-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EHDfDmVwf4JwoGScpwf93lVu5oq8oKaQZZTLFvw05EqffZ12qoA8Q08UPaFUSyTr IJeLbWgyp6r4xuZ2RRKnAQ== 0000950127-04-001055.txt : 20041122 0000950127-04-001055.hdr.sgml : 20041122 20041122172606 ACCESSION NUMBER: 0000950127-04-001055 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041122 DATE AS OF CHANGE: 20041122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABB LTD CENTRAL INDEX KEY: 0001091587 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-16429 FILM NUMBER: 041161718 BUSINESS ADDRESS: STREET 1: PO BOX 8131 STREET 2: CH 8050 CITY: ZURICH SWITZERLAND STATE: V8 ZIP: 999999999 6-K 1 a4478513_6-k.txt REPORT OF FOREIGN PRIVATE ISSUER SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- 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 -------------------------------------------------- (Exact name of registrant as specified in charter) N/A ----------------------------------------------- (Translation of registrant's name into English) Switzerland ------------------------------ (Jurisdiction of organization) P.O. Box 8131, Affolternstrasse 44, CH-8050, Zurich, Switzerland ---------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, international: + 011-41-1-317-7111 ------------------- 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 --- --- 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 --- --- If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ------- This Form 6-K consists of the following: 1. Press release 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
- ------------------------------------------------------------------------------------------------------------- $ 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 -----END PRIVACY-ENHANCED MESSAGE-----