UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of October 2010

 

Commission File Number 001-16429

 

ABB Ltd

(Translation of registrant’s name into English)

 

P.O. Box 1831, Affolternstrasse 44, CH-8050, Zurich, Switzerland

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F x

Form 40-F o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indication by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes o

No x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-

 

 

 



 

This Form 6-K consists of the following:

 

1.               Press release issued by ABB Ltd dated October 28, 2010.

 

The information provided by Item I above is deemed filed for all purposes under the Securities Exchange Act of 1934, including by reference in the Registration Statement on Form S-8 (Registration No. 333-129271).

 

2



 

Press Release

 

Q3 order growth accelerates, revenues recover

 

·             Orders up 18%(1) on industrial recovery and large power order

·             Revenues positive after five quarters of decline

·             Operational EBIT margin(2) up to 14.0% as cost take-out delivers further benefits

 

Zurich, Switzerland, Oct. 28, 2010 — ABB’s order growth accelerated and revenues rose in the third quarter on a combination of continued growth in demand from industrial customers and an increase in large power orders.

 

Orders rose 18 percent and revenues 2 percent in local currencies, including an 11-percent increase in service revenues. Earnings before interest and taxes (EBIT) amounted to $1.2 billion. The third quarter operational EBIT margin, which excludes net gains on derivative transactions and restructuring-related costs, was 14.0 percent. The operational EBIT margin the year-earlier period, excluding a net positive provision adjustment of approximately $430 million, was 13.0 percent.

 

Net income in the third quarter 2010 reached $774 million while cash from operations amounted to $1.4 billion.

 

“We continued to take full advantage of the global industrial recovery in the third quarter with excellent order growth, slightly higher revenues and, thanks to our cost take-out program, strong earnings as well,” said Joe Hogan, ABB’s Chief Executive Officer. “Our shorter-cycle automation businesses turned in a particularly positive performance on both the top and bottom line as they grew revenues on a much more competitive cost base.”

 

ABB’s two-year program to cut costs by strengthening its presence in emerging markets, improving productivity and streamlining procurement and administration yielded approximately $350 million of savings in the quarter.

 

ABB won a major order in the quarter to connect an offshore wind farm to the German grid and experienced strong demand from a wide range of industries, including minerals and metals, discrete manufacturing and solar power. Growth in these areas more than offset continued weak utility investments in power transmission equipment in most regions.

 

“Demand from our industrial customers grew significantly in the quarter, especially in the emerging markets, as they increased capacity and invested in solutions to increase energy efficiency and productivity,” Hogan said. “Utility spending in power transmission equipment remains muted, a trend that we expect to continue into next year. Still, we see plenty of opportunities for growth, especially in areas like renewable energy and industrial efficiency, and in the fast-growing emerging economies.”

 

2010 Q3 key figures

 

 

 

 

 

 

 

Change

 

$ millions unless otherwise indicated

 

Q3 10

 

Q3 09

 

US$

 

Local

 

Orders

 

8,197

 

7,060

 

16

%

18

%

Order backlog (end Sep)

 

26,593

 

26,159

 

2

%

1

%

Revenues

 

7,903

 

7,910

 

0

%

2

%

EBIT

 

1,156

 

1,419

 

-19

%

 

 

as % of revenues

 

14.6

%

17.9

%

 

 

 

 

Net income

 

774

 

1,034

(3)

 

 

 

 

Basic net income per share ($)

 

0.34

 

0.45

 

 

 

 

 

Cash flow from operating activities

 

1,362

 

1,281

 

 

 

 

 

 


(1)  Management discussion of orders and revenues focuses on local currency changes. U.S. dollar changes are reported in the results tables.

(2)  See Reconciliation of Non-GAAP financial measures on page 10

(3) Includes a net gain of $380 million from previously announced provision adjustments

 

3



 

Summary of Q3 2010 results

 

Orders received and revenues

 

Orders increased strongly in the third quarter compared to the year-earlier period, reaching the highest levels since the first quarter of 2009. The main growth driver was higher demand from industrial customers for equipment, services and solutions to increase capacity and to improve productivity and energy efficiency. Demand increased across a broad range of industries, including metals and minerals, marine, pulp and paper, discrete manufacturing and renewable energies. Oil and gas orders remained steady at high levels. Utility spending for power transmission equipment remained weak, however, on uncertainty surrounding the strength and duration of economic growth.

 

Base orders (below $15 million) increased 15 percent in the quarter while large orders (above $15 million) increased by 32 percent in local currencies when compared to the same quarter in 2009. Large orders represented 20 percent of total orders in the quarter compared with 18 percent in the same quarter a year earlier.

 

Regionally, orders in local currencies were more than 50 percent higher in Europe compared with the same period in 2009, as both large and base orders increased. Included in Europe orders received in the quarter is an order valued at approximately $700 million to link an offshore wind farm to the German grid.

 

Orders were up 26 percent in Asia, primarily on higher base orders. Growth was led by Power Systems, followed by Process Automation and Discrete Automation and Motion. Orders in China were 13 percent higher in the quarter and were up at a strong double-digit pace in all divisions except Power Products, where orders declined.

 

In the Americas, orders decreased by 16 percent as a $540-million power order won in Brazil last year was not repeated. Orders in North America increased by 21 percent, led by higher base orders and including a 37-percent increase in the U.S. Orders from the Middle East and Africa were down on a lower level of large orders compared to the same period in 2009.

 

Revenues grew in the quarter, mainly the result of strong growth in the short-cycle automation businesses as recent orders flowed through to revenues. Revenues in the longer-cycle businesses were flat to lower, reflecting the decline in orders received during 2009 and the beginning of 2010. Service revenues increased 11 percent.

 

The order backlog at the end of September 2010 amounted to $26.6 billion, corresponding to a local-currency increase of 7 percent compared to the end of 2009. Compared to the end of the second quarter of 2010, the order backlog is up 2 percent in local currencies.

 

Earnings before interest and taxes

 

Included in third-quarter 2010 EBIT are restructuring-related costs of approximately $20 million and a net gain of $82 million on derivative transactions. The operational EBIT margin in the quarter, which excludes these effects, was 14.0 percent. For the purposes of comparison, the operational EBIT margin in the same quarter in 2009, excluding the net gain from previously-announced provision adjustments, was 13.0 percent.

 

EBIT and EBIT margin were positively impacted by cost savings in sourcing, general and administrative expenses, as well as footprint adjustments and operational excellence initiatives, amounting to approximately $350 million in the quarter.

 

4



 

Net income

 

Third-quarter net income amounted to $774 million compared to approximately $1 billion in the same quarter a year ago. The previous year’s net income included a positive net impact of $380 million from provision adjustments.

 

Balance sheet and cash flow

 

Net cash at the end of the third quarter was $5.3 billion compared to $5.9 billion at the end of the previous quarter. Cash flow from operations amounted to $1.4 billion while cash used in financing activities included a dividend payment of $1.1 billion in the form of a nominal value reduction, in July 2010, as approved by shareholders at the Annual General Meeting in April.

 

In August, ABB completed its previously-announced acquisition of shares in ABB Limited, its publicly-listed subsidiary in India, bringing its ownership stake in the company from approximately 52 percent to 75 percent. The cost of the acquisition amounted to approximately $950 million, including transaction costs.

 

Management changes

 

ABB announced in August the appointment of Tarak Mehta to ABB’s Executive Committee as head of the Low Voltage Products division, effective October 1, 2010. Mehta, previously the head of ABB’s global transformer business, replaced Tom Sjökvist, who retired at the end of September after 38 years with the company.

 

Compliance

 

As previously announced, on September 29, 2010, ABB reached settlements with United States Department of Justice (DoJ) and the United States Securities and Exchange Commission (SEC) regarding their investigations of various suspect payments. In connection with these settlements, ABB agreed to make payments to the DoJ and SEC totaling $58.3 million, ABB Inc. pled guilty to one count of conspiracy to violate the anti-bribery provisions of the U.S. Foreign Corrupt Practices Act and one count of violating those provisions, ABB Ltd entered into a deferred prosecution agreement and ABB Ltd settled civil charges brought by the SEC. These settlements resolved these investigations. The payments related to the resolution of these matters will have no additional impact on ABB’s EBIT and net income.

 

Cost reductions

 

ABB continued to execute its previously-announced cost take-out program during the third quarter. The program aims to sustainably reduce ABB’s costs — comprising both cost of sales as well as general and administrative expenses — from 2008 levels by a total of $3 billion by the end of 2010.

 

Cost reductions in the third quarter of 2010 amounted to approximately $350 million, of which some 35 percent was achieved by optimizing global sourcing (excluding the impact of commodity price changes) and 25 percent from global footprint initiatives. The remainder was achieved through reductions to general and administrative expenses and operational excellence measures.

 

The total cost of the program is now expected to be below $1 billion. Costs associated with the program in the third quarter of 2010 amounted to $20 million, bringing the total cost so far in 2010 to approximately $100 million and to $720 million since the beginning of the program. ABB expects further costs in the fourth quarter approaching $200 million.

 

5



 

Outlook

 

Industrial customers are spending more on automation and power equipment and solutions to increase the energy efficiency and productivity of their existing assets. Assuming a continuation of the current economic recovery in most regions, the company is confident that its short- and mid-cycle businesses will continue to support both top and bottom line growth over the remainder of the year and into the beginning of 2011.

 

For ABB’s late-cycle businesses, which make up the majority of the portfolio and which are driven by customer capital expenditure, the outlook for the remainder of 2010 remains mixed.

 

Upgrades and expansions of existing power infrastructure are needed in all regions, including renewables and smart grids. This is reflected in a near-record level of tendering activity in the Power Systems business. At the same time, lower electricity consumption in some regions has slowed the pace of power project awards in the short term. Furthermore, increased competition in the power sector continues to weigh on orders.

 

On the industrial side, most customer spending remains focused on equipment upgrades, replacement and service in existing capacity rather than major capital expenditures for new capacity.

 

The company believes it is well positioned to benefit from a sustained economic recovery. Growth initiatives are under way in selected businesses and countries, mainly in emerging markets. Significant fixed costs have been eliminated since the end of 2008, increasing incremental margins as demand returns. Spending on research and development has remained steady through the downturn in order to secure the company’s technological leadership, and this will continue.

 

Therefore, in the remainder of 2010 and into 2011, management will continue to focus both on adjusting costs and taking advantage of its global footprint, strong balance sheet and leading technologies to tap further opportunities for profitable growth.

 

Divisional performance Q3 2010

 

Power Products

 

 

 

 

 

 

 

Change

 

$ millions unless otherwise indicated

 

Q3 10

 

Q3 09

 

US$

 

Local

 

Orders

 

2,364

 

2,553

 

-7

%

-7

%

Order backlog (end Sep)

 

8,259

 

8,712

 

-5

%

-6

%

Revenues

 

2,439

 

2,823

 

-14

%

-13

%

EBIT

 

404

 

477

 

-15

%

 

 

as % of revenues

 

16.6

%

16.9

%

 

 

 

 

Cash flow from operating activities

 

467

 

592

 

 

 

 

 

 

Increased orders for medium-voltage products and distribution transformers, driven mainly by higher power distribution and industrial demand, could not fully compensate a decline in orders for power transformers and high-voltage products, reflecting continued weak utility investments in power transmission projects.

 

Regionally, orders were slightly higher in the Americas as double-digit growth in North America, where the power distribution business showed continued signs of recovery from a low level, offset lower orders in South America. Orders were higher in the Middle East and Africa, helped by some large orders, but were down in Europe and Asia.

 

Revenues decreased during the quarter, mainly as a result of lower order intake in preceding quarters.

 

6



 

EBIT and EBIT margin followed the revenue trend lower, reflecting decreased volumes and pricing pressure on orders taken in previous quarters. These effects were partly mitigated by a favorable product mix and cost reduction measures.

 

Power Systems

 

 

 

 

 

 

 

Change

 

$ millions unless otherwise indicated

 

Q3 10

 

Q3 09

 

US$

 

Local

 

Orders

 

2,158

 

1,991

 

8

%

13

%

Order backlog (end Sep)

 

10,446

 

9,770

 

7

%

7

%

Revenues

 

1,679

 

1,612

 

4

%

6

%

EBIT

 

102

 

117

 

-13

%

 

 

as % of revenues

 

6.1

%

7.3

%

 

 

 

 

Cash flow from operating activities

 

33

 

11

 

 

 

 

 

 

Both base and large orders increased in the quarter. Industrial markets continued to show signs of improved demand and large project tendering activity remained strong. However, utility investments in power transmission continue at low levels, largely reflecting the late-cycle nature of this business.

 

Regionally, orders were higher in Europe, helped by an approximately $700-million HVDC offshore wind power order, the largest order ever booked by the division. Orders also increased in Asia — mainly Australia, China and India — but were down in the Middle East and Africa. Orders were also lower in the Americas compared to the same quarter in 2009 when the division won a large order in Brazil.

 

Revenues increased on execution of a strong order backlog. The improvement also reflects a contribution of approximately $50 million from the recent acquisition of Ventyx.

 

EBIT and EBIT margin were lower due to the less favorable product mix and lower prices on orders taken in previous quarters that are now flowing into revenues. Additional charges in the cable business were offset by a release of provisions related to the business in Russia and to the recently-announced settlements with the SEC and DoJ.

 

Discrete Automation and Motion

 

 

 

 

 

 

 

Change

 

$ millions unless otherwise indicated

 

Q3 10

 

Q3 09

 

US$

 

Local

 

Orders

 

1,473

 

1,080

 

36

%

39

%

Order backlog (end Sep)

 

3,486

 

3,375

 

3

%

2

%

Revenues

 

1,460

 

1,280

 

14

%

16

%

EBIT

 

268

 

159

 

69

%

 

 

as % of revenues

 

18.4

%

12.4

%

 

 

 

 

Cash flow from operating activities

 

156

 

272

 

 

 

 

 

 

Global demand for solutions to improve industrial efficiency and productivity grew in the third quarter, leading to a strong increase in orders received. Orders were higher in all businesses, reflecting improved demand across all end markets. Orders also grew at a double-digit pace in every region, led by the Americas and Asia — where growth in China exceeded 30 percent.

 

Revenues increased as orders taken in the previous quarter began to flow through to sales in low-voltage drives, motors and robotics. Power electronics and medium-voltage drives also showed robust revenue growth on the execution of large projects from the order backlog.

 

EBIT and EBIT margin in the quarter rose strongly, reflecting both higher revenues and recent cost savings, especially in low-voltage drives, motors and robotics. Included in EBIT is a net gain of

 

7



 

approximately $10 million from the break fee related to the withdrawn bid to acquire Chloride Group PLC.

 

Low Voltage Products

 

 

 

 

 

 

 

Change

 

$ millions unless otherwise indicated

 

Q3 10

 

Q3 09

 

US$

 

Local

 

Orders

 

1,219

 

1,015

 

20

%

25

%

Order backlog (end Sep)

 

970

 

817

 

19

%

20

%

Revenues

 

1,187

 

1,052

 

13

%

17

%

EBIT

 

245

 

148

 

66

%

 

 

as % of revenues

 

20.6

%

14.1

%

 

 

 

 

Cash flow from operating activities

 

240

 

245

 

 

 

 

 

 

Orders increased significantly in the quarter on higher demand from industrial customers, the solar energy market and construction-related sectors, especially in the emerging markets. All business units recorded double-digit order growth in the quarter. Orders were also higher in all regions, led by strong double-digit growth in the Americas and Asia.

 

Revenues increased strongly and were higher in all product businesses. Service revenues increased by more than 20 percent in the quarter, reflecting the general industrial recovery in most regions.

 

EBIT and EBIT margin were up in the quarter on higher revenues and as the result of cost improvements implemented since the beginning of 2009, especially in Control Products, Breakers & Switches and Wiring Accessories.

 

Process Automation

 

 

 

 

 

 

 

Change

 

$ millions unless otherwise indicated

 

Q3 10

 

Q3 09

 

US$

 

Local

 

Orders

 

1,679

 

1,257

 

34

%

34

%

Order backlog (end Sep)

 

5,853

 

6,182

 

-5

%

-5

%

Revenues

 

1,859

 

1,926

 

-3

%

-1

%

EBIT

 

207

 

161

 

29

%

 

 

as % of revenues

 

11.1

%

8.4

%

 

 

 

 

Cash flow from operating activities

 

236

 

268

 

 

 

 

 

 

Orders grew significantly in the third quarter despite continued uncertainty in the market regarding the strength of the industrial recovery. Both base and large orders improved. Base order growth was led by the marine, minerals, turbocharging and pulp and paper businesses, while large orders were driven by minerals, marine and metals. Large orders more than doubled compared with the same period a year earlier. Oil and gas orders remained steady at high levels.

 

Regionally, order growth was up more than 50 percent in Asia on strong growth in minerals and marine. Minerals also drove growth in the Americas as higher commodity prices fuelled customer spending to expand capacity. Orders grew in Europe but were lower in the Middle East and Africa.

 

Revenues were flat in the quarter, as higher service revenues were offset by lower systems revenues.

 

Despite the flat revenue development, EBIT and EBIT margin increased on a combination of a net gain from derivative transactions, a higher share of revenues from products and services compared to the third quarter of 2009 and the impact of cost take-out measures executed over the past six quarters.

 

8



 

More information

 

The 2010 Q3 results press release and presentation slides are available from October 28, 2010, on the ABB News Center at www.abb.com/news and on the Investor Relations homepage at www.abb.com/investorrelations.

 

ABB will host a media conference call starting at 10:00 a.m. Central European Time (CET). U.K. callers should dial +44 20 7107 5862. From Sweden, +46 8 5069 2105, and from the rest of Europe, +41 91 610 56 00. Lines will be open 15 minutes before the start of the conference. Audio playback of the call will start one hour after the call ends and will be available for 24 hours: Playback numbers: +44 20 7108 6233 (U.K.), +41 91 612 4330 (rest of Europe) or +1 866 416 2558 (U.S./Canada). The code is 10041, followed by the # key. The conference will also be available as a podcast on the web sites mentioned above.

 

A conference call for analysts and investors is scheduled to begin today at 2:30 p.m. CET (8:30 a.m. EDT). Callers should dial +1 866 291 4166 (from the U.S./Canada) or +41 91 610 5600 (Europe and the rest of the world). Callers are requested to phone in 15 minutes before the start of the call. The audio playback of the call will start one hour after the end of the call and be available for 24 hours. Playback numbers: +1 866 416 2558 (U.S./Canada) or +41 91 612 4330 (Europe and the rest of the world). The code is 17888, followed by the # key. The conference will also be available as a podcast on the web sites mentioned above.

 

Investor calendar 2011

 

 

Q4 2010 results

 

Feb. 17, 2011

Q1 2011 results

 

April 28, 2011

Annual General Meeting of shareholders

 

April 29, 2011

Q2 2011 results

 

July 21, 2011

Q3 2011 results

 

Oct. 27, 2011

 

ABB (www.abb.com) is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The ABB Group of companies operates in around 100 countries and employs about 117,000 people.

 

Zurich, Oct. 28, 2010

 

Joe Hogan, CEO

 

Important notice about forward-looking information

 

This press release includes forward-looking information and statements including the sections entitled “Cost reductions” and “Outlook,” as well as other statements concerning the outlook for our business. These statements are based on current expectations, estimates and projections about the factors that may affect our future performance, including global economic conditions, the economic conditions of the regions and industries that are major markets for ABB Ltd. These expectations, estimates and projections are generally identifiable by statements containing words such as “expects,” “believes,” “estimates,” “targets,” “plans” or similar expressions. However, there are many risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking information and statements made in this press release and which could affect our ability to achieve any or all of our stated targets. The important factors that could cause such differences include, among others, business risks related to the financial crisis and economic slowdown, costs associated with compliance activities, the amount of revenues we are able to generate from backlog and orders received, raw materials prices, market acceptance of new products and services, changes in governmental regulations and currency exchange rates and such other factors as may be discussed from time to time in ABB Ltd’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 7111

Affolternstrasse 44

(Zurich, Switzerland)

USA: Tel. +1 203 750 7743

CH-8050 Zurich, Switzerland

Tel: +41 43 317 6568

investor.relations@ch.abb.com

 

media.relations@ch.abb.com

 

 

 

9



 

ABB Q3 and nine-months (9M) 2010 key figures

 

 

 

 

 

 

 

Change

 

 

 

 

 

Change

 

$ millions unless otherwise indicated

 

Q3 10

 

Q3 09

 

US$

 

Local

 

9M 10

 

9M 09

 

US$

 

Local

 

Orders

Group

 

8,197

 

7,060

 

16

%

18

%

23,929

 

23,519

 

2

%

-1

%

 

Power Products

 

2,364

 

2,553

 

-7

%

-7

%

7,245

 

8,273

 

-12

%

-15

%

 

Power Systems

 

2,158

 

1,991

 

8

%

13

%

5,270

 

5,967

 

-12

%

-13

%

 

Discrete Automation & Motion

 

1,473

 

1,080

 

36

%

39

%

4,357

 

3,560

 

22

%

20

%

 

Low Voltage Products

 

1,219

 

1,015

 

20

%

25

%

3,544

 

3,052

 

16

%

16

%

 

Process Automation

 

1,679

 

1,257

 

34

%

34

%

5,619

 

5,262

 

7

%

3

%

 

Corporate (consolidation)

 

(696

)

(836

)

 

 

 

 

(2,106

)

(2,595

)

 

 

 

 

Revenues

Group

 

7,903

 

7,910

 

0

%

2

%

22,410

 

23,034

 

-3

%

-4

%

 

Power Products

 

2,439

 

2,823

 

-14

%

-13

%

7,286

 

8,130

 

-10

%

-12

%

 

Power Systems

 

1,679

 

1,612

 

4

%

6

%

4,698

 

4,641

 

1

%

-1

%

 

Discrete Automation & Motion

 

1,460

 

1,280

 

14

%

16

%

3,960

 

3,935

 

1

%

-1

%

 

Low Voltage Products

 

1,187

 

1,052

 

13

%

17

%

3,300

 

2,962

 

11

%

11

%

 

Process Automation

 

1,859

 

1,926

 

-3

%

-1

%

5,331

 

5,785

 

-8

%

-10

%

 

Corporate (consolidation)

 

(721

)

(783

)

 

 

 

 

(2,165

)

(2,419

)

 

 

 

 

EBIT

Group

 

1,156

 

1,419

 

-19

%

 

 

2,840

 

3,328

 

-15

%

 

 

 

Power Products

 

404

 

477

 

-15

%

 

 

1,169

 

1,474

 

-21

%

 

 

 

Power Systems

 

102

 

117

 

-13

%

 

 

106

 

322

 

-67

%

 

 

 

Discrete Automation & Motion

 

268

 

159

 

69

%

 

 

641

 

514

 

25

%

 

 

 

Low Voltage Products

 

245

 

148

 

66

%

 

 

608

 

370

 

64

%

 

 

 

Process Automation

 

207

 

161

 

29

%

 

 

555

 

473

 

17

%

 

 

 

Corporate

 

(70

)

357

 

n.a.

 

 

 

(239

)

175

 

n.a.

 

 

 

EBIT margin  

Group

 

14.6

%

17.9

%

 

 

 

 

12.7

%

14.4

%

 

 

 

 

 

Power Products

 

16.6

%

16.9

%

 

 

 

 

16.0

%

18.1

%

 

 

 

 

 

Power Systems

 

6.1

%

7.3

%

 

 

 

 

2.3

%

6.9

%

 

 

 

 

 

Discrete Automation & Motion

 

18.4

%

12.4

%

 

 

 

 

16.2

%

13.1

%

 

 

 

 

 

Low Voltage Products

 

20.6

%

14.1

%

 

 

 

 

18.4

%

12.5

%

 

 

 

 

 

Process Automation

 

11.1

%

8.4

%

 

 

 

 

10.4

%

8.2

%

 

 

 

 

 

10



 

Q3 2010 orders received and revenues by region

 

 

 

Orders received

 

Change

 

Revenues

 

Change

 

$ millions

 

Q3 10

 

Q3 09

 

US$

 

Local

 

Q3 10

 

Q3 09

 

US$

 

Local

 

Europe

 

3,693

 

2,624

 

41

%

52

%

3,173

 

3,371

 

-6

%

0

%

Americas

 

1,502

 

1,723

 

-13

%

-16

%

1,578

 

1,495

 

6

%

3

%

Asia

 

2,413

 

1,864

 

29

%

26

%

2,195

 

2,177

 

1

%

-2

%

Middle East and Africa

 

589

 

849

 

-31

%

-30

%

957

 

867

 

10

%

14

%

Group total

 

8,197

 

7,060

 

16

%

18

%

7,903

 

7,910

 

0

%

2

%

 

Nine months 2010 orders received and revenues by region

 

 

 

Orders received

 

Change

 

Revenues

 

Change

 

$ millions

 

9M 10

 

9M 09

 

US$

 

Local

 

9M 10

 

9M 09

 

US$

 

Local

 

Europe

 

9,992

 

9,111

 

10

%

10

%

8,820

 

9,609

 

-8

%

-7

%

Americas

 

4,461

 

4,581

 

-3

%

-7

%

4,373

 

4,473

 

-2

%

-6

%

Asia

 

6,679

 

6,118

 

9

%

4

%

6,280

 

6,305

 

0

%

-5

%

Middle East and Africa

 

2,797

 

3,709

 

-25

%

-26

%

2,937

 

2,647

 

11

%

10

%

Group total

 

23,929

 

23,519

 

2

%

-1

%

22,410

 

23,034

 

-3

%

-4

%

 

11



 

Reconciliation of non-GAAP financial measures regarding Q3 2010

($ millions, unaudited)

 

 

 

3 months ended Sept. 30,

 

 

 

2010

 

2009

 

EBIT Margin

 

 

 

 

 

(= EBIT as % of revenues)

 

 

 

 

 

 

 

 

 

 

 

Earnings before interest and taxes (EBIT)

 

1’156

 

1’419

 

Revenues

 

7’903

 

7’910

 

EBIT Margin

 

14.6

%

17.9

%

 

 

 

 

 

 

EBIT as per financial statements

 

1’156

 

1’419

 

adjusted for the effects of:

 

 

 

 

 

Unrealized gains and losses on derivatives (FX, commodities, embedded derivatives)

 

-182

 

-68

 

Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized

 

-18

 

12

 

Unrealized foreign exchange movements on receivables/payables (and related assets/liabilities)

 

118

 

56

 

Restructuring and restructuring-related expenses

 

20

 

41

 

Operational EBIT

 

1’094

 

1’460

 

Adjustment for previously announced provision release in 2009

 

n.a.

 

431

 

Adjusted Operational EBIT

 

1’094

 

1’029

 

 

 

 

 

 

 

Revenues as per financial statements

 

7’903

 

7’910

 

adjusted for the effects of:

 

 

 

 

 

Unrealized gains and losses on derivatives

 

-180

 

-104

 

Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized

 

-25

 

29

 

Unrealized foreign exchange movements on receivables (and related assets)

 

104

 

52

 

Operational Revenues

 

7’802

 

7’887

 

 

 

 

 

 

 

Operational EBIT Margin (= Operational EBIT as % of Operational Revenues)

 

14.0

%

18.5

%

Adjusted Operational EBIT Margin (= Adjusted Operational EBIT as % of Operational Revenues)

 

14.0

%

13.0

%

 

 

 

Sept. 30, 2010

 

 

 

Net Cash
(= Cash and equivalents plus marketable securities and short-term investments, less total debt)

 

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

 

5’269

 

 

 

Marketable securities and short-term investments

 

2’353

 

 

 

Cash and marketable securities

 

7’622

 

 

 

Short-term debt and current maturities of long-term debt

 

253

 

 

 

Long-term debt

 

2’080

 

 

 

Total debt

 

2’333

 

 

 

Net Cash

 

5’289

 

 

 

 

Management believes EBIT margin and operational EBIT margin are useful measures of profitability and uses them as performance targets.

 

12



 

ABB Ltd Interim Consolidated Income Statements (unaudited)

 

 

 

Nine months ended

 

Three months ended

 

($ in millions, except per share data in $)

 

Sep. 30, 2010

 

Sep. 30, 2009

 

Sep. 30, 2010

 

Sep. 30, 2009

 

 

 

 

 

 

 

 

 

 

 

Sales of products

 

18,663

 

19,522

 

6,601

 

6,713

 

Sales of services

 

3,747

 

3,512

 

1,302

 

1,197

 

Total revenues

 

22,410

 

23,034

 

7,903

 

7,910

 

Cost of products

 

(13,044

)

(13,816

)

(4,558

)

(4,803

)

Cost of services

 

(2,466

)

(2,363

)

(841

)

(800

)

Total cost of sales

 

(15,510

)

(16,179

)

(5,399

)

(5,603

)

Gross profit

 

6,900

 

6,855

 

2,504

 

2,307

 

Selling, general and administrative expenses

 

(4,080

)

(3,972

)

(1,366

)

(1,333

)

Other income (expense), net

 

20

 

445

 

18

 

445

 

Earnings before interest and taxes

 

2,840

 

3,328

 

1,156

 

1,419

 

Interest and dividend income

 

70

 

93

 

20

 

25

 

Interest and other finance expense

 

(138

)

(96

)

(51

)

(63

)

Income from continuing operations before taxes

 

2,772

 

3,325

 

1,125

 

1,381

 

Provision for taxes

 

(790

)

(831

)

(304

)

(297

)

Income from continuing operations, net of tax

 

1,982

 

2,494

 

821

 

1,084

 

Income (loss) from discontinued operations, net of tax

 

(3

)

26

 

(2

)

4

 

Net income

 

1,979

 

2,520

 

819

 

1,088

 

Net income attributable to noncontrolling interests

 

(118

)

(159

)

(45

)

(54

)

Net income attributable to ABB

 

1,861

 

2,361

 

774

 

1,034

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to ABB shareholders:

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

1,864

 

2,335

 

776

 

1,030

 

Income (loss) from discontinued operations, net of tax

 

(3

)

26

 

(2

)

4

 

Net income

 

1,861

 

2,361

 

774

 

1,034

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to ABB shareholders:

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

0.82

 

1.02

 

0.34

 

0.45

 

Income (loss) from discontinued operations, net of tax

 

(0.01

)

0.01

 

 

 

Net income

 

0.81

 

1.03

 

0.34

 

0.45

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to ABB shareholders:

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

0.81

 

1.02

 

0.34

 

0.45

 

Income (loss) from discontinued operations, net of tax

 

 

0.01

 

 

 

Net income

 

0.81

 

1.03

 

0.34

 

0.45

 

 

 

 

 

 

 

 

 

 

 

Average number of shares (in millions) used to compute:

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to ABB shareholders

 

2,287

 

2,283

 

2,284

 

2,283

 

Diluted earnings per share attributable to ABB shareholders

 

2,292

 

2,286

 

2,288

 

2,289

 

 

See Notes to the Interim Consolidated Financial Information

 

13



 

ABB Ltd Interim Consolidated Balance Sheets (unaudited)

 

($ in millions, except share data)

 

Sep. 30, 2010

 

Dec. 31, 2009

 

 

 

 

 

 

 

Cash and equivalents

 

5,269

 

7,119

 

Marketable securities and short-term investments

 

2,353

 

2,433

 

Receivables, net

 

9,806

 

9,451

 

Inventories, net

 

5,109

 

4,550

 

Prepaid expenses

 

250

 

236

 

Deferred taxes

 

804

 

900

 

Other current assets

 

740

 

540

 

Total current assets

 

24,331

 

25,229

 

 

 

 

 

 

 

Financing receivables, net

 

457

 

452

 

Property, plant and equipment, net

 

4,092

 

4,072

 

Goodwill

 

4,124

 

3,026

 

Other intangible assets, net

 

737

 

443

 

Prepaid pension and other employee benefits

 

118

 

112

 

Investments in equity method companies

 

32

 

49

 

Deferred taxes

 

1,046

 

1,052

 

Other non-current assets

 

362

 

293

 

Total assets

 

35,299

 

34,728

 

 

 

 

 

 

 

Accounts payable, trade

 

4,394

 

3,853

 

Billings in excess of sales

 

1,627

 

1,623

 

Accounts payable, other

 

1,382

 

1,326

 

Short-term debt and current maturities of long-term debt

 

253

 

161

 

Advances from customers

 

1,698

 

1,806

 

Deferred taxes

 

346

 

327

 

Provisions for warranties

 

1,284

 

1,280

 

Provisions and other current liabilities

 

2,514

 

2,603

 

Accrued expenses

 

1,572

 

1,600

 

Total current liabilities

 

15,070

 

14,579

 

 

 

 

 

 

 

Long-term debt

 

2,080

 

2,172

 

Pension and other employee benefits

 

1,163

 

1,179

 

Deferred taxes

 

490

 

328

 

Other non-current liabilities

 

1,957

 

1,997

 

Total liabilities

 

20,760

 

20,255

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Capital stock and additional paid-in capital (2,307,491,247 issued shares at September 30, 2010 and 2,329,324,797 issued shares at December 31, 2009)

 

1,421

 

3,943

 

Retained earnings

 

14,689

 

12,828

 

Accumulated other comprehensive loss

 

(1,706

)

(2,084

)

Treasury stock, at cost (23,564,509 shares at September 30, 2010 and 39,901,593 shares at December 31, 2009)

 

(386

)

(897

)

Total ABB stockholders’ equity

 

14,018

 

13,790

 

Noncontrolling interests

 

521

 

683

 

Total stockholders’ equity

 

14,539

 

14,473

 

Total liabilities and stockholders’ equity

 

35,299

 

34,728

 

 

See Notes to the Interim Consolidated Financial Information

 

14



 

ABB Ltd Interim Consolidated Statements of Cash Flows (unaudited)

 

 

 

Nine months ended

 

Three months ended

 

($ in millions)

 

Sep. 30, 2010

 

Sep. 30, 2009

 

Sep. 30, 2010

 

Sep. 30, 2009

 

 

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

 

 

Net income

 

1,979

 

2,520

 

819

 

1,088

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

522

 

467

 

186

 

169

 

Pension and postretirement benefits

 

45

 

(1

)

15

 

(10

)

Deferred taxes

 

100

 

(11

)

30

 

(10

)

Net gain from sale of property, plant and equipment

 

(17

)

(11

)

(3

)

(2

)

Income (loss) from equity accounted companies

 

(2

)

1

 

 

1

 

Other

 

53

 

(13

)

27

 

16

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Trade receivables, net

 

(265

)

172

 

35

 

137

 

Inventories, net

 

(462

)

398

 

(55

)

413

 

Trade payables

 

506

 

(703

)

186

 

(198

)

Billings in excess of sales

 

(16

)

56

 

(60

)

(14

)

Provisions, net

 

(131

)

(370

)

(4

)

(433

)

Advances from customers

 

(104

)

(18

)

(8

)

15

 

Other assets and liabilities, net

 

230

 

(243

)

194

 

109

 

Net cash provided by operating activities

 

2,438

 

2,244

 

1,362

 

1,281

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

Changes in financing receivables

 

(46

)

(2

)

(26

)

 

Purchases of marketable securities (available-for-sale)

 

(2,545

)

(59

)

(867

)

(17

)

Purchases of marketable securities (held-to-maturity)

 

(65

)

(799

)

 

(238

)

Purchases of short-term investments

 

(1,772

)

(2,071

)

(196

)

(1,720

)

Purchases of property, plant and equipment and intangible assets

 

(433

)

(624

)

(153

)

(215

)

Acquisition of businesses (net of cash acquired) and increases in interests

 

(2,245

)

(155

)

(1,091

)

(100

)

Proceeds from sales of marketable securities (available-for-sale)

 

566

 

63

 

16

 

21

 

Proceeds from maturity of marketable securities (available-for-sale)

 

393

 

855

 

173

 

 

Proceeds from maturity of marketable securities (held-to-maturity)

 

290

 

273

 

50

 

273

 

Proceeds from short-term investments

 

3,071

 

448

 

126

 

356

 

Proceeds from sales of property, plant and equipment

 

31

 

23

 

7

 

5

 

Proceeds from sales of businesses and equity accounted companies (net of cash disposed)

 

62

 

10

 

(3

)

3

 

Other

 

 

(20

)

 

 

Net cash used in investing activities

 

(2,693

)

(2,058

)

(1,964

)

(1,632

)

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

Net changes in debt with maturities of 90 days or less

 

66

 

(28

)

30

 

(34

)

Increase in debt

 

197

 

440

 

30

 

123

 

Repayment of debt

 

(327

)

(523

)

(60

)

(174

)

Issuance of shares

 

6

 

3

 

6

 

3

 

Purchase of treasury shares

 

(120

)

 

(16

)

 

Dividends paid in the form of nominal value reduction

 

(1,112

)

(1,027

)

(1,112

)

(1,027

)

Dividends paid to noncontrolling shareholders

 

(188

)

(191

)

(71

)

(85

)

Other

 

13

 

(14

)

4

 

20

 

Net cash used in financing activities

 

(1,465

)

(1,340

)

(1,189

)

(1,174

)

 

 

 

 

 

 

 

 

 

 

Effects of exchange rate changes on cash and equivalents

 

(130

)

257

 

524

 

205

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and equivalents - continuing operations

 

(1,850

)

(897

)

(1,267

)

(1,320

)

 

 

 

 

 

 

 

 

 

 

Cash and equivalents beginning of period

 

7,119

 

6,399

 

6,536

 

6,822

 

Cash and equivalents end of period

 

5,269

 

5,502

 

5,269

 

5,502

 

 

 

 

 

 

 

 

 

 

 

Supplementary disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

Interest paid

 

72

 

122

 

26

 

37

 

Taxes paid

 

698

 

829

 

199

 

275

 

 

See Notes to the Interim Consolidated Financial Information

 

15



 

ABB Ltd Interim Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 

 

 

($ in millions)

 

Capital
stock and
additional
paid-in
capital

 

Retained
earnings

 

Foreign
currency
translation
adjustment

 

Unrealized
gain (loss)
on
available-
for-
sale
securities

 

Pension
and other
postretirement
plan
adjustments

 

Unrealized
gain (loss)
of cash
flow hedge
derivatives

 

Total
accumulated
other
comprehensive
loss

 

Treasury
stock

 

Total ABB
stockholders’
equity

 

Noncontrolling
interests

 

Total
stockholders’
equity

 

Balance at January 1, 2009

 

4,841

 

9,927

 

(1,654

)

83

 

(978

)

(161

)

(2,710

)

(900

)

11,158

 

612

 

11,770

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

2,361

 

 

 

 

 

 

 

 

 

 

 

 

 

2,361

 

159

 

2,520

 

Foreign currency translation adjustments

 

 

 

 

 

672

 

 

 

 

 

 

 

672

 

 

 

672

 

6

 

678

 

Effect of change in fair value of available-for-sale securities, net of tax

 

 

 

 

 

 

 

(62

)

 

 

 

 

(62

)

 

 

(62

)

 

 

(62

)

Unrecognized income (loss) related to pensions and other postretirement plans, net of tax

 

 

 

 

 

 

 

 

 

(24

)

 

 

(24

)

 

 

(24

)

(3

)

(27

)

Change in derivatives qualifying as cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

170

 

170

 

 

 

170

 

 

 

170

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,117

 

162

 

3,279

 

Changes in noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

17

 

Dividends paid to noncontrolling shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(193

)

(193

)

Dividends paid in the form of nominal value reduction

 

(1,024

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,024

)

 

 

(1,024

)

Treasury stock transactions

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

Share-based payment arrangements

 

54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

54

 

Issuance of shares

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Call options

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

22

 

Balance at September 30, 2009

 

3,893

 

12,288

 

(982

)

21

 

(1,002

)

9

 

(1,954

)

(897

)

13,330

 

598

 

13,928

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 

 

 

($ in millions)

 

Capital
stock and
additional
paid-in
capital

 

Retained
earnings

 

Foreign
currency
translation
adjustment

 

Unrealized
gain (loss)
on
available-
for-
sale
securities

 

Pension
and other
postretirement
plan
adjustments

 

Unrealized
gain (loss)
of cash
flow hedge
derivatives

 

Total
accumulated
other
comprehensive
loss

 

Treasury
stock

 

Total ABB
stockholders’
equity

 

Noncontrolling
interests

 

Total
stockholders’
equity

 

Balance at January 1, 2010

 

3,943

 

12,828

 

(1,056

)

20

 

(1,068

)

20

 

(2,084

)

(897

)

13,790

 

683

 

14,473

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

1,861

 

 

 

 

 

 

 

 

 

 

 

 

 

1,861

 

118

 

1,979

 

Foreign currency translation adjustments

 

 

 

 

 

226

 

 

 

 

 

 

 

226

 

 

 

226

 

13

 

239

 

Effect of change in fair value of available-for-sale securities, net of tax

 

 

 

 

 

 

 

5

 

 

 

 

 

5

 

 

 

5

 

 

 

5

 

Unrecognized income (loss) related to pensions and other postretirement plans, net of tax

 

 

 

 

 

 

 

 

 

74

 

 

 

74

 

 

 

74

 

 

 

74

 

Change in derivatives qualifying as cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

73

 

73

 

 

 

73

 

 

 

73

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,239

 

131

 

2,370

 

Changes in noncontrolling interests

 

(834

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(834

)

(104

)

(938

)

Dividends paid to noncontrolling shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(189

)

(189

)

Dividends paid in the form of nominal value reduction

 

(1,112

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,112

)

 

 

(1,112

)

Cancellation of shares repurchased under buyback program

 

(619

)

 

 

 

 

 

 

 

 

 

 

 

 

619

 

 

 

 

 

Treasury stock transactions

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

(108

)

(120

)

 

 

(120

)

Share-based payment arrangements

 

56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56

 

 

 

56

 

Call options

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Balance at September 30, 2010

 

1,421

 

14,689

 

(830

)

25

 

(994

)

93

 

(1,706

)

(386

)

14,018

 

521

 

14,539

 

 

See Notes to the Interim Consolidated Financial Information

 

16



 

Notes to the Interim Consolidated Financial Information (unaudited)

 

Note 1. The Company and basis of presentation

 

ABB Ltd and its subsidiaries (collectively, the Company) together form a leading global company specializing in power and automation technologies that improve the performance of utility and industry customers, while lowering environmental impact. The Company works with customers to engineer and install networks, facilities and plants with particular emphasis on enhancing efficiency, reliability and productivity for customers who generate, convert, transmit, distribute and consume energy.

 

The Company’s Interim Consolidated Financial Information is prepared in accordance with United States of America generally accepted accounting principles (U.S. GAAP) for interim financial reporting. As such, the Interim Consolidated Financial Information does not include all the information and notes required under U.S. GAAP for annual consolidated financial statements. Therefore, such financial information should be read in conjunction with the audited consolidated financial statements in the Company’s Annual Report for the year ended December 31, 2009.

 

The preparation of financial information in conformity with U.S. GAAP requires management to make assumptions and estimates that directly affect the amounts reported in the Interim Consolidated Financial Information. The accounting estimates that require the Company’s most significant, difficult and subjective judgments include:

 

·                  assumptions and projections, principally related to future material, labor and project-related overhead costs, used in determining the percentage-of-completion on projects,

 

·                  estimates of loss contingencies associated with litigation or threatened litigation and other claims and inquires, environmental damages, product warranties, regulatory and other proceedings,

 

·                  assumptions used in the calculation of pension and postretirement benefits and the fair value of pension plan assets,

 

·                  recognition and measurement of current and deferred income tax assets and liabilities (including the measurement of uncertain tax positions),

 

·                  growth rates, discount rates and other assumptions used in the Company’s annual goodwill impairment test,

 

·                  assumptions used in determining inventory obsolescence and net realizable value,

 

·                  growth rates, discount rates and other assumptions used to determine impairment of long-lived assets, and

 

·                  assessment of the allowance for doubtful accounts.

 

The actual results and outcomes may differ from the Company’s estimates and assumptions.

 

In the opinion of management, the unaudited Interim Consolidated Financial Information contains all necessary adjustments to present fairly the financial position, results of operations and cash flows for the reported interim periods.

 

The Interim Consolidated Financial Information is presented in United States dollars ($) unless otherwise stated. Certain amounts reported for prior periods in the Interim Consolidated Financial Information have been reclassified to conform to the current year’s presentation.

 

Note 2. Recent accounting pronouncements

 

Applicable in current period

 

Fair value measurements

As of January 1, 2010, the Company adopted an accounting standard update that requires additional disclosure for fair value measurements. The update requires that significant transfers in and out of fair value Level 1 (observable quoted prices) and Level 2 (observable inputs other than Level 1 inputs) be disclosed together with a description of the reasons for the transfers. Adoption of this update did not result in additional disclosure for the nine-month and three-month periods ended September 30, 2010, as there were no significant transfers between Level 1 and Level 2.

 

17



 

Notes to the Interim Consolidated Financial Information (unaudited)

 

Applicable for future periods

 

Fair value measurements

In January 2010, an accounting standard update was issued that requires additional disclosure for fair value measurements. The update requires disclosure, on a gross basis, about purchases, sales, issuances, and settlements of level 3 (significant unobservable inputs) instruments when reconciling the fair value measurements. This disclosure requirement is effective for the Company for periods beginning January 1, 2011. The Company does not believe that this new disclosure requirement will have a material impact on its consolidated financial statements.

 

Revenue recognition with multiple deliverable arrangements

In October 2009, an accounting standard update on revenue recognition with multiple deliverable arrangements was issued which amends the criteria for allocating consideration in multiple-deliverable revenue arrangements. It establishes a hierarchy of selling prices to determine the selling price of each specific deliverable that includes vendor-specific objective evidence (if available), third-party evidence (if vendor-specific evidence is not available), or estimated selling price if neither of the first two are available. This update also:

 

·                  eliminates the residual method for allocating revenue between the elements of an arrangement and requires that arrangement consideration be allocated at the inception of the arrangement, and

 

·                  expands the disclosure requirements regarding a vendor’s multiple-deliverable revenue arrangements.

 

This update is effective for arrangements entered into by the Company or materially modified on or after January 1, 2011. The Company is currently evaluating the impact of this update.

 

Revenue arrangements that include software elements

In October 2009, an accounting standard update for the accounting of certain revenue arrangements that include software elements was issued. This update amends the existing guidance on revenue arrangements that contain both hardware and software elements. This update modifies the existing rules to exclude from the software revenue guidance (i) non-software components of tangible products and (ii) software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality. Undelivered elements in the arrangement related to the non-software components also are excluded from this guidance. This update is effective for arrangements entered into by the Company or materially modified on or after January 1, 2011. The Company is currently evaluating the impact of this update.

 

Disclosures about the credit quality of financing receivables and the allowance for credit losses

In July 2010, an accounting standard update was issued that requires additional disclosures regarding (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. For disclosures as of the end of a reporting period this update is effective for the Company for the period ending December 31, 2010. For disclosures about activity during a reporting period, this update is effective for the Company for periods beginning January 1, 2011. The Company does not believe that this new disclosure requirement will have a material impact on its consolidated financial statements.

 

18



 

Notes to the Interim Consolidated Financial Information (unaudited)

 

Note 3. Acquisitions and increases in controlling interests

 

Acquisitions

 

Acquisitions in the nine and three months ended September 30, 2010 and 2009, (excluding the increase in controlling interest in India described separately below) were:

 

 

 

Nine months ended
September 30,

 

Three months ended
September 30,

 

($ in millions, except number of acquired businesses)