Final Results
ABB Ltd
15 February 2007
ABB 2006 net income rises 89% to $1.4 billion
• 2006 earnings before interest and taxes (EBIT) up 45% at $2.6 billion
• Full-year EBIT margin advances to 10.6%
• Strong Q4 helps lift full-year orders by 22%, revenues by 11%
• 2006 cash flow from operations doubles to $2 billion
• Board of Directors will propose a dividend of CHF 0.24 per share
Zurich, Switzerland, February 15, 2007 - ABB's net income rose 89 percent to
$1,390 million in 2006 amid strong demand for technology to increase power grid
reliability, industrial productivity and energy efficiency.
Revenues for 2006 reached $24,412 million, an increase of 11 percent (10 percent
in local currencies) over 2005, while orders were 22 percent higher (22 percent
in local currencies) at $28,401 million. The order backlog stood at $16,953
million at the end of 2006, up $5 billion or 42 percent (33 percent in local
currencies) compared to a year earlier.
Growing revenues, higher capacity utilization and further cost reductions all
contributed to a 45-percent increase in EBIT to a record $2,586 million in 2006.
The EBIT margin, or EBIT as a percentage of revenues, increased to 10.6 percent
from 8.1 percent in 2005.
'We have the right technology and market positions to take advantage of the
growing global demand for reliable power and higher industrial efficiency,' said
Fred Kindle, ABB President and Chief Executive Officer. 'Our order backlog has
grown significantly and improved business execution is allowing us to capture
more of that growth in our bottom line. We are heading into 2007 in a strong
position.'
In the fourth quarter ending December 31, 2006, orders rose 36 percent (30
percent in local currencies) while revenues were 21 percent higher (up 16
percent in local currencies) than in the fourth quarter of 2005. Fourth-quarter
EBIT increased 43 percent to $744 million, producing an EBIT margin of 10.4
percent. Net income in the quarter was $422 million, up 90 percent from the same
period a year ago.
2006 Q4 and full-year key figures
Q4 06 Q4 051 Change 2006 20051 Change
-------------- ------- ------ --------- ------- ------ ---------
------ ------
$ millions US$ Local US$ Local
unless ------- ------ ------ ------ ------- ------ ------ ------
otherwise
indicated
--------------
Orders 7,479 5,502 36% 30% 28,401 23,194 22% 22%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Order backlog
(end 16,953 11,956 42% 33%
Dec.)
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Revenues 7,188 5,917 21% 16% 24,412 22,012 11% 10%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
EBIT 744 522 43% 2,586 1,778 45%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
as % of 10.4% 8.8% 10.6% 8.1%
revenues
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Net income 422 222 90% 1,390 735 89%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
as % of 5.9% 3.8% 5.7% 3.3%
revenues
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Diluted
earnings per 0.19 0.11 0.63 0.36
share ($)
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Dividend per
share 0.24 0.12 100%
in CHF
(proposed)
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Cash flow from
operations 1,040 695 1,939 1,012
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Free cash flow2 1,598 902
-------------- ------- ------ ------ ------ ------- ------ ------ ------
as % of net 115% 123%
income2
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Return on
capital 20% 14%
employed2
-------------- ------- ------ ------ ------ ------- ------ ------ ------
1 Adjusted to reflect the reclassification of activities to Discontinued
operations; 2 Reported only on annual results
Summary of Q4 and full-year 2006 results
Orders received and revenues
The strong full-year and fourth-quarter order growth was driven by favorable
demand in most businesses and regions. Utility customers in OECD countries
continued to invest in power grid upgrades and interconnections to increase the
efficiency and reliability of their networks. In Asia, utilities invested in
building new infrastructure to support economic growth, while in the Middle
East, demand was supported by the need for power infrastructure to support
growth in the oil and gas sector. Demand from industrial customers in all
regions was driven by the need to improve efficiency in the face of high energy
and raw materials prices, and was supported by the current strength in the
global economy. In the power business, industrial customers increasingly require
equipment to reliably manage large power flows in, for example, factories,
refineries and marine applications.
The Power Systems and Power Products divisions both benefited from strong demand
in the fourth quarter. Large power grid investments, for example in the Middle
East and Canada, produced an increase in large orders of more than $800 million
in the Power Systems division compared to the same quarter a year earlier. In
the Power Products division, volume growth and price increases to offset higher
raw materials costs drove the higher order value.
The Automation Products division gained from an increase in large orders from
the rail transportation and wind energy sectors in the fourth quarter, and
orders were up across all businesses and regions. Price increases related to
higher raw material costs also contributed to the increase in the value of
orders. Orders in the Process Automation division were up only slightly (flat in
local currencies) as large system orders won in the fourth quarter of 2005 could
not be repeated in the same quarter in 2006. Orders were higher in the Robotics
division in the fourth quarter due to increased demand from the general industry
sector.
Large orders (more than $15 million) almost tripled to $1,570 million in the
fourth quarter and represented 21 percent of total orders received versus 10
percent in the same quarter in 2005. Base orders (less than $15 million) were up
19 percent (14 percent in local currencies).
The strong fourth-quarter revenue growth reflects both higher product sales
during the quarter and the execution of large systems orders won in previous
quarters. Full-year 2006 revenues increased on a mix of higher volumes and
prices.
Earnings before interest and taxes
The higher EBIT and EBIT margin in both the fourth quarter and full year were
achieved through higher revenues and factory loadings, better execution of large
projects and further efforts to reduce costs by sourcing production capacity,
components and raw material from lower-cost regions. Corporate costs for the
full year were $321 million, $80 million lower than in 2005. The company
incurred $85 million less in charges associated with consolidation of the
transformer business in 2006 compared to 2005, which also contributed to the
improved profitability.
The fourth-quarter EBIT margin was below the full-year average for several
reasons, including the mix of margins in large project orders flowing through
revenues. In addition, a higher proportion of costs was recorded in the fourth
quarter related to activities under the transformer consolidation program and
legacy project costs in ABB Lummus Global.
Finance expense, taxes and discontinued operations
Below the EBIT line, lower debt in 2006 resulted in a reduction in net finance
expense(1) for the full year to $153 million from $246 million in 2005. The tax
rate for the fourth quarter was 25 percent (Q4 2005: 28 percent) and 29 percent
for the full year (full year 2005: 32 percent). The decrease was primarily the
result of higher earnings from lower-tax jurisdictions.
ABB's remaining Building Systems business was reclassified to discontinued
operations in the fourth quarter, reflecting progress made on its divestment. An
expected loss on the planned sale was the main contributor to the total
$53-million loss in discontinued operations reported in the quarter. For the
full year, discontinued operations reported a loss of $167 million, mainly the
result of losses related to ABB's asbestos obligations and the disposal of
businesses.
Cash flow
Cash flow from operations in the fourth quarter improved by more than $300
million compared to the same quarter in 2005. Included in cash flow in the 2006
quarter was approximately $100 million in customer advances on large orders
received. The improvement in cash flow for the full year versus 2005 reflects in
part the approximately $490-million negative impact from reducing the
securitization of receivables in 2005.
Free cash flow(2) for the full year increased by 77 percent compared to 2005.
The cash conversion ratio(3) amounted to 115 percent in 2006, partly the result
of some $460 million in project-related cash advances from customers.
Balance sheet
Net cash (total cash and marketable securities and short-term investments, less
total debt) was $1,508 million at the end of 2006, compared to net debt of $513
million at the end of 2005. Strong cash flows combined with the reduction in
total debt from the early conversion of ABB's previously outstanding
$968-million convertible bond, were the main contributors to the higher net cash
position.
ABB contributed approximately $665 million to fund its various pension plans
during 2006, including discretionary pension contributions of approximately $450
million to local pension funds that were not required to be funded under local
laws. This, together with positive asset returns and increasing discount rates
were the main factors that allowed ABB to reduce its unfunded pension liability
to $291 million at the end of December 2006 from $839 million at the end of
2005.
As the result of changes to U.S. accounting rules regarding defined benefit
pension plans, the company took a non-cash charge to stockholders' equity in the
fourth quarter of 2006 of approximately $415 million. The accounting changes
have no impact on ABB's income statement. (Please refer to Appendix I -
Accounting pronouncements, for further information.)
Gearing(4) decreased to 34 percent at the end of December 2006, versus 52
percent a year earlier, primarily the result of the early bond conversion
mentioned above and the increase in net income in 2006.
As a result of ABB's stronger balance sheet and improved operational
performance, the company's credit ratings were increased several levels during
2006. By the end of the year, the ratings were BBB+ with Standard & Poor's (up
from BB+ at the beginning of 2006) and Baa1 with Moody's (up from Ba2 at the
beginning of 2006).
________________________________________
2 Free cash flow = cash from operating activities adjusted for changes in
financing receivables and net investments in property, plant and equipment.
3 Cash conversion ratio = free cash flow as a percentage of net income.
4 Gearing = total debt divided by total debt plus stockholders' equity
(including minority interest).
Dividend and authorized capital
For 2006, ABB's Board of Directors will propose a dividend of CHF 0.24 per
share, double the level of 2005. The proposal is subject to approval by
shareholders at the company's annual general meeting on May 3, 2007 in Zurich,
Switzerland. Should the proposal be approved, the ex-dividend date would be May
8, 2007.
ABB's Board of Directors will also recommend that shareholders approve the
replacement of the company's previously expired authorized capital. The move
would allow ABB to issue up to 200 million shares and is intended to optimize
the company's financial flexibility.
Divestitures
In line with its strategy to focus on power and automation technologies, ABB
continued to divest non-core activities in 2006, including power lines
businesses and a cables business in Ireland. The remaining Building Systems
business was reclassified into discontinued operations in the fourth quarter of
2006 reflecting progress in its divestment. In January, 2007, ABB said it had
restarted the process to divest its ABB Lummus Global oil and gas business. In
February 2007, the company announced that it had agreed to sell its equity
investments in two private power plants, part of its Equity Ventures holdings,
for $490 million, and expects the transaction to be closed in the second quarter
of 2007.
Senior management appointments
As previously announced, two new members were appointed to ABB's Executive
Committee, effective January 1, 2007. Peter Leupp, previously ABB's country
manager in China, was named head of the Power Systems division, while Diane de
Saint Victor, formerly general counsel at EADS (European Aeronautic Defence and
Space Company), was appointed head of the Legal and Compliance function.
In addition, ABB announced in December 2006 that Jurgen Dormann, Chairman of the
ABB Board of Directors, has decided not to seek re-election to the ABB Board for
a further term. As a consequence, he will retire from the ABB Board after
completing his current term as Chairman of the board, at the company's AGM on
May 3, 2007.
Asbestos
In 2006, the Plans of Reorganization of ABB's U.S. subsidiaries Combustion
Engineering (CE) and ABB Lummus Global (Lummus) became effective following final
court approvals. As a result, any future asbestos personal injury claims against
those and other ABB entities related to the operations of CE and Lummus will be
channeled to the specially-created Personal Injury Trusts set up under the
relevant Plans of Reorganization.
Market outlook for 2007
The business environment for ABB in 2007 is not expected to vary significantly
from the positive market situation seen in 2006. Demand for power transmission
and distribution infrastructure is expected to continue on a high level in Asia,
the Middle East and the Americas. Equipment replacement and improved network
efficiency and reliability are forecast to be the drivers of higher demand in
Europe and North America.
Automation-related industrial investments are expected to continue in most
sectors. Overall, automation-related demand growth is expected to be strongest
in Asia and the Americas in 2007, with more modest growth in Europe.
In view of the extraordinarily high order growth rates experienced in 2006,
order growth is expected to moderate in 2007.
Employment
ABB employed approximately 108,000 people at the end of December 2006, an
increase of 4,000 compared to the end of 2005. Most of the increase was in the
fast-growing Asia region. Employment was also higher in eastern and western
Europe.
Divisional performance Q4 and full year 2006
Power Products
Q4 06 Q4 05(1) Change 2006 2005(1) Change
-------------- ------- ------ --------- ------- ------ ---------
$ millions US$ Local US$ Local
unless ------- ------ ------ ------ ------- ------ ------ ------
otherwise
indicated
--------------
Orders 2,038 1,607 27% 22% 8,743 6,879 27% 26%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Order backlog
(end 4,947 3,499 41% 34%
Dec.)
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Revenues 2,285 1,861 23% 18% 7,422 6,307 18% 16%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
EBIT 290 189 53% 961 616 56%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
as % of 12.7% 10.2% 12.9% 9.8%
revenues
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Cash flow from
operations 386 329 736 566
-------------- ------- ------ ------ ------ ------- ------ ------ ------
1 Adjusted to reflect the reclassification of activities to Discontinued
operations
Order growth remained strong in the fourth quarter, as both base and large
orders increased substantially. Orders were higher in all business units, led by
Transformers, and in all regions. Revenues also increased in all business units
in the quarter, reflecting higher volumes from the strong order backlog and some
price increases to compensate for higher raw material costs.
Fourth-quarter EBIT and EBIT margin rose significantly for the division, mainly
as the result of higher volumes and factory loadings together with lower costs
from the transformer consolidation program announced last year. Expenses related
to the program were $14 million in the fourth quarter of 2006 (fourth quarter
2005: $43 million). Program costs for the full year 2006 amounted to $38 million
(2005: $123 million).
For the full year 2006, higher demand for power infrastructure improvements led
to increased orders and revenues in all business units and regions. EBIT
increased 56 percent and the EBIT margin rose 3.1 percentage points as the
result of higher volumes, better capacity utilization, and lower transformer
consolidation costs.
Power Systems
Q4 06 Q4 05 Change 2006 2005 Change
-------------- ------- ------ --------- ------- ------ ----------
$ millions US$ Local US$ Local
unless
otherwise
indicated
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Orders 1,989 1,118 78% 71% 5,733 4,468 28% 28%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Order backlog
(end 5,638 4,085 38% 29%
Dec.)
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Revenues 1,429 1,169 22% 16% 4,544 4,085 11% 10%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
EBIT 93 84 11% 279 187 49%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
as % of 6.5% 7.2% 6.1% 4.6%
revenues
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Cash flow from
operations 185 105 293 122
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Orders were sharply higher in the fourth quarter of 2006, which was primarily
the result of large project wins, including a $450-million order in Qatar and a
$180-million order in Canada. Orders were up in all regions by more than 20
percent in both U.S. dollars and local currencies.
Revenues grew in the fourth quarter on increased project execution from the
strong order backlog. EBIT increased more than 10 percent compared to the same
period in 2005, primarily the result of higher volumes. The EBIT margin
decreased versus the fourth quarter of 2005, mainly reflecting a higher
proportion of lower-margin projects executed during the quarter compared to the
year-earlier period.
For the full year 2006, orders and revenues grew as the demand for power
transmission and distribution systems remained strong in all regions. Higher
volumes and the resulting increase in capacity utilization, along with improved
project selection and execution, were the main drivers of the higher EBIT and
EBIT margin compared to 2005.
Automation Products
Q4 06 Q4 05 Change 2006 2005 Change
-------------- ------- ------ --------- ------- ------ ---------
$ millions US$ Local US$ Local
unless
otherwise
indicated
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Orders 1,948 1,456 34% 26% 7,706 6,210 24% 23%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Order backlog
(end 2,439 1,417 72% 60%
Dec.)
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Revenues 1,923 1,553 24% 16% 6,837 5,897 16% 15%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
EBIT 300 222 35% 1,053 822 28%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
as % of 15.6% 14.3% 15.4% 13.9%
revenues
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Cash from 274 207 916 484
operations
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Orders from industrial customers to further increase operational efficiency
continued to grow in all businesses and regions during the fourth quarter. Large
orders from the rail transportation sector for traction motors and from wind
energy customers for generators and low-voltage systems contributed to the
strong increase.
Revenues increased in the quarter mainly due to higher volumes. Higher prices to
offset raw materials cost increases also contributed to the revenue growth.
Increased revenues, high factory loadings and further migration to lower-cost
countries were the prime drivers of an increase in EBIT and EBIT margin versus
the same quarter in 2005.
Full-year order and revenue growth reflect the strong market demand seen across
most end user segments and in all regions. EBIT and EBIT margin increased as the
result of higher volumes and factory loadings, and continuing cost migration
efforts.
Process Automation
Q4 06 Q4 05 Change 2006 2005 Change
-------------- ------- ------ --------- ------- ------ ----------
$ millions US$ Local US$ Local
unless
otherwise
indicated
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Orders 1,381 1,322 4% 0% 6,550 5,400 21% 21%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Order backlog
(end. 3,991 2,647 51% 40%
Dec.)
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Revenues 1,591 1,340 19% 13% 5,448 4,996 9% 8%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
EBIT 164 113 45% 541 398 36%
-------------- ------- ------ ------ ------ ------- ------ ------ ------
as % of 10.3% 8.4% 9.9% 8.0%
revenues
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Cash from 171 100 525 237
operations
-------------- ------- ------ ------ ------ ------- ------ ------ ------
Base orders increased 21 percent in the fourth quarter (15 percent in local
currencies), but large orders received in the fourth quarter of 2005 in South
Korea and Singapore could not be repeated, which offset the base order increase.
Base order growth was driven by demand for process automation systems across
most of ABB's industrial end markets, such as oil and gas, pulp and paper, and
minerals.
Higher revenues in the fourth quarter reflect primarily the ongoing execution of
large project orders awarded in earlier quarters, as well as increased product
sales during the fourth quarter of 2006. EBIT and EBIT margin increased
substantially over the fourth quarter of 2005, mainly due to higher volumes and
improved project management.
Orders for the full-year 2006 achieved a record level, reflecting continued
strong demand in most sectors. Revenues increased mainly due to the growing
systems business, especially in the minerals and marine sectors, and the
products business. Full-year EBIT increased as the result of higher volumes,
better pricing, improved project management, and ongoing cost migration
initiatives.
Robotics
Q4 06 Q4 05 Change 2006 2005 Change
-------------- ------- ------ ---------- ------ ------ ----------
$ millions US$ Local US$ Local
unless
otherwise
indicated
-------------- ------- ------ ------ ------ ------ ------ ------ ------
Orders 351 277 27% 20% 1,240 1,496 (17%) (18%)
-------------- ------- ------ ------ ------ ------ ------ ------ ------
Order backlog
(end 441 506 (13%) (19%)
Dec.)
-------------- ------- ------ ------ ------ ------ ------ ------ ------
Revenues 342 500 (32%) (35%) 1,288 1,699 (24%) (25%)
-------------- ------- ------ ------ ------ ------ ------ ------ ------
EBIT (12) 12 n/a 1 91 (99%)
-------------- ------- ------ ------ ------ ------ ------ ------ ------
as % of (3.5%) 2.4% 0.1% 5.4%
revenues
-------------- ------- ------ ------ ------ ------ ------ ------ ------
Cash from
operations 47 42 30 (11)
-------------- ------- ------ ------ ------ ------ ------ ------ ------
Orders received increased in the fourth quarter, primarily from the general
industry sector, such as packaging, consumer electronics and food processing.
Order growth was led by North America and Asia, mainly China. Revenues fell in
the quarter, however, reflecting the declining order backlog that has resulted
from the generally sluggish demand from U.S. and European automotive
manufacturers and their major suppliers in recent quarters.
The division continued to take steps to improve project execution, reduce costs
and refocus the product offering. Costs associated with these actions, combined
with lower revenues and special charges related to a large project, resulted in
a decline in EBIT and EBIT margin in the fourth quarter.
Full-year 2006 orders and revenues were significantly lower than the year before
as demand remained weak in ABB's key automotive end markets in North America and
Europe. Service revenues and sales to general industry in the year were higher
which partly mitigated the costs associated with the division's operational
improvement program, resulting in a breakeven EBIT for the year.
Non-core activities
With the reclassification of Building Systems to discontinued operations in the
fourth quarter of 2006, ABB's Non-core activities now comprise the ABB Lummus
Global oil, gas and petrochemicals business, a portfolio of equity investments
in power and other infrastructure projects, and ABB's real estate management
activities. (Please refer to Appendix II for further information on the impact
of reclassifications of activities to discontinued operations in 2006.)
Non-core activities reported an EBIT loss of $5 million in the fourth quarter on
revenues of $359 million, primarily the result of costs related to outstanding
claims on an ABB Lummus Global project.
Income from the Equity Ventures portfolio and gains from real estate activities
comprised most of the full-year Non-core EBIT of $72 million. ABB Lummus Global
reported a breakeven EBIT for the full year.
Corporate
Corporate costs decreased in the fourth quarter of 2006, mainly reflecting
continued focus on the reduction of corporate costs in the countries and in the
Headquarters. For the full year 2006, Corporate costs amounted to $321 million
compared to $401 million in 2005.
More information
The 2006 Q4 results press release and presentation slides are available from
February 15, 2007 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 press conference today starting at 10:00 a.m. Central European
Time (CET). U.K. callers should dial +44 20 7107 0611. From Sweden, +46 8 5069
2105, and from the rest of Europe, +41 91 610 56 00. Lines will be open 15
minutes before the start of the conference. Audio playback of the call will
start one hour after the call ends and will be available for 72 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 354, followed by the # key.
A meeting for analysts and investors is scheduled to begin today at 2:00 p.m.
CET (8:00 a.m. EST). Callers should dial +1 412 858 4600 (from the U.S./Canada)
or +41 91 610 56 00 (Europe and the rest of the world). Callers are requested to
phone in 10 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 96 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 558, followed by the # key.
Investor calendar 2007
Q1 2007 results April 26, 2007
ABB Ltd Annual General Meeting May 3, 2007
Q2 2007 results July 26, 2007
Q3 2007 results October 25, 2007
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 108,000 people.
Zurich, February 15, 2007
Fred Kindle, CEO
Important notice about forward-looking information
This press release includes forward-looking information and statements including
statements concerning the outlook for our businesses. These statements are based
on current expectations, estimates and projections about the factors that may
affect our future performance, including 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,
the amount of revenues we are able to generate from order backlogs and orders
received, raw materials prices, market acceptance of new products and services,
changes in governmental regulations and costs associated with compliance
activities, 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.
Appendix I
Reclassifications
Amounts reported for prior periods in the consolidated financial statements have
been reclassified to conform to the current period's presentation, primarily as
a result of the application of Statement of Financial Accounting Standards No.
144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
in reflecting assets and liabilities held for sale and in discontinued
operations.
CE asbestos obligations
During the second quarter of 2006, the Modified CE Plan of Reorganization for
Combustion Engineering (CE), a subsidiary of ABB in the U.S., became effective.
Certain actions taken in connection with making the Plan effective resulted in
changes to our consolidated financial statements. These changes are summarized
below. For additional information, regarding the background of the Modified CE
Plan of Organization, our asbestos obligations and the Plan effective date,
please refer to ABB's 2005 Annual Report on Form 20-F, as well as our third
quarter press release dated October 26, 2006.
The 30,298,913 ABB shares reserved to cover part of ABB's asbestos liabilities
were contributed to the Combustion Engineering 524(g) Asbestos Personal Injury
Trust (PI Trust) on April 20, 2006, and resulted in a reduction in Asbestos
obligations, and an increase in the Capital stock and additional paid-in capital
of $407 million. In addition, the mark-to-market accounting treatment of the ABB
CE Settlement Shares contributed to the PI Trust, resulted in an expense of $114
million in the item Loss from discontinued operations, net of tax in ABB's
consolidated income statement for the twelve month period ended December 31,
2006. Following the effective date of the Plan, ABB discounted the ABB
promissory notes and other required asbestos contributions at our incremental
borrowing rate. The total discount adjustment on the value of the ABB promissory
notes and other required contributions resulted in non-cash income of
approximately $45 million, which is reflected in the item Loss from discontinued
operations, net of tax in the consolidated income statement for the twelve month
period ended December 31, 2006.
Debt securities transactions
In the second quarter of 2006, a bond conversion of ABB's previously outstanding
$968-million, 4.625-percent convertible bonds due in May 2007 was completed,
resulting in the issuance of approximately 105 million new ABB shares and
approximately 2 million treasury shares. Expenses of $55 million related to the
induced conversion were recorded in the second quarter 2006 consolidated income
statement in Interest and other finance expense, net. As a result of the
transaction, ABB's total debt decreased by approximately $930 million and equity
increased by a similar amount. For further details regarding this transaction,
please refer to ABB's second quarter press release dated July 27, 2006.
ABB also completed a bond exchange offering in the second quarter of 2006 to
extend the maturity profile of its outstanding public debt. The offering related
to its 9.5-percent €500-million bonds due 2008, and its 10-percent £200-million
bonds due 2009. Following the completion of the offer, ABB issued new
4.625-percent €700-million bonds due 2013. As a result, the principal remaining
amount outstanding for the 2008 bonds is approximately €77 million, and
approximately £20 million for the 2009 bonds. For further details regarding this
transaction, please refer to ABB's second quarter press release dated July 27,
2006.
Employee benefits funding
During the twelve months ended December 31, 2006, ABB made $690 million of
contributions, including discretionary contributions of approximately $450
million, to its pension and other post-retirement benefit plans. The majority of
the current year contributions have been made in the form of marketable
securities.
Accounting pronouncements
In September 2006, the Financial Accounting Standards Board ('FASB') issued SFAS
No. 158, 'Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132
(R).' SFAS No. 158 requires an employer to recognize in its statement of
financial position an asset for a plan's overfunded status or a liability for a
plan's underfunded status, measure a plan's assets and its obligations that
determine its funded status as of the end of the employer's fiscal year, and
recognize changes in the funded status of a defined benefit postretirement plan
in the year in which the changes occur. Those changes are reported in
Accumulated other comprehensive income/loss and as a separate component of
stockholders' equity. ABB adopted SFAS No. 158 in the fourth quarter of 2006.
The adoption of SFAS 158 resulted in a non-cash charge to equity, net of tax, of
approximately $415 million. The adoption of SFAS 158 did not affect the
consolidated income statements.
In June 2006, the FASB issued FASB Interpretation No. 48 'Accounting for
Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109)' which
is effective for fiscal years beginning after December 15, 2006. This
interpretation was issued to clarify the accounting for uncertainty in income
taxes recognized in the financial statements by prescribing a 'more likely than
not' threshold measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. If
there are changes in net assets as a result of application of FIN 48, these will
be accounted for as an adjustment to retained earnings. (The new guidance will
be effective for ABB on January 1, 2007.) ABB expects the transition effects to
consist of reclassification of certain income-tax related liabilities in its
consolidated financial statements and an immaterial adjustment to the balance of
Retained earnings. Prior periods will not be restated as a result of this
change.
Local currencies
The results of operations and financial position of many of ABB's non-U.S.
subsidiaries are recorded in the currencies of the countries in which those
subsidiaries reside. The company refers to these as 'local currencies.' However,
ABB reports its operational and financial results in U.S. dollars. Differences
in our results in local currencies as compared to U.S. dollars are caused
exclusively by changes in currency exchange rates.
Segment reporting
As disclosed in our 2005 Annual Report on Form 20-F, beginning in the first
quarter of 2006, ABB modified its reporting from two primary reportable segments
to five primary reportable segments due to organizational changes to strengthen
the Company's focus on customer relationships and growth. Therefore the segment
disclosures for 2005 have been reclassified to conform to the current
presentation.
Appendix II
2006 quarterly revenues and EBIT by division, adjusted for reclassifications to
discontinued operations
Adjustments made in Power Products, Non-core activities and ABB Group
Revenues EBIT
US$ millions Q1 2006 Q2 2006 Q3 2006 Q1 2006 Q2 2006 Q3 2006
-------------- ------- ------- ------- ------- ------- -------
Power Products1 1,463 1,821 1,853 173 245 253
Power Systems 1,012 1,031 1,072 48 62 76
Automation
Products 1,530 1,684 1,700 221 262 270
Process Automation 1,235 1,300 1,322 118 120 139
Robotics 333 332 281 1 7 5
Non-core
activities2 304 368 338 35 19 23
Corporate (530) (625) (600) (81) (72) (82)
-------------- ------- ------- ------- ------- ------- -------
Total ABB 5,347 5,911 5,966 515 643 684
2006 quarterly net income adjusted for reclassifications to discontinued
operations
Discontinued operations (95) 8 (27)
-------------- ------- ------- ------- ------- ------- -------
Net income 204 367 397
-------------- ------- ------- ------- ------- ------- -------
1 A low-voltage cable business in Ireland was reclassified to Discontinued
operations in Q3 2006; 2 ABB's remaining Building Systems business was
reclassified to Discontinued operations in Q4 2006.
Appendix III
ABB fourth-quarter (Q4) and full-year 2006 key figures
$ millions
unless
otherwise
indicated Q4 06 Q4 05(1) Change 2006 2005(1) Change
------------------ ------ ------ --------- ------ ------ ---------
US$ Local US$ Local
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Orders Group 7,479 5,502 36% 30% 28,401 23,194 22% 22%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Power Products 2,038 1,607 27% 22% 8,743 6,879 27% 26%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Power Systems 1,989 1,118 78% 71% 5,733 4,468 28% 28%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Automation 1,948 1,456 34% 26% 7,706 6,210 24% 23%
-------- Products ------ ------ ------ ------ ------ ------ ----- -----
------------
Process 1,381 1,322 4% 0% 6,550 5,400 21% 21%
-------- Automation
------------ ------ ------ ------ ------ ------ ------ ----- -----
Robotics 351 277 27% 20% 1,240 1,496 -17% -18%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Non-core 410 244 68% 60% 1,551 1,059 46% 44%
-------- activities
------------ ------ ------ ------ ------ ------ ------ ----- -----
Corporate -638 -522 -3,122 -2,318
-------- (consolidation)
------------ ------ ------ ------ ------ ------ ------ ----- -----
Revenues Group 7,188 5,917 21% 16% 24,412 22,012 11% 10%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Power Products 2,285 1,861 23% 18% 7,422 6,307 18% 16%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Power Systems 1,429 1,169 22% 16% 4,544 4,085 11% 10%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Automation 1,923 1,553 24% 16% 6,837 5,897 16% 15%
-------- Products
------------ ------ ------ ------ ------ ------ ------ ----- -----
Process 1,591 1,340 19% 13% 5,448 4,996 9% 8%
-------- Automation
------------ ------ ------ ------ ------ ------ ------ ----- -----
Robotics 342 500 -32% -35% 1,288 1,699 -24% -25%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Non-core 359 112 221% 174% 1,369 1,348 2% 1%
-------- activities
------------ ------ ------ ------ ------ ------ ------ ----- -----
Corporate -741 -618 -2,496 -2,320
-------- (consolidation)
------------ ------ ------ ------ ------ ------ ------ ----- -----
EBIT Group 744 522 43% 2,586 1,778 45%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Power Products 290 189 53% 961 616 56%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Power Systems 93 84 11% 279 187 49%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Automation 300 222 35% 1,053 822 28%
-------- Products
------------ ------ ------ ------ ------ ------ ------ ----- -----
Process 164 113 45% 541 398 36%
-------- Automation
------------ ------ ------ ------ ------ ------ ------ ----- -----
Robotics -12 12 n.a. 1 91 -99%
-------- ------------ ------ ------ ------ ------ ------ ------ ----- -----
Non-core -5 15 n.a. 72 65 11%
-------- activities
------------ ------ ------ ------ ------ ------ ------ ----- -----
Corporate -86 -113 24% -321 -401 20%
-------- ------------ ------ ------ ------ ------ ------ -----
EBIT Group 10.4% 8.8% 10.6% 8.1%
margin ------------ ------ ------ ------ ------
(%)
--------
Power Products 12.7% 10.2% 12.9% 9.8%
-------- ------------ ------ ------ ------ ------
Power Systems 6.5% 7.2% 6.1% 4.6%
-------- ------------ ------ ------ ------ ------
Automation 15.6% 14.3% 15.4% 13.9%
-------- Products
------------ ------ ------ ------ ------
Process 10.3% 8.4% 9.9% 8.0%
-------- Automation
------------ ------ ------ ------ ------
Robotics -3.5% 2.4% 0.1% 5.4%
-------- ------------ ------ ------ ------ ------
Non-core n.a. 13.4% 5.3% 4.8%
-------- activities
------------ ------ ------ ------ ------ ------ ------ ----- -----
---------------------------------------------
1 Adjusted to reflect the reclassification of activities to Discontinued
operations
Q4 and full-year 2006 orders received and revenues by region
Q4 2006
$ millions Orders received Change Revenues Change
------------ ----------- ---------- ----------- ----------
Q4 06 Q4 05(1) US$ Local Q4 06 Q4 05(1) US$ Local
------------ ------ ------ ------ ------ ------- ------ ------ ------
Europe 2,949 2,491 18% 12% 3,364 2,634 28% 20%
------------ ------ ------ ------ ------ ------- ------ ------ ------
Americas 1,566 1,004 56% 53% 1,249 1,284 -3% -6%
------------ ------ ------ ------ ------ ------- ------ ------ ------
Asia 1,772 1,380 28% 23% 1,820 1,543 18% 14%
------------ ------ ------ ------ ------ ------- ------ ------ ------
Middle East and
Africa 1,192 627 90% 80% 755 456 66% 56%
------------ ------ ------ ------ ------ ------- ------ ------ ------
Group total 7,479 5,502 36% 30% 7,188 5,917 21% 16%
------------ ------ ------ ------ ------ ------- ------ ------ ------
Full year 2006
2006 20051 US$ Local 2006 20051 US$ Local
------------ ------ ------ ------ ------ ------- ------ ------ ------
Europe 12,547 10,545 19% 18% 11,435 10,709 7% 6%
------------ ------ ------ ------ ------ ------- ------ ------ ------
Americas 5,183 4,443 17% 15% 4,526 4,231 7% 5%
------------ ------ ------ ------ ------ ------- ------ ------ ------
Asia 6,998 5,773 21% 21% 6,103 5,127 19% 18%
------------ ------ ------ ------ ------ ------- ------ ------ ------
Middle East
and 3,673 2,433 51% 52% 2,348 1,945 21% 21%
Africa
------------ ------ ------ ------ ------ ------- ------ ------ ------
Group total 28,401 23,194 22% 22% 24,412 22,012 11% 10%
------------ ------ ------ ------ ------ ------- ------ ------ ------
1 Adjusted to reflect the reclassification of activities to Discontinued
operations
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