UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT
OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October 2009
Commission File Number 001-16429
ABB Ltd
(Translation of registrants name into English)
P.O. Box 1831, Affolternstrasse 44, CH-8050, Zurich, Switzerland
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F x |
Form 40-F o |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indication by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrants home country), or under the rules of the home country exchange on which the registrants securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrants security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes o |
No x |
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
This Form 6-K consists of the following:
1. Press release issued by ABB Ltd dated October 29, 2009.
2. Announcements regarding transactions in ABB Ltds securities made by the directors or members of the Executive Committee.
The information provided by Item I above is deemed filed for all purposes under the Securities Exchange Act of 1934, including by reference in the Registration Statement on Form S-8 (Registration No. 333-129271).
2
Press Release |
|
|
· $1 bn net income incl. $380-million gain from previously-announced provision adjustments
· EBIT margin excluding provision adjustments well within the 11-16% target range
· Cash from operations at $1.3 bn on lower inventories and improved cash collection
· Orders down double digits despite strong power infrastructure orders
Zurich, Switzerland, October 29, 2009 ABB reported third-quarter net income of $1 billion, including a $380-million net gain for various previously-announced provision adjustments, and earnings before interest and taxes (EBIT) of $1.4 billion.
Orders declined to $7.1 billion, equivalent to a local-currency reduction of 15 percent, while revenues decreased to $7.9 billion, lower by 5-percent in local currency(1). Investments in power grids continued to grow but lower demand for shorter-cycle products in industrial markets resulted in a 23-percent local currency decrease in base orders (below $15 million). The order decrease also reflects price declines resulting from both lower material costs and weaker demand. The share of orders from emerging markets increased to 55 percent.
EBIT was positively impacted by previously-announced adjustments to provisions and the mark-to-market treatment of hedging transactions. Restructuring-related costs were approximately $40 million.
Excluding these factors, EBIT and EBIT margin were lower than in the same quarter in 2008, primarily reflecting the business mix, decreased capacity utilization and lower prices in short-cycle businesses. These impacts were partially offset by ABBs cost take-out program which yielded savings in the quarter of approximately $500 million.
Net income of $1 billion includes the positive $380-million net contribution from the provision adjustments mentioned above. Cash from operations was $1.3 billion on a significant reduction in inventories and improved cash collection.
We turned in a strong cash performance this quarter and held EBIT margins well within our target range thanks to the continued timely execution of the order backlog and further progress in our cost take-out program, said Joe Hogan, ABBs Chief Executive Officer.
Order trends were in line with what we saw in the second quarter, with steady demand in power and oil and gas but lower base orders in industrial markets, Hogan said. Well continue to focus on making sure our costs are in line with market demand, but at the same time stay aggressively positioned to capture the significant growth opportunities in power infrastructure, renewables, energy efficiency and emerging markets.
2009 Q3 key figures
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q3 09 |
|
Q3 08 |
|
US$ |
|
Local |
|
Orders |
|
7,060 |
|
8,885 |
|
-21 |
% |
-15 |
% |
Order backlog (end Sep) |
|
26,159 |
|
27,211 |
|
-4 |
% |
-4 |
% |
Revenues |
|
7,910 |
|
8,791 |
|
-10 |
% |
-5 |
% |
EBIT |
|
1,419 |
|
1,291 |
|
10 |
% |
|
|
as % of revenues |
|
17.9 |
% |
14.7 |
% |
|
|
|
|
Net income |
|
1,034 |
|
927 |
|
12 |
% |
|
|
Basic net income per share ($) |
|
0.45 |
|
0.41 |
|
|
|
|
|
Cash flow from operating activities |
|
1,281 |
|
1,121 |
|
|
|
|
|
(1) Management discussion of orders and revenues focuses on local currency changes. U.S. dollar changes are reported in the results tables.
3
Orders decreased in the third quarter compared to the year-earlier period as utility investments to expand and refurbish power transmission grids were more than offset by lower demand from most of ABBs industrial markets and the construction sector.
Regionally, orders in local currency were higher in the Americas due mainly to a large power transmission order from Brazil which more than compensated for lower orders in the U.S. Orders in the Middle East and Africa also increased as the result of growth in power orders. Orders were down 25 percent in local currencies in Europe as growth in the Power Systems division, driven mainly by power grid upgrades in western Europe, were more than offset by broad declines in all other divisions, reflecting the generally weak economic environment compared to the same quarter a year ago. Orders in Asia were down 24 percent in local currencies, mainly due to lower marine orders from South Korea and power orders in Australia. Orders in China declined at a single-digit pace in the quarter but were supported by double-digit growth in Automation Products.
Large orders (above $15 million) increased by 42 percent in local currencies compared to the same quarter in 2008.
Revenues declined in the quarter as execution of the order backlog was offset by weaker revenues in shorter-cycle businesses. Service revenues were 2 percent lower in local currencies compared to the third quarter of 2008, mainly reflecting reduced operational expenditures by industrial customers as they adjust costs to the current demand environment.
The order backlog at the end of September 2009 amounted to $26.2 billion, corresponding to a local-currency increase of 4 percent year to date. Compared to the end of the second quarter of 2009, the order backlog is down 3 percent in local currencies.
EBIT and EBIT margin increased compared to the same quarter a year earlier because of previously-announced adjustments to provisions. These adjustments, related to provisions for alleged anti-competitive practices as well as an increase in provisions with respect to ABBs business in Russia, resulted in a net increase in EBIT of approximately $430 million.
Also included in third-quarter 2009 EBIT are restructuring-related costs of approximately $40 million related to the two-year, $2-billion cost take-out program announced earlier this year.
The mark-to-market impact from hedging transactions had a positive impact on EBIT in the third quarter equivalent to approximately 0.6 percentage points of EBIT margin. The impact in the same quarter last year was negative in an amount equivalent to approximately one percentage point of EBIT margin.
For purposes of comparison, the third-quarter 2009 EBIT margin, excluding the impact of provision adjustments, restructuring and the mark-to-market impact from hedging transactions, is approximately 3.5 percentage points lower than the EBIT margin in the same quarter in 2008, also adjusted for the impact of the mark-to-market impact from hedging transactions described above.
This decrease primarily reflects the combination of lower revenues from higher-margin product businesses, as well as lower capacity utilization and price pressure mainly in ABBs short-cycle businesses compared to the same period a year earlier.
4
EBIT and EBIT margin were positively impacted by cost savings in sourcing, general and administrative expenses, as well as footprint adjustments and operational excellence initiatives, amounting to approximately $500 million in the quarter. Year-to-date, the cost take-out program has generated savings in excess of $1 billion.
Third-quarter net income of approximately $1 billion includes a positive $380-million impact resulting from previously-announced provision adjustments. This amount is comprised of the $430-million improvement to EBIT described above less approximately $50 million in interest and other finance expense and income taxes.
Net cash at the end of the third quarter was $5.8 billion compared to $5.7 billion at the end of the previous quarter. Cash flow from operations amounted to $1.3 billion while cash used in financing activities included a dividend payment of $1 billion in the form of a nominal value reduction, made at the end of July 2009, as approved by shareholders at the Annual General Meeting in May.
As previously announced, ABB has disclosed to the U.S. Department of Justice and the U.S. Securities and Exchange Commission various suspect payments.
Also as previously announced, ABB has been cooperating with various anti-trust authorities regarding certain allegedly anti-competitive practices in the power transformer business. On October 7, 2009, the European Commission announced its decision on this matter and imposed a fine of 33.75 million on ABB. In addition, ABBs cables business is under investigation for alleged anti-competitive practices.
With respect to these matters, there could be adverse outcomes beyond our provisions.
Cost reductions
ABB continued to execute its previously-announced cost take-out program during the third quarter. The program aims to sustainably reduce ABBs costs comprising both cost of sales as well as general and administrative expenses from 2008 levels by a total of $2 billion by the end of 2010. The savings are focused on acceleration of ongoing initiatives in low-cost sourcing, general and administrative expenses, internal process improvements and adjustments to ABBs global manufacturing and engineering footprint.
Cost reductions for the first three quarters of 2009 were significantly ahead of plan and exceeded $1 billion, equal to the original targeted take-out for the full year. Approximately 60 percent of these savings were achieved by optimizing global sourcing (excluding the impact of exchange-traded commodities). The remainder was achieved through reductions to general and administrative expenses, as well as global footprint and operational excellence measures.
The total cost of the program is expected to approach $1 billion of which approximately $100 million was already recorded in 2008. Costs associated with the program in the third quarter of 2009 amounted to approximately $40 million, bringing the total cost so far in 2009 to approximately $170 million.
5
ABB announced in September the appointment of Brice Koch to the Group Executive Committee as Head of Marketing and Customer Solutions, a new role created to drive additional growth across the companys markets and regions. The appointment is effective January 1, 2010.
The outlook for ABBs businesses over the rest of 2009 and into 2010 remains uncertain.
The need for energy-efficient power infrastructure remains in all regions, supported by political measures to address climate change and increasing demand for renewable power generation. Demand in ABBs industrial end markets depends to a large extent on GDP growth and capital spending, together with commodity prices. Customers need to steadily improve energy efficiency and productivity also drives orders. Increasing commodity prices generally support ABBs industrial businesses as they promote customer investment in capacity expansion.
However, it remains unclear when and how quickly capital investments by customers will recover from the downturn. In addition, the volatility of raw material prices and the limited availability of project funding continue to influence the timing of many power and industrial investment decisions, especially among small- to medium-sized companies.
Therefore, managements priority for the next several quarters will be to ensure that the company has the flexibility to respond quickly to changing market conditions, taking advantage of its global footprint, strong balance sheet and leading technologies to improve its cost competitiveness while simultaneously tapping further opportunities for profitable growth.
Divisional performance Q3 2009
Power Products
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q3 09 |
|
Q3 08 |
|
US$ |
|
Local |
|
Orders |
|
2,553 |
|
3,409 |
|
-25 |
% |
-21 |
% |
Order backlog (end Sep) |
|
8,712 |
|
9,081 |
|
-4 |
% |
-4 |
% |
Revenues |
|
2,823 |
|
3,034 |
|
-7 |
% |
-2 |
% |
EBIT |
|
477 |
|
536 |
|
-11 |
% |
|
|
as % of revenues |
|
16.9 |
% |
17.7 |
% |
|
|
|
|
Cash flow from operating activities |
|
592 |
|
479 |
|
|
|
|
|
Orders received declined across all regions compared to the same quarter a year ago, mainly as a result of lower demand in industrial and construction-related markets. Order intake was further impacted by lower prices due both to weaker market conditions and pass-through of reduced commodity costs.
Revenues decreased in the quarter as execution of the order backlog in longer-cycle businesses, such as high-voltage equipment, was partly offset by lower revenues from shorter-cycle businesses related to the industrial and construction sectors, such as medium-voltage equipment and distribution transformers. Revenues were also negatively impacted by delays in customer acceptance of products.
EBIT and EBIT margin were lower mainly on reduced revenues but also reflecting the lower share of higher-margin short-cycle product revenues compared to the same quarter a year earlier.
Cash flow from operations improved in the quarter, largely due to a reduction in inventories.
6
Power Systems
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q3 09 |
|
Q3 08 |
|
US$ |
|
Local |
|
Orders |
|
1,991 |
|
1,293 |
|
54 |
% |
70 |
% |
Order backlog (end Sep) |
|
9,770 |
|
8,661 |
|
13 |
% |
14 |
% |
Revenues |
|
1,612 |
|
1,601 |
|
1 |
% |
7 |
% |
EBIT |
|
117 |
|
113 |
|
4 |
% |
|
|
as % of revenues |
|
7.3 |
% |
7.1 |
% |
|
|
|
|
Cash flow from operating activities |
|
11 |
|
111 |
|
|
|
|
|
Orders increased significantly in the third quarter due to a strong increase in large orders from utilities to expand power transmission capacity that more than compensated for lower industrial demand. Regionally, orders were higher in the Americas, mainly the result of a $540-million order for a high-voltage direct current (HVDC) power link in Brazil. Orders also grew in Europe and the Middle East but decreased in Asia as lower orders in Australia and China more than offset strong growth in India.
Revenues increased on execution of the continuing strong order backlog, leading to higher EBIT and EBIT margin. The mark-to-market treatment of hedging transactions had a positive impact in the quarter that was offset by charges related to project execution and provisions related to the business in Russia.
Cash flow from operations was lower than in the same quarter a year earlier due to higher net working capital needed for projects in execution.
Automation Products
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q3 09 |
|
Q3 08 |
|
US$ |
|
Local |
|
Orders |
|
2,033 |
|
2,741 |
|
-26 |
% |
-22 |
% |
Order backlog (end Sep) |
|
3,940 |
|
4,380 |
|
-10 |
% |
-12 |
% |
Revenues |
|
2,234 |
|
2,612 |
|
-14 |
% |
-10 |
% |
EBIT |
|
340 |
|
491 |
|
-31 |
% |
|
|
as % of revenues |
|
15.2 |
% |
18.8 |
% |
|
|
|
|
Cash flow from operating activities |
|
536 |
|
509 |
|
|
|
|
|
Continued weakness in ABBs industrial and construction end markets in the third quarter resulted in a decrease in both base and large orders received compared to the same period a year earlier. Orders increased in China but were lower than last year in the rest of Asia and in all other regions. Orders were also impacted by lower prices resulting from a decrease in material costs as well as reduced demand.
Revenues declined more slowly than orders in the quarter as execution of the strong order backlog in businesses such as machines and power electronics partly offset lower revenues in shorter-cycle businesses such as low-voltage products.
EBIT and EBIT margin in the quarter declined compared to the very strong third quarter in 2008. This was mainly due to lower revenues and restructuring-related costs of $12 million to adapt to the weaker demand environment.
Cash flow from operations was higher, primarily due to a reduction in net working capital, mainly lower inventories.
7
Process Automation
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q3 09 |
|
Q3 08 |
|
US$ |
|
Local |
|
Orders |
|
1,145 |
|
1,969 |
|
-42 |
% |
-39 |
% |
Order backlog (end Sep) |
|
6,064 |
|
7,146 |
|
-15 |
% |
-16 |
% |
Revenues |
|
1,809 |
|
1,920 |
|
-6 |
% |
0 |
% |
EBIT |
|
164 |
|
218 |
|
-25 |
% |
|
|
as % of revenues |
|
9.1 |
% |
11.4 |
% |
|
|
|
|
Cash flow from operating activities |
|
254 |
|
243 |
|
|
|
|
|
Orders continued to decline in the third quarter compared to the same quarter in 2008 as steady demand from the oil and gas sector was more than offset by ongoing weakness in other sectors. Large orders declined by more than 50 percent in both U.S. dollar and local currency terms and base orders were also down at a double-digit pace. Orders decreased in all regions except the Middle East and Africa, where demand from the oil and gas sector supported a local-currency order increase. Orders in Asia decreased on a reduction in marine orders, mainly from South Korea and Singapore.
Revenues were down (flat in local currencies) in the quarter as execution of the strong order backlog in the marine, minerals and oil and gas businesses was offset by lower revenues in pulp and paper and from lower book-and-bill product sales in the quarter. Service revenues were flat in local currencies.
EBIT and EBIT margin declined compared to the same quarter a year earlier, however, largely due to the high share of systems revenues that typically carry a lower EBIT margin. The mark-to-market treatment of hedging transactions also negatively impacted EBIT in the quarter.
Cash flow from operations increased in the quarter, mainly reflecting the timing of large project payments and measures to improve net working capital management.
Robotics
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q3 09 |
|
Q3 08 |
|
US$ |
|
Local |
|
Orders |
|
169 |
|
400 |
|
-58 |
% |
-56 |
% |
Order backlog (end Sep) |
|
367 |
|
665 |
|
-45 |
% |
-46 |
% |
Revenues |
|
211 |
|
431 |
|
-51 |
% |
-49 |
% |
EBIT |
|
(36 |
) |
28 |
|
n/a |
|
|
|
as % of revenues |
|
-17.1 |
% |
6.5 |
% |
|
|
|
|
Cash flow from operating activities |
|
(5 |
) |
(9 |
) |
|
|
|
|
Robotics orders declined as the result of a significant drop in demand from the global manufacturing sector compared to the same period in 2008. Revenues decreased on a lower opening order backlog and reduced service business.
The division reported an EBIT loss related to low factory loading, declining service revenues and further capacity adjustments and changes to the operational footprint.
8
More information
The 2009 Q3 results press release and presentation slides are available from October 29, 2009, on the ABB News Center at www.abb.com/news and on the Investor Relations homepage at www.abb.com/investorrelations.
ABB will host a media conference call starting at 10:00 a.m. Central European Time (CET). U.K. callers should dial +44 20 7107 0611. From Sweden, +46 8 5069 2105, and from the rest of Europe, +41 91 610 56 00. Lines will be open 15 minutes before the start of the conference. Audio playback of the call will start one hour after the call ends and will be available for 96 hours: Playback numbers: +44 20 7108 6233 (U.K.), +41 91 612 4330 (rest of Europe) or +1 866 416 2558 (U.S./Canada). The code is 18172, followed by the # key.
A conference call for analysts and investors is scheduled to begin today at 3:00 p.m. CET (10:00 a.m. EDT). Callers should dial +1 412 858 4600 (from the U.S./Canada) or +41 91 610 5600 (Europe and the rest of the world). Callers are requested to phone in 15 minutes before the start of the call. The audio playback of the call will start one hour after the end of the call and be available for two weeks. Playback numbers: +1 866 416 2558 (U.S./Canada) or +41 91 612 4330 (Europe and the rest of the world). The code is 10636, followed by the # key.
Investor calendar 2010 |
|
|
Q4 2009 results |
|
Feb. 18, 2010 |
Q1 2010 results |
|
April 22, 2010 |
Annual General Meeting of shareholders |
|
April 26, 2010 |
Q2 2010 results |
|
July 22, 2010 |
Q3 2010 results |
|
Oct. 28, 2010 |
ABB (www.abb.com) is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The ABB Group of companies operates in around 100 countries and employs about 120,000 people.
Zurich, Oct. 29, 2009
Joe Hogan, CEO
Important notice about forward-looking information
This press release includes forward-looking information and statements including the sections entitled Cost reductions, Outlook, and Compliance, as well as other statements concerning the outlook for our business. These statements are based on current expectations, estimates and projections about the factors that may affect our future performance, including global economic conditions, the economic conditions of the regions and industries that are major markets for ABB Ltd. These expectations, estimates and projections are generally identifiable by statements containing words such as expects, believes, estimates, targets, plans or similar expressions. However, there are many risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking information and statements made in this press release and which could affect our ability to achieve any or all of our stated targets. The important factors that could cause such differences include, among others, business risks related to the financial crisis and economic slowdown, costs associated with compliance activities, the amount of revenues we are able to generate from backlog and orders received, raw materials prices, market acceptance of new products and services, changes in governmental regulations and currency exchange rates and such other factors as may be discussed from time to time in ABB Ltds filings with the U.S. Securities and Exchange Commission, including its Annual Reports on Form 20-F. Although ABB Ltd believes that its expectations reflected in any such forward-looking statement are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved.
For more information please contact:
Media Relations: |
Investor Relations: |
ABB Ltd |
Thomas Schmidt, Wolfram Eberhardt |
Switzerland: Tel. +41 43 317 7111 |
Affolternstrasse 44 |
(Zurich, Switzerland) |
Sweden: Tel. +46 21 325 000 |
CH-8050 Zurich, Switzerland |
Tel: +41 43 317 6568 |
USA: Tel. +1 203 750 7743 |
|
media.relations@ch.abb.com |
investor.relations@ch.abb.com |
|
9
ABB Q3 and nine-months (9M) 2009 key figures
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
Change |
|
||||
$ millions unless otherwise indicated |
|
Q3 09 |
|
Q3 08 |
|
US$ |
|
Local |
|
9M 09 |
|
9M 08 |
|
US$ |
|
Local |
|
||
Orders |
|
Group |
|
7,060 |
|
8,885 |
|
-21 |
% |
-15 |
% |
23,519 |
|
31,099 |
|
-24 |
% |
-15 |
% |
|
|
Power Products |
|
2,553 |
|
3,409 |
|
-25 |
% |
-21 |
% |
8,273 |
|
11,012 |
|
-25 |
% |
-16 |
% |
|
|
Power Systems |
|
1,991 |
|
1,293 |
|
54 |
% |
70 |
% |
5,967 |
|
5,952 |
|
0 |
% |
17 |
% |
|
|
Automation Products |
|
2,033 |
|
2,741 |
|
-26 |
% |
-22 |
% |
6,392 |
|
8,778 |
|
-27 |
% |
-20 |
% |
|
|
Process Automation |
|
1,145 |
|
1,969 |
|
-42 |
% |
-39 |
% |
4,912 |
|
7,205 |
|
-32 |
% |
-23 |
% |
|
|
Robotics |
|
169 |
|
400 |
|
-58 |
% |
-56 |
% |
557 |
|
1,359 |
|
-59 |
% |
-55 |
% |
|
|
Corporate (consolidation) |
|
(831 |
) |
(927 |
) |
|
|
|
|
(2,582 |
) |
(3,207 |
) |
|
|
|
|
Revenues |
|
Group |
|
7,910 |
|
8,791 |
|
-10 |
% |
-5 |
% |
23,034 |
|
25,772 |
|
-11 |
% |
-1 |
% |
|
|
Power Products |
|
2,823 |
|
3,034 |
|
-7 |
% |
-2 |
% |
8,130 |
|
8,682 |
|
-6 |
% |
3 |
% |
|
|
Power Systems |
|
1,612 |
|
1,601 |
|
1 |
% |
7 |
% |
4,641 |
|
5,010 |
|
-7 |
% |
4 |
% |
|
|
Automation Products |
|
2,234 |
|
2,612 |
|
-14 |
% |
-10 |
% |
6,482 |
|
7,766 |
|
-17 |
% |
-8 |
% |
|
|
Process Automation |
|
1,809 |
|
1,920 |
|
-6 |
% |
0 |
% |
5,439 |
|
5,727 |
|
-5 |
% |
7 |
% |
|
|
Robotics |
|
211 |
|
431 |
|
-51 |
% |
-49 |
% |
739 |
|
1,235 |
|
-40 |
% |
-34 |
% |
|
|
Corporate (consolidation) |
|
(779 |
) |
(807 |
) |
|
|
|
|
(2,397 |
) |
(2,648 |
) |
|
|
|
|
EBIT |
|
Group |
|
1,419 |
|
1,291 |
|
10 |
% |
|
|
3,328 |
|
4,093 |
|
-19 |
% |
|
|
|
|
Power Products |
|
477 |
|
536 |
|
-11 |
% |
|
|
1,474 |
|
1,656 |
|
-11 |
% |
|
|
|
|
Power Systems |
|
117 |
|
113 |
|
4 |
% |
|
|
322 |
|
411 |
|
-22 |
% |
|
|
|
|
Automation Products |
|
340 |
|
491 |
|
-31 |
% |
|
|
979 |
|
1,486 |
|
-34 |
% |
|
|
|
|
Process Automation |
|
164 |
|
218 |
|
-25 |
% |
|
|
486 |
|
686 |
|
-29 |
% |
|
|
|
|
Robotics |
|
(36 |
) |
28 |
|
n/a |
|
|
|
(108 |
) |
82 |
|
n/a |
|
|
|
|
|
Corporate |
|
357 |
|
(95 |
) |
|
|
|
|
175 |
|
(228 |
) |
|
|
|
|
EBIT margin |
|
Group |
|
17.9 |
% |
14.7 |
% |
|
|
|
|
14.4 |
% |
15.9 |
% |
|
|
|
|
|
|
Power Products |
|
16.9 |
% |
17.7 |
% |
|
|
|
|
18.1 |
% |
19.1 |
% |
|
|
|
|
|
|
Power Systems |
|
7.3 |
% |
7.1 |
% |
|
|
|
|
6.9 |
% |
8.2 |
% |
|
|
|
|
|
|
Automation Products |
|
15.2 |
% |
18.8 |
% |
|
|
|
|
15.1 |
% |
19.1 |
% |
|
|
|
|
|
|
Process Automation |
|
9.1 |
% |
11.4 |
% |
|
|
|
|
8.9 |
% |
12.0 |
% |
|
|
|
|
|
|
Robotics |
|
-17.1 |
% |
6.5 |
% |
|
|
|
|
-14.6 |
% |
6.6 |
% |
|
|
|
|
Q3 2009 orders received and revenues by region
|
|
Orders received |
|
Change |
|
Revenues |
|
Change |
|
||||||||
$ millions |
|
Q3 09 |
|
Q3 08 |
|
US$ |
|
Local |
|
Q3 09 |
|
Q3 08 |
|
US$ |
|
Local |
|
Europe |
|
2,624 |
|
3,803 |
|
-31 |
% |
-25 |
% |
3,371 |
|
4,072 |
|
-17 |
% |
-10 |
% |
Americas |
|
1,723 |
|
1,845 |
|
-7 |
% |
4 |
% |
1,495 |
|
1,571 |
|
-5 |
% |
0 |
% |
Asia |
|
1,864 |
|
2,512 |
|
-26 |
% |
-24 |
% |
2,177 |
|
2,266 |
|
-4 |
% |
0 |
% |
Middle East and Africa |
|
849 |
|
725 |
|
17 |
% |
20 |
% |
867 |
|
882 |
|
-2 |
% |
0 |
% |
Group total |
|
7,060 |
|
8,885 |
|
-21 |
% |
-15 |
% |
7,910 |
|
8,791 |
|
-10 |
% |
-5 |
% |
10
Reconciliation of non-GAAP financial measures regarding Q3 2009
($ millions, unaudited)
EBIT margin |
|
|
|
Earnings before interest and taxes (EBIT) |
|
1,419 |
|
Revenues |
|
7,910 |
|
EBIT margin (EBIT as % of revenues) |
|
17.9 |
% |
|
|
|
|
Net cash |
|
|
|
Short-term debt and current maturities of long-term debt |
|
(218 |
) |
Long-term debt |
|
(2,219 |
) |
Total debt |
|
(2,437 |
) |
|
|
|
|
Cash and equivalents |
|
5,502 |
|
Marketable securities and short-term investments |
|
2,779 |
|
Cash and marketable securities |
|
8,281 |
|
Net cash |
|
5,844 |
|
EBIT margin is calculated by dividing EBIT by revenues. Management believes EBIT margin is a useful measure of profitability and uses it as a performance target.
Net cash is a financial measure that is calculated as the total of cash and equivalents, marketable securities and short-term investments minus our total debt.
11
ABB Ltd Interim Consolidated Income Statements (unaudited)
|
|
Nine months ended |
|
Three months ended |
|
||||
(in millions of $, except per share data in $) |
|
Sep. 30, 2009 |
|
Sep. 30, 2008 |
|
Sep. 30, 2009 |
|
Sep. 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Sales of products |
|
19,522 |
|
21,926 |
|
6,713 |
|
7,499 |
|
Sales of services |
|
3,512 |
|
3,846 |
|
1,197 |
|
1,292 |
|
Total revenues |
|
23,034 |
|
25,772 |
|
7,910 |
|
8,791 |
|
Cost of products |
|
(13,816 |
) |
(14,909 |
) |
(4,803 |
) |
(5,241 |
) |
Cost of services |
|
(2,363 |
) |
(2,520 |
) |
(800 |
) |
(844 |
) |
Total cost of sales |
|
(16,179 |
) |
(17,429 |
) |
(5,603 |
) |
(6,085 |
) |
Gross profit |
|
6,855 |
|
8,343 |
|
2,307 |
|
2,706 |
|
Selling, general and administrative expenses |
|
(3,972 |
) |
(4,320 |
) |
(1,333 |
) |
(1,432 |
) |
Other income (expense), net |
|
445 |
|
70 |
|
445 |
|
17 |
|
Earnings before interest and taxes |
|
3,328 |
|
4,093 |
|
1,419 |
|
1,291 |
|
Interest and dividend income |
|
93 |
|
250 |
|
25 |
|
75 |
|
Interest and other finance expense |
|
(96 |
) |
(139 |
) |
(63 |
) |
(62 |
) |
Income from continuing operations before taxes |
|
3,325 |
|
4,204 |
|
1,381 |
|
1,304 |
|
Provision for taxes |
|
(831 |
) |
(1,114 |
) |
(297 |
) |
(331 |
) |
Income from continuing operations, net of tax |
|
2,494 |
|
3,090 |
|
1,084 |
|
973 |
|
Income (loss) from discontinued operations, net of tax |
|
26 |
|
(1 |
) |
4 |
|
6 |
|
Net income |
|
2,520 |
|
3,089 |
|
1,088 |
|
979 |
|
Net income attributable to noncontrolling interests |
|
(159 |
) |
(184 |
) |
(54 |
) |
(52 |
) |
Net income attributable to ABB |
|
2,361 |
|
2,905 |
|
1,034 |
|
927 |
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to ABB shareholders: |
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
2,335 |
|
2,908 |
|
1,030 |
|
921 |
|
Income (loss) from discontinued operations, net of tax |
|
26 |
|
(3 |
) |
4 |
|
6 |
|
Net income |
|
2,361 |
|
2,905 |
|
1,034 |
|
927 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to ABB shareholders: |
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
1.02 |
|
1.27 |
|
0.45 |
|
0.40 |
|
Income (loss) from discontinued operations, net of tax |
|
0.01 |
|
0.00 |
|
0.00 |
|
0.01 |
|
Net income |
|
1.03 |
|
1.27 |
|
0.45 |
|
0.41 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to ABB shareholders: |
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
1.02 |
|
1.26 |
|
0.45 |
|
0.40 |
|
Income (loss) from discontinued operations, net of tax |
|
0.01 |
|
0.00 |
|
0.00 |
|
0.00 |
|
Net income |
|
1.03 |
|
1.26 |
|
0.45 |
|
0.40 |
|
|
|
|
|
|
|
|
|
|
|
Average number of shares (in millions) used to compute: |
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to ABB shareholders |
|
2,283 |
|
2,289 |
|
2,283 |
|
2,285 |
|
Diluted earnings per share attributable to ABB shareholders |
|
2,286 |
|
2,301 |
|
2,289 |
|
2,294 |
|
See Notes to the Interim Consolidated Financial Information
12
ABB Ltd Interim Consolidated Balance Sheets (unaudited)
(in millions of $, except share data) |
|
Sep. 30, 2009 |
|
Dec. 31, 2008 |
|
|
|
|
|
|
|
Cash and equivalents |
|
5,502 |
|
6,399 |
|
Marketable securities and short-term investments |
|
2,779 |
|
1,407 |
|
Receivables, net |
|
9,580 |
|
9,245 |
|
Inventories, net |
|
5,347 |
|
5,306 |
|
Prepaid expenses |
|
261 |
|
237 |
|
Deferred taxes |
|
986 |
|
1,020 |
|
Other current assets |
|
495 |
|
733 |
|
Total current assets |
|
24,950 |
|
24,347 |
|
|
|
|
|
|
|
Financing receivables, net |
|
450 |
|
445 |
|
Property, plant and equipment, net |
|
3,967 |
|
3,562 |
|
Goodwill |
|
3,035 |
|
2,817 |
|
Other intangible assets, net |
|
461 |
|
411 |
|
Prepaid pension and other employee benefits |
|
106 |
|
73 |
|
Investments in equity method companies |
|
48 |
|
68 |
|
Deferred taxes |
|
1,122 |
|
1,190 |
|
Other non-current assets |
|
287 |
|
268 |
|
Total assets |
|
34,426 |
|
33,181 |
|
|
|
|
|
|
|
Accounts payable, trade |
|
3,935 |
|
4,451 |
|
Billings in excess of sales |
|
1,385 |
|
1,224 |
|
Accounts payable, other |
|
1,264 |
|
1,292 |
|
Short-term debt and current maturities of long-term debt |
|
218 |
|
354 |
|
Advances from customers |
|
2,105 |
|
2,014 |
|
Deferred taxes |
|
480 |
|
528 |
|
Provisions for warranties |
|
1,171 |
|
1,105 |
|
Provisions and other current liabilities |
|
2,624 |
|
3,467 |
|
Accrued expenses |
|
1,593 |
|
1,569 |
|
Total current liabilities |
|
14,775 |
|
16,004 |
|
|
|
|
|
|
|
Long-term debt |
|
2,219 |
|
2,009 |
|
Pension and other employee benefits |
|
1,128 |
|
1,071 |
|
Deferred taxes |
|
417 |
|
425 |
|
Other non-current liabilities |
|
1,959 |
|
1,902 |
|
Total liabilities |
|
20,498 |
|
21,411 |
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
Capital stock and additional paid-in capital |
|
3,893 |
|
4,841 |
|
Retained earnings |
|
12,288 |
|
9,927 |
|
Accumulated other comprehensive loss |
|
(1,954 |
) |
(2,710 |
) |
Treasury stock, at cost (39,938,859 shares at September 30, 2009, and 40,108,014 shares at December 31, 2008) |
|
(897 |
) |
(900 |
) |
Total ABB stockholders equity |
|
13,330 |
|
11,158 |
|
Noncontrolling interests |
|
598 |
|
612 |
|
Total stockholders equity |
|
13,928 |
|
11,770 |
|
Total liabilities and stockholders equity |
|
34,426 |
|
33,181 |
|
See Notes to the Interim Consolidated Financial Information
13
ABB Ltd Interim Consolidated Statements of Cash Flows (unaudited)
|
|
Nine months ended |
|
Three months ended |
|
||||
(in millions of $) |
|
Sep. 30, 2009 |
|
Sep. 30, 2008 |
|
Sep. 30, 2009 |
|
Sep. 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
2,520 |
|
3,089 |
|
1,088 |
|
979 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
467 |
|
483 |
|
169 |
|
166 |
|
Pension and postretirement benefits |
|
(1 |
) |
46 |
|
(10 |
) |
1 |
|
Deferred taxes |
|
(11 |
) |
222 |
|
(10 |
) |
49 |
|
Net gain from sale of property, plant and equipment |
|
(11 |
) |
(34 |
) |
(2 |
) |
(6 |
) |
Income (loss) from equity accounted companies |
|
1 |
|
(12 |
) |
1 |
|
(4 |
) |
Other |
|
(13 |
) |
64 |
|
16 |
|
25 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Trade receivables |
|
172 |
|
(1,193 |
) |
137 |
|
(311 |
) |
Inventories |
|
398 |
|
(1,017 |
) |
413 |
|
(454 |
) |
Trade payables |
|
(703 |
) |
401 |
|
(198 |
) |
51 |
|
Billings in excess of sales |
|
56 |
|
434 |
|
(14 |
) |
176 |
|
Provisions, net |
|
(370 |
) |
(137 |
) |
(433 |
) |
(39 |
) |
Advances from customers |
|
(18 |
) |
349 |
|
15 |
|
192 |
|
Other assets and liabilities, net |
|
(243 |
) |
(132 |
) |
109 |
|
296 |
|
Net cash provided by operating activities |
|
2,244 |
|
2,563 |
|
1,281 |
|
1,121 |
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
Changes in financing receivables |
|
(2 |
) |
(1 |
) |
|
|
3 |
|
Purchases of marketable securities (available-for-sale) |
|
(81 |
) |
(420 |
) |
(19 |
) |
(300 |
) |
Purchases of marketable securities (held-to-maturity) |
|
(799 |
) |
|
|
(238 |
) |
|
|
Purchases of short-term investments |
|
(2,071 |
) |
(2,410 |
) |
(1,720 |
) |
(1,150 |
) |
Purchases of property, plant and equipment and intangible assets |
|
(624 |
) |
(736 |
) |
(215 |
) |
(263 |
) |
Acquisition of businesses (net of cash acquired) |
|
(155 |
) |
(552 |
) |
(100 |
) |
(525 |
) |
Proceeds from sales of marketable securities (available-for-sale) |
|
63 |
|
80 |
|
21 |
|
25 |
|
Proceeds from maturity of marketable securities (available-for-sale) |
|
855 |
|
|
|
|
|
|
|
Proceeds from maturity of marketable securities (held-to-maturity) |
|
273 |
|
|
|
273 |
|
|
|
Proceeds from short-term investments |
|
448 |
|
4,196 |
|
356 |
|
|
|
Proceeds from sales of property, plant and equipment |
|
23 |
|
45 |
|
5 |
|
6 |
|
Proceeds from sales of businesses and equity accounted companies (net of cash disposed) |
|
10 |
|
46 |
|
3 |
|
23 |
|
Other |
|
2 |
|
|
|
2 |
|
|
|
Net cash provided by (used in) investing activities |
|
(2,058 |
) |
248 |
|
(1,632 |
) |
(2,181 |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
Net changes in debt with maturities of 90 days or less |
|
(28 |
) |
32 |
|
(34 |
) |
(59 |
) |
Increase in debt |
|
440 |
|
323 |
|
123 |
|
146 |
|
Repayment of debt |
|
(523 |
) |
(641 |
) |
(174 |
) |
(157 |
) |
Issuance of shares |
|
3 |
|
49 |
|
3 |
|
49 |
|
Purchase of treasury shares |
|
|
|
(606 |
) |
|
|
(161 |
) |
Dividends paid in the form of nominal value reduction |
|
(1,027 |
) |
(1,060 |
) |
(1,027 |
) |
(1,060 |
) |
Dividends paid to noncontrolling shareholders |
|
(191 |
) |
(149 |
) |
(85 |
) |
(46 |
) |
Other |
|
(14 |
) |
63 |
|
20 |
|
32 |
|
Net cash used in financing activities |
|
(1,340 |
) |
(1,989 |
) |
(1,174 |
) |
(1,256 |
) |
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash and equivalents |
|
257 |
|
(151 |
) |
205 |
|
(424 |
) |
Adjustment for the net change in cash and equivalents in assets held for sale and in discontinued operations |
|
|
|
26 |
|
|
|
|
|
Net change in cash and equivalents - continuing operations |
|
(897 |
) |
697 |
|
(1,320 |
) |
(2,740 |
) |
|
|
|
|
|
|
|
|
|
|
Cash and equivalents beginning of period |
|
6,399 |
|
4,650 |
|
6,822 |
|
8,087 |
|
Cash and equivalents end of period |
|
5,502 |
|
5,347 |
|
5,502 |
|
5,347 |
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Interest paid |
|
122 |
|
175 |
|
37 |
|
63 |
|
Taxes paid |
|
829 |
|
793 |
|
275 |
|
236 |
|
See Notes to the Interim Consolidated Financial Information
14
ABB Ltd Interim Consolidated Statements of Changes in Stockholders Equity (unaudited)
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
||||||||
(in millions of $) |
|
Capital |
|
Retained |
|
Foreign |
|
Unrealized |
|
Pension |
|
Unrealized |
|
Total |
|
Treasury |
|
Total
ABB |
|
Non- |
|
Total |
|
Balance at January 1, 2008 |
|
5,780 |
|
6,809 |
|
(906 |
) |
7 |
|
(486 |
) |
55 |
|
(1,330 |
) |
(302 |
) |
10,957 |
|
592 |
|
11,549 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
2,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,905 |
|
184 |
|
3,089 |
|
Foreign currency translation adjustments |
|
|
|
|
|
(461 |
) |
|
|
|
|
|
|
(461 |
) |
|
|
(461 |
) |
(29 |
) |
(490 |
) |
Foreign currency translation adjustments related to divestments of businesses |
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Effect of change in fair value of available-for-sale securities, net of tax |
|
|
|
|
|
|
|
(29 |
) |
|
|
|
|
(29 |
) |
|
|
(29 |
) |
|
|
(29 |
) |
Unrecognized gain related to pensions and other postretirement plans, net of tax |
|
|
|
|
|
|
|
|
|
11 |
|
|
|
11 |
|
|
|
11 |
|
|
|
11 |
|
Change in derivatives qualifying as cash flow hedges, net of tax |
|
|
|
|
|
|
|
|
|
|
|
(110 |
) |
(110 |
) |
|
|
(110 |
) |
|
|
(110 |
) |
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,322 |
|
155 |
|
2,477 |
|
Dividends paid to noncontrolling shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(152 |
) |
(152 |
) |
Changes in noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42 |
) |
(42 |
) |
Treasury stock transactions |
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
Dividends paid in the form of nominal value reduction |
|
(1,060 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,060 |
) |
|
|
(1,060 |
) |
Issuance of shares |
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
49 |
|
Shares repurchased under buyback program |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(619 |
) |
(619 |
) |
|
|
(619 |
) |
Share-based payment arrangements |
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
45 |
|
Call options |
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
30 |
|
Balance at September 30, 2008 |
|
4,824 |
|
9,714 |
|
(1,361 |
) |
(22 |
) |
(475 |
) |
(55 |
) |
(1,913 |
) |
(901 |
) |
11,724 |
|
553 |
|
12,277 |
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
||||||||
(in millions of $) |
|
Capital |
|
Retained |
|
Foreign |
|
Unrealized |
|
Pension and |
|
Unrealized |
|
Total |
|
Treasury |
|
Total
ABB |
|
Non- |
|
Total |
|
Balance at January 1, 2009 |
|
4,841 |
|
9,927 |
|
(1,654 |
) |
83 |
|
(978 |
) |
(161 |
) |
(2,710 |
) |
(900 |
) |
11,158 |
|
612 |
|
11,770 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
2,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,361 |
|
159 |
|
2,520 |
|
Foreign currency translation adjustments |
|
|
|
|
|
672 |
|
|
|
|
|
|
|
672 |
|
|
|
672 |
|
6 |
|
678 |
|
Effect of change in fair value of available-for-sale securities, net of tax |
|
|
|
|
|
|
|
(62 |
) |
|
|
|
|
(62 |
) |
|
|
(62 |
) |
|
|
(62 |
) |
Unrecognized loss related to pensions and other postretirement plans, net of tax |
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
(24 |
) |
|
|
(24 |
) |
(3 |
) |
(27 |
) |
Change in derivatives qualifying as cash flow hedges, net of tax |
|
|
|
|
|
|
|
|
|
|
|
170 |
|
170 |
|
|
|
170 |
|
|
|
170 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,117 |
|
162 |
|
3,279 |
|
Dividends paid to noncontrolling shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193 |
) |
(193 |
) |
Changes in noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
17 |
|
Treasury stock transactions |
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
Dividends paid in the form of nominal value reduction |
|
(1,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,024 |
) |
|
|
(1,024 |
) |
Issuance of shares |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
Share-based payment arrangements |
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54 |
|
|
|
54 |
|
Call options |
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
22 |
|
Balance at September 30, 2009 |
|
3,893 |
|
12,288 |
|
(982 |
) |
21 |
|
(1,002 |
) |
9 |
|
(1,954 |
) |
(897 |
) |
13,330 |
|
598 |
|
13,928 |
|
See Notes to the Interim Consolidated Financial Information
15
Notes to the Interim Consolidated Financial Information (unaudited)
Note 1. The Company and basis of presentation
ABB Ltd and its subsidiaries (collectively, the Company) together form a leading global company specializing in power and automation technologies that improve the performance of utility and industry customers, while lowering environmental impact. The Company works with customers to engineer and install networks, facilities and plants with particular emphasis on enhancing efficiency, reliability and productivity for customers who generate, convert, transmit, distribute and consume energy.
The Companys Interim Consolidated Financial Information is prepared in accordance with United States of America generally accepted accounting principles (U.S. GAAP) for interim financial reporting. As such, the Interim Consolidated Financial Information does not include all the information and notes required under U.S. GAAP for annual consolidated financial statements. Therefore, such financial information should be read in conjunction with the Companys audited financial statements for the year ended December 31, 2008.
The preparation of financial information in conformity with U.S. GAAP requires management to make assumptions and estimates that directly affect the amounts reported in the Interim Consolidated Financial Information. The accounting estimates that require the Companys most significant, difficult and subjective judgments include:
· Assumptions and projections, principally related to future material, labor and project-related overhead costs, used in determining the percentage-of-completion on projects.
· Estimates of loss contingencies associated with litigation or threatened litigation and other claims and inquires, environmental damages, product warranties, regulatory and other proceedings.
· Assumptions used in the calculation of pension and postretirement benefits.
· Recognition and measurement of current and deferred income tax assets and liabilities (including the measurement of uncertain tax positions).
The actual results and outcomes may differ from the Companys estimates and assumptions.
In the opinion of management, the Interim Consolidated Financial Information contain all necessary adjustments to present fairly the financial position, results of operations and cash flows for the reported interim periods. However, such Interim Consolidated Financial Information may not necessarily be indicative of annual results.
The Interim Consolidated Financial Information is presented in United States dollars ($) unless otherwise stated. Certain amounts reported for prior periods in the Interim Consolidated Financial Information have been reclassified to conform to the current years presentation.
The Company has evaluated subsequent events up to close of business on October 26, 2009.
Note 2. Accounting pronouncements
As of January 1, 2009, the Company adopted Accounting Standards Codification 810-10-65, Consolidation (ASC 810-10-65), previously Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51. ASC 810-10-65 changes the accounting and reporting for minority interests, which are recharacterized as noncontrolling interests and classified as a component of equity. ASC 810-10-65 is effective prospectively as of January 1, 2009, except for the presentation and disclosure requirements which apply retrospectively for all periods presented. As a result of the adoption, noncontrolling interests of $612 million were reclassified to stockholders equity in 2008. Income attributable to noncontrolling interests of $159 million and $184 million for the nine months ended September 30, 2009 and 2008, respectively, and $54 million and $52 million for the three months ended September 30, 2009 and 2008, respectively, is included in net income and is deducted to arrive at net income attributable to ABB.
The Company applies the provisions of Accounting Standards Codification 805, Business Combinations (ASC 805), previously Financial Accounting Standards No. 141, Business Combinations, revised, to
16
Notes to the Interim Consolidated Financial Information (unaudited)
business combinations in which the acquisition date is on or after January 1, 2009. Under ASC 805 an entity is required to recognize assets acquired, liabilities assumed, contractual contingencies and contingent consideration at their fair value on the acquisition date. It further requires that acquisition related costs are recognized separately from the acquisition and expensed as incurred; restructuring costs generally are expensed in periods subsequent to the acquisition date. Further, ASC 805 requires that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense in periods subsequent to the acquisition date. In addition, under ASC 805, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life.
In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2009-13 (ASU 2009-13), Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force. ASU 2009-13 provides amendments to the criteria in Accounting Standards Codification 605-25, Revenue Recognition, Multiple-Element Arrangements, by establishing a hierarchy to determine the selling price of each specific deliverable. The selling price used is based on vendor-specific objective evidence (if available), third-party evidence (if vendor-specific evidence is not available), or estimated selling price if neither of the first two are available. ASU 2009-13 also eliminates the residual method for allocating revenue between the elements of an arrangement and requires that arrangement consideration be allocated at its inception. ASU 2009-13 also expands the disclosure requirements regarding a vendors multiple-deliverable revenue arrangements. ASU 2009-13 is effective for arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact from ASU 2009-13.
Note 3. Financial instruments
The Company uses the fair value measurement principle to record certain of its financial instruments at fair value on a recurring basis. These instruments include foreign currency, commodity and interest rate derivatives and available-for-sale securities.
The Company applies the provisions of Accounting Standards Codification 820, Fair Value Measurements and Disclosures (ASC 820), previously Financial Accounting Standards No. 157, Fair Value Measurements, for fair value measurements of its financial assets and financial liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and enhanced disclosure requirements for fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company applies various valuation techniques including market and income approaches. ASC 820 establishes a three-level hierarchy for inputs used in measuring assets and liabilities recorded at fair value, based on the reliability of those inputs. The Company has categorized its financial instruments measured at fair value within this hierarchy based on whether the inputs to the valuation technique are observable or unobservable. An observable input is based on market data obtained from independent sources, while an unobservable input reflects the Companys assumptions about market data.
· Level 1: Valuation inputs consist of (unadjusted) quoted prices in an active market for identical assets or liabilities (observable quoted prices). Assets and liabilities using Level 1 inputs include exchange-traded equity securities, listed derivatives which are actively traded such as foreign exchange futures and most U.S. government securities.
· Level 2: Valuation inputs consist of other observable inputs such as actively quoted prices for similar assets, quoted prices in inactive markets and inputs other than quoted prices such as interest rate yield curves, credit spreads, or inputs derived from other observable data by interpolation, correlation, regression or other means. The adjustments applied to quoted prices or the inputs used in valuation models may be both observable and unobservable. In these cases, the fair value measurement is classified as Level 2 unless the unobservable portion of the adjustment or the unobservable input to the valuation model is significant in which case the fair value measurement would be classified as Level 3. Assets and liabilities using Level 2
17
Notes to the Interim Consolidated Financial Information (unaudited)
inputs include interest rate swaps, cross-currency swaps and commodity swaps as well as foreign exchange forward contracts and foreign exchange swaps.
· Level 3: Valuation inputs are based on the Companys assumptions of relevant market data (unobservable input).
Whenever quoted prices involve bid-ask spreads, the Company ordinarily determines fair values based on mid-market quotes. However, for the purposes of determining the fair values of cash-settled call options serving as hedges of the Companys management incentive plan, bid prices are used.
The following table shows the fair value of financial assets and liabilities measured at fair value on a recurring basis:
|
|
September 30, 2009 |
|
||||||
($ in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|