—

A N N UA L R E P O RT 2 017

Positioned
for profitable
growth
—
ABB
the pioneering technology leader

—
What Pioneering technology
Offering

Products Systems Services &

other

—
For whom Utilities Industry Transport &
Customers Infrastructure

—
Where Globally
Geographies

Asia, Middle Americas Europe

East and Africa

Revenue Countries Employees

~ $34 bn ~ 100 ~ 135,000
—
ABB at a glance
Committed to unlocking value

—
ABB is a pioneering technology leader
in electrification products, robotics and motion,
industrial automation and power grids, serving
customers in utilities, industry and transport
& infrastructure globally.

Continuing a history of innovation spanning more

than 130 years, ABB today is writing the future of
industrial digitalization with two clear value
propositions: bringing electricity from any power
plant to any plug and automating industries
from natural resources to finished products.

As title partner of Formula E, the fully electric

international FIA motorsport class, ABB is pushing
the boundaries of e-mobility to contribute
to a sustainable future.

—
ABB operates in more than 100 countries with
about 135,000 employees.

—
abb.com
Contents
—
Annual
Report
2017
01 Introduction
—
6 – 33

02 Corporate governance report

—
34 – 57

03 Compensation report
—
58 – 85

04 Financial Review of ABB Group

—
86 – 207

05 ABB Ltd Statutory Financial Statements

—
208 – 227

06 Supplemental information
—
228 – 234
01
Introduction
—
6 – 33
Chairman and CEO letter
—
8 – 12

Highlights 2017
—
14 – 15

Attractive markets
—
16 – 18

Positioned for sustainable growth

—
19 – 21

Focus on B&R
—
22 – 23

ABB Ability™
—
24 – 27

Shareholder returns and capital allocation

—
28 – 29

Health, Safety and Environment

—
30 – 31

Executive Committee
—
32 – 33
8 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

—
C H A I R M A N A N D C EO L E T T E R – A N N U A L R E P O R T 2 0 17

Dear Shareholders, Customers,

Partners and Employees,

2017 was a transitional year for the world, charac- f­ uture as well as major leaps in productivity for all
terized by an increasing sense of optimism and industries.
confidence in the prospects for the global econ-
omy even as parts continued to experience some ABB has consciously and strategically trans-
uncertainties. For the first time since the finan- formed itself to profit from these revolutions.
cial crisis of 2008, growth exceeded expecta- Today, our four divisions are either #1 or #2 glob-
tions, and we saw tangible progress in many im- ally in their respective markets. Our customers
portant emerging sectors. On the energy side, choose us to build stronger, smarter and greener
new installations of renewables (solar, wind, etc.) grids; to provide electrification for all points of
again reached record levels and e-mobility took electrical consumption; to help industries
center stage, with several governments pledging achieve perfection in automation; and to harness
to phase out fossil fuel-powered cars within the robotics and intelligent motion solutions for bet-
next few decades. The oil price stabilized at a ter productivity.
higher level and the process industries showed
signs of bottoming out, providing further signals One of the world’s biggest challenges is to decou-
for recovery. The impact of digitalization in in- ple economic growth from its environmental im-
dustry became more evident and we saw busi- pact. To achieve the Paris Agreement target of
nesses ramping up investments in digital solu- limiting the rise in global temperatures to fewer
tions. In several countries, most notably China, than 2 degrees Celsius, the world will need to turn
France and the United States, governments set in even faster to renewables and e-mobility, as well
motion important changes and reforms focused as dramatically improve energy efficiency. As
on the long‑term future. a global technology leader, ABB is uniquely posi-
tioned to help. We have been supporting coun-
For ABB, 2017 was a transition year. We stream- tries in their efforts to build the necessary infra-
lined and strengthened ABB in 2017, in accor- structure to move towards a sustainable energy
dance with our Next Level strategy, further exe- future, and helping industry and cities reduce
cuting on the plan that began in 2014. Now, we ­energy usage.
have four market-leading divisions. Combining
their traditional offering with our ABB Ability™ E-mobility
digital solutions, we have an innovative and truly Our sustainable mobility solutions are winning
digital portfolio for customers in utilities, indus- ­orders from around the world as the shift to
try and transport & infrastructure that is based ­e ‑mobility picks up speed. ABB today offers
on two clear value propositions: ­globally the entire bandwidth of technologies to
• Bringing electricity from any power plant to any enable sustainable transport – from the integra-
plug; and tion and transport of renewable energy to the fast
• Automating industries from natural resources to charging of cars in a truly unique way. Since ABB
finished products. entered the electric-vehicle charging market back
in 2010, we have installed more than 6,500 fast-
We drove ABB’s transition as the energy system is charging stations in 57 countries, making us the
being transformed by the massive ramp-up of re- world leader in EV fast-charging. With ABB Ability,
newables on the supply side of electricity. On the our fast-charging stations are connected via a
demand side, e-mobility as well as data centers cloud‑computing platform, enabling integrated
are changing the usage pattern of energy and vehicle and fleet data management and cashless
electricity. At the same time, industry is automat- payments, among other things.
ing and driving advances in competitiveness at an
accelerating pace, thanks to digital solutions, ro- For urban public transport, our high‑power
botics and, increasingly, artificial intelligence. charging solutions for electric and ­hybrid-electric
These developments, often termed the Energy buses have been well received, winning several
Revolution and the Fourth Industrial Revolution, ­orders from Volvo buses for Europe and North
hold out the prospect of a sustainable energy America. In 2017, our innovative f­ lash-charging
A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 9

PETE R VOS E R ULRICH SPIESSHOFER

CHAIRMAN OF THE BOARD CHIEF E XECUTIVE OFFICER
10 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

technology, which recharges buses in 20-second I­ ndustrial ­Automation and Robotics and Motion
bursts at stops, while passengers are embarking businesses put us in a strong #2 position for au-
and disembarking, went into operation in Geneva, tomation as the only global industrial player that
and was chosen for a new bus line in the French combines measurement and analytics, control
city of Nantes. solutions for both process and discrete indus-
tries, actuation, robotics, digital solutions and
The Fourth Industrial Revolution electrification.
Alongside the energy system, industry is being
transformed by rapid technological advances, In 2017, we made significant progress in shifting
such as sensors and technologies like machine ABB’s center of gravity towards stronger com-
learning and artificial intelligence, which are now petitiveness, higher-growth segments and an
complementing human brain power, as opposed improved risk profile for our business. Our acqui-
to simply replacing human muscle. To help drive sition of B&R (Bernecker + Rainer Industrie-Elek-
the Fourth Industrial Revolution, we launched in tronik GmbH), the largest independent provider
2017 ABB Ability™, our innovative s ­ olutions-based of machine and factory automation solutions,
digital offering with more than 210 solutions, closed a historic gap in our automation portfolio,
based on ABB’s comprehensive portfolio, our giving ABB the most comprehensive industrial
more than 40 years of experience in industrial automation offering in the industry, and opening
software and our domain expertise. ABB Ability is up significant growth opportunities in the $20
central to our strategy of driving growth through billion machine and factory automation market.
the expansion of high value-add solutions and
services. It has been well received by our custom- During the year, we made a number of invest-
ers around the world. Among the larger players ments in innovative companies to strengthen our
using our ABB Ability solutions are Shell Oil, Cen- automation and software capabilities, acquiring
terPoint Energy, Con Edison, BASF, Royal Carib- the communications network business of KEY-
bean, Cargill, Volvo and BMW. MILE to strengthen our grid automation capabili-
ties, and Spanish start-up NUB3D, a leading inno-
The Fourth Industrial Revolution is delivering sig- vator of 3D measurement, inspection and
nificant improvements in industrial productivity. quality-control solutions, to strengthen our digi-
Over decades, technology has helped lift millions tal portfolio.
of people into the middle class. Since 1990, the
proportion of the world’s population living in ex-
treme poverty has declined from one third to less —
than 10 percent today. At the same time, however,
the pace of technological change and increasing ABB Ability is central
automation is leading to fears of widespread job
losses and mass unemployment. As a pioneering to our strategy of dri-
technology leader that is playing an active role in
the Fourth Industrial Revolution, ABB recognizes ving growth through
this concern and is helping both its customers
and its own workforce to adapt. With our automa- the expansion of high
tion, robotics and ABB Ability digital solutions, we
are shaping companies’ and countries’ competi- value-add solutions
tiveness and creating prosperity and employ-
ment. In 2017, we were again recognized as the and services.
market and technology leader in distributed con-
trol systems – the brains of process plants and
large-scale industrial operations. In the future,
there is every reason to believe that the Fourth
­Industrial Revolution – like its predecessors – will
create new industries and, over time, many more
jobs to replace those that do disappear.

Delivering on our Next Level strategy

In 2017, our transition year, we delivered four
consecutive quarters of rising base-order
growth (comparable), and positioned ABB for
profitable growth as global markets are improv-
ing. Today, with our Power Grids and Electrifica-
tion Products divisions, we hold the #1 position
from “power plant to plug.” Taken together, our
A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 11

In September, we signed the contract to acquire GE by the end of 2017. Over the same period, we re-
Industrial Solutions, GE’s electrification solutions duced working capital significantly and freed up
business, which will strengthen our global #2 posi- $1.5 billion in cash.
tion in electrification and significantly expand our
access to the North American market. Following the unfortunate embezzlement scheme
that was exposed in our South Korean subsidiary
We are strategically addressing attractive, in February 2017, the company took swift and de-
fast-growing segments like food and beverage cisive actions. We identified the relevant control
and microgrids as well as focusing on geographi- issues and remediated the material weakness in
cal markets such as Africa. In this way, we are driv- our internal controls and replaced the manage-
ing incremental growth momentum and develop- ment team in South Korea.
ing new long-term opportunities for the future.
To drive a stronger performance orientation in
Finally, we are de-risking ABB and completed the line with the Next Level strategy, we have trans-
change of our business model for engineering, formed our performance and compensation
procurement and construction (EPC). This is be- model to focus on individual accountability and
ing achieved through joint ventures with EPC responsibility. Today, our compensation system is
partners as well as by winding down the turnkey closely linked with strategy and individual perfor-
full train retrofit business in our Robotics and Mo- mance. The long-term incentive program for exec-
tion division. Continuing our active portfolio man- utives is now wholly linked to shareholder returns.
agement, we are divesting businesses that are no More details are described in the compensation
longer core to our portfolio, like we did with the section of this report.
high-voltage cables business in 2017.
Financial highlights of 2017
In 2017, we continued to further streamline and The 2017 annual results include the dampening ef-
strengthen our operations in line with our ambi- fect of some still-muted market segments as well
tion of achieving world-class operational excel- as of our massive transformation. We have
lence. Our 1,000 day white collar productivity pro- streamlined and strengthened ABB significantly
gram exceeded its increased targets of reaching and delivered four consecutive quarters of in-
an annual savings rate of more than $1.3 billion creasing base-order growth.
12 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

Key figures We would like extend a special thank you to all our
• Total orders were steady with base orders up 5 loyal and talented employees for their tremen-
percent (comparable) and 6 percent in US dol- dous contribution. They regularly went the extra
lars. mile in 2017 to deliver on our commitments and to
• Revenues were up 1 percent to $34.3 billion. ensure that our customers are satisfied in a year
• Operational EBITA margin was 12.1 percent, im- of substantial transformation.
pacted 30 basis points due to charges related to
the EPC businesses. These EPC charges were re- Our focus in 2018 is now firmly on relentless execu-
corded in Q4. tion with the new streamlined and strengthened
• Operational earnings per share was 1 percent ABB. With the most focused and clearly articulated
lower in constant currency terms. portfolio of our industry, we are better positioned
• Cash flow from operating activities was steady for profitable growth in better global markets.
compared with 2016 at $3,799 million.

Looking ahead
Going forward, we have a solid foundation in
place and with our streamlined and strengthened
portfolio are well positioned in attractive mar- Peter Voser Ulrich Spiesshofer
kets. The Board of Directors’ proposal to increase Chairman of the Board Chief Executive Officer
the dividend for the ninth consecutive year of Directors
demonstrates our confidence in the future.
February 22, 2018
For our achievements in 2017, our transition year,
we would like to thank all of our stakeholders:
shareholders, customers, partners and our
­employees all around the world. ABB’s success
is made possible by the trust that you, our
­shareholders and customers, place in our com-
pany and our technologies, and because of the
fruitful collaboration we have with our partners.
Our brand promise, “Let’s write the future. To-
gether.” demonstrates our belief that we are all
working together for a better tomorrow.

—
For ABB, 2017 was a
transition year. We
streamlined and
strengthened ABB in
2017, in accordance
with our Next Level
strategy, further exe-
cuting on the plan
that began in 2014.
A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 13
14 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

—
Highlights 2017

— —
Transition year delivers Continued momentum in
streamlined and strengthened operational excellence through
portfolio and operations: successful cost savings program
• B&R, KEYMILE acquisitions and strong net working capital
completed management
• GE Industrial Solutions
acquisition signed —
• High-voltage cables and ABB Ability™ drives growth
cables accessories divested, across all divisions with more
two joint ventures signed for than 210 solutions launched in
EPC activities 2017
• Business model change for
EPC in Power Grids, Robotics —
and Motion and Industrial Net income increases 17 percent
Automation under way in 2017 to $2,213 million;
Basic earnings per share(1) also
— increases 17 percent to $1.04
Four consecutive quarters of
increasing base-order growth(3); —
the momentum built in 2017 Board proposes ninth
positions ABB for profitable consecutive dividend increase
growth as the global markets to CHF 0.78 per share
are improving

Key Figures

$ in millions, unless otherwise indicated 2017 2016

Orders 33,387 33,379
Revenues 34,312 33,828
Operational EBITA(2) 4,130 4,191
as % of operational revenues 12.1% 12.4%
Net Income 2,213 1,899
Basic EPS ($) 1.04 0.88
Operational EPS ($)(2) 1.25 1.29
Cash flow from operating activities 3,799 3,843
Free cash flow(2) 2,926 3,065
(1) Earnings per share growth are computed using unrounded amounts.
(2) For non-GAAP measures, see the “Supplemental information” section of this annual report.
(3) On a comparable basis, see the “Supplemental information” section of this annual report.
 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 15

 32% Electrification Products

Europe, 35% 20% Robotics and Motion

20% Industrial Automation

Americas, 29%
27% Power Grids

AMEA(1), 36% 2017

—
Employees by division
2017
Orders by region

(1) Asia, Middle East and Africa

28% Electrification Products 82% Product revenues

24% Robotics and Motion 18% Services and other revenues
19% Industrial Automation
29% Power Grids
34,312 Total

Services and other

revenues as %
2017
of total revenues 2017
Revenues by division

200% 4 bn 1.00

175% 3 bn 0.75

150% 2 bn 0.50

125% 1 bn 0.25

100% 0 bn 0.00

2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017(1)

— —
2015-2017 2009-2017
Free cash flow and conversion rate Dividend payout (CHF per share)
Free Cash Flow (1) proposed
% of net income
16 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

—
Attractive markets
Driving today’s technological
revolutions
ABB’s customer markets are undergoing a profound shift as
internet‑based technologies take hold in the industrial sector,
revolutionizing the production and supply of energy as well as of
goods and services.

Our markets ­ nergy and Fourth Industrial Revolution. ABB Abil-

E
As a pioneering technology leader serving the ity™ is the Company’s unified, ­cross-industry digi-
utilities, industry, and transport & infrastructure tal portfolio, extending from device to edge to
markets, ABB is at the heart of the Energy and cloud on an open architecture system. ABB Abil-
Fourth Industrial Revolutions. The Energy Revolu- ity™ helps customers develop new processes and
tion encompasses a shift toward low carbon en- advance existing ones by providing insights and
ergy generation, including a dramatic increase in optimizing planning and controls for ­real-time op-
wind and solar generation capacity; a major shift erations. The results can then be fed into control
toward distributed generation as opposed to cen- systems to deliver customer value through the im-
tralized generation systems, whereby consumers provement of key metrics such as factory safety,
also become producers, or prosumers, of energy; uptime, speed and yield. Digital solutions provided
and finally the introduction of smart grids that by ABB Ability™ include performance management
will enable more efficient use of energy. The num- offerings for asset-intensive industries; control
ber of feed-in points from solar and wind is ex- systems for process and discrete industries; re-
pected to continue to multiply, and transmissions mote monitoring services for robots, motors and
are increasingly covering longer distances. At the machinery; and control solutions for buildings, EV
same time, electricity demand is anticipated to charging networks and offshore platforms. Some
rise, due to the accelerating take-up of electric ve- of the more specialized offerings address energy
hicles (EVs) and significant increases in data stor- management for data centers and navigation opti-
age needs. As a result, electrical systems are ex- mization for maritime shipping fleets, among
pected to require new equipment, technology and many others.
smart solutions to ensure that electricity supply
remains reliable and secure. Utilities Market
ABB focuses on delivering solutions that match
In addition to the shifts in the energy market, the changing needs of utility customers with a
digitalization is driving the Fourth Industrial Rev- complete offering for transmission and distribu-
olution and touches upon all our customer seg- tion. The Energy Revolution opens up numerous
ments, creating sizeable new market opportuni- opportunities, and more than 30 percent of the
ties. More than 55 percent of ABB products are market ABB operates in are high-growth seg-
already digitalized and offer connectivity. With ments within the sector, such as grid automation,
the end-markets ABB serves still at an early stage high‑voltage direct current (HVDC), software, grid
of digitalization, including automotive, food and control systems and microgrids. Generation,
beverage, rail, buildings, oil and gas, chemicals, transmission and distribution are being unbun-
marine, utilities, and other discrete markets, ABB dled, long‑standing monopolies now have com-
expects the demand for connected devices from petitors and new entrants (e.g. pension funds, in-
the company’s existing customer base to grow surance funds, project developers) are investing
significantly in the coming years. in the sector. Many traditional utilities are being
forced to reinvent themselves; some are refocus-
With the commercial launch of more than 210 digi- ing on renewables, others on providing additional
tal ABB Ability™ solutions and services in 2017, ABB services to the consumers they serve.
is unlocking value for customers as part of the
A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 17

Utilities continued to make selective investments Industry Market

in 2017, adding new capacity in emerging mar- ABB serves factories all around the world from
kets, upgrading aging power infrastructure in discrete to process industries. Industry custom-
mature markets and integrating new renewable ers are diverse in nature and may be publicly
energy capacity globally. They are also investing traded or privately held companies. Energy effi-
in automation and control solutions to enhance ciency and productivity improvements are the in-
the stability of the grid and thus demand for tended hallmarks of ABB’s offerings in this cus-
ABB ­A bility™ solutions gained traction during tomer segment. Through the acquisition of
the year. Bernecker + Rainer Industrie-Elektronik GmbH
(B&R) in July 2017, ABB expanded its leadership in
ABB won orders in Sweden, Germany and the industrial automation and closed ABB’s historic
Democratic Republic of Congo to upgrade the gap in machine and factory automation. ABB now
control and protection system of existing HVDC offers a comprehensive automation portfolio for
links with advanced digitalization technologies. customers globally.
In addition, ABB was awarded several orders for
ABB Ability™ based digital substations in the Investments in 2017 in robotics and machinery au-
U.S., Poland and India. ABB’s modular and con- tomation solutions from the automotive sector
tainerized microgrid solution, PowerStore™ and the wider industry market generally remained
was ordered by Chugach Electric in Alaska, to positive. Process industries, especially mining and
bring clean energy and power reliability to its oil and gas, remained subdued, with selective in-
­local community. vestments made primarily in service and produc-
tivity improvements.
18 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

The need for cutting-edge solutions to increase the move to electrify transportation, and growth
efficiency and to use renewable power generation in data centers.
to lower environmental costs continued to be im-
portant demand drivers for industry in 2017. ABB Demand in transport and infrastructure markets
introduced to the market an electric motor with was mixed in 2017. Demand for building automa-
almost 100 percent energy efficiency, which is de- tion solutions as well as solutions involving en-
signed to significantly reduce energy consump- ergy efficiency remained strong, while the marine
tion and operating costs. In order to meet the in- sector, except for cruise ships, suffered because
creasing demand for storage solutions, ABB of subdued activity in the container vessel and oil
entered into a wide‑ranging supply and technol- and gas sector. In rail, ABB won orders worth
ogy partnership with Northvolt AB for Europe’s $70 million from Swiss train manufacturer Stadler
largest and most advanced lithium‑ion battery Rail to supply traction and onboard power equip-
factory in Sweden. Industrial customers also con- ment to three European rail operators.
tinued to invest in reliable power. In this context,
ABB won an order from Semiconductor Manufac- A highlight of 2017 was the ongoing development
turing International Corporation (SMIC) for of EV charging markets. Demand for ABB Ability™
ABB Ability™ power distribution solution. In ro- EV charging infrastructure – from grid to socket,
botics, ABB presented to the market a preview of supporting all charging standards – is accelerating.
its newest collaborative robot, a compact small- ABB received multiple orders from customers in
parts assembly robot with a single arm, that aims several countries across Europe and North America
to build on the success of YuMi®, the world’s first for EV fast chargers as well as for electric bus
collaborative dual-arm industrial robot. charging stations. ABB also introduced to market
e-buses with world-record speed flash-charging
Transport & Infrastructure Market technology.
ABB’s expertise provides efficient and reliable
solutions for transport & infrastructure customers. As a global pioneering technology leader, we serve
We believe our offerings are key to transport cus- utilities, industry and transport & infrastructure
tomers that are focused on energy efficiency and customers through our business divisions. These
reduced operating costs. Other major growth driv- markets and our divisions are discussed in more
ers for this customer segment are urbanization, detail in the financial review of ABB Group.
A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 19

—
Positioned for sustainable growth
Transition delivers streamlined and
strengthened portfolio and operations
ABB is delivering its Next Level strategy to unlock value and deliver
attractive shareholder returns. 2017 was a transition year, in which
ABB streamlined and strengthened its portfolio and operations.
ABB continued to shift its center of gravity to a simplified,
strengthened, digital and market‑leading portfolio. It completed and
announced a number of key acquisitions, divested certain businesses
and took the actions necessary to implement business model changes.
ABB strengthened its operations through the completion of its
1,000‑day programs. It continued to focus on operational excellence,
delivering supply chain and operational cost savings. A number of key
executive committee appointments were made in 2017 while
continuing to focus on leadership development and bringing all of
ABB under one unified brand. With these transformational actions
complete, we believe ABB is positioned for profitable growth.

Profitable growth ABB strengthened its position as a global leader

in industrial automation by completing the acqui-
As part of the drive towards profitable growth, ABB sition of Bernecker + Rainer Industrie-Elektronik
made significant progress in 2017 to streamline and GmbH (B&R) in July 2017. B&R was the largest
strengthen its portfolio. Base order growth momen- ­in­dependent provider of product- and
tum continued each quarter and was higher in all di- ­software-based open-architecture solutions for
visions and regions for the full year. machine and factory automation worldwide. With
this acquisition, ABB closed its historic gap in ma-
With the launch of ABB Ability™ in March 2017, chine and factory automation and created a com-
ABB is making a quantum leap in digital. With prehensive automation portfolio for customers
more than 210 ABB Ability™ solutions available globally.
­today, ABB is leveraging its large installed base
of connected systems and devices. ABB Ability™ In September 2017, ABB announced an agree-
is a solution-led approach based on ABB’s strong ment to acquire General Electric Company's
portfolio and domain expertise. It has a secure, (General Electric or GE) Industrial Solutions busi-
open-architecture system, ranging from edge ness (GE IS), General Electric’s global electrifica-
to cloud. ABB Ability™ is central to ABB’s strategy tion solutions business. GE IS operates in more
to drive growth through expansion of high than 100 countries and has an established in-
­value-added solutions and services. stalled base with strong roots in North America.
We believe this purchase strengthens ABB's posi-
Through active portfolio management, ABB has tion as a global leader in electrification and ex-
become more streamlined and strengthened. We pands its access to the large North American
believe these actions continue to shift ABB’s center market. The transaction is expected to close in
of gravity towards strengthened competitiveness, the first half of 2018.
higher growth market segments and lower risk.
20 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

ABB continued to shape its portfolio with the di- ­ ctivities will be reported within a new non-core
a
vestment of its high-voltage cables and cables operating unit, within Corporate and Other, effec-
accessories businesses to NKT Cables, com- tive January 1, 2018.
pleted in March 2017.
Relentless execution
During the fourth quarter, actions were taken
across three divisions to complete the business In 2017, ABB continued to drive the streamlining
model change for EPC. In the Power Grids division, and strengthening of its operations. During the
consistent with ABB’s shift in focus away from year, additional investments were made to sup-
non-core EPC activities, ABB signed an agreement port and advance ABB’s digital expertise and
to form a joint venture with ­SNC‑Lavalin for electri- sales force capability. For example, investment
cal substation EPC projects; SNC-Lavalin is ex- was made in Power Grids, under the division’s
pected to have a majority interest. In the Industrial “Power Up” initiative, that is intended to expedite
Automation division, ABB completed the formation its transformation and value creation. ABB fo-
of an oil & gas EPC joint venture with Arkad Engi- cused its efforts on high-growth segments, such
neering and Construction Ltd., a fully integrated as electric vehicle charging, robotics and food
EPC contractor for the energy sector based in and beverage.
Saudi Arabia. In the Robotics and Motion division,
ABB announced its exit from the turnkey full train At the end of 2017, ABB concluded its strategic
retrofit business, once its current contractual com- 1,000‑day programs. By the end of 2017, the White
mitments are met. The remaining EPC business Collar Productivity program produced an annual
A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 21

run-rate of approximately $1.4 billion of gross Accelerating momentum in operational

savings. In addition, as part of the Net Working ­excellence
Capital program, improvements freed up approxi- The White Collar Productivity program was com-
mately $1.5 billion of cash since the end of 2014, pleted at the end of 2017. The program achieved
of which approximately $600 million was gener- an annual run-rate of approximately $1.4 billion in
ated during 2017. gross savings. We also are continuing our regular
cost‑savings programs aimed at saving the equiv-
Business-led collaboration alent of 3–5 percent of cost of sales each year.

ABB has taken the steps necessary to complete We continued to deliver on our Net Working Capi-
its transition to a simpler, leaner and more tal program. Working capital management has
­customer-focused business, while at the same improved across all divisions and regions since
time, linking executive compensation firmly to the program was launched in 2014.
performance and delivery of strategy.
Strengthening ABB’s brand
A focus on leadership development remains key We are adopting a single corporate brand, consol-
to ensuring ABB’s leadership is fully empowered idating all our brands around the world under one
to meet the ABB’s growth agenda along with the umbrella. Our portfolio of companies is being uni-
alignment of all activities under the unified and fied, showcasing the full breadth and depth of our
strengthened ABB brand. global offering under one master brand. The uni-
fied brand plays a key part in realizing the value
Next Level strategy – stage 3 potential of our digital offering, as we expect it
will increase brand loyalty, price premiums and
In October 2016, ABB launched stage 3 of its Next purchase probability.
Level strategy to unlock additional value for
shareholders and customers. Building on the fo-
cus areas of profitable growth, relentless execu-
tion and business-led collaboration, stage 3 con-
sists of four actions:

Driving growth in four market-leading entrepre-

neurial divisions
We are driving growth in four market‑leading en-
trepreneurial divisions: Electrification Products,
Robotics and Motion, Industrial Automation and
Power Grids. The new division structure was
­effective January 1, 2017.

A quantum leap in digital with ABB Ability™

The ABB Ability™ offering combines our portfolio
of digital solutions and services across all cus-
tomer segments, supporting our position as a
leader in the Fourth Industrial Revolution and
­Energy Revolution, supporting the competitive-
ness of our four entrepreneurial divisions. With
ABB Ability™, we estimate an annual market op-
portunity of up to $20 billion.
22 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

—
Focus on B&R
A transformational acquisition
On July 6, 2017, ABB marked an important milestone in its Next Level
strategy when it completed the acquisition of B&R (Bernecker + Rainer
Industrie-Elektronik GmbH), the world’s largest independent provider
of machine and factory automation solutions.

With this deal, ABB closed a historic gap in its sales of more than $600 million and compound an-
portfolio and strengthened its leadership in in- nual revenue growth of 11 percent for the past two
dustrial automation. The company is now per- decades, B&R is a growth leader that is already
fectly positioned to seize the emerging opportu- contributing to ABB’s own continuing growth.
nities of the Fourth Industrial Revolution.
B&R’s strong corporate culture, broad reach and
Founded in 1979, B&R is a true leader in program- deep expertise are a perfect fit with ABB, while its
mable logic controllers (PLCs), industrial PCs, and groundbreaking open-architecture solutions and
servo-motion-based machine and factory automa- software fill a critical gap, providing an ideal com-
tion. Its industry-leading products, software and plement to ABB’s portfolio of offerings for utili-
services provide automation solutions and soft- ties, industry and transport & infrastructure.
ware for machines and discrete manufactu­ring
that are critical for industries like plastics, food & The acquisition places ABB in a class of its own.
beverage, textiles and packaging, among others. Today ABB is the only industrial automation pro-
vider offering customers the entire spectrum of
B&R has an installed base of more than 3 million au- technology and software solutions around mea-
tomated machines in roughly 27,000 plants and a surement, control, actuation, robotics, digitaliza-
rapidly growing customer base of over 4,000 ma- tion and electrification. With B&R, ABB has taken
chine manufacturers in 70 countries. With annual another major step in expanding its ABB Ability™
A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 23

digital offering with the addition of B&R’s strong

application and software platforms, large in-
stalled base, customer access and tailored auto-
mation solutions.

B&R, including more than 3,000 talented employ-

ees, is being integrated into the Industrial Auto-
mation division, along with ABB’s PLC and Au­
tomation Builder businesses. Together, they form
a new global business unit, Machine & Factory
­Automation, headquartered in Eggelsberg,
Austria. ABB is committed to investing in the ex-
pansion of this unit, particularly in areas of R&D,
as it serves as the company’s new global center
for machine and factory automation.

This transformational acquisition unlocks signifi-

cant opportunities in the $20 billion machine and
factory automation market, which is growing 4 to
5 percent per year. It represents a quantum leap
forward in ABB’s offering, positioning the com-
pany as one of the two global leaders in industrial
automation, with a uniquely comprehensive auto-
mation portfolio for customers globally.
24 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

—
ABB Ability ™
More than 210 market leading
solutions
—
ABB Ability™ is resonating offerings quickly. The award
with industry analysts and recognizes ABB's digital
customers and our solutions leadership, not only when
are resulting in revenue growth compared to other industrial
by delivering compelling automation suppliers, but also
customer value. We estimate against non-industry peers, the
an annual market opportunity firm said.
of up to $20 billion.

— —
In a recent report the research The current priority for ABB is
and consulting firm Frost & to sell our 210+ solutions to
Sullivan named ABB Company more customers. We are well
of the Year 2017. Citing ABB’s positioned to leverage our R&D
“visionary innovation efforts to create a fast-
embodied by its distributed growing and profitable digital
control system (DCS) offering business. We are also fostering
and its impact on customer innovation that will deliver new
performance,” the analysts Ability™ solutions in the near
praised our strategy to invest future.
in start-ups as a way to foster
innovation and scale up digital
 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 25

—
ABB Ability ™
210+ ABB Ability™ solutions are
ready today

23% Utilities 26% Performance optimization

59% Industry 11% Asset health
18% Transport & Infrastructure 11% Condition monitoring
7% Energy optimization
5% Cyber security
40% Other

By Customer Segment(1), % By Type(1), %

58% Operate 23% Together

26% Maintain 45% Do Better
3% Plan 20% Do more
2% Build 2% Know more
1% Upgrade 10% Other
10% Other

By Lifecycle(1), % By Ability Level, %

(1) Solution can cover multiple customer industry segments, types or lifecycle phases
26 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

—
ABB Ability ™ Solutions
Added value for customers

ABB Ability™ wireless network monitors and diesel g

­ enerators, which previously required
­controls Robben Island microgrid around 600,000 liters of fuel a year but now will
Bringing a modern, sustainable technology solu- serve ­primarily as back-ups.
tion to a historically significant site, ABB has pro-
vided a microgrid system to integrate solar en- An ABB Ability™ wireless network connects the
ergy and supply power to Robben Island, the place solar plant to the microgrid and provides reliable
where Nelson Mandela spent 18 years in prison and secure communications. An operations
during the apartheid era. Now a living museum ­center in Cape Town monitors and controls the
and World Heritage Site, Robben Island lies 9 kilo- microgrid. The remote set-up eliminates the
meters off the coast of Cape Town and previously need to maintain a workforce on the island,
relied on fuel-thirsty, carbon-emitting diesel gen- whose volatile weather can sometimes impede
erators as the only source of electric power. travel to and from the mainland. The wireless
solution has also eliminated the need for cable
Essentially a small-scale electric grid, the new trenches, helping preserve the local habitat on
microgrid will substantially lower fuel costs and the World Heritage Site.
carbon emissions, enabling the island to run on
solar power for at least nine months of the year. ABB Ability™ Electrical Distribution Control Sys-
The system is equipped with ABB solar inverters tem – Consorzio di Bonifica Veronese
that convert the variable direct current (DC) out- Italy’s water utility Consorzio di Bonifica Veronese
put from the solar panels into the alternating (CBV) was looking to retrofit two of its pumping
current (AC) required for electric utilities. As the stations and its hydroelectric turbines. The pump-
main energy source, the microgrid will reduce ing stations and turbines were in several, remote
carbon emissions and the fuel demands of the locations and CBV wanted to monitor these
A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 27

i­ nstallations remotely and analyze and compare

their operations. At the same time, it wanted to op-
timize maintenance, reduce energy costs, prevent
downtime and increase overall plant efficiency.

To achieve these goals, CBV turned to the ABB

Ability™ Electrical Distribution Control System,
which is a cloud-based solution. It is designed to
monitor, optimize and control power distribution
systems for a range of industries, including manu-
facturing, power generation and mining. The solu-
tion, which helps to simplify facilities manage-
ment, enabled CBV to reduce its operating costs
by almost 30 percent and earn back its investment
within just three months.

ABB Ability™ enhances overall plant availability,

reliability and efficiency at BASF
Historically, low voltage motors and pumps oper-
ated by German chemical giant BASF have been
inspected manually. Many were run continuously
until the end of the product life cycle, resulting
in high overall asset replacement cost. A visual in-
spection performed during routine maintenance
is not viable to confirm degradation or predict
­upcoming failures. Industry reports state that
60 percent of maintenance for this type of equip-
ment is due to equipment breakdown which is
­unscheduled and costlier than planned activity.
BASF plant managers wanted to have a clearer
and more precise understanding of how their
fleet of rotating equipment was performing and
how to make maintenance more cost effective.

ABB has provided BASF an end-to-end solution

that goes from wireless sensors up to advanced
analytics and enterprise dashboard for a fleet of
rotating assets. The innovative solution runs com-
plex fleet diagnostic algorithms to improve the
overall fleet operation. As a result of this compre-
hensive solution BASF is now able to benefit from
an “Industry 4.0” production system. In particular,
it can easily gauge the status of each component
in the plant using fleet analytic algorithms running
on ABB Ability™ systems. This gives BASF enough
information to carry out an effective maintenance
strategy, thereby achieving an increase in the effi-
ciency and effectiveness of its assets.
28 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

—
Shareholder returns
and capital allocation

—
ABB’s capital allocation priorities remain un- ABB’s disciplined capital allocation policies have
changed: delivered $10.3 billion to shareholders in the form
• funding organic growth at attractive cash of dividend distributions and share buybacks
­returns; from 2014 to 2017.
• paying a steadily rising, sustainable dividend;
• investing in value-creating acquisitions; and —
• returning additional cash to shareholders. The Board of Directors is proposing a ninth
­consecutive increase in the dividend to
— 0.78 Swiss francs per share at the 2018 Annual
ABB’s strong cash generation continued in 2017. General Meeting.
Cash flow from operating activities was $3,799
million for the full year. Free cash flow in 2017
amounted to $2,926 million. The company’s cash
return on invested capital was 12.4 percent,
mainly impacted by the acquisition of B&R.

Dividends to Shareholders

90% 0.78

85% 0.76

80% 0.74

75% 0.72

70% 0.70

65% 0.68

60% 0.66

55% 0.64

50% 0.62

45% 0.60

2013 2014 2015 2016 2017 2018(1)

Dividend per share CHF

Pay out %

(1) proposed
A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 29

Total Cash Returned to Shareholders

USD BN
5

0
2013 2014 2015 2016 2017

Dividend (year paid)

Share buyback
Total

Cash Return on Invested Capital Capital Allocation

% 2 0 1 4 – 2 0 17 U S D B N

10
14

8
13
6
12
4

11 2

10 0

2014 2015 2016 2017(1)

(1) includes impact of B&R acquisition Capex
Dividend paid
Acquisitions
Share buyback

Free Cash Flow

USD BN

4 170%

3 150%

2 130%

1 120%

0 90%

2013 2014 2015 2016 2017

Free Cash Flow

% of net income
30 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

—
Health, Safety and Environment
ABB is committed to achieving excellence in health, safety and
environment (HSE). The health and safety of those affected by our
activities – particularly our employees, contractors and customers –
is a top priority for ABB, and we have worked for many years to
manage and reduce the environmental impacts of our own operations.
We seek to achieve these objectives through strategic, Group-led
programs and business-specific initiatives.

An organizational transformation – from vision This year, we established a global audit program
to reality staffed by competent senior and local lead audi-
In 2017, we initiated a transformation process to tors to promote the new standards, help our
strengthen line accountability and ensure that line businesses meet them and assess our current
managers and country managing directors have performance.
appropriate expertise and effective tools and pro-
cesses to support their leadership of HSE. Our leadership consistently reinforced the mes-
sage that safety is ABB’s top priority. We further
Formal Country Sustainability Boards have been developed our Safety Masterclass to ensure our
established to uphold good governance and as- leaders have the necessary information, skills and
sure compliance with local legislation, and ABB’s tools to promote this value on a daily basis.
standards and customer expectations. Mean-
while, we developed a comprehensive group man- We also improved our investigation processes, fo-
agement information system to ensure data accu- cusing on high-potential incidents to identify les-
racy and consistency and to maintain common sons learned and determine how to take action
goals, terminology and standards across ABB. before people are injured. Our endeavors to pre-
Standardized purchasing processes have also vent all injuries will continue.
been implemented, and the supplier base has
been optimized. Health and well-being
A healthy and capable workforce is created by in-
Next, we will focus on closing the gaps in our tar- tegrating good health practices into the daily life
get operating model by rolling out a competency of every employee. We seek to promote health in
development program, and standardizing im- all aspects of our employees’ lives, both at the
provement programs and processes. workplace and outside of it, through programs
that recognize well-being and occupational health
The importance of safety as interdependent, and view prevention and risk
While our total recordable incident rates contin- management as holding equal importance.
ued to improve in 2017, we recognize that even
a single incident is one too many. Our people are In 2017, the sustainability boards in each country
the essence of ABB – we cannot rest until we bring were required to develop well-being plans that
our incident rate down to zero and keep it there. covered a number of programs and introduced
smoking cessation as a cornerstone. The initia-
In 2017, we introduced the ABB Way, a group man- tives covered 58 percent of employees in 2017 and
agement system that updates all of our manage- we have set ourselves a target to reach 70 percent
ment and control standards for safety, as well of employees by 2020.
as those for health, environment and security.
The ABB Way is crea­ting clear and common ABB also partnered in the Global Health Challenge
­expectations in all our global businesses. It will be for the first time, as employees teamed up to im-
implemented across our Group over the next two prove their physical fitness, work-life balance,
years, simplifying our approach and improving sleeping habits and nutrition. More than 42,000
our shared knowledge and understanding of HSE employees participated in this friendly behavioral
and sustainability requirements. change program.
 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 31

Lastly, we launched resilience awareness training We have also cut GHG emissions by reducing di-
to increase employees’ capacity to confront adver- rect fuel consumption, converting to lower-car-
sity, thrive on challenges, reach their full potential bon sources of energy, and improving our han-
and have a positive influence on those around dling of sulfur hexafluoride gas. ABB’s GHG
them. This training, delivered to 85 percent of all emissions (Scope 1 and 2) have decreased by 33
senior managers, was designed to be dissemina­ percent since 2013*.
ted throughout the rest of the organization.
ABB's target is to reduce the amount of waste
Protecting the environment sent to final disposal by 20 percent by 2020, from
ABB remains focused on reducing its environmen- a 2013 baseline. We have already achieved a 15
tal footprint. We are working continually to use percent reduction and cut the total amount of
energy more efficiently and cut greenhouse gas waste generated by 12 percent.
(GHG) emissions across all our operations.
In addition, we have strengthened efforts to con-
To this end, all our sites are required to identify trol and reduce the use of hazardous substances
and undertake energy-efficiency measures. In in our operations. In 2017, new training programs
2017, we introduced a quarterly KPI at 300 of our were launched, and a global cross-functional team
manufacturing and office sites to track the prog- was established to keep better track of chemicals
ress of our energy-saving programs. These sites used by ABB.
represent more than 95 percent of ABB’s total en-
ergy use. More than 260 energy saving projects → Read more at
are underway at ABB, contributing to our 2.3 per- abb.com/sustainability
cent energy reduction in 2017.

* This 33 percent reduction includes a methodology change in how we calculate emissions from our vehicle fleet.
32 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION

—
Executive Committee
Together, we drive progress

DIANE DE S A M I AT I YA PETER TERWIESCH

SAINT VICTOR R O B OT I C S INDUSTRIAL
GENER AL A N D M OT I O N A U TO M AT I O N
COUNSEL DIVISION DIVISION

JE AN - CHRISTOPHE
DESLARZES
CHIEF GREG SCHEU
FR ANK DUGGAN HUMAN RESOURCES AMERIC A S
EUROPE REGION OFFICER REGION
 A B B A N N U A L R E P O R T 2 0 17 01 INTRODUCTION 33

TA R A K M E H TA
E L E C T R I F I C AT I O N C L A U D I O FA C C H I N
PRODUCTS POWER GRIDS
DIVISION DIVISION

CHUNYUAN GU
ULRICH SPIESSHOFER TIMO IHAMUOTIL A ASIA ,
CHIEF CHIEF MIDDLE EAST
E XECUTIVE FINANCIAL AND AFRIC A
OFFICER OFFICER (AME A) REGION
02
Corporate
governance
report
—
34 – 57
Chairman’s letter
—
38 – 39

Summary of our corporate governance

approach
—
40 –40

Board of Directors
—
40 – 44

Executive Committee
—
45 – 47

Shares
—
47 – 50

Shareholders
—
51 – 53

Independent external auditors

—
53 – 53

Other governance information

—
54 – 57
38 A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T

—
Chairman’s letter
Dear Shareholders, Shareholder feedback
Ultimately, our responsibility as Board members
On behalf of the Board of Directors, I am pleased is to you, the shareholders of our company. The
to present the 2017 corporate governance report. Board represents your interests, and we always
In 2017, we continued to strengthen, rejuvenate seek to maintain an open dialogue regarding
and diversify the Board in line with the direction your concerns.
of ABB’s strategy. We undertook a comprehensive
search process and decided to propose three new We received significant feedback from many
individuals to join the Board. We worked closely shareholders regarding the decisions described
with the CEO and the Executive Committee (EC) in ABB’s 2016 compensation report, particularly
to drive the execution of our strategy, and we the level of CEO/EC compensation.
took a series of important steps to strengthen
controls, processes and oversight at our Group. Shareholders’ disapproval was related to the
losses a­ ssociated with the embezzlement
The mandate of the Board of Directors scheme that was exposed in our South Korean
In common with other publicly listed companies subsidiary in February 2017 and the material
in Switzerland, the ABB Board of Directors is re- weakness that we identified in our internal con-
sponsible for reviewing and approving the com- trols. As a result, the discharge of Board of man-
pany strategy. The Board is also responsible for agement was challenged.
ensuring that ABB has the best team in place in
the EC to execute the strategy, optimize the After the theft was discovered, compensation de-
Group’s ­performance and maintain our high ethi- cisions were made that reduced the level of an-
cal standards. nual short-term incentive payments to ABB em-
ployees as well as the Long-Term Incentive Plan
Two key factors contribute to the Board’s ability payout for senior executives.
to perform these duties successfully. First, it is
crucial that, collectively, the directors possess an I can confirm that we have identified the relevant
extensive and diverse range of complementary control issues and that the material weakness in
skills and experience appropriate to the needs our internal controls has been remediated through
and demands of managing a global company in swift and deep actions by the CEO and the entire
the 21st century. In today’s fast-changing market- Group leadership team. Also, the entire leadership
place, characterized by the rapid and constant ad- team in South Korea has been replaced and appro-
vance of technology, this is more important than priate Group level actions have been taken.
ever. Second, it is essential to ensure that the di-
rectors develop an in-depth understanding of Finally, we have been aggressively pursuing crimi-
ABB’s operations and markets, so that they are nal charges against the individual responsible for
properly equipped to contribute to the develop- the theft and have developed a detailed plan to
ment of the strategy and make informed deci- seek to recover as much of the approximately
sions about the company’s future. $100 million in stolen funds as we can. We have
­received insurance payments in the amount of
With the three new Board members that we are $30 million.
proposing this year, we will have changed 10 out of
11 Board members, including the Chairman, within ABB has a zero-tolerance approach to unethical
the past four years. The skills and experience of our behavior and maintains the highest standards re-
Board members are completely aligned with our garding integrity and ethical business practices.
ABB strategy.
We take your input very seriously, and we will
As an independent, non-executive chairman, my continue to respond appropriately to any and all
role is to provide direction to the Board and ensure valid concerns presented to the Board. We have
that we collaborate effectively with the CEO and worked on further improving our disclosure pro-
the members of the EC, who have full and undiluted cesses and are revising the 2018 Long-Term In-
responsibility for the execution of the strategy and centive Plan to address the feedback we received
the operational management of the company. from our shareholders.
A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T 39

Priorities in 2017 A view to the future

In 2017, the Board took steps to continue expand- As chairman, I see my role as ensuring that our
ing our financial and auditing expertise, as well as committees work effectively, providing expert
our depth of knowledge in digital technologies and ­advice and guidance for important decisions and
business models. The new nominations for the leading by example. I have a strong and open rela-
Board were made with these capabilities in mind. tionship with the CEO, characterized by mutual re-
In light of the increasing importance of our new spect. In my work at ABB, I seek to leverage that
digital solutions offering ABB Ability™ to the relationship by providing my firm support to the
Group’s growth, we have chosen to emphasize the Group’s business, as well as by offering a different
importance of building a strong digital team in perspective and serving as a sounding board and
particular. We believe that the nominees will serve source of advice.
to continue the process of rejuvenating our Board,
even as we maintain our focus on stability and exe- I consider it a privilege to serve your interests at
cution. this great company and to represent the voices of
the many shareholders who obviously care deeply
The Board’s activities included conducting regular about ABB’s long-term success.
financial and business reviews, setting Group per-
formance targets, and reviewing capital allocation, Sincerely yours,
including investments, M&A and divestments.
The Board reviewed major projects and monitored Peter Voser
their progress and also approved the annual report Chairman of the Board of Directors
and the agenda for the annual general meeting.
Working with management, we reviewed and ap- February 22, 2018
proved the selection of the new AMEA and Europe
regional presidents and supervised their transi-
tions as well as the transition to the new CFO.

The Board held regular private meetings, which

means without ABB executives or experts pres-
ent. In the course of these meetings, we con-
ducted a self-evaluation of the Board, a perfor-
mance assessment of senior management and
a review of our Group’s succession planning.
40 A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T

—
Summary of corporate governance
approach
Corporate Governance and the independence cri-
Corporate Governance – teria set forth in the corporate governance rules
General principles of the New York Stock Exchange), and the ABB
Co­de of Con­duct and the Addendum to the ABB
ABB is committed to the highest international Code of Conduct for Members of the Board of Di-
standards of corporate governance and this is rectors and the E ­ xecutive Committee (EC). It is
reinforced in its structure, processes and rules the duty of ABB’s Board of Directors (the Board)
as outlined in this corporate governance report. to review and amend or propose amendments to
In line with this, ABB complies with the general those documents from time to time to reflect the
principles as set forth in the Swiss Code of Best most recent developments and practices, as well
Practice for Corporate Governance, as well as as to ensure compliance with applicable laws and
those of the capital markets where its shares are regulations.
listed and traded. In addition to the provisions of
the Swiss Code of Obligations, ABB’s key princi-
ples and rules on corporate governance are laid
Compensation Governance and
down in ABB’s Articles of Incorporation, the ABB Board and EC compensation
Ltd Board Regulations & Corporate Governance
Guidelines (which includes the regulations of Information about ABB’s Compensation Gover-
ABB’s Board committees and the ABB Ltd Related nance and Board and EC compensation and share-
Party Transaction Policy, which was prepared holdings can be found in the Compensation report
based on the Swiss Code of Best Practice for contained in this Annual Report.

—
Board of Directors

Board and Board Committees (2017–2018 Board Term)

  Board of Directors

Chairman: Peter R. Voser Matti Alahuhta Louis R. Hughes

Vice Chairman: Jacob Wallenberg David Constable David Meline
Frederico Fleury Curado Satish Pai
Lars Förberg Ying Yeh

Finance, Audit and Governance and

Compliance Committee Nomination Committee Compensation Committee 
Louis R. Hughes (chairman) Peter R. Voser (chairman) David Constable (chairman)
David Meline Matti Alahuhta Frederico Fleury Curado
Satish Pai Lars Förberg Ying Yeh
Jacob Wallenberg
A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T 41

value through effective governance. In addition,

Board governance the Chairman (1) takes provisional decisions
on behalf of the Board on urgent matters where
The Board a regular Board decision cannot be obtained,
The Board defines the ultimate direction of the (2) calls for Board meetings and sets the related
business of ABB and issues the necessary in- agendas, (3) interacts with the CEO and other
structions. It determines the organization of the EC members on a more frequent basis outside of
ABB Group and appoints, removes and super- Board meetings and (4) represents the Board
vises the persons entrusted with the executive ­internally and in the public sphere.
management and representation of ABB. The in-
ternal organizational structure and the definition Vice-Chairman of the Board
of the areas of responsibility of the Board, as The Vice-Chairman is elected by the Board and
well as the information and control instruments handles the responsibilities of the Chairman to
vis­‑à‑­v is the Executive Committee are set forth the extent the Chairman is unable to do so or
in the ABB Ltd Board Regulations & Corporate would have a conflict of interest in doing so. He
Governance Guidelines. also acts as counselor/advisor to the Chairman on
any matters that are Company or Board relevant
The Board takes decisions as a whole, supported and as appropriate or as the Chairman may re-
by its three committees: the Finance, Audit and quire and with a particular focus on strategic as-
Compliance Committee (FACC), the Governance pects related to the Company and its business in
and Nomination Committee (GNC), and the Com- general. In addition, the Vice-Chairman takes such
pensation Committee (CC). These committees as- other actions as may be decided by the Board or
sist the Board in its tasks and report regularly to requested by the Chairman.
the Board. The members of the Board committees
either are required to be independent or are Finance, Audit and Compliance Committee
elected directly by the shareholders. The Board and The FACC is responsible for overseeing (1) the in-
its committees meet regularly throughout the year. tegrity of ABB’s financial statements, (2) ABB’s
compliance with legal, tax and regulatory require-
The directors and officers of a Swiss corporation ments, (3) the independent auditors’ qualifica-
are bound, as specified in the Swiss Code of Obli- tions and independence, (4) the performance of
gations, to perform their duties with all due care, ABB’s internal audit function and external audi-
to safeguard the interests of the corporation in tors, and (5) ABB’s capital structure, funding re-
good faith and to extend equal treatment to quirements and financial risk and policies.
shareholders in like circumstances.
The FACC must comprise three or more indepen-
The Swiss Code of Obligations does not specify dent directors who have a thorough understand-
what standard of due care is required of the direc- ing of finance and accounting. The Chairman of
tors of a corporate board. However, it is generally the Board and, upon invitation by the committee’s
held by Swiss legal scholars and jurisprudence that chairman, the CEO or other members of the Exec-
the directors must have the requisite capability utive Committee may participate in the commit-
and skill to fulfill their function, and must devote tee meetings, provided that any potential conflict
the necessary time to the discharge of their duties. of interest is avoided and confidentiality of the
Moreover, the directors must exercise all due care discussions is maintained. In addition, the Chief
that a prudent and diligent director would have Integrity Officer, the Head of Internal Audit and
taken in like circumstances. Finally, the directors the external auditors participate in the meetings
are required to take actions in the best interests of as appropriate. As required by the U.S. Securities
the corporation and may not take any actions that and Exchange Commission (SEC) at least one
may be harmful to the corporation. member of the FACC has to be an audit commit-
tee financial expert. The Board has determined
Although the Swiss Code of Obligations does not that each member of the FACC is an audit commit-
discuss specifically conflicts of interest for board tee financial expert.
members, the ABB Ltd Board Regulations and
Corporate Governance Guidelines state that Governance and Nomination Committee
board members shall avoid entering into any situ- The GNC is responsible for (1) overseeing corpo-
ation in which their personal or financial interest rate governance practices within ABB, (2) nomi-
may conflict with the interests of ABB. nating candidates for the Board, the role of CEO
and other positions on the Executive Committee,
Chairman of the Board and (3) succession planning and employment
The Chairman is elected by the shareholders to ­matters relating to the Board and the Executive
represent their interests in creating sustainable Committee. The GNC is also responsible for main-
42 A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T

Members of the Board (2017-2018 Board Term):

First End of
Year of election current Non- Indepen-
Name Nationality Birth at AGM term Executive dent
Peter R. Voser CH 1958 2015 2018 Yes Yes
Jacob Wallenberg SE 1956 1999 2018 Yes Yes
Matti Alahuhta FI 1952 2014 2018 Yes Yes
David Constable CA 1961 2015 2018 Yes Yes
Frederico Fleury Curado BR 1961 2016 2018 Yes Yes
Lars Förberg SE 1965 2017 2018 Yes Yes
Louis R. Hughes US 1949 2003 2018 Yes Yes
David Meline CH/US 1957 2016 2018 Yes Yes
Satish Pai IN 1961 2016 2018 Yes Yes
Ying Yeh CN 1948 2011 2018 Yes Yes

taining an orientation program for new Board Elections and Term of Office
members and an ongoing education program for The members of the Board of Directors and the
existing Board members. Chairman of the Board as well as the members of
the Compensation Committee are elected by
The GNC must comprise three or more indepen- shareholders at the General Meeting of Share-
dent directors. The Chairman of the Board (unless holders for a term of office extending until com-
he is already a member) and, upon invitation by pletion of the next Ordinary General Meeting of
the committee’s chairman, the CEO or other mem- Shareholders. Members whose terms of office
bers of the Executive Committee may participate have expired shall be immediately eligible for
in the committee meetings, provided that any po- re-election. Our Articles of Incorporation do not
tential conflict of interest is avoided and confi- provide for the retirement of directors based on
dentiality of the discussions is maintained. their age. However, an age limit for members of
the Board is set forth in the ABB Ltd Board Regu-
Compensation Committee lations & Corporate Governance Guidelines (al-
The CC is responsible for compensation matters re- though waivers are possible and subject to Board
lating to the Board and the Executive Committee. discretion). If the office of the Chairman of the
Board of Directors or any position on the Com-
The CC must comprise three or more directors pensation Committee becomes vacant during a
who are elected by the shareholders. The Chair- Board term, the Board of Directors may appoint
man of the Board and, upon invitation by the com- (shall appoint in the case of the Chairman of the
mittee’s chairman, the CEO or other members of Board) another individual from among its mem-
the Executive Committee may participate in the bers to that position for the remainder of that
committee meetings, provided that any potential term. The Board of Directors shall consist of no
conflict of interest is avoided and confidentiality less than 7 and no more than 13 members.
of the discussions is maintained.

Board Membership Members of the Board

(2017–2018 Board Term):
Board Composition
In proposing individuals to be elected to the Peter R. Voser has been a member
Board, the Board seeks to align the composition and chairman of ABB’s Board of
and skills of the Board with the company’s strate- ­Directors since April 2015. He is a
gic needs, business portfolio, geographic reach member of the boards of directors
and culture. The Board must be diverse in all as- of Roche Holding Ltd (Switzerland),
pects including gender, nationalities, geographic/ IBM Corporation (U.S.) and Temasek Holdings
regional experience and business experience. In (­Private) Limited (Singapore). He is also a member
addition, the average tenure of the members of of the board of Catalyst (U.S.), a non‑profit
the Board should be well‑balanced. The Board also ­organization. In addition, he is the chairman of the
considers the number of other mandates of each board of trustees of the St. Gallen Foundation for
Board member to ensure that he/she will have International Studies. He was the chief executive
sufficient time to dedicate to his/her role as an officer of Royal Dutch Shell plc (The Netherlands)
ABB board member. from 2009 until 2013. Mr. Voser was born in 1958
and is a Swiss citizen.
 A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T 43

Jacob Wallenberg has been a mem- Louis R. Hughes has been a member
ber of ABB’s Board of Directors of ABB’s Board of Directors since
since June 1999 and vice-chairman May 2003. He is the chairman of the
since April 2015. He is the chairman board of InZero Systems (formerly
of the board of Investor AB (Swe- GBS Laboratories LLC) (U.S.). He is
den). He is vice chairman of the boards of Telefon- also a member of the supervisory board of Akzo
aktiebolaget LM Ericsson AB, SAS AB, FAM AB and Nobel N.V. (The Netherlands) and a member of the
Patricia Industries AB (all Sweden). He is also a board of directors of Nokia Corporation (Finland).
member of the board of directors of the Knut and Mr. Hughes was born in 1949 and is a U.S. citizen.
Alice Wallenberg Foundation (Sweden) and
vice-chairman of the Swedish American Chamber David Meline has been a member of
of Commerce (U.S.). Mr. Wallenberg was born in ABB’s Board of Directors since April
1956 and is a Swedish citizen. 2016. He is the chief financial offi-
cer of Amgen Inc. (U.S.). From 2008
Matti Alahuhta has been a member to 2014 Mr. Meline was with the 3M
of ABB’s Board of Directors since Company (U.S.), where he served as Chief Finan-
April 2014. He is the chairman of cial Officer. Prior to joining 3M, Mr. Meline worked
the boards of Outotec Corporation for more than 20 years for General Motors Com-
and of DevCo Partners Oy (both pany (U.S.). Mr. Meline was born in 1957 and is a
Finland). He is also a member of the boards of Swiss and U.S. citizen.
­directors of KONE Corporation (Finland) and
AB Volvo (Sweden). He has formerly served as Satish Pai has been a member of
President and CEO of KONE Corporation and in ABB’s Board of Directors since April
several Executive positions at Nokia Corporation 2016. He is the managing director
(Finland). Mr. Alahuhta was born in 1952 and is a and member of the board of direc-
Finnish citizen. tors of Hindalco Industries Ltd.
(­India). He joined Hindalco in 2013 after 28 years
David Constable has been a mem- with Schlumberger Limited (U.S.). Mr. Pai was
ber of ABB’s Board of Directors born in 1961 and is an Indian citizen.
since April 2015. He was the chief
executive officer of Sasol Limited Ying Yeh has been a member of
(South Africa) from 2011 until June ABB’s Board of Directors since April
2016 and in addition he was the president from 2011. She is also a member of the
2014 until June 2016. He joined Sasol after more board of directors of Samsonite
than 29 years with Fluor Corporation (U.S.). He is a ­International S.A. (Luxembourg).
member of the boards of directors of Rio Tinto plc Ms. Yeh was born in 1948 and is a Chinese citizen.
(U.K.), Rio Tinto Limited (Australia) and Anadarko
Petroleum Corporation (U.S.). Mr. Constable was As of December 31, 2017, all Board members were
born in 1961 and is a Canadian citizen non‑executive and independent directors and none
of ABB’s Board members held any official functions
. Frederico Fleury Curado has been or political posts. Further information on ABB’s
a member of ABB’s Board of Direc- Board members can be found by clicking on the ABB
tors since April 2016. In October Board of Directors CV link which can be found at
2017 he became the CEO of Ultra- new.abb.com/about/corporate-governance
par Participações S.A. (Brazil).
He is a member of the board of directors of
­Transocean Ltd. (Switzerland). He was the Board Meetings
CEO of Embraer S.A. (Brazil) from 2007 until
June 2016. Mr. Curado was born in 1961 and is The Board meets as frequently as needed but at
a Brazilian ­c itizen. least four times per annual Board term. The Board
has meetings with Executive Committee members
Lars Förberg has been a member as well as private meetings without them. Board
of ABB’s Board of Directors since meetings are convened by the Chairman or upon
April 2017. He is co-founder and request by any other board member or the CEO.
managing partner of Cevian Documentation covering the various items of the
­C apital. Mr. Förberg was born in agenda for each Board meeting is sent out in
1965 and is a Swedish citizen. ­advance to each Board member in order to allow
44 A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T

2017
Pre Annual General Meeting 2017 Post Annual General Meeting 2017
Board Board(3)
Conf. Conf.
Meetings and attendance Mtg. Call FACC GNC CC Mtg. Call FACC GNC CC
Average duration (hours) 8 1.5 2.0 1.5 1.5 8 1.5 2.4 1.5 2
Number of meetings 2 3 7 2 3 5 2 7 4 4
Meetings attended:
Peter R. Voser 2 3 — 2 — 5 2 — 4 —
Jacob Wallenberg 2 2 — 2 — 5 1 — 4 —
Matti Alahuhta 2 3 — 2 — 5 1 — 4 —
David Constable 2 3 — — 3 5 1 — — 4
Frederico Fleury Curado 2 3 — — 3 5 1 — — 4
Robyn Denholm(1) 2 2 6 — — — — — — —
Lars Förberg(2) — — — — — 5 1 — 4 —
Louis R. Hughes 2 3 7 — — 5 2 7 — —
David Meline 2 3 6 — — 5 1 7 — —
Satish Pai 2 3 6 — — 5 1 7 — —
Michel de Rosen(1) 2 3 — — 3 — — — — —
Ying Yeh 2 3 — — 3 5 1 — — 4
(1) Robyn Denholm and Michel de Rosen stepped down from the Board in April 2017.
(2) Lars Förberg was first elected to the Board at the April 2017 AGM.
(3) One conference call Post Annual General Meeting 2017 was a mini board meeting attended just by the Chairman of the Board and the
Chairman of the FACC to whom the Board had delegated authority.

each member time to study the covered matters

prior to the meetings. Further, Board members are
Business Relationships between
entitled to information concerning ABB’s business ABB and its Board members
and affairs. Decisions made at the Board meetings
are recorded in written minutes of the meetings. This section describes important business rela-
tionships between ABB and its Board members,
or companies and organizations represented by
Meetings and attendance them. This determination has been made based
on ABB Ltd's Related Party Transaction Policy.
The Board and its committees have regularly This policy is contained in the ABB Ltd Board Reg-
scheduled meetings throughout the year. These ulations & Corporate Governance Guidelines.
meetings are supplemented by additional meet-
ings (either in person or by conference call), as Sasol Ltd (Sasol) is an important customer of ABB.
necessary. The table above shows the number of ABB supplies Sasol primarily with modular systems
meetings held during 2017 by the Board and its through its Electrification Products division. David
committees, their average duration, as well as Constable was president, chief executive officer
the attendance of the individual Board members. and member of the board of Sasol until June 2016.
The Board meetings shown include a strategic
retreat attended by the members of the Board IBM Corporation (IBM) is an important supplier to
and the EC. ABB. IBM supplies ABB primarily with IT related
hardware, software and services. Peter R. Voser is
a director of IBM.
Mandates of Board members
outside the ABB Group After reviewing the level of ABB’s business with
Sasol and the level of purchases from IBM, the
No member of the Board may hold more than ten Board has determined that ABB’s business rela-
additional mandates of which no more than four tionships with those companies are not unusual in
may be in listed companies. Certain types of man- their nature or conditions and do not constitute
dates, such as those in our subsidiaries, those in material business relationships. As a result, the
the same group of companies and those in Board concluded that all members of the Board
non‑profit and charitable institutions, are not sub- are considered to be independent directors. This
ject to those limits. Additional details can be found determination was made in accordance with
in Article 38 of ABB’s Articles of Incorporation. ABB's Related Party Transaction Policy.
A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T 45

—
Executive Committee
Composition of the Executive Committee
Ulrich Spiesshofer
Chief Executive Officer

C O R P O R AT E O F F I C E R S DIVISION PRESIDENTS REGION PRESIDENTS

Timo Ihamuotila Claudio Facchin Frank Duggan
Chief Financial Officer Power Grids Europe

Jean-Christophe Deslarzes Tarak Mehta Chunyuan Gu

Chief Human Resources Officer Electrification Products Asia, Middle East & Africa

Diane de Saint Victor Peter Terwiesch Greg Scheu

General Counsel Industrial Automation Americas

Sami Atiya
Robotics and Motion

Executive committee ­ artner and global head of operations practice at

p
Roland Berger AG (Switzerland). From 1991 to 2002,
Responsibilities and he held various management positions with A.T.
organization Kearney Ltd. and its affiliates. Mr. Spiesshofer was
born in 1964 and is a Swiss and German citizen.
The Board has delegated the executive manage-
ment of ABB to the CEO. The CEO, and under his Timo Ihamuotila was appointed
direction, the other members of the Executive Chief Financial Officer and member
Committee are responsible for ABB’s overall busi- of the Executive Committee in April
ness and affairs and day-to-day management. The 2017. From 2009 to 2016, Mr. Ihamu-
CEO reports to the Board regularly, and whenever otila was the Chief Financial Officer
extraordinary circumstances so require, on the and Executive Vice President of the Nokia Corpo-
course of ABB’s business and financial perfor- ration (Finland). From 1999 to 2009, he held vari-
mance and on all organizational and personnel ous senior roles with Nokia. Mr. Ihamuotila was
matters, transactions and other issues material to born in 1966 and is a Finnish citizen.
the Group. Each member of the Executive Com-
mittee is appointed and discharged by the Board. Jean-Christophe Deslarzes was
­appointed Chief Human Resources
Officer and member of the Execu-
Members of the tive Committee in November 2013.
In April 2015, he was elected to the
Executive Committee board of directors of the Adecco Group (Switzer-
(at December 31, 2017): land). From 2010 through 2013, he was the Chief
Human Resources and Organization Officer of the
Ulrich Spiesshofer was appointed Carrefour Group (France). From 2008 to 2010 he
Chief Executive Officer in Septem- was President and CEO of the Downstream
ber 2013 and has been a member of ­Aluminum Businesses of Rio Tinto (Canada). He
the Executive Committee since was S ­ enior Vice President Human Resources of
2005. From January 2010 to Septem- ­Alcan Inc. (Canada) from 2006–2008 and in addi-
ber 2013, Mr. Spiesshofer was the ­Executive tion he co-led the integration of Rio Tinto and
­Committee member responsible for the Discrete ­Alcan from 2007 to 2008. From 1994 to 2006, he
Automation and Motion division. He joined ABB in held various human resources and management
November 2005, as the Executive Committee roles with ­Alcan Inc. Mr. Deslarzes was born in
member responsible for Corporate Development. 1963 and is a Swiss citizen.
From 2002 until he joined ABB, he was senior
46 A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T

Diane de Saint Victor was ap- Claudio Facchin was appointed

point­ed General Counsel, C­ ompany President of the Power Grids divi-
Secretary and member of the sion effective January 2016 and has
­Executive Committee in J­ anuary been a member of the Executive
2007. She is also a member of the Committee since December 2013.
board of directors of the American Chamber of From December 2013 through December 2015, he
Commerce (France). From 2013 to 2017, she was a was President of the Power Systems division.
non‑executive director of Barclays plc and Barclays From 2010 to 2013, Mr. Facchin was head of ABB’s
Bank plc (both U.K.). From 2004 to 2006, she was North Asia region. From 2004 to 2009, Mr. Facchin
general counsel of the Airbus Group (France/­ was the head of ABB’s substations global busi-
Germany). From 2003 to 2004, she was general ness unit and from 1995 to 2004, he held various
counsel of SCA Hygiene Products (Germany). From management roles with ABB. Mr. Facchin was born
1993 to 2003, she held various legal positions with in 1965 and is an Italian citizen.
Honeywell International (France/Belgium). From
1988 to 1993, she held various legal positions with Frank Duggan was appointed Pres-
General Electric (U.S.). Ms. de Saint Victor was born ident of the Europe region in July
in 1955 and is a French citizen. 2017 and has been a member of the
Executive Committee since 2011.
Tarak Mehta was appointed Presi- From 2014 to June 2017, Mr Duggan
dent of the Electrification Prod- held the role of President of the Asia, Middle East
ucts division effective January and Africa region. Prior to this from 2011 to 2014,
2016 and has been a member of he was the head of Global Markets. From 2008 to
the Executive Committee since 2014, he was also ABB’s region manager for India,
­October 2010. From October 2010 through Middle East and Africa. From 2008 to 2011, he was
­D ecember 2015, he was President of the Low ABB’s country manager for the United Arab Emir-
Voltage Products division. From 2007 to 2010, ates. Between 1986 and 2008, he held several
he was head of ABB’s transformers business. management positions with ABB. Mr. Duggan was
­B etween 1998 and 2006, he held several manage- born in 1959 and is an Irish citizen.
ment positions with ABB. Mr. Mehta was born in
1966 and is a U.S. citizen. Chunyuan Gu was appointed Presi-
dent of the Asia, Middle East and
Sami Atiya was appointed Presi- ­Africa region in July 2017 and has
dent of the Robotics and Motion Di- been a member of the Executive
vision effective January 2017 and Committee since July 2017. In addi-
has been a member of the Execu- tion, Mr. Gu has been the Managing Director of ABB
tive Committee since June 2016. China since 2014. From 2012 to 2013, he was the
From June to December 2016 he was President of ­Regional Division Head of ABB’s Discrete
the Discrete Automation and Motion division. ­Automation and Motion for North Asia and China.
Prior to joining ABB, Mr. Atiya held senior roles at From 2010 to 2011 he was the Head of ABB’s
Siemens in Germany from 1997 to 2015, including ­Robotics Business Unit in China. Before this, Mr. Gu
CEO of the Mobility and Logistics division in the held various management and technical roles in
Infrastructure and Cities Sector from 2011. Mr. ABB’s R
­ obotics business in China and S ­ weden.
Atiya was born in 1964 and is a German citizen. Mr. Gu was born in 1958 and is a ­Swedish citizen.

Peter Terwiesch was appointed Greg Scheu was appointed Presi-

President of the Industrial Automa- dent of the Americas region as well
tion division effective January 2017 as Head of Group Service and Busi-
and has been a member of the Ex- ness Integration in January 2015
ecutive Committee since January and has been a member of the
2015. He is a member of the board of directors of ­E xecutive Committee since 2012. From 2013 to
Metall Zug AG (Switzerland). He was the President 2014, he was Head of Business Integration, Group
of the Process Automation division from 2015 to Service and North America. From 2012 to 2013, he
2016. From 2011 to 2014, Mr. Terwiesch was the was Head of Marketing and Customer Solutions.
head of ABB’s Central Europe region. He was Mr. Scheu, a former executive of Rockwell Interna-
ABB’s Chief Technology Officer from 2005 to 2011. tional, joined ABB in 2001 and was responsible for
From 1994 to 2005, he held several positions with the integration of both Baldor Electric Co. and of
ABB. Mr. Terwiesch was born in 1966 and is a Thomas & Betts into ABB. Mr. Scheu was born in
Swiss and German citizen. 1961 and is a U.S. citizen.
A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T 47

Further information about the members of the on ABB Ltd's Related Party Transaction Policy.
­E xecutive Committee can be found by clicking on This policy is contained in the ABB Ltd Board Reg-
the Executive Committee CV link at www.abb. ulations & Corporate Governance Guidelines.
com/about/corporate-governance
Adecco S.A. (Adecco) is an important supplier to
ABB. Adecco primarily supplies ABB with tempo-
Mandates of EC members rary personnel services. Jean-Christophe
outside the ABB Group ­Deslarzes is a director of Adecco.

No member of the EC may hold more than five ABB has an unsecured syndicated $2-billion revolv-
­additional mandates of which no more than one ing credit facility. As of December 31, 2017, Barclays
may be in a listed company. Certain types of man- Bank plc (Barclays Bank) had committed to approx-
dates, such as those in our subsidiaries, those imately $74 million out of the $2-billion total. In ad-
in the same group of companies and those in dition, ABB has regular banking business with Bar-
­non-profit and charitable institutions, are not sub- clays. Diane de Saint Victor was a director of
ject to those limits. Additional details can be found Barclays Bank and Barclays plc until May 2017.
in Article 38 of ABB’s Articles of Incorporation.
After reviewing the level of purchases from Adecco,
and after reviewing the banking commitments of
Business Relationships between Barclays, the Board has determined that ABB’s
ABB and its EC members business relationships with those companies are
not unusual in their nature or conditions and do
This section describes important business rela- not constitute material business relationships.
tionships between ABB and its EC members, or This determination was made in accordance with
companies and organizations represented by ABB Ltd's Related Party Transaction Policy.
them. This determination has been made based

—
Shares
Share capital of ABB one registered ABB share). At December 31, 2017,
ABB Ltd had a market capitalization based on
At December 31, 2017, ABB’s ordinary share outstanding shares (total number of outstanding
­capital (including treasury shares) as registered shares: 2,138,606,489) of approximately
with the Commercial Register amounted to CHF 56 billion ($57 billion, SEK 471 billion). The
CHF 260,177,791.68, divided into 2,168,148,264 only consolidated subsidiary in the ABB Group
fully paid registered shares with a par value of with listed shares is ABB India Limited, Bangalore,
CHF 0.12 per share. India, which is listed on the BSE Ltd. (Bombay
Stock Exchange) and the National Stock Exchange
ABB Ltd’s shares are listed on the SIX Swiss of India. At December 31, 2017, ABB Ltd,
Exchange, the NASDAQ OMX Stockholm Exchange Switzerland, directly or indirectly owned
and the New York Stock Exchange (where its 75 percent of ABB India Limited, Bangalore, India,
shares are traded in the form of American which at that time had a market capitalization of
depositary shares (ADS) – each ADS representing approximately INR 297 billion.

Stock exchange listings (At December 31, 2017)

Stock exchange Security Ticker symbol ISIN code
SIX Swiss Exchange ABB Ltd, Zurich, share ABBN CH0012221716
NASDAQ OMX Stockholm Exchange ABB Ltd, Zurich, share ABB CH0012221716
New York Stock Exchange ABB Ltd, Zurich, ADS ABB US0003752047
BSE Ltd. (Bombay Stock Exchange) ABB India Limited, Bangalore, share ABB(1) INE117A01022
National Stock Exchange of India ABB India Limited, Bangalore, share ABB INE117A01022
(1) also called Scrip ID
48 A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T

Share repurchases newly or already issued bonds or other financial

and cancellation market instruments.

Under the share buyback program that ran from At December 31, 2017, ABB’s share capital may be
September 2014 to September 2016, ABB repur- increased by an amount not to exceed
chased a total of 146,595,000 shares for cancella- CHF 1,200,000 through the issuance of up to
tion. In 2016, 100 million shares were cancelled. At 10,000,000 fully paid registered shares with a par
ABB’s General Meeting of Shareholders in 2017, value of CHF 0.12 per share through the exercise
the shareholders approved the cancellation of of warrant rights granted to its shareholders. The
46.595 million shares. This was completed in July Board may grant warrant rights not taken up by
2017. As a result of the share cancellation in 2017, shareholders for other purposes in the interest of
the total number of ABB’s Ltd’s issued shares is ABB.
2,168,148,264.
The pre‑emptive rights of the shareholders are
excluded in connection with the issuance of con-
Changes to the ordinary share vertible or warrant-bearing bonds or other finan-
capital cial market instruments or the grant of warrant
rights. The then current owners of conversion
In 2017, ABB paid a dividend of 0.76 Swiss francs rights and/or warrants will be entitled to sub-
per share relating to the year 2016. In 2016, ABB scribe for new shares. The conditions of the con-
paid its dividend relating to the year 2015 by way version rights and/or warrants will be determined
of a nominal value reduction in the par value of its by the Board.
shares from CHF 0.86 to CHF 0.12. Corresponding
adjustments were made to the par value of ABB’s The acquisition of shares through the exercise of
contingent and authorized shares. warrants and each subsequent transfer of the
shares will be subject to the restrictions of ABB’s
In 2015, ABB paid a portion of its dividend relating Articles of Incorporation (see “Limitations on
to the year 2014 by way of a nominal value reduc- transferability of shares and nominee registra-
tion in the par value of its shares from CHF 1.03 to tion” in Shareholders’ section below).
CHF 0.86. Corresponding adjustments were made
to the par value of ABB’s contingent and autho- In connection with the issuance of convertible or
rized shares. warrant-bearing bonds or other financial market
instruments, the Board is authorized to restrict or
Except for the share cancellation and nominal deny the advance subscription rights of share­
value reductions described above, there were no holders if such bonds or other financial market in-
other changes to ABB’s ordinary share capital struments are for the purpose of financing or refi-
during 2017, 2016 and 2015. nancing the acquisition of an enterprise, parts of
an enterprise, participations or new investments
or an issuance on national or international capital
Convertible bonds and options markets. If the Board denies advance subscription
rights, the convertible or warrant‑bearing bonds or
ABB does not have any bonds outstanding that
other financial market instruments will be ­issued
are convertible into ABB shares. For information
at the relevant market conditions and the new
about options on shares issued by ABB, please re-
shares will be issued pursuant to the relevant mar-
fer to “Note 19 Stockholders’ equity” to ABB’s
ket conditions taking into account the share price
Consolidated Financial Statements contained in
and/or other comparable instruments having a
the “Financial review of the ABB Group” section of
market price. Conversion rights may be exercised
this Annual Report.
during a maximum ten‑year period, and warrants
may be exercised during a maximum seven‑year
Contingent share capital period, in each case from the date of the respective
issuance. The advance subscription rights of the
At December 31, 2017, ABB’s share capital may shareholders may be granted indirectly.
be increased by an amount not to exceed
CHF 24,000,000 through the issuance of up to At December 31, 2017, ABB’s share capital may
200,000,000 fully paid registered shares with be increased by an amount not to exceed
a par value of CHF 0.12 per share through the CHF 11,284,656 through the issuance of up to
­e xercise of conversion rights and/or warrants 94,038,800 fully paid shares with a par value of
granted in connection with the issuance on CHF 0.12 per share to employees. The p­ re‑emptive
­national or ­international capital markets of and advance subscription rights of ABB’s
A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T 49

­ hareholders are excluded. The shares or rights to

s may place these rights and/or shares as to which
subscribe for shares will be issued to employees pre‑emptive rights have been granted but not
pursuant to one or more regulations to be issued ­exercised at market conditions or use them for
by the Board, taking into account performance, other purposes in the interest of the company.
functions, level of responsibility and profitability Furthermore, the Board is authorized to restrict
criteria. ABB may issue shares or subscription or deny the pre‑emptive rights of shareholders
rights to employees at a price lower than that and allocate such rights to third parties if the
quoted on a stock exchange. The acquisition of shares are used (1) for the acquisition of an enter-
shares within the context of employee share own- prise, parts of an enterprise, or participations, or
ership and each subsequent transfer of the shares for new investments, or in case of a share place-
will be subject to the restrictions of ABB’s Articles ment, for the financing or refinancing of such
of Incorporation (see “Limitations on transferabil- transactions; or (2) for the purpose of broadening
ity of shares and nominee registration” in Share- the shareholder constituency in connection with a
holders’ section below). listing of shares on domestic or foreign stock
­exchanges. The subscription and the acquisition
of the new shares, as well as each subsequent
Authorized share capital transfer of the shares, will be subject to the
­restrictions of ABB’s Articles of Incorporation.
At December 31, 2017, ABB had an authorized
share capital in the amount of up to
CHF 24,000,000 through the issuance of up to Share Developments
200,000,000 fully paid registered shares with a
par value of CHF 0.12 each, which is valid through ABB Ltd share price trend during 2017
April 13, 2019. The Board is authorized to deter- During 2017, the price of ABB Ltd shares listed on
mine the date of issue of new shares, the issue the SIX Swiss Exchange increased 22 percent,
price, the type of payment, the conditions for the while the Swiss Performance Index increased
exercise of pre‑emptive rights and the beginning 20 percent. The price of ABB Ltd shares on
date for dividend entitlement. In this regard, the ­NASDAQ OMX Stockholm increased 15 percent,
Board may issue new shares by means of a firm compared to the OMX 30 Index, which increased
underwriting through a banking institution, a syn- 4 percent. The price of ABB Ltd American
dicate or another third party with a subsequent ­Depositary Shares traded on the New York Stock
offer of these shares to the shareholders. The ­E xchange increased 27 percent compared to the
Board may permit pre‑emptive rights that have Dow Jones Industrial Index, which increased
not been exercised by shareholders to expire or it 25 percent.

Zurich
CHF ABBN SW Equity
27 Swiss Performance Index Rebased
26
25
24
23
22
21
20
1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17

Stockholm
SEK ABBN SS Equity
OMX 30 Index Rebased
220
200
180
160

1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17
50 A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T

New York
USD ABB US Equity
Dow Jones Index rebased
27
25
23
21
19
1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17

SIX Swiss NASDAQ OMX New York

Exchange Stockholm Stock Exchange
2017 (CHF) (SEK) (USD)
High 26.40 224.00 26.82
Low 21.71 181.20 21.28
Year-end 26.12 220.30 26.82
Average daily traded number of shares, in millions 5.84 1.23 1.90

Dividends by shareholders at ABB Ltd’s 2018 Annual General

With respect to the year ended December 31, 2017, Meeting. The proposal is in line with the compa-
ABB Ltd’s Board of Directors has proposed to dis- ny’s dividend policy to pay a steadily rising, sus-
tribute a dividend to shareholders in the amount tainable dividend over time.
of CHF 0.78 per share. This is subject to approval

Key data
2017 2016 2015
Dividend per share (CHF) 0.78(1) 0.76 0.74
Par value per share (CHF) 0.12 0.12 0.86
Votes per share 1 1 1
Basic earnings per share (USD)(2) 1.04 0.88 0.87
Total ABB stockholders’ equity per share (USD)(3) 6.93 6.26 6.61
Cash flow from operations per share (USD)(2) 1.78 1.79 1.72
Dividend payout ratio (%)(4) 77% 84% 85%
Weighted-average number of shares outstanding (in millions) 2,138 2,151 2,226
(1) Proposed by the Board of Directors and subject to approval by shareholders at the Annual General Meeting on March 29, 2018, in
Zurich, Switzerland.
(2) Calculation based on weighted-average number of shares outstanding.
(3) Calculation based on the number of shares outstanding at December 31, 2017.
(4) Dividend per share (converted to U.S. dollars at year-end exchange rates) divided by basic earnings per share.
A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T 51

—
Shareholders
Shareholder structure Shareholders’ rights
As of December 31, 2017, the total number of Shareholders have the right to receive dividends,
shareholders directly registered with ABB Ltd to vote and to execute such other rights as granted
was approximately 118,000 and another under Swiss law and the Articles of Incorporation.
295,000 shareholders held shares indirectly
through ­nominees. In total as of that date, ABB Right to vote:
had ­approximately 413,000 shareholders. ABB has one class of shares and each registered
share carries one vote at the general meeting.
Voting rights may be exercised only after a share-
Significant shareholders holder has been registered in the share register of
ABB as a shareholder with the right to vote, or
Investor AB, Sweden, held 232,165,142 ABB shares
with Euroclear Sweden AB (Euroclear), which
as of December 31, 2017. This holding represents
maintains a subregister of the share register of
approximately 10.71 percent of ABB’s total share
ABB.
capital and voting rights as registered in the
­Commercial Register on December 31, 2017. The
A shareholder may be represented at the Annual
number of shares held by Investor AB does not
General Meeting by its legal representative, by
­include shares held by Mr. Jacob Wallenberg, the
­another shareholder with the right to vote or by
chairman of Investor AB and a director of ABB, in
the independent proxy elected by the sharehold-
his individual capacity.
ers (unabhängiger Stimmrechtsvertreter). If the
Company does not have an independent proxy,
Cevian Capital II GP Limited, Channel Islands,
the Board of Directors shall appoint the indepen-
­disclosed that as of September 8, 2017, on behalf
dent proxy for the next General Meeting of Share­
of its general partners, it held 115,868,333 ABB
holders. All shares held by one shareholder may
shares. This holding represents approximately
be represented by one representative only.
5.347 percent of ABB’s total share capital and
­voting rights as registered in the Commercial
For practical reasons shareholders must be
Register on December 31, 2017.
­registered in the share register no later than
6 business days before the general meeting in
BlackRock Inc., New York, U.S., disclosed that as
­order to be ­entitled to vote. Except for the cases
of August 31, 2017, it, together with its direct and
described under Limitations on transferability of
indirect subsidiaries, held 72,900,737 ABB shares.
shares and nominee registration below, there are
This holding represents 3.36 percent of ABB’s
no voting rights restrictions limiting ABB’s
­total share capital and voting rights as registered
shareholders’ rights.
in the Commercial Register on December 31, 2017.

Powers of General Meetings:

At December 31, 2017, to the best of ABB’s
The Ordinary General Meeting of Shareholders
­k nowledge, no other shareholder held 3 percent
must be held each year within six months after
or more of ABB’s total share capital and voting
the close of the fiscal year of the Company; the
rights as registered in the C
­ ommercial Register
business report, the compensation report and the
on that date.
Auditors’ reports must be made available for
­inspection by the shareholders at the place of
ABB Ltd has no cross shareholdings in excess of
­incorporation of the Company by no later than
5 percent of capital, or voting rights with any
twenty days prior to the meeting. Each share-
other company.
holder is entitled to request immediate delivery
of a copy of these documents.
Under ABB’s Articles of Incorporation, each regis-
tered share represents one vote. Significant
The following powers shall be vested exclusively
shareholders do not have different voting rights.
in the General Meeting of Shareholders:
To our knowledge, we are not directly or indirectly
• Adoption and amendment of the Articles of
owned or controlled by any government or by any
­Incorporation
other corporation or person.
52 A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T

• Election of the members of the Board of Direc- those reserves are at the disposal of the share-
tors, the Chairman of the Board of Directors, the holders’ meeting.
members of the Compensation Committee, the
Auditors and the independent proxy Under Swiss law, ABB Ltd may only pay out a
• Approval of the annual management report and ­dividend if it has been proposed by a shareholder
consolidated financial statements or the Board of Directors and approved at a
• Approval of the annual financial statements and ­general meeting of shareholders, and the auditors
decision on the allocation of profits shown on confirm that the dividend conforms to statutory
the balance sheet, in particular with regard to law and ABB’s Articles of Incorporation. In prac-
dividends tice, the shareholders’ meeting usually approves
• Approval of the maximum compensation of the dividends as proposed by the Board of Directors.
Board of Directors and of the Executive Com-
mittee pursuant to Article 34 of the Articles of Dividends are usually due and payable no earlier
Incorporation than two trading days after the shareholders’ res-
• Granting discharge to the members of the olution and the ex‑date for dividends is normally
Board of Directors and the persons entrusted two trading days after the shareholders’ resolu-
with management tion approving the dividend. Dividends are paid
• Passing resolutions as to all matters reserved to out to the holders that are registered on the
the authority of the General Meeting by law or ­record date. Euroclear administers the payment of
under the Articles of Incorporation or that are those shares registered with it. Under Swiss law,
submitted to the General Meeting by the Board dividends not collected within five years after the
of Directors, subject to article 716a of the Swiss due date accrue to ABB Ltd and are allocated to its
Code of Obligations. other reserves. As ABB Ltd pays cash dividends, if
any, in Swiss francs (subject to the exception for
Resolutions and elections at General Meetings certain shareholders in Sweden described below),
Shareholders’ resolutions at general meetings are exchange rate fluctuations will affect the
approved with an absolute majority of the votes U.S. ­dollar amounts received by holders of ADSs
represented at the meeting, except for those mat- upon conversion of those cash dividends by
ters described in article 704 of the Swiss Code of ­Citibank, N.A., the depositary, in accordance with
Obligations and for resolutions with respect to the Amended and Restated Deposit Agreement
restrictions on the exercise of the right to vote dated May 7, 2001.
and the removal of such restrictions, which all
­require the approval of two-thirds of the votes For shareholders who are residents of Sweden,
represented at the meeting. ABB has established a dividend access facility (for
up to 600,004,716 shares). With respect to any
At December 31, 2017, shareholders representing ­annual dividend payment for which this facility is
shares of a par value totaling at least CHF 48,000 made available, shareholders who register with
may require items to be included in the agenda of Euroclear may elect to receive the dividend from
a general meeting. Any such request must be ABB Norden Holding AB in Swedish krona (in an
made in writing at least 40 days prior to the date amount equivalent to the dividend paid in Swiss
of the general meeting and specify the items and francs) without deduction of Swiss withholding
the motions of such shareholder(s). tax. For further information on the dividend
­access facility, see ABB’s Articles of Incorporation.
ABB’s Articles of Incorporation do not contain
provisions on the convocation of the general Limitations on transferability of shares and
meeting of shareholders that differ from the nominee registration
­applicable legal provisions. ABB may decline a registration with voting rights
if a shareholder does not declare that it has
Shareholders’ dividend rights ­acquired the shares in its own name and for its
The unconsolidated statutory financial state- own account. If the shareholder refuses to make
ments of ABB Ltd are prepared in accordance with such declaration, it will be registered as a share-
Swiss law. Based on these financial statements, holder without voting rights. A person failing to
dividends may be paid only if ABB Ltd has expressly declare in its registration / application
­sufficient distributable profits from previous that it holds the shares for its own account (a
years or sufficient free reserves to allow the nominee), will be entered in the share register
­distribution of a dividend. Swiss law requires that with voting rights, provided that such nominee
ABB Ltd retain at least 5 percent of its annual net has entered into an agreement with ABB
profits as legal reserves until these reserves ­concerning its status, and further provided that
amount to at least 20 percent of ABB Ltd’s share the nominee is subject to recognized bank or
capital. Any net profits remaining in excess of ­f inancial market supervision. In special cases the
A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T 53

Board may grant exemptions. There were no shareholders or ADR holders may therefore pur-
­exemptions granted in 2017. The limitation on the chase or sell their ABB shares or ADRs at any time,
transferability of shares may be removed by an including before a General Meeting regardless of
amendment of ABB’s Articles of Incorporation by the record date. The record date serves only to
a shareholders’ resolution requiring two‑thirds of ­determine the right to vote at a General Meeting.
the votes represented at the meeting.
Duty to make a public tender offer:
No restriction on trading of shares ABB’s Articles of Incorporation do not contain any
No restrictions are imposed on the transferability provisions raising the threshold (opting up) or
of ABB shares. The registration of shareholders in waiving the duty (opting out) to make a public
the ABB Share register, Euroclear and the ADS tender offer pursuant to article 32 of the Swiss
­register kept by Citibank does not affect transfer­ Stock Exchange and Securities Trading Act.
ability of ABB shares or ADSs. Registered ABB

—
Independent external auditors
Duration of the mandate and Audit and additional fees paid
term of office of the auditor to the auditor
Ernst & Young are the auditors of ABB’s statutory The audit fees charged by Ernst & Young for the
and consolidated financial statements. Ernst & legally prescribed audit amounted to $28.3 million
Young assumed the sole auditing mandate of the in 2017. Audit services are defined as the standard
consolidated financial statements of the ABB audit work performed each fiscal year necessary
Group beginning in the year ended December 31, to allow the auditors to issue an opinion on the
2001 (having previously been joint auditors since consolidated financial statements of ABB and to
1994). The auditor in charge and responsible for issue an opinion on the local statutory financial
the mandate, Leslie Clifford, began serving in this statements. Included in the 2017 audit fees were
function in respect of the financial year ended approximately $2.4 million related to the 2016
­December 31, 2013. Pursuant to ABB’s Articles of ­audit, which were not agreed until after the
Incorporation, the term of office of ABB’s auditors ­Company had published its annual report on
is one year. March 13, 2017.

During 2017, ABB announced that its Board has This classification may also include services that
decided to appoint KPMG as its external auditor can be provided only by the auditors, such as
­effective for the financial year 2018. The appoint- pre‑issuance reviews of quarterly financial results
ment is subject to shareholder approval. and comfort letters delivered to underwriters in
connection with debt and equity offerings.

Information to the Board and In addition, Ernst & Young charged $2.4 million for
the Audit and Compliance non‑audit services performed during 2017.
Non‑audit services include primarily accounting
Committee consultations, audits of pension and benefit
plans, accounting advisory services, other attest
Supervisory and control instruments vis-à-vis
services related to financial reporting that are not
the auditors
­required by statute or regulation, income tax and
The FACC prepares proposals to the Board for the
indirect tax compliance services and tax advisory
appointment and removal of the auditors. The
services. In accordance with the requirements of
FACC is also responsible for supervising the
the U.S. Sarbanes‑Oxley Act of 2002 and rules
­auditors to ensure their qualifications, indepen-
­issued by the SEC, ABB has, on a global basis, a
dence and performance. It meets regularly with the
process for the review and pre‑approval of audit
auditors, at least four times each calendar year, to
and non‑audit services to be performed by Ernst &
­obtain reports about the results of their audit pro-
Young.
cedures. The FACC reports the material elements
of its supervision of the auditors to the Board.
54 A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T

—
Other governance information

ABB Group organizational Governance differences from

structure NYSE Standards

ABB Ltd, Switzerland is the ultimate parent According to the New York Stock Exchange’s
­company of the ABB Group. Its sole shareholding ­corporate governance standards (the Standards),
is in ABB Asea Brown Boveri Ltd which directly or ABB is required to disclose significant ways in
indirectly owns the other companies in the ABB which its corporate governance practices differ
Group. The table in the appendix to this Corpo- from the Standards. ABB has reviewed the Stan-
rate governance report sets forth, as of December dards and concluded that its corporate gover-
31, 2017, the name, place of incorporation, owner- nance practices are generally consistent with the
ship interest and share capital of the significant Standards, with the following significant
direct and indirect subsidiaries of ABB Ltd. ABB’s ­exceptions:
operational group structure is described in the • Swiss law requires that the external auditors be
“Financial review of ABB Group” section of this elected by the shareholders at the Annual
Annual Report under “Operating and financial ­General Meeting rather than by the audit com-
­review and prospects – Organizational structure”. mittee or the board of directors.
• The Standards require that all equity compensa-
tion plans and material revisions thereto be
Management contracts ­approved by the shareholders. Consistent with
Swiss law such matters are decided by our
There are no management contracts between ABB Board. However, the shareholders decide about
and companies or natural persons not belonging the creation of new share capital that can be
to the ABB Group. used in connection with equity compensation
plans.
• Swiss law requires that the members of the
Change of control clauses compensation committee are elected by the
shareholders rather than appointed by our
Board members, Executive Committee members, Board.
and other members of senior management do • Swiss law requires shareholders to approve the
not receive any special benefits in the event of a maximum aggregate Board compensation and
change of control. However, the conditional the maximum aggregate Executive Committee
grants under the Long Term Incentive Plan and compensation.
the Management Incentive Plan may be subject
to accelerated vesting in the event of a change of
control. ABB’s policy on tax
ABB acts as a responsible global corporate citizen
Employee participation in compliance with applicable tax law and regula-
tions. It is ABB’s policy to provide transparent and
programs comprehensive information to tax administrations
in order to facilitate their understanding of
In order to align its employees’ interests with the ­tax-related decisions taken by ABB. Further
business goals and financial results of the com- ­information regarding our tax policy can be found
pany, ABB operates a number of incentive plans, at www.abb.com/sustainability
linked to ABB’s shares, such as the Employee
Share Acquisition Plan, the Management Incentive
Plan and the Long Term Incentive Plan. For a more Information policy
detailed description of these incentive plans,
please refer to “Note 18 Share‑based payment ABB, as a publicly traded company, is committed
­arrangements” to ABB’s Consolidated Financial to communicating in a timely and consistent way
Statements contained in the “Financial review of to shareholders, potential investors, financial
ABB Group” section of this Annual Report. ­analysts, customers, suppliers, the media and
A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T 55

other interested parties. ABB is required to dis- Further information on

seminate material information pertaining to its
businesses in a manner that complies with its
corporate governance
­obligations under the rules of the stock ex-
changes where its shares are listed and traded. The list below contains references to additional
information concerning the corporate governance
ABB publishes an annual report that provides of ABB, which can be accessed at www.abb.com/
­audited financial statements and information about/corporate-governance
about ABB including our business results, strat-
egy, products and services, corporate governance • Articles of Incorporation
and executive compensation. ABB also submits an • ABB Ltd Board Regulations & Corporate
annual report on Form 20-F to the SEC. In ­Governance Guidelines
­addition, ABB publishes its results on a quarterly • Regulations of the Finance, Audit and
basis as press releases, distributed pursuant to ­Compliance Committee
the rules and regulations of the stock exchanges • Regulations of the Governance and Nomination
on which its shares are listed and traded. Press Committee
­releases relating to financial results and material • Regulations of the Compensation Committee
events are also filed with the SEC on Form 6-K. • Related Party Transaction Policy
An archive containing Annual Reports, Form 20-F • ABB Code of Conduct
­reports, quarterly results releases and related pre- • Addendum to the ABB Code of Conduct for
sentations can be found in the “Financial r­ esults Members of the Board of Directors and the
and presentations” section at www.abb.com/­ ­E xecutive Committee
investorrelations. The quarterly results press re- • Comparison of ABB’s corporate governance
leases contain unaudited financial information practices to the New York Stock Exchange rules
prepared in accordance with or reconciled to U.S. • Summary of differences of shareholder rights
GAAP. To subscribe to important press releases, under Swedish and Swiss law applicable to ABB
please click on the “Contacts and Services” and • CVs of the Board members
choose “Subscribe to updates” at www.abb.com/ • CVs of the Executive Committee members
investorrelations. Ad hoc notices can also be found
in the press releases section at www.abb.com/
news

ABB’s official means of communication is the Swiss

Official Gazette of Commerce (www.shab.ch).
The invitation to the company’s Annual General
­Meeting is sent to registered shareholders by mail.

Inquiries may also be made to ABB Investor

Relations:

Affolternstrasse 44
CH–8050 Zurich, Switzerland
Telephone: +41 43 317 7111
Fax: +41 44 311 9817
E-mail: [email protected]
ABB’s Web site is: www.abb.com
56 A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T

Appendix – ABB Ltd’s significant subsidiaries

Share
ABB capital in
Company name/location Country interest % thousands Currency
SARPI – Société Algérienne pour la réalisation de projets
industriels, Alger Algeria 50.00 814,500 DZD
ABB S.A., Buenos Aires Argentina 100.00 278,860 ARS
ABB Australia Pty Limited, Moorebank, NSW Australia 100.00 131,218 AUD
ABB Group Investment Management Pty. Ltd., Moorebank, NSW Australia 100.00 505,312 AUD
B&R Holding GmbH, Eggelsberg Austria 100.00 35 EUR
B&R Industrial Automation GmbH, Eggelsberg Austria 100.00 1,240 EUR
ABB N.V., Zaventem Belgium 100.00 13,290 EUR
ABB Ltda., São Paulo Brazil 100.00 689,793 BRL
ABB Bulgaria EOOD, Sofia Bulgaria 100.00 65,110 BGN
ABB Canada Holding Limited Partnership, Saint-Laurent,
Quebec Canada 100.00 — CAD
ABB Inc., Saint‑­L aurent, Quebec Canada 100.00 — (1) CAD
Thomas & Betts Limited, Saint­‑Jean‑­sur‑­R ichelieu, Quebec Canada 100.00 — (1) CAD
ABB Beijing Drive Systems Co. Ltd., Beijing China 90.00 5,000 USD
ABB (China) Ltd., Beijing China 100.00 310,000 USD
ABB Engineering (Shanghai) Ltd., Shanghai China 100.00 40,000 USD
ABB High Voltage Switchgear Co. Ltd., Beijing China 60.00 11,400 USD
ABB Xiamen Low Voltage Equipment Co. Ltd., Xiamen China 100.00 15,800 USD
ABB Xiamen Switchgear Co. Ltd., Xiamen China 64.30 23,500 USD
ABB Xinhui Low Voltage Switchgear Co. Ltd., Xinhui China 90.00 6,200 USD
ABB s.r.o., Prague Czech Republic 100.00 400,000 CZK
ABB A/S, Skovlunde Denmark 100.00 100,000 DKK
ABB for Electrical Industries (ABB ARAB) S.A.E., Cairo Egypt 100.00 353,479 EGP
Asea Brown Boveri S.A.E., Cairo Egypt 100.00 166,000 USD
ABB AS, Jüri Estonia 100.00 1,663 EUR
ABB Oy, Helsinki Finland 100.00 10,003 EUR
ABB France, Cergy Pontoise France 99.83 25,778 EUR
ABB SAS, Cergy Pontoise France 100.00 45,921 EUR
ABB AG, Mannheim Germany 100.00 167,500 EUR
ABB Automation GmbH, Mannheim Germany 100.00 15,000 EUR
ABB Automation Products GmbH, Ladenburg Germany 100.00 10,620 EUR
ABB Beteiligungs‑­und Verwaltungsges. mbH, Mannheim Germany 100.00 61,355 EUR
ABB Stotz­‑Kontakt GmbH, Heidelberg Germany 100.00 7,500 EUR
Busch‑­Jaeger Elektro GmbH, Lüdenscheid Germany 100.00 1,535 EUR
ABB Holding Ltd., Hong Kong Hong Kong 100.00 27,887 HKD
ABB (Hong Kong) Ltd., Hong Kong Hong Kong 100.00 20,000 HKD
ABB Global Industries and Services Private Limited, Bangalore India 100.00 190,000 INR
ABB India Limited, Bangalore India 75.00 423,817 INR
ABB S.p.A., Milan Italy 100.00 110,000 EUR
Power-One Italy S.p.A., Terranuova Bracciolini (AR) Italy 100.00 22,000 EUR
ABB K.K., Tokyo Japan 100.00 1,000,000 JPY
ABB Ltd., Seoul Korea, Republic of 100.00 23,670,000 KRW
ABB Mexico S.A. de C.V., San Luis Potosi SLP Mexico 100.00 633,368 MXN
Asea Brown Boveri S.A. de C.V., San Luis Potosi SLP Mexico 100.00 667,686 MXN
ABB B.V., Rotterdam Netherlands 100.00 9,200 EUR
ABB Capital B.V., Rotterdam Netherlands 100.00 1,000 USD
ABB Finance B.V., Rotterdam Netherlands 100.00 20 EUR
ABB Holdings B.V., Rotterdam Netherlands 100.00 119 EUR
ABB Investments B.V., Rotterdam Netherlands 100.00 100 EUR
ABB AS, Billingstad Norway 100.00 250,000 NOK
ABB Holding AS, Billingstad Norway 100.00 240,000 NOK
ABB Business Services Sp. z o.o., Warsaw Poland 99.92 50 PLN
ABB Sp. z o.o., Warsaw Poland 99.92 350,656 PLN
ABB Ltd., Moscow Russian Federation 100.00 5,686 RUB
ABB Contracting Company Ltd., Riyadh Saudi Arabia 95.00 40,000 SAR
ABB Electrical Industries Co. Ltd., Riyadh Saudi Arabia 65.00 168,750 SAR
ABB Holdings Pte. Ltd., Singapore Singapore 100.00 32,797 SGD
ABB Pte. Ltd., Singapore Singapore 100.00 28,842 SGD
ABB Holdings (Pty) Ltd., Longmeadow South Africa 100.00 4,050 ZAR
A B B A N N U A L R E P O R T 2 0 17 0 2 C O R P O R AT E G O V E R N A N C E R E P O R T 57

Share
ABB capital in
Company name/location Country interest % thousands Currency
ABB South Africa (Pty) Ltd., Longmeadow South Africa 74.91 1 ZAR
Asea Brown Boveri S.A., Madrid Spain 100.00 33,318 EUR
ABB AB, Västerås Sweden 100.00 400,000 SEK
ABB Norden Holding AB, Västerås Sweden 100.00 2,344,783 SEK
ABB Asea Brown Boveri Ltd, Zurich Switzerland 100.00 2,768,000 CHF
ABB Information Systems Ltd., Zurich Switzerland 100.00 500 CHF
ABB Investment Holding GmbH, Zurich Switzerland 100.00 92,054 CHF
ABB Management Services Ltd., Zurich Switzerland 100.00 571 CHF
ABB Schweiz AG, Baden Switzerland 100.00 55,000 CHF
ABB Turbo Systems AG, Baden Switzerland 100.00 10,000 CHF
ABB LIMITED, Bangkok Thailand 100.00 1,034,000 THB
ABB Elektrik Sanayi A.S., Istanbul Turkey 99.99 13,410 TRY
United Arab
ABB Industries (L.L.C.), Dubai Emirates 49.00(2) 5,000 AED
ABB Holdings Limited, Warrington United Kingdom 100.00 226,014 GBP
ABB Limited, Warrington United Kingdom 100.00 120,000 GBP
ABB Finance (USA) Inc., Wilmington, DE United States 100.00 1 USD
ABB Holdings Inc., Cary, NC United States 100.00 2 USD
ABB Inc., Cary, NC United States 100.00 1 USD
ABB Treasury Center (USA), Inc., Wilmington, DE United States 100.00 1 USD
Baldor Electric Company, Fort Smith, AR United States 100.00 — USD
Edison Holding Corporation, Wilmington, DE United States 100.00 10 USD
Thomas & Betts Corporation, Knoxville, TN United States 100.00 1 USD
Verdi Holding Corporation, Wilmington, DE United States 100.00 — USD
(1) Shares without par value.
(2) Company consolidated as ABB exercises full management control.
03
Compensation
report
—
58 – 85
Letter from the Chairman of the
­Compensation Committee
—
62 – 63

Compensation report
—
63 – 84

Report of the statutory auditor

on the Compensation report
—
85 – 85
62 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

—
Letter from the Chairman of the
Compensation Committee
Dear Shareholders, On the fixed compensation elements of the EC,
I am pleased to report that in 2017 we completed
On behalf of the Board of Directors and the Com- the final implementation stage of the pension
pensation Committee, I am pleased to present the system that was revised by the Board in 2015 af-
Compensation Report for 2017. ter a thorough review of the level of pension bene-
fits in the context of total compensation. The
This year, I was honored to become Chairman of staged inclusion of the members was a deliberate
the Compensation Committee when Michel de decision taken in 2015 to allow for changes in EC
Rosen stepped down from the position. All of us composition as we implemented the NLS. No fur-
are very grateful to Michel for his contributions ther adjustments to the system are planned.
and thank him for his dedicated service to the
committee. My focus will be to continue to ensure 2018 Compensation outlook
that the compensation structure at ABB reflects ABB continues to increase the performance orien-
­best-practice standards and to maintain a dia- tation of its compensation system to better align it
logue with our shareholders on compensation to the Company’s NLS and to best-market prac-
matters. tices and inputs received from shareholders and
other stakeholders. The key developments since
Performance and pay outcomes in 2017 September 2014 when our NLS was first an-
In 2017, ABB continued to implement its Next nounced, are highlighted on pages 73 to 74. In 2017,
Level strategy (NLS) into its 3rd stage. The suc- the Committee’s work was focused on a compre-
cessful execution of the strategy supported the hensive review of the LTIP to make it simpler, more
company’s steady performance, which has been performance-oriented and more transparent.
reflected in compensation outcomes.
Starting from 2018, our present two-component
Starting with the Board, there have been no LTIP will be merged into a single performance
changes in the structure of fees payable to Board share unit grant. Besides being simpler, it will be
members for the roles they perform. The aggre- more performance-oriented by having two equally
gate Board compensation for the 2017-2018 term weighted performance measures. First an EPS
was in line with the amount approved at the 2017 measure in line with our Company strategy, and
Annual General Meeting. secondly, a relative Total Shareholder Return (TSR)
measure to bring in the market competition per-
Aggregate Executive Committee (EC) compensa- spective. We will increase transparency and dis-
tion was 5.4 percent higher in 2017 than in 2016, close the composition of the peer group for the
principally due to the one-time share grant to the relative TSR assessment in the next Compensa-
incoming CFO to compensate him for benefits tion report following the initial grant.
foregone from his previous employer. Short-term
incentives, formulated to drive the achievement of Furthermore, ABB’s executive shareholding re-
challenging annual performance targets, reflected quirement, already one of the highest in the mar-
an average achievement payout of 95.6 percent ket, will be further strengthened by requiring our
for the entire EC. The 2014 launch of the EC members not to dispose any shares vesting
Long‑Term Incentive Plan (LTIP) vested in 2017, from our LTIPs until their respective requirement
with the performance component, measured is met. You will find a detailed description of the
against EPS, vesting at 37 percent while the reten- changes to our policy on pages 72 to 74.
tion component vested fully, conditional on con-
tinued employment. The Committee recognized Governance
the need for increased performance orientation In the course of the reporting year, the Compen-
and transparency and has conducted a compre- sation Committee performed its regular activi-
hensive review of the LTIP for implementation ties, including recommending performance tar-
starting from the 2018 grant. The Compensation gets to the Board at the beginning of the year
Report explains in greater detail how the 2017 re- which impacts variable pay, reviewing and rec-
sults impacted the variable incentive payments to ommending performance assessments of 2016,
the Executive Committee members. recommending the compensation of ABB’s
A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 63

Board, CEO and EC members, formulating We encourage and pursue an open and regular dia-
the Compensation Report, and preparing the logue with our stakeholders. Your feedback is
“­say-on-pay” vote at the Annual General Meeting highly valued and appreciated as we continue to
(AGM). The compensation Committee has also improve the compensation system.
carried out a self assessment of its own effec-
tiveness. You will find further information on our On behalf of ABB, the Compensation Committee
activities and on ABB´s compensation system and the Board, I thank you for your continued trust
and governance in the following pages. in ABB and for your consistently constructive and
supportive feedback regarding our compensation
At the AGM in March 2018, you will also be asked to framework.
vote on the maximum aggregate compensation
for the Board for its 2018–2019 term and on the David E. Constable
maximum aggregate compensation for the Execu- Chairman of the Compensation Committee
tive Committee for 2019. This Compensation re-
port will be submitted for a non-binding, consulta- Zurich, February 22, 2018
tive vote by shareholders.

—
Compensation report
­ hort-term and long-term elements. Compensa-
s
Compensation governance tion may be paid in cash, shares or other benefits.
• “Say-on-pay” vote (Article 34): Shareholders
Shareholders’ engagement approve the maximum aggregate amount of
compensation of the Board for the following
ABB’s Articles of Incorporation, approved by its Board term and of the EC for the following
shareholders, contain provisions on compensation ­f inancial year.
which govern and outline the principles of compen- • Supplementary amount for new EC members
sation relating to our Board and Executive Com- (Article 35): If the maximum approved aggre-
mittee. They can be found on ABB’s Corporate gov- gate compensation amount is not sufficient to
ernance Web site www.abb.com/about/ also cover the compensation of newly pro-
corporate-governance and are summarized below: moted/hired EC members, up to 30 percent of
• Compensation Committee (Articles 28 to 31): the last maximum approved aggregate amount
The Compensation Committee (CC) is com- shall be available as a supplementary amount
posed of a minimum of three members of the to cover the compensation of such new EC
Board of Directors who are elected individually members.
by the shareholders at the Annual General Meet- • Credits (Article 37): Credits may not be granted
ing (AGM) for a period of one year. The CC sup- to members of the Board or of the EC.
ports the Board in establishing and reviewing
the compensation strategy, principles and pro- Shareholders also have a consultative vote on the
grams, in preparing the proposals to the AGM prior year’s Compensation report at the AGM. The
on compensation matters and in determining Compensation report describes the compensa-
the compensation of the Board and of the EC. tion principles and programs as well as the gover-
The responsibilities of the CC are defined in nance framework related to the compensation of
more detail in the Board Regulations and Corpo- the Board and EC. The report also provides details
rate Governance guidelines, which are available of the compensation paid to the members of the
on ABB’s Corporate governance Web site. Board and of the EC in the prior calendar year.
• Compensation principles (Article 33): Compensa-
tion of the members of the Board consists of The Compensation report is written in accordance
fixed compensation only, which is delivered in with the Ordinance against Excessive Remunera-
cash and shares (with an option to elect for tion in Stock Listed Corporations (Ordinance), the
shares only). Compensation of the members standard relating to information on Corporate
of the EC consists of fixed and variable compen­ Governance of the SIX Swiss Exchange, the rules
sation. Variable compensation may comprise of the stock markets of Sweden and the United
64 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

Exhibit 1: Authority levels in compensation matters

CEO CC Board AGM
Compensation policy including incentive plans
Maximum aggregate compensation amount EC
CEO compensation
Individual compensation EC members
Performance target setting and assessment CEO
Performance target setting and assessment EC
Shareholding requirements CEO and EC
Maximum aggregate compensation amount Board
Individual compensation of Board members
Compensation report Consultative vote
  Proposal       Recommendation       Approval

States where ABB’s shares are also listed, and the The Chairman of the CC reports to the full Board
principles of the Swiss Code of Best Practice for after each CC meeting. The minutes of the meet-
Corporate Governance of economiesuisse. ings are available to the members of the Board.
As a general rule, the CEO, the Chief Human
Authority levels in compensation matters ­Resources Officer (CHRO) and the Head of
The CC acts in an advisory capacity while the ­Compensation and Benefits attend part of the CC
Board retains the decision authority on compen- meetings in an advisory capacity. The Chairman
sation matters, except for the maximum aggre- of the CC may decide to invite other executives
gate compensation amounts of the Board and of upon consultation with the CEO, as appropriate.
the EC, which are subject to the approval of share- Executives do not attend the meetings or the
holders at the AGM. The authority levels of the dif- parts of the meetings in which their own compen-
ferent bodies on compensation matters are de- sation and/or performance are being discussed.
tailed in Exhibit 1.
The CC may decide to consult external advisors
Activities of the CC in 2017 for compensation matters. In 2017, Hostettler &
The CC meets as often as business requires but at Company (HCM) and PricewaterhouseCoopers
least four times a year. In 2017, the CC held seven (PwC) were mandated to provide services related
meetings and performed the activities described to executive compensation matters. HCM has no
in Exhibit 2. Details on meeting attendance of the other mandate with ABB. Apart from its CC advi-
individual CC members are provided in the Corpo- sory role, PwC also provides human resources, tax
rate governance report on page 44. and advisory services to ABB.

Exhibit 2: CC activities during 2017

Performance: items relating to past performance cycle
Individual performance assessment of CEO and EC members
Performance assessment for short-term variable compensation
Payout of long-term variable compensation
Performance: items relating to upcoming performance cycle
Setting of performance targets for short-term variable compensation
Setting of performance targets for long-term variable compensation
Quarterly updates on status of various performance plans
EC compensation review and planning
Review of EC compensation (incentive structure, levels and mix) relative to external benchmarks
Specific review, in 2017, of the Long‑Term Incentive Plan
Recommendation of individual compensation of EC members
Review of pensions and benefits
Review of shareholding level of each EC member
Board compensation
Comparison of compensation levels against external benchmarks
Recommendation of individual compensation of Board members
Compliance and regulatory
Preparation of Compensation report for publication
Preparation of maximum aggregate compensation amount of EC to be submitted to AGM vote
Preparation of maximum aggregate compensation amount of Board to be submitted to AGM vote
A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 65

Total compensation overview period. The shares are subject to a three-year

­restriction period during which they cannot be
Exhibit 3: Board compensation (in CHF) sold, transferred or pledged. Any restricted
Board term shares are unblocked when the Board member
Board of Directors 2017–2018 2016–2017 leaves the Board.
Number of members 10 11
Total compensation 4,340,000 4,670,000 Structure of Board compensation
Maximum aggregate The structure of Board compensation for the
compensation amount
approved at AGM 4,400,000 4,700,000 term of office from AGM to AGM is described in
Exhibit 5 below.

Exhibit 4: EC compensation (in CHF)

Exhibit 5: Structure of Board compensation
Calendar year
Board term fee (CHF)
Executive Committee 2017 2016
Chairman of the Board(1) 1,200,000
Number of members 11 11
Vice-chairman of the Board(1) 450,000
Total compensation 46,631,207(1) 44,200,719
Member of the Board 290,000
Maximum aggregate
compensation amount Additional committee fees:
approved at AGM 50,000,000 52,000,000
Chairman of FACC(2) 110,000
(1) This amount includes CHF 2,553,435 for the fair value of the Chairman of CC or GNC(2) 60,000
replacement share grant provided to the incoming CFO to
compensate for benefits foregone from his previous employer.
Member of FACC(2) 40,000
Excluding this, the total would have been CHF 44,077,772. Member of CC or GNC(2) 30,000
(1) The Chairman and the Vice‑chairman do not receive any
­additional committee fees for their roles on the GNC.

Board compensation
(2) CC: Compensation Committee,
FACC: Finance, Audit & Compliance Committee,
GNC: Governance & Nomination Committee.

Policy and principles

The compensation system for the members of the The compensation amounts paid to the Board
Board is designed to attract and retain experi- members for the calendar year 2017 and for the
enced people in the Board. Compensation of term of office from the 2017 AGM to the 2018
Board members takes into account the responsi- AGM are disclosed in Exhibits 20 and 21, respec-
bilities, time and effort required to fulfill their tively, in the section “Compensation and share
roles on the Board and its committees. From time ownership tables.”
to time, the levels and mix of compensation of
Board members are compared against the com-
pensation of non-executive board members of Compensation of the Board
publicly traded companies in Switzerland that are
part of the Swiss Market Index.
in 2017

The compensation of Board members is fixed. In 2017, the total compensation for the Board mem-
They do not receive variable compensation or bers was CHF 4.5 million compared to CHF 4.2 mil-
pension benefits, underscoring their focus on cor- lion in 2016. The increase was due to the increase in
porate strategy, supervision and governance. In size of the Board. See Exhibit 20 on page 77.
accordance with Swiss law, Board members may
not receive golden parachutes or other special At the 2016 AGM, the shareholders approved
benefits in the event of a change of control. a maximum aggregate compensation amount of
Board members are paid for their service over a CHF 4.7 million for the Board for the term of office
12-month period that starts with their election at 2016–2017. The compensation paid for that period
the AGM. Payment is made in semi-annual install- amounts to CHF 4.67 million as presented in Ex-
ments in arrears. hibit 3 above and Exhibit 21 on page 78 and is
therefore within the approved amount.
In order to further align the interests of the
Board members with those of ABB’s sharehold- At the 2017 AGM, the shareholders approved
ers, half of their total compensation must be a maximum aggregate compensation amount of
paid in ABB shares, although Board members CHF 4.4 million for the Board for the term of office
may choose to receive all of their compensation 2017–2018. The compensation paid for that period
in shares. The number of shares delivered is cal- amounts to CHF 4.34 million as presented in Ex-
culated prior to each semi-annual payment by di- hibit 3 above and Exhibit 21 on page 78 and is
viding the monetary amount to which the Board therefore within the approved amount.
members are entitled by the average closing
price of the ABB share over a predefined 30-day
66 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

Shareholdings of Board members Structure of EC Compensation

The members of the Board collectively owned less
than 1 ­percent of ABB’s total shares outstanding Overall positioning of compensation
at ­December 31, 2017. The compensation of EC members consists
of an annual base salary, standard benefits, a
Exhibit 22 on page 78 shows the number of ­short-term variable component based on annual
ABB shares held by each Board member at Decem- performance objectives and a long-term variable
ber 31, 2017 and 2016. Except as described in this component based on long-term performance.
Exhibit, no member of the Board and no person
closely linked to a member of the Board held any The Board considers several factors when review-
shares of ABB or options in ABB shares. ing and setting the individual target compensa-
tion of each EC member:
In 2017, ABB did not pay any fees or compensation • market value of the role (external benchmark);
to the members of the Board for services ren- • individual profile of the incumbent in terms of
dered to ABB other than those disclosed in this re- experience and skillset;
port. Except as disclosed in the section “Business • individual performance and potential;
relationships between ABB and its Board mem- • affordability for the company.
bers” of the Corporate governance report, ABB
did not pay any additional fees or compensation All EC and other senior positions of ABB have been
in 2017 to persons closely linked to a member of evaluated using the job evaluation methodology
the Board for services rendered to ABB. of the Hay Group, which is used by more than
10,000 companies around the world. This ap-
Compensation of former Board members proach provides a meaningful, transparent and
In 2017, no payment was made to any former consistent basis for evaluating roles and for
Board member. ­comparing compensation levels with those of
equivalent jobs at other companies.

Executive Committee The primary source of data to assess the EC com-

pensation is the General Pan-European Market of
compensation Hay’s annual survey “Top Executive Compensation
in Europe”. The EC compensation is benchmarked
Policy and principles against the median to upper quartile va­lues. We
ABB’s compensation system reflects the commit- also use Hay’s data on Swiss and U.S. peers as well
ment to attract, motivate and retain people with as a global industry peer group (see Exhibit 6).
the talent necessary to strengthen ABB’s posi-
tion as a global pioneering technology leader for Exhibit 6: Compensation benchmarks
utility, industry, and transport & infrastructure Reference Composition Rationale
customers.
Main benchmark
Hay General Pan- 360 largest Continuity and
The compensation system is designed to provide European Market European stability of data
competitive compensation and to encourage ex- companies of the points
ecutives and employees to deliver outstanding FT Europe 500
listing
­results and create sustainable shareholder value
without taking excessive risks. The compensation References to stress-test main benchmark
system balances: Global industry Peer companies(1) Specific peer
group selected based on group to
• fixed and variable compensation elements;
business, benchmark
• short-term and long-term incentives; geographic compensation
• the recognition of Group and individual presence and size design
­performance. Swiss market SMI and SMIM Comparison
companies that with other
are included in multinational
ABB continues to increase the performance orien- Hay’s General Swiss companies
tation of its compensation system to better align Pan-European
Market data
it to the Company’s Next Level strategy (NLS) by
U.S. market U.S. peers of Comparison
having performance metrics that support the similar size and with other
­development of earnings per share (EPS) and cash industry multinational
return on invested capital (CROI). U.S. companies
(1) The peers for the purpose of benchmarking compensation
design are: Siemens, Schneider Electric, Legrand, Alstom,
Atlas Copco, CNH Industrial, ThyssenKrupp, BAE systems, Rolls
Royce, Linde, BASF, EADS, Schindler, Novartis, Nestlé, Holcim,
General Electric, 3M, Honeywell, Caterpillar, Emerson Electric,
Eaton, Danaher and United Technologies.
A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 67

Exhibit 7: Structure of EC compensation 2017

Fixed compensation – Short‑term Long‑term
annual base salary variable variable Shareholding
Compensation structure and benefits compensation compensation requirement
Purpose and link to strategy Compensates Rewards annual Encourages creation Aligns individual’s
EC members for the role company of long-term, personal wealth at risk
and individual sustainable value for directly to the ABB
performance. Drives shareholders, and share price
annual strategy delivery of long‑term
implementation strategic goals

Operation Cash salary, benefits in Annual awards, Annual awards Individuals required
kind, and pension payable in cash after in shares which vest to hold ABB shares
contribution a 1‑year performance after 3 years subject
period to performance
conditions

Opportunity/exposure value Based on scope of CEO CEO CEO wealth at risk:

(as % salary) responsibilities, Target: 150% Target at grant: 200% 500%
individual experience Maximum: 225% EC EC wealth at risk:
and skillset EC: Target at grant: 107% 400%
Target: 100%
Maximum: 150%

Time period Delivered in year 1 year 3 years Total EC tenure

Performance measures Changes to base salary Group objectives: Net operating Direct link to
takes into account the Revenue, Op. EBITA %, income (50%) ABB share price
executive’s performance Op. net income, OCF, EPS (50%)
in the preceding year Cost Savings,
and potential for the Service Orders.
future Individual objectives

The compensation that is ultimately paid depends in their country of residence for income taxes
on the performance of the Group and of the indi- they paid in Switzerland.
vidual members of the EC.
Opportunity level
Compensation structure – overview • Annual base salary based on the scope of re-
Our compensation structure is linked to our stra­ sponsibilities, i­ ndividual experience and skillset.
tegy and, as illustrated in Exhibits 7 and 17, a signif- • The monetary value of benefits is disclosed in
icant portion of total compensation depends Exhibit 23: EC compensation 2017.
­directly on performance achievement. Our fully
performance-oriented Long-Term Incentive Plan Performance measures
(LTIP) and the high shareholding ­requirement are • When considering changes in base salary, the ex-
aligned to shareholder interests. ecutive’s performance during the preceding year
against individual objectives as well as potential
Fixed compensation – annual base salary and for the future are taken into account.
benefits
Short-term variable compensation
Purpose and link to strategy
• Compensates the EC members for the role. Purpose and link to strategy
• The short-term variable compensation is de-
Operation signed to reward EC members for the Group’s
• Fixed annual base salary and benefits. results and their individual performance over a
• Benefits consist mainly of retirement, insurance time horizon of one year. It allows the EC mem-
and healthcare plans that are designed to pro- bers to participate in the company’s success
vide a reasonable level of support for the em- while being rewarded for their individual contri-
ployees and their dependents in case of retire- butions.
ment, disability or death.
• Benefit plans vary in line with the local competi- Operation
tive and legal environment and are, at a mini- • Annual cash awards are based on performance
mum, in accordance with the legal requirements assessment over the given year.
of the respective country.
• EC members may also be provided with certain Opportunity level
benefits according to competitive local market Exhibit 8: Opportunity level (% salary)
practice. Tax equalization is provided for Target Maximum
EC members resident outside Switzerland to the CEO 150% 225%
extent that they are not able to claim a tax credit EC 100% 150%
68 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

Exhibit 9: Group objectives and weighting in 2017

Objective Weighting Nature of assessment
Revenues 20% Income realized from executing and fulfilling customer orders, before
any costs or expenses are deducted
Operational EBITA 15% Operational EBITA margin is Operational EBITA (as defined in Note 23 to
margin the Consolidated Financial Statements) as a percentage of Operational
revenues, which is total revenues adjusted for foreign exchange/
commodity timing differences in total revenues
Operational net income 10% Operational net income is calculated as net income attributable to ABB
adjusted for the after-tax effect of acquisition-related amortization,
restructuring and restructuring-related expenses, non-operational
pension cost, changes in retained obligations of divested businesses,
changes in pre-acquisition estimates, gains and losses from sale of
businesses, acquisition-related expenses and certain
non-operational items, foreign exchange/commodity timing differences
in income from operations
Operating cash flow 30% Operating cash flow is defined as the net cash provided by
(OCF) operating activities, reversing the cash impact of interest, taxes and
restructuring-­related activities
Cost savings 15% Savings generated from ABB group‑wide cost reduction
programs covering Supply Chain Management, Operational Excellence
and White Collar Productivity that have direct impact on the Group’s
Operational EBITA
Service Orders 10% Orders received relating to the service business

Performance measures Long‑term variable compensation

Group objectives (see Exhibit 9) are set in connec-
tion with the annual performance management pro- Purpose and link to strategy
cess and are mainly group financial result oriented. Aimed at driving long-term shareholder value
­creation in a sustainable manner. It rewards the
Individual objectives are set as part of the annual achievement of predefined performance goals
performance management process and support over a three-year vesting period.
the implementation of the NLS in the respective
area of responsibility of each EC member. They in- Operation
clude metrics that help the ma­nagement assess • Annual conditional share grant under the LTIP.
whether the results are achieved in a sustainable • Two equally weighted performance components,
way in four different categories: f­ inancial perfor- one tied to ABB’s net operating income and one to
mance, operational performance, strategic initia- ABB’s EPS.
tives and leadership performance. • Reference value defined as a percentage of
base salary.
For each performance objective (group and indi-
vidual), a target is set corresponding to the ex- Exhibit 11: Reference value (% of annual base salary)
pected level of performance that will generate a Net operating
income EPS
100 percent payout. Further, a minimum level of
component (P1) component (P2) Total
performance, below which there is no payout
CEO 100% 100% 200%
(threshold) and a maximum level of performance, EC 53.5% 53.5% 107%
above which the payout is capped at 150 percent
of the target (cap), are also defined. The payout
percentages for achievements between the • The reference value for the grant size of the net
threshold, the target and the cap are determined operating income component for the CEO as an
by linear interpolations between these points. individual and the other EC members as a pool
may be ­increased or decreased by the Board by
Exhibit 10: Weight of Group and individual
up to 25 percent.
objectives for EC members for 2017 • Number of shares granted is determined by di-
Division viding reference value by average share price in
and region Corporate the 20 days prior to grant.
CEO presidents Officers(1) • Award vests after three years subject to achieve-
Group objectives 80% 35% 50% ment of performance conditions, defined prior
Individual 20% 65% 50% to grant.
objectives (divisional/ (functional • Delivery is 70 percent in shares and the remain-
regional and
and personal
der in cash, with the possibility to elect to receive
personal objectives) 100 percent in shares.
objectives)

(1) CFO, CHRO and General Counsel.

A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 69

• Subject to malus and clawback rules if a plan Exhibit 12: Shareholding requirement level
CEO 5 × annual base salary
participant has been involved in any illegal activ-
Other EC members 4 × annual base salary
ity. This means that the Board of Directors may
decide not to pay any unpaid or unvested
­incentive compensation (malus), or may seek to • Only shares owned by an EC member and the
recover incentive compensation that has been member’s spouse are included in the share own-
paid in the past (clawback). ership calculation. Vested and unvested stock
options are not considered for this purpose.
Performance measures • The CC reviews the status of EC share owner-
• Net operating income – payout vs. performance ship on an annual basis. It also reviews the re-
The actual achievement level is determined by quired shareholding amounts annually, based on
comparing ABB’s average income from continu- salary and expected share price developments.
ing operations, net of tax, relative to budget, As the level of the shareholding requirement is
over three financial years beginning with the high relative to market practice, the Board has
year in which the award was granted. The Board determined that members of the EC should gen-
determines an appropriate threshold below erally aim to reach these multiples within five
which there will be no payout as well as a maxi- years of their appointment.
mum above which payout will be capped at
150 percent. Notice period, severance provisions and
• EPS – payout vs. performance non-competition clauses
Weighted cumulative earnings per share –
­performance targets are set using an outside-in Operation
view, taking into account the growth expecta- Employment contracts for EC members include
tions, risk profile, investment levels and profit- a notice period of 12 months, during which they
ability levels that are typical for the industry. This are entitled to their base salary, benefits and
outside-in approach in setting EPS objectives for short-term variable compensation. In accordance
the LTIP is provided by external advisors and as- with Swiss law and ABB’s Articles of Incorpora-
sumes that investors expect a risk-adjusted re- tion, the contracts for the EC members do not al-
turn on their investment, which is based on mar- low for any severance payment.
ket value (and not book value) and translates
such expected returns over a three-year period Non-compete agreements have been entered into
into EPS targets. with the CEO and all EC members for a period of
12 months after their employment. Compensation
The weighted cumulative EPS result is calculated for such agreements, if any, may not exceed the
as the addition of the EPS in the first financial year EC member’s last total annual compensation.
(weighted at 33 percent) plus the EPS in the sec-
ond financial year (weighted at 67 percent) plus
the EPS in the third financial year (weighted at Compensation of the Executive
100 percent). This formula gives more weight to
the EPS achieved in the later years of the vesting
Committee in 2017
period. There is no payout if the lower EPS thresh-
old is not reached and the payout is cap­ped at Exhibit 13: Total compensation of EC members
(in CHF million)
200 percent if EPS performance exceeds the
2017 2016
­predefined payout cap.
Base salaries 10.0 10.2
Pension benefits 4.7 4.1
Shareholding requirement
Other benefits 5.1 5.2
Total fixed compensation 19.8 19.5
Purpose and link to strategy
Short-term variable compensation 10.4 11.4
• To align EC members’ interests with those of
Long-term variable compensation 13.8 13.3
shareholders in order to maintain focus on the
Replacement share grant 2.6 —
long-term success of the company.
Total variable compensation 26.8 24.7
Total compensation 46.6 44.2
Operation
For an overview of compensation by individual and component,
• EC members are required to build up a holding please refer to Exhibit 23 on page 79 and Exhibit 24 on page 80.
of ABB shares that is equivalent to a multiple of
their annual base salary (see Exhibit 12). Overall positioning of compensation
• These shareholding requirements are significantly The ratio of fixed to variable components in any
above market practice and result in a wealth at given year depends on the performance of the in-
risk for each EC member which is aligned with dividuals and of the company against predefined
shareholder interests (see Exhibit 27). performance objectives.
70 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

Exhibit 14: Ratios of fixed and variable compensation components of EC members in 2017

Fixed Variable

CEO
35% 26% 39%

Fixed Variable
Other EC
members
45% 21% 34%

   Fixed compensation
   Short-term variable compensation (actual payout)
   Long-term variable compensation (fair value at grant)

In 2017, as shown in Exhibit 14, the variable com- The change in total compensation in 2017 is prin-
pensation represented 65 percent of the CEO’s cipally due to the one-time replacement share
compensation (previous year: 67 percent) and an grant for the CFO, representing compensation for
average of 55 percent for the other EC members foregone benefits from his previous employer.
(previous year: 53 percent). This again illus-
trates the significant ­emphasis placed on At the 2016 AGM, the shareholders approved a
­performance-related compensation. maximum aggregate compensation amount of
CHF 50.0 million for the EC for the year 2017.
EC members received total compensation of The EC compensation for 2017 amounted to
CHF 46.6 million in 2017 compared with CHF 46.6 million and, despite having changes to
CHF 44.2 million in 2016, as presented in Exhibits the EC composition, is still within the approved
23 and 24. amount.

Exhibit 15: Compensation components under various scenarios

Minimum Target Maximum

100% 100% 100%

Fixed and short-term variable

Base salary
and benefits Base salary and benefits are generally stable

150%
compensation

100%
There will be no payout of this component if
Short-term performance is below threshold in all performance
variable criteria. When performance exceeds targets, this
compensa- component is capped at 150% of the targeted
tion payout 0% amount
variable compensation

The reference grant size of half of the LTIP

112.5% (performance component P1) may be increased or
decreased by 25%. Consequently, the total fair value
100%
at grant of ABB’s LTIP may vary from 87.5% to 112.5%
87.5%
Long-term

P1. 62.5% of the fair value of the unadjusted reference grant

Conditional P1. 50% size. However, the ultimate payout on vesting
P1. 37.5%
grant depends on meeting the performance criteria
allocation(1) P2. 50% P2. 50% P2. 50% of the plan
(1) Note: the grant is conditional. At vesting, the payout can vary from zero to 175% of the grant depending on how well the performance criteria
of the LTIP are met.
175%

There will be no payout if performance is below the

100%
threshold in both the P1 and P2 components. The
maximum payout is 150% for P1 and 200% for P2.
As the two components are equally weighted, the
Payout maximum total payout for the LTIP is 175% of the
of the LTIP 0% conditional grant allocation
A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 71

2017 short-term variable compensation With respect to individual/team objectives for

2017 has been a steady year for ABB. Revenues, each EC member, the achievement ranges be-
with a weight of 20 percent, were on target with tween 75 percent and 122 percent, reflecting the
good contributions from both the Electrification financial results of their respective areas of re-
Products and Robotics and Motion divisions. sponsibility as well as their achievements on op-
The payout of this parameter amounted to erational performance, strategic initiatives and
99.8 ­percent. leadership performance. This resulted in an over-
all payout of the short‑term incentives for the en-
Operational EBITA margin, with a weighting of 15 tire EC at 96 percent with a range of 81 percent
percent, and operational net income with a weight- (lowest achievement) and 107 percent (highest
ing of 10 percent, were below the targets with both achievement).
measures reflecting significant operational
charges recorded in the EPC businesses. The pay- 2017 long-term variable compensation
out of the Operational EBITA margin parameter In 2017, the estimated value of the share-based
was 85.4 percent and the payout of the operational grants to EC members under the LTIP was CHF 13.8
net income parameter was 86.0 percent. million compared with CHF 13.3 million in 2016.

Operating cash flow with a weighting of 30 per- 2014 LTIP outcome

cent, although broadly stable when compared The payout for the performance component of the
with 2016, was slightly behind the target set 2014 LTIP that vested in 2017 was 37 percent (previ-
for 2017. The payout of this parameter was ous year: 43 percent for the 2013 LTIP). The payout
88.1 ­percent. was based on the cumulative weighted EPS
achieved during the plan’s three-year vesting pe-
The Group delivered strong operational cost sav- riod. The retention component vested fully, condi-
ings, almost on target, while service orders, de- tional on continued employment (see Exhibit 16).
spite growing compared with 2016, did not reach
the 2017 target. The costs savings parameter, The 2014 LTIP was the final LTIP that comprised
weighted at 15 percent, achieved a 99.5 percent a retention component and a performance
payout, while the service orders parameter, component. LTIPs launched from 2015 onwards
weighted at 10 percent, achieved a 92.3 comprised P1 and P2 components. The Board also
­percent  payout. recognized the need for increased performance
orientation and transparency and has conducted
The effects of major business portfolio changes, a comprehensive review of the LTIP for implement­
including the newly acquired B&R business, are ex- ation starting from the 2018 grant.
cluded from the above performance assessment.
The combined achievement of these performance
measures resulted in a 91.9 percent achievement
level for the group scorecard in 2017.

Exhibit 16: LTIP 2014 objectives and actual vesting percentages

Objective Performance
Below threshold Threshold to target Target Target to maximum
Performance component 37%
Retention component N/A N/A 100% N/A
72 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

Outlook for 2018: continuing make our LTIP simpler and easier to communi-
cate. With a single plan and two performance
to increase performance measures of EPS and relative Total Shareholder
orientation of ABB’s Return (TSR), our LTIP is now fully aligned with
our NLS, which focuses on EPS delivery and at-
compensation system tractive shareholder returns, both on an abso-
lute and relative basis. In line with our commit-
Over recent years, ABB has progressively increased ment to improved transparency, we will disclose
the performance orientation of its ­compensation our LTIP peer group in our 2018 compensation
system while better aligning it to the Company’s report, ­after the revised plan is launched.
NLS and including inputs from shareholders and These changes have been introduced so that the
other ­stakeholders. fair value of t­ otal compensation for EC members
is kept at the same level.
In Exhibit 17 we detail the key developments to re- • The share ownership requirement for the EC re-
muneration since our NLS was announced in Sep- mains among the highest in the market. We are
tember 2014, leading to the changes the Board now requiring that EC members retain all shares
plans to implement in 2018. vested from the Company’s LTIP programs until
his or her share ownership requirement is met.
The main considerations in making the changes This arrangement is more stringent and trans-
over the years have been to ensure that: parent, compared to the previous requirement
• There is a performance linkage in every pay where an EC member was expected to reach his
­component. or her share ownership within 5 years of EC ten-
• Total compensation levels remain competitive ure based on an expected ABB share price devel-
within market benchmarks as we increase the opment. We have also clarified the basis of the
performance orientation. shareholding requirement as being a multiple of
• The improvements are carefully phased to allow annual base salary, net of tax.
for similar changes following the same principles
to be cascaded throughout the organization. Shareholdings of EC members
The initial focus of these changes was on base The EC members collectively owned less than 1
compensation, in order to put more emphasis on percent of ABB’s total shares outstanding at De-
the executive’s performance and potential ap- cember 31, 2017.
praisal. Next, for short‑term incentives, personal
accountability was enhanced by increasing the At December 31, 2017, members of the EC held ABB
weight of individual and own team scorecards to shares and conditional rights to receive shares, as
65 percent. More recently, the focus has shifted to shown in Exhibit 27 on page 83. Their holdings
performance orientation of long‑term incentives, at December 31, 2016, are shown in Exhibit 28
as we moved from having a retention component, on page 84.
weighted at approximately 60 percent in 2014, to
the new 100 percent performance oriented LTIP. Members of the EC cannot participate in the Man-
agement Incentive Plan (MIP). Any MIP instru-
Highlights for the 2018 improvements are: ments held by EC members were awarded to them
• No changes to the structure of fixed pay. The as part of the compensation they received in pre-
changes to the system of pension contributions vious roles they held at ABB. For a more detailed
have now been completed and there are no fur- description of MIP, please refer to “Note 18 Share-
ther adjustments to the system of pensions based payment arrangements” to ABB’s Consoli-
planned. dated Financial Statements contained in the sec-
• There are minor revisions to the design of the tion titled “Financial review of ABB Group” of this
short‑term variable compensation elements ­Annual Report.
since they have been progressively reviewed and
improved over the last three years. The changes Except as described in Exhibits 27 and 28, no
for 2018 are targeted at streamlining the weight- member of the EC and no person closely linked to
ing of Group metrics versus individual/team a member of the EC held any shares of ABB or
metrics to a consistent 35 percent/65 percent ­options on ABB shares at December 31, 2017 and
for all EC members (except for the CEO, who re- 2016.
mains at 80 percent/20 percent).
• A comprehensive review of our LTIP was under-
taken in 2017, leading to the changes the Board
now plans to implement in 2018. These changes
A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 73

Exhibit 17: Detailed summary of Compensation structure over time.

Compensation area Status in 2014 Evolution over the last 3 years Going forward from 2018
Annual base salary • Benchmarked against • Remained consistent with • Pay levels are assessed annually
Hay Group’s same benchmarks against market competitive
Pan‑European Top benchmarking using the peer
Executive Market, with • Announced clear statement groups described in Exhibit 6
consideration given to that annual base salaries of the
Hay’s data on Swiss EC will be benchmarked • No changes envisaged
and U.S. peers as well between the market median
as a global industry and upper quartile in order to • Disclosure of Global industry group
peer group. Annual attract suitable talent (already in this report). See Exhibit 6
salary increases are footnote (1)
approved by the Board • Clarified the use of the Swiss
based on the CEO’s and U.S. market benchmarks as
assessment of the well as the Global industry
individual EC group for benchmarking
member’s compensation design
performance and
potential(1) • Stronger emphasis placed on
assessment of performance
and potential

Short‑term variable • Payout solely • Significant performance • Strong performance alignment

compensation dependent on the alignment introduced with continues; stronger emphasis on
achievement of objectives set in financial, earnings and operational excellence
Company performance operational, change and
objectives leadership areas in line with • Payout dependent on achievement
NLS of both Company and Individual/
• Board had authority Team performance
to approve a higher • Payout dependent on
than target payout achievement of both Company • Balance between Group and
if an objective was and Individual/Team Individual/Team will be consistently
exceeded performance with balance 35%/65% for all EC members and
between Group and Individual/ 80%/20% for the CEO
Team shifted from 100%/0%
to 65%/35% to 35%/65% • Individual objectives are set as
(Corporate EC members to part of the annual performance
50%/50%) management process and support
the implementation of the NLS in the
• CEO from 100%/0% to respective areas of responsibility of
80%/20% each EC member

• A mathematical computation • Opportunity levels will be as follows:

replaces the Board “discretion” -- 0% payout at or below threshold
for payout computation if an -- 100% payout at target
objective exceeds target -- 150% payout at or above
maximum
Payout is interpolated for
achievement in between points
74 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

Exhibit 17: Detailed summary of Compensation structure over time.

Compensation area Status in 2014 Evolution over the last 3 years Going forward from 2018
Long‑term variable • LTIP comprises a • A two-tier performance was • Performance alignment to the NLS
compensation retention component introduced with vesting of the will further be strengthened
(with no vesting P1 component based on a Net
performance measure) Operating Income measure and • A single, simplified performance
and a performance the P2 component on a driven LTIP will be introduced with
component (vesting cumulative weighted EPS(2) two equally weighted performance
assessed on a measure; the Net Operating measures to assess vesting payout:
cumulative weighted Income measure further -- average EPS(3) to focus on the
EPS(2) measure) evolved in 2017 from a binary Company’s strategic plan; and
“threshold” criteria (pay or no -- relative Total Shareholder Return
• Balance is pay) to a payout based on a (TSR) against a peer group
approximately payout curve for various
60% retention and achievement levels • Inclusion of TSR element gives
40% performance specific focus on an external market
• Balance shifted to 50% P1 and perspective
• Retention component 50% P2
was share-settled for • Composition of peer group for
70% and cash-settled • Both P1 and P2 components relative TSR assessment will be
for 30% (to assist in were share-settled for 70% disclosed in the next Compensation
meeting tax payment and cash-settled for 30% (to report following the initial grant
obligations) with an assist in meeting tax payment
option for a 100% obligations) with an option for • The opportunity levels under the
share-settlement. a 100% share-settlement LTIP will be as follows:
Performance -- 0% payout at or below threshold
component was • “Look-back” assessment -- 100% payout at target
cash-settled only removed to reinforce -- 200% payout at or above
forward-looking incentive maximum
• Board had authority with assessment at vesting
to vary the pool size • Payout will be interpolated for
of the retention achievements in between points
component by +/- 25%
based on a look‑back • Payout will be share-settled for 65%
assessment of how and cash‑settled for 35% (cash
ABB performed on settlement increased to 35% to be
various disclosed more in line with tax rates). Option
measures against for 100% share-settlement
a set of peers remains unchanged

• Board had authority,

based on CEO
recommendation, to
vary individual grant
size to reflect personal
performance and
contribution to the
Company(1)

Share ownership Our share ownership • No changes made Remains above market practice.
requirements requirements have been The following ownership requirements
significantly above will be enforced:
market practice:
• 5 years of annual net base salary for
• 5 years of annual the CEO and 4 years for EC members
gross base salary for (based on a 35% tax rate)
the CEO and 4 years
for EC members • No disposal of shares vesting from
the Company’s LTIP programs until
• Expected to reach the ownership requirements are met
requirement within 5
years of EC tenure and
review is based on
expected share price
developments

(1) For the CEO, this will be based on the recommendation of the Chairman of the Board.
(2) Cumulative weighted EPS: 33 percent of EPS year 1 + 66 percent of EPS year 2 + 100 percent of EPS year 3; EPS target is based on external
investors’ ­e xpectations.
(3) This is a simple average EPS over years 1 to 3; the EPS target continues to be based on external investors’ expectations.
 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 75

Other compensation In 2017, ABB did not pay any fees or compensation
to the members of the EC for services rendered to
Members of the EC are eligible to participate in ABB other than those disclosed in this report. Ex-
the Employee Share Acquisition Plan (ESAP), a sav- cept as disclosed in the section “Business relations
ings plan based on stock options, which is open to between ABB and its EC members” of the Corpo-
employees around the world. Seven members of rate governance report, ABB did not pay any addi-
the EC participated in the 14th annual launch of the tional fees or compensation in 2017 to persons
plan in 2017. EC members who participated will, closely linked to a member of the EC for services
upon vesting, each be entitled to acquire up to rendered to ABB.
380 ABB shares at CHF 26.26 per share, the mar-
ket share price at the start of the 2017 launch.
Compensation of former
For a more detailed description of ESAP, please
­refer to “Note 18 Share-based payment arrange-
EC members
ments” to ABB’s Consolidated Financial Statements
contained in the section titled “Financial review of In 2017, certain former EC members received con-
ABB Group” of this Annual Report. tractual compensation for the period after leaving
the EC, as shown in Exhibit 23, footnote (6).

Votes on compensation at the 2018 AGM

As illustrated in Exhibit 18, the Board’s proposals to shareholders at the 2018 AGM will relate to Board
compensation for the 2018–2019 term of office and EC compensation for the calendar year 2019. There
will also be a non-binding vote on the 2017 Compensation report.

Exhibit 18: Shareholders will have three separate votes on compensation at the 2018 AGM

2017 2018 2019

compensation

Binding vote on
maximum aggregate
Board

Board compensation for

2018–2019 term of office
compensation

Binding vote on
maximum aggregate
EC compensation
for 2019
EC
Compensation

Non-binding vote on
2017 Compensation
report
report

April AGM March AGM March AGM

  Compensation period       Date of vote

76 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

In determining the proposed maximum aggregate EC compensation, the Board takes into consideration
the criteria illustrated in Exhibit 19. Given the variable nature of a major portion of the compensation
components, the proposed maximum aggregate EC compensation will almost always be higher than
the actual payout, as it must cover the potential maximum value of each component of compensation.

Exhibit 19: Overview of key factors affecting the determination of maximum aggregate EC compensation
2017 2018 2019(1)

Aggregate EC compensation
in CHF (millions)
50 52 xx
47 43
44(3)

Maximum Maximum Maximum

(approved at (approved at (to be requested
Assumptions Actual Target 2016 AGM) 2017 AGM) at 2018 AGM)
Short-term variable ­compensation
payout percentage(2) 100% 150% 150% 150%
Adjustment of LTIP grant size 0% +12.5%(4) +12.5%(4) +12.5%
Number of EC members 11 11 11 11
(1) Numbers will be provided in the AGM invitation.
(2) For full description, see section “Executive Committee compensation” and section “Outlook: changes to compensation system for 2018.”
(3) Excluding one-time share grant for incoming CFO as replacement of benefits foregone from his previous employer.
(4) This 12.5 percent applied on the entire LTIP is equivalent to 25 percent applied to the P1 component in the design of the 2017 LTIP.

The Board’s proposal for maximum aggregate EC compensation for 2019 will incorporate assumptions for a normal increase in
compensation.
A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 77

Compensation and share ownership tables

Exhibit 20: Board compensation in 2017 and 2016 (audited)

Paid in 2017 Paid in 2016
November May November May
Board term Board term Board term Board term
2017–2018 2016–2017 2016–2017 2015–2016

Total compensation

Total compensation
shares received(2)

shares received(2)

shares received(2)

shares received(2)
Settled in shares

Settled in shares

Settled in shares

Settled in shares
Settled in cash(1)

Settled in cash(1)

Settled in cash(1)

Settled in cash(1)

paid in 2016(3)
paid in 2017(3)
– number of

– number of

– number of

– number of
Name
CHF CHF CHF CHF CHF CHF

Peter Voser,
Chairman(4) — 24,427 — 24,602 1,200,000 — 25,960 — 30,618 1,200,000
Jacob
Wallenberg(5) 112,500 3,684 112,500 3,709 450,000 112,500 3,915 112,500 4,616 450,000
Roger Agnelli(6) — — — — — — — 80,834 2,804 161,667
Matti Alahuhta(7) 80,000 2,619 80,000 2,637 320,000 80,000 2,784 90,000 3,693 340,000
David
Constable(8) 87,500 2,865 80,000 2,637 335,000 80,000 2,784 80,000 3,282 320,000
Frederico
Curado(9) 80,000 2,423 80,000 2,443 320,000 80,000 2,573 — — 160,000
Robyn
Denholm(10) — — 82,500 2,397 165,000 82,500 2,871 — — 165,000
Lars Förberg(11) — 6,494 — — 160,000 — — — — —
Louis R.
Hughes(12) 100,000 3,274 100,000 3,297 400,000 100,000 3,480 100,000 4,103 400,000
David Meline (13) 82,500 2,701 82,500 2,720 330,000 82,500 2,871 — — 165,000
Satish Pai(14) 82,500 2,499 82,500 2,519 330,000 82,500 2,871 — — 165,000
Michel de
Rosen(15) — — 87,500 2,642 175,000 87,500 3,045 87,500 3,590 350,000
Ying Yeh(16) 80,000 2,462 80,000 2,475 320,000 80,000 2,616 81,666 3,145 323,333
Total 705,000 53,448 867,500 52,078 4,505,000 867,500 55,770 632,500 55,851 4,200,000
(1) Represents gross amounts paid, prior to any deductions such as social security and withholding tax.
(2) Number of shares per Board member is calculated based on net amount due after all applicable deductions including social security and
withholding tax.
(3) In addition to the Board remuneration stated in the above table, the Company paid CHF 103,006 and CHF 347,691, i­ n 2016 and 2017, respec-
tively, for related social security payments.
(4) Chairman of the ABB Ltd Board and Chairman of the Governance & Nomination Committee for the 2015–2016, 2016–2017 and 2017–2018
Board terms; elected to receive 100 percent of his gross compensation in the form of ABB shares.
(5) Vice-Chairman of the ABB Ltd Board and member of the Governance & Nomination Committee for the 2015–2016, 2016–2017 and 2017–2018
Board terms; elected to receive 50 percent of his gross compensation in the form of ABB shares.
(6) Member of the Finance, Audit & Compliance Committee for the 2015–2016 Board term; elected to receive 50 percent of his gross
­compensation in the form of ABB shares; died in a tragic accident in March 2016.
(7) Member of the Governance & Nomination Committee for the 2015–2016, 2016–2017 and 2017–2018 Board terms; Member of the Finance,
Audit & Compliance Committee for the 2015–2016 Board term; elected to receive 50 percent of his gross compensation in the form of
ABB shares.
(8) Chairman of the Compensation Committee for the 2017–2018 Board term; Member of the Compensation Committee for the 2015–2016 and
2016–2017 Board terms; elected to receive 50 percent of his gross compensation in the form of ABB shares.
(9) Elected as new Board member at the ABB Ltd 2016 AGM; Member of the Compensation Committee for the 2016–2017 and 2017–2018 Board
terms; elected to receive 50 percent of his gross compensation in the form of ABB shares.
(10) Elected as new Board member at the ABB Ltd 2016 AGM; did not stand for re-election at the ABB Ltd 2017 AGM; Member of the Finance,
Audit & Compliance Committee for the 2016–2017 Board term; elected to receive 50 percent of her gross compensation in the form of
ABB shares.
(11) Elected as new Board member at the ABB Ltd 2017 AGM; Member of the Governance & Nomination Committee for the 2017–2018 Board
term; elected to receive 100 percent of his gross compensation in the form of ABB shares.
(12) Chairman of the Finance, Audit & Compliance Committee for the 2015–2016, 2016–2017 and 2017–2018 Board terms; elected to receive
50 percent of his gross compensation in the form of ABB shares.
(13) Elected as new Board member at the ABB Ltd 2016 AGM; Member of the Finance, Audit & Compliance Committee for the 2016–2017 and
2017–2018 Board terms; elected to receive 50 percent of his gross compensation in the form of ABB shares.
(14) Elected as new Board member at the ABB Ltd 2016 AGM; Member of the Finance, Audit & Compliance Committee for the 2016–2017 and
2017–2018 Board terms; elected to receive 50 percent of his gross compensation in the form of ABB shares.
(15) Chairman of the Compensation Committee for the 2015–2016 and 2016–2017 Board terms; did not stand for re-election at the ABB Ltd 2017
AGM; elected to receive 50 percent of his gross compensation in the form of ABB shares.
(16) Member of the Compensation Committee for the 2015–2016, 2016–2017 and 2017–2018 Board terms; Member of the Finance, Audit &
Compliance Committee for the last month of the 2015–2016 Board term; elected to receive 50 percent of her gross compensation in the
form of ABB shares.
78 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

Exhibit 21: Board compensation for the Board terms 2017–2018 and 2016–2017
Board term Board term
Name Specific Board Roles 2017–2018 2016–2017
CHF CHF

Peter Voser Chairman of Board, Chairman of GNC 1,200,000 1,200,000

Jacob Wallenberg Vice-Chairman of Board, Member GNC 450,000 450,000
Matti Alahuhta Member GNC 320,000 320,000
David Constable Chairman CC 350,000 320,000
Frederico Curado Member CC 320,000 320,000
Robyn Denholm Member FACC (until 13 April 2017, did not stand for re-election) — 330,000
Lars Förberg(1) Member GNC 320,000 —
Louis R. Hughes Chairman of FACC 400,000 400,000
David Meline Member FACC 330,000 330,000
Satish Pai Member FACC 330,000 330,000
Michel de Rosen Chairman of CC (until 13 April 2017, did not stand for re-election) — 350,000
Ying Yeh Member CC 320,000 320,000
Total 4,340,000 4,670,000
(1) Joined Board at the 2017 ABB Ltd AGM.

Key:
CC: Compensation Committee,
FACC: Finance, Audit & Compliance Committee,
GNC: Governance & Nomination Committee.

Exhibit 22: Board ownership of ABB shares (audited)

Total number of shares held
Name December 31, 2017 December 31, 2016
Peter Voser(1) 151,166 102,137
Jacob Wallenberg 209,583 202,190
Matti Alahuhta 36,521 31,265
David Constable 14,797 9,295
Frederico Curado 7,439 2,573
Robyn Denholm — 2,871
Lars Förberg 6,494 —
Louis R. Hughes 35,716 53,145
David Meline(2) 11,442 6,021
Satish Pai 7,889 2,871
Michel de Rosen — 79,443
Ying Yeh 35,455 30,518
Total 516,502 522,329
(1) Includes 2,000 shares held by spouse.
(2) Includes 3,150 shares held by spouse.
A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 79

Exhibit 23: EC compensation 2017 (audited)

Cash compensation

(incl. conditional
Pension benefits

grants under the

Other benefits(2)

Estimated value

Estimated value
compensation(3)
compensation(1)

of replacement
of share-based

LTIP in 2017(4)

share grant(5)

share-based
cash-based
Base salary

Short-term

2017 Total

2017 Total

grants)(6)
variable
Name
CHF CHF CHF CHF CHF CHF CHF CHF

Ulrich Spiesshofer 1,679,176 2,413,763 626,074 916,140 5,635,153 3,671,675 — 9,306,828

Timo Ihamuotila
(EC member as of
April 1, 2017)(5) 690,009 655,278 362,201 473,848 2,181,336 998,965 2,553,435 5,733,736
Jean-Christophe
Deslarzes(7) 936,674 1,007,680 500,652 500,493 2,945,499 1,103,374 — 4,048,873
Diane de Saint
Victor 1,000,001 1,005,000 295,325 279,321 2,579,647 979,231 — 3,558,878
Frank Duggan(8) 664,042 651,425 348,494 433,783 2,097,744 852,386 — 2,950,130
Greg Scheu(9) 801,386 648,322 265,877 94,270 1,809,855 800,177 — 2,610,032
Chunyuan Gu
(EC member as of
July 1, 2017)(10) 374,893 385,765 131,563 203,488 1,095,709 743,963 — 1,839,672
Sami Atiya 716,673 686,160 435,786 416,816 2,255,435 845,147 — 3,100,582
Tarak Mehta 860,004 823,880 467,597 578,054 2,729,535 842,145 — 3,571,680
Claudio Facchin 805,006 680,400 456,410 474,153 2,415,969 950,768 — 3,366,737
Peter Terwiesch(7) 764,173 714,560 440,272 337,623 2,256,628 903,833 — 3,160,461
Eric Elzvik
(EC member until
March 31, 2017) 212,502 212,500 69,847 26,789 521,638 — 521,638
Bernhard Jucker
(EC member until
June 30, 2017) 520,006 525,000 277,663 399,154 1,721,823 1,140,137 — 2,861,960
Total Executive
Committee
members 10,024,545 10,409,733 4,677,761 5,133,932 30,245,971 13,831,801 2,553,435 46,631,207
(1) Represents accrued short-term variable compensation for the year 2017 for all current EC members, which will be paid in 2018, after the
publication of ABB’s audited consolidated financial statements. Short-term variable compensation is linked to the objectives defined in
each EC member’s scorecard. Upon full achievement of these objectives, the short-term variable compensation of the CEO corresponds
to 150 percent of his base salary, while for each other EC member it represents 100 percent of their respective base salary. Bernhard
Jucker and Eric Elzvik both received a pro-rata short‑term variable compensation payment for their period of service as an EC member, in
accordance with the contractual obligations of ABB.
(2) Other benefits comprise payments related to social security, health insurance, children’s education, transportation, tax advice and certain
other items.
(3) Prepared on an accruals basis.
(4) On the day of vesting (June 13, 2020), the value of the share-based awards granted under the LTIP may vary from the above amounts due to
changes in ABB’s share price and the outcome of the performance parameters. The LTIP is also subject to service conditions. The estimated
values of the share‑based grants are computed using a Monte Carlo simulation and the price of the ABB shares on the grant date, adjusted
for expected foregone dividends during the vesting period.
(5) Timo Ihamuotila received a replacement grant of 119,200 shares for foregone benefits from his previous employer, having a grant date fair
value of CHF 2,553,435. Of the total, 42,572 shares will vest on April 1, 2019, while 76,628 shares will vest on April 1, 2020.
(6) In addition to the total compensation of EC members, Eric Elzvik received CHF 1,389,860 representing contractual obligations of ABB for
the period April–October 2017. Payments totaling CHF 113,273 were made in 2017 on behalf of certain other former EC members for the
coverage of social security premium obligations and tax advice.
(7) The increase in pension benefits is the result of a review of the EC’s pension arrangements during 2015.
(8) Frank Duggan received 20 percent of his base salary in AED and 80 percent in EUR. The company purchased EUR with AED to meet this
obligation. All AED amounts were converted into Swiss francs using a rate of CHF 0.2660876 per AED.
(9) Greg Scheu received 100 percent of his base salary in USD. All USD amounts were converted into Swiss francs using a rate of CHF 0.9773
per USD.
(10) Chunyuan Gu received 100 percent of his base salary in CNY. All CNY amounts were converted into Swiss francs using a rate of
CHF 0.149957 per CNY.
80 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

Exhibit 24: EC compensation in 2016 (audited)

Cash compensation

Other benefits(2)
Pension benefits

grants under the

(incl. conditional
compensation(1)

compensation(3)

Estimated value
of share-based

LTIP in 2016(4)

share-based
Base salary

cash-based
Short-term

2016 Total
2016 Total

grants)(5)
variable
Name
CHF CHF CHF CHF CHF CHF CHF

Ulrich Spiesshofer 1,641,669 2,583,900 613,799 791,109 5,630,477 3,654,137 9,284,614

Eric Elzvik 850,007 827,050 274,835 332,831 2,284,723 843,920 3,128,643
Jean-Christophe Deslarzes(6) 911,677 971,520 261,986 572,775 2,717,958 1,169,063 3,887,021
Diane de Saint Victor 1,000,001 1,062,000 295,325 300,410 2,657,736 992,853 3,650,589
Frank Duggan(7) 686,042 715,540 342,359 613,772 2,357,713 997,526 3,355,239
Greg Scheu(8) 837,507 791,840 248,397 128,055 2,005,799 896,680 2,902,479
Sami Atiya (EC member as of
June 14, 2016) 387,122 373,858 213,242 292,415 1,266,637 745,453 2,012,090
Tarak Mehta 852,672 876,340 461,050 550,482 2,740,544 948,223 3,688,767
Bernhard Jucker 1,015,008 1,099,560 549,075 511,451 3,175,094 1,124,633 4,299,727
Claudio Facchin 770,837 771,540 442,172 507,909 2,492,458 991,170 3,483,628
Peter Terwiesch 729,175 748,965 243,558 179,954 1,901,652 933,992 2,835,644
Pekka Tiitinen (EC member until
September 30, 2016) 543,759 543,750 179,184 405,585 1,672,278 — 1,672,278
Total Executive
Committee members 10,225,476 11,365,863 4,124,982 5,186,748 30,903,069 13,297,650 44,200,719
(1) Represents accrued short-term variable compensation for the year 2016 for all EC members, which was paid in 2017. Short-term variable
­compensation is linked to the objectives defined in each EC member’s scorecard. Upon full achievement of these objectives, the short-term
variable compensation of the CEO corresponds to 150 percent of his base salary, while for each other EC member it represents 100 percent
of their respective base salary.
(2) Other benefits comprise payments related to social security, health insurance, children’s education, transportation, tax advice and certain other
items.
(3) Prepared on an accruals basis.
(4) On the day of vesting (June 6, 2019), the value of the share-based awards granted under the LTIP may vary from the above amounts due to
changes in ABB’s share price and the outcome of the performance parameters. The LTIP is also subject to service conditions. The estimated
value of the share‑based grants are computed using a Monte Carlo simulation and the price of ABB shares on the grant date.
(5) In addition to the total compensation of current EC members, Veli-Matti Reinikkala received CHF 2,055,537 representing contractual obligations
of ABB for the period January – September 2016. Payments totaling CHF 11,535 were made in 2016 on behalf of certain other former EC members
for tax advice.
(6) Other benefits of Jean-Christophe Deslarzes in 2016 includes the payment of social security premiums related to the vesting in November
2016 of the first tranche of his one-time replacement share grant.
(7) Frank Duggan received 20 percent of his base salary in AED and 80 percent in EUR. The company purchased EUR with AED to meet this
obligation.
(8) Greg Scheu received 100 percent of his base salary in USD. All USD amounts were converted into Swiss francs using a rate of CHF 1.02135
per USD.
A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 81

Exhibit 25: LTIP grants in 2017 (audited)

Total estimated value of share-based

under the 2017 launch of the LTIP (1)
Reference number of shares under

Reference number of shares under

grants under the LTIP in 2017(2), (3)

the performance component P2
the performance component P1

Total number of shares granted

of the 2017 launch of the LTIP(1)

of the 2017 launch of the LTIP(1)

the 2017 launch of the LTIP (2), (3)

the 2017 launch of the LTIP(2), (3)

performance component P2 of
performance component P1 of
share-based grants under the

share-based grants under the

Total estimated value of

Total estimated value of

Name
CHF CHF CHF

Ulrich Spiesshofer(4) 80,706 1,930,649 70,180 1,741,026 150,886 3,671,675

Timo Ihamuotila
(EC member as of April 1, 2017)(4) 20,500 490,401 20,500 508,564 41,000 998,965
Jean-Christophe Deslarzes(4) 24,402 583,745 20,946 519,629 45,348 1,103,374
Diane de Saint Victor(4) 17,826 426,434 22,283 552,797 40,109 979,231
Frank Duggan(4) 17,492 418,444 17,492 433,942 34,984 852,386
Greg Scheu 14,567 348,472 18,208 451,705 32,775 800,177
Bernhard Jucker
(EC member until June 30, 2017) 23,397 559,704 23,397 580,433 46,794 1,140,137
Sami Atiya 18,691 447,127 16,044 398,020 34,735 845,147
Tarak Mehta(4) 15,331 366,749 19,163 475,396 34,494 842,145
Chunyuan Gu (EC member as of July 1, 2017) 15,598 365,218 15,598 378,745 31,196 743,963
Claudio Facchin 21,027 503,008 18,049 447,760 39,076 950,768
Peter Terwiesch(4) 19,989 478,177 17,158 425,656 37,147 903,833
Total Executive Committee
members at December 31, 2017 289,526 6,918,128 279,018 6,913,673 568,544 13,831,801
(1) Vesting date June 13, 2020.
(2) The total estimated value of the performance components (P1 and P2) is computed using a Monte Carlo simulation and the price of the ABB
shares on the grant date, adjusted for expected foregone dividends during the vesting period.
(3) It is expected that upon vesting 70 percent of the performance shares will be settled in shares while the value of the remaining 30 percent
will be settled in cash for both performance components (P1 and P2). However, upon vesting participants have the possibility to elect to
receive 100 percent of the vested award in shares.
(4) In addition to the above awards, seven members of the EC participated in the 14th launch of the ESAP in 2017, which will allow them to save
over a 12-month period and, in November 2018, use their savings to acquire ABB shares under the ESAP. Each EC member who participated
in ESAP will be entitled to acquire up to 380 ABB shares at an exercise price of CHF 26.26 per share.
82 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

Exhibit 26: LTIP grants in 2016 (audited)

Total estimated value of ­share-based

grants under the LTIP in 2016(2), (3), (4)
the 2016 launch of the LTIP(1), (2), (4)

the 2016 launch of the LTIP(1), (3), (4)

Reference number of shares under

Reference number of shares under

under the 2016 launch of the LTIP(1)

the performance component P2
of the 2016 launch of the LTIP(1)

of the 2016 launch of the LTIP(1)

the performance component P1

performance component P2 of

Total number of shares granted

performance component P1 of
share-based grants under the

share-based grants under the

Total estimated value of

Total estimated value of

Name
CHF CHF CHF

Ulrich Spiesshofer(5) 94,076 1,945,492 81,805 1,708,645 175,881 3,654,137

Eric Elzvik 18,037 373,006 22,546 470,914 40,583 843,920
Jean-Christophe Deslarzes(5) 31,884 659,362 24,403 509,701 56,287 1,169,063
Diane de Saint Victor(5) 21,220 438,830 26,525 554,023 47,745 992,853
Frank Duggan(5) 27,206 562,621 20,822 434,905 48,028 997,526
Greg Scheu 21,572 446,109 21,572 450,571 43,144 896,680
Sami Atiya (EC member
as of June 14, 2016) 19,125 376,380 18,568 369,073 37,693 745,453
Tarak Mehta(5) 22,812 471,753 22,812 476,470 45,624 948,223
Bernhard Jucker(5) 27,056 559,519 27,056 565,114 54,112 1,124,633
Claudio Facchin 27,032 559,022 20,690 432,148 47,722 991,170
Peter Terwiesch(5) 25,473 526,782 19,496 407,210 44,969 933,992
Total Executive Committee
members at December 31, 2016 335,493 6,918,876 306,295 6,378,774 641,788 13,297,650
(1) Vesting date June 6, 2019.
(2) The estimated value of the shares of the P1 component represents the fair value of the ABB shares on the grant date of the award multi-
plied by the respective number of reference shares.
(3) The total estimated value of the performance component (P2) is computed using a Monte Carlo simulation and the price of ABB shares on
the grant date.
(4) It is expected that upon vesting, that 70 of the performance shares will be settled in shares while the value of the remaining 30 percent will
be settled in cash for both performance components P1 and P2. However, upon vesting, participants have the possibility to elect to receive
100 percent of the vested award in shares.
(5) In addition to the above awards, seven members of the EC participated in the 13th launch of the ESAP in 2016, which allowed them to save
over a 12-month period and, in November 2017, use their savings to acquire ABB shares under the ESAP. Each EC member who participated
in ESAP was entitled to acquire up to 500 ABB shares at an exercise price of CHF 20.12 per share.
A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 83

Exhibit 27: EC shareholding overview at December 31, 2017 (audited)

Total number
of shares held
at December
31, 2017 Unvested at December 31, 2017

Reference number of shares

Reference number of shares

Reference number of shares

deliverable under the 2015

deliverable under the 2016

deliverable under the 2017

performance components

performance components

performance components

Replacement share grant

Replacement share grant

(P1 and P2) of the LTIP(1)

(P1 and P2) of the LTIP(1)

(P1 and P2) of the LTIP(1)

from former employer(2)

from former employer(2)

for foregone benefits

for foregone benefits

Name
(vesting 2019
(vesting 2018) (vesting 2019) (vesting 2020) (vesting 2018) and 2020)

Ulrich Spiesshofer 410,646 172,465 175,881 150,886 — —

Timo Ihamuotila
(EC member as of April 1,
2017) 22,000 — — 41,000 — 119,200
Jean-Christophe
Deslarzes 96,651 51,413 56,287 45,348 65,819 —
Diane de Saint Victor 533,482 45,873 47,745 40,109 — —
Frank Duggan 186,576 46,390 48,028 34,984 — —
Greg Scheu 119,561 45,896 43,144 32,775 — —
Sami Atiya — — 37,693 34,735 — —
Tarak Mehta 159,222 42,780 45,624 34,494 — —
Chunyuan Gu
(EC member as of July 1,
2017) 13,570 25,937 25,799 31,196 — —
Claudio Facchin 85,553 42,845 47,722 39,076 — —
Peter Terwiesch 63,269 36,698 44,969 37,147 — —
Total Executive
Committee members
at December 31, 2017 1,690,530 510,297 572,892 521,750 65,819 119,200
(1) It is expected that upon vesting, the LTIP will be settled 70 percent in shares and 30 percent in cash for the performance components
(P1 and P2). However, participants have the possibility to elect to receive 100 percent of the vested award in shares.
(2) It is expected that the replacement share grants will be settled 70 in shares and 30 percent in cash. However, the participants have the
possibility to elect to receive 100 percent of the vested award in shares.
84 A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T

Exhibit 28: EC ownership of ABB shares and options at December 31, 2016 (audited)
Vested at
December 31, 2016 Unvested at December 31, 2016

Replacement share grant for

Retention shares deliverable

Reference number of shares

Reference number of shares

Total number of shares held

deliverable under the 2015

deliverable under the 2016

Number of vested options

performance components

performance components
under the 2014 retention
component of the LTIP(2)

(P1 and P2) of the LTIP(2)

(P1 and P2) of the LTIP(2)

foregone benefits from

at December 31, 2016

held under the MIP(1)

former employer(3)
Name (vesting 2017) (vesting 2018) (vesting 2019) (vesting 2018)

Ulrich Spiesshofer 344,454 — 93,846 172,465 175,881 —

Eric Elzvik 71,369 408,875 30,549 44,562 40,583 —
Jean-Christophe Deslarzes 74,767 — 30,549 51,413 56,287 65,819
Diane de Saint Victor 507,824 — 35,940 45,873 47,745 —
Frank Duggan 158,528 — 27,548 46,390 48,028 —
Greg Scheu 101,250 221,375 26,159 45,896 43,144 —
Sami Atiya (EC member
as of June 14, 2016) — — — — 37,693 —
Tarak Mehta 134,449 — 34,677 42,780 45,624 —
Bernhard Jucker 293,771 — 40,750 51,902 54,112 —
Claudio Facchin 63,795 — 31,083 42,845 47,722 —
Peter Terwiesch 46,312 — 16,457 36,698 44,969 —
Total Executive
Committee members
at December 31, 2016 1,796,519 630,250 367,558 580,824 641,788 65,819
(1) Options may be sold or exercised to received shares at the ratio of 5 options for 1 share.
(2) It is expected that upon vesting, the LTIP will be settled 70 percent in shares and 30 percent in cash for both the retention component
(LTIP 2014) and performance component (P1 and P2 of LTIP 2015 and 2016). However, participants have the possibility to elect to receive
100 percent of the vested award in shares.
(3) It is expected that the replacement share grant will be settled 70 percent in shares and 30 percent in cash. However, the participant has
the possibility to elect to receive 100 percent of the vested award in shares.
A B B A N N U A L R E P O R T 2 0 17 0 3 C O M P E N S AT I O N R E P O R T 85

—
Report of the statutory auditor on
the Compensation report
To the General Meeting of We believe that the audit evidence we have ob-
tained is sufficient and appropriate to provide a
ABB Ltd, Zurich basis for our opinion.

We have audited the accompanying Compensa- Opinion

tion report of ABB Ltd for the year ended Decem- In our opinion, the Compensation report for the
ber 31, 2017. The audit was limited to the informa- year ended December 31, 2017 of ABB Ltd com-
tion according to articles 14–16 of the Ordinance plies with Swiss law and articles 14–16 of the Ordi-
against Excessive Compensation in Stock Ex- nance.
change Listed Companies (Ordinance) contained
in the tables labeled “audited” on pages 77 to 84 Ernst & Young AG
of the Compensation report.
Leslie Clifford Robin Errico
Licensed audit expert Licensed audit expert
Board of Directors’ responsibility
(Auditor in charge)
The Board of Directors is responsible for the
preparation and overall fair presentation of the
Compensation report in accordance with Swiss Zurich, Switzerland
law and the Ordinance. The Board of Directors is February 22, 2018
also responsible for designing the compensation
system and defining individual compensation
packages.

Auditor’s responsibility
Our responsibility is to express an opinion on the
accompanying Compensation report. We con-
ducted our audit in accordance with Swiss Audit-
ing Standards. Those standards require that we
comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance
about whether the Compensation report complies
with Swiss law and articles 14–16 of the Ordi-
nance.

An audit involves performing procedures to ob-

tain audit evidence on the disclosures made in the
Compensation report with regard to compensa-
tion, loans and credits in accordance with articles
14–16 of the Ordinance. The procedures selected
depend on the auditor’s judgment, including the
assessment of the risks of material misstate-
ments in the Compensation report, whether due
to fraud or error. This audit also includes evaluat-
ing the reasonableness of the methods applied to
value components of compensation, as well as as-
sessing the overall presentation of the Compen-
sation report.
04
2017 Financial
Review of ABB
Group
—
86 – 207
2017 Operating and financial review
and prospects
—
90 – 136

Consolidated Financial Statements

of ABB Group
—
137 –207
90 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
About ABB
ABB is a pioneering technology leader in electri- 125-year history of innovation, ABB today is at
fication products, robotics and motion, indus- the forefront of the industrial digitalization and
trial automation and power grids serving cus- driving the Energy and Fourth Industrial Revolu-
tomers in utilities, industry and transport & tions. ABB operates in more than 100 countries
infrastructure globally. Continuing more than a with about 135,000 employees.

—
History of the ABB Group
The ABB Group was formed in 1988 through a Asea AB was renamed ABB AB and BBC Brown
merger between Asea AB and BBC Brown Boveri AG was renamed ABB AG. In February 1999,
Boveri AG. Initially founded in 1883, Asea AB was a the ABB Group announced a group reconfigura-
major participant in the introduction of electricity tion designed to establish a single parent holding
into Swedish homes and businesses and in the de- company and a single class of shares. ABB Ltd was
velopment of Sweden’s railway network. In the incorporated on March 5, 1999, under the laws of
1940s and 1950s, Asea AB expanded into the Switzerland. In June 1999, ABB Ltd became the
power, mining and steel industries. Brown Boveri holding company for the entire ABB Group. This
and Cie. (later renamed BBC Brown Boveri AG) was was accomplished by having ABB Ltd issue shares
formed in Switzerland in 1891 and initially special- to the shareholders of ABB AG and ABB AB, the
ized in power generation and turbines. In the early two companies that formerly owned the ABB
to mid‑1900s, it expanded its operations through- Group. The ABB Ltd shares were exchanged for
out Europe and broadened its business opera- the shares of those two companies, which, as a re-
tions to include a wide range of electrical engi- sult of the share exchange and certain related
neering activities. transactions, became wholly‑owned subsidiaries
of ABB Ltd. ABB Ltd shares are currently listed on
In January 1988, Asea AB and BBC Brown Boveri AG the SIX Swiss Exchange, the NASDAQ OMX Stock-
each contributed almost all of their businesses to holm Exchange and the New York Stock Exchange
the newly formed ABB Asea Brown Boveri Ltd, of (in the form of American Depositary Shares).
which they each owned 50 percent. In 1996,

—
Organizational structure
Our business is international in scope and we ­ iddle East and Africa (AMEA). A breakdown of
M
­generate revenues in numerous currencies. our employees by geographic region is as follows:
We are headquartered in Zurich, Switzerland.
December 31,
We manage our business based on a divisional 2017 2016 2015
structure, comprised of four divisions: Electrifica- Europe 63,000 61,400 61,600
tion Products, Robotics and Motion, Industrial Au- The Americas 28,800 29,000 30,900
tomation and Power Grids. For a breakdown of Asia, Middle East
and Africa 43,000 41,900 43,300
our consolidated revenues (i) by operating divi-
Total 134,800 132,300 135,800
sion and (ii) derived from each geographic region
in which we operate, see “Analysis of Results of The proportion of our employees that are repre-
Operations–Revenues”. sented by labor unions or are the subject of col-
lective bargaining agreements varies based on
We operate in approximately 100 countries across the labor practices of each country in which we
three regions: Europe, the Americas, and Asia, operate.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 91

—
Divisions
Electrification Products Division factories and buildings, switchgear systems for
short circuit and overload protection as well as
Overview cabling and connection components. In addition,
The Electrification Products division provides the business offers terminal blocks, a range of
solutions across the full electrical value chain contactors, starters, proximity sensors, safety
from the substation to the point of consump- products for industrial protection, limit switches
tion. The innovations from this business enable a and manual motor starters, along with electronic
safer and more reliable electrical flow, with a full relays and overload relays.
range of low- and medium-voltage products and
solutions for intelligent protection and connec- The Building Products business provides smart
tion as well as pre-engineered packaged solutions home and intelligent building control systems,
and services tailored to customers’ needs. The also known as KNX protocol, to optimize effi-
portfolio – within increasingly digital and con- ciency, safety and comfort through the auto-
nected solutions – includes modular substation mated management of lighting, shutters and se-
packages, distribution automation products, curity. In addition, the business supplies
switchgear, circuit breakers, measuring and sens- conventional wiring accessories, industrial plugs
ing devices, control products, wiring accessories, and sockets, and enclosures ideal for single family
and enclosures and cabling systems, including homes, multiple dwellings, commercial buildings,
KNX systems (global standard for home and infrastructure and industrial applications.
building control) designed to integrate and auto-
mate a building’s lighting, heating and ventilation, The Installation Products business offers prod-
and security and data communication networks. ucts for low-voltage wire and cable management,
making the task of fastening, protecting, insulat-
The division delivers products to customers ing and connecting wires easier and quicker for
through a global network of channel partners and industrial applications, construction, communica-
end-customers. Most of the division’s revenue is tions, utility and OEM professionals, as well as
derived from sales through distributors, whole- ­do-it-yourself specialists. The business offers
salers, original equipment manufacturers (OEMs), emergency lighting and lighting for explosive en-
system integrators, utilities and panel builders, vironments, as well as lightning protection and
with some direct sales to end-users, utilities and earth grounding apparatus.
other ABB divisions.
The Medium Voltage Products business helps util-
The Electrification Products division had approxi- ity, industry and transport & infrastructure cus-
mately 42,200 employees as of December 31, 2017, tomers to improve power quality and control, re-
and generated $10.1 billion of revenues in 2017. duce outage time and enhance operational
reliability and efficiency. The business offers
Customers products and services that largely serve the
The Electrification Products division serves a power distribution sector, often providing the link
wide range of customers who are connecting, between high‑voltage transmission systems and
protecting and controlling electricity from a num- low‑voltage users. Its comprehensive offering in-
ber of industry segments including buildings, cludes medium‑voltage equipment (1 to 50 kilo-
data centers, rail, wind and solar, food and bever- volts), indoor and outdoor circuit breakers, reclos-
age, marine, and oil and gas. ers, fuses, contactors, relays, instrument
transformers, sensors, motor control centers, ring
Products and Services main units for primary and secondary distribu-
The Protection and Connection business offers tion, as well as a range of air‑ and gas‑insulated
products that protect, control and connect peo- switchgear. It also produces indoor and outdoor
ple, plants and systems. ABB offers solutions to modular systems and other solutions to facilitate
restore power rapidly in case of a fault and helps efficient and reliable power distribution.
provide optimum protection for people and elec-
trical installations. The product offering ranges The Electrification Solutions business offers sys-
from miniature circuit breakers to high‑capacity tems solutions to customers across low- and
molded‑case and air-circuit breakers and includes ­medium-voltage applications, integrating the entire
safety switches used for power distribution in offering from the division into complete s
­ olutions
92 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

for customers, adding value through design, engi- t­ otaled $218 million in 2017, compared to
neering, project management and service. $215 million and $228 million in 2016 and 2015,
respectively. Investments in 2017 were primarily
The Power and Electric Vehicle Infrastructure bu­ related to footprint changes, equipment replace-
siness supplies power generation products and ment and upgrades. Geographically, in 2017,
so­lutions including electric vehicle charging and ­Europe represented 56 percent of the capital ex-
solar inverters for residential, commercial and util- penditures, followed by the Americas (32 per-
ity applications, solar packages with integrated en- cent) and AMEA (12 percent).
ergy storage solutions and power protection solu-
tions such as UPS (uninterruptible power supplies)
solutions, status transfer switches, power distri- Robotics and Motion Division
bution units, power converters, and fuel cell in-
verters. In electro mobility, ABB has been offering Overview
rapid charging solutions with more than 5,000 The Robotics and Motion division provides prod-
networked systems for passenger cars and com- ucts, solutions and related services that increase
mercial vehicles installed worldwide. ABB’s port- industrial productivity and energy efficiency. Our
folio of DC fast charging solutions ranges from key products such as motors, generators, drives
20kW wall boxes to u ­ ltra-fast charging solutions and robotics provide power, motion and control
for cars and 600kW electric buses. In 2017, ABB in- for a wide range of automation applications. The
troduced a leading technology for flash-charging leading position in wind generators and propul-
and onboard ­traction equipment which recharges sion converters complement the industrial focus,
buses in 2­ 0-second bursts at stops, while passen- leveraging joint technology, channels and opera-
gers are embarking and disembarking. This tech- tions platforms.
nology is designed to deliver higher passenger
­capacity, lower noise and emission-free public Revenues are generated both from direct sales to
transport. end-users as well as from indirect sales through
distributors, machine builders, system integra-
In addition, the service offerings of the Electrifi- tors, and OEMs.
cation Products division span the entire value
chain, from the moment a customer makes the The Robotics and Motion division had approxi-
first inquiry to disposal and recycling of the prod- mately 27,100 employees as of December 31, 2017,
uct. Throughout the value chain, ABB provides and generated $8.4 billion of revenues in 2017.
training, technical support and customized con-
tracts. All of this is supported by an extensive Products and Services
global sales and service network. The Robotics business offers robots, controllers,
software systems, as well as complete robot au-
Sales and Marketing tomation solutions and a comprehensive range
Sales are primarily made through indirect sales of advanced services for automotive and Tier One
channels such as distributors and wholesalers to OEMs as well as for general industry. These pro-
end customers including installers and system in- vide flexibility for manufacturers to meet the
tegrators. Direct customers include utilities, challenge of making smaller lots of a larger num-
panel builders and machine builders, as well as ber of specific products in shorter cycles for to-
other ABB divisions. The proportion of direct day’s dynamic global markets, while also improv-
sales compared to channel partner sales varies ing quality, productivity and reliability. Robots are
among the different industries, product technolo- also used in activities or environments which may
gies and geographic markets. The business is fo- be hazardous to employee health and safety, such
cused on creating demand to support its channel as repetitive or strenuous lifting, dusty, hot or
sales, with a range of promotional activities and cold rooms, or painting booths. In the automotive
support services including configuration and industry, robot products and systems are used in
other digital solutions. such areas as press shop, body shop, paint shop,
power train assembly, trim and final assembly.
Competition General industry segments in which robotics solu-
The Electrification Products division’s principal tions are used range from metal fabrication,
competitors vary by product line, but they include foundry, plastics, food and beverage, chemicals
Eaton Corporation, Legrand, Schneider, Siemens, and pharmaceuticals, electronics and warehouse/
Hubbell, Leviton, Rittal and Chint Electrical. logistics center automation. Typical robotic appli-
cations in general industry include welding, mate-
Capital Expenditures rial handling, machine tending, painting, picking,
The Electrification Products division’s capital ex- packing, palletizing and small parts assembly au-
penditures for property, plant and equipment tomation.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 93

The Motors and Generators business supplies a such as distributors, wholesalers, installers,
comprehensive range of electrical motors, gener- ­machine builders and OEMs, and system integra-
ators, and mechanical power transmission prod- tors. The proportion of direct sales compared to
ucts. The range of electrical motors includes high channel partner sales varies among the different
efficiency motors that conform to leading envi- industries, product technologies and geographic
ronmental and Minimum Energy Performance markets.
Standards (MEPS). Efficiency is an important se-
lection criterion for customers, because electric Competition
motors account for nearly two‑thirds of the elec- The Robotics and Motion division’s principal
tricity consumed by industrial plants. The busi- competitors vary by product line but include
ness unit manufactures synchronous motors for ­Fanuc Robotics, Kuka Robot Group, Rockwell
the most demanding applications and a full range ­Automation, Schneider, Siemens, Yaskawa and
of low‑ and high‑voltage induction motors, for WEG Industries.
both IEC (International Electrotechnical Commis-
sion) and NEMA (National Electrical Manufactur- Capital Expenditures
ers Association) standards. The business unit also The Robotics and Motion division’s capital expen-
offers solutions that monitor motor performance ditures for property, plant and equipment totaled
and provide vital intelligence on key operating pa- $118 million in 2017, compared to $112 million and
rameters. These products and solutions help cus- $126 million in 2016 and 2015, respectively. Princi-
tomers improve uptime, extend motor lifetimes, pal investments in 2017 were primarily related to
and increase productivity while becoming or re- equipment replacement, footprint adjustments
maining digitally connected. and automation upgrades. Geographically, in 2017,
Europe represented 46 percent of the capital ex-
The Drives business provides low‑voltage and penditures, followed by the Americas (32 percent)
­medium‑voltage drives and systems for indus- and AMEA (22 percent).
trial, commercial and residential applications.
Drives provide speed, torque and motion control
for equipment such as fans, pumps, compressors, Industrial Automation Division
conveyors, centrifuges, mixers, hoists, cranes, ex-
truders, printing and textile machines. They are Overview
used in industries such as building automation, The Industrial Automation division offers custom-
marine, power, transportation, food and bever- ers solutions that are designed to optimize the
age, metals, mining, and oil and gas. The business productivity, energy efficiency and safety of their
unit also supplies traction converters (propulsion industrial processes by combining the division’s
converters and auxiliary converters) for the trans- integrated control products, systems and service
portation industry and wind converters. offerings with deep domain and process exper-
tise of each end market. Solutions include turnkey
The division also offers services that comple- engineering, control systems, measurement prod-
ment its products and solutions, including de- ucts, lifecycle services, outsourced maintenance
sign and project management, engineering, in- and industry-specific products such as electric
stallation, training and lifecycle care, energy propulsion for ships, Azipods, mine hoists, turbo-
efficiency appraisals, preventive maintenance chargers and pulp and paper quality control
and digital services such as remote monitoring equipment. The systems can link various pro-
and software tools. cesses and information flows which allows cus-
tomers to manage their entire manufacturing and
Customers business process based on real‑time access to
The Robotics and Motion division serves a wide plant information. Additionally, the systems allow
range of customers. Customers include machin- customers to increase production efficiency, opti-
ery manufacturers, process industries such as mize their assets and reduce environmental
pulp and paper, oil and gas, and metals and min- waste. Some of the products from the Robotics
ing companies, hybrid and batch manufacturers and Motion, Power Grids and Electrification Prod-
such as food and beverage companies, transpor- ucts divisions are integrated into the process con-
tation equipment manufacturers, discrete manu- trol and electrification solutions offered by the In-
facturing companies such as “3C” (computer, dustrial Automation division.
communication and consumer electronic), utilities
as well as customers in the automotive industry. The Industrial Automation division offerings are
available as separately sold products or as part of
Sales and Marketing a total automation, electrification and/or instru-
Sales are made both through direct sales forces mentation system. The division’s technologies are
as well as through third‑party channel partners,
94 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

sold primarily through direct sales forces as well ABB serves the power generation market with lead-
as third‑party channels. ing automation solutions for all types of power
generation such as coal, gas, ­combined‑cycle,
The division had approximately 27,100 employees waste‑to‑energy as well as renewable sources such
as of December 31, 2017, and generated revenues as hydro, solar, wind and biomass. With an offering
of $6.9 billion in 2017. that includes instrumentation, excitation and con-
trol systems, ABB technologies help optimize per-
Customers formance, improve reliability, enhance efficiency
The Industrial Automation division’s end custom- and minimize environmental impact throughout
ers are primarily companies in the oil and gas, the plant life cycle. The business also serves the
minerals and mining, metals, pulp and paper, water industry, including applications such as
chemicals and pharmaceuticals, food and bever- pumping stations and desalination plants.
age, power generation and marine industries.
These customers are looking for complete auto- ABB services the Marine and Ports business
mation, instrumentation, and electrification solu- through its leading solutions for specialty vessels,
tions that deliver value mainly through lower capi- container and bulk cargo handling. For the ship-
tal costs, increased plant availability, lower ping industry, ABB offers an extensive portfolio of
life‑cycle costs and reduced project costs. integrated marine systems and solutions that im-
prove the flexibility, reliability and energy effi-
Products and Services ciency of vessels. By coupling power, automation
The Oil, Gas and Chemicals business provides and marine software, proven fuel-efficient tech-
solutions across the entire hydrocarbon value nologies and services that ensure maximum vessel
chain, from exploration and production to supply, uptime, ABB is in the position to improve the prof-
transport and distribution, as well as refining, itability of a customer’s business throughout the
chemicals and petrochemicals. ABB specializes in entire life cycle of a fleet. ABB designs, engineers,
mastering the control loop and transforming cli- builds, supplies and commissions automation and
ent operations through actionable insights that electrical systems for marine power generation,
optimize performance in real time. From the well power distribution and electric propulsion, as well
head to the refinery, ABB technologies connect as turbochargers to improve efficiency. With ABB’s
people with data to optimize performance, im- integrated operations centers around the world
prove reliability, enhance efficiency and minimize and marine software solutions, owners and opera-
environmental impact from project start-up tors can run their fleets at lower fuel and mainte-
throughout the entire plant life cycle. nance cost, while improving crew, passenger, and
cargo safety and overall productivity of their oper-
Other Process Industry markets served include ations. In addition, ABB delivers automation and
mining, minerals processing, metals, pharmaceu- electrical systems for container and bulk cargo
ticals and pulp and paper as well as their associ- handling – from ship to gate. The systems and ser-
ated service industries. The business’ added value vices help terminal operators meet the challenge
is deep industry expertise coupled with the ability of larger ships, taller cranes and bigger volumes
to integrate both automation and electronics, re- per call, and make terminal operations safer,
sulting in faster start-up times, increased plant greener and more productive.
productivity and reduced overall capital and oper-
ating costs for customers. For mining, metals and ABB offers an extensive portfolio of products and
cement industries, solutions include specialized software from stand-alone basic control to inte-
products and services, as well as total production grated collaborative systems for complex or criti-
systems. The business designs, plans, engineers, cal processes. One of the solutions, System
supplies, erects and commissions electric equip- 800xA, provides a scalable extended automation
ment, drives, motors, high power rectifiers and system for process and production control, safety,
equipment for automation and supervisory con- and production monitoring. Freelance, another
trol within a variety of areas including mineral solution, is a full-fledged, easy-to-use distributed
handling, mining operations, aluminum smelting, control system for small to medium size applica-
hot and cold steel applications and cement pro- tions. The PLC Automation portfolio offers a scal-
duction. In the pharmaceuticals and fine chemi- able range for small, middle and high-end applica-
cals areas, the business offers applications to tions. Components for basic automation
support manufacturing, packaging, quality con- solutions, process and safety controllers, field in-
trol and compliance with regulatory agencies. The terfaces, panels, process recorders and HMI (Hu-
offering for the pulp and paper industries in- man Machine Interfaces) are available through our
cludes quality control systems, control systems, Compact Product Suite offering. The product
drive systems, on‑line sensors, actuators and field portfolio is complemented by Automation Senti-
instruments. nel, a subscription-based life cycle management
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 95

program that provides services to maintain and environment, B&R strives to redefine the future of
continually advance and enhance ABB control automation engineering. In addition, ABB offers a
systems (e.g. cyber security patches) and thus al- complete range of lifecycle services across all cus-
lows it to manage a customer’s life cycle costs. tomer segments to help customers optimize their
The Advanced Services offering provides individ- assets. Demand for process automation services
ual s
­ oftware-based services to continuously im- is driven by customers seeking to increase pro-
prove automation and processes. ABB also offers ductivity by improving the performance of exist-
Manufacturing Execution Systems that create ing equipment.
agility and transparency for production pro-
cesses by synchronizing and orchestrating a flow Sales and Marketing
across ­individual automation islands. An interac- The Industrial Automation division primarily uses
tive software platform, Decathlon Software, its direct sales force as well as third‑party channel
combines plant operations data from control partners, such as distributors, system integrators
systems, enterprise r­ esource planning (ERP) and and OEMs. The majority of revenues are derived
other data sources into actionable information through the division’s own direct sales channels.
for d
­ ecision-makers, creating additional cus-
tomer value. ABB focuses strongly on the human Competition
factor and thus offers o­ perator interfaces from The Industrial Automation division’s principal
panels to holistic control room solutions with er- competitors vary by industry or product line.
gonomic furniture and control centers to drive Competitors include Emerson, Honeywell, Valmet,
productivity, quality and safety to new levels. Rockwell Automation, Beckhoff ­Automation,
Schneider, Siemens, Voith, and ­Yokogawa Electric
The offerings of the Measurement and Analytics Corporation.
business are designed to measure product proper-
ties, such as weight, thickness, color, brightness, Capital Expenditures
moisture content and additive content. Actuators The Industrial Automation division’s capital ex-
allow the customer to make automatic adjustments penditures for property, plant and equipment
during the production process to improve the qual- totaled $71 million in 2017, compared to $53 mil-
ity and consistency of the product. Field instru- lion and $57 million in 2016 and 2015, respec-
ments measure properties of the process, such as tively. Principal investments in 2017 were in the
flow rate, chemical content and temperature. The Turbocharging and the Measurement and Ana-
business also offers a full line of instrumentation lytics businesses. Geographically, in 2017, Eu-
and analytical products to analyze, measure and re- rope represented 70 percent of the capital ex-
cord industrial and power processes. penditures, followed by the Americas
(17 percent) and AMEA (13 percent).
ABB manufactures and maintains turbochargers
for diesel and gas engines having power levels
ranging from 500 kilowatts to over 80 mega- Power Grids Division
watts. The business provides engine builders and
application operators with advanced turbocharg- Overview
ing solutions for efficient and flexible application The Power Grids division is a global leader in
operations and in compliance with the most strin- power technologies and aspires to be the partner
gent environmental requirements. of choice for enabling a stronger, smarter and
greener grid. The Power Grids division provides
In July 2017, ABB acquired B&R, the largest inde- product, system, software and service solutions
pendent provider focused on product- and across the power value chain that are designed to
­software-based, open-architecture solutions for meet the growing demand for electricity with
machine and factory automation worldwide. This minimum environmental impact. These solutions
acquisition closes ABB’s historic gap in machine support utility, industry and transport & infra-
and factory automation and is anticipated to cre- structure customers to plan, build, operate and
ate a comprehensive automation portfolio for cus- maintain their power infrastructure. They are de-
tomers globally. ABB combines ­state-of-the-art signed to facilitate the safe, reliable and efficient
technology with advanced engineering to provide integration, transmission and distribution of bulk
a wide range of customers with complete solu- and distributed energy generated from conven-
tions for machine and factory automation, motion tional and renewable sources.
control, HMI and integrated safety technology.
With Industrial Internet of Things communica- Approximately three quarters of the division’s rev-
tion standards like OPC Unified Architecture, enues come from utility customers and the re-
POWERLINK and ­openSAFETY as well as the pow- maining portion is generated from industry and
erful Automation Studio software development transport & infrastructure customers. Power
96 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Grids has a worldwide customer base, with a wide semiconductors, a core technology for power
spread of revenues from a regional perspective electronics deployed in HVDC, FACTS and rail
across the Americas, Europe and AMEA. The divi- ­applications.
sion also has a globally diversified and well bal-
anced manufacturing and engineering footprint. The High Voltage products business is a global
Direct sales account for a significant part of the leader in high voltage switchgear up to 1200 kV AC
division’s total revenues and external channel and 1100 kV DC with a portfolio spanning
partners such as wholesalers, distributors and ­air-insulated, gas-insulated and hybrid technolo-
OEMs account for the rest. gies. It also manufactures generator circuit break-
ers, a key product for integrating large power
The division had approximately 36,400 employees plants into the grid. The portfolio also includes a
as of December 31, 2017, and generated $10.4 bil- broad range of capacitors and filters that facili-
lion of revenues in 2017. tate power quality as well as instrument trans-
formers and other substation components.
Customers
The Power Grids division’s principal customers The Transformers business supplies transformers
include transmission and distribution operators that are an integral component found across the
and owners as well as utilities and industrial, power value chain, enabling the efficient and safe
transportation and infrastructure customers. conversion of electricity to different voltages. ABB
is the world’s largest maker of transformers. The
Products and Services product range is designed for reliability, durability
The Grid Automation business is at the forefront and efficiency with a portfolio that includes power
of grid automation and digitalization. It supplies transformers, dry- and liquid-distribution trans-
substation automation products, systems and formers, traction transformers for rail applica-
services. It also provides Supervisory Control tions, and special application transformers and re-
and Data Acquisition (SCADA) systems for trans- lated components such as insulation kits, bushings
mission and distribution networks as well as a and other transformer accessories. In addition,
range of wireless, fiber optic and power line ABB’s power transformers are pushing the voltage
­carrier-based telecommunication technologies barrier to unprecedented levels of 1100 kV DC and
for mission critical applications. This business 1200 kV AC, facilitating more power to be trans-
offers microgrid solutions that are being in- ported longer distances with minimum losses.
creasingly deployed for remote and partially Other technology developments include
grid-connected applications. Also included in ­grid-resilient transformers designed to withstand
this business is the enterprise software portfolio physical attack, eco-efficient transformers using
– a provider of an industry-leading suite of biodegradable oil and innovative ­sensor-based as
­software solutions that help utilities and other well as software-leveraging solutions for remote
­a sset-intensive industries (e.g. rail, mining) man- maintenance and asset optimization.
age, maintain and optimize their assets.
The division also has an extensive portfolio of
The Grid Integration business is among the service offerings. This is a growing focus area,
world’s leading providers of transmission and dis- ­leveraging the significant installed product base.
tribution substations, associated life-cycle ser- The portfolio includes spare parts, condition
vices and HVDC systems. The substations are pro- monitoring and maintenance services, on- and
vided either as engineered solutions (system off‑site repairs as well as retrofits and upgrades.
integration) or on a turnkey, engineering, procure- Advanced ­software-based monitoring and advi-
ment, construction (EPC) basis, for utility and sory services are being added to the portfolio to
non‑utility applications including renewables, rail, enable digitalization of grids. ABB Ability™,
data-centers, industry, battery energy storage the company’s unified, cross‑industry digital
and shore-to-ship power supply. The HVDC sys- ­capability s­ upports the portfolio with devices,
tems use Line Commutated Converter (HVDC systems, solutions, services and a platform that
Classic) technology or Voltage Sourced Converter enable customers to know more, do more and do
(HVDC Light) technology. The Grid Integration better.
portfolio also includes the Flexible Alternating
Current Transmission Systems (FACTS) business, Competition
which comprises Static Var Compensation (SVC) On a global basis, the Power Grids division faces
and static compensator (STATCOM) technology. worldwide competition across its portfolio mainly
These systems stabilize voltages, minimize from Siemens and General Electric (GE Alstom).
losses, and keep power quality in accordance It also competes in specific geographies and in
with grid codes. The Grid Integration business's parts of the business with companies such as
portfolio also includes a range of high power Hyundai, Hyosung, Crompton Greaves, TBEA
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 97

­ nd NARI. The breadth of its portfolio, technology

a Corporate research and development primarily
and innovation, a global footprint and a vast in- covers our research activities, as our development
stalled base, enable the division to maintain its activities are organized under the four business di-
leading position in the power sector. visions. We have two global research laboratories,
one focused on power technologies and the other
Capital Expenditure focused on automation technologies, which both
The Power Grids division’s capital expenditures work on technologies relevant to the future of our
for property, plant and equipment totaled four business divisions. Each laboratory works on
$171 million in 2017, compared to $172 million and new and emerging technologies and collaborates
$150 million in 2016 and 2015, respectively. Princi- with universities and other external partners to
pal investments in 2017 were related to capacity support our divisions in advancing relevant tech-
expansion as well as the replacement of existing nologies and in developing cross‑divisional tech-
equipment, particularly in Sweden, the U.S. and nology platforms. We have corporate research cen-
Switzerland. Geographically, in 2017, Europe rep- ters in seven countries (China, India, Germany,
resented 60 percent of the capital expenditures, Poland, Sweden, Switzerland and the U.S.).
followed by the Americas (25 percent) and AMEA
(15 percent). GBS operates in several hub locations and con-
sists of shared services in the area of account-
ing, human resources, information systems and
Corporate and Other supply chain management. The costs for GBS are
allocated to the operating divisions.
Corporate and Other includes headquarters, cen-
tral research and development, real estate activi- Corporate and Other had approximately
ties, Group Treasury Operations, Global Business 2,000 employees at December 31, 2017.
Services (GBS) and other minor business activi-
ties. In addition, we have classified the historical
business activities of significant divested busi-
nesses in Corporate and Other.

Corporate headquarters and stewardship activi-

ties include the operations of our corporate
­headquarters in Zurich, Switzerland, as well as
­corporate‑related activities in various countries.
These activities cover staff functions with
group‑wide responsibilities, such as accounting
and financial reporting, corporate finance and
taxes, planning and controlling, internal audit, legal
and integrity, compliance, risk management and
insurance, corporate communications, information
systems, investor relations and human resources.
98 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Capital expenditures
Total capital expenditures for property, plant and by investing in new or expanded facilities. The
equipment and intangible assets (excluding intan- share of emerging markets capital expenditures
gibles acquired through business combinations) as a percentage of total capital expenditures in
amounted to $949 million, $831 million, $876 mil- 2017, 2016 and 2015 was 31 percent, 35 percent
lion in 2017, 2016 and 2015, respectively. In 2017, and 31 percent, respectively.
2016 and 2015, capital expenditures were 14 per-
cent, 27 percent and 24 percent lower, respec- At December 31, 2017, construction in progress for
tively, than depreciation and amortization. property, plant and equipment was $700 million,
­E xcluding acquisition-related amortization, capi- mainly in China, the U.S., Sweden, Switzerland and
tal expenditures were 13 percent higher, 3 percent Germany. At December 31, 2016, construction in
lower and 3 percent higher, respectively, than de- progress for property, plant and equipment was
preciation and amortization. $515 million, mainly in the U.S., China, Sweden,
Switzerland and Germany while at December 31,
Capital expenditures in 2017 remained at a signifi- 2015, construction in progress for property, plant
cant level in mature markets, reflecting the geo- and equipment was $559 million, mainly in Swe-
graphic distribution of our existing production fa- den, the U.S., China, Switzerland and Germany.
cilities. Capital expenditures in Europe and North
America in 2017 were driven primarily by upgrades Our capital expenditures relate primarily to
and maintenance of existing production facilities, ­property, plant and equipment. For 2018, we esti-
mainly in the U.S., Sweden, Switzerland, Italy and mate the expenditures for property, plant and
Germany. Capital expenditures in emerging mar- equipment will be higher than our annual depreci-
kets were highest in China, Poland and India. ation and amortization charge, excluding
Capital expenditures in emerging markets were ­acquisition-related amortization.
made primarily to increase production capacity

—
Supplies and raw materials
We purchase a variety of supplies and products Our supply chain management organization’s
which contain raw materials for use in our produc- ­activities have continued to expand in recent
tion and project execution processes. The primary years, to:
materials used in our products, by weight, are
copper, aluminum, steel, mineral oil and various • pool and leverage procurement of materials and
plastics. We also purchase a wide variety of fabri- services,
cated products, electronic components and sys- • provide transparency of ABB’s global spending
tems. We operate a worldwide supply chain man- through a comprehensive performance and
agement network with employees dedicated to reporting system linked to our ERP systems,
this function in our businesses and key countries. • strengthen ABB’s supply chain network by
Our supply chain management network consists implementing an effective product category
of a number of teams, each focusing on different management structure and extensive
product categories. These category teams, on competency‑based training, and
global, divisional and/or regional level, take ad- • monitor and develop our supply base to ensure
vantage of opportunities to leverage the scale of sustainability, both in terms of materials and
ABB and to optimize the efficiency of our supply processes used.
networks, in a sustainable manner.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 99

We buy many categories of products which contain into the prices of our end products (through price
steel, copper, aluminum, crude oil and other com- escalation clauses).
modities. Continuing global economic growth in
many emerging economies, coupled with the vola- Overall, during 2017 supply chain management
tility in foreign currency exchange rates, has led to personnel in our businesses, and in the countries
significant fluctuations in these raw material costs in which we operate, along with the global cate-
over the last few years. While we expect global gory teams, continued to focus on value chain op-
commodity prices to remain highly volatile, we ex- timization efforts in all areas, while maintaining
pect to offset some market volatility through the and improving quality and delivery performance.
use of long‑term contracts and global sourcing.
In August 2012, the United States Securities and
We seek to mitigate the majority of our exposure Exchange Commission (SEC) issued its final rules
to commodity price risk by entering into hedges. regarding “Conflict Minerals”, as required by sec-
For example, we manage copper and aluminum tion 1502 of the Dodd‑Frank Wall Street Reform
price risk using principally swap contracts based and Consumer Protection Act. We initiated con-
on prices for these commodities quoted on lead- flict minerals processes in 2013 and have continu-
ing exchanges. ABB’s hedging policy is designed ously improved and tailored the processes to our
to safeguard margins by minimizing price volatil- value chain. We continue to work with our suppli-
ity and providing a stable cost base during order ers and customers, to enable us to comply with
execution. In addition to using hedging to reduce the rules and disclosure obligations. Further infor-
our exposure to fluctuations in raw materials mation on ABB’s Conflict Minerals policy and sup-
prices, in some cases we can reduce this risk by plier requirements can be found under “Material
incorporating changes in raw materials prices Compliance” at new.abb.com/about/supplying

—
Application of critical accounting
policies
General and other contingencies. Where appropriate, we
base our estimates on historical experience and
We prepare our Consolidated Financial Statements on various other assumptions that we believe to
in accordance with United States generally ac- be reasonable under the circumstances, the re-
cepted accounting principles (U.S. GAAP) and pres- sults of which form the basis for making judg-
ent these in U.S. dollars unless otherwise stated. ments about the carrying values of assets and lia-
bilities that are not readily apparent from other
The preparation of our financial statements re- sources. Actual results may differ from our esti-
quires us to make assumptions and estimates that mates and assumptions.
affect the reported amounts of assets, liabilities,
revenues and expenses and the related disclosure We deem an accounting policy to be critical if it
of contingent assets and liabilities. We evaluate requires an accounting estimate to be made
our estimates on an ongoing basis, including, but based on assumptions about matters that are
not limited to, those related to: gross profit mar- highly uncertain at the time the estimate is made
gins on long‑term construction-type contracts; and if different estimates that reasonably could
costs of product guarantees and warranties; pro­ have been used, or if changes in the accounting
visions for bad debts; recoverability of inventories, estimates that are reasonably likely to occur peri-
investments, fixed assets, goodwill and other odically, could materially impact our Consolidated
­intangible assets; the fair values of assets and lia- Financial Statements. We also deem an account-
bilities assumed in business combinations; in- ing policy to be critical when the application of
come tax expenses and provisions related to un- such policy is essential to our ongoing operations.
certain tax positions; pensions and other We believe the following critical accounting poli-
postretirement benefit assumptions; and legal cies require us to make difficult and subjective
100 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

judgments, often as a result of the need to make • changes in the cost of components, materials
estimates regarding matters that are inherently or labor,
uncertain. These policies should be considered • difficulties in obtaining required governmental
when reading our Consolidated Financial permits or approvals,
­Statements. • project modifications creating unanticipated
costs,
• suppliers’ or subcontractors’ failure to
Revenue recognition perform, and
• delays caused by unexpected conditions or
We generally recognize revenues for the sale of events.
goods when persuasive evidence of an arrange-
ment exists, delivery has occurred, the price is Changes in our initial assumptions, which we re-
fixed or determinable, and collectability is reason- view on a regular basis between balance sheet
ably assured. With regard to the sale of products, dates, may result in revisions to estimated costs,
delivery is not considered to have occurred, and current earnings and anticipated earnings. We rec-
therefore no revenues are recognized, until the ognize these changes in the period in which the
customer has taken title to the products and as- changes in estimates are determined. By recogniz-
sumed the risks and rewards of ownership of the ing changes in estimates cumulatively, recorded
products specified in the purchase order or sales revenue and costs to date reflect the current esti-
agreement. Generally, the transfer of title and mates of the stage of completion of each project.
risks and rewards of ownership are governed by Additionally, losses on long‑term contracts are rec-
the contractually-defined shipping terms. We use ognized in the period when they are identified and
various International Commercial shipping terms are based upon the anticipated excess of contract
(as promulgated by the International Chamber of costs over the related contract revenues.
Commerce) such as Ex Works (EXW), Free Carrier
(FCA) and Delivered Duty Paid (DDP). Subsequent Short-term construction-type contracts, or
to delivery of the products, we generally have no long‑term construction-type contracts for which
further contractual performance obligations that reasonably dependable estimates cannot be
would preclude revenue recognition. made or for which inherent hazards make esti-
mates difficult, are accounted for under the com-
Revenues under long‑term construction-type con- pleted-contract method. Revenues under the
tracts are generally recognized using the completed-contract method are recognized upon
­percentage-of-completion method of accounting. substantial completion—that is: acceptance by
We use the cost-to-cost method to measure prog- the customer, compliance with performance spec-
ress towards completion on contracts. Under this ifications demonstrated in a factory acceptance
method, progress of contracts is measured by ac- test or similar event.
tual costs incurred in relation to management’s
best estimate of total estimated costs, which are For non construction-type contracts that contain
reviewed and updated routinely for contracts in customer acceptance provisions, revenue is de-
progress. The cumulative effect of any change in ferred until customer acceptance occurs or we
estimate is recorded in the period in which the have demonstrated the customer-specified objec-
change in estimate is determined. tive criteria have been met or the contractual ac-
ceptance period has lapsed.
The percentage-of-completion method of account-
ing involves the use of assumptions and projec- Revenues from service transactions are recog-
tions, principally relating to future material, labor nized as services are performed. For long‑term
and project-related overhead costs. As a conse- service contracts, revenues are recognized on a
quence, there is a risk that total contract costs will straight-line basis over the term of the contract
exceed those we originally estimated and the mar- or, if the performance pattern is other than
gin will decrease or the long‑term construction-type straight-line, as the services are provided. Service
contract may become unprofitable. This risk in- revenues reflect revenues earned from our activi-
creases if the duration of a contract increases be- ties in providing services to customers primarily
cause there is a higher probability that the circum- subsequent to the sale and delivery of a product
stances upon which we originally developed our or complete system. Such revenues consist of
estimates will change, resulting in increased costs maintenance-type contracts, field service activi-
that we may not recover. Factors that could cause ties that include personnel and accompanying
costs to increase include: spare parts, and installation and commissioning
• unanticipated technical problems with equip- of products as a stand‑alone service or as part of
ment supplied or developed by us which may re- a service contract.
quire us to incur additional costs to remedy,
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 101

Revenues for software license fees are recognized These revenue recognition methods require the
when persuasive evidence of a non-cancelable li- collectability of the revenues recognized to be
cense agreement exists, delivery has occurred, reasonably assured. When recording the respec-
the license fee is fixed or determinable, and col- tive accounts receivable, allowances are calcu-
lection is probable. In software arrangements lated to estimate those receivables that will not
that include rights to multiple software products be collected. These reserves assume a level of de-
and/or services, the total arrangement fee is allo- fault based on historical information, as well as
cated using the residual method, under which rev- knowledge about specific invoices and custom-
enue is allocated to the undelivered elements ers. The risk remains that actual defaults will vary
based on vendor-specific objective evidence in number and amount from those originally esti-
(VSOE) of fair value of such undelivered elements mated. As such, the amount of revenues recog-
and the residual amounts of revenue are allocated nized might exceed or fall below the amount
to the delivered elements. Elements included in which will be collected, resulting in a change in
multiple element arrangements may consist of earnings in the future. The risk of deterioration is
software licenses, maintenance (which includes likely to increase during periods of significant
customer support services and unspecified up- negative industry, economic or political trends.
grades), hosting, and consulting services. VSOE is
based on the price generally charged when an ele- As a result of the above policies, judgment in the
ment is sold separately or, in the case of an ele- selection and application of revenue recognition
ment not yet sold separately, the price estab- methods must be made.
lished by authorized management, if it is probable
that the price, once established, will not change
once the element is sold separately. If VSOE does Contingencies
not exist for an undelivered element, the total ar-
rangement fee will be recognized as revenue over As more fully described in “Note 15 Commitments
the life of the contract or upon delivery of the un- and contingencies” to our Consolidated Financial
delivered element. Statements, we are subject to proceedings, litiga-
tion or threatened litigation and other claims and
We offer multiple element arrangements to meet inquiries related to environmental, labor, product,
our customers’ needs. These arrangements may regulatory, tax (other than income tax) and other
involve the delivery of multiple products and/or matters. We are required to assess the likelihood
performance of services (such as installation and of any adverse judgments or outcomes to these
training) and the delivery and/or performance matters, as well as potential ranges of probable
may occur at different points in time or over dif- losses. A determination of the provision required,
ferent periods of time. Deliverables of such multi- if any, for these contingencies is made after analy-
ple element arrangements are evaluated to deter- sis of each individual issue, often with assistance
mine the unit of accounting and if certain criteria from both internal and external legal counsel and
are met, we allocate revenues to each unit of ac- technical experts. The required amount of a provi-
counting based on its relative selling price. A hier- sion for a contingency of any type may change in
archy of selling prices is used to determine the the future due to new developments in the partic-
selling price of each specific deliverable that in- ular matter, including changes in the approach to
cludes VSOE (if available), third-party evidence (if its resolution.
VSOE is not available), or estimated selling price if
neither of the first two is available. The estimated We record provisions for our contingent obliga-
selling price reflects our best estimate of what tions when it is probable that a loss will be incurred
the selling prices of elements would be if the ele- and the amount can be reasonably estimated. Any
ments were sold on a stand‑alone basis. Revenue such provision is generally recognized on an undis-
is allocated between the elements of an arrange- counted basis using our best estimate of the
ment consideration at the inception of the ar- amount of loss or at the lower end of an estimated
rangement. Such arrangements generally include range when a single best estimate is not determin-
industry-specific performance and termination able. In some cases, we may be able to recover a
provisions, such as in the event of substantial de- portion of the costs relating to these obligations
lays or non‑delivery. from insurers or other third parties; however, we
record such amounts only when it is probable that
Revenues are reported net of customer rebates they will be collected.
and similar incentives. Taxes assessed by a govern-
mental authority that are directly imposed on We provide for anticipated costs for warranties
­revenue-producing transactions between us and when we recognize revenues on the related prod-
our customers, such as sales, use, value-added and ucts or contracts. Warranty costs include calcu-
some excise taxes, are excluded from revenues. lated costs arising from imperfections in design,
102 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

material and workmanship in our products. We ­ nnually by management. Decreases in mortality

a
generally make individual assessments on con- rates result in an increase in the PBO and in pension
tracts with risks resulting from order-specific con- costs. Conversely, an increase in mortality rates re-
ditions or guarantees and assessments on an over- sults in a decrease in the PBO and in pension costs.
all, statistical basis for similar products sold in
larger quantities. There is a risk that actual war- Holding all other assumptions constant, a
ranty costs may exceed the amounts provided for, 0.25‑percentage point decrease in the discount
which would result in a deterioration of earnings in rate would have increased the PBO related to our
the future when these actual costs are determined. defined benefit pension plans by $427 million
while a 0.25‑percentage point increase in the
­discount rate would have decreased the PBO
Pension and other ­related to our defined benefit pension plans by
$401 ­million.
postretirement benefits
The expected return on plan assets is reviewed
As more fully described in “Note 17 Employee ben- regularly and considered for adjustment annually
efits” to our Consolidated Financial Statements, based upon the target asset allocations and rep-
we have a number of defined benefit pension and resents the long‑term return expected to be
other postretirement plans and recognize an as- achieved. Decreases in the expected return on
set for a plan’s overfunded status or a liability for plan assets result in an increase to pension costs.
a plan’s underfunded status in our Consolidated Holding all other assumptions constant, an in-
Balance Sheets. We measure such a plan’s assets crease or decrease of 0.25 percentage points in
and obligations that determine its funded status the expected long‑term rate of asset return would
as of the end of the year. have decreased or increased, respectively, the net
periodic benefit cost in 2017 by $24 million.
Significant differences between assumptions and
actual experience, or significant changes in as- The funded status, which can increase or decrease
sumptions, may materially affect the pension ob- based on the performance of the financial mar-
ligations. The effects of actual results differing kets or changes in our assumptions, does not rep-
from assumptions and the changing of assump- resent a mandatory short-term cash obligation.
tions are included in net actuarial loss within “Ac- Instead, the funded status of a defined benefit
cumulated other comprehensive loss”. pension plan is the difference between the PBO
and the fair value of the plan assets. At Decem-
We recognize actuarial gains and losses gradually ber 31, 2017, our defined benefit pension plans
over time. Any cumulative unrecognized actuarial were $1,413 million underfunded compared to an
gain or loss that exceeds 10 percent of the greater underfunding of $1,403 million at December 31,
of the present value of the projected benefit obliga- 2016. Our other postretirement plans were under-
tion (PBO) and the fair value of plan assets is recog- funded by $132 million and $147 million at Decem-
nized in earnings over the expected average remain- ber 31, 2017 and 2016, respectively.
ing working lives of the employees participating in
the plan, or the expected average remaining lifetime We have multiple non-pension postretirement ben-
of the inactive plan participants if the plan is com- efit plans. Our health care plans are generally con-
prised of all or almost all inactive participants. Oth- tributory with participants’ contributions adjusted
erwise, the actuarial gain or loss is not recognized in annually. For purposes of estimating our health
the Consolidated Income Statements. care costs, we have assumed health care cost in-
creases to be 7.1 percent per annum for 2018, grad-
We use actuarial valuations to determine our pen- ually declining to 5.0 percent per annum by 2028
sion and postretirement benefit costs and credits. and to remain at that level thereafter.
The amounts calculated depend on a variety of key
assumptions, including discount rates, mortality
rates and expected return on plan assets. Under Income taxes
U.S. GAAP, we are required to consider current mar-
ket conditions in making these assumptions. In In preparing our Consolidated Financial State-
particular, the discount rates are reviewed annually ments, we are required to estimate income taxes
based on changes in long-term, highly-rated corpo- in each of the jurisdictions in which we operate.
rate bond yields. Decreases in the discount rates Tax expense from continuing operations is recon-
result in an increase in the PBO and in pension ciled from the weighted-average global tax rate
costs. Conversely, an increase in the discount rates (rather than from the Swiss domestic statutory
results in a decrease in the PBO and in pension tax rate) as the parent company of the ABB Group,
costs. The mortality assumptions are reviewed ABB Ltd, is domiciled in Switzerland. Income
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 103

which has been generated in jurisdictions outside as well as business growth through working capi-
of Switzerland (hereafter “foreign jurisdictions”) tal and capital expenditure in those countries.
and has already been subject to corporate income
tax in those foreign jurisdictions is, to a large ex- We operate in numerous tax jurisdictions and, as
tent, tax exempt in Switzerland. Therefore, gener- a result, are regularly subject to audit by tax au-
ally no or only limited Swiss income tax has to be thorities. We provide for tax contingencies when-
provided for on the repatriated earnings of for- ever it is deemed more likely than not that a tax
eign subsidiaries. There is no requirement in Swit- asset has been impaired or a tax liability has been
zerland for a parent company of a group to file a incurred for events such as tax claims or changes
tax return of the group determining domestic and in tax laws. Contingency provisions are recorded
foreign pre‑tax income and as our consolidated based on the technical merits of our filing posi-
income from continuing operations is predomi- tion, considering the applicable tax laws and
nantly earned outside of Switzerland, corporate OECD guidelines and are based on our evaluations
income tax in foreign jurisdictions largely deter- of the facts and circumstances as of the end of
mines our global weighted-average tax rate. each reporting period. Changes in the facts and
circumstances could result in a material change to
We account for deferred taxes by using the asset the tax accruals. Although we believe that our tax
and liability method. Under this method, we de- estimates are reasonable and that appropriate
termine deferred tax assets and liabilities based tax reserves have been made, the final determina-
on temporary differences between the financial tion of tax audits and any related litigation could
reporting and the tax bases of assets and liabili- be different than that which is reflected in our in-
ties. Deferred tax assets and liabilities are mea- come tax provisions and accruals.
sured using the enacted tax rates and laws that
are expected to be in effect when the differences An estimated loss from a tax contingency must be
are expected to reverse. We recognize a deferred accrued as a charge to income if it is more likely
tax asset when it is more likely than not that the than not that a tax asset has been impaired or a
asset will be realized. We regularly review our de- tax liability has been incurred and the amount of
ferred tax assets for recoverability and establish a the loss can be reasonably estimated. We apply a
valuation allowance based upon historical losses, two-step approach to recognize and measure un-
projected future taxable income and the expected certainty in income taxes. The first step is to eval-
timing of the reversals of existing temporary dif- uate the tax position for recognition by determin-
ferences. To the extent we increase or decrease ing if the weight of available evidence indicates
this allowance in a period, we recognize the that it is more likely than not that the position will
change in the allowance within “Provision for be sustained on audit, including resolution of re-
taxes” in the Consolidated Income Statements un- lated appeals or litigation processes, if any. The
less the change relates to discontinued opera- second step is to measure the tax benefit as the
tions, in which case the change is recorded in “In- largest amount which is more than 50 percent
come (loss) from discontinued operations, net of likely of being realized upon ultimate settlement.
tax”. Unforeseen changes in tax rates and tax The required amount of provisions for contingen-
laws, as well as differences in the projected tax- cies of any type may change in the future due to
able income as compared to the actual taxable in- new developments.
come, may affect these estimates.

Certain countries levy withholding taxes, dividend Business combinations

distribution taxes or additional corporate income
taxes (hereafter “withholding taxes”) on dividend The amount of goodwill initially recognized in a
distributions. Such taxes cannot always be fully business combination is based on the excess of
reclaimed by the shareholder, although they have the purchase price of the acquired company over
to be declared and withheld by the subsidiary. the fair value of the assets acquired and liabilities
Switzerland has concluded double taxation trea- assumed. The determination of these fair values
ties with many countries in which we operate. requires us to make significant estimates and as-
These treaties either eliminate or reduce such sumptions. For instance, when assumptions with
withholding taxes on dividend distributions. It is respect to the timing and amount of future reve-
our policy to distribute retained earnings of sub- nues and expenses associated with an asset are
sidiaries, insofar as such earnings are not perma- used to determine its fair value, but the actual
nently reinvested or no other reasons exist that timing and amount differ materially, the asset
would prevent the subsidiary from distributing could become impaired. In some cases, particu-
them. No deferred tax liability is set up, if retained larly for large acquisitions, we may engage inde-
earnings are considered as permanently rein- pendent third-party appraisal firms to assist in
vested, and used for financing current operations determining the fair values.
104 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Critical estimates in valuing certain intangible as- Automation division, we determined the report-
sets include but are not limited to: future ex- ing units to be one level below the division, as
pected cash flows of the acquired business, brand the different products produced or services pro-
awareness, customer retention, technology obso- vided by this division do not share sufficiently
lescence and discount rates. similar economic characteristics to permit test-
ing of goodwill on a total division level.
In addition, uncertain tax positions and ­tax-related
valuation allowances assumed in connection with When performing the qualitative assessment, we
a business combination are initially estimated at first determine, for a reporting unit, factors which
the acquisition date. We reevaluate these items would affect the fair value of the reporting unit in-
quarterly, based upon facts and circumstances cluding: (i) macroeconomic conditions related to
that existed at the acquisition date with any ad- the business, (ii) industry and market trends, and
justments to our preliminary estimates being re- (iii) the overall future financial performance and
corded to goodwill provided that we are within future opportunities in the markets in which the
the twelve‑month measurement period. Subse- business operates. We then consider how these
quent to the measurement period or our final de- factors would impact the most recent quantita-
termination of the tax allowance’s or contingen- tive analysis of the reporting unit’s fair value. Key
cy’s estimated value, whichever comes first, assumptions in determining the value of the re-
changes to these uncertain tax positions and porting unit include the projected level of busi-
tax-related valuation allowances will affect our ness operations, the weighted-average cost of
provision for income taxes in our Consolidated capital, the income tax rate and the terminal
Income Statements and could have a material im- growth rate.
pact on our results of operations and financial
position. The fair values assigned to the intangi- If, after performing the qualitative assessment,
ble assets acquired are described in “Note 3 Ac- we conclude that events or circumstances have
quisitions and business divestments” as well as occurred which would indicate that it is more
“Note 11 Goodwill and other intangible assets”, likely than not that the fair value of the reporting
to our Consolidated Financial Statements. unit is less than its carrying value, or if we have
elected not to perform a qualitative assessment,
then a quantitative impairment test is per-
Goodwill and other intangible formed. First, we calculate the fair value of the
reporting unit (using an income approach
assets whereby the fair value is calculated based on the
present value of future cash flows applying a dis-
We review goodwill for impairment annually as of count rate that represents our weighted-average
October 1, or more frequently if events or circum- cost of capital) and compare it to the reporting
stances indicate the carrying value may not be re- unit’s carrying value. Where the fair value of the
coverable. As of January 1, 2017, we early adopted reporting unit exceeds the carrying value of the
an accounting standard update eliminating the re- net assets assigned to that unit, goodwill is not
quirement to calculate the implied fair value of impaired and no further testing is performed.
goodwill when calculating an impairment loss. However, if the carrying value of the net assets
assigned to the reporting unit is equal to or ex-
We use either a qualitative or quantitative assess- ceeds the reporting unit’s fair value, we would
ment method for each reporting unit. The qualita- record an impairment loss equal to the differ-
tive assessment involves determining, based on ence, up to the full amount of goodwill. Any
an evaluation of qualitative factors, whether it is goodwill impairment losses would be recorded
more likely than not that the fair value of a report- as a separate line item in the income statement
ing unit is less than its carrying amount. If, based in continuing operations, unless related to a dis-
on this qualitative assessment, it is determined to continued operation, in which case the losses
be more likely than not that the reporting unit’s would be recorded in “Income (loss) from discon-
fair value is less than its carrying value, then a tinued operations, net of tax”.
quantitative impairment test is performed. If we
elect not to perform the qualitative assessment In 2017, we performed a qualitative assessment
for a reporting unit, then we perform the quanti- and determined that it was not more likely than
tative impairment test. not that the fair value for each of these reporting
units was below the carrying value. As a result,
Our reporting units are the same as our business we concluded that it was not necessary to per-
divisions for Electrification Products, Robotics form the quantitative impairment test.
and Motion, and Power Grids. For the Industrial
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 105

In 2016, prior to the adoption of the new account- yield of 10‑year U.S. treasury bonds as well as an
ing standard update, we performed the two-step ABB-specific risk premium. The terminal value
quantitative impairment test for all of our report- growth rate was assumed to be 1 percent. The
ing units to reflect new assumptions and fore- mid-term tax rate used in the test was 27 percent.
casts resulting from our newly developed strate- We based our fair value estimates on assump-
gic plan for the period 2017 to 2020. The two-step tions we believed to be reasonable, but which
test required us to first calculate the fair value of were inherently uncertain. Consequently, actual
the reporting unit and then compare it to the re- future results may differ from those estimates.
porting unit’s carrying value (as described above).
However, if the carrying value of the net assets as- We assessed the reasonableness of the fair value
signed to the reporting unit was equal to or ex- calculations of our reporting units by reconciling
ceeded the reporting unit’s fair value, we would the sum of the fair values for all our reporting
have performed a second step whereby we would units to our total market capitalization. The as-
have determined the implied fair value of the re- sumptions used in the fair value calculation were
porting unit’s goodwill and would have compared challenged each year (through the use of sensitiv-
it to the carrying value of the reporting unit’s ity analysis) to determine the impact on the fair
goodwill. If the carrying value of a reporting unit’s value of the reporting units. Our sensitivity analy-
goodwill had exceeded its implied fair value, then sis in 2016 showed that, holding all other assump-
we would have recorded an impairment loss equal tions constant, a 1‑percentage point increase in
to the difference. the discount rate would have reduced the calcu-
lated fair value by approximately 12.9 percent,
The quantitative test performed in 2016, con- while a 1‑percentage point decrease in the termi-
cluded that the estimated fair values for each of nal value growth rate would have reduced the cal-
our reporting units exceeded their respective car- culated fair value by approximately 9.7 percent.
rying values by more than 100 percent and as no
reporting unit had a zero or negative carrying Intangible assets are reviewed for recoverability
value, we concluded that none of the reporting upon the occurrence of certain triggering events
units were “at risk” of failing the goodwill impair- (such as a decision to divest a business or pro-
ment test. Consequently, the second step of the jected losses of an entity) or whenever events or
impairment test was not performed. changes in circumstances indicate that the carry-
ing amount may not be recoverable. We record im-
The projected future cash flows used in the 2016 pairment charges in “Other income (expense),
fair value calculation were based on approved net”, in our Consolidated Income Statements, un-
business plans for the reporting units which cov- less they relate to a discontinued operation, in
ered a period of four years plus a calculated termi- which case the charges are recorded in “Income
nal value. The projected future cash flows re- (loss) from discontinued operations, net of tax”.
quired significant judgments and estimates
involving variables such as future sales volumes,
sales prices, awards of large orders, production
and other operating costs, capital expenditures,
net working capital requirements and other eco-
nomic factors. The after-tax weighted-average
cost of capital of 8 percent was based on vari-
ables such as the risk‑free rate derived from the

—
New accounting pronouncements
For a description of accounting changes and re- if any, on our Consolidated Financial Statements,
cent accounting pronouncements, including the see “Note 2 Significant accounting policies” to our
expected dates of adoption and estimated effects, Consolidated Financial Statements.
106 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Research and development
Each year, we invest significantly in research and collaborate with a number of universities and re-
development. Our research and development fo- search institutions to build research networks
cuses on developing and commercializing the and foster new technologies. We believe these
technologies of our businesses that are of strate- collaborations shorten the amount of time re-
gic importance to our future growth. In 2017, 2016 quired to turn basic ideas into viable products,
and 2015, we invested $1,365 million, $1,300 mil- and they additionally help us recruit and train
lion and $1,406 million, respectively, or approxi- new personnel. We have built numerous univer-
mately 4.0 percent, 3.8 percent and 4.0 percent, sity collaborations in the U.S., Europe and Asia,
respectively, of our annual consolidated revenues including long‑term, strategic relationships with
on research and development activities. We also the Carnegie Mellon University, Massachusetts
had expenditures of $131 million, $155 million and Institute of Technology, ETH Zurich, Royal Insti-
$271 million, respectively, or approximately tute of Technology (KTH) Stockholm, Chalmers
0.4 percent, 0.5 percent and 0.8 percent, respec- University of Technology Gothenburg, Cambridge
tively, of our annual consolidated revenues in 2017, University, Imperial College London, Dresden Uni-
2016 and 2015, on order-related development ac- versity of Technology and Xi’an Jiaotong Univer-
tivities. These are customer- and project-specific sity (XJTU). Our collaborative projects include re-
development efforts that we undertake to de- search on materials, sensors, micro‑engineered
velop or adapt equipment and systems to mechanical systems, robotics, controls, manu-
the unique needs of our customers in connection facturing, distributed power and communica-
with specific orders or projects. Order-related de- tion. Common platforms for power and automa-
velopment amounts are initially recorded in inven- tion technologies are developed around
tories as part of the work in process of a contract advanced materials, efficient manufacturing, in-
and then are reflected in cost of sales at the time formation technology and data communication,
revenue is recognized in accordance with our ac- as well as sensor and actuator technology.
counting policies.
Common applications of basic power and auto-
In addition to continuous product development, mation technologies can also be found in power
and order-related engineering work, we develop electronics, electrical insulation, and control and
platforms for technology applications in our auto- optimization. Our power technologies, including
mation and power businesses in our research and our insulation technologies, current interruption
development laboratories, which operate on a and limitation devices, power electronics, flow
global basis. Through active management of our control and power protection processes, apply
investment in research and development, we seek as much to large, reliable, blackout-free trans-
to maintain a balance between short-term and mission systems as they do to everyday house-
long‑term research and development programs hold needs. Our automation technologies, in-
and optimize our return on investment. cluding our control and optimization processes,
power electronics, sensors and microelectronics,
Universities are incubators of future technology, mechatronics and wireless communication pro-
and a central task of our research and develop- cesses, are designed to improve efficiency in
ment team is to transform university research plants and factories around the world, including
into industry‑ready technology platforms. We our own.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 107

—
Acquisitions and divestments
Acquisitions tribution networks. GE IS is headquartered in the
United States and has approximately 13,500 em-
During 2017, 2016 and 2015, ABB paid $2,111 mil- ployees. The Company expects to complete the
lion, $13 million and $37 million to purchase five, acquisition in the first half of 2018, following the
one and three businesses, respectively. The receipt of customary regulatory approvals.
amounts exclude increases in investments made
in cost‑ and equity‑accounted companies.
Divestments and Assets held
The principal acquisition in 2017 was B&R, which
was acquired in July. B&R is a worldwide provider
for sale
of product- and software-based, o ­ pen-architecture
solutions for machine and factory automation and In September 2016, ABB announced an agree-
employs more than 3,000 people, including about ment to divest its high-voltage cable system
1,000 research and development, and application business. The assets and liabilities of this busi-
engineers. It operates across 70 countries in the ness are shown as assets and liabilities held for
machine and factory automation market segment. sale in our Consolidated Balance Sheet at Decem-
ber 31, 2016. The divestment was completed on
None of the acquisitions in 2016 or 2015 were March 1, 2017. Total cash proceeds from all busi-
significant. ness divestments during 2017 amounted to
$605 million, net of transaction costs and cash
Planned acquisition of GE Industrial Solutions disposed.
On September 25, 2017, the Company announced
that it had reached an agreement to acquire GE IS, There were no significant divestments in 2016
GE’s global electrification solutions business, for and 2015.
$2.6 billion. The acquisition is expected to
strengthen the Company’s global position in elec- For more information on our acquisitions and di-
trification and expand its access to the North vestments, see “Note 3 Acquisitions and busi-
American market through strong customer rela- ness divestments” to our Consolidated Financial
tionships, a large installed base and extensive dis- Statements.

—
Exchange rates
We report our financial results in U.S. dollars. Due We translate non‑USD denominated results of
to our global operations, a significant amount of operations, assets and liabilities to USD in our
our revenues, expenses, assets and liabilities are Consolidated Financial Statements. Balance
denominated in other currencies. As a conse- sheet items are translated to USD using year‑end
quence, movements in exchange rates between currency exchange rates. Income statement and
currencies may affect: (i) our profitability, (ii) the cash flow items are translated to USD using the
comparability of our results between periods, and relevant monthly average currency exchange
(iii) the reported carrying value of our assets and li- rate.
abilities.
108 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Increases and decreases in the value of the USD In 2017, approximately 79 percent of our cost of
against other currencies will affect the reported sales and selling, general and administrative ex-
results of operations in our Consolidated Income penses were reported in currencies other than the
Statements and the value of certain of our assets USD. The following percentages of consolidated
and liabilities in our Consolidated Balance Sheets, cost of sales and selling, general and administra-
even if our results of operations or the value of tive expenses were reported in the following cur-
those assets and liabilities have not changed in rencies:
their original currency. As foreign exchange rates • Euro, approximately 20 percent,
impact our reported results of operations and the • Chinese renminbi, approximately 12 percent,
reported value of our assets and liabilities, and
changes in foreign exchange rates could signifi- • Swedish krona, approximately 5 percent.
cantly affect the comparability of our reported re-
sults of operations between periods and result in We also incur expenses other than cost of sales
significant changes to the reported value of our and selling, general and administrative expenses
assets, liabilities and stockholders’ equity. in various currencies.

While we operate globally and report our financial The results of operations and financial position
results in USD, exchange rate movements be- of many of our subsidiaries outside of the United
tween the USD and both the EUR and the CHF are States are reported in the currencies of the coun-
of particular importance to us due to (i) the loca- tries in which those subsidiaries are located.
tion of our significant operations and (ii) our cor- We refer to these currencies as “local currencies”.
porate headquarters being in Switzerland. Local currency financial information is then
translated into USD at applicable exchange rates
The exchange rates between the USD and the EUR for inclusion in our Consolidated Financial State-
and the USD and the CHF at December 31, 2017, ments.
2016 and 2015, were as follows:
The discussion of our results of operations below
Exchange rates into $ 2017 2016 2015 provides certain information with respect to or-
EUR 1.00 1.20 1.05 1.09 ders, revenues, income from operations and other
CHF 1.00 1.02 0.98 1.01 measures as reported in USD (as well as in local
currencies). We measure period‑to‑period varia-
The average exchange rates between the USD and tions in local currency results by using a constant
the EUR and the USD and the CHF for the years foreign exchange rate for all periods under com-
ended December 31, 2017, 2016 and 2015, were as parison. Differences in our results of operations
follows: in local currencies as compared to our results of
operations in USD are caused exclusively by
Exchange rates into $ 2017 2016 2015 changes in currency exchange rates.
EUR 1.00 1.13 1.10 1.11
CHF 1.00 1.02 1.01 1.04 While we consider our results of operations as
measured in local currencies to be a significant in-
When we incur expenses that are not denomi- dicator of business performance, local currency
nated in the same currency as the related reve- information should not be relied upon to the ex-
nues, foreign exchange rate fluctuations could af- clusion of U.S. GAAP financial measures. Instead,
fect our profitability. To mitigate the impact of local currencies reflect an additional measure of
exchange rate movements on our profitability, it comparability and provide a means of viewing as-
is our policy to enter into forward foreign ex- pects of our operations that, when viewed to-
change contracts to manage the foreign exchange gether with the U.S. GAAP results, provide a more
transaction risk of our operations. complete understanding of factors and trends af-
fecting the business. As local currency informa-
In 2017, approximately 80 percent of our consoli- tion is not standardized, it may not be possible to
dated revenues were reported in currencies other compare our local currency information to other
than the USD. The following percentages of con- companies’ financial measures that have the same
solidated revenues were reported in the following or a similar title. We encourage investors to re-
currencies: view our financial statements and publicly filed
• Euro, approximately 20 percent, reports in their entirety and not to rely on any sin-
• Chinese renminbi, approximately 13 percent, gle financial measure.
and
• Swedish krona, approximately 6 percent.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 109

—
Transactions with affiliates and
associates
In the normal course of our business, we purchase the normal course of our business, we engage in
products from, sell products to and engage in transactions with businesses that we have di-
other transactions with entities in which we hold vested. We believe that the terms of the transac-
an equity interest. The amounts involved in these tions we conduct with these companies are nego-
transactions are not material to ABB Ltd. Also, in tiated on an arm’s length basis.

—
Orders
Our policy is to book and report an order when a in 2017 were “large orders”, which we define as
binding contractual agreement has been con- orders from third parties involving a value of at
cluded with a customer covering, at a minimum, least $15 million for products or services. Approx-
the price and scope of products or services to be imately 61 percent of the total value of large or-
supplied, the delivery schedule and the payment ders in 2017 were recorded in our Power Grids di-
terms. The reported value of an order corresponds vision and approximately 22 percent in our
to the undiscounted value of revenues that we ex- Industrial Automation division. The other divi-
pect to recognize following delivery of the goods sions accounted for the remainder of the total
or services subject to the order, less any trade dis- large orders recorded during 2017. The remaining
counts and excluding any value added or sales tax. portion of total orders recorded in 2017 was “base
The value of orders received during a given period orders”, which we define as orders from third par-
of time represents the sum of the value of all or- ties with a value of less than $15 million for prod-
ders received during the period, adjusted to reflect ucts or services.
the aggregate value of any changes to the value of
orders received during the period and orders exist- The level of orders fluctuates from year to year.
ing at the beginning of the period. These adjust- Portions of our business involve orders for
ments, which may in the aggregate increase or de- long‑term projects that can take months or years
crease the orders reported during the period, may to complete and many large orders result in reve-
include changes in the estimated order price up to nues in periods after the order is booked. Conse-
the date of contractual performance, changes in quently, the level of large orders and orders gen-
the scope of products or services ordered and can- erally cannot be used to accurately predict future
cellations of orders. revenues or operating performance. Orders that
have been placed can be cancelled, delayed or
The undiscounted value of revenues we expect to modified by the customer. These actions can re-
generate from our orders at any point in time is duce or delay any future revenues from the order
represented by our order backlog. Approximately or may result in the elimination of the order.
8.5 percent of the value of total orders we recorded
110 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Performance measures
We evaluate the performance of our divisions • gains and losses from sale of businesses,
based on orders received, revenues and Opera- • acquisition-related expenses and certain
tional EBITA. non‑operational items, as well as
• foreign exchange/commodity timing
Operational EBITA represents income from opera- differences in income from operations
tions excluding: consisting of: (a) unrealized gains and losses on
• amortization expense on intangibles arising derivatives (foreign exchange, commodities,
upon acquisitions (acquisition-related embedded derivatives), (b) realized gains and
­amortization), losses on derivatives where the underlying
• restructuring and restructuring-related hedged transaction has not yet been realized,
expenses, and (c) unrealized foreign exchange movements
• non-operational pension cost comprising: on receivables/payables (and related assets/
(a) interest cost, (b) expected return on plan liabilities).
assets, (c) amortization of prior service cost
(credit), (d) amortization of net actuarial loss, See “Note 23 Operating segment and geographic
and (e) curtailments, settlements and special data” to our Consolidated Financial Statements
termination benefits, for a reconciliation of the total consolidated Oper-
• changes in the amount recorded for retained ational EBITA to income from continuing opera-
obligations of divested businesses occurring tions before taxes.
after the divestment date (changes in retained
obligations of divested businesses),
• changes in estimates relating to opening
balance sheets of acquired businesses (changes
in pre-acquisition estimates),
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 111

—
Analysis of results of operations
Our consolidated results from operations were as Orders
follows:
% Change
($ in millions, except ($ in millions) 2017 2016 2015 2017 2016
per share data in $) 2017 2016 2015 Electrification
Orders 33,387 33,379 36,429 Products 10,143 9,780 10,610 4% (8)%
Order backlog at December 31, 22,414 22,981 24,121 Robotics and
Motion 8,468 7,858 8,272 8% (5)%

Revenues 34,312 33,828 35,481 Industrial

Automation 6,554 5,991 7,398 9% (19)%
Cost of sales (24,046) (24,081) (25,347)
Power Grids 9,600 10,844 11,425 (11)% (5)%
Gross profit 10,266 9,747 10,134
Operating
Selling, general and
divisions 34,765 34,473 37,705 1% (9)%
administrative expenses (5,607) (5,349) (5,574)
Corporate and
Non-order related research and
Other(1) (1,378) (1,094) (1,276) n.a. n.a.
development expenses (1,365) (1,300) (1,406)
Total 33,387 33,379 36,429 0% (8)%
Other income (expense), net 140 (111) (105)
(1) Includes interdivisional eliminations.
Income from operations 3,434 2,987 3,049
Net interest and other finance
expense (203) (188) (209)
Provision for taxes (860) (781) (788)
In 2017, total orders were flat (flat in local curren-
Income from continuing cies). The increase in orders in the Industrial Auto-
operations, net of tax 2,371 2,018 2,052 mation division mainly reflects the B&R acquisi-
Income (loss) from tion in July 2017 as well as the increase in demand
discontinued operations, net of for ABB Ability™ solutions. A recovery in the
tax (6) 16 3
end-market demand contributed to the increase
Net income 2,365 2,034 2,055
Net income attributable to
in orders for the Electrification Products division.
noncontrolling interests (152) (135) (122) In the Robotics and Motion division demand was
Net income attributable to ABB 2,213 1,899 1,933 supported by strong orders in the Robotics busi-
ness. The decrease in orders in the Power Grids
Amounts attributable to ABB
shareholders: division mainly reflects lower large orders com-
Income from continuing pared to 2016 which included significant orders
operations, net of tax 2,219 1,883 1,930 from India and China for ultra-high voltage direct
Net income 2,213 1,899 1,933 current (UHVDC) transmission projects.
Basic earnings per share attrib-
utable to ABB shareholders: In 2017, base orders increased 6 percent (6 per-
Income from continuing cent in local currencies) with positive impacts
operations, net of tax 1.04 0.88 0.87
across all divisions. The increase in base orders
Net income 1.04 0.88 0.87
reflects improvements in the global economic
Diluted earnings per share attrib- conditions across our key markets. Large orders
utable to ABB shareholders: decreased 37 percent (36 percent in local curren-
Income from continuing
cies), partly reflecting ABB’s business model
operations, net of tax 1.03 0.87 0.87
Net income 1.03 0.88 0.87
shift but also reflecting the impact of the large
UHVDC orders in 2016 from India and China re-
ferred to above. For additional information
A more detailed discussion of the orders, reve- about divisional order performance in all peri-
nues, Operational EBITA and income from opera- ods, please refer to the relevant sections of
tions for our divisions follows in the sections of “­D ivisional analysis” below.
“Divisional analysis” below entitled “Electrifica-
tion Products”, “Robotics and Motion”, “Industrial In 2016, total orders declined 8 percent (5 per-
Automation”, “Power Grids” and “Corporate and cent in local currencies) with orders decreasing
Other”. Orders and revenues of our divisions in- in all divisions. The decline reflects ongoing
clude interdivisional transactions which are elimi- ­macro-economic and geopolitical uncertainties
nated in the “Corporate and Other” line in the ta- and challenges in many markets. The low demand
bles below. from both the onshore and offshore oil segments
112 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

negatively impacted many businesses, particu- Orders in 2016 declined in all regions, although
larly the Industrial Automation division. This also we achieved growth within some divisions in Eu-
contributed to the negative order development in rope and Asia, Middle East and Africa. Orders in
the Robotics and Motion division, despite the Europe decreased 11 percent (9 percent in local
strong demand from various industries for robot- currencies) due primarily to lower large orders
ics. Weak market conditions impacted the orders compared to 2015. Orders in Europe for the Elec-
in the Electrification Products and in the Power trification Products and the Robotics and Motion
Grids divisions. divisions grew in local currencies but were offset
by decreases in the other divisions. In local cur-
In 2016, base orders declined 5 percent (2 percent rencies, orders were lower in Germany, the
in local currencies) with negative impacts across United Kingdom, Norway, Switzerland, Russia,
all divisions. The decline of base orders reflects France, Finland, Turkey and the Netherlands
the uncertain global economic conditions across while orders increased in Italy, Sweden and
our key markets. Large orders decreased 27 per- Spain. In the Americas orders declined 11 percent
cent (25 percent in local currencies), impacted by (9 percent in local currencies) on lower base and
considerable investment delays. large orders. In local currencies, orders de-
creased in the U.S. (mainly due to lower large or-
We determine the geographic distribution of our ders), Canada, Brazil, Chile and Argentina while
orders based on the location of the ultimate des- orders increased in Mexico. In Asia, Middle East
tination of the products’ end use, if known, or the and Africa, orders decreased 4 percent (flat in lo-
location of the customer. The geographic distri- cal currencies) as lower base orders were offset
bution of our consolidated orders was as follows: by strong demand for our power offering and
higher large orders. Orders in China and India in-
% Change creased mainly due to investment activities in
($ in millions) 2017 2016 2015 2017 2016 the HVDC power transmission technology while
Europe 11,737 11,213 12,568 5% (11)% orders declined in Saudi Arabia, South Korea, the
The Americas 9,749 9,351 10,505 4% (11)% United Arab Emirates, Australia, Japan, South Af-
Asia, Middle rica and Qatar.
East and Africa 11,901 12,815 13,356 (7)% (4)%
Total 33,387 33,379 36,429 0% (8)%

Order backlog
Orders in 2017 increased in Europe and the Amer-
icas but were lower in Asia, Middle East and Af- December 31, % Change
rica, mainly due to the booking in 2016 of the ($ in millions) 2017 2016 2015 2017 2016
large UHVDC orders in India and China referred Electrification
Products 3,098 2,839 3,136 9% (9)%
to above. Both the Electrification Products and
Robotics and
Robotics and Motion divisions saw growth in all
Motion 3,961 3,660 3,785 8% (3)%
regions while the Power Grids division saw de- Industrial
clines in Asia, Middle East and Africa. Orders in Automation 5,376 5,409 6,199 (1)% (13)%
Europe increased 5 percent (4 percent in local Power Grids 11,330 11,638 11,707 (3)% (1)%
currencies) due primarily to an increase in base Operating
divisions 23,765 23,546 24,827 1% (5)%
orders compared to 2016. Orders in Europe for
Corporate and
the Electrification Products, Industrial Automa-
Other(1) (1,351) (565) (706) n.a. n.a.
tion and Power Grids divisions grew in local cur- Total 22,414 22,981 24,121 (2)% (5)%
rencies while remained flat for the Robotics and
(1) Includes interdivisional eliminations.
Motion division. In local currencies, orders were
lower in Germany, Italy, Norway and Switzerland
while orders increased in the United Kingdom, As at December 31, 2017, the consolidated order
France and Spain. In the Americas orders in- backlog declined 2 percent (8 percent in local cur-
creased 4 percent (3 percent in local currencies). rencies). Order backlog declined in the Industrial
In local currencies, orders increased in the U.S. Automation and Power Grids divisions while in-
and Canada. In Asia, Middle East and Africa, or- creased in the Electrification Products as well as
ders decreased 7 percent (6 percent in local cur- in Robotics and Motion divisions. The decrease in
rencies) as higher base orders were offset by the order backlog was mainly due to high levels of
lower large orders. Orders in China, India and execution from the order backlog while orders re-
Saudi Arabia decreased while orders increased in ceived during the year remained flat compared to
South Korea and the United Arab Emirates in lo- 2016. The net impact on order backlog from di-
cal currencies. vestments and acquisitions was a decrease of
4 percent.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 113

As at December 31, 2016, the consolidated order I­ ndustrial Automation division, a continued low
backlog declined 5 percent (2 percent in local level of orders from the oil and gas industry, as
currencies) and was lower in all divisions. The de- well as from mining and metals, negatively im-
cline in the Electrification Products division was pacted revenues. Revenues in the Power Grids di-
driven by the Medium Voltage Products and vision were impacted by weaker order intake, the
Building Products businesses. In the Robotics exit from certain businesses as well as lower pull-
and Motion division, the backlog was flat in local through revenues from other divisions. Revenues
currencies as the increase in the Robotics was were positively impacted by growth in the Robot-
offset by declines in the other businesses. In the ics business, despite market challenges while rev-
Industrial Automation division, order backlog de- enues in the Electrification Products division
clined and was lower across all businesses, ex- slightly increased in local currencies.
cept for in the Measurement and Analytics busi-
ness. In the Power Grids division, local currency We determine the geographic distribution of our
order backlog increased, driven by the Trans- revenues based on the location of the ultimate
formers business. destination of the products’ end use, if known, or
the location of the customer. The geographic dis-
tribution of our consolidated revenues was as
Revenues follows:

% Change % Change
($ in millions) 2017 2016 2015 2017 2016 ($ in millions) 2017 2016 2015 2017 2016
Electrification Europe 11,840 11,315 11,602 5% (2)%
Products 10,094 9,920 10,275 2% (3)% The Americas 9,713 9,741 10,554 0% (8)%
Robotics and Asia, Middle
Motion 8,401 7,906 8,188 6% (3)% East and Africa 12,759 12,772 13,325 0% (4)%
Industrial Total 34,312 33,828 35,481 1% (5)%
Automation 6,880 6,654 7,219 3% (8)%
Power Grids 10,394 10,660 11,245 (2)% (5)%
Operating In 2017, revenues increased in Europe but were
divisions 35,769 35,140 36,927 2% (5)%
flat in the Americas and in Asia, Middle East and
Corporate and
Africa. In Europe, revenues increased 5 percent
Other(1) (1,457) (1,312) (1,446) n.a. n.a.
Total 34,312 33,828 35,481 1% (5)%
(4 percent in local currencies) reflecting growth
in the Electrification Products and Power Grids
(1) Includes interdivisional eliminations.
divisions, as well as in the Industrial Automation
division, which benefited from the acquisition of
Revenues in 2017 increased 1 percent (1 percent B&R. In local currencies, revenues declined in
in local currencies) as growth in 2017 was gener- Germany and the United Kingdom, while reve-
ally hindered by a lower opening order backlog nues increased in France, Italy, Norway and Swe-
compared to 2016. Revenues in the Robotics and den. Revenues in the Americas were flat (de-
Motion division were positively impacted by creased 1 percent in local currencies). In local
growth in the Robotics business with strong de- currencies, revenues decreased in Brazil, Canada,
mand from the automotive and general industry Chile and Peru while revenues were higher in the
sectors. The increase in revenues in the Indus- U.S. In Asia, Middle East and Africa, revenues
trial Automation division was mainly attributable were flat (flat in local currencies). In local curren-
to the acquisition of B&R in July 2017, partially cies, revenues declined in Australia, Japan, Saudi
offset by lower revenues in the division’s other Arabia, South Korea and Singapore while reve-
businesses. Revenues in the Electrification Prod- nues increased in China and India.
ucts division increased from both the distribu-
tors as well as certain end-customer channels. In 2016, revenues decreased across all regions,
Revenues in the Power Grids division were im- although we achieved regional growth within
pacted by weaker large order intake as well as a some divisions. In Europe, revenues declined
lower opening order backlog. For additional in- 2 percent (flat in local currencies) due to growth
formation about the divisional revenues perfor- in the Electrification Products division and
mance in all periods, please refer to “Divisional steady revenues in the Industrial Automation di-
analysis” below. vision. In local currencies, revenues declined in
Sweden, Norway, Switzerland, Germany and
Revenues in 2016, decreased 5 percent (2 percent France, while revenues increased in Russia, the
in local currencies) and declined in all divisions. United Kingdom, Italy and Spain. Revenues from
Revenues were lower due to declining orders the Americas decreased 8 percent (5 percent in
during the year and a lower opening order back- local currencies). In local currencies, revenues de-
log compared to the beginning of 2015. In the creased in the U.S. and Brazil while revenues
114 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

were higher in Canada, Mexico, Argentina and Selling, general and

Chile. In Asia, Middle East and Africa, revenues
decreased 4 percent (1 percent in local curren-
administrative expenses
cies), supported by strong demand for our power
offering. In local currencies, revenues declined in The components of selling, general and adminis-
South Africa, Australia, Japan, Saudi Arabia and trative expenses were as follows:
Singapore while revenues increased in China, In-
dia and Egypt. ($ in millions, unless otherwise stated) 2017 2016 2015
Selling expenses 3,585 3,480 3,729
Selling expenses as a
Cost of sales percentage of orders received 10.7% 10.4% 10.2%
General and
administrative expenses 2,022 1,869 1,845
Cost of sales consists primarily of labor, raw ma- General and
terials and component costs but also includes in- administrative expenses
direct production costs, expenses for warran- as a percentage of revenues 5.9% 5.5% 5.2%

ties, contract and project charges, as well as Total selling, general and
administrative expenses 5,607 5,349 5,574
­order‑related development expenses incurred in
Total selling, general and
connection with projects for which correspond- administrative expenses
ing revenues have been recognized. as a percentage of revenues 16.3% 15.8% 15.7%
Total selling, general and
administrative expenses
In 2017, cost of sales was flat (flat in local curren-
as a percentage of the average
cies) at $24,046 million. The Robotics and Motion of orders received and revenues 16.6% 15.9% 15.5%
division recorded the highest increase in cost of
sales, which was due to revenue growth but also
due to additional charges recorded in the ­turnkey In 2017, general and administrative expenses in-
full train retrofit business. As a percentage of rev- creased 8 percent compared to 2016 (8 percent in
enues, cost of sales decreased from 71.2 percent local currencies). As a percentage of revenues, gen-
in 2016 to 70.1 percent in 2017. The decrease in eral and administrative expenses increased from
the cost of sales as a percentage of revenues oc- 5.5 percent to 5.9 percent. Although we recorded
curred in all divisions except Robotics and Mo- a reduction of $55 million in restructuring and
tion, and was impacted by the reversal in 2017 of ­restructuring‑related expenses for the White Collar
previously recorded restructuring costs. Total re- Productivity program compared to last year, gen-
structuring costs in cost of sales, net of reversals, eral and administrative expenses increased driven
was $88 million in 2017 compared to $182 million by a series of strategic investments including the
in 2016. In addition, cost of sales continued to re- Power Up program and additional general and ad-
flect improvements generated from supply chain ministrative expenses from the acquired B&R.
programs aimed at reducing costs.
In 2016, general and administrative expenses in-
In 2016, cost of sales decreased 5 percent (2 per- creased 1 percent compared to 2015 (4 percent in
cent in local currencies) to $24,081 million. As a local currencies). As a percentage of revenues,
percentage of revenues, cost of sales decreased general and administrative expenses increased
from 71.4 percent in 2015 to 71.2 percent in 2016. from 5.2 percent to 5.5 percent. General and
In particular, the Industrial Automation and Power ­administrative expenses were impacted by
Grids divisions had a reduction in cost of sales as ­approximately $183 million of restructuring and
a percentage of revenues, resulting from improve- ­restructuring-related expenses for the White Col-
ment in project margins and savings from supply lar Productivity program. ­Restructuring-related
chain and operational excellence cost take-out expenses include the additional costs of running
programs. In 2016, cost of sales was negatively parallel operations during the relocation and
impacted by approximately 0.5 percent due to transition phase, advisory costs for external con-
the charges recorded for a change in previously sultants, expenses associated with our internal
estimated warranty liabilities for certain solar in- restructuring program implementation teams
verters sold by Power-One in the Electrification and costs for hiring and training personnel at
Products division. new locations.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 115

In 2017, selling expenses increased 3 percent com- Other income (expense), net
pared to 2016 (2 percent in local currencies) pri-
marily driven by extended sales activities in selec- ($ in millions) 2017 2016 2015
tive business units like Robotics, Grid Integration, Restructuring and
Building Products and Grid Automation and addi- ­restructuring‑related expenses(1) (49) (49) (67)
Net gain from sale of property,
tional selling expenses from the acquired B&R, de-
plant and equipment 36 38 26
spite a reduction of $32 million in expenses for
Asset impairments (29) (61) (33)
the White Collar Productivity program. Selling ex- Net gain (loss) from sale of
penses as a percentage of orders received in- businesses 252 (10) (20)
creased from 10.4 percent to 10.7 percent on Misappropriation loss, net (9) (73) —
higher expenses. Income from equity-accounted
companies and other income
(expense), net (61) 44 (11)
In 2016, selling expenses decreased 7 percent com-
Total 140 (111) (105)
pared to 2015 (4 percent in local currencies) pri-
(1) Excluding asset impairments.
marily driven by lower restructuring expenses re-
lated to the White Collar Productivity program.
Selling expenses as a percentage of orders re- “Other income (expense), net” primarily includes
ceived increased from 10.2 percent to 10.4 percent certain restructuring and restructuring‑related
on lower orders. Selling expenses were impacted expenses, gains and losses from sale of busi-
by approximately $34 million from costs for the nesses and sale of property, plant and equipment,
White Collar Productivity program. recognized asset impairments, as well as our
share of income or loss from equity‑accounted
In 2017, selling, general and administrative ex- companies.
penses increased 5 percent compared to 2016
(4 percent in local currencies) and as a percentage In 2017, “Other income (expense), net” was an in-
of the average of orders and revenues, selling, gen- come of $140 million compared to an expense of
eral and administrative expenses increased from $111 million in 2016. The change was mainly due to
15.9 percent to 16.6 percent mainly from the im- $252 million net gains recorded in 2017 from sales
pact of the higher expenses described above. of businesses, primarily relating to the Cables
business. In 2017, we also recorded higher charges
In 2016, selling, general and administrative ex- in connection with certain legal claims (recorded
penses decreased 4 percent compared to 2015 within other expense) and lower asset impair-
(2 percent in local currencies) and as a percentage ments. The change compared to 2016 also reflects
of the average of orders and revenues, selling, gen- that in 2016 we recorded the large misappropria-
eral and administrative expenses increased from tion loss described below.
15.5 percent to 15.9 percent mainly impacted by
lower orders and revenues. In 2016, “Other income (expense), net” was an ex-
pense of $111 million compared to an expense of
$105 million in 2015. In 2016, we recorded lower
Non-order related research and restructuring costs, higher gains on sale of prop-
erty, plant and equipment, and lower losses from
development expenses sale of businesses. In addition, higher asset im-
pairments negatively impacted Other income (ex-
In 2017, non‑order related research and develop- pense), net in 2016. We also recorded a loss of
ment expenses increased 5 percent (5 percent in $73 million, net of expected insurance recoveries,
local currencies) compared to 2016 reflecting a fo- for the misappropriation of cash by the treasurer
cused increase in investment to build up compe- of our subsidiary in South Korea, which was un-
tencies in certain new technologies. In 2016, covered in February 2017. In addition, in 2016,
non‑order related research and development ex- other income included gains on certain foreign
penses decreased 8 percent (6 percent in local cur- currency derivatives entered into in connection
rencies) compared to 2015 and reflects the savings with the planned sale of the Cables business.
realized by reducing the number of employees.

Non‑order related research and development ex-

penses as a percentage of revenues increased in
2017 to 4.0 percent, after decreasing to 3.8 percent
in 2016 from 4.0 percent in 2015.
116 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Income from operations 2016 compared to 2015. This was partially offset
by higher foreign exchange losses.
% Change(1)
($ in millions) 2017 2016 2015 2017 2016
Electrification Provision for taxes
Products 1,349 1,091 1,247 24% (13)%
Robotics and
($ in millions) 2017 2016 2015
Motion 1,035 1,034 1,058 0% (2)%
Income from continuing
Industrial
operations before taxes 3,231 2,799 2,840
Automation 782 769 793 2% (3)%
Provision for taxes (860) (781) (788)
Power Grids 797 830 554 (4)% 50%
Effective tax rate for the year 26.6% 27.9% 27.7%
Operating
divisions 3,963 3,724 3,652 6% 2%
Corporate and
In 2017, the effective tax rate decreased from
Other (535) (741) (617) n.a. n.a.
Intersegment
27.9 percent to 26.6 percent. The distribution of
elimination 6 4 14 n.a. n.a. income within the group resulted in a higher
Total 3,434 2,987 3,049 15% (2)% weighted-average global tax rate. In addition, the
(1) Certain percentages are stated as n.a. as the computed change impact from changes to the interpretation of law
would not be meaningful. and double tax treaty agreements by competent
tax authorities increased the effective tax rate.
In 2017 and 2016, changes in income from opera- However, these were more than offset primarily
tions were a result of the factors discussed above by the positive impact from non-taxable amounts
and in the divisional analysis below. for the net gain from sale of businesses and the
net benefit from a change in tax rate.

Net interest and other finance In 2016, the effective tax rate increased to
27.9 percent from 27.7 percent. The distribution of
expense income within the group resulted in a lower
weighted-average global tax rate. Changes in the
Net interest and other finance expense consists valuation allowance in 2016 compared to 2015
of “Interest and dividend income” offset by “Inter- lowered the effective tax rate, as did the impact
est and other finance expense”. of the interpretation of tax law and double tax
treaty agreements by competent tax authorities.
“Interest and other finance expense” includes in- However, these were offset by the negative im-
terest expense on our debt, the amortization of pacts of changes in enacted tax rates and lower
upfront transaction costs associated with benefits arising from research and development
long‑term debt and committed credit facilities, activities.
commitment fees on credit facilities, foreign ex-
change gains and losses on financial items and In 2015, the effective tax rate of 27.7 percent in-
gains and losses on marketable securities. In ad- cluded a net increase in valuation allowance of de-
dition, interest accrued relating to uncertain tax ferred taxes of $57 million, as we determined it
positions is included within interest expense. was not more likely than not that such deferred
tax assets would be realized. In addition, we re-
($ in millions) 2017 2016 2015 corded a benefit of $50 million relating to tax
Interest and dividend income 74 73 77 credits arising from research and development
Interest and other finance activities and a charge of $74 million relating to
expense (277) (261) (286)
the interpretation of tax law and double tax treaty
Net interest and other
agreements by competent tax authorities.
finance expense (203) (188) (209)

In 2017, “Interest and other finance expense” in- Income from continuing
creased compared to 2016. Interest expense on is-
sued bonds and other outstanding borrowings
operations, net of tax
was lower than 2016 but was offset by higher in-
terest charges for uncertain tax positions. As a result of the factors discussed above, income
from continuing operations, net of tax, increased
In 2016, “Interest and other finance expense” de- by $353 million to $2,371 million in 2017 compared
creased compared to 2015. Interest expense on to 2016, and decreased $34 million to $2,018 mil-
bonds and other debt was lower and interest lion in 2016 compared to 2015.
charges for uncertain tax positions were lower in
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 117

Income (loss) from discontinued Basic earnings per share is calculated by dividing
income by the weighted‑average number of
operations, net of tax shares outstanding during the year. Diluted earn-
ings per share is calculated by dividing income by
Income (loss) from discontinued operations, net of the weighted‑average number of shares out-
tax, for 2017, 2016 and 2015, was not significant. standing during the year, assuming that all poten-
tially dilutive securities were exercised, if dilutive.
Potentially dilutive securities comprise: outstand-
Net income attributable to ABB ing written call options and outstanding options
and shares granted subject to certain conditions
As a result of the factors discussed above, net in- under our share‑based payment arrangements.
come attributable to ABB increased by $314 mil- See “Note 20 Earnings per share” to our Consoli-
lion to $2,213 million in 2017 compared to 2016, dated Financial Statements.
and decreased by $34 million to $1,899 million in
2016 compared to 2015.

Earnings per share attributable

to ABB shareholders
(in $) 2017 2016 2015

Income from continuing

operations, net of tax:
Basic 1.04 0.88 0.87
Diluted 1.03 0.87 0.87

Net income attributable to ABB:

Basic 1.04 0.88 0.87
Diluted 1.03 0.88 0.87

—
Divisional analysis
Electrification Products The financial results of our Electrification Prod-
ucts division were as follows:
Effective January 1, 2017, the Group reorganized
its four business divisions to bring together all % Change
businesses relating to electrification of the con- ($ in millions) 2017 2016 2015 2017 2016
sumption points. In connection with this change, Orders 10,143 9,780 10,610 4% (8)%
the scope of the Electrification Products division Third-party
base orders 9,559 9,242 9,758 3% (5)%
has been expanded to include the electric vehicle
Order backlog
charging, solar and power quality businesses at December 31, 3,098 2,839 3,136 9% (9)%
from the former Discrete Automation and Motion Revenues 10,094 9,920 10,275 2% (3)%
division. The financial information for 2016 and Income from
2015 has been recast to reflect these organiza- operations 1,349 1,091 1,247 24% (13)%
tional changes. Operational
EBITA 1,510 1,459 1,520 3% (4)%
118 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Orders The geographic distribution of orders for our

The majority of the division’s orders are small Electrification Products division was as follows:
with short delivery times; orders are usually re-
corded and delivered within a three month period (in %) 2017 2016 2015
and thus are generally considered as short-cycle. Europe 37 37 34
The remainder of orders is comprised of smaller The Americas 27 27 28
projects that require longer lead times or larger Asia, Middle East and Africa 36 36 38
solutions requiring engineering and installation. Total 100 100 100

Substantially all of the division’s orders are com-

prised of base orders. In addition, approximately In 2017, relative order growth was similar in all re-
half of the division’s orders are received via gions, leading to a stable regional distribution. In
third‑party distributors; as a consequence, Asia, Middle East and Africa, a positive order
end-customer market data is based partially on trend was seen in China, Australia and India.
management estimates. The European market performed well with order
growth across the majority of countries including
In 2017, orders increased 4 percent (5 percent in lo- Germany, Turkey and Sweden. Growth in the
cal currencies) with stronger order growth in the Americas was mainly supported by the United
second half of the year. Orders for products in- States and Canada.
creased throughout the division as end market de-
mand improved in utilities and construction, spe- In 2016, the share of orders in Europe increased,
cifically non-residential construction. Increased driven by growth in several countries, especially
demand for low‑voltage and medium‑voltage solu- Germany. In the Americas, the share of orders de-
tions was primarily driven by continued invest- creased slightly due to order declines in the re-
ments in light industries such as data centers as gion, particularly in the United States and Canada.
well as food and beverage. Orders in the Power and Asia, Middle East and Africa was relatively weak
EV Infrastructure business increased driven by primarily due to lower orders in China and Saudi
large order intake for electric vehicle products and Arabia compared to 2015.
systems, however the growth was partially offset
by decreases in demand for solar products and Order backlog
systems. In 2017, the order backlog increased 9 percent
(5 percent in local currencies), with strong growth
In 2016, orders decreased by 8 percent (5 percent in the Power and EV Infrastructure business, where
in local currencies). Orders were impacted by there was significant order intake for electric vehi-
weak market conditions in the process industries cle fast-charging solutions.
and in particular in the oil and gas sector, as
many EPC projects were delayed or cancelled. In 2016, the order backlog decreased 9 percent
This negatively affected the Medium Voltage (6 percent in local currencies), primarily because
Products and Electrification Solutions busi- of a decreased backlog in the Medium Voltage
nesses. Driven by construction and light indus- Products business, reflecting higher execution
tries, demand for our short-cycle products was levels of orders for Modular Systems and Primary
stable. Product demand was weaker in the Instal- Switchgear. The backlog also decreased due to
lation Products business, with lower orders from lower orders received in the Power and EV Infra-
both distributors and end-customer channels. structure business.
Orders in the Protection and Connection busi-
ness were lower as growth in OEM orders was Revenues
offset by weakened orders from end-customer In 2017, revenues increased 2 percent (2 percent in
and distributor channels. Orders were higher in local currencies) compared to 2016. Revenues for
the Building Products business, as lower order the Protection and Connection, Building Products
levels from direct end-customers were more than and Installation Products businesses increased,
offset by increased orders through distributors. driven by end‑market demand in utilities and con-
Finally, orders in the Power and EV Infrastructure struction, specifically non-residential construc-
business declined, driven by a decrease in orders tion. Across the division, revenue levels improved
of customers in the solar industry. both from distributors as well as some
­end‑customer channels. Revenues were lower in
the Medium Voltage Products and Power and EV
Infrastructure business as the opening order
backlog was lower coming into 2017, mainly re-
lated to the solar industry.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 119

In 2016, revenues decreased 3 percent (1 percent setting these benefits was the impact of higher
in local currencies) compared to 2015 and were commodity prices, which affected all businesses,
mixed across the division. In local currencies, rev- as well as the impacts from pricing pressures.
enues increased in the Medium Voltage Products Changes in foreign currencies, including the
business as sales from Modular Systems more ­impacts from FX/commodity timing differences
than offset lower volume coming from Primary summarized in the table below, positively im-
Switchgear. The Building Products business also pacted income from operations by 3 percent.
increased revenues driven by distribution and
panel builder channels, which partially mitigated In 2016, income from operations decreased
the lower revenues from direct end-customers. 13 percent primarily due to the impact of the sig-
Revenues were lower in all other business units on nificant warranty costs referred to above incurred
lower demand from the distribution and OEM in 2016. These warranty costs amounted to
channels. $151 million and were recorded as a charge to cost
of sales, recognizing a change in the estimated
The geographic distribution of revenues for our warranty liability for these products. The majority
Electrification Products division was as follows: of the products were delivered to customers by
Power-One prior to the acquisition date in 2013.
(in %) 2017 2016 2015 Of this charge, $131 million related to the prod-
Europe 37 36 34 ucts sold by Power-One prior to the acquisition
The Americas 27 27 27 and has been included as an adjustment, in the ta-
Asia, Middle East and Africa 36 37 39 ble below, to determine the segment profit for the
Total 100 100 100 division. In addition, lower gross margins were
mostly offset by reductions in selling, general and
In 2017, the share of revenues from Europe in- administrative expenses resulting from ongoing
creased, supported by positive growth in Ger- restructuring and cost savings programs, as well
many. The share of revenues from the Americas as lower restructuring and restructuring-related
was stable supported by the United States, which expenses. Furthermore, changes in foreign cur-
returned to growth. The relative share of revenues rencies, including the impacts from FX/commod-
from Asia, Middle East and Africa decreased ity timing differences summarized in the table be-
slightly despite China returning to growth and low, negatively impacted income from operations
mixed results in the Middle East. by 3 percent.

In 2016, the share of revenues from Europe in- Operational EBITA

creased. Growth stemmed from several countries, The reconciliation of Income from operations to
especially Germany. The Americas maintained a Operational EBITA for the Electrification Products
stable share of revenues, although in absolute division was as follows:
terms revenues decreased slightly. The lowered
share of revenues from Asia, Middle East and Af- ($ in millions) 2017 2016 2015
rica was driven by a reduced revenue volume from Income from operations 1,349 1,091 1,247
China and the Middle East. Acquisition-related amortization 98 121 133
Restructuring and
restructuring‑related expenses(1) 28 93 133
Income from operations
Non-operational pension cost 3 3 (3)
In 2017, income from operations increased 24 per-
Changes in pre-acquisition
cent mainly reflecting significantly lower warranty estimates 8 131 21
costs than in 2016 when the division recorded sig- Acquisition-related expenses
nificant costs for a change in estimated warranty and certain non-operational
items 44 8 4
liabilities for certain solar inverters designed and
FX/commodity timing
sold by Power‑One. Restructuring and restructur-
differences in income from
ing‑related expenses in 2017 of $28 million were operations (20) 12 (15)
$65 million lower than in 2016, partially because Operational EBITA 1,510 1,459 1,520
we recorded a reversal of the previously recorded (1) Amounts also include the incremental implementation costs in
estimated restructuring expenses in connection relation to the White Collar Productivity program.

with the White Collar Productivity program.

­Acquisition‑related amortization was lower in In 2017, Operational EBITA increased 3 percent
2017 as certain intangibles from previous acquisi- (4 percent excluding the impacts from changes in
tions had been fully amortized. During 2017, we foreign currencies) compared to 2016, primarily
also realized higher income due to the impact of due to the reasons described under “Income from
price increases in certain businesses and the ben- operations”, excluding the explanations related to
efits from savings resulting from ongoing restruc- the reconciling items in the table above.
turing and cost savings programs. Partially off-
120 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

In 2016, Operational EBITA decreased 4 percent Orders in 2016 were 5 percent lower (3 percent
(2 percent excluding the impacts from changes in lower in local currencies) compared to 2015.
foreign currencies) compared to 2015, primarily Third-party base orders were 3 percent lower
due to the reasons described under “Income from (flat in local currencies). Third-party base orders
operations”, excluding the explanations related to were driven by increased demand for traction
the reconciling items in the table above. solutions for transport customers but was offset
by the decline in orders from process industries,
in particular from oil and gas customers. The di-
Robotics and Motion vision benefited from strong large order intake
in the Robotics business and a particularly
Effective January 1, 2017, the former Discrete Au- strong order intake for traction solutions from
tomation and Motion division was renamed as the the rail industry.
Robotics and Motion division. In connection with
this change, certain businesses were transferred The geographic distribution of orders for our Ro-
to the Electrification Products division including botics and Motion division was as follows:
EV charging, solar and power quality businesses.
The financial information for 2016 and 2015 has (in %) 2017 2016 2015
been recast to reflect these organizational Europe 35 37 35
changes. The Americas 32 33 34
Asia, Middle East and Africa 33 30 31
The financial results of our Robotics and Motion Total 100 100 100

division were as follows:

In 2017, the share of orders from Asia, Middle East
% Change and Africa increased on double-digit growth in
($ in millions) 2017 2016 2015 2017 2016 China but was somewhat tempered by lower or-
Orders 8,468 7,858 8,272 8% (5)% der growth from India, following the introduction
Third-party of both a new Goods and Services Tax and a new
base orders 7,654 7,029 7,234 9% (3)%
tariff regime for wind renewables. The Americas
Order backlog
at December 31, 3,961 3,660 3,785 8% (3)%
performed well, with the U.S. market having in-
Revenues 8,401 7,906 8,188 6% (3)% creased demand for solutions for motors and
Income from drives.
operations 1,035 1,034 1,058 0% (2)%
Operational In 2016, strengthened demand from Germany for
EBITA 1,178 1,223 1,288 (4)% (5)%
Robotics helped the share of orders from Europe
to rise. The share of orders from the Americas fell
Orders mainly due to decreased demand from process
Orders in 2017 were 8 percent higher (8 percent in customers, in particular oil and gas.
local currencies). Third-party base orders in 2017
were 9 percent higher (9 percent in local curren- Order backlog
cies). The third-party base order growth was The order backlog in 2017 increased 8 percent
driven by increased demand for operational solu- (1 percent in local currencies) compared to 2016.
tions in process and discrete industries. Growth In local currencies, the backlog improved in the
was particularly strong in the Robotics business Motors and Generators business, while the back-
with strong demand from general industry sectors log in the Drives and Robotics businesses re-
as well as demand for industry solutions such as mained stable.
motors, generators and drives. Demand from the
automotive sector remained at a high level. Large The order backlog in 2016 declined 3 percent.
orders were received for t­ ransportation-related or- In local currencies, the order backlog was flat.
ders and for robotics driven by ongoing invest- An improved backlog in the Robotics business
ment in the automotive industry as well as invest- was offset by a weakened backlog in the Drives
ment by the electronics and semiconductor and Motors and Generators businesses.
industries. The division noted rising demand for
smaller robots and smaller-sized drives and motor Revenues
as solutions for light industries, such as food and In 2017, revenues were 6 percent higher compared
beverage, were in high demand. Orders from pro- to 2016 (6 percent in local currencies). Revenues
cess industries such as the oil, gas and mining sec- were positively impacted by growth in deliveries
tors stabilized. of robotics solutions for the automotive and gen-
eral industry sectors with stronger growth in the
second half of 2017, due to execution of the strong
order levels received in the first half of the year.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 121

Service revenues were higher as the division ser- Generators business. The division also was im-
viced more of the installed base and as customers pacted by project losses recorded in the turnkey
demanded remote monitoring solutions such as full train retrofit business. Changes in foreign cur-
ABB Ability™. rencies, including the impacts from FX/commod-
ity timing differences summarized in the table be-
In 2016, revenues decreased 3 percent (1 percent in low, negatively impacted income from operations
local currencies). Revenues were positively im- by 1 percent.
pacted by demand for Robotics solutions for the
automotive and general industry sectors. This pos- Lower revenues and capacity underutilization re-
itive development was more than offset by lower duced income from operations in the division by
demand for Intelligent Motion™ solutions, particu- 2 percent in 2016 compared to 2015. A strong per-
larly in the process industries. formance from the Robotics business plus de-
creased restructuring and restructuring‑related
The geographic distribution of revenues for our expenses relative to 2015 proved insufficient to
Robotics and Motion division was as follows: outweigh decreased activity levels in the other
business units. Changes in foreign currencies, in-
(in %) 2017 2016 2015 cluding the impacts from FX/commodity timing
Europe 35 37 36 differences summarized in the table below, nega-
The Americas 33 33 34 tively impacted income from operations by
Asia, Middle East and Africa 32 30 30 3 ­percent.
Total 100 100 100

Operational EBITA
In 2017, revenues grew in all regions. The relative The reconciliation of Income from operations to
share of revenues from Europe declined despite Operational EBITA for the Robotics and Motion di-
modest growth in the region, supported by Fin- vision was as follows:
land, Switzerland and Italy. The share of revenues
from the Americas remained steady, supported by ($ in millions) 2017 2016 2015

growth in the United States and Canada but off- Income from operations 1,035 1,034 1,058
Acquisition-related amortization 66 94 96
set partially by lower revenues in Brazil. The share
Restructuring and restructuring-
of revenues from Asia, Middle East and Africa in- related expenses(1) 64 69 111
creased supported by double-digit revenue Non-operational pension cost 2 2 3
growth in China, especially in the Robotics busi- Acquisition-related expenses
ness. This reflects ongoing strong orders from and certain non-operational
China. items 2 18 26
FX/commodity timing
differences in income from
In 2016, the geographical distribution of revenues operations 9 6 (6)
was similar to 2015. The share of revenues in Eu- Operational EBITA 1,178 1,223 1,288
rope slightly increased due to the execution of a (1) Amounts also include the incremental implementation costs in
strong order backlog, while the share of revenues relation to the White Collar Productivity program.

in the Americas decreased due to a decline in the

Motors and Generators business. The share of rev- In 2017, Operational EBITA decreased 4 percent
enues from Asia, Middle East and Africa remained (4 percent excluding the impact from changes in
flat as higher revenues in the Robotics business foreign currency exchange rates) primarily due
offset the decline in the Drives and the Motors to the reasons described under “Income from op-
and Generators businesses. erations”, excluding the explanations related
to the reconciling items in the table above.
Income from operations
In 2017, income from operations was stable. In- In 2016, Operational EBITA decreased 5 percent
come from operations benefited from positive (3 percent excluding the impact from changes in
impacts of cost reduction efforts in all busi- foreign currency exchange rates) primarily due
nesses, including cost savings from the White Col- to the reasons described under “Income from op-
lar Productivity program. In addition, increased erations”, excluding the explanations related
volumes, especially in the Robotics business, con- to the reconciling items in the table above.
tributed positively. Income from operations also
reflected the positive impact of lower amortiza-
tion of intangible assets as certain acquired in- Industrial Automation
tangible assets were fully amortized. These posi-
tive effects were offset by negative impacts Effective January 1, 2017, the former Process Auto-
including increased commodity prices and the im- mation division was renamed as the Industrial Au-
pact of low capacity utilization in the Motors and tomation division. The results of B&R, acquired in
122 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

July 2017, have been included in the Industrial Auto- The geographic distribution of orders for our In-
mation division since the acquisition date. dustrial Automation division was as follows:

The financial results of our Industrial Automation (in %) 2017 2016 2015
division were as follows: Europe 42 42 39
The Americas 23 21 22
% Change Asia, Middle East and Africa 35 37 39
($ in millions) 2017 2016 2015 2017 2016 Total 100 100 100
Orders 6,554 5,991 7,398 9% (19)%
Third-party In 2017, the share of orders from the Americas in-
base orders 5,776 5,200 5,576 11% (7)%
creased helped by strong base order development
Order backlog
at December 31, 5,376 5,409 6,199 (1)% (13)%
in the U.S., mainly in the Measurement and Analyt-
Revenues 6,880 6,654 7,219 3% (8)% ics business. In 2017, Europe maintained its share
Income from of orders as impacts from weakness in the large
operations 782 769 793 2% (3)% German market were offset from the impacts of
Operational the inclusion of B&R, for which Europe is currently
EBITA 953 897 977 6% (8)%
the largest market. The share of orders from the
Asia, Middle East and Africa region declined as
Orders the region had only moderate growth due mainly
Orders in 2017 increased 9 percent (9 percent in to weak demand in China.
local currencies) primarily reflecting the impact of
the B&R acquisition which contributed 7 percent In 2016, orders declined in all regions. Orders in
to order growth. Large orders as a percent of to- Europe declined less than other regions, thus in-
tal orders was 10 percent, similar to 2016, show- creasing the geographic share of orders from Eu-
ing the continued low level of large capital expen- rope. The volume in Europe was supported by or-
diture projects in some end‑markets including oil ders from marine industries, specifically for
and gas, and mining. The market benefited from specialty vessels like cruise ships and ice-going
selective investment in cruise ships and specialty vessels. The share of orders from the Americas fell
vessels in 2017. Market demand for maintenance slightly with order declines in Canada, the U.S.
activities and other discretionary investments im- and Chile, where the Process Industries business
proved, in particular for oil, gas and chemical cus- was affected by low capital expenditure in mining
tomers. Demand for factory automation solutions due to low demand from China for raw materials.
continued to be positive. In 2017, third‑party base In the Asia, Middle East and Africa region, orders
orders improved 11 percent (11 percent in local were lower in the Marine and Ports business due
currencies), in particular in the Measurement and to weak demand for oil and gas related vessels
Analytics and Process Industries businesses, and the lack of infrastructure projects from
aided by selective capital expenditure invest- the ports business. In addition, the Oil, Gas and
ments in mining. Demand for ABB Ability™ solu- Chemicals business and the Process Industries
tions and services also contributed to the positive business suffered from the lack of large orders in
third‑party base order development. this geographic area.

Orders in 2016 declined 19 percent (16 percent in Order backlog

local currencies) compared with 2015. Orders Order backlog at December 31, 2017 was 1 percent
were lower in most Industrial Automation busi- lower (8 percent in local currencies) than at De-
nesses, primarily driven by lower expenditures in cember 31, 2016. Although the division saw some
the process end‑markets, oil and gas, mining and stabilization in demand, shown by a lower decline
metals, as well as in parts of the marine business. than in 2016, the market environment remained
Customers continued to defer capital expendi- difficult and political uncertainty weakened confi-
tures for both onshore and offshore oil invest- dence in key markets.
ments while low commodity prices affected min-
ing companies. Large orders as a percent of Order backlog at December 31, 2016 was 13 per-
divisional revenues were 9 percent compared to cent lower (11 percent in local currencies) than at
23 percent in 2015. In 2016, third‑party base or- December 31, 2015. The lower backlog was a result
ders declined 7 percent (4 percent in local curren- of the lower order intake during the year and the
cies) as customers deferred service activities and continued execution from the existing backlog.
reduced their spare parts inventories.
Revenues
In 2017, revenues increased 3 percent (3 percent in
local currencies) compared with 2016 due to the
acquisition of B&R, which contributed 6 percent
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 123

to revenue growth. The majority of the division’s the weak demand from the Process Industries
other businesses recorded lower revenues as the business, particularly mining.
project business units suffered from weaker
opening order backlog and the market environ- Income from operations
ment dampened the book-to-bill ratio. However, In 2017, income from operations increased 2 per-
revenues were higher in the Measurement and An- cent compared to 2016. The inclusion of B&R re-
alytics and Turbocharging businesses. During the duced income from operations by 4 percent
year, the division realized higher revenues from driven by the related charges for amortization of
faster turning orders in short-cycle businesses intangible assets and the higher charges in cost
which reduced the impact of the lower order of sales resulting from recording the opening bal-
backlog at the beginning of 2017. ance of inventory at fair value. Offsetting this
was the impact from changes in foreign curren-
In 2016, revenues declined 8 percent (5 percent in cies, including the impacts from changes in FX/
local currencies) compared with the previous year. commodity timing differences summarized in the
The largest decline was in the Process Industries table below which, combined, positively im-
business due to the lower opening order backlog pacted income from operations by 5 percent. Re-
and the continued low level of order activity from structuring and restructuring-related expenses in
the mining and metals sector. A continued lack of 2017 of $87 million were $8 million higher than in
orders from the oil and gas industry negatively 2016. Restructuring expenses recorded for the
impacted revenues in the Oil, Gas and Chemicals White Collar Productivity program were $58 mil-
business. The overall decrease in revenues was lion lower compared to 2016 because 2017 in-
mitigated by some stabilization in the Marine and cluded a net reversal of $22 million of estimated
Ports business which was supported by a strong amounts recorded in previous years. This benefit
opening order backlog for ice-going and cruise was more than offset by an increased amount of
vessels. Revenues were also steady in the Power restructuring expenses for specific initiatives to
Generation business due to solid execution from align the cost structure and footprint of the oper-
the order backlog. Of the product businesses, ations to reflect changing market conditions. Ex-
Control Technologies had revenue levels similar to cluding these impacts, higher income from oper-
the previous year, but the Measurement and Ana- ations reflects an improved mix, ongoing
lytics and Turbocharging businesses were slightly progress in the division’s rationalization efforts
lower due to lower order intake. and benefits secured from the implementation of
the White Collar Productivity program.
The geographic distribution of revenues for our
Industrial Automation division was as follows: In 2016, income from operations decreased 3 per-
cent compared with 2015. Operating margins
(in %) 2017 2016 2015 were maintained as the division reduced overhead
Europe 42 37 35 costs, removing organizational costs at the local
The Americas 20 22 24 division level and downsizing operations in areas
Asia, Middle East and Africa 38 41 41 with low order backlog and low market demand.
Total 100 100 100 Key actions included closing warehouses and con-
solidating operations to fewer locations, but
In 2017, revenues continued to decline in the mainly included reducing the number of person-
Americas and in Asia, Middle East and Africa while nel. Restructuring programs were implemented in
Europe benefited from the inclusion of B&R as all businesses due to a continued weak market
well as higher revenues from the Marine and Ports outlook. Overall, the number of employees in the
business. In the Americas region, revenues were Industrial Automation division was reduced by
higher in the U.S., especially in the Measurement approximately 1,300 during 2016. However, as rev-
and Analytics, and Turbocharging businesses, enues declined by 8 percent, the aforementioned
though were offset by revenue declines in other actions were not enough to maintain previous
countries in the region. year level of income from operations. In addition,
changes in foreign currencies, including the im-
In 2016, revenues declined in the Americas and in pacts from FX/commodity timing differences
Asia, Middle East and Africa, while Europe was summarized in the table below, negatively im-
stable. This resulted in an increase in the share of pacted income from operations by 3 percent.
revenues from Europe. Except for the Marine and
Ports business, revenues in the Americas declined
in all businesses, especially the Oil, Gas and
Chemicals, Process Industries and Measurement
and Analytics businesses. Revenues in Asia, Mid-
dle East and Africa were especially impacted by
124 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Operational EBITA The financial results of our Power Grids division

The reconciliation of Income from operations to were as follows:
Operational EBITA for the Industrial Automation
division was as follows: % Change
($ in millions) 2017 2016 2015 2017 2016
($ in millions) 2017 2016 2015 Orders 9,600 10,844 11,425 (11)% (5)%
Income from operations 782 769 793 Third-party
base orders 7,421 7,268 7,492 2% (3)%
Acquisition-related amortization 47 11 12
Order
Restructuring and
backlog at
restructuring‑related expenses(1) 87 79 135
December 31, 11,330 11,638 11,707 (3)% (1)%
Non-operational pension cost 7 2 6
Revenues 10,394 10,660 11,245 (2)% (5)%
Gains and losses on sale of
Income from
businesses (2) — —
operations 797 830 554 (4)% 50%
Acquisition-related expenses
Operational
and certain non-operational
EBITA 972 998 810 (3)% 23%
items 52 9 14
FX/commodity timing
differences in income from
operations (20) 27 17 Orders
Operational EBITA 953 897 977 In 2017, orders decreased 11 percent (11 percent in
(1) Amounts also include the incremental implementation costs in local currencies) compared to 2016. The decrease
relation to the White Collar Productivity program. mainly reflects fewer large orders from India and
China as the demand for ultra-high voltage trans-
In 2017, Operational EBITA increased 6 percent mission projects in those markets was lower than
(5 percent excluding the impacts from changes in in the previous year. Consequently, large orders
foreign currencies) compared to 2016. The change as a percentage of total orders was 18 percent,
is due to the reasons described under “Income 11 percentage points lower than in 2016. Signifi-
from operations”, excluding the explanations re- cant large orders awarded in 2017 included an or-
lated to the reconciling items in the table above. der for $290 million from National Grid and Ré-
The acquisition of B&R increased Operational seau de Transport d'Electricité (RTE), the British
­EBITA by 5 percent after consideration of the re- and French grid operators, to provide HVDC tech-
lated adjustments in the table above relating to nology that will help interconnect the electricity
that business. networks of France and the United Kingdom, a
$137 million order relating to the Hinkley Point C
In 2016, Operational EBITA decreased 8 percent nuclear power station in the United Kingdom and
(6 percent excluding the impacts from changes in a $71 million traction substations order in connec-
foreign currencies) compared to 2015, primarily tion with the Bangkok metro project. Third‑party
due to the reasons described under “Income from base orders increased 2 percent (2 percent in local
operations”, excluding the explanations related to currencies), driven by continued investment into
the reconciling items in the table above. renewables, ongoing electrification of society and
the increasing complexity and digitization of the
grid (the energy revolution) as well as growing de-
Power Grids mand from the industry sector. Geographically,
the increase in third-party base orders was driven
In 2017, we divested our high-voltage cable and by the Americas and the Asia, Middle East and
cables accessories businesses which were previ- ­Africa regions which more than offset a slight de-
ously part of the Power Grids division. The finan- cline in Europe. Through the Power Up transforma-
cial results relating to these divested businesses tion program, the Power Grids division is refocus-
have been reclassified to Corporate and Other for ing its business model on solutions and services to
all periods presented. improve grid control and automation. Conse-
quently, service orders grew 10 percent (9 percent
in local currencies) with growth in all business
units. In addition, demand continued to grow for
digital solutions, specifically for ABB Ability™ dig-
ital substations, ABB Ability™ grid control sys-
tems, energy storage and service solutions.

In 2016, orders decreased 5 percent (2 percent in

local currencies) compared to 2015, due to general
macro-economic uncertainty which led to a reduc-
tion in spending by utilities and sluggishness in
certain geographic markets such as Saudi Arabia
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 125

and the U.S. The lower pull‑through of orders from Order backlog
other ABB divisions, primarily the Industrial Auto- Order backlog at December 31, 2017, decreased by
mation division, reduced orders by 3 percent. 3 percent (8 percent in local currencies). In 2017,
Large orders as a percentage of total orders were the transmission market experienced decreased
29 percent, 2 percent above 2015 levels. Large activity and the division realized fewer large order
­orders in 2016 included a $640 million UHVDC opportunities compared to the prior year. Addi-
transmission link in India and two UHVDC orders tionally, the strategic repositioning of the busi-
for China, each worth more than $300 million. In ness through the Power Up program and the exit
2016, third‑party base orders decreased 3 ­percent from certain business activities also reduced or-
(steady in local currencies) with order growth in der opportunities, particularly for large EPC proj-
the Grid Automation, Grid Integration and High ects. The growth in base orders did not offset the
Voltage Products businesses offset by decline in large orders, resulting in a decreased
­market‑driven base order weakness in the Trans- order backlog.
formers business. Service orders decreased 2 per-
cent (flat in local currencies) as increases in the Order backlog at December 31, 2016, decreased
Grid Automation service business were offset by 1 percent (increased 3 percent in local currencies).
the other businesses. The local currency increase in the order backlog
was mainly driven by the Transformers business,
The geographic distribution of orders for our resulting from a significantly higher share of large
Power Grids division was as follows: orders with long lead times.

(in %) 2017 2016 2015 Revenues

Europe 31 24 32 Revenues in 2017 decreased 2 percent (3 percent
The Americas 30 28 29 in local currencies) compared with 2016. Reve-
Asia, Middle East and Africa 39 48 39 nues were impacted by a low opening order
Total 100 100 100 backlog and the timing of execution of orders
which were not offset by stronger short-cycle or-
In 2017, the share of orders in Europe increased ders, specifically in the Grid Automation and Grid
from 24 percent to 31 percent, mainly due to the Integration businesses. Lower revenues in the
impact of large orders in the United Kingdom as Grid Integration business reflects the exit from
described above. In 2016, ABB received several certain business activities, as well as the
large HVDC orders from China and India, resulting ­de‑risking and strategic repositioning of this
in a high percentage of orders from the Asia, Mid- business. Revenues in the Transformers business
dle East and Africa region in that year. The de- were flat, on steady execution of the order back-
crease in large orders in Asia, Middle East and Af- log. Service revenues grew by 3 percent (1 per-
rica during 2017 was not offset by the increase in cent in local currencies) as a result of the contin-
third‑party base orders in the region. As a result, ued focus on the service business.
the proportion of orders from the Asia, Middle
East and Africa region in 2017 reverted back to a Revenues in 2016 decreased 5 percent (3 percent
similar level as 2015. Positive base order develop- in local currencies) compared with 2015. The reve-
ment in the Americas supported the increase in the nue volume in 2016 mainly reflected the scheduled
share of orders from the region, with base orders execution of the order backlog. The revenue de-
in the U.S. and Brazil returning to growth. crease was mainly attributable to the Grid Inte-
gration business as revenues were negatively im-
In 2016, the share of orders from Asia, Middle East pacted by the exit from the EPC Solar business
and Africa increased from 39 percent to 48 per- and the wind‑down of the plant electrification
cent, supported by exceptional order intake in business. In addition, the Grid Integration busi-
China and India. The share of orders from the ness revenues were lower due to a strong compa-
Americas declined slightly as both the U.S. and rable in 2015 from the offshore wind projects
Brazilian markets saw challenging market condi- which were either finalized or nearing completion.
tions as the presidential election in the U.S. and a A lower level of revenues in the Transformers busi-
political corruption crisis in Brazil affected order ness primarily resulted from order weakness in
decisions of large utility customers. The share of the U.S. Service revenues increased 4 percent
orders from Europe decreased to 24 percent, (6 percent in local currencies) compared with
compared with 32 percent in 2015, mainly due to 2015.
the high amount of large orders received from Eu-
rope in 2015.
126 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

The geographic distribution of revenues for our a portion of the costs relating to the Power Up pro-
Power Grids division was as follows: gram. Income from operations also benefited from
changes in foreign currencies, including changes in
(in %) 2017 2016 2015 FX/commodity timing differences in income from
Europe 30 28 30 operations, which, combined, increased the
The Americas 29 30 31 ­division’s income from operations by 4 percent
Asia, Middle East and Africa 41 42 39 compared to the prior year.
Total 100 100 100

In 2016, income from operations increased by

In 2017, the large portion of revenues generated $276 million to $830 million compared with
from Asia, Middle East and Africa was supported $554 million in 2015. The impact from lower reve-
by the increase in the share of orders from Asia, nues was more than offset by a higher gross
Middle East and Africa in 2016. The share of reve- margin, driven by solid project execution, im-
nues in Europe increased due to solid execution of proved productivity and continued cost savings.
the order backlog. As a result of these develop- For 2016, the division also had lower research
ments the relative share of revenues from the and development expenses. Restructuring and
Americas decreased to 29 percent. ­restructuring‑related expenses in 2016 of
$101 million were $58 million lower than in 2015
In 2016, the share of revenues from Asia, Middle and included additional charges for the White Col-
East and Africa increased to 42 percent, sup- lar Productivity program, as well as initiatives to
ported by significantly higher revenues from the align the cost structure and footprint of certain
Transformer business in China. The share of reve- operations to reflect changing market conditions.
nues from Europe decreased to 28 percent, mainly Acquisition‑related amortization in 2016 was
due to a lower level of revenues from the Grid Inte- lower compared to 2015. In addition, changes in
gration business, related to lower revenues in the foreign currencies, including the changes in FX/
offshore wind projects described above. The share commodity timing differences in income from op-
of revenues from the Americas was lower, mainly erations decreased the division’s income from
driven by lower volumes from the U.S. and Brazil. ­operations by 6 percent compared to 2015.

Income from operations Operational EBITA

In 2017, income from operations was $797 million, The reconciliation of income from operations to
compared with $830 million in the prior year. In Operational EBITA for the Power Grids division
2017, income from operations was impacted by was as follows:
charges recorded in the EPC business to account
for project-related penalties and to reflect the de- ($ in millions) 2017 2016 2015
crease in realized profitability of certain long- Income from operations 797 830 554
term contracts. This was partially offset by the Acquisition-related amortization 36 35 52
impact of higher gross margins despite lower rev- Restructuring and
restructuring‑related expenses(1) 80 101 159
enue levels. Margin improvements were driven by
Non-operational pension cost 3 (2) 3
continued productivity improvements, cost sav-
Gains and losses on sale of
ings and improved project execution. In 2017, the businesses — — 24
division increased the amounts spent for sales Acquisition-related expenses
and research and development under the and certain non-operational
items 79 20 17
Power Up transformation program, resulting in
FX/commodity timing
­increased expenses compared to the prior year.
differences in income from
This program commenced at the end of 2016 and operations (23) 14 1
aims to accelerate the transformation of the Operational EBITA 972 998 810
Power Grids division, driving higher margins and (1) Amounts also include the incremental implementation costs in
revenue growth. Restructuring and relation to the White Collar Productivity program.

­restructuring‑related expenses in 2017 of $80 mil-

lion were $21 million lower than in 2016, as we re- In 2017, Operational EBITA decreased 3 percent
corded a reversal of the previously recorded esti- (3 percent excluding the impacts from changes in
mated restructuring expenses in connection with foreign currencies) compared to 2016, primarily
the White Collar Productivity program. This was due to the reasons described under “Income from
partially offset by higher restructuring ongoing operations”, excluding the explanations related to
expenses which relate to footprint changes and the reconciling items in the table above.
capacity adjustments. ­Acquisition‑related ex-
penses and certain non-operational items in- In 2016, Operational EBITA increased 23 percent
creased to $79 million, primarily driven by the (25 percent excluding the impacts from changes
charges recorded for certain legal claims as well as in foreign currencies) compared to 2015, primarily
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 127

due to the reasons described under “Income from tion costs for the White Collar Productivity pro-
operations”, excluding the explanations related to gram. In 2016 and 2015, costs incurred in connec-
the reconciling items in the table above. tion with this program amounted to $199 million
and $130 million, respectively. These costs relate
mainly to employee severance costs and both ex-
Corporate and Other ternal and internal costs relating to the execution
of the program. For further information on the
Income (loss) from operations for Corporate and White Collar Productivity program see “Restruc-
Other was as follows: turing and other cost savings initiatives” below.

($ in millions) 2017 2016 2015 In 2016, we recorded a loss of $73 million, net of

Corporate headquarters and expected insurance recoveries, for the misappro-
stewardship (374) (380) (355) priation of cash by the treasurer of our subsidiary
Corporate research and
in South Korea. In 2017, additional losses of $9 mil-
development (128) (133) (144)
lion were recorded.
Corporate real estate 45 47 50
Net gain (loss) from sale of
businesses 250 (10) 4 The historical results of operations for certain di-
White Collar Productivity vested businesses are presented in Corporate and
program costs (107) (199) (130) Other. In 2017, 2016 and 2015, this primarily in-
Misappropriation loss, net (9) (73) —
cludes the income and loss from operations of the
Divested businesses (129) 36 (10)
cables businesses, which were disposed in March
Other (83) (29) (32)
2017 and the Oil & Gas EPC business, which was
Total Corporate and Other (535) (741) (617)
transferred to a new joint venture with Arkad in
December 2017. The amount in 2017 also includes
In 2017, the net loss from operations within Cor- charges of $94 million for changes (after divest-
porate and Other was $535 million, a decrease of ment) in the amount recorded for certain retained
$206 million compared to 2016. The decrease was liabilities associated with the divested cables
primarily due to the recognition of the gain for businesses.
the sale of the cables businesses and lower re-
structuring and implementation costs related to “Other” consists of operational costs of our Global
While Collar Productivity program. In 2016, the net Treasury Operations, operating income or loss in
loss from operations was higher than in 2015 pri- other non‑core businesses and certain other
marily due to higher costs related to the White charges such as costs and penalties associated
Collar Productivity program and the misappropri- with legal cases, environmental expenses and im-
ation loss described below. pairment charges related to investments. “Other”
costs were higher in 2017 as compared to 2016 as
Corporate headquarter and stewardship costs the costs a year earlier included the impact of a re-
were $374 million in 2017, slightly lower than duction in certain insurance-related provisions for
the $380 million reported in 2016, primarily due to self-insured risks offset by amounts recorded for
the costs in 2016 associated with the new ABB certain pension curtailment costs. In 2015, “Other”
branding and cost related to the Next Level Strat- also included a reduction of ­insurance-related pro-
egy program. This also is the reason that corpo- visions for self-insured risks.
rate headquarters and stewardship costs in-
creased in 2016 compared to 2015.
Restructuring and other cost
Corporate real estate primarily includes income
from property rentals and gains from the sale of
savings initiatives
real estate properties. In 2017, 2016 and 2015, in-
come from operations in Corporate real estate in- White Collar Productivity program
cluded gains from the sale of real estate proper- In September 2015, we announced a two-year pro-
ties of $28 million, $33 million and $26 million, gram aimed at making ABB leaner, faster and
respectively. more customer-focused. Productivity improve-
ments include the rapid expansion and use of re-
The net gain recorded from sale of businesses in gional shared service centers as well as the
2017 related to the sales of the cables businesses streamlining of global operations and head office
and the Oil & Gas EPC business. functions, with business units moving closer to
their respective key markets. In the course of this
In 2017, ABB recorded a total of $107 million in program, we implemented and executed various
Corporate and Other for both restructuring and restructuring initiatives across all operating
related expenses as well as program implementa- ­segments and regions. As of December 31, 2017,
128 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

ABB has incurred substantially all costs related to ­ erson. Various functions including marketing
p
the White Collar Productivity program. and sales, supply chain management, research
and development, engineering, service, and cer-
The program was originally expected to generate tain other support functions were impacted in
cost savings of approximately $1.0 billion and be various phases commencing in 2015 and continu-
realized from 2016 and increasing through the end ing in 2016 and in 2017.
of 2017. During 2016, we re-assessed the expected
amount of cost savings and increased the ex- In 2017 and 2016, we experienced a significantly
pected total annual rate of cost savings from the higher than expected rate of attrition and
program by 30 percent to approximately $1.3 bil- redeployment and a lower than expected sever-
lion. The program's final cost savings realized ance cost per employee for the employee groups
amount to approximately $1.4 billion. During 2017, affected by the restructuring programs initiated
cost savings of approximately $0.5 billion were re- in 2015 and 2016. As a result, in 2017, we adjusted
alized. These savings are primarily being realized the amount of our estimated liability for restruc-
as reductions in cost of sales, selling, general and turing which was recorded in 2016 and 2015. This
administrative expenses and non-order related change in estimate of $164 million during 2017 re-
research and development expenses. sulted in a reduction primarily in cost of sales of
$90 million and in selling, general and administra-
The following table outlines the costs incurred in tive expenses of $63 million in the year. In 2016,
2017, 2016 and 2015 and the cumulative amount of we adjusted the amount of our estimated liability
costs incurred under the program. for restructuring which was recorded in 2015. This
change in estimate of $103 million during 2016 re-
Cumulative sulted in a reduction primarily in cost of sales of
Costs incurred in costs $49 million and in selling, general and administra-
incurred up to
December 31,
tive expenses of $38 million for the year.
($ in millions) 2017 2016(1) 2015(1) 2017(1)
Electrification At December 31, 2017, we have substantially com-
Products (17) 15 74 72 pleted the White Collar Productivity program and
Robotics and
incurred total restructuring charges of $385 mil-
Motion (14) 26 44 56
lion under this program.
Industrial
Automation (22) 36 96 110
Power Grids (38) 33 70 65 The majority of the remaining cash outlays, pri-
Corporate and marily for employee severance benefits, are ex-
Other (34) 30 86 82 pected to occur in 2018. We expect that our cash
Total (125) 140 370 385
flow from operating activities will be sufficient to
(1) Total costs have been recast to reflect the reorganization of the cover any obligations under this restructuring
Company’s operating segments as outlined in Note 23 to our
Consolidated Financial Statements. program.

For details of the nature of the costs incurred and

During the course of the restructuring program to- their impact on the Consolidated Financial State-
tal expected costs were reduced mainly due to the ments, see “Note 22 Restructuring and related ex-
realization of significantly higher than originally penses” to our Consolidated Financial State-
expected attrition and internal redeployment ments.
rates. The reductions were made across all operat-
ing divisions as well as for corporate functions. Other restructuring-related activities and cost
savings initiatives
In 2017, net restructuring reversals of $125 million In 2017, 2016 and 2015, we also executed other
was recorded mainly due to higher than expected ­restructuring-related and cost saving measures
rates of attrition and internal redeployment. to sustainably reduce our costs and protect our
In 2016, net restructuring costs of $140 million profitability. Costs associated with these other
were recorded based on the anticipated number measures amounted to $249 million, $171 million
of personnel to be impacted by the program and and $256 million in 2017, 2016 and 2015, respec-
a country-specific average severance cost per tively.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 129

—
Liquidity and capital resources
Principal sources of funding r­ equirements) has generally been to invest in
short-term time deposits with maturities of less
We meet our liquidity needs principally using cash than 3 months, supplemented at times by invest-
from operations, proceeds from the issuance of ments in corporate commercial paper, money mar-
debt instruments (bonds and commercial paper), ket funds, and in some cases, government securi-
and short‑term bank borrowings. ties. During 2017 and 2016, we also continued to
place limited funds in connection with reverse re-
During 2017, 2016 and 2015, our financial position purchase agreements. We actively monitor credit
was strengthened by the positive cash flow from risk in our investment portfolio and hedging activi-
operating activities of $3,799 million, $3,843 mil- ties. Credit risk exposures are controlled in accor-
lion and $3,818 million, respectively. dance with policies approved by our senior man-
agement to identify, measure, monitor and control
Our net debt is shown in the table below: credit risks. We closely monitor developments in
the credit markets and make appropriate changes
December 31, to our investment policy as deemed necessary. The
($ in millions) 2017 2016 rating criteria we require for our counterparts have
Short-term debt remained unchanged during 2017 (compared to
and current maturities of long-term debt 738 1,003
2016) as follows: a minimum rating of A/A2 for our
Long-term debt 6,709 5,800
banking counterparts (with limited exceptions),
Cash and equivalents (4,526) (3,644)
while the minimum required rating for investments
Marketable securities
and short-term investments (1,102) (1,953) in short-term corporate commercial paper is
Net debt A-1/P-1. In addition to rating criteria, we have spe-
(defined as the sum of the above lines) 1,819 1,206 cific investment parameters and approved instru-
ments as well as restrictions on the types of in-
Net debt at December 31, 2017, increased $613 mil- vestments we make. These parameters are closely
lion compared to December 31, 2016, as cash flows monitored on an ongoing basis and amended as
from operating activities during 2017 of $3,799 mil- we consider necessary.
lion was more than offset by cash outflows for
­acquisitions of businesses (primarily B&R) Our cash is held in various currencies around the
($2,130 million), the dividend payment to our world. Approximately 35 percent of our cash and
shareholders ($1,635 million), net purchases of cash equivalents held at December 31, 2017, was in
property, plant and equipment and intangible as- U.S. dollars, while other significant amounts were
sets ($883 million) and amounts paid to purchase held in Chinese renminbi (23 percent), euro (17 per-
treasury stock ($251 million). Other significant cent) and Indian rupee (5 percent).
transactions affecting our liquidity included the is-
suance of treasury shares for $163 million and pay- We believe the cash flows generated from our busi-
ments of dividends to noncontrolling shareholders ness, supplemented, when necessary, through ac-
of $127 million. Movements in foreign exchange cess to the capital markets (including short‑term
rates increased net debt by approximately $54 mil- commercial paper) and our credit facilities are suf-
lion. See “Financial position”, “Investing activities” ficient to support business operations, capital ex-
and “Financing activities” for further details. penditures, business acquisitions, the payment of
dividends to shareholders and contributions to
Our Group Treasury Operations is responsible for pension plans. Consequently, we believe that our
providing a range of treasury management ser- ability to obtain funding from these sources will
vices to our group companies, including investing continue to provide the cash flows necessary to
cash in excess of current business requirements. satisfy our working capital and capital expenditure
At December 31, 2017 and 2016, the proportion of requirements, as well as meet our debt repay-
our aggregate “Cash and equivalents” and “Mar- ments and other financial commitments for the
ketable securities and short‑term investments” next twelve months. See “Disclosures about con-
managed by our Group Treasury Operations tractual obligations and commitments”.
amounted to approximately 49 percent and
57 percent, respectively. Due to the nature of our operations, our cash flow
from operations generally tends to be weaker in
Throughout 2017 and 2016, the investment strat- the first half of the year than in the second half of
egy for cash (in excess of current business the year.
130 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Debt and interest rates The credit facility does not contain financial cove-
nants that would restrict our ability to pay divi-
Total outstanding debt was as follows: dends or raise additional funds in the capital mar-
kets. For further details of the credit facility, see
December 31, “Note 12 Debt” to our Consolidated Financial
($ in millions) 2017 2016 Statements.
Short-term debt and
current maturities of long-term debt 738 1,003
Long-term debt:
Commercial paper
Bonds 6,487 5,660
Other long-term debt 222 140
At December 31, 2017, we had two commercial pa-
Total debt 7,447 6,803
per programs in place:
• a $2 billion commercial paper program for the
The decrease in short‑term debt in 2017 was due private placement of U.S. dollar denominated
to the repayment at maturity of both our USD commercial paper in the United States, and
500 million 1.625% Notes and our AUD 400 million • a $2 billion Euro‑commercial paper program for
4.25% Notes. This was partially offset by the re- the issuance of commercial paper in a variety of
classification of our CHF 350 million 1.5% Bonds currencies.
due in 2018. In addition, we increased the amount
of issued commercial paper ($259 million out- At December 31, 2017, $259 million was outstand-
standing at December 31, 2017, compared to ing under the $2 billion program in the United
$57 million outstanding at December 31, 2016). States, compared to $57 million outstanding at
December 31, 2016.
Our debt has been obtained in a range of curren-
cies and maturities and on various interest rate No amount was outstanding under the $2 billion
terms. For certain of our debt obligations, we Euro‑commercial paper program at December 31,
use derivatives to manage the fixed interest rate 2017 and 2016.
exposure. For example, we use interest rate
swaps to effectively convert fixed rate debt into
floating rate liabilities. After considering the ef- European program for the
fects of interest rate swaps, the effective aver-
age interest rate on our floating rate long‑term
issuance of debt
debt (including current maturities) of $3,213 mil-
lion and our fixed rate long‑term debt (including The European program for the issuance of debt al-
current maturities) of $3,907 million was 0.6 per- lows the issuance of up to the equivalent of $8 bil-
cent and 3.5 percent, respectively. This compares lion in certain debt instruments. The terms of the
with an effective rate of 1.3 percent for floating program do not obligate any third party to extend
rate long‑term debt of $1,745 million and 2.9 per- credit to us and the terms and possibility of issu-
cent for fixed rate long‑term debt of $4,923 mil- ing any debt under the program are determined
lion at December 31, 2016. with respect to, and as of the date of issuance of,
each debt instrument. During 2017, we issued
For a discussion of our use of derivatives to mod- EUR 750 million 0.75% Notes, due 2024, and
ify the interest characteristics of certain of our in- during 2016, we issued EUR 700 million 0.625%
dividual bond issuances, see “Note 12 Debt” to our Notes, due 2023, under the program. At Decem-
Consolidated Financial Statements. ber 31, 2017, three bonds (principal amount of
EUR 1,250 million, due in 2019, principal amount of
EUR 700 million, due in 2023 and principal amount
Credit facility of EUR 750 million, due in 2024) having a combined
carrying amount of $3,216 million, were outstand-
During 2016 we exercised our second and final op- ing under the program. At December 31, 2016, two
tion to extend the maturity of our $2 billion multi- bonds (principal amount of EUR 1,250 million, due
currency revolving credit facility from 2020 to 2021. in 2019, and principal amount of EUR 700 million,
due in 2023) having a combined carrying amount
No amount was drawn under the credit facility at of $2,043 million, were outstanding under the
December 31, 2017 and 2016. The facility is avail- program.
able for general corporate purposes. The facility
contains cross‑default clauses whereby an event
of default would occur if we were to default on in-
debtedness, as defined in the facility, at or above
a specified threshold.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 131

Australian program for the Limitations on transfers of

issuance of debt funds

During 2012, we set up a program for the issuance Currency and other local regulatory limitations re-
of up to AUD 1 billion (equivalent to $779 million, lated to the transfer of funds exist in a number of
using December 31, 2017, exchange rates) of countries where we operate, including: China,
­medium‑term notes and other debt instruments. Egypt, India, Indonesia, South Korea, Malaysia,
The terms of the program do not obligate any Russian Federation, Taiwan, Thailand and Turkey.
third party to extend credit to us and the terms Funds, other than regular dividends, fees or loan
and possibility of issuing any debt under the pro- repayments, cannot be readily transferred offshore
gram are determined with respect to, and as of from these countries and are therefore deposited
the date of issuance of, each debt instrument. No and used for working capital needs in those coun-
amount was outstanding under this program at tries. In addition, there are certain countries where,
December 31, 2017. At December 31, 2016, one for tax reasons, it is not considered optimal to
bond, having a principal amount of AUD 400 mil- transfer the cash offshore. As a consequence,
lion, which matured in 2017, was outstanding un- these funds are not available within our Group
der the program. The carrying amount of the Treasury Operations to meet short‑term cash obli-
bond at December 31, 2016, was $291 million. gations outside the relevant country. The above
described funds are reported as cash in our Con-
solidated Balance Sheets, but we do not consider
Credit ratings these funds immediately available for the repay-
ment of debt outside the respective countries
Credit ratings are assessments by the rating where the cash is situated, including those de-
agencies of the credit risk associated with ABB scribed above. At December 31, 2017 and 2016, the
and are based on information provided by us or balance of “Cash and equivalents” and “Marketable
other sources that the rating agencies consider securities and other short‑term investments” un-
reliable. Higher ratings generally result in lower der such limitations (either regulatory or
borrowing costs and increased access to capital ­sub‑optimal from a tax perspective) totaled ap-
markets. Our ratings are of “investment grade” proximately $2,222 million and $1,737 million, re-
which is defined as Baa3 (or above) from Moody’s spectively.
and BBB− (or above) from Standard & Poor’s.
During 2017 we continued to direct our subsidiar-
At both December 31, 2017 and 2016, our ies in countries with restrictions to place such
long‑term debt was rated A2 by Moody’s cash with our core banks or investment grade
and A by Standard & Poor’s. banks, in order to minimize credit risk on such
cash positions. We continue to closely monitor
the situation to ensure bank counterparty risks
are minimized.
132 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Financial position
Balance sheets December 31,
($ in millions) 2017 2016 % Change
Current liabilities
December 31,
Accounts payable, trade 5,419 4,446 22%
($ in millions) 2017 2016 % Change
Billings in excess of sales 1,251 1,241 1%
Current assets
Short-term debt and
Cash and equivalents 4,526 3,644 24%
current maturities of
Marketable securities long-term debt 738 1,003 (26)%
and short-term
Advances from
investments 1,102 1,953 (44)%
customers 1,367 1,398 (2)%
Receivables, net 10,416 9,696 7%
Provisions for
Inventories, net 5,059 4,347 16% warranties 1,231 1,142 8%
Prepaid expenses 189 176 7% Other provisions 1,882 1,765 7%
Other current assets 647 688 (6)% Other current liabilities 4,385 3,936 11%
Assets held for sale — 548 n.a. Liabilities held for sale — 218 n.a.
Total current assets 21,939 21,052 4% Total current liabilities 16,273 15,149 7%

For a discussion on cash and equivalents, see sec- Accounts payable increased 22 percent (14 per-
tions “Liquidity and Capital Resources‑Principal cent in local currencies) primarily as a result of
sources of funding” and “Cash flows” for further continuing efforts to negotiate extended pay-
details. ment terms with suppliers.

Marketable securities and short‑term investments The decrease in Short-term debt and current ma-
decreased in 2017 as the amount of excess liquid- turities of long-term debt was primarily due to the
ity available for investments was reduced as repayment at maturity of both the USD 500 million
funds were needed for acquisitions of businesses. and AUD 400 million bonds partially offset by in-
The reduction resulted primarily in lower amounts creases in the U.S. commercial paper program of
deposited with banks with fixed deposit terms $202 million and the reclassification to short‑term
over three months and lower investments in debt of $391 million, mainly from the CHF 350 mil-
money market funds (see “Cash flows‑Investing lion bond.
activities”, below, and “Note 4 Cash and equiva-
lents, marketable securities and short-term in- Advances from customers decreased 2 percent
vestments” to our Consolidated Financial State- (9 percent in local currencies) due to the impact of
ments). lower level of advances received on orders, espe-
cially in the Transformers business, which was
Receivables increased 7 percent (2 percent in local partially offset by the increase in advances re-
currencies). The increase was primarily due to the ceived in the Robotics and Drives businesses.
impact of the acquisition of B&R. For details on
the components of Receivables, see “Note 7 Re- Provisions for warranties increased 8 percent (de-
ceivables, net” to our Consolidated Financial creased 1 percent in local currencies), primarily
Statements. due to a decrease in warranty expenses in the so-
lar business offset by the acquisition of B&R.
Inventories increased 16 percent (6 percent in lo-
cal currencies). The increase in inventory was pri- Other provisions increased 7 percent (flat in local
marily due to the impact of the B&R acquisition currencies) as higher contract-related provisions
but also due to a planned increase of inventories were offset by lower restructuring provisions in
to deliver against expected growth in certain local currencies.
product businesses.
The increase in Other current liabilities of 11 per-
cent (5 percent in local currencies) was primarily
due to increases in non-trade payables and in-
come tax payable partially offset by lower deriva-
tive liabilities.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 133

December 31, movement. For additional information, see “Note

($ in millions) 2017 2016 % Change
17 Employee benefits” to our Consolidated Finan-
Non-current assets
cial Statements.
Property, plant and
equipment, net 5,363 4,743 13%
Goodwill 11,199 9,501 18% The increase in Deferred taxes was primarily due
Other intangible to the deferred taxes recorded from the acquisi-
assets, net 2,622 1,996 31% tion of B&R.
Prepaid pension and
other employee benefits 144 90 60%
For a breakdown of other non‑current liabilities,
Investments in equity-
accounted companies 158 170 (7)%
see “Note 13 Other provisions, other current liabil-
Deferred taxes 1,250 1,118 12% ities and other non‑current liabilities” to our Con-
Other non-current solidated Financial Statements.
assets 587 532 10%
Total non-current
assets 21,323 18,150 17%
Cash flows
In 2017, Property, plant and equipment increased In the Consolidated Statements of Cash Flows,
13 percent (6 percent in local currencies) partly the effects of discontinued operations are not
due to the acquisition of B&R and also due to the segregated.
investment in a new robotics factory in the U.S.
and the ongoing investment in the Xiamen hub in The Consolidated Statements of Cash Flows can
China. be summarized as follows:

In 2017, Goodwill increased 18 percent (14 percent ($ in millions) 2017 2016 2015
in local currencies) due primarily to the acquisi- Net cash provided
tion of B&R. by operating activities 3,799 3,843 3,818
Net cash used
in investing activities (1,450) (1,305) (974)
Other intangible assets increased 31 percent
Net cash used
(27 percent in local currencies) primarily due to in financing activities (1,735) (3,355) (3,380)
the addition of intangibles related to the acquisi- Effects of exchange rate
tion of B&R, partially offset by the impact of changes on cash and equivalents 268 (104) (342)

amortization of intangibles in 2017. For additional Net change in cash

and equivalents‑continuing
information on intangible assets see “Note 11 operations 882 (921) (878)
Goodwill and other intangible assets” to our Con-
solidated Financial Statements.
Operating activities
December 31,
($ in millions) 2017 2016 % Change ($ in millions) 2017 2016 2015
Non-current liabilities Net income 2,365 2,034 2,055
Long-term debt 6,709 5,800 16% Depreciation and amortization 1,101 1,135 1,160
Pension and other Total adjustments to reconcile
employee benefits 1,882 1,834 3% net income to net cash provided
Deferred taxes 1,099 918 20% by operating activities
(excluding depreciation and
Other non-current
amortization) (385) 1 (55)
liabilities 1,950 1,604 22%
Total changes in operating
Total non-current
assets and liabilities 718 673 658
liabilities 11,640 10,156 15%
Net cash provided by
operating activities 3,799 3,843 3,818
Long-term debt increased 16 percent of which
7 percentage points were due to movements in
foreign exchange rates. The remaining change Operating activities in 2017 provided net cash of
was due primarily to the issuance of the new $3,799 million, a decrease from 2016 of 1 percent
EUR 750 million bond for the proceeds of as lower cash‑effective net income (net income
$824 million, offset by the reclassification to adjusted for depreciation, amortization and other
short‑term debt of $391 million mainly from the non-cash items) was mostly offset by the cash ef-
CHF 350 million bond. See “Liquidity and Capital fects of stronger net working capital manage-
Resources‑Debt and interest rates” for informa- ment. Working capital improvements ­included
tion on long‑term debt. a significant increase in trade and non-trade pay-
ables, resulting from continuing ­company-wide
The increase in Pension and other employee bene- efforts to extend payment terms with suppliers.
fits was primarily due to foreign exchange rate Partially offsetting these benefits were cash
134 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

­ utflows resulting from higher inventories and

o derivative cash flows classified as investing activi-
trade receivables. In addition, the timing of in- ties reduced cash used in investing activities by
come tax payments positively impacted cash pro- $120 million. These cash flows primarily result from
vided by operating activities. the maturity and settlement of derivatives that are
in place to hedge foreign currency exposures on in-
Operating activities in 2016 provided net cash of ternal subsidiary funding and the amount of the set-
$3,843 million, an increase from 2015 of 1 percent tlement results from movements in foreign currency
as Net income was steady and net working capital exchange rates throughout the year. We also had
improvements continued to contribute to positive higher purchases of property, plant and equipment
cash flows. Net working capital management im- and intangible assets due to higher investments in
provements included a reduction of inventories information technology assets as well as specific in-
and a significant increase in trade payables, re- vestments in facilities in the United States and
sulting from focused efforts to extend payment China.
terms with suppliers. The timing of income tax
payments also improved cash provided by operat- Net cash used in investing activities in 2016 was
ing activities. These benefits were offset by im- $1,305 million, compared to $974 million in 2015.
pacts from lower advances from customers. In ad- The change was primarily due to the change in the
dition, cash flows from operating activities was cash impacts from derivative cash flows classi-
negatively impacted by the misappropriation of fied as investing activities as in 2016 we had net
$103 million in cash by the treasurer of our subsid- outflows of $57 million, compared to inflows of
iary in South Korea. $231 million in 2015, on settlement of foreign cur-
rency derivatives relating to investing activities.
Investing activities
Total cash disbursements for the purchase of
($ in millions) 2017 2016 2015 property, plant and equipment and intangible as-
Purchases of marketable sets were lower in 2016 compared to 2015. The
securities (available-for-sale) (312) (1,214) (1,925) change was primarily due to movements in for-
Purchases of short-term
eign exchange rates and an increase in the
investments (393) (3,092) (614)
amount of unpaid purchases.
Purchases of property, plant and
equipment and intangible assets (949) (831) (876)
Acquisition of businesses (net of The following presents purchases of property,
cash acquired) and increases in plant and equipment and intangibles by signifi-
cost- and equity-accounted
companies (2,130) (26) (56)
cant asset category:
Proceeds from sales of
marketable securities ($ in millions) 2017 2016 2015
(available‑for‑sale) 514 1,057 434 Construction in process 672 595 568
Proceeds from maturity of Purchase of machinery and
marketable securities equipment 155 168 200
(available‑for‑sale) 100 539 1,022
Purchase of land and buildings 44 28 50
Proceeds from short-term
Purchase of intangible assets 78 40 58
investments 945 2,241 653
Purchases of property,
Proceeds from sales of property,
plant and equipment and
plant and equipment 66 61 68
intangible assets 949 831 876
Proceeds from sales of
businesses (net of transaction
costs and cash disposed) and In 2017, we decreased the amount of our excess li-
cost- and equity-accounted quidity invested in marketable securities and
companies 607 (1) 69
short-term investments as funds were needed for
Net cash from settlement of
foreign currency derivatives 63 (57) 231 acquisitions of businesses while in 2016 and 2015,
Other investing activities 39 18 20 we increased the amounts invested in marketable
Net cash used in securities and short‑term investments. Market-
investing activities (1,450) (1,305) (974) able securities and short-term investments at De-
cember 31, 2017, consisted primarily of fixed-term
Net cash used in investing activities in 2017 was deposits with banks, ­available‑for‑sale debt secu-
$1,450 million, compared to $1,305 million in 2016. rities as well as amounts placed in reverse repur-
Cash used to fund acquisitions of businesses (pri- chase agreements. At December 31, 2016, amounts
marily B&R) was significantly higher than in 2016 but were placed primarily in fixed-term deposits with
was partially offset by sales of marketable securi- banks and in short-term money market funds. At
ties and short-term investments as well as the pro- December 31, 2015, amounts were placed primar-
ceeds received from sales of businesses (primarily ily in short-term money market funds and corpo-
the high‑voltage cables and cable accessories busi- rate commercial paper. The net decrease in in-
nesses). In addition, changes in the impacts from vestments during 2017 resulted in an inflow of
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 135

$854 million while in 2016 and 2015, the net in- 0.625% Notes due 2023 (equal to $807 million at
crease in investments resulted in outflows of date of issuance). In 2015, increases in other debt
$469 million and $430 million, respectively. included cash flows from additional borrowings in
various countries.
In 2017, acquisitions of businesses primarily rep-
resents the purchase of B&R, which was acquired During 2017, $1,007 million of debt was repaid, re-
in July, while proceeds from sales of businesses flecting primarily the repayment at maturity of
primarily represents the divestment of the both the USD 500 million 1.625% Notes and the
high‑voltage cables business. In 2016 and 2015, AUD 400 million 4.25% Notes (in total equivalent
there were no significant acquisitions or divest- to $803 million at dates of repayment). During
ments of businesses. 2016, $1,249 million of debt was repaid, reflecting
primarily the repayment at maturity of the USD
Financing activities 600 million 2.5% Notes and CHF 500 million 1.25%
Bonds (in total equivalent to $1,106 million at
($ in millions) 2017 2016 2015 dates of repayment). In 2015 repayment of debt
Net changes in debt with reflects repayments of borrowings in various
maturities of 90 days or less 207 (152) 3 countries.
Increase in debt 921 912 68
Repayment of debt (1,007) (1,249) (101)
In 2017, “Purchase of treasury stock” reflects the
Delivery of shares 163 192 107
cash paid to purchase 10 million of our own shares
Purchase of treasury stock (251) (1,299) (1,487)
on the open market. In 2016 and 2015, the amount
Dividends paid (1,635) — (1,357)
reflects the cash paid to purchase 65 million and
Reduction in nominal value of
common shares paid to 73 million, respectively, of our own shares in con-
shareholders — (1,610) (392) nection with the share buyback program which
Dividends paid was announced in September 2014 and completed
to noncontrolling shareholders (127) (122) (137)
in September 2016. For additional information on
Other financing activities (6) (27) (84)
the share buyback program see “Note 19 Stock-
Net cash used in
financing activities (1,735) (3,355) (3,380) holders’ equity” to our Consolidated Financial
Statements.

Our financing activities primarily include debt

transactions (both from the issuance of debt se- Disclosures about contractual
curities and borrowings directly from banks),
share transactions and payments of distributions
obligations and commitments
to controlling and noncontrolling shareholders.
The contractual obligations presented in the table
In 2017, the net cash inflow for debt with matur- below represent our estimates of future pay-
ities of 90 days or less primarily related to an in- ments under fixed contractual obligations and
crease of $202 million in borrowings outstanding commitments. The amounts in the table may dif-
under our commercial paper program in the U.S. fer from those reported in our Consolidated Bal-
In 2016, the net cash outflow related primarily to a ance Sheet at December 31, 2017. Changes in our
reduction of $75 million in the amount outstand- business needs, cancellation provisions and
ing under our commercial paper program in the changes in interest rates, as well as actions by
U.S. and net repayments of short-term borrow- third parties and other factors, may cause these
ings in various countries. estimates to change. Therefore, our actual pay-
ments in future periods may vary from those pre-
In 2017, the increase in debt was due primarily to sented in the table. The following table summa-
the issuance of our EUR 750 million 0.75% Notes rizes certain of our contractual obligations and
due 2024 (equal to $824 million at date of issu- principal and interest payments under our debt
ance). In 2016, the increase in debt was due pri- instruments, leases and purchase obligations at
marily to the issuance of our EUR 700 million December 31, 2017.
136 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Less
than 1–3 3–5
More
than
Off balance sheet arrangements
($ in millions) Total 1 year years years 5 years
Commercial commitments
Payments due by
We disclose the maximum potential exposure of
period
Long-term debt
certain guarantees, as well as possible recourse
obligations 6,953 378 1,558 2,532 2,485 provisions that may allow us to recover from third
Interest parties amounts paid out under such guarantees.
payments related The maximum potential exposure does not allow
to long-term debt
obligations 1,370 191 328 192 659 any discounting of our assessment of actual expo-
Operating lease sure under the guarantees. The information below
obligations 1,516 390 541 315 270 reflects our maximum potential exposure under
Capital lease the guarantees, which is higher than our assess-
obligations(1) 292 48 71 46 127
ment of the expected exposure.
Purchase
obligations 4,967 4,104 685 156 22
Total 15,098 5,111 3,183 3,241 3,563 Guarantees
The following table provides quantitative data re-
(1) Capital lease obligations represent the total cash payments to
be made in the future and include interest expense of $116 mil- garding our third‑party guarantees. The maximum
lion and executory costs of $2 million.
potential payments represent a worst‑case sce-
nario, and do not reflect our expected outcomes.
In the table above, the long‑term debt obligations
reflect the cash amounts to be repaid upon matu- December 31, Maximum potential payments
rity of those debt obligations. The cash obliga- ($ in millions) 2017 2016
tions above will differ from the long‑term debt Performance guarantees 1,775 193
balance reflected in “Note 12 Debt” to our Consoli- Financial guarantees 17 69
dated Financial Statements due to the impacts of Indemnification guarantees 72 71
fair value hedge accounting adjustments and pre- Total 1,864 333

miums or discounts on certain debt. In addition,

capital lease obligations are shown separately in The carrying amounts of liabilities recorded in the
the table above while they are combined with Consolidated Balance Sheets in respect of the
long‑term debt amounts in our Consolidated Bal- above guarantees were not significant at Decem-
ance Sheets. ber 31, 2017 and 2016, and reflect our best esti-
mate of future payments, which we may incur as
We have determined the interest payments re- part of fulfilling our guarantee obligations.
lated to long‑term debt obligations by reference
to the payments due under the terms of our debt In addition, in the normal course of bidding for
obligations at the time such obligations were in- and executing certain projects, we have entered
curred. However, we use interest rate swaps to into standby letters of credit, bid/performance
modify the interest characteristics of certain of bonds and surety bonds (collectively “perfor-
our debt obligations. The net effect of these mance bonds”) with various financial institutions.
swaps may be to increase or decrease the actual Customers can draw on such performance bonds
amount of our cash interest payment obligations, in the event that the Company does not fulfill its
which may differ from those stated in the above contractual obligations. ABB would then have an
table. For further details on our debt obligations obligation to reimburse the financial institution
and the related hedges, see “Note 12 Debt” to our for amounts paid under the performance bonds.
Consolidated Financial Statements. At December 31, 2017 and 2016, the total out-
standing performance bonds aggregated to
Of the total of $1,230 million unrecognized tax $7.7 billion and $7.9 billion, respectively. There
benefits (net of deferred tax assets) at Decem- have been no significant amounts reimbursed to
ber 31, 2017, it is expected that $32 million will be financial institutions under these types of ar-
paid within less than a year. However, we cannot rangements in 2017, 2016 and 2015.
make a reasonably reliable estimate as to the re-
lated future payments for the remaining amount. For additional descriptions of our performance,
financial and indemnification guarantees see
“Note 15 Commitments and contingencies” to our
Consolidated Financial Statements.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 137

—
Consolidated
Financial
Statements
of ABB Group
138 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Report of management on internal
control over financial reporting
The Board of Directors and management of ABB
Ltd and its consolidated subsidiaries (“ABB”) are
responsible for establishing and maintaining
adequate internal control over financial reporting.
ABB’s internal control over financial reporting is
designed to provide reasonable assurance
regarding the reliability of financial reporting and
the preparation and fair presentation of the
published Consolidated Financial Statements in
accordance with U.S. generally accepted
accounting principles.

Because of its inherent limitations, internal

control over financial reporting may not prevent
or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are
subject to the risk that controls may become
inadequate because of changes in conditions, or
that the degree of compliance with ABB’s policies
and procedures may deteriorate.

Management conducted an assessment of the

effectiveness of internal control over financial
reporting based on the criteria established in
Internal Control–Integrated Framework issued by
the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework).
Based on this assessment, management has
concluded that ABB’s internal control over
financial reporting was effective as of
December 31, 2017.

Ernst & Young AG, the independent registered

public accounting firm who audited the
Company’s consolidated financial statements,
has issued an opinion on the effectiveness of
ABB’s internal control over financial reporting as
of December 31, 2017, which is included on
page 143 of this Annual Report.

Ulrich Spiesshofer Timo Ihamuotila

Chief Executive Officer Chief Financial Officer

Zurich, Switzerland
February 22, 2018
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 139

—
Report on the Audit of the
Consolidated Financial Statements
An audit involves performing procedures to ob-
To the General Meeting tain audit evidence about the amounts and disclo-
of ABB Ltd, Zurich sures in the consolidated financial statements.
The procedures selected depend on the auditor’s
Opinion judgment, including the assessment of the risks
As statutory auditor, we have audited the consoli- of material misstatement of the consolidated fi-
dated financial statements of ABB Ltd (the Group), nancial statements, whether due to fraud or error.
which comprise the consolidated balance sheets In making those risk assessments, the auditor
as of December 31, 2017 and 2016, and the related considers the internal control system relevant to
consolidated statements of income, comprehen- the entity’s preparation of the consolidated finan-
sive income, cash flows and changes in stockhold- cial statements in order to design audit proce-
ers’ equity, and notes to the consolidated finan- dures that are appropriate in the circumstances.
cial statements for each of the three years in the An audit also includes evaluating the appropriate-
period ended December 31, 2017 (pages 144–207). ness of the accounting policies used and the
In our opinion, the consolidated financial state- ­reasonableness of accounting estimates made, as
ments present fairly, in all material respects, the well as evaluating the overall presentation of the
consolidated financial position of the Group as of consolidated financial statements. We believe
December 31, 2017 and 2016, and the consolidated that the audit evidence we have obtained is suffi-
results of its operations and its cash flows for cient and appropriate to provide a basis for our
each of the three years in the period ended De- audit opinion.
cember 31, 2017, in accordance with U.S. generally
accepted accounting principles and comply with
Swiss law.
Report on key audit matters
based on the circular 1/2015 of
Board of Directors’ responsibility
The Board of Directors is responsible for the
the Federal Audit Oversight
preparation of the consolidated financial state- Authority
ments in accordance with U.S. generally accepted
accounting principles and the requirements of Key audit matters are those matters that, in our
Swiss law. This responsibility includes designing, professional judgment, were of most significance
implementing and maintaining an internal control in our audit of the consolidated financial
system relevant to the preparation of consoli- statements of the current period. These matters
dated financial statements that are free from ma- were addressed in the context of our audit of the
terial misstatement, whether due to fraud or er- consolidated financial statements as a whole, and
ror. The Board of Directors is further responsible in forming our opinion thereon, and we do not
for selecting and applying appropriate account- provide a separate opinion on these matters. For
ing policies and making accounting estimates each matter below, our description of how our
that are reasonable in the circumstances. audit addressed the matter is provided in that
context.
Auditor’s responsibility
Our responsibility is to express an opinion on these We have fulfilled the responsibilities described in
consolidated financial statements based on our au- the Auditor’s responsibility section of our report,
dits. We are a public accounting firm and are re- including in relation to these matters. Accordingly,
quired to be independent with respect to the our audit included the performance of procedures
Group. We conducted our audits in accordance with designed to respond to our assessment of the
Swiss law, Swiss Auditing Standards and the stan- risks of material misstatement of the
dards of the Public Company Accounting Oversight consolidated financial statements. The results of
Board (United States) (PCAOB). Those standards our audit procedures, including the procedures
require that we plan and perform the audits to ob- performed to address the matters below, provide
tain reasonable assurance about whether the con- the basis for our audit opinion on the
solidated financial statements are free from mate- consolidated financial statements.
rial misstatement, whether due to fraud or error.
140 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Revenue recognition on long-term projects Legal and Compliance

Area of emphasis Area of emphasis
The Company derives a significant portion of its The illegal behavior by any employee or agent that
revenues from long-term and fixed price projects. has and may in the future violate the US Foreign
Such contracts involve key project and financial Corrupt Practices Act of 1977, OECD (Organisation
milestones including the bid price, risk for Economic Co-operation and Development)
contingencies, the execution, post-completion legislation, anti-trust laws and other applicable
warranty obligations and ongoing uncertainties laws and regulations may significantly impact the
around expected costs to complete. Therefore, Company’s reputation, its ability to do business in
the revenue, cost and gross profit realization can certain jurisdictions and/or with certain counter-
vary substantially during the execution and parties or may result in significant fines or civil
reassessment of these projects against the claims.
contracted financial milestones.
Determining the impact and likely outcome of any
The principal risks include: litigation matter requires significant judgment.
• the potential manipulation of results to achieve Therefore, estimating litigation reserves and
performance targets through management’s contingent liabilities can involve highly
use of estimates and judgments in relation to judgmental estimates.
such projects;
• inappropriate or incorrect accounting for The principal risks include:
percentage of completion, variation orders, • the judgments involved in determining the likely
expected costs to complete, estimated project outcome of legal cases, disputes or
margin and risk contingencies; and investigations results in a risk that those legal
• unrecorded liabilities for warranties, contractual provisions may be incorrect; and
disputes or claims for liquidated damages. • failure to provide on a timely basis for claims
due to lack of understanding or awareness of
We consider these the key judgmental areas the claims.
impacting the recognition of revenue and margins
in respect of long-term contracts. See note 15 to these consolidated financial state-
ments for ABB’s description of Contingencies –
See note 2 to these consolidated financial state- Regulatory, Compliance and Legal.
ments for ABB’s description of the accounting
policy for Revenue Recognition. Our audit response
We assessed judgments and accounting
Our audit response conclusions made by management arising from
We obtained an understanding of the process for violation of legislation, anti-trust laws and other
how management determines the percentage of regulatory risks.
completion, evaluated the design of, and per-
formed tests of controls in this area. We evaluated Our procedures included an evaluation of
the judgments made by management regarding management’s calculations and the related
the expected costs to complete estimate, the tim- underlying assumptions to verify that the relevant
ing and recognition of variation orders, and the risks are reflected in the provisions.
assumptions made in calculating warranty provi-
sions with underlying data. Our procedures included discussions with internal
legal counsel, and we also obtained and
We evaluated management’s assessments around considered legal letters from external legal
the potential for liquidated damages for projects counsel and other supporting documentation.
behind contracted schedule and the contingency
provisions to mitigate contract-specific financial Tax contingency reserves
risks. For those balances subject to claims, we Area of emphasis
made inquiries of external and internal legal The Company operates in multiple jurisdictions
counsel. and is therefore exposed to numerous tax laws
around the world. Risk provisions are held where
We also assessed whether management’s policies it is probable that a liability will materialize either
and processes for making these estimates con- in relation to previous planning strategies or a tax
tinue to be applied consistently to all contracts position taken in relation to submitted returns
of a similar nature. subject to tax audit. The amount of such a
provision and whether it is probable that it will
materialize are both considered to be significant
judgmental areas.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 141

Given the volume and complexity of intracompany The principal risks include:
transactions, including recharges, transfer pricing • the incorrect determination of the reporting
is an area of complexity and judgment that is units and subsequent allocation of goodwill
closely managed by ABB and certain provisions used for impairment assessments; and
are recorded to reflect areas of uncertainty. These • inaccurate factors are used in the qualitative
matters have come under renewed focus with the impairment assessment.
current Base Erosion and Profit Shifting rules of
the OECD. See note 11 to these consolidated financial state-
ments for ABB’s description of Goodwill and other
The principal risks include: intangible assets.
• significant judgments involved in determining
the provision for tax liabilities that can result in Our audit response
misstatement of provisions; and Our procedures included a review of the
• there are ranges of possible transfer prices, qualitative factors used in the assessment
therefore there is a risk of challenge by the tax prepared by management to verify that the
authorities, particularly with the increased relevant risks are addressed. We assessed
focus on tax and multinational businesses. management’s conclusion in regards to the
factors used in the qualitative assessment
See note 16 to these consolidated financial state- method. We also performed audit procedures on
ments for ABB’s description of Taxes. the identification of the goodwill reporting units
and performed an independent sensitivity
Area of emphasis analysis to assess the degree to which
We assessed tax exposures estimated by assumptions used in the last quantitative
management and the risk analysis associated assessment performed in 2016 would need to
with these exposures along with claims or change before an impairment could be triggered.
assessments made by tax authorities to date. We
verified the components of the tax risk provision Illegal act in South Korea
to ensure they reflect the tax risks in the business Area of emphasis
and evaluated the provisions. In February 2017, ABB uncovered criminal activity
in its South Korean subsidiary that was an
We also reviewed documentation in relation to tax adjusting subsequent event for the consolidated
audits to ensure that any exposures the tax financial statements as of December 31, 2016. The
authorities are raising have been considered and Company disclosed these irregularities and the
provided for where necessary. initial results in a press release on February 22,
2017. The Company immediately launched an
We reviewed, with the involvement of transfer investigation in South Korea led by ABB and
pricing specialists, the significant transfer pricing involving independent forensic and legal
policies applied by ABB including the related specialists. The investigation by ABB was ongoing
supporting documentation, and ensured that the throughout 2017 and is now completed. The
tax risk provision considered such risks. controls remediation is in progress.

Goodwill impairment See section “Other income (expense), net” in the

Area of emphasis Company’s analysis of results of operations
The Company reviews the carrying amount of its within the Financial Review of ABB Group in the
reporting units annually or more frequently if im- Company’s annual report.
pairment indicators are present. The current year
impairment assessment was performed using Our audit response
the qualitative assessment method to determine Our audit procedures included, amongst others,
whether it is more likely than not that the fair value understanding the nature of the criminal acts, the
of the reporting unit is less than its carrying circumstances in which the acts occurred, and
amount. This annual impairment test was signifi- understanding of other relevant information to
cant to our audit because the goodwill balance of evaluate the impact on the consolidated financial
USD 11,199 million as of December 31, 2017 is sig- statements. We shadowed the ABB investigation
nificant to the financial statements representing with the support of EY forensic specialists and
26% of the total assets. In addition, we note that discussed on a number of occasions the
management’s assessment process is based on investigation with management and the Finance,
qualitative factors which are assumption based Audit and Compliance Committee (FACC) to
and highly judgmental. evaluate the approach and the corresponding
findings, financial and disclosure consequences
and impact on internal controls. We monitored the
142 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

remediation process of the Company and We recommend that the consolidated financial
performed remediation testing of the impacted statements submitted to you be approved.
controls as well as performed substantive audit
procedures for significant accounts in South We have also audited, in accordance with the
Korea. standards of the PCAOB, the Group’s internal
control over financial reporting as of December
Our audit procedures also included an evaluation 31, 2017, based on criteria established in Internal
of management’s process to ensure that similar Control – Integrated Framework 2013 issued by
control failures could not occur in other the Committee of Sponsoring Organizations of
jurisdictions. We performed our own procedures the Treadway Commission (“COSO”), and our
to verify the results of management’s report dated February 22, 2018 expressed an
assessment. unqualified opinion on the effectiveness of the
Group’s internal control over financial reporting.

Report on other legal and We have served as the Group’s auditor since 1994.
regulatory requirements
Ernst & Young AG
We are a public accounting firm registered with
Leslie Clifford Robin Errico
the Swiss Federal Audit Oversight Authority
Licensed audit expert Licensed audit expert
(FAOA) and the PCAOB and we confirm that we
(Auditor in charge)
meet the legal requirements on licensing
according to the Auditor Oversight Act (AOA).
Zurich, Switzerland
We are independent with respect to the Group in
February 22, 2018
accordance with Swiss law (article 728 CO and
article 11 AOA) and U.S. federal securities laws as
well as the applicable rules and regulations of the
Swiss audit profession, the U.S. Securities and
Exchange Commission and the PCAOB, and we
have fulfilled our other ethical responsibilities in
accordance with these requirements.

In accordance with article 728a para. 1 item 3 CO

and Swiss Auditing Standard 890, we confirm that
an internal control system exists, which has been
designed for the preparation of consolidated
financial statements according to the instructions
of the Board of Directors.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 143

—
Report of the Independent Auditor
on internal control over financial
reporting
assessing the risk that a material weakness
To the Board of Directors and exists, testing and evaluating the design and
Stockholders of ABB Ltd operating effectiveness of internal control based
on the assessed risk, and performing such other
Opinion on Internal Control over Financial procedures as we considered necessary in the
­Reporting circumstances. We believe that our audit provides
We have audited ABB Ltd’s internal control over fi- a reasonable basis for our opinion.
nancial reporting as of December 31, 2017, based
on criteria established in Internal Control – Inte- Definition and Limitations of Internal Control
grated Framework issued by the Committee of over Financial Reporting
Sponsoring Organizations of the Treadway Com- A company’s internal control over financial report-
mission (2013 framework) (the COSO criteria). In ing is a process designed to provide reasonable as-
our opinion, ABB Ltd (the Company) maintained, surance regarding the reliability of financial report-
in all material respects, effective internal control ing and the preparation of financial statements for
over financial reporting as of December 31, 2017, external purposes in accordance with generally ac-
based on the COSO criteria. cepted accounting principles. A company’s internal
control over financial reporting includes those poli-
We also have audited in accordance with Swiss cies and procedures that (1) pertain to the mainte-
law, Swiss auditing Standards and the standards nance of records that, in reasonable detail, accu-
of the Public Company Accounting Oversight rately and fairly reflect the transactions and
Board (United States) (PCAOB), the 2017 consoli- dispositions of the assets of the company; (2) pro-
dated financial statements of ABB Ltd and our re- vide reasonable assurance that transactions are re-
port dated February 22, 2018, which expressed an corded as necessary to permit preparation of fi-
unqualified opinion thereon. nancial statements in accordance with generally
accepted accounting principles, and that receipts
Basis for Opinion and expenditures of the company are being made
The Company’s Board of Directors and manage- only in accordance with authorizations of manage-
ment are responsible for maintaining effective in- ment and directors of the company; and (3) pro-
ternal control over financial reporting and for its vide reasonable assurance regarding prevention or
assessment of the effectiveness of internal con- timely detection of unauthorized acquisition, use,
trol over financial reporting included in the ac- or disposition of the company’s assets that could
companying Report of management on internal have a material effect on the financial statements.
control over financial reporting. Our responsibility
is to express an opinion on the Company’s internal Because of its inherent limitations, internal
control over financial reporting based on our au- control over financial reporting may not prevent
dit. We are a public accounting firm registered or detect misstatements. Also, projections of any
with the PCAOB and are required to be indepen- evaluation of effectiveness to future periods are
dent with respect to the Company in accordance subject to the risk that controls may become
with the U.S. federal securities laws and the appli- inadequate because of changes in conditions, or
cable rules and regulations of the Securities and that the degree of compliance with the policies
Exchange Commission and the PCAOB. or procedures may deteriorate.

We conducted our audit in accordance with the Ernst & Young AG

standards of the PCAOB. Those standards require
Leslie Clifford Robin Errico
that we plan and perform the audit to obtain
Licensed audit expert Licensed audit expert
reasonable assurance about whether effective
(Auditor in charge)
internal control over financial reporting was
maintained in all material respects.
Zurich, Switzerland
February 22, 2018
Our audit included obtaining an understanding of
internal control over financial reporting,
14 4 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Consolidated Income Statements
Year ended December 31 ($ in millions, except per share data in $) 2017 2016 2015
Sales of products 28,133 27,816 29,477
Sales of services and other 6,179 6,012 6,004
Total revenues 34,312 33,828 35,481
Cost of sales of products (20,313) (20,431) (21,694)
Cost of services and other (3,733) (3,650) (3,653)
Total cost of sales (24,046) (24,081) (25,347)
Gross profit 10,266 9,747 10,134
Selling, general and administrative expenses (5,607) (5,349) (5,574)
Non-order related research and development expenses (1,365) (1,300) (1,406)
Other income (expense), net 140 (111) (105)
Income from operations 3,434 2,987 3,049
Interest and dividend income 74 73 77
Interest and other finance expense (277) (261) (286)
Income from continuing operations before taxes 3,231 2,799 2,840
Provision for taxes (860) (781) (788)
Income from continuing operations, net of tax 2,371 2,018 2,052
Income (loss) from discontinued operations, net of tax (6) 16 3
Net income 2,365 2,034 2,055
Net income attributable to noncontrolling interests (152) (135) (122)
Net income attributable to ABB 2,213 1,899 1,933

Amounts attributable to ABB shareholders:

Income from continuing operations, net of tax 2,219 1,883 1,930
Net income 2,213 1,899 1,933

Basic earnings per share attributable to ABB shareholders:

Income from continuing operations, net of tax 1.04 0.88 0.87
Net income 1.04 0.88 0.87

Diluted earnings per share attributable to ABB shareholders:

Income from continuing operations, net of tax 1.03 0.87 0.87
Net income 1.03 0.88 0.87

Weighted-average number of shares outstanding (in millions) used to compute:

Basic earnings per share attributable to ABB shareholders 2,138 2,151 2,226
Diluted earnings per share attributable to ABB shareholders 2,148 2,154 2,230
Due to rounding, numbers presented may not add to the totals provided.

See accompanying Notes to the Consolidated Financial Statements.

A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 145

—
Consolidated Statements
of Comprehensive Income
Year ended December 31 ($ in millions) 2017 2016 2015
Net income 2,365 2,034 2,055

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments:

Foreign currency translation adjustments 912 (481) (1,058)
Changes attributable to divestments 12 7 —
Foreign currency translation adjustments 924 (474) (1,058)

Available-for-sale securities:
Net unrealized gains (losses) arising during the year 1 — (7)
Reclassification adjustments for net (gains) losses included in net income — — 1
Unrealized gains (losses) on available-for-sale securities 1 — (6)

Pension and other postretirement plans:

Prior service (costs) credits arising during the year (16) (40) 88
Net actuarial gains (losses) arising during the year (139) 44 210
Amortization of prior service cost included in net income 6 26 26
Amortization of net actuarial loss included in net income 63 62 82
Net losses from pension settlements included in net income 9 26 9
Changes attributable to divestments 6 — —
Pension and other postretirement plan adjustments (71) 118 415

Cash flow hedge derivatives:

Net unrealized gains (losses) arising during the year 38 16 (20)
Reclassification adjustments for net (gains) losses included in net income (22) (6) 30
Changes attributable to divestments (3) — —
Unrealized gains (losses) of cash flow hedge derivatives 13 10 10

Total other comprehensive income (loss), net of tax 867 (346) (639)

Total comprehensive income, net of tax 3,232 1,688 1,416

Comprehensive income attributable to noncontrolling interests, net of tax (177) (118) (100)
Total comprehensive income, net of tax, attributable to ABB 3,055 1,570 1,316
Due to rounding, numbers presented may not add to the totals provided.

See accompanying Notes to the Consolidated Financial Statements.

146 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Consolidated Balance Sheets
December 31 ($ in millions, except share data) 2017 2016
Cash and equivalents 4,526 3,644
Marketable securities and short-term investments 1,102 1,953
Receivables, net 10,416 9,696
Inventories, net 5,059 4,347
Prepaid expenses 189 176
Other current assets 647 688
Assets held for sale — 548
Total current assets 21,939 21,052

Property, plant and equipment, net 5,363 4,743

Goodwill 11,199 9,501
Other intangible assets, net 2,622 1,996
Prepaid pension and other employee benefits 144 90
Investments in equity-accounted companies 158 170
Deferred taxes 1,250 1,118
Other non-current assets 587 532
Total assets 43,262 39,202

Accounts payable, trade 5,419 4,446

Billings in excess of sales 1,251 1,241
Short-term debt and current maturities of long-term debt 738 1,003
Advances from customers 1,367 1,398
Provisions for warranties 1,231 1,142
Other provisions 1,882 1,765
Other current liabilities 4,385 3,936
Liabilities held for sale — 218
Total current liabilities 16,273 15,149

Long-term debt 6,709 5,800

Pension and other employee benefits 1,882 1,834
Deferred taxes 1,099 918
Other non-current liabilities 1,950 1,604
Total liabilities 27,913 25,305

Commitments and contingencies

Stockholders’ equity:
Common stock, CHF 0.12 par value
(2,168,148,264 and 2,214,743,264 issued shares at December 31, 2017 and 2016, respectively) 188 192
Additional paid-in capital 29 24
Retained earnings 19,594 19,925
Accumulated other comprehensive loss (4,345) (5,187)
Treasury stock, at cost
(29,541,775 and 76,036,429 shares at December 31, 2017 and 2016, respectively) (647) (1,559)
Total ABB stockholders’ equity 14,819 13,395
Noncontrolling interests 530 502
Total stockholders’ equity 15,349 13,897
Total liabilities and stockholders’ equity 43,262 39,202
Due to rounding, numbers presented may not add to the totals provided.

See accompanying Notes to the Consolidated Financial Statements.

A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 147

—
Consolidated Statements
of Cash Flows
Year ended December 31 ($ in millions) 2017 2016 2015

Operating activities:
Net income 2,365 2,034 2,055
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,101 1,135 1,160
Deferred taxes (205) (147) (219)
Net loss from derivatives and foreign exchange  39 10 15
Net gain from sale of property, plant and equipment (36) (38) (26)
Net loss (gain) from sale of businesses (252) 10 20
Share-based payment arrangements 58 54 61
Other 11 112 94
Changes in operating assets and liabilities:
Trade receivables, net (80) 10 162
Inventories, net (55) 115 105
Trade payables 599 340 (112)
Accrued liabilities 112 80 (24)
Billings in excess of sales (27) (25) 35
Provisions, net 30 14 330
Advances from customers (120) (163) 106
Income taxes payable and receivable 196 125 (32)
Other assets and liabilities, net 63 177 88
Net cash provided by operating activities 3,799 3,843 3,818

Investing activities:
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)

Financing activities:
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)

Effects of exchange rate changes on cash and equivalents 268 (104) (342)
Net change in cash and equivalents — continuing operations 882 (921) (878)

Cash and equivalents, beginning of period 3,644 4,565 5,443

Cash and equivalents, end of period 4,526 3,644 4,565

Supplementary disclosure of cash flow information:

Interest paid 205 213 221
Taxes paid 894 814 1,043
Due to rounding, numbers presented may not add to the totals provided.

See accompanying Notes to the Consolidated Financial Statements.

148 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Consolidated Statements of
Changes in Stockholders’ Equity
Common Additional
Years ended December 31, 2017, 2016 and 2015 ($ in millions) stock paid-in capital
Balance at January 1, 2015 1,725 52
Comprehensive income:
Net income
Foreign currency translation adjustments, net of tax
Effect of change in fair value of available-for-sale securities, net of tax
Unrecognized income (expense) related to pensions and other postretirement plans, net of tax
Change in derivatives qualifying as cash flow hedges, net of tax
Total comprehensive income
Changes in noncontrolling interests (30)
Dividends to noncontrolling shareholders
Dividends paid to shareholders
Share-based payment arrangements 61
Reduction in nominal value of common shares paid to shareholders (285) (64)
Purchase of treasury stock
Delivery of shares (19)
Call options 4
Balance at December 31, 2015 1,440 4
Comprehensive income:
Net income
Foreign currency translation adjustments, net of tax
Effect of change in fair value of available-for-sale securities, net of tax
Unrecognized income (expense) related to pensions and other postretirement plans, net of tax
Change in derivatives qualifying as cash flow hedges, net of tax
Total comprehensive income
Changes in noncontrolling interests
Dividends to noncontrolling shareholders
Share-based payment arrangements 54
Reduction in nominal value of common shares paid to shareholders (1,239) 15
Cancellation of treasury shares (9) (31)
Purchase of treasury stock
Delivery of shares (22)
Call options 4
Balance at December 31, 2016 192 24
Comprehensive income:
Net income
Foreign currency translation adjustments, net of tax
Effect of change in fair value of available-for-sale securities, net of tax
Unrecognized income (expense) related to pensions and other postretirement plans, net of tax
Change in derivatives qualifying as cash flow hedges, net of tax
Total comprehensive income
Changes in noncontrolling interests 17
Dividends to noncontrolling shareholders
Dividends paid to shareholders
Share-based payment arrangements 58
Cancellation of treasury shares (4) (27)
Purchase of treasury stock
Delivery of shares (46)
Call options 4
Balance at December 31, 2017 188 29
Due to rounding, numbers presented may not add to the totals provided.

See accompanying Notes to the Consolidated Financial Statements.

 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 149

Retained Accumulated other Treasury Total ABB Noncontrolling Total stockholders’

earnings comprehensive loss stock stockholders’ equity interests equity
19,939 (4,241) (1,206) 16,269 546 16,815

1,933 1,933 122 2,055

(1,033) (1,033) (25) (1,058)
(6) (6) (6)
412 412 3 415
10 10 10
1,316 100 1,416
(25) (55) (2) (57)
— (137) (137)
(1,317) (1,317) (1,317)
61 61
(54) (403) (403)
(1,501) (1,501) (1,501)
126 107 107
4 4
20,476 (4,858) (2,581) 14,481 507 14,988

1,899 1,899 135 2,034

(457) (457) (17) (474)
— — —
118 118 118
10 10 10
1,570 118 1,688
— (1) (1)
— (122) (122)
54 54
(402) (1,626) (1,626)
(2,007) 2,047 — —
(1,280) (1,280) (1,280)
(41) 255 192 192
4 4
19,925 (5,187) (1,559) 13,395 502 13,897

2,213 2,213 152 2,365

899 899 25 924
1 1 1
(71) (71) (71)
13 13 13
3,055 177 3,232
17 (14) 3
— (134) (134)
(1,622) (1,622) (1,622)
58 58
(922) 953 — —
(251) (251) (251)
209 163 163
4 4
19,594 (4,345) (647) 14,819 530 15,349
150 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Notes to the Consolidated
Financial Statements
—
Note 1
The Company
ABB Ltd and its subsidiaries (collectively, the Company) together form a pioneering technology leader
in electrification products, robotics and motion, industrial automation and power grids, serving
customers in utilities, industry and transport & infrastructure globally.

—
Note 2
Significant accounting policies
The following is a summary of significant accounting policies followed in the preparation of these
Consolidated Financial Statements.

Basis of presentation
The Consolidated Financial Statements are prepared in accordance with United States of America
(United States or U.S.) generally accepted accounting principles (U.S. GAAP) and are presented in United
States dollars ($ or USD) unless otherwise stated. Due to rounding, numbers presented may not add to
the totals provided. The par value of capital stock is denominated in Swiss francs.

Reclassifications
Certain amounts reported for prior years in the Consolidated Financial Statements and the
accompanying Notes 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 23) and
to the reclassification and netting of deferred tax assets and liabilities as a result of the adoption of an
accounting standard update on the classification of deferred taxes (see “New accounting
pronouncements – Applicable for current period” below).

Scope of consolidation
The Consolidated Financial Statements include the accounts of ABB Ltd and companies which are
directly or indirectly controlled by ABB Ltd. Additionally, the Company consolidates variable interest
entities if it has determined that it is the primary beneficiary. Intercompany accounts and transactions
are eliminated. Investments in joint ventures and affiliated companies in which the Company has the
ability to exercise significant influence over operating and financial policies (generally through direct or
indirect ownership of 20 percent to 50 percent of the voting rights), are recorded in the Consolidated
Financial Statements using the equity method of accounting.

Operating cycle
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, inventories and provisions related to these contracts which will not be
realized within one year that have been classified as current.

Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make
assumptions and estimates that directly affect the amounts reported in the Consolidated Financial
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 151

Statements and the accompanying Notes. The most significant, difficult and subjective of such
accounting assumptions and estimates include:
• 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,
• assumptions used in determining inventory obsolescence and net realizable value,
• estimates and assumptions used in determining the fair values of assets and liabilities assumed in
business combinations, and
• assessment of the allowance for doubtful accounts.

The actual results and outcomes may differ from the Company’s estimates and assumptions.

Cash and equivalents

Cash and equivalents include highly liquid investments with maturities of three months or less at the
date of acquisition.

Currency and other local regulatory limitations related to the transfer of funds exist in a number of
countries where the Company operates. Funds, other than regular dividends, fees or loan repayments,
cannot be readily transferred abroad from these countries and are therefore deposited and used for
working capital needs locally. These funds are included in cash and equivalents as they are not
considered restricted.

Marketable securities and short-term investments

Management determines the appropriate classification of held-to-maturity and available-for-sale
securities at the time of purchase. At each reporting date, the appropriateness of the classification of
the Company’s investments in debt and equity securities is reassessed. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost, adjusted for accretion of discounts
or amortization of premiums to maturity computed under the effective interest method. Such accretion
or amortization is included in “Interest and dividend income”. Marketable debt securities not classified
as held-to-maturity and equity securities that have readily determinable fair values are classified as
available-for-sale and reported at fair value.

Unrealized gains and losses on available-for-sale securities are excluded from the determination of
earnings and are instead recognized in the “Accumulated other comprehensive loss” component of
stockholders’ equity, net of tax, until realized. Realized gains and losses on available-for-sale securities are
computed based upon the historical cost of these securities, using the specific identification method.

Marketable debt securities are generally classified as either “Cash and equivalents” or “Marketable
securities and short-term investments” according to their maturity at the time of acquisition.

Marketable equity securities are generally classified as “Marketable securities and short-term
investments”, however any marketable securities held as a long-term investment rather than as an
investment of excess liquidity, are classified as “Other non-current assets”.

The Company performs a periodic review of its debt and equity securities to determine whether an
other-than-temporary impairment has occurred. Generally, when an individual security has been in an
unrealized loss position for an extended period of time, the Company evaluates whether an impairment
has occurred. The evaluation is based on specific facts and circumstances at the time of assessment, which
include general market conditions, and the duration and extent to which the fair value is below cost.
152 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

If the fair value of a debt security is less than its amortized cost, then an other-than-temporary
impairment for the difference is recognized if (i) the Company has the intent to sell the security, (ii) it
is more likely than not that the Company will be required to sell the security before recovery of its
amortized cost base or (iii) a credit loss exists insofar as the Company does not expect to recover the
entire recognized amortized cost of the security. Such impairment charges are generally recognized in
“Interest and other finance expense”. If the impairment is due to factors other than credit losses, and
the Company does not intend to sell the security and it is not more likely than not that it will be required
to sell the security before recovery of the security’s amortized cost, such impairment charges are
recorded in “Accumulated other comprehensive loss”.

In addition, for equity securities, the Company assesses whether the cost value will recover within the
near-term and whether the Company has the intent and ability to hold that equity security until such
recovery occurs. If an other-than-temporary impairment is identified, the security is written down to its
fair value and the related losses are recognized in “Interest and other finance expense”, unless the
impairment relates to equity securities classified as “Other non-current assets”, in which case the
impairment is reported in “Other income (expense), net”.

Accounts receivable and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount. The Company has a group-wide policy on the
management of credit risk. The policy includes a credit assessment methodology to assess the
creditworthiness of customers and assign to those customers a risk category. Third-party agencies’
ratings are considered, if available. For customers where agency ratings are not available, the
customer’s most recent financial statements, payment history and other relevant information are
considered in the assignment to a risk category. Customers are assessed at least annually or more
frequently when information on significant changes in the customers’ financial position becomes
known. In addition to the assignment to a risk category, a credit limit per customer is set.

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit
losses in existing accounts receivable. The Company determines the allowance based on historical
write-off experience and customer specific data. If an amount has not been settled within its
contractual payment term then it is considered past due. The Company reviews the allowance for
doubtful accounts regularly and past due balances are reviewed for collectability. Account balances are
charged off against the related allowance when the Company believes that the amount will not be
recovered.

The Company, in its normal course of business, transfers receivables to third parties, generally
without recourse. The transfer is accounted for as a sale when the Company has surrendered control
over the receivables. Control is deemed to have been surrendered when (i) the transferred receivables
have been put presumptively beyond the reach of the Company and its creditors, even in bankruptcy
or other receivership, (ii) the third‑party transferees have the right to pledge or exchange the
transferred receivables, and (iii) the Company has relinquished effective control over the transferred
receivables and does not retain the ability or obligation to repurchase or redeem the transferred
receivables. At the time of sale, the sold receivables are removed from the Consolidated Balance
Sheets and the related cash inflows are classified as operating activities in the Consolidated
Statements of Cash Flows. Costs associated with the sale of receivables, including the related gains
and losses from the sales, are included in “Interest and other finance expense”. Transfers of
receivables that do not meet the requirements for treatment as sales are accounted for as secured
borrowings and the related cash flows are classified as financing activities in the Consolidated
Statements of Cash Flows.

Concentrations of credit risk

The Company sells a broad range of products, systems, services and software to a wide range of
industrial, commercial and utility customers as well as various government agencies and
quasi‑governmental agencies throughout the world. Concentrations of credit risk with respect to
accounts receivable are limited, as the Company’s customer base is comprised of a large number of
individual customers. Ongoing credit evaluations of customers’ financial positions are performed to
determine whether the use of credit support instruments such as guarantees, letters of credit or credit
insurance are necessary; collateral is not generally required. The Company maintains reserves for
potential credit losses as discussed above in “Accounts receivable and allowance for doubtful accounts”.
Such losses, in the aggregate, are in line with the Company’s expectations.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 153

It is the Company’s policy to invest cash in deposits with banks throughout the world with certain
minimum credit ratings and in high quality, low risk, liquid investments. The Company actively manages
its credit risk by routinely reviewing the creditworthiness of the banks and the investments held. The
Company has not incurred significant credit losses related to such investments.

The Company’s exposure to credit risk on derivative financial instruments is the risk that the counterparty
will fail to meet its obligations. To reduce this risk, the Company has credit policies that require the
establishment and periodic review of credit limits for individual counterparties. In addition, the Company
has entered into close‑out netting agreements with most derivative counterparties. 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.
In the Consolidated Financial Statements derivative transactions are presented on a gross basis.

Revenue recognition
The Company generally recognizes revenues for the sale of goods when persuasive evidence of an
arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is
reasonably assured. With regards to the sale of products, delivery is not considered to have occurred,
and therefore no revenues are recognized, until the customer has taken title to the products and
assumed the risks and rewards of ownership of the products specified in the purchase order or sales
agreement. Generally, the transfer of title and risks and rewards of ownership are governed by the
contractually defined shipping terms. The Company uses various International Commercial shipping
terms (as promulgated by the International Chamber of Commerce) in its sales of products to
third‑party customers, such as Ex Works (EXW), Free Carrier (FCA) and Delivered Duty Paid (DDP).
Subsequent to delivery of the products, the Company generally has no further contractual performance
obligations that would preclude revenue recognition.

Revenues under long‑term construction‑type contracts are generally recognized using the
percentage‑of‑completion method of accounting. The Company principally uses the cost‑to‑cost
method to measure progress towards completion on contracts. Under this method, progress of
contracts is measured by actual costs incurred in relation to the Company’s best estimate of total
estimated costs, which are reviewed and updated routinely for contracts in progress. The cumulative
effect of any change in estimate is recorded in the period when the change in estimate is determined.

Short‑term construction‑type contracts, or long‑term construction‑type contracts for which reasonably

dependable estimates cannot be made or for which inherent hazards make estimates difficult, are
accounted for under the completed‑contract method. Revenues under the completed‑contract method
are recognized upon substantial completion – that is: acceptance by the customer, compliance with
performance specifications demonstrated in a factory acceptance test or similar event.

For non construction‑type contracts that contain customer acceptance provisions, revenue is deferred
until customer acceptance occurs or the Company has demonstrated the customer‑specified objective
criteria have been met or the contractual acceptance period has lapsed.

Revenues from service transactions are recognized as services are performed. For long‑term service
contracts, revenues are recognized on a straight‑line basis over the term of the contract or, if the
performance pattern is other than straight‑line, as the services are provided. Service revenues reflect
revenues earned from the Company’s activities in providing services to customers primarily subsequent
to the sale and delivery of a product or complete system. Such revenues consist of maintenance‑type
contracts, field service activities that include personnel and accompanying spare parts, and installation
and commissioning of products as a stand‑alone service or as part of a service contract.

Revenues for software license fees are recognized when persuasive evidence of a non‑cancelable license
agreement exists, delivery has occurred, the license fee is fixed or determinable, and collection is
probable. In software arrangements that include rights to multiple software products and/or services,
the total arrangement fee is allocated using the residual method. Under this method, revenue is
allocated to the undelivered elements based on vendor‑specific objective evidence (VSOE) of the fair
value of such undelivered elements and the residual amounts of revenue are allocated to the delivered
elements. Elements included in multiple element arrangements may consist of software licenses,
maintenance (which includes customer support services and unspecified upgrades), hosting, and
consulting services. VSOE is based on the price generally charged when an element is sold separately or,
in the case of an element not yet sold separately, the price established by management, if it is probable
154 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

that the price, once established, will not change once the element is sold separately. If VSOE does not
exist for an undelivered element, the total arrangement fee will be recognized as revenue over the life of
the contract or upon delivery of the undelivered element.

The Company offers multiple element arrangements to meet its customers’ needs. These arrangements
may involve the delivery of multiple products and/or performance of services (such as installation and
training) and the delivery and/or performance may occur at different points in time or over different
periods of time. Deliverables of such multiple element arrangements are evaluated to determine the unit
of accounting and if certain criteria are met, the Company allocates revenues to each unit of accounting
based on its relative selling price. A hierarchy of selling prices is used to determine the selling price of
each specific deliverable that includes VSOE (if available), third‑party evidence (if VSOE is not available), or
estimated selling price if neither of the first two is available. The estimated selling price reflects the
Company’s best estimate of what the selling prices of elements would be if the elements were sold on a
stand‑alone basis. Revenue is allocated between the elements of an arrangement at the inception of the
arrangement. Such arrangements generally include industry‑specific performance and termination
provisions, such as in the event of substantial delays or non‑delivery.

Revenues are reported net of customer rebates and similar incentives. Taxes assessed by a governmental
authority that are directly imposed on revenue‑producing transactions between the Company and its
customers, such as sales, use, value‑added and some excise taxes, are excluded from revenues.

Contract loss provisions

Losses on contracts are recognized in the period when they are identified and are based upon the
anticipated excess of contract costs over the related contract revenues.

Shipping and handling costs

Shipping and handling costs are recorded as a component of cost of sales.

Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first‑in,
first‑out method, the weighted‑average cost method, or in certain circumstances (for example, where
the completed‑contract method of revenue recognition is used) the specific identification method.
Inventoried costs are stated at acquisition cost or actual production cost, including direct material and
labor and applicable manufacturing overheads. Adjustments to reduce the cost of inventory to its net
realizable value are made, if required, for decreases in sales prices, obsolescence or similar reductions
in value.

Impairment of long‑lived assets

Long‑lived assets that are held and used are assessed for impairment when events or circumstances
indicate that the carrying amount of the asset may not be recoverable. If the asset’s net carrying value
exceeds the asset’s net undiscounted cash flows expected to be generated over its remaining useful life
including net proceeds expected from disposition of the asset, if any, the carrying amount of the asset
is reduced to its estimated fair value. The estimated fair value is determined using a market, income
and/or cost approach.

Property, plant and equipment

Property, plant and equipment is stated at cost, less accumulated depreciation and is depreciated using
the straight‑line method. The estimated useful lives of the assets are generally as follows:
• factories and office buildings: 30 to 40 years,
• other facilities: 15 years,
• machinery and equipment: 3 to 15 years,
• furniture and office equipment: 3 to 8 years, and
• leasehold improvements are depreciated over their estimated useful life or, for operating leases, over
the lease term, if shorter.

Goodwill and other intangible assets

Goodwill is reviewed for impairment annually as of October 1, or more frequently if events or
circumstances indicate that the carrying value may not be recoverable.

Goodwill is evaluated for impairment at the reporting unit level. A reporting unit is an operating
segment or one level below an operating segment. For the annual impairment review in 2017, the
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 155

reporting units were the same as the operating segments for Electrification Products, Robotics and
Motion and Power Grids, while for the Industrial Automation operating segment, the reporting units
were determined to be one level below the operating segment.

When evaluating goodwill for impairment, the Company uses either a qualitative or quantitative
assessment method for each reporting unit. The qualitative assessment involves determining, based on
an evaluation of qualitative factors, if it is more likely than not that the fair value of a reporting unit is
less than its carrying value. If, based on this qualitative assessment, it is determined to be more likely
than not that the reporting unit’s fair value is less than its carrying value, a quantitative impairment test
(described below) is performed, otherwise no further analysis is required. If the Company elects not to
perform the qualitative assessment for a reporting unit, then a quantitative impairment test is
performed.

The quantitative impairment test calculates the fair value of a reporting unit (based on the income
approach whereby the fair value of a reporting unit is calculated based on the present value of future
cash flows) and compares it to the reporting unit’s carrying value. If the carrying value of the net assets
of a reporting unit exceeds the fair value of the reporting unit then the Company records an impairment
charge equal to the difference, provided that the loss recognized does not exceed the total amount of
goodwill allocated to that reporting unit.

The cost of acquired intangible assets with a finite life is amortized using a method of amortization
that reflects the pattern of intangible assets’ expected contributions to future cash flows. If that
pattern cannot be reliably determined, the straight‑line method is used. The amortization periods range
from 3 to 5 years for software and from 5 to 20 years for customer-, technology- and marketing‑related
intangibles. Intangible assets with a finite life are tested for impairment upon the occurrence of certain
triggering events.

Capitalized software costs

Software for internal use
Costs incurred in the application development stage until the software is substantially complete are
capitalized and are amortized on a straight‑line basis over the estimated useful life of the software,
typically ranging from 3 to 5 years.

Derivative financial instruments and hedging activities

The Company uses derivative financial instruments to manage currency, commodity, interest rate and
equity exposures, arising from its global operating, financing and investing activities (see Note 5).

The Company recognizes all derivatives, other than certain derivatives indexed to the Company’s own
stock, at fair value in the Consolidated Balance Sheets. Derivatives that are not designated as hedging
instruments are reported at fair value with derivative gains and losses reported through earnings and
classified consistent with the nature of the underlying transaction.

If the derivatives are designated as a hedge, depending on the nature of the hedge, changes in the fair
value of the derivatives will either be offset against the change in fair value of the hedged item
attributable to the risk being hedged through earnings (in the case of a fair value hedge) or recognized
in “Accumulated other comprehensive loss” until the hedged item is recognized in earnings (in the case
of a cash flow hedge). The ineffective portion of a derivative’s change in fair value is immediately
recognized in earnings consistent with the classification of the hedged item. Where derivative financial
instruments have been designated as cash flow hedges of forecasted transactions and such forecasted
transactions are no longer probable of occurring, hedge accounting is discontinued and any derivative
gain or loss previously included in “Accumulated other comprehensive loss” is reclassified into earnings
consistent with the nature of the original forecasted transaction. Gains or losses from derivatives
designated as hedging instruments in a fair value hedge are reported through earnings and classified
consistent with the nature of the underlying hedged transaction.

Certain commercial contracts may grant rights to the Company or the counterparties, or contain other
provisions that are considered to be derivatives. Such embedded derivatives are assessed at inception
of the contract and depending on their characteristics, accounted for as separate derivative
instruments and shown at their fair value in the balance sheet with changes in their fair value reported
in earnings consistent with the nature of the commercial contract to which they relate.
156 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Derivatives are classified in the Consolidated Statements of Cash Flows in the same section as the
underlying item. Cash flows from the settlement of undesignated derivatives used to manage the risks
of different underlying items on a net basis, are classified within “Net cash provided by operating
activities”, as the underlying items are primarily operational in nature. Other cash flows on the
settlement of derivatives are recorded within “Net cash used in investing activities”.

Leases
The Company leases primarily real estate, vehicles and office equipment. Rental expense for operating
leases is recorded on a straight‑line basis over the life of the lease term. Lease transactions where
substantially all risks and rewards incident to ownership are transferred from the lessor to the lessee
are accounted for as capital leases. All other leases are accounted for as operating leases. Amounts due
under capital leases are recorded as a liability. The interest in assets acquired under capital leases is
recorded as property, plant and equipment. Depreciation and amortization of assets recorded under
capital leases is included in depreciation and amortization expense.

Translation of foreign currencies and foreign exchange transactions

The functional currency for most of the Company’s subsidiaries is the applicable local currency. The
translation from the applicable functional currencies into the Company’s reporting currency is
performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for
income statement accounts using average exchange rates prevailing during the year. The resulting
translation adjustments are excluded from the determination of earnings and are recognized in
“Accumulated other comprehensive loss” until the subsidiary is sold, substantially liquidated or
evaluated for impairment in anticipation of disposal.

Foreign currency exchange gains and losses, such as those resulting from foreign currency
denominated receivables or payables, are included in the determination of earnings, except as they
relate to intercompany loans that are equity‑like in nature with no reasonable expectation of repayment,
which are recognized in “Accumulated other comprehensive loss”. Exchange gains and losses recognized
in earnings are included in “Total revenues”, “Total cost of sales”, “Selling, general and administrative
expenses” or “Interest and other finance expense” consistent with the nature of the underlying item.

Income taxes
The Company uses the asset and liability method to account for deferred taxes. Under this method,
deferred tax assets and liabilities are determined based on temporary differences between the financial
reporting and the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using
enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
The Company records a deferred tax asset when it determines that it is more likely than not that the
deduction will be sustained based upon the deduction’s technical merit. Deferred tax assets and liabilities
that can be offset against each other are reported on a net basis. A valuation allowance is recorded to
reduce deferred tax assets to the amount that is more likely than not to be realized.

Deferred taxes are provided on unredeemed retained earnings of the Company’s subsidiaries. However,
deferred taxes are not provided on such unredeemed retained earnings to the extent it is expected that
the earnings are permanently reinvested. Such earnings may become taxable upon the sale or
liquidation of these subsidiaries or upon the remittance of dividends.

The Company operates in numerous tax jurisdictions and, as a result, is regularly subject to audit by tax
authorities. The Company provides for tax contingencies whenever it is deemed more likely than not
that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or
changes in tax laws. Contingency provisions are recorded based on the technical merits of the
Company’s filing position, considering the applicable tax laws and Organisation for Economic
Co‑operation and Development (OECD) guidelines and are based on its evaluations of the facts and
circumstances as of the end of each reporting period.

The Company applies a two‑step approach to recognize and measure uncertainty in income taxes. The
first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step is to measure the tax
benefit as the largest amount which is more than 50 percent likely of being realized upon ultimate
settlement. Uncertain tax positions that could be settled against existing loss carryforwards or income
tax credits are reported net.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 157

The expense related to tax penalties is classified in the Consolidated Income Statements as “Provision
for taxes”, while interest thereon is classified as “Interest and other finance expense”.

Research and development

Research and development costs not related to specific customer orders are generally expensed as incurred.

Earnings per share

Basic earnings per share is calculated by dividing income by the weighted‑average number of shares
outstanding during the year. Diluted earnings per share is calculated by dividing income by the
weighted‑average number of shares outstanding during the year, assuming that all potentially dilutive
securities were exercised, if dilutive. Potentially dilutive securities include: outstanding written call
options, outstanding options and shares granted subject to certain conditions under the Company’s
share‑based payment arrangements. See further discussion related to earnings per share in Note 20
and of potentially dilutive securities in Note 18.

Share‑based payment arrangements

The Company has various share‑based payment arrangements for its employees, which are described
more fully in Note 18. Such arrangements are accounted for under the fair value method. For awards
that are equity‑settled, total compensation is measured at grant date, based on the fair value of the
award at that date, and recorded in earnings over the period the employees are required to render
service. For awards that are cash‑settled, compensation is initially measured at grant date and
subsequently remeasured at each reporting period, based on the fair value and vesting percentage of
the award at each of those dates, with changes in the liability recorded in earnings.

Fair value measures

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 reliability of those inputs. The Company has categorized its financial assets
and liabilities and non‑financial assets measured at fair value within this hierarchy based on whether
the inputs to the valuation technique are observable or unobservable. An observable input is based on
market data obtained from independent sources, while an unobservable input reflects the Company’s
assumptions about market data.

The levels of the fair value hierarchy are as follows:

Level 1:
Valuation inputs consist of quoted prices in an active market for identical assets or liabilities
(observable quoted prices). Assets and liabilities valued using Level 1 inputs include exchange‑traded
equity securities, listed derivatives which are actively traded such as commodity futures, interest rate
futures and certain actively traded debt securities.

Level 2:
Valuation inputs consist of observable inputs (other than Level 1 inputs) such as actively quoted
prices for similar assets, quoted prices in inactive markets and inputs other than quoted prices such
as interest rate yield curves, credit spreads, or inputs derived from other observable data by
interpolation, correlation, regression or other means. The adjustments applied to quoted prices or
the inputs used in valuation models may be both observable and unobservable. In these cases, the
fair value measurement is classified as Level 2 unless the unobservable portion of the adjustment or
158 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

the unobservable input to the valuation model is significant, in which case the fair value
measurement would be classified as Level 3. Assets and liabilities valued or disclosed using Level 2
inputs include investments in certain funds, reverse repurchase agreements, certain debt securities
that are not actively traded, interest rate swaps, commodity swaps, cash‑settled call options,
forward foreign exchange contracts, foreign exchange swaps and 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 (MIP), 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.

Disclosures about the Company’s fair value measurements of assets and liabilities are included in Note 6.

Contingencies
The Company is subject to proceedings, litigation or threatened litigation and other claims and
inquiries, related to environmental, labor, product, regulatory, tax (other than income tax) and other
matters, and is required to assess the likelihood of any adverse judgments or outcomes to these
matters, as well as potential ranges of probable losses. A determination of the provision required, if any,
for these contingencies is made after analysis of each individual issue, often with assistance from both
internal and external legal counsel and technical experts. The required amount of a provision for a
contingency of any type may change in the future due to new developments in the particular matter,
including changes in the approach to its resolution.

The Company records a provision for its contingent obligations when it is probable that a loss will be
incurred and the amount can be reasonably estimated. Any such provision is generally recognized on an
undiscounted basis using the Company’s best estimate of the amount of loss incurred or at the lower end
of an estimated range when a single best estimate is not determinable. In some cases, the Company may
be able to recover a portion of the costs relating to these obligations from insurers or other third parties;
however, the Company records such amounts only when it is probable that they will be collected.

The Company provides for anticipated costs for warranties when it recognizes revenues on the related
products or contracts. Warranty costs include calculated costs arising from imperfections in design,
material and workmanship in the Company’s products. The Company makes individual assessments on
contracts with risks resulting from order‑specific conditions or guarantees and assessments on an
overall, statistical basis for similar products sold in larger quantities.

The Company may have legal obligations to perform environmental clean‑up activities related to land
and buildings as a result of the normal operations of its business. In some cases, the timing or the
method of settlement, or both, are conditional upon a future event that may or may not be within the
control of the Company, but the underlying obligation itself is unconditional and certain. The Company
recognizes a provision for these obligations when it is probable that a liability for the clean‑up activity
has been incurred and a reasonable estimate of its fair value can be made. In some cases, a portion of
the costs expected to be incurred to settle these matters may be recoverable. An asset is recorded
when it is probable that such amounts are recoverable. Provisions for environmental obligations are not
discounted to their present value when the timing of payments cannot be reasonably estimated.

Pensions and other postretirement benefits

The Company has a number of defined benefit pension and other postretirement plans. The Company
recognizes an asset for such a plan’s overfunded status or a liability for such a plan’s underfunded
status in its Consolidated Balance Sheets. Additionally, the Company measures such a plan’s assets and
obligations that determine its funded status as of the end of the year and recognizes the changes in the
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 159

funded status in the year in which the changes occur. Those changes are reported in “Accumulated other
comprehensive loss”.

The Company uses actuarial valuations to determine its pension and postretirement benefit costs and
credits. The amounts calculated depend on a variety of key assumptions, including discount rates and
expected return on plan assets. Current market conditions are considered in selecting these assumptions.

The Company’s various pension plan assets are assigned to their respective levels in the fair value
hierarchy in accordance with the valuation principles described in the “Fair value measures” section
above.

See Note 17 for further discussion of the Company’s employee benefit plans.

Business combinations
The Company accounts for assets acquired and liabilities assumed in business combinations using the
acquisition method and records these at their respective fair values. Contingent consideration is recorded
at fair value as an element of purchase price with subsequent adjustments recognized in income.

Identifiable intangibles consist of intellectual property such as trademarks and trade names, customer
relationships, patented and unpatented technology, in‑process research and development, order
backlog and capitalized software; these are amortized over their estimated useful lives. Such
intangibles are subsequently subject to evaluation for potential impairment if events or circumstances
indicate the carrying amount may not be recoverable. See “Goodwill and other intangible assets” above.
Acquisition‑related costs are recognized separately from the acquisition and expensed as incurred.
Upon gaining control of an entity in which an equity method or cost basis investment was held by the
Company, the carrying value of that investment is adjusted to fair value with the related gain or loss
recorded in income. Deferred tax assets and liabilities based on temporary differences between the
financial reporting and the tax base of assets and liabilities as well as uncertain tax positions and
valuation allowances on acquired deferred tax assets assumed in connection with a business
combination are initially estimated as of the acquisition date based on facts and circumstances that
existed at the acquisition date. These estimates are subject to change within the measurement period
(a period of up to 12 months after the acquisition date during which the acquirer may adjust the
provisional acquisition amounts) with any adjustments to the preliminary estimates being recorded to
goodwill. Changes in deferred taxes, uncertain tax positions and valuation allowances on acquired
deferred tax assets that occur after the measurement period are recognized in income.

New accounting pronouncements

Applicable for current period
Balance sheet classification of deferred taxes
As of January 1, 2017, the Company adopted an accounting standard update removing the requirement
to separate deferred tax liabilities and assets into current and noncurrent amounts and instead
requiring all such amounts, as well as any related valuation allowance, to be classified as noncurrent in
the consolidated balance sheets. This update was applied retrospectively and resulted in a decrease of
$297 million in both the total deferred tax assets and total deferred tax liabilities at December 31, 2016,
due to additional netting impacts.

Simplifying the transition to the equity method of accounting

As of January 1, 2017, the Company adopted an accounting standard update eliminating the retroactive
adjustments to an investment upon it qualifying for the equity method of accounting as a result of an
increase in the level of ownership interest or degree of influence by the investor. It requires that the
equity method investor add the cost of acquiring the additional interest in the investee to the current
basis of the investor’s previously held interest and adopt the equity method of accounting as of the
date the investment qualifies for equity method accounting. This update was applied prospectively and
did not have a significant impact on the consolidated financial statements.

Improvements to employee share‑based payment accounting

As of January 1, 2017, the Company adopted an accounting standard update which changed the
accounting for certain aspects of share‑based payment awards to employees, including the accounting
for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification
in the statement of cash flows. This update did not have a significant impact on the consolidated
financial statements.
160 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Simplifying the test for goodwill impairment

As of January 1, 2017, the Company early‑adopted an accounting standard update eliminating the
requirement to calculate the implied fair value of goodwill when measuring a goodwill impairment loss.
Instead the Company is now required to record an impairment loss based on the excess of a reporting
unit’s carrying amount over its fair value provided that the loss recognized does not exceed the total
amount of goodwill allocated to that reporting unit. This update was applied prospectively and did not
have a significant impact on the consolidated financial statements.

Applicable for future periods

Revenue from contracts with customers
In May 2014, an accounting standard update was issued to clarify the principles for recognizing
revenues from contracts with customers. The update, which supersedes substantially all existing
revenue recognition guidance, provides a single comprehensive model for recognizing revenues on the
transfer of promised goods or services to customers in an amount that reflects the consideration that
is expected to be received for those goods or services. Under the standard it is possible that more
judgments and estimates would be required than under existing standards, including identifying the
separate performance obligations in a contract, estimating any variable consideration elements, and
allocating the transaction price to each separate performance obligation. The update also requires
additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows
arising from contracts with customers. Further updates were issued in 2016 to clarify the guidance on
identifying performance obligations, licensing and contract costs, to enhance the implementation
guidance on principal versus agent considerations and to add other practical expedients.

In August 2015, the effective date for the update was deferred and the update is now effective for the
Company for annual and interim periods beginning January 1, 2018, and is to be applied either (i) retro-
spectively to each prior reporting period presented, with the option to elect certain defined practical ex-
pedients, or (ii) retrospectively with the cumulative effect of initially applying the update recognized at
the date of adoption in retained earnings (with additional disclosure as to the impact on individual finan-
cial statement lines affected). Early adoption of the standard is permitted for annual reporting periods
beginning after December 15, 2016, including interim reporting periods within that reporting period.

The Company will adopt these updates as of January 1, 2018, pursuant to the aforementioned adoption
method (ii), applying them to contacts that are not completed contracts at that date, and will elect the
practical expedient for contract modifications.

The Company’s analysis of contracts resulted in only immaterial differences between the identification
of performance obligations and the current unit of accounting determination. Except for a limited
number of contracts where the required criteria are not met, the analysis supports the recognition of
revenue over time following the cost-to-cost method under the new revenue recognition standard for
those contracts which are following the cost-to-cost method under the current revenue recognition
model. The Company does not expect to record a significant cumulative adjustment to retained
earnings as of January 1, 2018, however, the Company expects the adoption will increase total assets
and total liabilities by approximately $200 million due to the reclassification of certain advances from
customers, currently reported as a reduction of inventory, to liabilities.

Recognition and measurement of financial assets and financial liabilities

In January 2016, an accounting standard update was issued to enhance the reporting model for
financial instruments, which includes amendments to address aspects of recognition, measurement,
presentation and disclosure. For example, the Company would be 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 and to present separately financial assets and financial liabilities by
measurement category and form of financial asset. This update is effective for the Company for annual
and interim periods beginning January 1, 2018, with early adoption permitted for certain provisions.
The Company does not believe that this update will have a significant impact on its consolidated
financial statements.

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
12 months. 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
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 161

the income statement. This update is effective for the Company for annual and interim periods
beginning January 1, 2019, with early adoption permitted, and is applicable on a modified retrospective
basis with various optional practical expedients. The Company is currently evaluating the impact of this
update on its consolidated financial statements.

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.

Classification of certain cash receipts and cash payments in the statement of cash flows
In August 2016, an accounting standard update was issued 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 is effective for the Company for annual and interim periods beginning January 1, 2018, on a
retrospective basis, with early adoption permitted. The Company does not believe that this update will
have a significant impact on its consolidated financial statements.

Income taxes — Intra‑entity transfers of assets other than inventory

In October 2016, an accounting standard update was issued that requires the Company 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 is effective for the
Company for annual and interim periods beginning January 1, 2018, with early adoption permitted, and
is applicable on a modified retrospective basis through a cumulative‑effect adjustment directly to
retained earnings as of the beginning of the period of adoption. The Company will adopt this update as
of January 1, 2018, and expects to record a net reduction in deferred tax assets of approximately
$215 million with a corresponding reduction in retained earnings as of this date.

Statement of cash flows — Restricted cash

In November 2016, an accounting standard update was issued 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 is effective for the Company for annual and
interim periods beginning January 1, 2018, on a retrospective basis, with early adoption permitted.
The Company does not believe that this update will have a significant impact on its consolidated
financial statements.

Clarifying the definition of a business

In January 2017, an accounting standard update was issued 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 is effective for the Company for annual and interim periods beginning
January 1, 2018, on a prospective basis, with early adoption permitted. The Company does not believe
that this update will have a significant impact on its consolidated financial statements.

Clarifying the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets
In February 2017, an accounting standard update was issued 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. The Company
plans to adopt this update retrospectively as of January 1, 2018, with the cumulative effect of initially
applying the update recognized at the date of adoption in retained earnings. The Company does not
believe that this update will have a significant impact on its consolidated financial statements.
162 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Improving the presentation of net periodic pension cost and net periodic postretirement benefit cost
In March 2017, an accounting standard update was issued 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 update, the Company will be 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 benefit will be 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. This update is effective for the Company for annual and interim periods
beginning January 1, 2018, on a retrospective basis for the presentation requirements and on a
prospective basis for the capitalization of the current service cost component requirements. The
Company will adopt this update as of January 1, 2018, and expects to reclassify income of $42 million
and expenses of $38 million to be presented outside of income from operations for the year ended
December 31, 2017 and 2016, respectively, and estimates that for 2018 approximately $100 million of
income will be presented outside income from operations relating to net periodic pension costs.

Compensation – Stock compensation
In May 2017, an accounting standard update was issued 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 is
effective prospectively and will apply to awards modified on or after January 1, 2018. The Company
does not believe that this update will have a significant impact 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 is currently evaluating the
impact of this update 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 to retained
earnings of the tax effects stranded in accumulated other comprehensive income as a result of
complying with the Tax Cuts and Jobs Act of 2017 (the Tax Act). This update is effective for the Company
for annual and interim periods beginning January 1, 2019, with early adoption in any interim period
permitted. The updated guidance is to be applied in the period of adoption or retrospectively to each
period in which the effect of the Tax 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.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 163

—
Note 3
Acquisitions and business divestments

Acquisitions
Acquisitions were as follows:

($ in millions, except number of acquired businesses) 2017 2016 2015

Acquisitions (net of cash acquired)(1) 2,111 13 37
Aggregate excess of purchase price over fair value of net assets acquired(2) 1,337 12 34
Number of acquired businesses 5 1 3
(1) Excluding changes in cost‑ and equity‑accounted companies.
(2) Recorded as goodwill (see Note 11).

In the table above, the “Acquisitions” and “Aggregate excess of purchase price over fair value of net
assets acquired” amounts for 2017, relate primarily to the acquisition of Bernecker + Rainer
Industrie‑Elektronik GmbH (B&R). In 2016 and 2015, acquisitions were not significant.

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.

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.

On July 6, 2017, the Company acquired the shares of B&R, 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.

The aggregate preliminary allocation of the purchase consideration for business acquisitions in 2017,
was as follows:

Weighted
Allocated -average
($ in millions) amounts useful life
Technology 434 7 years
Customer Relationships 292 19 years
Trade names 65 10 years
Order backlog 1 3 months
Intangible assets 792
Fixed assets 131
Debt acquired (50)
Deferred tax liabilities (255)
Inventories 177
Other assets and liabilities, net (21)
Goodwill(1) 1,337
Total consideration (net of cash acquired)(2) 2,111
(1) The Company does not expect the goodwill recognized to be deductible for income tax purposes.
(2) Primarily relates to the acquisition of B&R.

Business divestments
In 2017, the Company received proceeds (net of transaction costs and cash disposed) of $605 million,
relating to divestments of consolidated businesses and recorded net gains of $252 million in “Other
income (expense), net” on the sale of such businesses. These are primarily due to the divestment of the
Company’s high-voltage cables and cable accessories businesses (the Cables business) in March 2017
and the divestment of the Oil & Gas EPC business in December 2017.
164 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

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, 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.

In 2016 and 2015, there were no significant amounts recognized from divestments of consolidated
businesses.

Planned acquisition of GE Industrial Solutions

On September 25, 2017, the Company announced that it had reached an agreement to acquire General
Electric Company's (GE) Industrial Solutions business, GE’s global electrification solutions business, for
$2.6 billion. The Company expects to close the acquisition of GE Industrial Solutions in the first half of
2018, following the receipt of customary regulatory approvals.

—
Note 4
Cash and equivalents, marketable securities
and short-term investments

Current assets
Cash and equivalents and marketable securities and short‑term investments consisted of the following:

Marketable
Gross Gross securities and
unrealized unrealized Cash and short‑term
December 31, 2017 ($ in millions) Cost basis gains losses Fair value equivalents investments
Cash 1,963 1,963 1,963
Time deposits 2,853 2,853 2,563 290
Other short-term investments 305 305 305
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
Equity securities available-for-sale 152 13 — 165 — 165
Total 5,617 14 (3) 5,628 4,526 1,102

Marketable
Gross Gross securities and
unrealized unrealized Cash and short‑term
December 31, 2016 ($ in millions) Cost basis gains losses Fair value equivalents investments
Cash 1,704 1,704 1,704
Time deposits 2,764 2,764 1,940 824
Other short-term investments 271 271 271
Debt securities available-for-sale:
— U.S. government obligations 221 1 (2) 220 — 220
— Other government obligations 2 — — 2 — 2
— Corporate 95 1 (1) 95 — 95
Equity securities available-for-sale 530 11 — 541 — 541
Total 5,587 13 (3) 5,597 3,644 1,953

Included in Other short‑term investments at December 31, 2017 and 2016, are receivables of $305 million
and $268 million, respectively, representing reverse repurchase agreements. These collateralized
lendings, made to a financial institution, have maturity dates of less than one year.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 165

Contractual maturities
Contractual maturities of debt securities consisted of the following:

Available-for-sale Held-to-maturity
December 31, 2017 ($ in millions) Cost basis Fair value Cost basis Fair value
Less than one year 122 122 3 3
One to five years 161 160 71 77
Six to ten years 59 58 — —
Due after ten years 2 2 — —
Total 344 342 74 80

At December 31, 2017 and 2016, the Company pledged $66 million and $91 million, respectively, of
available‑for‑sale marketable securities as collateral for issued letters of credit and other security
arrangements.

—
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 its 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 other than electricity, the Company’s policies require that its 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
166 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

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 MIP. 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

December 31, ($ in millions) 2017 2016 2015
Foreign exchange contracts 17,280 15,353 16,467
Embedded foreign exchange derivatives 1,641 2,162 2,966
Interest rate contracts 5,706 3,021 4,302

Derivative commodity contracts

The following table shows the notional amounts of outstanding commodity derivatives (whether
designated as hedges or not), on a net basis, to reflect the Company’s requirements in the various
commodities:

Type of derivative Total notional amounts at

December 31, Unit 2017 2016 2015
Copper swaps metric tonnes 44,145 47,425 48,903
Aluminum swaps metric tonnes 7,700 4,650 5,455
Nickel swaps metric tonnes 12 — 18
Lead swaps metric tonnes — 15,100 14,625
Zinc swaps metric tonnes 425 150 225
Silver swaps ounces 1,966,729 1,586,395 1,727,255
Crude oil swaps barrels 170,331 121,000 133,500

Equity derivatives
At December 31, 2017, 2016 and 2015, the Company held 37 million, 47 million and 55 million cash‑settled
call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of $42 million,
$23 million and $13 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, 2017, 2016 and 2015, “Accumulated other comprehensive loss” included net unrealized
gains of $12 million and net unrealized losses of $1 million and $11 million, respectively, net of tax, on
derivatives designated as cash flow hedges. Of the amount at December 31, 2017, net gains of $11 million
are expected to be reclassified to earnings in 2018. At December 31, 2017, the longest maturity of a
derivative classified as a cash flow hedge was 32 months.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 167

In 2017, 2016 and 2015, the amounts 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.

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:

($ in millions) Gains (losses) recognized in OCI Gains (losses) reclassified from

on derivatives (effective portion) OCI into income (effective portion)
Type of derivative 2017 2016 2015 Location 2017 2016 2015
Foreign exchange Total revenues (1) (11) (36)
contracts 11 2 (11) Total cost of sales 3 10 11
Commodity contracts 12 4 (9) Total cost of sales 8 (2) (10)
Cash-settled call options 22 15 (6) SG&A expenses(1) 16 10 (4)
Total 45 21 (26) 26 7 (39)
(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 in 2017, 2016 and 2015.

Net derivative gains of $22 million and $6 million and net derivative losses of $30 million, net of tax,
were reclassified from “Accumulated other comprehensive loss” to earnings during 2017, 2016 and 2015,
respectively.

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 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 in 2017, 2016
and 2015, was not significant.

The effect of Interest rate contracts, designated and qualifying as fair value hedges, on the
Consolidated Income Statements was as follows:

($ in millions) 2017 2016 2015

Gains (losses) recognized in Interest and other finance expense:
— on derivatives designated as fair value hedges (25) (28) 8
— on hedged item 29 30 (4)

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.
168 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

The gains (losses) recognized in the Consolidated Income Statements on derivatives not designated in
hedging relationships were as follows:

($ in millions) Gains (losses) recognized in income

Type of derivative not designated as a hedge Location 2017 2016 2015
Foreign exchange contracts Total revenues 147 (206) (216)
Total cost of sales (44) (56) 16
SG&A expenses(1) (18) 8 13
Non-order related research
and development — (2) (1)
Other income (expense), net (1) 22 —
Interest and other finance expense 22 (34) 287
Embedded foreign exchange contracts Total revenues (2) (5) 127
Total cost of sales (4) (5) (25)
SG&A expenses(1) 5 (2) (5)
Commodity contracts Total cost of sales 53 42 (61)
Other Interest and other finance expense (2) 4 (1)
Total 156 (234) 134

(1) SG&A expenses represent “Selling, general and administrative expenses”.

The fair values of derivatives included in the Consolidated Balance Sheets were as follows:

Derivative assets Derivative liabilities

Current Non-current Current Non-current
in “Other in “Other in “Other in “Other
current non‑current current non‑current
December 31, 2017 ($ in millions) assets” assets” liabilities” liabilities”
Derivatives designated as hedging instruments:
Foreign exchange contracts 4 — 3 1
Commodity contracts 6 — — —
Interest rate contracts — 42 — 4
Cash-settled call options 25 16 — —
Total 35 58 3 5
Derivatives not designated as hedging instruments:
Foreign exchange contracts 142 25 190 63
Commodity contracts 35 1 6 —
Cross-currency interest rate swaps — — 2 —
Cash-settled call options — 1 — —
Embedded foreign exchange derivatives 32 16 22 7
Total 209 43 220 70

Total fair value 244 101 223 75

Derivative assets Derivative liabilities

Current Non-current Current Non-current
in “Other in “Other in “Other in “Other
current non-current current non-current
December 31, 2016 ($ in millions) assets” assets” liabilities” liabilities”
Derivatives designated as hedging instruments:
Foreign exchange contracts 5 — 6 5
Commodity contracts 2 — — —
Interest rate contracts 2 62 — —
Cash-settled call options 13 9 — —
Total 22 71 6 5
Derivatives not designated as hedging instruments:
Foreign exchange contracts 169 29 257 77
Commodity contracts 29 2 6 1
Cross-currency interest rate swaps — 2 — —
Cash-settled call options — 1 — —
Embedded foreign exchange derivatives 58 21 35 18
Total 256 55 298 96

Total fair value 278 126 304 101

A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 169

Close‑out netting agreements provide for the termination, valuation and net settlement of some or all
outstanding transactions between two counterparties on the occurrence of one or more pre‑defined
trigger events.

Although the Company is party to close‑out netting agreements with most derivative counterparties,
the fair values in the tables above and in the Consolidated Balance Sheets at December 31, 2017 and
2016, 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, 2017 and 2016, information related to these offsetting arrangements was
as follows:

December 31, 2017 ($ in millions)

Gross amount Derivative liabilities Cash Non-cash
Type of agreement of recognized eligible for set-off collateral collateral Net asset
or similar arrangement assets in case of default received received exposure
Derivatives 297 (172) — — 125
Reverse repurchase agreements 305 — — (305) —
Total 602 (172) — (305) 125

December 31, 2017 ($ in millions)

Gross amount Derivative liabilities Cash Non-cash
Type of agreement of recognized eligible for set-off collateral collateral Net liability
or similar arrangement liabilities in case of default pledged pledged exposure
Derivatives 269 (172) — — 97
Total 269 (172) — — 97

December 31, 2016 ($ in millions)

Gross amount Derivative liabilities Cash Non-cash
Type of agreement of recognized eligible for set-off collateral collateral Net asset
or similar arrangement assets in case of default received received exposure
Derivatives 325 (190) — — 135
Reverse repurchase agreements 268 — — (268) —
Total 593 (190) — (268) 135

December 31, 2016 ($ in millions)

Gross amount Derivative liabilities Cash Non-cash
Type of agreement of recognized eligible for set-off collateral collateral Net liability
or similar arrangement liabilities in case of default pledged pledged exposure
Derivatives 352 (190) — — 162
Total 352 (190) — — 162
170 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Note 6
Fair values

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, 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” — 244 — 244
Derivative assets – non-current in “Other non‑current assets” — 101 — 101
Total 204 727 — 931

Liabilities
Derivative liabilities – current in “Other current liabilities” — 223 — 223
Derivative liabilities – non-current in “Other non-current liabilities” — 75 — 75
Total — 298 — 298

December 31, 2016 ($ 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 — 541 — 541
Debt securities – U.S. government obligations 220 — — 220
Debt securities – Other government obligations — 2 — 2
Debt securities – Corporate — 95 — 95
Derivative assets – current in “Other current assets” — 278 — 278
Derivative assets – non-current in “Other non-current assets” — 126 — 126
Total 220 1,042 — 1,262

Liabilities
Derivative liabilities – current in “Other current liabilities” — 304 — 304
Derivative liabilities – non-current in “Other non-current liabilities” — 101 — 101
Total — 405 — 405

The Company uses the following methods and assumptions in estimating fair values of financial assets
and liabilities measured at fair value on a recurring basis:

• Available‑for‑sale securities in “Cash and equivalents” and “Marketable securities and short‑term
investments” 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 inputs). 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.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 171

Non‑recurring fair value measures

There were no significant non‑recurring fair value measurements during 2017 and 2016.

Disclosure about financial instruments carried on a cost basis

The fair values of financial instruments carried on a cost basis were as follows:

Carrying Total
December 31, 2017 ($ in millions) value Level 1 Level 2 Level 3 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 290 — 290 — 290
Receivables under reverse repurchase agreements 305 — 305 — 305
Other non-current assets:
Loans granted 32 — 33 — 33
Restricted cash and cash deposits 38 38 — — 38

Liabilities
Short-term debt and current maturities of long-term debt
(excluding capital lease obligations) 704 400 304 — 704
Long-term debt (excluding capital lease obligations) 6,569 6,046 775 — 6,821

Carrying Total
December 31, 2016 ($ in millions) value Level 1 Level 2 Level 3 fair value
Assets
Cash and equivalents (excluding available-for-sale securities
with original maturities up to 3 months):
Cash 1,704 1,704 — — 1,704
Time deposits 1,940 — 1,940 — 1,940
Marketable securities and short-term investments (excluding
available-for-sale securities):
Time deposits 824 — 824 — 824
Receivables under reverse repurchase agreements 268 — 268 — 268
Other short-term investments 3 3 — — 3
Other non-current assets:
Loans granted 30 — 31 — 31
Restricted cash and cash deposits 59 59 — — 59

Liabilities
Short-term debt and current maturities of long-term debt
(excluding capital lease obligations) 980 856 124 — 980
Long-term debt (excluding capital lease obligations) 5,709 5,208 784 — 5,992

The Company uses the following methods and assumptions in estimating fair values of financial
instruments carried on a cost basis:

• Cash and equivalents (excluding available‑for‑sale securities with original maturities up to 3 months),
and Marketable securities and short‑term investments (excluding available‑for‑sale securities):
The carrying amounts approximate the fair values as the items are short‑term in nature.

• Other non‑current assets: Includes (i) loans granted whose fair values are based on the carrying
amount adjusted using a present value technique to reflect a premium or discount based on current
market interest rates (Level 2 inputs), (ii) restricted cash 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.
172 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

• 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).

—
Note 7
Receivables, net

“Receivables, net” consisted of the following:

December 31, ($ in millions) 2017 2016

Trade receivables 7,883 7,293
Other receivables 714 587
Allowance (330) (314)
8,267 7,566

Unbilled receivables, net:

Costs and estimated profits in excess of billings 3,024 3,058
Advance payments consumed (875) (928)
2,149 2,130
Total 10,416 9,696

“Trade receivables” in the table above includes contractual retention amounts billed to customers of
$541 million and $463 million at December 31, 2017 and 2016, respectively. Management expects that
the substantial majority of related contracts will be completed and the substantial majority of the
billed amounts retained by the customer will be collected. Of the retention amounts outstanding at
December 31, 2017, 69 percent and 26 percent are expected to be collected in 2018 and 2019,
respectively.

“Other receivables” in the table above consists of value added tax, claims, rental deposits and other
non‑trade receivables.

“Costs and estimated profits in excess of billings” in the table above represents revenues earned and
recognized for contracts under the percentage‑of‑completion or completed‑contract method of
accounting. Management expects that the majority of the amounts will be collected within one year of
the respective balance sheet date.

The reconciliation of changes in the allowance for doubtful accounts is as follows:

($ in millions) 2017 2016 2015

Balance at January 1, 314 258 279
Additions 109 163 118
Deductions (111) (96) (113)
Exchange rate differences 18 (11) (26)
Balance at December 31, 330 314 258
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 173

—
Note 8
Inventories, net

“Inventories, net” consisted of the following:

December 31, ($ in millions) 2017 2016

Raw materials 1,943 1,692
Work in process 1,595 1,326
Finished goods 1,563 1,369
Advances to suppliers 154 149
5,255 4,536
Advance payments consumed (196) (189)
Total 5,059 4,347

“Work in process” in the table above contains inventoried costs relating to long‑term contracts of
$176 million and $212 million at December 31, 2017 and 2016, respectively. “Advance payments consumed”
in the table above relates to contractual advances received from customers on work in process.

—
Note 9
Other non‑current assets

“Other non‑current assets” consisted of the following:

December 31, ($ in millions) 2017 2016

Pledged financial assets 100 112
Derivatives (including embedded derivatives) (see Note 5) 101 126
Receivable under securities lending arrangement 79 —
Investments 72 57
Restricted cash 38 59
Other 197 178
Total 587 532

The Company entered into structured leasing transactions with U.S. investors prior to 1999. At the
inception of the leasing arrangements the Company placed certain amounts in restricted cash deposits
and held-to-maturity debt securities. These amounts, included as “Pledged financial assets” in the table
above, are pledged as security for certain outstanding deposit liabilities included in “Other non‑current
liabilities” (see Note 13) and the funds received upon maturity of the respective pledged financial assets
will only be available to the Company for repayment of these obligations.

“Investments” represents shares and other equity investments carried at cost.

—
Note 10
Property, plant and equipment, net

“Property, plant and equipment, net” consisted of the following:

December 31, ($ in millions) 2017 2016

Land and buildings 4,282 3,786
Machinery and equipment 8,336 7,368
Construction in progress 700 515
13,318 11,669
Accumulated depreciation (7,955) (6,926)
Total 5,363 4,743
174 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Assets under capital leases included in “Property, plant and equipment, net” were as follows:

December 31, ($ in millions) 2017 2016

Land and buildings 176 120
Machinery and equipment 85 47
261 167
Accumulated depreciation (120) (82)
Total 141 85

In 2017, 2016 and 2015, depreciation, including depreciation of assets under capital leases, was
$750 million, $767 million and $764 million, respectively.

—
Note 11
Goodwill and other intangible assets

The changes in “Goodwill” below have been recast to reflect the reorganization of the Company’s
operating segments as outlined in Note 23:

Electrification Robotics Industrial Power Corporate

($ in millions) Products and Motion Automation Grids and Other Total
Cost at January 1, 2016 2,824 3,557 1,606 1,558 144 9,689
Accumulated impairment charges — — — — (18) (18)
Balance at January 1, 2016 2,824 3,557 1,606 1,558 126 9,671
Goodwill acquired during the year — 12 — — — 12
Goodwill allocated to assets held
for sale — — — — (105) (105)
Exchange rate differences and other (19) (33) (14) (11) — (77)
Balance at December 31, 2016 2,805 3,536 1,592 1,547 21 9,501
Goodwill acquired during the year — 4 1,263 70 — 1,337
Goodwill allocated to disposals — — (1) — (1) (2)
Exchange rate differences and other 164 67 85 46 1 363
Balance at December 31, 2017 2,969 3,607 2,939 1,663 21 11,199

In 2017, goodwill acquired primarily relates to B&R, acquired in July, 2017, which has been allocated to
the Industrial Automation operating segment.

In 2016, goodwill allocated to the high-voltage cable system business, within Corporate and Other
(formerly reported in the Power Grids operating segment), was transferred to “Assets held for sale”.
The sale was completed in March 2017, see Note 3 for details.

Intangible assets other than goodwill consisted of the following:

2017 2016
Gross Gross
December 31, carrying Accumulated Net carrying carrying Accumulated Net carrying
($ in millions) amount amortization amount amount amortization amount
Capitalized software for internal use 787 (646) 141 712 (596) 116
Capitalized software for sale 453 (412) 41 409 (365) 44
Intangibles other than software:
Customer-related 2,861 (1,084) 1,777 2,500 (904) 1,596
Technology-related 1,239 (760) 479 755 (660) 95
Marketing-related 371 (202) 169 291 (159) 132
Other 38 (23) 15 34 (21) 13
Total 5,749 (3,127) 2,622 4,701 (2,705) 1,996
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 175

Additions to intangible assets other than goodwill consisted of the following:

($ in millions) 2017 2016

Capitalized software for internal use 71 39
Capitalized software for sale 22 18
Intangibles other than software:
Customer-related 293 —
Technology-related 437 1
Marketing-related 65 —
Total 888 58

Included in the additions of $888 million in 2017, were the following intangible assets other than
goodwill related to business combinations:

2017
Amount Weighted-average
($ in millions) acquired useful life
Intangibles other than software:
Customer-related(1) 293 19 years
Technology-related 434 7 years
Marketing-related 65 10 years
Total 792
(1) Includes the fair value of order backlog acquired in business combinations.

There were no significant intangible assets acquired in business combinations during 2016.

Amortization expense of intangible assets other than goodwill consisted of the following:

December 31, ($ in millions) 2017 2016 2015

Capitalized software for internal use 54 57 60
Capitalized software for sale 26 25 21
Intangibles other than software 271 287 315
Total 351 369 396

In 2017, 2016 and 2015, impairment charges on intangible assets other than goodwill were not significant.

At December 31, 2017, future amortization expense of intangible assets other than goodwill is estimated
to be:

($ in millions)
2018 371
2019 326
2020 296
2021 262
2022 149
Thereafter 1,218
Total 2,622
176 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Note 12
Debt

The Company’s total debt at December 31, 2017 and 2016, amounted to $7,447 million and
$6,803 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:

December 31, ($ in millions) 2017 2016

Short-term debt (weighted-average interest rate of 2.7% and 3.3%, respectively) 327 135
Current maturities of long-term debt
(weighted-average nominal interest rate of 2.0% and 2.8%, respectively) 411 868
Total 738 1,003

Short‑term debt primarily represents short‑term loans from various banks and issued commercial paper.

At December 31, 2017, the Company had in place two commercial paper programs: a $2 billion Euro
commercial paper program for the issuance of commercial paper in a variety of currencies, and a $2 billion
commercial paper program for the private placement of U.S. dollar denominated commercial paper in the
United States. At December 31, 2017 and 2016, $259 million and $57 million, respectively, was outstanding
under the $2 billion program in the United States.

In addition, the Company has a $2 billion multicurrency revolving credit facility, maturing in 2021, for
general corporate purposes. Interest costs on drawings under the facility are LIBOR or EURIBOR
(depending on the currency of the drawings) plus a margin of 0.20 percent, while commitment fees
(payable on the unused portion of the facility) amount to 35 percent of the margin, which represents
commitment fees of 0.07 percent per annum. Utilization fees, payable on drawings, amount to
0.075 percent per annum on drawings up to one‑third of the facility, 0.15 percent per annum on
drawings in excess of one‑third but less than or equal to two‑thirds of the facility, or 0.30 percent per
annum on drawings over two‑thirds of the facility. No amount was drawn at December 31, 2017 and
2016. The facility contains cross‑default clauses whereby an event of default would occur if the
Company were to default on indebtedness as defined in the facility, at or above a specified threshold.

Long-term debt
The Company utilizes derivative instruments to modify the interest characteristics of its long‑term
debt. In particular, the Company uses interest rate swaps to effectively convert certain fixed‑rate
long‑term debt into floating rate obligations. The carrying value of debt, designated as being
hedged by fair value hedges, is adjusted for changes in the fair value of the risk component of the
debt being hedged.

The following table summarizes the Company’s long‑term debt considering the effect of interest rate
swaps. Consequently, a fixed‑rate debt subject to a fixed‑to‑floating interest rate swap is included as a
floating rate debt in the table below:

December 31, 2017 2016

($ in millions, except % data) Balance Nominal rate Effective rate Balance Nominal rate Effective rate
Floating rate 3,213 1.7% 0.6% 1,745 2.0% 1.3%
Fixed rate 3,907 3.5% 3.5% 4,923 2.9% 2.9%
7,120 6,668
Current portion of long-term debt (411) 2.0% 2.0% (868) 2.8% 2.4%
Total 6,709 5,800
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 17 7

At December 31, 2017, the principal amounts of long‑term debt repayable (excluding capital lease
obligations) at maturity were as follows:

($ in millions)
2018 378
2019 1,553
2020 5
2021 1,275
2022 1,257
Thereafter 2,485
Total 6,953

Details of the Company’s outstanding bonds were as follows:

2017 2016
Nominal Carrying Nominal Carrying
December 31, ($ in millions) outstanding value(1) outstanding value(1)

Bonds:
1.625% USD Notes, due 2017 — USD 500 $ 500
4.25% AUD Notes, due 2017 — AUD 400 $ 291
1.50% CHF Bonds, due 2018 CHF 350 $ 358 CHF 350 $ 342
2.625% EUR Instruments, due 2019 EUR 1,250 $ 1,493 EUR 1,250 $ 1,311
4.0% USD Notes, due 2021 USD 650 $ 644 USD 650 $ 643
2.25% CHF Bonds, due 2021 CHF 350 $ 378 CHF 350 $ 368
5.625% USD Notes, due 2021 USD 250 $ 270 USD 250 $ 274
2.875% USD Notes, due 2022 USD 1,250 $ 1,256 USD 1,250 $ 1,268
0.625% EUR Notes, due 2023 EUR 700 $ 834 EUR 700 $ 732
0.75% EUR Notes, due 2024 EUR 750 $ 889 —
4.375% USD Notes, due 2042 USD 750 $ 723 USD 750 $ 722
Total $ 6,845 $ 6,451
(1) USD carrying values include unamortized debt issuance costs, bond discounts or premiums, as well as adjustments for fair value hedge
accounting, where appropriate.

During 2017, the Company repaid at maturity the 1.625% USD Notes, due 2017, and the 4.25% AUD
Notes, due 2017. The Company had entered into interest rate swaps to hedge its interest obligation on
the 4.25% AUD Notes, due 2017. After considering the impact of such swaps, these bonds effectively
became floating rate Australian dollar obligations and consequently have been shown as floating rate
debt at December 31, 2016, in the table of long‑term debt above.

The 1.50% CHF Bonds, due 2018, pay interest annually in arrears at a fixed annual rate of 1.5 percent.
The Company has the option to redeem the bonds prior to maturity, in whole, at par plus accrued
interest, if 85 percent of the aggregate principal amount of the bonds has been redeemed or
purchased and cancelled.

The 2.625% EUR Instruments, due 2019, pay interest annually in arrears at a fixed rate of 2.625 percent
per annum.

The 4.0% USD Notes, due 2021, pay interest semi‑annually in arrears, at a fixed annual rate of 4.0 percent,
respectively. The Company may redeem these notes prior to maturity, in whole or in part, at the greater
of (i) 100 percent of the principal amount of the notes to be redeemed and (ii) the sum of the present
values of remaining scheduled payments of principal and interest (excluding interest accrued to the
redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest
accrued at the redemption date.

The 2.25% CHF Bonds, due 2021, pay interest annually in arrears, at a fixed annual rate of 2.25 percent,
respectively. The Company has the option to redeem the bonds prior to maturity, in whole, at par plus
178 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

accrued interest, if 85 percent of the aggregate principal amount of the bonds has been redeemed or
purchased and cancelled. The Company entered into interest rate swaps to hedge its interest
obligations on these bonds. After considering the impact of such swaps, these bonds effectively
became floating rate Swiss franc obligations and consequently have been shown as floating rate debt
in the table of long‑term debt above.

The 5.625% USD Notes, due 2021, pay interest semi‑annually in arrears at a fixed annual rate of
5.625 percent. The Company has the option to redeem the notes prior to maturity at the greater of
(i) 100 percent of the principal amount of the notes to be redeemed, and (ii) the sum of the present
values of remaining scheduled payments of principal and interest (excluding interest accrued to the
redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest
accrued at the redemption date.

The 2.875% USD Notes, due 2022, pay interest semi‑annually in arrears at a fixed annual rate of
2.875 percent. The 4.375% USD Notes, due 2042, pay interest semi‑annually in arrears at a fixed annual
rate of 4.375 percent. The Company may redeem any of these notes prior to maturity, in whole or in part,
at the greater of (i) 100 percent of the principal amount of the notes to be redeemed and (ii) the sum of
the present values of remaining scheduled payments of principal and interest (excluding interest
accrued to the redemption date) discounted to the redemption date at a rate defined in the note terms,
plus interest accrued at the redemption date. These notes, registered with the U.S. Securities and
Exchange Commission, were issued by ABB Finance (USA) Inc., a 100 percent owned finance subsidiary,
and were fully and unconditionally guaranteed by ABB Ltd. There are no significant restrictions on the
ability of the parent company to obtain funds from its subsidiaries by dividend or loan. In reliance on
Rule 3‑10 of Regulation S‑X, the separate financial statements of ABB Finance (USA) Inc. are not
provided. The Company has entered into interest rate swaps for an aggregate nominal amount of
$1,050 million to partially hedge its interest obligations on the 2.875% USD Notes, due 2022. After
considering the impact of such swaps, $1,050 million of the outstanding principal is shown as floating
rate debt in the table of long‑term debt above.

The 0.625% EUR Notes, due 2023, were issued in May 2016, with total net issuance proceeds of
EUR 697 million (equivalent to approximately $807 million on date of issuance). These Notes pay interest
annually in arrears at a fixed rate of 0.625 percent per annum. In 2017, the Company entered into interest
rate swaps to hedge its interest on these bonds. After considering the impact of such swaps, these
notes effectively became floating rate euro obligations and consequently have been shown as floating
rate debt at December 31, 2017, in the table of long‑term debt above.

In May 2017, the Company issued notes with an aggregate principal of EUR 750 million, due 2024. The
notes pay interest annually in arrears at a fixed rate of 0.75 percent per annum. The Company recorded net
proceeds (after underwriting fees) of EUR 745 million (equivalent to approximately $824 million on date of
issuance). The Company entered into interest rate swaps to hedge its interest on these bonds. After
considering the impact of such swaps, these bonds effectively became floating rate euro obligations and
consequently have been shown as floating rate debt in the table of long‑term debt above.

The Company’s bonds contain cross‑default clauses which would allow the bondholders to demand
repayment if the Company were to default on any borrowing at or above a specified threshold.
Furthermore, all such bonds constitute unsecured obligations of the Company and rank pari passu with
other debt obligations.

In addition to the bonds described above, included in long‑term debt at December 31, 2017 and 2016,
are capital lease obligations, bank borrowings of subsidiaries and other long‑term debt, none of which
is individually significant.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 179

—
Note 13
Other provisions, other current liabilities
and other non‑current liabilities

“Other provisions” consisted of the following:

December 31, ($ in millions) 2017 2016

Contract-related provisions 857 673
Restructuring and restructuring-related provisions 467 577
Provisions for contractual penalties and compliance and litigation matters 240 210
Provision for insurance-related reserves 153 153
Other 165 152
Total 1,882 1,765

“Other current liabilities” consisted of the following:

December 31, ($ in millions) 2017 2016

Employee-related liabilities 1,871 1,670
Non-trade payables 552 394
Accrued expenses 508 413
Other tax liabilities 350 301
Income taxes payable 321 226
Accrued customer rebates 237 206
Derivative liabilities (see Note 5) 223 304
Deferred income 137 147
Accrued interest 62 67
Pension and other employee benefits (see Note 17) 47 59
Other 77 149
Total 4,385 3,936

“Other non‑current liabilities” consisted of the following:

December 31, ($ in millions) 2017 2016

Income tax related liabilities 1,198 923
Provisions for contractual penalties and compliance and litigation matters 140 27
Non-current deposit liabilities (see Note 9) 95 106
Deferred income 82 80
Derivative liabilities (see Note 5) 75 101
Employee-related liabilities 75 66
Environmental provisions 53 62
Other 232 239
Total 1,950 1,604

—
Note 14
Leases

The Company’s lease obligations primarily relate to real estate and office equipment. Rent expense was
$454 million, $459 million and $497 million in 2017, 2016 and 2015, respectively. Sublease income
received by the Company on leased assets was $11 million, $13 million and $13 million in 2017, 2016 and
2015, respectively.
180 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

At December 31, 2017, future net minimum lease payments for operating leases, having initial or
remaining non‑cancelable lease terms in excess of one year, consisted of the following:

($ in millions)
2018 390
2019 301
2020 240
2021 176
2022 139
Thereafter 270
1,516
Sublease income (17)
Total 1,499

At December 31, 2017, the future net minimum lease payments for capital leases and the present value
of the net minimum lease payments consisted of the following:

($ in millions)
2018 48
2019 41
2020 30
2021 24
2022 22
Thereafter 127
Total minimum lease payments 292
Less amount representing estimated executory costs included in total minimum lease payments (2)
Net minimum lease payments 290
Less amount representing interest (116)
Present value of minimum lease payments 174

Minimum lease payments have not been reduced by minimum sublease rentals due in the future under
non‑cancelable subleases. Such minimum sublease rentals were not significant. The present value of
minimum lease payments is included in “Short‑term debt and current maturities of long‑term debt” or
“Long‑term debt” in the Consolidated Balance Sheets.

—
Note 15
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 the European Commission’s leniency program. In December 2013, the Company agreed with the
Brazilian Antitrust Authority (CADE) to settle its ongoing investigation into the Company’s involvement
in anticompetitive practices in the cables industry and the Company agreed to pay a fine of
approximately 1.5 million Brazilian reals (equivalent to approximately $1 million on date of payment).

In Brazil, the Company’s Gas Insulated Switchgear business is under investigation by the CADE for
alleged anticompetitive practices. In addition, the CADE has opened an investigation into certain other
power businesses of the Company, including flexible alternating current transmission systems (FACTS)
and power transformers. With respect to these matters, management is cooperating fully with the
authorities. An informed judgment about the outcome of these investigations or the amount of
potential loss or range of loss for the Company, if any, relating to these investigations cannot be made
at this stage.

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
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 181

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 various legal proceedings,
investigations, and claims that have not yet been resolved. With respect to the above‑mentioned
regulatory matters and commercial litigation contingencies, the Company will bear the costs of the
continuing investigations and any related legal proceedings.

Liabilities recognized
At December 31, 2017 and 2016, the Company had aggregate liabilities of $233 million and
$150 million, respectively, included in “Other provisions” and “Other non‑current liabilities”, for the
above regulatory, compliance and legal contingencies, and none of the individual liabilities
recognized was significant. As it is not possible to make an informed judgment on the outcome of
certain matters and as it is not possible, based on information currently available to management,
to estimate the maximum potential liability on other matters, there could be material adverse
outcomes beyond the amounts accrued.

Guarantees
General
The following table provides quantitative data regarding the Company’s third‑party guarantees. The
maximum potential payments represent a “worst‑case scenario”, and do not reflect management’s
expected outcomes.

Maximum potential payments

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 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, 2017 and 2016,
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, 2017, the maximum potential payable under these
guarantees amounts to $929 million 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
182 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

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, 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.

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) 2017 2016 2015

Balance at January 1, 1,142 1,089 1,148
Net change in warranties due to acquisitions and divestments 30 — —
Claims paid in cash or in kind (335) (329) (357)
Net increase in provision for changes in estimates, warranties issued
and warranties expired 297 424 377
Exchange rate differences 97 (42) (79)
Balance at December 31, 1,231 1,142 1,089

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 previously
estimated product warranty provision was increased by a total of $23 million and $151 million, during 2017
and 2016, respectively. The corresponding increases were included in “Cost of sales of products” and
resulted in a decrease in diluted earnings per share of $0.01 for 2017, and a decrease in basic and diluted
earnings per share of $0.06 and $0.05, respectively, for 2016. As $8 million and $131 million, in 2017 and
2016, respectively, relates to products which were sold prior to the acquisition date these costs have been
excluded from the Company’s measure of segment profit, Operational EBITA (see Note 23). This warranty
provision has been recorded based on the information presently available and is subject to change in the
future.

Related party transactions

The Company conducts business with certain companies where members of the Company’s Board of
Directors or Executive Committee act, or in recent years have acted, as directors or senior executives.
The Company’s Board of Directors has determined that the Company’s business relationships with
those companies do not constitute material business relationships. This determination was made in
accordance with the Company’s related party transaction policy which was prepared based on the
Swiss Code of Best Practice and the independence criteria set forth in the corporate governance rules
of the New York Stock Exchange.

—
Note 16
Taxes

“Provision for taxes” consisted of the following:

($ in millions) 2017 2016 2015

Current taxes 1,061 925 1,005
Deferred taxes (201) (144) (217)
Tax expense from continuing operations 860 781 788

Tax expense (benefit) from discontinued operations (4) (4) (2)

A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 183

Tax expense from continuing operations is reconciled below from the Company’s weighted‑average
global tax rate (rather than from the Swiss domestic statutory tax rate) as the parent company of the
ABB Group, ABB Ltd, is domiciled in Switzerland and income generated in jurisdictions outside of
Switzerland (hereafter “foreign jurisdictions”) which has already been subject to corporate income tax
in those foreign jurisdictions is, to a large extent, tax exempt in Switzerland. There is no requirement in
Switzerland for any parent company of a group to file a tax return of the consolidated group
determining domestic and foreign pre‑tax income. As the Company’s consolidated income from
continuing operations is predominantly earned outside of Switzerland, corporate income tax in foreign
jurisdictions largely determines the weighted‑average global tax rate of the Company.

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to
as the Tax Cuts and Jobs Act (the Tax Act). The Tax Act makes broad and complex changes to the U.S. tax
code. The SEC staff issued Staff Accounting Bulletin No. 118, which has allowed the Company to record
provisional amounts in income tax expense from continuing operations in the 2017 financial statements.
The estimated impact includes a benefit of $30 million due to changes in tax rates, valuation allowance on
foreign tax credits and undistributed earnings of subsidiaries, offset by $26 million charge for one-time
transition tax. Ongoing guidance and accounting interpretations are expected over the next 12 months
and the completion of the accounting for the Tax Act will be finalized during that measurement period.

The reconciliation of “Tax expense from continuing operations” at the weighted‑average tax rate to the
effective tax rate is as follows:

($ in millions, except % data) 2017 2016 2015

Income from continuing operations before taxes 3,231 2,799 2,840
Weighted-average global tax rate 23.5% 21.2% 21.8%
Income taxes at weighted-average tax rate 760 594 619
Items taxed at rates other than the weighted-average tax rate (102) 27 (36)
Changes in valuation allowance, net 753 (17) 57
Effects of changes in tax laws and (enacted) tax rates (747) 42 —
Non-deductible expenses, excluding goodwill 58 86 52
Other, net 138 49 96
Tax expense from continuing operations 860 781 788

Effective tax rate for the year 26.6% 27.9% 27.7%

In 2017, the benefit reported in “Items taxed at rates other than the weighted‑average tax rate”
predominantly included a positive impact of $72 million related to non-taxable amounts for net gains
from sale of businesses. In 2015, the benefit reported in “Items taxed at rates other than the
weighted‑average tax rate” predominantly included a benefit of $50 million related to tax credits
arising from research and development activities.

In 2017, the relevant tax rate applicable to one of the Company’s subsidiaries increased and in
connection with this change, the company benefited from an increase of $721 million in deferred tax
assets relating to certain long-term assets. The respective effect is reported in “Effects of changes in
tax laws and (enacted) tax rates”. After evaluating the recoverability of this deferred tax asset, the
Company recorded a valuation allowance of $668 million as the Company determined that it was more
likely than not that such deferred tax assets would not be realized. This is reported in the table above in
“Changes in valuation allowance, net”.

In 2016 and 2015, “Changes in valuation allowance, net” included reductions in valuation allowances
recorded in certain jurisdictions where the Company determined that it was more likely than not that
such deferred tax assets (recognized for net operating losses and temporary differences in those
jurisdictions) would be realized, as well as increases in the valuation allowance in certain other
jurisdictions. In 2015, the “Changes in valuation allowance, net” included an expense of $21 million
related to certain of the Company’s operations in Asia.

In 2017, 2016 and 2015, “Non-deductible expenses” of $58 million, $86 million and $52 million,
respectively, included expenses in relation to items that were deducted for financial accounting
purposes, but were not tax deductible, such as interest expense, local taxes on productive activities,
disallowed meals and entertainment expenses and other similar items.
184 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

In 2017, 2016 and 2015, “Other, net” in the table above included net charges of $148 million, $50 million
and $74 million, respectively, related to the interpretation of tax law and double tax treaty agreements
by competent tax authorities.

Deferred income tax assets and liabilities consisted of the following:

December 31 ($ in millions) 2017 2016

Deferred tax assets:

Unused tax losses and credits 524 514
Provisions and other accrued liabilities 779 865
Pension 473 507
Inventories 275 273
Property, plant and equipment and other non-current assets 1,152 266
Other 98 93
Total gross deferred tax asset 3,301 2,518
Valuation allowance (1,323) (561)
Total gross deferred tax asset, net of valuation allowance 1,978 1,957

Deferred tax liabilities:

Property, plant and equipment (237) (234)
Intangibles and other assets (739) (724)
Pension and other liabilities (220) (171)
Inventories (74) (91)
Unremitted earnings (557) (537)
Total gross deferred tax liability (1,827) (1,757)
Net deferred tax asset (liability) 151 200

Included in: (1)

“Deferred taxes” – non-current assets 1,250 1,118

“Deferred taxes” – non-current liabilities (1,099) (918)
Net deferred tax asset (liability) 151 200
(1) As a result of the adoption of an accounting standard update on the classification of deferred taxes (see Note 2), the information
presented for 2016 has been reclassified.

Certain entities have deferred tax assets related to net operating loss carry‑forwards and other items.
As recognition of these assets in certain entities did not meet the more likely than not criterion,
valuation allowances have been recorded and amount to $1,323 million and $561 million, at December 31,
2017 and 2016, respectively. “Unused tax losses and credits” at December 31, 2017 and 2016, in the table
above, included $155 million and $108 million, respectively, for which the Company has established a full
valuation allowance as, due to limitations imposed by the relevant tax law, the Company determined
that, more likely than not, such deferred tax assets would not be realized.

At December 31, 2017 and 2016, deferred tax liabilities totaling $557 million and $537 million,
respectively, have been provided for primarily in respect of withholding taxes, dividend distribution
taxes or additional corporate income taxes (hereafter “withholding taxes”) on unremitted earnings
which will be payable in foreign jurisdictions on the repatriation of earnings to Switzerland. Income
which has been generated outside of Switzerland and has already been subject to corporate income tax
in such foreign jurisdictions is, to a large extent, tax exempt in Switzerland. Therefore, generally no or
only limited Swiss income tax has to be provided for on the repatriated earnings of foreign subsidiaries.

Certain countries levy withholding taxes on dividend distributions. Such taxes cannot always be fully
reclaimed by the shareholder, although they have to be declared and withheld by the subsidiary. In 2017
and 2016, certain taxes arose in certain foreign jurisdictions for which the technical merits do not allow
utilization of benefits. At both December 31, 2017 and 2016, foreign subsidiary retained earnings subject
to withholding taxes upon distribution of approximately $100 million were considered as permanently
reinvested, as these funds are used for financing current operations as well as business growth through
working capital and capital expenditure in those countries and, consequently, no deferred tax liability
was recorded.

At December 31, 2017, net operating loss carry‑forwards of $1,708 million and tax credits of $133 million
were available to reduce future taxes of certain subsidiaries. Of these amounts, $974 million of loss
carry‑forwards and $107 million of tax credits will expire in varying amounts through 2037. The largest
amount of these carry‑forwards related to the Company’s Europe operations.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 185

Unrecognized tax benefits consisted of the following:

Penalties and
interest
related to
Unrecognized unrecognized
($ in millions) tax benefits tax benefits Total
Classification as unrecognized tax items on January 1, 2015 705 146 851
Increase relating to prior year tax positions 52 38 90
Decrease relating to prior year tax positions (33) (3) (36)
Increase relating to current year tax positions 155 — 155
Decrease due to settlements with tax authorities (38) (13) (51)
Decrease as a result of the applicable statute of limitations (62) (15) (77)
Exchange rate differences (35) (8) (43)
Balance at December 31, 2015, which would, if recognized, affect the effective tax rate 744 145 889
Increase relating to prior year tax positions 88 74 162
Decrease relating to prior year tax positions (21) (20) (41)
Increase relating to current year tax positions 167 13 180
Decrease due to settlements with tax authorities (96) (21) (117)
Decrease as a result of the applicable statute of limitations (95) (13) (108)
Exchange rate differences (27) (6) (33)
Balance at December 31, 2016, which would, if recognized, affect the effective tax rate 760 172 932
Increase relating to prior year tax positions 115 103 218
Decrease relating to prior year tax positions (76) (37) (113)
Increase relating to current year tax positions 223 — 223
Decrease due to settlements with tax authorities (23) (2) (25)
Decrease as a result of the applicable statute of limitations (75) (12) (87)
Exchange rate differences 101 18 119
Balance at December 31, 2017, which would, if recognized, affect the effective tax rate 1,025 242 1,267

In 2017, 2016 and 2015, the “Increase relating to current year tax positions” included a total of $193 million,
$132 million and $127 million, respectively, in taxes related to the interpretation of tax law and double tax
treaty agreements by competent tax authorities.

At December 31, 2017, the Company expected the resolution, within the next twelve months, of
uncertain tax positions related to pending court cases amounting to $32 million for taxes, penalties and
interest. Otherwise, the Company had not identified any other significant changes which were
considered reasonably possible to occur within the next twelve months.

At December 31, 2017, the earliest significant open tax years that remained subject to examination were
the following:

Region Year
Europe 2011
The Americas 2014
Asia, Middle East and Africa 2008

—
Note 17
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.
186 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

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 Company recognizes in its Consolidated Balance Sheets the funded status of its defined benefit
pension plans, postretirement plans, and other employee‑related benefits measured as the difference
between the fair value of the plan assets and the benefit obligation.

Obligations and funded status of the plans

The change in benefit obligation, change in fair value of plan assets, and funded status recognized in
the Consolidated Balance Sheets were as follows:

Defined pension benefits Other postretirement benefits

($ in millions) 2017 2016 2017 2016
Benefit obligations at January 1, 10,896 11,224 147 178
Service cost 228 249 1 1
Interest cost 249 280 5 6
Contributions by plan participants 82 74 — —
Benefit payments (590) (596) (11) (11)
Benefit obligations of businesses acquired (divested) 64 (26) — —
Actuarial (gain) loss 228 375 (11) (17)
Plan amendments and other (22) (76) (1) (10)
Exchange rate differences 812 (608) 2 —
Benefit obligation at December 31, 11,947 10,896 132 147
Fair value of plan assets at January 1, 9,493 9,743 — —
Actual return on plan assets 644 659 — —
Contributions by employer 229 270 11 11
Contributions by plan participants 82 74 — —
Benefit payments (590) (596) (11) (11)
Plan assets of businesses acquired (divested) 52 — — —
Plan amendments and other (50) (133) — —
Exchange rate differences 674 (524) — —
Fair value of plan assets at December 31, 10,534 9,493 — —
Funded status – underfunded (1,413) (1,403) (132) (147)

The amounts recognized in "Accumulated other comprehensive loss" and "Noncontrolling interests" were:

Defined pension benefits Other postretirement benefits

December 31, ($ in millions) 2017 2016 2015 2017 2016 2015
Net actuarial (loss) gain (2,321) (2,237) (2,383) 20 10 (8)
Prior service credit 99 108 127 27 31 33
Amount recognized in OCI(1) and NCI(2) (2,222) (2,129) (2,256) 47 41 25
Taxes associated with amount recognized
in OCI and NCI 503 487 512 — — —
Amount recognized in OCI and NCI, net of tax(3) (1,719) (1,642) (1,744) 47 41 25
(1) OCI represents “Accumulated other comprehensive loss”.
(2) NCI represents “Noncontrolling interests”.
(3) NCI, net of tax, amounted to $0 million at December 31, 2017, 2016 and 2015.

In addition, the following amounts were recognized in the Company's Consolidated Balance Sheets:

Defined pension benefits Other postretirement benefits

December 31, ($ in millions) 2017 2016 2017 2016
Overfunded plans 122 68 — —
Underfunded plans – current (18) (16) (12) (13)
Underfunded plans – non-current (1,517) (1,455) (120) (134)
Funded status – underfunded (1,413) (1,403) (132) (147)
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 187

December 31, ($ in millions) 2017 2016

Non-current assets
Overfunded pension plans 122 68
Other employee-related benefits 22 22
Prepaid pension and other employee benefits 144 90

December 31, ($ in millions) 2017 2016

Current liabilities
Underfunded pension plans (18) (16)
Underfunded other postretirement benefit plans (12) (13)
Other employee-related benefits (17) (30)
Pension and other employee benefits (see Note 13) (47) (59)

December 31, ($ in millions) 2017 2016

Non-current liabilities
Underfunded pension plans (1,517) (1,455)
Underfunded other postretirement benefit plans (120) (134)
Other employee-related benefits (245) (245)
Pension and other employee benefits (1,882) (1,834)

The funded status, calculated using the projected benefit obligation (PBO) and fair value of plan assets,
for pension plans with a PBO in excess of fair value of plan assets (underfunded) or fair value of plan
assets in excess of PBO (overfunded), respectively, was:

2017 2016
December 31, ($ in millions) PBO Assets Difference PBO Assets Difference
PBO exceeds assets 11,034 9,499 (1,535) 9,892 8,420 (1,472)
Assets exceed PBO 913 1,035 122 1,004 1,073 69
Total 11,947 10,534 (1,413) 10,896 9,493 (1,403)

The accumulated benefit obligation (ABO) for all defined benefit pension plans was $11,683 million and
$10,612 million at December 31, 2017 and 2016, respectively. The funded status, calculated using the ABO
and fair value of plan assets for pension plans with ABO in excess of fair value of plan assets
(underfunded) or fair value of plan assets in excess of ABO (overfunded), respectively, was:

2017 2016
December 31, ($ in millions) ABO Assets Difference ABO Assets Difference
ABO exceeds assets 9,421 7,914 (1,507) 9,612 8,406 (1,206)
Assets exceed ABO 2,262 2,620 358 1,000 1,087 87
Total 11,683 10,534 (1,149) 10,612 9,493 (1,119)

All of the Company's other postretirement benefit plans are unfunded.

Components of net periodic benefit cost

Net periodic benefit cost consisted of the following:

Defined pension benefits Other postretirement benefits

($ in millions) 2017 2016 2015 2017 2016 2015
Service cost 228 249 267 1 1 1
Interest cost 249 280 305 5 6 8
Expected return on plan assets (407) (402) (456) — — —
Amortization of prior service cost (credit) 11 40 38 (5) (12) (9)
Amortization of net actuarial loss 91 85 112 (1) — 1
Curtailments, settlements and special
termination benefits 16 41 20 (1) — —
Net periodic benefit cost 188 293 286 (1) (5) 1

The net actuarial loss and prior service cost for defined pension benefits estimated to be amortized
from “Accumulated other comprehensive loss” into net periodic benefit cost in 2018 is $95 million and
$(13) million, respectively.
188 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

The net actuarial loss and net prior service credit for other postretirement benefits estimated to be
amortized from “Accumulated other comprehensive loss” into net periodic benefit cost in 2018 is
$(1) million and $(5) million, respectively.

Assumptions
The following weighted-average assumptions were used to determine benefit obligations:

Defined pension benefits Other postretirement benefits

December 31, (in %) 2017 2016 2017 2016
Discount rate 2.0 2.3 3.2 3.3
Rate of compensation increase 1.6 1.7 — —
Rate of pension increase 1.0 1.0 — —

The discount rate assumptions are based upon AA‑rated corporate bonds. In those countries with
sufficient liquidity in corporate bonds, the Company used the current market long‑term corporate bond
yields and matched the bond duration with the average duration of the pension liabilities. In those
countries where the liquidity of the AA‑rated corporate bonds was deemed to be insufficient, the
Company determined the discount rate by adding the credit spread derived from an AA corporate bond
index in another relevant liquid market, as adjusted for interest rate differentials, to the domestic
government bond curve or interest rate swap curve.

The following weighted‑average assumptions were used to determine the “Net periodic benefit cost”:

Defined pension benefits Other postretirement benefits

(in %) 2017 2016 2015 2017 2016 2015
Discount rate 2.3 2.6 2.6 3.3 3.6 3.5
Expected long-term rate of return on plan assets 4.2 4.3 4.6 — — —
Rate of compensation increase 1.7 1.5 1.7 — — —

The “Expected long‑term rate of return on plan assets” is derived for each benefit plan by considering
the expected future long‑term return assumption for each individual asset class. A single long‑term
return assumption is then derived for each plan based upon the plan’s target asset allocation.

The Company maintains other postretirement benefit plans, which are generally contributory with
participants’ contributions adjusted annually. The assumptions used were:

December 31, 2017 2016

Health care cost trend rate assumed for next year 7.1% 7.3%
Rate to which the trend rate is assumed to decline (the ultimate trend rate) 5.0% 5.0%
Year that the rate reaches the ultimate trend rate 2028 2028

A one-percentage-point change in assumed health care cost trend rates would have the following
effects at December 31, 2017:

1-percentage-point
($ in millions) Increase Decrease
Effect on postretirement benefit obligation 7 (6)

Plan assets
The Company has pension plans in various countries with the majority of the Company’s pension
liabilities deriving from a limited number of these countries.

The pension plans are typically funded by regular contributions from employees and the Company.
These plans are typically administered by boards of trustees (which include Company representatives)
whose primary responsibilities include ensuring that the plans meet their liabilities through
contributions and investment returns. The boards of trustees have the responsibility for making key
investment strategy decisions within a risk‑controlled framework.

The pension plan assets are invested in diversified portfolios that are managed by third‑party asset
managers, in accordance with local statutory regulations, pension plan rules and the respective plans’
investment guidelines, as approved by the boards of trustees.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 189

Plan assets are generally segregated from those of the Company and invested with the aim of meeting
the respective plans’ projected future pension liabilities. Plan assets are measured at fair value at the
balance sheet date.

The boards of trustees manage the assets of the pension plans in a risk‑controlled manner and assess
the risks embedded in the pension plans through asset/liability management studies. Asset/liability
management studies typically take place every three years. However, the risks of the plans are
monitored on an ongoing basis.

The board of trustees’ investment goal is to maximize the long‑term returns of plan assets within speci-
fied risk parameters, while considering the future liabilities and liquidity needs of the individual plans.
Risk measures taken into account include the funding ratio of the plan, the likelihood of extraordinary
cash contributions being required, the risk embedded in each individual asset class, and the plan asset
portfolio as a whole.

The Company’s global pension asset allocation is the result of the asset allocations of the individual
plans, which are set by the respective boards of trustees. The target asset allocation of the Company’s
plans on a weighted‑average basis is as follows:

(in %) Target
Asset class
Equity 21
Fixed income 59
Real estate 12
Other 8
100

The actual asset allocations of the plans are in line with the target asset allocations.

Equity assets primarily include investments in large‑cap and mid‑cap publicly traded companies.
Fixed income assets primarily include corporate bonds of companies from diverse industries and
government bonds. Both fixed income and equity assets are invested either via funds or directly in
segregated investment mandates, and include an allocation to emerging markets. Real estate
consists primarily of direct investments in real estate in Switzerland held in the Swiss plans.
The “Other” asset class includes investments in private equity, hedge funds, commodities, and cash
and reflects a variety of investment strategies.

Based on the above global asset allocation and the fair values of the plan assets, the expected
long‑term return on assets at December 31, 2017, is 4.1 percent. The Company and the local boards
of trustees regularly review the investment performance of the asset classes and individual asset
managers. Due to the diversified nature of the investments, the Company is of the opinion that no
significant concentration of risks exists in its pension fund assets.

The Company does not expect any plan assets to be returned to the employer during 2018.

At December 31, 2017 and 2016, plan assets include ABB Ltd’s shares (as well as an insignificant amount
of the Company’s debt instruments) with a total value of $11 million and $8 million, respectively.
190 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

The fair values of the Company’s pension plan assets by asset class are presented below. For further
information on the fair value hierarchy and an overview of the Company’s valuation techniques applied,
see the “Fair value measures” section of Note 2.

Total
December 31, 2017 ($ in millions) Level 1 Level 2 Level 3 fair value
Asset class
Equity
Equity securities 274 — — 274
Mutual funds/commingled funds — 1,772 — 1,772
Emerging market mutual funds/commingled funds — 507 — 507
Fixed income
Government and corporate securities 564 1,092 — 1,656
Government and corporate‑mutual funds/commingled funds — 3,622 — 3,622
Emerging market bonds‑mutual funds/commingled funds — 708 — 708
Real estate — 9 1,355 1,364
Insurance contracts — 113 — 113
Cash and short-term investments 162 140 — 302
Private equity — — 128 128
Hedge funds — — 15 15
Commodities — 73 — 73
Total 1,000 8,036 1,498 10,534

Total
December 31, 2016 ($ in millions) Level 1 Level 2 Level 3 fair value
Asset class
Equity
Equity securities 244 — — 244
Mutual funds/commingled funds — 1,610 — 1,610
Emerging market mutual funds/commingled funds — 337 — 337
Fixed income
Government and corporate securities 449 909 — 1,358
Government and corporate‑mutual funds/commingled funds — 3,446 — 3,446
Emerging market bonds‑mutual funds/commingled funds — 692 — 692
Real estate — 33 1,116 1,149
Insurance contracts — 99 — 99
Cash and short-term investments 260 104 — 364
Private equity — — 114 114
Hedge funds — — 13 13
Commodities — 67 — 67
Total 953 7,297 1,243 9,493

The following table represents the movements of those asset categories whose fair values use
significant unobservable inputs (Level 3):

Private Hedge Real Total

($ in millions) equity funds estate Level 3
Balance at January 1, 2016 123 94 1,106 1,323
Return on plan assets
Assets still held at December 31, 2016 (9) — 82 73
Assets sold during the year 15 (4) — 11
Purchases (sales) (13) (77) (1) (91)
Transfers from Level 3 1 — (3) (2)
Exchange rate differences (3) — (68) (71)
Balance at December 31, 2016 114 13 1,116 1,243
Return on plan assets
Assets still held at December 31, 2017 4 — 27 31
Assets sold during the year 10 — 5 15
Purchases (sales) (6) 2 142 138
Exchange rate differences 6 — 65 71
Balance at December 31, 2017 128 15 1,355 1,498
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 191

Real estate properties, which are primarily located in Switzerland, are valued under the income
approach using the discounted cash flow method, by which the market value of a property is
determined as the total of all projected future earnings discounted to the valuation date. The discount
rates are determined for each property individually according to the property’s location and specific
use, and by considering initial yields of comparable market transactions.

Private equity investments include investments in partnerships and related funds. Such investments
consist of publicly traded and privately held securities. Publicly traded securities that are quoted in
inactive markets are valued using available quotes and adjusted for liquidity restrictions. Privately held
securities are valued taking into account various factors, such as the most recent financing involving
unrelated new investors, earnings multiple analyses using comparable companies and discounted cash
flow analyses.

Hedge funds are not normally exchange‑traded and the shares of the funds cannot be redeemed daily.
Depending on the fund structure, the fair values are derived through modeling techniques based on the
values of the underlying assets adjusted to reflect liquidity and transferability restrictions.

Contributions
Employer contributions were as follows:

Defined pension benefits Other postretirement benefits

($ in millions) 2017 2016 2017 2016
Total contributions to defined benefit
pension and other postretirement benefit plans 229 270 11 11
Of which, discretionary contributions
to defined benefit pension plans 15 15 — —

In 2017, 2016 and 2015, total contributions included non‑cash contributions totaling $31 million,
$52 million and $22 million, respectively, of available‑for‑sale debt securities to certain of the
Company’s pension plans.

The Company expects to contribute approximately $212 million, including $15 million in discretionary
contributions, to its defined benefit pension plans in 2018. These discretionary contributions are
expected to be non‑cash contributions. The Company expects to contribute approximately $12 million
to its other postretirement benefit plans in 2018.

The Company also contributes to a number of defined contribution plans. The aggregate expense for
these plans was $233 million, $210 million and $218 million in 2017, 2016 and 2015, respectively.
Contributions to multi‑employer plans were not significant in 2017, 2016 and 2015.

Estimated future benefit payments

The expected future cash flows to be paid by the Company’s plans in respect of pension and other
postretirement benefit plans at December 31, 2017, are as follows:

($ in millions) Defined pension benefits Other postretirement benefits

2018 682 12
2019 632 12
2020 632 11
2021 613 11
2022 611 11
Years 2023 – 2027 2,948 46
192 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Note 18
Share‑based payment arrangements

The Company has three principal share‑based payment plans, as more fully described in the respective
sections below. Compensation cost for equity‑settled awards is recorded in “Total cost of sales” and in
“Selling, general and administrative expenses” and totaled $58 million, $54 million and $61 million in 2017,
2016 and 2015, respectively. Compensation cost for cash‑settled awards is recorded in “Selling, general
and administrative expenses” and is disclosed in the “WARs”, “LTIP” and “Other share‑based payments”
sections of this note. The total tax benefit recognized in 2017, 2016 and 2015 was not significant.

At December 31, 2017, the Company had the ability to issue up to 94 million new shares out of
contingent capital in connection with share‑based payment arrangements. In addition, 30 million
shares held by the Company as treasury stock at December 31, 2017, could be used to settle share‑based
payment arrangements.

As the primary trading market for the shares of ABB Ltd is the SIX Swiss Exchange (on which the shares
are traded in Swiss francs) and substantially all the share-based payment arrangements with employees
are based on the Swiss franc share or have strike prices set in Swiss francs, certain data disclosed below
related to the instruments granted under share‑based payment arrangements are presented in Swiss
francs.

MIP
Under the MIP, the Company offers options and cash‑settled WARs to key employees for no consideration.

The options granted under the MIP allow participants to purchase shares of ABB Ltd at predetermined
prices. Participants may sell the options rather than exercise the right to purchase shares. Equivalent
warrants are listed by a third‑party bank on the SIX Swiss Exchange, which facilitates pricing and
transferability of instruments granted under this plan. The options entitle the holder to request that the
third‑party bank purchase such options at the market price of equivalent listed warrants related to that
MIP launch. If the participant elects to sell the options, the instruments will thereafter be held by a third
party and, consequently, the Company’s obligation to deliver shares will be toward this third party. Each
WAR gives the participant the right to receive, in cash, the market price of an equivalent listed warrant on
the date of exercise of the WAR. Participants may exercise or sell options and exercise WARs after the
vesting period, which is three years from the date of grant. Vesting restrictions can be waived in certain
circumstances such as death or disability. All options and WARs expire six years from the date of grant.

Options
The fair value of each option is estimated on the date of grant using a lattice model that uses the
assumptions noted in the table below. Expected volatilities are based on implied volatilities from
equivalent listed warrants on ABB Ltd shares. The expected term of the options granted is the
contractual six‑year life of each option, based on the fact that after the vesting period, a participant can
elect to sell the option rather than exercise the right to purchase shares, thereby also realizing the time
value of the options. The risk‑free rate is based on a six‑year Swiss franc interest rate, reflecting the
six‑year contractual life of the options. In estimating forfeitures, the Company has used the data from
previous comparable MIP launches.

2017 2016 2015

Expected volatility 19% 19% 17%
Dividend yield 4.7% 4.9% 3.2%
Expected term 6 years 6 years 6 years
Risk-free interest rate −0.1% −0.5% −0.3%
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 193

Presented below is a summary of the activity related to options under the MIP:

Weighted-
Weighted- average
Number average remaining Aggregate
of Number exercise price contractual intrinsic value
instruments of shares (in Swiss term (in millions of
(in millions) (in millions)(1) francs)(2) (in years) Swiss francs)(3)
Outstanding at January 1, 2017 391.4 78.3 20.98
Granted 71.9 14.4 22.50
Exercised(4) (26.5) (5.3) 16.55
Forfeited (3.3) (0.7) 21.03
Expired (42.9) (8.6) 25.50
Outstanding at December 31, 2017 390.6 78.1 21.06 3.5 395

Vested and expected

to vest at December 31, 2017 383.7 76.7 21.04 3.4 390
Exercisable at December 31, 2017 188.9 37.8 20.88 2.2 198
(1) Information presented reflects the number of shares of ABB Ltd that can be received upon exercise, as warrants and options have
a conversion ratio of 5:1.
(2) Information presented reflects the exercise price per share of ABB Ltd.
(3) Computed using the closing price, in Swiss francs, of ABB Ltd shares on the SIX Swiss Exchange and the exercise price per share of ABB Ltd.
(4) The cash received upon exercise amounted to approximately $88 million. The shares were delivered out of treasury stock.

At December 31, 2017, there was $51 million of total unrecognized compensation cost related to
non‑vested options granted under the MIP. That cost is expected to be recognized over a
weighted‑average period of 2.1 years. The weighted‑average grant‑date fair value (per instrument) of
options granted during 2017, 2016 and 2015 was 0.47 Swiss francs, 0.47 Swiss francs and 0.39 Swiss
francs, respectively. In 2017, 2016 and 2015 the aggregate intrinsic value (on the date of exercise) of
instruments exercised was $38 million, $27 million and $10 million, respectively.

Presented below is a summary, by launch, related to instruments outstanding at December 31, 2017:

Number Number Weighted-average

of instruments of shares remaining contractual
Exercise price (in Swiss francs)(1) (in millions) (in millions)(2) term (in years)
15.75 6.7 1.3 0.4
17.50 2.6 0.5 0.4
21.50 81.2 16.2 1.4
21.00 72.6 14.5 2.7
19.50 79.3 15.9 3.6
21.50 76.6 15.4 4.7
22.50 71.6 14.3 5.6
Total number of instruments and shares 390.6 78.1 3.5
(1) Information presented reflects the exercise price per share of ABB Ltd.
(2) Information presented reflects the number of shares of ABB Ltd that can be received upon exercise.

WARs
As each WAR gives the holder the right to receive cash equal to the market price of the equivalent listed
warrant on date of exercise, the Company records a liability based upon the fair value of outstanding
WARs at each period end, accreted on a straight‑line basis over the three‑year vesting period. In
“Selling, general and administrative expenses”, the Company recorded an expense of $22 million and
$14 million in 2017 and 2016, as a result of changes in both the fair value and vested portion of the
outstanding WARs. The amount recorded in 2015 was not significant. To hedge its exposure to
fluctuations in the fair value of outstanding WARs, the Company purchased cash‑settled call options,
which entitle the Company to receive amounts equivalent to its obligations under the outstanding
WARs. The cash‑settled call options are recorded as derivatives measured at fair value (see Note 5), with
subsequent changes in fair value recorded in earnings to the extent that they offset the change in fair
value of the liability for the WARs. In 2017 the Company recorded an income of $18 million in “Selling,
general and administrative expenses” related to the cash‑settled call options. The amounts recorded in
2016 and 2015 were not significant.

The aggregate fair value of outstanding WARs was $42 million and $23 million at December 31, 2017 and
2016, respectively. The fair value of WARs was determined based upon the trading price of equivalent
warrants listed on the SIX Swiss Exchange.
194 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Presented below is a summary of the activity related to WARs:

(in millions) Number of WARs

Outstanding at January 1, 2017 47.3
Granted 8.5
Exercised (15.3)
Forfeited (0.5)
Expired (2.9)
Outstanding at December 31, 2017 37.1

Exercisable at December 31, 2017 10.8

The aggregate fair value at date of grant of WARs granted in 2017, 2016 and 2015 was not significant. In
2017, 2016 and 2015, share‑based liabilities of $10 million, $7 million and $9 million, respectively, were
paid upon exercise of WARs by participants.

ESAP
The employee share acquisition plan (ESAP) is an employee stock‑option plan with a savings feature.
Employees save over a twelve‑month period, by way of regular payroll deductions. At the end of the
savings period, employees choose whether to exercise their stock options using their savings plus
interest, if any, to buy ABB Ltd shares (American Depositary Shares (ADS) in the case of employees in
the United States and Canada — each ADS representing one registered share of the Company) at the
exercise price set at the grant date, or have their savings returned with any interest. The savings are
accumulated in bank accounts held by a third‑party trustee on behalf of the participants and earn
interest, where applicable. Employees can withdraw from the ESAP at any time during the savings
period and will be entitled to a refund of their accumulated savings.

The fair value of each option is estimated on the date of grant using the same option valuation model as
described under the MIP, using the assumptions noted in the table below. The expected term of the
option granted has been determined to be the contractual one‑year life of each option, at the end of
which the options vest and the participants are required to decide whether to exercise their options or
have their savings returned with interest. The risk‑free rate is based on one‑year Swiss franc interest
rates, reflecting the one‑year contractual life of the options. In estimating forfeitures, the Company has
used the data from previous ESAP launches.

2017 2016 2015

Expected volatility 17% 20% 20%
Dividend yield 3.1% 3.7% 3.9%
Expected term 1 year 1 year 1 year
Risk-free interest rate −0.6% −0.7% −0.8%

Presented below is a summary of activity under the ESAP:

Weighted Weighted Aggregate

-average -average intrinsic value
Number exercise price remaining (in millions
of shares (in Swiss contractual of Swiss
(in millions)(1) francs)(2) term (in years) francs)(2), (3)
Outstanding at January 1, 2017 3.4 20.12
Granted 2.9 26.26
Forfeited (0.2) 20.16
Exercised(4) (2.8) 20.12
Not exercised (savings returned plus interest) (0.4) 20.12
Outstanding at December 31, 2017 2.9 26.26 0.8 —

Vested and expected to vest at December 31, 2017 2.7 26.26 0.8 —
Exercisable at December 31, 2017 — — — —
(1) Includes shares represented by ADS.
(2) Information presented for ADS is based on equivalent Swiss franc denominated awards.
(3) Computed using the closing price, in Swiss francs, of ABB Ltd shares on the SIX Swiss Exchange and the exercise price of each option
in Swiss francs.
(4) The cash received upon exercise was approximately $60 million. The shares were delivered out of treasury stock.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 195

The exercise prices per ABB Ltd share and per ADS of 26.26 Swiss francs and $26.24, respectively, for the
2017 grant, 20.12 Swiss francs and $20.52, respectively, for the 2016 grant, and 18.78 Swiss francs and
$19.10, respectively, for the 2015 grant were determined using the closing price of the ABB Ltd share on
the SIX Swiss Exchange and ADS on the New York Stock Exchange on the respective grant dates.

At December 31, 2017, the total unrecognized compensation cost related to non‑vested options granted
under the ESAP was not significant. The weighted‑average grant‑date fair value (per option) of options
granted during 2017, 2016 and 2015 was 1.37 Swiss francs, 1.24 Swiss francs and 1.07 Swiss francs,
respectively. The total intrinsic value (on the date of exercise) of options exercised in 2017 was
$17 million while in 2016 and 2015 it was not significant.

LTIP
The Company has a long‑term incentive plan (LTIP) for members of its Executive Committee and
selected other senior executives (Eligible Participants), as defined in the terms of the LTIP. The LTIP
involves annual conditional grants of the Company’s stock to such Eligible Participants that are subject
to certain conditions.

The 2017 LTIP launch is composed of two performance components: (i) a component which is based on
the average percentage achievement of income from continuing operations, net of tax, versus budget
and (ii) a component which is based on the Company’s earnings per share performance. The 2016 and
2015 LTIP launches are each composed of two performance components: (i) a component which is
based on the achievement of a net income threshold and (ii) a component which is based on the
Company’s earnings per share performance.

For the average percentage achievement of income versus budget component of the 2017 LTIP launch,
the actual number of shares that will vest at a future date is dependent on the average percentage (of
each year in a three year period starting with the year of grant) of the Company’s income from
continuing operations, net of tax, divided by the Company’s budgeted income from operations, net of
tax. The actual number of shares that ultimately vest will vary depending on the average percentage
that is achieved between a lower threshold (no shares vest) and an upper threshold (the number of
shares vesting is capped at 150 percent of the conditional grant). For shares to vest under the threshold
net income component of the 2016 and 2015 LTIP launches, the Company’s net income has to reach a
certain level set by the Board of Directors at the launch of the LTIP. The shares will not vest if this
threshold is not achieved and will vest at 100 percent if this threshold is equaled or exceeded. In
addition, the Eligible Participant has to fulfill the service condition as defined in the terms and
conditions of the LTIP.

For the earnings per share performance component of the 2017, 2016 and 2015 LTIP launches, the actual
number of shares that will vest at a future date is dependent on (i) the Company’s weighted cumulative
earnings per share performance over three financial years, beginning with the year of launch, and (ii) the
fulfillment of the service condition as defined in the terms and conditions of the LTIP. The cumulative
earnings per share performance is weighted as follows: 33 percent of the first year’s result, 67 percent
of the second year’s result and 100 percent of the third year’s result. The actual number of shares that
ultimately vest will vary depending on the weighted cumulative earnings per share outcome,
interpolated between a lower threshold (no shares vest) and an upper threshold (the number of shares
vesting is capped at 200 percent of the conditional grant).

Under each component of the 2017, 2016 and 2015 LTIP launches, an Eligible Participant receives
70 percent of the shares that have vested in the form of shares and 30 percent of the value of the shares
that have vested in cash, with the possibility to elect to also receive the 30 percent portion in shares
rather than in cash.
196 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

Presented below is a summary of activity under the LTIP:

Number of Shares Conditionally Granted

Equity Weighted
& Cash or -average
choice of grant-date
100% Equity Only Cash fair value
Settlement(1) Settlement(2) Total per share
(in millions) (in millions) (in millions) (Swiss francs)
Nonvested at January 1, 2017 2.6 0.3 2.9 20.89
Granted 0.9 — 0.9 22.13
Vested (0.9) (0.1) (1.0) 20.66
Forfeited (0.1) (0.2) (0.3) 20.49
Nonvested at December 31, 2017 2.5 — 2.5 21.45
(1) Shares that, subject to vesting, the Eligible Participant can elect to receive 100 percent in the form of shares.
(2) Shares that, subject to vesting, the Eligible Participant can only receive in cash.

Equity‑settled awards are recorded in the “Additional paid‑in capital” component of stockholders’
equity, with compensation cost recorded in “Selling, general and administrative expenses” over the
vesting period (which is from grant date to the end of the vesting period) based on the grant‑date fair
value of the shares. Cash‑settled awards are recorded as a liability, remeasured at fair value at each
reporting date for the percentage vested, with changes in the liability recorded in “Selling, general and
administrative expenses”.

At December 31, 2017, there was $21 million of total unrecognized compensation cost related to
equity‑settled awards under the LTIP. That cost is expected to be recognized over a weighted‑average
period of 2 years. The compensation cost recorded in 2017, 2016 and 2015 for cash‑settled awards was
not significant.

The aggregate fair value, at the dates of grant, of shares granted in 2017, 2016 and 2015 was $22 million,
$22 million and $23 million, respectively. The total grant‑date fair value of shares that vested during
2017, 2016 and 2015 was $22 million, $15 million and $12 million, respectively. The weighted‑average
grant‑date fair value (per share) of shares granted during 2017, 2016 and 2015 was 22.13 Swiss francs,
20.77 Swiss francs and 21.54 Swiss francs, respectively.

For the average percentage achievement of income versus budget component of the 2017 LTIP launch
the fair value of granted shares is based on the market price of the ABB Ltd share at grant date for
equity‑settled awards and at each reporting date for cash‑settled awards, as well as the probable
outcome of the average percentage achievement of income versus budget that would result in the
vesting of the highest number of shares, as computed using a Monte Carlo simulation model. The main
inputs to this model are the Company’s and external financial analysts’ revenue growth rates and
Operational EBITA margin expectations. For the net income threshold component of the 2016 and 2015
LTIP launches, the fair value of the granted shares is based on the probability of reaching the threshold
as well as on the market price of the ABB Ltd share at grant date for equity‑settled awards and at each
reporting date for cash‑settled awards. For the earnings per share component of the LTIP launches, the
fair value of granted shares is based on the market price of the ABB Ltd share at grant date for
equity‑settled awards and at each reporting date for cash‑settled awards, as well as the probable
outcome of the earnings per share achievement that would result in the vesting of the highest number
of shares, as computed using a Monte Carlo simulation model. The main inputs to this model are the
Company’s and external financial analysts’ revenue growth rates and Operational EBITA margin
expectations.

Other share‑based payments

The Company has other minor share‑based payment arrangements with certain employees.
The compensation cost related to these arrangements in 2017, 2016 and 2015 was not significant.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 197

—
Note 19
Stockholders’ equity

At December 31, 2017 and 2016, the Company had 2,672 million and 2,719 million authorized shares,
respectively, of which 2,168 million and 2,215 million, respectively, were registered and issued.

At the Annual General Meeting of Shareholders (AGM) in April 2017, shareholders approved the proposal of
the Board of Directors to distribute a total of 0.76 Swiss francs per share. The approved dividend
distribution amounted to $1,622 million and was paid in April 2017. At the AGM in April 2016, shareholders
approved the proposal of the Board of Directors to distribute a total of 0.74 Swiss francs per share to
shareholders by way of a nominal value reduction (reduction in the par value of each share) from
0.86 Swiss francs to 0.12 Swiss francs. In July 2016, the nominal value reduction was registered in the
commercial register of the canton of Zurich, Switzerland, and was paid. The Company recorded a
reduction in Capital stock and an increase in Additional paid‑in capital of $1,239 million and $15 million,
respectively, and a reduction in Retained earnings of $402 million in relation to the nominal value
reduction. At the AGM in April 2015, shareholders approved the proposals of the Board of Directors to
distribute a total of 0.72 Swiss francs per share to shareholders, comprising of a dividend of 0.55 Swiss
francs paid out of ABB Ltd’s capital contribution reserves and a distribution of 0.17 Swiss francs by way of
a nominal value reduction from 1.03 Swiss francs to 0.86 Swiss francs. The approved dividend distribution
amounted to $1,317 million and was paid in May 2015. The nominal value reduction was registered in July
2015 in the commercial register of the canton of Zurich, Switzerland, and was paid. The approved nominal
value reduction was recorded as reductions to Capital stock and Additional paid‑in capital of $285 million
and $64 million, respectively, and a reduction in Retained earnings of $54 million.

Between September 2014 and September 2016, the Company executed a share buyback program for the
purchase of up to $4 billion of its own shares and on September 30, 2016, announced that it had
completed this program. Over the period of the share buyback, the Company purchased a total of
146.6 million shares (for approximately $3 billion) for cancellation and 24.7 million shares (for
approximately $0.5 billion) to support its employee share programs. The shares acquired for
cancellation were purchased through a separate trading line on the SIX Swiss Exchange (on which only
the Company could purchase shares), while shares acquired for delivery under employee share
programs were acquired through the ordinary trading line. In 2016, under the announced share buyback
program, the Company purchased 60.4 million shares for cancellation and 4.9 million shares to support
its employee share programs. These transactions resulted in an increase in Treasury stock of
$1,280 million. In 2015, under the program, the Company purchased 60.2 million shares for cancellation
and 13.1 million shares to support its employee share programs. These transactions resulted in an
increase in Treasury stock of $1,501 million.

In the second quarter of 2017, the Company purchased on the open market an aggregate of 10 million of
its own shares to be available for delivery under its employee share programs. These transactions
resulted in an increase in Treasury stock of $251 million.

At the AGM in April 2017, shareholders approved the proposal of the Board of Directors to reduce the
share capital of the Company by cancelling 46,595,000 treasury shares which were acquired under the
$4 billion share buyback program. This cancellation was completed in July 2017, resulting in a decrease
in Treasury stock of $953 million and a corresponding combined decrease in Capital stock, Additional
paid‑in capital and Retained earnings. At the AGM in April 2016, shareholders approved the proposal of
the Board of Directors to reduce the share capital of the Company by cancelling 100,000,000 treasury
shares which were acquired under the $4 billion share buyback program. This cancellation was
completed in July 2016, resulting in a decrease in Treasury stock of $2,047 million and a corresponding
combined decrease in Capital stock, Additional paid‑in capital and Retained earnings.

Upon and in connection with each launch of the Company’s MIP, the Company sold call options to a bank
at fair value, giving the bank the right to acquire shares equivalent to the number of shares represented
by the MIP WAR awards to participants. Under the terms of the agreement with the bank, the call
options can only be exercised by the bank to the extent that MIP participants have exercised their WARs.
At December 31, 2017, such call options representing 11.6 million shares and with strike prices ranging
from 15.75 to 22.50 Swiss francs (weighted‑average strike price of 21.02 Swiss francs) were held by the
198 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

bank. The call options expire in periods ranging from May 2018 to August 2023. However, only 4.2 million
of these instruments, with strike prices ranging from 15.75 to 21.50 Swiss francs (weighted‑average
strike price of 21.25 Swiss francs), could be exercised at December 31, 2017, under the terms of the
agreement with the bank.

In addition to the above, at December 31, 2017, the Company had further outstanding obligations to
deliver:
• up to 1.8 million shares relating to the options granted under the 2012 launches of the MIP, with a
weighted‑average strike price of 16.24 Swiss francs, vested in May 2015 and expiring in May 2018,
• up to 16.2 million shares relating to the options granted under the 2013 launch of the MIP, with a strike
price of 21.50 Swiss francs, vested in May 2016 and expiring in May 2019,
• up to 14.5 million shares relating to the options granted under the 2014 launch of the MIP, with a strike
price of 21.00 Swiss francs, vested in August 2017 and expiring in August 2020,
• up to 15.9 million shares relating to the options granted under the 2015 launch of the MIP, with a strike
price of 19.50 Swiss francs, vesting in August 2018 and expiring in August 2021,
• up to 15.4 million shares relating to the options granted under the 2016 launch of the MIP, with a strike
price of 21.50 Swiss francs, vesting in August 2019 and expiring in August 2022,
• up to 14.3 million shares relating to the options granted under the 2017 launch of the MIP, with a strike
price of 22.50 Swiss francs, vesting in August 2020 and expiring in August 2023,
• up to 3 million shares relating to the ESAP, vesting and expiring in October 2018,
• up to 4 million shares to Eligible Participants under the 2017, 2016 and 2015 launches of the LTIP,
vesting and expiring in June 2020, June 2019 and June 2018, respectively, and
• less than 1 million shares in connection with certain other share‑based payment arrangements with
employees.

See Note 18 for a description of the above share based‑payment arrangements.

In 2017, 2016 and 2015, the Company delivered 6.3 million, 8.9 million and 5.3 million shares, respectively,
out of treasury stock, for options exercised in relation to the MIP. In addition, in 2017 and 2016 the
Company delivered 2.8 million and 2.6 million shares from treasury stock under the ESAP. In 2015 the
number of shares delivered under the ESAP was not significant.

Amounts available to be distributed as dividends to the stockholders of ABB Ltd are based on the
requirements of Swiss law and ABB Ltd’s Articles of Incorporation, and are determined based on
amounts presented in the unconsolidated financial statements of ABB Ltd, prepared in accordance with
Swiss law. At December 31, 2017, the total unconsolidated stockholders’ equity of ABB Ltd was
8,654 million Swiss francs ($8,855 million), including 260 million Swiss francs ($266 million)
representing share capital, 9,029 million Swiss francs ($9,239 million) representing reserves and
635 million Swiss francs ($650 million) representing a reduction of equity for own shares (treasury
stock). Of the reserves, 635 million Swiss francs ($650 million) relating to own shares and 52 million
Swiss francs ($53 million) representing 20 percent of share capital, are restricted and not available for
distribution.

In February 2018, the Company announced that a proposal will be put to the 2018 AGM for approval by
the shareholders to distribute 0.78 Swiss francs per share to shareholders.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 199

—
Note 20
Earnings per share

Basic earnings per share is calculated by dividing income by the weighted‑average number of shares
outstanding during the year. Diluted earnings per share is calculated by dividing income by the
weighted‑average number of shares outstanding during the year, 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. In 2017, 2016 and 2015, outstanding securities
representing a maximum of 31 million, 87 million and 78 million shares, respectively, were excluded from
the calculation of diluted earnings per share as their inclusion would have been anti‑dilutive.

Basic earnings per share:

($ in millions, except per share data in $) 2017 2016 2015

Amounts attributable to ABB shareholders:

Income from continuing operations, net of tax 2,219 1,883 1,930
Income (loss) from discontinued operations, net of tax (6) 16 3
Net income 2,213 1,899 1,933

Weighted-average number of shares outstanding (in millions) 2,138 2,151 2,226

Basic earnings per share attributable to ABB shareholders:

Income from continuing operations, net of tax 1.04 0.88 0.87
Income (loss) from discontinued operations, net of tax — — —
Net income 1.04 0.88 0.87

Diluted earnings per share:

($ in millions, except per share data in $) 2017 2016 2015

Amounts attributable to ABB shareholders:

Income from continuing operations, net of tax 2,219 1,883 1,930
Income (loss) from discontinued operations, net of tax (6) 16 3
Net income 2,213 1,899 1,933

Weighted-average number of shares outstanding (in millions) 2,138 2,151 2,226

Effect of dilutive securities:

Call options and shares 10 3 4
Adjusted weighted-average number of shares outstanding (in millions) 2,148 2,154 2,230

Diluted earnings per share attributable to ABB shareholders:

Income from continuing operations, net of tax 1.03 0.87 0.87
Income (loss) from discontinued operations, net of tax — 0.01 —
Net income 1.03 0.88 0.87
200 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Note 21
Other comprehensive income

The following table includes amounts recorded within “Total other comprehensive income (loss)”
including the related income tax effects:

2017 2016 2015

Before Tax Net of Before Tax Net Before Tax Net
($ in millions) tax effect tax tax effect of tax tax effect of tax

Foreign currency translation adjustments:

Foreign currency translation adjustments 911 1 912 (469) (12) (481) (1,105) 47 (1,058)
Changes attributable to divestments(1) 12 — 12 7 — 7 — — —
Net change during the year 923 1 924 (462) (12) (474) (1,105) 47 (1,058)

Available-for-sale securities:
Net unrealized gains (losses) arising
during the year 1 — 1 — — — (8) 1 (7)
Reclassification adjustments for net
(gains) losses included in net income — — — — — — 1 — 1
Net change during the year 1 — 1 — — — (7) 1 (6)

Pension and other postretirement plans:

Prior service (costs) credits arising
during the year (20) 4 (16) (46) 6 (40) 113 (25) 88
Net actuarial gains (losses) arising
during the year (184) 45 (139) 38 6 44 285 (75) 210
Amortization of prior service cost
included in net income 6 — 6 28 (2) 26 29 (3) 26
Amortization of net actuarial loss
included in net income 90 (27) 63 85 (23) 62 113 (31) 82
Net losses from pension settlements
included in net income 13 (4) 9 37 (11) 26 15 (6) 9
Changes attributable to divestments(1) 8 (2) 6 — — — — — —
Net change during the year (87) 16 (71) 142 (24) 118 555 (140) 415

Cash flow hedge derivatives:

Net gains (losses) arising during the year 45 (7) 38 21 (5) 16 (26) 6 (20)
Reclassification adjustments for net
(gains) losses included in net income (26) 4 (22) (7) 1 (6) 39 (9) 30
Changes attributable to divestments(1) (4) 1 (3) — — — — — —
Net change during the year 15 (2) 13 14 (4) 10 13 (3) 10
Total other comprehensive income (loss) 852 15 867 (306) (40) (346) (544) (95) (639)
(1) Amounts in 2017 mainly relate to the divestment of the high-voltage cable system and cable accessories businesses and are included
in the net gain from sale of businesses (see Note 3).
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 201

The following table shows changes in “Accumulated other comprehensive loss” (OCI) attributable to
ABB, by component, net of tax:

Unrealized Pension Unrealized

Foreign gains (losses) and other gains (losses) Accumulated
currency on available postretirement of cash other
translation -for-sale plan flow hedge comprehensive
($ in millions) adjustments securities adjustments derivatives loss
Balance at January 1, 2015 (2,102) 13 (2,131) (21) (4,241)

Other comprehensive (loss) income

before reclassifications (1,058) (7) 298 (20) (787)
Amounts reclassified from OCI — 1 117 30 148
Total other comprehensive (loss) income (1,058) (6) 415 10 (639)

Less:
Amounts attributable to noncontrolling
interests (25) — 3 — (22)
Balance at December 31, 2015 (3,135) 7 (1,719) (11) (4,858)

Other comprehensive (loss) income

before reclassifications (481) — 4 16 (461)
Amounts reclassified from OCI — — 114 (6) 108
Changes attributable to divestments 7 — — — 7
Total other comprehensive (loss) income (474) — 118 10 (346)

Less:
Amounts attributable to noncontrolling
interests (17) — — — (17)
Balance at December 31, 2016 (3,592) 7 (1,601) (1) (5,187)

Other comprehensive (loss) income

before reclassifications 912 1 (155) 38 796
Amounts reclassified from OCI — — 78 (22) 56
Changes attributable to divestments 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)

The following table reflects amounts reclassified out of OCI in respect of Pension and other
postretirement plan adjustments:

($ in millions)
Location of (gains) losses
Details about OCI components reclassified from OCI 2017 2016 2015

Pension and other postretirement plan adjustments:

Amortization of prior service cost Net periodic benefit cost(1) 6 28 29
Amortization of net actuarial losses Net periodic benefit cost(1) 90 85 113
Net losses from pension settlements Net periodic benefit cost(1) 13 37 15
Total before tax 109 150 157
Tax Provision for taxes (31) (36) (40)
Amounts reclassified from OCI 78 114 117
(1) These components are included in the computation of net periodic benefit cost (see Note 17).

The amounts reclassified out of OCI in respect of Unrealized gains (losses) on available‑for‑sale
securities and Unrealized gains (losses) of cash flow hedge derivatives were not significant in 2017, 2016
and 2015.
202 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Note 22
Restructuring and related expenses

White Collar Productivity program

In September 2015, the Company announced a two-year program aimed at making the Company leaner,
faster and more customer-focused. Productivity improvements include the rapid expansion and use of
regional shared service centers as well as the streamlining of global operations and head office functions,
with business units moving closer to their respective key markets. During this program, the Company
implemented and executed 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.

The following table outlines the cumulative costs incurred and the total amount of costs under
the program per operating segment:

Costs incurred in Cumulative costs

incurred up to
($ in millions) 2017 2016(1) 2015(1) December 31, 2017(1)
Electrification Products (17) 15 74 72
Robotics and Motion (14) 26 44 56
Industrial Automation (22) 36 96 110
Power Grids (38) 33 70 65
Corporate and Other (34) 30 86 82
Total (125) 140 370 385
(1) Total costs have been recast to reflect the reorganization of the Company’s operating segments as outlined in Note 23.

The Company recorded the following expenses, net of changes in estimates, under this program:

Costs incurred in Cumulative costs

incurred up to
($ in millions) 2017 2016 2015 December 31, 2017
Employee severance costs (129) 130 364 365
Estimated contract settlement, loss order and other costs 3 2 5 10
Inventory and long-lived asset impairments 1 8 1 10
Total (125) 140 370 385

Expenses, net of changes in estimates, associated with this program are recorded in the following line
items in the Consolidated Income Statements:

($ in millions) 2017 2016 2015

Total cost of sales (79) 92 122
Selling, general and administrative expenses (42) 38 187
Non-order related research and development expenses (6) (5) 38
Other income (expense), net 2 15 23
Total (125) 140 370
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 203

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,
2017, by expense type:

Contract
settlement,
Employee loss order
severance and other
($ in millions) costs costs Total
Liability at January 1, 2015 — — —
Expenses 364 5 369
Cash payments (34) (1) (35)
Liability at December 31, 2015 330 4 334
Expenses 232 3 235
Cash payments (106) (3) (109)
Change in estimates (102) (1) (103)
Exchange rate differences (23) — (23)
Liability at December 31, 2016 331 3 334
Expenses 35 3 38
Cash payments (110) (5) (115)
Change in estimates (164) — (164)
Exchange rate differences 28 — 28
Liability at December 31, 2017 120 1 121

The change in estimates during 2016 of $103 million is due to significantly higher than expected rates
of attrition and internal redeployment and a lower than expected severance cost per employee for the
employee groups affected by the first phase of restructuring initiated in 2015. The reduction in the
liability was recorded in income from operations, primarily as reductions in “Total cost of sales” of
$49 million and in “Selling, general and administrative expenses” of $38 million.

The change in estimates during 2017 of $164 million is mainly due to higher than expected rates of
attrition and internal redeployment. The reduction in the liability was recorded in income from
operations, primarily as reductions in “Total cost of sales” of $90 million and in “Selling, general and
administrative expenses” of $63 million.

Other restructuring-related activities

In 2017, 2016 and 2015, the Company executed various other restructuring‑related activities and
incurred charges of $249 million, $171 million and $256 million, respectively.

($ in millions) 2017 2016 2015

Employee severance costs 184 90 207
Estimated contract settlement, loss order and other costs 40 40 27
Inventory and long-lived asset impairments 25 41 22
Total 249 171 256

In 2017, 2016 and 2015, $166 million, $90 million and $162 million, respectively, of these expenses were
recorded in “Total cost of sales” and $68 million, $71 million and $57 million, respectively, were recorded
in “Other income (expense), net”.

At December 31, 2017 and 2016, the balance of other restructuring-related liabilities is primarily included
in “Other provisions”.

Change in estimates
In addition to the change in estimate of $164 million and $103 million, in 2017 and 2016, respectively,
relating to the White Collar Productivity program, a further $58 million and $46 million was recorded in
2017 and 2016, respectively, as a change in estimate to reduce liabilities associated with the Company’s
other restructuring-related activities mainly due to changes in the planned scope of these activities.
These were recorded in income from operations, primarily as reductions in “Total cost of sales”. The
combined total change in estimates during 2017 and 2016 of $222 million and $149 million, respectively,
resulted in an increase in earnings per share (basic and diluted) of $0.08 in 2017 and $0.05 in 2016.
204 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

—
Note 23
Operating segment and geographic 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’s operating segments consist of Electrification Products, Robotics and Motion,
Industrial Automation and Power Grids. The remaining operations of the Company are included in
Corporate and Other.

Effective January 1, 2017, the Company re-allocated the management responsibilities for certain
businesses among the four reported operating segments. The primary change was the transfer to the
Electrification Products segment of the electric vehicle charging, solar, and power quality businesses
from the Discrete Automation and Motion segment. In addition, the Discrete Automation and Motion
segment was renamed the Robotics and Motion segment while the Process Automation segment was
renamed the Industrial Automation segment.

The segment information for 2016 and 2015, and at December 31, 2016 and 2015, has been recast to
reflect these organizational changes. In addition, total assets at December 31, 2016 and 2015, have been
adjusted to reflect the additional netting of deferred tax assets and liabilities which resulted from the
adoption of an accounting standard update on the classification of deferred taxes.

Furthermore, the results for both the Company’s high-voltage cable and cables accessories businesses
which, prior to their divestment in March 2017, were included within the Power Grids operating
segment, and the Company’s Oil & Gas EPC business which, prior to its divestment in December 2017,
were included within the Industrial Automation segment, have been reclassified to Corporate and Other
for all periods presented.

A description of the types of products and services provided by each reportable segment is as follows:

• Electrification Products: manufactures and sells products and services including electric vehicle
charging, solar inverters, modular substation packages, switchgear, UPS solutions, circuit breakers,
control products, wiring accessories, enclosures and cabling systems, and intelligent home and
building solutions designed to integrate and automate the lighting, heating and ventilation, and
security and data communication networks.

• 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.

• 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.

• Power Grids: offers a range of products, systems, service and software solutions across the power
value chain of generation, transmission and distribution, to utility, industry, transportation and
infrastructure customers. These offerings address existing and evolving grid needs such as the
integration of renewables, network control, digital substations, microgrids and asset management.
The division portfolio includes turnkey grid integration, transmission systems and substation
solutions as well as a wide range of power, distribution and traction transformers, and an array of
high-voltage products, such as circuit breakers, switchgear, capacitors.

• Corporate and Other: includes headquarters, central research and development, the Company’s real
estate activities, Group Treasury Operations, historical operating activities of certain divested
businesses, and other minor business activities.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 205

The Company evaluates the profitability of its segments based on Operational EBITA, which represents
income from operations excluding:
• amortization expense on intangibles arising upon acquisition (acquisition-related amortization),
• restructuring and restructuring-related expenses,
• non-operational pension cost comprising: (a) interest cost, (b) expected return on plan assets, (c)
amortization of prior service cost (credit), (d) amortization of net actuarial loss, and (e) curtailments,
settlements and special termination benefits,
• changes in the amount recorded for retained obligations of divested businesses occurring after the
divestment date (changes in retained obligations of 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-related expenses and certain 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).

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 segment revenues, Operational EBITA, the reconciliations of consolidated
Operational EBITA to income from continuing operations before taxes, as well as depreciation and
amortization, and capital expenditures for 2017, 2016 and 2015, as well as total assets at December 31,
2017, 2016 and 2015.

2017
($ in millions) Third-party revenues Intersegment revenues Total revenues
Electrification Products 9,591 503 10,094
Robotics and Motion 7,882 519 8,401
Industrial Automation 6,725 155 6,880
Power Grids 9,904 490 10,394
Corporate and Other 210 1,535 1,745
Intersegment elimination — (3,202) (3,202)
Consolidated 34,312 — 34,312

2016
($ in millions) Third-party revenues Intersegment revenues Total revenues
Electrification Products 9,337 583 9,920
Robotics and Motion 7,404 502 7,906
Industrial Automation 6,490 164 6,654
Power Grids 10,097 563 10,660
Corporate and Other 500 1,785 2,285
Intersegment elimination — (3,597) (3,597)
Consolidated 33,828 — 33,828

2015
($ in millions) Third-party revenues Intersegment revenues Total revenues
Electrification Products 9,634 641 10,275
Robotics and Motion 7,597 591 8,188
Industrial Automation 7,075 144 7,219
Power Grids 10,510 735 11,245
Corporate and Other 665 1,768 2,433
Intersegment elimination — (3,879) (3,879)
Consolidated 35,481 — 35,481
206 A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP

($ in millions) 2017 2016 2015

Operational EBITA:
Electrification Products 1,510 1,459 1,520
Robotics and Motion 1,178 1,223 1,288
Industrial Automation 953 897 977
Power Grids 972 998 810
Corporate and Other and Intersegment elimination (483) (386) (386)
Consolidated Operational EBITA 4,130 4,191 4,209
Acquisition-related amortization (264) (279) (310)
Restructuring and restructuring-related expenses(1) (363) (543) (674)
Non-operational pension cost 42 (38) (19)
Changes in retained obligations of divested businesses (94) — —
Changes in pre-acquisition estimates (8) (131) (21)
Gains and losses on sale of businesses 252 (10) (20)
Acquisition-related expenses and certain non-operational items (322) (163) (100)
Foreign exchange/commodity timing differences in income from operations:
Unrealized gains and losses on derivatives
where the underlying hedged transaction has not yet been realized 126 (65) 67
Realized gains and losses on derivatives
where the underlying hedged transaction has not yet been realized 32 (5) (68)
Unrealized foreign exchange movements
on receivables/payables (and related assets/liabilities) (97) 30 (15)
Income from operations 3,434 2,987 3,049
Interest and dividend income 74 73 77
Interest and other finance expense (277) (261) (286)
Income from continuing operations before taxes 3,231 2,799 2,840
(1) Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

Depreciation Total assets(1)

and amortization Capital expenditure(1) at December 31,
($ in millions) 2017 2016 2015 2017 2016 2015 2017 2016 2015
Electrification Products 315 348 364 218 215 228 10,278 9,881 9,955
Robotics and Motion 216 249 246 118 112 126 8,061 7,943 8,600
Industrial Automation 114 76 80 71 53 57 7,239 4,184 4,586
Power Grids 239 242 259 171 172 150 9,017 8,623 9,032
Corporate and Other 217 220 211 371 279 315 8,667 8,571 8,899
Consolidated 1,101 1,135 1,160 949 831 876 43,262 39,202 41,072
(1) Capital expenditure and Total assets are after intersegment eliminations and therefore reflect third-party activities only.

Geographic information
Geographic information for revenues and long-lived assets was as follows:

Long-lived assets
Revenues at December 31,
($ in millions) 2017 2016 2015 2017 2016
Europe 11,840 11,315 11,602 3,195 2,768
The Americas 9,713 9,741 10,554 1,151 1,100
Asia, Middle East and Africa 12,759 12,772 13,325 1,017 875
Total 34,312 33,828 35,481 5,363 4,743

Revenues by geography reflect the location of the customer. Approximately 20 percent, 19 percent and
20 percent of the Company’s total revenues in 2017, 2016 and 2015, respectively, came from customers
in the United States. Approximately 15 percent, 14 percent and 14 percent of the Company’s total
revenues in 2017, 2016 and 2015, respectively, were generated from customers in China. In 2017, 2016 and
2015, more than 98 percent of the Company’s total revenues were generated from customers outside
Switzerland.

Long‑lived assets represent “Property, plant and equipment, net” and are shown by location of the
assets. At December 31, 2017, approximately 16 percent, 15 percent and 10 percent of the Company’s
long‑lived assets were located in the U.S., Switzerland and Sweden, respectively. At December 31, 2016,
approximately 17 percent, 17 percent and 10 percent of the Company’s long‑lived assets were located in
Switzerland, the U.S. and Sweden.
A B B A N N U A L R E P O R T 2 0 17 04 FINANCIAL RE VIE W OF ABB GROUP 207

The Company does not segregate revenues derived from transactions with external customers
for each type or group of products and services. Accordingly, it is not practicable for the
Company to present revenues from external customers by product and service type.

EPC business model change

On December 20, 2017, the Company announced a planned change to the management and
oversight of the remaining activities of its engineering, procurement and construction (EPC)
businesses. Effective January 1, 2018, management responsibility and oversight of certain
remaining EPC businesses, currently included in the Power Grids and Robotics and Motion
operating segments, will be transferred outside of the respective former operating divisions.
The new management structure will result in these businesses being included in Corporate and
Other starting in 2018.
05
ABB Ltd
Statutory
Financial
Statements
—
208 – 227
ABB Ltd Management Report 2017
—
212 – 212

Financial Statements 2017

ABB Ltd, Zurich
—
213 –214

Notes to Financial Statements

—
215 –225

Proposed appropriation of available

earnings
—
226 –226

Report of the Statutory Auditor on the

Financial Statements
—
227 –227
212 A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S

—
ABB Ltd Management Report 2017
ABB Ltd is the holding company of the ABB Group,
owning directly or indirectly all subsidiaries
­globally.

The major business activities

during 2017 can be summarized
as follows:
Management services
The Company provided management services
to a Group company of CHF 26 million.

Share transactions
• share buyback for employee share programs
of CHF 244 million;
• share deliveries for employee share programs
of CHF 207 million.

Dividend payment to external shareholders

• from retained earnings of CHF 1,288 million.

Share capital
The Company reduced its share capital by
CHF 6 million in form of cancellation of 47 million
shares of a par value of CHF 0.12.

Other information
In 2017, the Company employed on average
21 employees.

Once a year, the Company’s Board of Directors

performs a risk assessment in accordance with
the Group’s risk management process and
discusses appropriate actions if necessary.

The Company does not carry out any research

and development business.

In 2018, the Company will continue to operate

as the holding company of the ABB Group.
No change of business is expected.

February 22, 2018

A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S 213

—
Financial Statements 2017
ABB Ltd, Zurich
Income Statement
Year ended December 31 (CHF in thousands) Note 2017 2016
Dividend income 8 1,000,000 2,000,000
Finance income 28,179 20,719
Other operating income 9 39,981 41,862
Finance expenses (45,939) (67,035)
Personnel expenses (38,761) (38,039)
Other operating expenses (32,918) (29,344)
Net income before taxes 950,542 1,928,163
Income taxes (802) (3,352)
Net income 949,740 1,924,811

Balance Sheet
December 31 (CHF in thousands) Note 2017 2016
Cash 689 739
Cash deposit with ABB Group Treasury Operations 2 503,868 841,331
Non-trade receivables 153 105
Non-trade receivables – Group 7,682 8,113
Accrued income and prepaid expenses 807 —
Accrued income and prepaid expenses – Group 3,452 1,828
Other short-term assets 562 —
Total current assets 517,213 852,116

Long-term loans – Group 806,273 510,675

Participation 3 8,973,229 8,973,229
Other long-term assets 2,096 3,810
Total non-current assets 9,781,598 9,487,714
Total assets 10,298,811 10,339,830

Non-trade payables 9,897 7,135

Non-trade payables – Group 2,670 1,763
Deferred income and accrued expenses 124,598 90,740
Deferred income and accrued expenses – Group 1,489 495
Interest-bearing liabilities 5 350,016 —
Total current liabilities 488,670 100,133

Interest-bearing liabilities 5 350,000 700,034

Interest-bearing liabilities – Group 5 806,273 510,675
Total non-current liabilities 1,156,273 1,210,709
Total liabilities 1,644,943 1,310,842

Share capital 7 260,178 265,769

Legal reserves
Legal reserves from capital contribution 7 30,430 30,430
Legal reserves from retained earnings 7 1,000,000 1,000,000
Free reserves
Retained earnings 7 7,048,809 7,327,872
Net income 949,740 1,924,811
Own shares 7 (635,289) (1,519,894)
Total stockholders’ equity 8,653.868 9,028,988
Total liabilities and stockholders’ equity 10,298,811 10,339,830
214 A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S

Cash Flow Statement

Year ended December 31 (CHF in thousands) Note 2017 2016

Operating activities:
Net income 949,740 1,924,811

Adjustments to reconcile net income to net cash provided by operating activities:

Reversal of amortization other assets 1,152 1,831
Change in valuation of bonds 5 (18) 207

Changes in operating assets and liabilities:

Receivables (2,048) 3,580
Current liabilities (excl. interest-bearing liabilities) 38,521 14,720
Net cash provided by operating activities 987,347 1,945,149

Investing activities:
Loans granted to Group companies (295,598) (510,675)
Net cash used in investing activities (295,598) (510,675)

Financing activities:
Repayment of Bond 2011 – 2016 5 — (500,000)
Loans granted by Group companies 5 295,598 510,675
Purchase of own shares 7 (243,746) (1,254,379)
Delivery of own shares 7 206,644 251,809
Dividends paid 7 (1,287,758) (1,580,561)
thereof from retained earnings 7 (1,287,758) —
thereof from nominal value reduction 7 — (1,580,561)
Net cash used in financing activities (1,029,262) (2,572,456)
Net change in cash and equivalents (337,513) (1,137,982)

Cash and equivalents, opening balance 842,070 1,980,052

Cash and equivalents, closing balance 504,557 842,070
A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S 215

—
Notes to Financial Statements
—
Note 1
General
ABB Ltd, Zurich, Switzerland (the Company) is the parent company of the ABB Group. Its unconsolidated
financial statements are prepared in accordance with Swiss law and serve as complementary
information to the consolidated financial statements.

The financial statements have been prepared in accordance with Article 957 et seqq. of Title 32 of the
Swiss Code of Obligations.

Group companies are all companies in which the Company, directly or indirectly, has more than 50% of
the voting rights or over which it exerts a significant influence. A Group company is fully consolidated.

—
Note 2
Cash deposit with ABB Group Treasury Operations
The Company deposits available cash in Swiss francs with Group Treasury Operations. The deposits are
stated at the lower of cost or fair value.

—
Note 3
Participation
December 31, 2017 and 2016
Ownership and
Company name Purpose Domicile Share capital voting rights
ABB Asea Brown Boveri Ltd Holding CH-Zurich CHF 2,768,000,000 100%

The participation is valued at the lower of cost or fair value, using generally accepted valuation principles.
216 A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S

—
Note 4
Indirect Participations
The following tables set forth the name, country of incorporation, ownership and voting rights, as well as
share capital, of the significant indirect subsidiaries of the Company, as of December 31, 2017 and 2016.

ABB ABB
ownership Share ownership Share
and voting capital in and voting capital in
rights % thousands rights % thousands
Company name/location Country 2017 2017 2016 2016 Currency
SARPI – Société Algérienne pour la réalisation
de projets industriels, Alger Algeria 50.00 814,500 50.00 814,500 DZD
ABB S.A., Buenos Aires Argentina 100.00 278,860 100.00 278,860 ARS
ABB Australia Pty Limited, Moorebank, NSW Australia 100.00 131,218 100.00 131,218 AUD
ABB Group Investment Management Pty. Ltd.,
Moorebank, NSW Australia 100.00 505,312 100.00 355,312 AUD
B&R Holding GmbH, Eggelsberg Austria 100.00 35 — — EUR
B&R Industrial Automation GmbH, Eggelsberg Austria 100.00 1,240 — — EUR
ABB N.V., Zaventem Belgium 100.00 13,290 100.00 13,290 EUR
ABB Ltda., São Paolo Brazil 100.00 689,793 100.00 689,793 BRL
ABB Bulgaria EOOD, Sofia Bulgaria 100.00 65,110 100.00 65,110 BGN
ABB Canada Holding Limited Partnership,
Saint-Laurent, Quebec Canada 100.00 — 100.00 — CAD
ABB Inc., Saint-Laurent, Quebec Canada 100.00 — (1) 100.00 — (1) CAD
Thomas & Betts Limited, Saint-Jean-sur-Richelieu,
Quebec Canada 100.00 — (1) 100.00 — (1) CAD
ABB Beijing Drive Systems Co. Ltd., Beijing China 90.00 5,000 90.00 5,000 USD
ABB (China) Ltd., Beijing China 100.00 310,000 100.00 310,000 USD
ABB Engineering (Shanghai) Ltd., Shanghai China 100.00 40,000 100.00 40,000 USD
ABB High Voltage Switchgear Co. Ltd., Beijing China 60.00 11,400 60.00 11,400 USD
ABB Xiamen Low Voltage Equipment Co. Ltd.,
Xiamen China 100.00 15,800 100.00 15,800 USD
ABB Xiamen Switchgear Co. Ltd., Xiamen China 64.30 23,500 64.30 23,500 USD
ABB Xinhui Low Voltage Switchgear Co. Ltd., Xinhui China 90.00 6,200 90.00 6,200 USD
ABB s.r.o., Prague Czech Republic 100.00 400,000 100.00 400,000 CZK
ABB A/S, Skovlunde Denmark 100.00 100,000 100.00 100,000 DKK
ABB for Electrical Industries (ABB ARAB) S.A.E.,
Cairo Egypt 100.00 353,479 100.00 353,479 EGP
Asea Brown Boveri S.A.E., Cairo Egypt 100.00 166,000 100.00 166,000 USD
ABB AS, Jüri Estonia 100.00 1,663 100.00 1,663 EUR
ABB Oy, Helsinki Finland 100.00 10,003 100.00 10,003 EUR
ABB France, Cergy Pontoise France 99.83 25,778 99.83 25,778 EUR
ABB SAS, Cergy Pontoise France 100.00 45,921 100.00 45,921 EUR
ABB AG, Mannheim Germany 100.00 167,500 100.00 167,500 EUR
ABB Automation GmbH, Mannheim Germany 100.00 15,000 100.00 15,000 EUR
ABB Automation Products GmbH, Ladenburg Germany 100.00 10,620 100.00 10,620 EUR
ABB Beteiligungs- und Verwaltungsges. mbH,
Mannheim Germany 100.00 61,355 100.00 61,355 EUR
ABB Stotz-Kontakt GmbH, Heidelberg Germany 100.00 7,500 100.00 7,500 EUR
Busch-Jaeger Elektro GmbH, Lüdenscheid Germany 100.00 1,535 100.00 1,535 EUR
ABB Holding Ltd., Hong Kong Hong Kong 100.00 27,887 100.00 27,887 HKD
ABB (Hong Kong) Ltd., Hong Kong Hong Kong 100.00 20,000 100.00 20,000 HKD
ABB Global Industries and Services Private Limited,
Bangalore India 100.00 190,000 100.00 408,930 INR
ABB India Limited, Bangalore India 75.00 423,817 75.00 423,817 INR
ABB S.p.A., Milan Italy 100.00 110,000 100.00 110,000 EUR
Power-One Italy S.p.A., Terranuova Bracciolini (AR) Italy 100.00 22,000 100.00 22,000 EUR
ABB K.K., Tokyo Japan 100.00 1,000,000 100.00 1,000,000 JPY
Korea,
ABB Ltd., Seoul Republic of 100.00 23,670,000 100.00 18,670,000 KRW
ABB Holdings Sdn. Bhd., Suband Jaya Malaysia — (3) — (3) 100.00 4,490 MYR
ABB Malaysia Sdn. Bhd., Suband Jaya Malaysia — (3) — (3) 100.00 3,500 MYR
 A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S 217

ABB ABB
ownership Share ownership Share
and voting capital in and voting capital in
rights % thousands rights % thousands
Company name/location Country 2017 2017 2016 2016 Currency
ABB Mexico S.A. de C.V., San Luis Potosi SLP Mexico 100.00 633,368 100.00 633,368 MXN
Asea Brown Boveri S.A. de C.V., San Luis Potosi SLP Mexico 100.00 667,686 100.00 667,686 MXN
ABB B.V., Rotterdam Netherlands 100.00 9,200 100.00 9,200 EUR
ABB Capital B.V., Rotterdam Netherlands 100.00 1,000 100.00 1,000 USD
ABB Finance B.V., Rotterdam Netherlands 100.00 20 100.00 20 EUR
ABB Holdings B.V., Rotterdam Netherlands 100.00 119 100.00 119 EUR
ABB Investments B.V., Rotterdam Netherlands 100.00 100 100.00 100 EUR
ABB AS, Billingstad Norway 100.00 250,000 100.00 250,000 NOK
ABB Holding AS, Billingstad Norway 100.00 240,000 100.00 240,000 NOK
ABB Business Services Sp. z o.o., Warsaw Poland 99.92 50 — (3) — (3) PLN
ABB Sp. z o.o., Warsaw Poland 99.92 350,656 99.92 350,656 PLN
Russian
ABB Ltd., Moscow Federation 100.00 5,686 100.00 5,686 RUB
ABB Contracting Company Ltd., Riyadh Saudi Arabia 95.00 40,000 65.00 40,000 SAR
ABB Electrical Industries Co. Ltd., Riyadh Saudi Arabia 65.00 168,750 65.00 168,750 SAR
ABB Holdings Pte. Ltd., Singapore Singapore 100.00 32,797 100.00 32,797 SGD
ABB Pte. Ltd., Singapore Singapore 100.00 28,842 100.00 28,842 SGD
ABB Holdings (Pty) Ltd., Longmeadow South Africa 100.00 4,050 100.00 4,050 ZAR
ABB South Africa (Pty) Ltd., Longmeadow South Africa 74.91 1 74.91 1 ZAR
Asea Brown Boveri S.A., Madrid Spain 100.00 33,318 100.00 33,318 EUR
ABB AB, Västerås Sweden 100.00 400,000 100.00 400,000 SEK
ABB Norden Holding AB, Västerås Sweden 100.00 2,344,783 100.00 2,344,783 SEK
ABB Information Systems Ltd., Zurich Switzerland 100.00 500 100.00 500 CHF
ABB Investment Holding GmbH, Zurich Switzerland 100.00 92,054 100.00 92,054 CHF
ABB Management Services Ltd., Zurich Switzerland 100.00 571 100.00 571 CHF
ABB Schweiz AG, Baden Switzerland 100.00 55,000 100.00 55,000 CHF
ABB Turbo Systems AG, Baden Switzerland 100.00 10,000 100.00 10,000 CHF
ABB LIMITED, Bangkok Thailand 100.00 1,034,000 100.00 1,034,000 THB
ABB Elektrik Sanayi A.S., Istanbul Turkey 99.99 13,410 99.95 13,410 TRY
United Arab
ABB Industries (L.L.C.), Dubai Emirates 49.00(2) 5,000 49.00(2) 5,000 AED
United
ABB Holdings Limited, Warrington Kingdom 100.00 226,014 100.00 226,014 GBP
United
ABB Limited, Warrington Kingdom 100.00 120,000 100.00 120,000 GBP
ABB Finance (USA) Inc., Wilmington, DE United States 100.00 1 100.00 1 USD
ABB Holdings Inc., Cary, NC United States 100.00 2 100.00 2 USD
ABB Inc., Cary, NC United States 100.00 1 100.00 1 USD
ABB Treasury Center (USA), Inc., Wilmington, DE United States 100.00 1 100.00 1 USD
Baldor Electric Company, Fort Smith, AR United States 100.00 — 100.00 — USD
Edison Holding Corporation, Wilmington, DE United States 100.00 10 100.00 10 USD
Thomas & Betts Corporation, Knoxville, TN United States 100.00 1 100.00 1 USD
Verdi Holding Corporation, Wilmington, DE United States 100.00 — 100.00 — USD
(1) Shares without par value.
(2) Company consolidated as ABB exercises full management control.
(3) Based on the internal defined thresholds, these indirect participations are considered not significant, and therefore no details to these
­participations are disclosed in the respective year.
218 A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S

—
Note 5
Interest-bearing liabilities
December 31 (CHF in thousands) 2017 2016
Bonds 2012–2018 1.5% coupon nominal value 350,000 350,000
premium on issuance 16 34
Bonds 2011–2021 2.25% coupon nominal value 350,000 350,000
Loan 2016–2024, $475 million (in 2016 $500 million) Group 464,218 510,675
Loan 2017–2027, $350 million Group 342,055 —
Total 1,506,289 1,210,709
thereof current liabilities 350,016 —
thereof non-current liabilities 1,156,273 1,210,709

The 1.5% bonds, due 2018 and the 2.25% bonds, due 2021, pay interest annually in arrears, at fixed
annual rates of 1.5% and 2.25%, respectively. The Company has the option to redeem the bonds prior to
maturity, in whole, at par plus accrued interest, if 85% of the aggregate principle amount of the bonds
has been redeemed or purchased and cancelled.

The bonds, issued prior to January 1, 2013, are stated at their nominal value less any discount or plus any
premium on issuance. Bonds are accreted/amortized to par over the period to maturity.

The Company has, through Group Treasury Operations, entered into an interest rate swap with a bank
to effectively convert the bonds maturing 2021 into floating rate obligations.

In 2016, the Company entered into a loan agreement of USD 500 million with Group Treasury Operations
due in 2024 to hedge the USD 500 million loan granted to a Group company. In 2017, the Company repaid
USD 25 million. The average interest in 2017 and 2016 was 2.11% and 1.65%, respectively.

In 2017, the Company entered into a loan agreement of USD 350 million with Group Treasury Operations
due in 2027 to hedge the USD 350 million loan granted to a Group company. The average interest in 2017
was 2.20%.

—
Note 6
Contingent liabilities
The Company has issued a support letter to a surety institution for the issuance of surety bonds on
behalf of Group companies. The amount issued under this letter was CHF 732,975 thousand as of
December 31, 2017 and CHF 766,013 thousand as of December 31, 2016.

With certain Group companies, the Company has keep-well agreements. A keep-well agreement is a
shareholder agreement between the Company and a Group company. These agreements provide for
maintenance of a minimum net worth in the Group company and the maintenance of 100% direct or
indirect ownership by the Company.

The keep-well agreements additionally provide that if at any time the Group company has insufficient
liquid assets to meet any payment obligation on its debt (as defined in the agreements) and has
insufficient unused commitments under its credit facilities with its lenders, the Company will make
available to the Group company sufficient funds to enable it to fulfill such payment obligation as it falls
due. A keep-well agreement is not a guarantee by the Company for payment of the indebtedness, or any
other obligation, of a Group company. No party external to the ABB Group is a party to any keep-well
agreement.
A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S 219

The Company has also provided certain guarantees securing the performance of Group companies in
connection with commercial paper programs, indentures or other debt instruments to enable them to
fulfill the payment obligations under such instruments as they fall due. The amount guaranteed under
these instruments was CHF 6,241,482 thousand as of December 31, 2017 and CHF 5,918,680 thousand
as of December 31, 2016.

Additionally, the Company has provided certain guarantees securing the performance of contracts and
undertakings of Group companies with third parties entered into in the normal course of business of an
aggregate value of approximately CHF 77,991 thousand as per December 31, 2017. No such guarantees
were outstanding as per December 31, 2016.

Furthermore, the Company is the guarantor in the Group’s USD 2 billion multicurrency revolving credit
facility, maturing in 2021 but no amounts were outstanding at December 31, 2017 and 2016.

The Company through certain of its direct and indirect subsidiaries is involved in various regulatory
and legal matters. The Company’s direct and indirect subsidiaries have made certain related accruals
as further described in “Note 15 Commitments and contingencies” to the Consolidated Financial
Statements of ABB Ltd. As described in the note, there could be material adverse outcomes beyond
the accrued liabilities.

The Company is part of a value added tax Group and therefore is jointly liable to the Swiss Federal Tax
Department for the value added tax liabilities of the other members.

—
Note 7
Stockholders’ equity

Legal reserves Free reserves

from from
from capital retained retained
(CHF in thousands) Share capital contri­bution earnings earnings Net income Own shares Total
Opening balance
as of January 1, 2017 265,769 30,430 1,000,000 7,327,872 1,924,811 (1,519,894) 9,028,988
Allocation to retained
earnings 1,924,811 (1,924,811) —
Dividend payment CHF
0.76 per share (1,287,758) (1,287,758)
Cancellation of shares (5,591) (916,116) 921,707 —
Purchases of own
shares (243,746) (243,746)
Delivery of own shares 206,644 206,644
Net income for the year 949,740 949,740
Closing balance as of
December 31, 2017 260,178 30,430 1,000,000 7,048,809 949,740 (635,289) 8,653,868

Number of
Share capital as of December 31, 2017 registered shares Par value (CHF) (CHF in thousands)
Issued shares 2,168,148,264 0.12 260,178
Contingent shares 304,038,800 0.12 36,485
Authorized shares 200,000,000 0.12 24,000
Number of
Share capital as of December 31, 2016 registered shares Par value (CHF) (CHF in thousands)
Issued shares 2,214,743,264 0.12 265,769
Contingent shares 304,038,800 0.12 36,485
Authorized shares 200,000,000 0.12 24,000
220 A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S

The own shares are valued at acquisition cost. During 2017 and 2016, a loss from the delivery of own
shares was recorded in the income statement under finance expenses of CHF 14,254 thousand and
CHF 38,990 thousand, respectively.

During 2017, a bank holding call options related to ABB Group’s management incentive plan (MIP)
exercised a portion of these options. Such options had been issued in 2012 by the Group company that
facilitates the MIP at fair value and had a strike price of CHF 15.75 and CHF 17.50. At issuance, the Group
company had entered into an intercompany option agreement with the Company, having the same terms
and conditions to enable it to meet its future obligations. As a result of the exercise by the bank,
the Company issued 3,912,080 shares at CHF 15.75 and 2,337,031 shares at CHF 17.50, respectively, out
of own shares.

During 2016, a bank holding call options related to ABB Group’s management incentive plan (MIP)
exercised a portion of these options. Such options had been issued in 2012 by the Group company that
facilitates the MIP at fair value and had a strike price of CHF 15.75. At issuance, the Group company had
entered into an intercompany option agreement with the Company, having the same terms and
conditions to enable it to meet its future obligations. As a result of the exercise by the bank, the
Company issued 8,892,770 shares at CHF 15.75 out of own shares.

The ABB Group has an annual employee share acquisition plan (ESAP) which provides share options to
employees globally. To enable the Group company that facilitates the ESAP to deliver shares to
employees who have exercised their stock options, the Group company entered into an agreement with
the Company to acquire the required number of shares at their then market value from the Company.
Consequently in November 2017 and 2016, respectively, the Company issued, out of own shares, to the
Group company, 2,836,204 and 2,647,151 shares at CHF 25.16 and CHF 21.01, respectively.

In 2017 and 2016, the Company transferred 814,339 and 851,773 own shares at an average acquisition
price per share of CHF 21.21 and CHF 20.36, respectively, to fulfill its obligations under other share‑based
arrangements.

In 2017, the Company purchased 10 million shares (for CHF 243.7 million) to support its employee share
programs globally.

Between September 2014 and September 2016, the Company executed a share buyback program for
the purchase of up to USD 4 billion of its own shares and on September 30, 2016, announced that it
had completed this program. Over the period of the share buyback, the Company purchased a total
of 146.6 million shares (for approximately CHF 2.9 billion) for cancellation and 24.7 million shares (for
approximately CHF 0.5 billion) to support its employee share programs.

At the AGM in April 2017, shareholders approved the proposal of the Board of Directors to reduce the
share capital of the Company by cancelling 46,595,000 treasury shares which were acquired under the
share buyback program. This cancellation was completed in July 2017, resulting in a decrease in Treasury
stock (own shares) of CHF 922 million and a corresponding combined decrease in share capital and
retained earnings.

At the AGM in April 2016, shareholders approved the proposal of the Board of Directors to reduce the
share capital of the Company by cancelling 100,000,000 treasury shares which were acquired under
the share buyback program. This cancellation was completed in July 2016, resulting in a decrease in
Treasury stock (own shares) of CHF 1,978 million and a corresponding combined decrease in share
capital, other reserves and retained earnings.
A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S 221

The movement in the number of own shares during the year was as follows:

2017 2016
Average Average
acquisition price acquisition price
Number of shares per share (in CHF) Number of shares per share (in CHF)
Opening balance as of January 1 76,036,429 19.99 123,118,123 20.27
Purchases for employee share programs 10,000,000 24.37 4,940,000 18.77
Purchases for cancellation — — 60,370,000 19.24
Cancellation (46,595,000) 19.78 (100,000,000) 19.78
Delivery (9,899,654) 20.87 (12,391,694) 20.32
Closing balance as of December 31 29,541,775 21.50 76,036,429 19.99
Thereof pledged for MIP 11,703,709 11,033,117

—
Note 8
Dividend income
The Company received in 2017 and 2016, a dividend payment from ABB Asea Brown Boveri Ltd
of CHF 1 billion and CHF 2 billion, respectively.

—
Note 9
Other operating income
Other operating income includes mainly outgoing charges for division management services and
guarantee compensation fees to Group companies.

—
Note 10
Significant shareholders
Investor AB, Sweden, held 232,165,142 ABB Ltd shares as of December 31, 2017 and 2016, respectively.
This corresponds to 10.71 percent and 10.48 percent of ABB Ltd’s total share capital and voting rights as
registered in the Commercial Register on December 31, 2017 and 2016, respectively.

Pursuant to its disclosure notice, Cevian Capital II GP Limited, Channel Islands, announced that,
on behalf of its general partners it held 115,868,333 ABB Ltd shares as of September 8, 2017 which
corresponds to 5.34 percent of ABB Ltd’s total share capital and voting rights as registered in the
Commercial Register on December 31, 2017. As of February 23, 2017 and September 13, 2016, Cevian
Capital II GP Limited, Channel Islands, announced that, on behalf of its general partners it held
115,868,333 and 132,196,131 ABB Ltd shares which corresponds to 5.23 percent and 5.97 percent of
ABB Ltd’s total share capital and voting rights as registered in the Commercial Register on
December 31, 2016.

Pursuant to its disclosure notice, BlackRock, Inc., USA, disclosed that, as per August 31, 2017, it, together
with its direct and indirect subsidiaries, held 72,900,737 ABB Ltd shares. This corresponds to 3.36
percent of ABB Ltd’s total share capital and voting rights as registered in the Commercial Register on
December 31, 2017. As per July 25, 2011, BlackRock, Inc., USA, disclosed that, it, together with its direct
and indirect subsidiaries, held 69,702,100 ABB Ltd shares. This corresponds to 3.15 percent of ABB Ltd’s
total share capital and voting rights as registered in the Commercial Register on December 31, 2016.

To the best of the Company’s knowledge, no other shareholder holds 3 percent or more of ABB Ltd’s
total share capital and voting rights on December 31, 2017 and 2016, respectively.
222 A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S

—
Note 11
Shareholdings of Board and Executive Committee
At December 31, 2017 and 2016, the members of the Board of Directors as of that date, held the
following numbers of shares (or ADSs representing such shares):

Total number of shares held at December 31

Name 2017 2016
Peter Voser(1) 151,166 102,137
Jacob Wallenberg(2) 209,583 202,190
Matti Alahuhta 36,521 31,265
David Constable 14,797 9,295
Frederico Curado 7,439 2,573
Robyn Denholm(3) — 2,871
Lars Förberg(4) 6,494 —
Louis R. Hughes 35,716 53,145
David Meline(5) 11,442 6,021
Satish Pai 7,889 2,871
Michel de Rosen(3) — 79,443
Ying Yeh 35,455 30,518
Total 516,502 522,329
(1) Includes 2,000 shares held by spouse.
(2) Does not include shares beneficially owned by Investor AB, of which Jacob Wallenberg is Chairman.
(3) Robyn Denholm and Michel de Rosen left the Board at the end of the 2016/2017 term of office.
(4) First elected to the Board at the ABB Ltd AGM in 2017.
(5) Includes 3,150 shares held by spouse.
A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S 223

At December 31, 2017, the members of the Executive Committee, as of that date, held the following
number of shares (or ADSs representing such shares), the conditional rights to receive ABB shares under
the LTIP and options (either vested or unvested as indicated) under the MIP and unvested shares in
respect of other compensation arrangements.

Unvested at December 31, 2017

Reference number of shares

Reference number of shares

Reference number of shares

Total number of shares held

for foregone benefits from

for foregone benefits from

deliverable under the 2015

deliverable under the 2016

deliverable under the 2017

performance components

performance components

performance components

Replacement share grant

Replacement share grant

(P1 and P2) of the LTIP(1)

(P1 and P2) of the LTIP(1)

(P1 and P2) of the LTIP(1)

at December 31, 2017

former employer(2)

former employer(2)
Name
(vesting
(vesting (vesting (vesting (vesting 2019 and
2018) 2019) 2020) 2018) 2020)
Ulrich Spiesshofer 410,646 172,465 175,881 150,886 — —
Timo Ihamuotila (EC member as of April 1, 2017) 22,000 — — 41,000 — 119,200
Jean-Christophe Deslarzes 96,651 51,413 56,287 45,348 65,819 —
Diane de Saint Victor 533,482 45,873 47,745 40,109 — —
Frank Duggan 186,576 46,390 48,028 34,984 — —
Greg Scheu 119,561 45,896 43,144 32,775 — —
Sami Atiya — — 37,693 34,735 — —
Tarak Mehta 159,222 42,780 45,624 34,494 — —
Chunyuan Gu (EC member as of July 1, 2017) 13,570 25,937 25,799 31,196 — —
Claudio Facchin 85,553 42,845 47,722 39,076 — —
Peter Terwiesch 63,269 36,698 44,969 37,147 — —
Total Executive Committee members as of
December 31, 2017 1,690,530 510,297 572,892 521,750 65,819 119,200
(1) It is expected that upon vesting, the LTIP will be settled 70 percent in shares and 30 percent in cash for the performance components
(P1 and P2). However, participants have the possibility to elect to receive 100 percent of the vested award in shares.
(2) It is expected that the replacement share grants will be settled 70 in shares and 30 percent in cash. However, the participants have the
possibility to elect to receive 100 percent of the vested award in shares.
224 A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S

At December 31, 2016, the members of the Executive Committee, as of that date, held the following
number of shares (or ADSs representing such shares), the conditional rights to receive ABB shares under
the LTIP and options (either vested or unvested as indicated) under the MIP and unvested shares in
respect of other compensation arrangements.

Vested
at December
31, 2016 Unvested at December 31, 2016

Retention shares deliverable

Reference number of shares

Reference number of shares

Total number of shares held

for foregone benefits from

deliverable under the 2015

deliverable under the 2016

Number of vested options

performance components

performance components

Replacement share grant

under the 2014 retention
component of the LTIP(2)

(P1 and P2) of the LTIP(2)

(P1 and P2) of the LTIP(2)

at December 31, 2016

held under the MIP(1)

former employer(3)
Name

(vesting 2017) (vesting 2018) (vesting 2019) (vesting 2018)

Ulrich Spiesshofer 344,454 — 93,846 172,465 175,881 —
Eric Elzvik 71,369 408,875 30,549 44,562 40,583 —
Jean-Christophe Deslarzes 74,767 — 30,549 51,413 56,287 65,819
Diane de Saint Victor 507,824 — 35,940 45,873 47,745 —
Frank Duggan 158,528 — 27,548 46,390 48,028 —
Greg Scheu 101,250 221,375 26,159 45,896 43,144 —
Sami Atiya (EC member as of
— — — — 37,693 —
June 14, 2016)
Tarak Mehta 134,449 — 34,677 42,780 45,624 —
Bernhard Jucker 293,771 — 40,750 51,902 54,112 —
Claudio Facchin 63,795 — 31,083 42,845 47,722 —
Peter Terwiesch 46,312 — 16,457 36,698 44,969 —
Total Executive Committee
members as of December 31, 2016 1,796,519 630,250 367,558 580,824 641,788 65,819
(1) Options may be sold or exercised to receive shares at the ratio of 5 options for 1 share.
(2) It is expected that upon vesting, the LTIP will be settled 70 percent in shares and 30 percent in cash for both the retention component (LTIP
2014) and performance component (P1 and P2 of LTIP 2015 and 2016). However, participants have the possibility to elect to receive 100
percent of the vested award in shares.
(3) It is expected that the replacement share grant will be settled 70 percent in shares and 30 percent in cash. However, the participant has the
possibility to elect to receive 100 percent of the vested award in shares.
A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S 225

At December 31, 2016, the following members of the Executive Committee held vested WARs and
conditionally granted ABB shares under the performance component of the LTIP 2014, which at the time
of vesting will be settled in cash. At December 31, 2017, no such instruments were outstanding.

Vested at
December 31, 2016 Unvested at December 31, 2016
Reference number
of shares under
Number of fully the performance
vested WARs held component of the
Name under the MIP 2014 launch of the LTIP
(vesting 2017)
Ulrich Spiesshofer — 51,489
Eric Elzvik — 17,147
Jean-Christophe Deslarzes — 17,147
Diane de Saint Victor — 20,173
Frank Duggan — 15,463
Greg Scheu — 14,684
Sami Atiya (EC member as of June 14, 2016) — —
Tarak Mehta — 16,139
Bernhard Jucker — 19,548
Claudio Facchin — 14,122
Peter Terwiesch — 10,292
Total Executive Committee members
as of December 31, 2016 — 196,204

—
Note 12
Full time employees
During both 2017 and 2016, the Company employed, on average, 21 employees.
226 A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S

—
Proposed appropriation of
available earnings
Proposed appropriation of retained earnings (CHF in thousands) 2017 2016
Net income for the year 949,740 1,924,811
Carried forward from previous year 7,964,925 8,621,575
Cancellation of shares (916,116) (1,293,703)
Retained earnings 7,998,549 9,252,683
Gross dividend of CHF 0.76 per share paid directly by the Company(1) — (1,287,758)
Gross dividend of CHF 0.78 per share on total number of registered shares(1) (1,691,156) —
Balance to be carried forward 6,307,393 7,964,925
(1) Shareholders who are resident in Sweden participating in the established dividend access facility received and will receive an amount in
Swedish kronor from ABB Norden Holding AB which corresponds to the dividend resolved on a registered share of ABB Ltd without deduction
of the Swiss withholding tax. This amount however is subject to taxation according to Swedish law. However, no dividend was and will be
paid on own shares held by the Company.

On February 8, 2018, the Company announced that the Board of Directors will recommend for approval
at the March 29, 2018, Annual General Meeting that a dividend of CHF 0.78 per share be distributed out
of the retained earnings available, to be paid in April 2018.
A B B A N N U A L R E P O R T 2 0 17 0 5 A B B LT D S TAT U TO R Y F I N A N C I A L S TAT E M E N T S 227

—
Report of the Statutory Auditor
on the Financial Statements
To the General Meeting presentation of the financial statements. We be-
lieve that the audit evidence we have obtained is
of ABB Ltd, Zurich sufficient and appropriate to provide a basis for
our audit opinion.
As statutory auditor, we have audited the accom-
panying financial statements of ABB Ltd, which Opinion
comprise the balance sheet, income statement, In our opinion, the financial statements for the
cash flow statement and notes (pages 213–225), year ended December 31, 2017 comply with Swiss
for the year ended December 31, 2017. law and the company’s articles of incorporation.

Board of Directors’ responsibility Report on Key Audit Matters based on the circular
The Board of Directors is responsible for the 1/2015 of the Federal Audit Oversight Authority
preparation of the financial statements in accor- Key audit matters are those matters that, in our
dance with the requirements of Swiss law and the professional judgement, were of most signifi-
company’s articles of incorporation. This respon- cance in our audit of the financial statements of
sibility includes designing, implementing and the current period. We have determined that there
maintaining an internal control system relevant to are no key audit matters to communicate in our
the preparation of financial statements that are report.
free from material misstatement, whether due to
fraud or error. The Board of Directors is further re- Report on other legal requirements
sponsible for selecting and applying appropriate We confirm that we meet the legal requirements
­accounting policies and making accounting esti- on licensing according to the Auditor Oversight
mates that are reasonable in the circumstances. Act (AOA) and independence (article 728 Code of
Obligations (CO) and article 11 AOA) and that
Auditor’s responsibility there are no circumstances incompatible with our
Our responsibility is to express an opinion on independence.
these financial statements based on our audit.
We conducted our audit in accordance with Swiss In accordance with article 728a para. 1 item 3 CO
law and Swiss Auditing Standards. Those stan- and Swiss Auditing Standard 890, we confirm that
dards require that we plan and perform the audit an internal control system exists, which has been
to obtain reasonable assurance whether the fi- designed for the preparation of financial state-
nancial statements are free from material mis- ments according to the instructions of the Board
statement. of Directors.

An audit involves performing procedures to ob- We further confirm that the proposed appropria-
tain audit evidence about the amounts and disclo- tion of available earnings complies with Swiss law
sures in the financial statements. The procedures and the company’s articles of incorporation. We
selected depend on the auditor’s judgment, in- recommend that the financial statements submit-
cluding the assessment of the risks of material ted to you be approved.
misstatement of the financial statements, whether
due to fraud or error. In making those risk assess- Ernst & Young AG
ments, the auditor considers the internal control
Leslie Clifford Robin Errico
system relevant to the entity’s preparation of the
Licensed audit expert Licensed audit expert
financial statements in order to design audit
(Auditor in charge)
procedures that are appropriate in the circum-
stanc­es, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s inter- Zurich, Switzerland
nal control system. An audit also includes evaluat- February 22, 2018
ing the appropriateness of the accounting poli-
cies used and the reasonableness of accounting
estimates made, as well as evaluating the overall
06
Supplemental
information
—
228 – 234
Supplemental information
—
232 – 234
232 A B B A N N U A L R E P O R T 2 0 17 0 6 S U P P L E M E N TA L I N F O R M AT I O N

—
Supplemental information

The following are definitions of key financial portfolio changes which do not qualify as divest-
­measures used to evaluate ABB’s operating per- ments under U.S. GAAP have been treated in a
formance. These financial measures are referred similar manner to divestments. Changes in our
to in this Annual Report and are not defined under portfolio where we have exited certain business
United States generally accepted accounting prin- activities or customer markets are adjusted as if
ciples (U.S. GAAP). the relevant business was divested in the period
when the decision to cease business activities
While ABB’s management believes that the finan- was taken. We do not adjust for portfolio
cial measures defined below are useful in evaluat- changes where the relevant business has annual-
ing ABB’s operating results, these measures ized revenues of less than $50 million.
should be considered as supplemental in nature
and not as a substitute for the related financial in-
formation prepared in accordance with U.S. GAAP. Operational EBITA margin
For a full reconciliation of ABB’s non-GAAP mea- Operational EBITA margin
sures, please refer to Supplemental Reconcilia- Operational EBITA margin is Operational EBITA
tions and Definitions, ABB Q4 2017 Financial Infor- as a percentage of Operational revenues.
mation at new.abb.com/investorrelations/
financial-results-and-presentations/quarterly-­ Operational EBITA
results-and-annual-reports-2017 Operational earnings before interest, taxes and
­acquisition-related amortization (Operational
­EBITA) represents Income from operations ex-
Comparable growth rates cluding:
• acquisition-related amortization (as defined
Growth rates for certain key figures may be pre- ­below),
sented and discussed on a “comparable” basis. • restructuring and restructuring-related ex-
The comparable growth rate measures growth on penses,
a constant currency basis. Since we are a global • non-operational pension cost (as defined
company, the comparability of our operating re- ­below),
sults reported in U.S. dollars is affected by foreign • changes in the amount recorded for retained
currency exchange rate fluctuations. We calculate obligations of divested businesses occurring
the impacts from foreign currency fluctuations by ­after the divestment date (changes in retained
translating the current-year periods’ reported key obligations of divested businesses),
figures into U.S. dollar amounts using the ex- • changes in estimates relating to opening bal-
change rates in effect for the comparable periods ance sheets of acquired businesses (changes in
in the previous year. pre‑acquisition estimates),
• gains and losses from sale of businesses,
Comparable growth rates are also adjusted for • acquisition-related expenses and certain
changes in our business portfolio. Adjustments non-operational items, as well as
to our business portfolio occur due to acquisi- • foreign exchange/commodity timing differ-
tions, divestments, or by exiting specific busi- ences in income from operations consisting of:
ness activities or customer markets. The adjust- (a) unrealized gains and losses on derivatives
ment for portfolio changes is calculated as (foreign exchange, commodities, embedded de-
follows: where the results of any business ac- rivatives), (b) realized gains and losses on deriv-
quired or divested have not been consolidated atives where the underlying hedged transaction
and reported for the entire duration of both the has not yet been realized, and (c) unrealized for-
current and comparable periods, the reported eign exchange movements on receivables/pay-
key figures of such business are adjusted to ex- ables (and related assets/liabilities).
clude the relevant key figures of any correspond-
ing quarters which are not comparable when Amounts relating to changes in retained obliga-
computing the comparable growth rate. Certain tions of divested businesses (as defined above),
A B B A N N U A L R E P O R T 2 0 17 0 6 S U P P L E M E N TA L I N F O R M AT I O N 233

were previously included within ­acquisition-related (b) realized gains and losses on derivatives
expenses and certain ­non-operational items. where the underlying hedged transaction has
In ­periods prior to 2017, there were no significant not yet been realized, and (c) unrealized foreign
amounts to warrant separate presentation. exchange movements on receivables/payables
(and related assets/liabilities), and (ix) The
Operational EBITA is our measure of segment amount of income tax on operational adjust-
profit but is also used by management to evaluate ments either estimated using the Adjusted
the profitability of the Company as a whole. Group effective tax rate or in certain specific
cases, computed using the actual income tax ef-
Acquisition-related amortization fects of the relevant item in (i) to (vii) above.
Amortization expense on intangibles arising upon
acquisitions. Acquisition-related amortization
Amortization expense on intangibles arising upon
Operational revenues acquisitions.
The Company presents Operational revenues
solely for the purpose of allowing the computa- Adjusted Group effective tax rate
tion of Operational EBITA margin. Operational The Adjusted Group effective tax rate is com-
revenues are total revenues adjusted for foreign puted by dividing an adjusted provision for taxes
exchange/commodity timing differences in total by an adjusted income from continuing opera-
revenues of: (i) unrealized gains and losses on de- tions before taxes. Certain amounts recorded in
rivatives, (ii) realized gains and losses on deriva- income from continuing operations before taxes
tives where the underlying hedged transaction and the related provision for taxes (primarily
has not yet been realized, and (iii) unrealized for- gains and losses from sale of businesses) are ex-
eign exchange movements on receivables (and re- cluded from the computation.
lated assets). Operational revenues are not in-
tended to be an alternative measure to Total Constant currency Operational EPS adjustment
Revenues, which represent our revenues mea- and Operational EPS growth rate (constant cur-
sured in accordance with U.S. GAAP. rency)
In connection with ABB’s 2015-2020 targets, Op-
Non-operational pension cost erational EPS growth is measured assuming 2014
Non-operational pension cost comprises the total as the base year and uses constant exchange
net periodic benefit cost of defined pension ben- rates. We compute the constant currency opera-
efits and other postretirement benefits but ex- tional net income for all periods using the relevant
cludes the current service cost of both compo- monthly exchange rates which were in effect
nents. during 2014 and any difference in computed Oper-
ational net income is divided by the relevant
weighted-average number of shares outstanding
Operational EPS to identify the constant currency Operational EPS
adjustment.
Operational EPS
Operational EPS is calculated as Operational net
income divided by the weighted-average number Free cash flow conversion to net
of shares outstanding used in determining basic
earnings per share.
income

Operational net income Free cash flow conversion to net income

Operational net income is calculated as Net in- Free cash flow conversion to net income is calcu-
come attributable to ABB adjusted for the fol- lated as Free cash flow divided by Net income at-
lowing: (i) acquisition-related amortization, tributable to ABB.
(ii) restructuring and restructuring-related ex-
penses, (iii) non-operational pension cost, Free cash flow (FCF)
(iv) changes in retained obligations of divested Free cash flow is calculated as net cash provided
businesses, (v) changes in pre-acquisition esti- by operating activities adjusted for: (i) purchases
mates, (vi) gains and losses from sale of busi- of property, plant and equipment and intangible
nesses, (vii) acquisition-related expenses and assets, (ii) proceeds from sales of property, plant
certain non-operational items, (viii) foreign ex- and equipment, and (iii) changes in financing and
change/commodity timing differences in income other non-current receivables, net (included in
from operations consisting of: (a) unrealized other investing activities).
gains and losses on derivatives (foreign ex-
change, commodities, embedded derivatives),
234 A B B A N N U A L R E P O R T 2 0 17 0 6 S U P P L E M E N TA L I N F O R M AT I O N

Cash return on invested capital

(CROI)

Cash return on invested capital (CROI)

Cash return on invested capital is calculated as
Adjusted cash return divided by Capital invested.

Adjusted cash return

Adjusted cash return is calculated as the sum of
(i) net cash provided by operating activities,
(ii) interest paid, and (iii) estimate to annualize/
eliminate the net cash provided by operating ac-
tivities of certain acquisitions/(divestments).

Adjusted total fixed assets

Adjusted total fixed assets is the sum of (i) prop-
erty, plant and equipment, net, (ii) goodwill,
(iii) other intangible assets, net, and (iv) invest-
ments in equity‑accounted companies less (v) de-
ferred tax liabilities recognized in certain acquisi-
tions.

Net working capital

Net working capital is the sum of (i) receivables,
net, (ii) inventories, net, and (iii) prepaid ex-
penses; less (iv) accounts payable, trade, (v) bill-
ings in excess of sales, (vi) advances from custom-
ers, and (vii) other current liabilities (excluding
primarily: (a) income taxes payable, (b) current
derivative liabilities, (c) pension and other em-
ployee benefits, and (d) payables under the share
buyback program); and including the amounts
­related to these accounts which have been pre-
sented as either assets or liabilities held for sale.

Capital invested
Capital invested is the sum of (i) Adjusted total
fixed assets, (ii) Net working capital, and (iii) Accu-
mulated depreciation and amortization.
Parts of the ABB Annual Report 2017 have been
translated into German and/or Swedish. Please
note that the English-language version of the ABB
Annual Report is the binding version.

Caution concerning forward-looking statements

The ABB Annual Report 2017 includes “forward-looking state-
ments” within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. We have based these forward-looking statements
largely on current expectations, estimates and projections
about the factors that may affect our future performance,
including global economic conditions as well as the economic
conditions of the regions and the industries that are major
markets for ABB. The words “believe,” “may,” “will,” “estimate,”
“continue,” “target,” “anticipate,” “intend,” “expect” and sim-
ilar words and the express or implied discussion of strategy,
plans or intentions are intended to identify forward-looking
statements. These forward-­looking statements are subject
to risks, uncertainties and assumptions, including among
other things, the following: (i) business risks related to the
global volatile economic environment; (ii) costs associated
with compliance activities; (iii) difficulties encountered in
operating in emerging markets; (iv) risks inherent in large, long
term projects served by parts of our business; (v) the timely
development of new products, technologies, and services that
are useful for our customers; (vi) our ability to anticipate and
react to technological change and evolving industry standards
in the markets in which we operate; (vii) changes in interest
rates and fluctuations in currency exchange rates; (viii) changes
in raw materials prices or limitations of supplies of raw
materials; (ix) the weakening or unavailability of our intellectual
property rights; (x) industry consolidation resulting in more
powerful competitors and fewer customers; (xi) effects of
competition and changes in economic and market conditions
in the product markets and geographic areas in which we
operate; (xii) effects of, and changes in, laws, regulations,
governmental policies, taxation, or accounting standards
and practices and (xiii) other factors described in documents
that we may furnish from time to time with the US Securities
and Exchange Commission, including our Annual Reports
on Form 20-F. Although we believe that the expectations
reflected in any such forward-looking statements are based
on reasonable assumptions, we can give no assurance that
they will be achieved. We undertake no obligation to update
publicly or revise any forward-looking statements because of
new information, future events or otherwise. In light of these
risks and uncertainties, the forward-looking information,
events and circumstances might not occur. Our actual results
and performance could differ substantially from those
anticipated in our forward-looking statements.
—

© Copyright 2017 ABB. All rights reserved.

ABB Ltd
Corporate Communications
Affolternstrasse 44
8050 Zurich
Switzerland
Tel: +41 (0)43 317 71 11
Fax: +41 (0)43 317 79 58

www.abb.com