Annual Report • Oct 21, 2015
Annual Report
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"Our Q3 results reflect the challenging markets we face. Short-cycle demand in oil and gas, China and the US was down and the orders compare to a strong Q3 2014 when we won a record amount of large orders in Power Systems and Process Automation," said CEO Ulrich Spiesshofer. "However, building on our Next Level strategy, we were able to win key customer orders and to deliver margin accretion as well as a positive book-to-bill ratio in spite of significant market headwinds," he said. "We delivered a 50 basis point improvement in operational EBITA margin and higher operational earnings per share by building on our strong focus on execution, restructuring and cost measures as well as the Power Systems 'step change' program."
"We have launched Stage 2 of our Next Level strategy aimed at accelerating ABB's transformation," Spiesshofer said. "Markets are expected to remain challenging well into 2016. In this environment we continue to drive "self-help" by focusing on growth opportunities in a disciplined way while mitigating the impact of market headwinds through capacity adjustments, productivity measures and cost reductions. Executing our 1,000- day white-collar productivity and ongoing restructuring programs is pivotal," he said. "We kicked off the announced strategic portfolio review of the future Power Grids division and are on track to complete it in 2016, as previously stated.
"Overall, we will continue to drive the execution of our Next Level strategy to deliver on profitable growth and sustainable value creation in challenging markets," he said.
| Key Figures | Change | Change | ||||||
|---|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) |
Q3 2015 | Q3 2014 | US\$ | Like-for like2 |
9M 2015 | 9M 2014 | US\$ | Like-for like2 |
| Orders | 8,767 | 11,225 | -22% | -12% | 28,167 | 32,150 | -12% | 0% |
| Revenues | 8,519 | 9,823 | -13% | -2% | 26,239 | 29,484 | -11% | +1% |
| Operational EBITA3 | 1,081 | 1,189 | -9% | -1% | 3,088 | 3,322 | -7% | +4% |
| as % of operational revenues2 |
12.5% | 12.0% | 0.5 pts | 11.8% | 11.2% | 0.6 pts | ||
| Net income | 577 | 734 | -21% | 1,729 | 1,914 | -10% | ||
| Basic EPS (\$) | 0.26 | 0.32 | -19%4 | 0.77 | 0.83 | -7%4 | ||
| Operational EPS2 (\$) (constant currency basis) |
0.35 | 0.35 | +2%4 | 0.99 | 0.94 | +5%4 | ||
| Cash flow from operating activities |
1,173 | 1,169 | 0% | 1,824 | 2,012 | -9% |
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 Key Figures table
2 For a reconciliation of non-GAAP measures, see "Supplemental Reconciliations and Definitions" in the attached Q3 2015 Financial Information
3 For a reconciliation of Operational EBITA to income from continuing operations before taxes see Note 13 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 softer than in the second quarter, reflecting ongoing macro uncertainties and challenges in many markets. Utilities remained cautious but continued to make selective investments in infrastructure-critical power transmission projects. For example, ABB won a large order for an ultrahigh-voltage direct current (UHVDC) interconnection between the power grids of the United Kingdom and Norway, to increase power supply for both countries and support the integration of more renewable wind and hydroelectric energy into their networks. In addition, ABB won orders in China to boost power capacity and grid reliability. This included two new HVDC power transmission links that are designed to transport 8,000 megawatts each of wind and thermal power from Shanxi to Nanjing and from Jiuquan to Hunan, to meet the electricity needs of 26 million consumers.
Demand from industrial customers was subdued. Low oil prices resulted in a continued restraint of discretionary spending by oil and gas customers in the quarter. However, the need for cutting edge solutions to increase efficiency and to use renewable power generation to lower the environmental impact continued to be important demand drivers. In this context, the company won a \$90- million order for a high-voltage cable system to supply power from the Norwegian power grid to the Johan Sverdrup offshore oil field. Supplying electric power from shore for offshore oil and gas production avoids the need for offshore resources and to burn diesel or gas out at sea to power the equipment, which is much safer and more energy efficient. In addition, demand for Robotics solutions in general industry is growing as there is an increased need for automated processes and productivity. YuMi, ABB's collaborative robot, helps meet this need and is in high demand.
The infrastructure and transportation market was mixed, with continuing strong demand from the renewable energy sector. For example, the company won a strategically significant order in the quarter from Socabelec to install a microgrid solution to boost renewable energy use in a remote community in Kenya. ABB's stabilization system will be integrated into the existing power network and will interface with existing diesel power station controls, to maximize renewable energy penetration and utilize excess wind energy generated.
Total orders received in the quarter were 12 percent lower on a like-for-like basis (22 percent in US dollars) compared with the third quarter of 2014 in which the Group won a record amount of large orders in its Power Systems and Process Automation divisions. The higher US dollar versus the prior year period resulted in a negative translation impact on reported orders of 10 percent.
The order backlog at the end of September 2015 amounted to \$25,371 million, an increase of 4 percent (down 6 percent in US dollars) compared with the end of the same quarter in 2014.
Base orders (below \$15 million) decreased 3 percent (14 percent in US dollars) compared with a strong third quarter of 2014. Base orders were steady in Process Automation while declining in the remaining divisions. Large orders (\$15 million and above) decreased 38 percent (46 percent in US dollars) compared with the same quarter of 2014 when ABB won numerous large orders. In Low Voltage Products and Power Products large orders were higher compared with the same quarter last year, while they were lower in the other divisions. Large orders represented 17 percent of total orders compared with 25 percent in the same quarter a year ago reflecting the continued cautious ordering pattern of key customer segments.
Despite double-digit order growth in countries such as Germany and Norway, overall orders declined in Europe. For the Americas and Asia, Middle East & Africa (AMEA) total orders decreased by 1 percent and 18 percent respectively even though total orders were up in the United States, China and India.
Service orders declined 4 percent (17 percent in US dollars) compared with the third quarter last year and represented 16 percent of total orders compared with 15 percent a year ago.
The book-to-bill2 ratio in the third quarter remained positive at 1.03x compared with 1.14x in the same quarter a year earlier. For the first nine months, book-to-bill remained positive at 1.07x and was above 1.0x in all divisions.
Revenues in the third quarter declined 2 percent on a like-for-like basis (13 percent in US dollars). Revenues increased in Power Products and Power Systems due to strong execution of the order backlog. Revenues in the other divisions declined, primarily due to a lack of short-cycle volumes and weak demand in many parts of the distribution channels in the first nine months of 2015. The higher US dollar versus the prior year period resulted in a negative currency translation impact on revenues of 10 percent; 2014 divestitures had a negative impact of 1 percent.
Total service revenues increased 5 percent (down 11 percent in US dollars) and were 16 percent of total revenues.
Operational EBITA declined 1 percent on a like-for-like basis (9 percent in US dollars), reflecting the lower revenue base. Currency translation negatively impacted operational EBITA by approximately 8 percent.
The operational EBITA margin increased 50 basis points to 12.5 percent, led by the turnaround in Power Systems and ongoing restructuring and cost savings measures. The increased profitability in Low Voltage Products reflects a strong focus on cost savings and execution. The operational EBITA margin in Discrete Automation and Motion decreased principally due to a decline in the share of higher-margin standard products and services in total revenues, mainly resulting from weaker demand in the oil and gas sector in recent quarters. Process Automation was negatively impacted by reduced short-cycle discretionary spend for oil and gas. In Power Products, the operational EBITA margin was steady, as higher revenues offset unfavorable mix effects and ramp-up costs associated with new production facilities in key markets.
Operational EPS2 on a constant currency basis was at \$0.35, increasing 2 percent5 . Basic earnings per share amounted to \$0.26 in the third quarter compared with \$0.32 in the same quarter a year earlier. Net income for the quarter decreased 21 percent to \$577 million and was negatively impacted by significant currency translation effects. In the same quarter in 2014, net income was positively affected by an after-tax gain from the sale of businesses of \$145 million.
ABB reported steady cash flow from operating activities of \$1,173 million in the third quarter compared with \$1,169 million in the same quarter of 2014. The impact of the lower net income was offset by stronger working capital management.
ABB launched Stage 2 of its Next Level strategy in September 2015 to accelerate ABB's transformation. Stage 2 comprises a significant set of actions to drive the shift of our center of gravity toward higher growth, greater competitiveness and lower risk while initiating additional and accelerating existing execution improvement projects. Implementation of Stage 2 of the Next Level strategy continues along the three focus areas profitable growth, relentless execution and business-led collaboration.
5 Operational EPS growth is computed using unrounded amounts on a constant currency basis
In line with the shift in the company's center of gravity, ABB is realigning its divisional structure to unlock additional value by structuring the divisions more strongly according to customer needs. As of January 1, 2016, ABB will operate in a streamlined set-up of four divisions. The new Power Grids division will focus on the changing needs of utility customers with ABB's complete power and automation offering for transmission and distribution delivered from a single source—"power & automation for the grid". ABB's leading offering to industry and transport & infrastructure—"power & automation for the site"—will be provided by three divisions. The new Electrification Products division will combine ABB's leading low- and medium-voltage businesses. The Discrete Automation and Motion and Process Automation divisions will be further aligned, better addressing customer needs and delivering operational efficiency.
A strategic portfolio review of the Power Grids division was initiated and is well on track to be completed in 2016.
Organic growth remains the key focus of ABB's efforts to accelerate sustainable value creation and is driven through the framework of penetration, innovation and expansion (PIE).
In the third quarter of 2015, ABB continued to drive growth through increased market penetration in targeted geographic and industry segments. For example, ABB supported India's power infrastructure development by providing plant electrification, automation and substation solutions for solar power plants. The company has delivered several projects in India to become the first company in the country to deliver solar inverter solutions with a cumulative capacity of two gigawatts, or half of the overall installed base of four gigawatts in India.
Innovation continued to be a focus for growth and the company introduced several new offerings, including the innovative and successful collaboration with Dutch weather forecasting specialist, Meteo Group, to equip 140 container vessels with advisory software to optimize routes helping them to drive vessel efficiency and avoid conditions that could be harmful to the ship and its cargo or compromise energy efficiency and route schedules. ABB also commissioned the world's first high- and medium-voltage switchgear installation for Swiss utility EWZ with a new eco-efficient gas that significantly lowers the environmental impact by offering an alternative gas mixture to the conventional sulfur hexafluoride. The global warming potential (GWP) of the new gas mixture of this solution is almost 100 percent lower than the GWP of sulfur hexafluoride.
Expansion into new high-growth markets is another driver of profitable growth. ABB and Microsoft Corp. announced the worldwide availability of a new electric vehicle (EV) fast-charging services platform. Combining ABB's leading EV charging stations with Microsoft's Azure cloud-based services will ensure stability, global scalability and advanced management features for ABB customers. The collaboration will also take advantage of machine learning and predictive analytic capabilities to drive future innovations. In addition, the company expanded its Asian manufacturing footprint in the quarter with a new switchgear unit in Indonesia. The medium-voltage airinsulated switchgear (AIS) will facilitate efficient and reliable power distribution and help address the increasing demand for electricity, which is driven by population growth, the need to power up many more islands and a growing industrial sector in the country.
In Stage 2 of the Next Level strategy, ABB aims to close the gap in its operating performance compared with its best-in-class peers. The goal is to further transform toward a leading operating model with business processes more focused on customer needs, and an enhanced performance management system, including compensation tied more closely to performance, as well as the development of a world class people and true performance culture.
This is being supported through focused 1,000-day programs to drive white-collar productivity—becoming lean for growth—and working capital management to provide cash for growth.
ABB's white-collar productivity program is aimed at making the company leaner, faster and more customer focused. Business functions, support functions and organizational complexity are in scope of this program.
Productivity improvements include the rapid expansion of regional shared services and the streamlining of global operations and head office functions, with business units moving closer to key markets. The company aims to achieve cost savings at a run rate of \$1 billion a year by the end of 2017, in addition to the ongoing program to reduce costs equivalent to 3-5 percent of cost of sales each year. The work streams are on track and the consultation process with employee representatives has started.
With regard to the working capital program, the first priority is to step up efforts to improve inventory management through the entire value chain, from product design through manufacturing and logistics. Measures are being taken to reduce unbilled receivables in large projects. The company's ambition is to increase the number of inventory turns in line with industry benchmarks. The program is expected to free up at least \$2 billion in cash by the end of 2017.
ABB continued to drive its transformation, which is aimed at improving customer focus and increasing agility to support the achievement of its 2015-2020 targets. The streamlined organization with a realigned divisional structure is ready to commence operation in January 2016. In order to drive sales productivity and collaboration across the Group, Salesforce.com was rolled out further as a common sales platform and is now operational in 14 countries. The Group Account Management team has a focused customer approach and initial pilots show proof of success.
In September 2015, the company aligned its 2015-2020 revenue growth target with reduced macroeconomic expectations while keeping its ambition relative to the market. The average annual revenue growth rate target over the period from 2015 to 2020 is now 3-6 percent6 (previously 4-7 percent). The driving factors for this change include the expected continuation of lower oil prices, signs of slowing industrial production growth and forecasted emerging market growth below the levels projected in 2014. All other targets are confirmed.
ABB announced the following changes to the Executive Committee effective January 1, 2016:
Claudio Facchin, currently President of the Power Systems division, will assume responsibility for the new Power Grids division. Tarak Mehta, currently President of the Low Voltage Products division, will assume responsibility for the new Electrification Products division. Bernhard Jucker, currently President of the Power Products division, will assume new responsibilities as President of the Europe region and chairman of the newly-created Divisional Transformation Team. Veli-Matti Reinikkala, currently President of the Europe region, will retire after 22 years with the company.
ABB announced a \$4 billion share buyback program in September 2014 in line with the Next Level strategy to accelerate sustainable value creation. During the third quarter of 2015, ABB purchased 4.9 million shares under the program with a buyback value of approximately \$95 million. Since the program was announced, the company has purchased a total of approximately 80 million shares with a buyback value of approximately \$1.8 billion.
6 Average annual revenue growth on a like-for-like basis, over six years, base year 2014
Macroeconomic and geopolitical developments are signaling a mixed picture with continued uncertainty. Some macroeconomic signals 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 & 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 | 2,241 | -17% | -9% | 2,220 | -16% | -7% | 14.8% | -1.7pts | 420 | +3% |
| & Motion | ||||||||||
| Low Voltage | 1,645 | -14% | 0% | 1,637 | -15% | -3% | 18.1% | +1.8pts | 333 | +8% |
| Products | ||||||||||
| Process | 1,372 | -48% | -39% | 1,461 | -23% | -8% | 10.5% | -1.2pts | 188 | -27% |
| Automation | ||||||||||
| Power Products | 2,446 | -10% | 0% | 2,332 | -5% | +6% | 12.5% | -0.1pts | 228 | -30% |
| Power Systems | 1,692 | -22% | -11% | 1,481 | -10% | +3% | 4.6% | +5.2pts | 108 | n.a. |
| Corporate & other (incl. inter division elimination) |
-629 | -612 | -104 | |||||||
| ABB Group | 8,767 | -22% | -12% | 8,519 | -13% | -2% | 12.5% | +0.5pts | 1,173 | 0% |
Total orders declined in the quarter due to lower demand for standard products and services such as large motors and drives used in the process industries in key markets such as the US and China. Continued investments in automation for general industries continue to drive growth in robotics. Revenues reflect the lower short cycle business which could not be compensated by executing the strong order backlog. The operational EBITA margin decreased mainly as a result of lower volumes in the quarter and a lower share of standard product revenues. Focused capacity adjustments and restructuring are being further ramped up and are underway.
Orders were steady despite the difficult market environment. Europe's positive order development offset declines in AMEA and the Americas. In particular, product orders were softer in China, the US and Canada. Revenues were impacted by the timing of execution of the systems order backlog. The higher operational EBITA margin reflects targeted productivity measures, increased cost savings and the strong focus on execution.
The significant decline in orders mainly resulted from the comparison to the very high large orders booked in Q3 2014 and lower spending in the oil and gas sector. Subdued short-cycle orders in the first nine months of 2015 translated into lower revenues. Operational EBITA and margin declined due to weaker revenues and an unfavorable mix. Capacity adjustments are underway.
Total orders for the quarter were steady as increased orders for power transmission projects in the US and China offset weaker demand for base orders from the industry sectors. Revenues increased during the quarter, mainly due to the successful execution of a strong order backlog. The operational EBITA margin was steady as higher revenues offset unfavorable mix effects and ramp-up costs associated with new production facilities in key markets.
Orders during the quarter were lower than the third quarter of 2014 largely due to the timing of large orders, challenging macro-economic conditions and project selectivity. Revenue growth was mainly driven by steady execution of a strong order backlog. During the quarter, the company achieved two important milestones in its offshore wind business by successfully commissioning and handing over the DolWin1 project and installing DolWin beta, the world's most powerful offshore converter station for the DolWin2 project, in the North Sea. In addition, the first phase of the North-East Agra transmission link was energized in India. Operational EBITA and the related margin increased mainly as a result of ongoing 'step change' measures and continued cost savings to return the division to higher and more consistent profitability.
The Q3 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 +1, 3:00 a.m. EST). The event will be accessible by conference call. UK. 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 dial +1 866 291 41 66 (toll-free) or +1 631 570 56 13 (long distance 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 (UK.), +41 91 612 4330 (rest of Europe) or +1 631 982 4566 (US/Canada). The code is 12222 followed by the # key.
A conference call for analysts and investors is scheduled to begin today at 2:00 p.m. CET (1:00 p.m. GMT +1, 8:00 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.
| Fourth-quarter and full-year 2015 results | February 3, 2016 |
|---|---|
| First quarter 2016 results | April 20, 2016 |
| Annual General Meeting (Zurich) | April 21, 2016 |
| Second quarter 2016 results | July 21, 2016 |
| Third quarter 2016 results | October 27, 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, Stage 2 of Next Level strategy 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, October 21, 2015 Ulrich Spiesshofer, CEO
Media Relations Michael Schiendorfer, 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
| 3 | Key Figures |
|---|---|
| 8 | Interim Consolidated Financial Information (unaudited) |
| 8 | Interim Consolidated Income Statements |
| 9 | 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) | Q3 2015 | Q3 2014 | US\$ | 1 Like-for-like |
| Orders | 8,767 | 11,225 | -22% | -12% |
| Revenues | 8,519 | 9,823 | -13% | -2% |
| Operational EBITA2 | 1,081 | 1,189 | -9% | -1% |
| as % of operational revenues1 | 12.5% | 12.0% | ||
| Net income | 577 | 734 | -21% | |
| Basic earnings per share (\$) | 0.26 | 0.32 | -19%3 | |
| Operational earnings per share1 (\$) (constant currency basis) |
0.35 | 0.35 | 2%3 | |
| Cash flow from operating activities | 1,173 | 1,169 | 0% |
| Change | ||||||
|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | 9M 2015 | 9M 2014 | US\$ | 1 Like-for-like |
||
| Orders | 28,167 | 32,150 | -12% | 0% | ||
| Revenues | 26,239 | 29,484 | -11% | 1% | ||
| Operational EBITA2 | 3,088 | 3,322 | -7% | 4% | ||
| as % of operational revenues1 | 11.8% | 11.2% | ||||
| Net income | 1,729 | 1,914 | -10% | |||
| Basic earnings per share (\$) | 0.77 | 0.83 | -7%3 | |||
| Operational earnings per share1 (\$) (constant currency basis) |
0.99 | 0.94 | 5%3 | |||
| Cash flow from operating activities | 1,824 | 2,012 | -9% |
1 For a reconciliation of non-GAAP measures see "Supplemental Reconciliations and Definitions" on page 31.
2 For a reconciliation of Operational EBITA to Income from continuing operations before taxes see Note 13 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) | Q3 2015 | Q3 2014 | US\$ | Local | Like-for-like | ||||
| Orders | ABB Group | 8,767 | 11,225 | -22% | -12% | -12% | |||
| Discrete Automation and Motion | 2,241 | 2,697 | -17% | -9% | -9% | ||||
| Low Voltage Products | 1,645 | 1,914 | -14% | -3% | 0% | ||||
| Process Automation | 1,372 | 2,622 | -48% | -40% | -39% | ||||
| Power Products | 2,446 | 2,725 | -10% | 0% | 0% | ||||
| Power Systems | 1,692 | 2,177 | -22% | -11% | -11% | ||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (629) | (910) | |||||||
| Order backlog (end September) | ABB Group | 25,371 | 27,005 | -6% | 4% | 4% | |||
| Discrete Automation and Motion | 4,601 | 4,741 | -3% | 5% | 5% | ||||
| Low Voltage Products | 961 | 994 | -3% | 9% | 9% | ||||
| Process Automation | 5,404 | 6,230 | -13% | -1% | 0% | ||||
| Power Products | 7,974 | 8,297 | -4% | 5% | 5% | ||||
| Power Systems | 8,676 | 9,128 | -5% | 6% | 6% | ||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (2,245) | (2,385) | |||||||
| Revenues | ABB Group | 8,519 | 9,823 | -13% | -3% | -2% | |||
| Discrete Automation and Motion | 2,220 | 2,635 | -16% | -7% | -7% | ||||
| Low Voltage Products | 1,637 | 1,921 | -15% | -4% | -3% | ||||
| Process Automation | 1,461 | 1,899 | -23% | -11% | -8% | ||||
| Power Products | 2,332 | 2,455 | -5% | 6% | 6% | ||||
| Power Systems | 1,481 | 1,637 | -10% | 3% | 3% | ||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (612) | (724) | |||||||
| Operational EBITA | ABB Group | 1,081 | 1,189 | -9% | -1% | -1% | |||
| Discrete Automation and Motion | 335 | 435 | -23% | -17% | -17% | ||||
| Low Voltage Products | 296 | 314 | -6% | 5% | 4% | ||||
| Process Automation | 158 | 221 | -29% | -21% | -19% | ||||
| Power Products | 295 | 312 | -5% | 3% | 3% | ||||
| Power Systems | 69 | (11) | n.a. | n.a. | n.a. | ||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (72) | (82) | |||||||
| Operational EBITA % | ABB Group | 12.5% | 12.0% | ||||||
| Discrete Automation and Motion | 14.8% | 16.5% | |||||||
| Low Voltage Products | 18.1% | 16.3% | |||||||
| Process Automation | 10.5% | 11.7% | |||||||
| Power Products | 12.5% | 12.6% | |||||||
| Power Systems | 4.6% | -0.6% | |||||||
| Income from operations | ABB Group | 882 | 1,222 | ||||||
| Discrete Automation and Motion | 264 | 390 | |||||||
| Low Voltage Products | 276 | 552 | |||||||
| Process Automation | 129 | 214 | |||||||
| Power Products | 284 | 283 | |||||||
| Power Systems | 26 | (121) | |||||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (97) | (96) | |||||||
| Income from operations % | ABB Group | 10.4% | 12.4% | ||||||
| Discrete Automation and Motion | 11.9% | 14.8% | |||||||
| Low Voltage Products | 16.9% | 28.7% | |||||||
| Process Automation | 8.8% | 11.3% | |||||||
| Power Products | 12.2% | 11.5% | |||||||
| Power Systems | 1.8% | -7.4% | |||||||
| Cash flow from operating activities | ABB Group | 1,173 | 1,169 | ||||||
| Discrete Automation and Motion | 420 | 409 | |||||||
| Low Voltage Products | 333 | 308 | |||||||
| Process Automation | 188 | 258 | |||||||
| Power Products | 228 | 325 | |||||||
| Power Systems | 108 | (92) | |||||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (104) | (39) |
| Change | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | 9M 2015 | 9M 2014 | US\$ | Local | Like-for-like | ||||
| Orders | ABB Group | 28,167 | 32,150 | -12% | -2% | 0% | |||
| Discrete Automation and Motion | 7,238 | 8,180 | -12% | -3% | -3% | ||||
| Low Voltage Products | 5,051 | 5,828 | -13% | -3% | 2% | ||||
| Process Automation | 4,873 | 6,670 | -27% | -16% | -14% | ||||
| Power Products | 7,635 | 8,216 | -7% | 2% | 2% | ||||
| Power Systems | 5,460 | 5,434 | 0% | 16% | 16% | ||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (2,090) | (2,178) | |||||||
| Order backlog (end September) | ABB Group | 25,371 | 27,005 | -6% | 4% | 4% | |||
| Discrete Automation and Motion | 4,601 | 4,741 | -3% | 5% | 5% | ||||
| Low Voltage Products | 961 | 994 | -3% | 9% | 9% | ||||
| Process Automation | 5,404 | 6,230 | -13% | -1% | 0% | ||||
| Power Products | 7,974 | 8,297 | -4% | 5% | 5% | ||||
| Power Systems | 8,676 | 9,128 | -5% | 6% | 6% | ||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (2,245) | (2,385) | |||||||
| Revenues | ABB Group | 26,239 | 29,484 | -11% | -1% | 1% | |||
| Discrete Automation and Motion | 6,839 | 7,559 | -10% | -1% | -1% | ||||
| Low Voltage Products | 4,923 | 5,739 | -14% | -4% | 1% | ||||
| Process Automation | 4,700 | 5,854 | -20% | -8% | -5% | ||||
| Power Products | 7,006 | 7,508 | -7% | 3% | 3% | ||||
| Power Systems | 4,587 | 5,055 | -9% | 4% | 4% | ||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (1,816) | (2,231) | |||||||
| Operational EBITA | ABB Group | 3,088 | 3,322 | -7% | 2% | 4% | |||
| Discrete Automation and Motion | 992 | 1,186 | -16% | -8% | -8% | ||||
| Low Voltage Products | 828 | 934 | -11% | 0% | 4% | ||||
| Process Automation | 554 | 695 | -20% | -12% | -9% | ||||
| Power Products | 849 | 959 | -11% | -3% | -3% | ||||
| Power Systems | 144 | (122) | n.a. | n.a. | n.a. | ||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (279) | (330) | |||||||
| Operational EBITA % | ABB Group | 11.8% | 11.2% | ||||||
| Discrete Automation and Motion | 14.5% | 15.7% | |||||||
| Low Voltage Products | 16.8% | 16.2% | |||||||
| Process Automation | 11.8% | 11.9% | |||||||
| Power Products | 12.1% | 12.7% | |||||||
| Power Systems | 3.2% | -2.4% | |||||||
| Income from operations | ABB Group | 2,702 | 3,129 | ||||||
| Discrete Automation and Motion | 857 | 1,065 | |||||||
| Low Voltage Products | 756 | 1,208 | |||||||
| Process Automation | 508 | 650 | |||||||
| Power Products | 824 | 874 | |||||||
| Power Systems | 65 | (313) | |||||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (308) | (355) | |||||||
| Income from operations % | ABB Group | 10.3% | 10.6% | ||||||
| Discrete Automation and Motion | 12.5% | 14.1% | |||||||
| Low Voltage Products | 15.4% | 21.0% | |||||||
| Process Automation | 10.8% | 11.1% | |||||||
| Power Products | 11.8% | 11.6% | |||||||
| Power Systems | 1.4% | -6.2% | |||||||
| Cash flow from operating activities | ABB Group | 1,824 | 2,012 | ||||||
| Discrete Automation and Motion | 904 | 1,077 | |||||||
| Low Voltage Products | 582 | 554 | |||||||
| Process Automation | 340 | 559 | |||||||
| Power Products | 515 | 573 | |||||||
| Power Systems | 32 | (341) | |||||||
| Corporate and Other | |||||||||
| (incl. inter-division eliminations) | (549) | (410) | |||||||
| Discrete | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Automation | Low Voltage | Process | Power | Power | |||||||||
| (\$ in millions, unless otherwise indicated) | ABB | and Motion | Products | Automation | Products | Systems | |||||||
| Q3 15 | Q3 14 | Q3 15 | Q3 14 | Q3 15 | Q3 14 | Q3 15 | Q3 14 | Q3 15 | Q3 14 | Q3 15 | Q3 14 | ||
| Revenues | 8,519 | 9,823 | 2,220 | 2,635 | 1,637 | 1,921 | 1,461 | 1,899 | 2,332 | 2,455 | 1,481 | 1,637 | |
| FX/commodity timing | |||||||||||||
| differences in total revenues | 113 | 86 | 37 | 2 | (2) | 8 | 37 | (7) | 27 | 22 | 13 | 60 | |
| Operational revenues | 8,632 | 9,909 | 2,257 | 2,637 | 1,635 | 1,929 | 1,498 | 1,892 | 2,359 | 2,477 | 1,494 | 1,697 | |
| Income (loss) from operations | 882 | 1,222 | 264 | 390 | 276 | 552 | 129 | 214 | 284 | 283 | 26 | (121) | |
| Acquisition-related amortization | 74 | 93 | 31 | 35 | 25 | 24 | 3 | 4 | 2 | 4 | 8 | 22 | |
| Restructuring and | |||||||||||||
| restructuring-related expenses | 46 | 55 | 16 | – | 6 | 17 | 3 | 2 | 10 | 12 | 8 | 21 | |
| Gains and losses from sale of businesses, | |||||||||||||
| acquisition-related expenses and certain | |||||||||||||
| non-operational items | 7 | (257) | – | 1 | (1) | (291) | – | 6 | 1 | (1) | 3 | 18 | |
| FX/commodity timing | |||||||||||||
| differences in income from operations | 72 | 76 | 24 | 9 | (10) | 12 | 23 | (5) | (2) | 14 | 24 | 49 | |
| Operational EBITA | 1,081 | 1,189 | 335 | 435 | 296 | 314 | 158 | 221 | 295 | 312 | 69 | (11) | |
| Operational EBITA margin (%) | 12.5% | 12.0% | 14.8% | 16.5% | 18.1% | 16.3% | 10.5% | 11.7% | 12.5% | 12.6% | 4.6% | -0.6% |
| Discrete | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Automation | Low Voltage | Process | Power | Power | ||||||||
| (\$ in millions, unless otherwise indicated) | ABB | and Motion | Products | Automation | Products | Systems | ||||||
| 9M 15 | 9M 14 | 9M 15 | 9M 14 | 9M 15 | 9M 14 | 9M 15 | 9M 14 | 9M 15 | 9M 14 | 9M 15 | 9M 14 | |
| Revenues | 26,239 | 29,484 | 6,839 | 7,559 | 4,923 | 5,739 | 4,700 | 5,854 | 7,006 | 7,508 | 4,587 | 5,055 |
| FX/commodity timing | ||||||||||||
| differences in total revenues | (24) | 147 | – | (8) | (7) | 11 | 9 | (6) | 2 | 19 | (27) | 131 |
| Operational revenues | 26,215 | 29,631 | 6,839 | 7,551 | 4,916 | 5,750 | 4,709 | 5,848 | 7,008 | 7,527 | 4,560 | 5,186 |
| Income (loss) from operations | 2,702 | 3,129 | 857 | 1,065 | 756 | 1,208 | 508 | 650 | 824 | 874 | 65 | (313) |
| Acquisition-related amortization | 237 | 290 | 96 | 104 | 76 | 87 | 9 | 11 | 7 | 14 | 35 | 58 |
| Restructuring and | ||||||||||||
| restructuring-related expenses | 130 | 142 | 44 | 14 | 13 | 29 | 24 | 26 | 30 | 35 | 16 | 34 |
| Gains and losses from sale of businesses, | ||||||||||||
| acquisition-related expenses and certain | ||||||||||||
| non-operational items | 57 | (360) | – | – | – | (395) | 11 | 9 | 3 | 10 | 34 | 10 |
| FX/commodity timing | ||||||||||||
| differences in income from operations | (38) | 121 | (5) | 3 | (17) | 5 | 2 | (1) | (15) | 26 | (6) | 89 |
| Operational EBITA | 3,088 | 3,322 | 992 | 1,186 | 828 | 934 | 554 | 695 | 849 | 959 | 144 | (122) |
| Operational EBITA margin (%) | 11.8% | 11.2% | 14.5% | 15.7% | 16.8% | 16.2% | 11.8% | 11.9% | 12.1% | 12.7% | 3.2% | -2.4% |
| Discrete | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Automation | Low Voltage | Process | Power | Power | ||||||||
| (\$ in millions, unless otherwise indicated) | ABB and Motion |
Products | Automation | Products | Systems | |||||||
| Q3 15 | Q3 14 | Q3 15 | Q3 14 | Q3 15 | Q3 14 | Q3 15 | Q3 14 | Q3 15 | Q3 14 | Q3 15 | Q3 14 | |
| Depreciation | 188 | 212 | 37 | 41 | 40 | 45 | 14 | 17 | 44 | 49 | 17 | 22 |
| Amortization | 96 | 110 | 37 | 37 | 27 | 29 | 5 | 5 | 4 | 5 | 13 | 20 |
| including total acquisition-related amortization of | 74 | 93 | 31 | 35 | 25 | 24 | 3 | 4 | 2 | 4 | 8 | 22 |
| Discrete | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Automation | Low Voltage | Process | Power | Power | ||||||||
| (\$ in millions, unless otherwise indicated) | ABB and Motion |
Products | Automation | Products | Systems | |||||||
| 9M 15 | 9M 14 | 9M 15 | 9M 14 | 9M 15 | 9M 14 | 9M 15 | 9M 14 | 9M 15 | 9M 14 | 9M 15 | 9M 14 | |
| Depreciation | 572 | 640 | 110 | 122 | 123 | 136 | 43 | 52 | 132 | 145 | 56 | 67 |
| Amortization | 300 | 348 | 110 | 112 | 81 | 91 | 14 | 15 | 12 | 19 | 50 | 69 |
| including total acquisition-related amortization of | 237 | 290 | 96 | 104 | 76 | 87 | 9 | 11 | 7 | 14 | 35 | 58 |
| (\$ in millions, unless otherwise indicated) | Orders received | Change | Revenues | Change | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Like- | Like | ||||||||||
| Q3 15 | Q3 14 | US\$ | Local | for-like | Q3 15 | Q3 14 | US\$ | Local | for-like | ||
| Europe | 2,909 | 4,025 | -28% | -13% | -13% | 2,821 | 3,290 | -14% | 3% | 4% | |
| The Americas | 2,660 | 2,971 | -10% | -3% | -1% | 2,569 | 2,861 | -10% | -3% | -1% | |
| Asia, Middle East and Africa | 3,198 | 4,229 | -24% | -18% | -18% | 3,129 | 3,672 | -15% | -8% | -7% | |
| ABB Group | 8,767 | 11,225 | -22% | -12% | -12% | 8,519 | 9,823 | -13% | -3% | -2% |
| (\$ in millions, unless otherwise indicated) | Orders received | Change | Revenues | Change | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Like- | Like | |||||||||
| 9M 15 | 9M 14 | US\$ | Local | for-like | 9M 15 | 9M 14 | US\$ | Local | for-like | |
| Europe | 9,680 | 11,191 | -14% | 5% | 7% | 8,574 | 10,294 | -17% | 1% | 2% |
| The Americas | 8,014 | 9,270 | -14% | -8% | -5% | 7,927 | 8,535 | -7% | -1% | 3% |
| Asia, Middle East and Africa | 10,473 | 11,689 | -10% | -4% | -4% | 9,738 | 10,655 | -9% | -2% | -1% |
| ABB Group | 28,167 | 32,150 | -12% | -2% | 0% | 26,239 | 29,484 | -11% | -1% | 1% |
| Nine months ended | Three months ended | |||
|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 |
| Sales of products | 21,878 | 24,734 | 7,116 | 8,255 |
| Sales of services | 4,361 | 4,750 | 1,403 | 1,568 |
| Total revenues | 26,239 | 29,484 | 8,519 | 9,823 |
| Cost of products | (15,874) | (18,149) | (5,163) | (6,090) |
| Cost of services | (2,626) | (2,961) | (838) | (971) |
| Total cost of sales | (18,500) | (21,110) | (6,001) | (7,061) |
| Gross profit | 7,739 | 8,374 | 2,518 | 2,762 |
| Selling, general and administrative expenses | (3,994) | (4,570) | (1,307) | (1,488) |
| Non-order related research and development expenses | (998) | (1,112) | (322) | (357) |
| Other income (expense), net | (45) | 437 | (7) | 305 |
| Income from operations | 2,702 | 3,129 | 882 | 1,222 |
| Interest and dividend income | 56 | 57 | 18 | 19 |
| Interest and other finance expense | (223) | (255) | (64) | (83) |
| Income from continuing operations before taxes | 2,535 | 2,931 | 836 | 1,158 |
| Provision for taxes | (722) | (938) | (229) | (397) |
| Income from continuing operations, net of tax | 1,813 | 1,993 | 607 | 761 |
| Income from discontinued operations, net of tax | 2 | 10 | – | 12 |
| Net income | 1,815 | 2,003 | 607 | 773 |
| Net income attributable to noncontrolling interests | (86) | (89) | (30) | (39) |
| Net income attributable to ABB | 1,729 | 1,914 | 577 | 734 |
| Amounts attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 1,727 | 1,904 | 577 | 722 |
| Net income | 1,729 | 1,914 | 577 | 734 |
| Basic earnings per share attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 0.77 | 0.83 | 0.26 | 0.32 |
| Net income | 0.77 | 0.83 | 0.26 | 0.32 |
| Diluted earnings per share attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 0.77 | 0.83 | 0.26 | 0.31 |
| Net income | 0.77 | 0.83 | 0.26 | 0.32 |
| Weighted-average number of shares outstanding (in millions) used to compute: | ||||
| Basic earnings per share attributable to ABB shareholders | 2,234 | 2,295 | 2,219 | 2,290 |
| Diluted earnings per share attributable to ABB shareholders | 2,239 | 2,302 | 2,223 | 2,296 |
| Nine months ended | Three months ended | |||
|---|---|---|---|---|
| (\$ in millions) | Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 |
| Total comprehensive income (loss), net of tax | 1,162 | 966 | 303 | (180) |
| Total comprehensive income attributable to noncontrolling interests, net of tax | (73) | (79) | (21) | (33) |
| Total comprehensive income (loss) attributable to ABB shareholders, net of tax | 1,089 | 887 | 282 | (213) |
| (\$ in millions, except share data) | Sep. 30, 2015 | Dec. 31, 2014 |
|---|---|---|
| Cash and equivalents | 3,970 | 5,443 |
| Marketable securities and short-term investments | 1,264 | 1,325 |
| Receivables, net | 10,564 | 11,078 |
| Inventories, net | 5,410 | 5,376 |
| Prepaid expenses | 286 | 218 |
| Deferred taxes | 861 | 902 |
| Other current assets | 712 | 644 |
| Total current assets | 23,067 | 24,986 |
| Property, plant and equipment, net | 5,194 | 5,652 |
| Goodwill | 9,744 | 10,053 |
| Other intangible assets, net | 2,383 | 2,702 |
| Prepaid pension and other employee benefits | 68 | 70 |
| Investments in equity-accounted companies | 155 | 177 |
| Deferred taxes | 454 | 511 |
| Other non-current assets | 703 | 701 |
| Total assets | 41,768 | 44,852 |
| Accounts payable, trade | 4,405 | 4,765 |
| Billings in excess of sales | 1,440 | 1,455 |
| Short-term debt and current maturities of long-term debt | 986 | 353 |
| Advances from customers | 1,497 | 1,624 |
| Deferred taxes | 237 | 289 |
| Provisions for warranties | 1,067 | 1,148 |
| Other provisions | 1,495 | 1,689 |
| Other current liabilities | 3,905 | 4,257 |
| Total current liabilities | 15,032 | 15,580 |
| Long-term debt | 6,571 | 7,312 |
| Pension and other employee benefits | 2,232 | 2,394 |
| Deferred taxes | 1,151 | 1,165 |
| Other non-current liabilities | 1,557 | 1,586 |
| Total liabilities | 26,543 | 28,037 |
| Commitments and contingencies | ||
| Stockholders' equity: | ||
| Capital stock and additional paid-in capital | ||
| (2,314,743,264 issued shares at September 30, 2015, and December 31, 2014) | 1,458 | 1,777 |
| Retained earnings | 20,297 | 19,939 |
| Accumulated other comprehensive loss | (4,881) | (4,241) |
| Treasury stock, at cost | ||
| (98,909,491 and 55,843,639 shares at September 30, 2015, and December 31, 2014, respectively) | (2,129) | (1,206) |
| Total ABB stockholders' equity | 14,745 | 16,269 |
| Noncontrolling interests | 480 | 546 |
| Total stockholders' equity | 15,225 | 16,815 |
| Total liabilities and stockholders' equity | 41,768 | 44,852 |
| Nine months ended | Three months ended | |||
|---|---|---|---|---|
| (\$ in millions) | Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 |
| Operating activities: | ||||
| Net income | 1,815 | 2,003 | 607 | 773 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 872 | 988 | 284 | 322 |
| Pension and other employee benefits | 51 | (5) | 24 | 17 |
| Deferred taxes | (26) | 34 | (7) | 50 |
| Net loss (gain) from sale of property, plant and equipment | (21) | (15) | (2) | (1) |
| Net loss (gain) from sale of businesses | (19) | (445) | (15) | (315) |
| Net loss (gain) from derivatives and foreign exchange | (38) | 136 | 54 | 30 |
| Other | 117 | 67 | 27 | 25 |
| Changes in operating assets and liabilities: | ||||
| Trade receivables, net | (201) | (349) | 218 | (154) |
| Inventories, net | (404) | (512) | (103) | (151) |
| Trade payables | (128) | 182 | (89) | 108 |
| Accrued liabilities | (22) | 52 | 164 | 200 |
| Billings in excess of sales | 90 | (67) | (29) | 124 |
| Provisions, net | (157) | (174) | (50) | 23 |
| Advances from customers | (6) | (23) | 52 | (7) |
| Income taxes payable and receivable | (73) | 172 | 15 | 140 |
| Other assets and liabilities, net | (26) | (32) | 23 | (15) |
| Net cash provided by operating activities | 1,824 | 2,012 | 1,173 | 1,169 |
| Investing activities: | ||||
| Purchases of marketable securities (available-for-sale) | (1,098) | (836) | (236) | (409) |
| Purchases of short-term investments | (546) | (1,033) | (65) | (590) |
| Purchases of property, plant and equipment and intangible assets | (547) | (642) | (189) | (222) |
| Acquisition of businesses (net of cash acquired) | ||||
| and increases in cost- and equity-accounted companies | (44) | (23) | (3) | (6) |
| Proceeds from sales of marketable securities (available-for-sale) | 379 | 87 | 20 | 62 |
| Proceeds from maturity of marketable securities (available-for-sale) | 627 | 235 | 133 | 99 |
| Proceeds from short-term investments | 628 | 327 | 116 | 139 |
| Proceeds from sales of property, plant and equipment | 44 | 26 | 20 | 4 |
| Proceeds from sales of businesses (net of transaction costs | ||||
| and cash disposed) and cost- and equity-accounted companies | 69 | 991 | 68 | 588 |
| Net cash from settlement of foreign currency derivatives | 208 | 2 | 23 | (52) |
| Other investing activities | 15 | 4 | – | 6 |
| Net cash used in investing activities | (265) | (862) | (113) | (381) |
| Financing activities: | ||||
| Net changes in debt with original maturities of 90 days or less | 75 | (9) | (341) | (747) |
| Increase in debt | 55 | 131 | 4 | 96 |
| Repayment of debt | (78) | (51) | (16) | (32) |
| Delivery of shares | 107 | 26 | – | – |
| Purchase of treasury stock | (1,048) | (461) | (150) | (179) |
| Dividends paid | (1,357) | (1,841) | – | – |
| Reduction in nominal value of common shares paid to shareholders | (392) | – | (392) | – |
| Dividends paid to noncontrolling shareholders | (131) | (126) | (26) | (33) |
| Other financing activities | (18) | (27) | (24) | (7) |
| Net cash used in financing activities | (2,787) | (2,358) | (945) | (902) |
| Effects of exchange rate changes on cash and equivalents | (245) | (180) | (99) | (202) |
| Net change in cash and equivalents – continuing operations | (1,473) | (1,388) | 16 | (316) |
| Cash and equivalents, beginning of period | 5,443 | 6,021 | 3,954 | 4,949 |
| Cash and equivalents, end of period | 3,970 | 4,633 | 3,970 | 4,633 |
| Supplementary disclosure of cash flow information: | ||||
| Interest paid | 151 | 175 | 21 | 25 |
| Taxes paid | 836 | 746 | 220 | 223 |
| (\$ 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 | 1,914 | 1,914 | 89 | 2,003 | |||||||
| Foreign currency translation | |||||||||||
| adjustments, net of tax of \$(7) | (1,110) | (1,110) | (1,110) | (10) | (1,120) | ||||||
| Effect of change in fair value of | |||||||||||
| available-for-sale securities, net of tax of \$(5) |
(12) | (12) | (12) | (12) | |||||||
| Unrecognized income | |||||||||||
| related to pensions and other | |||||||||||
| postretirement plans, | |||||||||||
| net of tax of \$52 | 142 | 142 | 142 | 142 | |||||||
| Change in derivatives qualifying | |||||||||||
| as cash flow hedges, | |||||||||||
| net of tax of \$(13) | (47) | (47) | (47) | (47) | |||||||
| Total comprehensive income | 887 | 79 | 966 | ||||||||
| Dividends paid | |||||||||||
| to noncontrolling shareholders | – | (132) | (132) | ||||||||
| Dividends paid | (1,841) | (1,841) | (1,841) | ||||||||
| Share-based payment arrangements | 56 | 56 | 56 | ||||||||
| Purchase of treasury stock | (634) | (634) | (634) | ||||||||
| Delivery of shares | (16) | 42 | 26 | 26 | |||||||
| Call options | 5 | 5 | 5 | ||||||||
| Balance at September 30, 2014 | 1,795 | 19,259 | (1,541) | (5) | (1,468) | (25) | (3,039) | (838) | 17,177 | 477 | 17,654 |
| 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 | 1,729 | 1,729 | 86 | 1,815 | |||||||
| Foreign currency translation | |||||||||||
| adjustments, net of tax of \$(3) | (831) | (831) | (831) | (13) | (844) | ||||||
| Effect of change in fair value of | |||||||||||
| available-for-sale securities, | |||||||||||
| net of tax of \$0 | (2) | (2) | (2) | (2) | |||||||
| Unrecognized income | |||||||||||
| related to pensions and other | |||||||||||
| postretirement plans, | |||||||||||
| net of tax of \$65 | 179 | 179 | 179 | 179 | |||||||
| Change in derivatives qualifying | |||||||||||
| as cash flow hedges, | |||||||||||
| net of tax of \$(1) | 14 | 14 | 14 | 14 | |||||||
| Total comprehensive income | 1,089 | 73 | 1,162 | ||||||||
| Changes in noncontrolling interests | – | (2) | (2) | ||||||||
| Dividends paid | |||||||||||
| to noncontrolling shareholders | – | (137) | (137) | ||||||||
| Dividends paid | (1,317) | (1,317) | (1,317) | ||||||||
| Reduction in nominal value of common | |||||||||||
| shares paid to shareholders | (349) | (54) | (403) | (403) | |||||||
| Share-based payment arrangements | 43 | 43 | 43 | ||||||||
| Purchase of treasury stock | (1,047) | (1,047) | (1,047) | ||||||||
| Delivery of shares | (17) | 124 | 107 | 107 | |||||||
| Call options | 4 | 4 | 4 | ||||||||
| Balance at September 30, 2015 | 1,458 | 20,297 | (2,933) | 11 | (1,952) | (7) | (4,881) | (2,129) | 14,745 | 480 | 15,225 |
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 customers 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 class ified 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 activities.
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. In August 2015, an accounting standard update was issued to clarify that the Company may elect to present debt issuance costs related to a line-of-credit arrangement as an asset, regardless of whether or not there are any borrowings outstanding on the line-of-credit arrangement. The Company has elected to early adopt both updates. In connection with the adoption of the updated accounting standards, the Company reclassified deferred debt issuance costs of \$26 million from "Other non-current assets" to "Long-term debt" at December 31, 2014, and has elected to continue to present debt issuance costs related to revolving credit facilities as an asset.
In September 2015, an accounting standard update was issued to simplify the accounting for measurement-period adjustments in a business combination by eliminating the requirement to restate prior period financial statements for measurement-period adjustments. Under the update, the Company is required to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, including the cumulative effect of the change in provisional amount as if the accounting had been completed at the acquisition date. The adjustments related to previous reporting periods since the acquisition date must be disclosed by income statement line item either on the face of the income statement or in the notes. The Company has elected to early adopt this update in the third quarter of 2015. The update is applied prospectively to measurement period adjustments that occur after the effective date. This update did not have a material impact on the consolidated financial statements.
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.
In August 2015, the effective date for the update was deferred and the update is now effective for the Company for annual and interim periods beginning January 1, 2018, 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). Early adoption of the standard is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of this update on its consolidated financial statements.
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.
In July 2015, an accounting standard update was issued to simplify the subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This update is effective for the Company for annual and interim periods beginning January 1, 2017, with early adoption permitted, and is applicable prospectively. The Company is currently evaluating the impact of this update on its consolidated financial statements.
Note 3 Business divestments For the nine and three months ended September 30, 2014, the Company recorded net gains of \$445 million and \$315 million, respectively, in "Other income (expense), net" and tax expense of \$239 million and \$170 million, respectively, in "Provision for taxes", relating to the divestment of consolidated businesses. There were no significant amounts recognized in the nine and three months ended September 30, 2015.
securities and short-term investments
Current assets Cash and equivalents, marketable securities and short-term investments consisted of the following:
| September 30, 2015 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Gross | Gross | Marketable securities | ||||||
| unrealized | unrealized | Cash and | and short-term | |||||
| (\$ in millions) | Cost basis | gains | losses | Fair value | equivalents | investments | ||
| Cash | 1,533 | 1,533 | 1,533 | – | ||||
| Time deposits | 2,483 | 2,483 | 2,422 | 61 | ||||
| Other short-term investments | 239 | 239 | – | 239 | ||||
| Debt securities available-for-sale: | ||||||||
| U.S. government obligations | 137 | 3 | (1) | 139 | – | 139 | ||
| European government obligations | 24 | – | (1) | 23 | – | 23 | ||
| Other government obligations | 2 | – | – | 2 | – | 2 | ||
| Corporate | 596 | 3 | (1) | 598 | 15 | 583 | ||
| Equity securities available-for-sale | 207 | 10 | – | 217 | – | 217 | ||
| Total | 5,221 | 16 | (3) | 5,234 | 3,970 | 1,264 |
| December 31, 2014 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Gross | Gross | Marketable securities | ||||||
| unrealized | unrealized | Cash and | and short-term | |||||
| (\$ in millions) | Cost basis | gains | losses | Fair value | equivalents | 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 September 30, 2015, and December 31, 2014, are receivables of \$230 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 September 30, 2015, the amortized cost, gross unrecognized gain and fair value (based on quoted market prices) of these securities were \$96 million, \$16 million and \$112 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.
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, indexed to the shares of the Company, 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.
The gross notional amounts of outstanding foreign exchange and interest rate derivatives (whether designated as hedges or not) were as follows:
| Type of derivative | Total notional amounts | |||||
|---|---|---|---|---|---|---|
| (\$ in millions) | September 30, 2015 | December 31, 2014 | September 30, 2014 | |||
| Foreign exchange contracts | 17,501 | 18,564 | 18,048 | |||
| Embedded foreign exchange derivatives | 3,138 | 3,013 | 2,884 | |||
| Interest rate contracts | 2,789 | 2,242 | 4,146 |
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 | ||||
|---|---|---|---|---|---|---|
| September 30, 2015 | December 31, 2014 | September 30, 2014 | ||||
| Copper swaps | metric tonnes | 49,141 | 46,520 | 46,366 | ||
| Aluminum swaps | metric tonnes | 6,912 | 3,846 | 4,437 | ||
| Nickel swaps | metric tonnes | – | – | 6 | ||
| Lead swaps | metric tonnes | 15,850 | 6,550 | 8,050 | ||
| Zinc swaps | metric tonnes | 300 | 200 | 225 | ||
| Silver swaps | ounces | 1,566,590 | 1,996,845 | 1,747,507 | ||
| Crude oil swaps | barrels | 128,200 | 128,000 | 113,000 |
At September 30, 2015, December 31, 2014, and September 30, 2014, the Company held 56 million, 61 million and 63 million cash-settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of \$10 million, \$33 million and \$38 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 September 30, 2015, and December 31, 2014, "Accumulated other comprehensive loss" included net unrealized losses of \$7 million and \$21 million, respectively, net of tax, on derivatives designated as cash flow hedges. Of the amount at September 30, 2015, net losses of \$2 million are expected to be reclassified to earnings in the following 12 months. At September 30, 2015, the longest maturity of a derivative classified as a cash flow hedge was 54 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 nine and three months ended September 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:
| Nine months ended September 30, 2015 | |||||
|---|---|---|---|---|---|
| Gains (losses) recognized | |||||
| in OCI | Gains (losses) recognized in income (ineffective | ||||
| Type of derivative | on derivatives | Gains (losses) reclassified from OCI | portion and amount | ||
| designated as | (effective portion) | into income (effective portion) | excluded from effectiveness testing) | ||
| a cash flow hedge | (\$ in millions) | Location | (\$ in millions) Location | (\$ in millions) | |
| Foreign exchange contracts | (7) | Total revenues | (31) | Total revenues | – |
| Total cost of sales | 8 Total cost of sales | – | |||
| Commodity contracts | (6) | Total cost of sales | (7) Total cost of sales | – | |
| Cash-settled call options | (10) | SG&A expenses(1) | (6) SG&A expenses(1) | – | |
| Total | (23) | (36) | – |
| Nine months ended September 30, 2014 | |||||
|---|---|---|---|---|---|
| Gains (losses) recognized | |||||
| in OCI | Gains (losses) recognized in income (ineffective | ||||
| Type of derivative | on derivatives | Gains (losses) reclassified from OCI | portion and amount | ||
| designated as | (effective portion) | into income (effective portion) | excluded from effectiveness testing) | ||
| a cash flow hedge | (\$ in millions) | Location | (\$ in millions) Location | (\$ in millions) | |
| Foreign exchange contracts | (46) | Total revenues | (3) Total revenues | – | |
| Total cost of sales | 7 Total cost of sales | – | |||
| Commodity contracts | (4) | Total cost of sales | (2) Total cost of sales | – | |
| Cash-settled call options | (13) | SG&A expenses(1) | (5) SG&A expenses(1) | – | |
| Total | (63) | (3) | – |
| Three months ended September 30, 2015 | |||||
|---|---|---|---|---|---|
| Gains (losses) recognized | |||||
| in OCI | Gains (losses) recognized in income (ineffective | ||||
| Type of derivative | on derivatives | Gains (losses) reclassified from OCI | portion and amount | ||
| designated as | (effective portion) | into income (effective portion) | excluded from effectiveness testing) | ||
| a cash flow hedge | (\$ in millions) | Location | (\$ in millions) Location | (\$ in millions) | |
| Foreign exchange contracts | 9 Total revenues | (7) Total revenues | – | ||
| Total cost of sales | 3 Total cost of sales | – | |||
| Commodity contracts | (4) | Total cost of sales | (3) Total cost of sales | – | |
| Cash-settled call options | (3) | SG&A expenses(1) | (2) SG&A expenses(1) | – | |
| Total | 2 | (9) | – |
| Three months ended September 30, 2014 | |||||
|---|---|---|---|---|---|
| Gains (losses) recognized | |||||
| in OCI | Gains (losses) recognized in income (ineffective | ||||
| Type of derivative | on derivatives | Gains (losses) reclassified from OCI | portion and amount | ||
| designated as | (effective portion) | into income (effective portion) | excluded from effectiveness testing) | ||
| a cash flow hedge | (\$ in millions) | Location | (\$ in millions) Location | (\$ in millions) | |
| Foreign exchange contracts | (28) | Total revenues | (3) Total revenues | – | |
| Total cost of sales | 2 Total cost of sales | – | |||
| Commodity contracts | (2) | Total cost of sales | – Total cost of sales | – | |
| Cash-settled call options | 5 SG&A expenses(1) | 3 SG&A expenses(1) | – | ||
| Total | (25) | 2 | – |
(1) SG&A expenses represent "Selling, general and administrative expenses".
Net derivative losses of \$28 million and \$3 million, both net of tax, respectively, were reclassified from "Accumulated other comprehensive loss" to earnings during the nine months ended September 30, 2015 and 2014, respectively. During the three months ended September 30, 2015 and 2014, net derivative losses of \$7 million and net derivative gains of \$2 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 thes e instruments, as well as the changes in the fair value of the risk component of the underlying debt being hedged, are recorded as offsetting gains and losses in "Interest and other finance expense". Hedge ineffectiveness of instruments designated as fair value hedges for the nine and three months ended September 30, 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:
| Nine months ended September 30, 2015 | ||||||
|---|---|---|---|---|---|---|
| Gains (losses) recognized in income on derivatives Gains (losses) recognized in income |
||||||
| Type of derivative designated | designated as fair value hedges | on hedged item | ||||
| as a fair value hedge | Location | (\$ in millions) | Location | (\$ in millions) | ||
| Interest rate contracts | Interest and other finance expense | 30 Interest and other finance expense |
| Nine months ended September 30, 2014 | ||||||
|---|---|---|---|---|---|---|
| Gains (losses) recognized in income on derivatives Gains (losses) recognized in income |
||||||
| Type of derivative designated | designated as fair value hedges | |||||
| as a fair value hedge | Location | (\$ in millions) | Location | (\$ in millions) | ||
| Interest rate contracts | Interest and other finance expense | 50 | Interest and other finance expense | (49) |
| Three months ended September 30, 2015 | |||||
|---|---|---|---|---|---|
| Gains (losses) recognized in income on derivatives Gains (losses) recognized in income |
|||||
| Type of derivative designated | designated as fair value hedges | on hedged item | |||
| as a fair value hedge | Location | (\$ in millions) | Location | (\$ in millions) | |
| Interest rate contracts | Interest and other finance expense | 28 | Interest and other finance expense | (28) |
| Three months ended September 30, 2014 | ||||||
|---|---|---|---|---|---|---|
| Gains (losses) recognized in income on derivatives Gains (losses) recognized in income |
||||||
| Type of derivative designated | designated as fair value hedges | on hedged item | ||||
| as a fair value hedge | Location | (\$ in millions) | Location | (\$ in millions) | ||
| Interest rate contracts | Interest and other finance expense | (3) | Interest and other finance expense | 3 |
Derivatives not designated in hedge relationships
Derivative instruments that are not designated as hedges or do not qualify as either cash flow or fair value hedges are economic hedges used for risk management purposes. Gains and losses from changes in the fair values of such derivatives are recognized in the same line in the income statement as the economically hedged transaction.
Furthermore, under certain circumstances, the Company is required to split and account separately for foreign currency derivatives that are embedded within certain binding sales or purchase contracts denominated in a currency other than the functional currency of the subsidiary and the counterparty.
The gains (losses) recognized in the Consolidated Income Statements on derivatives not designated in hedging relationships were as follows:
| Type of derivative not | Gains (losses) recognized in income | ||||||
|---|---|---|---|---|---|---|---|
| designated as a hedge | Nine months ended September 30, | Three months ended September 30, | |||||
| (\$ in millions) | Location | 2015 | 2014 | 2015 | 2014 | ||
| Foreign exchange contracts | Total revenues | (226) | (280) | (273) | (183) | ||
| Total cost of sales | 56 | (42) | 128 | (12) | |||
| SG&A expenses(1) | 9 | (1) | – | (2) | |||
| Non-order related research and development | (1) | – | 1 | – | |||
| Interest and other finance expense | 248 | (193) | 22 | (166) | |||
| Embedded foreign exchange | Total revenues | 138 | 38 | 112 | 30 | ||
| contracts | Total cost of sales | (24) | (7) | (12) | (6) | ||
| SG&A expenses(1) | (2) | – | (8) | – | |||
| Commodity contracts | Total cost of sales | (47) | (14) | (30) | (8) | ||
| Interest and other finance expense | 1 | 1 | – | 1 | |||
| Interest rate contracts | Interest and other finance expense | (3) | (1) | (2) | (1) | ||
| Cash-settled call options | Interest and other finance expense | – | (1) | – | (1) | ||
| Total | 149 | (500) | (62) | (348) |
(1) SG&A expenses represent "Selling, general and administrative expenses".
The fair values of derivatives included in the Consolidated Balance Sheets were as follows:
| September 30, 2015 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Derivative assets | Derivative liabilities | |||||||
| Current in | Non-current in | Current in | Non-current in | |||||
| "Other current | "Other non-current | "Other current | "Other non-current | |||||
| (\$ in millions) | assets" | assets" | liabilities" | liabilities" | ||||
| Derivatives designated as hedging instruments: | ||||||||
| Foreign exchange contracts | 13 | 12 | 9 | 14 | ||||
| Commodity contracts | – | – | 4 | – | ||||
| Interest rate contracts | – | 115 | – | – | ||||
| Cash-settled call options | 6 | 4 | – | – | ||||
| Total | 19 | 131 | 13 | 14 | ||||
| Derivatives not designated as hedging instruments: | ||||||||
| Foreign exchange contracts | 191 | 29 | 276 | 87 | ||||
| Commodity contracts | 2 | – | 31 | 8 | ||||
| Cross currency interest rate swaps | – | – | – | 2 | ||||
| Embedded foreign exchange derivatives | 122 | 67 | 37 | 23 | ||||
| Total | 315 | 96 | 344 | 120 | ||||
| Total fair value | 334 | 227 | 357 | 134 |
| December 31, 2014 | ||||||
|---|---|---|---|---|---|---|
| Derivative assets | Derivative liabilities | |||||
| Current in | Non-current in | Current in | Non-current in | |||
| "Other current | "Other non-current | "Other current | "Other non-current | |||
| (\$ in millions) | assets" | assets" | liabilities" | liabilities" | ||
| Derivatives designated as hedging instruments: | ||||||
| Foreign exchange contracts | 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 September 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 September 30, 2015, and December 31, 2014, information related to these offsetting arrangements was as follows:
| (\$ in millions) | September 30, 2015 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Derivative liabilities | |||||||||
| Type of agreement or | Gross amount of | eligible for set-off in | Cash collateral | Non-cash collateral | |||||
| similar arrangement | recognized assets | case of default | received | received | Net asset exposure | ||||
| Derivatives | 372 | (244) | – | – | 128 | ||||
| Reverse repurchase | |||||||||
| agreements | 230 | – | – | (230) | – | ||||
| Total | 602 | (244) | – | (230) | 128 |
| (\$ in millions) | September 30, 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Derivative liabilities | ||||||||
| Type of agreement or | Gross amount of | eligible for set-off in | Cash collateral | Non-cash collateral | ||||
| similar arrangement | recognized liabilities | case of default | pledged | pledged | Net liability exposure | |||
| Derivatives | 431 | (244) | (4) | – | 183 | |||
| Total | 431 | (244) | (4) | – | 183 |
| (\$ in millions) | December 31, 2014 | |||||||
|---|---|---|---|---|---|---|---|---|
| Derivative liabilities | ||||||||
| Type of agreement or | Gross amount of | eligible for set-off in | Cash collateral | Non-cash collateral | ||||
| similar arrangement | recognized assets | case of default | received | received | Net asset exposure | |||
| Derivatives | 322 | (216) | – | – | 106 | |||
| Reverse repurchase | ||||||||
| agreements | 219 | – | – | (219) | – | |||
| Total | 541 | (216) | – | (219) | 106 |
| (\$ in millions) | December 31, 2014 | ||||||
|---|---|---|---|---|---|---|---|
| Derivative liabilities | |||||||
| Type of agreement or | Gross amount of | eligible for set-off in | Cash collateral | Non-cash collateral | |||
| similar arrangement | recognized liabilities | case of default | pledged | pledged | Net liability exposure | ||
| Derivatives | 502 | (216) | (3) | – | 283 | ||
| Total | 502 | (216) | (3) | – | 283 |
Note 6 Fair values The Company uses fair value measurement principles to record certain financial assets and liabilities on a recurring basis and, when necessary, to record certain non-financial assets at fair value on a non-recurring basis, as well as to determine fair value disclosures for certain financial instruments carried at amortized cost in the financial statements. Financial assets and liabilities recorded at fair value on a recurring basis include foreign currency, commodity and interest rate derivatives, as well as cash-settled call options and available-for-sale securities. Non-financial assets recorded at fair value on a non-recurring basis include long-lived assets that are reduced to their estimated fair value due to impairments.
Fair value is the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation techniques including the market approach (using observable market data for identical or similar assets and liabilities), the income approach (discounted cash flow models) and the cost approach (using costs a market participant would incur to develop a comparable asset). Inputs used to determine the fair value of assets and liabilities are defined by a three-level hierarchy, depending on the reliability of those inputs. The Company has categorized its financial assets and liabilities and non-financial assets measured at fair value within this hierarchy based on whether the inputs to the valuation technique are observable or unobservable. An observable input is based on market data obtained from independent sources, while an unobservable input reflects the Company's assumptions about market data.
The levels of the fair value hierarchy are as follows:
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.
| September 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 | – | 15 | – | 15 |
| Available-for-sale securities in "Marketable securities and short-term investments": | ||||
| Equity securities | – | 217 | – | 217 |
| Debt securities—U.S. government obligations | 139 | – | – | 139 |
| Debt securities—European government obligations | 23 | – | – | 23 |
| Debt securities—Other government obligations | – | 2 | – | 2 |
| Debt securities—Corporate | – | 583 | – | 583 |
| Derivative assets—current in "Other current assets" | – | 334 | – | 334 |
| Derivative assets—non-current in "Other non-current assets" | – | 227 | – | 227 |
| Total | 162 | 1,378 | – | 1,540 |
| Liabilities | ||||
| Derivative liabilities—current in "Other current liabilities" | 5 | 352 | – | 357 |
| Derivative liabilities—non-current in "Other non-current liabilities" | – | 134 | – | 134 |
| Total | 5 | 486 | – | 491 |
| 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:
Non-recurring fair value measures There were no significant non-recurring fair value measurements during the nine and three months ended September 30, 2015 and 2014.
The fair values of financial instruments carried on a cost basis were as follows:
| September 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 | 1,533 | 1,533 | – | – | 1,533 |
| Time deposits | 2,422 | – | 2,422 | – | 2,422 |
| Marketable securities and short-term investments | |||||
| (excluding available-for-sale securities): | |||||
| Time deposits | 61 | – | 61 | – | 61 |
| Receivables under reverse repurchase agreements | 230 | – | 230 | – | 230 |
| Other short-term investments | 9 | 9 | – | – | 9 |
| Other non-current assets: | |||||
| Loans granted | 32 | – | 33 | – | 33 |
| Held-to-maturity securities | 96 | – | 112 | – | 112 |
| Restricted cash deposits | 180 | 59 | 138 | – | 197 |
| Liabilities | |||||
| Short-term debt and current maturities of long-term debt | |||||
| (excluding capital lease obligations) | 968 | 127 | 841 | – | 968 |
| Long-term debt (excluding capital lease obligations) | 6,471 | 5,862 | 760 | – | 6,622 |
| Non-current deposit liabilities in "Other non-current liabilities" | 212 | – | 248 | – | 248 |
| December 31, 2014 | |||||
|---|---|---|---|---|---|
| (\$ 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 | 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.
Other non-current assets: Includes (i) loans granted whose fair values are based on the carrying amount adjusted using a present value technique to reflect a premium or discount based on current market interest rates (Level 2 inputs), (ii) held-to-maturity securities (see Note 4) whose fair values are based on quoted market prices in inactive markets (Level 2 inputs), (iii) restricted cash whose fair values approximate the carrying amounts (Level 1 inputs) and restricted cash deposits pledged in respect of certain non-current deposit liabilities whose fair values are determined using a discounted cash flow methodology based on current market interest rates (Level 2 inputs).
Short-term debt and current maturities of long-term debt (excluding capital lease obligations): Short-term debt includes commercial paper, bank borrowings and overdrafts. The carrying amounts of short-term debt and current maturities of long-term debt, excluding capital lease obligations, approximate their fair values.
Note 7 Commitments and contingencies
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) | September 30, 2015 | December 31, 2014 |
|---|---|---|
| Other provisions | 32 | 37 |
| Other non-current liabilities | 91 | 109 |
| Total | 123 | 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 September 30, 2015, and December 31, 2014, the Company had aggregate liabilities of \$151 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) | September 30, 2015 | December 31, 2014 |
|---|---|---|
| Performance guarantees | 220 | 232 |
| Financial guarantees | 79 | 72 |
| Indemnification guarantees | 50 | 50 |
| Total | 349 | 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 September 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 arising 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 September 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 September 30, 2015, and December 31, 2014, the maximum potential amount payable under these guarantees as a result of third-party non-performance was \$147 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 September 30, 2015, and December 31, 2014, the Company had a maximum potential amount payable of \$79 million and \$72 million, respectively, under financial guarantees outstanding. Of these amounts, \$17 million and \$12 million at September 30, 2015, and December 31, 2014, respectively, 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 nine and three months ended September 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 September 30, 2015, and December 31, 2014, was \$50 million.
The Company calculates its provision for product warranties based on historical claims experience and specific review of certain contracts.
The reconciliation of the "Provisions for warranties", including guarantees of product performance, was as follows:
| (\$ in millions) | 2015 | 2014 |
|---|---|---|
| Balance at January 1, | 1,148 | 1,362 |
| Net change in warranties due to acquisitions and divestments | – | 11 |
| Claims paid in cash or in kind | (191) | (211) |
| Net increase in provision for changes in estimates, warranties issued and warranties expired | 170 | 118 |
| Exchange rate differences | (60) | (80) |
| Balance at September 30, | 1,067 | 1,200 |
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 plans consisted of the following:
| Defined pension | Other postretirement | |||
|---|---|---|---|---|
| (\$ in millions) | benefits | benefits | ||
| Nine months ended September 30, | 2015 | 2014 | 2015 | 2014 |
| Service cost | 203 | 179 | 1 | 1 |
| Interest cost | 231 | 299 | 6 | 7 |
| Expected return on plan assets | (345) | (356) | – | – |
| Amortization of prior service cost (credit) | 28 | 20 | (6) | (6) |
| Amortization of net actuarial loss | 95 | 73 | 1 | – |
| Curtailments, settlements and special termination benefits | 1 | 1 | – | – |
| Net periodic benefit cost | 213 | 216 | 2 | 2 |
| Defined pension | Other postretirement | |||
|---|---|---|---|---|
| (\$ in millions) | benefits | benefits | ||
| Three months ended September 30, | 2015 | 2014 | 2015 | 2014 |
| Service cost | 66 | 54 | – | – |
| Interest cost | 76 | 91 | 2 | 2 |
| Expected return on plan assets | (112) | (110) | – | – |
| Amortization of prior service cost (credit) | 9 | 6 | (2) | (2) |
| Amortization of net actuarial loss | 40 | 25 | – | – |
| Curtailments, settlements and special termination benefits | 1 | – | – | – |
| Net periodic benefit cost | 80 | 66 | – | – |
| Defined pension | Other postretirement | |||
|---|---|---|---|---|
| (\$ in millions) | benefits | benefits | ||
| Nine months ended September 30, | 2015 | 2014 | 2015 | 2014 |
| Total contributions to defined benefit pension and other postretirement benefit plans | 155 | 243 | 11 | 10 |
| Of which, discretionary contributions to defined benefit pension plans | 10 | 75 | – | – |
| Defined pension | Other postretirement | |||
|---|---|---|---|---|
| (\$ in millions) | benefits | benefits | ||
| Three months ended September 30, | 2015 | 2014 | 2015 | 2014 |
| Total contributions to defined benefit pension and other postretirement benefit plans | 56 | 43 | 4 | 3 |
| Of which, discretionary contributions to defined benefit pension plans | 10 | – | – | – |
During the nine months ended September 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 \$226 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 nine months ended September 30, 2015, under the announced share buyback program, the Company purchased 40.290 million shares for cancellation and 8.700 million shares to support its employee share programs, of which 4.860 million shares were purchased for cancellation in the three months ended September 30, 2015 (no shares were purchased for employee share programs in the third quarter of 2015). In the nine and three months ended September 30, 2015, these transactions resulted in an increase in Treasury stock of \$1,047 million and \$95 million, respectively. |
|
| As of September 30, 2015, under this program, the Company has purchased a total of 66.270 million shares for cancellation and 15.450 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 paid in May 2015. The nominal value reduction was registered in July 2015 in the commercial register of the canton of Zurich, Switzerland, and was paid in the third quarter of 2015. The approved nominal value reduction was recorded in the second quarter of 2015 as a reduction to Capital stock and additional paid-in capital of \$349 million and a reduction in Retained earnings of \$54 million. |
|
| Note 10 Earnings per share |
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 |
| Nine months ended September 30, | Three months ended September 30, | |||
|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2015 | 2014 | 2015 | 2014 |
| Amounts attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 1,727 | 1,904 | 577 | 722 |
| Income from discontinued operations, net of tax | 2 | 10 | – | 12 |
| Net income | 1,729 | 1,914 | 577 | 734 |
| Weighted-average number of shares outstanding (in millions) | 2,234 | 2,295 | 2,219 | 2,290 |
| Basic earnings per share attributable to ABB shareholders: | ||||
| Income from continuing operations, net of tax | 0.77 | 0.83 | 0.26 | 0.32 |
| Income from discontinued operations, net of tax | – | – | – | – |
| Net income | 0.77 | 0.83 | 0.26 | 0.32 |
subject to certain conditions under the Company's share-based payment arrangements.
| Nine months ended September 30, | Three months ended September 30, | ||||
|---|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2015 | 2014 | 2015 | 2014 | |
| Amounts attributable to ABB shareholders: | |||||
| Income from continuing operations, net of tax | 1,727 | 1,904 | 577 | 722 | |
| Income from discontinued operations, net of tax | 2 | 10 | – | 12 | |
| Net income | 1,729 | 1,914 | 577 | 734 | |
| Weighted-average number of shares outstanding (in millions) | 2,234 | 2,295 | 2,219 | 2,290 | |
| Effect of dilutive securities: | |||||
| Call options and shares | 5 | 7 | 4 | 6 | |
| Adjusted weighted-average number of shares outstanding (in millions) | 2,239 | 2,302 | 2,223 | 2,296 | |
| Diluted earnings per share attributable to ABB shareholders: | |||||
| Income from continuing operations, net of tax | 0.77 | 0.83 | 0.26 | 0.31 | |
| Income from discontinued operations, net of tax | – | – | – | 0.01 | |
| Net income | 0.77 | 0.83 | 0.26 | 0.32 |
The following table shows changes in "Accumulated other comprehensive loss" (OCI) attributable to ABB, by component, net of tax:
| Unrealized gains | Pension and | Unrealized gains | |||
|---|---|---|---|---|---|
| Foreign currency | (losses) on | other | (losses) of cash | ||
| translation | available-for-sale | postretirement | flow hedge | ||
| (\$ in millions) | adjustments | securities | plan adjustments | derivatives | Total OCI |
| Balance at January 1, 2014 | (431) | 7 | (1,610) | 22 | (2,012) |
| Other comprehensive (loss) income | |||||
| before reclassifications | (1,120) | (10) | 73 | (50) | (1,107) |
| Amounts reclassified from OCI | – | (2) | 69 | 3 | 70 |
| Total other comprehensive (loss) income | (1,120) | (12) | 142 | (47) | (1,037) |
| Less: | |||||
| Amounts attributable to noncontrolling interests | (10) | – | – | – | (10) |
| Balance at September 30, 2014 | (1,541) | (5) | (1,468) | (25) | (3,039) |
| Unrealized gains | Pension and | Unrealized gains | |||
|---|---|---|---|---|---|
| Foreign currency | (losses) on | other | (losses) of cash | ||
| translation | available-for-sale | postretirement | flow hedge | ||
| (\$ in millions) | adjustments | securities | plan adjustments | derivatives | Total OCI |
| Balance at January 1, 2015 | (2,102) | 13 | (2,131) | (21) | (4,241) |
| Other comprehensive (loss) income | |||||
| before reclassifications | (844) | (3) | 91 | (14) | (770) |
| Amounts reclassified from OCI | – | 1 | 88 | 28 | 117 |
| Total other comprehensive (loss) income | (844) | (2) | 179 | 14 | (653) |
| Less: | |||||
| Amounts attributable to noncontrolling interests | (13) | – | – | – | (13) |
| Balance at September 30, 2015 | (2,933) | 11 | (1,952) | (7) | (4,881) |
| Nine months ended | Three months ended | ||||
|---|---|---|---|---|---|
| (\$ in millions) | Location of (gains) losses | September 30, | September 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) | 22 | 14 | 7 | 4 |
| Amortization of net actuarial loss | Net periodic benefit cost(1) | 96 | 73 | 40 | 25 |
| Total before tax | 118 | 87 | 47 | 29 | |
| Tax | Provision for taxes | (30) | (18) | (14) | (2) |
| Amounts reclassified from OCI | 88 | 69 | 33 | 27 | |
| Unrealized gains (losses) of cash flow hedge derivatives: | |||||
| Foreign exchange contracts | Total revenues | 31 | 3 | 7 | 3 |
| Total cost of sales | (8) | (7) | (3) | (2) | |
| Commodity contracts | Total cost of sales | 7 | 2 | 3 | – |
| Cash-settled call options | SG&A expenses(2) | 6 | 5 | 2 | (3) |
| Total before tax | 36 | 3 | 9 | (2) | |
| Tax | Provision for taxes | (8) | – | (2) | – |
| Amounts reclassified from OCI | 28 | 3 | 7 | (2) |
(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 nine and three months ended September 30, 2015 and 2014.
transmission and distribution utilities, other infrastructure utilities, as well as other industrial and commercial
| Note 12 | |
|---|---|
| Restructuring and related expenses White Collar Productivity (WCP) program |
In September 2015, the Company announced a two-year program aimed at making the Company leaner, faster and more customer-focused. Planned productivity improvements include the rapid expansion and use of regional shared service centers as well as the streamlining of global operations and head office functions, with business units moving closer to their respective key markets. In the course of this program, the Company will implement and execute various restructuring initiatives across all operating segments and regions. The total restructuring and related expenses of the program are estimated to be between \$850 million and \$900 million. |
| In the three months ended September 30, 2015, the restructuring and related expenses incurred by the Company under this program were not significant. |
|
| Other restructuring-related activities | The Company executed other minor restructuring-related activities and incurred charges, which were not significant in the nine and three months ended September 30, 2015 and 2014. |
| Note 13 Operating segment data |
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. |
|
| - Low Voltage Products: manufactures and sells products and systems that provide protection, control and measurement for electrical installations, as well as enclosures, switchboards, electronics and electromechanical devices for industrial machines, plants and related service. In addition, the segment manufactures products for wiring and cable management, cable protection systems, power connection and safety. The segment also makes intelligent building control systems for home and building automation. |
|
| - Process Automation: develops and sells control and plant optimization systems, automation products and solutions, including instrumentation, as well as industry-specific application knowledge and services for the oil, gas and petrochemicals, metals and minerals, marine and turbocharging, pulp and paper, chemical and pharmaceuticals, and power industries. |
|
| - Power Products: manufactures and sells a wide range of products across voltage levels, including circuit breakers, switchgear, capacitors, instrument transformers, power, distribution and traction transformers for electrical and other infrastructure utilities, as well as industrial and commercial customers. |
|
| - Power Systems: designs, installs and upgrades high-efficiency transmission and distribution systems and power plant automation and electrification solutions, including monitoring and control products, software and services and incorporating components manufactured by both the Company and by third parties, for power generation, |
enterprises.
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 real ized, and (iii) unrealized foreign exchange movements on receivables/payables (and related assets/liabilities).
The segment performance for the nine and three months ended September 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 elimination of profits made on inventory sales between segments. Segment results below are presented before these eliminations, with a total deduction for intersegment profits to arrive at the Company's consolidated Operational EBITA. Intersegment sales and transfers are accounted for as if the sales and transfers were to third parties, at current market prices.
The following tables present segment revenues, Operational EBITA, and the reconciliations of consolidated Operational EBITA to income from continuing operations before taxes for the nine and three months ended September 30, 2015 and 2014, as well as total assets at September 30, 2015, and December 31, 2014.
| Nine months ended September 30, 2015 | Nine months ended September 30, 2014 | |||||
|---|---|---|---|---|---|---|
| Third-party | Intersegment | Total | Third-party | Intersegment | Total | |
| (\$ in millions) | revenues | revenues | revenues | revenues | revenues | revenues |
| Discrete Automation and Motion | 6,383 | 456 | 6,839 | 6,943 | 616 | 7,559 |
| Low Voltage Products | 4,672 | 251 | 4,923 | 5,428 | 311 | 5,739 |
| Process Automation | 4,600 | 100 | 4,700 | 5,705 | 149 | 5,854 |
| Power Products | 6,120 | 886 | 7,006 | 6,393 | 1,115 | 7,508 |
| Power Systems | 4,424 | 163 | 4,587 | 4,803 | 252 | 5,055 |
| Corporate and Other | 40 | 1,112 | 1,152 | 212 | 1,220 | 1,432 |
| Intersegment elimination | – | (2,968) | (2,968) | – | (3,663) | (3,663) |
| Consolidated | 26,239 | – | 26,239 | 29,484 | – | 29,484 |
| Three months ended September 30, 2015 | Three months ended September 30, 2014 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Third-party | Intersegment | Total | Third-party | Intersegment | Total | ||||
| (\$ in millions) | revenues | revenues | revenues | revenues | revenues | revenues | |||
| Discrete Automation and Motion | 2,050 | 170 | 2,220 | 2,419 | 216 | 2,635 | |||
| Low Voltage Products | 1,555 | 82 | 1,637 | 1,817 | 104 | 1,921 | |||
| Process Automation | 1,431 | 30 | 1,461 | 1,852 | 47 | 1,899 | |||
| Power Products | 2,045 | 287 | 2,332 | 2,133 | 322 | 2,455 | |||
| Power Systems | 1,428 | 53 | 1,481 | 1,568 | 69 | 1,637 | |||
| Corporate and Other | 10 | 359 | 369 | 34 | 388 | 422 | |||
| Intersegment elimination | – | (981) | (981) | – | (1,146) | (1,146) | |||
| Consolidated | 8,519 | – | 8,519 | 9,823 | – | 9,823 |
| Nine months ended September 30, | Three months ended September 30, | ||||
|---|---|---|---|---|---|
| (\$ in millions) | 2015 | 2014 | 2015 | 2014 | |
| Operational EBITA: | |||||
| Discrete Automation and Motion | 992 | 1,186 | 335 | 435 | |
| Low Voltage Products | 828 | 934 | 296 | 314 | |
| Process Automation | 554 | 695 | 158 | 221 | |
| Power Products | 849 | 959 | 295 | 312 | |
| Power Systems | 144 | (122) | 69 | (11) | |
| Corporate and Other and Intersegment elimination | (279) | (330) | (72) | (82) | |
| Consolidated Operational EBITA | 3,088 | 3,322 | 1,081 | 1,189 | |
| Acquisition-related amortization | (237) | (290) | (74) | (93) | |
| Restructuring and restructuring-related expenses | (130) | (142) | (46) | (55) | |
| Gains and losses from sale of businesses, acquisition-related expenses | |||||
| and certain non-operational items | (57) | 360 | (7) | 257 | |
| Foreign exchange/commodity timing differences in income from operations: | |||||
| Unrealized gains and losses on derivatives (foreign exchange, commodities, | |||||
| embedded derivatives) | 80 | (201) | (64) | (112) | |
| Realized gains and losses on derivatives where the underlying hedged | |||||
| transaction has not yet been realized | (50) | (20) | (22) | (30) | |
| Unrealized foreign exchange movements on receivables/payables (and related | |||||
| assets/liabilities) | 8 | 100 | 14 | 66 | |
| Income from operations | 2,702 | 3,129 | 882 | 1,222 | |
| Interest and dividend income | 56 | 57 | 18 | 19 | |
| Interest and other finance expense | (223) | (255) | (64) | (83) | |
| Income from continuing operations before taxes | 2,535 | 2,931 | 836 | 1,158 |
| Total assets(1) | |||||
|---|---|---|---|---|---|
| (\$ in millions) | September 30, 2015 | December 31, 2014 | |||
| Discrete Automation and Motion | 9,671 | 10,123 | |||
| Low Voltage Products | 7,699 | 7,978 | |||
| Process Automation | 3,985 | 4,268 | |||
| Power Products | 7,188 | 7,396 | |||
| Power Systems | 6,351 | 6,855 | |||
| Corporate and Other | 6,874 | 8,232 | |||
| Consolidated | 41,768 | 44,852 |
(1) Total assets are after intersegment eliminations and therefore reflect third-party assets only.
Realignment of segments On September 9, 2015, the Company announced a reorganization of its operating segments aimed at delivering more customer value in a better, more focused way from its combined power and automation offering. Effective January 1, 2016, ABB will operate with four segments, namely Discrete Automation and Motion, Electrification Products, Process Automation and Power Grids.
The Discrete Automation and Motion segment will remain unchanged except that it will exclude the Programmable Logic Controller business which will be transferred to the Process Automation segment.
The new Electrification Products segment will include the combined businesses of the existing Low Voltage Products segment and the Medium Voltage Products business, currently included in the Power Products segment.
The scope of businesses in the Process Automation segment will be expanded to include the both the Distributed Control Systems business from the current Power Systems segment and the Programmable Logic Controller business transferred from the Discrete Automation and Motion segment described above.
The new Power Grids segment will include the remaining businesses of the existing Power Products and Power Systems segments, excluding the components transferred to other segments as described above.
The following reconciliations and definitions include measures which ABB uses to supplement its Interim Consolidated Financial Information (unaudited) which is prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). Certain of these financial measures are, or may be, considered non-GAAP financial measures as defined in the rules of the U.S. Securities and Exchange Commission (SEC).
While ABB's management believes that the non-GAAP financial measures herein are useful in evaluating ABB's operating results, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with U.S. GAAP. Therefore these measures should not be viewed in isolation but considered together with the Interim Consolidated Financial Information (unaudited) prepared in accordance with U.S. GAAP as of and for the nine and three months ended September 30, 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.
| Q3 2015 compared to Q3 2014 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | |||||||||||
| US\$ Foreign Acquisitions |
US\$ | Foreign | Acquisitions | |||||||||
| (as | exchange | and | (as | exchange | and | |||||||
| Division | reported) | impact | divestments | Like-for-like | reported) | impact | divestments | Like-for-like | ||||
| Discrete Automation and Motion | -17% | 8% | 0% | -9% | -16% | 9% | 0% | -7% | ||||
| Low Voltage Products | -14% | 11% | 3% | 0% | -15% | 11% | 1% | -3% | ||||
| Process Automation | -48% | 8% | 1% | -39% | -23% | 12% | 3% | -8% | ||||
| Power Products | -10% | 10% | 0% | 0% | -5% | 11% | 0% | 6% | ||||
| Power Systems | -22% | 11% | 0% | -11% | -10% | 13% | 0% | 3% | ||||
| ABB Group | -22% | 10% | 0% | -12% | -13% | 10% | 1% | -2% |
| 9M 2015 compared to 9M 2014 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | |||||||||
| US\$ | Foreign Acquisitions |
Foreign | Acquisitions | |||||||
| (as | exchange | and | (as | exchange | and | |||||
| Division | reported) | impact | divestments | Like-for-like | reported) | impact | divestments | Like-for-like | ||
| Discrete Automation and Motion | -12% | 9% | 0% | -3% | -10% | 9% | 0% | -1% | ||
| Low Voltage Products | -13% | 10% | 5% | 2% | -14% | 10% | 5% | 1% | ||
| Process Automation | -27% | 11% | 2% | -14% | -20% | 12% | 3% | -5% | ||
| Power Products | -7% | 9% | 0% | 2% | -7% | 10% | 0% | 3% | ||
| Power Systems | 0% | 16% | 0% | 16% | -9% | 13% | 0% | 4% | ||
| ABB Group | -12% | 10% | 2% | 0% | -11% | 10% | 2% | 1% |
| Q3 2015 compared to Q3 2014 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | ||||||||||
| US\$ | Foreign | Acquisitions | US\$ | Foreign | Acquisitions | ||||||
| (as | exchange | and | (as | exchange | and | ||||||
| Region | reported) | impact | divestments | Like-for-like | reported) | impact | divestments | Like-for-like | |||
| Europe | -28% | 15% | 0% | -13% | -14% | 17% | 1% | 4% | |||
| The Americas | -10% | 7% | 2% | -1% | -10% | 7% | 2% | -1% | |||
| Asia, Middle East and Africa | -24% | 6% | 0% | -18% | -15% | 7% | 1% | -7% | |||
| ABB Group | -22% | 10% | 0% | -12% | -13% | 10% | 1% | -2% |
| 9M 2015 compared to 9M 2014 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | |||||||||||
| US\$ | Foreign | Acquisitions | US\$ | Foreign | Acquisitions | |||||||
| (as | exchange | and | (as | exchange | and | |||||||
| Region | reported) | impact | divestments | Like-for-like | reported) | impact | divestments | Like-for-like | ||||
| Europe | -14% | 19% | 2% | 7% | -17% | 18% | 1% | 2% | ||||
| The Americas | -14% | 6% | 3% | -5% | -7% | 6% | 4% | 3% | ||||
| Asia, Middle East and Africa | -10% | 6% | 0% | -4% | -9% | 7% | 1% | -1% | ||||
| ABB Group | -12% | 10% | 2% | 0% | -11% | 10% | 2% | 1% |
| September 30, 2015 compared to September 30, 2014 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| US\$ | Foreign Acquisitions |
||||||||||
| (as | exchange | and | |||||||||
| Division | reported) | impact | divestments | Like-for-like | |||||||
| Discrete Automation and Motion | -3% | 8% | 0% | 5% | |||||||
| Low Voltage Products | -3% | 12% | 0% | 9% | |||||||
| Process Automation | -13% | 12% | 1% | 0% | |||||||
| Power Products | -4% | 9% | 0% | 5% | |||||||
| Power Systems | -5% | 11% | 0% | 6% | |||||||
| ABB Group | -6% | 10% | 0% | 4% |
| Q3 2015 compared to Q3 2014 | 9M 2015 compared to 9M 2014 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| US\$ | Foreign | Acquisitions | US\$ | Foreign | Acquisitions | ||||
| (as | exchange | and | (as | exchange | and | ||||
| Division | reported) | impact | divestments | Like-for-like | reported) | impact | divestments | Like-for-like | |
| Discrete Automation and Motion | -23% | 6% | 0% | -17% | -16% | 8% | 0% | -8% | |
| Low Voltage Products | -6% | 11% | -1% | 4% | -11% | 11% | 4% | 4% | |
| Process Automation | -29% | 8% | 2% | -19% | -20% | 8% | 3% | -9% | |
| Power Products | -5% | 8% | 0% | 3% | -11% | 8% | 0% | -3% | |
| Power Systems | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | |
| ABB Group | -9% | 8% | 0% | -1% | -7% | 9% | 2% | 4% |
| Q3 2015 compared to Q3 2014 | 9M 2015 compared to 9M 2014 | |||||||
|---|---|---|---|---|---|---|---|---|
| US\$ | Foreign | Acquisitions | US\$ | Foreign | Acquisitions | |||
| (as | exchange | and | (as | exchange | and | |||
| reported) | impact | divestments | Like-for-like | reported) | impact | divestments | Like-for-like | |
| Large orders | -46% | 8% | 0% | -38% | -8% | 15% | 0% | 7% |
| Base orders | -14% | 10% | 1% | -3% | -13% | 9% | 2% | -2% |
| Service orders | -17% | 11% | 2% | -4% | -14% | 11% | 3% | 0% |
| Service revenues | -11% | 12% | 4% | 5% | -8% | 11% | 4% | 7% |
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).
| Corporate and | |||||||
|---|---|---|---|---|---|---|---|
| Discrete | Other and | ||||||
| Automation | Low Voltage | Process | Power | Power | Intersegment | ||
| (\$ in millions, unless otherwise indicated) | and Motion | Products | Automation | Products | Systems | elimination | Consolidated |
| Total revenues | 6,839 | 4,923 | 4,700 | 7,006 | 4,587 | (1,816) | 26,239 |
| Foreign exchange/commodity timing | |||||||
| differences in total revenues | |||||||
| Unrealized gains and losses | |||||||
| on derivatives | 20 | (12) | 6 | (20) | (47) | (1) | (54) |
| Realized gains and losses on derivatives | |||||||
| where the underlying hedged | |||||||
| transaction has not yet been realized | (28) | 2 | 24 | 30 | 35 | – | 63 |
| Unrealized foreign exchange movements | |||||||
| on receivables (and related assets) | 8 | 3 | (21) | (8) | (15) | – | (33) |
| Operational revenues | 6,839 | 4,916 | 4,709 | 7,008 | 4,560 | (1,817) | 26,215 |
| Income (loss) from operations | 857 | 756 | 508 | 824 | 65 | (308) | 2,702 |
| Acquisition-related amortization | 96 | 76 | 9 | 7 | 35 | 14 | 237 |
| Restructuring and | |||||||
| restructuring-related expenses | 44 | 13 | 24 | 30 | 16 | 3 | 130 |
| Gains and losses from sale of businesses, | |||||||
| acquisition-related expenses and certain | |||||||
| non-operational items | – | – | 11 | 3 | 34 | 9 | 57 |
| Foreign exchange/commodity timing | |||||||
| differences in income from operations: | |||||||
| Unrealized gains and losses on derivatives | |||||||
| (foreign exchange, commodities, | |||||||
| embedded derivatives) | 9 | (19) | (1) | (40) | (32) | 3 | (80) |
| Realized gains and losses on derivatives | |||||||
| where the underlying hedged | |||||||
| transaction has not yet been realized | (26) | 2 | 13 | 31 | 30 | – | 50 |
| Unrealized foreign exchange movements | |||||||
| on receivables/payables | |||||||
| (and related assets/liabilities) | 12 | – | (10) | (6) | (4) | – | (8) |
| Operational EBITA | 992 | 828 | 554 | 849 | 144 | (279) | 3,088 |
| Operational EBITA margin (%) | 14.5% | 16.8% | 11.8% | 12.1% | 3.2% | n.a. | 11.8% |
| Nine months ended September 30, 2014 | |||||||
|---|---|---|---|---|---|---|---|
| Corporate and | |||||||
| Discrete | Other and | ||||||
| Automation | Low Voltage | Process | Power | Power | Intersegment | ||
| (\$ in millions, unless otherwise indicated) | and Motion | Products | Automation | Products | Systems | elimination | Consolidated |
| Total revenues | 7,559 | 5,739 | 5,854 | 7,508 | 5,055 | (2,231) | 29,484 |
| Foreign exchange/commodity timing | |||||||
| differences in total revenues | |||||||
| Unrealized gains and losses | |||||||
| on derivatives | 1 | 17 | (3) | 28 | 139 | – | 182 |
| Realized gains and losses on derivatives | |||||||
| where the underlying hedged | |||||||
| transaction has not yet been realized | (2) | – | 2 | 2 | 26 | – | 28 |
| Unrealized foreign exchange movements | |||||||
| on receivables (and related assets) | (7) | (6) | (5) | (11) | (34) | – | (63) |
| Operational revenues | 7,551 | 5,750 | 5,848 | 7,527 | 5,186 | (2,231) | 29,631 |
| Income (loss) from operations | 1,065 | 1,208 | 650 | 874 | (313) | (355) | 3,129 |
| Acquisition-related amortization | 104 | 87 | 11 | 14 | 58 | 16 | 290 |
| Restructuring and | |||||||
| restructuring-related expenses | 14 | 29 | 26 | 35 | 34 | 4 | 142 |
| Gains and losses from sale of businesses, | |||||||
| acquisition-related expenses and certain | |||||||
| non-operational items | – | (395) | 9 | 10 | 10 | 6 | (360) |
| Foreign exchange/commodity timing | |||||||
| differences in income from operations: | |||||||
| Unrealized gains and losses on derivatives | |||||||
| (foreign exchange, commodities, | |||||||
| embedded derivatives) | 14 | 12 | 8 | 48 | 116 | 3 | 201 |
| Realized gains and losses on derivatives | |||||||
| where the underlying hedged | |||||||
| transaction has not yet been realized | (2) | – | 3 | 5 | 14 | – | 20 |
| Unrealized foreign exchange movements | |||||||
| on receivables/payables | |||||||
| (and related assets/liabilities) | (9) | (7) | (12) | (27) | (41) | (4) | (100) |
| Operational EBITA | 1,186 | 934 | 695 | 959 | (122) | (330) | 3,322 |
| Operational EBITA margin (%) | 15.7% | 16.2% | 11.9% | 12.7% | -2.4% | n.a. | 11.2% |
| Three months ended September 30, 2015 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Corporate and | ||||||||
| Discrete | Other and | |||||||
| Automation | Low Voltage | Process | Power | Power | Intersegment | |||
| (\$ in millions, unless otherwise indicated) | and Motion | Products | Automation | Products | Systems | elimination | Consolidated | |
| Total revenues | 2,220 | 1,637 | 1,461 | 2,332 | 1,481 | (612) | 8,519 | |
| Foreign exchange/commodity timing | ||||||||
| differences in total revenues | ||||||||
| Unrealized gains and losses | ||||||||
| on derivatives | 41 | (3) | 32 | 25 | 25 | 1 | 121 | |
| Realized gains and losses on derivatives | ||||||||
| where the underlying hedged | ||||||||
| transaction has not yet been realized | 1 | 2 | 10 | 9 | 4 | – | 26 | |
| Unrealized foreign exchange movements | ||||||||
| on receivables (and related assets) | (5) | (1) | (5) | (7) | (16) | – | (34) | |
| Operational revenues | 2,257 | 1,635 | 1,498 | 2,359 | 1,494 | (611) | 8,632 | |
| Income (loss) from operations | 264 | 276 | 129 | 284 | 26 | (97) | 882 | |
| Acquisition-related amortization | 31 | 25 | 3 | 2 | 8 | 5 | 74 | |
| Restructuring and | ||||||||
| restructuring-related expenses | 16 | 6 | 3 | 10 | 8 | 3 | 46 | |
| Gains and losses from sale of businesses, | ||||||||
| acquisition-related expenses and certain | ||||||||
| non-operational items | – | (1) | – | 1 | 3 | 4 | 7 | |
| Foreign exchange/commodity timing | ||||||||
| differences in income from operations: | ||||||||
| Unrealized gains and losses on derivatives | ||||||||
| (foreign exchange, commodities, | ||||||||
| embedded derivatives) | 26 | (14) | 16 | (6) | 25 | 17 | 64 | |
| Realized gains and losses on derivatives | ||||||||
| where the underlying hedged | ||||||||
| transaction has not yet been realized | 3 | 2 | 6 | 7 | 4 | – | 22 | |
| Unrealized foreign exchange movements | ||||||||
| on receivables/payables | ||||||||
| (and related assets/liabilities) | (5) | 2 | 1 | (3) | (5) | (4) | (14) | |
| Operational EBITA | 335 | 296 | 158 | 295 | 69 | (72) | 1,081 | |
| Operational EBITA margin (%) | 14.8% | 18.1% | 10.5% | 12.5% | 4.6% | n.a. | 12.5% |
| Three months ended September 30, 2014 | |||||||
|---|---|---|---|---|---|---|---|
| Corporate and | |||||||
| Discrete | Other and | ||||||
| Automation | Low Voltage | Process | Power | Power | Intersegment | ||
| (\$ in millions, unless otherwise indicated) | and Motion | Products | Automation | Products | Systems | elimination | Consolidated |
| Total revenues | 2,635 | 1,921 | 1,899 | 2,455 | 1,637 | (724) | 9,823 |
| Foreign exchange/commodity timing | |||||||
| differences in total revenues | |||||||
| Unrealized gains and losses | |||||||
| on derivatives | 6 | 13 | 2 | 31 | 54 | 1 | 107 |
| Realized gains and losses on derivatives | |||||||
| where the underlying hedged | |||||||
| transaction has not yet been realized | (1) | – | 4 | 2 | 26 | – | 31 |
| Unrealized foreign exchange movements | |||||||
| on receivables (and related assets) | (3) | (5) | (13) | (11) | (20) | – | (52) |
| Operational revenues | 2,637 | 1,929 | 1,892 | 2,477 | 1,697 | (723) | 9,909 |
| Income (loss) from operations | 390 | 552 | 214 | 283 | (121) | (96) | 1,222 |
| Acquisition-related amortization | 35 | 24 | 4 | 4 | 22 | 4 | 93 |
| Restructuring and | |||||||
| restructuring-related expenses | – | 17 | 2 | 12 | 21 | 3 | 55 |
| Gains and losses from sale of businesses, | |||||||
| acquisition-related expenses and certain | |||||||
| non-operational items | 1 | (291) | 6 | (1) | 18 | 10 | (257) |
| Foreign exchange/commodity timing | |||||||
| differences in income from operations: | |||||||
| Unrealized gains and losses on derivatives | |||||||
| (foreign exchange, commodities, | |||||||
| embedded derivatives) | 13 | 15 | 2 | 32 | 48 | 2 | 112 |
| Realized gains and losses on derivatives | |||||||
| where the underlying hedged | |||||||
| transaction has not yet been realized | – | – | 4 | 3 | 23 | – | 30 |
| Unrealized foreign exchange movements | |||||||
| on receivables/payables | |||||||
| (and related assets/liabilities) | (4) | (3) | (11) | (21) | (22) | (5) | (66) |
| Operational EBITA | 435 | 314 | 221 | 312 | (11) | (82) | 1,189 |
| Operational EBITA margin (%) | 16.5% | 16.3% | 11.7% | 12.6% | -0.6% | n.a. | 12.0% |
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:
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 difference in computed operational net income is divided by the relevant weighted-average number of shares outstanding to identify the constant currency Operational EPS adjustment.
| Nine months ended September 30, | |||||
|---|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2015 | 2014 | |||
| EPS(1) | EPS(1) | ||||
| Net income (attributable to ABB) | 1,729 | 0.77 | 1,914 | 0.83 | |
| Restructuring and restructuring-related expenses(2) | 93 | 0.04 | 102 | 0.04 | |
| Gains and losses from sale of businesses, | |||||
| acquisition-related expenses and certain non-operational items(3) | 51 | 0.02 | (145) | (0.06) | |
| FX/commodity timing differences in income from operations(2) | (27) | (0.01) | 88 | 0.04 | |
| Acquisition-related amortization(2) | 170 | 0.08 | 208 | 0.09 | |
| Operational net income | 2,016 | 0.90 | 2,167 | 0.94 | |
| Constant currency Operational EPS adjustment | 0.09 | – | |||
| Operational EPS (constant currency basis) | 0.99 | 0.94 |
| Three months ended September 30, | ||||
|---|---|---|---|---|
| (\$ in millions, except per share data in \$) | 2015 | 2014 | ||
| EPS(1) | EPS(1) | |||
| Net income (attributable to ABB) | 577 | 0.26 | 734 | 0.32 |
| Restructuring and restructuring-related expenses(2) | 32 | 0.01 | 40 | 0.02 |
| Gains and losses from sale of businesses, | ||||
| acquisition-related expenses and certain non-operational items (3) |
5 | – | (103) | (0.04) |
| FX/commodity timing differences in income from operations(2) | 51 | 0.02 | 56 | 0.02 |
| Acquisition-related amortization(2) | 54 | 0.02 | 68 | 0.03 |
| Operational net income | 719 | 0.32 | 795 | 0.35 |
| Constant currency Operational EPS adjustment | 0.03 | – | ||
| Operational EPS (constant currency basis) | 0.35 | 0.35 |
(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) | September 30, 2015 | December 31, 2014 |
|---|---|---|
| Short-term debt and current maturities of long-term debt | 986 | 353 |
| Long-term debt | 6,571 | 7,312 |
| Total debt | 7,557 | 7,665 |
| Cash and equivalents | 3,970 | 5,443 |
| Marketable securities and short-term investments | 1,264 | 1,325 |
| Cash and marketable securities | 5,234 | 6,768 |
| Net debt / (Net cash) | 2,323 | 897 |
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.
(1) Amounts exclude \$802 million and \$1,260 million at September 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.
Free cash flow conversion to net income is calculated as Free cash flow divided by Net income attributable to ABB.
Free cash flow is calculated as net cash provided by operating activities adjusted for: (i) purchases of property, plant and equipment and intangible assets, (ii) proceeds from sales of property, plant and equipment, and (iii) changes in financing and other non-current receivables, net (included in other investing activities).
Free cash flow for the trailing twelve months Free cash flow for the trailing twelve months includes free cash flow recorded by ABB in the twelve months preceding the relevant balance sheet date.
Net income for the trailing twelve months
Net income for the trailing twelve months includes net income recorded by ABB in the twelve months preceding the relevant balance sheet date.
| Purchase | |||||
|---|---|---|---|---|---|
| of property, | Changes in | ||||
| plant and | Proceeds | financing | |||
| Net cash | equipment | from sale of | receivables | ||
| provided by | and | property, | and other | Net income | |
| operating | intangible | plant and | non-current | attributable | |
| (\$ in millions, unless otherwise indicated) | activities | assets | equipment | receivables | to ABB |
| Q4 2014 | 1,833 | (384) | 7 | 1 | 680 |
| Q1 2015 | 53 | (176) | 6 | – | 564 |
| Q2 2015 | 598 | (182) | 18 | 11 | 588 |
| Q3 2015 | 1,173 | (189) | 20 | (5) | 577 |
| (\$ in millions, unless otherwise indicated) | September 30, 2015 | December 31, 2014 |
|---|---|---|
| Net cash provided by operating activities | 3,657 | 3,845 |
| Adjusted for the effects of: | ||
| Purchases of property, plant and equipment and intangible assets | (931) | (1,026) |
| Proceeds from sale of property, plant and equipment | 51 | 33 |
| Changes in financing receivables and other non-current receivables | 7 | 5 |
| Free cash flow | 2,784 | 2,857 |
| Net income attributable to ABB | 2,409 | 2,594 |
| Free cash flow conversion to net income | 116% | 110% |
Finance net is calculated as Interest and dividend income less Interest and other finance expense.
| Nine months ended September 30, | Three months ended September 30, | ||||
|---|---|---|---|---|---|
| (\$ in millions) | 2015 | 2014 | 2015 | 2014 | |
| Interest and dividend income | 56 | 57 | 18 | 19 | |
| Interest and other finance expense | (223) | (255) | (64) | (83) | |
| Finance net | (167) | (198) | (46) | (64) |
Book-to-bill ratio is calculated as Orders received divided by Total revenues.
| Nine months ended September 30, | Three months ended September 30, | ||||
|---|---|---|---|---|---|
| (\$ in millions, unless otherwise indicated) | 2015 | 2014 | 2015 | 2014 | |
| Orders received | 28,167 | 32,150 | 8,767 | 11,225 | |
| Total revenues | 26,239 | 29,484 | 8,519 | 9,823 | |
| Book-to-bill ratio | 1.07 | 1.09 | 1.03 | 1.14 |
Corporate Communications P.O. Box 8131 8050 Zurich Switzerland Tel: +41 (0)43 317 71 11 Fax: +41 (0)43 317 79 58
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