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 April 2010
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 April 22, 2010.
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).
Press Release |
|
· Orders down 19%(1), but base orders indicate negative trends are reversing
· Revenues 11 percent lower, reflecting 2009 order declines
· EBIT at $709 million, down approximately $150 million
· Cash from operations improved by more than $500 million
Zurich, Switzerland, April 22, 2010 ABBs orders declined 19 percent in the first quarter of 2010 as a result of lower large orders (above $15 million) compared to a record intake last year, and overall weakness in the power infrastructure business.
Orders in most of ABBs short-cycle businesses, however, were steady or higher on growing industrial demand. Base orders (below $15 million) showed the strongest increase since the beginning of the global economic crisis in the summer of 2008.
Revenues were 11 percent lower than the year-earlier period, mainly due to order declines in 2009 flowing through to sales in the first quarter.
Earnings before interest and taxes (EBIT) amounted to $709 million, resulting in an EBIT margin of 10.2 percent. The EBIT margin, excluding mainly gains and losses on derivative transactions as well as restructuring-related costs, was 11.5 percent.(2) Savings in the first quarter from the companys $3-billion cost take-out program were in excess of $300 million.
Cash inflow from operations was $427 million compared to cash used in the same quarter a year earlier of $104 million. The improvement was due primarily to continued net working capital management efforts. Net income amounted to $464 million in the quarter.
We had a challenging first quarter on the power side while seeing some encouraging signs of growth in our short-cycle businesses, mainly in the automation markets, said Joe Hogan, ABBs CEO. Thanks to the progress weve made on our cost-out program, however, our profitability remains within the target range.
Given the improving global economy, were cautiously optimistic that the momentum should continue to build for our short cycle businesses, especially in the emerging markets, driven by increasing industrial production. We expect to see a similar trend in our larger late-cycle business, however, only later in the year, Hogan said.
2010 Q1 key figures
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q1 10 |
|
Q1 09 |
|
US$ |
|
Local |
|
Orders |
|
8,067 |
|
9,150 |
|
-12 |
% |
-19 |
% |
Order backlog (end March) |
|
25,454 |
|
25,017 |
|
2 |
% |
-5 |
% |
Revenues |
|
6,934 |
|
7,209 |
|
-4 |
% |
-11 |
% |
EBIT |
|
709 |
|
862 |
|
-18 |
% |
|
|
as % of revenues |
|
10.2 |
% |
12.0 |
% |
|
|
|
|
Net income |
|
464 |
|
652 |
|
-29 |
% |
|
|
Basic net income per share ($) |
|
0.20 |
|
0.29 |
|
|
|
|
|
Cash flow from operating activities |
|
427 |
|
-104 |
|
|
|
|
|
(1) Management discussion of orders and revenues focuses on local currency changes. U.S. dollar changes are reported in the results tables.
(2) Please refer to Appendix I
Summary of Q1 2010 results
Orders received and revenues
Especially in later cycle businesses driven by utility infrastructure projects and industrial capital expenditures, such as Power Products, Power Systems and Process Automation, customer spending remains cautious, reflecting the still uncertain business environment. Large orders decreased in the quarter by 55 percent in local currencies and accounted for 16 percent of total orders compared to 27 percent in the same period in 2009, which had a record large order intake of more than $2.5 billion.
These declines could not be compensated by demand in many of ABBs short-cycle industrial markets, such as general industry and construction, that lifted orders in Discrete Automation and Motion and Low-Voltage Products. This is partly reflected in a 5-percent local currency decrease in base orders compared to the same quarter a year earlier and a 15-percent increase versus the fourth quarter of 2009.
Regionally, orders increased in the Americas, the result of higher automation-related orders in both North and South America, and stronger power orders in South America. In Europe, power orders were down significantly compared to the first quarter of 2009, which included a $550-million order for a high-power subsea link. Automation orders were stable in Europe, as an increase in Process Automation offset reductions in Discrete Automation and Motion and Low-Voltage Products.
Orders decreased in Asia, as higher automation orders led by double-digit order increases in China across all three automation divisions could not compensate for a reduction in large power orders, driven mainly by declines in power transmission investments in China.
Service orders decreased by 4 percent in local currencies. An increase in maintenance and repair service was offset by lower full-service orders as ABB withdrew from some less profitable longer-term service agreements.
The order backlog at the end of March amounted to $25 billion, a local-currency decrease of 5 percent compared to the end of the first quarter in 2009 and a 5-percent local currency increase compared to the end of the fourth quarter of 2009.
Total revenues decreased primarily as the lower order intake from 2009 flowed through into sales in the first quarter of this year. The shortest cycle division, Low-Voltage Products, reported higher revenues as industrial and construction demand improved. Delays in the execution of some large projects and in customer acceptance of products contributed to the revenue decrease in the two power divisions. Service revenues were 3 percent lower in the quarter in local currencies compared to the first quarter of 2009.
Earnings before interest and taxes and net income
EBIT in the first quarter of 2010 was lower than in the first quarter a year earlier, primarily due to the decrease in revenues.
The EBIT margin declined compared to the same quarter in 2009 as improvements in Discrete Automation and Motion and Low-Voltage Products driven by a favorable product mix and the impact of cost savings measures taken in 2009 were more than offset by lower EBIT margins in the longer-cycle divisions as a result of price erosion, project provisions and lower capacity utilization versus the same quarter a year ago.
Included in EBIT is a net negative impact of approximately $80 million from gains and losses on derivatives and foreign exchange movements on receivables and payables. Restructuring-related costs amounted to $7 million in the quarter.
Net income for the quarter developed in line with EBIT and resulted in basic earnings per share of $0.20 compared to $0.29 in the year-earlier period.
Balance sheet and cash flow
Net cash at the end of the first quarter was $7.1 billion, basically unchanged versus the end of the previous quarter. Cash from operating activities increased, despite lower earnings, on a significant improvement in net working capital. Net working capital decreased by approximately $700 million compared to a year earlier.
Compliance
As previously announced, ABB has disclosed to the US Department of Justice and the US Securities and Exchange Commission various suspect payments. Also as previously announced, ABB has been cooperating with various antitrust authorities regarding their investigations into certain alleged anti-competitive practices. With respect to these matters, there could be adverse outcomes beyond our provisions.
Cost reductions
ABB is implementing a cost take-out plan to adjust the companys cost base to rapidly changing market conditions and protect its profitability. The program aims to sustainably reduce ABBs costs comprising both cost of sales as well as general and administrative expenses from end-2008 levels by a total of $3 billion by the end of 2010. The program focuses on optimizing global sourcing, improving internal processes and adjusting ABBs global manufacturing and engineering footprint to reduce costs, increase our competitiveness and better match shifts in customer demand.
Savings in the first quarter were in excess of $300 million, with the largest contributions coming from global footprint adjustments and global sourcing initiatives. The total cost of the program is expected to amount to approximately $1.1 billion. Costs associated with the program in the first quarter of 2010 were not material but are expected to amount to approximately $500 million for the full year.
Outlook
The growth of base orders from the fourth quarter of 2009 to the first quarter of 2010, although partly reflecting normal seasonal trends, appears to indicate that ABB has seen the bottom of its short-cycle businesses in most regions. This view is supported by recent increases in GDP and industrial production, particularly in the emerging economies, which are key growth drivers for the companys short-cycle businesses.
For ABBs late-cycle businesses, which make up the majority of the portfolio, the outlook for the remainder of 2010 remains mixed.
New and upgraded power infrastructure is needed in all regions, including renewables and smart grids. Increasing energy and commodity prices are driving demand for ABB automation solutions that lower operating costs, improve product and process quality and increase productivity. Stable or increased customer spending in pulp and paper, marine, metals and
mining during the first quarter, although improving from a very low level, are further indications that some later cyclical businesses may begin to recover in 2010.
However, restrained utility spending, delays in the award of large power projects and increased competition in the power sector are expected to weigh on demand in the short term.
Therefore, in 2010 management will continue to focus both on adjusting costs and taking advantage of its global footprint, strong balance sheet and leading technologies to tap further opportunities for profitable growth.
Divisional performance Q1 2010
Power Products
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q1 10 |
|
Q1 09 |
|
US$ |
|
Local |
|
Orders |
|
2,401 |
|
2,960 |
|
-19 |
% |
-26 |
% |
Order backlog (end March) |
|
8,151 |
|
8,178 |
|
0 |
% |
-7 |
% |
Revenues |
|
2,319 |
|
2,468 |
|
-6 |
% |
-12 |
% |
EBIT |
|
348 |
|
442 |
|
-21 |
% |
|
|
as % of revenues |
|
15.0 |
% |
17.9 |
% |
|
|
|
|
Cash flow from operating activities |
|
247 |
|
97 |
|
|
|
|
|
The need for new and upgraded power transmission and distribution infrastructure remains strong in most regions, but utility spending was restrained during the quarter, while demand related to industry continued at low levels.
As a result, both base and large orders declined in the quarter. Regionally, orders grew by more than 50 percent in local currency terms in Central and Eastern Europe and were higher in South America. These increases were more than offset by order declines in the mature markets. Additionally, the decrease in large orders was a main driver of lower orders in China and the Middle East. Orders were also lower in North America, although the pace of decline slowed significantly compared to the previous two quarters.
Revenues decreased as a result of lower short-cycle sales during the quarter, the impact of order declines from 2009 and delays by customers in accepting product delivery.
EBIT and EBIT margin were lower than the same period a year earlier, reflecting lower revenues, cost underabsorption and increased price pressure.
Power Systems
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q1 10 |
|
Q1 09 |
|
US$ |
|
Local |
|
Orders |
|
1,758 |
|
2,279 |
|
-23 |
% |
-30 |
% |
Order backlog (end March) |
|
9,861 |
|
8,332 |
|
18 |
% |
10 |
% |
Revenues |
|
1,384 |
|
1,417 |
|
-2 |
% |
-10 |
% |
EBIT |
|
-14 |
|
83 |
|
n/a |
|
|
|
as % of revenues |
|
-1.0 |
% |
5.9 |
% |
|
|
|
|
Cash flow from operating activities |
|
-37 |
|
-150 |
|
|
|
|
|
Orders declined compared to a record first quarter in 2009, which included two orders valued at almost $1 billion. Base orders were lower as both utility and industrial demand was weaker. Project tendering activity in power transmission continued at high levels, however, as the fundamental demand drivers remain intact new grid capacity and upgrades, regional interconnections and the integration of renewable energies.
Revenues decreased, mainly because of project delays and a lower base order intake in 2009.
In addition to lower revenues, the EBIT decline was due to the negative impact of derivative transactions, equivalent to approximately 4 percentage points of EBIT margin. Execution challenges on a small number of specific projects resulted in additional costs, offsetting the gains from cost reduction measures.
Discrete Automation & Motion
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q1 10 |
|
Q1 09 |
|
US$ |
|
Local |
|
Orders |
|
1,408 |
|
1,285 |
|
10 |
% |
2 |
% |
Order backlog (end March) |
|
3,162 |
|
3,386 |
|
-7 |
% |
-12 |
% |
Revenues |
|
1,213 |
|
1,301 |
|
-7 |
% |
-13 |
% |
EBIT |
|
168 |
|
165 |
|
2 |
% |
|
|
as % of revenues |
|
13.8 |
% |
12.7 |
% |
|
|
|
|
Cash flow from operating activities |
|
59 |
|
-18 |
|
|
|
|
|
Orders increased modestly in the quarter as industrial production began to recover from low levels in some mature markets and remained robust in key emerging markets. Base orders improved in short-cycle businesses such as low-voltage motors and drives, more than offsetting a decline in large orders and orders in later-cycle businesses such as machines and power electronics. Robotics orders increased from a low level.
Regionally, orders increased the most in the Americas, led by the U.S., and in Asia, with China orders up more than 30 percent in local currencies. Orders were lower in Europe and the Middle East and Africa.
Revenues declined in the quarter, mainly reflecting the low opening order backlog in machines and robotics. However, the positive impact of cost saving measures combined with a more favorable product mix in the quarter contributed to an increase in EBIT and EBIT margin compared to the same quarter in 2009.
Low-Voltage Products
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q1 10 |
|
Q1 09 |
|
US$ |
|
Local |
|
Orders |
|
1,106 |
|
1,020 |
|
8 |
% |
2 |
% |
Order backlog (end March) |
|
816 |
|
774 |
|
5 |
% |
1 |
% |
Revenues |
|
1,011 |
|
933 |
|
8 |
% |
2 |
% |
EBIT |
|
150 |
|
127 |
|
18 |
% |
|
|
as % of revenues |
|
14.8 |
% |
13.6 |
% |
|
|
|
|
Cash flow from operating activities |
|
76 |
|
-18 |
|
|
|
|
|
Orders grew on improved demand from construction and industry customers across most regions during the first quarter, led by double-digit growth in local currencies in Asia and the Middle East and Africa. China orders increased by 13 percent in local currency terms. Orders were also higher in Germany and Italy, the divisions two largest European markets, but Europe orders overall declined 4 percent in local currencies. Orders in the Americas were also higher.
Revenues grew in line with orders, as most sales are booked in the same quarter in which orders are placed. EBIT and EBIT margin increased on higher revenues, a positive product mix and the impact of cost measures taken during 2009.
Process Automation
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q1 10 |
|
Q1 09(1) |
|
US$ |
|
Local |
|
Orders |
|
2,115 |
|
2,553 |
|
-17 |
% |
-24 |
% |
Order backlog (end March) |
|
5,729 |
|
6,765 |
|
-15 |
% |
-21 |
% |
Revenues |
|
1,735 |
|
1,878 |
|
-8 |
% |
-15 |
% |
EBIT |
|
159 |
|
146 |
|
9 |
% |
|
|
as % of revenues |
|
9.2 |
% |
7.8 |
% |
|
|
|
|
Cash flow from operating activities |
|
137 |
|
48 |
|
|
|
|
|
(1) Q1 2009 numbers include the instrumentation business transferred to the Process Automation division as part of the previously-announced automation realignment
Demand was steady or stronger in several key end markets in the first quarter, although total orders declined in comparison with the very strong quarter of a year earlier, which included a $490-million order from Algeria. Base orders returned to the high levels of a year ago and have grown at a double-digit pace in local currencies since the middle of 2009.
Orders from the oil, gas and petrochemicals sector declined in the quarter, reflecting the non-recurrence of the large Algerian order in the first quarter of the previous year. Marine orders increased from a very low level, mainly in oil-related segments and in Europe and Asia. Pulp and paper orders also grew, driven by demand for drives and electrification projects. Metals and minerals orders were steady, supported by an increase in metals orders in Asia. Service orders were mixed, with strong growth in oil and gas and turbocharging service offset by measures to reduce ABBs exposure to a number of less profitable full-service orders.
Revenues declined on the decrease in orders in recent quarters. However, EBIT and EBIT margin improved, reflecting a larger proportion of service and product sales in revenues as well as benefits from the cost take-out program.
More information
The 2010 Q1 results press release is available from April 22, 2010, on the ABB News Center at www.abb.com/news and on the Investor Relations homepage at www.abb.com/investorrelations, where a presentation for investors will also be published.
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 (1) 866 416 2558 (U.S./Canada). The code is 15614, followed by the # key.
A conference call for analysts and investors is scheduled to begin today at 3:00 p.m. CET (2:00 p.m. in the UK, 9:00 a.m. EDT). Callers should dial +1 412 858 4600 (from the U.S./Canada) or +41 91 610 56 00 (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 24 hours commencing one hour after the conference call. Playback numbers: +1 866 416 2558 (U.S./Canada) or +41 91 612 4330 (Europe and the rest of the world). The code is 15754, followed by the # key.
Investor calendar 2010 |
|
|
Annual General Meeting of shareholders, Zurich |
|
April 26, 2010 |
Annual information meeting for shareholders, Västerås |
|
April 27, 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 117,000 people.
Zurich, April 22, 2010
Joe Hogan, CEO
Important notice about forward-looking information
This press release includes forward-looking information and statements including the sections entitled Compliance, Cost reductions, Outlook, 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 associated with the weakened global economy and political conditions, costs associated with compliance activities, raw materials availability and 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 21 329 108 |
|
CH-8050 Zurich, Switzerland |
Tel: +41 43 317 6568 |
|
USA: Tel. +1 203 750 7743 |
|
|
Fax: +41 43 317 7958 |
|
investor.relations@ch.abb.com |
|
|
media.relations@ch.abb.com |
|
|
|
|
ABB first-quarter (Q1) 2010 key figures
|
|
|
|
|
|
|
|
Change |
|
||
$ millions unless otherwise indicated |
|
Q1 10 |
|
Q1 09 |
|
US$ |
|
Local |
|
||
Orders |
|
Group |
|
8067 |
|
9150 |
|
-12 |
% |
-19 |
% |
|
|
Power Products |
|
2401 |
|
2960 |
|
-19 |
% |
-26 |
% |
|
|
Power Systems |
|
1758 |
|
2279 |
|
-23 |
% |
-30 |
% |
|
|
Discrete Automation & Motion |
|
1408 |
|
1285 |
|
10 |
% |
2 |
% |
|
|
Low-Voltage Products |
|
1106 |
|
1020 |
|
8 |
% |
2 |
% |
|
|
Process Automation |
|
2115 |
|
2553 |
|
-17 |
% |
-24 |
% |
|
|
Corporate and other (Inter-division eliminations) |
|
-721 |
|
-947 |
|
24 |
% |
30 |
% |
Revenues |
|
Group |
|
6934 |
|
7209 |
|
-4 |
% |
-11 |
% |
|
|
Power Products |
|
2319 |
|
2468 |
|
-6 |
% |
-12 |
% |
|
|
Power Systems |
|
1384 |
|
1417 |
|
-2 |
% |
-10 |
% |
|
|
Discrete Automation & Motion |
|
1213 |
|
1301 |
|
-7 |
% |
-13 |
% |
|
|
Low-Voltage Products |
|
1011 |
|
933 |
|
8 |
% |
2 |
% |
|
|
Process Automation |
|
1735 |
|
1878 |
|
-8 |
% |
-15 |
% |
|
|
Corporate and other (Inter-division eliminations) |
|
-728 |
|
-788 |
|
8 |
% |
15 |
% |
EBIT |
|
Group |
|
709 |
|
862 |
|
-18 |
% |
|
|
|
|
Power Products |
|
348 |
|
442 |
|
-21 |
% |
|
|
|
|
Power Systems |
|
-14 |
|
83 |
|
n.a. |
|
|
|
|
|
Discrete Automation & Motion |
|
168 |
|
165 |
|
2 |
% |
|
|
|
|
Low-Voltage Products |
|
150 |
|
127 |
|
18 |
% |
|
|
|
|
Process Automation |
|
159 |
|
146 |
|
9 |
% |
|
|
|
|
Corporate and other |
|
-102 |
|
-101 |
|
-1 |
% |
|
|
EBIT margin (%) |
|
Group |
|
10.2 |
% |
12.0 |
% |
|
|
|
|
|
|
Power Products |
|
15.0 |
% |
17.9 |
% |
|
|
|
|
|
|
Power Systems |
|
-1.0 |
% |
5.9 |
% |
|
|
|
|
|
|
Discrete Automation & Motion |
|
13.8 |
% |
12.7 |
% |
|
|
|
|
|
|
Low-Voltage Products |
|
14.8 |
% |
13.6 |
% |
|
|
|
|
|
|
Process Automation |
|
9.2 |
% |
7.8 |
% |
|
|
|
|
ABB Q1 2010 orders received and revenues by region
|
|
Orders received |
|
Change |
|
Revenues |
|
Change |
|
||||||||
$ millions |
|
Q1 10 |
|
Q1 09 |
|
US$ |
|
Local |
|
Q1 10 |
|
Q1 09 |
|
US$ |
|
Local |
|
Europe |
|
3,433 |
|
3,662 |
|
-6 |
% |
-14 |
% |
2,775 |
|
3,002 |
|
-8 |
% |
-15 |
% |
Americas |
|
1,497 |
|
1,355 |
|
10 |
% |
2 |
% |
1,314 |
|
1,493 |
|
-12 |
% |
-17 |
% |
Asia |
|
2,101 |
|
2,221 |
|
-5 |
% |
-13 |
% |
1,910 |
|
1,897 |
|
1 |
% |
-6 |
% |
Middle East and Africa |
|
1,036 |
|
1,912 |
|
-46 |
% |
-49 |
% |
935 |
|
817 |
|
14 |
% |
7 |
% |
Group total |
|
8,067 |
|
9,150 |
|
-12 |
% |
-19 |
% |
6,934 |
|
7,209 |
|
-4 |
% |
-11 |
% |
Appendix I
Reconciliation of non-GAAP financial measures
($ millions, unaudited)
EBIT margin |
|
Q1 2010 |
|
= EBIT as % of revenues |
|
|
|
Earnings before interest and taxes (EBIT) |
|
709 |
|
Revenues |
|
6,934 |
|
EBIT margin |
|
10.2 |
% |
Net cash |
|
|
|
= Cash and equivalents plus marketable securities and short-term investments, less total debt |
|
|
|
Short-term debt and current maturities of long-term debt |
|
(205 |
) |
Long-term debt |
|
(2,061 |
) |
Total debt |
|
(2,266 |
) |
Cash and equivalents |
|
7,408 |
|
Marketable securities and short-term investments |
|
2,005 |
|
Cash and marketable securities |
|
9,413 |
|
Net cash |
|
7,147 |
|
Adjustments to EBIT margin |
|
|
|
EBIT |
|
709 |
|
adjusted for the effects of |
|
|
|
Unrealized gains (losses) on derivatives (FX, commodities, embedded derivatives) |
|
69 |
|
Realized gains (losses) on derivatives where the underlying hedged transaction has not yet been realized |
|
17 |
|
Unrealized foreign exchange movements on receivables/payables (and related assets/liabilities) |
|
(4 |
) |
Restructuring and restructuring-related expenses |
|
7 |
|
EBIT after adjustments |
|
798 |
|
Revenues |
|
6,934 |
|
As % of revenues |
|
11.5 |
% |
ABB Ltd Interim Consolidated Income Statements (unaudited)
|
|
Three months ended |
|
||
($ in millions, except per share data in $) |
|
Mar. 31, 2010 |
|
Mar. 31, 2009 |
|
|
|
|
|
|
|
Sales of products |
|
5,753 |
|
6,116 |
|
Sales of services |
|
1,181 |
|
1,093 |
|
Total revenues |
|
6,934 |
|
7,209 |
|
Cost of products |
|
(4,058 |
) |
(4,343 |
) |
Cost of services |
|
(790 |
) |
(747 |
) |
Total cost of sales |
|
(4,848 |
) |
(5,090 |
) |
Gross profit |
|
2,086 |
|
2,119 |
|
Selling, general and administrative expenses |
|
(1,377 |
) |
(1,277 |
) |
Other income (expense), net |
|
|
|
20 |
|
Earnings before interest and taxes |
|
709 |
|
862 |
|
Interest and dividend income |
|
24 |
|
38 |
|
Interest and other finance expense |
|
(42 |
) |
22 |
|
Income from continuing operations before taxes |
|
691 |
|
922 |
|
Provision for taxes |
|
(201 |
) |
(240 |
) |
Income from continuing operations, net of tax |
|
490 |
|
682 |
|
Income from discontinued operations, net of tax |
|
1 |
|
11 |
|
Net income |
|
491 |
|
693 |
|
Net income attributable to noncontrolling interests |
|
(27 |
) |
(41 |
) |
Net income attributable to ABB |
|
464 |
|
652 |
|
|
|
|
|
|
|
Amounts attributable to ABB shareholders: |
|
|
|
|
|
Income from continuing operations, net of tax |
|
463 |
|
641 |
|
Income from discontinued operations, net of tax |
|
1 |
|
11 |
|
Net income |
|
464 |
|
652 |
|
|
|
|
|
|
|
Basic earnings per share attributable to ABB shareholders: |
|
|
|
|
|
Income from continuing operations, net of tax |
|
0.20 |
|
0.28 |
|
Income from discontinued operations, net of tax |
|
|
|
0.01 |
|
Net income |
|
0.20 |
|
0.29 |
|
|
|
|
|
|
|
Diluted earnings per share attributable to ABB shareholders: |
|
|
|
|
|
Income from continuing operations, net of tax |
|
0.20 |
|
0.28 |
|
Income from discontinued operations, net of tax |
|
|
|
0.01 |
|
Net income |
|
0.20 |
|
0.29 |
|
|
|
|
|
|
|
Average number of shares (in millions) used to compute: |
|
|
|
|
|
Basic earnings per share attributable to ABB shareholders |
|
2,290 |
|
2,283 |
|
Diluted earnings per share attributable to ABB shareholders |
|
2,295 |
|
2,285 |
|
See Notes to the Interim Consolidated Financial Information
ABB Ltd Interim Consolidated Balance Sheets (unaudited)
($ in millions, except share data) |
|
Mar. 31, 2010 |
|
Dec. 31, 2009 |
|
|
|
|
|
|
|
Cash and equivalents |
|
7,408 |
|
7,119 |
|
Marketable securities and short-term investments |
|
2,005 |
|
2,433 |
|
Receivables, net |
|
9,211 |
|
9,451 |
|
Inventories, net |
|
4,689 |
|
4,550 |
|
Prepaid expenses |
|
288 |
|
236 |
|
Deferred taxes |
|
852 |
|
900 |
|
Other current assets |
|
568 |
|
540 |
|
Total current assets |
|
25,021 |
|
25,229 |
|
|
|
|
|
|
|
Financing receivables, net |
|
446 |
|
452 |
|
Property, plant and equipment, net |
|
3,956 |
|
4,072 |
|
Goodwill |
|
3,002 |
|
3,026 |
|
Other intangible assets, net |
|
414 |
|
443 |
|
Prepaid pension and other employee benefits |
|
109 |
|
112 |
|
Investments in equity method companies |
|
51 |
|
49 |
|
Deferred taxes |
|
1,031 |
|
1,052 |
|
Other non-current assets |
|
298 |
|
293 |
|
Total assets |
|
34,328 |
|
34,728 |
|
|
|
|
|
|
|
Accounts payable, trade |
|
3,772 |
|
3,853 |
|
Billings in excess of sales |
|
1,632 |
|
1,623 |
|
Accounts payable, other |
|
1,307 |
|
1,326 |
|
Short-term debt and current maturities of long-term debt |
|
205 |
|
161 |
|
Advances from customers |
|
1,807 |
|
1,806 |
|
Deferred taxes |
|
316 |
|
327 |
|
Provisions for warranties |
|
1,228 |
|
1,280 |
|
Provisions and other current liabilities |
|
2,440 |
|
2,603 |
|
Accrued expenses |
|
1,434 |
|
1,600 |
|
Total current liabilities |
|
14,141 |
|
14,579 |
|
|
|
|
|
|
|
Long-term debt |
|
2,061 |
|
2,172 |
|
Pension and other employee benefits |
|
1,147 |
|
1,179 |
|
Deferred taxes |
|
303 |
|
328 |
|
Other non-current liabilities |
|
1,978 |
|
1,997 |
|
Total liabilities |
|
19,630 |
|
20,255 |
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
Capital stock and additional paid-in capital (2,329,324,797 issued shares at March 31, 2010 and December 31, 2009) |
|
3,951 |
|
3,943 |
|
Retained earnings |
|
13,292 |
|
12,828 |
|
Accumulated other comprehensive loss |
|
(2,359 |
) |
(2,084 |
) |
Treasury stock, at cost (39,173,474 shares at March 31, 2010 and 39,901,593 shares at December 31, 2009) |
|
(885 |
) |
(897 |
) |
Total ABB stockholders equity |
|
13,999 |
|
13,790 |
|
Noncontrolling interests |
|
699 |
|
683 |
|
Total stockholders equity |
|
14,698 |
|
14,473 |
|
Total liabilities and stockholders equity |
|
34,328 |
|
34,728 |
|
See Notes to the Interim Consolidated Financial Information
ABB Ltd Interim Consolidated Statements of Cash Flows (unaudited)
|
|
Three months ended |
|
||
($ in millions) |
|
Mar. 31, 2010 |
|
Mar. 31, 2009 |
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
Net income |
|
491 |
|
693 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
Depreciation and amortization |
|
169 |
|
148 |
|
Pension and postretirement benefits |
|
22 |
|
(12 |
) |
Deferred taxes |
|
24 |
|
6 |
|
Net gain from sale of property, plant and equipment |
|
(6 |
) |
(5 |
) |
Loss from equity accounted companies |
|
1 |
|
1 |
|
Other |
|
9 |
|
(78 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
Trade receivables, net |
|
83 |
|
(70 |
) |
Inventories, net |
|
(280 |
) |
(232 |
) |
Trade payables |
|
25 |
|
(375 |
) |
Billings in excess of sales |
|
42 |
|
55 |
|
Provisions, net |
|
(93 |
) |
(21 |
) |
Advances from customers |
|
37 |
|
(24 |
) |
Other assets and liabilities, net |
|
(97 |
) |
(190 |
) |
Net cash provided by (used in) operating activities |
|
427 |
|
(104 |
) |
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
Changes in financing receivables |
|
(7 |
) |
2 |
|
Purchases of marketable securities (available-for-sale) |
|
(244 |
) |
(20 |
) |
Purchases of marketable securities (held-to-maturity) |
|
(15 |
) |
(222 |
) |
Purchases of short-term investments |
|
(1,438 |
) |
|
|
Purchases of property, plant and equipment and intangible assets |
|
(148 |
) |
(185 |
) |
Acquisition of businesses (net of cash acquired) |
|
(53 |
) |
(48 |
) |
Proceeds from sales of marketable securities (available-for-sale) |
|
71 |
|
21 |
|
Proceeds from maturity of marketable securities (available-for-sale) |
|
137 |
|
855 |
|
Proceeds from maturity of marketable securities (held-to-maturity) |
|
186 |
|
|
|
Proceeds from short-term investments |
|
1,643 |
|
92 |
|
Proceeds from sales of property, plant and equipment |
|
14 |
|
8 |
|
Proceeds from sales of businesses and equity accounted companies (net of cash disposed) |
|
(1 |
) |
|
|
Net cash provided by investing activities |
|
145 |
|
503 |
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
Net changes in debt with maturities of 90 days or less |
|
22 |
|
21 |
|
Increase in debt |
|
81 |
|
211 |
|
Repayment of debt |
|
(64 |
) |
(221 |
) |
Dividends paid to noncontrolling shareholders |
|
(16 |
) |
(14 |
) |
Other |
|
(6 |
) |
(13 |
) |
Net cash provided by (used in) financing activities |
|
17 |
|
(16 |
) |
|
|
|
|
|
|
Effects of exchange rate changes on cash and equivalents |
|
(300 |
) |
(232 |
) |
|
|
|
|
|
|
Net change in cash and equivalents - continuing operations |
|
289 |
|
151 |
|
|
|
|
|
|
|
Cash and equivalents beginning of period |
|
7,119 |
|
6,399 |
|
Cash and equivalents end of period |
|
7,408 |
|
6,550 |
|
|
|
|
|
|
|
Supplementary disclosure of cash flow information: |
|
|
|
|
|
Interest paid |
|
22 |
|
45 |
|
Taxes paid |
|
228 |
|
255 |
|
See Notes to the Interim Consolidated Financial Information
ABB Ltd Interim Consolidated Statements of Changes in Stockholders Equity (unaudited)
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
||||||||
($ in millions) |
|
Capital stock |
|
Retained |
|
Foreign |
|
Unrealized |
|
Pension and |
|
Unrealized |
|
Total |
|
Treasury |
|
Total ABB |
|
Noncontrolling |
|
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 |
|
|
|
652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
652 |
|
41 |
|
693 |
|
Foreign currency translation adjustments |
|
|
|
|
|
(439 |
) |
|
|
|
|
|
|
(439 |
) |
|
|
(439 |
) |
(11 |
) |
(450 |
) |
Effect of change in fair value of available-for-sale securities, net of tax |
|
|
|
|
|
|
|
(85 |
) |
|
|
|
|
(85 |
) |
|
|
(85 |
) |
|
|
(85 |
) |
Unrecognized income related to pensions and other postretirement plans, net of tax |
|
|
|
|
|
|
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
Change in derivatives qualifying as cash flow hedges, net of tax |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
18 |
|
|
|
18 |
|
|
|
18 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173 |
|
30 |
|
203 |
|
Dividends paid to noncontrolling shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
(13 |
) |
Share-based payment arrangements |
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
17 |
|
Balance at March 31, 2009 |
|
4,858 |
|
10,579 |
|
(2,093 |
) |
(2 |
) |
(951 |
) |
(143 |
) |
(3,189 |
) |
(900 |
) |
11,348 |
|
629 |
|
11,977 |
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
||||||||
($ in millions) |
|
Capital stock |
|
Retained |
|
Foreign |
|
Unrealized |
|
Pension and |
|
Unrealized |
|
Total |
|
Treasury |
|
Total ABB |
|
Noncontrolling |
|
Total |
|
Balance at January 1, 2010 |
|
3,943 |
|
12,828 |
|
(1,056 |
) |
20 |
|
(1,068 |
) |
20 |
|
(2,084 |
) |
(897 |
) |
13,790 |
|
683 |
|
14,473 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
464 |
|
27 |
|
491 |
|
Foreign currency translation adjustments |
|
|
|
|
|
(362 |
) |
|
|
|
|
|
|
(362 |
) |
|
|
(362 |
) |
4 |
|
(358 |
) |
Effect of change in fair value of available-for-sale securities, net of tax |
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
(9 |
) |
|
|
(9 |
) |
|
|
(9 |
) |
Unrecognized income related to pensions and other postretirement plans, net of tax |
|
|
|
|
|
|
|
|
|
78 |
|
|
|
78 |
|
|
|
78 |
|
|
|
78 |
|
Change in derivatives qualifying as cash flow hedges, net of tax |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
18 |
|
|
|
18 |
|
|
|
18 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189 |
|
31 |
|
220 |
|
Changes in noncontrolling interests |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
2 |
|
4 |
|
Dividends paid to noncontrolling shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
(17 |
) |
Treasury stock transactions |
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
Share-based payment arrangements |
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
18 |
|
Balance at March 31, 2010 |
|
3,951 |
|
13,292 |
|
(1,418 |
) |
11 |
|
(990 |
) |
38 |
|
(2,359 |
) |
(885 |
) |
13,999 |
|
699 |
|
14,698 |
|
See Notes to the Interim Consolidated Financial Information
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, 2009.
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 and the fair value of pension plan assets,
· recognition and measurement of current and deferred income tax assets and liabilities (including the measurement of uncertain tax positions),
· growth rates, discount rates and other assumptions used in the Companys annual goodwill impairment test,
· assumptions used in determining inventory obsolescence and net realizable value,
· growth rates, discount rates and other assumptions used to determine impairment of long-lived assets, and
· assessment of the allowance for doubtful accounts.
The actual results and outcomes may differ from the Companys estimates and assumptions.
In the opinion of management, the Interim Consolidated Financial Information contains all necessary adjustments to present fairly the financial position, results of operations and cash flows for the reported interim periods.
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.
Note 2. Recent accounting pronouncements
Applicable in current period
Fair value measurements
As of January 1, 2010, the Company adopted an accounting standard update that requires additional disclosure for fair value measurements. The update requires that significant transfers in and out of fair value Level 1 (observable quoted prices) and Level 2 (observable inputs other than Level 1 inputs) be disclosed together with a description of the reasons for the transfers. Adoption of this update did not result in additional disclosure for the three-month period ended March 31, 2010, as there were no significant transfers between Level 1 and Level 2.
Notes to the Interim Consolidated Financial Information (unaudited)
Applicable for future periods
Fair value measurements
In January 2010, an accounting standard update was issued that requires additional disclosure for fair value measurements. The update requires disclosure, on a gross basis, about purchases, sales, issuances, and settlements of level 3 (significant unobservable inputs) instruments when reconciling the fair value measurements. This disclosure requirement is effective for the Company for periods beginning January 1, 2011. The Company does not believe that this new disclosure requirement will have a material impact on its consolidated financial statements.
Revenue recognition with multiple deliverable arrangements
In October 2009, an accounting standard update on revenue recognition with multiple deliverable arrangements was issued which amends the criteria for allocating consideration in multiple-deliverable revenue arrangements. It establishes a hierarchy of selling prices to determine the selling price of each specific deliverable that includes 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. This update also:
· eliminates the residual method for allocating revenue between the elements of an arrangement and requires that arrangement consideration be allocated at the inception of the arrangement, and
· expands the disclosure requirements regarding a vendors multiple-deliverable revenue arrangements.
This update is effective for arrangements entered into by the Company or materially modified on or after January 1, 2011. The Company is currently evaluating the impact of this update.
Revenue arrangements that include software elements
In October 2009, an accounting standard update for the accounting of certain revenue arrangements that include software elements was issued. This update amends the existing guidance on revenue arrangements that contain both hardware and software elements. This update modifies the existing rules to exclude from the software revenue guidance (i) non-software components of tangible products and (ii) software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible products essential functionality. Undelivered elements in the arrangement related to the non-software components also are excluded from this guidance. This update is effective for arrangements entered into by the Company or materially modified on or after January 1, 2011. The Company is currently evaluating the impact of this update.
Notes to the Interim Consolidated Financial Information (unaudited)
Note 3. Cash and equivalents and marketable securities and short-term investments
At March 31, 2010, and December 31, 2009, cash and equivalents and marketable securities and short-term investments consisted of the following:
|
|
March 31, 2010 |
|
||||||||||
($ in millions) |
|
Cost basis |
|
Gross |
|
Gross |
|
Fair value |
|
Cash and |
|
Marketable |
|
Cash |
|
1,249 |
|
|
|
|
|
1,249 |
|
1,249 |
|
|
|
Time deposits |
|
6,475 |
|
|
|
|
|
6,475 |
|
5,052 |
|
1,423 |
|
Securities held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate commercial papers |
|
155 |
|
|
|
|
|
155 |
|
100 |
|
55 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations |
|
120 |
|
4 |
|
(1 |
) |
123 |
|
|
|
123 |
|
European government obligations |
|
369 |
|
|
|
(1 |
) |
368 |
|
350 |
|
18 |
|
Other government obligations |
|
4 |
|
|
|
(1 |
) |
3 |
|
|
|
3 |
|
Corporate |
|
996 |
|
6 |
|
|
|
1,002 |
|
657 |
|
345 |
|
Equity securities available-for-sale |
|
33 |
|
5 |
|
|
|
38 |
|
|
|
38 |
|
Total |
|
9,401 |
|
15 |
|
(3 |
) |
9,413 |
|
7,408 |
|
2,005 |
|
|
|
December 31, 2009 |
|
||||||||||
($ in millions) |
|
Cost basis |
|
Gross |
|
Gross |
|
Fair value |
|
Cash and |
|
Marketable |
|
Cash |
|
1,381 |
|
|
|
|
|
1,381 |
|
1,381 |
|
|
|
Time deposits |
|
6,170 |
|
|
|
|
|
6,170 |
|
4,474 |
|
1,696 |
|
Securities held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate commercial papers |
|
413 |
|
|
|
|
|
413 |
|
223 |
|
190 |
|
Other |
|
43 |
|
|
|
|
|
43 |
|
|
|
43 |
|
Debt securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations |
|
110 |
|
4 |
|
(1 |
) |
113 |
|
|
|
113 |
|
European government obligations |
|
737 |
|
|
|
(2 |
) |
735 |
|
717 |
|
18 |
|
Other government obligations |
|
4 |
|
|
|
(1 |
) |
3 |
|
|
|
3 |
|
Corporate |
|
603 |
|
5 |
|
|
|
608 |
|
324 |
|
284 |
|
Equity securities available-for-sale |
|
71 |
|
15 |
|
|
|
86 |
|
|
|
86 |
|
Total |
|
9,532 |
|
24 |
|
(4 |
) |
9,552 |
|
7,119 |
|
2,433 |
|
Note 4. Financial instruments
The Company is exposed to certain currency, commodity, interest rate and equity risks arising from its global operating, financing and investing activities. The Company uses derivative instruments to reduce and manage the economic impact of these exposures.
Currency risk
Due to the global nature of its operations, many of the Companys subsidiaries are exposed to currency risk in their operating activities from entering into transactions in currencies other than their functional currency. To manage such currency risks, the Companys policies require its subsidiaries to hedge their foreign currency exposures from binding sales and purchase contracts denominated in foreign currencies, as well as at least fifty percent of the anticipated foreign currency denominated sales volume of standard
Notes to the Interim Consolidated Financial Information (unaudited)
products and related foreign currency denominated purchases over the next twelve months. Forward foreign exchange contracts are the main instrument used to protect the Company against the volatility of future cash flows (caused by changes in exchange rates) of contracted and forecasted sales and purchases denominated in foreign currencies.
Commodity risk
Various commodity products are used in the Companys manufacturing activities. Consequently it is exposed to volatility in future cash flows arising from changes in commodity prices. To manage such commodity price risk, the Companys policies require that its subsidiaries hedge commodity price risk exposures from binding purchase contracts, as well as at least fifty percent of the anticipated commodity purchases over the next twelve months. Swap contracts on various commodities (primarily copper) are used to manage the associated price risks.
Interest rate risk
The Company has issued bonds at fixed rates and in currencies other than the issuing entitys functional currency. Interest rate swaps and cross-currency swaps are used to manage the interest rate and foreign currency risk associated with such debt. In addition, from time to time, the Company uses instruments such as interest rate swaps, bond futures or forward rate agreements to manage interest rate risk arising from the Companys balance sheet structure but does not designate such instruments as hedges.
Equity risk
The Company is exposed to fluctuations in the fair value of its warrant appreciation rights (WARs) issued under its management incentive plan. A WAR gives its holder the right to receive cash equal to the market price of an equivalent listed warrant on the date of exercise. To eliminate such risk, the Company has purchased cash-settled call options which entitle the Company to receive amounts equivalent to its obligations under the outstanding WARs.
In general, while the Companys primary objective in its use of derivatives is to minimize exposures arising from its business, certain derivatives are designated and qualify for hedge accounting treatment while others either are not designated or do not qualify for hedge accounting.
Volume of derivative activity
The gross notional amounts of outstanding derivatives (whether designated as hedges or not) were as follows:
Foreign exchange and interest rate derivatives:
Type of derivative |
|
Total notional amount |
|
||
($ in millions) |
|
March 31, 2010 |
|
December 31, 2009 |
|
Foreign exchange contracts |
|
13,007 |
|
14,446 |
|
Embedded foreign exchange derivatives |
|
3,355 |
|
3,951 |
|
Interest rate contracts |
|
2,557 |
|
2,860 |
|
Derivative commodity contracts:
|
|
|
|
Total notional amount |
|
||
Type of derivative |
|
Unit |
|
March 31, 2010 |
|
December 31, 2009 |
|
Copper swaps |
|
metric tonnes |
|
22,275 |
|
22,002 |
|
Aluminum swaps |
|
metric tonnes |
|
3,464 |
|
2,193 |
|
Nickel swaps |
|
metric tonnes |
|
16 |
|
24 |
|
Electricity futures |
|
megawatt hours |
|
1,454,348 |
|
1,330,978 |
|
Crude oil swaps |
|
barrels |
|
139,580 |
|
154,632 |
|
Equity derivatives:
At March 31, 2010 and December 31, 2009, the Company held 57 million and 64 million cash-settled call options on ABB Ltd shares with a total fair value of $66 million and $64 million respectively.
Notes to the Interim Consolidated Financial Information (unaudited)
Cash flow hedges
As noted above, the Company mainly uses forward foreign exchange contracts to manage the foreign exchange risk of its operations, commodity swaps to manage its commodity risks and cash-settled call options to hedge its WAR liabilities. Where such instruments are designated and qualify as cash flow hedges, the effective portion of the changes in their fair value is recorded in Accumulated other comprehensive loss and subsequently reclassified into earnings in the same line item and in the same period as the underlying hedged transaction affects earnings. Any ineffectiveness in the hedge relationship, or hedge component excluded from the assessment of effectiveness, is recognized in earnings during the current period.
At March 31, 2010 and December 31, 2009, Accumulated other comprehensive loss included $38 million and $20 million, respectively, of unrealized gains, net of tax, on derivatives designated as cash flow hedges. Of the amount at March 31, 2010, net gains of $18 million are expected to be reclassified to earnings in the following twelve months. At March 31, 2010, the longest maturity of a derivative classified as a cash flow hedge was 71 months.
During the three months ended March 31, 2010 and 2009, no amounts were reclassified into earnings as a result of the discontinuance of cash flow hedge accounting, and net of tax gains of $0 million and $1 million, respectively, were included in earnings due to ineffectiveness in cash flow hedge relationships.
The pre-tax effects of derivative instruments, designated and qualifying as cash flow hedges, on Accumulated other comprehensive loss and the Consolidated Income Statements were as follows:
Three months ended March 31, 2010 |
|
||||||||||
Type of derivative |
|
Gains recognized in |
|
Gains (losses) reclassified |
|
Gains recognized in income |
|
||||
|
|
($ in millions) |
|
Location |
|
($ in millions) |
|
Location |
|
($ in millions) |
|
Foreign exchange contracts |
|
28 |
|
Total revenues |
|
15 |
|
Total revenues |
|
|
|
|
|
|
|
Total cost of sales |
|
(1 |
) |
Total cost of sales |
|
|
|
Commodity contracts |
|
4 |
|
Total cost of sales |
|
1 |
|
Total cost of sales |
|
|
|
Cash-settled call options |
|
5 |
|
Selling, general and administrative expenses |
|
(1 |
) |
Selling, general and administrative expenses |
|
|
|
Total |
|
37 |
|
|
|
14 |
|
|
|
|
|
Three months ended March 31, 2009 |
|
||||||||||
Type
of derivative |
|
Gains (losses) |
|
Gains (losses) reclassified |
|
Gains recognized in income |
|
||||
|
|
($ in millions) |
|
Location |
|
($ in millions) |
|
Location |
|
($ in millions) |
|
Foreign exchange contracts |
|
(51 |
) |
Total revenues |
|
(28 |
) |
Total revenues |
|
2 |
|
|
|
|
|
Total cost of sales |
|
|
|
Total cost of sales |
|
|
|
Commodity contracts |
|
12 |
|
Total cost of sales |
|
(12 |
) |
Total cost of sales |
|
|
|
Cash-settled call options |
|
(5 |
) |
Selling, general and administrative expenses |
|
(7 |
) |
Selling, general and administrative expenses |
|
|
|
Total |
|
(44 |
) |
|
|
(47 |
) |
|
|
2 |
|
(1) OCI represents Accumulated other comprehensive loss.
The amount of derivative gains (losses), net of tax, reclassified from Accumulated other comprehensive loss to earnings during the three months ended March 31, 2010 and 2009, was $11 million and $(35) million, respectively.
Fair value hedges
To reduce its interest rate and foreign currency exposures arising primarily from its debt issuance activities, the Company uses interest rate and cross-currency swaps. Where such instruments are designated as fair value hedges, the changes in fair value of these instruments, as well as the changes in fair value of the risk component of the underlying debt being hedged, are recorded as offsetting gains and losses in Interest and other finance expense. Hedge ineffectiveness in the three months ended March 31, 2010 and 2009, was not significant.
Notes to the Interim Consolidated Financial Information (unaudited)
The effect of derivative instruments, designated and qualifying as fair value hedges, on the Consolidated Income Statements was as follows:
Three months ended March 31, 2010 |
|
||||||||
Type of derivative |
|
Gains
recognized in income |
|
Losses
recognized in |
|
||||
|
|
Location |
|
($ in millions) |
|
Location |
|
($ in millions) |
|
Interest rate contracts |
|
Interest and other finance expense |
|
11 |
|
Interest and other finance expense |
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps |
|
Interest and other finance expense |
|
|
|
Interest and other finance expense |
|
|
|
Total |
|
|
|
11 |
|
|
|
(11 |
) |
Three months ended March 31, 2009 |
|
||||||||
Type of derivative |
|
Gains
(losses) recognized in income |
|
Gains
(losses) recognized in |
|
||||
|
|
Location |
|
($ in millions) |
|
Location |
|
($ in millions) |
|
Interest rate contracts |
|
Interest and other finance expense |
|
45 |
|
Interest and other finance expense |
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps |
|
Interest and other finance expense |
|
(1 |
) |
Interest and other finance expense |
|
1 |
|
Total |
|
|
|
44 |
|
|
|
(44 |
) |
Derivatives not designated in hedge relationships
Derivative instruments that are not designated as hedges or do not qualify as either cash flow or fair value hedges are economic hedges used for risk management purposes. Gains and losses from changes in the fair values of such derivatives are recognized in the same line in the income statement as the economically hedged transaction.
Furthermore, under certain circumstances, the Company is required to split and account separately for foreign currency derivatives that are embedded within certain binding sales or purchase contracts denominated in a currency other than the functional currency of the subsidiary and the counterparty. The gains (losses) recognized in the Consolidated Income Statements on such derivatives are included in the table below:
($ in millions) |
|
Gains (losses) recognized in income |
|
||||
Type of derivative |
|
|
|
Three months ended March 31, |
|
||
not designated as a hedge |
|
Location |
|
2010 |
|
2009 |
|
Foreign exchange contracts: |
|
Total revenues |
|
94 |
|
(9 |
) |
|
|
Total cost of sales |
|
(95 |
) |
(79 |
) |
|
|
Interest and other finance expense |
|
83 |
|
24 |
|
Embedded foreign exchange contracts: |
|
Total revenues |
|
(94 |
) |
(51 |
) |
|
|
Total cost of sales |
|
9 |
|
(8 |
) |
Commodity contracts: |
|
Total cost of sales |
|
6 |
|
28 |
|
Cross-currency swaps: |
|
Interest and other finance expense |
|
|
|
(3 |
) |
Total |
|
|
|
3 |
|
(98 |
) |
Notes to the Interim Consolidated Financial Information (unaudited)
The fair values of derivatives included in the Consolidated Balance Sheets were as follows:
|
|
March 31, 2010 |
|
||||||
|
|
Derivative assets |
|
Derivative liabilities |
|
||||
($ in millions) |
|
Current in |
|
Non-current |
|
Current in |
|
Non-current |
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
48 |
|
51 |
|
22 |
|
11 |
|
Commodity contracts |
|
7 |
|
|
|
|
|
|
|
Interest rate contracts |
|
|
|
85 |
|
|
|
|
|
Cash-settled call options |
|
36 |
|
27 |
|
|
|
|
|
Total |
|
91 |
|
163 |
|
22 |
|
11 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
256 |
|
37 |
|
124 |
|
32 |
|
Commodity contracts |
|
27 |
|
1 |