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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| ABB Ltd (PK) | USOTC:ABLZF | OTCMarkets | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -1.37 | -2.54% | 52.51 | 48.67 | 59.88 | 54.646 | 52.51 | 53.722 | 1,652 | 22:00:01 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October 2019
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 October 23, 2019 titled “Q3 2019 results”.
2. Q3 2019 Financial Information.
3. Announcements regarding transactions in ABB Ltd’s Securities made by the directors or the members of the Executive Committee.
The information provided by Item 2 above is hereby incorporated by reference into the Registration Statements on Form F-3 of ABB Ltd and ABB Finance (USA) Inc. (File Nos. 333-223907 and 333-223907-01) and registration statements on Form S-8 (File Nos. 333-190180, 333-181583, 333-179472, 333-171971 and 333-129271) each of which was previously filed with the Securities and Exchange Commission.
2
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—
ZURICH, SWITZERLAND, OCTOBER 23, 2019
Q3 2019 results
Holding course in tougher markets
– Total orders -1%1, order backlog +3%
– Steady revenues and book-to-bill2
– Operational EBITA margin2 11.7%, +20 basis points; impacted 70 basis points by stranded costs
– Income from continuing operations, net of tax $422 million, -1%
– Net income $515 million, -15%
– Operational EPS2 $0.33, -7%3
– Cash flow from operating activities $670 million, +19%, solid cash delivery expected for the full year
– Björn Rosengren appointed Chief Executive Officer, effective March 1, 2020
“The Group delivered a robust performance for the quarter in the face of weaker macroeconomic conditions impacting some of our customer markets, above all robotics and automation,” said Peter Voser, Chairman and CEO of ABB.
He added: “We are holding course and pursuing long-term growth, staying firmly focused on managing costs in response to softer demand while progressing our transformation agenda. We continue to drive the strategy forward while instilling a culture of empowerment and high performance.”
|
Key figures |
|
|
ChangE |
|
|
ChangE |
||
|
($ in millions, unless otherwise indicated) |
Q3 2019 |
Q3 2018 |
US $ |
Comparable1 |
9M 2019 |
9M 2018 |
US $ |
Comparable1 |
|
Orders |
6,688 |
6,917 |
-3% |
-1% |
21,702 |
21,605 |
0% |
+1% |
|
Revenues |
6,892 |
7,095 |
-3% |
0% |
20,910 |
20,267 |
+3% |
+2% |
|
Income from operations |
577 |
617 |
-6% |
|
1,290 |
1,951 |
-34% |
|
|
Operational EBITA2 |
806 |
814 |
-1% |
2,397 |
2,421 |
-1% |
+3%4 |
|
|
as % of operational revenues |
11.7% |
11.5% |
+0.2pts |
|
11.5% |
11.9% |
-0.4pts |
|
|
Income (loss) from continuing operations, net of tax |
422 |
427 |
-1% |
|
783 |
1,365 |
-43% |
|
|
Net income attributable to ABB |
515 |
603 |
-15% |
|
1,114 |
1,856 |
-40% |
|
|
Basic EPS ($) |
0.24 |
0.28 |
-15%3 |
|
0.52 |
0.87 |
-40%3 |
|
|
Operational EPS ($)2 |
0.33 |
0.34 |
-3%3 |
-7%3 |
0.98 |
1.03 |
-6%3 |
-5%3 |
|
Cash flow from operating activities5 |
670 |
565 |
+19% |
|
414 |
1,057 |
-61% |
|
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. The company’s results for all periods have been adjusted accordingly.
______
1 Growth rates for orders, order backlog and revenues are on a comparable basis (local currency adjusted for acquisitions and divestitures).
2 For a reconciliation of non-GAAP measures, see “supplemental reconciliations and definitions” in the attached Q3 2019 Financial Information
3 EPS growth rates are computed using unrounded amounts. Comparable operational earnings per share is in constant currency (2014 exchange rates not adjusted for changes in the business portfolio).
4 Constant currency (not adjusted for portfolio changes).
5 Amount represents total for both continuing and discontinued operations.
|
|
1/7 |
Macroeconomic indicators are mixed in Europe and China, while they weaken in the US. Global markets overall remain affected by geopolitical uncertainties.
Compared to the macroeconomic indicators the end-markets ABB operates in are showing resilience, with headwinds in some markets, particularly discrete industries. Oil prices and foreign exchange translation effects are expected to continue to influence the company’s results.
“The Group delivered a solid result in Electrification and Motion while holding up against strong headwinds in Robotics and Discrete Automation. We recognized a negative impact from revaluing a large project in Industrial Automation,” said Timo Ihamuotila, CFO of ABB.
“For the year as a whole we continue to expect slight revenue growth and improved operating margins. We are encouraged to see the integration of GEIS and the roll-out of our ABB-OS operating model starting to improve the performance of the Group for the long-term.”
In the quarter, the Industrial Automation business had a specific project revaluation which reduced total revenues by 1 percent. Operational EBITA margin of 11.7 percent was impacted by a combined 190 basis points, including approximately 90 basis points due to the specific project revaluation in Industrial Automation, approximately 70 basis points from stranded costs and approximately 30 basis points from a charge in the legacy non-core business.
Continuing operations otherwise reflected resilient performance from the businesses, despite headwinds in the Robotics & Discrete Automation business. Compared to the prior year period, the result benefited from a lower run-rate in Corporate & Other operational EBITA consistent with savings delivered through the simplification program, ongoing elimination of stranded costs and improvement in the non-core business.
Net income was, in addition, impacted by lower net income from discontinued operations.
Orders were 1 percent lower (3 percent in US dollars) in the quarter compared to the prior year period. Moderate growth in Industrial Automation and slight growth in Electrification and Motion was outweighed by weaker demand in Robotics & Discrete Automation. Foreign exchange translation effects had a net negative impact of 1 percent on orders and portfolio changes had a net negative impact of 1 percent.
Service orders, which represented 19 percent of total orders, were 2 percent lower (5 percent in US dollars) on a year-on-year basis. Large orders made up 5 percent of orders, down 1 percent on the prior year period.
The order backlog rose 3 percent (3 percent lower in US dollars).
|
Q3 2019 RESULTS |
2/7 |
On a regional basis:
– Orders from Europe were 2 percent lower (6 percent in US dollars). Large country markets including Sweden and Italy held steady. Orders from France, the UK and Spain advanced, while in Switzerland, Finland and Norway orders declined when compared to the prior year period. In Germany, orders were 1 percent lower (5 percent in US dollars).
– Orders from the Americas were 1 percent lower (1 percent in US dollars), with good order development from Canada but mixed performance elsewhere. Orders from the United States were 1 percent lower (1 percent in US dollars).
– In Asia, Middle East and Africa (AMEA), orders were up 1 percent (3 percent lower in US dollars). Orders were lower in China and South Korea, but grew well in India, Japan, Singapore and the UAE. In China, orders were 5 percent lower (7 percent lower in US dollars).
In ABB’s key customer segments:
– In process industries, ongoing operational expenditure, particularly from oil and gas and chemicals customers, was reflected in solid order growth. Conventional power generation markets were subdued.
– In discrete industries, traditional automotive and automotive-sector related industries as well as 3C and machine builders’ markets faced ongoing headwinds which dampened ABB’s growth. ABB continued to see strong growth in warehouse automation.
– In the transport and infrastructure sectors, investments in rail and marine and ports continued, absent the large orders that benefited the comparative period. Strong demand was evident in data centers, e‑mobility and renewables markets. Building activity was robust, with strong growth in building automation solutions.
Revenues were steady (3 percent lower in US dollars). Motion and Electrification were up, however revenues were lower in Industrial Automation and Robotics & Discrete Automation. The Industrial Automation business had a specific project revaluation which reduced total revenues by 1 percent. Changes in exchange rates resulted in a negative translation impact on reported revenues of 2 percent and portfolio changes also had a negative impact of 1 percent.
Service revenues increased 5 percent (3 percent in US dollars). Services represented 19 percent of total revenues.
The book-to-bill ratio for the quarter was 0.97x2, the same level as in the previous year period.
Against a backdrop of continued weakness in some end-markets, ABB expects slight growth in annual revenues on a comparable basis in 2019, supported by its order backlog.
Operational EBITA2 of $806 million was 1 percent lower in US dollars (steady in local currencies). The operational EBITA margin2 of 11.7 percent expanded 20 basis points year-on-year.
Revaluation of an Industrial Automation project lowered the Group operational EBITA margin by approximately 90 basis points in the quarter.
The margin was impacted approximately 70 basis points by stranded costs recognition. Stranded costs are services provided by the Group to Power Grids that do not qualify to be reported as discontinued operations and which the Group expects to be predominantly transferred to Power Grids or eliminated by the closing of the transaction. Stranded costs of $52 million were recognized in the Corporate and Other operational EBITA result, $19 million lower than in the third quarter of 2018.
|
Q3 2019 RESULTS |
3/7 |
Also booked in the Corporate & Other operational EBITA result is a charge in non-core activities that had an approximately 30 basis points impact on Group operational EBITA margin.
ABB expects annual operational EBITA margins to improve in 2019, aided by an improved GEIS performance, ongoing stranded cost elimination, non-core improvement and ABB’s simplification program.
Net income from continuing operations was $422 million, 1 percent lower year-on-year.
Net income from discontinued operations was $97 million, weighed by approximately $80 million of pre‑tax project revaluations of certain large projects in the Power Grids backlog. ABB anticipates a significant improvement in the performance of its discontinued operations from the fourth quarter of 2019 onwards.
Group net income attributable to ABB was $515 million, impacted by lower net income from discontinued operations. Basic earnings per share was $0.24, 15 percent lower year-on-year. Operational earnings per share of $0.332 declined 7 percent3 year-on-year.
Cash flow from operating activities of $670 million compares to $565 million in third quarter of 2018. Versus the prior year period, cash flow from operating activities in continuing operations declined to $611 million from $625 million, while cash flow from discontinued operations improved to $59 million from -$60 million.
Relative to a year ago, cash flow from continuing operating activities reflects higher restructuring payments, partially mitigated by more favorable timing of cash tax payments and working capital developments compared to the same period last year. Net working capital as a percentage of revenues was 12.8 percent.
ABB expects solid cash delivery for the full year from continuing operating activities, not including cash outflows for the simplification program and carve-out activities and associated cash tax impacts.
Continues on page 5.
|
Q3 2019 RESULTS |
4/7 |
|
($ in millions, unless otherwise indicated) |
Orders |
Change |
Revenues |
Change |
Op EBITA |
CHANGE |
||
|
US$ |
Comparable1 |
US$ |
Comparable1 |
|||||
|
Electrification |
3,188 |
-1% |
+1% |
3,161 |
-1% |
+1% |
14.2% |
+0.7pts |
|
Industrial Automation |
1,438 |
+1% |
+3% |
1,492 |
-3% |
-2% |
9.0% |
-5.2pts |
|
Motion |
1,618 |
-1% |
+1% |
1,630 |
+1% |
+3% |
17.8% |
+0.5pts |
|
Robotics & Discrete Automation |
709 |
-18% |
-16% |
831 |
-6% |
-3% |
12.9% |
-2.3pts |
|
Corporate & Other |
(265) |
|
|
(222) |
|
|
(176) |
|
|
ABB Group |
6,688 |
-3% |
-1% |
6,892 |
-3% |
0% |
11.7% |
+0.2pts |
Effective October 1, 2018, the Power Grids business was moved from continuing to discontinued operations. All previously reported amounts have been restated consistent with these portfolio changes. Corporate & Other result is inclusive of intersegment eliminations.
Orders were up 1 percent (1 percent lower in US dollars), as demand in Europe offset softness in China. Orders benefited from higher large orders compared to the prior year period, with strong demand for distribution solutions and from the buildings market. Revenues grew 1 percent (1 percent lower in US dollars). The operational EBITA margin expanded 70 basis points year-on-year to 14.2 percent, supported by GEIS integration, cost productivity and pricing actions.
Orders grew 3 percent (1 percent in US dollars). Order growth was strongest in AMEA and the Americas, supported by solid demand from process industries including oil and gas, dampened by weakness in conventional power generation. The order backlog held steady (4 percent lower in US dollars). Revenues were 2 percent lower (3 percent lower in US dollars). Operational EBITA margin of 9.0 percent was 52 basis points lower.
Industrial Automation results were impacted by the revaluation of a project in South Africa, which is part of its power generation business and was awarded in 2015. This revaluation lowered orders by 2 percent, revenues by 5 percent and operational EBITA margin by approximately 400 basis points.
In addition, margin development was impacted by unfavorable mix and the absence of one-time effects that benefited the comparative period.
Orders rose 1 percent (1 percent lower in US dollars). On a regional basis, Europe was solid and AMEA grew slightly while the Americas slowed. The order backlog increased 4 percent (1 percent in US dollars). Revenues were up 3 percent (1 percent in US dollars). Operational EBITA margin expanded 50 basis points compared to the prior year period, reaching 17.8 percent, due to strong project execution and ongoing cost management.
Orders were 16 percent lower (18 percent in US dollars), reflecting a tough comparison base and challenging markets in all regions. Headwinds remained particularly strong for robotics in the traditional automotive and automotive-sector related industries, while machine automation was less impacted. The order backlog was up 2 percent (2 percent lower in US dollars). Revenues were 3 percent lower (6 percent in US dollars), supported by strong backlog execution. The operational EBITA margin of 12.9 percent was 230 basis points below the prior year level, reflecting lower volumes and adverse mix, partly mitigated by cost measures.
|
Q3 2019 RESULTS |
5/7 |
Transformation progress
The transformation of ABB into a simpler, agile and more customer-focused organization is well underway. A key focus of ABB Operating System (ABB-OS) work in the year to date has been to redefine the way ABB is organized. The reassignment of Group employees in functions and countries to the businesses was fully defined by October 1, 2019. The dismantling of the Group’s regional structure is expected to be largely completed by year end.
From implementing the simplification program, ABB expects a total of ~$500 million annual run-rate cost reductions across the Group. It expects to meet the $150-200 million run-rate targeted during 2019 and the full run-rate targeted during 2021.
Work to carve-out Power Grids continues. The majority of former Group employees in functions or countries that will support the future organization are in the process of being transferred. ABB expects Power Grids to be operational on a stand-alone basis within ABB from January 1, 2020. ABB is on track to close the transaction in the first half of 2020.
The Q3 results press release and presentation slides are available on the ABB News Center at www.abb.com/news and on the Investor Relations homepage at www.abb.com/investorrelations. A conference call and webcast for analysts and investors is scheduled to begin today at 10.30 a.m. CEST (9:30 a.m. BST, 04:30 a.m. EDT). To pre-register for the conference call or to join the webcast, please refer to the ABB website: new.abb.com/investorrelations/. A recorded session will be available as a webcast one hour after the end of the conference call.
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 147,000 employees. www.abb.com
|
|
Investor calendar 2019/20 |
|
Electrification investor event |
November 5, 2019 |
|
Q4 2019 results |
February 5, 2020 |
|
Annual General Meeting |
March 26, 2020 |
|
Q1 2020 results |
April 28, 2020 |
|
Q3 2019 RESULTS |
6/7 |
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 “Short-term outlook”, “Revenues”, “Operational EBITA”, “Net income, basic and operational earnings per share”, “Cash flow from operating activities” and “Transformation progress”. 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 Ltd. These expectations, estimates and projections are generally identifiable by statements containing words such as “anticipates”, “expects,” “believes,” “estimates,” “plans”, “targets” or similar expressions. However, there are many risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking information and statements made in this press release and which could affect our ability to achieve any or all of our stated targets. The important factors that could cause such differences include, among others, business risks associated with the volatile global economic environment and political conditions, costs associated with compliance activities, market acceptance of new products and services, changes in governmental regulations and currency exchange rates and such other factors as may be discussed from time to time in ABB Ltd’s filings with the U.S. Securities and Exchange Commission, including its Annual Reports on Form 20-F. Although ABB Ltd believes that its expectations reflected in any such forward-looking statement are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved.
Zurich, October 23, 2019
Peter Voser, Chairman and CEO
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—
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|
Media Relations
E-mail: media.relations@ch.abb.com |
Investor Relations
E-mail: investor.relations@ch.abb.com |
ABB Ltd
|
|
Q3 2019 RESULTS |
7/7 |
1 Q3 2019 Financial Information
2 Q3 2019 Financial Information
Key Figures
|
|
|
|
|
|
CHANGE |
|
|
|
($ in millions, unless otherwise indicated) |
Q3 2019 |
Q3 2018 |
US$ |
Comparable(1) |
|
|
|
Orders |
6,688 |
6,917 |
-3% |
-1% |
|
|
|
Order backlog (end September) |
13,357 |
13,816 |
-3% |
3% |
|
|
|
Revenues |
6,892 |
7,095 |
-3% |
0% |
|
|
|
Income from operations |
577 |
617 |
-6% |
|
|
|
|
Operational EBITA(1) |
806 |
814 |
-1% |
0%(2) |
|
|
|
|
as % of operational revenues(1) |
11.7% |
11.5% |
+0.2 pts |
|
|
|
Income from continuing operations, net of tax |
422 |
427 |
-1% |
|
|
|
|
Net income attributable to ABB |
515 |
603 |
-15% |
|
|
|
|
Basic earnings per share from continuing operations ($) |
0.20 |
0.19 |
5%(3) |
|
|
|
|
Basic earnings per share ($) |
0.24 |
0.28 |
-15%(3) |
|
|
|
|
Operational earnings per share(1) ($) |
0.33 |
0.34 |
-3%(3) |
-7%(3) |
|
|
|
Cash flow from operating activities(4) |
670 |
565 |
19% |
|
|
|
|
|
|
|
|
CHANGE |
|
|
|
($ in millions, unless otherwise indicated) |
9M 2019 |
9M 2018 |
US$ |
Comparable(1) |
|
|
|
Orders |
21,702 |
21,605 |
0% |
1% |
|
|
|
Revenues |
20,910 |
20,267 |
3% |
2% |
|
|
|
Income from operations |
1,290 |
1,951 |
-34% |
|
|
|
|
Operational EBITA(1) |
2,397 |
2,421 |
-1% |
3%(2) |
|
|
|
|
as % of operational revenues(1) |
11.5% |
11.9% |
-0.4 pts |
|
|
|
Income from continuing operations, net of tax |
783 |
1,365 |
-43% |
|
|
|
|
Net income attributable to ABB |
1,114 |
1,856 |
-40% |
|
|
|
|
Basic earnings per share from continuing operations ($) |
0.35 |
0.61 |
-43%(3) |
|
|
|
|
Basic earnings per share ($) |
0.52 |
0.87 |
-40%(3) |
|
|
|
|
Operational earnings per share(1) ($) |
0.98 |
1.03 |
-6%(3) |
-5%(3) |
|
|
|
Cash flow from operating activities(4) |
414 |
1,057 |
-61% |
|
|
(1) For a reconciliation of non-GAAP measures see “Supplemental Reconciliations and Definitions” on page 39.
(2) Constant currency (not adjusted for portfolio changes).
(3) Earnings per share growth rates are computed using unrounded amounts. Comparable Operational earnings per share growth is in constant currency (2014 foreign exchange rates and not adjusted for changes in the business portfolio).
(4) Cash flow from operating activities includes both continuing and discontinued operations.
3 Q3 2019 Financial Information
4 Q3 2019 Financial Information
5 Q3 2019 Financial Information
Operational EBITA
|
|
|
|
|
Industrial |
|
Robotics & Discrete |
|||||
|
|
|
ABB |
Electrification |
Automation |
Motion |
Automation |
|||||
|
|
($ in millions, unless otherwise indicated) |
Q3 19 |
Q3 18 |
Q3 19 |
Q3 18 |
Q3 19 |
Q3 18 |
Q3 19 |
Q3 18 |
Q3 19 |
Q3 18 |
|
|
Revenues |
6,892 |
7,095 |
3,161 |
3,199 |
1,492 |
1,544 |
1,630 |
1,614 |
831 |
887 |
|
|
FX/commodity timing |
|
|
|
|
|
|
|
|
|
|
|
|
differences in total revenues |
20 |
(27) |
10 |
– |
13 |
(14) |
3 |
(3) |
(1) |
(1) |
|
|
Operational revenues |
6,912 |
7,068 |
3,171 |
3,199 |
1,505 |
1,530 |
1,633 |
1,611 |
830 |
886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
577 |
617 |
378 |
391 |
124 |
214 |
264 |
251 |
83 |
112 |
|
|
Acquisition-related amortization |
70 |
73 |
28 |
32 |
1 |
1 |
13 |
15 |
19 |
20 |
|
|
Restructuring, related and |
|
|
|
|
|
|
|
|
|
|
|
|
implementation costs |
59 |
37 |
8 |
19 |
2 |
2 |
5 |
11 |
5 |
– |
|
|
Changes in obligations related to |
|
|
|
|
|
|
|
|
|
|
|
|
divested businesses |
25 |
75 |
1 |
– |
– |
– |
– |
– |
– |
– |
|
|
Changes in pre-acquisition estimates |
– |
1 |
– |
1 |
– |
– |
– |
– |
– |
– |
|
|
Gains and losses from sale of businesses |
(12) |
(66) |
2 |
(83) |
– |
– |
– |
– |
– |
– |
|
|
Fair value adjustment on assets and |
|
|
|
|
|
|
|
|
|
|
|
|
liabilities held for sale |
11 |
– |
11 |
– |
– |
– |
– |
– |
– |
– |
|
|
Acquisition- and divestment-related |
|
|
|
|
|
|
|
|
|
|
|
|
expenses and integration costs |
18 |
75 |
18 |
60 |
– |
1 |
– |
1 |
– |
– |
|
|
Certain other non-operational items |
45 |
– |
(1) |
– |
– |
1 |
3 |
3 |
1 |
– |
|
|
FX/commodity timing |
|
|
|
|
|
|
|
|
|
|
|
|
differences in income from operations |
13 |
2 |
5 |
11 |
8 |
(2) |
5 |
(2) |
(1) |
3 |
|
|
Operational EBITA |
806 |
814 |
450 |
431 |
135 |
217 |
290 |
279 |
107 |
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%) |
11.7% |
11.5% |
14.2% |
13.5% |
9.0% |
14.2% |
17.8% |
17.3% |
12.9% |
15.2% |
|
|
|
|
|
Industrial |
|
Robotics & Discrete |
|||||
|
|
|
ABB |
Electrification |
Automation |
Motion |
Automation |
|||||
|
|
($ in millions, unless otherwise indicated) |
9M 19 |
9M 18 |
9M 19 |
9M 18 |
9M 19 |
9M 18 |
9M 19 |
9M 18 |
9M 19 |
9M 18 |
|
|
Revenues |
20,910 |
20,267 |
9,490 |
8,366 |
4,590 |
4,777 |
4,876 |
4,792 |
2,527 |
2,719 |
|
|
FX/commodity timing |
|
|
|
|
|
|
|
|
|
|
|
|
differences in total revenues |
12 |
5 |
1 |
14 |
8 |
(9) |
4 |
(1) |
2 |
8 |
|
|
Operational revenues |
20,922 |
20,272 |
9,491 |
8,380 |
4,598 |
4,768 |
4,880 |
4,791 |
2,529 |
2,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
1,290 |
1,951 |
571 |
1,069 |
506 |
655 |
764 |
698 |
236 |
350 |
|
|
Acquisition-related amortization |
205 |
198 |
87 |
71 |
3 |
5 |
40 |
46 |
58 |
62 |
|
|
Restructuring, related and |
|
|
|
|
|
|
|
|
|
|
|
|
implementation costs |
201 |
43 |
61 |
22 |
14 |
4 |
10 |
14 |
8 |
(1) |
|
|
Changes in obligations related to |
|
|
|
|
|
|
|
|
|
|
|
|
divested businesses |
32 |
92 |
1 |
– |
– |
– |
– |
– |
– |
– |
|
|
Changes in pre-acquisition estimates |
13 |
2 |
13 |
2 |
– |
– |
– |
– |
– |
– |
|
|
Gains and losses from sale of businesses |
(8) |
(61) |
(1) |
(81) |
– |
3 |
– |
– |
– |
– |
|
|
Fair value adjustment on assets and |
|
|
|
|
|
|
|
|
|
|
|
|
liabilities held for sale |
466 |
– |
466 |
– |
– |
– |
– |
– |
– |
– |
|
|
Acquisition- and divestment-related |
|
|
|
|
|
|
|
|
|
|
|
|
expenses and integration costs |
72 |
148 |
69 |
128 |
– |
3 |
– |
1 |
1 |
– |
|
|
Certain other non-operational items |
121 |
15 |
1 |
(2) |
2 |
1 |
8 |
7 |
2 |
– |
|
|
FX/commodity timing |
|
|
|
|
|
|
|
|
|
|
|
|
differences in income from operations |
5 |
33 |
(1) |
29 |
5 |
8 |
6 |
9 |
2 |
1 |
|
|
Operational EBITA |
2,397 |
2,421 |
1,267 |
1,238 |
530 |
679 |
828 |
775 |
307 |
412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%) |
11.5% |
11.9% |
13.3% |
14.8% |
11.5% |
14.2% |
17.0% |
16.2% |
12.1% |
15.1% |
6 Q3 2019 Financial Information
Depreciation and Amortization
|
|
|
|
|
Industrial |
|
Robotics & Discrete |
|||||
|
|
|
ABB |
Electrification |
Automation |
Motion |
Automation |
|||||
|
|
($ in millions) |
Q3 19 |
Q3 18 |
Q3 19 |
Q3 18 |
Q3 19 |
Q3 18 |
Q3 19 |
Q3 18 |
Q3 19 |
Q3 18 |
|
|
Depreciation |
146 |
149 |
63 |
63 |
12 |
12 |
28 |
30 |
11 |
10 |
|
|
Amortization |
89 |
92 |
34 |
41 |
2 |
3 |
13 |
16 |
20 |
21 |
|
|
including total acquisition-related amortization of: |
70 |
73 |
28 |
32 |
1 |
1 |
13 |
15 |
19 |
20 |
|
|
|
|
|
|
|
Industrial |
|
|
Robotics & Discrete |
||
|
|
|
ABB |
Electrification |
Automation |
Motion |
Automation |
|||||
|
|
($ in millions) |
9M 19 |
9M 18 |
9M 19 |
9M 18 |
9M 19 |
9M 18 |
9M 19 |
9M 18 |
9M 19 |
9M 18 |
|
|
Depreciation |
450 |
429 |
191 |
165 |
35 |
36 |
84 |
90 |
33 |
31 |
|
|
Amortization |
265 |
243 |
110 |
85 |
6 |
8 |
42 |
49 |
60 |
64 |
|
|
including total acquisition-related amortization of: |
205 |
198 |
87 |
71 |
3 |
5 |
40 |
46 |
58 |
62 |
Orders received and revenues by region
|
|
($ in millions, unless otherwise indicated) |
Orders received |
CHANGE |
Revenues |
CHANGE |
||||||
|
|
|
|
|
|
|
Com- |
|
|
|
|
Com- |
|
|
Q3 19 |
Q3 18 |
US$ |
Local |
parable |
Q3 19 |
Q3 18 |
US$ |
Local |
parable |
|
|
|
Europe |
2,266 |
2,414 |
-6% |
-2% |
-2% |
2,449 |
2,434 |
1% |
5% |
5% |
|
|
The Americas |
2,247 |
2,267 |
-1% |
-1% |
-1% |
2,240 |
2,209 |
1% |
1% |
2% |
|
|
Asia, Middle East and Africa |
2,122 |
2,180 |
-3% |
-1% |
1% |
2,156 |
2,401 |
-10% |
-9% |
-7% |
|
|
Intersegment orders/revenues(1) |
53 |
56 |
|
|
|
47 |
51 |
|
|
|
|
|
ABB Group |
6,688 |
6,917 |
-3% |
-2% |
-1% |
6,892 |
7,095 |
-3% |
-1% |
0% |
|
|
($ in millions, unless otherwise indicated) |
Orders received |
CHANGE |
Revenues |
CHANGE |
||||||
|
|
|
|
|
|
|
Com- |
|
|
|
|
Com- |
|
|
9M 19 |
9M 18 |
US$ |
Local |
parable |
9M 19 |
9M 18 |
US$ |
Local |
parable |
|
|
|
Europe |
7,705 |
8,194 |
-6% |
0% |
-2% |
7,431 |
7,363 |
1% |
7% |
5% |
|
|
The Americas |
6,858 |
5,847 |
17% |
19% |
5% |
6,759 |
5,759 |
17% |
19% |
4% |
|
|
Asia, Middle East and Africa |
6,984 |
7,377 |
-5% |
-1% |
1% |
6,563 |
6,964 |
-6% |
-2% |
-3% |
|
|
Intersegment orders/revenues(1) |
155 |
187 |
|
|
|
157 |
181 |
|
|
|
|
|
ABB Group |
21,702 |
21,605 |
0% |
5% |
1% |
20,910 |
20,267 |
3% |
7% |
2% |
(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.
7 Q3 2019 Financial Information
Consolidated Financial Information
8 Q3 2019 Financial Information
9 Q3 2019 Financial Information
10 Q3 2019 Financial Information
11 Q3 2019 Financial Information
12 Q3 2019 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, 2018.
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. The most significant, difficult and subjective of such accounting assumptions and estimates include:
· 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,
· assumptions used in determining inventory obsolescence and net realizable value,
· estimates used to record expected costs for employee severance in connection with restructuring programs,
· 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,
· 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,
· assumptions used in the calculation of pension and postretirement benefits and the fair value of pension plan assets,
· estimates to determine valuation allowances for deferred tax assets and amounts recorded for uncertain tax positions,
· growth rates, discount rates and other assumptions used to determine impairment of long lived assets and in testing goodwill for impairment, and
· assessment of the allowance for doubtful accounts.
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.
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 discontinued operations (see Note 3 for details) and the reorganization of the Company’s operating segments (see Note 16 for details).
13 Q3 2019 Financial Information
─
Note 2
Recent accounting pronouncements
Applicable for current periods
Leases
In January 2019, the Company adopted a new accounting standard that requires lessees to recognize lease assets and corresponding lease liabilities on the balance sheet for all leases with terms of more than twelve months with several practical expedients. The new accounting standard continues to classify leases as either finance or operating, with the classification determining the pattern of expense recognition in the income statement. It also requires additional disclosures about the Company’s leasing activities. The Company has elected to not recognize lease assets and lease liabilities for leases with terms of less than twelve months and to not separate lease and non‑lease components for leases other than real estate.
The Company has adopted the standard on a modified retrospective basis and has therefore recorded a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2019. It has elected to apply the package of practical expedients which permits the Company to not reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. While the adoption of this standard only had an insignificant impact on the Company’s results of operations and cash flows, total assets and total liabilities increased by $1,344 million and $1,360 million, respectively, of which $148 million and $153 million, respectively, relate to assets and liabilities held for sale. Comparable information has not been restated to reflect the adoption of this new standard and continues to be measured and reported under the accounting standard in effect for those periods presented.
Derivatives and Hedging—Targeted improvements to accounting for hedging activities
In January 2019, the Company adopted an accounting standard update which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. This update was applied on a modified retrospective basis for cash flow and net investment hedges and prospectively for the amended presentation and disclosure guidance but did not have a significant impact on the consolidated financial statements.
Reclassification of certain tax effects from accumulated other comprehensive income
In January 2019, the Company adopted an accounting standard update which allows a reclassification of the stranded tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 to retained earnings. The updated guidance was applied in the period of adoption and resulted in a reclassification of $36 million from accumulated other comprehensive income to retained earnings.
Applicable for future periods
Measurement of credit losses on financial instruments
In June 2016, an accounting standard update was issued which replaces the existing incurred loss impairment methodology for most financial assets with a new “current expected credit loss” model. Additional related updates with targeted improvements and clarifications were issued subsequently. The new model will result in the 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 will be 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 will be measured in a manner similar to current GAAP, except that the losses will be recorded through an allowance for credit losses rather than as a direct write-down of the security.
This update is effective for the Company for annual and interim periods beginning January 1, 2020. For financial assets carried at amortized cost a cumulative-effect adjustment for the changes in the allowances for credit losses will be recognized in retained earnings on the consolidated balance sheet as of January 1, 2020. The Company is currently evaluating the impact of this update on its consolidated financial statements, on its business processes, systems and internal controls, and expects this update will result in earlier recognition of credit losses than the current model.
Customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract
In August 2018, an accounting standard update was issued which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company will adopt this update as of January 1, 2020, and does not believe that this update will have a significant impact on its consolidated financial statements.
Disclosure Framework — Changes to the disclosure requirements for fair value measurement
In August 2018, an accounting standard update was issued which modifies 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.. The changes and modifications to the Level 3 disclosures are to be applied prospectively, while all other amendments are to be applied retrospectively. The Company will adopt this update as of January 1, 2020, and does not believe that this update will have a significant impact on its consolidated financial statements.
14 Q3 2019 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 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 $11 billion. The business also includes certain real estate properties which were previously reported within Corporate and Other as the Company primarily manages real estate assets centrally as corporate assets. As a result, this business, along with the related real estate assets previously included in Corporate and Other, have been reported as discontinued operations. The divestment is expected to be completed in the first half of 2020, following the receipt of customary regulatory approvals as well as the completion of certain legal entity reorganizations expected to be completed before the sale. At September 30, 2019, all assets and liabilities in the discontinued operation have been classified as current as the sale is expected to be completed within 12 months.
As this planned divestment represents a strategic shift that will have a major effect on the Company’s operations and financial results, the results of operations for this business have been presented as discontinued operations and the assets and liabilities are reflected as held-for-sale for all periods presented. Financial information and disclosures previously reported as of and for the nine and three months ended September 30, 2018, have been retroactively recast to give effect to the discontinued operations presentation. In addition, amounts relating to stranded corporate costs have been excluded from discontinued operations and are now included as a component of Corporate and Other. Stranded costs represent overhead and other management costs which were previously able to be included in the measure of segment profit (Operational EBITA) for the former Power Grids operating segment but are not directly attributable to the discontinued operation and thus do not qualify to be recorded as part of income from discontinued operations.
Operating results of the discontinued operations are summarized as follows:
|
|
|
Nine months ended |
Three months ended |
||
|
|
($ in millions) |
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
|
Total revenues |
6,513 |
7,075 |
2,058 |
2,336 |
|
|
Total cost of sales |
(5,009) |
(5,326) |
(1,626) |
(1,764) |
|
|
Gross profit |
1,504 |
1,749 |
431 |
572 |
|
|
Expenses |
(960) |
(945) |
(303) |
(282) |
|
|
Income from operations |
545 |
804 |
128 |
290 |
|
|
Net interest and other finance expense |
(30) |
(41) |
(1) |
(16) |
|
|
Non-operational pension (cost) credit |
9 |
9 |
3 |
3 |
|
|
Income from discontinued operations before taxes |
524 |
772 |
129 |
277 |
|
|
Provision for taxes |
(136) |
(184) |
(32) |
(68) |
|
|
Income from discontinued operations, net of tax |
388 |
588 |
97 |
209 |
Of the total Income from discontinued operations before taxes in the table above, $500 million and $717 million in the nine months ended September 30, 2019 and 2018, respectively, and $121 million and $257 million in the three months ended September 30, 2019 and 2018, 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 nine months ended September 30, 2019 and 2018, $185 million and $225 million, respectively, and for the three months ended September 30, 2019 and 2018, $52 million and $71 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 nine months ended September 30, 2019 and 2018, includes $36 million and $32 million, respectively, and in the three months ended September 30, 2019 and 2018, includes $11 million and $11 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. In the nine and three months ended September 30, 2018, respectively, a total of $196 million and $62 million of depreciation and amortization expense was recorded for such assets.
Included in the reported Total revenues of the Company for the nine months ended September 30, 2019 and 2018, are revenues from the Company’s operating segments to the Power Grids business of $157 million and $181 million, respectively, and for the three months ended September 30, 2019 and 2018, of $47 million and $51 million, respectively, which represent intercompany transactions that, prior to Power Grids being classified as a discontinued operation, were eliminated in the Company’s Consolidated Financial Information (see Note 16).
15 Q3 2019 Financial Information
In addition, the Company also has retained obligations (primarily for environmental and taxes) related to other businesses disposed or otherwise exited that qualified as discontinued operations. Changes to these retained obligations are also included in Income from discontinued operations, net of tax, above.
The major components of assets and liabilities held for sale in the Company’s Consolidated Balance Sheets are summarized as follows:
|
|
($ in millions) |
Sep. 30, 2019 |
Dec. 31, 2018 |
|
|
Receivables, net |
2,264 |
2,377 |
|
|
Contract assets |
1,260 |
1,236 |
|
|
Inventories, net |
1,630 |
1,457 |
|
|
Property, plant and equipment, net |
1,622 |
– |
|
|
Goodwill |
1,624 |
– |
|
|
Other current assets |
606 |
94 |
|
|
Current assets held for sale |
9,006 |
5,164 |
|
|
|
|
|
|
|
Property, plant and equipment, net |
– |
1,477 |
|
|
Goodwill |
– |
1,620 |
|
|
Other non-current assets |
– |
330 |
|
|
Non-current assets held for sale |
– |
3,427 |
|
|
|
|
|
|
|
Accounts payable, trade |
1,529 |
1,732 |
|
|
Contract liabilities |
999 |
998 |
|
|
Pension and other employee benefits |
255 |
– |
|
|
Other current liabilities |
1,642 |
1,455 |
|
|
Current liabilities held for sale |
4,425 |
4,185 |
|
|
|
|
|
|
|
Pension and other employee benefits |
– |
268 |
|
|
Other non-current liabilities |
– |
161 |
|
|
Non-current liabilities held for sale |
– |
429 |
Planned business divestments classified as held for sale
The Company classifies its long-lived assets or disposal groups to be sold as held for sale in the period in which all of the held for sale criteria are met. The Company initially measures a long-lived asset or disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any resulting loss is recognized in the period in which the held for sale criteria are met, while gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale. The Company assesses the fair value of a long-lived asset or disposal group less any costs to sell at each reporting period and until the asset or disposal group is no longer classified as held for sale.
Management had made the decision to divest its solar inverters business and concluded that, during the second quarter of 2019, the held for sale criteria had been met. In July 2019, an agreement was reached to sell the solar inverters business for no consideration. Under the agreement the Company is obligated to transfer cash on the closing date to provide minimum liquidity funding requirements and make additional payments through to 2025. At September 30, 2019, a total of EUR 278 million ($304 million) is estimated to be due to the buyer. As a result, in the nine and three months ended September 30, 2019, the Company recorded a non-tax-deductible loss, of $466 million and $11 million, respectively, in “Other income (expense), net”, representing the excess of the carrying value over the estimated fair value of this business. The carrying value at September 30, 2019, includes a loss arising from the cumulative translation adjustment of $99 million.
The fair value is based on the estimated current market values using Level 3 inputs, considering the agreed-upon sale terms with the buyer. The solar inverters business, which includes the solar invertor business acquired as part of the Power-One acquisition in 2013, is part of the Company’s Electrification segment.
The estimated loss is based on current exchange rates and net assets of the business, any changes to these factors through to the closing date of the transaction will result in adjustments to the loss recognized on the planned sale.
The divestment is expected to be completed in the first quarter of 2020.
16 Q3 2019 Financial Information
As this planned divestment does not qualify as a discontinued operation, the results of operations for this business are included in the Company’s continuing operations for all periods presented. The assets and liabilities of this business are shown as assets and liabilities held for sale in the Company’s Interim Consolidated Balance Sheet at September 30, 2019. The carrying amounts of the major classes of assets and liabilities held for sale relating to this planned divestment are as follows:
|
|
($ in millions) |
|
Sep. 30, 2019 |
|
|
Assets |
|
|
|
|
Receivables, net |
|
87 |
|
|
Inventories, net |
|
124 |
|
|
Property, plant and equipment, net |
|
62 |
|
|
Other Intangible assets, net |
|
28 |
|
|
Other assets |
|
31 |
|
|
Valuation allowance on assets held for sale |
|
(332) |
|
|
Current assets held for sale |
|
– |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
Accounts payable, trade |
|
79 |
|
|
Contract liabilities |
|
30 |
|
|
Provisions for warranties |
|
107 |
|
|
Other liabilities |
|
52 |
|
|
Fair value adjustment on disposal group |
|
133 |
|
|
Current liabilities held for sale |
|
401 |
Including the above loss of $466 million and $11 million, in the nine months and three months ended September 30, 2019, respectively, Income from continuing operations before taxes includes net losses of $515 million and $18 million, respectively, from the Solar invertors business. In the nine months and three months ended September 30, 2018, net losses of $45 million and $13 million, respectively, from this business were included in Income from continuing operations before taxes.
─
Note 4
Acquisitions
On June 30, 2018, the Company acquired through numerous share and asset purchases substantially all the assets, liabilities and business activities of GE Industrial Solutions (GEIS), GE’s global electrification solutions business. GEIS, headquartered in Atlanta, United States, provides technologies that distribute and control electricity and support the commercial, data center, health care, mining, renewable energy, oil and gas, water and telecommunications sectors. The resulting cash outflows for the Company amounted to $2,622 million (net of cash acquired of $192 million). The acquisition strengthens the Company’s global position in electrification and expands its access to the North American market through strong customer relationships, a large installed base and extensive distribution networks. Consequently, the goodwill acquired represents expected operating synergies and cost savings as well as intangible assets that are not separable such as employee know-how and expertise.
While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, the purchase price allocation for acquisitions is preliminary for up to 12 months after the acquisition date and is subject to refinement as more detailed analyses are completed and additional information about the fair values of the acquired assets and liabilities becomes available. The purchase price allocation relating to the GEIS acquisition was finalized during the second quarter of 2019, and resulted in net $92 million of measurement period adjustments, increasing goodwill, primarily related to changes in the valuation of net working capital, deferred tax liabilities and intangible assets acquired.
17 Q3 2019 Financial Information
The final allocation (including measurement period adjustments) of the purchase consideration for GEIS, is as follows:
|
|
|
Final |
Weighted-average |
|
|
|
($ in millions) |
allocated amounts |
useful life |
|
|
|
Technology |
92 |
7 years |
|
|
|
Customer relationships |
178 |
12 years |
|
|
|
Trade names |
135 |
13 years |
|
|
|
Supply agreement |
32 |
13 years |
|
|
|
Intangible assets |
437 |
|
|
|
|
Property, plant and equipment |
373 |
|
|
|
|
Deferred tax liabilities |
(45) |
|
|
|
|
Inventories |
396 |
|
|
|
|
Other assets and liabilities, net(1) |
(44) |
|
|
|
|
Goodwill(2) |
1,568 |
|
|
|
|
Noncontrolling interest |
(63) |
|
|
|
|
Total consideration (net of cash acquired)(3) |
2,622 |
|
|
(1) Gross receivables totaled $658 million; the fair value of which was $624 million after adjusting for contractual cash flows not expected to be collected.
(2) The Company expects that goodwill recorded in certain jurisdictions will be tax deductible.
(3) Cash acquired totaled $192 million.
The unaudited pro forma financial information in the table below summarizes the combined pro forma results of the Company and GEIS for the nine and three months ended September 30, 2018, as if GEIS had been acquired on January 1, 2017.
|
|
|
|
Nine months ended |
Three months ended |
|
|
|
($ in millions) |
|
September 30, 2018 |
September 30, 2018 |
|
|
|
Total revenues |
|
|
21,541 |
7,095 |
|
|
Income from continuing operations, net of tax |
|
|
1,413 |
446 |
The pro forma results are for information purposes only and do not include any anticipated cost synergies or other effects of the planned integration of GEIS. Accordingly, such pro forma amounts are not necessarily indicative of the results that would have occurred had the acquisition been completed on the date indicated, nor are they indicative of the future operating results of the combined company.
The unaudited pro forma results above include certain adjustments related to the GEIS acquisition. The table below summarizes the adjustments necessary to present the pro forma financial information of the combined entity as if GEIS had been acquired on January 1, 2017.
|
|
|
Nine months ended |
Three months ended |
|
|
($ in millions) |
September 30, 2018 |
September 30, 2018 |
|
|
Impact on cost of sales from additional amortization of intangible assets |
(10) |
– |
|
|
Impact on cost of sales from fair valuing acquired inventory |
26 |
26 |
|
|
Impact on cost of sales from additional depreciation of property, plant and equipment |
(4) |
– |
|
|
Impact on selling, general and administrative expenses from additional amortization |
|
|
|
|
of intangible assets |
(5) |
– |
|
|
Impact on selling, general and administrative expenses from acquisition-related costs |
44 |
– |
|
|
Impact on interest from financing costs |
(15) |
– |
|
|
Taxation adjustments |
(4) |
(7) |
|
|
Total pro forma adjustments |
32 |
19 |
Goodwill
Changes in total goodwill were as follows:
|
|
($ in millions) |
|
|
Total Goodwill |
|
|
Balance at January 1, 2018 |
|
|
9,536 |
|
|
Goodwill acquired during the year(1) |
|
|
1,472 |
|
|
Goodwill allocated to disposals |
|
|
(31) |
|
|
Exchange rate differences and other |
|
|
(213) |
|
|
Balance at December 31, 2018 |
|
|
10,764 |
|
|
Goodwill allocated to disposals |
|
|
(2) |
|
|
Measurement period adjustments to goodwill acquired in previous periods |
|
|
92 |
|
|
Exchange rate differences and other |
|
|
(102) |
|
|
Balance at September 30, 2019 |
|
|
10,752 |
(1) Includes goodwill in respect of GEIS, acquired in June 2018, which has been allocated to the Electrification Products operating segment.
18 Q3 2019 Financial Information
─
Note 5
Cash and equivalents, marketable securities and short-term investments
Cash and equivalents, marketable securities and short-term investments consisted of the following:
|
|
|
|
September 30, 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 |
1,977 |
|
|
1,977 |
1,977 |
– |
|
|
|
Time deposits |
603 |
– |
– |
603 |
602 |
1 |
|
|
|
Equity securities |
280 |
19 |
– |
299 |
– |
299 |
|
|
|
|
2,860 |
19 |
– |
2,879 |
2,579 |
300 |
|
|
|
Changes in fair value recorded |
|
|
|
|
|
|
|
|
|
in other comprehensive income |
|
|
|
|
|
|
|
|
|
Debt securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
U.S. government obligations |
189 |
10 |
(1) |
198 |
– |
198 |
|
|
|
European government obligations |
7 |
– |
– |
7 |
– |
7 |
|
|
|
Corporate |
59 |
5 |
– |
64 |
– |
64 |
|
|
|
255 |
15 |
(1) |
269 |
– |
269 |
|
|
|
Total |
3,115 |
34 |
(1) |
3,148 |
2,579 |
569 |
|
|
|
|
|
December 31, 2018 |
|||||
|
|
|
|
|
|
|
|
|
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 |
1,983 |
– |
– |
1,983 |
1,983 |
– |
|
|
|
Time deposits |
1,463 |
– |
– |
1,463 |
1,462 |
1 |
|
|
|
Other short-term investments |
206 |
– |
– |
206 |
– |
206 |
|
|
|
Equity securities |
206 |
– |
(3) |
203 |
– |
203 |
|
|
|
|
3,858 |
– |
(3) |
3,855 |
3,445 |
410 |
|
|
|
Changes in fair value recorded |
|
|
|
|
|
|
|
|
|
in other comprehensive income |
|
|
|
|
|
|
|
|
|
Debt securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
U.S. government obligations |
217 |
– |
(3) |
214 |
– |
214 |
|
|
|
Corporate |
90 |
– |
(2) |
88 |
– |
88 |
|
|
|
307 |
– |
(5) |
302 |
– |
302 |
|
|
|
Total |
4,165 |
– |
(8) |
4,157 |
3,445 |
712 |
|
Other short-term investments at December 31, 2018 were receivables of $206 million, representing reverse repurchase agreements.
─
Note 6
Derivative financial instruments
The Company is exposed to certain currency, commodity, interest rate and equity risks arising from its global operating, financing and investing activities. The Company uses derivative instruments to reduce and manage the economic impact of these exposures.
Currency risk
Due to the global nature of the Company’s operations, many of its subsidiaries are exposed to currency risk in their operating activities from entering into transactions in currencies other than their functional currency. To manage such currency risks, the Company’s policies require its subsidiaries to hedge their foreign currency exposures from binding sales and purchase contracts denominated in foreign currencies. For forecasted 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
19 Q3 2019 Financial Information
instrument used to protect the Company against the volatility of future cash flows (caused by changes in exchange rates) of contracted and forecasted sales and purchases denominated in foreign currencies. In addition, within its treasury operations, the Company primarily uses foreign exchange swaps and forward foreign exchange contracts to manage the currency and timing mismatches arising in its liquidity management activities.
Commodity risk
Various commodity products are used in the Company’s manufacturing activities. Consequently it is exposed to volatility in future cash flows arising from changes in commodity prices. To manage the price risk of commodities, the Company’s policies require that its subsidiaries hedge the commodity price risk exposures from binding contracts, as well as at least 50 percent (up to a maximum of 100 percent) of the forecasted commodity exposure over the next 12 months or longer (up to a maximum of 18 months). Primarily swap contracts are used to manage the associated price risks of commodities.
Interest rate risk
The Company has issued bonds at fixed rates. Interest rate swaps are used to manage the interest rate risk associated with certain debt and generally such swaps are designated as fair value hedges. In addition, from time to time, the Company uses instruments such as interest rate swaps, interest rate futures, bond futures or forward rate agreements to manage interest rate risk arising from the Company’s balance sheet structure but does not designate such instruments as hedges.
Equity risk
The Company is exposed to fluctuations in the fair value of its warrant appreciation rights (WARs) issued under its management incentive plan. A WAR gives its holder the right to receive cash equal to the market price of an equivalent listed warrant on the date of exercise. To eliminate such risk, the Company has purchased cash-settled call options, indexed to the shares of the Company, which entitle the Company to receive amounts equivalent to its obligations under the outstanding WARs.
Volume of derivative activity
In general, while the Company’s primary objective in its use of derivatives is to minimize exposures arising from its business, certain derivatives are designated and qualify for hedge accounting treatment while others either are not designated or do not qualify for hedge accounting.
Foreign exchange and interest rate derivatives
The gross notional amounts of outstanding foreign exchange and interest rate derivatives (whether designated as hedges or not) were as follows:
|
|
Type of derivative |
Total notional amounts at |
||
|
|
($ in millions) |
September 30, 2019 |
December 31, 2018 |
September 30, 2018 |
|
|
Foreign exchange contracts |
11,525 |
13,612 |
12,485 |
|
|
Embedded foreign exchange derivatives |
717 |
733 |
798 |
|
|
Interest rate contracts |
4,230 |
3,300 |
3,590 |
Derivative commodity contracts
The Company uses derivatives to hedge its direct or indirect exposure to the movement in the prices of commodities which are primarily copper, silver and aluminum. The following table shows the notional amounts of outstanding derivatives (whether designated as hedges or not), on a net basis, to reflect the Company’s requirements for these commodities:
|
|
Type of derivative |
Unit |
Total notional amounts at |
||
|
|
|
|
September 30, 2019 |
December 31, 2018 |
September 30, 2018 |
|
|
Copper swaps |
metric tonnes |
44,195 |
46,143 |
38,798 |
|
|
Silver swaps |
ounces |
2,364,343 |
2,861,294 |
2,683,539 |
|
|
Aluminum swaps |
metric tonnes |
8,869 |
9,491 |
6,484 |
Equity derivatives
At September 30, 2019, December 31, 2018, and September 30, 2018, the Company held 46 million, 41 million and 41 million cash-settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of $11 million, $6 million and $23 million, respectively.
Cash flow hedges
As noted above, the Company mainly uses forward foreign exchange contracts to manage the foreign exchange risk of its operations, commodity swaps to manage its commodity risks and cash-settled call options to hedge its WAR liabilities. Where such instruments are designated and qualify as cash flow hedges, the effective portion of the changes in their fair value is recorded in “Accumulated other comprehensive loss” and subsequently reclassified into earnings in the same line item and in the same period as the underlying hedged transaction affects earnings.
At September 30, 2019, and December 31, 2018, “Accumulated other comprehensive loss” included net unrealized losses of $11 million and $16 million, respectively, net of tax, on derivatives designated as cash flow hedges. Of the amount at September 30, 2019, net losses of $3 million are expected to be reclassified to earnings in the following 12 months. At September 30, 2019, the longest maturity of a derivative classified as a cash flow hedge was 52 months.
The amount of gains or losses, net of tax, reclassified into earnings due to the discontinuance of cash flow hedge accounting and the amount of ineffectiveness in cash flow hedge relationships directly recognized in earnings were not significant in the nine and three months ended September 30, 2019 and 2018.
The pre-tax effects of derivative instruments, designated and qualifying as cash flow hedges, on “Accumulated other comprehensive loss” (OCI) and the Consolidated Income Statements were not significant.
20 Q3 2019 Financial Information
Fair value hedges
To reduce its interest rate exposure arising primarily from its debt issuance activities, the Company uses interest rate swaps. Where such instruments are designated as fair value hedges, the changes in the fair value of these instruments, as well as the changes in the fair value of the risk component of the underlying debt being hedged, are recorded as offsetting gains and losses in “Interest and other finance expense”. Hedge ineffectiveness of instruments designated as fair value hedges for the nine and three months ended September 30, 2019 and 2018, was not significant.
The effect of interest rate contracts, designated and qualifying as fair value hedges, on the Consolidated Income Statements was as follows:
|
|
|
Nine months ended September 30, |
Three months ended September 30, |
||
|
|
($ in millions) |
2019 |
2018 |
2019 |
2018 |
|
|
Gains (losses) recognized in Interest and other finance expense: |
|
|
|
|
|
|
- on derivatives designated as fair value hedges |
58 |
(36) |
1 |
(16) |
|
|
- on hedged item |
(58) |
37 |
(1) |
17 |
Derivatives not designated in hedge relationships
Derivative instruments that are not designated as hedges or do not qualify as either cash flow or fair value hedges are economic hedges used for risk management purposes. Gains and losses from changes in the fair values of such derivatives are recognized in the same line in the income statement as the economically hedged transaction.
Furthermore, under certain circumstances, the Company is required to split and account separately for foreign currency derivatives that are embedded within certain binding sales or purchase contracts denominated in a currency other than the functional currency of the subsidiary and the counterparty.
The gains (losses) recognized in the Consolidated Income Statements on derivatives not designated in hedging relationships were as follows:
|
|
Type of derivative not |
Gains (losses) recognized in income |
||||
|
|
designated as a hedge |
|
Nine months ended September 30, |
Three months ended September 30, |
||
|
|
($ in millions) |
Location |
2019 |
2018 |
2019 |
2018 |
|
|
Foreign exchange contracts |
Total revenues |
(60) |
(119) |
(61) |
(12) |
|
|
|
Total cost of sales |
(42) |
66 |
(4) |
16 |
|
|
|
SG&A expenses(1) |
6 |
10 |
7 |
5 |
|
|
|
Non-order related research |
|
|
|
|
|
|
|
and development |
1 |
(1) |
– |
(1) |
|
|
|
Interest and other finance expense |
(60) |
24 |
19 |
(13) |
|
|
Embedded foreign exchange |
Total revenues |
13 |
58 |
16 |
18 |
|
|
contracts |
Total cost of sales |
(7) |
(5) |
(7) |
(2) |
|
|
|
SG&A expenses(1) |
– |
2 |
– |
– |
|
|
Commodity contracts |
Total cost of sales |
(4) |
(29) |
(2) |
(16) |
|
|
Other |
Interest and other finance expense |
(1) |
3 |
(1) |
(5) |
|
|
Total |
|
(154) |
9 |
(33) |
(10) |
(1) SG&A expenses represent “Selling, general and administrative expenses”.
The fair values of derivatives included in the Consolidated Balance Sheets were as follows:
|
|
|
September 30, 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 |
– |
92 |
|
– |
– |
|
|
Cash-settled call options |
5 |
6 |
|
– |
– |
|
|
Total |
5 |
98 |
|
2 |
6 |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
Foreign exchange contracts |
99 |
14 |
|
142 |
31 |
|
|
Commodity contracts |
6 |
– |
|
14 |
– |
|
|
Embedded foreign exchange derivatives |
12 |
14 |
|
9 |
3 |
|
|
Total |
117 |
28 |
|
165 |
34 |
|
|
Total fair value |
122 |
126 |
|
167 |
40 |
21 Q3 2019 Financial Information
|
|
|
December 31, 2018 |
||||
|
|
|
Derivative assets |
|
Derivative liabilities |
||
|
|
|
Current in |
Non-current in |
|
Current in |
Non-current in |
|
|
|
“Other current |
“Other non-current |
|
“Other current |
“Other non-current |
|
|
($ in millions) |
assets” |
assets” |
|
liabilities” |
liabilities” |
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
Foreign exchange contracts |
– |
– |
|
1 |
4 |
|
|
Commodity contracts |
– |
– |
|
2 |
– |
|
|
Interest rate contracts |
– |
35 |
|
– |
1 |
|
|
Cash-settled call options |
3 |
3 |
|
– |
– |
|
|
Total |
3 |
38 |
|
3 |
5 |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
Foreign exchange contracts |
117 |
14 |
|
160 |
30 |
|
|
Commodity contracts |
8 |
1 |
|
21 |
1 |
|
|
Embedded foreign exchange derivatives |
15 |
10 |
|
8 |
1 |
|
|
Total |
140 |
25 |
|
189 |
32 |
|
|
Total fair value |
143 |
63 |
|
192 |
37 |
Close-out netting agreements provide for the termination, valuation and net settlement of some or all outstanding transactions between two counterparties on the occurrence of one or more pre-defined trigger events.
Although the Company is party to close-out netting agreements with most derivative counterparties, the fair values in the tables above and in the Consolidated Balance Sheets at September 30, 2019, and December 31, 2018, have been presented on a gross basis.
The Company’s netting agreements and other similar arrangements allow net settlements under certain conditions. At September 30, 2019, and December 31, 2018, information related to these offsetting arrangements was as follows:
|
|
($ in millions) |
September 30, 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 |
195 |
(104) |
– |
– |
91 |
|
|
Total |
195 |
(104) |
– |
– |
91 |
|
|
($ in millions) |
December 31, 2018 |
||||
|
|
|
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 |
181 |
(121) |
– |
– |
60 |
|
|
Reverse repurchase agreements |
206 |
– |
– |
(206) |
– |
|
|
Total |
387 |
(121) |
– |
(206) |
60 |
|
|
|
|
|
|
|
|
|
|
($ in millions) |
December 31, 2018 |
||||
|
|
|
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 |
220 |
(121) |
– |
– |
99 |
|
|
Total |
220 |
(121) |
– |
– |
99 |
22 Q3 2019 Financial Information
─
Note 7
Fair values
The Company uses fair value measurement principles to record certain financial assets and liabilities on a recurring basis and, when necessary, to record certain non‑financial assets at fair value on a non‑recurring basis, as well as to determine fair value disclosures for certain financial instruments carried at amortized cost in the financial statements. Financial assets and liabilities recorded at fair value on a recurring basis include foreign currency, commodity and interest rate derivatives, as well as cash‑settled call options and available‑for‑sale securities. Non‑financial assets recorded at fair value on a non‑recurring basis include long‑lived assets that are reduced to their estimated fair value due to impairments.
Fair value is the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation techniques including the market approach (using observable market data for identical or similar assets and liabilities), the income approach (discounted cash flow models) and the cost approach (using costs a market participant would incur to develop a comparable asset). Inputs used to determine the fair value of assets and liabilities are defined by a three‑level hierarchy, depending on the nature of those inputs. The Company has categorized its financial assets and liabilities and non‑financial assets measured at fair value within this hierarchy based on whether the inputs to the valuation technique are observable or unobservable. An observable input is based on market data obtained from independent sources, while an unobservable input reflects the Company’s assumptions about market data.
The levels of the fair value hierarchy are as follows:
Level 1: Valuation inputs consist of quoted prices in an active market for identical assets or liabilities (observable quoted prices). Assets and liabilities valued using Level 1 inputs include certain actively traded debt securities.
Level 2: Valuation inputs consist of observable inputs (other than Level 1 inputs) such as actively quoted prices for similar assets, quoted prices in inactive markets and inputs other than quoted prices such as interest rate yield curves, credit spreads, or inputs derived from other observable data by interpolation, correlation, regression or other means. The adjustments applied to quoted prices or the inputs used in valuation models may be both observable and unobservable. In these cases, the fair value measurement is classified as Level 2 unless the unobservable portion of the adjustment or the unobservable input to the valuation model is significant, in which case the fair value measurement would be classified as Level 3. Assets and liabilities valued or disclosed using Level 2 inputs include investments in certain funds, reverse repurchase agreements, certain debt securities that are not actively traded, interest rate swaps, commodity swaps, cash‑settled call options, forward foreign exchange contracts, foreign exchange swaps and forward rate agreements, time deposits, as well as financing receivables and debt.
Level 3: Valuation inputs are based on the Company’s assumptions of relevant market data (unobservable input).
Whenever quoted prices involve bid‑ask spreads, the Company ordinarily determines fair values based on mid‑market quotes. However, for the purpose of determining the fair value of cash‑settled call options serving as hedges of the Company’s management incentive plan, bid prices are used.
When determining fair values based on quoted prices in an active market, the Company considers if the level of transaction activity for the financial instrument has significantly decreased, or would not be considered orderly. In such cases, the resulting changes in valuation techniques would be disclosed. If the market is considered disorderly or if quoted prices are not available, the Company is required to use another valuation technique, such as an income approach.
Recurring fair value measures
The fair values of financial assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
September 30, 2019 |
|||
|
|
($ in millions) |
Level 1 |
Level 2 |
Level 3 |
Total fair value |
|
|
Assets |
|
|
|
|
|
|
Securities in “Marketable securities and short-term investments”: |
|
|
|
|
|
|
Equity securities |
– |
299 |
– |
299 |
|
|
Debt securities—U.S. government obligations |
198 |
– |
– |
198 |
|
|
Debt securities—European government obligations |
7 |
– |
– |
7 |
|
|
Debt securities—Corporate |
– |
64 |
– |
64 |
|
|
Derivative assets—current in “Other current assets” |
– |
122 |
– |
122 |
|
|
Derivative assets—non-current in “Other non-current assets” |
– |
126 |
– |
126 |
|
|
Total |
205 |
611 |
– |
816 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Derivative liabilities—current in “Other current liabilities” |
– |
167 |
– |
167 |
|
|
Derivative liabilities—non-current in “Other non-current liabilities” |
– |
40 |
– |
40 |
|
|
Total |
– |
207 |
– |
207 |
23 Q3 2019 Financial Information
|
|
|
December 31, 2018 |
|||
|
|
($ in millions) |
Level 1 |
Level 2 |
Level 3 |
Total fair value |
|
|
Assets |
|
|
|
|
|
|
Securities in “Marketable securities and short-term investments”: |
|
|
|
|
|
|
Equity securities |
– |
203 |
– |
203 |
|
|
Debt securities—U.S. government obligations |
214 |
– |
– |
214 |
|
|
Debt securities—Corporate |
– |
88 |
– |
88 |
|
|
Derivative assets—current in “Other current assets” |
– |
143 |
– |
143 |
|
|
Derivative assets—non-current in “Other non-current assets” |
– |
63 |
– |
63 |
|
|
Total |
214 |
497 |
– |
711 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Derivative liabilities—current in “Other current liabilities” |
– |
192 |
– |
192 |
|
|
Derivative liabilities—non-current in “Other non-current liabilities” |
– |
37 |
– |
37 |
|
|
Total |
– |
229 |
– |
229 |
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). 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
In June 2019, the Company adjusted the carrying value of the solar inverters business which is classified as held for sale (See Note 3). There were no other significant non-recurring fair value measurements during the nine and three months ended September 30, 2019 and 2018.
Disclosure about financial instruments carried on a cost basis
The fair values of financial instruments carried on a cost basis were as follows:
|
|
|
September 30, 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 |
1,977 |
|
1,977 |
– |
– |
1,977 |
|
|
Time deposits |
602 |
|
– |
602 |
– |
602 |
|
|
Marketable securities and short-term investments |
|
|
|
|
|
|
|
|
(excluding securities): |
|
|
|
|
|
|
|
|
Time deposits |
1 |
|
– |
1 |
– |
1 |
|
|
Other short-term investments |
568 |
|
568 |
– |
– |
568 |
|
|
Other non-current assets: |
|
|
|
|
|
|
|
|
Loans granted |
28 |
|
– |
30 |
– |
30 |
|
|
Restricted time deposits |
34 |
|
34 |
– |
– |
34 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Short-term debt and current maturities of long-term debt |
|
|
|
|
|
|
|
|
(excluding capital lease obligations) |
1,845 |
|
374 |
1,470 |
– |
1,844 |
|
|
Long-term debt (excluding capital lease obligations) |
7,677 |
|
7,335 |
708 |
– |
8,043 |
24 Q3 2019 Financial Information
|
|
|
December 31, 2018 |
|||||
|
|
($ in millions) |
Carrying value |
|
Level 1 |
Level 2 |
Level 3 |
Total fair value |
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and equivalents (excluding securities with original |
|
|
|
|
|
|
|
|
maturities up to 3 months): |
|
|
|
|
|
|
|
|
Cash |
1,983 |
|
1,983 |
– |
– |
1,983 |
|
|
Time deposits |
1,462 |
|
– |
1,462 |
– |
1,462 |
|
|
Marketable securities and short-term investments |
|
|
|
|
|
|
|
|
(excluding securities): |
|
|
|
|
|
|
|
|
Time deposits |
1 |
|
– |
1 |
– |
1 |
|
|
Receivables under reverse repurchase agreements |
206 |
|
– |
206 |
– |
206 |
|
|
Other non-current assets: |
|
|
|
|
|
|
|
|
Loans granted |
30 |
|
– |
31 |
– |
31 |
|
|
Restricted time deposits |
39 |
|
39 |
– |
– |
39 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Short-term debt and current maturities of long-term debt |
|
|
|
|
|
|
|
|
(excluding capital lease obligations) |
2,008 |
|
1,480 |
528 |
– |
2,008 |
|
|
Long-term debt (excluding capital lease obligations) |
6,457 |
|
5,839 |
707 |
– |
6,546 |
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 capital 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 capital lease obligations, approximate their fair values.
· Long-term debt (excluding capital lease obligations): Fair values of bonds are determined using quoted market prices (Level 1 inputs), if available. For bonds without available quoted market prices and other long-term debt, the fair values are determined using a discounted cash flow methodology based upon borrowing rates of similar debt instruments and reflecting appropriate adjustments for non-performance risk (Level 2 inputs).
─
Note 8
Commitments and contingencies
Contingencies—Regulatory, Compliance and Legal
Regulatory
In April 2014, the European Commission announced its decision regarding its investigation of anticompetitive practices in the cables industry and granted the Company full immunity from fines under its leniency program.
In February 2019, the Brazilian Antitrust Authority (CADE) announced its decision regarding its investigation of anticompetitive practices in certain power businesses of the Company, including flexible alternating current transmission systems (FACTS) and power transformers, and granted the Company full immunity from fines under its leniency program.
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.
25 Q3 2019 Financial Information
Liabilities recognized
At September 30, 2019, and December 31, 2018, the Company had aggregate liabilities of $149 million and $221 million, respectively, included in “Other provisions” and “Other non‑current liabilities”, for the above regulatory, compliance and legal contingencies, and none of the individual liabilities recognized was significant. As it is not possible to make an informed judgment on, or reasonably predict, the outcome of certain matters and as it is not possible, based on information currently available to management, to estimate the maximum potential liability on other matters, there could be material adverse outcomes beyond the amounts accrued.
Guarantees
General
The following table provides quantitative data regarding the Company’s third-party guarantees. The maximum potential payments represent a “worst‑case scenario”, and do not reflect management’s expected outcomes.
|
|
Maximum potential payments ($ in millions) |
September 30, 2019 |
December 31, 2018 |
|
|
Performance guarantees |
1,569 |
1,584 |
|
|
Financial guarantees |
6 |
10 |
|
|
Indemnification guarantees |
61 |
64 |
|
|
Total(1) |
1,636 |
1,658 |
(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 September 30, 2019, and December 31, 2018, 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 September 30, 2019, and December 31, 2018, the maximum potential payable under these guarantees amounts to $731 million and $771 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 September 30, 2019, and December 31, 2018, the total outstanding performance bonds aggregated to $7.6 billion and $7.4 billion, respectively, of which $3.8 billion and $4.3 billion, respectively, relates to discontinued operations. There have been no significant amounts reimbursed to financial institutions under these types of arrangements in the nine and three months ended September 30, 2019 and 2018.
Product and order-related contingencies
The Company calculates its provision for product warranties based on historical claims experience and specific review of certain contracts.
The reconciliation of the “Provisions for warranties”, including guarantees of product performance, was as follows:
|
|
($ in millions) |
2019 |
2018 |
|
|
Balance at January 1, |
948 |
909 |
|
|
Net change in warranties due to acquisitions, divestments and liabilities held for sale(1) |
(87) |
11 |
|
|
Claims paid in cash or in kind |
(223) |
(212) |
|
|
Net increase in provision for changes in estimates, warranties issued and warranties expired |
207 |
232 |
|
|
Exchange rate differences |
(29) |
(30) |
|
|
Balance at September 30, |
816 |
910 |
(1) Includes adjustments to the initial purchase price allocation recorded during the measurement period.
During 2018, the Company recorded changes in the estimated amount for a product warranty relating to a divested business. This warranty liability was increased by a total of $92 million during the nine months ended September 30, 2018, of which $75 million was recorded in the three months ended September 30, 2018. The corresponding increases were included in Cost of sales of products and resulted in a decrease in earnings per share of $0.03 (basic and diluted) for both the nine and three months ended September 30, 2018. As these costs relate to a divested business, they have been excluded from the Company’s primary measure of segment performance, Operational EBITA (See Note 16). The warranty liability has been recorded based on the information currently available and is subject to change in the future.
26 Q3 2019 Financial Information
─
Note 9
Contract assets and liabilities
The following table provides information about Contract Assets and Contract Liabilities:
|
|
($ in millions) |
September 30, 2019 |
December 31, 2018 |
September 30, 2018 |
|
|
Contract assets |
1,088 |
1,082 |
1,172 |
|
|
Contract liabilities |
1,616 |
1,707 |
1,766 |
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 predominantly on long-term projects. Contract liabilities are reduced as work is performed and as revenues are recognized.
The significant changes in the Contract assets and Contract liabilities balances were as follows:
|
|
|
Nine months ended September 30, |
||||||
|
|
|
2019 |
|
2018 |
||||
|
|
|
Contract |
|
Contract |
|
Contract |
|
Contract |
|
|
($ in millions) |
assets |
|
liabilities |
|
assets |
|
liabilities |
|
|
Revenue recognized, which was included in the Contract liabilities balance at Jan 1, 2019/2018 |
|
|
(649) |
|
|
|
(770) |
|
|
Additions to Contract liabilities - excluding amounts recognized as revenue during the period |
|
|
648 |
|
|
|
779 |
|
|
Receivables recognized that were included in the Contract asset balance at Jan 1, 2019/2018 |
(457) |
|
– |
|
(531) |
|
|
At September 30, 2019, the Company had unsatisfied performance obligations totaling $13,357 million and, of this amount, the Company expects to fulfill approximately 37 percent of the obligations in 2019, approximately 44 percent of the obligations in 2020 and the balance thereafter.
─
Note 10
Debt
The Company’s total debt at September 30, 2019, and December 31, 2018, amounted to $9,689 million and $8,618 million, respectively.
Short-term debt and current maturities of long-term debt
The Company’s “Short-term debt and current maturities of long-term debt” consisted of the following:
|
|
($ in millions) |
September 30, 2019 |
December 31, 2018 |
|
|
Short-term debt |
1,535 |
561 |
|
|
Current maturities of long-term debt |
354 |
1,470 |
|
|
Total |
1,889 |
2,031 |
Short-term debt primarily represented issued commercial paper and short-term loans from various banks. At September 30, 2019, and December 31, 2018, $778 million and $292 million, respectively, was outstanding under the $2 billion commercial paper program in the United States. In addition, at September 30, 2019, and December 31, 2018, $655 million and $172 million was outstanding under the $2 billion Euro-commercial paper program.
In March 2019, the Company repaid at maturity its EUR 1,250 million 2.625% Instruments, equivalent to $1,414 million at date of payment.
Long-term debt
The Company’s long-term debt at September 30, 2019, and December 31, 2018, amounted to $7,800 million and $6,587 million, respectively.
27 Q3 2019 Financial Information
Outstanding bonds (including maturities within the next 12 months) were as follows:
|
|
|
September 30, 2019 |
December 31, 2018 |
||||||
|
|
(in millions) |
Nominal outstanding |
Carrying value(1) |
Nominal outstanding |
Carrying value(1) |
||||
|
|
Bonds: |
|
|
|
|
|
|
|
|
|
|
2.625% EUR Instruments, due 2019 |
|
|
|
– |
EUR |
1,250 |
$ |
1,431 |
|
|
2.8% USD Notes, due 2020 |
USD |
300 |
$ |
300 |
USD |
300 |
$ |
299 |
|
|
Floating EUR Notes, due 2020 |
EUR |
1,000 |
$ |
1,092 |
|
|
|
– |
|
|
4.0% USD Notes, due 2021 |
USD |
650 |
$ |
647 |
USD |
650 |
$ |
646 |
|
|
2.25% CHF Bonds, due 2021 |
CHF |
350 |
$ |
366 |
CHF |
350 |
$ |
373 |
|
|
5.625% USD Notes, due 2021 |
USD |
250 |
$ |
261 |
USD |
250 |
$ |
265 |
|
|
2.875% USD Notes, due 2022 |
USD |
1,250 |
$ |
1,272 |
USD |
1,250 |
$ |
1,242 |
|
|
3.375% USD Notes, due 2023 |
USD |
450 |
$ |
448 |
USD |
450 |
$ |
448 |
|
|
0.625% EUR Instruments, due 2023 |
EUR |
700 |
$ |
782 |
EUR |
700 |
$ |
807 |
|
|
0.75% EUR Instruments, due 2024 |
EUR |
750 |
$ |
845 |
EUR |
750 |
$ |
862 |
|
|
0.3% CHF Notes, due 2024 |
CHF |
280 |
$ |
280 |
|
|
|
– |
|
|
3.8% USD Notes, due 2028 |
USD |
750 |
$ |
746 |
USD |
750 |
$ |
746 |
|
|
1.0% CHF Notes, due 2029 |
CHF |
170 |
$ |
170 |
|
|
|
– |
|
|
4.375% USD Notes, due 2042 |
USD |
750 |
$ |
724 |
USD |
750 |
$ |
723 |
|
|
Total |
|
|
$ |
7,933 |
|
|
$ |
7,842 |
(1) USD carrying values include unamortized debt issuance costs, bond discounts or premiums, as well as adjustments for fair value hedge accounting, where appropriate.
In February 2019, the Company issued the following notes with a principal of:
· CHF 280 million, due 2024, paying interest annually in arrears at a fixed rate of 0.3 percent per annum, and
· CHF 170 million, due 2029, paying interest annually in arrears at a fixed rate of 1.0 percent per annum.
The aggregate net proceeds of these bond issues, after underwriting discount and other fees, amounted to CHF 449 million (equivalent to approximately $449 million on date of issuance).
In April 2019, the Company issued 18-month floating rate notes with an aggregate principal of EUR 1,000 million, due in October 2020. These notes pay interest quarterly in arrears at a variable interest rate of 35 basis points above the 3-month EURIBOR, with a floor rate of zero. The aggregate net proceeds amounted to EUR 1,002 million (equivalent to approximately $1,129 million on date of issuance).
Subsequent events
At October 22, 2019 the amount outstanding under the $2-billion Commercial paper program in the United States had increased to $998 million from $778 million at September 30, 2019, while the amount outstanding under the Euro-commercial paper program had decreased to $586 million from $655 million at September 30, 2019.
─
Note 11
Employee benefits
The Company operates defined benefit pension plans, defined contribution pension plans, and termination indemnity plans, in accordance with local regulations and practices. These plans cover a large portion of the Company’s employees and provide benefits to employees in the event of death, disability, retirement, or termination of employment. Certain of these plans are multi-employer plans. The Company also operates other postretirement benefit plans including postretirement health care benefits, and other employee-related benefits for active employees including long-service award plans. The measurement date used for the Company’s employee benefit plans is December 31. The funding policies of the Company’s plans are consistent with the local government and tax requirements.
28 Q3 2019 Financial Information
The following tables include amounts relating to defined benefit pension plans and other postretirement benefits for both continuing and discontinued operations.
Net periodic benefit cost of the Company’s defined benefit pension and other postretirement benefit plans consisted of the following:
|
|
($ in millions) |
Defined pension benefits |
|
Other postretirement benefits |
||||
|
|
|
Switzerland |
International |
|
||||
|
|
Nine months ended September 30, |
2019 |
2018 |
2019 |
2018 |
|
2019 |
2018 |
|
|
Operational pension cost: |
|
|
|
|
|
|
|
|
|
Service cost |
56 |
70 |
82 |
89 |
|
1 |
– |
|
|
Operational pension cost |
56 |
70 |
82 |
89 |
|
1 |
– |
|
|
Non-operational pension cost (credit): |
|
|
|
|
|
|
|
|
|
Interest cost |
11 |
22 |
130 |
146 |
|
3 |
3 |
|
|
Expected return on plan assets |
(84) |
(90) |
(198) |
(226) |
|
– |
– |
|
|
Amortization of prior service cost (credit) |
(11) |
(12) |
2 |
1 |
|
(4) |
(3) |
|
|
Amortization of net actuarial loss |
– |
– |
80 |
72 |
|
(2) |
(1) |
|
|
Curtailments, settlements and special termination benefits |
– |
– |
7 |
1 |
|
(10) |
– |
|
|
Non-operational pension cost (credit) |
(84) |
(80) |
21 |
(6) |
|
(13) |
(1) |
|
|
Net periodic benefit cost |
(28) |
(10) |
103 |
83 |
|
(12) |
(1) |
|
|
($ in millions) |
Defined pension benefits |
|
Other postretirement |
||||
|
|
|
Switzerland |
International |
|
benefits |
|||
|
|
Three months ended September 30, |
2019 |
2018 |
2019 |
2018 |
|
2019 |
2018 |
|
|
Operational pension cost: |
|
|
|
|
|
|
|
|
|
Service cost |
18 |
24 |
26 |
27 |
|
1 |
– |
|
|
Operational pension cost |
18 |
24 |
26 |
27 |
|
1 |
– |
|
|
Non-operational pension cost (credit): |
|
|
|
|
|
|
|
|
|
Interest cost |
3 |
8 |
42 |
47 |
|
1 |
1 |
|
|
Expected return on plan assets |
(28) |
(31) |
(60) |
(73) |
|
– |
– |
|
|
Amortization of prior service cost (credit) |
(4) |
(4) |
1 |
– |
|
(2) |
(1) |
|
|
Amortization of net actuarial loss |
– |
– |
26 |
24 |
|
(1) |
(1) |
|
|
Curtailments, settlements and special termination benefits |
– |
– |
6 |
1 |
|
(10) |
– |
|
|
Non-operational pension cost (credit) |
(29) |
(27) |
15 |
(1) |
|
(12) |
(1) |
|
|
Net periodic benefit cost |
(11) |
(3) |
41 |
26 |
|
(11) |
(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 $29 million and $35 million, for the nine months ended September 30, 2019 and 2018, respectively, and $9 million and $11 million, for the three months ended September 30, 2019 and 2018, respectively, related to discontinued operations.
Employer contributions were as follows:
|
|
($ in millions) |
Defined pension benefits |
|
Other postretirement benefits |
||||
|
|
|
Switzerland |
International |
|
||||
|
|
Nine months ended September 30, |
2019 |
2018 |
2019 |
2018 |
|
2019 |
2018 |
|
|
Total contributions to defined benefit pension and |
|
|
|
|
|
|
|
|
|
other postretirement benefit plans |
70 |
68 |
74 |
84 |
|
4 |
6 |
|
|
Of which, discretionary contributions to defined benefit |
|
|
|
|
|
|
|
|
|
pension plans |
2 |
– |
– |
10 |
|
– |
– |
|
|
($ in millions) |
Defined pension benefits |
|
Other postretirement |
||||
|
|
|
Switzerland |
International |
|
benefits |
|||
|
|
Three months ended September 30, |
2019 |
2018 |
2019 |
2018 |
|
2019 |
2018 |
|
|
Total contributions to defined benefit pension and |
|
|
|
|
|
|
|
|
|
other postretirement benefit plans |
22 |
23 |
30 |
34 |
|
– |
2 |
|
|
Of which, discretionary contributions to defined benefit |
|
|
|
|
|
|
|
|
|
pension plans |
– |
– |
– |
10 |
|
– |
– |
The Company expects to make contributions totaling approximately $199 million and $11 million to its defined benefit pension plans and other postretirement benefit plans, respectively, for the full year 2019.
29 Q3 2019 Financial Information
─
Note 12
Stockholder's equity
At the Annual General Meeting of Shareholders on May 2, 2019, shareholders approved the proposal of the Board of Directors to distribute 0.80 Swiss francs per share to shareholders. The declared dividend amounted to $1,675 million and was paid in the second quarter of 2019.
─
Note 13
Earnings per share
Basic earnings per share is calculated by dividing income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is calculated by dividing income by the weighted-average number of shares outstanding during the period, assuming that all potentially dilutive securities were exercised, if dilutive. Potentially dilutive securities comprise outstanding written call options, and outstanding options and shares granted subject to certain conditions under the Company’s share-based payment arrangements.
|
|
Basic earnings per share |
|
|
||
|
|
|
Nine months ended September 30, |
Three months ended September 30, |
||
|
|
($ in millions, except per share data in $) |
2019 |
2018 |
2019 |
2018 |
|
|
Amounts attributable to ABB shareholders: |
|
|
|
|
|
|
Income from continuing operations, net of tax |
752 |
1,310 |
427 |
407 |
|
|
Income from discontinued operations, net of tax |
362 |
546 |
88 |
196 |
|
|
Net income |
1,114 |
1,856 |
515 |
603 |
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding (in millions) |
2,132 |
2,132 |
2,133 |
2,132 |
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to ABB shareholders: |
|
|
|
|
|
|
Income from continuing operations, net of tax |
0.35 |
0.61 |
0.20 |
0.19 |
|
|
Income from discontinued operations, net of tax |
0.17 |
0.26 |
0.04 |
0.09 |
|
|
Net income |
0.52 |
0.87 |
0.24 |
0.28 |
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
||
|
|
|
Nine months ended September 30, |
Three months ended September 30, |
||
|
|
($ in millions, except per share data in $) |
2019 |
2018 |
2019 |
2018 |
|
|
Amounts attributable to ABB shareholders: |
|
|
|
|
|
|
Income from continuing operations, net of tax |
752 |
1,310 |
427 |
407 |
|
|
Income from discontinued operations, net of tax |
362 |
546 |
88 |
196 |
|
|
Net income |
1,114 |
1,856 |
515 |
603 |
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding (in millions) |
2,132 |
2,132 |
2,133 |
2,132 |
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
Call options and shares |
2 |
8 |
2 |
6 |
|
|
Adjusted weighted-average number of shares outstanding (in millions) |
2,134 |
2,140 |
2,135 |
2,138 |
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to ABB shareholders: |
|
|
|
|
|
|
Income from continuing operations, net of tax |
0.35 |
0.61 |
0.20 |
0.19 |
|
|
Income from discontinued operations, net of tax |
0.17 |
0.26 |
0.04 |
0.09 |
|
|
Net income |
0.52 |
0.87 |
0.24 |
0.28 |
30 Q3 2019 Financial Information
─
Note 14
Reclassifications out of accumulated other comprehensive loss
The following table shows changes in “Accumulated other comprehensive loss” (OCI) attributable to ABB, by component, net of tax:
|
|
|
|
Unrealized gains |
Pension and |
Unrealized gains |
|
|
|
|
Foreign currency |
(losses) on |
other |
(losses) of cash |
|
|
|
|
translation |
available-for-sale |
postretirement |
flow hedge |
|
|
|
($ in millions) |
adjustments |
securities |
plan adjustments |
derivatives |
Total OCI |
|
|
Balance at January 1, 2018 |
(2,693) |
8 |
(1,672) |
12 |
(4,345) |
|
|
Cumulative effect of changes in |
|
|
|
|
|
|
|
accounting principles(1) |
– |
(9) |
– |
– |
(9) |
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
Other comprehensive (loss) income |
|
|
|
|
|
|
|
before reclassifications |
(547) |
(5) |
57 |
(31) |
(526) |
|
|
Amounts reclassified from OCI |
(31) |
– |
41 |
9 |
19 |
|
|
Changes attributable to divestments |
12 |
– |
– |
– |
12 |
|
|
Total other comprehensive (loss) income |
(566) |
(5) |
98 |
(22) |
(495) |
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
Amounts attributable to |
|
|
|
|
|
|
|
noncontrolling interests |
(23) |
– |
– |
– |
(23) |
|
|
Balance at September 30, 2018 |
(3,236) |
(6) |
(1,574) |
(10) |
(4,826) |
|
|
|
|
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) |
|
|
Adoption of accounting standard update(2) |
|
|
(36) |
|
(36) |
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
Other comprehensive (loss) income |
|
|
|
|
|
|
|
before reclassifications |
(373) |
15 |
100 |
6 |
(252) |
|
|
Amounts reclassified from OCI |
– |
1 |
45 |
(1) |
45 |
|
|
Total other comprehensive (loss) income |
(373) |
16 |
145 |
5 |
(207) |
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
Amounts attributable to |
|
|
|
|
|
|
|
noncontrolling interests |
(10) |
– |
– |
– |
(10) |
|
|
Balance at September 30, 2019 |
(3,687) |
12 |
(1,858) |
(11) |
(5,544) |
(1) Amounts relate to the adoption of two accounting standard updates in 2018 regarding the Recognition and measurement of financial assets and financial liabilities and Revenue from contracts with customers.
(2) Amounts relate to the adoption of an accounting standard update in 2019 regarding the Tax Cuts and Jobs Act of 2017. See “Applicable for current periods” section of Note 2 for more details.
The following table reflects amounts reclassified out of OCI in respect of Pension and other postretirement plan adjustments:
|
|
|
|
Nine months ended |
Three months ended |
||
|
|
($ in millions) |
Location of (gains) losses |
September 30, |
September 30, |
||
|
|
Details about OCI components |
reclassified from OCI |
2019 |
2018 |
2019 |
2018 |
|
|
Foreign currency translation adjustments: |
|
|
|
|
|
|
|
Gain on liquidation of foreign subsidiary |
Other income (expense), net |
– |
(31) |
– |
(31) |
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement plan adjustments: |
|
|
|
|
|
|
|
Amortization of prior service cost (credit) |
Non-operational pension (cost) credit(1) |
(13) |
(14) |
(5) |
(5) |
|
|
Amortization of net actuarial loss |
Non-operational pension (cost) credit(1) |
78 |
71 |
25 |
23 |
|
|
Net gains from pension settlements and curtailments |
Non-operational pension (cost) credit(1) |
(5) |
– |
(5) |
– |
|
|
Total before tax |
|
60 |
57 |
15 |
18 |
|
|
Tax |
Provision for taxes |
(15) |
(16) |
(2) |
(6) |
|
|
Amounts reclassified from OCI |
|
45 |
41 |
13 |
12 |
(1) Amounts include a total of $9 million for both the nine months ended September 30, 2019 and 2018, and $3 million for both the three months ended September 30, 2019 and 2018, reclassified from OCI to Income from discontinued operations (see Note 3).
31 Q3 2019 Financial Information
The amounts in respect of Unrealized gains (losses) on available-for-sale securities and Unrealized gains (losses) of cash flow hedge derivatives were not significant for the nine and three months ended September 30, 2019 and 2018.
─
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 $350 million.
The following table outlines the costs incurred in the nine and three months ended September 30, 2019, the cumulative costs incurred up to September 30, 2019, and the total amount of costs expected to be incurred under the program per operating segment:
|
|
|
Cost incurred |
Cost incurred |
Cumulative net |
|
|
|
|
Nine months ended |
Three months ended |
cost incurred up to |
Total |
|
|
($ in millions) |
September 30, 2019 |
September 30, 2019 |
September 30, 2019 |
Expected Costs |
|
|
Electrification |
(2) |
2 |
30 |
40 |
|
|
Industrial Automation |
1 |
(1) |
22 |
90 |
|
|
Motion |
1 |
– |
2 |
55 |
|
|
Robotics and Discrete Automation |
7 |
4 |
7 |
20 |
|
|
Corporate and Other |
44 |
20 |
55 |
145 |
|
|
Total |
51 |
25 |
116 |
350 |
Of the total expected costs of $350 million the majority relates to employee severance costs. The Company recorded the following expenses, net of changes in estimates, under this program:
|
|
|
|
|
Cumulative costs |
|
|
|
Nine months ended |
Three months ended |
incurred up to |
|
|
($ in millions) |
September 30, 2019 |
September 30, 2019 |
September 30, 2019 |
|
|
Employee severance costs |
45 |
19 |
110 |
|
|
Inventory and long-lived asset impairments |
6 |
6 |
6 |
|
|
Total |
51 |
25 |
116 |
Expenses, net of changes in estimates, associated with this program are recorded in the following line items in the Consolidated Income Statements:
|
|
|
|
Nine months ended |
Three months ended |
|
|
($ in millions) |
|
September 30, 2019 |
September 30, 2019 |
|
|
Total cost of sales |
|
7 |
7 |
|
|
Selling, general and administrative expenses |
|
24 |
5 |
|
|
Non-order related research and development expenses |
|
1 |
1 |
|
|
Other income (expense), net |
|
19 |
12 |
|
|
Total |
|
51 |
25 |
Liabilities associated with the OS program are primarily included in “Other provisions”. The following table shows the activity from the beginning of the program to September 30, 2019, by expense type:
|
|
|
|
Employee |
|
|
($ in millions) |
|
severance costs |
|
|
Liability at January 1, 2018 |
|
– |
|
|
Expenses |
|
65 |
|
|
Liability at December 31, 2018 |
|
65 |
|
|
Expenses |
|
65 |
|
|
Cash payments |
|
(19) |
|
|
Change in estimates |
|
(20) |
|
|
Exchange rate differences |
|
(4) |
|
|
Liability at September 30, 2019 |
|
87 |
32 Q3 2019 Financial Information
Other restructuring-related activities
In the nine months and three months ended September 30, 2019, the Company executed various other restructuring‑related activities and incurred expenses, net of changes in estimates, of $79 million and $6 million, respectively, mainly related to employee severance costs other income (expenses). In the nine months and three months ended September 30, 2018, expenses, net of changes in estimates, relating to these various other restructuring‑related activities were $51 million and $38 million, respectively. These costs are included in the following line items in the Consolidated Income Statements:
|
|
|
Nine months ended September 30, |
Three months ended September 30, |
||
|
|
($ in millions) |
2019 |
2018 |
2019 |
2018 |
|
|
Total cost of sales |
44 |
10 |
12 |
8 |
|
|
Selling, general and administrative expenses |
(1) |
18 |
(17) |
16 |
|
|
Non-order related research and development expenses |
(1) |
– |
– |
– |
|
|
Other income (expenses), net |
37 |
23 |
11 |
14 |
|
|
Total |
79 |
51 |
6 |
38 |
Change in estimates
In addition to the change in estimates of $20 million in the nine months ended September 30, 2019, relating to the OS program above, which were due to higher than expected rates of attrition and internal re‑deployment, a further $46 million was recorded as a change in estimate to reduce liabilities associated with the Company’s other restructuring-related activities, mainly due to changes in the underlying assumptions and the scope of these activities. The combined total change in estimates of $66 million was recorded in income from operations, primarily as reductions in Selling, general and administrative expenses of $39 million and Cost of sales of $25 million. In the three months ended September 30, 2019, the Company recorded changes in estimates of $11 million relating to its OS program and $29 million related to other restructuring‑related activities. The combined total change in estimates of $40 million was recorded in income from operations, as reductions to Selling, general and administrative expenses and Cost of Sales of $26 million and $14 million, respectively. These changes in estimates resulted in an increase in earnings per share (basic and diluted) in the nine months and three months ended September 30, 2019 of $0.02 and $0.01, respectively.
─
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.
Effective April 1, 2019, the Company announced a reorganization of its operating segments into four customer-focused, entrepreneurial businesses. The Electrification Products segment was renamed the Electrification segment. The Industrial Automation segment remains unchanged except that it now excludes the Machine and Factory Automation business line, which has been transferred, along with the Robotics business line from the former Robotics and Motion segment, to the new Robotics & Discrete Automation segment. The new Motion segment contains the remaining business lines of the former Robotics and Motion segment.
Following the announcement in December 2018, to sell its Powers Grids business, the Company reclassified the results of operations for this business and certain related amounts previously included in Corporate and Other to discontinued operations (See Note 3).
The segment information for the nine and three months ended September 30, 2018 and at December 31, 2018, has been recast to reflect these changes.
A description of the types of products and services provided by each reportable segment is as follows:
· Electrification: manufactures and sells products and solutions which are designed to provide 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.
33 Q3 2019 Financial Information
· Corporate and Other: includes headquarters, central research and development, the Company’s real estate activities, Group Treasury Operations, historical operating activities of certain divested businesses and other non-core operating activities.
The primary measure of profitability on which the operating segments are evaluated is Operational EBITA, 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.
The following tables present disaggregated segment revenues from contracts with customers, Operational EBITA, and the reconciliations of consolidated Operational EBITA to Income from continuing operations before taxes for the nine and three months ended September 30, 2019 and 2018, as well as total assets at September 30, 2019, and December 31, 2018.
|
|
|
Nine months ended September 30, 2019 |
|||||
|
|
|
|
|
|
Robotics & |
|
|
|
|
|
|
Industrial |
|
Discrete |
Corporate |
|
|
|
($ in millions) |
Electrification |
Automation |
Motion |
Automation |
and Other |
Total |
|
|
Geographical markets |
|
|
|
|
|
|
|
|
Europe |
2,975 |
1,776 |
1,379 |
1,250 |
51 |
7,431 |
|
|
The Americas |
3,482 |
1,160 |
1,770 |
345 |
2 |
6,759 |
|
|
Asia, Middle East and Africa |
2,700 |
1,559 |
1,354 |
884 |
66 |
6,563 |
|
|
|
9,157 |
4,495 |
4,503 |
2,479 |
119 |
20,753 |
|
|
End Customer Markets |
|
|
|
|
|
|
|
|
Utilities |
1,586 |
738 |
756 |
– |
48 |
3,128 |
|
|
Industry |
3,651 |
2,698 |
2,926 |
2,424 |
43 |
11,742 |
|
|
Transport & infrastructure |
3,920 |
1,059 |
821 |
55 |
28 |
5,883 |
|
|
|
9,157 |
4,495 |
4,503 |
2,479 |
119 |
20,753 |
|
|
Product type |
|
|
|
|
|
|
|
|
Products |
7,998 |
1,107 |
3,869 |
1,376 |
87 |
14,437 |
|
|
Systems |
424 |
1,171 |
– |
736 |
32 |
2,363 |
|
|
Services and other |
735 |
2,217 |
634 |
367 |
– |
3,953 |
|
|
|
9,157 |
4,495 |
4,503 |
2,479 |
119 |
20,753 |
|
|
|
|
|
|
|
|
|
|
|
Third-party revenues |
9,157 |
4,495 |
4,503 |
2,479 |
119 |
20,753 |
|
|
Intersegment revenues(1) |
333 |
95 |
373 |
48 |
(692) |
157 |
|
|
Total Revenues |
9,490 |
4,590 |
4,876 |
2,527 |
(573) |
20,910 |
34 Q3 2019 Financial Information
|
|
|
Nine months ended September 30, 2018 |
|||||
|
|
|
|
|
|
Robotics & |
|
|
|
|
|
|
Industrial |
|
Discrete |
Corporate |
|
|
|
($ in millions) |
Electrification |
Automation |
Motion |
Automation |
and Other |
Total |
|
|
Geographical markets |
|
|
|
|
|
|
|
|
Europe |
2,833 |
1,810 |
1,367 |
1,286 |
67 |
7,363 |
|
|
The Americas |
2,466 |
1,098 |
1,809 |
353 |
33 |
5,759 |
|
|
Asia, Middle East and Africa |
2,710 |
1,789 |
1,239 |
1,038 |
188 |
6,964 |
|
|
|
8,009 |
4,697 |
4,415 |
2,677 |
288 |
20,086 |
|
|
End Customer Markets |
|
|
|
|
|
|
|
|
Utilities |
2,195 |
858 |
538 |
– |
171 |
3,762 |
|
|
Industry |
3,279 |
2,597 |
2,886 |
2,644 |
70 |
11,476 |
|
|
Transport & infrastructure |
2,535 |
1,242 |
991 |
33 |
47 |
4,848 |
|
|
|
8,009 |
4,697 |
4,415 |
2,677 |
288 |
20,086 |
|
|
Product type |
|
|
|
|
|
|
|
|
Products |
6,965 |
1,119 |
3,803 |
1,528 |
63 |
13,478 |
|
|
Systems |
437 |
1,407 |
- |
750 |
225 |
2,819 |
|
|
Services and other |
607 |
2,171 |
612 |
399 |
– |
3,789 |
|
|
|
8,009 |
4,697 |
4,415 |
2,677 |
288 |
20,086 |
|
|
|
|
|
|
|
|
|
|
|
Third-party revenues |
8,009 |
4,697 |
4,415 |
2,677 |
288 |
20,086 |
|
|
Intersegment revenues(1) |
357 |
80 |
377 |
42 |
(675) |
181 |
|
|
Total Revenues |
8,366 |
4,777 |
4,792 |
2,719 |
(387) |
20,267 |
|
|
|
Three months ended September 30, 2019 |
|||||
|
|
|
|
|
|
Robotics & |
|
|
|
|
|
|
Industrial |
|
Discrete |
Corporate |
|
|
|
($ in millions) |
Electrification |
Automation |
Motion |
Automation |
and Other |
Total |
|
|
Geographical markets |
|
|
|
|
|
|
|
|
Europe |
980 |
582 |
450 |
420 |
17 |
2,449 |
|
|
The Americas |
1,157 |
383 |
588 |
113 |
(1) |
2,240 |
|
|
Asia, Middle East and Africa |
916 |
490 |
473 |
281 |
(4) |
2,156 |
|
|
|
3,053 |
1,455 |
1,511 |
814 |
12 |
6,845 |
|
|
End Customer Markets |
|
|
|
|
|
|
|
|
Utilities |
526 |
212 |
422 |
– |
6 |
1,166 |
|
|
Industry |
1,149 |
882 |
974 |
794 |
(6) |
3,793 |
|
|
Transport & infrastructure |
1,378 |
361 |
115 |
20 |
12 |
1,886 |
|
|
|
3,053 |
1,455 |
1,511 |
814 |
12 |
6,845 |
|
|
Product type |
|
|
|
|
|
|
|
|
Products |
2,698 |
333 |
1,296 |
439 |
27 |
4,793 |
|
|
Systems |
116 |
375 |
– |
249 |
(15) |
725 |
|
|
Services and other |
239 |
747 |
215 |
126 |
– |
1,327 |
|
|
|
3,053 |
1,455 |
1,511 |
814 |
12 |
6,845 |
|
|
|
|
|
|
|
|
|
|
|
Third-party revenues |
3,053 |
1,455 |
1,511 |
814 |
12 |
6,845 |
|
|
Intersegment revenues(1) |
108 |
37 |
119 |
17 |
(234) |
47 |
|
|
Total Revenues |
3,161 |
1,492 |
1,630 |
831 |
(222) |
6,892 |
35 Q3 2019 Financial Information
|
|
|
Three months ended September 30, 2018 |
|||||
|
|
|
|
|
|
Robotics & |
|
|
|
|
|
|
Industrial |
|
Discrete |
Corporate |
|
|
|
($ in millions) |
Electrification |
Automation |
Motion |
Automation |
and Other |
Total |
|
|
Geographical markets |
|
|
|
|
|
|
|
|
Europe |
971 |
578 |
447 |
416 |
22 |
2,434 |
|
|
The Americas |
1,119 |
354 |
610 |
114 |
12 |
2,209 |
|
|
Asia, Middle East and Africa |
994 |
584 |
429 |
347 |
47 |
2,401 |
|
|
|
3,084 |
1,516 |
1,486 |
877 |
81 |
7,044 |
|
|
End Customer Markets |
|
|
|
|
|
|
|
|
Utilities |
950 |
274 |
186 |
– |
45 |
1,455 |
|
|
Industry |
1,141 |
871 |
960 |
867 |
19 |
3,858 |
|
|
Transport & infrastructure |
993 |
371 |
340 |
10 |
17 |
1,731 |
|
|
|
3,084 |
1,516 |
1,486 |
877 |
81 |
7,044 |
|
|
Product type |
|
|
|
|
|
|
|
|
Products |
2,684 |
339 |
1,277 |
494 |
27 |
4,821 |
|
|
Systems |
139 |
485 |
- |
253 |
54 |
931 |
|
|
Services and other |
261 |
692 |
209 |
130 |
– |
1,292 |
|
|
|
3,084 |
1,516 |
1,486 |
877 |
81 |
7,044 |
|
|
|
|
|
|
|
|
|
|
|
Third-party revenues |
3,084 |
1,516 |
1,486 |
877 |
81 |
7,044 |
|
|
Intersegment revenues(1) |
115 |
28 |
128 |
10 |
(230) |
51 |
|
|
Total Revenues |
3,199 |
1,544 |
1,614 |
887 |
(149) |
7,095 |
(1) Intersegment revenues include sales to the Power Grids business which is presented as discontinued operations and are not eliminated from Total revenues.
36 Q3 2019 Financial Information
|
|
|
Nine months ended |
Three months ended |
||
|
|
|
September 30, |
September 30, |
||
|
|
($ in millions) |
2019 |
2018 |
2019 |
2018 |
|
|
Operational EBITA: |
|
|
|
|
|
|
Electrification |
1,267 |
1,238 |
450 |
431 |
|
|
Industrial Automation |
530 |
679 |
135 |
217 |
|
|
Motion |
828 |
775 |
290 |
279 |
|
|
Robotics & Discrete Automation |
307 |
412 |
107 |
135 |
|
|
Corporate and Other |
|
|
|
|
|
|
‒ Non-core and divested businesses |
(66) |
(92) |
(23) |
(66) |
|
|
‒ Stranded corporate costs |
(185) |
(225) |
(52) |
(71) |
|
|
‒ Corporate costs and Other Intersegment elimination |
(284) |
(366) |
(101) |
(111) |
|
|
Consolidated Operational EBITA |
2,397 |
2,421 |
806 |
814 |
|
|
Acquisition-related amortization |
(205) |
(198) |
(70) |
(73) |
|
|
Restructuring, related and implementation costs(1) |
(201) |
(43) |
(59) |
(37) |
|
|
Changes in obligations related to divested businesses |
(32) |
(92) |
(25) |
(75) |
|
|
Changes in pre-acquisition estimates |
(13) |
(2) |
– |
(1) |
|
|
Gains and losses from sale of businesses |
8 |
61 |
12 |
66 |
|
|
Fair value adjustment on assets and liabilities held for sale |
(466) |
– |
(11) |
– |
|
|
Acquisition- and divestment-related expenses and integration costs |
(72) |
(148) |
(18) |
(75) |
|
|
Foreign exchange/commodity timing differences in income from operations: |
|
|
|
|
|
|
Unrealized gains and losses on derivatives (foreign exchange, |
|
|
|
|
|
|
commodities, embedded derivatives) |
(21) |
1 |
(34) |
25 |
|
|
Realized gains and losses on derivatives where the underlying hedged |
|
|
|
|
|
|
transaction has not yet been realized |
6 |
(11) |
9 |
(9) |
|
|
Unrealized foreign exchange movements on receivables/payables (and |
|
|
|
|
|
|
related assets/liabilities) |
10 |
(23) |
12 |
(18) |
|
|
Certain other non-operational items: |
|
|
|
|
|
|
Costs for planned divestment of Power Grids |
(102) |
– |
(44) |
– |
|
|
Regulatory, compliance and legal costs |
(9) |
(29) |
(1) |
(13) |
|
|
Business transformation costs |
(13) |
(7) |
(7) |
(5) |
|
|
Executive Committee transition costs |
(12) |
– |
2 |
– |
|
|
Gain on sale of investments |
15 |
– |
– |
– |
|
|
Gain on liquidation of a foreign subsidiary |
– |
31 |
– |
31 |
|
|
Other non-operational items |
– |
(10) |
5 |
(13) |
|
|
Income from operations |
1,290 |
1,951 |
577 |
617 |
|
|
Interest and dividend income |
57 |
61 |
20 |
13 |
|
|
Interest and other finance expense |
(179) |
(196) |
(56) |
(74) |
|
|
Non-operational pension (cost) credit |
67 |
77 |
23 |
25 |
|
|
Income from continuing operations before taxes |
1,235 |
1,893 |
564 |
581 |
(1) Amounts in 2019 include $71 million and $28 million of implementation costs in relation to the OS program for the nine and three months ended September 30, 2019, respectively.
|
|
|
Total assets(1), (2) |
|
|
|
($ in millions) |
September 30, 2019 |
December 31, 2018 |
|
|
Electrification |
11,846 |
12,052 |
|
|
Industrial Automation |
4,436 |
4,287 |
|
|
Motion |
6,159 |
6,016 |
|
|
Robotics & Discrete Automation |
4,664 |
4,760 |
|
|
Corporate and Other |
17,451 |
17,326 |
|
|
Consolidated |
44,556 |
44,441 |
(1) Total assets are after intersegment eliminations and therefore reflect third-party assets only.
(2) Assets held for sale of $9,006 million and $8,591 million are included in Corporate and Other at September 30, 2019 and December 31, 2018, respectively (see Note 3).
37 Q3 2019 Financial Information
38 Q3 2019 Financial Information
Supplemental Reconciliations and Definitions
The following reconciliations and definitions include measures which ABB uses to supplement its Consolidated Financial Information (unaudited) which is prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). Certain of these financial measures are, or may be, considered non-GAAP financial measures as defined in the rules of the U.S. Securities and Exchange Commission (SEC).
While ABB’s management believes that the non-GAAP financial measures herein are useful in evaluating ABB’s operating results, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with U.S. GAAP. Therefore these measures should not be viewed in isolation but considered together with the Consolidated Financial Information (unaudited) prepared in accordance with U.S. GAAP as of and for the nine and three months ended September 30, 2019.
On January 1, 2018, the Company adopted a new accounting standard, Revenue from contracts with customers, and consistent with the method of adoption elected, comparative information for 2017 has not been restated and continues to be reported under the accounting standards previously in effect for that period. In addition, on January 1, 2019, the Company adopted a new accounting standard for lease accounting (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 continues to be measured and reported under the accounting standard in effect for those periods presented.
Comparable growth rates
Growth rates for certain key figures may be presented and discussed on a “comparable” basis. The comparable growth rate measures growth on a constant currency basis. Since we are a global company, the comparability of our operating results reported in U.S. dollars is affected by foreign currency exchange rate fluctuations. We calculate the impacts from foreign currency fluctuations by translating the current-year periods’ reported key figures into U.S. dollar amounts using the exchange rates in effect for the comparable periods in the previous year.
Comparable growth rates are also adjusted for changes in our business portfolio. Adjustments to our business portfolio occur due to acquisitions, divestments, or by exiting specific business activities or customer markets. The adjustment for portfolio changes is calculated as follows: where the results of any business acquired or divested have not been consolidated and reported for the entire duration of both the current and comparable periods, the reported key figures of such business are adjusted to exclude the relevant key figures of any corresponding quarters which are not comparable when computing the comparable growth rate. Certain portfolio changes which do not qualify as divestments under U.S. GAAP have been treated in a similar manner to divestments. Changes in our portfolio where we have exited certain business activities or customer markets are adjusted as if the relevant business was divested in the period when the decision to cease business activities was taken. We do not adjust for portfolio changes where the relevant business has annualized revenues of less than $50 million.
The following tables provide reconciliations of reported growth rates of certain key figures to their respective comparable growth rate.
Comparable growth rate reconciliation by business
|
|
|
Q3 2019 compared to Q3 2018 |
||||||||
|
|
|
Order growth rate |
|
Revenue growth rate |
||||||
|
|
|
US$ |
Foreign |
|
|
|
US$ |
Foreign |
|
|
|
|
|
(as |
exchange |
Portfolio |
|
|
(as |
exchange |
Portfolio |
|
|
|
Business |
reported) |
impact |
changes |
Comparable |
|
reported) |
impact |
changes |
Comparable |
|
|
Electrification |
-1% |
2% |
0% |
1% |
|
-1% |
2% |
0% |
1% |
|
|
Industrial Automation |
1% |
2% |
0% |
3% |
|
-3% |
1% |
0% |
-2% |
|
|
Motion |
-1% |
2% |
0% |
1% |
|
1% |
2% |
0% |
3% |
|
|
Robotics & Discrete Automation |
-18% |
2% |
0% |
-16% |
|
-6% |
3% |
0% |
-3% |
|
|
ABB Group |
-3% |
1% |
1% |
-1% |
|
-3% |
2% |
1% |
0% |
|
|
|
9M 2019 compared to 9M 2018 |
||||||||
|
|
|
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 |
13% |
5% |
-14% |
4% |
|
13% |
5% |
-15% |
3% |
|
|
Industrial Automation |
-6% |
4% |
0% |
-2% |
|
-4% |
4% |
0% |
0% |
|
|
Motion |
0% |
4% |
0% |
4% |
|
2% |
4% |
0% |
6% |
|
|
Robotics & Discrete Automation |
-13% |
5% |
0% |
-8% |
|
-7% |
5% |
0% |
-2% |
|
|
ABB Group |
0% |
5% |
-4% |
1% |
|
3% |
4% |
-5% |
2% |
39 Q3 2019 Financial Information
Regional comparable growth rate reconciliation
|
|
|
Q3 2019 compared to Q3 2018 |
||||||||
|
|
|
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 |
-6% |
4% |
0% |
-2% |
|
1% |
4% |
0% |
5% |
|
|
The Americas |
-1% |
0% |
0% |
-1% |
|
1% |
0% |
1% |
2% |
|
|
Asia, Middle East and Africa |
-3% |
2% |
2% |
1% |
|
-10% |
1% |
2% |
-7% |
|
|
ABB Group |
-3% |
1% |
1% |
-1% |
|
-3% |
2% |
1% |
0% |
|
|
|
9M 2019 compared to 9M 2018 |
||||||||
|
|
|
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 |
-6% |
6% |
-2% |
-2% |
|
1% |
6% |
-2% |
5% |
|
|
The Americas |
17% |
2% |
-14% |
5% |
|
17% |
2% |
-15% |
4% |
|
|
Asia, Middle East and Africa |
-5% |
4% |
2% |
1% |
|
-6% |
4% |
-1% |
-3% |
|
|
ABB Group |
0% |
5% |
-4% |
1% |
|
3% |
4% |
-5% |
2% |
Order backlog growth rate reconciliation
|
|
|
September 30, 2019 compared to September 30, 2018 |
|
|||
|
|
|
US$ |
Foreign |
|
|
|
|
|
|
(as |
exchange |
Portfolio |
|
|
|
|
Business |
reported) |
impact |
changes |
Comparable |
|
|
|
Electrification |
3% |
1% |
0% |
4% |
|
|
|
Industrial Automation |
-4% |
4% |
0% |
0% |
|
|
|
Motion |
1% |
3% |
0% |
4% |
|
|
|
Robotics & Discrete Automation |
-2% |
4% |
0% |
2% |
|
|
|
ABB Group |
-3% |
3% |
3% |
3% |
|
Other growth rate reconciliations
|
|
|
Q3 2019 compared to Q3 2018 |
|
9M 2019 compared to 9M 2018 |
||||||
|
|
|
US$ |
Foreign |
|
|
|
US$ |
Foreign |
|
|
|
|
|
(as |
exchange |
Portfolio |
|
|
(as |
exchange |
Portfolio |
|
|
|
|
reported) |
impact |
changes |
Comparable |
|
reported) |
impact |
changes |
Comparable |
|
|
Service orders |
-5% |
3% |
0% |
-2% |
|
2% |
4% |
-4% |
2% |
|
|
Service revenues |
3% |
2% |
0% |
5% |
|
4% |
5% |
-5% |
4% |
40 Q3 2019 Financial Information
Business realignment
Effective April 1, 2019, the Company announced a reorganization of its operating segments into four customer-focused, entrepreneurial businesses. The Electrification Products segment was renamed the Electrification segment. The Industrial Automation segment remains unchanged except that it now excludes the Machine and Factory Automation business line, which has been transferred, along with the Robotics business line from the former Robotics and Motion segment, to the new Robotics & Discrete Automation segment. The new Motion segment contains the remaining business lines of the former Robotics and Motion segment.
The following information presents a reconciliation of growth rates of orders and revenues for 2018 compared to 2017 to reflect these organizational changes:
Comparable growth rate reconciliation by business
|
|
|
Q3 2018 compared to Q3 2017 |
||||||||
|
|
|
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 |
26% |
4% |
-24% |
6% |
|
23% |
4% |
-24% |
3% |
|
|
Industrial Automation |
4% |
3% |
0% |
7% |
|
-2% |
4% |
0% |
2% |
|
|
Motion |
12% |
3% |
0% |
15% |
|
6% |
3% |
0% |
9% |
|
|
Robotics & Discrete Automation |
9% |
3% |
0% |
12% |
|
0% |
3% |
0% |
3% |
|
|
ABB Group |
9% |
4% |
-4% |
9% |
|
9% |
4% |
-8% |
5% |
|
|
|
9M 2018 compared to 9M 2017 |
||||||||
|
|
|
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 |
15% |
-2% |
-8% |
5% |
|
13% |
-2% |
-8% |
3% |
|
|
Industrial Automation |
11% |
-2% |
0% |
9% |
|
2% |
-2% |
0% |
0% |
|
|
Motion |
16% |
-2% |
0% |
14% |
|
11% |
-2% |
0% |
9% |
|
|
Robotics & Discrete Automation |
34% |
-6% |
-20% |
8% |
|
30% |
-5% |
-20% |
5% |
|
|
ABB Group |
15% |
-2% |
-5% |
8% |
|
10% |
-2% |
-4% |
4% |
41 Q3 2019 Financial Information
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
|
|
|
Nine months ended September 30, |
Three months ended September 30, |
||
|
|
($ in millions) |
2019 |
2018 |
2019 |
2018 |
|
|
Operational EBITA |
2,397 |
2,421 |
806 |
814 |
|
|
Acquisition-related amortization |
(205) |
(198) |
(70) |
(73) |
|
|
Restructuring, related and implementation costs(1) |
(201) |
(43) |
(59) |
(37) |
|
|
Changes in obligations related to divested businesses |
(32) |
(92) |
(25) |
(75) |
|
|
Changes in pre-acquisition estimates |
(13) |
(2) |
– |
(1) |
|
|
Gains and losses from sale of businesses |
8 |
61 |
12 |
66 |
|
|
Fair value adjustment on assets and liabilities held for sale |
(466) |
– |
(11) |
– |
|
|
Acquisition- and divestment-related expenses and integration costs |
(72) |
(148) |
(18) |
(75) |
|
|
Certain other non-operational items |
(121) |
(15) |
(45) |
– |
|
|
Foreign exchange/commodity timing differences in income from operations |
(5) |
(33) |
(13) |
(2) |
|
|
Income from operations |
1,290 |
1,951 |
577 |
617 |
|
|
Interest and dividend income |
57 |
61 |
20 |
13 |
|
|
Interest and other finance expense |
(179) |
(196) |
(56) |
(74) |
|
|
Non-operational pension (cost) credit |
67 |
77 |
23 |
25 |
|
|
Income from continuing operations before taxes |
1,235 |
1,893 |
564 |
581 |
|
|
Provision for taxes |
(452) |
(528) |
(142) |
(154) |
|
|
Income (loss) from continuing operations, net of tax |
783 |
1,365 |
422 |
427 |
|
|
Income from discontinued operations, net of tax |
388 |
588 |
97 |
209 |
|
|
Net income |
1,171 |
1,953 |
519 |
636 |
(1) Amounts in the nine and three months ended September 30, 2019 include $71 million and $28 million of implementation costs in relation to the OS program, respectively.
42 Q3 2019 Financial Information
Reconciliation of Operational EBITA margin by business
|
|
|
Three months ended September 30, 2019 |
|||||
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
Robotics & |
Other and |
|
|
|
|
|
Industrial |
|
Discrete |
Intersegment |
|
|
|
($ in millions, unless otherwise indicated) |
Electrification |
Automation |
Motion |
Automation |
elimination |
Consolidated |
|
|
Total revenues |
3,161 |
1,492 |
1,630 |
831 |
(222) |
6,892 |
|
|
Foreign exchange/commodity timing |
|
|
|
|
|
|
|
|
differences in total revenues: |
|
|
|
|
|
|
|
|
Unrealized gains and losses |
|
|
|
|
|
|
|
|
on derivatives |
17 |
16 |
5 |
– |
2 |
40 |
|
|
Realized gains and losses on derivatives |
|
|
|
|
|
|
|
|
where the underlying hedged |
|
|
|
|
|
|
|
|
transaction has not yet been realized |
– |
(1) |
– |
1 |
(9) |
(9) |
|
|
Unrealized foreign exchange movements |
|
|
|
|
|
|
|
|
on receivables (and related assets) |
(7) |
(2) |
(2) |
(2) |
2 |
(11) |
|
|
Operational revenues |
3,171 |
1,505 |
1,633 |
830 |
(227) |
6,912 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
378 |
124 |
264 |
83 |
(272) |
577 |
|
|
Acquisition-related amortization |
28 |
1 |
13 |
19 |
9 |
70 |
|
|
Restructuring, related and |
|
|
|
|
|
|
|
|
implementation costs |
8 |
2 |
5 |
5 |
39 |
59 |
|
|
Changes in obligations related to |
|
|
|
|
|
|
|
|
divested businesses |
1 |
– |
– |
– |
24 |
25 |
|
|
Gains and losses from sale of businesses |
2 |
– |
– |
– |
(14) |
(12) |
|
|
Fair value adjustment on assets and liabilities |
|
|
|
|
|
|
|
|
held for sale |
11 |
– |
– |
– |
– |
11 |
|
|
Acquisition- and divestment-related expenses |
|
|
|
|
|
|
|
|
and integration costs |
18 |
– |
– |
– |
– |
18 |
|
|
Certain other non-operational items |
(1) |
– |
3 |
1 |
42 |
45 |
|
|
Foreign exchange/commodity timing |
|
|
|
|
|
|
|
|
differences in income from operations: |
|
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives |
|
|
|
|
|
|
|
|
(foreign exchange, commodities, |
|
|
|
|
|
|
|
|
embedded derivatives) |
9 |
15 |
8 |
(1) |
3 |
34 |
|
|
Realized gains and losses on derivatives |
|
|
|
|
|
|
|
|
where the underlying hedged |
|
|
|
|
|
|
|
|
transaction has not yet been realized |
2 |
(2) |
– |
1 |
(10) |
(9) |
|
|
Unrealized foreign exchange movements |
|
|
|
|
|
|
|
|
on receivables/payables |
|
|
|
|
|
|
|
|
(and related assets/liabilities) |
(6) |
(5) |
(3) |
(1) |
3 |
(12) |
|
|
Operational EBITA |
450 |
135 |
290 |
107 |
(176) |
806 |
|
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%) |
14.2% |
9.0% |
17.8% |
12.9% |
n.a. |
11.7% |
In the three months ended September 30, 2019, Certain other non-operational items in the table above includes the following:
43 Q3 2019 Financial Information
|
|
|
Three months ended September 30, 2018 |
|||||
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
Robotics & |
Other and |
|
|
|
|
|
Industrial |
|
Discrete |
Intersegment |
|
|
|
($ in millions, unless otherwise indicated) |
Electrification |
Automation |
Motion |
Automation |
elimination |
Consolidated |
|
|
Total revenues |
3,199 |
1,544 |
1,614 |
887 |
(149) |
7,095 |
|
|
Foreign exchange/commodity timing |
|
|
|
|
|
|
|
|
differences in total revenues: |
|
|
|
|
|
|
|
|
Unrealized gains and losses |
|
|
|
|
|
|
|
|
on derivatives |
(7) |
(23) |
(7) |
(8) |
(9) |
(54) |
|
|
Realized gains and losses on derivatives |
|
|
|
|
|
|
|
|
where the underlying hedged |
|
|
|
|
|
|
|
|
transaction has not yet been realized |
3 |
6 |
– |
1 |
1 |
11 |
|
|
Unrealized foreign exchange movements |
|
|
|
|
|
|
|
|
on receivables (and related assets) |
4 |
3 |
4 |
6 |
(1) |
16 |
|
|
Operational revenues |
3,199 |
1,530 |
1,611 |
886 |
(158) |
7,068 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
391 |
214 |
251 |
112 |
(351) |
617 |
|
|
Acquisition-related amortization |
32 |
1 |
15 |
20 |
5 |
73 |
|
|
Restructuring, related and |
|
|
|
|
|
|
|
|
implementation costs |
19 |
2 |
11 |
– |
5 |
37 |
|
|
Changes in obligations related to |
|
|
|
|
|
|
|
|
divested businesses |
– |
– |
– |
– |
75 |
75 |
|
|
Changes in pre-acquisition estimates |
1 |
– |
– |
– |
– |
1 |
|
|
Gains and losses from sale of businesses |
(83) |
– |
– |
– |
17 |
(66) |
|
|
Acquisition- and divestment-related expenses |
|
|
|
|
|
|
|
|
and integration costs |
60 |
1 |
1 |
– |
13 |
75 |
|
|
Certain other non-operational items |
– |
1 |
3 |
– |
(4) |
– |
|
|
Foreign exchange/commodity timing |
|
|
|
|
|
|
|
|
differences in income from operations: |
|
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives |
|
|
|
|
|
|
|
|
(foreign exchange, commodities, |
|
|
|
|
|
|
|
|
embedded derivatives) |
5 |
(18) |
(3) |
(1) |
(8) |
(25) |
|
|
Realized gains and losses on derivatives |
|
|
|
|
|
|
|
|
where the underlying hedged |
|
|
|
|
|
|
|
|
transaction has not yet been realized |
2 |
5 |
– |
– |
2 |
9 |
|
|
Unrealized foreign exchange movements |
|
|
|
|
|
|
|
|
on receivables/payables |
|
|
|
|
|
|
|
|
(and related assets/liabilities) |
4 |
11 |
1 |
4 |
(2) |
18 |
|
|
Operational EBITA |
431 |
217 |
279 |
135 |
(248) |
814 |
|
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%) |
13.5% |
14.2% |
17.3% |
15.2% |
n.a. |
11.5% |
In the three months ended September 30, 2018, Certain other non-operational items in the table above includes the following:
44 Q3 2019 Financial Information
|
|
|
Nine months ended September 30, 2019 |
|||||
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
Robotics & |
Other and |
|
|
|
|
|
Industrial |
|
Discrete |
Intersegment |
|
|
|
($ in millions, unless otherwise indicated) |
Electrification |
Automation |
Motion |
Automation |
elimination |
Consolidated |
|
|
Total revenues |
9,490 |
4,590 |
4,876 |
2,527 |
(573) |
20,910 |
|
|
Foreign exchange/commodity timing |
|
|
|
|
|
|
|
|
differences in total revenues: |
|
|
|
|
|
|
|
|
Unrealized gains and losses |
|
|
|
|
|
|
|
|
on derivatives |
7 |
7 |
5 |
4 |
– |
23 |
|
|
Realized gains and losses on derivatives |
|
|
|
|
|
|
|
|
where the underlying hedged |
|
|
|
|
|
|
|
|
transaction has not yet been realized |
– |
– |
– |
– |
(8) |
(8) |
|
|
Unrealized foreign exchange movements |
|
|
|
|
|
|
|
|
on receivables (and related assets) |
(6) |
1 |
(1) |
(2) |
5 |
(3) |
|
|
Operational revenues |
9,491 |
4,598 |
4,880 |
2,529 |
(576) |
20,922 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
571 |
506 |
764 |
236 |
(787) |
1,290 |
|
|
Acquisition-related amortization |
87 |
3 |
40 |
58 |
17 |
205 |
|
|
Restructuring, related and |
|
|
|
|
|
|
|
|
implementation costs |
61 |
14 |
10 |
8 |
108 |
201 |
|
|
Changes in obligations related to |
|
|
|
|
|
|
|
|
divested businesses |
1 |
– |
– |
– |
31 |
32 |
|
|
Changes in pre-acquisition estimates |
13 |
– |
– |
– |
– |
13 |
|
|
Gains and losses from sale of businesses |
(1) |
– |
– |
– |
(7) |
(8) |
|
|
Fair value adjustment on assets and liabilities |
|
|
|
|
|
|
|
|
held for sale |
466 |
– |
– |
– |
– |
466 |
|
|
Acquisition- and divestment-related expenses |
|
|
|
|
|
|
|
|
and integration costs |
69 |
– |
– |
1 |
2 |
72 |
|
|
Certain other non-operational items |
1 |
2 |
8 |
2 |
108 |
121 |
|
|
Foreign exchange/commodity timing |
|
|
|
|
|
|
|
|
differences in income from operations: |
|
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives |
|
|
|
|
|
|
|
|
(foreign exchange, commodities, |
|
|
|
|
|
|
|
|
embedded derivatives) |
4 |
9 |
8 |
2 |
(2) |
21 |
|
|
Realized gains and losses on derivatives |
|
|
|
|
|
|
|
|
where the underlying hedged |
|
|
|
|
|
|
|
|
transaction has not yet been realized |
3 |
– |
– |
– |
(9) |
(6) |
|
|
Unrealized foreign exchange movements |
|
|
|
|
|
|
|
|
on receivables/payables |
|
|
|
|
|
|
|
|
(and related assets/liabilities) |
(8) |
(4) |
(2) |
– |
4 |
(10) |
|
|
Operational EBITA |
1,267 |
530 |
828 |
307 |
(535) |
2,397 |
|
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%) |
13.3% |
11.5% |
17.0% |
12.1% |
n.a. |
11.5% |
In the nine months ended September 30, 2019, Certain other non-operational items in the table above includes the following:
45 Q3 2019 Financial Information
|
|
|
Nine months ended September 30, 2018 |
|||||
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
Robotics & |
Other and |
|
|
|
|
|
Industrial |
|
Discrete |
Intersegment |
|
|
|
($ in millions, unless otherwise indicated) |
Electrification |
Automation |
Motion |
Automation |
elimination |
Consolidated |
|
|
Total revenues |
8,366 |
4,777 |
4,792 |
2,719 |
(387) |
20,267 |
|
|
Foreign exchange/commodity timing |
|
|
|
|
|
|
|
|
differences in total revenues: |
|
|
|
|
|
|
|
|
Unrealized gains and losses |
|
|
|
|
|
|
|
|
on derivatives |
20 |
(17) |
– |
8 |
– |
11 |
|
|
Realized gains and losses on derivatives |
|
|
|
|
|
|
|
|
where the underlying hedged |
|
|
|
|
|
|
|
|
transaction has not yet been realized |
3 |
12 |
– |
– |
(4) |
11 |
|
|
Unrealized foreign exchange movements |
|
|
|
|
|
|
|
|
on receivables (and related assets) |
(9) |
(4) |
(1) |
– |
(3) |
(17) |
|
|
Operational revenues |
8,380 |
4,768 |
4,791 |
2,727 |
(394) |
20,272 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
1,069 |
655 |
698 |
350 |
(821) |
1,951 |
|
|
Acquisition-related amortization |
71 |
5 |
46 |
62 |
14 |
198 |
|
|
Restructuring, related and |
|
|
|
|
|
|
|
|
implementation costs |
22 |
4 |
14 |
(1) |
4 |
43 |
|
|
Changes in obligations related to |
|
|
|
|
|
|
|
|
divested businesses |
– |
– |
– |
– |
92 |
92 |
|
|
Changes in pre-acquisition estimates |
2 |
– |
– |
– |
– |
2 |
|
|
Gains and losses from sale of businesses |
(81) |
3 |
– |
– |
17 |
(61) |
|
|
Acquisition- and divestment-related expenses |
|
|
|
|
|
|
|
|
and integration costs |
128 |
3 |
1 |
– |
16 |
148 |
|
|
Certain other non-operational items |
(2) |
1 |
7 |
– |
9 |
15 |
|
|
Foreign exchange/commodity timing |
|
|
|
|
|
|
|
|
differences in income from operations: |
|
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives |
|
|
|
|
|
|
|
|
(foreign exchange, commodities, |
|
|
|
|
|
|
|
|
embedded derivatives) |
27 |
(18) |
5 |
(2) |
(13) |
(1) |
|
|
Realized gains and losses on derivatives |
|
|
|
|
|
|
|
|
where the underlying hedged |
|
|
|
|
|
|
|
|
transaction has not yet been realized |
3 |
12 |
– |
– |
(4) |
11 |
|
|
Unrealized foreign exchange movements |
|
|
|
|
|
|
|
|
on receivables/payables |
|
|
|
|
|
|
|
|
(and related assets/liabilities) |
(1) |
14 |
4 |
3 |
3 |
23 |
|
|
Operational EBITA |
1,238 |
679 |
775 |
412 |
-683 |
2,421 |
|
|
|
|
|
|
|
|
|
|
|
Operational EBITA margin (%) |
14.8% |
14.2% |
16.2% |
15.1% |
n.a. |
11.9% |
In the nine months ended September 30, 2018, Certain other non-operational items in the table above includes the following:
46 Q3 2019 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), and
(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.
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.
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 from the computation.
Constant currency Operational EPS adjustment and Operational EPS growth rate (constant currency)
In connection with ABB’s 2015-2020 targets, Operational EPS growth is measured assuming 2014 as the base year and uses constant exchange rates. We compute the constant currency operational net income for all periods using the relevant monthly exchange rates which were in effect during 2014 and any difference in computed Operational net income is divided by the relevant weighted-average number of shares outstanding to identify the constant currency Operational EPS adjustment.
Reconciliation
|
|
|
Nine months ended September 30, |
|
|
|
|
($ in millions, except per share data in $) |
2019 |
2018 |
Growth(3) |
|
|
Net income (attributable to ABB) |
1,114 |
1,856 |
-40% |
|
|
Operational adjustments: |
|
|
|
|
|
Acquisition-related amortization |
205 |
198 |
|
|
|
Restructuring, related and implementation costs(1) |
201 |
43 |
|
|
|
Non-operational pension cost (credit) |
(67) |
(77) |
|
|
|
Changes in obligations related to divested businesses |
32 |
92 |
|
|
|
Changes in pre-acquisition estimates |
13 |
2 |
|
|
|
Gains and losses from sale of businesses |
(8) |
(61) |
|
|
|
Fair value adjustment on assets and liabilities held for sale |
466 |
– |
|
|
|
Acquisition- and divestment-related expenses and integration costs |
72 |
148 |
|
|
|
Certain other non-operational items |
121 |
15 |
|
|
|
FX/commodity timing differences in income from operations |
5 |
33 |
|
|
|
Operational adjustments in discontinued operations |
122 |
100 |
|
|
|
Tax on operational adjustments(2) |
(192) |
(143) |
|
|
|
Operational net income |
2,084 |
2,206 |
-6% |
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding (in millions) |
2,132 |
2,132 |
|
|
|
|
|
|
|
|
|
Operational EPS |
0.98 |
1.03 |
-6% |
|
|
Constant currency Operational EPS adjustment |
0.14 |
0.14 |
|
|
|
Operational EPS (constant currency basis - 2014 exchange rates) |
1.12 |
1.17 |
-5% |
47 Q3 2019 Financial Information
|
|
|
Three months ended September 30, |
|
|
|
|
($ in millions, except per share data in $) |
2019 |
2018 |
Growth(3) |
|
|
Net income (attributable to ABB) |
515 |
603 |
-15% |
|
|
Operational adjustments: |
|
|
|
|
|
Acquisition-related amortization |
70 |
73 |
|
|
|
Restructuring, related and implementation costs(1) |
59 |
37 |
|
|
|
Non-operational pension cost (credit) |
(23) |
(25) |
|
|
|
Changes in obligations related to divested businesses |
25 |
75 |
|
|
|
Changes in pre-acquisition estimates |
– |
1 |
|
|
|
Gains and losses from sale of businesses |
(12) |
(66) |
|
|
|
Fair value adjustment on assets and liabilities held for sale |
11 |
– |
|
|
|
Acquisition- and divestment-related expenses and integration costs |
18 |
75 |
|
|
|
Certain other non-operational items |
45 |
– |
|
|
|
FX/commodity timing differences in income from operations |
13 |
2 |
|
|
|
Operational adjustments in discontinued operations |
51 |
9 |
|
|
|
Tax on operational adjustments(2) |
(63) |
(57) |
|
|
|
Operational net income |
709 |
727 |
-3% |
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding (in millions) |
2,133 |
2,132 |
|
|
|
|
|
|
|
|
|
Operational EPS |
0.33 |
0.34 |
-3% |
|
|
Constant currency Operational EPS adjustment |
0.03 |
0.05 |
|
|
|
Operational EPS (constant currency basis - 2014 exchange rates) |
0.36 |
0.39 |
-7% |
(1) Amounts in the nine and three months ended September 30, 2019 include $71 million and $28 million of implementation costs in relation to the OS program, respectively.
(2) Tax amount is computed by applying the Adjusted Group effective tax rate to the operational adjustments, except for gains and losses from sale of businesses (including fair value adjustment on assets and liabilities held for sale), for which the actual provision for taxes resulting from the gain or loss has been computed.
(3) Growth is computed using unrounded EPS amounts.
Net debt
Definition
Net debt
Net debt is defined as Total debt less Cash and marketable securities.
Total debt
Total debt is the sum of Short-term debt and current maturities of long-term debt, and Long-term debt.
Cash and marketable securities
Cash and marketable securities is the sum of Cash and equivalents, and Marketable securities and short-term investments.
Reconciliation
|
|
($ in millions) |
September 30, 2019 |
December 31, 2018 |
|
|
Short-term debt and current maturities of long-term debt |
1,889 |
2,031 |
|
|
Long-term debt |
7,800 |
6,587 |
|
|
Total debt |
9,689 |
8,618 |
|
|
Cash and equivalents |
2,579 |
3,445 |
|
|
Marketable securities and short-term investments |
569 |
712 |
|
|
Cash and marketable securities |
3,148 |
4,157 |
|
|
Net debt |
6,541 |
4,461 |
48 Q3 2019 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) |
September 30, 2019 |
September 30, 2018 |
|
|
Net working capital: |
|
|
|
|
Receivables, net |
6,448 |
6,589 |
|
|
Contract assets |
1,088 |
1,172 |
|
|
Inventories, net |
4,364 |
4,518 |
|
|
Prepaid expenses |
258 |
273 |
|
|
Accounts payable, trade |
(4,023) |
(4,186) |
|
|
Contract liabilities |
(1,616) |
(1,766) |
|
|
Other current liabilities(1) |
(2,981) |
(3,043) |
|
|
Net working capital in assets and liabilities held for sale |
83 |
– |
|
|
Net working capital |
3,621 |
3,557 |
|
|
Total revenues for the three months ended: |
|
|
|
|
September 30, 2019 / 2018 |
6,892 |
7,095 |
|
|
June 30, 2019 / 2018 |
7,171 |
6,731 |
|
|
March 31, 2019 / 2018 |
6,847 |
6,441 |
|
|
December 31, 2018 / 2017 |
7,395 |
6,804 |
|
|
Adjustment to annualize/eliminate revenues of certain acquisitions/divestments |
(115) |
1,622 |
|
|
Adjusted revenues for the trailing twelve months |
28,190 |
28,693 |
|
|
Net working capital as a percentage of revenues (%) |
12.8% |
12.4% |
(1) Amounts exclude $595 million and $539 million at September 30, 2019 and 2018, respectively, related primarily to (a) income taxes payable, (b) current derivative liabilities, and (c) pension and other employee benefits.
49 Q3 2019 Financial Information
Free cash flow conversion to net income
Definition
Free cash flow conversion to net income
Free cash flow conversion to net income is calculated as adjusted free cash flow divided by Net income attributable to ABB.
Adjusted free cash flow
Adjusted free cash flow is calculated as net cash provided by operating activities adjusted for: (i) purchases of property, plant and equipment and intangible assets, (ii) proceeds from sales of property, plant and equipment, and (iii) changes in financing and other non-current receivables, net (included in other investing activities).
Free cash flow for the trailing twelve months
Free cash flow for the trailing twelve months includes adjusted free cash flow recorded by ABB in the twelve months preceding the relevant balance sheet date.
Net income for the trailing twelve months
Net income for the trailing twelve months includes net income recorded by ABB in the twelve months preceding the relevant balance sheet date.
Free cash flow conversion to net income
|
|
|
Twelve months to |
|
|
|
($ in millions, unless otherwise indicated) |
September 30, 2019 |
December 31, 2018 |
|
|
Net cash provided by operating activities |
2,281 |
2,924 |
|
|
Adjusted for the effects of: |
|
|
|
|
Continuing operations: |
|
|
|
|
Purchases of property, plant and equipment and intangible assets |
(763) |
(772) |
|
|
Proceeds from sale of property, plant and equipment |
90 |
72 |
|
|
Changes in financing receivables and other non-current receivables |
3 |
(8) |
|
|
Discontinued operations: |
|
|
|
|
Purchases of property, plant and equipment and intangible assets |
(183) |
(201) |
|
|
Proceeds from sale of property, plant and equipment |
13 |
8 |
|
|
Changes in financing receivables and other non-current receivables |
– |
1 |
|
|
Adjusted free cash flow |
1,441 |
2,024 |
|
|
Net income attributable to ABB |
1,431 |
2,173 |
|
|
Free cash flow conversion to net income |
101% |
93% |
Reconciliation of the trailing twelve months to September 30, 2019
|
|
|
|
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 |
Changes in financing receivables and other non-current receivables |
|
Purchases of property, plant and equipment and intangible assets |
Proceeds from sale of property, plant and equipment |
Changes in financing receivables and other non-current receivables |
Net income attributable to ABB |
|
|
Q4 2018 |
1,867 |
(235) |
23 |
(1) |
|
(64) |
4 |
– |
317 |
|
|
Q1 2019 |
(256) |
(207) |
48 |
2 |
|
(43) |
– |
– |
535 |
|
|
Q2 2019 |
– |
(169) |
6 |
(3) |
|
(38) |
1 |
– |
64 |
|
|
Q3 2019 |
670 |
(152) |
13 |
5 |
|
(38) |
8 |
– |
515 |
|
|
Total for the trailing |
|
|
|
|
|
|
|
|
|
|
|
twelve months to |
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019 |
2,281 |
(763) |
90 |
3 |
|
(183) |
13 |
– |
1,431 |
Finance net
Definition
Finance net is calculated as Interest and dividend income less Interest and other finance expense.
Reconciliation
|
|
|
Nine months ended September 30, |
Three months ended September 30, |
||
|
|
($ in millions) |
2019 |
2018 |
2019 |
2018 |
|
|
Interest and dividend income |
57 |
61 |
20 |
13 |
|
|
Interest and other finance expense |
(179) |
(196) |
(56) |
(74) |
|
|
Finance net |
(122) |
(135) |
(36) |
(61) |
50 Q3 2019 Financial Information
Book-to-bill ratio
Definition
Book-to-bill ratio is calculated as Orders received divided by Total revenues.
Reconciliation
|
|
|
Nine months ended September 30, |
Three months ended September 30, |
||
|
|
($ in millions, unless otherwise indicated) |
2019 |
2018 |
2019 |
2018 |
|
|
Orders received |
21,702 |
21,605 |
6,688 |
6,917 |
|
|
Total revenues |
20,910 |
20,267 |
6,892 |
7,095 |
|
|
Book-to-bill ratio |
1.04 |
1.07 |
0.97 |
0.97 |
51 Q3 2019 Financial Information
ABB Ltd
Corporate Communications
P.O. Box 8131
8050 Zurich
Switzerland
Tel: +41 (0)43 317 71 11
Fax: +41 (0)43 317 79 58
www.abb.com
52 Q3 2019 Financial Information
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
ABB LTD |
||
|
|
|
|
|
|
|
|
|
|
|
Date: October 23, 2019. |
By: |
/s/ Jessica Mitchell |
|
|
|
|
Name: |
Jessica Mitchell |
|
|
|
Title: |
Group Senior Vice President and
|
|
|
|
|
|
|
|
|
|
|
|
Date: October 23, 2019. |
By: |
/s/ Richard A. Brown |
|
|
|
|
Name: |
Richard A. Brown |
|
|
|
Title: |
Group Senior Vice President and
|
1 Year ABB (PK) Chart |
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