Interim Results - Part 2
ABB Ltd
29 July 2003
Summary Financial Information
Six Months Ended June 2003
ABB Ltd
Summary Consolidated Income Statements
January - June April - June
2003 2002 2003 2002
(restated) (restated)
-------- all amounts are unaudited --------
(in millions, except per share data)
Revenues $ 9'556 $ 8'485 $ 5'061 $ 4'534
Cost of sales (7'115) (6'173) (3'720) (3'330)
Gross profit 2'441 2'312 1'341 1'204
Selling, general (2'035) (1'997) (1'062) (1'090)
and administrative
expenses
Amortization (21) (20) (11) (10)
expense
Other income (122) 127 (97) 46
(expense), net
Earnings before 263 422 171 150
interest and
taxes
Interest and 70 104 30 51
dividend income
Interest and (292) (236) (122) (125)
other finance
expense
Income from 41 290 79 76
continuing
operations before
taxes and
minority interest
Provision for (14) (88) (27) (21)
taxes
Minority interest (30) (28) (20) (14)
Income (loss) (3) 174 32 41
from continuing
operations
Income (loss) (97) 19 (87) (3)
from discontinued
operations, net
of tax
Net income (loss) $ (100) $ 193 $ (55) $ 38
Basic earnings
(loss) per share:
Income from $ 0.00 $ 0.16 $ 0.03 $ 0.04
continuing
operations
Net income (loss) $ (0.09) $ 0.17 $ (0.05) $ 0.03
Diluted earnings
(loss) per share:
Income from $ 0.00 $ 0.14 $ 0.03 $ 0.02
continuing
operations
Net income (loss) $ (0.09) $ 0.16 $ (0.05) $ 0.02
ABB Ltd
Summary Consolidated Balance Sheets
At At At
June 30 March 31 December 31
2003 2003 2002
---------- all amounts are unaudited ----------
(in millions, except share data)
Cash and equivalents $ 2'025 $ 1'739 $ 2'446
Marketable securities 2'088 2'042 2'135
Receivables, net 7'129 6'925 6'975
Inventories, net 2'626 2'508 2'306
Prepaid expenses and other 2'084 1'990 2'680
Assets held for sale and in discontinued operations 3'765 3'650 3'489
Total current assets 19'717 18'854 20'031
Financing receivables, non-current 1'604 1'677 1'798
Property, plant and equipment, net 2'801 2'766 2'778
Goodwill 2'351 2'314 2'291
Other intangible assets, net 572 580 590
Prepaid pension and other related benefits 533 531 537
Investments and other 1'210 1'550 1'508
Total assets $ 28'788 $ 28'272 $ 29'533
Accounts payable, trade $ 2'969 $ 2'793 $ 2'824
Accounts payable, other 2'026 1'819 2'104
Short-term borrowings and current maturities of 3'596 3'286 2'576
long-term borrowings
Accrued liabilities and other 6'840 7'015 8'179
Liabilities held for sale and in discontinued 2'727 2'742 2'796
operations
Total current liabilities 18'158 17'655 18'479
Long-term borrowings 4'708 4'869 5'375
Pension and other related benefits 1'701 1'690 1'643
Deferred taxes 1'080 1'159 1'158
Other liabilities 1'650 1'583 1'607
Total liabilities 27'297 26'956 28'262
Minority interest 214 238 258
Stockholders' equity:
Capital stock and additional paid-in capital 571 571 2'027
(1,600,009,432 authorized, contingent and issued
shares; 1,200,009,432 shares issued at June 30, 2003)
Retained earnings 2'514 2'569 2'614
Accumulated other comprehensive loss (1'670) (1'924) (1'878)
Less: Treasury stock, at cost (6,830,312 shares at (138) (138) (1'750)
June 30, 2003)
Total stockholders' equity 1'277 1'078 1'013
Total liabilities and stockholders' equity $ 28'788 $ 28'272 $ 29'533
ABB Ltd
Summary Consolidated Statements of Cash Flows
January - June April - June
2003 2002 2003 2002
(restated) (restated)
-------- all amounts are unaudited --------
(in millions)
Operating
activities
Net income (loss) $ (100) $ 193 $ (55) $ 38
Adjustments to
reconcile net
income (loss) to
net cash
provided by
(used in)
operating
activities:
Depreciation and 290 291 146 139
amortization
Provisions* (640) (341) (170) (195)
Pension and (50) 29 (48) 28
post-retirement
benefits
Deferred taxes (85) (28) (48) (34)
Net gain from (12) (11) (1) (8)
sale of
property, plant
and equipment
Other 162 (38) 94 49
Changes in
operating assets
and liabilities:
Marketable 35 463 (11) 397
securities
(trading)
Trade receivables (44) 213 69 (134)
Inventories (125) (202) 8 (38)
Trade payables (47) 78 (10) 111
Other assets and (337) (656) 1 (181)
liabilities, net
Net cash (953) (9) (25) 172
provided by
(used in)
operating
activities
Investing
activities
Changes in 159 (149) 38 73
financing
receivables
Purchases of (1'885) (1'544) (1'092) (708)
marketable
securities
(other than
trading)
Purchases of (230) (297) (130) (145)
property, plant
and equipment
Acquisitions of (44) (64) (30) (54)
businesses (net
of cash acquired)
Proceeds from 2'003 1'839 1'174 736
sales of
marketable
securities
(other than
trading)
Proceeds from 62 343 17 320
sales of
property, plant
and equipment
Proceeds from 257 229 243 59
sales of
businesses (net
of cash disposed)
Net cash 322 357 220 281
provided by
investing
activities
Financing
activities
Changes in (52) (834) 35 (2'170)
borrowings
Treasury and 156 -- -- --
capital stock
transactions
Other 42 18 27 18
Net cash 146 (816) 62 (2'152)
provided by
(used in)
financing
activities
Effects of 61 84 49 90
exchange rate
changes on cash
and equivalents
Adjustment for 3 (20) (20) (36)
the net change
in cash and
equivalents in
discontinued
operations
Net change in (421) (404) 286 (1'645)
cash and
equivalents -
continuing
operations
Cash and 2'446 2'412 1'739 3'653
equivalents
beginning of
period
Cash and $ 2'025 $ 2'008 $ 2'025 $ 2'008
equivalents end
of period
Interest paid $ 226 $ 276 $ 97 $ 139
Taxes paid $ 107 $ 139 $ 53 $ 96
* Reclassified to reflect the change in all provisions (previously this line was comprised of restructuring
provisions only)
ABB Ltd notes to summary consolidated financial statements (unaudited)
(US$ in millions, except per share data)
Note 1 Developments in the six months ended June 30, 2003:
• Annual general meeting
At the Company's annual general meeting held on May 16, 2003, the Company's
shareholders approved amendments to its articles of incorporation providing for
authorized share capital and an extension in contingent share capital.
The amendments include the creation of CHF 250 million in authorized share
capital, replacing CHF 100 million that expired in June 2001. This entitles the
Company's board of directors to issue up to 100 million new ABB shares, of which
some 30 million are reserved for use with the pre-packaged plan of
reorganization of the Company's U.S. subsidiary, Combustion Engineering, Inc.
The amendments also include an increase of contingent capital from CHF 200
million to CHF 750 million, allowing the issue of up to a further 300 million
new ABB shares.
• Sale of treasury shares
In March 2003, the Company sold approximately 80 million treasury shares in two
transactions for approximately $156 million.
• Divestitures
In March 2003, the Company sold its aircraft leasing business for approximately
$90 million, resulting in a loss on sale of $30 million recorded in other income
(expense), net.
In May 2003, the Company sold its interest in Sinopec Corp. in China, previously
recorded as marketable securities, for approximately $82 million, resulting in a
loss on sale of $40 million recorded in interest and other finance expense.
In June 2003, the Company sold its interests in certain investees in Australia
for approximately $90 million, resulting in a gain on sale of $28 million
recorded in other income (expense), net.
In June 2003, the Company sold its entire 35% interest in Swedish Export Credit
Corporation to the Government of Sweden for SEK 1,240 million, resulting in net
proceeds of approximately $149 million and a loss on sale of $87 million
recorded in other income (expense), net.
• Reclassifications and restatements
Amounts in prior periods have been reclassified to conform to the Company's
current presentation.
On April 17, 2003, Swedish Export Credit Corporation, an equity accounted
investee of the Company, filed an amendment to its Annual Report on Form 20-F
for the fiscal year ended December 31, 2001, to correct an error in its
accounting for the fair value of certain financial instruments. Amounts
presented in these summary consolidated financial statements include the effect
of adjustments recorded by Swedish Export Credit Corporation in the period ended
June 30, 2002, to properly account for such instruments in accordance with
accounting principles generally accepted in the United States. The effect of
such adjustments resulted in a gain of $119 million and $63 million in the first
half of 2002 and second quarter of 2002, respectively. These adjustments are
recorded in other income (expense), net, and were not reflected in previously
disclosed 2002 summary financial information.
In February 2003, the United States Securities and Exchange Commission provided
the Company with clarification regarding a component of the Company's
convertible bonds, issued in May 2002, which must be accounted for as a
derivative. Amounts presented in these summary consolidated financial statements
include a gain of $26 million in interest and other finance expense in both the
first half and second quarter of 2002 to properly account for such derivatives
in accordance with the clarification. These adjustments were not reflected in
the June 30, 2002, summary financial info released on July 24, 2002.
• Restructuring program
The 2001 program initiated in July 2001 in an effort to improve productivity,
reduce cost base, simplify product lines, reduce multiple location activities
and perform other downsizing in response to weakening markets and consolidation
of major customers in certain industries continues to be paid out in 2003.
In the first half of 2003, the Company paid termination benefits of $73 million
to approximately 1,300 employees and $6 million to cover costs associated with
lease terminations and other exit costs related to the 2001 program. Based on
changes in management's original estimate, a $4 million increase in the amounts
accrued for workforce reductions, lease terminations and other exit costs have
been included in other income (expense), net. Currency fluctuations resulted in
a $12 million increase in the liabilities accrued for workforce reductions,
lease terminations and other exit costs. At June 30, 2003, accrued liabilities
included $32 million for termination benefits and $51 million for lease
terminations and other exit costs. The 2001 program was substantially completed
during 2002 and the remaining liability will be used through 2003.
In October 2002, the Company announced the Step change program. The Company
estimates that restructuring charges under the Step change program will be
approximately $300 million and $200 million, in 2003 and 2004, respectively. The
goals of the Step change program are to increase competitiveness of the
Company's core businesses, reduce overhead costs and streamline operations by
approximately $900 million on an annual basis by 2005. The Step change program
is expected to be completed by mid-2004.
In the first half of 2003, related to Step change program, the Company
recognized restructuring charges of $70 million related to workforce reductions
and $11 million related to lease terminations and other exit costs associated
with the Step change program. Based on changes in management's original estimate
a $2 million increase in the amounts accrued for workforce reductions, lease
terminations and other exit costs have been included in other income (expense),
net. Termination benefits of $45 million were paid to approximately 580
employees and $3 million were paid to cover costs associated with lease
terminations and other exit costs. Workforce reductions include production,
managerial and administrative employees. Currency fluctuations resulted in a $4
million increase in the liabilities accrued for workforce reductions, lease
terminations and other exit costs. At June 30, 2003, accrued liabilities
included $67 million for termination benefits and $35 million for lease
terminations and other exit costs.
In the first half of 2003 related to other restructuring programs the Company
recognized restructuring charges of $28 million related to workforce reductions,
lease terminations and other exit costs. $4 million were paid to cover employee
termination benefits and costs associated with lease terminations and other exit
costs. Termination benefits were paid to approximately 230 employees. Workforce
reductions include production, managerial and administrative employees. At June
30, 2003, accrued liabilities included $20 million for termination benefits and
$4 million for lease terminations and other exit costs.
• Borrowings
The Company's total borrowings outstanding at June 30, 2003, and December 31,
2002, amounted to $8,304 million and $7,951 million, respectively. In December
2002, the Company established a new $1.5 billion 364-day revolving credit
facility. This facility includes a 364-day term-out option whereby up to a
maximum amount of $750 million (less half of the proceeds from any issuance of
certain long-term debt instruments) may be extended for up to a further 364 days
in the form of term loans. As of December 31, 2002, nothing had been drawn under
this new facility. In 2003, amounts have been drawn under the facility within
the facility's monthly drawing limits and at June 30, 2003, an amount of $1,442
million was outstanding under the facility.
The facility is secured by a package of ABB assets, including the shares of the
Oil, Gas and Petrochemicals division (which is earmarked for divestment and is
included in assets and liabilities held for sale and in discontinued
operations), specific stand-alone businesses and certain regional holding
companies. The facility is also secured by certain intra-group loans.
The facility contains certain financial covenants including minimum interest
coverage, maximum gross debt level, a minimum level of consolidated net worth as
well as minimum levels of disposal proceeds for specified assets and businesses
during 2003.
• Accounting for the convertible bonds
In May 2002, the Company issued $968 million aggregate principal amount of
convertible unsubordinated bonds due 2007. The Company's shares to be issued if
the bonds are converted are denominated and traded in Swiss francs while the
bonds are denominated in U.S. dollars. Therefore, under Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, and as clarified in discussions between the Company and
the United States Securities and Exchange Commission, a component of the
convertible bonds must be accounted for as a derivative. A portion of the
issuance proceeds is deemed to relate to the value of the derivative on issuance
and subsequent changes in value of the derivative are recorded through earnings
and as an adjustment to the carrying value of the bond. The allocation of a
portion of the proceeds to the derivative creates a discount on issuance which
is amortized to earnings over the life of the bond. Through December 31, 2002,
as a result of the decline in the Company's share price since issuance of the
bonds, the Company recorded a gain from the change in fair value of the
derivative, partially offset by amortization of the effective discount,
resulting in a net decrease to interest and other finance expense of $215
million, with a corresponding reduction in long-term borrowings. At June 30,
2003, as a result of an increase in the value of the derivative since the year-
end, combined with the continued amortization of the discount on issuance, there
was a charge to earnings of $36 million for the first half of 2003 and a
corresponding increase in long-term borrowings, when compared to the December
31, 2002 balance.
• Discontinued operations and businesses held for sale
The following divestments and discontinuations are accounted for in accordance
with Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting
for the Impairment or Disposal of Long-Lived Assets, issued in August 2001 by
the Financial Accounting Standards Board. The balance sheet and income statement
data for all periods presented have been restated to present the financial
position and results of operations of the businesses meeting the criteria of
SFAS 144 as discontinued operations. In addition the balance sheet data for all
periods presented have been restated to present the financial position of the
businesses meeting the criteria of SFAS 144 as assets and liabilities held for
sale. In the statement of cash flows the effects of the discontinued operations
are not segregated, as permitted by Statement of Financial Accounting Standards
No. 95, Statement of Cash Flows.
In November 2002, the Company sold the majority of its Structured Finance
business to GE Commercial Finance for total cash proceeds of approximately $2.0
billion. The Structured Finance portfolio divested includes global
infrastructure financing, equipment leasing and financing businesses. The
divestment of this activity is in line with the Company's strategy to focus on
power and automation technologies for industry and utility customers. In
addition, the sale of Structured Finance was an important step in the Company's
ongoing program to strengthen the balance sheet and reduce total debt. The
results of operations of this business are reflected as discontinued operations.
Also in December 2002, the Company sold its Metering business to Ruhrgas
Industries GmbH of Germany, for total cash proceeds of approximately $223
million. Water and electricity metering is no longer a core business for the
Company, and its divestment was part of the Company's strategy to focus on power
and automation technologies for industry and utility customers. The results of
operations of this business are reflected as discontinued operations. In the
fourth quarter of 2002, the Company committed to sell its Oil, Gas and
Petrochemical business which has been reflected as discontinued operations as of
December 31, 2002. In addition, the Company has also discontinued certain other
minor operations and projects.
At June 30, 2003, the Company's Building Systems business in Sweden, Norway,
Denmark, Finland, Russia, the Baltics and Switzerland met the criteria of SFAS
144 to treat their assets and liabilities as held for sale for all periods
presented.
The loss from discontinued operations, including taxes, of $97 million recorded
in the first half of 2003 includes revenues of $1,825 million.
At June 30, 2003, the major classes of assets held for sale and in discontinued
operations were: $333 million of cash, cash equivalents and marketable
securities; $1,624 million of receivables; $448 million of inventories; $227
million of prepaid expenses and other; $86 million of financing receivables;
$161 million of property, plant and equipment; $514 million of goodwill, $82
million of other intangible assets; $62 million of prepaid pension and other
related benefits; and $228 million of investments and other. At June 30, 2003,
the major classes of liabilities held for sale and in discontinued operations
were: $1,777 million of accounts payable; $73 million of borrowings; $507
million of accrued liabilities and other; $104 million of pension and post-
retirement benefits; $47 million of deferred tax liabilities; and $219 million
of other liabilities.
In July 2003, the Company announced its agreement to sell its Building Systems
business in Sweden, Norway, Denmark, Finland, Russia and the Baltics to YIT
Corporation of Helsinki, Finland, for approximately $233 million.
• Earnings per share
The potential common shares from the warrants and options outstanding in
connection with the Company's management incentive plan, were excluded from the
computation of diluted earnings (loss) per share in all periods presented, as
their inclusion would have been antidilutive. The potential common shares from
the convertible bonds were excluded from the computation of diluted earning
(loss) per share in the three and six months ended June 30, 2003, as their
inclusion would have been antidilutive.
January - June April - June
Basic earnings (loss) 2003 2002 2003 2002
per share
(in millions, except per share data)
Income (loss) from $ (3) $ 174 $ 32 $ 41
continuing operations
Income (loss) from (97) 19 (87) (3)
discontinued
operations, net of tax
Net income (loss) $ (100) $ 193 $ (55) $ 38
Weighted average 1'160 1'113 1'193 1'113
number of shares
outstanding
Basic and diluted
earnings (loss) per
share:
Income from continuing $ 0.00 $ 0.16 $ 0.03 $ 0.04
operations
Income (loss) from (0.09) 0.01 (0.08) (0.01)
discontinued
operations, net of tax
Net income (loss) $ (0.09) $ 0.17 $ (0.05) $ 0.03
January - June April - June
Diluted earnings 2003 2002 2003 2002
(loss) per share
(in millions, except per share data)
Income (loss) from $ (3) $ 174 $ 32 $ 41
continuing operations
Effect of dilution:
Convertible bonds, net -- (14) -- (14)
of tax
Income (loss) from (3) 160 32 27
continuing operations,
adjusted
Income (loss) from (97) 19 (87) (3)
discontinued
operations, net of tax
Net income (loss) $ (100) $ 179 $ (55) $ 24
Weighted average 1'160 1'113 1'193 1'113
number of shares
outstanding
Dilution from -- 21 -- 42
convertible bonds
Diluted weighted 1'160 1'134 1'193 1'155
average number of
shares outstanding
Diluted earnings
(loss) per share:
Income from continuing $ 0.00 $ 0.14 $ 0.03 $ 0.02
operations
Income (loss) from $ (0.09) $ 0.02 $ (0.08) $ 0.00
discontinued
operations, net of tax
Net income (loss) $ (0.09) $ 0.16 $ (0.05) $ 0.02
• Stock-based compensation
The Company maintains a management incentive plan under which it offers stock
warrants to key employees, for no consideration. The Company accounts for the
warrants using the intrinsic value method of APB Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees, as permitted by Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock Based
Compensation. All warrants were issued with exercise prices greater than the
market prices of the stock on the dates of grant. Accordingly, the Company has
recorded no compensation expense related to the warrants, except in
circumstances when a participant ceases to be employed by a consolidated
subsidiary, such as after a divestment by the Company. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS 123 to stock-based
employee compensation. Fair value of the warrants was determined on the date of
grant by using the Binomial option model.
January - June April - June
2003 2002 2003 2002
(in millions, except per share data)
Net income (loss), as $ (100) $ 193 $ (55) $ 38
reported
Less: Total stock-based (9) (11) (4) (6)
employee compensation
expense determined
under fair value method
for all awards, net of
related tax effects
Pro forma net income $ (109) $ 182 $ (59) $ 32
(loss)
Basic and diluted
earnings (loss) per
share:
Basic - as reported $ (0.09) $ 0.17 $ (0.05) $ 0.03
Basic - pro forma $ (0.09) $ 0.16 $ (0.05) $ 0.03
Diluted - as reported $ (0.09) $ 0.16 $ (0.05) $ 0.02
Diluted - pro forma $ (0.09) $ 0.15 $ (0.05) $ 0.02
• Commitments and contingencies - subject to amendment
Asbestos
On July 10, a U.S. bankruptcy court approved a pre-packaged Chapter 11
protection plan filed earlier in the year by a U.S. subsidiary of the Company,
Combustion Engineering, marking further progress towards a settlement of the
asbestos issue. Following the court's approval, an appeals period began before
the U.S. District Court. The District Court has scheduled a hearing for July 31,
2003. The Company remains confident that the District Court will confirm the
plan.
Note 2 Significant Accounting Policies
The summary consolidated financial information is prepared on the basis of
accounting principles generally accepted in the United States (USGAAP) and is
presented in US dollars ($) unless otherwise stated. Data for orders and number
of employees are shown as additional information and are not required disclosure
under USGAAP. The accompanying summary financial information is unaudited;
however, in the opinion of management it includes all normal adjustments
necessary for a fair presentation of the unaudited financial position of the
Company at June 30, 2003, and the consolidated results of its operations and
cash flows for the three and six months ended June 30, 2003 and 2002. Results of
operations reported for interim periods are not necessarily indicative of
results for the entire year.
The Company considers earnings before interest and taxes (EBIT), which excludes
interest and dividend income, interest expense, provision for taxes, minority
interest and discontinued operations, net of tax, to be the most relevant
measure of the Company's and its divisions' financial and operational
performance. Accordingly, the Company evaluates itself and its divisions based
on EBIT (operating income).
Par value of capital stock is denominated in Swiss francs. The summary financial
information as of June 30, 2003, should be read in conjunction with the December
31, 2002, financial statements contained in the ABB Group Annual Report 2002 and
the Company's Annual Report on Form 20-F for the fiscal year ended December 31,
2002. The audit report on these financial statements contains an explanatory
paragraph that describes conditions that raise substantial doubt about the
Company's ability to continue as a going concern, as described in notes 1 and 17
to the 2002 consolidated financial statements.
New accounting standards
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143 (SFAS 143), Accounting for Asset
Retirement Obligations, which is effective for fiscal years beginning after June
15, 2002, and requires that the fair value of a legal obligation associated with
the retirement of tangible long-lived assets be recognized in the period in
which it is incurred. The associated asset retirement costs are capitalized as
part of the carrying amount of the asset and allocated to expense over its
useful life. The Company adopted SFAS 143 effective January 1, 2003. The
adoption of SFAS 143 did not have a material impact on the Company's results of
operations.
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 broadens the presentation of discontinued operations
to include more sold and abandoned businesses. The Company adopted this
statement effective January 1, 2002, and, as a result, reflected the assets,
liabilities and results of operations of certain businesses and groups of assets
as discontinued operations and also reflected the assets and liabilities of
certain businesses and groups of assets as assets and liabilities held for sale
for all periods presented to the extent these businesses and groups of assets
meet the new criteria. Disposals and abandonments in previous years were not re-
evaluated or reclassified.
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 elected to early adopt the new
standard effective April 1, 2002, and, as a result, the gains from
extinguishment of debt of $6 million recorded as extraordinary items in the
first quarter of 2002 are no longer reflected in extraordinary items.
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. The standard is effective January 1, 2003, and has been applied to
restructuring plans initiated after that date.
In November 2002, the Financial Accounting Standards Board issued Interpretation
No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45
requires the guarantor to recognize a liability for the non-contingent component
of a guarantee; that is the obligation to stand ready to perform in the event
that specified triggering events or conditions occur. The initial measurement of
this liability is the fair value of the guarantee at its inception. The
recognition of the liability is required even if it is not probable that
payments will occur under the guarantee or if the guarantee was issued with a
premium payment or as part of a transaction with multiple elements. FIN 45 also
requires additional disclosures related to guarantees. The Company has adopted
the disclosure requirements of FIN 45 as of December 31, 2002. The recognition
measurement provisions of FIN 45 are effective for all guarantees entered into
or modified after December 31, 2002. The Company has adopted the accounting and
measurement requirements of FIN 45 as of January 1, 2003.
In December 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 148 (SFAS 148), Accounting for Stock-Based
Compensation - Transition and Disclosure. An Amendment of FASB Statement No.
123. The Company has elected to continue with its current practice of applying
the recognition and measurement principles of APB No. 25, Accounting for Stock
Issued to Employees. The Company has adopted the disclosure requirements of SFAS
148 as of December 31, 2002.
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 requires
existing unconsolidated variable interest entities (VIEs) to be consolidated by
their primary beneficiaries if the entities do not effectively disperse risks
among the parties involved. FIN 46 applies immediately to VIEs created after
January 31, 2003, and to VIEs in which an enterprise obtains an interest after
that date. For VIEs in which an enterprise holds a variable interest that was
acquired before February 1, 2003, FIN 46 applies for periods beginning after
June 15, 2003. The Company has substantially completed its assessment of the
effects of the adoption of FIN 46 for all VIEs created before February 1, 2003,
and it does not expect such effects to be material to its consolidated financial
position.
In November 2002, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued Emerging Issues Task Force No. 00-21 (EITF 00-21),
Accounting for Revenue Arrangements with Multiple Deliverables, which was
amended in January 2003 and requires that (a) revenue should be recognized
separately for separate units of accounting in multiple deliverables
arrangement, (b) revenue for a separate unit of accounting should be recognized
only when the arrangement consideration is reliably measurable and the earnings
process is substantially complete, and (c) consideration should be allocated
among the separate units of accounting based on their relative fair value. EITF
00-21 is applicable to transactions entered into after June 30, 2003. The
Company believes that EITF 00-21 will not result in a significant change in its
practice of accounting for arrangements involving delivery or performance of
multiple products and services.
Note 3 Summary of Consolidated Stockholders' Equity
(in millions)
Stockholders' equity at January 1, 2003 $ 1'013
Comprehensive gain:
Net loss (100)
Foreign currency translation adjustments 129
Unrealized gain on available-for-sale securities, net of tax 76
Unrealized gain of cash flow hedge derivatives, net of tax 3
Total comprehensive gain 108
Sale of treasury stock 156
Stockholders' equity at June 30, 2003 (unaudited) $ 1'277
Note 4 Segment and Geographic Data
In order to streamline the Company's structure and improve operational
performance, the Company has, as of January 1, 2003, put into place two new
divisions: Power Technologies, which combines the former Power Technology
Products and Utilities divisions; and Automation Technologies, which combines
the former Automation Technology Products and Industries divisions. • The Power
Technologies division serves electric, gas and water utilities, as well as
industrial and commercial customers, with a broad range of products, systems and
services for power transmission, distribution and power plant automation.
• The Automation Technologies division blends a product, system and service
portfolio with end-user expertise and global presence to deliver solutions for
control, motion, protection, and plant optimization across the full range of
process, discrete and utility industries.
• The Non-Core Activities division was created in the fourth quarter of 2002 to
group the following activities and businesses of the Company: Insurance, Equity
Ventures, the remaining Structured Finance business, Building Systems, New
Ventures, Air Handling, Customer Service, Group Processes, Logistic Systems, and
Semiconductors. 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.
Segment data
Orders received
(in millions) January - June April - June
2003 2002 2003 2002
Power Technologies $ 3'974 $ 3'740 $ 1'923 $ 1'809
Automation Technologies 4'967 4'486 2'473 2'322
Non-Core Activities 1'938 1'965 911 1'023
Corporate(1) (869) (829) (378) (487)
Total $ 10'010 $ 9'362 $ 4'929 $ 4'667
Revenues
(in millions) January - June April - June
2003 2002 2003 2002
Power Technologies $ 3'723 $ 3'313 $ 1'939 $ 1'786
Automation Technologies 4'693 4'032 2'463 2'171
Non-Core Activities 1'992 1'890 1'050 1'017
Corporate(1) (852) (750) (391) (440)
Total $ 9'556 $ 8'485 $ 5'061 $ 4'534
EBIT (operating income)
(in millions) January - June April - June
2003 2002 2003 2002
Power Technologies $ 274 $ 240 $ 146 $ 130
Automation Technologies 360 270 198 162
Non-Core Activities (97) 51 (33) 12
Corporate(1) (274) (139) (140) (154)
Total $ 263 $ 422 $ 171 $ 150
Depreciation and amortization
(in millions) January - June April - June
2003 2002 2003 2002
Power Technologies $ 90 $ 82 $ 46 $ 38
Automation Technologies 123 96 63 49
Non-Core Activities 46 49 22 25
Corporate 31 35 15 14
Total $ 290 $ 262 $ 146 $ 126
Number of employees(2)
June 30, 2003 December 31, 2002
Power Technologies 39'000 41'200
Automation Technologies 56'600 56'600
Non-core activities 23'400 26'500
Oil, Gas and Petrochemicals 11'500 11'900
Corporate 2'700 2'900
Total 133'200 139'100
Geographic Information
Orders received (3)
(in millions) January - June April - June
2003 2002 2003 2002
Europe $ 5'762 $ 5'199 $ 2'805 $ 2'646
The Americas 1'705 2'241 842 1'021
Asia 1'470 1'119 715 577
Middle East and Africa 1'073 803 567 423
Total $ 10'010 $ 9'362 $ 4'929 $ 4'667
Revenues (3)
(in millions) January - June April - June
2003 2002 2003 2002
Europe $ 5'381 $ 4'733 $ 2'861 $ 2'536
The Americas 1'861 2'037 960 1'078
Asia 1'595 1'153 837 612
Middle East and Africa 719 562 403 308
Total $ 9'556 $ 8'485 $ 5'061 $ 4'534
(1) Includes adjustments to eliminate inter-company transactions.
(2) Includes businesses in discontinued operations.
(3) Orders received and revenues have been reflected in the regions based on the location of the customers.
This information is provided by RNS
The company news service from the London Stock Exchange
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