Note 23
Operating segment and geographic data

The Chief Operating Decision Maker (CODM) is the Chief Executive Officer. The CODM allocates resources to and assesses the performance of each operating segment using the information outlined below. The Company’s operating segments consist of Electrification Products, Discrete Automation and Motion, Process Automation and Power Grids. The remaining operations of the Company are included in Corporate and Other.

Effective January 1, 2016, the Company reorganized its operating segments with the aim of delivering more customer value in a better, more focused way from its combined power and automation offering. The new Electrification Products segment includes the business of the former Low Voltage Products segment and the Medium Voltage Products business from the former Power Products segment. The Process Automation segment has been expanded to include the Distributed Control Systems business from the former Power Systems segment, while the remaining businesses of the former Power Products and Power Systems segments were combined to form the new Power Grids segment. There were no significant changes to the Discrete Automation and Motion segment.

In addition, commencing in 2016, the Company changed its method of allocating income taxes to its operating segments whereby tax assets are primarily accounted for in Corporate and Other. As a result, certain amounts relating to current and deferred tax assets previously reported within the total segment assets of each individual operating segment have been allocated to Corporate and Other.

The segment information for 2015 and 2014, and at December 31, 2015 and 2014, has been recast to reflect these organizational and allocation changes.

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

  • Electrification Products: manufactures and sells products and services including low- and medium-voltage switchgear (air and gas insulated), breakers, switches, control products, DIN rail components, automation and distribution enclosures, wiring accessories and installation material for many kinds of applications.
  • Discrete Automation and Motion: manufactures and sells motors, generators, variable speed drives, robots and robotics, solar inverters, wind converters, rectifiers, excitation systems, power quality and protection solutions, electric vehicle fast charging infrastructure, components and subsystems for railways, and related services for a wide range of applications in discrete automation, process industries, transportation and utilities.
  • Process Automation: develops and sells control and plant optimization systems, automation products and solutions, including instrumentation, as well as industry-specific application knowledge and services for the oil, gas and petrochemicals, metals and minerals, marine and turbocharging, pulp and paper, chemical and pharmaceuticals, and power industries.
  • Power Grids: supplies power and automation products, systems, and service and software solutions for power generation, transmission and distribution to utility, industry, transportation and infrastructure customers. These offerings address evolving grid developments which include the integration of renewables, network control, digital substations, microgrids and asset management. The segment also manufactures a wide range of power, distribution and traction transformers, an array of high-voltage products, including circuit breakers, switchgear, capacitors and power transmission systems.
  • Corporate and Other: includes headquarters, central research and development, the Company’s real estate activities, Group Treasury Operations, historical operating activities of certain divested businesses, and other minor business activities.

The Company evaluates the profitability of its segments based on Operational EBITA. In 2016, the Company modified the definition of its measure of segment profit to also exclude changes in estimates relating to opening balance sheets of acquired businesses (changes in pre-acquisition estimates) and non-operational pension cost, which comprises: (a) interest cost, (b) expected return on plan assets, (c) amortization of prior service cost (credit), (d) amortization of net actuarial loss, and (e) curtailments, settlements and special termination benefits.

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

The CODM primarily reviews the results of each segment on a basis that is before the elimination of profits made on inventory sales between segments. Segment results below are presented before these eliminations, with a total deduction for intersegment profits to arrive at the Company’s consolidated Operational EBITA. Intersegment sales and transfers are accounted for as if the sales and transfers were to third parties, at current market prices.

The following tables present segment revenues, Operational EBITA, the reconciliations of consolidated Operational EBITA to income from continuing operations before taxes, as well as depreciation and amortization, and capital expenditures for 2016, 2015 and 2014, as well as total assets at December 31, 2016, 2015 and 2014.

2016 ($ in millions)

Third-party revenues

Intersegment revenues

Total revenues

Electrification Products

8,744

548

9,292

Discrete Automation and Motion

8,169

545

8,714

Process Automation

6,448

150

6,598

Power Grids

10,408

567

10,975

Corporate and Other

59

1,553

1,612

Intersegment elimination

(3,363)

(3,363)

Consolidated

33,828

33,828

 

 

 

 

 

 

 

 

2015 ($ in millions)

Third-party revenues

Intersegment revenues

Total revenues

Electrification Products

8,932

615

9,547

Discrete Automation and Motion

8,492

635

9,127

Process Automation

7,104

120

7,224

Power Grids

10,876

745

11,621

Corporate and Other

77

1,459

1,536

Intersegment elimination

(3,574)

(3,574)

Consolidated

35,481

35,481

 

 

 

 

 

 

 

 

2014 ($ in millions)

Third-party revenues

Intersegment revenues

Total revenues

Electrification Products

9,826

746

10,572

Discrete Automation and Motion

9,296

846

10,142

Process Automation

8,490

128

8,618

Power Grids

11,533

985

12,518

Corporate and Other

685

1,652

2,337

Intersegment elimination

(4,357)

(4,357)

Consolidated

39,830

39,830

($ in millions)

2016

2015

2014

(1)

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

(2)

As described above, in 2016, the Company modified the definition of its measure of segment profit to also exclude changes in pre-acquisition estimates and non-operational pension cost. Amounts presented for 2015 and 2014 have been adjusted to conform to the new definition.

Operational EBITA:

 

 

 

Electrification Products

1,528

1,561

1,739

Discrete Automation and Motion

1,195

1,295

1,595

Process Automation

824

863

1,045

Power Grids

1,021

877

607

Corporate and Other and Intersegment elimination

(377)

(387)

(452)

Consolidated Operational EBITA

4,191

4,209

4,534

Acquisition-related amortization

(279)

(310)

(380)

Restructuring and restructuring-related expenses(1)

(543)

(674)

(235)

Non-operational pension cost(2)

(38)

(19)

(59)

Changes in pre-acquisition estimates(2)

(131)

(21)

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

(173)

(120)

482

Foreign exchange/commodity timing differences in income from operations:

 

 

 

Unrealized gains and losses on derivatives where the underlying hedged transaction has not yet been realized

(65)

67

(223)

Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized

(5)

(68)

(42)

Unrealized foreign exchange movements on receivables/payables (and related assets/liabilities)

30

(15)

101

Income from operations

2,987

3,049

4,178

Interest and dividend income

73

77

80

Interest and other finance expense

(261)

(286)

(362)

Income from continuing operations before taxes

2,799

2,840

3,896

 

Depreciation and amortization

Capital expenditure(1)

Total assets(1)
at December 31,

($ in millions)

2016

2015

2014

2016

2015

2014

2016

2015

2014

(1)

Capital expenditure and Total assets are after intersegment eliminations and therefore reflect third-party activities only.

Electrification Products

305

316

341

200

210

248

9,523

9,474

10,552

Discrete Automation and Motion

292

295

309

128

145

192

8,465

9,223

10,131

Process Automation

74

79

90

51

56

47

4,153

4,662

5,200

Power Grids

266

280

336

203

191

242

8,980

9,422

10,632

Corporate and Other

198

190

229

249

274

297

8,378

8,575

8,337

Consolidated

1,135

1,160

1,305

831

876

1,026

39,499

41,356

44,852

Geographic information

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

 

Revenues

Long-lived assets
at December 31,

($ in millions)

2016

2015

2014

2016

2015

Europe

11,315

11,602

13,745

2,768

3,253

The Americas

9,741

10,554

11,490

1,100

1,113

Asia, Middle East and Africa

12,772

13,325

14,595

875

910

Total

33,828

35,481

39,830

4,743

5,276

Revenues by geography reflect the location of the customer. Approximately 19 percent, 20 percent and 19 percent of the Company’s total revenues in 2016, 2015 and 2014, respectively, came from customers in the United States. Approximately 13 percent of the Company’s total revenues in 2016, 2015 and 2014, respectively, were generated from customers in China. In 2016, 2015 and 2014, more than 98 percent of the Company’s total revenues were generated from customers outside Switzerland.

Long-lived assets represent “Property, plant and equipment, net” and are shown by location of the assets. At December 31, 2016, approximately 17 percent, 17 percent and 10 percent of the Company’s long-lived assets were located in Switzerland, the U.S. and Sweden respectively. At December 31, 2015, approximately 16 percent were located in each of Switzerland, the U.S. and Sweden.

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

Realignment of segments

On October 4, 2016, the Company announced a planned change in the composition of the business portfolio of its four segments. Effective January 1, 2017, the scope of the Electrification Products segment has been expanded to include the electric vehicle charging, solar, and power quality businesses from the Discrete Automation and Motion segment.

In addition, the Discrete Automation and Motion segment has been renamed the Robotics and Motion segment while the Process Automation segment has been renamed the Industrial Automation segment.