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Article by DailyStocks_admin    (09-02-08 06:43 AM)

The Daily Magic Formula Stock for 09/02/2008 is Rockwell Automation Inc. According to the Magic Formula Investing Web Site, the ebit yield is 13% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

General

Rockwell Automation, Inc. (the Company or Rockwell Automation) is a leading global provider of industrial automation power, control and information solutions that help manufacturers achieve a competitive advantage in their businesses. The Company was incorporated in Delaware in 1996 in connection with a tax-free reorganization completed on December 6, 1996, pursuant to which we divested our former aerospace and defense businesses (the A&D Business) to The Boeing Company (Boeing). In the reorganization, the former Rockwell International Corporation (RIC) contributed all of its businesses, other than the A&D Business, to the Company and distributed all capital stock of the Company to RIC’s shareowners. Boeing then acquired RIC. RIC was incorporated in 1928.

In September 2004, we sold our FirstPoint Contact business. In March 2006, we sold the assets of our ElectroCraft Engineered Solutions (ElectroCraft) business. Accordingly, we reflect the results of ElectroCraft as a discontinued operation for all periods presented.

In September 2006, we sold our 50 percent interest in Rockwell Scientific Company LLC (RSC). More information regarding the sale of our interest in RSC is contained in Note 2 in the Financial Statements.

On January 31, 2007, we divested our Dodge mechanical and Reliance Electric motors and motor repair services businesses. These were the principal businesses of our former Power Systems operating segment. We sold these businesses to Baldor Electric Company (Baldor) for $1.8 billion, comprised of $1.75 billion in cash and approximately 1.6 million shares of Baldor common stock. During 2007, we reported an after-tax gain on the sale of $868.2 million ($5.39 per diluted share). The results of operations and gain on sale of these businesses are reported in income from discontinued operations in the Financial Statements for all periods presented. Assets and liabilities sold are classified as assets available for sale and liabilities associated with assets available for sale in the Consolidated Balance Sheet as of September 30, 2006.

As used herein, the terms “we”, “us”, “our”, the “Company” or “Rockwell Automation” include subsidiaries and predecessors unless the context indicates otherwise. Information included in this Annual Report on Form 10-K refers to our continuing businesses unless otherwise indicated.

Whenever an Item of this Annual Report on Form 10-K refers to information in our Proxy Statement for our Annual Meeting of Shareowners to be held on February 6, 2008 (the 2008 Proxy Statement), or to information under specific captions in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ( MD&A ), or in Item 8. Financial Statements and Supplementary Data (the Financial Statements), the information is incorporated in that Item by reference. All date references to years refer to our fiscal year unless otherwise stated.

Operating Segments

We have two operating segments: Architecture & Software and Control Products & Solutions. In 2007, our total sales were $5.0 billion. Financial information with respect to our operating segments, including their contributions to sales and operating earnings for each of the three years in the period ended September 30, 2007, is contained under the caption Results of Operations in MD&A , and in Note 18 in the Financial Statements.

Architecture & Software

Our Architecture & Software operating segment recorded sales of $2.2 billion (44 percent of our total sales) in 2007. 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 and 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.

The major competitors of our Architecture & Software operating segment include Emerson Electric Co., Mitsubishi Corp., Omron Corp., Schneider Electric SA and Siemens AG.

Architecture & Software’s products are marketed primarily under the Allen-Bradley ® and Rockwell Software ® brand names. Major markets served include food and beverage, automotive, water/wastewater, oil and gas and home and personal care.

Architecture & Software is headquartered in Mayfield Heights, Ohio and has operations in North America, Europe, Middle East and Africa, Asia-Pacific and Latin America.

Control Products & Solutions

Our Control Products & Solutions operating segment recorded 2007 sales of $2.8 billion (56 percent of our total sales). 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, contactors, push buttons, signaling devices, termination and protection 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 maximize a customer’s automation investment and provide total life-cycle support, including multi-vendor customer technical support and repair, asset management, training and predictive and preventative maintenance.

The major competitors of the Control Products & Solutions operating segment include ABB Ltd, Eaton Corporation, Emerson Electric Co., General Electric, Honeywell International, Invensys, Schneider Electric SA and Siemens AG.

Control Products & Solutions products are marketed primarily under the Allen Bradley ® brand name. Major markets served include food and beverage, automotive, oil and gas, mining and home and personal care.

Control Products & Solutions is headquartered in Milwaukee, Wisconsin and has operations in North America, Europe, Middle East and Africa, Asia-Pacific and Latin America.

Geographic Information

In 2007, sales to customers in the United States accounted for 54 percent of our total sales. Our principal markets outside of the United States are in Canada, Italy, China, the United Kingdom, Germany, Brazil, Australia, Korea and France. See Item 1A. Risk Factors for a discussion of risks associated with our operations outside of the United States. Sales and property information by major geographic area for each of the past three years is contained in Note 18 in the Financial Statements.

Competition

Depending on the product or service involved, our competitors range from large diversified businesses that sell products outside of industrial automation, to smaller companies specializing in niche products and services. Factors that influence our competitive position are our broad product portfolio and scope of solutions, technology leadership, knowledge of customer applications, large installed base, established distribution network, quality of products and services, price and global presence.

Distribution

In North America, we sell our products primarily through independent distributors that typically do not carry products that compete with Allen-Bradley ® products. We sell large systems and service offerings principally through a direct sales force, though opportunities are sometimes sourced through distributors or system integrators. Outside the United States, we sell products through a combination of direct sales, sales through distributors and sales through system integrators.

Research and Development

Our research and development spending for the years ended September 30, 2007, 2006 and 2005 was $143.1 million, $148.5 million, and $128.0 million, respectively. Customer-sponsored research and development was not significant in 2007, 2006, or 2005.

Employees

At September 30, 2007 we had approximately 20,000 employees. Approximately 10,500 were employed in the United States, and, of these employees, about three percent were represented by various local or national unions.

Raw Materials and Supplies

We purchase many items of equipment, components and materials used to produce our products from others. The raw materials essential to the conduct of each of our business segments generally are available at competitive prices. Although we have a broad base of suppliers and subcontractors, we depend upon the ability of our suppliers and subcontractors to meet performance and quality specifications and delivery schedules. See Item 1A. Risk Factors for a discussion of risks associated with our reliance on third party suppliers.

Environmental Protection Requirements

Information about the effect of compliance with environmental protection requirements and resolution of environmental claims is contained in Note 17 in the Financial Statements. See also Item 3. Legal Proceedings .

Patents, Licenses and Trademarks

We own or license numerous patents and patent applications related to our products and operations. Various claims of patent infringement and requests for patent indemnification have been made to us. We believe that none of these claims will have a material adverse effect on our financial condition. While in the aggregate our patents and licenses are important in the operation of our business, we do not believe that loss or termination of any one of them would materially affect our business or financial condition. See Item 1A. Risk Factors for a discussion of risks associated with our intellectual property.

The Company’s name and its registered trademark “Rockwell Automation ® ” is important to each of our business segments. In addition, we own other important trademarks that we use, such as “Allen-Bradley ® ,” “A-B ® ” and “ICS Triplex ™ ” for electronic controls and systems for industrial automation, and “Rockwell Software ® ” for our software products.

Seasonality

Our business segments are not subject to significant seasonality. However, the calendarization of our results can vary and may be affected 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.

Available Information

We maintain an Internet site at http://www.rockwellautomation.com . Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act), as well as our annual report to shareowners and Section 16 reports on Forms 3, 4 and 5, are available free of charge on this site as soon as reasonably practicable after we file or furnish these reports with the Securities and Exchange Commission (SEC). All reports we file with the SEC are also available free of charge via EDGAR through the SEC’s website at http://www.sec.gov . Our Guidelines on Corporate Governance and charters for our Board Committees are also available at our Internet site. These Guidelines and charters are also available in print to any shareowner upon request. The information contained on and linked from our Internet site is not incorporated by reference into this Annual Report on Form 10-K.

The certifications of our Chief Executive Officer and Chief Financial Officer required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as Exhibits to this Annual Report on Form 10-K and were included as Exhibits to each of our Quarterly Reports on Form 10-Q filed during 2007. Our Chief Executive Officer certified to the New York Stock Exchange (NYSE) on March 8, 2007 pursuant to Section 303A.12 of the NYSE’s listing standards, that he was not aware of any violation by the Company of the NYSE’s corporate governance listing standards as of that date.

CEO BACKGROUND

Keith D. Nosbusch — Chairman of the Board since February 2005 and President and Chief Executive Officer since February 2004; Senior Vice President and President, Rockwell Automation Control Systems prior thereto

Sujeet Chand — Senior Vice President and Chief Technical Officer since September 2005; Vice President and Chief Technical Officer prior thereto

John D. Cohn — Senior Vice President, Strategic Development and Communications

Kent G. Coppins — Vice President and General Tax Counsel

Theodore D. Crandall — Senior Vice President and Chief Financial Officer since October 2007; Interim Chief Financial Officer from April 2007 to October 2007; Senior Vice President since February 2004; Senior Vice President, Control Products & Solutions (formerly Components and Packaged Applications Group) prior thereto

David M. Dorgan — Vice President and Controller

Steven A. Eisenbrown — Senior Vice President since February 2004; Senior Vice President, Architecture & Software (formerly Automation Control and Information Group) prior thereto

Steven W. Etzel — Vice President and Treasurer since November 2007; Assistant Treasurer from November 2006 to November 2007; Director, Finance from January 2006 to November 2006; Vice President, Risk Management and Financial Planning from July 2003 to December 2005; Assistant Treasurer prior thereto

Douglas M. Hagerman — Senior Vice President, General Counsel and Secretary since May 2004; Litigation partner and Co-Chair of the Securities Litigation, Enforcement and Regulation Practice Group at Foley & Lardner LLP (law firm) prior thereto

John P. McDermott — Senior Vice President since February 2004 and Senior Vice President, Global Sales and Marketing (formerly Global Sales and Solutions) since October 2005; Senior Vice President, Global Manufacturing Solutions Group of Rockwell Automation Control Systems prior thereto

John M. Miller — Vice President and Chief Intellectual Property Counsel since October 2004; Associate Intellectual Property Counsel prior thereto

Rondi Rohr-Dralle — Vice President, Corporate Development

Robert A. Ruff — Senior Vice President since February 2004; Senior Vice President, Americas Sales prior thereto

Susan J. Schmitt — Senior Vice President, Human Resources since July 2007; Director, Human Resources United Kingdom and European Functions, Kellogg Company (producer of cereal and convenience foods) from August 2006 to July 2007; Vice President Human Resources, Kellogg Company prior thereto

A. Lawrence Stuever — Vice President and General Auditor since June 2003; Vice President, Compensation prior thereto

Martin Thomas — Senior Vice President, Operations and Engineering Services since February 2007; Vice President, Operations and Engineering Services from November 2005 to February 2007; President, General Electric’s Trailer Fleet Services and Modular Space businesses (leasing for modular space and tractor trailers) prior thereto

MANAGEMENT DISCUSSION FROM LATEST 10K

Results of Operations

Non-GAAP Measures

The following discussion includes organic sales and free cash flow, which are non-GAAP measures. See Supplemental Sales Information for a reconciliation of reported sales to organic sales 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. Overall demand for our products and services 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, safety 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.

U. S. Industrial Economic Trends

In 2007, sales to U.S. customers accounted for 54 percent of our total sales. The various indicators we use to gauge the direction and momentum of our served U.S. markets include:




•


Industrial Equipment Spending 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. Global Insights uses this statistic along with other economic indicators to forecast industrial equipment spending. These measures over the longer term have proven to have reasonable predictive value as a directional indicator of our domestic growth.




•


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 U.S. customers in their manufacturing base.




•


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

The table below depicts the continued general gradual improvement in U.S. Industrial Equipment Spending since December 2004. Capacity Utilization has remained above 80 percent since December 2005 while the PMI has sustained a rate over 50 since December 2004. Although we have seen consistent strength over the past few years in the manufacturing indicators we follow, we are seeing a deceleration in the rate of manufacturing growth in the North American market.

Non-U.S. Regional Trends

In 2007, sales to non-U.S. customers accounted for 46 percent of our total sales. Outside the U.S., demand for our products and services 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 a growing number of local companies. Recent strength in demand for our products and services has, in part, been driven by investments in infrastructure in developing economies, investments in basic materials production capacity in response to higher commodity pricing and expanding consumer markets. We continued to see strong demand in China, India and Latin America during 2007. We also saw considerable growth in Europe during 2007, as we benefited from our targeted growth investments in customer-facing resources and improving macro-economic conditions. We expect strong growth in Latin America, Europe and the emerging economies in Asia-Pacific to continue into 2008.

Industry Views

We serve customers in a wide range of industries, including consumer, resource-based and transportation.

Our consumer industry customers are engaged in the food and beverage, home and personal care, 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. Consumer products customers’ capital investments are generally less cyclical than those of resource-based customers.

Our customers in resource-based industries, including oil and gas, mining, aggregates, metals, water/wastewater, 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. 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.

In transportation, factors such as excess capacity, geographic expansion, investment in new model introductions and more flexible manufacturing technologies affect our sales.

Outlook for 2008

The following is a summary of our key objectives for 2008:




•


continue to grow profitably and diversify our business, by aggressively pursuing growth in an expanded addressable market and enhancing our market access both organically and through synergistic acquisitions;




•


execute our cost productivity initiatives;




•


expand our global business footprint with a focus on production efficiencies and enhanced customer experience;




•


remain focused on our ERP system implementation across the globe with minimal disruption to our business and clients; and




•


sustain the growth of our integrated control and information architecture by accelerating the proliferation and adoption rate and enhancing features and functionality.

Our outlook for 2008 is based on anticipated strength in customer demand in Europe and emerging markets. We believe our investments in technology leadership, expanded served markets and stronger global presence are creating more worldwide opportunities for growth than ever before, despite a deceleration in the rate of manufacturing growth in the North American market. This ongoing diversification of our revenue base, combined with our recent acquisitions, cause us to be optimistic that 2008 will be another good year. We remain intensely focused on executing our growth and productivity initiatives as we continue to evolve our global footprint, not just in manufacturing, but in engineering, back office and customer support infrastructure.

As of the date of filing this report, based upon current economic conditions and business trends, we expect revenue to grow by 10 to 12 percent in 2008. We anticipate acquisitions will contribute approximately 3 percentage points to this growth rate and that our services and solutions business will continue to become a larger portion of our revenue. We also believe that we will continue to benefit from the strong momentum in our growth initiatives, particularly process applications and safety. We expect continued growth from the commercial investments we have made in EMEA and Latin America, continued strength in emerging markets and improved performance in the Asia-Pacific region, especially China, offset by somewhat slower rates of growth in developed economies.

As of the date hereof, we also expect 2008 diluted earnings per share to be in the range of $4.25 to $4.45. This includes an expected effective income tax rate that will average about 28 to 29 percent for the full year, subject to quarterly variability. We anticipate an earnings benefit from volume leverage, productivity initiatives and a decrease in our year over year average share count. These items will be partially offset by our investments in new products, services, technologies and expertise to serve new applications and markets, combined with inflation in material and employee costs and the globalization of our business model. We also expect acquisitions will put downward pressure on operating margin and that, combined with purchase accounting expense, will have a negative impact on diluted earnings per share. We also plan to generate free cash flow of approximately 95 percent of net income in 2008.

2007 Compared to 2006

Sales

Sales increased 10 percent in 2007 compared to 2006. Organic sales increased 6 percent, as foreign currency translation and acquisitions added 3 and 1 percentage points to the growth rate, respectively. Sales in the United States increased 3 percent in 2007 compared to 2006. Full year sales were strong in Europe and Latin America, as organic growth rates were 14 percent and 19 percent, respectively. Asia Pacific sales grew organically by 7 percent over 2006, while Canada reported a 1 percent decline in organic growth. We continued to see our growth investments in EMEA, Latin America and in the life sciences industry deliver incremental revenue. These increases were partially offset by a sales decline in the North American automotive industry due to weakness in our important Detroit customer base.

General Corporate — Net

General corporate expenses were $72.8 million in 2007 compared to $90.7 million in 2006. The decrease is due primarily to interest income on the proceeds of the Power Systems sale. Expenses during 2007 also include charges of $13.9 million related to environmental remediation costs at legacy sites, partially offset by a $12.1 million dividend related to an equity interest we acquired as a result of the divestiture of our FirstPoint Contact business.

Special Charges

Special charges of $43.5 million include costs related to various restructuring actions designed to execute on our cost productivity initiatives and to advance our globalization strategy. Actions included workforce reductions, realignment of administrative functions and rationalization and consolidation of global operations. We expect total cash expenditures to approximate $39.0 million in connection with these actions, of which we paid $5.3 million through September 30, 2007. Non-cash special charges include write-downs of certain inventory, machinery and equipment totaling $4.5 million.

Interest Expense

Interest expense was $63.4 million in 2007 compared to $56.6 million in 2006. The increase was due to higher average commercial paper borrowings in 2007 as well as higher interest rates associated with our interest rate swap (see Note 6 in the Financial Statements).

Income Taxes

The effective tax rate for 2007 was 27.8 percent compared to 28.1 percent in 2006. The 2007 effective tax rate differed from the federal statutory rate of 35 percent because we benefited from lower non-U.S. tax rates, resolved certain tax matters and claims related to the closure of the 2005 U.S. federal audit cycle and various state tax audits and made other provision adjustments.

The 2006 effective tax rate was lower than the federal statutory rate of 35 percent because we reversed $27.2 million ($0.15 per diluted share) of valuation allowances on capital loss carryforwards, settled audit matters with the U.S. Internal Revenue Service for the years 2003 and 2004, benefited from lower tax rates outside the U.S., received Foreign Sales Corporation (FSC) and Extra Territorial Income (ETI) tax benefits and made other provision adjustments.

See Note 16 in the Financial Statements for a complete reconciliation of the United States statutory tax rate to the effective tax rate and more information on tax events in 2007 and 2006 affecting the respective tax rates.

Income from Continuing Operations before Accounting Change

Income from continuing operations in 2007 increased 8 percent from 2006. The increase is due primarily to increased sales, lower retirement benefits expense, improved operating margins and increased dividend and interest income, partially offset by special charges, additional environmental charges and higher interest expense.

Discontinued Operations

Amounts reported for discontinued operations primarily relate to the operating results of the principal businesses of our former Power Systems operating segment for periods before the divestiture and the gain on sale of the principal businesses of our former Power Systems operating segment. Net income on operating activities of Power Systems was $42.3 million in 2007 and $100.1 million in 2006. We reported an after-tax gain on the sale of Power Systems of $868.2 million ($5.39 per share) in 2007.

We also reported after-tax income of $8.0 million during 2007 related to other discontinued operations activities, compared to a $4.7 million loss from other discontinued operations activities in 2006. See also Note 13 in the Financial Statements for more information on discontinued operations.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Forward-Looking Statement

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




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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;




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




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




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




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competitive product and pricing pressures;




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




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




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




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our ability to attract and retain qualified personnel;




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the uncertainties of litigation;




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disruption of our North American distribution channel;




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the availability and price of components and materials;




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successful execution of our cost productivity and globalization initiatives;




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our ability to execute strategic actions, including acquisitions and integration of acquired businesses; and




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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 organic sales and free cash flow, which are non-GAAP measures. See Supplemental Sales Information for a reconciliation of reported sales to organic sales and a discussion of why we believe this non-GAAP measure is useful to investors. See 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 solutions that help manufacturers achieve a competitive advantage in their businesses. 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, sustainable production (cleaner, safer and more energy efficient), 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.

Key Objectives

The following is a summary of our key objectives for 2008:




•


continue to grow profitably and diversify our business, by aggressively pursuing growth in an expanded addressable market and enhancing our market access both organically and through synergistic acquisitions;




•


execute our cost productivity initiatives;




•


expand our global business footprint with a focus on production efficiencies and enhanced customer experience;




•


continue to implement our ERP system across the globe with minimal disruption to our business and customers; and




•


sustain the growth of our integrated control and information architecture by accelerating the proliferation and adoption rate and enhancing features and functionality.

Long-term Strategy

Our long-term growth and performance strategy is characterized by the careful balance of sustained organic growth and profitability. This strategy seeks to:




•


deploy human and financial resources in order to strengthen our technology leadership and allow us to capture a larger share of our customers’ spending;




•


enhance our market access by increasing our solutions and service capabilities, advancing our global presence and delivering our products and solutions to a wider range of targeted industries;




•


expand our served market by increasing our ability to meet our customers’ needs in the areas of process control, safety control and information software; and




•


foster a robust productivity culture.

We continue to transform our business model into one that is based less on tangible assets and more on intellectual capital. As we execute our long-term growth and performance strategy, we expect to provide value for our shareowners through revenue and earnings growth, free cash flow generation and superior returns.

Technological Advancement and Domain Expertise

We seek to maintain a technology leadership position in all facets of plant-wide control. We believe our core technologies are the foundation for long-term sustainable growth at a multiple of global Gross Domestic Product (GDP) growth.

Our customers face increasingly complex and volatile customer demand patterns, which are driving the need for flexible manufacturing. Our investments in new technology and domain expertise have expanded our served market well beyond discrete control into process, safety and information. Our value proposition is to help our customers gain the benefits of faster time to market, lower total cost of ownership, better asset utilization and reduced business risks.

We believe that process automation is the largest growth opportunity for our company. Our Logix architecture enables us to compete effectively with traditional DCS control solutions for process applications.

We have one of the most comprehensive safety offerings in the industry and we see significant potential in the growing safety market. We successfully integrated safety into the Logix platform with our launch of GuardLogix ® safety controllers. Our safety products are designed to bring a dual benefit to our customers: a safe environment for their employees and productivity in their operations.

Through internal investment and acquisitions, we have built our expanded capability in the area of plant-wide information. This opportunity involves software and solutions that link the plant floor to the enterprise business systems.

We augment our product portfolio with solutions and service excellence to achieve greater customer intimacy. The combination of our leading technologies, such as integrated architecture, with the industry-specific domain expertise of our people, enables us to deliver these solutions.

Global Expansion and Enhanced Market Access

As the manufacturing world continues to globalize, we must be capable of meeting our customers’ needs in emerging markets. We continue to add delivery resources and expand our sales force in emerging markets. We currently have greater than 50 percent of our employees outside the U.S., and achieved our goal of about 50 percent of our revenues outside of the U.S. in the first nine months of 2008.

As we enter markets with considerable growth potential and expand our global footprint, we will seek to continue to broaden the portfolio of products, services and solutions that we provide to our customers in these regions. We have made significant investments to globalize our manufacturing and customer facing resources in order to be closer to our customers throughout the world. We see growth opportunities in the Latin America region, especially in resource-based industries. We also continue to pursue attractive opportunities in fast growing countries of the Asia Pacific region.

Original Equipment Manufacturers (OEMs) represent another market opportunity for us. The large OEM market is under tremendous cost pressure and must reduce time to market to remain competitive as it introduces new products. OEMs benefit from our Logix technology combined with motion and safety products. We have a significant opportunity in the OEM market globally, especially in Europe, where OEMs are integral to our strategy.

Industry Views

We apply our knowledge of manufacturing applications to help customers solve their business challenges. We serve customers in a wide range of industries, including consumer, resource-based and transportation.

Our consumer industry customers are engaged in the food and beverage, home and personal care, 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. Consumer products customers’ capital investments generally provide for more consistent rates of growth over time.

Our customers in resource-based industries, including oil and gas, mining, aggregates, cement, metals, water/wastewater and forest products, 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. Higher energy prices have historically caused customers across all industries to invest in more energy-efficient manufacturing processes and technologies, such as intelligent motor controls.

In transportation, factors such as capacity utilization, geographic expansion, investment in new model introductions and more flexible manufacturing technologies are drivers of demand for our products, services and solutions.

Productivity

Productivity and continuous improvements are important components of our culture. We have programs in place that drive ongoing process improvement, functional streamlining, material cost savings and manufacturing productivity. These are designed to result in improved profitability that can be used to fund investment in growth and technology and to offset inflation and dilution from acquisitions. Our ongoing cost productivity initiatives include improved asset utilization and in some instances may require special charges for actions such as workforce reductions and facility rationalization.

Acquisitions

We recently acquired CEDES, Incuity, Pavilion and ICS Triplex. We believe the acquired companies will help us expand our market share and deliver value to our customers.

With our acquisition of CEDES, we have expanded our comprehensive machine safety solutions for our customers worldwide. CEDES is a supplier of safety and measuring light curtains, a leading product offering in the machine safety market.

Our acquisition of Incuity positions us for continued growth in the information solutions market. Incuity’s enterprise manufacturing intelligence offerings will enable us to accelerate specific aspects of our plant-wide information strategy and extend the capabilities of our integrated architecture.

We believe that Pavilion’s expertise in advanced process control, production optimization and environmental compliance solutions paired with our Logix architecture will help our customers create a more agile, efficient and productive environment. It will also benefit, in particular, our process growth initiative.

ICS Triplex is a leading global supplier in the critical control and safety market, which has allowed us to expand our presence in this market. The ICS Triplex acquisition is creating new customer opportunities, most significantly in the oil and gas industry. We are also benefiting from ICS Triplex’s strong presence in European and the Middle Eastern markets.

We continue to look for potential acquisitions that serve as catalysts to organic growth and add complementary technology, expand our served market, increase our domain expertise and/or continue our geographic diversification.

U.S. Industrial Economic Trends

The various indicators we use to gauge the direction and momentum of our U.S. served markets include:




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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 and is utilized, along with other economic indicators, to forecast industrial equipment spending. This measure over the longer term has proven to have reasonable predictive value as a directional indicator of our domestic growth.




•


Capacity Utilization (Total Industry), 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 U.S. customers in their manufacturing base.




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

The table below shows a sequential increase in the U.S. Industrial Equipment Spending from December 2007 to March 2008; this metric has also increased on a year over year basis compared to March 2007. Capacity utilization dropped just slightly below 80 in June 2008, but is still generally in line with recent quarters. In the month of June, the PMI rebounded above 50, which exceeds the 12-month average for the index.

CONF CALL

Rondi Rohr-Dralle - Investor Relations

With me today are Keith Nosbusch, our Chairman and CEO and Ted Crandall, our CFO. Our agenda includes opening remarks by Keith followed by Ted's review of the quarter. We will as always leave time at the end of the call to take your questions and ask that you self limit to two questions to allow broader participation. We expect the call today to take about one hour. As is always the case on these calls, I need to remind you that our comments will include statements related to the expected future results of our company and are therefore forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from our forecasted projections, due to a wide range of risks and uncertainties that are described in our earnings release and detailed in all of our SEC filings.

With that I will turn the call over to Keith.

Keith Nosbusch - Chairman of the Board, President, Chief Executive Officer

Thanks Rondi, and good morning to everyone who joined us on today's call. Let me start by commenting on our results this quarter and then provide an assessment of our current situation and conclude with a few comments about the balance of the year.

For the quarter we delivered solid topline growth despite slower growth in the U.S. and in Europe. Revenues grew 15% to nearly $1.5 billion. Growth was particularly strong in Asia. Emerging Asia grew 30%, 26% organic, Latin America grew 19%, all organic. We continue to benefit from our increasing global presence, particularly in emerging markets. We also continued solid growth in our key process initiative, as well as the oil and gas vertical, which grew an excess of 30%. Logix returned to double-digit growth, in line with our expectations.

We achieved the performance targets of our acquisitions, ICS Triplex and Pavilion. CEDES and Incuity are coming online and we expect positive results. We continue the ongoing globalization of our business illustrated by the fact that half of our sales came from outside the U.S. again. Earnings per share from continuing operations were $1.03, somewhat above the Q3 guidance we provided last month. We experienced a strong finish, particularly in product shipments during the last week of June. Although EPS and operating margins grew sequentially, they were lower than last year largely driven by mix, that is continued slower growth in our higher margin product businesses and increased investment spending to support globalization and growth. In addition to mix and investment spending, margins were also impacted by acquisitions and foreign currency.

Although I am pleased with organic growth in excess of 6%, I was not completely satisfied with our margin performance in this quarter. This is an area that we need to improve, as the success of our business model requires that we drive growth and performance simultaneously.

Now let me shift gears and provide an overview of our current situation assessment and make some closing comments about the balance of the year. We are operating in a bifurcated world economy, where buoyant growth in emerging markets coincides with sluggish growth in developed countries. Our business is still growing, due to investments we have made to diversify our revenue base, including growing our business outside of the U.S., expanding our footprint beyond discrete control, evolving in the plant-wide control, safety and information and developing new vertical and OEM markets to serve a broader set of customer applications. We continue to experience strong growth in Asia Pacific and Latin America. Unfortunately, the macroeconomic conditions are weakening in our two largest markets, the U.S. and Europe.

The situation is also mixed as it relates to vertical markets. We have begun to see a change in buying behavior by some of our customers in consumer-related industries, including project delays and curtailed capital spending. We continue to see strong customer demand for our products, services and solutions in the resource-based industry globally, particularly oil and gas. This contrasts with the recent weakness we have experienced in the Life Sciences industry and the increased turmoil we are now seeing in the U.S. automotive industry. We are operating in a tougher and more challenging economic environment. Our outlook for the remainder of the year calls for continued strength in Asia and Latin America, continued strength in resource-based end markets, flat-to-low single digit organic growth rates in the U.S. and mid single-digit organic growth in EMEA, primarily due to a very strong growth from our ICS Triplex acquisition.

Based on the above outlook, we expect to achieve the following full year results. Revenue growth of 9% to 10%, excluding the impact of currency. EPS of $4.00 to $4.10. Looking forward, we will continue to monitor market conditions and the potential impact on global customer demand. Our existing cost structure and level of spending assume the different mix than we are currently experiencing. As a result, we are taking steps to control costs and to align spending with our growth, while funding continued investment in areas that support growth such as emerging Asia, Latin America, process and information software, and enhancing our technology leadership.

Finally, we are evaluating additional actions to bring our costs down in the current business environment with a view towards rebalancing spending, as well as positioning ourselves to address potential contraction, should it materialize. We remain committed to executing our growth and performance strategy while continuing to invest in our core technologies and the globalization of our business. We continue to believe these investments in technology leadership, expanded serve markets and a stronger global presence are creating more worldwide opportunities for growth than ever before.

We have healthy businesses with solid market position. We have a team that knows how to execute productivity and equally important, how to invest during tough times so that we are better positioned to accelerate out the other side. We look forward to showing you firsthand, how well-positioned we are to take advantage of the power of the evolving technology convergence trend and what it can do for our customers at our Automation Fair on Wednesday, November 19th, in Nashville, including our approach to sustainable production to make customers operations cleaner, safer and more energy-efficient.

In short, how we are building a more valuable company. I remain confident in our ability to deliver superior results and create long-term value for our shareholders.

Now let me turn it over to Ted to give you more details on our performance. Ted?

Ted Crandall - Chief Financial Officer, Senior Vice President

Thanks Keith, and good morning to all on the call. We posted charts to our website, my comments will reference those charts.

On chart 1, Q3 results summary. Starting at the top of the slide, revenues in the quarter was $1,475 million, an increase of 15% over 2007. That includes 6% organic growth, 4% growth attributable to acquisitions and 5% due to the effects of currency translation. Segment operating earnings were $258 million, up sequentially, but a decrease of 2% year-over-year, reflecting continued business mix and spending headwinds. Purchase accounting expense increased $2.5 million year-over-year, due to acquisitions made over the past 12 months, including ICS Triplex and Pavilion Technologies, and in this quarter, Incuity and CEDES.

General corporate net was $21.9 million, up about $4.5 million from last year. The difference primarily relates to $5 million of interest income in Q3 of last year, earned on the proceeds from the sale of power systems. For Q4, we expect general corporate net to be slightly higher than Q3. Interest expense was $16.6 million, up $2.8 million from last year. The second quarter effective tax rate was 28.5%, in the middle of the range of our 28% to 29% guidance for fiscal year '08. In Q2 last year, the comparable tax rate was 26.2%.

EPS was $1.03, as Keith noted, somewhat above our outlook in the June 25th announcement due to a strong finish, particularly in product shipments in the last week of the quarter. Average diluted shares outstanding in the quarter were $148.1 million. During the quarter, we repurchased approximately 1.2 million shares at a cost of $57.4 million and as of June 30th still had $775 million available under our current $1 billion share repurchase authorization. We have been active in the market since the end of June under a 10B-5-1 plan purchasing an additional 1.4 million shares at a cost of about $60 million. That leaves $715 million remaining under the authorization. Moving to chart 2, Q3 results Rockwell Automation. As noted previously, growth in the quarter was 15% year-over-year, excluding the effects of currency translation, growth in the quarter was 10%.

Sales increased 5% sequentially with roughly the same sequential growth in both segments. Strong growth in Asia and Latin America helped offset slower-than-expected growth in Europe and the U.S. Moving to the earnings side of the chart, you'll see that segment earnings were down 2% year-over-year, but grew sequentially over Q2. Operating margin in the quarter was 17.5%, up 40 basis points from last quarter, but down three basis points from the third quarter of last year. We did have particularly strong margin performance in Q3 of 2007. The largest factor in the decline was increased investment spending to support globalization and growth. This was closely followed by revenue mix. That is, continued higher rates of growth in our solutions versus product businesses. The impact of acquisitions and foreign currency also contributed to the year-over-year decline. Although not displayed on the chart, our trailing four-quarter return on investment capital was 24.5%, up 8% -- 0.8 percentage points versus the prior year.

Please turn to Chart 3 now which summarizes Q3 results from the architecture and software segment. Sales in Q3 were up 7% year-over-year, 2%, excluding the effects of currency translation. On a sequential basis, sales were up 4%. Operating margin was 24.7%, up 130 basis points from Q2, but down 360 basis points from the third quarter of last year. Lower-than-anticipated organic growth and increased investment spending were the main contributors to the reduction. This segment is the primary focus area for the technology and growth investments that we have previously discussed. Q3 last year was the highest margin quarter for architecture and software segment and the year-over-year impact of acquisitions also reduced margins by above [ph] 50 basis points.

Chart four covers our Control Products and Solutions segment. Sales in Q3 were up 22% year-over-year. That included 11% organic growth, 6% attributable to acquisitions and 5% due to the effects of currency translation. Sales were up 5% sequentially. This is another very good quarter for growth in this segment, again with particularly strong growth in the Solutions businesses. Operating margin declined slightly on a sequential basis, but declined by 180 basis points, year-over-year to 12.2%. The year-over-year decline is due primarily to the mix impact of higher solutions business growth, as well as impacts from currency and investment spending.

The next chart, chart five shows a geographic breakdown of our sales in the quarter. In the center column you'll see overall growth rates by region and the far right column shows growth rates excluding the effects of currency translation. We saw growth of 6% in the U.S. this quarter, excluding currency and acquisitions U.S. organic growth was 4%. This compares to organic growth of 7%, last quarter and 5%, year-to-date. As we mentioned in the pre-announcement, we did experience lower-than-expected growth in May and June in our U.S. business. We are attributing this to project delays and consumer-related industries and both lower MRO spending and project delays in U.S. automotive.

We now expect flat sales in our product businesses in the U.S. for the balance of the year roughly stable with Q3. Canada grew 9% in the quarter, about 8% organically. This is the strongest growth quarter of the year in Canada, primarily due to a large project in the Oil Sands region. We are expecting to finish the year with mid single-digit organic growth.

For the quarter, Latin America sales were up 19%. Our business continues to benefit from the strength of resource-based industries as well as great execution in this region. We expect the full-year organic growth in this region to be in the mid-to-high teens. In EMEA, sales were up 13% in the quarter, excluding currency impact. Excluding acquisitions, EMEA organic growth was only 2% and year-to-date organic growth was about 4%. This is well below our expectations coming into the year and we are now expecting to end the year in Europe with about 4% organic growth for the full year.

Asia-Pacific had a strong growth quarter, with sales up 20%, excluding currency effects and 17% organic growth. China had great results this quarter with over 30% organic growth. Organic growth in Asia has accelerated every quarter this year and we expect a strong finish in Q4. Again this quarter, we realized a good balance in global revenue mix. For the year-to-date we have about half of our sales coming from outside the U.S.

Now please turn to chart six, which is free cash flow walk. Free cash flow for the quarter was $151 million and $261 million, year-to-date. That's about 100% conversion in Q3, but only 58% conversion, year-to-date. We are targeting higher conversion in Q4 than Q3, but expect to reach only 70% to 75% conversion for the full year. The shortfall is primarily in two areas, working capital, which accounts for about half the shortfall and tax-related items, which account for about one-third of the shortfall. In working capital, the largest factor is inventory. As we discussed in previous quarters, we deliberately built some inventory this year in order to preserve customer service during our SAP implementations. When you couple that with the organization needing to learn new inventory planning processes, it has proven challenging for us to bring inventories down from the higher levels. We continued to see inventory grow in Q3, although at a lower rate than Q1 and Q2. We expect to turn that around in Q4 and begin to reduce inventory, but with only one quarter to go we no longer expect to get back to our original inventory targets by year-end.

With regard to taxes, earlier this year we expected a normal tax benefit from the exercise of stock options which given current share prices has not materialized. This represents the majority of the tax impact. The balance's other income tax payment is somewhat higher this year than we originally projected, primarily a timing issue. Capital expenditures were $43 million in Q3, and we expect CapEx in Q4 to be at about the same level.

I'll close my comments with chart seven, which summarizes our full-year guidance for revenue, EPS and free cash flow. My comments about full-year guidance now reflect the impact of CEDES and Incuity acquisitions that we closed in Q3. We expect these to be mildly dilutive due to purchase accounting and integration costs. With the revenue growth assumptions, we're expecting about 9% to 10% growth, excluding currency for the full year. We expect currency to add about five points to the full-year growth rate.

Year-to-date segment operating margin is just under 18% and we expect full year results to be at about that same level. We continue to expect the full-year tax rate in the range of 28% to 29%. And we are providing EPS guidance of between $4.00 and $4.10 for the full year of fiscal 2008.

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