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ABB ABB

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of April 2020

 

Commission File Number 001-16429

 

ABB Ltd

(Translation of registrant’s name into English)

 

Affolternstrasse 44, CH-8050, Zurich, Switzerland

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

                                                  Form 20-F                                                                           Form 40-F

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 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 April 28, 2020 titled “Q1 2020 results”.

2.                         Q1 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

 


 

 

ZURICH, SWITZERLAND, APRIL 28, 2020

Q1 2020 results

COVID-19 impacts results; weighs on outlook

–    Orders $7.3 billion, -4%; comparable +1%

–    Revenues $6.2 billion, -9%; comparable -7%1 

–    Income from operations $373 million; margin 6.0%

–    Operational EBITA1 $636 million; margin1 10.2%, including 30 basis points stranded costs

–    Net income $376 million, -30%

–    Basic EPS $0.18, -30%2; operational EPS1 $0.30, -2%

–    Cash flow from operating activities -$577 million

 

“The COVID-19 pandemic impacted our first quarter results, lowering revenues and operating margins in all our businesses, although order growth held up well. We are doing our utmost to ensure the health and safety of our employees while maintaining business continuity, serving our customers and continuing to invest in R&D for the long-term,” said Björn Rosengren, CEO of ABB.

“In the second quarter, we expect ABB’s operations to be significantly challenged by a sharp drop in demand due to lockdowns in many parts of the world. Nevertheless, we will accelerate our efforts to manage our costs and safeguard liquidity, while moving ahead with decentralizing the group and our target to complete the divestment of Power Grids at the end of the second quarter.”

Key figures

 

 

ChangE

($ millions, unless otherwise indicated)

Q1 2020

Q1 2019

US$

Comparable

Orders

7,346

7,613

-4%

+1%

Revenues

6,216

6,847

-9%

-7%

Income from operations

373

590

-37%

 

Operational EBITA1

636

766

-17%

-16%3

as % of operational revenues

10.2

11.2

-1.0 pts

 

Income from continuing operations, net of tax

326

415

-21%

 

Net income attributable to ABB

376

535

-30%

 

Basic EPS ($)

0.18

0.25

-30%2

 

Operational EPS ($)1

0.30

0.30

-2%2

-1%2

Cash flow from operating activities4

(577)

(256)

-125%

 

On December 17, 2018, ABB announced an agreed sale of its Power Grids business. Consequently, the results of the Power Grids business are presented as discontinued operations.

 

______

1 For a reconciliation of non-GAAP measures, see “supplemental reconciliations and definitions” in the attached Q1 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.

 

 

1/7

 

 

 

 


 

Summary

Against the backdrop of COVID-19, orders for the first quarter remained robust, with Motion and Industrial Automation both benefiting from strong large orders. However, revenues declined in all businesses, reflecting a drop in product demand due to the pandemic, at first in China, and then across other parts of the world, with mobility restrictions also constraining system installation and services activities. These developments, in turn, weighed on operating margins in all businesses, reflecting that certain costs remain essential for business continuity.

Orders

Orders were 4 percent lower (up 1 percent comparable) in the quarter compared to the prior year period. Foreign exchange translation effects had a net negative impact of 3 percent and portfolio changes a net negative impact of 2 percent. The order backlog was 1 percent lower (up 8 percent comparable) at the end of the quarter.

Regional overview

–    Orders from Europe were 1 percent higher (5 percent comparable), supported by large orders. At the country level, performance was mixed. Sweden, Norway, the Netherlands and the UK were strong, but in Germany, Switzerland, Italy and Spain, where COVID-19 impacted earlier, orders declined when compared to the prior year period. In Germany, orders were 7 percent lower (4 percent comparable).

–    Orders from the Americas were steady (up 2 percent comparable), reflecting the later onset of COVID-19 in the region. Orders from the United States were 2 percent higher (up 2 percent comparable).

–    In Asia, Middle East and Africa (AMEA), orders were 12 percent lower (7 percent comparable). Orders from India, South Korea, Thailand and Indonesia advanced well while orders from Australia, Singapore and Japan fell back. In China, where the impacts of COVID-19 materialized first, orders declined 21 percent (16 percent comparable).

End-market overview

–    In discrete industries, orders were disrupted in most end-markets, while orders from automotive and automotive-sector related industries were materially lower.

–    In process industries, ABB saw solid demand from customers in the mining and pulp & paper segments. Unconventional oil & gas and conventional power generation remained challenged.

–    In transport & infrastructure, investments were robust, with strong growth in ports, rail and water & wastewater, as well as good order growth in distribution utilities.

–    Buildings market activity eased as construction companies faced increased constraints to activities from quarantine efforts.

Revenues

Revenues were 9 percent lower (7 percent comparable) year-on-year. Foreign exchange translation effects had a net negative impact of 1 percent and portfolio changes a net negative impact of 1 percent. The book-to-bill ratio for the quarter was 1.18x1, compared to 1.11x in the prior year period.

Income from operations and operational EBITA

Income from operations of $373 million declined 37 percent. The result includes a combined $263 million of non-operational items, including $65 million acquisition-related amortization, a net $80 million loss related to timing differences on commodities and foreign exchange, restructuring charges for the ABB-OS simplification program, as well as transaction and separation costs related to the carve-out of Power Grids and the Solar inverters business.

Operational EBITA1 of $636 million was 17 percent lower (16 percent in local currencies). The operational EBITA margin1 of 10.2 percent was 100 basis points lower year-on-year. All businesses reported lower

 

Q1 2020 RESULTS

2/7

 

 

 


 

 

margins compared to the prior year period, partly offset by improved Corporate and Other, mainly due to lower non-core and stranded costs. Stranded costs of $21 million were reflected in Corporate and Other.

Net income and basic earnings per share

Net income from continuing operations was $326 million, 21 percent lower year-on-year. Net income from discontinued operations of $54 million was lower, with the business impacted by the transfer of stranded costs, ongoing restructuring costs and net losses related to timing differences on commodities and foreign exchange.

Group net income attributable to ABB was $376 million and basic EPS $0.18, both 30 percent2 lower year-on-year. The group’s effective tax rate was 19.5 percent and includes the positive effects from resolving certain estimated tax contingencies. Operational EPS of $0.301 was 2 percent2 lower compared to the prior year period.

Cash flow from operating activities

Cash flow from operating activities declined to -$577 million, compared to -$256 million in the first quarter of 2019, including $22 million lower cash flow from operating activities from discontinued operations relative to a year ago.

Cash flow from continuing operating activities was impacted versus the prior year period mainly by timing differences on employee incentive payments, which were distributed in the first quarter this year as opposed to the second quarter last year, as well as by lower income from operations and less favorable timing of tax payments. This was partly offset by improvements in working capital management, including better harmonization of payment terms for trade payables. Net working capital as a percent of revenues was 12.3 percent at quarter end.

Q1 2020 Business results

Electrification (EL)

Key figures

ChangE

 

        Subdued short-cycle industrial demand and slowing buildings demand drove orders lower, while select markets including distribution utilities and infrastructure proved resilient. By region, in comparable terms, orders were slightly up in Europe, subdued in the Americas and challenged in AMEA, particularly China.

        Revenues were lower due to curtailed project activities and lower product sales arising from production outages, mainly in Asia.

        Margins were held back by lower volumes and weak performance in solar. This was partly mitigated by improving performance in Installation Products and cost initiatives.

($ millions, unless otherwise indicated)

Q1 2020

Q1 2019

US$

Comparable

Orders

3,121

3,363

-7%

-2%

Order backlog

4,386

4,394

0%

+9%

Revenues

2,773

3,057

-9%

-7%

Operational EBITA1

318

377

-16%

 

as % of operational revenues

11.4%

12.4%

-1.0 pts

 

 

 

Q1 2020 RESULTS

3/7

 

 

 


 

 

Industrial Automation (IA)

Key figures

ChangE

 

        IA’s strong order development was driven by large orders awarded in the mining, pulp and paper and ports segments. Conventional power generation remained challenged while oil & gas, particularly unconventional, slowed. Orders were up in all regions, led by Europe.

        Comparable revenue development reflects ongoing challenges to book-and-bill activities and increasingly curtailed project installation and service activities.

        Margins moved lower due to unfavorable business mix, project execution delays and mobility constrained service activities.

($ millions, unless otherwise indicated)

Q1 2020

Q1 2019

US$

Comparable

Orders

1,757

1,666

+5%

+8%

Order backlog

5,183

5,139

+1%

+6%

Revenues

1,462

1,518

-4%

-1%

Operational EBITA1

144

205

-30%

 

as % of operational revenues

9.7%

13.5%

-3.8 pts

 

 

 

Motion (MO)

Key figures

ChangE

 

        Strong long-cycle order growth was led by large orders in rail and for water applications. In addition, the business also won orders from new OEM customers and saw a strong end of the quarter in China. These positives outpaced a broad-based deterioration in short-cycle demand, particularly for drives. Order growth was led by Europe and AMEA, while the Americas were steady.

        Revenues reflect lower book-and-bill and postponement of deliveries where customer sites closed.

        Margin contraction was driven by lower volumes and incremental logistics costs, partly offset by cost mitigation.

($ millions, unless otherwise indicated)

Q1 2020

Q1 2019

US$

Comparable

Orders

1,901

1,800

+6%

+8%

Order backlog

3,259

2,942

+11%

+15%

Revenues

1,510

1,605

-6%

-4%

Operational EBITA1

230

263

-13%

 

as % of operational revenues

15.3%

16.4%

-1.1 pts

 

 

 

Q1 2020 RESULTS

4/7

 

 

 


 

 

Robotics & Discrete Automation (RA)

Key figures

ChangE

 

        Order developments for robotics reflect continued deterioration in the automotive and related industries plus weakening in general industries and 3C demand. Machine automation recorded strong growth, benefiting from prior design wins and customer stockpiling.

        Growth was strong in the Americas, however orders were weak in Europe, and challenged in AMEA.

        Revenues were impacted by lower demand, particularly for systems business and service activities, exacerbated in China because of COVID-19 lockdowns.

        Margin contraction reflects mainly lower volumes, partly mitigated by cost savings

($ millions, unless otherwise indicated)

Q1 2020

Q1 2019

US$

Comparable

Orders

811

967

-16%

-14%

Order backlog

1,454

1,556

-7%

-2%

Revenues

671

851

-21%

-19%

Operational EBITA1

59

95

-38%

 

as % of operational revenues

8.8%

11.2%

-2.4 pts

 

 

 

Corporate and Other

Key figures

ChangE

 

        Corporate and Other operational EBITA improved to -$115 million. Compared to a year ago this reflects lower stranded and non-core costs and lower ongoing corporate costs, partly offset by the absence of gains that benefited the result in the first quarter of 2019.

        In the first quarter of 2020, stranded costs of $21 million were recognized, impacting operational EBITA by 30 basis points.

($ millions, unless otherwise indicated)

Q1 2020

Q1 2019

US$

 

Orders

(244)

(183)

+61

 

Revenues

(200)

(184)

+16

 

 

 

 

 

 

Income from operations

(173)

(230)

(57)

 

Operational EBITA1

(115)

(174)

(59)

 

 

Corporate and Other orders and revenues primarily represent intersegment eliminations.

COVID-19 response

ABB’s primary focus is on securing the health and safety of our employees while maintaining business continuity. ABB is constantly monitoring the evolving situation and taking all necessary precautions, in line with local government and WHO guidelines. With the COVID-19 pandemic ongoing, ABB is working constantly with customers and partners to maintain the supply of goods and services. As part of this response, ABB is maximizing use of remote service tools and ABB Ability™ digital solutions, including free remote services. The majority of ABB’s production facilities remain fully or partly operational at this time, with some disruption being experienced at production and service sites in specific countries. Where possible the company is adjusting resources to meet the anticipated slow-down in demand and eliminating non-essential costs.

 

Q1 2020 RESULTS

5/7

 

 

 


 

 

The Board of Directors and the Executive Committee of ABB are voluntarily taking a 10 percent reduction in board compensation and salary for the duration of the crisis. In addition, ABB will contribute CHF 1 million to the International Committee of the Red Cross (ICRC) COVID-19 effort. 

The company and its employees are helping communities, for example by using ABB’s resources to deliver protective equipment to hospitals and frontline workers in some of the most badly affected countries, such as China and Italy, as well as through equipment donations and fundraising efforts.

Transformation progress

In preparation for its divestment, Power Grids is fully operational on a stand-alone basis. ABB has eliminated the majority of the ~$290 million annual stranded costs that resulted when Power Grids was deconsolidated. ABB aims to resolve any remaining dis-synergies from the carve-out through the ABB-OS simplification program. The divestment is targeted for completion at the end of the second quarter, as planned, and ABB remains committed to a share buyback program using net cash proceeds from the transaction. ABB is planning to execute this in an efficient and responsible way, taking account of the prevailing circumstances.

Decentralization and the refinement of ABB’s operating model through ABB-OS is continuing, enabling the businesses to act quickly to respond to the circumstances around COVID-19 while working towards delivering the cost savings for the Group as planned.

During the quarter, the Electrification business completed the divestment of the solar inverters activities to FIMER SpA on February 29, 2020. On March 17, 2020, ABB Electrification completed the acquisition of a majority stake in Chargedot Shanghai New Energy Technology Co., Ltd. The purchase expands ABB’s relationship with leading electric vehicle manufacturers in China and broadens its offering with hardware and software developed specifically for local requirements. Further, ABB Electrification acquired Cylon Controls Ltd, on March 3, 2020, enhancing its Smart Buildings portfolio in the commercial buildings segment.

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 unprecedented stimuli by governments and central banks around the world and initial signs of recovering economic activity in China, macro-indicators point to a global recession of uncertain duration, as many countries, including the United States, continue to face restrictions with anticipated long-term economic consequences.

The impact of COVID-19, as well as the fall in oil prices, has significantly impacted the short-term outlook in specific end markets such as oil and gas, conventional power generation, automotive and marine. Some end markets such as distribution utilities, data centers, logistics and rail continue to show relative resilience.

ABB is not currently providing guidance for full year 2020. ABB expects its results to be significantly impacted in the second quarter. Orders and revenues are expected to show material sequential decline in all businesses, with Robotics & Discrete Automation expected to decline by more than 30 percent year-on-year. While the company is taking prompt action to adapt its operations and cost base to safeguard profitability, it also expects the loss of volume to further dampen margins. Despite short-term disruptions, ABB is confident in the underlying resilience of its businesses and operating model. The company has a strong balance sheet and is confident that its liquidity needs will be well covered.

 

Q1 2020 RESULTS

6/7

 

 

 

 


 

More information

The Q1 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 10:00 a.m. CEST (9:00 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 technology leader that is driving the digital transformation of industries. With a history of innovation spanning more than 130 years, ABB has four, customer-focused, globally leading businesses: Electrification, Industrial Automation, Motion, and Robotics & Discrete Automation, supported by the ABB Ability™ digital platform. ABB’s Power Grids business will be divested to Hitachi in 2020. ABB operates in more than 100 countries with about 144,000 employees.

 

Investor calendar

CEO first perspectives (webcast)

June 10, 2020

Q2 2020 results

July 22, 2020

 

 

Important notice 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 “COVID-19 response”, “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, April 28, 2020

 

Björn Rosengren, CEO

 

 

 


For more information, please contact:

Media Relations
Phone: +41 43 317 71 11

Email: media.relations@ch.abb.com

Investor Relations
Phone: +41 43 317 71 11

Email: investor.relations@ch.abb.com

ABB Ltd
Affolternstrasse 44
8050 Zurich
Switzerland

 

 

 

 

 

Q1 2020 RESULTS

7/7

 


 

 

 

1              Q1 2020 Financial Information  


 

 

2              Q1 2020 Financial Information  


 

Key Figures

 

 

 

 

 

CHANGE

 

($ in millions, unless otherwise indicated)

Q1 2020

Q1 2019

US$

Comparable(1)

 

Orders

7,346

7,613

-4%

1%

 

Order backlog (end March)

13,698

13,853

-1%

8%

 

Revenues

6,216

6,847

-9%

-7%

 

Income from operations

373

590

-37%

 

 

Operational EBITA(1)

636

766

-17%

-16%(2)

 

 

as % of operational revenues(1)

10.2%

11.2%

-1 pts

 

 

Income from continuing operations, net of tax

326

415

-21%

 

 

Net income attributable to ABB

376

535

-30%

 

 

Basic earnings per share ($)

0.18

0.25

-30%(3)

 

 

Operational earnings per share(1) ($)

0.30

0.30

-2%(3)

-1%(3)

 

Cash flow from operating activities(4)

(577)

(256)

-125%

 

   

(1)  For a reconciliation of non-GAAP measures see “Supplemental Reconciliations and Definitions” on page 33.

(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              Q1 2020 Financial Information  


 

 

 

 

 

CHANGE

 

($ in millions, unless otherwise indicated)

Q1 2020

Q1 2019

US$

Local

Comparable

 

Orders

ABB Group

7,346

7,613

-4%

-1%

1%

 

 

Electrification

3,121

3,363

-7%

-5%

-2%

 

 

Industrial Automation

1,757

1,666

5%

8%

8%

 

 

Motion

1,901

1,800

6%

8%

8%

 

 

Robotics & Discrete Automation

811

967

-16%

-14%

-14%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. intersegment eliminations)

(244)

(183)

 

Order backlog (end March)

ABB Group

13,698

13,853

-1%

3%

8%

 

 

Electrification

4,386

4,394

0%

4%

9%

 

 

Industrial Automation

5,183

5,139

1%

6%

6%

 

 

Motion

3,259

2,942

11%

15%

15%

 

 

Robotics & Discrete Automation

1,454

1,556

-7%

-2%

-2%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. intersegment eliminations)

(584)

(178)

 

Revenues

ABB Group

6,216

6,847

-9%

-8%

-7%

 

 

Electrification

2,773

3,057

-9%

-8%

-7%

 

 

Industrial Automation

1,462

1,518

-4%

-1%

-1%

 

 

Motion

1,510

1,605

-6%

-4%

-4%

 

 

Robotics & Discrete Automation

671

851

-21%

-19%

-19%

 

 

Corporate and Other

 

 

 

 

 

 

(incl. intersegment eliminations)

(200)

(184)

 

Income from operations

ABB Group

373

590

 

 

 

 

 

Electrification

199

297

 

 

 

 

 

Industrial Automation

124

195

 

 

 

 

 

Motion

191

251

 

 

 

 

 

Robotics & Discrete Automation

32

77

 

 

 

 

 

Corporate and Other

 

 

 

 

 

 

(incl. intersegment eliminations)

(173)

(230)

 

Income from operations %

ABB Group

6.0%

8.6%

 

 

 

 

 

Electrification

7.2%

9.7%

 

 

 

 

 

Industrial Automation

8.5%

12.8%

 

 

 

 

 

Motion

12.6%

15.6%

 

 

 

 

 

Robotics & Discrete Automation

4.8%

9.0%

 

 

 

 

Operational EBITA

ABB Group

636

766

-17%

-16%

 

 

 

Electrification

318

377

-16%

-13%

 

 

 

Industrial Automation

144

205

-30%

-29%

 

 

 

Motion

230

263

-13%

-11%

 

 

 

Robotics & Discrete Automation

59

95

-38%

-36%

 

 

 

Corporate and Other(1)

 

 

 

 

 

 

 

(incl. intersegment eliminations)

(115)

(174)

 

 

 

 

Operational EBITA %

ABB Group

10.2%

11.2%

 

 

 

 

 

Electrification

11.4%

12.4%

 

 

 

 

 

Industrial Automation

9.7%

13.5%

 

 

 

 

 

Motion

15.3%

16.4%

 

 

 

 

 

Robotics & Discrete Automation

8.8%

11.2%

 

 

 

 

Cash flow from operating activities

ABB Group

(577)

(256)

 

 

 

 

 

Electrification

(65)

(2)

 

 

 

 

 

Industrial Automation

(41)

44

 

 

 

 

 

Motion

109

143

 

 

 

 

 

Robotics & Discrete Automation

53

28

 

 

 

 

 

Corporate and Other

 

 

 

 

 

 

 

(incl. intersegment eliminations)

(452)

(310)

 

 

 

 

 

Discontinued operations

(181)

(159)

 

 

 

 

(1) Corporate and Other includes Stranded corporate costs of $21 million and $67 million for the three months ended March 31, 2020 and 2019, respectively.

4              Q1 2020 Financial Information  


 

Operational EBITA

 

 

 

 

Industrial

 

Robotics & Discrete

 

 

ABB

Electrification

Automation

Motion

Automation

 

($ in millions, unless otherwise indicated)

Q1 20

Q1 19

Q1 20

Q1 19

Q1 20

Q1 19

Q1 20

Q1 19

Q1 20

Q1 19

 

Revenues

6,216

6,847

2,773

3,057

1,462

1,518

1,510

1,605

671

851

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

 

 

 

 

differences in total revenues

25

(11)

10

(5)

17

(3)

(2)

(4)

 

Operational revenues

6,241

6,836

2,783

3,052

1,479

1,518

1,507

1,605

669

847

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

373

590

199

297

124

195

191

251

32

77

 

Acquisition-related amortization

65

68

28

29

1

1

13

14

19

20

 

Restructuring, related and

 

 

 

 

 

 

 

 

 

 

 

implementation costs

40

68

15

40

3

5

2

3

7

1

 

Changes in obligations related to

 

 

 

 

 

 

 

 

 

 

 

divested businesses

3

 

Changes in pre-acquisition estimates

 

Gains and losses from sale of businesses

1

1

1

1

 

Fair value adjustment on assets and

 

 

 

 

 

 

 

 

 

 

 

liabilities held for sale

19

19

 

Acquisition- and divestment-related

 

 

 

 

 

 

 

 

 

 

 

expenses and integration costs

11

24

11

22

 

Certain other non-operational items

47

33

1

2

5

3

1

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

 

 

 

 

differences in income from operations

80

(21)

45

(13)

16

2

19

(8)

(3)

 

Operational EBITA

636

766

318

377

144

205

230

263

59

95

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

10.2%

11.2%

11.4%

12.4%

9.7%

13.5%

15.3%

16.4%

8.8%

11.2%



Depreciation and Amortization

 

 

 

 

Industrial

 

Robotics & Discrete

 

 

ABB

Electrification

Automation

Motion

Automation

 

($ in millions)

Q1 20

Q1 19

Q1 20

Q1 19

Q1 20

Q1 19

Q1 20

Q1 19

Q1 20

Q1 19

 

Depreciation

145

144

61

65

12

11

28

28

11

11

 

Amortization

82

87

34

37

2

2

14

15

20

20

 

including total acquisition-related amortization of:

65

68

28

29

1

1

13

14

19

20



Orders received and revenues by region

 

($ in millions, unless otherwise indicated)

Orders received

CHANGE

Revenues

CHANGE

 

 

 

 

 

 

Com-

 

 

 

 

Com-

 

Q1 20

Q1 19

US$

Local

parable

Q1 20

Q1 19

US$

Local

parable

 

Europe

2,813

2,781

1%

4%

5%

2,371

2,447

-3%

0%

0%

 

The Americas

2,240

2,232

0%

1%

2%

2,092

2,198

-5%

-4%

-4%

 

Asia, Middle East and Africa

2,230

2,541

-12%

-10%

-7%

1,706

2,149

-21%

-19%

-17%

 

Intersegment orders/revenues(1)

63

59

 

 

 

47

53

 

 

 

 

ABB Group

7,346

7,613

-4%

-1%

1%

6,216

6,847

-9%

-8%

-7%

(1)  Intersegment orders/revenues include sales to the Power Grids business which is presented as discontinued operations and are not eliminated from Total orders/revenues.

5              Q1 2020 Financial Information  


 

 

 

 

Consolidated Financial Information

 

 

 

 

 

ABB Ltd Interim Consolidated Income Statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

($ in millions, except per share data in $)

 

 

Mar. 31, 2020

Mar. 31, 2019

 

Sales of products

 

 

4,993

5,560

 

Sales of services and other

 

 

1,223

1,287

 

Total revenues

 

 

6,216

6,847

 

Cost of sales of products

 

 

(3,575)

(3,877)

 

Cost of services and other

 

 

(731)

(761)

 

Total cost of sales

 

 

(4,306)

(4,638)

 

Gross profit

 

 

1,910

2,209

 

Selling, general and administrative expenses

 

 

(1,252)

(1,355)

 

Non-order related research and development expenses

 

 

(259)

(285)

 

Other income (expense), net

 

 

(26)

21

 

Income from operations

 

 

373

590

 

Interest and dividend income

 

 

18

19

 

Interest and other finance expense

 

 

(22)

(62)

 

Non-operational pension (cost) credit

 

 

36

23

 

Income from continuing operations before taxes

 

 

405

570

 

Provision for taxes

 

 

(79)

(155)

 

Income from continuing operations, net of tax

 

 

326

415

 

Income from discontinued operations, net of tax

 

 

54

149

 

Net income

 

 

380

564

 

Net income attributable to noncontrolling interests

 

 

(4)

(29)

 

Net income attributable to ABB

 

 

376

535

 

 

 

 

 

 

 

Amounts attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

 

 

325

397

 

Income from discontinued operations, net of tax

 

 

51

138

 

Net income

 

 

376

535

 

 

 

 

 

 

 

Basic earnings per share attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

 

 

0.15

0.19

 

Income from discontinued operations, net of tax

 

 

0.02

0.06

 

Net income

 

 

0.18

0.25

 

 

 

 

 

 

 

Diluted earnings per share attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

 

 

0.15

0.19

 

Income from discontinued operations, net of tax

 

 

0.02

0.06

 

Net income

 

 

0.18

0.25

 

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions) used to compute:

 

 

 

 

 

Basic earnings per share attributable to ABB shareholders

 

 

2,134

2,132

 

Diluted earnings per share attributable to ABB shareholders

 

 

2,138

2,134

 

Due to rounding, numbers presented may not add to the totals provided.

 

 

 

 

 

 

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

 

 

 

 

6              Q1 2020 Financial Information  


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABB Ltd Interim Condensed Consolidated Statements of Comprehensive

 

Income (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

($ in millions)

 

 

Mar. 31, 2020

Mar. 31, 2019

 

Total comprehensive income (loss), net of tax

 

 

(127)

562

 

Total comprehensive income attributable to noncontrolling interests, net of tax

 

 

4

(35)

 

Total comprehensive income (loss) attributable to ABB shareholders, net of tax

 

 

(123)

527

 

Due to rounding, numbers presented may not add to the totals provided.

 

 

 

 

 

 

 

 

 

 

 

See Notes to the Interim Consolidated Financial Information

 

 

 

 

7              Q1 2020 Financial Information  


 

 

 

 

 

ABB Ltd Consolidated Balance Sheets (unaudited)

 

 

 

 

 

 

 

 

 

 

 

($ in millions, except share data)

Mar. 31, 2020

Dec. 31, 2019

 

Cash and equivalents

5,971

3,544

 

Marketable securities and short-term investments

551

566

 

Receivables, net

6,288

6,434

 

Contract assets

1,038

1,025

 

Inventories, net

4,358

4,184

 

Prepaid expenses

266

191

 

Other current assets

661

674

 

Current assets held for sale and in discontinued operations

9,898

9,840

 

Total current assets

29,031

26,458

 

 

 

 

 

Property, plant and equipment, net

3,856

3,972

 

Operating lease right-of-use assets

931

994

 

Goodwill

10,721

10,825

 

Other intangible assets, net

2,161

2,252

 

Prepaid pension and other employee benefits

134

133

 

Investments in equity-accounted companies

35

33

 

Deferred taxes

784

910

 

Other non-current assets

450

531

 

Total assets

48,103

46,108

 

 

 

 

 

Accounts payable, trade

4,170

4,353

 

Contract liabilities

1,665

1,719

 

Short-term debt and current maturities of long-term debt

5,913

2,287

 

Current operating leases

293

305

 

Provisions for warranties

770

816

 

Dividends payable to shareholders

1,762

 

Other provisions

1,314

1,375

 

Other current liabilities

3,514

3,761

 

Current liabilities held for sale and in discontinued operations

5,152

5,650

 

Total current liabilities

24,553

20,266

 

 

 

 

 

Long-term debt

6,830

6,772

 

Non-current operating leases

664

717

 

Pension and other employee benefits

1,670

1,793

 

Deferred taxes

863

911

 

Other non-current liabilities

1,491

1,669

 

Total liabilities

36,071

32,128

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

Common stock, CHF 0.12 par value

 

 

 

(2,168,148,264 issued shares at March 31, 2020, and December 31, 2019)

188

188

 

Additional paid-in capital

75

73

 

Retained earnings

18,180

19,640

 

Accumulated other comprehensive loss

(6,089)

(5,590)

 

Treasury stock, at cost

 

 

 

(34,572,782 and 34,647,153 shares at March 31, 2020, and December 31, 2019, respectively)

(784)

(785)

 

Total ABB stockholders’ equity

11,570

13,526

 

Noncontrolling interests

462

454

 

Total stockholders’ equity

12,032

13,980

 

Total liabilities and stockholders’ equity

48,103

46,108

 

Due to rounding, numbers presented may not add to the totals provided.

 

 

 

 

 

 

 

See Notes to the Consolidated Financial Information

 

 

8              Q1 2020 Financial Information  


 

 

 

 

 

ABB Ltd Consolidated Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

 

 

Three months ended

 

($ in millions)

Mar. 31, 2020

Mar. 31, 2019

 

Operating activities:

 

 

 

Net income

380

564

 

Less: Income from discontinued operations, net of tax

(54)

(149)

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

Depreciation and amortization

227

231

 

Deferred taxes

44

(29)

 

Net loss (gain) from derivatives and foreign exchange

73

(26)

 

Net loss (gain) from sale of property, plant and equipment

(8)

(34)

 

Net loss (gain) from sale of businesses

1

1

 

Fair value adjustment on assets and liabilities held for sale

19

 

Share-based payment arrangements

7

11

 

Other

(37)

(26)

 

Changes in operating assets and liabilities:

 

 

 

Trade receivables, net

(61)

(85)

 

Contract assets and liabilities

(41)

(28)

 

Inventories, net

(301)

(213)

 

Accounts payable, trade

(67)

(307)

 

Accrued liabilities

(59)

154

 

Provisions, net

(53)

(18)

 

Income taxes payable and receivable

(218)

11

 

Other assets and liabilities, net

(248)

(154)

 

Net cash used in operating activities – continuing operations

(396)

(97)

 

Net cash used in operating activities – discontinued operations

(181)

(159)

 

Net cash used in operating activities

(577)

(256)

 

 

 

 

 

Investing activities:

 

 

 

Purchases of investments

(242)

(530)

 

Purchases of property, plant and equipment and intangible assets

(163)

(207)

 

Acquisition of businesses (net of cash acquired) and increases in cost- and equity-accounted companies

(73)

(2)

 

Proceeds from sales of investments

393

420

 

Proceeds from sales of property, plant and equipment

23

48

 

Proceeds from sales of businesses (net of transaction costs and cash disposed) and cost- and

 

 

 

equity-accounted companies

(140)

(21)

 

Net cash from settlement of foreign currency derivatives

(129)

2

 

Other investing activities

(15)

 

Net cash used in investing activities – continuing operations

(346)

(290)

 

Net cash used in investing activities – discontinued operations

(37)

(44)

 

Net cash used in investing activities

(383)

(334)

 

 

 

 

 

Financing activities:

 

 

 

Net changes in debt with original maturities of 90 days or less

1,545

456

 

Increase in debt

2,247

861

 

Repayment of debt

(180)

(1,440)

 

Dividends paid to noncontrolling shareholders

(2)

(2)

 

Other financing activities

(104)

16

 

Net cash provided by (used in) financing activities – continuing operations

3,506

(109)

 

Net cash used in financing activities – discontinued operations

(8)

(24)

 

Net cash provided by (used in) financing activities

3,498

(133)

 

 

 

 

 

Effects of exchange rate changes on cash and equivalents

(111)

12

 

Net change in cash and equivalents

2,427

(711)

 

 

 

 

 

Cash and equivalents, beginning of period

3,544

3,445

 

Cash and equivalents, end of period

5,971

2,734

 

 

 

 

 

Supplementary disclosure of cash flow information:

 

 

 

Interest paid

16

58

 

Income taxes paid

266

226

 

Due to rounding, numbers presented may not add to the totals provided.

 

 

 

 

 

 

 

See Notes to the Consolidated Financial Information

 

 

9              Q1 2020 Financial Information  


 

 

 

 

 

 

 

 

 

 

 

ABB Ltd Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

Common stock

Additional paid-in capital

Retained earnings

Accumulated

other comprehensive loss

Treasury stock

Total ABB

stockholders’ equity

Non-

controlling interests

Total stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

188

56

19,839

(5,311)

(820)

13,952

582

14,534

 

Adoption accounting

 

 

 

 

 

 

 

 

 

standard update

 

 

36

(36)

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

Net income

 

 

535

 

 

535

29

564

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

adjustments, net of tax of $0

 

 

 

(51)

 

(51)

6

(45)

 

Effect of change in fair value of

 

 

 

 

 

 

 

 

 

available-for-sale securities,

 

 

 

 

 

 

 

 

 

net of tax of $1

 

 

 

6

 

6

 

6

 

Unrecognized income (expense)

 

 

 

 

 

 

 

 

 

related to pensions and other

 

 

 

 

 

 

 

 

 

postretirement plans,

 

 

 

 

 

 

 

 

 

net of tax of $17

 

 

 

33

 

33

 

33

 

Change in derivatives qualifying as

 

 

 

 

 

 

 

 

 

cash flow hedges, net of tax of $0

 

 

 

4

 

4

 

4

 

Total comprehensive income

 

 

 

 

 

527

35

562

 

Changes in noncontrolling interests

 

1

 

 

 

1

(2)

(1)

 

Dividends to

 

 

 

 

 

 

 

 

 

noncontrolling shareholders

 

 

 

 

 

(7)

(7)

 

Share-based payment arrangements

 

13

 

 

 

13

 

13

 

Delivery of shares

 

(1)

 

 

1

 

 

Balance at March 31, 2019

188

70

20,411

(5,355)

(819)

14,495

607

15,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

188

73

19,640

(5,590)

(785)

13,526

454

13,980

 

Adoption of accounting

 

 

 

 

 

 

 

 

 

standard update

 

 

(78)

 

 

(78)

(9)

(87)

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

Net income

 

 

376

 

 

376

4

380

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

adjustments, net of tax of $0

 

 

 

(589)

 

(589)

(8)

(597)

 

Effect of change in fair value of

 

 

 

 

 

 

 

 

 

available-for-sale securities,

 

 

 

 

 

 

 

 

 

net of tax of $3

 

 

 

9

 

9

 

9

 

Unrecognized income (expense)

 

 

 

 

 

 

 

 

 

related to pensions and other

 

 

 

 

 

 

 

 

 

postretirement plans,

 

 

 

 

 

 

 

 

 

net of tax of $25

 

 

 

90

 

90

 

90

 

Change in derivatives qualifying as

 

 

 

 

 

 

 

 

 

cash flow hedges, net of tax of $0

 

 

 

(9)

 

(9)

 

(9)

 

Total comprehensive loss

 

 

 

 

 

(123)

(4)

(127)

 

Changes in noncontrolling interests

 

(3)

 

 

 

(3)

22

19

 

Dividends to

 

 

 

 

 

 

 

 

 

noncontrolling shareholders

 

 

 

 

 

(2)

(2)

 

Dividends payable to shareholders

 

 

(1,758)

 

 

(1,758)

 

(1,758)

 

Share-based payment arrangements

 

8

 

 

 

8

 

8

 

Delivery of shares

 

(2)

 

 

2

 

 

Balance at March 31, 2020

188

75

18,180

(6,089)

(784)

11,570

462

12,032

 

Due to rounding, numbers presented may not add to the totals provided.

 

 

 

 

 

 

 

 

 

 

 

See Notes to the Consolidated Financial Information

10              Q1 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 technology leader that is driving the digital transformation of industries with its four customer-focused, globally leading businesses.

 

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 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 Consolidated Financial Information for prior periods have been reclassified to conform to the current year’s presentation. These changes relate primarily to the reorganization of the Company’s operating segments (see Note 16 for details).

 

11              Q1 2020 Financial Information  


 



Note 2

Recent accounting pronouncements

 

Applicable for current periods

Measurement of credit 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 $87 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.

 

Disclosure Framework — 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.

 

Applicable for future periods

 

Simplifying the 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 on financial reporting

In March 2020, an accounting standard update was issued which provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. 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.

12              Q1 2020 Financial Information  


 

Note 3

Discontinued operations, business divestments and assets held for sale

 

Discontinued operations

The Company reports a disposal, or planned disposal, of a component or a group of components as a discontinued operation if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results. A strategic shift could include a disposal of a major geographical area, a major line of business or other major parts of the Company. A component may be a reportable segment or an operating segment, a reporting unit, a subsidiary, or an asset group.

 

Assets and liabilities of a component reported as a discontinued operation are presented as held for sale and in discontinued operations in the Company’s Consolidated Balance Sheets.

 

Interest expense that is not directly attributable to or related to the Company’s continuing business or discontinued business is allocated to discontinued operations based on the ratio of net assets to be sold less debt that is 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 is not allocated to discontinued operations.

 

On December 17, 2018, the Company announced an agreement to divest 80.1 percent of its Power Grids business to Hitachi Ltd. (Hitachi) valuing the business at $11 billion. The business also includes certain real estate properties which were previously reported within Corporate and Other as the Company primarily manages real estate assets centrally as corporate assets. As a result, this business, along with the related real estate assets previously included in Corporate and Other, have been reported as discontinued operations. The divestment is expected to be completed at the end of the second quarter of 2020, following the receipt of customary regulatory approvals as well as the completion of certain legal entity reorganizations expected to be completed before the sale.

 

As this planned divestment represents a strategic shift that will 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 reflected as held for sale for all periods presented. In addition, amounts relating to stranded corporate costs have been excluded from discontinued operations and are included as a component of Corporate and Other. Stranded costs represent overhead and other management costs which were previously able to be included in the measure of segment profit (Operational EBITA) for the former Power Grids operating segment but are not directly attributable to the discontinued operation and thus do not qualify to be recorded as part of income from discontinued operations.

 

Operating results of the discontinued operations are summarized as follows:

 

 

 

 

 

Three months ended

 

($ in millions)

 

 

Mar. 31, 2020

Mar. 31, 2019

 

Total revenues

 

 

1,941

2,129

 

Total cost of sales

 

 

(1,471)

(1,590)

 

Gross profit

 

 

470

539

 

Expenses

 

 

(394)

(330)

 

Income from operations

 

 

76

209

 

Net interest and other finance expense

 

 

(3)

(14)

 

Non-operational pension (cost) credit

 

 

3

3

 

Income from discontinued operations before taxes

 

 

76

198

 

Provision for taxes

 

 

(22)

(49)

 

Income from discontinued operations, net of tax

 

 

54

149

 

Of the total Income from discontinued operations before taxes in the table above, $72 million and $186 million in the three months ended March 31, 2020 and 2019, respectively, are attributable to the Company, while the remainder is attributable to noncontrolling interests.

 

Income from discontinued operations before taxes excludes stranded costs which were previously able to be allocated to the Power Grids operating segment. As a result, for the three months ended March 31, 2020 and 2019, $21 million and $67 million, respectively, 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 are now reported as part of Corporate and Other. In the table above, Net interest and other finance expense in the three months ended March 31, 2020 and 2019, includes $9 million and $13 million, respectively,  of interest expense which has been recorded on an allocated basis in accordance with the Company’s accounting policy election. In addition, as required by U.S. GAAP, subsequent to December 17, 2018, the Company has not recorded depreciation or amortization on the property, plant and equipment, and intangible assets reported as discontinued operations.

 

Included in the reported Total revenues of the Company for the three months ended March 31, 2020 and 2019, are revenues from the Company’s operating segments’ sales to the Power Grids business of $47 million and $53 million, respectively, 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 16).

 

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.

 

13              Q1 2020 Financial Information  


 

The major components of assets and liabilities held for sale in the Company’s Consolidated Balance Sheets are summarized as follows:

 

 

($ in millions)

Mar. 31, 2020

Dec. 31, 2019

 

Receivables, net

2,379

2,541

 

Contract assets

1,264

1,243

 

Inventories, net

1,753

1,667

 

Property, plant and equipment, net

1,736

1,754

 

Goodwill

1,588

1,631

 

Other current assets

1,178

1,004

 

Current assets held for sale and in discontinued operations

9,898

9,840

 

 

 

 

 

Accounts payable, trade

1,535

1,722

 

Contract liabilities

1,205

1,121

 

Pension and other employee benefits

407

419

 

Other current liabilities

2,005

1,984

 

Current liabilities held for sale and in discontinued operations

5,152

5,246

 

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. During the second half of 2019, the Company recorded an initial loss of $421 million representing the excess of the carrying value over the estimated fair value of this business. During the three months ended March 31, 2020, $19 million was in “Other income (expense), net” for changes in fair value occurring during this period. The total loss recorded includes $99 million for the 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, is 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 millions)

 

Dec. 31, 2019

 

Assets

 

 

 

Receivables, net

 

70

 

Inventories, net

 

127

 

Property, plant and equipment, net

 

69

 

Other intangible assets, net

 

27

 

Other assets

 

26

 

Valuation allowance on assets held for sale

 

(319)

 

Current assets held for sale

 

 

 

 

 

 

Liabilities

 

 

 

Accounts payable, trade

 

86

 

Contract liabilities

 

59

 

Provisions for warranties

 

108

 

Other liabilities

 

49

 

Fair value adjustment on disposal group

 

102

 

Current liabilities held for sale

 

404

 

Including the above loss of $19 million in the three months end March 31, 2020, Income from continuing operations before taxes includes net losses of $33 million and $14 million, respectively, from the solar inverters business for the three months ended March 31, 2020 and 2019, respectively.



14              Q1 2020 Financial Information  


 

Note 4

Cash and equivalents, marketable securities and short-term investments

 

Cash and equivalents, marketable securities and short-term investments consisted of the following:

 

 

 

 

March 31, 2020

 

 

 

 

 

 

 

 

Marketable

 

 

 

 

Gross

Gross

 

 

securities

 

 

 

 

unrealized

unrealized

 

Cash and

and short-term

 

($ in millions)

Cost basis

gains

losses

Fair value

equivalents

investments

 

Changes in fair value

 

 

 

 

 

 

 

recorded in net income

 

 

 

 

 

 

 

Cash

2,036

 

 

2,036

2,036

 

 

Time deposits

3,935

 

 

3,935

3,935

 

 

Equity securities

197

 

(2)

195

 

195

 

 

6,168

(2)

6,166

5,971

195

 

Changes in fair value recorded

 

 

 

 

 

 

 

in other comprehensive income

 

 

 

 

 

 

 

Debt securities available-for-sale:

 

 

 

 

 

 

 

 

U.S. government obligations

271

22

 

293

 

293

 

 

Corporate

63

2

(2)

63

 

63

 

 

334

24

(2)

356

356

 

Total

6,502

24

(4)

6,522

5,971

551

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

Marketable

 

 

 

 

Gross

Gross

 

 

securities

 

 

 

 

unrealized

unrealized

 

Cash and

and short-term

 

($ in millions)

Cost basis

gains

losses

Fair value

equivalents

investments

 

Changes in fair value

 

 

 

 

 

 

 

recorded in net income

 

 

 

 

 

 

 

Cash

2,111

 

 

2,111

2,111

 

 

Time deposits

1,433

 

 

1,433

1,433

 

Equity securities

294

10

 

304

 

304

 

 

3,838

10

3,848

3,544

304

 

Changes in fair value recorded

 

 

 

 

 

 

 

in other comprehensive income

 

 

 

 

 

 

 

Debt securities available-for-sale:

 

 

 

 

 

 

 

 

U.S. government obligations

191

7

(1)

197

197

 

 

Corporate

61

4

 

65

65

 

 

252

11

(1)

262

262

 

Total

4,090

21

(1)

4,110

3,544

566



Note 5

Derivative financial instruments

 

The Company is exposed to certain currency, commodity, interest rate and equity risks arising from its global operating, financing and investing activities. The Company uses derivative instruments to reduce and manage the economic impact of these exposures.

 

Currency risk

Due to the global nature of the Company’s operations, many of its subsidiaries are exposed to currency risk in their operating activities from entering into transactions in currencies other than their functional currency. To manage such currency risks, the Company’s policies require its subsidiaries to hedge their foreign currency exposures from binding sales and purchase contracts denominated in foreign currencies. For forecasted 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.

 

15              Q1 2020 Financial Information  


 

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 millions)

March 31, 2020

December 31, 2019

March 31, 2019

 

Foreign exchange contracts

14,654

15,015

12,837

 

Embedded foreign exchange derivatives

975

924

766

 

Interest rate contracts

4,195

5,188

3,703

 

Derivative commodity contracts

The Company uses derivatives to hedge its direct or indirect exposure to the movement in the prices of commodities which are primarily copper, silver and aluminum. The following table shows the notional amounts of outstanding derivatives (whether designated as hedges or not), on a net basis, to reflect the Company’s requirements for these commodities:

 

 

Type of derivative

Unit

Total notional amounts at

 

 

 

March 31, 2020

December 31, 2019

March 31, 2019

 

Copper swaps

metric tonnes

45,438

42,494

45,365

 

Silver swaps

ounces

2,075,488

2,508,770

2,513,033

 

Aluminum swaps

metric tonnes

9,770

8,388

9,347

 

Equity derivatives

At March 31, 2020, December 31, 2019, and March 31, 2019, the Company held 38 million, 40 million and 40 million cash-settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of $7 million, $26 million and $4 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 March 31, 2020, and December 31, 2019, “Accumulated other comprehensive loss” included net unrealized losses of $14 million and $5 million, respectively, net of tax, on derivatives designated as cash flow hedges. Of the amount at March 31, 2020, net losses of $2 million are expected to be reclassified to earnings in the following 12 months. At March 31, 2020, the longest maturity of a derivative classified as a cash flow hedge was 46 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 three months ended March 31, 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.

 

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 three months ended March 31, 2020 and 2019, was not significant.

 

16              Q1 2020 Financial Information  


 

The effect of interest rate contracts, designated and qualifying as fair value hedges, on the Consolidated Income Statements was as follows:

 

 

 

Three months ended March 31,

 

($ in millions)

2020

2019

 

Gains (losses) recognized in Interest and other finance expense:

 

 

 

 - on derivatives designated as fair value hedges

24

26

 

 - on hedged item

(25)

(26)

 

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

 

Three months ended March 31,

 

($ in millions)

Location

2020

2019

 

Foreign exchange contracts

Total revenues

(134)

3

 

 

Total cost of sales

76

(37)

 

 

SG&A expenses(1)

8

(3)

 

 

Non-order related research and development

(1)

 

 

Interest and other finance expense

(106)

(20)

 

Embedded foreign exchange contracts

Total revenues

32

(2)

 

 

Total cost of sales

(4)

 

Commodity contracts

Total cost of sales

(66)

18

 

Other

Interest and other finance expense

(1)

 

Total

 

(196)

(41)

(1) SG&A  expenses  represent  “Selling,  general  and  administrative  expenses”.

 

The fair values of derivatives included in the Consolidated Balance Sheets were as follows:

 

 

 

March 31, 2020

 

 

Derivative assets

 

Derivative liabilities

 

 

Current in

Non-current in

 

Current in

Non-current in

 

 

“Other current

“Other non-current

 

“Other current

“Other non-current

 

($ in millions)

assets”

assets”

 

liabilities”

liabilities”

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

Foreign exchange contracts

7

 

2

7

 

Interest rate contracts

97

 

 

Cash-settled call options

2

5

 

 

Total

9

102

 

2

7

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

Foreign exchange contracts

154

25

 

238

30

 

Commodity contracts

5

 

66

2

 

Cross-currency interest rate swaps

3

 

5

1

 

Embedded foreign exchange derivatives

27

9

 

13

6

 

Total

189

34

 

322

39

 

Total fair value

198

136

 

324

46



 

17              Q1 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 millions)

assets”

assets”

 

liabilities”

liabilities”

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

Foreign exchange contracts

 

2

6

 

Interest rate contracts

72

 

 

Cash-settled call options

11

14

 

 

Total

11

86

 

2

6

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

Foreign exchange contracts

85

14

 

127

14

 

Commodity contracts

17

 

2

 

Cash-settled call options

1

 

 

Embedded 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 March 31, 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 March 31, 2020, and December 31, 2019, information related to these offsetting arrangements was as follows:

 

 

($ in millions)

March 31, 2020

 

 

Gross amount

Derivative liabilities

Cash

Non-cash

 

 

Type of agreement or

of recognized

eligible for set-off

collateral

collateral

Net asset

 

similar arrangement

assets

in case of default

received

received

exposure

 

Derivatives

298

(191)

107

 

Total

298

(191)

107

 

 

 

 

 

 

 

 

($ in millions)

March 31, 2020

 

 

Gross amount

Derivative liabilities

Cash

Non-cash

 

 

Type of agreement or

 of recognized

eligible for set-off

collateral

collateral

Net liability

 

similar arrangement

liabilities

in case of default

pledged

pledged

exposure

 

Derivatives

351

(191)

160

 

Total

351

(191)

160

 

 

($ 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 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



18              Q1 2020 Financial Information  


 

Note 6

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:

 

 

 

March 31, 2020

 

($ in millions)

Level 1

Level 2

Level 3

Total fair value

 

Assets

 

 

 

 

 

Securities in “Marketable securities and short-term investments”:

 

 

 

 

 

Equity securities

195

195

 

Debt securities—U.S. government obligations

293

293

 

Debt securities—Corporate

63

63

 

Derivative assets—current in “Other current assets”

198

198

 

Derivative assets—non-current in “Other non-current assets”

136

136

 

Total

293

592

885

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Derivative liabilities—current in “Other current liabilities”

324

324

 

Derivative liabilities—non-current in “Other non-current liabilities”

46

46

 

Total

370

370



 

19              Q1 2020 Financial Information  


 

 

 

December 31, 2019

 

($ in millions)

Level 1

Level 2

Level 3

Total fair value

 

Assets

 

 

 

 

 

Securities in “Marketable securities and short-term investments”:

 

 

 

 

 

Equity securities

304

304

 

Debt securities—U.S. government obligations

197

197

 

Debt securities—Corporate

65

65

 

Derivative assets—current in “Other current assets”

120

120

 

Derivative assets—non-current in “Other non-current assets”

104

104

 

Total

197

593

790

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Derivative liabilities—current in “Other current liabilities”

143

143

 

Derivative 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 adjusted the carrying value of the solar inverters business which was sold in February 2020 (See Note 3 for details). There were no additional significant non-recurring fair value measurements during the three months ended March 31, 2020 and 2019.

 

Disclosure about financial instruments carried on a cost basis

The fair values of financial instruments carried on a cost basis were as follows:

 

 

 

March 31, 2020

 

($ in millions)

Carrying value

 

Level 1

Level 2

Level 3

Total fair value

 

Assets

 

 

 

 

 

 

 

Cash and equivalents (excluding securities with original

 

 

 

 

 

 

 

maturities up to 3 months):

 

 

 

 

 

 

 

Cash

2,036

 

2,036

2,036

 

Time deposits

3,935

 

3,935

3,935

 

Other non-current assets:

 

 

 

 

 

 

 

Loans granted

32

 

34

34

 

Restricted time deposits

42

 

42

42

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Short-term debt and current maturities of long-term debt

 

 

 

 

 

 

 

(excluding finance lease obligations)

5,890

 

1,499

4,391

5,890

 

Long-term debt (excluding finance lease obligations)

6,695

 

6,069

779

6,848



 

20              Q1 2020 Financial Information  


 

 

 

December 31, 2019

 

($ in millions)

Carrying value

 

Level 1

Level 2

Level 3

Total fair value

 

Assets

 

 

 

 

 

 

 

Cash and equivalents (excluding securities with original

 

 

 

 

 

 

 

maturities up to 3 months):

 

 

 

 

 

 

 

Cash

2,111

 

2,111

2,111

 

Time deposits

1,433

 

1,433

1,433

 

Marketable securities and short-term investments

 

 

 

 

 

 

 

Other non-current assets:

 

 

 

 

 

 

 

Loans granted

30

 

31

31

 

Restricted time deposits

37

 

37

37

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Short-term debt and current maturities of long-term debt

 

 

 

 

 

 

 

(excluding finance lease obligations)

2,270

 

1,534

736

2,270

 

Long-term 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), and Marketable securities and short-term investments (excluding securities): The carrying amounts approximate the fair values as the items are short-term in nature.

·           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 7

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. The SFO has commenced an investigation into this matter. The Company is cooperating fully with the authorities. At this time, it is not possible for the Company to make an informed judgment about the outcome of these matters.

 

Based on findings during an internal investigation, the Company self-reported to the SEC and the DoJ, to various authorities in South Africa and other countries as well as to certain multilateral financial institutions 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.

 

Liabilities recognized

At March 31, 2020, and December 31, 2019, the Company had aggregate liabilities of $163 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. 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 material adverse outcomes beyond the amounts accrued.

21              Q1 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 potential payments ($ in millions)

March 31, 2020

December 31, 2019

 

Performance guarantees

1,800

1,860

 

Financial guarantees

10

10

 

Indemnification guarantees

50

64

 

Total(1)

1,860

1,934

(1) 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 March 31, 2020, and December 31, 2019, 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 2027, 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 eight 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 March 31, 2020, and December 31, 2019, the maximum potential payable under these guarantees amounts to $865 million and $898 million, respectively, and these guarantees have various maturities ranging from one to ten years.

 

Commercial commitments

In addition, in the normal course of bidding for and executing certain projects, the Company has entered into standby letters of credit, bid/performance bonds and surety bonds (collectively “performance bonds”) with various financial institutions. Customers can draw on such performance bonds in the event that the Company does not fulfill its contractual obligations. The Company would then have an obligation to reimburse the financial institution for amounts paid under the performance bonds. At March 31, 2020, and December 31, 2019, the total outstanding performance bonds aggregated to $6.6 billion and $6.8 billion, respectively, of which $3.6 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 three months ended March 31, 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 millions)

2020

2019

 

Balance at January 1,

816

948

 

Net change in warranties due to acquisitions, divestments and liabilities held for sale(1)

7

14

 

Claims paid in cash or in kind

(52)

(68)

 

Net increase in provision for changes in estimates, warranties issued and warranties expired

28

51

 

Exchange rate differences

(29)

(8)

 

Balance at March 31,

770

937

(1)   Includes adjustments to the initial purchase price allocation recorded during the measurement period.

22              Q1 2020 Financial Information  


 

Note 8

Contract assets and liabilities

 

The following table provides information about Contract Assets and Contract Liabilities:

 

 

($ in millions)

March 31, 2020

December 31, 2019

March 31, 2019

 

Contract assets

1,038

1,025

1,094

 

Contract liabilities

1,665

1,719

1,690

 

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:

 

 

 

Three months ended March 31,

 

 

2020

 

2019

 

 

Contract

 

Contract

 

Contract

 

Contract

 

($ in millions)

assets

 

liabilities

 

assets

 

liabilities

 

Revenue recognized, which was included in the Contract liabilities balance at Jan 1, 2020/2019

 

 

(513)

 

 

(420)

 

Additions to Contract liabilities - excluding amounts recognized as revenue during the period

 

 

526

 

 

406

 

Receivables recognized that were included in the Contract asset balance at Jan 1, 2020/2019

(276)

 

 

 

(311)

 

 

At March 31, 2020, the Company had unsatisfied performance obligations totaling $13,698 million and, of this amount, the Company expects to fulfill approximately 68 percent of the obligations in 2020, approximately 20 percent of the obligations in 2021 and the balance thereafter.



Note 9

Debt

 

The Company’s total debt at March 31, 2020, and December 31, 2019, amounted to $12,743 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 millions)

March 31, 2020

December 31, 2019

 

Short-term debt

4,431

838

 

Current maturities of long-term debt

1,482

1,449

 

Total

5,913

2,287

 

Short-term debt primarily represented issued commercial paper and short-term bank borrowings from various banks. At March 31, 2020, and December 31, 2019, $1,852 million and $706 million, respectively, was outstanding under the $2 billion commercial paper program in the United States. At March 31, 2020, $274 million was outstanding under the $2 billion Euro-commercial paper program. No amount was outstanding under this program at December 31, 2019.

 

On March 25, 2020, the Company entered into a bank-funded short-term EUR 2 billion Revolving Credit Agreement (the “Agreement”). The Agreement provides for fixed-term euro‑denominated borrowings up to a maximum principal of EUR 2 billion and expires after six months, with the option for the Company to extend the Agreement to December 15, 2020. Outstanding amounts are subject to interest at the rate of EURIBOR plus a margin of 0.25 percent until July 14, 2020, and then a margin of 0.50 percent until the initial expiration of the Agreement. Any amounts outstanding during the optional extension period would be subject to a margin of 0.75 percent. The maximum principal available to be borrowed will be reduced by any net proceeds received from the issuance of public debt exceeding EUR 500 million. In addition, the Agreement will terminate and all outstanding amounts will be due 15 days after the completion of the sale of the Power Grids business. 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.

 

At March 31, 2020, the Company continues to have access to the full amount under its existing $2 billion revolving credit facility.

 

Long-term debt

The Company’s long-term debt at March 31, 2020, and December 31, 2019, amounted to $6,830 million and $6,772 million, respectively.

 

23              Q1 2020 Financial Information  


 

Outstanding bonds (including maturities within the next 12 months) were as follows:

 

 

 

March 31, 2020

December 31, 2019

 

(in millions)

Nominal outstanding

 Carrying value(1)

Nominal outstanding

 Carrying value(1)

 

Bonds:

 

 

 

 

 

 

 

 

 

2.8% USD Notes, due 2020

USD

300

$

300

USD

300

$

300

 

Floating EUR Notes, due 2020

EUR

1,000

$

1,096

EUR

1,000

$

1,122

 

4.0% USD Notes, due 2021

USD

650

$

648

USD

650

$

648

 

2.25% CHF Bonds, due 2021

CHF

350

$

373

CHF

350

$

373

 

5.625% USD Notes, due 2021

USD

250

$

259

USD

250

$

260

 

2.875% USD Notes, due 2022

USD

1,250

$

1,291

USD

1,250

$

1,267

 

3.375% USD Notes, due 2023

USD

450

$

448

USD

450

$

448

 

0.625% EUR Instruments, due 2023

EUR

700

$

781

EUR

700

$

799

 

0.75% EUR Instruments, due 2024

EUR

750

$

843

EUR

750

$

859

 

0.3% CHF Notes, due 2024

CHF

280

$

289

CHF

280

$

288

 

3.8% USD Notes, due 2028

USD

750

$

746

USD

750

$

746

 

1.0% CHF Notes, due 2029

CHF

170

$

176

CHF

170

$

175

 

4.375% USD Notes, due 2042

USD

750

$

724

USD

750

$

724

 

Total  

 

 

$

7,974

 

 

$

8,009

(1) USD carrying values include unamortized debt issuance costs, bond discounts or premiums, as well as adjustments for fair value hedge accounting, where appropriate.

 

On April 3, 2020, the Company repaid at maturity its USD300 million 2.8% Notes.



Note 10

Income taxes

 

In calculating the provision for income taxes, 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 19.5 percent in the three months ended March 31, 2020, was lower than the effective tax rate of 27.2 percent in the three months ended March 31, 2019, primarily due to a favorable resolution of an uncertain tax position partially offset by increases to the valuation allowance in certain countries.



Note 11

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.

 

24              Q1 2020 Financial Information  


 

The following tables include amounts relating to defined benefit pension plans and other postretirement benefits for both continuing and discontinued operations.

 

Net periodic benefit cost of the Company’s defined benefit pension and other postretirement benefit plans consisted of the following:

 

 

($ in millions)

Defined pension benefits

 

Other postretirement

 

 

Switzerland

International

 

benefits

 

Three months ended March 31,

2020

2019

2020

2019

 

2020

2019

 

Operational pension cost:

 

 

 

 

 

 

 

 

Service cost

22

19

27

28

 

 

Operational pension cost

22

19

27

28

 

 

Non-operational pension cost (credit):

 

 

 

 

 

 

 

 

Interest cost

4

32

44

 

1

1

 

Expected return on plan assets

(31)

(28)

(63)

(70)

 

 

Amortization of prior service cost (credit)

(4)

(4)

1

1

 

(1)

(1)

 

Amortization of net actuarial loss

2

25

27

 

(1)

(1)

 

Curtailments, settlements and special termination benefits

1

 

 

Non-operational pension cost (credit)

(33)

(28)

(5)

3

 

(1)

(1)

 

Net periodic benefit cost (credit)

(11)

(9)

22

31

 

(1)

(1)

 

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 $12 million and $10 million, for the three months ended March 31, 2020 and 2019, respectively, related to discontinued operations.

 

Employer contributions were as follows:

 

 

($ in millions)

Defined pension benefits

 

Other postretirement

 

 

Switzerland

International

 

benefits

 

Three months ended March 31,

2020

2019

2020

2019

 

2020

2019

 

Total contributions to defined benefit pension and

 

 

 

 

 

 

 

 

other postretirement benefit plans

24

23

21

24

 

1

2

 

The Company expects to make contributions totaling approximately $349 million and $10 million to its defined pension plans and other postretirement benefit plans, respectively, for the full year 2020.

 

Note 12

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.

 



25              Q1 2020 Financial Information  


 

Note 13

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

 

 

 

 

 

Three months ended March 31,

 

($ in millions, except per share data in $)

 

 

2020

2019

 

Amounts attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

 

 

325

397

 

Income from discontinued operations, net of tax

 

 

51

138

 

Net income

 

 

376

535

 

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions)

 

 

2,134

2,132

 

 

 

 

 

 

 

Basic earnings per share attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

 

 

0.15

0.19

 

Income from discontinued operations, net of tax

 

 

0.02

0.06

 

Net income

 

 

0.18

0.25

 

 

 

 

 

 

 

Diluted earnings per share

 

 

 

 

 

Three months ended March 31,

 

($ in millions, except per share data in $)

 

 

2020

2019

 

Amounts attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

 

 

325

397

 

Income from discontinued operations, net of tax

 

 

51

138

 

Net income

 

 

376

535

 

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions)

 

 

2,134

2,132

 

Effect of dilutive securities:

 

 

 

 

 

Call options and shares

 

 

4

2

 

Adjusted weighted-average number of shares outstanding (in millions)

 

 

2,138

2,134

 

 

 

 

 

 

 

Diluted earnings per share attributable to ABB shareholders:

 

 

 

 

 

Income from continuing operations, net of tax

 

 

0.15

0.19

 

Income from discontinued operations, net of tax

 

 

0.02

0.06

 

Net income

 

 

0.18

0.25



26              Q1 2020 Financial Information  


 

Note 14

Reclassifications out of accumulated other comprehensive loss

 

The following table shows changes in “Accumulated other comprehensive loss” (OCI) attributable to ABB, by component, net of tax:

 

 

 

 

Unrealized gains

Pension and

Unrealized gains

 

 

 

Foreign currency

(losses) on

other

(losses) of cash

 

 

 

translation

available-for-sale

postretirement

flow hedge

 

 

($ in millions)

adjustments

securities

plan adjustments

derivatives

Total OCI

 

Balance at January 1, 2019

(3,324)

(4)

(1,967)

(16)

(5,311)

 

Cumulative effect of changes in

 

 

 

 

 

 

accounting principles(1)

-

(36)

(36)

 

Other comprehensive (loss) income:

 

 

 

 

 

 

Other comprehensive (loss) income

 

 

 

 

 

 

before reclassifications

(45)

4

18

(23)

 

Amounts reclassified from OCI

2

15

4

21

 

Total other comprehensive (loss) income

(45)

6

33

4

(2)

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

Amounts attributable to

 

 

 

 

 

 

noncontrolling interests

6

6

 

Balance at March 31, 2019

(3,375)

2

(1,970)

(12)

(5,355)



 

 

 

 

Unrealized gains

Pension and

Unrealized gains

 

 

 

Foreign currency

(losses) on

other

(losses) of cash

 

 

 

translation

available-for-sale

postretirement

flow hedge

 

 

($ in millions)

adjustments

securities

plan adjustments

derivatives

Total OCI

 

Balance at January 1, 2020

(3,450)

10

(2,145)

(5)

(5,590)

 

Other comprehensive (loss) income:

 

 

 

 

 

 

Other comprehensive (loss) income

 

 

 

 

 

 

before reclassifications

(696)

9

74

(19)

(632)

 

Amounts reclassified from OCI

99

-

16

10

125

 

Total other comprehensive (loss) income

(597)

9

90

(9)

(507)

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

Amounts attributable to

 

 

 

 

 

 

noncontrolling interests

(8)

(8)

 

Balance at March 31, 2020

(4,039)

19

(2,055)

(14)

(6,089)

(1) Amount relates to the adoption of an accounting standard update in 2019 regarding the Tax Cuts and Jobs Act of 2017.

 

The following table reflects amounts reclassified out of OCI in respect of Foreign currency translation adjustments and Pension and other postretirement plan adjustments:

 

 

($ in millions)

 

Three months ended March 31,

 

Details about OCI components

Location of (gains) losses reclassified from OCI

2020

2019

 

Foreign currency translation adjustments:

 

 

 

 

Translation loss on solar inverters business (see Note 3)

Other income (expense), net

99

 

 

 

 

 

 

Pension and other postretirement plan adjustments:

 

 

 

 

Amortization of prior service cost

Non-operational pension (cost) credit(1)

(4)

(4)

 

Amortization of net actuarial loss

Non-operational pension (cost) credit(1)

26

26

 

Total before tax

 

22

22

 

Tax

Provision for taxes

(6)

(7)

 

Amounts reclassified from OCI

 

16

15

(1) Amounts include total credits of $3 million for each of the three months ended March 31, 2020 and 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 three months ended March 31, 2020 and 2019.

 

27              Q1 2020 Financial Information  


 

Note 15

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. The program is expected to be performed over two years and incur restructuring expenses of $350 million, primarily relating to employee severance costs.

 

The following table outlines the costs incurred in the three months ended March 31, 2020 and 2019, respectively, the cumulative costs incurred up to March 31, 2020, and the total amount of costs expected to be incurred under the program per operating segment:

 

 

 

 

Cost incurred(1)

Cumulative net

Total

 

 

 

 

Three months ended March 31,

cost incurred up to

expected

 

($ in millions)

 

 

2020

2019

March 31, 2020(1)

costs(1)

 

Electrification

 

 

2

(2)

52

80

 

Industrial Automation

 

 

24

40

 

Motion

 

 

7

50

 

Robotics & Discrete Automation

 

 

6

14

20

 

Corporate and Other

 

 

10

1

75

160

 

Total

 

 

18

(1)

172

350

(1)  Costs incurred, Cumulative net cost incurred up to March 31, 2020, and Total expected costs have been recast to reflect the reorganization of the Company’s operating segments as outlined in Note 16.

 

Of the total expected costs of $350 million the majority is related to employee severance costs. The Company recorded the following expenses, net of changes in estimates, under this program:

 

 

 

 

 

 

Cumulative costs

 

 

 

Three months ended March 31,

 incurred up to

 

($ in millions)

 

2020

2019

March 31, 2020

 

Employee severance costs

 

15

(1)

161

 

Estimated contract settlement, loss order and other costs

 

2

3

 

Inventory and long-lived asset impairments

 

1

8

 

Total

 

18

(1)

172

 

Expenses, net of changes in estimates, associated with this program are recorded in the following line items in the Consolidated Income Statements:

 

 

 

 

 

Three months ended March 31,

 

($ in millions)

 

 

2020

2019

 

Total cost of sales

 

 

3

(1)

 

Other income (expense), net

 

 

15

 

Total

 

 

18

(1)

 

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 March 31, 2020, by expense type:

 

 

 

 

Employee

Contract settlement,

 

 

($ in millions)

 

severance costs

loss order and other costs

Total

 

Liability at January 1, 2018

 

 

Expenses

 

65

65

 

Liability at December 31, 2018

 

65

65

 

Expenses

 

111

1

112

 

Cash payments

 

(44)

(1)

(45)

 

Change in estimates

 

(30)

(30)

 

Exchange rate differences

 

(3)

(3)

 

Liability at December 31, 2019

 

99

99

 

Expenses

 

17

2

19

 

Cash payments

 

(29)

(1)

(30)

 

Change in estimates

 

(2)

(2)

 

Exchange rate differences

 

(2)

1

(1)

 

Liability at March 31, 2020

 

83

2

85

 

28              Q1 2020 Financial Information  


 

Other restructuring-related activities

In the three months ended March 31, 2019, the Company executed various other restructuring-related activities and incurred expenses of $50 million.  This amount relates mainly to employee severance costs which were primarily recorded in Total Cost of sales and Selling, general and administrative expenses. In the three months ended March 31, 2020, expenses in relation to various other restructuring-related-related activities were not significant.

 

At March 31, 2020, and December 31, 2019, $153 million and $189 million, respectively, was recorded for other restructuring-related liabilities and is primarily included in “Other provisions”.



Note 16

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 sustainable, smarter and safer electrical flow from the substation to the socket. The portfolio of increasingly digital and connected solutions includes electric vehicle charging infrastructure, solar 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.

 

·           Industrial Automation: develops and sells integrated automation and electrification systems and solutions, such as process and discrete control solutions, advanced process control software and manufacturing execution systems, sensing, measurement and analytical instrumentation and solutions, electric ship propulsion systems, as well as large turbochargers. In addition, the business offers a comprehensive range of services ranging from repair to advanced services such as remote monitoring, preventive maintenance and cybersecurity services.

 

·           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.

 

·           Robotics & Discrete Automation: develops and sells robotics and machinery automation solutions, including robots, controllers, software, function packages, cells, programmable logic controllers (PLC), industrial PCs (IPC), servo motion, engineered manufacturing solutions, turn-key solutions and collaborative robot solutions for a wide range of applications. In addition, the business offers a comprehensive range of digital solutions as well as field and after sales service.

 

·           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:

 

·           amortization expense on intangibles arising upon acquisitions (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,

·           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 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.

 

29              Q1 2020 Financial Information  


 

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 three months ended March 31, 2020 and 2019, as well as total assets at March 31, 2020, and December 31, 2019.

 

 

 

Three months ended March 31, 2020

 

 

 

 

 

Robotics &

 

 

 

 

 

Industrial

 

Discrete

Corporate

 

 

($ in millions)

Electrification

Automation

Motion

Automation

and Other

Total

 

Geographical markets 

 

 

 

 

 

 

 

Europe

964

577

451

353

26

2,371

 

The Americas

1,031

390

569

103

2,092

 

of which: United States

801

247

492

70

1,610

 

Asia, Middle East and Africa

678

459

368

198

3

1,706

 

of which: China

283

110

154

119

666

 

 

2,673

1,426

1,388

654

28

6,169

 

End Customer Markets 

 

 

 

 

 

 

 

Utilities

431

236

161

2

830

 

Industry

1,285

829

884

636

6

3,640

 

Transport & infrastructure

957

361

343

18

20

1,699

 

 

2,673

1,426

1,388

654

28

6,169

 

Product type 

 

 

 

 

 

 

 

Products

2,362

306

1,198

387

25

4,278

 

Systems

112

396

157

3

668

 

Services and other

199

724

190

110

1,223

 

 

2,673

1,426

1,388

654

28

6,169

 

 

 

 

 

 

 

 

 

Third-party revenues

2,673

1,426

1,388

654

28

6,169

 

Intersegment revenues(1)

100

36

122

17

(228)

47

 

Total Revenues(2)

2,773

1,462

1,510

671

(200)

6,216

 

 

 

Three months ended March 31, 2019

 

 

 

 

 

Robotics &

 

 

 

 

 

Industrial

 

Discrete

Corporate

 

 

($ in millions)

Electrification

Automation

Motion

Automation

and Other

Total

 

Geographical markets 

 

 

 

 

 

 

 

Europe

983

585

442

421

16

2,447

 

The Americas

1,106

372

600

120

2,198

 

of which: United States

862

229

515

75

1,680

 

Asia, Middle East and Africa

865

533

432

297

22

2,149

 

of which: China

399

147

202

221

969

 

 

2,954

1,490

1,474

838

38

6,794

 

End Customer Markets 

 

 

 

 

 

 

 

Utilities

460

249

147

3

859

 

Industry

1,151

893

990

822

27

3,883

 

Transport & infrastructure

1,343

348

337

16

8

2,052

 

 

2,954

1,490

1,474

838

38

6,794

 

Product type 

 

 

 

 

 

 

 

Products

2,577

355

1,267

477

39

4,715

 

Systems

140

417

236

(1)

792

 

Services and other

237

718

207

125

1,287

 

 

2,954

1,490

1,474

838

38

6,794

 

 

 

 

 

 

 

 

 

Third-party revenues

2,954

1,490

1,474

838

38

6,794

 

Intersegment revenues(1)

103

28

131

13

(222)

53

 

Total Revenues(2)

3,057

1,518

1,605

851

(184)

6,847

(1)   Intersegment revenues include sales to the Power Grids business which is presented as discontinued operations and are not eliminated from Total revenues.

(2)   Due to rounding, numbers presented may not add to the totals provided.

 

 

30              Q1 2020 Financial Information  


 

 

 

Three months ended

 

 

March 31,

 

($ in millions)

2020

2019

 

Operational EBITA:

 

 

 

Electrification

318

377

 

Industrial Automation

144

205

 

Motion

230

263

 

Robotics & Discrete Automation

59

95

 

Corporate and Other

 

 

 

Non-core business activities

(11)

(40)

 

‒ Stranded corporate costs

(21)

(67)

 

‒ Corporate costs and intersegment elimination

(83)

(67)

 

Total

636

766

 

Acquisition-related amortization

(65)

(68)

 

Restructuring, related and implementation costs(1)

(40)

(68)

 

Changes in obligations related to divested businesses

(3)

 

Gains and losses from sale of businesses

(1)

(1)

 

Fair value adjustment on assets and liabilities held for sale

(19)

 

Acquisition- and divestment-related expenses and integration costs

(11)

(24)

 

Foreign exchange/commodity timing differences in income from operations:

 

 

 

Unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives)

(74)

6

 

Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized

(4)

(1)

 

Unrealized foreign exchange movements on receivables/payables (and related assets/liabilities)

(2)

16

 

Certain other non-operational items:

 

 

 

Costs for planned divestment of Power Grids

(44)

(20)

 

Regulatory, compliance and legal costs

(8)

 

Business transformation costs

(7)

(3)

 

Executive Committee transition costs

2

 

Other non-operational items

2

(2)

 

Income from operations

373

590

 

Interest and dividend income

18

19

 

Interest and other finance expense

(22)

(62)

 

Non-operational pension (cost) credit

36

23

 

Income from continuing operations before taxes

405

570

 (1) At March 31, 2020 and 2019, amounts include $16 million and $19 million of implementation costs in relation to the OS program, respectively.

 

 

 

 

Total assets(1), (2)

 

($ in millions)

March 31, 2020

December 31, 2019

 

Electrification

11,812

11,671

 

Industrial Automation

4,515

4,559

 

Motion

6,138

6,149

 

Robotics & Discrete Automation

4,605

4,661

 

Corporate and Other

21,033

19,068

 

Consolidated

48,103

46,108

(1) Total assets are after intersegment eliminations and therefore reflect third-party assets only.

(2) At March 31, 2020, and December 31, 2019, respectively, Corporate and Other includes $9,898 million and $9,840 million of assets in the Power Grids business which is reported as discontinued operations (see Note 3).

 

 

31              Q1 2020 Financial Information  


 

 

32              Q1 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 three months ended March 31, 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

 

 

Q1 2020 compared to Q1 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%

2%

3%

-2%

 

-9%

1%

1%

-7%

 

Industrial Automation

5%

3%

0%

8%

 

-4%

3%

0%

-1%

 

Motion

5%

3%

0%

8%

 

-6%

2%

0%

-4%

 

Robotics & Discrete Automation

-16%

2%

0%

-14%

 

-21%

2%

0%

-19%

 

ABB Group

-4%

3%

2%

1%

 

-9%

1%

1%

-7%



Regional comparable growth rate reconciliation

 

 

Q1 2020 compared to Q1 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

1%

3%

1%

5%

 

-3%

3%

0%

0%

 

The Americas

0%

1%

1%

2%

 

-5%

1%

0%

-4%

 

Asia, Middle East and Africa

-12%

2%

3%

-7%

 

-21%

2%

2%

-17%

 

ABB Group

-4%

3%

2%

1%

 

-9%

1%

1%

-7%



33              Q1 2020 Financial Information  


 

Order backlog growth rate reconciliation

 

 

March 31, 2020 compared to March 31, 2019

 

 

 

US$

Foreign

 

 

 

 

 

(as

exchange

Portfolio

 

 

 

Business

reported)

impact

changes

Comparable

 

 

Electrification

0%

4%

5%

9%

 

 

Industrial Automation

1%

5%

0%

6%

 

 

Motion

11%

4%

0%

15%

 

 

Robotics & Discrete Automation

-7%

5%

0%

-2%

 

 

ABB Group

-1%

4%

5%

8%

 



Other growth rate reconciliations

 

 

Q1 2020 compared to Q1 2019

 

 

 

 

US$

Foreign

 

 

 

 

 

 

 

 

 

(as

exchange

Portfolio

 

 

 

 

 

 

 

 

reported)

impact

changes

Comparable

 

 

 

 

 

 

Service orders

-7%

3%

0%

-4%

 

 

 

 

 

 

Service revenues

-5%

3%

0%

-2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34              Q1 2020 Financial Information  


 

Operational EBITA as % of operational revenues (Operational EBITA margin)

 

Definition

Operational EBITA margin

Operational EBITA margin is Operational EBITA as a percentage of Operational revenues.

 

Operational EBITA

Operational earnings before interest, taxes and acquisition-related amortization (Operational EBITA) represents Income from operations excluding:

·           acquisition-related amortization (as defined below),

·           restructuring, related and implementation costs,

·           changes in the amount recorded for obligations related to divested businesses occurring after the divestment date (changes in obligations related to divested businesses),

·           changes in estimates relating to opening balance sheets of acquired businesses (changes in pre-acquisition estimates),

·           gains and losses from sale of businesses (including fair value adjustment on assets and liabilities held for sale),

·           acquisition- and divestment-related expenses and integration costs,

·           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 as well as other items which are determined by management on a case-by-case basis.

 

Operational EBITA is our measure of segment profit but is also used by management to evaluate the profitability of the Company as a whole.

 

Acquisition-related amortization

Amortization expense on intangibles arising upon acquisitions.

 

Restructuring, related and implementation costs

Restructuring, related and implementation costs consists of restructuring and other related expenses, as well as internal and external costs relating to the implementation of group-wide restructuring programs.

 

Operational revenues

The Company presents Operational revenues solely for the purpose of allowing the computation of Operational EBITA margin. Operational revenues are total revenues adjusted for foreign exchange/commodity timing differences in total revenues of: (i) unrealized gains and losses on derivatives, (ii) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (iii) unrealized foreign exchange movements on receivables (and related assets). Operational revenues are not intended to be an alternative measure to Total Revenues, which represent our revenues measured in accordance with U.S. GAAP.

 

Reconciliation

The following tables provide reconciliations of consolidated Operational EBITA to Net Income and Operational EBITA Margin by business.

 

Reconciliation of consolidated Operational EBITA to Net Income

 

 

Three months ended March 31,

 

($ in millions)

2020

2019

 

Operational EBITA

636

766

 

Acquisition-related amortization

(65)

(68)

 

Restructuring, related and implementation costs(1)

(40)

(68)

 

Changes in obligations related to divested businesses

(3)

 

Gains and losses from sale of businesses

(1)

(1)

 

Fair value adjustments on assets and liabilities held for sale

(19)

 

Acquisition- and divestment-related expenses and integration costs

(11)

(24)

 

Certain other non-operational items

(47)

(33)

 

Foreign exchange/commodity timing differences in income from operations

(80)

21

 

Income from operations

373

590

 

Interest and dividend income

18

19

 

Interest and other finance expense

(22)

(62)

 

Non-operational pension (cost) credit

36

23

 

Income from continuing operations before taxes

405

570

 

Provision for taxes

(79)

(155)

 

Income from continuing operations, net of tax

326

415

 

Income from discontinued operations, net of tax

54

149

 

Net income

380

564

(1) Amounts in the three months ended March 31, 2020 and 2019, include $16 million and $19 million of implementation costs in relation to the OS program, respectively.

35              Q1 2020 Financial Information  


 

Reconciliation of Operational EBITA margin by business

 

 

 

Three months ended March 31, 2020

 

 

 

 

 

 

Corporate and

 

 

 

 

 

 

Robotics &

Other and

 

 

 

 

Industrial

 

Discrete

Intersegment

 

 

($ in millions, unless otherwise indicated)

Electrification

Automation

Motion

Automation

elimination

Consolidated

 

Total revenues

2,773

1,462

1,510

671

(200)

6,216

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

38

29

10

6

3

86

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

1

8

(2)

7

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

(29)

(20)

(13)

(8)

2

(68)

 

Operational revenues

2,783

1,479

1,507

669

(197)

6,241

 

 

 

 

 

 

 

 

 

Income (loss) from operations

199

124

191

32

(173)

373

 

Acquisition-related amortization

28

1

13

19

4

65

 

Restructuring, related and

 

 

 

 

 

 

 

implementation costs

15

3

2

7

13

40

 

Changes in obligations related to

 

 

 

 

 

 

 

divested businesses

 

Gains and losses from sale of businesses

1

1

 

Fair value adjustment on assets and liabilities

 

 

 

 

 

 

 

held for sale

19

19

 

Acquisition- and divestment-related expenses

 

 

 

 

 

 

 

and integration costs

11

11

 

Certain other non-operational items

5

1

41

47

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

42

18

19

2

(7)

74

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

6

(2)

4

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

3

(8)

(2)

9

2

 

Operational EBITA

318

144

230

59

(115)

636

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

11.4%

9.7%

15.3%

8.8%

n.a.

10.2%

 

In the three months ended March 31, 2020, Certain other non-operational items in the table above includes the following:

 

 

 

Three months ended March 31, 2020

 

 

 

 

 

Robotics &

 

 

 

 

 

Industrial

 

Discrete

Corporate

 

 

($ in millions, unless otherwise indicated)

Electrification

Automation

Motion

Automation

and Other

Consolidated

 

Certain other non-operational items:

 

 

 

 

 

 

 

Costs for planned divestment of Power Grids

44

44

 

Business transformation costs

5

1

1

7

 

Executive Committee transition costs

(2)

(2)

 

Other non-operational items

(2)

(2)

 

Total

5

1

41

47

 

36              Q1 2020 Financial Information  


 

 

 

Three months ended March 31, 2019

 

 

 

 

 

 

Corporate and

 

 

 

 

 

 

Robotics &

Other and

 

 

 

 

Industrial

 

Discrete

Intersegment

 

 

($ in millions, unless otherwise indicated)

Electrification

Automation

Motion

Automation

elimination

Consolidated

 

Total revenues

3,057

1,518

1,605

851

(184)

6,847

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in total revenues:

 

 

 

 

 

 

 

Unrealized gains and losses

 

 

 

 

 

 

 

on derivatives

(1)

1

(2)

(1)

(3)

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

(4)

(1)

1

(4)

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables (and related assets)

(4)

3

(1)

(2)

(4)

 

Operational revenues

3,052

1,518

1,605

847

(186)

6,836

 

 

 

 

 

 

 

 

 

Income (loss) from operations

297

195

251

77

(230)

590

 

Acquisition-related amortization

29

1

14

20

4

68

 

Restructuring, related and

 

 

 

 

 

 

 

implementation costs

40

5

3

1

19

68

 

Changes in obligations related to

 

 

 

 

 

 

 

divested businesses

3

3

 

Gains and losses from sale of businesses

1

1

 

Acquisition- and divestment-related expenses

 

 

 

 

 

 

 

and integration costs

22

2

24

 

Certain other non-operational items

1

2

3

27

33

 

Foreign exchange/commodity timing

 

 

 

 

 

 

 

differences in income from operations:

 

 

 

 

 

 

 

Unrealized gains and losses on derivatives

 

 

 

 

 

 

 

(foreign exchange, commodities,

 

 

 

 

 

 

 

embedded derivatives)

(8)

5

(6)

(2)

5

(6)

 

Realized gains and losses on derivatives

 

 

 

 

 

 

 

where the underlying hedged

 

 

 

 

 

 

 

transaction has not yet been realized

2

(1)

1

 

Unrealized foreign exchange movements

 

 

 

 

 

 

 

on receivables/payables

 

 

 

 

 

 

 

(and related assets/liabilities)

(7)

(2)

(2)

(1)

(4)

(16)

 

Operational EBITA

377

205

263

95

(174)

766

 

 

 

 

 

 

 

 

 

Operational EBITA margin (%)

12.4%

13.5%

16.4%

11.2%

n.a.

11.2%

 

In the three months ended March 31, 2019, Certain other non-operational items in the table above includes the following:

 

 

 

Three months ended March 31, 2019

 

 

 

 

 

Robotics &

 

 

 

 

 

Industrial

 

Discrete

Corporate

 

 

($ in millions, unless otherwise indicated)

Electrification

Automation

Motion

Automation

and Other

Consolidated

 

Certain other non-operational items:

 

 

 

 

 

 

 

Costs for planned divestment of Power Grids

20

20

 

Regulatory, compliance and legal costs

8

8

 

Business transformation costs

3

3

 

Other non-operational items

1

2

(1)

2

 

Total

1

2

3

27

33

37              Q1 2020 Financial Information  


 

Operational EPS

 

Definition

Operational EPS

Operational EPS is calculated as Operational net income divided by the weighted-average number of shares outstanding used in determining basic earnings per share.

 

Operational net 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)   certain other non-operational items,

(ix)      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),

(x)       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

(xi)      Certain other non-operational amounts recorded within Provision for taxes.

 

Adjustment for certain non-operational amounts recorded within Provision for taxes

Adjustments are made for certain amounts recorded within Provision 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.

 

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.

 

Adjusted Group effective tax rate

The Adjusted Group effective tax rate is computed by dividing a combined adjusted provision for taxes (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 provision for taxes (primarily gains and losses from sale of businesses) are excluded to arrive at the computation. Amounts recorded in Provision for taxes for certain non-operational items and quantified in the table below are also excluded from the computation of the Adjusted Group effective tax rate.

 

Constant currency 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.

 

38              Q1 2020 Financial Information  


 

Reconciliation

 

 

Three months ended March 31,

 

 

($ in millions, except per share data in $)

2020

2019

Growth(3)

 

Net income (attributable to ABB)

376

535

-30%

 

Non-operational adjustments:

 

 

 

 

Acquisition-related amortization

65

68

 

 

Restructuring, related and implementation costs(1)

40

68

 

 

Non-operational pension cost (credit)

(36)

(23)

 

 

Changes in obligations related to divested businesses

3

 

 

Gains and losses from sale of businesses

1

1

 

 

Fair value adjustment on assets and liabilities held for sale

19

 

 

Acquisition- and divestment-related expenses and integration costs

11

24

 

 

Certain other non-operational items

47

33

 

 

Foreign exchange/commodity timing differences in income from operations

80

(21)

 

 

Non-operational adjustments in discontinued operations

77

(1)

 

 

Tax on non-operational adjustments(2)

(47)

(40)

 

 

Operational net income

633

647

-2%

 

 

 

 

 

 

Weighted-average number of shares outstanding (in millions)

2,134

2,132

 

 

 

 

 

 

 

Operational EPS

0.30

0.30

-2%

 

Constant currency Operational EPS adjustment

 

 

Operational EPS (constant currency basis)

0.30

0.30

-1%

(1) Amounts in the three months ended March 31, 2020 and 2019, include $16 million and $19 million of implementation costs in relation to the OS program, respectively.

(2) Tax amount is computed by applying the Adjusted Group effective tax rate to the operational adjustments, except for certain costs for the planned divestment of the Power Grids business and gains and losses from sale of businesses (including fair value adjustment on assets and liabilities held for sale), for which the actual provision for taxes resulting from the gain or loss has been computed.

(3) Growth is computed using unrounded EPS amounts.




Net debt

 

Definition

Net debt

Net debt is defined as Total debt less Cash and marketable securities.

 

Total debt

Total debt is the sum of Short-term debt and current maturities of long-term debt, and Long-term debt.

 

Cash and marketable securities

Cash and marketable securities is the sum of Cash and equivalents, and Marketable securities and short-term investments.

 

Reconciliation

 

($ in millions)

March 31, 2020

December 31, 2019

 

Short-term debt and current maturities of long-term debt

5,913

2,287

 

Long-term debt

6,830

6,772

 

Total debt

12,743

9,059

 

Cash and equivalents

5,971

3,544

 

Marketable securities and short-term investments

551

566

 

Cash and marketable securities

6,522

4,110

 

Net debt

6,221

4,949

39              Q1 2020 Financial Information  


 

Net working capital as a percentage of revenues

 

Definition

Net working capital as a percentage of revenues

Net working capital as a percentage of revenues is calculated as Net working capital divided by Adjusted revenues for the trailing twelve months.

 

Net working capital

Net working capital is the sum of (i) receivables, net, (ii) contract assets, (iii) inventories, net, and (iv) prepaid expenses; less (v) accounts payable, trade, (vi) contract liabilities, and (vii) other current liabilities (excluding primarily: (a) income taxes payable, (b) current derivative liabilities, and (c) pension and other employee benefits); and including the amounts related to these accounts which have been presented as either assets or liabilities held for sale but excluding any amounts included in discontinued operations.

 

Adjusted revenues for the trailing twelve months

Adjusted revenues for the trailing twelve months includes total revenues recorded by ABB in the twelve months preceding the relevant balance sheet date adjusted to eliminate revenues of divested businesses and the estimated impact of annualizing revenues of certain acquisitions which were completed in the same trailing twelve-month period.

 

Reconciliation

 

($ in millions, unless otherwise indicated)

March 31, 2020

March 31, 2019

 

Net working capital:

 

 

 

Receivables, net

6,288

6,499

 

Contract assets

1,038

1,094

 

Inventories, net

4,358

4,459

 

Prepaid expenses

266

252

 

Accounts payable, trade

(4,170)

(4,081)

 

Contract liabilities

(1,665)

(1,690)

 

Other current liabilities(1)

(2,797)

(3,323)

 

Net working capital

3,318

3,210

 

Total revenues for the three months ended:

 

 

 

March 31, 2020 / 2019

6,216

6,847

 

December 31, 2019 / 2018

7,068

7,395

 

September 30, 2019 / 2018

6,892

7,095

 

June 30, 2019 / 2018

7,171

6,731

 

Adjustment to annualize/eliminate revenues of certain acquisitions/divestments

(404)

495

 

Adjusted revenues for the trailing twelve months

26,943

28,563

 

Net working capital as a percentage of revenues (%)

12.3%

11.2%

(1)  Amounts exclude $717 million and $568 million at March 31, 2020 and 2019, respectively, related primarily to (a) income taxes payable, (b) current derivative liabilities, and (c) pension and other employee benefits.

40              Q1 2020 Financial Information  


 

Free cash flow conversion to net income

 

Definition

Free cash flow conversion to net income

Free cash flow conversion to net income is calculated as free cash flow divided by Net income attributable to ABB.

 

Free cash flow

Free cash flow is calculated as net cash provided by operating activities adjusted for: (i) purchases of property, plant and equipment and intangible assets, and (ii) proceeds from sales of property, plant and equipment.

 

Free cash flow for the trailing twelve months

Free cash flow for the trailing twelve months includes free cash flow recorded by ABB in the twelve months preceding the relevant balance sheet date.

 

Net income for the trailing twelve months

Net income for the trailing twelve months includes net income recorded by ABB in the twelve months preceding the relevant balance sheet date.

 

Free cash flow conversion to net income

 

 

Twelve months to

 

($ in millions, unless otherwise indicated)

March 31, 2020

December 31, 2019

 

Net cash provided by operating activities

2,004

2,325

 

Adjusted for the effects of:

 

 

 

Continuing operations:

 

 

 

Purchases of property, plant and equipment and intangible assets

(718)

(762)

 

Proceeds from sale of property, plant and equipment

57

82

 

Discontinued operations:

 

 

 

Purchases of property, plant and equipment and intangible assets

(157)

(167)

 

Proceeds from sale of property, plant and equipment

9

8

 

Free cash flow

1,195

1,486

 

Net income attributable to ABB

1,280

1,439

 

Free cash flow conversion to net income

93%

103%



Reconciliation of the trailing twelve months to March 31, 2020

 

 

 

Continuing operations

 

Discontinued operations

 

 

($ in millions)

Net cash provided by operating activities

Purchases of property, plant and equipment and intangible assets

Proceeds

from sale of property, plant and equipment

 

Purchases of property, plant and equipment and intangible assets

Proceeds

from sale of property, plant and equipment

Net income attributable

to ABB

 

Q2 2019

(169)

6

 

(38)

1

64

 

Q3 2019

670

(152)

13

 

(38)

8

515

 

Q4 2019

1,911

(234)

15

 

(48)

(1)

325

 

Q1 2020

(577)

(163)

23

 

(33)

1

376

 

Total for the trailing

 

 

 

 

 

 

 

 

twelve months to

 

 

 

 

 

 

 

 

March 31, 2020

2,004

(718)

57

 

(157)

9

1,280




Net finance expenses

 

Definition

Net finance expenses is calculated as Interest and dividend income less Interest and other finance expense.

 

Reconciliation

 

 

Three months ended March 31,

 

($ in millions)

2020

2019

 

Interest and dividend income

18

19

 

Interest and other finance expense

(22)

(62)

 

Net finance expense

(4)

(43)

41              Q1 2020 Financial Information  


 

Book-to-bill ratio

 

Definition

Book-to-bill ratio is calculated as Orders received divided by Total revenues.

 

Reconciliation

 

 

Three months ended March 31,

 

($ in millions, unless otherwise indicated)

2020

2019

 

Orders received

7,346

7,613

 

Total revenues

6,216

6,847

 

Book-to-bill ratio

1.18

1.11

42              Q1 2020 Financial Information  


 

 

 

 

 

 

 

 

 

ABB  Ltd

Corporate Communications

P.O.  Box  8131

8050 Zurich 

Switzerland

Tel:        +41  (0)43  317  71  11

 

www.abb.com     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43              Q1 2020 Financial Information  


 

January — April 1, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABB Ltd announces that the following members of the Executive Committee or Board of Directors of ABB have purchased, sold or been granted ABB’s registered shares, call options and warrant appreciation rights (“WARs”), in the following amounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

Date

 

Description

 

Received *

 

Purchased

 

Sold

 

Price

Timo Ihamuotila

 

April 01, 2020

 

Share

 

76,628

 

 

 

 

 

CHF

16.26

Matti Alahuhta

 

March 23, 2020

 

Share

 

 

 

30,000

 

 

 

CHF

15.45

Jennifer Xin-Zhe Li

 

March 18, 2020

 

Share

 

 

 

20,000

 

 

 

CHF

15.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Received instruments were delivered as part of the ABB Ltd Director’s or Executive Committee Member’s compensation as compensation for foregone benefits

  


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

  

ABB LTD

  

  

  

  

  

  

Date: April 28, 2020.

 By:  

/s/ Jessica Mitchell

  

  

Name:

Jessica Mitchell

  

  

Title:

Group Senior Vice President and
Head of Investor Relations

  

  

  

  

  

  

Date: April 28, 2020.

 By:  

/s/ Richard A. Brown

  

  

Name:

Richard A. Brown

  

  

Title:

Group Senior Vice President and
Chief Counsel Corporate & Finance