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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

Rockwell Automation, Inc.

(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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

185,328,442 shares of registrant’s Common Stock, $1.00 par value, were outstanding on March 31, 2003.

ROCKWELL AUTOMATION, INC.

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ROCKWELL AUTOMATION, INC.

CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN MILLIONS)

See Notes to Condensed Consolidated Financial Statements.

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ROCKWELL AUTOMATION, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

See Notes to Condensed Consolidated Financial Statements.

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ROCKWELL AUTOMATION, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)

See Notes to Condensed Consolidated Financial Statements.

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ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.		BASIS OF PRESENTATION AND ACCOUNTING POLICIES
		In the opinion of management of Rockwell Automation, Inc. (the Company or Rockwell Automation), the unaudited condensed consolidated financial statements contain all adjustments, consisting solely of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002. The results of operations for the three- and six-month periods ended March 31, 2003 are not necessarily indicative of the results for the full year. Certain prior year amounts have been reclassified to conform to the current year presentation.
		Receivables
		Receivables are stated net of allowances for doubtful accounts of $36 million at March 31, 2003 and $45 million at September 30, 2002. The change in the allowance balance primarily relates to the write-off of a $9 million receivable from an independent distributor which was fully reserved at September 30, 2002.
		Income Taxes
		At the end of each interim reporting period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. The rate determined is used in providing for income taxes on a year-to-date basis, excluding the effect of significant unusual items or items that are reported net of their related tax effects. The tax effect of significant unusual items are reflected in the period in which they occur.
		Accounting Change
		Effective October 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS 142). This standard requires that companies no longer systematically amortize goodwill and indefinite life intangible assets, such as trademarks. This standard also requires that companies annually evaluate goodwill and indefinite life intangible assets for impairment. As a result of the transitional impairment test performed upon adoption, in 2002 the Company recorded charges of $56 million ($35 million after tax, or 19 cents per diluted share) related to a trademark impairment and $73 million (before and after tax, or 39 cents per diluted share) related to goodwill impairment at a Power Systems reporting unit. These charges have been recorded as the cumulative effect of accounting change of $129 million ($108 million after tax, or 58 cents per diluted share) as of October 1, 2001 in the accompanying Condensed Consolidated Statement of Operations.
2.		RECENT ACCOUNTING PRONOUNCEMENTS
		In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 requires a company to consolidate any variable interest entities for which that company has a controlling financial interest. FIN 46 also requires disclosures about the variable interest entities that the Company is not required to consolidate, but in which it has a significant variable interest. The Company adopted the consolidation requirements of FIN 46 on February 1, 2003. The adoption had no effect on the Company’s financial position, results of operations or shareowners’ equity.
		In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (SFAS 148), which amends SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 148 provides alternative methods of transition for companies that voluntarily change to the fair value-based method of accounting for stock-based employee compensation, and also requires disclosures in interim financial statements of the pro forma effect on net income and earnings per share as if the Company had accounted for its stock-based plans using the fair value method. See Note 8 for the expanded disclosures required under SFAS 148.
		In November 2002, the Emerging Issues Task Force reached a consensus on issue 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 establishes criteria to determine whether an arrangement that contains multiple deliverables should be divided into separate units of accounting and how the arrangement consideration should be allocated among the separate units. EITF 00-21 will be effective for arrangements entered into after June 30, 2003. Management is currently evaluating the effect of adoption of EITF 00-21 on the Company's financial position, results of operations and shareowners' equity.

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ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

2.		RECENT ACCOUNTING PRONOUNCEMENTS – (CONTINUED)
		In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 provides guidance on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued and also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company previously adopted the disclosure requirements of FIN 45 (see Note 6 and Note 12). The Company adopted the initial recognition and measurement provisions of FIN 45 on January 1, 2003. The adoption had no effect on the Company’s financial position, results of operations or shareowners’ equity.
		In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which addresses financial accounting and reporting associated with certain exit or disposal activities. Under SFAS 146, costs associated with certain exit or disposal activities shall be recognized and measured at their fair value in the period in which the liability is incurred rather than at the date of a commitment to an exit or disposal plan. The Company adopted SFAS 146 on January 1, 2003. The adoption had no effect on the Company’s financial position, results of operations or shareowners’ equity.
3.		ACQUISITIONS OF BUSINESSES
		In March 2003, the Company’s Control Systems segment acquired certain assets and assumed certain liabilities of Weidmüller Holding AG’s (Weidmüller) North American business. In addition, the Company entered into a master brand label agreement, a technology/design exchange and joint product development efforts with Weidmüller. The acquisition is expected to enhance the Company’s position in providing IEC (an international standard for electrical technologies) connection products which are used to connect factory automation systems to basic electrical switches.
		In February 2003, the Company’s Control Systems segment acquired substantially all of the assets and assumed certain liabilities of Interwave Technology, Inc., a consulting integrator focusing on manufacturing solutions. The acquisition is expected to expand the Company’s Manufacturing Information Solutions capability and accelerate its ability to integrate real-time information between customers’ manufacturing plant floor and business systems.
		The aggregate initial cash purchase price for these acquisitions was approximately $25 million. The Company will be required to make additional cash payments if certain future operating performance criteria are met by the acquired businesses.
		Assets acquired and liabilities assumed have been recorded at estimated fair values on a preliminary basis, using information currently available. Amounts recorded for liabilities assumed in connection with the acquisitions were approximately $1 million. The excess of the purchase price over the estimated fair value of the acquired tangible and intangible assets was recorded as goodwill. The Company is currently in the process of finalizing the allocations of the purchase price to the acquired net assets, utilizing the assistance of independent valuation experts, and expects to complete the allocations by the end of the fiscal year.
		The results of operations of the businesses acquired have been included in the Condensed Consolidated Statement of Operations since the respective dates of acquisition. Pro forma financial information is not presented as the effect of the acquisitions was not material to the Company’s results of operations or financial position.

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ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

4.		INVENTORIES
		Inventories are summarized as follows (in millions):

		Inventories are reported net of the allowance for excess and obsolete inventory of $55 million at March 31, 2003 and $53 million at September 30, 2002.
5.		SHORT-TERM DEBT
		Short-term debt consisted of the following (in millions):

		Included in the current portion of long-term debt is $150 million of 6.80% notes which were retired in April 2003.
6.		PRODUCT WARRANTY OBLIGATIONS
		The Company records a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience. The term of the warranty is generally twelve months. The Company also records a liability for specific warranty matters when they become known and are reasonably estimable. The Company’s product warranty obligations are included in other current liabilities in the Condensed Consolidated Balance Sheet.
		Changes in the product warranty obligations for the six-month periods ended March 31, 2003 and 2002 are as follows (in millions):

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ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

7.		LONG-TERM DEBT
		Long-term debt consisted of the following (in millions):

		In September 2002, the Company entered into an interest rate swap contract (the Swap) which effectively converted its $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 3.80 percent at March 31, 2003 and 4.21 percent at September 30, 2002. The fair value of the Swap, based upon quoted market prices for contracts with similar maturities, was approximately $9 million at March 31, 2003 and $6 million at September 30, 2002. As permitted by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), the Company has designated the Swap as a fair value hedge. Accordingly, the fair value of the Swap was recorded in other assets in the Condensed Consolidated Balance Sheet and the carrying value of the underlying debt was adjusted by an equal amount in accordance with SFAS 133.
8.		STOCK OPTIONS
		The Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Stock options are granted at prices equal to the fair market value of the Company’s common stock on the grant dates, therefore no compensation expense is recognized in connection with stock options granted to employees. The following table illustrates the effect on net income and earnings per share as if the fair value-based method provided by SFAS 123 had been applied for all outstanding and unvested awards in each period:

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ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

9.		COMPREHENSIVE INCOME (LOSS)
		Comprehensive income (loss) is summarized as follows (in millions):

		Comprehensive income (loss) consists primarily of net income (loss) and currency translation adjustments.
10.		RELATED PARTY TRANSACTIONS
		The Company owns 50 percent of Rockwell Scientific Company LLC (RSC). This ownership interest is accounted for using the equity method. The Company’s investment in RSC of $52 million at March 31, 2003 and $50 million at September 30, 2002 is included in other assets in the Condensed Consolidated Balance Sheet.
		The Company has an agreement with RSC pursuant to which RSC performs research and development services for the Company through 2004. The Company is obligated to pay RSC a minimum of $3 million for such services in 2003 and $4 million for such services in 2004. The Company incurred approximately $0.8 million in the three-month period ended March 31, 2003 and $1.3 million in the six-month period ended March 31, 2003 and $0.9 million in the three-month period ended March 31, 2002 and $1.7 million in the six-month period ended March 31, 2002 for research and development services performed by RSC. At March 31, 2003 and September 30, 2002, the amount due to RSC for research and development services was not significant.
		The Company shares equally with Rockwell Collins, Inc., which owns 50 percent of RSC, in providing a $4 million line of credit to RSC which bears interest at the greater of the Company’s or Rockwell Collins, Inc.’s commercial paper borrowing rate. At March 31, 2003 and September 30, 2002, there were no outstanding borrowings on the line of credit.
		The Company owns 25 percent of CoLinx, LLC (CoLinx), a company that provides logistics and e-commerce services. The Company paid CoLinx approximately $3.7 million in the three-month period ended March 31, 2003 and $7.3 million in the six-month period ended March 31, 2003 and $4.6 million in the three-month period ended March 31, 2002 and $8.1 million in the six-month period ended March 31, 2002 primarily for logistics services. In addition, CoLinx paid the Company approximately $0.6 million in the three-month period ended March 31, 2003 and $1.3 million in the six-month period ended March 31, 2003 and $0.6 million in the three-month period ended March 31, 2002 and $1.4 million in the six-month period ended March 31, 2002 for the use of facilities owned by the Company and other services. The amounts due to or from CoLinx at March 31, 2003 and September 30, 2002 were not significant.
11.		INCOME TAXES
		On March 31, 2003, the Company filed a research and experimentation credit refund claim (Claim) for the years 1997 through 2001. On April 29, 2003, the Company reached an agreement with the Internal Revenue Service with respect to the Claim for $65 million plus interest. In addition, the Company expects to realize related state tax benefits. The Claim will be offset by a reduction of federal foreign tax credits utilized in the periods covered by the Claim. The Company is in the process of quantifying the amount of federal interest, state tax benefits and the offset related to federal foreign tax credits. The Company expects to recognize in earnings in the third quarter of 2003 a net tax benefit of a minimum of $65 million associated with the Claim. The Claim is subject to the approval of the Joint Committee on Taxation of the United States Congress and the state tax benefits are subject to approval by the various state tax authorities. The majority of the cash proceeds from the Claim are expected to be received upon the conclusion of the current federal audit cycle, which is expected to be in 2005.
		In the second quarter of 2003, a tax benefit of approximately $2 million was recognized as a result of the Company’s ability to utilize certain capital loss carryforwards for which a valuation allowance had been previously provided. The ability to utilize the capital loss carryforwards was the result of the sale of a majority of the Company’s ownership interest in Reliance Electric Limited Japan (REJ) which took place in the second quarter of 2003 (see Note 13).

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ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

12.		COMMITMENTS AND CONTINGENT LIABILITIES
		Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to the conduct of its business, including those pertaining to product liability, intellectual property, safety and health, environmental and employment matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of unfavorably to the Company, management believes the disposition of matters which are pending or asserted will not have a material adverse effect on the Company’s business or financial condition.
		The Company has from time to time divested certain of its businesses. In connection with such divestitures, there may be lawsuits, claims and proceedings instituted or asserted against the Company related to the period that the businesses were owned by the Company or pursuant to indemnifications or guarantees provided by the Company in connection with the respective transactions. The estimated maximum potential amount of future payments under these obligations is not determinable due to the significant number of divestitures and lack of a stated maximum liability for certain matters. In most cases, the Company is indemnified for third party claims. Management believes that judgments, if any, against the Company related to such matters would not have a material effect on the Company’s business or financial condition.
		The Company has guaranteed performance and payment under certain contracts of divested businesses, including a $60 million lease obligation of the Company’s former semiconductor business, now Conexant Systems, Inc. (Conexant). The lease obligation of Conexant is secured by real property subject to the lease and is within a range of estimated fair values of the real property. In consideration for this guarantee, the Company will receive $250,000 per quarter from Conexant through December 31, 2003. Conexant is contractually obligated to take efforts necessary to release the Company from the guarantee by December 31, 2003. In addition, the Company and Rockwell Collins, Inc. each guarantee one-half of a lease agreement for one of RSC’s facilities. The total future minimum lease payments under the lease are approximately $7 million. The lease agreement has a term which ends in 2011. Management believes that claims pursuant to these guarantees, if any, would not have a material effect on the Company’s business or financial condition.

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ROCKWELL AUTOMATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

13.		SEGMENT INFORMATION
		The sales and results of operations of the Company’s segments are summarized as follows (in millions):

The $8 million loss on disposition of a business relates to the sale of a majority of the Company’s ownership interest in REJ. Included in other investing activities in the Condensed Consolidated Statement of Cash Flows are the cash proceeds of approximately $2 million received during the second quarter of 2003 related to this disposition. Also, the Company received a note for approximately $8 million which is due in the fourth quarter of 2003.

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INDEPENDENT ACCOUNTANTS’ REPORT

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

We have reviewed the accompanying condensed consolidated balance sheet of Rockwell Automation, Inc. and subsidiaries (the “Company”) as of March 31, 2003, and the related condensed consolidated statements of operations and cash flows for the three- and six-month periods ended March 31, 2003 and 2002. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, 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 review, we are not aware of any material modifications that should be made to such condensed consolidated 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 auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Company as of September 30, 2002, 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 6, 2002, we expressed an unqualified opinion on those consolidated financial statements (such report includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”). In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2002 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin
April 30, 2003

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ROCKWELL AUTOMATION, INC.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require the Company 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 the Company’s critical accounting policies which the Company believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management is contained on pages 14-16 in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002. Management believes that at March 31, 2003, there has been no material change to this information.

RESULTS OF OPERATIONS

The Company’s sales and operating earnings by segment, excluding intersegment sales, are summarized as follows (in millions):