FORM 10-Q

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, 2005 Commission file number 1-12383

Rockwell Automation, Inc.

(Exact name of registrant as specified in its charter)


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

777 East Wisconsin Avenue,		53202
Suite 1400,		(Zip Code)
Milwaukee, Wisconsin
(Address of principal executive offices)

Registrant’s telephone number, including area code
(414) 212-5299
(Office of the Corporate Secretary)

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

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

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

177,231,053 shares of registrant’s Common Stock, $1.00 par value, were outstanding on December 31, 2005.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ROCKWELL AUTOMATION, INC.

CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(in millions)


	December 31,			September 30,
	2005			2005
ASSETS
Current assets:
Cash and cash equivalents	$	246.7		$	463.6
Receivables		793.7			799.6
Inventories		595.7			569.9
Deferred income taxes		184.2			169.4
Other current assets		144.0			184.0


Total current assets		1,964.3			2,186.5

Property, net		663.5			774.5
Goodwill		815.7			811.9
Other intangible assets, net		325.5			307.0
Deferred income taxes		30.1			66.3
Prepaid pension		634.7			200.5
Other assets		185.4			178.4


TOTAL	$	4,619.2		$	4,525.1

LIABILITIES AND SHAREOWNERS’ EQUITY
Current liabilities:
Short-term debt	$	103.2		$	1.2
Accounts payable		397.1			388.5
Compensation and benefits		146.5			214.4
Income taxes payable		37.5			5.4
Other current liabilities		363.0			331.3


Total current liabilities		1,047.3			940.8

Long-term debt		747.2			748.2
Retirement benefits		981.4			977.5
Other liabilities		260.0			209.5

Commitments and contingent liabilities (Note 11)

Shareowners’ equity:
Common stock (shares issued: 216.4)		216.4			216.4
Additional paid-in capital		1,134.7			1,122.7
Retained earnings		2,574.7			2,493.5
Accumulated other comprehensive loss		(507.3	)		(501.5	)
Unearned restricted stock compensation		—			(1.7	)
Common stock in treasury, at cost (shares held: December 31, 2005, 39.2; September 30, 2005, 36.7)		(1,835.2	)		(1,680.3	)


Total shareowners’ equity		1,583.3			1,649.1


TOTAL	$	4,619.2		$	4,525.1

See Notes to Condensed Consolidated Financial Statements.

ROCKWELL AUTOMATION, INC.

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


	Three Months Ended
	December 31,
	2005			2004
Sales	$	1,301.4		$	1,184.9
Cost of sales		(786.9	)		(735.8	)

Gross profit		514.5			449.1

Selling, general and administrative expenses		(295.5	)		(263.0	)
Other income		4.3			4.6
Interest expense		(13.5	)		(11.1	)


Income from continuing operations before income taxes		209.8			179.6
Income tax provision		(64.1	)		(57.5	)


Income from continuing operations		145.7			122.1

Income from discontinued operations		—			11.3


Net income	$	145.7		$	133.4


Basic earnings per share:

Continuing operations	$	0.82		$	0.66
Discontinued operations		—			0.06

Net income	$	0.82		$	0.72


Diluted earnings per share:

Continuing operations	$	0.80		$	0.65
Discontinued operations		—			0.06

Net income	$	0.80		$	0.71


Cash dividends per share	$	0.225		$	0.165


Weighted average outstanding shares:

Basic		178.7			184.5

Diluted		182.3			189.1

See Notes to Condensed Consolidated Financial Statements.

ROCKWELL AUTOMATION, INC.

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


	Three Months Ended
	December 31,
	2005			2004
Continuing Operations:

Operating Activities:
Net income	$	145.7		$	133.4
Income from discontinued operations		—			11.3

Income from continuing operations		145.7			122.1

Adjustments to arrive at cash (used for) provided by operating activities:
Depreciation		30.4			38.9
Amortization of intangible assets		5.2			7.3
Share-based compensation expense		6.8			—
Retirement benefits expense		29.3			22.3
Pension trust contributions		(455.5	)		(54.3	)
Net loss (gain) on disposition of property		1.2			(0.8	)
Income tax benefit from the exercise of stock options		0.3			25.8
Excess income tax benefit from the exercise of stock options		(11.3	)		—
Changes in assets and liabilities, excluding effects of foreign currency adjustments:
Receivables		2.0			12.1
Inventories		(27.5	)		(23.4	)
Accounts payable		10.1			(35.7	)
Compensation and benefits		(66.6	)		(69.0	)
Income taxes		114.8			39.4
Other assets and liabilities		17.6			17.6

Cash (Used for) Provided by Operating Activities		(197.5	)		102.3


Investing Activities:
Capital expenditures		(27.2	)		(11.9	)
Acquisition of business		(25.4	)		—
Purchase of short-term investments		—			(14.9	)
Proceeds from sale of property		147.5			5.5

Cash Provided by (Used for) Investing Activities		94.9			(21.3	)


Financing Activities:
Net issuance of short-term debt		102.0			—
Cash dividends		(40.3	)		(30.5	)
Purchases of treasury stock		(201.1	)		(116.4	)
Proceeds from the exercise of stock options		17.4			45.4
Excess income tax benefit from the exercise of stock options		11.3			—
Other financing activities		0.1			(1.0	)

Cash Used for Financing Activities		(110.6	)		(102.5	)


Effect of exchange rate changes on cash		(3.7	)		(3.0	)


Cash Used for Continuing Operations		(216.9	)		(24.5	)


Discontinued Operations:
Cash Provided by Discontinued Operating Activities		—			18.4


Cash Provided by Discontinued Operations		—			18.4


Decrease in Cash and Cash Equivalents		(216.9	)		(6.1	)
Cash and Cash Equivalents at Beginning of Period		463.6			473.8

Cash and Cash Equivalents at End of Period	$	246.7		$	467.7

See Notes to Condensed Consolidated Financial Statements.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Basis of Presentation and Accounting Policies

In the opinion of management of Rockwell Automation, Inc. (the Company or Rockwell Automation), the unaudited condensed consolidated financial statements contain all adjustments, consisting solely of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2005. The results of operations for the three-month period ended December 31, 2005 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.

Cash and Cash Equivalents

Cash and cash equivalents include time deposits and certificates of deposit with original maturities of three months or less.

Receivables

Receivables are stated net of allowances for doubtful accounts of $18.1 million at December 31, 2005 and $18.4 million at September 30, 2005. In addition, receivables are stated net of an allowance for certain customer returns, rebates and incentives of $10.0 million at December 31, 2005 and $9.4 million at September 30, 2005.

Properties

Properties are stated net of accumulated depreciation of $1,381.8 million at December 31, 2005 and $1,405.1 million at September 30, 2005.

Income Taxes

At the end of each interim reporting period, we estimate a base effective tax rate, which is the effective tax rate expected to be applicable for the full fiscal year based on our most recent forecast of pretax income, permanent book and tax differences and global tax planning strategies. The base rate determined is used in providing 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. The tax effect of significant unusual or extraordinary items is recognized in the period in which they are realizable.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 shares, which requires us to compute total employee proceeds as the sum of (a) the amount the employee must pay upon exercise of the award, (b) the amount of unearned share-based compensation costs attributed to future services and (c) the amount of tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of the award. Share-based compensation awards for which total employee proceeds exceed the average market price over the applicable period have an antidilutive effect on EPS, and accordingly, are excluded from the calculation of diluted EPS. For the three months ended December 31, 2005, share-based compensation awards for 1,561,650 shares were excluded from the diluted EPS calculation because they were antidilutive. For the three months ended December 31, 2004, share-based compensation awards for 8,300 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, except per share amounts):


	Three Months Ended
	December 31,
	2005		2004

Net income	$	145.7	$	133.4

Weighted average outstanding shares Basic weighted average outstanding shares		178.7		184.5
Effect of dilutive securities Stock options		3.5		4.6
Restricted stock		0.1		—


Diluted weighted average outstanding shares		182.3		189.1


Earnings per share:
Basic	$	0.82	$	0.72

Diluted	$	0.80	$	0.71

Recent Accounting Pronouncements

In March 2005, the Financial Accounting Standards Board (FASB) issued Interpretation No. 47 (FIN 47) to clarify the guidance included in SFAS No. 143, Accounting for Asset Retirement Obligations. FIN 47 requires companies to recognize a liability for the fair value of a legal obligation to perform asset retirement activities that are conditional on a future event if the amount can be reasonably estimated. If amounts cannot be reasonably estimated, the interpretation requires certain disclosures about the unrecognized asset retirement obligations. We must adopt the interpretation in the fourth quarter of 2006. We are evaluating the interpretation to determine the effect on our financial statements and related disclosures.

Share-Based Compensation

Effective October 1, 2005, we adopted Statement of Financial Accounting Standards (SFAS) 123(R), Share-Based Payment (SFAS 123(R)), using the modified prospective application transition method. Before we adopted SFAS 123(R), we accounted for share-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Other than for restricted stock, no share-based employee compensation cost has been reflected in net income prior to October 1, 2005. Before that date, we reported the entire tax benefit related to the exercise of stock options as an operating cash flow.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Share-Based Compensation — (Continued)

SFAS 123(R) requires us to report the tax benefit from the tax deduction that is in excess of recognized compensation costs (excess tax benefits) as a financing cash flow rather than as an operating cash flow.

During the three months ended December 31, 2005, we recognized approximately $6.8 million in share-based compensation expense. The total income tax benefit recognized related to share-based compensation for the three months ended December 31, 2005 was approximately $2.4 million. We recognize compensation expense on grants of share-based compensation awards on a straight-line basis over the service period of each award recipient. As of December 31, 2005, total unrecognized compensation cost related to share-based compensation awards was approximately $51.6 million, net of estimated forfeitures, which we expect to recognize over a weighted average period of approximately 1.9 years.

We are authorized to deliver up to 24 million shares of our common stock upon exercise of non-qualified stock options or incentive stock options, or upon grant or in payment of stock appreciation rights, performance shares, performance units and restricted stock under various incentive plans. Approximately 6.2 million shares were available for future grant or payment under the various plans at December 31, 2005. We use treasury stock to deliver common stock shares under these plans. None of these plans presently permit share-based compensation awards to be granted after November 30, 2009.

Stock Options

We have granted non-qualified and incentive stock options to purchase our common stock under various incentive plans at prices equal to the fair market value of the stock on the grant dates. The exercise price for certain options granted under the plans may be paid in cash, shares of common stock or a combination of cash and shares. Stock options expire ten years from the grant date and vest ratably over three years.

The per share weighted average fair value of stock options granted during the three months ended December 31, 2005 and 2004 was $17.49 and $12.61, respectively. We estimated the fair value of each stock option on the date of grant using the Black-Scholes pricing model and the following assumptions:


	Three Months Ended
	December 31,
	2005	2004


Average risk-free interest rate	4.33%	3.59%
Expected dividend yield	1.56%	1.50%
Expected volatility	0.32	0.31
Expected term (years)	5.3	5.0

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

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Share-Based Compensation — (Continued)

A summary of stock option activity during the three months ended December 31, 2005 is:


						Wtd. Avg	Aggregate
				Wtd. Avg.		Remaining	Intrinsic
	Shares			Exercise		Contractual	Value
	(in thousands)			Price		Term (years)	(in millions)
Number of shares under option:
Outstanding at beginning of period		10,702		$	25.12
Granted		1,511			56.41
Exercised		(920	)		18.88
Forfeited		(17	)		26.79

Outstanding at end of period		11,276			29.78	7.0	$	331.3

Exercisable at end of period		7,043			20.91	5.8		269.4

The table below presents stock option activity for the quarters ended December 31, 2005 and 2004 (in millions):


	Three Months Ended
	December 31,
	2005		2004
Total intrinsic value of stock options exercised	$	34.1	$	79.5
Cash received from stock option exercises		17.4		45.4
Income tax benefit from the exercise of stock options		11.6		25.8
Total fair value of stock options vested		18.9		11.5

Performance Share Awards

Certain officers and key employees are also eligible to receive shares of our common stock in payment of performance share awards granted to them in accordance with the terms therof. During the quarter ended December 31, 2005, 143,100 performance share awards were granted (for which up to 286,200 shares of our common stock could be delivered in payment). Grantees of performance shares will be eligible to receive shares of our common stock depending upon our total shareowner return, assuming reinvestment of all dividends, relative to the performance of the S&P 500 over a three-year period. No performance share awards were outstanding as of October 1, 2005.

The per share fair value of performance shares granted during the quarter ended December 31, 2005 was $63.24 and was determined using a Monte Carlo simulation and the following assumptions:


Average risk-free interest rate	4.41	%
Expected dividend yield	1.56	%
Expected volatility (Rockwell Automation)	0.32
Expected volatility (average S&P 500 firm)	0.36

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

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Share-Based Compensation — (Continued)

Restricted Stock

We also grant restricted stock awards to certain employees. Restrictions lapse over periods ranging from three to five years. We value restricted stock awards at the closing market value of our common stock on the date of grant.

A summary of restricted stock activity for the three months ended December 31, 2005 is as follows:


						Aggregate
	Shares			Wtd. Avg		Intrinsic Value
	(in thousands)			Fair Value		(in millions)
Restricted stock balance at October 1, 2005		119		$	34.67
Granted		84			56.71
Restrictions lapsed		—			—
Forfeited		(3	)		39.10

Restricted stock balance at December 31, 2005		200			43.83	$	11.8

Prior Year Pro forma Expense

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


	Three Months Ended
	December 31, 2004
Net income, as reported	$	133.4
Add: Share-based employee compensation expense included in reported net income, net of related tax effects		0.1

Deduct: Total share-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects		(2.6	)


Pro forma net income	$	130.9


Earnings per share:
Basic — as reported	$	0.72

Basic — pro forma	$	0.71


Diluted — as reported	$	0.71

Diluted — pro forma	$	0.69

Acquisitions

In December 2005, our Control Systems segment acquired Datasweep, Inc., a provider of production management software. The cash purchase price was $25.4 million. We expect to complete the final purchase price allocation by the end of fiscal 2006 when we finalize the valuations of the intangible assets acquired. The results of operations of the business have been included in the 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 effect of this acquisition was not material to our results of operations and financial position.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the three months ended December 31, 2005 are (in millions):


	Control Systems			Power Systems		Total
Balance as of September 30, 2005	$	662.4		$	149.5	$	811.9
Acquisition of business		7.0			—		7.0
Translation and other		(3.2	)		—		(3.2	)


Balance as of December 31, 2005	$	666.2		$	149.5	$	815.7

Other intangible assets consist of (in millions):


	December 31, 2005
	Carrying		Accumulated
	Amount		Amortization		Net
Amortized intangible assets:
Distributor networks	$	117.7	$	87.5	$	30.2
Computer software products		147.8		73.8		74.0
Patents		39.3		36.6		2.7
Other		83.6		75.8		7.8

Total amortized intangible assets		388.4		273.7		114.7
Intangible assets not subject to amortization		210.8		—		210.8

Total	$	599.2	$	273.7	$	325.5


	September 30, 2005
	Carrying		Accumulated
	Amount		Amortization		Net
Amortized intangible assets:
Distributor networks	$	117.7	$	87.1	$	30.6
Computer software products		123.9		69.9		54.0
Patents		39.3		36.3		3.0
Other		84.1		75.5		8.6

Total amortized intangible assets		365.0		268.8		96.2
Intangible assets not subject to amortization		210.8		—		210.8

Total	$	575.8	$	268.8	$	307.0

The increase in computer software products during the quarter ended December 31, 2005 is primarily due to our acquisition of Datasweep, Inc. and our preliminary allocation of purchase price to computer technology intangible assets.

The Allen-Bradley, Reliance and Dodge trademarks have been determined to have an indefinite life, and therefore are not subject to amortization.

Estimated amortization expense is $17.2 million in 2006, $17.1 million in 2007, $16.5 million in 2008, $12.8 million in 2009 and $11.5 million in 2010.

We perform the annual evaluation of our goodwill and indefinite life intangible assets for impairment as required by SFAS No. 142, Goodwill and Other Intangible Assets, during the second quarter of each year.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Product Warranty Obligations

We record a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience. Most of our products are covered under a warranty period that runs for twelve months from either the date of sale or from installation to an end-user or OEM customer. We also record a liability for specific warranty matters when they become known and reasonably estimable. Our product warranty obligations are included in other current liabilities in the Condensed Consolidated Balance Sheet.

Changes in the product warranty obligations for the three months ended December 31, 2005 and 2004 are (in millions):


	Three Months Ended
	December 31,
	2005			2004
Balance at beginning of period	$	36.3		$	28.9
Warranties recorded at time of sale		9.6			7.4
Adjustments to pre-existing warranties		—			—
Payments		(10.2	)		(6.6	)


Balance at end of period	$	35.7		$	29.7

Debt

Long-term debt consists of (in millions):


	December 31,			September 30,
	2005			2005
6.15% notes, payable in 2008	$	342.5		$	343.7
6.70% debentures, payable in 2028		250.0			250.0
5.20% debentures, payable in 2098		200.0			200.0
Unamortized discount		(45.3	)		(45.5	)

Subtotal		747.2			748.2
Less current portion		—			—

Long-term debt	$	747.2		$	748.2

In September 2002, we entered into an interest rate swap contract (the Swap) that effectively converted our $350 million aggregate principal amount of 6.15% notes, payable in 2008, to floating rate debt based on six-month LIBOR. The floating rate was 6.23 percent at December 31, 2005 and September 30, 2005. As permitted by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as amended, we have designated the Swap as a fair value hedge. Accordingly, the fair value of the Swap was recorded in other liabilities on the Condensed Consolidated Balance Sheet with a corresponding adjustment to the carrying value of the underlying debt. The fair value of the Swap, based upon quoted market prices for contracts with similar maturities, was $7.5 million at December 31, 2005 and $6.3 million at September 30, 2005.

On October 26, 2004, we entered into a five-year $600 million unsecured revolving credit facility. Borrowings under our credit facility bear interest based on short-term money market rates in effect during the period the borrowings are outstanding. The terms of our credit facility contain a covenant under which we would be in default if our debt-to-total capital ratio were to exceed 60 percent. In addition to our $600 million credit facility, short-term unsecured credit facilities of approximately $115 million at December 31, 2005 were available to foreign subsidiaries. There were no significant commitment fees or compensating balance requirements under any of our credit facilities. Borrowing under our credit facilities during the three months ended December 31, 2005 were not significant.

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Debt — (Continued)

Our short-term debt obligations primarily relate to commercial paper borrowings. Commercial paper borrowings outstanding were $102 million at December 31, 2005. At September 30, 2005, we had no commercial paper borrowings outstanding. At December 31, 2005 the weighted average interest rate and maturity period of the commercial paper outstanding were 4.28 percent and 3 days, respectively. During the quarter ending December 31, 2004, we had no commercial paper borrowings.

Retirement Benefits

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


	Pension Benefits
	Three Months Ended
	December 31,
	2005			2004
Service cost	$	18.5		$	15.3
Interest cost		30.9			30.3
Expected return on plan assets		(41.7	)		(33.4	)
Amortization:
Prior service cost		(1.1	)		0.4
Net transition asset		—			(0.1	)
Net actuarial loss		13.8			3.6


Net periodic benefit cost	$	20.4		$	16.1


	Other Postretirement
	Benefits
	Three Months Ended
	December 31,
	2005			2004
Service cost	$	2.1		$	1.3
Interest cost		5.2			5.2
Amortization:
Prior service cost		(3.3	)		(3.3	)
Net actuarial loss		4.9			3.0


Net periodic benefit cost	$	8.9		$	6.2

In the first three months of 2006, we made a voluntary contribution of $450 million to our U.S. qualified pension plan trust, which has been recorded as a prepaid pension asset in the Condensed Consolidated Balance Sheet. We also made a voluntary contribution of $50 million to our U.S. qualified pension plan trust in the first quarter of 2005.

Comprehensive Income

Comprehensive income consists of (in millions):


	Three Months Ended
	December 31,
	2005			2004
Net income	$	145.7		$	133.4
Other comprehensive income:
Currency translation adjustments		(12.5	)		46.7
Net unrealized gains (losses) on cash flow hedges		6.3			(4.5	)
Other		0.4			(1.3	)


Other comprehensive (loss) income		(5.8	)		40.9


Comprehensive income	$	139.9		$	174.3

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10.

Related Party Transactions

We own 50 percent of Rockwell Scientific Company LLC (RSC). This ownership interest is accounted for using the equity method. Our investment in RSC of $59.3 million at December 31, 2005 and $58.8 million at September 30, 2005 is included in other assets in the Condensed Consolidated Balance Sheet.

We have an agreement with RSC pursuant to which RSC performs research and development services for us. We incurred $0.5 million in the quarter ended December 31, 2005 and $0.4 million in the quarter ended December 31, 2004 for research and development services performed by RSC. At December 31, 2005 and September 30, 2005, the amounts due to or from RSC were not significant.

We share equally with Rockwell Collins, Inc. (Rockwell Collins), which owns 50 percent of RSC, in providing a $6.0 million line of credit to RSC which bears interest at the greater of our or Rockwell Collins’ commercial paper borrowing rate. There were no borrowings on the line of credit outstanding at December 31, 2005 or September 30, 2005. In addition, we and Rockwell Collins each guarantee one-half of a lease agreement for one of RSC’s facilities. The total future minimum lease payments under the lease are $4.6 million. The lease agreement has a term that ends in December 2011.

We own 25 percent of CoLinx, LLC (CoLinx), a company that provides logistics and e-commerce services. This ownership interest is accounted for using the equity method. We paid CoLinx $5.0 million in the three-month period ended December 31, 2005 and $4.3 million in the three-month period ended December 31, 2004 primarily for logistics services. In addition, CoLinx paid us $0.5 million in the three-month period ended December 31, 2005 and $0.7 million in the three-month period ended December 31, 2004 for the use of facilities we own and other services. The amounts due to or from CoLinx at December 31, 2005 and September 30, 2005 were not significant.

11.

Commitments and Contingent Liabilities

Various lawsuits, claims and proceedings have been or may be instituted or asserted against us relating to the conduct of our business, including those pertaining to product liability, safety and health, intellectual property, employment and contract matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, we believe the disposition of matters that are pending or asserted will not have a material adverse effect on our business or financial condition.

We (including our subsidiaries) have been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos that was used in certain components of our products many years ago. Currently there are thousands of claimants in lawsuits that name us as defendants, together with hundreds of other companies. The great bulk of the complaints, however, do not identify any of our products or specify which of these claimants, if any, were exposed to asbestos attributable to our products; and past experience has shown that the vast majority of the claimants will never identify any of our products. In addition, when our products appear to be identified, they are frequently from divested businesses, and we are indemnified for most of the costs. For those claimants who do show that they worked with our products, we nevertheless believe we have meritorious defenses, in substantial part due to the integrity of our products, the encapsulated nature of any asbestos-containing components, and the lack of any impairing medical condition on the part of many claimants. We defend those cases vigorously. Historically, we have been dismissed from the vast majority of these claims with no payment to claimants.

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

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11.

Commitments and Contingent Liabilities — (Continued)

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

In November 2005, we completed a sale-leaseback transaction of 24 properties, including the land, buildings and improvements affixed to the properties. The lease terms vary from five to fifteen years depending on the property and are classified as operating leases. The net proceeds on sale were approximately $147.5 million. Three of the sold properties resulted in a loss of $1.8 million that we recognized in the quarter ending December 31, 2005, with the remaining properties resulting in a gain on sale of $36.9 million that will be amortized to rent expense over the term of the respective leases. The net book value of the sold assets have been removed from our balance sheet, except for four properties where we have retained a right to re-acquire a subdivided portion of adjacent vacant land. For these properties, we will remove the assets from our balance sheet upon re-conveyance of the vacant land or termination of our right. The net proceeds related to these four properties of $26.1 million are reported in other non-current liabilities in the Condensed Consolidated Balance Sheet.

Our minimum future rental commitments under operating leases having noncancelable lease terms in excess of one year aggregated $357.6 million as of December 31, 2005 and are payable as follows (in millions):


2006 (9 months)	$	47.8
2007		58.3
2008		50.4
2009		39.1
2010		27.1
Beyond 2010		134.9

Total	$	357.6

ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11.

Commitments and Contingent Liabilities — (Continued)

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 $12.7 million as of December 31, 2005 and are receivable through 2011 at approximately $2.5 million per year.

12.

Discontinued Operations

In the first quarter of 2005, we recorded a $11.3 million net tax benefit related to a prior year state tax refund of a divested business.

During the first quarter of 2005, we received $18.4 million related to a state tax refund for the period 1989 to 1991. We recognized the corresponding income in the fourth quarter of 2004. This amount is displayed in the Condensed Consolidated Statement of Cash Flows as Cash Provided by Discontinued Operations.

13.

Income Taxes

The actual effective tax rate for the first quarter of 2006 of 31 percent included the beneficial resolution of a foreign tax matter. For the full year 2006, we expect an actual effective tax rate of approximately 34 percent. The base tax rate determined as provided under Income Taxes in Note 1 (and which excludes the effect of significant unusual or extraordinary items or items that are reported net of their related tax effects) for the full year is estimated at 35 percent based on our current forecast of pretax income, permanent book and tax differences and global tax planning strategies.

14.

Segment Information

The following tables reflect the sales and operating results from our reportable segments (in millions):


	Three Months Ended
	December 31,
	2005			2004
Sales
Control Systems	$	1,080.4		$	993.2
Power Systems		234.1			203.8
Intersegment sales		(13.1	)		(12.1	)

Total	$	1,301.4		$	1,184.9


Segment Operating Earnings
Control Systems	$	211.4		$	190.0
Power Systems		37.0			23.6

Total		248.4			213.6

Purchase accounting depreciation and amortization		(2.8	)		(6.9	)
General corporate — net		(22.3	)		(16.0	)
Interest expense		(13.5	)		(11.1	)
Income tax provision		(64.1	)		(57.5	)


Income from continuing operations	$	145.7		$	122.1

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, 2005, and the related condensed consolidated statements of operations and cash flows for the three-month periods ended December 31, 2005 and 2004. These interim financial statements are the responsibility of the Company’s management.

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

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

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

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

DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin
January 27, 2006

ROCKWELL AUTOMATION, INC.

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

Results of Operations

Forward-Looking Statement

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

	•		economic and political changes in global markets where we compete, such as currency exchange rates, inflation rates, interest rates, recession, local laws, regulations and policies of foreign governments and other external factors we cannot control;

	•		successful development of advanced technologies, demand for and market acceptance of new and existing products;

	•		general global and regional economic, business or industry conditions, including levels of capital spending in industrial markets;

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

	•		competitive product and pricing pressures;

	•		disruption of our operations due to natural disasters, acts of war, strikes, terrorism or other causes;

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

	•		regulatory and legislative changes related to the reporting and funding of pension and health care obligations;

	•		our ability to successfully address claims by taxing authorities in the various jurisdictions where we do business;

	•		our ability to attract and retain qualified personnel;

	•		the uncertainties of litigation;

	•		disruption of our North American distribution channel;

	•		the availability and price of components and materials; and

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

These forward-looking statements reflect our beliefs as of the date of filing this report. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Information about our most significant risk factors is contained in Item 1 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2005. We believe that at December 31, 2005, there has been no material change to this information.

Non-GAAP Measures

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

Overview

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

ROCKWELL AUTOMATION, INC.

Overall demand for our products is driven by:

	•		Investments in capacity, including upgrades, modifications, and expansions of existing manufacturing facilities, and the creation of new manufacturing facilities;

	•		Industry factors that include our customers’ new product introductions, trends in the actual and forecasted demand for our customers’ products or services, and the regulatory and competitive environments in which our customers operate;

	•		Levels of global industrial production; and

	•		Regional factors that include local political, social, regulatory and economic circumstances.

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

U.S. Industrial Economic Trends

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

	•		Industrial Equipment Spending, which is an economic statistic compiled by the Bureau of Economic Analysis (BEA). This statistic provides insight into spending trends in the broad U.S. industrial economy, which includes our primary customer base. This measure, over the longer term, has proven to have reasonable predictive value and to be a good directional indicator of our growth trend.

	•		Capacity Utilization, which is an indication of plant operating activity published by the Federal Reserve. Historically, there has been a meaningful correlation between Capacity Utilization and the level of capital investment made by our customers in their manufacturing base.

	•		The Purchasing Managers’ Index (PMI), as published by the Institute for Supply Management (ISM), which is an indication of the level of manufacturing activity in the U.S. According to the ISM, a PMI measure above 50 indicates that the manufacturing economy is generally expanding while a measure below 50 indicates that it is generally contracting.

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


	Industrial
	Equipment		Capacity
	Spending		Utilization
	(in billions)		(percent)		PMI

Fiscal 2006
December 2005	$	166.4		80.7		54.2

Fiscal 2005
September 2005		161.3		79.1		59.4
June 2005		154.9		80.3		53.8
March 2005		161.3		79.9		55.2
December 2004		152.6		79.7		57.3

Fiscal 2004
September 2004		149.3		78.7		59.1

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

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 been driven, in part, by investment in infrastructure in developing economies, in basic materials production capacity in response to higher-end product pricing and in expanding consumer markets.

Revenue By Geographic Region

The table below presents our sales for the quarter ended December 31, 2005 by geographic region and the change in sales from the quarter ended December 31, 2004 (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, 2005(1)		Dec. 31, 2004		Dec. 31, 2004(2)
United States	$	818.6		13%		13%
Canada		88.5		18%		14%
Europe, Middle East and Africa		191.2		(8%)		—
Asia-Pacific		132.4		7%		7%
Latin America		70.7		24%		14%


Total Sales	$	1,301.4		10%		11%

	(1)		We attribute sales to the geographic regions based upon country of destination.

	(2)		See Supplemental Information for 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, brewing, consumer packaged goods and life sciences industries. These customers’ needs include incremental capacity in existing facilities, a 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 heavy manufacturing customers.

In transportation, factors such as plant closings and customer investment in new model introductions and more flexible manufacturing technologies affect our sales.

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

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 control.

ROCKWELL AUTOMATION, INC.

Industry Views — (Continued)

Outlook for 2006

The following is a summary of our objectives for 2006:

	•		Sustain the growth of our Logix platform by accelerating the proliferation and adoption of our integrated architecture features and functionality, and by aggressively pursuing growth in an expanded addressable market;

	•		Continue our geographic expansion and growth, particularly in emerging economies;

	•		Demonstrate and expand our industry specific domain expertise and solutions capability; and

	•		Drive continued cost productivity.

We made progress toward each of these objectives during the first quarter of 2006. Our outlook for 2006 assumes that the economic environment will remain favorable and that a continuing industrial recovery will result in growth during 2006.

As of the date of filing this report, we are increasing our full year 2006 outlook to reflect both our performance in the quarter ended December 31, 2005, and better full year visibility. We now expect to grow revenue in 2006 by approximately 9 percent, excluding the effect of changes in currency exchange rates. As of the date of filing this report, we expect full year 2006 diluted earnings per share from continuing operations to be in the range of $3.10 to $3.20, and plan to generate free cash flow of approximately $300 million, which includes a $450 million voluntary contribution to our U.S. qualified pension trust in October 2005.

Our full year guidance considers the predominant demand trend and sustained momentum across industrial end markets and the rising backlog in our project-oriented businesses. The actual growth reported in any particular quarter may out perform or lag that trend. This oscillation of performance around a trend is attributed to the inherent variability in our businesses with short lead times and minimal backlog of our non-project businesses. Extrapolation of growth rates or levels of profitability from one quarter can lead to incorrect conclusions about future performance. In particular, we typically experience seasonality of our customer’s 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.

Summary of Results of Operations

Our sales and operating earnings by segment, excluding intersegment sales, are summarized as follows (in millions):


	Three Months Ended
	December 31,
	2005		2004
Sales
Control Systems	$	1,072.1	$	985.5
Power Systems		229.3		199.4

Total	$	1,301.4	$	1,184.9


Segment Operating Earnings
Control Systems	$	211.4	$	190.0
Power Systems		37.0		23.6

Total	$	248.4	$	213.6

See Note 14 in the Condensed Consolidated Financial Statements for the definition of segment operating earnings and reconciliation of segment operating earnings to income from continuing operations.

ROCKWELL AUTOMATION, INC.

2006 First Quarter Compared to 2005 First Quarter


(in millions, except per share amounts)	2006		2005		Increase


Sales	$	1,301.4	$	1,184.9	$	116.5

Income from continuing operations		145.7		122.1		23.6

Diluted earnings per share from continuing operations		0.80		0.65		0.15

Sales increased 10 percent compared to the first quarter of 2005 driven by growth at both Control Systems and Power Systems. Excluding the effect of changes in currency exchange rates, sales increased by 11 percent. Sales growth was strong in the Americas and several Asia-Pacific countries, including China, while Europe remained flat. Sales grew across all of our served industries except transportation.

Income from continuing operations increased 19 percent due to volume, broad-based productivity improvements and price increases.

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), no share-based employee compensation cost was reflected in net income other than for restricted stock. During the quarter ended December 31, 2005, we recognized approximately $6.8 million in share-based compensation expense in accordance with SFAS 123(R) related to stock option, performance share and restricted stock grants compared to $0.1 million of restricted stock expense recognized in the first quarter of 2005. Share-based compensation costs are included within selling, general and administrative expenses.

Control Systems


(in millions, except percentages)	2006			2005			Increase


Sales	$	1,072.1		$	985.5		$	86.6

Segment operating earnings		211.4			190.0			21.4

Segment operating margin		19.7	%		19.3	%	0.4pts

Control Systems sales increased 9 percent compared to the first quarter of 2005. Excluding the effect of changes in currency exchange rates, sales increased by 10 percent. Non-U.S. sales increased 5 percent, excluding the effect of changes in currency exchange rates, with continued strong growth in Latin America and several Asia-Pacific countries, including China. Sales to U.S. customers increased 14 percent in the first quarter of 2006 compared to the first quarter of 2005.

Control Systems growth spanned across nearly all businesses and industries. The steadily improving industrial economy, particularly in North America, and the continued strength in our Logix automation platform and our leading power control and conversion product offerings, contributed to the increase in sales. Logix grew by more than 25 percent during the first quarter of 2006 compared to the first quarter of 2005.

Segment operating earnings and margins during the first quarter of 2006 benefited from volume, productivity efforts and price increases, which were partially offset by inflation, a $9.2 million facilities charge in Europe and share-based compensation expense of approximately $3.6 million.

Power Systems


(in millions, except percentages)	2006			2005			Increase


Sales	$	229.3		$	199.4		$	29.9

Segment operating earnings		37.0			23.6			13.4

Segment operating margin		16.1	%		11.8	%	4.3 pts

ROCKWELL AUTOMATION, INC.

2006 First Quarter Compared to 2005 First Quarter — (Continued)

Power Systems — (Continued)

Power Systems sales increased 15 percent compared to the first quarter of 2005 due to significant growth in both our Mechanical and Electrical businesses. Strong sales volume continued in the first quarter of 2006 as nearly all major product lines experienced an increase in orders versus the prior year.

Segment operating earnings and margins increased during the first quarter of 2006 due to higher volume, price increases and productivity improvements, the combination of which more than offset higher material costs and share-based compensation expense.

General Corporate-Net

General corporate expenses were $22.3 million in the first quarter of 2006 compared to $16.0 million in the first quarter of 2005. The increase is primarily due to a $5.0 million contribution to our charitable corporation and the inclusion of share-based compensation expense.

Interest Expense

Interest expense was $13.5 million in the first quarter of 2006 compared to $11.1 million in the first quarter of 2005. The increase was due to our commercial paper borrowings outstanding during the quarter and higher interest rates associated with our interest rate swap (see Note 6 in the Condensed Consolidated Financial Statements).

Income Taxes

The actual effective tax rate for the first quarter of 2006 of 31 percent included the beneficial resolution of a foreign tax matter. For the full year 2006, we expect an actual effective tax rate of approximately 34 percent. The base tax rate determined as provided under Income Taxes in Note 1 in the Condensed Consolidated Financial Statements (and 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 35 percent based on our current forecast of pretax income, permanent book and tax differences and global tax planning strategies.

Discontinued Operations

See Note 12 in the Condensed Consolidated Financial Statements regarding discontinued operations.

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,
	2005			2004

Cash (used for) provided by:
Operating activities	$	(197.5	)	$	102.3
Investing activities		94.9			(21.3	)
Financing activities		(110.6	)		(102.5	)
Effect of exchange rate changes on cash		(3.7	)		(3.0	)


Cash (used for) provided by continuing operations	$	(216.9	)	$	(24.5	)


The following table summarizes free cash flow (in millions):

Cash (used for) operating activities	$	(197.5	)	$	102.3
Excess income tax benefits from the exercise of stock options		11.3			—
Capital expenditures		(27.2	)		(11.9	)


Free cash flow	$	(213.4	)	$	90.4

ROCKWELL AUTOMATION, INC.

Financial Condition

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 excess tax benefits 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 operating cash flow to present free cash flow on a basis that is consistent with our historical presentation.

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 use of $213.4 million for the three months ended December 31, 2005 compared to a source of $90.4 million for the three months ended December 31, 2004. The decrease 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 a $50 million voluntary contribution in the first quarter of 2005. This decrease was partially offset by increased pretax earnings and the receipt of tax refunds recognized in prior periods. The increase in capital expenditures for the first three months of the year is due principally to increased investments in information technology.

In November 2005, we completed a sale-leaseback transaction of 24 properties, including the land, buildings and improvements. The strategic objective of the transaction was to reduce our global footprint of owned real estate. The net proceeds on sale were approximately $147.5 million, which we used to repay commercial paper borrowings.

When necessary, we use commercial paper as our principal source of short-term financing. Commercial paper borrowings outstanding were $102 million at December 31, 2005. The weighted average interest rate on those borrowings was 4.28 percent. At September 30, 2005, we had no commercial paper borrowings outstanding.

We repurchased approximately 3.5 million shares of our common stock at a cost of $201.1 million in the first quarter of 2006, compared to approximately 2.6 million shares at a cost of $116.4 million in the first quarter of 2005. We anticipate continuing to repurchase stock in 2006, the amount of which will depend ultimately on business conditions, stock price and other cash requirements. At December 31, 2005, we had approximately 5.3 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.

We expect future significant uses of cash to include capital expenditures, dividends to shareowners, repayments of short-term borrowings, acquisitions of businesses and repurchases of common stock and may include additional contributions to our pension plans. We expect capital expenditures in 2006 to be about $150 million. We expect to fund these future uses of cash with 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 34.9 percent at December 31, 2005 and 31.2 percent at September 30, 2005.

In October 2004, we entered into a five-year $600 million unsecured revolving credit facility that replaced our then existing $675 million unsecured credit facilities. Borrowings under our credit facility bear interest based on short-term money market rates when such borrowings are outstanding. The terms of our credit facility contain a covenant that requires our debt-to-total-capital ratio to remain less than 60 percent. In addition to our $600 million credit facility, short-term unsecured credit facilities are available to foreign subsidiaries.

The following is a summary of our credit ratings as of December 31, 2005:


	Short-Term		Long-Term
Credit Rating Agency	Rating	Outlook	Rating	Outlook

Standard & Poor’s	A-1	Stable	A	Stable
Moody’s	P-2	Stable	A3	Stable
Fitch Ratings	F1	Stable	A	Stable

ROCKWELL AUTOMATION, INC.

Financial Condition — (Continued)

Among other things, we can draw our credit facility as a standby liquidity facility if needed 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 facility, if any, to amounts that would leave enough credit available under the facility so that we could borrow, if needed, to repay all of our then outstanding commercial paper as it matures.

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, 2005. We believe that at December 31, 2005, there has been no material change to this information.

Supplemental Sales Information

We translate sales of subsidiaries operating outside of the United States using exchange rates 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 our activities 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 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, 2005							December 31, 2004
						Sales
						Excluding
			Effect			the Effect
			of Changes			of Changes
			in Currency			in Currency
			Exchange			Exchange
	Sales		Rates			Rates		Sales

United States	$	818.6	$	(0.6	)	$	818.0	$	721.6
Canada		88.5		(3.0	)		85.5		75.3
Europe, Middle East and Africa		191.2		16.2			207.4		207.1
Asia-Pacific		132.4		0.3			132.7		123.7
Latin America		70.7		(5.6	)		65.1		57.2


Total Company Sales	$	1,301.4	$	7.3		$	1,308.7	$	1,184.9

ROCKWELL AUTOMATION, INC.

Supplemental Sales Information — (Continued)

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


	Three Months Ended							Three Months Ended
	December 31, 2005							December 31, 2004
						Sales
						Excluding
			Effect			the Effect
			of Changes			of Changes
			in Currency			in Currency
			Exchange			Exchange
	Sales		Rates			Rates		Sales

United States	$	621.8	$	(0.5	)	$	621.3	$	547.0
Canada		77.8		(2.6	)		75.2		67.8
Europe, Middle East and Africa		187.3		16.1			203.4		202.8
Asia-Pacific		124.1		0.4			124.5		116.1
Latin America		61.1		(5.4	)		55.7		51.8


Total Control Systems Sales	$	1,072.1	$	8.0		$	1,080.1	$	985.5

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 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, 2005. We believe that at December 31, 2005, there has been no material change to this information, except as follows:

The following information is an update of our year end disclosures related to our critical accounting policy for Retirement Benefits. The Financial Accounting Standards Board (FASB) has undertaken a project to reconsider the accounting for pensions and other postretirement benefits. The first phase of the project is focusing on the reporting of the funded status of postretirement plans on sponsoring employer’s balance sheets. The primary objective of the first phase includes a requirement for a reporting entity to recognize in its balance sheet a postretirement benefit net asset or obligation for each sponsored plan equal to the difference between plan assets and projected benefit obligations. We will continue to evaluate the effect of the proposed accounting changes on our financial statements, this proposed change likely would result in a reduction of our shareowners’ equity.

In October, we contributed $450 million to our U.S. qualified pension trust. All other factors being equal, this would have the effect of reducing our unfunded obligation. In addition, after our June 30, 2005 measurement date, the interest rate environment has changed such that as of December 31, 2005 our discount rate would be higher had December 31, 2005 been our measurement date. Should this environment continue through our June 30, 2006 measurement date, we would expect, all other factors being equal, that our unfunded obligation would be further reduced.

Recent Accounting Pronouncements

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

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, 2005. We believe that at December 31, 2005, 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, our disclosure controls and procedures were effective.

			Internal Control Over Financial Reporting: There has not been any change in our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f)) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

			In 2005, we began planning to develop common global business process standards and an enterprise-wide information technology system. During the second half of fiscal 2006, we expect to begin the implementation phase, which we expect to roll-out to most locations of our company over a multi-year period. As the phased roll-out occurs, we will experience changes in internal control over financial reporting each quarter. No changes occurred during our first quarter related to this program.

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, 2005. We believe that at December 31, 2005, there has been no material change to this information, except that the section entitled “Rocky Flats Plant” is updated in its entirety as follows:

			Rocky Flats Plant. On January 30, 1990, a civil action was brought in the United States District Court for the District of Colorado against us and another former operator of the Rocky Flats Plant (the Plant), Golden, Colorado, that we operated from 1975 through December 31, l989 for the Department of Energy (DOE). 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. The plaintiffs, who purportedly represent two classes, sought compensatory damages of $250 million for diminution in value of real estate and other economic loss; the creation of a fund of $150 million to finance medical monitoring and surveillance services; exemplary damages of $300 million; CERCLA response costs in an undetermined amount; attorneys’ fees; an injunction; and other proper relief. On February 13, 1991, the court granted certain of the motions of the defendants to dismiss the case. The plaintiffs subsequently filed a new complaint, and on November 26, 1991, the court granted in part a renewed motion to dismiss. The remaining portion of the case is pending before the court. On October 8, 1993, the court certified separate medical monitoring and property value classes. Trial began on October 11, 2005. Effective August 1, 1996, the DOE assumed control of the defense of the contractor defendants, including us, in the action. Beginning on that date, the costs of our defense, which had previously been reimbursed to us by the DOE, have been and are being paid directly by the DOE. We believe that we are entitled under applicable law and our contract with the DOE to be indemnified for all costs and any liability associated with this action.

ROCKWELL AUTOMATION, INC.

Item 1.			Legal Proceedings — (Continued)

			On November 13, 1990, we were served with another civil action brought against us 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 our operation of the Plant (and seeking treble damages and forfeitures) as well as a personal cause of action for alleged wrongful termination of employment. On August 8, 1991, the court dismissed the personal cause of action. On December 6, 1995, the DOE notified us that it would no longer reimburse costs incurred by us 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 us 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, we filed a petition for rehearing with the Court of Appeals seeking reconsideration of that portion of the decision holding that the relator, 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. We are considering whether to file a petition for certiorari seeking Supreme Court review of the 10^th Circuit’s decision. We believe that we are entitled under applicable law and our contract with the DOE to be indemnified for all costs and any liability associated with this action, and intend to file a claim with the DOE seeking reimbursement. We believe that an outcome adverse to us will not have a material effect on our business or financial condition.

			On January 8, 1991, we filed suit in the United States Court of Federal Claims against the DOE, seeking recovery of $6.5 million of award fees that we allege are owed to us under the terms of our contract with the DOE for management and operation of the Plant during the period October 1, 1988 through September 30, 1989. On July 17, 1996, the Government filed an amended answer and counterclaim against us alleging violations of the U.S. False Claims Act previously asserted in the civil action described in the preceding paragraph. On May 4, 2005, we filed another claim with the DOE, seeking recovery of $11.3 million in unreimbursed costs incurred in defense of the Stone suit described in the preceding paragraph. On September 30, 2005, the DOE Contracting Officer denied that claim and demanded repayment of $4 million in previously reimbursed Stone defense costs. The government also filed a motion in the award fee suit seeking leave to amend its pleadings to assert a counterclaim for reimbursement of the $4 million in previously reimbursed Stone defense costs or an offset of that amount against any judgment we might obtain against the DOE on our claim for award fees. We have opposed that motion. On November 10, 2005, we appealed both aspects of the Contracting Officer’s decision regarding Stone defense costs to the Energy Board of Contract Appeals. The Government thereafter filed a motion in the Court of Federal Claims asking the court to transfer the Stone defense costs appeal from the Energy Board and consolidate it with the award fee case pending in the Court of Federal Claims. We have opposed this motion, as well.

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, 2005:

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, 2005

735,000

52.3048

735,000

8,041,900

November 1 - 30, 2005

896,200

56.3037

896,200

7,145,700

December 1 - 31, 2005

1,888,200

59.3948

1,888,200

5,257,500

Total

3,519,400

57.1270

3,519,400



	(1)		Average price paid per share includes brokerage commissions.

	(2)		On September 8, 2005, we initiated a 9 million share repurchase program effective through September 30, 2006 that was approved by our Board of Directors. The program allows management to repurchase shares at its discretion, except 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. During quarter-end quiet periods, shares are repurchased at our broker’s discretion pursuant to a share repurchase plan subject to previously established price and volume parameters.

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 2006, contained in the Company’s Current Report on Form 8-K dated December 13, 2005, is hereby incorporated by reference.

*Exhibit 10.2	-	Form of Performance Share Agreement under the Company’s 2000 Long-Term Incentives Plan, as amended, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 4, 2005, is hereby incorporated by reference.

*Exhibit 10.3	-	Form of Restricted Stock Agreement under the Company’s 2000 Long-Term Incentives Plan, as amended, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 4, 2005, is hereby incorporated by reference.

*Exhibit 10.4	-	Memorandum of Amendments to the Company’s 2000 Long-Term Incentives Plan, as amended, filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated November 4, 2005, is hereby incorporated by reference.

*Exhibit 10.5	-	Copy of the Company’s Deferred Compensation Plan (amended and restated as of January 1, 2006).

Exhibit 12	-	Computation of Ratio of Earnings to Fixed Charges for the Three Months Ended December 31, 2005.

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.


	ROCKWELL AUTOMATION, INC.
	(Registrant)
Date: January 27, 2006	By	/s/ James V. Gelly
		James V. Gelly
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)


Date: January 27, 2006	By	/s/ David M. Dorgan
		David M. Dorgan
		Vice President and Controller (Principal Accounting Officer)


			Page No.
PART I.	FINANCIAL INFORMATION

	Item 1.	Condensed Consolidated Financial Statements:

		Condensed Consolidated Balance Sheet— December 31, 2005 and September 30, 2005		2

		Condensed Consolidated Statement of Operations— Three Months Ended December 31, 2005 and 2004		3

		Condensed Consolidated Statement of Cash Flows— Three Months Ended December 31, 2005 and 2004		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		28

	Item 4.	Controls and Procedures		28

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings		28

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		30

	Item 6.	Exhibits		31

Signatures				32


Exhibit No.		Exhibit
10.5		Copy of the Company’s Deferred Compensation Plan (amended and restated as of January 1, 2006).

12		Computation of Ratio of Earnings to Fixed Charges for the Three Months Ended December 31, 2005.

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.