6-K
Abb Ltd (ABLZF)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE
ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October 2021
Commission File Number 001-16429
ABB Ltd
(Translation of registrant’s name into English)
Affolternstrasse 44, CH-8050, Zurich, Switzerland
(Address of principal executive office)
Indicate by check mark whether the registrant
files or will file annual reports
under cover of Form 20-F or Form
40-F.
Form 20-F
☒
Form 40-F
⬜
Indicate by check mark if the registrant
is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule
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⬜
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in paper of a Form 6-K if submitted
solely to provide an
attached annual report to security holders.
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is submitting the Form 6-K in paper
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⬜
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in paper of a Form 6-K if submitted
to furnish a report or
other document that the registrant foreign
private issuer must furnish and
make public under the laws of the
jurisdiction in
which the registrant is incorporated, domiciled
or legally organized (the registrant’s “home country”),
or under the rules of the
home country exchange on which the registrant’s securities
are traded, as long as the report or other
document is not a press
release, is not required to be and has
not been distributed to the registrant’s security holders,
and, if discussing a material
event,
has already been the subject of a Form
6-K submission or other Commission
filing on EDGAR.
Indicate by check mark whether the registrant
by furnishing the information
contained in this Form is also thereby
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pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.
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registrant in connection with Rule 12g3-2(b):
82-
This Form 6-K consists of the following:
1.
Press release issued by ABB Ltd dated
October 21, 2021 titled “Q3 2021 results”.
2.
Q3 2021 Financial Information.
3.
Announcements regarding transactions
in ABB Ltd’s Securities made by the directors or the members
of the
Executive Committee.
The information provided by Item 2
above is hereby incorporated by reference
into the Registration Statements on
Form F-3 of
ABB Ltd and ABB Finance (USA) Inc. (File
Nos. 333-223907 and 333-223907-01)
and registration statements on Form
S-8
(File Nos. 333-190180, 333-181583,
333-179472, 333-171971 and
333-129271) each of which was previously
filed with the
Securities and Exchange Commission.
2
—
“In the face of a difficult supply chain environment, I am pleased that we achieved a good
margin this quarter. Our cash generation was very strong, leaving ample headroom on our
balance sheet to support both organic growth and acquisitions as well as rewarding
shareholders.”
Björn Rosengren
, CEO
—
ZURICH, SWITZERLAND, OCTOBER 21,
2021
Q3 2021 results
Strong demand, supply
chain constraints
impacting
revenues
●
Orders $7.9 billion,
+29%; comparable
1
+26%
●
Revenues $7.0 billion
,
+7%; comparable +4%
●
Income from operations
$852 million; margin 12.1%
●
Operational EBITA
1
$1,062 million;
margin
1
15.1%
●
Basic EPS $0.33;
-85%
2
●
Cash flow from operating
activities was $1,104
million and from operating
activities in continuing
operations it was $1,119
million
Ad hoc Announcement pursuant to Art.
53 Listing Rules of SIX Swiss Exchange
—
Q3 2021
First nine months
Press Release
KEY FIGURES
CHANGE
CHANGE
($ millions, unless otherwise indicated)
Q3 2021
Q3 2020
US$
Comparable
1
9M 2021
9M 2020
US$
Comparable
1
Orders
7,866
6,109
29%
26%
23,611
19,509
21%
16%
Revenues
7,028
6,582
7%
4%
21,378
18,952
13%
8%
Gross Profit
2,294
1,834
25%
7,070
5,731
23%
as % of revenues
32.6%
27.9%
+4.7 pts
33.1%
30.2%
+2.9 pts
Income from operations
852
71
n.a.
2,743
1,015
170%
Operational EBITA
1
1,062
787
35%
32%
3
3,134
2,074
51%
43%
3
as % of operational revenues
1
15.1%
12.0%
+3.1 pts
14.6%
10.9%
+3.7 pts
Income (loss) from continuing operations, net of
tax
687
(503)
n.a.
2,027
218
830%
Net income attributable to ABB
652
4,530
-86%
1,906
5,225
-64%
Basic earnings per share ($)
0.33
2.14
-85%
2
0.95
2.45
-61%
2
Cash flow from operating activities
4
1,104
408
171%
2,310
511
352%
Cash flow from operating activities in continuing
operations
1,119
398
181%
2,305
650
255%
1
For a reconciliation of non-GAAP measures, see “supplemental
reconciliations and definitions” in the attached
Q3 2021 Financial Information.
2
EPS growth rates are computed using unrounded amounts.
3
Constant currency (not adjusted for portfolio
changes).
4
Amount represents total for both continuing and discontinued
operations.
ABB INTERIM REPORT
I
Q3 2021
2
Q3 painted a mixed
picture, containing on one
hand a high
level of demand
driving strong order growth,
while on the
other hand the tight
supply chain impacted our
revenues
more than anticipated.
Still, we improved both
the
underlying operational
earnings and margin, delivered
strong cash flows,
made progress with portfolio
adjustments,
as well as delivered some
important product
launches.
Orders increased by
29%
(26% comparable)
,
year-on-year.
We make conscious
efforts to screen that
orders we accept
are backed up by real
demand, but in the current
environment of a strained
supply chain it is only
fair to
assume it includes
a certain element of customers
putting
through safety-orders
to secure future deliveries.
All
business areas contributed
with double-digit growth
rates
and all segments and
regions noted positive developments.
In sequential terms,
the underlying customer activity
increased somewhat
in the Americas, declined
in Europe
and remained stable
in China.
Revenues were hampered
by supply chain constraints
delaying customer
deliveries. This was primarily
related to
semiconductors
and imbalances in the overall
supply chain,
with the impact most
tangible in Electrification
and Robotics
& Discrete Automation.
Revenues increased by
7%
(4%
comparable).
Operational EBITA
increased
by 35%
year-on-year,
and
margin expanded by
310
basis points, to 15.1
%. This
improvement however
benefited from the adverse
temporary items
in last year’s results, good development
in
most business areas
and unusually low corporate
costs in
the current quarter.
I am pleased we delivered
another quarter with strong
cash
flow, which
more than doubled from last
year to
USD 1.1 billion. Our balance
sheet is strong with a
net
debt/EBITDA ratio
of 0.5.
In line with our active
portfolio management
strategy, we
announced both
a divestment and an acquisition
in the
period. We agreed
to divest the Mechanical
Power
Transmission
division (Dodge) for $2.9
billion in cash and
we expect completion
of the deal before the
end of this
year.
Robotics and Discrete Automation
acquired ASTI
Mobile Robotics
Group (ASTI), a leading global
autonomous mobile
robot (AMR) manufacturer.
This deal
will support us in capturing
the potential in areas such
as
logistics and warehouse
automation. We are
also making
good progress with
the other portfolio activities.
I was pleased to see
the E-mobility business launch
the
Terra
360,
the world’s fastest electric
car charger.
It is the
only charger in the
market designed to simultaneously
charge up to four vehicles
with dynamic power distribution.
It has a maximum output
of 360 kW and is capable
of fully
charging any electric
car in 15 minutes or less.
This will
further cement our
leading position in the
EV-charging
space.
On a similar topic but
with focus on the mining
industry,
Process Automation
launched the ABB Ability™ eMine
comprising a portfolio
of technologies facilitating
the all-
electric mine,
including monitoring and
optimizing energy
usage. From 2022,
it will also include ABB Ability™
eMine
FastCharge which
provides high-power
electric charging for
haul trucks. It also
incorporates the ABB Ability™
eMine
Trolley System
which can reduce diesel consumption
by up
to 90%.
We were also acknowledged
for our sustainability efforts
as
we once again wer
e
included in the FTSE4Good
Index
Series with an overall
score of 4.2 on a scale from
0 to 5 (5
is the best score). We
are ranked among the best
performers in the index
globally and above sector
average.
Björn Rosengren
CEO
In the
fourth quarter of 2021
, ABB anticipates a continued
tight supply chain to
impact customer deliveries.
Comparable revenue
growth is estimated to be
broadly
similar to the third quarter.
In line with recent historical
pattern, the Operational
EBITA
margin in the
fourth quarter
is expected to decline,
sequentially.
ABB anticipates
comparable revenue growth
of 6%-8%
(update from just below
10%) for
full-year 2021
, hampered
by supply constraints
towards the end of
the year.
In 2021
, ABB expects a strong
pace of improvement from
2020 toward the 2023
operational EBITA
margin target of
the upper half of
the 13%-16% range.
CEO summary
Outlook
ABB INTERIM REPORT
I
Q3 2021
3
Demand was strong in
the third
quarter, with order
intake
amounting to $7,866
million, corresponding to a
year-on-year
increase of 29% (26
%
comparable) with virtually
all divisions
growing at a double
-digit pace. The strength
was broad based,
supported by both
short-cycle product and
the process-related
businesses.
Service orders increased by
20%
(18%
comparable).
Orders grew strongly
in the machine builders
and food &
beverage segments
as well as in general industries
overall.
Orders in the automotive
segment increased, driven
primarily by
high customer activity
in China.
In transport and infrastructure,
there was a very strong
order
development across
the renewables and e-mobility
segments
as well as in the buildings
segment with a positive
development
for both the residential
and non-residential segments.
The
marine segment recovered,
including a slight positive
development in the
cruise segment with customers
initiating
service spend in anticipation
of upcoming cruising
activities.
The process-related business
improved across the
customer
segments, including in
the oil & gas segment as
gas-related
activity remained stable
at a high level and oil- related
demand
improved. Process
Automation secured a large
order
amounting to approximately
$120 million to power the
Jansz-Io
Compression project
in Australia.
Customer activity in power
generation remained
stable.
From a geographical
perspective, all three
regions reported at
least 25% growth (20%
comparable), with the strong
est growth
of 31%
in the United States outpacing
China which improved by
a more modest 16% (9%
comparable) and showed
a steady
sequential pattern.
Revenues were dampened
by extended lead times
in customer
deliveries due to a
tight value chain, including
component
constraints,
tight job market and covid
restrictions. A tangible
impact from insufficient
supply of semi-conductors
affected the
ability to deliver.
Orders and revenues
Orders by region
($ in millions,
unless otherwise
indicated)
CHANGE
Q3 2021
Q3 2020
US$
Comparable
Europe
2,663
2,068
29%
27%
The Americas
2,580
1,938
33%
31%
Asia, Middle East
and Africa
2,623
2,103
25%
20%
ABB Group
7,866
6,109
29%
26%
Growth
Q3
Q3
Change year-on-year
Orders
Revenues
Comparable
26%
4%
FX
2%
3%
Portfolio changes
1%
0%
Total
29%
7%
Revenues by region
($ in millions,
unless otherwise
indicated)
CHANGE
Q3 2021
Q3 2020
US$
Comparable
Europe
2,525
2,410
5%
3%
The Americas
2,161
1,927
12%
11%
Asia, Middle East
and Africa
2,342
2,245
4%
1%
ABB Group
7,028
6,582
7%
4%
ABB INTERIM REPORT
I
Q3 2021
4
Gross profit
Gross margin increased
to 32.6%, up 470 basis
points year-
on-year.
Gross margins were higher
in two out of four
business areas,
led by Process Automation.
There were
also fewer one-time
items. Gross profit improved
by 25%
and amounted to $2,294
million.
Income from operations
Income from operations
amounted to $852 million,
a solid
improvement from
last year’s $71 million. Key
drivers were
improved operational
performance as well as
the absence
of approximately $500
million in total charges related
to the
goodwill write-down
and changes in obligations
to divested
businesses,
which adversely impacted
last year’s results.
Results include restructuring
and restructuring-related
expenses of $28
million.
Operational EBITA
Operational EBITA
of $1,062
million was 35% higher (32%
constant currency)
year-on-year,
with the increased profit in
Process Automation as
the key driver,
including the
absence of last year’s
charge related to the
Kusile project.
The margin improved
by 310 basis points to 15.1%.
Three
out of four business
areas reported stable or
improved
margin. Overall,
the positive year-on-year development
was
supported by higher
volumes, stringent cost
controls
and
also due to abnormally
low costs for Corporate
& Other in
the period. Corporate
and Other Operational
EBITA
improved by $115
million to -$37 million
year-on-year,
primarily due to the
reduction of losses incur
red in non-core
businesses. Additionally,
corporate costs were
lower due to
certain tax-related
charges incurred in the
previous year
period and some positive
non-repeating items
in the current
quarter,
including a credit related to
a review of a software
license scope. Sequentially,
the Corporate and Other
Operational EBITA
improved primarily
due to higher real
estate income, and
the aforementioned positive
items
.
Net finance expenses
Net finance expenses
1
amounted to $6 million,
primarily
reflecting significantly
lower interest costs compared
with
last year.
Net finance expenses for
the full year of 2021 are
now expected at around
$100
million.
Income tax
Income tax expense
was $201 million with a
tax rate of
22.6%. The low rate
reflects certain tax benefits
recognized
from internal reorganizations
.
The tax rate for 2021
is still
estimated at 26%
5
.
Net income and earnings
per share
Net income attributable
to ABB was $652
million and
decreased significantly
from last year’s level which
included
the book gain related
to the divestment of Power
Grids. Basic
earnings per share
was $0.33 and decreased
from last year’s
high level of $2.14
which included book
gain impacts.
5
Excludes impact of acquisitions or divestments or
any significant non-operational items
Earnings
ABB INTERIM REPORT
I
Q3 2021
5
Net working capital
Net working capital
amounted to $2,920 million,
declining
both year-on-year from
$3,236 million and sequentially
from
$3,251 million. The
sequential decline was primarily
driven
by receivables, partially
offset by a slight increase
in
inventories and lower
other accrued liabilities
.
Net working
capital as a percentage
of revenues
1
was 10.2%.
Capital expenditures
Purchases of property,
plant and equipment and
intangible
assets amounted to
$166 million.
Net debt
Net debt
1
totalled $1,898 million,
representing an increase
from last year’s net cash
position of $935 million
which
reflected the timing of
the divestment of Power
Grids.
Sequentially,
net debt was reduc
ed from $2,259 million.
The
sequential decrease primarily
reflects the impacts of strong
cash flow in the third
quarter.
The net debt to EBITDA ratio
1
increased year-on-year
to 0.5
from -0.4, and declined
sequentially from 0.
7.
Cash flows
Cash flow from operating
activities in continuing operations
was $1,119
million, a significant improvement
of
$721 million compared
with the corresponding period
last
year.
Three out of four business areas
increased cash flow
primarily from improved
earnings. However,
the largest
year-on-year effect
came from Corporate and
Other,
reflecting the payments
in 2020 related to certain pension
plan restructurings
in connection with the optimization
of our
capital structure.
Share buyback program
The previously announced
follow-up share buyback
program of
up to $4.3 billion
was launched in early April.
This follow-up
program is part of the
plan to return
$7.8 billion of cash
proceeds from the Power
Grids divestment
to shareholders.
Under the initial program a
total of
128,620,589 shares
were repurchased for an amount
of
approximately $3.5
billion. Since the launch
of the follow-up
program on April 9
and through the end of the
quarter a total of
25,842,600 shares
were repurchased, including
10,908,500
shares in the third quarter.
Shares were repurchased
on the
second trading line.
The total number of ABB Ltd’s
issued
shares is 2,053,148,264.
($ millions,
unless otherwise indicated)
Sep. 30
2021
Sep. 30
2020
Dec. 31
2020
Short term debt and current
maturities of long-term debt
2,414
2,354
1,293
Long-term debt
4,270
6,319
4,828
Total debt
6,684
8,673
6,121
Cash & equivalents
3,709
3,178
3,278
Restricted cash - current
31
860
323
Marketable securities and
short-term investments
746
5,270
2,108
Restricted cash - non-current
300
300
300
Cash and marketable securities
4,786
9,608
6,009
Net debt/(cash)*
1,898
(935)
112
Net debt/(cash)* to EBITDA ratio
0.5
(0.4)
0.04
Net debt/(cash)* to Equity ratio
0.13
(0.05)
0.01
*
net debt excludes net pension liabilities $871 million
Balance sheet & Cash flow
ABB INTERIM REPORT
I
Q3 2021
6
Orders and revenues
There was a mixed
picture in the third quarter,
with strong
broad-based growth
in orders while revenues were
challenged by supply
constraints limiting the ability
to convert
orders into actual deliveries.
Consequently,
the order backlog
increased to $5,246
million. In total, orders increased
to the
high level of $3,519
million, an increase of 19%
(17%
comparable) and revenues
reached $3,196
million, up by 5%
(4% comparable).
●
Strong comparable
order growth represents a
double-digit
growth rate in almost
all divisions. Although
difficult to
exactly assess, it is
fair to assume some positive
impact
from customers
ordering safety stock in
the wake of a
generally tight supply
chain.
●
Demand improved
in the buildings segment,
with a positive
development for both
residential and non
-residential
business. Customer activity
was also high for the data
centers, food & beverage,
rail and e-mobility segments.
Activity increased moderately
in oil & gas.
●
Orders increased in
all regions, with strong double
-digit
growth rates in the
Americas and Europe outpacing
AMEA,
including a mid-single
-digit growth rate in China.
●
Shortages in the supply
chain are expected to impact
customer deliveries
also in the coming quarter.
Profit
As a headline number
,
the Operational EBITA
margin
declined year-on-year
to 15.9%. However,
when excluding
the non-repeating positive
impacts of about 100
basis points
in the year-earlier period,
the underlying operational
margin
improved by approximately
60 basis points.
●
The underlying operational
margin improvement
was
supported by slightly
higher volumes, active price
management and efficiency
measures, which more
than
offset the impact from
increasing raw materials
costs and
general cost inflation
emphasized by the
tight supply
situation.
—
Electrification
Growth
Q3
Q3
Change year-on-year
Orders
Revenues
Comparable
17%
4%
FX
2%
1%
Portfolio changes
0%
0%
Total
19%
5%
CHANGE
CHANGE
($ millions, unless otherwise indicated)
Q3 2021
Q3 2020
US$
Comparable
9M 2021
9M 2020
US$
Comparable
Orders
3,519
2,952
19%
17%
10,743
8,810
22%
18%
Order backlog
5,246
4,471
17%
17%
5,246
4,471
17%
17%
Revenues
3,196
3,031
5%
4%
9,742
8,568
14%
10%
Operational EBITA
511
493
4%
1,614
1,159
39%
as % of operational revenues
15.9%
16.3%
-0.4 pts
16.5%
13.5%
+3 pts
Cash flow from operating activities
636
460
38%
1,466
875
68%
No. of employees (FTE equiv.)
51,100
51,100
0%
ABB INTERIM REPORT
I
Q3 2021
7
Orders and revenues
Demand was strong across
all divisions,
and total orders
increased significantly
at 24% (22% comparable)
year-on-
year and amounted
to $1,909 million. On the back
of a
generally tight supply
chain, revenues were
somewhat
hampered and increased
by 4% (2% comparable).
●
Customer activity improved
in all segments supported
by the
short-cycle product
business and service, as
well as
improving project demand.
●
Orders increased at
a double-digit rate in all
three regions,
with Europe outperforming
the Americas and AMEA,
including a slight
growth in China.
●
Revenues were impacted
by the strained value
chain,
including component
shortages as well as
a tight labor
market in the US, which
in some cases triggered customers
to delay acceptance
of product deliveries.
●
Some impact on deliveries
is expected to remain also
in
the coming quarter.
Profit
On largely stable revenues
year-on-year,
the Operational
EBITA margin
remained unchanged
at 17.4%, despite cost
inflation triggered by
tight supply chain and increasing
raw
material costs.
●
Profitability was
primarily supported by a slight
volume
increase, active
price management and
a positive divisional
mix, which in combin
ation offset increasing
raw material costs
and cost inflation.
The divestment of the
Mechanical Power Transmission
division (Dodge)
for $2.9 billion in cash was
announced,
with completion of the
deal expected before
the end of the
year.
The closing of the divestment
will trigger a non-
operational pre-tax
book gain of approximately
$2.2 billion.
The transaction related
cash tax outflows are estimated
at
approximately $400
million.
—
Motion
Growth
Q3
Q3
Change year-on-year
Orders
Revenues
Comparable
22%
2%
FX
2%
2%
Portfolio changes
0%
0%
Total
24%
4%
CHANGE
CHANGE
($ millions, unless otherwise indicated)
Q3 2021
Q3 2020
US$
Comparable
9M 2021
9M 2020
US$
Comparable
Orders
1,909
1,535
24%
22%
5,773
5,022
15%
10%
Order backlog
3,717
3,349
11%
11%
3,717
3,349
11%
11%
Revenues
1,673
1,611
4%
2%
5,190
4,704
10%
6%
Operational EBITA
291
281
4%
905
790
15%
as % of operational revenues
17.4%
17.4%
0 pts
17.4%
16.8%
+0.6 pts
Cash flow from operating activities
399
379
5%
946
859
10%
No. of employees (FTE equiv.)
21,300
20,700
3%
ABB INTERIM REPORT
I
Q3 2021
8
Orders and revenues
Orders amounted to $1,670
million and grew by 43% (40%
comparable) from last
year’s easy comparable,
including a
large order of approximately
$120 million received.
Order-
backlog was built up
to a high level of $6 billion.
●
Orders for both products
and service business
increased
at a double-digit
pace, year-on-year,
with support from
improvements across
the process-related markets
.
●
Customer activity increased
in most segments except
for
a stable development
in power generation.
Worth noting
was the positive
trend in the marine service
business.
●
A large order was secured,
amounting to approximately
$120 million to supply
the overall Electrical
Power System
(EPS) for the Jansz
-Io Compression (J-IC)
natural gas
project in Australia.
●
The increase in revenues
reflects
execution of a backlog
with long lead times
and a broad-based recovery
in
demand with most
divisions reporting stable
to positive
growth.
Profit
Operational EBITA
amounted to $207
million resulting in a
margin of 13.7%. The
sharp improvement from
last year’s
margin of 6.4% was
330 basis points when excluding
the
adverse impact of approximately
400 basis points related
to
the Kusile project, which
weighed on last year’s earnings.
●
All divisions improved
their Operational EBITA
and
margin,
year-on-year.
●
The result was support
ed by positive volume
development, improved
business mix and strong project
execution.
—
Process Automation
Growth
Q3
Q3
Change year-on-year
Orders
Revenues
Comparable
40%
5%
FX
3%
2%
Portfolio changes
0%
0%
Total
43%
7%
CHANGE
CHANGE
($ millions, unless otherwise indicated)
Q3 2021
Q3 2020
US$
Comparable
9M 2021
9M 2020
US$
Comparable
Orders
1,670
1,164
43%
40%
4,881
4,226
15%
10%
Order backlog
6,021
5,152
17%
16%
6,021
5,152
17%
16%
Revenues
1,507
1,403
7%
5%
4,454
4,247
5%
0%
Operational EBITA
207
89
133%
554
348
59%
as % of operational revenues
13.7%
6.4%
+7.3 pts
12.4%
8.2%
+4.2 pts
Cash flow from operating activities
231
164
41%
692
258
168%
No. of employees (FTE equiv.)
22,000
22,600
-3%
ABB INTERIM REPORT
I
Q3 2021
9
Orders and revenues
Order growth was strong
at 30% (comparable
26%) and
amounted to $935
million. Revenues amounted
to $813 million
with growth limited
to 1% (comparable -3%) adversely
impacted
by component shortages
and reduced automotive
systems
business.
●
Both the Robotics and
Machine Automation
divisions
increased orders strongly
at >20% year-on-year.
●
Customer activity increased
in all segments, with the
strongest order increase
in the machine automation,
followed
by the general industry
as well
as consumer and service
robotic segments.
●
All regions improved
at a double-digit rate,
with the Americas
and Europe outpacing
the AMEA region, including
China
orders increasing by
17%
(10% comparable) year
-on-year.
●
The decline in comparable
revenues was the combined
impact from Machine
Automation facing delayed
customer
deliveries on the back
of component shortages
and Robotics’
stable development
due to the conscious effort
to support
long-term profitability
by reducing exposure
to the automotive
systems business for
which the order backlog
is now
shrinking.
The acquisition of ASTI Mobile
Robotics Group (ASTI)
was
closed.
It is a leading global autonomous
mobile robotics
(AMR) manufacturer.
The deal adds solutions
to deliver a
unique automation
portfolio and expand
into new segments.
Profit
Operational EBITA
increased by 1
8%
year-on-year and the
margin increased by
160
basis points to 11.1
%
driven by
the Robotics division
.
●
Despite the lack of
comparable growth, the
Operational
EBITA margin
improved, supported
by improved mix
through reduced automotive
systems sales, increased
share of service business
and efficiency measures.
●
Profitability improved
in the Robotics division,
more than
offsetting the adverse
development in Machine
Automation, which
was hampered by delayed
deliveries
and cost inflation in
a strained supply chain.
—
Robotics & Discrete Automation
Growth
Q3
Q3
Change year-on-year
Orders
Revenues
Comparable
26%
-3%
FX
3%
3%
Portfolio changes
1%
1%
Total
30%
1%
CHANGE
CHANGE
($ millions, unless otherwise indicated)
Q3 2021
Q3 2020
US$
Comparable
9M 2021
9M 2020
US$
Comparable
Orders
935
720
30%
26%
2,744
2,169
27%
20%
Order backlog
1,619
1,442
12%
11%
1,619
1,442
12%
11%
Revenues
813
806
1%
-3%
2,498
2,106
19%
12%
Operational EBITA
90
76
18%
291
178
63%
as % of operational revenues
11.1%
9.5%
+1.6 pts
11.7%
8.5%
+3.2 pts
Cash flow from operating activities
56
110
-49%
245
244
0%
No. of employees (FTE equiv.)
10,700
10,300
3%
ABB INTERIM REPORT
I
Q3 2021
10
Quarterly highlights
●
ABB launched the world’s
fastest Electric Vehicle
(EV)
charger - Terra
360 - which can simultaneously
charge up
to four vehicles with
dynamic power distribution.
The new
charger has a maximum
output of 360kW and
is capable
of fully charging any electric
car in 15 minutes or less.
●
ABB launched ABB Ability™
eMine, a portfolio of
solutions that will help
accelerate the move towards
a
zero-carbon mine.
eMine™ can reduce diesel
consumption by up
to 90% while haul trucks are
on an
electric trolley system.
●
Zero production waste
to landfill has been achieved
at
ABB Smart Power’s manufacturing
unit in Frosinone, Italy
— 14 years ahead
of the European Union’s
Circular
Economy Package
target of no more than 10
%
landfilling
by 2035.
●
ABB has been selected
for inclusion 21 years
consecutively in
the FTSE4Good Index Series.
With an
overall score of 4.2
on a scale from 0 to 5 (5
is the best
score).
●
As part of the WEF’s Sustainable
Impact Summit, ABB’s
Chief Communications
and Sustainability Officer
Theodor
Swedjemark discussed
changing the way we talk
about
climate change.
Story of the quarter
ABB will deliver automation,
electrification, quality
control
systems, motors and
drives for Renewcell’s
new industrial
textile recycling production
line in Sundsvall, Sweden.
Renewcell is a Swedish
company specializing in textile
-to-
textile recycling. A paper
mill will be transformed into
the
world’s first commercial
-scale recycling plant for cellulosic
textiles – created by dissolving
natural materials such as
cellulose which is then
regenerated to create a
wide range
of fabrics. Renewcell
is already working with
several fashion
manufacturers, and
in 2020, the company and
H&M Group
entered a multi-year partnership
to replace virgin fibers with
recycled textiles
in clothing. According to
Renewcell’s
preliminary calculations,
textile fibers made from its
recycled
raw material use approximately
50 liters of fresh water
per
kg in production, compared
to around 1,600 liters for cotton
and 90 liters for non
-cotton cellulosic material
viscose.
Q3 outcome
●
7%
reduction of CO
₂
emissions in own operations
mainly
due to continued
implementation of Green
energy contracts
●
21%
year-on-year decline in LTIFR
from the unusually
high
level in the previous
year period
—
Sustainability
Q3 2021
Q3 2020
CHANGE
12M ROLLING
CO2e own operations emissions,
kt scope 1 and 2
1
78
84
-7%
87
Lost Time Injury Frequency Rate (LTIFR),
frequency / 200,000 working hours
0.137
0.173
-21%
0.136
Share of females in senior management
positions, %
15.0
13.4
+1.6 pts
14.2
1
From energy use, previous quarter
ABB INTERIM REPORT
I
Q3 2021
11
During Q3 2021
●
On July 20, ABB announced
the acquisition of ASTI
Mobile Robotics
Group to drive the next
generation of
flexible automation
with Autonomous Mobile
Robots.
ASTI is a global
leader in the high growth Autonomous
Mobile Robot (AMR) market
with a broad portfolio
of
vehicles and software.
The acquisition adds
to RA’s
solutions to deliver
a unique automation portfolio
further
expanding into new
industry segments. Since
2015, the
company has enjoyed
close to 30% annual growth
and is
targeting approxi
mately $50 million in revenue
in 2021.
●
On July 26, ABB announced
it had signed a definitive
agreement to divest
its Mechanical Power Transmission
division (Dodge)
to RBC Bearings Incorporated
(Nasdaq:
ROLL), for $2.9 billion
in cash. The transaction
is
expected to be completed
by the end of this year,
subject
to customary closing
conditions, including regulatory
review.
ABB expects to book a
non-operational pre-tax
book gain of approximately
$2.2 billion on the sale of
Dodge. ABB also expects
the transaction related cash
tax
outflows to be approximately
$400 million.
After Q3 2021
In the first nine months
of 2021, demand for ABB’s
products
increased strongly
from the low level in the
previous year
period when the
adverse business impact of
the COVID-19
pandemic was significant.
Orders amounted to
$23,611
million and improved by 21
%
(16% comparable)
and revenues amounted
to $21,378 million,
up by 13%
(8%
comparable), with a
book-to-bill ratio of 1.10.
The recovery
was initially driven
by the short-cycle business
as from the
first quarter,
and the process-related
business
predominantly picked
up later in the period.
Demand
increased in both the
product and the service
business.
Additionally,
exchange rates had a
positive impact on order
intake and revenues.
Income from operations
amounted to $2,743
million and
more than doubled
from the year-earlier period
driven
primarily by stronger
Operational EBITA.
Results include
restructuring activities
that are progressing according
to
plan with restructuring
and restructuring-related
expenses of
$81 million.
Operational EBITA
improved by 5
1% year-on-year to
$3,134 million and
the Operational EBITA
margin increased
by 370 basis points
to 14.6%. Performance
was driven by
increased revenues
in combination with an
improved gross
margin, the impact
from earlier implemented
cost measures
and general stringent
cost control. While revenues
increased by 13%,
the expenses related
to selling, general
and administrative
(SG&A) increased by a
more limited 5%,
driven by higher
sales expenses. The ratio
in relation to
revenues declined
to 17.8%, from 19.1%
in the year-earlier
period. R&D expenses
increased by 13%. Corporate
and
Other Operational EBITA
improved by $
171 million to
-$230 million.
Net finance expenses
amounted to -$71 million.
Income tax
expense was -$775
million with a tax rate of 2
7.7%. Net
income attributable
to ABB was $1,906 million
and
decreased from
last year’s level which includes
the book
gain related to the divestment
of Power Grids. Basic
earnings per share
was $0.95.
Cash flow from operating
activities in continuing operations
amounted to $2,305
million, up from $650 million
in the
year-earlier period.
Significant events
First nine months 2021
ABB INTERIM REPORT
I
Q3 2021
12
Note: comparable growth calculation includes acquisitions
and divestments with revenues of greater than
$50 million.
1
Represents the estimated annual revenues for the
period prior to the announcement of the respective acquisition/divestment.
Divestments
Company/unit
Closing date
Revenues, $ million
1
No. of employees
2021
Acquisitions
Company/unit
Closing date
Revenues, $ million
1
No. of employees
2020
Robotics & Discrete Automation
Codian Robotics B.V.
1-Oct
9
16
2021
Electrification
Enervalis (majority stake)
26-Apr
1
22
Robotics & Discrete Automation
ASTI Mobile Robotics Group
2-Aug
36
300
($ in millions, unless otherwise stated)
FY 2021
Q4 2021
Net finance expenses
~(100)
1
~(30)
from ~(130)
Non-operational pension
(cost) / credit
~180
~50
unchanged
Effective tax rate
4
~26%
<20%
unchanged
Capital Expenditures
~(700)
~(250)
from ~(750)
($ in millions, unless otherwise stated)
FY 2021
Q4 2021
Corporate and Other Operational costs
~(340)
1
~(110)
from ~(400)
Non-operating items
Restructuring and restructuring related
~(150)
~(70)
unchanged
GEIS integration costs
~(25)
~(5)
from ~(20)
Separation costs
2
~(130)
~(80)
unchanged
PPA-related amortization
~(255)
~(65)
unchanged
Certain other income and expenses
related to PG divestment
3
~(40)
~(10)
unchanged
Additional 2021 guidance
Additional figures
ABB Group
Q1 2020
Q2 2020
Q3 2020
Q4 2020
FY 2020
Q1 2021
Q2 2021
Q3 2021
EBITDA, $ in million
600
799
302
807
2,508
1,024
1,324
1,072
Return on Capital Employed, %
n.a.
n.a.
n.a.
n.a.
10.3%
n.a.
n.a.
n.a.
Net debt/Equity
0.52
0.61
(0.05)
0.01
0.01
0.09
0.16
0.13
Net debt/ EBITDA 12M rolling
2.3
2.5
(0.4)
0.04
0.04
0.4
0.7
0.5
Net working capital, % of 12M rolling revenues
12.3%
12.6%
12.5%
10.5%
10.5%
10.8%
11.6%
10.2%
Earnings per share, basic, $
0.18
0.15
2.14
(0.04)
2.44
0.25
0.37
0.33
Earnings per share, diluted, $
0.18
0.15
2.14
(0.04)
2.43
0.25
0.37
0.32
Dividend per share, CHF
n.a.
n.a.
n.a.
n.a.
0.80
n.a.
n.a.
n.a.
Share price at the end of period, CHF
17.01
21.33
23.45
24.71
24.71
28.56
31.39
31.39
Share price at the end of period, $
17.26
22.56
25.45
27.96
27.96
30.47
33.99
33.36
Number of employees (FTE equivalents)
143,320
142,310
106,420
105,520
105,520
105,330
106,370
106,080
No. of shares outstanding at end of period (in
millions)
2,134
2,135
2,092
2,031
2,031
2,024
2,006
1,993
1
Excluding two main operational exposures that are
ongoing in the non-core business and for which
exit timing is dependent on circumstances beyond
ABB’s control such as legal proceedings.
2
Costs relating to the announced
exits and the potential E-mobility listing.
3
Excluding share of net income from JV.
4
Excludes impact of acquisitions or divestments or
any significant non-operational items.
Acquisitions and divestments, last twelve months
ABB INTERIM REPORT
I
Q3 2021
13
For additional information please contact:
Media Relations
Phone: +41 43 317
71 11
Email:
media.relations@ch.abb.com
Investor Relations
Phone: +41 43 317
71 11
Email:
investor.relations@ch.abb.com
ABB Ltd
Affolternstrasse
44
8050 Zurich
Switzerland
Financial calendar
2021
December 7
ABB Group CMD in Zurich
2022
February 3
Q4 results
March 1 – 2
ABB Motion CMD in Helsinki
March 3
ABB Process Automation
CMD in Helsinki
March 24
Annual General Meeting
This press release
includes forward-looking information
and
statements as well
as other statements concerning
the
outlook for our business,
including those in the sections
of
this
release titled “Outlook”,
“Share buyback program”,
“Sustainability” and
“Significant events”. These
statements
are based on current
expectations, estimates
and
projections about the
factors that may affect
our future
performance, including
global economic conditions,
the
economic conditions of
the regions and industries
that are
major markets for ABB. These
expectations, estimates
and
projections are generally
identifiable by statements
containing words such
as
“intends,” “anticipates
,” “expects,”
“believes,” “estimates,”
“plans,” “targets” or similar
expressions. However,
there are many risks and
uncertainties, many
of which are beyond our control,
that
could cause our
actual results to differ
materially from the
forward-looking information
and statements made in
this
press release and which
could affect our ability
to achieve
any or all of our stated
targets. The important factors
that
could cause such differences
include, among others,
business risks associated
with the
volatile global economic
environment and political
conditions, costs associated
with compliance activities,
market acceptance
of new products and services,
changes
in governmental
regulations and currency exchange
rates
and such other factors
as may be discussed
from time to
time in ABB Ltd’s
filings with the U.S. Securities
and
Exchange Commission,
including its Annual Reports
on
Form 20-F.
Although ABB Ltd believes
that its expectations
reflected in any such
forward-looking statement
are based
upon reasonable assumptions,
it can give no assurance
that
those expectations
will be achieved.
The Q3 2021 results press
release and presentation slides
are available on the
ABB News Center at
www.abb.com/news
and on the Investor
Relations
homepage at www.abb.com/investorrelations.
A conference call and
webcast for analysts
and investors is
scheduled to begin
today at 10:00 a.m. CEST.
To
pre-register for the
conference call or to join
the
webcast, please
refer to the ABB website:
www.abb.com/investorrelations.
The recorded session
will be available after
the event on
ABB’s website.
Q3 results presentation on October 21, 2021
Important notice about forward-looking information
ABB
(ABBN: SIX Swiss
Ex) is a leading global
technology company
that energizes the transformation
of society and industry to
achieve a more productive,
sustainable future. By connecting
software to its electrification,
robotics, automation and
motion
portfolio, ABB pushes
the boundaries of technology
to drive performance
to new levels. With a history
of excellence stretching
back
more than 130 years,
ABB’s success is
driven by about 105,000 talented
employees in over 100 countries.
1
Q3 2021
FINANCIAL
INFORMATION
October 21, 2021
Q3 2021
Financial information
2
Q3 2021
FINANCIAL
INFORMATION
—
Financial
Information
Contents
03
─ 07
Key Figures
08
─
38
Consolidated
Financial
Information
(unaudited)
39 ─
51
Supplemental
Reconciliations
and Definitions
3
Q3 2021
FINANCIAL
INFORMATION
—
Key Figures
CHANGE
($ in millions, unless otherwise indicated)
Q3 2021
Q3 2020
US$
Comparable
(1)
Orders
7,866
6,109
29%
26%
Order backlog (end September)
16,012
13,878
15%
15%
Revenues
7,028
6,582
7%
4%
Gross Profit
2,294
1,834
25%
as % of revenues
32.6%
27.9%
+4.7 pts
Income from operations
852
71
n.a.
Operational EBITA
(1)
1,062
787
35%
32%
(2)
as % of operational revenues
(1)
15.1%
12.0%
+3.1 pts
Income (loss) from continuing operations, net of tax
687
(503)
n.a.
Net income attributable to ABB
652
4,530
-86%
Basic earnings per share ($)
0.33
2.14
-85%
(3)
Cash flow from operating activities
(4)
1,104
408
171%
Cash flow from operating activities in continuing operations
1,119
398
181%
CHANGE
($ in millions, unless otherwise indicated)
9M 2021
9M 2020
US$
Comparable
(1)
Orders
23,611
19,509
21%
16%
Revenues
21,378
18,952
13%
8%
Gross Profit
7,070
5,731
23%
as % of revenues
33.1%
30.2%
+2.9 pts
Income from operations
2,743
1,015
170%
Operational EBITA
(1)
3,134
2,074
51%
43%
(2)
as % of operational revenues
(1)
14.6%
10.9%
+3.7 pts
Income from continuing operations, net of tax
2,027
218
830%
Net income attributable to ABB
1,906
5,225
-64%
Basic earnings per share ($)
0.95
2.45
-61%
(3)
Cash flow from operating activities
(4)
2,310
511
352%
Cash flow from operating activities in continuing operations
2,305
650
255%
(1)
For a reconciliation of non-GAAP measures see “
Supplemental Reconciliations and Definitions
” on page 39.
(2)
Constant currency (not adjusted for portfolio changes).
(3)
EPS growth rates are computed using unrounded amounts.
(4)
Cash flow from operating activities includes both continuing and discontinued operations.
4
Q3 2021
FINANCIAL
INFORMATION
CHANGE
($ in millions, unless otherwise indicated)
Q3 2021
Q3 2020
US$
Local
Comparable
Orders
ABB Group
7,866
6,109
29%
27%
26%
Electrification
3,519
2,952
19%
17%
17%
Motion
1,909
1,535
24%
22%
22%
Process Automation
1,670
1,164
43%
40%
40%
Robotics & Discrete Automation
935
720
30%
27%
26%
Corporate and Other
(incl. intersegment eliminations)
(167)
(262)
Order backlog (end September)
ABB Group
16,012
13,878
15%
15%
15%
Electrification
5,246
4,471
17%
17%
17%
Motion
3,717
3,349
11%
11%
11%
Process Automation
6,021
5,152
17%
16%
16%
Robotics & Discrete Automation
1,619
1,442
12%
11%
11%
Corporate and Other
(incl. intersegment eliminations)
(591)
(536)
Revenues
ABB Group
7,028
6,582
7%
4%
4%
Electrification
3,196
3,031
5%
4%
4%
Motion
1,673
1,611
4%
2%
2%
Process Automation
1,507
1,403
7%
5%
5%
Robotics & Discrete Automation
813
806
1%
-2%
-3%
Corporate and Other
(incl. intersegment eliminations)
(161)
(269)
Income from operations
ABB Group
852
71
Electrification
434
387
Motion
244
256
Process Automation
183
75
Robotics & Discrete Automation
68
(236)
Corporate and Other
(incl. intersegment eliminations)
(77)
(411)
Income from operations %
ABB Group
12.1%
1.1%
Electrification
13.6%
12.8%
Motion
14.6%
15.9%
Process Automation
12.1%
5.3%
Robotics & Discrete Automation
8.4%
(29.3)%
Operational EBITA
ABB Group
1,062
787
35%
32%
Electrification
511
493
4%
1%
Motion
291
281
4%
2%
Process Automation
207
89
133%
128%
Robotics & Discrete Automation
90
76
18%
16%
Corporate and Other
(incl. intersegment eliminations)
(37)
(152)
Operational EBITA %
ABB Group
15.1%
12.0%
Electrification
15.9%
16.3%
Motion
17.4%
17.4%
Process Automation
13.7%
6.4%
Robotics & Discrete Automation
11.1%
9.5%
Cash flow from operating activities
(1)
ABB Group
1,104
408
Electrification
636
460
Motion
399
379
Process Automation
231
164
Robotics & Discrete Automation
56
110
Corporate and Other
(incl. intersegment eliminations)
(203)
(715)
Discontinued operations
(15)
10
(1)
Commencing Q1 2021, depreciation relating to certain real estate assets, previously reported in Corporate and Other, has been reallocated to the individual
operating segments utilizing these assets. Comparatives have been restated.
5
Q3 2021
FINANCIAL
INFORMATION
CHANGE
($ in millions, unless otherwise indicated)
9M 2021
9M 2020
US$
Local
Comparable
Orders
ABB Group
23,611
19,509
21%
16%
16%
Electrification
10,743
8,810
22%
17%
18%
Motion
5,773
5,022
15%
10%
10%
Process Automation
4,881
4,226
15%
10%
10%
Robotics & Discrete Automation
2,744
2,169
27%
20%
20%
Corporate and Other
(incl. intersegment eliminations)
(530)
(718)
Order backlog (end September)
ABB Group
16,012
13,878
15%
15%
15%
Electrification
5,246
4,471
17%
17%
17%
Motion
3,717
3,349
11%
11%
11%
Process Automation
6,021
5,152
17%
16%
16%
Robotics & Discrete Automation
1,619
1,442
12%
11%
11%
Corporate and Other
(incl. intersegment eliminations)
(591)
(536)
Revenues
ABB Group
21,378
18,952
13%
8%
8%
Electrification
9,742
8,568
14%
9%
10%
Motion
5,190
4,704
10%
6%
6%
Process Automation
4,454
4,247
5%
0%
0%
Robotics & Discrete Automation
2,498
2,106
19%
12%
12%
Corporate and Other
(incl. intersegment eliminations)
(506)
(673)
Income from operations
ABB Group
2,743
1,015
Electrification
1,423
891
Motion
812
731
Process Automation
520
316
Robotics & Discrete Automation
224
(186)
Corporate and Other
(incl. intersegment eliminations)
(236)
(737)
Income from operations %
ABB Group
12.8%
5.4%
Electrification
14.6%
10.4%
Motion
15.6%
15.5%
Process Automation
11.7%
7.4%
Robotics & Discrete Automation
9.0%
-8.8%
Operational EBITA
ABB Group
3,134
2,074
51%
43%
Electrification
1,614
1,159
39%
30%
Motion
905
790
15%
9%
Process Automation
554
348
59%
49%
Robotics & Discrete Automation
291
178
63%
53%
Corporate and Other
(1)
(incl. intersegment eliminations)
(230)
(401)
Operational EBITA %
ABB Group
14.6%
10.9%
Electrification
16.5%
13.5%
Motion
17.4%
16.8%
Process Automation
12.4%
8.2%
Robotics & Discrete Automation
11.7%
8.5%
Cash flow from operating activities
(2)
ABB Group
2,310
511
Electrification
1,466
875
Motion
946
859
Process Automation
692
258
Robotics & Discrete Automation
245
244
Corporate and Other
(incl. intersegment eliminations)
(1,044)
(1,586)
Discontinued operations
5
(139)
(1)
Corporate and Other includes Stranded corporate costs of $40 million for the nine months ended September 30, 2020.
(2)
Commencing Q1 2021, depreciation relating to certain real estate assets, previously reported in Corporate and Other, has been reallocated to the individual
operating segments utilizing these assets. Comparatives have been restated.
6
Q3 2021
FINANCIAL
INFORMATION
Operational EBITA
Process
Robotics & Discrete
ABB
Electrification
Motion
Automation
Automation
($ in millions, unless otherwise indicated)
Q3 21
Q3 20
Q3 21
Q3 20
Q3 21
Q3 20
Q3 21
Q3 20
Q3 21
Q3 20
Revenues
7,028
6,582
3,196
3,031
1,673
1,611
1,507
1,403
813
806
Foreign exchange/commodity timing
differences in total revenues
23
(13)
11
(8)
4
4
9
(6)
(1)
(5)
Operational revenues
7,051
6,569
3,207
3,023
1,677
1,615
1,516
1,397
812
801
Income from operations
852
71
434
387
244
256
183
75
68
(236)
Acquisition-related amortization
62
67
30
29
10
13
1
1
21
20
Restructuring, related and
implementation costs
28
83
11
39
13
9
2
21
1
3
Changes in obligations related to
divested businesses
10
203
–
15
–
–
–
–
–
–
Changes in pre-acquisition estimates
(14)
11
(14)
11
–
–
–
–
–
–
Gains and losses from sale of businesses
–
(1)
–
1
–
–
–
–
–
–
Fair value adjustment on assets and
liabilities held for sale
–
14
–
14
–
–
–
–
–
–
Acquisition- and divestment-related
expenses and integration costs
44
16
18
13
12
–
13
1
1
–
Other income/expense relating to the
Power Grids joint venture
15
15
–
–
–
–
–
–
–
–
Certain other non-operational items
17
331
2
2
–
4
1
–
–
291
Foreign exchange/commodity timing
differences in income from operations
48
(23)
30
(18)
12
(1)
7
(9)
(1)
(2)
Operational EBITA
1,062
787
511
493
291
281
207
89
90
76
Operational EBITA margin (%)
15.1%
12.0%
15.9%
16.3%
17.4%
17.4%
13.7%
6.4%
11.1%
9.5%
Process
Robotics & Discrete
ABB
Electrification
Motion
Automation
Automation
($ in millions, unless otherwise indicated)
9M 21
9M 20
9M 21
9M 20
9M 21
9M 20
9M 21
9M 20
9M 21
9M 20
Revenues
21,378
18,952
9,742
8,568
5,190
4,704
4,454
4,247
2,498
2,106
Foreign exchange/commodity timing
differences in total revenues
43
(4)
23
2
12
(3)
10
(7)
(2)
(3)
Operational revenues
21,421
18,948
9,765
8,570
5,202
4,701
4,464
4,240
2,496
2,103
Income (loss) from operations
2,743
1,015
1,423
891
812
731
520
316
224
(186)
Acquisition-related amortization
191
197
88
86
36
39
3
3
62
58
Restructuring, related and
implementation costs
81
190
32
83
18
20
15
37
6
14
Changes in obligations related to
divested businesses
16
204
–
15
–
–
–
–
–
–
Changes in pre-acquisition estimates
(6)
11
(6)
11
–
–
–
–
–
–
Gains and losses from sale of businesses
(9)
4
4
6
(1)
–
(13)
–
–
–
Fair value adjustment on assets and
liabilities held for sale
–
33
–
33
–
–
–
–
–
–
Acquisition- and divestment-related
expenses and integration costs
74
43
36
40
19
–
17
1
1
–
Other income/expense relating to the
Power Grids joint venture
34
15
–
–
–
–
–
–
–
–
Certain other non-operational items
(58)
378
(13)
(5)
1
13
3
1
–
293
Foreign exchange/commodity timing
differences in income from operations
68
(16)
50
(1)
20
(13)
9
(10)
(2)
(1)
Operational EBITA
3,134
2,074
1,614
1,159
905
790
554
348
291
178
Operational EBITA margin (%)
14.6%
10.9%
16.5%
13.5%
17.4%
16.8%
12.4%
8.2%
11.7%
8.5%
7
Q3 2021
FINANCIAL
INFORMATION
Depreciation and Amortization
Process
Robotics & Discrete
ABB
Electrification
Motion
Automation
Automation
($ in millions)
Q3 21
Q3 20
Q3 21
Q3 20
Q3 21
Q3 20
Q3 21
Q3 20
Q3 21
Q3 20
Depreciation
(1)
142
147
70
67
30
32
21
18
15
13
Amortization
78
84
37
37
11
14
3
3
22
21
including total acquisition-related amortization of:
62
67
30
29
10
13
1
1
21
20
Process
Robotics & Discrete
ABB
Electrification
Motion
Automation
Automation
($ in millions)
9M 21
9M 20
9M 21
9M 20
9M 21
9M 20
9M 21
9M 20
9M 21
9M 20
Depreciation
(1)
434
439
202
206
94
95
59
52
43
37
Amortization
243
247
113
105
40
41
9
8
64
60
including total acquisition-related amortization of:
191
197
88
86
36
39
3
3
62
58
(1)
Commencing Q1 2021, depreciation related to certain real estate assets, previously reported in Corporate and Other, has been reallocated to the individual operating segments
utilizing these assets. Comparatives have been restated.
Orders received and revenues by region
($ in millions, unless otherwise indicated)
Orders received
CHANGE
Revenues
CHANGE
Com-
Com-
Q3 21
Q3 20
US$
Local
parable
Q3 21
Q3 20
US$
Local
parable
Europe
2,663
2,068
29%
28%
27%
2,525
2,410
5%
4%
3%
The Americas
2,580
1,938
33%
32%
31%
2,161
1,927
12%
11%
11%
of which United States
1,934
1,475
31%
31%
31%
1,610
1,443
12%
12%
12%
Asia, Middle East and Africa
2,623
2,103
25%
20%
20%
2,342
2,245
4%
1%
1%
of which China
1,260
1,089
16%
9%
9%
1,210
1,182
2%
-4%
-4%
Intersegment orders/revenues
(1)
–
–
–
–
ABB Group
7,866
6,109
29%
27%
26%
7,028
6,582
7%
4%
4%
($ in millions, unless otherwise indicated)
Orders received
CHANGE
Revenues
CHANGE
Com-
Com-
9M 21
9M 20
US$
Local
parable
9M 21
9M 20
US$
Local
parable
Europe
8,719
7,062
23%
17%
17%
7,773
6,998
11%
5%
5%
The Americas
7,300
5,936
23%
21%
21%
6,488
5,891
10%
9%
9%
of which United States
5,459
4,512
21%
21%
21%
4,818
4,522
7%
6%
7%
Asia, Middle East and Africa
7,592
6,389
19%
12%
12%
7,117
5,955
20%
13%
14%
of which China
3,781
3,036
25%
15%
15%
3,699
2,860
29%
20%
21%
Intersegment orders/revenues
(1)
–
122
–
108
ABB Group
23,611
19,509
21%
16%
16%
21,378
18,952
13%
8%
8%
(1)
Intersegment orders/revenues during the six months ended June 30, 2020, include sales to the Power Grids business which is presented as discontinued operations and thus these
sales are not eliminated from Total orders/revenues.
8
Q3 2021
FINANCIAL
INFORMATION
—
Consolidated Financial Information
ABB Ltd Consolidated Income Statements (unaudited)
Nine months ended
Three months ended
($ in millions, except per share data in $)
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2021
Sep. 30, 2020
Sales of products
17,644
15,391
5,770
5,363
Sales of services and other
3,734
3,561
1,258
1,219
Total revenues
21,378
18,952
7,028
6,582
Cost of sales of products
(12,089)
(11,047)
(3,981)
(4,008)
Cost of services and other
(2,219)
(2,174)
(753)
(740)
Total cost of sales
(14,308)
(13,221)
(4,734)
(4,748)
Gross profit
7,070
5,731
2,294
1,834
Selling, general and administrative expenses
(3,808)
(3,624)
(1,231)
(1,192)
Non-order related research and development expenses
(897)
(791)
(296)
(270)
Impairment of goodwill
–
(311)
–
(311)
Other income (expense), net
378
10
85
10
Income from operations
2,743
1,015
852
71
Interest and dividend income
37
39
11
12
Interest and other finance expense
(108)
(191)
(17)
(79)
Non-operational pension (cost) credit
130
(272)
42
(343)
Income (loss) from continuing operations
before taxes
2,802
591
888
(339)
Income tax expense
(775)
(373)
(201)
(164)
Income (loss) from continuing operations,
net of tax
2,027
218
687
(503)
Income (loss) from discontinued operations, net of tax
(45)
5,043
(9)
5,038
Net income
1,982
5,261
678
4,535
Net income attributable to noncontrolling interests
(76)
(36)
(26)
(5)
Net income attributable to ABB
1,906
5,225
652
4,530
Amounts attributable to ABB shareholders:
Income (loss) from continuing operations, net of tax
1,951
190
661
(513)
Income (loss) from discontinued operations, net of tax
(45)
5,035
(9)
5,043
Net income
1,906
5,225
652
4,530
Basic earnings per share attributable to ABB shareholders:
Income (loss) from continuing operations, net of tax
0.97
0.09
0.33
(0.24)
Income (loss) from discontinued operations, net of tax
(0.02)
2.36
0.00
2.38
Net income
0.95
2.45
0.33
2.14
Diluted earnings per share attributable to ABB shareholders:
Income (loss) from continuing operations, net of tax
0.96
0.09
0.33
(0.24)
Income (loss) from discontinued operations, net of tax
(0.02)
2.36
0.00
2.38
Net income
0.94
2.45
0.32
2.14
Weighted-average number of shares outstanding
(in millions) used to compute:
Basic earnings per share attributable to ABB shareholders
2,011
2,129
2,001
2,119
Diluted earnings per share attributable to ABB shareholders
2,028
2,135
2,019
2,119
Due to rounding, numbers presented may not add to the totals provided.
See Notes to the Consolidated Financial Information
9
Q3 2021
FINANCIAL
INFORMATION
—
ABB Ltd Condensed Consolidated Statements of Comprehensive
Income (unaudited)
Nine months ended
Three months ended
($ in millions)
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2021
Sep. 30, 2020
Total comprehensive income, net of
tax
1,722
6,244
516
5,760
Total comprehensive income
attributable to noncontrolling interests, net of tax
(81)
(58)
(26)
(31)
Total comprehensive income attributable
to ABB shareholders, net of tax
1,641
6,186
490
5,729
Due to rounding, numbers presented may not add to the totals provided.
See Notes to the Consolidated Financial Information
10
Q3 2021
FINANCIAL
INFORMATION
—
ABB Ltd Consolidated Balance Sheets (unaudited)
($ in millions)
Sep. 30, 2021
Dec. 31, 2020
Cash and equivalents
3,709
3,278
Restricted cash
31
323
Marketable securities and short-term investments
746
2,108
Receivables, net
6,728
6,820
Contract assets
1,139
985
Inventories, net
4,864
4,469
Prepaid expenses
217
201
Other current assets
511
760
Current assets held for sale and in discontinued operations
1,048
282
Total current assets
18,993
19,226
Restricted cash, non-current
300
300
Property, plant and equipment, net
3,910
4,174
Operating lease right-of-use assets
931
969
Investments in equity-accounted companies
1,683
1,784
Prepaid pension and other employee benefits
423
360
Intangible assets, net
1,627
2,078
Goodwill
10,524
10,850
Deferred taxes
888
843
Other non-current assets
549
504
Total assets
39,828
41,088
Accounts payable, trade
4,642
4,571
Contract liabilities
1,940
1,903
Short-term debt and current maturities of long-term debt
2,414
1,293
Current operating leases
206
270
Provisions for warranties
1,014
1,035
Other provisions
1,384
1,519
Other current liabilities
4,233
4,181
Current liabilities held for sale and in discontinued operations
817
644
Total current liabilities
16,650
15,416
Long-term debt
4,270
4,828
Non-current operating leases
753
731
Pension and other employee benefits
1,066
1,231
Deferred taxes
770
661
Other non-current liabilities
1,934
2,025
Non-current liabilities held for sale and in discontinued operations
76
197
Total liabilities
25,519
25,089
Commitments and contingencies
Stockholders’ equity:
Common stock, CHF 0.12 par value
(2,053 million and 2,168 million shares issued at September
30, 2021, and December 31, 2020, respectively)
178
188
Additional paid-in capital
16
83
Retained earnings
19,837
22,946
Accumulated other comprehensive loss
(4,266)
(4,002)
Treasury stock, at cost
(61 million and 137 million shares at September 30, 2021, and
December 31, 2020, respectively)
(1,814)
(3,530)
Total ABB stockholders’ equity
13,951
15,685
Noncontrolling interests
358
314
Total stockholders’ equity
14,309
15,999
Total liabilities and stockholders’
equity
39,828
41,088
Due to rounding, numbers presented may not add to the totals provided.
See Notes to the Consolidated Financial Information
11
Q3 2021
FINANCIAL
INFORMATION
—
ABB Ltd Consolidated Statements of Cash Flows (unaudited)
Nine months ended
Three months ended
($ in millions)
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2021
Sep. 30, 2020
Operating activities:
Net income
1,982
5,261
678
4,535
Loss (income) from discontinued operations, net of tax
45
(5,043)
9
(5,038)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization
677
686
220
231
Impairment of goodwill
–
311
–
311
Changes in fair values of investments
(114)
(86)
(1)
(25)
Pension and other employee benefits
(159)
(27)
(65)
55
Deferred taxes
82
(159)
(27)
(158)
Net loss (gain) from derivatives and foreign exchange
99
29
55
4
Net loss (gain) from sale of property,
plant and equipment
(22)
(24)
(7)
(20)
Fair value adjustment on assets and liabilities held for sale
–
33
–
14
Other
144
114
58
50
Changes in operating assets and liabilities:
Trade receivables, net
(182)
(37)
232
(103)
Contract assets and liabilities
(73)
41
74
128
Inventories, net
(692)
(201)
(399)
(2)
Accounts payable, trade
361
(98)
52
102
Accrued liabilities
336
(58)
283
(50)
Provisions, net
(79)
96
(19)
156
Income taxes payable and receivable
(92)
(78)
(36)
79
Other assets and liabilities, net
(8)
(110)
12
129
Net cash provided by operating activities – continuing
operations
2,305
650
1,119
398
Net cash provided by (used in) operating activities – discontinued
operations
5
(139)
(15)
10
Net cash provided by operating activities
2,310
511
1,104
408
Investing activities:
Purchases of investments
(414)
(5,982)
(67)
(4,368)
Purchases of property, plant and
equipment and intangible assets
(459)
(432)
(166)
(129)
Acquisition of businesses (net of cash acquired)
and increases in cost-
and equity-accounted companies
(227)
(99)
(199)
(19)
Proceeds from sales of investments
1,639
1,288
318
833
Proceeds from maturity of investments
80
1
–
1
Proceeds from sales of property,
plant and equipment
36
68
13
41
Proceeds from sales of businesses (net of transaction costs
and cash disposed) and cost-
and equity-accounted companies
93
(133)
46
9
Net cash from settlement of foreign currency derivatives
(75)
94
(3)
170
Other investing activities
(25)
11
(11)
25
Net cash provided by (used in) investing activities – continuing
operations
648
(5,184)
(69)
(3,437)
Net cash provided by (used in) investing activities – discontinued
operations
(83)
9,091
(13)
9,201
Net cash provided by (used in) investing activities
565
3,907
(82)
5,764
Financing activities:
Net changes in debt with original maturities of 90 days or less
213
(525)
(61)
(4,107)
Increase in debt
1,378
360
374
45
Repayment of debt
(763)
(663)
(13)
(95)
Delivery of shares
786
383
20
383
Purchase of treasury stock
(2,441)
(1,270)
(470)
(1,270)
Dividends paid
(1,726)
(1,736)
–
–
Dividends paid to noncontrolling shareholders
(91)
(82)
1
(11)
Other financing activities
(17)
(67)
(23)
37
Net cash used in financing activities – continuing
operations
(2,661)
(3,600)
(172)
(5,018)
Net cash provided by financing activities – discontinued
operations
–
31
–
14
Net cash used in financing activities
(2,661)
(3,569)
(172)
(5,004)
Effects of exchange rate changes on cash and equivalents
and restricted cash
(75)
(55)
(41)
43
Adjustment for the net change in cash and equivalents and restricted
cash
in discontinued operations
–
–
–
609
Net change in cash and equivalents and restricted cash
139
794
809
1,820
Cash and equivalents and restricted cash, beginning of period
3,901
3,544
3,231
2,518
Cash and equivalents and restricted cash, end of period
4,040
4,338
4,040
4,338
Supplementary disclosure of cash flow information:
Interest paid
75
111
17
9
Income taxes paid
793
689
250
227
Due to rounding, numbers presented may not add to the totals provided.
See Notes to the Consolidated Financial Information
12
Q3 2021
FINANCIAL
INFORMATION
—
ABB Ltd Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
($ in millions)
Common
stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
loss
Treasury
stock
Total ABB
stockholders’
equity
Non-
controlling
interests
Total
stockholders’
equity
Balance at January 1, 2020
188
73
19,640
(5,590)
(785)
13,526
454
13,980
Adoption of accounting
standard update
(82)
(82)
(9)
(91)
Comprehensive income:
Net income
5,225
5,225
36
5,261
Foreign currency translation
adjustments, net of tax of $4
600
600
22
622
Effect of change in fair value of
available-for-sale securities,
net of tax of $4
9
9
9
Unrecognized income (expense)
related to pensions and other
postretirement plans,
net of tax of $114
351
351
351
Change in derivative instruments
and hedges, net of tax of $(2)
1
1
1
Total comprehensive income
6,186
58
6,244
Changes in noncontrolling interests
(16)
(16)
19
3
Change in noncontrolling interests
in connection with divestments
–
(138)
(138)
Dividends to
noncontrolling shareholders
–
(98)
(98)
Dividends to shareholders
(1,758)
(1,758)
(1,758)
Share-based payment arrangements
40
40
40
Purchase of treasury stock
(1,533)
(1,533)
(1,533)
Delivery of shares
(17)
400
383
383
Call options
(1)
(1)
(1)
Balance at September 30, 2020
188
79
23,025
(4,629)
(1,919)
16,744
286
17,030
Balance at January 1, 2021
188
83
22,946
(4,002)
(3,530)
15,685
314
15,999
Comprehensive income:
Net income
1,906
1,906
76
1,982
Foreign currency translation
adjustments, net of tax of $2
(366)
(366)
5
(361)
Effect of change in fair value of
available-for-sale securities,
net of tax of $(3)
(10)
(10)
(10)
Unrecognized income (expense)
related to pensions and other
postretirement plans,
net of tax of $10
114
114
114
Change in derivative instruments
and hedges, net of tax of $0
(3)
(3)
(3)
Total comprehensive income
1,641
81
1,722
Changes in noncontrolling interests
(37)
(20)
(57)
55
(2)
Dividends to
noncontrolling shareholders
–
(92)
(92)
Dividends to shareholders
(1,730)
(1,730)
(1,730)
Cancellation of treasury shares
(10)
(17)
(3,130)
3,157
–
–
Share-based payment arrangements
48
48
48
Purchase of treasury stock
(2,430)
(2,430)
(2,430)
Delivery of shares
(68)
(136)
990
786
786
Other
6
6
6
Balance at September 30, 2021
178
16
19,837
(4,266)
(1,814)
13,951
358
14,309
Due to rounding, numbers presented may not add to the totals provided.
See Notes to the Consolidated Financial Information
13
Q3 2021
FINANCIAL
INFORMATION
—
Notes to the Consolidated Financial Information (unaudited)
─
Note 1
The Company and basis of presentation
ABB Ltd and its subsidiaries (collectively,
the Company) together form a leading global technology
company, connecting software
to its electrification, robotics,
automation and motion portfolio to drive performance to new
levels.
The Company’s Consolidated Financial Information is prepared
in accordance with United States of America generally accepted
accounting principles (U.S.
GAAP) for interim financial reporting. As such, the Consolidated
Financial Information does not include all the
information and notes required under U.S. GAAP for
annual consolidated financial statements. Therefore, such financial
information should be read in conjunction with the audite
d
consolidated financial statements in
the Company’s Annual Report for the year ended December
31, 2020.
The preparation of financial information in conformity with U.S. GAAP
requires management to make assumptions
and estimates that directly affect the amounts
reported in the Consolidated Financial Information. These accounting
assumptions and estimates include:
●
growth rates, discount rates and other assumptions used to determine
impairment of long-lived assets and
in testing goodwill for impairment,
●
estimates to determine valuation allowances for deferred tax assets
and amounts recorded for unrecognized tax benefits,
●
assumptions used in determining inventory obsolescence and net
realizable value,
●
estimates and assumptions used in determining the initial fair value
of retained noncontrolling interest and certain obligations
in connection with
divestments,
●
estimates and assumptions used in determining the fair values
of assets and liabilities assumed in business
combinations,
●
assumptions used in the determination of corporate costs
directly attributable to discontinued operations,
●
estimates of loss contingencies associated with litigation or
threatened litigation and other claims and inquiries,
environmental damages, product
warranties, self-insurance reserves, regulatory and other proceedings,
●
estimates used to record expected costs for employee severance
in connection with restructuring programs,
●
estimates related to credit losses expected to occur over
the remaining life of financial assets such as trade and other
receivables, loans and other
instruments,
●
assumptions used in the calculation of pension and postretirement
benefits and the fair value of pension plan assets, and
●
assumptions and projections, principally related to future material,
labor and project-related overhead costs, used in determining
the percentage-of-
completion on projects, as well as the amount of variable consideration
the Company expects to be entitled to.
The actual results and outcomes may differ from the Company’s
estimates and assumptions.
A portion of the Company’s activities (primarily long-term
construction activities) has an operating cycle that
exceeds one year. For classification of
current assets
and liabilities related to such activities, the Company elected to
use the duration of the individual contracts as
its operating cycle. Accordingly, there
are accounts
receivable, contract assets, inventories and provisions related to
these contracts which will not be realized within one
year that have been classified as current.
Basis of presentation
In the opinion of management, the unaudited Consolidated Financial
Information contains all necessary
adjustments to present fairly the financial position, results
of operations and cash flows for the reported periods. Management considers
all such adjustments to be of a normal recurring nature. The
Consolidated Financial
Information is presented in United States dollars ($)
unless otherwise stated. Due to rounding, numbers presented
in the Consolidated Financial Information may
not add to the totals provided.
Certain amounts reported in the Interim Consolidated Financial
Information for prior periods have been reclassified
to conform to the current year’s presentation.
These changes primarily relate to the reallocation of certain real
estate assets, previously reported within Corporate
and Other, into the operating segments
which
utilize the assets.
─
Note 2
Recent accounting pronouncements
Applicable for current periods
Simplifying the accounting for income taxes
In January 2021, the Company adopted a new accounting standard
update,
which enhances and simplifies various aspects of the
income tax accounting guidance
related to intraperiod tax allocations, ownership changes in investments
and certain aspects of interim period tax accounting. Depending
on the amendment, the
adoption was applied on either a retrospective, modified retrospective,
or prospective basis. This update does not have
a significant impact on the Company’s
Consolidated Financial Statements.
Applicable for future periods
Facilitation of the effects of reference rate reform on financial
reporting
In March 2020, an accounting standard update was issued
which provides temporary optional expedients and exceptions
to the current guidance on contract
modifications and hedge accounting to ease the financial reporting
burdens
related to the expected market transition from the London
Interbank Offered Rate
(LIBOR) and other interbank offered rates to alternative reference
rates.
This update, along with clarifications outlined in a subsequent
update issued in January
2021, can be adopted and applied no later than December 31,
2022, with early adoption permitted. The Company
is currently evaluating the impact of adopting
this optional guidance on its Consolidated Financial Statements.
14
Q3 2021
FINANCIAL
INFORMATION
─
Note 3
Discontinued operations and assets held for sale
Divestment of the Power Grids business
On July 1, 2020, the Company completed the sale of 80.1 percent
of its Power Grids business to Hitachi Ltd (Hitachi).
The transaction was executed through the
sale of 80.1 percent of the shares of Hitachi Energy Ltd, formerly
Hitachi ABB Power Grids Ltd (“Hitachi ABB PG”)
.
Cash consideration received at the closing date
was $9,241 million net of cash disposed.
Further, for accounting purposes,
the 19.9 percent ownership interest retained by the Company
is deemed to have been
both divested and reacquired at its fair value on July 1, 2020. The
Company also obtained a put option, exercisable
commencing in April 2023, allowing the
Company to require Hitachi to purchase the remaining interest
for fair value, subject to a minimum floor price equivalent
to a 10 percent discount compared to
the
price paid for the initial 80.1 percent. The combined fair va
lue of the retained investment and the related put option, which
initially was estimated to be
$1,808 million, was recorded at fair value on July 1, 2020, and
was accounted for as part of the proceeds
for the sale of the entire Power Grids business (see
Note 4). This fair value was subsequently remeasured to $1,779
million in the three months ended December 31,
2020.
In connection with the divestment, the Company recorded
liabilities in discontinued operations for estimated future costs
and other cash payments of $487 million
for various contractual items relating to the sale of the business
,
including required future cost reimbursements payable
to Hitachi ABB PG, costs incurred by the
Company for the direct benefit of Hitachi ABB PG, and an
amount due to Hitachi Ltd in connection with the expected
purchase price finalization of the closing
debt
and working capital balances. From the date of the disposal
through September 30, 2021, $116
million of these liabilities had been paid and are reported as
reductions in the cash consideration received, of which $8
3
million and $13
million was paid during the nine months and
three months ended September 30, 2021,
respectively. At September 30, 2021, the
remaining amount recorded was $380 million.
As a result of the Power Grids sale, the Company recognized
an initial net gain of $5,320 million, net of transaction costs,
for the sale of the entire Power Grids
business,
which was included in Income from discontinued operations, net
of tax, in the nine and three months ended September
30, 2020.
Included in the initial
calculation of the net gain was a cumulative translation loss
relating to the Power Grids business of $439 million which
was reclassified from Accumulated other
comprehensive loss (see Note 16). Certain amounts included
in the net gain were estimated or otherwise subject
to change in value and the Company has
recorded adjustments to the gain in periods subsequent to divestment.
The net gain was reduced by $179 million
in the three months ended December 31, 2020.
In addition, in
the nine and three months ended September 30, 2021, t
hese further adjustments have decreased the net gain
by $32 million and $5 million,
respectively.
Certain obligations relating to the divestment continue to be subject
to uncertainty and will be adjusted
in future periods but these adjustments are not
expected to have a material impact on the consolidated financial statements.
In the nine and three months ended September 30, 2020,
the Company recorded $262 million, in Income tax expense
within discontinued operations in connection
with the reorganization of the legal entity structure of the Power
Grids business required to facilitate the sale.
Certain entities of the Power Grids business for which the legal
process or other regulatory delays resulted in the Company
not yet having transferred legal titles
to
Hitachi have been accounted for as being sold since control of
the business as well as all risks and rewards of the business
have been fully transferred to Hitachi
ABB PG. The proceeds for these entities are included in the cash
proceeds described above and certain funds have been
placed in escrow
pending completion of
the transfer process. At September 30, 2021, and December
31, 2020, current restricted cash includes $12 million
and $302 million, respectively, relat
ing to these
proceeds.
The Company has recognized liabilities in discontinued operations
in connection with the divestment for certain indemnities
(see Note 11 for additional
information). The Company has also recorded an initial liability of
$258 million representing the fair value of the right
granted to Hitachi ABB PG for the use of the
ABB brand for up to 8 years.
Upon closing of the sale, the Company entered into various
transition services agreements (TSAs). Pursuant to these
TSAs, the Company and Hitachi ABB PG
provide to each other, on an interim, transitional
basis, various services. The s
ervices provided by the Company primarily include finance, information
technology,
human resources and certain other administrative services.
Under the current terms, the TSAs will continue for up
to 3 years, and can only be extended on an
exceptional basis for business-critical services
for an additional period which is reasonably necessary to avoid a
material adverse impact on the business. In the
nine and three months ended September 30, 2021, the Company
has recognized within its continuing operations, general
and administrative expenses incurred to
perform the TSA, offset by $127 million and $39
million, respectively, in
TSA related income for such services that is reported
in Other income (expense). In the
nine and three months ended September 30, 2020, Other income
(expense) included $42 million of TSA related
income for such services.
Discontinued operations
As a result of the sale of the Power Grids business, substantially
all Power Grids-related assets and liabilities have
been sold. As this divestment represented
a
strategic shift that would have a major effect on the Company’s
operations and financial results, the results of operations for this business
have been presented as
discontinued operations and the assets and liabilities are presented
as held for sale and in discontinued operations
for all periods presented. Certain of the
business contracts in the Power Grids business continue to
be executed by subsidiaries of the Company for the benefit
/risk of Hitachi ABB PG. Assets and
liabilities relating to, as well as the net financial results of
,
these contracts will continue to be included in discontinued
operations until they have been completed
or
otherwise transferred to Hitachi ABB PG.
Prior to the divestment, interest expense that was not directly
attributable to or related to the Company’s
continuing business or discontinued business was
allocated to discontinued operations based on the ratio of
net assets to be sold less debt that was required to be
paid as a result of the planned disposal
transaction to the sum of total net assets of the Company plus
consolidated debt. General corporate overhead was
not allocated to discontinued operations.
Operating results of the discontinued operations, are summarized
as follows:
Nine months ended
Three months ended
($ in millions)
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2021
Sep. 30, 2020
Total revenues
–
4,008
–
–
Total cost of sales
–
(3,058)
–
–
Gross profit
–
950
–
–
Expenses
(13)
(804)
(4)
(23)
Change to net gain recognized on sale of the Power Grids business
(32)
5,320
(5)
5,320
Income (loss) from operations
(45)
5,466
(9)
5,297
Net interest and other finance expense
–
(5)
–
–
Non-operational pension (cost) credit
–
(94)
–
–
Income (loss) from discontinued operations before
taxes
(45)
5,367
(9)
5,297
Income tax
–
(324)
–
(259)
Income (loss) from discontinued operations, net
of tax
(45)
5,043
(9)
5,038
15
Q3 2021
FINANCIAL
INFORMATION
Of the total Income (loss) from discontinued operations before taxes
in the table above, $(45) million and $5,355 million in the nine
months ended September 30,
2021 and 2020,
respectively, and $(9) million
and $5,300 million in the three months ended September
30, 2021
and 2020,
respectively, are attributable
to the
Company, while the remainder is attributable
to noncontrolling interests.
Until the date of the divestment, Income from discontinued operations
before taxes excluded stranded costs
which were previously able to be allocated to the
Power Grids operating segment.
As a result, for the nine months ended September 30, 2020, $
40 million of allocated overhead and other management costs,
which were previously included in the measure of segment
profit for the Power Grids operating segment are reported
as part of Corporate and Other. In the
table
above, Net interest and other finance expense in the nine
months ended September 30, 2020, included
$20 million of interest expense which was recorded
on an
allocated basis in accordance with the Company’s
accounting policy election until the divestment date.
In addition, as required by U.S. GAAP,
subsequent to
December 17, 2018, (the date of the original agreement to sell
the Power Grids business) the Company has
not recorded depreciation or amortization on the
property, plant and equipment, and
intangible assets reported as discontinued operations.
Included in the reported Total revenues
of the Company for the nine months ended September
30, 2020, are revenues for sales from the Company’s
operating
segments to the Power Grids business of $108 million, which represent
intercompany transactions that, prior to Power Grids
being classified as a discontinued
operation, were eliminated in the Company’s consolidated
financial statements (see Note 18). Subsequent to the divestment,
sales to Hitachi ABB PG are reported
as third-party revenues.
In addition, the Company also has retained obligations (primarily
for environmental and taxes) related to other businesses
disposed or otherwise exited that
qualified as discontinued operations. Changes to these retained obligations
are also included in Income (loss) from discontinued
operations, net of tax, above.
The major components of assets and liabilities held for sale and
in discontinued operations in the Company’s Consolidated
Balance Sheets are summarized as
follows:
($ in millions)
Sep. 30, 2021
(1)
Dec. 31, 2020
(1)
Receivables, net
163
280
Inventories, net
2
1
Other current assets
1
1
Current assets held for sale and in discontinued
operations
166
282
Accounts payable, trade
107
188
Other liabilities
505
456
Current liabilities held for sale and in discontinued
operations
612
644
Other non-current liabilities
76
197
Non-current liabilities held for sale and in discontinued
operations
76
197
(1)
At September 30, 2021, and December 31, 2020, the balances reported as held for sale and in discontinued operations pertain to Power Grids activities and other obligations which
will remain with the Company until such time as the obligation is settled or the activities are fully wound down.
Planned business divestments classified as held for sale
The Company classifies its long-lived assets or disposal
groups to be sold as held for sale in the period in which all of
the held for sale criteria are met. The
Company initially measures a long-lived asset or disposal group
that is classified as held for sale at the lower of its carrying
value or fair value less any costs
to
sell. Any resulting loss is recognized in the period in which
the held for sale criteria are met,
while gains are not recognized on the sale of a
long-lived asset or
disposal group until the date of sale. The Company assesses
the fair value of a long-lived asset or disposal group less any costs
to sell at each reporting period
and until the asset or disposal group is no longer classified
as held for sale.
In July 2021, the Company entered into an agreement to divest
its Mechanical Power Transmission D
ivision (Dodge) to RBC Bearings Inc.
for cash proceeds of
$2.9 billion.
The Dodge business is part of the Company’s
Motion operating segment and the divestment is expected
to be completed in the fourth quarter of
2021.
As this planned divestment does not qualify as a discontinued operation,
the results of operations for this business are included
in the Company’s continuing
operations for all periods presented. The assets and liabilities of
this business are shown as assets and liabilities held for
sale in the Company’s Consolidated
Balance Sheet at September 30, 2021. The carrying amounts of the
major classes of assets and liabilities held for sale relating
to this planned divestment are as
follows:
($ in millions)
Sep. 30, 2021
Assets
Receivables, net
79
Inventories, net
121
Property, plant and equipment, net
113
Other intangible assets, net
216
Goodwill
335
Other assets
18
Current assets held for sale
882
Liabilities
Accounts payable, trade
72
Deferred taxes
33
Other liabilities
100
Current liabilities held for sale
205
In the nine and three months ended September 30, 2021, Income
from continuing operations before taxes includes
income of $106 million and $35 million,
respectively, from the Dodge business.
In the nine and three months ended September 30,
2020, income of $71 million and $22 million, respectively,
from this
business were included in Income from continuing operations
before taxes.
16
Q3 2021
FINANCIAL
INFORMATION
─
Note 4
Acquisitions, divestments and equity-accounted companies
Acquisitions
Acquisitions were as follows:
Nine months ended September 30,
Three months ended September 30,
($ in millions, except number of acquired businesses)
2021
2020
2021
2020
Purchase price for acquisitions (net of cash acquired)
(1)
216
60
190
-
Aggregate excess of purchase price
over fair value of net assets acquired
(2)
159
69
148
2
Number of acquired businesses
2
2
1
-
(1)
Excluding changes in cost- and equity-accounted companies
(2)
Recorded as goodwill. For all periods presented, amounts include adjustments arising during the measurement period of acquisitions.
In the table above, the “Purchase price for acquisitions”
and “Aggregate excess of purchase price over fair value of
net assets acquired” amounts for the nine
months ended September 30, 2021, relate primarily to the acquisition
of ASTI Mobile Robotics Group (ASTI).
Acquisitions of controlling interests have been accounted for under the
acquisition method and have been included in the Comp
any’s Consolidated Financial
Statements since the date of acquisition.
While the Company uses its best estimates and assumptions
as part of the purchase price allocation process
to value assets acquired and liabilities assumed at
the acquisition date, the purchase price allocation for acquisitions
is preliminary for up to 12 months after the acquisition
date and is subject to refinement as more
detailed analyses are completed and additional information about
the fair values of the assets and liabilities becomes availa
ble.
On August 2, 2021, the Company acquired the shares
of ASTI.
ASTI is headquartered in Burgos, Spain and is a global
autonomous mobile robot (AMR)
manufacturer. The resulting cash outflows
for the Company amounted to $190 million (net of cash
acquired of $7 million). The acquisition expands the Company’s
robotics and automation offering in its Robotics and Discrete
Automation operating segment.
There were no significant business acquisitions for the nine
and three months ended September 30, 2020.
Investments in equity-accounted companies
In connection with the divestment of its Power Grids business
to Hitachi (see Note 3), the Company retained a 19.
9
percent interest in the business. For
accounting purposes, the 19.9 percent interest is deemed to have
been both divested and reacquired, with a fair value
of $1,661 million. The fair value was based
on a discounted cash flow model considering the expected results
of the future business operations of Hitachi ABB PG and
using relevant market inputs including
a risk-adjusted weighted-average cost of capital. The Company
also obtained a right to require Hitachi to purchase this
investment (see Note 3) with a floor price
equivalent to a 10 percent discount compared to the price paid
for the initial 80.1 percent. This option was
valued at $118 million using a standard option pricing
model with inputs considering the nature of the investment and the
expected period until option exercise. As this option
is not separable from the investment the
value has been combined with the value of the underlying investment
and is accounted for together.
The Company has concluded that based on its continuing involvement
with the Power Grids business, including membership
in its governing board of directors, it
has significant influence over Hitachi ABB PG. As a result,
the investment (including the value of the option)
is accounted for using the equity method.
The difference between the initial carrying value of the
Company's investment in Hitachi ABB PG at fair value and
its proportionate share of the underlying net
assets,
created basis differences of $8,570 million ($1,705 million for the
Company’s 19.9% ownership),
which are allocated as follows:
Allocated
Weighted-average
($ in millions)
Amount
useful life
Inventories
169
5 months
Order backlog
727
2 years
Property, plant and equipment
(1)
1,016
Intangible assets
(2)
1,731
9 years
Other contractual rights
251
2 years
Other assets
43
Deferred tax liabilities
(942)
Goodwill
6,026
Less: Amount attributed to noncontrolling interest
(451)
Basis difference
8,570
(1)
Property, plant and equipment includes assets subject to amortization having an initial fair value difference of $686 million and a weighted-average useful life of 14 years.
(2)
Intangible assets include brand license agreement, technology and customer relationships.
For assets subject to depreciation or amortization, the Company
amortizes these basis differences over
the estimated remaining useful lives of the assets
that
gave rise to this difference,
recording the amortization,
net of related deferred tax benefit, as a reduction of
income from equity accounted companies.
Certain
other assets are recorded as an expense as the benefits from
the assets are realized. As of September 30,
2021, the Company determined that no impairment of
its equity-accounted investments existed.
17
Q3 2021
FINANCIAL
INFORMATION
The carrying value of the Company’s investments in equity
-accounted companies and respective percentage of ownership
is as follows:
Ownership as of
Carrying value at
($ in millions, expect ownership share in %)
September 30, 2021
September 30, 2021
December 31, 2020
Hitachi Energy Ltd
19.9%
1,620
1,710
Others
63
74
Total
1,683
1,784
In the nine and three months ended September 30, 2021 and
2020,
the Company recorded its share of the earnings of investees
accounted for under the equity
method of accounting in Other income (expense), net, as follows:
Nine months ended September 30,
Three months ended September 30,
($ in millions)
2021
2020
2021
2020
Income from equity-accounted companies, net of taxes
11
12
7
8
Basis difference amortization (net of deferred income tax benefit)
(94)
(52)
(33)
(52)
Loss from equity-accounted companies
(83)
(40)
(26)
(44)
Divestment of the solar inverters business
In February 2020, the Company completed the sale of its
solar inverters business for no consideration. Under the
agreement, which was reached in July 2019,
the
Company was required to transfer $143 million of cash
to the buyer on the closing date. In addition, payments
totaling EUR 132 million ($145 million) are required
to be transferred to the buyer from 2020 through 2025.
In the year ended December 31, 2019, the Company
recorded a loss of $421 million, representing the
excess of the carrying value, which includes a loss of $99 million
arising from the cumulative translation adjustment, over
the estimated fair value of this business
.
During the nine months ended September 30, 2020, a loss
of $33 million was included in “Other income (expense),
net” for changes in fair value of this business
of
which $14 million was recorded in the three months. The
loss in 2020 includes the $99 million reclassification from other
comprehensive income of the currency
translation adjustment related to the business.
The fair value was based on the estimated current market values
using Level 3 inputs, considering the agreed-upon sale terms
with the buyer. The solar
inverters
business, which includes the solar inverters business acquired as
part of the Power-One acquisition in 2013, was
part of the Company’s Electrification segment.
As this divestment does not qualify as a discontinued operation, the
results of operations for this business prior to its disposal
are included in the Company’s
continuing operations for all periods presented.
Including the above loss of $33 million,
in
the nine months and three months ended September
30, 2020, Income from continuing operations before
taxes includes
net losses of $63 million and $30 million,
respectively, from the solar
inverters business prior to its sale.
─
Note 5
Cash and equivalents, marketable securities and short-term investments
Cash and equivalents, marketable securities and short-term
investments consisted of the following:
September 30, 2021
Cash and
Marketable
Gross
Gross
equivalents
securities
unrealized
unrealized
and restricted
and short-term
($ in millions)
Cost basis
gains
losses
Fair value
cash
investments
Changes in fair value
recorded in net income
Cash
2,053
2,053
2,053
Time deposits
1,988
1,988
1,987
1
Equity securities
394
15
409
409
4,435
15
–
4,450
4,040
410
Changes in fair value recorded
in other comprehensive income
Debt securities available-for-sale:
U.S. government obligations
198
12
(2)
208
208
European government obligations
58
(1)
57
57
Corporate
69
3
(1)
71
71
325
15
(4)
336
–
336
Total
4,760
30
(4)
4,786
4,040
746
Of which:
Restricted cash, current
31
Restricted cash, non-current
300
18
Q3 2021
FINANCIAL
INFORMATION
December 31, 2020
Cash and
Marketable
Gross
Gross
equivalents
securities
unrealized
unrealized
and restricted
and short-term
($ in millions)
Cost basis
gains
losses
Fair value
cash
investments
Changes in fair value
recorded in net income
Cash
2,388
2,388
2,388
Time deposits
1,513
1,513
1,513
Equity securities
1,704
12
1,716
1,716
5,605
12
–
5,617
3,901
1,716
Changes in fair value recorded
in other comprehensive income
Debt securities available-for-sale:
U.S. government obligations
274
19
293
293
European government obligations
24
24
24
Corporate
69
6
75
75
367
25
–
392
–
392
Total
5,972
37
–
6,009
3,901
2,108
Of which:
Restricted cash, current
323
Restricted cash, non-current
300
19
Q3 2021
FINANCIAL
INFORMATION
─
Note 6
Derivative financial instruments
The Company is exposed to certain currency,
commodity, interest rate and equity
risks arising from its global operating, financing and investing
activities. The
Company uses derivative instruments to reduce and manage the
economic impact of these exposures.
Currency risk
Due to the global nature of the Company’s operations, many
of its subsidiaries are exposed to currency
risk in their operating activities from entering into
transactions in currencies other than their functional currency.
To manage such
currency risks, the Company’s policies require
its subsidiaries to hedge their
foreign currency exposures from binding sales and purchase
contracts denominated in foreign currencies. For forecasted foreig
n
currency denominated sales of
standard products and the related foreign currency denominated purchases,
the Company’s policy is to hedge up to a maximum of
100 percent of the forecasted
foreign currency denominated exposures, depending on the
length of the forecasted exposures. Forecasted exposures
greater than 12 months are not hedged.
Forward foreign exchange contracts are the main instrument used to
protect the Company against the volatility of future cash
flows (caused by changes in
exchange rates) of contracted and forecasted sales and purchases
denominated in foreign currencies. In addition, within
its treasury operations, the Company
primarily uses foreign exchange swaps and forward foreign exchange
contracts to manage the currency and timing mismatches
arising in its liquidity management
activities.
Commodity risk
Various commodity products
are used in the Company’s manufacturing activities.
Consequently it is exposed to volatility in future cash flows
arising from changes
in commodity prices. To
manage the price risk of commodities, the Com
pany’s policies require that its subsidiaries
hedge the commodity price risk exposures from
binding contracts, as well as at least 50 percent (up to a maximum
of 100 percent) of the forecasted commodity exposure over
the next 12 months or longer (up to
a maximum of 18 months). Primarily swap contracts are used to
manage the associated price risks of commodities.
Interest rate risk
The Company has issued bonds at fixed rates. Interest rate swaps
and cross-currency interest rate swaps
are used to manage the interest rate and foreign
currency risk associated with certain debt and generally such
swaps are designated as fair value hedges. In addition, from time
to time, the Company uses
instruments such as interest rate swaps, interest rate futures, bond
futures or forward rate agreements to manage interest
rate risk arising from the Company’s
balance sheet structure but does not designate such instruments
as hedges.
Equity risk
The Company is exposed to fluctuations in the fair value of
its warrant appreciation rights (WARs)
issued under its management incentive plan. A WAR
gives its
holder the right to receive cash equal to the market price of
an equivalent listed warrant on the date of exercise. To
eliminate such risk, the Company has
purchased cash-settled call options, indexed to the shares of the
Company, which entitle the Company
to receive amounts equivalent to its obligations under the
outstanding WARs.
Volume of derivative activity
In general, while the Company’s primary objective in
its use of derivatives is to minimize exposures arising from
its business, certain derivatives are designated
and qualify for hedge accounting treatment while others either
are not designated or do not qualify for hedge accounting.
Foreign exchange and interest rate derivatives
The gross notional amounts of outstanding foreign exchange and
interest rate derivatives (whether designated as hedges
or not) were as follows:
Type of derivative
Total notional amounts
at
($ in millions)
September 30, 2021
December 31, 2020
September 30, 2020
Foreign exchange contracts
9,401
12,610
14,316
Embedded foreign exchange derivatives
881
1,134
1,013
Cross-currency interest rate swaps
926
–
–
Interest rate contracts
3,102
3,227
4,128
Derivative commodity contracts
The Company uses derivatives to hedge its direct or indirect exposure
to the movement in the prices of commodities which are
primarily copper, silver and
aluminum. The following table shows the notional amounts
of outstanding derivatives (whether designated as hedges
or not), on a net basis, to reflect the
Company’s requirements for these commodities:
Type of derivative
Unit
Total notional amounts
at
September 30, 2021
December 31, 2020
September 30, 2020
Copper swaps
metric tonnes
34,615
39,390
37,245
Silver swaps
ounces
2,593,338
1,966,677
1,916,958
Aluminum swaps
metric tonnes
6,700
8,112
8,418
Equity derivatives
At September 30, 2021, December 31, 2020, and September 30,
2020, the Company held 11
million, 22 million and 27 million cash-settled call options
indexed to
ABB Ltd shares (conversion ratio 5:1) with a total fair value of $
25 million, $21 million and $22 million, respectively.
Cash flow hedges
As noted above, the Company mainly uses forward foreign exchange
contracts to manage the foreign exchange risk
of its operations, commodity swaps to
manage its commodity risks and cash-settled call options to
hedge its WAR liabilities. The Company applies cash
flow hedge accounting in only limited cases. In
these cases, the effective portion of the changes in their
fair value is recorded in “Accumulated other comprehensive
loss” and subsequently reclassified into
earnings in the same line item and in the same period as
the underlying hedged transaction affects
earnings. For the nine and three months ended September,
30,
2021 and 2020, there were no significant amounts recorded for cash
flow hedge accounting activities.
Fair value hedges
To reduce its interest
rate exposure arising primarily from its debt issuance activities,
the Company uses interest rate swaps and cross
-currency interest rate
swaps.
Where such instruments are designated as fair value hedges, the changes
in the fair value of these instruments, as well as the
changes in the fair value of
the risk component of the underlying debt being hedged, are recorded
as offsetting gains and losses in “Interest
and other finance expense”.
20
Q3 2021
FINANCIAL
INFORMATION
The effect of derivative instruments, designated and qualifying
as fair value hedges, on the Consolidated Income
Statements was as follows:
Type of derivative designated
Nine months ended September 30, 2021
as a fair value hedge
Gains (losses) recognized in income on
Gains (losses) recognized in income
derivatives designated as fair value hedges
on hedged item
($ in millions)
Location
Location
Interest rate contracts
Interest and other finance expense
(40)
Interest and other finance expense
41
Cross-currency interest rate swaps
Interest and other finance expense
(27)
Interest and other finance expense
25
Total
(67)
66
Type of derivative designated
Nine months ended September 30, 2020
as a fair value hedge
Gains (losses) recognized in income on
Gains (losses) recognized in income
derivatives designated as fair value hedges
on hedged item
($ in millions)
Location
Location
Interest rate contracts
Interest and other finance expense
21
Interest and other finance expense
(20)
Total
21
(20)
Type of derivative designated
Three months ended September 30, 2021
as a fair value hedge
Gains (losses) recognized in income on
Gains (losses) recognized in income
derivatives designated as fair value hedges
on hedged item
($ in millions)
Location
Location
Interest rate contracts
Interest and other finance expense
(13)
Interest and other finance expense
13
Cross-currency interest rate swaps
Interest and other finance expense
(2)
Interest and other finance expense
1
Total
(15)
14
Type of derivative designated
Three months ended September 30, 2020
as a fair value hedge
Gains (losses) recognized in income on
Gains (losses) recognized in income
derivatives designated as fair value hedges
on hedged item
($ in millions)
Location
Location
Interest rate contracts
Interest and other finance expense
(5)
Interest and other finance expense
7
Total
(5)
7
Derivatives not designated in hedge relationships
Derivative instruments that are not designated as hedges or do not
qualify as either cash flow or fair value hedges
are economic hedges used for risk management
purposes. Gains and losses from changes in the fair values
of such derivatives are recognized in the same line in the
income statement as the economically
hedged transaction.
Furthermore, under certain circumstances, the Company
is required to split and account separately for foreign currency
derivatives that are embedded within
certain binding sales or purchase contracts denominated
in a currency other than the functional currency of the subsidiar
y
and the counterparty.
The gains (losses) recognized in the Consolidated Income Statements
on derivatives not designated in hedging relationships
were as follows:
Type of derivative not
Gains (losses) recognized in income
designated as a hedge
Nine months ended September 30,
Three months ended September 30,
($ in millions)
Location
2021
2020
2021
2020
Foreign exchange contracts
Total revenues
(49)
(37)
(39)
30
Total cost of sales
(24)
53
–
10
SG&A expenses
(1)
6
(2)
7
(6)
Non-order related research
and development
(2)
(1)
(1)
–
Interest and other finance expense
(121)
107
(2)
139
Embedded foreign exchange
Total revenues
(14)
(4)
(1)
(10)
contracts
Total cost of sales
(3)
(2)
(1)
–
Commodity contracts
Total cost of sales
47
12
(16)
24
Other
Interest and other finance expense
–
1
(1)
–
Total
(160)
127
(54)
187
(1)
SG&A expenses represent
“Selling, general and
administrative expenses”.
21
Q3 2021
FINANCIAL
INFORMATION
The fair values of derivatives included in the Consolidated Balance
Sheets were as follows:
September 30, 2021
Derivative assets
Derivative liabilities
Current in
Non-current in
Current in
Non-current in
“Other current
“Other non-current
“Other current
“Other non-current
($ in millions)
assets”
assets”
liabilities”
liabilities”
Derivatives designated as hedging instruments:
Foreign exchange contracts
–
1
2
2
Interest rate contracts
16
27
–
–
Cross-currency interest rate swaps
–
–
–
80
Cash-settled call options
25
–
–
–
Total
41
28
2
82
Derivatives not designated as hedging instruments:
Foreign exchange contracts
81
9
105
9
Commodity contracts
20
–
18
–
Interest rate contracts
1
–
3
–
Embedded foreign exchange derivatives
4
3
15
4
Total
106
12
141
13
Total fair value
147
40
143
95
December 31, 2020
Derivative assets
Derivative liabilities
Current in
Non-current in
Current in
Non-current in
“Other current
“Other non-current
“Other current
“Other non-current
($ in millions)
assets”
assets”
liabilities”
liabilities”
Derivatives designated as hedging instruments:
Foreign exchange contracts
–
1
2
4
Interest rate contracts
6
78
–
–
Cash-settled call options
10
11
–
–
Total
16
90
2
4
Derivatives not designated as hedging instruments:
Foreign exchange contracts
221
22
106
26
Commodity contracts
59
–
7
–
Interest rate contracts
2
–
2
–
Embedded foreign exchange derivatives
10
2
28
16
Total
292
24
143
42
Total fair value
308
114
145
46
Close-out netting agreements provide for the termination, valuation
and net settlement of some or all outstanding transactions
between two counterparties on the
occurrence of one or more pre-defined trigger events.
Although the Company is party to close-out netting agreements
with most derivative counterparties, the fair values
in the tables above and in the Consolidated
Balance Sheets at September 30, 2021, and December
31, 2020, have been presented on a gross
basis.
The Company’s netting agreements and other similar arrangements
allow net settlements under certain conditions.
At September 30, 2021, and December 31,
2020, information related to these offsetting arrangements was
as follows:
($ in millions)
September 30, 2021
Gross amount
Derivative liabilities
Cash
Non-cash
Type of agreement or
of recognized
eligible for set-off
collateral
collateral
Net asset
similar arrangement
assets
in case of default
received
received
exposure
Derivatives
180
(103)
–
–
77
Total
180
(103)
–
–
77
($ in millions)
September 30, 2021
Gross amount
Derivative liabilities
Cash
Non-cash
Type of agreement or
of recognized
eligible for set-off
collateral
collateral
Net liability
similar arrangement
liabilities
in case of default
pledged
pledged
exposure
Derivatives
219
(103)
–
–
116
Total
219
(103)
–
–
116
22
Q3 2021
FINANCIAL
INFORMATION
($ in millions)
December 31, 2020
Gross amount
Derivative liabilities
Cash
Non-cash
Type of agreement or
of recognized
eligible for set-off
collateral
collateral
Net asset
similar arrangement
assets
in case of default
received
received
exposure
Derivatives
410
(106)
–
–
304
Total
410
(106)
–
–
304
($ in millions)
December 31, 2020
Gross amount
Derivative liabilities
Cash
Non-cash
Type of agreement or
of recognized
eligible for set-off
collateral
collateral
Net liability
similar arrangement
liabilities
in case of default
pledged
pledged
exposure
Derivatives
147
(106)
–
–
41
Total
147
(106)
–
–
41
─
Note 7
Fair values
The Company uses fair value measurement principles to record certain
financial assets and liabilities on a recurring basis
and, when necessary,
to record certain
non-financial assets at fair value on a non-recurring basis,
as well as to determine fair value disclosures for certain financial
instruments carried at amortized cost
in the financial statements. Financial assets and liabilities recorded
at fair value on a recurring basis include foreign currency,
commodity and interest rate
derivatives, as well as cash-settled call options and available
-for-sale securities. Non-financial assets recorded
at fair value on a non-recurring basis include
long-lived assets that are reduced to their estimated fair value due
to impairments.
Fair value is the price that would be received when selling an
asset or paid to transfer a liability in an orderly transaction
between market participants at the
measurement date. In determining fair value, the Company
uses various valuation techniques including the market
approach (using observable market data for
identical or similar assets and liabilities), the income approach (discounted
cash flow models) and the cost approach (using costs
a market participant would incur
to develop a comparable asset). Inputs used to determine the fair
value of assets and liabilities are defined by a three
-level hierarchy, depending on the
nature of
those inputs. The Company has categorized its financial assets
and liabilities and non-financial assets measured at
fair value within this hierarchy based on
whether the inputs to the valuation technique are observable or unobservable.
An observable input is based on market data obtained from
independent sources,
while an unobservable input reflects the Company’s
assumptions about
market data.
The levels of the fair value hierarchy are as follows:
Level 1:
Valuation inputs consist
of quoted prices in an active market for identical
assets or liabilities (observable quoted prices). Assets
and liabilities valued
using Level 1 inputs include exchange
‑
traded equity securities, listed derivatives
which are actively traded such as commodity futures, interest
rate
futures and certain actively traded debt securities.
Level 2:
Valuation inputs consist
of observable inputs (other than Level 1 inputs)
such as actively quoted prices for similar assets, quoted prices
in inactive
markets and inputs other than quoted prices such
as interest rate yield curves, credit spreads, or inputs derived from
other observable data by
interpolation, correlation, regression or other means. The adjustments
applied to quoted prices or the inputs used in valuation
models may be both
observable and unobservable. In these cases, the fair value measurement
is classified as Level 2 unless the unobservable portion
of the adjustment or
the unobservable input to the valuation model is significant,
in which case the fair value measurement would be
classified as Level 3. Assets and
liabilities valued or disclosed using Level 2 inputs include investments
in certain funds, certain debt securities that are not actively
traded, interest rate
swaps, cross-currency interest rate swaps, commodity
swaps, cash-settled call options, forward foreign exchange
contracts, foreign exchange swaps and
forward rate agreements, time deposits, as well as financing receivables
and debt.
Level 3:
Valuation inputs are based on
the Company’s assumptions of relevant market
data (unobservable input).
Whenever quoted prices involve bid-ask spreads, the Company
ordinarily determines fair values based on mid-market
quotes. However, for the purpose of
determining the fair value of cash-settled call options serving
as hedges of the Company’s management incentive
plan, bid prices are used.
When determining fair values based on quoted prices
in an active market, the Company considers if the
level of transaction activity for the financial instrument
has
significantly decreased or would not be considered orderly.
In such cases, the resulting changes in valuation
techniques would be disclosed. If the market is
considered disorderly or if quoted prices are not available, the Company
is required to use another valuation technique, such
as an income approach.
23
Q3 2021
FINANCIAL
INFORMATION
Recurring fair value measures
The fair values of financial assets and liabilities measured at
fair value on a recurring basis were as follows:
September 30, 2021
($ in millions)
Level 1
Level 2
Level 3
Total fair value
Assets
Securities in “Marketable securities and short-term investments”:
Equity securities
409
409
Debt securities—U.S. government obligations
208
208
Debt securities—European government obligations
57
57
Debt securities—Corporate
71
71
Securities in “Other non-current assets”:
Debt securities—U.S. government obligations
80
80
Derivative assets—current in “Other current assets”
147
147
Derivative assets—non-current in “Other non-current assets”
40
40
Total
345
667
–
1,012
Liabilities
Derivative liabilities—current in “Other current liabilities”
143
143
Derivative liabilities—non-current in “Other non-current
liabilities”
95
95
Total
–
238
–
238
December 31, 2020
($ in millions)
Level 1
Level 2
Level 3
Total fair value
Assets
Securities in “Marketable securities and short-term investments”:
Equity securities
1,716
1,716
Debt securities—U.S. government obligations
293
293
Debt securities—European government obligations
24
24
Debt securities—Corporate
75
75
Derivative assets—current in “Other current assets”
308
308
Derivative assets—non-current in “Other non-current assets”
114
114
Total
317
2,213
–
2,530
Liabilities
Derivative liabilities—current in “Other current liabilities”
145
145
Derivative liabilities—non-current in “Other non-current
liabilities”
46
46
Total
–
191
–
191
The Company uses the following methods and assumptions in
estimating fair values of financial assets
and liabilities measured at fair value on a recurring basis:
●
Securities in “Marketable securities and short-term investments
”
and “Other non-current assets”:
If quoted market prices in active markets for identical
assets are available, these are considered Level 1 inputs; however,
when markets are not active, these inputs
are considered Level 2. If such quoted
market prices are not available, fair value is determined using
market prices for similar assets or present value techniques,
applying an appropriate risk-
free interest rate adjusted for non-performance risk. The inputs
used in present value techniques are observable and fall
into the Level 2 category.
●
Derivatives
: The fair values of derivative instruments are determined using
quoted prices of identical instruments from an
active market, if available
(Level 1 inputs). If quoted prices are not available, price quotes
for similar instruments, appropriately adjusted, or present value
techniques, based on
available market data, or option pricing models are used. Cash
-settled call options hedging the Company’s WAR
liability are valued based on bid prices
of the equivalent listed warrant. The fair values obtained using
price quotes for similar instruments or valuation techniques
represent a Level 2 input
unless significant unobservable inputs are used.
Non-recurring fair value measures
The Company elects to record private equity investments without readily
determinable fair values at cost, less impairment, adjusted
by observable price changes.
The Company reassesses at each reporting period whether these
investments continue to qualify for this treatment. In
the nine months ended September 30, 2021
and 2020, the Company recognized, in Other income (expense), net
fair value gains of $106 million and $72 million, respectively,
related to certain of its private
equity investments based on observable market price changes
for an identical or similar investment of the same issuer,
of which a net loss of $3 million and
a net
gain of $14 million was recognized in the three months ended
September 30, 2021 and 2020, respectively.
The fair values of these investments at September
30,
2021 and 2020, totaled $160 million and $97 million, respectively,
and were determined using level 2 inputs.
During the nine months ended September 30, 2020, the Company
recorded a $33 million fair value adjustment,
of which $14 million was recorded in the three
months ended September 30,2020, for the solar inverters
business which met the criteria to be classified as held for
sale in June 2019 and was sold in February
2020 (see Note 4 for details).
In the three months ended September 30, 2020, the Company
recorded goodwill impairment charges of $311
million. The fair value measurements used
in the
analyses were calculated using the income approach (discounted
cash flow method). The discounted cash flow models
were calculated using unobservable inputs,
which classified the fair value measurement as Level 3 (see Note
9 for additional information including further detailed info
rmation related to these charges and
significant unobservable inputs)
Apart from the transactions above, there were no additional significant
non-recurring fair value measurements during the
nine and three months ended
September 30, 2021 and 2020.
24
Q3 2021
FINANCIAL
INFORMATION
Disclosure about financial instruments carried on a cost
basis
The fair values of financial instruments carried on a cost
basis were as follows:
September 30, 2021
($ in millions)
Carrying value
Level 1
Level 2
Level 3
Total fair value
Assets
Cash and equivalents (excluding securities with original
maturities up to 3 months):
Cash
1,722
1,722
1,722
Time deposits
1,987
1,987
1,987
Restricted cash
31
31
31
Restricted cash, non-current
300
300
300
Liabilities
Short-term debt and current maturities of long-term debt
(excluding finance lease obligations)
2,391
1,662
729
2,391
Long-term debt (excluding finance lease obligations)
4,116
4,322
73
4,395
December 31, 2020
($ in millions)
Carrying value
Level 1
Level 2
Level 3
Total fair value
Assets
Cash and equivalents (excluding securities with original
maturities up to 3 months):
Cash
1,765
1,765
1,765
Time deposits
1,513
1,513
1,513
Restricted cash
323
323
323
Restricted cash, non-current
300
300
300
Liabilities
Short-term debt and current maturities of long-term debt
(excluding finance lease obligations)
1,266
497
769
1,266
Long-term debt (excluding finance lease obligations)
4,668
4,909
89
4,998
The Company uses the following methods and assumptions in
estimating fair values of financial instruments carried
on a cost basis:
●
Cash and equivalents (excluding securities with original maturities
up to 3 months), Restricted cash, current
and non-current, and Marketable securities
and short-term investments (excluding securities):
The carrying amounts approximate the fair values as the
items are short-term in nature or, for cash
held in banks, are equal to the deposit amount.
●
Short-term debt and current maturities of long-term debt (excluding
finance lease obligations):
Short-term debt includes commercial paper,
bank
borrowings and overdrafts. The carrying amounts of short-term
debt and current maturities of long-term debt, excluding
finance lease obligations,
approximate their fair values.
●
Long-term debt (excluding finance lease obligations):
Fair values of bonds are determined using quoted market
prices (Level 1 inputs), if available. For
bonds without available quoted market prices and other long-term
debt, the fair values are determined using a discounted cash flow
methodology
based upon borrowing rates of similar debt instruments and reflecting
appropriate adjustments for non-performance risk
(Level 2 inputs).
─
Note 8
Contract assets and liabilities
The following table provides information about Contract assets
and Contract liabilities:
($ in millions)
September 30, 2021
December 31, 2020
September 30, 2020
Contract assets
1,139
985
1,100
Contract liabilities
1,940
1,903
1,828
Contract assets primarily relate to the Company’s right to receive
consideration for work completed but for which no invoice
has been issued at the reporting date.
Contract assets are transferred to receivables when rights
to receive payment become unconditional.
Contract liabilities primarily relate to up-front advances received on
orders from customers as well as amounts invoiced
to customers in excess of revenues
recognized, primarily for long-term projects. Contract liabilities
are reduced as work is performed and as revenues are recognized
.
25
Q3 2021
FINANCIAL
INFORMATION
The significant changes in the Contract assets and Contract liabilities
balances were as follows:
Nine months ended September 30,
2021
2020
Contract
Contract
Contract
Contract
($ in millions)
assets
liabilities
assets
liabilities
Revenue recognized, which was included in the Contract liabilities
balance at Jan 1, 2021/2020
(939)
(746)
Additions to Contract liabilities - excluding amounts recognized as
revenue during the period
1,032
867
Receivables recognized that were included in the Contract
asset balance at Jan 1, 2021/2020
(502)
(448)
At September 30, 2021,
the Company had unsatisfied performance obligations
totaling $16,012 million and, of this amount, the Company
expects to fulfill
approximately 36 percent of the obligations in 2021, approximately
45 percent of the obligations in 2022 and the balance
thereafter.
─
Note 9
Goodwill
Goodwill is reviewed for impairment annually as of October 1,
or more frequently if events or circumstances
indicate that the carrying value may not be
recoverable.
Goodwill is evaluated for impairment at the reporting unit
level, which for the Company is determined to be one level
below its operating segments.
When evaluating goodwill for impairment, the Company uses
either a qualitative or quantitative assessment method
for each reporting unit. The qualitative
assessment involves determining, based on an evaluation
of qualitative factors, if it is more likely than not that the
fair value of a reporting unit is less than its
carrying value. If, based on this qualitative assessment, it is
determined to be more likely than not that the reporting
unit’s fair value is less than its carrying
value, a
quantitative impairment test (described below) is performed, otherwise
no further analysis is required. If the Company
elects not to perform the qualitative
assessment for a reporting unit, then a quantitative impairment test
is performed.
When performing a quantitative impairment test, the Company
calculates the fair value of a reporting unit using an
income approach based on the present value of
future cash flows, applying a discount rate that represents
the reporting unit’s weighted-average cost
of capital, and compares it to the reporting unit’s
carrying
value. If the carrying value of the net assets of a reporting
unit exceeds the fair value of the reporting unit then
the Company records an impairment charge equal
to the difference, provided that the loss recognized
does not exceed the total amount of goodwill allocated
to that reporting unit.
The changes in “Goodwill” were as follows:
Robotics &
Process
Discrete
Corporate
($ in millions)
Electrification
Motion
Automation
Automation
and Other
Total
Balance at January 1, 2020
4,372
2,436
1,615
2,381
21
10,825
Goodwill acquired during the year
71
–
–
21
–
92
Impairment of Goodwill
–
–
–
(290)
(21)
(311)
Exchange rate differences and other
84
20
24
116
–
244
Balance at December 31, 2020
(1)
4,527
2,456
1,639
2,228
–
10,850
Goodwill acquired during the period
11
–
–
148
–
159
Goodwill allocated to disposals
–
–
(7)
–
–
(7)
Goodwill allocated to assets
held for sale
–
(335)
–
–
–
(335)
Exchange rate differences and other
(54)
(4)
(15)
(70)
–
(143)
Balance at September 30, 2021
(1)
4,484
2,117
1,617
2,306
–
10,524
(1)
At September 30, 2021 and December 31, 2020,
gross goodwill amounted to $10,809 million and $11,152 million, respectively, and accumulated impairment charges, relating to the
Robotics & Discrete Automation segment,
amounted to $285 million and $302 million, respectively.
The Company adopted a new operating model on July 1, 2020,
which resulted in a change to the identification of the
goodwill reporting units. Previously,
the
reporting units were the same as the operating segments for
Electrification, Motion and Robotics & Discrete Automation,
while for the Process Automation
operating segment the reporting units were determined to be
at the Division level, which is one level below the operating segment.
The new operating model
provides the Divisions with full ownership and accountability
for their respective strategies, performance and resources
and based on these changes, the Company
concluded that the reporting units would change and be the respective
Divisions within each operating segment. This change re
sulted only in an allocation of
goodwill within the operating segments and thus there is no change
to segment level goodwill in the table above.
As a result of the new allocation of goodwill, an interim quantitative
impairment test was conducted both before and after
the changes which were effective July
1,
2020.
In the “before” test, it was concluded that the
fair value of the Company’s reporting units exceeded
the carrying value under the historical reporting
unit
structure.
The impairment test was performed for the new reporting
units and the fair value of each was determined using
a discounted cash flow fair value estimate based
on objective information available at the measurement date. The significant
assumptions used to develop the estimates of fair value
for each reporting unit
included management’s best estimates of the expected
future results and discount rates specific to the reporting unit.
The fair value estimates were based on
assumptions that the Company believed to be reasonable,
but which are inherently uncertain and thus, actual
results may differ from those estimates. The fair
values for each of the individual reporting units and their associated
goodwill were determined using Level 3 measurements.
26
Q3 2021
FINANCIAL
INFORMATION
The interim quantitative impairment test indicated that the estimated
fair values of the reporting units were substantially in excess
of their carrying value for all
reporting units except for the Machine Automation reporting unit within
the Robotics & Discrete Automation operating segment.
The contraction of the global
economy in 2020, particularly in end-customer industries related
to this reporting unit and considerable uncertainty
around the continued pace of macroeconomic
recovery generally led to a reduction in the fair values of the
reporting units, thus affecting this reporting unit.
Also, at the division level, this reporting unit does
not
benefit from shared cash flows generated within an entire
operating segment. In addition, the book value of the Machine
Automation Division includes a significant
amount of intangible assets recognized in past acquisitions,
resulting in a proportionately higher book value than the
other reporting unit within the Robotics &
Discrete Automation Business Area. With the fair value of the reporting
unit lower due to the economic conditions, the
existing book value of the intangible assets
combined with the newly allocated reporting unit goodwill led
to the carrying value of the Machine Automation
reporting unit exceeding its fair value. During 2020,
a
goodwill impairment charge of $290 million was recorded to reduce
the carrying value of this reporting unit to its
implied fair value. The remaining goodwill for the
Machine Automation reporting unit was $554 million as of December
31, 2020.
─
Note 10
Debt
The Company’s total debt at September 30, 2021,
and December 31, 2020, amounted to $6,684 million and
$6,121 million, respectively.
Short-term debt and current maturities of long-term
debt
The Company’s “Short-term debt and current maturities of
long-term debt” consisted of the following:
($ in millions)
September 30, 2021
December 31, 2020
Short-term debt
715
153
Current maturities of long-term debt
1,699
1,140
Total
2,414
1,293
Short-term debt primarily represented issued commercial paper and
short-term bank borrowings from various banks.
At September 30, 2021, and December 31,
2020, $304 million and $32 million, respectively,
was outstanding under the $2 billion commercial paper
program in the United States. At September 30, 2021,
$347 million was outstanding under the $2 billion Euro-commercial
paper program. No amount was outstanding under this
program at December 31, 2020.
On June 15, 2021, the Company repaid at maturity its
USD 650 million 4.0% Notes.
Long-term debt
The Company’s long-term debt at September 30, 2021,
and December 31, 2020,
amounted to $4,270 million and $4,828 million, respectively.
Outstanding bonds (including maturities within the next 12 months)
were as follows:
September 30, 2021
December 31, 2020
(in millions)
Nominal outstanding
Carrying value
(1)
Nominal outstanding
Carrying value
(1)
Bonds:
4.0% USD Notes, due 2021
USD
650
$
649
2.25% CHF Bonds, due 2021
CHF
350
$
375
CHF
350
$
403
2.875% USD Notes, due 2022
USD
1,250
$
1,264
USD
1,250
$
1,280
0.625% EUR Instruments, due 2023
EUR
700
$
819
EUR
700
$
875
0.75% EUR Instruments, due 2024
EUR
750
$
884
EUR
750
$
946
0.3% CHF Notes, due 2024
CHF
280
$
299
CHF
280
$
317
3.8% USD Notes, due 2028
(2)
USD
383
$
381
USD
383
$
381
1.0% CHF Notes, due 2029
CHF
170
$
181
CHF
170
$
192
0% EUR Notes, due 2030
EUR
800
$
891
–
4.375% USD Notes, due 2042
(2)
USD
609
$
589
USD
609
$
589
Total
$
5,683
$
5,632
(1)
USD carrying values include unamortized debt issuance costs, bond discounts or premiums, as well as adjustments for fair value
hedge accounting, where appropriate.
(2)
Prior to completing a cash tender offer in November 2020, the original principal amount outstanding,
on each of the 3.8% USD Notes, due 2028,
and the 4.375% USD Notes, due
2042, was USD750 million.
In January 2021, the Company issued zero percent notes having
a principal amount of EUR 800 million and due
in 2030. The Company recorded net proceeds
(after underwriting fees) of EUR 791 million (equivalent to $960
million on the date of issuance). In line with the
Company’s policy of reducing its currency
and
interest rate exposures,
cross-currency interest rate swaps
have been used to modify the characteristics of the EUR 800
million Notes, due 2030. After considering
the impact of these cross-currency interest rate swaps
,
the EUR Notes, due 2030, effectively became a floating
rate U.S. dollar obligation.
Subsequent events
On October 11, 2021, the Company repaid
at maturity its CHF 350 million 2.25
percent% Bonds, equivalent to $378 million on date of repayment.
27
Q3 2021
FINANCIAL
INFORMATION
─
Note 11
Commitments and contingencies
Contingencies—Regulatory, Compliance
and Legal
Regulatory
As a result of an internal investigation, the Company self-reported
to the Securities and Exchange Commission (SEC)
and the Department of Justice (DoJ) in the
United States as well as to the Serious Fraud Office (SFO)
in the United Kingdom concerning certain of its past dealings
with Unaoil and its subsidiaries, including
alleged improper payments made by these entities to third parties.
In May 2020, the SFO closed its investigation, which
it originally announced in February 2017,
as the case did not meet the relevant test for prosecution.
The Company continues to cooperate with the U.S.
authorities as requested. At this time, it is not
possible for the Company to make an informed judgment about
the outcome of this matter.
Based on findings during an internal investigation, the Company
self-reported to the SEC and the DoJ, in the United
States, to the Special Investigating Unit (SIU)
and the National Prosecuting Authority (NPA)
in South Africa as well as to various authorities in
other countries potential suspect payments and other compliance
concerns in connection with some of the Company’s dealings
with Eskom and related persons. Many of those parties
have expressed an interest in, or
commenced an investigation into, these matters and the Company is
cooperating fully with them. The Company paid $104
million to Eskom in December 2020 as
part of a full and final settlement with Eskom and the Special Investigating
Unit relating to improper payments and other compliance
issues associated with the
Controls and Instrumentation Contract, and its Variation
Orders for Units 1 and 2 at Kusile. The Company
continues to cooperate fully with the National
Prosecuting Authority in South Africa as well as other author
ities in their review of the Kusile project. Although the Company
believes that there could be an
unfavorable outcome in one or more of these ongoing reviews,
at this time it is not possible for the Company to make an informed
judgment about the possible
financial impact.
General
The Company is aware of proceedings, or the threat of proceedings,
against it and others in respect of private claims by
customers and other third parties with
regard to certain actual or alleged anticompetitive practices.
Also, the Company is subject to other claims and legal proceedings,
as well as investigations carried
out by various law enforcement authorities. With respect to the
above-mentioned claims, regulatory matters,
and any related proceedings, the Company will bear
the related costs, including costs necessary to resolve
them.
Liabilities recognized
At September 30, 2021, and December 31, 2020, the Comp
any had aggregate liabilities of $98 million and $100 million,
respectively, included in
“Other provisions”
and “Other non
‑
current liabilities”, for the above regulatory,
compliance and legal contingencies, and none of the individual liabilities
recognized was significant. As
it is not possible to make an informed judgment on, or reasonably
predict, the outcome of certain matters
and as it is not possible, based on information currently
available to management, to estimate the maximum potential
liability on other matters, there could be adverse outcomes beyond
the amounts accrued.
Guarantees
General
The following table provides quantitative data regarding the Company’s
third-party guarantees. The maximum potential payments
represent a “worst-case
scenario”, and do not reflect management’s expected
outcomes.
Maximum potential payments
($ in millions)
September 30, 2021
December 31, 2020
Performance guarantees
5,413
6,726
Financial guarantees
54
339
Indemnification guarantees
(1)
127
177
Total
(2)
5,594
7,242
(1)
Certain indemnifications provided to Hitachi in connection with the divestment of Power Grids are without limit.
(2)
Maximum potential payments include amounts in both continuing and discontinued operations.
The carrying amount of liabilities recorded in the Consolidated
Balance Sheets reflects the Company’s best estimate
of future payments, which it may incur as
part
of fulfilling its guarantee obligations. In respect of the above guarantees,
the carrying amounts of liabilities at September 30,
2021, and December 31, 2020,
amounted to $148 million and $135 million, respectively,
the majority of which is included in discontinued operations
.
The Company is party to various guarantees providing financial
or performance assurances to certain third parties. These
guarantees, which have various
maturities up to 2035, mainly consist of performance guarantees
whereby (i) the Company guarantees
the performance of a third party’s product or service
according to the terms of a contract and (ii) as member
of a consortium/joint-venture that includes third parties, the
Company guarantees not only its own
performance but also the work of third parties. Such guarantees
may include guarantees that a project will be completed
within a specified time. If the third party
does not fulfill the obligation, the Company will compensate the
guaranteed party in cash or in kind. The original
maturity dates for the majority of these
performance guarantees range from one to ten years.
In conjunction with the divestment of the high-voltage cable
and cables accessories businesses, the Company has
entered into various performance guarantees
with other parties with respect to certain liabilities of the
divested business. At September 30, 2021, and December
31, 2020, the maximum potential payable under
these guarantees amounts to $933 million and $994 million, respectively,
and these guarantees have various maturities ranging from five
to ten years.
The Company retained obligations for financial, performance
and indemnification guarantees related to the Power Grids
business sold on July 1, 2020 (see Note 3
for details). The performance and financial guarantees have been
indemnified by Hitachi, at the same proportion of its ownership
in Hitachi ABB Power Grids
(80.1 percent). These guarantees, which have various maturities
up to 2035, primarily consist of bank guarantees,
standby letters of credit,
business performance
guarantees and other trade-related guarantees, the majority of which
have original maturity dates ranging from one to ten
years. The maximum amount payable
under the guarantees at September 30, 2021, and December
31, 2020, are approximately $4.1 billion and $5.5
billion, respectively,
and the carrying amounts of
liabilities (recorded in discontinued operations) at September 30,
2021, and December 31, 2020,
amounted to $127 million and $135 million, respectively
.
Commercial commitments
In addition, in the normal course of bidding for and executing certain
projects, the Company has entered into standby
letters of credit, bid/performance bonds
and
surety bonds (collectively “performance bonds”) with various
financial institutions. Customers can draw on such
performance bonds in the event that the Company
does not fulfill its contractual obligations. The Company would
then have an obligation to reimburse the financial institutio
n
for amounts paid under the performance
bonds. At September 30, 2021, and December 31, 2020, the
total outstanding performance bonds aggregated to
$3.6 billion and $4.3 billion, respectively,
of which
$0.3 billion and $0.3 billion,
respectively, relate to
discontinued operations. There have been no significant
amounts reimbursed to financial institutions under
these
types of arrangements in the nine and three months ended
September 30, 2021 and 2020.
28
Q3 2021
FINANCIAL
INFORMATION
Product and order-related contingencies
The Company calculates its provision for product warranties
based on historical claims experience and specific review
of certain contracts. The reconciliation
of the
“Provisions for warranties”, including guarantees of product performance,
was as follows:
($ in millions)
2021
2020
Balance at January 1,
1,035
816
Net change in warranties due to acquisitions, divestments and liabilities
held for sale
–
8
Claims paid in cash or in kind
(176)
(153)
Net increase in provision for changes in estimates, warranties
issued and warranties expired
190
284
Exchange rate differences
(35)
11
Balance at September 30,
1,014
966
During 2020,
the Company recorded changes in a previously
estimated amount for a product warranty relating to a divested business,
increasing the related
liability by $143 million during the nine and three months
ended September 30, 2020.
The corresponding increase was included in Cost of
sales of products and
resulted in a decrease in earnings per share (basic and diluted)
of $0.07 for both the nine and three months
ended September 30, 2020. As these costs
relate to a
divested business,
they have been excluded from the Company’s primary measure
of segment performance, Operational EBITA (
see Note 18). The warranty
liability has been recorded based on the information currently available
and is subject to change in the future.
─
Note 12
Income taxes
In calculating income tax expense, the Company uses an estimate
of the annual effective tax rate based upon the
facts and circumstance known at each
interim
period. On a quarterly basis, the actual effective tax rate
is adjusted, as appropriate, based upon changed facts
and circumstances, if any, as
compared to those
forecasted at the beginning of the year and each interim period
thereafter.
The effective tax rate of 27.7 percent in the nine months
ended September 30, 2021, was lower than the effective
tax rate of 63.1 percent in the nine months
ended September 30, 2020, primarily because 2020 includes
impacts of non-deductible goodwill impairment (see
Note 9), the non-deductibility of the non-
operational pension costs due to certain settlements in 2020
(see Note 13) as well as the impact of no tax benefit
being recorded for the charge recorded in
connection with changes in estimated warranty provisions relating
to a divested business (see Note 11).
In addition, the rate in 2020 reflects a net benefit
from a
favorable resolution of an uncertain tax position during the first
quarter as well as increases to the valuation allowance
in certain countries.
─
Note 13
Employee benefits
The Company operates defined benefit pension plans, defined contribution
pension plans, and termination indemnity plans,
in accordance with local regulations
and practices. These plans cover a large portion of the Company’s
employees and provide benefits to employees
in the event of death, disability,
retirement, or
termination of employment. Certain of these plans are multi-employer
plans. The Company also operates other postretirement benefit plans
including
postretirement health care benefits, and other
employee-related benefits for active employees including
long-service award plans. The measurement date used
for
the Company’s employee benefit plans is December
- The funding policies of the Company’s plans
are consistent with the local
government and tax
requirements.
The following tables include amounts relating to defined benefit pension
plans and other postretirement benefits for both
continuing and discontinued operations.
During the nine and three months ended September 30, 2020,
the Company took steps to transfer certain defined benefit pension risks
in three international
countries to external financial institutions and thus settle these
obligations for accounting purposes. In connection
with these transactions the Company made net
payments of $273 million in the three months ended September
30, 2020, and incurred non-operational pension costs
of $379 million which are included in
curtailments, settlements and special termination benefits in the table
below. The Company also recorded $101
million in the nine months ended September 30,
2020, for a similar settlement of pension obligations in discontinued
operations.
Net periodic benefit cost of the Company’s defined benefit
pension and other postretirement benefit plans consisted of
the following:
($ in millions)
Defined pension benefits
Other postretirement
Switzerland
International
benefits
Nine months ended September 30,
2021
2020
2021
2020
2021
2020
Operational pension cost:
Service cost
45
60
31
66
–
–
Operational pension cost
45
60
31
66
–
–
Non-operational pension cost (credit):
Interest cost
(3)
3
52
91
1
2
Expected return on plan assets
(88)
(93)
(133)
(196)
–
–
Amortization of prior service cost (credit)
(6)
(10)
(2)
1
(1)
(2)
Amortization of net actuarial loss
–
6
53
79
(2)
(2)
Curtailments, settlements and special termination benefits
(1)
–
–
(1)
487
–
–
Non-operational pension cost (credit)
(97)
(94)
(31)
462
(2)
(2)
Net periodic benefit cost (credit)
(52)
(34)
–
528
(2)
(2)
29
Q3 2021
FINANCIAL
INFORMATION
($ in millions)
Defined pension benefits
Other postretirement
Switzerland
International
benefits
Three months ended September 30,
2021
2020
2021
2020
2021
2020
Operational pension cost:
Service cost
15
15
9
16
–
–
Operational pension cost
15
15
9
16
–
–
Non-operational pension cost (credit):
Interest cost
(1)
2
15
31
–
1
Expected return on plan assets
(30)
(28)
(42)
(63)
–
–
Amortization of prior service cost (credit)
(1)
(3)
(1)
–
–
(1)
Amortization of net actuarial loss
–
1
18
24
(1)
–
Curtailments, settlements and special termination benefits
–
–
1
379
–
–
Non-operational pension cost (credit)
(32)
(28)
(9)
371
(1)
–
Net periodic benefit cost (credit)
(17)
(13)
–
387
(1)
–
(1)
In the nine
months ended September 30, 2020, amounts include $101 million in discontinued operations for the settlement of the pension plan in Sweden.
The components of net periodic benefit cost other than the service
cost component are included in the line “Non-operational
pension (cost) credit” in the income
statement. Net periodic benefit cost includes $121 million for the
nine months ended September 30, 2020 related to discontinued
operations.
Employer contributions were as follows:
($ in millions)
Defined pension benefits
Other postretirement
Switzerland
International
benefits
Nine months ended September 30,
2021
2020
2021
2020
2021
2020
Total contributions
to defined benefit pension and
other postretirement benefit plans
46
216
42
478
8
9
Of which, discretionary contributions to defined benefit
pension plans
–
152
11
416
–
–
($ in millions)
Defined pension benefits
Other postretirement
Switzerland
International
benefits
Three months ended September 30,
2021
2020
2021
2020
2021
2020
Total contributions
to defined benefit pension and
other postretirement benefit plans
15
168
29
288
5
6
Of which, discretionary contributions to defined benefit
pension plans
–
152
20
273
–
–
During the nine and three months ended September 30, 2020,
total contributions included non-cash contributions of marketable
debt securities having a fair value
at the contribution date of $152 million, contributed to one of the
Company’s pension plans in Switzerland.
The Company expects to make contributions totaling approximately
$172 million and $8
million to its defined pension plans and other postretirement
benefit plans,
respectively, for the full year 2021.
30
Q3 2021
FINANCIAL
INFORMATION
─
Note 14
Stockholder's
equity
At the Annual General Meeting of Shareholders (AGM) on March
25, 2021, shareholders approved the proposal of the
Board of Directors to distribute 0.80 Swiss
francs per share to shareholders. The declared dividend amounted
to $1,730 million, with the Company disburs
ing a portion in March and the remaining amounts
in April.
In March 2021, the Company completed its initial share buyback
program which was launched in July 2020. The share buyback
program was executed on a
second trading line on the SIX Swiss Exchange. Through this
buyback program, the Company purchased a total
of approximately 129 million shares for
approximately $3.5 billion, of which 20 million shares were
purchased in the first quarter of 2021 (resulting
in an increase in Treasury stock
of $628 million). At the
AGM on March 25, 2021, shareholders approved the cancellation
of 115 million
of the shares purchased under this buyback program and
the cancellation was
completed in the second quarter of 2021,
resulting in a decrease in Treasury
stock of $3,157 million and a corresponding total decrease in Capital
stock,
Additional
paid-in capital and Retained earnings.
Also in March 2021, the Company announced a follow-up share
buyback program of up to $4.3 billion. This buyback
program, which was launched in April 2021, is
being executed on a second trading line on the SIX Swiss
Exchange and is planned to run until the Company’s
AGM in March 2022. Through this follow-up
buyback program, the Company purchased,
in the second and third quarters of 2021, approximately
26 million shares,
resulting in an increase in Treasury
stock of
$887 million. At the March 2022 AGM, the Company intends
to request shareholder approval to cancel the shares
purchased through this follow-up share buyback
program as well as those shares purchased under the initial share
buyback program that were not proposed for cancellation
at the Company’s AGM in March
2021.
In addition to the share buyback programs,
the Company purchased 29 million of its own shares on
the open market in the nine months ended September
30,
2021, mainly for use in connection with its employee share
plans, resulting in an increase in Treasury
stock of $915 million.
In the nine months ended September 30, 2021, the Company
delivered, out of treasury stock, 36 million shares in connection
with its Management Incentive Plan.
─
Note 15
Earnings per share
Basic earnings per share is calculated by dividing income by the
weighted-average number of shares outstanding
during the period. Diluted earnings per share
is
calculated by dividing income by the weighted-average number
of shares outstanding during the period, assuming that
all potentially dilutive securities were
exercised, if dilutive. Potentially dilutive securities comprise outstanding
written call options, and outstanding options and
shares granted subject to certain
conditions under the Company’s share-based payment arrangements.
Basic earnings per share
Nine months ended September 30,
Three months ended September 30,
($ in millions, except per share data in $)
2021
2020
2021
2020
Amounts attributable to ABB shareholders:
Income (loss) from continuing operations, net of tax
1,951
190
661
(513)
Income (loss) from discontinued operations, net of tax
(45)
5,035
(9)
5,043
Net income
1,906
5,225
652
4,530
Weighted-average number of shares outstanding
(in millions)
2,011
2,129
2,001
2,119
Basic earnings per share attributable to ABB shareholders:
Income (loss) from continuing operations, net of tax
0.97
0.09
0.33
(0.24)
Income (loss) from discontinued operations, net of tax
(0.02)
2.36
0.00
2.38
Net income
0.95
2.45
0.33
2.14
Diluted earnings per share
Nine months ended September 30,
Three months ended September 30,
($ in millions, except per share data in $)
2021
2020
2021
2020
Amounts attributable to ABB shareholders:
Income (loss) from continuing operations, net of tax
1,951
190
661
(513)
Income (loss) from discontinued operations, net of tax
(45)
5,035
(9)
5,043
Net income
1,906
5,225
652
4,530
Weighted-average number of shares outstanding (in millions)
2,011
2,129
2,001
2,119
Effect of dilutive securities:
Call options and shares
17
6
18
–
Adjusted weighted-average number of shares outstanding
(in millions)
2,028
2,135
2,019
2,119
Diluted earnings per share attributable to ABB shareholders:
Income (loss) from continuing operations, net of tax
0.96
0.09
0.33
(0.24)
Income (loss) from discontinued operations, net of tax
(0.02)
2.36
0.00
2.38
Net income
0.94
2.45
0.32
2.14
31
Q3 2021
FINANCIAL
INFORMATION
─
Note 16
Reclassifications out of accumulated other comprehensive loss
The following table shows changes in “Accumulated other comprehensive
loss” (OCI) attributable to ABB, by component, net
of tax:
Unrealized gains
Pension and
Foreign currency
(losses) on
other
Derivative
translation
available-for-sale
postretirement
instruments
($ in millions)
adjustments
securities
plan adjustments
and hedges
Total OCI
Balance at January 1, 2020
(3,450)
10
(2,145)
(5)
(5,590)
Other comprehensive (loss) income:
Other comprehensive (loss) income
before reclassifications
84
21
(136)
1
(30)
Amounts reclassified from OCI
538
(12)
487
–
1,013
Total other comprehensive (loss)
income
622
9
351
1
983
Less:
Amounts attributable to
noncontrolling interests
22
–
–
–
22
Balance at September 30, 2020
(2,850)
19
(1,794)
(4)
(4,629)
Unrealized gains
Pension and
Foreign currency
(losses) on
other
Derivative
translation
available-for-sale
postretirement
instruments
($ in millions)
adjustments
securities
plan adjustments
and hedges
Total OCI
Balance at January 1, 2021
(2,460)
17
(1,556)
(3)
(4,002)
Other comprehensive (loss) income:
Other comprehensive (loss) income
before reclassifications
(361)
(10)
64
6
(301)
Amounts reclassified from OCI
–
–
50
(9)
41
Total other comprehensive (loss)
income
(361)
(10)
114
(3)
(260)
Less:
Amounts attributable to
noncontrolling interests
5
5
Balance at September 30, 2021
(1)
(2,825)
7
(1,442)
(6)
(4,266)
(1)
Due to rounding, numbers presented may not add to the totals provided.
32
Q3 2021
FINANCIAL
INFORMATION
The following table reflects amounts reclassified out of OCI
in respect of Foreign currency translation adjustments
and Pension and other postretirement plan
adjustments:
Nine months ended
Three months ended
($ in millions)
Location of (gains) losses
September 30,
September 30,
Details about OCI components
reclassified from OCI
2021
2020
2021
2020
Foreign currency translation adjustments:
Currency translation loss (gain):
Income from discontinued
- Divestment of Power Grids business (see Note 3)
operations, net of tax
–
439
–
439
Currency translation loss:
- Divestment of solar inverters business (see Note 4)
Other income (expense), net
–
99
–
–
Amounts reclassified from OCI
–
538
–
439
Pension and other postretirement plan adjustments:
Amortization of prior service cost (credit)
Non-operational pension (cost) credit
(1)
(9)
(7)
(2)
–
Amortization of net actuarial loss
Non-operational pension (cost) credit
(1)
51
83
17
25
Net gain (loss) from pension settlements and curtailments
Non-operational pension (cost) credit
(1)
(1)
487
1
379
Reclassification of OCI relating to pensions on
Income from discontinued
divestment of the Power Grids business
operations, net of tax
–
86
–
86
Total before tax
41
649
16
490
Tax
Income tax expense
9
(127)
(3)
(91)
Reclassification of OCI relating to tax on pensions on
Income from discontinued
divestment of the Power Grids business
operations, net of tax
–
(35)
–
(35)
Amounts reclassified from OCI
50
487
13
364
(1)
Amounts
include total credits of $94 million for the nine months ended September 30, 2020, reclassified from OCI to Income from discontinued operations.
The amounts in respect of Unrealized gains (losses)
on available-for-sale securities and Derivative instruments
and hedges were not significant for the nine and
three months ended September 30, 2021 and 2020.
33
Q3 2021
FINANCIAL
INFORMATION
─
Note 17
Restructuring and related expenses
OS program
From December 2018 to December 2020,
the Company executed a two-year restructuring
program with the objective to simplify the Company’s
business model
and structure through the implementation of a new organizational
structure driven by its businesses. The program resulted
in the elimination of the country and
regional structures within the previous matrix organization,
including the elimination of the three regional Executive Committee roles.
The operating businesses are
now responsible for both their customer-facing activities and business
support functions, while the remaining Group-level corporate
activities primarily focus on
Group strategy, portfolio and performance
management and capital allocation.
As of December 31, 2020, the Company had incurred substantially
all costs related to the OS program.
Liabilities associated with the OS program are included primarily
in Other provisions. The following table shows the activity from
the beginning of the program to
September 30, 2021, by expense type:
Employee
Contract settlement,
($ in millions)
severance costs
loss order and other costs
Total
Liability at January 1, 2018
–
–
–
Expenses
65
–
65
Liability at December 31, 2018
65
–
65
Expenses
111
1
112
Cash payments
(44)
(1)
(45)
Change in estimates
(30)
–
(30)
Exchange rate differences
(3)
–
(3)
Liability at December 31, 2019
99
–
99
Expenses
119
17
136
Cash payments
(91)
(15)
(106)
Change in estimates
(10)
–
(10)
Exchange rate differences
4
–
4
Liability at December 31, 2020
121
2
123
Expenses
11
2
13
Cash payments
(58)
(3)
(61)
Change in estimates
(8)
–
(8)
Exchange rate differences
(5)
–
(5)
Liability at September 30, 2021
61
1
62
The following table outlines the costs incurred in the nine and
three months ended September 30, 2020, and the cumulative
net costs incurred to December 31,
2020:
Net cost incurred
Cumulative net
Nine months ended
Three months ended
cost incurred up to
($ in millions)
September 30, 2020
September 30, 2020
December 31, 2020
Electrification
33
15
85
Motion
10
5
25
Process Automation
(1)
7
1
61
Robotics & Discrete Automation
9
2
18
Corporate and Other
27
6
114
Total
86
29
303
(1) Formerly named the Industrial Automation operating segment.
The Company recorded the following expenses, net of changes
in estimates, under this program:
Cumulative costs
Nine months ended
Three months ended
incurred up to
($ in millions)
September 30, 2020
(1)
September 30, 2020
(2)
December 31, 2020
Employee severance costs
54
18
255
Estimated contract settlement, loss order and other costs
13
9
18
Inventory and long-lived asset impairments
19
2
30
Total
86
29
303
(1)
Of which $23 million was recorded in Total cost of sales and $53 million in Other Income (expense), net.
(2)
Of which $12 million was recorded in Total cost of sales and $14 million in Other Income (expense), net.
34
Q3 2021
FINANCIAL
INFORMATION
Other restructuring-related activities
In addition, during 2021 and 2020, the Company executed
various other restructuring-related activities and
incurred the following charges, net of changes in
estimates:
Nine months ended September 30,
Three months ended September 30,
($ in millions)
2021
2020
2021
2020
Employee severance costs
44
37
11
31
Estimated contract settlement, loss order and other costs
15
16
3
4
Inventory and long-lived asset impairments
17
4
15
2
Total
76
57
29
37
Expenses associated with these activities are recorded in the
following line items in the Consolidated Income
Statements:
Nine months ended September 30,
Three months ended September 30,
($ in millions)
2021
2020
2021
2020
Total cost of sales
36
13
12
11
Selling, general and administrative expenses
10
16
5
8
Non-order related research and development expenses
–
1
–
1
Other income (expense), net
30
27
12
17
Total
76
57
29
37
At September 30, 2021, and December 31, 2020,
$185 million and $233 million, respectively,
were recorded for other restructuring-related liabilities and
were
included primarily in Other provisions.
─
Note 18
Operating segment 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 is organized into the following segments, based
on products and services: Electrification, Motion,
Process Automation, and Robotics & Discrete Automation. The remaining
operations of the Company are included in Corporate
and Other.
Effective January 1, 2021, the Industrial Automation segment
was renamed the Process Automation segment.
In addition, the Company changed its method of
allocating real estate assets to its operating segments whereby
these assets are now accounted for directly in the individual
operating segment which utilizes the
asset rather than as a cost recharged to the operating segment
from Corporate and Other.
As a result, while this change had no
impact on segment revenues or
profits (Operational EBITA), certain real
estate assets previously reported within Corporate and
Other have been allocated to the total segment
assets of each
individual operating segment.
Total
assets at December 31, 2020, has been recast
to reflect this allocation change.
A description of the types of products and services
provided by each reportable segment is as follows:
●
Electrification:
manufactures and sells electrical products and solutions
which are designed to provide safe, smart and
sustainable electrical flow from
the substation to the socket. The portfolio of increasingly digital and
connected solutions includes electric vehicle
charging infrastructure, renewable
power solutions, modular substation packages, distribution
automation products, switchboard and panelboards, switchgear,
UPS solutions, circuit
breakers, measuring and sensing devices, control products,
wiring accessories, enclosures and cabling systems
and intelligent home and building
solutions, designed to integrate and automate lighting, heating,
ventilation, security and data communication networ
ks.
The products and services are
delivered through six operating Divisions: Distribution Solutions,
Smart Power, Smart B
uildings, E-mobility,
Installation Products and Power Conversion.
●
Motion:
manufactures and sells drives, motors, generators,
traction converters and mechanical power transmission
products that are driving the low-
carbon future for industries, cities, infrastructure and transportation.
These products, digital technology and related
services enable industrial customers
to increase energy efficiency,
improve safety and reliability,
and achieve precise control of their processes.
Building on over 130 years of cumulative
experience in electric powertrains, the Business Area combines
domain expertise and technology to deliver
the optimum solution for a wide range of
applications in all industrial segments. In addition, the
Business Area, along with partners, has an unmatched global service
presence. These products
and services are delivered through eight operating Divisions:
Large Motors and Generators, IEC LV
Motors, NEMA Motors, Drive Products, System
Drives, Service, Traction and Mechanical
Power Transmission.
●
Process Automation:
develops and sells a broad range of industry
-specific, integrated automation, electrification and
digital systems and solutions, as
well as lifecycle services, advanced industrial analytics
and artificial intelligence applications and suites for
the process, marine and hybrid industries.
Products and solutions include control technologies, advanced
process control software and manufacturing execution
systems, sensing, measurement
and analytical instrumentation, marine propulsion systems
and turbochargers. In addition,
the Business Area offers a comprehensive range
of services
ranging from repair to advanced services such as
remote monitoring, preventive maintenance, asset
performance management, emission monitoring
and cybersecurity services. The products,
systems and services are delivered through five operating Divisions: Energy
Industries, Process Industries,
Marine & Ports, Turbocharging, and Measurement
& Analytics.
●
Robotics & Discrete Automation:
delivers its products,
solutions and services through two operating Divisions:
Robotics and Machine Automation.
Robotics includes:
industrial robots, software, robotic solutions and systems,
field services, spare parts, and digital services. Machine
Automation
specializes in solutions based on its programmable logic
controllers (PLC), industrial PCs (IPC), servo motion, transport
systems and machine vision.
Both Divisions offer engineering and simulation software
as well as a comprehensive range of digital solutions.
Corporate and Other:
includes headquarters, the Company’s corporate
real estate activities, Corporate Treasury Operations,
historical operating activities of
certain divested businesses and other non-core operating activities
.
The primary measure of profitability on which the operating segments
are evaluated is Operational EBITA, wh
ich represents income from operations excluding:
●
Amortization expense on intangibles arising upon acquisition (acquisition
-related amortization),
●
restructuring, related and implementation costs,
●
changes in the amount recorded for obligations related to divested
businesses occurring after the divestment date (changes
in obligations related to
divested businesses),
35
Q3 2021
FINANCIAL
INFORMATION
●
changes in estimates relating to opening balance sheets of acquired
businesses (changes in pre-acquisition estimates),
●
gains and losses from sale of businesses (including fair
value adjustment on assets and liabilities held for sale)
,
●
acquisition- and divestment-related expenses and integration costs,
●
other income/expense relating to the Power Grids joint venture,
●
certain other non-operational items, as well as
●
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).
Certain other non-operational items generally includes certain regulatory,
compliance and legal costs, certain asset write downs/impairments
(including impairment
of goodwill) and certain other fair value changes, as well as
other items which are determined by management on
a case-by-case basis.
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 disaggregated segment revenues from
contracts with customers, Operational EBITA,
and the reconciliations of consolidated
Operational EBITA to Income from continuing
operations before taxes for the nine and three months
ended September 30, 2021 and 2020, as well as total
assets
at September 30, 2021, and December 31, 2020.
Nine months ended September 30, 2021
Robotics &
Process
Discrete
Corporate
($ in millions)
Electrification
Motion
Automation
Automation
and Other
Total
Geographical markets
Europe
3,357
1,483
1,716
1,201
16
7,773
The Americas
3,312
1,832
1,010
331
3
6,488
of which: United States
2,465
1,540
577
236
–
4,818
Asia, Middle East and Africa
2,905
1,554
1,694
957
7
7,117
of which: China
1,577
861
547
714
–
3,699
9,574
4,869
4,420
2,489
26
21,378
Product type
Products
8,106
4,202
1,254
1,639
15
15,216
Systems
824
–
1,101
492
11
2,428
Services and other
644
667
2,065
358
–
3,734
9,574
4,869
4,420
2,489
26
21,378
Third-party revenues
9,574
4,869
4,420
2,489
26
21,378
Intersegment revenues
168
321
34
9
(532)
–
Total revenues
(2)
9,742
5,190
4,454
2,498
(506)
21,378
Nine months ended September 30, 2020
Robotics &
Process
Discrete
Corporate
($ in millions)
Electrification
Motion
Automation
Automation
and Other
Total
Geographical markets
Europe
2,852
1,396
1,705
1,031
14
6,998
The Americas
2,966
1,646
987
289
3
5,891
of which: United States
2,296
1,404
616
203
3
4,522
Asia, Middle East and Africa
2,452
1,285
1,460
733
25
5,955
of which: China
1,270
658
433
498
1
2,860
8,270
4,327
4,152
2,053
42
18,844
Product type
Products
7,075
3,702
864
1,200
49
12,890
Systems
583
–
1,266
551
(7)
2,393
Services and other
612
625
2,022
302
–
3,561
8,270
4,327
4,152
2,053
42
18,844
Third-party revenues
8,270
4,327
4,152
2,053
42
18,844
Intersegment revenues
(1)
298
377
95
53
(715)
108
Total revenues
(2)
8,568
4,704
4,247
2,106
(673)
18,952
36
Q3 2021
FINANCIAL
INFORMATION
Three months ended September 30, 2021
Robotics &
Process
Discrete
Corporate
($ in millions)
Electrification
Motion
Automation
Automation
and Other
Total
Geographical markets
Europe
1,091
463
574
387
10
2,525
The Americas
1,091
609
352
107
2
2,161
of which: United States
810
511
214
75
–
1,610
Asia, Middle East and Africa
955
507
569
315
(4)
2,342
of which: China
524
284
171
231
–
1,210
3,137
1,579
1,495
809
8
7,028
Product type
Products
2,549
1,357
454
581
5
4,946
Systems
374
–
341
106
3
824
Services and other
214
222
700
122
–
1,258
3,137
1,579
1,495
809
8
7,028
Third-party revenues
3,137
1,579
1,495
809
8
7,028
Intersegment revenues
59
94
12
4
(169)
–
Total revenues
(2)
3,196
1,673
1,507
813
(161)
7,028
Three months ended September 30, 2020
Robotics &
Process
Discrete
Corporate
($ in millions)
Electrification
Motion
Automation
Automation
and Other
Total
Geographical markets
Europe
1,010
459
579
379
(17)
2,410
The Americas
995
531
298
102
1
1,927
of which: United States
746
449
171
75
2
1,443
Asia, Middle East and Africa
939
488
501
305
12
2,245
of which: China
509
288
165
219
2
1,182
2,944
1,478
1,378
786
(4)
6,582
Product type
Products
2,439
1,258
230
446
8
4,381
Systems
294
–
466
234
(12)
982
Services and other
211
220
682
106
–
1,219
2,944
1,478
1,378
786
(4)
6,582
Third-party revenues
2,944
1,478
1,378
786
(4)
6,582
Intersegment revenues
(1)
87
133
25
20
(265)
–
Total revenues
(2)
3,031
1,611
1,403
806
(269)
6,582
(1)
Intersegment revenues until June 30, 2020,
include sales to the Power Grids business which is presented as discontinued operations and therefore these sales are not eliminated
from total revenues.
(2)
Due to rounding, numbers presented may not add to the totals provided.
37
Q3 2021
FINANCIAL
INFORMATION
Nine months ended
Three months ended
September 30,
September 30,
($ in millions)
2021
2020
2021
2020
Operational EBITA:
Electrification
1,614
1,159
511
493
Motion
905
790
291
281
Process Automation
554
348
207
89
Robotics & Discrete Automation
291
178
90
76
Corporate and Other
‒
Non-core and divested businesses
(39)
(107)
(10)
(88)
‒ Stranded corporate costs
–
(40)
–
–
‒ Corporate costs and Other Intersegment elimination
(191)
(254)
(27)
(64)
Total
3,134
2,074
1,062
787
Acquisition-related amortization
(191)
(197)
(62)
(67)
Restructuring, related and implementation costs
(1)
(81)
(190)
(28)
(83)
Changes in obligations related to divested businesses
(16)
(204)
(10)
(203)
Changes in pre-acquisition estimates
6
(11)
14
(11)
Gains and losses from sale of businesses
9
(4)
–
1
Fair value adjustment on assets and liabilities held for sale
–
(33)
–
(14)
Acquisition- and divestment-related expenses and integration
costs
(74)
(43)
(44)
(16)
Other income/expense relating to the Power Grids joint venture
(34)
(15)
(15)
(15)
Foreign exchange/commodity timing differences in
income from operations:
Unrealized gains and losses on derivatives (foreign exchange,
commodities, embedded derivatives)
(106)
22
(49)
15
Realized gains and losses on derivatives where the underlying hedged
transaction has not yet been realized
5
10
(4)
13
Unrealized foreign exchange movements on receivables/payables (and
related assets/liabilities)
33
(16)
5
(5)
Certain other non-operational items:
Costs for divestment of Power Grids
–
(110)
–
(11)
Regulatory, compliance and legal costs
(3)
(6)
(1)
(6)
Business transformation costs
(2)
(59)
(19)
(20)
(7)
Favorable resolution of an uncertain purchase price adjustment
5
8
5
–
Certain other fair value changes, including asset impairments
(3)
118
(240)
4
(298)
Other non-operational items
(3)
(11)
(5)
(9)
Income from operations
2,743
1,015
852
71
Interest and dividend income
37
39
11
12
Interest and other finance expense
(108)
(191)
(17)
(79)
Non-operational pension (cost) credit
130
(272)
42
(343)
Income from continuing operations before taxes
2,802
591
888
(339)
(1)
Amount includes implementation costs in relation to the OS program of $47 million and $17 million for the nine and three months ended September 30, 2020, respectively.
(2)
Amount includes ABB Way process transformation costs of $52 million and $19 million for the nine and three months ended September 30, 2021, respectively.
(3)
Amount in 2020 includes goodwill impairment charges of $311 million.
Total assets
(1)
($ in millions)
September 30, 2021
December 31, 2020
Electrification
12,943
12,800
Motion
(2)
6,678
6,495
Process Automation
4,928
5,008
Robotics & Discrete Automation
5,010
4,794
Corporate and Other
(3)
10,269
11,991
Consolidated
39,828
41,088
(1)
Total assets are after intersegment eliminations and therefore reflect third-party assets only.
(2)
At September 30, 2021, Motion includes $882 million of assets held for sale in relation to the planned sale of its Mechanical Power Transmission Division (see Note 3).
(3)
At September 30, 2021, and December 31, 2020, respectively, Corporate and Other includes $166 million and $282 million of assets in the Power Grids business which is reported as
discontinued operations (see Note 3), In addition, at
September 30, 2021, and December 31, 2020, Corporate and Other includes $1,620 million and $1,710 million, respectively,
related to the equity investment in Hitachi ABB Power Grids Ltd (see Note 4).
38
Q3 2021
FINANCIAL
INFORMATION
39
Q3 2021
FINANCIAL
INFORMATION
—
Supplemental Reconciliations
and Definitions
The following
reconciliations
and definitions
include
measures
which ABB
uses to
supplement
its Consolidated
Financial
Information
(unaudited)
which is
prepared
in accordance
with United
States
generally
accepted
accounting
principles
(U.S.
GAAP).
Certain
of these
financial
measures
are, or
may be,
considered
non-GAAP
financial
measures
as defined
in the
rules of
the U.S.
Securities
and Exchange
Commission
(SEC).
While
ABB’s
management
believes
that the
non-GAAP
financial
measures
herein
are useful
in evaluating
ABB’s
operating
results,
this information
should
be considered
as supplemental
in nature
and not
as a substitute
for the
related
financial
information
prepared
in accordance
with U.S.
GAAP.
Therefore
these
measures
should
not be
viewed
in isolation
but considered
together
with
the Consolidated
Financial
Information
(unaudited)
prepared
in accordance
with
U.S. GAAP
as of and
for the
nine and
three months
ended
September
30, 2021.
On January
1, 2020,
the Company
adopted
a new
accounting
update
for the
measurement
of credit
losses
on financial
instruments
.
Consistent
with the
method
of adoption
elected,
comparable
information
has not
been restated
to reflect
the adoption
of this
new standard
and accounting
update
and
continues
to be
measured
and reported
under the
accounting
standard
in effect
for those
periods
presented.
Comparable growth rates
Growth rates for certain key figures may be presented and discussed
on a “comparable” basis. The comparable growth rate measures
growth on a constant
currency basis. Since we are a global company,
the comparability of our operating results reported
in U.S. dollars is affected by foreign currency
exchange rate
fluctuations. We calculate the impacts from foreign currency
fluctuations by translating the current-year periods’ reported
key figures into U.S. dollar amounts using
the exchange rates in effect for the comparable periods
in the previous year.
Comparable growth rates are also adjusted for changes
in our business portfolio. Adjustments to our business
portfolio occur due to acquisitions, divestments, or
by exiting specific business activities or customer markets. The adjustment
for portfolio changes is calculated as follows: where
the results of any business
acquired or divested have not been consolidated and reported for the
entire duration of both the current and comparable
periods, the reported key figures of such
business are adjusted to exclude the relevant key figures
of any corresponding quarters which are not comparable
when computing the comparable growth rate.
Certain portfolio changes which do not qualify as divestments under
U.S. GAAP have been treated in a similar manner to
divestments. Changes in our portfolio
where we have exited certain
business activities or customer markets are adjusted
as if the relevant business was divested in the period when
the decision to
cease business activities was taken. We do not adjust
for portfolio changes where the relevant business
has annualized revenues of less than $50 million.
The following tables provide reconciliations of reported growth rates
of certain key figures to their respective comparable growth
rate.
Comparable growth rate reconciliation by Business Area
Q3 2021 compared to Q3 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Business Area
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Electrification
19%
-2%
0%
17%
5%
-1%
0%
4%
Motion
24%
-2%
0%
22%
4%
-2%
0%
2%
Process
Automation
43%
-3%
0%
40%
7%
-2%
0%
5%
Robotics & Discrete Automation
30%
-3%
-1%
26%
1%
-3%
-1%
-3%
ABB Group
29%
-2%
-1%
26%
7%
-3%
0%
4%
9M 2021 compared to 9M 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Business Area
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Electrification
22%
-4%
0%
18%
14%
-5%
1%
10%
Motion
15%
-5%
0%
10%
10%
-4%
0%
6%
Process
Automation
15%
-5%
0%
10%
5%
-5%
0%
0%
Robotics & Discrete Automation
27%
-7%
0%
20%
19%
-7%
0%
12%
ABB Group
21%
-5%
0%
16%
13%
-5%
0%
8%
40
Q3 2021
FINANCIAL
INFORMATION
Regional comparable growth rate reconciliation
Regional comparable growth rate reconciliation for ABB Group
- Quarter
Q3 2021 compared to Q3 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Region
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Europe
29%
-1%
-1%
27%
5%
-1%
-1%
3%
The Americas
33%
-1%
-1%
31%
12%
-1%
0%
11%
of which: United States
31%
0%
0%
31%
12%
0%
0%
12%
Asia, Middle East and Africa
25%
-5%
0%
20%
4%
-3%
0%
1%
of which: China
16%
-7%
0%
9%
2%
-6%
0%
-4%
ABB Group
29%
-2%
-1%
26%
7%
-3%
0%
4%
Regional comparable growth rate reconciliation by Business
Area - Quarter
Q3 2021 compared to Q3 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Region
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Europe
18%
-1%
0%
17%
5%
0%
0%
5%
The Americas
29%
-1%
0%
28%
9%
0%
0%
9%
of which: United States
29%
0%
0%
29%
8%
0%
0%
8%
Asia, Middle East and Africa
10%
-5%
0%
5%
1%
-4%
0%
-3%
of which: China
11%
-6%
0%
5%
3%
-7%
0%
-4%
Electrification
19%
-2%
0%
17%
5%
-1%
0%
4%
Q3 2021 compared to Q3 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Region
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Europe
32%
-1%
0%
31%
-4%
0%
0%
-4%
The Americas
15%
-1%
0%
14%
15%
-1%
0%
14%
of which: United States
14%
-1%
0%
13%
14%
0%
0%
14%
Asia, Middle East and Africa
30%
-6%
0%
24%
1%
-4%
0%
-3%
of which: China
9%
-7%
0%
2%
-4%
-6%
0%
-10%
Motion
24%
-2%
0%
22%
4%
-2%
0%
2%
Q3 2021 compared to Q3 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Region
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Europe
12%
-2%
0%
10%
-3%
-2%
0%
-5%
The Americas
90%
-1%
0%
89%
19%
-1%
0%
18%
of which: United States
117%
0%
0%
117%
26%
-1%
0%
25%
Asia, Middle East and Africa
51%
-4%
0%
47%
14%
-4%
0%
10%
of which: China
49%
-8%
0%
41%
4%
-6%
0%
-2%
Process Automation
43%
-3%
0%
40%
7%
-2%
0%
5%
Q3 2021 compared to Q3 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Region
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Europe
37%
-2%
-2%
33%
-1%
-1%
-2%
-4%
The Americas
40%
-4%
0%
36%
4%
-2%
0%
2%
of which: United States
30%
0%
0%
30%
0%
0%
0%
0%
Asia, Middle East and Africa
19%
-5%
0%
14%
2%
-5%
0%
-3%
of which: China
17%
-7%
0%
10%
5%
-7%
0%
-2%
Robotics & Discrete Automation
30%
-3%
-1%
26%
1%
-3%
-1%
-3%
41
Q3 2021
FINANCIAL
INFORMATION
Regional comparable growth rate reconciliation for ABB Group
– Year to date
9M 2021 compared to 9M 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Region
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Europe
23%
-6%
0%
17%
11%
-6%
0%
5%
The Americas
23%
-2%
0%
21%
10%
-1%
0%
9%
of which: United States
21%
0%
0%
21%
7%
-1%
1%
7%
Asia, Middle East and Africa
19%
-7%
0%
12%
20%
-7%
1%
14%
of which: China
25%
-10%
0%
15%
29%
-9%
1%
21%
ABB Group
21%
-5%
0%
16%
13%
-5%
0%
8%
Regional comparable growth rate reconciliation by Business
Area – Year to date
9M 2021 compared to 9M 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Region
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Europe
23%
-6%
0%
17%
14%
-5%
0%
9%
The Americas
25%
-1%
0%
24%
11%
-1%
1%
11%
of which: United States
22%
0%
0%
22%
7%
0%
0%
7%
Asia, Middle East and Africa
17%
-7%
1%
11%
16%
-7%
2%
11%
of which: China
26%
-9%
0%
17%
23%
-9%
0%
14%
Electrification
22%
-4%
0%
18%
14%
-5%
1%
10%
9M 2021 compared to 9M 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Region
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Europe
14%
-6%
0%
8%
2%
-5%
0%
-3%
The Americas
19%
-2%
0%
17%
11%
-1%
0%
10%
of which: United States
17%
0%
0%
17%
9%
0%
0%
9%
Asia, Middle East and Africa
13%
-7%
0%
6%
19%
-7%
0%
12%
of which: China
17%
-8%
0%
9%
29%
-10%
0%
19%
Motion
15%
-5%
0%
10%
10%
-4%
0%
6%
9M 2021 compared to 9M 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Region
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Europe
12%
-8%
0%
4%
-2%
-6%
0%
-8%
The Americas
17%
-2%
0%
15%
2%
-2%
0%
0%
of which: United States
21%
-1%
0%
20%
-6%
-1%
0%
-7%
Asia, Middle East and Africa
18%
-6%
0%
12%
15%
-6%
0%
9%
of which: China
25%
-9%
0%
16%
26%
-8%
0%
18%
Process Automation
15%
-5%
0%
10%
5%
-5%
0%
0%
9M 2021 compared to 9M 2020
Order growth rate
Revenue growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Region
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Europe
29%
-7%
-1%
21%
13%
-7%
0%
6%
The Americas
32%
-2%
0%
30%
14%
-2%
0%
12%
of which: United States
29%
0%
0%
29%
16%
0%
0%
16%
Asia, Middle East and Africa
21%
-8%
0%
13%
29%
-8%
0%
21%
of which: China
20%
-9%
0%
11%
43%
-11%
0%
32%
Robotics & Discrete Automation
27%
-7%
0%
20%
19%
-7%
0%
12%
42
Q3 2021
FINANCIAL
INFORMATION
Order backlog growth rate reconciliation
September 30, 2021 compared to September 30, 2020
US$
Foreign
(as
exchange
Portfolio
Business Area
reported)
impact
changes
Comparable
Electrification
17%
0%
0%
17%
Motion
11%
0%
0%
11%
Process Automation
17%
-1%
0%
16%
Robotics & Discrete Automation
12%
-1%
0%
11%
ABB Group
15%
0%
0%
15%
Other growth rate reconciliations
Q3 2021 compared to Q3 2020
Service orders growth rate
Services revenues growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Business Area
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Electrification
23%
-1%
0%
22%
1%
-1%
0%
0%
Motion
5%
-2%
0%
3%
1%
-2%
0%
-1%
Process
Automation
25%
-2%
0%
23%
3%
-2%
0%
1%
Robotics & Discrete Automation
19%
-1%
0%
18%
16%
-1%
0%
15%
ABB Group
20%
-2%
0%
18%
3%
-1%
0%
2%
9M 2021 compared to 9M 2020
Service orders growth rate
Services revenues growth rate
US$
Foreign
US$
Foreign
(as
exchange
Portfolio
(as
exchange
Portfolio
Business Area
reported)
impact
changes
Comparable
reported)
impact
changes
Comparable
Electrification
12%
-4%
0%
8%
5%
-3%
0%
2%
Motion
9%
-4%
0%
5%
7%
-5%
0%
2%
Process
Automation
14%
-5%
0%
9%
2%
-4%
0%
-2%
Robotics & Discrete Automation
28%
-5%
0%
23%
19%
-5%
0%
14%
ABB Group
14%
-5%
0%
9%
5%
-5%
0%
0%
43
Q3 2021
FINANCIAL
INFORMATION
Operational EBITA as
% of operational revenues (Operational EBITA margin)
Definition
Operational EBITA margin
Operational EBITA margin is Operational
EBITA as a percentage of
operational revenues.
Operational EBITA
Operational earnings before interest, taxes and acquisition-related
amortization (Operational EBITA)
represents Income from operations excluding:
●
acquisition-related amortization (as defined below),
●
restructuring, related and implementation costs,
●
changes in the amount recorded for obligations related to divested
businesses occurring after the divestment date (changes
in obligations related to
divested businesses),
●
changes in estimates relating to opening balance sheets of acquired
businesses (changes in pre-acquisition estimates),
●
gains and losses from sale of businesses (including fair value adjustment
on assets and liabilities held for sale),
●
acquisition- and divestment-related expenses and integration costs,
●
other income/expense relating to the Power Grids joint venture,
●
certain other non-operational items, as well as
●
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).
Certain other non-operational items generally includes certain regulatory,
compliance and legal costs, certain asset impairments
(including impairment of goodwill)
and certain other fair value changes, as well as other items
which are determined by management on a case
-by-case basis.
Operational EBITA is our measure of
segment profit but is also used by management to evaluate
the profitability of the Company
as a whole.
Acquisition-related amortization
Amortization expense on intangibles arising upon acquisitions.
Restructuring, related and implementation costs
Restructuring, related and implementation costs consists
of restructuring and other related expenses, as well as internal and external
costs relating to the
implementation of group-wide restructuring programs.
Other income/expense relating to the Power Grids joint
venture
Other income/expense relating to the Power Grids joint venture
consists of amounts recorded in Income from continuing
operations before taxes relating to the
divested Power Grids business including the income/loss
under the equity method for the investment in Hitachi ABB
Power Grids Ltd. (Hitachi ABB PG),
amortization of deferred brand income as well as changes
in value of other obligations relating to the divestment.
Operational revenues
The Company presents operational revenues solely for the purpose
of allowing the computation of Operational EBITA
margin. Operational revenues are Total
revenues adjusted for foreign exchange/commodity timing differences
in total revenues of: (i) unrealized gains and losses
on 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 (and
related assets). Operational revenues are not intended to be an
alternative measure to Total
revenues, which represent our revenues measured
in accordance
with U.S. GAAP.
Reconciliation
The following tables provide reconciliations of consolidated Operational
EBITA to Net Income and Operational
EBITA Margin by business.
Reconciliation of consolidated Operational EBITA
to Net Income
Nine months ended September 30,
Three months ended September 30,
($ in millions)
2021
2020
2021
2020
Operational EBITA
3,134
2,074
1,062
787
Acquisition-related amortization
(191)
(197)
(62)
(67)
Restructuring, related and implementation costs
(1)
(81)
(190)
(28)
(83)
Changes in obligations related to divested businesses
(16)
(204)
(10)
(203)
Changes in pre-acquisition estimates
6
(11)
14
(11)
Gains and losses from sale of businesses
9
(4)
–
1
Fair value adjustment on assets and liabilities held for sale
–
(33)
–
(14)
Acquisition- and divestment-related expenses and integration costs
(74)
(43)
(44)
(16)
Other income/expense relating to the Power Grids joint venture
(34)
(15)
(15)
(15)
Certain other non-operational items
(2)
58
(378)
(17)
(331)
Foreign exchange/commodity timing differences in
income from operations
(68)
16
(48)
23
Income from operations
2,743
1,015
852
71
Interest and dividend income
37
39
11
12
Interest and other finance expense
(108)
(191)
(17)
(79)
Non-operational pension (cost) credit
130
(272)
42
(343)
Income from continuing operations before taxes
2,802
591
888
(339)
Income tax expense
(775)
(373)
(201)
(164)
Income from continuing operations, net of
tax
2,027
218
687
(503)
Income (loss) from discontinued operations, net of tax
(45)
5,043
(9)
5,038
Net income
1,982
5,261
678
4,535
(1)
Amounts include implementation costs in relation to the OS program of $47 million and $17 million for the nine and three months ended September 30, 2020, respectively.
(2)
Amounts include goodwill impairment charges of $311 million for the nine and three months ended September 30, 2020
44
Q3 2021
FINANCIAL
INFORMATION
Reconciliation of Operational EBITA
margin by business
Three months ended September 30, 2021
Corporate and
Robotics &
Other and
Process
Discrete
Intersegment
($ in millions, unless otherwise indicated)
Electrification
Motion
Automation
Automation
elimination
Consolidated
Total revenues
3,196
1,673
1,507
813
(161)
7,028
Foreign exchange/commodity timing
differences in total revenues:
Unrealized gains and losses
on derivatives
15
4
5
–
(1)
23
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
3
1
5
–
(1)
8
Unrealized foreign exchange movements
on receivables (and related assets)
(7)
(1)
(1)
(1)
2
(8)
Operational revenues
3,207
1,677
1,516
812
(161)
7,051
Income (loss) from operations
434
244
183
68
(77)
852
Acquisition-related amortization
30
10
1
21
–
62
Restructuring, related and
implementation costs
11
13
2
1
1
28
Changes in obligations related to
divested businesses
–
–
–
–
10
10
Changes in pre-acquisition estimates
(14)
–
–
–
–
(14)
Gains and losses from sale of businesses
–
–
–
–
–
–
Acquisition- and divestment-related expenses
and integration costs
18
12
13
1
–
44
Other income/expense relating to the
Power Grids joint venture
–
–
–
–
15
15
Certain other non-operational items
2
–
1
–
14
17
Foreign exchange/commodity timing
differences in income from operations:
Unrealized gains and losses on derivatives
(foreign exchange, commodities,
embedded derivatives)
34
14
5
–
(4)
49
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
1
(1)
2
–
2
4
Unrealized foreign exchange movements
on receivables/payables
(and related assets/liabilities)
(5)
(1)
–
(1)
2
(5)
Operational EBITA
511
291
207
90
(37)
1,062
Operational EBITA margin (%)
15.9%
17.4%
13.7%
11.1%
n.a.
15.1%
In the three months ended September 30, 2021, Certain other
non-operational items in the table above includes the following:
Three months ended September 30, 2021
Robotics &
Process
Discrete
Corporate
($ in millions, unless otherwise indicated)
Electrification
Motion
Automation
Automation
and Other
Consolidated
Certain other non-operational items:
Regulatory, compliance and legal costs
–
–
–
–
1
1
Certain other fair values changes,
including asset impairments
3
–
–
–
(7)
(4)
Business transformation costs
(1)
3
–
–
–
17
20
Favorable resolution of an uncertain
purchase price adjustment
(5)
–
–
–
–
(5)
Other non-operational items
1
–
1
–
3
5
Total
2
–
1
–
14
17
(1)
Amounts
include ABB Way process transformation costs of $19 million for the three months ended September 30, 2021.
45
Q3 2021
FINANCIAL
INFORMATION
Three months ended September 30, 2020
Corporate and
Robotics &
Other and
Process
Discrete
Intersegment
($ in millions, unless otherwise indicated)
Electrification
Motion
Automation
Automation
elimination
Consolidated
Total revenues
3,031
1,611
1,403
806
(269)
6,582
Foreign exchange/commodity timing
differences in total revenues:
Unrealized gains and losses
on derivatives
(1)
6
7
(4)
2
10
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
(1)
–
(12)
1
(4)
(16)
Unrealized foreign exchange movements
on receivables (and related assets)
(6)
(2)
(1)
(2)
4
(7)
Operational revenues
3,023
1,615
1,397
801
(267)
6,569
Income (loss) from operations
387
256
75
(236)
(411)
71
Acquisition-related amortization
29
13
1
20
4
67
Restructuring, related and
implementation costs
39
9
21
3
11
83
Changes in obligations related to
divested businesses
15
–
–
–
188
203
Changes in pre-acquisition estimates
11
–
–
–
–
11
Gains and losses from sale of businesses
1
–
–
–
(2)
(1)
Fair value adjustment on assets and liabilities
held for sale
14
–
–
–
–
14
Acquisition- and divestment-related expenses
and integration costs
13
–
1
–
2
16
Other income/expense relating to the
Power Grids joint venture
–
–
–
–
15
15
Certain other non-operational items
2
4
–
291
34
331
Foreign exchange/commodity timing
differences in income from operations:
Unrealized gains and losses on derivatives
(foreign exchange, commodities,
embedded derivatives)
(21)
(1)
3
(2)
6
(15)
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
1
–
(11)
1
(4)
(13)
Unrealized foreign exchange movements
on receivables/payables
(and related assets/liabilities)
2
–
(1)
(1)
5
5
Operational EBITA
493
281
89
76
(152)
787
Operational EBITA margin (%)
16.3%
17.4%
6.4%
9.5%
n.a.
12.0%
In the three months ended September 30, 2020, Certain other
non-operational items in the table above includes the following:
Three months ended September 30, 2020
Robotics &
Process
Discrete
Corporate
($ in millions, unless otherwise indicated)
Electrification
Motion
Automation
Automation
and Other
Consolidated
Certain other non-operational items:
Costs for planned divestment of Power Grids
–
–
–
–
11
11
Regulatory, compliance and legal costs
–
–
–
–
6
6
Certain other fair values changes,
including asset impairments
–
–
–
290
8
298
Business transformation costs
2
3
–
1
1
7
Other non-operational items
–
1
–
–
8
9
Total
2
4
–
291
34
331
46
Q3 2021
FINANCIAL
INFORMATION
Nine months ended September 30, 2021
Corporate and
Robotics &
Other and
Process
Discrete
Intersegment
($ in millions, unless otherwise indicated)
Electrification
Motion
Automation
Automation
elimination
Consolidated
Total revenues
9,742
5,190
4,454
2,498
(506)
21,378
Foreign exchange/commodity timing
differences in total revenues:
Unrealized gains and losses
on derivatives
37
17
19
5
3
81
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
2
1
(2)
(1)
(2)
(2)
Unrealized foreign exchange movements
on receivables (and related assets)
(16)
(6)
(7)
(6)
(1)
(36)
Operational revenues
9,765
5,202
4,464
2,496
(506)
21,421
Income (loss) from operations
1,423
812
520
224
(236)
2,743
Acquisition-related amortization
88
36
3
62
2
191
Restructuring, related and
implementation costs
32
18
15
6
10
81
Changes in obligations related to
divested businesses
–
–
–
–
16
16
Changes in pre-acquisition estimates
(6)
–
–
–
–
(6)
Gains and losses from sale of businesses
4
(1)
(13)
–
1
(9)
Acquisition- and divestment-related expenses
and integration costs
36
19
17
1
1
74
Other income/expense relating to the
Power Grids joint venture
–
–
–
–
34
34
Certain other non-operational items
(13)
1
3
–
(49)
(58)
Foreign exchange/commodity timing
differences in income from operations:
Unrealized gains and losses on derivatives
(foreign exchange, commodities,
embedded derivatives)
63
26
17
1
(1)
106
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
–
–
(1)
(1)
(3)
(5)
Unrealized foreign exchange movements
on receivables/payables
(and related assets/liabilities)
(13)
(6)
(7)
(2)
(5)
(33)
Operational EBITA
1,614
905
554
291
(230)
3,134
Operational EBITA margin (%)
16.5%
17.4%
12.4%
11.7%
n.a.
14.6%
In the nine months ended September 30, 2021, Certain other
non-operational items in the table above includes the following:
Nine months ended September 30, 2021
Robotics &
Process
Discrete
Corporate
($ in millions, unless otherwise indicated)
Electrification
Motion
Automation
Automation
and Other
Consolidated
Certain other non-operational items:
Regulatory, compliance and legal costs
–
–
–
–
3
3
Certain other fair values changes,
including asset impairments
(16)
–
–
–
(102)
(118)
Business transformation costs
(1)
7
–
–
–
52
59
Favorable resolution of an uncertain
purchase price adjustment
(5)
–
–
–
–
(5)
Other non-operational items
1
1
3
–
(2)
3
Total
(13)
1
3
–
(49)
(58)
(1)
Amounts
include ABB Way process transformation costs of $52 million for the nine months ended September 30, 2021.
47
Q3 2021
FINANCIAL
INFORMATION
Nine months ended September 30, 2020
Corporate and
Robotics &
Other and
Process
Discrete
Intersegment
($ in millions, unless otherwise indicated)
Electrification
Motion
Automation
Automation
elimination
Consolidated
Total revenues
8,568
4,704
4,247
2,106
(673)
18,952
Foreign exchange/commodity timing
differences in total revenues:
Unrealized gains and losses
on derivatives
14
3
6
(1)
4
26
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
–
–
(5)
2
(6)
(9)
Unrealized foreign exchange movements
on receivables (and related assets)
(12)
(6)
(8)
(4)
9
(21)
Operational revenues
8,570
4,701
4,240
2,103
(666)
18,948
Income (loss) from operations
891
731
316
(186)
(737)
1,015
Acquisition-related amortization
86
39
3
58
11
197
Restructuring, related and
implementation costs
83
20
37
14
36
190
Changes in obligations related to
divested businesses
15
–
–
–
189
204
Changes in pre-acquisition estimates
11
–
–
–
–
11
Gains and losses from sale of businesses
6
–
–
–
(2)
4
Fair value adjustment on assets and liabilities
held for sale
33
–
–
–
–
33
Acquisition- and divestment-related expenses
and integration costs
40
–
1
–
2
43
Other income/expense relating to the
Power Grids joint venture
–
–
–
–
15
15
Certain other non-operational items
(5)
13
1
293
76
378
Foreign exchange/commodity timing
differences in income from operations:
Unrealized gains and losses on derivatives
(foreign exchange, commodities,
embedded derivatives)
(9)
(12)
(2)
(2)
3
(22)
Realized gains and losses on derivatives
where the underlying hedged
transaction has not yet been realized
–
–
(5)
2
(7)
(10)
Unrealized foreign exchange movements
on receivables/payables
(and related assets/liabilities)
8
(1)
(3)
(1)
13
16
Operational EBITA
1,159
790
348
178
(401)
2,074
Operational EBITA margin (%)
13.5%
16.8%
8.2%
8.5%
n.a.
10.9%
In the nine months ended September 30, 2020, Certain other
non-operational items in the table above includes the following:
Nine months ended September 30, 2020
Robotics &
Process
Discrete
Corporate
($ in millions, unless otherwise indicated)
Electrification
Motion
Automation
Automation
and Other
Consolidated
Certain other non-operational items:
Costs for planned divestment of Power Grids
–
–
–
–
110
110
Regulatory, compliance and legal costs
–
–
–
–
6
6
Certain other fair values changes,
including asset impairments
–
–
–
290
(50)
240
Business transformation costs
3
12
–
3
1
19
Favorable resolution of an uncertain
purchase price adjustment
(8)
–
–
–
–
(8)
Other non-operational items
–
1
1
–
9
11
Total
(5)
13
1
293
76
378
48
Q3 2021
FINANCIAL
INFORMATION
Net debt
Definition
Net debt
Net debt is defined as Total
debt less Cash and marketable securities.
Total debt
Total debt is the sum
of Short-term debt and current maturities of long-term
debt, and Long-term debt.
Cash and marketable securities
Cash and marketable securities is the sum of Cash and equivalents,
Restricted cash (current and non-current) and Marketable
securities and short-term
investments.
Reconciliation
($ in millions)
September 30, 2021
December 31, 2020
Short-term debt and current maturities of long-term debt
2,414
1,293
Long-term debt
4,270
4,828
Total debt (gross debt)
6,684
6,121
Cash and equivalents
3,709
3,278
Restricted cash - current
31
323
Marketable securities and short-term investments
746
2,108
Restricted cash - non-current
300
300
Cash and marketable securities
4,786
6,009
Net debt
1,898
112
Net debt/Equity ratio
Definition
Net debt/Equity ratio
Net debt/Equity ratio is defined as Net debt divided by Equity.
Equity
Equity is defined as Total
stockholders’ equity.
Reconciliation
($ in millions, unless otherwise indicated)
September 30, 2021
December 31, 2020
Total stockholders'
equity
14,309
15,999
Net debt (as defined above)
1,898
112
Net debt / Equity ratio
0.13
0.01
Net debt/EBITDA ratio
Definition
Net debt/EBITDA ratio
Net debt/EBITDA ratio is defined as Net debt divided by
EBITDA.
EBITDA
EBITDA is defined as Income from operations for the trailing
twelve months preceding the balance sheet date before depreciation
and amortization for the same
trailing twelve-month period.
Reconciliation
($ in millions, unless otherwise indicated)
September 30, 2021
September 30, 2020
Income from operations for the three months ended:
September 30, 2021/2020
852
71
June 30, 2021/2020
1,094
571
March 31, 2021/2020
797
373
December 31, 2020/2019
578
648
Depreciation and Amortization for the three months
ended:
September 30, 2021/2020
220
231
June 30, 2021/2020
230
228
March 31, 2021/2020
227
227
December 31, 2020/2019
229
246
EBITDA
4,227
2,595
Net debt / (Net Cash) (as defined above)
1,898
(935)
Net debt / (Net Cash)
/ EBITDA ratio
0.5
-0.4
49
Q3 2021
FINANCIAL
INFORMATION
Net working capital as a percentage of revenues
Definition
Net working capital as a percentage of revenues
Net working capital as a percentage of revenues is calculated
as Net working capital divided by Adjusted revenues for the
trailing twelve months.
Net working capital
Net working capital is the sum of (i) receivables, net, (ii) contract
assets, (iii) inventories, net, and (iv) prepaid expenses; less
(v)
accounts payable, trade, (vi)
contract liabilities, and (vii) other current liabilities (excluding primarily:
(a) income taxes payable, (b) current derivative
liabilities, (c) pension and other employee
benefits, (d) payables under the share buyback program and (e)
liabilities related to the divestment of the Power Grids
business); and including the amounts
related to these accounts which have been presented as either
assets or liabilities held for sale but excluding any
amounts included in discontinued operations
.
Adjusted revenues for the trailing twelve months
Adjusted revenues for the trailing twelve months includes total revenues
recorded by ABB in the twelve months preceding the relevant
balance sheet date adjusted
to eliminate revenues of divested businesses and the estimated
impact of annualizing revenues of certain acquisitions
which were completed in the same trailing
twelve-month period.
Reconciliation
($ in millions, unless otherwise indicated)
September 30, 2021
September 30, 2020
Net working capital:
Receivables, net
6,728
6,638
Contract assets
1,139
1,100
Inventories, net
4,864
4,642
Prepaid expenses
217
233
Accounts payable, trade
(4,642)
(4,323)
Contract liabilities
(1,940)
(1,828)
Other current liabilities
(1)
(3,514)
(3,226)
Net working capital in assets and liabilities held for sale
68
–
Net working capital
2,920
3,236
Total revenues for the three months
ended:
September 30, 2021 / 2020
7,028
6,582
June 30, 2021 / 2020
7,449
6,154
March 31, 2021 / 2020
6,901
6,216
December 31, 2020 / 2019
7,182
7,068
Adjustment to annualize/eliminate revenues of certain acquisitions/divestments
40
(169)
Adjusted revenues for the trailing twelve months
28,600
25,851
Net working capital as a percentage of revenues (%)
10.2%
12.5%
(1)
Amounts exclude $719 million and $1,026 million at September 30, 2021 and 2020, respectively, related primarily to (a) income taxes payable, (b) current derivative liabilities,
(c) pension and other employee benefits (d) payables under the share buyback program and (e) liabilities related to the divestment of the Power Grids business.
50
Q3 2021
FINANCIAL
INFORMATION
Free cash flow conversion to net income
Definition
Free cash flow conversion to net income
Free cash flow conversion to net income is calculated as free cash
flow divided by Adjusted net income attributable to
ABB
Adjusted net income attributable to ABB
Adjusted net income attributable to ABB is calculated as net income
attributable to ABB adjusted for: (i) impairment of
goodwill, (ii) losses from extinguishment
of
debt, and (iii) gain on the sale of the Power Grids business
included in discontinued operations.
Free cash flow
Free cash flow is calculated as net cash provided by operating activities
adjusted for: (i) purchases of property,
plant and equipment and intangible assets,
and (ii)
proceeds from sales of property,
plant and equipment.
Free cash flow for the trailing twelve months
Free cash flow for the trailing twelve months includes free cash flow
recorded by ABB in the twelve months preceding the
relevant balance sheet date.
Net income for the trailing twelve months
Net income for the trailing twelve months includes net income
recorded by ABB (as adjusted) in the twelve months
preceding the relevant balance sheet date.
Free cash flow conversion to net income
Twelve months to
($ in millions, unless otherwise indicated)
September 30, 2021
December 31, 2020
Net cash provided by operating activities – continuing
operations
3,530
1,875
Adjusted for the effects of continuing operations:
Purchases of property, plant and
equipment and intangible assets
(721)
(694)
Proceeds from sale of property, plant and
equipment
82
114
Free cash flow from continuing operations
2,891
1,295
Net cash provided by (used in) operating activities – discontinued
operations
(38)
(182)
Adjusted for the effects of discontinued operations:
Purchases of property, plant and
equipment and intangible assets
(15)
(108)
Proceeds from sale of property, plant and
equipment
–
1
Free cash flow
2,838
1,006
Adjusted net income attributable to ABB
(1)
2,200
478
Free cash flow conversion to net income
129%
210%
(1)
Adjusted net income attributable to ABB for the year ended December 31, 2020, is adjusted to exclude goodwill impairment charges of $311 million, loss from extinguishment of debt
of $162 million and the gain on the sale of the Power Grids business included in discontinued operations of $5,141 million.
Reconciliation of the trailing twelve months to
September 30, 2021
Continuing operations
Discontinued operations
($ in millions)
Net cash
provided by
continuing
operating
activities
Purchases of
property, plant
and equipment
and intangible
assets
Proceeds
from sale of
property, plant
and equipment
Net cash
provided by
(used in)
discontinued
operating
activities
Purchases of
property, plant
and equipment
and intangible
assets
Proceeds
from sale of
property, plant
and equipment
Adjusted net
income
attributable
to ABB
(1)
Q4 2020
1,225
(262)
46
(43)
(15)
–
262
Q1 2021
523
(142)
20
20
–
–
526
Q2 2021
663
(151)
3
–
–
–
755
Q3 2021
1,119
(166)
13
(15)
–
–
657
Total for the trailing
twelve months to
September 30, 2021
3,530
(721)
82
(38)
(15)
–
2,200
(1)
Adjusted net income attributable to ABB for Q4 2020 is adjusted to exclude the loss from extinguishment of debt of $162 million and a reduction to the gain on the sale of Power Grids
of $179 million. Also in Q1, Q2 and Q3 2021, Adjusted net income attributable to ABB is adjusted to exclude further reductions to the gain on the sale of Power Grids, of $24 million,
$3 million and $5 million, respectively.
51
Q3 2021
FINANCIAL
INFORMATION
Net finance expenses
Definition
Net finance expenses is calculated as Interest and dividend income
less Interest and other finance expense
and Losses from extinguishment of debt.
Reconciliation
Nine months ended September 30,
Three months ended September 30,
($ in millions)
2021
2020
2021
2020
Interest and dividend income
37
39
11
12
Interest and other finance expense
(108)
(191)
(17)
(79)
Net finance expenses
(71)
(152)
(6)
(67)
Book-to-bill ratio
Definition
Book-to-bill ratio is calculated as Orders received divided by
Total revenues.
Reconciliation
Nine months ended September 30,
2021
2020
($ in millions, except Book-to-bill presented as a ratio)
Orders
Revenues
Book-to-bill
Orders
Revenues
Book-to-bill
Electrification
10,743
9,742
1.10
8,810
8,568
1.03
Motion
5,773
5,190
1.11
5,022
4,704
1.07
Process Automation
4,881
4,454
1.10
4,226
4,247
1.00
Robotics & Discrete Automation
2,744
2,498
1.10
2,169
2,106
1.03
Corporate and Other
(incl. intersegment eliminations)
(530)
(506)
n.a.
(718)
(673)
n.a.
ABB Group
23,611
21,378
1.10
19,509
18,952
1.03
Three months ended September 30,
2021
2020
($ in millions, except Book-to-bill presented as a ratio)
Orders
Revenues
Book-to-bill
Orders
Revenues
Book-to-bill
Electrification
3,519
3,196
1.10
2,952
3,031
0.97
Motion
1,909
1,673
1.14
1,535
1,611
0.95
Process Automation
1,670
1,507
1.11
1,164
1,403
0.83
Robotics & Discrete Automation
935
813
1.15
720
806
0.89
Corporate and Other
(incl. intersegment eliminations)
(167)
(161)
n.a.
(262)
(269)
n.a.
ABB Group
7,866
7,028
1.12
6,109
6,582
0.93
52
Q3 2021
FINANCIAL
INFORMATION
—
ABB Ltd
Corporate Communications
P.O. Box
8131
8050
Zurich
Switzerland
Tel:
+41 (0)43
317 71
11
www.abb.com
July 1 — September 30, 2021
ABB Ltd announces that the following
members of the Executive Committee
or Board of Directors of ABB
have purchased,
sold or been granted ABB’s registered shares, call options
and warrant appreciation rights (“WARs”), in the following amounts:
Name
Date
Description
Received *
Purchased
Sold
Price
Theodor Swedjemark
September 02, 2021
Option
102,000
CHF
2.175
Timo Ihamuotila
August 11, 2021
Share
35,496
CHF
34.26
Peter Voser
August 10, 2021
Share
160,000
CHF
34.12
Key:
* Received instruments were delivered
as part of the ABB Ltd Director’s or
Executive Committee Member’s
compensation as compensation
for foregone
benefits
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant
has duly caused this report to be signed
on
its behalf by the undersigned, thereunto
duly authorized.
ABB LTD
Date: October 21, 2021.
By:
/s/ Ann-Sofie Nordh
Name:
Ann-Sofie Nordh
Title:
Group Senior Vice President and
Head of Investor Relations
Date: October 21, 2021.
By:
/s/ Richard A. Brown
Name:
Richard A. Brown
Title:
Group Senior Vice President and
Chief Counsel Corporate & Finance