SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the month of: October 2004
Commission File Number: 001-16429
ABB Ltd
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(Exact name of registrant as specified in charter)
N/A
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(Translation of registrant's name into English)
Switzerland
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(Jurisdiction of organization)
P.O. Box 8131, Affolternstrasse 44, CH-8050, Zurich, Switzerland
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(Address of principal executive offices)
Registrant's telephone number, international: + 011-41-1-317-7111
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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
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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 No X
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If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
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This Form 6-K consists of the following:
1. Press release of ABB Ltd, dated October 28, 2004, announcing its financial
results for the third quarter of its 2004 fiscal year.
2. Summary financial information of ABB Ltd for the nine months ended
September 30, 2004.
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
Steady improvement in profitability
Higher Group EBIT, strong increase in net income and cash flow
o Double-digit growth continues in core division orders and revenues
o Higher EBIT led by 54-percent increase in Automation Technologies
o Power Technologies EBIT lowered by parts of systems business
o Total debt reduced to $5.2 billion, gearing at 61 percent
2004 Q3 key figures
------------------------------------------------------------ -------------- ----------------- --------------
($ in millions) Q3 04 Q3 03 Change
.................... ....................................... .............. ................. ..............
Orders Group 4,782 4,373 9%
.................... ....................................... .............. ................. ..............
Power Technologies 2,103 1,853 13%
....................................... .............. ................. ..............
Automation Technologies 2,750 2,312 19%
....................................... .............. ................. ..............
Revenues Group 4,796 4,553 5%
.................... ....................................... .............. ................. ..............
Power Technologies 2,142 1,877 14%
....................................... .............. ................. ..............
Automation Technologies 2,684 2,392 12%
....................................... .............. ................. ..............
EBIT Group 255 230 11%
.................... ....................................... .............. ................. ..............
Power Technologies 110 127 (13%)
....................................... .............. ................. ..............
Automation Technologies 266 173 54%
....................................... .............. ................. ..............
Non-core activities (10) 6
....................................... .............. ................. ..............
Corporate (111) (76)
....................................... .............. ................. ..............
EBIT margin Group 5.3% 5.1%
.................... ....................................... .............. ................. ..............
Power Technologies 5.1% 6.8%
....................................... .............. ................. ..............
Automation Technologies 9.9% 7.2%
.................... ....................................... .............. ................. ..............
Loss from discontinued operations (24) (325)
............................................................ .............. ................. ..............
Net income (loss) 98 (283)
............................................................ .............. ................. ..............
Basic net income (loss) per share 0.05 (0.24)
------------------------------------------------------------------------------------------------------------
Figures for the Group and Power Technologies division have been restated to correct a previously
disclosed overstatement of earnings. For more information, refer to Note 2 - Restatement for earnings
overstatement in an Italian subsidiary, in the Notes to the summary consolidated financial statements
attached to this press release.
Includes reclassification of activities to Discontinued operations in 2003.
Earnings before interest and taxes.
------------------------------------------------------------------------------------------------------------
Zurich, Switzerland, October 28, 2004 - ABB, the leading power and automation
technology group, today reported a steady improvement in orders and revenues,
earnings before interest and taxes (EBIT) as well as cash flow from operations
in the third quarter of 2004.
Net income amounted to $98 million in the third quarter and $188 million for the
first nine months of 2004, compared to losses of $283 million and $388 million,
respectively, in the same periods of 2003. Cash flow from operating activities
increased to $322 million, up $205 million from the same quarter last year.
"We continue to strengthen our performance," said Jurgen Dormann, ABB chairman
and CEO. "We are on track to deliver a positive net income for 2004 and are
confident that we will reach a Group EBIT margin of eight percent in 2005, even
though the Power Technologies division faces challenges to achieve its 2005
margin target."
The Automation Technologies division turned in a strong performance, reporting a
54-percent increase in EBIT. Power Technologies division EBIT was lower, mainly
due to the remaining underutilization in the power lines business and in other
parts of the systems business.
Page 1 of 12
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
Summary of third quarter results
Orders received in the core divisions amounted to $4,853 million, up 17 percent
(11 percent in local currencies) in the third quarter of 2004 compared to the
same quarter last year. The improvement was driven by continued growth in base
orders (less than $15 million) in both divisions and a significant increase in
large orders (more than $15 million) in the Automation Technologies division.
Both divisions saw strong order growth in both U.S. dollar and local currency
terms in China, the U.S., Latin America and eastern Europe. Local currency
orders from western Europe were slightly higher in Automation Technologies and
lower in Power Technologies.
Group orders grew 9 percent to $4,782 million compared to the same quarter in
2003 (5 percent higher in local currencies). Orders were sharply lower in
Non-core activities as a result of the divestment of most of the Building
Systems businesses in the third quarter of last year. Excluding the difference
in orders resulting from the Buildings Systems divestment, Group orders were 16
percent higher (12 percent in local currencies).
Base orders (less than $15 million) in the core divisions were up 15 percent (9
percent in local currencies), with increases seen in all regions, led by the
Americas and Asia.
Large orders (more than $15 million) were up by more than a third in the
quarter, led by more than 50-percent growth in the Automation Technologies
division. Large orders in the Power Technologies division were down in the
quarter. Large orders in the core divisions amounted to 10 percent of total core
division orders in the third quarter, compared to 8 percent in the same quarter
in 2003.
The combined order backlog for the core divisions at the end of the third
quarter amounted to $11,322 million, 14 percent higher than at the end of the
same quarter in 2003 (10 percent higher in local currencies). The order backlog
was up 13 percent in the Power Technologies division (8 percent in local
currencies) and 16 percent (11 percent in local currencies) in the Automation
Technologies division. The Group order backlog at the end of the third quarter
was $11,242 million.
Revenues in the core divisions grew a combined 13 percent; 14 percent for the
Power Technologies division (9 percent in local currencies) and 12 percent in
Automation Technologies (6 percent in local currencies) compared to the same
quarter in 2003. The improvement reflects the strong growth in base orders in
recent quarters. Strong double-digit revenue growth was reported by the core
divisions in China, India and eastern Europe.
Group revenues in the third quarter grew 5 percent (flat in local currencies) to
$4,796 million, as higher revenues in the core divisions offset the 70-percent
drop in Non-core revenues resulting from the divestment of most of the Building
Systems business in the third quarter of 2003. Building Systems reported
revenues of $118 million in the third quarter of 2004 compared to $425 million
in the same period in 2003.
Group EBIT in the third quarter increased 11 percent to $255 million from $230
million in the same quarter in 2003. The improvement was driven by a 54-percent
earnings increase in the Automation Technologies division, which more than
offset a 13-percent EBIT decrease in
Page 2 of 12
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
the Power Technologies division. Non-core activities reduced EBIT by $10
million, while the Corporate result amounted to an EBIT loss of $111 million in
the third quarter.
The Group EBIT margin in the quarter was 5.3 percent compared to 5.1 percent in
the same quarter of 2003. The Power Technologies EBIT margin decreased to 5.1
percent in the quarter from 6.8 percent in the third quarter of 2003, while the
Automation Technologies EBIT margin rose from 7.2 percent to 9.9 percent.
Employees in ABB numbered approximately 103,000 on September 30, 2004 - about
10,000 fewer than at the end of the second quarter of 2004. The reduction was
primarily due to the divestment in July of ABB's upstream oil and gas business,
which employed about 8,000 people, as well as the customary seasonal reduction
in the number of temporary employees.
Finance net was negative $25 million compared to negative $122 million in
the third quarter of 2003. The improvement reflects higher interest income
(resulting from the increase in cash and marketable securities), a decrease in
interest expense (due to the lower debt levels) and the non-recurrence of the
$43-million expense taken in the corresponding 2003 quarter related to the
mark-to-market accounting treatment of the equity option embedded in the $968
million of convertible bonds issued in 2002. The need for this accounting
treatment was eliminated following a meeting of bondholders in May 2004, who
agreed to a change in the terms of the bonds allowing them to be converted into
American Depositary Shares instead of ordinary shares denominated in Swiss
francs. Included in the line Interest and other finance expense in the third
quarter of 2004 was an amortization expense for the discount on the bonds of $7
million.
-----------------------------
Finance net is the difference between interest and dividend income and
interest and other finance expense.
The net loss in Discontinued operations amounted to $24 million, compared to a
net loss of $325 million in the third quarter of 2003. The improvement was
mainly the result of sharply lower losses in the downstream oil and gas business
compared to the same quarter in 2003, when the business reported significant
project write-downs. A further contribution to the improvement in the quarter
was a decrease of $97 million in expenses related to asbestos, including a
$48-million reduction in the expense on the mark-to-market treatment of the
approximately 30 million ABB shares reserved to cover part of the company's
asbestos liabilities, as well as the non-recurrence of a $41-million provision
taken in the third quarter last year to cover future asbestos payments. (For
more details on Discontinued operations, please refer to page 10).
ABB's net income for the third quarter amounted to $98 million, compared to a
net loss of $283 million for the same period in 2003.
Balance sheet
Cash and marketable securities at the end of September 2004 amounted to $3.6
billion (excluding Discontinued operations), up from $3.4 billion at the end of
June 2004. A cash increase resulting from the approximately $800 million net
cash proceeds on the closure of the sale of the upstream oil and gas business,
plus improved cash flow from operations in the third quarter, were partly offset
by cash outflows to complete the announced tender offer and call of the
outstanding Euro 300 million 5.375-percent bonds (due in June 2005) and the Euro
475 million 5.125-percent bonds (due in January 2006), amounting to
approximately Euro 275 million and Euro 368 million, respectively.
Page 3 of 12
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
At the end of September 2004, total debt (defined as total short and long-term
borrowings) was $5.2 billion, compared to $6.1 billion at June 30, 2004, and
$7.9 billion at the end of December 2003.
Gearing, defined as total debt divided by total debt plus shareholders' equity
(including minority interest), amounted to 61 percent at the end of September
compared to 66 percent at the end of June 2004 and 71 percent at the end of
December 2003.
Stockholders' equity at September 30, 2004, was $3,121 million compared to
$2,922 million at the end of June 2004.
Cash flow from operating activities
-------------------------------------------------------------------------------------------------------------
$ in millions Q3 2004 Q3 2003 Change
-------------------------------------------------------------------------------------------------------------
Power Technologies 67 81 (14)
-------------------------------------------------------------------------------------------------------------
Automation Technologies 239 219 20
-------------------------------------------------------------------------------------------------------------
Non-core activities (24) 9 (33)
-------------------------------------------------------------------------------------------------------------
Corporate 62 2 60
-------------------------------------------------------------------------------------------------------------
Oil, Gas and Petrochemicals businesses (22) (194) 172
-------------------------------------------------------------------------------------------------------------
Total net cash from operating activities 322 117 205
-------------------------------------------------------------------------------------------------------------
Figures for the Group and Power Technologies division have been restated to correct a previously
disclosed overstatement of earnings. For more information, refer to Note 2 - Restatement for earnings
overstatement in an Italian subsidiary, in the Notes to the summary consolidated financial statements
attached to this press release.
Net cash from operating activities for the Group in the third quarter of 2004
improved by $205 million compared to the year-earlier period, mainly the result
of higher earnings, as well as the impact of the change from lump-sum large
project orders to lower-risk reimbursable orders in the downstream oil and gas
business, which has stabilized the cash flow cycle in that business.
Cash flow from operations in the core divisions developed in line with their
earnings in the quarter - higher in the Automation Technologies division and
lower in the Power Technologies division.
Cash used in Non-core activities amounted to $24 million, related primarily to
the loss in the Building Systems businesses. Corporate generated cash flow of
$62 million in the quarter, mainly from treasury-related operations. Total
asbestos cash outflows amounted to $1 million in the quarter ($56 million in the
same quarter of 2003).
Divestments
As already announced, ABB closed the sale of its upstream oil and gas business
on July 12, 2004, which resulted in net cash proceeds of approximately $800
million (included in Cash from investing activities in the cash flow statement)
and a breakeven result on the transaction. ABB and the buyers of the business
are currently in the process of determining the final sales price, based on the
final adjusted accounts as of the closing date. This is part of a customary
process in such transactions.
--------------------------
Please refer to Note 3 - Significant Divestitures, in the notes to the
summary consolidated financial statements attached to this press release.
Page 4 of 12
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
Asbestos
ABB is awaiting the results of a hearing held on June 3, 2004, before the U.S.
3rd Circuit Court of Appeals to review a pre-packaged Chapter 11 protection plan
that was filed in 2003 by a U.S. subsidiary of ABB, Combustion Engineering Inc.
The plan has already been approved by both a federal bankruptcy court and a U.S.
district court and ABB remains confident that the Circuit Court will also
approve the plan.
Board of Directors and Group management
Louis R. Hughes, a member of ABB's Board of Directors, has taken a temporary
leave of absence from the Board to serve the United States government in
Afghanistan. In addition, the company is in the final stages of appointing a new
chief financial officer and plans to make an announcement shortly.
Group outlook
From 2002 through to the end of 2005, ABB expects compound average annual
revenue growth of 4 percent in local currencies. The Power Technologies division
expects compound average annual revenue growth of 5.3 percent in local
currencies. The Automation Technologies division expects compound average annual
revenue growth of 3.3 percent in local currencies.
For 2005, the EBIT margin targets remain unchanged at 8 percent for the Group
and 10.7 percent for the Automation Technologies division. Achieving the
10-percent EBIT margin target in the Power Technologies division depends partly
on the timely resolution of the remaining underutilization in the power lines
business.
The company intends to further reduce total debt to about $4 billion and gearing
to approximately 50 percent by the end of 2005.
Revenue and margin targets exclude major acquisitions, divestitures and business
closures.
Divisional performance Q3 2004
Power Technologies
-------------------------------------------------------------------------------------------------------------
$ in millions (except where indicated) Q3 2004 Q3 2003 Change
-------------------------------------------------------------------------------------------------------------
Orders 2,103 1,853 13%
-------------------------------------------------------------------------------------------------------------
Revenues 2,142 1,877 14%
-------------------------------------------------------------------------------------------------------------
EBIT 110 127 (13%)
-------------------------------------------------------------------------------------------------------------
EBIT margin 5.1% 6.8%
-------------------------------------------------------------------------------------------------------------
Restructuring costs (included in EBIT) (12) (21)
-------------------------------------------------------------------------------------------------------------
Restated to correct a previously disclosed overstatement of earnings. For more information, refer to Note
2- Restatement for earnings overstatement in an Italian subsidiary, in the Notes to the summary consolidated
financial statements attached to this press release.
2 Adjusted to reflect the reclassification of activities to Discontinued operations in 2003 and the move of
substation automation activities from the Automation Technologies division, effective January 1, 2004.
Orders received in the Power Technologies division rose 13 percent to $2,103
million in the third quarter of 2004 (up 9 percent in local currencies) as the
growth in base orders more than offset lower large orders in the quarter. Local
currency orders were higher in all business areas except Utility Automation
Systems.
Page 5 of 12
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
Regionally, orders from China again grew strongly, up by more than a third in
both U.S. dollar and local currency terms compared to the third quarter of 2003,
and orders from India more than doubled in both U.S. dollars and local
currencies. Orders in local currency terms were almost 50 percent higher in the
U.S. and grew significantly in eastern Europe. In western Europe, orders were
lower in both U.S. dollars and local currencies. The market remained favorable
in the Middle East and Africa but orders were down from the very high 2003
levels. Orders in Latin America were up.
Orders in the quarter included a $60-million order, announced in October, for
high-voltage switchgear and transformers for the Three Gorges project in China,
and a $24-million order in Algeria to upgrade part of the country's power grid.
Revenues in the quarter were 14 percent higher at $2,142 million (up 9 percent
in local currencies). Revenues were up in all business areas, led by
Transformers, Medium-Voltage Products and High-Voltage Products. Asia and the
Middle East were the main drivers of the revenue improvement.
Third-quarter EBIT decreased to $110 million from $127 million in the same
period in 2003. Higher EBIT in the High-Voltage Products and Transformers
business areas, plus lower restructuring charges than the same period in 2003,
were offset primarily by the remaining underutilization in the power lines
business and in other parts of the systems business. There was an additional
effect from higher raw material costs that could not yet be reflected in higher
prices.
As a result, the division's EBIT margin in the quarter amounted to 5.1 percent
compared to 6.8 percent in the same quarter last year. The EBIT margin before
restructuring was 5.7 percent compared to 7.9 percent in the same quarter last
year.
Cash flow from operations for the division decreased to $67 million in the third
quarter from $81 million in the same quarter of 2003, mainly the result of lower
earnings.
The Power Technologies division announced plans in August to accelerate
profitable growth by streamlining its five business areas into two, organized
around products and systems. The Power Technology Products business area will
incorporate ABB's manufacturing network for power technologies. The Power
Technology Systems business area will offer systems for power transmission and
distribution grids, and for power plants. The changes will take effect as of
January 1, 2005.
Page 6 of 12
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
Automation Technologies
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$ in millions (except where indicated) Q3 2004 Q3 2003 Change
-------------------------------------------------------------------------------------------------------------
Orders 2,750 2,312 19%
-------------------------------------------------------------------------------------------------------------
Revenues 2,684 2,392 12%
-------------------------------------------------------------------------------------------------------------
EBIT 266 173 54%
-------------------------------------------------------------------------------------------------------------
EBIT margin 9.9% 7.2%
-------------------------------------------------------------------------------------------------------------
Restructuring costs (included in EBIT) (11) (40)
-------------------------------------------------------------------------------------------------------------
Adjusted to reflect the move of substation automation activities to the Power Technologies division,
effective January 1, 2004
The Automation Technologies division recorded a 19-percent increase in orders
compared to the same quarter last year (up 13 percent in local currencies), with
strong growth in all business areas in both U.S. dollar and local currency
terms.
Order growth was strong across most product businesses, as well as the oil and
gas and marine sectors. Regionally, orders were significantly higher in the
U.S., Latin America, and both eastern and western Europe, all of which showed
strong double-digit local currency growth. Orders continued to grow at a
double-digit pace in China.
Both base and large orders grew in the quarter. Large orders in the quarter
included two contracts valued at a total of $174 million for gas compressor
stations in Poland and Algeria.
Demand for ABB's new System 800xA process control system continued to grow,
including significant recent orders from a large aluminum refinery in Brazil, a
paper company in China, fertilizer manufacturers in Egypt and a water treatment
utility in The Netherlands.
Revenues and EBIT grew for the eighth consecutive quarter. Revenues rose to
$2,684 million, up 12 percent (6 percent in local currencies) compared to the
third quarter of last year. Revenues in U.S. dollars were higher in all business
areas. In local currencies, revenues were higher in Automation Products and
Process Automation, and slightly lower in Manufacturing Automation as the result
of a weak order backlog at the beginning of the year.
Revenues in local currencies in the Americas and western Europe were flat for
the third quarter, and significantly higher in Asia, eastern Europe and the
Middle East and Africa.
EBIT rose 54 percent to $266 million compared to the same quarter in 2003,
driven by double-digit improvements in all business areas. The EBIT margin
reached 9.9 percent from 7.2 percent in the same quarter in 2003. The main
contributors were ongoing productivity improvements, increased product revenues
and a $29-million reduction in restructuring costs. The EBIT margin before
restructuring increased to 10.3 percent in the third quarter of 2004 from 8.9
percent in the same period last year.
Cash flow from operating activities in the quarter amounted to $239 million, up
9 percent, mainly the result of higher earnings.
Page 7 of 12
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
Non-core activities
----------------------------------------------------------- ------------------- -----------------------------
EBIT ($ in millions) Q3 2004 Q3 2003
----------------------------------------------------------- ------------------- -----------------------------
Equity Ventures 9 (1)
----------------------------------------------------------- ------------------- -----------------------------
Remaining Structured Finance (2) 32
----------------------------------------------------------- ------------------- -----------------------------
Building Systems (12) 18
----------------------------------------------------------- ------------------- -----------------------------
New Ventures (7) (17)
----------------------------------------------------------- ------------------- -----------------------------
Other non-core activities 2 (26)
----------------------------------------------------------- ------------------- -----------------------------
Total (10) 6
----------------------------------------------------------- ------------------- -----------------------------
Restructuring costs (included in EBIT) (1) (14)
----------------------------------------------------------- ------------------- -----------------------------
Adjusted to reflect the reclassification of activities to Discontinued operations in 2003
Non-core activities reported negative EBIT of $10 million in the third quarter
compared to positive EBIT of $6 million in the same period of 2003, driven
primarily by the Building Systems businesses, which reported a negative EBIT of
$12 million compared to a positive EBIT of $18-million in the same period in
2003. The quarterly result in 2003 included a $30-million capital gain on the
sale of the Nordic part of the business. A near break-even EBIT from the German
Building Systems business in the quarter was more than offset by costs
associated with the disposal or winding down of business in some other
countries. Other Non-core activities improved due to the elimination of the
former Group Processes business area.
Corporate
----------------------------------------------------------- ------------------- -----------------------------
EBIT ($ in millions) Q3 2004 Q3 2003
----------------------------------------------------------- ------------------- -----------------------------
Headquarters/stewardship (85) (38)
----------------------------------------------------------- ------------------- -----------------------------
Research and development (23) (27)
----------------------------------------------------------- ------------------- -----------------------------
Other (3) (11)
----------------------------------------------------------- ------------------- -----------------------------
Total (111) (76)
----------------------------------------------------------- ------------------- -----------------------------
Adjusted to reflect the reclassification of activities to Discontinued operations in 2003
Includes consolidation effects, real estate and Treasury Services
Headquarters and stewardship activities resulted in an EBIT loss of $85 million
in the third quarter, compared to $38 million in the same quarter in 2003, which
included a $65-million capital gain on the divestment of the Nordic Building
Systems business. Adjusted for this effect, the EBIT loss from headquarters was
$18 million less than the same quarter in 2003, as a result of lower corporate
costs. Corporate results will not improve significantly over the remainder of
2004 but are expected to improve gradually through 2005.
Other income (expense), net
----------------------------------------------------------- ------------------- -----------------------------
EBIT ($ in millions) Q3 2004 Q3 2003
----------------------------------------------------------- ------------------- -----------------------------
Restructuring (24) (68)
----------------------------------------------------------- ------------------- -----------------------------
Asset write-downs (16) (14)
----------------------------------------------------------- ------------------- -----------------------------
Net capital gains 1 141
----------------------------------------------------------- ------------------- -----------------------------
Income from licenses and equity-accounted companies 28 0
----------------------------------------------------------- ------------------- -----------------------------
Total (11) 59
----------------------------------------------------------- ------------------- -----------------------------
Adjusted to reflect the reclassification of activities to Discontinued operations in 2003
Asset write-downs in the quarter were $16 million and included the write-down of
an investment in a venture capital business. Net capital gains were lower in the
quarter, compared to the third quarter of 2003, which included a $95-million
gain on the sale of ABB's Nordic Building Systems business. Income from licenses
and equity-accounted companies increased to $28 million, reflecting primarily
income from the company's Equity Ventures portfolio. In the third quarter of
2003, income from licenses and equity-accounted companies was offset by
Page 8 of 12
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
losses in the Swedish Export Credit Corporation, in which ABB held a 35-percent
stake that it has since divested.
Discontinued operations
----------------------------------------------------------- ------------------- -----------------------------
Net income (loss) ($ in millions) Q3 2004 Q3 2003
----------------------------------------------------------- ------------------- -----------------------------
Reinsurance (1) 53
----------------------------------------------------------- ------------------- -----------------------------
Asbestos (25) (122)
----------------------------------------------------------- ------------------- -----------------------------
Oil, Gas and Petrochemicals business (22) (194)
----------------------------------------------------------- ------------------- -----------------------------
Other 24 (62)
----------------------------------------------------------- ------------------- -----------------------------
Total net loss (24) (325)
----------------------------------------------------------- ------------------- -----------------------------
Adjusted to reflect the reclassification of activities to Discontinued operations in 2003
The difference in the Reinsurance result reflects the divestment of this
business in the second quarter of 2004.
Expenses related to asbestos decreased in the quarter, primarily due to a
reduction in the expense from the mark-to-market treatment of the approximately
30 million ABB shares reserved to cover part of the company's asbestos
liabilities. That expense decreased from $67 million in the third quarter of
2003 to $19 million in the same period this year. Additionally, the third
quarter of 2003 included an expense of $41 million relating to a contingent
payment for asbestos.
The oil, gas and petrochemicals result in Discontinued operations for this
quarter includes various items in addition to the result of the remaining
downstream business, such as compliance costs associated with the upstream
business. The divestment of the upstream business, completed in July 2004,
resulted in net cash proceeds of some $800 million and a break-even result on
the transaction. Results for the downstream oil and gas business are presented
in the next section.
The improvement in net income on the line Other in Discontinued operations in
the third quarter was primarily the result of the release of provisions related
to the final settlement during the quarter of the sale of the Structured Finance
business in 2002. The loss in the 2003 quarter included a $24-million charge
ahead of the sale of ABB Export Bank, which has since been divested.
Oil, Gas and Petrochemicals - downstream
----------------------------------------------------------- ------------------ --------------- --------------
($ in millions) Q3 2004 Q3 2003 Change
----------------------------------------------------------- ------------------ --------------- --------------
Orders 247 273 (10%)
----------------------------------------------------------- ------------------ --------------- --------------
Revenues 249 433 (42%)
----------------------------------------------------------- ------------------ --------------- --------------
Net income (loss) (12) (122)
----------------------------------------------------------- ------------------ --------------- --------------
Demand for ethylene technologies in the downstream oil, gas and petrochemicals
business continued to grow in the third quarter. The strategic shift in the
large project business to lower-risk reimbursable contracts rather than large
scope fixed-price contracts, however, resulted in a 10-percent reduction in
orders and 42-percent lower revenues in the third quarter of 2004 compared to
the same period in 2003.
The net loss in the quarter amounted to $12 million compared to a loss of $122
million in the same period in 2003, which included a number of non-cash project
write-offs, including a large petrochemicals project in India and a refinery in
The Netherlands.
Page 9 of 12
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
Appendix 1
ABB key figures third quarter 2004
---------------------------------------------------- --------------- -------------- -----------------------
$ in millions Q3 2004 Q3 2003 % change
---------------------------------------------------- --------------- -------------- ----------- -----------
Nominal Local
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Orders Group 4,782 4,373 9% 5%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Power Technologies 2,103 1,853 13% 9%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Automation Technologies 2,750 2,312 19% 13%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Non-core activities 104 427
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Corporate (175) (219)
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Revenues Group 4,796 4,553 5% 1%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Power Technologies 2,142 1,877 14% 9%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Automation Technologies 2,684 2,392 12% 6%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Non-core activities 145 490
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Corporate (175) (206)
----------------- ---------------------------------- --------------- -------------- ----------- -----------
EBIT* Group 255 230 11%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Power Technologies 110 127 (13%)
----------------- ---------------------------------- --------------- -------------- -----------
Automation Technologies 266 173 54%
----------------- ---------------------------------- --------------- -------------- -----------
Non-core activities (10) 6
----------------- ---------------------------------- --------------- -------------- -----------
Corporate (111) (76)
----------------- ---------------------------------- --------------- -------------- -----------
EBIT margin Group 5.3% 5.1%
----------------- ---------------------------------- --------------- -------------- -----------
Power Technologies 5.1% 6.8%
----------------- ---------------------------------- --------------- -------------- -----------
Automation Technologies 9.9% 7.2%
----------------- ---------------------------------- --------------- -------------- -----------
Non-core activities
----------------- ---------------------------------- --------------- -------------- -----------
Corporate
---------------------------------------------------- --------------- -------------- -----------
Net income (loss) 98 (283)
---------------------------------------------------- --------------- -------------- ----------- -----------
ABB key figures first nine months 2004
---------------------------------------------------- --------------- -------------- -----------------------
$ in millions Nine months Nine months % change
2004 2003
---------------------------------------------------- --------------- -------------- ----------- -----------
Nominal Local
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Orders Group 15,690 14,029 12% 5%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Power Technologies 7,225 5,827 24% 17%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Automation Technologies 8,648 7,162 21% 13%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Non-core activities 362 1,928
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Corporate (545) (888)
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Revenues Group 14,065 13,705 3% (4%)
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Power Technologies 6,276 5,569 13% 7%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Automation Technologies 7,891 6,976 13% 5%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Non-core activities 456 2,034
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Corporate (558) (874)
----------------- ---------------------------------- --------------- -------------- ----------- -----------
EBIT* Group 776 460 69%
----------------- ---------------------------------- --------------- -------------- ----------- -----------
Power Technologies 417 413 1%
----------------- ---------------------------------- --------------- -------------- -----------
Automation Technologies 739 519 42%
----------------- ---------------------------------- --------------- -------------- -----------
Non-core activities (21) (110)
----------------- ---------------------------------- --------------- -------------- -----------
Corporate (359) (362)
----------------- ---------------------------------- --------------- -------------- -----------
EBIT margin Group 5.5% 3.4%
----------------- ---------------------------------- --------------- -------------- -----------
Power Technologies 6.6% 7.4%
----------------- ---------------------------------- --------------- -------------- -----------
Automation Technologies 9.4% 7.4%
----------------- ---------------------------------- --------------- -------------- -----------
Non-core activities
----------------- ---------------------------------- --------------- -------------- -----------
Corporate
---------------------------------------------------- --------------- -------------- -----------
Net income (loss) 188 (388)
---------------------------------------------------- --------------- -------------- ----------- -----------
Figures for the Group and Power Technologies division have been restated to correct a previously
disclosed overstatement of earnings. For more information, refer to Note 2 - Restatement for earnings
overstatement in an Italian subsidiary, in the Notes to the summary consolidated financial statements
attached to this press release.
Includes reclassification of activities to Discontinued operations in 2003
* Earnings before interest and taxes. See Summary Financial Information for more
information.
Page 10 of 12
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
Appendix 2
This appendix presents the restated and unaudited ABB Group consolidated income
statement for each quarter from the first quarter of 2003 until the second
quarter of 2004 to correct for the effect of a previously disclosed
overstatement of earnings (see Note 2 Restatement for earnings overstatement in
an Italian subsidiary, in the Notes to the summary consolidated financial
statements attached to this press release).
ABB Ltd
Summary Consolidated Income Statements
First quarter 2003 to second quarter 2004
-------------------------------------------------------------------------------------------------------
....All amounts are unaudited....
($ millions)
--------------------------------------------- --------- -------- --------- --------- --------- --------
Q2 04 Q1 04 Q4 03 Q3 03 Q2 03 Q1 03
--------------------------------------------- --------- -------- --------- --------- --------- --------
Revenues 4'910 4'359 5'079 4'553 4'842 4'310
--------------------------------------------- --------- -------- --------- --------- --------- --------
Cost of sales (3'674) (3'211) (3'858) (3'437) (3'559) (3'230)
--------------------------------------------- --------- -------- --------- --------- --------- --------
Gross profit 1'236 1'148 1'221 1'116 1'283 1'080
--------------------------------------------- --------- -------- --------- --------- --------- --------
Selling, general and administrative expenses (932) (904) (903) (934) (1'041) (952)
--------------------------------------------- --------- -------- --------- --------- --------- --------
Amortization expense (10) (10) (9) (11) (10) (10)
--------------------------------------------- --------- -------- --------- --------- --------- --------
Other income (expense), net (3) (4) (128) 59 (95) (25)
--------------------------------------------- --------- -------- --------- --------- --------- --------
Earnings before interest and taxes 291 230 181 230 137 93
--------------------------------------------- --------- -------- --------- --------- --------- --------
Interest and dividend income 45 31 37 38 29 40
--------------------------------------------- --------- -------- --------- --------- --------- --------
Interest and other finance expense (90) (107) (114) (160) (115) (165)
--------------------------------------------- --------- -------- --------- --------- --------- --------
Income from continuing operations before 246 154 104 108 51 (32)
taxes and minority interest
--------------------------------------------- --------- -------- --------- --------- --------- --------
Provision for taxes (90) (62) (27) (40) (19) 11
--------------------------------------------- --------- -------- --------- --------- --------- --------
Minority interest (26) (15) (26) (26) (19) (11)
--------------------------------------------- --------- -------- --------- --------- --------- --------
Income (loss) from continuing operations 130 77 51 42 13 (32)
--------------------------------------------- --------- -------- --------- --------- --------- --------
Income (loss) from discontinued operations (41) (76) (442) (325) (71) (15)
--------------------------------------------- --------- -------- --------- --------- --------- --------
Net income (loss) 89 1 (391) (283) (58) (47)
--------------------------------------------- --------- -------- --------- --------- --------- --------
-------------------------------------------------------------------------------------------------------
Page 11 of 12
Press Release [LOGO OF ABB]
ABB Group Q3 results 2004
More information
The 2004 Q3 results press release and presentation slides are available from
October 28, 2004 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 telephone conference for journalists today starting at 10:00
Central European Time (CET). Callers from the U.K. should dial +44 20 7107 0611.
From Sweden, dial +46 8 5069 2105, and from the rest of Europe, dial +41 91 610
56 00. Lines will be open 15 minutes before the start of the conference. The
audio playback of the conference call will start one hour after the end of the
call and be available for 72 hours. Playback numbers: +44 207 866 4300 (U.K.),
+41 91 612 4330 (rest of Europe) or +1 412 317 0088 (U.S.). The code is 299,
followed by the # key.
A conference call for analysts and investors is scheduled to begin at 14:00 CET.
Callers from the U.S. should dial +1 412 858 4600. Callers from Europe and the
rest of the world should call +41 91 610 5600. Callers are requested to phone in
10 minutes before the start of the conference call. The audio playback of the
conference call will start one hour after the end of the call and be available
for 72 hours. Playback numbers: +1 412 317 0088 (U.S.) or +41 91 612 4330
(Europe and the rest of the world). The code is 116 followed by the # key.
In 2005, the dates for quarterly reports are as follows:
February 17 Q4 and full year 2004 results
April 28 Q1 2005 results
July 28 Q2 2005 results
October 27 Q3 2005 results
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 103,000 people.
Zurich, October 28, 2004
Jurgen Dormann, chairman and CEO
This press release includes forward-looking information and statements that are
subject to risks and uncertainties that could cause actual results to differ.
These statements are based on current expectations, estimates and projections
about global economic conditions, the economic conditions of the regions and
industries that are major markets for ABB Ltd and ABB Ltd's lines of business.
These expectations, estimates and projections are generally identifiable by
statements containing words such as "expects," "believes," "estimates" or
similar expressions. Important factors that could cause actual results to differ
materially from those expectations include, among others, ABB's ability to
dispose of certain of its non-core businesses on terms and conditions acceptable
to it, ABB's ability to further reduce its indebtedness as planned, the
resolution of asbestos claims on terms and conditions satisfactory to ABB,
economic and market conditions in the geographic areas and industries that are
major markets for ABB's businesses, market acceptance of new products and
services, changes in governmental regulations, interest rates, fluctuations in
currency exchange rates and such other factors as may be discussed from time to
time in ABB's 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 3804 Affolternstrasse 44
Tel: +41 43 317 6568 Sweden: Tel. +46 21 325 719 CH-8050 Zurich, Switzerland
Fax: +41 43 317 7958 USA: Tel. +1 203 750 7743
media.relations@ch.abb.com investor.relations@ch.abb.com
Page 12 of 12
[LOGO OF ABB]
Summary Financial Information
Nine Months Ended September 2004
Financial Information Nine Months, 2004
ABB Ltd
Summary Consolidated Income Statements
---------------------------------------------------------------------------------------------------------------
January - September July - September
2004 2003* 2004 2003*
(restated) (restated)
--------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
(in millions, except per share data)
---------------------------------------------------------------------------------------------------------------
Revenues $ 14,065 $ 13,705 $ 4,796 $ 4,553
Cost of sales (10,510) (10,226) (3,625) (3,437)
--------------------------------------------------------
Gross profit 3,555 3,479 1,171 1,116
Selling, general and administrative expenses (2,731) (2,927) (895) (934)
Amortization expense (30) (31) (10) (11)
Other income (expense), net (18) (61) (11) 59
--------------------------------------------------------
Earnings before interest and taxes 776 460 255 230
Interest and dividend income 119 107 43 38
Interest and other finance expense (265) (440) (68) (160)
--------------------------------------------------------
Income from continuing operations before taxes and
minority interest 630 127 230 108
Provision for taxes (236) (48) (84) (40)
Minority interest (65) (56) (24) (26)
--------------------------------------------------------
Income from continuing operations 329 23 122 42
Loss from discontinued operations, net of tax (141) (411) (24) (325)
--------------------------------------------------------
Net income (loss) $ 188 $ (388) $ 98 $ (283)
========================================================
Basic earnings (loss) per share:
Income from continuing operations $ 0.16 $ 0.02 $ 0.06 $ 0.04
Net income (loss) $ 0.09 $ (0.33) $ 0.05 $ (0.24)
Diluted earnings (loss) per share:
Income from continuing operations $ 0.16 $ 0.02 $ 0.06 $ 0.04
Net income (loss) $ 0.09 $ (0.33) $ 0.05 $ (0.24)
---------------------------------------------------------------------------------------------------------------
* The 2003 periods presented have been restated to correct misstatements in an
Italian subsidiary. See Note 2 - Restatement for earnings overstatement in an
Italian subsidiary.
Page 1 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
ABB Ltd
Summary Consolidated Balance Sheets
--------------------------------------------------------------------------------------------------------------------
At At At
September 30 June 30 December 31
2004 2004* 2003*
-------------------------------------------------
(restated) (restated)
-------------------------------------------------
(unaudited) (unaudited) (audited)
(in millions, except share data)
-------------------------------------------------
Cash and equivalents $ 2,851 $ 2,914 $ 4,669
Marketable securities 745 491 473
Receivables, net 5,426 5,337 5,327
Inventories, net 2,965 2,836 2,617
Prepaid expenses and other 1,702 1,566 2,002
Assets held for sale and in discontinued operations 1,800 3,112 6,427
-------------------------------------------------
Total current assets 15,489 16,256 21,515
Financing receivables, non-current 1,185 1,249 1,330
Property, plant and equipment, net 2,712 2,695 2,840
Goodwill 2,310 2,306 2,331
Other intangible assets, net 444 466 549
Prepaid pension and other employee benefits 515 518 524
Investments and other 1,154 1,262 1,312
-------------------------------------------------
Total assets $ 23,809 $ 24,752 $ 30,401
=================================================
Accounts payable, trade $ 3,075 $ 2,963 $ 2,999
Accounts payable, other 1,284 1,232 1,394
Short-term borrowings and current maturities of long-term borrowings 616 939 1,635
Accrued liabilities and other 4,845 4,688 5,145
Liabilities held for sale and in discontinued operations 1,471 1,980 5,100
-------------------------------------------------
Total current liabilities 11,291 11,802 16,273
Long-term borrowings 4,562 5,176 6,290
Pension and other employee benefits 1,824 1,778 1,794
Deferred taxes 901 958 969
Other liabilities 1,868 1,879 1,873
-------------------------------------------------
Total liabilities 20,446 21,593 27,199
Minority interest 242 237 285
Stockholders' equity:
Capital stock and additional paid-in capital 3,067 3,067 3,067
Retained earnings 1,948 1,850 1,760
Accumulated other comprehensive loss (1,756) (1,857) (1,772)
Less: Treasury stock, at cost (11,611,529 shares at September
30, 2004) (138) (138) (138)
-------------------------------------------------
Total stockholders' equity 3,121 2,922 2,917
-------------------------------------------------
Total liabilities and stockholders' equity $ 23,809 $ 24,752 $ 30,401
=================================================
--------------------------------------------------------------------------------------------------------------------
* The June 30, 2004, and the December 31, 2003, balance sheets have been
restated to correct misstatements in an Italian subsidiary. See Note 2 -
Restatement for earnings overstatement in an Italian subsidiary.
Page 2 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
ABB Ltd
Summary Consolidated Statements of Cash Flows
---------------------------------------------------------------------------------------------------------------------
January - September July - September
2004 2003* 2004 2003*
(restated) (restated)
-------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
(in millions)
---------------------------------------------------------------------------------------------------------------------
Operating activities:
Net income (loss) $ 188 $ (388) $ 98 $ (283)
Adjustments to reconcile net income (loss) to net cash from (used
in) operating activities:
Depreciation and amortization 438 435 142 145
Provisions (136) (725) 6 (83)
Pension and post-retirement benefits 66 23 18 73
Deferred taxes (5) (129) (18) (44)
Net gain from sale of property, plant and equipment (26) (23) (3) (11)
Loss on sale of discontinued operations 43 -- 7 --
Other 139 264 (17) 102
Changes in operating assets and liabilities:
Marketable securities (trading) 42 29 (1) (6)
Trade receivables (156) (127) 82 (103)
Inventories (431) (106) (59) 17
Trade payables (6) (72) 14 (13)
Other assets and liabilities, net (74) (23) 53 323
-------------------------------------------------
Net cash provided by (used in) operating activities 82 (842) 322 117
-------------------------------------------------
Investing activities:
Changes in financing receivables 107 181 56 22
Purchases of marketable securities (other than trading) (2,283) (2,309) (653) (424)
Purchases of property, plant and equipment (344) (391) (109) (161)
Acquisitions of businesses (net of cash acquired) (23) (49) (7) (5)
Proceeds from sales of marketable securities (other than trading) 1,965 2,482 403 479
Proceeds from sales of property, plant and equipment 93 96 30 34
Proceeds from sales of businesses (net of cash disposed) 1,128 465 813 208
-------------------------------------------------
Net cash provided by investing activities 643 475 533 153
-------------------------------------------------
Financing activities:
Changes in borrowings (2,781) (221) (1,027) (175)
Treasury and capital stock transactions (36) 156 -- --
Other (23) 22 3 (20)
-------------------------------------------------
Net cash used in financing activities (2,840) (43) (1,024) (195)
-------------------------------------------------
Effects of exchange rate changes on cash and equivalents (10) 95 17 34
Adjustment for the net change in cash and equivalents in assets held
for sale and in discontinued opertiions 307 36 89 54
-------------------------------------------------
Net change in cash and equivalents - continuing operations (1,818) (279) (63) 163
-------------------------------------------------
Cash and equivalents beginning of period 4,669 2,336 2,914 1,894
-------------------------------------------------
Cash and equivalents end of period $ 2,851 $ 2,057 $ 2,851 $ 2,057
=================================================
Interest paid $ 308 $ 324 $ 123 $ 98
Taxes paid $ 304 $ 157 $ 98 $ 50
---------------------------------------------------------------------------------------------------------------------
* The 2003 periods presented have been restated to correct misstatements in an
Italian subsidiary. See Note 2 - Restatement for earnings overstatement in an
Italian subsidiary.
Page 3 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
ABB Ltd notes to summary consolidated financial statements (unaudited)
(US$ in millions, except per share data)
Note 1 The summary consolidated financial statements
The summary consolidated financial information is prepared on the basis of
accounting principles generally accepted in the United States (US GAAP) and is
presented in United States dollars ($) unless otherwise stated. Data for orders
and number of employees are shown as additional information and are not required
disclosures under US GAAP.
Amounts in prior periods have been reclassified to conform to the Company's
current presentation.
The par value of capital stock is denominated in Swiss francs (CHF).
ABB Ltd (the "Company") considers earnings before interest and taxes (operating
income), which excludes interest and dividend income, interest and other finance
expense, provision for taxes, minority interest and loss from discontinued
operations, net of tax, to be the most relevant measure of the Company's and its
divisions' financial and operational performance. Accordingly, the Company
evaluates itself and its divisions based on this measure.
Note 2 Restatement for earnings overstatement in an Italian subsidiary
During the second quarter of 2004, the Company received information regarding
earnings overstatements by the medium voltage business unit of its Power
Technologies division (the "PT-MV BAU") in Italy. An investigation performed by
the Company, with the assistance of outside counsel and forensic accountants,
has shown that from the first quarter of 1998 through the first quarter of 2004,
the PT-MV BAU overstated its earnings before interest and taxes (operating
income) and net income through the early recognition of certain revenue from
incomplete projects, improper capitalization of costs on certain projects,
unrecorded liabilities and borrowings, and other improper journal entries. The
Company disclosed the preliminary results of this investigation in a press
release on June 11, 2004, filed with the United States Securities and Exchange
Commission (SEC) on Form 6-K on June 14, 2004.
The cumulative effect of these overstatements on the Company's earnings before
interest and taxes and net income was approximately $73 million and $89 million,
respectively, from the first quarter of 1998 through the end of March 2004. The
negative impact on income tax expense results from the inability to claim tax
benefits under Italian tax law for adjustments made to improperly filed tax
returns for the years 1998 through 2002, as well as a reassessment of the
realizability of our deferred tax assets due to a cumulative loss position after
the restatement.
The consolidated financial statements and related notes presented in this press
release have been restated for the misstatements. The Company has restated its
consolidated financial statements by means of an amended 2003 annual report on
Form 20-F filed with the United States Securities and Exchange Commission on
September 24, 2004. As compared with financial data provided in the Company's
Annual Report on Form 20-F filed with the SEC on April 9, 2004, the corrections
have increased net loss by $12 million ($0.01 per share basic and diluted), $36
million ($0.04 and $0.03 per share basic and diluted, respectively) and $14
million ($0.02 per share basic and diluted) in 2003, 2002 and 2001,
respectively, decreased net income by $17 million ($0.01 and $0.02 per share
basic and diluted, respectively) and $6 million ($0.01 per share basic and
diluted) in 2000 and 1999, respectively, and decreased stockholders' equity by
$109 million at December 31, 2003. See Appendix 2 for 2003 and 2004 restated
quarterly financial information.
The Company has undertaken measures, including termination of employment, with
respect to the personnel involved in the earnings overstatement. In addition,
ABB Power Technologies S.p.A., an Italian subsidiary carrying
Page 4 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
out business within the PT-MV BAU in which these activities took place, has
designed, and is implementing, an improved system of accounting controls. The
Company may consider additional remedial measures in light of this
investigation. In addition, the Company's investigation revealed that certain
employees of ABB Power Technologies S.p.A. participated in arranging improper
payments to an employee of an Italian power generation company in order to
obtain a contract. The Company has reported this matter to the Italian Public
Prosecutor's Office, which is conducting its own investigation, as well as to
the SEC. The Company has terminated staff determined to be involved in arranging
such improper payments.
Note 3 Significant divestitures
In January 2004, the Company sold its MDCV cable business, located in Germany,
to the Wilms Group of Menden, Germany. The Company recorded $10 million of
impairment charges on this divestment in loss from discontinued operations, net
of tax, in the fourth quarter of 2003. No additional significant losses were
recorded in the nine months ended September 30, 2004, as a result of the sale of
this business.
In March 2004, the Company completed the sale of its Swiss Building Systems
business to CapVis Equity Partners AG, a Swiss private equity company, for
approximately $39 million and bought a 10% ownership interest in a subsidiary of
CapVis Equity Partners AG. The Company recorded a net gain of approximately $12
million from the sale of this business in other income (expense), net, in the
first quarter of 2004.
In April 2004, the Company completed the sale of its Reinsurance business to
White Mountains Insurance Group Limited, a Bermuda-based insurance holding
company, receiving gross cash proceeds of $415 million, including $12 million
received in July 2004. Consequently, in the nine months ended September 30,
2004, the Company recorded a loss of $37 million in loss from discontinued
operations, net of tax, related primarily to foreign exchange effects of the
business from January 1, 2004, through the date of sale.
In the second quarter of 2004, the Company sold a business in Sweden, formerly
part of the Automation Technologies division, for $11 million, as well as
investments in two U.S. technology businesses for $6 million, reporting a total
gain on these divestments of $7 million in other income (expense), net, in the
second quarter of 2004.
In July 2004, the Company completed the sale of the upstream part of its Oil,
Gas and Petrochemicals division to a consortium of private equity investors
consisting of Candover Partners Limited, JP Morgan Partners LLC and 3i Group PLC
for an initial purchase price of $925 million plus potential deferred
consideration of up to $50 million. The potential deferred consideration of up
to $50 million can be realized by the Company if the Upstream business meets
specified earnings targets in 2004. Net cash proceeds from the sale were
approximately $800 million, reflecting the initial sales price adjusted for
unfunded pension liabilities of approximately $85 million and changes in net
working capital. The Company and the purchasers of the Upstream business are
currently involved in the process of finalizing the sales price which is
primarily based on the net asset value development of the Upstream business up
to closing. This is part of a customary, yet complex, process in such
transactions and the Company has not recognized a significant loss nor does it
anticipate recognizing a significant loss on the sale of the Upstream business.
The results of operations of the Upstream business up to the time of sale and
the remaining Oil, Gas and Petrochemicals businesses are reflected as
discontinued operations in all periods presented. For additional information see
Note 7 - Discontinued operations and businesses held for sale.
Note 4 Restructuring programs
2001 Program
The 2001 program initiated in July 2001 in an effort to improve productivity,
reduce cost base, simplify product lines, reduce multiple location activities
and perform other downsizing in response to weakening markets and consolidation
of major customers in certain industries continued to be paid out in 2004.
Page 5 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
In the first nine months of 2004, the Company paid termination benefits of $11
million to 56 employees and $4 million were paid to cover costs associated with
lease terminations and other exit costs. At September 30, 2004, accrued
liabilities included $16 million for lease terminations and other exit costs.
Based on changes in management's original estimate, a $4 million decrease in the
amounts accrued for workforce reductions, lease terminations and other exit
costs has been included in other income (expense), net. Currency fluctuations
resulted in a $1 million decrease in the liabilities accrued for workforce
reductions, lease terminations and other exit costs.
The 2001 program was substantially completed during 2002 and the remaining
liability will be substantially paid out in 2004.
Step change program
In October 2002, the Company announced the Step change program. The goals of the
Step change program were to increase competitiveness of the Company's core
businesses, reduce overhead costs and streamline operations by approximately
$900 million on an annual basis by 2005. As of June 30, 2004, the Step change
program was substantially complete.
In the first nine months of 2004, related to the Step change program, the
Company recognized restructuring charges of $35 million related to workforce
reductions and $13 million related to lease terminations and other exit costs.
Based on changes in management's original estimate, a $4 million decrease in the
amounts accrued for workforce reductions, lease terminations and other exit
costs has been included in other income (expense), net. Termination benefits of
$110 million were paid to 681 employees and $7 million were paid to cover costs
associated with lease terminations and other exit costs. Workforce reductions
included production, managerial and administrative employees. At September 30,
2004, accrued liabilities included $19 million for termination benefits and $38
million for lease terminations and other exit costs. Currency fluctuations
resulted in a $1 million decrease in the liabilities accrued for workforce
reductions, lease terminations and other exit costs.
As a result of the Step change program, certain assets, inventories and
property, plant and equipment have been identified as impaired or will no longer
be used in continuing operations. The Company recorded $4 million in the first
nine months of 2004, to write down these assets to their fair value. These costs
are included in other income (expense), net.
Other
Certain other restructuring programs were initiated during 2003 and 2004 at
specified locations not included in the Step change program. The goals of these
programs are to increase efficiencies by reducing headcount and streamlining
operations. These programs are expected to increase productivity of the non-core
businesses as well as to improve results in the specified locations of the core
divisions not covered by the Step change program.
In the first nine months of 2004, the Company recognized restructuring charges
of $44 million related to workforce reductions and $13 million related to lease
terminations and other exit costs. Based on changes in management's original
estimate, a $5 million decrease in the amounts accrued for workforce reductions,
lease terminations and other exit costs has been included in other income
(expense), net. Termination benefits of $57 million were paid to 981 employees
and $18 million were paid to cover costs associated with lease terminations and
other exit costs. Workforce reductions included production, managerial and
administrative employees. At September 30, 2004, accrued liabilities included
$53 million for termination benefits and $25 million for lease terminations and
other exit costs. Currency fluctuations resulted in a $1 million decrease in the
liabilities accrued for workforce reductions, lease terminations and other exit
costs.
Page 6 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
-------------------------------------------------------------------------------------------------------------------
2001 Step
Nine months ended September 30, 2004 program change Other Total
---------------------------------------------
(in millions)
-------------------------------------------------------------------------------------------------------------------
Restructuring charge for workforce reduction $ -- $ 35 $ 44 $ 79
Restructuring charge for lease terminations, writedown of property,
plant and equipment, and other -- 17 13 30
Change in estimate (4) (4) (5) (13)
---------------------------------------------
Total restructuring charges and related asset write-downs $ (4) $ 48 $ 52 $ 96
=============================================
-------------------------------------------------------------------------------------------------------------------
Note 5 Borrowings
The Company's total reported borrowings outstanding at September 30, 2004, June
30, 2004, and December 31, 2003, amounted to $5,178 million, $6,115 million, and
$7,925 million, respectively.
In the first six months of 2004, the Company bought back a portion of its public
bonds with a total face value of $458 million. On July 29, 2004, the Company
announced tender offers to repurchase all of the outstanding 300 million euro
5.375% bonds due 2005 and 475 million euro 5.125% bonds due 2006, being
approximately 275 million euro and approximately 368 million euro, respectively.
In conjunction with the tender offers, the Company convened bondholders meetings
to vote on amendments to these bonds to allow the Company to call and redeem
those bonds that were not tendered under the respective tender offer. Bonds
validly tendered and accepted under the tender offers were settled on September
14, 2004. On September 9, 2004, bondholders approved the resolutions which gave
the Company the option to redeem early the remaining outstanding instruments.
The Company exercised its options and the remaining instruments were redeemed on
September 29, 2004. As a result of these bond buybacks in the nine months ended
September 30, 2004, total borrowings decreased by approximately $1,275 million.
In November 2003, as part of the capital-strengthening program, the Company
entered into a new unsecured syndicated $1.0 billion 3-year revolving credit
facility, which became available in December 2003 upon the fulfillment of
certain conditions. No amount was drawn under this facility at September 30,
2004, June 30, 2004, or December 31, 2003.
The credit facility contains certain financial covenants in respect of minimum
interest coverage, maximum net leverage and a minimum level of consolidated net
worth. The Company is required to meet these covenants on a quarterly basis. As
of September 30, 2004, the Company was in compliance with these covenants.
Note 6 Accounting for the USD convertible bond
In May 2002, the Company issued $968 million aggregate principal amount of
convertible unsubordinated bonds due 2007. Under Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, a component of the convertible bonds had to be accounted
for as a derivative as the shares to be issued upon conversion were denominated
in Swiss francs, while the bonds are denominated in U.S. dollars. A portion of
the issuance proceeds was deemed to relate to the value of the derivative on
issuance and subsequent changes in value of the derivative were recorded through
earnings and as an adjustment to the carrying value of the bond. The allocation
of a portion of the proceeds to the derivative created a discount on issuance
which was being amortized to earnings over the life of the bond.
On May 28, 2004, bondholders voted in favor of the Company's proposed amendment
to the terms of the bonds whereby if the bonds are converted, the Company will
deliver U.S. dollar-denominated American Depositary Shares rather than Swiss
franc-denominated ordinary shares. As a result of this amendment, it is no
longer required to
Page 7 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
account for a portion of the bonds as a derivative. Consequently, on May 28,
2004, the value of the derivative was fixed and added to the carrying value of
the bonds at that date. The difference between this new carrying value of the
bonds and par ($968 million) is being amortized to earnings over the remaining
life of the bonds. At September 30, 2004, the outstanding carrying value of the
bonds was $882 million. The Company recorded a loss from the change in fair
value of the derivative of $16 million from January 1, 2004, up to the date of
the bond amendment. When added to the amortization of the discount on the bonds
for the nine months ended September 30, 2004, of $29 million, this resulted in
an aggregate charge to earnings of $45 million ($79 million for the nine months
ended September 30, 2003) and a corresponding increase in borrowings.
The Company recorded a charge to earnings in respect of the amortization of the
discount on the bonds for the three months ended September 30, 2004, amounting
to $7 million ($43 million for the third quarter 2003, including a loss of $33
million from the change in fair value of the derivative) and a corresponding
increase in borrowings.
Note 7 Discontinued operations and businesses held for sale
Discontinued businesses are accounted for in accordance with Statement of
Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment
or Disposal of Long-Lived Assets. The balance sheet and income statement data
for all prior periods presented are reclassified to present the financial
position and results of operations of businesses meeting the criteria of SFAS
144 as discontinued operations. In addition, the balance sheet data for all
prior periods presented are reclassified to present the financial position of
businesses meeting the criteria of SFAS 144 as assets and liabilities held for
sale. In the statement of cash flows, the amounts related to businesses with
assets and liabilities held for sale and in discontinued operations are not
segregated, as permitted by Statement of Financial Accounting Standards No. 95,
Statement of Cash Flows.
The following divestments are in line with the Company's strategy to focus on
power and automation technologies for industry and utility customers.
In January 2004, the Company agreed to sell the upstream part of the Oil, Gas
and Petrochemicals businesses (Upstream business) to a consortium of private
equity investors consisting of Candover Partners Limited, JP Morgan Partners LLC
and 3i Group PLC. In July 2004, the Company completed the sale of the Upstream
business for an initial purchase price of $925 million plus a potential deferred
consideration of up to $50 million. The potential deferred consideration of up
to $50 million can be realized by the Company if the Upstream business meets
specified earnings targets in 2004. Net cash proceeds from the sale were
approximately $800 million, reflecting the initial sales price adjusted for
unfunded pension liabilities of approximately $85 million and changes in net
working capital. The Company and the purchasers of the Upstream business are
currently involved in the process of finalizing the sales price which is
primarily based on the net asset value development of the Upstream business up
to closing. This is part of a customary, yet complex, process in such
transactions and the Company has not recognized a significant loss nor does it
anticipate recognizing a significant loss on the sale of the Upstream business.
The results of operations of the Upstream business up to the time of sale and
the remaining Oil, Gas and Petrochemicals businesses are reflected as
discontinued operations in all periods presented.
ABB Vetco Gray Inc. and ABB Vetco Gray Ltd., two of our subsidiaries that were
sold as part of the Upstream business, pleaded guilty on July 6, 2004, to
violation of the Foreign Corrupt Practices Act (FCPA) and paid an aggregate fine
totaling $10.5 million. In addition, in July 2004, the Company agreed with the
United States Securities and Exchange Commission to resolve civil charges
relating to violations of the FCPA, including the payment of $5.9 million in
allegedly unlawful profits.
In December 2003, the Company agreed to sell its Reinsurance business to White
Mountains Insurance Group Limited, a Bermuda-based insurance holding company. As
a result of the anticipated sale, the Company recorded an impairment charge of
$154 million in the fourth quarter of 2003. In April 2004, the Company completed
the sale of its Reinsurance business for gross cash proceeds of $415 million,
including $12 million received in July 2004. Consequently, in the nine months
ended September 30, 2004, the Company recorded a loss of $37 million in loss
from discontinued operations, net of tax, related primarily to foreign exchange
effects of the business from January 1, 2004, through the date of sale. The
results of operations of this business are reflected as discontinued operations.
In March 2004, the Company sold its Swiss Building Systems business to CapVis
Equity Partners AG, a Swiss private equity company, for approximately $39
million and bought a 10% ownership interest in a subsidiary of
Page 8 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
CapVis Equity Partners AG. The Company recorded a net gain of approximately $12
million from the sale of this business in other income (expense), net, in the
first quarter of 2004. As of December 31, 2003, the assets and liabilities of
the Swiss Building Systems business were reflected in assets and liabilities
held for sale and in discontinued operations up to the time of sale. The results
of operations up to the time of sale were reflected in continuing operations.
In January 2004, the Company sold its MDCV cable business, located in Germany,
to the Wilms Group of Menden, Germany. The Company recorded $10 million of
impairment charges on this divestment in loss from discontinued operations, net
of tax, in the fourth quarter of 2003. No additional significant losses were
recorded in the nine months ended September 30, 2004, as a result of the sale of
this business.
In November 2002, the Company completed the sale of most of its Structured
Finance business to General Electric Capital Corporation (GE) and received cash
proceeds of approximately $2.0 billion, including a contingent payment of $20
million to be released to the Company should amounts ultimately collected by GE,
from a portfolio transferred by the Company to GE, reach specified targets.
Collection of the last portion of the contingent payment amount took place on
August 3, 2004.
In addition, the Company has also reflected other minor operations as
discontinued operations, as appropriate.
In discontinued operations, the Company also recorded a charge of approximately
$42 million in the nine months ended September 30, 2004, primarily related to
the mark-to-market treatment of the 30 million shares of the Company that are
reserved for use with the pre-packaged plan of reorganization for Combustion
Engineering, Inc, under Chapter 11 of the United States Bankruptcy Code (see
Note 11 - Commitments and contingencies).
The loss from discontinued operations, net of tax, of $141 million recognized in
the nine months ended September 30, 2004, includes revenues of $1,676 million,
of which $851 million relate to the Upstream business.
At September 30, 2004, the major classes of assets held for sale and in
discontinued operations were: $124 million of cash, equivalents and marketable
securities; $951 million of receivables, net; $121 million of inventories, net;
$68 million of prepaid expenses and other; $30 million of financing receivables,
non-current; $76 million of property, plant and equipment, net; $195 million of
goodwill; $59 million of other intangible assets, net; $39 million of prepaid
pension and other related benefits and $137 million of investments and other
assets. At September 30, 2004, the major classes of liabilities held for sale
and in discontinued operations were: $1,038 million of accounts payable; $16
million of short-term borrowings and current maturities of long-term borrowings;
$217 million of accrued liabilities and other; $20 million of long-term
borrowings; $68 million of pension and other related benefits; $71 million of
deferred taxes, non-current and $41 million of other liabilities.
Note 8 Employee benefits
For the nine months and three months ended September 30, 2004, net periodic
benefit cost consists of the following:
-------------------------------------------------------------------------------------------------------------------
Pension Other Pension Other
(in millions) benefits benefits benefits benefits
---------------------------------------------
January-September July-September
2004 2004
-------------------------------------------------------------------------------------------------------------------
Service cost $ 141 $ 3 $ 47 $ 1
Interest cost 269 16 91 5
Expected return on plan assets (237) -- (81) --
Amortization of prior service cost 3 -- 1 --
Amortization of net actuarial loss 26 6 9 2
---------------------------------------------
Net periodic benefit cost $ 202 $ 25 $ 67 $ 8
=============================================
-------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2003, net periodic benefit cost was $296 million
and $39 million for pension benefits and other benefits, respectively.
Page 9 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
The Company previously disclosed in its financial statements for the year ended
December 31, 2003, that it expected to contribute $248 million to its pension
plans and $27 million to its other postretirement benefit plans in 2004. For the
nine months ended September 30, 2004, $165 million and $24 million of
contributions have been made to its pension plans and other postretirement
plans, respectively. The Company anticipates contributing an additional $53
million and $6 million in 2004 for a revised expected total in 2004 of $218
million and $30 million to its pension plans and other postretirement plans,
respectively.
Note 9 Earnings per share
Basic earnings per share is calculated by dividing income (loss) by the
weighted-average number of shares outstanding during the period. Diluted
earnings per share is calculated by dividing income (loss) by the
weighted-average number of shares outstanding during the period, assuming that
all potentially dilutive securities were exercised and that any proceeds from
such exercises were used to acquire shares of the Company's stock at the average
market price during the period or the period the securities were outstanding, if
shorter. Potentially dilutive securities comprise: outstanding written call
options, if dilutive; the securities issued under the Company's management
incentive plan, to the extent the average market price of the Company's stock
exceeded the exercise prices of such instruments; and shares issuable in
relation to outstanding convertible bonds, if dilutive.
In the three and nine months ended September 30, 2003, and in the three months
ended September 30, 2004, the potential shares from the warrants and options
outstanding in connection with the Company's management incentive plan were
excluded from the computation of diluted earnings (loss) per share, as their
inclusion would have been antidilutive. In the nine months ended September 30,
2004, only the potential shares from the warrants and options outstanding in
connection with the Company's December 2003 launch under the management
incentive plan were included in the computation of diluted earnings (loss) per
share, as the inclusion of potential shares from the warrants and options of
other launches under the management incentive plan would have been antidilutive.
The shares issuable in relation to the $968 million aggregate principal amount
of convertible unsubordinated bonds due 2007 and the shares issuable in relation
to the CHF 1,000 million aggregate principal amount of convertible
unsubordinated bonds due 2010 were excluded from the computation of diluted
earnings per share in all periods presented, as their inclusion would have been
antidilutive.
------------------------------------------------------------------------------------------------------------------
January - September July - September
Basic earnings (loss) per share 2004 2003* 2004 2003*
------------------------------------------------------
(in millions, except per share data)
------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 329 $ 23 $ 122 $ 42
Loss from discontinued operations, net of tax (141) (411) (24) (325)
------------------------------------------------------
Net income (loss ) $ 188 $ (388) $ 98 $ (283)
======================================================
Weighted average number of shares outstanding 2,028 1,171 2,028 1,193
Basic earnings (loss) per share:
Income from continuing operations $ 0.16 $ 0.02 $ 0.06 $ 0.04
Loss from discontinued operations, net of tax (0.07) (0.35) (0.01) (0.28)
------------------------------------------------------
Net income (loss ) $ 0.09 $ (0.33) $ 0.05 $ (0.24)
======================================================
* The 2003 periods presented have been restated to correct misstatements in an
Italian subsidiary. See Note 2 - Restatement for earnings overstatement in an
Italian subsidiary.
Page 10 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
--------------------------------------------------------------------------------------------------------------------
January - September July - September
Diluted earnings (loss) per share 2004 2003* 2004 2003*
---------------------------------------------------------
(in millions, except per share data)
--------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 329 $ 23 $ 122 $ 42
Loss from discontinued operations, net of tax (141) (411) (24) (325)
---------------------------------------------------------
Net income (loss) $ 188 $ (388) $ 98 $ (283)
=========================================================
Weighted average number of shares outstanding 2,028 1,171 2,028 1,193
Dilution from warrants and options 1 -- -- --
---------------------------------------------------------
Diluted weighted average number of shares outstanding 2,029 1,171 2,028 1,193
=========================================================
Diluted earnings (loss) per share:
Income from continuing operations $ 0.16 $ 0.02 $ 0.06 $ 0.04
Loss from discontinued operations, net of tax $ (0.07) $ (0.35) $ (0.01) $ (0.28)
Net income (loss) $ 0.09 $ (0.33) $ 0.05 $ (0.24)
=========================================================
* The 2003 periods presented have been restated to correct misstatements in an
Italian subsidiary. See Note 2 - Restatement for earnings overstatement in an
Italian subsidiary.
Note 10 Stock-based compensation
The Company maintains a management incentive plan under which it offers stock
warrants to key employees, for no consideration. The Company accounts for the
warrants using the intrinsic value method of APB Opinion No. 25, Accounting for
Stock Issued to Employees, as permitted by Statement of Financial Accounting
Standards No. 123 (SFAS 123), Accounting for Stock Based Compensation. All
warrants were issued with exercise prices greater than the market prices of the
stock on the dates of grant. Accordingly, the Company has recorded no
compensation expense related to the warrants, except in circumstances when a
participant ceases to be employed by a consolidated subsidiary, such as after a
divestment by the Company, and the employee retains the right to vest in the
warrants. The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
SFAS 123 to stock-based employee compensation. Fair value of the warrants was
determined on the date of grant by using the Binomial option model.
Page 11 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
-----------------------------------------------------------------------------------------------------------------
January - September July - September
2004 2003* 2004 2003*
------------------------------------------------------
(in millions, except per share data)
-----------------------------------------------------------------------------------------------------------------
Net income (loss), as reported $ 188 $ (388) $ 98 $ (283)
Less: Total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects (5) (10) (1) (1)
------------------------------------------------------
Pro forma net income (loss) $ 183 $ (398) $ 97 $ (284)
======================================================
Basic and diluted income (loss) per share:
Basic - as reported $ 0.09 $ (0.33) $ 0.05 $ (0.24)
Basic - pro forma $ 0.09 $ (0.34) $ 0.05 $ (0.24)
Diluted - as reported $ 0.09 $ (0.33) $ 0.05 $ (0.24)
Diluted - pro forma $ 0.09 $ (0.34) $ 0.05 $ (0.24)
-----------------------------------------------------------------------------------------------------------------
* The 2003 periods presented have been restated to correct misstatements in an
Italian subsidiary. See Note 2 - Restatement for earnings overstatement in an
Italian subsidiary.
Note 11 Commitments and contingencies
Asbestos
The Company is awaiting the results of a hearing held on June 3, 2004, before
the U.S. 3rd Circuit Court of Appeals to review a pre-packaged Chapter 11 plan
of reorganization that was filed in 2003 by a U.S. subsidiary of the Company,
Combustion Engineering (the "Plan"). The Plan has already been approved by both
a federal bankruptcy court and a U.S. district court and the Company. The
Company cannot be certain of the duration or outcome of the appeals process.
Note 12 New accounting standards
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 required
variable interest entities (VIEs) to be consolidated by their primary
beneficiaries. During 2003, the Company adopted the requirements of FIN 46 and
applied the guidance to all VIEs in which the Company has an interest. In March
2003, the Company sold its aircraft-leasing portfolio in Sweden to a third
party. The buyer established a VIE upon acquisition, exclusively for the purpose
of servicing the aircraft-leasing portfolio. Subsequent to divestment, the
Company continued its involvement in the VIE by providing significant financial
support in the form of mezzanine and subordinated financing of approximately $90
million. As the primary beneficiary, the Company retained $182 million of assets
and acquired $76 million of third party long-term borrowings through
consolidation of the VIE as of December 31, 2003. At September 30, 2004, the
outstanding financing provided by the Company to the VIE amounted to
approximately $71 million. FIN 46 was revised in December 2003, which among
various changes added additional scope exceptions. The December 2003 revision
(FIN 46R) was adopted by March 2004. The Company completed its assessment of the
effects of the adoption of FIN 46R and such effects were not material to its
consolidated financial position.
Page 12 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
Note 13 Summary of consolidated stockholders' equity
-----------------------------------------------------------------------------------------------------------
(in millions)
Stockholders' equity at January 1, 2004* $ 2,917
Comprehensive income:
Net income 188
Foreign currency translation adjustments 24
Accumulated foreign currency translation adjustments allocated to
divestment of businesses 20
Unrealized gain on available-for-sale securities, net of tax 13
Minimum pension liability adjustment, net of tax 25
Unrealized loss on cash flow hedge derivatives, net of tax (66)
--------
Total comprehensive income 204
----------------
Stockholders' equity at September 30, 2004 (unaudited) $ 3,121
=================
* Stockholders' equity at January 1, 2004, has been restated to correct
misstatements in an Italian subsidiary. See Note 2 - Restatement for earnings
overstatement in an Italian subsidiary.
At September 30, 2004, the Company had 2,440,016,034 authorized shares. Of
these, 2,070,314,947 shares are registered and issued, including 30,298,913
shares that are reserved for use with the pre-packaged plan of reorganization of
the Company's U.S. subsidiary, Combustion Engineering, Inc. As these 30 million
shares are presently held by one of the Company's subsidiaries and carry no
participation rights, these shares are not treated as outstanding for the
purposes of the Company's consolidated financial statements.
Note 14 Segment and geographic data
Effective January 1, 2004, the Group Processes activities, previously in the
Non-core activities division, were integrated into the core divisions and the
Substations business was transferred from the Automation Technologies division
to the Power Technologies division. All periods presented have been restated to
reflect the organizational structure of the Company at September 30, 2004.
o The Power Technologies division serves electric, gas, and water
utilities as well as industrial and commercial customers, with a broad
range of products, systems and services for power transmission,
distribution and power plant automation. The division's principal
customers are electric, gas and water utilities, owners and operators
of power transmission systems, utilities that own or operate networks
and owners and operators of power generating plants. Other customers
include gas transmission companies, local distribution companies and
multi-utilities, which are involved in the transmission or
distribution of more than one commodity. The division also serves
industrial and commercial customers, such as operators of large
commercial buildings and heavy industrial plants.
o The Automation Technologies division provides products, systems,
software and services for the automation and optimization of
industrial and commercial processes. Key technologies include
measurement and control, instrumentation, process analysis, drives and
motors, power electronics, robots, and low voltage products. These
technologies are sold to customers of the automotive, cement,
chemical, distribution, electronics, food and beverage, life sciences,
marine, metals, mining, paper, petroleum, printing and
telecommunications industries with application-specific power and
automation technology.
Page 13 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
o The Non-core activities division includes the following activities and
businesses of the Company: the remaining Equity Ventures business, the
remaining Structured Finance business, the remaining Building Systems
business, New Ventures, Customer Service and Logistic Systems.
o Corporate includes Headquarters, Central Research and Development,
Real Estate, Group Treasury Operations and the Financial Advisory
business. Inter-divisional transactions are eliminated in Corporate.
The Company evaluates performance of its segments based on earnings before
interest and taxes (operating income), which excludes interest and dividend
income, interest and other finance expense, provision for taxes, minority
interest, and loss from discontinued operations, net of tax. In accordance with
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information, the Company presents division and
geographic revenues, earning before interest and taxes, depreciation and
amortization, and capital expenditures.
Page 14 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
Segment data
---------------------------------------------------------------------------------------------------------------
Orders received
------------------------------------------------------------------------
(in millions) January - September July - September
------------------------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------------------------------------------------------------
Power Technologies $ 7,225 $ 5,827 $ 2,103 $ 1,853
Automation Technologies 8,648 7,162 2,750 2,312
Non-core activities 362 1,928 104 427
Corporate(1) (545) (888) (175) (219)
------------------------------------------------------------------------
Total $ 15,690 $ 14,029 $ 4,782 $ 4,373
========================================================================
---------------------------------------------------------------------------------------------------------------
Revenues
------------------------------------------------------------------------
(in millions) January - September July - September
------------------------------------------------------------------------
2004 2003* 2004 2003*
---------------------------------------------------------------------------------------------------------------
Power Technologies $ 6,276 $ 5,569 $ 2,142 $ 1,877
Automation Technologies 7,891 6,976 2,684 2,392
Non-core activities 456 2,034 145 490
Corporate(1) (558) (874) (175) (206)
------------------------------------------------------------------------
Total $ 14,065 $ 13,705 $ 4,796 $ 4,553
========================================================================
---------------------------------------------------------------------------------------------------------------
Earnings before interest and taxes (operating income)
------------------------------------------------------------------------
(in millions) January - September July - September
------------------------------------------------------------------------
2004 2003* 2004 2003*
---------------------------------------------------------------------------------------------------------------
Power Technologies $ 417 $ 413 $ 110 $ 127
Automation Technologies 739 519 266 173
Non-core activities (21) (110) (10) 6
Corporate(1) (359) (362) (111) (76)
------------------------------------------------------------------------
Total $ 776 $ 460 $ 255 $ 230
========================================================================
---------------------------------------------------------------------------------------------------------------
Depreciation and amortization
------------------------------------------------------------------------
(in millions) January - September July - September
------------------------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------------------------------------------------------------
Power Technologies $ 156 $ 135 $ 50 $ 46
Automation Technologies 213 186 68 64
Non-core activities 9 55 1 16
Corporate 60 52 23 17
------------------------------------------------------------------------
Total $ 438 $ 428 $ 142 $ 143
========================================================================
Page 15 of 16
[LOGO OF ABB]
Financial Information Nine Months, 2004
---------------------------------------------------------------------------------------------------------------
Capital expenditures(2)
------------------------------------------------------------------------
(in millions) January - September July - September
------------------------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------------------------------------------------------------
Power Technologies $ 92 $ 79 $ 34 $ 28
Automation Technologies 118 99 38 43
Non-core activities 12 51 5 41
Corporate 25 27 10 --
------------------------------------------------------------------------
Total $ 247 $ 256 $ 87 $ 112
========================================================================
---------------------------------------------------------------------------------------------------------------
Number of employees(3)
---------------------------------------------
September 30, 2004 December 31, 2003
---------------------------------------------------------------------------------------------------------------
Power Technologies 41,300 40,500
Automation Technologies 54,900 54,800
Non-core activities 2,900 8,300
Oil, Gas and Petrochemicals 2,600 11,100
Corporate 1,600 1,800
---------------------------------------------
Total 103,300 116,500
=============================================
Geographic information
---------------------------------------------------------------------------------------------------------------
Orders received (4)
------------------------------------------------------------------------
(in millions) January - September July - September
------------------------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------------------------------------------------------------
Europe $ 7,844 $ 7,839 $ 2,340 $ 2,317
The Americas 2,742 2,362 995 758
Asia 3,889 2,352 1,052 890
Middle East and Africa 1,215 1,476 395 408
------------------------------------------------------------------------
Total $ 15,690 $ 14,029 $ 4,782 $ 4,373
========================================================================
---------------------------------------------------------------------------------------------------------------
Revenues (4)
------------------------------------------------------------------------
(in millions) January - September July - September
------------------------------------------------------------------------
2004 2003* 2004 2003*
---------------------------------------------------------------------------------------------------------------
Europe $ 7,323 $ 7,637 $ 2,402 $ 2,510
The Americas 2,509 2,634 856 879
Asia 2,936 2,364 1,037 794
Middle East and Africa 1,297 1,070 501 370
------------------------------------------------------------------------
Total $ 14,065 $ 13,705 $ 4,796 $ 4,553
========================================================================
* The 2003 periods presented have been restated to correct misstatements in an
Italian subsidiary. See Note 2 - Restatement for earnings overstatement in an
Italian subsidiary.
(1) Includes adjustments to eliminate inter-division transactions.
(2) Capital expenditures reflect purchases of fixed tangible assets.
(3) Includes businesses in discontinued operations.
(4) Orders received and revenues have been reflected in the regions based on the
location of the customer, which may be different from the ultimate destination
of the products' end use.
Page 16 of 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ABB LTD
Date: November 22, 2004 By: /s/ Richard A. Brown
---------------------------------------
Name: Richard A. Brown
Title: Group Vice President and
Assistant General Counsel
By: /s/ Francois Champagne
---------------------------------------
Name: Francois Champagne
Title: Group Vice President and Senior
Counsel