UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of October 2016

 

Commission File Number 001-16429

 

ABB Ltd

(Translation of registrant’s name into English)

 

P.O. Box 1831, Affolternstrasse 44, CH-8050, Zurich, Switzerland

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F ☒ 

Form 40-F ⬜ 

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ⬜ 

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indication by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ⬜ 

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes ⬜ 

No ☒ 

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-

 

 

 

 


 

 

 

 

 

This Form 6-K consists of the following:

 

1.              Press release issued by ABB Ltd dated October 27, 2016 titled “Continued margin growth in tough markets”.

2.              Q3 2016 Financial Information.

3.     Press release issued by ABB Ltd dated October 27, 2016 titled “ABB names Timo Ihamuotila as new Chief Financial Officer”.

4.              Announcements regarding transactions in ABB Ltd’s Securities made by the directors or the members of the Executive Committee.

 

The information provided by Item 2 above is incorporated by reference into ABB Ltd's registration statement on Form F-3 (File No. 333-180922) and registration statements on Form S-8 (File Nos. 333-190180, 333-181583, 333-179472, 333-171971 and 333-129271) each of which was previously filed with the Securities and Exchange Commission.

 

  

 


 

 

Zurich, Switzerland, October 27, 2016: Third-quarter highlights 

Continued margin growth in tough markets

          Operational EBITA margin1 increased to 12.6%

          White Collar Productivity on track towards $1.3 bn savings; expected total costs reduced by $100 mn

          Net Income $568 million; basic earnings per share up 2%

          Base orders -6%2; total orders -13%; reflect Q3 uncertainty

          Revenues steady

          Cash flow from operating activities $1,081 million, more consistent quarterly cash generation

          Timo Ihamuotila to succeed Eric Elzvik as Chief Financial Officer effective April 1, 2017

          ABB launched Stage 3 of its Next Level Strategy – committed to unlocking value

________________________________________________________________________________________________________

 

“We delivered the eighth consecutive quarter of margin accretion through our continued focus on execution,” said CEO Ulrich Spiesshofer. “In the third quarter, we experienced significant macro uncertainties around Brexit and the US elections as reflected in the low order pattern. Orders in Power Grids were additionally dampened by the hesitation of customers prior to the Capital Markets Day. However, the Power Grids transformation is on track as clearly demonstrated by the 170 basis points margin accretion,” he said. “With our enhanced cash culture, we have delivered more than 30 percent higher cash flow so far this year with a much steadier cash generation profile.”

“We continue to run the company with discipline, realizing growth opportunities where possible whilst driving earnings and cash growth. We are committed to unlocking value for all shareholders as a more focused, agile company building on our industry-leading digital offering.”

 

Key figures

 

 

Change

 

 

Change

($ in millions, unless otherwise
indicated)

Q3 2016

Q3 2015

US$

 

Comparable1

9M 2016

9M 2015

US$

 

Comparable1

Orders

7,533

8,767

-14%

-13%

25,102

28,167

-11%

-8%

Revenues

8,255

8,519

-3%

0%

24,835

26,239

-5%

-1%

Operational EBITA1

1,046

1,081

-3%

-2%3

3,095

3,088

0%

+3%3

as % of operational revenues1

12.6%

12.5%

+0.1pts

 

12.4%

11.8%

+0.6pts

 

Net income

568

577

-2%

 

1,474

1,729

-15%

 

Basic EPS ($)

0.27

0.26

+2%4

 

0.68

0.77

-12%4

 

Operational EPS1 ($) 

0.32

0.32

-1%4

0%4

0.95

0.90

+5%4

+7%4

Cash flow from operating activities

1,081

1,173

-8%

 

2,415

1,824

+32%

 

Short-term outlook

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 2015. The market remains impacted by modest growth and increased uncertainties, e.g., Brexit in Europe and geopolitical tensions in various parts of the world. Oil prices and foreign exchange translation effects are expected to continue to influence the company’s results.

 

1 For a reconciliation of non-GAAP measures, see “Supplemental Reconciliations and Definitions” in the attached Q3 2016 Financial Information

2 Growth rates for orders, revenues and order backlog are on a comparable basis (local currency adjusted for acquisitions and divestitures), previously referred to as ‘like-for-like’. US$ growth rates are presented in Key Figures table

3 Constant currency (not adjusted for portfolio changes)

4 EPS growth rates are computed using unrounded amounts. Comparable operational earnings per share is in constant currency (2014 exchange rates and not adjusted for changes in the business portfolio

 

1


 

 

 

 

 

Q3 2016 Group results

 

Orders

Total orders declined 13 percent (14 percent in US dollars) compared with the third quarter of 2015, reflecting timing of large order awards and lower short cycle volumes. Base orders (below $15 million) decreased 6 percent (7 percent in US dollars), while large orders ($15 million and above) were lower in all divisions and represented 11 percent of total orders compared with 17 percent a year earlier. Orders for services and software were 3 percent lower (5 percent in US dollars) and represented 17 percent of total orders compared with 16 percent a year ago.

 

Market overview

Demand patterns in ABB’s three regions:

          Demand in Europe was subdued primarily due to moderate overall growth, uncertainties in the UK following Brexit and political events in Turkey.  Total orders declined 18 percent (20 percent in US dollars) while base orders were stable (2 percent lower in US dollars). Base order demand was positive in Germany, Italy, Sweden and Switzerland, and weak in the UK and Norway.

          The Americas was weaker due to considerable investment delays triggered by the US election and lagging industrial demand. Total orders declined 16 percent (17 percent in US dollars) on weaker large orders; base orders were 8 percent lower (9 percent in US dollars) on weak demand in the US, Canada and Brazil.

          Demand in Asia, the Middle East and Africa (AMEA) was mixed. India continued to grow and China continued its investment activities in power transmission and robotics. Total orders for the region were down 5 percent (7 percent in US dollars) as strong order development in India could not offset declines in China and the UAE. Base orders declined 9 percent (10 percent in US dollars).

 

Demand patterns in ABB’s three major customer sectors:

          Utilities continued their investment activities to integrate renewable energy and foster grid reliability and efficiency.

          In industry: investments in discrete and hybrid industries such as automotive, food and beverage and machinery remained positive while demand from the process industries, specifically mining and oil and gas remain subdued.

          Transport and infrastructure demand has been mixed. Demand for specialty vessels solutions remained strong as well as solutions involving energy efficiency for rail transport. Construction has been mixed.

 

The book-to-bill1 ratio in the third quarter decreased to 0.91x from 1.03x in the same quarter a year earlier. For the first nine months, book-to-bill1 is 1.01x. The order backlog at the end of September 2016 amounted to $24,554 million, a decrease of 2 percent (3 percent in US dollars) compared with the end of the third quarter in 2015.

 

Revenues

Revenues were flat (3 percent lower in US dollars) in the third quarter. Revenues were steady in the Electrification Products and Discrete Automation and Motion divisions and increased slightly in Power Grids, which offset a decline in Process Automation. Total services and software revenues increased 5 percent (4 percent in US dollars) and represented 18 percent of total revenues compared with 17 percent a year ago.

 

Operational EBITA

Operational EBITA decreased 2 percent in local currencies (3 percent in US dollars) to $1,046 million and included the impact of negative mix. Operational EBITA margin improved 10 basis points to 12.6 percent compared with the same quarter a year ago, reflecting margin accretion in Electrification Products, Process Automation and Power Grids as well as ongoing productivity and cost savings measures, such as the white collar productivity program.

 

 

2


 

 

 

 

 

Operational EPS and net income

Operational EPS was steady at $0.32 in constant currency compared with the same period a year earlier. The reduction in the weighted-average number of shares outstanding compensated for a slightly lower operational EBITA, higher interest expense and higher tax rate. Net income decreased 2 percent to $568 million and basic earnings per share was $0.27 compared with $0.26 for the same quarter of 2015, an increase of 2 percent.

 

Cash flow from operating activities

Cash flow from operating activities was $1,081 million, $92 million lower compared with the third quarter of 2015, mainly due to lower net income. In the first nine months of 2016, cash flow from operating activities increased
32 percent compared with the same period a year ago, primarily due to stronger working capital management and timing of income tax payments.

 

Shareholder returns

On September 30, 2016, ABB announced the completion of the share buyback program that was introduced in September 2014. During the buyback program, ABB repurchased a total of 171.3 million registered shares (equivalent to 7.4 percent of its issued share capital at the launch of the buyback program) for a total amount of approximately $3.5 billion.

At its Capital Markets Day on October 4, 2016, ABB announced its plans for a new share buyback program of up to $3 billion from 2017 through 2019. This reflects the company’s confidence and the continued strength of ABB’s cash generation and financial position.

Divestitures

In line with its strategy to continuously optimize the portfolio, ABB announced in September the planned sale of its global high-voltage cables systems business to NKT Cables. The transaction is expected to close in the first quarter of 2017 subject to regulatory clearances. ABB and NKT also signed an agreement for a long-term strategic partnership that will serve future projects globally.

Management changes

Today, ABB announced the appointment of Timo Ihamuotila as Chief Financial Officer and member of the Executive Committee, effective April 1, 2017. Ihamuotila succeeds current CFO Eric Elzvik in an orderly transition process, who will pursue career opportunities outside of ABB after a thorough handover in the second quarter of 2017. Ihamuotila joins ABB from Nokia, “a global leader in the technologies that connect people and things,” where he has been the Chief Financial Officer for the last seven years. Ihamuotila is a proven CFO with deep experience in communications, software and services industries, active portfolio management and operational performance improvement. He brings a deep understanding of corporate transformation and digital business models.

 

“Timo is a seasoned CFO with an impressive global track record,” said CEO Ulrich Spiesshofer. “He has extensive and deep experience in all aspects of finance as well as in transforming businesses in times of industrial digitalization. With his wide expertise, ranging from financial to commercial to general management, he is the ideal person to lead our finance organization and partner to drive ABB’s ongoing transformation as a leader in the digital industry. I am delighted to welcome Timo to our Executive Committee in these exciting times, as we focus on unlocking maximum value for all shareholders,” Spiesshofer said. “At the same time I would like to warmly thank Eric Elzvik already now for his long, outstanding commitment and many valuable contributions to ABB over more than three decades. During Eric’s CFO tenure, a new cash culture together with a significant improvement of our Net Working Capital, a fundamental productivity improvement of the finance function and many portfolio actions were successfully established and delivered. We wish Eric all the best for the next step of his professional career which he will pursue after the orderly handover process is completed in Q2 2017.”

 

3


 

 

 

 

 

Q3 divisional performance

 

($ in millions,
unless otherwise indicated)

Orders

Change

Revenues

Change

Operational EBITA %

Change

US$

Comparable1

US$

Comparable1

Electrification Products

2,223

-6%

-4%

2,308

-2%

0%

17.8%

+0.4pts

Discrete Automation
& Motion

2,123

-5%

-4%

2,203

-1%

0%

14.1%

-0.7pts

Process Automation

1,193

-22%

-21%

1,523

-8%

-7%

12.2%

+1.5pts

Power Grids

2,391

-22%

-21%

2,636

-6%

+1%

9.5%

+1.7pts

Corporate & other (incl. inter-division elimination)

-397

 

 

-415

 

 

 

 

ABB Group

7,533

-14%

-13%

8,255

-3%

0%

12.6%

+0.1pts

 

Electrification Products

Total orders were down as positive order development in Europe could not offset a decline in the Americas and AMEA. In particular, markets including China, Saudi Arabia, Brazil and Turkey were challenging, while Italy, Switzerland and India were stronger. Revenues were steady, and operational EBITA margin improved 40 basis points to 17.8 percent, due to additional cost savings, capacity adjustments and supply chain management. 

 

Discrete Automation and Motion

Continued strong demand patterns in robotics and in food and beverage could not offset the capex declines in process industries such as oil and gas, which negatively impacted order development. Revenues were steady, reflecting strong order execution. Operational EBITA margin declined 70 basis points compared with the same quarter a year ago primarily due to unfavorable mix and lower capacity utilization. Continued capacity adjustments and productivity improvements are underway.

 

Process Automation

Total orders were 21 percent lower (22 percent in US dollars) as reduced capital expenditure and cautious discretionary spending in process industries continued to impact large as well as base orders (13 percent lower, 13 percent in US dollars). Revenues declined 7 percent (8 percent in US dollars) as steady demand for specialty vessels could not compensate for declines in such segments as mining and oil and gas. Operational EBITA margin increased 150 basis points to 12.2 percent due to successful project execution and implemented cost reduction and productivity measures.

 

Power Grids

Total orders were lower compared with the same quarter a year ago primarily due to the timing of large order awards. Lower base orders reflected sluggishness in some markets such as the US, Saudi Arabia and Brazil while Europe remained supportive. Revenues were slightly higher due to steady execution of a healthy order backlog. Operational EBITA margin increased by 170 basis points to 9.5 percent. This solid performance was driven by sustained project execution, improved productivity and continued cost savings.

 

 

4


 

 

 

 

 

Next Level strategy – Stage 3

On October 4, 2016, ABB launched Stage 3 of its Next Level strategy to unlock value for customers and shareholders. The core elements of this include: shaping ABB’s divisions into four market-leading, entrepreneurial units; realizing ABB’s full digital potential; accelerating momentum in operational excellence; and strengthening ABB’s brand.

Driving growth in four market-leading entrepreneurial divisions

ABB is shaping and focusing its divisional structure into four market-leading divisions: Electrification Products, Robotics and Motion, Industrial Automation and Power Grids, effective January 1, 2017. The divisions will be empowered as entrepreneurial units within ABB, reflected in an enhancement of ABB’s performance and compensation model focusing on individual accountability and responsibility. They will benefit from sales collaboration orchestrated by regions and countries as well as from the group-wide digital offering, ABB’s leading G&A structure and costs, common supply chain management, and corporate research centers.

ABB announced two important partnerships in line with transforming the Power Grids offering. The agreements with Fluor and Aibel are examples in which ABB will bring its leading technology in power transmission and distribution. Fluor and Aibel provide execution of turnkey Engineering, Procurement and Construction (EPC) responsibilities for substations and offshore wind connections, respectively.

A quantum leap in digital with ABB AbilityTM

ABB is a hidden digital champion today. It is ideally positioned to win in the digital space with new and existing end-to-end digital solutions. The newly launched ABB Ability offering combines ABB’s portfolio of digital solutions and services across all customer segments, cementing the group’s leading position in the Fourth Industrial Revolution and supporting the competitiveness of ABB’s four entrepreneurial divisions.

The company has announced a far-reaching strategic partnership with Microsoft, the world’s largest software company, to develop next-generation digital solutions on an integrated open cloud platform. Customers will benefit from the unique combination of ABB’s deep domain knowledge and extensive portfolio of industrial solutions and Microsoft’s Azure intelligent cloud as well as B2B engineering competence. Together, the partners will drive digital transformation in customer segments across ABB’s businesses in utilities, industry and transport and infrastructure.

Accelerating momentum in operational excellence

ABB continues to build on its existing momentum and is further accelerating its operational excellence.

The company’s White-Collar Productivity savings program has outperformed expectations since its launch last year. As a result, ABB has increased the program’s cost reduction target by 30 percent to $1.3 billion. ABB will achieve these additional savings within the initially announced timeframe and for $100 million lower of total combined restructuring program and implementation costs. ABB is continuing its regular cost-savings programs, leveraging operational excellence and world-class supply chain management to achieve savings equivalent to 3-5 percent of cost of sales each year.

ABB reaffirms the target of its Net Working Capital program to free up approximately $2 billion by the end of 2017. The program is well on track and focuses on improving inventory management by optimizing the entire value chain, from product design to manufacturing, and by optimizing other net working capital measures.

Strengthening the global ABB brand

ABB will adopt a single corporate brand, consolidating all its brands around the world under one umbrella. ABB’s portfolio of companies will be unified, showcasing the full breadth and depth of the company’s global offering under one master brand. This transition is expected to take up to two years.

ABB reaffirmed its Group 2015-2020 financial targets.

 

5


 

 

 

 

 

Outlook

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 2015. The market remains impacted by modest growth and increased uncertainties relating to Brexit in Europe and geopolitical tensions in various parts of the world. Oil prices and foreign exchange translation effects are expected to continue to influence the company’s results.

 

The attractive long-term demand outlook in ABB’s three major customer sectors — utilities, industry and transport & infrastructure — is driven by the Energy and Fourth Industrial Revolutions.

 

ABB is well-positioned to tap into these opportunities for long-term profitable growth with its strong market presence, broad geographic and business scope, technology leadership and financial strength.

 

 

 

6


 

 

 

 

 

 

More information

The Q3 2016 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 press conference today starting at 9:00 a.m. Central European Time (CET) (8:00 a.m. BST, 3:00 a.m. EDT). The event will be accessible by conference call. Callers from the UK should dial +44 203 059 58 62. From Sweden, the number to dial 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 charges apply). Lines will be open 10 to 15 minutes before the start of the conference. A podcast of the media conference will be available for one week afterwards. The podcast will be accessible at: http://new.abb.com/media/events

 

A conference call for analysts and investors is scheduled to begin today at 2:00 p.m. CET (1:00 p.m. BST, 8:00 a.m. EDT). Callers from the UK should dial +44 203 059 58 62. From Sweden, the number to dial 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 charges apply). 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 www.abb.com.

 

 

ABB (ABBN: SIX Swiss Ex) is a pioneering technology leader in electrification products, robotics and motion, industrial automation and power grids, serving customers in utilities, industry and transport & infrastructure globally. Continuing more than a 125-year history of innovation, ABB today is writing the future of industrial digitalization and driving the Energy and Fourth Industrial Revolutions. ABB operates in more than 100 countries with about 135,000 employees. www.abb.com 

 

 

Investor calendar 2016/2017

 

 

Fourth-quarter and full-year 2016 results

February 8, 2017

Annual General Meeting (Zurich)

April 13, 2017

First quarter 2017 results

April 20, 2017

Second quarter 2017 results

July 20, 2017

Third quarter 2017 results

October 26, 2017

 

Important notice about forward-looking information

This press release includes forward-looking information and statements as well as other statements concerning the outlook for our business, including those in the sections of this release titled “Short-term outlook”, “Outlook”, “Shareholder Returns”, “Divestitures”, “Management Changes” and “Next Level strategy - Stage 3”. These statements are based on current expectations, estimates and projections about the factors that may affect our future performance, including global economic conditions, the economic conditions of the regions and industries that are major markets for ABB Ltd. These expectations, estimates and projections are generally identifiable by statements containing words such as “expects,” “believes,” “estimates,” “targets,” “plans,” “is likely”, “intends” 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

 

7


 

factors that could cause such differences include, among others, business risks associated with the volatile global economic environment and political conditions, costs associated with compliance activities, market acceptance of new products and services, changes in governmental regulations and currency exchange rates and such other factors as may be discussed from time to time in ABB Ltd’s filings with the U.S. Securities and Exchange Commission, including its Annual Reports on Form 20-F. Although ABB Ltd believes that its expectations reflected in any such forward-looking statement are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved.

 

Zurich, October 27, 2016

Ulrich Spiesshofer, CEO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For more information please contact:

 

Media Relations

Tel: +41 43 317 65 68

media.relations@ch.abb.com

 

Investor Relations

Tel. +41 43 317 71 11

investor.relations@ch.abb.com

 

ABB Ltd

Affolternstrasse 44

8050 Zurich

Switzerland

 

  

 

8


 

  

 

1              Q3 2016 Financial Information 


 

 

Financial  Information

 

 

 

 

 

 

 

 

 

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

 

 

 

32       Supplemental Reconciliations and Definitions

 

 

 

 

  

2              Q3 2016 Financial Information 


 

Financial Information

Key Figures

 

 

 

 

 

CHANGE

 

($ in millions, unless otherwise indicated)

Q3 2016

Q3 2015

US$

Comparable(1)

 

Orders

7,533

8,767

-14%

-13%

 

Order backlog (end September)

24,554

25,371

-3%

-2%

 

Revenues

8,255

8,519

-3%

0%

 

Operational EBITA(1)

1,046

1,081

-3%

-2%(2)

 

 

as % of operational revenues(1)

12.6%

12.5%

+0.1 pts

 

 

Net income

568

577

-2%

 

 

Basic earnings per share ($)

0.27

0.26

2%(3)

 

 

Operational earnings per share(1) ($)

0.32

0.32

-1%(3)

0%(3)

 

Cash flow from operating activities

1,081

1,173

-8%

 



 

 

 

 

 

 

CHANGE

 

($ in millions, unless otherwise indicated)

9M 2016

9M 2015

US$

Comparable(1)

 

Orders

25,102

28,167

-11%

-8%

 

Revenues

24,835

26,239

-5%

-1%

 

Operational EBITA(1)

3,095

3,088

0%

3%(2)

 

 

as % of operational revenues(1)

12.4%

11.8%

+0.6pts

 

 

Net income

1,474

1,729

-15%

 

 

Basic earnings per share ($)

0.68

0.77

-12%(3)

 

 

Operational earnings per share(1) ($)

0.95

0.90

5%(3)

7%(3)

 

Cash flow from operating activities

2,415

1,824

32%

 

(1)  For a reconciliation of non-GAAP measures see “Supplemental Reconciliations and Definitions” on page 32.

(2)  Constant currency (not adjusted for portfolio changes).

(3) Earnings per share growth rates are computed using unrounded amounts. Comparable Operational earnings per share growth is in constant currency (2014 foreign exchange rates and not adjusted for changes in the business portfolio).

3              Q3 2016 Financial Information 


 

 

 

 

 

CHANGE

 

($ in millions, unless otherwise indicated)

Q3 2016

Q3 2015

US$

Local

Comparable

 

Orders

ABB Group

7,533

8,767

-14%

-13%

-13%

 

 

Electrification Products

2,223

2,365

-6%

-4%

-4%

 

 

Discrete Automation and Motion

2,123

2,241

-5%

-4%

-4%

 

 

Process Automation

1,193

1,529

-22%

-21%

-21%

 

 

Power Grids

2,391

3,082

-22%

-21%

-21%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(397)

(450)

 

Third-party base orders

ABB Group

6,727

7,272

-7%

-6%

-6%

 

 

Electrification Products

2,095

2,173

-4%

-1%

-1%

 

 

Discrete Automation and Motion

1,899

1,983

-4%

-3%

-3%

 

 

Process Automation

1,128

1,316

-14%

-13%

-13%

 

 

Power Grids

1,588

1,782

-11%

-10%

-9%

 

 

Corporate and Other

17

18

 

 

 

 

Order backlog (end September)

ABB Group

24,554

25,371

-3%

-3%

-2%

 

 

Electrification Products

3,093

3,038

2%

3%

3%

 

 

Discrete Automation and Motion

4,458

4,601

-3%

-2%

-2%

 

 

Process Automation

5,675

6,322

-10%

-11%

-11%

 

 

Power Grids

13,063

13,117

0%

1%

2%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(1,735)

(1,707)

 

Revenues

ABB Group

8,255

8,519

-3%

-2%

0%

 

 

Electrification Products

2,308

2,353

-2%

0%

0%

 

 

Discrete Automation and Motion

2,203

2,220

-1%

0%

0%

 

 

Process Automation

1,523

1,659

-8%

-7%

-7%

 

 

Power Grids

2,636

2,791

-6%

-4%

1%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(415)

(504)

 

Operational EBITA

ABB Group

1,046

1,081

-3%

-2%

 

 

 

Electrification Products

411

410

0%

2%

 

 

 

Discrete Automation and Motion

311

335

-7%

-6%

 

 

 

Process Automation

187

181

3%

4%

 

 

 

Power Grids

254

221

15%

17%

 

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(117)

(66)

 

Operational EBITA %

ABB Group

12.6%

12.5%

 

 

 

 

 

Electrification Products

17.8%

17.4%

 

 

 

 

 

Discrete Automation and Motion

14.1%

14.8%

 

 

 

 

 

Process Automation

12.2%

10.7%

 

 

 

 

 

Power Grids

9.5%

7.8%

 

 

 

 

Income from operations

ABB Group

878

882

 

 

 

 

 

Electrification Products

389

390

 

 

 

 

 

Discrete Automation and Motion

276

264

 

 

 

 

 

Process Automation

170

159

 

 

 

 

 

Power Grids

222

159

 

 

 

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(179)

(90)

 

Income from operations %

ABB Group

10.6%

10.4%

 

 

 

 

 

Electrification Products

16.9%

16.6%

 

 

 

 

 

Discrete Automation and Motion

12.5%

11.9%

 

 

 

 

 

Process Automation

11.2%

9.6%

 

 

 

 

 

Power Grids

8.4%

5.7%

 

 

 

 

Cash flow from operating activities

ABB Group

1,081

1,173

 

 

 

 

 

Electrification Products

373

372

 

 

 

 

 

Discrete Automation and Motion

322

386

 

 

 

 

 

Process Automation

234

197

 

 

 

 

 

Power Grids

189

189

 

 

 

 

 

Corporate and Other

(37)

29

 

 

 

4              Q3 2016 Financial Information 


 

 

 

 

 

CHANGE

 

($ in millions, unless otherwise indicated)

9M 2016

9M 2015

US$

Local

Comparable

 

Orders

ABB Group

25,102

28,167

-11%

-8%

-8%

 

 

Electrification Products

7,001

7,493

-7%

-3%

-3%

 

 

Discrete Automation and Motion

6,641

7,238

-8%

-6%

-6%

 

 

Process Automation

4,346

5,551

-22%

-19%

-19%

 

 

Power Grids

8,353

9,577

-13%

-11%

-10%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(1,239)

(1,692)

 

 

 

 

Third-party base orders

ABB Group

22,027

23,180

-5%

-2%

-2%

 

 

Electrification Products

6,606

6,948

-5%

-2%

-2%

 

 

Discrete Automation and Motion

5,957

6,267

-5%

-3%

-3%

 

 

Process Automation

3,809

4,246

-10%

-7%

-7%

 

 

Power Grids

5,612

5,663

-1%

2%

3%

 

 

Corporate and Other

43

56

 

 

 

 

Order backlog (end September)

ABB Group

24,554

25,371

-3%

-3%

-2%

 

 

Electrification Products

3,093

3,038

2%

3%

3%

 

 

Discrete Automation and Motion

4,458

4,601

-3%

-2%

-2%

 

 

Process Automation

5,675

6,322

-10%

-11%

-11%

 

 

Power Grids

13,063

13,117

0%

1%

2%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(1,735)

(1,707)

 

Revenues

ABB Group

24,835

26,239

-5%

-2%

-1%

 

 

Electrification Products

6,830

7,088

-4%

0%

0%

 

 

Discrete Automation and Motion

6,503

6,839

-5%

-3%

-3%

 

 

Process Automation

4,861

5,298

-8%

-5%

-5%

 

 

Power Grids

7,933

8,514

-7%

-4%

0%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(1,292)

(1,500)

 

Operational EBITA

ABB Group

3,095

3,088

0%

3%

 

 

 

Electrification Products

1,143

1,161

-2%

1%

 

 

 

Discrete Automation and Motion

896

992

-10%

-8%

 

 

 

Process Automation

593

624

-5%

-2%

 

 

 

Power Grids

706

581

22%

24%

 

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(243)

(270)

 

Operational EBITA %

ABB Group

12.4%

11.8%

 

 

 

 

 

Electrification Products

16.7%

16.4%

 

 

 

 

 

Discrete Automation and Motion

13.8%

14.5%

 

 

 

 

 

Process Automation

12.1%

11.8%

 

 

 

 

 

Power Grids

8.9%

6.8%

 

 

 

 

Income from operations

ABB Group

2,309

2,702

 

 

 

 

 

Electrification Products

1,016

1,089

 

 

 

 

 

Discrete Automation and Motion

742

857

 

 

 

 

 

Process Automation

452

580

 

 

 

 

 

Power Grids

554

468

 

 

 

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(455)

(292)

 

 

 

 

Income from operations %

ABB Group

9.3%

10.3%

 

 

 

 

 

Electrification Products

14.9%

15.4%

 

 

 

 

 

Discrete Automation and Motion

11.4%

12.5%

 

 

 

 

 

Process Automation

9.3%

10.9%

 

 

 

 

 

Power Grids

7.0%

5.5%

 

 

 

 

Cash flow from operating activities

ABB Group

2,415

1,824

 

 

 

 

 

Electrification Products

770

774

 

 

 

 

 

Discrete Automation and Motion

694

834

 

 

 

 

 

Process Automation

542

316

 

 

 

 

 

Power Grids

561

135

 

 

 

 

 

Corporate and Other

(152)

(235)

 

 

 

5              Q3 2016 Financial Information 


 

Operational EBITA

 

  

 

 

 

Electrification

Discrete Automation

Process

Power

 

($ in millions, unless otherwise indicated)

ABB

Products

and Motion

Automation

Grids

 

 

Q3 16

Q3 15

Q3 16

Q3 15

Q3 16

Q3 15

Q3 16

Q3 15

Q3 16

Q3 15

 

Revenues

8,255

8,519

2,308

2,353

2,203

2,220

1,523

1,659

2,636

2,791

 

FX/commodity timing

 

 

 

 

 

 

 

 

 

 

 

differences in total revenues

43

113

5

4

37

8

32

25

43

 

Operational revenues

8,298

8,632

2,313

2,353

2,207

2,257

1,531

1,691

2,661

2,834

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

878

882

389

390

276

264

170

159

222

159

 

Acquisition-related amortization

70

74

24

25

30

31

3

3

9

10

 

Restructuring and

 

 

 

 

 

 

 

 

 

 

 

restructuring-related expenses(1)

39

59

(7)

10

(4)

16

7

3

12

13

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

 

 

 

 

non-operational items

35

(6)

1

(1)

4

1

2

5

 

FX/commodity timing

 

 

 

 

 

 

 

 

 

 

 

differences in income from operations

24

72

4

(14)

5

24

7

15

9

34

 

Operational EBITA

1,046

1,081

411

410

311

335

187

181

254

221

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

12.6%

12.5%

17.8%

17.4%

14.1%

14.8%

12.2%

10.7%

9.5%

7.8%



 

 

 

 

Electrification

Discrete Automation

Process

Power

 

($ in millions, unless otherwise indicated)

ABB

Products

and Motion

Automation

Grids

 

 

9M 16

9M 15

9M 16

9M 15

9M 16

9M 15

9M 16

9M 15

9M 16

9M 15

 

Revenues

24,835

26,239

6,830

7,088

6,503

6,839

4,861

5,298

7,933

8,514

 

FX/commodity timing

 

 

 

 

 

 

 

 

 

 

 

differences in total revenues

61

(24)

(7)

(2)

32

30

(17)

 

Operational revenues

24,896

26,215

6,830

7,081

6,501

6,839

4,893

5,298

7,963

8,497

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

2,309

2,702

1,016

1,089

742

857

452

580

554

468

 

Acquisition-related amortization

212

237

72

76

91

96

9

9

27

42

 

Restructuring and

 

 

 

 

 

 

 

 

 

 

 

restructuring-related expenses(1)

475

143

48

20

57

44

100

24

106

38

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

 

 

 

 

non-operational items

46

44

1

4

19

6

38

 

FX/commodity timing

 

 

 

 

 

 

 

 

 

 

 

differences in income from operations

53

(38)

6

(24)

2

(5)

32

(8)

13

(5)

 

Operational EBITA

3,095

3,088

1,143

1,161

896

992

593

624

706

581

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

12.4%

11.8%

16.7%

16.4%

13.8%

14.5%

12.1%

11.8%

8.9%

6.8%

(1) Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.



 

Depreciation and Amortization

 

  

 

 

 

Electrification

Discrete Automation

Process

Power

 

($ in millions)

ABB

Products

and Motion

Automation

Grids

 

 

Q3 16

Q3 15

Q3 16

Q3 15

Q3 16

Q3 15

Q3 16

Q3 15

Q3 16

Q3 15

 

Depreciation

195

188

50

51

40

37

15

14

51

49

 

Amortization

91

96

27

27

34

37

4

5

16

15

 

including total acquisition-related amortization of:

70

74

24

25

30

31

3

3

9

10



 

 

 

 

Electrification

Discrete Automation

Process

Power

 

($ in millions)

ABB

Products

and Motion

Automation

Grids

 

 

9M 16

9M 15

9M 16

9M 15

9M 16

9M 15

9M 16

9M 15

9M 16

9M 15

 

Depreciation

576

572

150

155

118

110

44

45

151

153

 

Amortization

277

300

80

83

103

110

13

14

49

59

 

including total acquisition-related amortization of:

212

237

72

76

91

96

9

9

27

42



 

6              Q3 2016 Financial Information 


 

Orders received and revenues by region

 

  

 

($ in millions, unless otherwise indicated)

Orders received

CHANGE

Revenues

CHANGE

 

 

 

 

 

 

Com-

 

 

 

 

Com-

 

Q3 16

Q3 15

US$

Local

parable

Q3 16

Q3 15

US$

Local

parable

 

Europe

2,336

2,909

-20%

-19%

-18%

2,733

2,821

-3%

-1%

3%

 

The Americas

2,208

2,660

-17%

-16%

-16%

2,456

2,569

-4%

-3%

-3%

 

Asia, Middle East and Africa

2,989

3,198

-7%

-5%

-5%

3,066

3,129

-2%

0%

0%

 

ABB Group

7,533

8,767

-14%

-13%

-13%

8,255

8,519

-3%

-2%

0%



 

 

($ in millions, unless otherwise indicated)

Orders received

CHANGE

Revenues

CHANGE

 

 

 

 

 

 

Com-

 

 

 

 

Com-

 

9M 16

9M 15

US$

Local

parable

9M 16

9M 15

US$

Local

parable

 

Europe

8,684

9,680

-10%

-8%

-8%

8,299

8,574

-3%

-1%

3%

 

The Americas

6,864

8,014

-14%

-12%

-12%

7,272

7,927

-8%

-5%

-5%

 

Asia, Middle East and Africa

9,554

10,473

-9%

-5%

-5%

9,264

9,738

-5%

-2%

-2%

 

ABB Group

25,102

28,167

-11%

-8%

-8%

24,835

26,239

-5%

-2%

-1%

7              Q3 2016 Financial Information 


 

 

 

 

Financial Information

Interim Consolidated Financial Information

 

 

  

 

 

ABB Ltd Interim Consolidated Income Statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

Three months ended

 

($ in millions, except per share data in $)

Sep. 30, 2016

Sep. 30, 2015

Sep. 30, 2016

Sep. 30, 2015

 

Sales of products

20,477

21,878

6,802

7,116

 

Sales of services and software

4,358

4,361

1,453

1,403

 

Total revenues

24,835

26,239

8,255

8,519

 

Cost of sales of products

(14,980)

(15,874)

(4,911)

(5,163)

 

Cost of services and software

(2,623)

(2,626)

(885)

(838)

 

Total cost of sales

(17,603)

(18,500)

(5,796)

(6,001)

 

Gross profit

7,232

7,739

2,459

2,518

 

Selling, general and administrative expenses

(3,955)

(3,994)

(1,280)

(1,307)

 

Non-order related research and development expenses

(951)

(998)

(303)

(322)

 

Other income (expense), net

(17)

(45)

2

(7)

 

Income from operations

2,309

2,702

878

882

 

Interest and dividend income

54

56

16

18

 

Interest and other finance expense

(230)

(223)

(84)

(64)

 

Income from continuing operations before taxes

2,133

2,535

810

836

 

Provision for taxes

(587)

(722)

(237)

(229)

 

Income from continuing operations, net of tax

1,546

1,813

573

607

 

Income from discontinued operations, net of tax

14

2

16

 

Net income

1,560

1,815

589

607

 

Net income attributable to noncontrolling interests

(86)

(86)

(21)

(30)

 

Net income attributable to ABB

1,474

1,729

568

577

 

 

 

 

 

 

 

Amounts attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

1,460

1,727

552

577

 

Net income

1,474

1,729

568

577

 

 

 

 

 

 

 

Basic earnings per share attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

0.68

0.77

0.26

0.26

 

Net income

0.68

0.77

0.27

0.26

 

 

 

 

 

 

 

Diluted earnings per share attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

0.68

0.77

0.26

0.26

 

Net income

0.68

0.77

0.27

0.26

 

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions) used to compute:

 

 

 

 

 

Basic earnings per share attributable to ABB shareholders

2,155

2,234

2,135

2,219

 

Diluted earnings per share attributable to ABB shareholders

2,159

2,239

2,139

2,223

 

 

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

 

 

 

 

8              Q3 2016 Financial Information 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABB Ltd Interim Condensed Consolidated Statements of Comprehensive

 

Income (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

Three months ended

 

($ in millions)

Sep. 30, 2016

Sep. 30, 2015

Sep. 30, 2016

Sep. 30, 2015

 

Total comprehensive income, net of tax

1,767

1,162

592

303

 

Total comprehensive income attributable to noncontrolling interests, net of tax

(87)

(73)

(22)

(21)

 

Total comprehensive income attributable to ABB shareholders, net of tax

1,680

1,089

570

282

 

 

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

 

 

 

 

9              Q3 2016 Financial Information 


 

 

 

 

 

ABB Ltd Interim Consolidated Balance Sheets (unaudited)

 

 

 

 

 

 

 

 

 

 

 

($ in millions, except share data)

Sep. 30, 2016

Dec. 31, 2015

 

Cash and equivalents

3,538

4,565

 

Marketable securities and short-term investments

1,827

1,633

 

Receivables, net

10,155

10,061

 

Inventories, net

5,017

4,757

 

Prepaid expenses

242

225

 

Deferred taxes

858

881

 

Other current assets

631

638

 

Assets held for sale

634

 

Total current assets

22,902

22,760

 

 

 

 

 

Property, plant and equipment, net

4,861

5,276

 

Goodwill

9,639

9,671

 

Other intangible assets, net

2,102

2,337

 

Prepaid pension and other employee benefits

69

68

 

Investments in equity-accounted companies

173

178

 

Deferred taxes

490

423

 

Other non-current assets

573

643

 

Total assets

40,809

41,356

 

 

 

 

 

Accounts payable, trade

4,458

4,342

 

Billings in excess of sales

1,330

1,375

 

Short-term debt and current maturities of long-term debt

1,402

1,454

 

Advances from customers

1,591

1,598

 

Deferred taxes

228

249

 

Provisions for warranties

1,104

1,089

 

Other provisions

1,938

1,920

 

Other current liabilities

3,897

3,817

 

Liabilities held for sale

229

 

Total current liabilities

16,177

15,844

 

 

 

 

 

Long-term debt

6,319

5,985

 

Pension and other employee benefits

1,810

1,924

 

Deferred taxes

968

965

 

Other non-current liabilities

1,622

1,650

 

Total liabilities

26,896

26,368

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

Capital stock and additional paid-in capital

 

 

 

(2,214,743,264 and 2,314,743,264 issued shares at September 30, 2016, and December 31, 2015, respectively)

208

1,444

 

Retained earnings

19,500

20,476

 

Accumulated other comprehensive loss

(4,652)

(4,858)

 

Treasury stock, at cost

 

 

 

(78,817,923 and 123,118,123 shares at September 30, 2016, and December 31, 2015, respectively)

(1,616)

(2,581)

 

Total ABB stockholders’ equity

13,440

14,481

 

Noncontrolling interests

473

507

 

Total stockholders’ equity

13,913

14,988

 

Total liabilities and stockholders’ equity

40,809

41,356

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

 

 

10              Q3 2016 Financial Information 


 

 

 

 

 

 

 

ABB Ltd Interim Consolidated Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

Three months ended

 

($ in millions)

Sep. 30, 2016

Sep. 30, 2015

Sep. 30, 2016

Sep. 30, 2015

 

Operating activities:

 

 

 

 

 

Net income

1,560

1,815

589

607

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

853

872

286

284

 

Deferred taxes

(108)

(26)

19

(7)

 

Net loss (gain) from sale of property, plant and equipment

(33)

(21)

(25)

(2)

 

Net loss (gain) from sale of businesses

19

15

 

Net loss (gain) from derivatives and foreign exchange

58

(38)

10

54

 

Other

110

130

41

21

 

Changes in operating assets and liabilities:

 

 

 

 

 

Trade receivables, net

(68)

(201)

163

218

 

Inventories, net

(261)

(404)

(57)

(103)

 

Trade payables

153

(128)

(14)

(89)

 

Accrued liabilities

14

(22)

179

164

 

Billings in excess of sales

4

90

(5)

(29)

 

Provisions, net

(5)

(157)

(112)

(50)

 

Advances from customers

(20)

(6)

2

52

 

Income taxes payable and receivable

123

(73)

2

15

 

Other assets and liabilities, net

35

(26)

3

23

 

Net cash provided by operating activities

2,415

1,824

1,081

1,173

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchases of marketable securities (available-for-sale)

(821)

(1,098)

(410)

(236)

 

Purchases of short-term investments

(2,172)

(546)

(803)

(65)

 

Purchases of property, plant and equipment and intangible assets

(532)

(547)

(184)

(189)

 

Acquisition of businesses (net of cash acquired)

 

 

 

 

 

and increases in cost- and equity-accounted companies

(24)

(44)

(5)

(3)

 

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

773

379

735

20

 

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

539

627

133

 

Proceeds from short-term investments

1,450

628

917

116

 

Proceeds from sales of property, plant and equipment

52

44

24

20

 

Proceeds from sales of businesses (net of transaction costs

 

 

 

 

 

and cash disposed) and cost- and equity-accounted companies

(1)

69

(3)

68

 

Net cash from settlement of foreign currency derivatives

(34)

208

(13)

23

 

Other investing activities

13

15

5

 

Net cash provided by (used in) investing activities

(757)

(265)

263

(113)

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Net changes in debt with original maturities of 90 days or less

9

75

(282)

(341)

 

Increase in debt

905

55

53

4

 

Repayment of debt

(735)

(78)

(71)

(16)

 

Delivery of shares

143

107

142

 

Purchase of treasury stock

(1,299)

(1,048)

(102)

(150)

 

Dividends paid

(1,357)

 

Reduction in nominal value of common shares paid to shareholders

(1,610)

(392)

(1,610)

(392)

 

Dividends paid to noncontrolling shareholders

(121)

(131)

(14)

(26)

 

Other financing activities

(21)

(18)

(9)

(24)

 

Net cash used in financing activities

(2,729)

(2,787)

(1,893)

(945)

 

 

 

 

 

 

 

Effects of exchange rate changes on cash and equivalents

44

(245)

2

(99)

 

Net change in cash and equivalents – continuing operations

(1,027)

(1,473)

(547)

16

 

 

 

 

 

 

 

Cash and equivalents, beginning of period

4,565

5,443

4,085

3,954

 

Cash and equivalents, end of period

3,538

3,970

3,538

3,970

 

 

 

 

 

 

 

Supplementary disclosure of cash flow information:

 

 

 

 

 

Interest paid

144

151

21

21

 

Taxes paid

591

836

230

220

 

 

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

 

 

 

 

11              Q3 2016 Financial Information 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABB Ltd Interim Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

($ in millions)

Capital stock and

additional paid‑in capital

Retained earnings

Foreign currency

translation adjustments

Unrealized gains (losses) on available‑for‑sale securities

Pension and other post‑

retirement plan adjustments

Unrealized gains (losses) of

cash flow hedge derivatives

Total accumulated other comprehensive loss

Treasury stock

Total ABB

stockholders’ equity

Noncontrolling interests

Total stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 (expense)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2016

1,444

20,476

(3,135)

7

(1,719)

(11)

(4,858)

(2,581)

14,481

507

14,988

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

1,474

 

 

 

 

 

 

1,474

86

1,560

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

adjustments, net of tax of $11

 

 

97

 

 

 

97

 

97

1

98

 

Effect of change in fair value of

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities,

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $1

 

 

 

7

 

 

7

 

7

 

7

 

Unrecognized income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

related to pensions and other

 

 

 

 

 

 

 

 

 

 

 

 

postretirement plans,

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $23

 

 

 

 

89

 

89

 

89

 

89

 

Change in derivatives qualifying as

 

 

 

 

 

 

 

 

 

 

 

 

cash flow hedges, net of tax of $4

 

 

 

 

 

13

13

 

13

 

13

 

Total comprehensive income

 

 

 

 

 

 

 

 

1,680

87

1,767

 

Dividends paid to

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling shareholders

 

 

 

 

 

 

 

 

(121)

(121)

 

Reduction in nominal value of common

 

 

 

 

 

 

 

 

 

 

 

 

shares paid to shareholders

(1,224)

(402)

 

 

 

 

 

 

(1,626)

 

(1,626)

 

Cancellation of treasury shares

(40)

(2,007)

 

 

 

 

 

2,047

 

 

Share-based payment arrangements

37

 

 

 

 

 

 

 

37

 

37

 

Purchase of treasury stock

 

 

 

 

 

 

 

(1,280)

(1,280)

 

(1,280)

 

Delivery of shares

(14)

(41)

 

 

 

 

 

198

143

 

143

 

Call options

5

 

 

 

 

 

 

 

5

 

5

 

Balance at September 30, 2016

208

19,500

(3,038)

14

(1,630)

2

(4,652)

(1,616)

13,440

473

13,913

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

12              Q3 2016 Financial Information 


 

Notes to the Interim Consolidated Financial Information (unaudited)

 

Note 1

The Company and basis

of presentation

ABB Ltd and its subsidiaries (collectively, the Company) together form a pioneering technology leader in electrification products, robotics and motion, industrial automation and power grids serving customers in utilities, industry and transport & infrastructure globally.

 

The Company’s Interim Consolidated Financial Information is prepared in accordance with United States of America generally 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, 2015.

 

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:

·   assumptions and projections, principally related to future material, labor and project-related overhead costs, used in determining the percentage-of-completion on projects,

·   estimates of loss contingencies associated with litigation or threatened litigation and other claims and inquiries, environmental damages, product warranties, self-insurance reserves, regulatory and other proceedings,

·   assumptions used in the calculation of pension and postretirement benefits and the fair value of pension plan assets,

·   estimates used to record expected costs for employee severance in connection with restructuring programs,

·   recognition and measurement of current and deferred income tax assets and liabilities (including the measurement of uncertain tax positions),

·   growth rates, discount rates and other assumptions used in testing goodwill for impairment,

·   assumptions used in determining inventory obsolescence and net realizable value,

·   estimates and assumptions used in determining the fair values of assets and liabilities assumed in business combinations,

·   growth rates, discount rates and other assumptions used to determine impairment of long-lived assets, and

·   assessment of the allowance for doubtful accounts.

 

The actual results and outcomes may differ from the Company’s estimates and assumptions.

 

A portion of the Company’s activities (primarily long-term construction activities) has an operating cycle that exceeds one year. For classification of current assets and liabilities related to such activities, the Company elected to use the duration of the individual contracts as its operating cycle. Accordingly, there are accounts receivable, inventories and provisions related to these contracts which will not be realized within one year that have been classified as current.

 

In September 2016, the Company announced an agreement to divest its cables business. The assets and liabilities of this business are shown as assets and liabilities held for sale in the Company’s Interim Consolidated Balance Sheet at September 30, 2016. 

 

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.

  



 

Note 2

Recent accounting pronouncements

 

Applicable for  current periods 

 

Disclosures for investments in certain entities that calculate net asset value per share (or its equivalent)

As of January 1, 2016, the Company adopted an accounting standard update regarding fair value disclosures for certain investments. Under the update, the Company is no longer required to categorize within the fair value hierarchy any investments for which fair value is measured using the net asset value per share practical expedient. The amendments also removed 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 was applied retrospectively and did not have a significant impact on the consolidated financial statements.

 

Simplifying the measurement of inventory

As of January 1, 2016, the Company early-adopted an accounting standard update simplifying 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 methods. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The update was applied prospectively and did not have a significant impact on the consolidated financial statements.

 

13            Q3 2016 Financial Information 


 

Applicable for future periods

 

Revenue from  contracts  with  customers 

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. Further updates were issued in 2016 to clarify the guidance on identifying performance obligations and licensing, to enhance the implementation guidance on principal versus agent considerations and to add other practical expedients.

 

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 currently plans to adopt these updates as of January 1, 2018, pursuant to the aforementioned adoption method (ii) and currently does not anticipate these updates will have a significant impact on its consolidated financial statements. The Company continues to evaluate the expected impacts of the adoption of these updates and the expected impacts are subject to change.

 

Balance sheet classification of deferred taxes

In November 2015, an accounting standard update was issued which removes the requirement to separate deferred tax liabilities and assets into current and noncurrent amounts and instead requires all such amounts, as well as any related valuation allowance, to be classified as noncurrent in the balance sheet. This update is effective for the Company for annual and interim periods beginning January 1, 2017, with early adoption permitted, and is applicable either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company will adopt this update as of January 1, 2017, on a retrospective basis and expects the balance of deferred tax assets and liabilities to decrease by approximately USD 300 million due to additional netting impacts.

 

Recognition and measurement of financial assets and financial liabilities

In January 2016, an accounting standard update was issued to enhance the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. For example, the Company would be required to measure equity investments (except those accounted for under the equity method) at fair value with changes in fair value recognized in net income and to present separately financial assets and financial liabilities by measurement category and form of financial asset. This update is effective for the Company for annual and interim periods beginning January 1, 2018, with early adoption permitted for certain provisions. The Company is currently evaluating the impact of this update on its consolidated financial statements.

 

Leases

In February 2016, an accounting standard update was issued that requires lessees to recognize lease assets and corresponding lease liabilities on the balance sheet for all leases with terms of more than 12 months. The update, which supersedes existing lease guidance, will continue to classify leases as either finance or operating, with the classification determining the pattern of expense recognition in the income statement. This update is effective for the Company for annual and interim periods beginning January 1, 2019, with early adoption permitted, and is applicable on a modified retrospective basis with various optional practical expedients. The Company is currently evaluating the impact of this update on its consolidated financial statements.

 

Simplifying the transition to the equity method of accounting

In March 2016, an accounting standard update was issued which eliminates the retroactive adjustments to an investment upon it qualifying for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence by the investor. It requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment qualifies for equity method accounting. 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 does not believe that this update will have a significant impact on its consolidated financial statements.

 

Improvements to employee share-based payment accounting

In March 2016, an accounting standard update was issued which changes the accounting for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification in the statement of cash flows. This update is effective for the Company for annual and interim periods beginning January 1, 2017, with early adoption permitted. The Company does not believe that this update will have a significant impact on its consolidated financial statements.

 

Measurement of credit losses on financial instruments

In June 2016, an accounting standard update was issued which replaces the existing incurred loss impairment methodology for most financial assets with a new “current expected credit loss” model. The

 

14            Q3 2016 Financial Information 


 

 

new model will result in the immediate recognition of the estimated credit losses expected to occur over the remaining life of financial assets such as trade and other receivables, held-to-maturity debt securities, loans and other instruments. Credit losses relating to available-for-sale debt securities will be measured in a manner similar to current GAAP, except that the losses will be recorded through an allowance for credit losses rather than as a direct write-down of the security.

 

This update is effective for the Company for annual and interim periods beginning January 1, 2020, with early adoption permitted for annual and interim periods beginning January 1, 2019. The Company is currently evaluating the impact of this update on its consolidated financial statements.

 

Classification of certain cash receipts and cash payments in the statement of cash flows

In August 2016, an accounting standard update was issued which clarifies how certain cash receipts and cash payments, including debt prepayment or extinguishment costs, the settlement of zero coupon debt instruments, contingent consideration paid after a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization, should be presented and classified in the statement of cash flows. This update is effective for the Company for annual and interim periods beginning January 1, 2018 on a retrospective basis, with early adoption permitted. The Company does not believe that this update will have a significant impact on its consolidated financial statements.

 

Income taxes – Intra-entity transfers of assets other than inventory

In October 2016, an accounting standard update was issued that requires the Company to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs instead of when the asset has been sold to an outside party. This update is effective for the Company for annual and interim periods beginning January 1, 2018, with early adoption permitted, and is applicable on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact of this update on its consolidated financial statements.

 

 

  

Note 3

Cash and equivalents, marketable securities and short-term investments

 

Current assets

Cash and equivalents, marketable securities and short-term investments consisted of the following:

 

  

 

 

 

September 30, 2016

 

 

 

 

Gross

Gross

 

 

Marketable securities

 

 

 

 

unrealized

unrealized

 

Cash and

and short-term

 

($ in millions)

Cost basis

gains

losses

Fair value

equivalents

investments

 

Cash

1,758

 

 

1,758

1,758

 

Time deposits

2,580

 

 

2,580

1,780

800

 

Other short-term investments

230

 

 

230

230

 

Debt securities available-for-sale:

 

 

 

 

 

 

 

 

U.S. government obligations

220

3

(1)

222

222

 

 

European government obligations

13

13

13

 

 

Other government obligations

2

2

2

 

 

Corporate

95

3

98

98

 

Equity securities available-for-sale

449

13

462

462

 

Total

5,347

19

(1)

5,365

3,538

1,827



 

 

 

 

December 31, 2015

 

 

 

 

Gross

Gross

 

 

Marketable securities

 

 

 

 

unrealized

unrealized

 

Cash and

and short-term

 

($ in millions)

Cost basis

gains

losses

Fair value

equivalents

investments

 

Cash

1,837

 

 

1,837

1,837

 

Time deposits

2,821

 

 

2,821

2,717

104

 

Other short-term investments

231

 

 

231

231

 

Debt securities available-for-sale:

 

 

 

 

 

 

 

 

U.S. government obligations

120

2

(1)

121

121

 

 

Other government obligations

2

2

2

 

 

Corporate

519

1

(1)

519

11

508

 

Equity securities available-for-sale

658

9

667

667

 

Total

6,188

12

(2)

6,198

4,565

1,633

 

 

Included in Other short-term investments at September 30, 2016, and December 31, 2015, are receivables of $229 million and $224 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, 2016, the amortized cost, gross unrecognized gain and fair value (based on quoted market prices) of these securities were $84 million, $10 million and $94 million, respectively. At December 31, 2015, the amortized cost, gross unrecognized gain and fair value (based on quoted market prices) of these securities

15            Q3 2016 Financial Information 


 

 

 

 

were $99 million, $11 million and $110 million, respectively. These securities are pledged as security for certain outstanding deposit liabilities and the funds received at the respective maturity dates of the securities will only be available to the Company for repayment of these obligations.

  



 

Note 4

Derivative financial instruments

The Company is exposed to certain currency, commodity, interest rate and equity risks arising from its global operating, financing and investing activities. The Company uses derivative instruments to reduce and manage the economic impact of these exposures.

 

Currency risk

Due to the global nature of the Company’s operations, many of its subsidiaries are exposed to currency risk in their operating activities from entering into transactions in currencies other than their functional currency. To manage such currency risks, the Company’s policies require the subsidiaries to hedge their foreign currency exposures from binding sales and purchase contracts denominated in foreign currencies. For forecasted foreign currency denominated sales of standard products and the related foreign currency denominated purchases, the Company’s policy is to hedge up to a maximum of 100 percent of the forecasted foreign currency denominated exposures, depending on the length of the forecasted exposures. Forecasted exposures greater than 12 months are not hedged. Forward foreign exchange contracts are the main instrument used to protect the Company against the volatility of future cash flows (caused by changes in exchange rates) of contracted and forecasted sales and purchases denominated in foreign currencies. In addition, within its treasury operations, the Company primarily uses foreign exchange swaps and forward foreign exchange contracts to manage the currency and timing mismatches arising in its liquidity management activities.

 

Commodity risk

Various commodity products are used in the Company’s manufacturing activities. Consequently it is exposed to volatility in future cash flows arising from changes in commodity prices. To manage the price risk of commodities, the Company’s policies require that the subsidiaries hedge the commodity price risk exposures from binding contracts, as well as at least 50 percent (up to a maximum of 100 percent) of the forecasted commodity exposure over the next 12 months or longer (up to a maximum of 18 months). Primarily swap contracts are used to manage the associated price risks of commodities.

 

Interest rate risk

The Company has issued bonds at fixed rates. Interest rate swaps are used to manage the interest rate risk associated with certain debt and generally such swaps are designated as fair value hedges. In addition, from time to time, the Company uses instruments such as interest rate swaps, interest rate futures, bond futures or forward rate agreements to manage interest rate risk arising from the Company’s balance sheet structure but does not designate such instruments as hedges.

 

Equity risk

The Company is exposed to fluctuations in the fair value of its warrant appreciation rights (WARs) issued under its management incentive plan. A WAR gives its holder the right to receive cash equal to the market price of an equivalent listed warrant on the date of exercise. To eliminate such risk, the Company has purchased cash-settled call options, 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.

 

Foreign exchange  and  interest rate derivatives 

The gross notional amounts of outstanding foreign exchange and interest rate derivatives (whether designated as hedges or not) were as follows:

  

 

 

Type of derivative

Total notional amounts at

 

($ in millions)

September 30, 2016

December 31, 2015

September 30, 2015

 

Foreign exchange contracts

16,381

16,467

17,501

 

Embedded foreign exchange derivatives

2,919

2,966

3,138

 

Interest rate contracts

3,348

4,302

2,789

 

 

Derivative commodity contracts

The following table shows the notional amounts of outstanding commodity derivatives (whether designated as hedges or not), on a net basis, to reflect the Company’s requirements in the various commodities:

  

 

 

Type of derivative

Unit

Total notional amounts at

 

 

 

September 30, 2016

December 31, 2015

September 30, 2015

 

Copper swaps

metric tonnes

54,321

48,903

49,141

 

Aluminum swaps

metric tonnes

4,950

5,455

6,912

 

Nickel swaps

metric tonnes

18

 

Lead swaps

metric tonnes

18,025

14,625

15,850

 

Zinc swaps

metric tonnes

150

225

300

 

Silver swaps

ounces

1,885,370

1,727,255

1,566,590

 

Crude oil swaps

barrels

122,000

133,500

128,200

 

 

Equity derivatives

At September 30, 2016, December 31, 2015, and September 30, 2015, the Company held 49 million, 55 million and 56 million cash-settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of $28 million, $13 million and $10 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, 2016, and December 31, 2015, “Accumulated other comprehensive loss” included net unrealized gains of $2 million and net unrealized losses of $11 million, respectively, net of tax, on derivatives designated as cash flow hedges. Of the amount at September 30, 2016, net gains of $4 million are expected to be reclassified to earnings in the following 12 months. At September 30, 2016, the longest maturity of a derivative classified as a cash flow hedge was 42 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, 2016 and 2015.

 

 

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:

16            Q3 2016 Financial Information 


 

  

 

 

 

Gains (losses) recognized in OCI

 

Gains (losses) reclassified from OCI

 

($ in millions)

on derivatives (effective portion)

 

into income (effective portion)

 

Nine months ended September 30,

2016

2015

 

2016

2015

 

Type of derivative:

 

 

Location:

 

 

 

Foreign exchange contracts

8

(7)

Total revenues

(9)

(31)

 

 

 

 

Total cost of sales

9

8

 

Commodity contracts

1

(6)

Total cost of sales

(2)

(7)

 

Cash-settled call options

18

(10)

SG&A expenses(1)

12

(6)

 

Total

27

(23)

 

10

(36)



 

 

 

Gains (losses) recognized in OCI

 

Gains (losses) reclassified from OCI

 

($ in millions)

on derivatives (effective portion)

 

into income (effective portion)

 

Three months ended September 30,

2016

2015

 

2016

2015

 

Type of derivative:

 

 

Location:

 

 

 

Foreign exchange contracts

8

9

Total revenues

(3)

(7)

 

 

 

 

Total cost of sales

2

3

 

Commodity contracts

(4)

Total cost of sales

1

(3)

 

Cash-settled call options

15

(3)

SG&A expenses(1)

11

(2)

 

Total

23

2

 

11

(9)

(1) SG&A  expenses  represent  “Selling,  general  and  administrative  expenses”.

 

 

The amounts in respect of gains (losses) recognized in income for hedge ineffectiveness and amounts excluded from effectiveness testing were not significant for the nine and three months ended September 30, 2016 and 2015.

 

Net derivative gains of $9 million and net derivative losses of $28 million, both net of tax, were reclassified from “Accumulated other comprehensive loss” to earnings during the nine months ended September 30, 2016 and 2015, respectively. During the three months ended September 30, 2016 and 2015, net derivative gains of $9 million and net derivative losses of $7 million, both net of tax, respectively, were reclassified from “Accumulated other comprehensive loss” to earnings.

 

Fair value hedges

To reduce its interest rate exposure arising primarily from its debt issuance activities, the Company uses interest rate swaps. Where such instruments are designated as fair value hedges, the changes in the fair value of these instruments, as well as the changes in the fair value of the risk component of the underlying debt being hedged, are recorded as offsetting gains and losses in “Interest and other finance expense”. Hedge ineffectiveness of instruments designated as fair value hedges for the nine and three months ended September 30, 2016 and 2015, was not significant.

 

 

The effect of interest rate contracts, designated and qualifying as fair value hedges, on the Consolidated Income Statements was as follows:

17            Q3 2016 Financial Information 


 

 

  

 

 

Nine months ended September 30,

Three months ended September 30,

 

($ in millions)

2016

2015

2016

2015

 

Gains (losses) recognized in Interest and other finance expense:

 

 

 

 

 

 - on derivatives designated as fair value hedges

32

30

(16)

28

 

 - on hedged item

(30)

(27)

17

(28)

 

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

2016

2015

2016

2015

 

Foreign exchange contracts

Total revenues

(19)

(226)

(42)

(273)

 

 

Total cost of sales

(69)

56

(10)

128

 

 

SG&A expenses(1)

(5)

9

 

 

Non-order related research

 

 

 

 

 

 

and development

(1)

(1)

1

 

 

Interest and other finance expense

(45)

248

3

22

 

Embedded foreign exchange

Total revenues

(41)

138

8

112

 

contracts

Total cost of sales

7

(24)

1

(12)

 

 

SG&A expenses(1)

1

(2)

(8)

 

Commodity contracts

Total cost of sales

15

(47)

5

(30)

 

Other

Interest and other finance expense

2

(2)

3

(2)

 

Total

 

(155)

149

(32)

(62)

(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, 2016

 

 

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

12

1

5

4

 

Commodity contracts

1

 

Interest rate contracts

124

 

Cash-settled call options

16

12

 

Total

29

137

5

4

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

Foreign exchange contracts

111

16

183

71

 

Commodity contracts

10

3

8

2

 

Embedded foreign exchange derivatives

51

28

50

28

 

Total

172

47

241

101

 

Total fair value

201

184

246

105



 

18            Q3 2016 Financial Information 


 

 

 

December 31, 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

15

10

8

16

 

Commodity contracts

3

 

Interest rate contracts

6

86

 

Cash-settled call options

8

5

 

Total

29

101

11

16

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

Foreign exchange contracts

172

32

237

81

 

Commodity contracts

2

29

9

 

Cross-currency interest rate swaps

1

 

Embedded foreign exchange derivatives

94

53

41

27

 

Total

268

85

307

118

 

Total fair value

297

186

318

134

 

 

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, 2016, and December 31, 2015, 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, 2016, and December 31, 2015, information related to these offsetting arrangements was as follows:

  

 

 

($ in millions)

September 30, 2016

 

 

 

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

306

(165)

141

 

Reverse repurchase

 

 

 

 

 

 

agreements

229

(229)

 

Total

535

(165)

(229)

141

 

 

($ in millions)

September 30, 2016

 

 

 

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

273

(165)

108

 

Total

273

(165)

108

 

 

($ in millions)

December 31, 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

336

(215)

121

 

Reverse repurchase

 

 

 

 

 

 

agreements

224

(224)

 

Total

560

(215)

(224)

121

 

 

($ in millions)

December 31, 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

384

(215)

(3)

166

 

Total

384

(215)

(3)

166



 

19            Q3 2016 Financial Information 


 

Note 5 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:

Level 1:  Valuation inputs consist of quoted prices in an active market for identical assets or liabilities (observable quoted prices). Assets and liabilities valued using Level 1 inputs include listed derivatives which are actively traded such as commodity futures, interest rate futures and certain actively-traded debt securities.

Level 2:  Valuation inputs consist of observable inputs (other than Level 1 inputs) such as actively-quoted prices for similar assets, quoted prices in inactive markets and inputs other than quoted prices such as interest rate yield curves, credit spreads, or inputs derived from other observable data by interpolation, correlation, regression or other means. The adjustments applied to quoted prices or the inputs used in valuation models may be both observable and unobservable. In these cases, the fair value measurement is classified as Level 2 unless the unobservable portion of the adjustment or the unobservable input to the valuation model is significant, in which case the fair value measurement would be classified as Level 3. Assets and liabilities valued or disclosed using Level 2 inputs include investments in certain funds, reverse repurchase agreements, certain debt securities that are not actively traded, interest rate swaps, commodity swaps, cash-settled call options, forward foreign exchange contracts, foreign exchange swaps and forward rate agreements, time deposits, as well as financing receivables and debt.

Level 3:  Valuation inputs are based on the Company’s assumptions of relevant market data (unobservable input).

 

Whenever quoted prices involve bid-ask spreads, the Company ordinarily determines fair values based on mid-market quotes. However, for the purpose of determining the fair value of cash-settled call options serving as hedges of the Company’s management incentive plan, bid prices are used.

 

When determining fair values based on quoted prices in an active market, the Company considers if the level of transaction activity for the financial instrument has significantly decreased, or would not be considered orderly. In such cases, the resulting changes in valuation techniques would be disclosed. If the market is considered disorderly or if quoted prices are not available, the Company is required to use another valuation technique, such as an income approach.

 

Recurring fair value measures

The fair values of financial assets and liabilities measured at fair value on a recurring basis were as follows:

 

  

 

 

September 30, 2016

 

($ in millions)

Level 1

Level 2

Level 3

Total fair value

 

Assets

 

 

 

 

 

Available-for-sale securities in “Marketable securities and short-term investments”:

 

 

 

 

 

Equity securities

462

462

 

Debt securities—U.S. government obligations

222

222

 

Debt securities—European government obligations

13

13

 

Debt securities—Other government obligations

2

2

 

Debt securities—Corporate

98

98

 

Derivative assets—current in “Other current assets”

201

201

 

Derivative assets—non-current in “Other non-current assets”

184

184

 

Total

235

947

1,182

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Derivative liabilities—current in “Other current liabilities”

246

246

 

Derivative liabilities—non-current in “Other non-current liabilities”

105

105

 

Total

351

351



 

20            Q3 2016 Financial Information 


 

 

 

December 31, 2015

 

($ in millions)

Level 1

Level 2

Level 3

Total fair value

 

Assets

 

 

 

 

 

Available-for-sale securities in “Cash and equivalents”:

 

 

 

 

 

Debt securities—Corporate

11

11

 

Available-for-sale securities in “Marketable securities and short-term investments”:

 

 

 

 

 

Equity securities

667

667

 

Debt securities—U.S. government obligations

121

121

 

Debt securities—Other government obligations

2

2

 

Debt securities—Corporate

508

508

 

Derivative assets—current in “Other current assets”

1

296

297

 

Derivative assets—non-current in “Other non-current assets”

186

186

 

Total

122

1,670

1,792

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Derivative liabilities—current in “Other current liabilities”

3

315

318

 

Derivative liabilities—non-current in “Other non-current liabilities”

134

134

 

Total

3

449

452

 

 

The Company uses the following methods and assumptions in estimating fair values of financial assets and liabilities measured at fair value on a recurring basis:

 ●   Available-for-sale securities in “Cash and equivalents” and “Marketable securities and short-term investments”: If quoted market prices in active markets for identical assets are available, these are considered Level 1 inputs; however, when markets are not active, these inputs are considered Level 2. If such quoted market prices are not available, fair value is determined using market prices for similar assets or present value techniques, applying an appropriate risk-free interest rate adjusted for nonperformance risk. The inputs used in present value techniques are observable and fall into the Level 2 category.

 ●    Derivatives:  The fair values of derivative instruments are determined using quoted prices of identical instruments from an active market, if available (Level 1). If quoted prices are not available, price quotes for similar instruments, appropriately adjusted, or present value techniques, based on available market data, or option pricing models are used. Cash-settled call options hedging the Company’s WAR liability are valued based on bid prices of the equivalent listed warrant. The fair values obtained using price quotes for similar instruments or valuation techniques represent a Level 2 input unless significant unobservable inputs are used.

  

 

Non-recurring fair  value  measures 

 

There were no significant non-recurring fair value measurements during the nine and three months ended September 30, 2016 and 2015.

 

Disclosure about  financial  instruments  carried  on  cost  basis 

The fair  values  of  financial  instruments  carried  on  cost  basis  were  as  follows: 

 

 

  

 

 

September 30, 2016

 

($ 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

1,758

1,758

1,758

 

Time deposits

1,780

1,780

1,780

 

Marketable securities and short-term investments

 

 

 

 

 

 

(excluding available-for-sale securities):

 

 

 

 

 

 

Time deposits

800

800

800

 

Receivables under reverse repurchase agreements

229

229

229

 

Other short-term investments

1

1

1

 

Other non-current assets:

 

 

 

 

 

 

Loans granted

30

32

32

 

Held-to-maturity securities

84

94

94

 

Restricted cash deposits

89

61

28

89

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Short-term debt and current maturities of long-term debt

 

 

 

 

 

 

(excluding capital lease obligations)

1,385

1,104

281

1,385

 

Long-term debt (excluding capital lease obligations)

6,220

5,857

765

6,622

 

Non-current deposit liabilities in “Other non-current liabilities”

108

120

120



 

21            Q3 2016 Financial Information 


 

 

 

December 31, 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

1,837

1,837

1,837

 

Time deposits

2,717

2,717

2,717

 

Marketable securities and short-term investments

 

 

 

 

 

 

(excluding available-for-sale securities):

 

 

 

 

 

 

Time deposits

104

104

104

 

Receivables under reverse repurchase agreements

224

224

224

 

Other short-term investments

7

7

7

 

Other non-current assets:

 

 

 

 

 

 

Loans granted

29

30

30

 

Held-to-maturity securities

99

110

110

 

Restricted cash deposits

176

55

138

193

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Short-term debt and current maturities of long-term debt

 

 

 

 

 

 

(excluding capital lease obligations)

1,427

614

817

1,431

 

Long-term debt (excluding capital lease obligations)

5,899

5,307

751

6,058

 

Non-current deposit liabilities in “Other non-current liabilities”

215

244

244

 

 

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 3) 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.

 ●   Long-term debt (excluding capital lease obligations): Fair values of bonds are determined using quoted market prices (Level 1 inputs), if available. For bonds without available quoted market prices and other long-term debt, the fair values are determined using a discounted cash flow methodology based upon borrowing rates of similar debt instruments and reflecting appropriate adjustments for non-performance risk (Level 2 inputs).

 ●   Non-current deposit liabilities in “Other non-current liabilities”: The fair values of non-current deposit liabilities are determined using a discounted cash flow methodology based on risk-adjusted interest rates (Level 2 inputs).

  



 

Note 6

Commitments and contingencies

 

  

Contingencies—Regulatory, Compliance  and  Legal 

Antitrust

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).

 

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. With respect to these matters, management is cooperating fully with the authorities. An informed judgment about the outcome of these investigations or the amount of potential loss or range of loss for the Company, if any, relating to these investigations cannot be made at this stage.

 

General

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.

 

 

Liabilities recognized 

At both September 30, 2016, and December 31, 2015, the Company had aggregate liabilities of $160 million, 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.

22            Q3 2016 Financial Information 


 

  

 

Guarantees

General 

The following table provides quantitative data regarding the Company’s third-party guarantees. The maximum potential payments represent a “worst-case scenario”, and do not reflect management’s expected outcomes.

 

  

 

Maximum potential payments ($ in millions)

September 30, 2016

December 31, 2015

 

Performance guarantees

193

209

 

Financial guarantees

69

77

 

Indemnification guarantees

72

50

 

Total

334

336

 

 

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, 2016, and December 31, 2015, were not significant.

 

 

The Company is party to various guarantees providing financial or performance assurances to certain third parties. These guarantees, which have various maturities up to 2020, mainly consist of performance guarantees whereby (i) the Company guarantees the performance of a third party’s product or service according to the terms of a contract and (ii) as member of a consortium that includes third parties, the Company guarantees not only its own performance but also the work of third parties. Such guarantees may include guarantees that a project will be completed within a specified time. If the third party does not fulfill the obligation, the Company will compensate the guaranteed party in cash or in kind. The original maturity dates for the majority of these performance guarantees range from one to six years.

 

 

Commercial commitments

In addition, in the normal course of bidding for and executing certain projects, the Company has entered into standby letters of credit, bid/performance bonds and surety bonds (collectively “performance bonds”) with various financial institutions. Customers can draw on such performance bonds in the event that the Company does not fulfill its contractual obligations. The Company would then have an obligation to reimburse the financial institution for amounts paid under the performance bonds. At September 30, 2016, and December 31, 2015, the total outstanding performance bonds aggregated to $8.5 billion and $9.5 billion, respectively. There have been no significant amounts reimbursed to financial institutions under these types of arrangements in the nine and three months ended September 30, 2016 and 2015.

  

 

 

Product and order-related contingencies

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)

2016

2015

 

Balance at January 1,

1,089

1,148

 

Claims paid in cash or in kind

(197)

(191)

 

Net increase in provision for changes in estimates, warranties issued and warranties expired

199

170

 

Exchange rate differences

13

(60)

 

Balance at September 30,

1,104

1,067



 

Not 7

Debt

The Company’s total debt at September 30, 2016, and December 31, 2015, amounted to $7,721 million and $7,439 million, respectively.

Short-term debt and current maturities of long-term debt

The Company’s “Short-term debt and current maturities of long-term debt” consisted of the following:

 

  

 

($ in millions)

September 30, 2016

December 31, 2015

 

Short-term debt

313

278

 

Current maturities of long-term debt

1,089

1,176

 

Total

1,402

1,454

 

23            Q3 2016 Financial Information 


 

 

Short-term debt primarily represented issued commercial paper and short-term loans from various banks. At September 30, 2016, and December 31, 2015, $180 million and $132 million, respectively, was outstanding under the $2 billion commercial paper program in the United States.

 

In May 2016, the Company exercised its option to extend the maturity of its $2 billion multicurrency revolving credit facility to 2021. No amount was drawn at September 30, 2016, and December 31, 2015. The facility contains cross default clauses whereby an event of default would occur if the Company were to default on indebtedness as defined in the facility, at or above a specified threshold.

 

In June 2016, the Company repaid at maturity the USD 600 million 2.5% Notes.

Long-term debt

 

The Company’s long-term debt at September 30, 2016, and December 31, 2015, amounted to $6,319 million and $5,985 million, respectively.

 

 

Outstanding bonds (including maturities within the next 12 months) were as follows:

 

 

September 30, 2016

December 31, 2015

 

(in millions)

Nominal outstanding

 Carrying value(1)

Nominal outstanding

 Carrying value(1)

 

Bonds:

 

 

 

 

 

 

 

 

 

2.5% USD Notes, due 2016

 

 

 

USD

600

$

599

 

1.25% CHF Bonds, due 2016

CHF

500

$

514

CHF

500

$

510

 

1.625% USD Notes, due 2017

USD

500

$

499

USD

500

$

499

 

4.25% AUD Notes, due 2017

AUD

400

$

308

AUD

400

$

297

 

1.50% CHF Bonds, due 2018

CHF

350

$

358

CHF

350

$

352

 

2.625% EUR Instruments, due 2019

EUR

1,250

$

1,394

EUR

1,250

$

1,363

 

4.0% USD Notes, due 2021

USD

650

$

642

USD

650

$

641

 

2.25% CHF Bonds, due 2021

CHF

350

$

393

CHF

350

$

383

 

5.625% USD Notes, due 2021

USD

250

$

275

USD

250

$

279

 

2.875% USD Notes, due 2022

USD

1,250

$

1,312

USD

1,250

$

1,275

 

0.625% EUR Notes, due 2023

EUR

700

$

778

 

 

 

 

4.375% USD Notes, due 2042

USD

750

$

722

USD

750

$

722

 

Total  

 

 

$

7,195

 

 

$

6,920

(1) USD carrying values include unamortized debt issuance costs, bond discounts or premiums, as well as adjustments for fair value hedge accounting, where appropriate.

 

 

In May 2016, the Company issued notes with an aggregate principal of EUR 700 million, due 2023. The notes pay interest annually in arrears at a fixed rate of 0.625 percent per annum. The Company recorded net proceeds (after underwriting fees) of EUR 697 million (equivalent to approximately $807 million on date of issuance).

 

In October 2016, the Company repaid at maturity the CHF 500 million 1.25% Bonds (equivalent to approximately $506 million at date of payment).

  



 

Not 8

Employee benefits 

The Company operates defined benefit pension plans, defined contribution pension plans, and termination indemnity plans, in accordance with local regulations and practices. These plans cover a large portion of the Company’s employees and provide benefits to employees in the event of death, disability, retirement, or termination of employment. Certain of these plans are multi-employer plans. The Company also operates other postretirement benefit plans including postretirement health care benefits, and other employee-related benefits for active employees including long-service award plans. The measurement date used for the Company’s employee benefit plans is December 31. The funding policies of the Company’s plans are consistent with the local government and tax requirements.

 

 

Net periodic benefit cost of the Company’s defined benefit pension and other postretirement benefit plans consisted of the following:

 

  

 

($ in millions)

Defined pension benefits

Other postretirement benefits

 

Nine months ended September 30,

2016

2015

2016

2015

 

Service cost

191

203

1

1

 

Interest cost

213

231

4

6

 

Expected return on plan assets

(306)

(345)

 

Amortization of prior service cost (credit)

30

28

(8)

(6)

 

Amortization of net actuarial loss

65

95

1

 

Curtailments, settlements and special termination benefits

2

1

 

Net periodic benefit cost

195

213

(3)

2

 

24            Q3 2016 Financial Information 


 

 

($ in millions)

Defined pension benefits

Other postretirement benefits

 

Three months ended September 30,

2016

2015

2016

2015

 

Service cost

65

66

1

 

Interest cost

71

76

1

2

 

Expected return on plan assets

(102)

(112)

 

Amortization of prior service cost (credit)

9

9

(2)

(2)

 

Amortization of net actuarial loss

22

40

 

Curtailments, settlements and special termination benefits

1

1

 

Net periodic benefit cost

66

80



 

 

Employer contributions were as follows:

 

  

 

($ in millions)

Defined pension benefits

Other postretirement benefits

 

Nine months ended September 30,

2016

2015

2016

2015

 

Total contributions to defined benefit pension and other postretirement benefit plans

184

155

9

11

 

Of which, discretionary contributions to defined benefit pension plans

10

 

 

($ in millions)

Defined pension benefits

Other postretirement benefits

 

Three months ended September 30,

2016

2015

2016

2015

 

Total contributions to defined benefit pension and other postretirement benefit plans

44

56

3

4

 

Of which, discretionary contributions to defined benefit pension plans

10



 

 

During the nine months ended September 30, 2016, total contributions included available-for-sale debt securities, having a fair value at the contribution date of $40 million, contributed to certain of the Company’s pension plans in Germany.

 

The Company expects to make contributions totaling approximately $252 million and $15 million to its defined benefit pension plans and other postretirement benefit plans, respectively, for the full year 2016.

  



 

Note 9

Stockholders’ equity

Between September 2014 and September 2016, the Company executed a share buyback program for the purchase of up to $4 billion of its own shares and on September 30, 2016, announced that it had completed this program. Over the period of the share buyback, the Company purchased a total of 146.595 million shares (for approximately $3 billion) for cancellation and 24.740 million shares (for approximately $0.5 billion) to support its employee share programs. The shares acquired for cancellation were purchased through a separate trading line on the SIX Swiss Exchange (on which only the Company could purchase shares), while shares acquired for delivery under employee share programs were acquired through the ordinary trading line.

 

In the nine months ended September 30, 2016, under the share buyback program, the Company purchased 60.370 million shares for cancellation and 4.940 million shares to support its employee share programs. No shares were bought in the third quarter of 2016. In the nine months ended September 30, 2016, these transactions resulted in an increase in Treasury stock of $1,280 million. In the nine months ended September 30, 2015, 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.

 

At the Annual General Meeting of Shareholders on April 21, 2016, shareholders approved the proposal of the Board of Directors to reduce the share capital of the Company by cancelling 100 million shares which were bought back under the share buyback program. This cancellation was completed in July 2016, resulting in a decrease in Treasury stock of $2,047 million and a corresponding total decrease in Capital stock and additional paid-in capital and in Retained earnings.

 

Also at the Annual General Meeting of Shareholders on April 21, 2016, shareholders approved the proposal of the Board of Directors to distribute 0.74 Swiss francs per share to shareholders by way of a nominal value reduction (reduction in the par value of each share) from 0.86 Swiss francs to 0.12 Swiss francs. In July 2016, the nominal value reduction was registered in the commercial register of the canton of Zurich, Switzerland, and was paid. The Company recorded a reduction in Capital stock and additional paid-in capital of $1,224 million and a reduction in Retained earnings of $402 million in relation to the nominal value reduction.

 

In the third quarter of 2016, the Company delivered 8.9 million shares of treasury stock for options exercised in connection with its management incentive plan for a total of $142 million in proceeds.

 

In October 2016, the Company announced a new share buyback program for the purchase of up to $3 billion of its own shares from 2017 to 2019.

  



 

25            Q3 2016 Financial Information 


 

Not 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 subject to certain conditions under the Company’s share-based payment arrangements

 

 

  

 

Basic earnings per share

 

 

 

 

 

Nine months ended September 30,

Three months ended September 30,

 

 

($ in millions, except per share data in $)

2016

2015

2016

2015

 

 

Amounts attributable to ABB shareholders:

 

 

 

 

 

 

Income from continuing operations, net of tax

1,460

1,727

552

577

 

 

Income from discontinued operations, net of tax

14

2

16

 

 

Net income

1,474

1,729

568

577

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions)

2,155

2,234

2,135

2,219

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to ABB shareholders:

 

 

 

 

 

 

Income from continuing operations, net of tax

0.68

0.77

0.26

0.26

 

 

Income from discontinued operations, net of tax

0.01

 

 

Net income

0.68

0.77

0.27

0.26

 

 

 

Diluted earnings per share

 

 

 

 

 

Nine months ended September 30,

Three months ended September 30,

 

 

($ in millions, except per share data in $)

2016

2015

2016

2015

 

 

Amounts attributable to ABB shareholders:

 

 

 

 

 

 

Income from continuing operations, net of tax

1,460

1,727

552

577

 

 

Income from discontinued operations, net of tax

14

2

16

 

 

Net income

1,474

1,729

568

577

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions)

2,155

2,234

2,135

2,219

 

 

Effect of dilutive securities:

 

 

 

 

 

 

Call options and shares

4

5

4

4

 

 

Adjusted weighted-average number of shares outstanding (in millions)

2,159

2,239

2,139

2,223

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to ABB shareholders:

 

 

 

 

 

 

Income from continuing operations, net of tax

0.68

0.77

0.26

0.26

 

 

Income from discontinued operations, net of tax

0.01

 

 

Net income

0.68

0.77

0.27

0.26

 



 

Note 11

Reclassifications out of accumulated other comprehensive loss

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, 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)

 

26            Q3 2016 Financial Information 


 

 

 

 

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, 2016

(3,135)

7

(1,719)

(11)

(4,858)

 

Other comprehensive (loss) income

 

 

 

 

 

 

before reclassifications

98

8

22

22

150

 

Amounts reclassified from OCI

(1)

67

(9)

57

 

Total other comprehensive (loss) income

98

7

89

13

207

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

Amounts attributable to noncontrolling interests

1

1

 

Balance at September 30, 2016

(3,038)

14

(1,630)

2

(4,652)

 

 

The following table reflects amounts reclassified out of OCI in respect of pension and other postretirement plan adjustments:

 

  

 

 

 

Nine months ended

Three months ended

 

($ in millions)

Location of (gains) losses

September 30,

September 30,

 

Details about OCI components

reclassified from OCI

2016

2015

2016

2015

 

Pension and other postretirement plan adjustments:

 

 

 

 

 

 

Amortization of prior service cost

Net periodic benefit cost(1)

22

22

7

7

 

Amortization of net actuarial loss

Net periodic benefit cost(1)

65

96

22

40

 

Total before tax

 

87

118

29

47

 

Tax

Provision for taxes

(20)

(30)

(7)

(14)

 

Amounts reclassified from OCI

 

67

88

22

33

 

 

 

 

 

 

 

 

Unrealized gains (losses) of cash flow hedge derivatives:

 

 

 

 

 

 

Foreign exchange contracts

Total revenues

9

31

3

7

 

 

Total cost of sales

(9)

(8)

(2)

(3)

 

Commodity contracts

Total cost of sales

2

7

(1)

3

 

Cash-settled call options

SG&A expenses(2)

(12)

6

(11)

2

 

Total before tax

 

(10)

36

(11)

9

 

Tax

Provision for taxes

1

(8)

2

(2)

 

Amounts reclassified from OCI

 

(9)

28

(9)

7

(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, 2016 and 2015.

  



 

Note 12

Restructuring and related expenses

 

White Collar Productivity 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 following table outlines the costs incurred in the nine and three months ended September 30, 2016, the cumulative costs incurred to date and the total amount of costs expected to be incurred under the program per operating segment:

 

  

 

 

Costs incurred in the

Costs incurred in the

Cumulative costs

 

 

 

nine months ended

 three months ended

 incurred up to

 

 

($ in millions)

September 30, 2016

September 30, 2016

September 30, 2016

Total expected costs(1)

 

Electrification Products

25

(7)

98

103

 

Discrete Automation and Motion

33

(9)

78

82

 

Process Automation

73

(9)

169

179

 

Power Grids

50

(10)

120

125

 

Corporate and Other

49

(4)

135

142

 

Total

230

(39)

600

631

(1) Total expected costs have been recast to reflect the reorganization of the Company’s operating segments as outlined in Note 13.

 

 

During the nine months ended September 30, 2016, the total expected program costs were reduced by $221 million due to higher attrition rates and a favorable change in average severance costs per person across all operating segments. The variances in average severance costs were primarily due to more precise cost estimates being computed after determining the specific country locations of affected employees.

 

Of the total expected costs of $631 million, the majority is related to employee severance costs.

27            Q3 2016 Financial Information 


 

 

 

The Company recorded the following expenses under this program:

 

  

 

 

Nine months ended

Three months ended

Cumulative costs

 

 

September 30,

September 30,

 incurred up to

 

($ in millions)

2016

2015

2016

2015

September 30, 2016

 

Employee severance costs

229

18

(39)

18

593

 

Estimated contract settlement, loss order and other costs

1

6

 

Inventory and long-lived asset impairments

1

 

Total

230

18

(39)

18

600

 

 

Expenses associated with this program are recorded in the following line items in the Consolidated Income Statements:

 

  

 

 

Nine months ended September 30,

Three months ended September 30,

 

($ in millions)

2016

2015

2016

2015

 

Total cost of sales

139

9

(20)

9

 

Selling, general and administrative expenses

77

4

(13)

4

 

Non-order related research and development expenses

7

4

(3)

4

 

Other income (expense), net

7

1

(3)

1

 

Total

230

18

(39)

18

 

 

Liabilities associated with the White Collar Productivity program are primarily included in “Other provisions”. The following table shows the activity from the beginning of the program to September 30, 2016, by expense type.

 

  

 

 

Employee

Contract settlement,

 

 

($ in millions)

severance costs

loss order and other costs

Total

 

Liability at January 1, 2015

 

Expenses

364

5

369

 

Cash payments

(34)

(1)

(35)

 

Liability at December 31, 2015

330

4

334

 

Expenses

301

1

302

 

Cash payments

(83)

(2)

(85)

 

Change in estimates

(72)

(72)

 

Exchange rate differences

1

1

 

Liability at September 30, 2016

477

3

480

 

 

The change in estimates of $72 million, $44 million of which was recorded in the three months ended September 30, 2016, results from higher attrition rates and a reduction in average severance costs per person. The reduction in the liability was recorded in income from operations, primarily as reductions in cost of sales of $34 million and in selling, general and administrative expenses of $27 million, and resulted in an increase in earnings per share (basic and diluted) of approximately $0.02 and $0.01 for the nine and three months ended September 30, 2016, respectively.

 

Other restructuring-related activities

In the nine months ended September 30, 2016  and 2015, the Company executed various other minor restructuring‑related activities and incurred expenses of $91 million and $112 million, respectively. In the three months ended September 30, 2016 and 2015, these expenses amounted to $24 million and $28 million, respectively. These expenses mainly related to employee severance costs and were primarily recorded in “Total cost of sales”.

 

  

28            Q3 2016 Financial Information 


 

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 Electrification Products, Discrete Automation and Motion, Process Automation and Power Grids. The remaining operations of the Company are included in Corporate and Other.

 

 

Effective January 1, 2016, the Company reorganized its operating segments with the aim of delivering more customer value in a better, more focused way from its combined power and automation offering. The new Electrification Products segment includes the business of the former Low Voltage Products segment and the Medium Voltage Products business from the former Power Products segment. The Process Automation segment has been expanded to include the Distributed Control Systems business from the former Power Systems segment, while the remaining businesses of the former Power Products and Power Systems segments were combined to form the new Power Grids segment. There were no significant changes to the Discrete Automation and Motion segment.

 

In addition, commencing in 2016, the Company changed its method of allocating income taxes to its operating segments whereby tax assets are primarily accounted for in Corporate and Other. As a result, certain amounts relating to current and deferred tax assets previously reported within the total segment assets of each individual operating segment have been allocated to Corporate and Other.

 

The segment information for the nine and three months ended September 30, 2015 and at December 31, 2015, has been recast to reflect these organizational and allocation changes.

 

 

A description of the types of products and services provided by each reportable segment is as follows:

 

 ●   Electrification Products: manufactures and sells products and services including low- and medium-voltage switchgear (air and gas insulated), breakers, switches, control products, DIN rail components, automation and distribution enclosures, wiring accessories and installation material for many kinds of applications.

 

 ●   Discrete Automation and Motion: manufactures and sells motors, generators, variable speed drives, 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.

 

 ●   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 Grids: supplies power and automation products, systems, and service and software solutions for power generation, transmission and distribution to utility, industry, transportation and infrastructure customers. These offerings address evolving grid developments which include the integration of renewables, network control, digital substations, microgrids and asset management. The segment also manufactures a wide range of power, distribution and traction transformers, an array of high-voltage products, including circuit breakers, switchgear, capacitors and power transmission systems.

 

 ●   Corporate and Other: includes headquarters, central research and development, the Company’s real estate activities, Group Treasury Operations, historical operating activities of certain divested businesses, and other minor business activities.

 

 

The Company evaluates the profitability of its segments based on Operational EBITA, which represents income from operations excluding amortization expense on intangibles arising upon acquisitions (acquisition-related amortization), restructuring and restructuring-related expenses, gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items, as well as foreign exchange/commodity timing differences in income from operations consisting of: (i) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives), (ii) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (iii) unrealized foreign exchange movements on receivables/payables (and related assets/liabilities).

 

The 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, 2016 and 2015, as well as total assets at September 30, 2016, and December 31, 2015.

 

  

 

 

Nine months ended September 30, 2016

Nine months ended September 30, 2015

 

 

Third-party

Intersegment

Total

Third-party

Intersegment

Total

 

($ in millions)

revenues

revenues

revenues

revenues

revenues

revenues

 

Electrification Products

6,426

404

6,830

6,638

450

7,088

 

Discrete Automation and Motion

6,090

413

6,503

6,383

456

6,839

 

Process Automation

4,748

113

4,861

5,212

86

5,298

 

Power Grids

7,530

403

7,933

7,949

565

8,514

 

Corporate and Other

41

1,160

1,201

57

1,113

1,170

 

Intersegment elimination

(2,493)

(2,493)

(2,670)

(2,670)

 

Consolidated

24,835

24,835

26,239

26,239

29            Q3 2016 Financial Information 


 



 

 

 

Three months ended September 30, 2016

Three months ended September 30, 2015

 

 

Third-party

Intersegment

Total

Third-party

Intersegment

Total

 

($ in millions)

revenues

revenues

revenues

revenues

revenues

revenues

 

Electrification Products

2,177

131

2,308

2,205

148

2,353

 

Discrete Automation and Motion

2,076

127

2,203

2,050

170

2,220

 

Process Automation

1,490

33

1,523

1,635

24

1,659

 

Power Grids

2,498

138

2,636

2,616

175

2,791

 

Corporate and Other

14

385

399

13

359

372

 

Intersegment elimination

(814)

(814)

(876)

(876)

 

Consolidated

8,255

8,255

8,519

8,519



 

 

 

Nine months ended September 30,

Three months ended September 30,

 

($ in millions)

2016

2015

2016

2015

 

Operational EBITA:

 

 

 

 

 

Electrification Products

1,143

1,161

411

410

 

Discrete Automation and Motion

896

992

311

335

 

Process Automation

593

624

187

181

 

Power Grids

706

581

254

221

 

Corporate and Other and Intersegment elimination

(243)

(270)

(117)

(66)

 

Consolidated Operational EBITA

3,095

3,088

1,046

1,081

 

Acquisition-related amortization

(212)

(237)

(70)

(74)

 

Restructuring and restructuring-related expenses(1)

(475)

(143)

(39)

(59)

 

Gains and losses from sale of businesses, acquisition-related expenses

 

 

 

 

 

and certain non-operational items

(46)

(44)

(35)

6

 

Foreign exchange/commodity timing differences in income from operations:

 

 

 

 

 

Unrealized gains and losses on derivatives (foreign exchange,

 

 

 

 

 

commodities, embedded derivatives)

(43)

80

(8)

(64)

 

Realized gains and losses on derivatives where the underlying hedged

 

 

 

 

 

transaction has not yet been realized

11

(50)

(3)

(22)

 

Unrealized foreign exchange movements on receivables/payables (and

 

 

 

 

 

related assets/liabilities)

(21)

8

(13)

14

 

Income from operations

2,309

2,702

878

882

 

Interest and dividend income

54

56

16

18

 

Interest and other finance expense

(230)

(223)

(84)

(64)

 

Income from continuing operations before taxes

2,133

2,535

810

836

(1) Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.



 

 

 

Total assets(1)

 

($ in millions)

September 30, 2016

December 31, 2015

 

Electrification Products

10,018

9,474

 

Discrete Automation and Motion

8,780

9,223

 

Process Automation

4,490

4,662

 

Power Grids

9,380

9,422

 

Corporate and Other

8,141

8,575

 

Consolidated

40,809

41,356

(1) Total assets are after intersegment eliminations and therefore reflect third-party assets only.

  



 

Realignment of segments

On October 4, 2016, the Company announced a planned change in the composition of the business portfolio of its four segments, effective January 1, 2017. In addition, two of the segments will be renamed.

 

The primary portfolio change is that the scope of Electrification Products segment will be expanded to include electric vehicle charging, solar, and power quality businesses from the Discrete Automation and Motion segment.

 

In addition, the Discrete Automation and Motion segment will be renamed the Robotics and Motion segment while the Process Automation segment will be renamed the Industrial Automation segment.

30            Q3 2016 Financial Information 


 

  

31            Q3 2016 Financial Information 


 

 

 

 

Financial Information

Supplemental Reconciliations and Definitions

 

 

 

 

 

 

 

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, 2016.

 

  

Comparable growth  rates

Growth rates for certain key figures may be presented and discussed on a “comparable” basis. The comparable growth rate measures growth on a constant currency basis. Since we are a global company, the comparability of our operating results reported in U.S. dollars is affected by foreign currency exchange rate fluctuations. We calculate the impacts from foreign currency fluctuations by translating the current-year periods’ reported key figures into U.S. dollar amounts using the exchange rates in effect for the comparable periods in the previous year.

 

Comparable growth rates are also adjusted for changes in our business portfolio. Adjustments to our business portfolio occur due to acquisitions, divestments, or by exiting specific business activities or customer markets. The adjustment for portfolio changes is calculated as follows: where the results of any business acquired or divested have not been consolidated and reported for the entire duration of both the current and comparable periods, the reported key figures of such business are adjusted to exclude the relevant key figures of any corresponding quarters which are not comparable when computing the comparable growth rate. Certain portfolio changes which do not qualify as divestments under U.S. GAAP have been treated in a similar manner to divestments. Changes in our portfolio where we have exited certain business activities or customer markets are adjusted as if the relevant business was divested in the period when the decision to cease business activities was taken. We do not adjust for portfolio changes where the relevant business has annualized revenues of less than $50 million.

 

The following tables provide reconciliations of reported growth rates of certain key figures to their respective comparable growth rate.

  

 

Divisional comparable growth rate reconciliation

  

 

 

Q3 2016 compared to Q3 2015

 

 

Order growth rate

Revenue growth rate

 

 

US$

Foreign

 

 

US$

Foreign

 

 

 

 

(as

exchange

Portfolio

 

(as

exchange

Portfolio

 

 

Division

reported)

impact

changes

Comparable

reported)

impact

changes

Comparable

 

Electrification Products

-6%

2%

0%

-4%

-2%

2%

0%

0%

 

Discrete Automation and Motion

-5%

1%

0%

-4%

-1%

1%

0%

0%

 

Process Automation

-22%

1%

0%

-21%

-8%

1%

0%

-7%

 

Power Grids

-22%

1%

0%

-21%

-6%

2%

5%

1%

 

ABB Group

-14%

1%

0%

-13%

-3%

1%

2%

0%



 

32            Q3 2016 Financial Information 


 

 

 

9M 2016 compared to 9M 2015

 

 

Order growth rate

Revenue growth rate

 

 

US$

Foreign

 

 

US$

Foreign

 

 

 

 

(as

exchange

Portfolio

 

(as

exchange

Portfolio

 

 

Division

reported)

impact

changes

Comparable

reported)

impact

changes

Comparable

 

Electrification Products

-7%

4%

0%

-3%

-4%

4%

0%

0%

 

Discrete Automation and Motion

-8%

2%

0%

-6%

-5%

2%

0%

-3%

 

Process Automation

-22%

3%

0%

-19%

-8%

3%

0%

-5%

 

Power Grids

-13%

2%

1%

-10%

-7%

3%

4%

0%

 

ABB Group

-11%

3%

0%

-8%

-5%

3%

1%

-1%



 

Regional comparable growth rate reconciliation

  

 

 

Q3 2016 compared to Q3 2015

 

 

Order growth rate

Revenue growth rate

 

 

US$

Foreign

 

 

US$

Foreign

 

 

 

 

(as

exchange

Portfolio

 

(as

exchange

Portfolio

 

 

Region

reported)

impact

changes

Comparable

reported)

impact

changes

Comparable

 

Europe

-20%

1%

1%

-18%

-3%

2%

4%

3%

 

The Americas

-17%

1%

0%

-16%

-4%

1%

0%

-3%

 

Asia, Middle East and Africa

-7%

2%

0%

-5%

-2%

2%

0%

0%

 

ABB Group

-14%

1%

0%

-13%

-3%

1%

2%

0%



 

 

 

9M 2016 compared to 9M 2015

 

 

Order growth rate

Revenue growth rate

 

 

US$

Foreign

 

 

US$

Foreign

 

 

 

 

(as

exchange

Portfolio

 

(as

exchange

Portfolio

 

 

Region

reported)

impact

changes

Comparable

reported)

impact

changes

Comparable

 

Europe

-10%

2%

0%

-8%

-3%

2%

4%

3%

 

The Americas

-14%

2%

0%

-12%

-8%

3%

0%

-5%

 

Asia, Middle East and Africa

-9%

4%

0%

-5%

-5%

3%

0%

-2%

 

ABB Group

-11%

3%

0%

-8%

-5%

3%

1%

-1%



 

Order backlog growth rate reconciliation

  

 

 

September 30, 2016, compared to September 30, 2015

 

 

 

US$

Foreign

 

 

 

 

 

(as

exchange

Portfolio

 

 

 

Division

reported)

impact

changes

Comparable

 

 

Electrification Products

2%

1%

0%

3%

 

 

Discrete Automation and Motion

-3%

1%

0%

-2%

 

 

Process Automation

-10%

-1%

0%

-11%

 

 

Power Grids

0%

1%

1%

2%

 

 

ABB Group

-3%

0%

1%

-2%

 



 

Other growth rate reconciliations

  

 

 

Q3 2016 compared to Q3 2015

9M 2016 compared to 9M 2015

 

 

US$

Foreign

 

 

US$

Foreign

 

 

 

 

(as

exchange

Portfolio

 

(as

exchange

Portfolio

 

 

 

reported)

impact

changes

Comparable

reported)

impact

changes

Comparable

 

Large orders

-46%

1%

0%

-45%

-38%

0%

1%

-37%

 

Base orders

-7%

1%

0%

-6%

-5%

3%

0%

-2%

 

Service orders

-5%

2%

0%

-3%

-1%

3%

0%

2%

 

Service revenues

4%

1%

0%

5%

0%

3%

0%

3%



 

33            Q3 2016 Financial Information 


 

Division realignment:

Effective January 1, 2016, we have realigned our organizational structure to better address customer needs and deliver operational efficiency. Our new streamlined structure is comprised of four operating divisions: Power Grids, Electrification Products, Discrete Automation and Motion and Process Automation. In addition, the operations of certain previously divested businesses have been excluded from the results of the four divisions (but are included in the total ABB Group) for the periods prior to their respective divestment. See Note 13 to the Interim Consolidated Financial Information (unaudited) for further details on the realignment.

 

The following information presents a reconciliation of growth rates of orders and revenues for 2015 compared with 2014 to reflect these organizational changes:

 

Divisional comparable growth rate reconciliation:

 

  

 

 

Q3 2015 compared to Q3 2014

 

 

Order growth rate

Revenue growth rate

 

 

US$

Foreign

 

 

US$

Foreign

 

 

 

 

(as

exchange

Portfolio

 

(as

exchange

Portfolio

 

 

Division

reported)

impact

changes

Comparable

reported)

impact

changes

Comparable

 

Electrification Products

-15%

11%

0%

-4%

-13%

11%

0%

-2%

 

Discrete Automation and Motion

-17%

8%

0%

-9%

-16%

9%

0%

-7%

 

Process Automation

-45%

8%

0%

-37%

-19%

12%

0%

-7%

 

Power Grids

-16%

11%

-1%

-6%

-6%

11%

1%

6%

 

ABB Group

-22%

10%

0%

-12%

-13%

10%

1%

-2%



 

 

 

9M 2015 compared to 9M 2014

 

 

Order growth rate

Revenue growth rate

 

 

US$

Foreign

 

 

US$

Foreign

 

 

 

 

(as

exchange

Portfolio

 

(as

exchange

Portfolio

 

 

Division

reported)

impact

changes

Comparable

reported)

impact

changes

Comparable

 

Electrification Products

-10%

10%

0%

0%

-10%

11%

0%

1%

 

Discrete Automation and Motion

-12%

9%

0%

-3%

-10%

9%

0%

-1%

 

Process Automation

-22%

12%

0%

-10%

-16%

12%

0%

-4%

 

Power Grids

-4%

13%

0%

9%

-7%

11%

0%

4%

 

ABB Group

-12%

10%

2%

0%

-11%

10%

2%

1%



 

Adjusted services and software revenues as a percentage of total revenues

Adjusted services and software revenues as a percentage of total revenues is calculated as Sales of services and software divided by Total revenues, after reducing both amounts by the amount of revenues recorded for businesses which have subsequently been divested. Total revenues are also adjusted when we have exited certain business activities or customer markets as if the relevant business was divested in the period when the decision to cease business activities was taken. We do not adjust for portfolio changes where the relevant business has annualized revenues of less than $50 million.

 

  

 

 

Three months ended September 30,

 

($ in millions, unless otherwise indicated)

2016

2015

 

Adjusted services and software revenues as a percentage of total revenues

 

 

 

 

Sales of services and software

1,453

1,403

 

Adjusted services and software revenues

1,453

1,403

 

 

Total revenues

8,255

8,519

 

 

Total revenues in divested/exited businesses

(139)

 

Adjusted total revenues

8,255

8,380

 

Adjusted services and software revenues as a percentage of total revenues

17.6%

16.7%



 

34            Q3 2016 Financial Information 


 

Operational EBITA margin

Definition

Operational EBITA margin

Operational EBITA margin is Operational EBITA as a percentage of Operational revenues.

 

Operational EBITA

Operational earnings before interest, taxes and acquisition-related amortization (Operational EBITA) represents Income from operations excluding acquisition-related amortization (as defined below), restructuring and restructuring-related expenses, gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items, as well as foreign exchange/commodity timing differences in income from operations consisting of: (i) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives), (ii) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (iii) unrealized foreign exchange movements on receivables/payables (and related assets/liabilities). Operational EBITA is our measure of segment profit but is also used by management to evaluate the profitability of the Company as a whole.

 

Acquisition-related amortization

Amortization expense on intangibles arising upon acquisitions.

 

Operational revenues

The Company presents Operational revenues solely for the purpose of allowing the computation of Operational EBITA margin. Operational revenues are total revenues adjusted for foreign exchange/commodity timing differences in total revenues of: (i) unrealized gains and losses on derivatives, (ii) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (iii) unrealized foreign exchange movements on receivables (and related assets). Operational revenues are not intended to be an alternative measure to Total Revenues, which represent our revenues measured in accordance with U.S. GAAP.

 

 

Reconciliation

The following tables provide reconciliations of consolidated Operational EBITA to Net Income and Operational EBITA Margin by division.

 

Reconciliation of consolidated Operational EBITA to Net Income

 

 

 

\

 

 

 

Nine months ended September 30,

Three months ended September 30,

 

($ in millions)

2016

2015

2016

2015

 

Operational EBITA

3,095

3,088

1,046

1,081

 

Acquisition-related amortization

(212)

(237)

(70)

(74)

 

Restructuring and restructuring-related expenses(1)

(475)

(143)

(39)

(59)

 

Gains and losses from sale of businesses, acquisition-related expenses

 

 

 

 

 

and certain non-operational items

(46)

(44)

(35)

6

 

Foreign exchange/commodity timing differences in income from operations:

 

 

 

 

 

 

Unrealized gains and losses on derivatives (foreign exchange,

 

 

 

 

 

 

commodities, embedded derivatives)

(43)

80

(8)

(64)

 

 

Realized gains and losses on derivatives where the underlying hedged

 

 

 

 

 

 

transaction has not yet been realized

11

(50)

(3)

(22)

 

 

Unrealized foreign exchange movements on receivables/payables (and

 

 

 

 

 

 

related assets/liabilities)

(21)

8

(13)

14

 

Income from operations

2,309

2,702

878

882

 

Interest and dividend income

54

56

16

18

 

Interest and other finance expense

(230)

(223)

(84)

(64)

 

Income from continuing operations before taxes

2,133

2,535

810

836

 

Provision for taxes

(587)

(722)

(237)

(229)

 

Income from continuing operations, net of tax

1,546

1,813

573

607

 

Income from discontinued operations, net of tax

14

2

16

 

Net income

1,560

1,815

589

607

(1) Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

35            Q3 2016 Financial Information 


 

Reconciliation of Operational EBITA margin by division

 

 

 

\

 

 

Nine months ended September 30, 2016

 

 

 

 

 

 

Corporate and

 

 

 

 

Discrete

 

 

Other and

 

 

 

Electrification

Automation

Process

Power

Intersegment

 

 

($ in millions, unless otherwise indicated)

Products

and Motion

Automation

Grids

elimination

Consolidated

 

Total revenues

6,830

6,503

4,861

7,933

(1,292)

24,835

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

2

(5)

12

33

42

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(4)

7

(5)

(2)

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

2

3

13

2

1

21

 

Operational revenues

6,830

6,501

4,893

7,963

(1,291)

24,896

 

 

 

 

 

 

 

 

 

Income (loss) from operations

1,016

742

452

554

(455)

2,309

 

Acquisition-related amortization

72

91

9

27

13

212

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

48

57

100

106

164

475

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

1

4

6

35

46

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

10

16

16

1

43

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(3)

(8)

(11)

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

(1)

2

16

5

(1)

21

 

Operational EBITA

1,143

896

593

706

(243)

3,095

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

16.7%

13.8%

12.1%

8.9%

n.a.

12.4%

(1) Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

 

36            Q3 2016 Financial Information 


 

 

 

Nine months ended September 30, 2015

 

 

 

 

 

 

Corporate and

 

 

 

 

Discrete

 

 

Other and

 

 

 

Electrification

Automation

Process

Power

Intersegment

 

 

($ in millions, unless otherwise indicated)

Products

and Motion

Automation

Grids

elimination

Consolidated

 

Total revenues

7,088

6,839

5,298

8,514

(1,500)

26,239

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

(15)

20

(4)

(55)

(54)

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

6

(28)

28

57

63

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

2

8

(24)

(19)

(33)

 

Operational revenues

7,081

6,839

5,298

8,497

(1,500)

26,215

 

 

 

 

 

 

 

 

 

Income (loss) from operations

1,089

857

580

468

(292)

2,702

 

Acquisition-related amortization

76

96

9

42

14

237

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

20

44

24

38

17

143

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

19

38

(13)

44

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

(30)

9

(12)

(49)

2

(80)

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

5

(26)

17

54

50

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

1

12

(13)

(10)

2

(8)

 

Operational EBITA

1,161

992

624

581

(270)

3,088

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

16.4%

14.5%

11.8%

6.8%

n.a.

11.8%

(1) Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

 

37            Q3 2016 Financial Information 


 

 

 

Three months ended September 30, 2016

 

 

 

 

 

 

Corporate and

 

 

 

 

Discrete

 

 

Other and

 

 

 

Electrification

Automation

Process

Power

Intersegment

 

 

($ in millions, unless otherwise indicated)

Products

and Motion

Automation

Grids

elimination

Consolidated

 

Total revenues

2,308

2,203

1,523

2,636

(415)

8,255

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

6

2

6

20

34

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(2)

(1)

6

3

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

1

2

3

(1)

1

6

 

Operational revenues

2,313

2,207

1,531

2,661

(414)

8,298

 

 

 

 

 

 

 

 

 

Income (loss) from operations

389

276

170

222

(179)

878

 

Acquisition-related amortization

24

30

3

9

4

70

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

(7)

(4)

7

12

31

39

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

1

4

2

28

35

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

3

2

(1)

4

8

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(2)

1

2

2

3

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

3

2

6

3

(1)

13

 

Operational EBITA

411

311

187

254

(117)

1,046

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

17.8%

14.1%

12.2%

9.5%

n.a.

12.6%

(1) Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

 

38            Q3 2016 Financial Information 


 

 

 

Three months ended September 30, 2015

 

 

 

 

 

 

Corporate and

 

 

 

 

Discrete

 

 

Other and

 

 

 

Electrification

Automation

Process

Power

Intersegment

 

 

($ in millions, unless otherwise indicated)

Products

and Motion

Automation

Grids

elimination

Consolidated

 

Total revenues

2,353

2,220

1,659

2,791

(504)

8,519

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

41

27

52

1

121

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

3

1

9

13

26

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

(3)

(5)

(4)

(22)

(34)

 

Operational revenues

2,353

2,257

1,691

2,834

(503)

8,632

 

 

 

 

 

 

 

 

 

Income (loss) from operations

390

264

159

159

(90)

882

 

Acquisition-related amortization

25

31

3

10

5

74

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

10

16

3

13

17

59

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

(1)

1

5

(11)

(6)

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

(18)

26

8

33

15

64

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

3

3

6

10

22

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

1

(5)

1

(9)

(2)

(14)

 

Operational EBITA

410

335

181

221

(66)

1,081

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

17.4%

14.8%

10.7%

7.8%

n.a.

12.5%

(1) Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

39            Q3 2016 Financial Information 


 

Operational EPS 

Definition

 

Operational EPS

Operational EPS is calculated as Operational net income divided by the weighted-average number of shares outstanding used in determining basic earnings per share.

 

Operational net income

Operational net income is calculated as Net income attributable to ABB adjusted for the net-of-tax impact of:

(i)      acquisition-related amortization,

(ii)     restructuring and restructuring-related expenses,

(iii)   gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items, and

(iv)    foreign exchange/commodity timing differences in income from operations consisting of: (a) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives), (b) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (c) unrealized foreign exchange movements on receivables/payables (and related assets/liabilities).

 

Acquisition-related amortization

Amortization expense on intangibles arising upon acquisitions.

 

Adjusted Group effective tax rate

The Adjusted Group effective tax rate is computed by dividing an adjusted provision for taxes by an adjusted income from continuing operations before taxes. Certain amounts recorded in income from continuing operations before taxes and the related provision for taxes (primarily gains and losses from sale of businesses), as well as certain other amounts included solely in provision for taxes, are excluded from the computation.

 

Constant currency Operational EPS adjustment and Operational EPS growth rate (constant currency)

In connection with ABB’s 2015-2020 targets, Operational EPS growth is measured assuming 2014 as the base year and uses constant exchange rates. We compute the constant currency operational net income for all periods using the relevant monthly exchange rates which were in effect during 2014 and any difference in computed Operational net income is divided by the relevant weighted-average number of shares outstanding to identify the constant currency Operational EPS adjustment.

 

 

Reconciliation

 

  

 

 

 

Nine months ended September 30,

 

 

($ in millions, except per share data in $)

2016

2015

Growth(1)

 

Net income (attributable to ABB)

1,474

1,729

 

 

Operational adjustments:

 

 

 

 

Acquisition-related amortization

212

237

 

 

Restructuring and restructuring-related expenses(2)

475

143

 

 

Gains and losses from sale of businesses,

 

 

 

 

acquisition-related expenses and certain non-operational items

46

44

 

 

FX/commodity timing differences in income from operations

53

(38)

 

 

Tax on operational adjustments(3)

(216)

(99)

 

 

Operational net income

2,044

2,016

1%

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions)

2,155

2,234

 

 

 

 

 

 

 

Operational EPS

0.95

0.90

5%

 

Constant currency Operational EPS adjustment

0.11

0.09

 

 

Operational EPS (constant currency basis - 2014 exchange rates)

1.06

0.99

7%

 

(1) Growth is computed using unrounded EPS amounts.

(2) Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

(3) Tax amount is computed by applying the Adjusted Group effective tax rate to the operational adjustments, except for gains and losses from sale of businesses for which the actual provision for taxes resulting from the gain or loss has been computed.



 

40            Q3 2016 Financial Information 


 

 

 

Three months ended September 30,

 

 

($ in millions, except per share data in $)

2016

2015

Growth(1)

 

Net income (attributable to ABB)

568

577

 

 

Operational adjustments:

 

 

 

 

Acquisition-related amortization

70

74

 

 

Restructuring and restructuring-related expenses(2)

39

59

 

 

Gains and losses from sale of businesses,

 

 

 

 

acquisition-related expenses and certain non-operational items

35

(6)

 

 

FX/commodity timing differences in income from operations

24

72

 

 

Tax on operational adjustments(3)

(53)

(57)

 

 

Operational net income

683

719

-5%

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions)

2,135

2,219

 

 

 

 

 

 

 

Operational EPS

0.32

0.32

-1%

 

Constant currency Operational EPS adjustment

0.03

0.03

 

 

Operational EPS (constant currency basis - 2014 exchange rates)

0.35

0.35

0%

 

(1) Growth is computed using unrounded EPS amounts.

(2) Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

(3) Tax amount is computed by applying the Adjusted Group effective tax rate to the operational adjustments, except for gains and losses from sale of businesses for which the actual provision for taxes resulting from the gain or loss has been computed.



 

Net debt 

Definition

 

Net debt 

Net debt  is  defined  as  Total  debt  less  Cash  and  marketable  securities. 

 

Total debt 

Total debt  is  the  sum  of  Short-term  debt  and  current  maturities  of  long-term  debt,  and  Long-term  debt. 

 

Cash and  marketable  securities 

Cash and  marketable  securities  is  the  sum  of  Cash  and  equivalents,  and  Marketable  securities  and  short-term  investments. 

 

 

Reconciliation

 

 

  

 

($ in millions)

September 30, 2016

December 31, 2015

 

Short-term debt and current maturities of long-term debt

1,402

1,454

 

Long-term debt

6,319

5,985

 

Total debt

7,721

7,439

 

Cash and equivalents

3,538

4,565

 

Marketable securities and short-term investments

1,827

1,633

 

Cash and marketable securities

5,365

6,198

 

Net debt

2,356

1,241

41            Q3 2016 Financial Information 


 

Net working  capital  as   

percentage of  revenues 

Definition

Net working capital as a percentage of revenues

Net working capital as a percentage of revenues is calculated as Net working capital divided by Adjusted revenues for the trailing twelve months.

 

Net working capital

Net working capital is the sum of (i) receivables, net, (ii) inventories, net, and (iii) prepaid expenses; less (iv) accounts payable, trade, (v) billings in excess of sales, (vi) advances from customers, and (vii) other current liabilities (excluding primarily: (a) income taxes payable, (b) current derivative liabilities, (c) pension and other employee benefits, and (d) payables under the share buyback program); and including the amounts related to these accounts which have been presented as either assets or liabilities held for sale.

 

Adjusted revenues for the trailing twelve months

Adjusted revenues for the trailing twelve months includes total revenues recorded by ABB in the twelve months preceding the relevant balance sheet date adjusted to eliminate revenues of divested businesses and the estimated impact of annualizing revenues of certain acquisitions which were completed in the same trailing twelve-month period.

 

 

Reconciliation

 

 

  

 

 

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

 

($ in millions, unless otherwise indicated)

2016

2016

2016

2015

2015

2015

2015

2014

2014

2014

2014

2013

 

Net working capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivables, net

10,155

10,384

10,131

10,061

10,564

11,071

10,599

11,078

11,788

12,106

12,215

12,146

 

Inventories, net

5,017

5,045

5,104

4,757

5,410

5,458

5,346

5,376

5,961

6,210

6,201

6,004

 

Prepaid expenses

242

246

268

225

286

304

289

218

307

306

305

252

 

Accounts payable, trade

(4,458)

(4,536)

(4,323)

(4,342)

(4,405)

(4,564)

(4,473)

(4,765)

(4,820)

(4,950)

(4,872)

(5,112)

 

Billings in excess of sales

(1,330)

(1,377)

(1,331)

(1,375)

(1,440)

(1,505)

(1,396)

(1,455)

(1,560)

(1,499)

(1,539)

(1,714)

 

Advances from customers

(1,591)

(1,612)

(1,601)

(1,598)

(1,497)

(1,512)

(1,503)

(1,624)

(1,628)

(1,705)

(1,780)

(1,726)

 

Other current liabilities

(3,153)

(3,002)

(2,949)

(3,127)

(3,103)

(3,030)

(2,900)

(3,286)

(3,380)

(3,381)

(3,307)

(3,541)

 

excluding: (1)

744

2,505

803

690

802

1,201

1,017

971

1,260

774

710

701

 

Net working capital in

 

 

 

 

 

 

 

 

 

 

 

 

 

assets and liabilities held for sale

(46)

1

(8)

27

 

Net working capital

4,836

5,148

5,299

4,601

5,815

6,223

5,962

5,542

6,660

7,114

7,223

6,309

 

Total revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

for the three months ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016 / 2015 / 2014 / 2013

8,255

8,519

8,519

8,519

8,519

9,823

9,823

9,823

9,823

10,535

10,535

10,535

 

June 30, 2016 / 2015 / 2014 / 2013

8,677

8,677

9,165

9,165

9,165

9,165

10,190

10,190

10,190

10,190

10,225

10,225

 

March 31, 2016 / 2015 / 2014 / 2013

7,903

7,903

7,903

8,555

8,555

8,555

8,555

9,471

9,471

9,471

9,471

9,715

 

December 31, 2015 / 2014 / 2013

9,242

9,242

9,242

9,242

10,346

10,346

10,346

10,346

11,373

11,373

11,373

11,373

 

Total revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

for the trailing twelve months

34,077

34,341

34,829

35,481

36,585

37,889

38,914

39,830

40,857

41,569

41,604

41,848

 

Adjustment to annualize/eliminate

 

 

 

 

 

 

 

 

 

 

 

 

 

revenues of certain

 

 

 

 

 

 

 

 

 

 

 

 

 

acquisitions/divestments

(64)

(144)

(372)

(613)

(633)

(212)

204

460

 

Adjusted revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

for the trailing twelve months

34,077

34,341

34,829

35,481

36,521

37,745

38,542

39,217

40,224

41,357

41,808

42,308

 

Net working capital

 

 

 

 

 

 

 

 

 

 

 

 

 

as a percentage of revenues (%)

14.2%

15.0%

15.2%

13.0%

15.9%

16.5%

15.5%

14.1%

16.6%

17.2%

17.3%

14.9%

 (1) The amounts excluded from Other current liabilities 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.



 

42            Q3 2016 Financial Information 


 

Free cash flow conversion to net income

Definition

 

Free cash flow conversion to net income

Free cash flow conversion to net income is calculated as Free cash flow divided by Net income attributable to ABB.

 

Free cash flow (FCF)

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.

  

 

Free cash flow conversion to net income

  

 

 

 

Twelve months to

 

($ in millions, unless otherwise indicated)

September 30, 2016

December 31, 2015

 

Net cash provided by operating activities

4,409

3,818

 

Adjusted for the effects of:

 

 

 

Purchases of property, plant and equipment and intangible assets

(861)

(876)

 

Proceeds from sale of property, plant and equipment

76

68

 

Changes in financing receivables and other non-current receivables

(1)

9

 

Free cash flow

3,623

3,019

 

Net income attributable to ABB

1,678

1,933

 

Free cash flow conversion to net income

216%

156%



 

Reconciliation of the trailing twelve months to September 30, 2016

  

 

 

 

 

Purchases of

 

Changes in

 

 

 

Net cash

property, plant

Proceeds

financing

 

 

 

provided by

and equipment

from sale of

receivables and

Net income

 

 

 operating 

and intangible

property, plant

other non-current

attributable

 

($ in millions)

 activities 

 assets 

and equipment

receivables

to ABB

 

Q4 2015

1,994

(329)

24

3

204

 

Q1 2016

252

(170)

12

(3)

500

 

Q2 2016

1,082

(178)

16

2

406

 

Q3 2016

1,081

(184)

24

(3)

568

 

Total for the trailing twelve months to Sep. 30, 2016

4,409

(861)

76

(1)

1,678



 

Finance net 

Definition

 

Finance net is calculated as Interest and dividend income less Interest and other finance expense.

  



 

Reconciliation

 

 

  

 

 

Nine months ended September 30,

Three months ended September 30,

 

($ in millions)

2016

2015

2016

2015

 

Interest and dividend income

54

56

16

18

 

Interest and other finance expense

(230)

(223)

(84)

(64)

 

Finance net

(176)

(167)

(68)

(46)



 

Book-to-bill ratio 

Definition

 

Book-to-bill ratio is calculated as Orders received divided by Total revenues.

 

 

Reconciliation

 

 

  

 

 

Nine months ended September 30,

Three months ended September 30,

 

($ in millions, unless otherwise indicated)

2016

2015

2016

2015

 

Orders received

25,102

28,167

7,533

8,767

 

Total revenues

24,835

26,239

8,255

8,519

 

Book-to-bill ratio

1.01

1.07

0.91

1.03

43            Q3 2016 Financial Information 


 

 

 

 

 

 

 

 

 

 

ABB  Ltd

Corporate Communications

P.O.  Box  8131

8050 Zurich 

Switzerland

Tel:        +41  (0)43  317  71  11

Fax:       +41  (0)43  317  79  58

 

www.abb.com     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

44            Q3 2016 Financial Information 


 

 

Zurich, Switzerland, October 27, 2016

ABB names Timo Ihamuotila as new Chief Financial Officer

·          Timo Ihamuotila joins pioneering technology leader ABB as Chief Financial Officer from Nokia, effective April 1, 2017

·          Proven Chief Financial Officer with extensive experience in communications, software and services industries, active portfolio management and operational performance improvement

·          Deep understanding of corporate transformation and digital business models

·          Quantum leap in digital is cornerstone of Stage 3 of ABB’s Next Level Strategy: after creating the Chief Digital Officer role, new CFO key to transforming ABB as leader in digital industries

 

ABB announced today that Timo Ihamuotila has been named Chief Financial Officer and member of the Executive Committee, effective April 1, 2017. Ihamuotila succeeds current CFO Eric Elzvik in an orderly transition process. Elzvik will pursue career opportunities outside of ABB after a thorough handover in second quarter of 2017. 

Ihamuotila is joining ABB from Nokia, where he has held the position of CFO since 2009. In this role, he was key in helping to turn around and reposition Nokia as a “global leader in the technologies that connect people and things” through business model changes, active portfolio management and operational improvement.

Ihamuotila brings with him 26 years of experience in the communications and banking sector and has deep experience in areas as finance, controlling, mergers & acquisitions, commercial and general management.

“Timo is a seasoned CFO with an impressive global track record,” said Chief Executive Officer Ulrich Spiesshofer. “He has extensive and deep experience in all aspects of finance as well as in transforming businesses in times of industrial digitalization. With his wide range of expertise, ranging from financial, to commercial to general management, he is the ideal person to lead our finance organization and partner to drive ABB’s ongoing transformation as leader in the digital industry. I am delighted to welcome Timo to our Executive Committee in these exciting times as we focus on unlocking maximum value for all shareholders,” Spiesshofer said.

“At the same time I would like to warmly thank Eric Elzvik already now for his long, outstanding commitment and many valuable contributions to ABB over more than three decades. During Eric’s CFO tenure, a new cash culture together with a significant improvement of our Net Working Capital, a fundamental productivity improvement of the finance function and many portfolio actions were successfully established and delivered. We wish Eric all the best for the next step of his professional career which he will pursue after the orderly handover process is completed in Q2 2017.”

Prior to taking his current role, Ihamuotila held positions at the Finnish communications technology firm that included executive vice president of sales, general manager of a business unit and Group treasurer. Earlier in his career, he held positions at Citibank and Kansallis Bank. He earned a master of science degree in economics and a post graduate degree in finance from the Helsinki School of Economics.

“I’m very pleased to join ABB at such a pivotal stage of its transformation, as it moves to the next level and expands its digital offering, helping its customers harness the Energy and Fourth Industrial Revolutions,” said Ihamuotila. “I look forward to driving sustainable growth and accelerate value creation across ABB together with the entire management team.”

 

1 


 

 

 

 

Elzvik joined ABB in 1984 and has during his long and distinguished career held a variety of leadership roles in Sweden, Singapore and Switzerland, including head of Corporate Development, and head of Mergers & Acquisitions and Joint Ventures. He was CFO of the Automation Products division from 2006 and in 2010 became CFO for the Discrete Automation and Motion division. He serves ABB as Group CFO since February 2013.

ABB (ABBN: SIX Swiss Ex) is a pioneering technology leader in electrification products, robotics and motion, industrial automation and power grids, serving customers in utilities, industry and transport & infrastructure globally. Continuing more than a 125-year history of innovation, ABB today is writing the future of industrial digitalization and driving the Energy and Fourth Industrial Revolutions. ABB operates in more than 100 countries with about 135,000 employees. www.abb.com 

 

 

 

 

 

 

For more information please contact:

 

Media Relations

Tel: +41 43 317 65 68

media.relations@ch.abb.com

 

Investor Relations

Tel. +41 43 317 71 11

investor.relations@ch.abb.com

 

ABB Ltd

Affolternstrasse 44

8050 Zurich

Switzerland

 

  

 

 

2 


 

July — September 2016 — Q3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABB Ltd announces that the following members of the Executive Committee or Board of Directors of ABB have purchased, sold or been granted ABB’s registered shares, call options and warrant appreciation rights (“WARs”), in the following amounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

Date

 

Description

 

Received *

 

Purchased

 

Sold

 

Price

Louis R. Hughes

 

September 2, 2016

 

Sale

 

 

 

 

 

10,000

 

CHF

21.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Received instruments were delivered as part of the ABB Ltd Director’s or Executive Committee Member’s compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

ABB LTD

 

 

 

 

 

 

Date: October 27, 2016.

By:

/s/ Alanna Abrahamson - Haka

 

 

Name:

Alanna Abrahamson - Haka

 

 

Title:

Group Senior Vice President and
Head of Investor Relations

 

 

 

 

 

 

 

By:

/s/ Richard A. Brown

 

 

Name:

Richard A. Brown

 

 

Title:

Group Senior Vice President and
Chief Counsel Corporate & Finance