ABB Annual Report 2012 PDF - ABB Group Annual Report 2012

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 manyof our subsidiaries outside of the United States are reportedin the currencies of the countries in which those subsidiariesare located. We refer to these currencies as “local currencies.”Local currency financial information is then translatedinto USD at applicable exchange rates for inclusion in ourConsolidated Financial Statements.The discussion of our results of operations belowprovides certain information with respect to orders, revenues,EBIT and other measures as reported in USD (as well asin local currencies). We measure period-to-period variationsin local currency results by using a constant foreign exchangerate for all periods under comparison. Differences inour results of operations in local currencies as comparedto our results of operations in USD are caused exclusivelyby changes in currency exchange rates.While we consider our results of operations as measuredin local currencies to be a significant indicator of businessperformance, local currency information should not be reliedupon to the exclusion of U.S. GAAP financial measures.Instead, local currencies reflect an additional measure ofcomparability and provide a means of viewing aspects of ouroperations that, when viewed together with the U.S. GAAPresults and our reconciliations, provide a more completeunderstanding of factors and trends affecting the business.As local currency information is not standardized, it maynot be possible to compare our local currency information toother companies’ financial measures that have the same ora similar title. We encourage investors to review our financialstatements and publicly-filed reports in their entirety andnot to rely on any single financial measure.OrdersWe book and report an order when a binding contractualagreement has been concluded with a customer covering, ata minimum, the price and scope of products or servicesto be supplied, the delivery schedule and the payment terms.The reported value of an order corresponds to the undiscountedvalue of revenues that we expect to recognize followingdelivery of the goods or services subject to the order,less any trade discounts and excluding any value added orsales tax. The value of orders received during a given periodof time represents the sum of the value of all orders receivedduring the period, adjusted to reflect the aggregate value ofany changes to the value of orders received during the periodand orders existing at the beginning of the period. Theseadjustments, which may in the aggregate increase or decreasethe orders reported during the period, may include changesin the estimated order price up to the date of contractualperformance, changes in the scope of products or servicesordered and cancellations of orders.The undiscounted value of revenues we expect to generatefrom our orders at any point in time is represented byour order backlog. Approximately 16 percent of the value oftotal orders we recorded in 2012 were “large orders,” whichwe define as orders from third parties involving a value ofat least $15 million for products or services. Approximately55 percent of the total value of large orders in 2012 wererecorded by our Power Systems division and approximately29 percent in our Process Automation division. The PowerProducts as well as Discrete Automation and Motion divisionsaccounted for the remainder of the total large ordersrecorded during 2012. The remaining portion of total ordersrecorded in 2012 was “base orders,” which we define asorders from third parties with a value of less than $15 millionfor products or services.The level of orders fluctuates from year to year. Arrangementsincluded in any particular order can be complexand unique to that order. Portions of our business involve ordersfor long-term projects that can take months or years tocomplete and many large orders result in revenues in periodsafter the order is booked. However, the level of large ordersand orders generally cannot be used to accurately predictfuture revenues or operating performance. Orders that havebeen placed can be cancelled, delayed or modified by thecustomer. These actions can reduce or delay any future revenuesfrom the order or may result in the elimination of theorder.Performance measuresWe evaluate the performance of our divisions primarily basedon orders received, revenues, Operational EBITDA andOperational EBITDA as a percentage of Operational revenues(Operational EBITDA margin).Operational EBITDA represents EBIT excluding depreciationand amortization, restructuring and restructuringrelatedexpenses, adjusted for the following: (i) unrealizedgains and losses on derivatives (foreign exchange, commodities,embedded derivatives), (ii) realized gains and losseson derivatives where the underlying hedged transaction hasnot yet been realized, (iii) unrealized foreign exchangemovements on receivables/payables (and related assets/liabilities), (iv) acquisition-related expenses and (v) certainnon-operational items.Operational revenues are total revenues adjusted forthe following: (i) unrealized gains and losses on derivatives,(ii) realized gains and losses on derivatives where the underlyinghedged transaction has not yet been realized, and(iii) unrealized foreign exchange movements on receivables(and related assets).See “Note 23 Operating segment and geographic data”to our Consolidated Financial Statements for a reconciliationof Operational EBITDA to EBIT.54 Financial review | ABB Annual Report 2012