Financial position

Balance sheets

Current assets

 

 

December 31, ($ in millions)

2015

2014

Cash and equivalents

4,565

5,443

Marketable securities and short-term investments

1,633

1,325

Receivables, net

10,061

11,078

Inventories, net

4,757

5,376

Prepaid expenses

225

218

Deferred taxes

881

902

Other current assets

638

644

Total current assets

22,760

24,986

For a discussion on cash and equivalents, see sections “Liquidity and Capital Resources—Principal sources of funding” and “Cash flows” for further details.

Marketable securities and short-term investments increased in 2015 due primarily to higher amounts invested in money market funds, which are classified as available-for-sale equity securities (see “Cash flows—Investing activities” below).

Receivables decreased 9.2 percent. In local currencies, Receivables decreased 1.0 percent primarily due to collections during 2015 of receivables for certain projects in the Power Systems division. For details on the components of Receivables, see “Note 7 Receivables, net”. Inventories decreased 11.5 percent (decreased 2.8 percent in local currencies) compared to 2014 due to a reduction in raw materials and advances to suppliers partially offset by higher work in process.

For a summary of the components of deferred tax assets and liabilities, see “Note 16 Taxes” to our Consolidated Financial Statements.

Current liabilities

 

 

December 31, ($ in millions)

2015

2014

Accounts payable, trade

4,342

4,765

Billings in excess of sales

1,375

1,455

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

1,454

353

Advances from customers

1,598

1,624

Deferred taxes

249

289

Provisions for warranties

1,089

1,148

Other provisions

1,920

1,689

Other current liabilities

3,817

4,257

Total current liabilities

15,844

15,580

Accounts payable decreased 8.9 percent. In local currencies, Accounts payable decreased 2.3 percent primarily due to decreases in the Power Systems division. Billings in excess of sales decreased 5.5 percent compared to 2014. In local currencies, Billings in excess of sales increased 2.5 percent primarily due to increases in the Power Systems division. The increase in Short-term debt and current maturities of long-term debt was primarily due to the reclassifications of two public bonds from Long-term debt. Advances from customers declined 1.6 percent. In local currencies, Advances increased 7.6 percent due primarily to an increase of advances received in the Power Products division. Provisions for warranties decreased 5.1 percent. In local currencies, Provisions for warranties increased 1.7 percent primarily due to the current year warranty expense exceeding the current year settlements of warranty claims. Other provisions increased 13.7 percent (increased 19.9 percent in local currencies) primarily due to the accrual of costs under our White Collar Productivity restructuring program. Other current liabilities decreased 10.3 percent. In local currencies, Other current liabilities decreased 2.8 percent primarily due to a decrease in the fair value of current derivatives classified as liabilities and a decrease in current amounts relating to uncertain tax positions.

Non-current assets

 

 

December 31, ($ in millions)

2015

2014

Property, plant and equipment, net

5,276

5,652

Goodwill

9,671

10,053

Other intangible assets, net

2,337

2,702

Prepaid pension and other employee benefits

68

70

Investments in equity-accounted companies

178

177

Deferred taxes

423

511

Other non-current assets

643

701

Total non-current assets

18,596

19,866

Property, plant and equipment decreased 6.7 percent due primarily to movements in foreign exchange rates. In local currencies, Property, plant and equipment was flat as the current year depreciation was offset by capital expenditures during the year.

Goodwill decreased 3.8 percent due primarily to movements in foreign exchange rates. Other intangible assets decreased 13.5 percent (9.9 percent in local currencies). The decrease in local currencies was due to the current year amortization partly offset by acquisitions and additions during 2015. See “Note 11 Goodwill and other intangible assets” to our Consolidated Financial Statements.

Non-current liabilities

 

 

December 31, ($ in millions)

2015

2014

Long-term debt

5,985

7,312

Pension and other employee benefits

1,924

2,394

Deferred taxes

965

1,165

Other non-current liabilities

1,650

1,586

Total non-current liabilities

10,524

12,457

Long-term debt decreased 18.1 percent of which 2.9 percentage points was due to movements in foreign exchange rates. The remaining change was due primarily to reclassifications of two public bonds to short-term debt. Pension and other employee benefits decreased 19.6 percent (13.3 percent in local currencies) primarily due to actuarial gains resulting from changes in pension assumptions as well as the benefit of certain pension plan amendments during 2015 (see “Note 17 Employee benefits” to our Consolidated Financial Statements). See “Liquidity and Capital Resources—Debt and interest rates” for information on long-term debt. For a breakdown of other non-current liabilities, see “Note 13 Other provisions, other current liabilities and other non-current liabilities” to our Consolidated Financial Statements. For further explanation regarding deferred taxes, refer to “Note 16 Taxes” to our Consolidated Financial Statements.

Cash flows

In the Consolidated Statements of Cash Flows, the effects of discontinued operations are not segregated.

The Consolidated Statements of Cash Flows can be summarized as follows:

($ in millions)

2015

2014

2013

Net cash provided by operating activities

3,818

3,845

3,653

Net cash used in investing activities

(974)

(1,121)

(717)

Net cash used in financing activities

(3,380)

(3,024)

(3,856)

Effects of exchange rate changes on cash and equivalents

(342)

(278)

66

Net change in cash and equivalents—continuing operations

(878)

(578)

(854)

Operating activities

($ in millions)

2015

2014

2013

Net income

2,055

2,718

2,907

Depreciation and amortization

1,160

1,305

1,318

Total adjustments to reconcile net income to net cash provided by operating activities (excluding depreciation and amortization)

(55)

(200)

(93)

Total changes in operating assets and liabilities

658

22

(479)

Net cash provided by operating activities

3,818

3,845

3,653

Operating activities in 2015 provided net cash of $3,818 million, a decrease from 2014 of 0.7 percent. The decrease was driven by lower net income, partly offset by improvements in net working capital. Provisions, net, increased by $330 million reflecting the timing differences for cash payments on restructuring programs. Although net income in 2015 included restructuring and related expenses of $370 million in relation to the White Collar Productivity program, cash payments during 2015 amounted to $35 million. Net working capital also improved due to stronger collections from customers as we decreased our trade receivables but also increased our advances from customers and billings in excess of sales. Improvements in inventory were offset by similar reductions in trade payables.

Operating activities in 2014 provided net cash of $3,845 million, an increase from 2013 of 5.3 percent. The increase was driven primarily by improvements in net working capital management but offset partially by the cash impacts of the lower net income in 2014. Net income in 2014 also included $543 million of net gains from the sale of businesses which are not considered operating activities and thus are adjusted for in order to reconcile net income to net cash provided by operating activities.

Investing activities

($ in millions)

2015

2014

2013

Purchases of marketable securities (available-for-sale)

(1,925)

(1,430)

(526)

Purchases of short-term investments

(614)

(1,465)

(30)

Purchases of property, plant and equipment and intangible assets

(876)

(1,026)

(1,106)

Acquisition of businesses (net of cash acquired) and
increases in cost- and equity-accounted companies

(56)

(70)

(914)

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

434

361

1,367

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

1,022

523

118

Proceeds from short-term investments

653

1,011

47

Proceeds from sales of property, plant and equipment

68

33

80

Proceeds from sales of businesses (net of transaction costs and cash disposed) and cost- and equity-accounted companies

69

1,110

62

Net cash from settlement of foreign currency derivatives

231

(179)

180

Other investing activities

20

11

5

Net cash used in investing activities

(974)

(1,121)

(717)

Net cash used in investing activities in 2015 was $974 million, compared to $1,121 million in 2014. Significantly lower proceeds from sales of businesses were partially offset by a reduction in the net amount invested in marketable securities and other short-term investments as well as lower purchases of property, plant and equipment and intangible assets. Net cash used in investing activities was also lower in 2015 compared to 2014 as we received $231 million in net cash on settlement of foreign currency derivatives relating to investing activities compared with net cash outflows in 2014 of $179 million.

Total cash disbursements for the purchase of property, plant and equipment and intangibles were lower in 2015 compared to 2014 due primarily to changes in foreign exchange rates. Total purchases of $876 million included $568 million for construction in process (generally for construction of buildings and other property facilities), $200 million for the purchase of machinery and equipment, $50 million for the purchase of land and buildings, and $58 million for the purchase of intangible assets.

During 2015 we continued to increase the amount of our excess liquidity invested in marketable securities and short-term investments with maturities between 3 months and 1 year. Additional amounts were invested primarily in short-term money market funds and commercial paper. The increase in investments during 2015 resulted in a net outflow of $430 million.

Net cash used in investing activities in 2014 was $1,121 million, compared to $717 million in 2013. Higher proceeds from sales of businesses were offset by net purchases of marketable securities while in 2013, there were net sales of marketable securities. In addition, settlements of foreign currency derivatives resulted in a net outflow of $179 million in 2014 compared to an inflow of $180 million in 2013. Purchases of property, plant, and equipment were also lower in 2014 than 2013.

During 2014, we received net pre-tax proceeds from sales of businesses and cost- and equity-accounted companies of $1,110 million, primarily from the divestment of the Full Service business, the Steel Structures business of Thomas & Betts, the HVAC business of Thomas & Betts and the Power Solutions business of Power-One. In 2013, cash paid for acquisitions (net of cash acquired) amounted to $914 million, primarily relating to the acquisition of Power-One for $737 million.

Total cash disbursements for the purchase of property, plant and equipment and intangibles were lower in 2014 compared to 2013, partly due to changes in foreign exchange rates. The total purchases of $1,026 million included $724 million for construction in progress, $188 million for the purchase of machinery and equipment, $38 million for the purchase of land and buildings, and $76 million for the purchase of intangible assets.

During 2014, we increased the amount of our excess liquidity invested in marketable securities and short-term investments with maturities between 3 months and 1 year. Amounts were invested primarily in commercial paper, reverse repurchase agreements and time deposits. The increase in these investments during 2014 resulted in a net outflow of $1,000 million. In 2013, to obtain necessary funds to make dividend payments, bond repayments, and to fund acquisitions, we reduced our amount invested in marketable securities and short-term investments, resulting in net proceeds of $976 million.

Financing activities

($ in millions)

2015

2014

2013

Net changes in debt with maturities of 90 days or less

3

(103)

(697)

Increase in debt

68

150

492

Repayment of debt

(101)

(90)

(1,893)

Delivery of shares

107

38

74

Purchase of treasury stock

(1,487)

(1,003)

Dividends paid

(1,357)

(1,841)

(1,667)

Reduction in nominal value of common shares paid to shareholders

(392)

Dividends paid to noncontrolling shareholders

(137)

(132)

(149)

Other financing activities

(84)

(43)

(16)

Net cash used in financing activities

(3,380)

(3,024)

(3,856)

Our financing activities primarily include debt transactions (both from the issuance of debt securities and borrowings directly from banks), share transactions and payments of distributions to controlling and noncontrolling shareholders.

In 2015, there was no significant net change in the amount of outstanding debt with maturities of 90 days or less. In 2014, the net cash outflow for debt with maturities of 90 days or less related primarily to repayments made of borrowings in various countries offset by a small increase in the amount outstanding under our commercial paper program in the United States. In 2013, the net cash outflow from changes in debt with maturities of 90 days or less principally reflects a reduction in commercial paper outstanding.

In 2015 and 2014, increases in other debt included cash flows from additional borrowings in various countries. In 2013, the increase in debt primarily related to borrowings under borrowing facilities in various countries and issuances of commercial paper with maturities above 90 days.

In 2015 and 2014 repayment of debt reflects repayments of borrowings in various countries. During 2013, $1,893 million of debt was repaid, partially reflecting the repayment at maturity of the 700 million euro bonds (equivalent to $918 million at date of repayment). Other repayments during 2013 consisted mainly of repayments of commercial paper issuances having maturities above 90 days and repayments of other short-term debt.

In 2015, “Purchase of treasury stock” reflects the cash paid to purchase 73 million of our own shares in connection with the share buyback program announced in September 2014. In 2014, the amount reflects cash paid to acquire 45 million of our own shares of which 33 million shares were purchased in connection with the share buyback program. For additional information on the share buyback program see “Note 19 Stockholders’ equity” to our Consolidated Financial Statements.

Disclosures about contractual obligations and commitments

The contractual obligations presented in the table below represent our estimates of future payments under fixed contractual obligations and commitments. The amounts in the table may differ from those reported in our Consolidated Balance Sheet at December 31, 2015. Changes in our business needs, cancellation provisions and changes in interest rates, as well as actions by third parties and other factors, may cause these estimates to change. Therefore, our actual payments in future periods may vary from those presented in the table. The following table summarizes certain of our contractual obligations and principal and interest payments under our debt instruments, leases and purchase obligations at December 31, 2015.

Payments due by period

Total

Less than
1 year

1–3
years

3–5
years

More than
5 years

($ in millions)

 

 

 

 

 

(1)

Capital lease obligations represent the total cash payments to be made in the future and include interest expense of $71 million and executory costs of $1 million.

Long-term debt obligations

6,989

1,145

1,194

1,388

3,262

Interest payments related to long-term debt obligations

1,599

197

338

270

794

Operating lease obligations

1,757

417

636

400

304

Capital lease obligations(1)

196

32

46

36

82

Purchase obligations

4,330

3,678

552

98

2

Total

14,871

5,469

2,766

2,192

4,444

In the table above, the long-term debt obligations reflect the cash amounts to be repaid upon maturity of those debt obligations. The cash obligations above will differ from the long-term debt balance reflected in “Note 12 Debt” to our Consolidated Financial Statements due to the impacts of fair value hedge accounting adjustments and premiums or discounts on certain debt. In addition, capital lease obligations are shown separately in the table above while they are combined with Long-term debt amounts in our Consolidated Balance Sheets.

We have determined the interest payments related to long-term debt obligations by reference to the payments due under the terms of our debt obligations at the time such obligations were incurred. However, we use interest rate swaps to modify the interest characteristics of certain of our debt obligations. The net effect of these swaps may be to increase or decrease the actual amount of our cash interest payment obligations, which may differ from those stated in the above table. For further details on our debt obligations and the related hedges, see “Note 12 Debt” to our Consolidated Financial Statements.

Of the total of $868 million unrecognized tax benefits (net of deferred tax assets) at December 31, 2015, it is expected that $17 million will be paid within less than a year. However, we cannot make a reasonably reliable estimate as to the related future payments for the remaining amount.

Off balance sheet arrangements

Commercial commitments

We disclose the maximum potential exposure of certain guarantees, as well as possible recourse provisions that may allow us to recover from third parties amounts paid out under such guarantees. The maximum potential exposure does not allow any discounting of our assessment of actual exposure under the guarantees. The information below reflects our maximum potential exposure under the guarantees, which is higher than our assessment of the expected exposure.

Guarantees

The following table provides quantitative data regarding our third-party guarantees. The maximum potential payments represent a worst-case scenario, and do not reflect our expected outcomes.

 

Maximum potential payments

December 31, ($ in millions)

2015

2014

Performance guarantees

209

232

Financial guarantees

77

72

Indemnification guarantees

50

50

Total

336

354

The carrying amounts of liabilities recorded in the Consolidated Balance Sheets in respect of the above guarantees were not significant at December 31, 2015 and 2014, and reflect our best estimate of future payments, which we may incur as part of fulfilling our guarantee obligations.

In addition, in the normal course of bidding for and executing certain projects, we have 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. ABB would then have an obligation to reimburse the financial institution for amounts paid under the performance bonds. There have been no significant amounts reimbursed to financial institutions under these types of arrangements in 2015, 2014 and 2013.

For additional descriptions of our performance, financial and indemnification guarantees see “Note 15 Commitments and contingencies” to our Consolidated Financial Statements.