6-K
Abb Ltd (ABLZF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TORULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October 2020
Commission File Number001-16429
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 101(b)(1): ☐
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indication by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Note: Regulation S-T Rule 101(b)(7) only permits the submission 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 furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ☐ No ☒
If “Yes” is marked, indicate below the file number assigned to the 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 23, 2020 titled “Q3 2020 results”.
2. Q3 2020 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
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ZURICH, SWITZERLAND, OCTOBER 23, 2020
Q32020 results
Strong underlying performance
– Orders $6.1 billion, -9%; comparable -8%^1^
– Revenues $6.6 billion, -4%; comparable -4%
– Income from operations $71 million; margin 1.1%
– Power Grids gain of $5.3 billion, pre-tax, recorded in discontinued operations
– Operational EBITA^1^ $787 million; margin^1^ 12.0%
– Net income $4.5 billion, +780%, including Power Grids gain
– Basic EPS $2.14, +785%^2^; operational EPS^1^ $0.21, -36%
– Cash flow from operating activities $408 million, after $273 million negative impact from pensions; resilient cash delivery expected for the full year
“Third quarter revenues in all business areas were still dampened due to the impact of COVID-19, although a strong recovery in China and ongoing cost mitigation efforts supported a strong underlying performance. On the upside, the integration of GEIS and turnaround of Installation Products in Electrification is starting to bear fruit and Motion is performing robustly. Robotics and Industrial Automation, on the other hand, are taking more time to recover,” said Björn Rosengren, CEO of ABB. “We are pushing ahead with the decentralization of the group and the ongoing review of our portfolio, while carrying out our share buyback program as planned. We look forward to presenting further details on our strategic progress at our Capital Markets Day on November 19.”
| Key figures | **** | **** | ChangE | **** | **** | ChangE | ||
|---|---|---|---|---|---|---|---|---|
| ($ millions, unless otherwise indicated) | Q3 2020 | Q3 2019 | US$ | Comparable | 9M 2020 | 9M 2019 | US$ | Comparable |
| Orders | 6,109 | 6,688 | -9% | -8% | 19,509 | 21,702 | -10% | -7% |
| Revenues | 6,582 | 6,892 | -4% | -4% | 18,952 | 20,910 | -9% | -7% |
| Income from operations | 71 | 577 | -88% | 1,015 | 1,290 | -21% | ||
| Operational EBITA^1^ | 787 | 806 | -2% | -5%^3^ | 2,074 | 2,397 | -13% | -14%^3^ |
| as % of operational revenues | 12.0 | 11.7 | +0.3 pts | 10.9 | 11.5 | -0.6 pts | ||
| Net income attributable to ABB | 4,530 | 515 | +780% | 5,225 | 1,114 | +369% | ||
| Basic EPS ($) | 2.14 | 0.24 | +785%^2^ | 2.45 | 0.52 | +370%^2^ | ||
| Operational EPS ($)^1^ | 0.21 | 0.33 | -36%^2^ | -35%^2^ | 0.73 | 0.97 | -25%^2^ | -24%^2^ |
| Cash flow from operating activities^4^ | 408 | 670 | -39% | 511 | 414 | +23% |
__
^1^ For a reconciliation of non-GAAP measures, see “supplemental reconciliations and definitions” in the attached Q3 2020 Financial Information.
^2^ EPS growth rates are computed using unrounded amounts. Comparable operational earnings per share is in constant currency (2019 exchange rates not adjusted for changes in the business portfolio).
^3^ Constant currency (not adjusted for portfolio changes).
^4^ Amount represents total for both continuing and discontinued operations.
| 1/8 |
|---|
Q3 2020 Group results
Summary
Trading conditions during the third quarter remained challenging, influenced by the ongoing COVID-19 pandemic. Demand decreased year-on-year in all regions despite a strong rebound in China, which drove improved order development, particularly in Robotics. Short-cycle product businesses developed positively, but this was outweighed by lower large orders and the ongoing pull-back of service activities. Operating margins for the group were weighed by non-core charges and a loss in Industrial Automation in relation to the Kusile project in South Africa. Excluding these effects, margins showed good underlying resilience, reflecting sustained cost mitigation in all business areas, and strong progress in Electrification with the integration of GEIS and turnaround of Installation Products. Motion maintained its track record of solid performance.
Orders
Orders were 9 percent lower (8 percent comparable) in the quarter compared to the prior year period. Foreign exchange translation effects had a neutral impact and portfolio changes a net negative impact of 1 percent. The order backlog was $13,878 million at the end of the quarter.
Regional overview
– Orders from Europe were 9 percent lower (10 percent comparable) with mixed results at the country level. Sweden, Norway and the Netherlands showed solid growth, while orders declined in most other countries including Switzerland, the UK, Italy and Spain, when compared to the prior year period. In Germany, orders were 11 percent lower (14 percent comparable).
– Orders from the Americas were 14 percent lower (11 percent comparable), with most countries reporting lower order levels. In the US, orders declined by 13 percent (12 percent comparable).
– In Asia, Middle East and Africa (AMEA), orders were 1 percent lower (2 percent comparable). Orders were materially lower in India, Japan and Singapore, while order developments in South Korea were robust. China’s growth was strong, with orders up 7 percent (8 percent comparable).
End-marketoverview
– In discrete industries, orders were mixed. While the group benefited particularly from select order wins in the automotive and 3C sectors, demand from machine builders was weak. Some end-markets, such as food & beverage and logistics, grew strongly.
– Process and energy industry activities were materially lower in the quarter. Service activities were still constrained by travel restrictions, as well as customers delaying service spend. Capital expenditure projects continue to be deferred as most customers adjust to the weaker demand outlook.
– In transport & infrastructure, investments in rail, e-mobility, wind and data centers were healthy. Furthermore, orders were resilient in electrical distribution utilities. Marine activities declined steeply.
– Buildings were mixed, depending on geography.
Revenues
Revenues were 4 percent lower (4 percent comparable) year-on-year reflecting weakness across all four business areas. Foreign exchange translation effects had a net positive impact of 1 percent and portfolio changes a net negative impact of 1 percent. The book-to-bill ratio for the quarter was 0.93x^1^, compared to 0.97x in the prior year period.
Incomefrom operations and operational EBITA
Income from operations was $71 million. The result for the quarter includes approximately $311 million goodwill impairment and $203 million of charges due to changes in obligations related to divested businesses.
| Q3 2020 RESULTS | 2/8 |
|---|
In addition, the result reflects regular non-operational items including amounts related to timing differences on commodities and foreign exchange and expenses related to restructuring and integration efforts.
Operational EBITA^1^ was 2 percent lower (5 percent in local currencies), at $787 million. The operational EBITA^1^ margin of 12.0 percent expanded 30 basis points year-on-year. Margins were higher in Electrification, while all other businesses reported lower margins on a year-on-year basis, mainly reflecting lower volumes. Corporate and Other improved by $24 million compared to a year ago, due to the removal of stranded costs and lower ongoing corporate costs, partially offset by higher charges for non-core business activities.
The 12.0 percent operational EBITA margin includes a negative 80 basis points impact from the proposed settlement in South Africa with Eskom in relation to the Kusile project which resulted in a further project revaluation and, in addition, a negative 130 basis points impact from the aforementioned charges for non-core business activities.
Netincome and basic earnings per share
Group net income attributable to ABB was $4,530 million. Net income benefited from the net income from discontinued operations of $5.0 billion, which included a $5.3 billion pre-tax book gain on the sale of Power Grids and income tax expenses related to the divestment. ABB also recorded non-operational pension costs of $343 million. Further details on this item follow below. Income tax expense was $164 million in continuing operations.
Basic EPS of $2.14 was up 785 percent on a year-on-year basis. Operational EPS of $0.21^1^, down 36 percent^2^ compared to the prior year period.
Cash flowfrom operating activities
Cash flow from operating activities was $408 million including a $273 million negative impact from a cash outflow to facilitate the transfer of certain pension schemes, compared to $670 million in the third quarter of 2019. Cash flow benefited from favorable timing of tax payments and net working capital movements, which offset the effects of a reduction in business activities. As a percent of revenues, net working capital was 12.5 percent at quarter end.
Q3 2020 business area results
All commentary by business area relates to third quarter results on a year-on-year basis.
Electrification(EL)
| Key figures | **** | **** | ChangE | **** | **** | ChangE | ||
|---|---|---|---|---|---|---|---|---|
| ($ millions, unless otherwise indicated) | Q3 2020 | Q3 2019 | US$ | Comparable | 9M 2020 | 9M 2019 | US$ | Comparable |
| Orders | 2,952 | 3,188 | -7% | -5% | 8,810 | 9,890 | -11% | -7% |
| Order backlog | 4,471 | 4,537 | -1% | +2% | 4,471 | 4,537 | -1% | +2% |
| Revenues | 3,031 | 3,161 | -4% | -2% | 8,568 | 9,490 | -10% | -6% |
| Operational EBITA^1^ | 493 | 450 | +10% | 1,159 | 1,267 | -9% | ||
| as % of operational revenues | 16.3% | 14.2% | +2.1 pts | 13.5% | 13.3% | +0.2 pts | ||
| – Short-cycle activities showed good<br> resilience overall with healthy momentum in distribution utilities, data<br> centers, food and beverage, wind, rail and e-mobility, offset by fewer large<br> orders and weaker long-cycle demand. Buildings were mixed, depending on<br> geography, and oil and gas activities declined materially. Demand from the<br> Americas and AMEA showed continued COVID-19 impacts, offsetting the strong<br> recovery in China. | ||||||||
| Q3 2020 RESULTS | 3/8 | |||||||
| --- | --- | |||||||
| – <br> Resilient short-cycle<br> business revenues were dampened by a more challenged project business, mainly<br> in the US.<br><br> <br>– Margin accretion of 210 basis points<br> reflects solid operational performance. The third quarter result includes<br> benefits of approximately 100 basis points from items that may not repeat.<br> Good cost mitigation and supportive pricing actions helped offset the impact<br> of lower volumes. The exit of the solar inverter business and improved<br> performance from Installation Products and GEIS also supported margins. | ||||||||
| --- |
IndustrialAutomation (IA)
| Key<br> figures | **** | ChangE | **** | **** | ChangE | ||
|---|---|---|---|---|---|---|---|
| ( millions, unless otherwise indicated) | Q3 2019 | US$ | Comparable | 9M 2020 | 9M 2019 | US$ | Comparable |
| Orders | 1,438 | -19% | -20% | 4,226 | 4,726 | -11% | -9% |
| Order backlog | 4,944 | +4% | +2% | 5,152 | 4,944 | +4% | +2% |
| Revenues | 1,492 | -6% | -7% | 4,247 | 4,590 | -7% | -6% |
| Operational EBITA1 | 135 | -34% | 348 | 530 | -34% | ||
| as % of operational revenues | 9.0% | -2.6 pts | 8.2% | 11.5% | -3.3 pts | ||
| – Industrial Automation results were impacted<br> by the proposed settlement in South Africa with Eskom in relation to the<br> Kusile project which resulted in a further project revaluation. This lowered<br> both orders and revenues by 3 percent and operational EBITA margin by<br> 400 basis points. A revaluation of the same project had a similar margin<br> impact in the same period a year ago.<br> – Orders were otherwise materially impacted by<br> the ongoing downturn in energy and marine, although the business area<br> benefited from select large order wins and resilience in process industries,<br> including Pulp & Paper. Orders were lower in all regions, with a severe<br> drop in the Americas. Subsequent to the quarter, the business area secured a<br> marine order in excess of 300 million. <br> – Revenue weakness reflects a substantial drop<br> in book-and-bill activities, particularly mobility constrained services.<br> – Aside from the project impact in South<br> Africa, margins improved sequentially as the business worked to fast-track<br> cost savings, but remained impacted by lower volumes and unfavorable mix,<br> with service activities still hampered by COVID-19 restrictions. |
All values are in US Dollars.
Motion(MO)
| Key figures | **** | **** | ChangE | **** | **** | ChangE | ||
|---|---|---|---|---|---|---|---|---|
| ($ millions, unless otherwise indicated) | Q3 2020 | Q3 2019 | US$ | Comparable | 9M 2020 | 9M 2019 | US$ | Comparable |
| Orders | 1,535 | 1,618 | -5% | -5% | 5,022 | 5,180 | -3% | -1% |
| Order backlog | 3,349 | 2,947 | +14% | +10% | 3,349 | 2,947 | +14% | +10% |
| Revenues | 1,611 | 1,630 | -1% | -2% | 4,704 | 4,876 | -4% | -2% |
| Operational EBITA^1^ | 281 | 290 | -3% | 790 | 828 | -5% | ||
| as % of operational revenues | 17.4% | 17.8% | -0.4 pts | 16.8% | 17.0% | -0.2 pts | ||
| – Moderate growth in short-cycle products and<br> strong rail demand was outweighed by broad-based weakness in project and<br> services activities from the continued downturn across sectors such as oil<br> & gas. Orders were up in the Americas but declined in AMEA and Europe.<br><br> <br>– Revenue development reflects resilience in<br> short-cycle business, as well as good execution on the order backlog.<br><br> <br>– Margins held up well versus a tough<br> comparable, benefiting from mix and cost mitigation efforts. | ||||||||
| Q3 2020 RESULTS | 4/8 | |||||||
| --- | --- |
Robotics & Discrete Automation (RA)
| Key figures | **** | **** | ChangE | **** | **** | ChangE | ||
|---|---|---|---|---|---|---|---|---|
| ($ millions, unless otherwise indicated) | Q3 2020 | Q3 2019 | US$ | Comparable | 9M 2020 | 9M 2019 | US$ | Comparable |
| Orders | 720 | 709 | +2% | +0% | 2,169 | 2,559 | -15% | -14% |
| Order backlog | 1,442 | 1,416 | +2% | -2% | 1,442 | 1,416 | +2% | -2% |
| Revenues | 806 | 831 | -3% | -5% | 2,106 | 2,527 | -17% | -16% |
| Operational EBITA^1^ | 76 | 107 | -29% | 178 | 307 | -42% | ||
| as % of operational revenues | 9.5% | 12.9% | -3.4 pts | 8.5% | 12.1% | -3.6 pts | ||
| – Orders were steady relative to an easier<br> comparison period as a result of select robotics investments in the 3C and<br> automotive sectors, mostly in China, while activity levels among machine<br> builders was weak. Orders fell sharply in Europe and the Americas, mitigated<br> by very strong growth in the AMEA region.<br><br> <br>– Revenues declined on a year-on-year basis,<br> but improved relative to the previous quarter, driven by catch-up in backlog execution<br> in robotics for automotive and general industry, as COVID-19 restrictions<br> lessened.<br><br> <br>– Margins were materially lower relative to the<br> prior year period but improved sequentially. Ongoing cost mitigation efforts<br> continued to soften the impact of lower volumes and adverse mix. |
Corporateand Other
| Key<br> figures | **** | ChangE | **** | **** | ChangE |
|---|---|---|---|---|---|
| ( millions, unless otherwise indicated) | Q3 2019 | US$ | 9M 2020 | 9M 2019 | US$ |
| Orders | (265) | +3 | (718) | (653) | (65) |
| Order backlog | (222) | (47) | (673) | (573) | (100) |
| Income from operations | (272) | (139) | (737) | (787) | +50 |
| Operational EBITA1 | (176) | +24 | (401) | (535) | +134 |
| – Corporate and Other Operational EBITA<br> improved to -152 million compared to a year ago. This reflects the<br> elimination of stranded costs related to Power Grids’ sale and lower ongoing<br> corporate costs.<br> – The non-core business incurred 88 million of<br> losses versus 23 million in the prior year period. | |||||
| Corporate and Other orders<br> and revenues primarily represent intersegment eliminations. |
All values are in US Dollars.
| Q3 2020 RESULTS | 5/8 |
|---|
Capital structure optimization
ABB divested 80.1 percent of its Power Grids business to Hitachi on July 1, 2020, recording a book gain of $5.3 billion in the quarter within net income from discontinued operations. As previously announced, ABB intends to return to shareholders net cash proceeds from the divestment of $7.6-7.8 billion. A buyback program of 10 percent^5^ of the company’s share capital commenced July 23 on a second trading line on the SIX Swiss Exchange.
In addition to the ongoing share buyback program, ABB intends to purchase 30-35 million treasury shares during the next 12 months mainly for use in connection with its employee share plans. The purchases will be made at the market price on the ordinary trading line on the SIX Swiss Exchange. ABB currently owns 89,710,731 treasury shares including shares repurchased through the buyback program.
In July, ABB repaid the remaining balance of the €2 billion short-term revolving credit facility put in place to strengthen liquidity in the face of COVID-19, and in early October, the company repaid a €1 billion bond upon maturity. In addition, ABB repaid $2.8 billion of commercial paper during the third quarter. In total, ABB’s gross debt has been reduced by approximately $4 billion over the last six months.
During the third quarter, as part of an ongoing review of its pension structures, certain of the group’s pension plan obligations were transferred to third party insurers, who have assumed the obligation to pay all pensions and benefits due to those plan members.
The transactions, which cover an estimated $1.3 billion of pension obligations that were underfunded by an estimated $450 million, are being facilitated by $320 million of cash contributions of which $273 million was paid in the third quarter by ABB, as well as the transfer of approximately $850 million of existing pension plan assets. As a result, ABB recorded a non-operational pension charge of approximately $380 million in its income statement. The transfer strengthens ABB’s financial profile and supports de-risking of its balance sheet for the long term.
During the fourth quarter 2020, ABB intends to continue its capital structure optimization program including further reviews of its debt, credit and pension structures. ABB currently expects these actions to create non-operational costs and expenses of approximately $330 million. Cash flow from operating activities is expected to be negatively impacted by $90 million. Besides the share buyback program, the company anticipates the capital structure optimization transactions of this phase to be largely complete by the end of this year.
“ABB takes a responsible approach to financial management, and our capital structure optimization program continues to deliver clear benefits for our stakeholders. The divestment of Power Grids has significantly strengthened our balance sheet, allowing us to improve returns to shareholders while continuing to deleverage and invest in long-term growth,” said Timo Ihamuotila, CFO of ABB.
Short-term outlook
The global economy is expected to contract in 2020 after a rapid deterioration in outlook driven by the COVID-19 pandemic. Despite an earlier recovery in China being followed by other large parts of the global economy, there remains considerable uncertainty around the continued pace of recovery. Many countries continue to face ongoing or renewed COVID-19 related restrictions, which could slow recovery, with anticipated long-term economic consequences.
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^5^ Maximum 10 percent of the company’s issued share capital, including treasury shares.
| Q3 2020 RESULTS | 6/8 |
|---|
The impact of COVID-19 continues to weigh on the short-term outlook across many end-markets, particularly in oil and gas, conventional power generation, automotive, marine and buildings. Some end markets such as electrical distribution, transport, data centers, consumer electronics and food and beverage continue to show relative resilience.
Against this background, ABB expects fourth quarter order and revenue growth rates to remain challenged on a year-on-year basis and revenue growth rates to decline sequentially. Operating margins are expected to be higher year-on-year including fewer negative impacts from non-recurring items, while weakening on a sequential basis including seasonal impacts. The company anticipates resilient cash delivery for the full year.
T****ransformation progress
Given the outlook and continued effectiveness of ABB’s overall mitigation efforts, remuneration reductions voluntarily taken by all members of the Board of Directors and Executive Committee, and by many senior employees since the onset of COVID-19, were concluded at the end of September.
COVID-19 aside, ABB continues to accelerate its transition to a fully decentralized operating model while conducting a review of the group’s portfolio. ABB remains on track for faster delivery of the approximately $500 million per annum net savings initiated through the ABB-OS simplification program, while shifting its focus to continuous improvement across its 18 divisions under the ABB Way. A new division-level scorecard system using standardized KPIs became operational in July, enabling a clear prioritization of improving profitability in underperforming divisions.
ABB’s Capital Markets Day on November 19 will provide more insight into the evolution of ABB’s portfolio and the company’s new way of working under the ABB Way, while providing a closer look at the strategies of its business areas and divisions.
| Q3 2020 RESULTS | 7/8 |
|---|
More information
The Q3 2020 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 10:30 a.m. CEST (9:30 a.m. BST). 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.
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 110,000 talented employees in over 100 countries.
| Investor calendar | |
|---|---|
| Capital Markets Day | November 19, 2020 |
| Q4 and Full Year 2020 results | February 4, 2021 |
| Annual General Meeting | March 25, 2021 |
| Q1 2021 results | April 27, 2021 |
Importantnotice about forward-looking information
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 “Capital structure optimization”, “Transformation progress” and “Short-term outlook”. 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 “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.
Zurich, October 23, 2020
Björn Rosengren, CEO
| — For more information, please contact: | ||
|---|---|---|
| Media Relations<br><br> Phone: +41 43 317 71 11<br><br> <br>Email: media.relations@ch.abb.com | Investor Relations<br><br> Phone: +41 43 317 71 11<br><br> <br>Email:<br> investor.relations@ch.abb.com | ABB Ltd<br><br> Affolternstrasse 44<br><br> 8050 Zurich <br><br> Switzerland |
| Q3 2020 RESULTS | 8/8 | |
| --- | --- |
1 Q3 2020 Financial Information
2 Q3 2020 Financial Information
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Key Figures
| CHANGE | ||||
|---|---|---|---|---|
| ( in<br> millions, unless otherwise indicated) | Q3 2020 | Q3 2019 | US$ | Comparable^(1)^ |
| Orders | 6,109 | 6688 | -9% | -8% |
| Order<br> backlog (end September) | 13,878 | 13,357 | 4% | 4% |
| Revenues | 6,582 | 6,892 | -4% | -4% |
| Income<br> from operations | 71 | 577 | -88% | |
| Operational<br> EBITA(1) | 787 | 806 | -2% | -5%^(2)^ |
| 12.0% | 11.7% | +0.3 pts | ||
| Income<br> (loss) from continuing operations, net of tax | (503) | 422 | n.a. | |
| Net<br> income attributable to ABB | 4,530 | 515 | 780% | |
| Basic<br> earnings per share () | 2.14 | 0.24 | 785%^(3)^ | |
| Operational<br> earnings per share(1) () | 0.21 | 0.33 | -36%^(3)^ | -35%^(3)^ |
| Cash<br> flow from operating activities(4) | 408 | 670 | -39% |
All values are in US Dollars.
| CHANGE | ||||
|---|---|---|---|---|
| ( in<br> millions, unless otherwise indicated) | 9M 2020 | 9M 2019 | US$ | Comparable^(1)^ |
| Orders | 19509 | 21,702 | -10% | -7% |
| Revenues | 18,952 | 20,910 | -9% | -7% |
| Income<br> from operations | 1,015 | 1,290 | -21% | |
| Operational<br> EBITA(1) | 2074 | 2,397 | -13% | -14%^(2)^ |
| 10.9% | 11.5% | -0.6 pts | ||
| Income<br> (loss) from continuing operations, net of tax | 218 | 783 | -72% | |
| Net<br> income attributable to ABB | 5,225 | 1,114 | 3.69 | |
| Basic<br> earnings per share () | 2.45 | 0.52 | 370%^(3)^ | |
| Operational<br> earnings per share(1) () | 0.73 | 0.97 | -25%^(3)^ | -24%^(3)^ |
| Cash<br> flow from operating activities(4) | 511 | 414 | 23% |
All values are in US Dollars.
(1) For a reconciliation of non-GAAP measures see “Supplemental Reconciliations and Definitions” on page 40.
(2) Constant currency (not adjusted for portfolio changes).
(3) EPS growth rates are computed using unrounded amounts. Comparable operational earnings per share is in constant currency (2019 exchange rates not adjusted for changes in the business portfolio).
(4) Cash flow from operating activities includes both continuing and discontinued operations.
3 Q3 2020 Financial Information
| **** | **** | CHANGE | |||
|---|---|---|---|---|---|
| ( in<br> millions, unless otherwise indicated) | Q3 2020 | Q3 2019 | US$ | Local | Comparable |
| Orders | 6,109 | 6,688 | -9% | -9% | -8% |
| 2,952 | 3,188 | -7% | -8% | -5% | |
| 1,164 | 1,438 | -19% | -20% | -20% | |
| 1,535 | 1,618 | -5% | -5% | -5% | |
| 720 | 709 | 2% | 0% | 0% | |
| **** | **** | **** | |||
| (262) | (265) | ||||
| Order<br> backlog (end September) | 13,878 | 13,357 | 4% | 2% | 4% |
| 4,471 | 4,537 | -1% | -2% | 2% | |
| 5,152 | 4,944 | 4% | 2% | 2% | |
| 3,349 | 2,947 | 14% | 10% | 10% | |
| 1,442 | 1,416 | 2% | -2% | -2% | |
| **** | **** | **** | |||
| (536) | (487) | ||||
| Revenues | 6,582 | 6,892 | -4% | -5% | -4% |
| 3,031 | 3,161 | -4% | -5% | -2% | |
| 1,403 | 1,492 | -6% | -7% | -7% | |
| 1,611 | 1,630 | -1% | -2% | -2% | |
| 806 | 831 | -3% | -5% | -5% | |
| **** | **** | **** | |||
| (269) | (222) | ||||
| Income<br> from operations | 71 | 577 | |||
| 387 | 378 | ||||
| 75 | 124 | ||||
| 256 | 264 | ||||
| (236) | 83 | ||||
| **** | **** | **** | |||
| (411) | (272) | ||||
| Income<br> from operations % | 1.1% | 8.4% | |||
| 12.8% | 12.0% | ||||
| 5.3% | 8.3% | ||||
| 15.9% | 16.2% | ||||
| (29.3)% | 10.0% | ||||
| Operational<br> EBITA | 787 | 806 | -2% | -5% | **** |
| 493 | 450 | 10% | 7% | ||
| 89 | 135 | -34% | -41% | ||
| 281 | 290 | -3% | -5% | ||
| 76 | 107 | -29% | -30% | ||
| **** | **** | **** | |||
| (152) | (176) | **** | **** | **** | |
| Operational<br> EBITA % | 12.0% | 11.7% | |||
| 16.3% | 14.2% | ||||
| 6.4% | 9.0% | ||||
| 17.4% | 17.8% | ||||
| 9.5% | 12.9% | ||||
| Cash<br> flow from operating activities(2) | 408 | 670 | |||
| 452 | 446 | ||||
| 159 | 220 | ||||
| 376 | 336 | ||||
| 109 | 57 | ||||
| (698) | (448) | ||||
| 10 | 59 | **** | **** | **** | |
| (1)<br> Corporate and Other includes Stranded corporate costs of 52 million for the<br> three months ended September 30, 2019. | |||||
| (2)<br> Commencing Q3 2020, taxes and interest previously allocated to each individual<br> operating segment are now fully allocated to Corporate and other and the<br> comparatives restated. |
All values are in US Dollars.
4 Q3 2020 Financial Information
| **** | **** | CHANGE | |||
|---|---|---|---|---|---|
| ( in<br> millions, unless otherwise indicated) | 9M 2020 | 9M 2019 | US$ | Local | Comparable |
| Orders | 19,509 | 21,702 | -10% | -8% | -7% |
| 8,810 | 9,890 | -11% | -10% | -7% | |
| 4,226 | 4,726 | -11% | -9% | -9% | |
| 5,022 | 5,180 | -3% | -1% | -1% | |
| 2,169 | 2,559 | -15% | -14% | -14% | |
| **** | **** | **** | |||
| (718) | (653) | **** | **** | **** | |
| Order<br> backlog (end September) | 13,878 | 13,357 | 4% | 2% | 4% |
| 4,471 | 4,537 | -1% | -2% | 2% | |
| 5,152 | 4,944 | 4% | 2% | 2% | |
| 3,349 | 2,947 | 14% | 10% | 10% | |
| 1,442 | 1,416 | 2% | -2% | -2% | |
| (536) | (487) | ||||
| Revenues | 18,952 | 20,910 | -9% | -8% | -7% |
| 8,568 | 9,490 | -10% | -8% | -6% | |
| 4,247 | 4,590 | -7% | -6% | -6% | |
| 4,704 | 4,876 | -4% | -2% | -2% | |
| 2,106 | 2,527 | -17% | -16% | -16% | |
| (673) | (573) | ||||
| Income<br> from operations | 1,015 | 1,290 | |||
| 891 | 571 | ||||
| 316 | 506 | ||||
| 731 | 764 | ||||
| (186) | 236 | ||||
| (737) | (787) | ||||
| Income<br> from operations % | 5.4% | 6.2% | |||
| 10.4% | 6.0% | ||||
| 7.4% | 11.0% | ||||
| 15.5% | 15.7% | ||||
| (8.8)% | 9.3% | ||||
| Operational<br> EBITA | 2,074 | 2,397 | -13% | -14% | **** |
| 1,159 | 1,267 | -9% | -7% | ||
| 348 | 530 | -34% | -35% | ||
| 790 | 828 | -5% | -4% | ||
| 178 | 307 | -42% | -41% | ||
| (401) | (535) | ||||
| Operational<br> EBITA % | 10.9% | 11.5% | |||
| 13.5% | 13.3% | ||||
| 8.2% | 11.5% | ||||
| 16.8% | 17.0% | ||||
| 8.5% | 12.1% | ||||
| Cash<br> flow from operating activities(2) | 511 | 414 | **** | **** | **** |
| 853 | 858 | ||||
| 245 | 337 | ||||
| 849 | 733 | ||||
| 240 | 202 | ||||
| (1,537) | (1,685) | ||||
| (139) | (31) | ||||
| (1)<br> Corporate and Other includes Stranded corporate costs of 40 million and 185<br> million for the nine months ended September 30, 2020 and 2019,<br> respectively. | |||||
| (2)<br> Commencing Q3 2020, taxes and interest previously allocated to each<br> individual operating segment are now fully allocated to Corporate and other<br> and the comparatives restated. |
All values are in US Dollars.
5 Q3 2020 Financial Information
Operational EBITA
| **** | **** | Industrial | **** | Robotics & Discrete | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ABB | Electrification | Automation | Motion | Automation | ||||||
| ($ in<br> millions, unless otherwise indicated) | Q3 20 | Q3 19 | Q3 20 | Q3 19 | Q3 20 | Q3 19 | Q3 20 | Q3 19 | Q3 20 | Q3 19 |
| Revenues | 6,582 | 6,892 | 3,031 | 3,161 | 1,403 | 1,492 | 1,611 | 1,630 | 806 | 831 |
| Foreign<br> exchange/commodity timing | ||||||||||
| differences<br> in total revenues | (13) | 20 | (8) | 10 | (6) | 13 | 4 | 3 | (5) | (1) |
| Operational revenues | 6,569 | 6,912 | 3,023 | 3,171 | 1,397 | 1,505 | 1,615 | 1,633 | 801 | 830 |
| Income from operations | 71 | 577 | 387 | 378 | 75 | 124 | 256 | 264 | (236) | 83 |
| Acquisition-related<br> amortization | 67 | 70 | 29 | 28 | 1 | 1 | 13 | 13 | 20 | 19 |
| Restructuring,<br> related and | ||||||||||
| implementation<br> costs | 83 | 59 | 39 | 8 | 21 | 2 | 9 | 5 | 3 | 5 |
| Changes<br> in obligations related to | ||||||||||
| divested<br> businesses | 203 | 25 | 15 | 1 | – | – | – | – | – | – |
| Changes<br> in pre-acquisition estimates | 11 | – | 11 | – | – | – | – | – | – | – |
| Gains<br> and losses from sale of businesses | (1) | (12) | 1 | 2 | – | – | – | – | – | – |
| Fair<br> value adjustment on assets and | ||||||||||
| liabilities<br> held for sale | 14 | 11 | 14 | 11 | – | – | – | – | – | – |
| Acquisition-<br> and divestment-related | ||||||||||
| expenses<br> and integration costs | 16 | 18 | 13 | 18 | 1 | – | – | – | – | – |
| Other<br> income/expense relating to the | ||||||||||
| Power<br> Grids joint venture | 15 | – | – | – | – | – | – | – | – | – |
| Certain<br> other non-operational items | 331 | 45 | 2 | (1) | – | – | 4 | 3 | 291 | 1 |
| Foreign<br> exchange/commodity timing | ||||||||||
| differences<br> in income from operations | (23) | 13 | (18) | 5 | (9) | 8 | (1) | 5 | (2) | (1) |
| Operational EBITA | 787 | 806 | 493 | 450 | 89 | 135 | 281 | 290 | 76 | 107 |
| Operational EBITA margin (%) | 12.0% | 11.7% | 16.3% | 14.2% | 6.4% | 9.0% | 17.4% | 17.8% | 9.5% | 12.9% |
| **** | **** | Industrial | **** | Robotics & Discrete | ||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ABB | Electrification | Automation | Motion | Automation | ||||||
| ($ in<br> millions, unless otherwise indicated) | 9M 20 | 9M 19 | 9M 20 | 9M 19 | 9M 20 | 9M 19 | 9M 20 | 9M 19 | 9M 20 | 9M 19 |
| Revenues | 18,952 | 20,910 | 8,568 | 9,490 | 4,247 | 4,590 | 4,704 | 4,876 | 2,106 | 2,527 |
| Foreign<br> exchange/commodity timing | ||||||||||
| differences<br> in total revenues | (4) | 12 | 2 | 1 | (7) | 8 | (3) | 4 | (3) | 2 |
| Operational revenues | 18,948 | 20,922 | 8,570 | 9,491 | 4,240 | 4,598 | 4,701 | 4,880 | 2,103 | 2,529 |
| Income (loss) from operations | 1,015 | 1,290 | 891 | 571 | 316 | 506 | 731 | 764 | (186) | 236 |
| Acquisition-related<br> amortization | 197 | 205 | 86 | 87 | 3 | 3 | 39 | 40 | 58 | 58 |
| Restructuring,<br> related and | ||||||||||
| implementation<br> costs | 190 | 201 | 83 | 61 | 37 | 14 | 20 | 10 | 14 | 8 |
| Changes<br> in obligations related to | ||||||||||
| divested<br> businesses | 204 | 32 | 15 | 1 | – | – | – | – | – | – |
| Changes<br> in pre-acquisition estimates | 11 | 13 | 11 | 13 | – | – | – | – | – | – |
| Gains<br> and losses from sale of businesses | 4 | (8) | 6 | (1) | – | – | – | – | – | – |
| Fair<br> value adjustment on assets and | ||||||||||
| liabilities<br> held for sale | 33 | 466 | 33 | 466 | – | – | – | – | – | – |
| Acquisition-<br> and divestment-related | ||||||||||
| expenses<br> and integration costs | 43 | 72 | 40 | 69 | 1 | – | – | – | – | 1 |
| Other<br> income/expense relating to the | ||||||||||
| Power<br> Grids joint venture | 15 | – | – | – | – | – | – | – | – | – |
| Certain<br> other non-operational items | 378 | 121 | (5) | 1 | 1 | 2 | 13 | 8 | 293 | 2 |
| Foreign<br> exchange/commodity timing | ||||||||||
| differences<br> in income from operations | (16) | 5 | (1) | (1) | (10) | 5 | (13) | 6 | (1) | 2 |
| Operational EBITA | 2,074 | 2,397 | 1,159 | 1,267 | 348 | 530 | 790 | 828 | 178 | 307 |
| Operational EBITA margin (%) | 10.9% | 11.5% | 13.5% | 13.3% | 8.2% | 11.5% | 16.8% | 17.0% | 8.5% | 12.1% |
6 Q3 2020 Financial Information
Depreciationand Amortization
| **** | **** | Industrial | **** | Robotics & Discrete | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ABB | Electrification | Automation | Motion | Automation | ||||||
| ($ in<br> millions) | Q3 20 | Q3 19 | Q3 20 | Q3 19 | Q3 20 | Q3 19 | Q3 20 | Q3 19 | Q3 20 | Q3 19 |
| Depreciation | 147 | 146 | 60 | 63 | 13 | 12 | 29 | 28 | 12 | 11 |
| Amortization | 84 | 89 | 37 | 34 | 3 | 2 | 14 | 13 | 21 | 20 |
| including<br> total acquisition-related amortization of: | 67 | 70 | 29 | 28 | 1 | 1 | 13 | 13 | 20 | 19 |
| **** | **** | **** | **** | Industrial | **** | **** | Robotics & Discrete | |||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ABB | Electrification | Automation | Motion | Automation | ||||||
| ($ in<br> millions) | 9M 20 | 9M 19 | 9M 20 | 9M 19 | 9M 20 | 9M 19 | 9M 20 | 9M 19 | 9M 20 | 9M 19 |
| Depreciation | 439 | 450 | 184 | 191 | 39 | 35 | 85 | 84 | 34 | 33 |
| Amortization | 247 | 265 | 105 | 110 | 8 | 6 | 41 | 42 | 60 | 60 |
| including<br> total acquisition-related amortization of: | 197 | 205 | 86 | 87 | 3 | 3 | 39 | 40 | 58 | 58 |
Orders received and revenues by region
| ($ in<br> millions, unless otherwise indicated) | Orders received | CHANGE | Revenues | CHANGE | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| **** | **** | Com- | **** | **** | Com- | |||||
| Q3 20 | Q3 19 | US$ | Local | parable | Q3 20 | Q3 19 | US$ | Local | parable | |
| Europe | 2,068 | 2,266 | -9% | -11% | -10% | 2,410 | 2,449 | -2% | -5% | -3% |
| The<br> Americas | 1,938 | 2,247 | -14% | -13% | -11% | 1,927 | 2,240 | -14% | -12% | -12% |
| of which<br> United States | 1,475 | 1,694 | -13% | -13% | -12% | 1,443 | 1,687 | -14% | -15% | -15% |
| Asia,<br> Middle East and Africa | 2,103 | 2,122 | -1% | -2% | -2% | 2,245 | 2,156 | 4% | 3% | 5% |
| of which<br> China | 1,089 | 1,018 | 7% | 5% | 8% | 1,182 | 1,030 | 15% | 13% | 15% |
| Intersegment<br> orders/revenues^(1)^ | – | 53 | – | 47 | ||||||
| ABB Group | 6,109 | 6,688 | -9% | -9% | -8% | 6,582 | 6,892 | -4% | -5% | -4% |
| ($ in<br> millions, unless otherwise indicated) | Orders received | CHANGE | Revenues | CHANGE | ||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| **** | **** | Com- | **** | **** | Com- | |||||
| 9M 20 | 9M 19 | US$ | Local | parable | 9M 20 | 9M 19 | US$ | Local | parable | |
| Europe | 7,062 | 7,705 | -8% | -7% | -6% | 6,998 | 7,431 | -6% | -5% | -4% |
| The<br> Americas | 5,936 | 6,858 | -13% | -12% | -11% | 5,891 | 6,759 | -13% | -11% | -11% |
| of which<br> United States | 4,512 | 5,133 | -12% | -12% | -11% | 4,522 | 5,118 | -12% | -12% | -11% |
| Asia,<br> Middle East and Africa | 6,389 | 6,984 | -9% | -7% | -5% | 5,955 | 6,563 | -9% | -8% | -5% |
| of which<br> China | 3,036 | 3,237 | -6% | -5% | -2% | 2,860 | 3,028 | -6% | -4% | -2% |
| Intersegment<br> orders/revenues^(1)^ | 122 | 155 | 108 | 157 | ||||||
| ABB Group | 19,509 | 21,702 | -10% | -8% | -7% | 18,952 | 20,910 | -9% | -8% | -7% |
(1) Intersegment orders/revenues until 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.
7 Q3 2020 Financial Information
—
ConsolidatedFinancial Information
| ABB Ltd Consolidated<br> Income Statements (unaudited) | ||||
|---|---|---|---|---|
| **** | Nine months ended | Three months ended | ||
| ($ in<br> millions, except per share data in $) | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 |
| Sales<br> of products | 15,391 | 16,957 | 5,363 | 5,565 |
| Sales<br> of services and other | 3,561 | 3,953 | 1,219 | 1,327 |
| Total revenues | 18,952 | 20,910 | 6,582 | 6,892 |
| Cost of<br> sales of products | (11,047) | (11,851) | (4,008) | (3,905) |
| Cost of<br> services and other | (2,174) | (2,360) | (740) | (797) |
| Total cost of sales | (13,221) | (14,211) | (4,748) | (4,702) |
| Gross profit | 5,731 | 6,699 | 1,834 | 2,190 |
| Selling,<br> general and administrative expenses | (3,624) | (4,082) | (1,192) | (1,298) |
| Non-order<br> related research and development expenses | (791) | (866) | (270) | (283) |
| Impairment<br> of goodwill | (311) | – | (311) | – |
| Other<br> income (expense), net | 10 | (461) | 10 | (32) |
| Income from operations | 1,015 | 1,290 | 71 | 577 |
| Interest<br> and dividend income | 39 | 57 | 12 | 20 |
| Interest<br> and other finance expense | (191) | (179) | (79) | (56) |
| Non-operational<br> pension (cost) credit | (272) | 67 | (343) | 23 |
| Income (loss) from continuing operations before taxes | 591 | 1,235 | (339) | 564 |
| Income<br> tax expense | (373) | (452) | (164) | (142) |
| Income (loss) from continuing operations, net of tax | 218 | 783 | (503) | 422 |
| Income<br> from discontinued operations, net of tax | 5,043 | 388 | 5,038 | 97 |
| Net income | 5,261 | 1,171 | 4,535 | 519 |
| Net<br> income attributable to noncontrolling interests | (36) | (57) | (5) | (4) |
| Net income attributable to ABB | 5,225 | 1,114 | 4,530 | 515 |
| Amounts attributable to ABB shareholders: | ||||
| Income<br> (loss) from continuing operations, net of tax | 190 | 752 | (513) | 427 |
| Income<br> from discontinued operations, net of tax | 5,035 | 362 | 5,043 | 88 |
| Net<br> income | 5,225 | 1,114 | 4,530 | 515 |
| Basic earnings per share attributable to ABB shareholders: | ||||
| Income<br> (loss) from continuing operations, net of tax | 0.09 | 0.35 | (0.24) | 0.20 |
| Income<br> from discontinued operations, net of tax | 2.36 | 0.17 | 2.38 | 0.04 |
| Net<br> income | 2.45 | 0.52 | 2.14 | 0.24 |
| Diluted earnings per share attributable to ABB shareholders: | ||||
| Income<br> (loss) from continuing operations, net of tax | 0.09 | 0.35 | (0.24) | 0.20 |
| Income<br> from discontinued operations, net of tax | 2.36 | 0.17 | 2.38 | 0.04 |
| Net<br> income | 2.45 | 0.52 | 2.14 | 0.24 |
| Weighted-average number of shares outstanding (in millions) used to compute: | ||||
| Basic<br> earnings per share attributable to ABB shareholders | 2,129 | 2,132 | 2,119 | 2,133 |
| Diluted<br> earnings per share attributable to ABB shareholders | 2,135 | 2,134 | 2,119 | 2,135 |
| Due to<br> rounding, numbers presented may not add to the totals provided. | ||||
| See<br> Notes to the Consolidated Financial Information |
8 Q3 2020 Financial Information
| — | ||||
|---|---|---|---|---|
| ABB Ltd Condensed<br> Consolidated Statements of Comprehensive | ||||
| Income (unaudited) | ||||
| Nine months ended | Three months ended | |||
| ($ in<br> millions) | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 |
| Total comprehensive income, net of tax | 6,244 | 964 | 5,760 | 312 |
| Total<br> comprehensive income attributable to noncontrolling interests, net of tax | (58) | (47) | (31) | 7 |
| Total comprehensive income attributable to ABB shareholders, net of tax | 6,186 | 917 | 5,729 | 319 |
| Due to<br> rounding, numbers presented may not add to the totals provided. | ||||
| See<br> Notes to the Consolidated Financial Information |
9 Q3 2020 Financial Information
| — | ||
|---|---|---|
| ABB Ltd Consolidated<br> Balance Sheets (unaudited) | ||
| ($ in<br> millions, except share data) | Sep. 30, 2020 | Dec. 31, 2019 |
| Cash<br> and equivalents | 3,178 | 3,508 |
| Restricted<br> cash | 860 | 36 |
| Marketable<br> securities and short-term investments | 5,270 | 566 |
| Receivables,<br> net | 6,638 | 6,434 |
| Contract<br> assets | 1,100 | 1,025 |
| Inventories,<br> net | 4,642 | 4,184 |
| Prepaid<br> expenses | 233 | 191 |
| Other<br> current assets | 641 | 674 |
| Current<br> assets held for sale and in discontinued operations | 349 | 9,840 |
| Total current assets | 22,911 | 26,458 |
| Restricted<br> cash, non-current | 300 | – |
| Property,<br> plant and equipment, net | 3,948 | 3,972 |
| Operating<br> lease right-of-use assets | 973 | 994 |
| Goodwill | 10,675 | 10,825 |
| Other<br> intangible assets, net | 2,070 | 2,252 |
| Prepaid<br> pension and other employee benefits | 294 | 133 |
| Investments<br> in equity-accounted companies | 1,818 | 33 |
| Deferred<br> taxes | 784 | 910 |
| Other<br> non-current assets | 494 | 531 |
| Total assets | 44,267 | 46,108 |
| Accounts<br> payable, trade | 4,323 | 4,353 |
| Contract<br> liabilities | 1,828 | 1,719 |
| Short-term<br> debt and current maturities of long-term debt | 2,354 | 2,287 |
| Current<br> operating leases | 335 | 305 |
| Provisions<br> for warranties | 966 | 816 |
| Other<br> provisions | 1,355 | 1,375 |
| Other<br> current liabilities | 4,252 | 3,761 |
| Current<br> liabilities held for sale and in discontinued operations | 773 | 5,650 |
| Total current liabilities | 16,186 | 20,266 |
| Long-term<br> debt | 6,319 | 6,772 |
| Non-current<br> operating leases | 667 | 717 |
| Pension<br> and other employee benefits | 1,445 | 1,793 |
| Deferred<br> taxes | 685 | 911 |
| Other<br> non-current liabilities | 1,935 | 1,669 |
| Total liabilities | 27,237 | 32,128 |
| Commitments and contingencies | ||
| Stockholders’ equity: | ||
| Common<br> stock, CHF 0.12 par value | ||
| (2,168,148,264<br> issued shares at September 30, 2020, and December 31, 2019) | 188 | 188 |
| Additional<br> paid-in capital | 79 | 73 |
| Retained<br> earnings | 23,025 | 19,640 |
| Accumulated<br> other comprehensive loss | (4,629) | (5,590) |
| Treasury<br> stock, at cost | ||
| (76,319,119<br> and 34,647,153 shares at September 30, 2020, and December 31, 2019,<br> respectively) | (1,919) | (785) |
| Total ABB stockholders’ equity | 16,744 | 13,526 |
| Noncontrolling<br> interests | 286 | 454 |
| Total stockholders’ equity | 17,030 | 13,980 |
| Total liabilities and stockholders’ equity | 44,267 | 46,108 |
| Due to<br> rounding, numbers presented may not add to the totals provided. | **** | **** |
| See<br> Notes to the Consolidated Financial Information | **** |
10 Q3 2020 Financial Information
| — | ||||
|---|---|---|---|---|
| ABB Ltd Consolidated<br> Statements of Cash Flows (unaudited) | ||||
| Nine months ended | Three months ended | |||
| ($ in<br> millions) | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 |
| Operating activities: | ||||
| Net<br> income | 5,261 | 1,171 | 4,535 | 519 |
| Loss<br> (income) from discontinued operations, net of tax | (5,043) | (388) | (5,038) | (97) |
| Adjustments to reconcile net income to | ||||
| net cash provided by (used in) operating activities: | ||||
| Depreciation<br> and amortization | 686 | 715 | 231 | 235 |
| Impairment<br> of goodwill | 311 | – | 311 | – |
| Pension<br> and other employee benefits | (27) | (75) | 55 | (29) |
| Deferred<br> taxes | (159) | (118) | (158) | (56) |
| Net<br> loss (gain) from derivatives and foreign exchange | 29 | 10 | 4 | 14 |
| Net<br> loss (gain) from sale of property, plant and equipment | (24) | (48) | (20) | (8) |
| Fair<br> value adjustment on assets and liabilities held for sale | 33 | 466 | 14 | 11 |
| Share-based<br> payment arrangements | 30 | 31 | 9 | 6 |
| Other | (2) | 12 | 16 | 22 |
| Changes<br> in operating assets and liabilities: | ||||
| Trade<br> receivables, net | (46) | (232) | (104) | (81) |
| Contract<br> assets and liabilities | 41 | (54) | 128 | 88 |
| Inventories,<br> net | (48) | (411) | 66 | (125) |
| Accounts<br> payable, trade | (204) | (162) | 10 | 33 |
| Accrued<br> liabilities | (123) | (88) | (48) | 197 |
| Provisions,<br> net | 96 | (68) | 156 | (63) |
| Income<br> taxes payable and receivable | (78) | (87) | 79 | (57) |
| Other<br> assets and liabilities, net | (83) | (229) | 152 | 2 |
| Net cash provided by operating activities – continuing operations | 650 | 445 | 398 | 611 |
| Net cash provided by (used in) operating activities – discontinued operations | (139) | (31) | 10 | 59 |
| Net cash provided by operating activities | 511 | 414 | 408 | 670 |
| Investing activities: | ||||
| Purchases<br> of investments | (5,982) | (716) | (4,368) | (36) |
| Purchases<br> of property, plant and equipment and intangible assets | (432) | (528) | (129) | (152) |
| Acquisition<br> of businesses (net of cash acquired) | ||||
| and<br> increases in cost- and equity-accounted companies | (99) | (13) | (19) | (7) |
| Proceeds<br> from sales of investments | 1,288 | 718 | 833 | 178 |
| Proceeds<br> from maturity of investments | 1 | 80 | 1 | – |
| Proceeds<br> from sales of property, plant and equipment | 68 | 67 | 41 | 13 |
| Proceeds<br> from sales of businesses (net of transaction costs | ||||
| and<br> cash disposed) and cost- and equity-accounted companies | (133) | 22 | 9 | 4 |
| Net<br> cash from settlement of foreign currency derivatives | 94 | (66) | 170 | (15) |
| Other<br> investing activities | 11 | (2) | 25 | 2 |
| Net cash used in investing activities – continuing operations | (5,184) | (438) | (3,437) | (13) |
| Net cash provided by (used in) investing activities – discontinued operations | 9,091 | (120) | 9,201 | (39) |
| Net cash provided by (used in) investing activities | 3,907 | (558) | 5,764 | (52) |
| Financing activities: | ||||
| Net<br> changes in debt with original maturities of 90 days or less | (525) | 895 | (4,107) | (21) |
| Increase<br> in debt | 360 | 2,235 | 45 | 5 |
| Repayment<br> of debt | (663) | (2,012) | (95) | (479) |
| Delivery<br> of shares | 383 | – | 383 | – |
| Purchase<br> of treasury stock | (1,270) | – | (1,270) | – |
| Dividends<br> paid | (1,736) | (1,675) | – | – |
| Dividends<br> paid to noncontrolling shareholders | (82) | (75) | (11) | (2) |
| Other<br> financing activities | (67) | 25 | 37 | 2 |
| Net cash used in financing activities – continuing operations | (3,600) | (607) | (5,018) | (495) |
| Net cash provided by (used in) financing activities – discontinued operations | 31 | (54) | 14 | (3) |
| Net cash used in financing activities | (3,569) | (661) | (5,004) | (498) |
| Effects<br> of exchange rate changes on cash and equivalents and restricted cash | (55) | (61) | 43 | (53) |
| Adjustment<br> for the net change in cash and equivalents and restricted cash | ||||
| in<br> discontinued operations | – | – | 609 | – |
| Net change in cash and equivalents and restricted cash | 794 | (866) | 1,820 | 67 |
| Cash<br> and equivalents and restricted cash, beginning of period | 3,544 | 3,445 | 2,518 | 2,512 |
| Cash and equivalents and restricted cash, end of period | 4,338 | 2,579 | 4,338 | 2,579 |
| Supplementary disclosure of cash flow information: | ||||
| Interest<br> paid | 111 | 188 | 9 | 30 |
| Income<br> taxes paid | 689 | 769 | 227 | 282 |
| Due to<br> rounding, numbers presented may not add to the totals provided. | ||||
| See<br> Notes to the Consolidated Financial Information |
11 Q3 2020 Financial Information
| — | |||||||
|---|---|---|---|---|---|---|---|
| ABB Ltd Consolidated<br> Statements of Changes in Stockholders’ Equity (unaudited) | |||||||
| ( in<br> millions) | Additional<br> paid-in capital | Retained<br> earnings | Accumulated<br><br> <br>other<br> comprehensive loss | Treasury<br> stock | Total ABB<br><br> <br>stockholders’ equity | Non-<br><br> <br>controlling<br> interests | Total stockholders’ equity |
| Balance<br> at January 1, 2019 | 56 | 19,839 | (5,311) | (820) | 13,952 | 582 | 14,534 |
| Adoption<br> of accounting | **** | **** | |||||
| standard<br> update | 36 | (36) | – | – | |||
| Comprehensive<br> income: | **** | **** | **** | ||||
| Net<br> income | 1,114 | **** | 1,114 | 57 | 1,171 | ||
| Foreign<br> currency translation | **** | **** | **** | ||||
| adjustments,<br> net of tax of 3 | (363) | (363) | (10) | (373) | |||
| Effect<br> of change in fair value of | **** | **** | |||||
| available-for-sale<br> securities, | **** | **** | |||||
| net of<br> tax of 2 | 16 | 16 | 16 | ||||
| Unrecognized<br> income (expense) | **** | **** | |||||
| related<br> to pensions and other | **** | **** | |||||
| postretirement<br> plans, | **** | **** | |||||
| net of<br> tax of 17 | 145 | 145 | 145 | ||||
| Change<br> in derivatives qualifying as | **** | **** | |||||
| cash<br> flow hedges, net of tax of (2) | 5 | 5 | 5 | ||||
| Total<br> comprehensive income | **** | 917 | 47 | 964 | |||
| Changes<br> in noncontrolling interests | (12) | **** | (12) | 7 | (5) | ||
| Fair<br> value adjustment to | **** | **** | **** | ||||
| noncontrolling<br> interests recognized | **** | **** | **** | ||||
| in<br> business combination | **** | – | (44) | (44) | |||
| Dividends<br> to | **** | **** | |||||
| noncontrolling<br> shareholders | **** | – | (109) | (109) | |||
| Dividends<br> paid to shareholders | (1,675) | **** | (1,675) | (1,675) | |||
| Share-based<br> payment arrangements | 38 | **** | 38 | 38 | |||
| Delivery<br> of shares | (20) | **** | 20 | – | – | ||
| Call<br> options | 4 | **** | 4 | 4 | |||
| Balance<br> at September 30, 2019 | 67 | 19,315 | (5,544) | (800) | 13,226 | 483 | 13,709 |
| Balance<br> at January 1, 2020 | 73 | 19,640 | (5,590) | (785) | 13,526 | 454 | 13,980 |
| Adoption<br> of accounting | **** | **** | |||||
| standard<br> update | (82) | (82) | (9) | (91) | |||
| Comprehensive<br> income: | **** | **** | **** | ||||
| Net<br> income | 5,225 | **** | 5,225 | 36 | 5,261 | ||
| Foreign<br> currency translation | **** | **** | |||||
| adjustments,<br> net of tax of 4 | 600 | 600 | 22 | 622 | |||
| Effect<br> of change in fair value of | **** | **** | |||||
| available-for-sale<br> securities, | **** | **** | |||||
| net of tax<br> of 4 | 9 | 9 | 9 | ||||
| Unrecognized<br> income (expense) | **** | **** | |||||
| related<br> to pensions and other | **** | **** | |||||
| postretirement<br> plans, | **** | **** | |||||
| net of<br> tax of 114 | 351 | 351 | 351 | ||||
| Change<br> in derivatives qualifying as | **** | **** | |||||
| cash<br> flow hedges, net of tax of (2) | 1 | 1 | 1 | ||||
| Total<br> comprehensive income | **** | 6,186 | 58 | 6,244 | |||
| Changes<br> in noncontrolling interests | (16) | **** | (16) | 19 | 3 | ||
| Changes<br> in noncontrolling interests | **** | **** | **** | ||||
| in<br> connection with divestments | **** | – | (138) | (138) | |||
| Dividends<br> to | **** | **** | **** | ||||
| noncontrolling<br> shareholders | **** | – | (98) | (98) | |||
| Dividends<br> paid to shareholders | (1,758) | **** | (1,758) | (1,758) | |||
| Share-based<br> payment arrangements | 40 | **** | 40 | 40 | |||
| Purchase<br> of treasury stock | **** | (1,533) | (1,533) | (1,533) | |||
| Delivery<br> of shares | (17) | **** | 400 | 383 | 383 | ||
| Call<br> options | (1) | **** | (1) | (1) | |||
| Balance<br> at September 30, 2020 | 79 | 23,025 | (4,629) | (1,919) | 16,744 | 286 | 17,030 |
| Due to<br> rounding, numbers presented may not add to the totals provided. | |||||||
| See<br> Notes to the Consolidated Financial Information |
All values are in US Dollars.
12 Q3 2020 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 audited consolidated financial statements in the Company’s Annual Report for the year ended December 31, 2019.
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 uncertain tax positions,
· assumptions used in determining inventory obsolescence and net realizable value,
· estimates and judgements used to measure credit losses,
· 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,
· 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 separate presentation of Restricted cash in the Consolidated Balance Sheets.
13 Q3 2020 Financial Information
─
Note 2
Recent accounting pronouncements
Applicable for current periods
Measurement ofcredit losses on financial instruments
In January 2020, the Company adopted a new accounting standard update, along with additional related updates containing targeted improvements and clarifications, that replaces the previous incurred loss impairment methodology for most financial assets with a new “current expected credit loss” model. The new model requires immediate recognition of the estimated credit losses expected to occur over the remaining life of financial assets such as trade and other receivables, held-to-maturity debt securities, loans and other instruments. Measurement of expected credit losses is now based on historical experience, current conditions, and reasonable and supportable forecasts. The update also requires additional disclosures related to estimates and judgments used to measure credit losses. Credit losses relating to available-for-sale debt securities are now measured in a manner similar to the loss impairment methodology, except that the losses are recorded through an allowance for credit losses rather than as a direct write-down of the security.
The Company has adopted these updates on a modified retrospective basis and has therefore recorded a cumulative-effect adjustment of $91 million to the opening balance of retained earnings on January 1, 2020, relating to an increase in the allowance for credit losses on financial assets carried at amortized cost.
DisclosureFramework — Changes to the disclosure requirements for fair value measurement
In January 2020, the Company adopted a new accounting standard update which modified the disclosure requirements for fair value measurements. The update eliminates the requirements to disclose the amount of and reasons for transfers between Level 1 and 2 of the fair value hierarchy, the timing of transfers between levels and the Level 3 valuation process, while expanding the Level 3 disclosures to include the range and weighted‑average used to develop significant unobservable inputs and the changes in unrealized gains and losses on recurring fair value measurements. This update was applied prospectively for the changes and modifications to the Level 3 disclosures, while all other amendments were applied retrospectively. The update does not have a significant impact on the Company’s consolidated financial statements.
Applicablefor future periods
Simplifyingthe accounting for income taxes
In December 2019, an accounting standard update was issued 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. This update is effective for the Company for annual and interim periods beginning January 1, 2021, with early adoption in any interim period permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impact of this update on its consolidated financial statements.
Facilitation of the effects of reference rate reform onfinancial 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. The update 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 2020 Financial Information
─
Note 3
Discontinued operations
Divestment of the Power Grids business
On July 1, 2020, the Company completed the sale of 80.1 percent of its Powers Grids business to Hitachi Ltd (Hitachi). The transaction was executed through the sale of 80.1 percent of the shares of 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 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 and can be exercised commencing April 2023. The combined fair value of the retained investment and the related put option amounted to $1,808 million, was recorded at fair value on July 1, 2020, and also was accounted for as part of the proceeds for the sale of the entire Power Grids business (see Note 4). The Company has also recorded a liability in discontinued operations for estimated payments of approximately $210 million for various contractual items relating to the sale of the business including required future cost reimbursements and the expected finalization of the closing debt and working capital balances.
As a result of the Power Grids sale, the Company recognized a net gain of $5,320 million, net of transaction costs, for the sale of the entire Power Grids business which is included in Income from discontinued operations, net of tax, in the nine and three months ended September 30, 2020. Included in 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 are estimated or otherwise subject to change in value and, as a result, the Company may record additional adjustments to the gain in future periods which 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 has also 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 its 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 and are reflected as current restricted cash of $711 million at September 30, 2020. All entities are expected to be transferred by the first quarter of 2021.
The Company has recognized liabilities in discontinued operations in connection with the divestment for certain indemnities (see Note 9 for additional information). The Company has also recorded an initial liability of $258 million representing the fair value of the right granted to ABB Hitachi 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 services 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 three months ended September 30, 2020, the Company has recognized within its continuing operations, general and administrative expenses incurred to perform the TSA, offset by $42 million in TSA‑related income for such services that is reported in Other income and expense, net.
Discontinued operations
As a result of the sale of the Power Grids business, substantially all Power Grids-related assets and liabilities have been sold. As this divestment represented a strategic shift that would have a major effect on the Company’s operations and financial results, the results of operations for this business have been presented as discontinued operations and the assets and liabilities are presented as held for sale and in discontinued operations for all periods presented. Certain of the business contracts in the Power Grids business continue to be executed by subsidiaries of the Company for the benefit/risk of Hitachi ABB PG. Assets and liabilities relating to, as well as the net financial results of, these contracts will continue to be included in discontinued operations until they have been completed or otherwise transferred to Hitachi ABB PG.
Prior to the divestment, interest expense that was not directly attributable to or related to the Company’s continuing business or discontinued business was allocated to discontinued operations based on the ratio of net assets to be sold less debt that was required to be paid as a result of the planned disposal transaction to the sum of total net assets of the Company plus consolidated debt. General corporate overhead was not allocated to discontinued operations.
Operating results of the discontinued operations, are summarized as follows:
| **** | Nine months ended | Three months ended | ||
|---|---|---|---|---|
| ($ in<br> millions) | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 |
| Total<br> revenues | 4,008 | 6,513 | – | 2,058 |
| Total<br> cost of sales | (3,058) | (5,009) | – | (1,626) |
| Gross profit | 950 | 1,504 | – | 431 |
| Expenses | (804) | (960) | (23) | (303) |
| Net<br> gain recognized on sale of the Power Grids business | 5,320 | – | 5,320 | – |
| Income from operations | 5,466 | 545 | 5,297 | 128 |
| Net<br> interest and other finance expense | (5) | (30) | – | (1) |
| Non-operational<br> pension (cost) credit | (94) | 9 | – | 3 |
| Income from discontinued operations before taxes | 5,367 | 524 | 5,297 | 129 |
| Income<br> tax expense | (324) | (136) | (259) | (32) |
| Income from discontinued operations, net of tax | 5,043 | 388 | 5,038 | 97 |
15 Q3 2020 Financial Information
Of the total Income from discontinued operations before taxes in the table above, $5,355 million and $500 million in the nine months ended September 30, 2020 and 2019, respectively, and $5,300 million and $121 million in the three months ended September 30, 2020 and 2019, 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 former Power Grids operating segment. As a result, for the nine months ended September 30, 2020 and 2019, $40 million and $185 million, respectively, and in the three months ended September 30, 2019, $52 million of allocated overhead and other management costs, which were previously able to be included in the measure of segment profit for the Power Grids operating segment were reported as part of Corporate and Other. In addition, in the table above, Net interest and other finance expense in the nine months ended September 30, 2020 and 2019, included $20 million and $36 million, respectively, and in the three months ended September 30, 2019, included $11 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, the Company did not record 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 and 2019, are revenues from the Company’s operating segments’ sales to the Power Grids business of $108 million and $157 million, respectively, and for the three months ended September 30, 2019, $47 million, which represent intercompany transactions that, prior to Power Grids being classified as a discontinued operation, were eliminated in the Company’s Consolidated Financial Information (see Note 18). Subsequent to the divestment, sales to ABB Hitachi PG are reported as third-party revenues.
In addition, the Company also has retained obligations (primarily for environmental and taxes) related to other businesses disposed or otherwise exited that qualified as discontinued operations. Changes to these retained obligations are also included in Income from discontinued operations, net of tax, above.
The major components of assets and liabilities held for sale and in discontinued operations in the Company’s Consolidated Balance Sheets are summarized as follows:
| ($ in<br> millions) | Sep. 30, 2020^(1)^ | Dec. 31, 2019 |
|---|---|---|
| Receivables,<br> net | 330 | 2,541 |
| Contract<br> assets | – | 1,243 |
| Inventories,<br> net | 4 | 1,667 |
| Property,<br> plant and equipment, net | – | 1,754 |
| Goodwill | – | 1,631 |
| Other<br> current assets | 15 | 1,004 |
| Assets held for sale and in discontinued operations | 349 | 9,840 |
| Accounts<br> payable, trade | 226 | 1,722 |
| Contract<br> liabilities | – | 1,121 |
| Pension<br> and other employee benefits | – | 419 |
| Other<br> liabilities | 547 | 1,984 |
| Liabilities held for sale and in discontinued operations | 773 | 5,246 |
(1) At September 30, 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.
16 Q3 2020 Financial Information
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Note 4
Acquisitions, divestments and equity-accountedcompanies
Acquisitionof noncontrolling interests
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, having a fair value at the transaction date of $1,688 million. The fair value was based on a discounted cash flow model considering the expected results of the future business operations of ABB Hitachi Power Grids 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 $120 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 Power Grids. 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 $8,600 million ($1,711 million for the Company’s 19.9 percent ownership), which are allocated as follows:
| Allocated | Weighted-average | |
|---|---|---|
| ($ in<br> millions) | Amount | useful life |
| Inventory | 168 | 5 months |
| Order<br> backlog | 723 | 2 years |
| Property,<br> plant and equipment^(1)^ | 1,021 | |
| Intangible<br> assets^(2)^ | 1,715 | 9 years |
| Other<br> contractual rights | 392 | 2 years |
| Other<br> assets | 43 | |
| Deferred<br> tax liabilities | (966) | |
| Goodwill | 5,951 | |
| Less:<br> Amount attributed to noncontrolling interest | (447) | |
| Basis difference | 8,600 |
(1) Property, plant and equipment includes assets subject to amortization having an initial fair value difference of $691 million and a weighted-average-useful-life of 14 years.
(2) Intangibles assets includes 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, 2020, the Company determined that no impairment of its equity method investments existed.
At September 30, 2020, the Company had reached the end of the relevant time period for a public tender to acquire up to 25 percent of the shares of ABB Power Products and Systems India Limited (PG India) for maximum total consideration of 9.2 billion Indian rupees ($125 million). PG India is accounted for as a majority owned subsidiary of Hitachi ABB PG. The tender process resulted in only an insignificant number of shares being tendered to the Company. At September 30, 2020, $125 million of current restricted cash relates to an escrow deposit for the tender process and these funds will be returned to the Company during the fourth quarter of 2020.
The carrying value of the Company’s investments in equity-accounted companies and respective percentage of ownership is as follows:
| Ownership as of | Carrying value at | ||
|---|---|---|---|
| ($ in<br> millions, expect ownership share in %) | September 30, 2020 | September 30, 2020 | December 31, 2019 |
| Hitachi<br> ABB Power Grids Ltd | 19.9% | 1,768 | – |
| Others | 50 | 33 | |
| Total | **** | 1,818 | 33 |
In the nine and three months ended September 30, 2020, the Company recorded losses of $40 million and $44 million, respectively, in Other income (expense), net, representing the Company's share of the earnings of investees accounted for under the equity method of accounting, the components of which are as follows:
| Nine months ended September 30, | Three months ended September 30, | |||
|---|---|---|---|---|
| ($ in<br> millions) | 2020 | 2019 | 2020 | 2019 |
| Income<br> (loss) from equity accounted companies, net of taxes | 12 | 5 | 8 | 1 |
| Basis<br> difference amortization (net of deferred income tax benefit) | (52) | – | (52) | – |
| Income (loss) from equity accounted companies | (40) | 5 | (44) | 1 |
17 Q3 2020 Financial Information
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 nine months and three months ended September 30, 2019, the Company recorded losses of $466 million and $11 million, respectively, 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, $33 million was in “Other income (expense), net” for changes in fair value of this business of which $14 million was recorded in the three months ended September 30, 2020. The loss in 2020 includes the $99 million reclassification from other comprehensive income of the currency translation adjustment related to the business.
The fair value was based on the estimated current market values using Level 3 inputs, considering the agreed-upon sale terms with the buyer. The solar inverters business, which includes the solar inverters business acquired as part of the Power-One acquisition in 2013, was part of the Company’s Electrification segment.
As this divestment does not qualify as a discontinued operation, the results of operations for this business prior to its disposal are included in the Company’s continuing operations for all periods presented. The assets and liabilities of this business were shown as assets and liabilities held for sale in the Company’s Consolidated Balance Sheet at December 31, 2019, and at that date, the carrying amounts of the major classes of these assets and liabilities held for sale were as follows:
| ($ in<br> millions) | Dec. 31, 2019 |
|---|---|
| Assets | |
| Receivables,<br> net | 70 |
| Inventories,<br> net | 127 |
| Property,<br> plant and equipment, net | 69 |
| Other<br> intangible assets, net | 27 |
| Other<br> assets | 26 |
| Valuation<br> allowance on assets held for sale | (319) |
| Current assets held for sale | – |
| Liabilities | |
| Accounts<br> payable, trade | 86 |
| Contract<br> liabilities | 59 |
| Provisions<br> for warranties | 108 |
| Other<br> liabilities | 49 |
| Fair<br> value adjustment on disposal group | 102 |
| Current liabilities held for sale | 404 |
Including the above loss of $33 million, in the nine months end September 30, 2020, Income from continuing operations before taxes includes net losses of $33 million, from the solar inverters business prior to its sale. In the nine and three months ended September 30, 2019, and including the $466 million and $11 million above, Income from continuing operations before taxes includes net losses of $515 million and $18 million, respectively, from this business.
18 Q3 2020 Financial Information
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Note 5
Cash and equivalents, marketable securities andshort-term investments
Cash and equivalents, marketable securities and short-term investments consisted of the following:
| September 30, 2020 | ||||||
|---|---|---|---|---|---|---|
| **** | **** | **** | **** | Cash and | Marketable | |
| **** | Gross | Gross | **** | equivalents | securities | |
| **** | unrealized | unrealized | **** | and restricted | and short-term | |
| ( in<br> millions) | Cost basis | gains | losses | Fair value | cash | investments |
| Changes<br> in fair value | **** | **** | **** | **** | **** | **** |
| recorded<br> in net income | **** | |||||
| Cash | 2,810 | 2,810 | 2,810 | – | ||
| Time<br> deposits | 1,758 | 1,758 | 1,528 | 230 | ||
| Equity<br> securities | 4,552 | 8 | 4,560 | 4,560 | ||
| 9,120 | 8 | – | 9,128 | 4,338 | 4,790 | |
| Changes<br> in fair value recorded | **** | **** | **** | **** | **** | **** |
| in<br> other comprehensive income | **** | |||||
| Debt<br> securities available-for-sale: | **** | |||||
| 272 | 22 | 294 | 294 | |||
| 114 | 1 | 115 | 115 | |||
| 66 | 5 | 71 | 71 | |||
| 452 | 28 | – | 480 | – | 480 | |
| Total | 9,572 | 36 | – | 9,608 | 4,338 | 5,270 |
| Of<br> which: | **** | **** | **** | **** | **** | **** |
| **** | 860 | |||||
| **** | 300 |
All values are in US Dollars.
| December 31, 2019 | ||||||
|---|---|---|---|---|---|---|
| **** | **** | **** | **** | Cash and | Marketable | |
| **** | Gross | Gross | **** | equivalents | securities | |
| **** | unrealized | unrealized | **** | and restricted | and short-term | |
| ( in<br> millions) | Cost basis | gains | losses | Fair value | cash | investments |
| Changes<br> in fair value | **** | **** | **** | **** | **** | **** |
| recorded<br> in net income | **** | |||||
| Cash | 2,111 | 2,111 | 2,111 | |||
| Time<br> deposits | 1,433 | 1,433 | 1,433 | – | ||
| Equity<br> securities | 294 | 10 | 304 | 304 | ||
| 3,838 | 10 | – | 3,848 | 3,544 | 304 | |
| Changes<br> in fair value recorded | **** | **** | **** | **** | **** | **** |
| in<br> other comprehensive income | **** | |||||
| Debt<br> securities available-for-sale: | **** | |||||
| 191 | 7 | (1) | 197 | – | 197 | |
| 61 | 4 | 65 | – | 65 | ||
| 252 | 11 | (1) | 262 | – | 262 | |
| Total | 4,090 | 21 | (1) | 4,110 | 3,544 | 566 |
| Of<br> which: | **** | |||||
| **** | 36 |
All values are in US Dollars.
─
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
19 Q3 2020 Financial Information
forecasted foreign 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 Company’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 are used to manage the interest rate 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<br> millions) | September 30, 2020 | December 31, 2019 | September 30, 2019 |
| Foreign<br> exchange contracts | 14,316 | 15,015 | 11,525 |
| Embedded<br> foreign exchange derivatives | 1,013 | 924 | 717 |
| Interest<br> rate contracts | 4,128 | 5,188 | 4,230 |
Derivativecommodity 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, 2020 | December 31, 2019 | September 30, 2019 | ||
| Copper<br> swaps | metric<br> tonnes | 37,245 | 42,494 | 44,195 |
| Silver<br> swaps | ounces | 1,916,958 | 2,508,770 | 2,364,343 |
| Aluminum<br> swaps | metric<br> tonnes | 8,418 | 8,388 | 8,869 |
Equityderivatives
At September 30, 2020, December 31, 2019, and September 30, 2019, the Company held 27 million, 40 million and 46 million cash-settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of $22 million, $26 million and $11 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. Where such instruments are designated and qualify as cash flow hedges, 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.
At September 30, 2020, and December 31, 2019, “Accumulated other comprehensive loss” included net unrealized losses of $4 million and $5 million, respectively, net of tax, on derivatives designated as cash flow hedges. Of the amount at September 30, 2020, net losses of $2 million are expected to be reclassified to earnings in the following 12 months. At September 30, 2020, the longest maturity of a derivative classified as a cash flow hedge was 52 months.
The amount of gains or losses, net of tax, reclassified into earnings due to the discontinuance of cash flow hedge accounting and the amount of ineffectiveness in cash flow hedge relationships directly recognized in earnings were not significant in the nine and three months ended September 30, 2020 and 2019.
The pre-tax effects of derivative instruments, designated and qualifying as cash flow hedges, on “Accumulated other comprehensive loss” (OCI) and the Consolidated Income Statements were not significant.
20 Q3 2020 Financial Information
Fair value hedges
To reduce its interest rate exposure arising primarily from its debt issuance activities, the Company uses interest rate swaps. Where such instruments are designated as fair value hedges, the changes in the fair value of these instruments, as well as the changes in the fair value of the risk component of the underlying debt being hedged, are recorded as offsetting gains and losses in “Interest and other finance expense”. Hedge ineffectiveness of instruments designated as fair value hedges for the nine and three months ended September 30, 2020 and 2019, was not significant.
The effect of interest rate contracts, designated and qualifying as fair value hedges, on the Consolidated Income Statements was as follows:
| Nine months ended September 30, | Three months ended September 30, | |||
|---|---|---|---|---|
| ($ in<br> millions) | 2020 | 2019 | 2020 | 2019 |
| Gains<br> (losses) recognized in Interest and other finance expense: | ||||
| - on<br> derivatives designated as fair value hedges | 21 | 58 | (5) | 1 |
| - on<br> hedged item | (20) | (58) | 7 | (1) |
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 subsidiary 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<br> millions) | Location | 2020 | 2019 | 2020 | 2019 |
| Foreign<br> exchange contracts | Total<br> revenues | (37) | (60) | 30 | (61) |
| Total<br> cost of sales | 53 | (42) | 10 | (4) | |
| SG&A<br> expenses^(1)^ | (2) | 6 | (6) | 7 | |
| Non-order<br> related research | |||||
| and<br> development | (1) | 1 | – | – | |
| Interest<br> and other finance expense | 107 | (60) | 139 | 19 | |
| Embedded<br> foreign exchange | Total<br> revenues | (4) | 13 | (10) | 16 |
| contracts | Total<br> cost of sales | (2) | (7) | – | (7) |
| SG&A<br> expenses^(1)^ | – | – | – | – | |
| Commodity<br> contracts | Total<br> cost of sales | 12 | (4) | 24 | (2) |
| Other | Interest<br> and other finance expense | 1 | (1) | – | (1) |
| Total | **** | 127 | (154) | 187 | (33) |
(1) SG&A expenses represent “Selling, general and administrative expenses”.
The fair values of derivatives included in the Consolidated Balance Sheets were as follows:
| September 30, 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<br> millions) | assets” | assets” | liabilities” | liabilities” |
| Derivatives designated as hedging instruments: | ||||
| Foreign<br> exchange contracts | 5 | 1 | 3 | 4 |
| Interest<br> rate contracts | – | 93 | – | – |
| Cash-settled<br> call options | 12 | 10 | – | – |
| Total | 17 | 104 | 3 | 4 |
| Derivatives not designated as hedging instruments: | ||||
| Foreign<br> exchange contracts | 138 | 10 | 116 | 13 |
| Commodity<br> contracts | 36 | – | 7 | – |
| Interest<br> rate contracts | 1 | – | 1 | – |
| Embedded<br> foreign exchange derivatives | 10 | 4 | 17 | 6 |
| Total | 185 | 14 | 141 | 19 |
| Total fair value | 202 | 118 | 144 | 23 |
21 Q3 2020 Financial Information
| December 31, 2019 | ||||
|---|---|---|---|---|
| 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<br> millions) | assets” | assets” | liabilities” | liabilities” |
| Derivatives designated as hedging instruments: | ||||
| Foreign<br> exchange contracts | – | – | 2 | 6 |
| Interest<br> rate contracts | – | 72 | – | – |
| Cash-settled<br> call options | 11 | 14 | – | – |
| Total | 11 | 86 | 2 | 6 |
| Derivatives not designated as hedging instruments: | ||||
| Foreign<br> exchange contracts | 85 | 14 | 127 | 14 |
| Commodity<br> contracts | 17 | – | 2 | – |
| Cash-settled<br> call options | – | 1 | – | – |
| Embedded<br> foreign exchange derivatives | 7 | 3 | 12 | 3 |
| Total | 109 | 18 | 141 | 17 |
| Total fair value | 120 | 104 | 143 | 23 |
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, 2020, and December 31, 2019, 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, 2020, and December 31, 2019, information related to these offsetting arrangements was as follows:
| ($ in<br> millions) | September 30, 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 | 306 | (113) | – | – | 193 |
| Total | 306 | (113) | – | – | 193 |
| ($ in<br> millions) | September 30, 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 | 144 | (113) | – | – | 31 |
| Total | 144 | (113) | – | – | 31 |
| ($ in millions) | December 31, 2019 | ||||
| --- | --- | --- | --- | --- | --- |
| **** | 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 | 214 | (102) | – | – | 112 |
| Total | 214 | (102) | – | – | 112 |
| ($ in<br> millions) | December 31, 2019 | ||||
| --- | --- | --- | --- | --- | --- |
| **** | 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 | 151 | (102) | – | – | 49 |
| Total | 151 | (102) | – | – | 49 |
22 Q3 2020 Financial Information
─
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 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, 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.
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, 2020 | |||
|---|---|---|---|---|
| ($ in<br> millions) | Level 1 | Level 2 | Level 3 | Total fair value |
| Assets | **** | |||
| Equity<br> securities | – | 4,560 | – | 4,560 |
| Debt<br> securities—U.S. government obligations | 294 | – | – | 294 |
| Debt<br> securities—European government obligations | 115 | – | – | 115 |
| Debt<br> securities—Corporate | – | 71 | – | 71 |
| Derivative<br> assets—current in “Other current assets” | – | 202 | – | 202 |
| Derivative<br> assets—non-current in “Other non-current assets” | – | 118 | – | 118 |
| Total | 409 | 4,951 | – | 5,360 |
| Liabilities | **** | |||
| Derivative<br> liabilities—current in “Other current liabilities” | – | 144 | – | 144 |
| Derivative<br> liabilities—non-current in “Other non-current liabilities” | – | 23 | – | 23 |
| Total | – | 167 | – | 167 |
23 Q3 2020 Financial Information
| **** | December 31, 2019 | |||
|---|---|---|---|---|
| ($ in<br> millions) | Level 1 | Level 2 | Level 3 | Total fair value |
| Assets | **** | |||
| Securities<br> in “Marketable securities and short-term investments”: | **** | |||
| Equity<br> securities | – | 304 | – | 304 |
| Debt<br> securities—U.S. government obligations | 197 | – | – | 197 |
| Debt<br> securities—Corporate | – | 65 | – | 65 |
| Derivative<br> assets—current in “Other current assets” | – | 120 | – | 120 |
| Derivative<br> assets—non-current in “Other non-current assets” | – | 104 | – | 104 |
| Total | 197 | 593 | – | 790 |
| Liabilities | **** | |||
| Derivative<br> liabilities—current in “Other current liabilities” | – | 143 | – | 143 |
| Derivative<br> liabilities—non-current in “Other non-current liabilities” | – | 23 | – | 23 |
| Total | – | 166 | – | 166 |
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”: 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 nonperformance 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, 2020, the Company recognized net increases in fair value of $72 million related to certain of its private equity investments based on observable market price changes for an identical or similar investment of the same issuer. At September 30, 2020, the fair values of these investments totaled $97 million and were determined using level 2 inputs.
In the three months ended September 30, 2020, the Company recorded goodwill impairment charges of $311 million. The fair value measurements used in the analyses were calculated using the income approach (discounted cash flow method). The discounted cash flow models were calculated using unobservable inputs, which classified the fair value measurement as Level 3 (see Note 8 for additional information including further detailed information related to these charges and significant unobservable inputs).
In June 2019, upon meeting the criteria as held for sale, the Company adjusted the carrying value of the solar inverters business which was sold in February 2020 (see Note 4 for details). Apart from the transactions above, there were no additional significant non-recurring fair value measurements during the nine and three months ended September 30, 2020 and 2019.
Disclosure about financial instrumentscarried on a cost basis
The fair values of financial instruments carried on a cost basis were as follows:
| **** | September 30, 2020 | ||||
|---|---|---|---|---|---|
| ($ in<br> millions) | Carrying value | Level 1 | Level 2 | Level 3 | Total fair value |
| Assets | **** | ||||
| Cash<br> and equivalents (excluding securities with original | **** | ||||
| maturities<br> up to 3 months): | **** | ||||
| Cash | 1,650 | 1,650 | 1,650 | ||
| Time<br> deposits | 1,528 | 1,528 | 1,528 | ||
| Restricted<br> cash | 860 | 860 | 860 | ||
| Marketable<br> securities and short-term investments | **** | ||||
| (excluding<br> securities): | **** | ||||
| Time<br> deposits | 230 | 230 | 230 | ||
| Restricted<br> cash non-current | 300 | 300 | 300 | ||
| Other<br> non-current assets: | **** | ||||
| Loans<br> granted | 23 | 25 | 25 | ||
| Liabilities | **** | ||||
| Short-term<br> debt and current maturities of long-term debt | **** | ||||
| (excluding<br> finance lease obligations) | 2,313 | 1,286 | 1,028 | 2,314 | |
| Long-term<br> debt (excluding finance lease obligations) | 6,177 | 6,519 | 101 | 6,620 |
24 Q3 2020 Financial Information
| **** | December 31, 2019 | ||||
|---|---|---|---|---|---|
| ($ in<br> millions) | Carrying value | Level 1 | Level 2 | Level 3 | Total fair value |
| Assets | **** | ||||
| Cash<br> and equivalents (excluding securities with original | **** | ||||
| maturities<br> up to 3 months): | **** | ||||
| Cash | 2,075 | 2,075 | – | – | 2,075 |
| Time deposits | 1,433 | – | 1,433 | – | 1,433 |
| Restricted<br> cash | 36 | 36 | 36 | ||
| Other<br> non-current assets: | **** | ||||
| Loans<br> granted | 30 | – | 31 | – | 31 |
| Liabilities | **** | ||||
| Short-term<br> debt and current maturities of long-term debt | **** | ||||
| (excluding<br> finance lease obligations) | 2,270 | 1,534 | 736 | – | 2,270 |
| Long-term<br> debt (excluding finance lease obligations) | 6,618 | 6,267 | 692 | – | 6,959 |
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, 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.
· Other non-current assets: Includes (i) loans granted whose fair values are based on the carrying amount adjusted using a present value technique to reflect a premium or discount based on current market interest rates (Level 2 inputs), and (ii) restricted time deposits whose fair values approximate the carrying amounts (Level 1 inputs).
· 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
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. A reporting unit is an operating segment or one level below an operating segment. The adoption of the Company’s new operating model on July 1, 2020, the ABB Way, resulted in a change to the composition of reporting units. Previously, the reporting units were the same as the operating segments for Electrification, Motion and Robotics & Discrete Automation, while for the Industrial Automation operating segment the reporting units were determined to be at the Division level, which is one level below the operating segment. The ABB Way provides the Divisions full ownership and accountability for their respective strategies, performance and resources and as a result the Company concluded that its reporting units would then be the 18 Divisions. This change did not have an impact on the Company’s operating segments and as a result, no goodwill was transferred between operating segments but was only allocated within the operating segments to the Divisions.
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.
The quantitative impairment test 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.
25 Q3 2020 Financial Information
The changes in “Goodwill” were as follows:
| **** | **** | **** | Robotics & | **** | **** | |
|---|---|---|---|---|---|---|
| **** | Industrial | **** | Discrete | Corporate | **** | |
| ($ in<br> millions) | Electrification | Automation | Motion | Automation | and Other | Total |
| Cost at<br> January 1, 2019 | 4,276 | 1,616 | 2,441 | 2,410 | 39 | 10,782 |
| Accumulated<br> impairment charges | – | – | – | – | (18) | (18) |
| Balance at January 1, 2019 | 4,276 | 1,616 | 2,441 | 2,410 | 21 | 10,764 |
| Goodwill<br> acquired during the year | 92 | – | – | – | – | 92 |
| Goodwill<br> allocated to disposals | (18) | – | – | – | – | (18) |
| Exchange<br> rate differences and other | 22 | (1) | (5) | (29) | – | (13) |
| Balance at December 31, 2019 | 4,372 | 1,615 | 2,436 | 2,381 | 21 | 10,825 |
| Goodwill<br> acquired during the period | 69 | – | – | – | – | 69 |
| Impairment<br> of Goodwill | – | – | – | (290) | (21) | (311) |
| Exchange<br> rate differences and other | 2 | 13 | 16 | 61 | – | 92 |
| Balance at September 30, 2020 | 4,443 | 1,628 | 2,452 | 2,152 | – | 10,675 |
As a result of the new composition of the reporting units and reallocation of goodwill, an interim quantitative impairment test was conducted before and after the change as of 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 Company then performed the impairment test immediately after the change in reporting units and the fair value of each was determined using a discounted cash flow fair value estimate based on objective information 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 were 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 are determined using Level 3 measurements.
The interim quantitative impairment test indicated that the estimated fair values for 17 of the 18 reporting units were substantially in excess of their carrying value, with the exception of the Machine Automation reporting unit within the Robotics & Discrete Automation operating segment. As a result of the reallocation of goodwill to the Division level the reporting unit was no longer able to benefit from the previously shared cash flows generated within the operating segment as a single reporting unit under the previous structure prior to July 1, 2020. In addition, 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 led to the carrying value of the Machine Automation reporting unit to exceed its fair value. A goodwill impairment charge of $290 million was recorded in the three months ended September 30, 2020, to reduce the carrying value of this reporting unit to its implied fair value.
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Note 9
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. Although the Company believes that there may be an unfavorable outcome in one or more of these compliance-related matters, 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.
Liabilitiesrecognized
At September 30, 2020, and December 31, 2019, the Company had aggregate liabilities of $115 million and $157 million, respectively, included in “Other provisions” and “Other non‑current liabilities”, for the above regulatory, compliance and legal contingencies, and none of the individual liabilities recognized was significant. In addition, the Company, with the oversight of the SIU, is working towards a full and final settlement with Eskom, subject to court approval. As it is not possible to make an informed judgment on, or reasonably predict, the outcome of certain matters and as it is not possible, based on information currently available to management, to estimate the maximum potential liability on other matters, there could be adverse outcomes beyond the amounts accrued.
26 Q3 2020 Financial Information
Guarantees
General
The following table provides quantitative data regarding the Company’s third-party guarantees. The maximum potential payments represent a “worst‑case scenario”, and do not reflect management’s expected outcomes.
| Maximum<br> potential payments ($ in millions) | September 30, 2020 | December 31, 2019 |
|---|---|---|
| Performance<br> guarantees | 7,984 | 1,860 |
| Financial<br> guarantees | 652 | 10 |
| Indemnification<br> guarantees^(1)^ | 167 | 64 |
| Total^(2)^ | 8,803 | 1,934 |
(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, 2020, amounted to $129 million, which is included in discontinued operations, while at December 31, 2019, balances were not significant.
The Company is party to various guarantees providing financial or performance assurances to certain third parties. These guarantees, which have various maturities up to 2050, 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, 2020, and December 31, 2019, the maximum potential payable under these guarantees amounts to $936 million and $898 million, respectively, and these guarantees have various maturities ranging from one 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), certain of which have been indemnified by Hitachi. These guarantees, which have various maturities up to 2050, 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 is approximately $7.1 billion and the carrying amounts of liabilities at September 30, 2020 amounted to $129 million.
Commercialcommitments
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 institution for amounts paid under the performance bonds. At September 30, 2020, and December 31, 2019, the total outstanding performance bonds aggregated to $3.7 billion and $6.8 billion, respectively, of which $0.5 billion and $3.7 billion, respectively, relates to discontinued operations. There have been no significant amounts reimbursed to financial institutions under these types of arrangements in the nine and three months ended September 30, 2020 and 2019.
Product and order-related contingencies
The Company calculates its provision for product warranties based on historical claims experience and specific review of certain contracts.
The reconciliation of the “Provisions for warranties”, including guarantees of product performance, was as follows:
| ($ in<br> millions) | 2020 | 2019 |
|---|---|---|
| Balance at January 1, | 816 | 948 |
| Net<br> change in warranties due to acquisitions, divestments and liabilities held<br> for sale^(1)^ | 8 | (87) |
| Claims<br> paid in cash or in kind | (153) | (223) |
| Net<br> increase in provision for changes in estimates, warranties issued and<br> warranties expired | 284 | 207 |
| Exchange<br> rate differences | 11 | (29) |
| Balance at September 30, | 966 | 816 |
(1) Includes adjustments to the initial purchase price allocation recorded during the measurement period.
During 2020, the Company recorded changes in the estimated amount for a product warranty relating to a divested business. This warranty liability was increased by a total of $143 million during the nine and three 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 $0.07 for both the nine and three months ended September 30, 2020. As these costs relate to a divested business, they have been excluded from the Company’s primary measure of segment performance, Operational EBITA (see Note 18). The warranty liability has been recorded based on the information currently available and is subject to change in the future.
27 Q3 2020 Financial Information
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Note 10
Contract assets and liabilities
The following table provides information about Contract assets and Contract liabilities:
| ($ in<br> millions) | September 30, 2020 | December 31, 2019 | September 30, 2019 |
|---|---|---|---|
| Contract<br> assets | 1,100 | 1,025 | 1,088 |
| Contract<br> liabilities | 1,828 | 1,719 | 1,616 |
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.
The significant changes in the Contract assets and Contract liabilities balances were as follows:
| Nine months ended September 30, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Contract | Contract | Contract | Contract | |
| ($ in<br> millions) | assets | liabilities | assets | liabilities |
| Revenue<br> recognized, which was included in the Contract liabilities balance at Jan 1,<br> 2020/2019 | (746) | (649) | ||
| Additions<br> to Contract liabilities - excluding amounts recognized as revenue during the<br> period | 867 | 648 | ||
| Receivables<br> recognized that were included in the Contract asset balance at Jan 1,<br> 2020/2019 | (448) | (457) |
At September 30, 2020, the Company had unsatisfied performance obligations totaling $13,878 million and, of this amount, the Company expects to fulfill approximately 35 percent of the obligations in 2020, approximately 45 percent of the obligations in 2021 and the balance thereafter.
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Note 11
Debt
The Company’s total debt at September 30, 2020, and December 31, 2019, amounted to $8,673 million and $9,059 million, respectively.
Short-term debt and current maturities of long-term debt
The Company’s “Short-term debt and current maturities of long-term debt” consisted of the following:
| ($ in<br> millions) | September 30, 2020 | December 31, 2019 |
|---|---|---|
| Short-term<br> debt | 423 | 838 |
| Current<br> maturities of long-term debt | 1,931 | 1,449 |
| Total | 2,354 | 2,287 |
Short-term debt primarily represented issued commercial paper and short-term bank borrowings from various banks. At September 30, 2020, and December 31, 2019, $70 million and $706 million, respectively, was outstanding under the $2 billion commercial paper program in the United States. No amount was outstanding under the $2 billion Euro-commercial paper program at September 30, 2020, or December 31, 2019.
On March 25, 2020, the Company entered into a bank-funded short-term EUR 2 billion Revolving Credit Agreement (the “Agreement”). Outstanding amounts were subject to interest at the rate of EURIBOR plus a margin of 0.25 percent. The Company requested the full amount to be borrowed and the proceeds were received on March 31, 2020, amounting to $2,183 million, net of issuance costs. The Agreement required that all outstanding amounts be repaid within 15 days after the completion of the sale of the Power Grids business and the remaining EUR 1.2 billion outstanding (equivalent to $1,354 million on the date of payment) was repaid on July 8, 2020. The Agreement was terminated after the final repayment.
At September 30, 2020, the Company continues to have access to the full amount under its existing $2 billion revolving credit facility.
On April 3, 2020, the Company repaid at maturity its USD 300 million 2.8% Notes.
Long-term debt
The Company’s long-term debt at September 30, 2020, and December 31, 2019, amounted to $6,319 million and $6,772 million, respectively.
28 Q3 2020 Financial Information
Outstanding bonds (including maturities within the next 12 months) were as follows:
| December 31, 2019 | |||||||
|---|---|---|---|---|---|---|---|
| (in<br> millions) | Carrying value^(1)^ | Nominal outstanding | Carrying value^(1)^ | ||||
| Bonds: | |||||||
| 2.8%<br> Notes, due 2020 | USD | 300 | $ | 300 | |||
| Floating<br> Notes, due 2020 | 1,000 | $ | 1,171 | EUR | 1,000 | $ | 1,122 |
| 4.0%<br> Notes, due 2021 | 650 | $ | 649 | USD | 650 | $ | 648 |
| 2.25%<br> CHF Bonds, due 2021 | 350 | $ | 387 | CHF | 350 | $ | 373 |
| 5.625%<br> Notes, due 2021 | 250 | $ | 256 | USD | 250 | $ | 260 |
| 2.875%<br> Notes, due 2022 | 1,250 | $ | 1,285 | USD | 1,250 | $ | 1,267 |
| 3.375%<br> Notes, due 2023 | 450 | $ | 449 | USD | 450 | $ | 448 |
| 0.625%<br> Instruments, due 2023 | 700 | $ | 836 | EUR | 700 | $ | 799 |
| 0.75%<br> Instruments, due 2024 | 750 | $ | 904 | EUR | 750 | $ | 859 |
| 0.3%<br> CHF Notes, due 2024 | 280 | $ | 303 | CHF | 280 | $ | 288 |
| 3.8%<br> Notes, due 2028 | 750 | $ | 747 | USD | 750 | $ | 746 |
| 1.0%<br> CHF Notes, due 2029 | 170 | $ | 184 | CHF | 170 | $ | 175 |
| 4.375%<br> Notes, due 2042 | 750 | $ | 725 | USD | 750 | $ | 724 |
| Total | **** | $ | 7,896 | **** | **** | $ | 8,009 |
All values are in US Dollars.
(1) USD carrying values include unamortized debt issuance costs, bond discounts or premiums, as well as adjustments for fair value hedge accounting, where appropriate.
Subsequentevents
On October 12, 2020, the Company repaid at maturity its EUR 1,000 million Floating Notes, equivalent to $1,180 million on date of repayment.
─
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 circumstances 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 63.1 percent in the nine months ended September 30, 2020, was higher than the effective tax rate of 36.6 percent in the nine months ended September 30, 2019, due to significant impacts to both 2019 and 2020. In 2019, the effective rate reflects the impact of the non-tax-deductible loss relating to the divestment of the solar inverters business (see Note 4). In 2020, the effective rate reflects the non‑deductible goodwill impairment (see Note 8), the non‑deductibility of the non‑operational pension costs due to certain settlements (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 9). In addition, the rate in 2020 was also impacted by a favorable resolution of an uncertain tax position during the first quarter as well as increases to the valuation allowance in certain countries.
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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 31. 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 $101 million in the nine months ended September 30, 2020, for a similar settlement of pension obligations in discontinued operations.
29 Q3 2020 Financial Information
Net periodic benefit cost of the Company’s defined benefit pension and other postretirement benefit plans consisted of the following:
| ($ in<br> millions) | Defined pension benefits | Other postretirement | ||||
|---|---|---|---|---|---|---|
| Switzerland | International | benefits | ||||
| Nine months ended September 30, | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 |
| Operational pension cost: | **** | **** | **** | **** | **** | **** |
| Service<br> cost | 60 | 56 | 66 | 82 | – | 1 |
| Operational pension cost | 60 | 56 | 66 | 82 | – | 1 |
| Non-operational pension cost (credit): | **** | **** | **** | **** | **** | **** |
| Interest<br> cost | 3 | 11 | 91 | 130 | 2 | 3 |
| Expected<br> return on plan assets | (93) | (84) | (196) | (198) | – | – |
| Amortization<br> of prior service cost (credit) | (10) | (11) | 1 | 2 | (2) | (4) |
| Amortization<br> of net actuarial loss | 6 | – | 79 | 80 | (2) | (2) |
| Curtailments,<br> settlements and special termination benefits | – | – | 487 | 7 | – | (10) |
| Non-operational pension cost (credit) | (94) | (84) | 462 | 21 | (2) | (13) |
| Net periodic benefit cost (credit) | (34) | (28) | 528 | 103 | (2) | (12) |
| ($ in<br> millions) | Defined pension benefits | Other postretirement | ||||
| --- | --- | --- | --- | --- | --- | --- |
| Switzerland | International | benefits | ||||
| Three months ended September 30, | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 |
| Operational<br> pension cost: | ||||||
| Service<br> cost | 15 | 18 | 16 | 26 | – | 1 |
| Operational pension cost | 15 | 18 | 16 | 26 | – | 1 |
| Non-operational<br> pension cost (credit): | ||||||
| Interest<br> cost | 2 | 3 | 31 | 42 | 1 | 1 |
| Expected<br> return on plan assets | (28) | (28) | (63) | (60) | – | – |
| Amortization<br> of prior service cost (credit) | (3) | (4) | – | 1 | (1) | (2) |
| Amortization<br> of net actuarial loss | 1 | – | 24 | 26 | – | (1) |
| Curtailments,<br> settlements and special termination benefits | – | – | 379 | 6 | – | (10) |
| Non-operational pension cost (credit) | (28) | (29) | 371 | 15 | – | (12) |
| Net periodic benefit cost (credit) | (13) | (11) | 387 | 41 | – | (11) |
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 and $29 million, for the nine months ended September 30, 2020 and 2019, respectively and $9 million for the three months ended September 30, 2019, related to discontinued operations.
Employer contributions were as follows:
| ($ in<br> millions) | Defined pension benefits | Other postretirement | ||||
|---|---|---|---|---|---|---|
| Switzerland | International | benefits | ||||
| Nine months ended September 30, | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 |
| Total<br> contributions to defined benefit pension and | ||||||
| other<br> postretirement benefit plans | 216 | 70 | 478 | 74 | 9 | 4 |
| Of<br> which, discretionary contributions to defined benefit | ||||||
| pension<br> plans | 152 | 2 | 416 | – | – | – |
| ($ in<br> millions) | Defined pension benefits | Other postretirement | ||||
| --- | --- | --- | --- | --- | --- | --- |
| Switzerland | International | benefits | ||||
| Three months ended September 30, | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 |
| Total<br> contributions to defined benefit pension and | ||||||
| other<br> postretirement benefit plans | 168 | 22 | 288 | 30 | 6 | – |
| Of<br> which, discretionary contributions to defined benefit | ||||||
| pension<br> plans | 152 | – | 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 $839 million and $9 million to its defined pension plans and other postretirement benefit plans, respectively, for the full year 2020.
30 Q3 2020 Financial Information
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Note 14
Stockholder's equity
At the Annual General Meeting of Shareholders on March 26, 2020, shareholders approved the proposal of the Board of Directors to distribute 0.80 Swiss francs per share to shareholders. The declared dividend amounted to $1,758 million and was paid in April 2020.
In July 2020, the Company announced it initially intends to buy 10 percent of its share capital (which at the time of the announcement represented a maximum of 180 million shares, in addition to those already held in treasury) through the share buyback program that started on July 23, 2020. The share buyback program is executed on a second trading line on the SIX Swiss Exchange and is planned to run until the Company’s Annual General Meeting (AGM) on March 25, 2021. At the AGM, the Company intends to request shareholder approval to cancel the shares purchased through this program. In the third quarter of 2020, under this program, the Company purchased 59 million shares for cancellation, resulting in an increase in Treasury stock of $1,533 million.
In the nine months ended September 30, 2020, the Company delivered, out of treasury stock, 16 million shares for options exercised in connection with its Management Incentive Plan.
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Note 15
Earnings per share
Basic earnings per share is calculated by dividing income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is calculated by dividing income by the weighted-average number of shares outstanding during the period, assuming that all potentially dilutive securities were exercised, if dilutive. Potentially dilutive securities comprise outstanding written call options, and outstanding options and shares granted subject to certain conditions under the Company’s share-based payment arrangements.
| Basic earnings per share | **** | **** | ||
|---|---|---|---|---|
| **** | Nine months ended September 30, | Three months ended September 30, | ||
| ($ in<br> millions, except per share data in $) | 2020 | 2019 | 2020 | 2019 |
| Amounts<br> attributable to ABB shareholders: | ||||
| Income<br> (loss) from continuing operations, net of tax | 190 | 752 | (513) | 427 |
| Income<br> from discontinued operations, net of tax | 5,035 | 362 | 5,043 | 88 |
| Net income | 5,225 | 1,114 | 4,530 | 515 |
| Weighted-average number of shares outstanding (in millions) | 2,129 | 2,132 | 2,119 | 2,133 |
| Basic<br> earnings per share attributable to ABB shareholders: | ||||
| Income<br> (loss) from continuing operations, net of tax | 0.09 | 0.35 | (0.24) | 0.20 |
| Income<br> from discontinued operations, net of tax | 2.36 | 0.17 | 2.38 | 0.04 |
| Net income | 2.45 | 0.52 | 2.14 | 0.24 |
| Diluted earnings per share | **** | **** | ||
| --- | --- | --- | --- | --- |
| **** | Nine months ended September 30, | Three months ended September 30, | ||
| ($ in<br> millions, except per share data in $) | 2020 | 2019 | 2020 | 2019 |
| Amounts<br> attributable to ABB shareholders: | ||||
| Income<br> (loss) from continuing operations, net of tax | 190 | 752 | (513) | 427 |
| Income<br> from discontinued operations, net of tax | 5,035 | 362 | 5,043 | 88 |
| Net income | 5,225 | 1,114 | 4,530 | 515 |
| Weighted-average<br> number of shares outstanding (in millions) | 2,129 | 2,132 | 2,119 | 2,133 |
| Effect<br> of dilutive securities: | ||||
| Call<br> options and shares | 6 | 2 | – | 2 |
| Adjusted weighted-average number of shares outstanding (in millions) | 2,135 | 2,134 | 2,119 | 2,135 |
| Diluted<br> earnings per share attributable to ABB shareholders: | ||||
| Income<br> (loss) from continuing operations, net of tax | 0.09 | 0.35 | (0.24) | 0.20 |
| Income<br> from discontinued operations, net of tax | 2.36 | 0.17 | 2.38 | 0.04 |
| Net income | 2.45 | 0.52 | 2.14 | 0.24 |
31 Q3 2020 Financial Information
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Note 16
Reclassifications out of accumulated othercomprehensive loss
The following table shows changes in “Accumulated other comprehensive loss” (OCI) attributable to ABB, by component, net of tax:
| **** | Unrealized gains | Pension and | Unrealized gains | **** | |
|---|---|---|---|---|---|
| Foreign currency | (losses) on | other | (losses) of cash | **** | |
| translation | available-for-sale | postretirement | flow hedge | **** | |
| ($ in<br> millions) | adjustments | securities | plan adjustments | derivatives | Total OCI |
| Balance at January 1, 2019 | (3,324) | (4) | (1,967) | (16) | (5,311) |
| Adoption<br> of accounting standard update^(1)^ | – | – | (36) | – | (36) |
| Other<br> comprehensive (loss) income: | **** | ||||
| Other<br> comprehensive (loss) income | |||||
| before<br> reclassifications | (373) | 15 | 100 | 6 | (252) |
| Amounts<br> reclassified from OCI | – | 1 | 45 | (1) | 45 |
| Total other comprehensive (loss) income | (373) | 16 | 145 | 5 | (207) |
| Less: | |||||
| Amounts<br> attributable to | |||||
| noncontrolling<br> interests | (10) | – | – | – | (10) |
| Balance at September 30, 2019^(2)^ | (3,687) | 12 | (1,858) | (11) | (5,544) |
| **** | Unrealized gains | Pension and | Unrealized gains | **** | |
| --- | --- | --- | --- | --- | --- |
| Foreign currency | (losses) on | other | (losses) of cash | **** | |
| translation | available-for-sale | postretirement | flow hedge | **** | |
| ($ in<br> millions) | adjustments | securities | plan adjustments | derivatives | Total OCI |
| Balance at January 1, 2020 | (3,450) | 10 | (2,145) | (5) | (5,590) |
| Other<br> comprehensive (loss) income: | **** | ||||
| Other<br> comprehensive (loss) income | **** | ||||
| before<br> reclassifications | 84 | 21 | (136) | 1 | (30) |
| Amounts<br> reclassified from OCI | 538 | (12) | 487 | – | 1,013 |
| Total other comprehensive (loss) income | 622 | 9 | 351 | 1 | 983 |
| Less: | |||||
| Amounts<br> attributable to | |||||
| noncontrolling<br> interests | 22 | – | – | – | 22 |
| Balance at September 30, 2020 | (2,850) | 19 | (1,794) | (4) | (4,629) |
(1) Amount relates to the adoption of an accounting standard update in 2019 regarding the Tax Cuts and Jobs Act of 2017.
32 Q3 2020 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<br> millions) | Location of (gains) losses | September 30, | September 30, | ||
| Details about OCI components | reclassified from OCI | 2020 | 2019 | 2020 | 2019 |
| Foreign<br> currency translation adjustments: | |||||
| Currency<br> translation loss: | Income<br> from discontinued | ||||
| -<br> Divestment of Power Grids business (see Note 3) | operations,<br> net of tax | 439 | – | 439 | – |
| Currency<br> translation loss: | |||||
| -<br> Divestment of solar inverters business (see Note 4) | Other<br> income (expense), net | 99 | – | – | – |
| Amounts reclassified from OCI | 538 | – | 439 | – | |
| Pension<br> and other postretirement plan adjustments: | |||||
| Amortization<br> of prior service cost (credit) | Non-operational<br> pension (cost) credit^(1)^ | (7) | (13) | – | (5) |
| Amortization<br> of net actuarial loss | Non-operational<br> pension (cost) credit^(1)^ | 83 | 78 | 25 | 25 |
| Net<br> loss from pension settlements and curtailments | Non-operational<br> pension (cost) credit^(1)^ | 487 | (5) | 379 | (5) |
| Reclassification<br> of OCI relating to pensions on | Income<br> from discontinued | ||||
| divestment<br> of the Power Grids business | operations,<br> net of tax | 86 | – | 86 | – |
| Total before tax | **** | 649 | 60 | 490 | 15 |
| Tax | Income<br> tax expense | (127) | (15) | (91) | (2) |
| Reclassification<br> of OCI relating to tax on pensions on | Income<br> from discontinued | ||||
| divestment<br> of the Power Grids business | operations,<br> net of tax | (35) | – | (35) | – |
| Amounts reclassified from OCI | **** | 487 | 45 | 364 | 13 |
(1) Amounts include a total of $94 million and $9 million for the nine months ended September 30, 2020 and 2019, respectively, and $3 million for the three months ended September 30, 2019, reclassified from OCI to Income from discontinued operations.
The amounts in respect of Unrealized gains (losses) on available-for-sale securities and Unrealized gains (losses) of cash flow hedge derivatives were not significant for the nine and three months ended September 30, 2020 and 2019.
─
Note 17
Restructuring and related expenses
OS program
In December 2018, the Company announced a two-year restructuring program with the objective of simplifying its business model and structure through the implementation of a new organizational structure driven by its businesses. The program includes the elimination of the country and regional structures within the current matrix organization, including the elimination of the three regional Executive Committee roles. The operating businesses will each be responsible for both their customer-facing activities and business support functions, while the remaining Group-level corporate activities will primarily focus on Group strategy, portfolio and performance management, capital allocation, core technologies and the ABB Ability™ platform.
During the three months ended September 30, 2020, the total expected program costs, originally estimated to be $350 million, were reduced by $65 million to $285 million, mainly due to reductions in both estimated costs and number of projects planned. The OS program is expected to be substantially completed by December 31, 2020.
The following table outlines the costs incurred in the nine and three months ended September 30, 2020 and 2019, respectively, the cumulative costs incurred up to September 30, 2020, and the total amount of costs expected to be incurred under the program per operating segment:
| **** | Cost incurred | Cumulative net | Total | |||
|---|---|---|---|---|---|---|
| **** | Nine months ended September 30, | Three months ended September 30, | cost incurred up to | expected | ||
| ($ in<br> millions) | 2020 | 2019 | 2020 | 2019 | September 30, 2020 | costs |
| Electrification | 33 | (2) | 15 | 2 | 83 | 86 |
| Industrial<br> Automation | 7 | 1 | 1 | (1) | 31 | 36 |
| Motion | 10 | 1 | 5 | – | 17 | 31 |
| Robotics<br> & Discrete Automation | 9 | 7 | 2 | 4 | 17 | 19 |
| Corporate<br> and Other | 27 | 44 | 6 | 20 | 92 | 113 |
| Total | 86 | 51 | 29 | 25 | 240 | 285 |
33 Q3 2020 Financial Information
Of the total expected costs of $285 million the majority is related to employee severance costs. The Company recorded the following expenses, net of changes in estimates, under this program:
| Nine months ended | Three months ended | Cumulative costs | |||
|---|---|---|---|---|---|
| September 30, | September 30, | incurred up to | |||
| ($ in<br> millions) | 2020 | 2019 | 2020 | 2019 | September 30, 2020 |
| Employee<br> severance costs | 54 | 45 | 18 | 19 | 200 |
| Estimated<br> contract settlement, loss order and other costs | 13 | – | 9 | – | 14 |
| Inventory<br> and long-lived asset impairments | 19 | 6 | 2 | 6 | 26 |
| Total | 86 | 51 | 29 | 25 | 240 |
Expenses, net of changes in estimates, associated with this program are recorded in the following line items in the Consolidated Income Statements:
| Nine months ended September 30, | Three months ended September 30, | |||
|---|---|---|---|---|
| ($ in<br> millions) | 2020 | 2019 | 2020 | 2019 |
| Total<br> cost of sales | 23 | 7 | 12 | 7 |
| Selling,<br> general and administrative expenses | 10 | 24 | 3 | 5 |
| Non-order<br> related research and development expenses | – | 1 | – | 1 |
| Other<br> income (expense), net | 53 | 19 | 14 | 12 |
| Total | 86 | 51 | 29 | 25 |
Liabilities associated with the OS program are primarily included in “Other provisions”. The following table shows the activity from the beginning of the program to September 30, 2020, by expense type:
| Employee | Contract settlement, | **** | |
|---|---|---|---|
| ($ in<br> 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<br> payments | (44) | (1) | (45) |
| Change<br> in estimates | (30) | – | (30) |
| Exchange<br> rate differences | (3) | – | (3) |
| Liability at December 31, 2019 | 99 | – | 99 |
| Expenses | 59 | 13 | 72 |
| Cash<br> payments | (63) | (11) | (74) |
| Change<br> in estimates | (5) | – | (5) |
| Exchange<br> rate differences | 2 | 1 | 3 |
| Liability at September 30, 2020 | 92 | 3 | 95 |
Other restructuring-relatedactivities
In the nine months ended September 30, 2020 and 2019, the Company executed various other restructuring‑related activities and incurred expenses. These expenses, which in the nine months ended September 30, 2019, mainly relate to employee severance costs, are recorded in:
| Nine months ended September 30, | Three months ended September 30, | |||
|---|---|---|---|---|
| ($ in millions) | 2020 | 2019 | 2020 | 2019 |
| Total<br> cost of sales | 13 | 44 | 11 | 12 |
| Selling,<br> general and administrative expenses | 16 | (1) | 8 | (17) |
| Non-order<br> related research and development expenses | 1 | (1) | 1 | – |
| Other<br> income (expenses), net | 27 | 37 | 17 | 11 |
| Total | 57 | 79 | 37 | 6 |
At September 30, 2020, and December 31, 2019, $142 million and $189 million, respectively, was recorded for other restructuring-related liabilities and is primarily included in “Other provisions”.
34 Q3 2020 Financial Information
─
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 operating segments based on products and services and these operating segments consist of Electrification, Industrial Automation, Motion, and Robotics & Discrete Automation. The remaining operations of the Company are included in Corporate and Other.
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 networks. The products and services are delivered through five operating Divisions: Distribution Solutions, Smart Power, Smart Buildings, Installation Products and Power Conversion.
· Industrial Automation: develops and sells a broad range of industry-specific, integrated automation and electrification systems and solutions, as well as digital solutions, lifecycle services and artificial intelligence applications for the process and hybrid industries. Products and solutions include process and discrete control technologies, advanced process control software and manufacturing execution systems, sensing, measurement and analytical instrumentation, electric ship propulsion systems and large turbochargers. In addition, the business offers a comprehensive range of services ranging from repair to advanced services such as remote monitoring, preventive maintenance, asset performance management and cybersecurity services. The products and services are delivered through five operating Divisions: Energy Industries, Process Industries, Marine & Ports, Turbocharging, and Measurement & Analytics.
· Motion: manufactures and sells motors, generators, drives, wind converters, mechanical power transmissions, complete electrical powertrain systems and related services and digital solutions for a wide range of applications in industry, transportation, infrastructure, and utilities. These products and services are delivered through six operating Divisions: Motors and Generators, Drive Products, System Drives, Service, Traction and Mechanical Power Transmission.
· Robotics & Discrete Automation: The products, solutions and services of Robotics & Discrete Automation are delivered through two 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, central research and development, the Company’s real estate activities, Corporate Treasury Operations and other non-core operating activities.
The primary measure of profitability on which the operating segments are evaluated is Operational EBITA, which represents income from operations excluding:
· 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),
· 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 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, 2020 and 2019, as well as total assets at September 30, 2020, and December 31, 2019.
35 Q3 2020 Financial Information
| Nine months ended September 30, 2020 | ||||||
|---|---|---|---|---|---|---|
| **** | **** | **** | Robotics & | **** | **** | |
| **** | Industrial | **** | Discrete | Corporate | **** | |
| ($ in<br> millions) | Electrification | Automation | Motion | Automation | and Other | Total |
| Geographical markets | **** | |||||
| Europe | 2,852 | 1,705 | 1,396 | 1,031 | 14 | 6,998 |
| The<br> Americas | 2,966 | 987 | 1,646 | 289 | 3 | 5,891 |
| of<br> which: United States | 2,296 | 616 | 1,404 | 203 | 3 | 4,522 |
| Asia,<br> Middle East and Africa | 2,452 | 1,460 | 1,285 | 733 | 25 | 5,955 |
| of<br> which: China | 1,270 | 433 | 658 | 498 | 1 | 2,860 |
| **** | 8,270 | 4,152 | 4,327 | 2,053 | 42 | 18,844 |
| Product type | **** | |||||
| Products | 7,075 | 864 | 3,702 | 1,200 | 49 | 12,890 |
| Systems | 583 | 1,266 | – | 551 | (7) | 2,393 |
| Services<br> and other | 612 | 2,022 | 625 | 302 | – | 3,561 |
| **** | 8,270 | 4,152 | 4,327 | 2,053 | 42 | 18,844 |
| Third-party<br> revenues | 8,270 | 4,152 | 4,327 | 2,053 | 42 | 18,844 |
| Intersegment<br> revenues^(1)^ | 298 | 95 | 377 | 53 | (715) | 108 |
| Total Revenues^(2)^ | 8,568 | 4,247 | 4,704 | 2,106 | (673) | 18,952 |
| Nine months ended September 30, 2019 | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| **** | **** | **** | Robotics & | **** | **** | |
| **** | Industrial | **** | Discrete | Corporate | **** | |
| ($ in<br> millions) | Electrification | Automation | Motion | Automation | and Other | Total |
| Geographical markets | **** | |||||
| Europe | 2,975 | 1,776 | 1,379 | 1,250 | 51 | 7,431 |
| The<br> Americas | 3,482 | 1,160 | 1,770 | 345 | 2 | 6,759 |
| of<br> which: United States | 2,690 | 700 | 1,508 | 219 | 1 | 5,118 |
| Asia,<br> Middle East and Africa | 2,700 | 1,559 | 1,354 | 884 | 66 | 6,563 |
| of<br> which: China | 1,283 | 446 | 653 | 646 | – | 3,028 |
| **** | 9,157 | 4,495 | 4,503 | 2,479 | 119 | 20,753 |
| Product type | **** | **** | **** | **** | **** | **** |
| Products | 7,998 | 1,107 | 3,869 | 1,376 | 87 | 14,437 |
| Systems | 424 | 1,171 | – | 736 | 32 | 2,363 |
| Services<br> and other | 735 | 2,217 | 634 | 367 | – | 3,953 |
| **** | 9,157 | 4,495 | 4,503 | 2,479 | 119 | 20,753 |
| Third-party<br> revenues | 9,157 | 4,495 | 4,503 | 2,479 | 119 | 20,753 |
| Intersegment<br> revenues^(1)^ | 333 | 95 | 373 | 48 | (692) | 157 |
| Total Revenues^(2)^ | 9,490 | 4,590 | 4,876 | 2,527 | (573) | 20,910 |
| Three months ended September 30, 2020 | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| **** | **** | **** | Robotics & | **** | **** | |
| **** | Industrial | **** | Discrete | Corporate | **** | |
| ($ in<br> millions) | Electrification | Automation | Motion | Automation | and Other | Total |
| Geographical markets | **** | |||||
| Europe | 1,010 | 579 | 459 | 379 | (17) | 2,410 |
| The<br> Americas | 995 | 298 | 531 | 102 | 1 | 1,927 |
| of<br> which: United States | 746 | 171 | 449 | 75 | 2 | 1,443 |
| Asia,<br> Middle East and Africa | 939 | 501 | 488 | 305 | 12 | 2,245 |
| of<br> which: China | 509 | 165 | 288 | 219 | – | 1,182 |
| **** | 2,944 | 1,378 | 1,478 | 786 | (4) | 6,582 |
| Product type | **** | |||||
| Products | 2,439 | 230 | 1,258 | 446 | 8 | 4,381 |
| Systems | 294 | 466 | – | 234 | (12) | 982 |
| Services<br> and other | 211 | 682 | 220 | 106 | – | 1,219 |
| **** | 2,944 | 1,378 | 1,478 | 786 | (4) | 6,582 |
| Third-party<br> revenues | 2,944 | 1,378 | 1,478 | 786 | (4) | 6,582 |
| Intersegment<br> revenues | 87 | 25 | 133 | 20 | (265) | – |
| Total Revenues^(2)^ | 3,031 | 1,403 | 1,611 | 806 | (269) | 6,582 |
36 Q3 2020 Financial Information
| Three months ended September 30, 2019 | ||||||
|---|---|---|---|---|---|---|
| **** | **** | **** | Robotics & | **** | **** | |
| **** | Industrial | **** | Discrete | Corporate | **** | |
| ($ in<br> millions) | Electrification | Automation | Motion | Automation | and Other | Total |
| Geographical markets | **** | |||||
| Europe | 980 | 582 | 450 | 420 | 17 | 2,449 |
| The<br> Americas | 1,157 | 383 | 588 | 113 | (1) | 2,240 |
| of<br> which: United States | 882 | 231 | 504 | 70 | 1 | 1,687 |
| Asia,<br> Middle East and Africa | 916 | 490 | 473 | 281 | (4) | 2,156 |
| of<br> which: China | 443 | 144 | 237 | 206 | – | 1,030 |
| **** | 3,053 | 1,455 | 1,511 | 814 | 12 | 6,845 |
| Product type | **** | |||||
| Products | 2,698 | 333 | 1,296 | 439 | 27 | 4,793 |
| Systems | 116 | 375 | – | 249 | (15) | 725 |
| Services<br> and other | 239 | 747 | 215 | 126 | – | 1,327 |
| **** | 3,053 | 1,455 | 1,511 | 814 | 12 | 6,845 |
| Third-party<br> revenues | 3,053 | 1,455 | 1,511 | 814 | 12 | 6,845 |
| Intersegment<br> revenues^(1)^ | 108 | 37 | 119 | 17 | (234) | 47 |
| Total Revenues^(2)^ | 3,161 | 1,492 | 1,630 | 831 | (222) | 6,892 |
(1) Intersegment revenues until 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 revenues.
(2) Due to rounding, numbers presented may not add to the totals provided.
37 Q3 2020 Financial Information
| Nine months ended | Three months ended | |||
|---|---|---|---|---|
| September 30, | September 30, | |||
| ($ in<br> millions) | 2020 | 2019 | 2020 | 2019 |
| Operational EBITA: | ||||
| Electrification | 1,159 | 1,267 | 493 | 450 |
| Industrial<br> Automation | 348 | 530 | 89 | 135 |
| Motion | 790 | 828 | 281 | 290 |
| Robotics<br> & Discrete Automation | 178 | 307 | 76 | 107 |
| Corporate<br> and Other | ||||
| ‒ Non-core<br> and divested businesses | (107) | (66) | (88) | (23) |
| ‒<br> Stranded corporate costs | (40) | (185) | – | (52) |
| ‒<br> Corporate costs and Other Intersegment elimination | (254) | (284) | (64) | (101) |
| Total | 2,074 | 2,397 | 787 | 806 |
| Acquisition-related<br> amortization | (197) | (205) | (67) | (70) |
| Restructuring,<br> related and implementation costs^(1)^ | (190) | (201) | (83) | (59) |
| Changes<br> in obligations related to divested businesses | (204) | (32) | (203) | (25) |
| Changes<br> in pre-acquisition estimates | (11) | (13) | (11) | – |
| Gains<br> and losses from sale of businesses | (4) | 8 | 1 | 12 |
| Fair<br> value adjustment on assets and liabilities held for sale | (33) | (466) | (14) | (11) |
| Acquisition-<br> and divestment-related expenses and integration costs | (43) | (72) | (16) | (18) |
| Other income/expense<br> relating to the Power Grids joint venture | (15) | – | (15) | – |
| Foreign<br> exchange/commodity timing differences in income from operations: | ||||
| Unrealized<br> gains and losses on derivatives (foreign exchange, | ||||
| commodities,<br> embedded derivatives) | 22 | (21) | 15 | (34) |
| Realized<br> gains and losses on derivatives where the underlying hedged | ||||
| transaction<br> has not yet been realized | 10 | 6 | 13 | 9 |
| Unrealized<br> foreign exchange movements on receivables/payables (and | ||||
| related<br> assets/liabilities) | (16) | 10 | (5) | 12 |
| Certain<br> other non-operational items: | ||||
| Costs<br> for divestment of Power Grids | (110) | (102) | (11) | (44) |
| Regulatory,<br> compliance and legal costs | (6) | (9) | (6) | (1) |
| Business<br> transformation costs | (19) | (13) | (7) | (7) |
| Executive<br> Committee transition costs | 1 | (12) | (1) | 2 |
| Favorable<br> resolution of an uncertain purchase price adjustment | 8 | – | – | – |
| Gain on<br> sale of investments | – | 15 | – | – |
| Asset<br> write downs/impairments and other fair value changes^(2)^ | (240) | – | (298) | – |
| Other<br> non-operational items | (12) | – | (8) | 5 |
| Income from operations | 1,015 | 1,290 | 71 | 577 |
| Interest<br> and dividend income | 39 | 57 | 12 | 20 |
| Interest<br> and other finance expense | (191) | (179) | (79) | (56) |
| Non-operational<br> pension (cost) credit | (272) | 67 | (343) | 23 |
| Income (loss) from continuing operations before taxes | 591 | 1,235 | (339) | 564 |
(1) Amounts include implementation costs in relation to the OS program of $47 million and $71 million for the nine months ended September 30, 2020 and 2019, respectively, and $17 million and $28 million for the three months ended September 30, 2020 and 2019, respectively.
(2) Amounts include goodwill impairment charges of $311 million for the nine and three months ended September 30. 2020.
| Total assets^(1), (2)^ | ||
|---|---|---|
| ($ in<br> millions) | September 30, 2020 | December 31, 2019 |
| Electrification | 12,051 | 11,671 |
| Industrial<br> Automation | 4,591 | 4,559 |
| Motion | 6,267 | 6,149 |
| Robotics<br> & Discrete Automation | 4,496 | 4,661 |
| Corporate<br> and Other | 16,862 | 19,068 |
| Consolidated | 44,267 | 46,108 |
(1) Total assets are after intersegment eliminations and therefore reflect third-party assets only.
(2) At September 30, 2020, and December 31, 2019, respectively, Corporate and Other includes $349 million and $9,840 million of assets in the Power Grids business which is reported as discontinued operations (see Note 3).
38 Q3 2020 Financial Information
39 Q3 2020 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, 2020.
On January 1, 2019, the Company adopted a new accounting standard for lease accounting and on January 1, 2020, the Company adopted a new accounting update for the measurement of credit losses on financial instruments (see Note 2 to the Consolidated Financial Information). 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 $50 million.
The following tables provide reconciliations of reported growth rates of certain key figures to their respective comparable growth rate.
Comparable growth rate reconciliation by business
| Q3 2020 compared to Q3 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Order growth rate | Revenue growth rate | |||||||
| US$ | Foreign | **** | **** | US$ | Foreign | **** | **** | |
| (as | exchange | Portfolio | **** | (as | exchange | Portfolio | **** | |
| Business | reported) | impact | changes | Comparable | reported) | impact | changes | Comparable |
| Electrification | -7% | -1% | 3% | -5% | -4% | -1% | 3% | -2% |
| Industrial<br> Automation | -19% | -1% | 0% | -20% | -6% | -1% | 0% | -7% |
| Motion | -5% | 0% | 0% | -5% | -1% | -1% | 0% | -2% |
| Robotics<br> & Discrete Automation | 2% | -2% | 0% | 0% | -3% | -2% | 0% | -5% |
| ABB Group | -9% | 0% | 1% | -8% | -4% | -1% | 1% | -4% |
| 9M 2020 compared to 9M 2019 | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Order growth rate | Revenue growth rate | |||||||
| US$ | Foreign | **** | **** | US$ | Foreign | **** | **** | |
| (as | exchange | Portfolio | **** | (as | exchange | Portfolio | **** | |
| Business | reported) | impact | changes | Comparable | reported) | impact | changes | Comparable |
| Electrification | -11% | 1% | 3% | -7% | -10% | 2% | 2% | -6% |
| Industrial<br> Automation | -11% | 2% | 0% | -9% | -7% | 1% | 0% | -6% |
| Motion | -3% | 2% | 0% | -1% | -4% | 2% | 0% | -2% |
| Robotics<br> & Discrete Automation | -15% | 1% | 0% | -14% | -17% | 1% | 0% | -16% |
| ABB Group | -10% | 2% | 1% | -7% | -9% | 1% | 1% | -7% |
40 Q3 2020 Financial Information
Regional comparable growth rate reconciliation
| Q3 2020 compared to Q3 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 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 | -9% | -2% | 1% | -10% | -2% | -3% | 2% | -3% |
| The<br> Americas | -14% | 1% | 2% | -11% | -14% | 2% | 0% | -12% |
| Asia, Middle<br> East and Africa | -1% | -1% | 0% | -2% | 4% | -1% | 2% | 5% |
| ABB Group | -9% | 0% | 1% | -8% | -4% | -1% | 1% | -4% |
| 9M 2020 compared to 9M 2019 | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 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 | -8% | 1% | 1% | -6% | -6% | 1% | 1% | -4% |
| The<br> Americas | -13% | 1% | 1% | -11% | -13% | 2% | 0% | -11% |
| Asia, Middle<br> East and Africa | -9% | 2% | 2% | -5% | -9% | 1% | 3% | -5% |
| ABB Group | -10% | 2% | 1% | -7% | -9% | 1% | 1% | -7% |
Order backlog growth rate reconciliation
| September 30, 2020 compared to September 30, 2019 | ||||
|---|---|---|---|---|
| US$ | Foreign | **** | **** | |
| (as | exchange | Portfolio | **** | |
| Business | reported) | impact | changes | Comparable |
| Electrification | -1% | -2% | 5% | 2% |
| Industrial<br> Automation | 4% | -2% | 0% | 2% |
| Motion | 14% | -4% | 0% | 10% |
| Robotics<br> & Discrete Automation | 2% | -4% | 0% | -2% |
| ABB Group | 4% | -2% | 2% | 4% |
Other growth rate reconciliations
| Q3 2020 compared to Q3 2019 | 9M 2020 compared to 9M 2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| US$ | Foreign | **** | **** | US$ | Foreign | **** | **** | |
| (as | exchange | Portfolio | **** | (as | exchange | Portfolio | **** | |
| **** | reported) | impact | changes | Comparable | reported) | impact | changes | Comparable |
| Service<br> orders | -15% | 0% | 0% | -15% | -15% | 2% | 0% | -13% |
| Service<br> revenues | -8% | -1% | 0% | -9% | -10% | 2% | 0% | -8% |
41 Q3 2020 Financial Information
Operational EBITA as % of operational revenues (Operational EBITA margin)
Definition
OperationalEBITA margin
Operational EBITA margin is Operational EBITA as a percentage of Operational revenues.
OperationalEBITA
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 write downs/impairments (including impairment of goodwill) and 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-relatedamortization
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 jointventure
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 ABB Hitachi Power Grids Ltd. (ABB Hitachi PG), amortization of deferred brand income as well as changes in value of other obligations relating to the divestment.
Operationalrevenues
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.
42 Q3 2020 Financial Information
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<br> millions) | 2020 | 2019 | 2020 | 2019 |
| Operational EBITA | 2,074 | 2,397 | 787 | 806 |
| Acquisition-related<br> amortization | (197) | (205) | (67) | (70) |
| Restructuring,<br> related and implementation costs^(1)^ | (190) | (201) | (83) | (59) |
| Changes<br> in obligations related to divested businesses | (204) | (32) | (203) | (25) |
| Changes<br> in pre-acquisition estimates | (11) | (13) | (11) | – |
| Gains<br> and losses from sale of businesses | (4) | 8 | 1 | 12 |
| Fair<br> value adjustment on assets and liabilities held for sale | (33) | (466) | (14) | (11) |
| Acquisition-<br> and divestment-related expenses and integration costs | (43) | (72) | (16) | (18) |
| Other<br> income/expense relating to the Power Grids joint venture | (15) | – | (15) | – |
| Certain<br> other non-operational items^(2)^ | (378) | (121) | (331) | (45) |
| Foreign<br> exchange/commodity timing differences in income from operations | 16 | (5) | 23 | (13) |
| Income from operations | 1,015 | 1,290 | 71 | 577 |
| Interest<br> and dividend income | 39 | 57 | 12 | 20 |
| Interest<br> and other finance expense | (191) | (179) | (79) | (56) |
| Non-operational<br> pension (cost) credit | (272) | 67 | (343) | 23 |
| Income (loss) from continuing operations before taxes | 591 | 1,235 | (339) | 564 |
| Provision<br> for taxes | (373) | (452) | (164) | (142) |
| Income from continuing operations, net of tax | 218 | 783 | (503) | 422 |
| Income<br> from discontinued operations, net of tax | 5,043 | 388 | 5,038 | 97 |
| Net income | 5,261 | 1,171 | 4,535 | 519 |
(1) Amounts include implementation costs in relation to the OS program of $47 million and $71 million for the nine months ended September 30, 2020 and 2019, respectively, and $17 million and $28 million for the three months ended September 30, 2020 and 2019, respectively.
(2) Amounts include goodwill impairment charges of $311 million for the nine and three months ended September 30, 2020.
43 Q3 2020 Financial Information
Reconciliationof Operational EBITA margin by business
| Three months ended September 30, 2020 | ||||||
|---|---|---|---|---|---|---|
| **** | **** | **** | Corporate and | **** | ||
| **** | Robotics & | Other and | ||||
| **** | Industrial | **** | Discrete | Intersegment | **** | |
| ($ in<br> millions, unless otherwise indicated) | Electrification | Automation | Motion | Automation | elimination | Consolidated |
| Total revenues | 3,031 | 1,403 | 1,611 | 806 | (269) | 6,582 |
| Foreign<br> exchange/commodity timing | **** | |||||
| differences<br> in total revenues: | **** | |||||
| Unrealized<br> gains and losses | **** | |||||
| on<br> derivatives | (1) | 7 | 6 | (4) | 2 | 10 |
| Realized<br> gains and losses on derivatives | **** | |||||
| where<br> the underlying hedged | **** | |||||
| transaction<br> has not yet been realized | (1) | (12) | – | 1 | (4) | (16) |
| Unrealized<br> foreign exchange movements | **** | |||||
| on<br> receivables (and related assets) | (6) | (1) | (2) | (2) | 4 | (7) |
| Operational revenues | 3,023 | 1,397 | 1,615 | 801 | (267) | 6,569 |
| Income (loss) from operations | 387 | 75 | 256 | (236) | (411) | 71 |
| Acquisition-related<br> amortization | 29 | 1 | 13 | 20 | 4 | 67 |
| Restructuring,<br> related and | **** | |||||
| implementation<br> costs | 39 | 21 | 9 | 3 | 11 | 83 |
| Changes<br> in obligations related to | **** | |||||
| divested<br> businesses | 15 | – | – | – | 188 | 203 |
| Changes<br> in pre-acquisition estimates | 11 | – | – | – | – | 11 |
| Gains<br> and losses from sale of businesses | 1 | – | – | – | (2) | (1) |
| Fair<br> value adjustment on assets and liabilities | **** | |||||
| held<br> for sale | 14 | – | – | – | – | 14 |
| Acquisition-<br> and divestment-related expenses | **** | |||||
| and<br> integration costs | 13 | 1 | – | – | 2 | 16 |
| Other<br> income/expense relating to the | **** | |||||
| Power<br> Grids joint venture | – | – | – | – | 15 | 15 |
| Certain<br> other non-operational items | 2 | – | 4 | 291 | 34 | 331 |
| Foreign<br> exchange/commodity timing | **** | |||||
| differences<br> in income from operations: | **** | |||||
| Unrealized<br> gains and losses on derivatives | **** | |||||
| (foreign<br> exchange, commodities, | **** | |||||
| embedded<br> derivatives) | (21) | 3 | (1) | (2) | 6 | (15) |
| Realized<br> gains and losses on derivatives | **** | |||||
| where<br> the underlying hedged | **** | |||||
| transaction<br> has not yet been realized | 1 | (11) | – | 1 | (4) | (13) |
| Unrealized<br> foreign exchange movements | **** | |||||
| on<br> receivables/payables | **** | |||||
| (and<br> related assets/liabilities) | 2 | (1) | – | (1) | 5 | 5 |
| Operational EBITA | 493 | 89 | 281 | 76 | (152) | 787 |
| Operational EBITA margin (%) | 16.3% | 6.4% | 17.4% | 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 & | **** | **** | |
| **** | Industrial | **** | Discrete | Corporate | **** | |
| ($ in<br> millions, unless otherwise indicated) | Electrification | Automation | Motion | Automation | and Other | Consolidated |
| Certain other non-operational items: | **** | **** | **** | **** | **** | **** |
| Costs<br> for planned divestment of Power Grids | – | – | – | – | 11 | 11 |
| Regulatory,<br> compliance and legal costs | – | – | – | – | 6 | 6 |
| Asset<br> write downs/impairments and | **** | |||||
| other<br> fair value changes | – | – | – | 290 | 8 | 298 |
| Business<br> transformation costs | 2 | – | 3 | 1 | 1 | 7 |
| Executive<br> Committee transition costs | – | – | – | – | 1 | 1 |
| Other<br> non-operational items | – | – | 1 | – | 7 | 8 |
| Total | 2 | – | 4 | 291 | 34 | 331 |
44 Q3 2020 Financial Information
| Three months ended September 30, 2019 | ||||||
|---|---|---|---|---|---|---|
| **** | **** | **** | Corporate and | **** | ||
| **** | **** | Robotics & | Other and | |||
| **** | Industrial | **** | Discrete | Intersegment | **** | |
| ($ in<br> millions, unless otherwise indicated) | Electrification | Automation | Motion | Automation | elimination | Consolidated |
| Total revenues | 3,161 | 1,492 | 1,630 | 831 | (222) | 6,892 |
| Foreign<br> exchange/commodity timing | **** | |||||
| differences<br> in total revenues: | **** | |||||
| Unrealized<br> gains and losses | **** | |||||
| on<br> derivatives | 17 | 16 | 5 | – | 2 | 40 |
| Realized<br> gains and losses on derivatives | **** | |||||
| where<br> the underlying hedged | **** | |||||
| transaction<br> has not yet been realized | – | (1) | – | 1 | (9) | (9) |
| Unrealized<br> foreign exchange movements | **** | |||||
| on<br> receivables (and related assets) | (7) | (2) | (2) | (2) | 2 | (11) |
| Operational revenues | 3,171 | 1,505 | 1,633 | 830 | (227) | 6,912 |
| Income (loss) from operations | 378 | 124 | 264 | 83 | (272) | 577 |
| Acquisition-related<br> amortization | 28 | 1 | 13 | 19 | 9 | 70 |
| Restructuring,<br> related and | **** | |||||
| implementation<br> costs | 8 | 2 | 5 | 5 | 39 | 59 |
| Changes<br> in obligations related to | **** | |||||
| divested<br> businesses | 1 | – | – | – | 24 | 25 |
| Gains<br> and losses from sale of businesses | 2 | – | – | – | (14) | (12) |
| Fair<br> value adjustment on assets and liabilities | **** | |||||
| held<br> for sale | 11 | – | – | – | – | 11 |
| Acquisition-<br> and divestment-related expenses | **** | |||||
| and<br> integration costs | 18 | – | – | – | – | 18 |
| Other<br> income/expense relating to the | **** | |||||
| Power<br> Grids joint venture | – | – | – | – | – | – |
| Certain<br> other non-operational items | (1) | – | 3 | 1 | 42 | 45 |
| Foreign<br> exchange/commodity timing | **** | |||||
| differences<br> in income from operations: | **** | |||||
| Unrealized<br> gains and losses on derivatives | **** | |||||
| (foreign<br> exchange, commodities, | **** | |||||
| embedded<br> derivatives) | 9 | 15 | 8 | (1) | 3 | 34 |
| Realized<br> gains and losses on derivatives | **** | |||||
| where<br> the underlying hedged | **** | |||||
| transaction<br> has not yet been realized | 2 | (2) | – | 1 | (10) | (9) |
| Unrealized<br> foreign exchange movements | **** | |||||
| on<br> receivables/payables | **** | |||||
| (and<br> related assets/liabilities) | (6) | (5) | (3) | (1) | 3 | (12) |
| Operational EBITA | 450 | 135 | 290 | 107 | (176) | 806 |
| Operational EBITA margin (%) | 14.2% | 9.0% | 17.8% | 12.9% | n.a. | 11.7% |
In the three months ended September 30, 2019, Certain other non-operational items in the table above includes the following:
| Three months ended September 30, 2019 | ||||||
|---|---|---|---|---|---|---|
| **** | **** | **** | Robotics & | **** | **** | |
| **** | Industrial | **** | Discrete | Corporate | **** | |
| ($ in<br> millions, unless otherwise indicated) | Electrification | Automation | Motion | Automation | and Other | Consolidated |
| Certain other non-operational items: | **** | **** | **** | **** | **** | **** |
| Costs<br> for planned divestment of Power Grids | – | – | – | – | 44 | 44 |
| Regulatory,<br> compliance and legal costs | – | – | – | – | 1 | 1 |
| Business<br> transformation costs | 3 | – | 3 | 1 | – | 7 |
| Executive<br> Committee transition costs | – | – | – | – | (2) | (2) |
| Other<br> non-operational items | (4) | – | – | – | (1) | (5) |
| Total | (1) | – | 3 | 1 | 42 | 45 |
45 Q3 2020 Financial Information
| Nine months ended September 30, 2020 | ||||||
|---|---|---|---|---|---|---|
| **** | **** | **** | Corporate and | **** | ||
| **** | Robotics & | Other and | ||||
| **** | Industrial | **** | Discrete | Intersegment | **** | |
| ($ in<br> millions, unless otherwise indicated) | Electrification | Automation | Motion | Automation | elimination | Consolidated |
| Total revenues | 8,568 | 4,247 | 4,704 | 2,106 | (673) | 18,952 |
| Foreign<br> exchange/commodity timing | **** | |||||
| differences<br> in total revenues: | **** | |||||
| Unrealized<br> gains and losses | **** | |||||
| on<br> derivatives | 14 | 6 | 3 | (1) | 4 | 26 |
| Realized<br> gains and losses on derivatives | **** | |||||
| where<br> the underlying hedged | **** | |||||
| transaction<br> has not yet been realized | – | (5) | – | 2 | (6) | (9) |
| Unrealized<br> foreign exchange movements | **** | |||||
| on<br> receivables (and related assets) | (12) | (8) | (6) | (4) | 9 | (21) |
| Operational revenues | 8,570 | 4,240 | 4,701 | 2,103 | (666) | 18,948 |
| Income (loss) from operations | 891 | 316 | 731 | (186) | (737) | 1,015 |
| Acquisition-related<br> amortization | 86 | 3 | 39 | 58 | 11 | 197 |
| Restructuring,<br> related and | **** | |||||
| implementation<br> costs | 83 | 37 | 20 | 14 | 36 | 190 |
| Changes<br> in obligations related to | **** | |||||
| divested<br> businesses | 15 | – | – | – | 189 | 204 |
| Changes<br> in pre-acquisition estimates | 11 | – | – | – | – | 11 |
| Gains<br> and losses from sale of businesses | 6 | – | – | – | (2) | 4 |
| Fair<br> value adjustment on assets and liabilities | **** | |||||
| held for<br> sale | 33 | – | – | – | – | 33 |
| Acquisition-<br> and divestment-related expenses | **** | |||||
| and<br> integration costs | 40 | 1 | – | – | 2 | 43 |
| Other<br> income/expense relating to the | **** | |||||
| Power<br> Grids joint venture | – | – | – | – | 15 | 15 |
| Certain<br> other non-operational items | (5) | 1 | 13 | 293 | 76 | 378 |
| Foreign<br> exchange/commodity timing | **** | |||||
| differences<br> in income from operations: | **** | |||||
| Unrealized<br> gains and losses on derivatives | **** | |||||
| (foreign<br> exchange, commodities, | **** | |||||
| embedded<br> derivatives) | (9) | (2) | (12) | (2) | 3 | (22) |
| Realized<br> gains and losses on derivatives | **** | |||||
| where<br> the underlying hedged | **** | |||||
| transaction<br> has not yet been realized | – | (5) | – | 2 | (7) | (10) |
| Unrealized<br> foreign exchange movements | **** | |||||
| on<br> receivables/payables | **** | |||||
| (and<br> related assets/liabilities) | 8 | (3) | (1) | (1) | 13 | 16 |
| Operational EBITA | 1,159 | 348 | 790 | 178 | (401) | 2,074 |
| Operational EBITA margin (%) | 13.5% | 8.2% | 16.8% | 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 & | **** | **** | |
| **** | Industrial | **** | Discrete | Corporate | **** | |
| ($ in<br> millions, unless otherwise indicated) | Electrification | Automation | Motion | Automation | and Other | Consolidated |
| Certain other non-operational items: | **** | **** | **** | **** | **** | **** |
| Costs<br> for planned divestment of Power Grids | – | – | – | – | 110 | 110 |
| Regulatory,<br> compliance and legal costs | – | – | – | – | 6 | 6 |
| Asset write<br> downs/impairments and | **** | |||||
| other<br> fair value changes | – | – | – | 290 | (50) | 240 |
| Business<br> transformation costs | 3 | – | 12 | 3 | 1 | 19 |
| Executive<br> Committee transition costs | – | – | – | – | (1) | (1) |
| Favorable<br> resolution of an uncertain | **** | |||||
| purchase<br> price adjustment | (8) | – | – | – | – | (8) |
| Other<br> non-operational items | – | 1 | 1 | – | 10 | 12 |
| Total | (5) | 1 | 13 | 293 | 76 | 378 |
46 Q3 2020 Financial Information
| Nine months ended September 30, 2019 | ||||||
|---|---|---|---|---|---|---|
| **** | **** | **** | Corporate and | **** | ||
| **** | **** | Robotics & | Other and | |||
| **** | Industrial | **** | Discrete | Intersegment | **** | |
| ($ in millions,<br> unless otherwise indicated) | Electrification | Automation | Motion | Automation | elimination | Consolidated |
| Total revenues | 9,490 | 4,590 | 4,876 | 2,527 | (573) | 20,910 |
| Foreign<br> exchange/commodity timing | **** | |||||
| differences<br> in total revenues: | **** | |||||
| Unrealized<br> gains and losses | **** | |||||
| on<br> derivatives | 7 | 7 | 5 | 4 | – | 23 |
| Realized<br> gains and losses on derivatives | **** | |||||
| where<br> the underlying hedged | **** | |||||
| transaction<br> has not yet been realized | – | – | – | – | (8) | (8) |
| Unrealized<br> foreign exchange movements | **** | |||||
| on<br> receivables (and related assets) | (6) | 1 | (1) | (2) | 5 | (3) |
| Operational revenues | 9,491 | 4,598 | 4,880 | 2,529 | (576) | 20,922 |
| Income (loss) from operations | 571 | 506 | 764 | 236 | (787) | 1,290 |
| Acquisition-related<br> amortization | 87 | 3 | 40 | 58 | 17 | 205 |
| Restructuring,<br> related and | **** | |||||
| implementation<br> costs | 61 | 14 | 10 | 8 | 108 | 201 |
| Changes<br> in obligations related to | **** | |||||
| divested<br> businesses | 1 | – | – | – | 31 | 32 |
| Changes<br> in pre-acquisition estimates | 13 | – | – | – | – | 13 |
| Gains<br> and losses from sale of businesses | (1) | – | – | – | (7) | (8) |
| Fair<br> value adjustment on assets and liabilities | **** | |||||
| held<br> for sale | 466 | – | – | – | – | 466 |
| Acquisition-<br> and divestment-related expenses | **** | |||||
| and<br> integration costs | 69 | – | – | 1 | 2 | 72 |
| Other<br> income/expense relating to the | **** | |||||
| Power<br> Grids joint venture | – | – | – | – | – | – |
| Certain<br> other non-operational items | 1 | 2 | 8 | 2 | 108 | 121 |
| Foreign<br> exchange/commodity timing | **** | |||||
| differences<br> in income from operations: | **** | |||||
| Unrealized<br> gains and losses on derivatives | **** | |||||
| (foreign<br> exchange, commodities, | **** | |||||
| embedded<br> derivatives) | 4 | 9 | 8 | 2 | (2) | 21 |
| Realized<br> gains and losses on derivatives | **** | |||||
| where<br> the underlying hedged | **** | |||||
| transaction<br> has not yet been realized | 3 | – | – | – | (9) | (6) |
| Unrealized<br> foreign exchange movements | **** | |||||
| on<br> receivables/payables | **** | |||||
| (and<br> related assets/liabilities) | (8) | (4) | (2) | – | 4 | (10) |
| Operational EBITA | 1,267 | 530 | 828 | 307 | (535) | 2,397 |
| Operational EBITA margin (%) | 13.3% | 11.5% | 17.0% | 12.1% | n.a. | 11.5% |
In the nine months ended September 30, 2019, Certain other non-operational items in the table above includes the following:
| Nine months ended September 30, 2019 | ||||||
|---|---|---|---|---|---|---|
| **** | **** | **** | Robotics & | **** | **** | |
| **** | Industrial | **** | Discrete | Corporate | **** | |
| ($ in<br> millions, unless otherwise indicated) | Electrification | Automation | Motion | Automation | and Other | Consolidated |
| Certain other non-operational items: | **** | **** | **** | **** | **** | **** |
| Costs<br> for planned divestment of Power Grids | – | – | – | – | 102 | 102 |
| Regulatory,<br> compliance and legal costs | – | – | – | – | 9 | 9 |
| Business<br> transformation costs | 3 | – | 8 | 2 | – | 13 |
| Executive<br> Committee transition costs | – | – | – | – | 12 | 12 |
| Gain on<br> sale of investments | – | – | – | – | (15) | (15) |
| Other non-operational<br> items | (2) | 2 | – | – | – | – |
| Total | 1 | 2 | 8 | 2 | 108 | 121 |
47 Q3 2020 Financial Information
Operational EPS
Definition
OperationalEPS
Operational EPS is calculated as Operational net income divided by the weighted-average number of shares outstanding used in determining basic earnings per share.
Operationalnet income
Operational net income is calculated as Net income attributable to ABB adjusted for the following:
(i) acquisition-related amortization,
(ii) restructuring, related and implementation costs
(iii) non-operational pension cost (credit),
(iv) changes in obligations related to divested businesses,
(v) changes in pre-acquisition estimates,
(vi) gains and losses from sale of businesses (including fair value adjustment on assets and liabilities held for sale),
(vii) acquisition- and divestment-related expenses and integration costs,
(viii) other income/expense relating to the Power Grids joint venture
(ix) certain other non-operational items,
(x) 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),
(xi) The amount of income tax on operational adjustments either estimated using the Adjusted Group effective tax rate or in certain specific cases, computed using the actual income tax effects of the relevant item in (i) to (ix) above, and
(xii) Certain other non-operational amounts recorded within Income tax expense.
Adjustment forcertain non-operational amounts recorded within Income tax expense
Adjustments are made for certain amounts recorded within Income tax expense for taxes primarily when the amount recorded has no corresponding underlying transaction recorded within income from continuing or discontinued operations before taxes. This would include the amounts recorded in connection with internal reorganizations of the corporate structure of the Company.
Adjusted Groupeffective tax rate
The Adjusted Group effective tax rate is computed by dividing a combined adjusted income tax expense (for both continuing and discontinued operations) by a combined adjusted pre-tax income (from both continuing and discontinued operations). Certain amounts recorded in income before taxes and the related income tax expense (primarily gains and losses from sale of businesses) are excluded to arrive at the computation. Amounts recorded in income tax expense for certain non-operational items and quantified in the table below are also excluded from the computation of the Adjusted Group effective tax rate.
Constantcurrency Operational EPS adjustment and Operational EPS growth rate (constant currency)
We compute the constant currency operational net income using the relevant monthly exchange rates which were in effect during 2019 and any difference in computed Operational net income is divided by the relevant weighted-average number of shares outstanding to identify the constant currency Operational EPS adjustment.
Reconciliation
| Nine months ended September 30, | **** | ||
|---|---|---|---|
| ($ in<br> millions, except per share data in $) | 2020 | 2019 | Growth^(3)^ |
| Net income (attributable to ABB) | 5,225 | 1,114 | 369% |
| Non-operational<br> adjustments: | **** | **** | **** |
| Acquisition-related<br> amortization | 197 | 205 | |
| Restructuring,<br> related and implementation costs^(1)^ | 190 | 201 | |
| Non-operational<br> pension cost (credit) | 272 | (67) | |
| Changes<br> in obligations related to divested businesses | 204 | 32 | |
| Changes<br> in pre-acquisition estimates | 11 | 13 | |
| Gains<br> and losses from sale of businesses | 4 | (8) | |
| Fair value<br> adjustment on assets and liabilities held for sale | 33 | 466 | |
| Acquisition-<br> and divestment-related expenses and integration costs | 43 | 72 | |
| Other<br> income/expense relating to the Power Grids joint venture | 15 | – | |
| Certain<br> other non-operational items | 378 | 121 | |
| FX/commodity<br> timing differences in income from operations | (16) | 5 | |
| Non-operational<br> adjustments in discontinued operations | (5,119) | 101 | |
| Tax on<br> non-operational adjustments^(2)^ | 140 | (186) | |
| Adjustment<br> for non-operational amounts in Provision for taxes | (28) | – | |
| Operational net income | 1,549 | 2,069 | -25% |
| Weighted-average number of shares outstanding (in millions) | 2,129 | 2,132 | **** |
| Operational EPS | 0.73 | 0.97 | -25% |
| Constant<br> currency Operational EPS adjustment | 0.01 | – | |
| Operational EPS (constant currency basis) | 0.74 | 0.97 | -24% |
48 Q3 2020 Financial Information
| Three months ended September 30, | **** | ||
|---|---|---|---|
| ($ in<br> millions, except per share data in $) | 2020 | 2019 | Growth^(3)^ |
| Net income (attributable to ABB) | 4,530 | 515 | 780% |
| Non-operational<br> adjustments: | **** | **** | **** |
| Acquisition-related<br> amortization | 67 | 70 | |
| Restructuring,<br> related and implementation costs^(1)^ | 83 | 59 | |
| Non-operational<br> pension cost (credit) | 343 | (23) | |
| Changes<br> in obligations related to divested businesses | 203 | 25 | |
| Changes<br> in pre-acquisition estimates | 11 | – | |
| Gains<br> and losses from sale of businesses | (1) | (12) | |
| Fair<br> value adjustment on assets and liabilities held for sale | 14 | 11 | |
| Acquisition-<br> and divestment-related expenses and integration costs | 16 | 18 | |
| Other income/expense<br> relating to the Power Grids joint venture | 15 | – | |
| Certain<br> other non-operational items | 331 | 45 | |
| Foreign<br> exchange/commodity timing differences in income from operations | (23) | 13 | |
| Non-operational<br> adjustments in discontinued operations | (5,315) | 44 | |
| Tax on<br> non-operational adjustments^(2)^ | 202 | (61) | |
| Adjustment<br> for non-operational amounts in Provision for taxes | (28) | – | |
| Operational net income | 448 | 704 | -36% |
| Weighted-average number of shares outstanding (in millions) | 2,119 | 2,133 | **** |
| Operational EPS | 0.21 | 0.33 | -36% |
| Constant<br> currency Operational EPS adjustment | 0.01 | – | |
| Operational EPS (constant currency basis) | 0.22 | 0.33 | -35% |
(1) Amounts include implementation costs in relation to the OS program of $47 million and $71 million for the nine months ended September 30, 2020 and 2019, respectively, and $17 million and $28 million for the three months ended September 30, 2020 and 2019, respectively.
(2) Tax amount is computed by applying the Adjusted Group effective tax rate to the non-operational adjustments, except for certain costs for the divestment of the Power Grids business, gains and losses from sale of businesses (including fair value adjustment on assets and liabilities held for sale), certain changes in obligations related to divested businesses and certain non-operational pension costs, for which the actual provision for taxes resulting from the gain or loss has been computed
(3) Growth is computed using unrounded EPS amounts.
49 Q3 2020 Financial Information
Net debt
Definition
Netdebt
Net debt is defined as Total debt less Cash and marketable securities.
Total debt
Total debt is the sum of Short-term debt and current maturities of long-term debt, and Long-term debt.
Cash andmarketable securities
Cash and marketable securities is the sum of Cash and equivalents, Restricted cash (current and non-current) and Marketable securities and short-term investments.
Reconciliation
| ($ in<br> millions) | September 30, 2020 | December 31, 2019 |
|---|---|---|
| Short-term<br> debt and current maturities of long-term debt | 2,354 | 2,287 |
| Long-term<br> debt | 6,319 | 6,772 |
| Total debt (gross debt) | 8,673 | 9,059 |
| Cash<br> and equivalents | 3,178 | 3,508 |
| Restricted<br> cash - current | 860 | 36 |
| Marketable<br> securities and short-term investments | 5,270 | 566 |
| Restricted<br> cash - non-current | 300 | – |
| Cash and marketable securities | 9,608 | 4,110 |
| Net debt / (Net cash) | (935) | 4,949 |
Net debt/EBITDA Ratio
Definition
Net debt/EBITDA
Net debt/EBITDA 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<br> millions, unless otherwise indicated) | September 30, 2020 |
|---|---|
| Income from operations for the three months ended | **** |
| September 30,<br> 2020 | 71 |
| June<br> 30, 2020 | 571 |
| March<br> 31, 2020 | 373 |
| December<br> 31, 2019 | 648 |
| Depreciation and Amortization for the three months ended | |
| September 30,<br> 2020 | 231 |
| June<br> 30, 2020 | 228 |
| March<br> 31, 2020 | 227 |
| December<br> 31, 2019 | 246 |
| EBITDA | 2,595 |
| Net debt / (Net cash) (as defined above) | (935) |
| Net debt / (Net cash) / EBITDA | -0.4 |
50 Q3 2020 Financial Information
Net working capital as a percentage of revenues
Definition
Net workingcapital 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 workingcapital
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.
Adjustedrevenues 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<br> millions, unless otherwise indicated) | September 30, 2020 | September 30, 2019 |
|---|---|---|
| Net working capital: | ||
| Receivables,<br> net | 6,638 | 6,448 |
| Contract<br> assets | 1,100 | 1,088 |
| Inventories,<br> net | 4,642 | 4,364 |
| Prepaid<br> expenses | 233 | 258 |
| Accounts<br> payable, trade | (4,323) | (4,023) |
| Contract<br> liabilities | (1,828) | (1,616) |
| Other<br> current liabilities^(1)^ | (3,226) | (2,981) |
| Net<br> working capital in assets and liabilities held for sale | – | 83 |
| Net working capital | 3,236 | 3,621 |
| Total revenues for the three months ended: | ||
| September 30,<br> 2020 / 2019 | 6,582 | 6,892 |
| June<br> 30, 2020 / 2019 | 6,154 | 7,171 |
| March<br> 31, 2020 / 2019 | 6,216 | 6,847 |
| December<br> 31, 2019 / 2018 | 7,068 | 7,395 |
| Adjustment<br> to annualize/eliminate revenues of certain acquisitions/divestments | (169) | (115) |
| Adjusted revenues for the trailing twelve months | 25,851 | 28,190 |
| Net working capital as a percentage of revenues (%) | 12.5% | 12.8% |
(1) Amounts exclude $1,026 million and $595 million at September 30, 2020 and 2019, respectively, related primarily to (a) income taxes payable, (b) current derivative liabilities, (c) pension and other employee benefits (d) payables under the share buyback program and (e) liabilities related to the divestment of the Power Grids business.
51 Q3 2020 Financial Information
Free cash flow conversion to net income
Definition
Free cash flowconversion to net income
Free cash flow conversion to net income is calculated as free cash flow divided by Net income attributable to ABB. Net income attributable to ABB is adjusted to exclude goodwill impairments and the gain on sale of the Power Grids business included in discontinued operations.
Free cash flow
Free cash flow is calculated as net cash provided by operating activities adjusted for: (i) purchases of property, plant and equipment and intangible assets, and (ii) proceeds from sales of property, plant and equipment.
Free cash flowfor the trailing twelve months
Free cash flow for the trailing twelve months includes free cash flow recorded by ABB in the twelve months preceding the relevant balance sheet date.
Net income forthe trailing twelve months
Net income for the trailing twelve months includes net income recorded by ABB (as adjusted) in the twelve months preceding the relevant balance sheet date.
Free cash flow conversion to net income
| Twelve months to | ||
|---|---|---|
| ($ in<br> millions, unless otherwise indicated) | September 30, 2020 | December 31, 2019 |
| Net cash provided by operating activities | 2,422 | 2,325 |
| Adjusted<br> for the effects of: | **** | **** |
| Continuing<br> operations: | ||
| Purchases<br> of property, plant and equipment and intangible assets | (668) | (762) |
| Proceeds<br> from sale of property, plant and equipment | 83 | 82 |
| Discontinued<br> operations: | ||
| Purchases<br> of property, plant and equipment and intangible assets | (139) | (167) |
| Proceeds<br> from sale of property, plant and equipment | – | 8 |
| Free cash flow | 1,698 | 1,486 |
| Net income attributable to ABB | 541 | 1,439 |
| Free cash flow conversion to net income | 314% | 103% |
Reconciliation of the trailingtwelve months to September 30, 2020
| **** | Continuing operations | Discontinued operations | **** | |||
|---|---|---|---|---|---|---|
| ($ in millions) | Net cash provided by operating activities | Purchases of property, plant and equipment and intangible assets | Proceeds<br><br> <br>from sale of property, plant and equipment | Purchases of property, plant and equipment and intangible assets | Proceeds<br><br> <br>from sale of property, plant and equipment | Net income attributable<br><br> <br>to ABB^(1)^ |
| Q4 2019 | 1,911 | (234) | 15 | (48) | – | 325 |
| Q1 2020 | (577) | (163) | 23 | (33) | – | 376 |
| Q2 2020 | 680 | (140) | 4 | (60) | – | 319 |
| Q3 2020 | 408 | (131) | 41 | 2 | – | (479) |
| Total for the trailing | ||||||
| twelve months to | ||||||
| September 30, 2020 | 2,422 | (668) | 83 | (139) | – | 541 |
(1) Net income attributable to ABB for Q3 2020 is adjusted to exclude goodwill impairment charges of $311 million and the gain on the sale of the Power Grids business included in discontinued operations of $5,320 million.
52 Q3 2020 Financial Information
Net finance expenses
Definition
Net finance expenses is calculated as Interest and dividend income less Interest and other finance expense.
Reconciliation
| Nine months ended September 30, | Three months ended September 30, | |||
|---|---|---|---|---|
| ($ in<br> millions) | 2020 | 2019 | 2020 | 2019 |
| Interest<br> and dividend income | 39 | 57 | 12 | 20 |
| Interest<br> and other finance expense | (191) | (179) | (79) | (56) |
| Net finance expenses | (152) | (122) | (67) | (36) |
Book-to-bill ratio
Definition
Book-to-bill ratio is calculated as Orders received divided by Total revenues.
Reconciliation
| Nine months ended September 30, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| ($ in<br> millions, unless otherwise indicated) | Orders | Revenues | Book-to-bill | Orders | Revenues | Book-to-bill |
| Electrification | 8,810 | 8,568 | 1.03 | 9,890 | 9,490 | 1.04 |
| Industrial<br> Automation | 4,226 | 4,247 | 1.00 | 4,726 | 4,590 | 1.03 |
| Motion | 5,022 | 4,704 | 1.07 | 5,180 | 4,876 | 1.06 |
| Robotics<br> & Discrete Automation | 2,169 | 2,106 | 1.03 | 2,559 | 2,527 | 1.01 |
| Corporate<br> and Other (incl. intersegment eliminations) | (718) | (673) | n.a. | (653) | (573) | n.a. |
| ABB Group | 19,509 | 18,952 | 1.03 | 21,702 | 20,910 | 1.04 |
| Three months ended September 30, | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| 2020 | 2019 | |||||
| ($ in<br> millions, unless otherwise indicated) | Orders | Revenues | Book-to-bill | Orders | Revenues | Book-to-bill |
| Electrification | 2,952 | 3,031 | 0.97 | 3,188 | 3,161 | 1.01 |
| Industrial<br> Automation | 1,164 | 1,403 | 0.83 | 1,438 | 1,492 | 0.96 |
| Motion | 1,535 | 1,611 | 0.95 | 1,618 | 1,630 | 0.99 |
| Robotics<br> & Discrete Automation | 720 | 806 | 0.89 | 709 | 831 | 0.85 |
| Corporate<br> and Other (incl. intersegment eliminations) | (262) | (269) | n.a. | (265) | (222) | n.a. |
| ABB Group | 6,109 | 6,582 | 0.93 | 6,688 | 6,892 | 0.97 |
53 Q3 2020 Financial Information
—
ABB ****Ltd
Corporate Communications
P.O. Box 8131
8050 Zurich
Switzerland
Tel: +41 (0)43 317 71 11
www.abb.com
54 Q3 2020 Financial Information
| July 1 — September 30, 2020 | |||||||
|---|---|---|---|---|---|---|---|
| ABB Ltd announces that the following<br> members of the Executive Committee or Board of Directors of ABB have<br> purchased, sold or been granted ABB’s registered shares, call options and<br> warrant appreciation rights (“WARs”), in the following amounts: | |||||||
| Name | Date | Description | Received * | Purchased | Sold | Price | |
| Tarak Mehta | August 14, 2020 | Share | 2,840 | USD | 26.23 | ||
| Tarak Mehta | August 14, 2020 | Share | 47,160 | CHF | 23.85 | ||
| Key: | |||||||
| * Received instruments were delivered as<br> part of the ABB Ltd Director’s or Executive Committee Member’s compensation<br> 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 23,<br> 2020. | By: | /s/ Jessica Mitchell | |
| Name: | Jessica Mitchell | ||
| Title: | Group Senior Vice President and <br><br> Head of Investor Relations | ||
| Date: October 23,<br> 2020. | By: | /s/ Richard<br> A. Brown | |
| Name: | Richard A. Brown | ||
| Title: | Group Senior Vice President and<br><br> Chief Counsel<br> Corporate & Finance |