2004			143.7				79.7				58.6
Fiscal 2004
September 2004			140.9				78.7				58.0

          Note: Economic indicators are subject to revisions by the issuing organizations.

     During 2006, we have experienced rapid growth in resource and energy based industries, which we expect to moderate over time. Despite the significant economic growth experienced in the total U.S. economy, we have encountered decreasing sales to the domestic automotive industry, which we expect to continue into 2007.

Non-U.S. Regional Trends

     Outside the U.S., demand is principally driven by the strength of the industrial economy in each region and by our customers’ ability and propensity to invest in their manufacturing assets. These customers may include both multinational companies with expanding global presence and growing indigenous companies. Recent strength in demand has been driven, in part, by investments in infrastructure in developing economies, in basic materials production capacity in response to higher end-product pricing and in expanding consumer markets. We continue to see strong demand in China, India, and most of Latin America. After two quarters of growth in Europe, we hope that our recent sales growth will continue.

ROCKWELL AUTOMATION, INC.

Revenue By Geographic Region

     The table below presents our sales for the three months ended June 30, 2006 by geographic region and the change in sales from the three months ended June 30, 2005 (in millions, except percentages):

										Changes
										Excluding the
										Effect of Changes
										in Currency Exchange
		Three				Change vs. Three				Rates vs. Three
		Months Ended				Months Ended				Months Ended
		June 30, 2006(1)				June 30, 2005				June 30, 2005 (2)
United States and Canada		$	986.9				13.3	%			11.8	%
Europe, Middle East and Africa			221.6				6.5	%			6.9	%
Asia-Pacific			147.1				16.1	%			16.3	%
Latin America			72.8				24.0	%			19.4	%
Total Sales		$	1,428.4				12.9	%			11.8	%

     The table below presents our sales for the nine months ended June 30, 2006 by geographic region and the change in sales from the nine months ended June 30, 2005 (in millions, except percentages):

										Changes
										Excluding the
										Effect of Changes
										in Currency Exchange
		Nine				Change vs. Nine				Rates vs. Nine
		Months Ended				Months Ended				Months Ended
		June 30, 2006(1)				June 30, 2005				June 30, 2005 (2)
United States and Canada		$	2,863.9				14.4	%			13.5	%
Europe, Middle East and Africa			617.3				(0.7	)%			4.8	%
Asia-Pacific			414.4				10.7	%			11.1	%
Latin America			212.1				26.2	%			18.4	%
Total Sales		$	4,107.7				12.0	%			12.0	%