Exhibit 99.2
The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Index to Condensed Combined Financial Statements (Unaudited)
Combined Statements of Income for the three and six months ended June 30, 2021 and 2020 | 2 | |
Combined Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020 | 3 | |
Combined Balance Sheets as of June 30, 2021 and December 31, 2020 | 4 | |
Combined Statements of Changes in Equity for the six months ended June 30, 2021 and 2020 | 5 | |
Combined Statements of Cash Flows for the six months ended June 30, 2021 and 2020 | 6 | |
Notes to the Condensed Combined Financial Statements | 7 | |
Note 1—Basis of Presentation | 7 | |
Note 2—Cost Allocations and Transactions with Related Parties | 7 | |
Note 3—Receivables, net | 9 | |
Note 4—Inventories, net | 9 | |
Note 5—Property, Plant and Equipment, net | 9 | |
Note 6—Goodwill and Other Intangible Assets | 10 | |
Note 7—Accounts Payable | 11 | |
Note 8—Income Taxes | 11 | |
Note 9—Revenues | 11 | |
Note 10—Other Post-Retirement Benefit Obligations | 12 | |
Note 11—Subsequent Events | 12 |
The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Combined Statements of Income (Unaudited)
Three and Six months ended June 30, 2021 and 2020 ($ in thousands)
Three Months Ended | Six Months Ended | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues | 166,958 | 126,704 | 335,923 | 274,054 | ||||||||||||
Cost of sales | (110,770 | ) | (89,584 | ) | (221,815 | ) | (188,262 | ) | ||||||||
Gross profit | 56,188 | 37,120 | 114,108 | 85,792 | ||||||||||||
Selling, general and administrative expenses | (21,409 | ) | (16,445 | ) | (41,374 | ) | (35,693 | ) | ||||||||
Non-order related research and development expenses | (2,985 | ) | (1,894 | ) | (6,250 | ) | (3,629 | ) | ||||||||
Other income (expense), net | 605 | (14 | ) | 885 | (297 | ) | ||||||||||
Interest and other finance income/ (expense) | (57 | ) | 87 | 57 | 319 | |||||||||||
Income from operations, before income taxes | 32,342 | 18,854 | 67,426 | 46,492 | ||||||||||||
Income tax expense | (7,988 | ) | (4,668 | ) | (16,654 | ) | (11,509 | ) | ||||||||
Net income | 24,354 | 14,186 | 50,772 | 34,983 |
See accompanying Notes to the Condensed Combined Financial Statements
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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Combined Statements of Comprehensive Income (Unaudited)
Three and Six months ended June 30, 2021 and 2020 ($ in thousands)
Three months ended | Six months ended | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net income | 24,354 | 14,186 | 50,772 | 34,983 | ||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Foreign currency translation adjustment | (245 | ) | 84 | (219 | ) | 401 | ||||||||||
Other, net | (183 | ) | (261 | ) | (405 | ) | (505 | ) | ||||||||
Other comprehensive income (loss) | (428 | ) | (177 | ) | (624 | ) | (104 | ) | ||||||||
Comprehensive income | 23,926 | 14,009 | 50,148 | 34,879 |
See accompanying Notes to the Condensed Combined Financial Statements
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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Combined Balance Sheets (Unaudited)
As of June 30, 2021 and December 31, 2020 ($ in thousands)
June 30, | December 31, 2020 | |||||||
Cash and cash equivalents | — | — | ||||||
Receivables, net | 90,744 | 61,052 | ||||||
Inventories, net | 117,485 | 118,322 | ||||||
Other current assets | 611 | 5,488 | ||||||
Total current assets | 208,840 | 184,862 | ||||||
Property, plant and equipment, net | 104,917 | 104,923 | ||||||
Operating lease right-of-use assets, net | 15,873 | 16,998 | ||||||
Goodwill | 809,907 | 809,907 | ||||||
Intangible assets, net | 221,700 | 232,500 | ||||||
Deferred taxes | 1,047 | 1,047 | ||||||
Other non-current assets | 822 | 867 | ||||||
Total assets | 1,363,106 | 1,351,104 | ||||||
Accounts payable | 70,154 | 52,191 | ||||||
Accrued liabilities | 30,721 | 21,947 | ||||||
Accrued distributor rebates | 18,654 | 16,987 | ||||||
Right of return provision | 5,656 | 5,993 | ||||||
Other current liabilities | 11,222 | 9,018 | ||||||
Total current liabilities | 136,407 | 106,136 | ||||||
Non-current finance leases | 6,299 | 6,441 | ||||||
Non-current operating leases | 14,806 | 17,534 | ||||||
Deferred taxes | 45,526 | 48,629 | ||||||
Non-current other post-retirement obligations | 10,700 | 11,132 | ||||||
Other non-current liabilities | 541 | 555 | ||||||
Total liabilities | 214,279 | 190,427 | ||||||
Equity: | ||||||||
Parent company investment | 1,132,880 | 1,144,106 | ||||||
Accumulated other comprehensive income | 15,947 | 16,571 | ||||||
Total Equity | 1,148,827 | 1,160,677 | ||||||
Total liabilities and equity | 1,363,106 | 1,351,104 |
See accompanying Notes to the Condensed Combined Financial Statements
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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Combined Statements of Changes in Equity (Unaudited)
Six month ended June 30, 2021 and 2020 ($ in thousands)
Parent company investment | Accumulated other comprehensive income | Total Equity | ||||||||||
Balance at January 1, 2020 | 1,155,624 | 18,657 | 1,174,281 | |||||||||
Net income | 34,983 | — | 34,983 | |||||||||
Other comprehensive income (loss), net | — | (104 | ) | (104 | ) | |||||||
Net transfers to Parent | (32,987 | ) | — | (32,987 | ) | |||||||
Balance at June 30, 2020 | 1,157,620 | 18,553 | 1,176,173 | |||||||||
Balance at January 1, 2021 | 1,144,106 | 16,571 | 1,160,677 | |||||||||
Net income | 50,772 | — | 50,772 | |||||||||
Other comprehensive income (loss), net | — | (624 | ) | (624 | ) | |||||||
Net transfers to Parent | (61,998 | ) | — | (61,998 | ) | |||||||
Balance at June 30, 2021 | 1,132,880 | 15,947 | 1,148,827 |
See accompanying Notes to the Condensed Combined Financial Statements
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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Combined Statements of Cash Flows (Unaudited)
Six month ended June 30, 2021 and 2020 ($ in thousands)
Six months ended June 30, | ||||||||
2021 | 2020 | |||||||
Operating activities: | 50,772 | 34,983 | ||||||
Net income | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 19,490 | 22,234 | ||||||
Deferred tax expense (benefit) | (2,983 | ) | (2,765 | ) | ||||
Other | (308 | ) | (241 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Receivables, net | (29,528 | ) | 707 | |||||
Inventories, net | 985 | (12,089 | ) | |||||
Accounts payable | 17,662 | 679 | ||||||
Accrued liabilities | 10,030 | (2,405 | ) | |||||
Other assets and liabilities, net | 5,656 | 1,736 | ||||||
Net cash provided by operating activities | 71,776 | 42,839 | ||||||
Investing activities: | ||||||||
Purchases of property, plant and equipment and intangible assets | (8,916 | ) | (10,503 | ) | ||||
Net cash used in investing activities | (8,916 | ) | (10,503 | ) | ||||
Financing activities: | ||||||||
Finance lease payments | (399 | ) | (377 | ) | ||||
Changes in parent company investment | (61,998 | ) | (32,987 | ) | ||||
Other | (463 | ) | 1,028 | |||||
Net cash used in financing activities | (62,860 | ) | (32,336 | ) | ||||
Effects of exchange rate changes on cash and cash equivalents | — | — | ||||||
Net change in cash and cash equivalents | — | — | ||||||
Cash and equivalents, beginning of period | — | — | ||||||
Cash and cash equivalents, end of period | — | — |
See accompanying Notes to the Condensed Combined Financial Statements
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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Notes to Condensed Combined Financial Statements (Unaudited)
Note 1—Basis of Presentation
The Condensed Combined Financial Statements and Notes have been derived from the interim consolidated financial information and accounting records of ABB Ltd. (“ABB” or “Parent”) as the ultimate parent of ABB Asea Brown Boveri Ltd and the Business. These Condensed Combined Financial Statements reflect the combined historical results of operations, financial position and cash flows of the Business (“MOPT”, “we”, “us”, “our”) for the periods presented as historically managed within ABB in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial reporting and are presented in United States dollars ($ or USD) unless otherwise stated. As such, the Condensed Combined Financial Statements do not include all the information and notes required under U.S. GAAP for annual combined financial statements. Therefore, such financial statements should be read in conjunction with the Business’ audited combined financial statements for the year ended December 31, 2020. The Condensed Combined Financial Statements may not be indicative of the Business’ future performance and do not necessarily reflect what the results of operations, financial position or cash flows would have been had it operated as an independent business during the periods presented.
The Condensed Combined Financial Statements are prepared on a carve-out basis from financial information of the Parent. The operations of the Business are consistent with the components of the Parent which are planned to be divested. All amounts presented relate to companies or the relevant portions of companies which are directly controlled by the Parent and all intercompany accounts within the Business and transactions within the Business are eliminated. Intercompany transactions between us and the Parent are deemed to have been settled immediately through Parent company investment. Refer to Note 2 for additional information.
External debt, including any interest expense, associated with the debt of the Parent which is not directly attributable to the Business has been excluded from the Combined Statement of Income and Balance Sheet of the Business. The equity of the Business represents the net investment of the Parent in the Business. The Parent’s historical retained earnings related to the Business are included within “Parent company investment.”
Current and deferred income taxes have been determined based on the stand-alone results of the Business. However, because the Business has prepared and filed its tax returns as part of ABB’s tax group in certain jurisdictions, the Business’ actual tax balances may differ from those reported.
These Condensed Combined Financial Statements have been prepared with facts and circumstances that were known through September 13, 2021 and considered subsequent events through September 13, 2021. See Note 11 for additional information.
For further details regarding the basis of presentation or other information regarding the Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd, these Condensed Combined Financial Statements should be read in conjunction with the latest audited annual financial statements.
Note 2—Cost Allocations and Transactions with Related Parties
Cost Allocations
These Condensed Combined Financial Statements include general corporate expenses and shared expenses of the Parent that were historically incurred by or charged to the Business for certain support functions that are provided on a centralized basis, such as expenses related to information technology, finance and controlling, intellectual property, digital, communications, human resources, sales and marketing, health and safety and country management activities. These expenses are included in the Combined Statements of Income within “Cost of sales,” “Selling, general and administrative expenses,” and “Non-order related research and development expenses.” These expenses have been allocated to the Business on the basis of direct usage, FTEs, square footage, or other measures that are utilized by the Parent for purposes of its consolidated financial statements.
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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Notes to Condensed Combined Financial Statements (Unaudited)
These Condensed Combined Financial Statements may not reflect the actual expenses that would have been incurred and may not reflect the Business’ combined results of operations, financial position and cash flows had it been a standalone business during the period presented. Actual costs that would have been incurred if the Business had been a standalone business would depend on multiple factors, including organizational structure, capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Going forward, the Business may perform these functions using its own resources or outsourced services.
The following table reflects these allocations as described above:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
($ in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Cost of sales | 2,724 | 3,856 | 5,593 | 8,010 | ||||||||||||
Selling, general and administrative expenses | 6,516 | 7,503 | 12,762 | 16,403 | ||||||||||||
Non-order related research and development expenses | 1,043 | 149 | 2,277 | 305 | ||||||||||||
Total | 10,283 | 11,508 | 20,632 | 24,718 |
Sales to the Parent and purchases from the Parent
The Business sells products to other businesses and companies controlled by the Parent. These transactions are executed at prices negotiated between the two parties. During the three months ended June 30, 2021 and June 30, 2020, the Business sold products of $3,660 thousand and $4,639 thousand, respectively, to the Parent. During the six months ended June 30, 2021 and June 30, 2020, the Business sold products of $8,206 thousand and $9,591 thousand, respectively, to the Parent.
The Business also purchases goods from the Parent with Cost of Sales measured based on the purchase price paid to the Parent. During the three months ended June 30, 2021 and June 30, 2020, the Business purchased $2,007 thousand and $1,014 thousand of certain inventory components, respectively. For the six month period ending June 30, 2021 and June 30, 2020, the Business purchased certain inventory components in the amount of $3,798 thousand and $2,613 thousand.
Outstanding amounts receivable from or payable to the Parent for goods and services sold to or purchased from the Parent are included in these Combined Financial Statements within “Receivables, net” and “Accounts payable.” See Note 4 and Note 8 for specific amounts due to/from the Parent.
Transactions with equity method investees
The Business shares a warehousing facility with an equity method investee, CoLinx, LLC, and is charged for labor and occupancy costs at the shared facility. During the three months ended June 30, 2021 and June 30, 2020, the labor and warehouse occupancy charges were $3,984 thousand and $3,029 thousand, respectively. For the six months ended June 30, 2021 and June 30, 2020, the labor and warehouse occupancy charges were $8,154 thousand and $6,507 thousand, respectively. Additionally, the Business is a tenant of the shared facility leased by CoLinx, which is accounted for as an operating lease within the Condensed Combined Financial Statements. The operating lease liability at June 30, 2021 and December 31, 2020 was $3,632 thousand and $3,875 thousand, respectively. Rent expense on this operating lease during the three months ended June 30, 2021 and June 30, 2020 was $121 thousand and $117 thousand, respectively. Rent expense on this operating lease during the six months ended June 30, 2021 and June 30, 2020 was $243 thousand and $233 thousand, respectively.
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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Notes to Condensed Combined Financial Statements (Unaudited)
Note 3—Receivables, net
“Receivables, net” consisted of the following:
($ in thousands) | June 30, 2021 | December 31, 2020 | ||||||
Trade receivables, net | 85,479 | 57,010 | ||||||
Receivables from Parent | 4,512 | 3,465 | ||||||
Other receivables, net | 753 | 577 | ||||||
Total | 90,744 | 61,052 |
Allowances for expected credit losses and write-offs are not significant. The Business does not have significant contract assets or contract liabilities.
Note 4—Inventories, net
“Inventories, net” consisted of the following:
($ in thousands) | June 30, 2021 | December 31, 2020 | ||||||
Raw materials | 37,996 | 36,201 | ||||||
Work in process | 21,068 | 18,401 | ||||||
Finished goods | 58,421 | 63,720 | ||||||
Total | 117,485 | 118,322 |
Note 5—Property, Plant and Equipment, net
“Property, plant and equipment, net” consisted of the following:
($ in thousands) | June 30, 2021 | December 31, 2020 | ||||||
Land and buildings | 44,261 | 44,647 | ||||||
Machinery and equipment | 191,491 | 199,231 | ||||||
Construction in progress | 13,144 | 10,102 | ||||||
248,896 | 253,980 | |||||||
Accumulated depreciation | (143,979 | ) | (149,057 | ) | ||||
Total | 104,917 | 104,923 |
Property, plant and equipment includes gross assets acquired under finance leases of $7,439 thousand and $6,990 thousand at June 30, 2021 and December 31, 2020, respectively, with related amounts in accumulated depreciation of $1,453 thousand and $1,054 thousand at June 30, 2021 and December 31, 2020, respectively.
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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Notes to Condensed Combined Financial Statements (Unaudited)
Depreciation included within each Income Statement caption is as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Cost of sales | 4,267 | 5,003 | 8,494 | 9,776 | ||||||||||||
Selling, general and administrative expenses | 79 | — | 160 | — | ||||||||||||
Non-order related research and development expenses | 3 | 30 | 36 | 59 | ||||||||||||
Total | 4,349 | 5,033 | 8,690 | 9,834 |
Note 6—Goodwill and Other Intangible Assets
“Goodwill” and “Intangible assets, net” include amounts recognized by Parent in connection with its historical business acquisition of Baldor, of which MOPT was a component. There have been no historical impairments recorded against the goodwill recognized.
“Intangible assets, net” consisted of the following definite-lived intangibles assets:
June 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||||||
carrying | Accumulated | carrying | carrying | Accumulated | carrying | |||||||||||||||||||
($ in thousands) | amount | amortization | amount | amount | amortization | amount | ||||||||||||||||||
Customer-related | 440,000 | (218,300 | ) | 221,700 | 440,000 | (207,800 | ) | 232,200 | ||||||||||||||||
Tradename | 38,000 | (38,000 | ) | — | 38,000 | (37,700 | ) | 300 | ||||||||||||||||
Technology | 72,000 | (72,000 | ) | — | 72,000 | (72,000 | ) | — | ||||||||||||||||
Total | 550,000 | 328,300 | 221,700 | 550,000 | (317,500 | ) | 232,500 |
Amortization expense for the three and six months ended June 30, 2021 and June 30, 2020 was $5,200 thousand, $10,800 thousand, $6,200 thousand, and $12,400 thousand, respectively, recorded within “Cost of Sales” within the Combined Statements of Income.
At June 30, 2021, future amortization expense of intangible assets other than goodwill is estimated to be:
($ in thousands) | ||||
2021 | 10,500 | |||
2022 | 21,000 | |||
2023 | 21,000 | |||
2024 | 21,000 | |||
2025 | 21,000 | |||
Thereafter | 127,200 | |||
Total | 221,700 |
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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Notes to Condensed Combined Financial Statements (Unaudited)
Note 7—Accounts Payable
“Accounts payable” consisted of the following:
($ in thousands) | June 30, 2021 | December 31, 2020 | ||||||
Trade payables | 65,720 | 49,180 | ||||||
Payables to the Parent | 2,729 | 2,128 | ||||||
Other payables | 1,705 | 883 | ||||||
Total | 70,154 | 52,191 |
Note 8—Income Taxes
For the three months ended June 30, 2021, we recorded income tax expense of $7,988 thousand or 24.70% of income from operations, before income taxes compared to $4,668 thousand or 24.75% during the three months ended June 20, 2020. For the three months ended June 30, 2021 and 2020, the effective tax rate is more than the federal statutory rate of 21% due principally to state income taxes assessed in the US.
For the six months ended June 30, 2021, we recorded income tax expense of $16,654 thousand or 24.70% of income from operations, before income taxes compared to $11,509 thousand or 24.75% during the six months ended June 30, 2020. For the six months ended June 30, 2021 and 2020, the effective tax rate is more than the federal statutory rate of 21% due principally to state income taxes assessed in the US.
Note 9—Revenues
The Business operates as a single segment. The following table presents “Revenues” during the three and six months ended:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
($ in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Product type | ||||||||||||||||
Bearings | 83,919 | 60,568 | 166,993 | 132,663 | ||||||||||||
Gearings | 55,674 | 46,094 | 116,338 | 97,127 | ||||||||||||
Pt components | 24,552 | 16,940 | 45,970 | 37,421 | ||||||||||||
Mechanical service and other | 2,813 | 3,102 | 6,622 | 6,843 | ||||||||||||
Total | 166,958 | 126,704 | 335,923 | 274,054 | ||||||||||||
Third-party revenues | 163,298 | 122,065 | 327,717 | 264,463 | ||||||||||||
Revenues with Parent | 3,660 | 4,639 | 8,206 | 9,591 | ||||||||||||
Total Revenues | 166,958 | 126,704 | 335,923 | 274,054 |
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The Dodge Mechanical Power Transmission Business of ABB Asea Brown Boveri Ltd
Notes to Condensed Combined Financial Statements (Unaudited)
Note 10—Other Post-Retirement Benefit Obligations
Post-retirement Benefits Other Than Pensions
The following summarizes the net periodic benefit costs for the three months ended June 30, 2021 and 2020 are as follows:
($ in thousands) | 2021 | 2020 | ||||||
Service Cost | — | — | ||||||
Interest Cost | 64 | 98 | ||||||
Amortization: | ||||||||
Prior service cost or (credit) | (156 | ) | (156 | ) | ||||
Actuarial loss or (gain) | (98 | ) | (86 | ) | ||||
Net Periodic Benefit Cost | (190 | ) | (144 | ) |
The following summarizes the net periodic benefit costs for the six months ended June 30, 2021 and 2020 are as follows:
($ in thousands) | 2021 | 2020 | ||||||
Service Cost | — | — | ||||||
Interest Cost | 128 | 196 | ||||||
Amortization: | ||||||||
Prior service cost or (credit) | (312 | ) | (312 | ) | ||||
Actuarial loss or (gain) | (196 | ) | (172 | ) | ||||
Net Periodic Benefit Cost | (380 | ) | (288 | ) |
The components of other postretirement benefit expenses are included in Other income (expense), net on the Combined Statement of Income.
Note 11—Subsequent Events
Sale of Business
On July 24, 2021, ABB Asea Brown Boveri Ltd entered into an agreement to sell the Business to RBC Bearings Incorporated for $2.9 billion in cash consideration, subject to certain adjustments based on the levels of cash, debt and working capital at closing and certain other items. This transaction is targeted to be completed by the fourth quarter of 2021, subject to market, regulatory and certain other customary conditions. Until the sale occurs, the Business will be wholly owned by ABB.
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