Cash flows

In the Consolidated Statements of Cash Flows, the effects of discontinued operations are not segregated.

The Consolidated Statements of Cash Flows can be summarized as follows:

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($ in millions)

2012

2011

2010

Net cash provided by operating activities

3,779

3,612

4,197

Net cash used in investing activities

(5,575)

(3,253)

(2,747)

Net cash provided by (used in) financing activities

3,762

(1,208)

(2,530)

Effects of exchange rate changes on cash and equivalents

90

(229)

(142)

Net change in cash and equivalents – continuing operations

2,056

(1,078)

(1,222)

Net cash provided by operating activities

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($ in millions)

2012

2011

2010

Net income

2,812

3,315

2,732

Depreciation and amortization

1,182

995

702

Total adjustments to reconcile net income to net cash provided by operating activities (excluding depreciation and amortization)

196

(23)

164

Total changes in operating assets and liabilities

(411)

(675)

599

Net cash provided by operating activities

3,779

3,612

4,197

Operating activities in 2012 provided net cash of $3,779 million, an increase from 2011 of 4.6 percent. The increase was primarily driven by a lower increase in working capital requirements offset by the cash impacts of lower net income.

Net cash provided by operating activities in 2011 of $3,612 million declined by 13.9 percent from the prior year. This decline was driven by higher trade receivables and inventories in line with the 20 percent increase in revenues. The decrease can be further attributed to a lower increase in trade payables than in the prior year. Provisions were also lower due to payments related to environmental remediation liabilities in the United States and restructuring-related payments.

In 2010, operating activities provided net cash of $4,197 million, reflecting our working capital management. Stable levels of working capital were achieved despite increasing order volumes, as cash outlays for higher inventories and trade receivables could be offset through increased levels of trade payables.

Net cash used in investing activities

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($ in millions)

2012

2011

2010

Purchases of marketable securities (available-for-sale)

(2,288)

(2,809)

(3,391)

Purchases of marketable securities (held-to-maturity)

(65)

Purchases of short-term investments

(67)

(142)

(2,165)

Purchases of property, plant and equipment and intangible assets

(1,293)

(1,021)

(840)

Acquisition of businesses (net of cash acquired) and changes in cost and equity investments

(3,694)

(4,020)

(1,313)

Proceeds from sales of marketable securities (available-for-sale)

1,655

3,717

807

Proceeds from maturity of marketable securities (available-for-sale)

483

531

Proceeds from maturity of marketable securities (held-to-maturity)

290

Proceeds from short-term investments

27

529

3,276

Other investing activities

85

10

123

Net cash used in investing activities

(5,575)

(3,253)

(2,747)

Net cash used in investing activities in 2012 increased compared to 2011 due to the sustained high level of cash outflow for the acquisition of businesses, primarily Thomas & Betts. In addition, there were net cash outflows from marketable securities and short-term investments of $673 million compared to net inflows in the prior year of $1,778 million as acquisitions in 2012 were primarily financed through new corporate bonds issued, whereas in 2011, acquisitions were funded mainly by our excess liquidity. Capital expenditures for new plant, property and equipment were also higher in 2012, to support business growth.

Total cash disbursements for the purchase of property, plant and equipment and intangibles in 2012 of $1,293 million included $885 million for construction in progress, $248 million for the purchase of machinery and equipment, $83 million for the purchase of land and buildings, and $77 million for the purchase of intangible assets.

The net cash inflow from marketable securities and short-term investments in 2011 reflected the use of our excess liquidity in funding primarily the acquisition of businesses.

Total cash disbursements for the purchase of property, plant and equipment and intangibles in 2011, included $268 million for the purchase of machinery and equipment, $128 million for the purchase of land and buildings, $57 million for the purchase of intangible assets and $568 million for construction in progress.

Acquisition of businesses (net of cash acquired) and changes in cost and equity investments in 2011, primarily related to the acquisition of Baldor, Mincom, Trasfor and Lorentzen & Wettre Group and other smaller acquisitions.

Net cash used in investing activities during 2010 was $2,747 million. Aggregate purchases of marketable securities and short-term investments amounted to $5,621 million in 2010. Aggregate proceeds from the sales and maturities of marketable securities and short-term investments during 2010 amounted to $4,904 million.

Total cash disbursements for the purchase of property, plant and equipment and intangibles in 2010 amounted to $840 million, including $164 million for the purchase of machinery and equipment, $175 million for the purchase of land and buildings, $54 million for the purchase of intangible assets and $447 million capital expenditures for construction in progress.

Acquisition of businesses (net of cash acquired), in 2010, primarily related to the acquisition of Ventyx and certain smaller acquisitions such as K-TEK in the United States and Jokab Safety in Sweden.

Net cash provided by (used in) financing activities

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($ in millions)

2012

2011

2010

Net changes in debt with maturities of 90 days or less

570

450

52

Increase in debt

5,986

2,580

277

Repayment of debt

(1,104)

(2,576)

(497)

Purchase of shares

(228)

Delivery of shares

90

110

78

Dividends paid

(1,626)

(1,569)

Dividends paid in the form of nominal value reduction

(1,112)

Acquisition of noncontrolling interests

(9)

(13)

(956)

Dividends paid to noncontrolling shareholders

(121)

(157)

(193)

Other financing activities

(24)

(33)

49

Net cash provided by (used in) financing activities

3,762

(1,208)

(2,530)

Our financing activities primarily include debt transactions (both from the issuance of debt securities and borrowings directly from banks), share transactions, and dividends paid.

The 2012 and 2011 net cash inflow from changes in debt with maturities of 90 days or less, primarily reflects the net issuance of commercial paper under our commercial paper program in the United States. During the third quarter of 2012, the program was increased to $2 billion, replacing the previous $1 billion program.

In 2012, the cash inflows from increases in debt primarily related to the issuance of the following bonds:

EUR 1,250 million aggregate principal, 2.625 percent, due 2019; $1,250 million aggregate principal, 2.875 percent, due 2022; $750 million aggregate principal, 4.375 percent, due 2042; $500 million aggregate principal, 1.625 percent, due 2017; AUD 400 million aggregate principal, 4.25 percent, due 2017; and CHF 350 million aggregate principal, 1.50 percent, due 2018. In 2011, the cash inflows from increases in debt principally related to the issuance of the following bonds: $600 million aggregate principal, 2.5 percent, due 2016; $650 million aggregate principal, 4.0 percent, due 2021; CHF 500 million aggregate principal, 1.25 percent, due 2016; and CHF 350 million aggregate principal, 2.25 percent, due 2021. In 2010, the increase in debt primarily related to short-term borrowings.

During 2012, $1,104 million of debt was repaid, mainly reflecting the repayment of part of the debt assumed from the acquisition of Thomas & Betts (approximately $320 million) and of other debt (primarily short-term bank borrowings). During 2011, $2,576 million of bonds and other debt was repaid, primarily reflecting the repayment of $1.2 billion in debt assumed upon the acquisition of Baldor in January 2011 and the repayment at maturity of 650 million euro of 6.5% EUR Instruments, due 2011, (equivalent to $865 million at date of repayment). During 2010, $497 million of debt was repaid at maturity.

During 2010, we purchased, on the open market, 12.1 million of our own shares for use in connection with our employee share-based programs, resulting in a cash outflow of $228 million. During 2012 and 2011, there were no purchases or sales of treasury stock on the open market.

The acquisition of noncontrolling interests in 2010 of $956 million represented the cost of increasing our ownership interest in ABB Limited, India (our publicly-listed subsidiary in India) from approximately 52 percent to 75 percent.