Financial position

Balance sheets

 

December 31,

%
Change

($ in millions)

2017

2016

Current assets

 

 

 

Cash and equivalents

4,526

3,644

24%

Marketable securities and short-term investments

1,102

1,953

(44)%

Receivables, net

10,416

9,696

7%

Inventories, net

5,059

4,347

16%

Prepaid expenses

189

176

7%

Other current assets

647

688

(6)%

Assets held for sale

548

n.a.

Total current assets

21,939

21,052

4%

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 decreased in 2017 as the amount of excess liquidity available for investments was reduced as funds were needed for acquisitions of businesses. The reduction resulted primarily in lower amounts deposited with banks with fixed deposit terms over three months and lower investments in money market funds (see “Cash flows-Investing activities”, below, and “Note 4 Cash and equivalents, marketable securities and short-term investments” to our Consolidated Financial Statements).

Receivables increased 7 percent (2 percent in local currencies). The increase was primarily due to the impact of the acquisition of B&R. For details on the components of Receivables, see “Note 7 Receivables, net” to our Consolidated Financial Statements.

Inventories increased 16 percent (6 percent in local currencies). The increase in inventory was primarily due to the impact of the B&R acquisition but also due to a planned increase of inventories to deliver against expected growth in certain product businesses.

 

December 31,

%
Change

($ in millions)

2017

2016

Current liabilities

 

 

 

Accounts payable, trade

5,419

4,446

22%

Billings in excess of sales

1,251

1,241

1%

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

738

1,003

(26)%

Advances from customers

1,367

1,398

(2)%

Provisions for warranties

1,231

1,142

8%

Other provisions

1,882

1,765

7%

Other current liabilities

4,385

3,936

11%

Liabilities held for sale

218

n.a.

Total current liabilities

16,273

15,149

7%

Accounts payable increased 22 percent (14 percent in local currencies) primarily as a result of continuing efforts to negotiate extended payment terms with suppliers.

The decrease in Short-term debt and current maturities of long-term debt was primarily due to the repayment at maturity of both the USD 500 million and AUD 400 million bonds partially offset by increases in the U.S. commercial paper program of $202 million and the reclassification to short-term debt of $391 million, mainly from the CHF 350 million bond.

Advances from customers decreased 2 percent (9 percent in local currencies) due to the impact of lower level of advances received on orders, especially in the Transformers business, which was partially offset by the increase in advances received in the Robotics and Drives businesses.

Provisions for warranties increased 8 percent (decreased 1 percent in local currencies), primarily due to a decrease in warranty expenses in the solar business offset by the acquisition of B&R.

Other provisions increased 7 percent (flat in local currencies) as higher contract-related provisions were offset by lower restructuring provisions in local currencies.

The increase in Other current liabilities of 11 percent (5 percent in local currencies) was primarily due to increases in non-trade payables and income tax payable partially offset by lower derivative liabilities.

 

December 31,

%
Change

($ in millions)

2017

2016

Non-current assets

 

 

 

Property, plant and equipment, net

5,363

4,743

13%

Goodwill

11,199

9,501

18%

Other intangible assets, net

2,622

1,996

31%

Prepaid pension and other employee benefits

144

90

60%

Investments in equity-accounted companies

158

170

(7)%

Deferred taxes

1,250

1,118

12%

Other non-current assets

587

532

10%

Total non-current assets

21,323

18,150

17%

In 2017, Property, plant and equipment increased 13 percent (6 percent in local currencies) partly due to the acquisition of B&R and also due to the investment in a new robotics factory in the U.S. and the ongoing investment in the Xiamen hub in China.

In 2017, Goodwill increased 18 percent (14 percent in local currencies) due primarily to the acquisition of B&R.

Other intangible assets increased 31 percent (27 percent in local currencies) primarily due to the addition of intangibles related to the acquisition of B&R, partially offset by the impact of amortization of intangibles in 2017. For additional information on intangible assets see “Note 11 Goodwill and other intangible assets” to our Consolidated Financial Statements.

 

December 31,

%
Change

($ in millions)

2017

2016

Non-current liabilities

 

 

 

Long-term debt

6,709

5,800

16%

Pension and other employee benefits

1,882

1,834

3%

Deferred taxes

1,099

918

20%

Other non-current liabilities

1,950

1,604

22%

Total non-current liabilities

11,640

10,156

15%

Long-term debt increased 16 percent of which 7 percentage points were due to movements in foreign exchange rates. The remaining change was due primarily to the issuance of the new EUR 750 million bond for the proceeds of $824 million, offset by the reclassification to short-term debt of $391 million mainly from the CHF 350 million bond. See “Liquidity and Capital Resources-Debt and interest rates” for information on long-term debt.

The increase in Pension and other employee benefits was primarily due to foreign exchange rate movement. For additional information, see “Note 17 Employee benefits” to our Consolidated Financial Statements.

The increase in Deferred taxes was primarily due to the deferred taxes recorded from the acquisition of B&R.

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.

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)

2017

2016

2015

Net cash provided by operating activities

3,799

3,843

3,818

Net cash used in investing activities

(1,450)

(1,305)

(974)

Net cash used in financing activities

(1,735)

(3,355)

(3,380)

Effects of exchange rate changes on cash and equivalents

268

(104)

(342)

Net change in cash and equivalents-continuing operations

882

(921)

(878)

Operating activities

($ in millions)

2017

2016

2015

Net income

2,365

2,034

2,055

Depreciation and amortization

1,101

1,135

1,160

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

(385)

1

(55)

Total changes in operating assets and liabilities

718

673

658

Net cash provided by operating activities

3,799

3,843

3,818

Operating activities in 2017 provided net cash of $3,799 million, a decrease from 2016 of 1 percent as lower cash-effective net income (net income adjusted for depreciation, amortization and other non-cash items) was mostly offset by the cash effects of stronger net working capital management. Working capital improvements included a significant increase in trade and non-trade payables, resulting from continuing company-wide efforts to extend payment terms with suppliers. Partially offsetting these benefits were cash outflows resulting from higher inventories and trade receivables. In addition, the timing of income tax payments positively impacted cash provided by operating activities.

Operating activities in 2016 provided net cash of $3,843 million, an increase from 2015 of 1 percent as Net income was steady and net working capital improvements continued to contribute to positive cash flows. Net working capital management improvements included a reduction of inventories and a significant increase in trade payables, resulting from focused efforts to extend payment terms with suppliers. The timing of income tax payments also improved cash provided by operating activities. These benefits were offset by impacts from lower advances from customers. In addition, cash flows from operating activities was negatively impacted by the misappropriation of $103 million in cash by the treasurer of our subsidiary in South Korea.

Investing activities

($ in millions)

2017

2016

2015

Purchases of marketable securities (available-for-sale)

(312)

(1,214)

(1,925)

Purchases of short-term investments

(393)

(3,092)

(614)

Purchases of property, plant and equipment and intangible assets

(949)

(831)

(876)

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

(2,130)

(26)

(56)

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

514

1,057

434

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

100

539

1,022

Proceeds from short-term investments

945

2,241

653

Proceeds from sales of property, plant and equipment

66

61

68

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

607

(1)

69

Net cash from settlement of foreign currency derivatives

63

(57)

231

Other investing activities

39

18

20

Net cash used in investing activities

(1,450)

(1,305)

(974)

Net cash used in investing activities in 2017 was $1,450 million, compared to $1,305 million in 2016. Cash used to fund acquisitions of businesses (primarily B&R) was significantly higher than in 2016 but was partially offset by sales of marketable securities and short-term investments as well as the proceeds received from sales of businesses (primarily the high-voltage cables and cable accessories businesses). In addition, changes in the impacts from derivative cash flows classified as investing activities reduced cash used in investing activities by $120 million. These cash flows primarily result from the maturity and settlement of derivatives that are in place to hedge foreign currency exposures on internal subsidiary funding and the amount of the settlement results from movements in foreign currency exchange rates throughout the year. We also had higher purchases of property, plant and equipment and intangible assets due to higher investments in information technology assets as well as specific investments in facilities in the United States and China.

Net cash used in investing activities in 2016 was $1,305 million, compared to $974 million in 2015. The change was primarily due to the change in the cash impacts from derivative cash flows classified as investing activities as in 2016 we had net outflows of $57 million, compared to inflows of $231 million in 2015, on settlement of foreign currency derivatives relating to investing activities.

Total cash disbursements for the purchase of property, plant and equipment and intangible assets were lower in 2016 compared to 2015. The change was primarily due to movements in foreign exchange rates and an increase in the amount of unpaid purchases.

The following presents purchases of property, plant and equipment and intangibles by significant asset category:

($ in millions)

2017

2016

2015

Construction in process

672

595

568

Purchase of machinery and equipment

155

168

200

Purchase of land and buildings

44

28

50

Purchase of intangible assets

78

40

58

Purchases of property, plant and equipment and intangible assets

949

831

876

In 2017, we decreased the amount of our excess liquidity invested in marketable securities and short-term investments as funds were needed for acquisitions of businesses while in 2016 and 2015, we increased the amounts invested in marketable securities and short-term investments. Marketable securities and short-term investments at December 31, 2017, consisted primarily of fixed-term deposits with banks, available-for-sale debt securities as well as amounts placed in reverse repurchase agreements. At December 31, 2016, amounts were placed primarily in fixed-term deposits with banks and in short-term money market funds. At December 31, 2015, amounts were placed primarily in short-term money market funds and corporate commercial paper. The net decrease in investments during 2017 resulted in an inflow of $854 million while in 2016 and 2015, the net increase in investments resulted in outflows of $469 million and $430 million, respectively.

In 2017, acquisitions of businesses primarily represents the purchase of B&R, which was acquired in July, while proceeds from sales of businesses primarily represents the divestment of the high-voltage cables business. In 2016 and 2015, there were no significant acquisitions or divestments of businesses.

Financing activities

($ in millions)

2017

2016

2015

Net changes in debt with maturities of 90 days or less

207

(152)

3

Increase in debt

921

912

68

Repayment of debt

(1,007)

(1,249)

(101)

Delivery of shares

163

192

107

Purchase of treasury stock

(251)

(1,299)

(1,487)

Dividends paid

(1,635)

(1,357)

Reduction in nominal value of common shares paid to shareholders

(1,610)

(392)

Dividends paid to noncontrolling shareholders

(127)

(122)

(137)

Other financing activities

(6)

(27)

(84)

Net cash used in financing activities

(1,735)

(3,355)

(3,380)

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 2017, the net cash inflow for debt with maturities of 90 days or less primarily related to an increase of $202 million in borrowings outstanding under our commercial paper program in the U.S. In 2016, the net cash outflow related primarily to a reduction of $75 million in the amount outstanding under our commercial paper program in the U.S. and net repayments of short-term borrowings in various countries.

In 2017, the increase in debt was due primarily to the issuance of our EUR 750 million 0.75% Notes due 2024 (equal to $824 million at date of issuance). In 2016, the increase in debt was due primarily to the issuance of our EUR 700 million 0.625% Notes due 2023 (equal to $807 million at date of issuance). In 2015, increases in other debt included cash flows from additional borrowings in various countries.

During 2017, $1,007 million of debt was repaid, reflecting primarily the repayment at maturity of both the USD 500 million 1.625% Notes and the AUD 400 million 4.25% Notes (in total equivalent to $803 million at dates of repayment). During 2016, $1,249 million of debt was repaid, reflecting primarily the repayment at maturity of the USD 600 million 2.5% Notes and CHF 500 million 1.25% Bonds (in total equivalent to $1,106 million at dates of repayment). In 2015 repayment of debt reflects repayments of borrowings in various countries.

In 2017, “Purchase of treasury stock” reflects the cash paid to purchase 10 million of our own shares on the open market. In 2016 and 2015, the amount reflects the cash paid to purchase 65 million and 73 million, respectively, of our own shares in connection with the share buyback program which was announced in September 2014 and completed in September 2016. 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, 2017. 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, 2017.

($ in millions)

Total

Less than
1 year

1–3
years

3–5
years

More than
5 years

(1)

Capital lease obligations represent the total cash payments to be made in the future and include interest expense of $116 million and executory costs of $2 million.

Payments due by period

 

 

 

 

 

Long-term debt obligations

6,953

378

1,558

2,532

2,485

Interest payments related to long-term debt obligations

1,370

191

328

192

659

Operating lease obligations

1,516

390

541

315

270

Capital lease obligations(1)

292

48

71

46

127

Purchase obligations

4,967

4,104

685

156

22

Total

15,098

5,111

3,183

3,241

3,563

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 $1,230 million unrecognized tax benefits (net of deferred tax assets) at December 31, 2017, it is expected that $32 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)

2017

2016

Performance guarantees

1,775

193

Financial guarantees

17

69

Indemnification guarantees

72

71

Total

1,864

333

The carrying amounts of liabilities recorded in the Consolidated Balance Sheets in respect of the above guarantees were not significant at December 31, 2017 and 2016, 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. At December 31, 2017 and 2016, the total outstanding performance bonds aggregated to $7.7 billion and $7.9 billion, respectively. There have been no significant amounts reimbursed to financial institutions under these types of arrangements in 2017, 2016 and 2015.

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