UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT
TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October 2016
Commission File Number 001-16429
ABB Ltd
(Translation of registrant’s name into English)
P.O. Box 1831,
Affolternstrasse 44, CH-8050, Zurich, Switzerland
(Address of principal executive office)
Indicate
by check mark whether the registrant files or will file annual reports under
cover of Form 20-F or Form 40-F.
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.
If
“Yes” is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
This
Form 6-K consists of the following:
1.
Press
release issued by ABB Ltd dated October 27, 2016 titled “Continued margin
growth in tough markets”.
2.
Q3
2016 Financial Information.
3. Press
release issued by ABB Ltd dated October 27, 2016 titled “ABB names Timo
Ihamuotila as new Chief Financial Officer”.
4.
Announcements
regarding transactions in ABB Ltd’s Securities made by the directors or the
members of the Executive Committee.
The
information provided by Item 2 above is incorporated by reference into ABB
Ltd's registration statement on Form F-3 (File No. 333-180922) and registration
statements on Form S-8 (File Nos. 333-190180, 333-181583, 333-179472,
333-171971 and 333-129271) each of which was previously filed with the
Securities and Exchange Commission.
2
—
Zurich,
Switzerland, October 27, 2016: Third-quarter
highlights
Continued margin growth in tough markets
•
Operational EBITA
margin
1
increased to 12.6%
•
White Collar
Productivity on track towards $1.3 bn savings; expected total costs reduced by
$100 mn
•
Net Income $568
million; basic earnings per share up 2%
•
Base orders -6%
2
;
total orders -13%; reflect Q3 uncertainty
•
Revenues steady
•
Cash flow from
operating activities $1,081 million, more consistent quarterly cash generation
•
Timo Ihamuotila to
succeed Eric Elzvik as Chief Financial Officer effective April 1, 2017
•
ABB launched Stage
3 of its Next Level Strategy – committed to unlocking value
________________________________________________________________________________________________________
“We
delivered the eighth consecutive quarter of margin accretion through our
continued focus on execution,” said CEO Ulrich Spiesshofer. “In the third
quarter, we experienced significant macro uncertainties around Brexit and the
US elections as reflected in the low order pattern. Orders in Power Grids were
additionally dampened by the hesitation of customers prior to the Capital
Markets Day. However, the Power Grids transformation is on track as clearly
demonstrated by the 170 basis points margin accretion,” he said. “With our
enhanced cash culture, we have delivered more than 30 percent higher cash flow
so far this year with a much steadier cash generation profile.”
“We
continue to run the company with discipline, realizing growth opportunities
where possible whilst driving earnings and cash growth. We are committed to
unlocking value for all shareholders as a more focused, agile company building
on our industry-leading digital offering.”
Key figures
|
|
|
Change
|
|
|
Change
|
($ in millions, unless
otherwise
indicated)
|
Q3
2016
|
Q3
2015
|
US$
|
Comparable
1
|
9M
2016
|
9M
2015
|
US$
|
Comparable
1
|
Orders
|
7,533
|
8,767
|
-14%
|
-13%
|
25,102
|
28,167
|
-11%
|
-8%
|
Revenues
|
8,255
|
8,519
|
-3%
|
0%
|
24,835
|
26,239
|
-5%
|
-1%
|
Operational EBITA
1
|
1,046
|
1,081
|
-3%
|
-2%
3
|
3,095
|
3,088
|
0%
|
+3%
3
|
as % of operational revenues
1
|
12.6%
|
12.5%
|
+0.1pts
|
|
12.4%
|
11.8%
|
+0.6pts
|
|
Net income
|
568
|
577
|
-2%
|
|
1,474
|
1,729
|
-15%
|
|
Basic EPS ($)
|
0.27
|
0.26
|
+2%
4
|
|
0.68
|
0.77
|
-12%
4
|
|
Operational EPS
1
($)
|
0.32
|
0.32
|
-1%
4
|
0%
4
|
0.95
|
0.90
|
+5%
4
|
+7%
4
|
Cash flow from operating activities
|
1,081
|
1,173
|
-8%
|
|
2,415
|
1,824
|
+32%
|
|
Short-term outlook
Macroeconomic
and geopolitical developments are signaling a mixed picture with continued
uncertainty. Some macroeconomic signs in the US remain positive and growth in
China is expected to continue, although at a slower pace than in 2015. The
market remains impacted by modest growth and increased uncertainties, e.g.,
Brexit in Europe and geopolitical tensions in various parts of the world. Oil
prices and foreign exchange translation effects are expected to continue to
influence the company’s results.
1 For a reconciliation of non-GAAP measures, see “Supplemental
Reconciliations and Definitions” in the attached Q3 2016 Financial Information
2 Growth rates for orders, revenues and order backlog are on a
comparable basis (local currency adjusted for acquisitions and divestitures),
previously referred to as ‘like-for-like’. US$ growth rates are presented in
Key Figures table
3 Constant currency (not adjusted for portfolio changes)
4 EPS growth rates are computed using unrounded amounts.
Comparable operational earnings per share is in constant currency (2014
exchange rates and not adjusted for changes in the business portfolio
Q3 2016
Group results
Orders
Total
orders declined 13 percent (14 percent in US dollars) compared with the third
quarter of 2015, reflecting timing of large order awards and lower short cycle
volumes. Base orders (below $15 million) decreased 6 percent (7 percent in US
dollars), while large orders ($15 million and above) were lower in all
divisions and represented 11 percent of total orders compared with 17 percent a
year earlier. Orders for services and software were 3 percent lower (5 percent
in US dollars) and represented 17 percent of total orders compared with 16
percent a year ago.
Market
overview
Demand
patterns in ABB’s three regions:
•
Demand in Europe
was subdued primarily due to moderate overall growth, uncertainties in the UK
following Brexit and political events in Turkey. Total orders declined 18
percent (20 percent in US dollars) while base orders were stable (2 percent
lower in US dollars). Base order demand was positive in Germany, Italy, Sweden
and Switzerland, and weak in the UK and Norway.
•
The Americas was
weaker due to considerable investment delays triggered by the US election and
lagging industrial demand. Total orders declined 16 percent (17 percent in US
dollars) on weaker large orders; base orders were 8 percent lower (9 percent in
US dollars) on weak demand in the US, Canada and Brazil.
•
Demand in
Asia, the Middle East and Africa (AMEA) was mixed. India continued to grow and
China continued its investment activities in power transmission and robotics.
Total orders for the region were down 5 percent (7 percent in US dollars) as
strong order development in India could not offset declines in China and the
UAE.
Base
orders declined 9 percent (10 percent in US dollars).
Demand
patterns in ABB’s three major customer sectors:
•
Utilities
continued their investment activities to integrate renewable energy and foster
grid reliability and efficiency.
•
In industry:
investments in discrete and hybrid industries such as automotive, food and
beverage and machinery remained positive while demand from the process
industries, specifically mining and oil and gas remain subdued.
•
Transport and
infrastructure demand has been mixed. Demand for specialty vessels solutions
remained strong as well as solutions involving energy efficiency for rail
transport. Construction has been mixed.
The
book-to-bill
1
ratio in the third quarter decreased to 0.91x from
1.03x in the same quarter a year earlier. For the first nine months,
book-to-bill
1
is 1.01x. The order backlog at the end of September
2016 amounted to $24,554 million, a decrease of 2 percent (3 percent in US
dollars) compared with the end of the third quarter in 2015.
Revenues
Revenues were flat (3 percent lower in
US dollars) in the third quarter. Revenues were steady in the Electrification
Products and Discrete Automation and Motion divisions and increased slightly in
Power Grids, which offset a decline in Process Automation. Total services and
software revenues increased 5 percent (4 percent in US dollars) and represented
18 percent of total revenues compared with 17 percent a year ago.
Operational EBITA
Operational
EBITA decreased 2 percent in local currencies (3 percent in US dollars) to
$1,046 million and included the impact of negative mix. Operational EBITA
margin improved 10 basis points to 12.6 percent compared with the same quarter
a year ago, reflecting margin accretion in Electrification Products, Process
Automation and Power Grids as well as ongoing productivity and cost savings
measures, such as the white collar productivity program.
Operational
EPS and net income
Operational
EPS was steady at $0.32 in constant currency compared with the same period a
year earlier. The reduction in the weighted-average number of shares
outstanding compensated for a slightly lower operational EBITA, higher interest
expense and higher tax rate. Net income decreased 2 percent to $568 million and
basic earnings per share was $0.27 compared with $0.26 for the same quarter of
2015, an increase of 2 percent.
Cash
flow from operating activities
Cash
flow from operating activities was $1,081 million, $92 million lower compared
with the third quarter of 2015, mainly due to lower net income. In the first
nine months of 2016, cash flow from operating activities increased
32 percent compared with the same period a year ago, primarily due to stronger
working capital management and timing of income tax payments.
Shareholder
returns
On
September 30, 2016, ABB announced the completion of the share buyback program
that was introduced in September 2014. During the buyback program, ABB
repurchased a total of 171.3 million registered shares (equivalent to 7.4
percent of its issued share capital at the launch of the buyback program) for a
total amount of approximately $3.5 billion.
At its
Capital Markets Day on October 4, 2016, ABB announced its plans for a new share
buyback program of up to $3 billion from 2017 through 2019. This reflects the
company’s confidence and the continued strength of ABB’s cash generation and
financial position.
Divestitures
In line with its strategy to
continuously optimize the portfolio, ABB announced in September the planned
sale of its global high-voltage cables systems business to NKT Cables. The
transaction is expected to close in the first quarter of 2017 subject to
regulatory clearances. ABB and NKT also signed an agreement for a long-term
strategic partnership that will serve future projects globally.
Management
changes
Today,
ABB announced the appointment of Timo Ihamuotila as Chief Financial Officer and
member of the Executive Committee, effective April 1, 2017. Ihamuotila succeeds
current CFO Eric Elzvik in an orderly transition process, who will pursue
career opportunities outside of ABB after a thorough handover in the second
quarter of 2017. Ihamuotila joins ABB from Nokia, “a global leader in the
technologies that connect people and things,” where he has been the Chief
Financial Officer for the last seven years. Ihamuotila is a proven CFO with
deep experience in communications, software and services industries, active
portfolio management and operational performance improvement. He brings a deep
understanding of corporate transformation and digital business models.
“Timo is
a seasoned CFO with an impressive global track record,” said CEO Ulrich
Spiesshofer. “He has extensive and deep experience in all aspects of finance as
well as in transforming businesses in times of industrial digitalization. With
his wide expertise, ranging from financial to commercial to general management,
he is the ideal person to lead our finance organization and partner to drive
ABB’s ongoing transformation as a leader in the digital industry. I am delighted
to welcome Timo to our Executive Committee in these exciting times, as we focus
on unlocking maximum value for all shareholders,” Spiesshofer said. “At the
same time I would like to warmly thank Eric Elzvik already now for his long,
outstanding commitment and many valuable contributions to ABB over more than
three decades. During Eric’s CFO tenure, a new cash culture together with a
significant improvement of our Net Working Capital, a fundamental productivity
improvement of the finance function and many portfolio actions were
successfully established and delivered. We wish Eric all the best for the next
step of his professional career which he will pursue after the orderly handover
process is completed in Q2 2017.”
Q3
divisional performance
($ in millions,
unless otherwise indicated)
|
Orders
|
Change
|
Revenues
|
Change
|
Operational
EBITA %
|
Change
|
US$
|
Comparable
1
|
US$
|
Comparable
1
|
Electrification Products
|
2,223
|
-6%
|
-4%
|
2,308
|
-2%
|
0%
|
17.8%
|
+0.4pts
|
Discrete Automation
& Motion
|
2,123
|
-5%
|
-4%
|
2,203
|
-1%
|
0%
|
14.1%
|
-0.7pts
|
Process Automation
|
1,193
|
-22%
|
-21%
|
1,523
|
-8%
|
-7%
|
12.2%
|
+1.5pts
|
Power Grids
|
2,391
|
-22%
|
-21%
|
2,636
|
-6%
|
+1%
|
9.5%
|
+1.7pts
|
Corporate & other
(incl.
inter-division elimination)
|
-397
|
|
|
-415
|
|
|
|
|
ABB
Group
|
7,533
|
-14%
|
-13%
|
8,255
|
-3%
|
0%
|
12.6%
|
+0.1pts
|
Electrification
Products
Total
orders were down as positive order development in Europe could not offset a decline
in the Americas and AMEA. In particular, markets including China, Saudi Arabia,
Brazil and Turkey were challenging, while Italy, Switzerland and India were
stronger. Revenues were steady, and operational EBITA margin improved 40 basis
points to 17.8 percent, due to additional cost savings, capacity adjustments
and supply chain management.
Discrete
Automation and Motion
Continued
strong demand patterns in robotics and in food and beverage could not offset
the capex declines in process industries such as oil and gas, which negatively
impacted order development. Revenues were steady, reflecting strong order
execution. Operational EBITA margin declined 70 basis points compared with the
same quarter a year ago primarily due to unfavorable mix and lower capacity
utilization. Continued capacity adjustments and productivity improvements are
underway.
Process
Automation
Total
orders were 21 percent lower (22 percent in US dollars) as reduced capital
expenditure and cautious discretionary spending in process industries continued
to impact large as well as base orders (13 percent lower, 13 percent in US
dollars). Revenues declined 7 percent (8 percent in US dollars) as steady
demand for specialty vessels could not compensate for declines in such segments
as mining and oil and gas. Operational EBITA margin increased 150 basis points
to 12.2 percent due to successful project execution and implemented cost
reduction and productivity measures.
Power
Grids
Total
orders were lower compared with the same quarter a year ago primarily due to
the timing of large order awards. Lower base orders reflected sluggishness in
some markets such as the US, Saudi Arabia and Brazil while Europe remained
supportive. Revenues were slightly higher due to steady execution of a healthy
order backlog. Operational EBITA margin increased by 170 basis points to 9.5
percent. This solid performance was driven by sustained project execution,
improved productivity and continued cost savings.
Next
Level strategy – Stage 3
On
October 4, 2016, ABB launched Stage 3 of its Next Level strategy to unlock
value for customers and shareholders. The core elements of this include:
shaping ABB’s divisions into four market-leading, entrepreneurial units;
realizing ABB’s full digital potential; accelerating momentum in operational
excellence; and strengthening ABB’s brand.
Driving
growth in four market-leading entrepreneurial divisions
ABB is
shaping and focusing its divisional structure into four market-leading
divisions: Electrification Products, Robotics and Motion, Industrial Automation
and Power Grids, effective January 1, 2017. The divisions will be empowered as
entrepreneurial units within ABB, reflected in an enhancement of ABB’s
performance and compensation model focusing on individual accountability and
responsibility. They will benefit from sales collaboration orchestrated by
regions and countries as well as from the group-wide digital offering, ABB’s
leading G&A structure and costs, common supply chain management, and
corporate research centers.
ABB
announced two important partnerships in line with transforming the Power Grids
offering. The agreements with Fluor and Aibel are examples in which ABB will
bring its leading technology in power transmission and distribution. Fluor and
Aibel provide execution of turnkey Engineering, Procurement and Construction
(EPC) responsibilities for substations and offshore wind connections,
respectively.
A
quantum leap in digital with ABB Ability
TM
ABB is a
hidden digital champion today. It is ideally positioned to win in the digital
space with new and existing end-to-end digital solutions. The newly launched
ABB Ability offering combines ABB’s portfolio of digital solutions and services
across all customer segments, cementing the group’s leading position in the
Fourth Industrial Revolution and supporting the competitiveness of ABB’s four
entrepreneurial divisions.
The
company has announced a far-reaching strategic partnership with Microsoft, the
world’s largest software company, to develop next-generation digital solutions
on an integrated open cloud platform. Customers will benefit from the unique
combination of ABB’s deep domain knowledge and extensive portfolio of
industrial solutions and Microsoft’s Azure intelligent cloud as well as B2B
engineering competence. Together, the partners will drive digital
transformation in customer segments across ABB’s businesses in utilities,
industry and transport and infrastructure.
Accelerating
momentum in operational excellence
ABB
continues to build on its existing momentum and is further accelerating its
operational excellence.
The
company’s White-Collar Productivity savings program has outperformed expectations
since its launch last year. As a result, ABB has increased the program’s cost
reduction target by 30 percent to $1.3 billion. ABB will achieve these
additional savings within the initially announced timeframe and for $100
million lower of total combined restructuring program and implementation costs.
ABB is continuing its regular cost-savings programs, leveraging operational
excellence and world-class supply chain management to achieve savings
equivalent to 3-5 percent of cost of sales each year.
ABB
reaffirms the target of its Net Working Capital program to free up
approximately $2 billion by the end of 2017. The program is well on track and
focuses on improving inventory management by optimizing the entire value chain,
from product design to manufacturing, and by optimizing other net working
capital measures.
Strengthening
the global ABB brand
ABB
will adopt a single corporate brand, consolidating all its brands around the
world under one umbrella. ABB’s portfolio of companies will be unified, showcasing
the full breadth and depth of the company’s global offering under one master
brand. This transition is expected to take up to two years.
ABB
reaffirmed its Group 2015-2020 financial targets.
Outlook
Macroeconomic
and geopolitical developments are signaling a mixed picture with continued
uncertainty. Some macroeconomic signs in the US remain positive and growth in
China is expected to continue, although at a slower pace than in 2015. The
market remains impacted by modest growth and increased uncertainties relating
to Brexit in Europe and geopolitical tensions in various parts of the world.
Oil prices and foreign exchange translation effects are expected to continue to
influence the company’s results.
The
attractive long-term demand outlook in ABB’s three major customer sectors —
utilities, industry and transport & infrastructure — is driven by the
Energy and Fourth Industrial Revolutions.
ABB is
well-positioned to tap into these opportunities for long-term profitable growth
with its strong market presence, broad geographic and business scope,
technology leadership and financial strength.
More
information
The Q3
2016 results press release and presentation slides are available on the ABB
News Center at www.abb.com/news and on the Investor Relations homepage at
www.abb.com/investorrelations.
ABB will
host a press conference
today starting at 9:00 a.m. Central European Time (CET) (8:00
a.m. BST, 3:00 a.m. EDT). The event will be accessible by conference call. C
allers from the UK should dial
+44 203 059 58 62. From Sweden, the number to dial is +46 85 051 00 31, and
from the rest of Europe, +41 58 310 50 00. Callers from the US and Canada
should dial +1 866 291 41 66 (toll-free) or +1 631 570 56 13 (long-distance
charges apply). Lines will be open 10 to 15 minutes before the start of the
conference. A podcast of the media conference will be available for one week afterwards.
The podcast will be accessible at: http://new.abb.com/media/events
A
conference call for analysts and investors is scheduled to begin today at 2:00
p.m. CET (1:00 p.m. BST, 8:00 a.m. EDT). Callers from the UK should dial +44
203 059 58 62. From Sweden, the number to dial is +46 85 051 00 31, and from
the rest of Europe, +41 58 310 50 00. Callers from the US and Canada should
dial +1 866 291 41 66 (toll free) or +1 631 570 56 13 (long-distance charges
apply). Callers are requested to phone in 10 minutes before the start of the
call. The call will also be accessible on the ABB website and a recorded
session will be available as a podcast one hour after the end of the conference
call and can be downloaded from our website
www.abb.com.
ABB
(ABBN: SIX Swiss Ex) is a
pioneering technology leader in electrification products, robotics and motion,
industrial automation and power grids, serving customers in utilities, industry
and transport & infrastructure globally. Continuing more than a 125-year
history of innovation, ABB today is writing the future of industrial
digitalization and driving the Energy and Fourth Industrial Revolutions. ABB
operates in more than 100 countries with about 135,000 employees.
www.abb.com
Investor
calendar 2016/2017
|
|
Fourth-quarter
and full-year 2016 results
|
February
8, 2017
|
Annual
General Meeting (Zurich)
|
April
13, 2017
|
First
quarter 2017 results
|
April
20, 2017
|
Second
quarter 2017 results
|
July
20, 2017
|
Third
quarter 2017 results
|
October
26, 2017
|
Important notice about forward-looking
information
This press release includes
forward-looking information and statements as well as other statements
concerning the outlook for our business, including those in the sections of
this release titled “Short-term outlook”, “Outlook”, “Shareholder Returns”,
“Divestitures”, “Management Changes” and “Next Level strategy - Stage 3”. These
statements are based on current expectations, estimates and projections about
the factors that may affect our future performance, including global economic
conditions, the economic conditions of the regions and industries that are
major markets for ABB Ltd. These expectations, estimates and projections are
generally identifiable by statements containing words such as “expects,”
“believes,” “estimates,” “targets,” “plans,” “is likely”, “intends” or similar
expressions. However, there are many risks and uncertainties, many of which are
beyond our control, that could cause our actual results to differ materially
from the forward-looking information and statements made in this press release
and which could affect our ability to achieve any or all of our stated targets.
The important
factors that could cause such differences
include, among others, business risks associated with the volatile global
economic environment and political conditions, costs associated with compliance
activities, market acceptance of new products and services, changes in
governmental regulations and currency exchange rates and such other factors as
may be discussed from time to time in ABB Ltd’s filings with the U.S.
Securities and Exchange Commission, including its Annual Reports on Form 20-F.
Although ABB Ltd believes that its expectations reflected in any such
forward-looking statement are based upon reasonable assumptions, it can give no
assurance that those expectations will be achieved.
Zurich, October 27, 2016
Ulrich Spiesshofer, CEO
For
more information please contact:
Media
Relations
Tel:
+41 43 317 65 68
media.relations@ch.abb.com
|
Investor
Relations
Tel.
+41 43 317 71 11
investor.relations@ch.abb.com
|
ABB
Ltd
Affolternstrasse
44
8050
Zurich
Switzerland
|
1
Q3
2016 Financial Information
—
Financial
Information
3
Key Figures
8
Interim
Consolidated
Financial
Information
(unaudited)
8 Interim
Consolidated
Income
Statements
9 Interim
Condensed
Consolidated
Statements
of
Comprehensive
Income
10 Interim
Consolidated
Balance
Sheets
11 Interim
Consolidated
Statements
of
Cash
Flows
12 Interim
Consolidated
Statements
of
Changes
in
Stockholders’
Equity
13
Notes
to
the
Interim
Consolidated
Financial
Information
32
Supplemental Reconciliations and Definitions
2
Q3
2016 Financial Information
—
Financial Information
Key Figures
|
|
|
|
|
CHANGE
|
|
($ in millions, unless otherwise indicated)
|
Q3
2016
|
Q3
2015
|
US$
|
Comparable
(1)
|
|
Orders
|
7,533
|
8,767
|
-14%
|
-13%
|
|
Order backlog (end September)
|
24,554
|
25,371
|
-3%
|
-2%
|
|
Revenues
|
8,255
|
8,519
|
-3%
|
0%
|
|
Operational EBITA
(1)
|
1,046
|
1,081
|
-3%
|
-2%
(2)
|
|
|
as % of operational revenues
(1)
|
12.6%
|
12.5%
|
+0.1
pts
|
|
|
Net income
|
568
|
577
|
-2%
|
|
|
Basic earnings per share ($)
|
0.27
|
0.26
|
2%
(3)
|
|
|
Operational earnings per share
(1)
($)
|
0.32
|
0.32
|
-1%
(3)
|
0%
(3)
|
|
Cash flow from operating activities
|
1,081
|
1,173
|
-8%
|
|
|
|
|
|
|
CHANGE
|
|
($ in millions, unless otherwise indicated)
|
9M
2016
|
9M
2015
|
US$
|
Comparable
(1)
|
|
Orders
|
25,102
|
28,167
|
-11%
|
-8%
|
|
Revenues
|
24,835
|
26,239
|
-5%
|
-1%
|
|
Operational EBITA
(1)
|
3,095
|
3,088
|
0%
|
3%
(2)
|
|
|
as % of operational revenues
(1)
|
12.4%
|
11.8%
|
+0.6pts
|
|
|
Net income
|
1,474
|
1,729
|
-15%
|
|
|
Basic earnings per share ($)
|
0.68
|
0.77
|
-12%
(3)
|
|
|
Operational earnings per share
(1)
($)
|
0.95
|
0.90
|
5%
(3)
|
7%
(3)
|
|
Cash flow from operating activities
|
2,415
|
1,824
|
32%
|
|
(1) For
a reconciliation of non-GAAP measures see “
Supplemental Reconciliations and Definitions
” on
page 32.
(2) Constant
currency (not adjusted for portfolio changes).
(3) Earnings
per share growth rates are computed using unrounded amounts. Comparable
Operational earnings per share growth is in constant currency (2014 foreign
exchange rates and not adjusted for changes in the business portfolio).
3
Q3
2016 Financial Information
|
|
|
|
CHANGE
|
|
($ in millions, unless otherwise indicated)
|
Q3
2016
|
Q3
2015
|
US$
|
Local
|
Comparable
|
|
Orders
|
ABB Group
|
7,533
|
8,767
|
-14%
|
-13%
|
-13%
|
|
|
Electrification Products
|
2,223
|
2,365
|
-6%
|
-4%
|
-4%
|
|
|
Discrete Automation and Motion
|
2,123
|
2,241
|
-5%
|
-4%
|
-4%
|
|
|
Process Automation
|
1,193
|
1,529
|
-22%
|
-21%
|
-21%
|
|
|
Power Grids
|
2,391
|
3,082
|
-22%
|
-21%
|
-21%
|
|
|
Corporate and Other
|
|
|
|
|
|
|
(incl. inter-division eliminations)
|
(397)
|
(450)
|
|
Third-party base orders
|
ABB Group
|
6,727
|
7,272
|
-7%
|
-6%
|
-6%
|
|
|
Electrification Products
|
2,095
|
2,173
|
-4%
|
-1%
|
-1%
|
|
|
Discrete Automation and Motion
|
1,899
|
1,983
|
-4%
|
-3%
|
-3%
|
|
|
Process Automation
|
1,128
|
1,316
|
-14%
|
-13%
|
-13%
|
|
|
Power Grids
|
1,588
|
1,782
|
-11%
|
-10%
|
-9%
|
|
|
Corporate and Other
|
17
|
18
|
|
|
|
|
Order backlog (end September)
|
ABB Group
|
24,554
|
25,371
|
-3%
|
-3%
|
-2%
|
|
|
Electrification Products
|
3,093
|
3,038
|
2%
|
3%
|
3%
|
|
|
Discrete Automation and Motion
|
4,458
|
4,601
|
-3%
|
-2%
|
-2%
|
|
|
Process Automation
|
5,675
|
6,322
|
-10%
|
-11%
|
-11%
|
|
|
Power Grids
|
13,063
|
13,117
|
0%
|
1%
|
2%
|
|
|
Corporate and Other
|
|
|
|
|
|
|
(incl. inter-division eliminations)
|
(1,735)
|
(1,707)
|
|
Revenues
|
ABB Group
|
8,255
|
8,519
|
-3%
|
-2%
|
0%
|
|
|
Electrification Products
|
2,308
|
2,353
|
-2%
|
0%
|
0%
|
|
|
Discrete Automation and Motion
|
2,203
|
2,220
|
-1%
|
0%
|
0%
|
|
|
Process Automation
|
1,523
|
1,659
|
-8%
|
-7%
|
-7%
|
|
|
Power Grids
|
2,636
|
2,791
|
-6%
|
-4%
|
1%
|
|
|
Corporate and Other
|
|
|
|
|
|
|
(incl. inter-division eliminations)
|
(415)
|
(504)
|
|
Operational EBITA
|
ABB Group
|
1,046
|
1,081
|
-3%
|
-2%
|
|
|
|
Electrification Products
|
411
|
410
|
0%
|
2%
|
|
|
|
Discrete Automation and Motion
|
311
|
335
|
-7%
|
-6%
|
|
|
|
Process Automation
|
187
|
181
|
3%
|
4%
|
|
|
|
Power Grids
|
254
|
221
|
15%
|
17%
|
|
|
|
Corporate and Other
|
|
|
|
|
|
|
(incl. inter-division eliminations)
|
(117)
|
(66)
|
|
Operational EBITA %
|
ABB Group
|
12.6%
|
12.5%
|
|
|
|
|
|
Electrification Products
|
17.8%
|
17.4%
|
|
|
|
|
|
Discrete Automation and Motion
|
14.1%
|
14.8%
|
|
|
|
|
|
Process Automation
|
12.2%
|
10.7%
|
|
|
|
|
|
Power Grids
|
9.5%
|
7.8%
|
|
|
|
|
Income from operations
|
ABB Group
|
878
|
882
|
|
|
|
|
|
Electrification Products
|
389
|
390
|
|
|
|
|
|
Discrete Automation and Motion
|
276
|
264
|
|
|
|
|
|
Process Automation
|
170
|
159
|
|
|
|
|
|
Power Grids
|
222
|
159
|
|
|
|
|
|
Corporate and Other
|
|
|
|
|
|
|
(incl. inter-division eliminations)
|
(179)
|
(90)
|
|
Income from operations %
|
ABB Group
|
10.6%
|
10.4%
|
|
|
|
|
|
Electrification Products
|
16.9%
|
16.6%
|
|
|
|
|
|
Discrete Automation and Motion
|
12.5%
|
11.9%
|
|
|
|
|
|
Process Automation
|
11.2%
|
9.6%
|
|
|
|
|
|
Power Grids
|
8.4%
|
5.7%
|
|
|
|
|
Cash flow from operating activities
|
ABB Group
|
1,081
|
1,173
|
|
|
|
|
|
Electrification Products
|
373
|
372
|
|
|
|
|
|
Discrete Automation and Motion
|
322
|
386
|
|
|
|
|
|
Process Automation
|
234
|
197
|
|
|
|
|
|
Power Grids
|
189
|
189
|
|
|
|
|
|
Corporate and Other
|
(37)
|
29
|
|
|
|
4
Q3
2016 Financial Information
|
|
|
|
CHANGE
|
|
($ in millions, unless otherwise indicated)
|
9M
2016
|
9M
2015
|
US$
|
Local
|
Comparable
|
|
Orders
|
ABB Group
|
25,102
|
28,167
|
-11%
|
-8%
|
-8%
|
|
|
Electrification Products
|
7,001
|
7,493
|
-7%
|
-3%
|
-3%
|
|
|
Discrete Automation and Motion
|
6,641
|
7,238
|
-8%
|
-6%
|
-6%
|
|
|
Process Automation
|
4,346
|
5,551
|
-22%
|
-19%
|
-19%
|
|
|
Power Grids
|
8,353
|
9,577
|
-13%
|
-11%
|
-10%
|
|
|
Corporate and Other
|
|
|
|
|
|
|
(incl. inter-division eliminations)
|
(1,239)
|
(1,692)
|
|
|
|
|
Third-party base orders
|
ABB Group
|
22,027
|
23,180
|
-5%
|
-2%
|
-2%
|
|
|
Electrification Products
|
6,606
|
6,948
|
-5%
|
-2%
|
-2%
|
|
|
Discrete Automation and Motion
|
5,957
|
6,267
|
-5%
|
-3%
|
-3%
|
|
|
Process Automation
|
3,809
|
4,246
|
-10%
|
-7%
|
-7%
|
|
|
Power Grids
|
5,612
|
5,663
|
-1%
|
2%
|
3%
|
|
|
Corporate and Other
|
43
|
56
|
|
|
|
|
Order backlog (end September)
|
ABB Group
|
24,554
|
25,371
|
-3%
|
-3%
|
-2%
|
|
|
Electrification Products
|
3,093
|
3,038
|
2%
|
3%
|
3%
|
|
|
Discrete Automation and Motion
|
4,458
|
4,601
|
-3%
|
-2%
|
-2%
|
|
|
Process Automation
|
5,675
|
6,322
|
-10%
|
-11%
|
-11%
|
|
|
Power Grids
|
13,063
|
13,117
|
0%
|
1%
|
2%
|
|
|
Corporate and Other
|
|
|
|
|
|
|
(incl. inter-division eliminations)
|
(1,735)
|
(1,707)
|
|
Revenues
|
ABB Group
|
24,835
|
26,239
|
-5%
|
-2%
|
-1%
|
|
|
Electrification Products
|
6,830
|
7,088
|
-4%
|
0%
|
0%
|
|
|
Discrete Automation and Motion
|
6,503
|
6,839
|
-5%
|
-3%
|
-3%
|
|
|
Process Automation
|
4,861
|
5,298
|
-8%
|
-5%
|
-5%
|
|
|
Power Grids
|
7,933
|
8,514
|
-7%
|
-4%
|
0%
|
|
|
Corporate and Other
|
|
|
|
|
|
|
(incl. inter-division eliminations)
|
(1,292)
|
(1,500)
|
|
Operational EBITA
|
ABB Group
|
3,095
|
3,088
|
0%
|
3%
|
|
|
|
Electrification Products
|
1,143
|
1,161
|
-2%
|
1%
|
|
|
|
Discrete Automation and Motion
|
896
|
992
|
-10%
|
-8%
|
|
|
|
Process Automation
|
593
|
624
|
-5%
|
-2%
|
|
|
|
Power Grids
|
706
|
581
|
22%
|
24%
|
|
|
|
Corporate and Other
|
|
|
|
|
|
|
(incl. inter-division eliminations)
|
(243)
|
(270)
|
|
Operational EBITA %
|
ABB Group
|
12.4%
|
11.8%
|
|
|
|
|
|
Electrification Products
|
16.7%
|
16.4%
|
|
|
|
|
|
Discrete Automation and Motion
|
13.8%
|
14.5%
|
|
|
|
|
|
Process Automation
|
12.1%
|
11.8%
|
|
|
|
|
|
Power Grids
|
8.9%
|
6.8%
|
|
|
|
|
Income from operations
|
ABB Group
|
2,309
|
2,702
|
|
|
|
|
|
Electrification Products
|
1,016
|
1,089
|
|
|
|
|
|
Discrete Automation and Motion
|
742
|
857
|
|
|
|
|
|
Process Automation
|
452
|
580
|
|
|
|
|
|
Power Grids
|
554
|
468
|
|
|
|
|
|
Corporate and Other
|
|
|
|
|
|
|
(incl. inter-division eliminations)
|
(455)
|
(292)
|
|
|
|
|
Income from operations %
|
ABB Group
|
9.3%
|
10.3%
|
|
|
|
|
|
Electrification Products
|
14.9%
|
15.4%
|
|
|
|
|
|
Discrete Automation and Motion
|
11.4%
|
12.5%
|
|
|
|
|
|
Process Automation
|
9.3%
|
10.9%
|
|
|
|
|
|
Power Grids
|
7.0%
|
5.5%
|
|
|
|
|
Cash flow from operating activities
|
ABB Group
|
2,415
|
1,824
|
|
|
|
|
|
Electrification Products
|
770
|
774
|
|
|
|
|
|
Discrete Automation and Motion
|
694
|
834
|
|
|
|
|
|
Process Automation
|
542
|
316
|
|
|
|
|
|
Power Grids
|
561
|
135
|
|
|
|
|
|
Corporate and Other
|
(152)
|
(235)
|
|
|
|
5
Q3
2016 Financial Information
|
|
|
Electrification
|
Discrete
Automation
|
Process
|
Power
|
|
($ in millions, unless otherwise indicated)
|
ABB
|
Products
|
and
Motion
|
Automation
|
Grids
|
|
|
Q3
16
|
Q3
15
|
Q3
16
|
Q3
15
|
Q3
16
|
Q3
15
|
Q3
16
|
Q3
15
|
Q3
16
|
Q3
15
|
|
Revenues
|
8,255
|
8,519
|
2,308
|
2,353
|
2,203
|
2,220
|
1,523
|
1,659
|
2,636
|
2,791
|
|
FX/commodity timing
|
|
|
|
|
|
|
|
|
|
|
|
differences in total revenues
|
43
|
113
|
5
|
–
|
4
|
37
|
8
|
32
|
25
|
43
|
|
Operational revenues
|
8,298
|
8,632
|
2,313
|
2,353
|
2,207
|
2,257
|
1,531
|
1,691
|
2,661
|
2,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
878
|
882
|
389
|
390
|
276
|
264
|
170
|
159
|
222
|
159
|
|
Acquisition-related amortization
|
70
|
74
|
24
|
25
|
30
|
31
|
3
|
3
|
9
|
10
|
|
Restructuring and
|
|
|
|
|
|
|
|
|
|
|
|
restructuring-related expenses
(1)
|
39
|
59
|
(7)
|
10
|
(4)
|
16
|
7
|
3
|
12
|
13
|
|
Gains and losses from sale of businesses,
|
|
|
|
|
|
|
|
|
|
|
|
acquisition-related expenses and certain
|
|
|
|
|
|
|
|
|
|
|
|
non-operational items
|
35
|
(6)
|
1
|
(1)
|
4
|
–
|
–
|
1
|
2
|
5
|
|
FX/commodity timing
|
|
|
|
|
|
|
|
|
|
|
|
differences in income from operations
|
24
|
72
|
4
|
(14)
|
5
|
24
|
7
|
15
|
9
|
34
|
|
Operational EBITA
|
1,046
|
1,081
|
411
|
410
|
311
|
335
|
187
|
181
|
254
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%)
|
12.6%
|
12.5%
|
17.8%
|
17.4%
|
14.1%
|
14.8%
|
12.2%
|
10.7%
|
9.5%
|
7.8%
|
|
|
|
Electrification
|
Discrete
Automation
|
Process
|
Power
|
|
($ in millions, unless otherwise indicated)
|
ABB
|
Products
|
and
Motion
|
Automation
|
Grids
|
|
|
9M
16
|
9M
15
|
9M
16
|
9M
15
|
9M
16
|
9M
15
|
9M
16
|
9M
15
|
9M
16
|
9M
15
|
|
Revenues
|
24,835
|
26,239
|
6,830
|
7,088
|
6,503
|
6,839
|
4,861
|
5,298
|
7,933
|
8,514
|
|
FX/commodity timing
|
|
|
|
|
|
|
|
|
|
|
|
differences in total revenues
|
61
|
(24)
|
–
|
(7)
|
(2)
|
–
|
32
|
–
|
30
|
(17)
|
|
Operational revenues
|
24,896
|
26,215
|
6,830
|
7,081
|
6,501
|
6,839
|
4,893
|
5,298
|
7,963
|
8,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
2,309
|
2,702
|
1,016
|
1,089
|
742
|
857
|
452
|
580
|
554
|
468
|
|
Acquisition-related amortization
|
212
|
237
|
72
|
76
|
91
|
96
|
9
|
9
|
27
|
42
|
|
Restructuring and
|
|
|
|
|
|
|
|
|
|
|
|
restructuring-related expenses
(1)
|
475
|
143
|
48
|
20
|
57
|
44
|
100
|
24
|
106
|
38
|
|
Gains and losses from sale of businesses,
|
|
|
|
|
|
|
|
|
|
|
|
acquisition-related expenses and certain
|
|
|
|
|
|
|
|
|
|
|
|
non-operational items
|
46
|
44
|
1
|
–
|
4
|
–
|
–
|
19
|
6
|
38
|
|
FX/commodity timing
|
|
|
|
|
|
|
|
|
|
|
|
differences in income from operations
|
53
|
(38)
|
6
|
(24)
|
2
|
(5)
|
32
|
(8)
|
13
|
(5)
|
|
Operational EBITA
|
3,095
|
3,088
|
1,143
|
1,161
|
896
|
992
|
593
|
624
|
706
|
581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%)
|
12.4%
|
11.8%
|
16.7%
|
16.4%
|
13.8%
|
14.5%
|
12.1%
|
11.8%
|
8.9%
|
6.8%
|
(1)
Amounts also include the incremental implementation costs in relation to the
White Collar Productivity program.
Depreciation
and Amortization
|
|
|
|
|
Electrification
|
Discrete
Automation
|
Process
|
Power
|
|
($ in millions)
|
ABB
|
Products
|
and
Motion
|
Automation
|
Grids
|
|
|
Q3
16
|
Q3
15
|
Q3
16
|
Q3
15
|
Q3
16
|
Q3
15
|
Q3
16
|
Q3
15
|
Q3
16
|
Q3
15
|
|
Depreciation
|
195
|
188
|
50
|
51
|
40
|
37
|
15
|
14
|
51
|
49
|
|
Amortization
|
91
|
96
|
27
|
27
|
34
|
37
|
4
|
5
|
16
|
15
|
|
including total acquisition-related amortization of:
|
70
|
74
|
24
|
25
|
30
|
31
|
3
|
3
|
9
|
10
|
|
|
|
Electrification
|
Discrete
Automation
|
Process
|
Power
|
|
($ in millions)
|
ABB
|
Products
|
and
Motion
|
Automation
|
Grids
|
|
|
9M
16
|
9M
15
|
9M
16
|
9M
15
|
9M
16
|
9M
15
|
9M
16
|
9M
15
|
9M
16
|
9M
15
|
|
Depreciation
|
576
|
572
|
150
|
155
|
118
|
110
|
44
|
45
|
151
|
153
|
|
Amortization
|
277
|
300
|
80
|
83
|
103
|
110
|
13
|
14
|
49
|
59
|
|
including total acquisition-related amortization of:
|
212
|
237
|
72
|
76
|
91
|
96
|
9
|
9
|
27
|
42
|
6
Q3
2016 Financial Information
Orders received and revenues by region
|
|
($ in millions, unless otherwise indicated)
|
Orders
received
|
CHANGE
|
Revenues
|
CHANGE
|
|
|
|
|
|
|
Com-
|
|
|
|
|
Com-
|
|
Q3
16
|
Q3
15
|
US$
|
Local
|
parable
|
Q3
16
|
Q3
15
|
US$
|
Local
|
parable
|
|
Europe
|
2,336
|
2,909
|
-20%
|
-19%
|
-18%
|
2,733
|
2,821
|
-3%
|
-1%
|
3%
|
|
The Americas
|
2,208
|
2,660
|
-17%
|
-16%
|
-16%
|
2,456
|
2,569
|
-4%
|
-3%
|
-3%
|
|
Asia, Middle East and Africa
|
2,989
|
3,198
|
-7%
|
-5%
|
-5%
|
3,066
|
3,129
|
-2%
|
0%
|
0%
|
|
ABB Group
|
7,533
|
8,767
|
-14%
|
-13%
|
-13%
|
8,255
|
8,519
|
-3%
|
-2%
|
0%
|
|
($ in millions, unless otherwise indicated)
|
Orders
received
|
CHANGE
|
Revenues
|
CHANGE
|
|
|
|
|
|
|
Com-
|
|
|
|
|
Com-
|
|
9M
16
|
9M
15
|
US$
|
Local
|
parable
|
9M
16
|
9M
15
|
US$
|
Local
|
parable
|
|
Europe
|
8,684
|
9,680
|
-10%
|
-8%
|
-8%
|
8,299
|
8,574
|
-3%
|
-1%
|
3%
|
|
The Americas
|
6,864
|
8,014
|
-14%
|
-12%
|
-12%
|
7,272
|
7,927
|
-8%
|
-5%
|
-5%
|
|
Asia, Middle East and Africa
|
9,554
|
10,473
|
-9%
|
-5%
|
-5%
|
9,264
|
9,738
|
-5%
|
-2%
|
-2%
|
|
ABB Group
|
25,102
|
28,167
|
-11%
|
-8%
|
-8%
|
24,835
|
26,239
|
-5%
|
-2%
|
-1%
|
7
Q3
2016 Financial Information
—
Financial Information
Interim Consolidated Financial Information
|
ABB Ltd Interim Consolidated Income
Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended
|
Three
months ended
|
|
($ in millions, except per share data in $)
|
Sep.
30, 2016
|
Sep.
30, 2015
|
Sep.
30, 2016
|
Sep.
30, 2015
|
|
Sales of products
|
20,477
|
21,878
|
6,802
|
7,116
|
|
Sales of services and software
|
4,358
|
4,361
|
1,453
|
1,403
|
|
Total revenues
|
24,835
|
26,239
|
8,255
|
8,519
|
|
Cost of sales of products
|
(14,980)
|
(15,874)
|
(4,911)
|
(5,163)
|
|
Cost of services and software
|
(2,623)
|
(2,626)
|
(885)
|
(838)
|
|
Total cost of sales
|
(17,603)
|
(18,500)
|
(5,796)
|
(6,001)
|
|
Gross profit
|
7,232
|
7,739
|
2,459
|
2,518
|
|
Selling, general and administrative expenses
|
(3,955)
|
(3,994)
|
(1,280)
|
(1,307)
|
|
Non-order related research and development expenses
|
(951)
|
(998)
|
(303)
|
(322)
|
|
Other income (expense), net
|
(17)
|
(45)
|
2
|
(7)
|
|
Income from operations
|
2,309
|
2,702
|
878
|
882
|
|
Interest and dividend income
|
54
|
56
|
16
|
18
|
|
Interest and other finance expense
|
(230)
|
(223)
|
(84)
|
(64)
|
|
Income from continuing operations
before taxes
|
2,133
|
2,535
|
810
|
836
|
|
Provision for taxes
|
(587)
|
(722)
|
(237)
|
(229)
|
|
Income from continuing operations,
net of tax
|
1,546
|
1,813
|
573
|
607
|
|
Income from discontinued operations, net of tax
|
14
|
2
|
16
|
–
|
|
Net income
|
1,560
|
1,815
|
589
|
607
|
|
Net income attributable to noncontrolling interests
|
(86)
|
(86)
|
(21)
|
(30)
|
|
Net income attributable to ABB
|
1,474
|
1,729
|
568
|
577
|
|
|
|
|
|
|
|
Amounts attributable to ABB
shareholders:
|
|
|
|
|
|
Income from continuing operations, net of tax
|
1,460
|
1,727
|
552
|
577
|
|
Net income
|
1,474
|
1,729
|
568
|
577
|
|
|
|
|
|
|
|
Basic earnings per share
attributable to ABB shareholders:
|
|
|
|
|
|
Income from continuing operations, net of tax
|
0.68
|
0.77
|
0.26
|
0.26
|
|
Net income
|
0.68
|
0.77
|
0.27
|
0.26
|
|
|
|
|
|
|
|
Diluted earnings per share
attributable to ABB shareholders:
|
|
|
|
|
|
Income from continuing operations, net of tax
|
0.68
|
0.77
|
0.26
|
0.26
|
|
Net income
|
0.68
|
0.77
|
0.27
|
0.26
|
|
|
|
|
|
|
|
Weighted-average number of shares
outstanding (in millions) used to compute:
|
|
|
|
|
|
Basic earnings per share attributable to ABB shareholders
|
2,155
|
2,234
|
2,135
|
2,219
|
|
Diluted earnings per share attributable to ABB shareholders
|
2,159
|
2,239
|
2,139
|
2,223
|
|
|
|
|
|
|
|
See Notes to the Interim Consolidated Financial Information
|
|
|
|
|
8
Q3
2016 Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
ABB Ltd Interim Condensed
Consolidated Statements of Comprehensive
|
|
Income (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended
|
Three
months ended
|
|
($ in millions)
|
Sep.
30, 2016
|
Sep.
30, 2015
|
Sep.
30, 2016
|
Sep.
30, 2015
|
|
Total comprehensive income, net of
tax
|
1,767
|
1,162
|
592
|
303
|
|
Total comprehensive income attributable to noncontrolling
interests, net of tax
|
(87)
|
(73)
|
(22)
|
(21)
|
|
Total comprehensive income
attributable to ABB shareholders, net of tax
|
1,680
|
1,089
|
570
|
282
|
|
|
|
|
|
|
|
See Notes to the Interim Consolidated Financial Information
|
|
|
|
|
9
Q3
2016 Financial Information
|
—
|
|
|
|
ABB Ltd Interim Consolidated Balance
Sheets (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions, except share data)
|
Sep.
30, 2016
|
Dec.
31, 2015
|
|
Cash and equivalents
|
3,538
|
4,565
|
|
Marketable securities and short-term investments
|
1,827
|
1,633
|
|
Receivables, net
|
10,155
|
10,061
|
|
Inventories, net
|
5,017
|
4,757
|
|
Prepaid expenses
|
242
|
225
|
|
Deferred taxes
|
858
|
881
|
|
Other current assets
|
631
|
638
|
|
Assets held for sale
|
634
|
–
|
|
Total current assets
|
22,902
|
22,760
|
|
|
|
|
|
Property, plant and equipment, net
|
4,861
|
5,276
|
|
Goodwill
|
9,639
|
9,671
|
|
Other intangible assets, net
|
2,102
|
2,337
|
|
Prepaid pension and other employee benefits
|
69
|
68
|
|
Investments in equity-accounted companies
|
173
|
178
|
|
Deferred taxes
|
490
|
423
|
|
Other non-current assets
|
573
|
643
|
|
Total assets
|
40,809
|
41,356
|
|
|
|
|
|
Accounts payable, trade
|
4,458
|
4,342
|
|
Billings in excess of sales
|
1,330
|
1,375
|
|
Short-term debt and current maturities of long-term debt
|
1,402
|
1,454
|
|
Advances from customers
|
1,591
|
1,598
|
|
Deferred taxes
|
228
|
249
|
|
Provisions for warranties
|
1,104
|
1,089
|
|
Other provisions
|
1,938
|
1,920
|
|
Other current liabilities
|
3,897
|
3,817
|
|
Liabilities held for sale
|
229
|
–
|
|
Total current liabilities
|
16,177
|
15,844
|
|
|
|
|
|
Long-term debt
|
6,319
|
5,985
|
|
Pension and other employee benefits
|
1,810
|
1,924
|
|
Deferred taxes
|
968
|
965
|
|
Other non-current liabilities
|
1,622
|
1,650
|
|
Total liabilities
|
26,896
|
26,368
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
Capital stock and additional paid-in capital
|
|
|
|
(2,214,743,264 and 2,314,743,264 issued shares at September 30,
2016, and December 31, 2015, respectively)
|
208
|
1,444
|
|
Retained earnings
|
19,500
|
20,476
|
|
Accumulated other comprehensive loss
|
(4,652)
|
(4,858)
|
|
Treasury stock, at cost
|
|
|
|
(78,817,923 and 123,118,123 shares at September 30, 2016, and
December 31, 2015, respectively)
|
(1,616)
|
(2,581)
|
|
Total ABB stockholders’ equity
|
13,440
|
14,481
|
|
Noncontrolling interests
|
473
|
507
|
|
Total stockholders’ equity
|
13,913
|
14,988
|
|
Total liabilities and stockholders’
equity
|
40,809
|
41,356
|
|
|
|
|
|
See Notes to the Interim Consolidated Financial Information
|
|
|
10
Q3
2016 Financial Information
|
—
|
|
|
|
|
|
ABB Ltd Interim Consolidated
Statements of Cash Flows (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended
|
Three
months ended
|
|
($ in millions)
|
Sep.
30, 2016
|
Sep.
30, 2015
|
Sep.
30, 2016
|
Sep.
30, 2015
|
|
Operating activities:
|
|
|
|
|
|
Net income
|
1,560
|
1,815
|
589
|
607
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
853
|
872
|
286
|
284
|
|
Deferred taxes
|
(108)
|
(26)
|
19
|
(7)
|
|
Net loss (gain) from sale of property, plant and equipment
|
(33)
|
(21)
|
(25)
|
(2)
|
|
Net loss (gain) from sale of businesses
|
–
|
19
|
–
|
15
|
|
Net loss (gain) from derivatives and foreign exchange
|
58
|
(38)
|
10
|
54
|
|
Other
|
110
|
130
|
41
|
21
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Trade receivables, net
|
(68)
|
(201)
|
163
|
218
|
|
Inventories, net
|
(261)
|
(404)
|
(57)
|
(103)
|
|
Trade payables
|
153
|
(128)
|
(14)
|
(89)
|
|
Accrued liabilities
|
14
|
(22)
|
179
|
164
|
|
Billings in excess of sales
|
4
|
90
|
(5)
|
(29)
|
|
Provisions, net
|
(5)
|
(157)
|
(112)
|
(50)
|
|
Advances from customers
|
(20)
|
(6)
|
2
|
52
|
|
Income taxes payable and receivable
|
123
|
(73)
|
2
|
15
|
|
Other assets and liabilities, net
|
35
|
(26)
|
3
|
23
|
|
Net cash provided by operating
activities
|
2,415
|
1,824
|
1,081
|
1,173
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
Purchases of marketable securities (available-for-sale)
|
(821)
|
(1,098)
|
(410)
|
(236)
|
|
Purchases of short-term investments
|
(2,172)
|
(546)
|
(803)
|
(65)
|
|
Purchases of property, plant and equipment and intangible assets
|
(532)
|
(547)
|
(184)
|
(189)
|
|
Acquisition of businesses (net of cash acquired)
|
|
|
|
|
|
and increases in cost- and equity-accounted companies
|
(24)
|
(44)
|
(5)
|
(3)
|
|
Proceeds from sales of marketable securities
(available-for-sale)
|
773
|
379
|
735
|
20
|
|
Proceeds from maturity of marketable securities
(available-for-sale)
|
539
|
627
|
–
|
133
|
|
Proceeds from short-term investments
|
1,450
|
628
|
917
|
116
|
|
Proceeds from sales of property, plant and equipment
|
52
|
44
|
24
|
20
|
|
Proceeds from sales of businesses (net of transaction costs
|
|
|
|
|
|
and cash disposed) and cost- and equity-accounted companies
|
(1)
|
69
|
(3)
|
68
|
|
Net cash from settlement of foreign currency derivatives
|
(34)
|
208
|
(13)
|
23
|
|
Other investing activities
|
13
|
15
|
5
|
–
|
|
Net cash provided by (used in)
investing activities
|
(757)
|
(265)
|
263
|
(113)
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
Net changes in debt with original maturities of 90 days or less
|
9
|
75
|
(282)
|
(341)
|
|
Increase in debt
|
905
|
55
|
53
|
4
|
|
Repayment of debt
|
(735)
|
(78)
|
(71)
|
(16)
|
|
Delivery of shares
|
143
|
107
|
142
|
–
|
|
Purchase of treasury stock
|
(1,299)
|
(1,048)
|
(102)
|
(150)
|
|
Dividends paid
|
–
|
(1,357)
|
–
|
–
|
|
Reduction in nominal value of common shares paid to shareholders
|
(1,610)
|
(392)
|
(1,610)
|
(392)
|
|
Dividends paid to noncontrolling shareholders
|
(121)
|
(131)
|
(14)
|
(26)
|
|
Other financing activities
|
(21)
|
(18)
|
(9)
|
(24)
|
|
Net cash used in financing
activities
|
(2,729)
|
(2,787)
|
(1,893)
|
(945)
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash and equivalents
|
44
|
(245)
|
2
|
(99)
|
|
Net change in cash and equivalents –
continuing operations
|
(1,027)
|
(1,473)
|
(547)
|
16
|
|
|
|
|
|
|
|
Cash and equivalents, beginning of period
|
4,565
|
5,443
|
4,085
|
3,954
|
|
Cash and equivalents, end of period
|
3,538
|
3,970
|
3,538
|
3,970
|
|
|
|
|
|
|
|
Supplementary disclosure of cash
flow information:
|
|
|
|
|
|
Interest paid
|
144
|
151
|
21
|
21
|
|
Taxes paid
|
591
|
836
|
230
|
220
|
|
|
|
|
|
|
|
See Notes to the Interim Consolidated Financial Information
|
|
|
|
|
11
Q3
2016 Financial Information
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
ABB Ltd Interim Consolidated
Statements of Changes in Stockholders’ Equity (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive loss
|
|
|
|
|
|
($ in millions)
|
Capital stock and
additional paid‑in capital
|
Retained earnings
|
Foreign currency
translation adjustments
|
Unrealized gains (losses) on available‑for‑sale
securities
|
Pension and other post‑
retirement plan adjustments
|
Unrealized gains (losses) of
cash flow hedge derivatives
|
Total accumulated other
comprehensive loss
|
Treasury stock
|
Total ABB
stockholders’ equity
|
Noncontrolling interests
|
Total stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015
|
1,777
|
19,939
|
(2,102)
|
13
|
(2,131)
|
(21)
|
(4,241)
|
(1,206)
|
16,269
|
546
|
16,815
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
1,729
|
|
|
|
|
|
|
1,729
|
86
|
1,815
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments, net of tax of $(3)
|
|
|
(831)
|
|
|
|
(831)
|
|
(831)
|
(13)
|
(844)
|
|
Effect of change in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax of $0
|
|
|
|
(2)
|
|
|
(2)
|
|
(2)
|
|
(2)
|
|
Unrecognized income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
related to pensions and other
|
|
|
|
|
|
|
|
|
|
|
|
|
postretirement plans,
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax of $65
|
|
|
|
|
179
|
|
179
|
|
179
|
|
179
|
|
Change in derivatives qualifying as
|
|
|
|
|
|
|
|
|
|
|
|
|
cash flow hedges, net of tax of $(1)
|
|
|
|
|
|
14
|
14
|
|
14
|
|
14
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
1,089
|
73
|
1,162
|
|
Changes in noncontrolling interests
|
|
|
|
|
|
|
|
|
–
|
(2)
|
(2)
|
|
Dividends paid to
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling shareholders
|
|
|
|
|
|
|
|
|
–
|
(137)
|
(137)
|
|
Dividends paid
|
|
(1,317)
|
|
|
|
|
|
|
(1,317)
|
|
(1,317)
|
|
Reduction in nominal value of common
|
|
|
|
|
|
|
|
|
|
|
|
|
shares paid to shareholders
|
(349)
|
(54)
|
|
|
|
|
|
|
(403)
|
|
(403)
|
|
Share-based payment arrangements
|
43
|
|
|
|
|
|
|
|
43
|
|
43
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
(1,047)
|
(1,047)
|
|
(1,047)
|
|
Delivery of shares
|
(17)
|
|
|
|
|
|
|
124
|
107
|
|
107
|
|
Call options
|
4
|
|
|
|
|
|
|
|
4
|
|
4
|
|
Balance at September 30, 2015
|
1,458
|
20,297
|
(2,933)
|
11
|
(1,952)
|
(7)
|
(4,881)
|
(2,129)
|
14,745
|
480
|
15,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016
|
1,444
|
20,476
|
(3,135)
|
7
|
(1,719)
|
(11)
|
(4,858)
|
(2,581)
|
14,481
|
507
|
14,988
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
1,474
|
|
|
|
|
|
|
1,474
|
86
|
1,560
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments, net of tax of $11
|
|
|
97
|
|
|
|
97
|
|
97
|
1
|
98
|
|
Effect of change in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax of $1
|
|
|
|
7
|
|
|
7
|
|
7
|
|
7
|
|
Unrecognized income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
related to pensions and other
|
|
|
|
|
|
|
|
|
|
|
|
|
postretirement plans,
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax of $23
|
|
|
|
|
89
|
|
89
|
|
89
|
|
89
|
|
Change in derivatives qualifying as
|
|
|
|
|
|
|
|
|
|
|
|
|
cash flow hedges, net of tax of $4
|
|
|
|
|
|
13
|
13
|
|
13
|
|
13
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
1,680
|
87
|
1,767
|
|
Dividends paid to
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling shareholders
|
|
|
|
|
|
|
|
|
–
|
(121)
|
(121)
|
|
Reduction in nominal value of common
|
|
|
|
|
|
|
|
|
|
|
|
|
shares paid to shareholders
|
(1,224)
|
(402)
|
|
|
|
|
|
|
(1,626)
|
|
(1,626)
|
|
Cancellation of treasury shares
|
(40)
|
(2,007)
|
|
|
|
|
|
2,047
|
–
|
|
–
|
|
Share-based payment arrangements
|
37
|
|
|
|
|
|
|
|
37
|
|
37
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
(1,280)
|
(1,280)
|
|
(1,280)
|
|
Delivery of shares
|
(14)
|
(41)
|
|
|
|
|
|
198
|
143
|
|
143
|
|
Call options
|
5
|
|
|
|
|
|
|
|
5
|
|
5
|
|
Balance at September 30, 2016
|
208
|
19,500
|
(3,038)
|
14
|
(1,630)
|
2
|
(4,652)
|
(1,616)
|
13,440
|
473
|
13,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to the Interim Consolidated Financial Information
|
12
Q3
2016 Financial Information
—
Notes to the Interim Consolidated Financial Information
(unaudited)
Note 1
The Company and basis
of presentation
|
ABB Ltd and its subsidiaries (collectively, the Company)
together form a pioneering technology leader in electrification products,
robotics and motion, industrial automation and power grids serving customers
in utilities, industry and transport & infrastructure globally.
The Company’s Interim Consolidated Financial Information is
prepared in accordance with United States of America generally accepted
accounting principles (U.S. GAAP) for interim financial reporting. As such,
the Interim Consolidated Financial Information does not include all the
information and notes required under U.S. GAAP for annual consolidated
financial statements. Therefore, such financial information should be read in
conjunction with the audited consolidated financial statements in the
Company’s Annual Report for the year ended December 31, 2015.
The preparation of financial information in conformity with
U.S. GAAP requires management to make assumptions and estimates that directly
affect the amounts reported in the Interim Consolidated Financial
Information. The most significant, difficult and subjective of such
accounting assumptions and estimates include:
·
assumptions and projections, principally related to future
material, labor and project-related overhead costs, used in determining the
percentage-of-completion on projects,
·
estimates of loss contingencies associated with litigation
or threatened litigation and other claims and inquiries, environmental
damages, product warranties, self-insurance reserves, regulatory and other
proceedings,
·
assumptions used in the calculation of pension and
postretirement benefits and the fair value of pension plan assets,
·
estimates used to record expected costs for employee
severance in connection with restructuring programs,
·
recognition and measurement of current and deferred income
tax assets and liabilities (including the measurement of uncertain tax
positions),
·
growth rates, discount rates and other assumptions used in
testing goodwill for impairment,
·
assumptions used in determining inventory obsolescence and
net realizable value,
·
estimates and assumptions used in determining the fair
values of assets and liabilities assumed in business combinations,
·
growth rates, discount rates and other assumptions used to
determine impairment of long-lived assets, and
·
assessment of the allowance for doubtful accounts.
The actual results and outcomes may differ from the
Company’s estimates and assumptions.
A portion of the Company’s activities (primarily long-term
construction activities) has an operating cycle that exceeds one year. For
classification of current assets and liabilities related to such activities,
the Company elected to use the duration of the individual contracts as its
operating cycle. Accordingly, there are accounts receivable, inventories and
provisions related to these contracts which will not be realized within one
year that have been classified as current.
In September 2016, the Company announced an agreement to
divest its cables business. The assets and liabilities of this business are
shown as assets and liabilities held for sale in the Company’s Interim
Consolidated Balance Sheet at September 30, 2016.
In the opinion of management, the unaudited Interim
Consolidated Financial Information contains all necessary adjustments to
present fairly the financial position, results of operations and cash flows
for the reported interim periods. Management considers all such adjustments
to be of a normal recurring nature.
The Interim Consolidated Financial Information is presented
in United States dollars ($) unless otherwise stated.
|
Note 2
Recent accounting pronouncements
|
|
Applicable
for
current
periods
|
Disclosures for investments in certain entities that
calculate net asset value per share (or its equivalent)
As of January 1, 2016, the Company adopted an accounting
standard update regarding fair value disclosures for certain investments.
Under the update, the Company is no longer required to categorize within the
fair value hierarchy any investments for which fair value is measured using
the net asset value per share practical expedient. The amendments also
removed the requirement to make certain disclosures for investments that are
eligible to be measured at fair value using the net asset value per share
practical expedient. Rather, those disclosures are limited to investments for
which the Company has elected to measure the fair value using that practical
expedient. This update was applied retrospectively and did not have a
significant impact on the consolidated financial statements.
Simplifying the measurement of inventory
As of January 1, 2016, the Company early-adopted an
accounting standard update simplifying the subsequent measurement of
inventories by replacing the current lower of cost or market test with a
lower of cost and net realizable value test. The guidance applies only to
inventories for which cost is determined by methods other than last-in
first-out and the retail inventory methods. Net realizable value is the
estimated selling price in the ordinary course of business, less reasonably
predictable costs of completion, disposal and transportation. The update was
applied prospectively and did not have a significant impact on the
consolidated financial statements.
|
13
Q3
2016 Financial Information
Applicable for future periods
|
Revenue
from
contracts
with
customers
In May 2014, an accounting standard update was issued to
clarify the principles for recognizing revenues from contracts with
customers. The update, which supersedes substantially all existing revenue
recognition guidance, provides a single comprehensive model for recognizing
revenues on the transfer of promised goods or services to customers in an
amount that reflects the consideration that is expected to be received for
those goods or services. Under the standard it is possible that more
judgments and estimates would be required than under existing standards,
including identifying the separate performance obligations in a contract,
estimating any variable consideration elements, and allocating the
transaction price to each separate performance obligation. The update also
requires additional disclosures about the nature, amount, timing and
uncertainty of revenue and cash flows arising from contracts with customers.
Further updates were issued in 2016 to clarify the guidance on identifying
performance obligations and licensing, to enhance the implementation guidance
on principal versus agent considerations and to add other practical
expedients.
In August 2015, the effective date for the update was
deferred and the update is now effective for the Company for annual and
interim periods beginning January 1, 2018, and is to be applied either (i)
retrospectively to each prior reporting period presented, with the option to
elect certain defined practical expedients, or (ii) retrospectively with the
cumulative effect of initially applying the update recognized at the date of
adoption in retained earnings (with additional disclosure as to the impact on
individual financial statement lines affected). Early adoption of the
standard is permitted for annual reporting periods beginning after December
15, 2016, including interim reporting periods within that reporting period.
The Company currently plans to adopt these updates as of
January 1, 2018, pursuant to the aforementioned adoption method (ii) and
currently does not anticipate these updates will have a significant impact on
its consolidated financial statements. The Company continues to evaluate the
expected impacts of the adoption of these updates and the expected impacts
are subject to change.
Balance sheet classification of deferred taxes
In November 2015, an accounting standard update was issued
which removes the requirement to separate deferred tax liabilities and assets
into current and noncurrent amounts and instead requires all such amounts, as
well as any related valuation allowance, to be classified as noncurrent in
the balance sheet. This update is effective for the Company for annual and
interim periods beginning January 1, 2017, with early adoption permitted, and
is applicable either prospectively to all deferred tax liabilities and assets
or retrospectively to all periods presented. The Company will adopt this update
as of January 1, 2017, on a retrospective basis and expects the balance of
deferred tax assets and liabilities to decrease by approximately USD 300
million due to additional netting impacts.
Recognition and measurement of financial assets and
financial liabilities
In January 2016, an accounting standard update was issued
to enhance the reporting model for financial instruments, which includes
amendments to address aspects of recognition, measurement, presentation and
disclosure. For example, the Company would be required to measure equity
investments (except those accounted for under the equity method) at fair
value with changes in fair value recognized in net income and to present
separately financial assets and financial liabilities by measurement category
and form of financial asset. This update is effective for the Company for
annual and interim periods beginning January 1, 2018, with early adoption
permitted for certain provisions. The Company is currently evaluating the
impact of this update on its consolidated financial statements.
Leases
In February 2016, an accounting standard update was issued
that requires lessees to recognize lease assets and corresponding lease
liabilities on the balance sheet for all leases with terms of more than 12
months. The update, which supersedes existing lease guidance, will continue
to classify leases as either finance or operating, with the classification
determining the pattern of expense recognition in the income statement. This
update is effective for the Company for annual and interim periods beginning
January 1, 2019, with early adoption permitted, and is applicable on a
modified retrospective basis with various optional practical expedients. The
Company is currently evaluating the impact of this update on its consolidated
financial statements.
Simplifying the transition to the equity method of
accounting
In March 2016, an accounting standard update was issued
which eliminates the retroactive adjustments to an investment upon it
qualifying for the equity method of accounting as a result of an increase in
the level of ownership interest or degree of influence by the investor. It
requires that the equity method investor add the cost of acquiring the
additional interest in the investee to the current basis of the investor’s
previously held interest and adopt the equity method of accounting as of the
date the investment qualifies for equity method accounting. This update is
effective for the Company for annual and interim periods beginning January 1,
2017, with early adoption permitted, and is applicable prospectively. The
Company does not believe that this update will have a significant impact on
its consolidated financial statements.
Improvements to employee share-based payment accounting
In March 2016, an accounting standard update was issued
which changes the accounting for certain aspects of share-based payment
awards to employees, including the accounting for income taxes, forfeitures,
and statutory tax withholding requirements, as well as the classification in the
statement of cash flows. This update is effective for the Company for annual
and interim periods beginning January 1, 2017, with early adoption permitted.
The Company does not believe that this update will have a significant impact
on its consolidated financial statements.
Measurement of credit losses on financial instruments
In June 2016, an accounting standard update was issued
which replaces the existing incurred loss impairment methodology for most
financial assets with a new “current expected credit loss” model. The
|
14
Q3
2016 Financial Information
|
new model will result in the immediate recognition of the
estimated credit losses expected to occur over the remaining life of
financial assets such as trade and other receivables, held-to-maturity debt
securities, loans and other instruments. Credit losses relating to
available-for-sale debt securities will be measured in a manner similar to
current GAAP, except that the losses will be recorded through an allowance
for credit losses rather than as a direct write-down of the security.
This update is effective for the Company for annual and
interim periods beginning January 1, 2020, with early adoption permitted for
annual and interim periods beginning January 1, 2019. The Company is
currently evaluating the impact of this update on its consolidated financial
statements.
Classification of certain cash receipts and cash payments
in the statement of cash flows
In August 2016, an accounting standard update was issued
which clarifies how certain cash receipts and cash payments, including debt
prepayment or extinguishment costs, the settlement of zero coupon debt
instruments, contingent consideration paid after a business combination,
proceeds from insurance settlements, distributions from certain equity method
investees and beneficial interests obtained in a financial asset
securitization, should be presented and classified in the statement of cash
flows. This update is effective for the Company for annual and interim
periods beginning January 1, 2018 on a retrospective basis, with early
adoption permitted. The Company does not believe that this update will have a
significant impact on its consolidated financial statements.
Income taxes – Intra-entity transfers of assets other than
inventory
In October 2016, an
accounting standard update was issued that requires the Company to recognize
the income tax consequences of an intra-entity transfer of an asset other
than inventory when the transfer occurs instead of when the asset has been
sold to an outside party. This update is effective for the Company for annual
and interim periods beginning January 1, 2018, with early adoption permitted,
and is applicable on a modified retrospective basis through a cumulative-effect
adjustment directly to retained earnings as of the beginning of the period of
adoption. The Company is currently evaluating the impact of this update on
its consolidated financial statements.
|
Note 3
Cash and
equivalents, marketable securities and short-term investments
|
|
Current assets
|
Cash and equivalents, marketable securities and short-term investments
consisted of the following:
|
|
|
|
September
30, 2016
|
|
|
|
|
Gross
|
Gross
|
|
|
Marketable
securities
|
|
|
|
|
unrealized
|
unrealized
|
|
Cash
and
|
and
short-term
|
|
($ in millions)
|
Cost
basis
|
gains
|
losses
|
Fair
value
|
equivalents
|
investments
|
|
Cash
|
1,758
|
|
|
1,758
|
1,758
|
–
|
|
Time deposits
|
2,580
|
|
|
2,580
|
1,780
|
800
|
|
Other short-term investments
|
230
|
|
|
230
|
–
|
230
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. government obligations
|
220
|
3
|
(1)
|
222
|
–
|
222
|
|
|
European government obligations
|
13
|
–
|
–
|
13
|
–
|
13
|
|
|
Other government obligations
|
2
|
–
|
–
|
2
|
–
|
2
|
|
|
Corporate
|
95
|
3
|
–
|
98
|
–
|
98
|
|
Equity securities available-for-sale
|
449
|
13
|
–
|
462
|
–
|
462
|
|
Total
|
5,347
|
19
|
(1)
|
5,365
|
3,538
|
1,827
|
|
|
|
December
31, 2015
|
|
|
|
|
Gross
|
Gross
|
|
|
Marketable
securities
|
|
|
|
|
unrealized
|
unrealized
|
|
Cash
and
|
and
short-term
|
|
($ in millions)
|
Cost
basis
|
gains
|
losses
|
Fair
value
|
equivalents
|
investments
|
|
Cash
|
1,837
|
|
|
1,837
|
1,837
|
–
|
|
Time deposits
|
2,821
|
|
|
2,821
|
2,717
|
104
|
|
Other short-term investments
|
231
|
|
|
231
|
–
|
231
|
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. government obligations
|
120
|
2
|
(1)
|
121
|
–
|
121
|
|
|
Other government obligations
|
2
|
–
|
–
|
2
|
–
|
2
|
|
|
Corporate
|
519
|
1
|
(1)
|
519
|
11
|
508
|
|
Equity securities available-for-sale
|
658
|
9
|
–
|
667
|
–
|
667
|
|
Total
|
6,188
|
12
|
(2)
|
6,198
|
4,565
|
1,633
|
|
Included in
Other short-term investments at September 30, 2016, and December 31, 2015,
are receivables of $229 million and $224 million, respectively,
representing reverse repurchase agreements. These collateralized lendings,
made to a financial institution, have maturity dates of less than one year.
|
Non-current
assets
|
Included in
“Other non-current assets” are certain held-to-maturity marketable
securities. At September 30, 2016, the amortized cost, gross unrecognized
gain and fair value (based on quoted market prices) of these securities were
$84 million, $10 million and $94 million, respectively.
At December 31, 2015, the amortized cost, gross unrecognized gain and fair
value (based on quoted market prices) of these securities
|
15
Q3
2016 Financial Information
|
were $99
million, $11 million and $110 million, respectively. These securities are
pledged as security for certain outstanding deposit liabilities and the funds
received at the respective maturity dates of the securities will only be
available to the Company for repayment of these obligations.
|
Note 4
Derivative financial instruments
|
The Company is
exposed to certain currency, commodity, interest rate and equity risks
arising from its global operating, financing and investing activities. The
Company uses derivative instruments to reduce and manage the economic impact
of these exposures.
|
Currency risk
|
Due to the
global nature of the Company’s operations, many of its subsidiaries are
exposed to currency risk in their operating activities from entering into
transactions in currencies other than their functional currency. To manage
such currency risks, the Company’s policies require the subsidiaries to hedge
their foreign currency exposures from binding sales and purchase contracts
denominated in foreign currencies. For forecasted foreign currency
denominated sales of standard products and the related foreign currency
denominated purchases, the Company’s policy is to hedge up to a maximum of
100 percent of the forecasted foreign currency denominated exposures,
depending on the length of the forecasted exposures. Forecasted exposures
greater than 12 months are not hedged. Forward foreign exchange contracts are
the main instrument used to protect the Company against the volatility of
future cash flows (caused by changes in exchange rates) of contracted and
forecasted sales and purchases denominated in foreign currencies. In
addition, within its treasury operations, the Company primarily uses foreign
exchange swaps and forward foreign exchange contracts to manage the currency
and timing mismatches arising in its liquidity management activities.
|
Commodity risk
|
Various
commodity products are used in the Company’s manufacturing activities.
Consequently it is exposed to volatility in future cash flows arising from
changes in commodity prices. To manage the price risk of commodities, the
Company’s policies require that the subsidiaries hedge the commodity price
risk exposures from binding contracts, as well as at least 50 percent (up to
a maximum of 100 percent) of the forecasted commodity exposure over the next
12 months or longer (up to a maximum of 18 months). Primarily swap contracts
are used to manage the associated price risks of commodities.
|
Interest rate risk
|
The Company has
issued bonds at fixed rates. Interest rate swaps are used to manage the
interest rate risk associated with certain debt and generally such swaps are
designated as fair value hedges. In addition, from time to time, the Company
uses instruments such as interest rate swaps, interest rate futures, bond
futures or forward rate agreements to manage interest rate risk arising from
the Company’s balance sheet structure but does not designate such instruments
as hedges.
|
Equity risk
|
The Company is
exposed to fluctuations in the fair value of its warrant appreciation rights
(WARs) issued under its management incentive plan. A WAR gives its holder the
right to receive cash equal to the market price of an equivalent listed
warrant on the date of exercise. To eliminate such risk, the Company has purchased
cash-settled call options, indexed to the shares of the Company, which
entitle the Company to receive amounts equivalent to its obligations under
the outstanding WARs.
|
Volume of derivative activity
|
In general,
while the Company’s primary objective in its use of derivatives is to
minimize exposures arising from its business, certain derivatives are
designated and qualify for hedge accounting treatment while others either are
not designated or do not qualify for hedge accounting.
|
|
Foreign
exchange
and
interest rate
derivatives
The gross
notional amounts of outstanding foreign exchange and interest rate
derivatives (whether designated as hedges or not) were as follows:
|
|
Type of derivative
|
Total
notional amounts at
|
|
($ in millions)
|
September
30, 2016
|
December
31, 2015
|
September
30, 2015
|
|
Foreign exchange contracts
|
16,381
|
16,467
|
17,501
|
|
Embedded foreign exchange derivatives
|
2,919
|
2,966
|
3,138
|
|
Interest rate contracts
|
3,348
|
4,302
|
2,789
|
|
Derivative commodity contracts
The following table shows the notional amounts of outstanding
commodity derivatives (whether designated as hedges or not), on a net basis,
to reflect the Company’s requirements in the various commodities:
|
|
Type of derivative
|
Unit
|
Total
notional amounts at
|
|
|
|
September
30, 2016
|
December
31, 2015
|
September
30, 2015
|
|
Copper swaps
|
metric tonnes
|
54,321
|
48,903
|
49,141
|
|
Aluminum swaps
|
metric tonnes
|
4,950
|
5,455
|
6,912
|
|
Nickel swaps
|
metric tonnes
|
–
|
18
|
–
|
|
Lead swaps
|
metric tonnes
|
18,025
|
14,625
|
15,850
|
|
Zinc swaps
|
metric tonnes
|
150
|
225
|
300
|
|
Silver swaps
|
ounces
|
1,885,370
|
1,727,255
|
1,566,590
|
|
Crude oil swaps
|
barrels
|
122,000
|
133,500
|
128,200
|
|
Equity
derivatives
At September
30, 2016, December 31, 2015, and September 30, 2015, the Company held 49 million, 55 million and 56 million cash-settled
call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total
fair value of $28 million, $13 million and $10 million,
respectively.
|
Cash
flow
hedges
|
As noted above,
the Company mainly uses forward foreign exchange contracts to manage the
foreign exchange risk of its operations, commodity swaps to manage its
commodity risks and cash-settled call options to hedge its WAR liabilities.
Where such instruments are designated and qualify as cash flow hedges, the
effective portion of the changes in their fair value is recorded in
“Accumulated other comprehensive loss” and subsequently reclassified into
earnings in the same line item and in the same period as the underlying
hedged transaction affects earnings. Any ineffectiveness in the hedge
relationship, or hedge component excluded from the assessment of
effectiveness, is recognized in earnings during the current period.
At September
30, 2016, and December 31, 2015, “Accumulated other comprehensive loss”
included net unrealized gains of $2 million and net unrealized losses of
$11 million, respectively, net of tax, on derivatives designated as cash
flow hedges. Of the amount at September 30, 2016, net gains of $4 million are
expected to be reclassified to earnings in the following 12 months. At
September 30, 2016, the longest maturity of a derivative classified as a cash
flow hedge was 42 months.
The amount of
gains or losses, net of tax, reclassified into earnings due to the
discontinuance of cash flow hedge accounting and the amount of ineffectiveness
in cash flow hedge relationships directly recognized in earnings were not
significant in the nine and three months ended September 30, 2016 and 2015.
|
|
The pre-tax
effects of derivative instruments, designated and qualifying as cash flow hedges,
on “Accumulated other comprehensive loss” (OCI) and the Consolidated Income
Statements were as follows:
|
16
Q3
2016 Financial Information
|
|
Gains
(losses) recognized in OCI
|
|
Gains
(losses) reclassified from OCI
|
|
($ in millions)
|
on
derivatives (effective portion)
|
|
into
income (effective portion)
|
|
Nine months ended September 30,
|
2016
|
2015
|
|
2016
|
2015
|
|
Type of derivative:
|
|
|
Location:
|
|
|
|
Foreign exchange contracts
|
8
|
(7)
|
Total revenues
|
(9)
|
(31)
|
|
|
|
|
Total cost of sales
|
9
|
8
|
|
Commodity contracts
|
1
|
(6)
|
Total cost of sales
|
(2)
|
(7)
|
|
Cash-settled call options
|
18
|
(10)
|
SG&A expenses
(1)
|
12
|
(6)
|
|
Total
|
27
|
(23)
|
|
10
|
(36)
|
|
|
Gains
(losses) recognized in OCI
|
|
Gains
(losses) reclassified from OCI
|
|
($ in millions)
|
on
derivatives (effective portion)
|
|
into
income (effective portion)
|
|
Three months ended September 30,
|
2016
|
2015
|
|
2016
|
2015
|
|
Type of derivative:
|
|
|
Location:
|
|
|
|
Foreign exchange contracts
|
8
|
9
|
Total revenues
|
(3)
|
(7)
|
|
|
|
|
Total cost of sales
|
2
|
3
|
|
Commodity contracts
|
–
|
(4)
|
Total cost of sales
|
1
|
(3)
|
|
Cash-settled call options
|
15
|
(3)
|
SG&A expenses
(1)
|
11
|
(2)
|
|
Total
|
23
|
2
|
|
11
|
(9)
|
(1) SG&A
expenses
represent
“Selling,
general
and
administrative
expenses”.
|
The amounts in
respect of gains (losses) recognized in income for hedge ineffectiveness and
amounts excluded from effectiveness testing were not significant for the nine
and three months ended September 30, 2016 and 2015.
Net derivative
gains of $9 million and net derivative losses of $28 million, both net of
tax, were reclassified from “Accumulated other comprehensive loss” to
earnings during the nine months ended September 30, 2016 and 2015,
respectively. During the three months ended September 30, 2016 and 2015, net
derivative gains of $9 million and net derivative losses of $7 million, both
net of tax, respectively, were reclassified from “Accumulated other
comprehensive loss” to earnings.
|
Fair value
hedges
|
To reduce its
interest rate exposure arising primarily from its debt issuance activities,
the Company uses interest rate swaps. Where such instruments are designated
as fair value hedges, the changes in the fair value of these instruments, as
well as the changes in the fair value of the risk component of the underlying
debt being hedged, are recorded as offsetting gains and losses in “Interest
and other finance expense”. Hedge ineffectiveness of instruments designated
as fair value hedges for the nine and three months ended September 30, 2016
and 2015, was not significant.
|
|
The effect of
interest rate contracts, designated and qualifying as fair value hedges, on
the Consolidated Income Statements was as follows:
|
17
Q3
2016 Financial Information
|
|
Nine
months ended September 30,
|
Three
months ended September 30,
|
|
($ in millions)
|
2016
|
2015
|
2016
|
2015
|
|
Gains (losses) recognized in Interest and other finance expense:
|
|
|
|
|
|
- on derivatives designated as fair value hedges
|
32
|
30
|
(16)
|
28
|
|
- on hedged item
|
(30)
|
(27)
|
17
|
(28)
|
Derivatives
not
designated
in
hedge
relationships
|
Derivative
instruments that are not designated as hedges or do not qualify as either
cash flow or fair value hedges are economic hedges used for risk management
purposes. Gains and losses from changes in the fair values of such
derivatives are recognized in the same line in the income statement as the
economically hedged transaction.
Furthermore,
under certain circumstances, the Company is required to split and account
separately for foreign currency derivatives that are embedded within certain
binding sales or purchase contracts denominated in a currency other than the
functional currency of the subsidiary and the counterparty.
|
|
The gains
(losses) recognized in the Consolidated Income Statements on derivatives not
designated in hedging relationships were as follows:
|
|
Type of derivative not
|
Gains
(losses) recognized in income
|
|
designated as a hedge
|
|
Nine
months ended September 30,
|
Three
months ended September 30,
|
|
($ in millions)
|
Location
|
2016
|
2015
|
2016
|
2015
|
|
Foreign exchange contracts
|
Total revenues
|
(19)
|
(226)
|
(42)
|
(273)
|
|
|
Total cost of sales
|
(69)
|
56
|
(10)
|
128
|
|
|
SG&A expenses
(1)
|
(5)
|
9
|
–
|
–
|
|
|
Non-order related research
|
|
|
|
|
|
|
and development
|
(1)
|
(1)
|
–
|
1
|
|
|
Interest and other finance expense
|
(45)
|
248
|
3
|
22
|
|
Embedded foreign exchange
|
Total revenues
|
(41)
|
138
|
8
|
112
|
|
contracts
|
Total cost of sales
|
7
|
(24)
|
1
|
(12)
|
|
|
SG&A expenses
(1)
|
1
|
(2)
|
–
|
(8)
|
|
Commodity contracts
|
Total cost of sales
|
15
|
(47)
|
5
|
(30)
|
|
Other
|
Interest and other finance expense
|
2
|
(2)
|
3
|
(2)
|
|
Total
|
|
(155)
|
149
|
(32)
|
(62)
|
(1) SG&A
expenses
represent
“Selling,
general
and
administrative
expenses”.
|
The fair values of derivatives included in the
Consolidated Balance Sheets were as follows:
|
|
|
September
30, 2016
|
|
|
Derivative
assets
|
Derivative
liabilities
|
|
|
Current
in
|
Non-current
in
|
Current
in
|
Non-current
in
|
|
|
“Other
current
|
“Other
non-current
|
“Other
current
|
“Other
non-current
|
|
($ in millions)
|
assets”
|
assets”
|
liabilities”
|
liabilities”
|
|
Derivatives designated as hedging
instruments:
|
|
|
|
|
|
Foreign exchange contracts
|
12
|
1
|
5
|
4
|
|
Commodity contracts
|
1
|
–
|
–
|
–
|
|
Interest rate contracts
|
–
|
124
|
–
|
–
|
|
Cash-settled call options
|
16
|
12
|
–
|
–
|
|
Total
|
29
|
137
|
5
|
4
|
|
|
|
|
|
|
|
Derivatives not designated as
hedging instruments:
|
|
|
|
|
|
Foreign exchange contracts
|
111
|
16
|
183
|
71
|
|
Commodity contracts
|
10
|
3
|
8
|
2
|
|
Embedded foreign exchange derivatives
|
51
|
28
|
50
|
28
|
|
Total
|
172
|
47
|
241
|
101
|
|
Total fair value
|
201
|
184
|
246
|
105
|
18
Q3
2016 Financial Information
|
|
December
31, 2015
|
|
|
Derivative
assets
|
Derivative
liabilities
|
|
|
Current
in
|
Non-current
in
|
Current
in
|
Non-current
in
|
|
|
“Other
current
|
“Other
non-current
|
“Other
current
|
“Other
non-current
|
|
($ in millions)
|
assets”
|
assets”
|
liabilities”
|
liabilities”
|
|
Derivatives designated as hedging
instruments:
|
|
|
|
|
|
Foreign exchange contracts
|
15
|
10
|
8
|
16
|
|
Commodity contracts
|
–
|
–
|
3
|
–
|
|
Interest rate contracts
|
6
|
86
|
–
|
–
|
|
Cash-settled call options
|
8
|
5
|
–
|
–
|
|
Total
|
29
|
101
|
11
|
16
|
|
|
|
|
|
|
|
Derivatives not designated as
hedging instruments:
|
|
|
|
|
|
Foreign exchange contracts
|
172
|
32
|
237
|
81
|
|
Commodity contracts
|
2
|
–
|
29
|
9
|
|
Cross-currency interest rate swaps
|
–
|
–
|
–
|
1
|
|
Embedded foreign exchange derivatives
|
94
|
53
|
41
|
27
|
|
Total
|
268
|
85
|
307
|
118
|
|
Total fair value
|
297
|
186
|
318
|
134
|
|
Close-out
netting agreements provide for the termination, valuation and net settlement
of some or all outstanding transactions between two counterparties on the
occurrence of one or more pre-defined trigger events.
Although
the Company is party to close-out netting agreements with most derivative
counterparties, the fair values in the tables above and in the Consolidated
Balance Sheets at September 30, 2016, and December 31, 2015, have been
presented on a gross basis.
|
|
The
Company’s netting agreements and other similar arrangements allow net
settlements under certain conditions. At September 30, 2016, and December 31,
2015, information related to these offsetting arrangements was as follows:
|
|
($ in millions)
|
September
30, 2016
|
|
|
|
Derivative
liabilities
|
|
|
|
|
Type of agreement or
|
Gross
amount of
|
eligible
for set-off in
|
Cash
collateral
|
Non-cash
collateral
|
|
|
similar arrangement
|
recognized
assets
|
case
of default
|
received
|
received
|
Net
asset exposure
|
|
Derivatives
|
306
|
(165)
|
–
|
–
|
141
|
|
Reverse repurchase
|
|
|
|
|
|
|
agreements
|
229
|
–
|
–
|
(229)
|
–
|
|
Total
|
535
|
(165)
|
–
|
(229)
|
141
|
|
($ in millions)
|
September
30, 2016
|
|
|
|
Derivative
liabilities
|
|
|
|
|
Type of agreement or
|
Gross
amount of
|
eligible
for set-off in
|
Cash
collateral
|
Non-cash
collateral
|
|
|
similar arrangement
|
recognized
liabilities
|
case
of default
|
pledged
|
pledged
|
Net
liability exposure
|
|
Derivatives
|
273
|
(165)
|
–
|
–
|
108
|
|
Total
|
273
|
(165)
|
–
|
–
|
108
|
|
($ in millions)
|
December
31, 2015
|
|
|
|
Derivative
liabilities
|
|
|
|
|
Type of agreement or
|
Gross
amount of
|
eligible
for set-off in
|
Cash
collateral
|
Non-cash
collateral
|
|
|
similar arrangement
|
recognized
assets
|
case
of default
|
received
|
received
|
Net
asset exposure
|
|
Derivatives
|
336
|
(215)
|
–
|
–
|
121
|
|
Reverse repurchase
|
|
|
|
|
|
|
agreements
|
224
|
–
|
–
|
(224)
|
–
|
|
Total
|
560
|
(215)
|
–
|
(224)
|
121
|
|
($ in millions)
|
December
31, 2015
|
|
|
|
Derivative
liabilities
|
|
|
|
|
Type of agreement or
|
Gross
amount of
|
eligible
for set-off in
|
Cash
collateral
|
Non-cash
collateral
|
|
|
similar arrangement
|
recognized
liabilities
|
case
of default
|
pledged
|
pledged
|
Net
liability exposure
|
|
Derivatives
|
384
|
(215)
|
(3)
|
–
|
166
|
|
Total
|
384
|
(215)
|
(3)
|
–
|
166
|
19
Q3
2016 Financial Information
Note
5 Fair values
|
The
Company uses fair value measurement principles to record certain financial
assets and liabilities on a recurring basis and, when necessary, to record
certain non-financial assets at fair value on a non-recurring basis, as well
as to determine fair value disclosures for certain financial instruments
carried at amortized cost in the financial statements. Financial assets and
liabilities recorded at fair value on a recurring basis include foreign
currency, commodity and interest rate derivatives, as well as cash-settled
call options and available-for-sale securities. Non-financial assets recorded
at fair value on a non-recurring basis include long-lived assets that are
reduced to their estimated fair value due to impairments.
Fair
value is the price that would be received when selling an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. In determining fair value, the Company uses various
valuation techniques including the market approach (using observable market
data for identical or similar assets and liabilities), the income approach
(discounted cash flow models) and the cost approach (using costs a market
participant would incur to develop a comparable asset). Inputs used to determine
the fair value of assets and liabilities are defined by a three-level
hierarchy, depending on the reliability of those inputs. The Company has
categorized its financial assets and liabilities and non-financial assets
measured at fair value within this hierarchy based on whether the inputs to
the valuation technique are observable or unobservable. An observable input
is based on market data obtained from independent sources, while an
unobservable input reflects the Company’s assumptions about market data.
The
levels of the fair value hierarchy are as follows:
Level 1: Valuation inputs consist of quoted prices in
an active market for identical assets or liabilities (observable quoted
prices). Assets and liabilities valued using Level 1 inputs include listed
derivatives which are actively traded such as commodity futures, interest
rate futures and certain actively-traded debt securities.
Level 2: Valuation inputs consist of observable inputs
(other than Level 1 inputs) such as actively-quoted prices for similar
assets, quoted prices in inactive markets and inputs other than quoted prices
such as interest rate yield curves, credit spreads, or inputs derived from
other observable data by interpolation, correlation, regression or other
means. The adjustments applied to quoted prices or the inputs used in
valuation models may be both observable and unobservable. In these cases, the
fair value measurement is classified as Level 2 unless the unobservable
portion of the adjustment or the unobservable input to the valuation model is
significant, in which case the fair value measurement would be classified as
Level 3. Assets and liabilities valued or disclosed using Level 2 inputs
include investments in certain funds, reverse repurchase agreements, certain
debt securities that are not actively traded, interest rate swaps, commodity
swaps, cash-settled call options, forward foreign exchange contracts, foreign
exchange swaps and forward rate agreements, time deposits, as well as
financing receivables and debt.
Level 3: Valuation inputs are based on the
Company’s assumptions of relevant market data (unobservable input).
Whenever
quoted prices involve bid-ask spreads, the Company ordinarily determines fair
values based on mid-market quotes. However, for the purpose of determining
the fair value of cash-settled call options serving as hedges of the
Company’s management incentive plan, bid prices are used.
When
determining fair values based on quoted prices in an active market, the
Company considers if the level of transaction activity for the financial
instrument has significantly decreased, or would not be considered orderly.
In such cases, the resulting changes in valuation techniques would be
disclosed. If the market is considered disorderly or if quoted prices are not
available, the Company is required to use another valuation technique, such
as an income approach.
|
Recurring
fair value measures
|
The fair values of financial assets and liabilities
measured at fair value on a recurring basis were as follows:
|
|
|
September
30, 2016
|
|
($ in millions)
|
Level
1
|
Level
2
|
Level
3
|
Total
fair value
|
|
Assets
|
|
|
|
|
|
Available-for-sale securities in “Marketable securities and
short-term investments”:
|
|
|
|
|
|
Equity securities
|
–
|
462
|
–
|
462
|
|
Debt securities—U.S. government obligations
|
222
|
–
|
–
|
222
|
|
Debt securities—European government obligations
|
13
|
–
|
–
|
13
|
|
Debt securities—Other government obligations
|
–
|
2
|
–
|
2
|
|
Debt securities—Corporate
|
–
|
98
|
–
|
98
|
|
Derivative assets—current in “Other current assets”
|
–
|
201
|
–
|
201
|
|
Derivative assets—non-current in “Other non-current assets”
|
–
|
184
|
–
|
184
|
|
Total
|
235
|
947
|
–
|
1,182
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Derivative liabilities—current in “Other current liabilities”
|
–
|
246
|
–
|
246
|
|
Derivative liabilities—non-current in “Other non-current liabilities”
|
–
|
105
|
–
|
105
|
|
Total
|
–
|
351
|
–
|
351
|
20
Q3
2016 Financial Information
|
|
December
31, 2015
|
|
($ in millions)
|
Level
1
|
Level
2
|
Level
3
|
Total
fair value
|
|
Assets
|
|
|
|
|
|
Available-for-sale securities in “Cash and equivalents”:
|
|
|
|
|
|
Debt securities—Corporate
|
–
|
11
|
–
|
11
|
|
Available-for-sale securities in “Marketable securities and
short-term investments”:
|
|
|
|
|
|
Equity securities
|
–
|
667
|
–
|
667
|
|
Debt securities—U.S. government obligations
|
121
|
–
|
–
|
121
|
|
Debt securities—Other government obligations
|
–
|
2
|
–
|
2
|
|
Debt securities—Corporate
|
–
|
508
|
–
|
508
|
|
Derivative assets—current in “Other current assets”
|
1
|
296
|
–
|
297
|
|
Derivative assets—non-current in “Other non-current assets”
|
–
|
186
|
–
|
186
|
|
Total
|
122
|
1,670
|
–
|
1,792
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Derivative liabilities—current in “Other current liabilities”
|
3
|
315
|
–
|
318
|
|
Derivative liabilities—non-current in “Other non-current
liabilities”
|
–
|
134
|
–
|
134
|
|
Total
|
3
|
449
|
–
|
452
|
|
The
Company uses the following methods and assumptions in estimating fair values
of financial assets and liabilities measured at fair value on a recurring
basis:
● Available-for-sale securities
in “Cash and equivalents” and “Marketable securities and short-term
investments”:
If quoted
market prices in active markets for identical assets are available, these are
considered Level 1 inputs; however, when markets are not active, these inputs
are considered Level 2. If such quoted market prices are not available, fair
value is determined using market prices for similar assets or present value
techniques, applying an appropriate risk-free interest rate adjusted for
nonperformance risk. The inputs used in present value techniques are
observable and fall into the Level 2 category.
●
Derivatives:
The fair values of derivative instruments are determined using quoted prices
of identical instruments from an active market, if available (Level 1). If
quoted prices are not available, price quotes for similar instruments,
appropriately adjusted, or present value techniques, based on available
market data, or option pricing models are used. Cash-settled call options
hedging the Company’s WAR liability are valued based on bid prices of the
equivalent listed warrant. The fair values obtained using price quotes for
similar instruments or valuation techniques represent a Level 2 input unless
significant unobservable inputs are used.
|
Non-recurring
fair
value
measures
|
There were no significant non-recurring fair value
measurements during the nine and three months ended September 30, 2016 and
2015.
|
Disclosure
about
financial
instruments
carried
on
a
cost
basis
|
The
fair
values
of
financial
instruments
carried
on
a
cost
basis
were
as
follows:
|
|
|
September
30, 2016
|
|
($ in millions)
|
Carrying
value
|
Level
1
|
Level
2
|
Level
3
|
Total
fair value
|
|
Assets
|
|
|
|
|
|
|
Cash and equivalents (excluding available-for-sale securities
|
|
|
|
|
|
|
with original maturities up to 3 months):
|
|
|
|
|
|
|
Cash
|
1,758
|
1,758
|
–
|
–
|
1,758
|
|
Time deposits
|
1,780
|
–
|
1,780
|
–
|
1,780
|
|
Marketable securities and short-term investments
|
|
|
|
|
|
|
(excluding available-for-sale securities):
|
|
|
|
|
|
|
Time deposits
|
800
|
–
|
800
|
–
|
800
|
|
Receivables under reverse repurchase agreements
|
229
|
–
|
229
|
–
|
229
|
|
Other short-term investments
|
1
|
1
|
–
|
–
|
1
|
|
Other non-current assets:
|
|
|
|
|
|
|
Loans granted
|
30
|
–
|
32
|
–
|
32
|
|
Held-to-maturity securities
|
84
|
–
|
94
|
–
|
94
|
|
Restricted cash deposits
|
89
|
61
|
28
|
–
|
89
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Short-term debt and current maturities of long-term debt
|
|
|
|
|
|
|
(excluding capital lease obligations)
|
1,385
|
1,104
|
281
|
–
|
1,385
|
|
Long-term debt (excluding capital lease obligations)
|
6,220
|
5,857
|
765
|
–
|
6,622
|
|
Non-current deposit liabilities in “Other non-current
liabilities”
|
108
|
–
|
120
|
–
|
120
|
21
Q3
2016 Financial Information
|
|
December
31, 2015
|
|
($ in millions)
|
Carrying
value
|
Level
1
|
Level
2
|
Level
3
|
Total
fair value
|
|
Assets
|
|
|
|
|
|
|
Cash and equivalents (excluding available-for-sale securities
|
|
|
|
|
|
|
with original maturities up to 3 months):
|
|
|
|
|
|
|
Cash
|
1,837
|
1,837
|
–
|
–
|
1,837
|
|
Time deposits
|
2,717
|
–
|
2,717
|
–
|
2,717
|
|
Marketable securities and short-term investments
|
|
|
|
|
|
|
(excluding available-for-sale securities):
|
|
|
|
|
|
|
Time deposits
|
104
|
–
|
104
|
–
|
104
|
|
Receivables under reverse repurchase agreements
|
224
|
–
|
224
|
–
|
224
|
|
Other short-term investments
|
7
|
7
|
–
|
–
|
7
|
|
Other non-current assets:
|
|
|
|
|
|
|
Loans granted
|
29
|
–
|
30
|
–
|
30
|
|
Held-to-maturity securities
|
99
|
–
|
110
|
–
|
110
|
|
Restricted cash deposits
|
176
|
55
|
138
|
–
|
193
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Short-term debt and current maturities of long-term debt
|
|
|
|
|
|
|
(excluding capital lease obligations)
|
1,427
|
614
|
817
|
–
|
1,431
|
|
Long-term debt (excluding capital lease obligations)
|
5,899
|
5,307
|
751
|
–
|
6,058
|
|
Non-current deposit liabilities in “Other non-current
liabilities”
|
215
|
–
|
244
|
–
|
244
|
|
The
Company uses the following methods and assumptions in estimating fair values
of financial instruments carried on a cost basis:
● Cash and equivalents (excluding
available-for-sale securities with original maturities up to 3 months), and
Marketable securities and short-term investments (excluding
available-for-sale securities):
The carrying amounts approximate the fair values as the
items are short-term in nature.
● Other non-current assets:
Includes (i) loans granted whose fair
values are based on the carrying amount adjusted using a present value
technique to reflect a premium or discount based on current market interest
rates (Level 2 inputs), (ii) held-to-maturity securities (see Note 3) whose
fair values are based on quoted market prices in inactive markets (Level 2
inputs), (iii) restricted cash whose fair values approximate the carrying
amounts (Level 1 inputs) and restricted cash deposits pledged in respect of
certain non-current deposit liabilities whose fair values are determined
using a discounted cash flow methodology based on current market interest
rates (Level 2 inputs).
● Short-term debt and current
maturities of long-term debt (excluding capital lease obligations):
Short-term debt includes commercial
paper, bank borrowings and overdrafts. The carrying amounts of short-term
debt and current maturities of long-term debt, excluding capital lease
obligations, approximate their fair values.
● Long-term debt (excluding
capital lease obligations):
Fair values
of bonds are determined using quoted market prices (Level 1 inputs), if
available. For bonds without available quoted market prices and other
long-term debt, the fair values are determined using a discounted cash flow
methodology based upon borrowing rates of similar debt instruments and
reflecting appropriate adjustments for non-performance risk (Level 2 inputs).
● Non-current deposit
liabilities in “Other non-current liabilities”:
The fair values of non-current deposit liabilities are
determined using a discounted cash flow methodology based on risk-adjusted
interest rates (Level 2 inputs).
|
Note
6
Commitments
and contingencies
|
|
Contingencies—Regulatory,
Compliance
and
Legal
|
Antitrust
In
April 2014, the European Commission announced its decision regarding its
investigation of anticompetitive practices in the cables industry and granted
the Company full immunity from fines under the European Commission’s leniency
program. In December 2013, the Company agreed with the Brazilian Antitrust
Authority (CADE) to settle its ongoing investigation into the Company’s
involvement in anticompetitive practices in the cables industry and the Company
agreed to pay a fine of approximately 1.5 million Brazilian reals
(equivalent to approximately $1 million on date of payment).
In
Brazil, the Company’s Gas Insulated Switchgear business is under
investigation by the CADE for alleged anticompetitive practices. In addition,
the CADE has opened an investigation into certain other power businesses of
the Company, including flexible alternating current transmission systems
(FACTS) and power transformers. With respect to these matters, management is
cooperating fully with the authorities. An informed judgment about the
outcome of these investigations or the amount of potential loss or range of
loss for the Company, if any, relating to these investigations cannot be made
at this stage.
General
In
addition, the Company is aware of proceedings, or the threat of proceedings,
against it and others in respect of private claims by customers and other
third parties with regard to certain actual or alleged anticompetitive
practices. Also, the Company is subject to other various legal proceedings,
investigations, and claims that have not yet been resolved. With respect to
the above mentioned regulatory matters and commercial litigation
contingencies, the Company will bear the costs of the continuing
investigations and any related legal proceedings.
|
|
Liabilities
recognized
At both September 30, 2016, and December
31, 2015, the Company had aggregate liabilities of $160 million,
included in “Other provisions” and “Other non-current liabilities”, for the
above regulatory, compliance and legal contingencies, and none of the
individual liabilities recognized was significant. As it is not possible to
make an informed judgment on the outcome of certain matters and as it is not
possible, based on information currently available to management, to estimate
the maximum potential liability on other matters, there could be material
adverse outcomes beyond the amounts accrued.
|
22
Q3
2016 Financial Information
Guarantees
|
Gene
r
al
The
following table provides quantitative data regarding the Company’s
third-party guarantees. The maximum potential payments represent a
“worst-case scenario”, and do not reflect management’s expected outcomes.
|
|
Maximum potential payments
($ in millions)
|
September
30, 2016
|
December
31, 2015
|
|
Performance guarantees
|
193
|
209
|
|
Financial guarantees
|
69
|
77
|
|
Indemnification guarantees
|
72
|
50
|
|
Total
|
334
|
336
|
|
The carrying
amount of liabilities recorded in the Consolidated Balance Sheets reflects
the Company’s best estimate of future payments, which it may incur as part of
fulfilling its guarantee obligations. In respect of the above guarantees, the
carrying amounts of liabilities at September 30, 2016, and December 31, 2015,
were not significant.
|
|
The Company is
party to various guarantees providing financial or performance assurances to
certain third parties. These guarantees, which have various maturities up to
2020, mainly consist of performance guarantees whereby (i) the Company
guarantees the performance of a third party’s product or service according to
the terms of a contract and (ii) as member of a consortium that includes
third parties, the Company guarantees not only its own performance but also
the work of third parties. Such guarantees may include guarantees that a
project will be completed within a specified time. If the third party does
not fulfill the obligation, the Company will compensate the guaranteed party
in cash or in kind. The original maturity dates for the majority of these
performance guarantees range from one to six years.
|
|
Commercial
commitments
In addition, in
the normal course of bidding for and executing certain projects, the Company
has entered into standby letters of credit, bid/performance bonds and surety
bonds (collectively “performance bonds”) with various financial institutions.
Customers can draw on such performance bonds in the event that the Company does
not fulfill its contractual obligations. The Company would then have an
obligation to reimburse the financial institution for amounts paid under the
performance bonds. At September 30, 2016, and December 31, 2015, the total
outstanding performance bonds aggregated to $8.5 billion and $9.5 billion,
respectively. There have been no significant amounts reimbursed to financial
institutions under these types of arrangements in the nine and three months
ended September 30, 2016 and 2015.
|
|
Product and order-related contingencies
The Company calculates its provision for product
warranties based on historical claims experience and specific review of
certain contracts.
|
|
The
reconciliation of the “Provisions for warranties”, including guarantees of product
performance, was as follows:
|
|
($ in millions)
|
2016
|
2015
|
|
Balance at January 1,
|
1,089
|
1,148
|
|
Claims paid in cash or in kind
|
(197)
|
(191)
|
|
Net increase in provision for changes in estimates, warranties
issued and warranties expired
|
199
|
170
|
|
Exchange rate differences
|
13
|
(60)
|
|
Balance at September 30,
|
1,104
|
1,067
|
N
ot
e
7
Debt
|
The Company’s total debt at September 30, 2016, and
December 31, 2015, amounted to $7,721 million and $7,439 million,
respectively.
|
Short-term debt and current maturities of long-term
debt
|
The Company’s “Short-term debt and current maturities
of long-term debt” consisted of the following:
|
|
($ in millions)
|
September
30, 2016
|
December
31, 2015
|
|
Short-term debt
|
313
|
278
|
|
Current maturities of long-term debt
|
1,089
|
1,176
|
|
Total
|
1,402
|
1,454
|
23
Q3
2016 Financial Information
|
Short-term debt primarily represented issued commercial
paper and short-term loans from various banks. At September 30, 2016, and
December 31, 2015, $180 million and $132 million, respectively, was
outstanding under the $2 billion commercial paper program in the United
States.
In May 2016, the Company exercised its option to extend
the maturity of its $2 billion multicurrency revolving credit facility to
2021. No amount was drawn at September 30, 2016, and December 31, 2015. The
facility contains cross default clauses whereby an event of default would
occur if the Company were to default on indebtedness as defined in the
facility, at or above a specified threshold.
In June 2016, the Company repaid at maturity the USD
600 million 2.5% Notes.
|
Long-term debt
|
The Company’s long-term debt at September 30, 2016, and
December 31, 2015, amounted to $6,319 million and $5,985 million,
respectively.
|
|
Outstanding bonds (including maturities within the next
12 months) were as follows:
|
|
|
September
30, 2016
|
December
31, 2015
|
|
(in millions)
|
Nominal
outstanding
|
Carrying
value
(1)
|
Nominal
outstanding
|
Carrying
value
(1)
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
2.5% USD Notes, due 2016
|
|
|
|
–
|
USD
|
600
|
$
|
599
|
|
1.25% CHF Bonds, due 2016
|
CHF
|
500
|
$
|
514
|
CHF
|
500
|
$
|
510
|
|
1.625% USD Notes, due 2017
|
USD
|
500
|
$
|
499
|
USD
|
500
|
$
|
499
|
|
4.25% AUD Notes, due 2017
|
AUD
|
400
|
$
|
308
|
AUD
|
400
|
$
|
297
|
|
1.50% CHF Bonds, due 2018
|
CHF
|
350
|
$
|
358
|
CHF
|
350
|
$
|
352
|
|
2.625% EUR Instruments, due 2019
|
EUR
|
1,250
|
$
|
1,394
|
EUR
|
1,250
|
$
|
1,363
|
|
4.0% USD Notes, due 2021
|
USD
|
650
|
$
|
642
|
USD
|
650
|
$
|
641
|
|
2.25% CHF Bonds, due 2021
|
CHF
|
350
|
$
|
393
|
CHF
|
350
|
$
|
383
|
|
5.625% USD Notes, due 2021
|
USD
|
250
|
$
|
275
|
USD
|
250
|
$
|
279
|
|
2.875% USD Notes, due 2022
|
USD
|
1,250
|
$
|
1,312
|
USD
|
1,250
|
$
|
1,275
|
|
0.625% EUR Notes, due 2023
|
EUR
|
700
|
$
|
778
|
|
|
|
–
|
|
4.375% USD Notes, due 2042
|
USD
|
750
|
$
|
722
|
USD
|
750
|
$
|
722
|
|
Total
|
|
|
$
|
7,195
|
|
|
$
|
6,920
|
(1)
USD carrying
values include unamortized debt issuance costs, bond discounts or premiums, as
well as adjustments for fair value hedge accounting, where appropriate.
|
In May 2016, the Company issued notes with an aggregate
principal of EUR 700 million, due 2023. The notes pay interest annually in
arrears at a fixed rate of 0.625 percent per annum. The Company recorded net
proceeds (after underwriting fees) of EUR 697 million (equivalent to
approximately $807 million on date of issuance).
In October 2016, the Company repaid at maturity the CHF
500 million 1.25% Bonds (equivalent to approximately $506 million at
date of payment).
|
N
ot
e
8
Employee
benefits
|
The Company operates defined benefit pension plans,
defined contribution pension plans, and termination indemnity plans, in
accordance with local regulations and practices. These plans cover a large
portion of the Company’s employees and provide benefits to employees in the
event of death, disability, retirement, or termination of employment. Certain
of these plans are multi-employer plans. The Company also operates other
postretirement benefit plans including postretirement health care benefits,
and other employee-related benefits for active employees including
long-service award plans. The measurement date used for the Company’s
employee benefit plans is December 31. The funding policies of the Company’s
plans are consistent with the local government and tax requirements.
|
|
Net periodic benefit cost of the Company’s defined
benefit pension and other postretirement benefit plans consisted of the
following:
|
|
($ in millions)
|
Defined
pension benefits
|
Other
postretirement benefits
|
|
Nine months ended September 30,
|
2016
|
2015
|
2016
|
2015
|
|
Service cost
|
191
|
203
|
1
|
1
|
|
Interest cost
|
213
|
231
|
4
|
6
|
|
Expected return on plan assets
|
(306)
|
(345)
|
–
|
–
|
|
Amortization of prior service cost (credit)
|
30
|
28
|
(8)
|
(6)
|
|
Amortization of net actuarial loss
|
65
|
95
|
–
|
1
|
|
Curtailments, settlements and special termination benefits
|
2
|
1
|
–
|
–
|
|
Net periodic benefit cost
|
195
|
213
|
(3)
|
2
|
24
Q3
2016 Financial Information
|
($ in millions)
|
Defined
pension benefits
|
Other
postretirement benefits
|
|
Three months ended September 30,
|
2016
|
2015
|
2016
|
2015
|
|
Service cost
|
65
|
66
|
1
|
–
|
|
Interest cost
|
71
|
76
|
1
|
2
|
|
Expected return on plan assets
|
(102)
|
(112)
|
–
|
–
|
|
Amortization of prior service cost (credit)
|
9
|
9
|
(2)
|
(2)
|
|
Amortization of net actuarial loss
|
22
|
40
|
–
|
–
|
|
Curtailments, settlements and special termination benefits
|
1
|
1
|
–
|
–
|
|
Net periodic benefit cost
|
66
|
80
|
–
|
–
|
|
Employer contributions were as follows:
|
|
($ in millions)
|
Defined
pension benefits
|
Other
postretirement benefits
|
|
Nine months ended September 30,
|
2016
|
2015
|
2016
|
2015
|
|
Total contributions to defined benefit pension and other
postretirement benefit plans
|
184
|
155
|
9
|
11
|
|
Of which, discretionary contributions to defined benefit pension
plans
|
–
|
10
|
–
|
–
|
|
($ in millions)
|
Defined
pension benefits
|
Other
postretirement benefits
|
|
Three months ended September 30,
|
2016
|
2015
|
2016
|
2015
|
|
Total contributions to defined benefit pension and other postretirement
benefit plans
|
44
|
56
|
3
|
4
|
|
Of which, discretionary contributions to defined benefit pension
plans
|
–
|
10
|
–
|
–
|
|
During the nine months ended September 30, 2016, total
contributions included available-for-sale debt securities, having a fair value
at the contribution date of $40 million, contributed to certain of the
Company’s pension plans in Germany.
The Company expects to make contributions totaling
approximately $252 million and $15 million to its defined benefit
pension plans and other postretirement benefit plans, respectively, for the
full year 2016.
|
Note 9
Stockholders’ equity
|
Between
September 2014 and September 2016, the Company executed a share buyback
program for the purchase of up to $4 billion of its own shares and on
September 30, 2016, announced that it had completed this program. Over the
period of the share buyback, the Company purchased a total of
146.595 million shares (for approximately $3 billion) for cancellation
and 24.740 million shares (for approximately $0.5 billion) to
support its employee share programs. The shares acquired for cancellation
were purchased through a separate trading line on the SIX Swiss Exchange (on
which only the Company could purchase shares), while shares acquired for
delivery under employee share programs were acquired through the ordinary
trading line.
In the nine
months ended September 30, 2016, under the share buyback program, the Company
purchased 60.370 million shares for cancellation and 4.940 million
shares to support its employee share programs. No shares were bought in the
third quarter of 2016. In the nine months ended September 30, 2016, these
transactions resulted in an increase in Treasury stock of
$1,280 million. In the nine months ended September 30, 2015, the Company
purchased 40.290 million shares for cancellation and 8.700 million
shares to support its employee share programs, of which 4.860 million shares
were purchased for cancellation in the three months ended September 30, 2015
(no shares were purchased for employee share programs in the third quarter of
2015). In the nine and three months ended September 30, 2015, these
transactions resulted in an increase in Treasury stock of $1,047 million
and $95 million, respectively.
At the Annual
General Meeting of Shareholders on April 21, 2016, shareholders approved the
proposal of the Board of Directors to reduce the share capital of the Company
by cancelling 100 million shares which were bought back under the share
buyback program. This cancellation was completed in July 2016, resulting in a
decrease in Treasury stock of $2,047 million and a corresponding total
decrease in Capital stock and additional paid-in capital and in Retained
earnings.
Also at the
Annual General Meeting of Shareholders on April 21, 2016, shareholders
approved the proposal of the Board of Directors to distribute 0.74 Swiss
francs per share to shareholders by way of a nominal value reduction
(reduction in the par value of each share) from 0.86 Swiss francs to 0.12
Swiss francs. In July 2016, the nominal value reduction was registered in the
commercial register of the canton of Zurich, Switzerland, and was paid. The
Company recorded a reduction in Capital stock and additional paid-in capital
of $1,224 million and a reduction in Retained earnings of $402 million
in relation to the nominal value reduction.
In the third quarter
of 2016, the Company delivered 8.9 million shares of treasury stock for
options exercised in connection with its management incentive plan for a
total of $142 million in proceeds.
In October
2016, the Company announced a new share buyback program for the purchase of
up to $3 billion of its own shares from 2017 to 2019.
|
25
Q3
2016 Financial Information
N
ot
e
10
Earnings
per
share
|
Basic earnings per share is calculated by dividing income by the
weighted-average number of shares outstanding during the period. Diluted
earnings per share is calculated by dividing income by the weighted-average
number of shares outstanding during the period, assuming that all potentially
dilutive securities were exercised, if dilutive. Potentially dilutive
securities comprise outstanding written call options and outstanding options
and shares granted subject to certain conditions under the Company’s
share-based payment arrangements
.
|
|
Basic earnings per share
|
|
|
|
|
|
Nine
months ended September 30,
|
Three
months ended September 30,
|
|
|
($ in millions, except per share data in $)
|
2016
|
2015
|
2016
|
2015
|
|
|
Amounts attributable to ABB shareholders:
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
1,460
|
1,727
|
552
|
577
|
|
|
Income from discontinued operations, net of tax
|
14
|
2
|
16
|
–
|
|
|
Net income
|
1,474
|
1,729
|
568
|
577
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares
outstanding (in millions)
|
2,155
|
2,234
|
2,135
|
2,219
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to ABB shareholders:
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
0.68
|
0.77
|
0.26
|
0.26
|
|
|
Income from discontinued operations, net of tax
|
–
|
–
|
0.01
|
–
|
|
|
Net income
|
0.68
|
0.77
|
0.27
|
0.26
|
|
|
Diluted earnings per share
|
|
|
|
|
|
Nine
months ended September 30,
|
Three
months ended September 30,
|
|
|
($ in millions, except per share data in $)
|
2016
|
2015
|
2016
|
2015
|
|
|
Amounts attributable to ABB shareholders:
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
1,460
|
1,727
|
552
|
577
|
|
|
Income from discontinued operations, net of tax
|
14
|
2
|
16
|
–
|
|
|
Net income
|
1,474
|
1,729
|
568
|
577
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding (in millions)
|
2,155
|
2,234
|
2,135
|
2,219
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Call options and shares
|
4
|
5
|
4
|
4
|
|
|
Adjusted weighted-average number of
shares outstanding (in millions)
|
2,159
|
2,239
|
2,139
|
2,223
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to ABB shareholders:
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
0.68
|
0.77
|
0.26
|
0.26
|
|
|
Income from discontinued operations, net of tax
|
–
|
–
|
0.01
|
–
|
|
|
Net income
|
0.68
|
0.77
|
0.27
|
0.26
|
|
Note
11
Reclassifications
out of accumulated other comprehensive loss
|
The following table shows changes in “Accumulated other
comprehensive loss” (OCI) attributable to ABB, by component, net of tax:
|
|
|
|
Unrealized
gains
|
Pension
and
|
Unrealized
gains
|
|
|
|
Foreign
currency
|
(losses)
on
|
other
|
(losses)
of cash
|
|
|
|
translation
|
available-for-sale
|
postretirement
|
flow
hedge
|
|
|
($ in millions)
|
adjustments
|
securities
|
plan
adjustments
|
derivatives
|
Total
OCI
|
|
Balance at January 1, 2015
|
(2,102)
|
13
|
(2,131)
|
(21)
|
(4,241)
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
before reclassifications
|
(844)
|
(3)
|
91
|
(14)
|
(770)
|
|
Amounts reclassified from OCI
|
–
|
1
|
88
|
28
|
117
|
|
Total other comprehensive (loss)
income
|
(844)
|
(2)
|
179
|
14
|
(653)
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
Amounts attributable to noncontrolling interests
|
(13)
|
–
|
–
|
–
|
(13)
|
|
Balance at September 30, 2015
|
(2,933)
|
11
|
(1,952)
|
(7)
|
(4,881)
|
26
Q3
2016 Financial Information
|
|
|
Unrealized
gains
|
Pension
and
|
Unrealized
gains
|
|
|
|
Foreign
currency
|
(losses)
on
|
other
|
(losses)
of cash
|
|
|
|
translation
|
available-for-sale
|
postretirement
|
flow
hedge
|
|
|
($ in millions)
|
adjustments
|
securities
|
plan
adjustments
|
derivatives
|
Total
OCI
|
|
Balance at January 1, 2016
|
(3,135)
|
7
|
(1,719)
|
(11)
|
(4,858)
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
before reclassifications
|
98
|
8
|
22
|
22
|
150
|
|
Amounts reclassified from OCI
|
–
|
(1)
|
67
|
(9)
|
57
|
|
Total other comprehensive (loss)
income
|
98
|
7
|
89
|
13
|
207
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
Amounts attributable to noncontrolling interests
|
1
|
–
|
–
|
–
|
1
|
|
Balance at September 30, 2016
|
(3,038)
|
14
|
(1,630)
|
2
|
(4,652)
|
|
The following table reflects amounts reclassified out
of OCI in respect of pension and other postretirement plan adjustments:
|
|
|
|
Nine
months ended
|
Three
months ended
|
|
($ in millions)
|
Location of (gains) losses
|
September
30,
|
September
30,
|
|
Details about OCI components
|
reclassified from OCI
|
2016
|
2015
|
2016
|
2015
|
|
Pension and other postretirement plan adjustments:
|
|
|
|
|
|
|
Amortization of prior service cost
|
Net periodic benefit cost
(1)
|
22
|
22
|
7
|
7
|
|
Amortization of net actuarial loss
|
Net periodic benefit cost
(1)
|
65
|
96
|
22
|
40
|
|
Total before tax
|
|
87
|
118
|
29
|
47
|
|
Tax
|
Provision for taxes
|
(20)
|
(30)
|
(7)
|
(14)
|
|
Amounts reclassified from OCI
|
|
67
|
88
|
22
|
33
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) of cash flow hedge derivatives:
|
|
|
|
|
|
|
Foreign exchange contracts
|
Total revenues
|
9
|
31
|
3
|
7
|
|
|
Total cost of sales
|
(9)
|
(8)
|
(2)
|
(3)
|
|
Commodity contracts
|
Total cost of sales
|
2
|
7
|
(1)
|
3
|
|
Cash-settled call options
|
SG&A expenses
(2)
|
(12)
|
6
|
(11)
|
2
|
|
Total before tax
|
|
(10)
|
36
|
(11)
|
9
|
|
Tax
|
Provision for taxes
|
1
|
(8)
|
2
|
(2)
|
|
Amounts reclassified from OCI
|
|
(9)
|
28
|
(9)
|
7
|
(1) These
components
are
included
in
the
computation
of
net
periodic
benefit
cost
(see
Note
8).
(2) SG&A
expenses represent “Selling, general and administrative expenses”.
|
The amounts in respect of
Unrealized gains (losses) on available-for-sale securities were not
significant for the nine and three months ended September 30, 2016 and 2015.
|
Note 12
Restructuring and related expenses
|
|
White Collar Productivity program
|
In September 2015, the
Company announced a two-year program aimed at making the Company leaner,
faster and more customer-focused. Planned productivity improvements include
the rapid expansion and use of regional shared service centers as well as the
streamlining of global operations and head office functions, with business
units moving closer to their respective key markets. In the course of this
program, the Company will implement and execute various restructuring
initiatives across all operating segments and regions.
|
|
The following table
outlines the costs incurred in the nine and three months ended September 30,
2016, the cumulative costs incurred to date and the total amount of costs
expected to be incurred under the program per operating segment
:
|
|
|
Costs
incurred in the
|
Costs
incurred in the
|
Cumulative
costs
|
|
|
|
nine
months ended
|
three
months ended
|
incurred
up to
|
|
|
($ in millions)
|
September
30, 2016
|
September
30, 2016
|
September
30, 2016
|
Total
expected costs
(1)
|
|
Electrification Products
|
25
|
(7)
|
98
|
103
|
|
Discrete Automation and Motion
|
33
|
(9)
|
78
|
82
|
|
Process Automation
|
73
|
(9)
|
169
|
179
|
|
Power Grids
|
50
|
(10)
|
120
|
125
|
|
Corporate and Other
|
49
|
(4)
|
135
|
142
|
|
Total
|
230
|
(39)
|
600
|
631
|
(1) Total
expected costs have been recast to reflect the reorganization of the Company’s
operating segments as outlined in Note 13.
|
During the nine months ended September 30, 2016, the total
expected program costs were reduced by $221 million due to higher
attrition rates and a favorable change in average severance costs per person
across all operating segments. The variances in average severance costs were
primarily due to more precise cost estimates being computed after determining
the specific country locations of affected employees.
Of the total expected costs of $631 million, the majority is
related to employee severance costs.
|
27
Q3
2016 Financial Information
|
The Company
recorded the following expenses under this program:
|
|
|
Nine
months ended
|
Three
months ended
|
Cumulative
costs
|
|
|
September
30,
|
September
30,
|
incurred
up to
|
|
($ in millions)
|
2016
|
2015
|
2016
|
2015
|
September
30, 2016
|
|
Employee severance costs
|
229
|
18
|
(39)
|
18
|
593
|
|
Estimated contract settlement, loss order and other costs
|
1
|
–
|
–
|
–
|
6
|
|
Inventory and long-lived asset impairments
|
–
|
–
|
–
|
–
|
1
|
|
Total
|
230
|
18
|
(39)
|
18
|
600
|
|
Expenses associated with
this program are recorded in the following line items in the Consolidated
Income Statements:
|
|
|
Nine
months ended September 30,
|
Three
months ended September 30,
|
|
($ in millions)
|
2016
|
2015
|
2016
|
2015
|
|
Total cost of sales
|
139
|
9
|
(20)
|
9
|
|
Selling, general and administrative expenses
|
77
|
4
|
(13)
|
4
|
|
Non-order related research and development expenses
|
7
|
4
|
(3)
|
4
|
|
Other income (expense), net
|
7
|
1
|
(3)
|
1
|
|
Total
|
230
|
18
|
(39)
|
18
|
|
Liabilities
associated with the White Collar Productivity program are primarily included
in “Other provisions”. The following table shows the activity from the
beginning of the program to September 30, 2016, by expense type.
|
|
|
Employee
|
Contract
settlement,
|
|
|
($ in millions)
|
severance
costs
|
loss
order and other costs
|
Total
|
|
Liability at January 1, 2015
|
–
|
–
|
–
|
|
Expenses
|
364
|
5
|
369
|
|
Cash payments
|
(34)
|
(1)
|
(35)
|
|
Liability at December 31, 2015
|
330
|
4
|
334
|
|
Expenses
|
301
|
1
|
302
|
|
Cash payments
|
(83)
|
(2)
|
(85)
|
|
Change in estimates
|
(72)
|
–
|
(72)
|
|
Exchange rate differences
|
1
|
–
|
1
|
|
Liability at September 30, 2016
|
477
|
3
|
480
|
|
The change in estimates of
$72 million, $44 million of which
was recorded in the three months ended September 30,
2016,
results from higher
attrition rates and a reduction in average severance costs per person.
The reduction in the liability was recorded
in income from operations, primarily as reductions in cost of sales of
$34 million and in selling, general and administrative expenses of
$27 million, and resulted in an increase in earnings per share (basic
and diluted) of approximately $0.02 and $0.01 for the nine and three months
ended September 30, 2016, respectively.
|
Other restructuring-related activities
|
In the
nine
months ended September 30, 2016
and 2015
, the Company executed various other minor restructuring‑related
activities and incurred expenses of $
91
million
and
$112 million, respectively. In the
three
months ended September 30, 2016 and 2015, these expenses amounted to
$24 million and $28 million, respectively.
These expenses mainly related to employee severance costs and were primarily
recorded in “Total cost of sales”.
|
28
Q3
2016 Financial Information
Note 13
Operating segment data
|
The
Chief Operating Decision Maker (CODM) is the Company’s Executive Committee.
The CODM allocates resources to and assesses the performance of each
operating segment using the information outlined below. The Company’s
operating segments consist of Electrification Products, Discrete Automation
and Motion, Process Automation and Power Grids. The remaining operations of
the Company are included in Corporate and Other.
|
|
Effective
January 1, 2016, the Company reorganized its operating segments with the aim
of delivering more customer value in a better, more focused way from its
combined power and automation offering. The new Electrification Products
segment includes the business of the former Low Voltage Products segment and
the Medium Voltage Products business from the former Power Products segment.
The Process Automation segment has been expanded to include the Distributed
Control Systems business from the former Power Systems segment, while the
remaining businesses of the former Power Products and Power Systems segments
were combined to form the new Power Grids segment. There were no significant
changes to the Discrete Automation and Motion segment.
In
addition, commencing in 2016, the Company changed its method of allocating
income taxes to its operating segments whereby tax assets are primarily
accounted for in Corporate and Other. As a result, certain amounts relating
to current and deferred tax assets previously reported within the total
segment assets of each individual operating segment have been allocated to
Corporate and Other.
The
segment information for the nine and three months ended September 30, 2015
and at December 31, 2015, has been recast to reflect these organizational and
allocation changes.
|
|
A
description of the types of products and services provided by each reportable
segment is as follows:
● Electrification Products:
manufactures and sells products and
services including low- and medium-voltage switchgear (air and gas
insulated), breakers, switches, control products, DIN rail components,
automation and distribution enclosures, wiring accessories and installation
material for many kinds of applications.
● Discrete Automation and Motion:
manufactures and sells motors, generators,
variable speed drives, robots and robotics, solar inverters, wind converters,
rectifiers, excitation systems, power quality and protection solutions,
electric vehicle fast charging infrastructure, components and subsystems for
railways, and related services for a wide range of applications in discrete
automation, process industries, transportation and utilities.
● Process Automation:
develops and sells control and plant
optimization systems, automation products and solutions, including
instrumentation, as well as industry-specific application knowledge and
services for the oil, gas and petrochemicals, metals and minerals, marine and
turbocharging, pulp and paper, chemical and pharmaceuticals, and power
industries.
● Power Grids:
supplies power and automation products, systems, and
service and software solutions for power generation, transmission and
distribution to utility, industry, transportation and infrastructure
customers. These offerings address evolving grid developments which include
the integration of renewables, network control, digital substations,
microgrids and asset management. The segment also manufactures a wide range of
power, distribution and traction transformers, an array of high-voltage
products, including circuit breakers, switchgear, capacitors and power
transmission systems.
● Corporate and Other:
includes headquarters, central research
and development, the Company’s real estate activities, Group Treasury
Operations, historical operating activities of certain divested businesses,
and other minor business activities.
|
|
The
Company evaluates the profitability of its segments based on Operational
EBITA, which represents income from operations excluding amortization expense
on intangibles arising upon acquisitions (acquisition-related amortization),
restructuring and restructuring-related expenses, gains and losses from sale
of businesses, acquisition-related expenses and certain non-operational
items, as well as foreign exchange/commodity timing differences in income
from operations consisting of: (i) unrealized gains and losses on derivatives
(foreign exchange, commodities, embedded derivatives), (ii) realized gains
and losses on derivatives where the underlying hedged transaction has not yet
been realized, and (iii) unrealized foreign exchange movements on
receivables/payables (and related assets/liabilities).
The
CODM primarily reviews the results of each segment on a basis that is before
the elimination of profits made on inventory sales between segments. Segment
results below are presented before these eliminations, with a total deduction
for intersegment profits to arrive at the Company’s consolidated Operational
EBITA. Intersegment sales and transfers are accounted for as if the sales and
transfers were to third parties, at current market prices.
|
|
The following tables present segment revenues,
Operational EBITA, and the reconciliations of consolidated Operational EBITA
to Income from continuing operations before taxes for the nine and three
months ended September 30, 2016 and 2015, as well as total assets at
September 30, 2016, and December 31, 2015.
|
|
|
Nine
months ended September 30, 2016
|
Nine
months ended September 30, 2015
|
|
|
Third-party
|
Intersegment
|
Total
|
Third-party
|
Intersegment
|
Total
|
|
($ in millions)
|
revenues
|
revenues
|
revenues
|
revenues
|
revenues
|
revenues
|
|
Electrification Products
|
6,426
|
404
|
6,830
|
6,638
|
450
|
7,088
|
|
Discrete Automation and Motion
|
6,090
|
413
|
6,503
|
6,383
|
456
|
6,839
|
|
Process Automation
|
4,748
|
113
|
4,861
|
5,212
|
86
|
5,298
|
|
Power Grids
|
7,530
|
403
|
7,933
|
7,949
|
565
|
8,514
|
|
Corporate and Other
|
41
|
1,160
|
1,201
|
57
|
1,113
|
1,170
|
|
Intersegment elimination
|
–
|
(2,493)
|
(2,493)
|
–
|
(2,670)
|
(2,670)
|
|
Consolidated
|
24,835
|
–
|
24,835
|
26,239
|
–
|
26,239
|
29
Q3
2016 Financial Information
|
|
Three
months ended September 30, 2016
|
Three
months ended September 30, 2015
|
|
|
Third-party
|
Intersegment
|
Total
|
Third-party
|
Intersegment
|
Total
|
|
($ in millions)
|
revenues
|
revenues
|
revenues
|
revenues
|
revenues
|
revenues
|
|
Electrification Products
|
2,177
|
131
|
2,308
|
2,205
|
148
|
2,353
|
|
Discrete Automation and Motion
|
2,076
|
127
|
2,203
|
2,050
|
170
|
2,220
|
|
Process Automation
|
1,490
|
33
|
1,523
|
1,635
|
24
|
1,659
|
|
Power Grids
|
2,498
|
138
|
2,636
|
2,616
|
175
|
2,791
|
|
Corporate and Other
|
14
|
385
|
399
|
13
|
359
|
372
|
|
Intersegment elimination
|
–
|
(814)
|
(814)
|
–
|
(876)
|
(876)
|
|
Consolidated
|
8,255
|
–
|
8,255
|
8,519
|
–
|
8,519
|
|
|
Nine
months ended September 30,
|
Three
months ended September 30,
|
|
($ in millions)
|
2016
|
2015
|
2016
|
2015
|
|
Operational EBITA:
|
|
|
|
|
|
Electrification Products
|
1,143
|
1,161
|
411
|
410
|
|
Discrete Automation and Motion
|
896
|
992
|
311
|
335
|
|
Process Automation
|
593
|
624
|
187
|
181
|
|
Power Grids
|
706
|
581
|
254
|
221
|
|
Corporate and Other and Intersegment elimination
|
(243)
|
(270)
|
(117)
|
(66)
|
|
Consolidated Operational EBITA
|
3,095
|
3,088
|
1,046
|
1,081
|
|
Acquisition-related amortization
|
(212)
|
(237)
|
(70)
|
(74)
|
|
Restructuring and restructuring-related expenses
(1)
|
(475)
|
(143)
|
(39)
|
(59)
|
|
Gains and losses from sale of businesses, acquisition-related
expenses
|
|
|
|
|
|
and certain non-operational items
|
(46)
|
(44)
|
(35)
|
6
|
|
Foreign exchange/commodity timing differences in income from
operations:
|
|
|
|
|
|
Unrealized gains and losses on derivatives (foreign exchange,
|
|
|
|
|
|
commodities, embedded derivatives)
|
(43)
|
80
|
(8)
|
(64)
|
|
Realized gains and losses on derivatives where the underlying
hedged
|
|
|
|
|
|
transaction has not yet been realized
|
11
|
(50)
|
(3)
|
(22)
|
|
Unrealized foreign exchange movements on receivables/payables
(and
|
|
|
|
|
|
related assets/liabilities)
|
(21)
|
8
|
(13)
|
14
|
|
Income from operations
|
2,309
|
2,702
|
878
|
882
|
|
Interest and dividend income
|
54
|
56
|
16
|
18
|
|
Interest and other finance expense
|
(230)
|
(223)
|
(84)
|
(64)
|
|
Income from continuing operations
before taxes
|
2,133
|
2,535
|
810
|
836
|
(1)
Amounts also include the incremental implementation costs in relation to the
White Collar Productivity program.
|
|
Total
assets
(1)
|
|
($ in millions)
|
September
30, 2016
|
December
31, 2015
|
|
Electrification Products
|
10,018
|
9,474
|
|
Discrete Automation and Motion
|
8,780
|
9,223
|
|
Process Automation
|
4,490
|
4,662
|
|
Power Grids
|
9,380
|
9,422
|
|
Corporate and Other
|
8,141
|
8,575
|
|
Consolidated
|
40,809
|
41,356
|
(1)
Total assets are after intersegment eliminations and therefore reflect
third-party assets only.
Realignment of segments
|
On
October 4, 2016, the Company announced a planned change in the composition of
the business portfolio of its four segments, effective January 1, 2017. In
addition, two of the segments will be renamed.
The
primary portfolio change is that the scope of Electrification Products
segment will be expanded to include electric vehicle charging, solar, and
power quality businesses from the Discrete Automation and Motion segment.
In
addition, the Discrete Automation and Motion segment will be renamed the
Robotics and Motion segment while the Process Automation segment will be
renamed the Industrial Automation segment.
|
30
Q3
2016 Financial Information
31
Q3
2016 Financial Information
—
Financial Information
Supplemental
Reconciliations and Definitions
|
The following reconciliations and definitions include
measures which ABB uses to supplement its Interim Consolidated Financial
Information (unaudited) which is prepared in accordance with United States
generally accepted accounting principles (U.S. GAAP). Certain of these
financial measures are, or may be, considered non-GAAP financial measures as
defined in the rules of the U.S. Securities and Exchange Commission (SEC).
While ABB’s management believes that the non-GAAP
financial measures herein are useful in evaluating ABB’s operating results,
this information should be considered as supplemental in nature and not as a
substitute for the related financial information prepared in accordance with
U.S. GAAP. Therefore these measures should not be viewed in isolation but
considered together with the Interim Consolidated Financial Information
(unaudited) prepared in accordance with U.S. GAAP as of and for the nine and
three months ended September 30, 2016.
|
Comparable
growth
rates
|
Growth rates for certain key figures may be presented
and discussed on a “comparable” basis. The comparable growth rate measures
growth on a constant currency basis. Since we are a global company, the
comparability of our operating results reported in U.S. dollars is affected
by foreign currency exchange rate fluctuations. We calculate the impacts from
foreign currency fluctuations by translating the current-year periods’
reported key figures into U.S. dollar amounts using the exchange rates in
effect for the comparable periods in the previous year.
Comparable growth rates are also adjusted for changes
in our business portfolio. Adjustments to our business portfolio occur due to
acquisitions, divestments, or by exiting specific business activities or customer
markets. The adjustment for portfolio changes is calculated as follows: where
the results of any business acquired or divested have not been consolidated
and reported for the entire duration of both the current and comparable
periods, the reported key figures of such business are adjusted to exclude
the relevant key figures of any corresponding quarters which are not
comparable when computing the comparable growth rate. Certain portfolio
changes which do not qualify as divestments under U.S. GAAP have been treated
in a similar manner to divestments. Changes in our portfolio where we have
exited certain business activities or customer markets are adjusted as if the
relevant business was divested in the period when the decision to cease
business activities was taken. We do not adjust for portfolio changes where
the relevant business has annualized revenues of less than $50 million.
The following tables provide reconciliations of
reported growth rates of certain key figures to their respective comparable
growth rate.
|
Divisional comparable growth rate reconciliation
|
|
|
Q3
2016 compared to Q3 2015
|
|
|
Order
growth rate
|
Revenue
growth rate
|
|
|
US$
|
Foreign
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
(as
|
exchange
|
Portfolio
|
|
|
Division
|
reported)
|
impact
|
changes
|
Comparable
|
reported)
|
impact
|
changes
|
Comparable
|
|
Electrification Products
|
-6%
|
2%
|
0%
|
-4%
|
-2%
|
2%
|
0%
|
0%
|
|
Discrete Automation and Motion
|
-5%
|
1%
|
0%
|
-4%
|
-1%
|
1%
|
0%
|
0%
|
|
Process Automation
|
-22%
|
1%
|
0%
|
-21%
|
-8%
|
1%
|
0%
|
-7%
|
|
Power Grids
|
-22%
|
1%
|
0%
|
-21%
|
-6%
|
2%
|
5%
|
1%
|
|
ABB Group
|
-14%
|
1%
|
0%
|
-13%
|
-3%
|
1%
|
2%
|
0%
|
32
Q3
2016 Financial Information
|
|
9M
2016 compared to 9M 2015
|
|
|
Order
growth rate
|
Revenue
growth rate
|
|
|
US$
|
Foreign
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
(as
|
exchange
|
Portfolio
|
|
|
Division
|
reported)
|
impact
|
changes
|
Comparable
|
reported)
|
impact
|
changes
|
Comparable
|
|
Electrification Products
|
-7%
|
4%
|
0%
|
-3%
|
-4%
|
4%
|
0%
|
0%
|
|
Discrete Automation and Motion
|
-8%
|
2%
|
0%
|
-6%
|
-5%
|
2%
|
0%
|
-3%
|
|
Process Automation
|
-22%
|
3%
|
0%
|
-19%
|
-8%
|
3%
|
0%
|
-5%
|
|
Power Grids
|
-13%
|
2%
|
1%
|
-10%
|
-7%
|
3%
|
4%
|
0%
|
|
ABB Group
|
-11%
|
3%
|
0%
|
-8%
|
-5%
|
3%
|
1%
|
-1%
|
Regional comparable growth rate reconciliation
|
|
|
Q3
2016 compared to Q3 2015
|
|
|
Order
growth rate
|
Revenue
growth rate
|
|
|
US$
|
Foreign
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
(as
|
exchange
|
Portfolio
|
|
|
Region
|
reported)
|
impact
|
changes
|
Comparable
|
reported)
|
impact
|
changes
|
Comparable
|
|
Europe
|
-20%
|
1%
|
1%
|
-18%
|
-3%
|
2%
|
4%
|
3%
|
|
The Americas
|
-17%
|
1%
|
0%
|
-16%
|
-4%
|
1%
|
0%
|
-3%
|
|
Asia, Middle East and Africa
|
-7%
|
2%
|
0%
|
-5%
|
-2%
|
2%
|
0%
|
0%
|
|
ABB Group
|
-14%
|
1%
|
0%
|
-13%
|
-3%
|
1%
|
2%
|
0%
|
|
|
9M
2016 compared to 9M 2015
|
|
|
Order
growth rate
|
Revenue
growth rate
|
|
|
US$
|
Foreign
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
(as
|
exchange
|
Portfolio
|
|
|
Region
|
reported)
|
impact
|
changes
|
Comparable
|
reported)
|
impact
|
changes
|
Comparable
|
|
Europe
|
-10%
|
2%
|
0%
|
-8%
|
-3%
|
2%
|
4%
|
3%
|
|
The Americas
|
-14%
|
2%
|
0%
|
-12%
|
-8%
|
3%
|
0%
|
-5%
|
|
Asia, Middle East and Africa
|
-9%
|
4%
|
0%
|
-5%
|
-5%
|
3%
|
0%
|
-2%
|
|
ABB Group
|
-11%
|
3%
|
0%
|
-8%
|
-5%
|
3%
|
1%
|
-1%
|
Order backlog growth rate reconciliation
|
|
|
September
30, 2016, compared to September 30, 2015
|
|
|
|
US$
|
Foreign
|
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
|
Division
|
reported)
|
impact
|
changes
|
Comparable
|
|
|
Electrification Products
|
2%
|
1%
|
0%
|
3%
|
|
|
Discrete Automation and Motion
|
-3%
|
1%
|
0%
|
-2%
|
|
|
Process Automation
|
-10%
|
-1%
|
0%
|
-11%
|
|
|
Power Grids
|
0%
|
1%
|
1%
|
2%
|
|
|
ABB Group
|
-3%
|
0%
|
1%
|
-2%
|
|
Other growth rate reconciliations
|
|
|
Q3
2016 compared to Q3 2015
|
9M
2016 compared to 9M 2015
|
|
|
US$
|
Foreign
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
(as
|
exchange
|
Portfolio
|
|
|
|
reported)
|
impact
|
changes
|
Comparable
|
reported)
|
impact
|
changes
|
Comparable
|
|
Large orders
|
-46%
|
1%
|
0%
|
-45%
|
-38%
|
0%
|
1%
|
-37%
|
|
Base orders
|
-7%
|
1%
|
0%
|
-6%
|
-5%
|
3%
|
0%
|
-2%
|
|
Service orders
|
-5%
|
2%
|
0%
|
-3%
|
-1%
|
3%
|
0%
|
2%
|
|
Service revenues
|
4%
|
1%
|
0%
|
5%
|
0%
|
3%
|
0%
|
3%
|
33
Q3
2016 Financial Information
Division realignment:
|
Effective January 1, 2016, we have
realigned our organizational structure to better address customer needs and
deliver operational efficiency. Our new streamlined structure is comprised of
four operating divisions: Power Grids, Electrification Products, Discrete
Automation and Motion and Process Automation. In addition, the operations of
certain previously divested businesses have been excluded from the results of
the four divisions (but are included in the total ABB Group) for the periods
prior to their respective divestment. See Note 13 to the Interim Consolidated
Financial Information (unaudited) for further details on the realignment.
The
following information presents a reconciliation of growth rates of orders and
revenues for 2015 compared with 2014 to reflect these organizational changes:
|
Divisional comparable growth rate reconciliation:
|
|
|
Q3
2015 compared to Q3 2014
|
|
|
Order
growth rate
|
Revenue
growth rate
|
|
|
US$
|
Foreign
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
(as
|
exchange
|
Portfolio
|
|
|
Division
|
reported)
|
impact
|
changes
|
Comparable
|
reported)
|
impact
|
changes
|
Comparable
|
|
Electrification Products
|
-15%
|
11%
|
0%
|
-4%
|
-13%
|
11%
|
0%
|
-2%
|
|
Discrete Automation and Motion
|
-17%
|
8%
|
0%
|
-9%
|
-16%
|
9%
|
0%
|
-7%
|
|
Process Automation
|
-45%
|
8%
|
0%
|
-37%
|
-19%
|
12%
|
0%
|
-7%
|
|
Power Grids
|
-16%
|
11%
|
-1%
|
-6%
|
-6%
|
11%
|
1%
|
6%
|
|
ABB Group
|
-22%
|
10%
|
0%
|
-12%
|
-13%
|
10%
|
1%
|
-2%
|
|
|
9M
2015 compared to 9M 2014
|
|
|
Order
growth rate
|
Revenue
growth rate
|
|
|
US$
|
Foreign
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
(as
|
exchange
|
Portfolio
|
|
|
Division
|
reported)
|
impact
|
changes
|
Comparable
|
reported)
|
impact
|
changes
|
Comparable
|
|
Electrification Products
|
-10%
|
10%
|
0%
|
0%
|
-10%
|
11%
|
0%
|
1%
|
|
Discrete Automation and Motion
|
-12%
|
9%
|
0%
|
-3%
|
-10%
|
9%
|
0%
|
-1%
|
|
Process Automation
|
-22%
|
12%
|
0%
|
-10%
|
-16%
|
12%
|
0%
|
-4%
|
|
Power Grids
|
-4%
|
13%
|
0%
|
9%
|
-7%
|
11%
|
0%
|
4%
|
|
ABB Group
|
-12%
|
10%
|
2%
|
0%
|
-11%
|
10%
|
2%
|
1%
|
Adjusted
services and software revenues as a percentage of total revenues
|
Adjusted
services and software
revenues as a percentage of total revenues is
calculated as Sales of
services and software
divided by Total revenues, after reducing
both amounts by the amount of revenues recorded for businesses which have
subsequently been divested. Total revenues are also adjusted when we have
exited certain business activities or customer markets as if the relevant
business was divested in the period when the decision to cease business
activities was taken. We do not adjust for portfolio changes where the
relevant business has annualized revenues of less than $50 million.
|
|
|
Three
months ended September 30,
|
|
($ in millions, unless otherwise indicated)
|
2016
|
2015
|
|
Adjusted services and software
revenues as a percentage of total revenues
|
|
|
|
|
Sales of services and software
|
1,453
|
1,403
|
|
Adjusted services and software
revenues
|
1,453
|
1,403
|
|
|
Total revenues
|
8,255
|
8,519
|
|
|
Total revenues in divested/exited businesses
|
–
|
(139)
|
|
Adjusted total revenues
|
8,255
|
8,380
|
|
Adjusted services and software
revenues as a percentage of total revenues
|
17.6%
|
16.7%
|
34
Q3
2016 Financial Information
Operational EBITA margin
|
Definition
Operational EBITA margin
Operational EBITA margin is Operational EBITA as a
percentage of Operational revenues.
Operational EBITA
Operational earnings before interest, taxes and
acquisition-related amortization (Operational EBITA) represents Income from operations
excluding acquisition-related amortization (as defined below), restructuring
and restructuring-related expenses, gains and losses from sale of businesses,
acquisition-related expenses and certain non-operational items, as well as
foreign exchange/commodity timing differences in income from operations
consisting of: (i) unrealized gains and losses on derivatives (foreign
exchange, commodities, embedded derivatives), (ii) realized gains and losses
on derivatives where the underlying hedged transaction has not yet been
realized, and (iii) unrealized foreign exchange movements on
receivables/payables (and related assets/liabilities). Operational EBITA is
our measure of segment profit but is also used by management to evaluate the
profitability of the Company as a whole.
Acquisition-related amortization
Amortization expense on intangibles arising upon
acquisitions.
Operational revenues
The Company presents Operational revenues solely for
the purpose of allowing the computation of Operational EBITA margin.
Operational revenues are total revenues adjusted for foreign
exchange/commodity timing differences in total revenues of: (i) unrealized
gains and losses on derivatives, (ii) realized gains and losses on
derivatives where the underlying hedged transaction has not yet been
realized, and (iii) unrealized foreign exchange movements on receivables (and
related assets). Operational revenues are not intended to be an alternative
measure to
Total Revenues
, which represent our revenues measured in
accordance with U.S. GAAP.
|
Reconciliation
|
The
following tables provide reconciliations of consolidated Operational EBITA to
Net Income and Operational EBITA Margin by division.
|
Reconciliation
of consolidated Operational EBITA to Net Income
|
|
|
|
|
Nine
months ended September 30,
|
Three
months ended September 30,
|
|
($ in millions)
|
2016
|
2015
|
2016
|
2015
|
|
Operational EBITA
|
3,095
|
3,088
|
1,046
|
1,081
|
|
Acquisition-related amortization
|
(212)
|
(237)
|
(70)
|
(74)
|
|
Restructuring and restructuring-related expenses
(1)
|
(475)
|
(143)
|
(39)
|
(59)
|
|
Gains and losses from sale of businesses, acquisition-related
expenses
|
|
|
|
|
|
and certain non-operational items
|
(46)
|
(44)
|
(35)
|
6
|
|
Foreign exchange/commodity timing differences in income from
operations:
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives (foreign exchange,
|
|
|
|
|
|
|
commodities, embedded derivatives)
|
(43)
|
80
|
(8)
|
(64)
|
|
|
Realized gains and losses on derivatives where the underlying
hedged
|
|
|
|
|
|
|
transaction has not yet been realized
|
11
|
(50)
|
(3)
|
(22)
|
|
|
Unrealized foreign exchange movements on receivables/payables
(and
|
|
|
|
|
|
|
related assets/liabilities)
|
(21)
|
8
|
(13)
|
14
|
|
Income from operations
|
2,309
|
2,702
|
878
|
882
|
|
Interest and dividend income
|
54
|
56
|
16
|
18
|
|
Interest and other finance expense
|
(230)
|
(223)
|
(84)
|
(64)
|
|
Income from continuing operations
before taxes
|
2,133
|
2,535
|
810
|
836
|
|
Provision for taxes
|
(587)
|
(722)
|
(237)
|
(229)
|
|
Income from continuing operations,
net of tax
|
1,546
|
1,813
|
573
|
607
|
|
Income from discontinued operations, net of tax
|
14
|
2
|
16
|
–
|
|
Net income
|
1,560
|
1,815
|
589
|
607
|
(1)
Amounts also include the incremental implementation costs in relation to the
White Collar Productivity program.
35
Q3
2016 Financial Information
Reconciliation of Operational EBITA margin
by division
|
|
|
|
Nine
months ended September 30, 2016
|
|
|
|
|
|
|
Corporate
and
|
|
|
|
|
Discrete
|
|
|
Other
and
|
|
|
|
Electrification
|
Automation
|
Process
|
Power
|
Intersegment
|
|
|
($ in millions, unless otherwise indicated)
|
Products
|
and
Motion
|
Automation
|
Grids
|
elimination
|
Consolidated
|
|
Total revenues
|
6,830
|
6,503
|
4,861
|
7,933
|
(1,292)
|
24,835
|
|
Foreign exchange/commodity timing
|
|
|
|
|
|
|
|
differences in total revenues:
|
|
|
|
|
|
|
|
Unrealized gains and losses
|
|
|
|
|
|
|
|
on derivatives
|
2
|
(5)
|
12
|
33
|
–
|
42
|
|
Realized gains and losses on derivatives
|
|
|
|
|
|
|
|
where the underlying hedged
|
|
|
|
|
|
|
|
transaction has not yet been realized
|
(4)
|
–
|
7
|
(5)
|
–
|
(2)
|
|
Unrealized foreign exchange movements
|
|
|
|
|
|
|
|
on receivables (and related assets)
|
2
|
3
|
13
|
2
|
1
|
21
|
|
Operational revenues
|
6,830
|
6,501
|
4,893
|
7,963
|
(1,291)
|
24,896
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
1,016
|
742
|
452
|
554
|
(455)
|
2,309
|
|
Acquisition-related amortization
|
72
|
91
|
9
|
27
|
13
|
212
|
|
Restructuring and
|
|
|
|
|
|
|
|
restructuring-related expenses
(1)
|
48
|
57
|
100
|
106
|
164
|
475
|
|
Gains and losses from sale of businesses,
|
|
|
|
|
|
|
|
acquisition-related expenses and certain
|
|
|
|
|
|
|
|
non-operational items
|
1
|
4
|
–
|
6
|
35
|
46
|
|
Foreign exchange/commodity timing
|
|
|
|
|
|
|
|
differences in income from operations:
|
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives
|
|
|
|
|
|
|
|
(foreign exchange, commodities,
|
|
|
|
|
|
|
|
embedded derivatives)
|
10
|
–
|
16
|
16
|
1
|
43
|
|
Realized gains and losses on derivatives
|
|
|
|
|
|
|
|
where the underlying hedged
|
|
|
|
|
|
|
|
transaction has not yet been realized
|
(3)
|
–
|
–
|
(8)
|
–
|
(11)
|
|
Unrealized foreign exchange movements
|
|
|
|
|
|
|
|
on receivables/payables
|
|
|
|
|
|
|
|
(and related assets/liabilities)
|
(1)
|
2
|
16
|
5
|
(1)
|
21
|
|
Operational EBITA
|
1,143
|
896
|
593
|
706
|
(243)
|
3,095
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%)
|
16.7%
|
13.8%
|
12.1%
|
8.9%
|
n.a.
|
12.4%
|
(1)
Amounts also include the incremental implementation costs in relation to the
White Collar Productivity program.
36
Q3
2016 Financial Information
|
|
Nine
months ended September 30, 2015
|
|
|
|
|
|
|
Corporate
and
|
|
|
|
|
Discrete
|
|
|
Other
and
|
|
|
|
Electrification
|
Automation
|
Process
|
Power
|
Intersegment
|
|
|
($ in millions, unless otherwise indicated)
|
Products
|
and
Motion
|
Automation
|
Grids
|
elimination
|
Consolidated
|
|
Total revenues
|
7,088
|
6,839
|
5,298
|
8,514
|
(1,500)
|
26,239
|
|
Foreign exchange/commodity timing
|
|
|
|
|
|
|
|
differences in total revenues:
|
|
|
|
|
|
|
|
Unrealized gains and losses
|
|
|
|
|
|
|
|
on derivatives
|
(15)
|
20
|
(4)
|
(55)
|
–
|
(54)
|
|
Realized gains and losses on derivatives
|
|
|
|
|
|
|
|
where the underlying hedged
|
|
|
|
|
|
|
|
transaction has not yet been realized
|
6
|
(28)
|
28
|
57
|
–
|
63
|
|
Unrealized foreign exchange movements
|
|
|
|
|
|
|
|
on receivables (and related assets)
|
2
|
8
|
(24)
|
(19)
|
–
|
(33)
|
|
Operational revenues
|
7,081
|
6,839
|
5,298
|
8,497
|
(1,500)
|
26,215
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
1,089
|
857
|
580
|
468
|
(292)
|
2,702
|
|
Acquisition-related amortization
|
76
|
96
|
9
|
42
|
14
|
237
|
|
Restructuring and
|
|
|
|
|
|
|
|
restructuring-related expenses
(1)
|
20
|
44
|
24
|
38
|
17
|
143
|
|
Gains and losses from sale of businesses,
|
|
|
|
|
|
|
|
acquisition-related expenses and certain
|
|
|
|
|
|
|
|
non-operational items
|
–
|
–
|
19
|
38
|
(13)
|
44
|
|
Foreign exchange/commodity timing
|
|
|
|
|
|
|
|
differences in income from operations:
|
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives
|
|
|
|
|
|
|
|
(foreign exchange, commodities,
|
|
|
|
|
|
|
|
embedded derivatives)
|
(30)
|
9
|
(12)
|
(49)
|
2
|
(80)
|
|
Realized gains and losses on derivatives
|
|
|
|
|
|
|
|
where the underlying hedged
|
|
|
|
|
|
|
|
transaction has not yet been realized
|
5
|
(26)
|
17
|
54
|
–
|
50
|
|
Unrealized foreign exchange movements
|
|
|
|
|
|
|
|
on receivables/payables
|
|
|
|
|
|
|
|
(and related assets/liabilities)
|
1
|
12
|
(13)
|
(10)
|
2
|
(8)
|
|
Operational EBITA
|
1,161
|
992
|
624
|
581
|
(270)
|
3,088
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%)
|
16.4%
|
14.5%
|
11.8%
|
6.8%
|
n.a.
|
11.8%
|
(1)
Amounts also include the incremental implementation costs in relation to the
White Collar Productivity program.
37
Q3
2016 Financial Information
|
|
Three
months ended September 30, 2016
|
|
|
|
|
|
|
Corporate
and
|
|
|
|
|
Discrete
|
|
|
Other
and
|
|
|
|
Electrification
|
Automation
|
Process
|
Power
|
Intersegment
|
|
|
($ in millions, unless otherwise indicated)
|
Products
|
and
Motion
|
Automation
|
Grids
|
elimination
|
Consolidated
|
|
Total revenues
|
2,308
|
2,203
|
1,523
|
2,636
|
(415)
|
8,255
|
|
Foreign exchange/commodity timing
|
|
|
|
|
|
|
|
differences in total revenues:
|
|
|
|
|
|
|
|
Unrealized gains and losses
|
|
|
|
|
|
|
|
on derivatives
|
6
|
2
|
6
|
20
|
–
|
34
|
|
Realized gains and losses on derivatives
|
|
|
|
|
|
|
|
where the underlying hedged
|
|
|
|
|
|
|
|
transaction has not yet been realized
|
(2)
|
–
|
(1)
|
6
|
–
|
3
|
|
Unrealized foreign exchange movements
|
|
|
|
|
|
|
|
on receivables (and related assets)
|
1
|
2
|
3
|
(1)
|
1
|
6
|
|
Operational revenues
|
2,313
|
2,207
|
1,531
|
2,661
|
(414)
|
8,298
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
389
|
276
|
170
|
222
|
(179)
|
878
|
|
Acquisition-related amortization
|
24
|
30
|
3
|
9
|
4
|
70
|
|
Restructuring and
|
|
|
|
|
|
|
|
restructuring-related expenses
(1)
|
(7)
|
(4)
|
7
|
12
|
31
|
39
|
|
Gains and losses from sale of businesses,
|
|
|
|
|
|
|
|
acquisition-related expenses and certain
|
|
|
|
|
|
|
|
non-operational items
|
1
|
4
|
–
|
2
|
28
|
35
|
|
Foreign exchange/commodity timing
|
|
|
|
|
|
|
|
differences in income from operations:
|
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives
|
|
|
|
|
|
|
|
(foreign exchange, commodities,
|
|
|
|
|
|
|
|
embedded derivatives)
|
3
|
2
|
(1)
|
4
|
–
|
8
|
|
Realized gains and losses on derivatives
|
|
|
|
|
|
|
|
where the underlying hedged
|
|
|
|
|
|
|
|
transaction has not yet been realized
|
(2)
|
1
|
2
|
2
|
–
|
3
|
|
Unrealized foreign exchange movements
|
|
|
|
|
|
|
|
on receivables/payables
|
|
|
|
|
|
|
|
(and related assets/liabilities)
|
3
|
2
|
6
|
3
|
(1)
|
13
|
|
Operational EBITA
|
411
|
311
|
187
|
254
|
(117)
|
1,046
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%)
|
17.8%
|
14.1%
|
12.2%
|
9.5%
|
n.a.
|
12.6%
|
(1) Amounts
also include the incremental implementation costs in relation to the White
Collar Productivity program.
38
Q3
2016 Financial Information
|
|
Three
months ended September 30, 2015
|
|
|
|
|
|
|
Corporate
and
|
|
|
|
|
Discrete
|
|
|
Other
and
|
|
|
|
Electrification
|
Automation
|
Process
|
Power
|
Intersegment
|
|
|
($ in millions, unless otherwise indicated)
|
Products
|
and
Motion
|
Automation
|
Grids
|
elimination
|
Consolidated
|
|
Total revenues
|
2,353
|
2,220
|
1,659
|
2,791
|
(504)
|
8,519
|
|
Foreign exchange/commodity timing
|
|
|
|
|
|
|
|
differences in total revenues:
|
|
|
|
|
|
|
|
Unrealized gains and losses
|
|
|
|
|
|
|
|
on derivatives
|
–
|
41
|
27
|
52
|
1
|
121
|
|
Realized gains and losses on derivatives
|
|
|
|
|
|
|
|
where the underlying hedged
|
|
|
|
|
|
|
|
transaction has not yet been realized
|
3
|
1
|
9
|
13
|
–
|
26
|
|
Unrealized foreign exchange movements
|
|
|
|
|
|
|
|
on receivables (and related assets)
|
(3)
|
(5)
|
(4)
|
(22)
|
–
|
(34)
|
|
Operational revenues
|
2,353
|
2,257
|
1,691
|
2,834
|
(503)
|
8,632
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
390
|
264
|
159
|
159
|
(90)
|
882
|
|
Acquisition-related amortization
|
25
|
31
|
3
|
10
|
5
|
74
|
|
Restructuring and
|
|
|
|
|
|
|
|
restructuring-related expenses
(1)
|
10
|
16
|
3
|
13
|
17
|
59
|
|
Gains and losses from sale of businesses,
|
|
|
|
|
|
|
|
acquisition-related expenses and certain
|
|
|
|
|
|
|
|
non-operational items
|
(1)
|
–
|
1
|
5
|
(11)
|
(6)
|
|
Foreign exchange/commodity timing
|
|
|
|
|
|
|
|
differences in income from operations:
|
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives
|
|
|
|
|
|
|
|
(foreign exchange, commodities,
|
|
|
|
|
|
|
|
embedded derivatives)
|
(18)
|
26
|
8
|
33
|
15
|
64
|
|
Realized gains and losses on derivatives
|
|
|
|
|
|
|
|
where the underlying hedged
|
|
|
|
|
|
|
|
transaction has not yet been realized
|
3
|
3
|
6
|
10
|
–
|
22
|
|
Unrealized foreign exchange movements
|
|
|
|
|
|
|
|
on receivables/payables
|
|
|
|
|
|
|
|
(and related assets/liabilities)
|
1
|
(5)
|
1
|
(9)
|
(2)
|
(14)
|
|
Operational EBITA
|
410
|
335
|
181
|
221
|
(66)
|
1,081
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%)
|
17.4%
|
14.8%
|
10.7%
|
7.8%
|
n.a.
|
12.5%
|
(1)
Amounts also include the incremental implementation costs in relation to the
White Collar Productivity program.
39
Q3
2016 Financial Information
Operational
EPS
|
Definition
|
|
Operational EPS
Operational EPS is calculated as Operational net income
divided by the weighted-average number of shares outstanding used in
determining basic earnings per share.
Operational net income
Operational net income is calculated as Net income
attributable to ABB adjusted for the net-of-tax impact of:
(i)
acquisition-related amortization,
(ii)
restructuring and restructuring-related
expenses,
(iii)
gains and losses from sale of businesses,
acquisition-related expenses and certain non-operational items, and
(iv)
foreign exchange/commodity timing
differences in income from operations consisting of: (a) unrealized gains and
losses on derivatives (foreign exchange, commodities, embedded derivatives),
(b) realized gains and losses on derivatives where the underlying hedged
transaction has not yet been realized, and (c) unrealized foreign exchange
movements on receivables/payables (and related assets/liabilities).
Acquisition-related amortization
Amortization expense on intangibles arising upon
acquisitions.
Adjusted Group effective tax rate
The Adjusted Group effective tax rate is computed by
dividing an adjusted provision for taxes by an adjusted income from
continuing operations before taxes. Certain amounts recorded in income from
continuing operations before taxes and the related provision for taxes
(primarily gains and losses from sale of businesses), as well as certain
other amounts included solely in provision for taxes, are excluded from the
computation.
Constant currency Operational EPS adjustment and
Operational EPS growth rate (constant currency)
In connection with ABB’s 2015-2020 targets, Operational
EPS growth is measured assuming 2014 as the base year and uses constant
exchange rates. We compute the constant currency operational net income for
all periods using the relevant monthly exchange rates which were in effect
during 2014 and any difference in computed Operational net income is divided
by the relevant weighted-average number of shares outstanding to identify the
constant currency Operational EPS adjustment.
|
Reconciliation
|
|
|
|
Nine
months ended September 30,
|
|
|
($ in millions, except per share data in $)
|
2016
|
2015
|
Growth
(1)
|
|
Net income (attributable to ABB)
|
1,474
|
1,729
|
|
|
Operational adjustments:
|
|
|
|
|
Acquisition-related amortization
|
212
|
237
|
|
|
Restructuring and restructuring-related expenses
(2)
|
475
|
143
|
|
|
Gains and losses from sale of businesses,
|
|
|
|
|
acquisition-related expenses and certain non-operational items
|
46
|
44
|
|
|
FX/commodity timing differences in income from operations
|
53
|
(38)
|
|
|
Tax on operational adjustments
(3)
|
(216)
|
(99)
|
|
|
Operational net income
|
2,044
|
2,016
|
1%
|
|
|
|
|
|
|
Weighted-average number of shares
outstanding (in millions)
|
2,155
|
2,234
|
|
|
|
|
|
|
|
Operational EPS
|
0.95
|
0.90
|
5%
|
|
Constant currency Operational EPS adjustment
|
0.11
|
0.09
|
|
|
Operational EPS (constant currency
basis - 2014 exchange rates)
|
1.06
|
0.99
|
7%
|
(1) Growth
is computed using unrounded EPS amounts.
(2)
Amounts also include the incremental implementation costs in relation to the
White Collar Productivity program.
(3)
Tax amount is computed by applying the Adjusted Group effective tax rate to the
operational adjustments, except for gains and losses from sale of businesses
for which the actual provision for taxes resulting from the gain or loss has
been computed.
40
Q3
2016 Financial Information
|
|
Three
months ended September 30,
|
|
|
($ in millions, except per share data in $)
|
2016
|
2015
|
Growth
(1)
|
|
Net income (attributable to ABB)
|
568
|
577
|
|
|
Operational adjustments:
|
|
|
|
|
Acquisition-related amortization
|
70
|
74
|
|
|
Restructuring and restructuring-related expenses
(2)
|
39
|
59
|
|
|
Gains and losses from sale of businesses,
|
|
|
|
|
acquisition-related expenses and certain non-operational items
|
35
|
(6)
|
|
|
FX/commodity timing differences in income from operations
|
24
|
72
|
|
|
Tax on operational adjustments
(3)
|
(53)
|
(57)
|
|
|
Operational net income
|
683
|
719
|
-5%
|
|
|
|
|
|
|
Weighted-average number of shares
outstanding (in millions)
|
2,135
|
2,219
|
|
|
|
|
|
|
|
Operational EPS
|
0.32
|
0.32
|
-1%
|
|
Constant currency Operational EPS adjustment
|
0.03
|
0.03
|
|
|
Operational EPS (constant currency
basis - 2014 exchange rates)
|
0.35
|
0.35
|
0%
|
(1)
Growth is computed using unrounded EPS amounts.
(2)
Amounts also include the incremental implementation costs in relation to the
White Collar Productivity program.
(3)
Tax amount is computed by applying the Adjusted Group effective tax rate to the
operational adjustments, except for gains and losses from sale of businesses
for which the actual provision for taxes resulting from the gain or loss has
been computed.
Net
debt
|
Definition
|
|
Net
debt
Net
debt
is
defined
as
Total
debt
less
Cash
and
marketable
securities.
Total
debt
Total
debt
is
the
sum
of
Short-term
debt
and
current
maturities
of
long-term
debt,
and
Long-term
debt.
Cash
and
marketable
securities
Cash
and
marketable
securities
is
the
sum
of
Cash
and
equivalents,
and
Marketable
securities
and
short-term
invest
ments.
|
|
($ in millions)
|
September
30, 2016
|
December
31, 2015
|
|
Short-term debt and current maturities of long-term debt
|
1,402
|
1,454
|
|
Long-term debt
|
6,319
|
5,985
|
|
Total debt
|
7,721
|
7,439
|
|
Cash and equivalents
|
3,538
|
4,565
|
|
Marketable securities and short-term investments
|
1,827
|
1,633
|
|
Cash and marketable securities
|
5,365
|
6,198
|
|
Net debt
|
2,356
|
1,241
|
41
Q3
2016 Financial Information
Net
working
capital
as
a
percentage
of
revenues
|
Definition
|
Net working capital as a percentage of revenues
Net working capital as a percentage of revenues is
calculated as Net working capital divided by Adjusted revenues for the
trailing twelve months.
Net working capital
Net working capital is the sum of (i) receivables, net,
(ii) inventories, net, and (iii) prepaid expenses; less (iv) accounts
payable, trade, (v) billings in excess of sales, (vi) advances from
customers, and (vii) other current liabilities (excluding primarily: (a)
income taxes payable, (b) current derivative liabilities, (c) pension and
other employee benefits, and (d) payables under the share buyback program);
and including the amounts related to these accounts which have been presented
as either assets or liabilities held for sale.
Adjusted revenues for the trailing twelve months
Adjusted revenues for the trailing twelve months
includes total revenues recorded by ABB in the twelve months preceding the
relevant balance sheet date adjusted to eliminate revenues of divested
businesses and the estimated impact of annualizing revenues of certain
acquisitions which were completed in the same trailing twelve-month period.
|
|
|
Sep
30,
|
Jun
30,
|
Mar
31,
|
Dec
31,
|
Sep
30,
|
Jun
30,
|
Mar
31,
|
Dec
31,
|
Sep
30,
|
Jun
30,
|
Mar
31,
|
Dec
31,
|
|
($ in millions, unless otherwise indicated)
|
2016
|
2016
|
2016
|
2015
|
2015
|
2015
|
2015
|
2014
|
2014
|
2014
|
2014
|
2013
|
|
Net working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
10,155
|
10,384
|
10,131
|
10,061
|
10,564
|
11,071
|
10,599
|
11,078
|
11,788
|
12,106
|
12,215
|
12,146
|
|
Inventories, net
|
5,017
|
5,045
|
5,104
|
4,757
|
5,410
|
5,458
|
5,346
|
5,376
|
5,961
|
6,210
|
6,201
|
6,004
|
|
Prepaid expenses
|
242
|
246
|
268
|
225
|
286
|
304
|
289
|
218
|
307
|
306
|
305
|
252
|
|
Accounts payable, trade
|
(4,458)
|
(4,536)
|
(4,323)
|
(4,342)
|
(4,405)
|
(4,564)
|
(4,473)
|
(4,765)
|
(4,820)
|
(4,950)
|
(4,872)
|
(5,112)
|
|
Billings in excess of sales
|
(1,330)
|
(1,377)
|
(1,331)
|
(1,375)
|
(1,440)
|
(1,505)
|
(1,396)
|
(1,455)
|
(1,560)
|
(1,499)
|
(1,539)
|
(1,714)
|
|
Advances from customers
|
(1,591)
|
(1,612)
|
(1,601)
|
(1,598)
|
(1,497)
|
(1,512)
|
(1,503)
|
(1,624)
|
(1,628)
|
(1,705)
|
(1,780)
|
(1,726)
|
|
Other current liabilities
|
(3,153)
|
(3,002)
|
(2,949)
|
(3,127)
|
(3,103)
|
(3,030)
|
(2,900)
|
(3,286)
|
(3,380)
|
(3,381)
|
(3,307)
|
(3,541)
|
|
excluding:
(1)
|
744
|
2,505
|
803
|
690
|
802
|
1,201
|
1,017
|
971
|
1,260
|
774
|
710
|
701
|
|
Net working capital in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets and liabilities held for sale
|
(46)
|
–
|
–
|
–
|
–
|
1
|
–
|
–
|
(8)
|
27
|
–
|
–
|
|
Net working capital
|
4,836
|
5,148
|
5,299
|
4,601
|
5,815
|
6,223
|
5,962
|
5,542
|
6,660
|
7,114
|
7,223
|
6,309
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 / 2015 / 2014 / 2013
|
8,255
|
8,519
|
8,519
|
8,519
|
8,519
|
9,823
|
9,823
|
9,823
|
9,823
|
10,535
|
10,535
|
10,535
|
|
June 30, 2016 / 2015 / 2014 / 2013
|
8,677
|
8,677
|
9,165
|
9,165
|
9,165
|
9,165
|
10,190
|
10,190
|
10,190
|
10,190
|
10,225
|
10,225
|
|
March 31, 2016 / 2015 / 2014 / 2013
|
7,903
|
7,903
|
7,903
|
8,555
|
8,555
|
8,555
|
8,555
|
9,471
|
9,471
|
9,471
|
9,471
|
9,715
|
|
December 31, 2015 / 2014 / 2013
|
9,242
|
9,242
|
9,242
|
9,242
|
10,346
|
10,346
|
10,346
|
10,346
|
11,373
|
11,373
|
11,373
|
11,373
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for the trailing twelve months
|
34,077
|
34,341
|
34,829
|
35,481
|
36,585
|
37,889
|
38,914
|
39,830
|
40,857
|
41,569
|
41,604
|
41,848
|
|
Adjustment to annualize/eliminate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revenues of certain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions/divestments
|
–
|
–
|
–
|
–
|
(64)
|
(144)
|
(372)
|
(613)
|
(633)
|
(212)
|
204
|
460
|
|
Adjusted revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for the trailing twelve months
|
34,077
|
34,341
|
34,829
|
35,481
|
36,521
|
37,745
|
38,542
|
39,217
|
40,224
|
41,357
|
41,808
|
42,308
|
|
Net working capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as a percentage of revenues (%)
|
14.2%
|
15.0%
|
15.2%
|
13.0%
|
15.9%
|
16.5%
|
15.5%
|
14.1%
|
16.6%
|
17.2%
|
17.3%
|
14.9%
|
(1) The
amounts excluded from Other current liabilities related primarily to (a) income
taxes payable, (b) current derivative liabilities, (c) pension and other
employee benefits, and (d) payables under the share buyback program.
42
Q3
2016 Financial Information
Free cash flow conversion to net income
|
Definition
|
|
Free cash flow conversion to net income
Free cash flow conversion to net income is calculated
as Free cash flow divided by Net income attributable to ABB.
Free cash flow (FCF)
Free cash flow is calculated as net cash provided by
operating activities adjusted for: (i) purchases of property, plant and
equipment and intangible assets, (ii) proceeds from sales of property, plant
and equipment, and (iii) changes in financing and other non-current
receivables, net (included in other investing activities).
Free cash flow for the trailing twelve months
Free cash flow for the trailing twelve months includes
free cash flow recorded by ABB in the twelve months preceding the relevant
balance sheet date.
Net income for the trailing twelve months
Net income for the trailing twelve months includes net
income recorded by ABB in the twelve months preceding the relevant balance
sheet date.
|
Free
cash flow conversion to net income
|
|
|
Twelve
months to
|
|
($ in millions, unless otherwise indicated)
|
September
30, 2016
|
December
31, 2015
|
|
Net cash provided by operating
activities
|
4,409
|
3,818
|
|
Adjusted for the effects of:
|
|
|
|
Purchases of property, plant and equipment and intangible assets
|
(861)
|
(876)
|
|
Proceeds from sale of property, plant and equipment
|
76
|
68
|
|
Changes in financing receivables and other non-current
receivables
|
(1)
|
9
|
|
Free cash flow
|
3,623
|
3,019
|
|
Net income attributable to ABB
|
1,678
|
1,933
|
|
Free cash flow conversion to net
income
|
216%
|
156%
|
Reconciliation
of the trailing twelve months to September 30, 2016
|
|
|
|
Purchases
of
|
|
Changes
in
|
|
|
|
Net
cash
|
property,
plant
|
Proceeds
|
financing
|
|
|
|
provided
by
|
and
equipment
|
from
sale of
|
receivables
and
|
Net
income
|
|
|
operating
|
and
intangible
|
property,
plant
|
other
non-current
|
attributable
|
|
($ in millions)
|
activities
|
assets
|
and
equipment
|
receivables
|
to
ABB
|
|
Q4 2015
|
1,994
|
(329)
|
24
|
3
|
204
|
|
Q1 2016
|
252
|
(170)
|
12
|
(3)
|
500
|
|
Q2 2016
|
1,082
|
(178)
|
16
|
2
|
406
|
|
Q3 2016
|
1,081
|
(184)
|
24
|
(3)
|
568
|
|
Total for the trailing twelve months
to Sep. 30, 2016
|
4,409
|
(861)
|
76
|
(1)
|
1,678
|
Finance
net
|
Definition
|
|
Finance net is calculated as Interest and dividend
income less Interest and other finance expense.
|
|
|
Nine
months ended September 30,
|
Three
months ended September 30,
|
|
($ in millions)
|
2016
|
2015
|
2016
|
2015
|
|
Interest and dividend income
|
54
|
56
|
16
|
18
|
|
Interest and other finance expense
|
(230)
|
(223)
|
(84)
|
(64)
|
|
Finance net
|
(176)
|
(167)
|
(68)
|
(46)
|
Book-to-bill
ratio
|
Definition
|
|
Book-to-bill ratio is calculated as Orders received divided by Total revenues.
|
Reconciliation
|
|
|
|
Nine
months ended September 30,
|
Three
months ended September 30,
|
|
($ in millions, unless otherwise indicated)
|
2016
|
2015
|
2016
|
2015
|
|
Orders received
|
25,102
|
28,167
|
7,533
|
8,767
|
|
Total revenues
|
24,835
|
26,239
|
8,255
|
8,519
|
|
Book-to-bill ratio
|
1.01
|
1.07
|
0.91
|
1.03
|
43
Q3
2016 Financial Information
—
ABB
Ltd
Corporate Communications
P.O.
Box
8131
805
0
Zurich
Switzerland
Tel:
+41
(0)43
317
71
11
Fax:
+41
(0)43
317
79
58
www.abb.com
44
Q3
2016 Financial Information
—
Zurich,
Switzerland, October 27, 2016
ABB names Timo
Ihamuotila as new Chief Financial Officer
·
Timo
Ihamuotila joins pioneering technology leader ABB as Chief Financial Officer
from Nokia, effective April 1, 2017
·
Proven
Chief Financial Officer with extensive experience in communications, software
and services industries, active portfolio management and operational performance
improvement
·
Deep
understanding of corporate transformation and digital business models
·
Quantum
leap in digital is cornerstone of Stage 3 of ABB’s Next Level Strategy: after
creating the Chief Digital Officer role, new CFO key to transforming ABB as
leader in digital industries
ABB announced today that Timo
Ihamuotila has been named Chief Financial Officer and member of the Executive
Committee, effective April 1, 2017. Ihamuotila succeeds current CFO Eric Elzvik
in an orderly transition process. Elzvik will pursue career opportunities
outside of ABB after a thorough handover in second quarter of 2017.
Ihamuotila is joining ABB from Nokia,
where he has held the position of CFO since 2009. In this role, he was key in
helping to turn around and reposition Nokia as a “global leader in the
technologies that connect people and things” through business model changes,
active portfolio management and operational improvement.
Ihamuotila brings with him 26 years of
experience in the communications and banking sector and has deep experience in
areas as finance, controlling, mergers & acquisitions, commercial and
general management.
“Timo is a seasoned CFO with an
impressive global track record,” said Chief Executive Officer Ulrich Spiesshofer.
“He has extensive and deep experience in all aspects of finance as well as in
transforming businesses in times of industrial digitalization. With his wide
range of expertise, ranging from financial, to commercial to general
management, he is the ideal person to lead our finance organization and partner
to drive ABB’s ongoing transformation as leader in the digital industry. I am
delighted to welcome Timo to our Executive Committee in these exciting times as
we focus on unlocking maximum value for all shareholders,” Spiesshofer said.
“At the same time I would like to
warmly thank Eric Elzvik already now for his long, outstanding commitment and
many valuable contributions to ABB over more than three decades. During Eric’s
CFO tenure, a new cash culture together with a significant improvement of our
Net Working Capital, a fundamental productivity improvement of the finance
function and many portfolio actions were successfully established and
delivered. We wish Eric all the best for the next step of his professional
career which he will pursue after the orderly handover process is completed in
Q2 2017.”
Prior to taking his current role,
Ihamuotila held positions at the Finnish communications technology firm that
included executive vice president of sales, general manager of a business unit
and Group treasurer. Earlier in his career, he held positions at Citibank and
Kansallis Bank. He earned a master of science degree in economics and a post
graduate degree in finance from the Helsinki School of Economics.
“I’m very pleased to join ABB at such
a pivotal stage of its transformation, as it moves to the next level and
expands its digital offering, helping its customers harness the Energy and
Fourth Industrial Revolutions,” said Ihamuotila. “I look forward to driving
sustainable growth and accelerate value creation across ABB together with the
entire management team.”
Elzvik joined ABB in 1984 and has
during his long and distinguished career held a variety of leadership roles in
Sweden, Singapore and Switzerland, including head of Corporate Development, and
head of Mergers & Acquisitions and Joint Ventures. He was CFO of the Automation
Products division from 2006 and in 2010 became CFO for the Discrete Automation
and Motion division. He serves ABB as Group CFO since February 2013.
ABB
(ABBN: SIX Swiss Ex) is a pioneering technology leader in electrification
products, robotics and motion, industrial automation and power grids, serving
customers in utilities, industry and transport & infrastructure globally.
Continuing more than a 125-year history of innovation, ABB today is writing the
future of industrial digitalization and driving the Energy and Fourth
Industrial Revolutions. ABB operates in more than 100 countries with about
135,000 employees.
www.abb.com
For more information please contact:
Media
Relations
Tel:
+41 43 317 65 68
media.relations@ch.abb.com
|
Investor
Relations
Tel.
+41 43 317 71 11
investor.relations@ch.abb.com
|
ABB
Ltd
Affolternstrasse
44
8050
Zurich
Switzerland
|
July —
September 2016 — Q3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
ABB Ltd announces that the following
members of the
Executive Committee
or
Board of Directors
of ABB
have purchased, sold or been granted ABB’s registered shares, call options
and warrant appreciation rights (“WARs”), in the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Date
|
|
Description
|
|
Received *
|
|
Purchased
|
|
Sold
|
|
Price
|
Louis R. Hughes
|
|
September 2, 2016
|
|
Sale
|
|
|
|
|
|
10,000
|
|
CHF
|
21.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
* Received instruments were delivered as part of the ABB Ltd
Director’s or Executive Committee Member’s compensation
|
|
|
|
|
|
|
|
|
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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.
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ABB LTD
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Date: October 27, 2016.
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By:
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/s/ Alanna Abrahamson - Haka
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Name:
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Alanna Abrahamson - Haka
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Title:
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Group Senior Vice President
and
Head of Investor Relations
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By:
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Name:
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Richard A. Brown
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Title:
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Group Senior Vice President
and
Chief Counsel Corporate & Finance
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