Fitch Ratings Affirms Rockwell Automation at 'A/F1'.

CHICAGO -- Fitch Ratings has affirmed Rockwell Automation, Inc.'s (ROK) senior unsecured debt and commercial paper at 'A/F1', respectively. As of Sept. 30, 2004, ROK had $758 million of debt outstanding. The Rating Outlook is Stable.

The ratings incorporate ROK's well-established positions in its automation end markets, consistent cash flow, low capital intensity, and conservative financial policies. Stronger demand across the industrial sector during 2004 has helped ROK rebuild operating margins and free cash flow. The long-term outlook for demand remains positive but revenue growth may begin to moderate in 2005, reflecting more difficult year-over-year revenue comparisons. In addition, the pace of margin improvement could eventually slow as the proportion of project work increases. Such work tends to have lower margins than maintenance and repair work and typically increases during the late stages of an expansionary business cycle.

Rating concerns include ROK's exposure to cyclicality in its industrial automation and control markets. In addition, a number of larger competitors have a broader market presence and could potentially limit ROK's growth or put pressure on margins. However, ROK's competitive position is enhanced by a large installed base and effective new product development. The ratings incorporate Fitch's expectation for further modest improvement in ROK's operating performance and modest levels of acquisitions and share repurchases that would support stable debt protection measures.

As a result of nonrecurring tax benefits, cash flow during the past two years was unusually high in proportion to net income. Going forward, ROK still expects cash flow to exceed its long-term target of 100% of net income, which should be sufficient to fund dividends, share repurchases, voluntary pension contributions, and an increase in capital expenditures toward a more stabilized level of around $120 million in 2005. ROK plans to reduce its pension contribution in 2005 by approximately half compared to the $157 million contributed in 2004. While the company had a substantial pension liability of slightly more than $500 million at the end of fiscal 2004, the pension liability is manageable within the context of ROK's free cash flow and is considered a neutral factor in the ratings.

As of Sept. 30, 2004, ROK's liquidity position included $473 million of cash and complete availability under bank credit facilities. In October 2004, facilities totaling $675 million were replaced by a longer term, five-year credit agreement for $600 million. ROK's liquidity is augmented by a conservative debt structure in which no significant maturities are scheduled before 2008. Debt/EBITDA of 1.1 times (x) has declined from a cyclical peak of 1.9x in 2002, reflecting ROK's consistent cash flow generation.