Interim Results - Part 2
ABB Ltd
24 July 2002
PART 2
Summary Financial Information
Six Months Ended June 2002
of
ABB Ltd
and Consolidated Subsidiaries
ABB Ltd
Summary Consolidated Income Statements
January - June April - June
2002 2001 2002 2001
(Unaudited)
(in millions, except per share data)
Revenues $ 10,930 $ 11,099 $ 5,781 $ 5,719
Cost of sales (8,335) (8,330) (4,428) (4,348)
Gross profit 2,595 2,769 1,353 1,371
Selling, general and administrative expenses (2,202) (2,108) (1,195) (1,054)
Amortization expense (22) (116) (10) (58)
Other income (expense), net (3) 81 (21) 33
Earnings before interest and taxes 368 626 127 292
Interest and dividend income 186 284 84 142
Interest and other finance expense (341) (413) (190) (233)
Income from continuing operations before taxes and minority interest 213 497 21 201
Provision for taxes (64) (146) (7) (59)
Minority interest (48) (22) (27) (14)
Income (loss) from continuing operations 101 329 (13) 128
Cumulative effect of change in accounting principles (SFAS 133), net of -- (63) -- --
tax
Net income (loss) $ 101 $ 266 $ (13) $ 128
Weighted average number of shares outstanding 1,113 1,151 1,113 1,130
Dilutive potential shares -- 6 -- 6
Diluted weighted average number of shares outstanding 1,113 1,157 1,113 1,136
Basic earnings (loss) per share:
Income (loss) from continuing operations $ 0.09 $ 0.29 $ (0.01) $ 0.11
Net income (loss) $ 0.09 $ 0.23 $ (0.01) $ 0.11
Diluted earnings (loss) per share:
Income (loss) from continuing operations $ 0.09 $ 0.29 $ (0.01) $ 0.11
Net income (loss) $ 0.09 $ 0.23 $ (0.01) $ 0.11
ABB Ltd
Summary Consolidated Balance Sheets
At June 30, At December 31,
2002 2001
(Unaudited) (Audited)
(in millions)
Cash and equivalents $ 2,383 $ 2,767
Marketable securities 2,225 2,946
Receivables, net 9,322 8,368
Inventories, net 3,509 3,075
Prepaid expenses and other 2,528 2,358
Total current assets 19,967 19,514
Financing receivables, non-current 4,629 4,263
Property, plant and equipment, net 3,097 3,003
Goodwill 2,811 2,657
Other intangible assets, net 657 642
Investments and other 2,410 2,265
Total assets $ 33,571 $ 32,344
Accounts payable, trade $ 4,396 $ 3,991
Accounts payable, other 2,770 2,710
Short-term borrowings and current maturities of long-term borrowings 3,982 4,747
Accrued liabilities and other 7,835 7,587
Total current liabilities 18,983 19,035
Long-term borrowings 5,861 5,043
Pension and other related benefits 1,893 1,688
Deferred taxes 1,431 1,360
Other liabilities 2,961 2,989
Total liabilities 31,129 30,115
Minority interest 218 215
Capital stock and additional paid-in capital
(1,280,009,432 shares authorized, 1,200,009,432 2,027 2,028
shares issued)
Retained earnings 3,536 3,435
Accumulated other comprehensive loss (1,589) (1,699)
Treasury stock, at cost (86,875,616 shares) (1,750) (1,750)
Total stockholders' equity 2,224 2,014
Total liabilities and stockholders' equity $ 33,571 $ 32,344
ABB Ltd
Summary Consolidated Statements of Cash Flows
January - June
2002 2001
(Unaudited)
(in millions)
Operating activities
Income from continuing operations $ 101 $ 329
Adjustments to reconcile income from continuing operations to net cash provided by
operating activities:
Depreciation and amortization 291 384
Restructuring provisions (4) (28)
Pension and other related benefits 29 11
Deferred taxes (28) 41
Net gain from sale of property, plant and equipment (10) (6)
Other 42 22
Changes in operating assets and liabilities
Marketable securities (trading) 462 64
Trade receivables 213 (177)
Inventories (202) (531)
Trade payables 78 265
Other assets and liabilities, net (952) (295)
Net cash provided by operating activities $ 20 $ 79
Investing activities
Changes in financing receivables (80) (939)
Purchases of marketable securities (other than trading) (1,544) (1,628)
Purchases of property, plant and equipment (297) (364)
Acquisitions of businesses (net of cash acquired) (64) (504)
Proceeds from sales of marketable securities (other than trading) 1,839 1,823
Proceeds from sales of property, plant and equipment 343 54
Proceeds from sales of businesses (net of cash disposed) 229 32
Net cash provided by (used in) investing activities $ 426 $ (1,526)
Financing activities
Changes in borrowings (747) 3,969
Treasury and capital stock transactions -- (1,247)
Dividends paid -- (502)
Other (50) (44)
Net cash provided by (used in) financing activities $ (797) $ 2,176
Net cash used in discontinued operations (116) (94)
Effects of exchange rate changes on cash and equivalents 83 (77)
Net change in cash and equivalents (384) 558
Cash and equivalents (beginning of year) 2,767 1,397
Cash and equivalents (end of period) $ 2,383 $ 1,955
Interest paid $ 276 $ 364
Taxes paid $ 140 $ 239
ABB Ltd notes to summary consolidated financial statements (unaudited)
(US$ in millions, except per share amounts)
Note 1 Developments in the six months ended June 30, 2002:
• Annual general meeting
At the Company's annual general meeting held on March 12, 2002, the Company's
shareholders approved the resolution to not pay a dividend in 2002. In addition,
shareholders approved the resolution to not effect a capital reduction of 24
million shares purchased during the first half of 2001, as a result of changed
market conditions.
• Restructuring program
In July 2001, the Company announced a restructuring program anticipated to
extend over 18 months. This restructuring program was initiated in an effort to
simplify product lines, reduce multiple location activities and perform other
downsizing in response to consolidation of major customers in certain
industries.
As of June 30, 2002, the Company recognized charges of $82 million relating to
workforce reductions and $18 million relating to lease terminations and other
exit costs associated with the restructuring program. These costs are included
in other income (expense), net. Based on analysis, Management's estimate has
been revised resulting in a $11 million reduction in the amounts accrued for
lease terminations and other exit costs. This revision is recognized as a
component of other income (expense), net. Termination benefits of $75 million
were paid in the first half of 2002 to approximately 2,300 employees and $20
million was paid to cover costs associated with lease terminations and other
exit costs. Workforce reductions include production, managerial and
administrative employees. At June 30, 2002, accrued liabilities included $86
million for termination benefits and $38 million for lease terminations and
other exit costs.
As a result of the Company's restructuring, certain assets have been identified
as impaired or will no longer be used in continuing operations. The Company
recorded $17 million to write down these assets to net realizable value. These
costs are included in other income (expense), net.
• Borrowings
The Company's total borrowings outstanding at December 31, 2001, amounted to
$9,790 million, of which $3,297 million was in the form of commercial paper with
an average interest rate of 2.7%. In March 2002, the Company drew down $2,845
million, at an interest rate of 4.7%, from a $3 billion committed bank facility
established in December 2001, using a portion of these proceeds to reduce its
outstanding commercial paper borrowings to $1,760 million at March 31, 2002. In
the second quarter of 2002, primarily as a result of amounts maturing, the
outstanding commercial paper borrowings were further reduced to $349 million at
June 30, 2002.
In May 2002, the Company issued $968 million aggregate principal amount of
convertible unsubordinated bonds due 2007. The bonds pay interest semi-annually
in arrears at a fixed annual rate of 4.625% and are convertible into the
Company's shares.
Also in May 2002, the Company issued bonds due 2009 with an aggregate principal
amount of 200 million pound sterling, or approximately $292 million, which pay
interest semi-annually in arrears at 10% per annum. In addition, the Company
also issued in May 2002, bonds due 2008 with an aggregate principal amount of
500 million euro, or approximately $466 million, which pay interest annually in
arrears at 9.5% per annum.
Pursuant to the terms of the Company's amended revolving credit facility, the
issuance of the convertible bonds, the euro-denominated bonds and the sterling-
denominated bonds reduced the amount available under the $3 billion committed
bank facility to $1,315 million at June 30, 2002. As a result, the Company
utilized a portion of the proceeds from these bond offerings to reduce the
borrowings under the credit facility to $1,315 million at June 30, 2002.
• Earnings per share
The potential common shares from the convertible bonds, as well as the warrants
and options outstanding in connection with the Company's management incentive
plan, were excluded from the computation of diluted earnings per share in the
2002 periods presented, as their inclusion would have been antidilutive. In the
2001 periods presented, only those warrants and options that were considered
dilutive have been included in the computation of diluted earning per share.
• Commitments and contingencies
Asbestos related claims
A subsidiary of the Company has followed a practice of maintaining a reserve to
cover its estimated settlement costs for asbestos claims and an asset
representing estimated insurance reimbursement. The reserve represents an
estimate of the costs associated with asbestos claims, including defense costs,
based upon historical claims trends, available industry information and
incidence rates of new claims. At December 31, 2001, the subsidiary had reserved
approximately $940 million, for asbestos-related claims. The subsidiary also
recorded receivables of approximately $150 million at December 31, 2001, for
probable insurance recoveries. Allowances against the insurance receivables are
established at such time as it becomes likely that insurance recoveries are not
probable. New claims filed during the first half of 2002 were approximately
29,500, compared to 29,300 in the second half of 2001. Approximately 20,300
claims were settled during the first half of 2002, more than 40% of which were
without payment. The total number of pending claims was approximately 102,700 at
the end of June 2002, compared to 93,500 at year-end 2001. Settlement costs
prior to insurance reimbursement were approximately $107 million, compared to
approximately $69 million in the second half of 2001.
Note 2 Significant Accounting Policies
The summary consolidated financial information is prepared on the basis of
United States (U.S.) Generally Accepted Accounting Principles (USGAAP) and is
presented in U.S. dollars ($) unless otherwise stated. Data for orders and
number of employees are shown for purposes of presenting additional information
and are not a required disclosure under USGAAP.
Par value of capital stock is denominated in Swiss francs (CHF). The summary
financial information as of June 30, 2002, should be read in conjunction with
the December 31, 2001, financial statements contained in the Company's Annual
Report and the Form 20-F.
New accounting standards
In 2001, the Company accounted for the adoption of Statement of Financial
Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments
and Hedging Activities, as amended, as a change in accounting principle. Based
on the Company's derivative positions at January 1, 2001, the Company recognized
the cumulative effect of the accounting change as a loss of $63 million, net of
tax, in the consolidated income statement and a reduction of $41 million, net of
tax, in accumulated other comprehensive income (loss).
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations, and Statement of
Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible
Assets, which modify the accounting for business combinations, goodwill and
identifiable intangible assets. All business combinations initiated after June
30, 2001, must be accounted for by the purchase method. Goodwill from
acquisitions completed after that date will not be amortized, but will be
charged to operations when specified tests indicate that the goodwill is
impaired, that is, when the goodwill's fair value is lower than its carrying
value. Certain intangible assets will be recognized separately from goodwill,
and will be amortized over their useful lives. During 2002, all goodwill must be
tested for impairment as of January 1, 2002, and a transition adjustment must be
recognized for any impairment found. The Company has completed this test in the
second quarter of 2002 and has determined that no impairment of goodwill existed
at January 1, 2002. All goodwill amortization also ceased at that date. The
Company recognized goodwill amortization expense of $90 million and $44 million
in the six months and three months ended June 30, 2001, respectively.
Accordingly, income from continuing operations and net income would have been
$419 million ($0.36 per share) and $356 million ($0.31 per share), respectively,
in the six months ended June 30, 2001, and $172 million ($0.15 per share) and
$172 million ($0.15 per share), respectively, in the three months ended June 30,
2001, if the Company had not recognized amortization expense for goodwill that
is no longer being amortized in accordance with SFAS 142.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment
or Disposal of Long-Lived Assets. This Statement supersedes Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-lived Assets to Be Disposed Of, while retaining many
of its requirements regarding impairment loss recognition and measurement. In
addition, the new Statement requires the use of one accounting model for long-
lived assets to be disposed of by sale and broadens the presentation of
discontinued operations to include more disposal transactions. The Company
adopted this statement on January 1, 2002. In the first half of 2002 no sale
transactions were affected by SFAS 144, although the Company expects to present
more disposals as discontinued operations in the future.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections, which
rescinds previous requirements to reflect all gains and losses from debt
extinguishment as extraordinary. The Company has elected to adopt the new
standard effective April 1, 2002, and, as a result, the gains from
extinguishment of debt of $6 million, net of tax, recorded as extraordinary
items in the first quarter of 2002 have been reclassified and included in income
from continuing operations.
Note 3 Summary of Consolidated Stockholders' Equity
Stockholders' equity at January 1, 2002 $ 2,014
Comprehensive income:
Net income 101
Foreign currency translation adjustments 21
Unrealized gain on available-for-sale securities, net of tax (35)
Derivatives qualifying as hedges (SFAS 133), net of tax 124
Total comprehensive income 211
Other (1)
Stockholders' equity at June 30, 2002 (unaudited) $ 2,224
Note 4 Segment and Geographic Data
During 2001, the Company realigned its worldwide enterprise around customer
groups, replacing its former business segments with four end-user divisions, two
channel partner divisions, and a financial services division. The four end-user
divisions - Utilities, Process Industries, Manufacturing and Consumer
Industries, and Oil, Gas and Petrochemicals - serve end-user customers with
products, systems and services. The two channel partner divisions - Power
Technology Products and Automation Technology Products - serve external channel
partners such as wholesalers, distributors, original equipment manufacturers and
system integrators directly and end-user customers indirectly through the end-
user divisions. The Financial Services division provides services and project
support for the Company as well as for external customers.
In April 2002, the Company announced its intention to divest the Building
Systems business area, previously part of the Manufacturing and Consumer
Industries division, in line with Company's strategy to focus on power and
automation technologies for utility and industry customers. In addition, the
Company has merged its Process Industries division and its Manufacturing and
Consumer Industries division to form a new Industries division, consisting of
the following business areas: Automotive Industries; Manufacturing; Electronics
and Consumer Industries; Marine and Turbocharging; Paper, Printing, Metals and
Minerals; and Petroleum, Chemicals and Life Sciences. Segment data are presented
below to reflect this change and prior period data have been restated
accordingly.
• The Utilities division serves electric, gas and water utilities - whether state-
owned or private, global or local, operating in liberalized or regulated markets
- with a portfolio of products, services and systems. The division's principal
customers are generators of power, owners and operators of power transmission
systems, energy traders and local distribution companies.
• The Industries division serves the automotive, cement, chemical, distribution,
electronics, food and beverage, life sciences, marine, metals, mining, paper,
petroleum, printing and telecommunications industries with application-specific
power and automation technology.
• The Oil, Gas and Petrochemicals division supplies a comprehensive range of
products, systems and services to the global oil, gas and petrochemicals
industries, from the development of onshore and offshore exploration
technologies to the design and supply of production facilities, refineries and
petrochemicals plants.
• The Power Technology Products division covers the entire spectrum of technology
for power transmission and power distribution including transformers,
switchgear, breakers, capacitors and cables as well as other products, platforms
and technologies for high- and medium-voltage applications. Power technology
products are used in industrial, commercial and utility applications. They are
sold through the Company's end user divisions as well as through external
channel partners, such as distributors, contractors and original equipment
manufacturers and system integrators.
• The Automation Technology Products division provides products, software and
services for the automation and optimisation of industrial and commercial
processes. Key technologies include measurement and control, instrumentation,
process analysis, drives and motors, power electronics, robots, and low-voltage
products, all geared toward one common industrial IT architecture for real-time
automation and information solutions throughout a business. These technologies
are sold to customers through the end-user divisions as well as through external
channel partners such as wholesalers, distributors, original equipment
manufacturers and system integrators.
• The Financial Services division supports the Company's business and customers
with financial solutions in structured finance, leasing, project development and
ownership, financial consulting, insurance and treasury activities. In April
2002, the Company announced its intention to divest the Structured Finance
business, expected to take place in the third quarter of 2002.
The Company evaluates performance of its divisions based on earnings before
interest and taxes (EBIT), which excludes interest and dividend income, interest
expense, provision for taxes, minority interest, and income from discontinued
operations, net of tax. In accordance with Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, the Company presents division revenues, depreciation and
amortization, and EBIT, all of which have been restated to reflect the changes
to the Company's internal structure, including the effect of increased inter-
division transactions. Accordingly, division revenues and EBIT are presented as
if certain historical third-party sales by subsidiaries in the product divisions
had been routed through other divisions as they would have been under the new
customer-centric structure. Management has restated historical division
financial information in this way to allow analysis of trends in division
revenues and margins on a basis consistent with the Company's new internal
structure and transaction flow.
Segment data
Orders received Revenues
January - June January - June
2002 2001 2002 2001
Utilities $ 2,729 $ 3,062 $ 2,330 $ 2,551
Industries 2,403 2,771 2,044 2,438
Oil, Gas and Petrochemicals 2,120 1,990 1,976 1,548
Power Technology Products 2,284 2,134 2,148 1,814
Automation Technology Products 2,771 2,687 2,640 2,572
Financial Services 764 1,019 764 1,019
Corporate/ Other (1) (1,204) (1,015) (972) (843)
Total $ 11,867 $ 12,648 $ 10,930 $ 11,099
EBIT (operating income) Depreciation and amortization
January - June January - June
2002 2001 2002 2001
Utilities $ 66 $ 86 $ 25 $ 36
Industries 85 100 24 46
Oil, Gas and Petrochemicals 76 88 19 37
Power Technology Products 157 132 57 58
Automation Technology Products 198 219 83 115
Financial Services 153 203 8 12
Corporate/Other (1) (367) (202) 75 80
Total $ 368 $ 626 $ 291 $ 384
Number of employees
June 30, 2002 December 31, 2001
Utilities 15,941 15,745
Industries 22,584 23,392
Oil, Gas and Petrochemicals 13,604 13,471
Power Technology Products 27,508 27,555
Automation Technology Products 38,815 39,834
Financial Services 1,227 1,220
Corporate/Other 30,245 35,648
Total 149,924 156,865
(1) Includes adjustments to eliminate inter-division transactions.
Geographic Information
Orders received 1) Revenues 1)
January - June January - June
2002 2001 2002 2001
Europe $ 5,959 $ 6,595 $ 5,705 $ 6,068
The Americas 3,621 3,223 2,511 2,879
Asia 1,258 1,293 1,360 1,192
Middle East and Africa 1,029 1,537 1,354 960
Total $ 11,867 $ 12,648 $ 10,930 $ 11,099
1) Orders received and revenues have been reflected in the regions based on the location of the customer.
Note 5 Summary balance sheets of ABB Ltd Consolidated, ABB Group and Financial Services (unaudited)
In the balance sheet data appearing on this page, 'ABB Ltd Consolidated' means the accounts of ABB Ltd and all its
subsidiaries presented in a summarized form on the basis of USGAAP, with all significant intercompany balances
eliminated in consolidation. The balance sheet data for 'Financial Services' and 'ABB Group' is reported on the same
basis as management uses to evaluate segment performance which includes the following adjustments:
- 'Financial Services' represents the accounts of all subsidiaries in the Company's Financial Services division, with
net intercompany balances and certain capital contributions received from other subsidiaries of the Company presented
on a one-line basis.
- 'ABB Group' represents the accounts of ABB Ltd and all its subsidiaries other than those in the Company's Financial
Services division, with net intercompany balances and the Company's investment in its Financial Services division
presented on a one-line basis. For the purposes of this presentation, the Company's investment in its Financial
Services division is accounted for under the equity method of accounting.
ABB Ltd Consolidated ABB Group 1) Financial Services
US $ in millions
Jun 30, 2002 Dec 31, 2001 Jun 30, 2002 Dec 31, 2001 Jun 30, 2002 Dec 31,
2001
Cash and $ 4,608 $ 5,713 $ 1,444 $ 1,667 $ 3,164 $ 4,046
equivalents and
marketable
securities
Receivables, net 9,322 8,368 6,428 5,810 2,894 2,558
Inventories, net 3,509 3,075 3,508 3,074 1 1
Prepaid expenses 2,528 2,358 1,275 1,169 1,253 1,189
and other
Total current 19,967 19,514 12,655 11,720 7,312 7,794
assets
Financing 4,629 4,263 280 452 4,349 3,811
receivables,
non-current
Property, plant 3,097 3,003 3,001 2,938 96 65
and equipment, net
Goodwill 2,811 2,657 2,733 2,586 78 71
Other intangible 657 642 647 631 10 11
assets, net
Investments and 2,410 2,265 1,680 1,601 730 664
other
Net intercompany - - 473 - 1,187 2,106
balances
Total assets $ 33,571 $ 32,344 $ 21,469 $ 19,928 $ 13,762 $ 14,522
Accounts payable, $ 4,396 $ 3,991 $ 4,323 $ 3,956 $ 73 $ 35
trade
Accounts payable, 2,770 2,710 1,650 1,641 1,120 1,069
other
Short-term 3,982 4,747 1,909 240 2,073 4,507
borrowings 2)
Accrued 7,835 7,587 4,335 4,285 3,500 3,302
liabilities and
other
Total current 18,983 19,035 12,217 10,122 6,766 8,913
liabilities
Long-term 5,861 5,043 1,923 2,020 3,938 3,023
borrowings
Pension and other 1,893 1,688 1,885 1,681 8 7
related benefits
Deferred taxes 1,431 1,360 553 575 878 785
Other liabilities 2,961 2,989 2,449 2,529 512 460
Net intercompany - - - 773 - -
balances
Total liabilities 31,129 30,115 19,027 17,700 12,102 13,188
Minority interest 218 215 218 214 - 1
Total 2,224 2,014 2,224 2,014 1,660 1,333
stockholders'
equity
Total liabilities $ 33,571 $ 32,344 $ 21,469 $ 19,928 $ 13,762 $ 14,522
and stockholders'
equity
1) ABB Industrial operations/holdings with equity accounting of participation in Financial Services
2) Includes current maturities of long-term borrowings
Certain amounts have been reclassified to conform to the Company's current year presentation.
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