Earnings Release • Apr 19, 2018
Earnings Release
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"We started 2018 with order growth in all divisions, improved revenues and operating results. The integration of B&R is well on track and we are preparing diligently for the closing and subsequent integration of GE Industrial Solutions which we expect to happen in Q2 2018," said ABB CEO Ulrich Spiesshofer.
"We are continuing to invest in sales, R&D and our leading digital solutions portfolio ABB Ability. With our streamlined and strengthened ABB and the transition year 2017 behind us, we have our focus firmly on our customers and relentless execution," he added.
| KEY FIGURES | ||||||
|---|---|---|---|---|---|---|
| \$ in millions, unless otherwise indicated | Q1 2018 | Q1 2017 | US \$ | Comparable1 | ||
| Orders | 9,772 | 8,403 | +16% | +6% | ||
| Revenues | 8,627 | 7,854 | +10% | +1% | ||
| Operational EBITA2 | 1,060 | 943 | +12% | +4%3 | ||
| as % of operational revenues | 12.3% | 12.1% | +0.2pts | |||
| Net Income | 572 | 724 | -21%4 | |||
| Basic EPS (\$) | 0.27 | 0.34 | -21%5 | |||
| Operational EPS (\$)2 | 0.31 | 0.28 | +11%5 | +6%5 | ||
| Cash flow from operating activities | -518 | 509 | n.a. |
Macroeconomic signs are trending positively in Europe and the United States, with growth expected to continue in China. The overall global market is back to growth whilst still impacted by uncertainties in various parts of the world. Oil prices and foreign exchange translation effects are expected to continue to influence the company's results.
2 For non-GAAP measures, see the "Supplemental Financial Information" attachment to the press release.
3 Constant currency (not adjusted for portfolio changes).
5 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, 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.
4 Operational net income +10% year on year at \$669 million in Q1 2018 compared to \$607 million in prior year period.
Total orders rose 6 percent (16 percent in US dollars), up in all divisions in the first quarter compared with a year ago. Base orders (base orders are classified as orders below \$15 million) increased 5 percent (15 percent in US dollars), reflecting growth across all regions. Large orders represented 10 percent of total orders, the same level as a year ago.
Change in US dollar exchange rates versus the prior year period resulted in a positive translation impact of 7 percent on reported orders. Changes in the business portfolio related to the acquisition of B&R off-set by divestments made in 2017 had a net positive impact of 3 percent on total reported orders. The book-to-bill ratio was 1.13x compared with 1.07x in the first quarter of 2017.
Total services orders grew 8 percent (15 percent in US dollars), representing 19 percent of total orders.
Regional demand patterns were mainly positive in the first quarter:
In ABB's key customer segments, the following trends were observed:
Revenues grew 1 percent (10 percent in US dollars) year on year. In the Robotics and Motion and Electrification Products divisions, revenues were well-supported by continued solid order growth. This was tempered by steady revenues in Industrial Automation and lower revenues in Power Grids due to the lower order backlog at the end of 2017 in these divisions.
Service revenues were 8 percent higher (15 percent in US dollars) and represented 18 percent of total revenues, compared with 18 percent a year ago.
Change in US dollar exchange rates versus the prior year period resulted in a positive translation impact on reported revenues of 7 percent. Changes in the business portfolio related to the acquisitions of B&R and the divestments made in 2017 had a net positive effect of 2 percent on total reported revenues.
Operational EBITA was \$1,060 million, 4 percent higher in local currencies (12 percent in US dollars). The operational EBITA was supported by net savings and positive volume and mix, partly offset by commodity prices. ABB continued to reinvest savings in growth over the quarter. The reported operational EBITA margin for the quarter improved to 12.3 percent, an expansion of 20 basis points when compared to the prior year period.
Net income was \$572 million, 21 percent lower in US dollars. Excluding non-operating items, which in the first quarter of 2017 included a gain from the divestment of the cables business, ABB's operational net income2 was \$669 million, an increase of 10 percent in US dollars. Basic earnings per share of \$0.27 was 21 percent lower compared with the first quarter of 2017. Operational earnings per share of \$0.31 was 11 percent higher, and 6 percent higher in constant currency terms5 .
Cash flow from operating activities was -\$518 million, compared to \$509 million in the prior year period. The lower outcome relative to a year ago was mainly driven by the timing of employee incentive payments, which in 2017 were paid in the second quarter, timing of cash flows for large projects, payables and receivables, as well as the timing of tax payments. ABB expects strong cash flow from operating activities in the second quarter and solid cash delivery for the full year.
| CHANGE | CHANGE | CHANGE | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) |
Orders | US\$ | Compa rable1 |
base orders |
US\$ | Compa rable1 |
Revenues | US\$ | Compa rable1 |
Op EBITA % |
CHANGE |
| Power Grids | 2,480 | +7% | +1% | 1,992 | +13% | +7% | 2,385 | +1% | -4% | 9.7% | -0.2pts |
| Electrification Products |
2,786 | +10% | +3% | 2,647 | +12% | +5% | 2,494 | +9% | +2% | 15.2% | +1.1pts |
| Industrial Automation |
2,117 | +26% | +4% | 1,787 | +24% | +0% | 1,859 | +23% | 0% | 14.1% | +0.4pts |
| Robotics and Motion |
2,579 | +18% | +11% | 2,313 | +16% | +9% | 2,209 | +15% | +8% | 15.3% | +0.5pts |
| Corporate & other (incl. inter-division elimination) |
-190 | 12 | -320 | ||||||||
| ABB Group | 9,772 | +16% | +6% | 8,751 | +15% | +5% | 8,627 | +10% | +1% | 12.3% | +0.2pts |
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.
Third-party base order momentum continued, increasing 7 percent (13 percent in US dollars). Service orders also grew, contributing to total order growth of 1 percent (7 percent in US dollars). The division booked several large orders which partially offset a tough comparable from the prior year, which included a very large order for an HVDC link between the UK and France. Revenues were 4 percent lower (1 percent higher in US dollars) impacted by the lower order backlog at the end of 2017. The operational EBITA margin of 9.7 percent for the quarter was 20 basis points lower year-on-year, reflecting lower revenue and mix effects in addition to ongoing investment in the division's Power Up transformation initiatives.
Total orders improved 3 percent (10 percent in US dollars) and third-party base orders rose 5 percent (12 percent in US dollars), despite two fewer working days in certain key markets during the quarter. Revenues increased 2 percent (9 percent in US dollars) compared to the same period in 2017. Operational EBITA increased 6 percent, with the margin expanding 110 basis points year on year to 15.2 percent, driven mainly by volume growth, pricing improvements and sustained cost control.
Total orders improved 4 percent on a comparable basis driven by service and selective investment for mining and specialty marine vessel solutions. Third-party base orders were steady in the quarter from the high level in the first quarter of 2017. Including B&R and currency effects, total order growth was 26 percent and third-party base order growth was 24 percent compared to the prior year period. Revenues reflect strong base business performance which mitigated the order backlog in the quarter. The operational EBITA margin of 14.1 percent, up 40 basis points, improved primarily due to positive mix, successful project execution and cost savings.
Order growth was reported across all segments and regions in the quarter. Total orders increased 11 percent (18 percent in US dollars) and third-party base orders improved 9 percent (16 percent in US dollars). Revenues increased 8 percent (15 percent in US dollars) on strong execution of the order backlog. Operational EBITA margin was 15.3 percent, up 50 basis points year on year. Improved volumes and mix were aided by focused growth efforts and stronger markets, which in turn improved under-absorption along with better cost control.
ABB has been executing its Next Level strategy since 2014 through the three focus areas of profitable growth, relentless execution and business-led collaboration. During this time ABB has transitioned its portfolio and operations into a market-orientated, focused, leaner company. ABB today offers two clear value propositions, bringing electricity from any power plant to any plug and automating industries from natural resources to finished products. ABB is driving profitable growth through four entrepreneurial divisions, continuing to invest in sales, R&D and its leading digital solutions portfolio, ABB Ability™. ABB's operating model puts the focus of ABB's divisions firmly on operational execution, with stronger links between compensation and delivery of operational performance. Along with improving market dynamics, ABB is better positioned in a better market.
As part of the drive towards profitable growth ABB continues to expand its ABB Ability™ solutions portfolio, which currently includes more than 210 ABB Ability™ solutions. During the quarter, ABB secured multiple new orders utilizing ABB Ability™ solutions including an order to upgrade two critical HVDC links in Australia and an order from the City of Trondheim in Norway for an electric vehicle charging solution.
ABB aims to create value through ongoing portfolio management. The integration of B&R into ABB's Industrial Automation division to form its global Machine & Factory Automation business unit is now well advanced and on track to increase mid-term revenues in the business unit to a target of more than \$1 billion. Building on the integration of B&R, ABB has announced a €100 million investment to build a stateof-the-art research center in Eggelsberg, Austria. The new campus will go into operation during 2020.
Work to secure regulatory approvals to acquire GE Industrial Solutions (GE-IS) continues and the transaction is on track to close by the end of the second quarter.
Further to the completion of the business model change for EPC a Non-Core business unit has been established within Corporate & Other effective January 1, 2018, reporting directly to the CFO to manage the resolution of remaining EPC activities.
ABB is building on the achievements of the 1,000-day programs that were completed at the end of 2017 with a continued strong focus on Supply Chain Management and Operations Quality. The group continues to deliver net cost savings, outpacing commodity effects and supporting the group's ongoing aim of offsetting three to five per cent of the group's cost of sales each year. The group efforts on quality and operations continue with a focus on world-class efficiency and effectiveness across ABB, including supporting ABB's divisions to implement the extensive program of Lean Six Sigma projects under way across ABB.
ABB continues to strengthen its brand. Effective March 1, 2018, ABB integrated Baldor Electric Company into its global ABB brand as part of the strategy to create a unified brand.
In January, ABB announced a ground breaking partnership agreement with the Formula E electric car motor racing series, now known as the "ABB FIA Formula E Championship". Formula E serves as a competitive platform to develop and test e-mobility-relevant electrification and digitalization technologies.
To maintain the efficiency of its capital funding structure, ABB closed a \$1.5 billion bond issue in the United States on April 3, 2018, consisting of three tranches with maturities of 2, 5 and 10 years. Net proceeds of the issue are planned to be used for general corporate purposes, including the funding of the GE-IS transaction.
Macroeconomic signs are trending positively in Europe and the United States, with growth expected to continue in China. The overall global market is back to growth whilst still impacted by 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 strong market presence, broad geographic and business scope, technology leadership and financial strength.
The Q1 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. EDT). The event will be accessible by conference call. The media conference call dial-in numbers are: UK +44 207 107 0613 Sweden +46 85 051 00 31 Rest of Europe, +41 58 310 50 00 US and Canada +1 866 291 41 66 (toll-free) or +1 631 570 56 13 (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). 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
The call will also be accessible on the ABB website at: http://new.abb.com/investorrelations/first-quarter-2018-resultswebcast. A recorded session will be available as a podcast one hour after the end of the conference call and can be downloaded from our website.
ABB (ABBN: SIX Swiss Ex) is a pioneering technology leader in electrification products, robotics and motion, industrial automation and power grids, 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 of 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 135,000 employees. www.abb.com
| July 19, 2018 | Second quarter 2018 results |
|---|---|
| October 25, 2018 | Third quarter 2018 results |
| February 2019 | Fourth quarter and full year 2018 results |
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", "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 "expects," "believes," "estimates," "targets," "plans," "is likely", "intends", "is on track" 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, April 19, 2018 Ulrich Spiesshofer, CEO
—
For more information, please contact:
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
APRIL 19, 2018
| ─ 03 05 |
Key Figures |
|---|---|
| ─ 06 30 |
Interim Consolidated Financial Information (unaudited) |
| 31 ─ 44 |
Supplemental Reconciliations and Definitions |
| CHANGE | ||||||
|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | Q1 2018 | Q1 2017 | US\$ | Comparable(1) | ||
| Orders | 9,772 | 8,403 | 16% | 6% | ||
| Order backlog (end March) | 23,737 | 23,084 | 3% | -3% | ||
| Revenues | 8,627 | 7,854 | 10% | 1% | ||
| Operational EBITA(1) | 1,060 | 943 | 12% | 4%(2) | ||
| as % of operational revenues(1) | 12.3% | 12.1% | +0.2 pts | |||
| Net income attributable to ABB | 572 | 724 | -21% | |||
| Basic earnings per share (\$) | 0.27 | 0.34 | -21%(3) | |||
| Operational earnings per share(1) (\$) | 0.31 | 0.28 | 11%(3) | 6%(3) | ||
| Cash flow from operating activities | (518) | 509 | n.a |
(1) For a reconciliation of non-GAAP measures see "Supplemental Reconciliations and Definitions" on page 31.
(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).
| (\$ in millions, unless otherwise indicated) | Q1 2018 | Q1 2017 | US\$ | Local | Comparable | |
|---|---|---|---|---|---|---|
| Orders | ABB Group | 9,772 | 8,403 | 16% | 9% | 6% |
| Power Grids | 2,480 | 2,324 | 7% | 1% | 1% | |
| Electrification Products | 2,786 | 2,528 | 10% | 3% | 3% | |
| Industrial Automation | 2,117 | 1,674 | 26% | 17% | 4% | |
| Robotics and Motion | 2,579 | 2,177 | 18% | 11% | 11% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (190) | (300) | ||||
| Third-party base orders | ABB Group | 8,751 | 7,598 | 15% | 8% | 5% |
| Power Grids | 1,992 | 1,763 | 13% | 7% | 7% | |
| Electrification Products | 2,647 | 2,365 | 12% | 5% | 5% | |
| Industrial Automation | 1,787 | 1,441 | 24% | 15% | 0% | |
| Robotics and Motion | 2,313 | 1,991 | 16% | 9% | 9% | |
| Corporate and Other | 12 | 38 | ||||
| Order backlog (end March) | ABB Group | 23,737 | 23,084 | 3% | -3% | -3% |
| Power Grids | 10,700 | 10,890 | -2% | -7% | -7% | |
| Electrification Products | 3,441 | 3,157 | 9% | 3% | 3% | |
| Industrial Automation | 5,595 | 5,456 | 3% | -6% | -8% | |
| Robotics and Motion | 4,261 | 3,818 | 12% | 4% | 4% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (260) | (237) | ||||
| Revenues | ABB Group | 8,627 | 7,854 | 10% | 3% | 1% |
| Power Grids | 2,385 | 2,351 | 1% | -4% | -4% | |
| Electrification Products | 2,494 | 2,293 | 9% | 2% | 2% | |
| Industrial Automation | 1,859 | 1,513 | 23% | 14% | 0% | |
| Robotics and Motion | 2,209 | 1,920 | 15% | 8% | 8% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (320) | (223) | ||||
| Operational EBITA | ABB Group | 1,060 | 943 | 12% | 4% | |
| Power Grids | 232 | 231 | 0% | -5% | ||
| Electrification Products | 377 | 322 | 17% | 6% | ||
| Industrial Automation | 262 | 206 | 27% | 18% | ||
| Robotics and Motion | 338 | 282 | 20% | 11% | ||
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (149) | (98) | ||||
| Operational EBITA % | ABB Group | 12.3% | 12.1% | |||
| Power Grids | 9.7% | 9.9% | ||||
| Electrification Products | 15.2% | 14.1% | ||||
| Industrial Automation | 14.1% | 13.7% | ||||
| Robotics and Motion | 15.3% | 14.8% | ||||
| Income from operations | ABB Group | 895 | 1,023 | |||
| Power Grids | 193 | 211 | ||||
| Electrification Products | 318 | 307 | ||||
| Industrial Automation | 237 | 211 | ||||
| Robotics and Motion | 313 | 261 | ||||
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (166) | 33 | ||||
| Income from operations % | ABB Group | 10.4% | 13.0% | |||
| Power Grids | 8.1% | 9.0% | ||||
| Electrification Products | 12.8% | 13.4% | ||||
| Industrial Automation | 12.7% | 13.9% | ||||
| Robotics and Motion | 14.2% | 13.6% | ||||
| Cash flow from operating activities | ABB Group | (518) | 509 | |||
| Power Grids | (250) | 190 | ||||
| Electrification Products | 81 | 205 | ||||
| Industrial Automation | 79 | 120 | ||||
| Robotics and Motion | 73 | 263 | ||||
| Corporate and Other | (501) | (269) |
| Power | Electrification | Industrial | Robotics | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | ABB | Grids | Products | Automation | and Motion | |||||
| Q1 18 | Q1 17 | Q1 18 | Q1 17 | Q1 18 | Q1 17 | Q1 18 | Q1 17 | Q1 18 | Q1 17 | |
| Revenues | 8,627 | 7,854 | 2,385 | 2,351 | 2,494 | 2,293 | 1,859 | 1,513 | 2,209 | 1,920 |
| FX/commodity timing | ||||||||||
| differences in total revenues | 12 | (79) | 14 | (28) | (6) | (11) | (1) | (13) | 1 | (12) |
| Operational revenues | 8,639 | 7,775 | 2,399 | 2,323 | 2,488 | 2,282 | 1,858 | 1,500 | 2,210 | 1,908 |
| Income from operations | 895 | 1,023 | 193 | 211 | 318 | 307 | 237 | 211 | 313 | 261 |
| Acquisition-related amortization | 73 | 59 | 10 | 8 | 20 | 26 | 23 | 2 | 16 | 18 |
| Restructuring and | ||||||||||
| restructuring-related expenses(1) | 11 | 48 | 4 | 3 | 4 | – | 2 | 4 | 4 | 10 |
| Changes in retained obligations of | ||||||||||
| divested businesses | – | 94 | – | – | – | – | – | – | – | – |
| Gains and losses from sale of businesses | 6 | (338) | – | – | – | – | 3 | – | – | – |
| Acquisition-related expenses and | ||||||||||
| integration costs | 33 | 6 | 1 | (1) | 31 | – | 1 | 3 | – | – |
| Certain other non-operational items | 22 | 102 | 15 | 28 | (2) | 4 | – | – | 1 | – |
| FX/commodity timing | ||||||||||
| differences in income from operations | 20 | (51) | 9 | (18) | 6 | (15) | (4) | (14) | 4 | (7) |
| Operational EBITA | 1,060 | 943 | 232 | 231 | 377 | 322 | 262 | 206 | 338 | 282 |
| Operational EBITA margin (%) | 12.3% | 12.1% | 9.7% | 9.9% | 15.2% | 14.1% | 14.1% | 13.7% | 15.3% | 14.8% |
(1) Amounts in 2017 also include the incremental implementation costs in relation to the White Collar Productivity program.
| Power Electrification |
Industrial | Robotics | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (\$ in millions) | ABB | Grids | Products | Automation | and Motion | |||||
| Q1 18 | Q1 17 | Q1 18 | Q1 17 | Q1 18 | Q1 17 | Q1 18 | Q1 17 | Q1 18 | Q1 17 | |
| Depreciation | 193 | 184 | 45 | 43 | 52 | 50 | 17 | 12 | 35 | 34 |
| Amortization | 92 | 79 | 17 | 15 | 23 | 29 | 24 | 3 | 17 | 21 |
| including total acquisition-related amortization of: | 73 | 59 | 10 | 8 | 20 | 26 | 23 | 2 | 16 | 18 |
| (\$ in millions, unless otherwise indicated) | Orders received | CHANGE | Revenues | CHANGE | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Com- | Com | |||||||||
| Q1 18 | Q1 17 | US\$ | Local | parable | Q1 18 | Q1 17 | US\$ | Local | parable | |
| Europe | 3,582 | 3,127 | 15% | 2% | -3% | 3,149 | 2,694 | 17% | 4% | -1% |
| The Americas | 2,391 | 2,362 | 1% | 1% | 0% | 2,390 | 2,332 | 2% | 2% | 1% |
| Asia, Middle East and Africa | 3,799 | 2,914 | 30% | 23% | 20% | 3,088 | 2,828 | 9% | 3% | 3% |
| ABB Group | 9,772 | 8,403 | 16% | 9% | 6% | 8,627 | 7,854 | 10% | 3% | 1% |
—
| (\$ in millions, except per share data in \$) Mar. 31, 2018 Mar. 31, 2017 Sales of products 7,036 6,469 Sales of services and other 1,591 1,385 Total revenues 8,627 7,854 Cost of sales of products (4,972) (4,667) Cost of services and other (947) (819) Total cost of sales (5,919) (5,486) Gross profit 2,708 2,368 Selling, general and administrative expenses (1,470) (1,313) Non-order related research and development expenses (353) (291) Other income (expense), net 10 259 Income from operations 895 1,023 Interest and dividend income 23 17 Interest and other finance expense (108) (79) Non-operational pension (cost) credit 30 7 Income from continuing operations before taxes 840 968 Provision for taxes (235) (208) Income from continuing operations, net of tax 605 760 Loss from discontinued operations, net of tax (5) (2) Net income 600 758 Net income attributable to noncontrolling interests (28) (34) Net income attributable to ABB 572 724 Amounts attributable to ABB shareholders: Income from continuing operations, net of tax 577 726 Net income 572 724 Basic earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 0.27 0.34 Net income 0.27 0.34 Diluted earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 0.27 0.34 Net income 0.27 0.34 Weighted-average number of shares outstanding (in millions) used to compute: Basic earnings per share attributable to ABB shareholders 2,134 2,140 Diluted earnings per share attributable to ABB shareholders 2,145 2,148 |
Three months ended | ||
|---|---|---|---|
Due to rounding, numbers presented may not add to the totals provided.
| Three months ended | |||
|---|---|---|---|
| (\$ in millions) | Mar. 31, 2018 | Mar. 31, 2017 | |
| Total comprehensive income, net of tax | 792 | 956 | |
| Total comprehensive income attributable to noncontrolling interests, net of tax | (44) | (43) | |
| Total comprehensive income attributable to ABB shareholders, net of tax | 748 | 913 |
Due to rounding, numbers presented may not add to the totals provided.
—
| (\$ in millions, except share data) | Mar. 31, 2018 | Dec. 31, 2017 |
|---|---|---|
| Cash and equivalents | 4,162 | 4,526 |
| Marketable securities and short-term investments | 740 | 1,102 |
| Receivables, net | 8,503 | 8,267 |
| Contract assets | 2,369 | 2,149 |
| Inventories, net | 5,609 | 5,255 |
| Prepaid expenses | 321 | 189 |
| Other current assets | 607 | 647 |
| Total current assets | 22,311 | 22,135 |
| Property, plant and equipment, net | 5,440 | 5,363 |
| Goodwill | 11,266 | 11,199 |
| Other intangible assets, net | 2,575 | 2,622 |
| Prepaid pension and other employee benefits | 161 | 144 |
| Investments in equity-accounted companies | 166 | 158 |
| Deferred taxes | 1,060 | 1,250 |
| Other non-current assets | 590 | 587 |
| Total assets | 43,569 | 43,458 |
| Accounts payable, trade | 5,301 | 5,419 |
| Contract liabilities | 2,838 | 2,908 |
| Short-term debt and current maturities of long-term debt | 2,476 | 738 |
| Provisions for warranties | 1,223 | 1,231 |
| Dividends payable to shareholders | 1,735 | – |
| Other provisions | 1,800 | 1,882 |
| Other current liabilities | 3,999 | 4,291 |
| Total current liabilities | 19,372 | 16,469 |
| Long-term debt | 5,285 | 6,709 |
| Pension and other employee benefits | 1,867 | 1,882 |
| Deferred taxes | 1,083 | 1,099 |
| Other non-current liabilities | 2,018 | 1,950 |
| Total liabilities | 29,625 | 28,109 |
| Commitments and contingencies | ||
| Stockholders' equity: | ||
| Capital stock | ||
| (2,168,148,264 issued shares at March 31, 2018, and December 31, 2017) | 188 | 188 |
| Additional paid-in capital | 39 | 29 |
| Retained earnings | 18,239 | 19,594 |
| Accumulated other comprehensive loss | (4,178) | (4,345) |
| Treasury stock, at cost | ||
| (39,383,448 and 29,541,775 shares at March 31, 2018, and December 31, 2017, respectively) | (893) | (647) |
| Total ABB stockholders' equity | 13,395 | 14,819 |
| Noncontrolling interests | 549 | 530 |
| Total stockholders' equity | 13,944 | 15,349 |
| Total liabilities and stockholders' equity | 43,569 | 43,458 |
| Due to rounding, numbers presented may not add to the totals provided. |
—
| Three months ended | ||
|---|---|---|
| (\$ in millions) | Mar. 31, 2018 | Mar. 31, 2017 |
| Operating activities: | ||
| Net income | 600 | 758 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||
| Depreciation and amortization | 285 | 263 |
| Deferred taxes | (4) | (8) |
| Net loss (gain) from derivatives and foreign exchange | 73 | (15) |
| Net loss (gain) from sale of property, plant and equipment | (27) | (6) |
| Net loss (gain) from sale of businesses | 6 | (338) |
| Share-based payment arrangements | 12 | 12 |
| Other | – | 8 |
| Changes in operating assets and liabilities: | ||
| Trade receivables, net | 3 | 94 |
| Contract assets and liabilities | (307) | (149) |
| Inventories, net | (249) | (244) |
| Trade payables | (214) | (11) |
| Accrued liabilities | (272) | 202 |
| Provisions, net | (131) | 54 |
| Income taxes payable and receivable | (38) | 26 |
| Other assets and liabilities, net | (255) | (137) |
| Net cash provided by (used in) operating activities | (518) | 509 |
| Investing activities: | ||
| Purchases of marketable securities (available-for-sale) | (17) | (121) |
| Purchases of short-term investments | – | (53) |
| Purchases of property, plant and equipment and intangible assets | (238) | (192) |
| Acquisition of businesses (net of cash acquired) and increases in cost- and equity-accounted companies | (4) | (15) |
| Proceeds from sales of marketable securities (available-for-sale) | 15 | 13 |
| Proceeds from maturity of marketable securities (available-for-sale) | 124 | 100 |
| Proceeds from short-term investments | 262 | 821 |
| Proceeds from sales of property, plant and equipment | 26 | 20 |
| Proceeds from sales of businesses (net of transaction costs and cash disposed) and cost- and | ||
| equity-accounted companies | (10) | 658 |
| Net cash from settlement of foreign currency derivatives | 5 | 17 |
| Other investing activities | (8) | 14 |
| Net cash provided by investing activities | 155 | 1,262 |
| Financing activities: | ||
| Net changes in debt with original maturities of 90 days or less | 213 | 10 |
| Increase in debt | 7 | 47 |
| Repayment of debt | (44) | (19) |
| Delivery of shares | 2 | 83 |
| Purchase of treasury stock | (250) | – |
| Dividends paid to noncontrolling shareholders | (7) | (9) |
| Other financing activities | 15 | (6) |
| Net cash provided by (used in) financing activities | (64) | 106 |
| Effects of exchange rate changes on cash and equivalents | 63 | 41 |
| Net change in cash and equivalents – continuing operations | (364) | 1,918 |
| Cash and equivalents, beginning of period | 4,526 | 3,644 |
| Cash and equivalents, end of period | 4,162 | 5,562 |
| Supplementary disclosure of cash flow information: | ||
| Interest paid | 62 | 52 |
| Taxes paid | 294 | 201 |
Due to rounding, numbers presented may not add to the totals provided.
| (\$ in millions) | Capital stock |
Additional paid-in capital |
Retained earnings |
Total accumu lated other comprehensive loss |
Treasury stock |
Total ABB stockholders' equity |
Non controlling interests |
Total stockholders' equity |
|---|---|---|---|---|---|---|---|---|
| Balance at January 1, 2017 | 192 | 24 | 19,925 | (5,187) | (1,559) | 13,395 | 502 | 13,897 |
| Comprehensive income: | ||||||||
| Net income | 724 | 724 | 34 | 758 | ||||
| Foreign currency translation | ||||||||
| adjustments, net of tax of \$(1) | 189 | 189 | 9 | 198 | ||||
| Unrecognized income (expense) | ||||||||
| related to pensions and other | ||||||||
| postretirement plans, | ||||||||
| net of tax of \$1 | 1 | 1 | 1 | |||||
| Change in derivatives qualifying as | ||||||||
| cash flow hedges, net of tax of \$0 | (1) | (1) | (1) | |||||
| Total comprehensive income | 913 | 43 | 956 | |||||
| Changes in noncontrolling interests | – | 5 | 5 | |||||
| Dividends to | ||||||||
| noncontrolling shareholders | – | (18) | (18) | |||||
| Share-based payment arrangements | 12 | 12 | 12 | |||||
| Delivery of shares | (20) | 103 | 83 | 83 | ||||
| Balance at March 31, 2017 | 192 | 16 | 20,649 | (4,998) | (1,456) | 14,403 | 532 | 14,935 |
| 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 | 572 | 572 | 28 | 600 | ||||
| Foreign currency translation | ||||||||
| adjustments, net of tax of \$(1) | 180 | 180 | 16 | 196 | ||||
| Effect of change in fair value of available-for-sale securities, |
||||||||
| net of tax of \$(1) | (4) | (4) | (4) | |||||
| Unrecognized income (expense) | ||||||||
| related to pensions and other | ||||||||
| postretirement plans, | ||||||||
| net of tax of \$(3) | 10 | 10 | 10 | |||||
| Change in derivatives qualifying as | ||||||||
| cash flow hedges, net of tax of \$(3) | (10) | (10) | (10) | |||||
| Total comprehensive income | 748 | 44 | 792 | |||||
| Changes in noncontrolling interests | – | (18) | (18) | |||||
| Dividends to | ||||||||
| noncontrolling shareholders | – | (7) | (7) | |||||
| Dividends declared to shareholders | (1,735) | (1,735) | (1,735) | |||||
| Share-based payment arrangements | 12 | 12 | 12 | |||||
| Purchase of treasury stock | (249) | (249) | (249) | |||||
| Delivery of shares | (1) | 3 | 2 | 2 | ||||
| Balance at March 31, 2018 | 188 | 39 | 18,239 | (4,178) | (893) | 13,395 | 549 | 13,944 |
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 electrification products, robotics and motion, industrial automation and power grids 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 ac cepted 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 inform ation 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 t hat 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 contr acts 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 adju stments to be of a normal recurring nature.
The Company has retained obligations (primarily for environmental and taxes) related to businesses disposed or otherwise exit ed 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 liabilitie s, 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 in 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 current unit of accounting determination. Therefore, the cumulative effect of initially applying this standard, retrospectively, on retained earnings was not material, 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 | Previously | |||||||
| (\$ in millions) | reported | Restated | reported | Restated | ||||
| 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 totalling \$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 three months ended March 31, 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 three months ended March 31, 2017, the Company reclassified \$7 million 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 this update 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, with early adoption permitted, and is applicable on a modified retrospective basis with various optional practical expedients. The Company is currently evaluating the impact of this update on its consolidated financial statements.
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.
─
There were no significant gains or losses recognized relating to divestments in the three months ended March 31, 2018. For the three months ended March 31, 2017, the Company recorded a net gain (including transaction costs) of \$334 million in "Other income (expense), net" and a tax expense of \$28 million in "Provision for taxes" relating to the divestment of its 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, the Company recorded a loss of \$94 million in the three months ended March 31, 2017, 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).
On September 25, 2017, the Company announced that it had reached an agreement to acquire GE Industrial Solutions, GE's global electrification solutions business, for \$2.6 billion. The acquisition will strengthen the Company's global position in electrification and expand its access to the North American market through strong customer relationships, large installed base and extensive distribution networks. GE Industrial Solutions is headquartered in the United States. The Company expects to complete the acquisition of GE Industrial Solutions in the second quarter of 2018 following the receipt of customary regulatory approvals.
─
Cash and equivalents, marketable securities and short-term investments consisted of the following:
| March 31, 2018 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Marketable | ||||||||
| Gross | Gross | securities | ||||||
| unrealized | unrealized | Cash and | and short-term | |||||
| (\$ in millions) | Cost basis | gains | losses | Fair value | equivalents | investments | ||
| Cash | 1,925 | 1,925 | 1,925 | – | ||||
| Time deposits | 2,278 | 2,278 | 2,237 | 41 | ||||
| Other short-term investments | 314 | 314 | – | 314 | ||||
| Debt securities available-for-sale: | ||||||||
| U.S. government obligations | 130 | – | (4) | 126 | – | 126 | ||
| Corporate | 93 | 1 | (2) | 92 | – | 92 | ||
| Equity securities available-for-sale | 153 | 14 | – | 167 | – | 167 | ||
| Total | 4,893 | 15 | (6) | 4,902 | 4,162 | 740 |
| 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 March 31, 2018, and December 31, 2017, are receivables of \$314 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) | March 31, 2018 | December 31, 2017 | March 31, 2017 |
| Foreign exchange contracts | 16,444 | 17,280 | 16,326 |
| Embedded foreign exchange derivatives | 1,775 | 1,641 | 2,151 |
| Interest rate contracts | 5,726 | 5,706 | 4,337 |
Derivative commodity contracts
The following table shows the notional amounts of outstanding commodity derivatives (whether designated as hedges or not), on a net basis, to reflect the Company's requirements in the various commodities:
| Type of derivative | Unit | Total notional amounts at | ||||
|---|---|---|---|---|---|---|
| March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||
| Copper swaps | metric tonnes | 49,420 | 44,145 | 37,643 | ||
| Aluminum swaps | metric tonnes | 8,400 | 7,700 | 5,850 | ||
| Nickel swaps | metric tonnes | 12 | 12 | 12 | ||
| Lead swaps | metric tonnes | – | – | 175 | ||
| Zinc swaps | metric tonnes | 275 | 425 | 125 | ||
| Silver swaps | ounces | 2,293,832 | 1,966,729 | 1,822,356 | ||
| Crude oil swaps | barrels | 140,683 | 170,331 | 146,000 |
Equity derivatives
At March 31, 2018, December 31, 2017, and March 31, 2017, the Company held 35 million, 37 million and 42 million cash-settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of \$20 million, \$42 million and \$28 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 March 31, 2018, and December 31, 2017, "Accumulated other comprehensive loss" included net unrealized gains of \$2 million and \$12 million, respectively, net of tax, on derivatives designated as cash flow hedges. Of the amount at March 31, 2018, net gains of \$3 million are expected to be reclassified to earnings in the following 12 months. At March 31, 2018, the longest maturity of a derivative classified as a cash flow hedge was 70 months.
The amount of gains or losses, net of tax, reclassified into earnings due to the discontinuance of cash flow hedge accounting and the amount of ineffectiveness in cash flow hedge relationships directly recognized in earnings were not significant in the three months ended March 31, 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) | |||
| Three months ended March 31, | 2018 | 2017 | 2018 | 2017 | |
| Type of derivative | Location | ||||
| Foreign exchange contracts | 2 | 2 | Total revenues | 2 | (2) |
| Total cost of sales | – | 3 | |||
| Commodity contracts | (4) | 2 | Total cost of sales | 2 | 2 |
| Cash-settled call options | (21) | 8 | SG&A expenses(1) | (14) | 6 |
| Total | (23) | 12 | (10) | 9 |
(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 three months ended March 31, 2018 and 2017, respectively.
Net derivative losses of \$11 and net derivative gains of \$7 million, both net of tax, respectively, were reclassified from "Accumulated other comprehensive loss" to earnings during the three months ended March 31, 2018 and 2017, respectively.
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 three months ended March 31, 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:
| Three months ended March 31, | |||
|---|---|---|---|
| (\$ in millions) | 2018 | 2017 | |
| Gains (losses) recognized in Interest and other finance expense: | |||
| - on derivatives designated as fair value hedges | (25) | 1 | |
| - on hedged item | 26 | – |
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 | Three months ended March 31, | |||||
| (\$ in millions) | Location | 2018 | 2017 | |||
| Foreign exchange contracts | Total revenues | (21) | 107 | |||
| Total cost of sales | 26 | (60) | ||||
| SG&A expenses(1) | (7) | (3) | ||||
| Non-order related research and development | (1) | (2) | ||||
| Other income (expense), net | – | (1) | ||||
| Interest and other finance expense | 25 | (6) | ||||
| Embedded foreign exchange contracts | Total revenues | 16 | (21) | |||
| Total cost of sales | (1) | 1 | ||||
| SG&A expenses(1) | 1 | 2 | ||||
| Commodity contracts | Total cost of sales | (22) | 26 | |||
| Other | Interest and other finance expense | 3 | (5) | |||
| Total | 19 | 38 |
(1) SG&A expenses represent "Selling, general and administrative expenses".
The fair values of derivatives included in the Consolidated Balance Sheets were as follows:
| March 31, 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 | 3 | 1 | 1 | 1 | ||
| Commodity contracts | 1 | – | 1 | – | ||
| Interest rate contracts | – | 24 | – | 11 | ||
| Cash-settled call options | 11 | 8 | – | – | ||
| Total | 15 | 33 | 2 | 12 | ||
| Derivatives not designated as hedging instruments: | ||||||
| Foreign exchange contracts | 150 | 27 | 193 | 55 | ||
| Commodity contracts | 11 | 1 | 13 | 1 | ||
| Cash-settled call options | – | 1 | – | – | ||
| Embedded foreign exchange derivatives | 31 | 29 | 20 | 5 | ||
| Total | 192 | 58 | 226 | 61 | ||
| Total fair value | 207 | 91 | 228 | 73 |
| 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 March 31, 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 March 31, 2018, and December 31, 2017, information related to these offsetting arrangements was as follows:
| (\$ in millions) | March 31, 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 | 238 | (160) | – | – | 78 |
| Reverse repurchase agreements | 314 | – | – | (314) | – |
| Total | 552 | (160) | – | (314) | 78 |
| (\$ in millions) | March 31, 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 | 276 | (160) | – | – | 116 |
| Total | 276 | (160) | – | – | 116 |
| (\$ 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 | |||||||
| 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:
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:
| March 31, 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 | – | 167 | – | 167 |
| Debt securities—U.S. government obligations | 126 | – | – | 126 |
| Debt securities—Corporate | – | 92 | – | 92 |
| Receivable in "Other non-current assets": | ||||
| Receivable under securities lending arrangement | 79 | – | – | 79 |
| Derivative assets—current in "Other current assets" | – | 207 | – | 207 |
| Derivative assets—non-current in "Other non-current assets" | – | 91 | – | 91 |
| Total | 205 | 557 | – | 762 |
| Liabilities | ||||
| Derivative liabilities—current in "Other current liabilities" | – | 228 | – | 228 |
| Derivative liabilities—non-current in "Other non-current liabilities" | – | 73 | – | 73 |
| Total | – | 301 | – | 301 |
| (\$ 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 three months ended March 31, 2018 and 2017.
The fair values of financial instruments carried on a cost basis were as follows:
| March 31, 2018 | |||||
|---|---|---|---|---|---|
| (\$ 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 | 1,925 | 1,925 | – | – | 1,925 |
| Time deposits | 2,237 | – | 2,237 | – | 2,237 |
| Marketable securities and short-term investments | |||||
| (excluding available-for-sale securities): | |||||
| Time deposits | 41 | – | 41 | – | 41 |
| Receivables under reverse repurchase agreements | 314 | – | 314 | – | 314 |
| Other non-current assets: | |||||
| Loans granted | 32 | – | 34 | – | 34 |
| Restricted time deposits | 38 | 38 | – | – | 38 |
| Liabilities | |||||
| Short-term debt and current maturities of long-term debt | |||||
| (excluding capital lease obligations) | 2,441 | 1,966 | 475 | – | 2,441 |
| Long-term debt (excluding capital lease obligations) | 5,121 | 4,501 | 759 | – | 5,260 |
| 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 adjustment s 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 Company's Gas Insulated Switchgear business is under investigation by the Brazilian Antitrust Authority (CADE) for alleged anticompetitive practices. In addition, the CADE has opened an investigation into certain other 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 March 31, 2018, and December 31, 2017, the Company had aggregate liabilities of \$235 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.
General
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) | March 31, 2018 | December 31, 2017 |
|---|---|---|
| Performance guarantees | 1,699 | 1,775 |
| Financial guarantees | 16 | 17 |
| Indemnification guarantees | 73 | 72 |
| Total | 1,788 | 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 March 31, 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 March 31, 2018 and December 31, 2017, the maximum potential payable under these guarantees amounts to \$856 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 March 31, 2018, and December 31, 2017, the total outstanding performance bonds aggregated to \$7.9 billion and \$7.7 billion, respectively. There have been no significant amounts reimbursed to financial institutions under these types of arrangements in the three months ended March 31, 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 |
| Claims paid in cash or in kind | (75) | (79) |
| Net increase in provision for changes in estimates, warranties issued and warranties expired | 43 | 90 |
| Exchange rate differences | 24 | 19 |
| Balance at March 31, | 1,223 | 1,172 |
─
The following table provides information about Contracts assets and Contract liabilities with customers:
| (\$ in millions) | March 31, 2018 | December 31, 2017 | March 31, 2017 |
|---|---|---|---|
| Contract assets | 2,369 | 2,149 | 2,300 |
| Contract liabilities | 2,838 | 2,908 | 2,977 |
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 collected from 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:
| Three months ended March 31, | |||||
|---|---|---|---|---|---|
| 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 | 693 | 1,026 | |||
| Additions to Contract liabilities - excluding amounts recognized as revenue during the period | (613) | (818) | |||
| Receivables recognized that were included in the Contract asset balance at Jan 1, 2018/2017 | (673) | (765) |
The Company considers unfulfilled orders (order backlog) from customers to be unsatisfied performance obligations. At March 31, 2018, unfulfilled orders were \$23,737 million and, of this amount, the Company expects to recognize approximately 64 percent in 2018, approximately 23 percent in 2019 and the balance thereafter.
─
The Company's total debt at March 31, 2018, and December 31, 2017, amounted to \$7,761 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) | March 31, 2018 | December 31, 2017 |
|---|---|---|
| Short-term debt | 523 | 327 |
| Current maturities of long-term debt | 1,953 | 411 |
| Total | 2,476 | 738 |
Short-term debt primarily represented issued commercial paper and short-term loans from various banks. At March 31, 2018, and December 31, 2017, \$443 million and \$259 million, respectively, was outstanding under the \$2 billion commercial paper program in the United States.
The Company's long-term debt at March 31, 2018, and December 31, 2017, amounted to \$5,285 million and \$6,709 million, respectively.
Outstanding bonds (including maturities within the next 12 months) were as follows:
| March 31, 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 | \$ | 365 | CHF | 350 | \$ 358 |
| 2.625% EUR Instruments, due 2019 | EUR | 1,250 | \$ | 1,539 | EUR | 1,250 | \$ 1,493 |
| 4.0% USD Notes, due 2021 | USD | 650 | \$ | 645 | USD | 650 | \$ 644 |
| 2.25% CHF Bonds, due 2021 | CHF | 350 | \$ | 385 | CHF | 350 | \$ 378 |
| 5.625% USD Notes, due 2021 | USD | 250 | \$ | 268 | USD | 250 | \$ 270 |
| 2.875% USD Notes, due 2022 | USD | 1,250 | \$ | 1,238 | USD | 1,250 | \$ 1,256 |
| 0.625% EUR Notes, due 2023 | EUR | 700 | \$ | 859 | EUR | 700 | \$ 834 |
| 0.75% EUR Notes, due 2024 | EUR | 750 | \$ | 914 | EUR | 750 | \$ 889 |
| 4.375% USD Notes, due 2042 | USD | 750 | \$ | 723 | USD | 750 | \$ 723 |
| Total | \$ | 6,936 | \$ 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.
On April 3, 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 | |||
|---|---|---|---|---|---|
| Three months ended March 31, | 2018 | 2017 | 2018 | 2017 | |
| Operational pension cost: | |||||
| Service cost | 57 | 59 | – | – | |
| Operational pension cost | 57 | 59 | – | – | |
| Non-operational pension cost (credit): | |||||
| Interest cost | 59 | 61 | 1 | 1 | |
| Expected return on plan assets | (109) | (99) | – | – | |
| Amortization of prior service cost (credit) | (4) | 9 | (1) | (1) | |
| Amortization of net actuarial loss | 24 | 22 | – | – | |
| Non-operational pension cost (credit) | (30) | (7) | – | – | |
| Net periodic benefit cost | 27 | 52 | – | – |
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 |
|||
|---|---|---|---|---|
| Three months ended March 31, | 2018 | 2017 | 2018 | 2017 |
| Total contributions to defined benefit pension and | ||||
| other postretirement benefit plans | 46 | 47 | 2 | 2 |
The Company expects to make contributions totaling approximately \$218 million and \$11 million to its defined benefit pension plans and other postretirement benefit plans, respectively, for the full year 2018.
In the first quarter of 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.
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 for the shares outstanding at March 31, 2018, amounted to \$1,735 million. The dividend 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.
| Three months ended March 31, | ||||
|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2018 | 2017 | ||
| Amounts attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 577 | 726 | ||
| Loss from discontinued operations, net of tax | (5) | (2) | ||
| Net income | 572 | 724 | ||
| Weighted-average number of shares outstanding (in millions) | 2,134 | 2,140 | ||
| Basic earnings per share attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 0.27 | 0.34 | ||
| Loss from discontinued operations, net of tax | – | – | ||
| Net income | 0.27 | 0.34 |
| Three months ended March 31, | ||||
|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2018 | 2017 | ||
| Amounts attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 577 | 726 | ||
| Loss from discontinued operations, net of tax | (5) | (2) | ||
| Net income | 572 | 724 | ||
| Weighted-average number of shares outstanding (in millions) | 2,134 | 2,140 | ||
| Effect of dilutive securities: | ||||
| Call options and shares | 11 | 8 | ||
| Adjusted weighted-average number of shares outstanding (in millions) | 2,145 | 2,148 | ||
| Diluted earnings per share attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 0.27 | 0.34 | ||
| Loss from discontinued operations, net of tax | – | – | ||
| Net income | 0.27 | 0.34 |
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 | 203 | – | (28) | 9 | 184 |
| Amounts reclassified from OCI | – | – | 23 | (7) | 16 |
| Changes attributable to divestments(1) | (5) | – | 6 | (3) | (2) |
| Total other comprehensive (loss) income | 198 | – | 1 | (1) | 198 |
| Less: | |||||
| Amounts attributable to | |||||
| noncontrolling interests | 9 | – | – | – | 9 |
| Balance at March 31, 2017 | (3,403) | 7 | (1,600) | (2) | (4,998) |
| 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, 2018 | (2,693) | 8 | (1,672) | 12 | (4,345) |
| Cumulative effect of changes in | |||||
| accounting principles | – | (9) | – | – | (9) |
| Other comprehensive (loss) income: | |||||
| Other comprehensive (loss) income | |||||
| before reclassifications | 210 | (4) | (4) | (21) | 181 |
| Amounts reclassified from OCI | – | – | 14 | 11 | 25 |
| Changes attributable to divestments | (14) | – | – | – | (14) |
| Total other comprehensive (loss) income | 196 | (4) | 10 | (10) | 192 |
| Less: | |||||
| Amounts attributable to | |||||
| noncontrolling interests | 16 | – | – | – | 16 |
| Balance at March 31, 2018 | (2,513) | (5) | (1,662) | 2 | (4,178) |
(1) Amounts mainly relate to the divestment of the high-voltage cable system and cable accessories businesses and are included in the net gain from sale of the business (see Note 3).
The following table reflects amounts reclassified out of OCI in respect of pension and other postretirement plan adjustments:
| (\$ in millions) | Three months ended March 31, | ||
|---|---|---|---|
| Details about OCI components | Location of (gains) losses reclassified from OCI | 2018 | 2017 |
| Pension and other postretirement plan adjustments: | |||
| Amortization of prior service cost | Non-operational pension (cost) credit(1) | (5) | 8 |
| Amortization of net actuarial loss | Non-operational pension (cost) credit(1) | 24 | 22 |
| Total before tax | 19 | 30 | |
| Tax | Provision for taxes | (5) | (7) |
| Amounts reclassified from OCI | 14 | 23 |
(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 three months ended March 31, 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 March 31, 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 | (37) | – | (37) |
| Change in estimates and exchange rate differences | (3) | – | (3) |
| Liability at March 31, 2018 | 80 | 1 | 81 |
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 three months ended March 31, 2017, \$31 million of the 2017 change in estimates, was recorded primarily as reductions in Cost of sales of \$17 million and in Selling, general and administrative expenses of \$10 million and related to restructurings initiated in both 2015 and 2016.
The following table outlines the net costs incurred in the three months ended March 31, 2017, and the cumulative net costs incurred to December 31, 2017:
| Net cost incurred | Cumulative net | |
|---|---|---|
| Three months ended | cost incurred up to | |
| (\$ in millions) | March 31, 2017(1) | December 31, 2017(1) |
| Power Grids | (7) | 60 |
| Electrification Products | (4) | 72 |
| Industrial Automation | (4) | 106 |
| Robotics and Motion | – | 56 |
| Corporate and Other | (7) | 91 |
| Total | (22) | 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 | ||
|---|---|---|
| Three months ended | incurred up to | |
| (\$ in millions) | March 31, 2017(1) | December 31, 2017 |
| Employee severance costs | (22) | 365 |
| Estimated contract settlement, loss order and other costs | – | 10 |
| Inventory and long-lived asset impairments | – | 10 |
| Total | (22) | 385 |
(1) Of which \$14 million was recorded in "Total cost of sales" and \$4 million in "Selling, general and administrative expenses".
─
The Chief Operating Decision Maker (CODM) is the Chief Executive Officer. The CODM allocates resources to and assesses the pe rformance of each operating segment using the information outlined below. The Company's operating segments consist of Electrification Products, Robotics and Motion, Industrial Automation and Power Grids. The remaining operations of the Company are included in Corporate and Othe r.
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 businesses divested which, prior to their divestment in March 2018, were included within the Industrial Automation segment have been reclassified to Corporate and Othe r for all periods presented.
The segment information for the three months ended March 31, 2017 and at December 31, 2017, has been recast to reflect these organizationa l 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:
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 we re 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 three months ended March 31, 2018 an d 2017, as well as total assets at March 31, 2018, and December 31, 2017.
| Three months ended March 31, 2018 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Power | Electrification | Industrial | Robotics and | Corporate | |||||
| (\$ in millions) | Grids | Products | Automation | Motion | and Other | Total | |||
| Geographical markets | |||||||||
| Europe | 673 | 937 | 808 | 709 | 22 | 3,149 | |||
| The Americas | 671 | 648 | 377 | 684 | 10 | 2,390 | |||
| Asia, Middle East and Africa | 901 | 800 | 639 | 692 | 56 | 3,088 | |||
| 2,245 | 2,385 | 1,824 | 2,085 | 88 | 8,627 | ||||
| End Customer Markets | |||||||||
| Utilities | 1,581 | 540 | 296 | 167 | 62 | 2,646 | |||
| Industry | 496 | 1,088 | 1,077 | 1,622 | 13 | 4,296 | |||
| Transport & infrastructure | 168 | 757 | 451 | 296 | 13 | 1,685 | |||
| 2,245 | 2,385 | 1,824 | 2,085 | 88 | 8,627 | ||||
| Product type | |||||||||
| Products | 1,317 | 2,085 | 639 | 1,511 | 16 | 5,568 | |||
| Systems | 551 | 137 | 464 | 244 | 72 | 1,468 | |||
| Services and other | 377 | 163 | 721 | 330 | – | 1,591 | |||
| 2,245 | 2,385 | 1,824 | 2,085 | 88 | 8,627 | ||||
| Third-party revenues | 2,245 | 2,385 | 1,824 | 2,085 | 88 | 8,627 | |||
| Intersegment revenues | 140 | 109 | 35 | 124 | (408) | – | |||
| Total Revenues | 2,385 | 2,494 | 1,859 | 2,209 | (320) | 8,627 |
| Three months ended March 31, 2017 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Power | Electrification | Industrial | Robotics and | Corporate | |||||
| (\$ in millions) | Grids | Products | Automation | Motion | and Other | Total | |||
| Geographical markets | |||||||||
| Europe | 648 | 804 | 590 | 607 | 44 | 2,693 | |||
| The Americas | 688 | 627 | 318 | 659 | 40 | 2,332 | |||
| Asia, Middle East and Africa | 851 | 751 | 572 | 537 | 118 | 2,829 | |||
| 2,187 | 2,182 | 1,480 | 1,803 | 202 | 7,854 | ||||
| End Customer Markets | |||||||||
| Utilities | 1,619 | 576 | 302 | 177 | 146 | 2,820 | |||
| Industry | 442 | 906 | 800 | 1,326 | 51 | 3,525 | |||
| Transport & infrastructure | 126 | 700 | 378 | 300 | 5 | 1,509 | |||
| 2,187 | 2,182 | 1,480 | 1,803 | 202 | 7,854 | ||||
| Product type | |||||||||
| Products | 1,200 | 1,923 | 298 | 1,312 | – | 4,733 | |||
| Systems | 678 | 121 | 534 | 208 | 195 | 1,736 | |||
| Services and other | 309 | 138 | 648 | 283 | 7 | 1,385 | |||
| 2,187 | 2,182 | 1,480 | 1,803 | 202 | 7,854 | ||||
| Third-party revenues | 2,187 | 2,182 | 1,480 | 1,803 | 202 | 7,854 | |||
| Intersegment revenues | 164 | 111 | 33 | 117 | (425) | – | |||
| Total Revenues | 2,351 | 2,293 | 1,513 | 1,920 | (223) | 7,854 |
| Three months ended March 31, | ||
|---|---|---|
| (\$ in millions) | 2018 | 2017 |
| Operational EBITA: | ||
| Power Grids | 232 | 231 |
| Electrification Products | 377 | 322 |
| Industrial Automation | 262 | 206 |
| Robotics and Motion | 338 | 282 |
| Corporate and Other and Intersegment elimination | (149) | (98) |
| Consolidated Operational EBITA | 1,060 | 943 |
| Acquisition-related amortization | (73) | (59) |
| Restructuring and restructuring-related expenses(1) | (11) | (48) |
| Changes in retained obligations of divested businesses | – | (94) |
| Gains and losses from sale of businesses | (6) | 338 |
| Acquisition-related expenses and integration costs | (33) | (6) |
| Certain other non-operational items | (22) | (102) |
| Foreign exchange/commodity timing differences in income from operations: | ||
| Unrealized gains and losses on derivatives (foreign exchange, | ||
| commodities, embedded derivatives) | (20) | 76 |
| Realized gains and losses on derivatives where the underlying hedged | ||
| transaction has not yet been realized | 7 | 10 |
| Unrealized foreign exchange movements on receivables/payables (and | ||
| related assets/liabilities) | (7) | (35) |
| Income from operations | 895 | 1,023 |
| Interest and dividend income | 23 | 17 |
| Interest and other finance expense | (108) | (79) |
| Non-operational pension (cost) credit | 30 | 7 |
| Income from continuing operations before taxes | 840 | 968 |
(1) Amounts in 2017 also include the incremental implementation costs in relation to the White Collar Productivity program.
| Total assets(1) | |||
|---|---|---|---|
| (\$ in millions) | March 31, 2018 | December 31, 2017 | |
| Power Grids | 8,399 | 8,387 | |
| Electrification Products | 10,483 | 10,314 | |
| Industrial Automation | 7,155 | 7,258 | |
| Robotics and Motion | 8,140 | 8,134 | |
| Corporate and Other | 9,392 | 9,365 | |
| Consolidated | 43,569 | 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 three months ended March 31, 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).
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.
| Q1 2018 compared to Q1 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% | -6% | 0% | 1% | 1% | -5% | 0% | -4% | |
| Electrification Products | 10% | -7% | 0% | 3% | 9% | -7% | 0% | 2% | |
| Industrial Automation | 26% | -9% | -13% | 4% | 23% | -9% | -14% | 0% | |
| Robotics and Motion | 18% | -7% | 0% | 11% | 15% | -7% | 0% | 8% | |
| ABB Group | 16% | -7% | -3% | 6% | 10% | -7% | -2% | 1% |
| Q1 2018 compared to Q1 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 | 15% | -13% | -5% | -3% | 17% | -13% | -5% | -1% | |
| The Americas | 1% | 0% | -1% | 0% | 2% | 0% | -1% | 1% | |
| Asia, Middle East and Africa | 30% | -7% | -3% | 20% | 9% | -6% | 0% | 3% | |
| ABB Group | 16% | -7% | -3% | 6% | 10% | -7% | -2% | 1% |
| March 31, 2018 compared to March 31, 2017 | |||||||
|---|---|---|---|---|---|---|---|
| US\$ | Foreign | ||||||
| (as | exchange | Portfolio | |||||
| Division | reported) | impact | changes | Comparable | |||
| Power Grids | -2% | -5% | 0% | -7% | |||
| Electrification Products | 9% | -6% | 0% | 3% | |||
| Industrial Automation | 3% | -9% | -2% | -8% | |||
| Robotics and Motion | 12% | -8% | 0% | 4% | |||
| ABB Group | 3% | -6% | 0% | -3% |
| Q1 2018 compared to Q1 2017 | |||||||
|---|---|---|---|---|---|---|---|
| US\$ | Foreign | ||||||
| (as | exchange | Portfolio | |||||
| reported) | impact | changes | Comparable | ||||
| Large orders | 27% | -10% | -5% | 12% | |||
| Base orders | 15% | -7% | -3% | 5% | |||
| Service orders | 15% | -8% | 1% | 8% | |||
| Service revenues | 15% | -7% | 0% | 8% |
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 (unaudited) 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:
| Q1 2017 compared to Q1 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 | -20% | 3% | 0% | -17% | 3% | 3% | 0% | 6% | |
| Electrification Products | 1% | 3% | 0% | 4% | 0% | 3% | 0% | 3% | |
| Industrial Automation | -7% | 2% | 0% | -5% | -7% | 2% | 0% | -5% | |
| Robotics and Motion | 4% | 3% | 0% | 7% | 3% | 2% | 0% | 5% | |
| ABB Group | -9% | 2% | 4% | -3% | -1% | 3% | 1% | 3% |
| Q2 2017 compared to Q2 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 | -6% | 2% | 0% | -4% | -1% | 2% | 0% | 1% |
| Electrification Products | -4% | 3% | 0% | -1% | -1% | 3% | 0% | 2% |
| Industrial Automation | 6% | 2% | 0% | 8% | -9% | 2% | 0% | -7% |
| Robotics and Motion | 12% | 3% | 0% | 15% | 3% | 2% | 0% | 5% |
| ABB Group | 0% | 3% | 0% | 3% | -3% | 3% | 1% | 1% |
| 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% |
| Q4 2017 compared to Q4 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 | -15% | -3% | 0% | -18% | -2% | -3% | 0% | -5% | |
| Electrification Products | 12% | -2% | 0% | 10% | 2% | -3% | 0% | -1% | |
| Industrial Automation | 16% | -4% | -13% | -1% | 15% | -5% | -10% | 0% | |
| Robotics and Motion | 10% | -4% | 0% | 6% | 10% | -4% | 0% | 6% | |
| ABB Group | 2% | -3% | -2% | -3% | 3% | -3% | -1% | -1% |
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:
Amounts relating to changes in retained obligations of divested businesses (as defined above), were previously included withi n acquisitionrelated expenses and certain non-operational items. In periods prior to 2017, there were no significant amounts to warrant separate presentation.
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 mar gin. 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 transact ion 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 me asure 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.
| Three months ended March 31, | ||
|---|---|---|
| (\$ in millions) | 2018 | 2017 |
| Operational EBITA | 1,060 | 943 |
| Acquisition-related amortization | (73) | (59) |
| Restructuring and restructuring-related expenses(1) | (11) | (48) |
| Changes in retained obligations of divested businesses | – | (94) |
| Gains and losses from sale of businesses | (6) | 338 |
| Acquisition-related expenses and non-operational integration costs | (33) | (6) |
| Certain other non-operational items | (22) | (102) |
| Foreign exchange/commodity timing differences in income from operations: | ||
| Unrealized gains and losses on derivatives (foreign exchange, | ||
| commodities, embedded derivatives) | (20) | 76 |
| Realized gains and losses on derivatives where the underlying hedged | ||
| transaction has not yet been realized | 7 | 10 |
| Unrealized foreign exchange movements on receivables/payables (and | ||
| related assets/liabilities) | (7) | (35) |
| Income from operations | 895 | 1,023 |
| Interest and dividend income | 23 | 17 |
| Interest and other finance expense | (108) | (79) |
| Non-operational pension (cost) credit | 30 | 7 |
| Income from continuing operations before taxes | 840 | 968 |
| Provision for taxes | (235) | (208) |
| Income from continuing operations, net of tax | 605 | 760 |
| Loss from discontinued operations, net of tax | (5) | (2) |
| Net income | 600 | 758 |
| Three months ended March 31, 2018 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Corporate and | ||||||||
| Other and | ||||||||
| Power | Electrification | Industrial | Robotics | Intersegment | ||||
| (\$ in millions, unless otherwise indicated) | Grids | Products | Automation | and Motion | elimination | Consolidated | ||
| Total revenues | 2,385 | 2,494 | 1,859 | 2,209 | (320) | 8,627 | ||
| Foreign exchange/commodity timing | ||||||||
| differences in total revenues: | ||||||||
| Unrealized gains and losses | ||||||||
| on derivatives | 17 | (4) | (4) | 4 | 6 | 19 | ||
| Realized gains and losses on derivatives | ||||||||
| where the underlying hedged | ||||||||
| transaction has not yet been realized | 4 | – | 3 | – | (11) | (4) | ||
| Unrealized foreign exchange movements | ||||||||
| on receivables (and related assets) | (7) | (2) | – | (3) | 9 | (3) | ||
| Operational revenues | 2,399 | 2,488 | 1,858 | 2,210 | (316) | 8,639 | ||
| Income (loss) from operations | 193 | 318 | 237 | 313 | (166) | 895 | ||
| Acquisition-related amortization | 10 | 20 | 23 | 16 | 4 | 73 | ||
| Restructuring and | ||||||||
| restructuring-related expenses | 4 | 4 | 2 | 4 | (3) | 11 | ||
| Changes in retained obligations of | ||||||||
| divested businesses | – | – | – | – | – | – | ||
| Gains and losses from sale of businesses | – | – | 3 | – | 3 | 6 | ||
| Acquisition-related expenses and | ||||||||
| non-operational integration costs | 1 | 31 | 1 | – | – | 33 | ||
| Certain other non-operational items | 15 | (2) | – | 1 | 8 | 22 | ||
| Foreign exchange/commodity timing | ||||||||
| differences in income from operations: | ||||||||
| Unrealized gains and losses on derivatives | ||||||||
| (foreign exchange, commodities, | ||||||||
| embedded derivatives) | 9 | 6 | (8) | 2 | 11 | 20 | ||
| Realized gains and losses on derivatives | ||||||||
| where the underlying hedged | ||||||||
| transaction has not yet been realized | 2 | – | 2 | – | (11) | (7) | ||
| Unrealized foreign exchange movements | ||||||||
| on receivables/payables | ||||||||
| (and related assets/liabilities) | (2) | – | 2 | 2 | 5 | 7 | ||
| Operational EBITA | 232 | 377 | 262 | 338 | (149) | 1,060 | ||
| Operational EBITA margin (%) | 9.7% | 15.2% | 14.1% | 15.3% | n.a. | 12.3% |
| Three months ended March 31, 2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Corporate and | ||||||||
| Other and | ||||||||
| Power | Electrification | Industrial | Robotics | Intersegment | ||||
| (\$ in millions, unless otherwise indicated) | Grids | Products | Automation | and Motion | elimination | Consolidated | ||
| Total revenues | 2,351 | 2,293 | 1,513 | 1,920 | (223) | 7,854 | ||
| Foreign exchange/commodity timing | ||||||||
| differences in total revenues: | ||||||||
| Unrealized gains and losses | ||||||||
| on derivatives | (50) | (23) | (18) | (18) | (18) | (127) | ||
| Realized gains and losses on derivatives | ||||||||
| where the underlying hedged | ||||||||
| transaction has not yet been realized | (5) | – | – | – | 2 | (3) | ||
| Unrealized foreign exchange movements | ||||||||
| on receivables (and related assets) | 27 | 12 | 5 | 6 | 1 | 51 | ||
| Operational revenues | 2,323 | 2,282 | 1,500 | 1,908 | (238) | 7,775 | ||
| Income (loss) from operations | 211 | 307 | 211 | 261 | 33 | 1,023 | ||
| Acquisition-related amortization | 8 | 26 | 2 | 18 | 5 | 59 | ||
| Restructuring and | ||||||||
| restructuring-related expenses(1) | 3 | – | 4 | 10 | 31 | 48 | ||
| Changes in retained obligations of | ||||||||
| divested businesses | – | – | – | – | 94 | 94 | ||
| Gains and losses from sale of businesses | – | – | – | – | (338) | (338) | ||
| Acquisition-related expenses and | ||||||||
| non-operational integration costs | (1) | – | 3 | – | 4 | 6 | ||
| Certain other non-operational items | 28 | 4 | – | – | 70 | 102 | ||
| Foreign exchange/commodity timing | ||||||||
| differences in income from operations: | ||||||||
| Unrealized gains and losses on derivatives | ||||||||
| (foreign exchange, commodities, | ||||||||
| embedded derivatives) | (41) | (16) | (17) | (10) | 8 | (76) | ||
| Realized gains and losses on derivatives | ||||||||
| where the underlying hedged | ||||||||
| transaction has not yet been realized | (3) | – | (2) | – | (5) | (10) | ||
| Unrealized foreign exchange movements | ||||||||
| on receivables/payables | ||||||||
| (and related assets/liabilities) | 26 | 1 | 5 | 3 | – | 35 | ||
| Operational EBITA | 231 | 322 | 206 | 282 | (98) | 943 | ||
| Operational EBITA margin (%) | 9.9% | 14.1% | 13.7% | 14.8% | n.a. | 12.1% |
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 cont inuing 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 whic h 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.
| Three months ended March 31, | |||
|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2018 | 2017 | Growth(3) |
| Net income (attributable to ABB) | 572 | 724 | |
| Operational adjustments: | |||
| Acquisition-related amortization | 73 | 59 | |
| Restructuring and restructuring-related expenses(1) | 11 | 48 | |
| Non-operational pension cost (credit) | (30) | (7) | |
| Changes in retained obligations of divested businesses | – | 94 | |
| Gains and losses from sale of businesses | 6 | (338) | |
| Acquisition-related expenses and non-operational integration costs | 33 | 6 | |
| Certain non-operational items | 22 | 102 | |
| FX/commodity timing differences in income from operations | 20 | (51) | |
| Tax on operational adjustments(2) | (38) | (30) | |
| Operational net income | 669 | 607 | 10% |
| Weighted-average number of shares outstanding (in millions) | 2,134 | 2,140 | |
| Operational EPS | 0.31 | 0.28 | 11% |
| Constant currency Operational EPS adjustment | 0.04 | 0.05 | |
| Operational EPS (constant currency basis - 2014 exchange rates) | 0.35 | 0.33 | 6% |
(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
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.
| (\$ in millions) | March 31, 2018 | December 31, 2017 |
|---|---|---|
| Short-term debt and current maturities of long-term debt | 2,476 | 738 |
| Long-term debt | 5,285 | 6,709 |
| Total debt | 7,761 | 7,447 |
| Cash and equivalents | 4,162 | 4,526 |
| Marketable securities and short-term investments | 740 | 1,102 |
| Cash and marketable securities | 4,902 | 5,628 |
| Net debt | 2,859 | 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) | March 31, 2018 | March 31, 2017 |
| Net working capital: | ||
| Receivables, net | 8,503 | 7,618 |
| Contract assets | 2,369 | 2,300 |
| Inventories, net | 5,609 | 4,905 |
| Prepaid expenses | 321 | 230 |
| Accounts payable, trade | (5,301) | (4,471) |
| Contract liabilities | (2,838) | (2,977) |
| Other current liabilities(1) | (3,424) | (3,330) |
| Net working capital | 5,239 | 4,275 |
| Total revenues for the three months ended: | ||
| March 31, 2018 / 2017 | 8,627 | 7,854 |
| December 31, 2017 / 2016 | 9,280 | 8,993 |
| September 30, 2017 / 2016 | 8,724 | 8,255 |
| June 30, 2017 / 2016 | 8,454 | 8,677 |
| Adjustment to annualize/eliminate revenues of certain acquisitions/divestments | 95 | (284) |
| Adjusted revenues for the trailing twelve months | 35,180 | 33,495 |
| Net working capital as a percentage of revenues (%) | 14.9% | 12.8% |
(1) Amounts exclude \$575 million and \$584 million at March 31, 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) | March 31, 2018 | December 31, 2017 |
| Net cash provided by operating activities | 2,772 | 3,799 |
| Adjusted for the effects of: | ||
| Purchases of property, plant and equipment and intangible assets | (995) | (949) |
| Proceeds from sale of property, plant and equipment | 72 | 66 |
| Changes in financing receivables and other non-current receivables | 1 | 10 |
| Free cash flow | 1,850 | 2,926 |
| Net income attributable to ABB | 2,061 | 2,213 |
| Free cash flow conversion to net income | 90% | 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 |
| Q2 2017 | 467 | (225) | 10 | (1) | 525 |
| Q3 2017 | 954 | (203) | 20 | – | 571 |
| Q4 2017 | 1,869 | (329) | 16 | 3 | 393 |
| Q1 2018 | (518) | (238) | 26 | (1) | 572 |
| Total for the trailing twelve months | |||||
| to March 31, 2018 | 2,772 | (995) | 72 | 1 | 2,061 |
Finance net is calculated as Interest and dividend income less Interest and other finance expense.
| Three months ended March 31, | ||||
|---|---|---|---|---|
| (\$ in millions) | 2018 | 2017 | ||
| Interest and dividend income | 23 | 17 | ||
| Interest and other finance expense | (108) | (79) | ||
| Finance net | (85) | (62) |
Book-to-bill ratio is calculated as Orders received divided by Total revenues.
| Three months ended March 31, | |||
|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | 2018 | 2017 | |
| Orders received | 9,772 | 8,403 | |
| Total revenues | 8,627 | 7,854 | |
| Book-to-bill ratio | 1.13 1.07 |
The following tables provide operational EBITA margin reconciliations for prior periods.
| Three months ended December 31, 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Corporate and | |||||||
| (\$ in millions, unless otherwise indicated) | Other and | ||||||
| Power Grids |
Electrification Products |
Industrial Automation |
Robotics and Motion |
Intersegment elimination |
Consolidated | ||
| Total revenues | |||||||
| Foreign exchange/commodity timing | |||||||
| differences in total revenues: | |||||||
| Unrealized gains and losses | |||||||
| on derivatives | – | 13 | (7) | 2 | 29 | 37 | |
| Realized gains and losses on derivatives | |||||||
| where the underlying hedged | |||||||
| transaction has not yet been realized | 7 | – | 4 | 2 | 1 | 14 | |
| Unrealized foreign exchange movements | |||||||
| on receivables (and related assets) | 4 | 3 | 1 | 2 | (1) | 9 | |
| Operational revenues | 2,732 | 2,712 | 2,009 | 2,203 | (316) | 9,340 | |
| Income (loss) from operations | 206 | 318 | 214 | 247 | (381) | 604 | |
| Acquisition-related amortization | 11 | 22 | 22 | 16 | 4 | 75 | |
| Restructuring and | |||||||
| restructuring-related expenses(1) | 32 | 17 | 36 | 35 | 19 | 139 | |
| Changes in pre-acquisition estimates | – | 8 | – | – | – | 8 | |
| Gains and losses from sale of businesses | – | – | – | – | 78 | 78 | |
| Acquisition-related expenses and | |||||||
| non-operational integration costs | 1 | 12 | 27 | 2 | – | 42 | |
| Certain other non-operational items | 18 | 8 | – | – | 20 | 46 | |
| Foreign exchange/commodity timing | |||||||
| differences in income from operations: | |||||||
| Unrealized gains and losses on derivatives | |||||||
| (foreign exchange, commodities, | |||||||
| embedded derivatives) | 8 | 9 | (4) | (1) | – | 12 | |
| Realized gains and losses on derivatives | |||||||
| where the underlying hedged | |||||||
| transaction has not yet been realized | 8 | – | (2) | 3 | (1) | 8 | |
| Unrealized foreign exchange movements | |||||||
| on receivables/payables | |||||||
| (and related assets/liabilities) | – | 4 | 6 | 1 | (2) | 9 | |
| Operational EBITA | 284 | 398 | 299 | 303 | (263) | 1,021 | |
| Operational EBITA margin (%) | 10.4% | 14.7% | 14.9% | 13.8% | n.a. | 10.9% |
| Three months ended September 30, 2017 | ||||||
|---|---|---|---|---|---|---|
| Corporate and | ||||||
| Other and | ||||||
| Power Grids |
Electrification Products |
Industrial Automation |
Robotics and Motion |
Intersegment elimination |
Consolidated | |
| (\$ in millions, unless otherwise indicated) | ||||||
| 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 | ||||||
| non-operational 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% |
| Three months ended June 30, 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Corporate and | |||||||
| Other and | |||||||
| Power Grids |
Electrification | Industrial Automation |
Robotics and Motion |
Intersegment | Consolidated | ||
| (\$ in millions, unless otherwise indicated) | Products | elimination | |||||
| Total revenues | 2,507 | 2,509 | 1,575 | 2,082 | (219) | 8,454 | |
| Foreign exchange/commodity timing | |||||||
| differences in total revenues: | |||||||
| Unrealized gains and losses | |||||||
| on derivatives | (29) | (19) | (9) | (1) | 6 | (52) | |
| Realized gains and losses on derivatives | |||||||
| where the underlying hedged | |||||||
| transaction has not yet been realized | (8) | – | (2) | 1 | (1) | (10) | |
| Unrealized foreign exchange movements | |||||||
| on receivables (and related assets) | 24 | 3 | 9 | 2 | (2) | 36 | |
| Operational revenues | 2,494 | 2,493 | 1,573 | 2,084 | (216) | 8,428 | |
| Income (loss) from operations | 226 | 334 | 209 | 282 | (174) | 877 | |
| Acquisition-related amortization | 9 | 26 | 2 | 16 | 3 | 56 | |
| Restructuring and | |||||||
| restructuring-related expenses(1) | 18 | 13 | 5 | 17 | 31 | 84 | |
| Changes in pre-acquisition estimates | – | 2 | – | – | – | 2 | |
| Gains and losses from sale of businesses | – | – | (2) | – | 9 | 7 | |
| Acquisition-related expenses and | |||||||
| non-operational integration costs | 1 | 3 | 4 | – | – | 8 | |
| Certain other non-operational items | 24 | 9 | – | – | 15 | 48 | |
| Foreign exchange/commodity timing | |||||||
| differences in income from operations: | |||||||
| Unrealized gains and losses on derivatives | |||||||
| (foreign exchange, commodities, | |||||||
| embedded derivatives) | (51) | (23) | (19) | (7) | 7 | (93) | |
| Realized gains and losses on derivatives | |||||||
| where the underlying hedged | |||||||
| transaction has not yet been realized | (10) | – | – | – | 2 | (8) | |
| Unrealized foreign exchange movements | |||||||
| on receivables/payables | |||||||
| (and related assets/liabilities) | 36 | 9 | 12 | 6 | (2) | 61 | |
| Operational EBITA | 253 | 373 | 211 | 314 | (109) | 1,042 | |
| Operational EBITA margin (%) | 10.1% | 15.0% | 13.4% | 15.1% | n.a. | 12.4% |
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