Earnings Release • Jul 23, 2015
Earnings Release
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"We continued to drive our Next Level strategy, generating higher revenue and operational earnings per share against significant market headwinds," said CEO Ulrich Spiesshofer.
"As anticipated, our order development reflects a tougher market environment and weaker demand in oil and gas, China and the US compared to a strong second quarter last year," he said. "Focusing on relentless execution and the turnaround in Power Systems, we expanded our operational EBITA margin, with improved profitability in three divisions. Increasing revenues towards the end of the quarter resulted in higher receivables and lower associated cash from operations. Targeted measures to increase productivity and simplify the organization are bearing fruit, resulting in increased customer engagement and additional cost savings.
"We expect continued hard-weather sailing but the execution of our Next Level strategy will enable us to stay on course," Spiesshofer said. "We remain committed to driving profitable growth and sustainable value creation in line with our targets."
| Key Figures | Change | |||||||
|---|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) |
Q2 2015 |
Q2 2014 |
US\$ | Like-for like2 |
H1 2015 |
H1 2014 |
US\$ | Like-for like2 |
| Orders | 8,996 | 10,567 | -15% | -4% | 19,400 | 20,925 | -7% | +6% |
| Revenues | 9,165 | 10,190 | -10% | +3% | 17,720 | 19,661 | -10% | +3% |
| Operational EBITA3 | 1,058 | 1,094 | -3% | +8% | 2,007 | 2,133 | -6% | +7% |
| as % of operational revenues2 |
11.7% | 10.7% | 11.4% | 10.8% | ||||
| Net income | 588 | 636 | -8% | 1,152 | 1,180 | -2% | ||
| Basic EPS (\$) | 0.26 | 0.28 | -5%4 | 0.51 | 0.51 | 0%4 | ||
| Operational EPS2 (\$) (constant currency basis) |
0.33 | 0.30 | +9%4 | 0.64 | 0.60 | +8%4 | ||
| Cash flow from operating activities |
598 | 888 | -33% | 651 | 843 | -23% |
Macroeconomic and geopolitical developments are signaling a mixed picture with continued uncertainty. Some macroeconomic signs in the US remain positive and growth in China is expected to continue, although at a slower pace than in 2014. The market remains impacted by modest growth in Europe and geopolitical tensions in various parts of the world. Current oil prices and foreign exchange translation effects are expected to continue to influence the company's results.
1 Growth rates for orders and revenues on a like-for-like basis (local currency adjusted for acquisitions and divestitures). US\$ growth rates are presented in the Key Figures table.
2 For a reconciliation of non-GAAP measures, see "Supplemental Reconciliations and Definitions" in the attached Q2 2015 Financial Information.
3 For a reconciliation of Operational EBITA to Income from continuing operations before taxes see Note 12 to the Interim Consolidated Financial Information (unaudited).
4 EPS growth rates are computed using unrounded amounts. Operational EPS growth is in constant currency.
Demand in ABB's three major customer sectors was generally softer than in the first quarter, reflecting ongoing macro uncertainty and challenges in many markets. Utilities remained cautious but continued to make selective investments in infrastructure-critical power transmission projects. For example, ABB won large orders in the United Kingdom and France to connect offshore wind farms to the mainland grid, and an \$85-million substation order in Qatar to support the integration of a new power and seawater desalination plant into the national grid.
Demand from industrial customers varied by sector and region. Continued low oil prices in the quarter resulted in reduced discretionary spending by oil and gas customers. The need for flexible automation solutions in industry was an important demand driver in the quarter, especially in food and beverage and in the automotive sector, where ABB won a \$52-million order for fast, flexible and high-efficiency welding robots for Changan Ford Automobile in China.
The infrastructure and transportation market was mixed, with strong demand for rail solutions, mainly driven by the increasing demand for high-efficiency and low environmental impact commuter solutions. For example, the company won orders valued at \$90 million in the quarter from Stadler Rail in Switzerland to supply high-efficiency rail equipment for commuter trains in Europe and the US. Construction markets were mixed, with generally lower demand in China.
Total orders received in the quarter were 4 percent lower on a like-for-like basis (15 percent lower in US dollars). The appreciation of the US dollar in Q2 2015 versus the prior year period resulted in a negative translation impact on reported orders of 9 percent; divestitures had a negative impact of 2 percent.
Base orders (below \$15 million) decreased 2 percent (14 percent lower in US dollars) compared with a strong second quarter of 2014. Base orders increased in Low Voltage Products and were steady in Power Products, while declining in the remaining divisions. Large orders (above \$15 million) decreased 13 percent (22 percent lower in US dollars) compared with the same quarter of 2014 when ABB won a \$400-million power transmission order in Canada. Large orders represented 12 percent of total orders compared with 14 percent in the same quarter a year ago.
Geographically, orders grew in Europe, led by double-digit growth in countries such as Italy, the UK, Norway, Switzerland and Sweden. Orders declined in the Americas compared to a strong quarter in the previous-year, in which both large and base orders grew significantly. In Asia, the Middle East and Africa (AMEA), orders were steady as increases in several countries, such as India, Saudi Arabia, the UAE and Australia, offset lower demand in China as a result of slower growth in sectors such as utilities, construction and process industries.
Service orders were steady in the quarter and represented 18 percent of total orders compared with 17 percent a year ago.
The order backlog at the end of June 2015 amounted to \$26 billion, an increase of 9 percent (down 4 percent in US dollars) compared to the end of the same quarter in 2014.
The book-to-bill2 ratio in the second quarter decreased to 0.98x compared with 1.04x in the same quarter a year earlier. For the first six months, book-to-bill increased to 1.09x from 1.06x in the same period in 2014 and was above 1.0x in all divisions.
Revenues grew 3 percent on a like-for-like basis (down 10 percent in US dollars) in the second quarter, and were steady to higher in all divisions, mainly reflecting successful execution of the stronger opening order backlog compared with the same period in 2014. The appreciation of the US dollar in Q2 2015 versus the prior year period resulted in a negative translation impact on reported revenues of 10 percent; divestitures had a negative impact of 3 percent.
Total service revenues increased 9 percent (down 7 percent in US dollars) and reached 17 percent of total revenues, up from 16 percent in the same quarter a year earlier.
Operational EBITA increased 8 percent on a like-for-like basis and was higher in Low Voltage Products and Process Automation, as well as Power Systems, which returned to profitability compared to a loss in the second quarter of 2014, supported by progress on the 'step change' program. On a US-dollar basis, operational EBITA was down due to currency translation effects of approximately 10 percent and impacts from divestments of approximately 1 percent.
The operational EBITA margin increased 100 basis points to 11.7 percent, led by continued operational improvements in Power Systems, strong execution of higher-margin projects in Process Automation, positive volume effects from growth initiatives in Low Voltage Products and ongoing cost savings. The operational EBITA margin in Discrete Automation and Motion decreased mainly due to a decline in the share of higher-margin standard products in total revenues resulting from soft demand in the oil and gas sector in recent quarters. In Power Products, the operational EBITA margin declined slightly, mainly as the result of costs associated with the ramp-up of new production facilities in key markets.
Operational EPS5 on a constant currency basis increased 9 percent to \$0.33 versus \$0.30 in the second quarter of 20146 . Basic earnings per share amounted to \$0.26 in the second quarter compared to \$0.28 in the same quarter a year earlier. Net income for the quarter decreased 8 percent to \$588 million and was negatively impacted by significant foreign exchange translation effects.
ABB reported positive cash flow from operating activities of \$598 million in the second quarter compared with \$888 million in the same quarter of 2014. The decline was partly the result of an increase in revenues towards the end of the quarter that resulted in higher receivables compared with the same quarter in 2014. Higher tax payments in the quarter also contributed to the decline.
In the second quarter, ABB continued to implement the Next Level strategy announced last September aimed at accelerating sustainable value creation from its leading power and automation portfolio. The strategy builds on ABB's three focus areas of profitable growth, relentless execution and business-led collaboration.
5 For a reconciliation of non-GAAP measures, see "Supplemental Reconciliations and Definitions" in the attached Q2 2015 Financial Information.
6 Operational EPS growth is computed using unrounded amounts on a constant currency basis
In the second quarter of 2015, ABB continued to drive growth through increased market penetration in targeted geographic and industry segments. For example, order growth was supported by initiatives in the Low Voltage Products division to increase the penetration of new sales channels, such as OEMs (Original Equipment Manufacturers). ABB continued to implement its cross-business initiative in Germany to improve its position in the large mechanical engineering sector by combining solutions from the Low Voltage Products and Discrete Automation and Motion businesses to deliver complete manufacturing cells using robotics, motors, drives, PLCs (programmable logic controllers) and safety equipment.
Innovation continued to be a focus for growth and the company introduced a variety of new products, including the successful launch of a new HVDC cable designed to support the development of long-distance on-shore power transmission in Germany as part of that country's ambitious plans to integrate renewable power generation into its grid.
Expansion into new high-growth markets is another driver of profitable growth. The Low Voltage Products division, for example, continued to expand its position in the home automation segment in the quarter with the roll-out in Asia of its free@home smart home offering to easily automate as many as 60 functions, such as lights, heating and ventilation, and security systems. The company is also expanding its customer offering to the European food and beverage sector, delivering for example motors, low-voltage switches and medium-voltage equipment to ensure high-quality power supplies for food packaging applications.
ABB continued to implement its 'step change' program in PS to return the division to higher and more consistent profitability. Further milestones were achieved in the execution of three offshore wind power projects and the company's exit from the solar EPC (engineering, procurement and construction) business was completed. The ongoing shift in the division's risk profile is reflected in orders in the quarter for HVDC technology in Europe and gas-insulated switchgear and substations in the Middle East, where ABB has both a technology lead and a proven execution track record.
General and administrative expenses (G&A) were reduced by approximately \$90 million in local currencies in the quarter. Supply management actions, such as reducing the number of suppliers, integrating supply management into product design and supplier development, and further building the supply base in low-cost countries, contributed to total savings within the committed range of 3-5 percent of cost of sales.
Further steps were taken in the quarter to increase the focus on the company's markets and customers and to simplify how the organization works together externally and internally, including the opening of regional shared services centers in Estonia and India.
ABB announced a \$4-billion share buyback program in September 2014 in line with the Next Level strategy to accelerate sustained value creation. During the second quarter of 2015, ABB purchased approximately 23 million shares under the program with a buyback value of approximately \$500 million. Since the program was announced, the company has purchased a total of approximately 77 million shares with a buyback value of approximately \$1.7 billion.
ABB further focused its portfolio in the second quarter with the announced divestiture of its US high-voltage cable factory. The transaction, which is in line with the Next Level strategy to shift the company's center of gravity towards higher growth, lower risk and greater competitiveness, is expected to be completed in the third quarter of this year.
Shareholders at ABB's annual general meeting on April 30, 2015, approved the nomination of Peter Voser to succeed Hubertus von Grünberg as Chairman of the Board of Directors. Voser was CEO of Royal Dutch Shell from 2009 until the end of 2013. From 2002 to 2004, Voser was CFO of ABB and a key leader behind the successful turnaround and repositioning of the company for long-term profitable growth. Voser also brings a wealth of experience as a Board member of publicly listed companies such as Roche, UBS and Aegon.
Shareholders also approved the appointment of David Constable as a new Board member. Constable is the President and CEO of Sasol Limited, a leading international integrated energy and chemicals company.
Macroeconomic and geopolitical developments are signaling a mixed picture with continued uncertainty. Some macroeconomic signs in the US remain positive and growth in China is expected to continue, although at a slower pace than in 2014. The market remains impacted by modest growth in Europe and geopolitical tensions in various parts of the world. Current oil prices and foreign exchange translation effects are expected to continue to influence the company's results.
The long-term demand outlook in ABB's three major customer sectors—utilities, industry, and transport and infrastructure—remains positive. Key drivers are the big shift in the electricity value chain, industrial productivity improvements through the internet of things, services and people and Industry 4.0, as well as rapid urbanization and the need for energy efficiency in transport and infrastructure.
ABB is well positioned to tap these opportunities for long-term profitable growth with its strong market presence, broad geographic and business scope, technology leadership and financial strength.
| (\$ in millions, | Change | Change | Operational | Cash from | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| unless otherwise indicated) |
Orders | US\$ | Like-for like |
Revenues | US\$ | Like-for like |
EBITA % | Change | operations | Change |
| Discrete | ||||||||||
| Automation | 2,428 | -9% | 0% | 2,348 | -8% | +2% | 14.5% | -1.2 pts | 261 | -30% |
| & Motion | ||||||||||
| Low Voltage | 1,703 | -12% | +2% | 1,731 | -11% | +4% | 16.8% | +0.2 pts | 259 | -5% |
| Products | ||||||||||
| Process Automation |
1,580 | -23% | -10% | 1,660 | -17% | -1% | 12.4% | +1.0 pts | 88 | -57% |
| Power Products | 2,533 | -8% | 0% | 2,399 | -10% | -1% | 12.6% | -0.3 pts | 207 | +10% |
| Power Systems | 1,374 | -22% | -12% | 1,634 | -10% | +4% | 2.7% | +5.8 pts | 71 | +31% |
| Corporate & other (incl inter division elimination) |
(622) | (607) | (288) | |||||||
| ABB Group | 8,996 | -15% | -4% | 9,165 | -10% | +3% | 11.7% | +1.0 pts | 598 | -33% |
Higher large orders in the quarter, driven by demand for energy-efficient rail solutions, offset lower base orders for standard products, such as motors and drives used in the oil and gas and other process industries, especially in the US and China. Revenues increased on execution of the stronger order backlog, mainly in the rail sector and robotics. The operational EBITA margin decreased mainly due to a decline in the share of higher-margin standard products in total revenues resulting from soft demand in the oil and gas sector in recent quarters.
Orders increased due to the success of growth initiatives to increase the penetration of key sales channels and to expand into high-growth markets, such as building automation. This more than offset the impact of challenging market conditions in China and the US. Sales of Thomas & Betts products outside North America and the division's growth focus in emerging markets also supported the order increase. Revenues were up in all regions, driven by both the product and systems businesses. The higher operational EBITA margin mainly reflects a combination of increased like-for-like revenues and cost saving measures.
The decline in orders mainly reflects lower discretionary spending in the oil and gas sector, as well as a decline in oil and gas-related marine orders, such as drilling ships. Mining and metals orders remained at low levels. These trends were reflected in the regional order development, with declines in the Americas linked to mining demand in South America and shale-gas in North America; marine orders in AMEA; and offshore oil and gas in Europe. Revenues were flat while the operational EBITA margin increased, mainly due to the successful completion of a number of higher-margin projects from the backlog during the quarter.
Both large and base orders remained steady in the quarter, as selective investments by utility and industry customers continued. Higher orders in Europe, led by Germany, Italy and the UK, offset order declines in the Americas and AMEA. Revenues were also stable. The slight operational EBITA margin decline was due to ramp-up costs associated with new production facilities in key markets.
Orders declined compared with the same quarter of 2014 when the division won a \$400-million power transmission order in Canada. Increased orders in Europe and AMEA—led by the Middle East—mostly offset order declines in the Americas. Revenue growth was mainly driven by strong execution of the solid order backlog. Operational EBITA and the related margin increased as the result of ongoing 'step change' measures and continued cost savings to return the division to higher and more consistent profitability.
The Q2 2015 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 conference call for the media today starting at 9:00 a.m. Central European Time (CET) (8:00 a.m. GMT, 3:00 a.m. EST). The event will be accessible by conference call. U.K. callers should dial +44 203 059 58 62. From Sweden, the number is +46 85 051 00 31, and from the rest of Europe, +41 58 310 50 00. Callers from the US and Canada should +1 866 291 41 66 (toll-free) or +1 631 570 56 13 (local tariff). Lines will be open 15 minutes before the start of the conference. Audio playback of the call will be available one hour after the call and available for 24 hours: Playback numbers: +44 207 108 6233 (U.K.), +41 91 612 4330 (rest of Europe) or +1 631 982 4566 (U.S./Canada). The code is 19729 followed by the # key.
A conference call for analysts and investors is scheduled to begin today at 3:00 p.m. CET (2:00 p.m. GMT, 9:00 a.m. EST). Callers should dial +1 866 291 41 66 from the US/Canada (toll-free), +1 631 570 5613 (US/Canada local tariff), +44 203 059 58 62 from the U.K., +46 8 5051 00 31 from Sweden or +41 58 310 50 00 from the rest of the world. Callers are requested to phone in 10 minutes before the start of the call. The call will also be accessible on the ABB website and 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.
| Capital Markets Day, London | September 9, 2015 |
|---|---|
| Third-quarter 2015 results | October 21, 2015 |
| Fourth-quarter 2015 results | February 3, 2016 |
ABB (www.abb.com) is a leader in power and automation technologies that enable utility, industry, and transport and infrastructure customers to improve their performance while lowering environmental impact. The ABB Group of companies operates in roughly 100 countries and employs about 140,000 people.
This press release includes forward-looking information and statements as well as other statements concerning the outlook for our business, including those in the Short-term outlook and Outlook sections of this release. 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" 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, raw materials availability and prices, 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, July 23, 2015 Ulrich Spiesshofer, CEO
Media Relations Thomas Schmidt, Antonio Ligi, Sandra Wiesner Tel: +41 43 317 7111 [email protected]
Investor Relations Tel. +41 43 317 71 11 [email protected]
ABB Ltd Affolternstrasse 44 8050 Zurich Switzerland
| 03 | Key Figures |
|---|---|
| 08 | Interim Consolidated Financial Information (unaudited) |
| 08 | Interim Consolidated Income Statements |
| 09 | Interim Condensed Consolidated Statements |
| of Comprehensive Income |
|
| 10 | Interim Consolidated Balance Sheets |
| 11 | Interim Consolidated Statements of Cash Flows |
| 12 | Interim Consolidated Statements of |
| Changes in Stockholders' Equity |
|
| 13 | Notes to the Interim Consolidated |
| Financial Information |
Supplemental Reconciliations and Definitions
| Change | ||||
|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | Q2 2015 | Q2 2014 | US\$ | Like-for-like 1 |
| Orders | 8,996 | 10,567 | -15% | -4% |
| Revenues | 9,165 | 10,190 | -10% | 3% |
| Operational EBITA2 | 1,058 | 1,094 | -3% | 8% |
| as % of operational revenues1 | 11.7% | 10.7% | ||
| Net income | 588 | 636 | -8% | |
| Basic earnings per share (\$) | 0.26 | 0.28 | -5%3 | |
| Operational earnings per share1 (\$) (constant currency basis) |
0.33 | 0.30 | 9%3 | |
| Cash flow from operating activities | 598 | 888 | -33% |
| Change | ||||
|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | H1 2015 | H1 2014 | US\$ | Like-for-like 1 |
| Orders | 19,400 | 20,925 | -7% | 6% |
| Revenues | 17,720 | 19,661 | -10% | 3% |
| Operational EBITA2 | 2,007 | 2,133 | -6% | 7% |
| as % of operational revenues1 | 11.4% | 10.8% | ||
| Net income | 1,152 | 1,180 | -2% | |
| Basic earnings per share (\$) | 0.51 | 0.51 | 0%3 | |
| Operational earnings per share1 (\$) (constant currency basis) |
0.64 | 0.60 | 8%3 | |
| Cash flow from operating activities | 651 | 843 | -23% |
1 For a reconciliation of non-GAAP measures see "Supplemental Reconciliations and Definitions" on page 30.
2 For a reconciliation of Operational EBITA to Income from continuing operations before taxes see Note 12 to the Interim Consolidated Financial Information (unaudited).
3 EPS growth rates are computed using unrounded amounts. Operational EPS growth is in constant currency.
| Change | ||||||
|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | Q2 2015 | Q2 2014 | US\$ | Local | Like-for-like | |
| Orders | ABB Group | 8,996 | 10,567 | -15% | -6% | -4% |
| Discrete Automation and Motion | 2,428 | 2,667 | -9% | 0% | 0% | |
| Low Voltage Products | 1,703 | 1,939 | -12% | -2% | 2% | |
| Process Automation | 1,580 | 2,044 | -23% | -12% | -10% | |
| Power Products | 2,533 | 2,766 | -8% | 0% | 0% | |
| Power Systems | 1,374 | 1,767 | -22% | -12% | -12% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (622) | (616) | ||||
| Order backlog (end June) | ABB Group | 26,028 | 27,089 | -4% | 8% | 9% |
| Discrete Automation and Motion | 4,761 | 4,896 | -3% | 7% | 7% | |
| Low Voltage Products | 978 | 1,170 | -16% | -7% | 1% | |
| Process Automation | 5,709 | 5,858 | -3% | 14% | 16% | |
| Power Products | 8,170 | 8,454 | -3% | 7% | 7% | |
| Power Systems | 8,721 | 9,177 | -5% | 9% | 9% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (2,311) | (2,466) | ||||
| Revenues | ABB Group | 9,165 | 10,190 | -10% | 0% | 3% |
| Discrete Automation and Motion | 2,348 | 2,543 | -8% | 2% | 2% | |
| Low Voltage Products | 1,731 | 1,936 | -11% | 0% | 4% | |
| Process Automation | 1,660 | 2,012 | -17% | -5% | -1% | |
| Power Products | 2,399 | 2,662 | -10% | -1% | -1% | |
| Power Systems | 1,634 | 1,810 | -10% | 4% | 4% | |
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (607) | (773) | ||||
| Operational EBITA | ABB Group | 1,058 | 1,094 | -3% | 7% | 8% |
| Discrete Automation and Motion | 339 | 399 | -15% | -7% | -7% | |
| Low Voltage Products | 289 | 321 | -10% | 2% | 5% | |
| Process Automation | 204 | 229 | -11% | 0% | 4% | |
| Power Products | 301 | 343 | -12% | -4% | -4% | |
| Power Systems | 42 | (57) | n.a. | n.a. | n.a. | |
| Corporate and Other ABB Group Low Voltage Products Process Automation Power Products Power Systems ABB Group Low Voltage Products Process Automation Power Products Power Systems |
||||||
| (incl. inter-division eliminations) | (117) | (141) | ||||
| Operational EBITA % | 11.7% | 10.7% | ||||
| Discrete Automation and Motion | 14.5% | 15.7% | ||||
| 16.8% | 16.6% | |||||
| 12.4% | 11.4% | |||||
| 12.6% | 12.9% | |||||
| 2.7% | -3.1% | |||||
| Income from operations | 961 | 1,052 | ||||
| Discrete Automation and Motion | 293 | 349 | ||||
| 263 | 400 | |||||
| 193 | 217 | |||||
| 300 | 319 | |||||
| 35 | (90) | |||||
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (123) | (143) | ||||
| Income from operations % | ABB Group | 10.5% | 10.3% | |||
| Discrete Automation and Motion | 12.5% | 13.7% | ||||
| Low Voltage Products | 15.2% | 20.7% | ||||
| Process Automation | 11.6% | 10.8% | ||||
| Power Products | 12.5% | 12.0% | ||||
| Power Systems | 2.1% | -5.0% | ||||
| Cash flow from operating activities | ABB Group | 598 | 888 | |||
| Discrete Automation and Motion | 261 | 374 | ||||
| Low Voltage Products | 259 | 273 | ||||
| Process Automation | 88 | 206 | ||||
| Power Products | 207 | 189 | ||||
| Power Systems | 71 | 54 | ||||
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (288) | (208) |
| Change | ||||||
|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | H1 2015 | H1 2014 | US\$ | Local | Like-for-like | |
| Orders | ABB Group | 19,400 | 20,925 | -7% | 3% | 6% |
| Discrete Automation and Motion | 4,997 | 5,483 | -9% | 0% | 0% | |
| 3,406 | 3,914 | -13% | -3% | 2% | ||
| 3,501 | 4,048 | -14% | -1% | 3% | ||
| 5,189 | 5,491 | -5% | 4% | 4% | ||
| Low Voltage Products Process Automation Power Products Power Systems Corporate and Other (incl. inter-division eliminations) ABB Group Discrete Automation and Motion Low Voltage Products Process Automation Power Products Power Systems Corporate and Other (incl. inter-division eliminations) ABB Group Discrete Automation and Motion Low Voltage Products Process Automation Power Products Power Systems Corporate and Other (incl. inter-division eliminations) ABB Group Discrete Automation and Motion Low Voltage Products Process Automation Power Products Power Systems Corporate and Other (incl. inter-division eliminations) ABB Group Discrete Automation and Motion Low Voltage Products |
3,768 | 3,257 | 16% | 34% | 34% | |
| Order backlog (end June) | (1,461) | (1,268) | ||||
| 26,028 | 27,089 | -4% | 8% | 9% | ||
| 4,761 | 4,896 | -3% | 7% | 7% | ||
| 978 | 1,170 | -16% | -7% | 1% | ||
| 5,709 | 5,858 | -3% | 14% | 16% | ||
| 8,170 | 8,454 | -3% | 7% | 7% | ||
| 8,721 | 9,177 | -5% | 9% | 9% | ||
| (2,311) | (2,466) | |||||
| Revenues | 17,720 | 19,661 | -10% | 0% | 3% | |
| 4,619 | 4,924 | -6% | 3% | 3% | ||
| 3,286 | 3,818 | -14% | -4% | 2% | ||
| 3,239 | 3,955 | -18% | -6% | -3% | ||
| 4,674 | 5,053 | -8% | 2% | 2% | ||
| 3,106 | 3,418 | -9% | 4% | 4% | ||
| (1,204) | (1,507) | |||||
| Operational EBITA | 2,007 | 2,133 | -6% | 4% | 7% | |
| 657 | 751 | -13% | -3% | -3% | ||
| 532 | 620 | -14% | -3% | 4% | ||
| 396 | 474 | -16% | -7% | -4% | ||
| 554 | 647 | -14% | -6% | -6% | ||
| 75 | (111) | n.a. | n.a. | n.a. | ||
| Operational EBITA % Process Automation Power Products Power Systems Income from operations ABB Group Discrete Automation and Motion Low Voltage Products Process Automation Power Products Power Systems Corporate and Other Income from operations % ABB Group Discrete Automation and Motion Low Voltage Products Process Automation Power Products |
(207) | (248) | ||||
| 11.4% | 10.8% | |||||
| 14.3% | 15.3% | |||||
| 16.2% | 16.2% | |||||
| 12.3% | 12.0% | |||||
| 11.9% | 12.8% | |||||
| 2.4% | -3.2% | |||||
| 1,820 | 1,907 | |||||
| 593 | 675 | |||||
| 480 | 656 | |||||
| 379 | 436 | |||||
| 540 | 591 | |||||
| 39 | (192) | |||||
| (incl. inter-division eliminations) | (211) | (259) | ||||
| 10.3% | 9.7% | |||||
| 12.8% | 13.7% | |||||
| 14.6% | 17.2% | |||||
| 11.7% | 11.0% | |||||
| 11.6% | 11.7% | |||||
| Power Systems | 1.3% | -5.6% | ||||
| Cash flow from operating activities | ABB Group | 651 | 843 | |||
| Discrete Automation and Motion | 484 | 668 | ||||
| Low Voltage Products | 249 | 246 | ||||
| Process Automation | 152 | 301 | ||||
| Power Products | 287 | 248 | ||||
| Power Systems | (76) | (249) | ||||
| Corporate and Other | ||||||
| (incl. inter-division eliminations) | (445) | (371) |
| (\$ in millions, unless otherwise indicated) | ABB | Discrete Automation and Motion |
Low Voltage Products |
Process Automation |
Power Products |
Power Systems |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Q2 15 | Q2 14 | Q2 15 | Q2 14 | Q2 15 | Q2 14 | Q2 15 | Q2 14 | Q2 15 | Q2 14 | Q2 15 | Q2 14 | |
| Revenues | 9,165 10,190 | 2,348 | 2,543 | 1,731 | 1,936 | 1,660 | 2,012 | 2,399 | 2,662 | 1,634 | 1,810 | |
| FX/commodity timing differences in total revenues |
(100) | 56 | (3) | (4) | (9) | 2 | (21) | 5 | (8) | 1 | (56) | 52 |
| Operational revenues | 9,065 10,246 | 2,345 | 2,539 | 1,722 | 1,938 | 1,639 | 2,017 | 2,391 | 2,663 | 1,578 | 1,862 | |
| Income (loss) from operations | 961 | 1,052 | 293 | 349 | 263 | 400 | 193 | 217 | 300 | 319 | 35 | (90) |
| Acquisition-related amortization | 80 | 96 | 33 | 35 | 26 | 33 | 3 | 3 | 2 | 5 | 13 | 14 |
| Restructuring and restructuring-related expenses |
58 | 40 | 25 | 13 | 1 | 4 | 20 | 4 | 9 | 15 | 4 | 5 |
| Gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items |
39 | (114) | – | 2 | – | (108) | 12 | 2 | 1 | 6 | 31 | (9) |
| FX/commodity timing differences in income from operations |
(80) | 20 | (12) | – | (1) | (8) | (24) | 3 | (11) | (2) | (41) | 23 |
| Operational EBITA | 1,058 | 1,094 | 339 | 399 | 289 | 321 | 204 | 229 | 301 | 343 | 42 | (57) |
| Operational EBITA margin (%) | 11.7% | 10.7% | 14.5% | 15.7% | 16.8% | 16.6% | 12.4% | 11.4% | 12.6% | 12.9% | 2.7% | -3.1% |
| Discrete | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Automation | Low Voltage | Process | Power | Power | ||||||||
| (\$ in millions, unless otherwise indicated) | ABB | and Motion | Products | Automation | Products | Systems | ||||||
| H1 15 | H1 14 | H1 15 | H1 14 | H1 15 | H1 14 | H1 15 | H1 14 | H1 15 | H1 14 | H1 15 | H1 14 | |
| Revenues | 17,720 19,661 | 4,619 | 4,924 | 3,286 | 3,818 | 3,239 | 3,955 | 4,674 | 5,053 | 3,106 | 3,418 | |
| FX/commodity timing | ||||||||||||
| differences in total revenues | (137) | 61 | (37) | (10) | (5) | 3 | (28) | 1 | (25) | (3) | (40) | 71 |
| Operational revenues | 17,583 19,722 | 4,582 | 4,914 | 3,281 | 3,821 | 3,211 | 3,956 | 4,649 | 5,050 | 3,066 | 3,489 | |
| Income (loss) from operations | 1,820 | 1,907 | 593 | 675 | 480 | 656 | 379 | 436 | 540 | 591 | 39 | (192) |
| Acquisition-related amortization | 163 | 197 | 65 | 69 | 51 | 63 | 6 | 7 | 5 | 10 | 27 | 36 |
| Restructuring and | ||||||||||||
| restructuring-related expenses | 84 | 87 | 28 | 14 | 7 | 12 | 21 | 24 | 20 | 23 | 8 | 13 |
| Gains and losses from sale of businesses, | ||||||||||||
| acquisition-related expenses and certain | ||||||||||||
| non-operational items | 50 | (103) | – | (1) | 1 | (104) | 11 | 3 | 2 | 11 | 31 | (8) |
| FX/commodity timing | ||||||||||||
| differences in income from operations | (110) | 45 | (29) | (6) | (7) | (7) | (21) | 4 | (13) | 12 | (30) | 40 |
| Operational EBITA | 2,007 | 2,133 | 657 | 751 | 532 | 620 | 396 | 474 | 554 | 647 | 75 | (111) |
| Operational EBITA margin (%) | 11.4% | 10.8% | 14.3% | 15.3% | 16.2% | 16.2% | 12.3% | 12.0% | 11.9% | 12.8% | 2.4% | -3.2% |
| (\$ in millions, unless otherwise indicated) | ABB | Discrete Automation and Motion |
Low Voltage Products |
Process Automation |
Power Products |
Power Systems |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Q2 15 | Q2 14 | Q2 15 | Q2 14 | Q2 15 | Q2 14 | Q2 15 | Q2 14 | Q2 15 | Q2 14 | Q2 15 | Q2 14 | |
| Depreciation | 192 | 215 | 36 | 41 | 41 | 45 | 15 | 18 | 44 | 48 | 19 | 23 |
| Amortization | 101 | 118 | 36 | 38 | 27 | 31 | 4 | 4 | 4 | 7 | 18 | 24 |
| including total acquisition-related amortization of | 80 | 96 | 33 | 35 | 26 | 33 | 3 | 3 | 2 | 5 | 13 | 14 |
| (\$ in millions, unless otherwise indicated) | ABB | Discrete Automation and Motion |
Low Voltage Products |
Process Automation |
Power Products |
Power Systems |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| H1 15 | H1 14 | H1 15 | H1 14 | H1 15 | H1 14 | H1 15 | H1 14 | H1 15 | H1 14 | H1 15 | H1 14 | |
| Depreciation | 384 | 428 | 73 | 81 | 83 | 91 | 29 | 35 | 88 | 96 | 39 | 45 |
| Amortization | 204 | 238 | 73 | 75 | 54 | 62 | 9 | 10 | 8 | 14 | 37 | 49 |
| including total acquisition-related amortization of | 163 | 197 | 65 | 69 | 51 | 63 | 6 | 7 | 5 | 10 | 27 | 36 |
| (\$ in millions, unless otherwise indicated) | Orders received | Change | Revenues | Change | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Q2 15 | Q2 14 | US\$ | Local | Like for-like |
Q2 15 | Q2 14 | US\$ | Local | Like for-like |
|
| Europe | 2,809 | 3,275 | -14% | 5% | 7% | 2,949 | 3,629 | -19% | 0% | 2% |
| The Americas | 2,615 | 3,536 | -26% | -22% | -19% | 2,706 | 2,942 | -8% | -2% | 2% |
| Asia, Middle East and Africa | 3,572 | 3,756 | -5% | 1% | 1% | 3,510 | 3,619 | -3% | 4% | 5% |
| ABB Group | 8,996 | 10,567 | -15% | -6% | -4% | 9,165 | 10,190 | -10% | 0% | 3% |
| (\$ in millions, unless otherwise indicated) | Orders received | Change | Revenues | Change | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| H1 15 | H1 14 | US\$ | Local | Like for-like |
H1 15 | H1 14 | US\$ | Local | Like for-like |
|
| Europe | 6,771 | 7,166 | -6% | 16% | 18% | 5,753 | 7,004 | -18% | 0% | 2% |
| The Americas | 5,354 | 6,299 | -15% | -10% | -7% | 5,358 | 5,674 | -6% | 0% | 5% |
| Asia, Middle East and Africa | 7,275 | 7,460 | -2% | 4% | 5% | 6,609 | 6,983 | -5% | 1% | 2% |
| ABB Group | 19,400 | 20,925 | -7% | 3% | 6% | 17,720 | 19,661 | -10% | 0% | 3% |
| (\$ in millions, except per share data in \$) Jun. 30, 2015 Jun. 30, 2014 Jun. 30, 2015 Jun. 30, 2014 Sales of products 14,762 16,479 7,632 8,542 Sales of services 2,958 3,182 1,533 1,648 Total revenues 17,720 19,661 9,165 10,190 Cost of products (10,711) (12,059) (5,517) (6,265) Cost of services (1,788) (1,990) (928) (1,040) Total cost of sales (12,499) (14,049) (6,445) (7,305) Gross profit 5,221 5,612 2,720 2,885 Selling, general and administrative expenses (2,687) (3,082) (1,378) (1,575) Non-order related research and development expenses (676) (755) (346) (390) Other income (expense), net (38) 132 (35) 132 Income from operations 1,820 1,907 961 1,052 Interest and dividend income 38 38 19 21 Interest and other finance expense (159) (172) (88) (88) Income from continuing operations before taxes 1,699 1,773 892 985 Provision for taxes (493) (541) (263) (316) Income from continuing operations, net of tax 1,206 1,232 629 669 Income (loss) from discontinued operations, net of tax 2 (2) (2) (1) Net income 1,208 1,230 627 668 Net income attributable to noncontrolling interests (56) (50) (39) (32) Net income attributable to ABB 1,152 1,180 588 636 Amounts attributable to ABB shareholders: Income from continuing operations, net of tax 1,150 1,182 590 637 Net income 1,152 1,180 588 636 Basic earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 0.51 0.51 0.26 0.28 Net income 0.51 0.51 0.26 0.28 Diluted earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 0.51 0.51 0.26 0.28 Net income 0.51 0.51 0.26 0.28 |
Six months ended | Three months ended | |
|---|---|---|---|
| Weighted-average number of shares outstanding (in millions) used to compute: | |||
| Basic earnings per share attributable to ABB shareholders 2,241 2,298 2,232 2,295 |
|||
| Diluted earnings per share attributable to ABB shareholders 2,246 2,306 2,238 2,302 |
| Six months ended | Three months ended | ||||
|---|---|---|---|---|---|
| (\$ in millions) | Jun. 30, 2015 | Jun. 30, 2014 | Jun. 30, 2015 | Jun. 30, 2014 | |
| Total comprehensive income, net of tax | 859 | 1,146 | 943 | 657 | |
| Total comprehensive income attributable to noncontrolling interests, net of tax | (52) | (46) | (35) | (31) | |
| Total comprehensive income attributable to ABB shareholders, net of tax | 807 | 1,100 | 908 | 626 |
| (\$ in millions, except share data) | Jun. 30, 2015 | Dec. 31, 2014 |
|---|---|---|
| Cash and equivalents | 3,954 | 5,443 |
| Marketable securities and short-term investments | 1,233 | 1,325 |
| Receivables, net | 11,071 | 11,078 |
| Inventories, net | 5,458 | 5,376 |
| Prepaid expenses | 304 | 218 |
| Deferred taxes | 798 | 902 |
| Other current assets | 782 | 644 |
| Total current assets | 23,600 | 24,986 |
| Property, plant and equipment, net | 5,327 | 5,652 |
| Goodwill | 9,870 | 10,053 |
| Other intangible assets, net | 2,519 | 2,702 |
| Prepaid pension and other employee benefits | 71 | 70 |
| Investments in equity-accounted companies | 163 | 177 |
| Deferred taxes | 467 | 511 |
| Other non-current assets | 676 | 701 |
| Total assets | 42,693 | 44,852 |
| Accounts payable, trade | 4,564 | 4,765 |
| Billings in excess of sales | 1,505 | 1,455 |
| Short-term debt and current maturities of long-term debt | 1,342 | 353 |
| Advances from customers | 1,512 | 1,624 |
| Deferred taxes | 221 | 289 |
| Provisions for warranties | 1,079 | 1,148 |
| Other provisions | 1,596 | 1,689 |
| Other current liabilities | 4,232 | 4,257 |
| Total current liabilities | 16,051 | 15,580 |
| Long-term debt | 6,646 | 7,312 |
| Pension and other employee benefits | 2,292 | 2,394 |
| Deferred taxes | 1,122 | 1,165 |
| Other non-current liabilities | 1,576 | 1,586 |
| Total liabilities | 27,687 | 28,037 |
| Commitments and contingencies | ||
| Stockholders' equity: | ||
| Capital stock and additional paid-in capital | ||
| (2,314,743,264 issued shares at June 30, 2015, and December 31, 2014) | 1,441 | 1,777 |
| Retained earnings | 19,720 | 19,939 |
| Accumulated other comprehensive loss | (4,586) | (4,241) |
| Treasury stock, at cost | ||
| (94,058,531 and 55,843,639 shares at June 30, 2015, and December 31, 2014, respectively) | (2,034) | (1,206) |
| Total ABB stockholders' equity | 14,541 | 16,269 |
| Noncontrolling interests | 465 | 546 |
| Total stockholders' equity | 15,006 | 16,815 |
| Total liabilities and stockholders' equity | 42,693 | 44,852 |
| Six months ended | Three months ended | ||||
|---|---|---|---|---|---|
| (\$ in millions) | Jun. 30, 2015 | Jun. 30, 2014 | Jun. 30, 2015 | Jun. 30, 2014 | |
| Operating activities: | |||||
| Net income | 1,208 | 1,230 | 627 | 668 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||
| Depreciation and amortization | 588 | 666 | 293 | 333 | |
| Pension and other employee benefits | 27 | (22) | 13 | 6 | |
| Deferred taxes | (19) | (16) | (50) | (3) | |
| Net loss (gain) from sale of property, plant and equipment | (19) | (14) | (9) | (6) | |
| Net loss (gain) from sale of businesses | (4) | (130) | – | (130) | |
| Net loss (gain) from derivatives and foreign exchange | (92) | 106 | (88) | 52 | |
| Other | 90 | 42 | 64 | 27 | |
| Changes in operating assets and liabilities: | |||||
| Trade receivables, net | (419) | (195) | (318) | (93) | |
| Inventories, net | (301) | (361) | 59 | (138) | |
| Trade payables | (39) | 74 | (18) | 265 | |
| Accrued liabilities | (186) | (148) | (1) | 69 | |
| Billings in excess of sales | 119 | (191) | 104 | (33) | |
| Provisions, net | (107) | (197) | (34) | (98) | |
| Advances from customers | (58) | (16) | (13) | (75) | |
| Income taxes payable and receivable | (88) | 32 | (37) | (16) | |
| Other assets and liabilities, net | (49) | (17) | 6 | 60 | |
| Net cash provided by operating activities | 651 | 843 | 598 | 888 | |
| Investing activities: | |||||
| Purchases of marketable securities (available-for-sale) | (862) | (427) | (393) | (343) | |
| Purchases of short-term investments | (481) | (443) | (22) | (5) | |
| Purchases of property, plant and equipment and intangible assets | (358) | (420) | (182) | (217) | |
| Acquisition of businesses (net of cash acquired) | |||||
| and increases in cost- and equity-accounted companies | (41) | (17) | (5) | (14) | |
| Proceeds from sales of marketable securities (available-for-sale) | 359 | 25 | 347 | 11 | |
| Proceeds from maturity of marketable securities (available-for-sale) | 494 | 136 | 219 | 68 | |
| Proceeds from short-term investments | 512 | 188 | 336 | 165 | |
| Proceeds from sales of property, plant and equipment | 24 | 22 | 18 | 12 | |
| Proceeds from sales of businesses (net of transaction costs | |||||
| and cash disposed) and cost- and equity-accounted companies | 1 | 403 | 1 | 401 | |
| Other investing activities | 200 | 52 | 102 | (10) | |
| Net cash provided by (used in) investing activities | (152) | (481) | 421 | 68 | |
| Financing activities: | |||||
| Net changes in debt with original maturities of 90 days or less | 416 | 738 | 252 | (250) | |
| Increase in debt | 51 | 35 | 11 | 32 | |
| Repayment of debt | (62) | (19) | (48) | (6) | |
| Delivery of shares | 107 | 26 | 107 | 25 | |
| Purchases of treasury stock | (898) | (282) | (497) | (282) | |
| Dividends paid | (1,357) | (1,841) | (1,357) | (1,841) | |
| Dividends paid to noncontrolling shareholders | (105) | (93) | (92) | (86) | |
| Other financing activities | 6 | (20) | (1) | (29) | |
| Net cash used in financing activities | (1,842) | (1,456) | (1,625) | (2,437) | |
| Effects of exchange rate changes on cash and equivalents | (146) | 22 | 89 | 28 | |
| Net change in cash and equivalents – continuing operations | (1,489) | (1,072) | (517) | (1,453) | |
| Cash and equivalents, beginning of period | 5,443 | 6,021 | 4,471 | 6,402 | |
| Cash and equivalents, end of period | 3,954 | 4,949 | 3,954 | 4,949 | |
| Supplementary disclosure of cash flow information: | |||||
| Interest paid | 130 | 150 | 77 | 83 | |
| Taxes paid | 616 | 523 | 360 | 325 |
| (\$ in millions) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at January 1, 2014 | 1,750 | 19,186 | (431) | 7 | (1,610) | 22 | (2,012) | (246) | 18,678 | 530 | 19,208 |
| Comprehensive income: | |||||||||||
| Net income | 1,180 | 1,180 | 50 | 1,230 | |||||||
| Foreign currency translation adjustments, net of tax of \$(8) |
(88) | (88) | (88) | (4) | (92) | ||||||
| Effect of change in fair value of available-for-sale securities, net of tax of \$0 |
3 | 3 | 3 | 3 | |||||||
| Unrecognized income (expense) related to pensions and other postretirement plans, net of tax of \$19 |
33 | 33 | 33 | 33 | |||||||
| Change in derivatives qualifying as cash flow hedges, net of tax of \$(5) |
(28) | (28) | (28) | (28) | |||||||
| Total comprehensive income | 1,100 | 46 | 1,146 | ||||||||
| Dividends paid to noncontrolling shareholders |
– | (131) | (131) | ||||||||
| Dividends paid | (1,841) | (1,841) | (1,841) | ||||||||
| Share-based payment arrangements | 39 | 39 | 39 | ||||||||
| Purchase of treasury stock | (282) | (282) | (282) | ||||||||
| Delivery of shares | (14) | 40 | 26 | 26 | |||||||
| Other | 2 | 2 | 2 | ||||||||
| Balance at June 30, 2014 | 1,777 | 18,525 | (519) | 10 | (1,577) | (6) | (2,092) | (488) | 17,722 | 445 | 18,167 |
| Balance at January 1, 2015 | 1,777 | 19,939 | (2,102) | 13 | (2,131) | (21) | (4,241) | (1,206) | 16,269 | 546 | 16,815 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Comprehensive income: | |||||||||||
| Net income | 1,152 | 1,152 | 56 | 1,208 | |||||||
| Foreign currency translation adjustments, net of tax of \$(3) |
(459) | (459) | (459) | (4) | (463) | ||||||
| Effect of change in fair value of available-for-sale securities, net of tax of \$1 |
(4) | (4) | (4) | (4) | |||||||
| Unrecognized income (expense) related to pensions and other postretirement plans, net of tax of \$45 |
116 | 116 | 116 | 116 | |||||||
| Change in derivatives qualifying as cash flow hedges, net of tax of \$0 |
2 | 2 | 2 | 2 | |||||||
| Total comprehensive income | 807 | 52 | 859 | ||||||||
| Dividends paid to noncontrolling shareholders |
– | (133) | (133) | ||||||||
| Dividends paid | (1,317) | (1,317) | (1,317) | ||||||||
| Reduction in nominal value of common shares payable to shareholders |
(349) | (54) | (403) | (403) | |||||||
| Share-based payment arrangements | 30 | 30 | 30 | ||||||||
| Purchases of treasury stock | (952) | (952) | (952) | ||||||||
| Delivery of shares | (17) | 124 | 107 | 107 | |||||||
| Balance at June 30, 2015 | 1,441 | 19,720 | (2,561) | 9 | (2,015) | (19) | (4,586) | (2,034) | 14,541 | 465 | 15,006 |
Note 1 The Company and basis of presentation
ABB Ltd and its subsidiaries (collectively, the Company) together form a leading global company in power and automation technologies that enable utility and industry customers to improve their performance while lowering environmental impact. The Company works with customers to engineer and install networks, facilities and plants with particular emphasis on enhancing efficiency, reliability and productivity for customer s who generate, convert, transmit, distribute and consume energy.
The Company's Interim Consolidated Financial Information is prepared in accordance with United States of America generally accepted accounting principles (U.S. GAAP) for interim financial reporting. As such, the Interim Consolidated Financial Information does not include all the information and notes required under U.S. GAAP for annual consolidated financial statements. Therefore, such financial information should be read in conjunction with the audited consolidated financial statements in the Company's Annual Report for the year ended December 31, 2014.
The preparation of financial information in conformity with U.S. GAAP requires management to make assumptions and estimates that directly affect the amounts reported in the Interim Consolidated Financial Information. The most significant, difficult and subjective of such accounting assumptions and estimates include:
The actual results and outcomes may differ from the Company's estimates and assumptions.
A portion of the Company's activities (primarily long-term construction activities) has an operating cycle that exceeds one year. For classification of current assets and liabilities related to such activities, the Company elected to use the duration of the individual contracts as its operating cycle. Accordingly, there are accounts receivable, inventories and provisions related to these contracts which will not be realized within one year that have been classified as current.
In the opinion of management, the unaudited Interim Consolidated Financial Information contains all necessary adjustments to present fairly the financial position, results of operations and cash flows for the reported interim periods. Management considers all such adjustments to be of a normal recurring nature.
The Interim Consolidated Financial Information is presented in United States dollars (\$) unless otherwise stated. Certain amounts have been reclassified from Other non-current assets to Long-term debt in the Consolidated Balance Sheets at December 31, 2014, as a result of the early adoption of an accounting standard update on the presentation of debt issuance costs (see Note 2). In the Consolidated Statements of Cash Flows certain amounts reported for prior periods in the Interim Consolidated Financial Information have been reclassified to conform to the current period presentation. These reclassifications were within Net cash provided by operating activiti es.
Note 2 Recent accounting pronouncements Applicable for current periods
Simplifying the presentation of debt issuance costs
In April 2015, an accounting standard update was issued to simplify the presentation of debt issuance costs. Under the update, the Company presents debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of that debt liability rather than as a non-current asset. The existing recognition and measurement guidance for debt issuance costs is not affected by this accounting standard update. The Company has elected to early adopt the updated accounting standard in the second quarter of 2015. In connection with the adoption of the updated accounting standard, deferred debt issuance costs of \$26 million were reclassified from "Other non-current assets" to "Long-term debt" at December 31, 2014.
In May 2014, an accounting standard update was issued to clarify the principles for recognizing revenues from contracts with customers. The update, which supersedes substantially all 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. Under the standard it is possible that more judgments and estimates would be required than under existing standards, including identifying the separate performance obligations in a contract, estimating any variable consideration elements, and allocating the transaction price to each separate performance obligation. The update also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The update is effective for the Company for annual and interim periods beginning January 1, 2017, and is to be applied either (i) retrospectively to each prior reporting period presented, with the option to elect certain defined practical expedients, or (ii) retrospectively with the cumulative effect of initially applying the update recognized at the date of adoption in retained earnings (with additional disclosure as to the impact on individual financial statement lines affected). On July 9, 2015, the Financial Accounting Standards Board voted to defer the effective date by one year to December 15, 2017, for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The Company is currently evaluating the impact of this update (which would be effective for periods beginning January 1, 2018) on its consolidated financial statements.
Disclosures for investments in certain entities that calculate net asset value per share (or its equivalent)
In May 2015, an accounting standard update was issued regarding fair value disclosures for certain investments. Under the update, the Company would no longer categorize within the fair value hierarchy investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the Company has elected to measure the fair value using that practical expedient. This update is effective for the Company for annual and interim periods beginning January 1, 2016, with early adoption permitted, and is applicable retrospectively. The Company is currently evaluating the impact of this update on its consolidated financial statements.
For both the six and three months ended June 30, 2014, the Company recorded net gains of \$130 million in "Other income (expense), net" and tax expense of \$69 million in "Provision for taxes", relating to the divestment of consolidated businesses. There were no significant amounts recognized in the six and three months ended June 30, 2015.
Current assets Cash and equivalents, marketable securities and short-term investments consisted of the following:
| June 30, 2015 | ||||||
|---|---|---|---|---|---|---|
| (\$ in millions) | Cost basis | Gross unrealized gains |
Gross unrealized losses |
Fair value | Cash and equivalents |
Marketable securities and short-term investments |
| Cash | 1,690 | 1,690 | 1,690 | – | ||
| Time deposits | 2,360 | 2,360 | 2,242 | 118 | ||
| Other short-term investments | 235 | 235 | – | 235 | ||
| Debt securities available-for-sale: | ||||||
| U.S. government obligations | 136 | 2 | (1) | 137 | – | 137 |
| Other government obligations | 2 | – | – | 2 | – | 2 |
| Corporate | 657 | 3 | (1) | 659 | 22 | 637 |
| Equity securities available-for-sale | 95 | 9 | – | 104 | – | 104 |
| Total | 5,175 | 14 | (2) | 5,187 | 3,954 | 1,233 |
| December 31, 2014 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (\$ in millions) | Cost basis | Gross unrealized gains |
Gross unrealized losses |
Fair value | Cash and equivalents |
Marketable securities and short-term investments |
|||
| Cash | 2,218 | 2,218 | 2,218 | – | |||||
| Time deposits | 3,340 | 3,340 | 3,140 | 200 | |||||
| Other short-term investments | 225 | 225 | – | 225 | |||||
| Debt securities available-for-sale: | |||||||||
| U.S. government obligations | 135 | 2 | (1) | 136 | – | 136 | |||
| Other government obligations | 2 | – | – | 2 | – | 2 | |||
| Corporate | 734 | 4 | (1) | 737 | 85 | 652 | |||
| Equity securities available-for-sale | 98 | 12 | – | 110 | – | 110 | |||
| Total | 6,752 | 18 | (2) | 6,768 | 5,443 | 1,325 |
Included in Other short-term investments at June 30, 2015, and December 31, 2014, are receivables of \$229 million and \$219 million, respectively, representing reverse repurchase agreements. These collateralized lendings, made to a financial institution, have maturity dates of less than one year.
Non-current assets Included in "Other non-current assets" are certain held-to-maturity marketable securities. At June 30, 2015, the amortized cost, gross unrecognized gain and fair value (based on quoted market prices) of these securities were \$ 92 million, \$18 million and \$110 million, respectively. At December 31, 2014, the amortized cost, gross unrecognized gain and fair value (based on quoted market prices) of these securities were \$95 million, \$14 million and \$109 million, respectively. These securities are pledged as security for certain outstanding deposit liabilities and the funds received at the respective maturity dates of the securities will only be available to the Company for repayment of these obligations.
| Note 5 Derivative financial instruments |
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. |
|---|---|
| Currency risk | 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 mon ths 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. |
| Commodity risk | 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. |
| Interest rate risk | 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. |
| Equity risk | 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 which entitle the Company to receive amounts equivalent to its obligations under the outstanding WARs. |
| Volume of derivative activity | 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. |
| Foreign exchange and interest rate derivatives The gross notional amounts of outstanding foreign exchange and interest rate derivatives (whether designat ed as hedges or not) were as follows: |
| Type of derivative | Total notional amounts | ||||||
|---|---|---|---|---|---|---|---|
| (\$ in millions) | June 30, 2015 | December 31, 2014 | June 30, 2014 | ||||
| Foreign exchange contracts | 15,954 | 18,564 | 20,613 | ||||
| Embedded foreign exchange derivatives | 3,398 | 3,013 | 2,887 | ||||
| Interest rate contracts | 4,223 | 2,242 | 3,540 |
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 | |||||
|---|---|---|---|---|---|---|---|
| June 30, 2015 | December 31, 2014 | June 30, 2014 | |||||
| Copper swaps | metric tonnes | 48,941 | 46,520 | 42,080 | |||
| Aluminum swaps | metric tonnes | 5,792 | 3,846 | 3,646 | |||
| Nickel swaps | metric tonnes | – | – | 6 | |||
| Lead swaps | metric tonnes | 15,350 | 6,550 | 4,725 | |||
| Zinc swaps | metric tonnes | 175 | 200 | 150 | |||
| Silver swaps | ounces | 1,488,132 | 1,996,845 | 1,958,563 | |||
| Crude oil swaps | barrels | 125,700 | 128,000 | 113,000 |
At June 30, 2015, December 31, 2014, and June 30, 2014, the Company held 45 million, 61 million and 54 million cash-settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of \$ 16 million, \$33 million and \$29 million, respectively.
Cash flow hedges 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 June 30, 2015, and December 31, 2014, "Accumulated other comprehensive loss" included net unrealized losses of \$19 million and \$21 million, respectively, net of tax, on derivatives designated as cash flow hedges. Of the amount at June 30, 2015, net losses of \$10 million are expected to be reclassified to earnings in the following 12 months. At
June 30, 2015, the longest maturity of a derivative classified as a cash flow hedge was 51 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 six and three months ended June 30, 2015 and 2014.
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:
| Six months ended June 30, 2015 | ||||||
|---|---|---|---|---|---|---|
| Type of derivative designated as a cash flow hedge |
Gains (losses) recognized in OCI on derivatives (effective portion) |
Gains (losses) reclassified from OCI into income (effective portion) |
Gains (losses) recognized in income (ineffective portion and amount excluded from effectiveness testing) |
|||
| (\$ in millions) | Location | (\$ in millions) | Location | (\$ in millions) | ||
| Foreign exchange contracts | (16) | Total revenues | (24) | Total revenues | – | |
| Total cost of sales | 5 | Total cost of sales | – | |||
| Commodity contracts | (2) | Total cost of sales | (4) | Total cost of sales | – | |
| Cash-settled call options | (7) | SG&A expenses(1) | (4) | SG&A expenses(1) | – | |
| Total | (25) | (27) | – |
| Six months ended June 30, 2014 | ||||||
|---|---|---|---|---|---|---|
| Type of derivative designated as |
Gains (losses) recognized in OCI on derivatives (effective portion) |
Gains (losses) reclassified from OCI into income (effective portion) |
Gains (losses) recognized in income (ineffective portion and amount excluded from effectiveness testing) |
|||
| a cash flow hedge | (\$ in millions) | Location | (\$ in millions) | Location | (\$ in millions) | |
| Foreign exchange contracts | (18) | Total revenues | – | Total revenues | – | |
| Total cost of sales | 5 | Total cost of sales | – | |||
| Commodity contracts | (2) | Total cost of sales | (2) | Total cost of sales | – | |
| Cash-settled call options | (18) | SG&A expenses(1) | (8) | SG&A expenses(1) | – | |
| Total | (38) | (5) | – |
| Three months ended June 30, 2015 | |||||||
|---|---|---|---|---|---|---|---|
| Type of derivative designated as |
Gains (losses) recognized in OCI on derivatives (effective portion) |
Gains (losses) reclassified from OCI | into income (effective portion) | Gains (losses) recognized in income (ineffective portion and amount excluded from effectiveness testing) |
|||
| a cash flow hedge | (\$ in millions) | Location | (\$ in millions) | Location | (\$ in millions) | ||
| Foreign exchange contracts | 6 | Total revenues | (11) | Total revenues | – | ||
| Total cost of sales | – | Total cost of sales | – | ||||
| Commodity contracts | – | Total cost of sales | (1) | Total cost of sales | – | ||
| Cash-settled call options | (3) | SG&A expenses(1) | (1) | SG&A expenses(1) | – | ||
| Total | 3 | (13) | – |
| Three months ended June 30, 2014 | |||||||
|---|---|---|---|---|---|---|---|
| Type of derivative designated as |
Gains (losses) recognized in OCI on derivatives (effective portion) |
Gains (losses) reclassified from OCI into income (effective portion) |
Gains (losses) recognized in income (ineffective portion and amount excluded from effectiveness testing) |
||||
| a cash flow hedge | (\$ in millions) | Location | (\$ in millions) | Location | (\$ in millions) | ||
| Foreign exchange contracts | (12) | Total revenues | (1) | Total revenues | – | ||
| Total cost of sales | 2 | Total cost of sales | – | ||||
| Commodity contracts | 2 | Total cost of sales | (1) | Total cost of sales | – | ||
| Cash-settled call options | (14) | SG&A expenses(1) | (7) | SG&A expenses(1) | – | ||
| Total | (24) | (7) | – |
(1) SG&A expenses represent "Selling, general and administrative expenses".
Net derivative losses of \$21 million and \$5 million, both net of tax, respectively, were reclassified from "Accumulated other comprehensive loss" to earnings during the six months ended June 30, 2015 and 2014, respectively. During the three months ended June 30, 2015 and 2014, net derivative losses of \$10 million and \$6 million, both net of tax, respectively, were reclassified from "Accumulated other comprehensive loss" to earnings.
Fair value hedges 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 six and three months ended June 30, 2015 and 2014, was not significant.
The effect of derivative instruments, designated and qualifying as fair value hedges, on the Consolidated Income Statements was as follows:
| Six months ended June 30, 2015 | ||||
|---|---|---|---|---|
| Type of derivative designated | Gains (losses) recognized in income on derivatives designated as fair value hedges |
Gains (losses) recognized in income on hedged item |
||
| as a fair value hedge | Location | (\$ in millions) | Location | (\$ in millions) |
| Interest rate contracts | Interest and other finance expense | 2 | Interest and other finance expense | 1 |
| Six months ended June 30, 2014 | ||||
|---|---|---|---|---|
| Type of derivative designated | Gains (losses) recognized in income on derivatives designated as fair value hedges |
Gains (losses) recognized in income on hedged item |
||
| as a fair value hedge | Location | (\$ in millions) | Location | (\$ in millions) |
| Interest rate contracts | Interest and other finance expense | 53 | Interest and other finance expense | (52) |
| Three months ended June 30, 2015 | |||||
|---|---|---|---|---|---|
| Type of derivative designated | Gains (losses) recognized in income on derivatives designated as fair value hedges |
Gains (losses) recognized in income on hedged item |
|||
| as a fair value hedge | Location | (\$ in millions) | Location | (\$ in millions) | |
| Interest rate contracts | Interest and other finance expense | (29) | Interest and other finance expense | 32 |
| Three months ended June 30, 2014 | ||||||
|---|---|---|---|---|---|---|
| Type of derivative designated | Gains (losses) recognized in income on derivatives designated as fair value hedges |
Gains (losses) recognized in income on hedged item |
||||
| as a fair value hedge | Location | (\$ in millions) | Location | (\$ in millions) | ||
| Interest rate contracts | Interest and other finance expense | 31 | Interest and other finance expense | (30) |
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 designated | Gains (losses) recognized in income | |||||||
|---|---|---|---|---|---|---|---|---|
| as a hedge | Six months ended June 30, Three months ended June 30, | |||||||
| (\$ in millions) | Location | 2015 | 2014 | 2015 | 2014 | |||
| Foreign exchange contracts | Total revenues | 47 | (97) | 125 | (74) | |||
| Total cost of sales | (72) | (30) | (6) | (20) | ||||
| SG&A expenses(1) | 9 | 1 | (3) | – | ||||
| Non-order related research and development | (2) | – | (1) | – | ||||
| Interest and other finance expense | 226 | (27) | 49 | (31) | ||||
| Embedded foreign exchange contracts | Total revenues | 26 | 8 | (1) | (2) | |||
| Total cost of sales | (12) | (1) | 5 | (1) | ||||
| SG&A expenses(1) | 6 | – | 6 | – | ||||
| Commodity contracts | Total cost of sales | (17) | (6) | (16) | 16 | |||
| Interest and other finance expense | 1 | – | 1 | – | ||||
| Interest rate contracts | Interest and other finance expense | (1) | – | – | – | |||
| Total | 211 | (152) | 159 | (112) |
(1) SG&A expenses represent "Selling, general and administrative expenses".
| June 30, 2015 | |||||||
|---|---|---|---|---|---|---|---|
| Derivative assets | Derivative liabilities | ||||||
| (\$ in millions) | Current in "Other current assets" |
Non-current in "Other non-current assets" |
Current in "Other current liabilities" |
Non-current in "Other non-current liabilities" |
|||
| Derivatives designated as hedging instruments: | |||||||
| Foreign exchange contracts | 10 | 8 | 11 | 14 | |||
| Commodity contracts | – | – | 3 | – | |||
| Interest rate contracts | – | 89 | – | – | |||
| Cash-settled call options | 13 | 3 | – | – | |||
| Total | 23 | 100 | 14 | 14 | |||
| Derivatives not designated as hedging instruments: | |||||||
| Foreign exchange contracts | 221 | 46 | 257 | 72 | |||
| Commodity contracts | 3 | – | 20 | 3 | |||
| Embedded foreign exchange derivatives | 106 | 51 | 40 | 32 | |||
| Total | 330 | 97 | 317 | 107 | |||
| Total fair value | 353 | 197 | 331 | 121 |
| December 31, 2014 | ||||
|---|---|---|---|---|
| Derivative assets | Derivative liabilities | |||
| (\$ in millions) | Current in "Other current assets" |
Non-current in "Other non-current assets" |
Current in "Other current liabilities" |
Non-current in "Other non-current liabilities" |
| Derivatives designated as hedging instruments: | ||||
| Foreign exchange contracts | 9 | 9 | 20 | 16 |
| Commodity contracts | – | – | 3 | – |
| Interest rate contracts | – | 85 | – | – |
| Cash-settled call options | 21 | 11 | – | – |
| Total | 30 | 105 | 23 | 16 |
| Derivatives not designated as hedging instruments: | ||||
| Foreign exchange contracts | 156 | 25 | 369 | 72 |
| Commodity contracts | 4 | – | 19 | 3 |
| Cash-settled call options | 1 | 1 | – | – |
| Embedded foreign exchange derivatives | 98 | 58 | 27 | 17 |
| Total | 259 | 84 | 415 | 92 |
| Total fair value | 289 | 189 | 438 | 108 |
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 June 30, 2015, and December 31, 2014, have been presented on a gross basis.
The Company's netting agreements and other similar arrangements allow net settlements under certain conditions. At June 30, 2015, and December 31, 2014, information related to these offsetting arrangements was as follows:
| (\$ in millions) | June 30, 2015 | |||||
|---|---|---|---|---|---|---|
| Type of agreement or similar arrangement |
Gross amount of recognized assets |
Derivative liabilities eligible for set-off in case of default |
Cash collateral received |
Non-cash collateral received |
Net asset exposure | |
| Derivatives | 393 | (252) | – | – | 141 | |
| Reverse repurchase agreements |
229 | – | – | (229) | – | |
| Total | 622 | (252) | – | (229) | 141 |
| (\$ in millions) | June 30, 2015 | ||||
|---|---|---|---|---|---|
| Type of agreement or similar arrangement |
Gross amount of recognized liabilities |
Derivative liabilities eligible for set-off in case of default |
Cash collateral pledged |
Non-cash collateral pledged |
Net liability exposure |
| Derivatives | 380 | (252) | (2) | – | 126 |
| Total | 380 | (252) | (2) | – | 126 |
| (\$ in millions) | December 31, 2014 | ||||
|---|---|---|---|---|---|
| Type of agreement or similar arrangement |
Gross amount of recognized assets |
Derivative liabilities eligible for set-off in case of default |
Cash collateral received |
Non-cash collateral received |
Net asset exposure |
| Derivatives | 322 | (216) | – | – | 106 |
| Reverse repurchase agreements |
219 | – | – | (219) | – |
| Total | 541 | (216) | – | (219) | 106 |
| (\$ in millions) | December 31, 2014 | ||||
|---|---|---|---|---|---|
| Type of agreement or similar arrangement |
Gross amount of recognized liabilities |
Derivative liabilities eligible for set-off in case of default |
Cash collateral pledged |
Non-cash collateral pledged |
Net liability exposure |
| Derivatives | 502 | (216) | (3) | – | 283 |
| Total | 502 | (216) | (3) | – | 283 |
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.
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 midmarket 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.
| June 30, 2015 | |||||
|---|---|---|---|---|---|
| (\$ in millions) | Level 1 | Level 2 | Level 3 | Total fair value | |
| Assets | |||||
| Available-for-sale securities in "Cash and equivalents": | |||||
| Debt securities—Corporate | – | 22 | – | 22 | |
| Available-for-sale securities in "Marketable securities and short-term investments": | |||||
| Equity securities | – | 104 | – | 104 | |
| Debt securities—U.S. government obligations | 137 | – | – | 137 | |
| Debt securities—Other government obligations | – | 2 | – | 2 | |
| Debt securities—Corporate | – | 637 | – | 637 | |
| Derivative assets—current in "Other current assets" | – | 353 | – | 353 | |
| Derivative assets—non-current in "Other non-current assets" | – | 197 | – | 197 | |
| Total | 137 | 1,315 | – | 1,452 | |
| Liabilities | |||||
| Derivative liabilities—current in "Other current liabilities" | – | 331 | – | 331 | |
| Derivative liabilities—non-current in "Other non-current liabilities" | – | 121 | – | 121 | |
| Total | – | 452 | – | 452 |
| December 31, 2014 | ||||
|---|---|---|---|---|
| (\$ in millions) | Level 1 | Level 2 | Level 3 | Total fair value |
| Assets | ||||
| Available-for-sale securities in "Cash and equivalents": | ||||
| Debt securities—Corporate | – | 85 | – | 85 |
| Available-for-sale securities in "Marketable securities and short-term investments": | ||||
| Equity securities | – | 110 | – | 110 |
| Debt securities—U.S. government obligations | 136 | – | – | 136 |
| Debt securities—Other government obligations | – | 2 | – | 2 |
| Debt securities—Corporate | – | 652 | – | 652 |
| Derivative assets—current in "Other current assets" | – | 289 | – | 289 |
| Derivative assets—non-current in "Other non-current assets" | – | 189 | – | 189 |
| Total | 136 | 1,327 | – | 1,463 |
| Liabilities | ||||
| Derivative liabilities—current in "Other current liabilities" | – | 438 | – | 438 |
| Derivative liabilities—non-current in "Other non-current liabilities" | – | 108 | – | 108 |
| Total | – | 546 | – | 546 |
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:
| − Available-for-sale securities in "Cash and equivalents" and "Marketable securities and short-term investments": If quoted market prices in active markets for identical assets are available, these are considered Level 1 inputs; however, when markets are not active, these inputs are considered Level 2. If such quoted market prices are not available, fair value is determined using market prices for similar assets or present value techniques, applying an appropriate risk-free interest rate adjusted for nonperformance risk. The inputs used in present value techniques are observable and fall into the Level 2 category. − Derivatives: The fair values of derivative instruments are determined using quoted prices of identical instruments from an active market, if available (Level 1). If quoted prices are not available, price quotes for similar instruments, appropriately adjusted, or present value techniques, based on available market data, or option pricing models are used. Cash-settled call options hedging the Company's WAR liability are valued based on bid prices of the equivalent listed warrant. The fair values obtained using price quotes for similar instruments or valuation techniques represent a Level 2 input unless significant unobservable inputs are used. |
|
|---|---|
| Non-recurring fair value measures | There were no significant non-recurring fair value measurements during the six and three months ended June 30, 2015 and 2014. |
| June 30, 2015 | |||||||
|---|---|---|---|---|---|---|---|
| (\$ 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 | 1,690 | 1,690 | – | – | 1,690 | ||
| Time deposits | 2,242 | – | 2,242 | – | 2,242 | ||
| Marketable securities and short-term investments (excluding available-for-sale securities): |
|||||||
| Time deposits | 118 | – | 118 | – | 118 | ||
| Receivables under reverse repurchase agreements | 229 | – | 229 | – | 229 | ||
| Other short-term investments | 6 | 6 | – | – | 6 | ||
| Other non-current assets: | |||||||
| Loans granted | 31 | – | 33 | – | 33 | ||
| Held-to-maturity securities | 92 | – | 110 | – | 110 | ||
| Restricted cash deposits | 184 | 63 | 138 | – | 201 | ||
| Liabilities | |||||||
| Short-term debt and current maturities of long-term debt (excluding capital lease obligations) |
1,312 | 122 | 1,190 | – | 1,312 | ||
| Long-term debt (excluding capital lease obligations) | 6,539 | 5,947 | 783 | – | 6,730 | ||
| Non-current deposit liabilities in "Other non-current liabilities" | 210 | – | 245 | – | 245 |
| (\$ in millions) | Carrying value | Level 1 | December 31, 2014 Level 2 |
Level 3 | Total fair value |
|---|---|---|---|---|---|
| Assets | |||||
| Cash and equivalents (excluding available-for-sale securities with original maturities up to 3 months): |
|||||
| Cash | 2,218 | 2,218 | – | – | 2,218 |
| Time deposits | 3,140 | – | 3,140 | – | 3,140 |
| Marketable securities and short-term investments (excluding available-for-sale securities): |
|||||
| Time deposits | 200 | – | 200 | – | 200 |
| Receivables under reverse repurchase agreements | 219 | – | 219 | – | 219 |
| Other short-term investments | 6 | 6 | – | – | 6 |
| Other non-current assets: | |||||
| Loans granted | 41 | – | 44 | – | 44 |
| Held-to-maturity securities | 95 | – | 109 | – | 109 |
| Restricted cash deposits | 198 | 64 | 161 | – | 225 |
| Liabilities | |||||
| Short-term debt and current maturities of long-term debt (excluding capital lease obligations) |
324 | 115 | 209 | – | 324 |
| Long-term debt (excluding capital lease obligations) | 7,198 | 6,148 | 1,404 | – | 7,552 |
| Non-current deposit liabilities in "Other non-current liabilities" | 222 | – | 267 | – | 267 |
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.
Contingencies—Regulatory, Compliance and Legal
Contingencies—Environmental The Company is engaged in environmental clean-up activities at certain sites arising under various United States and other environmental protection laws and under certain agreements with third parties. In some cases, these environmental remediation actions are subject to legal proceedings, investigations or claims, and it is uncertain to what extent the Company is actually obligated to perform. Provisions for these unresolved matters have been set up if it is probable that the Company has incurred a liability and the amount of loss can be reasonably estimated. The lower end of an estimated range is accrued when a single best estimate is not determinable. The required amounts of the provisions may change in the future as developments occur.
If a provision has been recognized for any of these matters, the Company records an asset when it is probable that it will recover a portion of the costs expected to be incurred to settle them. Management is of the opinion, based upon information presently available, that the resolution of any such obligation and non-collection of recoverable costs would not have a further material adverse effect on the Company's consolidated financial statements.
The Company is involved in the remediation of environmental contamination at present or former facilities, primarily in the United States. The clean-up of these sites involves primarily soil and groundwater contamination. A significant portion of the provisions in respect of these contingencies reflects the provisions of acquired companies.
Environmental provisions included in the Company's Consolidated Balance Sheets were as follows:
| (\$ in millions) | June 30, 2015 | December 31, 2014 |
|---|---|---|
| Other provisions | 31 | 37 |
| Other non-current liabilities | 97 | 109 |
| Total | 128 | 146 |
Provisions for the above estimated losses have not been discounted as the timing of payments cannot be reasonably estimated.
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 December 2013, the Company agreed with the Brazilian Antitrust Authority (CADE) to settle its ongoing investigation into the Company's involvement in anticompetitive practices in the cables industry and the Company agreed to pay a fine of approximately 1.5 million Brazilian reals (equivalent to approximately \$1 million on date of payment). The Company's cables business remains under investigation for alleged anticompetitive practices in certain other jurisdictions. An informed judgment about the outcome of these remaining investigations or the amount of potential loss or range of loss for the Company, if any, relating to these remaining investigations cannot be made at this stage.
In Brazil, the Company's Gas Insulated Switchgear business is under investigation by the 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. 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.
With respect to those aforementioned matters which are still ongoing, management is cooperating fully with the antitrust authorities.
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 June 30, 2015, and December 31, 2014, the Company had aggregate liabilities of \$158 million and \$147 million, respectively, included in "Other provisions" and "Other non-current liabilities", for the above regulatory, compliance and legal contingencies, and none of the individual liabilities recognized was significant. As it is not possible to make an informed judgment on the outcome of certain matters and as it is not possible, based on information currently available to management, to estimate the maximum potential liability on other matters, there could be material adverse outcomes beyond the amounts accrued.
The following table provides quantitative data regarding the Company's third-party guarantees. The maximum potential payments represent a "worst-case scenario", and do not reflect management's expected outcomes.
| Maximum potential payments (\$ in millions) | June 30, 2015 | December 31, 2014 |
|---|---|---|
| Performance guarantees | 223 | 232 |
| Financial guarantees | 74 | 72 |
| Indemnification guarantees | 50 | 50 |
| Total | 347 | 354 |
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 June 30, 2015, and December 31, 2014, were not significant.
Performance guarantees represent obligations where the Company guarantees the performance of a third party's product or service according to the terms of a contract. 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. Performance guarantees include surety bonds, advance payment guarantees and standby letters of credit. The significant performance guarantees are described below.
The Company retained obligations for guarantees related to the Power Generation business contributed in mid -1999 to the former ABB Alstom Power NV joint venture (Alstom Power NV). The guarantees primarily consist of performance guarantees and other miscellaneous guarantees under certain contracts such as indemnification for personal injuries and property damages, taxes and compliance with labor laws, environmental laws and patents. These guarantees have no fixed expiration date. In May 2000, the Company sold its interest in Alstom Power NV to Alstom SA (Alstom). As a result, Alstom and its subsidiaries have primary responsibility for performing the obligations that are the subject of the guarantees. Further, Alstom, the parent company and Alstom Power NV, have undertaken jointly and severally to fully indemnify and hold harmless the Company against any claims arisi ng under such guarantees. Management's best estimate of the total maximum potential amount payable of quantifiable guarantees issued by the Company on behalf of its former Power Generation business was \$65 million at both June 30, 2015, and December 31, 2014. The Company has not experienced any losses related to guarantees issued on behalf of the former Power Generation business.
The Company is engaged in executing a number of projects as a member of consortia that include third parties. In certain of these cases, the Company guarantees not only its own performance but also the work of third parties. The original maturity dates of these guarantees range from one to six years. At June 30, 2015, and December 31, 2014, the maximum potential amount payable under these guarantees as a result of third-party non-performance was \$148 million and \$156 million, respectively.
Financial guarantees represent irrevocable assurances that the Company will make payment to a beneficiary in the event that a third party fails to fulfill its financial obligations and the beneficiary under the guarantee incurs a loss due to that failure.
At June 30, 2015, and December 31, 2014, the Company had a maximum potential amount payable of \$74 million and \$72 million, respectively, under financial guarantees outstanding. Of these amounts, \$12 million at both June 30, 2015, and December 31, 2014, was in respect of guarantees issued on behalf of companies in which the Company formerly had or has an equity interest. The guarantees outstanding have various maturity dates up to 2020.
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. There have been no significant amounts reimbursed to financial institutions under these types of arrangements in the six and three months ended June 30, 2015 and 2014.
The Company has indemnified certain purchasers of divested businesses for potential claims arising from the operations of the divested businesses. To the extent the maximum potential loss related to such indemnifications could not be calculated, no amounts have been included under maximum potential payments in the table above. Indemnifications for which maximum potential losses could not be calculated include indemnifications for legal claims. The significant indemnification guarantees for which maximum potential losses could be calculated are described below.
The Company issued to the purchasers of Lummus Global guarantees related to assets and liabilities divested in 2007. The maximum potential amount payable relating to this business, pursuant to the sales agreement, at each of June 30, 2015, and December 31, 2014, was \$50 million.
The Company calculates its provision for product warranties based on historical claims experience and specif ic review of certain contracts.
The reconciliation of the "Provisions for warranties", including guarantees of product performance, was as follows:
| (\$ in millions) | 2015 | 2014 |
|---|---|---|
| Balance at January 1, | 1,148 | 1,362 |
| Claims paid in cash or in kind | (135) | (153) |
| Net increase in provision for changes in estimates, warranties issued and warranties expired | 97 | 64 |
| Exchange rate differences | (31) | (17) |
| Balance at June 30, | 1,079 | 1,256 |
The Company operates defined benefit and 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 and several of the plans are not required to be funded according to local government and tax requirements.
Net periodic benefit cost of the Company's defined benefit pension and other postretirement benefit pl ans consisted of the following:
| (\$ in millions) | Defined pension benefits |
Other postretirement benefits |
||
|---|---|---|---|---|
| Six months ended June 30, | 2015 | 2014 | 2015 | 2014 |
| Service cost | 137 | 125 | 1 | 1 |
| Interest cost | 155 | 208 | 4 | 5 |
| Expected return on plan assets | (233) | (246) | – | – |
| Amortization of prior service cost (credit) | 19 | 14 | (4) | (4) |
| Amortization of net actuarial loss | 55 | 48 | 1 | – |
| Curtailments, settlements and special termination benefits | – | 1 | – | – |
| Net periodic benefit cost | 133 | 150 | 2 | 2 |
| (\$ in millions) | Defined pension benefits |
Other postretirement benefits |
||
|---|---|---|---|---|
| Three months ended June 30, | 2015 | 2014 | 2015 | 2014 |
| Service cost | 71 | 61 | 1 | 1 |
| Interest cost | 80 | 103 | 2 | 3 |
| Expected return on plan assets | (120) | (122) | – | – |
| Amortization of prior service cost (credit) | 10 | 7 | (2) | (2) |
| Amortization of net actuarial loss | 27 | 22 | 1 | – |
| Curtailments, settlements and special termination benefits | – | 1 | – | – |
| Net periodic benefit cost | 68 | 72 | 2 | 2 |
Employer contributions were as follows:
| (\$ in millions) | Defined pension benefits |
Other postretirement benefits |
||
|---|---|---|---|---|
| Six months ended June 30, | 2015 | 2014 | 2015 | 2014 |
| Total contributions to defined benefit pension and other postretirement benefit plans | 99 | 200 | 7 | 7 |
| Of which, discretionary contributions to defined benefit pension plans | – | 75 | – | – |
| (\$ in millions) | Defined pension benefits |
Other postretirement benefits |
||
|---|---|---|---|---|
| Three months ended June 30, | 2015 | 2014 | 2015 | 2014 |
| Total contributions to defined benefit pension and other postretirement benefit plans | 50 | 69 | 3 | 4 |
| Of which, discretionary contributions to defined benefit pension plans | – | – | – | – |
During the six months ended June 30, 2014, discretionary contributions included available-for-sale debt securities, having a fair value at the contribution date of \$25 million, contributed to certain of the Company's pension plans in the United Kingdom.
The Company expects to make contributions totaling approximately \$238 million and \$16 million to its defined benefit pension plans and other postretirement benefit plans, respectively, for the full year 2015.
Note 9 Stockholders' equity
In September 2014, the Company announced a share buyback program for the purchase of up to \$4 billion of its own shares over a period ending no later than September 2016. The Company intends that approximately three quarters of the shares to be purchased will be held for cancellation (after approval from shareholders) and the remainder will be purchased to be available for delivery to employees under its employee share programs. Shares acquired for cancellation are acquired through a separate trading line on the SIX Swiss Exchange (on which only the Company can purchase shares), while shares acquired for delivery under employee share programs are acquired through the ordinary trading line.
In the six months ended June 30, 2015, under the announced share buyback program, the Company purchased 35.4 million shares for cancellation and 8.7 million shares to support its employee share programs, of which 18.1 million shares and 4.6 million shares, respectively, were purchased in the three months ended June 30, 2015. In the six and three months ended June 30, 2015, these transactions resulted in an increase in "Treasury stock" of \$952 million and \$500 million, respectively.
As of June 30, 2015, under this program, the Company has purchased a total of 61.4 million shares for cancellation and 15.5 million shares to support its employee share programs.
At the Annual General Meeting of Shareholders on April 30, 2015, shareholders approved the proposals of the Board of Directors to distribute a total of 0.72 Swiss francs per share to shareholders, comprising of a dividend of 0.55 Swiss francs paid out of ABB Ltd's capital contribution reserves and a distribution of 0.17 Swiss francs by way of a nominal value reduction (reduction in the par value of each share) from 1.03 Swiss francs to 0.86 Swiss francs. The approved dividend distribution amounted to \$1,317 million and was subsequently paid in May 2015. The nominal value reduction was registered in July 2015 in the commercial register of the canton of Zurich, Switzerland, and is scheduled to be paid to the shareholders holding ABB Ltd shares on July 28, 2015 (record date). The approved nominal value reduction was recorded in the second quarter of 2015 as a reduction to Capital stock and additional paid-in capital for \$349 million and a reduction in Retained earnings for \$54 million.
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.
| 2014 | |||
|---|---|---|---|
| 637 | |||
| (1) | |||
| 636 | |||
| 2,241 | 2,298 | 2,232 | 2,295 |
| 0.28 | |||
| – | |||
| 0.51 | 0.51 | 0.26 | 0.28 |
| 2015 1,150 2 1,152 0.51 – |
Six months ended June 30, 2014 1,182 (2) 1,180 0.51 – |
Three months ended June 30, 2015 590 (2) 588 0.26 – |
| Six months ended June 30, | Three months ended June 30, | |||
|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2015 | 2014 | 2015 | 2014 |
| Amounts attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 1,150 | 1,182 | 590 | 637 |
| Income (loss) from discontinued operations, net of tax | 2 | (2) | (2) | (1) |
| Net income | 1,152 | 1,180 | 588 | 636 |
| Weighted-average number of shares outstanding (in millions) | 2,241 | 2,298 | 2,232 | 2,295 |
| Effect of dilutive securities: | ||||
| Call options and shares | 5 | 8 | 6 | 7 |
| Adjusted weighted-average number of shares outstanding (in millions) | 2,246 | 2,306 | 2,238 | 2,302 |
| Diluted earnings per share attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 0.51 | 0.51 | 0.26 | 0.28 |
| Income (loss) from discontinued operations, net of tax | – | – | – | – |
| Net income | 0.51 | 0.51 | 0.26 | 0.28 |
The following table shows changes in "Accumulated other comprehensive loss" (OCI) attributable to ABB, by component, net of tax:
| (\$ in millions) | Foreign currency translation adjustments |
Unrealized gains (losses) on available-for-sale securities |
Pension and other postretirement plan adjustments |
Unrealized gains (losses) of cash flow hedge derivatives |
Total OCI |
|---|---|---|---|---|---|
| Balance at January 1, 2014 | (431) | 7 | (1,610) | 22 | (2,012) |
| Other comprehensive (loss) income before reclassifications |
(92) | 4 | (9) | (33) | (130) |
| Amounts reclassified from OCI | – | (1) | 42 | 5 | 46 |
| Total other comprehensive (loss) income | (92) | 3 | 33 | (28) | (84) |
| Less: | |||||
| Amounts attributable to noncontrolling interests | (4) | – | – | – | (4) |
| Balance at June 30, 2014 | (519) | 10 | (1,577) | (6) | (2,092) |
| (\$ in millions) | Foreign currency translation adjustments |
Unrealized gains (losses) on available-for-sale securities |
Pension and other postretirement plan adjustments |
Unrealized gains (losses) of cash flow hedge derivatives |
Total OCI |
|---|---|---|---|---|---|
| Balance at January 1, 2015 | (2,102) | 13 | (2,131) | (21) | (4,241) |
| Other comprehensive (loss) income before reclassifications |
(463) | (5) | 61 | (19) | (426) |
| Amounts reclassified from OCI | – | 1 | 55 | 21 | 77 |
| Total other comprehensive (loss) income | (463) | (4) | 116 | 2 | (349) |
| Less: | |||||
| Amounts attributable to noncontrolling interests | (4) | – | – | – | (4) |
| Balance at June 30, 2015 | (2,561) | 9 | (2,015) | (19) | (4,586) |
The following table reflects amounts reclassified out of OCI in respect of pension and other postretirement plan adjustments and unrealized gains (losses) of cash flow hedge derivatives:
| (\$ in millions) | Location of (gains) losses | Six months ended June 30, | Three months ended June 30, | ||
|---|---|---|---|---|---|
| Details about OCI components | reclassified from OCI | 2015 | 2014 | 2015 | 2014 |
| Pension and other postretirement plan adjustments: | |||||
| Amortization of prior service cost | Net periodic benefit cost(1) | 15 | 10 | 8 | 5 |
| Amortization of net actuarial loss | Net periodic benefit cost(1) | 56 | 48 | 28 | 22 |
| Total before tax | 71 | 58 | 36 | 27 | |
| Tax | Provision for taxes | (16) | (16) | (8) | (8) |
| Amounts reclassified from OCI | 55 | 42 | 28 | 19 | |
| Unrealized gains (losses) of cash flow hedge derivatives: | |||||
| Foreign exchange contracts | Total revenues | 24 | – | 11 | 1 |
| Total cost of sales | (5) | (5) | – | (2) | |
| Commodity contracts | Total cost of sales | 4 | 2 | 1 | 1 |
| Cash-settled call options | SG&A expenses(2) | 4 | 8 | 1 | 7 |
| Total before tax | 27 | 5 | 13 | 7 | |
| Tax | Provision for taxes | (6) | – | (3) | (1) |
| Amounts reclassified from OCI | 21 | 5 | 10 | 6 |
(1) These components are included in the computation of net periodic benefit cost (see Note 8).
(2) SG&A expenses represent "Selling, general and administrative expenses".
The amounts in respect of unrealized gains (losses) on available-for-sale securities were not significant for the six and three months ended June 30, 2015 and 2014.
The Chief Operating Decision Maker (CODM) is the Company's Executive Committee. The CODM allocates resources to and assesses the performance of each operating segment using the information outlined below. The Company's operating segments consist of Discrete Automation and Motion, Low Voltage Products, Process Automation, Power Products and Power Systems. The remaining operations of the Company are included in Corporate and Other.
A description of the types of products and services provided by each reportable segment is as follows:
− Discrete Automation and Motion: manufactures and sells motors, generators, variable speed drives, programmable logic controllers, robots and robotics, solar inverters, wind converters, rectifiers, excitation systems, power quality and protection solutions, electric vehicle fast charging infrastructure, components and subsystems for railways, and related services for a wide range of applications in discrete automation, process industries, transportation and utilities.
Effective January 1, 2015, the Company changed its primary measure of segment performance from Operational EBITDA to Operational EBITA, which represents income from operations excluding amortization expense on intangibles arising upon acquisitions (acquisition-related amortization), restructuring and restructuring-related expenses, gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items, as well as foreign exchange/commodity timing differences in income from operations consisting of: (i) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives), (ii) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (iii) unrealized foreign exchange movements on receivables/payables (and related assets/liabilities).
The segment performance for the six and three months ended June 30, 2014, has been restated to reflect this change.
The CODM primarily reviews the results of each segment on a basis that is before the eliminatio n of profits made on inventory sales between segments. Segment results below are presented before these eliminations, with a total deduction for intersegment profits to arrive at the Company's consolidated Operational EBITA. Intersegment sales and transfers are accounted for as if the sales and transfers were to third parties, at current market prices.
The following tables present segment revenues, Operational EBITA, and the reconciliations of consolidated Operational EBITA to income from continuing operations before taxes for the six and three months ended June 30, 2015 and 2014, as well as total assets at June 30, 2015, and December 31, 2014.
| Six months ended June 30, 2015 | Six months ended June 30, 2014 | |||||||
|---|---|---|---|---|---|---|---|---|
| (\$ in millions) | Third-party revenues |
Intersegment revenues |
Total revenues |
Third-party revenues |
Intersegment revenues |
Total revenues |
||
| Discrete Automation and Motion | 4,333 | 286 | 4,619 | 4,524 | 400 | 4,924 | ||
| Low Voltage Products | 3,117 | 169 | 3,286 | 3,611 | 207 | 3,818 | ||
| Process Automation | 3,169 | 70 | 3,239 | 3,853 | 102 | 3,955 | ||
| Power Products | 4,075 | 599 | 4,674 | 4,260 | 793 | 5,053 | ||
| Power Systems | 2,996 | 110 | 3,106 | 3,235 | 183 | 3,418 | ||
| Corporate and Other | 30 | 753 | 783 | 178 | 832 | 1,010 | ||
| Intersegment elimination | – | (1,987) | (1,987) | – | (2,517) | (2,517) | ||
| Consolidated | 17,720 | – | 17,720 | 19,661 | – | 19,661 |
| Three months ended June 30, 2015 | Three months ended June 30, 2014 | |||||
|---|---|---|---|---|---|---|
| (\$ in millions) | Third-party revenues |
Intersegment revenues |
Total revenues |
Third-party revenues |
Intersegment revenues |
Total revenues |
| Discrete Automation and Motion | 2,187 | 161 | 2,348 | 2,330 | 213 | 2,543 |
| Low Voltage Products | 1,641 | 90 | 1,731 | 1,827 | 109 | 1,936 |
| Process Automation | 1,626 | 34 | 1,660 | 1,962 | 50 | 2,012 |
| Power Products | 2,114 | 285 | 2,399 | 2,264 | 398 | 2,662 |
| Power Systems | 1,578 | 56 | 1,634 | 1,703 | 107 | 1,810 |
| Corporate and Other | 19 | 407 | 426 | 104 | 421 | 525 |
| Intersegment elimination | – | (1,033) | (1,033) | – | (1,298) | (1,298) |
| Consolidated | 9,165 | – | 9,165 | 10,190 | – | 10,190 |
| Six months ended June 30, | Three months ended June 30, | ||||
|---|---|---|---|---|---|
| (\$ in millions) | 2015 | 2014 | 2015 | 2014 | |
| Operational EBITA: | |||||
| Discrete Automation and Motion | 657 | 751 | 339 | 399 | |
| Low Voltage Products | 532 | 620 | 289 | 321 | |
| Process Automation | 396 | 474 | 204 | 229 | |
| Power Products | 554 | 647 | 301 | 343 | |
| Power Systems | 75 | (111) | 42 | (57) | |
| Corporate and Other and Intersegment elimination | (207) | (248) | (117) | (141) | |
| Consolidated Operational EBITA | 2,007 | 2,133 | 1,058 | 1,094 | |
| Acquisition-related amortization | (163) | (197) | (80) | (96) | |
| Restructuring and restructuring-related expenses | (84) | (87) | (58) | (40) | |
| Gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items |
(50) | 103 | (39) | 114 | |
| Foreign exchange/commodity timing differences in income from operations: | |||||
| Unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives) |
144 | (89) | 160 | (34) | |
| Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized |
(28) | 10 | (20) | (7) | |
| Unrealized foreign exchange movements on receivables/payables (and related assets/liabilities) |
(6) | 34 | (60) | 21 | |
| Income from operations | 1,820 | 1,907 | 961 | 1,052 | |
| Interest and dividend income | 38 | 38 | 19 | 21 | |
| Interest and other finance expense | (159) | (172) | (88) | (88) | |
| Income from continuing operations before taxes | 1,699 | 1,773 | 892 | 985 |
| Total assets(1) | ||
|---|---|---|
| (\$ in millions) | June 30, 2015 | December 31, 2014 |
| Discrete Automation and Motion | 9,810 | 10,123 |
| Low Voltage Products | 7,914 | 7,978 |
| Process Automation | 4,102 | 4,268 |
| Power Products | 7,298 | 7,396 |
| Power Systems | 6,627 | 6,855 |
| Corporate and Other | 6,942 | 8,232 |
| Consolidated | 42,693 | 44,852 |
(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 six and three months ended June 30, 2015.
Like-for-like growth rates Growth rates for certain key figures may be presented and discussed on a "like-for-like" basis. The like-for-like 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.
Like-for-like growth rates also adjust for changes in our business portfolio. 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 like-for-like growth rate. In addition, certain other portfolio changes which do not qualify as divestments are treated in a similar manner to divestments. We do not adjust for portfolio changes where the business acquired or divested has annual revenues of less than \$50 million.
The following tables provide reconciliations of reported growth of certain key figures to their respective like -for-like growth rate.
| Q2 2015 compared to Q2 2014 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | |||||||
| Division | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like |
| Discrete Automation and Motion | -9% | 9% | 0% | 0% | -8% | 10% | 0% | 2% |
| Low Voltage Products | -12% | 10% | 4% | 2% | -11% | 11% | 4% | 4% |
| Process Automation | -23% | 11% | 2% | -10% | -17% | 12% | 4% | -1% |
| Power Products | -8% | 8% | 0% | 0% | -10% | 9% | 0% | -1% |
| Power Systems | -22% | 10% | 0% | -12% | -10% | 14% | 0% | 4% |
| ABB Group | -15% | 9% | 2% | -4% | -10% | 10% | 3% | 3% |
| H1 2015 compared to H1 2014 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | ||||||||
| Division | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like | |
| Discrete Automation and Motion | -9% | 9% | 0% | 0% | -6% | 9% | 0% | 3% | |
| Low Voltage Products | -13% | 10% | 5% | 2% | -14% | 10% | 6% | 2% | |
| Process Automation | -14% | 13% | 4% | 3% | -18% | 12% | 3% | -3% | |
| Power Products | -5% | 9% | 0% | 4% | -8% | 10% | 0% | 2% | |
| Power Systems | 16% | 18% | 0% | 34% | -9% | 13% | 0% | 4% | |
| ABB Group | -7% | 10% | 3% | 6% | -10% | 10% | 3% | 3% |
| Q2 2015 compared to Q2 2014 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | ||||||||||
| Region | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like | |||
| Europe | -14% | 19% | 2% | 7% | -19% | 19% | 2% | 2% | |||
| The Americas | -26% | 4% | 3% | -19% | -8% | 6% | 4% | 2% | |||
| Asia, Middle East and Africa | -5% | 6% | 0% | 1% | -3% | 7% | 1% | 5% | |||
| ABB Group | -15% | 9% | 2% | -4% | -10% | 10% | 3% | 3% |
| H1 2015 compared to H1 2014 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Order growth rate Revenue growth rate |
||||||||||
| Region | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like | ||
| Europe | -6% | 22% | 2% | 18% | -18% | 18% | 2% | 2% | ||
| The Americas | -15% | 5% | 3% | -7% | -6% | 6% | 5% | 5% | ||
| Asia, Middle East and Africa | -2% | 6% | 1% | 5% | -5% | 6% | 1% | 2% | ||
| ABB Group | -7% | 10% | 3% | 6% | -10% | 10% | 3% | 3% |
| June 30, 2015 compared to June 30, 2014 | ||||
|---|---|---|---|---|
| Division | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like |
| Discrete Automation and Motion | -3% | 10% | 0% | 7% |
| Low Voltage Products | -16% | 9% | 8% | 1% |
| Process Automation | -3% | 17% | 2% | 16% |
| Power Products | -3% | 10% | 0% | 7% |
| Power Systems | -5% | 14% | 0% | 9% |
| ABB Group | -4% | 12% | 1% | 9% |
| Q2 2015 compared to Q2 2014 | H1 2015 compared to H1 2014 | |||||||
|---|---|---|---|---|---|---|---|---|
| Division | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like |
| Discrete Automation and Motion | -15% | 8% | 0% | -7% | -13% | 10% | 0% | -3% |
| Low Voltage Products | -10% | 12% | 3% | 5% | -14% | 11% | 7% | 4% |
| Process Automation | -11% | 11% | 4% | 4% | -16% | 9% | 3% | -4% |
| Power Products | -12% | 8% | 0% | -4% | -14% | 8% | 0% | -6% |
| Power Systems | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |
| ABB Group | -3% | 10% | 1% | 8% | -6% | 10% | 3% | 7% |
| Q2 2015 compared to Q2 2014 | H1 2015 compared to H1 2014 | |||||||
|---|---|---|---|---|---|---|---|---|
| US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like | US\$ (as reported) |
Foreign exchange impact |
Acquisitions and divestments |
Like-for-like | |
| Large orders | -22% | 9% | 0% | -13% | 31% | 22% | 0% | 53% |
| Base orders | -14% | 9% | 3% | -2% | -13% | 9% | 3% | -1% |
| Service orders | -12% | 11% | 2% | 1% | -12% | 10% | 3% | 1% |
| Service revenues | -7% | 12% | 4% | 9% | -7% | 11% | 4% | 8% |
Operational EBITA margin In line with the updated financial targets of ABB's Next Level strategy, ABB changed its measure of segment profit from Operational EBITDA to Operational EBITA, effective January 1, 2015.
Operational EBITA margin is Operational EBITA as a percentage of Operational revenues.
Operational earnings before interest, taxes and acquisition-related amortization (Operational EBITA) represents Income from operations excluding acquisition-related amortization (as defined below), restructuring and restructuringrelated expenses, gains and losses from sale of businesses, acquisition-related expenses and certain nonoperational items, as well as foreign exchange/commodity timing differences in income from operations consisting of: (i) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives), (ii) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (iii) unrealized foreign exchange movements on receivables/payables (and related assets/liabilities).
Amortization expense on intangibles arising upon acquisitions.
Operational revenues are total revenues adjusted for foreign exchange/commodity timing differences in total revenues of: (i) unrealized gains and losses on derivatives, (ii) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (iii) unrealized foreign exchange movements on receivables (and related assets).
| Six months ended June 30, 2015 | |||||||
|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | Discrete Automation and Motion |
Low Voltage Products |
Process Automation |
Power Products |
Power Systems |
Corporate and Other and Intersegment elimination |
Consolidated |
| Total revenues | 4,619 | 3,286 | 3,239 | 4,674 | 3,106 | (1,204) | 17,720 |
| Foreign exchange/commodity timing differences in total revenues |
|||||||
| Unrealized gains and losses on derivatives |
(21) | (9) | (26) | (45) | (72) | (2) | (175) |
| Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized |
(29) | – | 14 | 21 | 31 | – | 37 |
| Unrealized foreign exchange movements on receivables (and related assets) |
13 | 4 | (16) | (1) | 1 | – | 1 |
| Operational revenues | 4,582 | 3,281 | 3,211 | 4,649 | 3,066 | (1,206) | 17,583 |
| Income (loss) from operations | 593 | 480 | 379 | 540 | 39 | (211) | 1,820 |
| Acquisition-related amortization | 65 | 51 | 6 | 5 | 27 | 9 | 163 |
| Restructuring and restructuring-related expenses |
28 | 7 | 21 | 20 | 8 | – | 84 |
| Gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items |
– | 1 | 11 | 2 | 31 | 5 | 50 |
| Foreign exchange/commodity timing differences in income from operations: |
|||||||
| Unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives) |
(17) | (5) | (17) | (34) | (57) | (14) | (144) |
| Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized |
(29) | – | 7 | 24 | 26 | – | 28 |
| Unrealized foreign exchange movements on receivables/payables (and related assets/liabilities) |
17 | (2) | (11) | (3) | 1 | 4 | 6 |
| Operational EBITA | 657 | 532 | 396 | 554 | 75 | (207) | 2,007 |
| Operational EBITA margin (%) | 14.3% | 16.2% | 12.3% | 11.9% | 2.4% | n.a. | 11.4% |
| Six months ended June 30, 2014 | |||||||
|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | Discrete Automation and Motion |
Low Voltage Products |
Process Automation |
Power Products |
Power Systems |
Corporate and Other and Intersegment elimination |
Consolidated |
| Total revenues | 4,924 | 3,818 | 3,955 | 5,053 | 3,418 | (1,507) | 19,661 |
| Foreign exchange/commodity timing differences in total revenues |
|||||||
| Unrealized gains and losses on derivatives |
(5) | 4 | (5) | (3) | 85 | (1) | 75 |
| Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized |
(1) | – | (2) | – | – | – | (3) |
| Unrealized foreign exchange movements on receivables (and related assets) |
(4) | (1) | 8 | – | (14) | – | (11) |
| Operational revenues | 4,914 | 3,821 | 3,956 | 5,050 | 3,489 | (1,508) | 19,722 |
| Income (loss) from operations | 675 | 656 | 436 | 591 | (192) | (259) | 1,907 |
| Acquisition-related amortization | 69 | 63 | 7 | 10 | 36 | 12 | 197 |
| Restructuring and restructuring-related expenses |
14 | 12 | 24 | 23 | 13 | 1 | 87 |
| Gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items |
(1) | (104) | 3 | 11 | (8) | (4) | (103) |
| Foreign exchange/commodity timing differences in income from operations: |
|||||||
| Unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives) |
1 | (3) | 6 | 16 | 68 | 1 | 89 |
| Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized |
(2) | – | (1) | 2 | (9) | – | (10) |
| Unrealized foreign exchange movements on receivables/payables (and related assets/liabilities) |
(5) | (4) | (1) | (6) | (19) | 1 | (34) |
| Operational EBITA | 751 | 620 | 474 | 647 | (111) | (248) | 2,133 |
| Operational EBITA margin (%) | 15.3% | 16.2% | 12.0% | 12.8% | -3.2% | n.a. | 10.8% |
| Three months ended June 30, 2015 | |||||||
|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | Discrete Automation and Motion |
Low Voltage Products |
Process Automation |
Power Products |
Power Systems |
Corporate and Other and Intersegment elimination |
Consolidated |
| Total revenues | 2,348 | 1,731 | 1,660 | 2,399 | 1,634 | (607) | 9,165 |
| Foreign exchange/commodity timing differences in total revenues |
|||||||
| Unrealized gains and losses on derivatives |
(8) | (16) | (14) | (28) | (88) | (3) | (157) |
| Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized |
– | – | (3) | 10 | 15 | – | 22 |
| Unrealized foreign exchange movements on receivables (and related assets) |
5 | 7 | (4) | 10 | 17 | – | 35 |
| Operational revenues | 2,345 | 1,722 | 1,639 | 2,391 | 1,578 | (610) | 9,065 |
| Income (loss) from operations | 293 | 263 | 193 | 300 | 35 | (123) | 961 |
| Acquisition-related amortization | 33 | 26 | 3 | 2 | 13 | 3 | 80 |
| Restructuring and restructuring-related expenses |
25 | 1 | 20 | 9 | 4 | (1) | 58 |
| Gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items |
– | – | 12 | 1 | 31 | (5) | 39 |
| Foreign exchange/commodity timing differences in income from operations: |
|||||||
| Unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives) |
(24) | (13) | (19) | (37) | (72) | 5 | (160) |
| Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized |
– | – | (5) | 10 | 15 | – | 20 |
| Unrealized foreign exchange movements on receivables/payables (and related assets/liabilities) |
12 | 12 | – | 16 | 16 | 4 | 60 |
| Operational EBITA | 339 | 289 | 204 | 301 | 42 | (117) | 1,058 |
| Operational EBITA margin (%) | 14.5% | 16.8% | 12.4% | 12.6% | 2.7% | n.a. | 11.7% |
| Three months ended June 30, 2014 | |||||||
|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | Discrete Automation and Motion |
Low Voltage Products |
Process Automation |
Power Products |
Power Systems |
Corporate and Other and Intersegment elimination |
Consolidated |
| Total revenues | 2,543 | 1,936 | 2,012 | 2,662 | 1,810 | (773) | 10,190 |
| Foreign exchange/commodity timing differences in total revenues |
|||||||
| Unrealized gains and losses on derivatives |
(4) | 3 | 2 | 4 | 50 | – | 55 |
| Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized |
(1) | – | (2) | 1 | 10 | – | 8 |
| Unrealized foreign exchange movements on receivables (and related assets) |
1 | (1) | 5 | (4) | (8) | – | (7) |
| Operational revenues | 2,539 | 1,938 | 2,017 | 2,663 | 1,862 | (773) | 10,246 |
| Income (loss) from operations | 349 | 400 | 217 | 319 | (90) | (143) | 1,052 |
| Acquisition-related amortization | 35 | 33 | 3 | 5 | 14 | 6 | 96 |
| Restructuring and restructuring-related expenses |
13 | 4 | 4 | 15 | 5 | (1) | 40 |
| Gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items |
2 | (108) | 2 | 6 | (9) | (7) | (114) |
| Foreign exchange/commodity timing differences in income from operations: |
|||||||
| Unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives) |
– | (4) | 5 | – | 30 | 3 | 34 |
| Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized |
(1) | – | (1) | 4 | 5 | – | 7 |
| Unrealized foreign exchange movements on receivables/payables (and related assets/liabilities) |
1 | (4) | (1) | (6) | (12) | 1 | (21) |
| Operational EBITA | 399 | 321 | 229 | 343 | (57) | (141) | 1,094 |
| Operational EBITA margin (%) | 15.7% | 16.6% | 11.4% | 12.9% | -3.1% | n.a. | 10.7% |
Operational EPS is calculated as Operational net income divided by the weighted-average number of shares used in determining basic earnings per share.
Operational net income is calculated as Net income attributable to ABB adjusted for the net-of-tax impact of: (i) restructuring and restructuring-related expenses,
Amortization expense on intangibles arising upon acquisitions.
The Adjusted Group effective tax rate is computed by dividing the provision for income taxes by income from continuing operations before taxes. The calculation excludes the amount of gains and losses from sale of businesses and the related provision for income taxes.
In connection with ABB's 2015-2020 targets, Operational EPS growth is measured assuming 2014 as the base year and uses constant exchange rates. We compute the constant currency operational net income for all periods using the relevant monthly exchange rates which were in effect during 2014 and any income difference is divided by the relevant weighted-average number of shares outstanding to identify the constant currency Operational EPS adjustment.
| Six months ended June 30, | |||||
|---|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2015 | 2014 | |||
| EPS(1) | EPS(1) | ||||
| Net income (attributable to ABB) | 1,152 | 0.51 | 1,180 | 0.51 | |
| Restructuring and restructuring-related expenses(2) | 61 | 0.03 | 62 | 0.03 | |
| Gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items(3) |
46 | 0.02 | (42) | (0.02) | |
| FX/commodity timing differences in income from operations(2) | (78) | (0.03) | 32 | 0.01 | |
| Acquisition-related amortization(2) | 116 | 0.05 | 140 | 0.06 | |
| Operational net income | 1,297 | 0.58 | 1,372 | 0.60 | |
| Constant currency Operational EPS adjustment | 0.06 | – | |||
| Operational EPS (constant currency basis) | 0.64 | 0.60 |
| Three months ended June 30, | ||||||
|---|---|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2015 | 2014 | ||||
| EPS(1) | EPS(1) | |||||
| Net income (attributable to ABB) | 588 | 0.26 | 636 | 0.28 | ||
| Restructuring and restructuring-related expenses(2) | 42 | 0.02 | 28 | 0.01 | ||
| Gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items(3) |
38 | 0.02 | (50) | (0.02) | ||
| FX/commodity timing differences in income from operations(2) | (57) | (0.03) | 14 | 0.01 | ||
| Acquisition-related amortization(2) | 57 | 0.03 | 68 | 0.03 | ||
| Operational net income | 668 | 0.30 | 696 | 0.30 | ||
| Constant currency Operational EPS adjustment | 0.03 | – | ||||
| Operational EPS (constant currency basis) | 0.33 | 0.30 |
(1) EPS amounts are computed individually, therefore the sum of the per share amounts shown may not equal to the total.
(2) Net of tax at the Adjusted Group effective tax rate.
(3) Net of tax at the Adjusted Group effective tax rate, except for gains and losses from sale of businesses which are net of the actual related provision for taxes.
Net debt / (Net cash) Net debt / (Net cash) 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 Cash and marketable securities is the sum of Cash and equivalents, and Marketable securities and short-term investments.
| (\$ in millions) | June 30, 2015 | December 31, 2014 |
|---|---|---|
| Short-term debt and current maturities of long-term debt | 1,342 | 353 |
| Long-term debt | 6,646 | 7,312 |
| Total debt | 7,988 | 7,665 |
| Cash and equivalents | 3,954 | 5,443 |
| Marketable securities and short-term investments | 1,233 | 1,325 |
| Cash and marketable securities | 5,187 | 6,768 |
| Net debt / (Net cash) | 2,801 | 897 |
Net working capital as a percentage of revenues Definition 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
Net working capital is the sum of (i) receivables, net, (ii) inventories, net, and (iii) prepaid expenses; less (iv) accounts payable, trade, (v) billings in excess of sales, (vi) advances from customers, and (vii) 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
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.
| (\$ in millions, unless otherwise indicated) | June 30, 2015 | June 30, 2014 |
|---|---|---|
| Net working capital: | ||
| Receivables, net | 11,071 | 12,106 |
| Inventories, net | 5,458 | 6,210 |
| Prepaid expenses | 304 | 306 |
| Accounts payable, trade | (4,564) | (4,950) |
| Billings in excess of sales | (1,505) | (1,499) |
| Advances from customers | (1,512) | (1,705) |
| Other current liabilities(1) | (3,030) | (3,381) |
| Net working capital in assets and liabilities held for sale | 1 | 27 |
| Net working capital | 6,223 | 7,114 |
| Total revenues for the three months ended: | ||
| June 30, 2015 / 2014 | 9,165 | 10,190 |
| March 31, 2015 / 2014 | 8,555 | 9,471 |
| December 31, 2014 / 2013 | 10,346 | 11,373 |
| September 30, 2014 / 2013 | 9,823 | 10,535 |
| Adjustment to annualize/eliminate revenues of certain acquisitions/divestments | (144) | (212) |
| Adjusted revenues for the trailing twelve months | 37,745 | 41,357 |
| Net working capital as a percentage of revenues (%) | 16% | 17% |
(1) Amounts exclude \$1,201 million and \$774 million at June 30, 2015 and 2014, respectively, related primarily to (a) income taxes payable, (b) current derivative liabilities, (c) pension and other employee benefits, and (d) payables under the share buyback program.
Finance net is calculated as Interest and dividend income less Interest and other finance expense.
| Six months ended June 30, | Three months ended June 30, | ||||
|---|---|---|---|---|---|
| (\$ in millions) | 2015 | 2014 | 2015 | 2014 | |
| Interest and dividend income | 38 | 38 | 19 | 21 | |
| Interest and other finance expense | (159) | (172) | (88) | (88) | |
| Finance net | (121) | (134) | (69) | (67) |
Book-to-bill ratio is calculated as Orders received divided by Total revenues.
| Six months ended June 30, | Three months ended June 30, | ||||
|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | 2015 | 2014 | 2015 | 2014 | |
| Orders received | 19,400 | 20,925 | 8,996 | 10,567 | |
| Total revenues | 17,720 | 19,661 | 9,165 | 10,190 | |
| Book-to-bill ratio | 1.09 | 1.06 | 0.98 | 1.04 |
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