Financial information English (PDF, 2 MB)

Q2 2015
Financial Information
Financial Information
03
08
Key Figures
Interim Consolidated Financial Information (unaudited)
08
Interim Consolidated Income Statements
09
Interim Condensed Consolidated Statements
of Comprehensive Income
10
Interim Consolidated Balance Sheets
11
Interim Consolidated Statements of Cash Flows
12
Interim Consolidated Statements of
Changes in Stockholders’ Equity
13
Notes to the Interim Consolidated
Financial Information
30
Supplemental Reconciliations and Definitions
Key Figures
Change
($ in millions, unless otherwise indicated)
Q2 2015
Like-for-like1
US$
Q2 2014
Orders
8,996
10,567
-15%
-4%
Revenues
9,165
10,190
-10%
3%
Operational EBITA 2
1,058
1,094
-3%
8%
11.7%
10.7%
as % of operational revenues 1
Net income
Basic earnings per share ($)
Operational earnings per share 1 ($)
Cash flow from operating activities
(constant currency basis)
588
636
-8%
0.26
0.28
-5%3
0.33
0.30
9%3
598
888
-33%
Change
($ in millions, unless otherwise indicated)
H1 2015
Like-for-like1
US$
H1 2014
Orders
19,400
20,925
-7%
6%
Revenues
17,720
19,661
-10%
3%
2,007
2,133
-6%
7%
11.4%
10.8%
1,152
1,180
-2%
0.51
0.51
0%3
0.64
0.60
8%3
651
843
-23%
Operational EBITA 2
as % of operational revenues 1
Net income
Basic earnings per share ($)
Operational earnings per share 1 ($)
(constant currency basis)
Cash flow from operating activities
1
2
3
For a reconciliation of non-GAAP measures see “Supplemental Reconciliations and Definitions” on page 30.
For a reconciliation of Operational EBITA to Income from continuing operations before taxes see Note 1 2 to the Interim Consolidated Financial Information (unaudited).
EPS growth rates are computed using unrounded amounts. Operational EPS growth is in constant currency.
3
Q2 2015 | Financial Information
Change
Q2 2015
Q2 2014
US$
Local
Like-for-like
ABB Group
8,996
10,567
-15%
-6%
-4%
Discrete Automation and Motion
2,428
2,667
-9%
0%
0%
Low Voltage Products
1,703
1,939
-12%
-2%
2%
Process Automation
1,580
2,044
-23%
-12%
-10%
Power Products
2,533
2,766
-8%
0%
0%
Power Systems
1,374
1,767
-22%
-12%
-12%
($ in millions, unless otherwise indicated)
Orders
Corporate and Other
(incl. inter-division eliminations)
Order backlog (end June)
(622)
(616)
26,028
27,089
-4%
8%
9%
4,761
4,896
-3%
7%
7%
978
1,170
-16%
-7%
1%
Process Automation
5,709
5,858
-3%
14%
16%
Power Products
8,170
8,454
-3%
7%
7%
Power Systems
8,721
9,177
-5%
9%
9%
(2,311)
(2,466)
ABB Group
9,165
10,190
-10%
0%
3%
Discrete Automation and Motion
2,348
2,543
-8%
2%
2%
Low Voltage Products
1,731
1,936
-11%
0%
4%
Process Automation
1,660
2,012
-17%
-5%
-1%
Power Products
2,399
2,662
-10%
-1%
-1%
Power Systems
1,634
1,810
-10%
4%
4%
(607)
(773)
ABB Group
Discrete Automation and Motion
Low Voltage Products
Corporate and Other
(incl. inter-division eliminations)
Revenues
Corporate and Other
(incl. inter-division eliminations)
Operational EBITA
ABB Group
1,058
1,094
-3%
7%
8%
Discrete Automation and Motion
339
399
-15%
-7%
-7%
Low Voltage Products
289
321
-10%
2%
5%
Process Automation
204
229
-11%
0%
4%
Power Products
301
343
-12%
-4%
-4%
Power Systems
42
(57)
n.a.
n.a.
n.a.
Corporate and Other
(incl. inter-division eliminations)
Operational EBITA %
Income from operations
(117)
(141)
ABB Group
11.7%
10.7%
Discrete Automation and Motion
14.5%
15.7%
Low Voltage Products
16.8%
16.6%
Process Automation
12.4%
11.4%
Power Products
12.6%
12.9%
Power Systems
2.7%
-3.1%
ABB Group
961
1,052
Discrete Automation and Motion
293
349
Low Voltage Products
263
400
Process Automation
193
217
Power Products
300
319
Power Systems
35
(90)
Corporate and Other
(incl. inter-division eliminations)
Income from operations %
(123)
(143)
ABB Group
10.5%
10.3%
Discrete Automation and Motion
12.5%
13.7%
Low Voltage Products
15.2%
20.7%
Process Automation
11.6%
10.8%
Power Products
12.5%
12.0%
Power Systems
2.1%
-5.0%
598
888
Discrete Automation and Motion
261
374
Low Voltage Products
259
273
88
206
Power Products
207
189
Power Systems
71
54
(288)
(208)
Cash flow from operating activities ABB Group
Process Automation
Corporate and Other
(incl. inter-division eliminations)
4
Q2 2015 | Financial Information
Change
H1 2015
H1 2014
US$
Local
Like-for-like
19,400
20,925
-7%
3%
6%
Discrete Automation and Motion
4,997
5,483
-9%
0%
0%
Low Voltage Products
3,406
3,914
-13%
-3%
2%
Process Automation
3,501
4,048
-14%
-1%
3%
Power Products
5,189
5,491
-5%
4%
4%
Power Systems
3,768
3,257
16%
34%
34%
($ in millions, unless otherwise indicated)
Orders
Order backlog (end June)
ABB Group
Corporate and Other
(incl. inter-division eliminations)
(1,461)
(1,268)
ABB Group
26,028
27,089
-4%
8%
9%
4,761
4,896
-3%
7%
7%
978
1,170
-16%
-7%
1%
Process Automation
5,709
5,858
-3%
14%
16%
Power Products
8,170
8,454
-3%
7%
7%
Power Systems
8,721
9,177
-5%
9%
9%
Corporate and Other
(incl. inter-division eliminations)
(2,311)
(2,466)
ABB Group
Discrete Automation and Motion
Low Voltage Products
Revenues
17,720
19,661
-10%
0%
3%
Discrete Automation and Motion
4,619
4,924
-6%
3%
3%
Low Voltage Products
3,286
3,818
-14%
-4%
2%
Process Automation
3,239
3,955
-18%
-6%
-3%
Power Products
4,674
5,053
-8%
2%
2%
Power Systems
3,106
3,418
-9%
4%
4%
(1,204)
(1,507)
Corporate and Other
(incl. inter-division eliminations)
Operational EBITA
ABB Group
2,007
2,133
-6%
4%
7%
Discrete Automation and Motion
657
751
-13%
-3%
-3%
Low Voltage Products
532
620
-14%
-3%
4%
Process Automation
396
474
-16%
-7%
-4%
Power Products
554
647
-14%
-6%
-6%
Power Systems
75
(111)
n.a.
n.a.
n.a.
Corporate and Other
(incl. inter-division eliminations)
Operational EBITA %
Income from operations
(207)
(248)
ABB Group
11.4%
10.8%
Discrete Automation and Motion
14.3%
15.3%
Low Voltage Products
16.2%
16.2%
Process Automation
12.3%
12.0%
Power Products
11.9%
12.8%
Power Systems
2.4%
-3.2%
ABB Group
1,820
1,907
Discrete Automation and Motion
593
675
Low Voltage Products
480
656
Process Automation
379
436
Power Products
540
591
Power Systems
39
(192)
Corporate and Other
(incl. inter-division eliminations)
Income from operations %
(211)
(259)
ABB Group
10.3%
9.7%
Discrete Automation and Motion
12.8%
13.7%
Low Voltage Products
14.6%
17.2%
Process Automation
11.7%
11.0%
Power Products
11.6%
11.7%
Power Systems
1.3%
-5.6%
651
843
Discrete Automation and Motion
484
668
Low Voltage Products
249
246
Process Automation
152
301
Power Products
287
248
Power Systems
(76)
(249)
(445)
(371)
Cash flow from operating activities ABB Group
Corporate and Other
(incl. inter-division eliminations)
5
Q2 2015 | Financial Information
Operational EBITA
($ in millions, unless otherwise indicated)
ABB
Q2 15
Revenues
FX/commodity timing
differences in total revenues
Operational revenues
Income (loss) from operations
Discrete
Automation
and Motion
Low Voltage
Products
Power
Products
Process
Automation
Power
Systems
Q2 14
Q2 15
Q2 14
Q2 15
Q2 14
Q2 15
Q2 14
Q2 15
Q2 14
Q2 15
Q2 14
9,165 10,190
2,348
2,543
1,731
1,936
1,660
2,012
2,399
2,662
1,634
1,810
56
(3)
(4)
(9)
2
(21)
5
(8)
1
(56)
52
9,065 10,246
2,345
2,539
1,722
1,938
1,639
2,017
2,391
2,663
1,578
1,862
(100)
961
1,052
293
349
263
400
193
217
300
319
35
(90)
Acquisition-related amortization
80
96
33
35
26
33
3
3
2
5
13
14
Restructuring and
restructuring-related expenses
58
40
25
13
1
4
20
4
9
15
4
5
Gains and losses from sale of businesses,
acquisition-related expenses and certain
non-operational items
39
(114)
–
2
–
(108)
12
2
1
6
31
(9)
FX/commodity timing
differences in income from operations
Operational EBITA
Operational EBITA margin (%)
($ in millions, unless otherwise indicated)
(80)
20
(12)
–
(1)
(8)
(24)
3
(11)
(2)
(41)
23
1,058
1,094
339
399
289
321
204
229
301
343
42
(57)
11.7%
10.7%
14.5%
15.7%
16.8%
16.6%
12.4%
11.4%
12.6%
12.9%
2.7%
-3.1%
ABB
H1 15
Revenues
FX/commodity timing
differences in total revenues
Operational revenues
Income (loss) from operations
Discrete
Automation
and Motion
Low Voltage
Products
Power
Products
Process
Automation
Power
Systems
H1 14
H1 15
H1 14
H1 15
H1 14
H1 15
H1 14
H1 15
H1 14
H1 15
H1 14
17,720 19,661
4,619
4,924
3,286
3,818
3,239
3,955
4,674
5,053
3,106
3,418
61
(37)
(10)
(5)
3
(28)
1
(25)
(3)
(40)
71
17,583 19,722
(137)
4,582
4,914
3,281
3,821
3,211
3,956
4,649
5,050
3,066
3,489
1,820
1,907
593
675
480
656
379
436
540
591
39
(192)
Acquisition-related amortization
163
197
65
69
51
63
6
7
5
10
27
36
Restructuring and
restructuring-related expenses
84
87
28
14
7
12
21
24
20
23
8
13
Gains and losses from sale of businesses,
acquisition-related expenses and certain
non-operational items
50
(103)
–
(1)
1
(104)
11
3
2
11
31
(8)
FX/commodity timing
differences in income from operations
Operational EBITA
Operational EBITA margin (%)
(110)
45
(29)
(6)
(7)
(7)
(21)
4
(13)
12
(30)
40
2,007
2,133
657
751
532
620
396
474
554
647
75
(111)
11.4%
10.8%
14.3%
15.3%
16.2%
16.2%
12.3%
12.0%
11.9%
12.8%
2.4%
-3.2%
Depreciation and Amortization
($ in millions, unless otherwise indicated)
Discrete
Automation
and Motion
ABB
Low Voltage
Products
Power
Products
Process
Automation
Power
Systems
Q2 15
Q2 14
Q2 15
Q2 14
Q2 15
Q2 14
Q2 15
Q2 14
Q2 15
Q2 14
Q2 15
Q2 14
Depreciation
192
215
36
41
41
45
15
18
44
48
19
23
Amortization
101
118
36
38
27
31
4
4
4
7
18
24
80
96
33
35
26
33
3
3
2
5
13
14
including total acquisition-related amortization of
($ in millions, unless otherwise indicated)
Discrete
Automation
and Motion
ABB
Low Voltage
Products
Power
Products
Process
Automation
Power
Systems
H1 15
H1 14
H1 15
H1 14
H1 15
H1 14
H1 15
H1 14
H1 15
H1 14
H1 15
H1 14
Depreciation
384
428
73
81
83
91
29
35
88
96
39
45
Amortization
204
238
73
75
54
62
9
10
8
14
37
49
163
197
65
69
51
63
6
7
5
10
27
36
including total acquisition-related amortization of
6
Q2 2015 | Financial Information
Orders received and revenues by region
($ in millions, unless otherwise indicated)
Change
Orders received
Q2 15
Q2 14
US$
Local
Likefor-like
-19%
0%
2%
-8%
-2%
2%
3,619
-3%
4%
5%
10,190
-10%
0%
3%
Q2 15
Q2 14
US$
Europe
2,809
3,275
-14%
5%
7%
2,949
3,629
The Americas
2,615
3,536
-26%
-22%
-19%
2,706
2,942
Asia, Middle East and Africa
3,572
3,756
-5%
1%
1%
3,510
ABB Group
8,996
10,567
-15%
-6%
-4%
9,165
($ in millions, unless otherwise indicated)
Local
Change
Orders received
US$
Change
Revenues
Likefor-like
Change
Revenues
Local
Likefor-like
H1 15
H1 14
US$
Local
Likefor-like
H1 15
H1 14
Europe
6,771
7,166
-6%
16%
18%
5,753
7,004
-18%
0%
2%
The Americas
5,354
6,299
-15%
-10%
-7%
5,358
5,674
-6%
0%
5%
Asia, Middle East and Africa
7,275
7,460
-2%
4%
5%
6,609
6,983
-5%
1%
2%
19,400
20,925
-7%
3%
6%
17,720
19,661
-10%
0%
3%
ABB Group
7
Q2 2015 | Financial Information
Interim Consolidated Financial Information
ABB Ltd Interim Consolidated Income Statements (unaudited)
Six months ended
($ in millions, except per share data in $)
Three months ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Sales of products
14,762
16,479
7,632
8,542
Sales of services
2,958
3,182
1,533
1,648
17,720
19,661
9,165
10,190
Cost of products
Cost of services
(10,711)
(1,788)
(12,059)
(1,990)
(5,517)
(928)
(6,265)
(1,040)
Total cost of sales
(12,499)
(14,049)
(6,445)
(7,305)
5,221
5,612
2,720
2,885
(2,687)
(676)
(3,082)
(755)
(1,378)
(346)
(1,575)
(390)
Total revenues
Gross profit
Selling, general and administrative expenses
Non-order related research and development expenses
Other income (expense), net
(38)
132
(35)
132
1,820
1,907
961
1,052
38
(159)
38
(172)
19
(88)
21
(88)
Income from continuing operations before taxes
1,699
1,773
892
985
Provision for taxes
Income from continuing operations, net of tax
(493)
1,206
(541)
1,232
(263)
629
(316)
669
Income from operations
Interest and dividend income
Interest and other finance expense
Income (loss) from discontinued operations, net of tax
Net income
Net income attributable to noncontrolling interests
2
(2)
(2)
(1)
1,208
1,230
627
668
(56)
(50)
(39)
(32)
1,152
1,180
588
636
Income from continuing operations, net of tax
1,150
1,182
590
637
Net income
1,152
1,180
588
636
Income from continuing operations, net of tax
0.51
0.51
0.26
0.28
Net income
0.51
0.51
0.26
0.28
Income from continuing operations, net of tax
0.51
0.51
0.26
0.28
Net income
0.51
0.51
0.26
0.28
Basic earnings per share attributable to ABB shareholders
2,241
2,298
2,232
2,295
Diluted earnings per share attributable to ABB shareholders
2,246
2,306
2,238
2,302
Net income attributable to ABB
Amounts attributable to ABB shareholders:
Basic earnings per share attributable to ABB shareholders:
Diluted earnings per share attributable to ABB shareholders:
Weighted-average number of shares outstanding (in millions) used to compute:
See Notes to the Interim Consolidated Financial Information
8
Q2 2015 | Financial Information
ABB Ltd Interim Condensed Consolidated Statements of
Comprehensive Income (unaudited)
Six months ended
($ in millions)
Three months ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Total comprehensive income, net of tax
859
1,146
943
657
Total comprehensive income attributable to noncontrolling interests, net of tax
(52)
(46)
(35)
(31)
Total comprehensive income attributable to ABB shareholders, net of tax
807
1,100
908
626
See Notes to the Interim Consolidated Financial Information
9
Q2 2015 | Financial Information
ABB Ltd Interim Consolidated Balance Sheets (unaudited)
($ in millions, except share data)
Jun. 30, 2015
Dec. 31, 2014
Cash and equivalents
3,954
5,443
Marketable securities and short-term investments
1,233
1,325
Receivables, net
11,071
11,078
Inventories, net
5,458
5,376
Prepaid expenses
304
218
Deferred taxes
798
902
Other current assets
782
644
Total current assets
23,600
24,986
Property, plant and equipment, net
5,327
5,652
Goodwill
9,870
10,053
Other intangible assets, net
2,519
2,702
Prepaid pension and other employee benefits
71
70
Investments in equity-accounted companies
163
177
Deferred taxes
467
511
Other non-current assets
676
701
42,693
44,852
Accounts payable, trade
4,564
4,765
Billings in excess of sales
1,505
1,455
Short-term debt and current maturities of long-term debt
1,342
353
Advances from customers
1,512
1,624
Total assets
Deferred taxes
221
289
Provisions for warranties
1,079
1,148
Other provisions
1,596
1,689
Other current liabilities
4,232
4,257
Total current liabilities
16,051
15,580
Long-term debt
6,646
7,312
Pension and other employee benefits
2,292
2,394
Deferred taxes
1,122
1,165
Other non-current liabilities
1,576
1,586
27,687
28,037
1,441
1,777
Retained earnings
19,720
19,939
Accumulated other comprehensive loss
(4,586)
(4,241)
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Capital stock and additional paid-in capital
(2,314,743,264 issued shares at June 30, 2015, and December 31, 2014)
Treasury stock, at cost
(94,058,531 and 55,843,639 shares at June 30, 2015, and December 31, 2014, respectively)
(2,034)
(1,206)
Total ABB stockholders’ equity
14,541
16,269
Noncontrolling interests
Total stockholders’ equity
465
15,006
546
16,815
Total liabilities and stockholders’ equity
42,693
44,852
See Notes to the Interim Consolidated Financial Information
10
Q2 2015 | Financial Information
ABB Ltd Interim Consolidated Statements of Cash Flows (unaudited)
Six months ended
($ in millions)
Three months ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
1,208
1,230
627
668
588
666
293
333
27
(22)
13
6
Deferred taxes
(19)
(16)
(50)
(3)
Net loss (gain) from sale of property, plant and equipment
(19)
(14)
(9)
(6)
(4)
(130)
–
(130)
(92)
106
(88)
52
90
42
64
27
Trade receivables, net
(419)
(195)
(318)
(93)
Inventories, net
(301)
(361)
59
(138)
265
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Pension and other employee benefits
Net loss (gain) from sale of businesses
Net loss (gain) from derivatives and foreign exchange
Other
Changes in operating assets and liabilities:
Trade payables
Accrued liabilities
Billings in excess of sales
Provisions, net
(39)
74
(18)
(186)
(148)
(1)
69
119
(191)
104
(33)
(107)
(197)
(34)
(98)
Advances from customers
(58)
(16)
(13)
(75)
Income taxes payable and receivable
(88)
32
(37)
(16)
Other assets and liabilities, net
(49)
(17)
6
60
651
843
598
888
Purchases of marketable securities (available-for-sale)
(862)
(427)
(393)
(343)
Purchases of short-term investments
(481)
(443)
(22)
(5)
Purchases of property, plant and equipment and intangible assets
(358)
(420)
(182)
(217)
Acquisition of businesses (net of cash acquired)
and increases in cost- and equity-accounted companies
(41)
(17)
(5)
(14)
Proceeds from sales of marketable securities (available-for-sale)
359
25
347
11
Proceeds from maturity of marketable securities (available-for-sale)
494
136
219
68
Proceeds from short-term investments
512
188
336
165
24
22
18
12
1
403
1
401
Net cash provided by operating activities
Investing activities:
Proceeds from sales of property, plant and equipment
Proceeds from sales of businesses (net of transaction costs
and cash disposed) and cost- and equity-accounted companies
Other investing activities
200
52
102
(10)
(152)
(481)
421
68
416
738
252
(250)
51
35
11
32
Repayment of debt
(62)
(19)
(48)
(6)
Delivery of shares
107
26
107
25
Net cash provided by (used in) investing activities
Financing activities:
Net changes in debt with original maturities of 90 days or less
Increase in debt
Purchases of treasury stock
Dividends paid
Dividends paid to noncontrolling shareholders
Other financing activities
Net cash used in financing activities
Effects of exchange rate changes on cash and equivalents
(898)
(282)
(497)
(282)
(1,357)
(1,841)
(1,357)
(1,841)
(105)
(93)
(92)
(86)
6
(20)
(1)
(29)
(1,842)
(1,456)
(1,625)
(2,437)
(146)
22
89
28
(1,489)
(1,072)
(517)
(1,453)
Cash and equivalents, beginning of period
5,443
6,021
4,471
6,402
Cash and equivalents, end of period
3,954
4,949
3,954
4,949
Interest paid
130
150
77
83
Taxes paid
616
523
360
325
Net change in cash and equivalents – continuing operations
Supplementary disclosure of cash flow information:
See Notes to the Interim Consolidated Financial Information
11
Q2 2015 | Financial Information
ABB Ltd Interim Consolidated Statements of Changes in
Stockholders’ Equity (unaudited)
($ in millions)
Balance at January 1, 2014
1,750
19,186
(431)
7
(1,610)
22
(2,012)
(246)
18,678
530
19,208
1,180
50
1,230
(88)
(88)
(4)
(92)
3
3
3
33
33
33
(28)
(28)
1,100
Comprehensive income:
Net income
Foreign currency translation
adjustments, net of tax of $(8)
Effect of change in fair value of
available-for-sale securities,
net of tax of $0
Unrecognized income (expense)
related to pensions and other
postretirement plans,
net of tax of $19
Change in derivatives qualifying as
cash flow hedges,
net of tax of $(5)
Total comprehensive income
Dividends paid
to noncontrolling shareholders
Dividends paid
Share-based payment arrangements
1,180
(88)
3
33
(28)
–
(1,841)
(1,841)
39
Purchase of treasury stock
Delivery of shares
(14)
Other
46
(131)
(28)
1,146
(131)
(1,841)
39
39
(282)
(282)
(282)
40
26
26
2
2
2
Balance at June 30, 2014
1,777
18,525
(519)
10
(1,577)
(6)
(2,092)
(488)
17,722
445
18,167
Balance at January 1, 2015
1,777
19,939
(2,102)
13
(2,131)
(21)
(4,241)
(1,206)
16,269
546
16,815
1,152
56
1,208
(459)
(459)
(4)
(463)
(4)
(4)
(4)
116
116
116
Comprehensive income:
Net income
Foreign currency translation
adjustments, net of tax of $(3)
Effect of change in fair value of
available-for-sale securities,
net of tax of $1
Unrecognized income (expense)
related to pensions and other
postretirement plans,
net of tax of $45
Change in derivatives qualifying as
cash flow hedges, net of tax of $0
Total comprehensive income
Dividends paid to
noncontrolling shareholders
Dividends paid
Reduction in nominal value of common
shares payable to shareholders
Share-based payment arrangements
1,152
(459)
(4)
116
2
2
(1,317)
(349)
30
(54)
Purchases of treasury stock
Delivery of shares
Balance at June 30, 2015
(17)
1,441
See Notes to the Interim Consolidated Financial Information
12
Q2 2015 | Financial Information
2
19,720
(2,561)
9
(2,015)
(19)
(4,586)
2
807
52
859
–
(1,317)
(133)
(133)
(1,317)
(403)
30
(403)
30
(952)
(952)
(952)
124
107
(2,034)
14,541
107
465
15,006
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 leading global company in power and
automation technologies that enable utility and industry customers to improve their performance while lowering
environmental impact. The Company works with customers to engineer and install networks, facilities and plants with
particular emphasis on enhancing efficiency, reliability and productivity for customer s who generate, convert,
transmit, distribute and consume energy.
The Company’s Interim Consolidated Financial Information is prepared in accordance with United States of America
generally accepted accounting principles (U.S. GAAP) for interim financial reporting. As such, the Interim
Consolidated Financial Information does not include all the information and notes required under U.S. GAAP for
annual consolidated financial statements. Therefore, such financial information should be read in conjunction with the
audited consolidated financial statements in the Company’s Annual Report for the year ended December 31, 2014.
The preparation of financial information in conformity with U.S. GAAP requires management to make assumptions
and estimates that directly affect the amounts reported in the Interim Consolidated Financial Information. The most
significant, difficult and subjective of such accounting assumptions and estimates include:
− assumptions and projections, principally related to future material, labor an d 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, regulatory and other proceedings,
− assumptions used in the calculation of pension and postretirement benefits and the fair value of pension plan
assets,
− 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 relat ed to such activities, the Company elected to use the
duration of the individual contracts as its operating cycle. Accordingly, there are accounts receivable, inventories and
provisions related to these contracts which will not be realized within one year that have been classified as current.
In the opinion of management, the unaudited Interim Consolidated Financial Information contains all necessary
adjustments to present fairly the financial position, results of operations and cash flows for the reported interim
periods. Management considers all such adjustments to be of a normal recurring nature.
The Interim Consolidated Financial Information is presented in United States dollars ($) unless otherwise stated.
Certain amounts have been reclassified from Other non-current assets to Long-term debt in the Consolidated
Balance Sheets at December 31, 2014, as a result of the early adoption of an accounting standard update on the
presentation of debt issuance costs (see Note 2). In the Consolidated Statements of Cash Flows certain amounts
reported for prior periods in the Interim Consolidated Financial Information have been reclassified to conform to the
current period presentation. These reclassifications were within Net cash provided by operating activiti es.
Note 2
Recent accounting pronouncements
Applicable for current periods
Applicable for future periods
13
Q2 2015 | Financial Information
Simplifying the presentation of debt issuance costs
In April 2015, an accounting standard update was issued to simplify the presentation of debt issuance costs. Under
the update, the Company presents debt issuance costs related to a recognized debt liability in the balance sheet as
a direct deduction from the carrying amount of that debt liability rather than as a non -current asset. The existing
recognition and measurement guidance for debt issuance costs is not affected by this accounting standard update.
The Company has elected to early adopt the updated accounting standard in the second quarter of 2015 . In
connection with the adoption of the updated accounting standard, deferred debt issuance costs of $26 million were
reclassified from "Other non-current assets" to "Long-term debt" at December 31, 2014.
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.
The update is effective for the Company for annual and interim periods beginning January 1, 2017, and is to be
applied either (i) retrospectively to each prior reporting period presented, with the option to elect certain defined
practical expedients, or (ii) retrospectively with the cumulative effect of initially applying the update recognized at the
date of adoption in retained earnings (with additional disclosure as to the impact on individual financial statement
lines affected). On July 9, 2015, the Financial Accounting Standards Board voted to defer the effective date by one
year to December 15, 2017, for interim and annual reporting periods beginning after that date and permitted early
adoption of the standard, but not before the original effective date of December 15, 2016. The Company is currently
evaluating the impact of this update (which would be effective for periods beginning January 1, 2018) on its
consolidated financial statements.
Disclosures for investments in certain entities that calculate net asset value per share (or its equivalent)
In May 2015, an accounting standard update was issued regarding fair value disclosures for certain investments.
Under the update, the Company would no longer categorize within the fair value hierarchy investments for which fair
value is measured using the net asset value per share practical expedient. The amendments also remove the
requirement to make certain disclosures for investments that are eligible to be measured at fair value using the net
asset value per share practical expedient. Rather, those disclosures are limited to investments for which the
Company has elected to measure the fair value using that practical expedient. This update is effective for the
Company for annual and interim periods beginning January 1, 2016, with early adoption permitted, and is applicable
retrospectively. The Company is currently evaluating the impact of this update on its consolidated financial
statements.
Note 3
Business divestments
Note 4
Cash and equivalents, marketable
securities and short-term investments
Current assets
For both the six and three months ended June 30, 2014, the Company recorded net gains of $130 million in “Other
income (expense), net” and tax expense of $69 million in “Provision for taxes”, relating to the divestment of
consolidated businesses. There were no significant amounts recognized in the six and three months ended June 30,
2015.
Cash and equivalents, marketable securities and short-term investments consisted of the following:
June 30, 2015
Gross
unrealized
gains
Gross
unrealized
losses
Marketable securities
and short-term
investments
Fair value
Cash and
equivalents
Cash
1,690
1,690
1,690
–
Time deposits
2,360
2,360
2,242
118
235
235
–
235
137
($ in millions)
Other short-term investments
Cost basis
Debt securities available-for-sale:
U.S. government obligations
Other government obligations
Corporate
Equity securities available-for-sale
Total
136
2
(1)
137
–
2
–
–
2
–
2
657
3
(1)
659
22
637
95
9
–
104
–
104
5,175
14
(2)
5,187
3,954
1,233
Cost basis
Gross
unrealized
gains
Gross
unrealized
losses
Marketable securities
and short-term
investments
December 31, 2014
Fair value
Cash and
equivalents
Cash
2,218
2,218
2,218
–
Time deposits
3,340
3,340
3,140
200
225
225
–
225
136
($ in millions)
Other short-term investments
Debt securities available-for-sale:
U.S. government obligations
Other government obligations
Corporate
Equity securities available-for-sale
Total
135
2
(1)
136
–
2
–
–
2
–
2
734
4
(1)
737
85
652
98
12
–
110
–
110
6,752
18
(2)
6,768
5,443
1,325
Included in Other short-term investments at June 30, 2015, and December 31, 2014, are receivables of $229 million
and $219 million, respectively, representing reverse repurchase agreements. These collateralized lendings, made to a
financial institution, have maturity dates of less than one year.
Non-current assets
14
Q2 2015 | Financial Information
Included in “Other non-current assets” are certain held-to-maturity marketable securities. At June 30, 2015, the
amortized cost, gross unrecognized gain and fair value (based on quoted market prices) of these securities were $ 92
million, $18 million and $110 million, respectively. At December 31, 2014, the amortized cost, gross unrecognized
gain and fair value (based on quoted market prices) of these securities were $95 million, $14 million and $109 million,
respectively. These securities are pledged as security for certain outstanding deposit liabilities and the funds received
at the respective maturity dates of the securities will only be available to the Company for repayment of these
obligations.
Note 5
Derivative financial instruments
The Company is exposed to certain currency, commodity, interest rate and equity risks arising from its global
operating, financing and investing activities. The Company uses derivative instruments to reduce and manage the
economic impact of these exposures.
Currency risk
Due to the global nature of the Company’s operations, many of its subsidiaries are exposed to currency risk in their
operating activities from entering into transactions in currencies other than their functional currency. To manage such
currency risks, the Company’s policies require the subsidiaries to hedge their foreign currency exposures from
binding sales and purchase contracts denominated in foreign currencies. For forecasted foreign currency
denominated sales of standard products and the related foreign currency denominated purchases, the Company’s
policy is to hedge up to a maximum of 100 percent of the forecasted foreign currency denominated exposures,
depending on the length of the forecasted exposures. Forecasted exposures greater than 12 mon ths are not
hedged. Forward foreign exchange contracts are the main instrument used to protect the Company against the
volatility of future cash flows (caused by changes in exchange rates) of contracted and forecasted sales and
purchases denominated in foreign currencies. In addition, within its treasury operations, the Company primarily uses
foreign exchange swaps and forward foreign exchange contracts to manage the currency and timing mismatches
arising in its liquidity management activities.
Commodity risk
Various commodity products are used in the Company’s manufacturing activities. Consequently it is exposed to
volatility in future cash flows arising from changes in commodity prices. To manage the price risk of commodities, the
Company’s policies require that the subsidiaries hedge the commodity price risk exposures from binding contracts,
as well as at least 50 percent (up to a maximum of 100 percent) of the forecasted commodity exposure over the next
12 months or longer (up to a maximum of 18 months). Primarily swap contracts are used to manage the associated
price risks of commodities.
Interest rate risk
The Company has issued bonds at fixed rates. Interest rate swaps are used to manage the interest rate risk
associated with certain debt and generally such swaps are designated as fair value hedges. In addition, from time to
time, the Company uses instruments such as interest rate swaps, interest rate futures, bond futures or forward rate
agreements to manage interest rate risk arising from the Compa ny’s balance sheet structure but does not designate
such instruments as hedges.
Equity risk
The Company is exposed to fluctuations in the fair value of its warrant appreciation rights (WARs) issued under its
management incentive plan. A WAR gives its holder the right to receive cash equal to the market price of an
equivalent listed warrant on the date of exercise. To eliminate such risk, the Company has purchased cash -settled
call options which entitle the Company to receive amounts equivalent to its obli gations under the outstanding WARs.
Volume of derivative activity
In general, while the Company’s primary objective in its use of derivatives is to minimize exposures arising from its
business, certain derivatives are designated and qualify for hedge accounting treatment while others either are not
designated or do not qualify for hedge accounting.
Foreign exchange and interest rate derivatives
The gross notional amounts of outstanding foreign exchange and interest rate derivatives (whether designat ed as
hedges or not) were as follows:
Type of derivative
Total notional amounts
($ in millions)
June 30, 2015
December 31, 2014
June 30, 2014
15,954
18,564
20,613
Embedded foreign exchange derivatives
3,398
3,013
2,887
Interest rate contracts
4,223
2,242
3,540
Foreign exchange contracts
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
June 30, 2015
December 31, 2014
June 30, 2014
Copper swaps
metric tonnes
48,941
46,520
42,080
Aluminum swaps
metric tonnes
5,792
3,846
3,646
Nickel swaps
metric tonnes
–
–
6
Lead swaps
metric tonnes
15,350
6,550
4,725
Zinc swaps
metric tonnes
175
200
150
Silver swaps
ounces
1,488,132
1,996,845
1,958,563
Crude oil swaps
barrels
125,700
128,000
113,000
Equity derivatives
At June 30, 2015, December 31, 2014, and June 30, 2014, the Company held 45 million, 61 million and 54 million
cash-settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of $ 16 million, $33
million and $29 million, respectively.
Cash flow hedges
As noted above, the Company mainly uses forward foreign exchange contracts to manage the foreign exchange risk
of its operations, commodity swaps to manage its commodity risks and cash -settled call options to hedge its WAR
liabilities. Where such instruments are designated and qualify as cash flow hedges, the effective portion of the
changes in their fair value is recorded in “Accumulated other comprehensive loss” and subsequently reclassified into
earnings in the same line item and in the same period as the underlying hed ged transaction affects earnings. Any
ineffectiveness in the hedge relationship, or hedge component excluded from the assessment of effectiveness, is
recognized in earnings during the current period.
At June 30, 2015, and December 31, 2014, “Accumulated other comprehensive loss” included net unrealized losses
of $19 million and $21 million, respectively, net of tax, on derivatives designated as cash flow hedges. Of the amount
at June 30, 2015, net losses of $10 million are expected to be reclassified to earnings in the following 12 months. At
15
Q2 2015 | Financial Information
June 30, 2015, the longest maturity of a derivative classified as a cash flow hedge was 51 months.
The amount of gains or losses, net of tax, reclassified into earnings due to the discontinuance of cash flow hedge
accounting and the amount of ineffectiveness in cash flow hedge relationships directly recognized in earnings were
not significant in the six and three months ended June 30, 2015 and 2014.
The pre-tax effects of derivative instruments, designated and qualifying as cash flow hedges, on “Accumulated other
comprehensive loss” (OCI) and the Consolidated Income Statements were as follows:
Six months ended June 30, 2015
Type of derivative
designated as
a cash flow hedge
Gains (losses) recognized
in OCI
on derivatives
(effective portion)
($ in millions)
Foreign exchange contracts
(16)
Gains (losses) recognized in income (ineffective
portion and amount
excluded from effectiveness testing)
Gains (losses) reclassified from OCI
into income (effective portion)
Location
($ in millions)
Total revenues
(24)
Location
($ in millions)
Total revenues
–
Total cost of sales
5
Total cost of sales
–
Commodity contracts
(2)
Total cost of sales
(4)
Total cost of sales
–
Cash-settled call options
(7)
SG&A expenses(1)
(4)
SG&A expenses(1)
–
Total
(25)
(27)
–
Six months ended June 30, 2014
Type of derivative
designated as
a cash flow hedge
Gains (losses) recognized
in OCI
on derivatives
(effective portion)
($ in millions)
Foreign exchange contracts
Commodity contracts
Gains (losses) recognized in income (ineffective
portion and amount
excluded from effectiveness testing)
Gains (losses) reclassified from OCI
into income (effective portion)
($ in millions)
Location
Location
($ in millions)
(18)
Total revenues
Total cost of sales
–
5
Total revenues
Total cost of sales
–
–
(2)
Total cost of sales
(2)
Total cost of sales
–
Cash-settled call options
(18)
SG&A expenses(1)
(8)
SG&A expenses(1)
–
Total
(38)
(5)
–
Three months ended June 30, 2015
Type of derivative
designated as
a cash flow hedge
Gains (losses) recognized
in OCI
on derivatives
(effective portion)
($ in millions)
Foreign exchange contracts
6
Commodity contracts
Cash-settled call options
Total
Gains (losses) recognized in income (ineffective
portion and amount
excluded from effectiveness testing)
Gains (losses) reclassified from OCI
into income (effective portion)
($ in millions)
Location
Total revenues
(11)
Location
($ in millions)
Total revenues
–
Total cost of sales
–
Total cost of sales
–
–
Total cost of sales
(1)
Total cost of sales
–
(3)
SG&A expenses(1)
(1)
SG&A expenses(1)
–
3
(13)
–
Three months ended June 30, 2014
Type of derivative
designated as
a cash flow hedge
Gains (losses) recognized
in OCI
on derivatives
(effective portion)
Foreign exchange contracts
Commodity contracts
($ in millions)
Gains (losses) recognized in income (ineffective
portion and amount
excluded from effectiveness testing)
Gains (losses) reclassified from OCI
into income (effective portion)
Location
($ in millions)
Location
($ in millions)
(12)
Total revenues
Total cost of sales
(1)
2
Total revenues
Total cost of sales
–
–
2
Total cost of sales
(1)
Total cost of sales
–
Cash-settled call options
(14)
SG&A expenses(1)
(7)
SG&A expenses(1)
–
Total
(24)
(7)
(1) SG&A expenses represent “Selling, general and administrative expenses”.
Net derivative losses of $21 million and $5 million, both net of tax, respectively, were reclassified from “Accumulated
other comprehensive loss” to earnings during the six months ended June 30, 2015 and 2014, respectively. During
the three months ended June 30, 2015 and 2014, net derivative losses of $10 million and $6 million, both net of tax,
respectively, were reclassified from “Accumulated other comprehensive loss” to earnings .
Fair value hedges
16
Q2 2015 | Financial Information
To reduce its interest rate exposure arising primarily from its debt issuance activities, the Comp any uses interest rate
swaps. Where such instruments are designated as fair value hedges, the changes in the fair value of these
instruments, as well as the changes in the fair value of the risk component of the underlying debt being hedged, are
recorded as offsetting gains and losses in “Interest and other finance expense”. Hedge ineffectiveness of instruments
designated as fair value hedges for the six and three months ended June 30, 2015 and 2014, was not significant.
–
The effect of derivative instruments, designated and qualifying as fair value hedges, on the Consolidated Income
Statements was as follows:
Six months ended June 30, 2015
Gains (losses) recognized in income on derivatives
designated as fair value hedges
Type of derivative designated
as a fair value hedge
Location
Interest rate contracts
Interest and other finance expense
Gains (losses) recognized in income
on hedged item
($ in millions) Location
($ in millions)
2 Interest and other finance expense
1
Six months ended June 30, 2014
Gains (losses) recognized in income on derivatives
designated as fair value hedges
Type of derivative designated
as a fair value hedge
Location
Interest rate contracts
Interest and other finance expense
Gains (losses) recognized in income
on hedged item
($ in millions) Location
($ in millions)
53 Interest and other finance expense
(52)
Three months ended June 30, 2015
Gains (losses) recognized in income on derivatives
designated as fair value hedges
Type of derivative designated
as a fair value hedge
Location
Interest rate contracts
Interest and other finance expense
Gains (losses) recognized in income
on hedged item
($ in millions) Location
($ in millions)
(29) Interest and other finance expense
32
Three months ended June 30, 2014
Gains (losses) recognized in income on derivatives
designated as fair value hedges
Type of derivative designated
as a fair value hedge
Location
Interest rate contracts
Interest and other finance expense
Derivatives not designated in hedge
relationships
Gains (losses) recognized in income
on hedged item
($ in millions) Location
($ in millions)
31 Interest and other finance expense
(30)
Derivative instruments that are not designated as hedges or do not qualify as either cash flow or fair value hedges are
economic hedges used for risk management purposes. Gains and losses from changes in the fair values of such
derivatives are recognized in the same line in the income statement as the economically hedged transaction.
Furthermore, under certain circumstances, the Company is required to split and account separately for foreign
currency derivatives that are embedded within certain binding sales or purchase contracts denominated in a currency
other than the functional currency of the subsidiary and the counterparty.
The gains (losses) recognized in the Consolidated Income Statements on derivatives not designated in hedging
relationships were as follows:
Gains (losses) recognized in income
Type of derivative not designated
as a hedge
Six months ended June 30, Three months ended June 30,
($ in millions)
Location
Foreign exchange contracts
Total revenues
2015
2014
2015
2014
47
(97)
125
(74)
Total cost of sales
(72)
(30)
(6)
(20)
SG&A expenses(1)
9
1
(3)
–
(2)
–
(1)
–
226
(27)
49
(31)
Non-order related research and development
Interest and other finance expense
Embedded foreign exchange contracts
Commodity contracts
Interest rate contracts
Total revenues
26
8
(1)
(2)
Total cost of sales
(12)
(1)
5
(1)
SG&A expenses(1)
6
–
6
–
Total cost of sales
(17)
(6)
(16)
16
Interest and other finance expense
1
–
1
–
Interest and other finance expense
(1)
–
–
–
211
(152)
159
(112)
Total
(1) SG&A expenses represent “Selling, general and administrative expenses”.
17
Q2 2015 | Financial Information
The fair values of derivatives included in the Consolidated Balance Sheets were as follows:
June 30, 2015
Derivative assets
($ in millions)
Derivative liabilities
Current in
“Other current
assets”
Non-current in
“Other non-current
assets”
Current in
“Other current
liabilities”
Non-current in
“Other non-current
liabilities”
10
8
11
–
–
3
14
–
–
Derivatives designated as hedging instruments:
Foreign exchange contracts
Commodity contracts
Interest rate contracts
–
89
–
Cash-settled call options
13
3
–
–
Total
23
100
14
14
221
46
257
72
3
–
20
3
Embedded foreign exchange derivatives
106
51
40
32
Total
330
97
317
107
Total fair value
353
197
331
121
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Commodity contracts
December 31, 2014
Derivative assets
Derivative liabilities
Current in
“Other current
assets”
Non-current in
“Other non-current
assets”
Current in
“Other current
liabilities”
Non-current in
“Other non-current
liabilities”
Foreign exchange contracts
9
9
20
16
Commodity contracts
–
–
3
–
Interest rate contracts
–
85
–
–
Cash-settled call options
21
11
–
–
Total
30
105
23
16
($ in millions)
Derivatives designated as hedging instruments:
Derivatives not designated as hedging instruments:
Foreign exchange contracts
156
25
369
72
Commodity contracts
4
–
19
3
Cash-settled call options
1
1
–
–
98
58
27
17
Embedded foreign exchange derivatives
Total
259
84
415
92
Total fair value
289
189
438
108
Close-out netting agreements provide for the termination, valuation and net settlement of some or all outstanding
transactions between two counterparties on the occurrence of one or more pre -defined trigger events.
Although the Company is party to close-out netting agreements with most derivative counterparties, the fair values in
the tables above and in the Consolidated Balance Sheets at June 30, 2015, and December 31, 2014, have been
presented on a gross basis.
The Company’s netting agreements and other similar arrangements allow net settlements under certain conditions.
At June 30, 2015, and December 31, 2014, information related to these offsetting arrangements was as follows:
($ in millions)
Type of agreement or
similar arrangement
June 30, 2015
Gross amount of
recognized assets
Derivative liabilities
eligible for set-off in
case of default
Cash collateral
received
Non-cash collateral
received
Net asset exposure
393
(252)
–
–
141
(229)
–
–
(229)
141
Derivatives
–
Reverse repurchase
agreements
229
–
Total
622
(252)
Gross amount of
recognized liabilities
Derivative liabilities
eligible for set-off in
case of default
Cash collateral
pledged
Non-cash collateral
pledged
Net liability exposure
Derivatives
380
(252)
(2)
–
126
Total
380
(252)
(2)
–
126
($ in millions)
Type of agreement
or similar arrangement
18
June 30, 2015
Q2 2015 | Financial Information
($ in millions)
December 31, 2014
Gross amount of
recognized assets
Derivative liabilities
eligible for set-off in
case of default
Cash collateral
received
Non-cash collateral
received
Net asset exposure
Derivatives
322
(216)
–
–
106
Reverse repurchase
agreements
219
–
–
(219)
–
Total
541
(216)
–
(219)
106
Gross amount of
recognized liabilities
Derivative liabilities
eligible for set-off in
case of default
Cash collateral
pledged
Non-cash collateral
pledged
Net liability exposure
Derivatives
502
(216)
(3)
–
283
Total
502
(216)
(3)
–
283
Type of agreement
or similar arrangement
($ in millions)
Type of agreement
or similar arrangement
December 31, 2014
Note 6
Fair values
The Company uses fair value measurement principles to record certain financial assets and liabilities on a recurring
basis and, when necessary, to record certain non-financial assets at fair value on a non-recurring basis, as well as to
determine fair value disclosures for certain financial instruments carried at amortized cost in the financial statements.
Financial assets and liabilities recorded at fair value on a recurring basis include foreign currency, commodity and
interest rate derivatives, as well as cash-settled call options and available-for-sale securities. Non-financial assets
recorded at fair value on a non-recurring basis include long-lived assets that are reduced to their estimated fair value
due to impairments.
Fair value is the price that would be received when selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. In determini ng 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 (obs ervable
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 forwa rd 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 midmarket quotes. However, for the purpose of determining the fair value of cash -settled call options serving as hedges
of the Company’s management incentive plan, bid prices are used.
When determining fair values based on quoted prices in an active market, the Company considers if the level of
transaction activity for the financial instrument has significantly decreased, or would not be considered orderly. In
such cases, the resulting changes in valuation techniques would be disclosed. If the market is considered disorderly
or if quoted prices are not available, the Company is required to use another valuation technique, such as an income
approach.
19
Q2 2015 | Financial Information
Recurring fair value measures
The fair values of financial assets and liabilities measured at fair value on a recurring basis were as follows:
June 30, 2015
($ in millions)
Level 1
Level 2
Level 3
Total fair value
–
22
–
22
Assets
Available-for-sale securities in “Cash and equivalents”:
Debt securities—Corporate
Available-for-sale securities in “Marketable securities and short-term investments”:
Equity securities
–
104
–
104
137
–
–
137
Debt securities—Other government obligations
–
2
–
2
Debt securities—Corporate
–
637
–
637
Derivative assets—current in “Other current assets”
–
353
–
353
Derivative assets—non-current in “Other non-current assets”
–
197
–
197
137
1,315
–
1,452
Derivative liabilities—current in “Other current liabilities”
–
331
–
331
Derivative liabilities—non-current in “Other non-current liabilities”
–
121
–
121
Total
–
452
–
452
Debt securities—U.S. government obligations
Total
Liabilities
December 31, 2014
($ in millions)
Level 1
Level 2
Level 3
Total fair value
Assets
Available-for-sale securities in “Cash and equivalents”:
Debt securities—Corporate
–
85
–
85
Available-for-sale securities in “Marketable securities and short-term investments”:
Equity securities
–
110
–
110
136
–
–
136
Debt securities—Other government obligations
–
2
–
2
Debt securities—Corporate
–
652
–
652
Derivative assets—current in “Other current assets”
–
289
–
289
Derivative assets—non-current in “Other non-current assets”
–
189
–
189
136
1,327
–
1,463
Derivative liabilities—current in “Other current liabilities”
–
438
–
438
Derivative liabilities—non-current in “Other non-current liabilities”
–
108
–
108
Total
–
546
–
546
Debt securities—U.S. government obligations
Total
Liabilities
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 in struments or
valuation techniques represent a Level 2 input unless significant unobservable inputs are used.
Non-recurring fair value measures
20
Q2 2015 | Financial Information
There were no significant non-recurring fair value measurements during the six and three months ended June 30,
2015 and 2014.
Disclosure about financial instruments
carried on a cost basis
The fair values of financial instruments carried on a cost basis were as follows:
June 30, 2015
($ in millions)
Carrying value
Level 1
Level 2
Level 3
Total fair value
Cash
1,690
Time deposits
2,242
1,690
–
–
1,690
–
2,242
–
2,242
Time deposits
Receivables under reverse repurchase agreements
118
–
118
–
118
229
–
229
–
229
6
6
–
–
6
Loans granted
31
–
33
–
33
Held-to-maturity securities
92
–
110
–
110
184
63
138
–
201
Assets
Cash and equivalents (excluding available-for-sale securities
with original maturities up to 3 months):
Marketable securities and short-term investments
(excluding available-for-sale securities):
Other short-term investments
Other non-current assets:
Restricted cash deposits
Liabilities
Short-term debt and current maturities of long-term debt
(excluding capital lease obligations)
1,312
122
1,190
–
1,312
Long-term debt (excluding capital lease obligations)
6,539
5,947
783
–
6,730
210
–
245
–
245
Carrying value
Level 1
Level 2
Level 3
Total fair value
Cash
2,218
2,218
–
–
2,218
Time deposits
3,140
–
3,140
–
3,140
Time deposits
200
–
200
–
200
Receivables under reverse repurchase agreements
219
–
219
–
219
6
6
–
–
6
Loans granted
41
–
44
–
44
Held-to-maturity securities
95
–
109
–
109
198
64
161
–
225
Non-current deposit liabilities in “Other non-current liabilities”
December 31, 2014
($ in millions)
Assets
Cash and equivalents (excluding available-for-sale securities
with original maturities up to 3 months):
Marketable securities and short-term investments
(excluding available-for-sale securities):
Other short-term investments
Other non-current assets:
Restricted cash deposits
Liabilities
Short-term debt and current maturities of long-term debt
(excluding capital lease obligations)
Long-term debt (excluding capital lease obligations)
Non-current deposit liabilities in “Other non-current liabilities”
324
115
209
–
324
7,198
6,148
1,404
–
7,552
222
–
267
–
267
The Company uses the following methods and assumptions in estimating fair values of financial instruments carried
on a cost basis:
− Cash and equivalents (excluding available-for-sale securities with original maturities up to 3 months), and
Marketable securities and short-term investments (excluding available-for-sale securities): The carrying amounts
approximate the fair values as the items are short-term in nature.
− Other non-current assets: Includes (i) loans granted whose fair values are based on the carrying amount
adjusted using a present value technique to reflect a premium or discount based on current market interest rates
(Level 2 inputs), (ii) held-to-maturity securities (see Note 4) whose fair values are based on quoted market prices
in inactive markets (Level 2 inputs), (iii) restricted cash whose fair values approximate the carrying amounts
(Level 1 inputs) and restricted cash deposits pledged in respect of certain non-current deposit liabilities whose
fair values are determined using a discounted cash flow methodology based on current market interest rates
(Level 2 inputs).
− Short-term debt and current maturities of long-term debt (excluding capital lease obligations): 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 outstanding bonds are determined using
quoted market prices (Level 1 inputs), if available. For other bonds and other long -term debt, the fair values are
determined using a discounted cash flow methodology based upon borrow ing 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).
21
Q2 2015 | Financial Information
Note 7
Commitments and contingencies
Contingencies—Environmental
The Company is engaged in environmental clean-up activities at certain sites arising under various United States and
other environmental protection laws and under certain agreements with third parties. In some cases, these
environmental remediation actions are subject to legal proceedings, investigations or claims, and it is uncertain to
what extent the Company is actually obligated to perform. Provisions for these unresolved matters have been set up
if it is probable that the Company has incurred a liability and the amount of l oss can be reasonably estimated. The
lower end of an estimated range is accrued when a single best estimate is not determinable. The required amounts
of the provisions may change in the future as developments occur.
If a provision has been recognized for any of these matters, the Company records an asset when it is probable that it
will recover a portion of the costs expected to be incurred to settle them. Management is of the opinion, based upon
information presently available, that the resolution of any such obligation and non-collection of recoverable costs
would not have a further material adverse effect on the Company’s consolidated financial statements.
The Company is involved in the remediation of environmental contamination at present or former facilities, primarily in
the United States. The clean-up of these sites involves primarily soil and groundwater contamination. A significant
portion of the provisions in respect of these contingencies reflects the provisions of acquired companies.
Environmental provisions included in the Company’s Consolidated Balance Sheets were as follows:
($ in millions)
June 30, 2015
December 31, 2014
Other provisions
31
37
Other non-current liabilities
97
109
128
146
Total
Provisions for the above estimated losses have not been discounted as the timing of payments cannot be reasonably
estimated.
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 A uthority (CADE) to settle its
ongoing investigation into the Company’s involvement in anticompetitive practices in the cables industry and the
Company agreed to pay a fine of approximately 1.5 million Brazilian reals (equivalent to approximately $1 million on
date of payment). The Company’s cables business remains under investigation for alleged anticompetitive practices
in certain other jurisdictions. An informed judgment about the outcome of these remaining investigations or the
amount of potential loss or range of loss for the Company, if any, relating to these remaining investigations cannot be
made at this stage.
In Brazil, the Company’s Gas Insulated Switchgear business is under investigation by the CADE for alleged
anticompetitive practices. In addition, the CADE has opened an investigation into certain other power businesses of
the Company, including flexible alternating current transmission systems (FACTS) and power transformers. An
informed judgment about the outcome of these investigations or the amount of potential loss or range of loss for the
Company, if any, relating to these investigations cannot be made at this stage.
With respect to those aforementioned matters which are still ongoing, management is cooperating fully with the
antitrust authorities.
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 June 30, 2015, and December 31, 2014, the Company had aggregate liabilities of $ 158 million and $147 million,
respectively, included in “Other provisions” and “Other non-current liabilities”, for the above regulatory, compliance
and legal contingencies, and none of the individual liabilities recognized was significant. As it is not possible to make
an informed judgment on the outcome of certain matters and as it is not possible, based on information currently
available to management, to estimate the maximum potential liability on other matters, there could be material
adverse outcomes beyond the amounts accrued.
Guarantees
General
The following table provides quantitative data regarding the Company’s third-party guarantees. The maximum
potential payments represent a “worst-case scenario”, and do not reflect management’s expected outcomes.
Maximum potential payments ($ in millions)
June 30, 2015
December 31, 2014
223
232
Financial guarantees
74
72
Indemnification guarantees
50
50
347
354
Performance guarantees
Total
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
22
Q2 2015 | Financial Information
guarantees, the carrying amounts of liabilities at June 30, 2015, and December 31, 2014, were not significant.
Performance guarantees
Performance guarantees represent obligations where the Company guarantees the performance of a third party’s
product or service according to the terms of a contract. Such guarantees may include guarantees that a project will
be completed within a specified time. If the third party does not fulfill the obligation, the Company will compensate
the guaranteed party in cash or in kind. Performance guarantees include surety bonds, advance payment guarantees
and standby letters of credit. The significant performance guarantees are described below.
The Company retained obligations for guarantees related to the Power Generation business contributed in mid -1999
to the former ABB Alstom Power NV joint venture (Alstom Power NV). The guarantees primarily consist of
performance guarantees and other miscellaneous guarantees under certain contracts such as indemnification for
personal injuries and property damages, taxes and compliance with labor laws, environmental laws and patents.
These guarantees have no fixed expiration date. In May 2000, the Company sold its interest in Alstom Power NV to
Alstom SA (Alstom). As a result, Alstom and its subsidiaries have primary responsibility for performing the obligations
that are the subject of the guarantees. Further, Alstom, the parent company and Alstom Power NV, have undertaken
jointly and severally to fully indemnify and hold harmless the Company against any claims arisi ng under such
guarantees. Management’s best estimate of the total maximum potential amount payable of quantifiable guarantees
issued by the Company on behalf of its former Power Generation business was $65 million at both June 30, 2015,
and December 31, 2014. The Company has not experienced any losses related to guarantees issued on behalf of the
former Power Generation business.
The Company is engaged in executing a number of projects as a member of consortia that include third parties. In
certain of these cases, the Company guarantees not only its own performance but also the work of third parties. The
original maturity dates of these guarantees range from one to six years. At June 30, 2015, and December 31, 2014,
the maximum potential amount payable under these guarantees as a result of third-party non-performance was $148
million and $156 million, respectively.
Financial guarantees and commercial commitments
Financial guarantees represent irrevocable assurances that the Company will make payment to a be neficiary in the
event that a third party fails to fulfill its financial obligations and the beneficiary under the guarantee incurs a loss due
to that failure.
At June 30, 2015, and December 31, 2014, the Company had a maximum potential amount payable of $74 million
and $72 million, respectively, under financial guarantees outstanding. Of these amounts, $12 million at both June 30,
2015, and December 31, 2014, was in respect of guarantees issued on behalf of companies in which the Company
formerly had or has an equity interest. The guarantees outstanding have various maturity dates up to 2020.
In addition, in the normal course of bidding for and executing certain projects, the Company has entered into standby
letters of credit, bid/performance bonds and surety bonds (collectively “performance bonds”) with various financial
institutions. Customers can draw on such performance bonds in the event that the Company does not fulfill its
contractual obligations. The Company would then have an obligation to reimbur se the financial institution for amounts
paid under the performance bonds. There have been no significant amounts reimbursed to financial institutions under
these types of arrangements in the six and three months ended June 30, 2015 and 2014.
Indemnification guarantees
The Company has indemnified certain purchasers of divested businesses for potential claims arising from the
operations of the divested businesses. To the extent the maximum potential loss related to such indemnifications
could not be calculated, no amounts have been included under maximum potential payments in the table above.
Indemnifications for which maximum potential losses could not be calculated include indemnifications for legal
claims. The significant indemnification guarantees for which maximum potential losses could be calculated are
described below.
The Company issued to the purchasers of Lummus Global guarantees related to assets and liabilities divested in
2007. The maximum potential amount payable relating to this business, purs uant to the sales agreement, at each of
June 30, 2015, and December 31, 2014, was $50 million.
Product and order-related contingencies
The Company calculates its provision for product warranties based on historical claims experience and specif ic
review of certain contracts.
The reconciliation of the “Provisions for warranties”, including guarantees of produ ct performance, was as follows:
($ in millions)
Balance at January 1,
Claims paid in cash or in kind
Net increase in provision for changes in estimates, warranties issued and warranties expired
Exchange rate differences
Balance at June 30,
23
Q2 2015 | Financial Information
2015
2014
1,148
1,362
(135)
(153)
97
64
(31)
(17)
1,079
1,256
Note 8
Employee benefits
The Company operates defined benefit and defined contribution pension plans and termination indemnity plans, in
accordance with local regulations and practices. These plans cover a large portion of the Company’s employees and
provide benefits to employees in the event of death, disability, retirement, or termination of employment. Certain of
these plans are multi-employer plans. The Company also operates other postretirement benefit plans including
postretirement health care benefits, and other employee-related benefits for active employees including long-service
award plans. The measurement date used for the Company’s employee benefit plans is December 31. The funding
policies of the Company’s plans are consistent with the local government and tax requirements and several of the
plans are not required to be funded according to local government and tax requirements.
Net periodic benefit cost of the Company’s defined benefit pension and other postretirement benefit pl ans consisted
of the following:
($ in millions)
Defined pension
benefits
Six months ended June 30,
Other postretirement
benefits
2015
2014
2015
2014
Service cost
137
125
1
1
Interest cost
155
208
4
5
(233)
(246)
–
–
Amortization of prior service cost (credit)
19
14
(4)
(4)
Amortization of net actuarial loss
55
48
1
–
–
1
–
–
133
150
2
2
Expected return on plan assets
Curtailments, settlements and special termination benefits
Net periodic benefit cost
($ in millions)
Defined pension
benefits
Three months ended June 30,
Other postretirement
benefits
2015
2014
2015
2014
Service cost
71
61
1
1
Interest cost
80
103
2
3
(120)
(122)
–
–
Amortization of prior service cost (credit)
10
7
(2)
(2)
Amortization of net actuarial loss
27
22
1
–
–
1
–
–
68
72
2
2
Expected return on plan assets
Curtailments, settlements and special termination benefits
Net periodic benefit cost
Employer contributions were as follows:
Defined pension
benefits
($ in millions)
Six months ended June 30,
Total contributions to defined benefit pension and other postretirement benefit plans
Of which, discretionary contributions to defined benefit pension plans
Other postretirement
benefits
2015
2014
2015
2014
99
200
7
7
–
75
–
–
($ in millions)
Defined pension
benefits
Three months ended June 30,
2015
2014
2015
2014
50
69
3
4
–
–
–
–
Total contributions to defined benefit pension and other postretirement benefit plans
Of which, discretionary contributions to defined benefit pension plans
Other postretirement
benefits
During the six months ended June 30, 2014, discretionary contributions included available-for-sale debt securities,
having a fair value at the contribution date of $25 million , contributed to certain of the Company’s pension plans in
the United Kingdom.
The Company expects to make contributions totaling approxi mately $238 million and $16 million to its defined benefit
pension plans and other postretirement benefit plans, respectively, for the full year 2015.
Note 9
Stockholders’ equity
In September 2014, the Company announced a share buyback program for the purchase of up to $4 billion of its
own shares over a period ending no later than September 2016. The Company intends that approximately three
quarters of the shares to be purchased will be held for cancellation (after approval from shareholders) and the
remainder will be purchased to be available for delivery to employees under its employee share programs. Shares
acquired for cancellation are acquired through a separate trading line on the SIX Swiss Exchange (on which only the
Company can purchase shares), while shares acquired for delivery under employee share programs are acquired
through the ordinary trading line.
In the six months ended June 30, 2015, under the announced share buyback program, the Company purchased
35.4 million shares for cancellation and 8.7 million shares to support its employee share programs, of which 18.1
million shares and 4.6 million shares, respectively, were purchased in the three months ended June 30, 2015. In the
six and three months ended June 30, 2015, these transactions resulted in an increase in “Treasury stock” of $952
million and $500 million, respectively.
As of June 30, 2015, under this program, the Company has purchased a total of 61.4 million shares for cancellation
and 15.5 million shares to support its employee share programs.
24
Q2 2015 | Financial Information
At the Annual General Meeting of Shareholders on April 30, 2015, shareholders approved the proposals of the Board
of Directors to distribute a total of 0.72 Swiss francs per share to shareholders, comprising of a dividend of 0.55
Swiss francs paid out of ABB Ltd’s capital contribution reserves and a distribution of 0.17 Swiss francs by way of a
nominal value reduction (reduction in the par value of each share) from 1.03 Swiss francs to 0.86 Swiss francs. The
approved dividend distribution amounted to $1,317 million and was subsequently paid in May 2015. The nominal
value reduction was registered in July 2015 in the commercial register of the canton of Zurich, Switzerland, and is
scheduled to be paid to the shareholders holding ABB Ltd shares on July 28, 2015 (record date). The approved
nominal value reduction was recorded in the second quarter of 2015 as a reduction to Capital stock and additional
paid-in capital for $349 million and a reduction in Retained earnings for $54 million.
Note 10
Earnings per share
Basic earnings per share is calculated by dividing income by the weighted -average number of shares outstanding
during the period. Diluted earnings per share is calculated by dividing income by the weighted-average number of
shares outstanding during the period, assuming that all potentially dilutive securities were exercised, if dilutive.
Potentially dilutive securities comprise outstanding written call options and outstanding options and shares gr anted
subject to certain conditions under the Company’s share-based payment arrangements.
Basic earnings per share
Six months ended June 30,
($ in millions, except per share data in $)
Three months ended June 30,
2015
2014
2015
2014
1,150
1,182
590
637
2
(2)
(2)
(1)
Net income
1,152
1,180
588
636
Weighted-average number of shares outstanding (in millions)
2,241
2,298
2,232
2,295
0.51
0.51
0.26
0.28
–
–
–
–
0.51
0.51
0.26
0.28
Amounts attributable to ABB shareholders:
Income from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax
Basic earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax
Net income
Diluted earnings per share
Six months ended June 30,
($ in millions, except per share data in $)
Three months ended June 30,
2015
2014
2015
2014
1,150
1,182
590
637
2
(2)
(2)
(1)
Net income
1,152
1,180
588
636
Weighted-average number of shares outstanding (in millions)
2,241
2,298
2,232
2,295
Amounts attributable to ABB shareholders:
Income from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax
Effect of dilutive securities:
Call options and shares
Adjusted weighted-average number of shares outstanding (in millions)
5
8
6
7
2,246
2,306
2,238
2,302
0.51
0.51
0.26
0.28
–
–
–
–
0.51
0.51
0.26
0.28
Diluted earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax
Net income
25
Q2 2015 | Financial Information
Note 11
Reclassifications out of accumulated
other comprehensive loss
The following table shows changes in “Accumulated other comprehensive loss” (OCI) attributable to ABB, by
component, net of tax:
($ in millions)
Foreign currency
translation
adjustments
Unrealized gains
(losses) on
available-for-sale
securities
Pension and
other
postretirement
plan adjustments
Unrealized gains
(losses) of cash
flow hedge
derivatives
Total OCI
(431)
7
(1,610)
22
(2,012)
(130)
Balance at January 1, 2014
Other comprehensive (loss) income
before reclassifications
Amounts reclassified from OCI
Total other comprehensive (loss) income
(92)
4
(9)
(33)
–
(1)
42
5
46
(92)
3
33
(28)
(84)
Less:
Amounts attributable to noncontrolling interests
(4)
–
–
–
(4)
(519)
10
(1,577)
(6)
(2,092)
Foreign currency
translation
adjustments
Unrealized gains
(losses) on
available-for-sale
securities
Pension and
other
postretirement
plan adjustments
Unrealized gains
(losses) of cash
flow hedge
derivatives
Total OCI
(2,102)
13
(2,131)
(21)
(4,241)
(463)
(5)
61
(19)
(426)
Balance at June 30, 2014
($ in millions)
Balance at January 1, 2015
Other comprehensive (loss) income
before reclassifications
Amounts reclassified from OCI
Total other comprehensive (loss) income
–
1
55
21
77
(463)
(4)
116
2
(349)
Less:
Amounts attributable to noncontrolling interests
Balance at June 30, 2015
(4)
–
–
–
(4)
(2,561)
9
(2,015)
(19)
(4,586)
The following table reflects amounts reclassified out of OCI in respect of pension and other postretirement plan
adjustments and unrealized gains (losses) of cash flow hedge derivatives:
($ in millions)
Location of (gains) losses
Details about OCI components
reclassified from OCI
Six months ended June 30,
Three months ended June 30,
2015
2014
2015
2014
Pension and other postretirement plan adjustments:
Amortization of prior service cost
Net periodic benefit cost (1)
15
10
8
5
Amortization of net actuarial loss
Net periodic benefit cost (1)
56
48
28
22
27
Total before tax
Tax
Provision for taxes
Amounts reclassified from OCI
71
58
36
(16)
(16)
(8)
(8)
55
42
28
19
Unrealized gains (losses) of cash flow hedge derivatives:
Foreign exchange contracts
Total revenues
24
–
11
1
Total cost of sales
(5)
(5)
–
(2)
Commodity contracts
Total cost of sales
4
2
1
1
Cash-settled call options
SG&A expenses(2)
4
8
1
7
27
5
13
7
Total before tax
Tax
Provision for taxes
Amounts reclassified from OCI
(6)
–
(3)
(1)
21
5
10
6
(1) These components are included in the computation of net periodic benefit cost (see Note 8).
(2) SG&A expenses represent “Selling, general and administrative expenses”.
The amounts in respect of unrealized gains (losses) on available -for-sale securities were not significant for the six and
three months ended June 30, 2015 and 2014.
Note 12
Operating segment data
The Chief Operating Decision Maker (CODM) is the Company’s Executive Committee. The CODM allocates resources
to and assesses the performance of each operating segment using the information outlined below. The Company’s
operating segments consist of Discrete Automation and Motion, Low Voltage Products, Process Automation, Power
Products and Power Systems. The remaining operations of the Company are included in Corporate and Other.
A description of the types of products and services provided by each reportable segment is as follows:
−
26
Q2 2015 | Financial Information
Discrete Automation and Motion: manufactures and sells motors, generators, variable speed drives,
programmable logic controllers, robots and robotics, solar inverters, wind converters, rectifiers, excitation
systems, power quality and protection solutions, electric vehicle fast charging infrastructure, components and
subsystems for railways, and related services for a wide range of applications in discrete automation, process
industries, transportation and utilities.
−
Low Voltage Products: manufactures and sells products and systems that provide protection, control and
measurement for electrical installations, as well as enclosures, switchboards, electronics and electromechanical
devices for industrial machines, plants and related service. In addition, the segment manufactures products fo r
wiring and cable management, cable protection systems, power connection and safety. The segment also
makes intelligent building control systems for home and building automation.
−
Process Automation: develops and sells control and plant optimization systems, automation products and
solutions, including instrumentation, as well as industry-specific application knowledge and services for the oil,
gas and petrochemicals, metals and minerals, marine and turbocharging, pulp and paper, chemical and
pharmaceuticals, and power industries.
−
Power Products: manufactures and sells a wide range of products across voltage levels, including circuit
breakers, switchgear, capacitors, instrument transformers, power, distribution and traction transformers for
electrical and other infrastructure utilities, as well as industrial and commercial customers.
−
Power Systems: designs, installs and upgrades high-efficiency transmission and distribution systems and power
plant automation and electrification solutions, including monitoring and control products, software and services
and incorporating components manufactured by both the Company and by third parties, for power generation,
transmission and distribution utilities, other infrastructure utilities, as well as other industrial a nd commercial
enterprises.
−
Corporate and Other: includes headquarters, central research and development, the Company’s real estate
activities, Group Treasury Operations and other minor business activities.
Effective January 1, 2015, the Company changed its primary measure of segment performance from Operational
EBITDA to Operational EBITA, which represents income from operations excluding amortization expense on
intangibles arising upon acquisitions (acquisition-related amortization), restructuring and restructuring-related
expenses, gains and losses from sale of businesses, acquisition -related expenses and certain non-operational items,
as well as foreign exchange/commodity timing differences in income from operations consisting of: (i) unrealized
gains and losses on derivatives (foreign exchange, commodities, embedded derivatives), (ii) realized gains and losses
on derivatives where the underlying hedged transaction has not yet been realized, and (iii) unrealized foreign
exchange movements on receivables/payables (and related assets/liabilities).
The segment performance for the six and three months ended June 30, 2014, has been restated to reflect this
change.
The CODM primarily reviews the results of each segment on a basis that is before the eliminatio n of profits made on
inventory sales between segments. Segment results below are presented before these eliminations, with a total
deduction for intersegment profits to arrive at the Company’s consolidated Operational EBITA. Intersegment sales
and transfers are accounted for as if the sales and transfers were to third parties, at current market prices.
The following tables present segment revenues, Operational EBITA, and the reconciliations of consolidated
Operational EBITA to income from continuing operations before taxes for the six and three months ended June 30,
2015 and 2014, as well as total assets at June 30, 2015, and December 31, 2014.
Six months ended June 30, 2015
Six months ended June 30, 2014
Third-party
revenues
Intersegment
revenues
Total
revenues
Third-party
revenues
Intersegment
revenues
Total
revenues
Discrete Automation and Motion
4,333
286
4,619
4,524
400
4,924
Low Voltage Products
3,117
169
3,286
3,611
207
3,818
Process Automation
3,169
70
3,239
3,853
102
3,955
Power Products
4,075
599
4,674
4,260
793
5,053
Power Systems
2,996
110
3,106
3,235
183
3,418
30
753
783
178
832
1,010
–
(1,987)
(1,987)
–
(2,517)
(2,517)
Consolidated
17,720
–
17,720
19,661
–
19,661
($ in millions)
Third-party
revenues
Intersegment
revenues
Total
revenues
Third-party
revenues
Intersegment
revenues
Total
revenues
Discrete Automation and Motion
2,187
161
2,348
2,330
213
2,543
Low Voltage Products
1,641
90
1,731
1,827
109
1,936
Process Automation
1,626
34
1,660
1,962
50
2,012
Power Products
2,114
285
2,399
2,264
398
2,662
Power Systems
1,578
56
1,634
1,703
107
1,810
19
407
426
104
421
525
–
(1,033)
(1,033)
–
(1,298)
(1,298)
9,165
–
9,165
10,190
–
10,190
($ in millions)
Corporate and Other
Intersegment elimination
Three months ended June 30, 2015
Corporate and Other
Intersegment elimination
Consolidated
27
Q2 2015 | Financial Information
Three months ended June 30, 2014
Six months ended June 30,
($ in millions)
Three months ended June 30,
2015
2014
2015
2014
Discrete Automation and Motion
657
751
339
399
Low Voltage Products
532
620
289
321
Process Automation
396
474
204
229
Power Products
554
647
301
343
Power Systems
75
(111)
42
(57)
(207)
(248)
(117)
(141)
2,007
2,133
1,058
1,094
(163)
(84)
(197)
(87)
(80)
(58)
(96)
(40)
(50)
103
(39)
114
Unrealized gains and losses on derivatives (foreign exchange, commodities,
embedded derivatives)
144
(89)
160
(34)
Realized gains and losses on derivatives where the underlying hedged
transaction has not yet been realized
(28)
10
(20)
(7)
Operational EBITA:
Corporate and Other and Intersegment elimination
Consolidated Operational EBITA
Acquisition-related amortization
Restructuring and restructuring-related expenses
Gains and losses from sale of businesses, acquisition-related expenses and
certain non-operational items
Foreign exchange/commodity timing differences in income from operations:
Unrealized foreign exchange movements on receivables/payables (and
related assets/liabilities)
Income from operations
Interest and dividend income
Interest and other finance expense
Income from continuing operations before taxes
(6)
34
(60)
21
1,820
1,907
961
1,052
38
(159)
38
(172)
19
(88)
21
(88)
1,699
1,773
892
985
Total assets(1)
($ in millions)
June 30, 2015
December 31, 2014
Discrete Automation and Motion
9,810
10,123
Low Voltage Products
7,914
7,978
Process Automation
4,102
4,268
Power Products
7,298
7,396
Power Systems
6,627
6,855
Corporate and Other
6,942
8,232
42,693
44,852
Consolidated
(1) Total assets are after intersegment eliminations and therefore reflect third-party assets only.
28
Q2 2015 | Financial Information
29
Q2 2015 | 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 six and three months ended June 30, 2015.
Like-for-like growth rates
Growth rates for certain key figures may be presented and discussed on a “like -for-like” basis. The like-for-like
growth rate measures growth on a constant currency basis. Since we are a global company, the comparability of our
operating results reported in U.S. dollars is affected by foreign currency exchange rate fluctuations. We calculate the
impacts from foreign currency fluctuations by translating the current-year periods reported key figures into U.S. dollar
amounts using the exchange rates in effect for the comparable periods in the previous year.
Like-for-like growth rates also adjust for changes in our business portfolio. The adju stment for portfolio changes is
calculated as follows: where the results of any business acquired or divested have not been consolidated and
reported for the entire duration of both the current and comparable periods, the reported key figures of such
business are adjusted to exclude the relevant key figures of any corresponding quarters which are not comparable
when computing the like-for-like growth rate. In addition, certain other portfolio changes which do not qualify as
divestments are treated in a similar manner to divestments. We do not adjust for portfolio changes where the
business acquired or divested has annual revenues of less than $50 million.
The following tables provide reconciliations of reported growth of certain key figures to their respective like -for-like
growth rate.
Divisional like-for-like growth rate reconciliation
Q2 2015 compared to Q2 2014
Order growth rate
Revenue growth rate
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
-9%
9%
0%
Low Voltage Products
-12%
10%
Process Automation
-23%
Division
Discrete Automation and Motion
Like-for-like
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
Like-for-like
0%
-8%
10%
0%
2%
4%
2%
-11%
11%
4%
4%
11%
2%
-10%
-17%
12%
4%
-1%
Power Products
-8%
8%
0%
0%
-10%
9%
0%
-1%
Power Systems
-22%
10%
0%
-12%
-10%
14%
0%
4%
ABB Group
-15%
9%
2%
-4%
-10%
10%
3%
3%
H1 2015 compared to H1 2014
Order growth rate
Revenue growth rate
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
-9%
9%
0%
Low Voltage Products
-13%
10%
Process Automation
-14%
Division
Discrete Automation and Motion
Like-for-like
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
Like-for-like
0%
-6%
9%
0%
3%
5%
2%
-14%
10%
6%
2%
13%
4%
3%
-18%
12%
3%
-3%
Power Products
-5%
9%
0%
4%
-8%
10%
0%
2%
Power Systems
16%
18%
0%
34%
-9%
13%
0%
4%
ABB Group
-7%
10%
3%
6%
-10%
10%
3%
3%
30
Q2 2015 | Financial Information
Regional like-for-like growth rate reconciliation
Q2 2015 compared to Q2 2014
Order growth rate
Revenue growth rate
Region
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
Europe
-14%
19%
2%
The Americas
-26%
4%
-5%
-15%
Asia, Middle East and Africa
ABB Group
Like-for-like
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
Like-for-like
7%
-19%
19%
2%
2%
3%
-19%
-8%
6%
4%
2%
6%
0%
1%
-3%
7%
1%
5%
9%
2%
-4%
-10%
10%
3%
3%
H1 2015 compared to H1 2014
Order growth rate
Revenue growth rate
Region
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
Europe
-6%
22%
2%
-15%
5%
Asia, Middle East and Africa
-2%
ABB Group
-7%
The Americas
Like-for-like
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
Like-for-like
18%
-18%
18%
2%
2%
3%
-7%
-6%
6%
5%
5%
6%
1%
5%
-5%
6%
1%
2%
10%
3%
6%
-10%
10%
3%
3%
Order backlog growth rate reconciliation
June 30, 2015 compared to June 30, 2014
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
Like-for-like
-3%
10%
0%
7%
-16%
9%
8%
1%
Process Automation
-3%
17%
2%
16%
Power Products
-3%
10%
0%
7%
Power Systems
-5%
14%
0%
9%
ABB Group
-4%
12%
1%
9%
Division
Discrete Automation and Motion
Low Voltage Products
Operational EBITA growth rate reconciliation
Q2 2015 compared to Q2 2014
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
Discrete Automation and Motion
-15%
8%
0%
Low Voltage Products
-10%
12%
Process Automation
-11%
11%
Power Products
-12%
Power Systems
n.a.
ABB Group
-3%
10%
Division
H1 2015 compared to H1 2014
Like-for-like
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
Like-for-like
-7%
-13%
10%
0%
-3%
3%
5%
-14%
11%
7%
4%
4%
4%
-16%
9%
3%
-4%
8%
0%
-4%
-14%
8%
0%
-6%
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
1%
8%
-6%
10%
3%
7%
Other growth rate reconciliations
Q2 2015 compared to Q2 2014
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
Large orders
-22%
9%
0%
Base orders
-14%
9%
Service orders
-12%
-7%
Service revenues
31
Q2 2015 | Financial Information
H1 2015 compared to H1 2014
Like-for-like
US$
(as
reported)
Foreign
exchange
impact
Acquisitions
and
divestments
Like-for-like
-13%
31%
22%
0%
53%
3%
-2%
-13%
9%
3%
-1%
11%
2%
1%
-12%
10%
3%
1%
12%
4%
9%
-7%
11%
4%
8%
Operational EBITA margin
In line with the updated financial targets of ABB’s Next Level strategy, ABB changed its measure of segment profit
from Operational EBITDA to Operational EBITA, effective January 1, 2015.
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 nonoperational items, as well as foreign exchange/commodity timing differences in income from operations consisting of:
(i) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives), (ii) realized
gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (iii)
unrealized foreign exchange movements on receivables/payables (and related assets/liabilities).
Acquisition-related amortization
Amortization expense on intangibles arising upon acquisitions.
Operational revenues
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).
Reconciliation
Six months ended June 30, 2015
Corporate and
Other and
Power Intersegment
Systems
elimination
Discrete
Automation
and Motion
Low Voltage
Products
Process
Automation
Power
Products
4,619
3,286
3,239
4,674
3,106
(1,204)
17,720
Unrealized gains and losses
on derivatives
(21)
(9)
(26)
(45)
(72)
(2)
(175)
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
(29)
–
14
21
31
–
37
($ in millions, unless otherwise indicated)
Total revenues
Consolidated
Foreign exchange/commodity timing
differences in total revenues
Unrealized foreign exchange movements
on receivables (and related assets)
Operational revenues
Income (loss) from operations
13
4
(16)
(1)
1
–
1
4,582
3,281
3,211
4,649
3,066
(1,206)
17,583
593
480
379
540
39
(211)
1,820
Acquisition-related amortization
65
51
6
5
27
9
163
Restructuring and
restructuring-related expenses
28
7
21
20
8
–
84
–
1
11
2
31
5
50
Unrealized gains and losses on
derivatives (foreign exchange,
commodities, embedded derivatives)
(17)
(5)
(17)
(34)
(57)
(14)
(144)
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
(29)
–
7
24
26
–
28
Gains and losses from sale of businesses,
acquisition-related expenses and certain
non-operational items
Foreign exchange/commodity timing
differences in income from operations:
Unrealized foreign exchange movements
on receivables/payables
(and related assets/liabilities)
Operational EBITA
Operational EBITA margin (%)
32
Q2 2015 | Financial Information
17
(2)
(11)
(3)
1
4
6
657
532
396
554
75
(207)
2,007
14.3%
16.2%
12.3%
11.9%
2.4%
n.a.
11.4%
Six months ended June 30, 2014
Corporate and
Other and
Power Intersegment
Systems
elimination
Discrete
Automation
and Motion
Low Voltage
Products
Process
Automation
Power
Products
4,924
3,818
3,955
5,053
3,418
(1,507)
19,661
Unrealized gains and losses
on derivatives
(5)
4
(5)
(3)
85
(1)
75
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
(1)
–
(2)
–
–
–
(3)
($ in millions, unless otherwise indicated)
Total revenues
Consolidated
Foreign exchange/commodity timing
differences in total revenues
Unrealized foreign exchange movements
on receivables (and related assets)
Operational revenues
Income (loss) from operations
(4)
(1)
8
–
(14)
–
(11)
4,914
3,821
3,956
5,050
3,489
(1,508)
19,722
675
656
436
591
(192)
(259)
1,907
Acquisition-related amortization
69
63
7
10
36
12
197
Restructuring and
restructuring-related expenses
14
12
24
23
13
1
87
Gains and losses from sale of businesses,
acquisition-related expenses and certain
non-operational items
(1)
(104)
3
11
(8)
(4)
(103)
1
(3)
6
16
68
1
89
(2)
–
(1)
2
(9)
–
(10)
Foreign exchange/commodity timing
differences in income from operations:
Unrealized gains and losses on
derivatives (foreign exchange,
commodities, embedded derivatives)
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
Unrealized foreign exchange movements
on receivables/payables
(and related assets/liabilities)
Operational EBITA
Operational EBITA margin (%)
33
Q2 2015 | Financial Information
(5)
(4)
(1)
(6)
(19)
1
(34)
751
620
474
647
(111)
(248)
2,133
15.3%
16.2%
12.0%
12.8%
-3.2%
n.a.
10.8%
Three months ended June 30, 2015
($ in millions, unless otherwise indicated)
Total revenues
Corporate and
Other and
Power Intersegment
Systems
elimination
Discrete
Automation
and Motion
Low Voltage
Products
Process
Automation
Power
Products
2,348
1,731
1,660
2,399
1,634
(607)
9,165
(8)
(16)
(14)
(28)
(88)
(3)
(157)
–
–
(3)
10
15
–
22
Consolidated
Foreign exchange/commodity timing
differences in total revenues
Unrealized gains and losses
on derivatives
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
Unrealized foreign exchange movements
on receivables (and related assets)
Operational revenues
Income (loss) from operations
5
7
(4)
10
17
–
35
2,345
1,722
1,639
2,391
1,578
(610)
9,065
293
263
193
300
35
(123)
961
Acquisition-related amortization
33
26
3
2
13
3
80
Restructuring and
restructuring-related expenses
25
1
20
9
4
(1)
58
–
–
12
1
31
(5)
39
(24)
(13)
(19)
(37)
(72)
5
(160)
–
–
(5)
10
15
–
20
Gains and losses from sale of businesses,
acquisition-related expenses and certain
non-operational items
Foreign exchange/commodity timing
differences in income from operations:
Unrealized gains and losses on
derivatives (foreign exchange,
commodities, embedded derivatives)
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
Unrealized foreign exchange movements
on receivables/payables
(and related assets/liabilities)
Operational EBITA
Operational EBITA margin (%)
34
Q2 2015 | Financial Information
12
12
–
16
16
4
60
339
289
204
301
42
(117)
1,058
14.5%
16.8%
12.4%
12.6%
2.7%
n.a.
11.7%
Three months ended June 30, 2014
Corporate and
Other and
Power Intersegment
Systems
elimination
Discrete
Automation
and Motion
Low Voltage
Products
Process
Automation
Power
Products
2,543
1,936
2,012
2,662
1,810
(773)
10,190
Unrealized gains and losses
on derivatives
(4)
3
2
4
50
–
55
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
(1)
–
(2)
1
10
–
8
($ in millions, unless otherwise indicated)
Total revenues
Consolidated
Foreign exchange/commodity timing
differences in total revenues
Unrealized foreign exchange movements
on receivables (and related assets)
Operational revenues
Income (loss) from operations
1
(1)
5
(4)
(8)
–
(7)
2,539
1,938
2,017
2,663
1,862
(773)
10,246
349
400
217
319
(90)
(143)
1,052
Acquisition-related amortization
35
33
3
5
14
6
96
Restructuring and
restructuring-related expenses
13
4
4
15
5
(1)
40
2
(108)
2
6
(9)
(7)
(114)
–
(4)
5
–
30
3
34
(1)
–
(1)
4
5
–
7
Gains and losses from sale of businesses,
acquisition-related expenses and certain
non-operational items
Foreign exchange/commodity timing
differences in income from operations:
Unrealized gains and losses on
derivatives (foreign exchange,
commodities, embedded derivatives)
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
Unrealized foreign exchange movements
on receivables/payables
(and related assets/liabilities)
Operational EBITA
Operational EBITA margin (%)
35
Q2 2015 | Financial Information
1
(4)
(1)
(6)
(12)
1
(21)
399
321
229
343
(57)
(141)
1,094
15.7%
16.6%
11.4%
12.9%
-3.1%
n.a.
10.7%
Operational EPS
Definition
Operational EPS
Operational EPS is calculated as Operational net income divided by the weighted-average number of shares used in
determining basic earnings per share.
Operational net income
Operational net income is calculated as Net income attributable to ABB adjusted for the net -of-tax impact of:
(i)
restructuring and restructuring-related expenses,
(ii)
gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items,
(iii) 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), and
(iv) acquisition-related amortization.
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 the provision for income taxes by income from
continuing operations before taxes. The calculation excludes the amount of gains and losses from sale of businesses
and the related provision for income taxes.
Constant currency Operational EPS adjustment
In connection with ABB’s 2015-2020 targets, Operational EPS growth is measured assuming 2014 as the base year
and uses constant exchange rates. We compute the constant currency operational net income for all periods using
the relevant monthly exchange rates which were in effect during 2014 and any income difference is divided by the
relevant weighted-average number of shares outstanding to identify the constant currency Operational EPS
adjustment.
Reconciliation
Six months ended June 30,
($ in millions, except per share data in $)
2015
2014
EPS(1)
Net income (attributable to ABB)
Restructuring and restructuring-related expenses(2)
Gains and losses from sale of businesses,
acquisition-related expenses and certain non-operational items (3)
EPS(1)
1,152
0.51
1,180
0.51
61
0.03
62
0.03
46
0.02
(42)
(0.02)
FX/commodity timing differences in income from operations (2)
(78)
(0.03)
32
0.01
Acquisition-related amortization (2)
116
0.05
140
0.06
1,297
0.58
1,372
0.60
Operational net income
Constant currency Operational EPS adjustment
Operational EPS (constant currency basis)
0.06
0.64
–
0.60
Three months ended June 30,
($ in millions, except per share data in $)
2015
2014
EPS(1)
Net income (attributable to ABB)
Restructuring and restructuring-related expenses(2)
Gains and losses from sale of businesses,
acquisition-related expenses and certain non-operational items (3)
FX/commodity timing differences in income from operations(2)
Acquisition-related amortization (2)
Operational net income
EPS(1)
588
0.26
636
0.28
42
0.02
28
0.01
38
0.02
(50)
(0.02)
(57)
(0.03)
14
0.01
57
0.03
68
0.03
668
0.30
696
0.30
Constant currency Operational EPS adjustment
0.03
–
Operational EPS
0.33
0.30
(constant currency basis)
(1)
EPS amounts are computed individually, therefore the sum of the per share amounts shown may not equal to the total.
(2)
Net of tax at the Adjusted Group effective tax rate.
(3)
Net of tax at the Adjusted Group effective tax rate, except for gains and losses from sale of businesses which are net of the actual related provision for taxes.
36
Q2 2015 | Financial Information
Net debt / (Net cash)
Definition
Net debt / (Net cash)
Net debt / (Net cash) is defined as Total debt less Cash and marketable securities.
Total debt
Total debt is the sum of Short-term debt and current maturities of long-term debt, and Long-term debt.
Cash and marketable securities
Cash and marketable securities is the sum of Cash and equivalents, and Marketable securities and short-term
investments.
Reconciliation
($ in millions)
June 30, 2015
December 31, 2014
Short-term debt and current maturities of long-term debt
1,342
353
Long-term debt
6,646
7,312
Total debt
7,988
7,665
Cash and equivalents
Marketable securities and short-term investments
3,954
1,233
5,443
1,325
Cash and marketable securities
5,187
6,768
Net debt / (Net cash)
2,801
897
Net working capital as a
percentage of revenues
Definition
Net working capital as a percentage of revenues
Net working capital as a percentage of revenues is calculated as Net working capital divided by Adjusted revenues
for the trailing twelve months.
Net working capital
Net working capital is the sum of (i) receivables, net, (ii) inventories, net, and (iii) prepaid expenses; less (iv) accounts
payable, trade, (v) billings in excess of sales, (vi) advances from customers, and (vii) other current liabilities (excluding
primarily: (a) income taxes payable, (b) current derivative liabilities, (c) pension and other employee benefits, and (d)
payables under the share buyback program); and including the amounts related to these accounts which have been
presented as either assets or liabilities held for sale.
Adjusted revenues for the trailing twelve months
Adjusted revenues for the trailing twelve months includes total revenues recorded by ABB in the twelve months
preceding the relevant balance sheet date adjusted to eliminate revenues of divested businesses and the estimated
impact of annualizing revenues of certain acquisitions which were completed in the same trailing twelve -month
period.
Reconciliation
($ in millions, unless otherwise indicated)
June 30, 2015
June 30, 2014
Receivables, net
11,071
12,106
Inventories, net
5,458
6,210
Net working capital:
Prepaid expenses
304
306
Accounts payable, trade
(4,564)
(4,950)
Billings in excess of sales
(1,505)
(1,499)
Advances from customers
(1,512)
(1,705)
Other current liabilities (1)
(3,030)
(3,381)
Net working capital in assets and liabilities held for sale
1
27
Net working capital
6,223
7,114
Total revenues for the three months ended:
June 30, 2015 / 2014
9,165
10,190
March 31, 2015 / 2014
8,555
9,471
December 31, 2014 / 2013
10,346
11,373
September 30, 2014 / 2013
9,823
10,535
Adjustment to annualize/eliminate revenues of certain acquisitions/divestments
Adjusted revenues for the trailing twelve months
Net working capital as a percentage of revenues (%)
(1)
(144)
(212)
37,745
41,357
16%
17%
Amounts exclude $1,201 million and $774 million at June 30, 2015 and 2014, respectively, related primarily to (a) income taxes payable, (b) current derivative liabilities, (c) pension and
other employee benefits, and (d) payables under the share buyback program.
37
Q2 2015 | Financial Information
Finance net
Definition
Finance net is calculated as Interest and dividend income less Interest and other finance expense.
Reconciliation
Six months ended June 30,
($ in millions)
Three months ended June 30,
2015
2014
2015
38
38
19
21
Interest and other finance expense
(159)
(172)
(88)
(88)
Finance net
(121)
(134)
(69)
(67)
Interest and dividend income
Book-to-bill ratio
2014
Definition
Book-to-bill ratio is calculated as Orders received divided by Total revenues.
Reconciliation
Six months ended June 30,
($ in millions, unless otherwise indicated)
Three months ended June 30,
2015
2014
2015
2014
Orders received
19,400
20,925
8,996
10,567
Total revenues
17,720
19,661
9,165
10,190
1.09
1.06
0.98
1.04
Book-to-bill ratio
38
Q2 2015 | Financial Information
ABB Ltd
Corporate Communications
P.O. Box 8131
8050 Zurich
Switzerland
Tel:
+41 (0)43 317 71 11
Fax:
+41 (0)43 317 79 58
www.abb.com