SecProbe.io

CORRESP
1
filename1.htm

     CORRESP

Rockwell
Automation, Inc.
777 E. Wisconsin Avenue
Milwaukee, WI 53202

April 7, 2005

United States Securities
and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re:
Rockwell Automation, Inc.

Form 10-K for the fiscal year ended September 30, 2004
File No. 1-12383

Ladies and Gentlemen:

This letter is in response to the
comments of the Staff of the Securities and Exchange Commission (the “SEC”) made
in the letter dated March 18, 2005 from Kate Tillan, Reviewing Accountant, Division of
Corporation Finance, to James V. Gelly, Chief Financial Officer of Rockwell Automation,
Inc. (the “Company”), in connection with the Company’s Annual Report on
Form 10-K for the fiscal year ended September 30, 2004. Set forth below are the
Staff’s comments contained in Ms. Tillan’s letter (in bold face type) followed
by our responses.

Form 10-K for the fiscal
year ended September 30, 2004

Consolidated Financial
Statements – Page 30

Note 1. Basis of
Presentation and Accounting Policies – Page 35

     1.
          Please respond to the following comments regarding your revenue recognition
          policy disclosure:

     (A)
          We note your disclosure that revenue is “generally” recognized when
          the requirements of SAB 104 have been met and that you “generally” use
          certain means to determine the existence of an arrangement. The revenue
          recognition policy should be revised in future filings to clearly indicate when
          this is not the case and the specific accounting treatment.

In response to the Staff’s
comment, we will revise our disclosure with respect to our revenue recognition policy in
our next 10-Q filing and applicable filings thereafter.

We supplementally advise the staff as
follows:

Our historical revenue recognition
policy disclosure is descriptive of that portion of our business that constitutes
approximately 90% of our sales. We recognize substantially all of the remainder of our
sales on long-term construction-type contracts using either the percentage-of-completion
or completed contract accounting methods. Several of our businesses sell integrated solutions projects
that are included within the scope of AICPA Statement of Position 81-1. We record sales related to these projects using
the percentage-of-completion method when we determine that progress towards completion is
reasonably and reliably estimable. We use the completed contract accounting method for all
other long-term construction-type contracts. Under the percentage-of-completion accounting
method, we recognize sales and gross profit as work is performed using either (i) the
relationship between actual costs incurred and total estimated costs at completion or (ii)
units-of-delivery. The units-of-delivery method is used when we design, develop and manufacture product
under contract to our customer’s specifications. Under the percentage-of-completion
method, we adjust sales and gross profit prospectively for revisions in estimated total
contract costs. We record estimated losses on all contracts when they are identified.

With respect to our determination as
to the existence of an arrangement, our written policies require that all arrangements be
supported with customer purchase orders or other customer signed contractual
documentation.

As noted previously, we will revise
and expand our disclosure with respect to revenue recognition policies in our next 10-Q
filing and applicable filings thereafter, consistent with the above.

     (B)
          Please tell us and disclose in future filings the nature and significant terms
          of your customer returns, rebates and incentives. Explain the basis for your
          accounting and classification for each and cite the accounting literature upon
          which you relied. Include a discussion of how you determine when to classify the
          rebate and incentive in sales or cost of sales and why. Include a discussion of
          your balance sheet classification as well.

We supplementally advise the staff as
follows:

Our primary incentive program
“Ship From Stock and Credit” provides cash rebates to our distributors. The
rebate is an agreed amount that varies based on the end user or OEM customer to whom our
distributor ultimately sells the product. This program accounts for approximately
two-thirds of all of our customer rebates and incentives. Under this program, future
rebates are reasonably and reliably estimable based on our analysis of the most recent
historical rebate activity relative to eligible sales and the time lag between sale to the
distributor and payment of the rebate. In accordance with EITF 01-9, we accrue for
estimated future rebates at the time of recognition of our sale to the distributor and we
recognize the rebate amounts as a reduction of sales in our statement of operations and as
a current liability in our balance sheet.

2

Various other volume based and single
exchange transaction type incentive programs are offered throughout our business. These
programs provide distributors and direct sale customers with cash rebates or additional
products and services for achieving specified program targets. In accordance with EITF
01-9, we account for cash rebates as a reduction of sales upon recognition of the related
product sale. Rebate amounts are reasonably and reliably estimable. In accordance with
EITF 00-21, we account for additional products and services and the related product sale
as a multiple element arrangement. These arrangements are considered a single unit of
accounting as they do not meet the standard’s separation criteria. Under SAB 104, the
additional products and services rebates are considered inconsequential and perfunctory
and therefore, in accordance with EITF 01-9, the estimated cost is recognized as a cost of
sale (expense) upon recognition of revenue on the related product sale. Balance sheet
classification is either within current liabilities or where we have a right of setoff as
defined in FIN-39, as a reduction of accounts receivable.

In addition, we offer distributors
the right to return product subject to certain contractual limitations. In accordance with
SFAS 48, we record an accrual as a reduction of sales in our statement of operations for
estimated future returns. The accrual is reported as a current liability in our balance
sheet.

In response to the Staff’s
comment, we will include expanded disclosure of our significant returns, rebates and
incentive programs in our next 10-Q filing and applicable filings thereafter
consistent with the above.

     (C)
          Please provide us with a separate rollforward of your customer returns, rebates
          and incentives for each period presented through the latest interim period.
          Include a separate column showing adjustments made in each period to the
          accruals. Clarify where you recorded increases to the accrual in the statement
          of operations. If material, provide similar disclosure in future filings.

We are supplementally providing to
the Staff as Appendix A a separate rollforward of customer rebates and incentives for each
period presented through the latest interim period.

Adjustments to the accruals are
recognized in our statement of operations in sales for cash rebates and in cost of sales
for additional products and services consistent with our response in 1.(B) above. Although current customer returns,
rebates and incentive program costs are not material relative to our consolidated
statement of operations, in response to the Staff’s comment, we will provide similar
disclosure in future filings, if material.

     (D)
          Your disclosure indicates that changes to “other assumptions” (other
          than historical experience) are used to estimate accruals for your rebates and
          incentives

3

     programs. Please tell us and in
     future filings disclose the nature of the other assumptions used.

The reference to changes to
“other assumptions” in our disclosure refers only to an increase in the accrual
for rebates and incentives by $1.4 million (pre-tax) in the fourth fiscal quarter of 2004
to reflect the estimated impact on our Ship From Stock and Credit program of a recently
implemented price increase. This adjustment was necessary as the price increase was not
yet reflected in our historical experience.

In response to the Staff’s
comment, we will expand our disclosure in future filings, if material, to include more
specific information with respect to “other assumptions”.

     (E)
          We note from your business section (page 3) that your products include software.
          Please supplementally tell us your accounting policies with regard to software
          and whether or not revenues from software sales were material in any of the
          periods presented.

We supplementally advise the Staff as
follows:

Sales from software were less than 4%
of our annual consolidated net sales and accordingly not material during any of the
periods presented.

Software products are sold
stand-alone or bundled with other products and services. Our accounting policy for
software revenue recognition follows the guidance in AICPA Statement of Position 97-2. Our
software products do not require significant production, modification, or customization
and therefore we recognize revenue when the following criteria are met:

    –
  Persuasive evidence of an arrangement exists.

    –
  Delivery has occurred.

    –
  The fee is fixed or determinable.

    –
  Collectibility is probable.

Revenue on software
arrangements is recognized when shipped. If there are
undelivered items under a multiple element arrangement, we use vendor-specific objective
evidence of fair value to allocate the fee to the delivered and undelivered items.

We also offer service agreements that
cover many of our products at a customer site, sometimes including software. Service
agreements are typically unbundled from our software arrangements as they are often in
place prior to the software sale or sold in a stand-alone transaction subsequent to the
software sale. We recognize revenue on service agreements on a straight line basis over
the contractual term of the agreement.

If our software revenues become
material, we would expand our revenue recognition policy disclosure in future filings
consistent with the above.

4

     *    *    *    *    *

Please telephone James V. Gelly at
(414) 212-5656 if you require additional information or wish to comment further. If you
wish to comment further in writing, please send such comment to James V. Gelly by
facsimile at (414) 212-5655.

Very truly yours,

     ROCKWELL AUTOMATION, INC.

By:
     /s/ James V. Gelly

Name:
Title:
James V. Gelly
Senior Vice President and Chief Financial Officer

Attachment

VIA EDGAR

cc:
Kate Tillan
Heather Tress
Daniel Gordon

5

APPENDIX A

Rockwell Automation, Inc.

Rollforward of Customer Rebates and Incentives Accruals

(in millions, USD)

Ship From Stock And Credit

United States and Canada Accruals

     Q1 2002
     Q2 2002
     Q3 2002
     Q4 2002
     Q1 2003
     Q2 2003
     Q3 2003
     Q4 2003
     Q1 2004
     Q2 2004
     Q3 2004
     Q4 2004
     Q1 2005

         Beginning Balance

     34.0

     35.0

     34.4

     36.4

     36.5

     37.8

     38.7

     42.9

     41.0

     39.1

     50.9

     49.4

     48.4

           Net Provisions/(Charges)
     1.0

     (0.6
        )
     2.0

     0.1

     1.3

     0.9

     2.2

     (0.2
        )
     3.1

     11.8
        (3)
     2.1

     1.4

     0.3

           Adjustments
     0.0

     0.0

     0.0

     0.0

     0.0

     0.0

     2.0
        (1)
     (1.7
        )(2)
     (5.0
        )(2)
     0.0

     (3.6
        )(2)
     (2.4
        )(4)
     0.0

         Ending Balance
     35.0

     34.4

     36.4

     36.5

     37.8

     38.7

     42.9

     41.0

     39.1

     50.9

     49.4

     48.4

     48.7

     Other Rebates and Incentives

     Selected U.S. Controls Systems and Power Systems Accruals

         Beginning Balance
     32.9

     34.5

     36.9

     41.4

     32.5

     33.9

     28.1

     28.4

     23.2

     24.0

     22.6

     24.7

     23.9

           Net Provisions/(Charges)
     1.6

     2.8

     4.3

     (9.4
        )
     1.4

     (2.0
        )
     0.3

     (4.9
        )
     0.8

     (1.5
        )
     2.1

     (0.8
        )
     1.2

           Adjustments
     0.0

     (0.4
        )
     0.2

     0.5

     0.0

     (3.8
        )(1)
     0.0

     (0.3
        )
     (0.0
        )
     0.1

     0.0

     0.0

     0.0

         Ending Balance
     34.5

     36.9

     41.4

     32.5

     33.9

     28.1

     28.4

     23.2

     24.0

     22.6

     24.7

     23.9

     25.1

         Total Selected Programs Ending Balance
     64.2

     72.3

           Other Subsidiary Ending Balances
     6.6

     6.8

         Total as Reported on Form 10-K
     70.8

     79.1

         Other Current Liabilities – Customer rebates and

           incentives (Note 7 to the financial statements, p. 44, Form 10-K)
     65.4

     71.3

         Accounts Receivable (Note 1 to the financial statements, p. 36, Form 10-K)
     5.4

     7.8

         Total as Reported on Form 10-K
     70.8
        (5)

     79.1
        (5)

          (1)

          Adjustment relates to a true-up in the accrual reflecting a methodology change
          facilitated by improved data and analysis.

          (2)

          Adjustment to the accrual to reflect the calculated reduction in the time lag
          between sale to the distributor and rebate payment. Reduced time lag directly
          attributed to a phased implementation of an operational program by distributors
          to improve the efficiency of their inventory management.

          (3)

          Increase in Net Provisions/(Charges) is attributed to conversion of a significant
          volume of our distributors to the Ship From
Stock and Credit program. Previously these distributors received credits at the time of
billing as a discount off of the invoice price.

          (4)

          Adjustment comprised of two items, a $1.4M increase in accrual related to an
          implemented price increase (see letter response 1.(D)) and a $3.8M decrease to
          accrual as noted in (2) above.

          (5)

          Excludes U.S. and Canada returns reserve of $4.6M and $7.0M at 2003 and 2004,
          respectively, reported as Other Current Liabilities – Other in Note 7 to
          the financial statements, page 44, Form 10-K.