UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________
FORM
20-F
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
OR
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ____________________
Commission file number:
001-16429
_________________________________________
ABB Ltd
(Exact name of registrant as specified in its charter)
Switzerland
(Jurisdiction of incorporation or organization)
Affolternstrasse 44
CH-8050
,
Zurich
,
Switzerland
(Address of principal executive offices)
Richard A. Brown
Affolternstrasse 44
CH-8050
,
Zurich
,
Switzerland
Telephone: +
41
-
43
-
317-7111
Facsimile:
+41-43-317-7992
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
American Depositary Shares
,
each representing one Registered Share
ABB
New York Stock Exchange
Registered Shares, par value CHF 0.12
N/A
New York Stock Exchange
*
_________________________________________
Securities registered or to be registered pursuant to Section 12(g) of the Act: None.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
1,958,344,400
_________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☒
⬜
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Secti on 13 or 15(d) of the Securities
Exchange Act of 1934. Yes
☐
No
☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their
obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes
☒
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of
“large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Emerging growth company
☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards
Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
☒
International Financial Reporting Standards as issued by the International Accounting Standards Board
☐
☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17
☐
☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
__________________________________________________
* Listed on the New York Stock Exchange not for trading or quotation purposes, but only in connection with the registration of American Depositary Shares pursuant to
the requirements of the Securities and Exchange Commission.
(i)
TABLE OF CONTENTS
Page
PART I
4
Item 1.
Identity of Directors, Senior Management and Advisers
4
Item 2.
Offer Statistics and Expected Timetable
4
Item 3.
Key Information
4
Item 4.
Information on the Company
15
Item 4A.
Unresolved Staff Comments
35
Item 5.
Operating and Financial Review and Prospects
36
Item 6.
Directors, Senior Management and Employees
78
Item 7.
Major Shareholders and Related Party Transactions
135
Item 8.
Financial Information
136
Item 9.
The Offer and Listing
137
Item 10.
Additional Information
138
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
147
Item 12.
Description of Securities Other than Equity Securities
149
PART II
150
Item 13.
Defaults, Dividend Arrearages and Delinquencies
150
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
150
Item 15.
Controls and Procedures
150
Item 16.
[Reserved]
151
Item 16A.
Audit Committee Financial Expert
151
Item 16B.
Code of Ethics
151
Item 16C.
Principal Accountant Fees and Services
151
Item 16D.
Exemptions from the Listing Standards for Audit Committees
152
Item 16E.
Purchase of Equity Securities by Issuer and Affiliated Purchasers
152
Item 16F.
Change in Registrant’s Certifying Accountant
152
Item 16G.
Corporate Governance
153
Item 16H.
Mine Safety Disclosure
153
Item 16I.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
153
PART III
154
Item 17.
Financial Statements
154
Item 18.
Financial Statements
154
Item 19.
Exhibits
155
1
Introduction
ABB Ltd is a corporation organized under the laws of Switzerland. In this Annual Report on Form 20-F
(Annual Report), “the ABB Group,” “the Group,” “ABB,” the “Company,” “we,” “our” and “us” refer to ABB Ltd
and its consolidated subsidiaries (unless the context otherwise requires). We also use these terms to refer to
ABB Asea Brown Boveri Ltd and its subsidiaries prior to the establishment of ABB Ltd as the holding
company for the entire ABB Group in 1999, as described in this Annual Report under “Item 4. Information on
the Company—Introduction—History of the ABB Group”. Our American Depositary Shares (each
representing one registered share of ABB Ltd) are referred to as “ADSs”. The registered shares of ABB Ltd
are referred to as “shares”. Our principal corporate offices are located at Affolternstrasse 44, CH-8050 Zurich,
Switzerland, telephone number +41-43-317-7111. Our internet address is www.abb.com or global.abb. The
information contained on or accessible from our Web site is not incorporated into this annual report, and you
should not consider it to be a part of this annual report.
Financial and other information
The Consolidated Financial Statements of ABB Ltd, including the Notes thereto, as of December 31, 2021
and 2020, and for each of the years in the three-year period ended December 31, 2021, (our Consolidated
Financial Statements) have been prepared in accordance with United States generally accepted accounting
principles (U.S. GAAP).
In this Annual Report: (i) “$,” “U.S. dollar” and “USD” refer to the lawful currency of the United States of
America; (ii) “CHF” and “Swiss franc” refer to the lawful currency of Switzerland; (iii) “EUR” and “euro” refer to
the lawful currency of the participating member states of the European Economic and Monetary Union
(Eurozone); (iv) “SEK” and “Swedish krona” refer to the lawful currency of Sweden; (v) “Chinese renminbi”
and “CNY” refer to the lawful currency of the People’s Republic of China; and (vi) “INR” and “Indian Rupee”
refer to the lawful currency of India.
Except as otherwise stated, all monetary amounts in this Annual Report are presented in U.S. dollars. Where
specifically indicated, amounts in Swiss francs have been translated into U.S. dollars. These translations are
provided for convenience only, and they are not representations that the Swiss franc could be converted into
U.S. dollars at the rate indicated. The twelve o’clock buying rate in the City of New York for cable transfers as
certified for customs purposes by the Federal Reserve Bank of New York for Swiss francs on December 30,
2021, was $1.00 = CHF 0.9146. The twelve o’clock buying rate for Swiss francs on February 18, 2022, was
$1.00 = CHF 0.9210.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report includes forward-looking statements within the meaning of the United States Private
Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These
forward-looking statements can be identified by the use of forward -looking terminology, including the terms
“believes,” “estimates,” “anticipates,” “expects,” “intends,” “may,” “will,” or “should” or, in each case, their
negative, or other variations or comparable terminology. These forward-looking statements include all matters
that are not historical facts. They appear in a number of places throughout this Annual Report and include
statements regarding our intentions, beliefs or current expectations concerning, among other things, our
results of operations, financial condition, liquidity, prospects, growth, dispositions, strategies and the
countries and industries in which we operate.
2
These forward looking statements include, but are not limited to, statements about our financial condition and
performance, operating results, liquidity and our ability to fund our business operations and initiatives, the
impact of the COVID-19 pandemic on our business, capital expenditure and debt service obligations, plans
regarding our capital structure, ability to take advantage of market opportunities and drive growth, our
products and service offerings and their anticipated performance and impact across various industries and
consumer segments, anticipated benefits to the shareholders, planned divestments, acquisitions and
integration, and related synergies and other benefits, investment and risk management strategies, volatility in
the credit markets, oil prices, foreign currency exchange rates and other market conditions, trends and
opportunities, industry trends and expectations, changing consumer behavior and demands, our ability to
respond to changing business and economic conditions, our comparative advantages, our commitments and
contingencies, availability of raw materials, and other plans, goals, strategies, priorities and initiatives related
to our business, including our brand management initiative, the implementation of ABB Way, and cost-saving
measures, as well as, the following:
•
•
management objectives, including our outlook, as well as trends in results, prices, volumes,
operations, margins and overall market trends,
•
certain legal and compliance matters, and
•
on future dividend payments.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and
depend on circumstances that may or may not occur in the future. We caution you that forward-looking
statements are not guarantees of future performance and that our actual results of operations, financial
condition and liquidity, and the development of the countries and industries in which we operate, may differ
materially from those described in or suggested by the forward-looking statements contained in this Annual
Report. In addition, even if our results of operations, financial condition and liquidity, and the development of
the countries and industries in which we operate, are consistent with the forward-looking statements
contained in this Annual Report, those results or developments may not be indicative of results or
developments in subsequent periods. Important factors that could cause actual results to differ materially
from our expectations are contained in cautionary statements in this Annual Report and include, without
limitation, the following:
Business, economic and industry risks
•
•
political conditions.
•
markets.
•
•
we fail to keep pace with technological changes.
•
3
•
performance.
•
•
its potential impact on the relationship between Switzer land and the European Union, may have
a negative effect on cross-border trade and our business.
Operational risks
•
‑
attacks
could pose a risk to our systems, networks, products, solutions and services.
•
any divestitures will provide business benefit.
•
ventures or strategic alliances may not be realized.
•
•
consolidated operating results, cash flows, and financial position as well as on our reputation and
our ability to do business.
•
•
‑
term, technically complex projects or projects that are dependent upon factors
not wholly within our control could adversely affect our profitability and future prospects.
•
be prevented from bidding on, or obtaining, some contracts, or our costs with respect to such
contracts could be higher.
•
exchange rates, interest rates or commodity prices on our earnings and cash flows.
Legal and regulatory risks
•
party’s intellectual property rights could adversely affect our business.
•
otherwise protect personal data, may adversely impact our business and financial results.
•
cash flows.
•
incur costs to comply with such regulations, and our ongoing operations may expose us to
environmental liabilities.
•
as well as the physical effects of climate change.
4
General risk factors
•
may be adversely affected.
•
could be materially adversely affected if we incur legal liability.
We urge you to read the other important factors set forth under sections of this Annual Report entitled
“Item 3. Key Information—Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and
Financial Review and Prospects” for a more complete discussion of the important factors that could affect our
future performance and the countries and industries in which we operate. In light of these risks, uncertainties
and assumptions, the forward-looking circumstances described in this Annual Report and the assumptions
underlying them may not occur.
Except as required by law or applicable stock exchange rules or regulations, we undertake no obligation to
update or revise publicly any forward-looking statement, whether as a result of new information, future events
or otherwise. All subsequent written and oral forward-looking statements attributable to us or to persons
acting on our behalf are expressly qualified in their entirety by the cautionary statements referred to above
and contained elsewhere in this Annual Report.
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable
Item 2. Offer Statistics and Expected Timetable
Not applicable
Item 3. Key Information
—
Risk factors
You should carefully consider all of the information set forth in this Annual Report and the following
description of risks and uncertainties that exist or that we currently believe may exist. Our business, financial
condition or results of operations could be adversely affected by any of these risks. Additional risks of which
we are unaware or that we currently deem immaterial may also impair our business operations. This Annual
Report also contains forward-looking statements that involve risks and uncertainties. Our results could differ
materially from those anticipated in these forward-looking statements as a result of certain factors, including
those described below and elsewhere in this Annual Report. See “Cautionary Note Regarding
Forward-Looking Statements”.
—
Business, economic and industry risks
Our business is exposed to risks associated with the COVID-19 pandemic.
The novel coronavirus (COVID-19) pandemic has had, and continues to have, significant impacts on the
global economy including on demand for products, operational predictability, the movement of people and
products across borders, supply chains (including the supply of semiconductors) and the cost of capital.
5
Given the global nature of our business, COVID-19 has had an adverse impact on our revenues and
operating margins in all of our businesses and is expected to continue to have an impact at least in the short
term. In particular, our Robotics and Process Industries businesses as well as our service businesses have
been materially impacted. The ultimate extent to which the pandemic impacts our business, liquidity, results
of operations and financial condition will depend on future developments, which are highly uncertain and
cannot be predicted with confidence, including the availability and effectiveness of vaccines, future mutations
of the COVID-19 virus and any resulting impact on the effectiveness of vaccines, the duration and extent of
the pandemic and waves of infection, travel restrictions and social distancing, the duration and extent of
business closures and business disruptions and the effectiveness of actions taken to contain, treat and
prevent the disease. If we or our customers experience prolonged shutdowns or other business disruptions,
our business, liquidity, results of operations and financial condition may be materially adversely affected and
our ability to access the capital markets may be limited.
Our business is exposed to risks associated with the volatile global economic environment and
political conditions.
Adverse changes in economic or political conditions, particularly in locations where our customers or
operations are located, as well as concerns about global trade, global health crises, developments in energy
prices, and terrorist activities, could have a material adverse effect on our business, financial condition,
results of operations and liquidity and may adversely impact the demand for our products and services.
These and other factors may prevent our customers and suppliers from obtaining the financing required to
pursue their business activities as planned, which may force them to modify, delay or cancel plans to
purchase or supply our products or services. In addition, if our customers do not generate sufficient revenue,
or fail to timely obtain access to the capital markets, they may not be able to pay, or may delay payment of,
the amounts they owe us. Customers with liquidity issues have delayed payments of amounts they owe us
and this had lead and may lead to additional bad debt expense for us, which may adversely affect our results
of operations and cash flows. We are also subject to the risk that the counterparties to our credit agreements
and hedging transactions may go bankrupt if they suffer catastrophic demand on their liquidity that prevents
them from fulfilling their contractual obligations to us.
Our business environment is influenced also by numerous other economic or political uncertainties which
may affect the global economy and the international capital markets. In periods of slow economic growth or
decline, our customers are more likely to buy less of our products and services, and as a result we are more
likely to experience decreased revenues. Our businesses are affected by the level of investments and
demand in the markets that we serve, principally utilities, industry and transport & infrastructure. At various
times during the last several years, we also have experienced, and may experience in the future, gross
margin declines in certain businesses, reflecting the effect of factors such as competitive pricing pressures,
inventory write-downs, charges associated with the cancellation of planned expansion and increases in
component and manufacturing costs resulting from higher labor and material costs borne by our
manufacturers and suppliers that, as a result of competitive pricing pressures or other factors, we are unable
to pass on to our customers. Economic downturns also may lead to restructuring actions and associated
expenses. Uncertainty about future economic conditions makes it difficult for us to forecast operating results
and to make decisions about future investments.
In addition, we are subject to the risks that our business operations in or with certain countries may be
adversely affected by trade tariffs, trade or economic sanctions or other restrictions imposed on these
countries, including the trade tensions between the United States and China in recent years. These could
lead to increased costs for us or for our customers or limit our ability to do business in or with certain
countries. In addition, actual or potential investors that object to certain of these business operations may
adversely affect the price of our shares by disposing or deciding not to purchase our shares. These countries
may from time to time include countries that are identified by the United States as state sponsors of terrorism.
If any countries where or with whom we do business are subject to such sanctions or restrictions, our
business, consolidated operating results, financial condition and the trading price of our shares may be
adversely affected. In 2021, our total revenues from business with countries identified by the U.S.
government as state sponsors of terrorism represented significantly less than 1 percent of our total revenues.
Based on the amount of revenues and other relevant quantitative and qualitative factors, we have determined
6
that our business in 2021 with countries identified by the U.S. government as state sponsors of terrorism was
not material.
Our operations in emerging markets expose us to risks associated with conditions in those markets.
A significant amount of our operations is conducted in the emerging markets in South America, Asia, and the
Middle East and Africa. In 2021, approximately 40 percent of our consolidated revenues were generated from
these emerging markets. Operations in emerging markets can present risks that are not encountered in
countries with well-established economic and political systems, including:
•
these markets, cause delays in the placement of orders for projects that we have been awarded
and subject us to volatile geographic markets,
•
investments in such regions and could complicate our dealings with governments regarding
permits or other regulatory matters, local businesses and workforces,
•
which we do business or where we seek to do business could adversely affect the ability of our
operations in those countries to obtain the materials necessary to fulfill contracts and our ability
to pursue business or establish operations in those countries,
•
•
•
•
•
Additionally, political and social instability resulting from increased violence in certain countries in which we
do business has raised concerns about the safety of our personnel. These concerns may hinder our ability to
send personnel abroad and to hire and retain local personnel. Such concerns may require us to increase
security for personnel traveling to and working in affected countries or to restrict or wind-down operations in
such countries, which may negatively impact us and result in higher costs and inefficiencies.
Consequently, our exposure to the conditions in or affecting emerging markets may adversely affect our
business, financial condition, results of operations and liquidity.
We may encounter difficulty in managing our business due to the global nature of our operations.
We operate in approximately 100 countries around the world and, as of December 31, 2021, employed about
105,000 people, of which approximately 48 percent were located in the Europe region, approximately
28 percent in the Asia, Middle East and Africa region and approximately 24 percent in the Americas region.
To manage our day-to-day operations, we must deal with cultural and language barriers and assimilate
different business practices. Due to our global nature, we deal with a range of legal and regulatory systems
some of which are less developed and less well-enforced than others. The laws and regulations to which we
are subject can change rapidly and in unexpected directions. Currency and other local regulatory limitations
related to the transfer of funds exist in a number of countries where we operate, including: China, India, the
Russian Federation, South Africa and Turkey. All of this may impact our ability to protect our contractual,
intellectual property and other legal rights. In addition, we are required to create compensation programs,
employment policies and other administrative programs that comply with the laws of multiple countries. We
also must communicate, monitor and uphold group-wide standards and directives across our global network,
including in relation to our suppliers, subcontractors and other relevant stakeholders. Our failure to manage
7
successfully our geographically diverse operations could impair our ability to react quickly to changing
business and market conditions and to enforce compliance with group-wide standards and procedures.
We operate in very competitive and rapidly changing markets and could be adversely affected if we
fail to keep pace with technological changes.
We operate in very competitive and rapidly changi ng markets where we regularly need to innovate and
develop products, systems, services and solutions that address the business challenges and needs of our
customers. The nature of these challenges varies across the geographic markets and product areas that we
serve. The markets for our products and services are characterized by evolving industry standards, which
may require us to modify our products and systems. The continual development of advanced technologies for
new products and product enhancements is an important way in which we remain competitive and maintain
acceptable pricing levels. If we fail to keep pace with technological changes in the industrial sectors that we
serve, we may experience lower revenues, price erosion and lower margins.
Our primary competitors are sophisticated companies with significant resources that may develop products
and services that are superior to our products and services or may adapt more quickly than we do to new
technologies, industry changes or evolving customer requirements. We are also facing increased competition
from low cost competitors in emerging markets, which may give rise to increased pressure to reduce our
prices. Our failure to anticipate or respond quickly to technological developments or customer requirements
could adversely affect our business, results of operations, financial condition and liquidity.
Industry consolidation could result in more powerful competitors and fewer customers.
Competitors in the industries in which we operate are consolidating. In particular, the automation industry is
undergoing consolidation that is reducing the number but increasing the size of companies that compete with
us. As our competitors consolidate, they likely will increase their market share, gain economies of scale that
enhance their ability to compete with us and/or acquire additional products and technologies that could
displace our product offerings.
Our customer base also is undergoing consolidation. Consolidation within our customers’ industries (such as
the marine and cruise industry, automotive, aluminum, steel, pulp and paper and pharmaceutical industries
and the oil and gas industry) could affect our customers and their relationships with us. If one of our
competitors’ customers acquires any of our customers, we may lose that business. Additionally, as our
customers become larger and more concentrated, they could exert pricing pressure on all suppliers, including
us. If we were to lose market share or customers or face pricing pressure due to consolidation of our
customers, our results of operations and financial condition could be adversely affected.
Increases in costs or limitation of supplies of raw materials may adversely affect our financial
performance.
We purchase large amounts of commodity-based raw materials, including steel, copper, aluminum and oil.
Prevailing prices for such commodities are subject to fluctuations due to changes in supply and demand and
a variety of additional factors beyond our control, such as global political and economic conditions.
Historically, prices for some of these raw materials have been volatile and unpredictable, and such volatility is
expected to continue. Therefore, commodity price changes may result in unexpected increases in raw
material costs, and we may be unable to increase our prices to offset these increased costs without suffering
reduced volumes, revenues or operating income. We do not fully hedge against changes in commodity prices
and our hedging procedures may not work as planned.
We depend on third parties to supply raw materials and other components and may not be able to obtain
sufficient quantities of these materials and components, which could limit our ability to manufacture products
on a timely basis and could harm our profitability. The risk that we may not be able to obtain raw materials or
other components is increased by the COVID-19 pandemic. For some raw materials and components, we
rely on a single supplier or a small number of suppliers. If one of these suppliers were unable to provide us
with a raw material or component we need, our ability to manufacture some of our products could be
adversely affected until we are able to establish a new supply arrangement. We may be unable to find a
8
sufficient alternative supply channel in a reasonable time period or on commercially reasonable terms, if at
all.
In 2021, global supply chain constraints caused us to experience some delays in supplier deliveries and
product shortages for various categories such as semiconductors and certain other raw materials as well as
constraints in the transportation of inbound supplies. We took steps to mitigate supply chain shortages,
including building up buffer stocks, approving new suppliers and redesigning certain products. Although we
were able to mitigate some disruptions and support our business growth, we have experienced some delays
in delivering to certain of our customers and cannot assure you that our mitigation efforts will be sufficient to
overcome these supply chain constraints if these continue or worsen in 2022.
If our suppliers are unable to deliver sufficient quantities of materials on a timely basis, the manufacture and
sale of our products may be disrupted, we may be required to assume liability under our agreements with
customers and our sales and profitability could be materially adversely affected.
Our multi-national operations expose us to the risk of fluctuations in currency exchange rates.
Currency exchange rate fluctuations have had, and could continue to have, a material impact on our
operating results, the comparability of our results between periods, the value of assets or liabilities as
recorded on our Consolidated Balance Sheet and the price of our securities. Volatility in exchange rates
makes it harder to predict exchange rates and perform accurate financial planning. Changes in exchange
rates can unpredictably and adversely affect our consolidated operating results and could result in exchange
losses.
Currency Translation Risk.
companies are initially recorded in the currency of the country in which each such company resides, which
we call “local currency”. That financial information is then translated into U.S. dollars at the applicable
exchange rates for inclusion in our Consolidated Financial Statements. The exchange rates between local
currencies and the U.S. dollar can fluctuate substantially, which could have a significant translation effect on
our reported consolidated results of operations and financial position.
Increases and decreases in the value of the U.S. dollar versus local currencies will affect the reported value
of our local currency assets, liabilities, revenues and expenses in our Consolidated Financial Statements,
even if the value of these items has not changed in local currency terms. These translations could
significantly and adversely affect our results of operations and financial position from period to period.
Currency Transaction Risk.
denominated in currencies that are different from those in which our manufacturing or sourcing costs are
incurred. In this case, if, after the parties agree on a price, the value of the currency in which the price is to be
paid were to weaken relative to the currency in which we incur manufacturing or sourcing costs, there would
be a negative impact on the profit margin for any such transaction. This transaction risk may exist regardless
of whether there is also a currency translation risk as described above.
Currency exchange rate fluctuations in those currencies in which we incur our principal manufacturing
expenses or sourcing costs may adversely affect our ability to compete with companies whose costs are
incurred in other currencies. If our principal expense currencies appreciate in value against such other
currencies, our competitive position may be weakened.
The uncertainties relating to the United Kingdom’s new relationship with the European Union and its
potential impact on the relationship between Switzerland and the European Union, may have a
negative effect on cross-border trade and our business.
The United Kingdom has withdrawn from the European Union and has negotiated the terms of such
departure (the UK-EU Trade and Cooperation Agreement or TCA). The TCA is subject to formal approval by
the European Parliament and the Council of the European Union before it comes into effect and has been
applied provisionally since January 1, 2021. Because the agreement merely sets forth a framework in many
respects and will require complex additional bilateral negotiations between the United Kingdom and the
9
European Union as both parties continue to work on the rules for implementation, significant political and
economic uncertainty remains and this has had and may continue to have a material effect on cross-border
trade with the United Kingdom and with the European Union. Lack of clarity about future United Kingdom
laws and regulations, potentially divergent national laws, the possibility of increased regulatory complexities,
or future developments in the European Union could depress economic activity, reduce demand for our
products and services, restrict our access to capital, and diminish or eliminate barrier-free access between
the United Kingdom and other European Union member states or among the European economic area
overall. Furthermore, the TCA may influence discussions on open trade and political matters between
Switzerland and the European Union. Any of these factors could have an adverse effect on our business,
financial condition and results of operations.
—
Operational risks
Increased information technology (IT) security threats and more sophisticated cyber-attacks could
pose a risk to our systems, networks, products, solutions and services.
We have observed a global increase in IT security threats and more sophisticated cyber-attacks, which pose
a risk to the security of systems and networks and the confidentiality, availability and integrity of data stored
and transmitted on those systems and networks. Despite our efforts, we have experienced, and may in the
future experience, cyber-attacks against us and we have incurred and will continue to incur substantial costs
to reduce the cyber risks to our systems, networks, products, solutions and services. Similarly, we have
observed a continued increase in attacks generally against industrial control systems as well as against our
customers and the systems we supply to them, which pose a risk to the security of those systems and
networks. Future attacks could potentially lead to the compromising of confidential information, disruption of
our business, improper use or downtime of our systems and networks or those we supplied to our customers,
manipulation, corruption, inaccessibility and destruction of data, defective products or services, production
downtimes and supply shortages. Such attacks may also expose us to loss of business, claims or regulatory
action. Any such impact in turn could adversely affect our reputation, competitiveness and results of
operations. Our insurance coverage may not be adequate to cover all the costs related to cyber security
attacks or disruptions resulting from such events. Due to the nature of these security threats, the nature and
scope of the impact of any future incident cannot be predicted.
Our business strategy includes making strategic divestitures. There can be no assurance that any
divestitures will provide business benefit.
Our strategy includes divesting certain businesses. The divestiture of an existing business could reduce our
future profits and operating cash flows and make our financial results more volatile. We may also retain
certain obligations or grant indemnities in connection with a divestment. We may not find suitable purchasers
for our non-core businesses and may continue to pay operating costs associated with these businesses.
Failed attempts to divest non-core businesses may distract management’s attention from other business
activities, erode employee morale and customers’ confidence, and harm our business. A divestiture could
also cause a decline in the price of our shares and increased reliance on other elements of our core business
operations. Whether we realize the anticipated benefits of a divestment, including our divestment in 2020 of
80.1 percent of the Power Grids business and the divestment in 2021 of our Mechanical Power Transmission
business, depends on whether we successfully manage the related risks. If we do not successfully manage
the risks associated with a divestiture, our business, financial condition, and results of operations could be
adversely affected.
Anticipated benefits of historical, existing and potential future mergers, acquisitions, joint ventures
or strategic alliances may not be realized.
As part of our overall strategy, we may, from time to time, acquire businesses or interests in businesses,
including noncontrolling interests, or form joint ventures or create strategic alliances. Whether we realize the
anticipated benefits, including operating synergies and cost savings, from these transactions, depends, in
part, upon the integration between the businesses involved, the performance and development of the
10
underlying products, capabilities or technologies, our correct assessment of assumed liabilities and the
management of the operations in question. Accordingly, our financial results could be adversely affected by
unanticipated performance and liability issues, transaction-related charges, amortization related to
intangibles, charges for impairment of long-term assets and partner performance.
There is no guarantee that our ongoing efforts to reduce costs will be successful.
We seek continued cost savings through operational excellence and supply chain management. Lowering our
cost base is important for our business and future competitiveness. However, there is no guarantee that we
will achieve this goal. If we are unsuccessful and the shortfall is significant, there could be an adverse effect
on our business, financial condition, and results of operations.
Illegal behavior by any of our employees or agents could have a material adverse impact on our
consolidated operating results, cash flows, and financial position as well as on our reputation and
our ability to do business.
Certain of our employees or agents have taken, and may in the future take, actions that violate or are alleged
to violate the U.S. Foreign Corrupt Practices Act of 1977 (FCPA), legislation promulgated pursuant to the
1997 Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery
of Foreign Public Officials in International Business Transactions, applicable antitrust laws, other applicable
laws or regulations or our Code of Conduct. For more information regarding investigations of past actions
taken by certain of our employees, see “Item 8. Financial Information—Legal Proceedings”. Such actions
have resulted, and in the future could result, in governmental investigations, enforcement actions, civil and
criminal penalties, including monetary penalties and other sanctions, and civil litigation. It is possible that any
governmental investigation or enforcement action arising from such matters could conclude that a violation of
applicable law has occurred, and the consequences of any such investigation or enforcement action may
have a material adverse impact on our consolidated operating results, cash flows and financial position. In
addition, such actions, whether actual or alleged, could damage our reputation and ability to do business.
Further, detecting, investigating and resolving such actions could be expensive and could consume
significant time and attention of our senior management. While we are committed to conducting business in a
legal and ethical manner, our internal control systems at times have not been, and in the future may not be,
completely effective to prevent and detect such improper activities by our employees and agents. We are
subject to certain ongoing investigations by governmental agencies.
We may be the subject of product liability claims.
We may be required to pay for losses or injuries purportedly caused by the design, manufacture or operation
of our products and systems. Additionally, we may be subject to product liability claims for the improper
installation of products and systems designed and manufactured by others.
Product liability claims brought against us may be based in tort or in contract, and typically involve claims
seeking compensation for personal injury or property damage. Claims brought by commercial businesses are
often made also for financial losses arising from interruption to operations. Depending on the nature and
application of many of the products we manufacture, a defect or alleged defect in one of these products could
have serious consequences. For example:
•
explosions and power surges, and significant damage to electricity generating, transmission and
distribution facilities as well as electrical shock causing injury or death.
•
could suffer significant damage to facilities and equipment that rely on these products and
systems to properly monitor and control their manufacturing processes. Additionally, people
could be exposed to electrical shock and/or other harm causing injury or death.
11
•
substances could cause injury or death.
•
could cause injury or death.
If we were to incur a very large product liability claim, our insurance protection might not be adequate or
sufficient to cover such a claim in terms of paying any awards or settlements, and/or paying for our defense
costs. Further, some claims may be outside the scope of our insurance coverage. If a litigant were successful
against us, a lack or insufficiency of insurance coverage could result in an adverse effect on our business,
financial condition, results of operations and liquidity. Additionally, a well -publicized actual or perceived issue
relating to us or our products could adversely affect our market reputation, which could result in a decline in
demand for our products and reduce the trading price of our shares. Furthermore, if we were required or we
otherwise determined to make a product recall, the costs could be significant.
Undertaking long-term, technically complex projects or projects that are dependent upon factors not
wholly within our control could adversely affect our profitability and future prospects.
We derive a portion of our revenues from long-term, fixed price and turnkey projects and from other
technically complex projects that can take many months, or even years, to complete. Such contracts typically
involve substantial risks, including the possibility that we may underbid and consequently have no means of
recouping the actual costs incurred, and the assumption of a large portion of the risks associated with
completing related projects, including the warranty obligations. Some projects involve technological risks,
including in cases where we are required to modify our existing products and systems to satisfy the technical
requirements of a project, integrate our products and systems into the existing infrastructure and systems at
the installation site, or undertake ancillary activities such as civil works at the installation site. Our revenue,
cost and gross profit realized on such contracts can vary, sometimes substantially, from our original
projections for numerous reasons, including:
•
products and systems that may require us to incur incremental expenses to remedy such issues,
•
and environments and may lead to premature failure or unplanned degradation of products,
•
•
•
the ongoing COVID-19 pandemic and natural disasters,
•
•
•
•
•
•
These risks are exacerbated if a project is delayed because the circumstances upon which we originally bid
and quoted a price may have changed in a manner that increases our costs or other liabilities relating to the
project. In addition, we sometimes bear the risk of delays caused by unexpected conditions or events. Our
project contracts often subject us to penalties or damages if we cannot complete a project in accordance with
12
the contract schedule. In certain cases, we may be required to pay back to a customer all or a portion of the
contract price as well as potential damages (which may significantly exceed the contract price), if we fail to
meet contractual obligations.
If we are unable to obtain performance and other guarantees from financial institutions, we may be
prevented from bidding on, or obtaining, some contracts, or our costs with respect to such contracts
could be higher.
In the normal course of our business and in accordance with industry practice, we provide a number of
guarantees including bid bonds, advance payment bonds or guarantees, performance bonds or guarantees
and warranty bonds or guarantees, which guarantee our own performance. These guarantees may include
guarantees that a project will be completed on time or that a project or particular equipment will achieve other
defined performance criteria. If we fail to satisfy any defined criteria, we may be required to make payments
in cash or in kind. Performance guarantees frequently are requested in relation to large projects.
Some customers require that performance guarantees be issued by a financial institution. In considering
whether to issue a guarantee on our behalf, financial institutions consider our credit ratings. If, in the future,
we cannot obtain such a guarantee from a financial institution on commercially reasonable terms or at all, we
could be prevented from bidding on, or obtaining, some contracts, or our costs with respect to such contracts
could be higher, which would reduce the profitability of the contracts. If we cannot obtain guarantees on
commercially reasonable terms or at all from financial institutions in the future, there could be a material
impact on our business, financial condition, results of operations or liquidity.
Our hedging activities may not protect us against the consequences of significant fluctuations in
exchange rates, interest rates or commodity prices on our earnings and cash flows.
Our policy is to hedge material currency exposures by entering into offsetting transactions with third-party
financial institutions. Given the effective horizons of our risk management activities and the anticipatory
nature of the exposures intended to be hedged, there can be no assurance that our currency hedging
activities will fully offset the adverse financial impact resulting from unfavorable movements in foreign
exchange rates. In addition, the timing of the accounting for recognition of gains and losses related to a
hedging instrument may not coincide with the timing of gains and losses related to the underlying economic
exposures.
As a resource-intensive operation, we are exposed to a variety of market and asset risks, including the
effects of changes in commodity prices and interest rates. We monitor and manage these exposures as an
integral part of our overall risk management program, which recognizes the unpredictability of markets and
seeks to reduce the potentially adverse effects on our business. As part of our effort to manage these
exposures, we may enter into commodity price and interest rate hedging arrangements. Nevertheless,
changes in commodity prices and interest rates cannot always be predicted or hedged.
If we are unable to successfully manage the risk of changes in exchange rates, interest rates or commodity
prices or if our hedging counterparties are unable to perform their obligations under our hedging agreements
with them, then changes in these rates and prices could have an adverse effect on our financial condition and
results of operations.
—
Legal and regulatory risks
An inability to protect our intellectual property rights or actual or alleged infringement of a third
party’s intellectual property rights could adversely affect our business.
Our intellectual property rights are fundamental to all of our businesses. We generate, maintain, utilize and
enforce a substantial portfolio of trademarks, trade dress, patents and other intellectual property rights
globally. Intellectual property protection is subject to applicable laws in various local jurisdictions where
interpretations and protections vary or can be unpredictable and costly to enforce. We use our intellectual
property rights to protect the goodwill of our products, promote our product recognition, protect our
13
proprietary technology and development activities, enhance our competitiveness and otherwise support our
business goals and objectives. However, there can be no assurance that the steps we take to obtain,
maintain and protect our intellectual property rights will be adequate. Our intellectual property rights may fail
to provide us with significant competitive advantages, particularly in foreign jurisdictions that do not have, or
do not enforce, strong intellectual property rights. The weakening of protection of our trademarks, trade
dress, patents and other intellectual property rights coul d adversely affect our business. In addition, there
exist risks around actual or alleged infringement of third-party intellectual property rights, which could – even
with mitigation processes in place - lead to claims against us that require significant resources to resolve. We
also may engage in legal action to protect our own intellectual property rights, and enforcing our rights may
require considerable time, money and oversight, and existing laws in the various countries in which we
provide services or solutions may offer only limited protection.
Failure to comply with evolving data privacy and data protection laws and regulations or to otherwise
protect personal data, may adversely impact our business and financial results.
We are subject to many rapidly evolving privacy and data protection laws and regulations around the world
including the General Data Protection Regulation (GDPR) in Europe as well as the California Data Privacy
Act and the California Privacy Rights Act (effective in January 2023) in the United States. This requires us to
operate in a complex environment where there are significant constraints on how we can process personal
data across our business. The GDPR, which became effective in May 2018, has established stringent data
protection requirements for companies doing business in or handling personal data of individuals in the
European Union. The GDPR imposes obligations on data controllers and processors including the
requirement to maintain a record of their data processing and to implement policies and procedures as part of
their mandated privacy governance framework. Breaches of the GDPR could result in substantial fines, which
in some cases could be up to four percent of our worldwide revenue. In addition, a breach of the GDPR or
other data privacy or data protection laws or regulations could result in regulatory investigations, reputational
damage, orders to cease/change our use of data, enforcement notices, as well as potential civil claims
including class action type litigation. We have invested, and continue to invest, human and technology
resources in our data privacy and data protection compliance efforts. There can be no assurance that any
such actions will be sufficient to prevent cybersecurity breaches, disruptions, unauthorized release of
sensitive information or corruption of data. Despite such actions, there is a risk that we may be subject to
fines and penalties, litigation and reputational harm if we fail to properly process or protect the data or privacy
of third parties or comply with the GDPR or other applicable data privacy and data protection regimes.
Examinations by tax authorities and changes in tax regulations could result in lower earnings and
cash flows.
We operate in approximately 100 countries and therefore are subject to different tax regulations. Changes in
tax laws could result in a higher tax expense and higher tax payments. Furthermore, this could materially
impact our tax-related receivables and liabilities as well as deferred income tax assets and liabilities. In
addition, the uncertainty of the tax environment in some regions could limit our ability to enforce our rights. As
a globally operating organization, we conduct business in countries subject to complex tax rules, which may
be interpreted in different ways. Future interpretations or developments of tax regimes may affect our tax
liabilities, returns on investments and business operations. We are regularly examined by tax authorities in
various jurisdictions. An adverse decision by a tax authority could cause a material adverse effect on our
business, financial condition and results of operations.
We are subject to environmental laws and regulations in the countries in which we operate. We incur
costs to comply with such regulations, and our ongoing operations may expose us to environmental
liabilities.
Our operations are subject to U.S., European and other laws and regulations governing the discharge of
materials into the environment or otherwise relating to environmental protection. Our manufacturing facilities
use and produce paint residues, solvents, metals, oils and related residues. We use petroleum-based
insulation in transformers and chloroparaffins as a flame retardant. We have manufactured and sold, and we
are using in some of our factories, certain types of transformers and capacitors containing polychlorinated
biphenyls (PCBs). These are considered to be hazardous substances in many jurisdictions in which we
14
operate. We may be subject to substantial liabilities for environmental contamination arising from the use of
such substances. All of our manufacturing operations are subject to ongoing compliance costs in respect of
environmental matters and the associated capital expenditure requirements.
In addition, we may be subject to significant fines and penalties if we do not comply with environmental laws
and regulations, including those referred to above. Some environmental laws provide for joint and several or
strict liability for remediation of releases of hazardous substances, which could result in us incurring a liability
for environmental damage without regard to our negligence or fault. Such laws and regulations could expose
us to liability arising out of the conduct of operations or conditions caused by others, or for our acts which
were in compliance with all applicable laws at the time the acts were performed. Additionally, we may be
subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous
substances. Changes in the environmental laws and regulations, or claims for damages to persons, property,
natural resources or the environment, could result in substantial costs and liabilities to us.
We could be affected by future laws or regulations enacted to address climate change concerns as
well as the physical effects of climate change.
Existing or pending laws and regulations intended to address climate change concerns could affect us in the
future. We have incurred, and may need to incur additional costs to comply with these laws and regulations
and any non-compliance could adversely affect our reputation and result in significant fines. We could also be
affected indirectly by increased prices for goods or services provided to us by companies that are directly
affected by these laws and regulations and pass their increased costs through to their customers. At this
time, we cannot estimate what impact such costs may have on our business, results of operations or financial
condition. We could also be affected by the physical consequences of climate change itself, although we
cannot estimate what impact those consequences might have on our business or operations. Any such
changes could also impact our ability to achieve our 2030 Sustainability targets as well as the related costs
and resources necessary to do so.
—
General risk factors
If we are unable to attract and retain qualified management and personnel then our business may be
adversely affected.
Our success depends in part on our continued ability to hire, assimilate and retain highly qualified personnel,
particularly our senior management team and key employees. Competition for highly qualified management
and technical personnel remains intense in the industries and regions in which we operate. If we are unable
to attract and retain members of our senior management team and key employees, including in connection
with our ongoing organizational transformation, this could have an adverse effect on our business.
Our business subjects us to considerable potential exposure to litigation and legal claims and could
be materially adversely affected if we incur legal liability.
We are subject to, and may become a party to, a variety of litigation or other claims. Our business is subject
to the risk of claims involving current and former employees, customers, partners, subcontractors, suppliers,
competitors, shareholders, government regulatory agencies or others through private actions, class actions,
whistleblower claims, administrative proceedings, regulatory actions or other proceedings. Our acquisition
activities have in the past and may in the future be subject to litigation or other claims. While we maintain
insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential
liabilities and is subject to various exclusions as well as caps on amounts recoverable.
15
Item 4. Information on the Company
—
Introduction
About ABB
ABB is a leading global technology company that energizes the transformation of society and industry to
achieve a more productive, sustainable future. By connecting software to its electrification, robotics,
automation and motion portfolio, ABB pushes the boundaries of technology to drive performance to new
levels. With a history of excellence stretching back more than 130 years, ABB’s success is driven by about
105,000 talented employees.
Our business is international in scope and we generate revenues in numerous currencies. We operate in over
100 countries across three regions: Europe, the Americas, and Asia, Middle East and Africa. We are
headquartered in Zurich, Switzerland.
We manage our company through our four Business Areas: Electrification, Motion, Process Automation, and
Robotics & Discrete Automation. For a breakdown of our consolidated revenues (i) by Business Area, (ii) by
geographic region, and (iii) by product type, see “Item 5. Operating and Financial Review and Prospects—
Analysis of results of operations—Revenues” and “Note 23 - Operating segment and geographic data” to our
Consolidated Financial Statements. Until June 30, 2020, we also operated the Power Grids business, which
is reported as discontinued operations in the Consolidated Financial Statements (see “Discontinued
operations” section below). On July 1, 2020, we completed the divestment of 80.1 percent of the Power Grids
business to Hitachi Ltd (Hitachi). We retain a 19.9 percent ownership interest through our investment in
Hitachi Energy Ltd, formerly Hitachi ABB Power Grids Ltd (Hitachi Energy) which beneficially owns or
controls all the subsidiaries of the Power Grids business .
Our principal corporate offices are located at Affolternstrasse 44, CH 8050 Zurich, Switzerland, telephone
number +41 43 317 7111. Our agent for U.S. federal securities law purposes is ABB Holdings Inc., located at
305 Gregson Drive, Cary, North Carolina 27511. Our internet address is www.abb.com or global.abb. The
information contained on or accessible from our Web site is not incorporated into this annual report, and you
should not consider it to be a part of this annual report. The United States Securities and Exchange
Commission (SEC) maintains a website at www.sec.gov which contains in electronic form each of the reports
and other information that we have filed electronically with the SEC.
History of the ABB Group
The ABB Group was formed in 1988 through a merger between Asea AB and BBC Brown Boveri AG. Initially
founded in 1883, Asea AB was a major participant in the introduction of electricity into Swedish homes and
businesses and in the development of Sweden’s railway network. In the 1940s and 1950s, Asea AB
expanded into the power, mining and steel industries. Brown Boveri and Cie. (later renamed BBC Brown
Boveri AG) was formed in Switzerland in 1891 and initially specialized in power generation and turbines. In
the early to mid
‑
1900s, it expanded its operations throughout Europe and broadened its business operations
to include a wide range of electrical engineering activities.
In January 1988, Asea AB and BBC Brown Boveri AG each contributed almost all of their businesses to the
newly formed ABB Asea Brown Boveri Ltd, of which they each owned 50 percent. In 1996, Asea AB was
renamed ABB AB and BBC Brown Boveri AG was renamed ABB AG. In February 1999, the ABB Group
announced a group reconfiguration designed to establish a single parent holding company and a single class
of shares. ABB Ltd was incorporated on March 5, 1999, under the laws of Switzerland. In June 1999,
ABB Ltd became the holding company for the entire ABB Group. This was accomplished by having ABB Ltd
issue shares to the shareholders of ABB AG and ABB AB, the two companies that formerly owned the ABB
Group. The ABB Ltd shares were exchanged for the shares of those two companies, which, as a result of the
share exchange and certain related transactions, became wholly
‑
owned subsidiaries of ABB Ltd.
16
As described above, on July 1, 2020, we divested 80.1 percent of our ownership in the Power Grids business
to Hitachi.
ABB Ltd shares are currently listed on the SIX Swiss Exchange, the NASDAQ OMX Stockholm Exchange
and the New York Stock Exchange (in the form of American Depositary Shares).
ABB Today
As a global leader in resource efficiency, excelling in electrification and automation, our offering is relevant for
the global energy transition, increased energy efficiency, and the transition to more adaptive manufacturing
and automation, putting us right in the center of long-term secular trends.
The ABB Purpose
The ABB Purpose captures what we do, and the ABB Way describes how we do it. With our Purpose at the
core, ABB strives to create superior value for customers, employees and shareholders. The ABB Purpose is
summarized as:
•
•
•
future.
Our core competencies
Our leadership in resource efficiency is based on our core competencies, each of which constitutes a barrier
to entry: decades-long domain expertise, cutting-edge technology and innovation as well as the ability to
scale operations and distribution.
With its long history, ABB not only invented or pioneered many power and automation technologies but has
retained technology and market leadership in many of these areas. Being present in various vertical markets
for decades with close long-term relationships with customers and channel partners has resulted in our
unique deep domain expertise, enabling a thorough understanding of customers’ needs and operations.
We continuously evolve our offering to remain a relevant and trusted partner to our customers. Our annual
non-order related research and development spending in 2021 amounted to approximately 4.2 percent of
revenues. We focus our research and development expenditures on key areas of innovation and have spent
approximately $7 billion since the beginning of 2016, focusing on developing best-in-class products and
services in the fields of electrification and automation with the goal of helping our customers to increased
productivity and lower their ecological footprint.
All our four Business Areas are market leaders in their respective areas being in either the number 1 or 2
positions. Our global reach along with our extensive local presence assists us in scaling innovations to
achieve stronger returns, which supports higher absolute investments for future growth. Active globally, our
revenues are well-balanced across regions with customers served directly and through a strong channel
partner network.
The ABB Way
The ABB Way is the glue that unites our Group and comprises a select number of common processes
covering our business model, our people and culture, the ABB brand and our governance framework. It
facilitates accountability, transparency and speed in ABB.
17
In our operating model, the Divisions represent the highest level of operating decisions. They are closest to
their respective markets and customer needs. Each Division progresses through the strategic mandates and
priorities of stability and profitability before growth. Meaning, in order to deploy full focus on organic and
acquired growth to the extent of consolidating the market, the business’ structure should be robust and
profitability should be at least in line with industry peers. We have made good progress on the transition
through these priorities with two thirds of our Divisions, representing approximately 60 percent of Group
revenues, now on a growth mandate.
Each Division has full accountability for its results and carries the responsibility for business development,
and research and development for leading technology to secure a number 1 or 2 market position. To fully
complete the decentralized way of working at ABB, our focus area in 2022 will be to make sure that we also
have accountability, transparency and speed within all of the Divisions. Strong performance management is
key in a decentralized business model. We apply a monthly scorecard system for the Divisions and Business
Areas, based on a standardized set of Key Performance Indicators, to support full transparency of
performance. It is accompanied by a mandatory target to make annual productivity improvements of at least
3 percent each year.
The corporate functions focus on necessary strategic, financial and governance activities, with a lean
headcount of approximately 800 employees.
Enhanced growth profile
Over the past several years, we have taken significant organic and inorganic actions to align our business
portfolio to more attractive growth markets, increasing our focus on discrete industries, as well as transport
and infrastructure, that offer better growth opportunities. Additionally, we have increased the proportion of
sales stemming from short-cycle businesses, meaning a reduced proportion from project-related activities,
which should reduce the risk and volatility in our earnings. This ongoing shift towards better quality of
revenues is part of ABB’s DNA which centers around resource-efficiency in electrification and automation.
The responsibility for growth has been fully transferred to the Divisions, as they are closest to customers.
This includes both organic and acquired growth. The Divisions have the best insights into current and future
customer needs and are accountable for building their respective business accordingly. With more Divisions
transitioning over time from stability and profitability to growth, we expect to see a continuous shift in our
growth profile.
Finally, the underlying demand for our products, systems and services is supported by strong sustainability
megatrends with more favorable regulations, improved technology and changing consumer patterns all being
positive drivers. An example of such a megatrend is sustainable transport. We estimate that approximately
10 percent of our order intake comes from this area and that we have outgrown the market in recent years.
The related segments have different commercial maturity, including more mature technologies which already
generate significant orders, including traction systems in rail or hybrid ships using Azipod® propulsion.
Segments that are in commercial take-off (i.e. currently see very high growth rates) include electric vehicle
charging solutions or robotic solutions for electric vehicle manufacturing. There are also very early-stage
segments which are still emerging and which might offer a high potential in the future such as fully electric
mines (“eMines”) or alternative fuels such as hydrogen.
—
Businesses
Our markets
ABB is a leading global technology company with a comprehensive and increasingly digitalized offering of
electrification, motion and automation solutions. Our exposure to customers is geographically balanced while
catering to multiple end-markets and segments. We believe that our portfolio is well positioned to benefit from
secular growth drivers, including urbanization, labor shortage, shift to electrification, automation and
robotization, as well as other data and digitalization trends.
18
We are focused on creating superior customer value through our comprehensive, modular offering,
combining traditional products and services with software -enabled products and systems as well as digital
services and software that we sell both separately and combined as scalable solutions. Superior software is a
key differentiation of our digital offering and about 60 percent of our approximately 7,000 employees in
research and development are active in software development.
The majority of our businesses are market leaders within their respective segments. We believe market
leadership is critical, as it provides the opportunity for price leadership, which in turn supports profitability,
enabling us to invest in further research and development to sustain our technological leadership. For a
discussion of the geographic distribution of our total revenues, see “Item 5. Operating and Financial Review
and Prospects—Analysis of results of operations—Revenues.”
Industry market
Approximately half of our customers are industrial customers. We serve production facilities and factories all
around the world, from process industries such as oil and gas, pulp and paper as well as mining, to discrete
industries including automotive, food and beverage and consumer electronics. Automation, software and
digital services that help customers achieve improved safety, uptime, energy efficiency and productivity are
key to the success of our offerings in this market. The ongoing COVID-19 pandemic has served as a
prominent reminder for companies of the importance of simplicity and flexibility in automated production and
has accelerated customer demand for the digital services and solutions we offer.
Industrial end-markets recovered from the initial pandemic-related impacts. In discrete industries, end-
markets such as food and beverage, consumer electronics, machine builders and general industry grew
strongly. Investments in robotics by the automotive industry recovered and we applied a strategic selective
order approach aimed at improving long-term profitability in the segment.
Later-cycle process industries segments picked up especially during the second half of 2021, benefiting from
a rebound in commodity prices and generally easing international travel restrictions. This was particularly the
case for the oil and gas segment, while the recovery in segments such as pulp and paper, mining or water
and wastewater had already started earlier.
Transport & infrastructure market
Approximately one-third of our customers operate in the transport & infrastructure market. Our expertise
provides efficient, reliable and sustainable solutions for these customers, with a focus on energy efficiency
and reduced operating costs.
Transport & infrastructure markets were strong in 2021. Buildings activity rebounded from the widespread
lockdowns of the previous year. Data center markets continued to expand, with ABB successful in offering
bundled solutions to hyperscale and co-location customers in particular. Underlying demand in rail for
electrification and traction solutions was also high, while modest growth rates were impacted by the strong
order intake in 2020. In the marine sector, we saw continued strong order demand for our market-leading
electric propulsion systems. Services in the cruise segment started to pick-up in the second half of 2021 in
anticipation of a recovery in cruising activities. EV charging markets also continued to see very strong growth
rates.
Utilities market
ABB delivers solutions mainly for distribution utilities and renewables customers, while continuing to service
conventional power generation customers with our control and automation solutions. Following the
divestment of our Power Grids business to Hitachi in July 2020, our exposure to the utilities market has
decreased significantly.
During 2021, the renewables markets saw very strong growth after a challenging, pandemic-impacted 2020.
Business levels in the conventional power generation market improved, albeit from a low level. Demand from
electrical distribution utilities was strong, with ongoing investments to increase grid reliability and resilience
with integrating increased renewables.
19
We serve industry, transport & infrastructure and utilities through our operating Divisions which are included
in our Business Areas. Developments in these Business Areas are discussed in more detail below. Revenue
figures presented in this Businesses section are before intersegment eliminations.
—
Electrification Business Area
Overview
The products of the Electrification Business Area portfolio are designed to enable safe, smart, and
sustainable electrification, with a full range of low- and medium-voltage products and solutions, along with
pre-engineered packaged services and tailored solutions for intelligent protection and connection.
The Electrification Business Area delivers products through a global network of channel partners and end
customers. Most of the Business Area’s revenue is derived from distributors and approximately a quarter is
derived from direct sales to end-users. The remaining revenues are generated from original equipment
manufacturers (OEMs), engineering, procurement, construction (EPC) contracting companies, system
integrators, utilities and panel builders. The proportion of direct compared to channel partner sales varies by
segment, product technology and geographic markets.
The Electrification Business Area had approximately 50,800 employees on December 31, 2021, and
generated $13.2 billion of revenues in 2021.
Customers
The Electrification Business Area serves a wide range of customer segments, including residential,
commercial, and industrial buildings, electric utilities, oi l and gas, chemicals, data centers, e-mobility,
renewables, food and beverage, and other industries and infrastructure.
Products and Services
The Electrification Business Area’s products and services are delivered through six operating Divisions.
The Distribution Solutions Division helps utility, industry and transport & infrastructure customers improve
power quality and control, reduce outage time and enhance operational reliability and efficiency. The Division
offers products, solutions and services that largely serve the power distribution sector, often providing the
requisite medium-voltage link between high-voltage transmission systems and low-voltage users. With ABB
Ability
TM
medium-voltage equipment (1 to 66 kilovolts), indoor and outdoor circuit breakers, reclosers, fuses,
contactors, relays, instrument transformers, sensors, motor control centers, as well as a wide range of air-
and gas-insulated switchgear. The Division also produces indoor and outdoor modular systems and other
segment-specific solutions to facilitate efficient and reliable distribution, protection and control of power,
adding value through design, engineering, project management and service. The service offering spans the
entire value chain, from the moment a customer makes the first inquiry to disposal and recycling of the
product, enriched by advanced digital services for asset management. Throughout the value chain, the
Division provides training, technical support and customized contracts.
The Smart Power Division helps protect, control, and connect people, plants, and systems with a portfolio of
low-voltage products and systems. The product offering includes, molded-case and air-circuit breakers,
safety products including sensors, switches, contactors, relays, and power protection solutions such as
uninterruptible power supply (UPS) solutions, status transfer switches and power distribution units.
20
The Smart Buildings Division helps optimize efficiency, safety, security and comfort in homes and other
buildings. The Division offers digitally enabled controls for HVAC, lighting, shutters, and security in addition to
low-voltage products including conventional wiring accessories, industrial plugs and sockets, emergency
lighting, DIN-rail products, and enclosures ideal for single family homes, multiple dwellings, commercial
buildings, infrastructure and industrial applications. The Division’s highly innovative solutions serve rising
global demand among developers, owners, and investors for smart building technology, offering significant
sustainable and financial benefits, as well as answering social and environmental needs, and addressing
customers’ carbon reduction strategies.
The Installation Products Division helps manage the connection, protection and distribution of electrical
power. The Division’s products are engineered to provide ease of installation and perform in demanding and
harsh conditions, helping to ensure safety and continuous operation for our customers and people around the
world. The commercial essentials product segment includes electrical junction boxes, commercial fittings,
strut and cable tray metal framing systems for commercial and residential construction. The premier industrial
product segment includes multiple product lines, such as Ty-Rap®, T&B Liquidtight Systems®, PVC coated
and nylon conduit systems, power connection and grounding systems, cable protection systems of conduits
and fittings for harsh and industrial applications. The Division also manufactures solutions for medium-voltage
applications used in utility and industrial applications under its marquee brands including Elastimold
TM
reclosers and switchgear, capacitor switches, current limiting fuses, the High Tech Valiant
TM
limiting fuse for fire mitigation, faulted current indicators and distribution connectors, cable accessories and
apparatus with products for overhead and underground distribution.
The Power Conversion Division supplies innovative critical power solutions to infrastructure customers and
manufacturers of a wide range of equipment. The Division supports its customers in telecom/5G, networking,
data centers, and industrial applications (such as oil and gas, utility, power generation, and robotics) in
rapidly changing, disruptive environments where information, access and response times are redefining the
markets. The Power Conversion Division also provides customers with reliable and efficient power that
supports increasing infrastructure requirements, ensuring that data flows 24/7, while optimizing footprint,
energy costs and operations. The Division supports customers by providing the latest industry insights and
technology, partnering to co-develop solutions to tackle evolving challenges.
The E-mobility Division engineers electrification solutions to enable global, accessible, reliable, smart and
emission-free mobility. The Division offers to its customers a total electric vehicle charging solution from
compact AC wall boxes and DC fast charging stations to on-demand electric bus charging systems. The
Division also provides customers with services such as infrastructure installation and maintenance to meet
the requirements of the next generation of smarter mobility. ABB Ability™ connected chargers enable fast
global service and pro-active maintenance.
Sales and Marketing
The Electrification Business Area’s global markets common sales and marketing organization creates
demand across all channels and products, with a range of promotional activities and support services
including account, channel, and segment sales management, commercial operations, and digital expertise.
Competition
The Electrification Business Area’s principal competitors vary by product group and include Chint, Eaton,
Hubbell, Legrand, LS Electric, Panasonic, Rittal, Schneider Electric and Siemens.
21
Capital Expenditures
The Electrification Business Area’s capital expenditures for property, plant and equipment totaled
$345 million in 2021, compared to $316 million in 2020. Investments in 2021 were higher than in 2020 as
some investments were previously delayed in 2020 due to the COVID-19 pandemic. Investments in 2021
principally related to capacity expansion for e-mobility products, including the construction of a new factory in
Italy, and to footprint changes, equipment replacement and upgrades. Geographically, in 2021, Europe
represented 54 percent of the capital expenditures, followed by the Americas (34 percent) and Asia, Middle
East and Africa (12 percent).
—
Motion Business Area
Overview
The Motion Business Area provides pioneering technology, products, solutions and related services to
industrial customers to increase energy efficiency, improve safety and reliability, and maintain precise control
over processes. The portfolio includes motors, generators and drives for a wide range of applications in all
industrial sectors.
The Motion Business Area had approximately 20,000 employees as of December 31, 2021, and generated
around $6.9 billion of revenues in 2021.
Products and Services
The Motion Business Area designs, manufactures and sells drives, motors, generators and traction
converters. Building on long-standing experience in electric powertrains, the Business Area combines domain
expertise and technology to deliver the optimum solution for a wide range of applications for a comprehensive
range of industrial segments. In addition, the Business Area, along with its channel partners, has an industry-
leading global service presence.
At December 31, 2021, the Motion Business Area’s products and services are delivered through seven
operating Divisions. The Business Area divested its Mechanical Power Transmission Division on
November 1, 2021, which designed, manufactured and sold various mechanical power transmission products
sold under the Dodge® brand.
The Drive Products Division serves the industries and infrastructure segments with world-class drives and
programmable logic controllers (PLC). With its products, global scale and local presence, the Division helps
customers to improve energy efficiency, productivity and safety.
The System Drives Division supplies high-power, high-performance drives, drive systems and packages for
industrial process and large infrastructure applications. The Division offers global support to help customers,
partners and equipment manufacturers with asset reliability, performance improvement and energy efficiency
in mission critical applications.
The Service Division serves customers worldwide and aims to help customers by maximizing uptime,
extending life cycle and enhancing the performance and energy efficiency of their electrical motion solutions.
The Division is leading the way in digitalization by securely connecting motors and drives to help customers
prevent expensive downtime while also optimizing operations’ profitably, safely and reliably.
The Traction Division is a recognized leader in traction technologies that drive innovation in rail, bus and
other modes of electric transportation. A comprehensive range of high performance propulsion, auxiliary and
energy storage solutions help improve energy efficiency and contributes to making transportation more
sustainable.
22
The IEC Low Voltage Motors Division is a global market leader that provides a full range of energy efficient
low voltage motors, including ultra-efficient motors such as synchronous reluctance motors (SynRM) to help
customers reduce power bills and cut emissions. Through a global footprint, application expertise and with
rugged designs, the Division’s products support customers with IEC low-voltage motor solutions that improve
reliability and productivity in the most demanding applications .
The Large Motors and Generators Division offers a comprehensive product portfolio of large AC motors and
generators. The Division’s robust, reliable and highly efficient offerings power critical infrastructure and
transportation across all major industries and applications often in remote and demanding locations.
The NEMA Motors Division is a marketer, designer and manufacturer that offers Baldor-Reliance® industrial
electric motors, primarily in North America. The Division focuses on quality, reliability and efficiency to provide
a comprehensive offering of NEMA motors in the market across most industrial segments and applications.
Customers
The Motion Business Area serves a wide range of customers in different industrial segments such as pulp
and paper, oil and gas, metals and mining, food and beverage, HVAC, water and wastewater, transportation,
power generation, marine and offshore.
Sales and Marketing
Sales are made both through direct sales forces and through channel partners, such as distributors and
wholesalers, as well as installers, OEMs and system integrators. The proportion of direct sales to end users
compared to channel partner sales varies among the different industries, products and geographic markets.
Competition
The principal competitors of the Motion Business Area include Schneider, Siemens, Toshiba, WEG
Industries, SEW EURODRIVE and Danfoss.
Capital Expenditures
Capital expenditures in the Motion Business Area for property, plant and equipment totaled $230 million in
2021, compared to $118 million in 2020. Principal investments in 2021 related to the purchase of a formerly
leased property in China as well as equipment replacement, footprint adjustments and automation upgrades.
Geographically, in 2021, Asia, Middle East and Africa represented 49 percent of the capital expenditures,
followed by Europe (34 percent) and the Americas (17 percent).
—
Process Automation Business Area
Overview
In 2021, the former Industrial Automation Business Area was renamed Process Automation and there was no
change in the composition of the Divisions. The Process Automation Business Area offers customers in
process, hybrid and maritime industries a broad range of integrated automation, electrical, motion and digital
systems, solutions and related services that are designed to optimize productivity, energy efficiency,
sustainability and safety of industrial processes and operations, based on the Business Area’s deep domain
knowledge and expertise of each end market.
The Business Area’s offering can be grouped , with about half relating to solutions for new and brownfield
projects and half relating to service, mainly for installed own products. In some cases, the Business Area
integrates offerings from the Electrification, Motion and Robotics & Discrete Automation Business Areas into
its integrated systems. The Business Area’s offerings are sold primarily through its direct sales force with a
smaller share through partners and distributors.
23
The Business Area had approximately 22,000 employees as of December 31, 2021, and generated revenues
of $6.3 billion in 2021.
Customers
The Process Automation Business Area’s end customers include companies across process, hybrid and
maritime industries. These industries include oil, gas, chemicals and plastics, mining and minerals, metals,
pulp and paper, pharmaceuticals, food and beverage, power generation, marine and ports.
Products and Services
The offering of the Process Automation Business Area includes an extensive portfolio of products, solutions,
digital applications and services for the control of the simplest to the most complex and critical of processes
and infrastructure. These systems can link various process and information flows, allowing customers to
manage and control their entire business process based on real-time information. The Business Area’s
control platform includes ABB Ability™ Distributed Control System (DCS), System 800xA
®
, which is also an
electrical control system, a safety system and a collaboration enabler with the capacity to improve
engineering efficiency, operator performance and asset utilization. Other control solutions include Symphony
®
Plus (designed to address the open automation platform needs of the Hydropower and Water industry
segments) and our Freelance DCS solution. Components for basic automation solutions, process controllers,
I/O modules, panels, and Human Machine Interfaces (HMI), are available through the Compact Product Suite
offering. The product portfolio is complemented by a suite of ABB Ability™ Advanced Digital Services and by
ABB Care, a subscription-based lifecycle management program that provides services to maintain and
continually advance and enhance ABB’s distributed
control systems and optimize customers’ lifecycle costs.
The ABB Ability™
Genix Industrial Analytics and Artificial Intelligence Suite unlocks greater value by
contextualizing and integrating data from IT, engineering, and operations systems to provide deep,
meaningful and actionable insights. The portfolio is complemented by a range of industry-specific products in
each Division.
The Process Automation Business Area has five operating Divisions.
The Energy Industries Division enables safe, smart, and sustainable projects and operations for businesses
across the oil and gas, chemicals, life sciences, power generation and water sectors. It is committed to
driving more sustainable use of our planet’s resources through innovative solutions that enable energy
efficient and low carbon operations across traditional industries and support the development of new and
renewable energy models. The Division serves the energy market with leading integrated solutions that
automate, digitalize and electrify operations across industries. The Division’s goal is to help customers adapt
and succeed in the rapidly changing global energy transition. Harnessing data, machine learning and AI, the
Division brings over 50 years of domain expertise delivering solutions designed to improve energy, process
and production efficiency, as well as reduce risk, operational cost and capital cost, while minimizing waste for
all customers, from project start-up and throughout the entire plant lifecycle.
The Process Industries Division serves the mining, minerals processing, metals, aluminum, cement, pulp and
paper, battery manufacturing, and food and beverage, as well as their associated service industries. The
Division brings deep industry domain expertise coupled with the ability to integrate both automation and
electrical, increase productivity and reduce overall capital and operating costs for customers. For mining,
metals and cement customers, solutions include specialized products and services, as well as total
production systems. The Division designs, plans, engineers, supplies, erects and commissions integrated
electrical and motion systems, including electric equipment, drives, motors, high power rectifiers and
equipment for automation and supervisory control within a variety of areas including mineral handling, mining
operations, aluminum smelting, hot and cold steel applications and cement production. The offering for the
pulp and paper industries includes control systems, quality control systems, drive systems, on-line sensors,
actuators and field instruments. Digitalization solutions, including collaborative operations and augmented
reality, help improve plant and enterprise productivity, and reduce maintenance and energy costs.
24
The Marine & Ports Division serves the shipping industry through its extensive portfolio of integrated marine
systems and solutions that improve the flexibility, reliability and energy efficiency of vessels. By coupling
power, propulsion, automation, marine software and services that ensure maximum vessel uptime, we are
well positioned to help improve the profitability and sustainability of our customers’ business throughout the
entire lifecycle of a fleet. With ABB Ability™ Marine software solutions and ABB Ability™ Collaborative
Operations Centers around the world, shipowners and operators can run their fleets at lower fuel and
maintenance costs, while improving crew, passenger and cargo safety as well as overall productivity of their
operations. Further, the Division delivers automation, electrical systems and digital solutions for container and
bulk cargo handling, from ship to gate. These solutions help terminal operators meet the challenge of larger
ships, taller cranes and bigger volumes per call, and make terminal operations safer, greener and more
productive.
The portfolio of the Measurement & Analytics Division consists of analyzers (measuring compositions of
gases and liquids), instrumentation (measuring the typical process variables of temperature, pressure, flow,
and level) as well as specialized measurements for specific industries. With this offering the Division serves
virtually all process, hybrid and marine industries, the largest among them being the oil, gas and chemical
value chain, water and power generation industries. The Division also provides advanced digital solutions to
help customers improve productivity, safety and environmental sustainability.
The Turbocharging Division manufactures and services turbochargers for diesel and gas engines with power
levels ranging from 500 kilowatts to over 80 megawatts. Key end sectors are marine- and land-based power
generation. The Division provides engine builders and operators advanced solutions and services for efficient
and flexible application operations, in compliance with the most stringent environmental requirements.
Sales and Marketing
The Process Automation Business Area’s sales are primarily made through its direct sales force as well as
third-party channel partners, such as distributors, system integrators and OEMs. The majority of revenues are
derived through the Business Area’s own direct sales channels.
Competition
The Process Automation Business Area’s principal competitors vary by industry or product group.
Competitors include: Emerson, Honeywell, Schneider Electric, Siemens, Siemens Energy, Yokogawa,
Endress + Hauser, Kongsbe rg, Valmet and Garrett.
Capital Expenditures
The Process Automation Business Area’s capital expenditures for property, plant and equipment totaled
$85 million in 2021, compared to $75 million in 2020. Principal investments in 2021 were in the
Turbocharging and the Measurement & Analytics Divisions. Geographically, in 2021, Europe represented
73 percent of the capital expenditures, followed by Asia, Middle East and Africa (18 percent) and the
Americas (9 percent).
—
Robotics & Discrete Automation Business Area
Overview
The Robotics & Discrete Automation Business Area provides robotics, and machine and factory automation
including products, software, solutions and services. Revenues are generated both from direct sales to end
users as well as from indirect sales mainly through system integrators and machine builders.
The Robotics & Discrete Automation Business Area had approximately 10,600 employees as of
December 31, 2021, and generated $3.3 billion of revenues in 2021.
25
Products and Services
The Robotics & Discrete Automation Business Area’s products and services are delivered through two
operating Divisions.
The Robotics Division offers a wide range of products, solutions and services including robots, robotics
application cells and smart systems, field services, spare parts, digital services, engineering and operations
software. This offering provides customers with increased productivity, quality, flexibility and simplicity for
operations, e.g. to meet the challenge of making smaller lots of a larger number of specific products in shorter
cycles for today’s dynamic global markets and coping with increasing uncertainty. Robots are also used in
activities or environments which may be hazardous to employee health and safety, such as repetitive or
strenuous lifting, dusty, hot or cold rooms, or painting booths and can help customers address labor
shortages. Robotics solutions are used in a wide range of segments from automotive OEMs, automotive
suppliers, electronics, general industry, consumer goods, food and beverage, and warehouse/logistics center
automation. They are increasingly deployed in service applications for health care, restaurants and retail.
Typical robotic applications include welding, material handling, machine tending, machining, painting, picking,
packing, palletizing and assembly. In 2021, we acquired ASTI Mobile Robotics Group (ASTI) adding a broad
portfolio of autonomous mobile robot vehicles and solutions.
The Machine Automation Division offers integrated automation solutions based on programmable logical
controllers, industrial PCs, servo motion, industrial transport systems and machine vision. It also provides
software for engineering and optimization. The range of solutions are mainly used by machine builders for
various types of series machines, e.g. for plastics, metals, printing and packaging.
Customers
Robotics & Discrete Automation serves a wide range of customers. The main customers are active in
industries such as automotive, machine building, metalworking, electronics, food and beverage and logistics.
They include end-users such as manufacturers, system integrators and machine builders.
Sales and Marketing
Sales are made both through direct sales as well as through third
‑
party channel partners, such as system
integrators and machine builders. The proportion of direct sales compared to channel partner sales varies
among the different industries, product technologies and geographic markets.
Competition
Competitors of the Robotics & Discrete Automation Business Area vary by offering and include companies
such as Fanuc, Kuka, Yaskawa , Epson, Dürr, Stäubli, Universal Robots, Rockwell Automation, Siemens,
Mitsubishi Electric and Beckhoff.
Capital Expenditures
The Robotics & Discrete Automation Business Area’s capital expenditures for property, plant and equipment
totaled $96 million in 2021, compared to $65 million in 2020. Principal investments in 2021 were primarily
related to research and development and training facilities, especially the new Machine Automation Division
global innovation and training campus in Austria, and upgrades and equipment replacement. In 2021, Europe
represented 75 percent of capital expenditures, followed by Asia, Middle East and Africa (23 percent) and the
Americas (2 percent).
26
—
Corporate and Other
Corporate and Other includes core headquarter functions, real estate activities, Corporate Treasury
Operations, Global Business Services (GBS), the investment in Hitachi Energy and other minor business
activities. Certain strategic investments managed by ABB Technology Ventures are also included in
Corporate. The remaining activities of certain EPC projects which we are completing and are in a wind-down
phase are reported as non-core businesses within Corporate and Other. In addition , the historical business
activities of certain divested businesses are presented in Corporate and Other. These include the high-
voltage cables business, steel structures and certain EPC contracts relating to the oil and gas industry.
Corporate headquarters and stewardship activities include the operations of our corporate headquarters in
Zurich, Switzerland, as well as limited corporate
‑
related activities in some countries. These activities cover
staff functions with group
‑
wide responsibilities, such as accounting and financial reporting, corporate finance
and corporate treasury, taxes, financial planning and analysis, internal audit, legal and integrity, compliance,
risk management and insurance, corporate communications, information systems and investor relations.
GBS operates shared service centers globally through a network of five hubs and consists of both expert and
transactional services in the areas of human resources, finance, information services, legal, real estate,
customer contact centers, global travel services and other ancillary activities. GBS also staffs and maintains
front offices in most countries. The costs in GBS are incurred primarily for the benefit of the Business Areas,
who are charged for their use of the services and the related number of employees are allocated to the
Business Areas. GBS also provides services to third-parties under transitional service agreements in relation
to certain divested businesses, the largest of which is the Power Grids business.
A significant portion of the costs for GBS and other shared corporate overhead costs are charged to the
operating businesses. Up until the divestment of the Power Grids business on July 1, 2020, overhead and
other management costs, including GBS costs, which would have been allocated or charged to our Power
Grids business, and which were not directly attributable to this business, have not been allocated to the
discontinued operation and are included in Corporate and Other as “stranded costs”.
Corporate and Other had approximately 1,000 employees at December 31, 2021, of which approximately 200
pertain to our non-core businesses.
—
Discontinued operations
In July 2020, we divested 80.1 percent of our Power Grids business to Hitachi Ltd. As a result, the Power
Grids business is reported as discontinued operations in the Consolidated Financial Statements for all years
presented. See “Note 3 - Discontinued operations” to our Consolidated Financial Statements.
Power Grids business
The former Power Grids business of ABB delivered products, systems, software and service solutions across
the power value chain for utility, industry and transport & infrastructure customers.
The Power Grids business operated worldwide with a globally diversified manufacturing, engineering, and
research and development footprint. Direct sales account ed for the majority of total revenues generated by
the business while external channel partners such as EPCs, wholesalers, distributors and OEMs accounted
for the rest.
27
Products and Services
The Grid Automation operation supplied substation automation products, systems and services. It also
provided Supervisory Control and Data Acquisition (SCADA) systems for transmission and distribution
networks as well as a range of wireless, fiber optic and powerline carrier-based telecommunication
technologies for mission-critical applications and also offer ed grid-edge and microgrid solutions. Its enterprise
software portfolio provided solutions for managing and optimizing assets, operations, logistics, financials and
HR, reducing operating costs and improving productivity for customers.
The Grid Integration operation was a leading provider of integration and transmission solutions such as High
Voltage Direct Current (HVDC) . Another key part of the portfolio was the Flexible Alternating Current
Transmission Systems (FACTS) business, which comprises Static Var Compensation (SVC) and static
compensator (STATCOM) technologies to address stability and power quality issues. The Grid Integration
operation’s portfolio also included a range of high-power semiconductors, a core technology for power
electronics deployed in HVDC, FACTS and rail applications. The Grid Integration operation also provided
transmission and distribution substations and associated lifecycle services. These substations are used in
utility and non-utility applications including rail, data centers and various industries. Battery energy storage
solutions and shore-to-ship power supply were also part of the customer offering.
The High Voltage products operation was a provider of high voltage switchgear up to 1200 kV AC and
1100 kV DC with a portfolio spanning air-insulated, gas-insulated and hybrid technologies. It also
manufactured generator circuit breakers, a key product for integrating large power plants into the grid. The
portfolio also included a broad range of capacitors and filters that facilitate power quality, instrument
transformers and other substation components.
The Transformers operation supplie d transformers that are an integral component found across the power
value chain, enabling the reliable, efficient and safe conversion of voltage levels. The product range included
dry- and liquid-distribution transformers, traction transformers for rail applications and special application
transformers plus related components, for example, insulation kits, bushings and other transformer
accessories.
The Power Grids business also had an extensive portfolio of service offerings across the value chain. The
portfolio included spare parts, condition monitoring and maintenance services, on- and off
‑
site repairs as well
as retrofits and upgrades. Advanced software-based monitoring and advisory services further enhanced the
portfolio.
—
Capital expenditures
Total capital expenditures for property, plant and equipment and intangible assets (excluding intangibles
acquired through business combinations) amounted to $820 million, $694 million and $762 million in 2021,
2020 and 2019, respectively. In 2021 and 2020, capital expenditures were 8 percent and 24 percent lower,
respectively, than depreciation and amortization. Excluding acquisition -related amortization, capital
expenditures were 28 percent higher in 2021 and 6 percent higher in 2020, respectively, than depreciation
and amortization.
28
Capital expenditures in 2021 remained primarily focused in mature markets, reflecting the geographic
distribution of our existing production facilities. Capital expenditures in Europe and North America in 2021
were driven primarily by upgrades and maintenance of existing production facilities, mainly in the U.S.,
Austria, Italy, Switzerland, Finland and Sweden. Capital expenditures in Austria included continued
investment in the state-of-the-art innovation and training campus, which is planned to become one of our
largest research and development centers for new automation technologies. We also are constructing a new
facility in Italy for our E-mobility Division. This investment aims to serve as a global center of excellence and
production site for electric vehicle charging infrastructure . Our capital expenditures in emerging markets
continued to remain primarily concentrated in China and focus on increasing existing production capacity. In
Asia, we continued our significant investments in China investing in the new automated and flexible robotics
factory and also purchasing a significant formerly leased property. The share of emerging markets capital
expenditures as a percentage of total capital expenditures in 2021 and 2020 was 33 percent and 22 percent,
respectively.
At December 31, 2021, construction in progress for property, plant and equipment was $522 million, mainly in
the U.S., Switzerland, Germany, Sweden, Italy, China and India while at December 31, 2020, construction in
progress for property, plant and equipment was $505 million, mainly in the U.S., Switzerland, Austria,
Germany and China.
Our capital expenditures relate primarily to property, plant and equipment and are funded primarily through
cash flows from operating activities. For 2022, we estimate the expenditures for property, plant and
equipment will be higher than our annual depreciation and amortization charge, excluding acquisition-related
amortization.
—
Supplies and raw materials
We purchase a variety of supplies and products which contain raw materials for use in our production and
project execution processes. The primary materials used in our products, by weight, are copper, aluminum,
steel, mineral oil and various plastics. We also purchase a wide variety of fabricated products, electronic
components and systems. We operate a worldwide supply chain management network with employees
dedicated to this function in our Business Areas, Divisions and in key countries. Our supply chain operations
consists of a number of teams, each focusing on different product categories. These category teams take
advantage of opportunities to leverage the scale of ABB on a global, Business Area and/or Division level, as
appropriate, to optimize the efficiency of our supply networks in a sustainable manner.
Our supply chain management organization’s activities and objectives include:
•
•
reporting system linked to our enterprise resource planning (ERP) systems,
•
management structure and extensive competency
‑
based training, and
•
processes used.
We buy many categories of products which contain steel, copper, aluminum, crude oil and other
commodities. Continuing global economic growth in many emerging economies, coupled with the volatility in
foreign currency exchange rates, has led to significant fluctuations in these raw material costs over the last
few years. While we expect global commodity prices to remain highly volatile, we expect to offset some
market volatility through the use of long
‑
term contracts and global sourcing.
29
We seek to mitigate the majority of our exposure to commodity price risk by entering into derivative contracts.
For example, we manage copper, silver and aluminum price risk using principally swap contracts based on
prices for these commodities quoted on leading exchanges. ABB’s hedging policy is designed to safeguard
margins by minimizing price volatility and providing a stable cost base during order execution. In addition to
using derivatives to reduce our exposure to fluctuations in raw materials prices, in some cases we can reduce
this risk by incorporating changes in raw materials prices into the prices of our end products (through price
escalation clauses).
Overall, during 2021, supply chain management personnel in our businesses, and in the countries in which
we operate, along with the category teams, continued to focus on value chain optimization efforts in all areas,
while maintaining and improving quality and delivery performance. Responding to the challenges of overall
global supply chain constraints, each Business Area quickly implemented a task force to mitigate supply
chain shortages. The Business Areas experienced some delays in supplier deliveries and product shortages
for various categories such as semiconductors and other raw materials as well as constraints in the
transportation of inbound supplies. However, we responded to these challenges and took mitigating actions
such as building up buffer stocks, approving new suppliers, changing supplier splits, combined with daily,
weekly and monthly task force project follow ups. We have, to a large extent, been able to mitigate most
disruptions, maintain a competitive service level and support our business growth, while maintaining delivery
schedules to our customers.
In August 2012, the SEC issued its final rules regarding “Conflict Minerals”, as required by section 1502 of
the Dodd
‑
Frank Wall Street Reform and Consumer Protection Act. We initiated conflict minerals processes in
2013 and have continuously aimed at improving and tailoring the processes to our value chain. We continue
to work with our suppliers and customers, to enable us to comply with the rules and disclosure obligations.
Further information on ABB’s Conflict Minerals policy and supplier requirements can be found under “Material
Compliance” at
global.abb/group/en/about.supplying.
—
Patents and trademarks
While we are not materially dependent on any one of our intellectual properties, as a technology-driven
company, we believe that intellectual property rights are crucial to protect the assets of our business. Over
the past ten years, we have continued to substantially add new applications to our existing first patent filings,
and we intend to continue our aggressive approach to seeking patent protection. As of December 31, 2021,
we have approximately 25,000 patent applications and registrations, of which approximately 5,500 are
pending applications. These patents include more than 3,500 utility model and design applications and
registrations, of which approximately 200 are pending applications. In 2021, we filed more than 2,250
patents, utility model and design applications for more than 1,250 inventions. Based on our existing
intellectual property strategy, we believe that we have adequate control over our core technologies. The
“ABB” trademarks and logo are protected in all of the countries in which we operate. We proactively assert
our intellectual property rights to safeguard the reputation associated with the ABB technology and brand.
While these intellectual property rights are fundamental to all of our businesses, there is no dependency of
the business on any single patent, utility model or design application.
30
—
Sustainability activities
Sustainability is a key part of ABB’s company Purpose and of the long-term value that we aim to create for
our stakeholders. We believe that sustainable development means progress towards a healthier and more
prosperous world today and for future generations. This means balancing the needs of society, the
environment and the economy.
To
achieve this, we act and embed this approach to business across our
value chain, including our own operations, our suppliers and the communities we serve. We strive to always
be an exemplary corporate citizen wherever we operate.
Our 2030 sustainability goals include:
Enabling a low-carbon society
target sectors that account for three quarters of global energy consumption. Our 2030 commitment:
•
2
equivalent to the annual emissions of 30 million combustion cars,
•
•
Preserving resources
increase recycling and foster reusability. Our 2030 commitment:
•
approach, and
•
conditions and regulations.
Promoting social progress
create safe, fair and inclusive working environments and support community building. Our 2030 commitment:
•
reduction in lost time from incidents,
•
comprehensive diversity and inclusion framework,
•
•
Acting with integrity and transparency across the value chain by:
•
and counterparties
•
& conditions,
•
•
Sustainable Supply Base Management program, which includes environmental, social and
governance performance.
31
Reflecting the importance of sustainability as a strategic topic, ABB’s Board of Directors oversees our
sustainability strategy, targets and our annual sustainability report. The Governance and Nomination
Committee of the Board of Directors is responsible for overseeing corporate social responsibility (including
health, safety and environment as well as sustainability), while the Compensation Committee ensures that
ABB remuneration policies are linked to the achievement of its sustainability targets.
To manage environmental aspects of our own operations, in 2021 we have updated our internal standards to
be in line with our new ambitions and launched programs in our Business Areas to implement our new
targets. We see a further improvement in the share of green electricity we use from 32 percent in 2020 to
51 percent in 2021. The amount of waste sent to landfill has decreased from 15.1 thousand tons to
12.6 thousand tons. Globally, operations at 305 sites and offices are covered by externally certified
environmental management systems. A total of five environmental incidents were reported in 2021, none of
which had a material environmental impact.
At our capital markets day on December 7, 2021, we announced a new circularity approach, which will cover
at least 80 percent of ABB’s products and solutions and evaluate them against a clear and transparent
scoring system, based on eight circularity levers – two for each stage of the product lifecycle. This approach
will drive circularity in our own operations and in our supply chain as well as enable our customers to become
more circular.
In 2021, we recorded no fatalities and our lost time incident frequency rate dropped from 0.16 to 0.14 per
200,000 hours worked. The number of women in senior management positions increased from 13.5 percent
to 16.3 percent.
Our employee engagement score decreased by 1 percentage point to 74 percent, while the response rate
increased from 73 percent to 78 percent. We continued to provide impactful support for community-building
initiatives across all regions.
Suppliers are required to perform their contractual obligations in accordance with both the ABB Code of
Conduct and the ABB Supplier Code of Conduct, as part of their standard contractual conditions. The code of
conduct covers Integrity, social and environment expectations
A senior sustainability management incentive was developed and applies as of 2021, in addition to the
existing incentive on safety.
—
Regulation
Our operations are subject to numerous governmental laws and regulations including those governing
antitrust and competition, corruption, the environment, securities transactions and disclosures, import and
export of products, currency conversions and repatriation, taxation of foreign earnings and earnings of
expatriate personnel and use of local employees and suppliers.
As a reporting company under Section 12 of the Exchange Act, we are subject to the FCPA ’s anti
‑
bribery
provisions with respect to our conduct around the world.
Our operations are also subject to the 1997 OECD Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions. The convention obliges signatories to adopt national
legislation that makes it a crime to bribe foreign public officials. Those countries which have adopted
implementing legislation and have ratified the convention include the U.S., several European nations and
certain other countries in which we have significant operations.
32
We conduct business in certain countries known to experience governmental corruption. While we are
committed to conducting business in a legal and ethical manner, our employees or agents have taken, and in
the future may take, actions that violate the U.S. FCPA, legislation promulgated pursuant to the 1997 OECD
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, antitrust
laws or other laws or regulations. These actions have resulted and could result in monetary or other penalties
against us and could damage our reputation and, therefore, our ability to do business. For more information,
see “Item 8. Financial Information—Legal Proceedings”.
The U.S. Iran Threat Reduction and Syria Human Rights Act of 2012 requires U.S. listed companies to
disclose information relating to certain transactions with Iran. In 2018, certain non-U.S. subsidiaries of ABB,
in accordance with applicable laws, provided electrical equipment, automation systems and on-site services
to OEMs, distributors, panel builders, EPC contracting companies and other customers for Iranian business.
ABB discontinued its Iranian business on November 4, 2018. ABB is completing minor work on a long-term
contract which is being performed in line with applicable sanctions. In 2021, no revenues were attributable to
this work.
—
Organizational structure
ABB Ltd is the ultimate parent company of the ABB Group. It is the sole shareholder of ABB Asea Brown
Boveri Ltd which directly or indirectly owns the other companies in the ABB Group. The table below both sets
forth, as of December 31, 2021, the name, place of incorporation and ownership interest of the significant
direct and indirect subsidiaries of ABB Ltd, Switzerland. In addition, ABB Ltd also owns 19.9 percent of
Hitachi Energy Ltd (formerly Hitachi ABB Power Grids Ltd). ABB’s operational group structure is described
above in the “Businesses” section of Item 4.
Name
Location
Country
Group
Interest %
ABB S.A.
Buenos Aires
Argentina
100.00
ABB Australia Pty Limited
Moorebank
Australia
100.00
ABB Group Holdings Pty. Ltd.
Moorebank
Australia
100.00
ABB Group Investment Management Pty. Ltd.
Moorebank
Australia
100.00
ABB AG
Wiener Neudorf
Austria
100.00
B&R Holding GmbH
Eggelsberg
Austria
100.00
B&R Industrial Automation GmbH
Eggelsberg
Austria
100.00
ABB N.V.
Zaventem
Belgium
100.00
ABB Automacao LTDA
Sorocaba
Brazil
100.00
ABB Eletrificacao LTDA
Sorocaba
Brazil
100.00
ABB Bulgaria EOOD
Sofia
Bulgaria
100.00
ABB Electrification Canada ULC
Edmonton
Canada
100.00
ABB Inc.
Saint-Laurent
Canada
100.00
ABB S.A.
Santiago
Chile
100.00
ABB (China) Investment Limited
Beijing
China
100.00
ABB (China) Ltd.
Beijing
China
100.00
ABB Beijing Drive Systems Co. Ltd.
Beijing
China
90.00
ABB Beijing Switchgear Limited
BeiJing
China
60.00
ABB Electrical Machines Ltd.
Shanghai
China
100.00
ABB Engineering (Shanghai) Ltd.
Shanghai
China
100.00
33
Name
Location
Country
Group
Interest %
ABB LV Installation Materials Co. Ltd. Beijing
Beijing
China
85.70
ABB Shanghai Free Trade Zone Industrial Co., Ltd.
Shanghai
China
100.00
ABB Shanghai Motors Co. Ltd.
Shanghai
China
75.00
ABB Xiamen Low Voltage Equipment Co. Ltd.
Xiamen
China
100.00
ABB Xiamen Switchgear Co. Ltd.
Xiamen
China
66.52
ABB Xinhui Low Voltage Switchgear Co. Ltd.
Xinhui
China
90.00
ABB s.r.o.
Prague
Czech Republic
100.00
ABB A/S
Skovlunde
Denmark
100.00
ABB for Electrical Industries (ABB ARAB) S.A.E.
Cairo
Egypt
100.00
Asea Brown Boveri S.A.E.
Cairo
Egypt
100.00
ABB AS
Jüri
Estonia
100.00
ABB Oy
Helsinki
Finland
100.00
ABB France
Cergy Pontoise
France
99.83
ABB SAS
Cergy Pontoise
France
100.00
ABB AG
Mannheim
Germany
100.00
ABB Beteiligungs- und Verwaltungsges. mbH
Mannheim
Germany
100.00
ABB Stotz-Kontakt GmbH
Heidelberg
Germany
100.00
B + R Industrie-Elektronik GmbH
Bad Homburg
Germany
100.00
Busch-Jaeger Elektro GmbH
Lüdenscheid
Germany
100.00
ABB Engineering Trading and Service Ltd.
Budapest
Hungary
100.00
Industrial C&S Hungary Kft.
Budapest
Hungary
100.00
ABB Global Business Services and Contracting India
Private Limited
Bangalore
India
100.00
ABB Global Industries and Services Private Limited
Bangalore
India
100.00
ABB India Limited
Bangalore
India
75.00
ABB S.p.A.
Milan
Italy
100.00
ABB K.K.
Tokyo
Japan
100.00
ABB Ltd.
Seoul
Korea, Republic of
100.00
ABB Electrical Control Systems S. de R.L. de C.V.
Monterrey
Mexico
100.00
ABB Mexico S.A. de C.V.
San Luis Potosi
Mexico
100.00
Asea Brown Boveri S.A. de C.V.
San Luis Potosi
Mexico
100.00
ABB B.V.
Rotterdam
Netherlands
100.00
ABB Finance B.V.
Rotterdam
Netherlands
100.00
ABB Holdings B.V.
Rotterdam
Netherlands
100.00
ABB AS
Fornebu
Norway
100.00
ABB Electrification Norway AS
Skien
Norway
100.00
ABB Holding AS
Fornebu
Norway
100.00
ABB Business Services Sp. z o.o.
Warsaw
Poland
99.94
ABB Industrial Solutions (Bielsko-Biala) Sp. z o.o.
Bielsko-Biala
Poland
99.94
ABB Industrial Solutions (Klodzko) Sp.z.o.o.
Klodzko
Poland
99.94
ABB Sp. z o.o.
Warsaw
Poland
99.94
Industrial C&S of P.R. LLC
San Juan
Puerto Rico
100.00
ABB Ltd.
Moscow
Russian
Federation
100.00
34
Name
Location
Country
Group
Interest %
ABB Electrical Industries Co. Ltd.
Riyadh
Saudi Arabia
65.00
ABB Pte. Ltd.
Singapore
Singapore
100.00
ABB Holdings (Pty) Ltd.
Modderfontein
South Africa
100.00
ABB Investments (Pty) Ltd
Modderfontein
South Africa
51.00
ABB South Africa (Pty) Ltd.
Modderfontein
South Africa
74.91
Asea Brown Boveri S.A.
Madrid
Spain
100.00
ABB AB
Västerås
Sweden
100.00
ABB Electrification Sweden AB
Västerås
Sweden
100.00
ABB Norden Holding AB
Västerås
Sweden
100.00
ABB Asea Brown Boveri Ltd
Zurich
Switzerland
100.00
ABB Canada EL Holding GmbH
Zurich
Switzerland
100.00
ABB Capital AG
Zürich
Switzerland
100.00
ABB Information Systems Ltd.
Zurich
Switzerland
100.00
ABB Investment Holding 2 GmbH
Zurich
Switzerland
100.00
ABB Management Services Ltd.
Zurich
Switzerland
100.00
ABB Schweiz AG
Baden
Switzerland
100.00
ABB Ltd.
Taipei
Taiwan (Chinese
Taipei)
100.00
ABB Elektrik Sanayi A.S.
Istanbul
Turkey
99.99
ABB Industries (L.L.C.)
Dubai
United Arab
Emirates
49.00
(1)
ABB Holdings Limited
Warrington
United Kingdom
100.00
ABB Limited
Warrington
United Kingdom
100.00
ABB Finance (USA) Inc.
Wilmington, DE
United States
100.00
ABB Holdings Inc.
Cary, NC
United States
100.00
ABB Inc.
Cary, NC
United States
100.00
ABB Installation Products Inc
Memphis, TN
United States
100.00
ABB Motors and Mechanical Inc
Fort Smith, AR
United States
100.00
ABB Treasury Center (USA), Inc.
Wilmington, DE
United States
100.00
Edison Holding Corporation
Wilmington, DE
United States
100.00
Industrial Connections & Solutions LLC
Cary, NC
United States
100.00
(1) Company consolidated as ABB exercises full management control.
35
—
Description of property
As of December 31, 2021, we occupy real estate in around 100 countries throughout the world. The facilities
consist mainly of manufacturing plants, office buildings, research centers and warehouses. A substantial
portion of our production and development facilities is situated in the U.S., China, Germany, Italy, Finland,
India, Sweden, Switzerland, Poland and Canada. We also own or lease other properties, including office
buildings, warehouses, research and development facilities and sales offices in many countries. We own
substantially all of the machinery and equipment used in our manufacturing operations.
From time to time, we have a surplus of space arising from acquisitions, production efficiencies and/or
restructuring of operations. Normally, we seek to sell such surplus space which may involve leasing property
to third parties for an interim period. As a result of the divestment of the Power Grids business to Hitachi Ltd,
certain property, plant and equipment previously owned by ABB which related to the Power Grids business,
was sold as part of the divestment. In addition, certain property, plant and equipment relating to the Power
Grids business continues to be owned by ABB and is leased to Hitachi Energy Ltd, formerly Hitachi ABB
Power Grids.
The net book value of our property, plant and equipment at December 31, 2021, was $4,045 million, of which
machinery and equipment represented $1,337 million, land and buildings represented $2,186 million and
construction in progress represented $522 million. We believe that our current facilities are in good condition
and are adequate to meet the requirements of our present and foreseeable future operations.
None
36
Item 5. Operating and Financial Review and Prospects
The discussion in Item 5 below provides a comparative analysis between 2021 and 2020. See “Item 5.
Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended
December 31, 2020, for a comparative discussion and analysis between 2020 and 2019.
—
Management overview
During 2021, we saw a strong recovery from the pandemic-related disruptions of 2020. It also was the first full
fiscal year where we operated under our decentralized operating model, the ABB Way. In 2021, we have
seen improved efficiencies from this new way of operating and we expect the increased transparency,
accountability and speed to further support future growth and profitability. Additionally, we made progress in
reshaping our business portfolio, completing the divestment of the Mechanical Power Transmission business,
as we continue to be fully focused on electrification and automation. This transaction completes the first of
the three planned Divisional exits previously announced in 2020.
Active portfolio management is part of our performance culture. On the back of systematic portfolio reviews
we ascertain whether ultimately ABB is the best owner of the different businesses. As a result, we have
successfully divested the Mechanical Power Transmission Division during 2021. We continue to make
progress on the exit of the Turbocharging Division, where we are currently running a dual track process for a
spin-off or divestment, and plan to exit the Power Conversion Division. At the same time, we are carving-out
the E-mobility Division and work towards an initial public offering to create a platform for accelerated growth
and value creation. We plan to remain a majority owner of the new company.
In addition, our active portfolio management process is driving decisions within the Divisions to improve or
exit areas of underperformance, supporting improved performance ambitions. Further, we intend to pursue
strategic partnerships as well as bolt-on acquisitions driven by the Divisions. In 2021, we acquired ASTI
Mobile Robotics Group, a global leader in the high-growth autonomous mobile robots market with a broad
portfolio of vehicles and software. As part of our future strategy we aim to complete five or more bolt-on
acquisitions each year.
Business progress
During 2021, demand for ABB’s offering recovered from the low level in 2020 when the adverse business
impact of the pandemic was most significant. Orders and revenues increased in all Business Areas. Demand
increased year-on-year in all regions with the Americas seeing the highest growth, while the increase was
lower in Asia, Middle East and Africa as China had already started to recover in 2020. While short-cycle
product demand recovered relatively quickly from the sharp downturn seen at the onset of the pandemic,
project activities, particularly in process industries, predominantly picked-up during the second half of 2021.
The loosening of various pandemic-related travel restrictions allowed for a more significant improvement in
service-related activities.
While our orders increased 20 percent in 2021, revenues only grew by 11 percent. Supply chain constraints
and imbalances in the overall supply chain limited our ability to convert orders into actual deliveries resulting
in an increase of our order backlog by 16 percent to $16.6 billion at the end of the year.
Group profitability showed strong improvement during 2021 with segment profit (Operational EBITA) higher in
all Business Areas and continued progress towards a lean corporat e function. The result was driven by better
volumes, continuous improvements, improved internal efficiency and the absence of certain larger non-core
project losses incurred in 2020. Active price management and productivity gains were able to offset
increasing raw material costs and general cost inflation emphasized by the tight supply situation over the
year. While some costs such as discretionary travel or certain marketing costs are still expected to rebalance
from low pandemic levels, we believe we are on track to achieve our future business targets.
37
The profitability improvement as well as lower cash costs for transformation initiatives have also allowed us to
achieve strong cash generation, with cash flows from operating activities in continuing operations improving
to $3.3 billion in 2021, an increase of 78 percent compared to 2020.
We continued to make organic growth investments in a disciplined manner, prioritizing research and
development while reducing administrative costs. Total non-order related research and development was
$1.2 billion in 2021, or 4.2 percent of revenues. We also completed key acquisitions and divestments in 2021,
strengthening our portfolio.
Capital allocation
Our capital allocation priorities are unchanged:
•
•
•
•
We expect that our improved cash generation , on the back of the ABB Way operating model, will enhance
our flexibility to invest in both organic growth and bolt-on acquisitions, while providing attractive returns to
shareholders.
At the 2022 Annual General Meeting (AGM), the Board of Directors is proposing a dividend of 0.82 Swiss
francs per share. We also plan to continue our announced share buyback to return $7.8 billion of cash
proceeds from the Power Grids divestment to shareholders. At December 31, 2021, under the initial and
follow-up share buyback programs, we had cumulatively purchased shares for approximately $5.5 billion.
Updated financial target framework
During 2021, we raised our growth target to 4 to 7 percent (up from 3 to 5 percent) annual average revenue
growth, through an economic cycle and in constant currencies. This includes 3 to 5 percent organic growth
and 1 to 2 percent from acquired growth.
For the Operational EBITA margin, we have removed the previous margin ranges and raised our target to at
least 15 percent as from 2023 (from upper half of 13 to 16 percent range in 2023).
The other targets within our financial framework remain unchanged:
•
•
•
Sustainability strategy 2030
With our 2030 sustainability strategy, we are actively contributing to a more sustainable world, leading by
example in our own operations and partnering with customers and suppliers to enable a low-carbon society,
preserve resources and promote social progress. Our sustainability focus is part of ABB’s commitment to
responsible business practices, which are at the center of our comprehensive governance framework, based
on integrity and transparency.
38
Amongst other focus areas in 2021, we unveiled, at the Capital Markets Day 2021, our circularity framework
covering every stage of the product lifecycle to preserve resources. It includes four stages: circular design
and sourcing, resource efficient operations, optimized use phase and responsible end of life. The goal is to
have 80 percent of ABB products, solutions and services covered by the circularity framework by 2030, with
our progress measured against a set of KPIs. For a detailed discussion of our sustainability strategy 2030
and our progress in 2021, see “Item 4. Information on the Company—Sustainability activities”.
—
Critical accounting policies and estimates
General
We prepare our Consolidated Financial Statements in accordance with U.S. GAAP and present these in U.S.
dollars unless otherwise stated.
The preparation of our financial statements requires us to make assumptions and estimates that affect the
reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent
assets and liabilities. We evaluate our estimates on an ongoing basis (see “Note 2 - Significant accounting
policies” to our Consolidated Financial Statements for a listing of our most significant accounting estimates).
Where appropriate, we base our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from our estimates and assumptions.
We deem an accounting policy to be critical if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time the estimate is made and if different
estimates that reasonably could have been used, or if changes in the accounting estimates that are
reasonably likely to occur periodically, could materially impact our Consolidated Financial Statements. We
also deem an accounting policy to be critical when the application of such policy is essential to our ongoing
operations. We believe the following critical accounting policies require us to make subjective judgments,
often as a result of the need to make estimates regarding matters that are inherently uncertain and material
to our Consolidated Financial Statements. These policies should be considered when reading our
Consolidated Financial Statements.
Revenue recognition
A customer contract exists if collectability under the contract is considered probable, the contract has
commercial substance, contains payment terms, the rights and commitments of both parties, and has been
approved. By analyzing the type, terms and conditions of each contract or arrangement with a customer, we
determine which revenue recognition method applies.
We recognize revenues when control of goods or services is transferred to customers in an amount that
reflects the consideration we expect to be entitled to in exchange for these goods or services. Control is
transferred when the customer has the ability to direct the use and obtain the benefits from the goods or
services.
39
The percentage
‑
of
‑
completion method of accounting is generally used when recognizing revenue on an over
time basis and involves the use of assumptions and projections, principally relating to future material, labor,
subcontractor and project
‑
related overhead costs as well as estimates of the amount of variable
consideration to which we expect to be entitled. As a consequence, there is a risk that total contract costs or
the amount of variable consideration will, respectively, either exceed or be lower than those we originally
estimated (based on all information reasonably available to us) and the margin will decrease or the contract
may become unprofitable. This risk increases if the duration of a contract increases because there is a higher
probability that the circumstances upon which we originally developed our estimates will change, resulting in
increased costs that we may not recover. Factors that could cause costs to increase include:
•
us to incur additional costs to remedy,
•
•
•
•
•
Changes in our initial assumptions, which we review on a regular basis between balance sheet dates, may
result in revisions to estimated costs, current earnings and anticipated earnings. We recognize these
changes in the period in which the changes in estimates are determined. By recognizing changes in
estimates cumulatively, recorded revenue and costs to date reflect the current estimates of the stage of
completion of each project. Additionally, losses on such contracts are recognized in the period when they are
identified and are based upon the anticipated excess of contract costs over the related contract revenues.
Pension and other postretirement benefits
As more fully described in “Note 17 - Employee benefits” to our Consolidated Financial Statements, we have
a number of defined benefit pension and other postretirement plans and recognize an asset for a plan’s
overfunded status or a liability for a plan’s underfunded status in our Consolidated Balance Sheets. We
measure such a plan’s assets and obligations that determine its funded status as of the end of the year.
Significant differences between assumptions and actual experience, or significant changes in assumptions,
may materially affect the pension obligations. The effects of actual results differing from assumptions and the
changing of assumptions are included in net actuarial loss within “Accumulated other comprehensive loss”.
We recognize actuarial gains and losses gradually over time. Any cumulative unrecognized actuarial gain or
loss that exceeds 10 percent of the greater of the present value of the projected benefit obligation (PBO) and
the fair value of plan assets is recognized in earnings over the expected average remaining working lives of
the employees participating in the plan, or the expected average remaining lifetime of the inactive plan
participants if the plan is comprised of all or almost all inactive participants. Otherwise, the actuarial gain or
loss is not recognized in the Consolidated Income Statements.
40
We use actuarial valuations to determine our pension and postretirement benefit costs and credits. The
amounts calculated depend on a variety of key assumptions, including discount rates, mortality rates and
expected return on plan assets. Under U.S. GAAP, we are required to consider current market conditions in
making these assumptions. In particular, the discount rates are reviewed annually based on changes in
long
‑
term, highly
‑
rated corporate bond yields. Decreases in the discount rates result in an increase in the
PBO and in pension costs. Conversely, an increase in the discount rates results in a decrease in the PBO
and in pension costs. The mortality assumptions are reviewed annually by management. Decreases in
mortality rates result in an increase in the PBO and in pension costs. Conversely, an increase in mortality
rates results in a decrease in the PBO and in pension costs.
Holding all other assumptions constant, a 0.25 percentage-point decrease in the discount rate would have
increased the PBO related to our defined benefit pension plans by $262 million while a 0.25 percentage-point
increase in the discount rate would have decreased the PBO related to our defined benefit pension plans by
$254 million.
The expected return on plan assets is reviewed regularly and considered for adjustment annually based upon
the target asset allocations and represents the long
‑
term return expected to be achieved. Decreases in the
expected return on plan assets result in an increase to pension costs. Holding all other assumptions constant,
an increase or decrease of 0.25 percentage points in the expected long
‑
term rate of asset return would have
decreased or increased, respectively, the net periodic benefit cost in 2021 by $21 million.
The funded status, which can increase or decrease based on the performance of the financial markets or
changes in our assumptions, does not represent a mandatory short
‑
term cash obligation. Instead, the funded
status of a defined benefit pension plan is the difference between the PBO and the fair value of the plan
assets. At December 31, 2021, our defined benefit pension plans were $27 million overfunded compared to
an underfunding of $656 million at December 31, 2020. Our other postretirement plans were underfunded by
$71 million and $98 million at December 31, 2021 and 2020, respectively.
Income taxes
In preparing our Consolidated Financial Statements, we are required to estimate income taxes in each of the
jurisdictions in which we operate. Tax expense from continuing operations is reconciled from the
weighted
‑
average global tax rate (rather than from the Swiss domestic statutory tax rate). As the parent
company of the ABB Group, ABB Ltd, is domiciled in Switzerland, income which has been generated in
jurisdictions outside of Switzerland (hereafter “foreign jurisdictions ”) and has already been subject to
corporate income tax in those foreign jurisdictions is, to a large extent, tax exempt in Switzerland. Therefore,
generally no or only limited Swiss income tax has to be provided for on the repatriated earnings of foreign
subsidiaries. There is no requirement in Switzerland for a parent company of a group to file a tax return of the
group determining domestic and foreign pre
‑
tax income and as our consolidated income from continuing
operations is predominantly earned outside of Switzerland, corporate income tax in foreign jurisdictions
largely determines our global weighted
‑
average tax rate.
We account for deferred taxes by using the asset and liability method. Under this method, we determine
deferred tax assets and liabilities based on temporary differences between the financial reporting and the tax
bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates
and laws that are expected to be in effect when the differences are expected to reverse. We recognize a
deferred tax asset when it is more likely than not that the asset will be realized. We regularly review our
deferred tax assets for recoverability and establish a valuation allowance based upon historical losses,
projected future taxable income and the expected timing of the reversals of existing temporary differences. To
the extent we increase or decrease this allowance in a period, we recognize the change in the allowance
within “Income tax expense” in the Consolidated Income Statements unless the change relates to
discontinued operations, in which case the change is recorded in “Income from discontinued operations, net
of tax”. Unforeseen changes in tax rates and tax laws, as well as differences in the projected taxable income
as compared to the actual taxable income, may affect these estimates.
41
Certain countries levy withholding taxes, dividend distribution taxes or additional corporate income taxes
(hereafter “withholding taxes”) on dividend distributions. Such taxes cannot always be fully reclaimed by the
shareholder, although they have to be declared and withheld by the subsidiary. Switzerland has concluded
double taxation treaties with many countries in which we operate. These treaties either eliminate or reduce
such withholding taxes on dividend distributions. It is our policy to distribute retained earnings of subsidiaries,
insofar as such earnings are not permanently reinvested or no other reasons exist that would prevent the
subsidiary from distributing them. No deferred tax liability is set up, if retained earnings are considered as
indefinitely reinvested, and used for financing current operations as well as business growth through working
capital and capital expenditure in those countries.
We operate in numerous tax jurisdictions and, as a result, are regularly subject to audit by tax authorities,
including for transfer pricing. We provide for tax contingencies whenever it is deemed more likely than not
that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or
changes in tax laws. Contingency provisions are recorded based on the technical merits of our filing position,
considering the applicable tax laws and OECD guidelines and are based on our evaluations of the facts and
circumstances as of the end of each reporting period. Changes in the facts and circumstances could result in
a material change to the tax accruals. Although we believe that our tax estimates are reasonable and that
appropriate tax reserves have been made, the final determination of tax audits and any related litigation could
be different than that which is reflected in our income tax provisions and accruals.
An estimated loss from a tax contingency must be accrued as a charge to income if it is more likely than not
that a tax asset has been impaired or a tax liability has been incurred and the amount of the loss can be
reasonably estimated. We apply a two
‑
step approach to recognize and measure uncertainty in income taxes.
The first step is to evaluate the tax position for recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest
amount which is more than 50 percent likely of being realized upon ultimate settlement. The required amount
of provisions for contingencies of any type may change in the future due to new developments.
Goodwill and intangible assets
We review goodwill for impairment annually as of October 1, or more frequently if events or circumstances
indicate the carrying value may not be recoverable. We use either a qualitative or quantitative assessment
method for each reporting unit.
As each of our Divisions have full ownership and accountability for their respective strategies, performance
and resources, we have determined our reporting units to be at the Division level, which is one level below
our operating segments of Electrification, Motion, Process Automation and Robotics & Discrete Automation.
When performing the qualitative assessment, we first determine, for a reporting unit, factors which would
affect the fair value of the reporting unit including: (i) macroeconomic conditions related to the business,
(ii) industry and market trends, and (iii) the overall future financial performance and future opportunities in the
markets in which the business operates. We then consider how these factors would impact the most recent
quantitative analysis of the reporting unit’s fair value. Key assumptions in determining the fair value of the
reporting unit include the projected level of business operations, the reporting unit’s weighted
‑
average cost of
capital, the income tax rate and the terminal growth rate.
During 2021, we added three new Divisions by splitting two existing ones into multiple standalone Divisions
and announced (in July 2021) the divestment of the Mechanical Power Transmission Division, resulting in
twenty reporting units in total for the Group at October 1, 2021. For each change in reporting unit which arose
during 2021, an interim quantitative impairment test was conducted before and after the change. In both the
“before” and “after” tests, it was concluded that the fair value of the reporting units exceeded the carrying
value by a significant amount.
42
In 2020, prior to the adoption of the new “ABB Way” operating model on July 1, 2020, goodwill was generally
assessed at the level of ABB’s operating segments (one level above the Division, with the exception of
Process Automation where the reporting units were the same as the Divisions) while after the change,
goodwill impairment was assessed at the Division level. Although the new operating model resulted only in an
allocation of goodwill within the operating segments and did not change the segment level goodwill, an
interim quantitative impairment test was conducted before and after the July 1 change.
In the “before” test, it was concluded that the fair value of our reporting units exceeded the carrying value
under the historical reporting unit structure. For the impairment test performed immediately after the change
in reporting units, the fair value of each of the eighteen reporting units was determined using a discounted
cash flow fair value estimate based on objective information at the measurement date. The significant
assumptions used to develop the estimates of fair value for each reporting unit included our best estimates of
the expected future results and discount rates specific to the reporting unit. Determining the projected future
cash flows required significant judgments and estimates involving variables such as future sales volumes,
sales prices, production and other operating costs, capital expenditures, net working capital requirements and
other economic factors such as the continued impact of the COVID-19 pandemic. The fair value estimates
were based on assumptions that we believed to be reasonable, but which were inherently uncertain and thus,
actual results may differ from those estimates. Sensitivity analyses were performed around certain of these
assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair
values.
The 2020 interim quantitative impairment test indicated that, with the exception of the Machine Automation
reporting unit within the Robotics & Discrete Automation operating segment, the estimated fair values of our
reporting units were substantially in excess of their carrying value. The contraction of the global economy in
2020, particularly in end-customer industries and considerable uncertainty around the continued pace of
macroeconomic recovery generally led to a reduction in the fair values of the reporting units, thus also
affecting the Machine Automation reporting unit. At the Division level, this reporting unit does not benefit from
shared cash flows generated within an entire operating segment. In addition, the book value of the Machine
Automation Division includes a significant amount of intangible assets recognized in past acquisitions,
resulting in a proportionately higher book value than the other reporting unit within the Robotics & Discrete
Automation operating segment. These factors led to the carrying value of the Machine Automation reporting
unit exceeding its fair value. During 2020, a goodwill impairment charge of $290 million was recorded to
reduce the carrying value of this reporting unit to its implied fair value. The remaining goodwill for the
Machine Automation reporting unit was $554 million as of December 31, 2020. Since the carrying value of
this reporting unit was reduced to its fair value as of July 1, 2020, any material adverse changes such as
market deterioration or changes in the competitive landscape could result in future impairment charges.
At October 1, 2021 and 2020, respectively, we performed qualitative assessments and determined that it was
not more likely than not that the fair value for each of these reporting units was below the carrying value. As a
result, we concluded that it was not necessary to perform the quantitative impairment test.
Intangible assets are reviewed for recoverability upon the occurrence of certain triggering events (such as a
decision to divest a business or projected losses of an entity) or whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. We record impairment charges
other than impairments of goodwill in “Other income (expense), net” in our Consolidated Income Statements,
unless they relate to a discontinued operation, in which case the charges are recorded in “Income from
discontinued operations, net of tax”.
—
New accounting pronouncements
For a description of accounting changes and recent accounting pronouncements, including the expected
dates of adoption and estimated effects, if any, on our Consolidated Financial Statements, see “Note 2 -
Significant accounting policies” to our Consolidated Financial Statements.
43
—
Research and development
Each year, we invest significantly in research and development. Our research and development focuses on
developing and commercializing the technologies, products and solutions of our businesses that are of
strategic importance to our future growth. In 2021, we invested $1,219 million, or approximately 4.2 percent
of our 2021 consolidated revenues, on research and development activities in our continuing operations. We
also had expenditures of $53 million, or approximately 0.2 percent of our 2021 consolidated revenues, on
order
‑
related development activities. These are customer
‑
‑
specific development efforts that we
undertake to develop or adapt equipment and systems to the unique needs of our customers in connection
with specific orders or projects.
In addition to continuous product development, and order
‑
related engineering work, we develop platforms for
technology applications in our businesses in our research and development laboratories, which operate on a
global basis, such as our ABB Ability™
platform. Through active management of our investment in research
and development, we seek to maintain a balance between short
‑
term and long
‑
term research and
development programs and optimize our return on investment. We protect these results by holding patents,
copyrights and other appropriate intellectual property protection.
To complement our business-focused product development, our businesses invest together in collaborative
research activities covering topics such as artificial intelligence, software, sensors, control and optimization,
mechatronics and robotics, power electronics, communication technologies, material and manufacturing,
electrodynamics and electrical switching technologies. This results in advancing the state-of-the-art
technologies used in our products and in common technology platforms that can be applied in multiple
product lines.
Universities are incubators of future technology, and one task of our research and development teams is to
transform university research into industry
‑
ready technology platforms. We collaborate with multiple
universities and research institutions to build research networks and foster new technologies. We believe
these collaborations shorten the amount of time required to turn basic ideas into viable products, and they
additionally help us to recruit and train new personnel. We have built numerous university collaborations in
several continents, including long-term, strategic relationships with a number of leading institutions in the
U.S., the United Kingdom, Sweden, Germany, Switzerland, Poland, India and China.
We are also leveraging our ecosystem to enhance our innovation efforts and gain speed with strategic
partners with complementary competencies. In addition, we invest and collaborate with start-ups worldwide
via our corporate venture arm ABB Technology Ventures and our start-up collaboration arm SynerLeap.
The result of our investment in research and development is that ABB is widely recognized for its world-class
technology. Technology has been deeply embedded in our DNA since our founding and has carried us
through our century-long history. It is one of the main reasons why customers and partners turn to us for help
on their biggest challenges. Together with them, we continuously push technology frontiers to make things
possible that were not possible before. We are committed to stay ahead to help our customers address the
world’s energy challenges, transform industries to reach new levels of performance and embed sustainability,
all to leave behind a world for future generations that is at least as healthy and prosperous as the one we
inherited.
44
—
Acquisitions and divestments
Acquisitions
During 2021 and 2020, ABB paid $212 million and $79 million to purchase two and three businesses,
respectively.
The principal acquisition in 2021 was ASTI Mobile Robotics Group SL (ASTI). ASTI, headquartered in
Burgos, Spain, is a global autonomous mobile robot (AMR) manufacturer and employs approximately
300 people. See “Note 4 - Acquisitions, divestments and equity-accounted companies” to our Consolidated
Financial Statements.
There were no significant acquisitions in 2020 or 2019.
Divestments
Divestment of Mechanical Power Transmission Division
In November 2021, we completed the sale of our Mechanical Power Transmission Division (Dodge) to RBC
Bearings Inc. for cash proceeds of $2,862 million, net of transactions costs and cash disposed and
recognizing a net gain on sale of $2,195 million. Prior to its disposal, the Dodge business was part of our
Motion operating segment. See “Note 4 - Acquisitions, divestments and equity-accounted companies” to our
Consolidated Financial Statements.
Divestment of Power Grids
On July 1, 2020, ABB completed the divestment of 80.1 percent of its former Power Grids business to
Hitachi. As this divestment represented a strategic shift that had a major effect on our operations and
financial results, the results of operations for this business are presented as discontinued operations and the
assets and liabilities are reflected as held for sale for all periods presented. For more information on the
divestment of the Power Grids business see “Note 3 - Discontinued operations” to our Consolidated Financial
Statements.
Divestment of solar inverters
In February 2020, ABB completed the sale of its solar inverters business to FIMER S.p.A. (Italy) for no
consideration. Under the agreement, which was reached in July 2019, ABB was obligated to transfer
$143 million of cash to the buyer on the closing date. In addition, further payments totaling EUR 132 million
($145 million at the divestment date) are required to be transferred to the buyer from 2020 through 2025. In
connection with this divestment, in 2019, we recorded a loss of $421 million, representing the excess of the
carrying value over the estimated fair value of this business . In 2020, a further $33 million was recorded for
additional changes in fair value occurring prior to the date of sale. Both amounts, in the respective years are
reported in “Other income (expense), net”. See “Note 4 - Acquisitions, divestments and equity-accounted
companies” to our Consolidated Financial Statements.
Other
In 2019, we recorded net gains (including transaction costs) of $55 million, primarily due to the divestment of
two businesses in China.
45
—
Exchange rates
We report our financial results in U.S. dollars. Due to our global operations, a significant amount of our
revenues, expenses, assets and liabilities are denominated in other currencies. As a consequence,
movements in exchange rates between currencies may affect: (i) our profitability, (ii) the comparability of our
results between periods and (iii) the reported carrying value of our assets and liabilities.
We translate non
‑
USD denominated results of operations, assets and liabilities to USD in our Consolidated
Financial Statements. Balance sheet items are translated to USD using year
‑
end currency exchange rates.
Income statement and cash flow items are translated to USD using the relevant monthly average currency
exchange rate.
Increases and decreases in the value of the USD against other currencies will affect the reported results of
operations in our Consolidated Income Statements and the value of certain of our assets and liabilities in our
Consolidated Balance Sheets, even if our results of operations or the value of those assets and liabilities
have not changed in their original currency. As foreign exchange rates impact our reported results of
operations and the reported value of our assets and liabilities, changes in foreign exchange rates could
significantly affect the comparability of our reported results of operations between periods and result in
significant changes to the reported value of our assets, liabilities and stockholders’ equity.
While we operate globally and report our financial results in USD, exchange rate movements between the
USD and the EUR, the CNY and the CHF are of particular importance to us due to (i) the location of our
significant operations and (ii) our corporate headquarters being in Switzerland.
The exchange rates between the USD and the EUR, the USD and the CHF and the USD and the CNY at
December 31, 2021, 2020 and 2019, were as follows:
Exchange rates into $
2021
2020
2019
EUR 1.00
1.13
1.23
1.12
CHF 1.00
1.10
1.14
1.03
CNY 1.00
0.16
0.15
0.14
The average exchange rates between the USD and the EUR, the USD and the CHF and the USD and the
CNY for the years ended December 31, 2021, 2020 and 2019, were as follows:
Exchange rates into $
2021
2020
2019
EUR 1.00
1.18
1.14
1.12
CHF 1.00
1.09
1.07
1.01
CNY 1.00
0.16
0.14
0.14
When we incur expenses that are not denominated in the same currency as the related revenues, foreign
exchange rate fluctuations could affect our profitability. To mitigate the impact of exchange rate movements
on our profitability, it is our policy to enter into forward foreign exchange contracts to manage the foreign
exchange transaction risk of our operations.
In 2021, approximately 77 percent of our consolidated revenues were reported in currencies other than the
USD. The following percentages of consolidated revenues were reported in the following currencies:
•
•
46
In 2021, approximately 74 percent of our cost of sales and selling, general and administrative expenses were
reported in currencies other than the USD. The following percentages of consolidated cost of sales and
selling, general and administrative expenses were reported in the following currencies:
•
•
We also incur expenses other than cost of sales and selling, general and administrative expenses in various
currencies.
The results of operations and financial position of our subsidiaries outside of the U.S. are generally
accounted for in the currencies of the countries in which those subsidiaries are located. We refer to these
currencies as “local currencies”. Local currency financial information is then translated into USD at applicable
exchange rates for inclusion in our Consolidated Financial Statements.
The discussion of our results of operations below provides certain information with respect to orders,
revenues, income from operations and other measures as reported in USD (as well as in local currencies).
We measure period
‑
to
‑
period variations in local currency results by using a constant foreign exchange rate
for all periods under comparison. Differences in our results of operations in local currencies as compared to
our results of operations in USD are caused exclusively by changes in currency exchange rates.
While we consider our results of operations as measured in local currencies to be a significant indicator of
business performance, local currency information should not be relied upon to the exclusion of U.S. GAAP
financial measures. Instead, local currencies reflect an additional measure of comparability and provide a
means of viewing aspects of our operations that, when viewed together with the U.S. GAAP results, provide a
more complete understanding of factors and trends affecting the business. As local currency information is
not standardized, it may not be possible to compare our local currency information to other companies’
financial measures that have the same or a similar title. We encourage investors to review our financial
statements and publicly filed reports in their entirety and not to rely on any single financial measure.
—
Orders
Our policy is to book and report an order when a binding contractual agreement has been concluded with a
customer covering, at a minimum, the price and scope of products or services to be supplied, the delivery
schedule and the payment terms. The reported value of an order corresponds to the undiscounted value of
revenues that we expect to recognize following delivery of the goods or services subject to the order, less any
trade discounts and excluding any value added or sales tax. The value of orders received during a given
period of time represents the sum of the value of all orders received during the period, adjusted to reflect the
aggregate value of any changes to the value of orders received during the period and orders existing at the
beginning of the period. These adjustments, which may in the aggregate increase or decrease the orders
reported during the period, may include changes in the estimated order price up to the date of contractual
performance, changes in the scope of products or services ordered and cancellations of orders. The
undiscounted value of future revenues we expect to generate from our orders at any point in time is
represented by our order backlog.
The level of orders fluctuates from year to year. Portions of our business involve orders for long
‑
term projects
that can take months or years to complete and many larger orders result in revenues in periods after the
order is booked. Consequently, the level of orders generally cannot be used to accurately predict future
revenues or operating performance. Orders that have been placed can often be cancelled, delayed or
modified by the customer. These actions can reduce or delay any future revenues from the order or may
result in the elimination of the order.
47
—
Performance measures
We evaluate the performance of our operating segments based on orders received, revenues and
Operational EBITA.
Operational EBITA represents income from operations excluding:
•
•
•
divestment date (changes in obligations related to divested businesses),
•
pre
‑
acquisition estimates),
•
held for sale),
•
•
•
•
(a) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded
derivatives), (b) realized gains and losses on derivatives where the underlying hedged
transaction has not yet been realized, and (c) unrealized foreign exchange movements on
receivables/payables (and related assets/liabilities).
Certain other non-operational items generally includes: certain regulatory, compliance and legal costs, certain
asset write downs/impairments (including impairment of goodwill) and certain other fair value changes, as
well as other items which are determined by management on a case-by-case basis.
See “Note 23 - Operating segment and geographic data” to our Consolidated Financial Statements for a
reconciliation of the total Operational EBITA to income from continuing operations before taxes.
48
—
Analysis of results of operations
Our consolidated results from operations were as follows:
Income Statement Data:
($ in millions, except per share data in $)
2021
2020
2019
Revenues
28,945
26,134
27,978
Cost of sales
(19,478)
(18,256)
(19,072)
Gross profit
9,467
7,878
8,906
Selling, general and administrative expenses
(5,162)
(4,895)
(5,447)
Non-order related research and development expenses
(1,219)
(1,127)
(1,198)
Impairment of goodwill
—
(311)
—
Other income (expense), net
2,632
48
(323)
Income from operations
5,718
1,593
1,938
Interest and dividend income
51
51
67
Interest and other finance expense
(148)
(240)
(215)
Losses from extinguishment of debt
—
(162)
—
Non-operational pension (cost) credit
166
(401)
72
Income tax expense
(1,057)
(496)
(772)
Income from continuing operations, net of tax
4,730
345
1,090
Income (loss) from discontinued operations, net of tax
(80)
4,860
438
Net income
4,650
5,205
1,528
Net income attributable to noncontrolling interests
(104)
(59)
(89)
Net income attributable to ABB
4,546
5,146
1,439
Amounts attributable to ABB shareholders:
Income from continuing operations, net of tax
4,625
294
1,043
Income (loss) from discontinued operations, net of tax
(79)
4,852
396
Net income
4,546
5,146
1,439
Basic earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
2.31
0.14
0.49
Income (loss) from discontinued operations, net of tax
(0.04)
2.30
0.19
Net income
2.27
2.44
0.67
Diluted earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
2.29
0.14
0.49
Income (loss) from discontinued operations, net of tax
(0.04)
2.29
0.19
Net income
2.25
2.43
0.67
A more detailed discussion of the orders, revenues, income from operations and Operational EBITA for our
Business Areas follows in the sections of “Business analysis” below for Electrification, Motion, Process
Automation, Robotics & Discrete Automation and Corporate and Other. Orders and revenues of our
businesses include intersegment transactions which are eliminated in the “Corporate and Other” line in the
tables below.
49
Orders
% Change
($ in millions)
2021
2020
2019
2021
2020
Electrification
14,381
11,884
13,050
21%
(9)%
Motion
7,616
6,574
6,782
16%
(3)%
Process Automation
6,779
6,144
6,432
10%
(4)%
Robotics & Discrete Automation
3,844
2,868
3,260
34%
(12)%
Total Business Areas
32,620
27,470
29,524
19%
(7)%
Corporate and Other
Non-core and divested businesses
(10)
(31)
(91)
n.a.
n.a.
Intersegment eliminations and other
(742)
(927)
(845)
n.a.
n.a.
Total
31,868
26,512
28,588
20%
(7)%
In 2021, total orders increased 20 percent compared to 2020 (17 percent in local currencies). Total orders
reflect the growth across all Business Areas as the pandemic -related slowdown affected most of our
businesses across all regions in the previous year. The growth rate was highest in the Robotics & Discrete
Automation Business Area, while the amount of orders increased the most in Electrification, our largest
Business Area. Order growth rates were also strong in the Motion and Process Automation Business Areas.
The increase in orders was most significant in the second quarter of the year with growth rates declining over
the remainder of the year. The significant growth was visible across all regions. For additional information
about individual Business Area order performance, refer to the relevant sections of “Business analysis”
below.
We determine the geographic distribution of our orders based on the location of the ultimate destination of the
products’ end use, if known, or the location of the customer. The geographic distribution of our consolidated
orders was as follows:
% Change
($ in millions)
2021
2020
2019
2021
2020
Europe
11,857
9,618
10,509
23%
(8)%
The Americas
9,940
7,956
9,057
25%
(12)%
of which: United States
7,453
5,971
6,804
25%
(12)%
Asia, Middle East and Africa
10,071
8,938
9,022
13%
(1)%
of which: China
5,036
4,121
4,118
22%
0%
Total
31,868
26,512
28,588
20%
(7)%
In 2021, total orders increased in all regions as all regions made strong recoveries from the pandemic-related
downturn in the previous year. In the Americas, orders increased 25 percent (24 percent in local currencies)
and increased across all Business Areas. Orders grew in the U.S., Canada, Brazil and Mexico. In Europe,
orders increased 23 percent (19 percent in local currencies) with all Business Areas reporting order growth.
Orders increased in Germany, France, Switzerland, Italy and Finland while they declined in Poland. In Asia,
Middle East and Africa, orders increased 13 percent (8 percent in local currencies) and were higher across all
Business Areas. Total orders increased in China, India and Australia while they decreased in South Korea,
Singapore and Saudi Arabia.
50
Order backlog
% Change
December 31, ($ in millions)
2021
2020
2019
2021
2020
Electrification
5,458
4,358
4,488
25%
(3)%
Motion
3,749
3,320
2,967
13%
12%
Process Automation
6,079
5,805
5,077
5%
14%
Robotics & Discrete Automation
1,919
1,403
1,356
37%
3%
Total Business Areas
17,205
14,886
13,888
16%
7%
Corporate and Other
Non-core and divested businesses
114
139
192
(18)%
(28)%
Intersegment eliminations
(712)
(722)
(756)
n.a.
n.a.
Total
16,607
14,303
13,324
16%
7%
At December 31, 2021, consolidated order backlog was 16 percent higher (21 percent in local currencies)
compared to December 31, 2020. Order backlog increased significantly in most Business Areas with a
moderate growth in the Process Automation Business Area. The order backlog in the Motion Business Area
was driven by both short and long-cycle business order growth in most Divisions. Order backlog increased
across all Divisions in the Electrification Business Area with a very strong order intake, but also reflecting
execution challenges. Growth was strong in the E-mobility and Power Conversion Divisions but grew only
moderately in the Distribution Solutions Division. The growth in the Process Automation Business Area was
driven by a strong order increase in most Divisions except the Marine & Ports Division, which decreased,
mainly on the execution of large orders received in 2020 . The increase in the order backlog in the
Robotics & Discrete Automation Business Area was driven by strong growth in the Machine Automation
Division, while the Robotics Division decreased slightly due to lower demand from the automotive systems
end market.
Revenues
% Change
($ in millions)
2021
2020
2019
2021
2020
Electrification
13,187
11,924
12,728
11%
(6)%
Motion
6,925
6,409
6,533
8%
(2)%
Process Automation
6,259
5,792
6,273
8%
(8)%
Robotics & Discrete Automation
3,297
2,907
3,314
13%
(12)%
Total Business Areas
29,668
27,032
28,848
10%
(6)%
Corporate and Other
Non-core and divested businesses
11
(6)
37
n.a.
n.a.
Intersegment eliminations and other
(734)
(892)
(907)
n.a.
n.a.
Total
28,945
26,134
27,978
11%
(7)%
In 2021, revenues increased 11 percent (8 percent in local currencies). Revenues increased across all
Business Areas, recovering from the pandemic-related impacts of the previous year. The Electri fication and
Robotics & Discrete Automation Business Areas reported strong growth, largely driven by the short-cycle
businesses. For additional analysis of revenues for each of the Business Areas, refer to the relevant sections
of “Business analysis” below.
51
We determine the geographic distribution of our revenues based on the location of the ultimate destination of
the products’ end use, if known, or the location of the customer. The geographic distribution of our
consolidated revenues was as follows:
% Change
($ in millions)
2021
2020
2019
2021
2020
Europe
10,529
9,764
10,097
8%
(3)%
The Americas
8,686
7,949
8,955
9%
(11)%
of which: United States
6,397
6,027
6,753
6%
(11)%
Asia, Middle East and Africa
9,730
8,421
8,926
16%
(6)%
of which: China
4,932
4,098
4,047
20%
1%
Total
28,945
26,134
27,978
11%
(7)%
In 2021, revenues increased across all regions, reflecting the recovery from the pandemic-related challenges
of the previous year. In the Americas revenues increased 9 percent (9 percent in local currencies) and were
higher across all Business Areas. Revenues increased in the U.S., Canada, Brazil, Mexico, Argentina and
Chile while they decreased slightly in Peru and Panama. In Europe revenues increased 8 percent (5 percent
in local currencies) and increased across all Business Areas except the Process Automation Business Area.
Sales were lower in Finland and France while revenues grew in Germany, the United Kingdom, Italy,
Sweden, Turkey, Austria, Netherlands and Switzerland. In Asia, Middle East and Africa revenues increased
16 percent (11 percent in local currencies) and increased across all Business Areas. Revenues increased in
China, India, Australia and South Korea while they decreased in Japan.
Cost of sales
Cost of sales consists primarily of labor, raw materials and component costs but also includes indirect
production costs, expenses for warranties, contract and project charges, as well as order-related
development expenses incurred in connection with projects for which corresponding revenues have been
recognized.
In 2021, costs of sales increased 7 percent (4 percent in local currencies) to $19,478 million. Cost of sales as
a percentage of revenues decreased to 67.3 percent from 69.9 percent in 2020, an increase in the gross
margin of 2.6 percent, primarily driven by lower losses in non-core businesses, and because 2020 included
significant warranty charges related to a divested business as well as losses on specific projects. The
increase in gross margin also reflects higher revenue volumes, a positive portfolio mix as well as price
increases and certain cost savings actions taken to mitigate higher commodity prices and freight costs. In
2021, gross margin percentages were higher in the Electrification, Robotics & Discrete Automation and
Process Automation Business Areas. The gross margin percentage in the Motion Business Area was lower in
2021 compared to 2020 due to the impact of higher commodit y prices. For ABB, the gross margin did benefit
partially from the results of saving initiatives in the areas of supply chain and operational excellence.
Selling, general and administrative expenses
The components of selling, general and administrative expenses were as follows:
($ in millions)
2021
2020
2019
Selling expenses
3,281
3,087
3,383
General and administrative expenses
1,881
1,808
2,064
Total
5,162
4,895
5,447
52
In 2021, general and administrative expenses increased 4 percent (1 percent in local currencies) compared
to 2020. As a percentage of revenues, general and administrative expenses decreased to 6.5 percent from
6.9 percent in 2020. General and administrative expenses in 2021 benefit ed partially from a $40 million
reduction of stranded corporate costs compared to 20 20 but continue to include the ongoing costs required to
deliver services to Hitachi Energy Ltd under transition service agreements, for which we are compensated
and recorded $173 million in Other income (expense), net during 2021 compared to $91 million in the
previous year. Stranded costs were overhead and other management costs which could previously be
allocated to the Power Grids business.
In 2021, selling expenses increased 6 percent (3 percent in local currencies) compared to 2020 across all
Business Areas as pandemic-related restrictions were gradually relaxed and we increased sales activities to
keep pace with the strong recovery in demand. Selling expenses as a percentage of orders received
decreased from 11.6 percent in 2020 to 10.3 percent in 2021 mainly due to strong order growth.
Non
‑
order related research and development expenses
In 2021, non
‑
order related research and development expenses increased 8 percent (4 percent in local
currencies) compared to 2020. Non
‑
order related research and development expenses increase d mainly due
to higher investment activities related to selective growth areas in certain operating Divisions such as
Distribution Solutions, Robotics, Process Industries, Smart Buildings and E-mobility.
In 2021, the higher non
‑
order related research and development expenses were consistent with the higher
revenues and as a percentage of revenues these expenditures decreased in 2021 to 4.2 percent from
4.3 percent compared to the previous year.
Impairment of goodwill
In 2020, as a result of the new composition of the reporting units and reallocation of goodwill, we recorded an
impairment charge of $311 million, the majority of which related to our Machine Automation Division within
the Robotics & Discrete Automation Business Area. In 2021, no impairment was recorded as a result of the
annual review. See “Note 11 - Goodwill and intangible assets” to our Consolidated Financial Statements.
Other income (expense), net
($ in millions)
2021
2020
2019
Net gain (loss) from sale of businesses
2,193
(2)
55
Income from provision of services under transition services agreements
173
91
—
Gain (loss) from change in fair value of investments in equity securities
105
71
(5)
Brand income from Hitachi Energy
89
60
—
Net gain from sale of property, plant and equipment
38
37
51
Favorable resolution of an uncertain purchase price adjustment
6
36
92
Fair value adjustment on assets and liabilities held for sale
—
(33)
(421)
Asset impairments
—
(35)
(56)
Restructuring and restructuring-related expenses
(1)
(48)
(87)
(69)
Income (loss) from equity-accounted companies
(100)
(66)
8
Other income (expense)
176
(24)
22
Total
2,632
48
(323)
(1) Excluding asset impairments
53
In 2021, Other income (expense), net, was an income of $2,632 million compared to $48 million in 2020. In
2021, we recorded gains of $2,193 million in Other income (expense), net for net gains from sales of
businesses. This is primarily due to the divestment of the Dodge business. In 2021, we also recorded a full
year of both brand income and income for provision of transition services relating to Hitachi Energy,
compared to only six months of income in 2020. In 2021, we recorded higher increases in the fair value of
various equity investments in our ABB Technology Ventures portfolio, the most significant of which related to
CMR Surgical Ltd. The amount in 2021 also reflects lower restructuring and restructuring-related expenses
and lower asset impairments. Partially offsetting this were higher losses from equity-accounted companies
mainly reflecting the loss recorded from the Hitachi Energy joint venture.
Income from operations
% Change
($ in millions)
2021
2020
2019
2021
2020
Electrification
1,841
1,335
1,049
38%
27%
Motion
3,276
989
1,009
231%
(2)%
Process Automation
713
344
700
107%
(51)%
Robotics & Discrete Automation
269
(163)
298
n.a.
n.a.
Total Business Areas
6,099
2,505
3,056
143%
(18)%
Corporate and Other
(385)
(927)
(1,113)
n.a.
n.a.
Intersegment elimination
4
15
(5)
n.a.
n.a.
Total
5,718
1,593
1,938
259%
(18)%
In 2021 and 2020, changes in income from operations were a result of the factors discussed above and in
“Business analysis” below.
Financial income and expenses
Financial income and expenses include “Interest and dividend income”, “Interest and other finance expense”
and “Losses from extinguishment of debt”.
“Interest and other finance expense” includes interest expense on our debt, the amortization of upfront
transaction costs associated with long
‑
term debt and committed credit facilities, commitment fees on credit
facilities, foreign exchange gains and losses on financial items and gains and losses on marketable
securities. In addition, interest accrued relating to uncertain tax positions is included within interest expense.
“Interest and other finance expense” excludes interest expense which has been allocated to discontinued
operations.
($ in millions)
2021
2020
2019
Interest and dividend income
51
51
67
Interest and other finance expense
(148)
(240)
(215)
Losses from extinguishment of debt
—
(162)
—
In 2020, we redeemed the full amount outstanding for two bonds according to the terms of the instruments
and executed public tenders for two additional bonds resulting in a partial reduction of the principal
outstanding. These transactions resulted in losses on extinguishment of debt in 2020 totaling $162 million
(see “Note 12 - Debt” to our Consolidated Financial Statements) . The reduction of outstanding debt from
these public tenders as well as maturities of bonds in both 2021 and 2020 reduced “Interest and other finance
expense” by approximately $70 million compared to 2020. This was partially offset by higher interest expense
for income tax related contingencies and the elimination of the allocation of interest expense to discontinued
operations subsequent to the divestment of the Power Grids business.
54
Non-operational pension (cost) credit
A non-operational pension credit of $166 million was recorded in 2021 compared to a $401 million cost in
2020. Non-operational pension credits primarily result from higher expected returns on plan assets compared
to interest costs on benefit obligations. The net cost in 2020 was mainly due to charges of $520 million for
settlements of certain international pension plans (see “Note 17 - Employee benefits” to our Consolidated
Financial Statements).
Income tax expense
($ in millions)
2021
2020
2019
Income from continuing operations before taxes
5,787
841
1,862
Income tax expense
(1,057)
(496)
(772)
Effective tax rate for the year
18.3%
59.0%
41.5%
In 2021, the effective tax rate decreased from 59.0 percent in 2020 to 18.3 percent primarily due to specific
items which increased the effective tax rate in 2020. In 2020, the income tax rate was higher by 9 percent
due to the impairment of non-deductible goodwill, 10 percent due to non-deductible charges relating to the
settlement of certain defined benefit pension plans and 5 percent due to losses from extinguishment of debt
which were incurred in jurisdictions with a full valuation allowance. In 2021, the tax impacts related to the sale
of the Dodge business reduced the effective tax rate by approximately 5 percent. We also realized certain
benefits from internal reorganizations in anticipation of this divestment which reduced the effective tax rate by
a further 4 percent.
See “Note 16 - Income taxes” to our Consolidated Financial Statements for additional information.
Income from continuing operations, net of tax
As a result of the factors discussed above, compared to 2020, Income from continuing operations, net of tax,
increased by $4,385 million to $4,730 million in 2021.
Income from discontinued operations, net of tax
Income (loss) from discontinued operations, net of tax, in 2021, 2020 and 2019 was as follows:
($ in millions)
2021
2020
2019
Total revenues
—
4,008
9,037
Total cost of sales
—
(3,058)
(6,983)
Gross profit
—
950
2,054
Expenses
(18)
(808)
(1,394)
Change to net gain recognized on sale of the Power Grids business
(65)
5,141
—
Income (loss) from operations
(83)
5,282
660
Net interest income (expense) and other finance expense
2
(5)
(61)
Non-operational pension (cost) credit
—
(94)
5
Income (loss) from discontinued operations before taxes
(81)
5,182
605
Income tax
1
(322)
(167)
Income (loss) from discontinued operations, net of tax
(80)
4,860
438
55
On July 1, 2020, we completed the divestment of 80.1 percent of our former Power Grids business to Hitachi.
As a result of the sale, substantially all Power Grids related assets and liabilities have been sold. As this
divestment represented a strategic shift that would have a major effect on our operations and financial
results, the results of operations for this business have been presented as discontinued operations for all
periods presented. In addition, we also have retained obligations (primarily for environmental and taxes)
related to other businesses disposed or otherwise exited that qualified as discontinued operations. Changes
to these retained obligations are also included in Income (loss) from discontinued operations, net of tax.
In 2020, as a result of the sale of the Power Grids business , we recognized a net gain of $5,141 million, net
of transaction costs, for the sale of the entire Power Grids business which is included in Income from
discontinued operations, net of tax. Certain amounts included in the net gain are estimated or otherwise
subject to change in value and, as a result, we have recorded additional adjustments in 2021, primarily due to
the impacts of the final purchase price settlement agreed with Hitachi and net foreign currency losses on
certain obligations. We may record additional adjustments in future periods to the gain which are not
expected to have a material impact on the Consolidated Financial Statements.
The amounts shown in the table above for the full-year 2020 primarily represent the operations of the Power
Grids business for six months, compared to a full year of operations for 2019. Income from discontinued
operations for 2020 included income from operations, before tax, of $5,182 million. In 2020, we recorded
$322 million as income tax expense within discontinued operations , which included $262 million in Income
tax within discontinued operations in connection with the reorganization of the legal entity structure of the
Power Grids business required to facilitate its sale.
For additional information on the divestment and discontinued operations, see “Note 3 - Discontinued
operations” to our Consolidated Financial Statements.
Net income attributable to ABB
As a result of the factors discussed above, compared to 2020, Net income attributable to ABB decreased by
$600 million to $4,546 million in 2021.
Earnings per share attributable to ABB shareholders
(in $)
2021
2020
2019
Basic earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
2.31
0.14
0.49
Income (loss) from discontinued operations, net of tax
(0.04)
2.30
0.19
Net income
2.27
2.44
0.67
Diluted earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
2.29
0.14
0.49
Income (loss) from discontinued operations, net of tax
(0.04)
2.29
0.19
Net income
2.25
2.43
0.67
Basic earnings per share is calculated by dividing income by the weighted
‑
average number of shares
outstanding during the year. Diluted earnings per share is calculated by dividing income by the
weighted
‑
average number of shares outstanding during the year, assuming that all potentially dilutive
securities were exercised, if dilutive. Potentially dilutive securities comprise: outstanding written call options
and outstanding options and shares granted subject to certain conditions under our share
‑
based payment
arrangements. See “Note 20 - Earnings per share” to our Consolidated Financial Statements.
56
—
Business analysis
Electrification Business Area
The financial results of our Electrification Business Area were as follows:
% Change
($ in millions)
2021
2020
2019
2021
2020
Orders
14,381
11,884
13,050
21%
(9)%
Order backlog at December 31,
5,458
4,358
4,488
25%
(3)%
Revenues
13,187
11,924
12,728
11%
(6)%
Income from operations
1,841
1,335
1,049
38%
27%
Operational EBITA
2,121
1,681
1,688
26%
0%
Orders
Approximately two-thirds of the Business Area’s orders are for products with short delivery times; orders are
usually recorded and delivered within a three-month period and thus are generally considered as short-cycle.
The remainder of orders is comprised of smaller projects that require longer lead times, as well as larger
solutions requiring engineering and installation. Approximately half of the Business Area’s orders are
received via third-party distributors; as a consequence, end-customer market data is based partially on
management estimates.
In 2021, orders increased 21 percent (18 percent in local currencies) as demand improved across most end-
user segments and markets in both short-cycle and long-cycle businesses. Although global economic output
recovered during the year and is now above the pre-pandemic level of 2019, growth was geographically
uneven, largely due to diverse ongoing pandemic impacts, especially in emerging economies. Demand in the
buildings segment, the Electrification Business Area’s largest end-user segment, was robust with strong
growth in the residential market and recovery of the non-residential building sector with increasing
investments in commercial and healthcare. Substantial growth continues in the e-mobility segment along with
strong growth in food and beverage, utilities, renewables and data centers. Additionally, demand in the oil
and gas segment increased following higher oil prices.
57
The geographic distribution of orders for our Electrification Business Area was as follows:
($ in millions)
2021
2020
2019
Europe
5,022
4,149
4,281
The Americas
5,199
4,033
4,653
of which: United States
3,891
3,065
3,501
Asia, Middle East and Africa
4,160
3,702
4,116
of which: China
2,141
1,819
1,885
Total
14,381
11,884
13,050
In 2021, orders increased in all regions. Orders in the Americas increased 29 percent (28 percent in local
currencies), with strong growth in Mexico, Canada and in the U.S. Orders in Europe increased 21 percent
(18 percent in local currencies) with widespread demand pickup across the region including key markets such
as Germany and Italy. Demand in Asia, Middle East and Africa increased 12 percent (8 percent in local
currencies) with China and India contributing strongly despite continuing pandemic-related challenges.
Order backlog
In 2021, the order backlog increased 25 percent (29 percent in local currencies). The order backlog benefited
from the strong order intake, but also reflected execution challenges caused by material shortages,
transportation constraints as well as pandemic-related production pressures in some local markets.
Revenues
In 2021, revenues increased 11 percent (8 percent in local currencies). Revenues increased in all Divisions
reflecting widespread market recovery across all regions , however growth was hampered by component
shortage and logistic challenges, particularly for the project business. Revenue growth in short-cycle
businesses was higher than in long-cycle businesses, reflecting some customer stockpiling. Pricing actions
taken to mitigate increasing material and transportation costs also contributed to the higher revenue level.
The revenue growth rate was led by the E-mobility Division mirroring the very high demand in this segment.
There was also double-digit revenue growth in the Installation Products Division reflecting demand recovery
in the U.S. and Canada, as well as in the Smart Power Division. Revenue growth was solid for the Smart
Buildings Division, whereas revenues grew more modest ly for the Distribution Solutions and Power
Conversion Divisions.
The geographic distribution of revenues for our Electrification Business Area was as follows:
($ in millions)
2021
2020
2019
Europe
4,628
4,190
4,251
The Americas
4,503
4,093
4,635
of which: United States
3,322
3,115
3,555
Asia, Middle East and Africa
4,056
3,641
3,842
of which: China
2,110
1,858
1,749
Total
13,187
11,924
12,728
In 2021, revenues in the Americas increased 10 percent (9 percent in local currencies) led by a strong
recovery in Canada and Mexico, while revenues in the U.S. recorded high single-digit growth. Revenues
increased 11 percent (7 percent in local currencies) in Asia, Middle East and Africa, driven by growth in China
and India. Revenues in Europe increased 10 percent (8 percent in local currencies) reflecting widespread
growth across the region, including key markets such as Germany and Italy.
58
Income from operations
In 2021, income from operations increased 38 percent, supported by higher revenues. Pricing actions across
the product businesses and the benefits of savings realized from ongoing restructuring and cost savings
programs also positively influenced the income from operations. Restructuring related expenses and
implementation costs in our operating Divisions were lower in 2021 than in 2020, mainly as the integration of
GEIS is nearing completion. These positives were partially dampened by higher commodity prices in 2021, as
well as increased costs for transportation and logistics. The income from operations was burdened by higher
personnel expenses driven by a ramp-up of manufacturing capacity to meet higher demand. There was also
negative comparable impact from the discontinuance of various pandemic-related government support
programs that were more significant in 2020 compared to 2021. Changes in foreign currencies, including the
impacts from FX/commodity timing differences summarized in the table below, positively impacted the
income from operations by approximately 1 percentage point.
Operational EBITA
The reconciliation of Income from operations to Operational EBITA for the Electrification Business Area was
as follows:
($ in millions)
2021
2020
2019
Income from operations
1,841
1,335
1,049
Acquisition-related amortization
117
115
115
Restructuring, related and implementation costs
66
145
112
Changes in obligations related to divested businesses
—
15
—
Changes in pre-acquisition estimates
(6)
11
22
Gains and losses from sale of businesses
13
4
(42)
Fair value adjustment on assets and liabilities held for sale
—
33
421
Favorable resolution of an uncertain purchase price adjustment
(5)
(36)
(92)
Acquisition- and divestment-related expenses and integration costs
70
71
119
Certain other non-operational items
—
9
3
FX/commodity timing differences in income from operations
25
(21)
(19)
Operational EBITA
2,121
1,681
1,688
In 2021, Operational EBITA increased 26 percent (20 percent excluding the impact from changes in foreign
currency exchange rates) compared to 2020, primarily due to the reasons described under “Income from
operations”, excluding the explanations related to the reconciling items in the table above.
59
Motion Business Area
The financial results of our Motion Business Area were as follows:
% Change
($ in millions)
2021
2020
2019
2021
2020
Orders
7,616
6,574
6,782
16%
(3)%
Order backlog at December 31,
3,749
3,320
2,967
13%
12%
Revenues
6,925
6,409
6,533
8%
(2)%
Income from operations
3,276
989
1,009
231%
(2)%
Operational EBITA
1,183
1,075
1,082
10%
(1)%
Orders
In 2021, orders increased 16 percent (13 percent in local currencies) compared to 2020. Order development
had a strong performance across most of the market segments and Divisions. The Business Area benefited
from high demand in food and beverage, HVACR (heating, ventilation, air conditioning and refrigeration),
chemicals, metals, pulp and paper, cement, mining, wind and water segments. Oil and gas demand was flat
but showed signs of recovery due to higher oil prices and emerging trends.
The geographic distribution of orders for our Motion Business Area was as follows:
($ in millions)
2021
2020
2019
Europe
2,617
2,219
2,355
The Americas
2,677
2,276
2,437
of which: United States
2,200
1,897
2,048
Asia, Middle East and Africa
2,322
2,079
1,990
of which: China
1,232
1,077
987
Total
7,616
6,574
6,782
In 2021, orders increased 18 percent (14 percent in local currencies) in Europe as orders increased mainly in
Switzerland, Spain, Italy, Austria, Turkey and France partially offset by a decrease in Poland. In Asia, Middle
East and Africa, orders increased 12 percent (7 percent in local currencies) driven by growth in China and
India. In the Americas, orders increased 18 percent (17 percent in local currencies) as a result of recoveries
in the U.S., Canada and Mexico.
60
Order backlog
The order backlog in 2021 increased 13 percent (19 percent in local currencies) compared to 2020. The order
backlog increased across most Divisions, driven by both short and long-cycle order growth.
Revenues
In 2021, revenues increased 8 percent (5 percent in local currencies) compared to 2020 and were higher
across all Divisions, recovering from the pandemic-related decline in 2020. Revenues also reflected strong
execution from the order backlog as well as resilience in the short-cycle business.
The geographic distribution of revenues for our Motion Business Area was as follows:
($ in millions)
2021
2020
2019
Europe
2,258
2,196
2,162
The Americas
2,396
2,225
2,378
of which: United States
1,974
1,867
2,009
Asia, Middle East and Africa
2,271
1,988
1,993
of which: China
1,256
1,040
955
Total
6,925
6,409
6,533
In 2021, revenues in Europe increased 3 percent (flat in local currencies) driven by increases in Turkey,
Germany, Poland, Switzerland, Austria and Spain while sales volumes declined in Sweden, Estonia, Italy and
Finland. In Asia, Middle East and Africa revenues increased 14 percent (9 percent in local currencies)
compared to 2020 driven by strong revenue growth in China, India and Australia. In the Americas, revenues
increased 8 percent (7 percent in local currencies) on higher revenues in the U.S., particularly in the book-
and-bill business in the NEMA Motors Division. The Mechanical Power Transmission Division also reported
strong order growth prior to its divestment in November 2021.
Income from operations
In 2021, income from operations increased 231 percent compared to 2020 and included the gain of
$2,195 million recognized on sale of the Mechanical Power Transmission Division. Excluding this gain,
income from operations increased 9 percent driven primarily by higher revenues. The higher business
volumes reflect the recovery from the pandemic-related slowdown in 2020. Profitability was also supported by
active price management, continued cost discipline, a focus on operational performance and a positive
divisional mix which offset increasing commodities and freight expenses and other cost inflation. Changes in
foreign currencies, including the impacts from FX/commodity timing differences summarized in the table
below, had no significant impact on the change in income from operations.
Operational EBITA
The reconciliation of Income from operations to Operational EBITA for the Motion Business Area was as
follows:
($ in millions)
2021
2020
2019
Income from operations
3,276
989
1,009
Acquisition-related amortization
43
52
53
Restructuring, related and implementation costs
22
44
12
Gains and losses from sale of businesses
(2,196)
—
—
Acquisition- and divestment-related expenses and integration costs
26
—
—
Certain other non-operational items
1
17
14
FX/commodity timing differences in income from operations
11
(27)
(6)
Operational EBITA
1,183
1,075
1,082
61
In 2021, Operational EBITA increased 10 percent (6 percent excluding the impact from changes in foreign
currency exchange rates) primarily due to the reasons described under “Income from operations”, excluding
the explanations related to the reconciling items in the table above.
Process Automation Business Area
The financial results of our Process Automation Business Area were as follows:
% Change
($ in millions)
2021
2020
2019
2021
2020
Orders
6,779
6,144
6,432
10%
(4)%
Order backlog at December 31,
6,079
5,805
5,077
5%
14%
Revenues
6,259
5,792
6,273
8%
(8)%
Income from operations
713
344
700
107%
(51)%
Operational EBITA
801
451
732
78%
(38)%
Orders
In 2021, orders increased 10 percent (7 percent in local currencies) compared to 2020. Orders grew double
digit in almost all Divisions except the Marine & Ports Division where orders declined due to the receipt of a
large capital investment order in 2020. Markets recovered to pre-pandemic levels and customers made
capital and operational investments across almost all market segments. Demand for products, systems and
services improved in the process-related segments like mining, pulp and paper, chemicals, and oil and gas.
Demand for products and services recovered in the power generation market and operational investments
improved in the marine sector.
The geographic distribution of orders for our Process Automation Business Area was as follows:
($ in millions)
2021
2020
2019
Europe
2,614
2,365
2,599
The Americas
1,645
1,360
1,627
of which: United States
1,047
770
995
Asia, Middle East and Africa
2,520
2,419
2,206
of which: China
821
590
631
Total
6,779
6,144
6,432
62
Orders in Europe increased 11 percent (6 percent in local currencies) driven by strong orders in the process-
related businesses and increases in service activity. In local currencies, orders increased in Germany,
Norway, France, Russia and the United Kingdom while orders decreased in Sweden and Italy. Orders in
Asia, Middle East and Africa increased 4 percent (remained flat in local currencies). Higher orders in China,
India and Australia were partly offset primarily by the lower order volumes in South Korea and Singapore due
to large orders booked in 2020. In the Americas, orders increased 21 percent (20 percent in local currencies)
supported by strong investments in the U.S. across all Divisions.
Order backlog
In 2021, the order backlog increased 5 percent (10 percent in local currencies) compared to 2020. Strong
order growth drove significant increases in order backlog for all Divisions except the Marine & Ports Division
which decreased mainly on lower orders and strong backlog execution.
Revenues
In 2021, revenues increased 8 percent (5 percent in local currencies) compared to 2020. Revenues
increased in all Divisions, reflecting strong execution of the order backlog in the long-cycle businesses,
partially offset by challenges from supply chain constraints.
The geographic distribution of revenues for our Process Automation Business Area was as follows:
($ in millions)
2021
2020
2019
Europe
2,439
2,395
2,494
The Americas
1,439
1,329
1,595
of which: United States
836
808
950
Asia, Middle East and Africa
2,381
2,068
2,184
of which: China
742
629
612
Total
6,259
5,792
6,273
In 2021, revenues were 15 percent higher (11 percent in local currencies) in Asia, Middle East and Africa,
8 percent higher (7 percent in local currencies) in the Americas and 2 percent higher (decrease of 2 percent
in local currencies) in Europe compared to 2020. In Asia, Middle East and Africa, the Marine & Ports Division
registered strong growth in South Korea and China while revenues also increased in the United Arab
Emirates and South Africa in the Energy Industries Division. In Europe, revenues were higher in Russia and
the United Kingdom while lower in France, Finland and Germany. In the Americas, revenues were higher in
the U.S., Brazil and Canada while revenues declined in Mexico.
Income from operations
In 2021, income from operations increased 107 percent compared to 2020 primarily due to the significant
charges recorded in 2020 for the Kusile power generation project in South Africa, legacy projects in India and
other significant restructurings. This was partially offset by higher divestment-related expenses, mainly
related to the planned exit of the Turbocharging Division. Excluding these items, income from operations
improved significantly driven by volume, strong execution, savings from supply and operation excellence
initiatives and continued overhead cost structure improvements. Changes in foreign currencies, including the
effect from changes in the FX/commodity timing differences summarized in the table below, decreased
income from operations by 3 percent compared to 2020.
63
Operational EBITA
The reconciliation of Income from operations to Operational EBITA for the Process Automation Business
Area was as follows:
($ in millions)
2021
2020
2019
Income from operations
713
344
700
Acquisition-related amortization
5
4
4
Restructuring, related and implementation costs
48
125
21
Gains and losses from sale of businesses
(13)
—
—
Acquisition- and divestment-related expenses and integration costs
35
2
—
Certain other non-operational items
1
1
2
FX/commodity timing differences in income from operations
12
(25)
5
Operational EBITA
801
451
732
In 2021, Operational EBITA increased 78 percent (70 percent excluding the impacts from changes in foreign
currencies) compared to 2020. The change is due to the reasons described under “Income from operations”,
excluding the explanations related to the reconciling items in the table above.
Robotics & Discrete Automation Business Area
The financial results of our Robotics & Discrete Automation Business Area were as follows:
% Change
($ in millions)
2021
2020
2019
2021
2020
Orders
3,844
2,868
3,260
34%
(12)%
Order backlog at December 31,
1,919
1,403
1,356
37%
3%
Revenues
3,297
2,907
3,314
13%
(12)%
Income (loss) from operations
269
(163)
298
n.a.
(155)%
Operational EBITA
355
237
393
50%
(40)%
64
Orders
In 2021, orders increased 34 percent (29 percent in local currencies). Demand levels in both the Robotics
and Machine Automation Divisions recovered in 2021 after 2020 was impacted by the COVID-19 pandemic.
Commencing in the second quarter, both Divisions reported significant increases in demand, including from
traditional automotive and automotive-related sectors, general industry, machine builders and electronics
market sectors. Orders continued to grow in the second half of the year benefiting from larger investments by
customers in the machine automation sector.
The geographic distribution of orders for our Robotics & Discrete Automation Business Area was as follows:
($ in millions)
2021
2020
2019
Europe
1,978
1,424
1,717
The Americas
530
388
457
of which: United States
371
277
310
Asia, Middle East and Africa
1,336
1,056
1,086
of which: China
976
781
729
Total
3,844
2,868
3,260
In 2021, orders increased in all regions. Orders in Europe increased 39 percent (35 percent in local
currencies) driven by increases in demand in Germany, Italy, Netherlands and Austria. Orders in the
Americas increased 37 percent (35 percent in local currencies) compared to 2020, driven by the strong order
intake in the U.S. in both Divisions. Orders in Asia, Middle East and Africa increased 27 percent (20 percent
in local currencies) with strong demand in China and India .
Order backlog
In 2021, the order backlog increased 37 percent (43 percent in local currencies) compared to 2020. The order
backlog increased in the Machine Automation Division, but was negatively impacted by our selectivity of
orders in the automotive segment partially offset by positive momentum in the general industry and consumer
segments.
Revenues
In 2021, revenues increased 13 percent (9 percent in local currencies) compared to 2020. Revenues
increased in both Divisions due to higher volumes from book-and-bill business, however growth was
hampered by component shortages (primarily related to semiconductors), logistic challenges which triggered
longer lead times for some customer deliveries and a tight labor market. Service revenues also increased,
driven by strong demand from all industry segments but especially from general industry.
The geographic distribution of revenues for our Robotics & Discrete Automation Business Area was as
follows:
($ in millions)
2021
2020
2019
Europe
1,582
1,481
1,680
The Americas
441
389
464
of which: United States
309
273
293
Asia, Middle East and Africa
1,274
1,037
1,170
of which: China
950
719
829
Total
3,297
2,907
3,314
65
In 2021, revenues increased in all regions. The revenues from Asia, Middle East and Africa increased
23 percent (17 percent in local currencies) compared to 2020 due to higher book-and-bill revenues and a
higher level of execution of automotive segment orders, particularly in China. Revenues in Europe increased
7 percent (4 percent in local currencies) with Austria and Spain performing strongly while revenues declined
in the United Kingdom and France. In the Americas, revenues increased 13 percent (12 percent in local
currencies) due to strong demand in the U.S. in both Divisions after recovery from the low levels in 2020.
Income (loss) from operations
In 2021, the Business Area recorded income from operations of $269 million compared to a loss of
$163 million in 2020, as the improvement in underlying operating performance in 2020 was more than offset
by the $290 million impairment of goodwill recorded in the Machine Automation Division in 2020. The
operational performance in 2021 reflected improved sales volumes, a favorable change in the revenue mix
and the benefit of cost reduction measures taken in 2020. Changes in foreign currencies, including the
impacts from FX/commodity timing differences summarized in the table below, positively impacted the
income from operations by approximately 6 percent.
Operational EBITA
The reconciliation of Income (gain) from operations to Operational EBITA for the Robotics & Discrete
Automation Business Area was as follows:
($ in millions)
2021
2020
2019
Income (loss) from operations
269
(163)
298
Acquisition-related amortization
83
78
77
Restructuring, related and implementation costs
7
26
12
Acquisition- and divestment-related expenses and integration costs
1
—
1
Impairment of goodwill
—
290
—
Certain other non-operational items
—
5
4
FX/commodity timing differences in income from operations
(5)
1
1
Operational EBITA
355
237
393
In 2021, Operational EBITA increased 50 percent (41 percent excluding the impact from changes in foreign
currency exchange rates) compared to 2020, primarily due to the reasons described under “Income (loss)
from operations”, excluding the explanations related to the reconciling items in the table above.
66
Corporate and Other
Net loss from operations for Corporate and Other was as follows:
($ in millions)
Corporate headquarters and stewardship
(399)
(334)
(334)
Income (loss) from equity-accounted companies
(102)
(68)
1
Other corporate costs
(32)
(63)
56
Restructuring
(5)
(46)
(60)
Fair value adjustment on equity securities
94
71
(5)
Corporate brand income from Hitachi Energy
89
60
—
Corporate real estate
41
54
60
Costs for divestment of Power Grids
—
(86)
(141)
Corporate research and development
—
(49)
(185)
Digital program costs
—
(45)
(33)
OS implementation costs
—
(24)
(83)
Stranded corporate costs
—
(40)
(225)
Divested businesses and other non-core activities
(67)
(342)
(164)
Total Corporate and Other
(381)
(912)
(1,113)
In 2021, the net loss from operations within Corporate and Other decreased by $531 million to $381 million
compared to 2020. This reflected several items including an elimination of stranded corporate costs and the
high costs in 2020 related to the divestment of the Power Grids business. Additionally, corporate costs in
2021 reflect the ending in 2020 of the remaining corporate research and development and digital program
costs, which were eliminated as part of the ABB Way program. In 2021, losses in non-core businesses
decreased compared to 2020 as projects were completed and certain large losses were not repeated. This
was partially offset by a higher loss from equity -accounted companies in 2021 compared to 2020 while
corporate brand income of $89 million was higher than 2020 for the use of the ABB brand by the Hitachi
Energy Ltd. joint venture.
Corporate
In 2021, corporate headquarters and stewardship costs increased compared to 2020, mainly driven by
residual unallocated costs for the Global Business Services operations and continuous implementation of
ABB Way.
Our investment in the Hitachi Energy Ltd. joint venture is accounted for using the equity method and
presented as Income (loss) from equity-accounted companies. The amount in 2021 is for a full year
compared to six months in 2020 and primarily represents the amortization of the notional purchase price
accounting adjustments (net of tax) which were recorded due to the fair value accounting applied on initial
investment in the joint venture (see “Note 4 - Acquisitions, divestments and equity-accounted companies” to
our Consolidated Financial Statements for information on the accounting for the investment in Hitachi Energy
Ltd).
During 2021, we recorded net revaluation gains totaling $94 million on investments in equity securities in our
equity ventures investment portfolio.
Corporate brand income results from the granting of the use of the ABB brand to Hitachi Energy Ltd., the fair
value of which was initially determined on the date of the divestment. A portion of the proceeds received for
the sale of the Power Grids business was allocated to the fair value of the granting of the use of the brand
and is being amortized over the expected period of use by Hitachi Energy Ltd.
Corporate real estate primarily includes income from property rentals and gains from the sale of real estate
properties. In 2021, income from operations in corporate real estate included gains from the sale of real
estate properties of $22 million compared to $27 million in 2020.
67
Other corporate costs consists of operational costs of our Corporate Treasury Operations and other minor
items including elimination of changes to eliminated internal profit of Inventory.
Other - Divested businesses and other non-core activities
The results of operations for certain divested businesses and other non
‑
core activities are presented in
Corporate and Other. Divested businesses include the high-voltage cables business, steel structures
business as well as the oil & gas EPC business. Other continuing non
‑
core activities include the execution
and wind
‑
down of certain legacy EPC and other contracts.
In both 2021 and 2020, the amounts represent charges and losses relating to divested businesses and the
winding down of the remaining EPC projects. In 2021, we recorded losses of $67 million which were mostly
related to the full train retrofit business but also related to legacy EPC projects and the divested oil & gas
EPC business. In 2020, we recorded $143 million for certain retained warranty obligations relating to the steel
structures business and also recorded charges for certain retained commitments and guarantees in
connection with the oil & gas EPC business. The loss in 2020 also reflects further operational challenges and
customer obligations relating to several legacy projects including the full train retrofit business, substations
and offshore wind.
At December 31, 2021, our remaining non
‑
core activities primarily include the completion of the remaining
EPC contracts for substations and oil & gas as well as the completion of the remaining obligations for the full
train retrofit business.
Restructuring and other cost savings initiatives
OS program
From December 2018 to December 2020, we executed a two-year restructuring program with the objective of
simplifying our business model and structure through the implementation of a new organizational structure
driven by our businesses. The program resulted in the elimination of the country and regional structures
within the previous matrix organization, including the elimination of the three regional Executive Committee
roles. The operating businesses are now responsible for both their customer-facing activities and business
support functions, while the remaining Group-level corporate activities primarily focus on Group strategy,
portfolio and performance management and capital allocation. As of December 31, 2020, we had incurred
substantially all restructuring and related expenses related to the OS program.
During the course of the program, we implemented and executed various restructuring initiatives across all
business support functions and all operating segments. The cumulative restructuring and related expenses
under this program, originally estimated to be $350 million, were reduced by $41 million to $309 million,
mainly due to the reductions in both estimated costs and number of projects planned.
The following table outlines the costs incurred in 2020, 2019 and the cumulative costs incurred under the
program per operating segment and Corporate and Other as of December 31, 2020:
Cumulative costs
Costs incurred in
incurred up to
($ in millions)
2020
2019
December 31, 2020
Electrification
35
18
85
Motion
18
6
25
Process Automation
(1)
37
3
61
Robotics & Discrete Automation
10
8
18
Corporate and Other
49
54
114
Total
149
89
303
(1) Formerly named the Industrial Automation operating segment.
68
As of December 31, 2020, ABB completed and had incurred substantially all costs related to the OS program.
The restructuring program resulted in run-rate cost savings of approximately $590 million, impacting all
Business Areas and Corporate and Other. These cost savings were realized mainly as reductions in cost of
sales, selling, general and administrative expenses, and non-order related research and development
expenses.
The majority of the remaining cash outlays at December 31, 2020, occurred in 2021 and were primarily for
employee severance benefits.
—
Liquidity and capital resources
Principal sources of funding
We meet our liquidity needs principally using cash from operations, proceeds from the issuance of debt
instruments (bonds and commercial paper), and short
‑
term bank borrowings. In 2021, we also received
significant funds from the sale of the Mechanical Power Transmission Division, which was completed on
November 1, 2021.
Our net debt/cash is shown in the table below:
December 31, ($ in millions)
2021
2020
Short-term debt and current maturities of long-term debt
1,384
1,293
Long-term debt
4,177
4,828
Cash and equivalents
(4,159)
(3,278)
Restricted cash - current
(30)
(323)
Marketable securities and short-term investments
(1,170)
(2,108)
Restricted cash - non-current
(300)
(300)
Net debt (cash)
(defined as the sum of the above lines)
(98)
112
During 2021, we benefited from a significant increase in cash provided by operating activities compared to
2020 and cash proceeds from sales of businesses. A significant amount of these funds was paid to
shareholders during 2021 through both the payment of the annual dividend and the continuation of share
buyback activities.
During 2021, we changed from a net debt position of $11 2 million at December 31, 2020, to a net cash
position of $98 million at December 31, 2021. Approximately $170 million of this movement is due to
movements in foreign exchange rates with several other significant movements mostly offsetting over the
year. In 2021, we received net proceeds of $2,862 million for the sale of the Dodge business later in the year.
We generated cash flows from operating activities during 2021 of $3,330 million and sold treasury stock in
relation to our employee share plans for $826 million. Mostly offsetting these items were amounts for
purchases of treasury shares of $3,708 million, including $2,680 million relating to the announced buyback s
of our shares, as well as $1,726 million for the payment of the dividend to our shareholders. We made net
purchases of property, plant and equipment and intangible assets of $727 million and made payments of
dividends to noncontrolling shareholders totaling $98 million. See “Financial position”, “Investing activities”
and “Financing activities” for further details.
Our Corporate Treasury Operations is responsible for providing a range of treasury management services to
our group companies, including investing cash in excess of current business requirements. At December 31,
2021 and 2020, the proportion of our aggregate “Cash and equivalents” (including restricted cash) and
“Marketable securities and short
‑
term investments” managed by our Corporate Treasury Operations
amounted to approximately 44 percent and 47 percent, respectively.
69
Our investment strategy for cash (in excess of current business requirements) has generally been to invest in
short-term time deposits with maturities of less than 3 months, supplemented at times by investments in
money market funds, and in some cases, government securities. We actively monitor credit risk in our
investment portfolio and derivative portfolio. Credit risk exposures are controlled in accordance with policies
approved by our senior management to identify, measure, monitor and control credit risks. We have minimum
rating requirements for our counterparts and closely monitor developments in the credit markets making
appropriate changes to our investment policy as deemed necessary. In addition to minimum rating criteria,
we have strict investment parameters and specific approved instruments as well as restrictions on the types
of investments we make. These parameters are closely monitored on an ongoing basis and amended as we
consider necessary.
Our cash is held in various currencies around the world. Approximately 40 percent of our cash and cash
equivalents held at December 31, 2021, was in U.S. dollars, while the most significant foreign currency cash
and cash equivalents were held in Chinese renminbi (17 percent).
We believe the ongoing cash flows generated from our business, supplemented, when necessary, through
access to the capital markets (including short
‑
term commercial paper) and our credit facilities are sufficient to
support business operations, capital expenditures, business acquisitions, the payment of dividends to
shareholders and contributions to pension plans. Consequently, we believe that our ability to obtain funding
from these sources will continue to provide the cash flows necessary to satisfy our working capital and capital
expenditure requirements, as well as meet our debt repayments and other financial commitments for the next
12 months. See “Contractual obligations and commitments”.
Due to the nature of our operations, including the timing of annual incentive payments to employees, our
cash flow from operations generally tends to be weaker in the first half of the year than in the second half of
the year.
Debt and interest rates
Total outstanding debt was as follows:
December 31, ($ in millions)
2021
2020
Short-term debt and current maturities of long-term debt
1,384
1,293
Long-term debt:
Bonds
3,984
4,580
Other long-term debt
193
248
Total debt
5,561
6,121
The increase in short
‑
term debt in 2021 was due to the reclassification to short-term of the USD 1,250 million
2.875% Notes mostly offset by the repayment at maturity of both the USD 650 million 4.0% Notes and the
CHF 350 million 2.25% Bonds.
At December 31, 2021, Long-term debt decreased $651 million compared to the end of 2020 due to the
reclassification to short-term described above offset partly by the issuance in 2021 of EUR 800 million
0% Notes.
Our debt has been obtained in a range of currencies and maturities and with various interest rate terms. For
certain of our debt obligations, we use derivatives to manage the fixed interest rate exposure. For example,
we use interest rate swaps to effectively convert fixed rate debt into floating rate liabilities. After considering
the effects of interest rate swaps, at December 31, 2021, the effective average interest rate on our floating
rate long
‑
term debt (including current maturities) of $3,598 million and our fixed rate long
‑
term debt (including
current maturities) of $1,885 million was 0.3 percent and 3.1 percent, respectively. This compares with an
effective rate of 0.2 percent for floating rate long
‑
term debt of $3,330 million and 3.3 percent for fixed rate
long
‑
term debt of $2,638 million at December 31, 2020.
70
For a discussion of our use of derivatives to modify the interest characteristics of certain of our individual
bond issuances, see “Note 12 - Debt” to our Consolidated Financial Statements.
Credit facility
In December 2019, we replaced our previous multicurrency revolving credit facility with a new $2 billion
multicurrency revolving credit facility, maturing in 2024. In 2021 we exercised our option to further extend the
maturity to 2026. No amount was drawn under the facility at December 31, 2021 and 2020. The facility is
available for general corporate purposes and contains cross
‑
default clauses whereby an event of default
would occur if we were to default on indebtedness, as defined in the facility, at or above a specified threshold.
The credit facility does not contain financial covenants that would restrict our ability to pay dividends or raise
additional funds in the capital markets. For further details of the credit facility, see “Note 12 - Debt” to our
Consolidated Financial Statements.
Commercial paper
At December 31, 2021, we had two commercial paper programs in place:
•
commercial paper in the United States, and
•
‑
commercial paper program for the issuance of commercial paper in a variety of
currencies.
At December 31, 2021, no amount was outstanding under the $2 billion program in the United States,
compared to $32 million outstanding at December 31, 2020.
At December 31, 2021 and 2020, no amount was outstanding under the $2 billion Euro
‑
commercial paper
program.
European program for the issuance of debt
The European program for the issuance of debt allows the issuance of up to the equivalent of $8 billion in
certain debt instruments. The terms of the program do not obligate any third party to extend credit to us and
the terms and possibility of issuing any debt under the program are determined with respect to, and as of the
date of issuance of, each debt instrument. At December 31, 2021, three bonds (principal amount of
EUR 700 million, due in 2023, principal amount of EUR 750 million, due in 2024, and principal amount of
EUR 800 million, due in 2030) having a combined carrying amount of $2,522 million were outstanding under
the program. The carrying amount of the bonds outstanding under the program at December 31, 2020, was
$1,821 million.
Credit ratings
Credit ratings are assessments by the rating agencies of the credit risk associated with ABB and are based
on information provided by us or other sources that the rating agencies consider reliable. Higher ratings
generally result in lower borrowing costs and increased access to capital markets. Our ratings are of
“investment grade” which is defined as Baa3 (or above) from Moody’s and BBB− (or above) from Standard &
Poor’s.
At December 31, 2021 and 2020, our long
‑
term debt was rated A3 by Moody’s and currently with a Stable
outlook. At December 31, 2021 and 2020, our long-term debt was rated A- by Standard & Poor’s and
currently with a Stable outlook.
71
Limitations on transfers of funds
Currency and other local regulatory limitations related to the transfer of funds exist in a number of countries
where we operate, including: China, Egypt, India, Malaysia, the Philippines, the Russian Federation, South
Africa, South Korea, Taiwan (Chinese Taipei), Thailand and Turkey. Funds, other than regular dividends,
fees or loan repayments, cannot be readily transferred offshore from these countries and are therefore
deposited and used for working capital needs in those countries. In addition, there are certain countries
where, for tax reasons, it is not considered optimal to transfer the cash offshore. As a consequence, these
funds are not available within our Corporate Treasury Operations to meet short
‑
term cash obligations outside
the relevant country. The above described funds are reported as cash in our Consolidated Balance Sheets,
but we do not consider these funds immediately available for the repayment of debt outside the respective
countries where the cash is situated, including those described above. At December 31, 2021 and 2020, the
balance of “Cash and equivalents” and “Marketable securities and other short
‑
term investments” under such
limitations (either regulatory or sub
‑
optimal from a tax perspective) totaled approximately $2,074 million and
$1,751 million, respectively.
During 2021, we continued to direct our subsidiaries in countries with restrictions to place such cash with our
core banks or investment grade banks, in order to minimize credit risk on such cash positions. We continue to
closely monitor the situation to ensure bank counterparty risks are minimized.
—
Financial position
Balance sheets
December 31, ($ in millions)
2021
2020
% Change
Current assets
Cash and equivalents
4,159
3,278
27%
Restricted cash
30
323
n.a.
Marketable securities and short-term investments
1,170
2,108
(44)%
Receivables, net
6,551
6,820
(4)%
Contract assets
990
985
1%
Inventories, net
4,880
4,469
9%
Prepaid expenses
206
201
2%
Other current assets
573
760
(25)%
Current assets held for sale and in discontinued operations
136
282
(52)%
Total current assets
18,695
19,226
(3)%
For a discussion on Cash and equivalents, see sections “Liquidity and Capital Resources—Principal sources
of funding” and “Cash flows” for further details.
In 2021, the amount of cash subject to short-term restrictions decreased as restrictions on cash of
$290 million were removed upon ABB completing certain obligations in connection with the sale of Power
Grids to Hitachi. See “Note 3 - Discontinued operations” to our Consolidated Financial Statements.
Marketable securities and short-term investments decreased in 2021. The reduction primarily reflects lower
amounts placed in money market funds classified as equity securities (see “Note 5 - Cash and equivalents,
marketable securities and short-term investments” to our Consolidated Financial Statements).
Receivables, net, decreased 4 percent primarily due to changes in foreign currencies. In local currency,
Receivables, net, remained flat.
72
Contract assets increased 1 percent (5 percent in local currencies). The increase reflects higher levels in the
Process Automation and Motion Business Areas. This was partially offset by lower levels in the non-core
businesses and in the Robotics & Discrete Automation Business Area.
Inventories, net, increased 9 percent (15 percent in local currencies). The increase reflects a significant build-
up of raw materials and some increases in the price of components. Supply chain challenges and shortages
in the availability of some items have created the need to stockpile certain key components and also have
resulted in some delays in completing and delivering finished goods.
Current assets held for sale and in discontinued operations decreased to $136 million from $282 million.
These amounts primarily relate to working capital for certain contracts which remain with ABB and are being
executed for the direct benefit of the Power Grids business. For the details of the assets of the Power Grids
business see “Note 3 - Discontinued operations” to our Consolidated Financial Statements.
December 31, ($ in millions)
2021
2020
% Change
Current liabilities
Accounts payable, trade
4,921
4,571
8%
Contract liabilities
1,894
1,903
0%
Short-term debt and current maturities of long-term debt
1,384
1,293
7%
Current operating leases
230
270
(15)%
Provisions for warranties
1,005
1,035
(3)%
Other provisions
1,386
1,519
(9)%
Other current liabilities
4,367
4,181
4%
Current liabilities held for sale and in discontinued operations
381
644
(41)%
Total current liabilities
15,568
15,416
1%
Accounts payable, trade, increased 8 percent (11 percent in local currencies) due primarily to higher
inventory purchases.
The increase in short-term debt in 2021 was due to the reclassification to short-term of the USD 1,250 million
2.875% Notes partially offset by the repayment at maturity of both the USD 650 million 4.0% Notes and the
CHF 350 million 2.25% Bonds.
Current operating leases includes the portion of the operating lease liabilities that are due to be paid in the
next 12 months. For a summary of operating lease liabilities, see “Note 14 - Leases” to our Consolidated
Financial Statements.
Provisions for warranties decreased 3 percent (remained flat in local currencies). For details on the change in
the Provisions for warranties, see “Note 15 - Commitments and contingencies” to our Consolidated Financial
Statements.
Current liabilities held for sale and in discontinued operations decreased to $381 million from $644 million.
These amounts primarily relate to certain working capital balances of the Power Grids business as described
above as well as amounts recorded for certain guarantees provided for the benefit of Power Grids.
73
December 31, ($ in millions)
2021
2020
% Change
Non-current assets
Restricted cash, non-current
300
300
0%
Property, plant and equipment, net
4,045
4,174
(3)%
Operating lease right-of-use assets
895
969
(8)%
Investments in equity-accounted companies
1,670
1,784
n.a.
Prepaid pension and other employee benefits
892
360
148%
Intangible assets, net
1,561
2,078
(25)%
Goodwill
10,482
10,850
(3)%
Deferred taxes
1,177
843
40%
Other non-current assets
543
504
8%
Total non-current assets
21,565
21,862
(1)%
Restricted cash at December 31, 2021 and 2020, represents certain amounts received on the sale of the
Power Grids business which have been placed in escrow, pending resolution of certain of our contractual
obligations to Hitachi Ltd. See “Note 3 - Discontinued operations” to our Consolidated Financial Statements.
In 2021, Property, plant and equipment, net, decreased 3 percent (increased 1 percent in local currencies).
The sale of the Mechanical Power Transmission Division decreased Property, plant and equipment, net, by
3 percent.
In 2021, Goodwill decreased 3 percent (2 percent in local currencies) . The sale of the Mechanical Power
Transmission Division reduced Goodwill by 3 percent. Acquisitions of businesses increased Goodwill by
1 percent.
Intangible assets, net, decreased 25 percent (22 percent in local currencies). The sale of the Mechanical
Power Transmission Division reduced Intangible assets, net, by 10 percent. Acquisitions of businesses
increased Intangible assets, net, by 3 percent. For additional information on goodwill and intangible assets
see “Note 11 - Goodwill and intangible assets” to our Consolidated Financial Statements.
The balance for Investment in equity-accounted companies at December 31, 2021 and 2020, primarily
represents our remaining 19.9 percent interest in the Hitachi Energy joint venture. For additional information
on investments in equity-accounted companies see “Note 4 - Acquisitions, divestments and equity-accounted
companies” to our Consolidated Financial Statements.
Prepaid pension and other employee benefits increased 148 percent (150 percent in local currencies). For
additional information on Pension and employee benefits see “Note 17 - Employee benefits” to our
Consolidated Financial Statements.
In 2021, Deferred taxes, increased 40 percent (50 percent in local currencies). For details on deferred tax
assets see “Note 16 - Income taxes” to our Consolidated Financial Statements.
December 31, ($ in millions)
2021
2020
% Change
Non-current liabilities
Long-term debt
4,177
4,828
(13)%
Non-current operating leases
689
731
(6)%
Pension and other employee benefits
1,025
1,231
(17)%
Deferred taxes
685
661
4%
Other non-current liabilities
2,116
2,025
4%
Non-current liabilities held for sale and in discontinued operations
43
197
(78)%
Total non-current liabilities
8,735
9,673
(10)%
74
Long-term debt decreased 13 percent. This decrease reflects the reclassification to short-term described
above offset mostly by the issuance in 2021 of EUR 800 million 0% Notes. Long-term debt also decreased
6 percent due to changes in currency exchange rates. For additional information on Long-term debt, see
“Liquidity and Capital Resources—Debt and interest rates” as well as “Note 12 - Debt” to our Consolidated
Financial Statements.
Non-current operating leases includes the portion of the operating lease liabilities that are due to be paid in
more than 12 months.
Pension and employee benefits decreased 17 percent (12 percent in local currencies). For additional
information on Pension and employee benefits see “Note 17 - Employee benefits” to our Consolidated
Financial Statements.
For a breakdown of Other non
‑
current liabilities, see “Note 13 - Other provisions, other current liabilities and
other non-current liabilities” to our Consolidated Financial Statements.
Non-current liabilities held for sale and in discontinued operations relate to the sale in 2020 of the Power
Grids business. The balance decreased compared to 2020 due to reclassification to current of certain
amounts expected to be paid within the next year. The remaining amount at December 31, 2021, relates to
certain amounts which are expected to be payable in more than one year. For the details of the liabilities of
the Power Grids business see “Note 3 - Discontinued operations” to our Consolidated Financial Statements.
Cash flows
The Consolidated Statements of Cash Flows are shown on a continuing operations basis, with the effects of
discontinued operations shown in aggregate for each major cash flow activity and also include the impact
from changes in restricted cash.
The Consolidated Statements of Cash Flows can be summarized as follows:
($ in millions)
2021
2020
2019
Net cash provided by operating activities
3,330
1,693
2,325
Net cash provided by (used in) investing activities
2,307
6,760
(815)
Net cash used in financing activities
(4,968)
(8,175)
(1,383)
Effects of exchange rate changes on cash and equivalents
(81)
79
(28)
Net change in cash and equivalents and restricted cash
588
357
99
Operating activities
($ in millions)
2021
2020
2019
Net income
4,650
5,205
1,528
Loss (income) from discontinued operations, net of tax
80
(4,860)
(438)
Depreciation and amortization
893
915
961
Total adjustments to reconcile net income to net cash provided by
operating activities (excluding depreciation and amortization)
(2,593)
263
220
Total changes in operating assets and liabilities
308
352
(372)
Net cash provided by operating activities — continuing operations
3,338
1,875
1,899
Net cash provided by (used in) operating activities — discontinued
operations
(8)
(182)
426
75
Cash flows from operating activities in continuing operations in 2021 provided net cash of $3,338 million, an
increase of 78 percent compared to 2020. In 2021, we had significantly higher cash effective net income (i.e.
net income from continuing operations adjusted for depreciation, amortization and other non-cash items). The
higher cash effective net income is due partly to the negative impacts in 2020 of payments made to settle
certain international pension plans. The higher amount in 2021 was also driven by generally higher business
volumes and higher profitability. In 2021, changes in operating assets and liabilities positively impacted cash
flows primarily due to the timing of payments of higher accrued liabilities, including employee bonuses. Cash
paid for income taxes increased to $1,292 million from $905 million, reflecting higher current income taxes,
including tax impacts from the sales of businesses. In 2020, net cash provided by operating activities
benefited from a reduction of inventory levels (in local currencies) and a more favorable timing of cash flows
on long-term projects.
In 2021, there were no significant cash flows from operating activities of discontinued operations while in
2020, there were net outflows of $182 million. The amount in 2020 primarily reflects the cash flows of the
Power Grids business in the first half of the year.
Investing activities
($ in millions)
2021
2020
2019
Purchases of investments
(1,528)
(5,933)
(748)
Purchases of property, plant and equipment and intangible assets
(820)
(694)
(762)
Acquisition of businesses (net of cash acquired) and
increases in cost- and equity-accounted companies
(241)
(121)
(22)
Proceeds from sales of investments
2,272
4,341
749
Proceeds from maturity of investments
81
11
80
Proceeds from sales of property, plant and equipment
93
114
82
Proceeds from sales of businesses (net of transaction costs and cash
disposed) and cost- and equity-accounted companies
2,958
(136)
69
Net cash from settlement of foreign currency derivatives
(121)
138
(76)
Other investing activities
(23)
8
(23)
Net cash provided by (used in) investing activities — continuing
operations
2,671
(2,272)
(651)
Net cash provided by (used in) investing activities — discontinued
operations
(364)
9,032
(164)
Net cash provided by investing activities for continuing operations in 2021 was $2,671 million compared to
$2,272 million used in investing activities during 2020. In 2021, we received proceeds of $2,958 million in
connection with sales of businesses, primarily from the sale of the Dodge business. The amount in 2020
reflects the net investment in money market funds of amounts received from the sale of the Power Grids
business as well as cash payments for purchases of property, plant and equipment. In 2021, we also
recorded net investing cash outflows of $121 million for settlements of derivatives compared to net inflows of
$138 million in 2020.
The following presents purchases of property, plant and equipment and intangible assets by significant asset
category:
($ in millions)
2021
2020
2019
Construction in progress
479
493
536
Purchase of machinery and equipment
150
134
156
Purchase of land and buildings
158
17
26
Purchase of intangible assets
33
50
44
Purchases of property, plant and equipment and intangible assets
820
694
762
76
Cash expenditures for acquisitions of businesses in 2021 primarily reflects the amount paid to acquire ASTI.
The divestment of the solar inverters business resulted in a net cash outflow of $143 million in 2020.
Cash flows from investing activities for discontinued operations relates to the Power Grids business. We sold
this business in 2020 and generated net cash proceeds of $9,168 million. Certain amounts related to the
purchase price were subject to adjustment, including the final settlement for working capital balances. In
2021, certain elements of the purchase price were finalized and we made payments related to the purchase
price and certain other obligations totaling $364 million.
Financing activities
($ in millions)
2021
2020
2019
Net changes in debt with maturities of 90 days or less
(83)
(587)
164
Increase in debt
1,400
343
2,406
Repayment of debt
(1,538)
(3,459)
(2,156)
Delivery of shares
826
412
10
Purchase of treasury stock
(3,708)
(3,048)
—
Dividends paid
(1,726)
(1,736)
(1,675)
Dividends paid to noncontrolling shareholders
(98)
(82)
(90)
Other financing activities
(41)
(49)
13
Net cash used in financing activities — continuing operations
(4,968)
(8,206)
(1,328)
Net cash provided by (used in) financing activities — discontinued
operations
—
31
(55)
Our financing cash flow activities primarily include debt transactions (both from the issuance of debt
securities and borrowings directly from banks), share transactions and payments of distributions to controlling
and noncontrolling shareholders.
In 2021, the net outflow for debt with maturities of 90 days or less related to net repayments of amounts
outstanding under the U.S. commercial paper program and various local country borrowings.
In 2021, “Increase in debt” primarily represents the issuance of EUR 800 million 0% Notes due 2030 and
borrowings under commercial paper programs for terms longer than 90 days.
In 2021, “Repayment of debt” includes the repayment at maturity of the USD 650 million 4.0% Notes and the
CHF 350 million 2.25% Bonds and repayments under commercial paper programs for terms longer than 90
days.
“Delivery of shares” in 2021 reflects cash received from the exercise of options in connection with our
Management Incentive Plan (resulting in a delivery of 36 million shares) and in connection with our Employee
Share Acquisition Plan (resulting in a delivery of 1.7 million shares) . All shares were delivered out of Treasury
stock.
In 2021, “Purchase of treasury stock” reflects $2,680 million of cash payments to purchase 78 million of our
own shares in connection with both of the announced share buyback programs. It also reflects $1,028 million
paid to purchase 33 million shares on the open market during 2021.
77
Contractual obligations and commitments
The contractual obligations presented in the table below represent our estimates of future payments under
fixed contractual obligations and commitments. These amounts may differ from those reported in our
Consolidated Balance Sheet at December 31, 2021. Changes in our business needs, cancellation provisions
and changes in interest rates, as well as actions by third parties and other factors, may cause these
estimates to change. Therefore, our actual payments in future periods may vary from those presented below.
The table below summarizes certain of our cash requirements for known contractual obligations and principal
and interest payments under our debt instruments and purchase obligations at December 31, 2021 and the
timing thereof. For details of future operating and finance lease payments, see “Note 14 - Leases” to our
Consolidated Financial Statements.
At December 31, 2021 ($ in millions)
Current
Non-current
Total
Long-term debt obligations
1,271
4,091
5,362
Interest payments related to long-term debt obligations
73
638
711
Purchase obligations
3,500
992
4,492
Total
4,844
5,721
10,565
In the table above, the Long
‑
term debt obligations reflect the cash amounts to be repaid upon maturity of
those debt obligations. The cash obligations above will differ from Long
‑
term debt due to the impacts of fair
value hedge accounting adjustments and premiums or discounts on certain debt.
We have determined the interest payments related to long
‑
term debt obligations by reference to the
payments due under the terms of our debt obligations at the time such obligations were incurred. However,
we use interest rate swaps to modify the interest characteristics of certain of our debt obligations. The net
effect of these swaps may increase or decrease the actual amount of our cash interest payment obligations,
which may differ from those stated in the above table. For further details on our debt obligations and the
related hedges, see “Note 12 - Debt” to our Consolidated Financial Statements.
Purchase obligations are defined as agreements to purchase goods and services that are enforceable and
legally binding, that specify all significant terms, including the quantities to be purchased, price provisions and
the approximate timing of the transactions. Purchase obligations includes procurement contracts for raw
materials, sub-contracted work, supplies and services. Purchase obligations include amounts recorded as
well as amounts that are not recorded in the Consolidated Balance Sheets.
Off
‑
balance sheet arrangements
Commercial commitments
We disclose the maximum potential exposure of certain guarantees, as well as possible recourse provisions
that may allow us to recover from third parties amounts paid out under such guarantees. The maximum
potential exposure does not allow any discounting of our assessment of actual exposure under the
guarantees. The information below reflects our maximum potential exposure under the guarantees, which is
higher than our assessment of the expected exposure.
78
Guarantees
The following table provides quantitative data regarding our third
‑
party guarantees. The maximum potential
payments represent a worst
‑
case scenario, and do not reflect our expected outcomes.
Maximum potential payments
(1)
December 31, ($ in millions)
2021
2020
Performance guarantees
4,540
6,726
Financial guarantees
52
339
Indemnification guarantees
(2)
136
177
Total
4,728
7,242
(1)
Maximum potential payments include amounts in both continuing and discontinued operations.
(2)
Certain indemnifications provided to Hitachi in connection with the divestment of Power Grids are without limit.
The carrying amount of liabilities recorded in the Consolidated Balance Sheets reflects our best estimate of
future payments, which we may incur as part of fulfilling our guarantee obligations. In respect of the above
guarantees, the carrying amounts of liabilities at December 31, 2021 and 2020, amounted to $156 million and
$135 million, respectively, the majority of which is included in discontinued operations .
In addition, in the normal course of bidding for and executing certain projects, we have 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 we do not fulfill our
contractual obligations. We would then have an obligation to reimburse the financial institution for amounts
paid under the performance bonds. At December 31, 2021 and 2020, the total outstanding performance
bonds aggregated to $3.6 billion and $4.3 billion, respectively, of which $0.1 billion and $0.3 billion,
respectively, relate to discontinued operations. There have been no significant amounts reimbursed to
financial institutions under these types of arrangements in 2021 and 2020.
For additional descriptions of our performance, financial and indemnification guarantees see “Note 15 -
Commitments and contingencies” to our Consolidated Financial Statements.
Item 6. Directors, Senior Management and Employees
—
Summary of corporate governance approach
Corporate governance - general principles
ABB is committed to the highest international standards of corporate governance and this is reinforced in its
structure, processes and rules as outlined in this section of the Annual Report. In line with this, ABB complies
with the general principles as set forth in the Swiss Code of Best Practice for Corporate Governance, as well
as those of the capital markets where its shares are listed and traded. In addition to the provisions of the
Swiss Code of Obligations, ABB’s key principles and rules on corporate governance are laid down in ABB’s
Articles of Incorporation, the ABB Ltd Board Governance Rules (which includes the governance rules of
ABB’s Board committees and the ABB Ltd Related Party Transaction Policy, which was prepared based on
the Swiss Code of Best Practice for Corporate Governance and the independence criteria set forth in the
corporate governance rules of the New York Stock Exchange), and the ABB Code of Conduct. These
documents are available on ABB’s website at
https://new.abb.com/about/corporate -governance
. It is the duty
of ABB’s Board of Directors (the Board) to review and amend or propose amendments to those documents
from time to time to reflect the most recent developments and practices, as well as to ensure compliance with
applicable laws and regulations. Shareholders and other interested parties may communicate with the
Chairman of the Board or the independent directors by writing to ABB Ltd (Attn: Chairman of the
Board/independent directors), at Affolternstrasse 44, CH-8050 Zurich, Switzerland.
79
Compensation governance and Board and EC compensation
Information about ABB’s compensation governance as well as Board and Executive Committee (EC)
compensation and shareholdings is provided in the Compensation Report that can be found in the section
titled "Compensation" below.
—
Board of Directors
Board and Board committees (2021 - 2022 board term)
Board of Directors
Chairman:
Gunnar Brock
Jennifer Xin-Zhe Li
Vice
‑
Chairman:
David Constable
Geraldine Matchett
Frederico Fleury Curado
David Meline
Lars Förberg
Satish Pai
Finance, Audit and Compliance
Committee
Governance and Nomination
Committee
Compensation
Committee
David Meline (chairman)
Peter R. Voser (chairman)
Frederico Fleury Curado (chairman)
Gunnar Brock
Lars Förberg
David Constable
Geraldine Matchett
Jennifer Xin-Zhe Li
Jennifer Xin
‑
Zhe Li
Satish Pai
Jacob Wallenberg
Board governance
The Board
The Board defines the ultimate direction of the business of ABB and issues the necessary instructions. It
determines the organization of the ABB Group and appoints, removes and supervises the persons entrusted
with the executive management and representation of ABB. The internal organizational structure and the
definition of the areas of responsibility of the Board, as well as the information and control instruments
vis-à-vis the Executive Committee are set forth in the ABB Ltd Board Governance Rules (available at
https://new.abb.com/about/corporate -governance
).
The Board takes decisions as a whole, supported by its three committees: the Finance, Audit and
Compliance Committee (FACC), the Governance and Nomination Committee (GNC), and the Compensation
Committee (CC). These committees assist the Board in its tasks and report regularly to the Board. The Board
and its committees meet regularly throughout the year.
The directors and officers of a Swiss corporation are bound, as specified in the Swiss Code of Obligations, to
perform their duties with all due care, to safeguard the interests of the corporation in good faith and to extend
equal treatment to shareholders in like circumstances. Prior to proposing new candidates for election to the
Board, checks are performed to ensure that they are independent and that there are no conflicts of interest.
80
The Swiss Code of Obligations does not specify what standard of due care is required of the directors of a
corporate board. However, it is generally held by Swiss legal scholars and jurisprudence that the directors
must have the requisite capability and skill to fulfill their function, and must devote the necessary time to the
discharge of their duties. Moreover, the directors must exercise all due care that a prudent and diligent
director would have taken in like circumstances. Finally, the directors are required to take actions in the best
interests of the corporation and may not take any actions that may be harmful to the corporation.
Although the Swiss Code of Obligations does not discuss specifically conflicts of interest for board members,
the ABB Ltd Board Governance Rules (available at
https://new.abb.com/about/corporate -governance
) state
that board members shall avoid entering into any situation in which their personal or financial interests may
conflict with the interests of ABB.
Chairman of the Board
The Chairman is elected by the shareholders to represent their interests in creating sustainable value through
effective governance. In addition, the Chairman (1) takes provisional decisions on behalf of the Board on
urgent matters where a regular Board decision cannot be obtained, (2) calls for Board meetings and sets the
related agendas, (3) interacts with the CEO and other EC members on a more frequent basis outside of
Board meetings and (4) represents the Board internally and in the public sphere.
Vice-Chairman of the Board
The Vice
‑
Chairman is elected by the Board and handles the responsibilities of the Chairman to the extent the
Chairman is unable to do so or would have a conflict of interest in doing so. He also acts as
counselor/advisor to the Chairman on any matters that are Company or Board relevant and as appropriate or
as the Chairman may require and with a particular focus on strategic aspects related to the Company and its
business in general. In addition, the Vice
‑
Chairman takes such other actions as may be decided by the Board
or requested by the Chairman.
Finance, Audit and Compliance Committee
The FACC is responsible for overseeing (1) the integrity of ABB’s financial statements, (2) ABB’s compliance
with legal, tax and regulatory requirements, (3) the external auditors’ qualifications and independence, (4) the
performance and role of ABB’s internal audit function and the performance of the external auditors, (5) ABB’s
capital structure, funding requirements and financial and risk policies, and (6) ABB’s implementation and
maintenance of an integrity program and internal controls designed to mitigate integrity risk.
The FACC must comprise three or more independent directors who have a thorough understanding of
finance and accounting. The Chairman of the Board and, upon invitation by the committee’s chairman, the
CEO or other members of the Executive Committee may participate in the committee meetings, provided that
any potential conflict of interest is avoided and confidentiality of the discussions is maintained. In addition, the
chief integrity officer, the head of internal audit and the external auditors participate in the meetings as
appropriate. The Board has determined that each member of the FACC is an audit committee financial expert
as such term is defined in Form 20-F.
Governance and Nomination Committee
The GNC is responsible for (1) overseeing corporate governance practices within ABB, (2) overseeing
corporate social responsibility (including health, safety and environment as well as sustainability),
(3) nominating candidates for the Board, the role of CEO and other positions on the Executive Committee,
and (4) succession planning and employment matters relating to the Board and the Executive Committee.
The GNC is also responsible for maintaining an orientation program for new Board members and an ongoing
education program for existing Board members.
The GNC must comprise three or more independent directors. Upon invitation by the committee’s chairman,
the CEO or other members of the Executive Committee may participate in the committee meetings, provided
that any potential conflict of interest is avoided and confidentiality of the discussions is maintained.
Compensation Committee
The CC is responsible for compensation matters relating to the Board and the Executive Committee.
81
The CC must comprise three or more directors who are elected by the shareholders. The Chairman of the
Board and, upon invitation by the committee’s chairman, the CEO or other members of the Executive
Committee may participate in the committee meetings, provided that any potential conflict of interest is
avoided and confidentiality of the discussions is maintained.
Board membership
Board composition
In proposing individuals to be elected to the Board, the Board seeks to align the composition and skills of the
Board with the Company’s strategic needs, business portfolio, geographic reach and culture. The Board must
be diverse in all aspects including gender, nationalities, geographic/regional experience and business
experience. In addition, the average tenure of the members of the Board should be well
‑
balanced. The Board
also considers the number of other mandates of each Board member to ensure that he/she will have
sufficient time to dedicate to his/her role as an ABB Board member.
Elections and term of office
The members of the Board of Directors and the Chairman of the Board as well as the members of the
Compensation Committee are elected by the shareholders at the general meeting of shareholders for a term
of office extending until completion of the next ordinary general meeting of shareholders. Members whose
terms of office have expired shall be immediately eligible for re
‑
election. ABB’s Articles of Incorporation
(available at
https://new.abb.com/about/corporate -governance
) do not provide for the retirement of directors
based on their age. However, an age limit for members of the Board is set forth in the ABB Ltd Board
Governance Rules (available at
https://new.abb.com/about/corporate -governance
), although waivers are
possible and subject to Board discretion. If the office of the Chairman of the Board of Directors or any position
on the Compensation Committee becomes vacant during a Board term, the Board of Directors may appoint
(shall appoint in the case of the Chairman of the Board) another individual from among its members to that
position for the remainder of that term. The Board of Directors shall consist of no less than 7 and no more
than 13 members.
Members of the Board (2021-2022 board term)
Board Experience
Corporate Officer
Experience
Other Business Experience
Global Experience
Country of Origin /
Nation
ality
Gender
Non
-
Executive
Independent
Board Member
ABB Board
Tenure (years)
Other Public
Board
Experience
CEO
CFO
Operations
Risk
Management
Sustainability
Digital /
Technology
Peter R. Voser
7
●
●
●
●
●
●
●
●
CH
M
Yes
Yes
Jacob Wallenberg
23
●
●
●
●
●
●
●
SE
M
Yes
Yes
Gunnar Brock
4
●
●
●
●
●
●
SE
M
Yes
Yes
David Constable
7
●
●
●
●
●
●
CA, US
M
Yes
Yes
Frederico Fleury Curado
6
●
●
●
●
●
●
●
BR, PT
M
Yes
Yes
Lars Förberg
5
●
●
●
●
●
SE, CH
M
Yes
Yes
Jennifer Xin-Zhe Li
4
●
●
●
●
●
●
●
CN, CA
F
Yes
Yes
Geraldine Matchett
4
●
●
●
●
●
CH, UK, FR
F
Yes
Yes
David Meline
6
●
●
●
●
US, CH
M
Yes
Yes
Satish Pai
6
●
●
●
●
●
●
●
IN
M
Yes
Yes
82
Peter R. Voser
ABB’s Chief Executive Officer from April 2019 to February 2020. He is a member of the board of directors of
IBM Corporation (U.S.). He is also a member of the board of directors of Temasek Holdings (Private) Limited
(Singapore) as well as chairman of the board of PSA International Pte Ltd (Singapore), one of its
subsidiaries. In addition, he is the chairman of the board of trustees of the St. Gallen Foundation for
International Studies. He was previously the chief executive officer of Royal Dutch Shell plc (The
Netherlands). Mr. Voser was born in 1958 and is a Swiss citizen.
Jacob Wallenberg
since April 2015. He is the chairman of the board of Investor AB (Sweden). He is vice
‑
chairman of the boards
of Telefonaktiebolaget LM Ericsson, FAM AB and Patricia Industries (all Sweden). He is also a member of the
boards of directors of Nasdaq, Inc. (U.S.) and the Knut and Alice Wallenberg Foundation (Sweden) as well as
a member of the nomination committee of SAS AB (Sweden). Mr. Wallenberg was born in 1956 and is a
Swedish citizen.
Gunnar Brock
boards of Neptunia Invest AB, Mölnlycke Health Care AB and Stena AB (all Sweden). He is a member of the
boards of directors of Investor AB and Patricia Industries (both Sweden). He was formerly president and chief
executive officer of Atlas Copco AB (Sweden). Mr. Brock was born in 1950 and is a Swedish citizen.
David Constable
officer of Fluor Corporation (U.S.), for which he also serves as a member of the board of directors. He was
formerly the chief executive officer and president as well as a member of the board of directors of Sasol
Limited (South Africa). He joined Sasol after more than 29 years with Fluor Corporation (U.S.). Mr. Constable
was born in 1961 and is a Canadian and U.S. citizen.
Frederico Fleury Curado
of the boards of directors of Ultrapar S.A. (Brazil) and Transocean Ltd. (Switzerland). He was formerly the
chief executive officer of Ultrapar S.A. and Embraer S.A. (both Brazil). Mr. Curado was born in 1961 and is a
Brazilian and Portuguese citizen.
Lars Förberg
‑
founder and
managing partner of Cevian Capital. Mr. Förberg was born in 1965 and is a Swedish and Swiss citizen.
Jennifer Xin-Zhe Li
a member of
the boards of directors of Flex Ltd (Singapore/U.S.), Kone Oy (Finland) and Full Truck Alliance Co. Ltd.
(Cayman Islands/P.R.C.). Through May 2021, she was a member of the boards of directors of Philip Morris
International Inc. (U.S.) and The Hongkong and Shanghai Banking Corporation Limited (Hong Kong). Ms. Li
is a founder and general partner of Changcheng Investment Partners (P.R.C.), a private investment fund.
From 2008 to 2018, she served as chief financial officer of Baidu Inc. (P.R.C.) and chief executive officer of
Baidu Capital (P.R.C.) . Prior to that, Ms. Li spent 14 years with General Motors, holding various senior
finance positions, including chief financial officer of GM China and corporate controller for GMAC North
American Operations.
Ms. Li was born in 1967 and is a Canadian citizen.
Geraldine Matchett
the co-chief
executive officer, the chief financial officer and a member of the managing board of Royal DSM N.V. (The
Netherlands). She was previously the chief financial officer of SGS Ltd (Switzerland). Prior to joining SGS she
worked as an auditor at Deloitte Ltd (Switzerland) and KPMG LLP (U.K.). Ms. Matchett was born in 1972 and
is a Swiss, British and French citizen.
David Meline
officer of Moderna Inc. (U.S.). From 2014 through 2019, Mr. Meline was the chief financial officer of Amgen
Inc. (U.S.). He was formerly with the 3M Company (U.S.), where he served as chief financial officer. Prior to
joining 3M, Mr. Meline worked for more than 20 years for General Motors Company (U.S.). Mr. Meline was
born in 1957 and is a U.S. and Swiss citizen.
83
Satish Pai
a member of the board of directors of Hindalco Industries Ltd. (India). He joined Hindalco in 2013 after 28
years with Schlumberger Limited (U.S.). Mr. Pai was born in 1961 and is an Indian citizen.
As of December 31, 2021, none of the Board members held any official functions or political posts. Further
information on ABB’s Board members can be found by clicking on the ABB Board of Directors link (available
at
https://new.abb.com/about/corporate -governance
).
Board meetings and attendance
The Board and its committees have regularly scheduled meetings throughout the year. These meetings are
supplemented by additional meetings (either in person or by conference call), as necessary. Board meetings
are convened by the Chairman or upon request by any other board member or the CEO. Documentation
covering the various items of the agenda for each Board meeting is sent out in advance to each Board
member in order to allow each member time to study the covered matters prior to the meetings. Each board
meeting has a private session without management or others being present. Decisions made at the Board
meetings are recorded in written minutes of the meetings. Some decisions are also taken by circular
resolution.
2021 was an intensive year for the Board and its committees. The table below shows the number of meetings
held during 2021 by the Board and its committees, their average duration, as well as the attendance of the
individual Board members. The Board meetings shown include a strategic retreat attended by the members
of the Board and the EC.
2021 Board and Board Committee Meetings
Pre annual general meeting 2021
Post annual general meeting 2021
Board
Board
Meetings and attendance
Mtg.
Conf.
Call
FACC
GNC
CC
Mtg.
Conf.
Call
FACC
GNC
CC
Average duration (hours)
7.5
1.5
3
1.25
1.75
9
1
3
1.4
1.6
Number of meetings
1
1
2
2
2
4
2
4
5
5
Meetings attended:
Peter R. Voser
1
1
3
2
5
Jacob Wallenberg
1
1
2
4
2
4
Matti Alahuhta
1
1
2
Gunnar Brock
1
1
2
4
2
4
David Constable
1
2
4
2
5
Frederico Fleury Curado
1
1
2
4
2
5
Lars Förberg
1
1
2
4
2
5
Jennifer Xin-Zhe Li
1
1
2
4
2
5
5
Geraldine Matchett
1
1
2
3
2
4
David Meline
1
1
2
4
2
4
Satish Pai
1
1
2
4
2
4
84
Mandates of Board members outside the ABB Group
No member of the Board may hold more than ten additional mandates, of which no more than four may be in
listed companies. Certain types of mandates, such as those in our subsidiaries, those in the same group of
companies and those in non
‑
profit and charitable institutions, are not subject to those limits. Additional details
can be found in Article 38 of ABB’s Articles of Incorporation (available at
https://new.abb.com/about/corporate -governance
).
Business relationships between ABB and its Board members
This section describes important business relationships between ABB and its Board members, or companies
and organizations represented by them.
Fluor Corporation (Fluor) is an important customer of ABB. ABB sells primarily electrical switchgears, control
systems and electrical solutions through its Electrification and Process Automation businesses to Fluor.
David Constable is the CEO and a director of Fluor.
After reviewing the level of business with Fluor, the Board has determined that ABB’s business relationship
with Fluor is not unusual in its nature or conditions and does not constitute a material business relationship.
As a result, the Board concluded that all members of the Board are independent.
These determinations were made in accordance with ABB Ltd's Related Party Transaction Policy which was
prepared based on the Swiss Code of Best Practice for Corporate Governance and the independence criteria
set forth in the corporate governance rules of the New York Stock Exchange. This policy is contained in the
ABB Ltd Board Governance Rules (available at
https://new.abb.com/about/corporate -governance
).
Information and control systems of the Board vis-à-vis the Executive Committee
Information from the Executive Committee
In accordance with the ABB Board Governance Rules (available at
https://new.abb.com/about/corporate-
governance
), the CEO reports regularly to the Board about ABB’s overall business and when circumstances
require on any extraordinary events that may arise. This includes:
•
•
•
matters of strategy and compliance); and
•
At each Board meeting, Board members are briefed by the Chairman, CEO, CFO and other EC members on
ABB’s business performance and on material developments affecting ABB. Outside of Board meetings,
Board members generally channel any requests for information through the Chairman. Board members also
obtain information through offsite retreats with the Executive Committee and visits to ABB sites. In addition,
Board members obtain information through the Board committees in which they participate and which are
also attended by relevant EC members and management representatives from human resources, finance,
legal and the business.
85
Internal Audit
ABB has an Internal Audit team that provides independent objective assurance and other services to help
ensure that ABB operates in accordance with applicable laws as well as internal policies and procedures.
Internal Audit reports to the FACC and to the CFO. The FACC reviews and approves the internal audit plan,
and material changes to the plan. Investigations of potential fraud and inappropriate business conduct are an
integral part of the internal audit process. Depending on circumstances, Internal Audit may act together with
ABB’s Integrity Investigations and Monitoring department , which is part of ABB’s integrity function. Internal
Audit reports on a regular basis its main observations and recommendations to the relevant members of the
EC and to the FACC as appropriate .
Risk Management
ABB has an enterprise risk management program (ERM) in place which takes into account ABB’s size and
complexity. ERM provides the EC and the Board with a comprehensive and holistic view of the risks facing
the business. ERM involves managing the acceptance of risk to achieve the objectives of the business. The
ERM process is typically cyclical in nature, conveying the idea of continuous refinement of the risk
management approach in a dynamic business environment. Furthermore, ABB runs a mitigation process for
the identified risks that is key to the success of this process. ERM assessments are both top down and
bottom up. They cover strategic, financial, and operational risks, both current and long term. Key risks
identified and managed in 2021 were those related to the continuation of the COVID-19 pandemic, to
constraints in global supply chains, as well as to the preparation for the separation of ABB’s turbocharging
business and the planned initial public offering in Switzerland of ABB’s electric-vehicle charging business.
ERM results are reported to the FACC and the entire Board. This information becomes part of the overall
strategic and risk discussions by the Board to help create value for stakeholders.
Information to the Board and the Finance, Audit and Compliance Committee
Supervisory and control instruments vis-à-vis the auditors
Our auditors, KPMG, attend each meeting of the FACC and each meeting includes a private session between
the auditors and the FACC without the management being present. In 2021, the FACC had 6 meetings
(either in person or via telephone call). On at least an annual basis, the FACC reviews and discusses with the
external auditors all significant relationships that the auditors have with the Company that could impair their
independence. The FACC reviews the auditor engagement letter and the audit plan including discussion of
scope, staffing, locations and general audit approach. The FACC also reviews and evaluates the auditors’
judgment on the quality and appropriateness of the Company’s accounting principles as applied in the
financial reporting. In addition, the FACC approves in advance any non-audit services to be performed by the
auditors.
At least annually, the FACC obtains and reviews a report by the auditors that includes discussion on:
•
•
•
•
auditors and management as well as the related ramifications; and
•
or schedule of audit differences.
Taking into account the opinions of management the FACC evaluates the qualifications, independence and
performance of the auditors. The FACC reports the material elements of its supervision of the auditors to the
Board and on an annual basis recommends to the Board the auditors to be proposed for election at the
shareholders meeting.
86
—
Executive Committee
Composition of the Executive Committee (at December 31, 2021)
Björn Rosengren
Chief Executive Officer
Corporate Officers
Business Area Presidents
Timo Ihamuotila
Tarak Mehta
Chief Financial Officer
Electrification
Carolina Granat
Peter Terwiesch
Chief Human Resources Officer
Process Automation
Maria Varsellona
Morten Wierod
General Counsel
Motion
Theodor Swedjemark
Sami Atiya
Chief Communications and Sustainability Officer
Robotics & Discrete Automation
Executive Committee responsibilities and organization
The Board has delegated the executive management of ABB to the CEO. The CEO and, under his direction,
the other members of the Executive Committee are responsible for ABB’s overall business and affairs and
day-to-day management. The CEO reports to the Board regularly, and whenever extraordinary circumstances
so require, on the course of ABB’s business and financial performance and on all organizational and
personnel matters, transactions and other issues material to the Group. Each member of the Executive
Committee is appointed and discharged by the Board.
Members of the Executive Committee (at December 31, 2021):
Björn Rosengren
March 2020. He is a member of the board of directors of the World Childhood Foundation (Sweden). Before
joining ABB, he was the president and chief executive officer of Sandvik AB (Sweden) since 2015. Prior to
that, Mr. Rosengren was the chief executive officer of Wärtsilä Corporation (Finland) from 2011 to 2015. He
held a variety of management roles at Atlas Copco AB (Sweden) from 1998 to 2011. Mr. Rosengren was
born in 1959 and is a Swedish citizen.
Timo Ihamuotila
April 2017. He is a member of the board of directors of SoftwareONE Holding AG and Hitachi Energy Ltd
(both Switzerland). From 2009 to 2016, Mr. Ihamuotila was chief financial officer and an executive vice
president of the Nokia Corporation (Finland). From 1999 to 2009, he held various senior roles with Nokia.
Mr. Ihamuotila was born in 1966 and is a Finnish citizen.
Carolina Granat
effective January 2021. She joined ABB in 2020 as Head of People Development. Prior to that, she was
globally responsible for human resources at the Machining Solutions business area of Sandvik AB (Sweden).
Ms. Granat was born in 1972 and is a Swedish citizen.
87
Maria Varsellona
November 2019. From 2014 to 2019 she was the Chief Legal Officer of Nokia Corporation (Finland) and from
2018 to 2019 she was also the president of Nokia Technologies. From 2013 to 2014 she was the General
Counsel of Nokia Siemens Networks. During the period from 2011 to 2013 Ms. Varsellona was the Group
General Counsel of Tetra Pak and from 2009 to 2010 she was the Group General Counsel of Sidel, both part
of the Tetra Laval Group (Sweden). From 2001 to 2009 she held various senior legal roles mainly with GE Oil
& Gas. Ms. Varsellona was born in 1970 and is an Italian citizen.
Theodor Swedjemark
effective August 2020. As per March 2021 his title was amended to Chief Communications and Sustainability
Officer and member of the Executive Committee. He is a member of the board of directors of the Swedish
Swiss Chamber of Commerce and is the chairman of the ABB Jürgen Dormann Foundation. Mr. Swedjemark
acted as interim Head of Corporate Communications & Public Affairs from March 2020 through August 2020.
Prior to that, he assumed the role of Chief of Staff in 2017, later adding group responsibility for government
relations and public affairs. During 2016, Mr. Swedjemark managed the Strategic Portfolio Review of the
Power Grids project. From 2006 to 2015, he held various management positions at ABB in different functions
and businesses. Mr. Swedjemark was born in 1980 and is a Swedish citizen.
Tarak Mehta
member of the Executive Committee since October 2010. He is a member of the board of directors of
Prysmian S.p.A. (Italy). He had previously been President of the Electrification Products division since
January 2016. From October 2010 through December 2015, he was President of the Low Voltage Products
division. From 2007 to 2010, he was Head of ABB’s transformers business. Between 1998 and 2006, he held
several management positions with ABB. Mr. Mehta was born in 1966 and is a U.S. and Swiss citizen.
Peter Terwiesch
Automation from 2017–2020) and member of the Executive Committee effective January 2015. He is a
member of the board of directors of Metall Zug AG (Switzerland). From 2011 to 2014, Mr. Terwiesch was
Head of ABB’s Central Europe region. He was ABB’s Chief Technology Officer from 2005 to 2011. From
1994 to 2005, he held several positions with ABB. Mr. Terwiesch was born in 1966 and is a German and
Swiss citizen.
Morten Wierod
effective April 2019. From 2015 until April 2019 he was the Managing Director of the drives business unit in
the Robotics and Motion division. During 2011 to 2015, Mr. Wierod was the Managing Director of the control
products business unit in the Low Voltage Products division. Between 1998 to 2011, Mr. Wierod held various
management roles with ABB. Mr. Wierod was born in 1972 and is a Norwegian citizen.
Sami Atiya
has been a member of the Executive Committee since June 2016. He is a member of the board of directors
of SGS SA (Switzerland). He had previously been President of the Robotics and Motion division since
January 2017. From June to December 2016 he was President of the Discrete Automation and Motion
division. Prior to joining ABB, Mr. Atiya held senior roles at Siemens in Germany from 1997 to 2015, including
as chief executive officer of the mobility and logistics division in the infrastructure and cities sector from 2011.
Mr. Atiya was born in 1964 and is a German citizen.
Further information about the members of the Executive Committee can be found by clicking on the
Executive Committee link (available at
https://new.abb.com/about/corporate -governance
).
Mandates of EC members outside the ABB Group
No member of the EC may hold more than five additional mandates, of which no more than one may be in a
listed company. Certain types of mandates, such as those in our subsidiaries, those in the same group of
companies and those in non
‑
profit and charitable institutions, are not subject to those limits. Additional details
can be found in Article 38 of ABB’s Articles of Incorporation (available at
https://new.abb.com/about/corporate -governance
).
88
Business relationships between ABB and its EC members
This section describes important business relationships between ABB and its EC members, or companies
and organizations represented by them.
ABB has a minority stake in Hitachi Energy Ltd (Hitachi Energy), the holding company of ABB’s former power
grids business. Hitachi Energy is both an important supplier to and customer of ABB. Timo Ihamuotila is a
director of Hitachi Energy.
After reviewing the level of business with Hitachi Energy, the Board has determined that ABB’s business
relationship with Hitachi Energy is not unusual in its nature or conditions.
These determinations were made in accordance with ABB Ltd's Related Party Transaction Policy which was
prepared based on the Swiss Code of Best Practice for Corporate Governance and the independence criteria
set forth in the corporate governance rules of the New York Stock Exchange. This policy is contained in the
ABB Ltd Board Governance Rules (available at
https://new.abb.com/about/corporate -governance
).
—
Shares
Share capital of ABB
At December 31, 2021, ABB’s ordinary share capital (including treasury shares) as registered with the
Commercial Register amounted to CHF 246,377,791.68, divided into 2,053,148,264 fully paid registered
shares with a par value of CHF 0.12 per share.
ABB Ltd’s shares are listed on the SIX Swiss Exchange, the NASDAQ OMX Stockholm Exchange and the
New York Stock Exchange (where its shares are traded in the form of American depositary shares (ADS) –
each ADS representing one registered ABB share). At December 31, 2021, ABB Ltd had a market
capitalization based on outstanding shares (total number of outstanding shares: 1,958,344,400) of
approximately CHF 68 billion ($75 billion, SEK 676 billion). The only consolidated subsidiary in the ABB
Group with listed shares is ABB India Limited, Bangalore, India, which is listed on the BSE Ltd. (Bombay
Stock Exchange) and the National Stock Exchange of India. At December 31, 2021, ABB Ltd, Switzerland,
directly or indirectly owned 75 percent of ABB India Limited, Bangalore, India, which at that time had a market
capitalization of approximately INR 474 billion.
Stock exchange listings (at December 31, 2021)
Stock exchange
Security
Ticker symbol
ISIN code
SIX Swiss Exchange
ABB Ltd, Zurich, share
ABBN
CH0012221716
SIX Swiss Exchange
ABB Ltd, Zurich, share buyback
(second trading line)
ABBNE
CH0357679619
NASDAQ OMX Stockholm Exchange
ABB Ltd, Zurich, share
ABB
CH0012221716
New York Stock Exchange
ABB Ltd, Zurich, ADS
ABB
US0003752047
BSE Ltd. (Bombay Stock Exchange)
ABB India Limited, Bangalore, share
ABB
(1)
INE117A01022
National Stock Exchange of India
ABB India Limited, Bangalore, share
ABB
INE117A01022
(1) also called Scrip ID.
89
Share repurchases and cancellation
Under the share buyback program that ran from July 2020 to March 2021, ABB repurchased a total of
128,620,589 shares. At ABB’s Annual General Meeting 2021, the shareholders approved the proposal to
cancel 115,000,000 repurchased shares. These shares were cancelled in June 2021, resulting in a reduced
total number of issued ABB Ltd shares of 2,053,148,264. ABB intends to propose to the Annual General
Meeting 2022 to cancel the remaining 13,620,589 repurchased shares.
In April 2021, ABB launched a follow-up share buyback program of up to $4.3 billion to complete ABB’s plan
to return $7.8 billion of cash proceeds from the Power Grids divestment to shareholders. Under that share
buyback program, ABB repurchased a total of 58,627,600 shares as per December 31, 2021, and a total of
74,782,600 shares as per February 15, 2022. ABB intends to propose to the Annual General Meeting 2022 to
cancel these shares.
In addition, ABB repurchased a total of 32,668,987 shares as per December 31, 2021, primarily for use in
connection with employee share programs. Further information can be found at
https://www.abb.com/investorrelations .
Changes to the ordinary share capital
Except for the share cancellation described above, there were no other changes to ABB’s ordinary share
capital during 2021, 2020 and 2019.
Convertible bonds and options
ABB does not have any bonds outstanding that are convertible into ABB shares. For information about
options on shares issued by ABB, please refer to “Note 19 – Stockholders' equity” to ABB’s Consolidated
Financial Statements.
Contingent share capital
At December 31, 2021, ABB’s share capital may be increased by an amount not to exceed CHF 24,000,000
through the issuance of up to 200,000,000 fully paid registered shares with a par value of CHF 0.12 per share
through the exercise of conversion rights and/or warrants granted in connection with the issuance on national
or international capital markets of newly or already issued bonds or other financial market instruments. If this
contingent share capital were fully issued this would increase the existing share capital by approximately
9.7 percent. The contingent share capital has not changed during the last three years.
At December 31, 2021, ABB’s share capital may be increased by an amount not to exceed CHF 1,200,000
through the issuance of up to 10,000,000 fully paid registered shares with a par value of CHF 0.12 per share
through the exercise of warrant rights granted to its shareholders. If this contingent share capital were fully
issued this would increase the existing share capital by approximately 0.5 percent. This contingent share
capital has not changed during the last three years. The Board may grant warrant rights not taken up by
shareholders for other purposes in the interest of ABB.
The pre
‑
emptive rights of the shareholders are excluded in connection with the issuance of convertible or
warrant-bearing bonds or other financial market instruments or the grant of warrant rights. The then current
owners of conversion rights and/or warrants will be entitled to subscribe for new shares. The conditions of the
conversion rights and/or warrants will be determined by the Board.
The acquisition of shares through the exercise of warrants and each subsequent transfer of the shares will be
subject to the restrictions of ABB’s Articles of Incorporation (see “Limitations on transferability of shares and
nominee registration” in the Shareholders section below) (available at
https://new.abb.com/about/corporate-
governance
).
90
In connection with the issuance of convertible or warrant -bearing bonds or other financial market instruments,
the Board is authorized to restrict or deny the advance subscription rights of shareholders if such bonds or
other financial market instruments are for the purpose of financing or refinancing the acquisition of an
enterprise, parts of an enterprise, participations or new investments or an issuance on national or
international capital markets. If the Board denies advance subscription rights, the convertible or
warrant
‑
bearing bonds or other financial market instruments will be issued at the relevant market conditions
and the new shares will be issued pursuant to the relevant market conditions taking into account the share
price and/or other comparable instruments having a market price. Conversion rights may be exercised during
a maximum ten
‑
year period, and warrants may be exercised during a maximum seven
‑
year period, in each
case from the date of the respective issuance. The advance subscription rights of the shareholders may be
granted indirectly.
At December 31, 2021, ABB’s share capital may be increased by an amount not to exceed CHF 11,284,656
through the issuance of up to 94,038,800 fully paid shares with a par value of CHF 0.12 per share to
employees. If this contingent share capital were fully issued this would increase the existing share capital by
approximately 4.6 percent. This contingent share capital has not changed during the last three years. The
pre
‑
emptive and advance subscription rights of ABB’s shareholders are excluded. The shares or rights to
subscribe for shares will be issued to employees pursuant to one or more regulations to be issued by the
Board, taking into account performance, functions, level of responsibility and profitability criteria. ABB may
issue shares or subscription rights to employees at a price lower than that quoted on a stock exchange. The
acquisition of shares within the context of employee share ownership and each subsequent transfer of the
shares will be subject to the restrictions of ABB’s Articles of Incorporation (see “Limitations on transferability
of shares and nominee registration” in the Shareholders section below).
Authorized share capital
At December 31, 2021, ABB had an authorized share capital in the amount of up to CHF 24,000,000 through
the issuance of up to 200,000,000 fully paid registered shares with a par value of CHF 0.12 each, which is
valid through March 25, 2023. If the authorized share capital were fully issued, this would increase the
existing share capital by approximately 9.7 percent. Aside from renewal at the 2021 AGM, the authorized
share capital has not changed during the last three years. The Board is authorized to determine the date of
issue of new shares, the issue price, the type of payment, the conditions for the exercise of pre
‑
emptive rights
and the beginning date for dividend entitlement. In this regard, the Board may issue new shares by means of
a firm underwriting through a banking institution, a syndicate or another third party with a subsequent offer of
these shares to the shareholders. The Board may permit pre
‑
emptive rights that have not been exercised by
shareholders to expire or it may place these rights and/or shares as to which pre
‑
emptive rights have been
granted but not exercised at market conditions or use them for other purposes in the interest of the Company.
Furthermore, the Board is authorized to restrict or deny the pre
‑
emptive rights of shareholders and allocate
such rights to third parties if the shares are used (1) for the acquisition of an enterprise, parts of an
enterprise, or participations, or for new investments, or in case of a share placement, for the financing or
refinancing of such transactions; or (2) for the purpose of broadening the shareholder constituency in
connection with a listing of shares on domestic or foreign stock exchanges. The subscription and the
acquisition of the new shares, as well as each subsequent transfer of the shares, will be subject to the
restrictions of ABB’s Articles of Incorporation (available at
https://new.abb.com/about/corporate -governance
).
—
Shareholders
Shareholder structure
As of December 31, 2021, the total number of shareholders directly registered with ABB Ltd was
approximately 96,000 and another 513,000 shareholders held shares indirectly through nominees. In total as
of that date, ABB had approximately 609,000 shareholders.
91
Significant shareholders
Under the Swiss Financial Market Infrastructure Act, shareholders and groups of shareholders acting in
concert who directly or indirectly acquire or sell shares of a listed Swiss corporation or rights based thereon
and thereby reach, exceed or fall below the thresholds of 3 percent, 5 percent, 10 percent, 15 percent,
20 percent, 25 percent, 33
1
/
3
2
/
3
notify the corporation and the SIX Swiss Exchange of such holdings. Consequently, significant shareholdings
may have varied within the relevant threshold levels since they were reported.
Investor AB, Sweden, held 265,385,142 ABB shares as of December 31, 2021 (refer to Investor’s year-end
2021 report available at
https://www.investorab.com/investors -media/reports-presentations
). This holding
represented 12.9 percent of ABB’s total share capital and voting rights as registered in the Commercial
Register on December 31, 2021. The number of shares held by Investor AB does not include shares held by
Mr. Jacob Wallenberg, the chairman of Investor AB and a director of ABB, in his individual capacity.
The Capital Group Companies Inc., USA, disclosed that as of July 1, 2021, it, together with its direct and
indirect affiliates, held 115,841,336 ABB shares. This holding represented 5.64 percent of ABB’s total share
capital and voting rights as registered in the Commercial Register at that time.
Cevian Capital II GP Limited, Jersey, disclosed that as of August 3, 2020, it held 105,988,662 ABB shares.
This holding represented 4.89 percent of ABB’s total share capital and voting rights as registered in the
Commercial Register at that time.
BlackRock Inc., U.S., disclosed that as of August 31, 2017, it, together with its direct and indirect subsidiaries,
held 72,900,737 ABB shares. This holding represented 3.36 percent of ABB’s total share capital and voting
rights as registered in the Commercial Register at that time.
At December 31, 2021, to the best of ABB’s knowledge, no other shareholder held 3 percent or more of
ABB’s total share capital and voting rights as registered in the Commercial Register on that date.
ABB Ltd has no cross shareholdings in excess of 5 percent of capital, or voting rights with any other
company.
Announcements related to disclosure notifications made by shareholders during 2021 can be found via the
search facility on the platform of the Disclosure Office of the SIX Swiss Exchange
: https://www.ser-
ag.com/en/resources/notifications-market-participants/significant-shareholders.html#/
.
Under ABB’s Articles of Incorporation (available at
https://new.abb.com/about/corporate -governance
), each
registered share represents one vote. Significant shareholders do not have different voting rights.
To
our
knowledge, we are not directly or indirectly owned or controlled by any government or by any other
corporation or person.
Shareholders’ rights
Shareholders have the right to receive dividends, to vote and to execute such other rights as granted under
Swiss law and the Articles of Incorporation (available at
https://new.abb.com/about/corporate -governance
).
Right to vote
ABB has one class of shares and each registered share carries one vote at the general meeting. Voting rights
may be exercised only after a shareholder has been registered in the share register of ABB as a shareholder
with the right to vote, or with Euroclear Sweden AB (Euroclear), which maintains a subregister of the share
register of ABB.
92
A shareholder may be represented at the Annual General Meeting by its legal representative, by another
shareholder with the right to vote or by the independent proxy elected by the shareholders (unabhängiger
Stimmrechtsvertreter). If the Company does not have an independent proxy, the Board of Directors shall
appoint the independent proxy for the next General Meeting of Shareholders. All shares held by one
shareholder may be represented by one representative only.
For practical reasons shareholders must be registered in the share register no later than 6 business days
before the general meeting in order to be entitled to vote. Except for the cases described under “Limitations
on transferability of shares and nominee registration” below, there are no voting rights restrictions limiting
ABB’s shareholders’ rights.
Annual General Meeting/COVID-19
ABB’s top priority is protecting the health of its shareholders and employees. Therefore, due to the
extraordinary circumstances and in accordance with applicable Swiss COVID-19 legislation, shareholders
were not able to attend ABB’s Annual General Meeting 2021 in person, but could exercise their shareholder
rights via the independent proxy only. The Board of Directors has resolved that for ABB’s Annual General
Meeting 2022, in accordance with applicable Swiss COVID-19 legislation, the same procedures shall apply.
In addition, ABB will offer shareholders the opportunity to address questions on agenda items to the Board of
Directors in writing ahead of the meeting.
Shareholders’ dividend rights
The unconsolidated statutory financial statements of ABB Ltd are prepared in accordance with Swiss law.
Based on these financial statements, dividends may be paid only if ABB Ltd has sufficient distributable profits
from previous years or sufficient free reserves to allow the distribution of a dividend. Swiss law requires that
ABB Ltd retain at least 5 percent of its annual net profits as legal reserves until these reserves amount to at
least 20 percent of ABB Ltd’s share capital. Any net profits remaining in excess of those reserves are at the
disposal of the shareholders’ meeting.
Under Swiss law, ABB Ltd may only pay out a dividend if it has been proposed by a shareholder or the Board
of Directors and approved at a general meeting of shareholders, and the auditors confirm that the dividend
conforms to statutory law and ABB’s Articles of Incorporation. In practice, the shareholders’ meeting usually
approves dividends as proposed by the Board of Directors.
Dividends are usually due and payable no earlier than 2 trading days after the shareholders’ resolution and
the ex
‑
date for dividends is normally 2 trading days after the shareholders’ resolution approving the dividend.
Dividends are paid out to the holders that are registered on the record date. Euroclear administers the
payment of those shares registered with it. Under Swiss law, dividends not collected within 5 years after the
due date accrue to ABB Ltd and are allocated to its other reserves. As ABB Ltd pays cash dividends, if any,
in Swiss francs (subject to the exception for certain sharehold ers in Sweden described below), exchange rate
fluctuations will affect the U.S. dollar amounts received by holders of ADSs upon conversion of those cash
dividends by Citibank, N.A., the depositary, in accordance with the Amended and Restated Deposit
Agreement dated May 7, 2001.
For shareholders who are residents of Sweden, ABB has established a dividend access facility (for up to
600,004,716 shares). With respect to any annual divi dend payment for which this facility is made available,
shareholders who register with Euroclear may elect to receive the dividend from ABB Norden Holding AB in
Swedish krona (in an amount equivalent to the dividend paid in Swiss francs) without deduction of Swiss
withholding tax. For further information on the dividend access facility, see ABB’s Articles of Incorporation.
93
Limitations on transferability of shares and nominee registration
ABB may decline a registration with voting rights if a shareholder does not declare that it has acquired the
shares in its own name and for its own account. If the shareholder refuses to make such declaration, it will be
registered as a shareholder without voting rights. A person failing to expressly declare in its
registration/application that it holds the shares for its own account (a nominee), will be entered in the share
register with voting rights, provided that such nominee has entered into an agreement with ABB concerning
its status, and further provided that the nominee is subject to recognized bank or financial market supervision.
In special cases the Board may grant exemptions. There were no exemptions granted in 2021. The limitation
on the transferability of shares may be removed by an amendment of ABB’s Articles of Incorporation by a
shareholders’ resolution requiring two-thirds of the votes represented at the meeting.
No restriction on trading of shares
No restrictions are imposed on the transferability of ABB shares. The registration of shareholders in the ABB
share register, Euroclear and the ADS register kept by Citibank does not affect transferability of ABB shares
or ADSs. Registered ABB shareholders or ADR holders may therefore purchase or sell their ABB shares or
ADRs at any time, including before a General Meeting regardless of the record date. The record date serves
only to determine the right to vote at a General Meeting.
Duty to make a public tender offer
ABB’s Articles of Incorporation do not contain any provisions raising the threshold (opting up) or waiving the
duty (opting out) to make a public tender offer pursuant to Article 135 of the Swiss Act on Financial Market
Infrastructures and Market Conduct in Securities and Derivatives Trading.
—
Other governance information
ABB Group organizational structure
ABB Ltd, Switzerland, is the ultimate parent company of the ABB Group. It is the sole shareholder of ABB
Asea Brown Boveri Ltd which directly or indirectly owns the other companies in the ABB Group. The table in
the appendix to this Corporate Governance Report sets forth, as of December 31, 2021, the name, place of
incorporation, ownership interest and share capital of the significant direct and indirect subsidiaries of ABB
Ltd. In addition, ABB Ltd also owns 19.9 percent of Hitachi Energy Ltd. ABB’s operational group structure is
described in the “Financial review of ABB Group” section of this Annual Report under “Operating and financial
review and prospects – Organizational structure”.
Management contracts
There are no management contracts between ABB and companies or natural persons not belonging to the
ABB Group.
Change of control clauses
Board members, Executive Committee members, and other members of senior management do not receive
any special benefits in the event of a change of control. However, the conditional grants under the Long Term
Incentive Plan (LTIP) and the Management Incentive Plan (MIP) may be subject to accelerated vesting in the
event of a change of control. From 2021, the rules for the LTIP have been amended to no longer provide for
accelerated vesting upon a change in control. No further grants are made under the MIP.
94
Employee participation programs
In order to align its employees’ interests with the business goals and financial results of the Company, ABB
operates a number of incentive plans, linked to ABB’s shares, such as the Employee Share Acquisition Plan,
the Management Incentive Plan and the Long Term Incentive Plan. For a more detailed description of these
incentive plans, please refer to “Note 18 – Share-based payment arrangements” to ABB’s Consolidated
Financial Statements.
General blackout periods for trading ABB securities
During the 30 days prior to the day of publication of the ABB Group’s quarterly financial results, as well as on
such day, the members of the Board of Directors and the Executive Committee as well as certain employees
of ABB, as specified in ABB’s internal policies, are prohibited from trading in ABB Ltd securities and any
related financial instruments.
Governance differences from NYSE Standards
According to the New York Stock Exchange’s corporate governance standards (the Standards), ABB is
required to disclose significant ways in which its corporate governance practices differ from the Standards.
ABB has reviewed the Standards and concluded that its corporate governance practices are generally
consistent with the Standards, with the following significant exceptions:
•
General Meeting rather than by the audit committee or the board of directors.
•
approved by the shareholders. Consistent with Swiss law such matters are decided by our Board.
However, the shareholders decide about the creation of new share capital that can be used in
connection with equity compensation plans.
•
shareholders rather than appointed by our Board.
•
the maximum aggregate Executive Committee compensation.
95
—
Compensation
Compensation at a glance
Board compensation
Compensation for the 2021-2022 term of office
The effective Board compensation for the 2021-2022 term of office (CHF 4,380,000) was within the maximum
amount approved at the 2021 AGM (CHF 4,400,000).
Compensation Exhibit 1: Board compensation (in CHF) for the 2021-2022 term of office
Effective compensation
4,380,000
Approved compensation amount
4,400,000
Shareholding of Board members
All Board members held ABB shares at December 31, 2021, worth at least 200 percent of their 2021 Board
compensation.
Compensation Exhibit 2: Board members shareholding (at December 31, 2021) in % of 2021 total compensation
*
*
Based on share price of CHF 26.59, the 2021 LTIP reference price, and shares held at December 31, 2021.
96
Executive Committee (EC) compensation
Compensation structure as from 2022
Compensation Exhibit 3: EC compensation structure as from 2022
Fixed compensation -
base salary and benefits
Variable compensation -
short-term incentive (AIP)
Variable compensation -
long-term incentive (LTIP)
Wealth at risk/
Share ownership
Purpose and
link to strategy
Base salary compensates for
the role and relevant
experience; Benefits protect
against risks. Facilitates
attraction and retention of
talented EC members
Rewards annual Company,
Business Area, functional
and individual performance.
Aligned with the Company’s
Annual Performance Plan
Rewards the achievement of
Company goals over a three-
year period. Encourages
creation of long-term,
sustainable value for
shareholders, and delivery of
long
‑
term strategic goals
Aligned with the Company’s
Long-term Performance Plan
Aligns individual’s personal
wealth at risk directly to the
ABB share price, and EC
members’ interests with
those of shareholders in
order to maintain focus on
ABB's long-term success
Operation
Salary in cash, benefits in
kind, and pension
contribution
Annual awards, payable in
cash after a one-year
performance period
Annual grants in shares
which may vest after three
years subject to performance
conditions
Individuals required to hold
ABB shares
Opportunity
level
(as % of base
salary)
Based on scope of
responsibilities, personal
experience and skillset
CEO
500% (net of tax)
Other EC members
400% (net of tax)
* higher LTIP opportunity to be largely
offset by lower fixed cost benefits
Performance
indicators
Changes to base salary take
into account individual
performance, future potential
and external benchmarking
Exposed to ABB share price
97
Total EC compensation for 2021
The effective EC compensation for 2021 (CHF 39,157,04 6) is within the maximum amount approved at the
2020 AGM (CHF 39,500,000).
Compensation Exhibit 4: EC compensation (in CHF) for 2021
Effective aggregate compensation
39,157,046
Approved aggregate compensation
39,500,000
The larger portion of the CEO’s 2021 total compensation was delivered via variable compensation
(61 percent represented by short-term incentive and long-term incentive). For the other EC members, on an
aggregate level, variable compensation represented 54 percent of their 2021 compensation. The following
chart shows the composition of the 2021 total compensation for the current EC, without consideration of
former EC members.
Compensation Exhibit 5: 2021 Total compensation mix for the CEO and other EC members on aggregate level
Realized variable compensation in 2021
Realized variable compensation considers the AIP award and the LTIP award at the end of their respective
performance cycles, reflecting actual AIP payment and LTIP vesting, based on achievement of the plan
specific performance measures.
While the outcome of the 2021 short-term incentive was above the target for all current EC members
(143.4 percent on average), the long-term incentive that vested in 2021 (2018 LTIP) remained substantially
below the target, with a final vesting level of 57.4 percent of target.
Compensation Exhibit 6: AIP 2021 outcome compared to target
98
200%
200%
200%
57.4%
0%
114.8%
100%
100%
100%
0%
25%
50%
75%
100%
125%
150%
175%
200%
LTIP Vesting (total)
Average EPS (50% of total)
Relative TSR (50% of total)
Target achievement level
Realized achievement level
Maximum achievement level
Compensation Exhibit 7: Long-term incentive: 2018 LTIP outcome compared to target
Realized total compensation in 2021
Considering the stated variable components above, the realized total compensation in 2021 was above the
target total compensation for all current EC members, driven by strong performance in 2021.
Compensation Exhibit 8: Realized total compensation compared to target total compensation
Further details related to the realized compensation of each EC member and each compensation component
are specified in Compensation Exhibit 44.
Shareholding of EC members
Three out of nine EC members have achieved or exceeded their share ownership requirement. A further two
members are close to achieving their requirement, while three members have been newly appointed to the
EC in the last two years, and one member is leaving the Company. Note that EC members may not sell their
shares (except to meet tax and social security costs) until they achieve the required shareholding level.
99
Compensation Exhibit 9: EC shareholding compared to share ownership guideline*
*
Based on share price of CHF 26.59, the 2021 LTIP reference price, and shares held at December 31, 2021.
Compensation governance
The Compensation Report is prepared in accordance with the Ordinance against Excessive Remuneration in
Listed Stock Corporations, the Directive on Information relating to Corporate Governance of the SIX
Exchange Regulation, the rules of the stock markets of Sweden and the United States, where ABB shares
are also listed, and the principles of the Swiss Code of Best Practice for Corporate Governance of
economiesuisse.
ABB’s Articles of Incorporation
ABB’s Articles of Incorporation, approved by its shareholders, contain provisions on compensation which
govern and outline the principles of compensation relating to our Board of Directors and Executive
Committee. They can be found on ABB’s Corporate Governance Web site new.abb.com/about/corporate-
governance and are summarized below:
•
Compensation Committee
(Articles 28 to 31): The Compensation Committee (CC) is composed
of a minimum of three members of the Board and are elected individually by the shareholders at
the Annual General Meeting for a period of one year. It supports the Board in establishing and
reviewing the compensation strategy, principles and programs, in preparing the proposals to the
AGM on compensation matters and in determining the compensation of the Board and of the EC.
The responsibilities of the CC are defined in more detail in the Board Regulations and Corporate
Governance guidelines, which are also available on ABB’s Corporate Governance Web site.
•
Compensation principles
(Article 33): Compensation of the members of the Board consists of
fixed compensation only, which is delivered in cash and shares (with an option to elect for shares
only). Compensation of the members of the EC consists of fixed and variable compensation.
Variable compensation may comprise short-term and long-term elements. Compensation may be
paid in cash, shares or other benefits.
•
“Say-on-pay” vote
compensation of the Board for the following Board term and of the EC for the following financial
year.
100
•
Supplementary amount for new EC members
aggregate compensation amount is not sufficient to also cover the compensation of newly
promoted/hired EC members, up to 30 percent of the last maximum approved aggregate amount
shall be available as a supplementary amount to cover the compensation of such new EC
members.
•
Loans
Authority levels in compensation matters
The CC acts in an advisory capacity while the Board retains the decision authority on compensation matters,
except for the maximum aggregate compensation amounts of the Board and of the EC, which are subject to
the approval of shareholders at the AGM. The authority levels of the different bodies on compensation
matters are detailed in Compensation Exhibit 10. Shareholders also have a consultative vote on the prior
year’s Compensation Report at the AGM and a binding vote on the maximum aggregate amount of
compensation of the Board for the following Board term and of the EC for the following financial year.
Compensation Exhibit 10: Authority levels in compensation matters
CEO
CC
Board
AGM
Compensation policy including incentive plans
●
●
●
Maximum aggregate compensation amount for the EC
●
●
●
CEO compensation
●
●
Individual compensation of other EC members
●
●
●
Performance target setting and assessment of the CEO
●
●
Performance target setting and assessment of other EC members
●
●
●
Shareholding requirements for CEO and other EC members
●
●
Maximum aggregate compensation amount for the Board
●
●
●
Individual compensation of Board members
●
●
Compensation Report
●
●
Consultative vote
●
●
Recommendation
●
Approval
Activities of the CC in 2021
The CC meets as often as business requires but at least four times a year. In 2021, the CC held seven
meetings and performed the activities described in Compensation Exhibit 11. The CEO, the Chief Human
Resources Officer (CHRO) and the Head of Performance and Reward also attend all or part of the CC
meetings in an advisory capacity. The Chairman of the CC may decide to invite other executives upon
consultation with the CEO, as appropriate. Executives do not attend the meetings or the parts of the meetings
in which their own compensation and/or performance are being discussed. Details on meeting attendance of
the individual CC members (number of meetings held during 2021, their average duration, as well as the
attendance of the individual members) are provided in the section titled “Board of Directors – Meetings and
attendance” of the Corporate Governance Report.
101
Compensation Exhibit 11: CC activities during 2021
Strategy
Review of Long-Term Incentive plan (LTIP)
Review of link between Environmental, Social and Corporate Governance (ESG) and compensation
EC Compensation
Review of recommendations on individual compensation for EC members
Review of the share ownership of EC members
Review and approval of compensation for departing EC members
Performance – relating to past performance cycle
Assessment of short-term incentive awards for 2020
Assessment of achievement of performance targets for LTIP awards vesting in 2021
Performance – relating to forthcoming performance cycle
Setting of Annual Incentive Plan (AIP) design and targets for 2021
Consideration of forecast AIP outcomes for 2021
Consideration of preliminary AIP targets for 2022
Setting of performance targets for LTIP grants in 2021
Consideration of forecast achievement against performance targets for unvested LTIP grants
Compliance
Review of CC Terms of Reference and annual plan
Review of the gender pay policy and disclosure in Switzerland
Review of feedback from Stakeholder Engagement meetings
Regulatory and market updates
Review of the Compensation Report for publication
Preparation of maximum aggregate compensation for the Board to be submitted for AGM vote
Preparation of maximum aggregate compensation for the EC to be submitted for AGM vote
The Chairman of the CC reports to the full Board after each CC meeting. The minutes of the meetings are
available to the members of the Board.
The CC retains independent, external advisors for compensation matters. PricewaterhouseCoopers (PwC)
was mandated to provide consulting services related to executive compensation matters. Apart from its CC
advisory role, PwC also provides human resources, tax and advisory services to ABB.
Pay equity
ABB believes that a culture of diversity, inclusion and equal opportunity is critical to our business success and
makes us stronger. This mindset is supported by our Diversity & Inclusion Strategy 2030, that clearly defines
ABB plans to ensure an inclusive culture and equal treatment of everyone, regardless of gender, age, ethnic
origin, sexual orientation, etc. Equal pay is a critical component of this strategy.
In Switzerland, under the revised Swiss Federal Act on Gender Equality (GEA) that came into force last year,
legal entities with more than 100 employees are required to conduct an equal pay analysis. ABB has
completed this analysis for all four required legal entities and the results of this analysis were verified by an
external accounting firm, KPMG. As a result, the two in-scope legal entities forming part of ABB Switzerland
(ABB Schweiz AG and ABB Power Protection SA, which now is part of ABB Schweiz AG), meet the equal
pay requirements and are within the applicable thresholds for salary and overall compensation (salary plus
actual bonus).
102
At ABB Headquarters, ABB Asea Brown Boveri Ltd meets the equal pay requirements and is within the
applicable thresholds for salary and overall compensation (salary plus actual bonus). The smaller legal entity
in scope, ABB Management Services Ltd, meets the equal pay requirements for salary and slightly
underachieves the parity level for overall compensation (salary plus actual bonus), as it has employees from
different businesses assigned with different bonus plans, leading to varying levels of bonus payments. In
accordance with the Swiss law, ABB will continue to monitor these requirements.
Board compensation policy
The compensation policy for the members of the Board is designed to attract and retain experienced people
to the Board of Directors. Compensation takes into account the responsibilities, time and effort required to
fulfill their roles on the Board and its Committees, and is generally positioned at levels similar to other Swiss
listed companies of comparable size and complexity.
Compensation structure
A fixed fee is payable for the Chairman, Vice-Chairman and members of the Board, and additional fees are
payable for chairing or membership of a Board Committee, except for the Chairman and Vice-Chairman.
Board members are paid for their service over a 12-month period that starts with their election at the AGM.
Payment of fees is made in semi-annual installments in arrears.
Each fee is delivered in cash and shares, although Board members may elect to receive all their fees in
shares. The number of shares delivered is calculated prior to each semi-annual payment by dividing the
monetary amount to which the Board members are entitled by the average closing price of the ABB share
over a predefined 30-day period. The shares are subject to a three-year restriction period during which they
cannot be sold, transferred or pledged. Any restricted shares are unblocked when the Board member leaves
the Board.
Implementation of Board compensation policy
Board fees by role
As mentioned above, the levels and mix of compensation of Board members are regularly compared against
the compensation of non-executive Board members from a cross-section of publicly traded companies in
Switzerland that are part of the Swiss Market Index (i.e., Adecco, Alcon, Geberit, Givaudan, Holcim, Lonza,
Richemont, SGS, Sika, Swisscom, Swiss Life, Zurich Insurance). Such a review was last undertaken in 2020,
and there was no adjustment made to Board fees for the term of office from the 2021 AGM to the 2022 AGM,
as set out in Compensation Exhibit 12 below.
103
Compensation Exhibit 12: Current Board fees
Board term fee (CHF)
Chairman of the Board
(1)
1,200,000
Vice-Chairman of the Board
(1)
450,000
Member of the Board
290,000
Additional committee fees:
Chairman of FACC
(2)
110,000
Chairman of CC or GNC
(2)
60,000
Member of FACC
(2)
40,000
Member of CC or GNC
(2)
30,000
(1) The Chairman and the Vice-Chairman do not receive any additional committee fees for their roles on the GNC.
(2) CC: Compensation Committee,
Total Board compensation
The compensation paid to the Board members for the calendar year 2021 and for the term of office from the
2021 AGM to the 2022 AGM are disclosed in Compensation Exhibit 13 below and in Compensation
Exhibits 35 and 36, respectively, in the section “Compensation tables and share ownership tables”.
At the 2021 AGM, the shareholders approved a maximum aggregate compensation amount of
CHF 4.40 million for the 2021-2022 Board term. This amount was lower than the approved amount for the
previous Board term, reflecting the reduction of the total number of members of the Board from eleven to ten.
The Board compensation to be paid is CHF 4.38 million and is therefore within the amount approved by the
shareholders. The Board compensation paid for the previous 2020-2021 term of office was below the amount
approved by the shareholders due to the voluntary donation of 10 percent of fees for a six-month period
during 2020 to fight the impacts of the COVID-19 pandemic.
Compensation Exhibit
13: Board compensation (in CHF)
Board term
Board of Directors
2021–2022
2020–2021
Number of members
10
11
Total compensation
4,380,000
4,436,500
Maximum aggregate compensation amount approved at previous AGM
4,400,000
4,700,000
Compensation of former Board members
In 2021, no payment was made to any former Board member.
Compensation for services rendered
In 2021, ABB did not pay any fees or compensation to the members of the Board for services rendered to
ABB other than those disclosed in this report.
Shareholding of Board members
The members of the Board collectively owned less than 1 percent of ABB’s total shares outstanding at
December 31, 2021.
104
Compensation Exhibit 37 in the section “Compensation tables and share ownership tables” shows the
number of ABB shares held by each Board member at December 31, 2021 and 2020. Except as described in
this Compensation Exhibit, no member of the Board and no person closely linked to a member of the Board
held any shares of ABB or options in ABB shares.
Shares delivered to Board members as part of their compensation are blocked for a period of three years.
Compensation Exhibit 14 shows the wealth at risk for each Board member, comparing the value of held
shares at December 31, 2021 with the total compensation for the 2021-2022 term of office. At December 31,
2021, all Board members held ABB shares worth at least 200 percent of their 2021 total compensation.
Compensation Exhibit 14: Board shareholding (at December 31, 2021) in % of 2021 total compensation*
*
Based on share price of CHF 26.59, the 2021 LTIP reference price, and shares held at December 31, 2021.
Executive Committee compensation policy
The EC compensation policy reflects ABB’s commitment to attract, motivate and retain people with the talent
necessary to strengthen its position as a leading global technology company.
Compensation structure
The compensation structure is designed to be competitive, based on performance, and to encourage
executives to deliver outstanding results and create sustainable shareholder value without taking excessive
risks. The EC compensation framework therefore balances fixed and variable compensation. Variable
compensation is provided through short-term and long-term incentives based on strategic, financial and ESG
objectives, recognizing Group, Business Area and Corporate Function performance as well as individual
performance.
This structure is linked to our strategy and is illustrated in Compensation Exhibit 15.
105
Compensation Exhibit 15: EC compensation structure as from 2022
Fixed compensation -
base salary and benefits
Variable compensation -
short-term incentive (AIP)
Variable compensation -
long-term incentive (LTIP)
Wealth at risk/
Share ownership
Purpose and
link to strategy
Base salary compensates for
the role and relevant
experience; Benefits protect
against risks. Facilitates
attraction and retention of
talented EC members
Rewards annual Company,
Business Area, functional
and individual performance.
Aligned with the Company’s
Annual Performance Plan
Rewards the achievement of
Company goals over a three-
year period. Encourages
creation of long-term,
sustainable value for
shareholders, and delivery of
long
‑
term strategic goals
Aligned with the Company’s
Long-term Performance Plan
Aligns individual’s personal
wealth at risk directly to the
ABB share price, and EC
members’ interests with
those of shareholders in
order to maintain focus on
ABB's long-term success
Operation
Salary in cash, benefits in
kind, and pension
contribution
Annual awards, payable in
cash after a one-year
performance period
Annual grants in shares
which may vest after three
years subject to performance
conditions
Individuals required to hold
ABB shares
Opportunity
level
(as % of base
salary)
Based on scope of
responsibilities, personal
experience and skillset
CEO
500% (net of tax)
Other EC members
400% (net of tax)
* higher LTIP opportunity to be largely
offset by lower fixed cost benefits
Performance
indicators
Changes to base salary take
into account individual
performance, future potential
and external benchmarking
Exposed to ABB share price
A significant portion of total compensation depends on variable pay components, which require the
achievement of challenging performance targets, in alignment with ABB Annual and Long-Term Performance
Plans.
106
25%
24%
15%
9%
10%
7%
25%
24%
25%
36%
Current Other EC
Members
New Other EC
Members
Base salary
Pension benefits
Other benefits
Short-term incentive
Long-term incentive
The target AIP award is defined as a percentage of base salary, currently 100 percent for all EC members.
There is no award under the AIP if performance is below threshold s on all financial performance measures.
When performance exceeds targets, the maximum award is capped at 150 percent of the targeted amount.
The target LTIP grant size is defined as a percentage of base salary, currently 150 percent for the CEO and
80 to 100 percent for all other EC members. There will be no award under the LTIP if performance is below
thresholds for all applicable measures. When performance exceeds targets, the maximum award is capped at
200 percent of the conditional grant.
From 2022, the mix of fixed and variable target compensation elements for new EC members will be adjusted
to provide a greater emphasis on variable pay. This will be achieved by increasing the LTIP grant size from
100 percent to 150 percent of base salary, while reducing the level of pension contributions and other
benefits. The reduction of pension contributions and other benefits substantially offsets the increase of the
LTIP component, and represents a shift from guaranteed pay elements to pay at risk. Fixed compensation for
new EC members will represent 40 percent of their target total compensation, in comparison to 50 percent for
current EC members. Compensation Exhibit 16 below illustrates the changes for new EC members in more
detail.
Compensation Exhibit 16: Mix of target compensation for current and new EC members
Competitive positioning of compensation
The Board considers competitive market data when setting the compensation policy for the EC. It is also one
of several factors in positioning the target compensation for individual EC members which include:
•
•
•
The CC conducted a comprehensive review of its approach to competitive benchmarking in 2020, which led
to the creation of three benchmarking peer groups, designed to match the size, scope and complexity of
ABB, and exclude companies from the financial services sector.
The use of these peer groups depends on the nature of the role and the source of relevance. For example, a
stronger emphasis is placed on the Global Industry peer group for operational roles and in compensation
design, and on the Pan-European Market peer group for functional roles. In all cases, the other two peer
groups are used to stress test the findings of the primary peer group (see the summary in Compensation
Exhibit 17 below).
107
Compensation Exhibit 17: Compensation benchmarking peer groups
Peer Group
Composition
Rationale
Global Industry
A tailored group of 16 global industry peer companies
(1)
,
matching the scale and complexity of ABB
Focus for Business Area roles and
benchmarking compensation design
Pan-European Market
A panel of 50 cross-industry European companies
(2)
,
matching the scale and complexity of ABB
Focus for Corporate roles; continuity and
stability of data points
Swiss Market
A panel of 16 SMI and SMIM companies
(3)
, matching the
scale and complexity of ABB
Swiss listing and location of headquarters
(1) AB SKF, Alstom, Airbus, Atlas Copco, Denso, Eaton, Emerson Electric, Honeywell, Mitsubishi Electric, Mitsubishi Heavy Industries, Schneider
Electric, Schindler, Siemens, Thermo Fisher Scientific, Toshiba and Traton.
(2) AB InBev, Adidas, Air Liquide, Associated British Foods, AstraZeneca, BAE Systems, Bayer, Bouygues, British American Tobacco, Compass
Group, Continental, CRH, Danone, Endesa, EssilorLuxottica, Fresenius, Fresenius Medical Care, GlaxoSmithKline, HeidelbergCement,
Heineken, Henkel, Hennes & Mauritz, Iberdrola, Imperial Brands, Industria de Diseno Textil, Jeronimo Martins SGPS, Kuehne & Nagel, Holcim,
Linde, L’Oreal, Michelin, National Grid, Naturgy Energy Group, Nokia, Novartis, Novo Nordisk, OMV, Philips, Rio Tinto, Safran, Saint Gobain,
Sanofi, SAP, Schneider Electric, Telefonaktiebolage t LM Ericsson, Thales, Umicore, Veolia Environment, Vinci and Vodafone .
(3) SMI: Swiss Market Index; SMIM: Swiss Market Index MID; Companies include: Adecco, Geberit, Givaudan, Glencore, Kuehne & Nagel, Holcim,
Nestle, Novartis, Richemont, Roche, Schindler, SGS, Sika, STMicroelectronics, Swatch and Swisscom .
Since benchmark reviews are performed every other year, the comparison of ABB to its compensation
benchmarking peer groups shown in Compensation Exhibit 18 below is based on the last review in 2020.
This data shows that ABB is typically positioned at the median of key comparator indicators (market
capitalization, revenues, number of employees) against the Global Industry and Pan-European Market peer
groups, and at the upper quartile of the Swiss Market peer group.
Compensation Exhibit 18: Comparison of ABB to compensation benchmarking peer groups
(1)
Market capitalization
(2)(3)(4)
Revenues
(2)(4)(5)
Number of employees
(5)(6)
ABB
45.6
27.0
110,000
Global Industry
Upper Quartile
54.6
37.8
137,828
Median
31.1
29.2
94,500
Lower Quartile
12.4
72,827
Pan-European Market
Upper Quartile
68.9
38.4
126,994
Median
37.4
26.9
95,331
Lower Quartile
18.2
22.2
61,450
Swiss Market
Upper Quartile
31.6
31.7
93,930
Median
25.9
13.4
55,930
Lower Quartile
18.0
8.2
31,785
(1) Data sources for market capitalization, revenues and number of employees are Thomson Reuters or Annual Reports.
(2) Market capitalization and revenues are in CHF millions.
(3) Market capitalization is averaged over a period of three months (May 3, 2020 until August 3, 2020).
(4) Amounts have been translated to CHF using the one-year average rate from July 1, 2019 until June 30, 2020.
(5) Revenues and number of employees as per last financial year prior to October 2020.
(6) Number of employees in full-time equivalent (FTE) unless FTE information was not available, then in total number of employees.
It is the intention to position target compensation for individual EC members between median and upper
quartile of the relevant peer group(s) considering the other factors referenced above (e.g., the EC member’s
skills, experience, performance, potential).
Compensation elements
Compensation Exhibit 15 above sets out the purpose and link to strategy, the operation, the opportunity level
and the performance measures. In addition, this section provides further details for each compensation
element.
108
Fixed compensation - base salary and benefits
Purpose and link to strategy
Base salary compensates for the role and relevant experience; Benefits protect against risks, and facilitate
the attraction and retention of talented EC members.
Base salary is paid in cash. Benefits consist primarily of retirement, insurance and healthcare plans that are
designed to provide a reasonable level of support for the employees and their dependants in case of
retirement, disability or death.
Opportunity levels
Base salary is set with reference to the scope of responsibilities, personal experience and skills, and
competitive market data.
Benefit plans are set in line with the local competitive and legal environment and are, at a minimum, in
accordance with the legal requirements of the respective country.
The monetary value of base salary and benefits are disclosed in Compensation Exhibit 38 “EC compensation
in 2021”.
Performance measures and weighting
Base salary is adjusted considering the factors set out under opportunity levels above, the executive’s
performance as well as their future potential.
Variable compensation - Annual Incentive Plan (AIP)
Purpose and link to strategy
The AIP is designed to reward EC members for the Group’s results, the results of their Business Area or
Corporate Function and their individual performance over a time horizon of one year, and is aligned with the
Annual Performance Plan approved by the Board.
Opportunity levels
The AIP opportunity levels for the EC are 100 percent of base salary at target with a maximum opportunity of
150 percent.
Performance measures and weighting
The AIP structure is designed to incentivize operational delivery and underpin our performance culture. As
such, it is focused on key priorities, with a maximum of five measures.
•
•
•
three key performance indicators (KPIs) which may include a combination of quantitative and
qualitative goals.
o
2
female leader targets.
o
2
emissions) will be introduced.
o
governance KPI (internal controls) and an environment KPI (CO
2
o
the combined performance against all personal KPIs.
109
•
specifically includes a downwards adjustment based on safety performance, including fatalities.
A summary of the composition and total weighting of the measures for all EC members is set out in
Compensation Exhibit 19.
Compensation Exhibit 19: Composition and weighting of short-term incentive measures for EC members
CEO and Corporate Officers
(1)
Business Area Presidents
Common Group measure
25%
20%
Other Group measures
Up to three measures
n.a.
55%
Business Area measures
n.a.
Up to three measures
60%
Individual measure
Function-specific
Business-specific
20%
20%
Total
100%
100%
(1)
Corporate Officers include: Chief Financial Officer, Chief Human Resources Officer, General Counsel and Chief Communications and
Sustainability Officer.
Other design features
For each performance measure, a target will be set corresponding to the expected level of performance that
will generate a target (100 percent) award. For all except the individual measure, a minimum level of
performance, below which there is no award (threshold) and a maximum level of performance, above which
the award is capped at 150 percent of the target (cap), will also be defined. For quantitative Group, Business
Area and Functional measures, the award percentage achievements between threshold and target, as well
as between target and cap are determined by linear interpolations between these points.
The outcomes of financial AIP measures are subject to appropriate discretionary upward or downward
adjustments for non-operational items and other adjustment principles agreed with the Board.
In 2021, progress against defined ESG target(s) was a “boundary condition” for making AIP awards. Under
this approach, the Board agreed to review whether the Company had made sufficient progress at the end of
the year to justify making the indicated AIP award. If, in the opinion of the Board, insufficient progress had
been made, the AIP award might have been reduced on a discretionary basis. Following feedback from
stakeholders, this practice will be discontinued in 2022 and replaced with the approach to ESG in the AIP
individual measure described above, and in the LTIP described below.
Variable compensation - Long -Term Incentive Plan (LTIP)
Purpose and link to strategy
Rewards the achievement of predefined performance goals over a three year period. Encourages the
creation of long-term, sustainable shareholder value creation and is aligned with the Company’s Long-Term
Performance Plan approved by the Board.
Opportunity levels
The LTIP opportunity levels for the EC are 80 to 100 percent of base salary at target, with a maximum
opportunity of 160 to 200 percent. For new EC members from 2022, the opportunity levels will be 150 percent
and 300 percent, respectively. This change, to be mostly offset by a reduction in pension and other benefits
costs, is taking into account historical LTIP vesting levels and the risks associated in moving from fixed to
variable pay.
110
For the CEO the opportunity levels are 150 percent of base salary at target, with a maximum opportunity of
300 percent.
Performance measures and weighting
The LTIP will have , from 2022, three performance measures:
Total Shareholder Return (TSR)
●
defined peer group.
●
maximum (200 percent) award points are reviewed by the CC on an annual basis.
●
grant of the shares and ending three years later. The evaluation is performed by an independent
third party.
•
challenging. The threshold point for awards, for which vesting starts, will move from the 25th
percentile to the 50th percentile (P50) of the TSR peer group, i.e., there will be no award for
performance below P50.
•
(P75) achievement level remains at 200 percent of target (capped). There will be a linear vesting
for an achievement between P50 and P75 (100 to 200 percent of target).
Earnings Per Share (EPS)
●
period.
●
divided by three.
●
Income from continuing operations, net of tax, unless the Board elects to calculate using Net
income for a particular year”.
●
reviewed by the CC on an annual basis.
●
“outside-in” view, taking into account the growth expectations, risk profile, investment levels and
profitability levels that are typical for the industry. This “outside-in” approach is provided by
external advisors and assumes that investors expect a risk-adjusted return on their investment,
which is based on market value (and not on book value) and translates such expected returns
over a three-year period into EPS targets.
●
result of the normal course of business operation and/or which were not considered, either by
way of inclusion or exclusion, for the target-setting of a specific LTIP launch. Only the net impact
of such adjustments over the vesting period of the respective LTIP grant will be considered.
ESG
●
●
2
of the three-year performance period (2022-2024), compared to the 2019 baseline.
111
●
reviewed and approved by the CC on an annual basis.
The approved ESG target points for the 2022 LTIP, which are designed to incentivize material progress
towards our 2030 sustainability strategy commitments, are illustrated in Compensation Exhibit 20 below.
Compensation Exhibit 20: ESG target points for the 2022 LTIP
Measure
Weighting
Threshold
Target
Maximum
ABB scope 1&2 CO
2
reduction compared to 2019 baseline
20%
60%
70%
80%
At or below threshold point: no award;
At target point: 100 percent award;
At or above maximum point: capped at 200 percent award;
Linear award interpolations between points.
The relative weighting of measures for the LTIP is as follows:
•
•
•
Other design features
The number of shares to be granted is determined by dividing the grant value by the average share price
over the period 20 trading days prior, and 20 trading days after, the date of publication of ABB’s full year
financial results. Settlement of the LTIP is three years after grant, subject to achievement of performance
conditions, defined prior to grant.
The actual settlement of shares awarded will vary between zero and 200 percent of the shares granted,
according to achievement against the performance measures stated above.
Default settlement of the final LTIP award is 100 percent in shares, and an automatic sell -to-cover is in place
for employees who are subject to withholding taxes.
LTIP shares are subject to malus and clawback rules, which include illegal activities and any financial
misstatement that have a material impact on any Group company. This means that the Board may decide not
to award any unsettled or unvested incentive compensation (malus), or may seek to recover long-term
incentive compensation that has been settled in the past (clawback).
The CC also has the ability to suspend the payment of awards if it is likely that the Board determines that the
malus or clawback provisions may potentially apply (e.g., if the employee is subject to an external
investigation).
For grants from 2021, there is no automatic accelerated vesting of awards in the event of a change of control.
For LTIP grants as of 2022 participants will also be entitled to receive a cash amount on each vested award
share that is equal to the total dividends per share paid by ABB on the ABB Ltd share between the grant date
and the delivery date of the vested award (a “dividend equivalent payment”). This will be offset by reducing
other benefit-related costs by a similar level over the life of the share grant.
CC discretion will be extended to allow for discretionary adjustments to the formulaic LTIP vesting outcome.
Clawback will be extended to include material reputational damage and will apply for a period of up to five
years following the originally scheduled plan specific vesting date.
112
Total wealth at risk / Share ownership
Purpose and link to strategy
To align EC members’ personal wealth directly with the interests of shareholders in order to maintain focus
on the long-term success of the Company.
Share ownership program
EC members are required to retain all shares vested from the Company’s LTIP and any other share-based
compensation until their share ownership requirement is met. In circumstances where there is a withholding
tax obligation, the number of shares received will be considered to be the number of shares vested minus the
shares sold under the default sell-to-cover facility.
The share ownership requirement is equivalent to a multiple of the EC member’s annual base salary, net of
tax (see Compensation Exhibit 15).
These shareholding requirements are aligned with market practice and result in a wealth at risk for each EC
member which is aligned with shareholder interests.
Only vested shares owned by an EC member and their spouse count for the comparison of the actual share
ownership against the share ownership requirement. Vested but unexercised and unvested stock options
under the Management Incentive Plan (MIP) are not considered for this purpose.
The CC reviews the status of EC share ownership on an annual basis. It also reviews the required
shareholding amounts annually, based on salary and expected share price developments.
Notice period, severance provisions and non-competition clauses
Employment contracts for EC members include a notice period of 12 months, during which they are entitled
to their annual base salary, benefits and short-term incentive. In accordance with Swiss law and ABB’s
Articles of Incorporation, the contracts for the EC members do not allow for any severance payment.
Non-compete agreements have been entered into with the CEO and all other EC members for a period of
12 months after their employment. Compensation for such agreements, if any, may not exceed the EC
member’s last total annual cash remuneration (comprising of base salary, short-term incentive and benefits).
Implementation of EC compensation policy
Overview
EC members received total compensation of CHF 39.2 million in 2021, compared with CHF 35.4 million in
2020, as summarized in Compensation Exhibit 21 below and presented in detail in Compensation Exhibits 38
and 39.
113
Compensation Exhibit 21: Total compensation of EC members (monetary values in CHF)
(1)
Calendar year
2021
2020
Number of active EC members
9
9
Base salaries
8,713,406
8,413,363
Pension benefits
4,795,259
4,450,785
Other benefits
4,819,803
6,001,823
Total fixed compensation
18,328,468
18,865,971
Short-term incentives
12,144,280
6,782,229
Long-term incentives (fair value at grant)
8,684,298
6,491,137
Replacement share grants
n.a.
3,308,781
Total variable compensation
20,828,578
16,582,147
Total compensation
39,157,046
35,448,118
Maximum aggregate compensation approved at AGM
39,500,000
55,500,000
(1) For an overview of compensation by individual and component, please refer to Compensation Exhibits 38 and 39 in section
“Compensation tables and share ownership tables” below. An overview of 2021 realized compensation by individual is provided in
Compensation Exhibit 44 in the same section.
The total compensation for the EC in 2021 increased by 10.5 percent compared to 2020. Context of the
change in costs, in addition to the over-achievement against the challenging short-term incentive targets,
includes:
●
incentive - when targets were not adjusted - compared to the outperformance against targets in
2021.
●
10 percent donation of the EC members’ salary to fight the impact of the COVID-19 pandemic
and a pro-rata outcome was applied for those EC members who joined the EC during the year.
●
the EC members’ salary to fight the impact of the COVID -19 pandemic for a six-month period
during 2020, b) that all EC members provided services for the full year during 2021 and c) the
increases in salary for three EC members.
•
An increase in pension contributions is solely due to changes in the constitution of the Executive
Committee. The contribution rates in the pension plan have not changed for several years, and
only age driven adjustments were applied.
•
members, including the interim CEO, while in 2021 the costs related to only one former EC
member.
●
The increase of the grant fair value for the 2021 LTIP grant compared to the 2020 LTIP grant, is
mainly driven by the price of the ABB share at the day of grant.
At the 2020 AGM, the shareholders approved a maximum aggregate compensation amount of
CHF 39.5 million for the EC for the year 2021. The EC total compensation for 2021 amounted to
CHF 39.2 million and is therefore within the approved amount. See Compensation Exhibit 21 above.
114
20%
22%
9%
12%
10%
12%
30%
32%
31%
22%
CEO
Other EC Members
Base salary
Pension benefits
Other benefits
Short-term incentive
Long-term incentive
Compensation mix
The ratio of fixed to variable components in any given year depends on the performance of the Company and
individual EC members against predefined performance objectives.
In 2021, the variable compensation of the CEO was 61 percent of his total annual compensation (previous
year: 51 percent). For the other EC members, the variable compensation was 54 percent on average
(previous year: 41 percent). To allow an appropriate year-on-year comparison, the calculation of the total
annual compensation excludes the value of any one-time replacement grant to compensate for foregone
compensation with the previous employer.
Compensation Exhibit 22 below shows the composition of the total annual compensation in 2021 for the CEO
and for other current EC members on an aggregate level, specifying the split of its five compensation
components.
Note that compensation paid in 2021 for former EC members is not included in Compensation Exhibit 22.
This can be found in Compensation Exhibit 38.
Compensation Exhibit 22: Compensation mix
Compensation elements - 2021 highlights
Base salary
Three of the nine EC members in place in March 2021 received a salary adjustment, which ranged from 2.1
to 6.7 percent, reflecting exceptional performance and closer market alignment. The base salary of Timo
Ihamuotila was increased by 2.1 percent to CHF 970,000, Tarak Mehta by 3.3 percent to CHF 930,000, and
Morten Wierod by 6.7 percent to CHF 800,000.
Considering that the other six current EC members had no salary adjustments, this corresponded to a
1.3 percent increase on annual base salaries for the EC members post March 2021, which was broadly
consistent with the salary review budget for the wider Swiss employee population.
Annual Incentive Plan (AIP) - design
Compensation Exhibit 23 below shows the composition and weighting of the measures applied in 2021 for all
EC members under their AIP, specified by their roles.
115
Compensation Exhibit 23: Composition and weighting of 2021 short-term incentive measures for EC members
Focus of
measure
CEO and
Corporate
Officers
(1)
President
Electrification
President Motion
President Process
Automation
President
Robotics &
Discrete
Automation
ESG boundary
condition for short
-
term incentive awards:
Reduction of CO
₂
equivalent scope 1&2 emission
Common
Group
measure
Bottom line
earnings
Op EBITA margin
25%
Op EBITA margin
20%
Op EBITA margin
20%
Op EBITA margin
20%
Op EBITA margin
20%
Other Group
measures
Profitability and
capital efficiency
ROCE margin
25%
Cash generation
Free Cash Flow
20%
Bottom line output
Productivity growth
10%
Business Area
measures
Bottom line
earnings
Op EBITA margin
30%
Op EBITA margin
30%
Op EBITA margin
30%
Op EBITA margin
30%
Cash generation
Op Free Cash Flow
20%
Op Free Cash Flow
20%
Bottom line profit
Gross Profit on Orders
20%
Top line input
Orders received
20%
Bottom line output
Productivity growth
10%
Productivity growth
10%
Productivity growth
10%
Productivity growth
10%
Individual
measure
Safety, Cost
discipline, Strategy
implementation
Function-specific
20%
Safety,
Acquisitions,
Digitalization
Business-specific
20%
Business-specific
20%
Business-specific
20%
Business-specific
20%
Total
100%
100%
100%
100%
100%
(1)
Corporate Officers include: Chief Financial Officer, Chief Human Resources Officer, General Counsel and Chief Communications and Sustainability Officer.
Under the AIP, all members of the EC have a common Group measure, with a 20 to 25 percent weighting. In
2021, this was Group Operational EBITA margin, applied to create a greater focus on profitability .
In addition to the common Group measure, the CEO and the Corporate Officers share the same Group
measures, including ROCE margin, Free Cash Flow and Productivity growth, with a total weighting of
55 percent.
For Business Area Presidents, up to three measures were tailored to business imperatives, with a total
weighting of 60 percent. While all Business Area Presidents shared two measures (Operational EBITA
margin and Productivity growth, with 30 percent and 10 percent weighting, respectively), the third measure
varied, including Operational Free Cash Flow, Gross Profit on Orders and Orders received, for the remaining
20 percent.
Definitions of the quantitative measures for EC members are set out in Compensation Exhibit 24, below.
116
Compensation Exhibit 24: Definition of quantitative objectives, applied in 2021
Objective
Description
Operational EBITA
margin (%)
Operational EBITA, which is Operational earnings before interest, tax and
amortization, as a percentage of Operational revenues, which is total
revenues adjusted for foreign exchange/commodity timing differences in
total revenues
Return on Capital
Employed (ROCE)
margin (%)
Calculated as Operational EBITA after tax divided by the average of the
period’s opening and closing Capital employed, adjusted to reflect impacts
from significant acquisitions/divestments occurring during the same period.
Capital employed is calculated as the sum of Adjusted total fixed assets and
Net Working Capital
Free Cash Flow
(FCF)
Free Cash Flow is calculated as net cash provided by operating activities
adjusted for: (i) purchases of property, plant and equipment and intangible
assets, and (ii) proceeds from sales of property, plant and equipment
Productivity growth
Productivity is calculated as 12-month rolling revenues over the average
number of total workforce in the last three months. Productivity growth is the
change of productivity over the same period a year earlier, represented as a
percentage change
Operational Free
Cash Flow (OFCF)
(1)
Cash generated by business operations after paying capital expenditures but
before paying interests and taxes (OCF
(2)
Gross Profit on
Orders (absolute)
(3)
Gross profit on orders is calculated by deducting the total costs to complete
the order from the total revenue value of the order
Orders received
(4)
Represents the values of goods and services contracted and ordered by
customers within a given accounting period net of cancellations
(1) Applied to Robotics & Discrete Automation and Electrification only.
(2) Cash flow from operating activities excluding payments for interest and income taxes.
(3) Applied to Process Automation only.
(4) Applied to Motion only.
All EC members also had an individual measure with a 20 percent weighting. This individual component was
informed by up to three KPIs, which included a combination of quantitative and qualitative objectives. The
final outcome against the individual measure was based on a discretionary judgment of the combined
performance against all three KPIs.
●
Time Incident Frequency Rate (LTIFR), underpinned by sustainability observation tours. For the
CEO and the Corporate Officers, this related to Group level and for Business Area Presidents to
their respective Business Areas.
●
to the strategy implementation on Group or Function level, or to internal controls.
●
positioning targets.
Outcomes were subject to appropriate adjustments for some non-operational items and other adjustment
principles agreed with the Board.
For 2021, the “boundary condition” was the setting of plans in each ABB Division to mitigate for ABB scope 1
and 2 CO
2
117
2021 Annual Incentive Plan - achievements
In summary, the average award for the current EC members under the AIP for 2021 was 143.4 percent (out
of a maximum 150 percent), compared to 72.4 percent in 2020. In addition to achieving the challenging
performance targets in 2021, this improvement in outcomes from the prior year was influenced by the
following factors:
•
working on a full-year basis in 2020. AIP opportunities and final awards for 2020 were prorated
for those EC members who joined the EC during the year.
•
pandemic for a six-month period during 2020. Consequently AIP opportunities and final awards
for 2020 were based on the reduced salaries.
•
targets were not adjusted - was bigger than in 2021.
The 2021 AIP outcomes were net of the application of adjustments for some non-operational items, aligned
with adjustment principles agreed with the Board. These led to minor increases in awards for two EC
members.
Common Group measure
Achievement against the 2021 Group Operational EBITA margin measure, which applied to all EC members,
with a weighting of 20 or 25 percent, was 150 percent (20 20: 53 percent). The 2021 Group Operational
EBITA margin was 14.2 percent compared to 11.1 percent in 2020, primarily reflecting the increased
business activity. The weighted achievement related to the common Group measure was 37.5 percent for the
CEO and the Corporate Officers, and 30 percent for the Business Area Presidents.
Other Group measures
The outcome related to all other Group measures, applied to the CEO and Corporate Officers, with
weightings of 10 to 25 percent, was at maximum. Achievement against the Group ROCE target was
150 percent (2020: zero percent), achievement against of the Free Cash Flow target was 150 percent
(2020: 109 percent) and achievement against the Productivity growth target was also 150 percent
(2020: n.a.).The weighted achievement related to these Group measures was 82.5 percent.
Business Area measures
Up to three quantitative business measures were applied to Business Area Presidents, with weightings from
10 to 30 percent, and the outcomes ranged from 119 to 150 percent of target.
Achievement against the Operational EBITA margin measure ranged from 119 to 150 percent (2020: zero to
95 percent), Operational Free Cash Flow 150 percent for the two Business Areas applicable (2020: 106 to
150 percent), Gross Profit on Orders 150 percent (2020: zero percent), Orders received 150 percent
(2020: zero to 83 percent) and Productivity growth 150 percent for the four Business Areas (2020: n.a.).The
weighted achievement related to these Business Area measures ranged from 80.8 to 90 percent (2020: 21 to
66 percent).
Individual measure
Thanks to the Company’s strong focus on safety, in 2021 the target set for the Lost Time Incident Frequency
Rate (LTIFR) was overachieved at Group level, as a result of all Business Areas overachieving their targets.
There were no work-related fatalities in 2021, for the first time since 2011. The assessed achievement of the
KPIs informing the outcome of the personal component for EC members, with a weighting of 20 percent,
inclusive of the safety outcomes described, ranged from 100 to 150 percent (2020: 100 to 150 percent).
These outcomes are summarized in Compensation Exhibit 25 below.
118
Compensation Exhibit 25: AIP 2021 outcomes for the CEO and the Corporate Officers (rounded)
AIP 2021 outcomes for the Business Area Presidents (rounded)
ESG boundary condition
The Board also considered that the terms for the 2021 ESG “boundary condition” were fully met.
Overall outcomes
The overall average award under the AIP for the entire current EC was 143.4 percent of target
(2020: 72.4 percent) with a range from 140.8 percent (lowest achievement) to 145.0 percent of target (highest
achievement). This compared to a range of 51.0 to 95.6 percent in 2020.
Compensation Exhibit 26 below provides information related to the overall actual 2021 AIP outcomes, in
comparison to the target 2021 AIP for all current EC members.
119
Compensation Exhibit 26: Overview of targeted and realized AIP 2021 values
Common Group
measure
Other Group
measures
Business Area
measures
Individual measure
Total AIP outcome
percentage
(in % of target)
Target AIP award
(in CHF)
Actual
AIP award
(in CHF)
(1)
Achievement
Weighting
Outcome
Achievement
Weighting
Outcome
Achievement
Weighting
Outcome
Achievement
Weighting
Outcome
Björn Rosengren
150.0%
25.0%
37.5%
150.0%
55.0%
82.5%
n.a.
n.a.
n.a.
125.0%
20.0%
25.0%
145.0%
1,700,000
2,465,000
Timo Ihamuotila
150.0%
25.0%
37.5%
150.0%
55.0%
82.5%
n.a.
n.a.
n.a.
100.0%
20.0%
20.0%
140.0%
970,000
1,358,000
Carolina Granat
150.0%
25.0%
37.5%
150.0%
55.0%
82.5%
n.a.
n.a.
n.a.
100.0%
20.0%
20.0%
140.0%
700,000
980,000
Maria Varsellona
150.0%
25.0%
37.5%
150.0%
55.0%
82.5%
n.a.
n.a.
n.a.
125.0%
20.0%
25.0%
145.0%
800,000
1,160,000
Theodor Swedjemark
150.0%
25.0%
37.5%
150.0%
55.0%
82.5%
n.a.
n.a.
n.a.
125.0%
20.0%
25.0%
145.0%
500,000
725,000
Sami Atiya
150.0%
20.0%
30.0%
n.a.
n.a.
n.a.
150.0%
60.0%
90.0%
125.0%
20.0%
25.0%
145.0%
800,000
1,160,000
Tarak Mehta
150.0%
20.0%
30.0%
n.a.
n.a.
n.a.
150.0%
60.0%
90.0%
125.0%
20.0%
25.0%
145.0%
930,000
1,348,500
Peter Terwiesch
150.0%
20.0%
30.0%
n.a.
n.a.
n.a.
150.0%
60.0%
90.0%
125.0%
20.0%
25.0%
145.0%
800,000
1,160,000
Morten Wierod
150.0%
20.0%
30.0%
n.a.
n.a.
n.a.
134.7%
60.0%
80.8%
150.0%
20.0%
30.0%
140.8%
800,000
1,126,400
Total
8,000,000
11,482,900
(1)
Represents accrued AIP award for the year 2021, which will be paid in 2022, after the publication of ABB's financial results.
Long-Term Incentive (LTIP)
2021 LTIP grants
The estimated value at grant of the share-based grants to EC members under the 2021 LTIP was
CHF 8.7 million, compared with CHF 6.5 million in 2020. This increase in grant fair value for the 2021 LTIP
grant compared to 2020 was mainly driven by the price of the ABB share on the day of grant. In 2020 the
price of the ABB share at the day of grant, was influenced by significant market volatility at the start of the
COVID-19 pandemic which impacted the 2020 LTIP grant fair value substantially at that time.
The 2021 LTIP is based on two equally weighted performance measures, one tied to ABB’s TSR and the
other to ABB’s EPS.
The companies approved by the Board to determine ABB’s relative TSR performance for the 2021 LTIP
were: 3M, Danaher, Eaton, Emerson Electric, General Electric, Honeywell Intl., Holcim, Legrand, Mitsubishi
Electric, Raytheon Technologies, Rockwell, Rolls Royce, Schneider Electric, Siemens and Yokogawa. These
were selected to provide an appropriate and very challenging set of peers, and influenced the vesting point
setting accordingly. The 2021 LTIP target points are illustrated in Compensation Exhibit 27 below.
Compensation Exhibit 27: 2021 LTIP target points
Measure
Weighting
Threshold
Target
Maximum
Relative TSR
50%
25th percentile
50th percentile
75th percentile
Average EPS
50%
Target point
-14%
Disclosed after
performance period
Target point
+14%
At or below threshold point: no award;
At target point: 100 percent award;
At or above maximum point: capped at 200 percent award;
Linear award interpolations between points;
The actual EPS target is not prospectively disclosed for reasons of commercial sensitivity.
The latest change in the EPS target points (range reduced from plus/minus 17 percent of target for 2020 LTIP
to plus/minus 14 percent of target for the 2021 LTIP ) is a reflection of the perceived EPS volatility during the
performance period, and also serves to make the achievement of a threshold award under the plan more
demanding.
120
The reference price for the 2021 LTIP grant which is used to determine the number of shares granted to
participants was CHF 26.59.
2018 LTIP - achievements
The final number of shares vesting under the 2018 LTIP grant in 2021 was determined based on the
achievement level against the defined TSR and EPS targets.
The relative TSR measure was achieved at 114.8 percent (previous year: not applicable) out of a potential of
200 percent.
The average EPS measure vested at zero percent (previous year: 41 percent) out of a potential 200 percent,
net of adjustments for items considered outside the normal course of business operation and/or which were
not considered in the target setting of the 2018 LTIP. On this occasion, adjustments were made for the
impact of divestments, integration costs and restructuring costs. The EPS for 2020 applicable to the 2018
LTIP grant after the application of the approved adjustments, amounted to USD 1.06, leading to plan relevant
average EPS of USD 0.98, being below the threshold target point.
The average weighted achievement level of the two performance measures under the 2018 LTIP was
57.4 percent (out of a maximum 200 percent), as specified in Compensation Exhibit 28.
There was no award under the EPS measure, since the performance period for determining the value of the
award was from 2018 to 2021 and in consequence the EPS outcome was impacted by the COVID
‑
19
pandemic, for which no adjustment was applied.
As announced in our 2019 Compensation Report, the EPS performance targets for vested LTIP awards will
be retrospectively disclosed in our Compensation Reports. The three target points (threshold, target and
maximum) and the actual achievement for the adjusted 2018 EPS performance measure are shown in
Compensation Exhibit 28 below.
Compensation Exhibit 28: Target points and achievements of 2018 LTIP performance measures
Measure
Weighting
Threshold
Target
Maximum
Actual
Relative TSR
50%
25
th
50
th
75
th
54th percentile
Achievement level
0%
100%
200%
114.8%
Average EPS (USD)
50%
1.15
1.36
1.57
0.98
Achievement level
0%
100%
200%
0%
Award as percentage of target (capped at 200%)
57.4%
Since the Average EPS amounted to USD 0.98, no vesting occurred under this measure as the threshold
target was not met. The relative ranking of ABB’s TSR against the predefined peer group of companies for
the 2018 LTIP set on the 54
th
The weighted combined vesting level corresponds to 57.4 percent of the target.
Overview of disclosed and realized 2018 LTIP value
In the 2020 Compensation Report ABB introduced a new table, requested by stakeholders, to provide
information related to the past LTIP , that vested in the reporting year. This table compares the previously
disclosed “fair value” of the grant to each EC member and the actual value of the grant at the time of vesting.
The following Compensation Exhibit 29 shows such comparison for the 2018 LTIP, that vested in 2021.
121
74.80%
80.50%
92.50%
73.00%
57.40%
53.40%
53.70%
61.70%
41.70%
28.70%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
2014 LTIP
2015 LTIP
2016 LTIP
2017 LTIP
2018 LTIP
Vesting in % of target award
Vesting in % of maximum potential award
The values presented are gross and before payment of any applicable taxes owing by the recipient. This
indicates the average gross realized LTIP value was 76.2 percent of the disclosed grant fair value.
Compensation Exhibit 29: Realized value of 2018 LTIP grant for current EC members
Grant date
Number of
shares
granted
related to
the TSR
measure
(1)
Shares
granted
related to
the EPS
measure
(2)
Total
number
of shares
granted
Disclosed
grant fair
value
(CHF)
(3)(4)
Vesting date
Vesting
percentage
Number
of vested
shares
Realized
value
(CHF)
(5)
Björn Rosengren
n.a.
Timo Ihamuotila
April 6, 2018
18,609
18,608
37,217
819,965
April 6, 2021
57.4%
21,364
624,897
Carolina Granat
n.a.
Maria Varsellona
n.a.
Theodor
Swedjemark
n.a.
Sami Atiya
April 6, 2018
11,651
11,650
23,301
513,368
April 6, 2021
57.4%
13,376
391,248
Tarak Mehta
April 6, 2018
17,395
17,395
34,790
766,494
April 6, 2021
57.4%
19,970
584,123
Peter Terwiesch
April 6, 2018
18,690
18,689
37,379
823,534
April 6, 2021
57.4%
21,457
627,617
Morten Wierod
April 6, 2018
7,646
7,646
15,292
336,913
April 6, 2021
57.4%
8,778
256,757
Total
3,260,274
2,484,642
(1)
Actual achievement level of the TSR measure was 114.8 percent.
(2)
Actual achievement level of the EPS measure was zero percent.
(3)
Valued at CHF 22.03, the grant fair value of the ABB share on the day of grant.
(4)
At the time of disclosure Morten Wierod was not member of the EC.
(5)
Valued at CHF 29.25, the closing price of the ABB share on the day of vesting.
LTIP vesting outcomes in the last five years
The historical vesting percentages for the prior five years are shown in Compensation Exhibit 30 below. Over
the last five years vesting has averaged at 75.6 percent of target and 47.8 percent of the maximum award.
Compensation Exhibit 30: LTIP historical actual vesting percentages
(1)
(1) Average of relevant performance measures.
122
115%
105%
113%
114%
115%
108%
107%
105%
109%
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
Björn Rosengren
Timo Ihamuotila
Carolina Granat
Maria Varsellona
Theodor Swedjemark
Sami Atiya
Tarak Mehta
Peter Terwiesch
Morten Wierod
Target total compensation
Realized total compensation
Realized total compensation - 2021
In the 2020 Compensation Report, ABB started to disclose the realized total compensation for each EC
member. Realized compensation means that the AIP award and the LTIP award are disclosed at the end of
their respective performance cycles, reflecting actual payment and settlement, based on achievements of the
plan specific performance measures. Such transparency on realized compensation is designed to aid
stakeholder’s understanding of ABB's link between pay and performance.
The following Exhibit 31 sets out a high-level comparison of realized and target total compensation for each
EC member. Note that the higher percentages relating to the CEO and Corporate Officers (except for the
CFO) are driven by the fact that they were not an EC member in 2018, and therefore did not receive an LTIP
grant in 2018, for which the vesting level in 2021 was 57.4 percent. A detailed summary table is specified in
in Exhibit 44 in the section “Compensation tables and share ownership tables“.
Compensation Exhibit 31: Realized total compensation compared to target total compensation
Other compensation - 2021
Members of the EC are eligible to participate in the Employee Share Acquisition Plan (ESAP), a savings plan
based on stock options, which is open to employees around the world. Five members of the EC participated
in the 18th annual launch of the plan in 2021. EC members who participated will, upon vesting, each be
entitled to acquire up to 330 ABB shares at CHF 30.32 per share, the market share price at the start of the
2021 launch.
For a more detailed description of the ESAP, please refer to “Note 18 – Share
‑
based payment arrangements”
in our Consolidated Financial Statements.
In 2021, ABB did not pay any fees or compensation to the members of the EC for services rendered to ABB
other than those disclosed in this Compensation Report. Except as disclosed in the section titled “Executive
Committee – Business relationships between ABB and its EC members” in the Corporate Governance
Report, ABB did not pay any additional fees or compensation in 2021 to persons closely linked to a member
of the EC for services rendered to ABB.
123
Shareholding of EC members
Three out of nine EC members have achieved or exceeded their share ownership requirement. Two
members are close to achieving their requirement, and a further three members have been newly appointed
to the EC in the last two years.
When considering the number of granted, but unvested shares of current EC members as per December 31,
2021, it is expected that the majority of these members will meet or exceed their share ownership
requirement.
Compensation Exhibit 32: EC shareholding compared to share ownership guideline*
*
Based on share price of CHF 26.59, the 2021 LTIP reference price, and shares held at December 31, 2021. Future allocation of granted,
but unvested shares is based on target achievement level and relevant plan specific settlement: default settlement of the final 2019 LTIP
award is 65 percent in shares (recipients may elect to receive 100 percent of the vested LTIP award in shares), default settlement of the
final 2020 LTIP and 2021 LTIP awards is 100 percent in shares. Default settlement of replacement shares is 65 percent in shares
(recipients may elect to receive 100 percent of the vested award in shares).
The EC members collectively owned less than 1 percent of ABB’s total shares outstanding at December 31,
2021.
At December 31, 2021, EC members held ABB shares and conditional rights to receive shares, as shown in
Compensation Exhibit 42 in the section “Compensation tables and share ownership tables” below. Their
holdings at December 31, 2020, are shown in Compensation Exhibit 43 in the same section.
As previously communicated, as from 2020, grants under the Management Incentive Plan (MIP), a stock
option plan without performance conditions, have been discontinued, and no further grants were made. Any
MIP instruments held by EC members were awarded prior to their appointment as EC members. For a more
detailed description of MIP, please refer to “Note 18 – Share-based payment arrangements” in our
Consolidated Financial Statements.
Except as described in Compensation Exhibits 42 and 43, no member of the EC and no person closely linked
to a member of the EC held any shares of ABB or options on ABB shares at December 31, 2021 and 2020.
124
Changes applicable to EC members
Terms of appointment for new EC members
The new Chief Human Resources Officer (CHRO), Carolina Granat, was appointed to the EC effective from
January 1, 2021 with an annual base salary of CHF 700,000, a target short-term and long-term incentive of
100 percent of annual base salary. This represents a reduction in total target direct compensation (TTDC)
compared to the prior CHRO incumbent. Carolina Granat is eligible for standard EC benefits and, where
appropriate legacy relocation benefits.
Terms of departure for EC members
The General Counsel & Company Secretary, Maria Varsellona, has resigned from ABB and will depart on
March 31, 2022. She will be entitled to receive compensation and benefits up to the point of her departure.
This includes a contractually agreed pro-rata short-term incentive payment of CHF 181,985 for the period
January 1 to March 31, 2022. All her unvested LTIP share grants and the unvested second tranche of her
replacement share grant were forfeited.
Compensation of former EC members
In 2021, certain former EC members received contractual compensation for the period after leaving the EC,
as shown in Compensation Exhibit 38, footnotes (5) and (6).
Votes on compensation at the 2022 AGM
As illustrated in Compensation Exhibit 33, the Board’s proposals to shareholders at the 2022 AGM will relate
to Board compensation for the 2022–2023 term of office and EC compensation for the calendar year 2023.
There will also be a non-binding vote on the 2021 Compensation Report.
125
Compensation Exhibit 33: Shareholders will have three separate votes on compensation at the 2022 AGM
In determining the proposed maximum aggregate EC compensation, the Board takes into consideration the
criteria illustrated in Compensation Exhibit 34. Given the variable nature of a major portion of the
compensation components, the proposed maximum aggregate EC compensation will almost normally be
higher than the actual compensation paid or awarded, as it must cover the potential maximum value of each
component of compensation.
It is important to note that the increase in maximum aggregate compensation for 2023 is mainly the result of
the associated cost related to the 2020 LTIP vesting in 2023, influenced by:
a) the increased number of shares subject to vesting compared to prior years
(see Compensation Exhibit 34),
b) the current solid performance of the Company against its earnings per share targets and total
shareholder return peer group and
c) the strong share price development since the time of grant with a reference price of
CHF 19.36,
rather than any structural increase to EC compensation.
126
Compensation Exhibit 34: Overview of key factors affecting the determination of maximum aggregate EC compensation
127
Compensation tables and share ownership tables
Compensation Exhibit 35: Board compensation in 2021 and 2020
Paid in 2021
Paid in 2020
November
Board term
2021-2022
May
Board term
2020-2021
Total compensation
paid in 2021
(3)
November
Board term
2020-2021
May
Board term
2019-2020
Total
compensation
paid in 2020
(3)
Name
Settled in
cash
(1)
Settled in
shares -
number
of shares
received
(2)
Settled in
cash
(1)
Settled in
shares -
number
of shares
received
(2)
Settled in
cash
(1)
Settled in
shares -
number
of shares
received
(2)
Settled in
cash
(1)
Settled in
shares -
number
of shares
received
(2)
CHF
CHF
CHF
CHF
CHF
CHF
Peter Voser, Chairman
(4)
—
17,209
—
20,089
1,200,000
—
21,831
—
32,642
1,140,000
Jacob Wallenberg
(5)
112,500
2,599
112,500
3,033
450,000
101,250
3,297
112,500
4,928
427,500
Matti Alahuhta
(6)
—
—
—
3,615
160,000
—
4,787
—
7,155
304,000
Gunnar Brock
(7)
82,500
1,906
—
4,542
330,000
—
4,937
—
7,379
313,500
David Constable
(8)
80,000
1,848
87,500
2,359
335,000
78,750
2,564
87,500
3,833
332,500
Frederico Curado
(9)
—
3,829
—
4,090
335,000
—
4,438
—
6,646
304,000
Lars Förberg
(10)
—
4,577
—
5,347
320,000
—
5,805
—
8,688
304,000
Jennifer Xin-Zhe Li
(11)
87,500
1,866
80,000
1,993
335,000
72,000
2,163
80,000
3,239
304,000
Geraldine Matchett
(12)
82,500
2,490
82,500
2,906
330,000
74,250
3,159
82,500
4,722
313,500
David Meline
(13)
100,000
2,310
100,000
2,696
400,000
90,000
2,931
100,000
4,380
380,000
Satish Pai
(14)
82,500
1,759
82,500
2,055
330,000
74,520
2,231
82,500
3,340
313,500
Total
627,500
40,393
545,000
52,725
4,525,000
490,770
58,143
545,000
86,952
4,436,500
(1)
Represents gross amounts paid, prior to deductions for social security, withholding tax etc.
(2)
Number of shares per Board member is calculated based on net amount due after deductions for social security, withholding tax etc.
(3)
In addition to the Board remuneration stated in the above table, in 2021 and 2020 the Company paid CHF 231,287 and CHF 272,312, respectively, in related mandatory social
security payments.
(4)
Chairman of the ABB Ltd Board for the 2019-2020, 2020-2021 and 2021-2022 board terms and Chairman of the Governance and Nomination Committee for the 2021-2022
board term; is receiving 100 percent of his compensation in the form of ABB shares.
(5)
Vice-Chairman of the ABB Ltd Board for the 2019-2020, 2020-2021 and 2021-2022 board terms; Chairman of the Governance and Nomination Committee for the 2019-2020
and 2020-2021 board terms and member of that committee for the 2021-2022 board term; is receiving 50 percent of his compensation in the form of ABB shares.
(6)
Member of the Governance and Nomination Committee for the 2019-2020 and 2020-2021 board terms; received 100 percent of his compensation in the form of ABB shares
for the 2019-2020 and 2020-2021 board terms. Did not stand for election in 2021.
(7)
Member of the Finance, Audit and Compliance Committee for the 2019-2020, 2020-2021 board terms; received 100 percent of his compensation in the form of ABB shares for
the 2019-2020 and 2020-2021 board term and is receiving 50 percent of his compensation in the form of ABB shares for the 2021-2022 board term.
(8)
Chairman of the Compensation Committee for the 2019-2020, 2020-2021 board terms and member of that committee for the 2021-2022 board term; is receiving 50 percent of
his compensation in the form of ABB shares.
(9)
Member of the Compensation Committee for the 2019-2020, 2020-2021 and Chairman of the Compensation Committee for the 2021-2022 board term; is receiving 100 percent
of his compensation in the form of ABB shares.
(10)
Member of the Governance and Nomination Committee for the 2019-2020, 2020-2021 and 2021-2022 board terms; is receiving 100 percent of his compensation in the form of
ABB shares.
(11)
Member of the Compensation Committee for the 2019-2020, 2020-2021 and 2021-2022 board terms and member of Governance and Nomination Committee for 2021-2022
board term; is receiving 50 percent of her compensation in the form of ABB shares.
(12)
Member of the Finance, Audit and Compliance Committee for the 2019-2020, 2020-2021 and 2021-2022 board terms; is receiving 50 percent of her compensation in the form
of ABB shares.
(13)
Chairman of the Finance, Audit and Compliance Committee for 2019-2020, 2020-2021 and 2021-2022 board terms; is receiving 50 percent of his compensation in the form of
ABB shares.
(14)
Member of the Finance, Audit and Compliance Committee for the 2019-2020, 2020-2021 and 2021-2022 board terms; is receiving 50 percent of his compensation in the form
of ABB shares.
128
Compensation Exhibit 36: Board compensation for the Board terms 2021-2022 and 2020-2021
Name
Specific Board Roles
Board term
2021-2022
Board term
2020-2021
(1)
CHF
CHF
Peter Voser
Chairman of the Board for 2020-2021 term,
Chairman of the Board and Chairman GNC for 2021-2022 term
1,200,000
1,140,000
Jacob Wallenberg
Vice-Chairman of the Board and Chairman GNC for 2020-2021 term,
Vice Chairman of the Board and Member GNC for 2021-2022 term
450,000
427,500
Matti Alahuhta
Member GNC for 2020-2021 term
n.a.
304,000
Gunnar Brock
Member FACC for both the 2020-2021 and 2021-2022 terms
330,000
313,500
David Constable
Chairman CC for 2020-2021 term, Member CC for the 2021-2022 term
320,000
332,500
Frederico Curado
Member CC for 2020-2021 term, Chairman CC for the 2021-2022 term
350,000
304,000
Lars Förberg
Member GNC for both the 2020-2021 and 2021-2022 terms
320,000
304,000
Jennifer Xin-Zhe Li
Member CC for the 2020-2021 term,
Member CC and Member GNC for the 2021-2022 term
350,000
304,000
Geraldine Matchett
Member FACC for both the 2020-2021 and 2021-2022 terms
330,000
313,500
David Meline
Chairman of FACC for both the 2020-2021 and 2021-2022 terms
400,000
380,000
Satish Pai
Member FACC for both the 2020-2021 and 2021-2022 terms
330,000
313,500
Total
4,380,000
4,436,500
(1) This reflects a 10 percent COVID-19 related voluntary donation in Board fees for the first half of the 2020-2021 Board term.
Key:
CC: Compensation Committee
FACC: Finance, Audit and Compliance Committee
GNC: Governance and Nomination Committee
Compensation Exhibit 37: Board ownership of ABB shares
Total number of shares held
Name
December 31, 2021
December 31, 2020
Peter Voser
191,946
314,648
Jacob Wallenberg
239,878
234,246
Matti Alahuhta
n.a.
93,408
Gunnar Brock
33,399
26,951
David Constable
38,185
33,978
Frederico Curado
40,301
32,382
Lars Förberg
59,916
49,992
Jennifer Xin-Zhe Li
37,580
33,721
Geraldine Matchett
25,196
19,800
David Meline
37,780
33,774
Satish Pai
28,432
24,618
Total
732,613
897,518
(1) Includes 2,000 shares held by spouse.
(2) Matti Alahuhta did not stand for re-election at ABB's Annual General Meeting in March 2021.
(2) Includes 3,150 shares held by spouse.
129
Compensation Exhibit 38: EC compensation in 2021
Cash Compensation
Estimated
value of
share-based
grants under
the LTIP in
2021
(4)
Estimated
value of
replacement
share-based
grant in 2021
compensation
(incl.
conditional
share-based
grants)
(5)(6)
Name
Base salary
Short-term
incentive
(1)
Pension
benefits
Other
benefits
(2)
2021 Total
cash-based
compensation
(3)
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
Björn Rosengren
1,700,012
2,465,000
744,770
807,000
5,716,782
2,530,828
—
8,247,610
Timo Ihamuotila
966,675
1,358,000
518,063
570,546
3,413,284
962,708
—
4,375,992
Carolina Granat (EC
member as of January 1,
2021)
700,000
980,000
417,382
399,334
2,496,716
694,744
—
3,191,460
Maria Varsellona
800,009
1,160,000
455,000
511,824
2,926,833
793,997
—
3,720,830
Theodor Swedjemark
500,004
725,000
274,535
263,567
1,763,106
397,012
—
2,160,118
Sami Atiya
800,009
1,160,000
482,662
481,598
2,924,269
793,997
—
3,718,266
Tarak Mehta
925,008
1,348,500
507,646
476,481
3,257,635
923,018
—
4,180,653
Peter Terwiesch
800,009
1,160,000
473,441
422,542
2,855,992
793,997
—
3,649,989
Morten Wierod
791,676
1,126,400
443,506
362,112
2,723,694
793,997
—
3,517,691
Total Executive Committee
members at December 31,
2021
7,983,402
11,482,900
4,317,005
4,295,004
28,078,311
8,684,298
—
36,762,609
Sylvia Hill (EC member until
December 31, 2020)
730,004
661,380
478,254
524,799
2,394,437
—
—
2,394,437
Total departing Executive
Committee members
730,004
661,380
478,254
524,799
2,394,437
—
—
2,394,437
Total
8,713,406
12,144,280
4,795,259
4,819,803
30,472,748
8,684,298
—
39,157,046
(1)
Represents accrued short-term variable compensation for the year 2021, which will be paid in 2022, after the publication of ABB's financial results. Short-term variable
compensation is linked to the objectives defined in each EC member's Annual Incentive Plan. Upon full achievement of these objectives, the short-term variable
compensation of the EC members represents 100 percent of their respective base salary. Sylvia Hill received a short-term variable compensation payment in
December 2021 related to her termination period, in accordance with the contractual obligations of ABB.
(2)
Other benefits mainly comprise payments related to social security, health insurance, children's education, transportation, tax advice and compensation for foregone
dividends on replacement share grants and certain other items.
(3)
Prepared on an accrual basis.
(4)
The estimated value of the share-based LTIP grants are based on the price of ABB shares on the grant date, adjusted for expected foregone dividends during the
vesting period. On the day of vesting (April 26, 2024), the value of the share-based awards granted under the LTIP may vary from the above amounts due to changes
in ABB's share price and the outcome of the performance factors.
(5)
Payments totaling CHF 296,004 were made in 2021 on behalf of certain other former EC members, representing social security premium payments due on the LTIP
2018 vesting and tax advisory services for the period when they have been active EC members.
(6)
Ulrich Spiesshofer received non-compete payments for the period January 1, 2021 to April 30, 2021 and a vesting of the 2018 LTIP, with related social security
payments, totaling to CHF 1,726,896.
130
Compensation Exhibit 39: EC compensation in 2020
Cash Compensation
Estimated
value of share-
based grants
under the LTIP
in 2020
(5)
Estimated
value of
replacement
share-based
grant in 2020
compensation
(incl.
conditional
share-based
grants)
(6)
Name
Base salary
(1)
Short-term
incentive
(1)(2)
Pension
benefits
Other
benefits
(3)
2020 Total
cash-based
compensation
(4)
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
Björn Rosengren (EC
member as of January 27,
2020, CEO as of March 1,
2020)
1,504,141
977,685
666,175
688,685
3,836,686
1,970,457
3,308,781
9,115,924
Timo Ihamuotila
902,508
698,535
494,360
646,278
2,741,681
734,103
—
3,475,784
Sylvia Hill
725,004
547,500
471,925
290,108
2,034,537
564,097
—
2,598,634
Maria Varsellona
760,008
655,880
471,538
818,288
2,705,714
618,193
—
3,323,907
Theodor Swedjemark (EC
member as of August 1,
2020)
200,002
130,000
118,951
75,259
524,212
92,887
—
617,099
Sami Atiya
760,008
418,000
465,509
423,787
2,067,304
618,193
—
2,685,497
Tarak Mehta
848,339
695,115
479,932
390,681
2,414,067
695,462
—
3,109,529
Peter Terwiesch
760,008
387,600
456,374
334,575
1,938,557
618,193
—
2,556,750
Morten Wierod
704,171
681,150
413,120
346,080
2,144,521
579,552
—
2,724,073
Total Executive
Committee members at
December 31, 2020
7,164,189
5,191,465
4,037,884
4,013,741
20,407,279
6,491,137
3,308,781
30,207,197
Peter Voser (EC member
until February 29, 2020)
280,835
421,250
37,443
48,160
787,688
—
—
787,688
Ulrich Spiesshofer (EC
member until April 16,
2019)
(7)
561,670
749,825
214,588
820,421
2,346,504
—
—
2,346,504
Jean-Christophe Deslarzes
(EC member until May 31,
2019)
156,668
158,939
86,309
169,099
571,015
—
—
571,015
Diane de Saint Victor (EC
member until October 31,
2019)
250,001
260,750
74,561
950,402
1,535,714
—
—
1,535,714
Total departing Executive
Committee members
1,249,174
1,590,764
412,901
1,988,082
5,240,921
—
—
5,240,921
Total
8,413,363
6,782,229
4,450,785
6,001,823
25,648,200
6,491,137
3,308,781
35,448,118
(1)
Base salary as well as the target short-term incentive were adjusted where appropriate for EC members who voluntarily donated 10 percent of their salary to fight the impacts
of the COVID-19 crisis for a six-month period during 2020.
(2)
Represents accrued short-term variable compensation for the year 2020, which was paid in 2021, after the publication of ABB's 2020 financial results. Short-term variable
compensation is linked to the objectives defined in each EC member's Annual Incentive Plan. Upon full achievement of these objectives, the short-term variable
compensation of the EC members represents 100 percent of their respective base salary. The short-term variable compensation of the former CEO, Ulrich Spiesshofer,
corresponded to the contractually agreed average of the year 2017 and 2018 short-term variable compensation award. Peter Voser received his short-term variable
compensation payment monthly at target achievement level. Diane de Saint Victor and Jean-Christophe Deslarzes received a pro-rata short-term variable compensation
payment for their period of service as an EC member, in accordance with the contractual obligations of ABB.
(3)
Other benefits comprise payments related to social security, health insurance, children's education, transportation, tax advice and certain other items like compensation for
unused vacation balances at the time of departure from ABB.
(4)
Prepared on an accrual basis.
(5)
The estimated value of the share-based LTIP grants are based on the price of ABB shares on the grant date, adjusted for expected foregone dividends during the vesting
period. On the day of vesting (April 27, 2023), the value of the share-based awards granted under the LTIP may vary from the above amounts due to changes in ABB's share
price and the outcome of the performance factors.
(6)
Payments totaling CHF 161,274 were made in 2020 on behalf of certain other former EC members, representing social security premium payments.
(7)
ABB paid Ulrich Spiesshofer in addition to the compensation related to the termination period, non-compete payments for the period May 1, 2020, to December 31, 2020,
and related social security payments totaling CHF 2,806,111.
131
Compensation Exhibit 40: LTIP grants in 2021
Name
Reference
number of shares
under the EPS
performance
factor of the 2021
launch
of the LTIP
(1)
Total estimated
value of share-
based grants
under the EPS
performance
factor of the 2021
launch of the
LTIP
(2)(3)
Reference
number of shares
under the TSR
performance
factor of the 2021
launch
of the LTIP
(1)
Total estimated
value of share-
based grants
under the TSR
performance
factor of the 2021
launch of the
LTIP
(2)(3)
Total number of
shares granted
under the 2021
launch
of the LTIP
(1)(2)
Total estimated
value of share-
based grants
under the LTIP in
2021
(2)(3)
CHF
CHF
CHF
Björn Rosengren
47,950
1,265,401
47,951
1,265,427
95,901
2,530,828
Timo Ihamuotila
(4)
18,240
481,354
18,240
481,354
36,480
962,708
Carolina Granat (EC member as of
January 1, 2021)
13,163
347,372
13,163
347,372
26,326
694,744
Maria Varsellona
15,043
396,985
15,044
397,012
30,087
793,997
Theodor Swedjemark
(4)
7,522
198,506
7,522
198,506
15,044
397,012
Sami Atiya
15,043
396,985
15,044
397,012
30,087
793,997
Tarak Mehta
(4)
17,488
461,509
17,488
461,509
34,976
923,018
Peter Terwiesch
(4)
15,043
396,985
15,044
397,012
30,087
793,997
Morten Wierod
(4)
15,043
396,985
15,044
397,012
30,087
793,997
Total Executive Committee
members at December 31, 2021
164,535
4,342,082
164,540
4,342,216
329,075
8,684,298
(1)
Vesting date April 26, 2024.
(2)
The reference number of shares of the EPS and TSR performance factors are valued using the fair value of the ABB shares on the grant date adjusted for expected
foregone dividends during the vesting period.
(3)
Default settlement of the final LTIP award is 100 percent in shares, with an automatic sell-to-cover in place for employees who are subject to withholding taxes. The
plan foresees a maximum payout of 200 percent of the number of reference shares granted based on the achievement against the pre-defined average EPS and
relative TSR targets.
(4)
In addition to the above awards, five members of the EC participated in the 18th launch of the ESAP in 2021, which will allow them to save over a 12-month period
and, in November 2022, use their savings to acquire ABB shares under the ESAP. Each EC member who participated in ESAP will be entitled to acquire up to 330
ABB shares at an exercise price of CHF 30.32 per share.
Compensation Exhibit 41: LTIP grants in 2020
Name
Reference
number of shares
under the EPS
performance
factor of the 2020
launch
of the LTIP
(1)
Total estimated
value of share-
based grants
under the EPS
performance
factor of the 2020
launch of the
LTIP
(2)(3)
Reference
number of shares
under the TSR
performance
factor of the 2020
launch
of the LTIP
(1)
Total estimated
value of share-
based grants
under the TSR
performance
factor of the 2020
launch of the
LTIP
(2)(3)
Total number of
shares granted
under the 2020
launch
of the LTIP
(1)(2)
Total estimated
value of share-
based grants
under the LTIP in
2020
(2)(3)
CHF
CHF
CHF
Björn Rosengren (EC member as of
January 27, 2020, CEO as of March
1, 2020)
65,857
985,221
65,858
985,236
131,715
1,970,457
Timo Ihamuotila
(4)
24,535
367,044
24,536
367,059
49,071
734,103
Sylvia Hill
18,853
282,041
18,854
282,056
37,707
564,097
Maria Varsellona
20,661
309,089
20,662
309,104
41,323
618,193
Theodor Swedjemark (EC member
as of August 1, 2020)
(4)
3,104
46,436
3,105
46,451
6,209
92,887
Sami Atiya
20,661
309,089
20,662
309,104
41,323
618,193
Tarak Mehta
(4)
23,244
347,731
23,244
347,731
46,488
695,462
Peter Terwiesch
(4)
20,661
309,089
20,662
309,104
41,323
618,193
Morten Wierod
(4)
19,370
289,776
19,370
289,776
38,740
579,552
Total Executive Committee
members at December 31, 2020
216,946
3,245,516
216,953
3,245,621
433,899
6,491,137
(1)
Vesting date April 27, 2023.
(2)
The reference number of shares of the EPS and TSR performance factors are valued using the fair value of the ABB shares on the grant date adjusted for expected
foregone dividends during the vesting period.
(3)
Default settlement of the final LTIP award is 100 percent in shares, with an automatic sell-to-cover in place for employees who are subject to withholding taxes. The
plan foresees a maximum payout of 200 percent of the number of reference shares granted based on the achievement against the pre-defined average EPS and
relative TSR targets.
(4)
In addition to the above awards, five members of the EC participated in the 17th launch of the ESAP in 2020, which allowed them to save over a 12-month period and,
in November 2021, use their savings to acquire ABB shares under the ESAP. Each EC member who participated in ESAP was entitled to acquire up to 440 ABB
shares at an exercise price of CHF 22.87 per share.
132
Compensation Exhibit 42: EC shareholding overview at December 31, 2021
Total number
of shares
held at
December 31,
2021
Vested at
December
31, 2021
Unvested at December 31, 2021
Number of
vested
options held
under the
MIP
Number of
unvested
options
held under
the MIP
Reference
number of
shares
deliverable
under the
2019
performance
factors (EPS
and TSR) of
the LTIP
(1)
Reference
number of
shares
deliverable
under the
2020
performance
factors (EPS
and TSR) of
the LTIP
(1)
Reference
number of
shares
deliverable
under the
2021
performance
factors (EPS
and TSR) of
the LTIP
(1)
Replacement
share grant
for foregone
benefits
from former
employer
(2)
Replacement
share grant
for foregone
benefits
from former
employer
(2)
Name
(vesting
2022)
(vesting
2022)
(vesting
2023)
(vesting
2024)
(vesting
2022)
(vesting
2023)
Björn Rosengren
10,000
—
—
—
131,715
95,901
130,150
18,904
Timo Ihamuotila
150,440
—
—
49,071
49,071
36,480
—
—
Carolina Granat (EC
member as of January 1,
2021)
(3)
1,200
—
—
—
—
26,326
—
—
Maria Varsellona
(4)
26,006
—
—
—
—
—
—
—
Theodor Swedjemark
(3)(5)
1,360
—
148,750
—
6,209
15,044
—
—
Sami Atiya
51,472
—
—
49,587
41,323
30,087
—
—
Tarak Mehta
118,056
—
—
44,422
46,488
34,976
—
—
Peter Terwiesch
100,440
—
—
41,323
41,323
30,087
—
—
Morten Wierod
51,912
—
—
36,158
38,740
30,087
—
—
Total Executive
Committee members at
December 31, 2021
510,886
—
148,750
220,561
354,869
298,988
130,150
18,904
(1)
The final LTIP 2019 award will be settled 65 percent in shares and 35 percent in cash. This applies to both performance factors (EPS and TSR). However, the participants have
the possibility to elect to receive 100 percent of the vested award in shares. The final LTIP 2020 and LTIP 2021 award will be settled 100 percent in shares, with an automatic sell-
to-cover in place for employees who are subject to withholding taxes.
(2)
It is expected that the replacement share grants will be settled 65 percent in shares and 35 percent in cash. However, the participants have the possibility to elect to receive 100
percent of the vested award in shares.
(3)
This includes shares held by the spouse.
(4)
Unvested share grants were forfeited as a result of the resignation provided and removed from the shareholding overview.
(5)
In addition, his spouse holds unvested shares and options granted in connection with her role in the company.
133
Compensation Exhibit 43: EC shareholding overview at December 31, 2020
Total number
of shares
held at
December 31,
2020
Vested at
December 31,
2020
Unvested at December 31, 2020
Number of
vested
options held
under the
MIP
Number of
unvested
options held
under the
MIP
Reference
number of
shares
deliverable
under the
2018
performance
factors (EPS
and TSR) of
the LTIP
(1)
Reference
number of
shares
deliverable
under the
2019
performance
factors (EPS
and TSR) of
the LTIP
(1)
Reference
number of
shares
deliverable
under the
2020
performance
factors (EPS
and TSR) of
the LTIP
(1)
Replacement
share grant
for foregone
benefits from
former
employer
(2)
Replacement
share grant
for foregone
benefits from
former
employer
(2)
Replacement
share grant
for foregone
benefits from
former
employer
(2)
Name
(vesting
2021/2022)
(vesting
2021)
(vesting
2022)
(vesting
2023)
(vesting
2021)
(vesting
2022)
(vesting
2023)
Björn Rosengren (EC
member as of January
27, 2020, CEO as of
March 1, 2020)
5,000
—
—
—
—
131,715
—
130,150
18,904
Timo Ihamuotila
171,610
—
—
37,217
49,071
49,071
—
—
—
Sylvia Hill
2,265
796,875
318,750
—
36,158
37,707
—
—
—
Maria Varsellona
—
—
—
—
41,323
41,323
40,010
40,009
—
Theodor Swedjemark
(EC member as of
August 1, 2020)
(3)
480
102,000
250,750
—
—
6,209
—
—
—
Sami Atiya
42,778
—
—
23,301
49,587
41,323
—
—
—
Tarak Mehta
179,636
—
—
34,790
44,422
46,488
—
—
—
Peter Terwiesch
142,338
—
—
37,379
41,323
41,323
—
—
—
Morten Wierod
1,544
—
—
15,292
36,158
38,740
—
—
—
Total Executive
Committee members
at December 31, 2020
545,651
898,875
569,500
147,979
298,042
433,899
40,010
170,159
18,904
(1)
The final LTIP 2018 award and LTIP 2019 award will be settled 65 percent in shares and 35 percent in cash. This applies to both performance factors (EPS and TSR). However, the
participants have the possibility to elect to receive 100 percent of the vested award in shares. The final LTIP 2020 award will be settled 100 percent in shares, with an automatic sell-to-
cover in place for employees who are subject to withholding taxes.
(2)
It is expected that the replacement share grants will be settled 65 percent in shares and 35 percent in cash. However, the participants have the possibility to elect to receive 100 percent of
the vested award in shares.
(3)
In addition, his spouse held unvested shares and options granted in connection with her role in the company.
134
Compensation Exhibit 44: Targeted and realized EC total compensation in 2021
Target compensation (in CHF)
Base salary
Pension
benefits
Other
benefits
(1)
Target
short-term
incentive
(2)
Grant fair
value of 2018
LTIP
(3)
Target total
variable
compensation
Target total
compensation
Björn Rosengren
1,700,012
744,770
807,000
1,700,000
n.a.
1,700,000
4,951,782
Timo Ihamuotila
966,675
518,063
570,546
970,000
819,965
1,789,965
3,845,249
Carolina Granat (EC member as of
January 1, 2021)
700,000
417,382
399,334
700,000
n.a.
700,000
2,216,716
Maria Varsellona
800,009
455,000
511,824
800,000
n.a.
800,000
2,566,833
Theodor Swedjemark
500,004
274,535
263,567
500,000
n.a.
500,000
1,538,106
Sami Atiya
800,009
482,662
481,598
800,000
513,368
1,313,368
3,077,637
Tarak Mehta
925,008
507,646
476,481
930,000
766,494
1,696,494
3,605,629
Peter Terwiesch
800,009
473,441
422,542
800,000
823,534
1,623,534
3,319,526
Morten Wierod
791,676
443,506
362,112
800,000
336,913
1,136,913
2,734,207
Total
7,983,402
4,317,005
4,295,004
8,000,000
3,260,274
11,260,274
27,855,685
Realized compensation (in CHF)
Base salary
Pension
benefits
Other
benefits
(1)
Short-term
incentive
2021
(4)
Realized
value of 2018
LTIP
(5)
Total variable
compensation
Total
compensation
Björn Rosengren
1,700,012
744,770
807,000
2,465,000
n.a.
2,465,000
5,716,782
Timo Ihamuotila
966,675
518,063
570,546
1,358,000
624,897
1,982,897
4,038,181
Carolina Granat (EC member as of
January 1, 2021)
700,000
417,382
399,334
980,000
n.a.
980,000
2,496,716
Maria Varsellona
800,009
455,000
511,824
1,160,000
n.a.
1,160,000
2,926,833
Theodor Swedjemark
500,004
274,535
263,567
725,000
n.a.
725,000
1,763,106
Sami Atiya
800,009
482,662
481,598
1,160,000
391,248
1,551,248
3,315,517
Tarak Mehta
925,008
507,646
476,481
1,348,500
584,123
1,932,623
3,841,758
Peter Terwiesch
800,009
473,441
422,542
1,160,000
627,617
1,787,617
3,483,609
Morten Wierod
791,676
443,506
362,112
1,126,400
256,757
1,383,157
2,980,451
Total
7,983,402
4,317,005
4,295,004
11,482,900
2,484,642
13,967,542
30,562,953
Realized achievement level
Base salary
Pension
benefits
Other
benefits
(1)
Short-term
incentive
(4)
Realized
value of 2018
LTIP in %
(5)
Total variable
compensation
Total
compensation
Björn Rosengren
100.0%
100.0%
100.0%
145.0%
n.a.
145.0%
115.4%
Timo Ihamuotila
100.0%
100.0%
100.0%
140.0%
76.2%
110.8%
105.0%
Carolina Granat (EC member as of
January 1, 2021)
100.0%
100.0%
100.0%
140.0%
n.a.
140.0%
112.6%
Maria Varsellona
100.0%
100.0%
100.0%
145.0%
n.a.
145.0%
114.0%
Theodor Swedjemark
100.0%
100.0%
100.0%
145.0%
n.a.
145.0%
114.6%
Sami Atiya
100.0%
100.0%
100.0%
145.0%
76.2%
118.1%
107.7%
Tarak Mehta
100.0%
100.0%
100.0%
145.0%
76.2%
113.9%
106.5%
Peter Terwiesch
100.0%
100.0%
100.0%
145.0%
76.2%
110.1%
104.9%
Morten Wierod
100.0%
100.0%
100.0%
140.8%
76.2%
121.7%
109.0%
Average
100.0%
100.0%
100.0%
143.4%
76.2%
127.7%
110.0%
(1)
Other benefits comprise payments related to social security, health insurance, children's education, transportation, tax advice and certain other items.
(2)
Target short-term incentive corresponds to 100 percent of the latest applicable annual base salary
(3)
Represents the LTIP 2018 grant date fair value as per April 6, 2018, as disclosed in our annual report 2018.
(4)
Represents accrued STI for the year 2021, which will be paid in 2022, after the publication of ABB's financial results. STI is linked to the objectives defined in each EC
member's Annual Incentive Plan.
(5)
Valued at CHF 29.25, the closing price of the ABB share on the day of vesting.
135
—
Employees
A breakdown of our employees by geographic region is as follows:
December 31,
2021
2020
2019
Europe
50,000
49,200
68,400
The Americas
25,600
27,600
35,200
Asia, Middle East and Africa
28,800
28,800
40,800
Total
104,400
105,600
144,400
The proportion of our employees that are represented by labor unions or are subject to collective bargaining
agreements varies based on the labor practices of each country in which we operate.
Item 7. Major Shareholders and Related Party Transactions
—
Major shareholders
At December 31, 2021, we had approximately 609,000 shareholders. Approximately 377,000 were U.S.
holders, of which approximately 420 were record holders. Based on the share register, U.S. holders
(including holders of ADSs) held approximately 12 percent of the total share capital and voting rights as
registered in the Commercial Register on that date.
For information on major shareholders see “Item 6. Directors, Senior Management and Employees—
Shareholders—Significant shareholders”.
—
Related party transactions
Affiliates and associates
In the normal course of our business, we purchase products from, sell products to and engage in other
transactions with entities in which we hold an equity interest. The amounts involved in these transactions are
not material to ABB Ltd. Our most significant equity method investment is in Hitachi Energy Ltd (see “Note 4 -
Acquisitions, divestments and equity-accounted companies” for details). Also, in the normal course of our
business, we engage in transactions with businesses that we have divested. We believe that the terms of the
transactions we conduct with these companies are negotiated on an arm’s length basis.
Key management personnel
For information on important business relationships between ABB and its Board and EC members, or
companies and organizations represented by them, see “Item 6. Directors, Senior Management and
Employees” sections entitled “Board of Directors—Business Relationships between ABB and its Board
members” and “Executive Committee—Business Relationships between ABB and its EC members”.
136
Item 8. Financial Information
—
Consolidated Statements and other financial information
See “Item 18. Financial Statements”.
—
Legal proceedings
Regulatory
As a result of an internal investigation, ABB 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 our past dealings with Unaoil and its subsidiaries, including alleged
improper payments made by these entities to third parties. In May 2020, the SFO closed its investigation,
which it originally announced in February 2017, as the case did not meet the relevant test for prosecution. We
continue to cooperate with the U.S. authorities as requested. At this time, it is not possible for us to make an
informed judgment about the outcome of this matter.
Based on findings during an internal investigation, ABB self-reported to the SEC and the DoJ, in the United
States, to the Special Investigating Unit (SIU) and the National Prosecuting Authority (NPA) in South Africa
as well as to various authorities in other countries potential suspect payments and other compliance concerns
in connection with some of our dealings with Eskom and related persons. Many of those parties have
expressed an interest in, or commenced an investigation into, these matters and we are cooperating fully with
them. ABB paid $104 million to Eskom in December 2020 as part of a full and final settlement with Eskom
and the Special Investigating Unit relating to improper payments and other compliance issues associated with
the Controls and Instrumentation Contract, and its Variation Orders for Units 1 and 2 at Kusile. ABB
continues to cooperate fully with the authorities in their review of the Kusile project and is in discussions with
them regarding a coordinated resolution. Although we believe that there could be an unfavorable outcome in
one or more of these ongoing reviews, at this time it is not possible for us to make an informed judgment
about the possible financial impact.
General
In addition, we are aware of proceedings, or the threat of proceedings, against us and others in respect of
private claims by customers and other third parties with regard to certain actual or alleged anticompetitive
practices. Also, we are 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, we will bear the related costs including costs necessary to resolve them.
Liabilities recognized
At December 31, 2021 and 2020, we had aggregate liabilities of $104 million and $100 million, respectively,
included in “Other provisions” and “Other non-current liabilities”, for the above regulatory, compliance and
legal contingencies, and none of the individual liabilities recognized was significant. As it is not possible to
make an informed judgment on, or reasonably predict, the outcome of certain matters and as it is not
possible, based on information currently available to management, to estimate the maximum potential liability
on other matters, there could be adverse outcomes beyond the amounts accrued.
137
—
Dividends and dividend policy
Payment of dividends is subject to general business conditions, ABB’s current and expected financial
condition and performance and other relevant factors including growth opportunities. ABB’s current dividend
policy is to pay a rising, sustainable annual dividend per share over time.
The unconsolidated statutory financial statements of ABB Ltd are prepared in accordance with the Swiss
Code of Obligations. Based on these financial statements, dividends may be paid only if ABB Ltd has
sufficient distributable profits from previous years or sufficient free reserves to allow the distribution of a
dividend. As a holding company, ABB Ltd’s main sources of income are dividend and interest payments from
its subsidiaries.
At December 31, 2021, the total unconsolidated stockholders’ equity of ABB Ltd was CHF 6,837 million,
including CHF 246 million representing share capital, CHF 9,443 million representing reserves and
CHF 2,853 million representing a reduction of equity for own shares (treasury stock). Of the reserves,
CHF 2,853 million relating to own shares and CHF 49 million representing 20 percent of share capital, are
restricted and not available for distribution.
With respect to the years ended December 31, 2017, 2018, 2019 and 2020, ABB Ltd paid a dividend of
CHF 0.78 (USD 0.81) per share, CHF 0.80 (USD 0.79) per share, CHF 0.80 (USD 0.82) per share and
CHF 0.80 (USD 0.86) per share, respectively. The USD amounts for each of the foregoing dividend payments
made in CHF have been translated using the average rates of the months in which the dividends were paid.
With respect to the year ended December 31, 2021, ABB Ltd’s Board of Directors has proposed to pay a
dividend of CHF 0.82 per share to shareholders. The distribution is subject to approval by shareholders at
ABB Ltd’s 2022 Annual General Meeting (AGM).
For further information on dividends and dividend policy see “Item 6. Directors, Senior Management and
Employees—Shareholders—Shareholders’ rights—Shareholders’ dividend rights”.
—
Significant changes
Except as otherwise described in this Annual Report, there has been no significant change in our financial
position since December 31, 2021.
Item 9. The Offer and Listing
—
Markets
The shares of ABB Ltd. are principally traded on the SIX Swiss Exchange (under the symbol “ABBN”) and on
the NASDAQ OMX Stockholm Exchange (under the symbol “ABB”). ADSs of ABB Ltd. have been traded on
the New York Stock Exchange under the symbol “ABB” since April 6, 2001. ABB Ltd.’s ADSs are issued
under the Amended and Restated Deposit Agreement, dated May 7, 2001, as amended from time to time,
with Citibank, N.A. as depositary. Each ADS represents one share.
There were no suspensions in the trading of our shares in 2021, 2020 and 2019.
138
Item 10. Additional Information
—
Description of share capital and articles of incorporation
This section summarizes the material provisions of ABB Ltd’s Articles of Incorporation and the Swiss Code of
Obligations relating to the shares of ABB Ltd. The description is only a summary and is qualified in its entirety
by ABB Ltd’s Articles of Incorporation, a copy of which has been filed as Exhibit 1.1 to this Annual Report,
ABB Ltd’s filings with the commercial register of the Canton of Zurich (Switzerland) and Swiss statutory law.
Other than as disclosed below, the information called for by this Item is set forth in Exhibit 2.4 to this Annual
Report and is incorporated by reference into this Annual Report.
Registration and Business Purpose
ABB Ltd was registered as a corporation (
Aktiengesellschaft
) in the commercial register of the Canton of
Zurich (Switzerland) on March 5, 1999, under the name of “New ABB Ltd” and its name was subsequently
changed to “ABB Ltd”. Its commercial register number is CHE-101.049.653.
ABB Ltd’s purpose, as set forth in Article 2 of its Articles of Incorporation, is to hold interests in business
enterprises, particularly in enterprises active in the areas of industry, trade and services. It may acquire,
encumber, exploit or sell real estate and intellectual property rights in Switzerland and abroad and may also
finance other companies. It may engage in all types of transactions and may take all measures that appear
appropriate to promote, or that are related to, its purpose. Finally, in pursuing its purpose, ABB Ltd shall strive
for long-term sustainable value creation.
Capital Structure
For a description of ABB Ltd’s capital structure (including issued shares, contingent share capital and
authorized share capital) and its dividend policy, see “Item 6. Directors, Senior Management and
Employees—Shares” and “Item 8. Financial Information—Dividends and Dividend Policy”.
Shareholders’ Meetings
Under Swiss law, the annual general meeting of shareholders must be held within 6 months after the end of
ABB Ltd’s fiscal year. Annual general meetings of shareholders are convened by the board of directors,
liquidators or representatives of bondholders or, if necessary, by the statutory auditors. The board of directors
is further required to convene an extraordinary general meeting of shareholders if so resolved by the
shareholders in a general meeting of shareholders or if so requested by one or more shareholders holding in
aggregate at least 10 percent of ABB Ltd’s share capital. A general meeting of shareholders is convened by
publishing a notice in the Swiss Official Gazette of Commerce (
Schweizerisches Handelsamtsblatt
) at least
20 days prior to the meeting date. In addition, ABB publishes notices for its general meetings in certain
newspapers as well as on its website. Such notices contain information as to procedures to be followed by
shareholders in order to participate and exercise voting rights at the shareholders’ meetings.
One or more shareholders whose combined holdings represent an aggregate par value of at least
CHF 48,000 may require, in the form of a written request , 40 calendar days prior to a general meeting of
shareholders that specific items and proposals be included on the agenda and voted on at the next general
meeting of shareholders.
139
The following powers are vested exclusively in the general meeting of the shareholders:
•
•
Compensation Committee, the auditors and the independent proxy,
•
•
balance sheet, in particular with regard to dividends,
•
to ABB Ltd’s Articles of Incorporation,
•
management, and
•
or under ABB Ltd’s Articles of Incorporation or that are submitted to the shareholders’ meeting by
the Board of Directors to the extent permitted by law.
There is no provision in ABB Ltd’s Articles of Incorporation requiring a quorum for the holding of
shareholders’ meetings.
Resolutions and elections usually require the approval of an “absolute majority” of the shares represented at
a shareholders’ meeting (i.e. a majority of the shares represented at the shareholders’ meeting with
abstentions having the effect of votes against the resolution). If the first ballot fails to result in an election and
more than one candidate is standing for election, the presiding officer will order a second ballot in which a
relative majority (i.e. a majority of the votes) shall be decisive.
A resolution passed with a qualified majority (at least two -thirds) of the shares represented at a shareholders’
meeting is required for:
•
•
•
•
•
•
contribution or in exchange for an acquisition of property, and the grant of special benefits,
•
•
•
In addition, the introduction of any provision in ABB Ltd’s Articles of Incorporation providing for a qualified
majority must be resolved in accordance with such qualified majority voting requirements.
Pursuant to the Swiss Federal Merger Act, special quorum rules apply by law to a merger (
Fusion
) (including
a possible squeeze-out merger), de-merger (
Spaltung
), or conversion (
Umwandlung
) of ABB Ltd.
140
At shareholders’ meetings, shareholders can be represented by their legal representative, another
shareholder with the right to vote, or the independent proxy elected by the shareholders (
unabhängiger
Stimmrechtsvertreter
). All shares held by one shareholder may be represented by only one representative.
Votes are taken on a show of hands unless a secret ballot is required by the general meeting of shareholders
or the presiding officer. The presiding officer may arrange for resolutions and elections to be carried out by
electronic means. As a result, resolutions and elections carried out by electronic means will be deemed to
have the same effect as secret ballots. The presiding officer may at any time order that a resolution or
election decided by a show of hands be repeated through a secret ballot if, in his view, the results of the vote
are in doubt. In this case, the preceding decision by a show of hands shall be deemed to have not occurred.
Only shareholders registered in ABB Ltd’s share register with the right to vote are entitled to participate at
shareholders’ meetings. For practical reasons, shareholders must be registered in the share register with the
right to vote no later than 6 business days prior to a shareholders ’ meeting in order to be entitled to
participate and vote at such shareholders’ meeting.
Holders of Euroclear Sweden AB-registered shares are provided with financial and other information on
ABB Ltd in the Swedish language in accordance with regulatory requirements and market practice. For
shares that are registered in the system of Euroclear Sweden AB in the name of a nominee, such information
is to be provided by the nominee.
Borrowing Power
Neither Swiss law nor ABB Ltd’s Articles of Incorporation restrict in any way ABB Ltd’s power to borrow and
raise funds. The decision to borrow funds is taken by or under the direction of the Board of Directors or the
Executive Committee, and no shareholders’ resolution is required.
Directors and Officers
For further information regarding the material provisions of ABB Ltd’s Articles of Incorporation and the Swiss
Code of Obligations regarding directors and officers, see “Item 6. Directors, Senior Management and
Employees—Board of Directors—Board governance”.
Auditors
The auditors are elected by the shareholders at the Annual General Meeting. Pursuant to ABB Ltd’s Articles
of Incorporation, their term of office is one year.
KPMG AG, Zurich, Switzerland, assumed the sole auditing mandate of the consolidated financial statements
of the ABB Group beginning in the year ended December 31, 2018. The auditor in charge and responsible for
the mandate, Hans-Dieter Krauss, began serving in this capacity in respect of the financial year ended
December 31, 2018.
See “Item 16C. Principal Accountant Fees and Services ” for information regarding the fees paid to
KPMG AG.
—
Material contracts
The following descriptions of the material provisions of the referenced agreements do not purport to be
complete and are subject to, and qualified in their entirety by reference to, the agreements which have been
filed as exhibits to this Annual Report.
141
Sale and Purchase agreement relating to the divestment of the Power Grids
business
On December 17, 2018, ABB Ltd (the Seller) entered into a Sale and Purchase Agreement with Hitachi Ltd
(the Purchaser) for the sale and purchase of 80.1% of the shares of ABB Management Holding AG (or such
other entity as agreed between the Seller and the Purchaser). See Exhibit 4.6 to this Annual Report.
Revolving Credit Facilities
On December 16, 2019, ABB entered into a syndicated $2 billion five-year revolving credit facility with the
right to extend for up to two additional years in accordance with its terms. For a description of the facility, see
“Item 5. Operating and Financial Review and Prospects —Liquidity and Capital Resources—Credit Facility”
and “Note 12 - Debt” to our Consolidated Financial Statements. See Exhibit 4.1 to this Annual Report.
2012 Notes Indenture
On May 8, 2012, ABB’s subsidiary, ABB Finance (USA) Inc., issued $500,000,000 aggregate principal
amount of 1.625% notes due 2017, $1,250,000,000 aggregate principal amount of 2.875% notes due 2022
and $750,000,000 aggregate principal amount of 4.375% notes due 2042 under an Indenture and a First
Supplemental Indenture, dated as of May 8, 2012, among ABB Finance (USA) Inc., ABB and Deutsche Bank
Trust Company Americas (the “2012 Indenture ”). The notes due in 2017 were repaid at maturity. In 2020, the
notes due 2042 were subject to a cash tender offer by the issuer and redeemed in part. Pursuant to the terms
of the 2012 Indenture, ABB has fully and unconditionally guaranteed payment of principal, premium, if any,
and interest in respect of the outstanding notes. See Exhibit s 4.2 and 4.3 to this Annual Report.
2018 Notes Indenture
On April 3, 2018, ABB’s subsidiary, ABB Finance (USA) Inc., issued (i) $300,000,000 aggregate principal
amount of 2.8% notes due 2020 (ii) $450,000,000 aggregate principal amount of 3.375% notes, due 2023,
and (iii) $750,000,000 aggregate principal amount of 3.8% notes due 2028 under an Indenture and a First
Supplemental Indenture dated, dated as of April 3, 2018, among ABB Finance (USA) Inc., ABB and Deutsche
Bank Trust Company Americas (the “2018 Indenture”). The notes due in 2020 were repaid at maturity. The
notes due 2023 were redeemed in full in 2020 following the exercise of ABB’s early redemption option. The
notes due 2028 were subject to a cash tender offer in 2020 by the issuer and redeemed in part. Pursuant to
the terms of the 2018 Indenture, ABB has fully and unconditionally guaranteed payment of principal,
premium, if any, and interest in respect of the outstanding notes. See Exhibits 4.4 and 4.5 to this Annual
Report.
—
Exchange controls
Other than in connection with Swiss government sanctions imposed on Belarus, the Republic of Burundi, the
Central African Republic, the Democratic Republic of the Congo, Guinea, the Islamic Republic of Iran, the
Republic of Iraq, Lebanon, Libya, the Republic of Mali, Myanmar (Burma), Nicaragua, the Democratic
People's Republic of Korea (North Korea), the Republic of Guinea-Bissau, Somalia, the Republic of South
Sudan, Sudan, Syria, Venezuela, Yemen, Zimbabwe, persons and organizations with connection to the late
Osama bin Laden, the “al Qaeda” group or the Taliban , certain persons connected with the assassination of
Rafik Hariri and certain measures in connection with the prevention of circumvention of international
sanctions in connection with the situation in the Ukraine, there are currently no laws, decrees or regulations in
Switzerland that restrict the export or import of capital, including, but not limited to, Swiss foreign exchange
controls on payment of dividends, interest or liquidation proceeds, if any, to non-Swiss resident holders of
shares. In addition, there are no limitations imposed by Swiss law or ABB Ltd’s Articles of Incorporation on
the rights of non-Swiss residents or non-Swiss citizens as shareholders to hold shares or to vote.
142
—
Taxation
Swiss Taxation
Withholding Tax on Dividends and Other Distributions
Dividends paid and similar cash or in-kind distributions that we make to a holder of shares or ADSs (including
dividends on liquidation proceeds and stock dividends and taxable income resulting from partial liquidation)
are subject to a Swiss federal withholding tax at a rate of 35 percent. A repurchase of shares by us for the
purpose of a capital reduction is defined as a partial liquidation of the Company. In this case, the difference
between the nominal value of the shares and their repurchase price is qualified as taxable income. The same
would be true upon a repurchase of shares if we were not to dispose of the repurchased shares within six
years after the repurchase, or if 10 percent of outstanding shares were exceeded. We must withhold the tax
from the gross distribution and pay it to the Swiss Federal Tax Administration.
Obtaining a Refund of Swiss Withholding Tax for U.S. Residents
The Convention between the Swiss Confederation and the United States of America for the Avoidance of
Double Taxation with Respect to Taxes on Income, which was signed on October 2, 1996 (including any
amendments thereto) and which we will refer to in the following discussion as the Treaty, allows U.S. resident
individuals or U.S. corporations to seek a refund of the Swiss withholding tax paid in respect of our shares or
ADSs if they qualify for benefits under the Treaty. U.S. resident individuals and U.S. corporations holding less
than 10 percent of the voting rights in respect of our shares or ADSs are entitled to seek a refund of
withholding tax to the extent the tax withheld exceeds 15 percent of the gross dividend or other distribution.
U.S. corporations holding 10 percent or more of the voting rights of our shares or ADSs are entitled to seek a
refund of withholding tax to the extent the tax withheld exceeds 5 percent of the gross dividend or other
distribution. Qualifying U.S. pension or other retirement arrangements and – as from January 1, 2020 – also
individual retirement saving plans that do not control the Company are entitled to seek a full refund of
withholding tax.
Claims for refunds must be filed with the Swiss Federal Tax Administration, Eigerstrasse 65, 3003 Bern,
Switzerland, no later than December 31 of the third year following the calendar year in which the dividend or
similar distribution became payable. The form used for obtaining a refund is Swiss Tax Form 82 (82C for
companies; 82E for other entities; 82I for individuals; 82R for regulated investment companies (RICs)). This
form may be obtained from any Swiss Consulate General in the United States, from the Swiss Federal Tax
Administration at the address above or under www.estv.admin.ch . The form must be filled out in triplicate with
each copy duly completed and signed before a notary public in the United States. The form must be
accompanied by evidence of the deduction of withholding tax withheld at the source (including tax voucher
issued by the custodian bank).
Stamp Duties upon Transfer of Securities
The sale of shares or ADSs, whether by Swiss resident or non-resident holders, may be subject to a Swiss
securities transfer stamp duty of up to 0.15 percent calculated on the sale proceeds if it occurs through or
with a Swiss bank or other Swiss securities dealer as defined in the Swiss Federal Stamp Tax Act. In addition
to the stamp duty, the sale of shares or ADSs by or through a member of the SIX Swiss Exchange may be
subject to a stock exchange levy.
143
United States Taxes
The following is a summary of the material U.S. federal income tax consequences of the ownership by U.S.
holders (defined below) of shares or ADSs. This summary does not purport to address all of the tax
considerations that may be relevant to a decision to purchase, own or dispose of shares or ADSs. This
summary assumes that U.S. holders hold shares or ADSs as capital assets for U.S. federal income tax
purposes. This summary does not address tax considerations applicable to holders that may be subject to
special tax rules, such as U.S. expatriates, dealers or traders in securities or currencies, partnerships owning
shares or ADSs, tax-exempt entities, banks and other financial institutions, regulated investment companies,
traders in securities that elect to apply a mark-to-market method of accounting, insurance companies, holders
that own (or are deemed to own) at least 10 percent or more (by voting power or value) of the stock of ABB,
investors whose functional currency is not the U.S. dollar, persons subject to the alternative minimum tax,
persons subject to special tax accounting rules as a result of any item of gross income with respect to the
shares or ADSs being taken into account in an applicable financial statement, persons that will hold shares or
ADSs as part of a position in a straddle or as part of a hedging or conversion transaction for U.S. tax
purposes and persons who are not U.S. holders. This discussion does not address aspects of U.S. taxation
other than U.S. federal income taxation, nor does it address state, local or foreign tax consequences of an
investment in shares or ADSs.
This summary is based (i) on the Internal Revenue Code of 1986, as amended, U.S. Treasury Regulations
and judicial and administrative interpretations thereof, in each case as in effect and available on the date of
this registration statement and (ii) in part, on representations of the depositary and the assumption that each
obligation in the deposit agreement and any related agreement will be performed in accordance with its
terms. The U.S. tax laws and regulations and the interpretation thereof are subject to change, which change
could apply retroactively and could affect the tax consequences described below.
For purposes of this summary, a U.S. holder is a beneficial owner of shares or ADSs that, for U.S. federal
income tax purposes, is:
•
•
created or organized in or under the laws of the United States or any state, including the District
of Columbia,
•
•
purposes or if (i) a U.S. court can exercise primary supervision over its administration and (ii) one
or more U.S. persons have the authority to control all of its substantial decisions.
If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax
purposes) is a beneficial owner of shares or ADSs, the treatment of a partner in the partnership will generally
depend on the status of the partner and the activities of the partnership. If you are a partner in a partnership
that holds shares or ADSs you should consult your tax advisor.
Each prospective purchaser should consult the purchaser ’s tax advisor with respect to the U.S. federal, state,
local and foreign tax consequences of acquiring, owning or disposing of shares or ADSs.
144
Ownership of ADSs in General, and Exchange of ADSs for Shares
For U.S. federal income tax purposes, a holder of ADSs generally will be treated as the owner of the shares
represented by the ADSs, and the following discussion assumes that such treatment will be respected. If so,
no gain or loss will be recognized upon an exchange of shares for ADSs or an exchange of ADSs for shares.
The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder
of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with
the beneficial ownership of the underlying shares. Accordingly, the creditability of foreign taxes and the
availability of the reduced tax rate for dividends received by certain non-corporate U.S. holders, if any, as
described below, could be affected by actions taken by intermediaries in the chain of ownership between the
holder of an ADS and ABB.
Distributions
In general, for U.S. federal income tax purposes, the gross amount of distributions (other than certain
distributions, if any, of shares distributed to all shareholders of ABB, including holders of ADSs) made to you
with respect to shares or ADSs, including the amount of any Swiss taxes withheld from the distribution, will
constitute dividends and be includible in gross income in the year received to the extent of ABB’s current and
accumulated earnings and profits (as determined under U.S. federal income tax principles).
Non-corporate U.S. holders generally will be taxed on such distributions at the lower rates applicable to
long-term capital gains (i.e., gains from the sale of capital assets held for more than one year) with respect to
distributions during 2021, provided that the U.S. holder meets certain holding period and other requirements
and provided that such distributions constitute “qualified dividends” for U.S. federal income tax purposes.
Distributions treated as dividends will not be treated as “qualified dividends” if we were to be treated as a
“passive foreign investment company” (PFIC) for U.S. federal income tax purposes in the year that the
dividend is paid or in the year prior to the year that the dividend is paid. Based on certain estimates of its
gross income and gross assets and the nature of its business, ABB believes that it will not be classified as a
PFIC for the taxable year ended December 31, 2021 and does not expect to be classified as a PFIC for the
taxable year ending December 31, 2022. ABB’s status in the current year and in future years will depend on
its assets and activities in those years. ABB has no reason to believe that its assets or activities will change in
a manner that would cause it to be classified as a PFIC. However, as PFIC status is a factual matter that
depends on, among other things, the composition of the income and assets, and the market value of the
assets as reflected in market capitalization, of ABB and its subsidiaries that must be determined annually at
the close of each taxable year, there can be no certainty regarding ABB’s PFIC status in any particular year
until the end of that year. U.S. holders are urged to consult their own tax advisors regarding the availability to
them of the reduced dividend rate in light of their own particular circumstances and the consequences to
them if ABB were to be treated as a PFIC with respect to any taxable year.
Dividends paid to U.S. corporate holders will not be eligible for the dividends received deduction generally
allowed to corporate U.S. holders.
If you are a U.S. holder and distributions with respect to shares or ADSs exceed ABB’s current and
accumulated earnings and profits as determined under U.S. federal income tax principles, then the excess
generally would be treated first as a tax-free return of capital to the extent of your adjusted tax basis in the
shares or ADSs. Any amount in excess of the amount of the dividend and the return of capital generally
would be treated as capital gain. ABB does not maintain calculations of its earnings and profits under U.S.
federal income tax principles, so a U.S. holder should expect all cash distributions to be reported as
dividends for U.S. federal income tax purposes.
145
If you are a U.S. holder, then dividends paid in Swiss francs, including the amount of any Swiss taxes
withheld from the dividends, will be included in your gross income in an amount equal to the U.S. dollar value
of the Swiss francs calculated by reference to the spot exchange rate in effect on the day the dividends are
includible in income. In the case of ADSs, dividends generally are includible in income on the date they are
received by the depositary, regardless of whether the payment is in fact converted into U.S. dollars at that
time. If dividends paid in Swiss francs are converted into U.S. dollars on the day they are includible in
income, then you generally should not be required to recognize foreign currency gain or loss with respect to
the conversion. However, any gains or losses resulting from the conversion of Swiss francs between the time
of the receipt of dividends paid in Swiss francs and the time the Swiss francs are converted into U.S. dollars
will be treated as ordinary income or loss to you. The amount of any distribution of property other than cash
will be the fair market value of the property on the date of distribution.
If you are a U.S. holder, then dividends received by you with respect to shares or ADSs will be treated as
foreign source income, which may be relevant in calculating your foreign tax credit limitation. Subject to
certain conditions and limitations, Swiss tax withheld on dividends may be deducted from your taxable
income or credited against your U.S. federal income tax liability. However, to the extent that you would be
entitled to a refund of Swiss withholding taxes pursuant to the U.S.-Switzerland tax treaty, you may not be
eligible for a U.S. foreign tax credit with respect to the amount of such withholding taxes which may be
refunded, even if you fail to claim the refund. See “—Swiss Taxation —Obtaining a Refund of Swiss
Withholding Tax for U.S. Residents”. The limitation on foreign taxes eligible for credit is calculated separately
with respect to specific classes of income. For this purpose, dividends distributed by ABB generally will
constitute passive income. The rules relating to the determination of the U.S. foreign tax credit are complex,
and you should consult your tax advisor to determine whether and to what extent you would be entitled to this
credit.
Sale, Exchange or other Taxable Disposition of Shares or ADSs
If you are a U.S. holder that holds shares or ADSs as capital assets, then you generally will recognize capital
gain or loss for U.S. federal income tax purposes upon a sale, exchange or other taxable disposition of your
shares or ADSs in an amount equal to the difference between your adjusted tax basis in the shares or ADSs
and the amount realized on their disposition. If you are a non-corporate U.S. holder, the maximum marginal
U.S. federal income tax rate applicable to the gain is generally lower than the maximum marginal U.S. federal
income tax rate applicable to ordinary income (other than certain dividends) if your holding period for the
shares or ADSs exceeds one year (i.e., long term capital gains). If you are a U.S. holder, then the gain or
loss, if any, recognized by you generally will be treated as U.S. source income or loss, for U.S. foreign tax
credit purposes.
If you are a U.S. holder and you receive any foreign currency on the disposition of shares or ADSs, the
amount realized will be the U.S. dollar value of the payment received, translated at the spot rate of exchange
on the date of taxable disposition. If the shares are treated as traded on an established securities market, a
cash basis U.S. holder and an accrual basis U.S. holder who has made a special election (which must be
applied consistently from year to year and cannot be changed without the consent of the U.S. Internal
Revenue Service) will determine the U.S. dollar value of the amount realized in foreign currency by
translating the amount received at the spot rate of exchange on the settlement date of the disposition. An
accrual basis U.S. holder that does not make the special election will recognize U.S. source ordinary income
or loss as a result of currency fluctuations between the trade date and the settlement date of the disposition
of the shares or ADSs.
146
Medicare Tax
For taxable years beginning after December 31, 2012, certain U.S. holders who are individuals, estates or
trusts must pay a 3.8 percent tax on the lesser of (i) the U.S. holder’s “net investment income” for the relevant
taxable year and (ii) the excess of the U.S. holder’s modified adjusted gross income for the taxable year over
a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on
the individual’s circumstances). A U.S. holder’s net investment income will generally include its dividend
income and its net gains from the disposition of shares or ADSs, unless such income or net gains are derived
in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of
certain passive or trading activities). If you are a U.S. holder that is an individual, estate or trust, you are
urged to consult your tax advisor regarding the applicability of the Medicare tax to your income and gains in
respect of your investment in shares or ADSs.
Information with Respect to Foreign Financial Assets
Certain U.S. holders who are individuals (and certain entities) that hold an interest in “specified foreign
financial assets” (which may include the shares) are required to report information relating to such assets,
subject to certain exceptions (including an exception for shares held in accounts maintained by certain
financial institutions). Penalties can apply if U.S. holders fail to satisfy such reporting requirements. U.S.
holders should consult their tax advisors regarding the effect, if any, of this requirement on their ownership
and disposition of the shares.
Backup Withholding and Information Reporting
U.S. backup withholding tax and information reporting requirements generally apply to certain payments to
certain non-corporate holders of stock. Information reporting generally will apply to payments of dividends on,
and to proceeds from the sale or redemption of, shares or ADSs made within the United States to a holder of
shares or ADSs (other than an exempt recipient, including a corporation, a payee that is not a U.S. holder
that provides an appropriate certification, and certain other persons).
A payor will be required to withhold backup withholding tax from any payments of dividends on, or the
proceeds from the sale or redemption of, shares or ADSs within the United States to you, unless you are an
exempt recipient, if you fail to furnish your correct taxpayer identification number or otherwise fail to establish
an exception from backup withholding tax requirements. U.S. holders who are required to establish their
exempt status may be required to provide such certification on U.S. Internal Revenue Service Form W-9.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to you
may be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund,
provided that the required information is furnished timely to the U.S. Internal Revenue Service.
THE ABOVE SUMMARIES ARE NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL
TAX CONSEQUENCES RELATING TO THE OWNERSHIP OF SHARES OR ADSs. PROSPECTIVE
PURCHASERS OF SHARES OR ADSs SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE
TAX CONSEQUENCES OF THEIR PARTICULAR SITUATIONS.
—
Documents on display
We are subject to the informational requirements of the Exchange Act. In accordance with these
requirements, we file reports and other information with the SEC. The SEC maintains a Web site at
www.sec.gov
information regarding registrants that file electronically with the SEC. Our Annual Reports on Form 20-F,
reports on Form 6-K and some of the other information we submit to the SEC may be accessed through this
Web site. In addition, material that we file can be inspected at the offices of the New York Stock Exchange at
11 Wall Street, New York, New York 10005.
147
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Disclosure
The continuously evolving financial markets and the dynamic business environment expose us to changes in
foreign exchange, interest rate and other market price risks. We have developed and implemented
comprehensive policies, procedures, and controls to identify, mitigate, and monitor financial risk on a
company-wide basis.
To
efficiently aggregate and manage financial risks that could impact our financial
performance, we operate a Corporate Treasury Operations function. Our Corporate Treasury Operations
provides an efficient source of liquidity, financing, risk management and other global financial services to the
ABB Group companies. Our policies do not allow our Corporate Treasury Operations or ABB Group
companies to perform speculative trading. Market risk management activities are focused on mitigating
material financial risks resulting from our global operating and financing activities.
Corporate Treasury Operations maintains risk management control systems to monitor foreign exchange and
interest rate risks and exposures arising from our underlying business, as well as the associated hedge
positions. Our written policies govern how such exposures are managed. Financial risks are monitored using
a number of analytical techniques including market value and sensitivity analysis. The following quantitative
analyses are based on sensitivity analysis tests, which assume parallel shifts of interest rate yield curves, and
foreign exchange rates and equity prices.
Currency Fluctuations and Foreign Exchange Risk
It is our policy to identify and manage all transactional foreign exchange exposures to minimize risk. With the
exception of certain financing subsidiaries and to the extent certain operating subsidiaries are domiciled in
high inflation environments, the functional currency of each of our companies is considered to be its local
currency. Our policies require our subsidiaries to hedge all contracted foreign exchange exposures, as well
as a portion of their forecast exposures, against their local currency. These transactions are undertaken
mainly with our Corporate Treasury Operations.
We have foreign exchange transaction exposures related to our global operating and financing activities in
currencies other than the functional currency in which our entities operate. Specifically, we are exposed to
foreign exchange risk related to future earnings, assets or liabilities denominated in foreign currencies. The
most significant currency exposures relate to operations in the Eurozone area, Sweden and Switzerland. In
addition, we are exposed to currency risk associated with translating our functional currency financial
statements into our reporting currency, which is the U.S. dollar.
Our operating companies are responsible for identifying their foreign currency exposures and entering into
intercompany derivative contracts with Corporate Treasury Operations, where legally possible, to hedge their
exposures. Where local laws restrict our operating companies from entering into intercompany derivatives
with Corporate Treasury Operations, derivative contracts are entered into locally with third-party financial
institutions. The intercompany transactions have the eff ect of transferring the operating companies’ currency
risk to Corporate Treasury Operations, but create no additional market risks on a consolidated basis.
Corporate Treasury Operations then manages this risk by entering into offsetting transactions with third-party
financial institutions. According to our policy, material net currency exposures are required to be hedged and
are primarily hedged with forward foreign exchange contracts. The majority of the foreign exchange hedge
instruments have, on average, a maturity of less than twelve months. Corporate Treasury Operations also
hedges currency risks arising from monetary intercompany balances, primarily loans receivable from other
ABB companies.
148
At December 31, 2021 and 2020, the net fair value of financial instruments with exposure to foreign currency
rate movements was an asset of $2,048 million and $1,973 million, respectively. The potential loss in fair
value of such financial instruments from a hypothetical 10 percent move in foreign exchange rates against
our position would be approximately $367 million and $647 million for December 31, 2021 and 2020,
respectively. The analysis reflects the aggregate adverse foreign exchange impact associated with
transaction exposures, as well as translation exposures where appropriate. Our sensitivity analysis assumes
a simultaneous shift in exchange rates against our positions exposed to foreign exchange risk and as such
assumes an unlikely adverse case scenario. Exchange rates rarely move in the same direction. Therefore,
the assumption of a simultaneous shift may overstate the impact of changing rates on assets and liabilities
denominated in foreign currencies. The underlying trade -related transaction exposures of the industrial
companies are not included in the quantitative analysis. If these underlying transaction exposures were
included, they would tend to have an offsetting effect on the potential loss in fair value detailed above.
Interest Rate Risk
We are exposed to interest rate risk due to our financing, investing, and liquidity management activities. Our
operating companies primarily invest excess cash with, and receive funding from, our Corporate Treasury
Operations on an arm’s length basis. It is our policy that the primary third-party funding and investing
activities, as well as the monitoring and management of the resulting interest rate risk, are the responsibility
of Corporate Treasury Operations. Corporate Treasury Operations adjusts the duration of the overall funding
portfolio through derivative instruments in order to better match underlying assets and liabilities, as well as
minimize the cost of capital.
At December 31, 2021 and 2020, the net fair value of instruments subject to Interest Rate Risk was an asset
of $2,320 million and $2,095 million, respectively. The potential loss in fair value for such instruments from a
hypothetical 100 basis points parallel shift in interest rates against our position (or a multiple of 100 basis
points where 100 basis points is less than 10 percent of the interest rate) would be approximately
$270 million and $395 million, for December 31, 2021 and 2020, respectively.
Equity Risk
Certain of our entities have equity investments that expose us to equity price risk. At December 31, 2021 and
2020, the net fair value of equity risk sensitive instruments was an asset of $29 million and $21 million,
respectively. The potential loss in fair value of such financial instruments from a hypothetical 10 percent move
in the underlying equity prices against our position would be approximately $13 million and $8 million, for
December 31, 2021 and 2020, respectively.
Commodity Risk
We enter into commodity derivatives to hedge certain of our raw material exposures. At December 31, 2021
and 2020, the net fair value of commodity derivatives was an asset of $1 million and $15 million, respectively.
The potential loss in fair value for such commodity hedging derivatives from a hypothetical adverse
10 percent move against our position in the underlying commodity prices would be approximately $11 million
for December 31, 2021 and 2020, respectively. A portion of our commodity derivatives are denominated in
euro. The foreign exchange risk arising on such contracts has been excluded from the calculation of the
potential loss in fair value from a hypothetical 10 percent move in the underlying commodity prices as
discussed above.
149
Item 12. Description of Securities Other Than Equity Securities
American Depositary Shares
Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank
by the brokers (on behalf of their clients) receiving the newly-issued ADSs from the depositary bank and by
the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation. The
brokers in turn may charge these transaction fees to their clients.
Depositary fees payable in connection with distributions of cash or securities to ADS holders and the
depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the
applicable ADS record date. The depositary fees payable for cash distributions are generally deducted from
the cash being distributed. In the case of distributions other than cash (i.e., stock dividends, rights offerings),
the depositary bank charges the applicable fee to the ADS record date holders concurrent with the
distribution. In the case of ADSs registered in the name of the investor (whether certificated or un-certificated
in direct registration), the depositary bank sends invoices to the applicable record date ADS holders. In the
case of ADSs held in brokerage and custodian accounts via the central clearing and settlement system, The
Depository Trust Company (DTC), the depositary bank, generally collects its fees through the systems
provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and
custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in
DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.
In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit
agreement, refuse the requested service until payment is received or may set-off the amount of the
depositary fees from any distribution to be made to the ADS holder.
Depositary fees are as follows:
Depositary Service
Fee
Issuance of ADSs
Up to $5.00 per 100 ADSs (or fraction thereof) issued.
Cancellation of ADSs
Up to $5.00 per 100 ADSs (or fraction thereof) cancelled.
Distribution of cash dividends or other cash
distribution
Up to $5.00 per 100 ADSs (or fraction thereof) held.
Distribution of ADSs pursuant to (i) stock
dividends or other free stock distributions, or
(ii) an exercise of rights to purchase
additional ADSs
Up to $5.00 per 100 ADSs (or fraction thereof) held.
Distribution of securities other than ADSs or
rights to purchase additional ADSs
Up to $5.00 per 100 ADSs (or fraction thereof) held.
Depositary service fee
Up to $5.00 per 100 ADSs (or fraction thereof) held on the
applicable record date(s) established by the Depositary.
Registration of ADS transfers
Up to $5.00 per 100 ADSs (or fraction thereof) transferred.
Conversion of ADSs of one series for ADSs of
another series
Up to $5.00 per 100 ADSs (or fraction thereof) converted.
Depositary Payments
In 2021, we received reimbursements from Citibank N.A., the Depositary Bank of our ADS program, of
approximately $6 million to help cover costs related to our ADS program. Those costs, in addition to costs
associated with compliance with U.S. securities laws, include expenses such as listing fees, proxy expenses,
printing and distribution of reports, and other investor relations -related activities.
150
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None
None
Item 15. Controls and Procedures
Disclosure controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls
and procedures must reflect the fact that there are resource constraints and that management is required to
apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Our Chief Executive Officer, Björn Rosengren, and Chief Financial Officer, Timo Ihamuotila, with the
participation of key corporate senior management and management of key corporate functions, performed an
evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of
December 31, 2021, including the effects of the COVID-19 pandemic. Based on that evaluation,
management, including the Chief Executive Officer and Chief Financial Officer, has concluded that, as of
December 31, 2021, our disclosure controls and procedures were effective.
Management’s annual report on internal control over financial reporting
The Board of Directors and management of the ABB Group are responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.
Management conducted an assessment of the effectiveness of internal control over financial reporting as of
December 31, 2021. In making this assessment, management used the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework). Based on this assessment, management has concluded that internal control
over financial reporting was effective as of December 31, 2021.
Report of the independent registered public accounting firm
KPMG’s opinion on the effectiveness of the ABB Group’s internal control over financial reporting as of
December 31, 2021, is included in “Item 18. Financial Statements”.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting that occurred during the period
covered by this annual report that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
151
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
Our Board of Directors has determined that David Meline, Gunnar Brock, Geraldine Matchett and Satish Pai,
who serve on our Finance, Audit and Compliance Committee (FACC) , are independent for purposes of
serving on the audit committee under Rule 10A-3 of the Exchange Act and the listing standards promulgated
by the New York Stock Exchange, and are audit committee financial experts.
Item 16B. Code of Ethics
Our Board of Directors as well as our Chief Executive Officer, Chief Financial Officer, principal accounting
officer and persons performing similar functions are bound to adhere to our Code of Conduct, which applies
to all employees of all companies in the ABB Group. Our Code of Conduct is available on our Web site in the
section “Corporate governance” at
www.abb.com/investorrelations
. ABB intends to satisfy any applicable
disclosure requirement regarding amendment to, or waiver from, a provision of our Code of Conduct by
posting such information on our Web site at the address and location specified above.
Item 16C. Principal Accountant Fees and Services
The aggregate fees for services rendered by
KPMG AG
,
Zurich, Switzerland
3240
), along with
their respective affiliates for professional services were as follows:
KPMG
($ in millions)
2021
2020
Audit Fees
34.5
40.6
Audit-Related Fees
13.0
2.7
Tax Fees
0.5
0.8
Other Fees
0.1
—
Total
48.1
44.1
Audit Fees
Audit fees include the standard audit work performed each fiscal year necessary to allow the auditor to issue
an opinion on our Consolidated Financial Statements (including the integrated audit of internal controls over
financial reporting) and to issue an opinion on the local statutory financial statements of ABB Ltd and its
subsidiaries. Audit fees also include services that can be provided only by the ABB Group auditor such as
pre-issuance reviews of quarterly financial results (no such reviews have been performed) and comfort letters
delivered to underwriters in connection with debt and equity offerings. Included in the 2021 audit fees were
approximately $4.7 million related to audits from 2020 and earlier, which were not agreed until after the
Company had filed its annual report on Form 20-F with the SEC on February 26, 2021. Included in the 2020
audit fees were approximately $4.5 million related to audits from 2019 and earlier, which were not agreed
until after the Company had filed its annual report on Form 20-F with the SEC on February 26, 2020.
Audit-Related Fees
These services consisting primarily of carve-out financial statement audits in relation to transactional
activities, service organization attestation procedures, agreed-upon procedure reports, accounting
consultations, audits of pension and benefit plans, accounting advisory services and other attest services
related to financial reporting that are not required by statute or regulation.
Tax Fees
Fees for tax services represent primarily income tax and indirect tax compliance services as well as tax
advisory services.
152
All Other Fees
Fees for other services not included in the above three categories.
Pre-Approval Procedures and Policies
In accordance with the requirements of the U.S. Sarbanes-Oxley Act of 2002 and rules issued by the SEC,
we utilize a procedure for the review and pre-approval of any services performed by KPMG. The procedure
requires that all proposed engagements of KPMG for audit and permitted non-audit services are submitted to
the FACC for approval prior to the beginning of any such services. In accordance with this policy, all services
performed by and fees paid to KPMG in 2021 and 2020 were approved by the FACC .
Item 16D. Exemptions from the Listing Standards for Audit Committees
None
Item 16E. Purchase of Equity Securities by Issuer and Affiliated Purchasers
The following table sets out certain information about purchases of our own shares made by us or on our
behalf or by affiliated purchasers:
Total number
Maximum number
Total number
Average price
of shares purchased
of shares that may
of shares
paid per share
as part of publicly
yet be purchased
2021
purchased
(1)
(in USD)
announced program
(2)(3)
under the program
January 1-31
3,219,779
29.74
1,950,000
69,220,641
February 1-28
26,489,546
29.42
13,338,000
55,882,641
March 1-31
12,425,892
30.08
4,503,230
—
April 1-30
5,853,000
32.45
4,203,000
132,497,000
May 1-31
5,737,000
33.44
4,787,000
127,710,000
June 1-30
7,044,100
34.37
5,944,100
121,765,900
July 1-31
3,950,000
35.26
2,850,000
118,915,900
August 1-31
2,203,500
37.30
1,103,500
117,812,400
September 1-30
8,055,000
35.28
6,955,000
110,857,400
October 1-31
13,450,000
33.27
12,400,000
98,457,400
November 1-30
13,450,000
34.79
12,350,000
86,107,400
December 1-31
9,210,000
36.47
8,035,000
78,072,400
Total
111,087,817
78,418,830
(1) In 2021, approximately 33 million shares were bought outside of the publicly announced program. These share purchases were made
through open -market transactions.
(2) In July 2020, ABB announced it initially intends to buy 10 percent of its issued share capital (which at the time represented a maximum of
180 million shares, in addition to those already held in treasury) through the share buyba ck program that started in July 2020. The share
buyback program was executed on a second trading li ne on the SIX Swiss Exchange and ran until ABB’s Annual General Meeting (AGM) in
March 2021. At the March 2021 AGM, shareholder s approved the cancellation of 115 million of the shares purchased through this initial
program and the cancellation was completed in the second quarter of 2021.
(3) In March 2021, ABB announced a follow-up share buyback program of up to $4.3 billion (which at the time represented a maximum of
approximately 137 million shares). This buyback program, which was launched in April 2021, is being executed on a second trading line on
the SIX Swiss Exchange and is planned to run until ABB’s AGM in March 2022. At the March 2022 AGM, ABB intends to request
shareholder approval to cancel the shares purchased through this follow -up share buyback program as well as those shares purchased
under the initial share buyback program that were no t proposed for cancellation at the AGM in March 2021.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
153
Item 16G. Corporate Governance
See “Item 6. Directors, Senior Management and Employees—Other governance information—Governance
differences from NYSE Standards” for significant ways in which ABB’s corporate governance practices differ
from the New York Stock Exchange’s standards.
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
154
PART III
Item 17. Financial Statements
We have elected to provide financial statements and the related information pursuant to Item 18.
Item 18. Financial Statements
See pages F-1 to F-83, which are incorporated herein by reference. All schedules are omitted as the required
information is inapplicable or the information is presented in the Consolidated Financial Statements or notes
thereto.
155
Item 19. Exhibits
1.1
2.1
2.2
2.3
2.4
(1)
4.1
, entered
into between ABB Ltd, certain subsidiaries of ABB Ltd as borrowers, 19 banks as mandated lead
arrangers, Citibank Europe PLC, UK Branch, as facility agent and euro swingline agent and
Citibank N.A. as dollar swingline agent. Incorporated by reference to Exhibit 4.1 to the Annual
Report on Form 20-F filed by ABB Ltd on February 26, 2020.
4.2
4.3
4.4
4.5
4.6
. Incorporated by
reference to Exhibit 4.6 to the Form 20-F filed by ABB Ltd on March 28, 2019.
8.1
(1)
12.1
(1)
12.2
(1)
13.1
156
13.2
15.1
(1)
17.1
(1)
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
(1)
* This document is being furnished in accordance with SEC Release Nos. 33-8212 and 34-74551.
(1) Filed at the SEC herewith
157
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it
has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
ABB LTD
By:
/s/ T
IMO
I
HAMUOTILA
Date: February 24, 2022
Name:
Timo Ihamuotila
Title:
Executive Vice President and
Chief Financial Officer
By:
/s/ R
ICHARD
A.
B
ROWN
Date: February 24, 2022
Name:
Richard A. Brown
Title:
Group Senior Vice President and
Chief Counsel Corporate & Finance
F-1
—
Index to Consolidated Financial Statements and Schedules
Consolidated Financial Statements:
Report of management on internal control over financial reporting
F-2
Reports of Independent Registered Public Accounting Firm
F-3
Consolidated Income Statements for the years ended December 31, 2021, 2020 and 2019
F-6
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021,
2020 and 2019
F-7
Consolidated Balance Sheets as of December 31, 2021 and 2020
F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
F-9
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31,
2021, 2020 and 2019
F-10
Notes to the Consolidated Financial Statements
F-11
F-2
Report of management on internal control over financial reporting
The Board of Directors and Management of ABB Ltd and its consolidated subsidiaries (“ABB”) are
responsible for establishing and maintaining adequate internal control over financial reporting. ABB’s internal
control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation and fair presentation of the published Consolidated Financial
Statements in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with ABB’s policies and procedures may deteriorate.
Management conducted an assessment of the effectiveness of internal control over financial reporting based
on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework). Based on this assessment, management has
concluded that ABB’s internal control over financial reporting was effective as of December 31, 2021.
KPMG AG, the independent registered public accounting firm who audited the Company’s consolidated
financial statements included in this Form 20-F, has issued an opinion on the effectiveness of ABB’s internal
control over financial reporting as of December 31, 2021, which is included on page F-5 of this Annual
Report.
/s/ B
JÖRN
R
OSENGREN
Chief Executive Officer
/s/ T
IMO
I
HAMUOTILA
Chief Financial Officer
Zurich, February 24, 2022
F-3
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of ABB Ltd
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of ABB Ltd and its subsidiaries (the
Company) as of December 31, 2021 and 2020, the related consolidated income statements, statements of
comprehensive income, cash flows and changes in stockholders’ equity for each of the years in the three-
year period ended December 31, 2021, and the related notes (collectively, the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated February 24, 2022, expressed
an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s Board of Directors and
management. Our responsibility is to express an opinion on these consolidated financial statements based on
our audits. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue recognition for long-term fixed price contracts using the percentage-of-completion method
As discussed in Note 2 to the consolidated financial statements, revenues from the sale of customized
products, including long-term fixed price contracts for integrated automation and electrification systems and
solutions are generally recognized on an over time basis using the percentage of completion method of
accounting. For the year ended December 31, 2021, the Company reported $23,745 million of revenue from
sales of products, a portion of which related to long-term fixed price contracts.
We identified the evaluation of estimated costs to complete related to revenue recognition of long-term fixed
price contracts using the percentage of-completion method of accounting as a critical audit matter. In
particular, a high degree of subjective auditor judgment was required to evaluate the Company’s estimates
regarding the amount of future direct materials, labor and subcontract costs, and indirect costs to complete
the contracts.
F-4
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls related to the Company’s revenue
process including controls over the development of estimates regarding the amount of future direct materials,
labor and subcontract costs, and indirect costs. We assessed the Company’s historical ability to accurately
estimate costs to complete by comparing historical estimates to actual results for a selection of contracts. We
evaluated the estimate of remaining costs to be incurred for a selection of contracts by assessing progress to
date and the nature and complexity of work to be performed through interviewing project managers and
inspecting correspondence, if any, between the Company and the customer and/or subcontractors.
Valuation of unrecognized tax benefits related to transfer pricing
As discussed in Note 2 to the consolidated financial statements, the Company operates across multiple tax
jurisdictions, is exposed to numerous tax laws and is regularly subject to tax audits by local tax authorities. As
discussed in Note 16, the Company reported total unrecognized tax benefits of $1,322 million, a portion of
which related to unrecognized tax benefits related to transfer pricing.
We identified the valuation of unrecognized tax benefits related to transfer pricing as a critical audit matter. A
high degree of subjective auditor judgment and specialized skills and knowledge was required in assessing
the Company’s interpretation of international tax practice and developments in relation to intragroup charges
and intragroup sales of goods and services and the Company’s ability to estimate the ultimate resolution of
the tax positions.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls related to the Company’s tax
process including controls related to the Company’s interpretation of international tax practice and
developments in relation to intragroup charges and intragroup sale of goods and services and the estimate of
the related unrecognized tax benefits. We tested the identified costs that have a higher likelihood of being
challenged by tax authorities associated with intragroup arrangements and potential price adjustments for
intragroup sales of goods and services. We involved tax professionals with specialized skills and knowledge,
who assisted in evaluating (1) the Company’s historical ability to accurately estimate the unrecognized tax
benefits related to transfer pricing by comparing historical tax positions to subsequent settlements (2) the
Company’s transfer pricing documentation and methodology for compliance with applicable laws and
regulations by assessing the documentation and relevant agreements, (3) the impact of new information or
changes in international tax practice and developments on historical tax positions, and (4) developing an
independent expectation of the unrecognized tax benefits estimate relating to current year tax positions in
connection with the Company’s intragroup charges and intragroup sales of goods and services and
comparing the results to the Company’s assessment.
/s/ KPMG AG
We have served as the Company’s auditor since 2018.
Zurich, Switzerland
February 24, 2022
F-5
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of ABB Ltd
Opinion on Internal Control Over Financial Reporting
We have audited ABB Ltd and its subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion the
Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued
by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and
2020, the related consolidated income statements, statements of comprehensive income, cash flows and
changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2021, and
the related notes (collectively, the consolidated financial statements), and our report dated February 24,
2022, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s Board of Directors and management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Report of management on internal control over financial reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ KPMG AG
Zurich, Switzerland
February 24, 2022
F-6
―
ABB Ltd Consolidated Income Statements
Year ended December 31 ($ in millions, except per share data in $)
2021
2020
2019
Sales of products
23,745
21,214
22,554
Sales of services and other
5,200
4,920
5,424
Total revenues
28,945
26,134
27,978
Cost of sales of products
(16,364)
(15,229)
(15,811)
Cost of services and other
(3,114)
(3,027)
(3,261)
Total cost of sales
(19,478)
(18,256)
(19,072)
Gross profit
9,467
7,878
8,906
Selling, general and administrative expenses
(5,162)
(4,895)
(5,447)
Non-order related research and development expenses
(1,219)
(1,127)
(1,198)
Impairment of goodwill
—
(311)
—
Other income (expense), net
2,632
48
(323)
Income from operations
5,718
1,593
1,938
Interest and dividend income
51
51
67
Interest and other finance expense
(148)
(240)
(215)
Losses from extinguishment of debt
—
(162)
—
Non-operational pension (cost) credit
166
(401)
72
Income from continuing operations before taxes
5,787
841
1,862
Income tax expense
(1,057)
(496)
(772)
Income from continuing operations, net of tax
4,730
345
1,090
Income (loss) from discontinued operations, net of tax
(80)
4,860
438
Net income
4,650
5,205
1,528
Net income attributable to noncontrolling interests
(104)
(59)
(89)
Net income attributable to ABB
4,546
5,146
1,439
Amounts attributable to ABB shareholders:
Income from continuing operations, net of tax
4,625
294
1,043
Income (loss) from discontinued operations, net of tax
(79)
4,852
396
Net income
4,546
5,146
1,439
Basic earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
2.31
0.14
0.49
Income (loss) from discontinued operations, net of tax
(0.04)
2.30
0.19
Net income
2.27
2.44
0.67
Diluted earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
2.29
0.14
0.49
Income (loss) from discontinued operations, net of tax
(0.04)
2.29
0.19
Net income
2.25
2.43
0.67
Weighted-average number of shares outstanding (in millions) used to
compute:
Basic earnings per share attributable to ABB shareholders
2,001
2,111
2,133
Diluted earnings per share attributable to ABB shareholders
2,019
2,119
2,135
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the Consolidated Financial Statements
F-7
―
ABB Ltd Consolidated Statements of Comprehensive Income
Year ended December 31 ($ in millions)
2021
2020
2019
Net income
4,650
5,205
1,528
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Foreign currency translation adjustments
(521)
498
(130)
Changes attributable to divestments
(9)
519
(2)
Foreign currency translation adjustments
(530)
1,017
(132)
Available-for-sale securities:
Net unrealized gains (losses) arising during the year
(10)
24
14
Reclassification adjustments for net (gains) losses included in net income
(5)
(14)
—
Changes attributable to divestments
—
(3)
—
Unrealized gains (losses) on available-for-sale securities
(15)
7
14
Pension and other postretirement plans:
Prior service credits arising during the year
—
43
6
Net actuarial gains (losses) arising during the year
411
(200)
(220)
Amortization of prior service credit included in net income
(14)
(11)
(28)
Amortization of net actuarial loss included in net income
69
88
68
Net losses from settlements and curtailments included in net income
7
518
32
Changes attributable to divestments
(6)
151
—
Pension and other postretirement plan adjustments
467
589
(142)
Derivative instruments and hedges:
Net unrealized gains arising during the year
8
2
20
Reclassification adjustments for net (gains) losses included in net income
(13)
—
(9)
Changes in derivative instruments and hedges
(5)
2
11
Total other comprehensive income (loss), net of tax
(83)
1,615
(249)
Total comprehensive income, net of tax
4,567
6,820
1,279
Total comprehensive income attributable to noncontrolling interests, net of tax
(108)
(86)
(83)
Total comprehensive income attributable to ABB, net of tax
4,459
6,734
1,196
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the Consolidated Financial Statements
F-8
―
ABB Ltd Consolidated Balance Sheets
December 31 ($ in millions, except share data)
2021
2020
Cash and equivalents
4,159
3,278
Restricted cash
30
323
Marketable securities and short-term investments
1,170
2,108
Receivables, net
6,551
6,820
Contract assets
990
985
Inventories, net
4,880
4,469
Prepaid expenses
206
201
Other current assets
573
760
Current assets held for sale and in discontinued operations
136
282
Total current assets
18,695
19,226
Restricted cash, non-current
300
300
Property, plant and equipment, net
4,045
4,174
Operating lease right-of-use assets
895
969
Investments in equity-accounted companies
1,670
1,784
Prepaid pension and other employee benefits
892
360
Intangible assets, net
1,561
2,078
Goodwill
10,482
10,850
Deferred taxes
1,177
843
Other non-current assets
543
504
Total assets
40,260
41,088
Accounts payable, trade
4,921
4,571
Contract liabilities
1,894
1,903
Short-term debt and current maturities of long-term debt
1,384
1,293
Current operating leases
230
270
Provisions for warranties
1,005
1,035
Other provisions
1,386
1,519
Other current liabilities
4,367
4,181
Current liabilities held for sale and in discontinued operations
381
644
Total current liabilities
15,568
15,416
Long-term debt
4,177
4,828
Non-current operating leases
689
731
Pension and other employee benefits
1,025
1,231
Deferred taxes
685
661
Other non-current liabilities
2,116
2,025
Non-current liabilities held for sale and in discontinued operations
43
197
Total liabilities
24,303
25,089
Commitments and contingencies
nil
nil
Stockholders’ equity:
Common stock, CHF
0.12
(
2,053
2,168
178
188
Additional paid-in capital
22
83
Retained earnings
22,477
22,946
Accumulated other comprehensive loss
(4,088)
(4,002)
Treasury stock, at cost
(
95
137
(3,010)
(3,530)
Total ABB stockholders’ equity
15,579
15,685
Noncontrolling interests
378
314
Total stockholders’ equity
15,957
15,999
Total liabilities and stockholders’ equity
40,260
41,088
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the Consolidated Financial Statements
F-9
―
ABB Ltd Consolidated Statements of Cash Flows
Year ended December 31 ($ in millions)
2021
2020
2019
Operating activities:
Net income
4,650
5,205
1,528
Loss (income) from discontinued operations, net of tax
80
(4,860)
(438)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
893
915
961
Impairment of goodwill
—
311
—
Changes in fair values of investments
(123)
(99)
(5)
Pension and other employee benefits
(216)
50
(102)
Deferred taxes
(289)
(280)
(83)
Losses from extinguishment of debt
—
162
—
Loss (income) from equity-accounted companies
100
66
(8)
Net loss (gain) from derivatives and foreign exchange
49
(2)
1
Net gain from sale of property, plant and equipment
(38)
(37)
(51)
Net loss (gain) from sale of businesses
(2,193)
2
(55)
Fair value adjustment on assets and liabilities held for sale
—
33
421
Other
117
57
102
Changes in operating assets and liabilities:
Trade receivables, net
(142)
(100)
(202)
Contract assets and liabilities
29
186
128
Inventories, net
(771)
196
(182)
Accounts payable, trade
659
(13)
130
Accrued liabilities
454
(92)
(76)
Provisions, net
(48)
243
(36)
Income taxes payable and receivable
117
(76)
(3)
Other assets and liabilities, net
10
8
(131)
Net cash provided by operating activities — continuing operations
3,338
1,875
1,899
Net cash provided by (used in) operating activities — discontinued operations
(8)
(182)
426
Net cash provided by operating activities
3,330
1,693
2,325
Investing activities:
Purchases of investments
(1,528)
(5,933)
(748)
Purchases of property, plant and equipment and intangible assets
(820)
(694)
(762)
Acquisition of businesses (net of cash acquired) and increases in cost- and equity-accounted companies
(241)
(121)
(22)
Proceeds from sales of investments
2,272
4,341
749
Proceeds from maturity of investments
81
11
80
Proceeds from sales of property, plant and equipment
93
114
82
Proceeds from sales of businesses (net of transaction costs and cash disposed) and
cost- and equity-accounted companies
2,958
(136)
69
Net cash from settlement of foreign currency derivatives
(121)
138
(76)
Other investing activities
(23)
8
(23)
Net cash provided by (used in) investing activities — continuing operations
2,671
(2,272)
(651)
Net cash provided by (used in) investing activities — discontinued operations
(364)
9,032
(164)
Net cash provided by (used in) investing activities
2,307
6,760
(815)
Financing activities:
Net changes in debt with maturities of 90 days or less
(83)
(587)
164
Increase in debt
1,400
343
2,406
Repayment of debt
(1,538)
(3,459)
(2,156)
Delivery of shares
826
412
10
Purchase of treasury stock
(3,708)
(3,048)
—
Dividends paid
(1,726)
(1,736)
(1,675)
Dividends paid to noncontrolling shareholders
(98)
(82)
(90)
Other financing activities
(41)
(49)
13
Net cash used in financing activities — continuing operations
(4,968)
(8,206)
(1,328)
Net cash provided by (used in) financing activities — discontinued operations
—
31
(55)
Net cash used in financing activities
(4,968)
(8,175)
(1,383)
Effects of exchange rate changes on cash and equivalents and restricted cash
(81)
79
(28)
Net change in cash and equivalents and restricted cash
588
357
99
Cash and equivalents and restricted cash, beginning of period
3,901
3,544
3,445
Cash and equivalents and restricted cash, end of period
4,489
3,901
3,544
Supplementary disclosure of cash flow information:
Interest paid
132
189
284
Income taxes paid
1,292
905
1,005
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the Consolidated Financial Statements
F-10
―
ABB Ltd Consolidated Statements of Changes in Stockholders’ Equity
Accumulated
Additional
other
Total ABB
Non-
Total
Years ended December 31, 2021, 2020 and 2019
Common
paid-in
Retained
comprehensive
Treasury
stockholders’
controlling
stockholders’
($ in millions)
stock
capital
earnings
loss
stock
equity
interests
equity
Balance at January 1, 2019
188
56
19,839
(5,311)
(820)
13,952
582
14,534
Adoption of accounting standard update
36
(36)
—
—
Comprehensive income:
Net income
1,439
1,439
89
1,528
Foreign currency translation
adjustments, net of tax
(126)
(126)
(6)
(132)
Effect of change in fair value of
available-for-sale securities, net of tax
14
14
14
Unrecognized income (expense)
related to pensions and other
postretirement plans, net of tax
(142)
(142)
(142)
Change in derivative instruments
and hedges, net of tax
11
11
11
Total comprehensive income
1,196
83
1,279
Changes in noncontrolling interests
(17)
(17)
12
(5)
Fair value adjustment to noncontrolling interests
recognized in business combination
—
(44)
(44)
Changes in noncontrolling interests
in connection with divestments
—
(55)
(55)
Dividends to noncontrolling shareholders
—
(122)
(122)
Dividends to shareholders
(1,675)
(1,675)
(1,675)
Share-based payment arrangements
55
55
55
Delivery of shares
(24)
34
10
10
Call options
4
4
4
Balance at December 31, 2019
188
73
19,640
(5,590)
(785)
13,526
454
13,980
Adoption of accounting standard update
(82)
(82)
(9)
(91)
Comprehensive income:
Net income
5,146
5,146
59
5,205
Foreign currency translation
adjustments, net of tax
990
990
27
1,017
Effect of change in fair value of
available-for-sale securities, net of tax
7
7
7
Unrecognized income (expense)
related to pensions and other
postretirement plans, net of tax
589
589
589
Change in derivative instruments
and hedges, net of tax
2
2
2
Total comprehensive income
6,734
86
6,820
Changes in noncontrolling interests
(16)
(16)
19
3
Changes in noncontrolling interests
in connection with divestments
—
(138)
(138)
Dividends to noncontrolling shareholders
—
(98)
(98)
Dividends to shareholders
(1,758)
(1,758)
(1,758)
Share-based payment arrangements
54
54
54
Purchase of treasury stock
(3,181)
(3,181)
(3,181)
Delivery of shares
(24)
436
412
412
Other
(3)
(3)
(3)
Balance at December 31, 2020
188
83
22,946
(4,002)
(3,530)
15,685
314
15,999
Comprehensive income:
Net income
4,546
4,546
104
4,650
Foreign currency translation
adjustments, net of tax
(534)
(534)
4
(530)
Effect of change in fair value of
available-for-sale securities, net of tax
(15)
(15)
(15)
Unrecognized income (expense)
related to pensions and other
postretirement plans, net of tax
467
467
467
Change in derivative instruments
and hedges, net of tax
(5)
(5)
(5)
Total comprehensive income
4,459
108
4,567
Changes in noncontrolling interests
(37)
(20)
(57)
55
(2)
Dividends to noncontrolling shareholders
—
(98)
(98)
Dividends to shareholders
(1,730)
(1,730)
(1,730)
Cancellation of treasury shares
(10)
(17)
(3,130)
3,157
—
—
Share-based payment arrangements
60
60
60
Purchase of treasury stock
(3,682)
(3,682)
(3,682)
Delivery of shares
(84)
(136)
1,046
826
826
Other
16
16
16
Balance at December 31, 2021
178
22
22,477
(4,088)
(3,010)
15,579
378
15,957
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the Consolidated Financial Statements
F-11
—
Note 1
The Company
ABB Ltd and its subsidiaries (collectively, the Company) together form a leading global technology company,
connecting software to its electrification, robotics, automation and motion portfolio to drive performance to
new levels.
—
Note 2
Significant accounting policies
The following is a summary of significant accounting policies followed in the preparation of these
Consolidated Financial Statements.
Basis of presentation
The Consolidated Financial Statements are prepared in accordance with United States of America (United
States or U.S.) generally accepted accounting principles (U.S. GAAP) and are presented in United States
dollars ($ or USD) unless otherwise stated. Due to rounding, numbers presented may not add to the totals
provided. The par value of capital stock is denominated in Swiss francs.
Reclassifications
Certain amounts reported for prior years in the Consolidated Financial Statements and the accompanying
Notes have been reclassified to conform to the current year’s presentation. These changes primarily relate to
the reallocation of certain real estate assets, previously reported within Corporate and Other, into the
operating segments which utilize the assets.
Scope of consolidation
The Consolidated Financial Statements include the accounts of ABB Ltd and companies which are directly or
indirectly controlled by ABB Ltd. Additionally, the Company consolidates variable interest entities if it has
determined that it is the primary beneficiary. Intercompany accounts and transactions are eliminated.
Investments in joint ventures and affiliated companies in which the Company has the ability to exercise
significant influence over operating and financial policies (generally through direct or indirect ownership of
20
50
the equity method of accounting.
Translation of foreign currencies and foreign exchange transactions
The functional currency for most of the Company’s subsidiaries is the applicable local currency. The
translation from the applicable functional currencies into the Company’s reporting currency is performed for
balance sheet accounts using exchange rates in effect at the balance sheet date and for income statement
accounts using average exchange rates prevailing during the year. The resulting translation adjustments are
excluded from the determination of earnings and are recognized in “Accumulated other comprehensive loss”
until the subsidiary is sold, substantially liquidated or evaluated for impairment in anticipation of disposal.
Foreign currency exchange gains and losses, such as those resulting from foreign currency denominated
receivables or payables, are included in the determination of earnings, except as they relate to intercompany
loans that are equity
‑
like in nature with no reasonable expectation of repayment, which are recognized in
“Accumulated other comprehensive loss”. Exchange gains and losses recognized in earnings are included in
“Total revenues”, “Total cost of sales”, “Selling, general and administrative expenses” or “Interest and other
finance expense” consistent with the nature of the underlying item.
F-12
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.
The assets and liabilities of a component reported as a discontinued operation are presented separately as
held for sale and in discontinued operations in the Company’s Consolidated Balance Sheets.
Interest expense that is not directly attributable to or related to the Company’s continuing business or
discontinued business is allocated to discontinued operations based on the ratio of net assets to be sold less
debt that is required to be paid as a result of the planned disposal transaction to the sum of total net assets of
the Company plus consolidated debt. General corporate overhead is not allocated to discontinued operations
(see Note 3).
Operating cycle
A portion of the Company’s activities (primarily long
‑
term system integration 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, inventories and provisions related to these contracts which will not be realized within
one year that have been classified as current.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make
assumptions and estimates that directly affect the amounts reported in the Consolidated Financial
Statements and the accompanying Notes. These accounting assumptions and estimates include:
•
‑
lived
assets and in testing goodwill for impairment,
•
unrecognized tax benefits,
•
•
interest and certain obligations in connection with divestments,
•
in business combinations,
•
operations,
•
and inquiries, environmental damages, product warranties, self
‑
insurance reserves, regulatory
and other proceedings,
•
programs,
•
such as trade and other receivables, loans and other instruments,
F-13
•
pension plan assets, and
•
‑
related
overhead costs, used in determining the percentage
‑
of
‑
completion on projects where revenue is
recognized over time, as well as the amount of variable consideration the Company expects to
be entitled to.
The actual results and outcomes may differ from the Company’s estimates and assumptions.
Cash and equivalents
Cash and equivalents include highly liquid investments with maturities of three months or less at the date of
acquisition.
Currency and other local regulatory limitations related to the transfer of funds exist in a number of countries
where the Company operates. Funds, other than regular dividends, fees or loan repayments, cannot be
readily transferred abroad from these countries and are therefore deposited and used for working capital
needs locally. These funds are included in cash and equivalents as they are not considered restricted.
Cash and equivalents that are subject to contractual restrictions or other legal obligations and are not readily
available are classified as “Restricted cash”.
Marketable securities and short
‑
term investments
Management determines the appropriate classification of held
‑
to
‑
maturity and available
‑
for
‑
sale debt
securities at the time of purchase. Debt securities are classified as held
‑
to
‑
maturity when the Company has
the positive intent and ability to hold the securities to maturity. Held
‑
to
‑
maturity debt securities are carried at
amortized cost, adjusted for accretion of discounts or amortization of premiums to maturity computed under
the effective interest method. Such accretion or amortization is included in “Interest and dividend income”.
Marketable debt securities not classified as held
‑
to
‑
maturity are classified as available
‑
for
‑
sale and reported
at fair value.
Unrealized gains and losses on available
‑
for
‑
sale debt securities are excluded from the determination of
earnings and are instead recognized in the “Accumulated other comprehensive loss” component of
stockholders’ equity, net of tax, until realized. Realized gains and losses on available
‑
for
‑
sale debt securities
are computed based upon the historical cost of these securities, using the specific identification method.
Marketable debt securities are classified as either “Cash and equivalents” or “Marketable securities and
short
‑
term investments” according to their maturity at the time of acquisition.
Marketable equity securities are generally classified as “Marketable securities and short
‑
term investments”,
however, any marketable securities held as a long
‑
term investment rather than as an investment of excess
liquidity are classified as “Other non
‑
current assets”. Equity securities are measured at fair value with fair
value changes reported in net income. Fair value changes for equity securities are generally reported in
“Interest and other finance expense”, however, fair value changes for certain equity securities classified as
long-term investments are reported in “Other income (expense) , net”.
For debt securities classified as available-for-sale where fair value has declined below amortized cost due to
credit losses, the Company records an allowance for expected credit losses and adjusts the allowance in
subsequent periods in “Interest and other finance expense”. All fair value changes other than those related to
credit risk are reported in “Accumulated other comprehensive loss” until the security is sold.
F-14
In addition, equity securities without readily determinable fair values are remeasured if there is an observable
price change in an orderly transaction for the same investment, or if a qualitative assessment indicates that
the investment is impaired and the fair value of the investment is less than its carrying amount. Similar to
other fair value changes as described above, depending on the nature of the investment, this fair value
change is either recorded in “Other income (expense), net” or “Interest and other finance expense”.
Accounts receivable and allowance for expected credit losses
Accounts receivable are recorded at the invoiced amount. The Company has a group
‑
wide policy on the
management of credit risk. The policy includes a credit assessment methodology to assess the
creditworthiness of customers and assign to those customers a risk category. Third
‑
party agencies’ ratings
are considered, if available. For customers where agency ratings are not available, the customer’s most
recent financial statements, payment history and other relevant information are considered in the assignment
to a risk category. Customers are assessed at least annually or more frequently when information on
significant changes in the customer’s financial position becomes known. In addition to the assignment to a
risk category, a credit limit per customer is set.
The Company recognizes an allowance for credit losses to present the net amount of receivables expected to
be collected at the balance sheet date. The allowance is based on the credit losses expected to arise over
the asset’s contractual term taking into account historical loss experience, customer-specific data as well as
forward looking estimates. The Company’s accounts receivable are first grouped by the individual legal entity
which generally has a geographic concentration of receivables, resulting in different risk levels for different
entities. Receivables are then further subdivided within the entity into pools based on similar risk
characteristics to estimate expected credit losses. Expected credit losses are estimated individually when the
related assets do not share similar risk characteristics.
Accounts receivable are written off when deemed uncollectible and are recognized as a deduction from the
allowance for credit losses. Expected recoveries, which are not to exceed the amount previously written off,
are considered in determining the allowance balance at the balance sheet date.
The Company, in its normal course of business, transfers receivables to third parties, generally without
recourse. The transfer is accounted for as a sale when the Company has surrendered control over the
receivables. Control is deemed to have been surrendered when (i) the transferred receivables have been put
presumptively beyond the reach of the Company and its creditors, even in bankruptcy or other receivership,
(ii) the third
‑
party transferees have the right to pledge or exchange the transferred receivables, and (iii) the
Company has relinquished effective control over the transferred receivables and does not retain the ability or
obligation to repurchase or redeem the transferred receivables. At the time of sale, the sold receivables are
removed from the Consolidated Balance Sheets and the related cash inflows are classified as operating
activities in the Consolidated Statements of Cash Flows. Costs associated with the sale of receivables,
including the related gains and losses from the sales, are included in “Interest and other finance expense”.
Transfers of receivables that do not meet the requirements for treatment as sales are accounted for as
secured borrowings and the related cash flows are classified as financing activities in the Consolidated
Statements of Cash Flows.
Concentrations of credit risk
The Company sells a broad range of products, systems, services and software to a wide range of industrial,
commercial and utility customers as well as various government agencies and quasi
‑
governmental agencies
throughout the world. Concentrations of credit risk with respect to accounts receivable are limited, as the
Company’s customer base is comprised of a large number of individual customers. Ongoing credit
evaluations of customers’ financial positions are performed to determine whether the use of credit support
instruments such as guarantees, letters of credit or credit insurance are necessary; collateral is not generally
required. The Company maintains an allowance for credit losses as discussed above in “Accounts receivable
and allowance for expected credit losses”. Such losses, in the aggregate, are in line with the Company’s
expectations.
F-15
It is the Company’s policy to invest cash in deposits with banks throughout the world with certain minimum
credit ratings and in high quality, low risk, liquid investments. The Company actively manages its credit risk
by routinely reviewing the creditworthiness of the banks and the investments held. The Company has not
incurred significant credit losses related to such investments.
The Company’s exposure to credit risk on derivative financial instruments is the risk that the counterparty will
fail to meet its obligations. To reduce this risk, the Company has credit policies that require the establishment
and periodic review of credit limits for individual counterparties. In addition, the Company has entered into
close
‑
out netting agreements with most derivative counterparties. 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. Derivative instruments are
presented on a gross basis in the Consolidated Financial Statements.
Revenue recognition
A customer contract exists if collectability under the contract is considered probable, the contract has
commercial substance, contains payment terms, as well as the rights and commitments of both parties, and
has been approved.
The Company offers arrangements with multiple performance obligations to meet its customers’ needs.
These arrangements may involve the delivery of multiple products and/or performance of services (such as
installation and training) and the delivery and/or performance may occur at different points in time or over
different periods of time. Goods and services under such arrangements are evaluated to determine whether
they form distinct performance obligations and should be accounted for as separate revenue transactions.
The Company allocates the sales price to each distinct performance obligation based on the price of each
item sold in separate transactions at the inception of the arrangement.
The Company generally recognizes revenues for the sale of non
‑
customized products including circuit
breakers, modular substation packages, control products, motors, generators, drives, robots, turbochargers,
measurement and analytical instrumentation, and other goods which are manufactured on a standardized
basis at a point in time. Revenues are recognized at the point in time that the customer obtains control of the
goods, which is when it has taken title to the products and assumed the risks and rewards of ownership of the
products specified in the purchase order or sales agreement. Generally, the transfer of title and risks and
rewards of ownership are governed by the contractually defined shipping terms. The Company uses various
International Commercial Terms (as promulgated by the International Chamber of Commerce) in its sales of
products to third party customers, such as Ex Works (EXW), Free Carrier (FCA) and Delivered Duty Paid
(DDP).
Billing terms for these point in time contracts vary but generally coincide with delivery to the customer.
Payment is generally due upon receipt of the invoice, payable within 90 days or less.
The Company generally recognizes revenues for the sale of customized products, including integrated
automation and electrification systems and solutions, on an over time basis using the
percentage
‑
of
‑
completion method of accounting. These systems are generally accounted for as a single
performance obligation as the Company is required to integrate equipment and services into one deliverable
for the customer. Revenues are recognized as the systems are customized during the manufacturing or
integration process and as control is transferred to the customer as evidenced by the Company’s right to
payment for work performed or by the customer’s ownership of the work in process. The Company principally
uses the cost
‑
to
‑
cost method to measure progress towards completion on contracts. Under this method,
progress of contracts is measured by actual costs incurred in relation to the Company’s best estimate of total
costs based on the Company’s history of manufacturing or constructing similar assets for customers.
Estimated costs are reviewed and updated routinely for contracts in progress to reflect changes in quantity or
pricing of the inputs. The cumulative effect of any change in estimate is recorded in the period when the
change in estimate is determined. Contract costs include all direct materials, labor and subcontract costs and
indirect costs related to contract performance, such as indirect labor, supplies, tools and depreciation costs.
F-16
The nature of the Company’s contracts for the sale of customized products gives rise to several types of
variable consideration, including claims, unpriced change orders, liquidated damages and penalties. These
amounts are estimated based upon the most likely amount of consideration to which the customer or the
Company will be entitled. The estimated amounts are included in the sales price to the extent it is probable
that a significant reversal of cumulative revenues recognized will not occur when the uncertainty associated
with the variable consideration is resolved. All estimates of variable consideration are reassessed
periodically. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is
determined that recovery of such cost is probable and the amounts can be reliably estimated.
Billing terms for these over
‑
time contracts vary but are generally based on achieving specified milestones.
The differences between the timing of revenues recognized and customer billings result in changes to
contract assets and contract liabilities. Payment is generally due upon receipt of the invoice, payable within
90 days or less. Contractual retention amounts billed to customers are generally due upon expiration of the
contractual warranty period.
Service revenues reflect revenues earned from the Company’s activities in providing services to customers
primarily subsequent to the sale and delivery of a product or complete system. Such revenues consist of
maintenance type contracts, repair services, equipment upgrades, field service activities that include
personnel and accompanying spare parts, training, and installation and commissioning of products as a
stand-alone service or as part of a service contract. The Company generally recognizes revenues from
service transactions as services are performed or at the point in time that the customer obtains control of the
spare parts. For long-term service contracts including monitoring and maintenance services, revenues are
recognized on a straight line basis over the term of the contract consistent with the nature, timing and extent
of the services or, if the performance pattern is other than straight line, as the services are provided based on
costs incurred relative to total expected costs.
In limited circumstances the Company sells extended warranties that extend the warranty coverage beyond
the standard coverage offered on specific products. Revenues for these warranties are recorded over the
length of the warranty period based on their stand
‑
alone selling price.
Billing terms for service contracts vary but are generally based on the occurrence of a service event.
Payment is generally due upon receipt of the invoice, payable within 90 days or less.
Revenues are reported net of customer rebates, early settlement discounts, and similar incentives. Rebates
are estimated based on sales terms, historical experience and trend analysis. The most common incentives
relate to amounts paid or credited to customers for achieving defined volume levels.
Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions
between the Company and its customers, such as sales, use, value added and some excise taxes, are
excluded from revenues.
The Company does not adjust the contract price for the effects of a financing component if the Company
expects, at contract inception, that the time between contro l transfer and cash receipt is less than 12 months.
Sales commissions are expensed immediately when the amortization period for the costs to obtain the
contract is less than a year.
Contract loss provisions
Losses on contracts are recognized in the period when they are identified and are based upon the anticipated
excess of contract costs over the related contract revenues.
Shipping and handling costs
Shipping and handling costs are recorded as a component of cost of sales.
F-17
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first
‑
in,
first
‑
out method, the weighted
‑
average cost method, or the specific identification method. Inventoried costs
are stated at acquisition cost or actual production cost, including direct material and labor and applicable
manufacturing overheads. Adjustments to reduce the cost of inventory to its net realizable value are made, if
required, for decreases in sales prices, obsolescence or similar reductions in value.
Impairment of long
‑
lived assets
Long
‑
lived assets that are held and used are evaluated for impairment for each of the Company’s asset
groups when events or circumstances indicate that the carrying amount of the long-lived asset or asset group
may not be recoverable. If the asset group’s net carrying value exceeds the asset group’s net undiscounted
cash flows expected to be generated over its remaining useful life including net proceeds expected from
disposition of the asset group, if any, the carrying amount of the asset group is reduced to its estimated fair
value. The estimated fair value is determined using a market, income and/or cost approach.
Property, plant and equipment
Property, plant and equipment is stated at cost, less accumulated depreciation and is depreciated using the
straight
‑
line method. The estimated useful lives of the assets are generally as follows:
•
30
40
•
15
•
3
15
•
3
8
•
over the lease term, if shorter.
Goodwill and intangible assets
Goodwill is reviewed for impairment annually as of October 1, or more frequently if events or circumstances
indicate that the carrying value may not be recoverable.
Goodwill is evaluated for impairment at the reporting unit level. A reporting unit is an operating segment or
one level below an operating segment. For the annual impairment reviews performed in 2021 and 2020,
respectively, the reporting units were determined to be one level below the operating segments.
When evaluating goodwill for impairment, the Company uses either a qualitative or quantitative assessment
method for each reporting unit. The qualitative assessment involves determining, based on an evaluation of
qualitative factors, if it is more likely than not that the fair value of a reporting unit is less than its carrying
value. If, based on this qualitative assessment, it is determined to be more likely than not that the reporting
unit’s fair value is less than its carrying value, a quantitative impairment test is performed, otherwise no
further analysis is required. If the Company elects not to perform the qualitative assessment for a reporting
unit, then a quantitative impairment test is performed.
When performing a quantitative impairment test, the Company calculates the fair value of a reporting unit
using an income approach based on the present value of future cash flows, applying a discount rate that
represents the reporting unit’s weighted-average cost of capital, and compares it to the reporting unit’s
carrying value. If the carrying value of the net assets of a reporting unit exceeds the fair value of the reporting
unit then the Company records an impairment charge equal to the difference, provided that the loss
recognized does not exceed the total amount of goodwill allocated to that reporting unit.
F-18
The cost of acquired intangible assets with a finite life is amortized using a method of amortization that
reflects the pattern of intangible assets’ expected contributions to future cash flows. If that pattern cannot be
reliably determined, the straight
‑
line method is used. The amortization periods range from
3
5
software and from
5
20
‑
, technology
‑
‑
related intangibles. Intangible
assets with a finite life are tested for impairment upon the occurrence of certain triggering events.
Derivative financial instruments and hedging activities
The Company uses derivative financial instruments to manage currency, commodity, interest rate and equity
exposures, arising from its global operating, financing and investing activities (see Note 6).
The Company recognizes all derivatives, other than certain derivatives indexed to the Company’s own stock,
at fair value in the Consolidated Balance Sheets. Derivatives that are not designated as hedging instruments
are reported at fair value with derivative gains and losses reported through earnings and classified consistent
with the nature of the underlying transaction.
If the derivatives are designated as a hedge, depending on the nature of the hedge, changes in the fair value
of the derivatives will either be offset against the change in fair value of the hedged item attributable to the
risk being hedged through earnings (in the case of a fair value hedge) or recognized in “Accumulated other
comprehensive loss” until the hedged item is recognized in earnings (in the case of a cash flow hedge).
Where derivative financial instruments have been designated as cash flow hedges of forecasted transactions
and such forecasted transactions are no longer probable of occurring, hedge accounting is discontinued and
any derivative gain or loss previously included in “Accumulated other comprehensive loss” is reclassified into
earnings consistent with the nature of the original forecasted transaction. Gains or losses from derivatives
designated as hedging instruments in a fair value hedge are reported through earnings and classified
consistent with the nature of the underlying hedged transaction.
Certain commercial contracts may grant rights to the Company or the counterparties, or contain other
provisions that are considered to be derivatives. Such embedded derivatives are assessed at inception of the
contract and depending on their characteristics, accounted for as separate derivative instruments and shown
at their fair value in the Consolidated Balance Sheets with changes in their fair value reported in earnings
consistent with the nature of the commercial contract to which they relate.
Derivatives are classified in the Consolidated Statements of Cash Flows in the same section as the
underlying item. Cash flows from the settlement of undesignated derivatives used to manage the risks of
different underlying items on a net basis are classified within “Net cash provided by operating activities”, as
the underlying items are primarily operational in nature. Other cash flows on the settlement of derivatives are
recorded within “Net cash provided by (used in) investing activities”.
Leases
The Company leases primarily real estate, vehicles and machinery .
The Company evaluates if a contract contains a lease at inception of the contract. A contract is or contains a
lease if it conveys the right to control the use of identified property, plant, or equipment (an identified asset)
for a period of time in exchange for consideration. To determine this, the Company assesses whether,
throughout the period of use, it has both the right to obtain substantially all of the economic benefits from the
use of the identified asset and the right to direct the use of the identified asset. Leases are classified as either
finance or operating, with the classification determining the pattern of expense recognition in the
Consolidated Income Statements. Lease expense for operating leases is recorded on a straight-line basis
over the lease term. Lease expense for finance leases is separated between amortization of right-of-use
assets and lease interest expense.
F-19
In many cases, the Company’s leases include one or more options to renew, with renewal terms that can
extend up to 5 years. The exercise of lease renewal options is at the Company’s discretion. Renewal periods
are included in the expected lease term if they are reasonably certain of being exercised by the Company.
Certain leases also include options to purchase the leased property. None of the Company’s lease
agreements contain material residual value guarantees or material restrictions or covenants.
Long-term leases (leases with terms greater than 12 months) are recorded in the Consolidated Balance
Sheets at the commencement date of the lease based on the present value of the minimum lease payments.
The present value of the lease payments is determined by using the interest rate implicit in the lease if
available. As most of the Company’s leases do not provide an implicit rate, the Company’s incremental
borrowing rate is used for most leases and is determined for portfolios of leases based on the remaining
lease term, currency of the lease, and the internal credit rating of the subsidiary which entered into the lease.
Short-term leases (leases with an initial lease term of 12 months or less and where it is reasonably certain
that the property will not be leased for a term greater than 12 months) are not recorded in the Consolidated
Balance Sheets and are expensed on a straight-line basis over the lease term. The majority of short-term
leases relate to real estate and machinery.
Assets under operating lease are included in “Operating lease right-of -use assets”. Operating lease liabilities
are reported both as current and non-current operating lease liabilities. Right-of-use assets represent the
Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to
make lease payments arising from the lease.
Assets under finance lease are included in “Property, plant and equipment, net” while finance lease liabilities
are included in “Long-term debt” (including “Current maturities of long-term debt” as applicable).
Lease and non-lease components for leases other than real estate are not accounted for separately.
Income taxes
The Company uses the asset and liability method to account for deferred taxes. Under this method, deferred
tax assets and liabilities are determined based on temporary differences between the financial reporting and
the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates and laws that are expected to be in effect when the differences are expected to reverse. The Company
records a deferred tax asset when it determines that it is more likely than not that the deduction will be
sustained based upon the deduction’s technical merit. Deferred tax assets and liabilities that can be offset
against each other are reported on a net basis. A valuation allowance is recorded to reduce deferred tax
assets to the amount that is more likely than not to be realized.
Deferred taxes are provided on unredeemed retained earnings of the Company’s subsidiaries. However,
deferred taxes are not provided on such unredeemed retained earnings to the extent it is expected that the
earnings are permanently reinvested. Such earnings may become taxable upon the sale or liquidation of
these subsidiaries or upon the remittance of dividends.
The Company operates in numerous tax jurisdictions and, as a result, is regularly subject to audit by tax
authorities. The Company provides for tax contingencies whenever it is deemed more likely than not that a
tax asset has been impaired or a tax liability has been incurred. Contingency provisions are recorded based
on the technical merits of the Company’s filing position, considering the applicable tax laws and Organisation
for Economic Co
‑
operation and Development (OECD) guidelines and are based on its evaluations of the
facts and circumstances as of the end of each reporting period.
The Company applies a two
‑
step approach to recognize and measure uncertainty in income taxes. The first
step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates
that it is more likely than not that the position will be sustained on audit, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount
which is more than 50 percent likely of being realized upon ultimate settlement. Uncertain tax positions that
could be settled against existing loss carryforwards or income tax credits are reported net.
F-20
Expenses related to tax penalties are classified in the Consolidated Income Statements as “Income tax
expense” while interest thereon is classified as “Interest and other finance expense”. Current income tax
relating to certain items is recognized directly in “Accumulated other comprehensive loss” and not in
earnings. In general, the Company applies the individual items approach when releasing income tax effects
from “Accumulated other comprehensive loss”.
Research and development
Research and development costs not related to specific customer orders are generally expensed as incurred.
Earnings per share
Basic earnings per share is calculated by dividing income by the weighted
‑
average number of shares
outstanding during the year. Diluted earnings per share is calculated by dividing income by the
weighted
‑
average number of shares outstanding during the year, assuming that all potentially dilutive
securities were exercised, if dilutive. Potentially dilutive securities comprise outstanding written call options,
outstanding options and shares granted subject to certain conditions under the Company’s share
‑
based
payment arrangements. See further discussion related to earnings per share in Note 20 and of potentially
dilutive securities in Note 18.
Share
‑
based payment arrangements
The Company has various share
‑
based payment arrangements for its employees, which are described more
fully in Note 18. Such arrangements are accounted for under the fair value method. For awards that are
equity
‑
settled, total compensation is measured at grant date, based on the fair value of the award at that
date, and recorded in earnings over the period the employees are required to render service. For awards that
are cash
‑
settled, compensation is initially measured at grant date and subsequently remeasured at each
reporting period, based on the fair value and vesting percentage of the award at each of those dates, with
changes in the liability recorded in earnings.
Fair value measures
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.
F-21
The levels of the fair value hierarchy are as follows:
Level 1: Valuation inputs consist of quoted prices in an active market for identical assets or
liabilities (observable quoted prices). Assets and liabilities valued using Level 1 inputs
include exchange
‑
traded equity securities, listed derivatives which are actively traded
such as commodity futures, interest rate futures and certain actively traded debt
securities.
Level 2: Valuation inputs consist of observable inputs (other than Level 1 inputs) such as actively
quoted prices for similar assets, quoted prices in inactive markets and inputs other than
quoted prices such as interest rate yield curves, credit spreads, or inputs derived from
other observable data by interpolation, correlation, regression or other means. The
adjustments applied to quoted prices or the inputs used in valuation models may be both
observable and unobservable. In these cases, the fair value measurement is classified as
Level 2 unless the unobservable portion of the adjustment or the unobservable input to
the valuation model is significant, in which case the fair value measurement would be
classified as Level 3. Assets and liabilities valued or disclosed using Level 2 inputs include
investments in certain funds, certain debt securities that are not actively traded, interest
rate swaps, cross-currency interest rate swaps, commodity swaps, cash
‑
settled call
options, forward foreign exchange contracts, foreign exchange swaps and forward rate
agreements, time deposits, as well as financing receivables and debt.
Level 3: Valuation inputs are based on the Company’s assumptions of relevant market data
(unobservable input).
Investments in private equity, real estate and collective funds held within the Company’s pension plans are
generally valued using the net asset value (NAV) per share as a practical expedient for fair value provided
certain criteria are met. The NAVs are determined based on the fair values of the underlying investments in
the funds. These assets are not classified in the fair value hierarchy but are separately disclosed.
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 (MIP), 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.
Disclosures about the Company’s fair value measurements of assets and liabilities are included in Note 7.
Contingencies
The Company is subject to proceedings, litigation or threatened litigation and other claims and inquiries,
related to environmental, labor, product, regulatory, tax (other than income tax) and other matters, and is
required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential
ranges of probable losses. A determination of the provision required, if any, for these contingencies is made
after analysis of each individual issue, often with assistance from both internal and external legal counsel and
technical experts. The required amount of a provision for a contingency of any type may change in the future
due to new developments in the particular matter, including changes in the approach to its resolution.
F-22
The Company records a provision for its contingent obligations when it is probable that a loss will be incurred
and the amount can be reasonably estimated. Any such provision is generally recognized on an
undiscounted basis using the Company’s best estimate of the amount of loss incurred or at the lower end of
an estimated range when a single best estimate is not determinable. In some cases, the Company may be
able to recover a portion of the costs relating to these obligations from insurers or other third parties;
however, the Company records such amounts only when it is probable that they will be collected.
The Company generally provides for anticipated costs for warranties when it delivers the related products.
Warranty costs include calculated costs arising from imperfections in design, material and workmanship in
the Company’s products. The Company makes individual assessments on contracts with risks resulting from
order
‑
specific conditions or guarantees and assessments on an overall, statistical basis for similar products
sold in larger quantities.
The Company may have legal obligations to perform environmental clean
‑
up activities related to land and
buildings as a result of the normal operations of its business. In some cases, the timing or the method of
settlement, or both, are conditional upon a future event that may or may not be within the control of the
Company, but the underlying obligation itself is unconditional and certain. The Company recognizes a
provision for these obligations when it is probable that a liability for the clean
‑
up activity has been incurred
and a reasonable estimate of its fair value can be made. In some cases, a portion of the costs expected to be
incurred to settle these matters may be recoverable. An asset is recorded when it is probable that such
amounts are recoverable. Provisions for environmental obligations are not discounted to their present value
when the timing of payments cannot be reasonably estimated.
Pensions and other postretirement benefits
The Company has a number of defined benefit pension plans, defined contribution pension plans and
termination indemnity plans. The Company recognizes an asset for such a plan’s overfunded status or a
liability for such a plan’s underfunded status in its Consolidated Balance Sheets. Additionally, the Company
measures such a plan’s assets and obligations that determine its funded status as of the end of the year and
recognizes the changes in the funded status in the year in which the changes occur. Those changes are
reported in “Accumulated other comprehensive loss”.
The Company uses actuarial valuations to determine its pension and postretirement benefit costs and credits.
The amounts calculated depend on a variety of key assumptions, including discount rates and expected
return on plan assets. Current market conditions are considered in selecting these assumptions.
The Company’s various pension plan assets are assigned to their respective levels in the fair value hierarchy
in accordance with the valuation principles described in the “Fair value measures” section above.
See Note 17 for further discussion of the Company’s employee benefit plans.
Business combinations
The Company accounts for assets acquired and liabilities assumed in business combinations using the
acquisition method and records these at their respective fair values. Contingent consideration is recorded at
fair value as an element of purchase price with subsequent adjustments recognized in income.
Identifiable intangibles consist of intellectual property such as trademarks and trade names, customer
relationships, patented and unpatented technology, in
‑
process research and development, order backlog and
capitalized software; these are amortized over their estimated useful lives. Such intangibles are subsequently
subject to evaluation for potential impairment if events or circumstances indicate the carrying amount may not
be recoverable. See “Goodwill and intangible assets” above. Acquisition
‑
related costs are recognized
separately from the acquisition and expensed as incurred. Upon gaining control of an entity in which an
equity method or cost basis investment was held by the Company, the carrying value of that investment is
adjusted to fair value with the related gain or loss recorded in income.
F-23
Deferred tax assets and liabilities based on temporary differences between the financial reporting and the tax
base of assets and liabilities as well as uncertain tax positions and valuation allowances on acquired deferred
tax assets assumed in connection with a business combination are initially estimated as of the acquisition
date based on facts and circumstances that existed at the acquisition date. These estimates are subject to
change within the measurement period (a period of up to 12 months after the acquisition date during which
the acquirer may adjust the provisional acquisition amounts) with any adjustments to the preliminary
estimates being recorded to goodwill. Changes in deferred taxes, uncertain tax positions and valuation
allowances on acquired deferred tax assets that occur after the measurement period are recognized in
income.
New accounting pronouncements
Applicable for current period
Simplifying the accounting for income taxes
In January 2021, the Company adopted a new accounting sta ndard update, which enhances and simplifies
various aspects of the income tax accounting guidance related to intraperiod tax allocations, ownership
changes in investments and certain aspects of interim period tax accounting. Depending on the amendment,
the adoption was applied on either a retrospective, modified retrospective, or prospective basis. This update
does not have a significant impact on the Company’s Consolidated Financial Statements.
Applicable for future periods
Facilitation of the effects of reference rate reform on financial reporting
In March 2020, an accounting standard update was issued which provides temporary optional expedients and
exceptions to the current guidance on contract modifications and hedge accounting to ease the financial
reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR)
and other interbank offered rates to alternative reference rates. This update, along with clarifications outlined
in a subsequent update issued in January 2021, can be adopted and applied no later than December 31,
2022, with early adoption permitted. The Company does not expect this update to have a significant impact
on its Consolidated Financial Statements.
Business Combinations — Accounting for contract assets and contract liabilities from contracts with
customers
In October 2021, an accounting standard update was issued which provides guidance on the accounting for
revenue contracts acquired in a business combination. The update requires contract assets and liabilities
acquired in a business combination to be recognized and measured at the date of acquisition in accordance
with the principles for recognizing revenues from contracts with customers. This update is effective
prospectively for the Company for annual and interim reporting periods beginning January 1, 2023, with early
adoption permitted in any interim period. The Company does not expect this update to have a significant
impact on its Consolidated Financial Statements.
Disclosures about government assistance
In November 2021, an accounting standard update was issued which requires entities to disclose certain
types of government assistance. Under the update, the Company is required to annually disclose (i) the type
of the assistance received, including any significant terms and conditions, (ii) its related accounting policy,
and (iii) the effect such transactions have on its financial statements. The update is effective either
prospectively for all in-scope transactions at the date of adoption or retrospectively, for annual periods
beginning January 1, 2022, with early adoption permitted. The Company will adopt this update prospectively
as of January 1, 2022. The Company does not expect this update to have a significant impact on its
Consolidated Financial Statements.
F-24
—
Note 3
Discontinued operations
Divestment of the Power Grids business
On July 1, 2020, the Company completed the sale of
80.1
(Hitachi). The transaction was executed through the sale of
80.1
formerly Hitachi ABB Power Grids Ltd (“Hitachi Energy”). Cash consideration received at the closing date was
$
9,241
19.9
retained by the Company was deemed to have been both divested and reacquired at its fair value on July 1,
2020. The Company also obtained a put option, exercisable with three-months’ notice commencing in April
2023 (to be effective from July 2023), allowing the Company to require Hitachi to purchase the remaining
interest for fair value, subject to a minimum floor price equivalent to a
10
price paid for the initial
80.1
option, which amounted to $
1,779
for as part of the proceeds for the sale of the entire Power Grids business (see Note 4).
In connection with the divestment, the Company recorded liabilities in discontinued operations for estimated
future costs and other cash payments of $
487
business, including required future cost reimbursements payable to Hitachi Energy, costs to be incurred by
the Company for the direct benefit of Hitachi Energy and an amount due to Hitachi Ltd in connection with the
expected purchase price finalization of the closing debt and working capital balances. In October 2021, the
Company and Hitachi concluded an agreement to settle the various amounts owing by the Company. The net
difference between the agreed amounts and the amounts initially estimated by the Company was recorded in
2021 in discontinued operations as an adjustment to “Net gain recognized on sale of the Power Grids
business” in the table below. During 2021 and 2020, total cash payments (including the amounts paid under
the settlement agreement) of $
364
33
liabilities. At December 31, 2021, the remaining amount recorded was $
150
As a result of the Power Grids sale, the Company recognized an initial net gain of $
5,141
transaction costs, for the sale of the entire Power Grids business in Income from discontinued operations, net
of tax, in 2020. Included in the calculation of the net gain was a cumulative translation loss relating to the
Power Grids business of $
420
(see Note 21). Certain amounts included in the net gain were estimated or otherwise subject to change in
value and in 2021 the Company recorded adjustments, including the agreed settlement amount referred to
above, reducing the total net gain by $
65
divestment continue to be subject to uncertainty and will be adjusted in future periods but these adjustments
are not expected to have a material impact on the Consolidated Financial Statements.
In 2020, the Company recorded $
262
connection with the reorganization of the legal entity structure of the Power Grids business required to
facilitate the sale.
Certain entities of the Power Grids business for which the legal process or other regulatory delays resulted in
the Company not yet having transferred legal titles to Hitachi were accounted for as being sold from the initial
divestment date since control of the business as well as all risks and rewards of the business were fully
transferred to Hitachi Energy. At December 31, 2021, substantially all of these delayed entities have been
legally transferred to Hitachi. The proceeds for these entities were included in the cash proceeds described
above and certain funds were placed in escrow pending completion of the transfer process. At December 31,
2021 and 2020, current restricted cash includes $
12
302
proceeds.
F-25
In connection with the divestment, the Company recognized liabilities in discontinued operations for certain
indemnities (see Note 15 for additional information) and also recorded an initial liability of $
258
representing the fair value of the right granted to Hitachi Energy for the use of the ABB brand for up to
8
Upon closing of the sale, the Company entered into various transition services agreements (TSAs). Pursuant
to these TSAs, the Company and Hitachi Energy provide to each other, on an interim, transitional basis,
various services. The services provided by the Company primarily include finance, information technology,
human resources and certain other administrative services. Under the current terms, the TSAs will continue
for up to
3
additional period which is reasonably necessary to avoid a material adverse impact on the business. In 2021
and 2020, the Company recognized within its continuing operations, general and administrative expenses
incurred to perform the TSAs, offset by $
173
91
such services that is reported in Other income (expense ), net.
Discontinued operations
As a result of the sale of the Power Grids business, substantially all Power Grids-related assets and liabilities
have been sold. As this divestment represented a strategic shift that would have a major effect on the
Company’s operations and financial results, the results of operations for this business have been presented
as discontinued operations and the assets and liabilities are presented as held for sale and in discontinued
operations for all periods presented. Certain of the business contracts in the Power Grids business continue
to be executed by subsidiaries of the Company for the benefit/risk of Hitachi Energy. Assets and liabilities
relating to, as well as the net financial results of, these contracts will continue to be included in discontinued
operations until they have been completed or otherwise transferred to Hitachi Energy.
Prior to the divestment, interest expense that was not directly attributable to or related to the Company’s
continuing business or discontinued business was allocated to discontinued operations based on the ratio of
net assets to be sold less debt that was required to be paid as a result of the planned disposal transaction to
the sum of total net assets of the Company plus consolidated debt. General corporate overhead was not
allocated to discontinued operations.
Operating results of the discontinued operations are summarized as follows:
($ in millions)
2021
2020
2019
Total revenues
—
4,008
9,037
Total cost of sales
—
(3,058)
(6,983)
Gross profit
—
950
2,054
Expenses
(18)
(808)
(1,394)
Change to net gain recognized on sale of the Power Grids business
(65)
5,141
—
Income (loss) from operations
(83)
5,282
660
Net interest income (expense) and other finance expense
2
(5)
(61)
Non-operational pension (cost) credit
—
(94)
5
Income (loss) from discontinued operations before taxes
(81)
5,182
605
Income tax
1
(322)
(167)
Income (loss) from discontinued operations, net of tax
(80)
4,860
438
Of the total Income (loss) from discontinued operations before taxes in the table above, $
(80)
$
5,170
566
the remainder is attributable to noncontrolling interests.
F-26
Until the date of the divestment, Income (loss) from discontinued operations before taxes excluded stranded
costs which were previously able to be allocated to the Power Grids operating segment. As a result,
$
40
225
costs which were previously 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 income (expense)
and other finance expense in 2020 and 2019 includes $
20
44
expense which has been recorded on an allocated basis in accordance with the Company’s accounting policy
election until the divestment date.
Included in the reported Total revenues of the Company for 2020 and 2019 are revenues for sales from the
Company’s operating segments to the Power Grids business of $
108
213
which represent intercompany transactions that, prior to Power Grids being classified as a discontinued
operation, were eliminated in the Company’s Consolidated Financial Statements (see Note 23). Subsequent
to the divestment, sales to Hitachi Energy are reported as third-party revenues.
In addition, the Company also has retained obligations (primarily for environmental and taxes) related to other
businesses disposed or otherwise exited that qualified as discontinued operations. Changes to these retained
obligations are also included in Income (loss) from discontinued operations, net of tax, above.
The major components of assets and liabilities held for sale and in discontinued operations in the Company’s
Consolidated Balance Sheets are summarized as follows:
December 31, 2021 ($ in millions)
(1)
(1)
Receivables, net
131
280
Inventories, net
—
1
Other current assets
5
1
Current assets held for sale and in discontinued operations
136
282
Accounts payable, trade
71
188
Other liabilities
310
456
Current liabilities held for sale and in discontinued operations
381
644
Other non-current liabilities
43
197
Non-current liabilities held for sale and in discontinued operations
43
197
(1) At December 31, 2021 and 2020, the balances reported as held for sale and in discontinued operations pertain to Power Grids activities and
other obligations which will remain with the Company until such time as the obligation is settled or the activities are fully wound down.
—
Note 4
Acquisitions, divestments and equity-accounted companies
Acquisition of controlling interests
Acquisitions of controlling interests were as follows:
($ in millions, except number of acquired businesses)
2021
2020
2019
Purchase price for acquisitions (net of cash acquired)
212
79
—
Aggregate excess of purchase price over fair value of net assets acquired
(1)
161
92
92
Number of acquired businesses
2
3
—
(1) Recorded as goodwill (see Note 11). Includes adjustments of $
92
primarily reflecting changes in the valuation of net working capital, deferred tax liabilities and intangible assets acquired.
F-27
In the table above, the “Purchase price for acquisitions” and “Aggregate excess of purchase price over fair
value of net assets acquired” amounts for 2021, relate primarily to the acquisition of ASTI Mobile Robotics
Group SL (ASTI). In 2020 and 2019, there were no significant acquisitions.
Acquisitions of controlling interests have been accounted for under the acquisition method and have been
included in the Company’s Consolidated Financial Statements since the date of acquisition.
On August 2, 2021, the Company acquired the shares of ASTI. ASTI is headquartered in Burgos, Spain, and
is a global autonomous mobile robot (AMR) manufacturer. The resulting cash outflows for the Company
amounted to $
186
automation offering in its Robotics & Discrete Automation operating segment.
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 acquisition in 2018 of GEIS
(General Electric’s global electrification solutions business) was finalized during the second quarter of 2019
and resulted in $
92
changes in the valuation of net working capital, deferred tax liabilities and intangible assets acquired.
In addition, in November 2019, the Company recognized a gain of $
92
from General Electric for a favorable resolution of an uncertainty with respect to the price paid to acquire
GEIS. This occurred after the end of the measurement period and as a result, the Company recorded a gain
in “Other income (expense), net”.
Acquisition of noncontrolling interests
In connection with the divestment of its Power Grids business to Hitachi (see Note 3), the Company retained
a
19.9
19.9
been both divested and reacquired, with a fair value at the transaction date of $
1,661
was based on a discounted cash flow model considering the expected results of the future business
operations of Hitachi Energy and using relevant market inputs including a risk-adjusted weighted-average
cost of capital. The Company also obtained a right to require Hitachi to purchase this investment (see Note 3)
with a floor price equivalent to a
10
80.1
118
considering the nature of the investment and the expected period until option exercise. As this option is not
separable from the investment the value has been combined with the value of the underlying investment and
is accounted for together.
Hitachi also holds a call option which would require the Company to sell the remaining
19.9
in Hitachi Energy at a price consistent with what was paid by Hitachi to acquire the initial
80.1
fair value, if higher. The option is exercisable with three-months’ notice from April 2023, to be effective from
July 2023.
The Company has concluded that based on its continuing involvement with the Power Grids business,
including membership in its governing board of directors, it has significant influence over Hitachi Energy. As a
result, the investment (including the value of the option) is accounted for using the equity method.
F-28
The difference between the initial carrying value of the Company's investment in Hitachi Energy at fair value
and its proportionate share of the underlying net assets created basis differences of $
8,570
($
1,705
19.9
Weighted-average
($ in millions)
Allocated amounts
useful life
Inventories
169
5 months
Order backlog
727
2 years
Property, plant and equipment
(1)
1,016
Intangible assets
(2)
1,731
9 years
Other contractual rights
251
2 years
Other assets
43
Deferred tax liabilities
(942)
Goodwill
6,026
Less: Amount attributed to noncontrolling interest
(451)
Basis difference
8,570
(1)
Property, plant and equipment includes assets subject to amortization having an initial fair value difference of $
686
weighted-average useful life of
14 years
.
(2)
Intangible assets include brand license agreement, technology and customer relationships.
For assets subject to depreciation or amortization, the Company amortizes these basis differences over the
estimated remaining useful lives of the assets that gave rise to this difference, recording the amortization, net
of related deferred tax benefit, as a reduction of income from equity-accounted companies. Certain other
assets are recorded as an expense as the benefits from the assets are realized. At December 31, 2021, the
Company determined that no impairment of its equity-accounted investments existed.
The carrying value of the Company’s investments in equity-accounted companies and respective percentage
of ownership is as follows:
Ownership as of
Carrying value at December 31,
($ in millions, except ownership share in %)
December 31, 2021
2021
2020
Hitachi Energy Ltd
19.9%
1,609
1,710
Others
61
74
Total
1,670
1,784
In 2021, 2020 and 2019, the Company recorded its share of the earnings of investees accounted for under
the equity method of accounting in Other income (expense), net, as follows:
($ in millions)
2021
2020
2019
Income from equity-accounted companies, net of taxes
38
29
8
Basis difference amortization (net of deferred income tax benefit)
(138)
(95)
—
Income (loss) from equity-accounted companies
(100)
(66)
8
F-29
Business divestments
In 2021, the Company received proceeds (net of transactions costs and cash disposed) of $
2,958
relating to divestments of consolidated businesses and recorded gains of $
2,193
(expense), net” on the sales of such businesses. These are primarily due to the divestment of the Company’s
Mechanical Power Transmission Division (Dodge) to RBC Bearings Inc. Certain amounts included in the net
gain for the sale of the Dodge business are estimated or otherwise subject to change in value and, as a
result, the Company may record additional adjustments to the gain in future periods which are not expected
to have a material impact on the Consolidated Financial Statements. In 2021, 2020 and 2019 “Income from
continuing operations before taxes”, included net income of $
115
96
111
million,
respectively, from the Dodge business which, prior to its sale was part of the Company’s Motion operating
segment.
In 2020, the Company completed the sale of its Power Grids business (see Note 3 for details) and its solar
inverters business. In 2019, the Company recorded net gains (including transactions costs) of $
55
primarily due to the divestment of two businesses in China.
Divestment of the solar inverters business
In February 2020, the Company completed the sale of its solar inverters business for
no
the agreement, which was reached in July 2019, the Company was required to transfer $
143
to the buyer on the closing date. In addition, payments totaling EUR
132
145
be transferred to the buyer from 2020 through 2025. In 2019, the Company recorded a loss of $
421
“Other income (expense), net”, representing the excess of the carrying value, which includes a loss of
$
99
In 2020, a further loss of $33 million was recorded in “Other income (expense), net” for changes in fair value
of this business. The loss in 2020 includes the $
99
of the currency translation adjustment related to the business.
The fair value was based on the estimated current market values using Level 3 inputs, considering the
agreed-upon sale terms with the buyer. The solar inverters business, which includes the solar inverter
business acquired as part of the Power-One acquisition in 2013, was part of the Company’s Electrification
operating segment.
As this divestment does not qualify as a discontinued operation, the results of operations for this business
prior to its disposal are included in the Company’s continuing operations for all periods presented.
Including the above loss of $
33
continuing operations before taxes includes net losses of $
63
490
inverters business.
F-30
—
Note 5
Cash and equivalents, marketable securities and short-term investments
Cash and equivalents and marketable securities and short
‑
term investments consisted of the following:
Marketable
securities
Gross
Gross
and
unrealized
unrealized
Cash and
short-term
December 31, 2021 ($ in millions)
Cost basis
gains
losses
Fair value
equivalents
investments
Changes in fair value recorded in
net income
Cash
2,752
2,752
2,752
Time deposits
2,037
2,037
1,737
300
Equity securities
569
18
587
587
5,358
18
—
5,376
4,489
887
Changes in fair value recorded in
other comprehensive income
Debt securities available-for-sale:
—U.S. government obligations
203
7
(1)
209
209
—Corporate
74
1
(1)
74
74
277
8
(2)
283
—
283
Total
5,635
26
(2)
5,659
4,489
1,170
Of which:
—Restricted cash, current
30
—Restricted cash, non-current
300
Marketable
securities
Gross
Gross
and
unrealized
unrealized
Cash and
short-term
December 31, 2020 ($ in millions)
Cost basis
gains
losses
Fair value
equivalents
investments
Changes in fair value recorded in
net income
Cash
2,388
2,388
2,388
Time deposits
1,513
1,513
1,513
Equity securities
1,704
12
1,716
1,716
5,605
12
—
5,617
3,901
1,716
Changes in fair value recorded in
other comprehensive income
Debt securities available-for-sale:
—U.S. government obligations
274
19
293
293
—European government obligations
24
24
24
—Corporate
69
6
75
75
367
25
—
392
—
392
Total
5,972
37
—
6,009
3,901
2,108
Of which:
—Restricted cash, current
323
—Restricted cash, non-current
300
F-31
Contractual maturities
Contractual maturities of debt securities consisted of the following:
Available-for-sale
December 31, 2021 ($ in millions)
Cost basis
Fair value
Less than one year
1
1
One to five years
178
181
Six to ten years
92
94
Due after ten years
6
7
Total
277
283
At December 31, 2021 and 2020, the Company pledged $
66
66
available
‑
for
‑
sale marketable securities as collateral for issued letters of credit and other security
arrangements.
—
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
foreign currency denominated exposures, depending on the length of the forecasted exposures. Forecasted
exposures greater than
12
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
100
commodity exposure over the next
12
18
contracts are used to manage the associated price risks of commodities.
F-32
Interest rate risk
The Company has issued bonds at fixed rates. Interest rate swaps and cross-currency interest rate swaps
are used to manage the interest rate and foreign currency risk associated with certain debt and generally
such swaps are designated as fair value hedges. In addition, from time to time, the Company uses
instruments such as interest rate swaps, interest rate futures, bond futures or forward rate agreements to
manage interest rate risk arising from the Company’s balance sheet structure but does not designate such
instruments as hedges.
Equity risk
The Company is exposed to fluctuations in the fair value of its warrant appreciation rights (WARs) issued
under its MIP (Management Incentive Plan) (see Note 18). 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,
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 December 31,
($ in millions)
2021
2020
2019
Foreign exchange contracts
11,276
12,610
15,015
Embedded foreign exchange derivatives
815
1,134
924
Cross-currency interest rate swaps
906
—
—
Interest rate contracts
3,541
3,227
5,188
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:
Total notional amounts at December 31,
Type of derivative
Unit
2021
2020
2019
Copper swaps
metric tonnes
36,017
39,390
42,494
Silver swaps
ounces
2,842,533
1,966,677
2,508,770
Aluminum swaps
metric tonnes
7,125
8,112
8,388
Equity derivatives
At December 31, 2021, 2020 and 2019, the Company held
9
22
40
‑
settled
call options indexed to ABB Ltd shares (conversion ratio
5
:1) with a total fair value of $
29
21
and $
26
F-33
Cash flow hedges
As noted above, the Company mainly uses forward foreign exchange contracts to manage the foreign
exchange risk of its operations, commodity swaps to manage its commodity risks and cash
‑
settled call
options to hedge its WAR liabilities. The Company applies cash flow hedge accounting in only limited cases.
In these cases, the effective portion of the changes in their fair value is recorded in “Accumulated other
comprehensive loss” and subsequently reclassified into earnings in the same line item and in the same
period as the underlying hedged transaction affects earnings. In 2021, 2020 and 2019, there were
no
significant amounts recorded for cash flow hedge accounting activities.
Fair value hedges
To reduce its interest rate exposure arising primarily from its debt issuance activities, the Company uses
interest rate swaps and cross-currency interest rate swap s. 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”.
The effect of derivative instruments, designated and qualifying as fair value hedges, on the Consolidated
Income Statements was as follows:
($ in millions)
2021
2020
2019
Gains (losses) recognized in Interest and other finance expense:
Interest rate contracts
Designated as fair value hedges
(55)
11
38
Hedged item
56
(11)
(38)
Cross-currency
Designated as fair value hedges
(37)
—
—
interest rate swaps
Hedged item
34
—
—
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.
F-34
The gains (losses) recognized in the Consolidated Income Statements on derivatives not designated in
hedging relationships were as follows:
($ in millions)
Gains (losses) recognized in income
Type of derivative not designated as a hedge
Location
2021
2020
2019
Foreign exchange contracts
Total revenues
3
94
(7)
Total cost of sales
(53)
—
(64)
SG&A expenses
(1)
11
(11)
2
Non-order related research and
development
(2)
(2)
1
Interest and other finance
expense
(173)
207
(122)
Embedded foreign exchange contracts
Total revenues
(7)
(34)
17
Total cost of sales
(2)
(1)
(6)
Commodity contracts
Total cost of sales
78
56
12
Other
Interest and other finance
expense
—
1
—
Total
(145)
310
(167)
(1) SG&A expenses represent “Selling, general and administrative expenses”.
The fair values of derivatives included in the Consolidated Balance Sheets were as follows:
Derivative assets
Derivative liabilities
Current in
Non-current
Current in
Non-current
“Other
in “Other
“Other
in “Other
current
non-current
current
non-current
December 31, 2021 ($ in millions)
assets”
assets”
liabilities”
liabilities”
Derivatives designated as hedging instruments:
Foreign exchange contracts
—
—
3
5
Interest rate contracts
9
20
—
—
Cross-currency interest rate swaps
—
—
—
109
Cash-settled call options
29
—
—
—
Total
38
20
3
114
Derivatives not designated as hedging instruments:
Foreign exchange contracts
108
14
107
7
Commodity contracts
19
—
5
—
Interest rate contracts
1
—
2
—
Embedded foreign exchange derivatives
10
7
16
10
Total
138
21
130
17
Total fair value
176
41
133
131
F-35
Derivative assets
Derivative liabilities
Current in
Non-current
Current in
Non-current
“Other
in “Other
“Other
in “Other
current
non-current
current
non-current
December 31, 2020 ($ in millions)
assets”
assets”
liabilities”
liabilities”
Derivatives designated as hedging instruments:
Foreign exchange contracts
—
1
2
4
Interest rate contracts
6
78
—
—
Cash-settled call options
10
11
—
—
Total
16
90
2
4
Derivatives not designated as hedging instruments:
Foreign exchange contracts
221
22
106
26
Commodity contracts
59
—
7
—
Interest rate contracts
2
—
2
—
Embedded foreign exchange derivatives
10
2
28
16
Total
292
24
143
42
Total fair value
308
114
145
46
Close
‑
out netting agreements provide for the termination, valuation and net settlement of some or all
outstanding transactions between two counterparties on the occurrence of one or more pre
‑
defined trigger
events.
Although the Company is party to close
‑
out netting agreements with most derivative counterparties, the fair
values in the tables above and in the Consolidated Balance Sheets at December 31, 2021 and 2020, have
been presented on a gross basis.
The Company’s netting agreements and other similar arrangements allow net settlements under certain
conditions. At December 31, 2021 and 2020, information related to these offsetting arrangements was as
follows:
December 31, 2021 ($ in millions)
Gross amount of
Derivative liabilities
Cash
Non-cash
Type of agreement or
recognized
eligible for set-off in
collateral
collateral
Net asset
similar arrangement
assets
case of default
received
received
exposure
Derivatives
200
(104)
—
—
96
Total
200
(104)
—
—
96
December 31, 2021 ($ in millions)
Gross amount of
Derivative liabilities
Cash
Non-cash
Type of agreement or
recognized
eligible for set-off in
collateral
collateral
Net liability
similar arrangement
liabilities
case of default
pledged
pledged
exposure
Derivatives
238
(104)
—
—
134
Total
238
(104)
—
—
134
F-36
December 31, 2020 ($ in millions)
Gross amount of
Derivative liabilities
Cash
Non-cash
Type of agreement or
recognized
eligible for set-off in
collateral
Net asset
similar arrangement
assets
case of default
received
received
exposure
Derivatives
410
(106)
—
—
304
Total
410
(106)
—
—
304
December 31, 2020 ($ in millions)
Gross amount of
Derivative liabilities
Cash
Non-cash
Type of agreement or
recognized
eligible for set-off in
collateral
Net liability
similar arrangement
liabilities
case of default
pledged
pledged
exposure
Derivatives
147
(106)
—
—
41
Total
147
(106)
—
—
41
—
Note 7
Fair values
Recurring fair value measures
The fair values of financial assets and liabilities measured at fair value on a recurring basis were as follows:
Total
December 31, 2021 ($ in millions)
Level 1
Level 2
Level 3
fair value
Assets
Securities in “Marketable securities and short-term investments”:
Equity securities
587
587
Debt securities—U.S. government obligations
209
209
Debt securities—Corporate
74
74
Derivative assets—current in “Other current assets”
176
176
Derivative assets—non-current in “Other non-current assets”
41
41
Total
209
878
—
1,087
Liabilities
Derivative liabilities—current in “Other current liabilities”
133
133
Derivative liabilities—non-current in “Other non-current liabilities”
131
131
Total
—
264
—
264
F-37
Total
December 31, 2020 ($ in millions)
Level 1
Level 2
Level 3
fair value
Assets
Securities in “Marketable securities and short-term investments”:
Equity securities
1,716
1,716
Debt securities—U.S. government obligations
293
293
Debt securities—Other government obligations
24
24
Debt securities—Corporate
75
75
Derivative assets—current in “Other current assets”
308
308
Derivative assets—non-current in “Other non-current assets”
114
114
Total
317
2,213
—
2,530
Liabilities
Derivative liabilities—current in “Other current liabilities”
145
145
Derivative liabilities—non-current in “Other non-current liabilities”
46
46
Total
—
191
—
191
During 2021, 2020 and 2019 there have been
no
between Level 1 and Level 2.
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”:
markets for identical assets are available, these are considered Level 1 inputs; however, when
markets are not active, these inputs are considered Level 2. If such quoted market prices are not
available, fair value is determined using market prices for similar assets or present value
techniques, applying an appropriate risk
‑
free interest rate adjusted for non
‑
performance risk. The
inputs used in present value techniques are observable and fall into the Level 2 category.
•
Derivatives:
The fair values of derivative instruments are determined using quoted prices of
identical instruments from an active market, if available (Level 1 inputs). If quoted prices are not
available, price quotes for similar instruments, appropriately adjusted, or present value
techniques, based on available market data, or option pricing models are used. Cash
‑
settled call
options hedging the Company’s WAR liability are valued based on bid prices of the equivalent
listed warrant. The fair values obtained using price quotes for similar instruments or valuation
techniques represent a Level 2 input unless significant unobservable inputs are used.
Non
‑
recurring fair value measures
The Company elects to record private equity investments without readily determinable fair values at cost, less
impairment, adjusted for observable price changes. The Company reassesses at each reporting period
whether these investments continue to qualify for this treatment. In 2021 and 2020, the Company recognized,
in “Other income (expense), net”, net fair value gains of $
108
73
certain of its private equity investments based on observable market price changes for an identical or similar
investment of the same issuer. The fair values were determined using Level 2 inputs. The carrying values of
these investments at December 31, 2021 and 2020 totaled $
169
105
Based on valuations at July 1, 2020, the Company recorded goodwill impairment charges of $
311
the third quarter of 2020. The fair value measurements used in the analyses were calculated using the
income approach (discounted cash flow method). The discounted cash flow models were calculated using
unobservable inputs, which classified the fair value measurement as Level 3 (see Note 11 for additional
information including further detailed information related to these charges and significant unobservable
inputs).
F-38
In June 2019, upon meeting the criteria as held for sale, the Company adjusted the carrying value of the solar
inverters business which was sold in February 2020 (See Note 4 for details). Apart from the transactions
above, there were
no
‑
recurring fair value measurements during 2021 and 2020 .
Disclosure about financial instruments carried on a cost basis
The fair values of financial instruments carried on a cost basis were as follows:
Carrying
Total
December 31, 2021 ($ in millions)
value
Level 1
Level 2
Level 3
fair value
Assets
Cash and equivalents (excluding securities
with original maturities up to 3 months):
Cash
2,422
2,422
2,422
Time deposits
1,737
1,737
1,737
Restricted cash
30
30
30
Marketable securities and short-term investments (excluding
securities):
Time deposits
300
300
300
Restricted cash, non-current
300
300
300
Liabilities
Short-term debt and current maturities of long-term debt
(excluding finance lease obligations)
1,357
1,288
69
1,357
Long-term debt (excluding finance lease obligations)
4,043
4,234
58
4,292
Carrying
Total
December 31, 2020 ($ in millions)
value
Level 1
Level 2
Level 3
fair value
Assets
Cash and equivalents (excluding securities
with original maturities up to 3 months):
Cash
1,765
1,765
1,765
Time deposits
1,513
1,513
1,513
Restricted cash
323
323
323
Restricted cash, non-current
300
300
300
Liabilities
Short-term debt and current maturities of long-term debt
(excluding finance lease obligations)
1,266
497
769
1,266
Long-term debt (excluding finance lease obligations)
4,668
4,909
89
4,998
The Company uses the following methods and assumptions in estimating fair values of financial instruments
carried on a cost basis:
•
Cash and equivalents (excluding securities with original maturities up to 3 months), Restricted
cash, current and non-current, and Marketable securities and short
‑
term investments (excluding
securities):
‑
term in
nature or, for cash held in banks, are equal to the deposit amount.
•
Short
‑
term debt and current maturities of long
‑
term debt (excluding finance lease obligations):
Short
‑
term debt includes commercial paper, bank borrowings and overdrafts. The carrying
amounts of short
‑
term debt and current maturities of long
‑
term debt, excluding finance lease
obligations, approximate their fair values.
F-39
•
Long
‑
term debt (excluding finance lease obligations):
Fair values of bonds are determined using
quoted market prices (Level 1 inputs), if available. For bonds without available quoted market
prices and other long
‑
term debt, the fair values are determined using a discounted cash flow
methodology based upon borrowing rates of similar debt instruments and reflecting appropriate
adjustments for non
‑
performance risk (Level 2 inputs).
—
Note 8
Receivables, net and Contract assets and liabilities
“Receivables, net” consisted of the following:
December 31, ($ in millions)
2021
2020
Trade receivables
6,206
6,417
Other receivables
684
760
Allowance
(339)
(357)
Total
6,551
6,820
“Trade receivables” in the table above includes contractual retention amounts billed to customers of
$
119
146
substantial majority of related contracts will be completed and the substantial majority of the billed amounts
retained by the customer will be collected. Of the retention amounts outstanding at December 31, 2021,
60
29
“Other receivables” in the table above consists of value added tax, claims, rental deposits and other
non
‑
trade receivables.
The reconciliation of changes in the allowance for doubtful accounts is as follows:
($ in millions)
2021
2020
2019
Balance at January 1,
357
228
219
Transition adjustment
—
56
—
Current-period provision for expected credit losses
33
115
31
Write-offs charged against the allowance
(37)
(42)
(19)
Exchange rate differences
(14)
—
(3)
Balance at December 31,
339
357
228
The following table provides information about Contract assets and Contract liabilities:
($ in millions)
2021
2020
2019
Contract assets
990
985
1,025
Contract liabilities
1,894
1,903
1,719
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. Management expects that the majority of the amounts will
be collected within one year of the respective balance sheet date.
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.
F-40
The significant changes in the Contract assets and Contract liabilities balances were as follows:
2021
2020
Contract
Contract
Contract
Contract
($ in millions)
assets
liabilities
assets
liabilities
Revenue recognized, which was included in the Contract liabilities
balance at January 1, 2021/2020
(1,086)
(1,011)
Additions to Contract liabilities - excluding amounts recognized as
revenue during the period
1,136
1,129
Receivables recognized that were included in the Contract assets
balance at January 1, 2021/2020
(566)
(680)
The Company considers its order backlog to represent its unsatisfied performance obligations. At
December 31, 2021, the Company had unsatisfied performance obligations totaling $
16,607
this amount, the Company expects to fulfill approximately
75
approximately
14
—
Note 9
Inventories, net
“Inventories, net” consisted of the following:
December 31, ($ in millions)
2021
2020
Raw materials
2,136
1,785
Work in process
995
1,020
Finished goods
1,594
1,499
Advances to suppliers
155
165
Total
4,880
4,469
—
Note 10
Property, plant and equipment, net
“Property, plant and equipment, net” consisted of the following:
December 31, ($ in millions)
2021
2020
Land and buildings
3,925
3,889
Machinery and equipment
5,785
6,144
Construction in progress
522
505
10,232
10,538
Accumulated depreciation
(6,187)
(6,364)
Total
4,045
4,174
F-41
Assets under finance leases included in “Property, plant and equipment, net” were as follows:
December 31, ($ in millions)
2021
2020
Land and buildings
164
169
Machinery and equipment
92
79
256
248
Accumulated depreciation
(123)
(111)
Total
133
137
In 2021, 2020 and 2019 depreciation, including depreciation of assets under finance leases, was
$
575
586
616
impairments of property, plant or equipment.
—
Note 11
Goodwill and intangible assets
The changes in “Goodwill” were as follows:
Robotics &
Process
Discrete
Corporate
($ in millions)
Electrification
Motion
Automation
Automation
and Other
Total
Balance at January 1, 2020
4,372
2,436
1,615
2,381
21
10,825
Goodwill acquired during the year
71
—
—
21
—
92
Impairment of Goodwill
—
—
—
(290)
(21)
(311)
Exchange rate differences and other
84
20
24
116
—
244
Balance at December 31, 2020
(1)
4,527
2,456
1,639
2,228
—
10,850
Goodwill acquired during the year
11
—
—
150
—
161
Goodwill allocated to disposals
—
(338)
(7)
—
—
(345)
Exchange rate differences and other
(66)
(1)
(19)
(98)
—
(184)
Balance at December 31, 2021
(1)
4,472
2,117
1,613
2,280
—
10,482
(1) At December 31, 2021 and 2020, the gross goodwill amounted to $
10,760
11,152
impairment charges amounted to $
278
302
The Company adopted a new operating model on July 1, 2020, which resulted in a change to the
identification of the goodwill reporting units. Previously, the reporting units were the same as the operating
segments for Electrification, Motion and Robotics & Discrete Automation, while for the Process Automation
operating segment the reporting units were determined to be at the Division level, which is one level below
the operating segment. The new operating model provides the Divisions with full ownership and
accountability for their respective strategies, performance and resources and based on these changes, the
Company concluded that the reporting units would change and be the respective Divisions within each
operating segment. This change resulted only in an allocation of goodwill within the operating segments and
thus there is no change to segment level goodwill in the table above.
As a result of the new allocation of goodwill, an interim quantitative impairment test was conducted both
before and after the changes which were effective July 1, 2020. In the “before” test, it was concluded that the
fair value of the Company’s reporting units exceeded the carrying value under the historical reporting unit
structure.
F-42
The impairment test was performed for the new reporting units and the fair value of each was determined
using a discounted cash flow fair value estimate based on objective information available at the measurement
date. The significant assumptions used to develop the estimates of fair value for each reporting unit included
management’s best estimates of the expected future results and discount rates specific to the reporting unit.
The fair value estimates were based on assumptions that the Company believed to be reasonable, but which
are inherently uncertain and thus, actual results may differ from those estimates. The fair values for each of
the individual reporting units and their associated goodwill were determined using Level 3 measurements.
The interim quantitative impairment test indicated that the estimated fair values of the reporting units were
substantially in excess of their carrying value for all reporting units except for the Machine Automation
reporting unit within the Robotics & Discrete Automation operating segment. The contraction of the global
economy in 2020, particularly in end-customer industries related to this reporting unit and considerable
uncertainty around the continued pace of macroeconomic recovery generally led to a reduction in the fair
values of the reporting units, thus affecting this reporting unit. Also, at the Division level, this reporting unit
does not benefit from shared cash flows generated within an entire operating segment. In addition, the book
value of the Machine Automation Division includes a significant amount of intangible assets recognized in
past acquisitions, resulting in a proportionately higher book value than the other reporting unit within the
Robotics & Discrete Automation Business Area. With the fair value of the reporting unit lower due to the
economic conditions, the existing book value of the intangible assets combined with the newly allocated
reporting unit goodwill led to the carrying value of the Machine Automation reporting unit exceeding its fair
value. During 2020, a goodwill impairment charge of $
290
of this reporting unit to its implied fair value. The remaining goodwill for the Machine Automation reporting unit
was $
554
During 2021, certain reporting units were split into separate reporting units. For each change, an interim
quantitative impairment test was conducted before and after the change and in all cases, it was concluded
that the fair value of the relevant reporting units exceeded the carrying value by a significant amount.
At October 1, 2021 and 2020, respectively, the Company performed qualitative assessments and determined
that it was not more likely than not that the fair value for each of these reporting units was below the carrying
value. As a result, the Company concluded that it was not necessary to perform the quantitative impairment
test.
“Intangible assets, net” consisted of the following:
2021
2020
Gross
Accumu-
Net
Gross
Accumu-
Net
carrying
lated amort-
carrying
carrying
lated amort-
carrying
December 31, ($ in millions)
amount
ization
amount
amount
ization
amount
Capitalized software for internal use
835
(732)
103
828
(694)
134
Capitalized software for sale
31
(29)
2
33
(32)
1
Intangibles other than software:
Customer-related
1,716
(707)
1,009
2,557
(1,104)
1,453
Technology -related
1,122
(868)
254
1,170
(898)
272
Marketing-related
493
(327)
166
492
(304)
188
Other
56
(29)
27
63
(33)
30
Total
4,253
(2,692)
1,561
5,143
(3,065)
2,078
In 2021 and 2020, additions to intangible assets were $
95
78
.
There were no significant intangible assets acquired in business combinations during 2021 and 2020.
F-43
Amortization expense of intangible assets consisted of the following:
($ in millions)
2021
2020
2019
Capitalized software for internal use
66
61
74
Intangibles other than software
252
268
271
Total
318
329
345
In 2021, 2020 and 2019, impairment charges on intangible assets were not significant.
At December 31, 2021, future amortization expense of intangible assets is estimated to be:
($ in millions)
2022
276
2023
249
2024
199
2025
155
2026
142
Thereafter
540
Total
1,561
—
Note 12
Debt
The Company’s total debt at December 31, 2021 and 2020, amounted to $
5,561
6,121
respectively.
Short
‑
term debt and current maturities of lon
g̩
‑
term debt
“Short
‑
term debt and current maturities of long
‑
term debt” consisted of the following:
December 31, ($ in millions)
2021
2020
Short-term debt (weighted-average interest rate of
3.2
% and
2.8
%, respectively)
78
153
Current maturities of long-term debt
(weighted-average nominal interest rate of
2.8
% and
3.2
%, respectively)
1,306
1,140
Total
1,384
1,293
Short
‑
term debt primarily represents short
‑
term loans from various banks and issued commercial paper.
At December 31, 2021, the Company had in place
two
2
Euro
‑
commercial paper program for the issuance of commercial paper in a variety of currencies, and a
$
2
in the United States. At December 31, 2021 and 2020,
no
2
commercial paper program. At December 31, 2021,
no
2
in the United States, while $
32
F-44
In December 2019, the Company replaced its previous multicurrency revolving credit facility with a new
$
2
further extend the maturity of this facility to 2026.
The facility is for general corporate purposes. Interest costs
on drawings under the facility are LIBOR (for drawings in currencies for which LIBOR is still published) and
EURIBOR for EURO drawings, plus a margin of
0.175
unused portion of the facility) amount to
35
0.06125
0.075
drawings up to one
‑
third of the facility,
0.15
‑
third but less
than or equal to two
‑
thirds of the facility, or
0.30
‑
thirds of the facility.
The facility contains cross
‑
default clauses whereby an event of default would occur if the Company were to
default on indebtedness as defined in the facility, at or above a specified threshold.
No
December 31, 2021 and 2020, under this facility.
Long
‑
term debt
The Company raises long-term debt in various currencies, maturities and on various interest rate terms. For
certain of its debt obligations, the Company utilizes derivative instruments to modify its interest rate exposure.
In particular, the Company uses interest rate swaps to effectively convert certain fixed
‑
rate long
‑
term debt
into floating rate obligations. For certain non-U.S. dollar denominated debt, the Company utilizes cross-
currency interest rate swaps to effectively convert the debt into a U.S. dollar obligation. The carrying value of
debt, designated as being hedged by fair value hedges, is adjusted for changes in the fair value of the risk
component of the debt being hedged.
The following table summarizes the Company’s long
‑
term debt considering the effect of interest ra te and
cross-currency interest rate swaps. Consequently, a fixed
‑
rate debt subject to a fixed
‑
to
‑
floating interest rate
swap is included as a floating rate debt in the table below:
2021
2020
December 31,
Nominal
Effective
Nominal
Effective
($ in millions, except % data)
Balance
rate
rate
Balance
rate
rate
Floating rate
3,598
1.2
%
0.3
%
3,330
1.6
%
0.2
%
Fixed rate
1,885
3.0
%
3.1
%
2,638
3.2
%
3.3
%
5,483
5,968
Current portion of long-term debt
(1,306)
2.8
%
1.0
%
(1,140)
3.2
%
2.6
%
Total
4,177
4,828
At December 31, 2021, the principal amounts of long
‑
term debt repayable (excluding finance lease
obligations) at maturity were as follows:
($ in millions)
2022
1,271
2023
794
2024
1,156
2025
56
2026
—
Thereafter
2,085
Total
5,362
F-45
Details of outstanding bonds were as follows:
2021
2020
December 31, (in millions)
Nominal
Carrying
Nominal
Carrying
outstanding
value
(1)
outstanding
value
(1)
Bonds:
4.0
% USD Notes, due 2021
—
USD
650
$
649
2.25
% CHF Bonds, due 2021
—
CHF
350
$
403
2.875
% USD Notes, due 2022
USD
1,250
$
1,258
USD
1,250
$
1,280
0.625
% EUR Instruments, due 2023
EUR
700
$
800
EUR
700
$
875
0.75
% EUR Instruments, due 2024
EUR
750
$
860
EUR
750
$
946
0.3
% CHF Bonds, due 2024
CHF
280
$
306
CHF
280
$
317
3.8
% USD Notes, due 2028
(2)
USD
383
$
381
USD
383
$
381
1.0
% CHF Bonds, due 2029
CHF
170
$
186
CHF
170
$
192
0
% EUR Notes, due 2030
EUR
800
$
862
—
4.375
% USD Notes, due 2042
(2)
USD
609
$
589
USD
609
$
589
Total
$
5,242
$
5,632
(1) USD carrying values include unamortized debt issuance costs, bond discounts or premiums, as well as adjustments for fair value hedge
accounting, where appropriate.
(2) Prior to completing a cash tender offer in 2020, the original principal amount outstanding, on each of the
3.8
% USD Notes, due 2028, and
the
4.375
% USD Notes, due 2042, was $
750
During 2021, the Company repaid at maturity its
4.0
% USD Notes and its
2.25
% CHF Bonds. The
4.0
% USD Notes paid interest semi
‑
annually in arrears, while the
2.25
% CHF Bonds paid interest annually in
arrears. The Company had entered into interest rate swaps to hedge its interest obligations on the
2.25
%
CHF Bonds. After considering the impact of such swaps, these bonds effectively became floating rate Swiss
franc obligations and consequently have been shown as floating rate debt at December 31, 2020, in the table
of long-term debt above.
During 2020, in connection with exercising certain early redemption options on the $
250
5.625
%
USD Notes due 2021 and $
450
3.375
% USD Notes due 2023, and the partial redemption through a
cash tender offer of the
3.8
% USD Notes due 2028 and
4.375
% USD Notes due 2042, the Company
recognized losses on extinguishment of debt of $
162
early redemption, as well as the recognition of the relevant remaining unamortized issuance premium or
discounts and issuance costs.
The
2.875
% USD Notes, due 2022, pay interest semi
‑
annually in arrears at a fixed annual rate of
2.875
4.375
% USD Notes, due 2042, pay interest semi
‑
annually in arrears at a fixed annual rate
of
4.375
prior to maturity, in whole or in part, at the greater of (i)
100
redeemed and (ii) the sum of the present values of remaining scheduled payments of principal and interest
(excluding interest accrued to the redemption date) discounted to the redemption date at a rate defined in the
note terms, plus interest accrued at the redemption date. These notes, registered with the U.S. Securities and
Exchange Commission, were issued by ABB Finance (USA) Inc., a
100
and were fully and unconditionally guaranteed by ABB Ltd. There are no significant restrictions on the ability
of the parent company to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 13
‑
01 of
Regulation S
‑
X, the separate financial statements of ABB Finance (USA) Inc. are not provided. The Company
has entered into interest rate swaps for an aggregate nominal amount of $
1,050
interest obligations on the
2.875
% USD Notes, due 2022. After considering the impact of such swaps,
$
1,050
‑
term debt above.
During 2020, by way of a cash tender offer, the Company redeemed $
141
750
4.375
% USD Notes due 2042 issued.
F-46
The
0.625
% EUR Instruments, due 2023 pay interest annually in arrears at a fixed rate of
0.625
annum. The Company may redeem these notes three months prior to maturity (Par call date), in whole or in
part, at the greater of (i)
100
the present values of remaining scheduled payments of principal and interest (excluding interest accrued to
the redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest
accrued at the redemption date. The Company may redeem these instruments in whole or in part, after the
Par call date at
100
interest rate swaps to hedge its interest on these bonds. After considering the impact of such swaps, these
notes effectively became floating rate euro obligations and consequently have been shown as floating rate
debt, in the table of long
‑
term debt above.
The
0.75
% EUR Instruments, due 2024 pay interest annually in arrears at a fixed rate of
0.75
annum and have the same early redemption terms as the
0.625
% EUR Instruments above. The Company
entered into interest rate swaps to hedge its interest on these bonds. After considering the impact of such
swaps, these bonds effectively became floating rate euro obligations and consequently have been shown as
floating rate debt in the table of long
‑
term debt above.
In April 2018, the Company issued the following notes (i) $
300
2.8
% USD Notes, due 2020,
(ii) $
450
3.375
% USD Notes, due 2023, and (iii) $
750
3.8
% USD Notes, due 2028. Each
of the respective notes pays interest semi
‑
annually in arrears. The 2020 Notes were repaid at maturity in
October 2020 and the 2023 Notes were redeemed in full in December 2020. The Company may redeem the
remaining principal outstanding on the 2028 Notes up to
three months
in part, at the greater of (i)
100
of the present values of remaining scheduled payments of principal and interest (excluding interest accrued
to the redemption date) discounted to the redemption date at a rate defined in the Notes terms, plus interest
accrued at the redemption date. On or after January 3, 2028 (
three months
Company may also redeem the 2028 Notes, in whole or in part, at any time at a redemption price equal to
100
excluding, the redemption date. During 2020 by way of a cash tender offer, the Company redeemed
$
367
750
3.8
% USD Notes due 2028 issued. These notes, registered with the
U.S. Securities and Exchange Commission, were issued by ABB Finance (USA) Inc., a
100
finance subsidiary, and were fully and unconditionally guaranteed by ABB Ltd. There are no significant
restrictions on the ability of the parent company to obtain funds from its subsidiaries by dividend or loan. In
reliance on Rule 13-01 of Regulation S
‑
X, the separate financial statements of ABB Finance (USA) Inc. are
not provided.
In February 2019, the Company issued the following notes: (i) CHF
280
0.3
% CHF Bonds, due
2024 and (ii) CHF
170
1.0
% CHF Bonds, due 2029. Each of the respective notes pays interests
annually in arrears. The Company recorded aggregate net proceeds, after underwriting discount and other
fees, of CHF
449
449
In January 2021, the Company issued zero interest Notes having a principal amount of EUR
800
due in 2030. The Company recorded net proceeds (after underwriting fees) of EUR
791
$
960
redemption terms as the
0.625
% EUR Instruments above. In line with the Company’s policy of reducing its
currency and interest rate exposures, cross-currency interest rate swaps have been used to modify the
characteristics of these instruments. After considering the impact of these cross-currency interest rate swaps,
the Company effectively has a floating rate U.S. dollar obligation.
The Company’s various debt instruments contain cross
‑
default clauses which would allow the bondholders to
demand repayment if the Company were to default on any borrowing at or above a specified threshold.
Furthermore, all such bonds constitute unsecured obligations of the Company and rank pari passu with other
debt obligations.
In addition to the bonds described above, included in long
‑
term debt at December 31, 2021 and 2020, are
finance lease obligations, bank borrowings of subsidiaries and other long
‑
term debt, none of which is
individually significant.
F-47
Subsequent events
At February 23, 2022, the amount outstanding under the $
2
$
475
—
Note 13
Other provisions, other current liabilities and other non-current liabilities
“Other provisions” consisted of the following:
December 31, ($ in millions)
2021
2020
Contract-related provisions
762
754
Restructuring and restructuring-related provisions
188
292
Provision for insurance-related reserves
174
176
Provisions for contractual penalties and compliance and litigation matters
63
113
Other
199
184
Total
1,386
1,519
“Other current liabilities” consisted of the following:
December 31, ($ in millions)
2021
2020
Employee-related liabilities
1,547
1,467
Accrued expenses
768
650
Non-trade payables
644
622
Income taxes payable
378
395
Accrued customer rebates
322
317
Other tax liabilities
298
286
Derivative liabilities (see Note 6)
133
145
Deferred income
95
130
Pension and other employee benefits
41
42
Accrued interest
28
29
Other
113
98
Total
4,367
4,181
“Other non
‑
current liabilities” consisted of the following:
December 31, ($ in millions)
2021
2020
Income tax related liabilities
1,458
1,423
Derivative liabilities (see Note 6)
130
46
Provisions for contractual penalties and compliance and litigation matters
129
120
Deferred income
74
138
Employee-related liabilities
59
70
Environmental provisions
39
38
Other
227
190
Total
2,116
2,025
F-48
—
Note 14
Leases
The Company’s lease obligations primarily relate to real estate, machinery and equipment. The components
of lease expense were as follows:
Machinery
Land and buildings
and equipment
Total
($ in millions)
2021
2020
2019
2021
2020
2019
2021
2020
2019
Operating lease cost
240
287
268
73
89
101
313
376
369
Finance lease cost
17
13
14
20
16
22
37
29
36
Short-term lease cost
26
17
19
14
31
29
40
48
48
Sub-lease income
(24)
(20)
(2)
(1)
(1)
—
(25)
(21)
(2)
Total lease expense
259
297
299
106
135
152
365
432
451
The following table presents supplemental cash flow information related to leases:
Machinery
Land and buildings
and equipment
Total
($ in millions)
2021
2020
2019
2021
2020
2019
2021
2020
2019
Operating leases:
Cash paid under operating cash flows
223
263
252
68
83
96
291
346
348
Right-of-use assets obtained
in exchange for new liabilities
267
266
153
86
57
52
353
323
205
In 2021, 2020 and 2019 the cash flow amounts under finance leases were not significant.
At December 31, 2021, the future net minimum lease payments for operating and finance leases and the
related present value of the net minimum lease payments consisted of the following:
Operating Leases
Finance Leases
Land and
Machinery
Land and
Machinery
($ in millions)
buildings
and
equipment
buildings
and
equipment
2022
197
71
21
15
2023
164
39
21
12
2024
134
21
19
8
2025
109
9
18
5
2026
81
1
16
1
Thereafter
154
1
54
—
Total minimum lease payments
839
142
149
41
Difference between undiscounted cash flows
(59)
(3)
(28)
(1)
Present value of minimum lease payments
780
139
121
40
F-49
The following table presents certain information related to lease terms and discount rates:
Land and
Machinery
buildings
and equipment
2021
2020
2019
2021
2020
2019
Operating Leases:
Weighted-average remaining term (months)
73
84
78
30
29
29
Weighted-average discount rate
2.6%
3.0%
3.0%
1.9%
2.0%
2.2%
Finance Leases:
Weighted-average remaining term (months)
100
107
110
40
40
33
Weighted-average discount rate
7.7%
7.7%
8.2%
1.8%
2.3%
2.8%
The present value of minimum finance lease payments included in “Short
‑
term debt and current maturities of
long
‑
term debt” and “Long
‑
term debt” in the Consolidated Balance Sheets at December 31, 2021, amounts to
$
27
134
27
$
160
—
Note 15
Commitments and contingencies
Contingencies—Regulatory, Compliance and Legal
Regulatory
As a result of an internal investigation, the Company self-reported to the Securities and Exchange
Commission (SEC) and the Department of Justice (DoJ) in the United States as well as to the Serious Fraud
Office (SFO) in the United Kingdom concerning certain of its past dealings with Unaoil and its subsidiaries,
including alleged improper payments made by these entities to third parties. In May 2020, the SFO closed its
investigation, which it originally announced in February 2017, as the case did not meet the relevant test for
prosecution. The Company continues to cooperate with the U.S. authorities as requested. At this time, it is
not possible for the Company to make an informed judgment about the outcome of this matter.
Based on findings during an internal investigation, the Company self-reported to the SEC and the DoJ, in the
United States, to the Special Investigating Unit (SIU) and the National Prosecuting Authority (NPA) in South
Africa as well as to various authorities in other countries potential suspect payments and other compliance
concerns in connection with some of the Company’s dealings with Eskom and related persons. Many of those
parties have expressed an interest in, or commenced an investigation into, these matters and the Company is
cooperating fully with them. The Company paid $
104
final settlement with Eskom and the Special Investigatin g Unit relating to improper payments and other
compliance issues associated with the Controls and Instrumentation Contract, and its Variation Orders for
Units 1 and 2 at Kusile. The Company continues to cooperate fully with the authorities in their review of the
Kusile project and is in discussions with them regarding a coordinated resolution. Although the Company
believes that there could be an unfavorable outcome in one or more of these ongoing reviews, at this time it
is not possible for the Company to make an informed judgment about the possible financial impact.
General
The Company is aware of proceedings, or the threat of proceedings, against it and others in respect of
private claims by customers and other third parties with regard to certain actual or alleged anticompetitive
practices. Also, the Company is subject to other claims and legal proceedings, as well as investigations
carried out by various law enforcement authorities. With respect to the above-mentioned claims, regulatory
matters, and any related proceedings, the Company will bear the related costs, including costs necessary to
resolve them.
F-50
Liabilities recognized
At December 31, 2021 and 2020, the Company had aggregate liabilities of $
104
100
respectively, included in “Other provisions” and “Other non
‑
current liabilities”, for the above regulatory,
compliance and legal contingencies, and none of the individual liabilities recognized was significant. As it is
not possible to make an informed judgment on, or reasonably predict, the outcome of certain matters and as
it is not possible, based on information currently available to management, to estimate the maximum potential
liability on other matters, there could be adverse outcomes beyond the amounts accrued.
Guarantees
General
The following table provides quantitative data regarding the Company ’s third
‑
party guarantees. The maximum
potential payments represent a “worst
‑
case scenario”, and do not reflect management’s expected outcomes.
Maximum potential payments
(1)
December 31, ($ in millions)
2021
2020
Performance guarantees
4,540
6,726
Financial guarantees
52
339
Indemnification guarantees
(2)
136
177
Total
4,728
7,242
(1)
Maximum potential payments include amounts in both continuing and discontinued operations.
(2)
Certain indemnifications provided to Hitachi in connection with the divestment of Power Grids are without limit.
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 December 31, 2021 and 2020, amounted to $
156
million and $
135
The Company is party to various guarantees providing financial or performance assurances to certain third
parties. These guarantees, which have various maturities up to 2035, mainly consist of performance
guarantees whereby (i) the Company guarantees the performance of a third party’s product or service
according to the terms of a contract and (ii) as member of a consortium/joint venture that includes third
parties, the Company guarantees not only its own performance but also the work of third parties. Such
guarantees may include guarantees that a project will be completed within a specified time. If the third party
does not fulfill the obligation, the Company will compensate the guaranteed party in cash or in kind. The
original maturity dates for the majority of these performance guarantees range from
one
ten years
.
In conjunction with the divestment of the high
‑
voltage cable and cables accessories businesses, the
Company has entered into various performance guarantees with other parties with respect to certain liabilities
of the divested business. At December 31, 2021 and 2020, the maximum potential payable under these
guarantees amounts to $
911
994
maturities ranging from
five
ten years
.
The Company retained obligations for financial, performance and indemnification guarantees related to the
Power Grids business sold on July 1, 2020 (see Note 3 for details). The performance and financial
guarantees
have been indemnified by Hitachi at the same proportion of its ownership in Hitachi Energy Ltd,
formerly Hitachi ABB Power Grids (
80.1
2035, primarily consist of bank guarantees, standby letters of credit, business performance guarantees and
other trade-related guarantees, the majority of which have original maturity dates ranging from
one
ten
years. The maximum amount payable under these guarantees at December 31, 2021 and 2020, is
approximately $
3.2
5.5
discontinued operations) at December 31, 2021 and 2020, amounted to $
136
135
respectively.
F-51
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 December 31, 2021 and 2020, the total
outstanding performance bonds aggregated to $
3.6
4.3
0.1
and $
0.3
reimbursed to financial institutions under these types of arrangements in 2021 and 2020.
Product and order
‑
related contingencies
The Company calculates its provision for product warranties based on historical claims experience and
specific review of certain contracts.
The reconciliation of the “Provisions for warranties”, including guarantees of product performance, was as
follows:
($ in millions)
2021
2020
2019
Balance at January 1,
1,035
816
948
Net change in warranties due to acquisitions, divestments and
liabilities held for sale
(1)
1
8
(88)
Claims paid in cash or in kind
(222)
(209)
(310)
Net increase in provision for changes in
estimates, warranties issued and warranties expired
226
369
276
Exchange rate differences
(35)
51
(10)
Balance at December 31,
1,005
1,035
816
(1) Includes adjustments to the initial purchase price allocation recorded during the measurement period.
In 2020, the Company determined that the provision for a product warranty related to a divested business
was no longer sufficient to cover expected warranty costs in the remaining warranty period. Due to an
unexpected level of product failure, the previously estimated product warranty provision was increased by
$
143
costs relate to a divested business, in accordance with the definition of the Company’s primary measure of
segment performance, Operational EBITA (see Note 23), the costs have been excluded from this measure.
The warranty liability has been recorded based on the information currently available and is subject to change
in the future.
Related party transactions
The Company conducts business with certain companies where members of the Company’s Board of
Directors or Executive Committee act, or in recent years have acted, as directors or senior executives. The
Company’s Board of Directors has determined that the Company’s business relationships with those
companies do not constitute material business relationships. This determination was made in accordance
with the Company’s related party transaction policy which was prepared based on the Swiss Code of Best
Practice and the independence criteria set forth in the corporate governance rules of the New York Stock
Exchange.
F-52
—
Note 16
Income taxes
“Income tax expense” consisted of the following:
($ in millions)
Current taxes
1,346
776
855
Deferred taxes
(289)
(280)
(83)
Income tax expense allocated to continuing operations
1,057
496
772
Income tax expense allocated to discontinued operations
1
322
167
Income tax expense from continuing operations is reconciled below from the Company’s weighted
‑
average
global tax rate (rather than from the Swiss domestic statutory tax rate) as the parent company of the ABB
Group, ABB Ltd, is domiciled in Switzerland and income generated in jurisdictions outside of Switzerland
(hereafter “foreign jurisdictions”) which has already been subject to corporate income tax in those foreign
jurisdictions is, to a large extent, tax exempt in Switzerland. There is no requirement in Switzerland for any
parent company of a group to file a tax return of the consolidated group determining domestic and foreign
pre
‑
tax income. As the Company’s consolidated income from continuing operations is predominantly earned
outside of Switzerland, the weighted
‑
average global tax rate of the Company results from enacted corporate
income tax rates in foreign jurisdictions.
The reconciliation of “Income tax expense from continuing operations” at the weighted
‑
average tax rate to the
effective tax rate is as follows:
($ in millions, except % data)
Income from continuing operations before income taxes
5,787
841
1,862
Weighted-average global tax rate
23.7%
22.9%
18.3%
Income taxes at weighted-average tax rate
1,371
193
341
Items taxed at rates other than the weighted-average tax rate
176
3
(7)
Unrecognized tax benefits
151
(38)
133
Changes in valuation allowance, net
(95)
29
198
Effects of changes in tax laws and enacted tax rates
1
23
63
Non-deductible / non-taxable items
(542)
232
44
Other, net
(5)
54
—
Income tax expense from continuing operations
1,057
496
772
Effective tax rate for the year
18.3%
59.0%
41.5%
The allocation of consolidated income from continuing operations, which is predominantly earned outside of
Switzerland, impacts the “weighted-average global tax rate”. In 2021, gains on sales of businesses increased
the weighted-average global tax rate by approximately
1
the applicable jurisdictions, the loss recorded for the planned sale of the solar inverters business reduced the
weighted-average global tax rate by approximately
2
In 2021, “Items taxed at rates other than the weighted-average tax rate” included $
107
amounts related to the divestment of the Dodge business . In 2020 and 2019, the amount was not significant.
In 2021, “Changes in valuation allowance, net” included positive impacts from changes in certain outlooks in
Europe of $
82
In 2020, “Changes in valuation allowance, net” predominantly reflects increases in the valuation allowance
resulting from changes in the expectations at that time of future economic conditions due to impacts at that
time on the Company’s business from the COVID-19 pandemic.
F-53
In 2019, “Changes in valuation allowance, net” included adjustments to the valuation allowance in certain
jurisdictions where the Company updated its assessment that it was more likely than not that such deferred
tax assets would be realized. In 2019, the Company recorded an increase of $
158
allowance in certain operations in North America, including an amount to provide for certain deferred tax
assets arising in 2019.
There were no significant impacts from “Effects of changes in tax laws and enacted tax rates” in 2021. In
2020, the amount primarily reflects the impact of changes to tax rates in certain countries in Asia for
$
16
benefit in 2019 was mostly offset by a related change in the valuation allowance, resulting in a net benefit of
$
17
In 2021, “Non-deductible / non-taxable items” includes $
567
divestments and internal reorganizations where the reported net gain from sale of businesses exceeded the
related taxable gain as well as the impact of a recognition of previously unrecognized outside basis
differences. In 2020, the negative impact was $
232
82
non-deductible goodwill. In addition, the amount in 2020 includes $
62
pension costs resulting from the settlement of certain defined benefit plans which were principally not
deductible. “Non-deductible / non-taxable items” also includes other items that were deducted for financial
accounting purposes but are typically not tax deductible, such as certain interest expense costs, local taxes
on productive activities, disallowed amounts for meals and entertainment expenses and other similar items.
The amounts in 2019 related primarily to these typically non-deductible items.
In 2021 and 2019, “Unrecognized tax benefits” in the table above included a net cost of $
150
$
91
competent tax authorities. In 2020, “Unrecognized tax benefits” included a benefit of $
20
In 2020, “Other, net” includes an expense of $
54
F-54
Deferred tax assets and liabilities (excluding amounts held for sale and in discontinued operations) consisted
of the following:
December 31, ($ in millions)
Deferred tax assets:
Unused tax losses and credits
551
758
Provisions and other accrued liabilities
757
750
Other current assets including receivables
104
114
Pension
338
413
Inventories
266
370
Intangible assets
1,135
901
Other
57
48
Total gross deferred tax asset
3,208
3,354
Valuation allowance
(1,263)
(1,518)
Total gross deferred tax asset, net of valuation allowance
1,945
1,836
Deferred tax liabilities:
Property, plant and equipment
(245)
(275)
Intangible assets
(281)
(419)
Other assets
(107)
(107)
Pension
(302)
(223)
Other liabilities
(175)
(268)
Inventories
(35)
(29)
Unremitted earnings of subsidiaries
(308)
(333)
Total gross deferred tax liability
(1,453)
(1,654)
Net deferred tax asset (liability
)
492
182
Included in:
“Deferred taxes”—non-current assets
1,177
843
“Deferred taxes”—non-current liabilities
(685)
(661)
Net deferred tax asset (liability)
492
182
Certain entities have deferred tax assets related to net operating loss carry
‑
forwards and other items. As
recognition of these assets in certain entities did not meet the more likely than not criterion, valuation
allowances have been recorded. “Unused tax losses and credits” at December 31, 2021 and 2020, in the
table above, included $
93
170
valuation allowance as, due to limitations imposed by the relevant tax law, the Company determined that,
more likely than not, such deferred tax assets would not be realized.
The valuation allowance at December 31, 2021, 2020 and 2019, was $
1,263
1,518
$
1,632
At December 31, 2021 and 2020, deferred tax liabilities totaling $
308
333
have been provided for withholding taxes, dividend distribution taxes or additional corporate income taxes
(hereafter “withholding taxes”) on unremitted earnings which will be payable in foreign jurisdictions in the
event of repatriation of the foreign earnings to Switzerland. Income which has been generated outside of
Switzerland and has already been subject to corporate income tax in such foreign jurisdictions is, to a large
extent, tax exempt in Switzerland and therefore, generally no or only limited Swiss income tax has to be
provided for on the repatriated earnings of foreign subsidiaries.
F-55
Certain countries levy withholding taxes on dividend distributions and these taxes cannot always be fully
reclaimed by the Company’s relevant subsidiary receiving the dividend although the taxes have to be
withheld and paid by the relevant subsidiary distributing such dividend. In 2021 and 2020, certain taxes arose
in certain foreign jurisdictions for which the technical merits do not allow utilization of benefits. At
December 31, 2021 and 2020, foreign subsidiary retained earnings subject to withholding taxes upon
distribution of approximately $
100
100
reinvested, as these funds are used for financing current operations as well as business growth through
working capital and capital expenditure in those countries and, consequently, no deferred tax liability was
recorded.
At December 31, 2021, net operating loss carry
‑
forwards of $
2,170
69
available to reduce future income taxes of certain subsidiaries. Of these amounts, $
1,258
loss carry-forwards and $
48
remainder are available for carryforward indefinitely. The largest amount of these carry
‑
forwards related to
the Company’s Europe operations.
Unrecognized tax benefits consisted of the following:
Penalties and
interest
related to
Unrecognized
unrecognized
($ in millions)
tax benefits
tax benefits
Total
Classification as unrecognized tax items on January 1, 2019
961
239
1,200
Net change due to acquisitions and divestments
11
7
18
Increase relating to prior year tax positions
202
85
287
Decrease relating to prior year tax positions
(82)
(63)
(145)
Increase relating to current year tax positions
163
6
169
Decrease due to settlements with tax authorities
(57)
(8)
(65)
Decrease as a result of the applicable statute of limitations
(83)
(28)
(111)
Exchange rate differences
(9)
(5)
(14)
Balance at December 31, 2019, which would, if recognized, affect
the effective tax rate
1,106
233
1,339
Net change due to acquisitions and divestments
1
—
1
Increase relating to prior year tax positions
298
96
394
Decrease relating to prior year tax positions
(161)
(57)
(218)
Increase relating to current year tax positions
390
5
395
Decrease due to settlements with tax authorities
(340)
(75)
(415)
Decrease as a result of the applicable statute of limitations
(59)
(16)
(75)
Exchange rate differences
63
6
69
Balance at December 31, 2020, which would, if recognized, affect
the effective tax rate
1,298
192
1,490
Net change due to acquisitions and divestments
16
(6)
10
Increase relating to prior year tax positions
240
58
298
Decrease relating to prior year tax positions
(42)
(3)
(45)
Increase relating to current year tax positions
98
7
105
Decrease due to settlements with tax authorities
(175)
(20)
(195)
Decrease as a result of the applicable statute of limitations
(72)
(22)
(94)
Exchange rate differences
(41)
(7)
(48)
Balance at December 31, 2021, which would, if recognized, affect
the effective tax rate
1,322
199
1,521
In 2021, “Increase relating to current year tax positions” included a total of $
72
interpretation of tax law and double tax treaty agreements by competent tax authorities.
F-56
In 2020 and 2019, “Increase relating to current year tax positions” included a total of $
381
$
163
competent tax authorities. In 2020, $
301
381
discontinued operations.
In 2021, “Increase relating to prior year tax positions” included a total of $
240
interpretation of tax law and double tax treaty agreements by competent tax authorities in Europe.
In 2020, “Increase relating to prior year tax positions” is predominantly related to the interpretation of tax law
and double tax treaty agreements by competent tax authorities in Europe, of which $
73
Income tax expense in discontinued operations.
In 2021, “Decrease relating to prior year tax positions” included a total of $
42
assessments in Europe of $
33
In 2020, “Decrease relating to prior year tax positions” included a total of $
85
interpretation of tax law in Asia and changed tax risk assessments in Europe of $
59
In 2021, “Decrease due to settlements with tax authorities” is predominantly related to tax assessments
received in Europe.
In 2020, “Decrease due to settlements with tax authorities” is predominantly related to closed tax audits in
Europe.
At December 31, 2021, the Company expected the resolution, within the next twelve months, of unrecognized
tax benefits related to pending court cases amounting to $
63
Otherwise, the Company had not identified any other significant changes which were considered reasonably
possible to occur within the next twelve months.
At December 31, 2021, the earliest significant open tax years that remained subject to examination were the
following:
Region
Year
Europe
2015
United States
2018
Rest of Americas
2017
China
2012
Rest of Asia, Middle East and Africa
2011
—
Note 17
Employee benefits
The Company operates defined benefit pension plans, defined contribution pension plans, and termination
indemnity plans, in accordance with local regulations and practices. At December 31, 2021, the Company’s
most significant defined benefit pension plans are in Switzerland as well as in Germany, the United Kingdom,
and the United States. 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 local government and tax
requirements.
F-57
During 2020, the Company took steps to transfer the defined benefit pension risks in
three
countries to external financial institutions.
Two
while the third plan involved the settlement of specific obligations for certain former employees. In connection
with these transactions, the Company made net payments of $
309
pension charges of $
520
and special termination benefits. The Company also made cash payments of $
143
operational pension charges of $
101
operations.
The Company recognizes in its Consolidated Balance Sheets the funded status of its defined benefit pension
plans, postretirement plans and other employee
‑
related benefits measured as the difference between the fair
value of the plan assets and the benefit obligation.
Unless otherwise indicated, the following tables include amounts relating to both continuing and discontinued
operations.
Obligations and funded status of the plans
The change in benefit obligation, change in fair value of plan assets, and funded status recognized in the
Consolidated Balance Sheets were as follows:
Other
Defined pension
postretirement
benefits
benefits
Switzerland
International
International
($ in millions)
2021
2020
2021
2020
2021
2020
Benefit obligation at January 1,
3,870
4,308
5,527
7,878
98
110
Service cost
61
74
47
92
1
1
Interest cost
(5)
6
72
111
2
3
Contributions by plan participants
36
72
8
12
—
—
Benefit payments
(130)
(160)
(207)
(295)
(9)
(12)
Settlements
(124)
(101)
(84)
(2,542)
—
—
Benefit obligations of businesses acquired (divested)
—
(765)
(46)
(165)
(11)
(5)
Actuarial (gain) loss
(140)
71
(15)
214
(8)
4
Plan amendments and other
—
—
13
(64)
(2)
(3)
Exchange rate differences
(134)
365
(200)
286
—
—
Benefit obligation at December 31,
3,434
3,870
5,115
5,527
71
98
Fair value of plan assets at January 1,
4,133
4,189
4,608
6,246
—
—
Actual return on plan assets
279
191
197
375
—
—
Contributions by employer
63
228
124
611
9
12
Contributions by plan participants
36
72
8
12
—
—
Benefit payments
(130)
(160)
(207)
(295)
(9)
(12)
Settlements
(124)
(101)
(84)
(2,542)
—
—
Plan assets of businesses acquired (divested)
—
(664)
(50)
(82)
—
—
Plan amendments and other
—
—
14
62
—
—
Exchange rate differences
(144)
378
(147)
221
—
—
Fair value of plan assets at December 31,
4,113
4,133
4,463
4,608
—
—
Funded status — overfunded (underfunded)
679
263
(652)
(919)
(71)
(98)
F-58
The amounts recognized in "Accumulated other comprehensive loss" and "Noncontrolling interests" were:
Defined pension
Other postretirement
benefits
benefits
December 31, ($ in millions)
Net actuarial (loss) gain
(1,540)
(2,038)
(2,782)
21
21
28
Prior service credit
72
75
59
7
11
13
Amount recognized in OCI
(1)
(2)
(1,468)
(1,963)
(2,723)
28
32
41
Taxes associated with amount recognized
in OCI and NCI
352
374
536
—
—
—
Amount recognized in OCI and NCI, net of tax
(3)
(1,116)
(1,589)
(2,187)
28
32
41
(1) OCI represents “Accumulated other comprehensive loss”.
(2) NCI represents “Noncontrolling interests”.
(3) NCI, net of tax, amounted to $
0
(1)
(1)
In addition, the following amounts were recognized in the Company's Consolidated Balance Sheets:
Defined pension
Other postretirement
benefits
benefits
Switzerland
International
International
December 31, ($ in millions)
2021
2020
2021
2020
2021
2020
Overfunded plans
683
267
208
92
—
—
Underfunded plans — current
—
—
(23)
(22)
(7)
(9)
Underfunded plans — non-current
(4)
(4)
(837)
(989)
(64)
(89)
Funded status - overfunded (underfunded)
679
263
(652)
(919)
(71)
(98)
December 31, ($ in millions)
2021
2020
Non-current assets
Overfunded pension plans
891
359
Other employee-related benefits
1
1
Pension and other employee benefits
892
360
December 31, ($ in millions)
2021
2020
Current liabilities
Underfunded pension plans
(23)
(22)
Underfunded other postretirement benefit plans
(10)
(9)
Other employee-related benefits
(8)
(11)
Pension and other employee benefits
(41)
(42)
December 31, ($ in millions)
2021
2020
Non-current liabilities
Underfunded pension plans
(841)
(993)
Underfunded other postretirement benefit plans
(62)
(89)
Other employee-related benefits
(122)
(149)
Pension and other employee benefits
(1,025)
(1,231)
F-59
The accumulated benefit obligation (ABO) for all defined benefit pension plans was $
8,452
$
9,310
and fair value of plan assets, for pension plans with a PBO in excess of fair value of plan assets or ABO in
excess of fair value of plan assets, was:
PBO exceeds fair value of plan assets
ABO exceeds fair value of plan assets
December 31,
Switzerland
International
Switzerland
International
($ in millions)
PBO
12
13
2,994
5,131
12
13
2,979
5,008
ABO
12
13
2,917
5,056
12
13
2,905
4,942
Fair value of plan assets
8
9
2,133
4,120
8
9
2,119
4,004
All of the Company's other postretirement benefit plans are unfunded.
Components of net periodic benefit cost
Net periodic benefit cost consisted of the following:
Defined pension
Other postretirement
benefits
benefits
Switzerland
International
International
($ in millions)
2021
2020
2019
2021
2020
2019
2021
2020
2019
Operational pension cost:
Service cost
61
74
76
47
92
113
1
1
1
Operational pension cost
61
74
76
47
92
113
1
1
1
Non-operational pension cost (credit):
Interest cost
(5)
6
15
72
111
174
2
3
4
Expected return on plan assets
(116)
(123)
(112)
(178)
(253)
(276)
—
—
—
Amortization of prior service cost (credit)
(9)
(11)
(14)
(2)
2
2
(3)
(2)
(5)
Amortization of net actuarial loss
—
7
—
67
109
108
(2)
(3)
(3)
Curtailments, settlements and special
termination benefits
1
6
11
7
644
27
—
—
(10)
Non-operational pension cost (credit)
(129)
(115)
(100)
(34)
613
35
(3)
(2)
(14)
Net periodic benefit cost
(68)
(41)
(24)
13
705
148
(2)
(1)
(13)
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 Consolidated Income Statements. Net periodic benefit cost
includes $
121
47
Assumptions
The following weighted-average assumptions were used to determine benefit obligations:
Defined pension
Other postretirement
benefits
benefits
Switzerland
International
International
December 31, (in %)
2021
2020
2021
2020
2021
2020
Discount rate
0.2
—
2.1
1.6
2.6
2.1
Rate of compensation increase
—
—
1.5
1.0
0.3
0.2
Rate of pension increase
—
—
1.7
1.4
—
—
Cash balance interest credit rate
1.0
1.0
2.1
2.1
—
—
F-60
For the Company’s significant benefit plans, the discount rate used at each measurement date is set based
on a high-quality corporate bond yield curve (derived based on bond universe information sourced from
reputable third-party index and data providers and rating agencies) reflecting the timing, amount and currency
of the future expected benefit payments for the respective plan. Consistent discount rates are used across all
plans in each currency zone, based on the duration of the applicable plan(s) in that zone. For plans in the
other countries, the discount rate is based on high quality corporate or government bond yields applicable in
the respective currency, as appropriate at each measurement date with a duration broadly consistent with the
respective plan’s obligations.
The following weighted-average assumptions were used to determine the “Net periodic benefit cost”:
Defined pension
Other postretirement
benefits
benefits
Switzerland
International
International
(in %)
2021
2020
2019
2021
2020
2019
2021
2020
2019
Discount rate
—
0.3
0.8
1.6
1.9
2.8
2.1
2.8
3.9
Expected long-term rate of return on plan
assets
3.0
3.0
3.0
4.0
4.3
4.9
—
—
—
Rate of compensation increase
—
—
—
1.0
2.2
2.4
0.2
0.2
0.2
Cash balance interest credit rate
1.0
1.0
1.0
2.1
1.6
1.6
—
—
—
The “Expected long-term rate of return on plan assets” is derived for each benefit plan by considering the
expected future long-term return assumption for each individual asset class. A single long-term return
assumption is then derived for each plan based upon the plan’s target asset allocation.
The Company maintains other postretirement benefit plans, which are generally contributory with participants’
contributions adjusted annually. The assumptions used were:
December 31,
2021
2020
Health care cost trend rate assumed for next year
5.1%
5.9%
Rate to which the trend rate is assumed to decline (the ultimate trend rate)
4.5%
4.9%
Year that the rate reaches the ultimate trend rate
2026
2028
Plan assets
The Company has pension plans in various countries with the majority of the Company’s pension liabilities
deriving from a limited number of these countries.
The pension plans are typically funded by regular contributions from employees and the Company. These
plans are typically administered by boards of trustees (which include Company representatives) whose
primary responsibilities include ensuring that the plans meet their liabilities through contributions and
investment returns. The boards of trustees have the responsibility for making key investment strategy
decisions within a risk-controlled framework.
The pension plan assets are invested in diversified portfolios that are managed by third-party asset
managers, in accordance with local statutory regulations, pension plan rules and the respective plans’
investment guidelines, as approved by the boards of trustees.
Plan assets are generally segregated from those of the Company and invested with the aim of meeting the
respective plans’ projected future pension liabilities. Plan assets are measured at fair value at the balance
sheet date.
The boards of trustees manage the assets of the pension plans in a risk-controlled manner and assess the
risks embedded in the pension plans through asset/liability management studies. Asset/liability management
studies typically take place every three years. However, the risks of the plans are monitored on an ongoing
basis.
F-61
The boards of trustees’ investment goal is to maximize the long-term returns of plan assets within specified
risk parameters, while considering the future liabilities and liquidity needs of the individual plans. Risk
measures taken into account include the funding ratio of the plan, the likelihood of extraordinary cash
contributions being required, the risk embedded in each individual asset class, and the plan asset portfolio as
a whole.
The Company’s global pension asset allocation is the result of the asset allocations of the individual plans,
which are set by the respective boards of trustees. The target asset allocation of the Company’s plans on a
weighted-average basis is as follows:
Target
(in %)
Switzerland
International
Asset class
Equity
15
15
Fixed income
54
72
Real estate
26
4
Other
5
9
Total
100
100
The actual asset allocations of the plans are in line with the target asset allocations.
Equity securities primarily include investments in large-cap and mid-cap publicly traded companies. Fixed
income assets primarily include corporate bonds of companies from diverse industries and government
bonds. Both fixed income and equity assets are invested either via funds or directly in segregated investment
mandates, and include an allocation to emerging markets. Real estate consists primarily of investments in
real estate in Switzerland held in the Swiss plans. The “Other” asset class includes investments in private
equity, hedge funds, commodities, and cash, and reflects a variety of investment strategies.
Based on the above global asset allocation and the fair values of the plan assets, the expected long-term
return on assets at December 31, 2021, is
3.4
regularly review the investment performance of the asset classes and individual asset managers. Due to the
diversified nature of the investments, the Company is of the opinion that no significant concentration of risks
exists in its pension fund assets.
At December 31, 2021 and 2020, plan assets include ABB Ltd’s shares (as well as an insignificant amount of
the Company’s debt instruments) with a total value of $
8
8
The fair values of the Company’s pension plan assets by asset class are presented below. For further
information on the fair value hierarchy and an overview of the Company’s valuation techniques applied, see
the “Fair value measures” section of Note 2.
F-62
Not subject
Total
December 31, 2021 ($ in millions)
Level 1
Level 2
to leveling
(1)
fair value
Asset class
Equity
Equity securities
124
1
125
Mutual funds/commingled funds
1,049
1,049
Emerging market mutual funds/commingled funds
218
218
Fixed income
Government and corporate securities
314
1,366
1,680
Government and corporate—mutual funds/commingled funds
3,121
3,121
Emerging market bonds—mutual funds/commingled funds
428
428
Real estate
1,326
1,326
Insurance contracts
74
74
Cash and short-term investments
75
158
233
Private equity
65
257
322
Total
513
6,480
1,583
8,576
Not subject
Total
December 31, 2020 ($ in millions)
Level 1
Level 2
to leveling
(1)
fair value
Asset class
Equity
Equity securities
180
5
185
Mutual funds/commingled funds
1,298
1,298
Emerging market mutual funds/commingled funds
243
243
Fixed income
Government and corporate securities
389
1,415
1,804
Government and corporate—mutual funds/commingled funds
2,876
2,876
Emerging market bonds—mutual funds/commingled funds
547
547
Real estate
1,289
1,289
Insurance contracts
50
50
Cash and short-term investments
103
190
293
Private equity
156
156
Hedge funds
1
1
Total
672
6,624
1,446
8,742
(1)
Amounts relate to assets measured using the NAV practical expedient which are not subject to leveling
.
The Company applies accounting guidance related to the presentation of certain investments using the net
asset value (NAV) practical expedient. This accounting guidance exempts investments using this practical
expedient from categorization within the fair value hierarchy. Investments measured at NAV are primarily non
exchange-traded commingled or collective funds in private equity and real estate where the fair value of the
underlying assets is determined by the investment manager. Investments in private equity can never be
redeemed, but instead the funds will make distributions through liquidation of the underlying assets. Total
unfunded commitments for the private equity funds were approximately $
125
115
December 31, 2021 and 2020, respectively. The real estate funds are typically subject to a lock-in period of
up to three years after subscribing. After this period, the real estate funds typically offer a redemption notice
of three to twelve months.
F-63
Contributions
Employer contributions were as follows:
Defined pension
Other postretirement
benefits
benefits
Switzerland
International
International
($ in millions)
2021
2020
2021
2020
2021
2020
Total contributions to defined benefit pension
and other postretirement benefit plans
63
228
124
611
9
12
Of which, discretionary contributions to
defined benefit pension plans
—
152
61
520
—
—
The total contributions included non-cash contributions totaling $
53
224
2021 and 2020, of available-for-sale debt securities to certain of the Company’s pension plans.
The Company expects to contribute approximately $
108
Of these discretionary contributions, $
5
expects to contribute approximately $
7
The Company also contributes to a number of defined contribution plans. The aggregate expense for these
plans in continuing operations was $
278
205
190
respectively. Contributions to multi-employer plans were not significant in 2021, 2020 and 2019.
Estimated future benefit payments
The expected future cash flows to be paid by the Company’s plans in respect of pension and other
postretirement benefit plans at December 31, 2021, are as follows:
Defined pension
Other postretirement
benefits
benefits
($ in millions)
Switzerland
International
International
2022
256
265
7
2023
241
257
7
2024
226
255
6
2025
220
256
6
2026
213
259
5
Years 2027 - 2031
977
1,299
22
—
Note 18
Share-based payment arrangements
The Company has granted share-based instruments to its employees under
three
‑
based
payment plans, as more fully described in the respective sections below. Compensation cost for
equity
‑
settled awards is recorded in Total cost of sales and in Selling, general and administrative expenses
and totaled $
59
44
46
cost for cash
‑
settled awards, recorded in Selling, general and administrative expenses, was not significant,
as mentioned in the WARs, LTIP and Other share
‑
based payments sections of this note. The total tax benefit
recognized in 2021, 2020 and 2019 was not significant.
F-64
At December 31, 2021, the Company had the ability to issue up to
94
capital in connection with share
‑
based payment arrangements. In addition,
23
95
held by the Company as treasury stock at December 31, 2021, could be used to settle share
‑
based payment
arrangements.
As the primary trading market for the shares of ABB Ltd is the SIX Swiss Exchange (on which the shares are
traded in Swiss francs) and substantially all the share
‑
based payment arrangements with employees are
based on the Swiss franc share or have strike prices set in Swiss francs, certain data disclosed below related
to the instruments granted under share
‑
based payment arrangements are presented in Swiss francs.
Management Incentive Plan
Up to 2019, the Company offered, under the MIP, options and cash
‑
settled WARs to key employees for
no
consideration. Starting in 2020, the employee group previously eligible to receive grants under the MIP were
granted shares under the LTIP (see LTIP section below) and consequently no grants were made in 2021 and
2020 under the MIP.
The options granted under the MIP allow participants to purchase shares of ABB Ltd at predetermined prices.
Participants may sell the options rather than exercise the right to purchase shares. Equivalent warrants are
listed by a third
‑
party bank on the SIX Swiss Exchange, which facilitates pricing and transferability of options
granted under this plan. The options entitle the holder to request that the third
‑
party bank purchase such
options at the market price of equivalent listed warrants related to that MIP launch. If the participant elects to
sell the options, the options will thereafter be held by a third party and, consequently, the Company’s
obligation to deliver shares will be toward this third party.
Each WAR gives the participant the right to receive, in cash, the market price of an equivalent listed warrant
on the date of exercise of the WAR. Participants may exercise or sell options and exercise WARs after the
vesting period, which is
three years
six years
date of grant.
Options
The fair value of each option was estimated on the date of grant using a lattice model that used the
assumptions noted in the table below. Expected volatilities were based on implied volatilities from equivalent
listed warrants on ABB Ltd shares. The expected term of the options granted is the contractual
six‑year
each option, based on the fact that after the vesting period, a participant can elect to sell the option rather
than exercise the right to purchase shares, thereby also realizing the time value of the options. The risk
‑
free
rate was based on a
six‑year
six‑year
estimating forfeitures, the Company used data from previous comparable MIP launches.
2019
Expected volatility
19%
Dividend yield
4.7%
Expected term
6 years
Risk-free interest rate
-0.9%
F-65
Presented below is a summary of the activity related to options under the MIP:
Weighted-
Weighted-
Aggregate
average
average
intrinsic
exercise
remaining
value
Number of
Number of
price
contractual
(in millions
options
shares
(in Swiss
term
of Swiss
(in millions)
(in millions)
(1)
francs)
(2)
(in years)
francs)
(3)
Outstanding at January 1, 2021
336.1
67.2
21.16
Exercised
(4)
(160.0)
(32.0)
20.25
Forfeited
(1.7)
(0.3)
20.31
Outstanding at December 31, 2021
174.4
34.9
22.00
2.4
450
Vested and expected to vest
at December 31, 2021
174.4
34.9
22.00
2.4
450
Exercisable at December 31, 2021
158.5
31.7
22.30
2.3
400
(1)
Information presented reflects the number of ABB Ltd shares that can be received upon exercise, as options have a conversion ratio of
5
:1.
(2)
Information presented reflects the exercise price per ABB Ltd share.
(3)
Computed using the closing price, in Swiss francs, of ABB Ltd shares on the SIX Swiss Exchange and the exercise price of each option in
Swiss francs.
(4)
The cash received upon exercise amounted to approximately $
693
At December 31, 2021, the total unrecognized compensation cost related to non
‑
vested options granted
under the MIP was not significant. The weighted
‑
average grant
‑
date fair value (per option) of options granted
during 2019 was
0.34
2021 and 2020, the aggregate intrinsic value (on the date of exercise) of options exercised was
approximately $
313
38
Presented below is a summary, by launch, related to options outstanding at December 31, 2021:
Weighted-
average
Number of
Number of
remaining
options
shares
contractual
Exercise price (in Swiss francs)
(1)
(in millions)
(in millions)
(2)
term (in years)
21.50
9.3
1.9
0.7
22.50
63.4
12.7
1.6
23.50
61.6
12.3
2.7
19.00
40.1
8.0
3.7
Total number of options and shares
174.4
34.9
2.4
(1)
Information presented reflects the exercise price per share of ABB Ltd.
(2)
Information presented reflects the number of shares of ABB Ltd that can be received upon exercise.
WARs
As each WAR gives the holder the right to receive cash equal to the market price of the equivalent listed
warrant on date of exercise, the Company records a liability based upon the fair value of outstanding WARs
at each period end, accreted on a straight
‑
line basis over the
three‑year
and administrative expenses, the Company records the changes in both the fair value and vested portion of
the outstanding WARs. To hedge its exposure to fluctuations in the fair value of outstanding WARs, the
Company purchased cash
‑
settled call options, which entitle the Company to receive amounts equivalent to
its obligations under the outstanding WARs. The cash
‑
settled call options are recorded as derivatives
measured at fair value (see Note 6), with subsequent changes in fair value recorded in Selling, general and
administrative expenses to the extent that they offset the change in fair value of the liability for the WARs.
The total impact in Selling, general and administrative expenses in 2021, 2020 and 2019 was not significant.
F-66
The aggregate fair value of outstanding WARs was $
29
21
2020, respectively. The fair value of WARs was determined based upon the trading price of equivalent
warrants listed on the SIX Swiss Exchange.
Presented below is a summary of the activity related to WARs:
(in millions)
Number of WARs
Outstanding at January 1, 2021
22.1
Exercised
(12.6)
Forfeited
(0.1)
Outstanding at December 31, 2021
9.4
Exercisable at December 31, 2021
3.8
The aggregate fair value at date of grant of WARs granted in 2019 was not significant. As mentioned
previously,
no
‑
based liabilities
of $
25
13
in 2019 were not significant.
Employee Share Acquisition Plan
The employee share acquisition plan (ESAP) is an employee stock
‑
option plan with a savings feature.
Employees save over a
twelve‑month
period, employees choose whether to exercise their stock options using their savings plus interest, if any, to
buy ABB Ltd shares (American Depositary Shares (ADS) in the case of employees in the United States and
Canada—each ADS representing
one
date, or have their savings returned with any interest. The savings are accumulated in bank accounts held by
a third
‑
party trustee on behalf of the participants and earn interest, where applicable. Employees can
withdraw from the ESAP at any time during the savings period and will be entitled to a refund of their
accumulated savings.
The fair value of each option is estimated on the date of grant using the same option valuation model as
described under the MIP, using the assumptions noted in the table below. The expected term of the option
granted has been determined to be the contractual
one‑year
options vest and the participants are required to decide whether to exercise their options or have their
savings returned with interest. The risk
‑
free rate is based on
one‑year
the
one‑year
previous ESAP launches.
2021
2020
2019
Expected volatility
20%
24%
18%
Dividend yield
2.9%
3.8%
4.1%
Expected term
1 year
1 year
1 year
Risk-free interest rate
-0.6%
-0.7%
-0.7%
F-67
Presented below is a summary of activity under the ESAP:
Weighted-
Weighted-
Aggregate
average
average
intrinsic
exercise
remaining
value
Number of
price
contractual
(in millions
shares
(in Swiss
term
of Swiss
(in millions)
(1)
francs)
(2)
(in years)
francs)
(2)(3)
Outstanding at January 1, 2021
2.1
22.87
Granted
1.8
30.32
Forfeited
(0.1)
22.87
Exercised
(4)
(1.7)
22.87
Not exercised (savings returned plus interest)
(0.3)
22.87
Outstanding at December 31, 2021
1.8
30.32
0.8
8.3
Vested and expected to vest at December 31, 2021
1.7
30.32
0.8
7.9
Exercisable at December 31, 2021
—
—
—
—
(1)
Includes shares represented by ADS.
(2)
Information presented for ADS is based on equivalent Swiss franc denominated awards.
(3)
Computed using the closing price, in Swiss francs, of ABB Ltd shares on the SIX Swiss Exchange and the exercise price of each option in
Swiss francs.
(4)
The cash received in 2021 from exercises was approximately $
42
The exercise prices per ABB Ltd share and per ADS of
30.32
33.35
, respectively, for the
2021 grant,
22.87
24.93
, respectively, for the 2020 grant, and
20.78
$
20.17
, respectively, for the 2019 grant were determined using the closing price of the ABB Ltd share on the
SIX Swiss Exchange and ADS on the New York Stock Exchange on the respective grant dates.
At December 31, 2021, the total unrecognized compensation cost related to non
‑
vested options granted
under the ESAP was not significant. The weighted
‑
average grant
‑
date fair value (per option) of options
granted during 2021, 2020 and 2019 was
1.96
1.67
1.05
respectively. The total intrinsic value (on the date of exercise) of options exercised in 2021 was approximately
$
14
Long-Term Incentive Plan
The long
‑
term incentive plan (LTIP) involves annual grants of the Company’s stock subject to certain
conditions (Performance Shares) to members of the Company’s Executive Committee and selected other
senior executives, as defined in the terms of the LTIP. Starting with 2020, certain of the employee group
previously eligible to receive grants under the MIP have been included in the LTIP. The ultimate amount
delivered under the LTIP’s Performance Shares grant is based on achieving certain results against targets,
as set out below, over a
three-year
the end of this period. In addition, for certain awards to vest, the participant has to fulfill a
three-year
condition as defined in the terms and conditions of the LTIP.
The Performance Shares under the 2021, 2020 and 2019 LTIP launches include a performance component,
based on the Company’s earnings per share performance, and a market component, based on the
Company’s relative total shareholder return.
For the relative total shareholder return component of the Performance Shares, the actual number of shares
that will be delivered at a future date is based on the Company’s total shareholder return performance relative
to a peer group of companies over a
three-year
shares that will ultimately be delivered will vary depending on the relative total shareholder return outcome
achieved between a lower threshold (no shares delivered) and an upper threshold (the number of shares
delivered is capped at
200
F-68
For the earnings per share performance component of the Performance Shares, the actual number of shares
that will be delivered at a future date is based on the Company’s average earnings per share over
three
financial years, beginning with the year of launch. The actual number of shares that will ultimately be
delivered will vary depending on the earnings per share outcome as computed under each LTIP launch,
interpolated between a lower threshold (no shares delivered) and an upper threshold (the number of shares
delivered is capped at
200
Under the 2019 LTIP launches, participants receive
65
shares and
35
receive the
35
participants generally do not have the ability to receive any of the award in cash, subject to legal restrictions
in certain jurisdictions.
Presented below is a summary of activity under the Performance Shares of the LTIP:
Weighted-average
Number of
grant-date
Performance Shares
fair value per share
(in millions)
(Swiss francs)
Nonvested at January 1, 2021
1.3
12.76
Granted
0.9
38.92
Vested
(0.4)
25.78
Forfeited
(0.3)
19.82
Nonvested at December 31, 2021
1.5
23.23
The aggregate fair value, at the dates of grant, of Performance Shares granted in 2021 and 2019 was
$
37
18
shares that vested during 2019 was $
21
weighted-average grant-date fair value (per share) of shares granted during 2021, 2020 and 2019 was
38.92
10.50
15.94
Starting in 2020, key employees which were previously eligible to participate in the MIP and which were not
included in the employee group granted the Performance Shares described above, were granted Restricted
Shares of the Company under the LTIP. The Restricted Shares do not have performance conditions and vest
over a
three-year
Presented below is a summary of activity under the Restricted Shares of the LTIP:
Weighted-average
Number of
grant-date
Restricted Shares
fair value per share
(in millions)
(Swiss francs)
Nonvested at January 1, 2021
1.2
15.80
Granted
0.9
26.39
Forfeited
(0.1)
18.09
Nonvested at December 31, 2021
2.0
20.61
The aggregate fair value, at the dates of grant, of Restricted Shares granted in 2021 and 2020 was
$
26
22
‑
average grant
‑
date fair value (per share) of shares
granted during 2021 and 2020 was
26.39
15.76
F-69
Equity
‑
settled awards are recorded in the Additional paid
‑
in capital component of Stockholders’ equity, with
compensation cost recorded in Selling, general and administrative expenses over the vesting period (which is
from grant date to the end of the vesting period) based on the grant
‑
date fair value of the shares.
Cash
‑
settled awards are recorded as a liability, remeasured at fair value at each reporting date for the
percentage vested, with changes in the liability recorded in Selling, general and administrative expenses.
At December 31, 2021, total unrecognized compensation cost related to equity
‑
settled awards under the LTIP
was $
59
2
compensation cost recorded in 2021, 2020 and 2019 for cash
‑
settled awards was not significant.
For the relative total shareholder return component of the LTIP launches, the fair value of granted shares at
grant date, for equity
‑
settled awards, and at each reporting date, for cash
‑
settled awards, is determined using
a Monte Carlo simulation model. The main inputs to this model are the Company’s share price and dividend
yield, the volatility of the Company’s and the peer group’s share price as well as the correlation between the
peer companies. For the earnings per share component of the LTIP launches, the fair value of granted
shares is based on the market price of the ABB Ltd share at grant date for equity
‑
settled awards and at each
reporting date for cash
‑
settled awards, as well as the probable outcome of the earnings per share
achievement, as computed using a Monte Carlo simulation model. The main inputs to this model are the
Company’s and external financial analysts’ revenue growth rates and Operational EBITA margin
expectations.
Other share
‑
based payments
The Company has other minor share
‑
based payment arrangements with certain employees. The
compensation cost related to these arrangements in 2021, 2020 and 2019 was not significant.
—
Note 19
Stockholders' equity
At December 31, 2021, the Company had
2,557
2,053
registered and issued. At December 31, 2020, the Company had
2,672
2,168
At the Annual General Meeting of Shareholders (AGM) in March 2021, the shareholders approved the
proposal of the Board of Directors to distribute a total of
0.80
distribution amounted to $
1,730
remaining amounts in April 2021. At the AGM in March 2020, the shareholders approved the proposal of the
Board of Directors to distribute a total of
0.80
amounted to $
1,758
approved the proposal of the Board of Directors to distribute a total of
0.80
approved dividend distribution amounted to $
1,675
In July 2020, the Company announced it initially intends to buy
10
time represented a maximum of
180
share buyback program that started in July 2020. The initial share buyback program was executed on a
second trading line on the SIX Swiss Exchange and was completed in March 2021. Through this buyback
program, the Company purchased a total of approximately
129
3.5
of which approximately
20
628
purchased in 2021 and approximately
109
$
2,835
cancellation of
115
completed in the second quarter of 2021, resulting in a decrease in Treasury stock of $
3,157
corresponding total decrease in Capital stock, Additional paid-in capital and Retained earnings.
F-70
In March 2021, the Company announced a follow-up share buyback program of up to $
4.3
buyback program, which was launched in April 2021, is being executed on a second trading line on the SIX
Swiss Exchange and is planned to run until the Company’s AGM in March 2022. Through this follow-up
buyback program, the Company purchased, in 2021, approximately
59
in Treasury stock of $
2,022
approval to cancel the shares purchased through this follow-up share buyback program as well as those
shares purchased under the initial share buyback program that were not proposed for cancellation at the
Company’s AGM in March 2021.
In addition to the ongoing share buyback program, in 2021 and 2020, the Company purchased
33
13
share plans, resulting in an increase in Treasury stock of $
1,032
346
Upon and in connection with each launch of the Company’s MIP, the Company sold call options to a bank at
fair value, giving the bank the right to acquire shares equivalent to the number of shares represented by the
MIP WAR awards to participants. Under the terms of the agreement with the bank, the call options can only
be exercised by the bank to the extent that MIP participants have exercised their WARs. At December 31,
2021, such call options representing
5.4
19.00
23.50
‑
average strike price of
21.93
options expire in periods ranging from August 2022 to August 2025. However, only
3.5
instruments, with strike prices ranging from
19.00
23.50
‑
average strike price of
22.64
bank.
In addition to the above, at December 31, 2021, the Company had further outstanding obligations to deliver:
•
2
strike price of
21.50
•
13
strike price of
22.50
•
12
strike price of
23.50
•
8
strike price of
19.00
•
2
•
8
LTIP, vesting and expiring in April 2024, April 2023 and May 2022, respectively, and
•
1
‑
based payment
arrangements with employees.
See Note 18 for a description of the above share
‑
based payment arrangements.
In 2021 and 2020, the Company delivered approximately
36
17
treasury stock, for options exercised in relation to the MIP, while in 2019 the amount was not significant. In
addition, in 2021, 2020 and 2019, the Company delivered
1.7
1.4
0.5
respectively, out of treasury stock under the ESAP.
F-71
Amounts available to be distributed as dividends to the stockholders of ABB Ltd are based on the
requirements of Swiss law and ABB Ltd’s Articles of Incorporation, and are determined based on amounts
presented in the unconsolidated financial statements of ABB Ltd, prepared in accordance with Swiss law. At
December 31, 2021, the total unconsolidated stockholders’ equity of ABB Ltd was
6,837
($
7,490
246
270
9,443
Swiss francs ($
10,345
2,853
3,125
representing a reduction of equity for own shares (treasury stock). Of the reserves,
2,853
($
3,125
49
54
20
share capital, are restricted and not available for distribution.
In February 2022, the Company announced that a proposal will be put to the 2022 AGM for approval by the
shareholders to distribute
0.82
Subsequent events
Subsequent to December 31, 2021, and up to February 23, 2022, the Company purchased, under the follow-
up share buyback program, an additional
21
735
market, an additional
9
326
—
Note 20
Earnings per share
Basic earnings per share is calculated by dividing income by the weighted
‑
average number of shares
outstanding during the year. Diluted earnings per share is calculated by dividing income by the
weighted
‑
average number of shares outstanding during the year, 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. In 2020 and 2019, outstanding securities representing a maximum of
79
93
inclusion would have been antidilutive.
None
Basic earnings per share:
($ in millions, except per share data in $)
Amounts attributable to ABB shareholders:
Income from continuing operations, net of tax
4,625
294
1,043
Income (loss) from discontinued operations, net of tax
(79)
4,852
396
Net income
4,546
5,146
1,439
Weighted-average number of shares outstanding (in millions)
2,001
2,111
2,133
Basic earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
2.31
0.14
0.49
Income (loss) from discontinued operations, net of tax
(0.04)
2.30
0.19
Net income
2.27
2.44
0.67
F-72
Diluted earnings per share:
($ in millions, except per share data in $)
Amounts attributable to ABB shareholders:
Income from continuing operations, net of tax
4,625
294
1,043
Income (loss) from discontinued operations, net of tax
(79)
4,852
396
Net income
4,546
5,146
1,439
Weighted-average number of shares outstanding (in millions)
2,001
2,111
2,133
Effect of dilutive securities:
Call options and shares
18
8
2
Adjusted weighted-average number of shares outstanding (in millions)
2,019
2,119
2,135
Diluted earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
2.29
0.14
0.49
Income (loss) from discontinued operations, net of tax
(0.04)
2.29
0.19
Net income
2.25
2.43
0.67
F-73
—
Note 21
Other comprehensive income
The following table includes amounts recorded within “Total other comprehensive income (loss)” including the
related income tax effects:
2021
2020
2019
Before
Tax
Net of
Before
Tax
Net of
Before
Tax
Net of
($ in millions)
tax
effect
tax
tax
effect
tax
tax
effect
tax
Foreign currency translation adjustments:
Foreign currency translation adjustments
(521)
—
(521)
500
(2)
498
(130)
—
(130)
Changes attributable to divestments
(9)
—
(9)
519
—
519
(2)
—
(2)
Net change during the year
(530)
—
(530)
1,019
(2)
1,017
(132)
—
(132)
Available-for-sale securities:
Net unrealized gains (losses) arising
during the year
(13)
3
(10)
31
(7)
24
16
(2)
14
Reclassification adjustments for net
(gains) losses included in net income
(6)
1
(5)
(18)
4
(14)
1
(1)
—
Changes attributable to divestments
—
—
—
(3)
—
(3)
—
—
—
Net change during the year
(19)
4
(15)
10
(3)
7
17
(3)
14
Pension and other postretirement plans:
Prior service (costs) credits arising
during the year
2
(2)
—
55
(12)
43
3
3
6
Net actuarial gains (losses) arising
during the year
437
(26)
411
(243)
43
(200)
(293)
73
(220)
Amortization of prior service cost (credit)
included in net income
(14)
—
(14)
(11)
—
(11)
(25)
(3)
(28)
Amortization of net actuarial loss included
in net income
65
4
69
113
(25)
88
99
(31)
68
Net losses from settlements and curtailments
included in net income
7
—
7
650
(132)
518
38
(6)
32
Changes attributable to divestments
(8)
2
(6)
186
(35)
151
—
—
—
Net change during the year
489
(22)
467
750
(161)
589
(178)
36
(142)
Derivative instruments and hedges:
Net gains (losses) arising during the year
7
1
8
2
—
2
20
—
20
Reclassification adjustments for net (gains)
losses included in net income
(13)
—
(13)
(2)
2
—
(9)
—
(9)
Net change during the year
(6)
1
(5)
—
2
2
11
—
11
Total other comprehensive income (loss)
(66)
(17)
(83)
1,779
(164)
1,615
(282)
33
(249)
F-74
The following table shows changes in “Accumulated other comprehensive loss” (OCI) attributable to ABB, by
component, net of tax:
Unrealized
Pension and
Foreign
gains (losses)
other post-
Accumulated
currency
on available-
retirement
other
translation
for-sale
plan
comprehensive
($ in millions)
adjustments
securities
adjustments
loss
Balance at January 1, 2019
(3,324)
(4)
(1,967)
(16)
(5,311)
Cumulative effect of changes in
accounting principles
(1)
—
—
(36)
—
(36)
Other comprehensive (loss) income
before reclassifications
(130)
14
(214)
20
(310)
Amounts reclassified from OCI
(2)
—
72
(9)
61
Total other comprehensive (loss) income
(132)
14
(142)
11
(249)
Less:
Amounts attributable to noncontrolling
interests
(6)
—
—
—
(6)
Balance at December 31, 2019
(3,450)
10
(2,145)
(5)
(5,590)
Other comprehensive (loss) income
before reclassifications
498
24
(157)
2
367
Amounts reclassified from OCI
519
(17)
746
—
1,248
Total other comprehensive (loss) income
1,017
7
589
2
1,615
Less:
Amounts attributable to noncontrolling
interests
27
—
—
—
27
Balance at December 31, 2020
(2,460)
17
(1,556)
(3)
(4,002)
Other comprehensive (loss) income
before reclassifications
(521)
(10)
411
8
(112)
Amounts reclassified from OCI
(9)
(5)
56
(13)
29
Total other comprehensive (loss) income
(530)
(15)
467
(5)
(83)
Less:
Amounts attributable to noncontrolling
interests
4
—
—
—
4
Balance at December 31, 2021
(2)
(2,993)
2
(1,089)
(8)
(4,088)
(1) Amounts relate to the adoption of an accounting standard update in 2019 regarding the Tax Cuts and Jobs Act of 2017.
(2) Due to rounding, numbers presented may not add to the totals provided.
F-75
The following table reflects amounts reclassified out of OCI in respect of Foreign currency translation
adjustments and Pension and other postretirement plan adjustments:
($ in millions)
Location of (gains) losses
Details about OCI components
reclassified from OCI
2021
2020
2019
Foreign currency translation adjustments:
Changes attributable to divestments:
Other income (expense), net
(9)
—
(2)
Other income (expense), net
—
99
—
Income (loss) from discontinued
operations, net of tax
—
420
—
Amounts reclassified from OCI
(9)
519
(2)
Pension and other postretirement plan adjustments:
Amortization of prior service cost (credit)
Non-operational pension (cost) credit
(1)
(14)
(11)
(25)
Amortization of net actuarial loss
Non-operational pension (cost) credit
(1)
65
113
99
Net losses from settlements and curtailments
Non-operational pension (cost) credit
(1)
7
650
38
Changes attributable to divestments:
Other income (expense), net
(8)
—
—
Income (loss) from discontinued
operations, net of tax
(2)
—
186
—
Total before tax
50
938
112
Tax
Income tax expense
4
(157)
(40)
Changes in tax attributable to divestments:
Other income (expense), net
2
—
—
Income (loss) from discontinued
operations, net of tax
(2)
—
(35)
—
Amounts reclassified from OCI
56
746
72
(1) Amounts in 2020 and 2019, include a total of $
94
6
discontinued operations (see Note 3).
(2) Amounts represent the reclassification of OCI relating to pensions, including tax, on divestment of the Power Grids business.
The amounts reclassified out of OCI in respect of Unrealized gains (losses) on available
‑
for
‑
sale securities
and Derivative instruments and hedges were not significant in 2021, 2020 and 2019.
—
Note 22
Restructuring and related expenses
OS program
From December 2018 to December 2020, the Company executed a
two-year
objective of simplifying its business model and structure through the implementation of a new organizational
structure driven by its businesses. The program resulted in the elimination of the country and regional
structures within the previous matrix organization, including the elimination of the three regional Executive
Committee roles. The operating businesses are now responsible for both their customer-facing activities and
business support functions, while the remaining Group-level corporate activities primarily focus on Group
strategy, portfolio and performance management and capital allocation.
As of December 31, 2020, the Company has incurred substantially all costs related to the OS program.
F-76
Liabilities associated with the OS program are included primarily in Other provisions. The following table
shows the activity from the beginning of the program to December 31, 2021:
Contract
settlement,
Employee
loss order
($ in millions)
severance costs
Total
Liability at January 1, 2018
—
—
—
Expenses
65
—
65
Liability at December 31, 2018
65
—
65
Expenses
111
1
112
Cash payments
(44)
(1)
(45)
Change in estimates
(30)
—
(30)
Exchange rate differences
(3)
—
(3)
Liability at December 31, 2019
99
—
99
Expenses
119
17
136
Cash payments
(91)
(15)
(106)
Change in estimates
(10)
—
(10)
Exchange rate differences
4
—
4
Liability at December 31, 2020
121
2
123
Expenses, net of change in estimates
2
2
4
Cash payments
(65)
(3)
(68)
Exchange rate differences
(6)
—
(6)
Liability at December 31, 2021
52
1
53
The following table outlines the costs incurred in 2020 and 2019, and the cumulative costs incurred under the
program per operating segment as well as Corporate and Other:
Cumulative costs
Costs incurred in
incurred up to
($ in millions)
2020
2019
December 31, 2020
Electrification
35
18
85
Motion
18
6
25
Process Automation
(1)
37
3
61
Robotics & Discrete Automation
10
8
18
Corporate and Other
49
54
114
Total
149
89
303
(1) Formerly named the Industrial Automation operating segment.
The Company recorded the following expenses, net of change in estimates, under this program:
Cumulative costs
Costs incurred in
incurred up to
($ in millions)
2020
2019
December 31, 2020
Employee severance costs
109
81
255
Estimated contract settlement, loss order and other costs
17
1
18
Inventory and long-lived asset impairments
23
7
30
Total
149
89
303
F-77
Restructuring expenses recorded for this program are included in the following line items in the Consolidated
Income Statements:
($ in millions)
2020
2019
Total cost of sales
38
8
Selling, general and administrative expenses
37
46
Non-order related research and development expenses
4
1
Other income (expense), net
70
34
Total
149
89
Other restructuring-related activities
In addition, during 2021, 2020 and 2019, the Company executed various other restructuring
‑
related activities
and incurred the following charges, net of changes in estimates:
($ in millions)
2021
2020
2019
Employee severance costs
101
164
55
Estimated contract settlement, loss order and other costs
31
18
37
Inventory and long-lived asset impairments
24
12
22
Total
156
194
114
Expenses associated with these activities are recorded in the following line items in the Consolidated Income
Statements:
($ in millions)
2021
2020
2019
Total cost of sales
71
95
46
Selling, general and administrative expenses
21
50
4
Non-order related research and development expenses
2
10
—
Other income (expense), net
62
39
64
Total
156
194
114
In 2021, the Company initiated a plan to fully exit a product group within one of its non-core businesses. The
exit activities are expected to be completed by the end of 2022 and incur restructuring-related expenses of
between $
150
200
will be recorded in 2022 as certain required contractual elements will only be effective in 2022.
At December 31, 2021 and 2020, $
212
233
restructuring-related liabilities and is primarily included in “Other provisions”.
—
Note 23
Operating segment and geographic data
The Chief Operating Decision Maker (CODM) is the Chief Executive Officer. The CODM allocates resources
to and assesses the performance of each operating segment using the information outlined below. The
Company is organized into the following segments, based on products and services: Electrification, Motion,
Process Automation and Robotics & Discrete Automation. The remaining operations of the Company are
included in Corporate and Other.
F-78
Effective January 1, 2021, the Industrial Automation segment was renamed the Process Automation
segment. In addition, the Company changed its method of allocating real estate assets to its operating
segments whereby these assets are now accounted for directly in the individual operating segment which
utilizes the asset rather than as a cost recharged to the operating segment from Corporate and Other. As a
result, while this change had no impact on segment revenues or profits (Operational EBITA), certain real
estate assets (including corresponding depreciation and capital expenditure), previously reported within
Corporate and Other have been allocated to the total segment assets of each individual operating segment.
Certain segment information for 2020 and 2019, as well as Total assets at December 31, 2020 and 2019,
have been recast to reflect this allocation change.
A description of the types of products and services provided by each reportable segment is as follows:
•
Electrification:
manufactures and sells electrical products and solutions which are designed to
provide safe, smart and sustainable electrical flow from the substation to the socket. The portfolio
of increasingly digital and connected solutions includes electric vehicle charging infrastructure,
renewable power solutions, modular substation packages, distribution automation products,
switchboard and panelboards, switchgear, UPS solutions, circuit breakers, measuring and
sensing devices, control products, wiring accessories, enclosures and cabling systems and
intelligent home and building solutions, designed to integrate and automate lighting, heating,
ventilation, security and data communication networks. The products and services are delivered
through six operating Divisions: Distribution Solutions, Smart Power, Smart Buildings, E-mobility,
Installation Products and Power Conversion.
•
Motion:
manufactures and sells drives, motors, generators, traction converters and mechanical
power transmission products that are driving the low-carbon future for industries, cities,
infrastructure and transportation. These products, digital technology and related services enable
industrial customers to increase energy efficiency, improve safety and reliability, and achieve
precise control of their processes. Building on over 130 years of cumulative experience in electric
powertrains, the Business Area combines domain expertise and technology to deliver the
optimum solution for a wide range of applications in all industrial segments. In addition, the
Business Area, along with partners, has a leading global service presence. These products and
services are delivered through eight operating Divisions: Large Motors & Generators, IEC LV
Motors, NEMA Motors, Drive Products, System Drives, Service, Traction and, until October 2021,
Mechanical Power Transmission.
•
Process Automation:
develops and sells a broad range of industry-specific, integrated automation
and electrification and digital systems and solutions, as well as digital solutions, lifecycle
services, advanced industrial analytics and artificial intelligence applications and suites for the
process, marine and hybrid industries. Products and solutions include process and discrete
control technologies, advanced process control software and manufacturing execution systems,
sensing, measurement and analytical instrumentation, marine propulsion systems and large
turbochargers. In addition, the Business Area offers a comprehensive range of services ranging
from repair to advanced services such as remote monitoring, preventive maintenance, asset
performance management, emission monitoring and cybersecurity services. The products,
systems and services are delivered through five operating Divisions: Energy Industries, Process
Industries, Marine & Ports, Turbocharging, and Measurement & Analytics.
•
Robotics & Discrete Automation:
delivers its products, solutions and services through two
operating Divisions: Robotics and Machine Automation. Robotics includes: industrial robots,
software, robotic solutions and systems, field services, spare parts, and digital services. Machine
Automation specializes in solutions based on its programmable logic controllers (PLC), industrial
PCs (IPC), servo motion, transport systems and machine vision. Both Divisions offer engineering
and simulation software as well as a comprehensive range of digital solutions.
Corporate and Other:
includes headquarter costs, the Company’s corporate real estate activities, Corporate
Treasury Operations, historical operating activities of certain divested businesses and other non-core
operating activities.
F-79
The primary measure of profitability on which the operating segments are evaluated is Operational EBITA,
which represents income from operations excluding:
•
•
•
divestment date (changes in obligations related to divested businesses),
•
pre-acquisition estimates),
•
held for sale),
•
•
•
•
(a) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded
derivatives), (b) realized gains and losses on derivatives where the underlying hedged
transaction has not yet been realized, and (c) unrealized foreign exchange movements on
receivables/payables (and related assets/liabilities).
Certain other non-operational items generally includes certain regulatory, compliance and legal costs, certain
asset write downs/impairments (including impairment of goodwill) and certain other fair value changes, as
well as other items which are determined by management on a case
‑
by
‑
case basis.
The CODM primarily reviews the results of each segment on a basis that is before the elimination of profits
made on inventory sales between segments. Segment results below are presented before these eliminations,
with a total deduction for intersegment profits to arrive at the Company’s consolidated Operational EBITA.
Intersegment sales and transfers are accounted for as if the sales and transfers were to third parties, at
current market prices.
F-80
The following tables present disaggregated segment revenues from contracts with customers for 2021, 2020
and 2019:
2021
($ in millions)
Electrification
Motion
Process
Automation
Robotics &
Discrete
Automation
Corporate
and Other
Total
Geographical markets
4,517
2,015
2,416
1,578
3
10,529
4,465
2,346
1,431
439
5
8,686
of which: United States
3,304
1,952
833
308
—
6,397
3,975
2,111
2,367
1,270
7
9,730
of which: China
2,087
1,156
740
949
—
4,932
12,957
6,472
6,214
3,287
15
28,945
Product type
10,706
5,555
1,496
2,159
4
19,920
1,367
—
1,802
645
11
3,825
884
917
2,916
483
—
5,200
12,957
6,472
6,214
3,287
15
28,945
12,957
6,472
6,214
3,287
15
28,945
230
453
45
10
(738)
—
Total revenues
13,187
6,925
6,259
3,297
(723)
28,945
2020
($ in millions)
Electrification
Motion
Process
Automation
Robotics &
Discrete
Automation
Corporate
and Other
Total
Geographical markets
4,008
1,934
2,322
1,429
15
9,708
4,050
2,173
1,321
385
7
7,936
of which: United States
3,093
1,846
805
270
5
6,019
3,506
1,807
2,038
1,024
7
8,382
of which: China
1,820
926
628
714
3
4,091
11,564
5,914
5,681
2,838
29
26,026
Product type
9,951
5,040
1,263
1,635
53
17,942
743
—
1,665
780
(24)
3,164
870
874
2,753
423
—
4,920
11,564
5,914
5,681
2,838
29
26,026
11,564
5,914
5,681
2,838
29
26,026
(1)
360
495
111
69
(927)
108
Total revenues
11,924
6,409
5,792
2,907
(898)
26,134
F-81
2019
($ in millions)
Electrification
Motion
Process
Automation
Robotics &
Discrete
Automation
Corporate
and Other
Total
Geographical markets
Europe
4,039
1,879
2,416
1,634
36
10,004
The Americas
4,568
2,315
1,582
453
1
8,919
of which: United States
3,522
1,972
948
290
3
6,735
Asia, Middle East and Africa
3,665
1,827
2,153
1,157
40
8,842
of which: China
1,729
876
608
825
1
4,039
12,272
6,021
6,151
3,244
77
27,765
Product type
Products
10,315
5,152
1,439
1,785
65
18,756
Systems
958
—
1,648
968
12
3,586
Services and software
999
869
3,064
491
—
5,423
12,272
6,021
6,151
3,244
77
27,765
Third-party revenues
12,272
6,021
6,151
3,244
77
27,765
Intersegment revenues
(1)
456
512
122
70
(947)
213
Total revenues
12,728
6,533
6,273
3,314
(870)
27,978
(1) Intersegment revenues until June 30, 2020, include sales to the Power Grids business, which is presented as discontinued operations, and
are not eliminated from Total revenues (see Note 3).
Revenues by geography reflect the location of the customer. In 2021, 2020 and 2019 the United States and
China are the only countries where revenue exceeded 10 percent of Total revenues. In each of 2021, 2020
and 2019 more than
98
Switzerland.
F-82
The following tables present Operational EBITA, the reconciliations of consolidated Operational EBITA to
Income from continuing operations before taxes, as well as Depreciation and amortization, and Capital
expenditure for 2021, 2020 and 2019, as well as Total assets at December 31, 2021, 2020 and 2019:
($ in millions)
2021
2020
2019
Operational EBITA:
Electrification
2,121
1,681
1,688
Motion
1,183
1,075
1,082
Process Automation
801
451
732
Robotics & Discrete Automation
355
237
393
Corporate and Other:
— Non-core and divested businesses
(39)
(133)
(145)
— Stranded corporate costs
—
(40)
(225)
— Corporate costs and Other intersegment elimination
(299)
(372)
(418)
Total
4,122
2,899
3,107
Acquisition-related amortization
(250)
(263)
(265)
Restructuring, related and implementation costs
(1)
(160)
(410)
(300)
Changes in obligations related to divested businesses
(9)
(218)
(36)
Changes in pre-acquisition estimates
6
(11)
(22)
Gains and losses from sale of businesses
2,193
(2)
55
Fair value adjustment on assets and liabilities held for sale
—
(33)
(421)
Acquisition- and divestment-related expenses and integration costs
(132)
(74)
(121)
Other income/expenses relating to the Power Grids joint venture
(34)
(20)
—
Foreign exchange/commodity timing differences in income from operations:
Unrealized gains and losses on derivatives (foreign exchange,
commodities, embedded derivatives)
(54)
67
20
Realized gains and losses on derivatives where the underlying hedged
transaction has not yet been realized
(2)
26
8
Unrealized foreign exchange movements on receivables/payables (and
20
(33)
(7)
Certain other non-operational items:
Costs for divestment of Power Grids
—
(86)
(141)
Regulatory, compliance and legal costs
—
(7)
(7)
Business transformation costs
(2)
(92)
(37)
(19)
Executive Committee transition costs
(3)
(1)
(14)
Favorable resolution of an uncertain purchase price adjustment
6
36
92
Gain on sale of investments
—
—
15
Certain other fair value changes, including asset impairments
(3)
119
(239)
(4)
Other non-operational items
(12)
(1)
(2)
Income from operations
5,718
1,593
1,938
Interest and dividend income
51
51
67
Interest and other finance expense
(148)
(240)
(215)
Losses from extinguishment of debt
—
(162)
—
Non-operational pension (cost) credit
166
(401)
72
Income from continuing operations before taxes
5,787
841
1,862
(1) Amounts in 2020 and 2019 include $
67
97
(2) Amounts in 2021 includes ABB Way process transformation costs of $
80
(3) Amount in 2020 includes goodwill impairment charges of $
311
F-83
Depreciation and
Total assets
(1), (2), (3)
amortization
(1)
Capital expenditures
(1), (2)
at December 31,
($ in millions)
2021
2020
2019
2021
2020
2019
2021
2020
2019
Electrification
425
411
444
345
316
298
12,831
12,800
12,318
Motion
172
182
183
230
118
79
5,936
6,495
6,378
Process Automation
83
80
72
85
75
126
5,009
5,008
4,914
Robotics & Discrete
Automation
144
131
129
96
65
62
4,860
4,794
4,784
Corporate and Other
69
111
133
64
120
197
11,624
11,991
17,714
Consolidated
893
915
961
820
694
762
40,260
41,088
46,108
(1) Amounts in 2020 and 2019 have been restated to reflect the reallocation of certain real estate assets, previously reported in Corporate and
Other, to the individual operating segments utilizing these assets.
(2) Capital expenditures and Total assets are after intersegment eliminations and therefore reflect third -party activities only.
(3) At December 31, 2021, 2020 and 2019, Corporate and Other includes $
136
282
9,840
in the Power Grids business which is reported as discontinued operations (see Note 3). In addition, at December 31, 2021 and 2020,
Corporate and Other includes $
1,609
1,710
Other geographic information
Geographic information for long-lived assets was as follows:
Long-lived assets at
December 31,
($ in millions)
2021
2020
Europe
2,670
2,822
The Americas
1,260
1,382
Asia, Middle East and Africa
1,009
940
Total
4,939
5,144
Long
‑
lived assets represent “Property, plant and equipment, net” and “Operating lease right-of-use assets”
and are shown by location of the assets. At December 31, 2021, approximately
19
12
11
‑
lived assets were located in the United States, China and Switzerland,
respectively. At December 31, 2020, approximately
21
10
11
long
‑
lived assets were located in the United States, China and Switzerland, respectively.