ABB Annual Report 2012 PDF - ABB Group Annual Report 2012

In 2012, selling expenses increased 9 percent (14 percent inlocal currencies); excluding Thomas & Betts, selling expensesincreased 4 percent (9 percent in local currencies) comparedto 2011. As a percentage of orders received, selling expensesincreased to 9.6 percent from 8.8 percent. The increase inselling expenses in 2012 was mainly driven by additional salesforce employees to develop new markets and implementsales and marketing programs in order to secure market positionsin a competitive environment.In 2011, selling expenses increased 20 percent (14 percentin local currencies). Excluding Baldor, selling expenseswere 14 percent (8 percent in local currencies) higher ascompared to 2010. The increase in selling expenses in 2011continued to be driven by a larger sales force employed byall divisions to strengthen their market presence particularlyin the emerging countries. Selling expenses further increasedfollowing the growth in orders as certain elements of suchexpenses, in particular expenses related to order-pursuingactivities and sales commissions, are variable expenses.In 2012, general and administrative expenses increased3 percent (6 percent in local currencies). Excluding Thomas& Betts, general and administrative expenses declined 5 percent(2 percent in local currencies), reflecting tighter costcontrol throughout the organization. As a percentage of revenues,general and administrative expenses remainedunchanged at 4.8 percent in 2012.In 2011, general and administrative expenses increased10 percent (6 percent in local currencies). Excluding Baldor,general and administrative expenses increased 5 percent(1 percent in local currencies). The increase in general andadministrative expenses in 2011 was driven primarily byinitiatives to strengthen functional support areas especiallyin the emerging markets such as China, India and theMiddle East countries. As a percentage of revenues, generaland administrative expenses decreased to 4.8 percent from5.3 percent in 2010 reflecting a strong increase in revenueson relatively stable expenses achieved through higher efficiencyderived from continuous process improvement andimproved cost management.In 2012, selling, general and administrative expensesincreased 7 percent (11 percent in local currencies). ExcludingThomas & Betts, selling, general and administrativeexpenses increased 1 percent (increased 5 percent in localcurrencies). As a percentage of revenues, selling, generaland administrative expenses increased 0.5 percentage-pointsto 14.6 percent. As a percentage of the average of ordersand revenues, selling, general and administrative expensesincreased 0.8 percentage-points to 14.5 percent as ordersintake was flat. While in 2011, selling, general and administrativeexpenses increased, the expenses as a percentage ofthe average of orders and revenues decreased 0.7 percentage-pointsto 13.7 percent.(1)Non-order related research anddevelopment expensesIn 2012, non-order related research and development expensesincreased 7 percent (11 percent in local currencies),mainly due to increased research and development activities,as well as to the incremental costs of newly-acquiredcompanies.In 2011, non-order related research and development expensesincreased 27 percent (18 percent in local currencies),as we accelerated efforts to keep ahead with technologyadvancements in order to maintain industry leadership. Theincrease was also due to incremental costs of newly-acquiredcompanies.Non-order related research and development expensesas a percentage of revenues increased slightly to 3.7 percentin 2012, after increasing to 3.6 percent in 2011 from 3.4 percentin 2010.Other income (expense), net($ in millions) 2012 2011 2010Restructuring expenses (1) (54) (26) (54)Capital gains, net 28 40 51Asset impairments (111) (29) (57)Income from equity-accountedcompanies and other income(expense) 37 (8) 46Total (100) (23) (14)Excluding asset impairments“Other income (expense), net”, typically consists of restructuringexpenses, net capital gains (which include gains orlosses from the sale of businesses and gains or losses fromthe sale or disposal of property, plant and equipment), assetimpairments, as well as our share of income or loss fromequity-accounted companies and license income.Restructuring and related expenses are recorded invarious lines within the Consolidated Income Statements,depending on the nature of the charges. In 2012, suchexpenses reported in “Other income (expense), net” were$54 million, mainly related to the Power Products division’srestructuring activities in Spain, Sweden and Brazil and torestructuring in the Power Systems division. In 2011, restructuringexpenses reported in “Other income (expense), net”amounted to $26 million. The expenses were primarily relatedto the Low Voltage Products division’s restructuring initiativesin Germany, France and the U.S., a Power Products division’srestructuring project in Spain and Discrete Automation andMotion division’s restructuring initiatives in the U.S. In 2010,restructuring expenses reported in “Other income (expense),net” were incurred for restructuring projects across allour divisions, principally in the Process Automation, DiscreteAutomation and Motion, as well as the Power Productsdivisions.ABB Annual Report 2012 | Financial review 59