UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K/A

 

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

 

For the month of March 2017

 

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-

 

 

 

 


 

 

The information included in this Form 6-K/A 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.

 

 

EXPLANATORY NOTE

ABB Ltd. (the “Company”) is submitting this amended report on Form 6-K/A (this “Form 6-K/A”) to amend Item 2 of Form 6-K submitted to the Securities and Exchange Commission on February 8, 2017 (the “Form 6-K”), containing its Q4 2016 Financial Information. This information was 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.

Subsequent to the filing of the Form 6-K, the Company discovered a scheme to embezzle and misappropriate funds in its subsidiary in South Korea. The Company determined that approximately $75 million in cash previously reported at December 31, 2016, had been misappropriated and in addition there were unrecorded loans of $16 million and unreported factoring of accounts receivable amounting to $12 million. The Company reported this criminal loss to its third-party insurance company and has confirmed it has a relevant and effective insurance with a policy limit of $30 million and this coverage has been accrued.

As a result of the embezzlement, we are restating in this Form 6-K/A our interim consolidated financial information for the year and three months ended December 31, 2016. Note 1 to the interim consolidated financial information included in this Form 6-K/A reflects the changes to our interim consolidated financial information as a result of our restatement and provides additional information about the restatement.

 


 

  

 

1         Q4 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

 

 

 

34       Supplemental Reconciliations and Definitions

 

 

 

 

  

2         Q4 2016 Financial Information 


 

Financial Information

Key Figures

 

 

 

 

 

CHANGE

 

($ in millions, unless otherwise indicated)

Q4 2016

Q4 2015

US$

Comparable(1)

 

 

 

restated

 

restated

restated

 

Orders

8,277

8,262

0%

3%

 

Order backlog (end December)

22,981

24,121

-5%

-1%

 

Revenues

8,993

9,242

-3%

1%

 

Operational EBITA(1)

1,057

1,101

-4%

-2%(2)

 

 

as % of operational revenues(1)

11.7%

11.9%

-0.2 pts

 

 

Net income

425

204

108%

 

 

Basic earnings per share ($)

0.20

0.09

115%(3)

 

 

Operational earnings per share(1) ($)

0.33

0.35

-5%(3)

-3%(3)

 

Cash flow from operating activities

1,428

1,994

-28%

 



 

 

 

 

 

 

CHANGE

 

($ in millions, unless otherwise indicated)

FY 2016

FY 2015

US$

Comparable(1)

 

 

 

restated

 

restated

restated

 

Orders

33,379

36,429

-8%

-5%

 

Revenues

33,828

35,481

-5%

-1%

 

Operational EBITA(1)

4,191

4,209

0%

2%(2)

 

 

as % of operational revenues(1)

12.4%

11.9%

+0.5 pts

 

 

Net income

1,899

1,933

-2%

 

 

Basic earnings per share ($)

0.88

0.87

2%(3)

 

 

Operational earnings per share(1) ($)

1.29

1.26

3%(3)

4%(3)

 

Cash flow from operating activities

3,843

3,818

1%

 

 

(1)  For a reconciliation of non-GAAP measures see “Supplemental Reconciliations and Definitions” on page 34.

(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         Q4 2016 Financial Information 


 

 

 

Q4 2016

 

CHANGE - restated

 

($ in millions, unless otherwise indicated)

restated

Q4 2015

US$

Local

Comparable

 

Orders

ABB Group

8,277

8,262

0%

2%

3%

 

 

Electrification Products

2,157

2,340

-8%

-5%

-5%

 

 

Discrete Automation and Motion

2,013

1,984

1%

4%

4%

 

 

Process Automation

1,520

1,796

-15%

-14%

-14%

 

 

Power Grids

2,879

2,628

10%

12%

15%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(292)

(486)

 

Third-party base orders

ABB Group

6,860

7,122

-4%

-1%

-1%

 

 

Electrification Products

2,051

2,158

-5%

-2%

-2%

 

 

Discrete Automation and Motion

1,820

1,779

2%

5%

5%

 

 

Process Automation

1,285

1,309

-2%

0%

0%

 

 

Power Grids

1,692

1,864

-9%

-7%

-7%

 

 

Corporate and Other

12

12

 

 

 

 

Order backlog (end December)

ABB Group

22,981

24,121

-5%

-2%

-1%

 

 

Electrification Products

2,612

2,872

-9%

-5%

-5%

 

 

Discrete Automation and Motion

4,078

4,232

-4%

0%

0%

 

 

Process Automation

5,258

6,036

-13%

-10%

-10%

 

 

Power Grids

12,437

12,502

-1%

3%

4%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(1,404)

(1,521)

 

Revenues

ABB Group

8,993

9,242

-3%

0%

1%

 

 

Electrification Products

2,462

2,459

0%

3%

3%

 

 

Discrete Automation and Motion

2,211

2,288

-3%

-1%

-1%

 

 

Process Automation

1,737

1,926

-10%

-8%

-8%

 

 

Power Grids

3,042

3,107

-2%

1%

4%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(459)

(538)

 

Operational EBITA

ABB Group

1,057

1,101

-4%

-2%

 

 

 

Electrification Products

382

403

-5%

-4%

 

 

 

Discrete Automation and Motion

260

291

-11%

-8%

 

 

 

Process Automation

231

235

-2%

0%

 

 

 

Power Grids

318

293

9%

12%

 

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(134)

(121)

 

Operational EBITA %

ABB Group

11.7%

11.9%

 

 

 

 

 

Electrification Products

15.5%

16.4%

 

 

 

 

 

Discrete Automation and Motion

11.7%

12.7%

 

 

 

 

 

Process Automation

13.4%

12.1%

 

 

 

 

 

Power Grids

10.4%

9.5%

 

 

 

 

Income from operations

ABB Group

678

347

 

 

 

 

 

Electrification Products

319

267

 

 

 

 

 

Discrete Automation and Motion

89

134

 

 

 

 

 

Process Automation

244

105

 

 

 

 

 

Power Grids

334

145

 

 

 

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(308)

(304)

 

Income from operations %

ABB Group

7.5%

3.8%

 

 

 

 

 

Electrification Products

13.0%

10.9%

 

 

 

 

 

Discrete Automation and Motion

4.0%

5.9%

 

 

 

 

 

Process Automation

14.0%

5.5%

 

 

 

 

 

Power Grids

11.0%

4.7%

 

 

 

 

Cash flow from operating activities

ABB Group

1,428

1,994

 

 

 

 

 

Electrification Products

451

590

 

 

 

 

 

Discrete Automation and Motion

308

372

 

 

 

 

 

Process Automation

186

374

 

 

 

 

 

Power Grids

559

835

 

 

 

 

 

Corporate and Other

(76)

(177)

 

 

 

4         Q4 2016 Financial Information 


 

 

 

FY 2016

 

CHANGE - restated

 

($ in millions, unless otherwise indicated)

restated

FY 2015

US$

Local

Comparable

 

Orders

ABB Group

33,379

36,429

-8%

-5%

-5%

 

 

Electrification Products

9,158

9,833

-7%

-4%

-4%

 

 

Discrete Automation and Motion

8,654

9,222

-6%

-4%

-4%

 

 

Process Automation

5,866

7,347

-20%

-18%

-18%

 

 

Power Grids

11,232

12,205

-8%

-5%

-4%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(1,531)

(2,178)

 

 

 

 

Third-party base orders

ABB Group

28,887

30,302

-5%

-2%

-2%

 

 

Electrification Products

8,657

9,106

-5%

-2%

-2%

 

 

Discrete Automation and Motion

7,777

8,046

-3%

-1%

-1%

 

 

Process Automation

5,094

5,555

-8%

-6%

-6%

 

 

Power Grids

7,304

7,527

-3%

0%

0%

 

 

Corporate and Other

55

68

 

 

 

 

Order backlog (end December)

ABB Group

22,981

24,121

-5%

-2%

-1%

 

 

Electrification Products

2,612

2,872

-9%

-5%

-5%

 

 

Discrete Automation and Motion

4,078

4,232

-4%

0%

0%

 

 

Process Automation

5,258

6,036

-13%

-10%

-10%

 

 

Power Grids

12,437

12,502

-1%

3%

4%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(1,404)

(1,521)

 

Revenues

ABB Group

33,828

35,481

-5%

-2%

-1%

 

 

Electrification Products

9,292

9,547

-3%

1%

1%

 

 

Discrete Automation and Motion

8,714

9,127

-5%

-2%

-2%

 

 

Process Automation

6,598

7,224

-9%

-6%

-6%

 

 

Power Grids

10,975

11,621

-6%

-3%

1%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(1,751)

(2,038)

 

Operational EBITA

ABB Group

4,191

4,209

0%

2%

 

 

 

Electrification Products

1,528

1,561

-2%

0%

 

 

 

Discrete Automation and Motion

1,195

1,295

-8%

-6%

 

 

 

Process Automation

824

863

-5%

-2%

 

 

 

Power Grids

1,021

877

16%

19%

 

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(377)

(387)

 

Operational EBITA %

ABB Group

12.4%

11.9%

 

 

 

 

 

Electrification Products

16.4%

16.4%

 

 

 

 

 

Discrete Automation and Motion

13.7%

14.2%

 

 

 

 

 

Process Automation

12.4%

11.9%

 

 

 

 

 

Power Grids

9.3%

7.6%

 

 

 

 

Income from operations

ABB Group

2,987

3,049

 

 

 

 

 

Electrification Products

1,335

1,356

 

 

 

 

 

Discrete Automation and Motion

831

991

 

 

 

 

 

Process Automation

696

685

 

 

 

 

 

Power Grids

888

613

 

 

 

 

 

Corporate and Other

 

 

 

 

 

 

(incl. inter-division eliminations)

(763)

(596)

 

 

 

 

Income from operations %

ABB Group

8.8%

8.6%

 

 

 

 

 

Electrification Products

14.4%

14.2%

 

 

 

 

 

Discrete Automation and Motion

9.5%

10.9%

 

 

 

 

 

Process Automation

10.5%

9.5%

 

 

 

 

 

Power Grids

8.1%

5.3%

 

 

 

 

Cash flow from operating activities

ABB Group

3,843

3,818

 

 

 

 

 

Electrification Products

1,221

1,364

 

 

 

 

 

Discrete Automation and Motion

1,002

1,206

 

 

 

 

 

Process Automation

728

690

 

 

 

 

 

Power Grids

1,120

970

 

 

 

 

 

Corporate and Other

(228)

(412)

 

 

 

5         Q4 2016 Financial Information 


 

Operational EBITA

 

  

 

 

ABB

Electrification

Discrete Automation

Process

Power

 

($ in millions, unless otherwise indicated)

restated

Products

and Motion

Automation

Grids

 

 

Q4 16

Q4 15

Q4 16

Q4 15

Q4 16

Q4 15

Q4 16

Q4 15

Q4 16

Q4 15

 

Revenues

8,993

9,242

2,462

2,459

2,211

2,288

1,737

1,926

3,042

3,107

 

FX/commodity timing

 

 

 

 

 

 

 

 

 

 

 

differences in total revenues

20

(4)

4

(4)

7

4

(11)

13

21

(16)

 

Operational revenues

9,013

9,238

2,466

2,455

2,218

2,292

1,726

1,939

3,063

3,091

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

678

347

319

267

89

134

244

105

334

145

 

Acquisition-related amortization

67

73

23

24

29

32

2

3

8

10

 

Restructuring and

 

 

 

 

 

 

 

 

 

 

 

restructuring-related expenses(1)

68

531

25

104

31

81

(21)

106

(5)

122

 

Non-operational pension cost

38

8

2

2

2

1

 

Changes in pre-acquisition estimates

92

12

92

12

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

 

 

 

 

non-operational items

127

76

7

4

14

26

9

(5)

(8)

1

 

FX/commodity timing

 

 

 

 

 

 

 

 

 

 

 

differences in income from operations

(13)

54

8

4

3

6

(5)

24

(12)

15

 

Operational EBITA

1,057

1,101

382

403

260

291

231

235

318

293

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

11.7%

11.9%

15.5%

16.4%

11.7%

12.7%

13.4%

12.1%

10.4%

9.5%



 

 

 

ABB

Electrification

Discrete Automation

Process

Power

 

($ in millions, unless otherwise indicated)

restated

Products

and Motion

Automation

Grids

 

 

FY 16

FY 15

FY 16

FY 15

FY 16

FY 15

FY 16

FY 15

FY 16

FY 15

 

Revenues

33,828

35,481

9,292

9,547

8,714

9,127

6,598

7,224

10,975

11,621

 

FX/commodity timing

 

 

 

 

 

 

 

 

 

 

 

differences in total revenues

81

(28)

4

(11)

5

4

21

13

51

(33)

 

Operational revenues

33,909

35,453

9,296

9,536

8,719

9,131

6,619

7,237

11,026

11,588

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

2,987

3,049

1,335

1,356

831

991

696

685

888

613

 

Acquisition-related amortization

279

310

95

100

120

128

11

12

35

52

 

Restructuring and

 

 

 

 

 

 

 

 

 

 

 

restructuring-related expenses(1)

543

674

73

124

88

125

79

130

101

160

 

Non-operational pension cost

38

19

3

(3)

2

3

2

6

(2)

3

 

Changes in pre-acquisition estimates

131

21

131

21

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

 

 

 

 

non-operational items

173

120

8

4

18

26

9

14

(2)

39

 

FX/commodity timing

 

 

 

 

 

 

 

 

 

 

 

differences in income from operations

40

16

14

(20)

5

1

27

16

1

10

 

Operational EBITA

4,191

4,209

1,528

1,561

1,195

1,295

824

863

1,021

877

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

12.4%

11.9%

16.4%

16.4%

13.7%

14.2%

12.4%

11.9%

9.3%

7.6%

 

(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

 

 

Q4 16

Q4 15

Q4 16

Q4 15

Q4 16

Q4 15

Q4 16

Q4 15

Q4 16

Q4 15

 

Depreciation

191

192

49

51

38

39

13

15

50

51

 

Amortization

91

96

26

27

33

36

4

5

16

17

 

including total acquisition-related amortization of:

67

73

23

24

29

32

2

3

8

10



 

 

 

 

Electrification

Discrete Automation

Process

Power

 

($ in millions)

ABB

Products

and Motion

Automation

Grids

 

 

FY 16

FY 15

FY 16

FY 15

FY 16

FY 15

FY 16

FY 15

FY 16

FY 15

 

Depreciation

767

764

199

206

156

149

57

60

201

204

 

Amortization

368

396

106

110

136

146

17

19

65

76

 

including total acquisition-related amortization of:

279

310

95

100

120

128

11

12

35

52

 

6         Q4 2016 Financial Information 


 

Orders received and revenues by region

 

  

 

($ in millions, unless otherwise indicated)

Orders received

CHANGE

Revenues

CHANGE

 

 

 

 

 

 

Com-

 

 

 

 

Com-

 

Q4 16

Q4 15

US$

Local

parable

Q4 16

Q4 15

US$

Local

parable

 

Europe

2,529

2,888

-12%

-10%

-8%

3,016

3,028

0%

3%

6%

 

The Americas

2,487

2,491

0%

0%

0%

2,469

2,627

-6%

-6%

-6%

 

Asia, Middle East and Africa

3,261

2,883

13%

17%

17%

3,508

3,587

-2%

1%

2%

 

ABB Group

8,277

8,262

0%

2%

3%

8,993

9,242

-3%

0%

1%



 

 

($ in millions, unless otherwise indicated)

Orders received

CHANGE

Revenues

CHANGE

 

 

 

 

 

 

Com-

 

 

 

 

Com-

 

FY 16

FY 15

US$

Local

parable

FY 16

FY 15

US$

Local

parable

 

Europe

11,213

12,568

-11%

-9%

-8%

11,315

11,602

-2%

0%

4%

 

The Americas

9,351

10,505

-11%

-9%

-9%

9,741

10,554

-8%

-5%

-5%

 

Asia, Middle East and Africa

12,815

13,356

-4%

0%

0%

12,772

13,325

-4%

-1%

-1%

 

ABB Group

33,379

36,429

-8%

-5%

-5%

33,828

35,481

-5%

-2%

-1%

7         Q4 2016 Financial Information 


 

 

 

 

Financial Information

Interim Consolidated Financial Information

 

 

  

 

 

ABB Ltd Interim Consolidated Income Statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

Three months ended

 

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

Dec. 31, 2016

Dec. 31, 2015

Dec. 31, 2016

Dec. 31, 2015

 

 

restated

 

restated

 

 

Sales of products

27,816

29,477

7,339

7,599

 

Sales of services and software

6,012

6,004

1,654

1,643

 

Total revenues

33,828

35,481

8,993

9,242

 

Cost of sales of products

(20,431)

(21,694)

(5,451)

(5,820)

 

Cost of services and software

(3,650)

(3,653)

(1,027)

(1,027)

 

Total cost of sales

(24,081)

(25,347)

(6,478)

(6,847)

 

Gross profit

9,747

10,134

2,515

2,395

 

Selling, general and administrative expenses

(5,349)

(5,574)

(1,394)

(1,580)

 

Non-order related research and development expenses

(1,300)

(1,406)

(349)

(408)

 

Other income (expense), net

(111)

(105)

(94)

(60)

 

Income from operations

2,987

3,049

678

347

 

Interest and dividend income

73

77

19

21

 

Interest and other finance expense

(261)

(286)

(31)

(63)

 

Income from continuing operations before taxes

2,799

2,840

666

305

 

Provision for taxes

(781)

(788)

(194)

(66)

 

Income from continuing operations, net of tax

2,018

2,052

472

239

 

Income from discontinued operations, net of tax

16

3

2

1

 

Net income

2,034

2,055

474

240

 

Net income attributable to noncontrolling interests

(135)

(122)

(49)

(36)

 

Net income attributable to ABB

1,899

1,933

425

204

 

 

 

 

 

 

 

Amounts attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

1,883

1,930

423

203

 

Net income

1,899

1,933

425

204

 

 

 

 

 

 

 

Basic earnings per share attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

0.88

0.87

0.20

0.09

 

Net income

0.88

0.87

0.20

0.09

 

 

 

 

 

 

 

Diluted earnings per share attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

0.87

0.87

0.20

0.09

 

Net income

0.88

0.87

0.20

0.09

 

 

 

 

 

 

 

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

 

 

 

 

 

Basic earnings per share attributable to ABB shareholders

2,151

2,226

2,137

2,203

 

Diluted earnings per share attributable to ABB shareholders

2,154

2,230

2,141

2,206

 

 

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

 

 

 

 

8         Q4 2016 Financial Information 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABB Ltd Interim Condensed Consolidated Statements of Comprehensive

 

Income (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

Three months ended

 

($ in millions)

Dec. 31, 2016

Dec. 31, 2015

Dec. 31, 2016

Dec. 31, 2015

 

 

restated

 

restated

 

 

Total comprehensive income (loss), net of tax

1,688

1,416

(79)

254

 

Total comprehensive income attributable to noncontrolling interests, net of tax

(118)

(100)

(31)

(27)

 

Total comprehensive income (loss) attributable to ABB shareholders, net of tax

1,570

1,316

(110)

227

 

 

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

 

 

 

 

9         Q4 2016 Financial Information 


 

 

 

 

 

ABB Ltd Interim Consolidated Balance Sheets (unaudited)

 

 

 

 

 

 

 

 

 

 

 

($ in millions, except share data)

Dec. 31, 2016

Dec. 31, 2015

 

 

restated

 

 

Cash and equivalents

3,644

4,565

 

Marketable securities and short-term investments

1,953

1,633

 

Receivables, net

9,696

10,061

 

Inventories, net

4,347

4,757

 

Prepaid expenses

176

225

 

Deferred taxes

888

881

 

Other current assets

688

638

 

Assets held for sale

548

 

Total current assets

21,940

22,760

 

 

 

 

 

Property, plant and equipment, net

4,743

5,276

 

Goodwill

9,501

9,671

 

Other intangible assets, net

1,996

2,337

 

Prepaid pension and other employee benefits

90

68

 

Investments in equity-accounted companies

170

178

 

Deferred taxes

527

423

 

Other non-current assets

532

643

 

Total assets

39,499

41,356

 

 

 

 

 

Accounts payable, trade

4,446

4,342

 

Billings in excess of sales

1,241

1,375

 

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

1,003

1,454

 

Advances from customers

1,398

1,598

 

Deferred taxes

258

249

 

Provisions for warranties

1,142

1,089

 

Other provisions

1,765

1,920

 

Other current liabilities

3,936

3,817

 

Liabilities held for sale

218

 

Total current liabilities

15,407

15,844

 

 

 

 

 

Long-term debt

5,800

5,985

 

Pension and other employee benefits

1,834

1,924

 

Deferred taxes

957

965

 

Other non-current liabilities

1,604

1,650

 

Total liabilities

25,602

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 December 31, 2016 and 2015, respectively)

216

1,444

 

Retained earnings

19,925

20,476

 

Accumulated other comprehensive loss

(5,187)

(4,858)

 

Treasury stock, at cost

 

 

 

(76,036,429 and 123,118,123 shares at December 31, 2016 and 2015, respectively)

(1,559)

(2,581)

 

Total ABB stockholders’ equity

13,395

14,481

 

Noncontrolling interests

502

507

 

Total stockholders’ equity

13,897

14,988

 

Total liabilities and stockholders’ equity

39,499

41,356

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

 

 

10         Q4 2016 Financial Information 


 

 

 

 

 

 

 

ABB Ltd Interim Consolidated Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

Year ended

Three months ended

 

($ in millions)

Dec. 31, 2016

Dec. 31, 2015

Dec. 31, 2016

Dec. 31, 2015

 

 

restated

 

restated

 

 

Operating activities:

 

 

 

 

 

Net income

2,034

2,055

474

240

 

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

 

 

 

 

 

Depreciation and amortization

1,135

1,160

282

288

 

Deferred taxes

(147)

(219)

(39)

(193)

 

Net loss (gain) from derivatives and foreign exchange

10

15

(48)

53

 

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

(38)

(26)

(5)

(5)

 

Net loss (gain) from sale of businesses

10

20

1

 

Share-based payment arrangements

54

61

17

18

 

Other

112

94

49

7

 

Changes in operating assets and liabilities:

 

 

 

 

 

Trade receivables, net

10

162

78

363

 

Inventories, net

115

105

376

509

 

Trade payables

340

(112)

187

16

 

Accrued liabilities

80

(24)

66

(2)

 

Billings in excess of sales

(25)

35

(29)

(55)

 

Provisions, net

14

330

19

487

 

Advances from customers

(163)

106

(143)

112

 

Income taxes payable and receivable

125

(32)

2

41

 

Other assets and liabilities, net

177

88

142

114

 

Net cash provided by operating activities

3,843

3,818

1,428

1,994

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchases of marketable securities (available-for-sale)

(1,214)

(1,925)

(393)

(827)

 

Purchases of short-term investments

(3,092)

(614)

(920)

(68)

 

Purchases of property, plant and equipment and intangible assets

(831)

(876)

(299)

(329)

 

Acquisition of businesses (net of cash acquired)

 

 

 

 

 

and increases in cost- and equity-accounted companies

(26)

(56)

(2)

(12)

 

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

1,057

434

284

55

 

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

539

1,022

395

 

Proceeds from short-term investments

2,241

653

791

25

 

Proceeds from sales of property, plant and equipment

61

68

9

24

 

Proceeds from sales of businesses (net of transaction costs

 

 

 

 

 

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

(1)

69

 

Net cash from settlement of foreign currency derivatives

(57)

231

(23)

23

 

Other investing activities

18

20

5

5

 

Net cash used in investing activities

(1,305)

(974)

(548)

(709)

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

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

(152)

3

(197)

(72)

 

Increase in debt

912

68

58

13

 

Repayment of debt

(1,249)

(101)

(529)

(23)

 

Delivery of shares

192

107

49

 

Purchase of treasury stock

(1,299)

(1,487)

(439)

 

Dividends paid

(1,357)

 

Reduction in nominal value of common shares paid to shareholders

(1,610)

(392)

 

Dividends paid to noncontrolling shareholders

(122)

(137)

(1)

(6)

 

Other financing activities

(27)

(84)

(6)

(66)

 

Net cash used in financing activities

(3,355)

(3,380)

(626)

(593)

 

 

 

 

 

 

 

Effects of exchange rate changes on cash and equivalents

(104)

(342)

(148)

(97)

 

Net change in cash and equivalents – continuing operations

(921)

(878)

106

595

 

 

 

 

 

 

 

Cash and equivalents, beginning of period

4,565

5,443

3,538

3,970

 

Cash and equivalents, end of period

3,644

4,565

3,644

4,565

 

 

 

 

 

 

 

Supplementary disclosure of cash flow information:

 

 

 

 

 

Interest paid

213

221

69

70

 

Taxes paid

814

1,043

223

207

 

 

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

 

 

 

 

11         Q4 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

 

1,933

 

 

 

 

 

 

1,933

122

2,055

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

adjustments, net of tax of $(47)

 

 

(1,033)

 

 

 

(1,033)

 

(1,033)

(25)

(1,058)

 

Effect of change in fair value of

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities,

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $(1)

 

 

 

(6)

 

 

(6)

 

(6)

 

(6)

 

Unrecognized income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

related to pensions and other

 

 

 

 

 

 

 

 

 

 

 

 

postretirement plans,

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $140

 

 

 

 

412

 

412

 

412

3

415

 

Change in derivatives qualifying as

 

 

 

 

 

 

 

 

 

 

 

 

cash flow hedges, net of tax of $3

 

 

 

 

 

10

10

 

10

 

10

 

Total comprehensive income

 

 

 

 

 

 

 

 

1,316

100

1,416

 

Changes in noncontrolling interests

(30)

(25)

 

 

 

 

 

 

(55)

(2)

(57)

 

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

61

 

 

 

 

 

 

 

61

 

61

 

Purchase of treasury stock

 

 

 

 

 

 

 

(1,501)

(1,501)

 

(1,501)

 

Delivery of shares

(19)

 

 

 

 

 

 

126

107

 

107

 

Call options

4

 

 

 

 

 

 

 

4

 

4

 

Balance at December 31, 2015

1,444

20,476

(3,135)

7

(1,719)

(11)

(4,858)

(2,581)

14,481

507

14,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

1,899

 

 

 

 

 

1,899

135

2,034

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

adjustments, net of tax of $12

 

 

(457)

 

 

 

(457)

 

(457)

(17)

(474)

 

Effect of change in fair value of

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities,

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $0

 

 

 

 

 

 

 

 

Unrecognized income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

related to pensions and other

 

 

 

 

 

 

 

 

 

 

 

 

postretirement plans,

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $24

 

 

 

 

118

 

118

 

118

 

118

 

Change in derivatives qualifying as

 

 

 

 

 

 

 

 

 

 

 

 

cash flow hedges, net of tax of $4

 

 

 

 

 

10

10

 

10

 

10

 

Total comprehensive income

 

 

 

 

 

 

 

 

1,570

118

1,688

 

Changes in noncontrolling interests

 

 

 

 

 

 

 

 

(1)

(1)

 

Dividends paid to

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling shareholders

 

 

 

 

 

 

 

 

(122)

(122)

 

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

54

 

 

 

 

 

 

 

54

 

54

 

Purchase of treasury stock

 

 

 

 

 

 

 

(1,280)

(1,280)

 

(1,280)

 

Delivery of shares

(22)

(41)

 

 

 

 

 

255

192

 

192

 

Call options

4

 

 

 

 

 

 

 

4

 

4

 

Balance at December 31, 2016 - restated 

216

19,925

(3,592)

7

(1,601)

(1)

(5,187)

(1,559)

13,395

502

13,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

12         Q4 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:

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

·          estimates used to record warranty obligations,

·          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 to determine valuation allowances for deferred tax assets and amounts recorded for uncertain tax positions,

·          growth rates, discount rates and other assumptions used to determine impairment of long lived assets and 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, 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 high-voltage cable system business (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 December 31, 2016. The divestment was completed on March 1, 2017.

 

In the opinion of management, the unaudited Interim Consolidated Financial Information contains all necessary adjustments to present fairly the financial position, results of operations and cash flows for the reported interim periods. Management considers all such adjustments to be of a normal recurring nature.

 

The Interim Consolidated Financial Information is presented in United States dollars ($) unless otherwise stated. Certain amounts reported in the Interim Consolidated Financial Information for prior periods have been reclassified to conform to the current year’s presentation. These changes primarily relate to the change in the definition of segment profit and the reorganization of the Company’s operating segments (see Note 13).

 

  

Restatement

Subsequent to the issuance of the Company’s interim consolidated financial information for the year and three months ended December 31, 2016, the Company discovered a scheme to embezzle and misappropriate funds in its subsidiary in South Korea. The Company determined that approximately $75 million in cash previously reported at December 31, 2016, had been misappropriated and in addition there were unrecorded loans of $16 million and unreported factoring of accounts receivable amounting to $12 million. The Company reported this criminal loss to its third-party insurance company and has confirmed it has a relevant and effective insurance with a policy limit of $30 million and this coverage has been accrued.

 

13        Q4 2016 Financial Information 


 

 

The following tables set forth the effects of the restatement on certain line items in the Company’s previously reported interim consolidated financial information.

 

  

 

 

Year ended December 31, 2016

 

Three months ended December 31, 2016

 

 

Previously

 

 

Previously

 

 

($ in millions)

reported

Restated

 

reported

Restated

 

Consolidated Income Statements

 

 

 

 

 

 

Other Income (expense), net

(38)

(111)

 

(21)

(94)

 

Income from continuing operating before taxes

2,872

2,799

 

739

666

 

Provision for taxes

(790)

(781)

 

(203)

(194)

 

Net income

2,098

2,034

 

538

474

 

Net income attributable to ABB

1,963

1,899

 

489

425

 

Basic earnings per share attributable to ABB shareholders

0.91

0.88

 

0.23

0.20

 

Diluted earnings per share attributable to ABB shareholders

0.91

0.88

 

0.23

0.20

 

 

 

 

 

December 31, 2016

 

 

 

 

 

Previously

 

 

($ in millions)

 

 

 

reported

Restated

 

Consolidated Balance Sheet

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and equivalents

 

 

 

3,719

3,644

 

Receivables, net

 

 

 

9,708

9,696

 

Other current assets

 

 

 

658

688

 

Non current assets

 

 

 

 

 

 

Deferred Taxes

 

 

 

509

527

 

Current liabilities

 

 

 

 

 

 

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

 

 

 

987

1,003

 

Deferred Taxes

 

 

 

259

258

 

Non current liabilities

 

 

 

 

 

 

Deferred Taxes

 

 

 

958

957

 

Other non current liabilities

 

 

 

1,593

1,604

 

Stockholders' equity:

 

 

 

 

 

 

Retained earnings

 

 

 

19,989

19,925

 

 

 

Year ended December 31, 2016

 

Three months ended December 31, 2016

 

 

Previously

 

 

Previously

 

 

($ in millions)

reported

Restated

 

reported

Restated

 

Consolidated Statements of Cash Flows

 

 

 

 

 

 

Net Income

2,098

2,034

 

538

474

 

Adjustments to reconcile net income

 

 

 

 

 

 

to cash provided by operating activities

 

 

 

 

 

 

Deferred Taxes

(127)

(147)

 

(19)

(39)

 

Trade receivables, net

(2)

10

 

66

78

 

Income taxes payable and receivable

114

125

 

(9)

2

 

Other assets and liabilities, net

207

177

 

172

142

 

Net cash provided by operating activities

3,934

3,843

 

1,519

1,428

 

Financing Activities

 

 

 

 

 

 

Increase in debt

896

912

 

42

58

 

Net cash used in financing activities

(3,371)

(3,355)

 

(642)

(626)

 

 

The restatement resulted in changes to amounts previously reported in Notes 3, 5, 7, 10 and 13 and, accordingly, such notes have been amended and restated in this restated interim consolidated financial information.

 

Adjustment related to prior periods

As a result of the misappropriation of cash described above, the Company recorded a cumulative adjustment to correct its financial statements in the year and three months ended December 31, 2016. The correction resulted in a net loss being recorded in “Other income (expense), net” of $73 million. This loss primarily relates to periods prior to the three months ended December 31, 2016, and a portion of the loss relates to previous years. The Company evaluated the impact of the correction on both a quantitative and qualitative basis under the guidance of ASC 250, Accounting Changes and Error Corrections, and determined that there were no material impacts on the trend of net income, cash flows or liquidity for previously issued annual financial statements. Additionally, the Company concluded that its consolidated financial statements for the current annual period were not materially impacted by the correction.

 

  

 

14        Q4 2016 Financial Information 


 

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.

 

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, licensing and contract costs, 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’s analysis of contracts performed in 2016 resulted in immaterial differences in the identification of performance obligations compared to the current unit of accounting determination. Except for a limited number of contracts where the required criteria are not met, the analysis supports the recognition of revenue over time following the cost-to-cost method under the new revenue recognition standard for those contracts which are following the cost-to-cost method under the current revenue recognition model. 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 $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.

 

15        Q4 2016 Financial Information 


 

 

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 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.

 

Statement of cash flows - Restricted cash

In November 2016, an accounting standard update was issued which clarifies the classification and presentation of changes in restricted cash on the statement of cash flows. It requires the inclusion of cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This update 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.

 

Clarifying the definition of a business

In January 2017, an accounting standard update was issued which narrows the definition of a business. It also provides a framework for determining whether a set of transferred assets and activities involves a business. This update is effective for the Company for annual and interim periods beginning January 1, 2018 on a prospective basis, with early adoption permitted. The Company does not believe that this update will have a significant impact on its consolidated financial statements.

 

Simplifying the Test for Goodwill Impairment

In January 2017, an accounting standard update was issued which eliminates the requirement to calculate the implied fair value of goodwill when measuring a goodwill impairment loss. Instead, the Company is required to record an impairment loss based on the excess of a reporting unit’s carrying amount over its fair value provided that the loss recognized does not exceed the total amount of goodwill allocated to that reporting unit. This update is effective for the Company for annual and interim periods beginning January 1, 2020 on a prospective basis, with early adoption permitted. The Company plans to early adopt this update in the first quarter of 2017 and apply it prospectively. The Company does not believe that this update will have a significant impact on its consolidated financial statements.

 

Clarifying the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets

In February 2017, an accounting standard update was issued which clarifies the scope of asset derecognition guidance, adds guidance for partial sales of nonfinancial assets and clarifies recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. The Company plans to adopt this update retrospectively as of January 1, 2018, with the cumulative effect of initially applying the update recognized at the date of adoption in retained earnings. The Company does not believe that this update will have a significant impact on its consolidated financial statements.

 

16        Q4 2016 Financial Information 


 

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:

 

  

 

 

 

December 31, 2016 - restated

 

 

 

 

Gross

Gross

 

 

Marketable securities

 

 

 

 

unrealized

unrealized

 

Cash and

and short-term

 

($ in millions)

Cost basis

gains

losses

Fair value

equivalents

investments

 

Cash

1,704

 

 

1,704

1,704

 

Time deposits

2,764

 

 

2,764

1,940

824

 

Other short-term investments

271

 

 

271

271

 

Debt securities available-for-sale:

 

 

 

 

 

 

 

 

U.S. government obligations

221

1

(2)

220

220

 

 

Other government obligations

2

2

2

 

 

Corporate

95

1

(1)

95

95

 

Equity securities available-for-sale

530

11

541

541

 

Total

5,587

13

(3)

5,597

3,644

1,953



 

 

 

 

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 December 31, 2016 and 2015, are receivables of $268 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 December 31, 2016, the amortized cost, gross unrecognized gain and fair value (based on quoted market prices) of these securities were $80 million, $6 million and $86 million, respectively. At December 31, 2015, the amortized cost, gross unrecognized gain and fair value (based on quoted market prices) of these securities 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.

17        Q4 2016 Financial Information 


 

 

 

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)

December 31, 2016

December 31, 2015

 

Foreign exchange contracts

15,353

16,467

 

Embedded foreign exchange derivatives

2,162

2,966

 

Interest rate contracts

3,021

4,302

 

 

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

 

 

 

December 31, 2016

December 31, 2015

 

Copper swaps

metric tonnes

47,425

48,903

 

Aluminum swaps

metric tonnes

4,650

5,455

 

Nickel swaps

metric tonnes

18

 

Lead swaps

metric tonnes

15,100

14,625

 

Zinc swaps

metric tonnes

150

225

 

Silver swaps

ounces

1,586,395

1,727,255

 

Crude oil swaps

barrels

121,000

133,500

 

 

Equity derivatives

At December 31, 2016 and 2015, the Company held 47 million and 55 million cash-settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of $23 million and $13 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 December 31, 2016 and 2015, “Accumulated other comprehensive loss” included net unrealized losses of $1 million and $11 million, respectively, net of tax, on derivatives designated as cash flow hedges. Of the amount at December 31, 2016, net gains of $2 million are expected to be reclassified to earnings in the following 12 months. At December 31, 2016, the longest maturity of a derivative classified as a cash flow hedge was 39 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 year and three months ended December 31, 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:

 

  

 

 

Gains (losses) recognized in OCI

 

Gains (losses) reclassified from OCI

 

($ in millions)

on derivatives (effective portion)

 

into income (effective portion)

 

Year ended December 31,

2016

2015

 

2016

2015

 

Type of derivative

 

 

Location

 

 

 

Foreign exchange contracts

2

(11)

Total revenues

(11)

(36)

 

 

 

 

Total cost of sales

10

11

 

Commodity contracts

4

(9)

Total cost of sales

(2)

(10)

 

Cash-settled call options

15

(6)

SG&A expenses(1)

10

(4)

 

Total

21

(26)

 

7

(39)



 

18        Q4 2016 Financial Information 


 

 

 

Gains (losses) recognized in OCI

 

Gains (losses) reclassified from OCI

 

($ in millions)

on derivatives (effective portion)

 

into income (effective portion)

 

Three months ended December 31,

2016

2015

 

2016

2015

 

Type of derivative

 

 

Location

 

 

 

Foreign exchange contracts

(6)

(4)

Total revenues

(2)

(5)

 

 

 

 

Total cost of sales

1

3

 

Commodity contracts

3

(3)

Total cost of sales

(3)

 

Cash-settled call options

(3)

4

SG&A expenses(1)

(2)

2

 

Total

(6)

(3)

 

(3)

(3)

 

(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 year and three months ended December 31, 2016 and 2015.

 

Net derivative gains of $6 million and net derivative losses of $30 million, both net of tax, were reclassified from “Accumulated other comprehensive loss” to earnings during the year ended December 31, 2016 and 2015, respectively. During the three months ended December 31, 2016 and 2015, net derivative losses of $3 million and $2 million, both net of tax, respectively, were reclassified from “Accumulated other comprehensive loss” to earnings.

 

Fair value hedges

To reduce its interest rate exposure arising primarily from its debt issuance activities, the Company uses interest rate swaps. Where such instruments are designated as fair value hedges, the changes in the fair value of 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 year and three months ended December 31, 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:

 

  

 

 

Year ended December 31,

Three months ended December 31,

 

($ in millions)

2016

2015

2016

2015

 

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

 

 

 

 

 

 - on derivatives designated as fair value hedges

(28)

8

(60)

(22)

 

 - on hedged item

30

(4)

60

23

 

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

 

Year ended December 31,

Three months ended December 31,

 

($ in millions)

Location

2016

2015

2016

2015

 

Foreign exchange contracts

Total revenues

(206)

(216)

(187)

10

 

 

Total cost of sales

(56)

16

13

(40)

 

 

SG&A expenses(1)

8

13

13

4

 

 

Non-order related research

 

 

 

 

 

 

and development

(2)

(1)

(1)

 

 

Other income (expense), net

22

22

 

 

Interest and other finance expense

(34)

287

11

39

 

Embedded foreign exchange

Total revenues

(5)

127

36

(11)

 

contracts

Total cost of sales

(5)

(25)

(12)

(1)

 

 

SG&A expenses(1)

(2)

(5)

(3)

(3)

 

Commodity contracts

Total cost of sales

42

(61)

27

(14)

 

Other

Interest and other finance expense

4

(1)

2

1

 

Total

 

(234)

134

(79)

(15)

 

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

 

 

19        Q4 2016 Financial Information 


 

 

The fair values of derivatives included in the Consolidated Balance Sheets were as follows:

 

  

 

 

December 31, 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

5

6

5

 

Commodity contracts

2

 

Interest rate contracts

2

62

 

Cash-settled call options

13

9

 

Total

22

71

6

5

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

Foreign exchange contracts

169

29

257

77

 

Commodity contracts

29

2

6

1

 

Cross-currency interest rate swaps

2

 

Cash-settled call options

1

 

Embedded foreign exchange derivatives

58

21

35

18

 

Total

256

55

298

96

 

Total fair value

278

126

304

101



 

 

 

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 December 31, 2016 and 2015, have been presented on a gross basis.

 

 

The Company’s netting agreements and other similar arrangements allow net settlements under certain conditions. At December 31, 2016 and 2015, information related to these offsetting arrangements was as follows:

  

 

 

($ in millions)

December 31, 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

325

(190)

135

 

Reverse repurchase

 

 

 

 

 

 

agreements

268

(268)

 

Total

593

(190)

(268)

135

 

20        Q4 2016 Financial Information 


 

 

($ in millions)

December 31, 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

352

(190)

162

 

Total

352

(190)

162

 

 

($ 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



 

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.

 

21        Q4 2016 Financial Information 


 

Recurring fair value measures

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

 

  

 

 

December 31, 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

541

541

 

Debt securities—U.S. government obligations

220

220

 

Debt securities—Other government obligations

2

2

 

Debt securities—Corporate

95

95

 

Derivative assets—current in “Other current assets”

278

278

 

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

126

126

 

Total

220

1,042

1,262

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Derivative liabilities—current in “Other current liabilities”

304

304

 

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

101

101

 

Total

405

405



 

 

 

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 year and three months ended December 31, 2016 and 2015.

 

22        Q4 2016 Financial Information 


 

Disclosure about  financial  instruments  carried  on  cost  basis 

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

 

 

  

 

 

December 31, 2016 - restated

 

($ 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

1,704

1,704

1,704

 

Time deposits

1,940

1,940

1,940

 

Marketable securities and short-term investments

 

 

 

 

 

 

(excluding available-for-sale securities):

 

 

 

 

 

 

Time deposits

824

824

824

 

Receivables under reverse repurchase agreements

268

268

268

 

Other short-term investments

3

3

3

 

Other non-current assets:

 

 

 

 

 

 

Loans granted

30

31

31

 

Held-to-maturity securities

80

86

86

 

Restricted cash deposits

91

59

42

101

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

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

 

 

 

 

 

 

(excluding capital lease obligations)

980

856

124

980

 

Long-term debt (excluding capital lease obligations)

5,709

5,208

784

5,992

 

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

106

124

124



 

 

 

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)

5,889

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).

23        Q4 2016 Financial Information 


 

  

 

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.

 

Suspect payments

As a result of an internal investigation, the Company self-reported to the Securities and Exchange Commission (SEC) and the Department of Justice (DoJ) in the United States as well as to the Serious Fraud Office (SFO) in the United Kingdom concerning certain of its past dealings with Unaoil and its subsidiaries, including alleged improper payments made by these entities to third parties. The SFO has commenced an investigation into this matter. The Company is cooperating fully with the authorities. At this time, it is not possible for the Company to make an informed judgment about the outcome of these matters.

 

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 December 31, 2016 and 2015, the Company had aggregate liabilities of $150 million and $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.

  

 

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)

December 31, 2016

December 31, 2015

 

Performance guarantees

193

209

 

Financial guarantees

69

77

 

Indemnification guarantees

71

50

 

Total

333

336

 

24        Q4 2016 Financial Information 


 

 

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 December 31, 2016 and 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 December 31, 2016 and 2015, the total outstanding performance bonds aggregated to $7.9 billion and $9.5 billion, respectively. There have been no significant amounts reimbursed to financial institutions under these types of arrangements in the year and three months ended December 31, 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

(329)

(357)

 

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

424

377

 

Exchange rate differences

(42)

(79)

 

Balance at December 31,

1,142

1,089

 

 

During 2016, the Company determined that the provision for product warranties in its solar business, acquired in 2013 as part of the purchase of Power-One, was no longer sufficient to cover expected warranty costs in the remaining warranty period. Due to higher than originally expected product failure rates for certain solar inverters designed and manufactured by Power-One, a substantial portion of which relates to products which were delivered to customers prior to the acquisition date, the previously estimated product warranty provision was increased by a total of $151 million during the year, of which $110 million was recorded in the three months ended December 31, 2016. The corresponding increases were included in Cost of sales of products and resulted in a decrease in basic and diluted earnings per share of $0.06 and $0.05, respectively, for the year ended December 31, 2016, and a decrease of $0.04 (basic and diluted) for the three months ended December 31, 2016. As $131 million and $92 million of these warranty costs for the year and three months ended December 31, 2016, respectively, relate to products which were sold prior to the acquisition date, these costs have been excluded from the Company’s primary measure of segment performance, Operational EBITA (See Note 13).  This warranty provision has been recorded based on the information presently available and is subject to change in the future.

 

The information for 2015 contained in the table above has been adjusted to correct a classification difference between Claims paid in cash and kind and Net effect of changes in estimates, warranties issued and warranties expired.

  

 

Not 7

Debt

The Company’s total debt at December 31, 2016 and 2015, amounted to $6,803 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)

December 31, 2016

December 31, 2015

 

 

restated

 

 

Short-term debt

135

278

 

Current maturities of long-term debt

868

1,176

 

Total

1,003

1,454

 

25        Q4 2016 Financial Information 


 

 

Short-term debt primarily represented issued commercial paper and short-term loans from various banks. At December 31, 2016 and 2015, $57 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 December 31, 2016 and 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 and October 2016, the Company repaid at maturity the USD 600 million 2.5% Notes and the CHF 500 million 1.25% Bonds (equivalent to approximately $506 million at date of payment), respectively.

Long-term debt

 

The Company’s long-term debt at December 31, 2016 and 2015, amounted to $5,800 million and $5,985 million, respectively.

 

 

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

 

  

 

 

December 31, 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

$

510

 

1.625% USD Notes, due 2017

USD

500

$

500

USD

500

$

499

 

4.25% AUD Notes, due 2017

AUD

400

$

291

AUD

400

$

297

 

1.50% CHF Bonds, due 2018

CHF

350

$

342

CHF

350

$

352

 

2.625% EUR Instruments, due 2019

EUR

1,250

$

1,311

EUR

1,250

$

1,363

 

4.0% USD Notes, due 2021

USD

650

$

643

USD

650

$

641

 

2.25% CHF Bonds, due 2021

CHF

350

$

368

CHF

350

$

383

 

5.625% USD Notes, due 2021

USD

250

$

274

USD

250

$

279

 

2.875% USD Notes, due 2022

USD

1,250

$

1,261

USD

1,250

$

1,275

 

0.625% EUR Notes, due 2023

EUR

700

$

732

 

 

 

 

4.375% USD Notes, due 2042

USD

750

$

722

USD

750

$

722

 

Total  

 

 

$

6,444

 

 

$

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).

  

 

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

 

Year ended December 31,

2016

2015

2016

2015

 

Service cost

249

267

1

1

 

Interest cost

280

305

6

8

 

Expected return on plan assets

(402)

(456)

 

Amortization of prior service cost (credit)

40

38

(12)

(9)

 

Amortization of net actuarial loss

85

112

-

1

 

Curtailments, settlements and special termination benefits

41

20

-

 

Net periodic benefit cost

293

286

(5)

1

 

 

($ in millions)

Defined pension benefits

Other postretirement benefits

 

Three months ended December 31,

2016

2015

2016

2015

 

Service cost

58

64

 

Interest cost

67

74

2

2

 

Expected return on plan assets

(96)

(111)

 

Amortization of prior service cost (credit)

10

10

(4)

(3)

 

Amortization of net actuarial loss

20

29

-

 

Curtailments, settlements and special termination benefits

39

7

-

 

Net periodic benefit cost

98

73

(2)

(1)



 

26        Q4 2016 Financial Information 


 

 

Employer contributions were as follows:

 

  

 

($ in millions)

Defined pension benefits

Other postretirement benefits

 

Year ended December 31,

2016

2015

2016

2015

 

Total contributions to defined benefit pension and other postretirement benefit plans

270

243

11

15

 

Of which, discretionary contributions to defined benefit pension plans

15

31

 

 

($ in millions)

Defined pension benefits

Other postretirement benefits

 

Three months ended December 31,

2016

2015

2016

2015

 

Total contributions to defined benefit pension and other postretirement benefit plans

86

88

2

4

 

Of which, discretionary contributions to defined benefit pension plans

15

21



 

 

During the year ended December 31, 2016, total contributions included available-for-sale debt securities, having a fair value at the contribution date of $52 million, contributed to certain of the Company’s pension plans in Germany and the United Kingdom, of which $12 million was contributed in the three months ended December 31, 2016.

 

During the year and three months ended December 31, 2015, total contributions included available-for-sale debt securities, having a fair value at the contribution date of $22 million, contributed to certain of the Company’s pension plans in the United Kingdom.

 

The Company expects to make contributions totaling approximately $193 million and $13 million to its defined benefit pension plans and other postretirement benefit plans, respectively, for the full year 2017.

  



 

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 2016, under this share buyback program, the Company purchased 60.370 million shares for cancellation and 4.940 million shares to support its employee share programs and these transactions resulted in an increase in Treasury stock of $1,280 million. In the year ended December 31, 2015, the Company purchased 60.245 million shares for cancellation and 13.050 million shares to support its employee share programs, of which 19.955 million shares were purchased for cancellation and 4.350 million shares were purchased to support its employee share programs in the three months ended December 31, 2015. In the year and three months ended December 31, 2015, these transactions resulted in an increase in Treasury stock of $1,501 million and $454 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 2016, the Company delivered, out of treasury stock, 8.9 million shares for options exercised in connection with its Management Incentive Plan and 2.6 million shares under the Employee Share Acquisition Plan.

 

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.

  

 

27        Q4 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

 

 

 

 

 

Year ended December 31,

Three months ended December 31,

 

 

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

2016

2015

2016

2015

 

 

 

restated

 

restated

 

 

 

Amounts attributable to ABB shareholders:

 

 

 

 

 

 

Income from continuing operations, net of tax

1,883

1,930

423

203

 

 

Income from discontinued operations, net of tax

16

3

2

1

 

 

Net income

1,899

1,933

425

204

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions)

2,151

2,226

2,137

2,203

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to ABB shareholders:

 

 

 

 

 

 

Income from continuing operations, net of tax

0.88

0.87

0.20

0.09

 

 

Income from discontinued operations, net of tax

 

 

Net income

0.88

0.87

0.20

0.09

 

 

 

Diluted earnings per share

 

 

 

 

 

Year ended December 31,

Three months ended December 31,

 

 

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

2016

2015

2016

2015

 

 

 

restated

 

restated

 

 

 

Amounts attributable to ABB shareholders:

 

 

 

 

 

 

Income from continuing operations, net of tax

1,883

1,930

423

203

 

 

Income from discontinued operations, net of tax

16

3

2

1

 

 

Net income

1,899

1,933

425

204

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions)

2,151

2,226

2,137

2,203

 

 

Effect of dilutive securities:

 

 

 

 

 

 

Call options and shares

3

4

4

3

 

 

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

2,154

2,230

2,141

2,206

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to ABB shareholders:

 

 

 

 

 

 

Income from continuing operations, net of tax

0.87

0.87

0.20

0.09

 

 

Income from discontinued operations, net of tax

0.01

 

 

Net income

0.88

0.87

0.20

0.09

 



 

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

(1,058)

(7)

298

(20)

(787)

 

Amounts reclassified from OCI

1

117

30

148

 

Total other comprehensive (loss) income

(1,058)

(6)

415

10

(639)

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

Amounts attributable to noncontrolling interests

(25)

3

(22)

 

Balance at December 31, 2015

(3,135)

7

(1,719)

(11)

(4,858)

 

Other comprehensive (loss) income

 

 

 

 

 

 

before reclassifications

(474)

4

16

(454)

 

Amounts reclassified from OCI

114

(6)

108

 

Total other comprehensive (loss) income

(474)

118

10

(346)

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

Amounts attributable to noncontrolling interests

(17)

(17)

 

Balance at December 31, 2016

(3,592)

7

(1,601)

(1)

(5,187)

 

 

 

 

 

 

 

 

28        Q4 2016 Financial Information 


 

 

The following table reflects amounts reclassified out of OCI in respect of pension and other postretirement plan adjustments and unrealized gains (losses) of cash flow hedge derivatives:

 

  

 

 

 

Year ended

Three months ended

 

($ in millions)

Location of (gains) losses

December 31,

December 31,

 

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)

28

29

6

7

 

Amortization of net actuarial loss

Net periodic benefit cost(1)

85

113

20

29

 

Net losses from pension settlements

Net periodic benefit cost(1)

37

15

37

3

 

Total before tax

 

150

157

63

39

 

Tax

Provision for taxes

(36)

(40)

(16)

(10)

 

Amounts reclassified from OCI

 

114

117

47

29

 

 

 

 

 

 

 

 

Unrealized gains (losses) of cash flow hedge derivatives:

 

 

 

 

 

 

Foreign exchange contracts

Total revenues

11

36

2

5

 

 

Total cost of sales

(10)

(11)

(1)

(3)

 

Commodity contracts

Total cost of sales

2

10

3

 

Cash-settled call options

SG&A expenses(2)

(10)

4

2

(2)

 

Total before tax

 

(7)

39

3

3

 

Tax

Provision for taxes

1

(9)

(1)

 

Amounts reclassified from OCI

 

(6)

30

3

2

 

(1) These  components  are  included  in  the  computation  of  net  periodic  benefit  cost  (see  Note  8).

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

 

 

The amounts in respect of Unrealized gains (losses) on available-for-sale securities were not significant for the year and three months ended December 31, 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. 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 is implementing and executing various restructuring initiatives across all operating segments and regions.

 

 

The following table outlines the costs incurred in the year and three months ended December 31, 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

Cumulative costs

 

 

 

Year ended December 31,

Three months ended December 31,

 incurred up to

Total

 

($ in millions)

2016

2015

2016

2015

December 31, 2016

expected costs(1)

 

Electrification Products

14

73

(11)

71

87

89

 

Discrete Automation and Motion

27

45

(6)

42

72

74

 

Process Automation

36

96

(37)

86

132

134

 

Power Grids

33

70

(17)

68

103

105

 

Corporate and Other

30

86

(19)

85

116

118

 

Total

140

370

(90)

352

510

520

 

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

 

 

Total expected program costs were originally estimated to be $852 million. During 2016, the total expected program costs were reduced by $332 million, of which $111 million was in the three months ended December 31, 2016. This was primarily due to the realization of significantly higher than originally expected attrition and internal re-deployment rates. The reductions were made across all operating segments as well as for corporate functions.

 

Of the total expected costs of $520 million, the majority is related to employee severance costs.

 

 

The Company recorded the following expenses, net of changes in estimates, under this program:

 

  

 

 

Year ended

Three months ended

Cumulative costs

 

 

December 31,

December 31,

 incurred up to

 

($ in millions)

2016

2015

2016

2015

December 31, 2016

 

Employee severance costs

130

364

(99)

346

494

 

Estimated contract settlement, loss order and other costs

2

5

1

5

7

 

Inventory and long-lived asset impairments

8

1

8

1

9

 

Total

140

370

(90)

352

510

 

29        Q4 2016 Financial Information 


 

 

Expenses, net of change in estimates, associated with this program are recorded in the following line items in the Consolidated Income Statements:

 

  

 

 

Year ended December 31,

Three months ended December 31,

 

($ in millions)

2016

2015

2016

2015

 

Total cost of sales

92

122

(47)

113

 

Selling, general and administrative expenses

38

187

(39)

183

 

Non-order related research and development expenses

(5)

38

(12)

34

 

Other income (expense), net

15

23

8

22

 

Total

140

370

(90)

352

 

 

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 December 31, 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

232

3

235

 

Cash payments

(106)

(3)

(109)

 

Change in estimates

(102)

(1)

(103)

 

Exchange rate differences

(23)

(23)

 

Liability at December 31, 2016

331

3

334

 

 

The change in estimates during 2016 of $103 million is due to significantly higher than expected rates of attrition and internal re-deployment and a lower than expected severance cost per employee for the employee groups affected by the first phase of restructuring initiated in 2015. The reduction in the liability was recorded in income from operations, primarily as reductions in Cost of sales of $49 million and in Selling, general and administrative expenses of $38 million for the year ended December 31, 2016. During the three months ended December 31, 2016, the change in estimate was $114 million, and related to restructurings initiated in both 2015 and 2016. This reduction was recorded primarily as reductions in Cost of sales of $52 million and in Selling, general and administrative expenses of $45 million for the three months ended December 31, 2016.

 

Other restructuring-related activities

In the year ended December 31, 2016 and 2015, the Company executed various other restructuring‑related activities and incurred expenses of $171 million and $256 million, respectively. In the three months ended December 31, 2016 and 2015, these expenses amounted to $80 million and $144 million, respectively. These expenses were primarily recorded in “Total cost of sales”.

 

  

 

 

Year ended December 31,

Three months ended December 31,

 

($ in millions)

2016

2015

2016

2015

 

Employee severance costs

90

207

31

130

 

Estimated contract settlement, loss order and other costs

40

27

21

11

 

Inventory and long-lived asset impairments

41

22

28

3

 

Total

171

256

80

144

 

 

At December 31, 2016 and 2015, the balance of other restructuring-related liabilities is primarily included in “Other provisions”.

  

Change in estimates

In addition to the change in estimate of $103 million relating to the White Collar Productivity Program, a further $46 million was recorded as a change in estimate to reduce liabilities associated with the Company’s other restructuring-related activities mainly due to changes in the planned scope of these activities. This was recorded in income from operations, primarily as reductions in Cost of sales. The combined total change in estimates for both the year and three months ended December 31, 2016, of $149 million and $139 million, respectively, resulted in an increase in earnings per share (basic and diluted) of $0.05 in the respective periods.

 

  

 

30        Q4 2016 Financial Information 


 

Note 13

Operating segment data

The Chief Operating Decision Maker (CODM) is the Chief Executive Officer. The CODM allocates resources to and assesses the performance of each operating segment using the information outlined below. The Company’s operating segments consist of 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 year and three months ended December 31, 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. In the fourth quarter of 2016, the Company modified the definition of its primary measure of segment performance to also exclude changes in estimates relating to opening balance sheets of acquired businesses (changes in pre-acquisition estimates) and non-operational pension cost, which comprises: (a) interest cost, (b) expected return on plan assets, (c) amortization of prior service cost (credit), (d) amortization of net actuarial loss, and (e) curtailments, settlements and special termination benefits.

 

After these revisions, Operational EBITA represents income from operations excluding: (i) amortization expense on intangibles arising upon acquisitions (acquisition-related amortization), (ii) restructuring and restructuring-related expenses, (iii) non-operational pension cost, (iv) changes in pre-acquisition estimates, (v) gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items, as well as (vi) 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).

 

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 year and three months ended December 31, 2016 and 2015, as well as total assets at December 31, 2016 and 2015.

 

  

 

 

Year ended December 31, 2016

Year ended December 31, 2015

 

 

Third-party

Intersegment

Total

Third-party

Intersegment

Total

 

($ in millions)

revenues

revenues

revenues

revenues

revenues

revenues

 

Electrification Products

8,744

548

9,292

8,932

615

9,547

 

Discrete Automation and Motion

8,169

545

8,714

8,492

635

9,127

 

Process Automation

6,448

150

6,598

7,104

120

7,224

 

Power Grids

10,408

567

10,975

10,876

745

11,621

 

Corporate and Other

59

1,553

1,612

77

1,459

1,536

 

Intersegment elimination

(3,363)

(3,363)

(3,574)

(3,574)

 

Consolidated

33,828

33,828

35,481

35,481

31        Q4 2016 Financial Information 


 

 

 

 

Three months ended December 31, 2016

Three months ended December 31, 2015

 

 

Third-party

Intersegment

Total

Third-party

Intersegment

Total

 

($ in millions)

revenues

revenues

revenues

revenues

revenues

revenues

 

Electrification Products

2,318

144

2,462

2,294

165

2,459

 

Discrete Automation and Motion

2,079

132

2,211

2,109

179

2,288

 

Process Automation

1,700

37

1,737

1,892

34

1,926

 

Power Grids

2,878

164

3,042

2,927

180

3,107

 

Corporate and Other

18

393

411

20

346

366

 

Intersegment elimination

(870)

(870)

(904)

(904)

 

Consolidated

8,993

8,993

9,242

9,242

 

 

 

Year ended December 31,

Three months ended December 31,

 

($ in millions)

2016

2015

2016

2015

 

 

restated

 

restated

 

 

Operational EBITA:

 

 

 

 

 

Electrification Products

1,528

1,561

382

403

 

Discrete Automation and Motion

1,195

1,295

260

291

 

Process Automation

824

863

231

235

 

Power Grids

1,021

877

318

293

 

Corporate and Other and Intersegment elimination

(377)

(387)

(134)

(121)

 

Consolidated Operational EBITA

4,191

4,209

1,057

1,101

 

Acquisition-related amortization

(279)

(310)

(67)

(73)

 

Restructuring and restructuring-related expenses(1)

(543)

(674)

(68)

(531)

 

Non-operational pension cost

(38)

(19)

(38)

(8)

 

Changes in pre-acquisition estimates

(131)

(21)

(92)

(12)

 

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

 

 

 

 

 

and certain non-operational items

(173)

(120)

(127)

(76)

 

Foreign exchange/commodity timing differences in income from operations:

 

 

 

 

 

Unrealized gains and losses on derivatives (foreign exchange,

 

 

 

 

 

commodities, embedded derivatives)

(65)

67

(22)

(13)

 

Realized gains and losses on derivatives where the underlying hedged

 

 

 

 

 

transaction has not yet been realized

(5)

(68)

(16)

(18)

 

Unrealized foreign exchange movements on receivables/payables (and

 

 

 

 

 

related assets/liabilities)

30

(15)

51

(23)

 

Income from operations

2,987

3,049

678

347

 

Interest and dividend income

73

77

19

21

 

Interest and other finance expense

(261)

(286)

(31)

(63)

 

Income from continuing operations before taxes

2,799

2,840

666

305

 

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

 

 

 

Total assets(1)

 

($ in millions)

December 31, 2016

December 31, 2015

 

 

restated

 

 

Electrification Products

9,523

9,474

 

Discrete Automation and Motion

8,465

9,223

 

Process Automation

4,153

4,662

 

Power Grids

8,980

9,422

 

Corporate and Other

8,378

8,575

 

Consolidated

39,499

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, the scope of the Electrification Products segment has been expanded to include the electric vehicle charging, solar, and power quality businesses from the Discrete Automation and Motion segment.

 

In addition, the Discrete Automation and Motion segment has been renamed the Robotics and Motion segment while the Process Automation segment has been renamed the Industrial Automation segment.

32        Q4 2016 Financial Information 


 

  

33        Q4 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 year and three months ended December 31, 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

  

 

 

Q4 2016 compared to Q4 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

-8%

3%

0%

-5%

0%

3%

0%

3%

 

Discrete Automation and Motion

1%

3%

0%

4%

-3%

2%

0%

-1%

 

Process Automation

-15%

1%

0%

-14%

-10%

2%

0%

-8%

 

Power Grids

10%

2%

3%

15%

-2%

3%

3%

4%

 

ABB Group

0%

2%

1%

3%

-3%

3%

1%

1%



 

 

 

FY 2016 compared to FY 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%

3%

0%

-4%

-3%

4%

0%

1%

 

Discrete Automation and Motion

-6%

2%

0%

-4%

-5%

3%

0%

-2%

 

Process Automation

-20%

2%

0%

-18%

-9%

3%

0%

-6%

 

Power Grids

-8%

3%

1%

-4%

-6%

3%

4%

1%

 

ABB Group

-8%

3%

0%

-5%

-5%

3%

1%

-1%



 

34        Q4 2016 Financial Information 


 

Regional comparable growth rate reconciliation

  

 

 

Q4 2016 compared to Q4 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

-12%

2%

2%

-8%

0%

3%

3%

6%

 

The Americas

0%

0%

0%

0%

-6%

0%

0%

-6%

 

Asia, Middle East and Africa

13%

4%

0%

17%

-2%

3%

1%

2%

 

ABB Group

0%

2%

1%

3%

-3%

3%

1%

1%



 

 

 

FY 2016 compared to FY 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

-11%

2%

1%

-8%

-2%

2%

4%

4%

 

The Americas

-11%

2%

0%

-9%

-8%

3%

0%

-5%

 

Asia, Middle East and Africa

-4%

4%

0%

0%

-4%

3%

0%

-1%

 

ABB Group

-8%

3%

0%

-5%

-5%

3%

1%

-1%



 

Order backlog growth rate reconciliation

  

 

 

December 31, 2016, compared to December 31, 2015

 

 

 

US$

Foreign

 

 

 

 

 

(as

exchange

Portfolio

 

 

 

Division

reported)

impact

changes

Comparable

 

 

Electrification Products

-9%

4%

0%

-5%

 

 

Discrete Automation and Motion

-4%

4%

0%

0%

 

 

Process Automation

-13%

3%

0%

-10%

 

 

Power Grids

-1%

4%

1%

4%

 

 

ABB Group

-5%

3%

1%

-1%

 



 

Other growth rate reconciliations

  

 

 

Q4 2016 compared to Q4 2015

FY 2016 compared to FY 2015

 

 

US$

Foreign

 

 

US$

Foreign

 

 

 

 

(as

exchange

Portfolio

 

(as

exchange

Portfolio

 

 

 

reported)

impact

changes

Comparable

reported)

impact

changes

Comparable

 

Large orders

24%

3%

8%

35%

-27%

2%

1%

-24%

 

Base orders

-4%

3%

0%

-1%

-5%

3%

0%

-2%

 

Services and software orders

2%

2%

0%

4%

0%

3%

0%

3%

 

Services and software revenues

0%

2%

0%

2%

0%

3%

0%

3%

35        Q4 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:

 

  

 

 

Q4 2015 compared to Q4 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

-7%

9%

0%

2%

-10%

9%

0%

-1%

 

Discrete Automation and Motion

-17%

8%

0%

-9%

-11%

7%

0%

-4%

 

Process Automation

-14%

11%

0%

-3%

-16%

10%

0%

-6%

 

Power Grids

-7%

9%

1%

3%

-8%

9%

-1%

0%

 

ABB Group

-12%

9%

1%

-2%

-11%

9%

0%

-2%



 

 

 

FY 2015 compared to FY 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

-9%

9%

0%

0%

-10%

10%

0%

0%

 

Discrete Automation and Motion

-13%

8%

0%

-5%

-10%

8%

0%

-2%

 

Process Automation

-20%

11%

0%

-9%

-16%

11%

0%

-5%

 

Power Grids

-4%

12%

0%

8%

-7%

10%

-1%

2%

 

ABB Group

-12%

10%

1%

-1%

-11%

10%

1%

0%



 

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.

 

  

 

 

Year ended December 31,

Three months ended December 31,

 

($ in millions, unless otherwise indicated)

2016

2015

2016

2015

 

Adjusted services and software revenues as a percentage of total revenues

 

 

 

 

 

Sales of services and software

6,012

6,004

1,654

1,643

 

Adjusted services and software revenues

6,012

6,004

1,654

1,643

 

Total revenues

33,828

35,481

8,993

9,242

 

Total revenues in divested/exited businesses

(134)

(574)

(44)

(131)

 

Adjusted total revenues

33,694

34,907

8,949

9,111

 

Adjusted services and software revenues as a percentage of total revenues

17.8%

17.2%

18.5%

18.0%



 

36        Q4 2016 Financial Information 


 

Operational EBITA margin

In the fourth quarter of 2016, the Company modified the definition of Operational EBITA to also exclude the amount of non-operational pension cost and impacts from changes in estimates relating to opening balance sheets of acquired businesses (changes in pre-acquisition estimates). The new definition is provided below. The restated reconciliations for prior periods can be below in the section “Reconciliation of Operational EBITA margin by division for prior periods”.

 

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 (i) acquisition-related amortization (as defined below), (ii) restructuring and restructuring-related expenses, (iii) non-operational pension cost (as defined below),  (iv) changes in pre-acquisition estimates, (v) gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items, as well as (vi) 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). 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.

 

Non-operational pension cost

Non-operational pension cost comprises the total net periodic benefit cost of defined pension benefits and other postretirement benefits but excludes the current service cost of both components. A breakdown of the components of non-operational pension cost is provided below.

 

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

 

 

 

\

 

 

 

 

Year ended December 31,

Three months ended December 31,

 

($ in millions)

2016

2015

2016

2015

 

 

 

restated

 

restated

 

 

Operational EBITA

4,191

4,209

1,057

1,101

 

Acquisition-related amortization

(279)

(310)

(67)

(73)

 

Restructuring and restructuring-related expenses(1)

(543)

(674)

(68)

(531)

 

Non-operational pension cost

(38)

(19)

(38)

(8)

 

Changes in pre-acquisition estimates

(131)

(21)

(92)

(12)

 

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

 

 

 

 

 

and certain non-operational items

(173)

(120)

(127)

(76)

 

Foreign exchange/commodity timing differences in income from operations:

 

 

 

 

 

 

Unrealized gains and losses on derivatives (foreign exchange,

 

 

 

 

 

 

commodities, embedded derivatives)

(65)

67

(22)

(13)

 

 

Realized gains and losses on derivatives where the underlying hedged

 

 

 

 

 

 

transaction has not yet been realized

(5)

(68)

(16)

(18)

 

 

Unrealized foreign exchange movements on receivables/payables (and

 

 

 

 

 

 

related assets/liabilities)

30

(15)

51

(23)

 

Income from operations

2,987

3,049

678

347

 

Interest and dividend income

73

77

19

21

 

Interest and other finance expense

(261)

(286)

(31)

(63)

 

Income from continuing operations before taxes

2,799

2,840

666

305

 

Provision for taxes

(781)

(788)

(194)

(66)

 

Income from continuing operations, net of tax

2,018

2,052

472

239

 

Income from discontinued operations, net of tax

16

3

2

1

 

Net income

2,034

2,055

474

240

 

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

37        Q4 2016 Financial Information 


 

Reconciliation of Operational EBITA margin by division

 

 

 

\

 

 

Year ended December 31, 2016

 

 

 

 

 

 

Corporate and

 

 

 

 

Discrete

 

 

Other and

 

 

 

Electrification

Automation

Process

Power

Intersegment

 

 

($ in millions, unless otherwise indicated)

Products

and Motion

Automation

Grids

elimination

Consolidated

 

 

 

 

 

 

restated

restated

 

Total revenues

9,292

8,714

6,598

10,975

(1,751)

33,828

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

20

3

9

73

105

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(5)

2

8

8

13

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

(11)

4

(30)

(37)

 

Operational revenues

9,296

8,719

6,619

11,026

(1,751)

33,909

 

 

 

 

 

 

 

 

 

Income (loss) from operations

1,335

831

696

888

(763)

2,987

 

Acquisition-related amortization

95

120

11

35

18

279

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

73

88

79

101

202

543

 

Non-operational pension cost

3

2

2

(2)

33

38

 

Changes in pre-acquisition estimates

131

131

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

8

18

9

(2)

140

173

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

21

3

12

35

(6)

65

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(4)

2

5

2

5

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

(3)

10

(36)

(1)

(30)

 

Operational EBITA

1,528

1,195

824

1,021

(377)

4,191

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

16.4%

13.7%

12.4%

9.3%

n.a.

12.4%

 

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

 

38        Q4 2016 Financial Information 


 

 

 

Year ended December 31, 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

9,547

9,127

7,224

11,621

(2,038)

35,481

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

(21)

23

(2)

(92)

1

(91)

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

8

(27)

32

64

(1)

76

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

2

8

(17)

(5)

(1)

(13)

 

Operational revenues

9,536

9,131

7,237

11,588

(2,039)

35,453

 

 

 

 

 

 

 

 

 

Income (loss) from operations

1,356

991

685

613

(596)

3,049

 

Acquisition-related amortization

100

128

12

52

18

310

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

124

125

130

160

135

674

 

Non-operational pension cost

(3)

3

6

3

10

19

 

Changes in pre-acquisition estimates

21

21

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

4

26

14

39

37

120

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

(28)

17

(3)

(57)

4

(67)

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

6

(27)

26

63

68

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

2

11

(7)

4

5

15

 

Operational EBITA

1,561

1,295

863

877

(387)

4,209

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

16.4%

14.2%

11.9%

7.6%

n.a.

11.9%

 

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

 

39        Q4 2016 Financial Information 


 

 

 

Three months ended December 31, 2016

 

 

 

 

 

 

Corporate and

 

 

 

 

Discrete

 

 

Other and

 

 

 

Electrification

Automation

Process

Power

Intersegment

 

 

($ in millions, unless otherwise indicated)

Products

and Motion

Automation

Grids

elimination

Consolidated

 

 

 

 

 

 

restated

restated

 

Total revenues

2,462

2,211

1,737

3,042

(459)

8,993

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

18

8

(3)

40

63

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(1)

2

1

13

15

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

(13)

(3)

(9)

(32)

(1)

(58)

 

Operational revenues

2,466

2,218

1,726

3,063

(460)

9,013

 

 

 

 

 

 

 

 

 

Income (loss) from operations

319

89

244

334

(308)

678

 

Acquisition-related amortization

23

29

2

8

5

67

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

25

31

(21)

(5)

38

68

 

Non-operational pension cost

2

2

1

33

38

 

Changes in pre-acquisition estimates

92

92

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

7

14

9

(8)

105

127

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

11

3

(4)

19

(7)

22

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(1)

2

5

10

16

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

(2)

(2)

(6)

(41)

(51)

 

Operational EBITA

382

260

231

318

(134)

1,057

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

15.5%

11.7%

13.4%

10.4%

n.a.

11.7%

 

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

 

40        Q4 2016 Financial Information 


 

 

 

Three months ended December 31, 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

2,459

2,288

1,926

3,107

(538)

9,242

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

(6)

3

2

(37)

1

(37)

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

2

1

4

7

(1)

13

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

7

14

(1)

20

 

Operational revenues

2,455

2,292

1,939

3,091

(539)

9,238

 

 

 

 

 

 

 

 

 

Income (loss) from operations

267

134

105

145

(304)

347

 

Acquisition-related amortization

24

32

3

10

4

73

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

104

81

106

122

118

531

 

Non-operational pension cost

2

6

8

 

Changes in pre-acquisition estimates

12

12

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

4

26

(5)

1

50

76

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

2

8

9

(8)

2

13

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

1

(1)

9

9

18

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

1

(1)

6

14

3

23

 

Operational EBITA

403

291

235

293

(121)

1,101

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

16.4%

12.7%

12.1%

9.5%

n.a.

11.9%

 

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

 

41        Q4 2016 Financial Information 


 

Operational and non-operational pension cost

The operational pension cost reflects the ongoing service cost of providing employee benefits to the company’s employees.

 

The non-operational pension cost comprises: (i) interest cost, (ii) expected return on plan assets, (iii) amortization of prior service cost (credit), (iv) amortization of net actuarial loss, and (v) curtailments, settlements and special termination benefits.

 

The operational and non-operational pension costs together comprise the net periodic benefit cost as disclosed in Note 8 to the Interim Consolidated Financial Information (unaudited).

 

Reconciliation

 

 

  

 

 

Year

Three months ended,

Year

Three months ended,

Year

 

 

ended

 

 

 

 

ended

 

 

 

 

ended

 

Defined pension benefits

Dec 31,

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

 

($ in millions, unless otherwise indicated)

2016

2016

2016

2016

2016

2015

2015

2015

2015

2015

2014

 

Service cost

249

58

65

63

63

267

64

66

71

66

243

 

Operational pension cost

249

58

65

63

63

267

64

66

71

66

243

 

Interest cost

280

67

71

71

71

305

74

76

80

75

409

 

Expected return on plan assets

(402)

(96)

(102)

(102)

(102)

(456)

(111)

(112)

(120)

(113)

(481)

 

Amortization of prior service cost

 

 

 

 

 

 

 

 

 

 

 

 

    (credit)

40

10

9

11

10

38

10

9

10

9

27

 

Amortization of net actuarial loss

85

20

22

21

22

112

29

28

27

28

102

 

Curtailments, settlements and

 

 

 

 

 

 

 

 

 

 

 

 

   special termination benefits

41

39

1

1

20

7

13

1

 

Non-operational pension cost

44

40

1

2

1

19

9

14

(3)

(1)

58

 

Net periodic benefit cost

293

98

66

65

64

286

73

80

68

65

301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

Three months ended,

Year

Three months ended,

Year

 

 

ended

 

 

 

 

ended

 

 

 

 

ended

 

Other postretirement benefits

Dec 31,

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

 

($ in millions, unless otherwise indicated)

2016

2016

2016

2016

2016

2015

2015

2015

2015

2015

2014

 

Service cost

1

1

1

1

1

 

Operational pension cost

1

1

1

1

1

 

Interest cost

6

2

1

1

2

8

2

2

2

2

10

 

Amortization of prior service cost

 

 

 

 

 

 

 

 

 

 

 

 

    (credit)

(12)

(4)

(2)

(3)

(3)

(9)

(3)

(2)

(2)

(2)

(9)

 

Amortization of net actuarial loss

1

1

 

Non-operational pension cost

(6)

(2)

(1)

(2)

(1)

(1)

1

1

 

Net periodic benefit cost

(5)

(2)

(2)

(1)

1

(1)

2

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

Three months ended,

Year

Three months ended,

Year

 

 

ended

 

 

 

 

ended

 

 

 

 

ended

 

Total

Dec 31,

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

 

($ in millions, unless otherwise indicated)

2016

2016

2016

2016

2016

2015

2015

2015

2015

2015

2014

 

Total operational pension cost

250

58

66

63

63

268

64

66

72

66

244

 

Total non-operational pension cost

38

38

19

8

14

(2)

(1)

59

42        Q4 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 following:

(i)    acquisition-related amortization,

(ii)   restructuring and restructuring-related expenses,

(iii)  non-operational pension cost and,

(iv)   changes in pre-acquisition estimates,

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

(vi)   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).

(vii)  The amount of income tax on operational adjustments either estimated using the Adjusted Group effective tax rate or in certain specific cases, computed using the actual income tax effects of the relevant item in (i) to (v) above.

 

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) 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

 

  

 

 

 

2016

2015

2014

 

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

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

 

 

restated

 

 

 

 

 

 

 

 

 

 

 

 

Net income (attributable to ABB)

425

568

406

500

204

577

588

564

680

734

636

544

 

Operational adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related amortization

67

70

71

71

73

74

80

83

90

93

96

101

 

Restructuring and restructuring-related expenses(1)

68

39

367

69

531

59

58

26

93

55

40

47

 

Non-operational pension cost

38

8

14

(2)

(1)

21

12

12

14

 

Changes in pre-acquisition estimates

92

17

14

8

12

9

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

 

 

 

 

 

 

acquisition-related expenses and

 

 

 

 

 

 

 

 

 

 

 

 

 

 certain non-operational items

127

35

9

2

76

(6)

39

11

(122)

(257)

(114)

11

 

FX/commodity timing differences

 

 

 

 

 

 

 

 

 

 

 

 

 

in income from operations

(13)

24

12

17

54

72

(80)

(30)

43

76

20

25

 

Tax on operational adjustments(2)

(93)

(58)

(123)

(46)

(189)

(64)

(17)

(25)

(18)

91

15

(56)

 

Operational net income

711

695

756

621

769

735

666

628

787

804

705

686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of

 

 

 

 

 

 

 

 

 

 

 

 

 

shares outstanding (in millions)

2,137

2,135

2,149

2,181

2,203

2,219

2,232

2,251

2,266

2,290

2,295

2,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational EPS

0.33

0.33

0.35

0.28

0.35

0.33

0.30

0.28

0.35

0.35

0.31

0.30

 

Constant currency Operational EPS adjustment

0.02

0.02

0.04

0.05

0.01

0.03

0.03

0.03

 

Operational EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

(constant currency basis - 2014 exchange rates)

0.35

0.35

0.39

0.33

0.36

0.36

0.33

0.31

0.35

0.35

0.31

0.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational EPS growth rate(3)

-5%

-2%

18%

2%

0%

-6%

-3%

-7%

 

 

 

 

 

Operational EPS growth rate

 

 

 

 

 

 

 

 

 

 

 

 

 

(constant currency basis - 2014 exchange rates)

-3%

-3%

18%

4%

5%

2%

7%

5%

 

 

 

 

 

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

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

(3) Growth is computed using unrounded EPS amounts.

  

 

43        Q4 2016 Financial Information 


 

 

 

Year ended December 31,

 

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

2016

2015

2014

 

 

restated

 

 

 

Net income (attributable to ABB)

1,899

1,933

2,594

 

Operational adjustments:

 

 

 

 

Acquisition-related amortization

279

310

380

 

Restructuring and restructuring-related expenses(1)

543

674

235

 

Non-operational pension cost

38

19

59

 

Changes in pre-acquisition estimates

131

21

 

Gains and losses from sale of businesses,

 

 

 

 

acquisition-related expenses and certain non-operational items

173

120

(482)

 

FX/commodity timing differences in income from operations

40

16

164

 

Tax on operational adjustments(2)

(320)

(295)

32

 

Operational net income

2,783

2,798

2,982

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions)

2,151

2,226

2,288

 

 

 

 

 

 

Operational EPS

1.29

1.26

1.30

 

Constant currency Operational EPS adjustment

0.12

0.10

 

Operational EPS (constant currency basis - 2014 exchange rates)

1.41

1.36

1.30

 

 

 

 

 

 

Operational EPS growth rate(3)

3%

-4%

 

 

Operational EPS growth rate

 

 

 

 

(constant currency basis - 2014 exchange rates)

4%

5%

 

 

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

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

(3) Growth is computed using unrounded EPS amounts.

  



 

Net debt 

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

 

 

  

 

 

December 31,

 

($ in millions)

2016

2015

2014

2013

2012

 

 

restated

 

 

 

 

 

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

1,003

1,454

353

453

2,537

 

Long-term debt

5,800

5,985

7,312

7,538

7,497

 

Total debt

6,803

7,439

7,665

7,991

10,034

 

Cash and equivalents

3,644

4,565

5,443

6,021

6,875

 

Marketable securities and short-term investments

1,953

1,633

1,325

464

1,606

 

Cash and marketable securities

5,597

6,198

6,768

6,485

8,481

 

Net debt

1,206

1,241

897

1,506

1,553

44        Q4 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

 

 

  

 

 

 

Dec 31,

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

2016

2015

2015

2015

2015

2014

2014

2014

2014

2013

 

 

restated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net working capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivables, net

9,696

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

4,347

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

176

242

246

268

225

286

304

289

218

307

306

305

252

 

Accounts payable, trade

(4,446)

(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

(1,241)

(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

(1,398)

(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

(3,198)

(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)

738

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

(72)

(46)

1

(8)

27

 

Net working capital

3,864

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dec. 31, 2016 / 2015 / 2014 / 2013

8,993

9,242

9,242

9,242

9,242

10,346

10,346

10,346

10,346

11,373

11,373

11,373

11,373

 

Sep. 30, 2016 / 2015 / 2014 / 2013

8,255

8,255

8,519

8,519

8,519

8,519

9,823

9,823

9,823

9,823

10,535

10,535

10,535

 

Jun. 30, 2016 / 2015 / 2014 / 2013

8,677

8,677

8,677

9,165

9,165

9,165

9,165

10,190

10,190

10,190

10,190

10,225

10,225

 

Mar. 31, 2016 / 2015 / 2014 / 2013

7,903

7,903

7,903

7,903

8,555

8,555

8,555

8,555

9,471

9,471

9,471

9,471

9,715

 

Total revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for the trailing twelve months

33,828

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

33,828

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 (%)

11.4%

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.

45        Q4 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).

 

  

Reconciliation

  

 

 

Year ended December 31,

 

($ in millions, unless otherwise indicated)

2016

2015

2014

2013

2012

 

 

restated

 

 

 

 

 

Net cash provided by operating activities

3,843

3,818

3,845

3,653

3,779

 

Adjusted for the effects of:

 

 

 

 

 

 

Purchases of property, plant and equipment and intangible assets

(831)

(876)

(1,026)

(1,106)

(1,293)

 

Proceeds from sale of property, plant and equipment

61

68

33

80

40

 

Changes in financing receivables and other non-current receivables

(8)

9

5

5

29

 

Free cash flow

3,065

3,019

2,857

2,632

2,555

 

Net income attributable to ABB

1,899

1,933

2,594

2,787

2,704

 

Free cash flow conversion to net income

161%

156%

110%

94%

94%



 

Finance net 

Definition

 

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

  



 

Reconciliation

 

 

  

 

 

Year ended December 31,

Three months ended December 31,

 

($ in millions)

2016

2015

2016

2015

 

Interest and dividend income

73

77

19

21

 

Interest and other finance expense

(261)

(286)

(31)

(63)

 

Finance net

(188)

(209)

(12)

(42)



 

Book-to-bill ratio 

Definition

 

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

 

 

Reconciliation

 

 

  

 

 

 

 

Three months ended December 31,

 

($ in millions, unless otherwise indicated)

 

 

2016

2015

 

Orders received

 

 

8,277

8,262

 

Total revenues

 

 

8,993

9,242

 

Book-to-bill ratio

 

 

0.92

0.89

 

 

 

Year ended December 31,

 

($ in millions, unless otherwise indicated)

2016

2015

2014

2013

2012

 

Orders received

33,379

36,429

41,515

38,896

40,232

 

Total revenues

33,828

35,481

39,830

41,848

39,336

 

Book-to-bill ratio

0.99

1.03

1.04

0.93

1.02



 

46        Q4 2016 Financial Information 


 

Cash return on invested capital (CROI) 

Definition

 

Cash return on invested capital (CROI)

Cash return on invested capital is calculated as Adjusted cash return divided by Capital invested.

 

Adjusted cash return

Adjusted cash return is calculated as the sum of (i) net cash provided by operating activities, (ii) interest paid and (iii) estimate to annualize/eliminate the net cash provided by operating activities of certain acquisitions / (divestments).

 

Adjusted total fixed assets

Adjusted total fixed assets is the sum of (i) property, plant and equipment, net, (ii) goodwill, (iii) other intangible assets, net, and (iv) investments in equity-accounted companies less (v) deferred tax liabilities recognized in certain acquisitions.

 

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.

 

Capital invested

Capital invested is the sum of (i) Adjusted total fixed assets, (ii) Net working capital and (iii) Accumulated depreciation and amortization.

  



 

Reconciliation

 

  

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

($ in millions, unless otherwise indicated)

2016

2015

2014

 

 

 

restated

 

 

 

Adjusted cash return:

 

 

 

 

 

Net cash provided by operating activities

3,843

3,818

3,845

 

 

Interest paid

213

221

259

 

 

Estimate to annualize/eliminate the net cash provided by operating activities of

 

 

 

 

 

certain divestments(1)

(58)

 

Adjusted cash return

4,056

4,039

4,046

 

 

 

 

 

 

 

 

 

December 31,

 

($ in millions, unless otherwise indicated)

2016

2015

2014

 

 

restated

 

 

 

Adjusted total fixed assets:

 

 

 

 

 

Property, plant and equipment, net

4,743

5,276

5,652

 

 

Goodwill

9,501

9,671

10,053

 

 

Other intangible assets, net

1,996

2,337

2,702

 

 

Investments in equity-accounted companies

170

178

177

 

 

Fixed assets included in assets held for sale(2)

448

 

Total fixed assets

16,858

17,462

18,584

 

 

Less: deferred taxes recognized in certain acquisitions(3)

(1,901)

(1,901)

(1,928)

 

Adjusted total fixed assets

14,957

15,561

16,656

 

Net working capital (as defined above)

3,864

4,601

5,542

 

Accumulated depreciation and amortization:

 

 

 

 

 

Accumulated depreciation of property, plant and equipment

6,926

6,840

6,905

 

 

Accumulated amortization of intangible assets including goodwill(4)

3,438

3,175

2,767

 

 

Accumulated depreciation and amortization of assets held for sale(2)

149

 

Accumulated depreciation and amortization

10,513

10,015

9,672

 

Capital invested

29,334

30,177

31,870

 

Cash return on invested capital (CROI)

13.8%

13.4%

12.7%

 

(1)  Divestments: In 2014 HVAC, Power Solutions, Steel Structures and Full Service.

(2) Held for sale: In 2016 ABB announced an agreement to divest its global high-voltage cable system business.

(3)  Power-One acquired in 2013, Thomas & Betts acquired in 2012 and Baldor acquired in 2011.

(4)  Includes accumulated goodwill amortization up to December 31, 2001. Thereafter goodwill is not amortized (under U.S. GAAP) but subject to annual testing for impairment.

47        Q4 2016 Financial Information 


 

Reconciliation of Operational EBITA margin by division for prior periods

The following tables provide operational EBITA margin reconciliations for prior periods.

 

 

\

 

 

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

 

Non-operational pension cost

1

(1)

 

Changes in pre-acquisition estimates

17

17

 

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

412

328

187

253

(117)

1,063

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

17.8%

14.9%

12.2%

9.5%

n.a.

12.8%

 

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

 

48        Q4 2016 Financial Information 


 

 

 

Three months ended June 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

2,397

2,221

1,717

2,779

(437)

8,677

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

14

10

13

62

99

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(2)

(1)

3

(6)

(6)

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

(10)

(7)

(10)

(29)

(56)

 

Operational revenues

2,399

2,223

1,723

2,806

(437)

8,714

 

 

 

 

 

 

 

 

 

Income (loss) from operations

339

226

112

151

(181)

647

 

Acquisition-related amortization

24

30

3

9

5

71

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

51

54

89

76

97

367

 

Non-operational pension cost

1

(1)

 

Changes in pre-acquisition estimates

14

14

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

2

7

9

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

7

5

14

46

(10)

62

  

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(1)

(1)

(2)

(6)

(10)

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

(6)

(3)

(6)

(25)

(40)

 

Operational EBITA

415

325

210

252

(82)

1,120

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

17.3%

14.6%

12.2%

9.0%

n.a.

12.9%

 

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

 

49        Q4 2016 Financial Information 


 

 

 

Three months ended March 31, 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

2,125

2,079

1,621

2,518

(440)

7,903

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

(18)

(17)

(7)

(49)

(91)

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

1

5

(5)

1

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

11

8

20

32

71

 

Operational revenues

2,118

2,071

1,639

2,496

(440)

7,884

 

 

 

 

 

 

 

 

 

Income (loss) from operations

288

240

170

181

(95)

784

 

Acquisition-related amortization

24

31

3

9

4

71

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

4

7

4

18

36

69

 

Non-operational pension cost

1

(1)

 

Changes in pre-acquisition estimates

8

8

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

2

2

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

(7)

3

(34)

11

(27)

  

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(4)

(4)

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

2

3

16

27

48

 

Operational EBITA

319

282

196

198

(44)

951

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

15.1%

13.6%

12.0%

7.9%

n.a.

12.1%

 

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

 

50        Q4 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

 

Non-operational pension cost

(1)

1

2

1

11

14

 

Changes in pre-acquisition estimates

9

9

 

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

409

345

183

222

(55)

1,104

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

17.4%

15.3%

10.8%

7.8%

n.a.

12.8%

 

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

 

51        Q4 2016 Financial Information 


 

 

 

Three months ended June 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

2,506

2,348

1,875

2,951

(515)

9,165

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

(23)

(8)

(23)

(102)

(1)

(157)

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

2

(1)

21

22

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

8

5

(2)

24

35

 

Operational revenues

2,493

2,345

1,849

2,894

(516)

9,065

 

 

 

 

 

 

 

 

 

Income (loss) from operations

389

293

216

181

(118)

961

 

Acquisition-related amortization

26

33

3

15

3

80

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

3

25

20

10

58

 

Non-operational pension cost

(1)

1

1

1

(4)

(2)

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

15

31

(7)

39

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

(23)

(24)

(27)

(89)

3

(160)

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

1

(4)

23

20

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

15

12

4

25

4

60

 

embedded derivatives)

 

 

 

 

 

 

 

Operational EBITA

410

340

228

197

(119)

1,056

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

16.4%

14.5%

12.3%

6.8%

n.a.

11.6%

 

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

 

52        Q4 2016 Financial Information 


 

 

 

Three months ended March 31, 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

2,229

2,271

1,764

2,772

(481)

8,555

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

8

(13)

(8)

(5)

(18)

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

1

(29)

20

23

15

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

(3)

8

(18)

(21)

(34)

 

Operational revenues

2,235

2,237

1,758

2,769

(481)

8,518

 

 

 

 

 

 

 

 

 

Income (loss) from operations

310

300

205

128

(84)

859

 

Acquisition-related amortization

25

32

3

17

6

83

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

7

3

1

15

26

 

Non-operational pension cost

(1)

1

1

1

(3)

(1)

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

1

3

2

5

11

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

11

7

7

7

(16)

16

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

1

(29)

15

21

8

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

(15)

5

(18)

(26)

(54)

 

Operational EBITA

339

319

217

165

(92)

948

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

15.2%

14.3%

12.3%

6.0%

n.a.

11.1%

 

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

 

53        Q4 2016 Financial Information 


 

 

 

Year ended December 31, 2014

 

 

 

 

 

 

Corporate and

 

 

 

 

Discrete

 

 

Other and

 

 

 

Electrification

Automation

Process

Power

Intersegment

 

 

($ in millions, unless otherwise indicated)

Products

and Motion

Automation

Grids

elimination

Consolidated

 

Total revenues

10,572

10,142

8,618

12,518

(2,020)

39,830

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

25

10

12

192

239

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(2)

17

48

63

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

(5)

(13)

(15)

(56)

(89)

 

Operational revenues

10,592

10,137

8,632

12,702

(2,020)

40,043

 

 

 

 

 

 

 

 

 

Income (loss) from operations

1,562

1,422

931

257

6

4,178

 

Acquisition-related amortization

113

138

18

89

22

380

 

Restructuring and

 

 

 

 

 

 

 

restructuring-related expenses(1)

49

25

36

106

19

235

 

Non-operational pension cost

(2)

6

17

12

26

59

 

Gains and losses from sale of businesses,

 

 

 

 

 

 

 

acquisition-related expenses and certain

 

 

 

 

 

 

 

non-operational items

(7)

32

9

(516)

(482)

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

23

16

20

168

(4)

223

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

1

(2)

13

32

(2)

42

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

(10)

(22)

(66)

(3)

(101)

 

Operational EBITA

1,739

1,595

1,045

607

(452)

4,534

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

16.4%

15.7%

12.1%

4.8%

n.a.

11.3%

 

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

54        Q4 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     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

55        Q4 2016 Financial Information 


 

 

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: March 10, 2017.

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