Discrete Automation and Motion

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

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% Change

($ in millions)

2013

2012

2011

2013

2012

Orders

9,771

9,625

9,566

2%

1%

Order backlog at Dec. 31,

4,351

4,426

4,120

(2)%

7%

Revenues

9,915

9,405

8,806

5%

7%

Income from operations

1,458

1,469

1,294

(1)%

14%

Operational EBITDA

1,783

1,735

1,664

3%

4%

Orders

Orders in 2013 were up 2 percent (2 percent in local currencies) as both the growth in orders in our Robotics business and the impact of including Power-One (acquired July 2013) were partly offset by decreases in orders in our Motors and Generators business. Orders were negatively impacted by weak industrial demand in mature markets and reduced growth rates in emerging markets compared to 2012. In the Robotics business, strong demand from the automotive sector generated high levels of orders, while orders in the Motors and Generators business were lower due to weak market demand for industrial motors. In addition, orders increased due to large orders received from rail customers in our Power Conversion business. Orders in the Drives and Controls business were steady compared to 2012.

In 2012, orders were flat (up 4 percent in local currencies) due to slower industrial growth globally in a more challenging macroeconomic environment. Lower demand from the renewable energy sector was offset by increased volumes from large orders in other sectors. The highest growth was achieved in the Robotics business due to several larger automotive orders. Growth was also recorded in our Motors and Generators business.

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

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(in %)

2013

2012

2011

Europe

38

37

37

The Americas

32

34

32

Asia

27

26

28

Middle East and Africa

3

3

3

Total

100

100

100

In 2013, the geographic distribution of our orders remained similar to 2012. Large orders in the Robotics business contributed to the increase in the share of orders from Asia, while fewer large orders were received in the Americas, reducing its share. In addition, the weak demand for motors in the U.S. also reduced the share of orders from the Americas. The share of orders from Europe increased slightly due to several larger traction orders in our Power Conversion business.

In 2012, the share of orders in the Americas increased due to double-digit growth in South America, as well as single-digit growth in North America. The share of orders in Europe was unchanged compared to 2011, as double-digit growth in the United Kingdom and Finland was offset by a decline in Germany and Spain. The share in Asia declined due to slower industrial growth and the weakening of the renewable energy business. Orders from MEA showed double-digit growth while its share of total orders remained at the same level, compared to 2011, as orders in other regions also increased.

Order backlog

Order backlog in 2013 was 2 percent lower (1 percent in local currencies) compared to 2012, as both an increase in order backlog in Robotics and the increase in order backlog from acquiring Power-One were offset by a decrease in order backlog in the Drives and Controls, and Motors and Generators businesses.

Order backlog in 2012 grew 7 percent (6 percent in local currencies) as the order intake from large orders increased in our Robotics and Motors and Generators businesses, which have a longer execution time.

Revenues

In 2013, revenues increased 5 percent (5 percent in local currencies) due to the impact of including Power-One as well as growth in the Robotics and Drives and Controls businesses. However, revenue decreases in the Motors and Generator business lowered the overall growth rate of the division.

In 2012, revenues grew 7 percent (6 in local currencies) due to higher execution from the backlog in the Robotics business as well as in the Drives and Controls business. The Motors and Generators business reported single-digit growth in revenues compared to 2011.

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

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(in %)

2013

2012

2011

Europe

39

37

38

The Americas

32

33

32

Asia

26

27

27

Middle East and Africa

3

3

3

Total

100

100

100

In 2013, Europe’s share of total revenues increased as several large projects were executed from the 2012 order backlog. Revenue growth was achieved in Sweden, Norway, Italy, Finland and Switzerland. The share of the Americas decreased as revenue growth in Brazil and Canada was offset by a revenue decrease in the U.S. Asia’s share of revenues declined as revenues in India, Australia and South Korea were lower than 2012, while China recorded moderate growth.

In 2012, the share of revenues from the Americas increased due to higher orders. Revenues in Europe grew due to the solid execution of the order backlog but Europe’s share was lower as revenues in the other regions grew faster. Asia achieved single-digit revenue growth but its share remained at the same level as 2011, as the revenues in other regions grew faster.

Income from operations

In 2013, income from operations was stable compared to 2012. The benefit of higher revenues was offset by a reduction in operating margins, primarily due to changes in product mix. In addition, higher depreciation expense, the costs of acquiring Power-One and higher restructuring-related costs compared with 2012, negatively impacted income from operations in 2013. Depreciation and amortization increased to $285 million in 2013, mainly due to the acquisition of Power-One.

In 2012, income from operations grew 14 percent compared to 2011, mainly due to higher revenues. The increase was primarily due to increases in the Robotics and Motors and Generators businesses. Acquisition-related expenses and certain non-operational items in 2012, of $8 million, were mainly transaction costs relating to the acquisition of Newave in Switzerland. Such acquisition-related expenses were substantially lower than the $90 million recorded in 2011, which included expenses related to the acquisition of Baldor. Depreciation and amortization increased to $263 million in 2012, mainly due to the acquisition of Newave.

Operational EBITDA

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

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($ in millions)

2013

2012

2011

Income from operations

1,458

1,469

1,294

Depreciation and amortization

285

263

251

Restructuring and restructuring-related expenses

19

(4)

10

Acquisition-related expenses and certain non-operational items

33

8

90

FX/commodity timing differences in income from operations

(12)

(1)

19

Operational EBITDA

1,783

1,735

1,664

In 2013, Operational EBITDA increased 3 percent compared to 2012, primarily due to the reasons described under “Income from operations”, and excluding the explanations related to the reconciling items in the table above.

In 2012, Operational EBITDA increased 4 percent compared to 2011, primarily due to the reasons described under “Income from operations”, and excluding the explanations related to the reconciling items in the table above.

Fiscal year 2014 outlook

The uncertainty around the growth prospects in Europe and North America affects our business forecast. Orders and revenues are expected to grow in 2014, especially in emerging markets. We expect that the need for improved energy efficiency and productivity in a wide range of industries will continue to support the demand for automation solutions and energy-efficient products provided by the Discrete Automation and Motion division.