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 necessary to present fairly the financial position, results of operations and cash flows for the periods presented and, except as otherwise indicated, such adjustments consist only of those of a normal recurring nature. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2011. The results of operations for the three and nine month periods ended June 30, 2012 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.

Revenue Recognition

Product and solution sales consist of industrial automation power, control and information hardware and software products and custom-engineered systems. Service sales include multi-vendor customer technical support and repair, asset management and optimization consulting and training. All service revenue recorded in our results of operations is included in our Control Product & Solutions segment.

For approximately 85 percent of our consolidated sales, we record sales when all of the following have occurred: an agreement of sale exists; pricing is fixed or determinable; collection is reasonably assured; and product has been delivered and acceptance has occurred, as may be required according to contract terms, or services have been rendered. Within this category, we will at times enter into arrangements that involve the delivery of multiple products and/or the performance of services, such as installation and commissioning. The timing of delivery, though varied based upon the nature of the undelivered component, is generally short-term in nature. For these arrangements, revenue is allocated to each deliverable based on that element's relative selling price, provided the delivered element has value to customers on a standalone basis and, if the arrangement includes a general right of return, delivery or performance of the undelivered items is probable and substantially in our control. Relative selling price is obtained from sources such as vendor-specific objective evidence (“VSOE”), which is based on the separate selling price for that or a similar item, or from third-party evidence such as how competitors have priced similar items. If such evidence is not available, we use our best estimate of the selling price, which includes various internal factors such as our pricing strategy and market factors.

We recognize substantially all of the remainder of our sales as construction-type contracts using either the percentage-of-completion or completed contract method of accounting. We record sales relating to these contracts using the percentage-of-completion method when we determine that progress toward completion is reasonably and reliably estimable; we use the completed contract method for all others. Under the percentage-of-completion method, we recognize sales and gross profit as work is performed using the relationship between actual costs incurred and total estimated costs at completion. Under the percentage-of-completion method, we adjust sales and gross profit for revisions of estimated total contract costs or revenue in the period the change is identified. We record estimated losses on contracts when they are identified.

We use contracts and customer purchase orders to determine the existence of an agreement of sale. We use shipping documents and customer acceptance, when applicable, to verify delivery. We assess whether the selling price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectibility based on the creditworthiness of the customer as determined by credit evaluations and analysis, as well as the customer's payment history.

Shipping and handling costs billed to customers are included in sales and the related costs are included in cost of sales in the Condensed Consolidated Statement of Operations.

Receivables

Receivables are stated net of allowances for doubtful accounts of $27.2 million at June 30, 2012 and $26.1 million at September 30, 2011. In addition, receivables are stated net of an allowance for certain customer returns, rebates and incentives of $8.1 million at June 30, 2012 and $8.0 million at September 30, 2011.

Short-term Investments

Short-term investments include time deposits and certificates of deposit with original maturities of more than three months but no more than one year at the time of purchase. These investments are stated at cost, which approximates fair value.

Earnings Per Share

The following table reconciles basic and diluted earnings per share (EPS) amounts (in millions, except per share amounts):



	Three Months Ended June 30,						Nine Months Ended June 30,
	2012			2011			2012			2011
Income from continuing operations	$	190.7		$	178.8		$	541.8		$	495.3
Less: Allocation to participating securities	(0.3		)	(0.3		)	(1.0		)	(1.0		)
Income from continuing operations available to common shareowners	$	190.4		$	178.5		$	540.8		$	494.3
Income from discontinued operations	$	—		$	0.7		$	—		$	0.7
Less: Allocation to participating securities	—			—			—			—
Income from discontinued operations available to common shareowners	$	—		$	0.7		$	—		$	0.7

Net income	$	190.7		$	179.5		$	541.8		$	496.0
Less: Allocation to participating securities	(0.3		)	(0.3		)	(1.0		)	(1.0		)
Net income available to common shareowners	$	190.4		$	179.2		$	540.8		$	495.0

Basic weighted average outstanding shares	141.7			143.4			142.0			142.8
Effect of dilutive securities
Stock options	1.6			2.1			1.7			2.3
Performance shares	0.2			0.4			0.3			0.4
Diluted weighted average outstanding shares	143.5			145.9			144.0			145.5

Basic earnings per share:
Continuing operations	$	1.34		$	1.24		$	3.81		$	3.46
Discontinued operations	—			0.01			—			0.01
Net income	$	1.34		$	1.25		$	3.81		$	3.47
Diluted earnings per share:
Continuing operations	$	1.33		$	1.22		$	3.76		$	3.40
Discontinued operations	—			0.01			—			—
Net income	$	1.33		$	1.23		$	3.76		$	3.40

For the three and nine months ended June 30, 2012, share-based compensation awards for 2.3 million and 2.1 million shares, respectively, were excluded from the diluted EPS calculation because they were antidilutive. For the three and nine months ended June 30, 2011, share-based compensation awards for 1.1 million and 1.9 million shares, respectively, were excluded from the diluted EPS calculation because they were antidilutive.