Rockwell Automation (ROK) 10-Q 2007 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2006     Commission file number 1-12383

Rockwell Automation, Inc.

(Exact name of registrant as specified in its charter)

Delaware	25-1797617
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1201 South Second Street,	53204
Milwaukee, Wisconsin	(Zip Code)
(Address of principal executive offices)

(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. Yesþ Noo

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 Filerþ Accelerated Filero Non-accelerated Filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Noþ

165,667,694 shares of registrant’s Common Stock, $1.00 par value, were outstanding on December 31, 2006.

ROCKWELL AUTOMATION, INC.

INDEX

			Page No.
PART I.	FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements:
		Condensed Consolidated Balance Sheet-- December 31, 2006 and September 30, 2006		2
		Condensed Consolidated Statement of Operations-- Three Months Ended December 31, 2006 and 2005		3
		Condensed Consolidated Statement of Cash Flows-- Three Months Ended December 31, 2006 and 2005		4
		Notes to Condensed Consolidated Financial Statements		5
		Report of Independent Registered Public Accounting Firm		18
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		19
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		31
	Item 4.	Controls and Procedures		31
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings		31
	Item 1A.	Risk Factors		33
	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)

	December 31,			September 30,
	2006			2006
ASSETS
Current assets:
Cash and cash equivalents	$	433.5		$	408.1
Receivables		788.3			743.6
Inventories		450.9			411.5
Deferred income taxes		372.8			160.4
Other current assets		117.2			113.0
Assets available for sale (Note 13)		341.3			351.4
Total current assets		2,504.0			2,188.0
Property, net		468.1			468.5
Goodwill		699.7			693.8
Other intangible assets, net		125.1			126.1
Prepaid pension		599.0			596.6
Other assets		112.5			110.2
Assets available for sale (Note 13)		553.1			552.2
TOTAL	$	5,061.5		$	4,735.4
LIABILITIES AND SHAREOWNERS’ EQUITY
Current liabilities:
Short-term debt	$	533.2		$	219.0
Accounts payable		376.6			395.7
Compensation and benefits		131.5			167.7
Income taxes payable		106.1			51.0
Other current liabilities		373.2			348.4
Liabilities associated with assets available for sale (Note 13)		103.5			111.5
Total current liabilities		1,624.1			1,293.3
Long-term debt		749.5			748.2
Retirement benefits		323.5			322.6
Deferred income taxes		82.3			75.5
Other liabilities		232.5			236.1
Liabilities associated with assets available for sale (Note 13)		61.3			141.5
Commitments and contingent liabilities (Note 12)
Shareowners’ equity:
Common stock (shares issued: 216.4)		216.4			216.4
Additional paid-in capital		1,203.4			1,193.6
Retained earnings		3,226.9			2,856.2
Accumulated other comprehensive loss		(58.8	)		(75.3	)
Common stock in treasury, at cost (shares held:
December 31, 2006, 50.7; September 30, 2006, 45.6)		(2,599.6	)		(2,272.7	)
Total shareowners’ equity		1,988.3			1,918.2
TOTAL	$	5,061.5		$	4,735.4

See Notes to Condensed Consolidated Financial Statements.

2

ROCKWELL AUTOMATION, INC.

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

	Three Months Ended
	December 31,
	2006			2005
Sales	$	1,146.3		$	1,069.7
Cost of sales		(648.7	)		(620.4	)
Gross profit		497.6			449.3
Selling, general and administrative expenses		(293.1	)		(264.9	)
Other income		0.8			3.1
Interest expense		(18.4	)		(13.1	)
Income from continuing operations before income taxes		186.9			174.4
Income tax provision		(56.0	)		(50.5	)
Income from continuing operations		130.9			123.9
Income from discontinued operations
Income from discontinued operating activities		34.2			21.8
Income tax benefit on pending divestiture (Note 14)		264.0			—
Income from discontinued operations		298.2			21.8
Net income	$	429.1		$	145.7
Basic earnings per share:
Continuing operations	$	0.78		$	0.70
Discontinued operations		1.77			0.12
Net income	$	2.55		$	0.82
Diluted earnings per share:
Continuing operations	$	0.76		$	0.68
Discontinued operations		1.74			0.12
Net income	$	2.50		$	0.80
Cash dividends per share	$	0.29		$	0.225
Weighted average outstanding shares:
Basic		168.6			178.7
Diluted		171.4			182.3

See Notes to Condensed Consolidated Financial Statements.

3

ROCKWELL AUTOMATION, INC.

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

	Three Months Ended
	December 31,
	2006			2005
Continuing Operations:
Operating Activities:
Net income	$	429.1		$	145.7
Income from discontinued operations		298.2			21.8
Income from continuing operations		130.9			123.9
Adjustments to arrive at cash provided by (used for) operating activities:
Depreciation		23.3			21.7
Amortization of intangible assets		5.2			4.7
Share-based compensation expense		7.0			5.8
Retirement benefits expense		11.2			22.1
Pension trust contributions		(14.0	)		(455.5	)
Net (gain) loss on disposition of property		(0.2	)		1.0
Income tax benefit from the exercise of stock options		0.3			0.3
Excess income tax benefit from the exercise of stock options		(4.7	)		(11.3	)
Changes in assets and liabilities, excluding effects of foreign currency adjustments:
Receivables		(35.7	)		(1.5	)
Inventories		(37.3	)		(17.6	)
Accounts payable		(14.6	)		12.9
Compensation and benefits		(37.6	)		(66.4	)
Income taxes		54.8			132.5
Other assets and liabilities		9.6			5.6
Cash Provided by (Used for) Operating Activities		98.2			(221.8	)
Investing Activities:
Capital expenditures		(29.2	)		(22.7	)
Acquisition of business		—			(25.4	)
Proceeds from sale of property		2.1			89.9
Cash (Used for) Provided by Investing Activities		(27.1	)		41.8
Financing Activities:
Net issuance of short-term debt		314.2			102.0
Cash dividends		(49.2	)		(40.3	)
Purchases of treasury stock		(350.7	)		(201.1	)
Proceeds from the exercise of stock options		11.9			17.4
Excess income tax benefit from the exercise of stock options		4.7			11.3
Other financing activities		(0.2	)		0.1
Cash Used for Financing Activities		(69.3	)		(110.6	)
Effect of exchange rate changes on cash		5.9			(3.7	)
Cash Provided by (Used for) Continuing Operations		7.7			(294.3	)
Discontinued Operations:
Cash Provided by Discontinued Operating Activities		22.5			21.8
Cash (Used for) Provided by Discontinued Investing Activities		(4.0	)		53.1
Cash (Used for) Discontinued Financing Activities		(0.8	)		—
Cash Provided by Discontinued Operations		17.7			74.9
Increase (Decrease) in Cash and Cash Equivalents		25.4			(219.4	)
Cash and Cash Equivalents at Beginning of Period		408.1			459.0
Cash and Cash Equivalents at End of Period	$	433.5		$	239.6

See Notes to Condensed Consolidated Financial Statements.

4

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, 2006. The results of operations for the three-month period ended December 31, 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 divest our Dodge mechanical and Reliance Electric motors and motor repair services businesses. These are the principal businesses of our former Power Systems operating segment. On November 7, 2006, we announced that we have entered into a definitive agreement to sell these businesses to Baldor Electric Company (Baldor) for $1.8 billion, comprised of $1.75 billion in cash and $50 million in Baldor common stock. The transaction is subject to customary closing conditions and is expected to close on or about January 31, 2007. These businesses are reported as a discontinued operation in the Condensed Consolidated Financial Statements for all periods presented.
	In March 2006, we sold the assets of our ElectroCraft Engineered Solutions (ElectroCraft) business. ElectroCraft is reported as a discontinued operation in the Condensed Consolidated Financial Statements for all periods presented.
	Effective October 1, 2006, we realigned our internal management reporting structure. As a result of this realignment, we now report our historical Control Systems operating segment as two new operating segments: Architecture & Software and Control Products & Solutions. The reporting structure changes include realignment of our services and solutions offerings from our former Control Systems operating segment to report through the Control Products & Solutions segment. Additionally, the drives and drives related parts and services business from our former Power Systems operating segment was also realigned to report through Control Products & Solutions. We no longer report our former Power Systems operating segment as a continuing operation as a result of our November announcement that we have agreed to sell this segment’s principal businesses.
	Cash and Cash Equivalents
	Cash and cash equivalents include time deposits and certificates of deposit with original maturities of three months or less at the time of purchase.
	Receivables
	Receivables are stated net of allowances for doubtful accounts of $12.1 million at December 31, 2006 and $11.2 million at September 30, 2006. In addition, receivables are stated net of an allowance for certain customer returns, rebates and incentives of $10.4 million at December 31, 2006 and $8.5 million at September 30, 2006.
	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.

5

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.	Basis of Presentation and Accounting Policies — (Continued)
	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 share-based compensation awards, 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 the total employee proceeds exceed the average market price over the applicable period have an antidilutive effect on EPS, and accordingly, we exclude them from the calculation of diluted EPS. For the three months ended December 31, 2006, share-based compensation awards for 2.1 million shares were excluded from the diluted EPS calculation because they were antidilutive. For the three months ended December 31, 2005, share-based compensation awards for 1.6 million shares were excluded from the diluted EPS calculation because they were antidilutive.
	The following table reconciles basic weighted average outstanding shares to diluted weighted average outstanding shares (in millions):

	Three Months Ended
	December 31,
	2006		2005
Weighted average outstanding shares
Basic weighted average outstanding shares		168.6		178.7
Effect of dilutive securities
Stock options		2.7		3.5
Restricted stock		0.1		0.1
Diluted weighted average outstanding shares		171.4		182.3

Non-Cash Financing Activities

During the quarter ended December 31, 2006, we repurchased 340,000 shares of our common stock for $21.0 million that did not settle until January 2007. In September 2006, we repurchased 359,200 shares of our common stock for $20.6 million that did not settle until October 2006. These outstanding purchases were recorded in accounts payable at December 31, 2006 and September 30, 2006.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106, and 132R(SFAS 158). SFAS 158 requires companies to recognize the funded status of pension and other postretirement benefit plans on sponsoring employers’ balance sheets and to recognize changes in the funded status in the year the changes occur. It also requires the measurement date of plan assets and obligations to occur at the end of the employers’ fiscal year. SFAS 158 is effective for us at the end of fiscal 2007, except for the change in measurement date, which is effective for us in fiscal 2009. Based on the funded status of our pension and postretirement benefit plans as reported in our Annual Report on Form 10-K dated September 30, 2006, we would have recorded approximately a 15 percent decrease in shareowners’ equity had SFAS 158 been effective at that date. It is unlikely that FAS 158 will affect our results of operations, our loan covenant compliance or our other financial arrangements. The ultimate effect on our financial statements depends upon the discount rate at our fiscal 2007 measurement date (June 30, 2007) and actual returns on our pension plan assets during the year.

6

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.	Basis of Presentation and Accounting Policies — (Continued)
	Recent Accounting Pronouncements — (Continued)
	In June 2006, the 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 SFAS 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 2008. 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. We recognized $7.0 million and $5.8 million in share-based compensation expense in income from continuing operations during the three-months ended December 31, 2006 and 2005, respectively.
	Our annual grant of share-based compensation generally takes place during the first quarter of each fiscal year. The number of shares granted to all employees and the weighted average fair value per share during the periods presented was (in thousands except per share amounts):

	Three Months Ended December 31,
	2006				2005
			Wtd. Avg				Wtd. Avg
			Share				Share
	Grants		Fair Value		Grants		Fair Value
Stock Options		1,103	$	20.03		1,511	$	17.49
Performance shares		99		72.24		143		63.24
Restricted stock awards		49		63.11		84		56.71
Total shares granted		1,251		25.87		1,738		23.15

3.

Acquisitions

In December 2005, our Architecture & Software segment acquired Datasweep, Inc., a provider of production management software. The results of operations of this business have been included in our Condensed Consolidated Statement of Operations since the date of acquisition. Pro forma financial information and allocation of the purchase price is not presented as the effects of this acquisition are not material to our results of operations and financial position.

7

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4.	Inventories
	Inventories consist of (in millions):

	December 31,		September 30,
	2006		2006
Finished goods	$	140.5	$	132.6
Work in process		107.4		98.7
Raw materials, parts, and supplies		203.0		180.2
Inventories	$	450.9	$	411.5

We report inventories net of the allowance for excess and obsolete inventory of $34.6 million at December 31, 2006 and $31.4 million at September 30, 2006.

5.	Property
	Property consists of (in millions):

	December 31,			September 30,
	2006			2006
Land	$	5.1		$	5.1
Buildings and improvements		248.6			243.5
Machinery and equipment		1,244.5			1,227.9
Construction in progress		41.1			39.2
Total		1,539.3			1,515.7
Less accumulated depreciation		(1,071.2	)		(1,047.2	)
Property, net	$	468.1		$	468.5

6.	Goodwill and Other Intangible Assets
	Changes in the carrying amount of goodwill for the three months ended December 31, 2006 are (in millions):

			Control
	Architecture &		Products &
	Software		Solutions		Total
Balance as of September 30, 2006	$	328.2	$	365.6	$	693.8
Translation and other		3.5		2.4		5.9
Balance as of December 31, 2006	$	331.7	$	368.0	$	699.7

8

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6.	Goodwill and Other Intangible Assets — (Continued)
	Other intangible assets consist of (in millions):

	December 31, 2006
	Carrying		Accumulated
	Amount		Amortization		Net
Amortized intangible assets:
Computer software products	$	123.0	$	61.5	$	61.5
Other		38.3		20.4		17.9
Total amortized intangible assets		161.3		81.9		79.4
Intangible assets not subject to amortization		45.7		—		45.7
Total	$	207.0	$	81.9	$	125.1

	September 30, 2006
	Carrying		Accumulated
	Amount		Amortization		Net
Amortized intangible assets:
Computer software products		118.9		57.5		61.4
Other		37.8		18.8		19.0
Total amortized intangible assets		156.7		76.3		80.4
Intangible assets not subject to amortization		45.7		—		45.7
Total	$	202.4	$	76.3	$	126.1

	The Allen-Bradley® and Caribbean Integration EngineersTM trademarks have been determined to have an indefinite life, and therefore are not subject to amortization.
	Estimated amortization expense is $24.0 million in 2007, $22.0 million in 2008, $15.8 million in 2009, $7.4 million in 2010 and $6.2 million in 2011.
	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 first quarter of 2007 and concluded that no impairments exist. This evaluation, which we have historically performed in our second fiscal quarter, took place in the first quarter this year due to our change in operating segments. It is our intention to perform this test again in the second fiscal quarter of 2007 and continue to perform this test in the second fiscal quarter of future years.
7.	Other Current Liabilities
	Other current liabilities consist of (in millions):

	December 31,		September 30,
	2006		2006
Advance payments from customers and deferred revenue	$	117.7	$	98.7
Customer returns, rebates and incentives		96.2		102.7
Unrealized losses on foreign exchange contracts		20.1		8.5
Product warranty obligations		38.1		37.1
Taxes other than income taxes		30.0		34.7
Other		71.1		66.7
Other current liabilities	$	373.2	$	348.4

9

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8.	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 probable 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 three months ended December 31, 2006 and 2005 are (in millions):

	Three Months Ended
	December 31,
	2006			2005
Balance at beginning of period	$	37.1		$	33.0
Warranties recorded at time of sale		11.5			8.5
Adjustments to pre-existing warranties		(0.1	)		—
Payments		(10.4	)		(9.0	)
Balance at end of period	$	38.1		$	32.5

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

	December 31,			September 30,
	2006			2006
6.15% notes, payable in 2008	$	344.3		$	343.2
6.70% debentures, payable in 2028		250.0			250.0
5.20% debentures, payable in 2098		200.0			200.0
Unamortized discount		(44.8	)		(45.0	)
Subtotal		749.5			748.2
Less current portion		—			—
Long-term debt	$	749.5		$	748.2

We issued an aggregate of $800 million principal amount of our 6.15% notes, 6.70% debentures and 5.20% debentures in January 1998. The debt offering yielded approximately $750.0 million of proceeds. We issued the 5.20% debentures at a discount, and the 6.15% notes and 6.70% debentures at par.

In September 2002, we entered into an interest rate swap contract (the Swap) that effectively converted our $350.0 million aggregate principal amount of 6.15% notes, payable in 2008, to floating rate debt based on six-month LIBOR. The floating rate was 8.02 percent at December 31, 2006 and September 30, 2006. 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 in the Condensed Consolidated Balance Sheet with a corresponding adjustment to the carrying value of the underlying debt at December 31, 2006 and September 30, 2006. The fair value of the Swap, based upon quoted market prices for contracts with similar maturities, was a liability of $5.7 million at December 31, 2006 and a liability of $6.8 million at September 30, 2006.

10

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9.	Debt — (Continued)
	On October 26, 2004, we entered into a five-year $600.0 million unsecured revolving credit facility. On September 29, 2006, we entered into a 364-day $250.0 million unsecured revolving credit facility. Both credit facilities remain in effect and we have not drawn down under either of them at December 31, 2006 or September 30, 2006. Borrowings under these credit facilities bear interest based on short-term money market rates in effect during the period the borrowings are outstanding. The terms of these credit facilities contain covenants under which we would be in default if our debt-to-total-capital ratio was to exceed 60 percent. We were in compliance with all covenants under these credit facilities at December 31, 2006 and September 30, 2006. In addition to our $600.0 and $250.0 million credit facilities, short-term unsecured credit facilities of approximately $118.8 million at December 31, 2006 were available to foreign subsidiaries. There were no significant commitment fees or compensating balance requirements under any of our credit facilities. Borrowings under our credit facilities during the three months ended December 31, 2006 and 2005 were not significant.
	Our short-term debt obligations primarily relate to commercial paper borrowings. Commercial paper borrowings outstanding were $530.0 million at December 31, 2006 and $219.0 million at September 30, 2006. At December 31, 2006 the weighted average interest rate and maturity period of the commercial paper outstanding were 5.4 percent and 19 days, respectively. At September 30, 2006 the weighted average interest rate and maturity period of the commercial paper outstanding were 5.4 percent and three days, respectively.
10.	Retirement Benefits
	The components of net periodic benefit cost in income from continuing operations are (in millions):

	Pension Benefits
	Three Months Ended
	December 31,
	2006			2005
Service cost	$	13.3		$	16.2
Interest cost		29.0			26.3
Expected return on plan assets		(36.9	)		(35.1	)
Amortization:
Prior service cost		(1.2	)		(1.0	)
Net actuarial loss		5.9			11.0
Net periodic benefit cost	$	10.1		$	17.4

	Other Postretirement
	Benefits
	Three Months Ended
	December 31,
	2006			2005
Service cost	$	0.8		$	1.4
Interest cost		2.4			3.0
Amortization:
Prior service cost		(4.1	)		(2.6	)
Net actuarial loss		2.0			2.9
Net periodic benefit cost	$	1.1		$	4.7

11

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10.	Retirement Benefits — (Continued)
	Included in income from discontinued operations in the Condensed Consolidated Statement of Operations is pre-tax pension benefit cost of $1.4 million and $3.0 million and pre-tax other postretirement benefit cost of $2.0 million and $4.2 million for the three months ended December 31, 2006 and December 31, 2005, respectively. We will retain the pension liability related to the eligible Power Systems participants in our U.S. Plan and Canada Salary Plan and the other postretirement benefit liability for eligible U.S. non-union and Canada Salary retirees after the date of sale of our Dodge mechanical and Reliance Electric motors and motor repair services businesses, which will result in ongoing net periodic benefit cost for us. Pension liabilities for our Canada Hourly Plan and Mexico Dodge Plan, as well as other postretirement liabilities, including for U.S. union active and retiree participants, will be transferred with these businesses.
	In the first three months of 2007 and 2006, we made a voluntary contribution of $8.0 million and $450.0 million, respectively, to our U.S. qualified pension plan trust, which increased our prepaid pension asset in the Condensed Consolidated Balance Sheet.
11.	Comprehensive Income
	Comprehensive income consists of (in millions):

	Three Months Ended
	December 31,
	2006			2005
Net income	$	429.1		$	145.7
Other comprehensive income:
Currency translation adjustments		21.2			(12.5	)
Net unrealized (losses) gains on cash flow hedges		(4.3	)		6.3
Other		(0.4	)		0.4
Other comprehensive income (loss)		16.5			(5.8	)
Comprehensive income	$	445.6		$	139.9

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 have been 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, in some cases they are from divested businesses, and we are indemnified for most of the costs. However, we have agreed to defend and indemnify against asbestos claims associated with products manufactured or sold by our Dodge mechanical and Reliance Electric motors and motor repair services businesses prior to their divestiture by us, which is expected to occur on or about January 31, 2007. But in all cases, 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.

12

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 liability 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 spinoffs 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.
	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
	Our minimum future rental commitments under operating leases having noncancelable lease terms in excess of one year aggregated $276.0 million as of December 31, 2006 and are payable as follows (in millions):

2007 (9 months)	$	46.9
2008		55.0
2009		40.1
2010		26.1
2011		22.3
Beyond 2011		85.6
Total	$	276.0

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 $9.9 million as of December 31, 2006 and are receivable through 2009 at approximately $3.4 million per year.

13

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

13.	Discontinued Operations
	The following is a summary of the composition of income from discontinued operations included in the Condensed Consolidated Statement of Operations (in millions):

	Three Months Ended
	December 31,
	2006			2005
Power Systems net income from operations	$	34.8		$	22.1
ElectroCraft net loss from operations		—			(0.3	)
Rocky Flats net loss from operations		(0.6	)		—
Income tax benefit on pending divestiture (Note 14)		264.0			—
Income from discontinued operations	$	298.2		$	21.8

Power Systems

Our Dodge mechanical and Reliance Electric motors and motor repair services businesses are reported as a discontinued operation in the Condensed Consolidated Financial Statements for all periods presented. Related assets and liabilities that we have agreed to sell are classified as assets available for sale and liabilities associated with assets available for sale in the Condensed Consolidated Balance Sheet. Refer to Note 1 for additional information on this pending divestiture.

ElectroCraft Engineered Solutions

During the second quarter of 2006, our Architecture & Software segment sold the assets of our ElectroCraft Engineered Solutions business. Accordingly, we reflected the results of this business as a discontinued operation for all periods presented.

Rocky Flats

During the quarter ended December 31, 2006, we incurred $1.0 million ($0.6 million after-tax) of legal fees associated with the former Rockwell International Corporation’s former operation of the Rocky Flats facility for the U.S. Department of Energy.

Summarized Results

Summarized results of discontinued operations are (in millions):

	Three Months Ended
	December 31,
	2006			2005
Sales	$	248.1		$	231.7
Income from discontinued operating activities before income taxes	$	51.3		$	35.4
Income tax expense		(17.1	)		(13.6	)
Income tax benefit on pending divestiture (Note 14)		264.0			—
Income from discontinued operations	$	298.2		$	21.8

14

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

13.	Discontinued Operations — (Continued)
	The assets classified as available for sale and the liabilities classified as associated with assets available for sale in the Condensed Consolidated Balance Sheet are:

	December 31,		September 30,
	2006		2006
Cash and cash equivalents	$	7.7	$	6.6
Receivables		135.2		135.7
Inventories		193.8		188.0
Other current assets		4.6		21.1
Current assets available for sale	$	341.3	$	351.4
Property, net	$	204.4	$	203.1
Goodwill		147.1		147.2
Other intangible assets, net		198.7		199.0
Other assets		2.9		2.9
Non-current assets available for sale	$	553.1	$	552.2
Accounts payable	$	67.2	$	74.8
Compensation and benefits		8.9		7.9
Other current liabilities		27.4		28.8
Current liabilities associated with assets available for sale	$	103.5	$	111.5
Retirement benefits	$	26.5	$	26.5
Deferred income taxes		—		79.8
Other liabilities		34.8		35.2
Non-current liabilities associated with assets available for sale	$	61.3	$	141.5

14.	Income Taxes
	The base tax rate determined as provided underIncome Taxesin Note 1 (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 31 percent based on our current forecast of pretax income, permanent book and tax differences and global tax planning strategies for our continuing operations. The effective tax rate for the first quarter of 2007 was 30 percent, which is lower than the base rate as it includes the resolution of various tax matters during the quarter.
	The tax rate applied to our discontinued operations was approximately 33 percent. This rate reflects that most of the taxable income from discontinued operations is generated in higher tax jurisdictions. The income tax benefit of $264.0 million on pending divestiture represents recognition of a deferred tax asset on the difference between our tax basis in the stock of the Power Systems subsidiaries that are being sold and the book value of their net assets as well as the reversal of the deferred tax liabilities that will not be realized due to the stock sale. In accordance with the FASB Emerging Issues Task Force Issue 93-17,Recognition of Deferred Tax Assets for a Parent Company’s Excess Tax Basis in the Stock of a Subsidiary that Is Accounted for as a Discontinued Operation, the tax benefit is recognized upon classification of the subsidiaries as a discontinued operation.

15

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

15.	Segment Information
	Rockwell Automation is a provider of industrial automation control and information products and services. We determine our operating segments based on the information used by our chief operating decision maker, our Chief Executive Officer, to allocate resources and assess performance. Based upon these criteria, we are organized based upon products and services and have two operating segments: Architecture & Software and Control Products & Solutions.
	Architecture & Software
	The Architecture & Software segment contains all elements of our integrated control and information architecture capable of connecting the customer’s entire manufacturing enterprise.

• Architecture & Software’s Integrated Architecture™ and Logix controllers perform multiple types of control and monitoring applications, including discrete, batch, continuous process, drive system, motion and machine safety across various industrial machinery, plants and processes, and supply real time information to supervisory software and plant-wide information systems.

• Architecture & Software’s products include control platforms, software, I/O devices, communication networks, high performance rotary and linear motion control systems, electronic operator interface devices, condition based monitoring systems, sensors, industrial computers and machine safety components. These products are deployed widely across industries to end users and OEMs to reduce total cost of ownership, maximize asset utilization, improve time to market and reduce manufacturing business risk.

Control Products & Solutions

The Control Products & Solutions segment combines a comprehensive portfolio of intelligent motor control and industrial control products, with the customer support and application knowledge necessary to implement an automation or information solution on the plant floor. This comprehensive portfolio includes:

• Low voltage and medium voltage electro-mechanical and electronic motor starters, motor and circuit protection devices, AC/DC variable frequency drives, push buttons, signaling devices, relays and timers and condition sensors.

• Value-added packaged solutions, including configured drives, motor control centers and custom engineered panels for OEM and end-user applications.

• Automation and information solutions, including custom-engineered hardware and software systems for discrete, process, motion, drives and manufacturing information applications.

• Services designed to help to maximize a customer’s automation investment and provide total life-cycle support, including multi-vendor customer technical support and repair, asset management and training.

16

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

15.	Segment Information — (Continued)
	The following tables reflect the sales and operating results of our reportable segments (in millions):

	Three Months Ended
	December 31,
	2006			2005
Sales
Architecture & Software	$	546.7		$	512.2
Control Products & Solutions		627.9			580.0
Intersegment sales		(28.3	)		(22.5	)
Total	$	1,146.3		$	1,069.7
Segment Operating Earnings
Architecture & Software	$	147.3		$	144.7
Control Products & Solutions		79.7			67.1
Total		227.0			211.8
Purchase accounting depreciation and amortization		(2.7	)		(2.3	)
General corporate – net		(19.0	)		(22.0	)
Interest expense		(18.4	)		(13.1	)
Income tax provision		(56.0	)		(50.5	)
Income from continuing operations	$	130.9		$	123.9

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 that are within a single legal entity are either at cost or cost plus a mark-up, which does not necessarily represent a market price. Sales between legal entities are at an appropriate transfer price. Costs incurred related to shared segment operating activities are allocated to the segments using a methodology consistent with the expected benefit.

Identifiable assets for each of our operating segments and Corporate were (in millions):

	December 31,		September 30,
	2006		2006
Architecture & Software	$	1,439.9	$	1,391.5
Control Products & Solutions		1,065.9		1,030.0
Corporate		1,661.3		1,410.3
Total	$	4,167.1	$	3,831.8

Identifiable assets at Corporate consist principally of cash, net deferred income tax assets, prepaid pension and property. Property shared by the segments and used in operating activities is also reported in Corporate identifiable assets. Corporate identifiable assets include shared net property balances of $170.9 million at December 31, 2006 and $144.4 million at September 30, 2006 for which depreciation expense has been allocated to segment operating earnings based on the expected benefit to be realized by each segment.

17

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 December 31, 2006, and the related condensed consolidated statements of operations and cash flows for the three-month periods ended December 31, 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, 2006, and the related consolidated statements of operations, shareowners’ equity, cash flows and comprehensive income for the year then ended prior to reclassification for the discontinued operations described in Note 13 to the accompanying condensed financial statements (not presented herein); and in our report dated November 9, 2006, we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments described in Note 13 that were applied to reclassify the September 30, 2006 consolidated balance sheet of the Company (not presented herein) for discontinued operations. In our opinion, such adjustments are appropriate and have been properly applied to the previously issued consolidated balance sheet in deriving the accompanying retrospectively adjusted condensed consolidated balance sheet as of September 30, 2006.

As discussed in Note 1 to the Condensed Consolidated Financial Statements, the Company changed its reportable segments in October 2006. 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

January 26, 2007

18

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, policies of foreign governments and other external factors we cannot control, and U.S. and local laws affecting our activities abroad and compliance therewith;

• successful development of advanced technologies and 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 legacy and future 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;

• the successful execution of our Power Systems divestiture strategy and redeployment of cash proceeds;

• 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.

Non-GAAP Measures

     The following discussion includes sales excluding the effect of changes in currency exchange rates, free cash flow and earnings guidance excluding the income tax benefit and gain on sale from the Power Systems divestiture, which are non-GAAP measures. SeeIndustry Viewsfor a reconciliation of earnings guidance excluding the income tax benefit and gain from the sale of Power Systems and a discussion of why we believe this non-GAAP measure is useful to investors. SeeSupplemental Sales Informationfor 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. SeeFinancial Conditionfor 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.

19

ROCKWELL AUTOMATION, INC.

Overview

     We are a leading global provider of industrial automation control and information products and services. 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;

• our customers’ needs for greater productivity, cost reduction, quality, and overall global competitiveness;

• 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;

• regional factors that include local political, social, regulatory and economic circumstances; and

• the seasonal capital spending patterns of our customers due to their annual capital budgeting processes and their working schedules.

     In June 2006, we announced our intention to divest our Dodge mechanical and Reliance Electric motors and motor repair services businesses. These are the principal businesses of our former Power Systems operating segment. On November 7, 2006, we announced that we have entered into a definitive agreement to sell these businesses to Baldor Electric Company (Baldor) for $1.8 billion, comprised of $1.75 billion in cash and $50 million in Baldor common stock. The transaction is subject to customary closing conditions and is expected to close on or about January 31, 2007. We expect to report a gain on the sale of approximately $900 million. These businesses are reported as a discontinued operation in the Condensed Consolidated Financial Statements for all periods presented. Related assets and liabilities expected to be sold through the transaction are classified as assets available for sale and liabilities associated with assets available for sale in the Condensed Consolidated Balance Sheet.

     In March 2006, we sold the assets of our ElectroCraft Engineered Solutions (ElectroCraft) business. Accordingly, we reflect the results of this business as a discontinued operation for all periods presented.

     Effective October 1, 2006, we realigned our internal management reporting structure. As a result of this realignment, we now report our historical Control Systems operating segment as two new operating segments: Architecture & Software and Control Products & Solutions. The reporting structure changes include realignment of our services and solutions offerings from our former Control Systems operating segment to report through the Control Products & Solutions segment. Additionally, the drives and drives related parts and services business from our former Power Systems operating segment was also realigned to report through Control Products & Solutions. We no longer report our former Power Systems operating segment as a continuing operation as a result of our November announcement that we have agreed to sell this segment’s principal businesses. See Note 15 in our Condensed Consolidated Financial Statements for additional information about our operating segments.

20

ROCKWELL AUTOMATION, INC.

U.S. Industrial Economic Trends

     In the first quarter of 2007, sales to U.S. customers accounted for approximately 55 percent of our total sales. The trend of improving conditions in the U.S. manufacturing economy during 2004 and 2005 continued into the first half of 2006 and moderated somewhat in the second half of 2006 and the first quarter of 2007. The various indicators we use to gauge the direction and momentum of our served markets 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), 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.

     The table below depicts the continued gradual improvement in U.S. Industrial Equipment Spending for all periods presented, improvement in Capacity Utilization through June 2006 and its deceleration in the following two quarters, and the sustained strength in the PMI since September 2005. While we still expect moderate growth in 2007, we are planning for a deceleration to a more sustainable level of growth in the U.S. economy in 2007.

	Industrial
	Equipment		Capacity
	Spending		Utilization
	(in billions)		(percent)		PMI
Fiscal 2007
December 2006	(A)			81.8		51.4
Fiscal 2006
September 2006		172.0		82.0		52.9
June 2006		170.1		82.3		53.8
March 2006		163.4		81.4		55.2
December 2005		163.9		81.3		55.6
Fiscal 2005
September 2005		157.0		79.2		58.0

(A) Economic indicator, as published by the U.S. Department of Commerce Bureau of Economic Analysis, not available at time of filing.

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

21

ROCKWELL AUTOMATION, INC.

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, in part, been driven by investment in infrastructure in developing economies, in basic materials production capacity in response to higher end-product pricing and in expanding consumer markets. We expect strong demand in Latin America, Europe and the emerging economies in Asia Pacific during 2007.

Revenue by Geographic Region

     The table below presents our sales for the quarter ended December 31, 2006 by geographic region and the change in sales from the quarter ended December 31, 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
	Dec. 31, 2006(1)		Dec. 31, 2005		Dec. 31, 2005(2)
United States	$	634.7		2%		2%
Canada		76.4		(2)%		(5)%
Europe, Middle East and Africa		229.5		23%		15%
Asia-Pacific		134.7		9%		5%
Latin America		71.0		17%		16%
Total Sales	$	1,146.3		7%		5%

(1)	We attribute sales to the geographic regions based upon country of destination.
(2)	SeeSupplemental Informationfor information on this non-GAAP measure.

Industry Views

     We serve customers in a wide range of industries including consumer products, transportation, basic materials, and oil and gas.

     Our consumer products customers are engaged in the food and beverage; home, health and beauty; and life sciences industries. These customers’ needs include global expansion, incremental capacity from existing facilities, an increasingly flexible manufacturing environment and regulatory compliance. In addition, these customers operate in an environment where product innovation and time to market are critical factors. As a result, consumer products customers’ capital investments are generally less cyclical than those of heavy manufacturing customers.

     In transportation, factors such as plant closings, customer investment in new model introductions and more flexible manufacturing technologies affect our sales. While our global automotive revenue was flat in 2006, our historic North American automotive customers experienced a significant slowdown during the second half of the year. This had a negative impact on sales and operating earnings of our Architecture & Software segment, primarily on sales of our Logix and PLC products. We did not observe any recovery in the first quarter of 2007, nor do we anticipate any recovery for the remainder of 2007.

     Our customers in basic materials industries, including mining, aggregates, metals, forest products and cement, all benefit from higher commodity prices and higher global demand for basic materials, both of which encourage investment in capacity and productivity in these industries.

22

ROCKWELL AUTOMATION, INC.

Industry Views — (Continued)

     As energy prices rise, customers in the oil and gas industry increase their investment in production and transmission capacity. In addition, higher energy prices have historically caused customers across all industries to consider investing in more energy-efficient manufacturing processes and technologies, such as intelligent motor controls.

Outlook for 2007

     The following is a summary of our key objectives for 2007:

• Successfully complete the divestiture of the principal businesses of our former Power Systems operating segment;

• Execute our cost productivity initiatives;

• Continue our globalization efforts with a particular focus on emerging markets; and

• Sustain the growth of our integrated control and information architecture by accelerating the proliferation and adoption rate, enhancing features and functionality, aggressively pursuing growth in an expanded addressable market and enhancing our market access.

     We made progress toward each of these objectives during the first quarter of 2007. Our outlook for 2007 assumes a certain amount of cost productivity during the year, which includes workforce reductions and facility rationalization. These actions are consistent with the planned divestiture of most of our former Power Systems operating segment and our globalization and cost productivity efforts.

     Our outlook for 2007 is based on expected demand and assumes sustained momentum outside of the U.S. and Canada, where we expect to see slower rates of growth than in the previous three years. Our outlook also assumes sustained momentum across most industrial end markets. The actual growth reported in any particular quarter may outperform or lag that trend. This oscillation of performance around a trend is attributed to the inherent variability in our business with short lead times and minimal backlog in our non-project businesses. Extrapolation of growth rates or levels of profitability from any one quarter can lead to incorrect conclusions about future performance. In particular, we typically experience seasonality of our customers’ capital spending in our second fiscal quarter. This can result in lower daily sales volume and less profitable revenue mix when compared sequentially to our first quarter.

     As of the date of filing this report, we are updating our full year 2007 outlook to reflect both our performance in the quarter ended December 31, 2006 and better full year visibility, including additional information regarding our Power Systems divestiture. We now expect to grow revenue in 2007 by 7 to 8 percent, consistent with our long-term growth trend. As of the date hereof, we also expect full year 2007 diluted earnings per share to be in the range of $3.70 to $3.90. This includes an expected effective income tax rate that will average about 30 to 31 percent for the full year, excluding the effect of acquisitions, divestitures or other items separately reported net of their related tax effects. This tax rate assumes continued execution of our globalization strategy. We also plan to generate free cash flow approximately equal to net income. This guidance incorporates the planned divestiture of our Dodge mechanical and Reliance Electric motors and motor repair services businesses, but does not include the income tax benefit recognized in the first quarter of 2007 or the gain we expect to recognize in the second quarter of 2007, in each case with respect to the sale of these businesses.

     Earnings guidance that excludes the income tax benefit and the gain on sale from the Power Systems divestiture is a non-GAAP financial measure. Management believes this provides useful information to investors because it reflects the after tax performance from our businesses’ operating activities during the period owned. Management uses earnings guidance excluding this tax benefit and gain on sale associated with the divestiture to measure total company performance for its businesses’ operating activities during the year. Earnings guidance excluding these items is calculated as: fiscal 2007 projected net income less the income tax benefit and the gain on sale from the Power Systems divestiture (net of tax).

23

ROCKWELL AUTOMATION, INC.

Summary of Results of Operations

2007 First Quarter Compared to 2006 First Quarter

	Three Months Ended
	December 31,
	2006			2005
Sales
Architecture & Software	$	529.0		$	497.3
Control Products & Solutions		617.3			572.4
Total	$	1,146.3		$	1,069.7
Segment Operating Earnings
Architecture & Software	$	147.3		$	144.7
Control Products & Solutions		79.7			67.1
Purchase accounting depreciation and amortization		(2.7	)		(2.3	)
General corporate — net		(19.0	)		(22.0	)
Interest expense		(18.4	)		(13.1	)
Income tax provision		(56.0	)		(50.5	)
Income from continuing operations		130.9			123.9
Discontinued operations		298.2			21.8
Net income	$	429.1		$	145.7
Diluted earnings per share:
Continuing operations	$	0.76		$	0.68
Discontinued operations		1.74			0.12
Net income	$	2.50		$	0.80
Diluted weighted average outstanding shares		171.4			182.3

     See Note 15 in the Condensed Consolidated Financial Statements for the definition of segment operating earnings.

   Sales

     Sales increased 7 percent compared to the first quarter of 2006. The effect of currency translation added 2 percentage points to the growth rate. Sales in the U.S increased 2 percent in the first quarter of 2007 with strength in the West and South, offset by continued weakness in the Great Lakes region. International sales increased 9 percent, excluding the effect of currency translation. We continued to see strong growth in Europe and Latin America; however, we saw weaker results in Asia-Pacific and Canada. Sales into resource-based end markets continued to pace growth, but against difficult year-ago comparisons, and sales into consumer-facing industries grew at about our average growth rate. Sales to the global automotive industry were down slightly due to the continued weakness in our important Detroit customer base.

     We have a significant number of diverse organic growth opportunities and the means to have internally funded them. From this position, we can generate good results even if execution is mixed in any one period. While our growth rate in the first quarter of 2007 indicates that execution was not uniform across the Company, we are steadily improving our ability to increase revenue in emerging economies, in consumer-facing industries and from our integrated control and information platform.

   General Corporate-Net

     General corporate expenses were $19.0 million in the first quarter of 2007 compared to $22.0 million in the first quarter of 2006. The decrease is primarily due to the timing of charitable contributions during the quarter.

   Interest Expense

     Interest expense was $18.4 million in the first quarter of 2007 compared to $13.1 million in the first quarter of 2006. The increase was due to higher commercial paper borrowings outstanding during the quarter and higher interest rates associated with our interest rate swap (see Note 9 in the Condensed Consolidated Financial Statements).

24

ROCKWELL AUTOMATION, INC.

2007 First Quarter Compared to 2006 First Quarter — (Continued)

   Income Taxes

     The effective tax rate for the first quarter of 2007 was 30 percent compared to 29 percent in the first quarter of 2006. The effective tax rate was lower than the U.S. statutory tax rate of 35 percent due to the resolution of various tax matters, lower non-U.S. tax rates, Foreign Sales Corporation and Extra Territorial Income tax benefits and other provision adjustments.

   Income from Continuing Operations

     Income from continuing operations increased 6 percent to $130.9, compared to the first quarter of 2006. The increase is due to higher volume, productivity efforts, price, lower pension expense and lower charitable contributions, partially offset by inflation, higher spending on globalization and market expansion, higher interest expense, a higher effective tax rate and product mix.

   Discontinued Operations

     Total amounts reported for discontinued operations primarily relate to the results of our former Power Systems operating segment. Power Systems sales in the first quarter of 2007 were $248.1 million, an increase of 11 percent compared to sales of $224.2 million in the first quarter of 2006. Operating earnings were $53.2 million, an increase of 45 percent compared to $36.7 million in the first quarter of 2006. Operating earnings in 2007 included the benefit of discontinuing depreciation and amortization of $5.7 million ($3.8 million after tax, or $0.02 per diluted share) during the period held for sale.

     The tax rate applied to our discontinued operations was approximately 33 percent. This rate reflects that most of the taxable income from discontinued operations is generated in higher tax jurisdictions. The income tax benefit of $264.0 million on pending divestiture represents recognition of a deferred tax asset on the difference between our tax basis in the stock of the Power Systems subsidiaries that are being sold and the book value of their net assets as well as the reversal of the deferred tax liabilities that will not be realized due to the stock sale. In accordance with the FASB Emerging Issues Task Force Issue 93-17,Recognition of Deferred Tax Assets for a Parent Company’s Excess Tax Basis in the Stock of a Subsidiary that Is Accounted for as a Discontinued Operation, the tax benefit is recognized upon classification of the subsidiaries as a discontinued operation.

     See also Note 13 in the Condensed Consolidated Financial Statements for additional information on discontinued operations.

Architecture & Software

							Increase
(in millions, except percentages)	2007			2006			(Decrease)
Sales	$	529.0		$	497.3		$	31.7
Segment operating earnings		147.3			144.7			2.6
Segment operating margin		27.8	%		29.1	%	(1.3) pts

   Sales

     Sales by the Architecture & Software operating segment increased 6 percent in the first quarter of 2007 compared to the first quarter of 2006. Our Logix platform business grew by 11 percent during the quarter, led by strength in the U.S. and Europe, but hindered by results in Asia Pacific and Canada.

   Operating Earnings

     Architecture & Software operating earnings increased 2 percent in the first quarter of 2007 compared to the first quarter of 2006. Earnings increased due to higher volume, productivity efforts, price and lower pension expense, nearly offset by inflation, higher spending on globalization and market expansion, and product mix.

25

ROCKWELL AUTOMATION, INC.

2007 First Quarter Compared to 2006 First Quarter — (Continued)

Control Products & Solutions

(in millions, except percentages)	2007			2006			Increase
Sales	$	617.3		$	572.4		$	44.9
Segment operating earnings		79.7			67.1			12.6
Segment operating margin		12.9	%		11.7	%	1.2 pts

Sales

     Sales of our Control Products & Solutions operating segment increased 8 percent in the first quarter of 2007 compared to the first quarter of 2006.

Operating Earnings

     Segment operating earnings of our Control Products & Solutions operating segment increased due to productivity efforts, higher volume, lower pension expense and price, partially offset by inflation and product mix.

26

ROCKWELL AUTOMATION, INC.

Financial Condition

     The following is a summary of our cash flows from operating, investing and financing activities, as reflected in the Condensed Consolidated Statement of Cash Flows (in millions):

	Three Months Ended
	December 31,
	2006			2005
Cash provided by (used for):
Operating activities	$	98.2		$	(221.8	)
Investing activities		(27.1	)		41.8
Financing activities		(69.3	)		(110.6	)
Effect of exchange rate changes on cash		5.9			(3.7	)
Cash provided by (used for) continuing operations	$	7.7		$	(294.3	)
The following table summarizes free cash flow (in millions):
Cash provided by (used for) continuing operating activities	$	98.2		$	(221.8	)
Capital expenditures of continuing operations		(29.2	)		(22.7	)
Excess income tax benefit from the exercise of stock options		4.7			11.3
Cash provided by discontinued operating activities		22.5			21.8
Capital expenditures of discontinued operations		(4.0	)		(4.5	)
Free cash flow	$	92.2		$	(215.9	)

     Our definition of free cash flow, which is a non-GAAP financial measure, takes into consideration capital investments required to maintain the operations of our businesses and execute our strategy. In the first quarter of 2006 we adopted SFAS 123(R) (see Note 2 to the Condensed Consolidated Financial Statements), which requires that we report the excess income tax benefit from the exercise of stock options as a financing cash flow rather than as an operating cash flow. We have added this benefit back to our calculation of free cash flow in order to consistently classify all cash flows arising from income taxes as operating 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 one measure to monitor and evaluate performance. Our definition of free cash flow may be different from definitions used by other companies.

     Free cash flow was a source of $92.2 million for the three months ended December 31, 2006 compared to a use of $215.9 million for the three months ended December 31, 2005. The increase in free cash flow was largely the result of the $450 million voluntary contribution to our U.S. qualified pension plan trust in the first quarter of 2006, compared to $8.0 million of voluntary contributions in the first quarter of 2007.

     Commercial paper is our principal source of short-term financing. Commercial paper borrowings outstanding were $530.0 million at December 31, 2006. The weighted average interest rate on those borrowings was 5.4 percent. At September 30, 2006, commercial paper borrowings outstanding were $219.0, with a weighted average interest rate of 5.4 percent. The increase in our commercial paper outstanding is due to stock repurchases and working capital needs arising during the quarter.

     In October 2005, we contributed $450 million to our U.S. qualified pension trust. We funded the contribution with a combination of cash on hand and $300 million of commercial paper borrowings. In November 2005, we sold 8 owned properties used in continuing operations in a sale-leaseback transaction for net cash proceeds of approximately $89.9 million. We also sold 16 properties used in discontinued operations in the sale-leaseback transaction for net cash proceeds of $57.6 million. We used the cash proceeds to repay commercial paper borrowings.

     We repurchased approximately 5.6 million shares of our common stock in the first quarter of 2007, of which 340,000 shares did not settle until January 2007. The total cost of these shares was $351.1 million, of which $21.0 million was recorded in accounts payable at December 31, 2006. This is compared to purchases of approximately 3.5 million shares at a cost of $201.1 million in the first quarter of 2006. We anticipate continuing to repurchase stock in 2007, the amount of which will depend ultimately on business conditions, stock price and other cash requirements. At December 31, 2006, we had approximately 3.0 million shares remaining for stock repurchases under existing board authorizations. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, for additional information regarding share repurchases.

27

ROCKWELL AUTOMATION, INC.

Financial Condition — (Continued)

     We expect to receive after tax net cash proceeds of approximately $1.5 billion from our Power Systems divestiture. We expect future uses of cash to include repayments of short-term borrowings, repurchases of common stock, dividends to shareowners, capital expenditures and acquisitions of businesses and may include additional contributions to our pension plans. We expect capital expenditures from continuing operations in 2007 to be about $145 million. We expect to fund these future uses of cash with the proceeds from our Power Systems divestiture, existing cash balances, cash generated by operating activities, commercial paper borrowings, a new issue of debt or issuance of other securities.

     In addition to cash generated by operating activities, we have access to existing financing sources, including the public debt markets and unsecured credit facilities with various banks. Our debt-to-total-capital ratio was 39.2 percent at December 31, 2006 and 33.5 percent at September 30, 2006.

     In October 2004, we entered into a five-year $600.0 million unsecured revolving credit facility that replaced our then existing $675.0 million unsecured credit facilities. In September 2006 we entered into a 364-day $250.0 million unsecured revolving credit facility. Both credit facilities remain in effect and we had not drawn down under either of them at December 31, 2006 or September 30, 2006. Borrowings under these credit facilities bear interest based on short-term money market rates in effect during the period the borrowings are outstanding. The terms of these credit facilities contain covenants under which we would be in default if our debt-to-total-capital ratio was to exceed 60 percent. We were in compliance with all covenants under these credit facilities at December 30, 2006 and September 30, 2006. In addition to our $600.0 million and $250.0 million credit facilities, short-term unsecured credit facilities of approximately $118.8 million at December 31, 2006 were available to foreign subsidiaries.

     The following is a summary of our credit ratings as of December 31, 2006:

	Short Term	Long Term
Credit Rating Agency	Rating	Rating	Outlook
Standard & Poor’s	A-1	A	Stable
Moody’s	P-2	A3	Positive
Fitch Ratings	F1	A	Stable

     Among other uses, we can draw our credit facilities as standby liquidity facilities 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 ratings set forth in the table above that have been given to our commercial paper. Under our current policy with respect to these ratings, we expect to limit our other borrowings under the credit facilities, if any, to amounts that would leave enough credit available under the facilities so that we could borrow, if needed, to repay all of our then outstanding commercial paper as it matures.

     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 the unsecured committed credit facilities to provide short-term funding. In such event, the cost of borrowings under the unsecured committed credit facilities could be higher than the cost of commercial paper borrowings.

Environmental

     Information with respect to the effect on us and our manufacturing operations of compliance with environmental protection requirements and resolution of environmental claims is contained in Note 17 of 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, 2006. We believe that at December 31, 2006, there has been no material change to this information.

28

ROCKWELL AUTOMATION, INC.

Supplemental Sales Information

     We translate sales of subsidiaries operating outside of the United States using exchange rates during the respective period. Therefore, reported sales are affected by changes in currency rates, which are outside our control. We believe that sales excluding the effect of changes in currency exchange rates, which is a non-GAAP financial measure, provides useful information to investors because it reflects regional performance from the activities of our businesses without the effect of changes in currency rates. We use sales excluding the effect of changes in currency exchange rates to monitor and evaluate our regional performance. We determine the effect of changes in currency exchange rates by translating the respective period’s sales using the same currency exchange rates as were in effect the preceding year. We attribute sales to the geographic regions based on the country of destination.

     The following is a reconciliation of our reported sales to sales excluding the effect of changes in currency exchange rates (in millions):

	Three Months Ended							Three Months Ended
	December 31, 2006							December 31, 2005
						Sales
						Excluding
			Effect			the Effect
			of Changes			of Changes
			in Currency			in Currency
			Exchange			Exchange
	Sales		Rates			Rates		Sales
United States	$	634.7	$	(0.6	)	$	634.1	$	620.7
Canada		76.4		(2.6	)		73.8		77.7
Europe, Middle East and Africa		229.5		(14.9	)		214.6		186.4
Asia-Pacific		134.7		(4.8	)		129.9		124.0
Latin America		71.0		(0.5	)		70.5		60.9
Total Company Sales	$	1,146.3	$	(23.4	)	$	1,122.9	$	1,069.7

     The following is a reconciliation of our reported sales by operating segment to sales excluding the effect of changes in currency exchange rates (in millions):

	Three Months Ended							Three Months Ended
	December 31, 2006							December 31, 2005
						Sales
						Excluding
			Effect			the Effect
			of Changes			of Changes
			in Currency			in Currency
			Exchange			Exchange
	Sales		Rates			Rates		Sales
Architecture & Software	$	529.0	$	(11.8	)	$	517.2	$	497.3
Control Products & Solutions		617.3		(11.6	)		605.7		572.4
Total Company Sales	$	1,146.3	$	(23.4	)	$	1,122.9	$	1,069.7

29

ROCKWELL AUTOMATION, INC.

Critical Accounting Policies and Estimates

     We have prepared the Condensed 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 Condensed Consolidated Financial Statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies that we believe could have the most significant effect on our reported results or 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, 2006. We believe that at December 31, 2006, there has been no material change to this information, except as follows:

     In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106, and 132R(SFAS 158). SFAS 158 requires companies to recognize the funded status of pension and other postretirement benefit plans on sponsoring employers’ balance sheets and to recognize changes in the funded status in the year the changes occur. It also requires the measurement date of plan assets and obligations to occur at the end of the employers’ fiscal year. SFAS 158 is effective for us at the end of fiscal 2007, except for the change in measurement date, which is effective for us in fiscal 2009. Based on the funded status of our pension and postretirement benefit plans as reported in our Annual Report on Form 10-K dated September 30, 2006, we would have recorded approximately a 15 percent decrease in shareowners’ equity had SFAS 158 been effective at that date. It is unlikely that FAS 158 will affect our results of operations, our loan covenant compliance or our other financial arrangements. The ultimate effect on our financial statements is dependent upon the discount rate at our fiscal 2007 measurement date (June 30, 2007) and actual returns on our pension plan assets during the year.

Recent Accounting Pronouncements

     See Note 1 in the Condensed Consolidated Financial Statements regarding recent accounting pronouncements.

30

ROCKWELL AUTOMATION, INC.

Item 3.            Quantitative and Qualitative Disclosures About Market Risk

Information with respect to our exposure to interest rate risk and foreign currency risk is contained in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2006. We believe that at December 31, 2006, there has been no material change to this information.

Item 4.            Controls and Procedures

Disclosure Controls and Procedures:We, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of the fiscal quarter covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the fiscal quarter covered by this report, our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting:As previously disclosed, we are in the process of developing and implementing common global process standards and an enterprise-wide information technology system. In the first quarter of 2007, we implemented the manufacturing, logistics, and non-manufacturing purchasing processes and functionality of the system to one of our businesses. In doing so, we modified and enhanced our internal controls over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) as a result of and in connection with the implementation of the new system and processes. Additional implementations will occur to most locations of our company over a multi-year period, with additional phases scheduled throughout fiscal 2007-2010.

There have not been any other changes in our internal control over financial reporting during the quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.        OTHER INFORMATION

Item 1.            Legal Proceedings

Information about our legal proceedings is contained in Item 3, Legal Proceedings, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2006. We believe that at December 31, 2006, there has been no material change to this information, except that the sections entitled “Rocky Flats Plant” and “Asbestos” are updated in their entirely as follows:

Rocky Flats Plant. The former Rockwell International Corporation (RIC) operated the Rocky Flats Plant (the Plant), Golden, Colorado, from 1975 through December 1989 for the 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.

31

ROCKWELL AUTOMATION, INC.

Item 1.            Legal Proceedings — (Continued)

On January 30, 1990, a class action was filed in the United States District Court for the District of 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. On October 8, 1993, the court certified separate medical monitoring and property value classes. On February 14, 2006, a jury empanelled to try certain of the class action plaintiffs’ property damage claims 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. The jury also found RIC to be 10% responsible for the trespass and 70% responsible for the nuisance. 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. Effective August 1, 1996, the DOE assumed control of the defense of the contractor defendants, including 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.

On November 13, 1990, RIC was served with another civil action brought against it in the same court by James Stone, claiming to act in the name of the United States, alleging violations of the U.S. False Claims Act in connection with its operation of the Plant (and seeking treble damages and forfeitures). On December 6, 1995, the DOE notified RIC that it would no longer reimburse costs incurred by RIC in defense of the action. On November 19, 1996, the court granted the Department of Justice leave to intervene in the case on the government’s behalf. On April 1, 1999 a jury awarded the plaintiffs approximately $1.4 million in damages. On May 18, 1999, the court entered judgment against RIC for approximately $4.2 million, trebling the jury’s award as required by the False Claims Act, and imposing a civil penalty of $15,000. If the judgment is affirmed on appeal, Mr. Stone will also be entitled to an award of attorneys’ fees but the court refused to award fees until appeals from the judgment have been exhausted. On September 24, 2001, a panel of the 10^th Circuit Court of Appeals affirmed the judgment. On November 2, 2001, RIC filed a petition for rehearing with the Court of Appeals seeking reconsideration of that portion of the decision holding that Mr. Stone is entitled to an award of attorneys’ fees. On March 4, 2002, the Court of Appeals remanded the case to the trial court for the limited purpose of making findings of fact and conclusions of law pertaining to Mr. Stone’s relator status and, the trial court having made findings of fact on the issue, on March 15, 2004, a panel of the Court of Appeals again ruled that Mr. Stone is entitled to an award of attorneys’ fees. On January 4, 2006, the 10^th Circuit Court of Appeals denied en banc review, and on September 25, 2006 the Supreme Court granted our petition for certiorari. The Supreme Court heard argument on our appeal on December 5, 2006. We believe that RIC is entitled under applicable law and its contract with the DOE to be indemnified for all costs and any liability associated with this action, and RIC has filed a claim with the DOE seeking reimbursement that is described more fully below. We believe that an outcome adverse to RIC will not have a material effect on our business or financial condition.

On January 8, 1991, RIC filed suit in the United States Court of Federal Claims against the DOE, seeking recovery of $6.5 million of award fees that it alleges are owed to it under the terms of its contract with the DOE for management and operation of the Plant during the period October 1, 1988 through September 30, 1989. On January 18, 2007, the Court entered judgment in our favor, which will require DOE to pay us $3.1 million, plus interest since 1991. This judgment remains subject to appeal. On May 4, 2005, RIC filed another claim with the DOE, seeking recovery of $11.3 million in unreimbursed costs incurred in defense of the Stone suit. On September 30, 2005, the DOE Contracting Officer denied that claim and demanded repayment of $4 million in previously reimbursed Stone defense costs. On November 10, 2005, RIC appealed both aspects of the Contracting Officer’s decision regarding Stone defense costs to the Energy Board of Contract Appeals. Both parties have filed motions for summary judgment.

In the second quarter of 2006, we recorded a $5.0 million ($3.0 million after-tax) accrual in discontinued operations for legal contingencies related to this matter.

32

ROCKWELL AUTOMATION, INC.

Item 1.            Legal Proceedings — (Continued)

Asbestos.Like thousands of other companies, 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, in some cases they are from divested businesses, and we are indemnified for most of the costs. However, we have agreed to defend and indemnify against asbestos claims associated with products manufactured or sold by our Dodge mechanical and Reliance Electric motors and motor repair services businesses prior to their divestiture by us, which is expected to occur on or about January 31, 2007. But in all cases, 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.

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 liability 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 companies 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.

Item 1A.        Risk Factors

Information about our most significant risk factors is contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2006. We believe that at December 31, 2006 there has been no material change to this information.

33

ROCKWELL AUTOMATION, INC.

Item 2.            Unregistered Sales of Equity Securities and Use of Proceeds.

Share Repurchases

The table below sets forth information with respect to purchases made by or on behalf of us of shares of our common stock during the three months ended December 31, 2006:

					Total Number
					of Shares		Maximum Number
					Purchased as		of Shares
	Total				Part of Publicly		that may yet
	Number		Average		Announced		be Purchased
	of Shares		Price Paid		Plans or		Under the Plans or
Period	Purchased		Per Share(1)		Programs		Programs(2)
October 1 - 31, 2006		692,800	$	62.17		692,800		4,900,000
November 1 - 30, 2006		2,520,000		63.37		2,520,000		2,380,000
December 1 - 31, 2006		2,380,000		62.31		2,380,000		3,000,000
Total		5,592,800		62.77		5,592,800

(1)

Average price paid per share includes brokerage commissions.

(2)

On September 6, 2006, we initiated a 9 million share repurchase program effective through September 30, 2007. This program was approved by our Board of Directors, and replaced our former 9 million share repurchase program in effect since September 8, 2005. At the time we terminated and replaced our former repurchase program, no shares remained subject to repurchase under the former program. On December 6, 2006, the Board of Directors approved the repurchase by us of 3 million shares between December 29, 2006 and December 31, 2007. This is in addition to the 9 million share repurchase program authorized in September 2006. Our repurchase programs allow management to repurchase shares at its discretion. However, during quarter-end “quiet periods,” defined as the period of time from quarter-end until two days following the filing of our quarterly earnings results with the SEC on Form 8-K, shares are repurchased at our broker’s discretion pursuant to a share repurchase plan subject to price and volume parameters.

34

ROCKWELL AUTOMATION, INC.

Item 6.            Exhibits

(a) Exhibits:
Exhibit 10.1*	-	Description of the Company’s performance measures and goals for the Company’s Incentive Compensation Plan and Annual Incentive Compensation Plan for Senior Executives for fiscal year 2007, contained in the Company’s Current Report on Form 8-K dated December 12, 2006, is hereby incorporated by reference.
Exhibit 10.2	-	Purchase Agreement, dated as of November 6, 2006, by and among Rockwell Automation, Inc., Rockwell Automation of Ohio, Inc., Rockwell Automation Canada Control Systems, Grupo Industrias Reliance S.A. de C.V., Rockwell Automation GmbH (formerly known as Rockwell International GmbH) and Baldor Electric Company, contained in the Company’s Current Report on Form 8-K dated November 9, 2006, is hereby incorporated by reference.
Exhibit 12	-	Computation of Ratio of Earnings to Fixed Charges for the Three Months Ended December 31, 2006.
Exhibit 15	-	Letter of Deloitte & Touche LLP regarding Unaudited Financial Information.
Exhibit 31.1	-	Certification of Periodic Report by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Exhibit 31.2	-	Certification of Periodic Report by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Exhibit 32.1	-	Certification of Periodic Report by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2	-	Certification of Periodic Report by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Management contract or compensatory plan or arrangement.

35

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ROCKWELL AUTOMATION, INC.
	(Registrant)
Date:January 26, 2007	By	/s/James V. Gelly
		James V. Gelly
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)
Date:January 26, 2007	By	/s/David M. Dorgan
		David M. Dorgan
		Vice President and Controller
		(Principal Accounting Officer)

36

INDEX TO EXHIBITS

Exhibit No.	Exhibit
12	Computation of Ratio of Earnings to Fixed Charges for the Three Months Ended December 31, 2006.
15	Letter of Deloitte & Touche LLP regarding Unaudited Financial Information.
31.1	Certification of Periodic Report by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2	Certification of Periodic Report by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1	Certification of Periodic Report by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Periodic Report by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.