Earnings Release • Oct 25, 2018
Earnings Release
Open in ViewerOpens in native device viewer
"We demonstrated sustained growth, with total and base orders improving in all regions and all divisions", said ABB CEO Ulrich Spiesshofer. "The continued execution of our strategy and steadily growing customer demand for our ABB Ability™ digital offering is driving order growth and increased revenues."
"Our pioneering technology leadership is delivering solid results across all businesses, particularly in Robotics and Motion and Industrial Automation. Following the GE Industrial Solutions acquisition, Electrification Products is benefitting from a stronger presence in the important US market whilst the initial integration is dampening the operational EBITA margin as expected. Power Grids continues its transformation with good order momentum and is now at the target margin corridor of 10-14%."
| KEY FIGURES | CHANGE | CHANGE | ||||||
|---|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) |
Q3 2018 |
Q3 2017 |
US\$ | Compa rable1 |
9M 2018 |
9M 2017 |
US\$ | Compa rable1 |
| Orders | 8,941 | 8,157 | +10% | +9% | 28,196 | 24,909 | +13% | +7% |
| Revenues | 9,257 | 8,724 | +6% | +3% | 26,773 | 25,032 | +7% | +2% |
| Operational EBITA2 | 1,118 | 1,124 | -1% | +4%4 | 3,345 | 3,109 | +8% | +5%4 |
| as % of operational revenues |
12.1% | 12.9% | -0.8pts | 12.5% | 12.5% | 0.0pts | ||
| Net income | 603 | 571 | +6% | 1,856 | 1,820 | +2% | ||
| Basic EPS (\$) | 0.28 | 0.27 | +6%3 | 0.87 | 0.85 | +2%3 | ||
| Operational EPS2 (\$) |
0.34 | 0.34 | +0%3 | +4%3 | 1.03 | 0.92 | +12%3 | +12%3 |
| Cash flow from operating activities |
565 | 954 | -41% | 1,057 | 1,930 | -45% |
Macroeconomic signs remain robust in Europe and are trending positively in the United States, with growth expected to continue in China. The overall global market is growing, with rising geopolitical uncertainties in various parts of the world. Oil prices and foreign exchange translation effects are expected to continue to influence the company's results.
3 EPS growth rates are computed using unrounded amounts. Comparable operational earnings per share is in constant currency (2014 exchange rates not adjusted for changes in the business portfolio).
1 Growth rates for orders, third-party base orders and revenues are on a comparable basis (local currency adjusted for acquisitions and divestitures). US\$ growth rates are presented in Key Figures table. 2 For non-GAAP measures, see the "Supplemental Financial Information" attachment to the press release.
Total orders rose 9 percent (10 percent in US dollars), up in all divisions and regions compared to a year ago. Base orders (classified as orders below \$15 million) increased 7 percent (12 percent in US dollars), up in all divisions and regions and supported by ABB's comprehensive digital offering, ABB Ability™. Large orders represented 7 percent of total orders, compared to 9 percent in the same quarter of 2017. The order backlog was up 2 percent (flat in US dollars) compared to a year ago.
Service orders were up 8 percent (10 percent in US dollars). Service orders represent 18 percent of total orders, compared to 18 percent in the prior year period.
Changes in the business portfolio including impact from the acquisition of GE Industrial Solutions resulted in a net positive impact of 4 percent on total reported orders. Foreign exchange translation effects had a 3 percent negative impact on reported orders.
ABB saw robust demand from all regions in the quarter:
Demand grew in the majority of ABB's key customer segments:
Revenues were up 3 percent (6 percent in US dollars), supported by continued strong growth in Robotics and Motion and good momentum in Electrification Products and Industrial Automation, while revenues in Power Grids remained steady. Service revenues were up 11 percent (14 percent in US dollars), bolstered by ABB's leading digital portfolio, ABB Ability™ solutions. Services represented 18 percent of total revenues, up from 17 percent in the prior year period.
Business portfolio changes including impact from the acquisition of GE Industrial Solutions contributed a net positive of 6 percent to reported revenues. Changes in exchange rates resulted in a translation impact on reported revenues of minus 3 percent.
The book-to-bill ratio increased to 0.97x at the end of the quarter compared with 0.94x in the previous year.
Operational EBITA of \$1,118 million was steady in US dollars (up 4 percent in local currencies) in the third quarter compared to the prior year period. The operational EBITA margin of 12.1% was impacted 80 basis points by the acquisition of GE Industrial Solutions (GEIS) and also included an impact of 40 basis points from a charge related to the legacy non-core train retrofit business.
Net income was \$603 million, 6 percent higher year-on-year. ABB's operational net income2 was steady at \$727 million. Basic earnings per share of \$0.28 was 6 percent higher year-on-year. Operational earnings per share of \$0.34 was steady, and 4 percent better in constant currency terms3 .
The cash flow from operating activities result of \$565 million compares to \$954 million in the third quarter of 2017. Relative to a year ago, cash flow reflects reductions in payables, timing of tax payments, as well as higher inventories and receivables due to order and revenue growth momentum. Cash delivery for the full year is expected to be solid overall while reflecting higher working capital in support of growth and due to the timing of project cash flows which are also impacted by the EPC business model change.
| C HA NG E | rd party 3 |
C HA NG E | C HA NG E | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) |
Orders | US\$ | Compa rable1 |
base orders |
US\$ | Compa rable1 |
Revenues | US\$ | Compa rable1 |
Op EBITA % |
CHANGE |
| Power Grids | 2,207 | +7% | +11% | 1,802 | +9% | +13% | 2,336 | -5% | +0% | 10.0% | -0.6pts |
| Electrification Products |
3,215 | +26% | +6% | 3,008 | +25% | +3% | 3,199 | +23% | +3% | 13.5% | -2.6pts |
| Industrial Automation |
1,643 | +3% | +7% | 1,451 | +1% | +4% | 1,758 | -1% | +3% | 14.1% | +0.7pts |
| Robotics and Motion |
2,276 | +12% | +15% | 2,012 | +8% | +12% | 2,281 | +4% | +7% | 17.0% | +0.6pts |
| Corporate & other | (400) | (2) | (317) | ||||||||
| ABB Group | 8,941 | +10% | +9% | 8,271 | +12% | +7% | 9,257 | +6% | +3% | 12.1% | -0.8pts |
Effective January 1, 2018, management responsibility and oversight of certain remaining engineering, procurement and construction (EPC) business, previously included in the Power Grids, Industrial Automation, Robotics and Motion operating segments, were transferred to a new noncore operating business within Corporate and Other. Previously reported amounts have been reclassified consistent with this new structure.
Continued order momentum in the quarter, with total orders rising 11 percent (7 percent higher in US dollars) and third-party base orders increasing 13 percent (9 percent higher in US dollars), was supported by Power Up initiatives. Orders included a large HVDC project, good orders from ABB Ability™ and Grid Automation as well as for services. The order backlog ended the third quarter 1 percent lower (5 percent lower in US dollars) year-on-year. Revenues were steady (5 percent lower in US dollars), with good service momentum mitigating the lower opening order backlog. The division delivered an operational EBITA margin of 10.0 percent, supported by cost reduction efforts and strong project execution.
Total orders increased 6 percent (26 percent in US dollars) and third-party base orders rose 3 percent (25 percent in US dollars). Growth was broad-based, with good orders for data centers in the quarter. Demand from process industries improved, and building orders were robust globally. Revenues improved 3 percent (23 percent in US dollars), driven mainly by growth in product revenues. Operational EBITA margin was 260 basis points lower year-on-year at 13.5 percent. The integration of GEIS diluted margins by 270 basis points, in line with expectations. Excluding GEIS, operating margins were supported by volume growth, pricing actions and ongoing cost control.
Total orders improved 7 percent (3 percent in US dollars), while third-party base orders grew 4 percent (1 percent in US dollars) compared to the prior year period. Recovery in process industries continued, with ongoing demand for ABB Ability™ enabled automation and control solutions. In addition, order activity for specialty marine vessels was strong. The order backlog ended the third quarter 2 percent lower (5 percent lower in US dollars) year-on-year. Revenues increased 3 percent (1 percent lower in US dollars), driven by strong book-and-bill business. Operational EBITA margins expanded by 70 basis points year-on-year to 14.1 percent, due to positive net savings, strong project execution and positive one-time effects.
Order momentum was strong with total orders up 15 percent (12 percent in US dollars) and third-party base orders up 12 percent (8 percent in US dollars). Order growth was achieved across all businesses and regions, with double-digit growth in China and good demand from rail, process industries, automotive and food and beverage. Revenues improved 7 percent (4 percent in US dollars). Operational EBITA margin at 17.0 percent expanded 60 basis points year-on-year, driven by volume, mix and ongoing cost efforts.
ABB has been executing its Next Level strategy since 2014 through three focus areas: profitable growth, relentless execution, and business-led collaboration.
ABB Ability™, the market leading industrial digital solutions offering, continues to power growth at ABB within its four entrepreneurial divisions. During the quarter, ABB Ability™ solutions were recognized as global leaders in Distributed Control Systems and Enterprise Asset Management software.
Large orders received in the quarter included a substantial order to supply HVDC converter stations that will transmit renewable energy from the Kyrgyz Republic and Tajikistan to Pakistan, and over \$100 million of orders to supply state-of-the-art traction equipment to Swiss train manufacturer Stadler.
ABB continues to shift its center of gravity through ongoing portfolio management, driving towards greater competitiveness, higher growth and lower risk. In September, ABB acquired Intrion, which is headquartered in the Benelux. The transaction will advance ABB's logistics robotics offering to gain a stronger foothold in a market that the International Federation of Robotics expects to grow at an annual rate of 20 to 25 percent from 2018 to 2020. In August, ABB sold its terminal block business in line with its ongoing active portfolio management.
The acquisition of GEIS was completed on June 30, 2018. It is expected that the integration of this business, now well underway, will have an approximately 30 basis points negative impact on ABB Group operating EBITA margins for the full year 2018 and approximately 130 basis points on the Electrification Products (EP) operating EBITA margin. ABB aims to bring the margin for the EP division, after the initial dampening effect, back into its operational EBITA margin target range of 15 to 19 percent during 2020.
Throughout the third quarter, our focus on relentless execution continued to deliver net savings through ongoing cost management and productivity efforts.
In the third quarter, ABB transferred its turnkey AC Substation business to Linxon, a new joint-venture with SNC-Lavalin. This move delivers on ABB's new business model for engineering, procurement and construction.
As part of the company's brand development actions, Thomas & Betts, one of 20 ABB-owned brands, was officially migrated in the ABB global brand.
ABB was once again listed as the number one employer of choice in engineering sciences by Universum's Swiss Student Research 2018. In the survey, ABB was pleased to have strengthened its position and increased its lead over competitors.
ABB is planning to provide a strategic update alongside its full year results on February 6, 2019.
Macroeconomic signs remain robust in Europe and are trending positively in the United States, with growth expected to continue in China. The overall global market is growing, with rising geopolitical uncertainties in various parts of the world. Oil prices and foreign exchange translation effects are expected to continue to influence the company's results.
The attractive long-term demand outlook in ABB's three major customer sectors – utilities, industry and transport & infrastructure – is driven by the Energy and Fourth Industrial Revolutions. ABB is wellpositioned to tap into these opportunities for long-term profitable growth with its market-leading digital offering ABB AbilityTM, strong market presence, broad geographic and business scope, technology leadership and financial strength.
The Q3 2018 results press release and presentation slides are available on the ABB News Center at www.abb.com/news and on the Investor Relations homepage at www.abb.com/investorrelations.
ABB will host a media call today starting at 10:00 a.m. Central European Time (CET) (9:00 a.m. BST, 4:00 a.m. EST). The event will be accessible by conference call. The media conference call dial-in numbers are: UK +44 207 107 0613 Sweden +46 8 5051 0031 Rest of Europe, +41 58 310 5000 US and Canada +1 866 291 4166 (toll-free) or +1 631 570 5613 (long-distance charges) Lines will be open 10-15 minutes before the start of the call.
A conference call and webcast for analysts and investors is scheduled to begin today at 2:00 p.m. CET (1:00 p.m. BST, 8:00 a.m. EST). The webcast will be accessible on the ABB website at: new.abb.com/investorrelations/. Callers are requested to phone in 10 minutes before the start of the call. The analyst and investor conference call dial-in numbers are:
UK +44 207 107 0613 Sweden +46 8 5051 0031 Rest of Europe +41 58 310 5000 US and Canada +1 866 291 4166 (toll-free) or +1 631 570 5613 (long-distance charges)
A recorded session will be available as a webcast one hour after the end of the conference call.
ABB (ABBN: SIX Swiss Ex) is a pioneering technology leader in power grids, electrification products, industrial automation and robotics and motion, serving customers in utilities, industry and transport & infrastructure globally. Continuing a history of innovation spanning more than 130 years, ABB today is writing the future of industrial digitalization with two clear value propositions: bringing electricity from any power plant to any plug and automating industries from natural resources to finished products. As title partner in ABB Formula E, the fully electric international FIA motorsport class, ABB is pushing the boundaries of e-mobility to contribute to a sustainable future. ABB operates in more than 100 countries with about 147,000 employees. www.abb.com
INVESTOR CALENDAR 2018/2019
| February 6, 2019 | Fourth quarter and full year 2018 results |
|---|---|
| March 28, 2019 | Annual General Meeting |
This press release includes forward-looking information and statements as well as other statements concerning the outlook for our business, including those in the sections of this release titled "Short-term outlook", "Cash flow from operating activities", "Next Level strategy" and "Short- and long-term outlook". These statements are based on current expectations, estimates and projections about the factors that may affect our future performance, including global economic conditions, the economic conditions of the regions and industries that are major markets for ABB Ltd. These expectations, estimates and projections are generally identifiable by statements containing words such as "aims", "expects," "believes," "estimates," "targets," "plans," "is likely", "intends" or similar expressions. However, there are many risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking information and statements made in this press release and which could affect our ability to achieve any or all of our stated targets. The important factors that could cause such differences include, among others, business risks associated with the volatile global economic environment and political conditions, costs associated with compliance activities, market acceptance of new products and services, changes in governmental regulations and currency exchange rates and such other factors as may be discussed from time to time in ABB Ltd's filings with the U.S. Securities and Exchange Commission, including its Annual Reports on Form 20-F. 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.
Zurich, October 25, 2018
Ulrich Spiesshofer, CEO
| Media Relations |
|---|
| Phone: +41 43 317 71 11 |
| E-mail: [email protected] |
Investor Relations Phone: +41 43 317 71 11 E-mail: [email protected] ABB Ltd Affolternstrasse 44 8050 Zurich Switzerland
October 25, 2018
| ─ 03 07 |
Key Figures |
|---|---|
| ─ 08 36 |
Interim Consolidated Financial Information (unaudited) |
| 37 ─ 49 |
Supplemental Reconciliations and Definitions |
| CHANGE | ||||||
|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) Orders Order backlog (end September) Revenues Operational EBITA(1) as % of operational revenues(1) Net income attributable to ABB Basic earnings per share (\$) Operational earnings per share(1) (\$) |
Q3 2018 | Q3 2017 | US\$ | Comparable(1) | ||
| 8,941 | 8,157 | 10% | 9% | |||
| 23,480 | 23,424 | 0% | 2% | |||
| 9,257 | 8,724 | 6% | 3% | |||
| 1,118 | 1,124 | -1% | 4%(2) | |||
| 12.1% | 12.9% | -0.8 pts | ||||
| 603 | 571 | 6% | ||||
| 0.28 | 0.27 | 6%(3) | ||||
| 0.34 | 0.34 | 0%(3) | 4%(3) | |||
| Cash flow from operating activities | 565 | 954 | -41% |
| CHANGE | ||||
|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | 9M 2018 | 9M 2017 | US\$ | Comparable(1) |
| Orders | 28,196 | 24,909 | 13% | 7% |
| Revenues | 26,773 | 25,032 | 7% | 2% |
| Operational EBITA(1) | 3,345 | 3,109 | 8% | 5%(2) |
| as % of operational revenues(1) | 12.5% | 12.5% | 0 pts | |
| Net income attributable to ABB | 1,856 | 1,820 | 2% | |
| Basic earnings per share (\$) | 0.87 | 0.85 | 2%(3) | |
| Operational earnings per share(1) (\$) | 1.03 | 0.92 | 12%(3) | 12%(3) |
| Cash flow from operating activities | 1,057 | 1,930 | -45% |
(1) For a reconciliation of non-GAAP measures see "Supplemental Reconciliations and Definitions" on page 37.
(2) Constant currency (not adjusted for portfolio changes).
(3) Earnings per share growth rates are computed using unrounded amounts. Comparable Operational earnings per share growth is in constant currency (2014 foreign exchange rates and not adjusted for changes in the business portfolio).
| CHANGE | ||||||
|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | Q3 2018 | Q3 2017 | US\$ | Local | Comparable | |
| Orders | ABB Group | 8,941 | 8,157 | 10% | 13% | 9% |
| Power Grids | 2,207 | 2,072 | 7% | 11% | 11% | |
| Electrification Products | 3,215 | 2,547 | 26% | 30% | 6% | |
| Industrial Automation | 1,643 | 1,592 | 3% | 7% | 7% | |
| Robotics and Motion | 2,276 | 2,031 | 12% | 15% | 15% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (400) | (85) | ||||
| Third-party base orders | ABB Group | 8,271 | 7,384 | 12% | 16% | 7% |
| Power Grids | 1,802 | 1,654 | 9% | 13% | 13% | |
| Electrification Products | 3,008 | 2,407 | 25% | 29% | 3% | |
| Industrial Automation | 1,451 | 1,436 | 1% | 4% | 4% | |
| Robotics and Motion | 2,012 | 1,857 | 8% | 12% | 12% | |
| Corporate and Other | (2) | 30 | ||||
| Order backlog (end September) | ABB Group | 23,480 | 23,424 | 0% | 4% | 2% |
| Power Grids | 10,272 | 10,833 | -5% | -1% | -1% | |
| Electrification Products | 4,426 | 3,228 | 37% | 42% | 8% | |
| Industrial Automation | 5,307 | 5,595 | -5% | -2% | -2% | |
| Robotics and Motion | 4,204 | 3,958 | 6% | 10% | 10% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (729) | (190) | ||||
| Revenues | ABB Group | 9,257 | 8,724 | 6% | 9% | 3% |
| Power Grids | 2,336 | 2,449 | -5% | 0% | 0% | |
| Electrification Products | 3,199 | 2,596 | 23% | 27% | 3% | |
| Industrial Automation | 1,758 | 1,780 | -1% | 3% | 3% | |
| Robotics and Motion | 2,281 | 2,197 | 4% | 7% | 7% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (317) | (298) | ||||
| Operational EBITA | ABB Group | 1,118 | 1,124 | -1% | 4% | |
| Power Grids | 232 | 259 | -10% | -2% | ||
| Electrification Products | 431 | 417 | 3% | 7% | ||
| Industrial Automation | 246 | 237 | 4% | 8% | ||
| Robotics and Motion | 386 | 361 | 7% | 9% | ||
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (177) | (150) | ||||
| Operational EBITA % | ABB Group | 12.1% | 12.9% | |||
| Power Grids | 10.0% | 10.6% | ||||
| Electrification Products | 13.5% | 16.1% | ||||
| Industrial Automation | 14.1% | 13.4% | ||||
| Robotics and Motion | 17.0% | 16.4% | ||||
| Income from operations | ABB Group | 908 | 888 | |||
| Power Grids | 220 | 232 | ||||
| Electrification Products | 391 | 393 | ||||
| Industrial Automation | 223 | 164 | ||||
| Robotics and Motion | 354 | 336 | ||||
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (280) | (237) | ||||
| Income from operations % | ABB Group | 9.8% | 10.2% | |||
| Power Grids | 9.4% | 9.5% | ||||
| Electrification Products | 12.2% | 15.1% | ||||
| Industrial Automation | 12.7% | 9.2% | ||||
| Robotics and Motion | 15.5% | 15.3% | ||||
| Cash flow from operating activities | ABB Group | 565 | 954 | |||
| Power Grids | (162) | 182 | ||||
| Electrification Products | 375 | 304 | ||||
| Industrial Automation | 174 | 236 | ||||
| Robotics and Motion | 300 | 247 | ||||
| Corporate and Other | (122) | (15) | ||||
| CHANGE | ||||||
|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | 9M 2018 | 9M 2017 | US\$ | Local | Comparable | |
| Orders | ABB Group | 28,196 | 24,909 | 13% | 11% | 7% |
| Power Grids | 7,264 | 6,823 | 6% | 5% | 5% | |
| Electrification Products | 8,728 | 7,587 | 15% | 13% | 5% | |
| Industrial Automation | 5,765 | 4,758 | 21% | 17% | 8% | |
| Robotics and Motion | 7,395 | 6,426 | 15% | 12% | 12% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (956) | (685) | ||||
| Third-party base orders | ABB Group | 25,816 | 22,663 | 14% | 12% | 7% |
| Power Grids | 5,922 | 5,378 | 10% | 9% | 9% | |
| Electrification Products | 8,208 | 7,165 | 15% | 12% | 4% | |
| Industrial Automation | 4,953 | 4,198 | 18% | 15% | 4% | |
| Robotics and Motion | 6,688 | 5,814 | 15% | 12% | 12% | |
| Corporate and Other | 45 | 108 | ||||
| Order backlog (end September) | ABB Group | 23,480 | 23,424 | 0% | 4% | 2% |
| Power Grids | 10,272 | 10,833 | -5% | -1% | -1% | |
| Electrification Products | 4,426 | 3,228 | 37% | 42% | 8% | |
| Industrial Automation | 5,307 | 5,595 | -5% | -2% | -2% | |
| Robotics and Motion | 4,204 | 3,958 | 6% | 10% | 10% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (729) | (190) | ||||
| Revenues | ABB Group | 26,773 | 25,032 | 7% | 5% | 2% |
| Power Grids | 7,075 | 7,307 | -3% | -4% | -4% | |
| Electrification Products | 8,366 | 7,398 | 13% | 11% | 3% | |
| Industrial Automation | 5,456 | 4,868 | 12% | 10% | 1% | |
| Robotics and Motion | 6,806 | 6,199 | 10% | 7% | 7% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (930) | (740) | ||||
| Operational EBITA | ABB Group | 3,345 | 3,109 | 8% | 5% | |
| Power Grids | 696 | 743 | -6% | -6% | ||
| Electrification Products | 1,238 | 1,112 | 11% | 8% | ||
| Industrial Automation | 768 | 654 | 17% | 16% | ||
| Robotics and Motion | 1,098 | 957 | 15% | 12% | ||
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (455) | (357) | ||||
| Operational EBITA % | ABB Group | 12.5% | 12.5% | |||
| Power Grids | 9.8% | 10.2% | ||||
| Electrification Products | 14.8% | 15.1% | ||||
| Industrial Automation | 14.1% | 13.5% | ||||
| Robotics and Motion | 16.1% | 15.4% | ||||
| Income from operations | ABB Group | 2,765 | 2,788 | |||
| Power Grids | 589 | 669 | ||||
| Electrification Products | 1,069 | 1,034 | ||||
| Industrial Automation | 683 | 584 | ||||
| Robotics and Motion | 1,020 | 879 | ||||
| Corporate and Other (incl. inter-division eliminations) |
||||||
| (596) | (378) | |||||
| Income from operations % | ABB Group | 10.3% | 11.1% | |||
| Power Grids | 8.3% | 9.2% | ||||
| Electrification Products | 12.8% | 14.0% | ||||
| Industrial Automation | 12.5% | 12.0% | ||||
| Robotics and Motion | 15.0% | 14.2% | ||||
| Cash flow from operating activities | ABB Group | 1,057 | 1,930 | |||
| Power Grids | (184) | 449 | ||||
| Electrification Products | 753 | 768 | ||||
| Industrial Automation | 461 | 509 | ||||
| Robotics and Motion | 724 | 731 | ||||
| Corporate and Other | (697) | (527) |
| Power | Electrification | Industrial | Robotics | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | ABB | Grids | Products | Automation | and Motion | |||||
| Q3 18 | Q3 17 | Q3 18 | Q3 17 | Q3 18 | Q3 17 | Q3 18 | Q3 17 | Q3 18 | Q3 17 | |
| Revenues | 9,257 | 8,724 | 2,336 | 2,449 | 3,199 | 2,596 | 1,758 | 1,780 | 2,281 | 2,197 |
| FX/commodity timing | ||||||||||
| differences in total revenues | (50) | (3) | (23) | (4) | – | – | (13) | (15) | (4) | 7 |
| Operational revenues | 9,207 | 8,721 | 2,313 | 2,445 | 3,199 | 2,596 | 1,745 | 1,765 | 2,277 | 2,204 |
| Income from operations | 908 | 888 | 220 | 232 | 391 | 393 | 223 | 164 | 354 | 336 |
| Acquisition-related amortization | 80 | 74 | 7 | 8 | 32 | 24 | 22 | 21 | 16 | 16 |
| Restructuring and | ||||||||||
| restructuring-related expenses(1) | 44 | 92 | 7 | 12 | 19 | (2) | 2 | 40 | 11 | 2 |
| Changes in retained obligations of | ||||||||||
| divested businesses | 75 | – | – | – | – | – | – | – | – | – |
| Changes in pre-acquisition estimates | 1 | (2) | – | – | 1 | (2) | – | – | – | – |
| Gains and losses from sale of businesses | (66) | 1 | – | – | (83) | – | – | – | – | – |
| Acquisition-related expenses and | ||||||||||
| integration costs | 75 | 27 | – | 1 | 60 | 8 | 1 | 18 | 1 | – |
| Certain other non-operational items | 7 | 43 | 7 | 8 | – | – | 1 | 1 | 2 | – |
| FX/commodity timing | ||||||||||
| differences in income from operations | (6) | 1 | (9) | (2) | 11 | (4) | (3) | (7) | 2 | 7 |
| Operational EBITA | 1,118 | 1,124 | 232 | 259 | 431 | 417 | 246 | 237 | 386 | 361 |
| Operational EBITA margin (%) | 12.1% | 12.9% | 10.0% | 10.6% | 13.5% | 16.1% | 14.1% | 13.4% | 17.0% | 16.4% |
| Power | Electrification | Industrial | Robotics | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | ABB | Grids | Products | Automation | and Motion | |||||
| 9M 18 | 9M 17 | 9M 18 | 9M 17 | 9M 18 | 9M 17 | 9M 18 | 9M 17 | 9M 18 | 9M 17 | |
| Revenues | 26,773 | 25,032 | 7,075 | 7,307 | 8,366 | 7,398 | 5,456 | 4,868 | 6,806 | 6,199 |
| FX/commodity timing | ||||||||||
| differences in total revenues | 37 | (108) | 33 | (45) | 14 | (27) | (7) | (30) | 7 | (3) |
| Operational revenues | 26,810 | 24,924 | 7,108 | 7,262 | 8,380 | 7,371 | 5,449 | 4,838 | 6,813 | 6,196 |
| Income from operations | 2,765 | 2,788 | 589 | 669 | 1,069 | 1,034 | 683 | 584 | 1,020 | 879 |
| Acquisition-related amortization | 225 | 189 | 27 | 25 | 71 | 76 | 66 | 25 | 48 | 50 |
| Restructuring and | ||||||||||
| restructuring-related expenses(1) | 61 | 224 | 18 | 33 | 22 | 11 | 4 | 49 | 13 | 29 |
| Changes in obligations related to | ||||||||||
| divested businesses | 92 | 94 | – | – | – | – | – | – | – | – |
| Changes in pre-acquisition estimates | 2 | – | – | – | 2 | – | – | – | – | – |
| Gains and losses from sale of businesses | (61) | (330) | – | – | (81) | – | 3 | (2) | – | – |
| Acquisition-related expenses and | ||||||||||
| integration costs | 152 | 41 | 4 | 1 | 128 | 11 | 3 | 25 | 1 | – |
| Certain other non-operational items | 49 | 193 | 34 | 60 | (2) | 13 | 1 | 1 | 7 | – |
| FX/commodity timing | ||||||||||
| differences in income from operations | 60 | (90) | 24 | (45) | 29 | (33) | 8 | (28) | 9 | (1) |
| Operational EBITA | 3,345 | 3,109 | 696 | 743 | 1,238 | 1,112 | 768 | 654 | 1,098 | 957 |
| Operational EBITA margin (%) | 12.5% | 12.5% | 9.8% | 10.2% | 14.8% | 15.1% | 14.1% | 13.5% | 16.1% | 15.4% |
| Power | Electrification | Industrial | Robotics | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (\$ in millions) | ABB | Grids | Products | Automation | and Motion | ||||||
| Q3 18 | Q3 17 | Q3 18 | Q3 17 | Q3 18 | Q3 17 | Q3 18 | Q3 17 | Q3 18 | Q3 17 | ||
| Depreciation | 197 | 191 | 41 | 44 | 63 | 52 | 18 | 17 | 35 | 35 | |
| Amortization | 106 | 96 | 14 | 16 | 41 | 27 | 22 | 23 | 17 | 19 | |
| including total acquisition-related amortization of: | 80 | 74 | 7 | 8 | 32 | 24 | 22 | 21 | 16 | 16 |
| Power Electrification |
Industrial | Robotics | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (\$ in millions) | ABB | Grids | Products | Automation | and Motion | ||||||
| 9M 18 | 9M 17 | 9M 18 | 9M 17 | 9M 18 | 9M 17 | 9M 18 | 9M 17 | 9M 18 | 9M 17 | ||
| Depreciation | 578 | 555 | 128 | 130 | 165 | 152 | 52 | 41 | 105 | 103 | |
| Amortization | 290 | 253 | 47 | 46 | 85 | 85 | 69 | 29 | 52 | 59 | |
| including total acquisition-related amortization of: | 225 | 189 | 27 | 25 | 71 | 76 | 66 | 25 | 48 | 50 |
| (\$ in millions, unless otherwise indicated) | Orders received | CHANGE | Revenues | CHANGE | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Com- | Com | |||||||||
| Q3 18 | Q3 17 | US\$ | Local | parable | Q3 18 | Q3 17 | US\$ | Local | parable | |
| Europe | 3,037 | 2,760 | 10% | 14% | 15% | 3,123 | 3,058 | 2% | 6% | 3% |
| The Americas | 2,869 | 2,339 | 23% | 26% | 9% | 2,882 | 2,400 | 20% | 23% | 6% |
| Asia, Middle East and Africa | 3,035 | 3,058 | -1% | 2% | 4% | 3,252 | 3,266 | 0% | 3% | 1% |
| ABB Group | 8,941 | 8,157 | 10% | 13% | 9% | 9,257 | 8,724 | 6% | 9% | 3% |
| (\$ in millions, unless otherwise indicated) | Orders received | CHANGE Revenues |
CHANGE | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Com- | Com | |||||||||
| 9M 18 | 9M 17 | US\$ | Local | parable | 9M 18 | 9M 17 | US\$ | Local | parable | |
| Europe | 10,088 | 8,730 | 16% | 10% | 7% | 9,343 | 8,565 | 9% | 5% | 1% |
| The Americas | 7,861 | 7,142 | 10% | 11% | 5% | 7,817 | 7,204 | 9% | 10% | 4% |
| Asia, Middle East and Africa | 10,247 | 9,037 | 13% | 11% | 8% | 9,613 | 9,263 | 4% | 1% | 1% |
| ABB Group | 28,196 | 24,909 | 13% | 11% | 7% | 26,773 | 25,032 | 7% | 5% | 2% |
—
| (\$ in millions, except per share data in \$) Sep. 30, 2018 Sep. 30, 2017 Sep. 30, 2018 Sep. 30, 2017 Sales of products 21,772 20,686 7,560 7,235 Sales of services and other 5,001 4,346 1,697 1,489 Total revenues 26,773 25,032 9,257 8,724 Cost of sales of products (15,685) (14,810) (5,576) (5,158) Cost of services and other (2,984) (2,603) (1,014) (910) Total cost of sales (18,669) (17,413) (6,590) (6,068) Gross profit 8,104 7,619 2,667 2,656 Selling, general and administrative expenses (4,455) (4,085) (1,553) (1,402) Non-order related research and development expenses (1,027) (968) (328) (358) Other income (expense), net 143 222 122 (8) Income from operations 2,765 2,788 908 888 Interest and dividend income 64 55 13 20 Interest and other finance expense (244) (227) (91) (74) Non-operational pension (cost) credit 87 34 29 20 Income from continuing operations before taxes 2,672 2,650 859 854 Provision for taxes (722) (702) (223) (246) Income from continuing operations, net of tax 1,950 1,948 636 608 Income (loss) from discontinued operations, net of tax 3 (6) – (5) Net income 1,953 1,942 636 603 Net income attributable to noncontrolling interests (97) (122) (33) (32) Net income attributable to ABB 1,856 1,820 603 571 Amounts attributable to ABB shareholders: Income from continuing operations, net of tax 1,853 1,826 603 576 Net income 1,856 1,820 603 571 Basic earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 0.87 0.85 0.28 0.27 Net income 0.87 0.85 0.28 0.27 Diluted earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 0.87 0.85 0.28 0.27 Net income 0.87 0.85 0.28 0.27 Weighted-average number of shares outstanding (in millions) used to compute: Basic earnings per share attributable to ABB shareholders 2,132 2,138 2,132 2,134 Diluted earnings per share attributable to ABB shareholders 2,140 2,147 2,138 2,142 |
Nine months ended | Three months ended | |||
|---|---|---|---|---|---|
Due to rounding, numbers presented may not add to the totals provided.
| Nine months ended | Three months ended | |||
|---|---|---|---|---|
| (\$ in millions) | Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 |
| Total comprehensive income, net of tax | 1,458 | 2,727 | 474 | 855 |
| Total comprehensive income attributable to noncontrolling interests, net of tax | (74) | (139) | (14) | (36) |
| Total comprehensive income attributable to ABB shareholders, net of tax | 1,384 | 2,588 | 460 | 819 |
| Due to rounding, numbers presented may not add to the totals provided. |
—
| (\$ in millions, except share data) | Sep. 30, 2018 | Dec. 31, 2017 |
|---|---|---|
| Cash and equivalents | 2,604 | 4,526 |
| Marketable securities and short-term investments | 953 | 1,102 |
| Receivables, net | 8,935 | 8,267 |
| Contract assets | 2,350 | 2,149 |
| Inventories, net | 6,077 | 5,255 |
| Prepaid expenses | 316 | 189 |
| Other current assets | 720 | 647 |
| Total current assets | 21,955 | 22,135 |
| Property, plant and equipment, net | 5,580 | 5,363 |
| Goodwill | 12,426 | 11,199 |
| Other intangible assets, net | 2,894 | 2,622 |
| Prepaid pension and other employee benefits | 170 | 144 |
| Investments in equity-accounted companies | 168 | 158 |
| Deferred taxes | 962 | 1,250 |
| Other non-current assets | 497 | 587 |
| Total assets | 44,652 | 43,458 |
| Accounts payable, trade | 5,825 | 5,419 |
| Contract liabilities | 2,700 | 2,908 |
| Short-term debt and current maturities of long-term debt | 2,883 | 738 |
| Provisions for warranties | 1,184 | 1,231 |
| Other provisions | 1,733 | 1,882 |
| Other current liabilities | 4,233 | 4,291 |
| Total current liabilities | 18,558 | 16,469 |
| Long-term debt | 6,619 | 6,709 |
| Pension and other employee benefits | 1,760 | 1,882 |
| Deferred taxes | 1,190 | 1,099 |
| Other non-current liabilities | 1,876 | 1,950 |
| Total liabilities | 30,003 | 28,109 |
| Commitments and contingencies | ||
| Stockholders' equity: | ||
| Common stock | ||
| (2,168,148,264 issued shares at September 30, 2018, and December 31, 2017) | 188 | 188 |
| Additional paid-in capital | 43 | 29 |
| Retained earnings | 19,522 | 19,594 |
| Accumulated other comprehensive loss | (4,826) | (4,345) |
| Treasury stock, at cost | ||
| (36,344,658 and 29,541,775 shares at September 30, 2018, and December 31, 2017, respectively) | (824) | (647) |
| Total ABB stockholders' equity | 14,103 | 14,819 |
| Noncontrolling interests | 546 | 530 |
| Total stockholders' equity | 14,649 | 15,349 |
| Total liabilities and stockholders' equity | 44,652 | 43,458 |
| Due to rounding, numbers presented may not add to the totals provided. |
—
| Nine months ended Three months ended |
||||
|---|---|---|---|---|
| (\$ in millions) | Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 |
| Operating activities: | ||||
| Net income | 1,953 | 1,942 | 636 | 603 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 868 | 808 | 303 | 287 |
| Deferred taxes | 38 | 40 | (12) | (3) |
| Net loss (gain) from derivatives and foreign exchange | 93 | 5 | – | 34 |
| Net loss (gain) from sale of property, plant and equipment | (59) | (22) | (20) | (12) |
| Net loss (gain) from sale of businesses | (61) | (330) | (66) | 1 |
| Share-based payment arrangements | 39 | 41 | 11 | 14 |
| Other | (97) | 21 | (63) | (16) |
| Changes in operating assets and liabilities: | ||||
| Trade receivables, net | (261) | (148) | (119) | (5) |
| Contract assets and liabilities | (447) | (244) | (141) | (135) |
| Inventories, net | (623) | (306) | (176) | (72) |
| Accounts payable, trade | 162 | 279 | (56) | 50 |
| Accrued liabilities | 178 | 101 | 337 | 234 |
| Provisions, net | (107) | (87) | 111 | (66) |
| Income taxes payable and receivable | (96) | 41 | (9) | 48 |
| Other assets and liabilities, net | (523) | (211) | (171) | (8) |
| Net cash provided by operating activities | 1,057 | 1,930 | 565 | 954 |
| Investing activities: | ||||
| Purchases of marketable securities (available-for-sale) | (309) | (300) | (275) | (26) |
| Purchases of short-term investments | (24) | (133) | – | (59) |
| Purchases of property, plant and equipment and intangible assets | (674) | (620) | (239) | (203) |
| Acquisition of businesses (net of cash acquired) | ||||
| and increases in cost- and equity-accounted companies | (2,549) | (2,119) | (31) | (2,101) |
| Proceeds from sales of marketable securities (available-for-sale) | 87 | 502 | 56 | 12 |
| Proceeds from maturity of marketable securities (available-for-sale) | 160 | 100 | 36 | – |
| Proceeds from short-term investments | 304 | 899 | 19 | 25 |
| Proceeds from sales of property, plant and equipment | 53 | 50 | 8 | 20 |
| Proceeds from sales of businesses (net of transaction costs | ||||
| and cash disposed) and cost- and equity-accounted companies | 127 | 664 | 136 | (9) |
| Net cash from settlement of foreign currency derivatives | (39) | 92 | (10) | 59 |
| Other investing activities | (137) | 29 | (14) | 7 |
| Net cash used in investing activities | (3,001) | (836) | (314) | (2,275) |
| Financing activities: | ||||
| Net changes in debt with original maturities of 90 days or less | 566 | 363 | (677) | (47) |
| Increase in debt | 1,915 | 901 | 14 | 11 |
| Repayment of debt | (344) | (657) | (247) | (67) |
| Delivery of shares | 42 | 86 | – | – |
| Purchase of treasury stock | (250) | (251) | – | – |
| Dividends paid | (1,717) | (1,635) | – | – |
| Dividends paid to noncontrolling shareholders | (126) | (121) | – | (5) |
| Other financing activities | 41 | (14) | 30 | 1 |
| Net cash provided by (used in) financing activities | 127 | (1,328) | (880) | (107) |
| Effects of exchange rate changes on cash and equivalents | (105) | 239 | (50) | 59 |
| Net change in cash and equivalents – continuing operations | (1,922) | 5 | (679) | (1,369) |
| Cash and equivalents, beginning of period | 4,526 | 3,644 | 3,283 | 5,018 |
| Cash and equivalents, end of period | 2,604 | 3,649 | 2,604 | 3,649 |
| Supplementary disclosure of cash flow information: | ||||
| Interest paid | 148 | 139 | 30 | 24 |
| Taxes paid | 781 | 651 | 250 | 208 |
Due to rounding, numbers presented may not add to the totals provided.
| Accumulated | ||||||||
|---|---|---|---|---|---|---|---|---|
| Additional | other | Total ABB | Non | Total | ||||
| (\$ in millions) | Common stock |
paid-in capital |
Retained earnings |
comprehensive loss |
Treasury stock |
stockholders' equity |
controlling interests |
stockholders' equity |
| Balance at January 1, 2017 | 192 | 24 | 19,925 | (5,187) | (1,559) | 13,395 | 502 | 13,897 |
| Comprehensive income: | ||||||||
| Net income | 1,820 | 1,820 | 122 | 1,942 | ||||
| Foreign currency translation | ||||||||
| adjustments, net of tax of \$1 | 850 | 850 | 17 | 867 | ||||
| Effect of change in fair value of | ||||||||
| available-for-sale securities, | ||||||||
| net of tax of \$1 | 3 | 3 | 3 | |||||
| Unrecognized income (expense) | ||||||||
| related to pensions and other | ||||||||
| postretirement plans, | ||||||||
| net of tax of \$(24) | (90) | (90) | (90) | |||||
| Change in derivatives qualifying as | ||||||||
| cash flow hedges, net of tax of \$1 | 5 | 5 | 5 | |||||
| Total comprehensive income | 2,588 | 139 | 2,727 | |||||
| Changes in noncontrolling interests | 3 | 3 | (4) | (1) | ||||
| Dividends to | ||||||||
| noncontrolling shareholders | – | (128) | (128) | |||||
| Dividends paid to shareholders | (1,622) | (1,622) | (1,622) | |||||
| Share-based payment arrangements | 41 | 41 | 41 | |||||
| Cancellation of treasury shares | (4) | (27) | (922) | 953 | – | – | ||
| Purchase of treasury stock | (251) | (251) | (251) | |||||
| Delivery of shares | (33) | 119 | 86 | 86 | ||||
| Call options | 4 | 4 | 4 | |||||
| Balance at September 30, 2017 | 188 | 11 | 19,201 | (4,418) | (738) | 14,244 | 509 | 14,753 |
| Balance at January 1, 2018 | 188 | 29 | 19,594 | (4,345) | (647) | 14,819 | 530 | 15,349 |
| Cumulative effect of changes in | ||||||||
| accounting principles | (192) | (9) | (201) | (201) | ||||
| Comprehensive income: | ||||||||
| Net income | 1,856 | 1,856 | 97 | 1,953 | ||||
| Foreign currency translation | ||||||||
| adjustments, net of tax of \$(2) | (543) | (543) | (23) | (566) | ||||
| Effect of change in fair value of | ||||||||
| available-for-sale securities, | ||||||||
| net of tax of \$(1) | (5) | (5) | (5) | |||||
| Unrecognized income (expense) | ||||||||
| related to pensions and other | ||||||||
| postretirement plans, | ||||||||
| net of tax of \$33 | 98 | 98 | 98 | |||||
| Change in derivatives qualifying as | ||||||||
| cash flow hedges, net of tax of \$(4) | (22) | (22) | (22) | |||||
| Total comprehensive income | 1,384 | 74 | 1,458 | |||||
| Changes in noncontrolling interests | – | (23) | (23) | |||||
| Noncontrolling interests recognized in | ||||||||
| connection with business combination | – | 107 | 107 | |||||
| Dividends to | ||||||||
| noncontrolling shareholders | – | (142) | (142) | |||||
| Dividends paid to shareholders | (1,736) | (1,736) | (1,736) | |||||
| Share-based payment arrangements | 39 | 39 | 39 | |||||
| Purchase of treasury stock | (249) | (249) | (249) | |||||
| Delivery of shares | (31) | 73 | 42 | 42 | ||||
| Call options | 5 | 5 | 5 | |||||
| Balance at September 30, 2018 | 188 | 43 | 19,522 | (4,826) | (824) | 14,103 | 546 | 14,649 |
Due to rounding, numbers presented may not add to the totals provided.
ABB Ltd and its subsidiaries (collectively, the Company) together form a pioneering technology leader in power grids, electrification products, industrial automation and robotics and motion, serving customers in utilities, industry and transport & infrastructure globally.
The Company's Interim Consolidated Financial Information is prepared in accordance with United States of America generally accepted accounting principles (U.S. GAAP) for interim financial reporting. As such, the Interim Consolidated Financial Information does not include all the information and notes required under U.S. GAAP for annual consolidated financial statements. Therefore, such financial information should be read in conjunction with the audited consolidated financial statements in the Company's Annual Report for the year ended December 31, 2017.
The preparation of financial information in conformity with U.S. GAAP requires management to make assumptions and estimates that directly affect the amounts reported in the Interim Consolidated Financial Information. The most significant, difficult and subjective of such accounting assumptions and estimates include:
The actual results and outcomes may differ from the Company's estimates and assumptions.
A portion of the Company's activities (primarily long-term construction activities) has an operating cycle that exceeds one year. For classification of current assets and liabilities related to such activities, the Company elected to use the duration of the individual contracts as its operating cycle. Accordingly, there are accounts receivable, contract assets, inventories and provisions related to these contracts which will not be realized within one year that have been classified as current.
—
─
In the opinion of management, the unaudited Interim Consolidated Financial Information contains all necessary adjustments to present fairly the financial position, results of operations and cash flows for the reported interim periods. Management considers all such adjustments to be of a normal recurring nature.
The Company has retained obligations (primarily for environmental and taxes) related to businesses disposed or otherwise exited that qualified as discontinued operations. Changes to these retained obligations are recorded in income/loss from discontinued operations, net of tax.
The Interim Consolidated Financial Information is presented in United States dollars (\$) unless otherwise stated. Due to rounding, numbers presented in the Interim Consolidated Financial Information may not add to the totals provided.
Certain amounts reported in the Interim Consolidated Financial Information for prior periods have been reclassified to conform to the current year's presentation. These changes primarily relate to:
(ii) the reclassification of Billings in excess of sales, Advances from customers, certain advances to customers previously reported as a reduction in Inventories, and deferred revenues previously reported in Other current liabilities, to Contract liabilities, and (iii) the reclassification of certain net periodic pension and postretirement benefits costs/credits from Total cost of sales, Selling, general and administrative expenses and Non-order related research and development expenses to Non-operational pension (cost) credit.
As of January 1, 2018, the Company adopted a new accounting standard for recognizing revenues from contracts with customers. The new standard, which supersedes substantially all previously existing revenue recognition guidance, provides a single comprehensive model for recognizing revenues on the transfer of promised goods or services to customers for an amount that reflects the consideration that is expected to be received for those goods or services. The adoption of this standard resulted in only immaterial differences between the identification of performance obligations and the unit of accounting determination. Therefore, the cumulative effect on retained earnings of retrospectively applying this standard was not significant. However, total assets and total liabilities increased by \$196 million due to the reclassification of certain advances from customers, previously reported as a reduction in Inventories, to liabilities.
While comparative information has not been restated and continues to be measured and reported under the accounting standards in effect for those periods presented, the following prior period amounts have been reclassified in the Consolidated Balance Sheets to conform to the presentation requirements of the new standard:
| December 31, 2017 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Previously | As | Previously | As | ||||||
| (\$ in millions) | reported | adjusted | reported | adjusted | |||||
| Consolidated Balance Sheet | |||||||||
| Current assets | Current liabilities | ||||||||
| Receivables, net(1) | 10,416 | 8,267 | Contract liabilities(2), (3), (4) | – | 2,908 | ||||
| Contract assets(1) | – | 2,149 | Billings in excess of sales(2) | 1,251 | – | ||||
| Inventories, net(3) | 5,059 | 5,255 | Advances from customers(2), (3) | 1,367 | – | ||||
| Other current liabilities(4) | 4,385 | 4,291 | |||||||
| Total assets | 43,262 | 43,458 | Total liabilities | 27,913 | 28,109 |
(1) \$2,149 million of unbilled receivables previously included in Receivables, have been reclassified to Contract assets.
(2) Amounts previously presented as billings in excess of sales and advances from customers, have been reclassified to Contract liabilities.
(3) \$196 million of advances from customers, previously recorded net within Inventories, have been reclassified to advances from customers and recorded within Contract liabilities.
(4) Certain amounts recorded as deferred revenues totaling \$94 million, have been reclassified from Other current liabilities to Contract liabilities.
Other than the reclassifications of 2017 balances in the table above and the additional disclosure requirements, the impact of the adoption on the Company's Interim Consolidated Financial Information for the nine and three months ended September 30, 2018, was not significant.
In January 2018, the Company adopted an accounting standard update requiring it to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs instead of when the asset has been sold to an outside party. This update was applied on a modified retrospective basis and resulted in a net reduction in deferred tax assets of \$201 million with a corresponding reduction in retained earnings.
In January 2018, the Company adopted an accounting standard update which changes how employers that sponsor defined benefit pension plans and other postretirement plans present the net periodic benefit cost in the income statement. Under this standard, the Company is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component and outside the subtotal of income from operations. Under the amendment only the current service cost component is allowed to be capitalized as a cost of internally manufactured inventory or a self-constructed asset. This update was applied retrospectively for the presentation requirements, and prospectively for the capitalization of the current service cost component requirements. The Company has used the practical expedient, as the amount of other components of net periodic benefit cost capitalized in inventory for prior periods is not significant.
For the nine and three months ended September 30, 2017, the Company reclassified \$34 million and \$20 million, respectively, of income and presented it outside of income from operations relating to net periodic pension costs.
In January 2018, the Company adopted two accounting standard updates enhancing the reporting model for financial instruments, which include amendments to address aspects of recognition, measurement, presentation and disclosure. The Company is required to measure equity investments (except those accounted for under the equity method) at fair value with changes in fair value recognized in net income. The adoption of these updates resulted in the reclassification of the net cumulative unrealized gains on available-for-sale equity securities of \$9 million (net of tax) at December 31, 2017 from Total accumulated comprehensive loss to Retained earnings on January 1, 2018.
In January 2018, the company adopted an accounting standard update which clarifies how certain cash receipts and cash payments, including debt prepayment or extinguishment costs, the settlement of zero coupon debt instruments, contingent consideration paid after a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization, should be presented and classified in the statement of cash flows. This update was applied retrospectively and did not have a significant impact on the consolidated financial statements.
In January 2018, the Company adopted an accounting standard update which clarifies the classification and presentation of changes in restricted cash on the statement of cash flows. It requires the inclusion of cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This update did not have a significant impact on the consolidated financial statements.
In January 2018, the Company adopted an accounting standard update which narrows the definition of a business. It also provides a framework for determining whether a set of transferred assets and activities involves a business. This update was applied prospectively and did not have a significant impact on the consolidated financial statements.
In January 2018, the Company adopted an accounting standard update which clarifies the scope of asset derecognition guidance, adds guidance for partial sales of nonfinancial assets and clarifies recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. This update was applied retrospectively and did not have a significant impact on the consolidated financial statements.
In January 2018, the Company adopted an accounting standard update which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this update, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This update was applied prospectively and did not have a significant impact on the consolidated financial statements.
Leases
In February 2016, an accounting standard update was issued that requires lessees to recognize lease assets and corresponding lease liabilities on the balance sheet for all leases with terms of more than 12 months. The update, which supersedes existing lease guidance, will continue to classify leases as either finance or operating, with the classification determining the pattern of expense recognition in the income statement. This update is effective for the Company for annual and interim periods beginning January 1, 2019, and is applicable on a modified retrospective basis with various optional practical expedients.
In July 2018, a further accounting standard update was issued, allowing the Company the additional option of adopting the standard retrospectively with the cumulative-effect of initially applying the new standard recognized at the date of adoption in retained earnings.
The Company will elect to adopt the standard using the additional option outlined above and currently expects the update will increase total assets and total liabilities by approximately \$1.5 billion. The Company continues to evaluate the impacts of the adoption of this update and therefore the expected impacts are subject to change.
In June 2016, an accounting standard update was issued which replaces the existing incurred loss impairment methodology for most financial assets with a new "current expected credit loss" model. The new model will result in the immediate recognition of the estimated credit losses expected to occur over the remaining life of financial assets such as trade and other receivables, held-to-maturity debt securities, loans and other instruments. Credit losses relating to available-for-sale debt securities will be measured in a manner similar to current GAAP, except that the losses will be recorded through an allowance for credit losses rather than as a direct write-down of the security.
This update is effective for the Company for annual and interim periods beginning January 1, 2020, with early adoption permitted for annual and interim periods beginning January 1, 2019. The Company is currently evaluating the impact of this update on its consolidated financial statements.
In August 2017, an accounting standard update was issued which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. This update is effective for the Company for annual and interim periods beginning January 1, 2019. For cash flow and net investment hedges as of the adoption date, the guidance requires a modified retrospective approach. The amended presentation and disclosure guidance is required only prospectively. The Company will adopt this update as of January 1, 2019, and is currently evaluating the impact of this update on its consolidated financial statements.
In February 2018, an accounting standard update was issued which allows a reclassification of the stranded tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 to retained earnings. This update is effective for the Company for annual and interim periods beginning January 1, 2019, with early adoption in any interim period permitted. The updated guidance is to be applied in the period of adoption or retrospectively to each period in which the effect of the Tax Cuts and Jobs Act related to items remaining in accumulated other comprehensive income are recognized. The Company is currently evaluating the impact of this update on its consolidated financial statements.
Customer's accounting for implementation costs incurred in a cloud computing arrangement that is a service contract In August 2018, an accounting standard update was issued which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This update is effective for the Company for annual and interim periods beginning January 1, 2020, with early adoption in any interim period permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements.
In August 2018, an accounting standard update was issued which modifies the disclosure requirements for defined benefit pension or other postretirement benefit plans. The update removes certain disclosures relating to (i) amounts expected to be recognized in net periodic benefit cost over the next twelve months, (ii) plan assets expected to be returned to the Company, (iii) a one-percentage-point change in assumed health care costs, and (iv) related parties, including insurance and annuity contracts. It clarifies the disclosure requirements for both the projected and accumulated benefit obligations, as well as requiring additional disclosures for cash balance plans and explanations for significant gains and losses related to changes in the benefit obligations. This update is effective for the Company for all annual periods, beginning with the year ending December 31, 2020, on a retrospective basis, with early adoption permitted. This update will modify the Company's disclosures but will not have a material effect on its consolidated financial statements.
In August 2018, an accounting standard update was issued which modifies the disclosure requirements for fair value measurements. The update eliminates the requirements to disclose the amount of and reasons for transfers between Level 1 and 2 of the fair value hierarchy, the timing of transfers between levels and the Level 3 valuation process, while expanding the Level 3 disclosures to include the range and weighted average used to develop significant unobservable inputs and the changes in unrealized gains and losses on recurring fair value measurements. This update is effective for the Company for annual and interim periods beginning January 1, 2020, with early adoption permitted. The changes and modifications to the Level 3 disclosures are to be applied prospectively, while all other amendments are to be applied respectively. The Company is currently evaluating the impact of this update on its disclosures but does not expect that it will have a material effect on its consolidated financial statements.
─
Acquisitions were as follows:
| Nine months ended September 30, | Three months ended September 30, | ||||
|---|---|---|---|---|---|
| (\$ in millions, except number of acquired businesses) | 2018 | 2017 | 2018 | 2017 | |
| Acquisitions (net of cash acquired)(1) | 2,525 | 2,108 | 27 | 2,099 | |
| Aggregate excess of purchase price over fair value of net assets | |||||
| acquired(2) | 1,429 | 1,338 | 62 | 1,334 | |
| Number of acquired businesses | 3 | 4 | 2 | 2 | |
(1) Excluding changes in cost and equity accounted companies
(2) Recorded as goodwill.
In the table above, the "Acquisitions" and "Aggregate excess of purchase price over fair value of net assets acquired" amounts for the nine months ended September 30, 2018, relate primarily to the acquisition of GE Industrial Solutions (GEIS). The amounts for the nine and three months ended September 30, 2017, relate primarily to the acquisition of Bernecker + Rainer Industrie-Elektronik GmbH (B&R).
Acquisitions of controlling interests have been accounted for under the acquisition method and have been included in the Company's Consolidated Financial Statements since the date of acquisition.
While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, the purchase price allocation for acquisitions is preliminary for up to 12 months after the acquisition date and is subject to refinement as more detailed analyses are completed and additional information about the fair values of the assets and liabilities becomes available.
On June 30, 2018, the Company acquired through numerous share and asset purchases substantially all the revenues, assets and liabilities of GEIS, GE's global electrification solutions business. GEIS, headquartered in Atlanta, United States, provides technologies that distribute and control electricity and support the commercial, data center, health care, mining, renewable energy, oil and gas, water and telecommunications sectors. The resulting cash outflows for the Company amounted to \$2,510 million (net of cash acquired of \$192 million). The acquisition strengthens the Company's global position in electrification and expands its access to the North American market through strong customer relationships, large installed base and extensive distribution networks and consequently the goodwill acquired represents expected operating synergies and cost savings as well as intangible assets that are not separable such as employee know-how and expertise. Given the complexity of the acquisition, the presentation of GEIS in the Company's Financial Statements, including the allocation of the purchase price, is preliminary and likely to change in future periods.
On July 6, 2017, the Company acquired the shares of B&R. B&R is a worldwide provider of product- and software-based, open-architecture solutions for machine and factory automation. This acquisition closes a gap in the Company's industrial automation portfolio and consequently the goodwill acquired represents the future benefits associated with product portfolio expansion.
The aggregate preliminary allocation of the purchase consideration for business acquisitions (including measurement period adjustments) in the nine months ended September 30, 2018 and 2017, was as follows:
| Nine months ended September 30, | 2018 | 2017 | ||||
|---|---|---|---|---|---|---|
| Allocated amounts | Weighted- | Weighted | ||||
| GEIS | Other | Total | average | Allocated | average | |
| (\$ in millions) | useful life | amounts | useful life | |||
| Technology | 87 | - | 87 | 7 years | 412 | 7 years |
| Customer relationships | 214 | - | 214 | 14 years | 267 | 19 years |
| Trade names | 122 | - | 122 | 13 years | 85 | 10 years |
| Supply agreement | 34 | - | 34 | 13 years | - | |
| Order Backlog | - | - | - | 1 | 3 months | |
| Intangible assets | 457 | - | 457 | 765 | ||
| Fixed assets | 411 | 15 | 426 | 131 | ||
| Debt acquired | - | - | - | (50) | ||
| Deferred tax liabilities | (182) | (6) | (188) | (221) | ||
| Inventories | 442 | 47 | 489 | 168 | ||
| Other assets and liabilities, net(1) | (23) | (65) | (88) | (23) | ||
| Goodwill(2) | 1,405 | 24 | 1,429 | 1,338 | ||
| Total consideration (net of cash acquired)(3) | 2,510 | 15 | 2,525 | 2,108 |
(1) Gross receivables from the GEIS acquisitions totaled \$658 million; the fair value of which was \$624 million after adjusting for contractual cash flows not expected to be collected.
(2) The Company does not expect the majority of the goodwill recognized to be deductible for income tax purposes.
(3) Primarily relates to the acquisition of GEIS in 2018 and B&R in 2017. Cash acquired in the GEIS acquisition totaled \$192 million.
The Company's Consolidated Income Statement for the three months ended September 30, 2018, includes total revenues of \$634 million and a net loss of \$24 million in respect of GEIS since the date of acquisition.
The unaudited pro forma financial information in the table below summarizes the combined pro forma results of the Company and GEIS for the nine and three months ended September 30, 2018 and 2017, as if GEIS had been acquired on January 1, 2017.
| Nine months ended September 30, | Three months ended September 30, | ||||
|---|---|---|---|---|---|
| (\$ in millions) | 2018 | 2017 | 2018 | 2017 | |
| Total revenues | 28,047 | 26,993 | 9,257 | 9,384 | |
| Income from continuing operations, net of tax | 1,998 | 2,002 | 655 | 625 |
The pro forma results are for information purposes only and do not include any anticipated cost synergies or other effects of the planned integration of GEIS. Accordingly, such pro forma amounts are not necessarily indicative of the results that would have occurred had the acquisition been completed on the date indicated, nor are they indicative of the future operating results of the combined company.
The unaudited pro forma results above include certain adjustments related to the GEIS acquisition. The table below summarizes the adjustments necessary to present the pro forma financial information of the combined entity as if GEIS had been acquired on January 1, 2017.
| Nine months ended September 30, | Three months ended September 30, | ||||
|---|---|---|---|---|---|
| (\$ in millions) | 2018 | 2017 | 2018 | 2017 | |
| Impact on cost of sales from additional amortization of intangible | |||||
| assets | (10) | (16) | - | (5) | |
| Impact on cost of sales from fair valuing acquired inventory | 26 | (26) | 26 | - | |
| Impact on cost of sales from additional depreciation of fixed assets | (4) | (7) | - | (2) | |
| Impact on selling, general and administrative expenses from | |||||
| additional amortization of intangible assets | (5) | (11) | - | (2) | |
| Impact on selling, general and administrative expenses from | |||||
| acquisition-related costs | 44 | 10 | - | 6 | |
| Impact on interest from financing costs | (15) | (48) | - | (15) | |
| Taxation adjustments | (5) | 26 | (7) | 6 | |
| Total pro forma adjustments | 31 | (72) | 19 | (12) |
For the nine months ended September 30, 2017, the Company recorded net gains (including transaction costs) of \$330 million in "Other income (expense), net" and an associated tax expense of \$28 million in "Provision for taxes" relating primarily to the divestment in March 2017, of the Company's high-voltage cable system and cable accessories businesses (the Cables business).
The Company has retained certain obligations of the Cables business and thus the Company remains directly or indirectly liable for these liabilities which existed at the date of the divestment. Subsequent to the divestment, in nine months ended September 30, 2017, the Company recorded a loss of \$94 million for changes in the amounts recorded for these obligations. In addition, the Company has provided certain performance guarantees to third parties which guarantee the performance of the buyer under existing contracts with customers as well as for certain capital expenditures of the divested business (see Note 7).
Changes in total goodwill were as follows:
─
| (\$ in millions) | Total Goodwill |
|---|---|
| Balance at January 1, 2017 | 9,501 |
| Goodwill acquired during the year(1) | 1,337 |
| Goodwill allocated to disposals(2) | (2) |
| Exchange rate differences and other | 363 |
| Balance at December 31, 2017 | 11,199 |
| Goodwill acquired during the year(3) | 1,429 |
| Goodwill allocated to disposals | (31) |
| Exchange rate differences and other | (171) |
| Balance at September 30, 2018 | 12,426 |
(1) Includes primarily goodwill in respect of B&R, acquired in July 2017, which has been allocated to the Industrial Automation operating segment.
(2) Goodwill allocated to the high-voltage cable system business sold in March 2017, within Corporate and Other (formerly reported in the Power Grids operating segment) was reported as assets held-for-sale at December 31, 2016.
(3) Includes primarily goodwill in respect of GEIS, acquired in June 2018, which has been allocated to the Electrification Products operating segment.
Cash and equivalents, marketable securities and short-term investments consisted of the following:
| September 30, 2018 | ||||||
|---|---|---|---|---|---|---|
| Marketable | ||||||
| Gross | Gross | securities | ||||
| unrealized | unrealized | Cash and | and short-term | |||
| (\$ in millions) | Cost basis | gains | losses | Fair value | equivalents | investments |
| Cash | 1,908 | 1,908 | 1,908 | – | ||
| Time deposits | 715 | 715 | 696 | 19 | ||
| Other short-term investments | 295 | 295 | – | 295 | ||
| Debt securities available-for-sale: | ||||||
| U.S. government obligations | 213 | – | (5) | 208 | – | 208 |
| European government obligations | 33 | – | – | 33 | – | 33 |
| Corporate | 92 | – | (2) | 90 | – | 90 |
| Equity securities available-for-sale | 297 | 11 | – | 308 | – | 308 |
| Total | 3,553 | 11 | (7) | 3,557 | 2,604 | 953 |
| December 31, 2017 | ||||||
|---|---|---|---|---|---|---|
| Marketable | ||||||
| Gross | Gross | securities | ||||
| unrealized | unrealized | Cash and | and short-term | |||
| (\$ in millions) | Cost basis | gains | losses | Fair value | equivalents | investments |
| Cash | 1,963 | 1,963 | 1,963 | – | ||
| Time deposits | 2,853 | 2,853 | 2,563 | 290 | ||
| Other short-term investments | 305 | 305 | – | 305 | ||
| Debt securities available-for-sale: | ||||||
| U.S. government obligations | 127 | – | (2) | 125 | – | 125 |
| Other government obligations | 2 | – | – | 2 | – | 2 |
| Corporate | 215 | 1 | (1) | 215 | – | 215 |
| Equity securities available-for-sale | 152 | 13 | – | 165 | – | 165 |
| Total | 5,617 | 14 | (3) | 5,628 | 4,526 | 1,102 |
Other short-term investments at September 30, 2018, and December 31, 2017, are receivables of \$295 million and \$305 million, respectively, representing reverse repurchase agreements. These collateralized lendings, made to a financial institution, have maturity dates of less than one year.
The Company is exposed to certain currency, commodity, interest rate and equity risks arising from its global operating, financing and investing activities. The Company uses derivative instruments to reduce and manage the economic impact of these exposures.
─
Due to the global nature of the Company's operations, many of its subsidiaries are exposed to currency risk in their operating activities from entering into transactions in currencies other than their functional currency. To manage such currency risks, the Company's policies require the subsidiaries to hedge their foreign currency exposures from binding sales and purchase contracts denominated in foreign currencies. For forecasted foreign currency denominated sales of standard products and the related foreign currency denominated purchases, the Company's policy is to hedge up to a maximum of 100 percent of the forecasted foreign currency denominated exposures, depending on the length of the forecasted exposures. Forecasted exposures greater than 12 months are not hedged. Forward foreign exchange contracts are the main instrument used to protect the Company against the volatility of future cash flows (caused by changes in exchange rates) of contracted and forecasted sales and purchases denominated in foreign currencies. In addition, within its treasury operations, the Company primarily uses foreign exchange swaps and forward foreign exchange contracts to manage the currency and timing mismatches arising in its liquidity management activities.
Various commodity products are used in the Company's manufacturing activities. Consequently it is exposed to volatility in future cash flows arising from changes in commodity prices. To manage the price risk of commodities, the Company's policies require that the subsidiaries hedge the commodity price risk exposures from binding contracts, as well as at least 50 percent (up to a maximum of 100 percent) of the forecasted commodity exposure over the next 12 months or longer (up to a maximum of 18 months). Primarily swap contracts are used to manage the associated price risks of commodities.
The Company has issued bonds at fixed rates. Interest rate swaps are used to manage the interest rate risk associated with certain debt and generally such swaps are designated as fair value hedges. In addition, from time to time, the Company uses instruments such as interest rate swaps, interest rate futures, bond futures or forward rate agreements to manage interest rate risk arising from the Company's balance sheet structure but does not designate such instruments as hedges.
The Company is exposed to fluctuations in the fair value of its warrant appreciation rights (WARs) issued under its management incentive plan. A WAR gives its holder the right to receive cash equal to the market price of an equivalent listed warrant on the date of exercise. To eliminate such risk, the Company has purchased cash-settled call options, indexed to the shares of the Company, which entitle the Company to receive amounts equivalent to its obligations under the outstanding WARs.
In general, while the Company's primary objective in its use of derivatives is to minimize exposures arising from its business, certain derivatives are designated and qualify for hedge accounting treatment while others either are not designated or do not qualify for hedge accounting.
The gross notional amounts of outstanding foreign exchange and interest rate derivatives (whether designated as hedges or not) were as follows:
| Type of derivative | Total notional amounts at | ||||
|---|---|---|---|---|---|
| (\$ in millions) | September 30, 2018 | December 31, 2017 | September 30, 2017 | ||
| Foreign exchange contracts | 13,548 | 17,280 | 16,562 | ||
| Embedded foreign exchange derivatives | 1,492 | 1,641 | 1,845 | ||
| Interest rate contracts | 3,590 | 5,706 | 5,310 |
The Company uses derivatives to hedge its direct or indirect exposure to the movement in the prices of commodities which are primarily copper, silver, aluminum, steel and oil. The following table shows the notional amounts of outstanding derivatives (whether designated as hedges or not), on a net basis, to reflect the Company's requirements for these commodities:
| Type of derivative | Unit | Total notional amounts at | |||
|---|---|---|---|---|---|
| September 30, 2018 | December 31, 2017 | September 30, 2017 | |||
| Copper swaps | metric tonnes | 57,251 | 44,145 | 44,013 | |
| Silver swaps | ounces | 2,692,781 | 1,966,729 | 2,074,213 | |
| Aluminum swaps | metric tonnes | 13,960 | 7,700 | 5,300 | |
| Steel swaps | metric tonnes | 22,408 | – | – | |
| Crude oil swaps | barrels | 106,363 | 170,331 | 173,398 |
At September 30, 2018, December 31, 2017, and September 30, 2017, the Company held 41 million, 37 million and 43 million cash-settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of \$23 million, \$42 million and \$35 million, respectively.
As noted above, the Company mainly uses forward foreign exchange contracts to manage the foreign exchange risk of its operations, commodity swaps to manage its commodity risks and cash-settled call options to hedge its WAR liabilities. Where such instruments are designated and
qualify as cash flow hedges, the effective portion of the changes in their fair value is recorded in "Accumulated other comprehensive loss" and subsequently reclassified into earnings in the same line item and in the same period as the underlying hedged transaction affects earnings. Any ineffectiveness in the hedge relationship, or hedge component excluded from the assessment of effectiveness, is recognized in earnings during the current period.
At September 30, 2018, and December 31, 2017, "Accumulated other comprehensive loss" included net unrealized losses of \$10 million and net unrealized gains of \$12 million, respectively, net of tax, on derivatives designated as cash flow hedges. Of the amount at September 30, 2018, net losses of \$3 million are expected to be reclassified to earnings in the following 12 months. At September 30, 2018, the longest maturity of a derivative classified as a cash flow hedge was 64 months.
The amount of gains or losses, net of tax, reclassified into earnings due to the discontinuance of cash flow hedge accounting was not significant in the nine and three months ended September 30, 2018 and 2017.
The pre-tax effects of derivative instruments, designated and qualifying as cash flow hedges, on "Accumulated other comprehensive loss" (OCI) and the Consolidated Income Statements were as follows:
| Gains (losses) recognized in OCI | Gains (losses) reclassified from OCI | ||||
|---|---|---|---|---|---|
| (\$ in millions) | on derivatives (effective portion) | into income (effective portion) | |||
| Nine months ended September 30, | 2018 | 2017 | 2018 | 2017 | |
| Type of derivative | Location | ||||
| Foreign exchange contracts | (7) | 8 | Total revenues | 2 | (2) |
| Total cost of sales | – | 3 | |||
| Commodity contracts | (7) | 6 | Total cost of sales | 3 | 5 |
| Cash-settled call options | (20) | 11 | SG&A expenses(1) | (13) | 9 |
| Total | (34) | 25 | (8) | 15 |
| Gains (losses) recognized in OCI (\$ in millions) on derivatives (effective portion) |
Gains (losses) reclassified from OCI into income (effective portion) |
||||
|---|---|---|---|---|---|
| Three months ended September 30, | 2018 | 2017 | 2018 | 2017 | |
| Type of derivative | Location | ||||
| Foreign exchange contracts | (4) | (2) | Total revenues | (1) | 1 |
| Total cost of sales | – | – | |||
| Commodity contracts | (2) | 4 | Total cost of sales | – | 1 |
| Cash-settled call options | 5 | (1) | SG&A expenses(1) | 4 | – |
| Total | (1) | 1 | 3 | 2 |
(1) SG&A expenses represent "Selling, general and administrative expenses".
The amounts in respect of gains (losses) recognized in income for hedge ineffectiveness and amounts excluded from effectiveness testing were not significant for the nine and three months ended September 30, 2018 and 2017.
Net derivative losses of \$9 million and net derivative gains of \$11 million, both net of tax, were reclassified from "Accumulated other comprehensive loss" to earnings during the nine months ended September 30, 2018 and 2017, respectively. During the three months ended September 30, 2018 and 2017, net derivative gains of \$4 million and \$1 million, both net of tax, respectively, were reclassified from "Accumulated other comprehensive loss" to earnings.
To reduce its interest rate exposure arising primarily from its debt issuance activities, the Company uses interest rate swaps. Where such instruments are designated as fair value hedges, the changes in the fair value of these instruments, as well as the changes in the fair value of the risk component of the underlying debt being hedged, are recorded as offsetting gains and losses in "Interest and other finance expense". Hedge ineffectiveness of instruments designated as fair value hedges for the nine and three months ended September 30, 2018 and 2017, was not significant.
The effect of interest rate contracts, designated and qualifying as fair value hedges, on the Consolidated Income Statements was as follows:
| Nine months ended September 30, | Three months ended September 30, | ||||
|---|---|---|---|---|---|
| (\$ in millions) | 2018 | 2017 | 2018 | 2017 | |
| Gains (losses) recognized in Interest and other finance expense: | |||||
| - on derivatives designated as fair value hedges | (36) | (3) | (16) | (3) | |
| - on hedged item | 37 | 5 | 17 | 2 |
Derivative instruments that are not designated as hedges or do not qualify as either cash flow or fair value hedges are economic hedges used for risk management purposes. Gains and losses from changes in the fair values of such derivatives are recognized in the same line in the income statement as the economically hedged transaction.
Furthermore, under certain circumstances, the Company is required to split and account separately for foreign currency derivatives that are embedded within certain binding sales or purchase contracts denominated in a currency other than the functional currency of the subsidiary and the counterparty.
The gains (losses) recognized in the Consolidated Income Statements on derivatives not designated in hedging relationships were as follows:
| Type of derivative not | Gains (losses) recognized in income | ||||
|---|---|---|---|---|---|
| designated as a hedge | Nine months ended September 30, | Three months ended September 30, | |||
| (\$ in millions) | Location | 2018 | 2017 | 2018 | 2017 |
| Foreign exchange contracts | Total revenues | (231) | 203 | – | 36 |
| Total cost of sales | 104 | (40) | 18 | (14) | |
| SG&A expenses(1) | 10 | (19) | 6 | (9) | |
| Non-order related research | |||||
| and development | (1) | – | (1) | – | |
| Other income (expense), net | – | (1) | – | – | |
| Interest and other finance expense | 24 | 42 | (13) | 29 | |
| Embedded foreign exchange | Total revenues | 84 | (30) | 17 | (7) |
| contracts | Total cost of sales | (4) | 1 | (1) | 1 |
| SG&A expenses(1) | 2 | 5 | – | – | |
| Commodity contracts | Total cost of sales | (39) | 31 | (24) | 13 |
| Other | Interest and other finance expense | 3 | (2) | (5) | 1 |
| Total | (48) | 190 | (3) | 50 |
(1) SG&A expenses represent "Selling, general and administrative expenses".
The fair values of derivatives included in the Consolidated Balance Sheets were as follows:
| September 30, 2018 | ||||
|---|---|---|---|---|
| Derivative assets | Derivative liabilities | |||
| Current in | Non-current in | Current in | Non-current in | |
| "Other current | "Other non-current | "Other current | "Other non-current | |
| (\$ in millions) | assets" | assets" | liabilities" | liabilities" |
| Derivatives designated as hedging instruments: | ||||
| Foreign exchange contracts | 1 | – | 3 | 4 |
| Commodity contracts | – | – | 2 | – |
| Interest rate contracts | – | 19 | – | 17 |
| Cash-settled call options | 14 | 9 | – | – |
| Total | 15 | 28 | 5 | 21 |
| Derivatives not designated as hedging instruments: | ||||
| Foreign exchange contracts | 134 | 20 | 186 | 37 |
| Commodity contracts | 10 | 1 | 24 | – |
| Embedded foreign exchange derivatives | 52 | 24 | 12 | 2 |
| Total | 196 | 45 | 222 | 39 |
| Total fair value | 211 | 73 | 227 | 60 |
| December 31, 2017 | ||||
|---|---|---|---|---|
| Derivative assets | Derivative liabilities | |||
| Current in | Non-current in | Current in | Non-current in | |
| "Other current | "Other non-current | "Other current | "Other non-current | |
| (\$ in millions) | assets" | assets" | liabilities" | liabilities" |
| Derivatives designated as hedging instruments: | ||||
| Foreign exchange contracts | 4 | – | 3 | 1 |
| Commodity contracts | 6 | – | – | – |
| Interest rate contracts | – | 42 | – | 4 |
| Cash-settled call options | 25 | 16 | – | – |
| Total | 35 | 58 | 3 | 5 |
| Derivatives not designated as hedging instruments: | ||||
| Foreign exchange contracts | 142 | 25 | 190 | 63 |
| Commodity contracts | 35 | 1 | 6 | – |
| Cross-currency interest rate swaps | – | – | 2 | – |
| Cash-settled call options | – | 1 | – | – |
| Embedded foreign exchange derivatives | 32 | 16 | 22 | 7 |
| Total | 209 | 43 | 220 | 70 |
| Total fair value | 244 | 101 | 223 | 75 |
Close-out netting agreements provide for the termination, valuation and net settlement of some or all outstanding transactions between two counterparties on the occurrence of one or more pre-defined trigger events.
Although the Company is party to close-out netting agreements with most derivative counterparties, the fair values in the tables above and in the Consolidated Balance Sheets at September 30, 2018, and December 31, 2017, have been presented on a gross basis.
The Company's netting agreements and other similar arrangements allow net settlements under certain conditions. At September 30, 2018, and December 31, 2017, information related to these offsetting arrangements was as follows:
| (\$ in millions) | September 30, 2018 | ||||
|---|---|---|---|---|---|
| Gross amount | Derivative liabilities | Cash | Non-cash | ||
| Type of agreement or | of recognized | eligible for set-off | collateral | collateral | Net asset |
| similar arrangement | assets | in case of default | received | received | exposure |
| Derivatives | 208 | (123) | – | – | 85 |
| Reverse repurchase agreements | 295 | – | – | (295) | – |
| Total | 503 | (123) | – | (295) | 85 |
| (\$ in millions) | September 30, 2018 | ||||
| Gross amount | Derivative liabilities | Cash | Non-cash |
| Type of agreement or | of recognized | eligible for set-off | collateral | collateral | Net liability |
|---|---|---|---|---|---|
| similar arrangement | liabilities | in case of default | pledged | pledged | exposure |
| Derivatives | 273 | (123) | – | – | 150 |
| Total | 273 | (123) | – | – | 150 |
| (\$ in millions) | December 31, 2017 | ||||||
|---|---|---|---|---|---|---|---|
| Gross amount | Derivative liabilities | Cash | Non-cash | ||||
| Type of agreement or | of recognized | eligible for set-off | collateral | collateral | Net asset | ||
| similar arrangement | assets | in case of default | received | received | exposure | ||
| Derivatives | 297 | (172) | – | – | 125 | ||
| Reverse repurchase agreements | 305 | – | – | (305) | – | ||
| Total | 602 | (172) | – | (305) | 125 | ||
| (\$ in millions) | December 31, 2017 |
| Gross amount | Derivative liabilities | Cash | Non-cash | |||
|---|---|---|---|---|---|---|
| Type of agreement or | of recognized | eligible for set-off | collateral | collateral | Net liability | |
| similar arrangement | liabilities | in case of default | pledged | pledged | exposure | |
| Derivatives | 269 | (172) | – | – | 97 | |
| Total | 269 | (172) | – | – | 97 |
The Company uses fair value measurement principles to record certain financial assets and liabilities on a recurring basis and, when necessary, to record certain non-financial assets at fair value on a non-recurring basis, as well as to determine fair value disclosures for certain financial instruments carried at amortized cost in the financial statements. Financial assets and liabilities recorded at fair value on a recurring basis include foreign currency, commodity and interest rate derivatives, as well as cash-settled call options and available-for-sale securities. Non-financial assets recorded at fair value on a non-recurring basis include long-lived assets that are reduced to their estimated fair value due to impairments.
Fair value is the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation techniques including the market approach (using observable market data for identical or similar assets and liabilities), the income approach (discounted cash flow models) and the cost approach (using costs a market participant would incur to develop a comparable asset). Inputs used to determine the fair value of assets and liabilities are defined by a three-level hierarchy, depending on the reliability of those inputs. The Company has categorized its financial assets and liabilities and non-financial assets measured at fair value within this hierarchy based on whether the inputs to the valuation technique are observable or unobservable. An observable input is based on market data obtained from independent sources, while an unobservable input reflects the Company's assumptions about market data.
The levels of the fair value hierarchy are as follows:
cash-settled call options, forward foreign exchange contracts, foreign exchange swaps and forward rate agreements, time deposits, as well as financing receivables and debt.
Level 3: Valuation inputs are based on the Company's assumptions of relevant market data (unobservable input).
Whenever quoted prices involve bid-ask spreads, the Company ordinarily determines fair values based on mid-market quotes. However, for the purpose of determining the fair value of cash-settled call options serving as hedges of the Company's management incentive plan, bid prices are used.
When determining fair values based on quoted prices in an active market, the Company considers if the level of transaction activity for the financial instrument has significantly decreased, or would not be considered orderly. In such cases, the resulting changes in valuation techniques would be disclosed. If the market is considered disorderly or if quoted prices are not available, the Company is required to use another valuation technique, such as an income approach.
The fair values of financial assets and liabilities measured at fair value on a recurring basis were as follows:
| September 30, 2018 | ||||
|---|---|---|---|---|
| (\$ in millions) | Level 1 | Level 2 | Level 3 | Total fair value |
| Assets | ||||
| Available-for-sale securities in "Marketable securities and short-term investments": | ||||
| Equity securities | – | 308 | – | 308 |
| Debt securities—U.S. government obligations | 208 | – | – | 208 |
| Debt securities—European government obligations | 33 | – | – | 33 |
| Debt securities—Corporate | – | 90 | – | 90 |
| Derivative assets—current in "Other current assets" | – | 211 | – | 211 |
| Derivative assets—non-current in "Other non-current assets" | – | 73 | – | 73 |
| Total | 241 | 682 | – | 923 |
| Liabilities | ||||
| Derivative liabilities—current in "Other current liabilities" | – | 227 | – | 227 |
| Derivative liabilities—non-current in "Other non-current liabilities" | – | 60 | – | 60 |
| Total | – | 287 | – | 287 |
| December 31, 2017 | ||||
|---|---|---|---|---|
| (\$ in millions) | Level 1 | Level 2 | Level 3 | Total fair value |
| Assets | ||||
| Available-for-sale securities in "Marketable securities and short-term investments": | ||||
| Equity securities | – | 165 | – | 165 |
| Debt securities—U.S. government obligations | 125 | – | – | 125 |
| Debt securities—Other government obligations | – | 2 | – | 2 |
| Debt securities—Corporate | – | 215 | – | 215 |
| Receivable in "Other non-current assets": | ||||
| Receivable under securities lending arrangement | 79 | – | – | 79 |
| Derivative assets—current in "Other current assets" | – | 244 | – | 244 |
| Derivative assets—non-current in "Other non-current assets" | – | 101 | – | 101 |
| Total | 204 | 727 | – | 931 |
| Liabilities | ||||
| Derivative liabilities—current in "Other current liabilities" | – | 223 | – | 223 |
| Derivative liabilities—non-current in "Other non-current liabilities" | – | 75 | – | 75 |
| Total | – | 298 | – | 298 |
The Company uses the following methods and assumptions in estimating fair values of financial assets and liabilities measured at fair value on a recurring basis:
There were no significant non-recurring fair value measurements during the nine and three months ended September 30, 2018 and 2017.
The fair values of financial instruments carried on a cost basis were as follows:
| (\$ in millions) | Carrying value | Level 1 | Level 2 | Level 3 | Total fair value |
|---|---|---|---|---|---|
| Assets | |||||
| Cash and equivalents (excluding available-for-sale securities | |||||
| with original maturities up to 3 months): | |||||
| Cash | 1,908 | 1,908 | – | – | 1,908 |
| Time deposits | 696 | – | 696 | – | 696 |
| Marketable securities and short-term investments | |||||
| (excluding available-for-sale securities): | |||||
| Time deposits | 19 | – | 19 | – | 19 |
| Receivables under reverse repurchase agreements | 295 | – | 295 | – | 295 |
| Other non-current assets: | |||||
| Loans granted | 40 | – | 41 | – | 41 |
| Restricted time deposits | 36 | 36 | – | – | 36 |
| Liabilities | |||||
| Short-term debt and current maturities of long-term debt | |||||
| (excluding capital lease obligations) | 2,850 | 1,881 | 969 | – | 2,850 |
| Long-term debt (excluding capital lease obligations) | 6,460 | 5,828 | 721 | – | 6,549 |
| December 31, 2017 | |||||
|---|---|---|---|---|---|
| (\$ in millions) | Carrying value | Level 1 | Level 2 | Level 3 | Total fair value |
| Assets | |||||
| Cash and equivalents (excluding available-for-sale securities | |||||
| with original maturities up to 3 months): | |||||
| Cash | 1,963 | 1,963 | – | – | 1,963 |
| Time deposits | 2,563 | – | 2,563 | – | 2,563 |
| Marketable securities and short-term investments | |||||
| (excluding available-for-sale securities): | |||||
| Time deposits | 290 | – | 290 | – | 290 |
| Receivables under reverse repurchase agreements | 305 | – | 305 | – | 305 |
| Other non-current assets: | |||||
| Loans granted | 32 | – | 33 | – | 33 |
| Restricted time deposits | 38 | 38 | – | – | 38 |
| Liabilities | |||||
| Short-term debt and current maturities of long-term debt | |||||
| (excluding capital lease obligations) | 704 | 400 | 304 | – | 704 |
| Long-term debt (excluding capital lease obligations) | 6,569 | 6,046 | 775 | – | 6,821 |
The Company uses the following methods and assumptions in estimating fair values of financial instruments carried on a cost basis:
Cash and equivalents (excluding available-for-sale securities with original maturities up to 3 months), and Marketable securities and short-term investments (excluding available-for-sale securities): The carrying amounts approximate the fair values as the items are short-term in nature.
Other non-current assets: Includes (i) loans granted whose fair values are based on the carrying amount adjusted using a present value technique to reflect a premium or discount based on current market interest rates (Level 2 inputs), and (ii) restricted time deposits whose fair values approximate the carrying amounts (Level 1 inputs).
Short-term debt and current maturities of long-term debt (excluding capital lease obligations): Short-term debt includes commercial paper, bank borrowings and overdrafts. The carrying amounts of short-term debt and current maturities of long-term debt, excluding capital lease obligations, approximate their fair values.
Long-term debt (excluding capital lease obligations): Fair values of bonds are determined using quoted market prices (Level 1 inputs), if available. For bonds without available quoted market prices and other long-term debt, the fair values are determined using a discounted cash flow methodology based upon borrowing rates of similar debt instruments and reflecting appropriate adjustments for non-performance risk (Level 2 inputs).
─
In April 2014, the European Commission announced its decision regarding its investigation of anticompetitive practices in the cables industry and granted the Company full immunity from fines under the European Commission's leniency program.
In Brazil, the Brazilian Antitrust Authority (CADE) has opened an investigation into certain power businesses of the Company, including flexible alternating current transmission systems (FACTS) and power transformers. With respect to these matters, management is cooperating fully with the authorities. An informed judgment about the outcome of these investigations or the amount of potential loss or range of loss for the Company, if any, relating to these investigations cannot be made at this stage.
As a result of an internal investigation, the Company self-reported to the Securities and Exchange Commission (SEC) and the Department of Justice (DoJ) in the United States as well as to the Serious Fraud Office (SFO) in the United Kingdom concerning certain of its past dealings with Unaoil and its subsidiaries, including alleged improper payments made by these entities to third parties. The SFO has commenced an investigation into this matter. The Company is cooperating fully with the authorities. At this time, it is not possible for the Company to make an informed judgment about the outcome of these matters.
In addition, the Company is aware of proceedings, or the threat of proceedings, against it and others in respect of private claims by customers and other third parties with regard to certain actual or alleged anticompetitive practices. Also, the Company is subject to other various legal proceedings, investigations, and claims that have not yet been resolved. With respect to the above mentioned regulatory matters and commercial litigation contingencies, the Company will bear the costs of the continuing investigations and any related legal proceedings.
At September 30, 2018, and December 31, 2017, the Company had aggregate liabilities of \$242 million and \$233 million, respectively, included in "Other provisions" and "Other non-current liabilities", for the above regulatory, compliance and legal contingencies, and none of the individual liabilities recognized was significant. As it is not possible to make an informed judgment on the outcome of certain matters and as it is not possible, based on information currently available to management, to estimate the maximum potential liability on other matters, there could be material adverse outcomes beyond the amounts accrued.
The following table provides quantitative data regarding the Company's third-party guarantees. The maximum potential payments represent a "worst-case scenario", and do not reflect management's expected outcomes.
| Maximum potential payments (\$ in millions) | September 30, 2018 | December 31, 2017 |
|---|---|---|
| Performance guarantees | 1,601 | 1,775 |
| Financial guarantees | 11 | 17 |
| Indemnification guarantees | 62 | 72 |
| Total | 1,674 | 1,864 |
The carrying amount of liabilities recorded in the Consolidated Balance Sheets reflects the Company's best estimate of future payments, which it may incur as part of fulfilling its guarantee obligations. In respect of the above guarantees, the carrying amounts of liabilities at September 30, 2018, and December 31, 2017, were not significant.
The Company is party to various guarantees providing financial or performance assurances to certain third parties. These guarantees, which have various maturities up to 2027, mainly consist of performance guarantees whereby (i) the Company guarantees the performance of a third party's product or service according to the terms of a contract and (ii) as member of a consortium/joint-venture that includes third parties, the Company guarantees not only its own performance but also the work of third parties. Such guarantees may include guarantees that a project will be completed within a specified time. If the third party does not fulfill the obligation, the Company will compensate the guaranteed party in cash or in kind. The original maturity dates for the majority of these performance guarantees range from one to eight years.
In conjunction with the divestment of the high-voltage cable and cables accessories businesses, the Company has entered into various performance guarantees with other parties with respect to certain liabilities of the divested business. At September 30, 2018 and December 31, 2017, the maximum potential payable under these guarantees amounts to \$790 million and \$929 million, respectively, and these guarantees have various maturities ranging from one to ten years.
In addition, in the normal course of bidding for and executing certain projects, the Company has entered into standby letters of credit, bid/performance bonds and surety bonds (collectively "performance bonds") with various financial institutions. Customers can draw on such performance bonds in the event that the Company does not fulfill its contractual obligations. The Company would then have an obligation to reimburse the financial institution for amounts paid under the performance bonds. At September 30, 2018, and December 31, 2017, the total outstanding performance bonds aggregated to \$7.4 billion and \$7.7 billion, respectively. There have been no significant amounts reimbursed to financial institutions under these types of arrangements in the nine and three months ended September 30, 2018 and 2017.
The Company calculates its provision for product warranties based on historical claims experience and specific review of certain contracts. The reconciliation of the "Provisions for warranties", including guarantees of product performance, was as follows:
| (\$ in millions) | 2018 | 2017 |
|---|---|---|
| Balance at January 1, | 1,231 | 1,142 |
| Net change in warranties due to acquisitions and divestments | 11 | 30 |
| Claims paid in cash or in kind | (268) | (247) |
| Net increase in provision for changes in estimates, warranties issued and warranties expired | 258 | 184 |
| Exchange rate differences | (48) | 91 |
| Balance at September 30, | 1,184 | 1,200 |
During 2018, the Company recorded changes in the estimated amount for a product warranty relating to a divested business. This warranty liability was increased by a total of \$92 million during the nine months ended September 30, 2018, of which \$75 million was recorded in the three months ended September 30, 2018. The corresponding increases were included in Cost of sales of products and resulted in a decrease in earnings per share of \$0.03 (basic and diluted) for both the nine and three months ended September 30, 2018. As these costs relate to a divested business, they have been excluded from the Company's primary measure of segment performance, Operational EBITA (See Note 15). The warranty liability has been recorded based on the information currently available and is subject to change in the future.
The following table provides information about Contract Assets and Contract Liabilities:
| (\$ in millions) | September 30, 2018 | December 31, 2017 | September 30, 2017 |
|---|---|---|---|
| Contract assets | 2,350 | 2,149 | 2,410 |
| Contract liabilities | 2,700 | 2,908 | 3,017 |
Contract assets primarily relate to the Company's right to receive consideration for work completed but for which no invoice has been issued at the reporting date. Contract assets are transferred to receivables when rights to receive payment become unconditional.
Contract liabilities primarily relate to up-front advances received on orders from customers as well as amounts invoiced to customers in excess of revenues recognized predominantly on long-term projects. Contract liabilities are reduced as work is performed and as revenues are recognized.
The significant changes in the Contract assets and Contract liabilities balances were as follows:
| Nine months ended September 30, | ||||
|---|---|---|---|---|
| 2018 | 2017 | |||
| Contract | Contract | Contract | Contract | |
| (\$ in millions) | assets | liabilities | assets | liabilities |
| Revenue recognized, which was included in the Contract liabilities balance at Jan 1, 2018/2017 | (2,084) | (1,869) | ||
| Additions to Contract liabilities - excluding amounts recognized as revenue during the period | 1,690 | 2,712 | ||
| Receivables recognized that were included in the Contract asset balance at Jan 1, 2018/2017 | 1,064 | 1,397 |
The Company considers unfulfilled orders (order backlog) from customers to be unsatisfied performance obligations. At September 30, 2018, unfulfilled orders were \$23,480 million and, of this amount, the Company expects to recognize approximately 33 percent in 2018, approximately 45 percent in 2019 and the balance thereafter.
─
The Company's total debt at September 30, 2018, and December 31, 2017, amounted to \$9,502 million and \$7,447 million, respectively.
The Company's "Short-term debt and current maturities of long-term debt" consisted of the following:
| (\$ in millions) | September 30, 2018 | December 31, 2017 |
|---|---|---|
| Short-term debt | 1,031 | 327 |
| Current maturities of long-term debt | 1,852 | 411 |
| Total | 2,883 | 738 |
Short-term debt primarily represented issued commercial paper and short-term loans from various banks. At September 30, 2018, and December 31, 2017, \$782 million and \$259 million, respectively, was outstanding under the \$2 billion commercial paper program in the United States. In addition, at September 30, 2018, \$87 million was outstanding under the \$2 billion Euro-commercial paper program.
The Company's long-term debt at September 30, 2018, and December 31, 2017, amounted to \$6,619 million and \$6,709 million, respectively.
Outstanding bonds (including maturities within the next 12 months) were as follows:
| September 30, 2018 | December 31, 2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | Nominal outstanding | Carrying value(1) | Nominal outstanding | Carrying value(1) | ||||
| Bonds: | ||||||||
| 1.50% CHF Bonds, due 2018 | CHF | 350 | \$ | 358 | CHF | 350 | \$ | 358 |
| 2.625% EUR Instruments, due 2019 | EUR | 1,250 | \$ | 1,448 | EUR | 1,250 | \$ | 1,493 |
| 2.8% USD Notes, due 2020 | USD | 300 | \$ | 299 | – | |||
| 4.0% USD Notes, due 2021 | USD | 650 | \$ | 645 | USD | 650 | \$ | 644 |
| 2.25% CHF Bonds, due 2021 | CHF | 350 | \$ | 376 | CHF | 350 | \$ | 378 |
| 5.625% USD Notes, due 2021 | USD | 250 | \$ | 266 | USD | 250 | \$ | 270 |
| 2.875% USD Notes, due 2022 | USD | 1,250 | \$ | 1,226 | USD | 1,250 | \$ | 1,256 |
| 3.375% USD Notes, due 2023 | USD | 450 | \$ | 448 | – | |||
| 0.625% EUR Notes, due 2023 | EUR | 700 | \$ | 809 | EUR | 700 | \$ | 834 |
| 0.75% EUR Notes, due 2024 | EUR | 750 | \$ | 862 | EUR | 750 | \$ | 889 |
| 3.8% USD Notes, due 2028 | USD | 750 | \$ | 746 | – | |||
| 4.375% USD Notes, due 2042 | USD | 750 | \$ | 723 | USD | 750 | \$ | 723 |
| Total | \$ | 8,206 | \$ | 6,845 |
(1) USD carrying values include unamortized debt issuance costs, bond discounts or premiums, as well as adjustments for fair value hedge accounting, where appropriate.
In April 2018, the Company issued the following notes with a principal of:
The aggregate net proceeds of these bond issues, after underwriting discount and other fees, amounted to \$1,494 million.
─
The Company operates defined benefit pension plans, defined contribution pension plans, and termination indemnity plans, in accordance with local regulations and practices. These plans cover a large portion of the Company's employees and provide benefits to employees in the event of death, disability, retirement, or termination of employment. Certain of these plans are multi-employer plans. The Company also operates other postretirement benefit plans including postretirement health care benefits, and other employee-related benefits for active employees including long-service award plans. The measurement date used for the Company's employee benefit plans is December 31. The funding policies of the Company's plans are consistent with the local government and tax requirements.
Net periodic benefit cost of the Company's defined benefit pension and other postretirement benefit plans consisted of the following:
| (\$ in millions) | Defined pension benefits | Other postretirement benefits | ||
|---|---|---|---|---|
| Nine months ended September 30, | 2018 | 2017 | 2018 | 2017 |
| Operational pension cost: | ||||
| Service cost | 159 | 178 | – | 1 |
| Operational pension cost | 159 | 178 | – | 1 |
| Non-operational pension cost (credit): | ||||
| Interest cost | 168 | 193 | 3 | 3 |
| Expected return on plan assets | (316) | (311) | – | – |
| Amortization of prior service cost (credit) | (11) | 14 | (3) | (3) |
| Amortization of net actuarial loss | 72 | 69 | (1) | (1) |
| Curtailments, settlements and special termination benefits | 1 | 2 | – | – |
| Non-operational pension cost (credit) | (86) | (33) | (1) | (1) |
| Net periodic benefit cost | 73 | 145 | (1) | – |
| (\$ in millions) | Defined pension benefits | Other postretirement benefits | ||
|---|---|---|---|---|
| Three months ended September 30, | 2018 | 2017 | 2018 | 2017 |
| Operational pension cost: | ||||
| Service cost | 51 | 56 | – | 1 |
| Operational pension cost | 51 | 56 | – | 1 |
| Non-operational pension cost (credit): | ||||
| Interest cost | 55 | 68 | 1 | 1 |
| Expected return on plan assets | (104) | (109) | – | – |
| Amortization of prior service cost (credit) | (4) | (4) | (1) | (1) |
| Amortization of net actuarial loss | 24 | 25 | (1) | (1) |
| Curtailments, settlements and special termination benefits | 1 | 1 | – | – |
| Non-operational pension cost (credit) | (28) | (19) | (1) | (1) |
| Net periodic benefit cost | 23 | 37 | (1) | – |
The components of net periodic benefit cost other than the service cost component are included in the line "Non-operational pension (cost) credit" in the income statement.
Employer contributions were as follows:
| (\$ in millions) | Defined pension benefits | Other postretirement benefits | |||
|---|---|---|---|---|---|
| Nine months ended September 30, | 2018 | 2017 | 2018 | 2017 | |
| Total contributions to defined benefit pension and | |||||
| other postretirement benefit plans | 152 | 145 | 6 | 7 | |
| Of which, discretionary contributions to defined benefit pension plans | 10 | – | – | – |
| (\$ in millions) | Defined pension benefits | Other postretirement benefits | ||
|---|---|---|---|---|
| Three months ended September 30, | 2018 | 2017 | 2018 | 2017 |
| Total contributions to defined benefit pension and | ||||
| other postretirement benefit plans | 57 | 50 | 2 | 3 |
| Of which, discretionary contributions to defined benefit pension plans | 10 | – | – | – |
The Company expects to make contributions totaling approximately \$220 million and \$12 million to its defined benefit pension plans and other postretirement benefit plans, respectively, for the full year 2018.
─
In the nine months ended September 30, 2018, the Company purchased on the open market an aggregate of 10 million of its own shares resulting in an increase in Treasury stock of \$249 million. Also in the nine months ended September 30, 2018, the Company delivered, out of treasury stock, 2.4 million shares for options exercised in connection with its Management Incentive Plan.
At the Annual General Meeting of Shareholders on March 29, 2018, shareholders approved the proposal of the Board of Directors to distribute 0.78 Swiss francs per share to shareholders. The declared dividend amounted to \$1,736 million and was paid in April 2018.
─
Basic earnings per share is calculated by dividing income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is calculated by dividing income by the weighted-average number of shares outstanding during the period, assuming that all potentially dilutive securities were exercised, if dilutive. Potentially dilutive securities comprise outstanding written call options, and outstanding options and shares granted subject to certain conditions under the Company's share-based payment arrangements.
| Nine months ended September 30, | Three months ended September 30, | |||
|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2018 | 2017 | 2018 | 2017 |
| Amounts attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 1,853 | 1,826 | 603 | 576 |
| Income (loss) from discontinued operations, net of tax | 3 | (6) | – | (5) |
| Net income | 1,856 | 1,820 | 603 | 571 |
| Weighted-average number of shares outstanding (in millions) | 2,132 | 2,138 | 2,132 | 2,134 |
| Basic earnings per share attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 0.87 | 0.85 | 0.28 | 0.27 |
| Income (loss) from discontinued operations, net of tax | – | – | – | – |
| Net income | 0.87 | 0.85 | 0.28 | 0.27 |
| Nine months ended September 30, | Three months ended September 30, | |||
|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2018 | 2017 | 2018 | 2017 |
| Amounts attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 1,853 | 1,826 | 603 | 576 |
| Income (loss) from discontinued operations, net of tax | 3 | (6) | – | (5) |
| Net income | 1,856 | 1,820 | 603 | 571 |
| Weighted-average number of shares outstanding (in millions) | 2,132 | 2,138 | 2,132 | 2,134 |
| Effect of dilutive securities: | ||||
| Call options and shares | 8 | 9 | 6 | 8 |
| Adjusted weighted-average number of shares outstanding (in millions) | 2,140 | 2,147 | 2,138 | 2,142 |
| Diluted earnings per share attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 0.87 | 0.85 | 0.28 | 0.27 |
| Income (loss) from discontinued operations, net of tax | – | – | – | – |
| Net income | 0.87 | 0.85 | 0.28 | 0.27 |
The following table shows changes in "Accumulated other comprehensive loss" (OCI) attributable to ABB, by component, net of tax:
| Unrealized gains | Pension and | Unrealized gains | |||
|---|---|---|---|---|---|
| Foreign currency | (losses) on | other | (losses) of cash | ||
| translation | available-for-sale | postretirement | flow hedge | ||
| (\$ in millions) | adjustments | securities | plan adjustments | derivatives | Total OCI |
| Balance at January 1, 2017 | (3,592) | 7 | (1,601) | (1) | (5,187) |
| Other comprehensive (loss) income: | |||||
| Other comprehensive (loss) income | |||||
| before reclassifications | 862 | 3 | (156) | 19 | 728 |
| Amounts reclassified from OCI | – | – | 60 | (11) | 49 |
| Changes attributable to divestments | 5 | – | 6 | (3) | 8 |
| Total other comprehensive (loss) income | 867 | 3 | (90) | 5 | 785 |
| Less: | |||||
| Amounts attributable to | |||||
| noncontrolling interests | 17 | – | – | – | 17 |
| Balance at September 30, 2017(1) | (2,741) | 10 | (1,691) | 4 | (4,418) |
| Foreign currency | (losses) on | other | (losses) of cash | |
|---|---|---|---|---|
| translation | available-for-sale | postretirement | flow hedge | |
| adjustments | securities | plan adjustments | derivatives | Total OCI |
| (2,693) | 8 | (1,672) | 12 | (4,345) |
| – | (9) | – | – | (9) |
| (547) | (5) | 57 | (31) | (526) |
| (31) | – | 41 | 9 | 19 |
| 12 | – | – | – | 12 |
| (566) | (5) | 98 | (22) | (495) |
| (23) | – | – | – | (23) |
| (3,236) | (6) | (1,574) | (10) | (4,826) |
| Unrealized gains | Pension and | Unrealized gains |
(1) Due to rounding, numbers presented may not add to the totals provided.
The following table reflects amounts reclassified out of OCI in respect of Foreign currency translation adjustments and Pension and other postretirement plan adjustments:
| Nine months ended September 30, |
Three months ended September 30, |
||||
|---|---|---|---|---|---|
| (\$ in millions) | Location of (gains) losses | ||||
| Details about OCI components | reclassified from OCI | 2018 | 2017 | 2018 | 2017 |
| Foreign currency translation adjustments: | |||||
| Gain on liquidation of foreign subsidiary | Other income (expense), net | (31) | – | (31) | – |
| Pension and other postretirement plan adjustments: | |||||
| Amortization of prior service cost (credit) | Non-operational pension (cost) credit(1) | (14) | 11 | (5) | (5) |
| Amortization of net actuarial loss | Non-operational pension (cost) credit(1) | 71 | 68 | 23 | 24 |
| Total before tax | 57 | 79 | 18 | 19 | |
| Tax | Provision for taxes | (16) | (19) | (6) | (5) |
| Amounts reclassified from OCI | 41 | 60 | 12 | 14 |
(1) These components are included in the computation of net periodic benefit cost (see Note 10).
The amounts in respect of Unrealized gains (losses) on available-for-sale securities and Unrealized gains (losses) of cash flow hedge derivatives were not significant for the nine and three months ended September 30, 2018 and 2017.
In September 2015, the Company announced a two-year program aimed at making the Company leaner, faster and more customer-focused. Productivity improvements include the rapid expansion and use of regional shared service centers as well as the streamlining of global operations and head office functions, with business units moving closer to their respective key markets. In the course of this program, the Company has implemented and executed various restructuring initiatives across all operating segments and regions.
As of December 31, 2017, the Company had incurred substantially all costs related to the White Collar Productivity program.
Liabilities associated with the White Collar Productivity program are primarily included in "Other provisions". The following table shows the activity from the beginning of the program to September 30, 2018, by expense type.
| Employee | Contract settlement, | ||
|---|---|---|---|
| (\$ in millions) | severance costs | loss order and other costs | Total |
| Liability at January 1, 2015 | – | – | – |
| Expenses | 364 | 5 | 369 |
| Cash payments | (34) | (1) | (35) |
| Liability at December 31, 2015 | 330 | 4 | 334 |
| Expenses | 232 | 3 | 235 |
| Cash payments | (106) | (3) | (109) |
| Change in estimates | (102) | (1) | (103) |
| Exchange rate differences | (23) | – | (23) |
| Liability at December 31, 2016 | 331 | 3 | 334 |
| Expenses | 35 | 3 | 38 |
| Cash payments | (110) | (5) | (115) |
| Change in estimates | (164) | – | (164) |
| Exchange rate differences | 28 | – | 28 |
| Liability at December 31, 2017 | 120 | 1 | 121 |
| Cash payments | (56) | (1) | (57) |
| Change in estimates and exchange rate differences | (14) | 1 | (13) |
| Liability at September 30, 2018 | 50 | 1 | 51 |
The change in estimates during 2016 of \$103 million is due to significantly higher than expected rates of attrition and internal re-deployment and a lower than expected severance cost per employee for the employee groups affected by the first phase of restructuring initiated in 2015.
The change in estimates during 2017 of \$164 million is mainly due to higher than expected rates of attrition and internal re-deployment. During the nine months ended September 30, 2017, \$118 million of the 2017 change in estimates, was recorded primarily as reductions in Cost of sales of \$65 million and in Selling, general and administrative expenses of \$44 million and related to restructurings initiated in both 2015 and 2016. During the three months ended September 30, 2017, \$58 million of the 2017 change in estimates, was recorded primarily as reductions in Cost of sales of \$36 million and in Selling, general and administrative expenses of \$20 million and related to restructurings initiated in both 2015 and 2016.
The change in estimates for the nine months and three months ended September 30, 2017, of \$118 million and \$58 million, respectively, resulted in an increase in earnings per share (basic and diluted) of \$0.04 and \$0.02, in the respective periods.
The following table outlines the net costs incurred in the nine and three months ended September 30, 2017, and the cumulative net costs incurred to December 31, 2017:
| Net cost incurred Nine months ended |
Net cost incurred Three months ended |
Cumulative net cost incurred up to |
|
|---|---|---|---|
| (\$ in millions) | September 30, 2017(1) | September 30, 2017(1) | December 31, 2017(1) |
| Power Grids | (25) | (14) | 60 |
| Electrification Products | (11) | (5) | 72 |
| Industrial Automation | (19) | (11) | 106 |
| Robotics and Motion | (10) | (7) | 56 |
| Corporate and Other | (27) | (10) | 91 |
| Total | (92) | (47) | 385 |
(1) Net costs incurred in 2017 and Cumulative net costs incurred up to December 31, 2017 have been recast to reflect the reorganization of the Company's operating segments as outlined in Note 15.
The Company recorded the following expenses, net of changes in estimates, under this program:
| Cumulative costs | |||
|---|---|---|---|
| Nine months ended | Three months ended | incurred up to | |
| (\$ in millions) | September 30, 2017(1) | September 30, 2017(2) | December 31, 2017 |
| Employee severance costs | (94) | (48) | 365 |
| Estimated contract settlement, loss order and other costs | 1 | – | 10 |
| Inventory and long-lived asset impairments | 1 | 1 | 10 |
| Total | (92) | (47) | 385 |
(1) Of which \$55 million was recorded in Total cost of sales and \$32 million in Selling, general and administrative expenses.
(2) Of which \$32 million was recorded in Total cost of sales and \$15 million in Selling, general and administrative expenses.
In the nine months ended September 30, 2018 and 2017, the Company executed various other restructuring-related activities and incurred expenses of \$71 million and \$140 million, respectively. In the three months ended September 30, 2018 and 2017, expenses relating to these various other restructuring-related activities amounted to \$45 million and \$82 million, respectively. In the nine and three months ended September 30, 2018, these expenses mainly relate to employee severance costs, contract settlement and other costs and are primarily recorded in "Total cost of sales", "Selling, general and administrative expenses" and "Other income (expense), net". In the nine and three months ended September 30, 2017, these expenses mainly relate to employee severance costs, primary recorded in "Total cost of sales".
The Chief Operating Decision Maker (CODM) is the Chief Executive Officer. The CODM allocates resources to and assesses the performance of each operating segment using the information outlined below. The Company's operating segments consist of Power Grids, Electrification Products, Industrial Automation, and Robotics and Motion. The remaining operations of the Company are included in Corporate and Other.
Effective January 1, 2018, management responsibility and oversight of certain remaining engineering, procurement and construction (EPC) businesses, previously included in the Power Grids, Industrial Automation and Robotics and Motion operating segments, were transferred to a new non-core operating business within Corporate and Other. In addition, the results of certain divested businesses have been reclassified to Corporate and Other for all periods presented.
The segment information for the nine and three months ended September 30, 2017 and at December 31, 2017, has been recast to reflect these organizational changes.
A description of the types of products and services provided by each reportable segment is as follows:
The Company evaluates the profitability of its segments based on Operational EBITA, which represents income from operations excluding:
changes in estimates relating to opening balance sheets of acquired businesses (changes in pre-acquisition estimates),
gains and losses from sale of businesses,
The CODM primarily reviews the results of each segment on a basis that is before the elimination of profits made on inventory sales between segments. Segment results below are presented before these eliminations, with a total deduction for intersegment profits to arrive at the Company's consolidated Operational EBITA. Intersegment sales and transfers are accounted for as if the sales and transfers were to third parties, at current market prices.
The following tables present disaggregated segment revenues from contracts with customers, Operational EBITA, and the reconciliations of consolidated Operational EBITA to Income from continuing operations before taxes for the nine and three months ended September 30, 2018 and 2017, as well as total assets at September 30, 2018, and December 31, 2017.
| Nine months ended September 30, 2018 | ||||||
|---|---|---|---|---|---|---|
| Power | Electrification | Industrial | Robotics | Corporate | ||
| (\$ in millions) | Grids | Products | Automation | and Motion | and Other | Total |
| Geographical markets | ||||||
| Europe | 1,980 | 2,833 | 2,320 | 2,143 | 67 | 9,343 |
| The Americas | 2,058 | 2,466 | 1,156 | 2,104 | 33 | 7,817 |
| Asia, Middle East and Africa | 2,649 | 2,710 | 1,877 | 2,189 | 188 | 9,613 |
| 6,687 | 8,009 | 5,353 | 6,436 | 288 | 26,773 | |
| End Customer Markets | ||||||
| Utilities | 4,631 | 2,195 | 855 | 543 | 171 | 8,395 |
| Industry | 1,491 | 3,279 | 3,261 | 4,870 | 70 | 12,971 |
| Transport & infrastructure | 565 | 2,535 | 1,237 | 1,023 | 47 | 5,407 |
| 6,687 | 8,009 | 5,353 | 6,436 | 288 | 26,773 | |
| Product type | ||||||
| Products | 3,808 | 6,965 | 1,775 | 4,639 | 63 | 17,250 |
| Systems | 1,667 | 437 | 1,407 | 786 | 225 | 4,522 |
| Services and other | 1,212 | 607 | 2,171 | 1,011 | – | 5,001 |
| 6,687 | 8,009 | 5,353 | 6,436 | 288 | 26,773 | |
| Third-party revenues | 6,687 | 8,009 | 5,353 | 6,436 | 288 | 26,773 |
| Intersegment revenues | 388 | 357 | 103 | 370 | (1,218) | – |
| Total Revenues | 7,075 | 8,366 | 5,456 | 6,806 | (930) | 26,773 |
| Nine months ended September 30, 2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Power | Electrification | Industrial | Robotics | Corporate | ||||
| (\$ in millions) | Grids | Products | Automation | and Motion | and Other | Total | ||
| Geographical markets | ||||||||
| Europe | 2,045 | 2,565 | 1,936 | 1,895 | 124 | 8,565 | ||
| The Americas | 2,131 | 1,963 | 965 | 2,051 | 94 | 7,204 | ||
| Asia, Middle East and Africa | 2,646 | 2,517 | 1,856 | 1,864 | 380 | 9,263 | ||
| 6,822 | 7,045 | 4,757 | 5,810 | 598 | 25,032 | |||
| End Customer Markets | ||||||||
| Utilities | 4,980 | 1,963 | 931 | 465 | 452 | 8,791 | ||
| Industry | 1,356 | 2,954 | 2,630 | 4,341 | 124 | 11,405 | ||
| Transport & infrastructure | 486 | 2,128 | 1,196 | 1,004 | 22 | 4,836 | ||
| 6,822 | 7,045 | 4,757 | 5,810 | 598 | 25,032 | |||
| Product type | ||||||||
| Products | 3,926 | 6,140 | 1,197 | 4,190 | 72 | 15,525 | ||
| Systems | 1,915 | 440 | 1,569 | 718 | 519 | 5,161 | ||
| Services and other | 981 | 465 | 1,991 | 902 | 7 | 4,346 | ||
| 6,822 | 7,045 | 4,757 | 5,810 | 598 | 25,032 | |||
| Third-party revenues | 6,822 | 7,045 | 4,757 | 5,810 | 598 | 25,032 | ||
| Intersegment revenues | 485 | 353 | 111 | 389 | (1,338) | – | ||
| Total Revenues | 7,307 | 7,398 | 4,868 | 6,199 | (740) | 25,032 |
| Three months ended September 30, 2018 | ||||||
|---|---|---|---|---|---|---|
| Power | Electrification | Industrial | Robotics | Corporate | ||
| (\$ in millions) | Grids | Products | Automation | and Motion | and Other | Total |
| Geographical markets | ||||||
| Europe | 689 | 971 | 740 | 701 | 22 | 3,123 |
| The Americas | 673 | 1,119 | 373 | 705 | 12 | 2,882 |
| Asia, Middle East and Africa | 851 | 994 | 609 | 751 | 47 | 3,252 |
| 2,213 | 3,084 | 1,722 | 2,157 | 81 | 9,257 | |
| End Customer Markets | ||||||
| Utilities | 1,550 | 950 | 273 | 188 | 45 | 3,006 |
| Industry | 455 | 1,141 | 1,079 | 1,621 | 19 | 4,315 |
| Transport & infrastructure | 208 | 993 | 370 | 348 | 17 | 1,936 |
| 2,213 | 3,084 | 1,722 | 2,157 | 81 | 9,257 | |
| Product type | ||||||
| Products | 1,234 | 2,684 | 546 | 1,553 | 27 | 6,044 |
| Systems | 574 | 139 | 485 | 264 | 54 | 1,516 |
| Services and other | 405 | 261 | 691 | 340 | – | 1,697 |
| 2,213 | 3,084 | 1,722 | 2,157 | 81 | 9,257 | |
| Third-party revenues | 2,213 | 3,084 | 1,722 | 2,157 | 81 | 9,257 |
| Intersegment revenues | 123 | 115 | 36 | 124 | (398) | – |
| Total Revenues | 2,336 | 3,199 | 1,758 | 2,281 | (317) | 9,257 |
| Three months ended September 30, 2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Power | Electrification | Industrial | Robotics | Corporate | ||||
| (\$ in millions) | Grids | Products | Automation | and Motion | and Other | Total | ||
| Geographical markets | ||||||||
| Europe | 703 | 908 | 762 | 664 | 21 | 3,058 | ||
| The Americas | 690 | 670 | 332 | 687 | 21 | 2,400 | ||
| Asia, Middle East and Africa | 904 | 900 | 648 | 702 | 112 | 3,266 | ||
| 2,297 | 2,478 | 1,742 | 2,053 | 154 | 8,724 | |||
| End Customer Markets | ||||||||
| Utilities | 1,642 | 695 | 309 | 180 | 117 | 2,943 | ||
| Industry | 474 | 1,114 | 998 | 1,570 | 31 | 4,187 | ||
| Transport & infrastructure | 181 | 669 | 435 | 303 | 6 | 1,594 | ||
| 2,297 | 2,478 | 1,742 | 2,053 | 154 | 8,724 | |||
| Product type | ||||||||
| Products | 1,306 | 2,143 | 570 | 1,461 | 23 | 5,503 | ||
| Systems | 658 | 170 | 502 | 271 | 131 | 1,732 | ||
| Services and other | 333 | 165 | 670 | 321 | – | 1,489 | ||
| 2,297 | 2,478 | 1,742 | 2,053 | 154 | 8,724 | |||
| Third-party revenues | 2,297 | 2,478 | 1,742 | 2,053 | 154 | 8,724 | ||
| Intersegment revenues | 152 | 118 | 38 | 144 | (452) | – | ||
| Total Revenues | 2,449 | 2,596 | 1,780 | 2,197 | (298) | 8,724 |
| Nine months ended | Three months ended | |||||
|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||
| (\$ in millions) | 2018 | 2017 | 2018 | 2017 | ||
| Operational EBITA: | ||||||
| Power Grids | 696 | 743 | 232 | 259 | ||
| Electrification Products | 1,238 | 1,112 | 431 | 417 | ||
| Industrial Automation | 768 | 654 | 246 | 237 | ||
| Robotics and Motion | 1,098 | 957 | 386 | 361 | ||
| Corporate and Other and Intersegment elimination | (455) | (357) | (177) | (150) | ||
| Consolidated Operational EBITA | 3,345 | 3,109 | 1,118 | 1,124 | ||
| Acquisition-related amortization | (225) | (189) | (80) | (74) | ||
| Restructuring and restructuring-related expenses(1) | (61) | (224) | (44) | (92) | ||
| Changes in obligations related to divested businesses | (92) | (94) | (75) | – | ||
| Changes in pre-acquisition estimates | (2) | – | (1) | 2 | ||
| Gains and losses from sale of businesses | 61 | 330 | 66 | (1) | ||
| Acquisition-related expenses and integration costs | (152) | (41) | (75) | (27) | ||
| Certain other non-operational items | (49) | (193) | (7) | (43) | ||
| Foreign exchange/commodity timing differences in income from operations: | ||||||
| Unrealized gains and losses on derivatives (foreign exchange, | ||||||
| commodities, embedded derivatives) | (16) | 138 | 50 | (31) | ||
| Realized gains and losses on derivatives where the underlying hedged | ||||||
| transaction has not yet been realized | (29) | 40 | (17) | 22 | ||
| Unrealized foreign exchange movements on receivables/payables (and | ||||||
| related assets/liabilities) | (15) | (88) | (27) | 8 | ||
| Income from operations | 2,765 | 2,788 | 908 | 888 | ||
| Interest and dividend income | 64 | 55 | 13 | 20 | ||
| Interest and other finance expense | (244) | (227) | (91) | (74) | ||
| Non-operational pension (cost) credit | 87 | 34 | 29 | 20 | ||
| Income from continuing operations before taxes | 2,672 | 2,650 | 859 | 854 |
(1) Amounts in 2017 also include the incremental implementation costs in relation to the White Collar Productivity program.
| Total assets(1) | |||
|---|---|---|---|
| (\$ in millions) | September 30, 2018 | December 31, 2017 | |
| Power Grids | 8,350 | 8,387 | |
| Electrification Products | 13,991 | 10,314 | |
| Industrial Automation | 6,777 | 7,258 | |
| Robotics and Motion | 8,674 | 8,134 | |
| Corporate and Other | 6,860 | 9,365 | |
| Consolidated | 44,652 | 43,458 |
(1) Total assets are after intersegment eliminations and therefore reflect third-party assets only.
The following reconciliations and definitions include measures which ABB uses to supplement its Interim Consolidated Financial Information (unaudited) which is prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). Certain of these financial measures are, or may be, considered non-GAAP financial measures as defined in the rules of the U.S. Securities and Exchange Commission (SEC).
While ABB's management believes that the non-GAAP financial measures herein are useful in evaluating ABB's operating results, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with U.S. GAAP. Therefore these measures should not be viewed in isolation but considered together with the Interim Consolidated Financial Information (unaudited) prepared in accordance with U.S. GAAP as of and for the nine and three months ended September 30, 2018.
On January 1, 2018, the Company adopted a new accounting standard, Revenue from contracts with customers, and consistent with the method of adoption elected, comparative information has not been restated and continues to be reported under the accounting standards previously in effect for those periods (see Note 2 to the Interim Consolidated Financial Information).
Growth rates for certain key figures may be presented and discussed on a "comparable" basis. The comparable growth rate measures growth on a constant currency basis. Since we are a global company, the comparability of our operating results reported in U.S. dollars is affected by foreign currency exchange rate fluctuations. We calculate the impacts from foreign currency fluctuations by translating the current-year periods' reported key figures into U.S. dollar amounts using the exchange rates in effect for the comparable periods in the previous year.
Comparable growth rates are also adjusted for changes in our business portfolio. Adjustments to our business portfolio occur due to acquisitions, divestments, or by exiting specific business activities or customer markets. The adjustment for portfolio changes is calculated as follows: where the results of any business acquired or divested have not been consolidated and reported for the entire duration of both the current and comparable periods, the reported key figures of such business are adjusted to exclude the relevant key figures of any corresponding quarters which are not comparable when computing the comparable growth rate. Certain portfolio changes which do not qualify as divestments under U.S. GAAP have been treated in a similar manner to divestments. Changes in our portfolio where we have exited certain business activities or customer markets are adjusted as if the relevant business was divested in the period when the decision to cease business activities was taken. We do not adjust for portfolio changes where the relevant business has annualized revenues of less than \$50 million.
The following tables provide reconciliations of reported growth rates of certain key figures to their respective comparable growth rate.
| Q3 2018 compared to Q3 2017 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | |||||||||
| US\$ | Foreign | US\$ | Foreign | |||||||
| (as | exchange | Portfolio | (as | exchange | Portfolio | |||||
| Division | reported) | impact | changes | Comparable | reported) | impact | changes | Comparable | ||
| Power Grids | 7% | 4% | 0% | 11% | -5% | 5% | 0% | 0% | ||
| Electrification Products | 26% | 4% | -24% | 6% | 23% | 4% | -24% | 3% | ||
| Industrial Automation | 3% | 4% | 0% | 7% | -1% | 4% | 0% | 3% | ||
| Robotics and Motion | 12% | 3% | 0% | 15% | 4% | 3% | 0% | 7% | ||
| ABB Group | 10% | 3% | -4% | 9% | 6% | 3% | -6% | 3% |
| 9M 2018 compared to 9M 2017 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | |||||||||
| US\$ | Foreign | US\$ | Foreign | |||||||
| (as | exchange | Portfolio | (as | exchange | Portfolio | |||||
| Division | reported) | impact | changes | Comparable | reported) | impact | changes | Comparable | ||
| Power Grids | 6% | -1% | 0% | 5% | -3% | -1% | 0% | -4% | ||
| Electrification Products | 15% | -2% | -8% | 5% | 13% | -2% | -8% | 3% | ||
| Industrial Automation | 21% | -4% | -9% | 8% | 12% | -2% | -9% | 1% | ||
| Robotics and Motion | 15% | -3% | 0% | 12% | 10% | -3% | 0% | 7% | ||
| ABB Group | 13% | -2% | -4% | 7% | 7% | -2% | -3% | 2% |
| Q3 2018 compared to Q3 2017 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | ||||||||
| US\$ | Foreign | US\$ | Foreign | ||||||
| (as | exchange | Portfolio | (as | exchange | Portfolio | ||||
| Region | reported) | impact | changes | Comparable | reported) | impact | changes | Comparable | |
| Europe | 10% | 4% | 1% | 15% | 2% | 4% | -3% | 3% | |
| The Americas | 23% | 3% | -17% | 9% | 20% | 3% | -17% | 6% | |
| Asia, Middle East and Africa | -1% | 3% | 2% | 4% | 0% | 3% | -2% | 1% | |
| ABB Group | 10% | 3% | -4% | 9% | 6% | 3% | -6% | 3% |
| 9M 2018 compared to 9M 2017 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | ||||||||
| US\$ | Foreign | US\$ | Foreign | ||||||
| (as | exchange | Portfolio | (as | exchange | Portfolio | ||||
| Region | reported) | impact | changes | Comparable | reported) | impact | changes | Comparable | |
| Europe | 16% | -6% | -3% | 7% | 9% | -4% | -4% | 1% | |
| The Americas | 10% | 1% | -6% | 5% | 9% | 1% | -6% | 4% | |
| Asia, Middle East and Africa | 13% | -2% | -3% | 8% | 4% | -3% | 0% | 1% | |
| ABB Group | 13% | -2% | -4% | 7% | 7% | -2% | -3% | 2% |
| September 30, 2018 compared to September 30, 2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
| US\$ | Foreign | |||||||
| (as | exchange | Portfolio | ||||||
| Division | reported) | impact | changes | Comparable | ||||
| Power Grids | -5% | 4% | 0% | -1% | ||||
| Electrification Products | 37% | 5% | -34% | 8% | ||||
| Industrial Automation | -5% | 3% | 0% | -2% | ||||
| Robotics and Motion | 6% | 4% | 0% | 10% | ||||
| ABB Group | 0% | 4% | -2% | 2% |
| Q3 2018 compared to Q3 2017 | 9M 2018 compared to 9M 2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| US\$ | Foreign | US\$ | Foreign | |||||
| (as | exchange | Portfolio | (as | exchange | Portfolio | |||
| reported) | impact | changes | Comparable | reported) | impact | changes | Comparable | |
| Large orders | -13% | 4% | 60% | 51% | 6% | -2% | 4% | 8% |
| Base orders | 12% | 4% | -9% | 7% | 14% | -2% | -5% | 7% |
| Service orders | 10% | 4% | -6% | 8% | 10% | -3% | -1% | 6% |
| Service revenues | 14% | 4% | -7% | 11% | 15% | -2% | -2% | 11% |
Effective January 1, 2018, management responsibility and oversight of certain remaining engineering, procurement and construction (EPC) businesses, previously included in the Power Grids, Industrial Automation and Robotics and Motion operating segments, were transferred to a new non-core operating business within Corporate and Other. See Note 15 to the Interim Consolidated Financial Information for further details on the realignment.
The following information presents a reconciliation of growth rates of orders and revenues for 2017 compared with 2016 to reflect these organizational changes:
| Q3 2017 compared to Q3 2016 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | |||||||||
| US\$ | Foreign | US\$ | Foreign | |||||||
| (as | exchange | Portfolio | (as | exchange | Portfolio | |||||
| Division | reported) | impact | changes | Comparable | reported) | impact | changes | Comparable | ||
| Power Grids | -8% | -1% | 0% | -9% | 2% | -1% | 0% | 1% | ||
| Electrification Products | 7% | 0% | 0% | 7% | 5% | 0% | 0% | 5% | ||
| Industrial Automation | 30% | -3% | -17% | 10% | 15% | -2% | -12% | 1% | ||
| Robotics and Motion | 5% | -1% | 0% | 4% | 10% | -2% | 0% | 8% | ||
| ABB Group | 8% | 0% | -3% | 5% | 6% | -2% | -1% | 3% |
| 9M 2017 compared to 9M 2016 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | |||||||
| US\$ | Foreign | US\$ | Foreign | |||||
| (as | exchange | Portfolio | (as | exchange | Portfolio | |||
| Division | reported) | impact | changes | Comparable | reported) | impact | changes | Comparable |
| Power Grids | -12% | 2% | 0% | -10% | 1% | 1% | 0% | 2% |
| Electrification Products | 1% | 2% | 0% | 3% | 2% | 1% | 0% | 3% |
| Industrial Automation | 7% | 1% | -5% | 3% | -1% | 1% | -4% | -4% |
| Robotics and Motion | 7% | 1% | 0% | 8% | 5% | 1% | 0% | 6% |
| ABB Group | -1% | 1% | 1% | 1% | 1% | 1% | 0% | 2% |
Operational EBITA margin
Operational EBITA margin is Operational EBITA as a percentage of Operational revenues.
Operational EBITA
Operational earnings before interest, taxes and acquisition-related amortization (Operational EBITA) represents Income from operations excluding:
Operational EBITA is our measure of segment profit but is also used by management to evaluate the profitability of the Company as a whole.
Amortization expense on intangibles arising upon acquisitions.
The Company presents Operational revenues solely for the purpose of allowing the computation of Operational EBITA margin. Operational revenues are total revenues adjusted for foreign exchange/commodity timing differences in total revenues of: (i) unrealized gains and losses on derivatives, (ii) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (iii) unrealized foreign exchange movements on receivables (and related assets). Operational revenues are not intended to be an alternative measure to Total Revenues, which represent our revenues measured in accordance with U.S. GAAP.
The following tables provide reconciliations of consolidated Operational EBITA to Net Income and Operational EBITA Margin by division.
Reconciliation of consolidated Operational EBITA to Net Income
| Nine months ended September 30, | Three months ended September 30, | |||
|---|---|---|---|---|
| (\$ in millions) | 2018 | 2017 | 2018 | 2017 |
| Operational EBITA | 3,345 | 3,109 | 1,118 | 1,124 |
| Acquisition-related amortization | (225) | (189) | (80) | (74) |
| Restructuring and restructuring-related expenses(1) | (61) | (224) | (44) | (92) |
| Changes in obligations related to divested businesses | (92) | (94) | (75) | – |
| Changes in pre-acquisition estimates | (2) | – | (1) | 2 |
| Gains and losses from sale of businesses | 61 | 330 | 66 | (1) |
| Acquisition-related expenses and integration costs | (152) | (41) | (75) | (27) |
| Certain other non-operational items | (49) | (193) | (7) | (43) |
| Foreign exchange/commodity timing differences in income from operations: | ||||
| Unrealized gains and losses on derivatives (foreign exchange, | ||||
| commodities, embedded derivatives) | (16) | 138 | 50 | (31) |
| Realized gains and losses on derivatives where the underlying hedged | ||||
| transaction has not yet been realized | (29) | 40 | (17) | 22 |
| Unrealized foreign exchange movements on receivables/payables (and | ||||
| related assets/liabilities) | (15) | (88) | (27) | 8 |
| Income from operations | 2,765 | 2,788 | 908 | 888 |
| Interest and dividend income | 64 | 55 | 13 | 20 |
| Interest and other finance expense | (244) | (227) | (91) | (74) |
| Non-operational pension (cost) credit | 87 | 34 | 29 | 20 |
| Income from continuing operations before taxes | 2,672 | 2,650 | 859 | 854 |
| Provision for taxes | (722) | (702) | (223) | (246) |
| Income from continuing operations, net of tax | 1,950 | 1,948 | 636 | 608 |
| Income (loss) from discontinued operations, net of tax | 3 | (6) | – | (5) |
| Net income | 1,953 | 1,942 | 636 | 603 |
| Nine months ended September 30, 2018 | ||||||
|---|---|---|---|---|---|---|
| Corporate and | ||||||
| Other and | ||||||
| Power | Electrification | Industrial | Robotics | Intersegment | ||
| (\$ in millions, unless otherwise indicated) | Grids | Products | Automation | and Motion | elimination | Consolidated |
| Total revenues | 7,075 | 8,366 | 5,456 | 6,806 | (930) | 26,773 |
| Foreign exchange/commodity timing | ||||||
| differences in total revenues: | ||||||
| Unrealized gains and losses | ||||||
| on derivatives | 26 | 20 | (15) | 8 | (3) | 36 |
| Realized gains and losses on derivatives | ||||||
| where the underlying hedged | ||||||
| transaction has not yet been realized | 24 | 3 | 12 | 1 | (5) | 35 |
| Unrealized foreign exchange movements | ||||||
| on receivables (and related assets) | (17) | (9) | (4) | (2) | (2) | (34) |
| Operational revenues | 7,108 | 8,380 | 5,449 | 6,813 | (940) | 26,810 |
| Income (loss) from operations | 589 | 1,069 | 683 | 1,020 | (596) | 2,765 |
| Acquisition-related amortization | 27 | 71 | 66 | 48 | 13 | 225 |
| Restructuring and | ||||||
| restructuring-related expenses | 18 | 22 | 4 | 13 | 4 | 61 |
| Changes in obligations related to | ||||||
| divested businesses | – | – | – | – | 92 | 92 |
| Changes in pre-acquisition estimates | – | 2 | – | – | – | 2 |
| Gains and losses from sale of businesses | – | (81) | 3 | – | 17 | (61) |
| Acquisition-related expenses and | ||||||
| integration costs | 4 | 128 | 3 | 1 | 16 | 152 |
| Certain other non-operational items | 34 | (2) | 1 | 7 | 9 | 49 |
| Foreign exchange/commodity timing | ||||||
| differences in income from operations: | ||||||
| Unrealized gains and losses on derivatives | ||||||
| (foreign exchange, commodities, | ||||||
| embedded derivatives) | 14 | 27 | (19) | 3 | (9) | 16 |
| Realized gains and losses on derivatives | ||||||
| where the underlying hedged | ||||||
| transaction has not yet been realized | 18 | 3 | 12 | – | (4) | 29 |
| Unrealized foreign exchange movements | ||||||
| on receivables/payables | ||||||
| (and related assets/liabilities) | (8) | (1) | 15 | 6 | 3 | 15 |
| Operational EBITA | 696 | 1,238 | 768 | 1,098 | (455) | 3,345 |
| Operational EBITA margin (%) | 9.8% | 14.8% | 14.1% | 16.1% | n.a. | 12.5% |
| Corporate and Other and Power Electrification Industrial Robotics Intersegment (\$ in millions, unless otherwise indicated) Grids Products Automation and Motion elimination Consolidated Total revenues 7,307 7,398 4,868 6,199 (740) 25,032 Foreign exchange/commodity timing differences in total revenues: Unrealized gains and losses on derivatives (69) (36) (35) (6) (3) (149) Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized (30) – (11) 2 – (39) Unrealized foreign exchange movements on receivables (and related assets) 54 9 16 1 – 80 Operational revenues 7,262 7,371 4,838 6,196 (743) 24,924 Income (loss) from operations 669 1,034 584 879 (378) 2,788 Acquisition-related amortization 25 76 25 50 13 189 Restructuring and restructuring-related expenses(1) 33 11 49 29 102 224 Changes in obligations related to divested businesses – – – – 94 94 Changes in pre-acquisition estimates – – – – – – Gains and losses from sale of businesses – – (2) – (328) (330) Acquisition-related expenses and |
|---|
| integration costs 1 11 25 – 4 41 |
| Certain other non-operational items 60 13 1 – 119 193 |
| Foreign exchange/commodity timing |
| differences in income from operations: |
| Unrealized gains and losses on derivatives |
| (foreign exchange, commodities, |
| embedded derivatives) (80) (36) (36) (9) 23 (138) |
| Realized gains and losses on derivatives |
| where the underlying hedged |
| transaction has not yet been realized (32) – (7) 2 (3) (40) |
| Unrealized foreign exchange movements |
| on receivables/payables |
| (and related assets/liabilities) 67 3 15 6 (3) 88 |
| Operational EBITA 743 1,112 654 957 -357 3,109 |
| Operational EBITA margin (%) 10.2% 15.1% 13.5% 15.4% n.a. 12.5% |
| Three months ended September 30, 2018 | ||||||
|---|---|---|---|---|---|---|
| Corporate and | ||||||
| Other and | ||||||
| Power | Electrification | Industrial | Robotics | Intersegment | ||
| (\$ in millions, unless otherwise indicated) | Grids | Products | Automation | and Motion | elimination | Consolidated |
| Total revenues | 2,336 | 3,199 | 1,758 | 2,281 | (317) | 9,257 |
| Foreign exchange/commodity timing | ||||||
| differences in total revenues: | ||||||
| Unrealized gains and losses | ||||||
| on derivatives | (38) | (7) | (22) | (15) | (9) | (91) |
| Realized gains and losses on derivatives | ||||||
| where the underlying hedged | ||||||
| transaction has not yet been realized | 8 | 3 | 6 | 2 | – | 19 |
| Unrealized foreign exchange movements | ||||||
| on receivables (and related assets) | 7 | 4 | 3 | 9 | (1) | 22 |
| Operational revenues | 2,313 | 3,199 | 1,745 | 2,277 | (327) | 9,207 |
| Income (loss) from operations | 220 | 391 | 223 | 354 | (280) | 908 |
| Acquisition-related amortization | 7 | 32 | 22 | 16 | 3 | 80 |
| Restructuring and | ||||||
| restructuring-related expenses | 7 | 19 | 2 | 11 | 5 | 44 |
| Changes in obligations related to | ||||||
| divested businesses | – | – | – | – | 75 | 75 |
| Changes in pre-acquisition estimates | – | 1 | – | – | – | 1 |
| Gains and losses from sale of businesses | – | (83) | – | – | 17 | (66) |
| Acquisition-related expenses and | ||||||
| integration costs | – | 60 | 1 | 1 | 13 | 75 |
| Certain other non-operational items | 7 | – | 1 | 2 | (3) | 7 |
| Foreign exchange/commodity timing | ||||||
| differences in income from operations: | ||||||
| Unrealized gains and losses on derivatives | ||||||
| (foreign exchange, commodities, | ||||||
| embedded derivatives) | (25) | 5 | (20) | (1) | (9) | (50) |
| Realized gains and losses on derivatives | ||||||
| where the underlying hedged | ||||||
| transaction has not yet been realized | 8 | 2 | 5 | – | 2 | 17 |
| Unrealized foreign exchange movements | ||||||
| on receivables/payables | ||||||
| (and related assets/liabilities) | 8 | 4 | 12 | 3 | – | 27 |
| Operational EBITA | 232 | 431 | 246 | 386 | (177) | 1,118 |
| Operational EBITA margin (%) | 10.0% | 13.5% | 14.1% | 17.0% | n.a. | 12.1% |
| Three months ended September 30, 2017 | ||||||
|---|---|---|---|---|---|---|
| Corporate and | ||||||
| Other and | ||||||
| Power | Electrification | Industrial | Robotics | Intersegment | ||
| (\$ in millions, unless otherwise indicated) | Grids | Products | Automation | and Motion | elimination | Consolidated |
| Total revenues | 2,449 | 2,596 | 1,780 | 2,197 | (298) | 8,724 |
| Foreign exchange/commodity timing | ||||||
| differences in total revenues: | ||||||
| Unrealized gains and losses | ||||||
| on derivatives | 10 | 6 | (8) | 13 | 9 | 30 |
| Realized gains and losses on derivatives | ||||||
| where the underlying hedged | ||||||
| transaction has not yet been realized | (17) | – | (9) | 1 | (1) | (26) |
| Unrealized foreign exchange movements | ||||||
| on receivables (and related assets) | 3 | (6) | 2 | (7) | 1 | (7) |
| Operational revenues | 2,445 | 2,596 | 1,765 | 2,204 | (289) | 8,721 |
| Income (loss) from operations | 232 | 393 | 164 | 336 | (237) | 888 |
| Acquisition-related amortization | 8 | 24 | 21 | 16 | 5 | 74 |
| Restructuring and | ||||||
| restructuring-related expenses(1) | 12 | (2) | 40 | 2 | 40 | 92 |
| Changes in pre-acquisition estimates | – | (2) | – | – | – | (2) |
| Gains and losses from sale of businesses | – | – | – | – | 1 | 1 |
| Acquisition-related expenses and | ||||||
| integration costs | 1 | 8 | 18 | – | – | 27 |
| Certain other non-operational items | 8 | – | 1 | – | 34 | 43 |
| Foreign exchange/commodity timing | ||||||
| differences in income from operations: | ||||||
| Unrealized gains and losses on derivatives | ||||||
| (foreign exchange, commodities, | ||||||
| embedded derivatives) | 12 | 3 | – | 8 | 8 | 31 |
| Realized gains and losses on derivatives | ||||||
| where the underlying hedged | ||||||
| transaction has not yet been realized | (19) | – | (5) | 2 | – | (22) |
| Unrealized foreign exchange movements | ||||||
| on receivables/payables | ||||||
| (and related assets/liabilities) | 5 | (7) | (2) | (3) | (1) | (8) |
| Operational EBITA | 259 | 417 | 237 | 361 | (150) | 1,124 |
| Operational EBITA margin (%) | 10.6% | 16.1% | 13.4% | 16.4% | n.a. | 12.9% |
Operational EPS is calculated as Operational net income divided by the weighted-average number of shares outstanding used in determining basic earnings per share.
Operational net income is calculated as Net income attributable to ABB adjusted for the following:
Amortization expense on intangibles arising upon acquisitions.
The Adjusted Group effective tax rate is computed by dividing an adjusted provision for taxes by an adjusted income from continuing operations before taxes. Certain amounts recorded in income from continuing operations before taxes and the related provision for taxes (primarily gains and losses from sale of businesses) are excluded from the computation.
In connection with ABB's 2015-2020 targets, Operational EPS growth is measured assuming 2014 as the base year and uses constant exchange rates. We compute the constant currency operational net income for all periods using the relevant monthly exchange rates which were in effect during 2014 and any difference in computed Operational net income is divided by the relevant weighted-average number of shares outstanding to identify the constant currency Operational EPS adjustment.
| Nine months ended September 30, | ||||
|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2018 | 2017 | Growth(3) | |
| Net income (attributable to ABB) | 1,856 | 1,820 | ||
| Operational adjustments: | ||||
| Acquisition-related amortization | 225 | 189 | ||
| Restructuring and restructuring-related expenses(1) | 61 | 224 | ||
| Non-operational pension cost (credit) | (87) | (34) | ||
| Changes in obligations related to divested businesses | 92 | 94 | ||
| Changes in pre-acquisition estimates | 2 | – | ||
| Gains and losses from sale of businesses | (61) | (330) | ||
| Acquisition-related expenses and integration costs | 152 | 41 | ||
| Certain other non-operational items | 49 | 193 | ||
| FX/commodity timing differences in income from operations | 60 | (90) | ||
| Tax on operational adjustments(2) | (143) | (138) | ||
| Operational net income | 2,206 | 1,969 | 12% | |
| Weighted-average number of shares outstanding (in millions) | 2,132 | 2,138 | ||
| Operational EPS | 1.03 | 0.92 | 12% | |
| Constant currency Operational EPS adjustment | 0.14 | 0.13 | ||
| Operational EPS (constant currency basis - 2014 exchange rates) | 1.17 | 1.05 | 12% |
| Three months ended September 30, | |||
|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2018 | 2017 | Growth(3) |
| Net income (attributable to ABB) | 603 | 571 | |
| Operational adjustments: | |||
| Acquisition-related amortization | 80 | 74 | |
| Restructuring and restructuring-related expenses(1) | 44 | 92 | |
| Non-operational pension cost (credit) | (29) | (20) | |
| Changes in obligations related to divested businesses | 75 | – | |
| Changes in pre-acquisition estimates | 1 | (2) | |
| Gains and losses from sale of businesses | (66) | 1 | |
| Acquisition-related expenses and integration costs | 75 | 27 | |
| Certain other non-operational items | 7 | 43 | |
| FX/commodity timing differences in income from operations | (6) | 1 | |
| Tax on operational adjustments(2) | (57) | (62) | |
| Operational net income | 727 | 725 | 0% |
| Weighted-average number of shares outstanding (in millions) | 2,132 | 2,134 | |
| Operational EPS | 0.34 | 0.34 | 0% |
| Constant currency Operational EPS adjustment | 0.05 | 0.03 | |
| Operational EPS (constant currency basis - 2014 exchange rates) | 0.39 | 0.37 | 4% |
(1) Amounts in 2017 also include the incremental implementation costs in relation to the White Collar Productivity program.
(2) Tax amount is computed by applying the Adjusted Group effective tax rate to the operational adjustments, except for gains and losses from sale of businesses for which the actual provision for taxes resulting from the gain or loss has been computed.
(3) Growth is computed using unrounded EPS amounts.
Net debt is defined as Total debt less Cash and marketable securities.
Total debt
Total debt is the sum of Short-term debt and current maturities of long-term debt, and Long-term debt.
Cash and marketable securities is the sum of Cash and equivalents, and Marketable securities and short-term investments.
| Reconciliation | ||
|---|---|---|
| (\$ in millions) | September 30, 2018 | December 31, 2017 |
| Short-term debt and current maturities of long-term debt | 2,883 | 738 |
| Long-term debt | 6,619 | 6,709 |
| Total debt | 9,502 | 7,447 |
| Cash and equivalents | 2,604 | 4,526 |
| Marketable securities and short-term investments | 953 | 1,102 |
| Cash and marketable securities | 3,557 | 5,628 |
| Net debt | 5,945 | 1,819 |
Net working capital as a percentage of revenues
Net working capital as a percentage of revenues is calculated as Net working capital divided by Adjusted revenues for the trailing twelve months.
Net working capital is the sum of (i) receivables, net, (ii) contract assets, (iii) inventories, net, and (iv) prepaid expenses; less (v) accounts payable, trade, (v) contract liabilities, and (vi) other current liabilities (excluding primarily: (a) income taxes payable, (b) current derivative liabilities, (c) pension and other employee benefits, and (d) payables under the share buyback program); and including the amounts related to these accounts which have been presented as either assets or liabilities held for sale.
Adjusted revenues for the trailing twelve months includes total revenues recorded by ABB in the twelve months preceding the relevant balance sheet date adjusted to eliminate revenues of divested businesses and the estimated impact of annualizing revenues of certain acquisitions which were completed in the same trailing twelve-month period.
| Reconciliation | ||
|---|---|---|
| (\$ in millions, unless otherwise indicated) | September 30, 2018 | September 30, 2017 |
| Net working capital: | ||
| Receivables, net | 8,935 | 8,328 |
| Contract assets | 2,350 | 2,410 |
| Inventories, net | 6,077 | 5,491 |
| Prepaid expenses | 316 | 276 |
| Accounts payable, trade | (5,825) | (5,081) |
| Contract liabilities | (2,700) | (3,017) |
| Other current liabilities(1) | (3,650) | (3,450) |
| Net working capital | 5,503 | 4,957 |
| Total revenues for the three months ended: | ||
| September 30, 2018 / 2017 | 9,257 | 8,724 |
| June 30, 2018 / 2017 | 8,889 | 8,454 |
| March 31, 2018 / 2017 | 8,627 | 7,854 |
| December 31, 2017 / 2016 | 9,280 | 8,993 |
| Adjustment to annualize/eliminate revenues of certain acquisitions/divestments | 1,622 | 366 |
| Adjusted revenues for the trailing twelve months | 37,675 | 34,391 |
| Net working capital as a percentage of revenues (%) | 14.6% | 14.4% |
(1) Amounts exclude \$583 million and \$622 million at September 30, 2018 and 2017, respectively, related primarily to (a) income taxes payable, (b) current derivative liabilities, and (c) pension and other employee benefits.
Free cash flow conversion to net income
Free cash flow conversion to net income is calculated as Free cash flow divided by Net income attributable to ABB.
Free cash flow is calculated as net cash provided by operating activities adjusted for: (i) purchases of property, plant and equipment and intangible assets, (ii) proceeds from sales of property, plant and equipment, and (iii) changes in financing and other non-current receivables, net (included in other investing activities).
Free cash flow for the trailing twelve months includes free cash flow recorded by ABB in the twelve months preceding the relevant balance sheet date.
Net income for the trailing twelve months includes net income recorded by ABB in the twelve months preceding the relevant balance sheet date.
| Twelve months to | |||
|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | September 30, 2018 | December 31, 2017 | |
| Net cash provided by operating activities | 2,926 | 3,799 | |
| Adjusted for the effects of: | |||
| Purchases of property, plant and equipment and intangible assets | (1,003) | (949) | |
| Proceeds from sale of property, plant and equipment | 69 | 66 | |
| Changes in financing receivables and other non-current receivables | (3) | 10 | |
| Free cash flow | 1,989 | 2,926 | |
| Net income attributable to ABB | 2,249 | 2,213 | |
| Free cash flow conversion to net income | 88% | 132% |
| Purchases of | Changes in | ||||
|---|---|---|---|---|---|
| Net cash | property, plant | Proceeds | financing | ||
| provided by | and equipment | from sale of | receivables and | Net income | |
| operating | and intangible | property, plant | other non-current | attributable | |
| (\$ in millions) | activities | assets | and equipment | receivables | to ABB |
| Q4 2017 | 1,869 | (329) | 16 | 3 | 393 |
| Q1 2018 | (518) | (238) | 26 | (1) | 572 |
| Q2 2018 | 1,010 | (197) | 19 | 1 | 681 |
| Q3 2018 | 565 | (239) | 8 | (6) | 603 |
| Total for the trailing twelve months | |||||
| to September 30, 2018 | 2,926 | (1,003) | 69 | (3) | 2,249 |
Finance net is calculated as Interest and dividend income less Interest and other finance expense.
| Nine months ended September 30, | Three months ended September 30, | |||
|---|---|---|---|---|
| (\$ in millions) | 2018 | 2017 | 2018 | 2017 |
| Interest and dividend income | 64 | 55 | 13 | 20 |
| Interest and other finance expense | (244) | (227) | (91) | (74) |
| Finance net | (180) | (172) | (78) | (54) |
Book-to-bill ratio is calculated as Orders received divided by Total revenues.
| Nine months ended September 30, | Three months ended September 30, | |||
|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | 2018 | 2017 | 2018 | 2017 |
| Orders received | 28,196 | 24,909 | 8,941 | 8,157 |
| Total revenues | 26,773 | 25,032 | 9,257 | 8,724 |
| Book-to-bill ratio | 1.05 | 1.00 | 0.97 | 0.94 |
—
Corporate Communications P.O. Box 8131 8050 Zurich Switzerland Tel: +41 (0)43 317 71 11 Fax: +41 (0)43 317 79 58
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.