Annual Reports

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ABB 20-F 2016

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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

Table of Contents

As filed with the Securities and Exchange Commission on February 25, 2016


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 20-F


o

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-16429



ABB Ltd
(Exact name of registrant as specified in its charter)

Switzerland
(Jurisdiction of incorporation or organization)

Affolternstrasse 44
CH-8050 Zurich
Switzerland

(Address of principal executive offices)

Richard A. Brown
Affolternstrasse 44
CH-8050 Zurich
Switzerland
Telephone: +41-43-317-7111
Facsimile: +41-43-317-7992

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

           Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class   Name of each exchange on which registered
American Depositary Shares,
each representing one Registered Share
  New York Stock Exchange
Registered Shares, par value CHF 0.86   New York Stock Exchange*



           Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

           Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

           Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 2,191,625,141 Registered Shares



           Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

           If this is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o    No ý

           Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

           Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

           Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o

           Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ý

           International Financial Reporting Standards as issued by the International Accounting Standards Board o Other o

           If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. item 17 o    item 18 o

           If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý


*
Listed on the New York Stock Exchange not for trading or quotation purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

   


Table of Contents


TABLE OF CONTENTS

 
   
  Page  

PART I

    3  

Item 1.

 

Identity of Directors, Senior Management and Advisers

    3  

Item 2.

 

Offer Statistics and Expected Timetable

    3  

Item 3.

 

Key Information

    4  

Item 4.

 

Information on the Company

    15  

Item 4A.

 

Unresolved Staff Comments

    32  

Item 5.

 

Operating and Financial Review and Prospects

    32  

Item 6.

 

Directors, Senior Management and Employees

    82  

Item 7.

 

Major Shareholders and Related Party Transactions

    125  

Item 8.

 

Financial Information

    125  

Item 9.

 

The Offer and Listing

    126  

Item 10.

 

Additional Information

    127  

Item 11.

 

Quantitative and Qualitative Disclosures About Market Risk

    138  

Item 12.

 

Description of Securities Other than Equity Securities

    140  

PART II

    141  

Item 13.

 

Defaults, Dividend Arrearages and Delinquencies

    141  

Item 14.

 

Material Modifications to the Rights of Security Holders and Use of Proceeds

    141  

Item 15.

 

Controls and Procedures

    141  

Item 15T.

 

Controls and Procedures

    142  

Item 16A.

 

Audit Committee Financial Expert

    142  

Item 16B.

 

Code of Ethics

    143  

Item 16C.

 

Principal Accountant Fees and Services

    143  

Item 16D.

 

Exemptions from the Listing Standards for Audit Committees

    143  

Item 16E.

 

Purchase of Equity Securities by Issuer and Affiliated Purchasers

    144  

Item 16F.

 

Change in Registrant's Certifying Accountant

    144  

Item 16G.

 

Corporate Governance

    144  

Item 16H.

 

Mine Safety Disclosure

    144  

PART III

    144  

Item 17.

 

Financial Statements

    144  

Item 18.

 

Financial Statements

    144  

Item 19.

 

Exhibits

    145  

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INTRODUCTION

        ABB Ltd is a corporation organized under the laws of Switzerland. In this Annual Report, "the ABB Group," "ABB," the "Company," "we," "our" and "us" refer to ABB Ltd and its consolidated subsidiaries (unless the context otherwise requires). We also use these terms to refer to ABB Asea Brown Boveri Ltd and its subsidiaries prior to the establishment of ABB Ltd as the holding company for the entire ABB Group in 1999, as described in this Annual Report under "Item 4. Information on the Company—Introduction—History of the ABB Group". Our American Depositary Shares (each representing one registered share of ABB Ltd) are referred to as "ADSs". The registered shares of ABB Ltd are referred to as "shares". Our principal corporate offices are located at Affolternstrasse 44, CH-8050 Zurich, Switzerland, telephone number +41-43-317-7111.


FINANCIAL AND OTHER INFORMATION

        The Consolidated Financial Statements of ABB Ltd, including the notes thereto, as of December 31, 2015 and 2014, and for each of the years in the three-year period ended December 31, 2015 (our Consolidated Financial Statements) have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). ABB Ltd has separately prepared its statutory unconsolidated financial statements in accordance with the Swiss Code of Obligations.

        In this Annual Report: (i) "$," "U.S. dollar" and "USD" refer to the lawful currency of the United States of America; (ii) "CHF" and "Swiss franc" refer to the lawful currency of Switzerland; (iii) "EUR" and "euro" refer to the lawful currency of the participating member states of the European Economic and Monetary Union (Eurozone); (iv) "SEK" and "Swedish krona" refer to the lawful currency of Sweden; (v) "Chinese renminbi" refers to the lawful currency of the People's Republic of China; (vi) "AED" refers to the lawful currency of the United Arab Emirates; (vii) "AUD" and "Australian dollar" refer to the lawful currency of Australia; and (viii) "INR" and "Indian Rupee" refer to the lawful currency of India.

        Except as otherwise stated, all monetary amounts in this Annual Report are presented in U.S. dollars. Where specifically indicated, amounts in Swiss francs have been translated into U.S. dollars. These translations are provided for convenience only, and they are not representations that the Swiss franc could be converted into U.S. dollars at the rate indicated. These translations have been made using the twelve o'clock buying rate in the City of New York for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2015, unless otherwise indicated. The twelve o'clock buying rate for Swiss francs on December 31, 2015, was $1.00 = CHF 1.0017. The twelve o'clock buying rate for Swiss francs on February 19, 2016, was $1.00 = CHF 0.9893.


FORWARD-LOOKING STATEMENTS

        This Annual Report includes forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "expects," "intends," "may," "will," or "should" or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Annual Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, dispositions, strategies and the countries and industries in which we operate.

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        These forward-looking statements include, but are not limited to the following:

    statements in "Item 3. Key Information—Dividends and Dividend Policy" regarding our policy on future dividend payments,

    statements in "Item 3. Key Information—Risk Factors,"

    statements in "Item 4. Information on the Company" regarding the timing of intended capital expenditures,

    statements in "Item 5. Operating and Financial Review and Prospects" regarding our management objectives, including our mid-term outlook, as well as trends in results, prices, volumes, operations, margins and overall market trends, and

    statements in "Item 8. Financial Information—Legal Proceedings" regarding the outcome of certain legal and compliance matters.

        By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the countries and industries in which we operate, may differ materially from those described in or suggested by the forward-looking statements contained in this Annual Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the countries and industries in which we operate, are consistent with the forward-looking statements contained in this Annual Report, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause actual results to differ materially from our expectations are contained in cautionary statements in this Annual Report and include, without limitation, the following:

    Our business is exposed to risks associated with the volatile global economic environment and political conditions.

    Illegal behavior by any of our employees or agents could have a material adverse impact on our consolidated operating results, cash flows, and financial position as well as on our reputation and our ability to do business.

    Our operations in emerging markets expose us to risks associated with conditions in those markets.

    Undertaking long-term, fixed price or turnkey projects or technically complex projects exposes our businesses to risk of loss should our actual costs exceed our estimated or budgeted costs or should we fail to perform in line with the technical requirements.

    We operate in very competitive markets and could be adversely affected if we fail to keep pace with technological changes.

    Our multi-national operations expose us to the risk of fluctuations in currency exchange rates.

    Our hedging activities may not protect us against the consequences of significant fluctuations in exchange rates, interest rates or commodity prices on our earnings and cash flows.

    Increases in costs or limitation of supplies of raw materials may adversely affect our financial performance.

    An inability to protect our intellectual property rights could adversely affect our business.

    Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise or are

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      dependent upon factors not wholly within our control. Failure to meet these obligations could adversely affect our profitability and future prospects.

    Industry consolidation could result in more powerful competitors and fewer customers.

    We are subject to environmental laws and regulations in the countries in which we operate. We incur costs to comply with such regulations, and our ongoing operations may expose us to environmental liabilities.

    We may be the subject of product liability claims.

    We may encounter difficulty in managing our business due to the global nature of our operations.

    If we are unable to obtain performance and other guarantees from financial institutions, we may be prevented from bidding on, or obtaining, some contracts, or our costs with respect to such contracts could be higher.

    Examinations by tax authorities and changes in tax regulations could result in lower earnings and cash flows.

    If we are unable to attract and retain qualified management and personnel then our business may be adversely affected.

    Anticipated benefits of existing and potential future mergers, acquisitions, divestments, joint ventures or strategic alliances may not be realized.

    Our business strategy may include making strategic divestitures. There can be no assurance that any divestitures will provide business benefit.

    We could be affected by future laws or regulations enacted to address climate change concerns as well as the physical effects of climate change.

    Increased information technology (IT) security threats and more sophisticated cyber-attacks could pose a risk to our systems, networks, products, solutions and services.

        We urge you to read the sections of this Annual Report entitled "Item 3. Key Information—Risk Factors," "Item 4. Information on the Company" and "Item 5. Operating and Financial Review and Prospects" for a more complete discussion of the important factors that could affect our future performance and the countries and industries in which we operate. In light of these risks, uncertainties and assumptions, the forward-looking circumstances described in this Annual Report and the assumptions underlying them may not occur.

        Except as required by law or applicable stock exchange rules or regulations, we undertake no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this Annual Report.


PART I

Item 1.    Identity of Directors, Senior Management and Advisers

        Not applicable

Item 2.    Offer Statistics and Expected Timetable

        Not applicable

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Item 3.    Key Information


SELECTED FINANCIAL DATA

        The following table presents our selected financial and operating information at the dates and for each of the periods indicated. We report our financial results in U.S. dollars. Due to our global operations, a significant amount of our revenues, expenses, assets and liabilities are denominated in other currencies. As a consequence, movements in exchange rates between currencies may affect our profitability, the comparability of our results between periods, as well as the reported carrying value of our assets and liabilities. You should read the following information together with the information contained in "Item 5. Operating and Financial Review and Prospects," as well as our Consolidated Financial Statements and the Notes thereto, included elsewhere in this Annual Report.

        Our selected financial data are presented in the following tables in accordance with U.S. GAAP and have been derived from our published Consolidated Financial Statements. Our Consolidated Financial Statements as of and for each of the years ended December 31, 2015, 2014, 2013, 2012 and 2011, were audited by Ernst & Young AG.

INCOME STATEMENT DATA:

($ in millions, except per share data in $)
  2015   2014   2013   2012   2011  

Total revenues

    35,481     39,830     41,848     39,336     37,990  

Total cost of sales

    (25,347 )   (28,615 )   (29,856 )   (27,958 )   (26,556 )

Gross profit

    10,134     11,215     11,992     11,378     11,434  

Selling, general and administrative expenses

    (5,574 )   (6,067 )   (6,094 )   (5,756 )   (5,373 )

Non-order related research and development expenses

    (1,406 )   (1,499 )   (1,470 )   (1,464 )   (1,371 )

Other income (expense), net

    (105 )   529     (41 )   (100 )   (23 )

Income from operations

    3,049     4,178     4,387     4,058     4,667  

Interest and dividend income

    77     80     69     73     90  

Interest and other finance expense

    (286 )   (362 )   (390 )   (293 )   (207 )

Income from continuing operations before taxes

    2,840     3,896     4,066     3,838     4,550  

Provision for taxes

    (788 )   (1,202 )   (1,122 )   (1,030 )   (1,244 )

Income from continuing operations, net of tax

    2,052     2,694     2,944     2,808     3,306  

Income (loss) from discontinued operations, net of tax

    3     24     (37 )   4     9  

Net income

    2,055     2,718     2,907     2,812     3,315  

Net income attributable to noncontrolling interests

    (122 )   (124 )   (120 )   (108 )   (147 )

Net income attributable to ABB

    1,933     2,594     2,787     2,704     3,168  

Amounts attributable to ABB shareholders:

   
 
   
 
   
 
   
 
   
 
 

Income from continuing operations, net of tax

    1,930     2,570     2,824     2,700     3,159  

Net income

    1,933     2,594     2,787     2,704     3,168  

Basic earnings per share attributable to ABB shareholders:

   
 
   
 
   
 
   
 
   
 
 

Income from continuing operations, net of tax

    0.87     1.12     1.23     1.18     1.38  

Net income

    0.87     1.13     1.21     1.18     1.38  

Diluted earnings per share attributable to ABB shareholders:

   
 
   
 
   
 
   
 
   
 
 

Income from continuing operations, net of tax

    0.87     1.12     1.23     1.18     1.38  

Net income

    0.87     1.13     1.21     1.18     1.38  

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

   
 
   
 
   
 
   
 
   
 
 

Basic earnings per share attributable to ABB shareholders

    2,226     2,288     2,297     2,293     2,288  

Diluted earnings per share attributable to ABB shareholders

    2,230     2,295     2,305     2,295     2,291  

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BALANCE SHEET DATA:

 
  December 31,  
($ in millions)
  2015   2014   2013   2012   2011  

Cash and equivalents

    4,565     5,443     6,021     6,875     4,819  

Marketable securities and short-term investments

    1,633     1,325     464     1,606     948  

Total assets(1)

    41,356     44,852     48,032     49,033     39,632  

Long-term debt (excluding current maturities of long-term debt)(1)

    5,985     7,312     7,538     7,497     3,215  

Total debt(2)

    7,439     7,665     7,991     10,034     3,980  

Capital stock and additional paid-in capital

    1,444     1,777     1,750     1,691     1,621  

Total stockholders' equity (including noncontrolling interests)

    14,988     16,815     19,208     17,446     16,336  

CASH FLOW DATA:

($ in millions)
  2015   2014   2013   2012   2011  

Net cash provided by operating activities

    3,818     3,845     3,653     3,779     3,612  

Net cash used in investing activities

    (974 )   (1,121 )   (717 )   (5,575 )   (3,253 )

Net cash provided by (used in) financing activities

    (3,380 )   (3,024 )   (3,856 )   3,762     (1,208 )

(1)
As a result of the early adoption of an accounting standard update on the presentation of debt issuance costs, certain amounts have been reclassified from Other non-current assets to Long-term debt in the Consolidated Balance Sheets at December 31, 2014, 2013, 2012 and 2011. For further details see "Note 2—Significant accounting policies—Reclassifications" to our Consolidated Financial Statements.

(2)
Total debt is equal to the sum of short-term debt (including current maturities of long-term debt) and long-term debt.


DIVIDENDS AND DIVIDEND POLICY

        Payment of dividends is subject to general business conditions, ABB's current and expected financial condition and performance and other relevant factors including growth opportunities. ABB's current dividend policy is to pay a steadily rising, sustainable annual dividend over time.

        The unconsolidated statutory financial statements of ABB Ltd are prepared in accordance with Swiss law. Based on these financial statements, dividends may be paid only if ABB Ltd has sufficient distributable profits from previous years or sufficient free reserves to allow the distribution of a dividend. As a holding company, ABB Ltd's main sources of income are dividend and interest payments from its subsidiaries.

        At December 31, 2015, the total unconsolidated stockholders' equity of ABB Ltd was CHF 9,687 million, including CHF 1,991 million representing share capital, CHF 10,191 million representing reserves and CHF 2,495 million representing a reduction of equity for own shares (treasury stock). Of the reserves, CHF 2,495 million relating to own shares and CHF 398 million representing 20 percent of share capital, are restricted and not available for distribution.

        With respect to the years ended December 31, 2011, 2012 and 2013, ABB Ltd paid a dividend of CHF 0.65 (USD 0.69) per share, CHF 0.68 (USD 0.71) per share, and CHF 0.70 (USD 0.79) per share, respectively. With respect to the year ended December 31, 2014, ABB Ltd distributed a total of CHF 0.72 per share to shareholders, which comprised a dividend of CHF 0.55 (USD 0.59) paid out of ABB Ltd's capital contribution reserves and a distribution of CHF 0.17 (USD 0.18) by way of a nominal value reduction (a reduction of CHF 0.17 in the par value of each share from CHF 1.03 to CHF 0.86). The USD amounts for each of the foregoing dividend payments made in CHF have been translated using the average rates of the month in which the dividends were paid.

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        With respect to the year ended December 31, 2015, ABB Ltd's Board of Directors has proposed to distribute a total of CHF 0.74 per share to shareholders by way of a nominal value reduction (a reduction of CHF 0.74 in the par value of each share from CHF 0.86 to CHF 0.12). The distribution is subject to approval by shareholders at ABB Ltd's 2016 Annual General Meeting (AGM).

        For further information on dividends and dividend policy see "Item 6. Directors, Senior Management and Employees—Shareholders' participation—Shareholders' dividend rights".


RISK FACTORS

        You should carefully consider all of the information set forth in this Annual Report and the following description of risks and uncertainties that we currently believe may exist. Our business, financial condition or results of operations could be adversely affected by any of these risks. Additional risks of which we are unaware or that we currently deem immaterial may also impair our business operations. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those described below and elsewhere in this Annual Report. See "Forward-Looking Statements".

Our business is exposed to risks associated with the volatile global economic environment and political conditions.

        Adverse changes in economic or political conditions as well as concerns about global health pandemics, terrorist activities and the longevity of the euro, could have a material adverse effect on our business, financial condition, results of operations and liquidity. Economic volatility including developments in the price of oil and financial market disruptions may adversely impact the demand for our products and services. These and other factors may prevent our customers and suppliers from obtaining the financing required to pursue their business activities as planned, which may force them to modify, delay or cancel plans to purchase or supply our products or services. In addition, if our customers do not generate sufficient revenue, or fail to obtain access to the capital markets, they may not be able to pay, or may delay payment of, the amounts they owe us. Customers with liquidity issues may lead to additional bad debt expense for us, which may adversely affect our results of operations and cash flows. We are also subject to the risk that the counterparties to our credit agreements and hedging transactions may go bankrupt if they suffer catastrophic demand on their liquidity that prevents them from fulfilling their contractual obligations to us.

        Apart from the effects of the ongoing global economic slowdown, our business environment is influenced by numerous other economic or political uncertainties which will affect the global economy and the international capital markets. In periods of slow economic growth or decline, our customers are more likely to decrease expenditures on the types of products and systems we supply and we are more likely to experience decreased revenues as a result. Our power and automation divisions are affected by the level of investments in the markets that we serve, principally utilities, industry and transport & infrastructure. At various times during the last several years, we also have experienced, and may experience in the future, gross margin declines in certain businesses, reflecting the effect of items such as competitive pricing pressures, inventory write-downs, charges associated with the cancellation of planned expansion, increases in pension and postretirement benefit expenses, and increases in component and manufacturing costs resulting from higher labor and material costs borne by our manufacturers and suppliers that, as a result of competitive pricing pressures or other factors, we are unable to pass on to our customers. Economic downturns also may lead to restructuring actions and associated expenses. Uncertainty about future economic conditions makes it difficult for us to forecast operating results and to make decisions about future investments.

        In addition, we are subject to the risks that our business operations in or with certain countries may be adversely affected by trade or economic sanctions or other restrictions imposed on these

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countries and that actual or potential investors that object to these business operations may adversely affect the price of our shares by disposing of, or deciding not to, purchase our shares. These countries may from time to time include countries that are identified by the United States as state sponsors of terrorism. If any countries where or with whom we do business are subject to such sanctions or restrictions, our business, consolidated operating results, financial condition and the trading price of our shares may be adversely affected. In 2015, our total revenues from business with countries identified by the U.S. government as state sponsors of terrorism represented a very small percentage of our total revenues. Based on the amount of revenues and other relevant quantitative and qualitative factors, we have determined that our business in 2015 with countries identified by the U.S. government as state sponsors of terrorism was not material.

Illegal behavior by any of our employees or agents could have a material adverse impact on our consolidated operating results, cash flows, and financial position as well as on our reputation and our ability to do business.

        Certain of our employees or agents have taken, and may in the future take, actions that violate or are alleged to violate the U.S. Foreign Corrupt Practices Act of 1977 (FCPA), legislation promulgated pursuant to the 1997 Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, applicable antitrust laws and other applicable laws or regulations. For more information regarding investigations of past actions taken by certain of our employees, see "Item 8. Financial Information—Legal Proceedings". Such actions have resulted, and in the future could result, in governmental investigations, enforcement actions, civil and criminal penalties, including monetary penalties and other sanctions, and civil litigation. It is possible that any governmental investigation or enforcement action arising from such matters could conclude that a violation of applicable law has occurred and the consequences of any such investigation or enforcement action may have a material adverse impact on our consolidated operating results, cash flows and financial position. In addition, such actions, whether actual or alleged, could damage our reputation and ability to do business.

        Further, detecting, investigating and resolving such actions could be expensive and could consume significant time and attention of our senior management. While we are committed to conducting business in a legal and ethical manner, our internal control systems have not been, and in the future may not be, completely effective to prevent and detect such improper activities by our employees and agents.

Our operations in emerging markets expose us to risks associated with conditions in those markets.

        A significant amount of our operations is conducted in the emerging markets in South America, Asia, and the Middle East and Africa. In 2015, approximately 45 percent of our consolidated revenues were generated from these emerging markets. Operations in emerging markets can present risks that are not encountered in countries with well-established economic and political systems, including:

    economic instability, which could make it difficult for us to anticipate future business conditions in these markets, cause delays in the placement of orders for projects that we have been awarded and subject us to volatile geographic markets,

    political or social instability which could make our customers less willing to make cross-border investments in such regions and could complicate our dealings with governments regarding permits or other regulatory matters, local businesses and workforces,

    boycotts and embargoes that may be imposed by the international community on countries in which we do business or where we seek to do business could adversely affect the ability of our operations in those countries to obtain the materials necessary to fulfill contracts and our ability to pursue business or establish operations in those countries,

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    foreign state takeovers of our facilities,

    significant fluctuations in interest rates and currency exchange rates,

    the imposition of unexpected taxes or other payments on our revenues in these markets,

    the ability to obtain financing and/or insurance coverage from export credit agencies, and

    the introduction of exchange controls and other restrictions by foreign governments.

        Additionally, political and social instability resulting from increased violence in certain countries in which we do business has raised concerns about the safety of our personnel. These concerns may hinder our ability to send personnel abroad and to hire and retain local personnel. Such concerns may require us to increase security for personnel traveling to such facilities or to conduct more operations from our other facilities rather than from facilities located in such countries, which may negatively impact our operations and result in higher costs and inefficiencies.

        In addition, the legal and regulatory systems of many emerging market countries are less developed and less well-enforced than in industrialized countries. Therefore, our ability to protect our contractual and other legal rights in these countries could be limited. Consequently, our exposure to the conditions in or affecting emerging markets may adversely affect our business, financial condition, results of operations and liquidity.

Undertaking long-term, fixed price or turnkey projects or technically complex projects exposes our businesses to risk of loss should our actual costs exceed our estimated or budgeted costs or should we fail to perform in line with the technical requirements.

        We derive a portion of our revenues from long-term, fixed price or turnkey projects or from technically complex projects that are awarded on a competitive basis and can take many months, or even years, to complete. Such contracts involve substantial risks, including the possibility that we may underbid and the fact that we typically assume substantially all of the risks associated with completing the project and the post-completion warranty obligations. These risks include the project's technical risk, meaning that we must tailor our products and systems to satisfy the technical requirements of a project even though, at the time we are awarded the project, we may not have previously produced such a product or system. The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from our original projections because of changes in conditions, including but not limited to:

    unanticipated technical problems with the equipment being supplied or developed by us which may require us to incur incremental expenses to remedy the problem,

    changes in the cost of components, materials or labor,

    difficulties in obtaining required governmental permits or approvals,

    project modifications that create unanticipated costs,

    delays caused by force majeure or local weather and geological conditions, including natural disasters,

    customer delays,

    shortages of construction equipment,

    changes in law or government policy,

    supply bottlenecks, especially of key components, and

    suppliers', subcontractors' or consortium partners' failure to perform.

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        These risks are exacerbated if the duration of the project is extended because then there is an increased risk that the circumstances upon which we originally bid and quoted a price change in a manner that increases our costs. In addition, we sometimes bear the risk of delays caused by unexpected conditions or events. Our project contracts often make us subject to penalties or damages if we cannot complete portions of the project in accordance with agreed-upon time limits and guaranteed performance levels.

We operate in very competitive markets and could be adversely affected if we fail to keep pace with technological changes.

        We operate in very competitive markets in particular with respect to product performance, developing integrated systems and applications that address the business challenges faced by our customers, pricing, new product introduction time and customer service. The relative importance of these factors differs across the geographic markets and product areas that we serve. The markets for our products and services are characterized by evolving industry standards (particularly for our automation technology products and systems), rapidly changing technology and increased competition as a result of privatization (particularly for our power products and systems). For example, as power transmission and distribution providers throughout the world have been undergoing substantial privatization, their need has increased for timely product and service innovations that increase efficiency and allow them to compete in a deregulated environment. Additionally, the continual development of advanced technologies for new products and product enhancements is an important way in which we maintain acceptable pricing levels. If we fail to keep pace with technological changes in the industrial sectors that we serve, we may experience price erosion and lower margins.

        All of our primary competitors are sophisticated companies with significant resources that may develop products and services that are superior to our products and services or may adapt more quickly than we do to new technologies, industry changes or evolving customer requirements. We are also facing increased competition from low cost competitors in emerging markets, which may give rise to increased pressure to reduce our prices. Our failure to anticipate or respond quickly to technological developments or customer requirements could adversely affect our business, results of operations, financial condition and liquidity.

Our multi-national operations expose us to the risk of fluctuations in currency exchange rates.

        Exchange rate fluctuations have had, and could continue to have, a material impact on our operating results, the comparability of our results between periods, the value of assets or liabilities as recorded on our Consolidated Balance Sheet and the price of our securities. Volatility in exchange rates makes it harder to predict exchange rates and perform accurate financial planning. Changes in exchange rates can unpredictably and adversely affect our consolidated operating results and could result in exchange losses.

        Currency Translation Risk.    The results of operations and financial position of most of our non-U.S. companies are initially recorded in the currency, which we call "local currency," of the country in which the respective company resides. That financial information is then translated into U.S. dollars at the applicable exchange rates for inclusion in our Consolidated Financial Statements. The exchange rates between local currencies and the U.S. dollar can fluctuate substantially, which could have a significant translation effect on our reported consolidated results of operations and financial position.

        Increases and decreases in the value of the U.S. dollar versus local currencies will affect the reported value of our local currency assets, liabilities, revenues and costs in our Consolidated Financial Statements, even if the value of these items has not changed in local currency terms. These translations

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could significantly and adversely affect our results of operations and financial position from period to period.

        Currency Transaction Risk.    Currency risk exposure also affects our operations when our sales are denominated in currencies that are different from those in which our manufacturing or sourcing costs are incurred. In this case, if after the parties agree on a price, the value of the currency in which the price is to be paid were to weaken relative to the currency in which we incur manufacturing or sourcing costs, there would be a negative impact on the profit margin for any such transaction. This transaction risk may exist regardless of whether or not there is also a currency translation risk as described above.

        Currency exchange rate fluctuations in those currencies in which we incur our principal manufacturing expenses or sourcing costs may adversely affect our ability to compete with companies whose costs are incurred in other currencies. If our principal expense currencies appreciate in value against such other currencies, our competitive position may be weakened.

Our hedging activities may not protect us against the consequences of significant fluctuations in exchange rates, interest rates or commodity prices on our earnings and cash flows.

        Our policy is to hedge material currency exposures by entering into offsetting transactions with third-party financial institutions. Given the effective horizons of our risk management activities and the anticipatory nature of the exposures intended to be hedged, there can be no assurance that our currency hedging activities will fully offset the adverse financial impact resulting from unfavorable movements in foreign exchange rates. In addition, the timing of the accounting for recognition of gains and losses related to a hedging instrument may not coincide with the timing of gains and losses related to the underlying economic exposures.

        As a resource-intensive operation, we are exposed to a variety of market and asset risks, including the effects of changes in commodity prices and interest rates. We monitor and manage these exposures as an integral part of our overall risk management program, which recognizes the unpredictability of markets and seeks to reduce the potentially adverse effects on our business. As part of our effort to manage these exposures, we may enter into commodity price and interest rate hedging arrangements. Nevertheless, changes in commodity prices and interest rates cannot always be predicted or hedged.

        If we are unable to successfully manage the risk of changes in exchange rates, interest rates or commodity prices or if our hedging counterparties are unable to perform their obligations under our hedging agreements with them, then changes in these rates and prices could have an adverse effect on our financial condition and results of operations.

Increases in costs or limitation of supplies of raw materials may adversely affect our financial performance.

        We purchase large amounts of commodity-based raw materials, including steel, copper, aluminum and oil. Prevailing prices for such commodities are subject to fluctuations due to changes in supply and demand and a variety of additional factors beyond our control, such as global political and economic conditions. Historically, prices for some of these raw materials have been volatile and unpredictable, and such volatility is expected to continue. Therefore, commodity price changes may result in unexpected increases in raw material costs, and we may be unable to increase our prices to offset these increased costs without suffering reduced volumes, revenues or operating income. We do not fully hedge against changes in commodity prices and our hedging procedures may not work as planned.

        We depend on third parties to supply raw materials and other components and may not be able to obtain sufficient quantities of these materials and components, which could limit our ability to manufacture products on a timely basis and could harm our profitability. For some raw materials and components, we rely on a single supplier or a small number of suppliers. If one of these suppliers were unable to provide us with a raw material or component we need, our ability to manufacture some of

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our products could be adversely affected until we are able to establish a new supply arrangement. We may be unable to find a sufficient alternative supply channel in a reasonable time period or on commercially reasonable terms, if at all. If our suppliers are unable to deliver sufficient quantities of materials on a timely basis, the manufacture and sale of our products may be disrupted, we might have obligations under our performance guarantees and our sales and profitability could be materially adversely affected.

An inability to protect our intellectual property rights could adversely affect our business.

        Our intellectual property rights are fundamental to all of our businesses. We generate, maintain, utilize and enforce a substantial portfolio of trademarks, trade dress, patents and other intellectual property rights globally. Intellectual property protection is subject to applicable laws in various local jurisdictions where interpretations and protections vary or can be unpredictable and costly to enforce. We use our intellectual property rights to protect the goodwill of our products, promote our product recognition, protect our proprietary technology and development activities, enhance our competitiveness and otherwise support our business goals and objectives. However, there can be no assurance that the steps we take to obtain, maintain and protect our intellectual property rights will be adequate. Our intellectual property rights may fail to provide us with significant competitive advantages, particularly in foreign jurisdictions that do not have, or do not enforce, strong intellectual property rights. The weakening of protection of our trademarks, trade dress, patents and other intellectual property rights could adversely affect our business.

Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise or are dependent upon factors not wholly within our control. Failure to meet these obligations could adversely affect our profitability and future prospects.

        We design, develop and manufacture technologically advanced and innovative products and services applied by our customers in a variety of environments. Problems and delays in our development or delivery of products or services as a result of issues with respect to design, technology, licensing and patent rights, labor, learning curve assumptions or materials and components could prevent us from achieving contractual requirements.

        In addition, the quality and efficacy of our products cannot be tested and proven in all situations and are otherwise subject to unforeseen problems. Examples of unforeseen problems that could negatively affect revenue and profitability include premature failure of products that cannot be accessed for repair or replacement, problems with quality, country of origin, delivery of subcontractor components or services and unplanned degradation of product performance. In addition, factors such as unforeseen costs and expenses not covered by insurance or indemnification from the customer, diversion of management focus in responding to unforeseen problems, loss of follow-on work, and, in the case of certain contracts, repayment to the customer of contract cost and fee payments we previously received as well as potential damages, which may significantly exceed the contract price, may affect revenue and profitability.

Industry consolidation could result in more powerful competitors and fewer customers.

        Competitors in the industries in which we operate are consolidating. In particular, the automation industry is undergoing consolidation that is reducing the number but increasing the size of companies that compete with us. As our competitors consolidate, they likely will increase their market share, gain economies of scale that enhance their ability to compete with us and/or acquire additional products and technologies that could displace our product offerings.

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        Our customer base also is undergoing consolidation. Consolidation within our customers' industries (such as the marine and cruise industry, the automotive, aluminum, steel, pulp and paper and pharmaceutical industries and the oil and gas industry) could affect our customers and their relationships with us. If one of our competitors' customers acquires any of our customers, we may lose that business. Additionally, as our customers become larger and more concentrated, they could exert pricing pressure on all suppliers, including us. For example, in an industry such as power transmission, which historically has consisted of large and concentrated customers such as utilities, price competition can be a factor in determining which products and services will be selected by a customer. If we were to lose market share or customers or face pricing pressure due to consolidation, our results of operations and financial condition could be adversely affected.

We are subject to environmental laws and regulations in the countries in which we operate. We incur costs to comply with such regulations, and our ongoing operations may expose us to environmental liabilities.

        Our operations are subject to U.S., European and other laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Our manufacturing facilities use and produce paint residues, solvents, metals, oils and related residues. We use petroleum-based insulation in transformers, polyvinylchloride (PVC) resin to manufacture PVC cable and chloroparaffin as a flame retardant. We have manufactured and sold, and we are using in some of our factories, certain types of transformers and capacitors containing polychlorinated biphenyls (PCBs). These are considered to be hazardous substances in many jurisdictions in which we operate. We may be subject to substantial liabilities for environmental contamination arising from the use of such substances. All of our manufacturing operations are subject to ongoing compliance costs in respect of environmental matters and the associated capital expenditure requirements.

        In addition, we may be subject to significant fines and penalties if we do not comply with environmental laws and regulations including those referred to above. Some environmental laws provide for joint and several or strict liability for remediation of releases of hazardous substances, which could result in us incurring a liability for environmental damage without regard to our negligence or fault. Such laws and regulations could expose us to liability arising out of the conduct of operations or conditions caused by others, or for our acts which were in compliance with all applicable laws at the time the acts were performed. Additionally, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances. Changes in the environmental laws and regulations, or claims for damages to persons, property, natural resources or the environment, could result in substantial costs and liabilities to us.

We may be the subject of product liability claims.

        We may be required to pay for losses or injuries purportedly caused by the design, manufacture or operation of our products and systems. Additionally, we may be subject to product liability claims for the improper installation of products and systems designed and manufactured by others.

        Product liability claims brought against us may be based in tort or in contract, and typically involve claims seeking compensation for personal injury or property damage. If the claimant runs a commercial business, claims are often made also for financial losses arising from interruption of operations. Based on the nature and application of many of the products we manufacture, a defect or alleged defect in one of these products could have serious consequences. For example:

    If the products produced by our power technology divisions are defective, there is a risk of fires, explosions and power surges, and significant damage to electricity generating, transmission and distribution facilities as well as electrical shock causing injury or death.

    If the products produced by our automation technology divisions are defective, our customers could suffer significant damage to facilities and equipment that rely on these products and

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      systems to properly monitor and control their manufacturing processes. Additionally, people could be exposed to electrical shock and/or other harm causing injury or death.

    If any of the products produced by us contain hazardous substances then there is a risk that such products or substances could cause injury or death.

    If any protective products produced by us were to fail to function properly, there is a risk that such failure could cause injury or death.

        If we were to incur a very large product liability claim, our insurance protection might not be adequate or sufficient to cover such a claim in terms of paying any awards or settlements, and/or paying for our defense costs. Further, some claims may be outside the scope of our insurance coverage. If a litigant were successful against us, a lack or insufficiency of insurance coverage could result in an adverse effect on our business, financial condition, results of operations and liquidity. Additionally, a well-publicized actual or perceived problem could adversely affect our market reputation which could result in a decline in demand for our products and reduce the trading price of our shares. Furthermore, if we were required or we otherwise determined to make a product recall, the costs could be significant.

We may encounter difficulty in managing our business due to the global nature of our operations.

        We operate in approximately 100 countries around the world and, as of December 31, 2015, employed about 135,000 people. As of December 31, 2015, approximately 45 percent of our employees were located in Europe, approximately 32 percent in Asia, Middle East and Africa and approximately 23 percent in the Americas. In order to manage our day-to-day operations, we must overcome cultural and language barriers and assimilate different business practices. In addition, we are required to create compensation programs, employment policies and other administrative programs that comply with the laws of multiple countries. We also must communicate and monitor group-wide standards and directives across our global network. Our failure to manage successfully our geographically diverse operations could impair our ability to react quickly to changing business and market conditions and to enforce compliance with group-wide standards and procedures.

If we are unable to obtain performance and other guarantees from financial institutions, we may be prevented from bidding on, or obtaining, some contracts, or our costs with respect to such contracts could be higher.

        In the normal course of our business and in accordance with industry practice, we provide a number of guarantees including bid-bonds, advance payment guarantees and performance guarantees, which guarantee our own performance. These guarantees may include guarantees that a project will be completed or that a project or particular equipment will achieve defined performance criteria. If we fail to attain the defined criteria, we must make payments in cash or in kind. Performance guarantees frequently are requested in relation to large projects in our power and automation businesses.

        Some customers require that performance guarantees be issued by a financial institution. In considering whether to issue a guarantee on our behalf, financial institutions consider our credit ratings. In addition, the global financial crisis has made it more difficult and expensive to obtain these guarantees. If, in the future, we cannot obtain such a guarantee from a financial institution on commercially reasonable terms or at all, we could be prevented from bidding on, or obtaining, some contracts, or our costs with respect to such contracts could be higher, which would reduce the profitability of the contracts. If we cannot obtain guarantees on commercially reasonable terms or at all from financial institutions in the future, there could be a material impact on our business, financial condition, results of operations or liquidity.

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Examinations by tax authorities and changes in tax regulations could result in lower earnings and cash flows.

        We operate in approximately 100 countries and therefore are subject to different tax regulations. Changes in tax law could result in higher tax expense and payments. Furthermore, this could materially impact our tax receivables and liabilities as well as deferred tax assets and deferred tax liabilities. In addition, the uncertainty of tax environment in some regions could limit our ability to enforce our rights. As a globally operating organization, we conduct business in countries subject to complex tax rules, which may be interpreted in different ways. Future interpretations or developments of tax regimes may affect our tax liability, return on investments and business operations. We are regularly examined by tax authorities in various jurisdictions.

If we are unable to attract and retain qualified management and personnel then our business may be adversely affected.

        Our success depends in part on our continued ability to hire, assimilate and retain highly qualified personnel, particularly our senior management team and key employees. Competition for highly qualified management and technical personnel remains intense in the industries and regions in which we operate. If we are unable to attract and retain members of our senior management team and key employees this could have an adverse effect on our business.

Anticipated benefits of existing and potential future mergers, acquisitions, joint ventures or strategic alliances may not be realized.

        As part of our overall strategy, we may, from time to time, acquire businesses or interests in businesses, including noncontrolling interests, or form joint ventures or create strategic alliances. Whether we realize the anticipated benefits from these transactions depends, in part, upon the integration between the businesses involved, the performance and development of the underlying products, capabilities or technologies, our correct assessment of assumed liabilities and the management of the operations in question. Accordingly, our financial results could be adversely affected by unanticipated performance and liability issues, transaction-related charges, amortization related to intangibles, charges for impairment of long-term assets and partner performance.

Our business strategy may include making strategic divestitures. There can be no assurance that any divestitures will provide business benefit.

        Our strategy includes divesting certain non-core businesses. The divestiture of an existing business could reduce our future profits and operating cash flows and make our financial results more volatile. We may not find suitable purchasers for our non-core businesses and may continue to pay operating costs associated with these businesses. Failed attempts to divest non-core businesses may distract management's attention from other business activities, erode employee morale and customers' confidence, and harm our business. A divestiture could also cause a decline in the price of our shares and increased reliance on other elements of our core business operations. If we do not successfully manage the risks associated with a divestiture, our business, financial condition, and results of operations could be adversely affected.

We could be affected by future laws or regulations enacted to address climate change concerns as well as the physical effects of climate change.

        Existing or pending laws and regulations intended to address climate change concerns could materially affect us in the future. We may need to incur additional costs to comply with these laws and regulations. We could also be affected indirectly by increased prices for goods or services provided to us by companies that are directly affected by these laws and regulations and pass their increased costs through to their customers. At this time, we cannot estimate what impact such costs may have on our

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business, results of operations or financial condition. We could also be affected by the physical consequences of climate change itself, although we cannot estimate what impact those consequences might have on our business or operations.

Increased information technology (IT) security threats and more sophisticated cyber-attacks could pose a risk to our systems, networks, products, solutions and services.

        We have observed a global increase in IT security threats and more sophisticated cyber-attacks, both in general and against us, which pose a risk to the security of systems and networks and the confidentiality, availability and integrity of data stored and transmitted on those systems and networks. While we attempt to mitigate these risks through a number of measures, including employee training, comprehensive monitoring of our networks and systems, and maintenance of backup and protective systems such as firewalls and virus scanners, our systems, networks, products, solutions and services remain potentially vulnerable to attacks. Similarly, we have observed a continued increase in attacks generally against industrial control systems as well as against our customers and the systems we supplied to them, which pose a risk to the security of those systems and networks. Depending on their nature and scope, such attacks could potentially lead to the compromising of confidential information, improper use of our systems and networks, or those we supplied to our customers, manipulation and destruction of data, defective products, production downtimes and supply shortages, which in turn could adversely affect our reputation, competitiveness and results of operations.

Item 4.    Information on the Company

INTRODUCTION

About ABB

        We are a global leader in power and automation technologies that improve the performance and lower the environmental impact of our customers in the utility, industry and transportation & infrastructure sectors. We provide a broad range of products, systems, solutions and services that are designed to boost productivity, increase power reliability and enhance energy efficiency. We operate in around 100 countries and employ about 135,000 people.

History of the ABB Group

        The ABB Group was formed in 1988 through a merger between Asea AB and BBC Brown Boveri AG. Initially founded in 1883, Asea AB was a major participant in the introduction of electricity into Swedish homes and businesses and in the development of Sweden's railway network. In the 1940s and 1950s, Asea AB expanded into the power, mining and steel industries. Brown Boveri and Cie. (later renamed BBC Brown Boveri AG) was formed in Switzerland in 1891 and initially specialized in power generation and turbines. In the early to mid-1900s, it expanded its operations throughout Europe and broadened its business operations to include a wide range of electrical engineering activities.

        In January 1988, Asea AB and BBC Brown Boveri AG each contributed almost all of their businesses to the newly formed ABB Asea Brown Boveri Ltd, of which they each owned 50 percent. In 1996, Asea AB was renamed ABB AB and BBC Brown Boveri AG was renamed ABB AG. In February 1999, the ABB Group announced a group reconfiguration designed to establish a single parent holding company and a single class of shares. ABB Ltd was incorporated on March 5, 1999, under the laws of Switzerland. In June 1999, ABB Ltd became the holding company for the entire ABB Group. This was accomplished by having ABB Ltd issue shares to the shareholders of ABB AG and ABB AB, the two companies that formerly owned the ABB Group. The ABB Ltd shares were exchanged for the shares of those two companies, which, as a result of the share exchange and certain related transactions, became wholly-owned subsidiaries of ABB Ltd. ABB Ltd shares are currently

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listed on the SIX Swiss Exchange, the NASDAQ OMX Stockholm Exchange and the New York Stock Exchange (in the form of American Depositary Shares).

Organizational structure

        Our business is international in scope and we generate revenues in numerous currencies. We operate in approximately 100 countries across three regions: Europe, the Americas, and Asia, Middle East and Africa (AMEA). We are headquartered in Zurich, Switzerland.

        We manage our business based on a divisional structure, which until January 1, 2016, comprised five divisions: Discrete Automation and Motion, Low Voltage Products, Process Automation, Power Products, and Power Systems. For a breakdown of our consolidated revenues (i) by operating division and (ii) derived from each geographic region in which we operate, see "Item 5. Operating and Financial Review and Prospects—Analysis of Results of Operations—Revenues".

        Effective January 1, 2016, ABB operates in a streamlined set-up of four divisions: Power Grids, Electrification Products, Discrete Automation and Motion, and Process Automation. The new Power Grids division focuses on the changing needs of utility customers with ABB's complete power & automation offering for transmission and distribution delivered from a single source—"power and automation for the grid". ABB's leading offering to industry and transport & infrastructure—"power and automation for the site"—is provided by three divisions. The new Electrification Products division combines ABB's leading low- and medium-voltage businesses. The Discrete Automation and Motion and Process Automation divisions are further aligned, addressing customer needs and operational efficiency. As a result, we believe our new divisional structure of four divisions is geared to better serve market demands. See "Business Divisions—Industry Background" for additional information related to the realignment of certain business divisions.

        Except where the context otherwise requires or where otherwise indicated, the information below is presented to reflect our business prior to this realignment to be consistent with the basis used in preparing our Consolidated Financial Statements.

        Our principal corporate offices are located at Affolternstrasse 44, CH-8050 Zurich, Switzerland, telephone number +41-43-317-7111. Our agent for U.S. federal securities law purposes is ABB Holdings Inc., located at 12040 Regency Parkway, Suite 200, Cary, North Carolina 27518.


BUSINESS DIVISIONS

Industry background

        As a global leader in power and automation, we serve utilities, industry and transport & infrastructure customers through our business divisions. These markets and our divisions are discussed in more detail below. Revenue figures presented in this Business Divisions section are before interdivisional eliminations.

    Utilities Market

        ABB focuses on the changing needs of utility customers with its complete power & automation offering for transmission and distribution. The ongoing shift in the electricity value chain such as the growth in renewable power generation created opportunities for companies that are able to deliver intelligent solutions to the challenges customers face with regard to increased grid complexity and stability. Renewables are also making stand-alone grids possible for remote, off-grid communities. Currently, these must be equipped with back-up (diesel) generators to cope with intermittent supply, but innovations in power storage technology promise to dramatically expand the application of these micro-grids, which are another key focus for ABB.

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        Our primary focus is 'power & automation for the grid' with niche automation solutions for utilities in power generation. With the significant shift in the electricity value chain, integration of renewables, micro-grids and solutions to control the flow are key growth drivers for the future. The grid of tomorrow will increase in complexity as there will be numerous feed-in points. Our power & automation solutions help utilities, which generally are public or government-owned entities and tend to be more consolidated in nature, address these challenges.

        Utilities remained cautious in 2015 but continued to make selective investments in infrastructure-critical power transmission projects. For example, ABB won an important order to connect the Norwegian and German power grids. The NordLink project will be Europe's largest high voltage direct current (HVDC) power grid interconnection to enable the transmission of 1,400 megawatts (MW) of renewable energy. In China, ABB was awarded orders totaling $300 million to boost power capacity and grid reliability by enabling two new long-distance 800 kilovolt (kV) ultrahigh voltage direct current (UHVDC) transmission links transporting 8,000 megawatts each. Furthermore, ABB won an order worth over $160 million from Eskom, South Africa's national electricity provider, to supply control systems, software and instrumentation for the 4,800 MW Kusile clean coal-fired power station which is more efficient than conventional coal-fired power plants as it lowers emissions and reduces fuel costs.

    Industry Market

        On the industry side, we serve factories all around the world from discrete to process industries. Energy efficiency and productivity are the hallmarks of ABB's offerings in this customer segment. Industry customers are diverse in nature and may be publicly traded or privately held companies. Our energy efficient products, systems and services reduce consumption and therefore electricity cost and carbon emissions, while our automation systems increase productivity, quality and efficiency, and keep workplaces safe. Since industrial customers have increasingly been focusing on enhancing energy efficiency and asset productivity, our offering is a key value proposition for them.

        Demand from industrial customers in 2015 varied by sector and region. However, low oil prices resulted in a continued constraint in discretionary spending by oil and gas customers. The need for cutting edge solutions to increase efficiency and to use renewable power generation to lower the environmental impact continued to be important demand drivers. In this context, ABB won a $90-million order for a high-voltage cable system to supply power from the Norwegian power grid to the Johan Sverdrup offshore oil field. Supplying electric power from shore for offshore oil and gas production avoids the need for offshore resources and to burn diesel or gas out at sea to power the equipment, and is much safer and more energy efficient. In addition, demand for robotics solutions in general industry is growing as there is an increased need for automated processes and productivity. YuMi®, ABB's collaborative robot, helps meet this need.

    Transport & Infrastructure Market

        Alongside ABB's offering for utilities and industry, the company provides power & automation solutions for transport & infrastructure customers. As transport customers focus on energy efficiency and reduced operating costs, our combined offer of power & automation solutions are key. Another key growth driver for this customer segment is the move to increased electric transportation as well as urbanization and growth in datacenters. Our expertise in power & automation has given us the edge when it comes to providing clean and reliable power solutions for transport networks and infrastructure.

        Demand from the transport & infrastructure market in 2015 was mixed, with continuing strong demand from the rail industry. For example, ABB continued its collaboration with Stadler Rail with orders totaling $115 million to deliver its newest traction equipment for reliable and energy-efficient trains in the United States and Europe. Furthermore, ABB delivered substations for the Swiss Federal

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Railways (SBB) to boost power supply and help accommodate rising traffic volumes in Switzerland. ABB's marine solutions to boost efficiency, reliability and flexibility were delivered to Estonia-based Tallink Group for their new liquefied natural gas (LNG) powered fast ferries.

Discrete Automation and Motion Division

        The Discrete Automation and Motion division offers a wide range of products and services including variable-speed drives, motion control solutions, motors, generators, power electronics systems, rectifiers, power quality and power protection products, mechanical power transmission of rotating equipment, traction converters, solar inverters, wind turbine converters, electric vehicle charging infrastructure, programmable logic controllers (PLCs), and industrial robots. These products help customers to improve productivity, quality, and energy efficiency, and generate energy. Key applications include energy conversion, data processing, actuation, automation, standardized manufacturing cells for applications such as machine tending, welding, cutting, painting, finishing, picking, packing and palletizing, and engineered systems for the automotive industry. The majority of these applications are for industrial applications including discrete manufacturing, process automation and hybrid or batch manufacturing, with others provided for infrastructure and buildings, transportation, and utilities. The division also provides a full range of life-cycle services, from product and system maintenance to application design, including energy efficiency appraisals, preventive maintenance and remote monitoring services.

        Revenues are generated both from direct sales to end users as well as from indirect sales through distributors, machine builders and OEMs (original equipment manufacturers), system integrators, and panel builders.

        The Discrete Automation and Motion division had approximately 29,700 employees as of December 31, 2015, and generated $9.1 billion of revenues in 2015.

    Products and Services

        The Discrete Automation and Motion division provides low-voltage and medium-voltage drive products and systems for industrial, commercial and residential applications. Drives provide speed, torque and motion control for equipment such as fans, pumps, compressors, conveyors, centrifuges, mixers, hoists, cranes, extruders, printing and textile machines. They are used in industries such as building automation, marine, power, transportation, food and beverage, metals, mining, and oil and gas.

        The division also produces a range of power conversion products. These include static excitation and synchronizing systems that provide stability for power stations, uninterruptible power supply modular systems, as well as high power rectifiers that convert alternating current (AC) power to direct current (DC) power for very high-amperage applications such as furnaces in aluminum smelters. The division also manufactures solar inverters, wind turbine converters and converters for power protection. Rail traction converters, DC wayside power solutions and a range of solutions for the charging of electric vehicles are also part of the division's portfolio.

        Discrete Automation and Motion supplies a comprehensive range of electrical motors and generators, including high-efficiency motors that conform to leading environmental and Minimum Energy Performance Standards (MEPS). Efficiency is an important selection criterion for customers, because electric motors account for nearly two-thirds of the electricity consumed by industrial plants. The Discrete Automation and Motion division manufactures synchronous motors for the most demanding applications and a full range of low- and high-voltage induction motors, for both IEC (International Electrotechnical Commission) and NEMA (National Electrical Manufacturers Association) standards.

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        The Discrete Automation and Motion division offers robots, controllers and software systems and services for the automotive manufacturers and their sub-suppliers as well as for general manufacturing industries, to improve product quality, productivity and consistency in manufacturing processes. Robots are also used in activities or environments which may be hazardous to employee health and safety, such as repetitive lifting, dusty, hot or cold rooms, or painting booths. In the automotive industry, the robot products and systems are used in such areas as press shop, body shop, paint shop, power train assembly, trim and final assembly. General industry segments in which robotics solutions are used range from metal fabrication, foundry, plastics, food and beverage, chemicals and pharmaceuticals, computers, consumer electronics and communications (3C) industries to solar and wood industries. Typical general industry applications include welding, material handling, painting, picking, packing, palletizing and small parts assembly automation.

        The division also offers services that complement its products, including design and project management, engineering, installation, training and life-cycle care, energy efficiency appraisals and preventive maintenance.

        The Discrete Automation and Motion division serves a wide range of customers. Customers include machinery manufacturers, process industries such as pulp and paper, oil and gas, and metals and mining companies, hybrid and batch manufacturers such as food and beverage companies, rail equipment manufacturers, discrete manufacturing companies such as '3C' (computer, communication and consumer electronic), utilities and renewable energy suppliers, particularly in the wind and solar sectors, as well as customers in the automotive industry and electric vehicle charging networks.

        Sales are made both through direct sales forces as well as through third-party channel partners, such as distributors, wholesalers, installers, machine builders and OEMs, system integrators, and panel builders. The proportion of direct sales compared to channel partner sales varies among the different industries, product technologies and geographic markets.

        The Discrete Automation and Motion division's principal competitors vary by product line but include Fanuc Robotics, Kuka Robot Group, Rockwell Automation, Schneider, Siemens, Yaskawa, SMA and WEG Industries.

        The Discrete Automation and Motion division's capital expenditures for property, plant and equipment totaled $145 million in 2015, compared to $192 million and $214 million in 2014 and in 2013, respectively. Principal investments in 2015 were primarily related to equipment replacement and upgrades. Geographically, in 2015, Europe represented 48 percent of the capital expenditures, followed by the Americas (33 percent) and AMEA (19 percent).

Low Voltage Products Division

        The Low Voltage Products division helps customers to improve productivity, use energy efficiently and increase safety. The division offers a wide range of products and systems, with related services, that provide protection, control and measurement for electrical installations, enclosures, switchboards, electronics and electromechanical devices for industrial machines and plants. The main applications are

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in industry, building, infrastructure, rail and sustainable transportation, renewable energies and e-mobility applications.

        The Low Voltage Products division had approximately 29,100 employees as of December 31, 2015, and generated $6.5 billion of revenues in 2015.

        A majority of the division's revenues comes from sales through distributors, wholesalers, OEMs, system integrators, and panel builders, although a portion of the division's revenues comes from direct sales to end users and utilities.

    Products and Services

        The Low Voltage Products division offering covers a wide range of products and services including low-voltage switchgears, breakers, switches, control products, DIN-rail components, automation and distribution enclosures, wiring accessories and installation material for many kinds of applications.

        The division offers solutions for restoring service rapidly in case of a fault and providing optimum protection of the electrical installation and people using such installations. The product offering ranges from miniature circuit breakers to high-capacity molded-case and air circuit breakers, and includes safety switches used for power distribution in factories and buildings, fuse gear systems for short circuit and overload protection as well as cabling and connection components.

        The Low Voltage Products division also offers terminal blocks and printed circuit board connectors used by panel builders and OEMs to produce standard distribution and control panels as well as specialized applications in industries such as traction, energy, maritime, explosive atmospheres and electronics. In addition, the division offers a range of contactors, soft starters, starters, proximity sensors, safety products for industrial protection, limit switches and manual motor starters, along with electronic relays and overload relays.

        The division provides smart home and intelligent building control systems, also known as KNX protocol, a complete system for all energy-reducing building application areas such as lighting and shutters, heating, ventilation, cooling and security. In addition, the division's IEC and NEMA compliant switchgear technology integrates intelligent motor and feeder control solutions to enhance protection, digital control, condition monitoring and plant-wide data access by process control systems, electrical control systems and other plant computers.

        The Low Voltage Products division has also developed a range of products for new markets, such as those used by electric vehicles (e-mobility) and in photovoltaic, solar and wind applications. These include circuit breakers, energy meters, switch-disconnectors, residual current-operated circuit breakers, interface relays and other products designed for outdoor installation.

        The division also supplies a wide range of electrical components including conduits, boxes, covers, fittings, connectors, fasteners, wiring ducts, terminals, cable trays, struts, grounding, insulation, switchgear, metal framing, earthing & lightning protection and industrial lighting products for various types of application.

        The Low Voltage Products division serves a wide range of customers, including residential and commercial building contractors, process industries, rail equipment manufacturers, manufacturing companies, utilities and renewable energy suppliers, particularly in the wind and solar sectors.

        Sales are made both through direct sales forces as well as through third-party channel partners, such as distributors, wholesalers, installers, machine builders and OEMs, system integrators, and panel

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builders. The proportion of direct sales compared to channel partner sales varies among the different industries, product technologies and geographic markets.

        The Low Voltage Products division's principal competitors vary by product line but include Eaton Corporation, Legrand, Mitsubishi, Schneider, Siemens, Leviton, Rittal and Chint Electrical.

        The Low Voltage Products division's capital expenditures for property, plant and equipment totaled $166 million in 2015, compared to $184 million and $204 million in 2014 and 2013, respectively. Investments in 2015 primarily related to equipment replacement and upgrades in recently acquired businesses. Geographically, in 2015, Europe represented 57 percent of the capital expenditures, followed by the Americas (29 percent) and AMEA (14 percent).

Process Automation Division

        The Process Automation division is a leading provider of fully-engineered solutions, products and services for process control, safety, instrumentation, plant electrification and energy management for the key process industry sectors of chemical, oil and gas, marine, mining, minerals, metals, cement, and pulp and paper. Each industry has certain unique business drivers, yet all share common requirements for operational productivity, safety, energy efficiency, minimized risk and environmental compliance. The Process Automation division's core competencies are the applications of automation and electrification technologies to address these generic requirements and are tailored to the characteristics of each of its key industries. Additionally, this business has a number of industry-specific services and anchor products (e.g. gearless mill drives, mine hoists, Azipods, turbochargers) that differentiate the business from its competitors. These products make ABB more relevant to its customers in these industries and represent significant components of a larger automation and electrification scope. The division is organized around industry systems, product businesses and life cycle services. The division had approximately 21,900 employees as of December 31, 2015, and generated revenues of $6.4 billion in 2015.

        The Process Automation division offering is made available as separately sold products or as part of a total electrification, instrumentation and/or automation system. The division's technologies are sold both through direct sales forces and third-party channels.

    Products and Services

        The Process Automation division offers standalone products, engineered systems and services for process control and measurement, safety, plant electrification, information management, asset management and industry-specific applications for a variety of industries, primarily pulp and paper, metals, minerals and mining, chemical, oil and gas, marine, pharmaceuticals and the power industry. Some of the Discrete Automation and Motion, Power Systems, Power Products and Low Voltage Products divisions' products are integrated into the process control and electrification systems offered by the Process Automation division.

        Our automation systems are used in applications such as continuous and batch control, asset optimization, energy management and safety. They are the hubs that link instrumentation, measurement devices and systems for control and supervision of industrial processes and enable customers to integrate their production systems with their enterprise, resource and planning systems, thereby providing a link to their ordering, billing and shipping processes. This link allows customers to

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manage their entire manufacturing and business process based on real-time access to plant information. Additionally, it allows customers to increase production efficiency, optimize their assets and reduce environmental waste.

        A key element of this division's product offering is its System 800xA process automation platform. This product extends the capability of traditional process control systems, introducing advanced functions such as batch management, asset optimization and field device integration which "plug in" to a common user environment. The same user interface may also be used to manage components of existing multiple ABB control systems that have been installed in the market over approximately the past 25 years. In this way, System 800xA gives customers a way to migrate to new functions one step at a time, rather than having to make a large-scale capital investment to replace their entire control system. By creating a common user interface that can be used to manage multiple systems, System 800xA also reduces the research and development investment needed to achieve a "one size fits all" solution across our large installed systems base. The division also offers a full line of instrumentation and analytical products to analyze, measure and record industrial and power processes.

        The division's product offerings for the pulp and paper industries include quality control systems for pulp and paper mills, control systems, drive systems, on-line sensors, actuators and field instruments. On-line sensors measure product properties, such as weight, thickness, color, brightness, moisture content and additive content. Actuators allow the customer to make automatic adjustments during the production process to improve the quality and consistency of the product. Field instruments measure properties of the process, such as flow rate, chemical content and temperature.

        We offer our customers in the metals, cement and mining industries specialized products and services, as well as total production systems. We design, plan, engineer, supply, erect and commission electric equipment, drives, motors and equipment for automation and supervisory control within a variety of areas including mining, mineral handling, aluminum smelting, hot and cold steel applications and cement production.

        In the oil and gas sector, we provide solutions for onshore and offshore production and exploration, refining, and petrochemical processes, and oil and gas transportation and distribution.

        In the pharmaceuticals and fine chemicals areas, we offer applications to support manufacturing, packaging, quality control and compliance with regulatory agencies.

        In the marine industry, we provide global shipbuilders with power and automation technologies for luxury cruise liners, ferries, tankers, offshore oil rigs and special purpose vessels. We design, engineer, build, supply and commission electrical and automation systems for marine power generation, power distribution and diesel electric propulsion, as well as turbochargers to improve efficiency for diesel and gasoline engines.

        We also offer a complete range of lifecycle services across all of our customer segments to help customers optimize their assets. Demand for our process automation services is increasing as our customers seek to increase productivity by improving the performance of existing equipment.

        The Process Automation division's end customers are primarily companies in the oil and gas, minerals and mining, metals, pulp and paper, chemicals and pharmaceuticals, and the marine industries. Customers for this division are looking for complete instrumentation, automation and electrification solutions which demonstrate value mainly in the areas of lower capital costs, increased plant availability, lower lifecycle costs and reduced project costs.

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        The Process Automation division uses a direct sales force as well as third-party channel partners, such as distributors, system integrators and OEMs. For the division as a whole, the majority of revenues are derived through the division's own direct sales channels.

        The Process Automation division's principal competitors vary by industry or product line. Competitors include Emerson, Honeywell, Metso Automation, Rockwell Automation, Schneider, Siemens, Voith, and Yokogawa Electric Corporation.

        The Process Automation division's capital expenditures for property, plant and equipment totaled $52 million in 2015, compared to $49 million and $68 million in 2014 and 2013, respectively. Principal investments in 2015 were in the measurement products and turbocharging businesses. Geographically, in 2015, Europe represented 60 percent of the capital expenditures, followed by the Americas (21 percent) and AMEA (19 percent).

Power Products Division

        The Power Products division primarily serves electric, gas and water utilities as well as industrial and commercial customers, with a wide portfolio of products and services across a wide voltage range to facilitate power generation, transmission and distribution. Direct sales account for a significant part of the division's total revenues, and external channel partners, such as wholesalers, distributors and OEMs, account for the rest. Key technologies include high- and medium-voltage switchgear, circuit breakers for a range of current ratings and voltage levels, power, distribution, traction and other special transformers, as well as products to help control and protect electrical networks. The division had approximately 35,100 employees as of December 31, 2015, and generated $9.6 billion of revenues in 2015.

    Products and Services

        The Power Products division manufactures products that can be placed in three broad categories: high-voltage products, medium-voltage products and transformers. The division sells directly to end customers and also through channels such as distributors, wholesalers, installers and OEMs. Some of the division's products are also integrated into the turnkey offerings of systems divisions such as Power Systems and Process Automation or sold through engineering, procurement and construction (EPC) firms.

        The High Voltage Products business supplies equipment, ranging from 50 to 1,200 kilovolts, mainly to power transmission utilities and also serves industrial customers. This equipment primarily enables the transmission grid to operate more reliably and efficiently with minimum environmental impact. As part of its portfolio, this business designs and manufactures a range of air-, gas-insulated and hybrid switchgear, generator circuit breakers, capacitors, high-voltage circuit breakers, surge arresters, instrument transformers, cable accessories and a variety of high-voltage components. This is supported by a range of service solutions to support the products throughout their life cycle.

        The Medium Voltage Products business offers products and services that largely serve the power distribution sector, often providing the link between high-voltage transmission systems and low-voltage users. Medium-voltage products help utility and industrial customers to improve power quality and control, reduce outage time and enhance operational reliability and efficiency. This business reaches

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customers directly and through channels such as distributors and OEMs. Its comprehensive offering includes medium-voltage equipment (1 to 50 kilovolts), indoor and outdoor circuit breakers, reclosers, fuses, contactors, relays, instrument transformers, sensors, motor control centers, ring main units for primary and secondary distribution, as well as a range of air- and gas-insulated switchgear. It also produces indoor and outdoor modular systems and other solutions to facilitate efficient and reliable power distribution.

        The Transformers business designs and manufactures power transformers (72.5 to 1,200 kilovolts) for utility and industrial customers that help to step up or step down voltage levels and include special applications such as HVDC converter transformers or phase shifters. This business also supplies transformer components and insulation material, such as bushings and tap changers. It also manufactures a wide range of distribution transformers (up to 72.5 kilovolts) for use in the power distribution sector, industrial facilities and commercial buildings. These transformers are designed to step down electrical voltage bringing it to consumption levels. They can be oil- or dry-type and, although oil-type transformers are more commonly used, demand for dry-type transformers is growing because they minimize fire hazards and are well-suited for applications such as office buildings, wind turbines, offshore drilling platforms, marine vessels and large industrial plants. Another part of the offering includes traction transformers for use in electric locomotives, special application transformers, as well as a wide range of service and retrofit solutions for utility and industry customers.

        The Power Products division serves electric utilities, owners and operators of power generating plants and power transmission and distribution networks. It also serves industries across the spectrum. Customers include electric, gas, water and other utilities, as well as industrial and commercial customers.

        The Power Products division sells its products individually and as part of wider solutions through our systems divisions. Direct sales account for a significant part of the division's business and the rest are sold through external channel partners, such as wholesalers, distributors, system integrators, EPCs and OEMs. As the Power Products and Power Systems divisions share many of the same customers and technologies and are influenced by similar market drivers, they also have a common front-end sales organization to maximize market synergies and coverage across countries, regions, and sectors for the entire power portfolio.

        On a global basis, the main competitors for the Power Products division are Siemens, General Electric and Schneider. The division also faces global competition in some product categories from competitors in emerging markets. It also competes in specific geographies with companies such as Eaton Corporation, Hyundai, Hyosung, Crompton Greaves, Larsen & Toubro and Bharat Heavy Electricals.

        The Power Products division's capital expenditures for property, plant and equipment totaled $164 million in 2015, compared to $220 million and $252 million in 2014 and 2013, respectively. Principal investments in 2015 related to upgrades and expansion of existing facilities in Sweden, China, United States, Germany and Czech Republic. Geographically, in 2015, Europe represented 53 percent of the division's capital expenditures, followed by the Americas (24 percent) and AMEA (23 percent).

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Power Systems Division

        The Power Systems division serves public and private utilities, as well as industrial and commercial customers with solutions for power and water plants, grid integration and automation as well as a complete range of systems and services for the generation, transmission and distribution of electricity. Turnkey solutions include power plant electrification and automation, bulk power transmission, substations and network management. The division had approximately 18,100 employees as of December 31, 2015, and generated $6.3 billion of revenues in 2015.

    Products and Services

        The Power Systems division delivers solutions through four businesses: Power Generation, Grid Systems, Substations and Network Management. The scope of work in a typical turnkey contract includes design, system engineering, supply, installation, commissioning and testing of the system. As part of the business model, the Power Systems division integrates products from both the Power Products division and external suppliers, adding value through design, engineering and project management to deliver turnkey solutions.

        The Power Generation business is a leading provider of automation solutions for all types of power generation plants, including coal, gas, combined-cycle, waste-to-energy and a range of renewables including hydro, solar, wind and biomass. With an offering that includes electrical balance of plant as well as instrumentation and control systems, ABB technologies help optimize performance, improve reliability, enhance efficiency and minimize environmental impact throughout the plant life cycle. The business also serves the water industry, including applications such as pumping stations and desalination plants.

        As part of the Grid Systems business, ABB provides a comprehensive offering of AC and DC transmission systems, which help customers to reduce transmission losses, maximize efficiency and improve grid reliability. ABB pioneered HVDC technology nearly 60 years ago. HVDC technology is designed to reliably and efficiently transmit electrical power over long distances via overhead lines and underground or submarine cables with minimum losses. HVDC is also widely used for grid interconnections. HVDC Light®, a more compact form of ABB's classic HVDC technology, is ideal for linking offshore installations, such as wind farms or oil and gas platforms, to mainland grids and for interconnections, often via subsea links. The environmental benefits of HVDC Light®, include neutral electromagnetic fields, oil-free cables and compact converter stations.

        ABB also offers a comprehensive range of land and submarine cables through its Grid Systems business, as well as accessories and services for a range of applications from medium- to high-voltage AC and DC systems. The portfolio includes high-performance XLPE (cross-linked polyethylene) insulated cables for high efficiency transmission systems at voltages up to 525 kilovolts. When it comes to transmission grid solutions, ABB manufactures its own power semiconductors, which are a key enabler for HVDC, flexible alternating current transmission systems (FACTS) and other technologies, serving a range of sectors including transportation and wind.

        Substations are key installations in the power grid that facilitate the efficient transmission and distribution of electricity with minimal environmental impact. They perform the vital function of monitoring and controlling power flows, feeding power from generating stations into the grid and providing the link between transmission and distribution networks as well as end consumers. ABB has successfully delivered air- and gas-insulated substations in all kinds of environments, from deserts and mountains to offshore rigs and crowded city centers. ABB's substation offering spans a range of voltage levels up to 1,100 kilovolts, serving utility, industry and commercial customers as well as sectors such as railways, urban transportation and renewables.

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        FACTS technologies are also part of the Substations business offering. FACTS solutions help improve power quality and can significantly increase the capacity of existing AC transmission systems, by as much as 50 percent, while maintaining and improving system reliability. FACTS technologies also boost transmission efficiency, relieve bottlenecks and can be used for the safe integration of intermittent power sources, such as wind and solar, into the grid. By enhancing the capacity of existing transmission infrastructure, FACTS solutions can alleviate the need for capital investment, reducing the time, cost and environmental impact associated with the construction of new generating facilities and transmission lines. By improving efficiency, FACTS technologies help to deliver more power to consumers, reducing the need for more electricity generation, and improving power supply and quality. ABB is a global leader in the growing field of FACTS, and has delivered more than 800 such installations across the world.

        ABB's Network Management business offers solutions to help manage power networks. The offering covers network management and utility communications solutions to monitor, control, operate and protect power systems. These solutions are designed to ensure the reliability of electricity supplies and enable real-time management of power plants, transmission grids, distribution networks and energy trading markets. The portfolio includes control and protection systems for power generation, transmission and distribution, supervisory control and data acquisition (SCADA) systems, as well as software solutions for central electricity markets and mixed utilities (electricity, district heating, gas and water). It also encompasses the substation automation offering, compliant with IEC 61850, the open communication standard, which provides a common framework for substation control and protection and facilitates interoperability across devices and systems. The Network Management portfolio also covers wireless and fixed communication systems for power, water and gas utilities. It includes fiber optics, microwave radio and power line applications for data networking and broadband network management, as well as teleprotection and substation communication networks and voice switching management systems.

        Network management systems are key smart-grid enablers by providing automated power systems to incorporate and manage centralized and distributed power generation, intermittent sources of renewable energy, real-time pricing and load-management data. Relevant acquisitions have made ABB a global leader in enterprise software and services for essential industries such as energy, mining, public infrastructure and transportation. These solutions help to bridge the gap between information technologies (IT) and operational technologies (OT), enabling clients to make faster, better-informed decisions in both daily operations and long-term planning strategies. Some of the world's largest private and public enterprises rely on such solutions to minimize risk, enhance operational and financial performance and execute the right strategies for the future.

        The Power Systems division also has a global footprint and installed base that helps drive the service business. The offering includes a range of services aimed at optimizing operations and reducing maintenance requirements across the value chain. These services range from support agreements and retrofits to spare parts, asset health, management, data analytics and training. The division also undertakes consulting activities such as energy efficiency studies for power plants and grids, analyses and design of new transmission and distribution systems as well as asset optimization based on technical, regulatory, economic and environmental considerations.

        The Power Systems division's principal customers include public and private power generation utilities and companies, transmission and distribution utilities, owners and operators as well as industrial and commercial customers. Other customers include gas and water utilities including multi-utilities, which are involved in the transmission or distribution of more than one commodity.

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        The Power Systems division promotes its offering primarily through a direct sales force of specialized sales engineering teams. Some sales are also handled through third-party channels, such as EPC firms, OEMs and system integrators. As the Power Products and Power Systems divisions share many of the same customers and technologies, and are influenced by similar market drivers, they also have a common front-end sales organization that helps maximize market synergies across countries and regions.

        On a global basis, the Power Systems division faces competition mainly from Siemens and General Electric. Emerson, Prysmian and Nexans are additional competitors in parts of the business. The division also sees emerging competitors in specific regions. The breadth of its portfolio, technology and innovation, a global footprint and a vast installed base, enable the division to maintain its leading position in the power sector.

        The Power Systems division's capital expenditures for property, plant and equipment totaled $75 million in 2015, compared to $92 million and $101 million in 2014 and 2013, respectively. Principal investments in 2015 were related to capacity expansion as well as the replacement of existing equipment, particularly in Sweden. Geographically, in 2015, Europe represented 87 percent of the capital expenditures, followed by AMEA (9 percent) and the Americas (4 percent).

Corporate and Other

        Corporate and Other includes headquarters, central research and development, our real estate activities, Group Treasury Operations and other minor business activities.

        Corporate headquarters and stewardship activities 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.

        Corporate research and development primarily covers our research activities, as our development activities are organized under the five business divisions. We have two global research laboratories, one focused on power technologies and the other focused on automation technologies, which both work on technologies relevant to the future of our five business divisions. Each laboratory works on new and emerging technologies and collaborates with universities and other external partners to support our divisions in advancing relevant technologies and in developing cross-divisional technology platforms. We have corporate research centers in seven countries (China, Germany, India, Poland, Sweden, Switzerland and the United States).

        Corporate and Other had approximately 1,900 employees at December 31, 2015.

Division realignment

        On January 1, 2016, ABB commenced operating in a streamlined set-up of four divisions: Power Grids, Electrification Products, Discrete Automation and Motion, and Process Automation. The new Power Grids division focuses on the changing needs of utility customers with ABB's complete power & automation offering for transmission and distribution delivered from a single source—"power & automation for the grid". ABB's leading offering to industry and transport & infrastructure—"power &

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automation for the site"—is provided by three divisions. The new Electrification Products division combines ABB's leading low- and medium-voltage businesses. The Discrete Automation and Motion and Process Automation divisions are being further aligned to better address customer needs and increase operational efficiency.

        The new Power Grids division is a leading supplier of power & automation solutions to customers and comprises ABB's AC grid, DC grid and grid automation activities, as well as the company's transformer and high-voltage product businesses. On a pro forma basis, the Power Grids division had revenues in 2015 of approximately $11.6 billion and employed approximately 37,200 employees at January 1, 2016.

        The Electrification Products division includes ABB's medium-voltage products business as well as the breakers & switches, control products, building products, low-voltage systems and Thomas & Betts activities. This combination opens new growth opportunities by taking one of the industry's most complete ranges of low- and medium-voltage products, solutions and services to a broader customer base through multiple common sales channels. On a pro forma basis, the Electrification Products division had revenues in 2015 of approximately $9.5 billion and employed approximately 41,600 employees at January 1, 2016.

        Under our new structure, all of ABB's control solutions are integrated into the realigned Process Automation division and delivered across ABB's various end markets through focused front-end customer interfaces. To achieve this, we transferred the DCS business for power generation from the previous Power Systems division. On a pro forma basis, the Process Automation division had revenues in 2015 of approximately $7.2 billion and employed approximately 24,800 employees at January 1, 2016.

        There were no significant changes in the Discrete Automation and Motion division.

        Except where the context otherwise requires or where otherwise indicated, the information below is presented to reflect our business prior to this realignment to be consistent with the basis used in preparing our Consolidated Financial Statements.


CAPITAL EXPENDITURES

        Total capital expenditures for property, plant and equipment and intangible assets (excluding intangibles acquired through business combinations) amounted to $876 million, $1,026 million and $1,106 million in 2015, 2014 and 2013, respectively. In 2015, 2014 and 2013, capital expenditures were 24 percent, 21 percent and 16 percent lower, respectively, than depreciation and amortization (excluding acquisition-related amortization, capital expenditures were 3 percent, 11 percent and 19 percent higher, respectively, than depreciation and amortization).

        Capital expenditures in 2015 remained at a significant level in mature markets, reflecting the geographic distribution of our existing production facilities. Capital expenditures in Europe and North America in 2015 were driven primarily by upgrades and maintenance of existing production facilities, mainly in the United States, Sweden, Switzerland and Germany. Capital expenditures in emerging markets were highest in China, Poland, India and Brazil. Capital expenditures in emerging markets were made primarily to increase production capacity by investment in new or expanded facilities. The share of emerging markets capital expenditures as a percentage of total capital expenditures in 2015, 2014 and 2013 was 31 percent, 29 percent and 33 percent, respectively.

        At December 31, 2015, construction in progress for property, plant and equipment was $559 million, mainly in Sweden, the United States, China, Switzerland and Germany. At December 31, 2014, construction in progress for property, plant and equipment was $653 million, mainly in Sweden, the United States, Switzerland, Saudi Arabia and China, while at December 31, 2013, construction in progress for property, plant and equipment was $645 million, mainly in Sweden, the United States, Switzerland, Germany and Brazil.

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        Our capital expenditures relate primarily to property, plant and equipment. For 2016, we estimate the expenditures for property, plant and equipment will be higher than our annual total for depreciation and amortization (excluding acquisition-related amortization).


SUPPLIES AND RAW MATERIALS

        We purchase a variety of raw materials and products which contain raw materials for use in our production and project execution processes. The primary materials used in our products, by weight, are copper, aluminum, carbon steel, mineral oil and various plastics. We also purchase a wide variety of fabricated products and electronic components. We operate a worldwide supply chain management network with employees dedicated to this function in our businesses and key countries. Our supply chain management network consists of a number of teams, each focusing on different product categories. These category teams, on global, divisional and/or regional level, take advantage of opportunities to leverage the scale of ABB and to optimize the efficiency of our supply networks, in a sustainable manner.

        Our supply chain management organization's activities have continued to expand in recent years, to:

    pool and leverage procurement of materials and services,

    provide transparency of ABB's global spending through a comprehensive performance and reporting system linked to all of our enterprise resource planning (ERP) systems,

    strengthen ABB's supply chain network by implementing an effective product category management structure and extensive competency-based training, and

    monitor and develop our supply base to ensure sustainability, both in terms of materials and processes used.

        We buy many categories of products which contain steel, copper, aluminum, crude oil and other commodities. Continuing global economic growth in many emerging economies, coupled with the volatility in foreign currency exchange rates, has led to significant fluctuations in these raw material costs over the last few years. While we expect global commodity prices to remain highly volatile, we expect to offset some market volatility through the use of long-term contracts and global sourcing.

        We seek to mitigate the majority of our exposure to commodity price risk by entering into hedges. For example, we manage copper and aluminum price risk using principally swap contracts based on prices for these commodities quoted on leading exchanges. ABB's hedging policy is designed to safeguard margins by minimizing price volatility and providing a stable cost base during order execution. In addition to using hedging to reduce our exposure to fluctuations in raw materials prices, in some cases we can reduce this risk by incorporating changes in raw materials prices into the prices of our products (through price escalation clauses).

        Overall, during 2015 supply chain management personnel in our businesses, and in the countries in which we operate, along with the global category teams, continued to focus on value chain optimization efforts in all areas, while maintaining and improving quality and delivery performance.

        In August 2012, the United States Securities and Exchange Commission (SEC) issued its final rules regarding "Conflict Minerals", as required by section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. We initiated conflict minerals processes in 2013 and have continuously improved and tailored the processes to our value chain. We continue to work with our suppliers and customers, to enable us to comply with the rules and disclosure obligations. Further information on ABB's Conflict Minerals policy and supplier requirements can be found under "Material Compliance" at new.abb.com/about/supplying

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PATENTS AND TRADEMARKS

        As a technology-driven company, we believe that intellectual property rights are crucial to protect the assets of our business. Over the past ten years, we have substantially increased the number of first patent filings, and we intend to continue our aggressive approach to seeking patent protection. Currently, we have approximately 25,900 patent applications and registrations, of which more than 7,700 are pending applications. In addition to these patents, we have more than 3,500 utility model and design applications and registrations, of which approximately 550 are pending applications. In 2015, we filed more than 800 patent, utility model and design applications for nearly 1,400 new inventions. Based on our existing intellectual property strategy, we believe that we have adequate control over our core technologies. The "ABB" trademarks and logo are protected in all of the countries in which we operate. We aggressively defend our intellectual property rights to safeguard the reputation associated with the ABB technology and brand. While these intellectual property rights are fundamental to all of our businesses, there is no dependency of the business on any single patent, utility model or design application.


SUSTAINABILITY ACTIVITIES

        Sustainability management is one of our highest business priorities. We seek to address sustainability issues in all our business operations in order to improve our social, safety and environmental performance continuously, and to enhance the quality of life in the communities and countries where we operate.

        Our social and environmental efforts include:

    regularly implementing sustainability objectives covering all relevant parts of our operations,

    joining initiatives that foster economic, environmental, social and educational development, and strengthen observance of human rights in business practice,

    making positive contributions in the communities where we operate so they welcome us and consider ABB a good neighbor, an attractive employer and a good investment,

    offering our customers eco-efficient products that save energy and are safe to use, that optimize the use of natural resources, minimize waste and reduce environmental impact over their complete life cycles,

    applying non-financial risk assessment to key business decision-making processes, and to projects,

    sharing our latest technologies with emerging markets by, for example, helping customers in developing countries implement environmentally sound processes and technologies and providing environmental awareness and safety training to our business partners,

    ensuring that our operations and processes comply with applicable environmental and health and safety standards and social legislation. Specifically, every operating unit must implement an environmental management system that seeks to continuously improve its environmental performance and a health and safety management system that similarly seeks to continuously improve health and safety performance,

    ensuring that our social, health and safety and environmental policies are communicated and implemented,

    working towards achieving best practices in occupational health and safety, and ensuring the health and safety of our employees, contractors and others involved in or affected by our activities,

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    ensuring that suppliers have sustainability policies and systems that are comparable with our own, and

    continuing our program to decontaminate sites that were polluted by historical manufacturing processes.

        To manage environmental aspects of our own operations, we have implemented environmental management systems according to the ISO 14001 standard at our manufacturing and service sites. For non-manufacturing sites we have implemented an adapted environmental management system in order to ensure management of environmental aspects and continual improvement of performance. Globally, operations at 418 sites and offices are covered by externally certified environmental management systems.

        We have Environmental Product Declarations to communicate the environmental performance of our core products. These describe the significant environmental aspects and impacts of a product line, viewed over its complete life cycle. Declarations are based on Life Cycle Assessment studies, created according to the international standard ISO/TR 14025. Approximately 70 declarations for major product lines are published on our Web site (www.abb.com), some of which have been externally certified.

        In 2015, approximately 95 percent of our employees were covered by confirmed data gathered through ABB's formal environmental reporting system that is verified by an independent verification body. The operations of companies acquired during 2015 are not yet covered by our environmental reporting. We expect that this reporting will be implemented in 2016. The remaining parts of our business that are not yet covered by our environmental reporting system, mainly sales, have very limited environmental exposure. A total of 23 environmental incidents were reported in 2015, none of which had a significant environmental impact.

        In 2015, substantially all of our employees were covered by confirmed data gathered through ABB's formal social reporting system that is verified by an independent verification body. The operations of companies acquired during 2015 are not yet covered by our social reporting. We expect that this reporting will be implemented in 2016. The remaining parts of our business that are not yet covered by our social reporting system, mainly sales offices in countries where we do not perform manufacturing, have very limited social exposure.


REGULATION

        Our operations are subject to numerous governmental laws and regulations including those governing antitrust and competition, corruption, the environment, securities transactions and disclosures, import and export of products, currency conversions and repatriation, taxation of foreign earnings and earnings of expatriate personnel and use of local employees and suppliers.

        As a reporting company under Section 12 of the U.S. Securities Exchange Act of 1934, we are subject to the FCPA's anti-bribery provisions with respect to our conduct around the world.

        Our operations are also subject to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The convention obliges signatories to adopt national legislation that makes it a crime to bribe foreign public officials. Those countries which have adopted implementing legislation and have ratified the convention include the U.S. and several European nations in which we have significant operations.

        We conduct business in certain countries known to experience governmental corruption. While we are committed to conducting business in a legal and ethical manner, our employees or agents have taken, and in the future may take, actions that violate the U.S. FCPA, legislation promulgated pursuant to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International

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Business Transactions, antitrust laws or other laws or regulations. These actions have resulted and could result in monetary or other penalties against us and could damage our reputation and, therefore, our ability to do business. For more information, see "Item 8. Financial Information—Legal Proceedings".

        The U.S. Iran Threat Reduction and Syria Human Rights Act of 2012 requires U.S. listed companies to disclose information relating to certain transactions with Iran. With the partial lifting of international sanctions, ABB has started to seek business opportunities in Iran, as from January 2016. We are abiding by remaining applicable sanctions. ABB had not been involved in business activities in Iran since December 2012.


ORGANIZATIONAL STRUCTURE

        See "Item 6. Directors, Senior Management and Employees—Group structure and shareholders—Group structure" for a list of ABB's significant subsidiaries.


DESCRIPTION OF PROPERTY

        As of December 31, 2015, we occupy real estate in around 100 countries throughout the world. The facilities consist mainly of manufacturing plants, office buildings, research centers and warehouses. A substantial portion of our production and development facilities are situated in the United States, China, Sweden, Germany, Italy, Finland, Switzerland, India, Canada and Poland. We also own or lease other properties, including office buildings, warehouses, research and development facilities and sales offices in many countries. We own substantially all of the machinery and equipment used in our manufacturing operations.

        From time to time, we have a surplus of space arising from acquisitions, production efficiencies and/or restructuring of operations. Normally, we seek to sell such surplus space which may involve leasing property to third parties for an interim period.

        The net book value of our property, plant and equipment at December 31, 2015, was $5,276 million, of which machinery and equipment represented $2,362 million, land and buildings represented $2,355 million and construction in progress represented $559 million. We believe that our current facilities are in good condition and are adequate to meet the requirements of our present and foreseeable future operations.

Item 4A.    Unresolved Staff Comments

        Not applicable

Item 5.    Operating and Financial Review and Prospects

MANAGEMENT OVERVIEW

        As a global leader in power and automation, we serve utility, industry and transport & infrastructure customers in a combined market worth more than $600 billion per year. In all three customer segments, our combined offering of power and automation provides a unique value proposition for customers as we provide solutions for secure, energy-efficient generation, transmission and distribution of electricity, and for increasing productivity in industrial, commercial and utility operations. As we look at our customers' value chain, there is a clear trend towards more electricity being transmitted by wire, and increased feed-in points. This leads to a convergence of power and automation, which then needs to be automated and controlled.

        In September 2014, we launched the Next Level strategy which laid the foundation to take ABB to the Next Level aimed at accelerating sustainable value creation. The strategy is built on the three focus areas of profitable growth, relentless execution and business-led collaboration.

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Next Level—Stage 1

        In Stage 1 of the Next Level strategy we drove toward profitable growth by shifting our center of gravity through strengthening our competitiveness, driving organic growth and lowering our risk profile. We continued to drive profitable growth through our framework of penetration, innovation and expansion (PIE) in targeted geographic and industry segments. Some of our key successes in 2015 can be seen in the section Next Level—Stage 2 below.

        To complement our drive for organic growth we also launched five new partnerships in 2015 in different markets such as data centers (with Ericsson), electrical vehicle charging (with Microsoft), grid integration in Japan (with Hitachi), microgrids (with Samsung) and building automation and software for smart homes (with Bosch & Cisco).

        In Stage 1, we drove relentless execution by continuing to deliver on our ongoing cost savings program. Significant progress was also made on the previously announced Power Systems 'step-change' program. We returned the division to profitability and it reached the target operational EBITA range of 7-11 percent in the fourth quarter of 2015. We are driving our transformation through our 1,000-day programs, to ensure a successful implementation and making our operations more efficient. In order to increase operational performance, a new compensation model was rolled out which better incentivizes management performance by building on company as well as individual key performance indicators (KPIs). As of January 2016 more than 70,000 employees are on this new model.

        Our third focus area is business-led collaboration which aims at increasing operational efficiency by improving processes and organizational structures. We have simplified the organization and set clear roles and responsibilities throughout the group.

        Our Next Level Stage 1 actions laid a solid foundation for our future development amid a significantly tougher market environment in 2015 compared to 2014. Global GDP growth assumptions were downgraded, oil prices continued to decrease and China's growth moderated. The market for our full product and service offering, which totals more than $600 billion a year, is now expected to grow 2.5-4.5 percent a year in the period from 2015 to 2020.

Next Level—Stage 2

        Stage 2 of the Next Level strategy was announced in September 2015 and is comprised of a significant set of actions to accelerate the shift of our center of gravity toward higher organic growth, greater competitiveness and lower risk while accelerating existing improvement projects.

Profitable growth

        Profitable growth continues to be a key focus area to accelerate sustainable value creation and is driven through the framework of penetration, innovation and expansion (PIE).

        We continued to drive for growth in 2015 through increased market penetration in targeted geographic and industry segments. For example, we have a pioneering track record in supporting the development of India's power infrastructure. ABB projects in India include the North-East Agra power link, the world's first multi-terminal UHVDC transmission system, as well as a smart grid solution for the entire Karnataka state power network. In addition to the first link in the country, we have been involved in five major HVDC projects in India. Furthermore, we have actively contributed to the development of India's ultrahigh voltage (765kV) network and the local manufacturing of related equipment. Most recently we developed 1200 kV power equipment including transformers and a switchgear for the pilot installation in Bina, India, which is deploying the highest AC voltage level in the world. We are also supporting the rapid urbanization in India through a range of initiatives including solar plants, microgrids and metro rail projects in fast growing cities like Delhi, Bangalore and Jaipur.

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        Innovation continued to be a focus for growth and we introduced several ground-breaking offerings in 2015, including the launch of our collaborative robot, YuMi®, the 525 kV HVDC cable, the Azipod® D electric propulsion system and the eco-efficient gas insulated switchgear. YuMi® is the world's first dual-arm robot to be able to work collaboratively on the same tasks as humans while ensuring the safety of those around it. With the introduction of YuMi®, we are pushing the boundaries of robotic automation by fundamentally expanding the types of industrial processes which can be automated with robots. In addition, we commissioned the world's first high- and medium-voltage switchgear installation for the Swiss utility, EWZ, with a new eco-efficient gas that reduces the global warming potential by almost 100 percent by offering an alternative gas mixture to the conventional sulfur hexafluoride.

        We also continue to focus on the opportunities brought by the Industrial Internet, the so-called "Internet of Things, Services and People" (IoTSP). Today, more than 50 percent of our products are software-related. By enabling installations to communicate via the internet, the IoTSP provides connections across company locations and even between companies. As a company with offerings across the power and automation spectrum, we are ideally-positioned to enable the IoTSP and to help customers reach the next level of productivity, efficiency and flexibility. We received an order in 2015 together with the Dutch weather forecasting specialist, Meteo Group, to provide 140 Maersk container vessels with advisory software to optimize routes helping them to drive vessel efficiency and avoid conditions that could be harmful to the ship.

        Technology innovation remains a cornerstone of our competitive position and a key driver of profitable growth. We plan to continue investments into research and development of approximately 4 percent of revenues, which in 2015 amounted to $1.4 billion.

        Expansion into new high-growth markets is another driver of profitable growth. We, along with Microsoft Corp., have announced the worldwide availability of a new electric vehicle (EV) fast-charging services platform. Combining our leading EV charging stations with Microsoft's Azure cloud-based services will ensure stability, global scalability and advanced management features for our customers. The collaboration will also take advantage of machine learning and predictive analytic capabilities to drive future innovations. With regard to micro-grids, which are another high-growth market, we won a significant order in 2015 from Socabelec to install a micro-grid solution to boost renewable energy use by a remote community in Kenya. Our stabilization system will be integrated into the existing power network and will interface with existing diesel power station controls. This will maximize renewable energy penetration and utilize any excess wind energy generated.

        Complementing the ongoing focus on driving organic growth, we plan to focus on value-creating acquisitions that support the shift in center of gravity and partnerships to accelerate growth in attractive segments.

        In line with the shift in our center of gravity, we have realigned our organizational structure effective January 1, 2016, to better address customer needs and deliver operational efficiency. Our new streamlined structure is comprised of four operating divisions: Power Grids, Electrification Products, Discrete Automation and Motion and Process Automation.

        The new Power Grids division is focused on meeting the power and automation technology challenges of power grid utilities, such as the integration of renewable energies, growing power network complexity, grid automation, and the development of smart grids and micro-grids. Delivering a broad transmission and distribution offering from a single integrated source supports our organic growth ambitions by providing better customer service while enabling cost and productivity improvements to achieve the targeted operational EBITA margins. The Power Grids division is a leading worldwide supplier of power and automation solutions to power grid customers and comprises our AC grid, DC grid and grid automation activities, as well as our transformer and high-voltage product businesses.

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        The new Electrification Products division includes our medium-voltage products business as well as the breakers & switches, control products, building products, low-voltage systems and Thomas & Betts activities. This combination opens new growth opportunities by taking one of the industry's most complete ranges of low- and medium-voltage products, solutions and services to a broader customer base through multiple common sales channels.

        All of our control solutions are integrated into the Process Automation division and delivered across our various end markets through focused front end customer interfaces including the transfer of the distributed control system (DCS) business for power generation from the Power Systems division.

        There are no significant changes in the Discrete Automation and Motion division.

Relentless execution

        In Stage 2 of the Next Level strategy, we aim to close the gap in our operating performance compared with our best-in-class peers. The goal is to further transform our company toward a leading operating model with business processes more focused on customer needs, and an enhanced performance management system, including compensation tied more closely to performance, as well as the development of a world class people and true performance culture.

        Our ongoing cost savings program to reduce costs equivalent to 3-5 percent of cost of sales each year, achieved in 2015 approximately $1.2 billion in cost savings or approximately 5 percent of cost of sales.

        We continued to drive our focused 1,000-day programs of driving white collar productivity—becoming lean for growth—and working capital management—to provide cash for growth.

        Our white collar productivity program is aimed at making us leaner, faster and more customer-focused. Business functions, support functions and organizational complexity are in the scope of this program. Productivity improvements include the rapid expansion of regional shared services and the streamlining of global operations and head office functions, with business units moving closer to key markets. We aim to achieve cost savings at a run rate of $1 billion a year by the end of 2017 and the program is on track to deliver approximately $400 million of cost savings in 2016.

        The working capital program is on track to free up at least $2 billion in cash by the end of 2017. Improved collections from customers as well as stronger inventory management resulted in a solid working capital reduction in 2015. Further measures are being taken to drive improvements through the entire value chain, from product design through manufacturing and logistics as well as reducing unbilled receivables in large projects.

Business-led collaboration

        We continue to drive our transformation, which is aimed at improving customer focus and increasing agility to support the achievement of our 2015-2020 targets. Our streamlined organization, with a realigned divisional structure, commenced in January 2016. In order to drive sales productivity and collaboration across the group, Salesforce.com was rolled out further as a common sales platform and is now operational in 30 countries. The Group Account Management team has a focused customer approach and initial pilots show proof of success.

Updated 2015-2020 financial targets

        In September 2015, we aligned our 2015-2020 revenue growth target with reduced macroeconomic expectations while keeping our ambition relative to the market. The average annual revenue growth rate target, on a comparable basis, over the period from 2015 to 2020, is now 3-6 percent (previously 4-7 percent). The driving factors for this change include the expected continuation of lower oil prices,

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signs of slowing industrial production growth and forecasted emerging market growth below the levels previously projected in 2014. All other targets which took effect on January 1, 2015, remain unchanged: We expect to grow operational earnings per share at a 10-15 percent compound annual growth rate and deliver attractive rates of cash return on invested capital in the mid-teens over the period from 2015 to 2020. Over the same period, we plan to steadily increase our profitability, measured by Operational EBITA, within a range of 11-16 percent while targeting an average free cash flow conversion rate above 90 percent.

Targeted capital allocation

        We maintain our capital allocation priorities, focusing on i) funding organic growth, research and development and capital expenditure at attractive rates of cash return on invested capital (CROI), ii) paying a steadily rising sustainable dividend over time, iii) investing in value-creating acquisitions and iv) returning additional cash to shareholders.

        In 2015, we returned $3.2 billion to shareholders in the form of dividend payments and share repurchases, in line with the Next Level strategy to accelerate sustainable value creation. This included $1.7 billion in dividends in the form of tax-efficient distributions out of ABB Ltd's capital contribution reserves and by way of a nominal value reduction. We are continuing our previously announced two-year $4-billion share buyback program which is scheduled to be completed in September 2016. As of the end of 2015, we had repurchased approximately 106 million shares for a total of approximately $2.2 billion.

Outlook

        Macroeconomic and geopolitical developments continue to signal a mixed outlook, with continued uncertainty. Some macroeconomic signals in the United States remain positive and growth in China is expected to continue, although at a slower pace than in 2015. The market remains impacted by modest growth in Europe and geopolitical tensions in various parts of the world. Current oil prices and foreign exchange translation effects are expected to continue to influence our results.

        The long-term demand outlook in our three major customer sectors—utilities, industry and transport & infrastructure—remains positive. Key drivers are the big shift in the electricity value chain, industrial productivity improvements through the IoTSP and Industry 4.0, as well as rapid urbanization and the need for energy efficiency in transport & infrastructure.

        We believe we are well positioned to tap these opportunities for long-term profitable growth with our strong market presence, broad geographic and business scope, technology leadership and financial strength.


APPLICATION OF CRITICAL ACCOUNTING POLICIES

General

        We prepare our Consolidated Financial Statements in accordance with U.S. GAAP and present these in U.S. dollars unless otherwise stated.

        The preparation of our financial statements requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including, but not limited to, those related to: gross profit margins on long-term construction-type contracts; costs of product guarantees and warranties; provisions for bad debts; recoverability of inventories, investments, fixed assets, goodwill and other intangible assets; the fair values of assets and liabilities assumed in business combinations; income tax expenses and provisions related to uncertain tax positions; pensions and other postretirement benefit assumptions; and legal and other contingencies. Where appropriate,

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we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our estimates and assumptions.

        We deem an accounting policy to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and if different estimates that reasonably could have been used, or if changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our Consolidated Financial Statements. We also deem an accounting policy to be critical when the application of such policy is essential to our ongoing operations. We believe the following critical accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. These policies should be considered when reading our Consolidated Financial Statements.

Revenue recognition

        We generally recognize 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 regard 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. We use various International Commercial shipping terms (as promulgated by the International Chamber of Commerce) such as Ex Works (EXW), Free Carrier (FCA) and Delivered Duty Paid (DDP). Subsequent to delivery of the products, we generally have 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. We use 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 management'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 in which the change in estimate is determined.

        The percentage-of-completion method of accounting involves the use of assumptions and projections, principally relating to future material, labor and project-related overhead costs. As a consequence, there is a risk that total contract costs will exceed those we originally estimated and the margin will decrease or the long-term construction-type contract may become unprofitable. This risk increases if the duration of a contract increases because there is a higher probability that the circumstances upon which we originally developed estimates will change, resulting in increased costs that we may not recover. Factors that could cause costs to increase include:

    unanticipated technical problems with equipment supplied or developed by us which may require us to incur additional costs to remedy,

    changes in the cost of components, materials or labor,

    difficulties in obtaining required governmental permits or approvals,

    project modifications creating unanticipated costs,

    suppliers' or subcontractors' failure to perform, and

    delays caused by unexpected conditions or events.

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        Changes in our initial assumptions, which we review on a regular basis between balance sheet dates, may result in revisions to estimated costs, current earnings and anticipated earnings. We recognize these changes in the period in which the changes in estimates are determined. By recognizing changes in estimates cumulatively, recorded revenue and costs to date reflect the current estimates of the stage of completion of each project. Additionally, losses on long-term 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.

        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 we have 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 our 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 which revenue is allocated to the undelivered elements based on vendor-specific objective evidence (VSOE) of 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 authorized management, if it is probable 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.

        We offer multiple element arrangements to meet our 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, we allocate 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 our 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 consideration 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.

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        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 us and our customers, such as sales, use, value-added and some excise taxes, are excluded from revenues.

        These revenue recognition methods require the collectability of the revenues recognized to be reasonably assured. When recording the respective accounts receivable, allowances are calculated to estimate those receivables that will not be collected. These reserves assume a level of default based on historical information, as well as knowledge about specific invoices and customers. The risk remains that actual defaults will vary in number and amount from those originally estimated. As such, the amount of revenues recognized might exceed or fall below the amount which will be collected, resulting in a change in earnings in the future. The risk of deterioration is likely to increase during periods of significant negative industry, economic or political trends.

        As a result of the above policies, judgment in the selection and application of revenue recognition methods must be made.

Contingencies

        As more fully described in "Item 8. Financial Information—Legal Proceedings" and in "Note 15 Commitments and contingencies" to our Consolidated Financial Statements, we are 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. We are 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.

        We record provisions for our 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 our best estimate of the amount of loss or at the lower end of an estimated range when a single best estimate is not determinable. In some cases, we may be able to recover a portion of the costs relating to these obligations from insurers or other third parties; however, we record such amounts only when it is probable that they will be collected.

        We provide for anticipated costs for warranties when we recognize revenues on the related products or contracts. Warranty costs include calculated costs arising from imperfections in design, material and workmanship in our products. We generally make 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. There is a risk that actual warranty costs may exceed the amounts provided for, which would result in a deterioration of earnings in the future when these actual costs are determined.

        We may have legal obligations to perform environmental clean-up activities related to land and buildings as a result of the normal operations of our 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 our control, but the underlying obligation itself is unconditional and certain. We recognize 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, we may be able to recover a portion of the costs expected to be incurred to settle these matters. An asset is recorded when it is probable that we will collect such amounts. Provisions for environmental obligations are not discounted to their present value when the timing of payments cannot be reasonably estimated.

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Pension and other postretirement benefits

        As more fully described in "Note 17 Employee benefits" to our Consolidated Financial Statements, we have a number of defined benefit pension and other postretirement plans and recognize an asset for a plan's overfunded status or a liability for a plan's underfunded status in our Consolidated Balance Sheets. We measure such a plan's assets and obligations that determine its funded status as of the end of the year.

        Significant differences between assumptions and actual experience, or significant changes in assumptions, may materially affect the pension obligations. The effects of actual results differing from assumptions and the changing of assumptions are included in net actuarial loss within "Accumulated other comprehensive loss".

        We recognize actuarial gains and losses gradually over time. Any cumulative unrecognized actuarial gain or loss that exceeds 10 percent of the greater of the present value of the projected benefit obligation (PBO) and the fair value of plan assets is recognized in earnings over the expected average remaining working lives of the employees participating in the plan, or the expected average remaining lifetime of the inactive plan participants if the plan is comprised of all or almost all inactive participants. Otherwise, the actuarial gain or loss is not recognized in the Consolidated Income Statements.

        We use actuarial valuations to determine our pension and postretirement benefit costs and credits. The amounts calculated depend on a variety of key assumptions, including discount rates, mortality rates and expected return on plan assets. Under U.S. GAAP, we are required to consider current market conditions in making these assumptions. In particular, the discount rates are reviewed annually based on changes in long-term, highly-rated corporate bond yields. Decreases in the discount rates result in an increase in the PBO and in pension costs. Conversely, an increase in the discount rates results in a decrease in the PBO and in pension costs. The mortality assumptions are reviewed annually by management. Decreases in mortality rates result in an increase in the PBO and in pension costs. Conversely, an increase in mortality rates results in a decrease in the PBO and in pension costs.

        Holding all other assumptions constant, a 0.25-percentage point decrease in the discount rate would have increased the PBO related to our defined benefit pension plans by $383 million, while a 0.25-percentage point increase in the discount rate would have decreased the PBO related to our defined benefit pension plans by $360 million.

        The expected return on plan assets is reviewed regularly and considered for adjustment annually based upon the target asset allocations and represents the long-term return expected to be achieved. Decreases in the expected return on plan assets result in an increase to pension costs. Holding all other assumptions constant, an increase or decrease of 0.25 percentage points in the expected long-term rate of asset return would have decreased or increased, respectively, the net periodic benefit cost in 2015 by $26 million.

        The funded status, which can increase or decrease based on the performance of the financial markets or changes in our assumptions, does not represent a mandatory short-term cash obligation. Instead, the funded status of a defined benefit pension plan is the difference between the PBO and the fair value of the plan assets. At December 31, 2015, our defined benefit pension plans were $1,481 million underfunded compared to an underfunding of $1,890 million at December 31, 2014. Our other postretirement plans were underfunded by $178 million and $245 million at December 31, 2015 and 2014, respectively.

        We have multiple non-pension postretirement benefit plans. Our health care plans are generally contributory with participants' contributions adjusted annually. For purposes of estimating our health care costs, we have assumed health care cost increases to be 7.68 percent per annum for 2016, gradually declining to 5 percent per annum by 2028 and to remain at that level thereafter.

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Income taxes

        In preparing our Consolidated Financial Statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. Tax expense from continuing operations is reconciled from the 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. Income which has been generated in jurisdictions outside of Switzerland (hereafter "foreign jurisdictions") and has already been subject to corporate income tax in those 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. There is no requirement in Switzerland for a parent company of a group to file a tax return of the group determining domestic and foreign pre-tax income and as our consolidated income from continuing operations is predominantly earned outside of Switzerland, corporate income tax in foreign jurisdictions largely determines our global weighted-average tax rate.

        We account for deferred taxes by using the asset and liability method. Under this method, we determine deferred tax assets and liabilities based on temporary differences between the financial reporting and the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We recognize a deferred tax asset when it is more likely than not that the asset will be realized. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based upon historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. To the extent we increase or decrease this allowance in a period, we recognize the change in the allowance within "Provision for taxes" in the Consolidated Income Statements unless the change relates to discontinued operations, in which case the change is recorded in "Income (loss) from discontinued operations, net of tax". Unforeseen changes in tax rates and tax laws, as well as differences in the projected taxable income as compared to the actual taxable income, may affect these estimates.

        Certain countries levy withholding taxes, dividend distribution taxes or additional corporate income taxes (hereafter "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. Switzerland has concluded double taxation treaties with many countries in which we operate. These treaties either eliminate or reduce such withholding taxes on dividend distributions. It is our policy to distribute retained earnings of subsidiaries, insofar as such earnings are not permanently reinvested or no other reasons exist that would prevent the subsidiary from distributing them. No deferred tax liability is set up, if retained earnings are considered as permanently reinvested, and used for financing current operations as well as business growth through working capital and capital expenditure in those countries.

        We operate in numerous tax jurisdictions and, as a result, are regularly subject to audit by tax authorities. We provide 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 our filing position, considering the applicable tax laws and OECD guidelines and are based on our evaluations of the facts and circumstances as of the end of each reporting period. Changes in the facts and circumstances could result in a material change to the tax accruals. Although we believe that our tax estimates are reasonable and that appropriate tax reserves have been made, the final determination of tax audits and any related litigation could be different than that which is reflected in our income tax provisions and accruals.

        An estimated loss from a tax contingency must be accrued as a charge to income if it is more likely than not that a tax asset has been impaired or a tax liability has been incurred and the amount of

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the loss can be reasonably estimated. We apply 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. The required amount of provisions for contingencies of any type may change in the future due to new developments.

Goodwill and other intangible assets

        We review goodwill for impairment annually as of October 1, or more frequently if events or circumstances indicate the carrying value may not be recoverable. We use either a qualitative or quantitative assessment method for each reporting unit. The qualitative assessment involves determining, based on an evaluation of qualitative factors, whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. 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, the two-step quantitative impairment test is performed. If we elect not to perform the qualitative assessment for a reporting unit, then we perform the two-step impairment test.

        Our reporting units are the same as our business divisions for Discrete Automation and Motion, Low Voltage Products, Power Products and Power Systems. For the Process Automation division, we determined the reporting units to be one level below the division, as the different products produced or services provided by this division do not share sufficiently similar economic characteristics to permit testing of goodwill on a total division level.

        When performing the qualitative assessment, we first determine, for a reporting unit, factors which would affect the fair value of the reporting unit including: (i) macroeconomic conditions related to the business, (ii) industry and market trends, and (iii) the overall future financial performance and future opportunities in the markets in which the business operates. We then consider how these factors would impact the most recent quantitative analysis of the reporting unit's fair value. Key assumptions in determining the value of the reporting unit include the projected level of business operations, the weighted-average cost of capital, the income tax rate and the terminal growth rate.

        If, after performing the qualitative assessment, we conclude that events or circumstances have occurred which would indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value, or if we have elected not to perform a qualitative assessment, the two-step quantitative impairment test is performed. In the first step, we calculate the fair value of the reporting unit (using an income approach whereby the fair value is calculated based on the present value of future cash flows applying a discount rate that represents our weighted-average cost of capital) and compare it to the reporting unit's carrying value. Where the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and no further testing is performed. However, if the carrying value of the net assets assigned to the reporting unit is equal to or exceeds the reporting unit's fair value, we would perform the second step of the impairment test. In the second step, we would determine the implied fair value of the reporting unit's goodwill and compare it to the carrying value of the reporting unit's goodwill. If the carrying value of a reporting unit's goodwill were to exceed its implied fair value, then we would record an impairment loss equal to the difference. Any goodwill impairment losses would be recorded as a separate line item in the income statement in continuing operations, unless related to a discontinued operation, in which case the losses would be recorded in "Income (loss) from discontinued operations, net of tax".

        In 2015, we performed a qualitative assessment and determined that it was not more likely than not that the fair value for each of our reporting units was below the carrying value. As a result, we concluded that it was not necessary to perform the two-step quantitative impairment test.

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        In 2014, we performed the two-step quantitative impairment test for all of our reporting units to reflect new assumptions and forecasts resulting from our newly-developed strategic plan for the period 2015 to 2020. The quantitative test concluded that the estimated fair values for each of our reporting units exceeded their respective carrying values by at least 60 percent and as no reporting unit had a zero or negative carrying value, we concluded that none of the reporting units was "at risk" of failing the goodwill impairment test. Consequently, the second step of the impairment test was not performed.

        The projected future cash flows used in the 2014 fair value calculation were based on approved business plans for the reporting units which covered a period of six years plus a calculated terminal value. The projected future cash flows required 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 economic factors. The after-tax weighted average cost of capital of 9 percent, was based on variables such as the risk free rate derived from the yield of 10-year U.S. treasury bonds, as well as an ABB-specific risk premium. The terminal value growth rate was assumed to be 1 percent. The mid-term tax rate used in the test was 27 percent. We based our fair value estimates on assumptions we believed to be reasonable, but which were inherently uncertain. Consequently, actual future results may differ from those estimates.

        We assessed the reasonableness of the fair value calculations of our reporting units by reconciling the sum of the fair values for all our reporting units to our total market capitalization. The assumptions used in the fair value calculation were challenged each year (through the use of sensitivity analysis) to determine the impact on the fair value of the reporting units. Our sensitivity analysis in 2014 showed that, holding all other assumptions constant, a 1-percentage point increase in the discount rate would have reduced the calculated fair value by approximately 11.6 percent, while a 1-percentage point decrease in the terminal value growth rate would have reduced the calculated fair value by approximately 7.3 percent.

        Intangible assets are reviewed for recoverability upon the occurrence of certain triggering events (such as a decision to divest a business or projected losses of an entity) or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We record impairment charges in "Other income (expense), net", in our Consolidated Income Statements, unless they relate to a discontinued operation, in which case the charges are recorded in "Income (loss) from discontinued operations, net of tax".


NEW ACCOUNTING PRONOUNCEMENTS

        For a description of accounting changes and recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our Consolidated Financial Statements, see "Note 2 Significant accounting policies" to our Consolidated Financial Statements.


RESEARCH AND DEVELOPMENT

        Each year, we invest significantly in research and development. Our research and development focuses on developing and commercializing the technologies of our businesses that are of strategic importance to our future growth. In 2015, 2014 and 2013, we invested $1,406 million, $1,499 million and $1,470 million, respectively, or approximately 4.0 percent, 3.8 percent and 3.5 percent, respectively, of our annual consolidated revenues on research and development activities. We also had expenditures of $271 million, $310 million and $274 million, respectively, or approximately 0.8 percent, 0.8 percent and 0.7 percent, respectively, of our annual consolidated revenues in 2015, 2014 and 2013, on order-related development activities. These are customer- and project-specific development efforts that we undertake to develop or adapt equipment and systems to the unique needs of our customers in connection with specific orders or projects. Order-related development amounts are initially recorded in

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inventories as part of the work in process of a contract and then are reflected in cost of sales at the time revenue is recognized in accordance with our accounting policies.

        In addition to continuous product development, and order-related engineering work, we develop platforms for technology applications in our automation and power businesses in our research and development laboratories, which operate on a global basis. Through active management of our investment in research and development, we seek to maintain a balance between short-term and long-term research and development programs and optimize our return on investment.

        Our research and development strategy focuses on three objectives: (i) to monitor and develop emerging technologies and create an innovative, sustainable technology base for ABB, (ii) to develop technology platforms that enable efficient product design for our power and automation customers, and (iii) to create the next generation of power and automation products and systems that we believe will be the drivers of profitable growth.

        Universities are incubators of future technology, and a central task of our research and development team is to transform university research into industry-ready technology platforms. We collaborate with a number of universities and research institutions to build research networks and foster new technologies. We believe these collaborations shorten the amount of time required to turn basic ideas into viable products, and they additionally help us recruit and train new personnel. We have built numerous university collaborations in the United States, Europe and Asia, including long-term, strategic relationships with the Carnegie Mellon University, Massachusetts Institute of Technology, North Carolina State University, ETH Zurich, EPFL Lausanne, University of Zurich, Chalmers Technical University Gothenburg, Royal Institute of Technology (KTH) Stockholm, Cambridge University, Imperial College London and Huazhong University of Science and Technology (HUST). Our collaborative projects include research on materials, sensors, micro-engineered mechanical systems, robotics, controls, manufacturing, distributed power and communication. Common platforms for power and automation technologies are developed around advanced materials, efficient manufacturing, information technology and data communication, as well as sensor and actuator technology.

        Common applications of basic power and automation technologies can also be found in power electronics, electrical insulation, and control and optimization. Our power technologies, including our insulation technologies, current interruption and limitation devices, power electronics, flow control and power protection processes, apply as much to large, reliable, blackout-free transmission systems as they do to everyday household needs. Our automation technologies, including our control and optimization processes, power electronics, sensors and microelectronics, mechatronics and wireless communication processes, are designed to improve efficiency in plants and factories around the world, including our own.


ACQUISITIONS AND DIVESTMENTS

Acquisitions

        During 2015, 2014 and 2013, ABB paid $37 million, $58 million and $897 million to purchase three, six and seven businesses, respectively. The amounts exclude changes in cost- and equity-accounted companies.

        There were no significant acquisitions in 2015, 2014 or 2013; the largest acquisition during this three-year period was Power-One Inc. (Power-One), acquired in July 2013.

Divestments

        During 2014, ABB divested several businesses which were primarily its Full Service business, the Meyer Steel Structures business of Thomas & Betts, the heating, ventilation and air conditioning (HVAC) business of Thomas & Betts and the Power Solutions business of Power-One. Total cash

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proceeds from all business divestments during 2014 amounted to $1,090 million, net of transaction costs and cash disposed.

        There were no significant divestments in 2015 and 2013.

        For more information on our divestments, see "Note 3 Acquisitions and business divestments" to our Consolidated Financial Statements.


EXCHANGE RATES

        We report our financial results in U.S. dollars. Due to our global operations, a significant amount of our revenues, expenses, assets and liabilities are denominated in other currencies. As a consequence, movements in exchange rates between currencies may affect: (i) our profitability, (ii) the comparability of our results between periods, and (iii) the reported carrying value of our assets and liabilities.

        We translate non-USD denominated results of operations, assets and liabilities to USD in our Consolidated Financial Statements. Balance sheet items are translated to USD using year-end currency exchange rates. Income statement and cash flow items are translated to USD using the relevant monthly average currency exchange rate.

        Increases and decreases in the value of the USD against other currencies will affect the reported results of operations in our Consolidated Income Statements and the value of certain of our assets and liabilities in our Consolidated Balance Sheets, even if our results of operations or the value of those assets and liabilities have not changed in their original currency. As foreign exchange rates impact our reported results of operations and the reported value of our assets and liabilities, changes in foreign exchange rates could significantly affect the comparability of our reported results of operations between periods and result in significant changes to the reported value of our assets, liabilities and stockholders' equity.

        While we operate globally and report our financial results in USD, exchange rate movements between the USD and both the EUR and the CHF are of particular importance to us due to (i) the location of our significant operations and (ii) our corporate headquarters being in Switzerland.

        The exchange rates between the USD and the EUR and the USD and the CHF at December 31, 2015, 2014 and 2013, were as follows:

Exchange rates into $
  2015   2014   2013  

EUR 1.00

    1.09     1.22     1.38  

CHF 1.00

    1.01     1.01     1.12  

        The average exchange rates between the USD and the EUR and the USD and the CHF for the years ended December 31, 2015, 2014 and 2013, were as follows:

Exchange rates into $
  2015   2014   2013  

EUR 1.00

    1.11     1.33     1.33  

CHF 1.00

    1.04     1.09     1.08  

        When we incur expenses that are not denominated in the same currency as the related revenues, foreign exchange rate fluctuations could affect our profitability. To mitigate the impact of exchange rate movements on our profitability, it is our policy to enter into forward foreign exchange contracts to manage the foreign exchange transaction risk of our operations.

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        In 2015, approximately 79 percent of our consolidated revenues were reported in currencies other than the USD. The following percentages of consolidated revenues were reported in the following currencies:

    Euro, approximately 19 percent,

    Chinese renminbi, approximately 12 percent, and

    Swedish krona, approximately 5 percent.

        In 2015, approximately 78 percent of our cost of sales and selling, general and administrative expenses were reported in currencies other than the USD. The following percentages of consolidated cost of sales and selling, general and administrative expenses were reported in the following currencies:

    Euro, approximately 20 percent, and

    Chinese renminbi, approximately 11 percent.

        We also incur expenses other than cost of sales and selling, general and administrative expenses in various currencies.

        The results of operations and financial position of many of our subsidiaries outside of the United States are reported in the currencies of the countries in which those subsidiaries are located. We refer to these currencies as "local currencies". Local currency financial information is then translated into USD at applicable exchange rates for inclusion in our Consolidated Financial Statements.

        The discussion of our results of operations below provides certain information with respect to orders, revenues, income from operations and other measures as reported in USD (as well as in local currencies). We measure period-to-period variations in local currency results by using a constant foreign exchange rate for all periods under comparison. Differences in our results of operations in local currencies as compared to our results of operations in USD are caused exclusively by changes in currency exchange rates.

        While we consider our results of operations as measured in local currencies to be a significant indicator of business performance, local currency information should not be relied upon to the exclusion of U.S. GAAP financial measures. Instead, local currencies reflect an additional measure of comparability and provide a means of viewing aspects of our operations that, when viewed together with the U.S. GAAP results, provide a more complete understanding of factors and trends affecting the business. As local currency information is not standardized, it may not be possible to compare our local currency information to other companies' financial measures that have the same or a similar title. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.


ORDERS

        Our policy is to book and report an order when a binding contractual agreement has been concluded with a customer covering, at a minimum, the price and scope of products or services to be supplied, the delivery schedule and the payment terms. The reported value of an order corresponds to the undiscounted value of revenues that we expect to recognize following delivery of the goods or services subject to the order, less any trade discounts and excluding any value added or sales tax. The value of orders received during a given period of time represents the sum of the value of all orders received during the period, adjusted to reflect the aggregate value of any changes to the value of orders received during the period and orders existing at the beginning of the period. These adjustments, which may in the aggregate increase or decrease the orders reported during the period, may include changes in the estimated order price up to the date of contractual performance, changes in the scope of products or services ordered and cancellations of orders.

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        The undiscounted value of revenues we expect to generate from our orders at any point in time is represented by our order backlog. Approximately 17 percent of the value of total orders we recorded in 2015 were "large orders", which we define as orders from third parties involving a value of at least $15 million for products or services. Approximately 54 percent of the total value of large orders in 2015 were recorded by our Power Systems division and approximately 23 percent in our Process Automation division. The other divisions accounted for the remainder of the total large orders recorded during 2015. The remaining portion of total orders recorded in 2015 was "base orders", which we define as orders from third parties with a value of less than $15 million for products or services.

        The level of orders fluctuates from year to year. Portions of our business involve orders for long-term projects that can take months or years to complete and many large orders result in revenues in periods after the order is booked. Consequently, the level of large orders and orders generally cannot be used to accurately predict future revenues or operating performance. Orders that have been placed can be cancelled, delayed or modified by the customer. These actions can reduce or delay any future revenues from the order or may result in the elimination of the order.


PERFORMANCE MEASURES

        Effective January 1, 2015, we evaluate the performance of our divisions based on orders received, revenues and Operational EBITA.

        Operational EBITA represents income from operations excluding amortization expense on intangibles arising upon acquisitions (acquisition-related amortization), restructuring and restructuring-related expenses, gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items, as well as foreign exchange (FX)/commodity timing differences in income from operations consisting of: (i) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives), (ii) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (iii) unrealized foreign exchange movements on receivables/payables (and related assets/liabilities).

        See "Note 23 Operating segment and geographic data" to our Consolidated Financial Statements for a reconciliation of the total consolidated Operational EBITA to income from continuing operations before taxes.

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ANALYSIS OF RESULTS OF OPERATIONS

        Our consolidated results from operations were as follows:

INCOME STATEMENT DATA:

($ in millions, except per share data in $)
  2015   2014   2013  

Orders

    36,429     41,515     38,896  

Order backlog at December 31,

    24,121     24,900     26,046  

Revenues

   
35,481
   
39,830
   
41,848
 

Cost of sales

    (25,347 )   (28,615 )   (29,856 )

Gross profit

    10,134     11,215     11,992  

Selling, general and administrative expenses

    (5,574 )   (6,067 )   (6,094 )

Non-order related research and development expenses

    (1,406 )   (1,499 )   (1,470 )

Other income (expense), net

    (105 )   529     (41 )

Income from operations

    3,049     4,178     4,387  

Net interest and other finance expense

    (209 )   (282 )   (321 )

Provision for taxes

    (788 )   (1,202 )   (1,122 )

Income from continuing operations, net of tax

    2,052     2,694     2,944  

Income (loss) from discontinued operations, net of tax

    3     24     (37 )

Net income

    2,055     2,718     2,907  

Net income attributable to noncontrolling interests

    (122 )   (124 )   (120 )

Net income attributable to ABB

    1,933     2,594     2,787  

Amounts attributable to ABB shareholders:

                   

Income from continuing operations, net of tax

    1,930     2,570     2,824  

Net income

    1,933     2,594     2,787  

Basic earnings per share attributable to ABB shareholders:

   
 
   
 
   
 
 

Income from continuing operations, net of tax

    0.87     1.12     1.23  

Net income

    0.87     1.13     1.21  

Diluted earnings per share attributable to ABB shareholders:

   
 
   
 
   
 
 

Income from continuing operations, net of tax

    0.87     1.12     1.23  

Net income

    0.87     1.13     1.21  

        A more detailed discussion of the orders, revenues, Operational EBITA and income from operations for our divisions follows in the sections of "Divisional analysis" below entitled "Discrete Automation and Motion", "Low Voltage Products", "Process Automation", "Power Products", "Power Systems" and "Corporate and Other". Orders and revenues of our divisions include interdivisional transactions which are eliminated in the "Corporate and Other" line in the tables below.

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Orders

 
   
   
   
  % Change  
($ in millions)
  2015   2014   2013   2015   2014  

Discrete Automation and Motion

    9,222     10,559     9,771     (13 )%   8 %

Low Voltage Products

    6,581     7,550     7,696     (13 )%   (2 )%

Process Automation

    6,464     8,577     8,000     (25 )%   7 %

Power Products

    10,033     10,764     10,459     (7 )%   3 %

Power Systems

    6,800     6,871     5,949     (1 )%   15 %

Operating divisions

    39,100     44,321     41,875     (12 )%   6 %

Corporate and Other(1)

    (2,671 )   (2,806 )   (2,979 )   n.a.     n.a.  

Total

    36,429     41,515     38,896     (12 )%   7 %

(1)
Includes interdivisional eliminations

        In 2015, total orders declined 12 percent (2 percent in local currencies) and decreased in all divisions. The decline in reported orders was driven both by lower base orders and lower large orders. The order development reflected ongoing macro uncertainties and challenges in many markets as well as negative impacts from foreign exchange rate movements.

        In 2015, orders in the Discrete Automation and Motion division declined 13 percent (5 percent in local currencies) on lower orders in all businesses, except Robotics where orders increased in local currencies. Orders decreased 13 percent in the Low Voltage Products division (3 percent in local currencies) and were impacted by lower orders in most businesses and by the divestments in 2014 of the HVAC and Steel Structures businesses. Orders in the Process Automation division declined 25 percent (14 percent in local currencies) mainly due to lower capital and operating expenditures in the oil and gas sectors compared to the previous year and due to the impact of the divestment of the Full Service business at the end of 2014. Orders declined 7 percent (increased 2 percent in local currencies) in the Power Products division on selective investments in large transmission projects. In the Power Systems division, orders declined 1 percent (increased 13 percent in local currencies). The increase in local currencies was driven primarily by the receipt of several large orders in the Grid Systems and Power Generation businesses.

        During 2015, base orders declined 14 percent (5 percent in local currencies) reflecting the global economic conditions which remained mixed across our key markets. Large orders decreased 5 percent (increased 10 percent in local currencies) but were higher in local currencies than the strong large order intake in 2014. Large orders increased in the Power Products and Power Systems divisions where several large projects were awarded in 2015.

        In 2014, total order volume increased 7 percent (9 percent in local currencies) and increased across all divisions except Low Voltage Products. Orders increased primarily due to higher large orders while base orders also increased. In the automation divisions, orders were supported by customer investments to improve operational efficiency and an increase in the demand for services. In the power divisions, the key demand drivers such as capacity expansion in emerging markets, upgrading of aging infrastructure in mature markets and the integration of renewable energy supplies into power grids, remained intact.

        In 2014, orders in the Discrete Automation and Motion division grew 8 percent (10 percent in local currencies) on higher orders in all businesses and supported by the impact of including Power-One for the full year in 2014. Orders decreased 2 percent in the Low Voltage Products division (flat in local currencies) as the impacts of divesting the HVAC and Steel Structures businesses offset the order increases which were realized in most of the division's other businesses. Orders in the Process

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Automation division increased 7 percent (10 percent in local currencies) on significantly higher large orders in the marine sector compared to the previous year. Orders increased 3 percent (5 percent in local currencies) in the Power Products division, supported by the industry sector and continued selective investments in large transmission projects. In the Power Systems division, orders grew 15 percent (20 percent in local currencies), driven primarily by the receipt of several large orders.

        During 2014, base orders grew 2 percent (4 percent in local currencies) reflecting the global economic conditions which showed positive trends but remained mixed in certain markets. Following a weak large order intake in 2013, large orders increased 45 percent (50 percent in local currencies) in 2014. Successful sales efforts resulted in orders from the 2013 tender backlog successfully turning into orders in 2014. This allowed large orders to grow significantly, particularly in the Process Automation and Power Systems divisions.

        We determine the geographic distribution of our orders based on the location of the ultimate destination of the products' end use, if known, or the location of the customer. The geographic distribution of our consolidated orders was as follows:

 
   
   
   
  % Change  
($ in millions)
  2015   2014   2013   2015   2014  

Europe

    12,568     14,319     13,393     (12 )%   7 %

The Americas

    10,505     11,966     11,373     (12 )%   5 %

Asia, Middle East and Africa

    13,356     15,230     14,130     (12 )%   8 %

Total

    36,429     41,515     38,896     (12 )%   7 %

        Orders in 2015 declined in all regions on lower orders in all divisions. Orders in Europe decreased 12 percent (increased 5 percent in local currencies). Orders in Europe were higher in local currencies due to the receipt of large orders for HVDC interconnections. In local currencies, orders were lower in the United Kingdom, Sweden, Finland, Switzerland, France, Spain and Russia, offset by higher orders in Germany, Norway, Italy, Turkey and the Netherlands. Orders declined 12 percent (6 percent in local currencies) in the Americas on lower base and large orders. In local currencies, orders decreased in the United States, Canada and Brazil but were higher in Mexico, Chile and Argentina. In AMEA, orders decreased 12 percent (7 percent in local currencies) on lower base and large orders. In local currencies, orders declined in China, Saudi Arabia, South Korea, Australia and Japan while orders were higher in India, the United Arab Emirates, South Africa and Qatar.

        Orders in 2014 grew in all regions on higher orders in both power and automation. Orders in Europe increased 7 percent (9 percent in local currencies) driven by increases in large orders. Orders were higher in the United Kingdom, Sweden, Finland, France, Switzerland, Spain and the Netherlands, offsetting lower orders in Germany, Italy and Norway. Orders increased 5 percent (9 percent in local currencies) in the Americas on higher base and large orders in the United States, Canada, Brazil and Argentina. In AMEA, orders grew 8 percent (10 percent in local currencies) on higher orders in China, South Korea, India, Japan and Saudi Arabia while orders were lower in Australia, the United Arab Emirates and South Africa.

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Order backlog

 
  December 31,   % Change  
($ in millions)
  2015   2014   2013   2015   2014  

Discrete Automation and Motion

    4,232     4,385     4,351     (3 )%   1 %

Low Voltage Products

    857     891     1,057     (4 )%   (16 )%

Process Automation

    5,203     5,661     5,772     (8 )%   (2 )%

Power Products

    7,717     7,791     7,946     (1 )%   (2 )%

Power Systems

    8,218     8,246     9,435         (13 )%

Operating divisions

    26,227     26,974     28,561     (3 )%   (6 )%

Corporate and Other(1)

    (2,106 )   (2,074 )   (2,515 )   n.a.     n.a.  

Total

    24,121     24,900     26,046     (3 )%   (4 )%

(1)
Includes interdivisional eliminations

        In 2015, consolidated order backlog decreased 3 percent (increased 5 percent in local currencies). Order backlog in all divisions reflected the effects of changes in foreign currency rates as the U.S. dollar strengthened against all major currencies during 2015. In local currencies, order backlog increased in all divisions. In the Discrete Automation and Motion division, the increase was driven by the Robotics and Power Conversion businesses. The increase in the Low Voltage Products division was driven by increases in the Breakers and Switches and Low Voltage Systems businesses. In the Process Automation division, orders were lower but order backlog increased due to the receipt of higher larger orders near the end of 2015. In the Power Products division, order backlog increased across all businesses while in the Power Systems division, the increase resulted primarily from higher large orders received during the year.

        In 2014, consolidated order backlog decreased 4 percent (increased 5 percent in local currencies). Order backlog in all divisions reflected the effects of significant foreign currency changes as the U.S. dollar strengthened during 2014 against substantially all currencies. In the Discrete Automation and Motion, Process Automation and Power Products divisions, order backlog increased in local currencies as a result of growth in global industrial demand. Order backlog in the Process Automation division also increased due to large orders received in the marine and oil and gas sectors. Order backlog in the Low Voltage Products division decreased in local currencies due to divestments during 2014. Order backlog in the Power Systems division decreased 4 percent in local currencies as the impacts of higher large orders during 2014 were more than offset by the impacts of the run off of the order backlog in the businesses affected by the Power Systems repositioning announced in 2012 and the exit from the solar EPC business announced in 2014.

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Revenues

 
   
   
   
  % Change  
($ in millions)
  2015   2014   2013   2015   2014  

Discrete Automation and Motion

    9,127     10,142     9,915     (10 )%   2 %

Low Voltage Products

    6,547     7,532     7,729     (13 )%   (3 )%

Process Automation

    6,374     7,948     8,497     (20 )%   (6 )%

Power Products

    9,550     10,333     11,032     (8 )%   (6 )%

Power Systems

    6,342     7,020     8,375     (10 )%   (16 )%

Operating divisions

    37,940     42,975     45,548     (12 )%   (6 )%

Corporate and Other(1)

    (2,459 )   (3,145 )   (3,700 )   n.a.     n.a.  

Total

    35,481     39,830     41,848     (11 )%   (5 )%

(1)
Includes interdivisional eliminations

        Revenues in 2015 decreased 11 percent (1 percent in local currencies) and declined in all divisions. The decrease was due primarily to the impacts of the lower orders and lower opening order backlog in the Power Systems, Power Products and Process Automation divisions compared to the beginning of 2014. In addition, the decrease was also due to the impacts of divestments made in 2014 and negative impacts from foreign exchange rate movements.

        On a divisional basis, revenues declined 10 percent (2 percent in local currencies) in the Discrete Automation and Motion division on lower order intake in the short-cycle businesses such as low voltage motors and drives offset partly by local currency revenue increases in Robotics and Power Conversion. In the Low Voltage Products division, revenues decreased 13 percent (3 percent in local currencies) and were lower in most businesses. Revenues in the Low Voltage Products division were primarily impacted by the divestments which occurred in 2014, which reduced revenues by 3 percent. Revenues in the Process Automation division decreased 20 percent (9 percent in local currencies) and were lower in local currencies in most businesses. Revenues were impacted primarily by decreases in the systems businesses such as Marine and Ports, and Oil and Gas but also by the divestment of the Full Service business at the end of 2014. Revenues in the Power Products division decreased 8 percent (increased 2 percent in local currencies). In local currencies revenues grew, driven by service revenues. In the Power Systems division, revenues decreased 10 percent (increased 2 percent in local currencies); the local currency increase was driven by steady execution of the order backlog.

        Revenues in 2014 decreased 5 percent (2 percent in local currencies) due primarily to the impacts of the lower opening order backlog in the Power Systems and Process Automation divisions compared to the beginning of 2013 and the impacts of business divestments.

        On a divisional basis, revenues grew 2 percent (4 percent in local currencies) in the Discrete Automation and Motion division, supported by growth in the Robotics business and also due to the impact of including Power-One for the full year in 2014. In the Low Voltage Products division, revenues decreased 3 percent (flat in local currencies) as steady to higher revenues in most businesses were offset by decreases in revenues resulting from divestments. Revenues in the Process Automation division decreased 6 percent (4 percent in local currencies) due to the effects of the lower opening order backlog, primarily in the systems businesses and were also impacted by the exit from a large service contract in the fourth quarter of 2013. Revenues in the Power Products division decreased 6 percent (4 percent in local currencies) mainly reflecting the low opening order backlog. In the Power Systems division, revenues decreased 16 percent (13 percent in local currencies) due to the lower opening order backlog in all businesses.

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        We determine the geographic distribution of our revenues based on the location of the ultimate destination of the products' end use, if known, or the location of the customer. The geographic distribution of our consolidated revenues was as follows:

 
   
   
   
  % Change  
($ in millions)
  2015   2014   2013   2015   2014  

Europe

    11,602     13,745     14,450     (16 )%   (5 )%

The Americas

    10,554     11,490     12,133     (8 )%   (5 )%

Asia, Middle East and Africa

    13,325     14,595     15,265     (9 )%   (4 )%

Total

    35,481     39,830     41,848     (11 )%   (5 )%

        In 2015, revenues declined in all regions. In Europe, revenues decreased 16 percent (increased 1 percent in local currencies). In local currencies, revenues declined in Norway, France, Switzerland, Spain and Russia, were flat in Italy, while revenues increased in Germany, the United Kingdom, Sweden and Finland. Revenues from the Americas declined 8 percent (2 percent in local currencies). In local currencies, revenues decreased in the United States, Canada and Brazil but were higher in Mexico, Chile and Peru. In AMEA, revenues decreased 9 percent (2 percent in local currencies). In local currencies, revenues declined in China, South Korea, Australia and Singapore while revenues increased in Saudi Arabia, India, the United Arab Emirates, Japan and South Africa.

        In 2014, revenues declined in all regions. In Europe, revenues decreased 5 percent (3 percent in local currencies) as revenue increases in Norway, the United Kingdom, France, Switzerland and Spain were more than offset by revenue declines in Germany, Italy, Sweden, Finland and the Netherlands. Revenues from the Americas declined 5 percent (2 percent in local currencies). Revenues were steady in the United States and included the impacts of including Power-One for a full year in 2014 while revenues declined in Canada and Brazil. Revenues from AMEA decreased 4 percent (2 percent in local currencies) as revenues were flat in China while decreases were realized in India, South Korea, Australia, Saudi Arabia and South Africa. Revenues increased in the United Arab Emirates.

Cost of sales

        Cost of sales consists primarily of labor, raw materials and component costs but also includes indirect production costs, expenses for warranties, contract and project charges, as well as order-related development expenses incurred in connection with projects for which corresponding revenues have been recognized.

        In 2015, cost of sales decreased 11 percent (2 percent in local currencies) to $25,347 million. As a percentage of revenues, cost of sales decreased from 71.8 percent in 2014 to 71.4 percent in 2015. Cost of sales as a percentage of revenues decreased as benefits from higher cost savings and benefits from ongoing measures taken in the Power Systems division's 'step change' program more than offset the impact from price erosion in the market.

        In 2014, cost of sales decreased 4 percent (1 percent in local currencies) to $28,615 million. As a percentage of revenues, cost of sales increased from 71.3 percent in 2013 to 71.8 percent in 2014. Cost of sales as a percentage of revenues decreased in most divisions as benefits from cost savings more than offset the impacts from price pressures in certain markets. However, the consolidated cost of sales as a percentage of revenues was higher due to high project-related costs in the Power Systems division and the dilutive impact on margins from the Power-One acquisition in the Discrete Automation and Motion division.

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Selling, general and administrative expenses

        The components of selling, general and administrative expenses were as follows:

($ in millions)
  2015   2014   2013  

Selling expenses

    3,729     4,054     4,071  

Selling expenses as a percentage of orders received

    10.2 %   9.8 %   10.5 %

General and administrative expenses

    1,845     2,013     2,023  

General and administrative expenses as a percentage of revenues

    5.2 %   5.1 %   4.8 %

Total selling, general and administrative expenses

    5,574     6,067     6,094  

Total selling, general and administrative expenses as a percentage of revenues

    15.7 %   15.2 %   14.6 %

Total selling, general and administrative expenses as a percentage of the average of orders received and revenues

    15.5 %   14.9 %   15.1 %

        In 2015, general and administrative expenses decreased 8 percent (increased 4 percent in local currencies) compared to 2014. As a percentage of revenues, general and administrative expenses increased from 5.1 percent to 5.2 percent. General and administrative expenses were impacted by approximately $121 million from costs for the White Collar Productivity program announced during the year.

        In 2014, general and administrative expenses remained stable compared to 2013 (increased 2 percent in local currencies). As a percentage of revenues, general and administrative expenses increased from 4.8 percent to 5.1 percent mainly due to the impact of lower revenues.

        In 2015, selling expenses have decreased 8 percent (increased 3 percent in local currencies) compared to 2014. Selling expenses as a percentage of orders have increased from 9.8 percent to 10.2 percent. Selling expenses were impacted by approximately $89 million from costs for the White Collar Productivity program.

        In 2014, selling expenses remained stable compared to 2013 (increased 2 percent in local currencies). Selling expenses as a percentage of orders received decreased from 10.5 percent to 9.8 percent mainly due to the impact of higher orders received.

        In 2015, selling, general and administrative expenses decreased 8 percent (increased 3 percent in local currencies) compared to 2014 and as a percentage of the average orders and revenues, selling, general and administrative expenses increased from 14.9 percent to 15.5 percent on both lower revenues and orders and higher costs.

        In 2014, selling, general and administrative expenses remained stable compared to 2013 (increased 2 percent in local currencies) and as a percentage of the average of orders and revenues, selling, general and administrative expenses decreased from 15.1 percent to 14.9 percent as the impact of lower revenues was more than offset by the impact of higher orders.

Non-order related research and development expenses

        In 2015, non-order related research and development expenses decreased 6 percent (increased 6 percent in local currencies) compared to 2014. In 2014, non-order related research and development expenses increased 2 percent (4 percent in local currencies) compared to 2013.

        Non-order related research and development expenses as a percentage of revenues also increased in 2015 by 0.2 percent to 4.0 percent, after increasing to 3.8 percent in 2014 from 3.5 percent in 2013.

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Other income (expense), net

($ in millions)
  2015   2014   2013  

Restructuring and restructuring-related expenses(1)

    (67 )   (37 )   (45 )

Net gain from sale of property, plant and equipment

    26     17     18  

Asset impairments

    (33 )   (34 )   (29 )

Net gain (loss) from sale of businesses

    (20 )   543     (16 )

Income from equity-accounted companies and other income (expense)

    (11 )   40     31  

Total

    (105 )   529     (41 )

(1)
Excluding asset impairments

        "Other income (expense), net" primarily includes certain restructuring and restructuring-related expenses, gains and losses from sale of businesses and sale of property, plant and equipment, recognized asset impairments, as well as our share of income or loss from equity-accounted companies.

        In 2015, "Other income (expense), net" was an expense of $105 million. In 2014, "Other income (expense), net" was an income of $529 million, compared with an expense of $41 million in 2013, mostly due to the impact of the net gains recorded in 2014 from the sale of HVAC, Power Solutions, Steel Structures and Full Service businesses.

Income from operations

 
   
   
   
  % Change(1)  
($ in millions)
  2015   2014   2013   2015   2014  

Discrete Automation and Motion

    991     1,422     1,458     (30 )%   (2 )%

Low Voltage Products

    909     1,475     1,092     (38 )%   35 %

Process Automation

    593     1,003     990     (41 )%   1 %

Power Products

    1,051     1,204     1,331     (13 )%   (10 )%

Power Systems

    110     (360 )   171     n.a.     n.a.  

Operating divisions

    3,654     4,744     5,042     (23 )%   (6 )%

Corporate and Other

    (610 )   (569 )   (650 )   n.a.     n.a.  

Intersegment elimination

    5     3     (5 )   n.a.     n.a.  

Total

    3,049     4,178     4,387     (27 )%   (5 )%

(1)
Certain percentages are stated as n.a. as the computed change would not be meaningful.

        In 2015 and 2014, changes in income from operations were a result of the factors discussed above and in the divisional analysis below.

Net interest and other finance expense

        Net interest and other finance expense consists of "Interest and dividend income" offset by "Interest and other finance expense".

        "Interest and other finance expense" includes interest expense on our debt, the amortization of upfront transaction costs associated with long-term debt and committed credit facilities, commitment

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fees on credit facilities, foreign exchange gains and losses on financial items and gains and losses on marketable securities.

($ in millions)
  2015   2014   2013  

Interest and dividend income

    77     80     69  

Interest and other finance expense

    (286 )   (362 )   (390 )

Net interest and other finance expense

    (209 )   (282 )   (321 )

        In 2015, "Interest and other finance expense" decreased compared to 2014, mainly due to a reduction in foreign exchange losses and lower interest expense on debt. Interest expense on debt was lower due to lower effective interest rates and lower foreign currency exchange rates. In addition, interest charges for uncertain tax positions were lower in 2015 compared to 2014.

        In 2014, "Interest and other finance expense" decreased compared to 2013, mainly resulting from the maturity of a bond in June 2013 and the reduction in interest expense resulting from an additional interest rate swap entered into during 2014. See "Note 12 Debt" to our Consolidated Financial Statements.

Provision for taxes

($ in millions)
  2015   2014   2013  

Income from continuing operations before taxes

    2,840     3,896     4,066  

Provision for taxes

    (788 )   (1,202 )   (1,122 )

Effective tax rate for the year

    27.7 %   30.9 %   27.6 %

        In 2015, the effective tax rate of 27.7% included a net increase in valuation allowance of deferred taxes of $57 million, as we determined it was not more likely than not that such deferred tax assets would be realized. In addition, we recorded a benefit of $50 million relating to tax credits arising from research and development activities and a charge of $74 million relating to the interpretation of tax law and double tax treaty agreements by competent tax authorities.

        In 2014, the effective tax rate of 30.9% included the effects of taxes on net gains on sale of businesses. Included in the provision for taxes of $1,202 million were taxes of $279 million relating to $543 million of gains on sale of businesses. These divestment transactions increased the effective tax rate as gains were realized primarily in higher-tax jurisdictions and the goodwill allocated to the divested businesses was not deductible for tax purposes. Excluding the effects of these divestment transactions, the effective tax rate for 2014 would have been 27.5%.

        The provision for taxes in 2014 included a net increase of valuation allowance on deferred taxes of $52 million, as we determined it was not more likely than not that such deferred tax assets would be realized. This amount included an expense of $31 million related to certain of our operations in South America.

        The provision for taxes in 2013 included a net increase in valuation allowance on deferred taxes of $31 million, as we determined it was not more likely than not that such deferred tax assets would be realized. This amount included an expense of $104 million related to certain of our operations in Central Europe and South America. It also included a benefit of $42 million related to certain of our operations in Central Europe.

        The provision for taxes in 2014 and 2013, also included tax credits, arising in foreign jurisdictions, for which the technical merits did not allow a benefit to be taken.

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Income from continuing operations, net of tax

        As a result of the factors discussed above, income from continuing operations, net of tax, decreased $642 million to $2,052 million in 2015 compared to 2014, and decreased $250 million to $2,694 million in 2014 compared to 2013.

Income (loss) from discontinued operations, net of tax

        The loss (net of tax) from discontinued operations for 2013 related primarily to provisions for certain environmental obligations. The income from discontinued operations, net of tax, for 2015 and 2014, was not significant.

Net income attributable to ABB

        As a result of the factors discussed above, net income attributable to ABB decreased $661 million to $1,933 million in 2015 compared to 2014, and decreased $193 million to $2,594 million in 2014 compared to 2013.

Earnings per share attributable to ABB shareholders

(in $)
  2015   2014   2013  

Income from continuing operations, net of tax:

                   

Basic

    0.87     1.12     1.23  

Diluted

    0.87     1.12     1.23  

Net income attributable to ABB:

                   

Basic

    0.87     1.13     1.21  

Diluted

    0.87     1.13     1.21  

        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 our share-based payment arrangements. See "Note 20 Earnings per share" to our Consolidated Financial Statements.

Divisional analysis

Discrete Automation and Motion

        The financial results of our Discrete Automation and Motion division were as follows:

 
   
   
   
  % Change  
($ in millions)
  2015   2014   2013   2015   2014  

Orders

    9,222     10,559     9,771     (13 )%   8 %

Order backlog at December 31,

    4,232     4,385     4,351     (3 )%   1 %

Revenues

    9,127     10,142     9,915     (10 )%   2 %

Income from operations

    991     1,422     1,458     (30 )%   (2 )%

Operational EBITA

    1,271     1,589     1,622     (20 )%   (2 )%

Orders

        Orders in 2015 decreased 13 percent (5 percent in local currencies) due to weaker markets in most of our businesses. The declining oil price and slower growth in China affected the order intake negatively, especially in the Motors and Generators and the Drives and Controls businesses. Orders in

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the Robotics business increased in local currencies, supported by strong demand for services. Orders in the Power Conversion business were lower and were impacted by lower large orders from the rail segment.

        Orders in 2014 increased 8 percent (10 percent in local currencies) as orders were higher in all businesses. Order increases in the Power Conversion business were driven by strong rail orders and the inclusion of Power-One for a full year in 2014 compared to 5 months in 2013. Orders grew in the Robotics business as demand increased from general industry while large order demand from the automotive sector was lower. Orders in the Drives and Controls and the Motors and Generators businesses increased due to higher service orders as well as the receipt of large marine orders in 2014.

        The geographic distribution of orders for our Discrete Automation and Motion division was as follows:

(in %)
  2015   2014   2013  

Europe

    34     39     38  

The Americas

    35     32     32  

Asia, Middle East and Africa

    31     29     30  

Total

    100     100     100  

        In 2015, the geographical distribution of our orders changed primarily due to the impact of the large rail orders from Europe in 2014. In addition, orders from the Americas and Asia, Middle East and Africa benefitted from strong orders in the Robotics business.

        In 2014, the geographical split of orders was consistent with 2013. Larger rail orders in the Power Conversion business from Sweden and Switzerland compensated for other market weakness in Europe. The Americas maintained their share of global orders as orders received in the United States increased due to the inclusion of the solar business of Power-One for a full year while the rest of the Americas was steady. The share of orders from Asia, Middle East and Africa was supported by growth in China partially offsetting the impacts of order declines in India.

Order backlog

        Order backlog in 2015 decreased 3 percent (increased 3 percent in local currencies) compared to 2014. In local currencies, order backlog increased as lower order backlog in the Motors and Generators business was offset by increases in the backlog for the Robotics and Power Conversion businesses.

        Order backlog in 2014 increased 1 percent (9 percent in local currencies) assisted by the receipt of large rail orders in Sweden and Switzerland which will primarily be delivered after 2015.

Revenues

        In 2015, revenues were 10 percent lower (2 percent in local currencies). Revenues were weaker as growth in the Robotics and Power Conversion businesses, supported by strong order backlog, was offset by weaker revenues resulting from the lower order intake in the short-cycle businesses such as low voltage motors and drives.

        In 2014, revenues grew 2 percent (4 percent in local currencies) due to the impact of including Power-One for a full year in 2014 and growth in the Robotics business. Revenues were also supported by a 9 percent increase in service revenues (12 percent in local currencies). Revenues in the Drives and Controls, and Motors and Generators businesses declined due to a weak opening order backlog for mid- and large-sized medium voltage drives and high voltage motors.

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        The geographic distribution of revenues for our Discrete Automation and Motion division was as follows:

(in %)
  2015   2014   2013  

Europe

    35     37     40  

The Americas

    35     33     32  

Asia, Middle East and Africa

    30     30     28  

Total

    100     100     100  

        In 2015, the share of revenue from Europe was lower than in 2014 due to the weak markets for motors and drives. The share of revenues from the Americas increased due to growth in the Robotics business. The share of revenues from Asia, Middle East and Africa remained flat as higher revenues in the Robotics business offset the decline in the Drives and Controls business.

        In 2014, the share of revenues from Europe declined due to lower revenues in the Drives and Controls, and Motors and Generators businesses. The Americas' share of revenues increased and was supported by the inclusion of Power-One for a full year in 2014. Revenues in Asia, Middle East and Africa were supported by high automotive revenues in Robotics in China.

Income from operations

        In 2015, income from operations decreased 30 percent compared to 2014 due to lower revenues and lower capacity utilization. Steady income in the Robotics business could not compensate for the profit deterioration realized in other businesses. The Drives and Controls business was negatively affected by the weaker business climate in China while the Motors and Generators business suffered from the low oil price and weak demand leading to lower factory utilization. Income from operations in the Power Conversion business was flat despite continued strong price erosion in the solar market. The division's income from operations was also negatively affected by the impact of the higher restructuring charges incurred in connection with capacity adjustments and the company-wide White Collar Productivity program. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 7 percent.

        In 2014, income from operations was lower than 2013, despite higher revenues, due to price pressures affecting gross margin and higher depreciation costs. Lower revenues in the Drives and Controls, and Motors and Generators businesses also led to reduced income from operations. Robotics had a higher contribution to income from operations due to increased revenues and improved gross margins while margins were lower in the Power Conversion business due to the dilutive effects of Power-One. The impact on income from operations from changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, was not significant.

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Operational EBITA

        The reconciliation of income from operations to Operational EBITA for the Discrete Automation and Motion division was as follows:

($ in millions)
  2015   2014   2013  

Income from operations

    991     1,422     1,458  

Acquisition-related amortization

    128     138     124  

Restructuring and restructuring-related expenses(1)

    125     25     19  

Gains and losses on sale of businesses, acquisition-related expenses and certain non-operational items

    26         33  

FX/commodity timing differences in income from operations

    1     4     (12 )

Operational EBITA

    1,271     1,589     1,622  

(1)
Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

        In 2015, Operational EBITA decreased 20 percent (13 percent excluding the impacts from changes in foreign currencies) compared to 2014, primarily due to the reasons described under "Income from operations", excluding the explanations related to the reconciling items in the table above.

        In 2014, Operational EBITA declined 2 percent (1 percent excluding the impacts from changes in foreign currencies) compared to 2013, primarily due to the reasons described under "Income from operations", excluding the explanations related to the reconciling items in the table above.

Low Voltage Products

        The financial results of our Low Voltage Products division were as follows:

 
   
   
   
  % Change  
($ in millions)
  2015   2014   2013   2015   2014  

Orders

    6,581     7,550     7,696     (13 )%   (2 )%

Order backlog at December 31,

    857     891     1,057     (4 )%   (16 )%

Revenues

    6,547     7,532     7,729     (13 )%   (3 )%

Income from operations

    909     1,475     1,092     (38 )%   35 %

Operational EBITA

    1,096     1,241     1,265     (12 )%   (2 )%

Orders

        In 2015, orders decreased 13 percent (3 percent in local currencies). The impact of the divestments of the HVAC and Steel Structures businesses in 2014 reduced orders by 4 percent. Local currency order growth in the Breakers and Switches business was offset by decreases in orders in the Enclosures and DIN-Rail Products and the Low Voltage Systems businesses while orders in local currencies were steady in the Control Products business. In the products businesses, higher orders in Europe were offset by lower order volumes in China.

        In 2014, orders decreased 2 percent (flat in local currencies) as order growth in most businesses was offset by the impact of the divestments of HVAC and Steel Structures. Order growth was highest in the Wiring Accessories business and orders also grew in the Breakers and Switches, Enclosures and DIN-Rail Products, and Control Products businesses while orders in the Low Voltage Systems business were steady. Product businesses grew despite a challenging macroeconomic environment in Europe, lower investments in the construction market in China and political instability in certain Eastern European countries.

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        The geographic distribution of orders for our Low Voltage Products division was as follows:

(in %)
  2015   2014   2013  

Europe

    39     39     39  

The Americas

    29     30     32  

Asia, Middle East and Africa

    32     31     29  

Total

    100     100     100  

        In 2015, the share of orders in the Americas decreased primarily due to the divestments in 2014 of the HVAC and Steel Structures businesses, which mostly impacted orders in the United States and Canada. The share of orders from Europe remained steady while Asia, Middle East and Africa slightly increased its geographic share, as the decline in volumes in China was partly offset by strong orders in Japan and India.

        In 2014, the share of orders from the Americas decreased primarily due to the impact of the divestments in the year, which were mainly based in the United States and Canada. The share of orders in Asia, Middle East and Africa increased, partially driven by systems orders in China.

Order backlog

        In 2015, order backlog decreased by 4 percent (increased by 6 percent in local currencies), driven by increases in the Breakers and Switches and Low Voltage Systems businesses.

        In 2014, order backlog decreased 16 percent (9 percent in local currencies), driven mainly by the impacts of business divestments in the year.

Revenues

        In 2015, revenues decreased by 13 percent (3 percent in local currencies) as the local currency increases in the Breakers and Switches, Control Products and Wiring Accessories businesses were offset by the impacts on revenues from the businesses divested in 2014. Local currency revenues were also lower in the Enclosures and DIN-Rail Products and Low Voltage Systems businesses.

        In 2014, revenues decreased 3 percent (flat in local currencies) as steady to higher revenues in most businesses were offset by the impacts of divested businesses. Revenues grew slightly in the Breakers and Switches and Low Voltage Systems businesses while revenues were flat in the Enclosures and DIN-Rail Products and Control Products businesses.

        The geographic distribution of revenues for our Low Voltage Products division was as follows:

(in %)
  2015   2014   2013  

Europe

    38     40     39  

The Americas

    29     30     33  

Asia, Middle East and Africa

    33     30     28  

Total

    100     100     100  

        In 2015, the share of revenues in the Americas decreased primarily due to the divestments in 2014. The share of revenues from Asia, Middle East and Africa increased, as weakness in the Low Voltage Systems business in Saudi Arabia and the United Arab Emirates was more than offset by higher revenues in the other businesses. Europe's geographic share of revenues decreased as weaknesses in the Low Voltage Systems and Enclosures and DIN-Rail Products businesses were only partially offset by the other products businesses.

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        In 2014, the share of revenues from the Americas decreased primarily due to the impact of divestments in the year. The share of revenues from Asia, Middle East and Africa increased slightly, partially attributable to increased systems revenues in China and Saudi Arabia respectively.

Income from operations

        In 2015, income from operations decreased 38 percent, primarily due to the impact in 2014 from gains recorded on the divestments of the HVAC and Steel Structures businesses. In addition, higher restructuring charges were incurred in connection with the company-wide White Collar Productivity program. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 6 percent.

        In 2014, income from operations increased 35 percent, primarily due to gains from the sales of businesses divested in the year. In 2014, income from operations was also negatively impacted by a change in product mix. The impact on income from operations from changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, was not significant.

Operational EBITA

        The reconciliation of income from operations to Operational EBITA for the Low Voltage Products division was as follows:

($ in millions)
  2015   2014   2013  

Income from operations

    909     1,475     1,092  

Acquisition-related amortization

    100     113     120  

Restructuring and restructuring-related expenses(1)

    101     45     31  

Gains and losses on sale of businesses, acquisition-related expenses and certain non-operational items

    3     (407 )   16  

FX/commodity timing differences in income from operations

    (17 )   15     6  

Operational EBITA

    1,096     1,241     1,265  

(1)
Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

        In 2015, Operational EBITA decreased 12 percent (1 percent excluding the impacts from changes in foreign currencies) compared to 2014, primarily due to the reasons described under "Income from operations", excluding the explanations related to the reconciling items in the table above.

        In 2014, Operational EBITA decreased 2 percent (was flat excluding the impacts from changes in foreign currencies) compared to 2013, primarily due to the reasons described under "Income from operations", excluding the explanations related to the reconciling items in the table above.

Process Automation

        The financial results of our Process Automation division were as follows:

 
   
   
   
  % Change  
($ in millions)
  2015   2014   2013   2015   2014  

Orders

    6,464     8,577     8,000     (25 )%   7 %

Order backlog at December 31,

    5,203     5,661     5,772     (8 )%   (2 )%

Revenues

    6,374     7,948     8,497     (20 )%   (6 )%

Income from operations

    593     1,003     990     (41 )%   1 %

Operational EBITA

    755     958     1,022     (21 )%   (6 )%

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Orders

        Orders in 2015 declined 25 percent (14 percent in local currencies), mainly due to the impacts of a reduction in capital and operating expenditures in the oil and gas sector resulting from continued low oil prices. The marine sector, also negatively impacted by low oil prices, had lower demand, especially from the offshore drilling vessels segment. The mining sector remained at a low level as customers in this segment either continued to delay or postpone investments due to low commodity prices. Orders were also 3 percent lower due to the impact of the divestment of the Full Service business at the end of 2014.

        Orders in 2014 increased 7 percent (10 percent in local currencies), mainly due to high demand from the marine sector, especially for LNG vessels. Orders in the oil and gas businesses also increased while orders in the mining businesses remained at low levels as most mining customers delayed or postponed capital investments. Orders in the metals businesses also remained at low levels due to overcapacity issues affecting our customers. Other customers such as steel companies are focusing their spending on operating expenses and not on capital investment due to profitability pressures affecting their industry. The paper industry in North America, South America and parts of Asia, however, has improved and has started to increase its level of capital investment.

        The geographic distribution of orders for our Process Automation division was as follows:

(in %)
  2015   2014   2013  

Europe

    38     33     37  

The Americas

    23     22     23  

Asia, Middle East and Africa

    39     45     40  

Total

    100     100     100  

        In 2015, orders declined in all regions. The share of orders from Asia, Middle East and Africa declined due to large orders received from the marine sector in 2014 described below. In addition, the region was impacted by weak domestic demand in China. Orders in the Americas declined but by a lower percentage than the division as a whole. Declines included the impacts of lower mining investments in South America, as well as slowing demand in the United States from the upstream oil and gas sector. As most major industrial economies in Europe were either steady or contracting only slightly, the geographic share of orders from Europe increased.

        In 2014, the share of orders from Asia, Middle East and Africa increased primarily due to the impacts of large orders received in South Korea from the LNG marine sector and strong order growth in China as well as the impact of the award of a gas treatment plant contract in Tunisia. The share of orders from the Americas remained steady. Growth in Brazil was offset by the effects of lower mining investments in Chile while North America grew slightly. Orders decreased in Europe which resulted in a reduction in the share of orders from Europe compared to 2013. Marine orders in Finland were offset by lower order intake in Germany and Southern Europe.

Order backlog

        Order backlog at December 31, 2015, was 8 percent lower (2 percent higher in local currencies) than at December 31, 2014. Order backlog in most businesses was lower due to the impacts of lower orders during the year. The increase in order backlog in local currencies was due to the receipt of higher large orders near the end of 2015.

        Order backlog at December 31, 2014, was 2 percent lower compared to December 31, 2013. In local currencies, order backlog was 9 percent higher, reflecting the higher order intake during the year, especially large orders.

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Revenues

        In 2015, revenues decreased 20 percent (9 percent in local currencies). Revenues in the Oil and Gas business declined, reflecting the lower opening order backlog as well as reduced opportunities from slower customer order tendering, especially in the service business. The Marine and Ports business also recorded lower revenues, reflecting lower activity in the offshore oil and gas industry and large project delays. The Process Industries business, which includes mining and metals, also declined. Revenues in the Measurement and Analytics business declined, largely due to lower demand in the upstream oil and gas segment. In local currencies, Turbocharging was flat while the Control Technologies business had higher revenues. Revenues were 4 percent lower due to the impacts of the divestment of the Full Service business at the end of 2014.

        In 2014, revenues were down 6 percent (4 percent in local currencies), reflecting the impacts of lower order intake in the previous year. Revenue decreases were more significant in the systems businesses, especially in mining systems, due to the weak opening order backlog while revenues in the oil and gas businesses increased. Product revenues were flat. Revenues in the Measurement Products business grew slightly but were offset by a decline in revenues in the Control Technologies business. Product revenues in the Turbocharging business increased slightly compared to the low levels last year. Revenues were also impacted by the exit in 2013 from a large service contract.

        The geographic distribution of revenues for our Process Automation division was as follows:

(in %)
  2015   2014   2013  

Europe

    33     35     36  

The Americas

    24     23     24  

Asia, Middle East and Africa

    43     42     40  

Total

    100     100     100  

        In 2015, the regional revenue distribution remained steady. The share of revenues from Europe declined, reflecting lower oil and gas and marine activities in Norway and the divestment of the Full Service business in 2014, which mainly impacted Europe. The larger proportional revenue decrease in Europe resulted in a redistribution of the share to both Asia, Middle East and Africa and the Americas.

        The regional distribution of revenues in 2014 did not change significantly compared to 2013. Revenue share declines were realized in Europe and the Americas, while Asia, Middle East and Africa increased. In Europe, revenues declined as a result of an exit in 2013 from a large service contract in Finland and lower revenues in Sweden. In the Americas, lower opening order backlog in the mining business led to lower revenues in Chile and Peru, which more than offset growth in the United States. The revenue share from Asia, Middle East and Africa increased mainly from Algeria and the United Arab Emirates.

Income from operations

        In 2015, income from operations declined 41 percent compared to 2014. Income from operations in 2014 included the gain on the disposal of the Full Service business. In addition, income from operations was impacted by the revenue decreases described above. The income from operations in 2015 also included higher restructuring charges due to the implementation of the company-wide White Collar Productivity program. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 7 percent.

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        In 2014, income from operations increased compared to 2013, mainly due to the gain on sale of the Full Service business partially offset by the impact of lower revenues. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 5 percent.

Operational EBITA

        The reconciliation of income from operations to Operational EBITA for the Process Automation division was as follows:

($ in millions)
  2015   2014   2013  

Income from operations

    593     1,003     990  

Acquisition-related amortization

    12     17     13  

Restructuring and restructuring-related expenses(1)

    112     43     31  

Gains and losses on sale of businesses, acquisition-related expenses and certain non-operational items

    11     (113 )   (6 )

FX/commodity timing differences in income from operations

    27     8     (6 )

Operational EBITA

    755     958     1,022  

(1)
Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

        In 2015, Operational EBITA decreased 21 percent (13 percent excluding the impacts from changes in foreign currencies) compared to 2014, primarily due to the reasons described under "Income from operations", excluding the explanations related to the reconciling items in the table above.

        In 2014, Operational EBITA decreased 6 percent (4 percent excluding the impacts from changes in foreign currencies) compared to 2013, primarily due to the reasons described under "Income from operations", excluding the explanations related to the reconciling items in the table above.

Power Products

        The financial results of our Power Products division were as follows:

 
   
   
   
  % Change  
($ in millions)
  2015   2014   2013   2015   2014  

Orders

    10,033     10,764     10,459     (7 )%   3 %

Order backlog at December 31,

    7,717     7,791     7,946     (1 )%   (2 )%

Revenues

    9,550     10,333     11,032     (8 )%   (6 )%

Income from operations

    1,051     1,204     1,331     (13 )%   (10 )%

Operational EBITA

    1,178     1,319     1,435     (11 )%   (8 )%

Orders

        In 2015, orders decreased 7 percent (increased 2 percent in local currencies). The local currency increase in orders was supported by the continued selective investments in large transmission projects in the United States and China.

        In 2014, orders increased 3 percent (5 percent in local currencies), supported by the industry sector and continued selective investments in large transmission projects.

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        The geographic distribution of orders for our Power Products division was as follows:

(in %)
  2015   2014   2013  

Europe

    28     28     31  

The Americas

    30     29     28  

Asia, Middle East and Africa

    42     43     41  

Total

    100     100     100  

        In 2015, the share of orders from the Americas increased, mainly driven by large transmission projects in the United States. Despite growth in India and China, the share of orders from Asia, Middle East and Africa declined as demand was lower in Saudi Arabia and Australia. Europe's share of orders was steady, reflecting positive market developments in 2015.

        In 2014, the share of orders from the Americas increased, mainly driven by the transmission sector. The continued development of power infrastructure investments led to a higher share of orders in Asia, Middle East and Africa, with India showing growth and China remaining stable. Europe's share of orders declined, reflecting the difficult market conditions throughout the year.

Order backlog

        In 2015, order backlog decreased 1 percent (increased 7 percent in local currencies). The local currency increase resulted from higher orders during the year.

        In 2014, order backlog decreased 2 percent (increased 6 percent in local currencies) compared to 2013. In local currencies, the order backlog increased in all businesses resulting from higher orders during the year.

Revenues

        In 2015, revenues decreased 8 percent (increased 2 percent in local currencies). The local currency increase mainly reflects the successful execution of the strong opening order backlog. Service revenues also continued to grow and represented a higher share of the total division revenues compared to 2014.

        In 2014, revenues in the Power Products division decreased 6 percent (4 percent in local currencies), mainly reflecting the impact of the lower opening order backlog. Service revenues continued to grow and represented a higher share of the total division revenues compared to 2013.

        The geographic distribution of revenues for our Power Products division was as follows:

(in %)
  2015   2014   2013  

Europe

    27     32     32  

The Americas

    30     27     27  

Asia, Middle East and Africa

    43     41     41  

Total

    100     100     100  

        In 2015, the share of revenues in the Americas was higher as a result of the continued steady execution in North America. The increase in the share of revenues from Asia, Middle East and Africa was primarily driven by revenue increases in Saudi Arabia and India. The decrease in the share of revenues from Europe was a result of lower revenues in Sweden and Switzerland.

        In 2014, the shares of revenues remained constant for all regions. Europe remained unchanged, reflecting the economic environment. The share of revenues from the Americas was also constant, even as revenues in certain key markets decreased slightly compared to 2013. Asia, Middle East and Africa was supported by revenue increases in India.

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Income from operations

        In 2015, income from operations was 13 percent lower compared to 2014. Income from operations was lower due to higher restructuring charges associated with the implementation of the company-wide White Collar Productivity program as well as the ramp-up costs associated with aligning our strategic production footprint towards key markets such as Saudi Arabia and India. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 5 percent.

        In 2014, income from operations was lower compared to 2013 primarily reflecting lower revenues, higher charges relating to FX/commodity timing differences and higher selling expenses resulting from investments made in the sales function. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 4 percent.

Operational EBITA

        The reconciliation of income from operations to Operational EBITA for the Power Products division was as follows:

($ in millions)
  2015   2014   2013  

Income from operations

    1,051     1,204     1,331  

Acquisition-related amortization

    10     17     21  

Restructuring and restructuring-related expenses(1)

    105     51     66  

Gains and losses on sale of businesses, acquisition-related expenses and certain non-operational items

    4     16     19  

FX/commodity timing differences in income from operations

    8     31     (2 )

Operational EBITA

    1,178     1,319     1,435  

(1)
Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

        In 2015, Operational EBITA decreased 11 percent (3 percent excluding the impacts from changes in foreign currencies) compared to 2014, primarily due to the reasons described under "Income from operations", excluding the explanations related to the reconciling items in the table above.

        In 2014, Operational EBITA decreased 8 percent (7 percent excluding the impacts from changes in foreign currencies) compared to 2013, primarily due to the reasons described under "Income from operations", excluding the explanations related to the reconciling items in the table above.

Power Systems

        The financial results of our Power Systems division were as follows:

 
   
   
   
  % Change(1)  
($ in millions)
  2015   2014   2013   2015   2014  

Orders

    6,800     6,871     5,949     (1 )%   15 %

Order backlog at December 31,

    8,218     8,246     9,435         (13 )%

Revenues

    6,342     7,020     8,375     (10 )%   (16 )%

Income (loss) from operations

    110     (360 )   171     n.a.     n.a.  

Operational EBITA

    274     (96 )   326     n.a.     n.a.  

(1)
Certain percentages are stated as n.a. as the computed change would not be meaningful.

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Orders

        In 2015, orders decreased 1 percent (increased 13 percent in local currencies) compared with 2014. The growth in local currencies reflected a higher level of large orders. Large orders in Grid Systems included an HVDC order awarded to connect the Norwegian and German power grids and a $450 million HVDC order for an interconnection between Norway and the United Kingdom, while our Power Generation business won a power plant automation order in South Africa worth more than $160 million. In local currencies, base orders were lower, mainly due to the challenging macro-economic conditions. The markets remain competitive with continued pricing pressure.

        In 2014, orders increased 15 percent (20 percent in local currencies) compared with 2013, mainly due to a higher level of large orders in the Grid Systems business following the $800 million award in the United Kingdom for a HVDC subsea power connection in northern Scotland and a $400 million HVDC project in Canada to provide the first electricity link between the island of Newfoundland and the North American power grid. In addition, large orders in 2014 included a $110 million substation order in Saudi Arabia which will support grid interconnection and boost electricity transmission capacity. Initiatives to drive base order growth, combined with early signs of stabilization in the utility sector, contributed to modest growth in base orders. The overall market remains highly competitive, especially in certain higher-growth regions such as the Middle East. The Power Systems division continues to be selective, focusing on higher-margin projects and those with higher pull-through of other ABB products.

        The geographic distribution of orders for our Power Systems division was as follows:

(in %)
  2015   2014   2013  

Europe

    47     42     36  

The Americas

    19     25     25  

Asia, Middle East and Africa

    34     33     39  

Total

    100     100     100  

        In the Power Systems division, the change in the geographic share of orders reflects changes in the geographical location of large orders. In 2015, Europe benefited from a higher level of large orders, reflecting large orders for HVDC interconnections. The share of orders from Asia, Middle East and Africa increased to 34 percent, supported by large orders. Orders in the Americas were significantly lower, partly due to the significant large HVDC order received in Canada in 2014 as described above.

        In 2014, the share of orders from Europe increased due to the award of the HVDC project in the United Kingdom. The share of orders in the Americas remained stable with growth in both large and base orders. Orders from Asia, Middle East and Africa decreased, mainly due to the timing of large order awards, resulting in a reduction of order share relative to the other regions.

Order backlog

        Order backlog at December 31, 2015, was flat (increased 8 percent in local currencies) compared with December 31, 2014. The increase in order backlog reflects the impact of the high levels of large orders, which typically have execution times stretching over several years.

        Order backlog at December 31, 2014, decreased 13 percent (4 percent in local currencies) compared with December 31, 2013. Although order backlog was supported by the large orders received in 2014, order backlog decreased in 2014 as the division continued to run off the remaining orders in businesses affected by the repositioning of the Power Systems division announced in 2012 and the businesses affected by the exiting of the solar EPC business announced in 2014.

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Revenues

        Revenues in 2015 decreased 10 percent (increased 2 percent in local currencies) compared to 2014; the increase in local currencies was mainly driven by steady execution of the order backlog. Revenues increased in the Grid Systems business, supported by the execution of offshore wind projects, and were also higher in the Network Management business. This more than offset a lower level of revenues in the Substations and Power Generation businesses. Revenues were also impacted by our exit from the solar EPC business in 2014.

        Revenues in 2014 decreased 16 percent (13 percent in local currencies) compared to 2013, mainly due to the effects of a weaker order intake in 2013 and the resulting lower opening order backlog at the beginning of 2014. Revenues decreased in all businesses compared to 2013. In addition, revenues in 2014 were negatively impacted by execution delays in certain projects.

        The geographic distribution of revenues for our Power Systems division was as follows:

(in %)
  2015   2014   2013  

Europe

    40     38     36  

The Americas

    24     24     23  

Asia, Middle East and Africa

    36     38     41  

Total

    100     100