Final Results
ABB Ltd
13 February 2002
ABB posts US$ 691 million loss for 2001 after substantial charges, cuts net
debtn Q4 by US$ 2.2 billion on record cash flow
• Orders down 2 percent, revenues up 8 percent in local currencies
• EBIT US$ 279 million, after charges of US$ 952 million
• After asbestos provisions, net loss of US$ 691 million
• Net debt cut by US$ 2,194 million in fourth quarter on record cash flow
• Restructuring program ahead of schedule
Zurich, Switzerland, February 13, 2002 - ABB today reported a US$ 691 million
net loss for 2001, after an increase in provisions for asbestos liabilities, a
change in the calculation method for some reinsurance reserves, asset write-
downs, and costs and provisions for project losses.
In local currencies, orders remained stable and revenues increased. EBIT fell to
US$ 279 million from US$ 1,385 million in 2000.
Record cash generation in the fourth quarter helped reduce net debt by US$ 2,194
million, more than twice the company's target. The restructuring program,
announced in July 2001, is well ahead of schedule, ABB said.
'After a detailed review of our operations, we took broad measures across our
businesses to turn the page and put ABB on a better footing,' said Jorgen
Centerman, ABB president and CEO. 'Given the economic slowdown, our revenue
increase shows the dedication of our people in the midst of profound
organizational changes. We will continue to focus our core offerings, cut costs
and further reduce net debt, I am confident that we will deliver a healthy
profit in 2002.'
US$ in millions, except per share data 2001 2000 Change Change in local
currencies
Orders 23,779 25,440 -7% -2%
Revenues 23,726 22,967 +3% +8%
Earnings before interest and taxes (EBIT) 279 1,385 -80% -78%
Income (loss) from continuing operations (130) 881
Income (loss) from discontinued (561) 562
operations, extraordinary items and
accounting changes
Net income (loss) (691) 1,443
Earnings per share (US$)
Income (loss) from continuing operations,
basic and diluted: (0.11) 0.74
Net income (loss), basic and diluted: (0.61) 1.22
EBITDA 1,066 2,221 -52% -50%
Net cash provided by operating activities 2,193 1,022 +115% +115%
Key figures in detail
Orders decreased 2 percent expressed in local currencies, or 7 percent in
nominal terms to US$ 23,779 million. Base orders (orders below US$ 15 million)
represented 87 percent of total orders. Reflecting more difficult economic
conditions toward the end of the year, base orders declined 2 percent in nominal
terms but increased 2 percent in local currencies compared with 2000. Large
orders (above US$ 15 million) declined 28 percent in nominal terms, or 23
percent in local currencies over the same period.
Revenues increased 3 percent to US$ 23,726 million, or 8 percent in local
currencies. The order backlog declined by 9 percent to US$ 13,471 million, or 4
percent in local currencies, compared to year-end 2000.
EBIT was US$ 279 million in 2001, or 80 percent down from 2000, after US$ 952
million in charges comprising:
• US$ 138 million in underwriting losses in the Insurance business area,
including US$ 48 million in provisions for expected claims from the September 11
attack in the U.S.
• US$ 295 million in a non-cash charge from a change in the calculation method
for some reinsurance reserves
• US$ 288 million in operational measures, including write-downs of mainly
intangible assets (US$ 93 million in 2001, US$ 17 million in 2000), costs and
provisions for alternative energy projects (US$ 55 million) and project cost
overruns in Oil, Gas and Petrochemicals (US$ 140 million)
• US$ 231 million in restructuring charges and related asset write- downs (2000:
US$ 195 million)
The restructuring charges and mainly intangible write-downs mentioned above are
included in other expense of US$ 106 million in 2001 (2000: order income of US$
276 million). Also included in other expense were license income and income
from equity accounted companies of US$ 161 million (2000: US$ 41 million) and
capital gains of US$ 57 million (2000: US$ 447 million).
After interest expense and taxes, income from continuing operations showed a
loss of US$ 130 million in 2001.
ABB reported a net loss for 2001 of US$ 691 million, after taking an after-tax
charge of US$ 510 million in discontinued operations, including US$ 470 million
for increased asbestos provisions. ABB also recorded a US$ 12 million
extraordinary gain on the repurchase of own bonds and a one-time after-tax
charge of US$ 63 million, required upon adoption of the new accounting standard
FAS 133 under US GAAP, which was taken in the first quarter.
ABB's net cash provided by operating activities was US 2,193 million for 2001,
more than double the US$ 1,022 million reported in 2000. In the fourth quarter
alone, net cash provided by operating activities was US$ 1,848 million, up from
US$ 769 million for the same period in 2000.
Balance Sheet and liquidity
Cash and marketable securities totaled US$ 5,713 million at December 31,2001.
Net debt (defined as short-, medium- and long-term debt less cash and marketable
securities was US$ 4,077 million at year-end, compared with US$ 1,757 million at
December 31, 2000. Net debt increased during the year to fund dividend payments,
acquisitions (Eutech and Entrelec), significant investment in Financial Services
assets and the purchase of Treasury shares. Net debt stood at US$ 6,271 million
as of September 30, 2001, but was reduced by US$ 2,194 million in the fourth
quarter. The net debt reduction was mainly achieved by a rigorous cash flow
generation initiative in all operating units, rolled out in the third quarter of
2001.
The further reduction of net debt through internal cash flow generation
portfolio management and asset sales remains a key objective for the company.
ABB aims to cut net debt in 2002 by US$ 1.5 billion.
Stockholders' equity was US$ 2,014 million at December 31, 2001. Since the end
of 2000, equity declined as a result of the 2001 net loss, dividends paid, the
introduction of FAS 133, significant unrealized adverse currency movements, and
the purchase of Treasury shares. The company has no plans for further share
buybacks. At the Annual General Meeting in 2001, shareholders approved a share
repurchase of 24 million shares. In light of changed market conditions, ABB's
Board of Directors has decided not to effect a capital reduction, and
shareholders will be asked to take affirmative note of its decision at the
Annual General Meeting on March 12, 2002.
Outlook(1)
For 2002, revenues are expected to be flat in comparison to 2001. EBIT margin
for the full year 2002 is expected to be in the range of 4 to 5 percent. EBIT
and net cash from operations are expected to be stronger in the second half of
2002 than in the first half.
The target to grow revenues on average by 6 percent annually in the period 2001-
2005 remains unchanged. EBIT margin is expected to reach 9-10 percent by 2005.
(1)Assumes no major currency effects and exclude major acquisitions and
divestments
Employees
As of December 31, 2001, ABB employed 156,865 people compared to 160,818 at
year-end 2000. Since June 30,2001, excluding acquisitions and divestments, the
number of employees decreased by more than 7,200 as the cost reduction program
took effect.
Asbestos
As announced on January 30, 2002, ABB recently completed a comprehensive
review of claims for asbestos liabilities pending against Combustion
Engineering, a subsidiary in the United States. ABB decided to take a charge US$
470 million against discontinued operations to increase provisions for asbestos
claims.
Total asbestos provisions on the balance sheet were increased to US$ 940 million
at December 31, 2001, from US$ 590 million at the end of 2000. The relevant
estimated insurance recovery was approximately US$ 150 million at the end of
2001, down from around US$ 160 million at December 31, 2000.
The number of new claims filed against Combustion Engineering increased from
39,000 in 2000 to 55,000 in 2001 and the average amount paid per claim increased
from US$ 4,833 in 2000 to US$ 6,079 in 2001. As of December 31, 2001, around
94,000 claims were pending against Combustion Engineering compared to
approximately 66,000 at the end of 2000.
In response to the increase in claims, Combustion Engineering has intensified
its efforts to identify which claims are valid and which claims are not valid.
Valid claims are settled and the invalid claims, which appear to be increasing
significantly, are being disputed.
Approximately US$ 136 million was paid to settle claims in 2001 compared to US$
125 million in 2000. ABB expects about US$ 43 million to be reimbursed by
insurers for claims paid in 2001, down from US$ 48 million for claims paid in
2000.
Change in calculation method for reinsurance reserves
Reserves for unpaid claims and expenses in ABB's Insurance business are based on
management and external expert estimates From 1988 until 2001, the company
estimated some reserves by calculating the present value of fund's required to
pay losses at future dates. In the U.S., where ABB underwrites many claims, the
timing and amount of future claims payments have become more uncertain.
Therefore, the discounted value can no longer be reliably estimated. Instead,
ABB will now show the expected future claims at full face value, resulting in a
net charge of US$ 295 million to the 2001 profit and loss statement. This is a
non-cash charge, which will be recovered through higher earnings over the life
of the insurance contracts.
New accounting standards
ABB's accounting policies are described in detail in the notes to the
consolidated financial statements in the Annual Report.
From January 1, 2001, ABB adopted Financial Accounting Standard (FAS) No. 133 on
Accounting for Derivative Instruments and Hedging Activities. As a result, ABB
recognized a one-time after-tax charge to net income of US$ 63 million for 2001.
From January 1, 2002, ABB is adopting new FAS Standards No.141 on Business
Combinations and No. 142 on Goodwill and Other Intangible Assets. As a result,
all goodwill must be tested for impairment and a transition adjustment
recongnized, if necessary. ABB does not expect to record a material transition
adjustment following impairment testing in 2002. Goodwill will no longer be
amortized, and all goodwill will be subject to ongoing impairment tests;
differences between fair value and carrying value will be recognized in the
profit and loss statement. In 2001, ABB's goodwill amortization charge was US$
191 million (2000: US$ 174 million).
Industrial IT progress report
More than 1,000 ABB products had been certified as meeting Industrial IT
standards at the end of 2001. By then end of January 2002, certified products
had increased to more than 3,000.
Industrial IT, a common systems integration architecture, harmonizes all ABB
offerings, and can include third-party products.
By the end of 2001, 140 customers had chosen Industrial IT solutions.
Sustainability
ABB was ranked number one in its market sector - Industrial Goods and Services -
in corporate sustainability by the Dow Jones Sustainability Index (DJSI) -
topping the electric components and equipment industry group for the third year
in a row in 2001.
With Industrial IT, ABB helps customers use resources more efficiently lowering
the environmental impact of their operations. ABB'S program to Industrial IT-
enable all its products includes assessments of their environmental impacts
during their complete life cycle.
ABB is producing environmental product declarations for all core products, with
43 declarations produced to date for major product lines and 20 more are in the
pipeline. Having implemented ISO 14001 standards at about 98 percent of its
some 500 factories and service workshops, ABB is expanding its implementation to
non-manufacturing sites.
The ABB Sustainability Report will be published in June.
Technology Innovation
In 2001, ABB invested some 7 percent of revenues or $US 1.6 billion, in
technology innovation. ABB spent US$654 million, or 2.8 percent of revenues, on
research and development, and US$ 916 million, 3.9 percent of revenues, on
order-related development. ABB has 6,000 employees working in research and
development, most of them within the divisions.
The ABB Technology Report will be published in November.
Dividend recommendation
In order to strengthen the balance sheet, the Board of Directors proposes that
no dividend be paid for 2001.
Nominations to the Board of Directors
The term of office for all members of the Board of Directors expires at ABB's
Annual General Meeting on March 12, 2002.
On November 21, 2001, Mr. Percy Barnevik retired from his Board membership and
resigned as Chairman of the Board. Messrs. Gerhard Cromme, Robert Jeker and
Edwin Somm have decided not to stand for reelection. The remaining Board members
stand for reelection for one year.
The Board proposes the election of the following new members to the Board for a
period of one year.
Roger Agnelli, President and CEO of Companhia Vale do Rio Doce
Hans Ulrich Maerki, Chairman IBM Europe/Middle East/Africa
Michel de Rosen, President and CEO of ViroPharma, Inc.
Bernd W. Voss, former member of the Management Board of Dresdner Bank AG
After the Annual General Meeting, the Board intends to reelect Mr. Jurgen
Dormann as its Chairman.
Division reviews
The ABB Group's reporting currency is the U.S. dollar, which strengthened
against most of ABB'S local currencies last year. The strengthened dollar
continued to unfavorably impact results during the full year 2001. All figures
reflect the full year's activity and, except for EBIT margins, comments refer to
local currency figures.
EBIT excluding capital gains is shown below only if the aggregate of such gains
is material (in any case, if capital gains represent more than 10 percent of
divisional EBIT)
Utilities
US$ in millions, except where indicated Full year 2001 Full year 2000 Change Change in local currencies
Orders 6,436 6,235 + 3% + 7%
Revenues 5,649 5,473 + 3% + 7%
EBIT* 148 250 -41% -41%
EBIT margin 2.6% 4.6%
Employees 15,745 15,826
*Excluding capital gains, EBIT for the full year 2000 was US$ 196 million and
the EBIT margin was 3.6 percent.
Demand in the Americas remained strong throughout 2001. Markets in Europe were
stable, while in the Middle East and Africa political uncertainties have slowed
investments. Asian demand continued to grow. Orders increased 7 percent for the
year, and were boosted in the fourth quarter by a US$ 360 million order in China
for a high-voltage direct-current (HVDC) power transmission system. All business
areas reported order growth for the year.
Revenues were up 7 percent. Following a strong order intake in 2000, all
business areas reported revenue growth in 2001 except Utility Services, which
declined in comparison with higher revenues generated last year for the large
ComEd project in Chicago.
Excluding one-time capital gains in 2000, EBIT fell 25 percent. In particular,
Power Systems reported competitive price deterioration and lower margins as a
result of delayed project awards and execution timing in large power system
projects. EBIT margin decreased to 2.6 percent.
Process Industries
US$ in millions, except where indicated Full year 2001 Full year 2000 Change Change in local currencies
Orders 3,376 3,497 - 3% +/-0%
Revenues 3,377 3,339 +1% + 5%
EBIT 116 88 +32% +35%
EBIT margin 3.4% 2.6%
Employees 15,937 15,997
Throughout the year many of the industries served by the division consolidated,
particularly steel and paper where capital spending dropped sharply. Coupled
with the economic slowdown, which worsened following September 11, this had a
negative impact on demand in the cruise ships, metal, pulp and paper and mining
businesses. In contrast, oil and gas vessel demand remained high due to
continued exploration, and there are recent signs of improvement in the life
sciences industry.
Despite falling demand, orders were flat for 2001. Orders increased
significantly in the Petroleum, Chemical and Life Sciences business, offsetting
moderate decreases in all other business areas. Marine and Turbocharging orders
were down in comparison with a high order intake last year, but were still at
good levels.
Revenues increased 5 percent, with all business areas reporting improvement.
Marine and Turbocharging showed double-digit growth on execution of the order
backlog from last year.
EBIT grew 35 percent as a result of early cost savings actions and productivity
gains in projects, particularly in the Petroleum, Chemical and Life Sciences
business area. EBIT margin increased from 2.6 to 3.4 percent.
Manufacturing and Consumer Industries
US$ in millions, except where indicated Full year 2001 Full year 2000 Change Change in local currencies
Orders 4,388 5,485 -20% - 16%
Revenues 4,780 5,225 - 9% -4%
EBIT* 87 205 -58% - 56%
EBIT margin 1.8% 3.9%
Employees 29,455 33,449
*Excluding capital gains, EBIT for the full year 2000 was US$ 164 million and
the EBIT margin was 3.1 percent.
The manufacturing and consumer industries have been the most negatively affected
of the divisions by the economic slowdown in the major markets. Demand has been
volatile and investment spending has been deferred, particularly in the
automotive industries. European construction markets have progressively
weakened, and in telecom, the rollout of UMTS networks remains on hold.
Poor demand resulted in a 16 percent drop in orders. Most affected were the
Automotive Industries and Building Systems orders, particularly in the U.S.,
Germany and Sweden.
Revenues were down 4 percent, with growth in Building Systems partly offsetting
the decline in Automotive Industries. The division reduced the number of
employees in line with falling volumes.
Excluding capital gains in 2000, EBIT fell 45 percent due to low volume in
Automotive Industries and Logistics Systems together with specific cases of
project losses and restructuring in certain countries. EBIT margin decreased to
1.8 percent.
Oil, Gas and Petrochemicals
US$ in millions, except where indicated Full year 2001 Full year 2000 Change Change in local currencies
Orders 3,403 3,923 -13% - 12%
Revenues 3,489 2,796 +25% +28%
EBIT 79 157 -50% -49%
EBIT margin 2.3% 5.6%
Employees 13,471 11,549
Oil prices dropped in the fourth quarter to below the OPEC band of US$22 to
US$28 per barrel, with the average price for 2001 below last year's. In the
Upstream business, we had a high activity level for most of the year, with some
softening of demand in the fourth quarter due to economic slowdown. In the
Downstream business, demand fell off in 2001. Although demand for refineries
and gas processing plants remained stable, both the petrochemicals and process
technologies sectors declined.
Orders dropped 12 percent, compared with a particularly high intake in 2000.
Continued high tendering activity in Upstream supported order growth, with
several large projects booked during the first half of the year that partly
offset the decline in Downstream.
Revenues increased 28 percent, fueled by Upstream's order intake in 2001 and the
full year effect of Umoe, the oil and gas services company acquired in 2000.
Downstream revenues remained flat.
EBIT dropped 49 percent due to provisions for cost overruns and project delays,
mainly in two projects. As a result, EBIT margin was reduced to 2.3 percent.
Power Technology Products
US$ in millions,
except where indicated Full year 2001 Full year 2000 Change Change local currencies
Orders 4,221 4,071 +4% +9%
Revenues 4,042 3,662 +10% +15%
EBIT 234 244 -4% -1%
EBIT margin 5.8% 6.7%
Employees 27,555 27,785
Strong demand continued in the Americas - particularly for transmission products
- and parts of Asia. China was a particularly strong market toward the end of
the year. European markets were mixed, while the Middle East and Africa
developed positive momentum in the second half of 2001.
Orders increased 9 percent, led by double-digit growth in Power Transformers
and High-Voltage Products. Distribution Transformers and Medium-Voltage Products
recorded more modest increases, following the economic slowdown in North America
that weakened building and infrastructure markets.
Revenues were up 15 percent, led by double-digit growth in High-Voltage Products,
while all other business areas recorded good growth.
After higher restructuring charges, mainly taken in the fourth quarter of 2001
to improve future productivity, EBIT was flat. EBIT margin declined to
5.8 percent.
Automation Technology Products
US$ in millions,
except where indicated Full year 2001 Full year 2000 Change Change in local currencies
Orders 5,170 5,421 - 5% +/-0%
Revenues 5,246 5,175 + 1% + 6%
EBIT 380 464 - 18% - 14%
EBIT margin 7.2% 9.0%
Employees 39,834 41,332
Weakening demand in North American markets during the first half of 2001 was
followed by a slowdown in Europe, while Asia (especially China) remained stable.
Demand in the construction, marine, pulp and paper markets was down because of
industry consolidation and reduced consumer spending after September 11. The
automotive sector was particularly hard hit throughout the year.
In June 2001, ABB acquired Entrelec with 2,000 employees. In the second half of
the year, the division reduced employees by more than 3,000.
Orders were stable despite generally difficult trading conditions, as moderate
growth in Drives and Power Electronics and Low-Voltage Products offset flat or
lower intake in other business areas. Following the automotive sector slowdown,
Robotics reported a double-digit decline in orders.
Revenues grew 6 percent. Drives and Power Electronics reported particularly
strong growth in 2001, while increases in Electrical Machines and Low-Voltage
Product's were fueled by strong order backlogs. Instrumentation and Metering had
flat revenues for the year, while Control and Force Measurement, as well as
Robotics, recorded decreases.
EBIT decreased 14 percent. This was due to the sharp downturn in Robotics
coupled with fourth quarter charges for accelerated restructuring actions in
2002. Excluding timing differences and restructuring charges (which were at the
same level for both full years), EBIT for the quarter was flat compared to
fourth quarter 2000. Overall, EBIT margin fell to 7.2 percent.
Financial Services
US$ in millions,
except where indicated Full year 2001 Full year 2000 Change Change in local currencies
Revenues 2,133 1,966 +8% +13%
EBIT -32 349
Employees 1,220 1,125
Declining equity markets, generally lower interest rates and rising credit
concerns characterized 2001. The events of September 11 negatively affected most
financial markets, but had a mixed impact on the global insurance market. After
massive loss provisions reported in September, the worldwide insurance business
is now experiencing rising demands for coverage while facing reduced capacity
and more restrictive terms and conditions. Insurance premium rates are rising
sharply as a result.
Revenues rose 13 percent on increased insurance premiums as well as the recent
expansion of the leasing portfolio by Structured Finance. Most of Equity
Ventures' income from equity-accounted investments does not appear in revenues
but is instead recognized as other income in EBIT.
EBIT was a loss of US$32 million, as double-digit growth in all other business
areas was offset by a loss in the Insurance business area. The loss followed
underwriting losses totalling about US$90 million in an Insurance subsidiary.
In addition, there was a US$48 million provision made for expected claims
arising from the September 11 attack in the U.S. Furthermore, a change in the
calculation method for some reinsurance reserves resulted in a non-cash charge
of US$295 million.
Toward the end of 2001, Structured Finance successfully sold a number of lease
transactions, while Equity Ventures reduced its stakes in certain projects.
This was in line with ABB's drive to reduce net debt by the end of 2001.
Corporate/Other
US$ in millions,
except, where indicated Full year 2001 Full year 2000
EBIT -733 -372
New Ventures -119 -12
Corporate R & D -103 -96
Group Processes -55 -57
Elimination of AFS interest income -171 -151
Other Corporate -315 -365
Capital Gains 30 309
Employees 13,648 13,755
Corporate/Other includes New Ventures, Corporate Research and Development (R&D),
Group Processes, Other Corporate (e.g. holding company and stewardship costs,
including real estate management), and elimination of ultra-company interest
income from financial Services. In addition, capital gains may arise from asset
sales, notably real estate holdings.
In 2001, the total operating cost from Corporate/Other increased to US$733
million, mainly as a result or lower capital gains from real estate sales. New
Ventures reported much higher costs of US$119 million in 2001, primarily from
asset write-downs. Other Corporate, however, reduced costs mainly as a result of
the new leaner organisational structure. The cost for Corporate R&D and Group
Processes remained at about the same level as in 2000, while elimination of
Financial Services interest income increased due to higher ultra-group borrowing
levels throughout the year.
ABB Group Annual Report
The Annual Report will be distributed to shareholders on request and will be
available at ABB's head office in Oerlikon-Zurich, Switzerland as of
February 20, 2002.
Annual General Meeting and other important dates
The Annual General Meeting of ABB Ltd will be held on Tuesday, March 12, 2002,
in Zurich. The 2002 quarterly reporting dates for ABB Ltd are scheduled for
April 24, July 24 and October 24.
Today's press conference and analysts' meeting
ABB's annual press conference will be held today at 10.30 Central European time
and broadcast live over the Internet (www.abb.com.) Journalists are welcome to
use the e-mail facility to ask questions.
The company will hold its annual results meeting for investors and analysts
today at 15:00 Central European time. There will be a live broadcast over the
Internet (www.abb.com/investorrelations.) Teleconference callers should dial
+41 848 224111 in Europe or +1 412 858 4600 in the U.S. and Canada. Presentation
material is available on ABB's Web site (www.abb.com/investorrelations).
ABB (www.abb.com) is a global leader in power and automation technologies that
enable utility and industry customers to improve performance while lowering
environmental impact. ABB has some 155,000 employees in more than 100 countries.
This press release includes forward-looking information and statements that
that are subject to risks and uncertainties that could cause actual results to
differ. These statements are based on current expectations, estimates and
projections about global economic conditions of the regions and industries that
are major markets for ABB Ltd and ABB Ltd's lines of business. These
expectations, estimates, and projections are generally identifiable by
statements containing words such as 'expects', 'believes', 'estimates' or
similar expressions. Important factors that could cause actual results to differ
materially from those expectations include, among others, economic and market
conditions in the geographic areas and industries that are major markets for
ABB's businesses, market acceptance of new products and services, changes in
governmental regulations, interest rates, fluctuations in currency exchange
rates and such other factors as may be discussed from time to time in ABB's
filings with the U.S. Securities and Exchange Commission. Although ABB Ltd
believes that its expectations reflected in any such forward-looking statement
are based upon reasonable assumptions, it can give no assurance that those
expectations will be achieved.
For more information please contact:
Media Relations:
ABB Corporate Communications, Zurich
Thomas Schmidt
Tel: +41 43 317 6492
Fax: +41 1 317 7958
media.relations@ch.abb.com
Investor Relations:
Switzerland: Tel: +41 43 317 3800
Sweden: Tel: +46 2 325 719
USA: Tel: +1 203 750 0773
Investor.relations@ch.abb.com
Summary Consolidated Income Statements
January - December October - December
2001 2000 2001 2000
(Audited) (Unaudited)
(in millions, except per share data)
Revenues $23,726 $22,967 $ 6,849 $ 6,750
Cost of sales (18,708) (17,222) (5,812) (5,034)
Gross Profit 5,018 5,745 1,037 1,716
Selling, general and administrative expenses (4,397) 4,417 (1,251) (1,267)
Amortization expense (236) (219) (61) (65)
Other income (expense) net (106) 276 (212) (37)
Earnings (loss)before interest and taxes 279 1,385 (487) 347
Interest and dividend income 568 565 123 138
Interest and other finance expense (802) (644) (165) 185
Income (loss) from continuing operations before
taxes and minority interest 45 1,306 (529) 300
Provision for taxes (105) (377) 80 (80)
Minority interest (70) (48) (33) (15)
Income (loss) from continuing operations (130) 881 (482) 205
Income (loss) from discontinued operations,
net of tax (510) 562 (510) 14
Extraordinary gain on debt extinguishment, net
of tax 12 - 12 -
Cumulative effect of change in accounting
principles (SFAS 133),net of tax (63) - - -
Net income (loss) $ (691) $ 1,433 $ (980) $ 219
Weighted average shares outstanding 1,132 1,180 1,113 1,184
Dilutive potential shares 3 5 - 4
Diluted weighted average shares outstanding 1,135 1,185 1,113 1,188
Basic earnings (loss) per share:
Income (loss) from continuing operations $ (0.11) $ 0.74 $(0.43) $ 0.17
Net income (loss) $ (0.61) $ 1.22 $(0.88) $ 0.19
Diluted earnings per share:
Income (loss) from continuing operations $ (0.11) $ 0.74 $(0.43) $ 0.17
Net income (loss) $ (0.61) $ 1.22 $(0.88) $ 0.18
Summary Consolidated Balance Sheets
At December 31, At December 31,
2001 2000
(Audited) (Audited)
(in millions, except share data)
Cash and equivalents $ 2,767 $ 1,397
Marketable securities 2,946 4,209
Receivables, net 8,368 8,328
Inventories, net 3,075 3,192
Prepaid expenses and other 2,358 1,585
Total current assets 19,514 18,711
Financing receivables, non-current 4,263 3,875
Property, plant and equipment, net 3,003 3,243
Goodwill and other intangible assets, net 3,299 3,155
Investments and other 2,265 1,978
Total assets $ 32,344 $ 30,962
Accounts payable, trade $ 3,991 $ 3,375
Accounts payable, other 2,710 2,363
Short-term borrowings and current maturities
of long-term borrowings 4,747 3,587
Accrued liabilities and other 7,587 6,127
Total current liabilities 19,035 15,452
Long-term borrowings 5,043 3,776
Pension and other related benefits 1,688 1,790
Deferred taxes 1,360 1,528
Other liabilities 2,989 2,924
Total liabilities 30,115 25,470
Minority interest 215 321
Total stockholders' equity 2,014 5,171
Total liabilities and stockholders' equity $ 32,344 $ 30,962
Summary Consolidated Statements of Cash Flows
January - December
2001 2000
(Audited) (Audited)
(US$ in millions)
Operating activities
Income (loss) from continuing operations $ (130) $ 881
Adjustments to reconcile income (loss) from
continuing operations to net cash provided by
operating activities:
Depreciation and amortization 787 836
Restructuring provisions 45 (73)
Pension and post-retirement benefits 1 (57)
Deferred taxes (89) 102
Net gain from sale of property, plant and
equipment (23) (247)
Other 109 (119)
Changes in operating assets and liabilities
Marketable securities (trading) 72 10
Trade receivables 65 77
Inventories (106) (136)
Trade payables 736 266
Other assets and liabilities, net 726 (518)
Net cash provided by operating activities $ 2,193 $ 1,022
Investing activities
Changes in financing receivables (907) (833)
Purchases of marketable securities (other than
trading) (3,280) (2,239)
Purchases of property, plant and equipment (761) (553)
Acquisitions of businesses (net of cash acquired) (578) (893)
Proceeds from sales of marketable securities
(other than trading) 3,873 2,292
Proceeds from sales of property, plant and
equipment 152 238
Proceeds from sales of businesses (net of cash
disposed) 283 275
Net cash used in investing activities $(1,218) $ (1,713)
Financing activities
Changes in borrowings 2,639 (44)
Treasury and capital stock transactions (1,393) 244
Dividends paid (502) (531)
Other (67) (61)
Net cash provided by (used in) financing
activities $ 677 $ (392)
Net cash provided by (used in) discontinued
operations (210) 949
Effects of exchange rate changes on cash and
Equivalents (72) (84)
Net change in cash and equivalents 1,370 (218)
Cash and equivalents-beginning of year 1,397 1,615
Cash and equivalents-end of year $ 2,767 $ 1,397
Interest paid $ 702 $ 647
Taxes paid $ 273 $ 273
ABB Ltd notes to to summary consolidated financial statements (Unaudited)
(US$ in millions, except per share amounts)
Note 1 Developments in the twelve months ended December 31, 2001:
• Share split
At the Company's annual general meeting held on March 20,2001, the Company's
shareholders approved a four-for-one share split to reduce the nominal value of
the Company's shares from CHF10 each to CHF 2.50 each. The share split became
effective as of May 7, 2001.
• Treasury and capital stock
At the Company's annual general meeting held on March 20, 2001 the Company's
shareholders approved a share repurchase of 24 million shares for purposes of
cancellation, which corresponds to approximately 2% of the Company's nominal
share capital. During the first half of 200l, all of the 24 million shares were
purchased. In the meantime, market conditions have changed and the Board of
Directors has decided not to effect a capital reduction.
In addition, at December 31, 2001, the Company owned approximately 63 million
treasury shares for purposes such as covering obligations under the Company's
management incentive plan (MIP).
The Company has outstanding obligations to deliver 43 million shares at exercise
prices ranging from CHF 17.00 to CHF 53.00 under its management incentive plan
and other call options. During 2001, the Company settled all outstanding written
put options by purchasing 18 million shares.
The market value of the ABB shares as of December 31, 2001 was CHF 16.-
(approximately US$9.50) per share.
• Listing New York
On April 6, 2001, the Company listed its American Depositary Shares (new ADSs)
on the New York Stock Exchange. Simultaneously, the Company successfully
completed an exchange offer giving holders of restricted ADSs the opportunity to
exchange to the Company's new ADSs that are eligible for trading on the New York
Stock Exchange. One new ADS represents one registered share of ABB's capital
stock. The Company's new ADSs are traded under the symbol 'ABB'.
• 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 December 31, 2001, the Company recognized charges of $114 million relating
to workforce reductions and $73 million relating to lease terminations and other
exit costs associated with the restructuring program. These costs are included
in other income (expense), net. Termination benefits of $35 million were paid in
2001 to approximately 2,300 employees and $33 million was paid to cover costs
associated with lease terminations and other exit costs. Workforce reductions
include production, managerial and administrative employees. At December 31,
2001, accrued liabilities included $79 million for termination benefits and $40
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 $44 million to write down these assets to net realizable value. These
costs are included in other income (expense), net.
• Commitments and contingencies
Asbestos related claims
At December 31, 2001, there were approximately 94,000 pending personal injury
claims for asbestos-related litigation. It can be expected that additional
asbestos-related claims will continue to be asserted. The ultimate cost of these
claims is difficult to estimate with any degree of certainty due to to the
nature and number of variables associated with unasserted claims. Some of the
factors affecting the reliability of estimating the potential cost of claims are
the rate at which new claims are filed, the impact of court rulings and
legislative action, the extent of the claimants' association with Combustion
Engineering's or other defendants' products, equipment or operations, the type
and severity of the disease suffered by the claimant, the method of resolution
of such cases, and the applicability of insurance policies to recover the
settlement costs, until the policy limits are exhausted.
A reserve is maintained to cover estimated costs for asbestos claims and an
asset representing estimated insurance reimbursement. The reserve represents
management's 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. A revision in these estimates was
made in 1999 to better reflect anticipated claim settlement costs in light of
the number and type of claims being filed in recent years and the allocation of
such claims to all available insurance policies. As a result of that revision,
an additional accrual of approximately $300 million was recorded in 1999 which
is included in the results of discontinued operations. During 2000, there was an
increase in the level of new claims as well as higher demands for settlement
over recent historical levels. A charge of approximately $70 million was
recorded in 2000, which is included in the results of discontinued operations,
related to higher costs than were expected during that period. Based on the
increase in new claims and settlement costs experienced in 2001 a charge of
approximately $470 million was recorded.
In 2000 and in 1999 the reserve as established related to an expectation that
current and future claims would be settled over an 11-year period. Because of
the uncertainty as to the causes of the substantial increase in claims filed
against Combustion Engineering in 2000 and 2001 compared to prior periods, the
estimation of a fixed period over which current and future claims would be
settled is subject to substantially greater uncertainty. The charge that was
recorded for 2001 reflects management's attempt to reasonably estimate the long-
term effect of how the trends in new claims filed and settlement costs have
developed from prior periods through 2000 and 2001, and how these trends could
develop in the future. At December 31, 2001 and 2000, there were reserves of
approximately $940 million and $590 million, respectively, for asbestos-related
claims. Receivables of approximately $150 million and $160 million at December
31, 2001 and 2000, respectively, for probable insurance recoveries were also
recorded. Allowances against the insurance receivables are established at such
time as it becomes likely that insurance recoveries are not probable.
Insurance: Special Adjustment
The Company's insurance reserves for unpaid claims and claim adjustment expenses
are determined on the basis of reports from ceding companies, underwriting
associations and management estimates. The Company continually reviews reserves
for claims and claim adjustment expenses during the year and changes in
estimates are reflected in net income. In addition, reserves are routinely
reviewed by independent actuarial consultants. Prior to 2001, the Company
presented a portion of its insurance reserves on a discounted basis, which
estimated the present value of funds required to pay losses at future dates. The
reserves were discounted where anticipated future investment income was an
integral part of the premium pricing for a particular product. During 2001, the
timing and amount of premiums and claims payments being ceded to the Company in
respect of prior years finite risk reinsurance contracts has changed. As the
amount and timing of ceded claims payments and corresponding premiums cannot be
reliably determined at December 31, 2001, the Company has not discounted its
loss reserves. The Company believes that this variability in ceded loss payments
and additional premiums will preclude the Company from discounting its loss
reserves in the future until a reliably determinable pattern of loss payment
experience can be re-established. Accordingly, at December 31, 2001 the
insurance reserves have not been presented on a discounted basis, resulting in a
charge to losses and loss adjustment expenses in December 2001 of $295 million
for the elimination of the effect of discounting effective from January 1, 2001.
Note 2 Significant Accounting Policies
The summary consolidated financial information is prepared on the basis of
United States (U.S.) generally accepted accounting principles and is presented
in U.S. dollars ($) unless otherwise stated. Par value of capital stock is
denominated in Swiss francs (CHF). The summary financial information as of
December 31, 2001 should be read in conjunction with the December 31, 2000
financial statements contained in the Annual Report and our registration
statement on Form 20-F for the U.S. listing.
Change in accounting principles
On January 1, 2001 the Company adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments ind Hedging Activities,
as amended. The Statement requires the Company to recognize all derivatives,
other than certain derivatives indexed to the Company's own stock, on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is designated as a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in accumulated other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company accounted for the adoption of
SFAS 133 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).
Recent Accounting Pronouncements
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. 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. Certain intangible
assets will be recognized separately from goodwill, and will be amortized over
their useful lives. As of January 1, 2002, all goodwill must be tested for
impairment and a transition adjustment recognized at that time. The Company does
not expect to record a material transition adjustment in connection with such
impairment testing in 2002. In addition, all goodwill amortization will cease
after December 31, 2001. The Company recognized goodwill amortization expense of
$191 million and $174 million in 2001 and 2000, respectively.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 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 will adopt this
statement on January 1, 2002. The Company has not yet determined the impact, if
any, this Statement will have on its financial position or results of
operations, although the Company expects to present more disposals as
discontinued operations subsequent to adoption of SFAS 144.
Note 3 Summary of Consolidated Stockholders' Equity
Equity at January 1, 2001 $ 5,171
Comprehensive income (loss):
Net loss (691)
Foreign currency translation adjustments (365)
Unrealized loss on available-for-sale
securities, net of tax (128)
Minimum pension liability adjustments,
net of tax 3
Cumulative effect of change in accounting
principles (SFAS 133) at January 1, 2001
net of tax (41)
Derivatives qualifying as hedges (SFAS 133),
net of tax (46)
Total comprehensive income (loss) (1,268)
Dividends paid (502)
Treasury and capital stock transactions (1,434)
Other 47
Equity at December 31, 2001 $ 2,014
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 - provide end users with access to the full
range of ABB's products, services and solutions. The two channel partner
divisions - Power Technology Products and Automation Technology Products -
satisfy product needs within the ABB Group. The channel partner divisions also
directly serve external channel partners, such as distributors, wholesalers,
system integrators and OEMs (original equipment manufacturers). The Financial
Services division remains largely unchanged and provides services and project
support for ABB and external customers.
• ABB's 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. ABB is a global leader in the utilities market.
• The Process Industries division serves the chemical, gas, life sciences,
marine, metals, minerals, mining, paper, petroleum, printing and
turbocharging industries with process-specific products and services
combined with ABB's power and automation technology. The division has strong
domain expertise and creates industry-specific products and services that
help improve the efficiency and competitive strength of our customers.
• The Manufacturing and Consumer Industries division sells products, solutions
and services to improve customer productivity and competitiveness in areas
like automotive industries, telecom, product manufacturing, electronic
manufacturing, airports, parcel and cargo distribution, public and
commercial buildings.
• 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. It includes
transformers, switchgear, breakers, capacitors, cables as well as other
products and technologies for high- and medium-voltage applications. All
products are currently developed to fit into a common Industrial IT
architecture. The increased use of Information Technology (IT), including
online product configurators, enables ABB Power Technology Products to
deliver within best-in-class cycle times. Power technology products are used
in industrial, commercial and utility applications. They are sold through
ABB end user divisions and external channel partners, e.g. distributors,
system integrators, contractors and OEMS (original equipment manufactures).
• The Automation Technology Products division provides products, systems,
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. 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 division has approximately 40,000 employees.
• The Financial Services division supports its internal and external customers
with innovative financial solutions in structured finance, leasing, project
development and ownership, financial consulting, insurance and treasury
activities.
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 SFAS 131, Disclosures about Segments
of an Enterprise and Related Information, the Company presents division
revenues, depreciation and amortization, EBIT, net operating assets and capital
expenditures, 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 - December January - December
2001 2000 2001 2000
Utilities $6,436 $6,235 $5,649 $5,473
Process Industries 3,376 3,497 3,377 3,339
Mfg and Consumer Industries 4,388 5,485 4,780 5,225
Oil, Gas and Petrochemicals 3,403 3,923 3,489 2,796
Power Technology Products 4,221 4,071 4,042 3,662
Automation Technology Products 5,170 5,421 5,246 5,175
Financial Services 2,133 1,966 2,133 1,966
Corporate/Other (1) (5,348) (5,158) (4,990) (4,669)
Total $23,779 $25,440 $23,726 $22,967
EBIT (operating income) Depreciation and
amortization
January - December January - December
2001 2000 2001 2000
Utilities $148 $250 $73 $75
Process Industries 116 88 72 73
Mfg and Consumer Industries 87 205 49 59
Oil, Gas and Petrochemicals 79 157 77 69
Power Technology Products 234 244 119 123
Automation Technology Products 380 464 224 264
Financial Services (32) 349 23 23
Corporate/Other(1) (733) (372) 150 150
Total $279 $1,385 $787 $836
Net operating assets (2) Number of
employees
December 31 December 31 December 31 December 31
2001 2000 2001 2000
Utilities $795 $1,018 15,745 15,826
Process Industries 738 839 15,937 15,997
Mfg and Consumer Industries 249 411 29,455 33,449
Oil, Gas and Petrochemicals 315 893 13,471 11,549
Power Technology Products 1,311 1,328 27,555 27,785
Automation Technology Products 2,558 3,215 39,834 41,332
Financial Services 10,926 9,098 1,220 1,125
Corporate/Other(1) (3,114) (2,170) 13,648 13,755
Total $13,778 14,632 156,865 160,818
(1) Includes adjustments to eliminate inter-division transactions.
(2) Net operating assets is calculated based upon total assets (excluding cash
and equivalents, marketable securities, current loans receivable, taxes and
deferred charges) less current liabilities (excluding borrowings, taxes,
provisions and pension-related liabilities).
Geographic Information
Orders received 1) Revenues 1)
January - December January - December
2001 2000 2001 2000
Europe $12,354 $12,979 $12,780 $12,570
The Americas 6,099 6,644 5,944 5,702
Asia 2,886 2,865 2,686 2,770
Middle East and Africa 2,440 2,952 2,316 1,925
Total $23,779 $25,440 $23,726 $22,967
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 US GAAP, 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.
US $ in millions ABB Ltd Consolidated ABB Group 1) Financial Services
At December 31, 2001 2000 2001 2000 2001 2000
Cash and equivalents and marketable
securities $ 5,713 $ 5,606 $ 1,667 $ 1,285 $ 4,046 $ 4,321
Receivables, net 8,368 8,328 5,810 6,652 2,558 1,676
Inventories, net 3,075 3,192 3,074 3,192 1 -
Prepaid expenses and other 2,358 1,585 1,169 1,067 1,189 518
Total current assets 19,514 18,711 11,720 12,196 7,794 6,515
Financing receivables, non-current 4,263 3,875 452 541 3,811 3,334
Property, plant and equipment, net 3,003 3,243 2,938 3,177 65 66
Goodwill and other intangible assets,net 3,299 3,155 3,217 3,067 82 88
Investments and other 2,265 1,978 1,601 1,350 664 628
Net intercompany balances - - - - 2,106 3) 1,778
Total assets $32,344 $30,962 $19,928 $20,331 $14,522 $12,409
Accounts payable, trade $ 3,991 $ 3,375 $ 3,956 $ 3,347 $ 35 $ 28
Accounts payable, other 2,710 2,363 1,641 1,512 1,069 851
Short-term borrowings 2) 4,747 3,587 240 397 4,507 3,190
Accrued liabilities and other 7,587 6,127 4,285 4,303 3,302 1,824
Total current liabilities 19,035 15,452 10,122 9,559 8,913 5,893
Long-term borrowings 5,043 3,776 2,020 509 3,023 3,267
Pension and other related benefits 1,688 1,790 1,681 1,783 7 7
Deferred taxes 1,360 1,528 575 694 785 834
Other liabilities 2,989 2,924 2,529 2,350 460 574
Net intercompany balances - - 773 44 - -
Total liabilities 30,115 25,470 17,700 14,939 13,188 10,575
Minority interest 215 321 214 221 1 100
Total stockholders' equity 2,014 5,171 2,014 5,171 1,333 3) 1,734
Total liabilities and stockholders' $32,344 $30,962 $19,928 $20,331 $14,522 $12,409
equity
1) ABB Industrial operations/holdings with equity accounting of participation in
Financial Services
2) Includes current maturities of long-term borrowings
3) Certain amounts reclassified to conform to the Company's current year
presentation
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