|
|
|
|
|
|
|
|
|
|
|
|
CHANGE
|
|
($ in millions,
unless otherwise indicated)
|
FY 2018
|
FY 2017
|
US$
|
Local
|
Comparable
|
|
Orders
|
ABB
Group
|
28,590
|
25,034
|
14%
|
14%
|
8%
|
|
|
Electrification
Products
|
11,867
|
10,143
|
17%
|
16%
|
4%
|
|
|
Industrial
Automation
|
7,631
|
6,553
|
16%
|
15%
|
8%
|
|
|
Robotics
and Motion
|
9,570
|
8,465
|
13%
|
12%
|
12%
|
|
|
Corporate
and Other
|
|
|
|
|
|
|
(incl.
inter-division eliminations)
|
(478)
|
(127)
|
|
|
|
|
Third-party
base orders
|
ABB
Group
|
26,448
|
23,189
|
14%
|
13%
|
6%
|
|
|
Electrification
Products
|
11,240
|
9,559
|
18%
|
17%
|
4%
|
|
|
Industrial
Automation
|
6,592
|
5,840
|
13%
|
12%
|
4%
|
|
|
Robotics
and Motion
|
8,560
|
7,651
|
12%
|
11%
|
11%
|
|
|
Corporate
and Other
|
56
|
139
|
|
|
|
|
Order
backlog (end December)
|
ABB
Group
|
13,084
|
12,491
|
5%
|
10%
|
6%
|
|
|
Electrification
Products
|
4,113
|
3,098
|
33%
|
39%
|
7%
|
|
|
Industrial
Automation
|
5,148
|
5,301
|
-3%
|
2%
|
2%
|
|
|
Robotics
and Motion
|
4,016
|
3,823
|
5%
|
10%
|
10%
|
|
|
Corporate
and Other
|
|
|
|
|
|
|
(incl.
inter-division eliminations)
|
(193)
|
269
|
|
Revenues
|
ABB
Group
|
27,662
|
25,196
|
10%
|
9%
|
4%
|
|
|
Electrification
Products
|
11,686
|
10,094
|
16%
|
16%
|
3%
|
|
|
Industrial
Automation
|
7,394
|
6,879
|
7%
|
7%
|
1%
|
|
|
Robotics
and Motion
|
9,147
|
8,396
|
9%
|
8%
|
8%
|
|
|
Corporate
and Other
|
|
|
|
|
|
|
(incl.
inter-division eliminations)
|
(565)
|
(173)
|
|
Income
from operations
|
ABB
Group
|
2,226
|
2,230
|
|
|
|
|
|
Electrification
Products
|
1,290
|
1,352
|
|
|
|
|
|
Industrial
Automation
|
887
|
798
|
|
|
|
|
|
Robotics
and Motion
|
1,346
|
1,126
|
|
|
|
|
|
Corporate
and Other
|
|
|
|
|
(incl.
inter-division eliminations)
|
(1,297)
|
(1,046)
|
|
Income
from operations %
|
ABB
Group
|
8.0%
|
8.9%
|
|
|
|
|
|
Electrification
Products
|
11.0%
|
13.4%
|
|
|
|
|
|
Industrial
Automation
|
12.0%
|
11.6%
|
|
|
|
|
|
Robotics
and Motion
|
14.7%
|
13.4%
|
|
|
|
|
Operational
EBITA
|
ABB
Group
|
3,005
|
2,817
|
7%
|
5%
|
|
|
|
Electrification
Products
|
1,626
|
1,510
|
8%
|
6%
|
|
|
|
Industrial
Automation
|
1,019
|
953
|
7%
|
7%
|
|
|
|
Robotics
and Motion
|
1,447
|
1,260
|
15%
|
14%
|
|
|
|
Corporate
and Other
|
|
|
|
|
Non-core
and divested businesses
|
(291)
|
(163)
|
|
Stranded
corporate costs
|
(297)
|
(286)
|
|
Corporate
and inter-division elim.
|
(499)
|
(457)
|
|
Operational
EBITA %
|
ABB
Group
|
10.9%
|
11.2%
|
|
|
|
|
|
Electrification
Products
|
13.9%
|
15.0%
|
|
|
|
|
|
Industrial
Automation
|
13.8%
|
13.9%
|
|
|
|
|
|
Robotics
and Motion
|
15.8%
|
15.0%
|
|
|
|
|
Cash
flow from operating activities
|
ABB
Group
|
2,924
|
3,799
|
|
|
|
|
|
Electrification
Products
|
1,389
|
1,358
|
|
|
|
|
|
Industrial
Automation
|
833
|
865
|
|
|
|
|
|
Robotics
and Motion
|
1,200
|
1,119
|
|
|
|
|
|
Corporate
and Other
|
|
|
|
|
|
|
|
(incl.
inter-division eliminations)
|
(1,070)
|
(754)
|
|
|
|
|
|
Discontinued
operations
|
572
|
1,211
|
|
|
|
5
Q4
2018 Financial Information
Operational
EBITA
|
|
|
Electrification
|
Industrial
|
Robotics
|
|
($ in
millions, unless otherwise indicated)
|
ABB
|
Products
|
Automation
|
and Motion
|
|
|
Q4 18
|
Q4 17
|
Q4 18
|
Q4 17
|
Q4 18
|
Q4 17
|
Q4 18
|
Q4 17
|
|
Revenues
|
7,395
|
6,804
|
3,320
|
2,696
|
1,938
|
2,011
|
2,341
|
2,197
|
|
FX/commodity
timing
|
|
|
|
|
|
|
|
|
|
differences
in total revenues
|
(7)
|
47
|
4
|
16
|
7
|
(2)
|
(17)
|
6
|
|
Operational
revenues
|
7,388
|
6,851
|
3,324
|
2,712
|
1,945
|
2,009
|
2,324
|
2,203
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
275
|
324
|
221
|
318
|
204
|
214
|
326
|
247
|
|
Acquisition-related
amortization
|
75
|
65
|
35
|
22
|
20
|
22
|
15
|
16
|
|
Restructuring
and
|
|
|
|
|
|
|
|
|
|
restructuring-related
expenses
(1)
|
129
|
108
|
76
|
17
|
31
|
36
|
8
|
35
|
|
Changes
in obligations related to
|
|
|
|
|
|
|
|
|
|
divested
businesses
|
14
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
|
Changes
in pre-acquisition estimates
|
6
|
8
|
17
|
8
|
(11)
|
–
|
–
|
–
|
|
Gains
and losses from sale of businesses
|
4
|
78
|
–
|
–
|
–
|
–
|
4
|
–
|
|
Acquisition-
and divestment-related expenses
|
|
|
|
|
|
|
|
|
|
and
integration costs
|
56
|
41
|
40
|
12
|
1
|
27
|
1
|
2
|
|
Certain
other non-operational items
|
25
|
28
|
–
|
8
|
2
|
–
|
4
|
–
|
|
FX/commodity
timing
|
|
|
|
|
|
|
|
|
|
differences
in income from operations
|
–
|
12
|
(1)
|
13
|
4
|
–
|
(9)
|
3
|
|
Operational
EBITA
|
584
|
664
|
388
|
398
|
251
|
299
|
349
|
303
|
|
|
|
|
|
|
|
|
|
|
|
Operational
EBITA margin (%)
|
7.9%
|
9.7%
|
11.7%
|
14.7%
|
12.9%
|
14.9%
|
15.0%
|
13.8%
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
|
($ in
millions, unless otherwise indicated)
|
ABB
|
Products
|
Automation
|
and Motion
|
|
|
FY 18
|
FY 17
|
FY 18
|
FY 17
|
FY 18
|
FY 17
|
FY 18
|
FY 17
|
|
Revenues
|
27,662
|
25,196
|
11,686
|
10,094
|
7,394
|
6,879
|
9,147
|
8,396
|
|
FX/commodity
timing
|
|
|
|
|
|
|
|
|
|
differences
in total revenues
|
(2)
|
(15)
|
18
|
(11)
|
–
|
(32)
|
(10)
|
3
|
|
Operational
revenues
|
27,660
|
25,181
|
11,704
|
10,083
|
7,394
|
6,847
|
9,137
|
8,399
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
2,226
|
2,230
|
1,290
|
1,352
|
887
|
798
|
1,346
|
1,126
|
|
Acquisition-related
amortization
|
273
|
229
|
106
|
98
|
86
|
47
|
63
|
66
|
|
Restructuring
and
|
|
|
|
|
|
|
|
|
|
restructuring-related
expenses
(1)
|
172
|
300
|
98
|
28
|
35
|
85
|
21
|
64
|
|
Changes
in obligations related to
|
|
|
|
|
|
|
|
|
|
divested
businesses
|
106
|
94
|
–
|
–
|
–
|
–
|
–
|
–
|
|
Changes
in pre-acquisition estimates
|
8
|
8
|
19
|
8
|
(11)
|
–
|
–
|
–
|
|
Gains
and losses from sale of businesses
|
(57)
|
(252)
|
(81)
|
–
|
3
|
(2)
|
4
|
–
|
|
Acquisition-
and divestment-related expenses
|
|
|
|
|
|
|
|
|
|
and
integration costs
|
204
|
81
|
168
|
23
|
4
|
52
|
2
|
2
|
|
Certain
other non-operational items
|
40
|
161
|
(2)
|
21
|
3
|
1
|
11
|
–
|
|
FX/commodity
timing
|
|
|
|
|
|
|
|
|
|
differences
in income from operations
|
33
|
(34)
|
28
|
(20)
|
12
|
(28)
|
–
|
2
|
|
Operational
EBITA
|
3,005
|
2,817
|
1,626
|
1,510
|
1,019
|
953
|
1,447
|
1,260
|
|
|
|
|
|
|
|
|
|
|
|
Operational
EBITA margin (%)
|
10.9%
|
11.2%
|
13.9%
|
15.0%
|
13.8%
|
13.9%
|
15.8%
|
15.0%
|
(1) Amounts in 2017 also include the
incremental implementation costs in relation to the White Collar Productivity
program.
6
Q4
2018 Financial Information
Depreciation and Amortization
|
|
|
Electrification
|
Industrial
|
Robotics
|
|
($ in
millions)
|
ABB
|
Products
|
Automation
|
and Motion
|
|
|
Q4 18
|
Q4 17
|
Q4 18
|
Q4 17
|
Q4 18
|
Q4 17
|
Q4 18
|
Q4 17
|
|
Depreciation
|
149
|
145
|
64
|
53
|
17
|
18
|
34
|
36
|
|
Amortization
|
95
|
80
|
41
|
25
|
22
|
24
|
17
|
18
|
|
including
total acquisition-related amortization of:
|
75
|
65
|
35
|
22
|
20
|
22
|
15
|
16
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
|
($ in
millions)
|
ABB
|
Products
|
Automation
|
and Motion
|
|
|
FY 18
|
FY 17
|
FY 18
|
FY 17
|
FY 18
|
FY 17
|
FY 18
|
FY 17
|
|
Depreciation
|
578
|
549
|
229
|
205
|
69
|
59
|
139
|
139
|
|
Amortization
|
338
|
287
|
126
|
110
|
91
|
53
|
69
|
77
|
|
including
total acquisition-related amortization of:
|
273
|
229
|
106
|
98
|
86
|
47
|
63
|
66
|
Orders received and revenues by region
|
($ in
millions, unless otherwise indicated)
|
Orders received
|
CHANGE
|
Revenues
|
CHANGE
|
|
|
|
|
|
|
Com-
|
|
|
|
|
Com-
|
|
Q4 18
|
Q4 17
|
US$
|
Local
|
parable
|
Q4 18
|
Q4 17
|
US$
|
Local
|
parable
|
|
Europe
|
2,423
|
2,318
|
5%
|
9%
|
4%
|
2,650
|
2,512
|
5%
|
10%
|
7%
|
|
The
Americas
|
2,358
|
1,793
|
32%
|
35%
|
12%
|
2,244
|
1,758
|
28%
|
31%
|
6%
|
|
Asia,
Middle East and Africa
|
2,146
|
2,137
|
0%
|
5%
|
7%
|
2,439
|
2,453
|
-1%
|
3%
|
3%
|
|
Intersegment
orders/revenues
(1)
|
58
|
80
|
|
|
|
62
|
81
|
|
|
|
|
ABB
Group
|
6,985
|
6,328
|
10%
|
15%
|
7%
|
7,395
|
6,804
|
9%
|
13%
|
5%
|
|
($ in
millions, unless otherwise indicated)
|
Orders received
|
CHANGE
|
Revenues
|
CHANGE
|
|
|
|
|
|
|
Com-
|
|
|
|
|
Com-
|
|
FY 18
|
FY 17
|
US$
|
Local
|
parable
|
FY 18
|
FY 17
|
US$
|
Local
|
parable
|
|
Europe
|
10,617
|
9,090
|
17%
|
14%
|
10%
|
10,013
|
9,032
|
11%
|
9%
|
4%
|
|
The
Americas
|
8,205
|
6,964
|
18%
|
19%
|
7%
|
8,003
|
6,831
|
17%
|
19%
|
7%
|
|
Asia,
Middle East and Africa
|
9,523
|
8,716
|
9%
|
8%
|
6%
|
9,403
|
9,070
|
4%
|
4%
|
4%
|
|
Intersegment
orders/revenues
(1)
|
245
|
264
|
|
|
|
243
|
263
|
|
|
|
|
ABB
Group
|
28,590
|
25,034
|
14%
|
14%
|
8%
|
27,662
|
25,196
|
10%
|
9%
|
4%
|
(1) Intersegment
orders/revenues include sales to the Power Grids business which is presented as
discontinued operations and are not eliminated from Total orders/revenues.
7
Q4
2018 Financial Information
—
Consolidated Financial Information
|
ABB Ltd Consolidated
Income Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
Three months ended
|
|
($ in
millions, except per share data in $)
|
Dec. 31, 2018
|
Dec. 31, 2017
|
Dec. 31, 2018
|
Dec. 31, 2017
|
|
Sales
of products
|
22,366
|
20,438
|
5,888
|
5,411
|
|
Sales
of services and other
|
5,296
|
4,758
|
1,507
|
1,393
|
|
Total
revenues
|
27,662
|
25,196
|
7,395
|
6,804
|
|
Cost of
sales of products
|
(15,961)
|
(14,485)
|
(4,388)
|
(3,938)
|
|
Cost of
services and other
|
(3,157)
|
(2,865)
|
(920)
|
(864)
|
|
Total
cost of sales
|
(19,118)
|
(17,350)
|
(5,308)
|
(4,802)
|
|
Gross
profit
|
8,544
|
7,846
|
2,087
|
2,002
|
|
Selling,
general and administrative expenses
|
(5,295)
|
(4,765)
|
(1,459)
|
(1,303)
|
|
Non-order
related research and development expenses
|
(1,147)
|
(1,013)
|
(331)
|
(297)
|
|
Other
income (expense), net
|
124
|
162
|
(22)
|
(78)
|
|
Income
from operations
|
2,226
|
2,230
|
275
|
324
|
|
Interest
and dividend income
|
72
|
73
|
11
|
20
|
|
Interest
and other finance expense
|
(262)
|
(234)
|
(66)
|
(45)
|
|
Non-operational
pension (cost) credit
|
83
|
33
|
6
|
4
|
|
Income
from continuing operations before taxes
|
2,119
|
2,102
|
226
|
303
|
|
Provision
for taxes
|
(544)
|
(583)
|
(16)
|
(89)
|
|
Income
from continuing operations, net of tax
|
1,575
|
1,519
|
210
|
214
|
|
Income
from discontinued operations, net of tax
|
723
|
846
|
135
|
209
|
|
Net
income
|
2,298
|
2,365
|
345
|
423
|
|
Net
income attributable to noncontrolling interests
|
(125)
|
(152)
|
(28)
|
(30)
|
|
Net
income attributable to ABB
|
2,173
|
2,213
|
317
|
393
|
|
|
|
|
|
|
|
Amounts
attributable to ABB shareholders:
|
|
|
|
|
|
Income
from continuing operations, net of tax
|
1,514
|
1,441
|
204
|
204
|
|
Income
from discontinued operations, net of tax
|
659
|
772
|
113
|
189
|
|
Net
income
|
2,173
|
2,213
|
317
|
393
|
|
|
|
|
|
|
|
Basic
earnings per share attributable to ABB shareholders:
|
|
|
|
|
|
Income
from continuing operations, net of tax
|
0.71
|
0.67
|
0.10
|
0.10
|
|
Income
from discontinued operations, net of tax
|
0.31
|
0.36
|
0.05
|
0.09
|
|
Net
income
|
1.02
|
1.04
|
0.15
|
0.18
|
|
|
|
|
|
|
|
Diluted
earnings per share attributable to ABB shareholders:
|
|
|
|
|
|
Income
from continuing operations, net of tax
|
0.71
|
0.67
|
0.10
|
0.09
|
|
Income
from discontinued operations, net of tax
|
0.31
|
0.36
|
0.05
|
0.09
|
|
Net
income
|
1.02
|
1.03
|
0.15
|
0.18
|
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding (in millions) used to compute:
|
|
|
|
|
|
Basic
earnings per share attributable to ABB shareholders
|
2,132
|
2,138
|
2,132
|
2,136
|
|
Diluted
earnings per share attributable to ABB shareholders
|
2,139
|
2,148
|
2,134
|
2,150
|
|
Due to
rounding, numbers presented may not add to the totals provided.
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to the Consolidated Financial Information
|
|
|
|
|
8
Q4
2018 Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
ABB Ltd Condensed
Consolidated Statements of Comprehensive
|
|
Income (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
Three months ended
|
|
($ in
millions)
|
Dec. 31, 2018
|
Dec. 31, 2017
|
Dec. 31, 2018
|
Dec. 31, 2017
|
|
Total
comprehensive income (loss), net of tax
|
1,326
|
3,232
|
(132)
|
505
|
|
Total
comprehensive income attributable to noncontrolling interests, net of tax
|
(110)
|
(177)
|
(36)
|
(38)
|
|
Total
comprehensive income (loss) attributable to ABB shareholders, net of tax
|
1,216
|
3,055
|
(168)
|
467
|
|
Due to
rounding, numbers presented may not add to the totals provided.
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to the Consolidated Financial Information
|
|
|
|
|
9
Q4
2018 Financial Information
|
—
|
|
|
|
ABB Ltd Consolidated
Balance Sheets (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
($ in
millions, except share data)
|
Dec. 31, 2018
|
Dec. 31, 2017
|
|
Cash
and equivalents
|
3,445
|
4,526
|
|
Marketable
securities and short-term investments
|
712
|
1,083
|
|
Receivables,
net
|
6,386
|
5,861
|
|
Contract
assets
|
1,082
|
1,141
|
|
Inventories,
net
|
4,284
|
3,737
|
|
Prepaid
expenses
|
176
|
159
|
|
Other
current assets
|
616
|
585
|
|
Current
assets held for sale
|
5,164
|
5,043
|
|
Total
current assets
|
21,865
|
22,135
|
|
|
|
|
|
Property,
plant and equipment, net
|
4,133
|
3,804
|
|
Goodwill
|
10,764
|
9,536
|
|
Other intangible
assets, net
|
2,607
|
2,425
|
|
Prepaid
pension and other employee benefits
|
83
|
143
|
|
Investments
in equity-accounted companies
|
87
|
72
|
|
Deferred
taxes
|
1,006
|
1,212
|
|
Other
non-current assets
|
469
|
571
|
|
Non-current
assets held for sale
|
3,427
|
3,560
|
|
Total
assets
|
44,441
|
43,458
|
|
|
|
|
|
Accounts
payable, trade
|
4,424
|
3,736
|
|
Contract
liabilities
|
1,707
|
1,792
|
|
Short-term
debt and current maturities of long-term debt
|
2,031
|
726
|
|
Provisions
for warranties
|
948
|
909
|
|
Other
provisions
|
1,372
|
1,277
|
|
Other
current liabilities
|
3,780
|
3,509
|
|
Current
liabilities held for sale
|
4,185
|
4,520
|
|
Total
current liabilities
|
18,447
|
16,469
|
|
|
|
|
|
Long-term
debt
|
6,587
|
6,682
|
|
Pension
and other employee benefits
|
1,828
|
1,589
|
|
Deferred
taxes
|
927
|
1,050
|
|
Other
non-current liabilities
|
1,689
|
1,849
|
|
Non-current
liabilities held for sale
|
429
|
470
|
|
Total
liabilities
|
29,907
|
28,109
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Common
stock, CHF 0.12 par value
|
|
|
|
(2,168,148,264
issued shares at December 31, 2018 and 2017)
|
188
|
188
|
|
Additional
paid-in capital
|
56
|
29
|
|
Retained
earnings
|
19,839
|
19,594
|
|
Accumulated
other comprehensive loss
|
(5,311)
|
(4,345)
|
|
Treasury
stock, at cost
|
|
|
|
(36,185,858
and 29,541,775 shares at December 31, 2018 and 2017, respectively)
|
(820)
|
(647)
|
|
Total
ABB stockholders’ equity
|
13,952
|
14,819
|
|
Noncontrolling
interests
|
582
|
530
|
|
Total
stockholders’ equity
|
14,534
|
15,349
|
|
Total
liabilities and stockholders’ equity
|
44,441
|
43,458
|
|
Due to
rounding, numbers presented may not add to the totals provided.
|
|
|
|
|
|
|
|
See
Notes to the Consolidated Financial Information
|
|
|
10
Q4
2018 Financial Information
|
—
|
|
|
|
|
|
ABB Ltd Consolidated
Statements of Cash Flows (unaudited)
|
|
|
|
|
|
|
|
|
Year ended
|
Three months ended
|
|
($ in
millions)
|
Dec. 31, 2018
|
Dec. 31, 2017
|
Dec. 31, 2018
|
Dec. 31, 2017
|
|
Operating
activities:
|
|
|
|
|
|
Net
income
|
2,298
|
2,365
|
345
|
423
|
|
Less:
Income from discontinued operations, net of tax
|
(723)
|
(846)
|
(135)
|
(209)
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation
and amortization
|
916
|
836
|
244
|
225
|
|
Deferred
taxes
|
(146)
|
(204)
|
(185)
|
(246)
|
|
Net
loss (gain) from derivatives and foreign exchange
|
93
|
29
|
14
|
27
|
|
Net
loss (gain) from sale of property, plant and equipment
|
(57)
|
(37)
|
–
|
(14)
|
|
Net
loss (gain) from sale of businesses
|
(57)
|
(252)
|
4
|
78
|
|
Share-based
payment arrangements
|
50
|
49
|
18
|
15
|
|
Other
|
(72)
|
9
|
(3)
|
(7)
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
Trade
receivables, net
|
(144)
|
(178)
|
114
|
112
|
|
Contract
assets and liabilities
|
(18)
|
6
|
78
|
46
|
|
Inventories,
net
|
(336)
|
(66)
|
125
|
142
|
|
Accounts
payable, trade
|
454
|
474
|
306
|
204
|
|
Accrued
liabilities
|
252
|
99
|
89
|
(4)
|
|
Provisions,
net
|
87
|
(4)
|
111
|
55
|
|
Income
taxes payable and receivable
|
(102)
|
202
|
(6)
|
151
|
|
Other
assets and liabilities, net
|
(143)
|
106
|
287
|
327
|
|
Net cash
provided by operating activities – continuing operations
|
2,352
|
2,588
|
1,406
|
1,325
|
|
Net cash
provided by operating activities – discontinued operations
|
572
|
1,211
|
461
|
544
|
|
Net
cash provided by operating activities
|
2,924
|
3,799
|
1,867
|
1,869
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
Purchases
of investments
|
(322)
|
(666)
|
(13)
|
(254)
|
|
Purchases
of property, plant and equipment and intangible assets
|
(772)
|
(752)
|
(235)
|
(248)
|
|
Acquisition
of businesses (net of cash acquired)
|
|
|
|
|
|
and
increases in cost- and equity-accounted companies
|
(2,664)
|
(2,011)
|
(5)
|
(11)
|
|
Proceeds
from investments
|
567
|
1,443
|
199
|
45
|
|
Proceeds
from maturity of investments
|
160
|
100
|
–
|
–
|
|
Proceeds
from sales of property, plant and equipment
|
72
|
61
|
23
|
15
|
|
Proceeds
from sales of businesses (net of transaction costs
|
|
|
|
|
|
and
cash disposed) and cost- and equity-accounted companies
|
113
|
607
|
(14)
|
(57)
|
|
Net
cash from settlement of foreign currency derivatives
|
(30)
|
63
|
9
|
(29)
|
|
Other
investing activities
|
(32)
|
37
|
(4)
|
10
|
|
Net cash
used in investing activities – continuing operations
|
(2,908)
|
(1,118)
|
(40)
|
(529)
|
|
Net cash
used in investing activities – discontinued operations
|
(177)
|
(332)
|
(44)
|
(85)
|
|
Net
cash used in investing activities
|
(3,085)
|
(1,450)
|
(84)
|
(614)
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
Net
changes in debt with original maturities of 90 days or less
|
221
|
204
|
(345)
|
(157)
|
|
Increase
in debt
|
1,914
|
920
|
–
|
20
|
|
Repayment
of debt
|
(830)
|
(1,000)
|
(492)
|
(349)
|
|
Delivery
of shares
|
42
|
163
|
–
|
77
|
|
Purchase
of treasury stock
|
(250)
|
(251)
|
–
|
–
|
|
Dividends
paid
|
(1,717)
|
(1,635)
|
–
|
–
|
|
Dividends
paid to noncontrolling shareholders
|
(86)
|
(83)
|
(3)
|
(6)
|
|
Other
financing activities
|
(35)
|
(6)
|
(76)
|
8
|
|
Net cash
used in financing activities – continuing operations
|
(741)
|
(1,688)
|
(916)
|
(407)
|
|
Net cash
used in financing activities – discontinued operations
|
(48)
|
(47)
|
–
|
–
|
|
Net
cash used in financing activities
|
(789)
|
(1,735)
|
(916)
|
(407)
|
|
|
|
|
|
|
|
Effects
of exchange rate changes on cash and equivalents
|
(131)
|
268
|
(26)
|
29
|
|
Net
change in cash and equivalents
|
(1,081)
|
882
|
841
|
877
|
|
|
|
|
|
|
|
Cash
and equivalents, beginning of period
|
4,526
|
3,644
|
2,604
|
3,649
|
|
Cash
and equivalents, end of period
|
3,445
|
4,526
|
3,445
|
4,526
|
|
|
|
|
|
|
|
Supplementary
disclosure of cash flow information:
|
|
|
|
|
|
Interest
paid
|
243
|
205
|
95
|
66
|
|
Income
taxes paid
|
1,026
|
894
|
245
|
243
|
|
Due to
rounding, numbers presented may not add to the totals provided.
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to the Consolidated Financial Information
|
|
|
|
|
11
Q4
2018 Financial Information
|
—
|
|
|
|
|
|
|
|
|
|
ABB Ltd Consolidated
Statements of Changes in Stockholders’ Equity (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in
millions)
|
Common stock
|
Additional paid-in capital
|
Retained earnings
|
Accumulated
other comprehensive loss
|
Treasury stock
|
Total ABB
stockholders’ equity
|
Non-
controlling interests
|
Total stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2017
|
192
|
24
|
19,925
|
(5,187)
|
(1,559)
|
13,395
|
502
|
13,897
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
2,213
|
|
|
2,213
|
152
|
2,365
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
adjustments,
net of tax of $(1)
|
|
|
|
899
|
|
899
|
25
|
924
|
|
Effect
of change in fair value of
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities,
|
|
|
|
|
|
|
|
|
|
net of
tax of $0
|
|
|
|
1
|
|
1
|
|
1
|
|
Unrecognized
income (expense)
|
|
|
|
|
|
|
|
|
|
related
to pensions and other
|
|
|
|
|
|
|
|
|
|
postretirement
plans,
|
|
|
|
|
|
|
|
|
|
net of
tax of $(16)
|
|
|
|
(71)
|
|
(71)
|
|
(71)
|
|
Change
in derivatives qualifying as
|
|
|
|
|
|
|
|
|
|
cash
flow hedges, net of tax of $2
|
|
|
|
13
|
|
13
|
|
13
|
|
Total
comprehensive income
|
|
|
|
|
|
3,055
|
177
|
3,232
|
|
Changes
in noncontrolling interests
|
|
17
|
|
|
|
17
|
(14)
|
3
|
|
Dividends
to
|
|
|
|
|
|
|
|
|
|
noncontrolling
shareholders
|
|
|
|
|
|
–
|
(134)
|
(134)
|
|
Dividends
paid to shareholders
|
|
|
(1,622)
|
|
|
(1,622)
|
|
(1,622)
|
|
Share-based
payment arrangements
|
|
58
|
|
|
|
58
|
|
58
|
|
Cancellation
of treasury shares
|
(4)
|
(27)
|
(922)
|
|
953
|
–
|
|
–
|
|
Purchase
of treasury stock
|
|
|
|
|
(251)
|
(251)
|
|
(251)
|
|
Delivery
of shares
|
|
(46)
|
|
|
209
|
163
|
|
163
|
|
Call
options
|
|
4
|
|
|
|
4
|
|
4
|
|
Balance
at December 31, 2017
|
188
|
29
|
19,594
|
(4,345)
|
(647)
|
14,819
|
530
|
15,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2018
|
188
|
29
|
19,594
|
(4,345)
|
(647)
|
14,819
|
530
|
15,349
|
|
Cumulative
effect of changes in
|
|
|
|
|
|
|
|
|
|
accounting
principles
|
|
|
(192)
|
(9)
|
|
(201)
|
|
(201)
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
2,173
|
|
|
2,173
|
125
|
2,298
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
adjustments,
net of tax of $(14)
|
|
|
|
(631)
|
|
(631)
|
(15)
|
(646)
|
|
Effect
of change in fair value of
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities,
|
|
|
|
|
|
|
|
|
|
net of
tax of $(1)
|
|
|
|
(3)
|
|
(3)
|
|
(3)
|
|
Unrecognized
income (expense)
|
|
|
|
|
|
|
|
|
|
related
to pensions and other
|
|
|
|
|
|
|
|
|
|
postretirement
plans,
|
|
|
|
|
|
|
|
|
|
net of
tax of $(32)
|
|
|
|
(295)
|
|
(295)
|
|
(295)
|
|
Change
in derivatives qualifying as
|
|
|
|
|
|
|
|
|
|
cash
flow hedges, net of tax of $(3)
|
|
|
|
(28)
|
|
(28)
|
|
(28)
|
|
Total
comprehensive income
|
|
|
|
|
|
1,216
|
110
|
1,326
|
|
Changes
in noncontrolling interests
|
|
(4)
|
|
|
|
(4)
|
(19)
|
(23)
|
|
Noncontrolling
interests recognized in
|
|
|
|
|
|
|
|
|
|
connection
with business combination
|
|
|
|
|
|
–
|
107
|
107
|
|
Dividends
to
|
|
|
|
|
|
|
|
|
|
noncontrolling
shareholders
|
|
|
|
|
|
–
|
(146)
|
(146)
|
|
Dividends
paid to shareholders
|
|
|
(1,736)
|
|
|
(1,736)
|
|
(1,736)
|
|
Share-based
payment arrangements
|
|
60
|
|
|
|
60
|
|
60
|
|
Purchase
of treasury stock
|
|
|
|
|
(249)
|
(249)
|
|
(249)
|
|
Delivery
of shares
|
|
(35)
|
|
|
77
|
42
|
|
42
|
|
Call
options
|
|
5
|
|
|
|
5
|
|
5
|
|
Balance
at December 31, 2018
|
188
|
56
|
19,839
|
(5,311)
|
(820)
|
13,952
|
582
|
14,534
|
|
Due to
rounding, numbers presented may not add to the totals provided.
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to the Consolidated Financial Information
|
12
Q4
2018 Financial Information
—
Notes to the Consolidated Financial Information (unaudited)
─
Note 1
The Company and
basis of presentation
ABB Ltd and its subsidiaries (collectively, the
Company) together form a pioneering technology leader in power grids, electrification
products, industrial automation and robotics and motion, serving customers in
utilities, industry and transport & infrastructure globally.
The Company’s 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 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, 2017.
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 Consolidated Financial
Information. The most significant, difficult and subjective of such accounting
assumptions
and estimates include:
·
estimates and assumptions used in determining the fair
values of assets and liabilities assumed in business combinations,
·
assumptions used in the determination of corporate
costs directly attributable to discontinued operations,
·
assumptions used in determining inventory obsolescence
and net realizable value,
·
estimates used to record expected costs for employee
severance in connection with restructuring programs,
·
assumptions and projections, principally related to
future material, labor and project related overhead costs, used in determining
the percentage of completion on projects,
·
estimates of loss contingencies associated with
litigation or threatened litigation and other claims and inquiries,
environmental damages, product warranties, self-insurance reserves, regulatory
and other proceedings,
·
assumptions used in the calculation of pension and
postretirement benefits and the fair value of pension plan assets,
·
estimates to determine valuation allowances for
deferred tax assets and amounts recorded for uncertain tax positions,
·
growth rates, discount rates and other assumptions
used to determine impairment of long lived assets and in testing goodwill for
impairment, and
·
assessment of the allowance for doubtful accounts.
The actual results and outcomes may differ from the Company’s
estimates and assumptions.
A portion of the Company’s activities (primarily long-term
construction activities) has an operating cycle that exceeds one year. For
classification of current assets and liabilities related to such activities,
the Company elected to use the duration of the individual contracts as its
operating cycle. Accordingly, there are accounts receivable, contract assets, inventories
and provisions related to these contracts which will not be realized within one
year that have been classified as current.
Basis of presentation
In the opinion of management, the unaudited Consolidated Financial
Information contains all necessary adjustments to present fairly the financial
position, results of operations and cash flows for the reported periods.
Management considers all such adjustments to be of a normal recurring nature.
The Company has retained obligations (primarily for environmental
and taxes) related to businesses disposed or otherwise exited that qualified as
discontinued operations. Changes to these retained obligations are recorded in
income/loss from discontinued operations, net of tax.
The Consolidated Financial Information is presented in United
States dollars ($) unless otherwise stated. Due to rounding, numbers presented
in the Consolidated Financial Information may not add to the totals provided.
Discontinued operations and reclassifications
In December 2018, the Company announced an agreement to divest its
Power Grids business to Hitachi Corp. (Japan) (See Note 3 for additional
information and relevant disclosures). As a result, this business along with
certain real estate assets previously included in Corporate and Other, have
been reported as discontinued operations. Financial information and disclosures
for prior periods have been retroactively recast to give effect to the
discontinued operations presentation. In addition, amounts relating to stranded
corporate costs have been separately disclosed as a component of Corporate and Other
(see Note 15).
In addition, certain amounts reported in the Consolidated
Financial Information for prior periods have been reclassified to conform to
the current year’s presentation. These changes primarily relate to:
·
the reorganization of the Company’s operating
segments (see Note 15), and
·
as a result of the adoption of a number of
accounting pronouncements (see Note 2):
(i) the reclassification of Unbilled receivables from Receivables
to Contract assets,
(ii) the
reclassification of Billings in excess of sales, Advances from customers,
certain advances to customers previously reported as a reduction in
Inventories, and deferred revenues previously reported in Other current
liabilities, to Contract liabilities, and
(iii)
the reclassification of certain net periodic pension and postretirement
benefits costs/credits from Total cost of sales, Selling, general and
administrative expenses and Non-order related research and development expenses
to Non-operational pension (cost) credit.
13
Q4
2018 Financial Information
─
Note 2
Recent accounting pronouncements
Applicable for current periods
Revenue
from contracts with customers
As of January 1, 2018, the
Company adopted a new accounting standard for recognizing revenues from
contracts with customers on a modified retrospective basis, applying it to
contracts which were not completed at the date of initial application and
utilizing the practical expedient for contract modifications. The new standard,
which supersedes substantially all previously existing revenue recognition
guidance, provides a single comprehensive model for recognizing revenues on the
transfer of promised goods or services to customers for an amount that reflects
the consideration that is expected to be received for those goods or services. The
adoption of this standard resulted in only insignificant differences between
the identification of performance obligations and the unit of accounting
determination. Therefore, the cumulative effect on retained earnings of
retrospectively applying this standard was not significant. However, total
assets and total liabilities increased by $196 million, including
$50 million relating to assets and liabilities held for sale, due to the
reclassification of certain advances from customers, previously reported as a
reduction in Inventories, to liabilities.
Other than the additional
disclosure requirements, the impact of the adoption on the Company’s
Consolidated Financial Information for the year and three months ended December
31, 2018, was not significant.
Income
taxes – Intra-entity transfers of assets other than inventory
In January 2018, the Company adopted an
accounting standard update requiring it to recognize the income tax
consequences of an intra-entity transfer of an asset other than inventory when
the transfer occurs instead of when the asset has been sold to an outside
party. This update was applied on a modified retrospective basis and resulted
in a net reduction in deferred tax assets of $201 million with a
corresponding reduction in retained earnings.
Improving
the presentation of net periodic pension cost and net periodic postretirement benefit
cost
In January 2018, the Company adopted an accounting
standard update which changes how employers that sponsor defined benefit
pension plans and other postretirement plans present the net periodic benefit
cost in the income statement. Under this standard, the Company is required to
report the service cost component in the same line item or items as other
compensation costs arising from services rendered by the pertinent employees
during the period. Other components of net periodic benefit cost are required
to be presented in the income statement separately from the service cost
component and outside the subtotal of income from operations. Under the
amendment only the current service cost component is allowed to be capitalized
as a cost of internally manufactured inventory or a self-constructed asset.
This update was applied retrospectively for the presentation requirements, and
prospectively for the capitalization of the current service cost component
requirements. The Company has used the practical expedient, as the amount of
other components of net periodic benefit cost capitalized in inventory for
prior periods is not significant.
For the twelve and three months ended December
31, 2017, the Company reclassified $33 million and $4 million,
respectively, of income and presented it outside of income from operations relating
to net periodic pension costs.
Recognition
and measurement of financial assets and financial liabilities
In January 2018, the Company adopted two accounting
standard updates enhancing the reporting model for financial instruments, which
include amendments to address aspects of recognition, measurement, presentation
and disclosure. The Company is required to measure equity investments (except
those accounted for under the equity method) at fair value with changes in fair
value recognized in net income. The adoption of these updates resulted in the
reclassification of the net cumulative unrealized gains on available-for-sale
equity securities of $9 million (net of tax) at December 31, 2017
from Total accumulated comprehensive loss to Retained earnings on January 1,
2018.
Classification
of certain cash receipts and cash payments in the statement of cash flows
In January 2018, the Company adopted an
accounting standard update which clarifies how certain cash receipts and cash
payments, including debt prepayment or extinguishment costs, the settlement of
zero coupon debt instruments, contingent consideration paid after a business
combination, proceeds from insurance settlements, distributions from certain
equity method investees and beneficial interests obtained in a financial asset
securitization, should be presented and classified in the statement of cash
flows. This update was applied retrospectively and did not have a significant
impact on the consolidated financial statements.
Statement
of cash flows - Restricted cash
In January 2018, the Company adopted an accounting standard update
which clarifies the classification and presentation of changes in restricted
cash on the statement of cash flows. It requires the inclusion of cash and cash
equivalents that have restrictions on withdrawal or use in total cash and cash
equivalents on the statement of cash flows. This update did not have a
significant impact on the consolidated financial statements.
Clarifying
the definition of a business
In January 2018, the Company adopted an
accounting standard update which narrows the definition of a business. It also
provides a framework for determining whether a set of transferred assets and
activities involves a business. This update was applied prospectively and did
not have a significant impact on the consolidated financial statements.
Clarifying
the scope of asset derecognition guidance and accounting for partial sales of
nonfinancial assets
In January 2018, the Company adopted an
accounting standard update which clarifies the scope of asset derecognition
guidance, adds guidance for partial sales of nonfinancial assets and clarifies
recognizing gains and losses from the transfer of nonfinancial assets in
contracts with noncustomers. This update was applied retrospectively and did
not have a significant impact on the consolidated financial statements.
Compensation—Stock
Compensation
In January 2018, the
Company adopted an accounting standard update which clarifies when to account
for a change to the terms or conditions of a share‑based payment award as
a modification. Under this update, modification accounting is required only if
the fair value, the vesting conditions, or the classification of the award (as
equity or liability) changes as a result of the change in terms or conditions.
This update was applied prospectively and did not have a significant impact on the
consolidated financial statements.
14
Q4
2018 Financial Information
Disclosure
Framework — Changes to the disclosure requirements for defined benefit plans
In December 2018, the
Company adopted an accounting standard update which modifies the disclosure
requirements for defined benefit pension or other postretirement benefit plans.
The update removes certain disclosures relating to (i) amounts expected to be
recognized in net periodic benefit cost over the next twelve months, (ii) plan
assets expected to be returned to the Company, (iii) a one-percentage-point
change in assumed health care costs, and (iv) related parties, including
insurance and annuity contracts. It clarifies the disclosure requirements for
both the projected and accumulated benefit obligations, as well as requiring
additional disclosures for cash balance plans and explanations for significant
gains and losses related to changes in the benefit obligations. This update was
applied on a retrospective basis and did not have a significant impact on the consolidated
financial statements.
Applicable for future periods
Leases
In February 2016, an accounting standard update
was issued that requires lessees to recognize lease assets and corresponding
lease liabilities on the balance sheet for all leases with terms of more than twelve
months with several practical expedients. The update, which supersedes existing
lease guidance, will continue to classify leases as either finance or
operating, with the classification determining the pattern of expense
recognition in the income statement. It also requires additional disclosures
about the Company’s leasing activities. The Company has elected to not
recognize lease assets and lease liabilities for leases with terms of less than
twelve months and to not separate lease and non-lease components for leases
other than real estate. This update is effective for the Company for annual and
interim periods beginning January 1, 2019, and is applicable on a modified
retrospective basis with various optional practical expedients.
In July 2018, a further accounting standard
update was issued, allowing the Company the additional option of adopting the
standard retrospectively with the cumulative-effect of initially applying the
new standard recognized at the date of adoption in retained earnings. A further
update was issued in December 2018 clarifying certain aspects of accounting for
leases by lessors.
The Company will elect to adopt the standard
using the additional option outlined above and currently expects the update
will increase total assets and total liabilities by approximately $1.4 billion
of which approximately $0.2 billion relate to assets and liabilities held
for sale.
The Company expects that the adoption of this
update will only have an insignificant impact on its results of operations and
cash flows.
Measurement
of credit losses on financial instruments
In June 2016, an accounting standard update was
issued which replaces the existing incurred loss impairment methodology for
most financial assets with a new “current expected credit loss” model. The new
model will result in the immediate recognition of the estimated credit losses
expected to occur over the remaining life of financial assets such as trade and
other receivables, held-to-maturity debt securities, loans and other
instruments. Credit losses relating to available-for-sale debt securities will
be measured in a manner similar to current GAAP, except that the losses will be
recorded through an allowance for credit losses rather than as a direct
write-down of the security.
This
update is effective for the Company for annual and interim periods beginning
January 1, 2020, with early adoption permitted for annual and interim
periods beginning January 1, 2019. The Company is currently evaluating the
impact of this update on its consolidated financial statements.
Derivatives
and Hedging—Targeted improvements to accounting for hedging activities
In August 2017, an
accounting standard update was issued which expands and refines hedge
accounting for both financial and non-financial risk components, aligns the
recognition and presentation of the effects of hedging instruments and hedge
items in the financial statements, and includes certain targeted improvements
to ease the application of current guidance related to the assessment of hedge
effectiveness. This update is effective for the Company for annual and interim
periods beginning January 1, 2019. For cash flow and net investment hedges as
of the adoption date, the guidance requires a modified retrospective approach.
The amended presentation and disclosure guidance is required only
prospectively. The Company will adopt this update as of January 1, 2019, and does
not believe that this update will have a significant impact on its consolidated
financial statements.
Reclassification
of certain tax effects from accumulated other comprehensive income
In February 2018, an
accounting standard update was issued which allows a reclassification of the
stranded tax effects in accumulated other comprehensive income resulting from
the Tax Cuts and Jobs Act of 2017 to retained earnings. This update is
effective for the Company for annual and interim periods beginning January 1,
2019. The updated guidance is to be applied in the period of adoption or
retrospectively to each period in which the effect of the Tax Cuts and Jobs Act
related to items remaining in accumulated other comprehensive income are
recognized. The Company is currently evaluating the impact of this update on
its consolidated financial statements.
Customer’s
accounting for implementation costs incurred in a cloud computing arrangement
that is a service contract
In August 2018, an
accounting standard update was issued which aligns the requirements for
capitalizing implementation costs incurred in a hosting arrangement that is a
service contract with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software. This update is effective
for the Company for annual and interim periods beginning January 1, 2020, with
early adoption in any interim period permitted. The Company is currently
evaluating the impact of this update on its consolidated financial statements.
Disclosure
Framework — Changes to the disclosure requirements for fair value measurement
In August 2018, an
accounting standard update was issued which modifies the disclosure requirements
for fair value measurements. The update eliminates the requirements to disclose
the amount of and reasons for transfers between Level 1 and 2 of the fair value
hierarchy, the timing of transfers between levels and the Level 3 valuation
process, while expanding the Level 3 disclosures to include the range and
weighted average used to develop significant unobservable inputs and the
changes in unrealized gains and losses on recurring fair value measurements. This
update is effective for the Company for annual and interim periods beginning
January 1, 2020, with early adoption permitted.
The
changes and modifications to the Level 3 disclosures are to be applied
prospectively, while all other amendments are to be applied retrospectively. The
Company is currently evaluating the impact of this update on its disclosures but
does not expect that it will have a material effect on its consolidated
financial statements.
15
Q4
2018 Financial Information
─
Note 3
Acquisitions and Divestments
Acquisitions
Acquisitions were as follows:
|
|
Year ended December 31,
|
Three months ended December 31,
|
|
($ in millions,
except number of acquired businesses)
|
2018
|
2017
|
2018
|
2017
|
|
Purchase
price for acquisitions (net of cash acquired)
(1)
|
2,638
|
1,992
|
2
|
3
|
|
Aggregate
excess of purchase price
|
|
|
|
|
|
over
fair value of net assets acquired
(2)
|
1,472
|
1,267
|
39
|
(1)
|
|
Number
of acquired businesses
|
3
|
4
|
–
|
1
|
(1)
Excluding changes in cost- and
equity-accounted companies
(2) Recorded as
goodwill.
In the
table above, the “Purchase price for acquisitions” and “Aggregate excess of
purchase price over fair value of net assets acquired” amounts for the year
ended December 31, 2018, relate primarily to the acquisition of GE
Industrial Solutions (GEIS). The amounts for the year ended December 31, 2017,
relate primarily to the acquisition of Bernecker + Rainer Industrie-Elektronik
GmbH (B&R).
Acquisitions
of controlling interests have been accounted for under the acquisition method
and have been included in the Company’s Consolidated Financial Statements since
the date of acquisition.
On
June 30, 2018, the Company acquired through numerous share and asset purchases
substantially all the assets, liabilities and business activities of GEIS, GE’s
global electrification solutions business. GEIS, headquartered in Atlanta,
United States, provides technologies that distribute and control electricity
and support the commercial, data center, health care, mining, renewable energy,
oil and gas, water and telecommunications sectors. The resulting cash outflows
for the Company amounted to $2,622 million (net of cash acquired of $192 million).
The acquisition strengthens the Company’s global position in electrification
and expands its access to the North American market through strong customer
relationships, a large installed base and extensive distribution networks. Consequently,
the goodwill acquired represents expected operating synergies and cost savings
as well as intangible assets that are not separable such as employee know-how
and expertise.
While the Company uses its best estimates and
assumptions as part of the purchase price allocation process to value assets
acquired and liabilities assumed at the acquisition date, the purchase price
allocation for acquisitions is preliminary for up to 12 months after the
acquisition date and is subject to refinement as more detailed analyses are
completed and additional information about the fair values of the assets and
liabilities becomes available.
Given the timing and complexity
of the acquisition of GEIS, the purchase price allocation in the Company’s Consolidated
Financial Information has not yet been finalized, primarily relating to amounts
allocated to net working capital, pension obligations, current and deferred
income taxes as well as intangible assets. Changes in allocated amounts could
also affect the amount attributable to the noncontrolling interest. At December
31, 2018, the Company is still gathering, analyzing and evaluating relevant information,
including certain inputs required for the valuation of intangibles. As a
result, amounts recorded in the preliminary purchase price allocation may
change in 2019. The final purchase price adjustments as well as the final fair
value determinations could result in material adjustments to the values
presented in the preliminary purchase price allocation table below.
On July 6,
2017, the Company acquired the shares of B&R. B&R is a worldwide
provider of product- and software-based, open-architecture
solutions for
machine and factory automation. This acquisition closes a gap in the Company’s
industrial automation portfolio and consequently
the goodwill
acquired represents the future benefits associated with product portfolio
expansion.
16
Q4
2018 Financial Information
The aggregate preliminary allocation of the
purchase consideration for business acquisitions in the year ended December 31,
2018 and 2017, was as follows:
|
Year
ended December 31,
|
2018
|
|
2017
|
|
|
Preliminary allocated amounts
(1)
|
Weighted-
|
|
|
Weighted-
|
|
|
GEIS
|
Other
|
Total
|
average
|
|
Allocated
|
average
|
|
($ in
millions)
|
|
|
|
useful life
|
|
amounts
(1)
|
useful life
|
|
Technology
|
87
|
–
|
87
|
7 years
|
|
412
|
7 years
|
|
Customer
relationships
|
214
|
–
|
214
|
14 years
|
|
264
|
20 years
|
|
Trade
names
|
122
|
–
|
122
|
13 years
|
|
61
|
10 years
|
|
Supply
agreement
|
34
|
–
|
34
|
13 years
|
|
–
|
|
|
Intangible
assets
|
457
|
–
|
457
|
|
|
737
|
|
|
Property,
plant and equipment
|
379
|
9
|
388
|
|
|
131
|
|
|
Debt
acquired
|
–
|
–
|
–
|
|
|
(50)
|
|
|
Deferred
tax liabilities
|
(110)
|
(1)
|
(111)
|
|
|
(249)
|
|
|
Inventories
|
435
|
3
|
438
|
|
|
176
|
|
|
Other
assets and liabilities, net
(2)
|
126
|
(25)
|
101
|
|
|
(20)
|
|
|
Goodwill
(3)
|
1,442
|
30
|
1,472
|
|
|
1,267
|
|
|
Noncontrolling
interest
|
(107)
|
–
|
(107)
|
|
|
–
|
|
|
Total
consideration (net of cash acquired)
(4)
|
2,622
|
16
|
2,638
|
|
|
1,992
|
|
(1) Excludes measurement period adjustments related to prior
year acquisitions.
(2) Gross receivables from the GEIS acquisitions totaled $658
million; the fair value of which was $624 million after adjusting for
contractual cash flows not expected to be collected.
(3) The Company expects that goodwill recorded in certain
jurisdictions will be tax deductible. The amount is subject to the finalization
of the purchase price allocation in 2019.
(4) Primarily
relates to the acquisition of GEIS in 2018 and B&R in 2017. Cash acquired
in the GEIS acquisition totaled $192 million.
The Company’s
Consolidated Income Statement for the year and three months ended December 31,
2018, includes total revenues of $1,317 million and $683 million,
respectively, and net income of $1 million and $25 million,
respectively, in respect of GEIS since the date of acquisition.
The unaudited pro
forma financial information in the table below summarizes the combined pro
forma results of the Company and GEIS for the year and three months ended December
31, 2018 and 2017, as if GEIS had been acquired on January 1, 2017.
|
|
Year ended December 31,
|
Three months ended December 31,
|
|
($ in
millions)
|
2018
|
2017
|
2018
|
2017
|
|
Total
revenues
|
28,936
|
27,881
|
7,395
|
7,528
|
|
Income
from continuing operations, net of tax
|
1,622
|
1,631
|
210
|
277
|
The pro forma
results are for information purposes only and do not include any anticipated
cost synergies or other effects of the planned integration of GEIS.
Accordingly, such pro forma amounts are not necessarily indicative of the
results that would have occurred had the acquisition been completed on the date
indicated, nor are they indicative of the future operating results of the
combined company.
The unaudited
pro forma results above include certain adjustments related to the GEIS
acquisition. The table below summarizes the adjustments necessary to present
the pro forma financial information of the combined entity as if GEIS had been
acquired on January 1, 2017.
|
|
Year ended December 31,
|
Three months ended December 31,
|
|
($ in
millions)
|
2018
|
2017
|
2018
|
2017
|
|
Impact
on cost of sales from additional
|
|
|
|
|
|
amortization
of intangible assets
|
(10)
|
(20)
|
–
|
(4)
|
|
Impact
on cost of sales from fair valuing acquired inventory
|
26
|
(26)
|
–
|
–
|
|
Impact
on cost of sales from additional depreciation
|
|
|
|
|
|
of
property, plant and equipment
|
(4)
|
(8)
|
–
|
(1)
|
|
Impact
on selling, general and administrative expenses
|
|
|
|
|
|
from
additional amortization of intangible assets
|
(5)
|
(12)
|
–
|
(1)
|
|
Impact
on selling, general and administrative expenses
|
|
|
|
|
|
from
acquisition-related costs
|
44
|
20
|
–
|
10
|
|
Impact
on interest from financing costs
|
(15)
|
(62)
|
–
|
(14)
|
|
Taxation
adjustments
|
(5)
|
33
|
–
|
7
|
|
Total
pro forma adjustments
|
31
|
(75)
|
–
|
(3)
|
17
Q4
2018 Financial Information
Business divestments
For the year and three months ended December 31,
2017, the Company recorded net gains (including transaction costs) of $252
million and net losses (including transaction costs) of $78 million,
respectively, in “Other income (expense), net”. For the year and three months
ended December 31, 2017, an associated tax expense of $7 million and
tax benefit of $21 million, respectively, relating to the divestment of
consolidated businesses were recorded in “Provision for taxes”. These are
primarily due to the divestment of the Company’s high-voltage cable system and
cable accessories businesses in March 2017 (the Cables business) and the Oil
& Gas EPC business in December 2017.
The Company has retained certain obligations of
the Cables business and thus the Company remains directly or indirectly liable
for these liabilities which existed at the date of the divestment. Subsequent
to the divestment, in the year ended December 31, 2017, the Company recorded a
loss of $94 million for changes in the amounts recorded for these
obligations. In addition, the Company has provided certain performance
guarantees to third parties which guarantee the performance of the buyer under
existing contracts with customers as well as for certain capital expenditures
of the divested business (see Note 7).
Held for sale and discontinued operations
The
Company reports a disposal, or planned disposal, of a component or a group of
components as a discontinued operation if the disposal represents a strategic
shift that has or will have a major effect on the Company’s operations and
financial results. A strategic shift could include a disposal of a major
geographical area, a major line of business or other major parts of the
Company. A component may be a reportable segment or an operating segment, a
reporting unit, a subsidiary, or an asset group.
Assets
and liabilities of a component reported as a discontinued operation are
presented as held for sale in the Company’s Consolidated Balance Sheets.
Interest
that is not directly attributable to or related to the Company’s continuing
business or discontinued business is allocated to discontinued operations based
on the ratio of net assets to be sold less debt that is required to be paid as
a result of the planned disposal transaction to the sum of total net assets of
the Company plus consolidated debt. General corporate overhead is not allocated
to discontinued operations.
In
December 2018, the Company announced an agreement to divest 80.1 percent
of its Power Grids business to Hitachi Ltd. (Hitachi), valuing the business at
$11 billion. The business also includes certain real estate properties
which were previously reported within Corporate and Other. The divestment is
expected to be completed in the first half of 2020, following the receipt of
customary regulatory approvals. As this divestment represents a strategic shift
that will have a major effect on the Company’s operations and financial
results, the results of operations for this business have been presented as
discontinued operations and the assets and liabilities are reflected as
held-for-sale for all periods presented.
Operating results of the discontinued businesses
are summarized as follows:
|
|
Year ended
|
Three months ended
|
|
($ in
millions)
|
Dec. 31, 2018
|
Dec. 31, 2017
|
Dec. 31, 2018
|
Dec. 31, 2017
|
|
Total
revenues
|
9,698
|
10,028
|
2,623
|
2,721
|
|
Total
cost of sales
|
(7,378)
|
(7,501)
|
(2,052)
|
(2,065)
|
|
Gross
profit
|
2,320
|
2,527
|
571
|
656
|
|
Expenses
|
(1,326)
|
(1,376)
|
(381)
|
(377)
|
|
Income
from operations
|
994
|
1,152
|
189
|
279
|
|
Net
interest and other finance expense
|
(55)
|
(42)
|
(14)
|
(6)
|
|
Non-operational
pension (cost) credit
|
12
|
9
|
3
|
4
|
|
Income
from discontinued operations before taxes
|
951
|
1,119
|
179
|
278
|
|
Provision
for taxes
|
(228)
|
(273)
|
(44)
|
(69)
|
|
Income
from discontinued operations, net of tax
|
723
|
846
|
135
|
209
|
Of the
total Income from discontinued operations before taxes in the table above, $874
million and $1,034 million in 2018 and 2017, respectively, and $158 million and
$256 million in the three months ended December 31, 2018 and 2017,
respectively, are attributable to the Company, while the remainder is
attributable to noncontrolling interests.
Income
from discontinued operations before taxes excludes certain costs which were
previously allocated to the Power Grids operating segment as these costs were
not directly attributable to the business. As a result, for the year ended
December 31, 2018 and 2017, $297 million and $286 million,
respectively, and for the three months ended December 31, 2018 and 2017, $72 million
and $73 million, respectively, of allocated overhead and other management
costs (Stranded corporate costs), which were previously included in the measure
of segment profit for the Power Grids operating segment are now reported as
part of Corporate and Other. In the year and three months ended
December 31, 2018, Income from discontinued operations before taxes
includes $18 million and $16 million, respectively, of separation
costs incurred to execute the transaction. These costs primarily include
advisory services.
Included
in the reported Total revenues of the Company for the year ended
December 31, 2018 and 2017, are revenues from the Company’s operating
segments to the Power Grids business of $243 million and
$263 million, respectively, which represent intercompany transactions
that, prior to Power Grids being classified as a discontinued operation, were
eliminated in the Company’s Consolidated Financial Information. In the three
months ended December 31, 2018 and 2017, these revenues amounted to
$62 million and $81 million, respectively (See Note 15).
18
Q4
2018 Financial Information
The major components of assets and liabilities
held for sale in the Company’s Consolidated Balance Sheets are summarized as
follows:
|
($ in
millions)
|
Dec. 31, 2018
|
Dec. 31, 2017
|
|
Receivables,
net
|
2,377
|
2,406
|
|
Contract
assets
|
1,236
|
1,008
|
|
Inventories,
net
|
1,457
|
1,518
|
|
Other
current assets
|
94
|
111
|
|
Current
assets held for sale
|
5,164
|
5,043
|
|
|
|
|
|
Property,
plant and equipment, net
|
1,477
|
1,559
|
|
Goodwill
|
1,620
|
1,663
|
|
Other
non-current assets
|
330
|
338
|
|
Non-current
assets held for sale
|
3,427
|
3,560
|
|
|
|
|
|
Accounts
payable, trade
|
1,732
|
1,683
|
|
Contract
liabilities
|
998
|
1,116
|
|
Other
current liabilities
|
1,455
|
1,721
|
|
Current
liabilities held for sale
|
4,185
|
4,520
|
|
|
|
|
|
Pension
and other employee benefits
|
268
|
293
|
|
Other
non-current liabilities
|
161
|
177
|
|
Non-current
liabilities held for sale
|
429
|
470
|
Goodwill
Changes in total goodwill were as follows:
|
($ in
millions)
|
|
|
|
Total Goodwill
|
|
Balance
at January 1, 2017
|
|
|
|
7,953
|
|
Goodwill
acquired during the year
(1)
|
|
|
|
1,267
|
|
Goodwill
allocated to disposals
(2)
|
|
|
|
(2)
|
|
Exchange
rate differences and other
|
|
|
|
318
|
|
Balance
at December 31, 2017
|
|
|
|
9,536
|
|
Goodwill
acquired during the year
(3)
|
|
|
|
1,472
|
|
Goodwill
allocated to disposals
|
|
|
|
(31)
|
|
Exchange
rate differences and other
|
|
|
|
(213)
|
|
Balance
at December 31, 2018
|
|
|
|
10,764
|
(1) Includes primarily goodwill in respect of B&R,
acquired in July 2017, which has been allocated to the Industrial Automation
operating segment.
(2) Goodwill allocated to the high-voltage cable system
business sold in March 2017, within Corporate and Other (formerly reported in
the Power Grids operating segment) was reported as assets held-for-sale at
December 31, 2016.
(3) Includes primarily goodwill in respect of GEIS, acquired
in June 2018, which has been allocated to the Electrification Products
operating segment.
19
Q4
2018 Financial Information
─
Note 4
Cash and equivalents, marketable securities and
short-term investments
Cash and equivalents, marketable securities and
short-term investments consisted of the following:
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Marketable
|
|
|
|
|
Gross
|
Gross
|
|
|
securities
|
|
|
|
|
unrealized
|
unrealized
|
|
Cash and
|
and short-term
|
|
($ in
millions)
|
Cost basis
|
gains
|
losses
|
Fair value
|
equivalents
|
investments
|
|
Changes
in fair value
|
|
|
|
|
|
|
|
recorded
in net income
|
|
|
|
|
|
|
|
Cash
|
1,983
|
–
|
–
|
1,983
|
1,983
|
–
|
|
Time
deposits
|
1,463
|
–
|
–
|
1,463
|
1,462
|
1
|
|
Other
short-term investments
|
206
|
–
|
–
|
206
|
–
|
206
|
|
Equity
securities
(1)
|
206
|
–
|
(3)
|
203
|
–
|
203
|
|
|
3,858
|
–
|
(3)
|
3,855
|
3,445
|
410
|
|
Changes
in fair value recorded
|
|
|
|
|
|
|
|
in
other comprehensive income
|
|
|
|
|
|
|
|
Debt
securities available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. government
obligations
|
217
|
–
|
(3)
|
214
|
–
|
214
|
|
|
Corporate
|
90
|
–
|
(2)
|
88
|
–
|
88
|
|
|
307
|
–
|
(5)
|
302
|
–
|
302
|
|
Total
|
4,165
|
–
|
(8)
|
4,157
|
3,445
|
712
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Marketable
|
|
|
|
|
Gross
|
Gross
|
|
|
securities
|
|
|
|
|
unrealized
|
unrealized
|
|
Cash and
|
and short-term
|
|
($ in
millions)
|
Cost basis
|
gains
|
losses
|
Fair value
|
equivalents
|
investments
|
|
Changes
in fair value recorded in
|
|
|
|
|
|
|
|
net
income
|
|
|
|
|
|
|
|
Cash
|
1,963
|
–
|
–
|
1,963
|
1,963
|
–
|
|
Time
deposits
|
2,834
|
–
|
–
|
2,834
|
2,563
|
271
|
|
Other
short-term investments
|
305
|
–
|
–
|
305
|
–
|
305
|
|
|
5,102
|
–
|
–
|
5,102
|
4,526
|
576
|
|
Changes
in fair value recorded in
|
|
|
|
|
|
|
|
other
comprehensive income
|
|
|
|
|
|
|
|
Equity
securities
|
152
|
13
|
–
|
165
|
–
|
165
|
|
Debt
securities available-for-sale:
|
|
|
|
|
|
|
|
|
U.S.
government obligations
|
127
|
–
|
(2)
|
125
|
–
|
125
|
|
|
Other government
obligations
|
2
|
–
|
–
|
2
|
–
|
2
|
|
|
Corporate
|
215
|
1
|
(1)
|
215
|
–
|
215
|
|
|
496
|
14
|
(3)
|
507
|
–
|
507
|
|
Total
|
5,598
|
14
|
(3)
|
5,609
|
4,526
|
1,083
|
(1) See “New accounting
pronouncements - Applicable for current period” in Note 2 for changes
applicable in 2018.
Other short-term investments at December 31,
2018 and 2017, are receivables of $206 million and $305 million,
respectively, representing reverse repurchase agreements. These collateralized
lendings, made to a financial institution, have maturity dates of less than one
year.
─
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
20
Q4
2018 Financial Information
subsidiaries to hedge their
foreign currency exposures from binding sales and purchase contracts
denominated in foreign currencies. For forecasted foreign currency denominated
sales of standard products and the related foreign currency denominated
purchases, the Company’s policy is to hedge up to a maximum of 100 percent
of the forecasted foreign currency denominated exposures, depending on the
length of the forecasted exposures. Forecasted exposures greater than 12 months
are not hedged. Forward foreign exchange contracts are the main instrument used
to protect the Company against the volatility of future cash flows (caused by
changes in exchange rates) of contracted and forecasted sales and purchases
denominated in foreign currencies. In addition, within its treasury operations,
the Company primarily uses foreign exchange swaps and forward foreign exchange
contracts to manage the currency and timing mismatches arising in its liquidity
management activities.
Commodity risk
Various commodity products are used in the
Company’s manufacturing activities. Consequently it is exposed to volatility in
future cash flows arising from changes in commodity prices. To manage the price
risk of commodities, the Company’s policies require that the subsidiaries hedge
the commodity price risk exposures from binding contracts, as well as at least
50 percent (up to a maximum of 100 percent) of the forecasted commodity
exposure over the next 12 months or longer (up to a maximum of 18 months).
Primarily swap contracts are used to manage the associated price risks of
commodities.
Interest rate risk
The Company has issued bonds at fixed rates.
Interest rate swaps are used to manage the interest rate risk associated with
certain debt and generally such swaps are designated as fair value hedges. In
addition, from time to time, the Company uses instruments such as interest rate
swaps, interest rate futures, bond futures or forward rate agreements to manage
interest rate risk arising from the Company’s balance sheet structure but does
not designate such instruments as hedges.
Equity risk
The Company is exposed to fluctuations in the
fair value of its warrant appreciation rights (WARs) issued under its
management incentive plan. A WAR gives its holder the right to receive
cash equal to the market price of an equivalent listed warrant on the date of
exercise. To eliminate such risk, the Company has purchased cash-settled call
options, indexed to the shares of the Company, which entitle the Company to
receive amounts equivalent to its obligations under the outstanding WARs.
Volume of derivative activity
In general, while the Company’s primary objective
in its use of derivatives is to minimize exposures arising from its business,
certain derivatives are designated and qualify for hedge accounting treatment
while others either are not designated or do not qualify for hedge accounting.
Foreign exchange and interest rate derivatives
The gross notional amounts of outstanding foreign
exchange and interest rate derivatives (whether designated as hedges or not)
were as follows:
|
Type of
derivative
|
Total notional amounts at
|
|
($ in
millions)
|
December 31, 2018
|
December 31, 2017
|
|
Foreign
exchange contracts
|
13,612
|
16,261
|
|
Embedded
foreign exchange derivatives
|
733
|
899
|
|
Interest
rate contracts
|
3,300
|
5,706
|
Derivative commodity contracts
The Company uses derivatives to hedge its direct
or indirect exposure to the movement in the prices of commodities which are
primarily copper, silver and aluminum. The following table shows the notional
amounts of outstanding derivatives (whether designated as hedges or not), on a
net basis, to reflect the Company’s requirements for these commodities:
|
Type of
derivative
|
Unit
|
Total notional amounts at
|
|
|
|
December 31, 2018
|
December 31, 2017
|
|
Copper
swaps
|
metric
tonnes
|
46,143
|
28,976
|
|
Silver
swaps
|
ounces
|
2,861,294
|
1,966,729
|
|
Aluminum
swaps
|
metric
tonnes
|
9,491
|
1,869
|
Equity derivatives
At December 31, 2018 and 2017, the Company
held 41 million and 37 million cash-settled call options indexed to ABB Ltd
shares (conversion ratio 5:1) with a total fair value of $6 million and $42
million, respectively.
Cash flow hedges
As noted above, the Company mainly uses forward
foreign exchange contracts to manage the foreign exchange risk of its
operations, commodity swaps to manage its commodity risks and cash-settled call
options to hedge its WAR liabilities. Where such instruments are designated and
qualify as cash flow hedges, the effective portion of the changes in their fair
value is recorded in “Accumulated other comprehensive loss” and subsequently
reclassified into earnings in the same line item and in the same period as the
underlying hedged transaction affects earnings. Any ineffectiveness in the
hedge relationship, or hedge component excluded from the assessment of effectiveness,
is recognized in earnings during the current period.
At
December 31, 2018 and 2017, “Accumulated other comprehensive loss”
included net unrealized losses of $16 million and net unrealized gains of $12
million, respectively, net of tax, on derivatives designated as cash flow
hedges. Of the amount at December 31, 2018, net losses of $6 million are
expected to be reclassified to earnings in the following 12 months. At
December 31, 2018, the longest maturity of a derivative classified as a
cash flow hedge was 61 months.
The
amount of gains or losses, net of tax, reclassified into earnings due to the
discontinuance of cash flow hedge accounting and the amount of ineffectiveness
in cash flow hedge relationships directly recognized in earnings were not
significant in the year and three months ended December 31, 2018 and 2017.
21
Q4
2018 Financial Information
The pre-tax effects of derivative instruments,
designated and qualifying as cash flow hedges, on “Accumulated other
comprehensive loss” (OCI) and the Consolidated Income Statements were as
follows:
|
|
Gains (losses) recognized in OCI
|
|
|
Gains (losses) reclassified from OCI
|
|
($ in
millions)
|
on derivatives (effective portion)
|
|
|
into income (effective portion)
|
|
Year
ended December 31,
|
2018
|
2017
|
|
|
2018
|
2017
|
|
Type of
derivative
|
|
|
|
Location
|
|
|
|
Foreign
exchange contracts
|
|
|
|
Total
revenues
|
–
|
2
|
|
|
(6)
|
3
|
|
Total
cost of sales
|
–
|
2
|
|
Commodity
contracts
|
(9)
|
9
|
|
Total
cost of sales
|
–
|
6
|
|
Cash-settled
call options
|
(36)
|
22
|
|
SG&A
expenses
(1)
|
(22)
|
15
|
|
Total
|
(51)
|
34
|
|
|
(22)
|
25
|
|
|
Gains (losses) recognized in OCI
|
|
|
Gains (losses) reclassified from OCI
|
|
($ in
millions)
|
on derivatives (effective portion)
|
|
|
into income (effective portion)
|
|
Three
months ended December 31,
|
2018
|
2017
|
|
|
2018
|
2017
|
|
Type of
derivative
|
|
|
|
Location
|
|
|
|
Foreign
exchange contracts
|
|
|
|
Total
revenues
|
–
|
1
|
|
|
(1)
|
1
|
|
Total
cost of sales
|
–
|
–
|
|
Commodity
contracts
|
(2)
|
5
|
|
Total
cost of sales
|
(2)
|
2
|
|
Cash-settled
call options
|
(16)
|
11
|
|
SG&A
expenses
(1)
|
(10)
|
7
|
|
Total
|
(19)
|
17
|
|
|
(12)
|
10
|
(1) SG&A
expenses
represent
“Selling,
general
and
administrative
expenses”.
The
amounts in respect of gains (losses) recognized in income for hedge
ineffectiveness and amounts excluded from effectiveness testing were not
significant for the year and three months ended December 31, 2018 and 2017.
Net
derivative losses of $
24
million and net derivative gains of $
23
million, both net of tax, were reclassified from “Accumulated
other comprehensive loss” to earnings during the year ended December 31,
2018 and 2017, respectively. During the three months ended December 31,
2018 and 2017, net derivative losses of $
13
million and $
11
million, both net of tax, respectively, were
reclassified from “Accumulated other comprehensive loss” to earnings.
Fair value hedges
To reduce its interest rate exposure arising
primarily from its debt issuance activities, the Company uses interest rate
swaps. Where such instruments are designated as fair value hedges, the changes
in the fair value of these instruments, as well as the changes in the fair
value of the risk component of the underlying debt being hedged, are recorded
as offsetting gains and losses in “Interest and other finance expense”. Hedge
ineffectiveness of instruments designated as fair value hedges for the year and
three months ended December 31, 2018 and 2017, was not significant.
The effect of interest rate contracts, designated
and qualifying as fair value hedges, on the Consolidated Income Statements was
as follows:
|
|
Year ended December 31,
|
Three months ended December 31,
|
|
($ in
millions)
|
2018
|
2017
|
2018
|
2017
|
|
Gains
(losses) recognized in Interest and other finance expense:
|
|
|
|
|
|
- on
derivatives designated as fair value hedges
|
(4)
|
(23)
|
32
|
(20)
|
|
- on
hedged item
|
5
|
27
|
(32)
|
22
|
Derivatives not designated in hedge relationships
Derivative instruments that are not designated as
hedges or do not qualify as either cash flow or fair value hedges are economic
hedges used for risk management purposes. Gains and losses from changes in the
fair values of such derivatives are recognized in the same line in the income
statement as the economically hedged transaction.
Furthermore,
under certain circumstances, the Company is required to split and account
separately for foreign currency derivatives that are embedded within certain
binding sales or purchase contracts denominated in a currency other than the
functional currency of the subsidiary and the counterparty.
22
Q4
2018 Financial Information
The gains (losses) recognized in the Consolidated
Income Statements on derivatives not designated in hedging relationships were
as follows:
|
Type of
derivative not
|
Gains (losses) recognized in income
|
|
designated
as a hedge
|
|
Year ended December 31,
|
Three months ended December 31,
|
|
($ in
millions)
|
Location
|
2018
|
2017
|
2018
|
2017
|
|
Foreign
exchange contracts
|
Total
revenues
|
(121)
|
92
|
(2)
|
(19)
|
|
|
Total
cost of sales
|
46
|
(41)
|
(20)
|
(7)
|
|
|
SG&A
expenses
(1)
|
10
|
(18)
|
–
|
1
|
|
|
Non-order
related research
|
|
|
|
|
|
|
and
development
|
(1)
|
–
|
–
|
–
|
|
|
Interest
and other finance expense
|
40
|
22
|
16
|
(21)
|
|
Embedded
foreign exchange
|
Total
revenues
|
58
|
7
|
–
|
20
|
|
contracts
|
Total
cost of sales
|
(4)
|
(2)
|
1
|
(4)
|
|
|
SG&A
expenses
(1)
|
2
|
5
|
–
|
–
|
|
Commodity
contracts
|
Total
cost of sales
|
(33)
|
31
|
(4)
|
13
|
|
Other
|
Interest
and other finance expense
|
3
|
(2)
|
–
|
–
|
|
Total
|
|
–
|
94
|
(9)
|
(17)
|
(1) SG&A
expenses
represent
“Selling,
general
and
administrative
expenses”.
The fair values of derivatives included in the
Consolidated Balance Sheets were as follows:
|
|
December 31, 2018
|
|
|
Derivative assets
|
|
Derivative liabilities
|
|
|
Current in
|
Non-current in
|
|
Current in
|
Non-current in
|
|
|
“Other current
|
“Other non-current
|
|
“Other current
|
“Other non-current
|
|
($ in
millions)
|
assets”
|
assets”
|
|
liabilities”
|
liabilities”
|
|
Derivatives
designated as hedging instruments:
|
|
|
|
|
|
|
Foreign
exchange contracts
|
–
|
–
|
|
1
|
4
|
|
Commodity
contracts
|
–
|
–
|
|
2
|
–
|
|
Interest
rate contracts
|
–
|
35
|
|
–
|
1
|
|
Cash-settled
call options
|
3
|
3
|
|
–
|
–
|
|
Total
|
3
|
38
|
|
3
|
5
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
Foreign
exchange contracts
|
117
|
14
|
|
160
|
30
|
|
Commodity
contracts
|
8
|
1
|
|
21
|
1
|
|
Embedded
foreign exchange derivatives
|
15
|
10
|
|
8
|
1
|
|
Total
|
140
|
25
|
|
189
|
32
|
|
Total
fair value
|
143
|
63
|
|
192
|
37
|
|
|
December 31, 2017
|
|
|
Derivative assets
|
|
Derivative liabilities
|
|
|
Current in
|
Non-current in
|
|
Current in
|
Non-current in
|
|
|
“Other current
|
“Other non-current
|
|
“Other current
|
“Other non-current
|
|
($ in
millions)
|
assets”
|
assets”
|
|
liabilities”
|
liabilities”
|
|
Derivatives
designated as hedging instruments:
|
|
|
|
|
|
|
Foreign
exchange contracts
|
1
|
–
|
|
–
|
1
|
|
Commodity
contracts
|
5
|
–
|
|
–
|
–
|
|
Interest
rate contracts
|
–
|
41
|
|
–
|
4
|
|
Cash-settled
call options
|
25
|
16
|
|
–
|
–
|
|
Total
|
31
|
57
|
|
–
|
5
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
Foreign
exchange contracts
|
134
|
24
|
|
183
|
62
|
|
Commodity
contracts
|
31
|
1
|
|
7
|
–
|
|
Cross-currency
interest rate swaps
|
–
|
–
|
|
2
|
–
|
|
Cash-settled
call options
|
–
|
1
|
|
–
|
–
|
|
Embedded
foreign exchange derivatives
|
15
|
10
|
|
15
|
3
|
|
Total
|
180
|
36
|
|
207
|
65
|
|
Total
fair value
|
211
|
93
|
|
207
|
70
|
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.
23
Q4
2018 Financial Information
Although the Company is party to close-out
netting agreements with most derivative counterparties, the fair values in the
tables above and in the Consolidated Balance Sheets at December 31, 2018
and 2017, have been presented on a gross basis.
The Company’s netting agreements and other
similar arrangements allow net settlements under certain conditions. At
December 31, 2018 and 2017, information related to these offsetting arrangements
was as follows:
|
($ in
millions)
|
December 31, 2018
|
|
|
Gross amount
|
Derivative liabilities
|
Cash
|
Non-cash
|
|
|
Type of
agreement or
|
of recognized
|
eligible for set-off
|
collateral
|
collateral
|
Net asset
|
|
similar
arrangement
|
assets
|
in case of default
|
received
|
received
|
exposure
|
|
Derivatives
|
181
|
(121)
|
–
|
–
|
60
|
|
Reverse
repurchase agreements
|
206
|
–
|
–
|
(206)
|
–
|
|
Total
|
387
|
(121)
|
–
|
(206)
|
60
|
|
|
|
|
|
|
|
|
($ in
millions)
|
December 31, 2018
|
|
|
Gross amount
|
Derivative liabilities
|
Cash
|
Non-cash
|
|
|
Type of
agreement or
|
of recognized
|
eligible for set-off
|
collateral
|
collateral
|
Net liability
|
|
similar
arrangement
|
liabilities
|
in case of default
|
pledged
|
pledged
|
exposure
|
|
Derivatives
|
220
|
(121)
|
–
|
–
|
99
|
|
Total
|
220
|
(121)
|
–
|
–
|
99
|
|
($ in
millions)
|
December 31, 2017
|
|
|
Gross amount
|
Derivative liabilities
|
Cash
|
Non-cash
|
|
|
Type of
agreement or
|
of recognized
|
eligible for set-off
|
collateral
|
collateral
|
Net asset
|
|
similar
arrangement
|
assets
|
in case of default
|
received
|
received
|
exposure
|
|
Derivatives
|
279
|
(167)
|
–
|
–
|
112
|
|
Reverse
repurchase agreements
|
305
|
–
|
–
|
(305)
|
–
|
|
Total
|
584
|
(167)
|
–
|
(305)
|
112
|
|
|
|
|
|
|
|
|
($ in
millions)
|
December 31, 2017
|
|
|
Gross amount
|
Derivative liabilities
|
Cash
|
Non-cash
|
|
|
Type of
agreement or
|
of recognized
|
eligible for set-off
|
collateral
|
collateral
|
Net liability
|
|
similar
arrangement
|
liabilities
|
in case of default
|
pledged
|
pledged
|
exposure
|
|
Derivatives
|
259
|
(167)
|
–
|
–
|
92
|
|
Total
|
259
|
(167)
|
–
|
–
|
92
|
─
Note 6
Fair values
The Company uses fair value measurement principles to
record certain financial assets and liabilities on a recurring basis and, when
necessary, to record certain non‑financial assets at fair value on a non‑recurring
basis, as well as to determine fair value disclosures for certain financial
instruments carried at amortized cost in the financial statements. Financial
assets and liabilities recorded at fair value on a recurring basis include
foreign currency, commodity and interest rate derivatives, as well as cash‑settled
call options and available‑for‑sale securities. Non‑financial
assets recorded at fair value on a non‑recurring basis include long‑lived
assets that are reduced to their estimated fair value due to impairments.
Fair value is
the price that would be received when selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. In determining fair value, the Company uses various valuation
techniques including the market approach (using observable market data for
identical or similar assets and liabilities), the income approach (discounted
cash flow models) and the cost approach (using costs a market participant would
incur to develop a comparable asset). Inputs used to determine the fair value
of assets and liabilities are defined by a three‑level hierarchy,
depending on the nature of those inputs. The Company has categorized its
financial assets and liabilities and non‑financial assets measured at
fair value within this hierarchy based on whether the inputs to the valuation
technique are observable or unobservable. An observable input is based on
market data obtained from independent sources, while an unobservable input
reflects the Company’s assumptions about market data.
The levels of
the fair value hierarchy are as follows:
Level
1:
Valuation inputs consist of quoted prices in an
active market for identical assets or liabilities (observable quoted prices).
Assets and liabilities valued using Level 1 inputs include 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,
24
Q4
2018 Financial Information
cash‑settled
call options, forward foreign exchange contracts, foreign exchange swaps and
forward rate agreements, time deposits, as well as financing receivables and
debt.
Level
3:
Valuation inputs are based on the Company’s
assumptions of relevant market data (unobservable input).
Whenever
quoted prices involve bid‑ask spreads, the Company ordinarily determines
fair values based on mid‑market quotes. However, for the purpose of
determining the fair value of cash‑settled call options serving as hedges
of the Company’s management incentive plan, bid prices are used.
When
determining fair values based on quoted prices in an active market, the Company
considers if the level of transaction activity for the financial instrument has
significantly decreased, or would not be considered orderly. In such cases, the
resulting changes in valuation techniques would be disclosed. If the market is
considered disorderly or if quoted prices are not available, the Company is
required to use another valuation technique, such as an income approach.
Recurring fair value measures
The fair values of financial assets and liabilities
measured at fair value on a recurring basis were as follows:
|
|
December 31, 2018
|
|
($ in
millions)
|
Level 1
|
Level 2
|
Level 3
|
Total fair value
|
|
Assets
|
|
|
|
|
|
Available-for-sale
securities in “Marketable securities and short-term investments”:
|
|
|
|
|
|
Equity
securities
|
–
|
203
|
–
|
203
|
|
Debt
securities—U.S. government obligations
|
214
|
–
|
–
|
214
|
|
Debt
securities—Corporate
|
–
|
88
|
–
|
88
|
|
Derivative
assets—current in “Other current assets”
|
–
|
143
|
–
|
143
|
|
Derivative
assets—non-current in “Other non-current assets”
|
–
|
63
|
–
|
63
|
|
Total
|
214
|
497
|
–
|
711
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Derivative
liabilities—current in “Other current liabilities”
|
–
|
192
|
–
|
192
|
|
Derivative
liabilities—non-current in “Other non-current liabilities”
|
–
|
37
|
–
|
37
|
|
Total
|
–
|
229
|
–
|
229
|
|
|
December 31, 2017
|
|
($ in
millions)
|
Level 1
|
Level 2
|
Level 3
|
Total fair value
|
|
Assets
|
|
|
|
|
|
Available-for-sale
securities in “Marketable securities and short-term investments”:
|
|
|
|
|
|
Equity
securities
|
–
|
165
|
–
|
165
|
|
Debt
securities—U.S. government obligations
|
125
|
–
|
–
|
125
|
|
Debt
securities—Other government obligations
|
–
|
2
|
–
|
2
|
|
Debt
securities—Corporate
|
–
|
215
|
–
|
215
|
|
Receivable
in “Other non-current assets”:
|
|
|
|
|
|
Receivable
under securities lending arrangement
|
79
|
–
|
–
|
79
|
|
Derivative
assets—current in “Other current assets”
|
–
|
211
|
–
|
211
|
|
Derivative
assets—non-current in “Other non-current assets”
|
–
|
93
|
–
|
93
|
|
Total
|
204
|
686
|
–
|
890
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Derivative
liabilities—current in “Other current liabilities”
|
–
|
207
|
–
|
207
|
|
Derivative
liabilities—non-current in “Other non-current liabilities”
|
–
|
70
|
–
|
70
|
|
Total
|
–
|
277
|
–
|
277
|
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 “Marketable securities
and short-term investments” and “Other non-current assets”:
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. The fair value of
the receivable under the securities lending arrangement has been determined
based on the fair value of the security lent.
·
Derivatives
: The fair values of
derivative instruments are determined using quoted prices of identical
instruments from an active market, if available (Level 1). If quoted prices are
not available, price quotes for similar instruments, appropriately adjusted, or
present value techniques, based on available market data, or option pricing
models are used. Cash-settled call options hedging the Company’s WAR liability
are valued based on bid prices of the equivalent listed warrant. The fair
values obtained using price quotes for similar instruments or valuation
techniques represent a Level 2 input unless significant unobservable inputs are
used.
25
Q4
2018 Financial Information
Non-recurring fair value measures
There were no significant non-recurring fair
value measurements during the year and three months ended December 31,
2018 and 2017.
Disclosure about financial instruments
carried on a cost basis
The fair values of financial instruments
carried on a cost basis were as follows:
|
|
December 31, 2018
|
|
($ in
millions)
|
Carrying value
|
|
Level 1
|
Level 2
|
Level 3
|
Total fair value
|
|
Assets
|
|
|
|
|
|
|
|
Cash
and equivalents (excluding available-for-sale securities
|
|
|
|
|
|
|
|
with
original maturities up to 3 months):
|
|
|
|
|
|
|
|
Cash
|
1,983
|
|
1,983
|
–
|
–
|
1,983
|
|
Time deposits
|
1,462
|
|
–
|
1,462
|
–
|
1,462
|
|
Marketable
securities and short-term investments
|
|
|
|
|
|
|
|
(excluding
available-for-sale securities):
|
|
|
|
|
|
|
|
Time
deposits
|
1
|
|
–
|
1
|
–
|
1
|
|
Receivables
under reverse repurchase agreements
|
206
|
|
–
|
206
|
–
|
206
|
|
Other
non-current assets:
|
|
|
|
|
|
|
|
Loans
granted
|
30
|
|
–
|
31
|
–
|
31
|
|
Restricted
time deposits
|
39
|
|
39
|
–
|
–
|
39
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Short-term
debt and current maturities of long-term debt
|
|
|
|
|
|
|
|
(excluding
capital lease obligations)
|
2,008
|
|
1,480
|
528
|
–
|
2,008
|
|
Long-term
debt (excluding capital lease obligations)
|
6,457
|
|
5,839
|
707
|
–
|
6,546
|
|
|
December 31, 2017
|
|
($ in
millions)
|
Carrying value
|
|
Level 1
|
Level 2
|
Level 3
|
Total fair value
|
|
Assets
|
|
|
|
|
|
|
|
Cash
and equivalents (excluding available-for-sale securities
|
|
|
|
|
|
|
|
with
original maturities up to 3 months):
|
|
|
|
|
|
|
|
Cash
|
1,963
|
|
1,963
|
–
|
–
|
1,963
|
|
Time
deposits
|
2,563
|
|
–
|
2,563
|
–
|
2,563
|
|
Marketable
securities and short-term investments
|
|
|
|
|
|
|
|
(excluding
available-for-sale securities):
|
|
|
|
|
|
|
|
Time
deposits
|
271
|
|
–
|
271
|
–
|
271
|
|
Receivables
under reverse repurchase agreements
|
305
|
|
–
|
305
|
–
|
305
|
|
Other
non-current assets:
|
|
|
|
|
|
|
|
Loans
granted
|
29
|
|
–
|
30
|
–
|
30
|
|
Restricted
time deposits
|
35
|
|
35
|
–
|
–
|
35
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Short-term
debt and current maturities of long-term debt
|
|
|
|
|
|
|
|
(excluding
capital lease obligations)
|
694
|
|
400
|
294
|
–
|
694
|
|
Long-term
debt (excluding capital lease obligations)
|
6,567
|
|
6,046
|
773
|
–
|
6,819
|
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), and (ii) restricted time
deposits whose fair values approximate the carrying amounts (Level 1 inputs).
·
Short-term debt and current maturities of long-term
debt (excluding capital lease obligations)
:
Short-term debt includes commercial paper, bank borrowings and overdrafts. The
carrying amounts of short-term debt and current maturities of long-term debt,
excluding capital lease obligations, approximate their fair values.
·
Long-term debt (excluding capital lease obligations)
: Fair values of bonds are determined using quoted market prices
(Level 1 inputs), if available. For bonds without available quoted market
prices and other long-term debt, the fair values are determined using a
discounted cash flow methodology based upon borrowing rates of similar debt
instruments and reflecting appropriate adjustments for non-performance risk
(Level 2 inputs).
26
Q4
2018 Financial Information
─
Note 7
Commitments and contingencies
Contingencies—Regulatory, Compliance and Legal
Antitrust
In April 2014, the European Commission announced
its decision regarding its investigation of anticompetitive practices in the
cables industry and granted the Company full immunity from fines under its
leniency program.
In
February 2019, the Brazilian Antitrust Authority (CADE) announced its decision
regarding its investigation of anticompetitive practices in certain power
businesses of the Company, including flexible alternating current transmission
systems (FACTS) and power transformers, and granted the Company full immunity
from fines under its leniency program.
Suspect
payments
As a result of an internal investigation, the
Company self-reported to the Securities and Exchange Commission (SEC) and the
Department of Justice (DoJ) in the United States as well as to the Serious
Fraud Office (SFO) in the United Kingdom concerning certain of its past
dealings with Unaoil and its subsidiaries, including alleged improper payments
made by these entities to third parties. The SFO has commenced an investigation
into this matter. The Company is cooperating fully with the authorities. At
this time, it is not possible for the Company to make an informed judgment
about the outcome of these matters.
General
In addition, the Company is aware of proceedings,
or the threat of proceedings, against it and others in respect of private
claims by customers and other third parties with regard to certain actual or
alleged anticompetitive practices.
Also, the
Company is subject to other claims and legal proceedings, as well as
investigations carried out by various law enforcement authorities. With respect
to the above-mentioned claims, regulatory matters, and any related proceedings,
the Company will bear the related costs including costs necessary to resolve
them.
Liabilities
recognized
At December 31, 2018 and 2017, the Company
had aggregate liabilities of $221 million and $229 million,
respectively, included in “Other provisions” and “Other non-current
liabilities”, for the above regulatory, compliance and legal contingencies, and
none of the individual liabilities recognized was significant. As it is not
possible to make an informed judgment on, or reasonably predict, the outcome of
certain matters and as it is not possible, based on information currently
available to management, to estimate the maximum potential liability on other
matters, there could be material adverse outcomes beyond the amounts accrued.
Guarantees
General
The following table provides quantitative data
regarding the Company’s third-party guarantees. The maximum potential payments
represent a “worst‑case scenario”, and do not reflect management’s
expected outcomes.
|
Maximum
potential payments
($ in millions)
|
December 31, 2018
|
December 31, 2017
|
|
Performance
guarantees
|
1,584
|
1,775
|
|
Financial
guarantees
|
10
|
17
|
|
Indemnification
guarantees
|
64
|
72
|
|
Total
(1)
|
1,658
|
1,864
|
(1) Maximum
potential payments include amounts in both continuing and discontinued operations
.
The carrying amount of liabilities recorded in
the Consolidated Balance Sheets reflects the Company’s best estimate of future
payments, which it may incur as part of fulfilling its guarantee obligations.
In respect of the above guarantees, the carrying amounts of liabilities at
December 31, 2018 and 2017, were not significant.
The Company is party to various guarantees
providing financial or performance assurances to certain third parties. These
guarantees, which have various maturities up to 2027, mainly consist of
performance guarantees whereby (i) the Company guarantees the performance
of a third party’s product or service according to the terms of a contract and
(ii) as member of a consortium/joint-venture that includes third parties,
the Company guarantees not only its own performance but also the work of third
parties. Such guarantees may include guarantees that a project will be
completed within a specified time. If the third party does not fulfill the
obligation, the Company will compensate the guaranteed party in cash or in
kind. The original maturity dates for the majority of these performance
guarantees range from one to eight years.
In conjunction with the divestment of the high-voltage
cable and cables accessories businesses, the Company has entered into various
performance guarantees with other parties with respect to certain liabilities of
the divested business. At December 31, 2018 and 2017, the maximum potential
payable under these guarantees amounts to $771 million and
$929 million, respectively, and these guarantees have various maturities
ranging from one to ten years.
Commercial
commitments
In addition, in the normal course of bidding for
and executing certain projects, the Company has entered into standby letters of
credit, bid/performance bonds and surety bonds (collectively “performance
bonds”) with various financial institutions. Customers can draw on such
performance bonds in the event that the Company does not fulfill its
contractual obligations. The Company would then have an obligation to reimburse
the financial institution for amounts paid under the performance bonds. At
December 31, 2018 and 2017, the total outstanding performance bonds
aggregated to $7.4 billion and $7.7 billion, respectively, of which
$4.3 billion and $4.7 billion, respectively, relate to discontinued
operations. There have been no significant amounts reimbursed to financial
institutions under these types of arrangements in the year and three months
ended December 31, 2018 and 2017.
27
Q4
2018 Financial Information
Product and
order-related contingencies
The Company calculates its provision for product
warranties based on historical claims experience and specific review of certain
contracts.
The reconciliation of the “Provisions for
warranties”, including guarantees of product performance, was as follows:
|
($ in
millions)
|
2018
|
2017
|
|
Balance
at January 1,
|
909
|
815
|
|
Net
change in warranties due to acquisitions and divestments
|
41
|
30
|
|
Claims
paid in cash or in kind
|
(307)
|
(243)
|
|
Net
increase in provision for changes in estimates, warranties issued and
warranties expired
|
341
|
234
|
|
Exchange
rate differences
|
(36)
|
73
|
|
Balance
at December 31,
|
948
|
909
|
During 2018, the Company recorded changes in the
estimated amount for a product warranty relating to a divested business. This
warranty liability was increased by a total of $92 million during the year
ended December 31, 2018. The corresponding increases were included in “Cost of
sales of products” and as these costs relate to a divested business, they have
been excluded from the Company’s primary measure of segment performance,
Operational EBITA (see Note 15).
During 2016, the Company determined that the
provision for product warranties in its solar business, acquired in 2013 as
part of the purchase of Power-One, was no longer sufficient to cover expected
warranty costs in the remaining warranty period. Due to higher than originally
expected product failure rates for certain solar inverters designed and
manufactured by Power-One, a substantial portion of which relates to products
which were delivered to customers prior to the acquisition date, the Company
increased the previously estimated warranty provision for its solar business
during the year and three months ended December 31, 2018, by $36 million,
and during the year and three months ended December 31, 2017, by
$23 million and $18 million, respectively. For both the year and three
months ended December 31, 2018 and 2017, $16 million and $8 million,
respectively, of the increase in provision relates to products delivered prior
to the acquisition date and have been excluded from Operational EBITA. The
corresponding increases were included in Cost of sales of products.
The warranty liability has been recorded based on
the information currently available and is subject to change in the future.
─
Note 8
Contract assets and liabilities
The following table provides information about
Contract Assets and Contract Liabilities:
|
($ in
millions)
|
December 31, 2018
|
December 31, 2017
|
December 31, 2016
|
|
Contract
assets
|
1,082
|
1,141
|
1,222
|
|
Contract
liabilities
|
1,707
|
1,792
|
1,690
|
Contract
assets primarily relate to the Company’s right to receive consideration for work
completed but for which no invoice has been issued at the reporting date. Contract
assets are transferred to receivables when rights to receive payment become
unconditional.
Contract
liabilities primarily relate to up-front advances received on orders from
customers as well as amounts invoiced to customers in excess of revenues
recognized predominantly on long-term projects. Contract liabilities are
reduced as work is performed and as revenues are recognized.
The significant changes in the Contract assets
and Contract liabilities balances were as follows:
|
|
Year ended December 31,
|
|
|
2018
|
|
2017
|
|
|
Contract
|
|
Contract
|
|
Contract
|
|
Contract
|
|
($ in
millions)
|
assets
|
|
liabilities
|
|
assets
|
|
liabilities
|
|
Revenue
recognized, which was included in the Contract liabilities balance at Jan 1,
2018/2017
|
–
|
|
(879)
|
|
–
|
|
(1,212)
|
|
Additions
to Contract liabilities - excluding amounts recognized as revenue during the
period
|
–
|
|
518
|
|
–
|
|
868
|
|
Receivables
recognized that were included in the Contract asset balance at Jan 1,
2018/2017
|
(633)
|
|
–
|
|
(584)
|
|
–
|
At
December 31, 2018
, the Company had unsatisfied performance obligations totaling
$13,084 million and, of this amount, the Company expects to fulfill
approximately 76 percent of the obligations in 2019, approximately
14 percent of the obligations in 2020 and the balance thereafter.
28
Q4
2018 Financial Information
─
Note 9
Debt
The Company’s total debt at December 31,
2018 and 2017, amounted to $
8,618
million and $
7,408
million, respectively.
Short-term debt and current maturities of long-term debt
The Company’s “Short-term debt and current
maturities of long-term debt” consisted of the following:
|
($ in
millions)
|
December 31, 2018
|
December 31, 2017
|
|
Short-term
debt
|
561
|
317
|
|
Current
maturities of long-term debt
|
1,470
|
409
|
|
Total
|
2,031
|
726
|
Short-term
debt primarily represented issued commercial paper and short-term loans from
various banks. At December 31, 2018 and 2017, $
292
million
and $
259
million, respectively, was outstanding under the
$2 billion commercial paper program in the United States. In addition, at
December 31, 2018, $
172
million was outstanding under the
$2 billion Euro-commercial paper program.
In November
2018, the Company repaid at maturity the CHF 350 million 1.50% Bonds,
equivalent to $
351
million at date of payment.
Long-term debt
The Company’s long-term debt at December 31, 2018
and 2017, amounted to $
6,587
million and $
6,682
million,
respectively.
Outstanding bonds (including maturities within the
next 12 months) were as follows:
|
|
December 31, 2018
|
December 31, 2017
|
|
(in
millions)
|
Nominal outstanding
|
Carrying value
(1)
|
Nominal outstanding
|
Carrying value
(1)
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
1.50%
CHF Bonds, due 2018
|
|
|
|
|
CHF
|
350
|
$
|
358
|
|
2.625%
EUR Instruments, due 2019
|
EUR
|
1,250
|
$
|
1,431
|
EUR
|
1,250
|
$
|
1,493
|
|
2.8%
USD Notes, due 2020
|
USD
|
300
|
$
|
299
|
|
|
|
–
|
|
4.0%
USD Notes, due 2021
|
USD
|
650
|
$
|
646
|
USD
|
650
|
$
|
644
|
|
2.25%
CHF Bonds, due 2021
|
CHF
|
350
|
$
|
373
|
CHF
|
350
|
$
|
378
|
|
5.625%
USD Notes, due 2021
|
USD
|
250
|
$
|
265
|
USD
|
250
|
$
|
270
|
|
2.875%
USD Notes, due 2022
|
USD
|
1,250
|
$
|
1,242
|
USD
|
1,250
|
$
|
1,256
|
|
3.375%
USD Notes, due 2023
|
USD
|
450
|
$
|
448
|
|
|
|
–
|
|
0.625%
EUR Instruments, due 2023
|
EUR
|
700
|
$
|
807
|
EUR
|
700
|
$
|
834
|
|
0.75%
EUR Instruments, due 2024
|
EUR
|
750
|
$
|
862
|
EUR
|
750
|
$
|
889
|
|
3.8%
USD Notes, due 2028
|
USD
|
750
|
$
|
746
|
|
|
|
–
|
|
4.375%
USD Notes, due 2042
|
USD
|
750
|
$
|
723
|
USD
|
750
|
$
|
723
|
|
Total
|
|
|
$
|
7,842
|
|
|
$
|
6,845
|
(1)
USD carrying
values include unamortized debt issuance costs, bond discounts or premiums, as
well as adjustments for fair value hedge accounting, where appropriate.
In April 2018, the Company issued the
following notes with a principal of:
·
$300 million,
due 2020, paying interest semi-annually in arrears at a fixed rate of 2.8 percent
per annum,
·
$450 million,
due 2023, paying interest semi-annually in arrears at a fixed rate of 3.375 percent
per annum, and
·
$750
million, due 2028, paying interest semi-annually in arrears at a fixed rate of
3.8 percent per annum.
The aggregate net proceeds of these bond
issues, after underwriting discount and other fees, amounted to $1,494 million.
Subsequent events
In February 2019, the Company issued the following
notes with a principal of:
·
CHF 280 million,
due 2024, paying interest annually in arrears at a fixed rate of 0.3 percent
per annum, and
·
CHF 170
million, due 2029, paying interest annually in arrears at a fixed rate of 1.0 percent
per annum.
The aggregate net proceeds of these bond issues, after
underwriting discount and other fees, amounted to CHF 449 million
(equivalent to approximately $449 million on date of issuance).
In addition, as at February 27, 2019, the amount outstanding
under the $2 billion program in the United States increased to
$794 million from $292 million at December 31, 2018. There was
no significant change in the Euro-commercial $2 billion program.
29
Q4
2018 Financial Information
─
Note 10
Employee benefits
The Company operates defined benefit pension
plans, defined contribution pension plans, and termination indemnity plans, in
accordance with local regulations and practices. These plans cover a large
portion of the Company’s employees and provide benefits to employees in the
event of death, disability, retirement, or termination of employment. Certain
of these plans are multi-employer plans. The Company also operates other
postretirement benefit plans including postretirement health care benefits, and
other employee-related benefits for active employees including long-service
award plans. The measurement date used for the Company’s employee benefit plans
is December 31. The funding policies of the Company’s plans are consistent with
the local government and tax requirements.
The following tables include amounts relating to
defined benefit pension plans and other postretirement benefits for both continuing
and discontinued operations.
Net periodic benefit cost of the Company’s
defined benefit pension and other postretirement benefit plans consisted of the
following:
|
($ in
millions)
|
Defined pension benefits
|
Other postretirement
benefits
|
|
|
Switzerland
|
International
|
|
Year
ended December 31,
|
2018
|
2017
|
2018
|
2017
|
2018
|
2017
|
|
Operational
pension cost:
|
|
|
|
|
|
|
|
Service
cost
|
92
|
106
|
122
|
122
|
1
|
1
|
|
Operational
pension cost
|
92
|
106
|
122
|
122
|
1
|
1
|
|
Non-operational
pension cost (credit):
|
|
|
|
|
|
|
|
Interest
cost
|
30
|
41
|
198
|
208
|
4
|
5
|
|
Expected
return on plan assets
|
(117)
|
(112)
|
(305)
|
(295)
|
–
|
–
|
|
Amortization
of prior service cost (credit)
|
(15)
|
10
|
1
|
1
|
(5)
|
(5)
|
|
Amortization
of net actuarial loss
|
–
|
–
|
92
|
91
|
(1)
|
(1)
|
|
Curtailments,
settlements and special termination benefits
|
–
|
–
|
23
|
16
|
–
|
(1)
|
|
Non-operational
pension cost (credit)
|
(102)
|
(61)
|
9
|
21
|
(2)
|
(2)
|
|
Net
periodic benefit cost
|
(10)
|
45
|
131
|
143
|
(1)
|
(1)
|
|
($ in
millions)
|
Defined pension benefits
|
Other postretirement
benefits
|
|
|
Switzerland
|
International
|
|
Three months
ended December 31,
|
2018
|
2017
|
2018
|
2017
|
2018
|
2017
|
|
Operational
pension cost:
|
|
|
|
|
|
|
|
Service
cost
|
22
|
21
|
33
|
29
|
1
|
–
|
|
Operational
pension cost
|
22
|
21
|
33
|
29
|
1
|
–
|
|
Non-operational
pension cost (credit):
|
|
|
|
|
|
|
|
Interest
cost
|
8
|
9
|
52
|
47
|
1
|
2
|
|
Expected
return on plan assets
|
(27)
|
(27)
|
(79)
|
(69)
|
–
|
–
|
|
Amortization
of prior service cost (credit)
|
(3)
|
(3)
|
–
|
–
|
(2)
|
(2)
|
|
Amortization
of net actuarial loss
|
–
|
–
|
20
|
22
|
–
|
–
|
|
Curtailments,
settlements and special termination benefits
|
–
|
–
|
22
|
14
|
–
|
(1)
|
|
Non-operational
pension cost (credit)
|
(22)
|
(21)
|
15
|
14
|
(1)
|
(1)
|
|
Net
periodic benefit cost
|
–
|
–
|
48
|
43
|
–
|
(1)
|
The components of net periodic benefit cost
other than the service cost component are included in the line “Non-operational
pension (cost) credit” in the income statement. Net periodic benefit cost
includes $45 million and $55 million, for the year end December 31,
2018 and 2017, respectively, and $11 million and $14 million, for the
three months end December 31, 2018 and 2017, respectively, related to
discontinued operations.
30
Q4
2018 Financial Information
Employer contributions were as follows:
|
($ in
millions)
|
Defined pension benefits
|
Other postretirement
benefits
|
|
|
Switzerland
|
International
|
|
Year
ended December 31,
|
2018
|
2017
|
2018
|
2017
|
2018
|
2017
|
|
Total
contributions to defined benefit pension and
|
|
|
|
|
|
|
|
other
postretirement benefit plans
|
89
|
90
|
152
|
139
|
11
|
11
|
|
Of
which, discretionary contributions to defined benefit
|
|
|
|
|
|
|
|
pension
plans
|
–
|
–
|
25
|
15
|
–
|
–
|
|
($ in
millions)
|
Defined pension benefits
|
Other postretirement
benefits
|
|
|
Switzerland
|
International
|
|
Three
months ended December 31,
|
2018
|
2017
|
2018
|
2017
|
2018
|
2017
|
|
Total
contributions to defined benefit pension and
|
|
|
|
|
|
|
|
other
postretirement benefit plans
|
21
|
24
|
68
|
60
|
5
|
4
|
|
Of
which, discretionary contributions to defined benefit
|
|
|
|
|
|
|
|
pension
plans
|
–
|
–
|
15
|
15
|
–
|
–
|
During
the year and three months ended December 31, 2018, total contributions included
available-for-sale debt securities, having a fair value at the contribution
date of $31 million, contributed to certain of the Company’s pension plans in
Germany and the United Kingdom. During the year and three months ended December
31, 2017, total contributions included available-for-sale debt securities,
having a fair value at the contribution date of $31 million, contributed
to certain of the Company’s pension plans in Germany and the United Kingdom.
─
Note 11
Stockholders’ equity
In 2018 the Company purchased on the open market an
aggregate of 10 million of its own shares resulting in an increase in
Treasury stock of $249 million. Also in 2018 the Company delivered, out of
treasury stock, 2.4 million shares for options exercised in connection
with its Management Incentive Plan.
At the Annual
General Meeting of Shareholders on March 29, 2018, shareholders approved the
proposal of the Board of Directors to distribute 0.78 Swiss francs per
share to shareholders. The declared dividend amounted to $1,736 million
and was paid in April 2018.
31
Q4
2018 Financial Information
─
Note 12
Earnings per share
Basic earnings per share is calculated by
dividing income by the weighted-average number of shares outstanding during the
period. Diluted earnings per share is calculated by dividing income by the
weighted-average number of shares outstanding during the period, assuming that
all potentially dilutive securities were exercised, if dilutive. Potentially
dilutive securities comprise outstanding written call options, and outstanding
options and shares granted subject to certain conditions under the Company’s
share-based payment arrangements.
|
Basic
earnings per share
|
|
|
|
|
Year ended December 31,
|
Three months ended December 31,
|
|
($ in
millions, except per share data in $)
|
2018
|
2017
|
2018
|
2017
|
|
Amounts
attributable to ABB shareholders:
|
|
|
|
|
|
Income
from continuing operations, net of tax
|
1,514
|
1,441
|
204
|
204
|
|
Income
from discontinued operations, net of tax
|
659
|
772
|
113
|
189
|
|
Net
income
|
2,173
|
2,213
|
317
|
393
|
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding (in millions)
|
2,132
|
2,138
|
2,132
|
2,136
|
|
|
|
|
|
|
|
Basic
earnings per share attributable to ABB shareholders:
|
|
|
|
|
|
Income
from continuing operations, net of tax
|
0.71
|
0.67
|
0.10
|
0.10
|
|
Income
from discontinued operations, net of tax
|
0.31
|
0.36
|
0.05
|
0.09
|
|
Net
income
|
1.02
|
1.04
|
0.15
|
0.18
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
Year ended December 31,
|
Three months ended December 31,
|
|
($ in
millions, except per share data in $)
|
2018
|
2017
|
2018
|
2017
|
|
Amounts
attributable to ABB shareholders:
|
|
|
|
|
|
Income
from continuing operations, net of tax
|
1,514
|
1,441
|
204
|
204
|
|
Income
from discontinued operations, net of tax
|
659
|
772
|
113
|
189
|
|
Net
income
|
2,173
|
2,213
|
317
|
393
|
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding (in millions)
|
2,132
|
2,138
|
2,132
|
2,136
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
Call
options and shares
|
7
|
10
|
2
|
14
|
|
Adjusted
weighted-average number of shares outstanding (in millions)
|
2,139
|
2,148
|
2,134
|
2,150
|
|
|
|
|
|
|
|
Diluted
earnings per share attributable to ABB shareholders:
|
|
|
|
|
|
Income
from continuing operations, net of tax
|
0.71
|
0.67
|
0.10
|
0.09
|
|
Income
from discontinued operations, net of tax
|
0.31
|
0.36
|
0.05
|
0.09
|
|
Net
income
|
1.02
|
1.03
|
0.15
|
0.18
|
32
Q4
2018 Financial Information
─
Note 13
Reclassifications out of accumulated other
comprehensive loss
The following table shows changes in “Accumulated
other comprehensive loss” (OCI) attributable to ABB, by component, net of tax:
|
|
|
Unrealized gains
|
Pension and
|
Unrealized gains
|
|
|
|
Foreign currency
|
(losses) on
|
other
|
(losses) of cash
|
|
|
|
translation
|
available-for-sale
|
postretirement
|
flow hedge
|
|
|
($ in
millions)
|
adjustments
|
securities
|
plan adjustments
|
derivatives
|
Total OCI
|
|
Balance
at January 1, 2017
|
(3,592)
|
7
|
(1,601)
|
(1)
|
(5,187)
|
|
Other
comprehensive (loss) income:
|
|
|
|
|
|
|
Other
comprehensive (loss) income
|
|
|
|
|
|
|
before
reclassifications
|
912
|
1
|
(155)
|
38
|
796
|
|
Amounts
reclassified from OCI
|
–
|
–
|
78
|
(22)
|
56
|
|
Changes
attributable to divestments
(1)
|
12
|
–
|
6
|
(3)
|
15
|
|
Total
other comprehensive (loss) income
|
924
|
1
|
(71)
|
13
|
867
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
Amounts
attributable to
|
|
|
|
|
|
|
noncontrolling
interests
|
25
|
–
|
–
|
–
|
25
|
|
Balance
at December 31, 2017
|
(2,693)
|
8
|
(1,672)
|
12
|
(4,345)
|
|
Cumulative
effect of changes in
|
|
|
|
|
|
|
accounting
principles
(2)
|
–
|
(9)
|
–
|
–
|
(9)
|
|
Other
comprehensive (loss) income:
|
|
|
|
|
|
|
Other
comprehensive (loss) income
|
|
|
|
|
|
|
before
reclassifications
|
(627)
|
(4)
|
(359)
|
(49)
|
(1,039)
|
|
Amounts
reclassified from OCI
|
(31)
|
1
|
64
|
21
|
55
|
|
Changes
attributable to divestments
|
12
|
–
|
–
|
–
|
12
|
|
Total
other comprehensive (loss) income
|
(646)
|
(3)
|
(295)
|
(28)
|
(972)
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
Amounts
attributable to
|
|
|
|
|
|
|
noncontrolling
interests
|
(15)
|
–
|
–
|
–
|
(15)
|
|
Balance
at December 31, 2018
|
(3,324)
|
(4)
|
(1,967)
|
(16)
|
(5,311)
|
(1) Changes
attributable to divestments are included in the computation of the net gain or
loss on sale of businesses (see Note 3)
.
(2)
See “Applicable for current periods” section of Note 2 for more details.
The following table reflects
amounts reclassified out of OCI in respect of Foreign currency translation
adjustments and Pension and other postretirement plan adjustments:
|
|
|
Year ended
|
Three months ended
|
|
($ in
millions)
|
Location
of (gains) losses
|
December 31,
|
December 31,
|
|
Details
about OCI components
|
reclassified
from OCI
|
2018
|
2017
|
2018
|
2017
|
|
Foreign
currency translation adjustments:
|
|
|
|
|
|
|
Gain on
liquidation of foreign subsidiary
|
Other
income (expense), net
|
(31)
|
–
|
–
|
–
|
|
|
|
|
|
|
|
|
Pension
and other postretirement plan adjustments:
|
|
|
|
|
|
|
Amortization
of prior service cost (credit)
|
Non-operational
pension (cost) credit
(1)
|
(19)
|
6
|
(5)
|
(5)
|
|
Amortization
of net actuarial loss
|
Non-operational
pension (cost) credit
(1)
|
91
|
90
|
20
|
22
|
|
Net
losses from pension settlements
|
Non-operational
pension (cost) credit
(1)
|
23
|
13
|
23
|
13
|
|
Total
before tax
|
|
95
|
109
|
38
|
30
|
|
Tax
|
Provision
for taxes
|
(31)
|
(31)
|
(15)
|
(12)
|
|
Amounts
reclassified from OCI
|
|
64
|
78
|
23
|
18
|
(1) Amounts
include a total
of $12 million and $9 million, for the year end December 31, 2018 and
2017, respectively, and $2 million and $4 million, for the three months end
December 31, 2018 and 2017, respectively, reclassified from OCI to Income from
discontinued operations (see Note 3).
The
amounts in respect of Unrealized gains (losses) on available-for-sale
securities and Unrealized gains (losses) of cash flow hedge derivatives were
not significant for the year and three months ended December 31, 2018 and
2017.
33
Q4
2018 Financial Information
─
Note 14
Restructuring and related expenses
White Collar Productivity program
From September 2015 to December 2017, the Company
executed a restructuring program to make the Company leaner, faster and more
customer-focused. The program involved the rapid expansion and use of regional
shared service centers as well as a streamlining of global operations and head
office functions, with business units moving closer to their respective key
markets. The program involved various restructuring initiatives across all
operating segments and regions.
As of December 31, 2017, the Company had incurred
substantially all costs related to the White Collar Productivity program.
Liabilities associated with the White Collar
Productivity program are primarily included in “Other provisions”. The
following table shows the activity from the beginning of the program to
December 31, 2018, by expense type.
|
|
Employee
|
Contract settlement,
|
|
|
($ in
millions)
|
severance costs
|
loss order and other costs
|
Total
|
|
Liability
at January 1, 2015
|
–
|
–
|
–
|
|
Expenses
|
300
|
3
|
303
|
|
Cash
payments
|
(27)
|
–
|
(27)
|
|
Liability
at December 31, 2015
|
273
|
3
|
276
|
|
Expenses
|
182
|
3
|
185
|
|
Cash
payments
|
(91)
|
(2)
|
(93)
|
|
Change
in estimates
|
(85)
|
(1)
|
(86)
|
|
Exchange
rate differences
|
(17)
|
(1)
|
(18)
|
|
Liability
at December 31, 2016
|
262
|
2
|
264
|
|
Expenses
|
28
|
3
|
31
|
|
Cash
payments
|
(92)
|
(4)
|
(96)
|
|
Change
in estimates
|
(118)
|
–
|
(118)
|
|
Exchange
rate differences
|
21
|
–
|
21
|
|
Liability
at December 31, 2017
|
101
|
1
|
102
|
|
Cash
payments
|
(55)
|
–
|
(55)
|
|
Change
in estimates and exchange rate differences
|
(13)
|
–
|
(13)
|
|
Liability
at December 31, 2018
|
33
|
1
|
34
|
The change in estimates during 2017 of $118
million, is mainly due to higher than expected rates of attrition and internal
re-deployment. The decrease in the liability was recorded in Income from
operations, primarily as reductions in Cost of sales of $53 million and in
Selling, general and administrative expenses of $55 million. During the three
months ended December 31, 2017, the change in estimates of $29 million, related
to restructuring activities initiated in both 2015 and 2016, was recorded
primarily as reductions in Cost of sales of $11
million and in Selling,
general and administrative expenses of
$17
million.
The change in estimates during 2016 of $86 million
is due to significantly higher than expected rates of attrition and internal
re-deployment and a lower than expected severance cost per employee for the
employee groups affected by the first phase of restructuring initiated in 2015.
The following table outlines the net costs
incurred in the year and three months ended December 31, 2017, and the
cumulative net costs incurred to December 31, 2017:
|
|
Net cost incurred
|
Net cost incurred
|
Cumulative net
|
|
|
Year ended
|
Three months ended
|
cost incurred up to
|
|
($ in
millions)
|
December 31, 2017
(1)
|
December 31, 2017
(1)
|
December 31, 2017
(1)
|
|
Electrification
Products
|
(17)
|
(6)
|
72
|
|
Industrial
Automation
|
(23)
|
(4)
|
106
|
|
Robotics
and Motion
|
(14)
|
(4)
|
56
|
|
Corporate
and Other
|
(32)
|
(5)
|
91
|
|
Total
|
(86)
|
(19)
|
325
|
(1) Net costs incurred in 2017 and Cumulative
net costs incurred up to December 31, 2017, have been recast to reflect the
reorganization of the Company’s operating segments as outlined in Note 15.
34
Q4
2018 Financial Information
The Company recorded the following expenses, net
of changes in estimates, under this program:
|
|
|
|
Cumulative costs
|
|
|
Year ended
|
Three months ended
|
incurred up to
|
|
($ in
millions)
|
December 31, 2017
(1)
|
December 31, 2017
(2)
|
December 31, 2017
|
|
Employee
severance costs
|
(90)
|
(21)
|
307
|
|
Estimated
contract settlement, loss order and other costs
|
3
|
2
|
8
|
|
Inventory
and long-lived asset impairments
|
1
|
–
|
10
|
|
Total
|
(86)
|
(19)
|
325
|
(1) Of which $47 million was recorded
in Total cost of sales and $35 million in Selling, general and
administrative expenses.
(2) Of which $11 million was recorded
in Total cost of sales and $7 million in Selling, general and
administrative expenses.
OS program
In
December 2018, the Company announced a two-year restructuring program with the
objective of simplifying its business model and structure through the
implementation of a new organizational structure driven by its businesses.
The program includes the elimination of the country and
regional structures within the current matrix organization, including the
elimination of the three regional Executive Committee roles.
The operating businesses will each be responsible for both
their customer-facing activities and business support functions, while the
remaining Group-level corporate activities will primarily focus on Group
strategy, portfolio and performance management, capital allocation, core
technologies and the ABB Ability
™
platform. The program is
expected to be performed over two years and incur restructuring expenses of
$350 million.
The following table outlines the costs incurred
in the year and three months ended December 31, 2018, the cumulative costs
incurred up to December 31, 2018, and the total amount of costs expected
to be incurred under the program per operating segment:
|
|
Cost incurred
|
Cost incurred
|
Cumulative net
|
|
|
|
Year ended
|
Three months ended
|
cost incurred up to
|
Total
|
|
($ in
millions)
|
December 31, 2018
|
December 31, 2018
|
December 31, 2018
|
Expected Costs
|
|
Electrification
Products
|
32
|
32
|
32
|
40
|
|
Industrial
Automation
|
21
|
21
|
21
|
60
|
|
Robotics
and Motion
|
1
|
1
|
1
|
50
|
|
Corporate
and Other
|
11
|
11
|
11
|
200
|
|
Total
|
65
|
65
|
65
|
350
|
In the year and three months ended December 31, 2018,
restructuring expenses recorded for this program relate to employee severance
costs and are included in the following line items in the Consolidated Income
Statements:
|
|
|
Year ended
|
Three months ended
|
|
($ in
millions)
|
|
December 31, 2018
|
December 31, 2018
|
|
Total
cost of sales
|
|
35
|
35
|
|
Selling,
general and administrative expenses
|
|
23
|
23
|
|
Non-order
related research and development expenses
|
|
3
|
3
|
|
Other
income (expense), net
|
|
4
|
4
|
|
Total
|
|
65
|
65
|
At December 31, 2018, liabilities associated with
the program amount to $65 million and are primarily included in “Other
provisions”.
Other
restructuring-related activities
In the year ended
December 31, 2018 and 2017, the Company executed various other restructuring‑related
activities and incurred expenses of $116 million and $181 million,
respectively. In the three months ended December 31, 2018 and 2017,
expenses relating to these various other restructuring‑related activities
amounted to $65 million and $74 million, respectively. These expenses
mainly relate to employee severance costs and are primarily recorded in:
|
|
Year ended December 31,
|
Three months ended December 31,
|
|
($ in
millions)
|
2018
|
2017
|
2018
|
2017
|
|
Total
cost of sales
|
24
|
119
|
14
|
51
|
|
Selling,
general and administrative expenses
|
52
|
10
|
34
|
5
|
|
Non-order
related research and development expenses
|
2
|
–
|
2
|
–
|
|
Other
income (expenses), net
|
38
|
52
|
15
|
18
|
|
Total
|
116
|
181
|
65
|
74
|
35
Q4
2018 Financial Information
─
Note 15
Operating segment data
The Chief Operating Decision Maker (CODM) is the
Chief Executive Officer. The CODM allocates resources to and assesses the
performance of each operating segment using the information outlined below.
The Company is organized into operating segments based on
products and services and the operating segments consist of Electrification
Products, Industrial Automation, and Robotics and Motion. The remaining
operations of the Company are included in Corporate and Other. Following the
announcement in December 2018, to sell its Powers Grids business, the Company
reclassified the results of operations for this business and certain related
amounts previously included in Corporate and Other to discontinued operations
(See Note 3).
Effective January 1, 2018, management
responsibility and oversight of certain remaining engineering, procurement and
construction (EPC) businesses, previously included in the Industrial Automation
and Robotics and Motion operating segments and the former Power Grids business,
were transferred to a new non-core operating business within Corporate and
Other. In addition, the results of certain divested businesses, which prior to
their divestment in March 2018, were included within the Industrial Automation
segment have been reclassified to Corporate and Other for all periods
presented. In addition, during 2018, the Company changed the presentation of
Cash and cash equivalents within the reported total segment assets such that
all amounts are now considered as part of Corporate and other.
The segment information for the year and three
months ended December 31, 2017 and at December 31, 2017, has been recast
to reflect these changes.
A description of the types of products and
services provided by each reportable segment is as follows:
·
Electrification Products:
manufactures
and sells products and solutions which are designed to provide smarter and
safer electrical flow from the substation to the socket. The portfolio of increasingly
digital and connected solutions includes electric vehicle charging
infrastructure, solar power solutions, modular substation packages,
distribution automation products, switchboard and panelboards, switchgear, UPS
solutions, circuit breakers, measuring and sensing devices, control products,
wiring accessories, enclosures and cabling systems and intelligent home and
building solutions, designed to integrate and automate lighting, heating,
ventilation, security and data communication networks.
·
Industrial Automation:
develops
and sells integrated automation and electrification systems and solutions, such
as process and discrete control solutions, advanced process control software
and manufacturing execution systems, sensing, measurement and analytical
instrumentation and solutions, electric ship propulsion systems, as well as
solutions for modern machine and factory automation and large turbochargers. In
addition, the division offers a comprehensive range of services ranging from
repair to advanced services such as remote monitoring, preventive maintenance
and cybersecurity services.
·
Robotics and Motion:
manufactures and sells robotics, motors, generators, drives, wind converters,
components and systems for railways and related services and digital solutions
for a wide range of applications in industry, transportation and
infrastructure, and utilities.
·
Corporate and Other:
includes headquarters, central research and development, the Company’s real
estate activities, Group Treasury Operations, non-core operating activities, historical
operating activities of certain divested businesses and other minor business
activities.
The Company evaluates the profitability of its
segments based on Operational EBITA, which represents income from operations
excluding:
·
amortization expense on intangibles arising upon
acquisitions (acquisition-related amortization),
·
restructuring and restructuring-related expenses,
·
changes in the amount recorded for obligations
related to divested businesses occurring after the divestment date (changes in
obligations related to divested businesses),
·
changes in estimates relating to opening balance
sheets of acquired businesses (changes in pre-acquisition estimates),
·
gains and losses from sale of businesses,
·
acquisition- and divestment-related expenses and
integration costs,
·
certain other non-operational items, as well as
·
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).
Certain
other non-operational items generally includes: certain regulatory, compliance
and legal costs, certain asset write downs/impairments as well as other items
which are determined by management on a case-by-case basis.
The CODM
primarily reviews the results of each segment on a basis that is before the
elimination of profits made on inventory sales between segments. Segment
results below are presented before these eliminations, with a total deduction
for intersegment profits to arrive at the Company’s consolidated Operational
EBITA. Intersegment sales and transfers are accounted for as if the sales and
transfers were to third parties, at current market prices.
The following tables present disaggregated segment revenues from contracts
with customers, Operational EBITA, and the reconciliations of consolidated
Operational EBITA to Income from continuing operations before taxes for the
year and three months ended December 31, 2018 and 2017, as well as total
assets at December 31, 2018 and 2017.
36
Q4
2018 Financial Information
|
|
|
Year ended December 31, 2018
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Corporate
|
|
|
($ in
millions)
|
|
Products
|
Automation
|
and Motion
|
and Other
|
Total
|
|
Geographical
markets
|
|
|
|
|
|
|
|
Europe
|
|
3,881
|
3,145
|
2,929
|
58
|
10,013
|
|
The
Americas
|
|
3,650
|
1,544
|
2,788
|
21
|
8,003
|
|
Asia,
Middle East and Africa
|
|
3,680
|
2,565
|
2,922
|
236
|
9,403
|
|
|
|
11,211
|
7,254
|
8,639
|
315
|
27,419
|
|
End
Customer Markets
|
|
|
|
|
|
|
|
Utilities
|
|
2,452
|
1,168
|
749
|
176
|
4,545
|
|
Industry
|
|
4,395
|
4,447
|
6,529
|
98
|
15,469
|
|
Transport
& infrastructure
|
|
4,364
|
1,639
|
1,361
|
41
|
7,405
|
|
|
|
11,211
|
7,254
|
8,639
|
315
|
27,419
|
|
Product
type
|
|
|
|
|
|
|
|
Products
|
|
9,679
|
2,391
|
6,206
|
118
|
18,394
|
|
Systems
|
|
617
|
1,853
|
1,062
|
197
|
3,729
|
|
Services
and other
|
|
915
|
3,010
|
1,371
|
–
|
5,296
|
|
|
|
11,211
|
7,254
|
8,639
|
315
|
27,419
|
|
|
|
|
|
|
|
|
|
Third-party
revenues
|
|
11,211
|
7,254
|
8,639
|
315
|
27,419
|
|
Intersegment
revenues
(1)
|
|
475
|
140
|
508
|
(880)
|
243
|
|
Total
Revenues
|
|
11,686
|
7,394
|
9,147
|
(565)
|
27,662
|
|
|
|
Year ended December 31, 2017
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Corporate
|
|
|
($ in
millions)
|
|
Products
|
Automation
|
and Motion
|
and Other
|
Total
|
|
Geographical
markets
|
|
|
|
|
|
|
|
Europe
|
|
3,514
|
2,773
|
2,613
|
132
|
9,032
|
|
The
Americas
|
|
2,613
|
1,381
|
2,721
|
116
|
6,831
|
|
Asia,
Middle East and Africa
|
|
3,464
|
2,570
|
2,543
|
493
|
9,070
|
|
|
|
9,591
|
6,724
|
7,877
|
741
|
24,933
|
|
End
Customer Markets
|
|
|
|
|
|
|
|
Utilities
|
|
2,597
|
1,270
|
633
|
575
|
5,075
|
|
Industry
|
|
4,022
|
3,796
|
5,991
|
155
|
13,964
|
|
Transport
& infrastructure
|
|
2,972
|
1,658
|
1,253
|
11
|
5,894
|
|
|
|
9,591
|
6,724
|
7,877
|
741
|
24,933
|
|
Product
type
|
|
|
|
|
|
|
|
Products
|
|
8,322
|
1,796
|
5,661
|
169
|
15,948
|
|
Systems
|
|
614
|
2,089
|
959
|
565
|
4,227
|
|
Services
and other
|
|
655
|
2,839
|
1,257
|
7
|
4,758
|
|
|
|
9,591
|
6,724
|
7,877
|
741
|
24,933
|
|
|
|
|
|
|
|
|
|
Third-party
revenues
|
|
9,591
|
6,724
|
7,877
|
741
|
24,933
|
|
Intersegment
revenues
(1)
|
|
503
|
155
|
519
|
(914)
|
263
|
|
Total
Revenues
|
|
10,094
|
6,879
|
8,396
|
(173)
|
25,196
|
37
Q4
2018 Financial Information
|
|
|
Three months ended December 31, 2018
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Corporate
|
|
|
($ in
millions)
|
|
Products
|
Automation
|
and Motion
|
and Other
|
Total
|
|
Geographical
markets
|
|
|
|
|
|
|
|
Europe
|
|
1,048
|
825
|
786
|
(9)
|
2,650
|
|
The
Americas
|
|
1,184
|
388
|
684
|
(12)
|
2,244
|
|
Asia,
Middle East and Africa
|
|
970
|
688
|
733
|
48
|
2,439
|
|
|
|
3,202
|
1,901
|
2,203
|
27
|
7,333
|
|
End
Customer Markets
|
|
|
|
|
|
|
|
Utilities
|
|
257
|
313
|
206
|
5
|
781
|
|
Industry
|
|
1,116
|
1,186
|
1,659
|
28
|
3,989
|
|
Transport
& infrastructure
|
|
1,829
|
402
|
338
|
(6)
|
2,563
|
|
|
|
3,202
|
1,901
|
2,203
|
27
|
7,333
|
|
Product
type
|
|
|
|
|
|
|
|
Products
|
|
2,714
|
616
|
1,567
|
55
|
4,952
|
|
Systems
|
|
180
|
446
|
276
|
(28)
|
874
|
|
Services
and other
|
|
308
|
839
|
360
|
-
|
1,507
|
|
|
|
3,202
|
1,901
|
2,203
|
27
|
7,333
|
|
|
|
|
|
|
|
|
|
Third-party
revenues
|
|
3,202
|
1,901
|
2,203
|
27
|
7,333
|
|
Intersegment
revenues
(1)
|
|
118
|
37
|
138
|
(231)
|
62
|
|
Total Revenues
|
|
3,320
|
1,938
|
2,341
|
(204)
|
7,395
|
|
|
|
Three months ended December 31, 2017
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Corporate
|
|
|
($ in
millions)
|
|
Products
|
Automation
|
and Motion
|
and Other
|
Total
|
|
Geographical
markets
|
|
|
|
|
|
|
|
Europe
|
|
949
|
837
|
718
|
8
|
2,512
|
|
The
Americas
|
|
650
|
416
|
670
|
22
|
1,758
|
|
Asia,
Middle East and Africa
|
|
947
|
714
|
679
|
113
|
2,453
|
|
|
|
2,546
|
1,967
|
2,067
|
143
|
6,723
|
|
End
Customer Markets
|
|
|
|
|
|
|
|
Utilities
|
|
634
|
339
|
168
|
123
|
1,264
|
|
Industry
|
|
1,068
|
1,166
|
1,650
|
31
|
3,915
|
|
Transport
& infrastructure
|
|
844
|
462
|
249
|
(11)
|
1,544
|
|
|
|
2,546
|
1,967
|
2,067
|
143
|
6,723
|
|
Product
type
|
|
|
|
|
|
|
|
Products
|
|
2,182
|
599
|
1,471
|
97
|
4,349
|
|
Systems
|
|
174
|
520
|
241
|
46
|
981
|
|
Services
and other
|
|
190
|
848
|
355
|
-
|
1,393
|
|
|
|
2,546
|
1,967
|
2,067
|
143
|
6,723
|
|
|
|
|
|
|
|
|
|
Third-party
revenues
|
|
2,546
|
1,967
|
2,067
|
143
|
6,723
|
|
Intersegment
revenues
(1)
|
|
150
|
44
|
130
|
(243)
|
81
|
|
Total
Revenues
|
|
2,696
|
2,011
|
2,197
|
(100)
|
6,804
|
(1) Intersegment revenues include sales to
the Power Grids business which is presented as discontinued operations and are
not eliminated from Total revenues.
38
Q4
2018 Financial Information
|
|
Year ended
|
Three months ended
|
|
|
December 31,
|
December 31,
|
|
($ in
millions)
|
2018
|
2017
|
2018
|
2017
|
|
Operational
EBITA:
|
|
|
|
|
|
Electrification
Products
|
1,626
|
1,510
|
388
|
398
|
|
Industrial
Automation
|
1,019
|
953
|
251
|
299
|
|
Robotics
and Motion
|
1,447
|
1,260
|
349
|
303
|
|
Corporate
and Other:
|
|
|
|
|
|
‒
Non-core and divested businesses
|
(291)
|
(163)
|
(194)
|
(138)
|
|
‒
Stranded corporate costs
|
(297)
|
(286)
|
(72)
|
(73)
|
|
‒
Corporate costs and Other Intersegment elimination
|
(499)
|
(457)
|
(138)
|
(125)
|
|
Consolidated
Operational EBITA
|
3,005
|
2,817
|
584
|
664
|
|
Acquisition-related
amortization
|
(273)
|
(229)
|
(75)
|
(65)
|
|
Restructuring
and restructuring-related expenses
(1)
|
(172)
|
(300)
|
(129)
|
(108)
|
|
Changes
in obligations related to divested businesses
|
(106)
|
(94)
|
(14)
|
–
|
|
Changes
in pre-acquisition estimates
|
(8)
|
(8)
|
(6)
|
(8)
|
|
Gains
and losses from sale of businesses
|
57
|
252
|
(4)
|
(78)
|
|
Acquisition-
and divestment-related expenses and integration costs
|
(204)
|
(81)
|
(56)
|
(41)
|
|
Foreign
exchange/commodity timing differences in income from operations:
|
|
|
|
|
|
Unrealized
gains and losses on derivatives (foreign exchange,
|
|
|
|
|
|
commodities,
embedded derivatives)
|
(1)
|
56
|
(2)
|
(3)
|
|
Realized
gains and losses on derivatives where the underlying hedged
|
|
|
|
|
|
transaction
has not yet been realized
|
(23)
|
8
|
(12)
|
–
|
|
Unrealized
foreign exchange movements on receivables/payables (and
|
|
|
|
|
|
related
assets/liabilities)
|
(9)
|
(30)
|
14
|
(9)
|
|
Certain
other non-operational items:
|
|
|
|
|
|
Regulatory,
compliance and legal costs
|
(34)
|
(102)
|
(5)
|
(11)
|
|
Asset
write downs/ impairments
|
(25)
|
–
|
(13)
|
–
|
|
Losses
and other (costs) recoveries on Korea fraud
|
–
|
(40)
|
8
|
(7)
|
|
Other
non-operational items
|
19
|
(19)
|
(15)
|
(10)
|
|
Income
from operations
|
2,226
|
2,230
|
275
|
324
|
|
Interest
and dividend income
|
72
|
73
|
11
|
20
|
|
Interest
and other finance expense
|
(262)
|
(234)
|
(66)
|
(45)
|
|
Non-operational
pension (cost) credit
|
83
|
33
|
6
|
4
|
|
Income
from continuing operations before taxes
|
2,119
|
2,102
|
226
|
303
|
(1) Amounts in 2017 also include the
incremental implementation costs in relation to the White Collar Productivity
program.
|
|
Total assets
(1), (2)
|
|
($ in millions)
|
December 31, 2018
|
December 31, 2017
|
|
Electrification
Products
|
12,049
|
8,881
|
|
Industrial
Automation
|
6,669
|
6,961
|
|
Robotics
and Motion
|
8,397
|
8,416
|
|
Corporate
and Other
|
17,326
|
19,200
|
|
Consolidated
|
44,441
|
43,458
|
(1) Total assets are after intersegment
eliminations and therefore reflect third-party assets only.
(2) Assets held for sale of $8,591 million
and $8,603 million are included in Corporate and Other at December 31, 2018 and
2017, respectively (see Note 3).
2019 Realignment of segments
On December 17, 2018, the Company announced a reorganization of
its operating segments into four customer-focused, entrepreneurial businesses.
With effect from April 1, 2019:
·
the Electrification Products segment will be
renamed the Electrification segment,
·
the Industrial Automation segment will remain
unchanged except that it will now exclude the Machine and Factory Automation
business, which will be transferred to the new Robotics and Discrete Automation
segment,
·
the new Robotics and Discrete Automation segment
will include the combined businesses of the Machine and Factory Automation
business, previously included in the Industrial Automation segment, and the
Robotics business from the former Robotics and Motion segment, and
·
the new Motion segment will contain the remaining
businesses of the former Robotics and Motion segment.
39
Q4
2018 Financial Information
40
Q4
2018 Financial Information
—
Supplemental
Reconciliations and Definitions
The following reconciliations and definitions
include measures which ABB uses to supplement its 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 Consolidated Financial Information (unaudited)
prepared in accordance with U.S. GAAP as of and for the year and three months
ended December 31, 2018.
On January 1, 2018, the Company adopted a new
accounting standard, Revenue from contracts with customers, and consistent with
the method of adoption elected, comparative information has not been restated
and continues to be reported under the accounting standards previously in
effect for those periods (see Note 2 to the Consolidated Financial Information).
Comparable growth rates
Growth rates for certain key figures may be
presented and discussed on a “comparable” basis. The comparable growth rate
measures growth on a constant currency basis. Since we are a global company,
the comparability of our operating results reported in U.S. dollars is affected
by foreign currency exchange rate fluctuations. We calculate the impacts from
foreign currency fluctuations by translating the current-year periods’ reported
key figures into U.S. dollar amounts using the exchange rates in effect for the
comparable periods in the previous year.
Comparable growth rates are also adjusted for
changes in our business portfolio. Adjustments to our business portfolio occur
due to acquisitions, divestments, or by exiting specific business activities or
customer markets. The adjustment for portfolio changes is calculated as
follows: where the results of any business acquired or divested have not been
consolidated and reported for the entire duration of both the current and
comparable periods, the reported key figures of such business are adjusted to
exclude the relevant key figures of any corresponding quarters which are not
comparable when computing the comparable growth rate. Certain portfolio changes
which do not qualify as divestments under U.S. GAAP have been treated in a
similar manner to divestments. Changes in our portfolio where we have exited
certain business activities or customer markets are adjusted as if the relevant
business was divested in the period when the decision to cease business
activities was taken. We do not adjust for portfolio changes where the relevant
business has annualized revenues of less than $50 million.
The following tables provide reconciliations of
reported growth rates of certain key figures to their respective comparable
growth rate.
Divisional comparable growth rate reconciliation
|
|
Q4 2018 compared to Q4 2017
|
|
|
Order growth rate
|
|
Revenue growth rate
|
|
|
US$
|
Foreign
|
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
Division
|
reported)
|
impact
|
changes
|
Comparable
|
|
reported)
|
impact
|
changes
|
Comparable
|
|
Electrification
Products
|
23%
|
4%
|
-25%
|
2%
|
|
23%
|
5%
|
-25%
|
3%
|
|
Industrial
Automation
|
4%
|
4%
|
0%
|
8%
|
|
-4%
|
4%
|
0%
|
0%
|
|
Robotics
and Motion
|
7%
|
4%
|
0%
|
11%
|
|
7%
|
4%
|
0%
|
11%
|
|
ABB
Group
|
10%
|
5%
|
-8%
|
7%
|
|
9%
|
4%
|
-8%
|
5%
|
|
|
FY 2018 compared to FY 2017
|
|
|
Order growth rate
|
|
Revenue growth rate
|
|
|
US$
|
Foreign
|
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
Division
|
reported)
|
impact
|
changes
|
Comparable
|
|
reported)
|
impact
|
changes
|
Comparable
|
|
Electrification
Products
|
17%
|
-1%
|
-12%
|
4%
|
|
16%
|
0%
|
-13%
|
3%
|
|
Industrial
Automation
|
16%
|
-1%
|
-7%
|
8%
|
|
7%
|
0%
|
-6%
|
1%
|
|
Robotics
and Motion
|
13%
|
-1%
|
0%
|
12%
|
|
9%
|
-1%
|
0%
|
8%
|
|
ABB Group
|
14%
|
0%
|
-6%
|
8%
|
|
10%
|
-1%
|
-5%
|
4%
|
41
Q4
2018 Financial Information
Regional comparable growth rate reconciliation
|
|
Q4 2018 compared to Q4 2017
|
|
|
Order growth rate
|
|
Revenue growth rate
|
|
|
US$
|
Foreign
|
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
Region
|
reported)
|
impact
|
changes
|
Comparable
|
|
reported)
|
impact
|
changes
|
Comparable
|
|
Europe
|
5%
|
4%
|
-5%
|
4%
|
|
5%
|
5%
|
-3%
|
7%
|
|
The Americas
|
32%
|
3%
|
-23%
|
12%
|
|
28%
|
3%
|
-25%
|
6%
|
|
Asia,
Middle East and Africa
|
0%
|
5%
|
2%
|
7%
|
|
-1%
|
4%
|
0%
|
3%
|
|
ABB Group
|
10%
|
5%
|
-8%
|
7%
|
|
9%
|
4%
|
-8%
|
5%
|
|
|
FY 2018 compared to FY 2017
|
|
|
Order growth rate
|
|
Revenue growth rate
|
|
|
US$
|
Foreign
|
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
Region
|
reported)
|
impact
|
changes
|
Comparable
|
|
reported)
|
impact
|
changes
|
Comparable
|
|
Europe
|
17%
|
-3%
|
-4%
|
10%
|
|
11%
|
-2%
|
-5%
|
4%
|
|
The Americas
|
18%
|
1%
|
-12%
|
7%
|
|
17%
|
2%
|
-12%
|
7%
|
|
Asia,
Middle East and Africa
|
9%
|
-1%
|
-2%
|
6%
|
|
4%
|
0%
|
0%
|
4%
|
|
ABB Group
|
14%
|
0%
|
-6%
|
8%
|
|
10%
|
0%
|
-5%
|
5%
|
Order backlog growth rate reconciliation
|
|
December 31, 2018 compared to December 31, 2017
|
|
|
|
US$
|
Foreign
|
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
|
Division
|
reported)
|
impact
|
changes
|
Comparable
|
|
|
Electrification
Products
|
33%
|
6%
|
-32%
|
7%
|
|
|
Industrial
Automation
|
-3%
|
5%
|
0%
|
2%
|
|
|
Robotics
and Motion
|
5%
|
5%
|
0%
|
10%
|
|
|
ABB
Group
|
5%
|
5%
|
-4%
|
6%
|
|
Other growth rate reconciliations
|
|
Q4 2018 compared to Q4 2017
|
|
FY 2018 compared to FY 2017
|
|
|
US$
|
Foreign
|
|
|
|
US$
|
Foreign
|
|
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
(as
|
exchange
|
Portfolio
|
|
|
|
reported)
|
impact
|
changes
|
Comparable
|
|
reported)
|
impact
|
changes
|
Comparable
|
|
Large
orders
|
8%
|
3%
|
68%
|
79%
|
|
20%
|
-2%
|
27%
|
45%
|
|
Base orders
|
10%
|
6%
|
-11%
|
5%
|
|
14%
|
-1%
|
-7%
|
6%
|
|
Service
orders
|
7%
|
4%
|
-6%
|
5%
|
|
12%
|
-1%
|
-4%
|
7%
|
|
Service
revenues
|
8%
|
4%
|
-8%
|
4%
|
|
11%
|
0%
|
-4%
|
7%
|
Comparable revenue growth rate reconciliation (rolling twelve
months)
|
|
|
Foreign
|
|
|
|
|
|
|
exchange
|
Portfolio
|
|
|
|
12
months ended:
|
US$
|
impact
|
changes
|
Comparable
|
|
|
December
31, 2017
|
1.1%
|
-0.2%
|
-0.5%
|
0.4%
|
|
|
March
31, 2018
|
4.6%
|
-0.5%
|
-2.6%
|
1.5%
|
|
|
June
30, 2018
|
7.8%
|
1.8%
|
-7.2%
|
2.4%
|
|
|
September
30, 2018
|
8.7%
|
-0.7%
|
-4.6%
|
3.4%
|
|
|
December
31, 2018
|
9.8%
|
-0.6%
|
-4.8%
|
4.4%
|
|
42
Q4
2018 Financial Information
Operational EBITA margin
Definition
Operational
EBITA margin
Operational EBITA margin is Operational EBITA as
a percentage of Operational revenues.
Operational
EBITA
Operational
earnings before interest, taxes and acquisition-related amortization
(Operational EBITA) represents Income from operations excluding:
·
acquisition-related amortization (as defined below),
·
restructuring and restructuring-related expenses,
·
changes in the amount recorded for obligations related
to divested businesses occurring after the divestment date (changes in obligations
related to divested businesses),
·
changes in estimates relating to opening balance
sheets of acquired businesses (changes in pre-acquisition estimates)
,
·
gains and losses from sale of businesses,
·
acquisition- and divestment-related expenses and
integration costs,
·
certain other non-operational items, as well as
·
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).
Certain other non-operational items generally
includes: certain regulatory, compliance and legal costs, certain asset write
downs/impairments as well as other items which are determined by management on
a case-by-case basis.
Operational EBITA is our measure of segment
profit but is also used by management to evaluate the profitability of the
Company as a whole.
Acquisition-related
amortization
Amortization expense on intangibles arising upon
acquisitions.
Operational
revenues
The Company presents Operational revenues solely
for the purpose of allowing the computation of Operational EBITA margin.
Operational revenues are total revenues adjusted for foreign exchange/commodity
timing differences in total revenues of: (i) unrealized gains and losses
on derivatives, (ii) realized gains and losses on derivatives where the
underlying hedged transaction has not yet been realized, and (iii) unrealized
foreign exchange movements on receivables (and related assets). Operational
revenues are not intended to be an alternative measure to Total Revenues, which
represent our revenues measured in accordance with U.S. GAAP.
Reconciliation
The following tables provide reconciliations of
consolidated Operational EBITA to Net Income and Operational EBITA Margin by division.
Reconciliation of consolidated Operational EBITA to Net
Income
|
|
Year ended December 31,
|
Three months ended December 31,
|
|
($ in
millions)
|
2018
|
2017
|
2018
|
2017
|
|
Operational
EBITA
|
3,005
|
2,817
|
584
|
664
|
|
Acquisition-related
amortization
|
(273)
|
(229)
|
(75)
|
(65)
|
|
Restructuring
and restructuring-related expenses
(1)
|
(172)
|
(300)
|
(129)
|
(108)
|
|
Changes
in obligations related to divested businesses
|
(106)
|
(94)
|
(14)
|
–
|
|
Changes
in pre-acquisition estimates
|
(8)
|
(8)
|
(6)
|
(8)
|
|
Gains
and losses from sale of businesses
|
57
|
252
|
(4)
|
(78)
|
|
Acquisition-
and divestment-related expenses and integration costs
|
(204)
|
(81)
|
(56)
|
(41)
|
|
Certain
other non-operational items
|
(40)
|
(161)
|
(25)
|
(28)
|
|
Foreign
exchange/commodity timing differences in income from operations:
|
|
|
|
|
|
Unrealized
gains and losses on derivatives (foreign exchange,
|
|
|
|
|
|
commodities,
embedded derivatives)
|
(1)
|
56
|
(2)
|
(3)
|
|
Realized
gains and losses on derivatives where the underlying hedged
|
|
|
|
|
|
transaction
has not yet been realized
|
(23)
|
8
|
(12)
|
–
|
|
Unrealized
foreign exchange movements on receivables/payables (and
|
|
|
|
|
|
related
assets/liabilities)
|
(9)
|
(30)
|
14
|
(9)
|
|
Income
from operations
|
2,226
|
2,230
|
275
|
324
|
|
Interest
and dividend income
|
72
|
73
|
11
|
20
|
|
Interest
and other finance expense
|
(262)
|
(234)
|
(66)
|
(45)
|
|
Non-operational
pension (cost) credit
|
83
|
33
|
6
|
4
|
|
Income
from continuing operations before taxes
|
2,119
|
2,102
|
226
|
303
|
|
Provision
for taxes
|
(544)
|
(583)
|
(16)
|
(89)
|
|
Income
from continuing operations, net of tax
|
1,575
|
1,519
|
210
|
214
|
|
Income
from discontinued operations, net of tax
|
723
|
846
|
135
|
209
|
|
Net
income
|
2,298
|
2,365
|
345
|
423
|
(1) Amounts in 2017 also include the
incremental implementation costs in relation to the White Collar Productivity
program.
43
Q4
2018 Financial Information
Reconciliation
of Operational EBITA margin by division
|
|
|
Three months ended December 31, 2018
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
|
Other and
|
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Intersegment
|
|
|
($ in
millions, unless otherwise indicated)
|
|
Products
|
Automation
|
and Motion
|
elimination
|
Consolidated
|
|
Total
revenues
|
|
3,320
|
1,938
|
2,341
|
(204)
|
7,395
|
|
Foreign
exchange/commodity timing
|
|
|
|
|
|
|
|
differences
in total revenues:
|
|
|
|
|
|
|
|
Unrealized
gains and losses
|
|
|
|
|
|
|
|
on derivatives
|
|
(4)
|
3
|
(18)
|
(4)
|
(23)
|
|
Realized
gains and losses on derivatives
|
|
|
|
|
|
|
|
where
the underlying hedged
|
|
|
|
|
|
|
|
transaction
has not yet been realized
|
|
–
|
5
|
(1)
|
5
|
9
|
|
Unrealized
foreign exchange movements
|
|
|
|
|
|
|
|
on
receivables (and related assets)
|
|
8
|
(1)
|
2
|
(2)
|
7
|
|
Operational
revenues
|
|
3,324
|
1,945
|
2,324
|
(205)
|
7,388
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
221
|
204
|
326
|
(476)
|
275
|
|
Acquisition-related
amortization
|
|
35
|
20
|
15
|
5
|
75
|
|
Restructuring
and
|
|
|
|
|
|
|
|
restructuring-related
expenses
|
|
76
|
31
|
8
|
14
|
129
|
|
Changes
in obligations related to
|
|
|
|
|
|
|
|
divested
businesses
|
|
–
|
–
|
–
|
14
|
14
|
|
Changes
in pre-acquisition estimates
|
|
17
|
(11)
|
–
|
–
|
6
|
|
Gains
and losses from sale of businesses
|
|
–
|
–
|
4
|
–
|
4
|
|
Acquisition-
and divestment-related expenses
|
|
|
|
|
|
|
|
and
integration costs
|
|
40
|
1
|
1
|
14
|
56
|
|
Certain
other non-operational items
|
|
–
|
2
|
4
|
19
|
25
|
|
Foreign
exchange/commodity timing
|
|
|
|
|
|
|
|
differences
in income from operations:
|
|
|
|
|
|
|
|
Unrealized
gains and losses on derivatives
|
|
|
|
|
|
|
|
(foreign
exchange, commodities,
|
|
|
|
|
|
|
|
embedded
derivatives)
|
|
–
|
7
|
(5)
|
–
|
2
|
|
Realized
gains and losses on derivatives
|
|
|
|
|
|
|
|
where
the underlying hedged
|
|
|
|
|
|
|
|
transaction
has not yet been realized
|
|
–
|
6
|
–
|
6
|
12
|
|
Unrealized
foreign exchange movements
|
|
|
|
|
|
|
|
on
receivables/payables
|
|
|
|
|
|
|
|
(and
related assets/liabilities)
|
|
(1)
|
(9)
|
(4)
|
–
|
(14)
|
|
Operational
EBITA
|
|
388
|
251
|
349
|
(404)
|
584
|
|
|
|
|
|
|
|
|
|
Operational
EBITA margin (%)
|
|
11.7%
|
12.9%
|
15.0%
|
n.a.
|
7.9%
|
In the three months ended December 31, 2018, Certain other
non-operational items in table above includes the following:
|
|
|
Three months ended December 31, 2018
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Corporate
|
|
|
($ in
millions, unless otherwise indicated)
|
|
Products
|
Automation
|
and Motion
|
and Other
|
Consolidated
|
|
Certain
other non-operational items:
|
|
|
|
|
|
|
|
Regulatory,
compliance and legal costs:
|
|
–
|
2
|
–
|
3
|
5
|
|
Asset
write downs/impairments
|
|
–
|
–
|
–
|
13
|
13
|
|
Division
transformation costs
|
|
–
|
–
|
3
|
7
|
10
|
|
Losses
(recovery) on Korea fraud
|
|
–
|
–
|
–
|
(8)
|
(8)
|
|
Other
non-operational items
|
|
–
|
–
|
1
|
4
|
5
|
|
Total
|
|
–
|
2
|
4
|
19
|
25
|
44
Q4
2018 Financial Information
|
|
|
Three months ended December 31, 2017
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
|
Other and
|
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Intersegment
|
|
|
($ in millions,
unless otherwise indicated)
|
|
Products
|
Automation
|
and Motion
|
elimination
|
Consolidated
|
|
Total
revenues
|
|
2,696
|
2,011
|
2,197
|
(100)
|
6,804
|
|
Foreign
exchange/commodity timing
|
|
|
|
|
|
|
|
differences
in total revenues:
|
|
|
|
|
|
|
|
Unrealized
gains and losses
|
|
|
|
|
|
|
|
on
derivatives
|
|
13
|
(7)
|
2
|
28
|
36
|
|
Realized
gains and losses on derivatives
|
|
|
|
|
|
|
|
where
the underlying hedged
|
|
|
|
|
|
|
|
transaction
has not yet been realized
|
|
–
|
4
|
2
|
–
|
6
|
|
Unrealized
foreign exchange movements
|
|
|
|
|
|
|
|
on
receivables (and related assets)
|
|
3
|
1
|
2
|
(1)
|
5
|
|
Operational
revenues
|
|
2,712
|
2,009
|
2,203
|
(73)
|
6,851
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
318
|
214
|
247
|
(455)
|
324
|
|
Acquisition-related
amortization
|
|
22
|
22
|
16
|
5
|
65
|
|
Restructuring
and
|
|
|
|
|
|
|
|
restructuring-related
expenses
(1)
|
|
17
|
36
|
35
|
20
|
108
|
|
Changes
in pre-acquisition estimates
|
|
8
|
–
|
–
|
–
|
8
|
|
Gains
and losses from sale of businesses
|
|
–
|
–
|
–
|
78
|
78
|
|
Acquisition-
and divestment-related expenses
|
|
|
|
|
|
|
|
and
integration costs
|
|
12
|
27
|
2
|
–
|
41
|
|
Certain
other non-operational items
|
|
8
|
–
|
–
|
20
|
28
|
|
Foreign
exchange/commodity timing
|
|
|
|
|
|
|
|
differences
in income from operations:
|
|
|
|
|
|
|
|
Unrealized
gains and losses on derivatives
|
|
|
|
|
|
|
|
(foreign
exchange, commodities,
|
|
|
|
|
|
|
|
embedded
derivatives)
|
|
9
|
(4)
|
(1)
|
(1)
|
3
|
|
Realized
gains and losses on derivatives
|
|
|
|
|
|
|
|
where
the underlying hedged
|
|
|
|
|
|
|
|
transaction
has not yet been realized
|
|
–
|
(2)
|
3
|
(1)
|
–
|
|
Unrealized
foreign exchange movements
|
|
|
|
|
|
|
|
on
receivables/payables
|
|
|
|
|
|
|
|
(and
related assets/liabilities)
|
|
4
|
6
|
1
|
(2)
|
9
|
|
Operational
EBITA
|
|
398
|
299
|
303
|
(336)
|
664
|
|
|
|
|
|
|
|
|
|
Operational
EBITA margin (%)
|
|
14.7%
|
14.9%
|
13.8%
|
n.a.
|
9.7%
|
(1) Amounts in 2017 also include the
incremental implementation costs in relation to the White Collar Productivity
program.
In the three months ended December 31, 2017, Certain other
non-operational items in table above includes the following:
|
|
|
Three months ended December 31, 2017
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Corporate
|
|
|
($ in
millions, unless otherwise indicated)
|
|
Products
|
Automation
|
and Motion
|
and Other
|
Consolidated
|
|
Certain
other non-operational items:
|
|
|
|
|
|
|
|
Regulatory,
compliance and legal costs
|
|
–
|
–
|
–
|
11
|
11
|
|
Losses
(recovery) on Korea fraud
|
|
–
|
–
|
–
|
7
|
7
|
|
Other
non-operational items
|
|
8
|
–
|
–
|
2
|
10
|
|
Total
|
|
8
|
–
|
–
|
20
|
28
|
45
Q4
2018 Financial Information
|
|
|
Year ended December 31, 2018
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
|
Other and
|
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Intersegment
|
|
|
($ in
millions, unless otherwise indicated)
|
|
Products
|
Automation
|
and Motion
|
elimination
|
Consolidated
|
|
Total
revenues
|
|
11,686
|
7,394
|
9,147
|
(565)
|
27,662
|
|
Foreign
exchange/commodity timing
|
|
|
|
|
|
|
|
differences
in total revenues:
|
|
|
|
|
|
|
|
Unrealized
gains and losses
|
|
|
|
|
|
|
|
on
derivatives
|
|
16
|
(12)
|
(10)
|
(6)
|
(12)
|
|
Realized
gains and losses on derivatives
|
|
|
|
|
|
|
|
where
the underlying hedged
|
|
|
|
|
|
|
|
transaction
has not yet been realized
|
|
3
|
17
|
–
|
–
|
20
|
|
Unrealized
foreign exchange movements
|
|
|
|
|
|
|
|
on
receivables (and related assets)
|
|
(1)
|
(5)
|
–
|
(4)
|
(10)
|
|
Operational
revenues
|
|
11,704
|
7,394
|
9,137
|
(575)
|
27,660
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
1,290
|
887
|
1,346
|
(1,297)
|
2,226
|
|
Acquisition-related
amortization
|
|
106
|
86
|
63
|
18
|
273
|
|
Restructuring
and
|
|
|
|
|
|
|
|
restructuring-related
expenses
|
|
98
|
35
|
21
|
18
|
172
|
|
Changes
in obligations related to
|
|
|
|
|
|
|
|
divested
businesses
|
|
–
|
–
|
–
|
106
|
106
|
|
Changes
in pre-acquisition estimates
|
|
19
|
(11)
|
–
|
–
|
8
|
|
Gains
and losses from sale of businesses
|
|
(81)
|
3
|
4
|
17
|
(57)
|
|
Acquisition-
and divestment-related expenses
|
|
|
|
|
|
|
|
and
integration costs
|
|
168
|
4
|
2
|
30
|
204
|
|
Certain
other non-operational items
|
|
(2)
|
3
|
11
|
28
|
40
|
|
Foreign
exchange/commodity timing
|
|
|
|
|
|
|
|
differences
in income from operations:
|
|
|
|
|
|
|
|
Unrealized
gains and losses on derivatives
|
|
|
|
|
|
|
|
(foreign
exchange, commodities,
|
|
|
|
|
|
|
|
embedded
derivatives)
|
|
27
|
(12)
|
(2)
|
(12)
|
1
|
|
Realized
gains and losses on derivatives
|
|
|
|
|
|
|
|
where
the underlying hedged
|
|
|
|
|
|
|
|
transaction
has not yet been realized
|
|
3
|
18
|
–
|
2
|
23
|
|
Unrealized
foreign exchange movements
|
|
|
|
|
|
|
|
on
receivables/payables
|
|
|
|
|
|
|
|
(and
related assets/liabilities)
|
|
(2)
|
6
|
2
|
3
|
9
|
|
Operational
EBITA
|
|
1,626
|
1,019
|
1,447
|
(1,087)
|
3,005
|
|
|
|
|
|
|
|
|
|
Operational
EBITA margin (%)
|
|
13.9%
|
13.8%
|
15.8%
|
n.a.
|
10.9%
|
In the year ended December 31, 2018, Certain other
non-operational items in table above includes the following:
|
|
|
Year ended December 31, 2018
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Corporate
|
|
|
($ in
millions, unless otherwise indicated)
|
|
Products
|
Automation
|
and Motion
|
and Other
|
Consolidated
|
|
Certain
other non-operational items:
|
|
|
|
|
|
|
|
Regulatory,
compliance and legal costs
|
|
–
|
3
|
–
|
31
|
34
|
|
Asset write
downs/impairments
|
|
–
|
–
|
–
|
25
|
25
|
|
Division
transformation costs
|
|
–
|
–
|
10
|
7
|
17
|
|
Gain on
liquidation of a foreign subsidiary
|
|
–
|
–
|
–
|
(31)
|
(31)
|
|
Losses
(recovery) on Korea fraud
|
|
–
|
–
|
–
|
(8)
|
(8)
|
|
Other
non-operational items
|
|
(2)
|
–
|
1
|
4
|
3
|
|
Total
|
|
(2)
|
3
|
11
|
28
|
40
|
46
Q4
2018 Financial Information
|
|
|
Year ended December 31, 2017
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
|
Other and
|
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Intersegment
|
|
|
($ in
millions, unless otherwise indicated)
|
|
Products
|
Automation
|
and Motion
|
elimination
|
Consolidated
|
|
Total revenues
|
|
10,094
|
6,879
|
8,396
|
(173)
|
25,196
|
|
Foreign
exchange/commodity timing
|
|
|
|
|
|
|
|
differences
in total revenues:
|
|
|
|
|
|
|
|
Unrealized
gains and losses
|
|
|
|
|
|
|
|
on
derivatives
|
|
(23)
|
(42)
|
(4)
|
25
|
(44)
|
|
Realized
gains and losses on derivatives
|
|
|
|
|
|
|
|
where
the underlying hedged
|
|
|
|
|
|
|
|
transaction
has not yet been realized
|
|
–
|
(7)
|
4
|
1
|
(2)
|
|
Unrealized
foreign exchange movements
|
|
|
|
|
|
|
|
on
receivables (and related assets)
|
|
12
|
17
|
3
|
(1)
|
31
|
|
Operational
revenues
|
|
10,083
|
6,847
|
8,399
|
(148)
|
25,181
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
1,352
|
798
|
1,126
|
(1,046)
|
2,230
|
|
Acquisition-related
amortization
|
|
98
|
47
|
66
|
18
|
229
|
|
Restructuring
and
|
|
|
|
|
|
|
|
restructuring-related
expenses
(1)
|
|
28
|
85
|
64
|
123
|
300
|
|
Changes
in obligations related to
|
|
|
|
|
|
|
|
divested
businesses
|
|
–
|
–
|
–
|
94
|
94
|
|
Changes
in pre-acquisition estimates
|
|
8
|
–
|
–
|
–
|
8
|
|
Gains
and losses from sale of businesses
|
|
–
|
(2)
|
–
|
(250)
|
(252)
|
|
Acquisition-
and divestment-related expenses
|
|
|
|
|
|
|
|
and
integration costs
|
|
23
|
52
|
2
|
4
|
81
|
|
Certain
other non-operational items
|
|
21
|
1
|
–
|
139
|
161
|
|
Foreign
exchange/commodity timing
|
|
|
|
|
|
|
|
differences
in income from operations:
|
|
|
|
|
|
|
|
Unrealized
gains and losses on derivatives
|
|
|
|
|
|
|
|
(foreign
exchange, commodities,
|
|
|
|
|
|
|
|
embedded
derivatives)
|
|
(27)
|
(40)
|
(10)
|
21
|
(56)
|
|
Realized
gains and losses on derivatives
|
|
|
|
|
|
|
|
where
the underlying hedged
|
|
|
|
|
|
|
|
transaction
has not yet been realized
|
|
–
|
(9)
|
5
|
(4)
|
(8)
|
|
Unrealized
foreign exchange movements
|
|
|
|
|
|
|
|
on
receivables/payables
|
|
|
|
|
|
|
|
(and
related assets/liabilities)
|
|
7
|
21
|
7
|
(5)
|
30
|
|
Operational
EBITA
|
|
1,510
|
953
|
1,260
|
-906
|
2,817
|
|
|
|
|
|
|
|
|
|
Operational
EBITA margin (%)
|
|
15.0%
|
13.9%
|
15.0%
|
n.a.
|
11.2%
|
(1) Amounts in 2017 also include the
incremental implementation costs in relation to the White Collar Productivity
program.
In the year ended December 31, 2017, Certain other non-operational
items in table above includes the following:
|
|
|
Year ended December 31, 2017
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Corporate
|
|
|
($ in
millions, unless otherwise indicated)
|
|
Products
|
Automation
|
and Motion
|
and Other
|
Consolidated
|
|
Certain
other non-operational items:
|
|
|
|
|
|
|
|
Regulatory,
compliance and legal costs
|
|
9
|
1
|
–
|
92
|
102
|
|
Losses
(recovery) on Korea fraud
|
|
–
|
–
|
–
|
40
|
40
|
|
Other
non-operational items
|
|
12
|
–
|
–
|
7
|
19
|
|
Total
|
|
21
|
1
|
–
|
139
|
161
|
47
Q4
2018 Financial Information
|
|
|
Year ended December 31, 2016
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
|
Other and
|
|
|
|
|
Electrification
|
Industrial
|
Robotics
|
Intersegment
|
|
|
($ in
millions, unless otherwise indicated)
|
|
Products
|
Automation
|
and Motion
|
elimination
|
Consolidated
|
|
Total
revenues
|
|
9,920
|
6,654
|
7,888
|
467
|
24,929
|
|
Foreign
exchange/commodity timing
|
|
|
|
|
|
|
|
differences
in total revenues:
|
|
|
|
|
|
|
|
Unrealized
gains and losses
|
|
|
|
|
|
|
|
on
derivatives
|
|
18
|
15
|
3
|
13
|
49
|
|
Realized
gains and losses on derivatives
|
|
|
|
|
|
|
|
where
the underlying hedged
|
|
|
|
|
|
|
|
transaction
has not yet been realized
|
|
(6)
|
7
|
3
|
–
|
4
|
|
Unrealized
foreign exchange movements
|
|
|
|
|
|
|
|
on
receivables (and related assets)
|
|
(10)
|
5
|
(1)
|
4
|
(2)
|
|
Operational
revenues
|
|
9,922
|
6,681
|
7,893
|
484
|
24,980
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
1,094
|
772
|
1,048
|
(985)
|
1,929
|
|
Acquisition-related
amortization
|
|
121
|
11
|
94
|
19
|
245
|
|
Restructuring
and
|
|
|
|
|
|
|
|
restructuring-related
expenses
(1)
|
|
93
|
76
|
69
|
204
|
442
|
|
Changes
in obligations related to
|
|
|
|
|
|
|
|
divested
businesses
|
|
–
|
–
|
–
|
–
|
–
|
|
Changes
in pre-acquisition estimates
|
|
131
|
–
|
–
|
–
|
131
|
|
Gains
and losses from sale of businesses
|
|
–
|
–
|
–
|
10
|
10
|
|
Acquisition-
and divestment-related expenses
|
|
|
|
|
|
|
|
and
integration costs
|
|
–
|
4
|
–
|
5
|
9
|
|
Certain
other non-operational items
|
|
8
|
5
|
18
|
103
|
134
|
|
Foreign
exchange/commodity timing
|
|
|
|
|
|
|
|
differences
in income from operations:
|
|
|
|
|
|
|
|
Unrealized
gains and losses on derivatives
|
|
|
|
|
|
|
|
(foreign
exchange, commodities,
|
|
|
|
|
|
|
|
embedded
derivatives)
|
|
21
|
14
|
–
|
(16)
|
19
|
|
Realized
gains and losses on derivatives
|
|
|
|
|
|
|
|
where
the underlying hedged
|
|
|
|
|
|
|
|
transaction
has not yet been realized
|
|
(4)
|
4
|
2
|
(1)
|
1
|
|
Unrealized
foreign exchange movements
|
|
|
|
|
|
|
|
on
receivables/payables
|
|
|
|
|
|
|
|
(and
related assets/liabilities)
|
|
(5)
|
11
|
1
|
1
|
8
|
|
Operational
EBITA
|
|
1,459
|
897
|
1,232
|
(660)
|
2,928
|
|
|
|
|
|
|
|
|
|
Operational
EBITA margin (%)
|
|
14.7%
|
13.4%
|
15.6%
|
n.a.
|
11.7%
|
(1) Amounts in 2016 also include the
incremental implementation costs in relation to the White Collar Productivity
program.
In the year ended December 31, 2016, Certain other
non-operational items in table above includes the following:
|
|
Year ended December 31, 2016
|
|
|
Electrification
|
Industrial
|
Robotics
|
Corporate
|
|
|
($ in
millions, unless otherwise indicated)
|
Products
|
Automation
|
and Motion
|
and Other
|
Consolidated
|
|
Certain
other non-operational items:
|
|
|
|
|
|
|
Regulatory,
compliance and legal costs
|
–
|
–
|
–
|
10
|
10
|
|
Asset
write downs/impairments
|
–
|
5
|
–
|
11
|
16
|
|
Losses
(recovery) on Korea fraud
|
–
|
–
|
–
|
73
|
73
|
|
Corporate
re-branding and marketing costs
|
–
|
–
|
–
|
30
|
30
|
|
Gain on
FX derivative relating to a divestment
|
–
|
–
|
–
|
(22)
|
(22)
|
|
Other
non-operational items
|
8
|
–
|
18
|
1
|
27
|
|
Total
|
8
|
5
|
18
|
103
|
134
|
48
Q4
2018 Financial Information
Operational EPS
Definition
Operational
EPS
Operational EPS is calculated as Operational net
income divided by the weighted-average number of shares outstanding used in
determining basic earnings per share.
Operational
net income
Operational net income is calculated as Net
income attributable to ABB adjusted for the following:
(i)
acquisition-related amortization,
(ii)
restructuring and restructuring-related expenses,
(iii)
non-operational pension cost (credit),
(iv)
changes in obligations related to divested
businesses,
(v)
changes
in pre-acquisition estimates,
(vi)
gains and losses from sale of businesses,
(vii)
acquisition- and divestment-related expenses and integration costs,
(viii)
certain other non-operational items,
(ix)
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
(x)
The amount of income tax on operational
adjustments either estimated using the Adjusted Group effective tax rate or in
certain specific cases, computed using the actual income tax effects of the
relevant item in (i) to (viii) above.
Acquisition-related
amortization
Amortization expense on intangibles arising upon
acquisitions.
Adjusted
Group effective tax rate
The Adjusted Group effective tax rate is computed
by dividing an adjusted provision for taxes by an adjusted income from
continuing operations before taxes. Certain amounts recorded in income from
continuing operations before taxes and the related provision for taxes
(primarily gains and losses from sale of businesses) are excluded from the
computation.
Constant
currency Operational EPS adjustment and Operational EPS growth rate (constant
currency)
In connection with ABB’s 2015-2020 targets,
Operational EPS growth is measured assuming 2014 as the base year and uses
constant exchange rates. We compute the constant currency operational net
income for all periods using the relevant monthly exchange rates which were in
effect during 2014 and any difference in computed Operational net income is
divided by the relevant weighted-average number of shares outstanding to
identify the constant currency Operational EPS adjustment.
Reconciliation
|
|
Year ended December 31,
|
|
|
($ in
millions, except per share data in $)
|
2018
|
2017
|
Growth
(3)
|
|
Net
income (attributable to ABB)
|
2,173
|
2,213
|
|
|
Operational
adjustments:
|
|
|
|
|
Acquisition-related
amortization
|
273
|
229
|
|
|
Restructuring
and restructuring-related expenses
(1)
|
172
|
300
|
|
|
Non-operational
pension cost (credit)
|
(83)
|
(33)
|
|
|
Changes
in obligations related to divested businesses
|
106
|
94
|
|
|
Changes
in pre-acquisition estimates
|
8
|
8
|
|
|
Gains
and losses from sale of businesses
|
(57)
|
(252)
|
|
|
Acquisition-
and divestment-related expenses and integration costs
|
204
|
81
|
|
|
Certain
other non-operational items
|
40
|
161
|
|
|
FX/commodity
timing differences in income from operations
|
33
|
(34)
|
|
|
Operational
adjustments in discontinued operations
|
209
|
142
|
|
|
Tax on
operational adjustments
(2)
|
(240)
|
(242)
|
|
|
Operational
net income
|
2,838
|
2,667
|
6%
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding (in millions)
|
2,132
|
2,138
|
|
|
|
|
|
|
|
Operational
EPS
|
1.33
|
1.25
|
7%
|
|
Constant
currency Operational EPS adjustment
|
0.17
|
0.14
|
|
|
Operational
EPS (constant currency basis - 2014 exchange rates)
|
1.50
|
1.39
|
8%
|
49
Q4
2018 Financial Information
|
|
Three months ended December 31,
|
|
|
($ in
millions, except per share data in $)
|
2018
|
2017
|
Growth
(3)
|
|
Net
income (attributable to ABB)
|
317
|
393
|
|
|
Operational
adjustments:
|
|
|
|
|
Acquisition-related
amortization
|
75
|
65
|
|
|
Restructuring
and restructuring-related expenses
(1)
|
129
|
108
|
|
|
Non-operational
pension cost (credit)
|
(6)
|
(4)
|
|
|
Changes
in obligations related to divested businesses
|
14
|
–
|
|
|
Changes
in pre-acquisition estimates
|
6
|
8
|
|
|
Gains
and losses from sale of businesses
|
4
|
78
|
|
|
Acquisition-
and divestment-related expenses and integration costs
|
56
|
41
|
|
|
Certain
other non-operational items
|
25
|
28
|
|
|
FX/commodity
timing differences in income from operations
|
–
|
12
|
|
|
Operational
adjustments in discontinued operations
|
108
|
74
|
|
|
Tax on
operational adjustments
(2)
|
(96)
|
(105)
|
|
|
Operational
net income
|
632
|
698
|
-10%
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding (in millions)
|
2,132
|
2,136
|
|
|
|
|
|
|
|
Operational
EPS
|
0.30
|
0.33
|
-9%
|
|
Constant
currency Operational EPS adjustment
|
0.03
|
0.02
|
|
|
Operational
EPS (constant currency basis - 2014 exchange rates)
|
0.33
|
0.35
|
-6%
|
(1) Amounts in 2017 also include the
incremental implementation costs in relation to the White Collar Productivity
program.
(2) Tax amount is computed by applying the
Adjusted Group effective tax rate to the operational adjustments, except for
gains and losses from sale of businesses for which the actual provision for
taxes resulting from the gain or loss has been computed.
(3) Growth is computed using unrounded EPS
amounts.
Net debt
Definition
Net
debt
Net debt is defined as Total debt less Cash and
marketable securities.
Total
debt
Total debt is the sum of Short-term debt and
current maturities of long-term debt, and Long-term debt.
Cash
and marketable securities
Cash and marketable securities is the sum of Cash
and equivalents, and Marketable securities and short-term investments.
Reconciliation
|
|
|
|
December 31,
|
|
($ in
millions)
|
|
|
2018
|
2017
|
2016
|
|
Short-term
debt and current maturities of long-term debt
|
|
|
2,031
|
726
|
998
|
|
Long-term
debt
|
|
|
6,587
|
6,682
|
5,785
|
|
Total
debt
|
|
|
8,618
|
7,408
|
6,783
|
|
Cash
and equivalents
|
|
|
3,445
|
4,526
|
3,644
|
|
Marketable
securities and short-term investments
|
|
|
712
|
1,083
|
1,953
|
|
Cash
and marketable securities
|
|
|
4,157
|
5,609
|
5,597
|
|
Net
debt
|
|
|
4,461
|
1,799
|
1,186
|
50
Q4
2018 Financial Information