Financial position

Balance sheets

Current assets

 

 

December 31, ($ in millions)

2014

2013

Cash and equivalents

5,443

6,021

Marketable securities and short-term investments

1,325

464

Receivables, net

11,078

12,146

Inventories, net

5,376

6,004

Prepaid expenses

218

252

Deferred taxes

902

832

Other current assets

644

706

Total current assets

24,986

26,425

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

Marketable securities and short-term investments increased in 2014 due to higher amounts invested in available-for-sale securities, increases in time deposits and investments made in reverse repurchase agreements (see “Cash flows-Investing activities” below).

Receivables decreased 8.8 percent. In local currencies, Receivables decreased 1.7 percent primarily due to the impacts of divestments. For details on the components of Receivables, see “Note 7 Receivables, net”. Inventories decreased 10.5 percent (increased 1.1 percent in local currencies) compared to 2013. Excluding the impacts of divestments, Inventories increased 2.9 percent in local currencies.

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

The decrease in “Other current assets” is due primarily to a reduction in the fair value of current derivative assets.

Current liabilities

 

 

December 31, ($ in millions)

2014

2013

Accounts payable, trade

4,765

5,112

Billings in excess of sales

1,455

1,714

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

353

453

Advances from customers

1,624

1,726

Deferred taxes

289

259

Provisions for warranties

1,148

1,362

Other provisions

1,689

1,807

Other current liabilities

4,257

4,242

Total current liabilities

15,580

16,675

Accounts payable decreased 6.8 percent. In local currencies, Accounts payable increased 1.8 percent due primarily to an increase in days payables outstanding of approximately 2 days. Billings in excess of sales decreased 15.1 percent compared to 2013. In local currencies, Billings in excess of sales decreased 7.0 percent due to the timing of billings and collections for contracts under the percentage-of-completion or completed-contract methods. Advances from customers declined 5.9 percent. In local currencies, Advances increased 2.3 percent primarily due to the receipt of advances on projects in the Process Automation division. Provisions for warranties decreased 15.7 percent. In local currencies, Provisions for warranties decreased 6.5 percent primarily due to the settlement of warranty claims exceeding the current year warranty expense. Other provisions decreased 6.5 percent (increased 0.9 percent in local currencies). Other current liabilities increased 0.4 percent. In local currencies, Other current liabilities increased 9.3 percent primarily due to an increase in the fair value of current derivatives classified as liabilities.

Non-current assets

 

 

December 31, ($ in millions)

2014

2013

Property, plant and equipment, net

5,652

6,254

Goodwill

10,053

10,670

Other intangible assets, net

2,702

3,297

Prepaid pension and other employee benefits

70

93

Investments in equity-accounted companies

177

197

Deferred taxes

511

370

Other non-current assets

727

758

Total non-current assets

19,892

21,639

Property, plant and equipment decreased 9.6 percent. In local currencies, Property, plant and equipment was flat as the impacts from sales of businesses and the current year depreciation was offset by capital expenditures.

Goodwill decreased 5.8 percent. In local currencies Goodwill decreased 2.1 percent primarily due to goodwill allocated to businesses divested during 2014. Other intangible assets decreased 18.0 percent (14.0 percent in local currencies) primarily due to amortization recorded during 2014 and a reduction of intangibles on sales of businesses. See “Note 11 Goodwill and other intangible assets” to our Consolidated Financial Statements.

Non-current liabilities

 

 

December 31, ($ in millions)

2014

2013

Long-term debt

7,338

7,570

Pension and other employee benefits

2,394

1,639

Deferred taxes

1,165

1,265

Other non-current liabilities

1,586

1,707

Total non-current liabilities

12,483

12,181

Pension and other employee benefits increased 46.1 percent (54.9 percent in local currencies) primarily due to actuarial losses resulting from a decrease in the weighted-average discount rate used to determine the pension benefit obligation at December 31, 2014 (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)

2014

2013

2012

Net cash provided by operating activities

3,845

3,653

3,779

Net cash used in investing activities

(1,121)

(717)

(5,575)

Net cash provided by (used in) financing activities

(3,024)

(3,856)

3,762

Effects of exchange rate changes on cash and equivalents

(278)

66

90

Net change in cash and equivalents – continuing operations

(578)

(854)

2,056

Operating activities

($ in millions)

2014

2013

2012

Net income

2,718

2,907

2,812

Depreciation and amortization

1,305

1,318

1,182

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

(367)

(54)

196

Total changes in operating assets and liabilities

189

(518)

(411)

Net cash provided by operating activities

3,845

3,653

3,779

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.

Operating activities in 2013 provided net cash of $3,653 million, a decrease from 2012 of 3.3 percent. The decrease was partially due to higher net working capital requirements, particularly for unbilled receivables for long-term projects, but mitigated partly by cash inflows resulting from improved inventory management. Although net income increased during 2013, non-cash reconciling adjustments, primarily relating to deferred income taxes, resulted in a decrease in the cash impacts of net income compared to 2012.

Investing activities

($ in millions)

2014

2013

2012

Purchases of marketable securities (available-for-sale)

(1,430)

(526)

(2,288)

Purchases of short-term investments

(1,465)

(30)

(67)

Purchases of property, plant and equipment and intangible assets

(1,026)

(1,106)

(1,293)

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

(70)

(914)

(3,694)

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

361

1,367

1,655

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

523

118

Proceeds from short-term investments

1,011

47

27

Proceeds from sales of property, plant and equipment

33

80

40

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

1,110

62

16

Other investing activities

(168)

185

29

Net cash used in investing activities

(1,121)

(717)

(5,575)

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, purchases of property, plant, and equipment was 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.

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 (generally for buildings and other property facilities), $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.

Net cash used in investing activities in 2013 was $717 million, compared to $5,575 million in 2012. The decrease is mainly attributable to lower amounts paid for the acquisition of businesses in 2013, lower purchases of property, plant and equipment, and the impact from net sales of marketable securities in 2013 compared with net purchases in 2012.

Cash paid for acquisitions (net of cash acquired) during 2013 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 in 2013 decreased compared to 2012, as we reduced the amount of investment in capacity expansion compared to 2012. The total of $1,106 million included $776 million for construction in progress, $206 million for the purchase of machinery and equipment, $48 million for the purchase of land and buildings, and $76 million for the purchase of intangible assets.

To obtain necessary funds to make dividend payments, bond repayments, and to fund acquisitions during 2013, we reduced our amount invested in marketable securities and short-term investments, resulting in net proceeds of $976 million.

Total cash disbursements for the purchase of property, plant and equipment and intangibles in 2012 of $1,293 million included $885 million for construction in progress, $248 million for the purchase of machinery and equipment, $83 million for the purchase of land and buildings, and $77 million for the purchase of intangible assets.

Net cash used in investing activities in 2012 included $3,694 million for acquisitions of businesses, primarily Thomas & Betts. During 2012, we increased the amount invested in marketable securities and short-term investments resulting in a net outflow of $673 million.

Financing activities

($ in millions)

2014

2013

2012

Net changes in debt with maturities of 90 days or less

(103)

(697)

570

Increase in debt

150

492

5,986

Repayment of debt

(90)

(1,893)

(1,104)

Delivery of shares

38

74

90

Purchases of treasury stock

(1,003)

Dividends paid

(1,841)

(1,667)

(1,626)

Dividends paid to noncontrolling shareholders

(132)

(149)

(121)

Other financing activities

(43)

(16)

(33)

Net cash provided by (used in) financing activities

(3,024)

(3,856)

3,762

Our financing activities primarily include debt transactions (both from the issuance of debt securities and borrowings directly from banks), dividends paid and share transactions.

In 2014, the net cash outflow for debt with maturities of 90 days or less was primarily related 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 while the 2012 net cash inflow primarily reflects a net issuance of commercial paper.

In 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 2012, the cash inflows from increases in debt primarily related to the issuance of the following bonds: EUR 1,250 million aggregate principal, $1,250 million aggregate principal, $750 million aggregate principal, $500 million aggregate principal, AUD 400 million aggregate principal and CHF 350 million aggregate principal.

In 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. During 2012, $1,104 million of debt was repaid, mainly reflecting the repayment of part of the debt assumed from the acquisition of Thomas & Betts (approximately $320 million) and of other debt (primarily short-term bank borrowings).

In 2014, “Purchases of treasury stock” reflects the cash paid to purchase approximately 45 million of our own shares of which 33 million shares were purchased in connection with the share buyback program announced in September 2014.

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, 2014. 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, 2014.

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 $88 million and executory costs of $2 million.

Long-term debt obligations

7,184

25

2,009

1,877

3,273

Interest payments related to long-term debt obligations

1,832

213

387

320

912

Operating lease obligations

1,703

432

661

380

230

Capital lease obligations(1)

234

41

59

35

99

Purchase obligations

4,970

4,018

569

138

245

Total

15,923

4,729

3,685

2,750

4,759

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 $829 million unrecognized tax benefits (net of deferred tax assets) at December 31, 2014, it is expected that $69 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)

2014

2013

Performance guarantees

232

149

Financial guarantees

72

77

Indemnification guarantees

50

50

Total

354

276

The carrying amounts of liabilities recorded in the Consolidated Balance Sheets in respect of the above guarantees were not significant at December 31, 2014 and 2013, 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 2014, 2013 and 2012.

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