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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, 2020
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:
2,030,834,169
 
Registered Shares
_________________________________________
Indicate by check mark if the registrant is a well-known seasoned
 
issuer, as defined in Rule 405 of the Securities Act.
Yes
 
No
 
If this report is an annual or transition report, indicate by check
 
mark if the registrant is not required to file reports pursuant to Section 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
 
No
 
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
 
No
 
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 tha
 
t
 
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
 
Other
 
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
 
Item 18
 
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
17
Item 4A.
Unresolved Staff Comments
34
Item 5.
Operating and Financial Review and Prospects
35
Item 6.
Directors, Senior Management and Employees
81
Item 7.
Major Shareholders and Related Party Transactions
133
Item 8.
Financial Information
133
Item 9.
The Offer and Listing
135
Item 10.
Additional Information
135
Item 11.
Quantitative and Qualitative
 
Disclosures About Market Risk
143
Item 12.
Description of Securities Other than Equity Securities
145
PART
 
II
146
Item 13.
Defaults, Dividend Arrearages and Delinquencies
146
Item 14.
Material Modifications to the Rights of Security Holders
 
and Use of Proceeds
146
Item 15.
Controls and Procedures
146
Item 16A.
Audit Committee Financial Expert
147
Item 16B.
Code of Ethics
147
Item 16C.
Principal Accountant Fees and Services
148
Item 16D.
Exemptions from the Listing Standards for Audit Committees
148
Item 16E.
Purchase of Equity Securities by Issuer and Affiliated
 
Purchasers
149
Item 16F.
Change in Registrant’s Certifying
 
Accountant
149
Item 16G.
Corporate Governance
149
Item 16H.
Mine Safety Disclosure
149
PART
 
III
150
Item 17.
Financial Statements
150
Item 18.
Financial Statements
150
Item 19.
Exhibits
151
 
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.
FINANCIAL AND OTHER INFORMATION
The Consolidated Financial Statements of ABB Ltd, including
 
the Notes thereto, as of December 31, 2020 and
2019, and for each of the years in the three-year period
 
ended December 31, 2020, (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; (vi) “AED” refers to the lawful
 
currency of the United Arab
Emirates; (vii) “INR” and “Indian Rupee”
 
refer to the lawful currency of India, and (viii) “HKD” refers to the
 
Hong
Kong dollar. Information
 
contained on, or that can be accessed through, our Web
 
site does not constitute a part of this
annual report and is not incorporated by reference herein.
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 31,
 
2020,
 
was $1.00 = CHF 0.8841.
 
The
twelve o’clock buying rate for Swiss francs on February
 
19,
 
2021,
 
was $1.00 = CHF 0.8948.
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, including the Energy and Fourth Industrial
Revolutions and 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:
 
statements in “Item 3. Key Information—Dividends and
 
Dividend Policy”
 
regarding our policy on future
dividend payments,
 
statements in “Item 3. Key Information—Risk Factors,”
 
statements in “Item 5. Operating and Financial Review and
 
Prospects”
 
regarding our management
objectives, including our outlook, as well as trends in results, prices,
 
volumes, operations, margins and
overall market trends, and
 
statements in “Item 8. Financial Information—Legal Proceedings
 
 
regarding the outcome of certain legal
and compliance matters.
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
 
Our business is exposed to risks associated with the COVID
 
-19 pandemic.
 
Our business is exposed to risks associated with the volatile
 
global economic environment and political
conditions.
 
Our operations in emerging markets expose us
 
to risks associated with conditions in those markets.
 
We may encounter
 
difficulty in managing our business due to the global
 
nature of our operations.
 
We operate
 
in very competitive and rapidly changing markets and could
 
be adversely affected if we fail to
keep pace with technological changes.
 
Industry consolidation could result in more powerful
 
competitors and fewer customers.
 
Increases in costs or limitation of supplies of raw materials
 
may adversely affect our financial performance.
 
Our multi-national operations expose us to the risk of
 
fluctuations in currency exchange rates.
 
3
 
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.
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.
 
Our business strategy may include making strategic
 
divestitures. There can be no assurance that any
divestitures will provide business benefit.
 
Anticipated benefits of historical, existing and potential
 
future mergers, acquisitions, joint ventures or
strategic alliances may not be realized.
 
There is no guarantee that our ongoing efforts
 
to reduce costs will be successful.
 
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.
 
We may be
 
the subject of product liability claims.
 
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.
 
 
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.
 
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.
Legal and regulatory risks
 
An inability to protect our intellectual property rights
 
could adversely affect our business.
 
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.
 
Examinations by tax authorities and changes in tax regulations
 
could result in lower earnings and cash
flows.
 
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.
 
We could be
 
affected by future laws or regulations enacted to address
 
climate change concerns as well as
the physical effects of climate change.
 
4
General risk factors
 
If we are unable to attract and retain qualified management
 
and personnel then our business may be
adversely affected.
 
 
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 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
SELECTED FINANCIAL DATA
The following table presents our selected financial
 
and operating information at the dates and for each of the
periods indicated. 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
 
our profitability, the comparability
 
of our results between periods, as well
as the reported carrying value of our assets and liabilities. You
 
should read the following information together with the
information contained in “Item 5. Operating and Financial
 
Review and Prospects,”
 
as well as our Consolidated Financial
Statements and the Notes thereto, included elsewhere in
 
this Annual Report.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
Our selected financial data in the following tables as well as financial
 
information in “Item 5. Operating and
Financial Review and Prospects” is presented in accordance
 
with U.S. GAAP and have been derived from our published
Consolidated Financial Statements. Our Consolidated
 
Financial Statements as of and for each of the years ended
December 31, 2020, 2019 and 2018, were audited by KPMG AG.
 
Our Consolidated Financial Statements as of
December 31, 2017, and for each of the years ended
 
December 31, 2017 and 2016, were audited by Ernst & Young
 
AG.
Our Consolidated Financial Statements as of December
 
31, 2016 have not been audited following the reclassification
 
in
2018 of the Power Grids business from continuing operations
 
to discontinued operations.
 
 
INCOME STATEMENT
 
DATA:
($ in millions, except per share data in $)
2020
2019
2018
2017
2016
Total
 
revenues
26,134
27,978
27,662
25,196
24,929
Total
 
cost of sales
(18,256)
(19,072)
(19,118)
(17,350)
(17,396)
Gross profit
7,878
8,906
8,544
7,846
7,533
Selling, general and administrative expenses
(4,895)
(5,447)
(5,295)
(4,765)
(4,532)
Non-order related research and development expenses
(1,127)
(1,198)
(1,147)
(1,013)
(967)
Impairment of goodwill
(311)
Other income (expense), net
 
48
(323)
124
162
(105)
Income from operations
1,593
1,938
2,226
2,230
1,929
Interest and dividend income
 
51
67
72
73
71
Interest and other finance expense
 
(240)
(215)
(262)
(234)
(201)
Losses from extinguishment of debt
(162)
Non-operational pension (cost) credit
(401)
72
83
33
(38)
Income from continuing operations before
 
taxes
841
1,862
2,119
2,102
1,761
Income tax expense
(496)
(772)
(544)
(583)
(526)
Income from continuing operations, net of
 
tax
345
1,090
1,575
1,519
1,235
Income from discontinued operations, net of tax
 
4,860
438
723
846
799
Net income
5,205
1,528
2,298
2,365
2,034
Net income attributable to noncontrolling interests
 
(59)
(89)
(125)
(152)
(135)
Net income attributable to ABB
5,146
1,439
2,173
2,213
1,899
Amounts attributable to ABB shareholders:
Income from continuing operations, net of tax
 
294
1,043
1,514
1,441
1,172
Income from discontinued operations, net of tax
 
4,852
396
659
772
727
Net income
 
5,146
1,439
2,173
2,213
1,899
Basic earnings per share attributable
 
to ABB shareholders:
Income from continuing operations, net of tax
 
0.14
0.49
0.71
0.67
0.54
Income from discontinued operations, net of tax
 
2.30
0.19
0.31
0.36
0.34
Net income
 
2.44
0.67
1.02
1.04
0.88
Diluted earnings per share attributable
 
to ABB shareholders:
Income from continuing operations, net of tax
 
0.14
0.49
0.71
0.67
0.54
Income from discontinued operations, net of tax
 
2.29
0.19
0.31
0.36
0.34
Net income
 
2.43
0.67
1.02
1.03
0.88
Weighted
 
-average number of shares outstanding
 
(in millions)
used to compute:
Basic earnings per share attributable to ABB shareholders
 
2,111
2,133
2,132
2,138
2,151
Diluted earnings per share attributable to ABB shareholders
 
2,119
2,135
2,139
2,148
2,154
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
BALANCE SHEET DATA:
unaudited
December 31,
($ in millions)
2020
2019
2018
2017
2016
Cash and equivalents and current restricted cash
 
3,601
3,544
3,445
4,526
3,644
Marketable securities and short-term investments
 
2,108
566
712
1,083
1,953
Restricted cash - non-current
300
Total assets
(1)
41,088
46,108
44,441
43,458
39,391
Long-term debt (excluding current maturities of long-term
debt)
4,828
6,772
6,587
6,682
5,785
Total debt
(2)
6,121
9,059
8,618
7,408
6,783
Common stock
188
188
188
188
192
Total stockholders’
 
equity (including noncontrolling interests)
 
15,999
13,980
14,534
15,349
13,897
 
CASH FLOW DATA:
($ in millions)
2020
2019
2018
2017
2016
Operating activities:
Net cash provided by operating activities — continuing operations
 
1,875
1,899
2,352
2,588
2,607
Net cash provided by (used in) operating activities — discontinued
operations
 
(182)
426
572
1,211
1,236
Net cash provided by operating activities
1,693
2,325
2,924
3,799
3,843
Investing activities:
Net cash used in investing activities — continuing operations
(2,272)
(651)
(2,908)
(1,118)
(1,108)
Net cash provided by (used in) investing activities — discontinued
operations
9,032
(164)
(177)
(332)
(197)
Net cash provided by (used in) investing activities
6,760
(815)
(3,085)
(1,450)
(1,305)
Financing activities:
Net cash used in financing activities — continuing operations
(8,206)
(1,328)
(741)
(1,688)
(3,308)
Net cash provided by (used in) financing activities — discontinued
operations
31
(55)
(48)
(47)
(47)
Net cash used in financing activities
(8,175)
(1,383)
(789)
(1,735)
(3,355)
 
(1)
 
Total assets
 
includes ass
 
ets held for
 
sale and in
 
discontinued
 
operations. See
 
“Note 3 - Discontinued
 
operations”
 
to our Consolidated
Financial Statements.
(2)
 
Total debt
 
is equal to
 
the sum of short
 
-term debt (including
 
current maturities
 
of long-term
 
debt) and long
 
-term debt.
 
 
 
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, 2020, the total unconsolidated stockholders’ equity
 
of ABB Ltd was CHF 9,063 million,
including CHF 260 million representing share capital, CHF 12,032
 
million representing reserves and CHF 3,229 million
representing a reduction of equity for own shares (treasury
 
stock). Of the reserves, CHF 3,229 million relating to own
shares and CHF 52 million representing 20 percent of share
 
capital, are restricted and not available for distribution.
 
7
With respect to the years
 
ended December 31, 2016, 2017,
 
2018 and 2019,
 
ABB Ltd paid a dividend of
CHF 0.76 (USD 0.76) per share, CHF 0.78 (USD 0.81)
 
per share, CHF 0.80 (USD 0.79) per share and CHF 0.80
(USD 0.82)
 
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, 2020,
 
ABB Ltd’s Board of Directors
 
has proposed to pay a
dividend of CHF 0.80 per share to shareholders. The distribution
 
is subject to approval by shareholders at ABB Ltd’s
2021 Annual General Meeting (AGM).
For further information on dividends and dividend policy
 
see “Item 6. Directors, Senior Management and
Employees—Shareholders—Shareholders’ rights—Shareho
 
lders’ dividend rights”.
 
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 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 “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 and the cost of capital. Given the global
 
nature of our business, COVID-19 has adversely
impacted our revenues and operating margins
 
in all of our businesses and is expected to continue to do
 
so at least in the
short term. In particular, our service
 
businesses have been materially impacted and some customer
 
industries, most
notably cruise operators, are operating significantly below
 
their normal levels. 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 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.
 
8
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 2020,
 
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 that our business in
2020 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 2020, 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:
 
economic instability,
 
which could make it difficult for us to anticipate future
 
business conditions in these
markets, cause delays in the placement of orders for projects
 
that we have been awarded and subject us to
volatile geographic markets,
 
political or social instability,
 
which could make our customers less willing to make cross-border
investments in such regions and could complicate our
 
dealings with governments regarding permits or
other regulatory matters, local businesses and workforces,
 
boycotts and embargoes that may be imposed
 
by the international community on countries in 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,
 
foreign state takeovers of our and our customers’ facilities,
 
significant fluctuations in interest rates and currency
 
exchange rates,
 
the imposition of unexpected taxes or other payments on
 
our revenues in these markets,
 
our inability to obtain financing and/or insurance coverage
 
from export credit agencies, and
 
the introduction of exchange controls and other
 
restrictions by foreign governments.
 
9
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, 2020, employed about
105,600 people, of which approximately 47 percent were
 
located in the Europe region, approximately 27 percent in the
Asia, Middle East and Africa region and approximately
 
26 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. 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 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 changing 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. Addi
 
tionally, 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
 
10
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 sufficient alternative
 
supply channel in a reasonable
time period or on commercially reasonable terms, if at
 
all. 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.
 
The results of operations and financial position of most
 
of our non-U.S.
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.
 
Currency risk exposure also affects our operations when
 
our sales are
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.
 
11
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 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 ou
 
r
 
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 may include 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 divestmen
 
t,
including our divestment in 2020 of 80.1 percent of the
 
Power Grids 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
 
12
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 anticipat
 
ed
benefits,
 
including operating synergies and cost savings,
 
from these transactions, including our acquisition in 2018 of
General Electric Company’s
 
Industrial Solutions business, depends, in part, upon the integration
 
between the businesses
involved, the performance and development of the 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 and other applicable laws or
regulations. 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 investigat
 
ion
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:
 
If the products produced by our electricity-related
 
businesses are defective, there is a risk of fire,
explosions and power surges, and significant
 
damage to electricity generating, transmission and
distribution facilities as well as electrical shock causing injury
 
or death.
 
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If the products produced by our automation-related businesses
 
are defective, our customers 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.
 
If any of our products contain hazardous substances, then
 
there is a risk that such products or substances
could cause injury or death.
 
If any of our protective products were to fail to function
 
properly, there is a risk that
 
such failure 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:
 
unanticipated issues with the scope of supply,
 
including modification or integration of supplied products
and systems that may require us to incur incremental
 
expenses to remedy such issues,
 
 
the quality and efficacy of our products and
 
services cannot be tested and proven in all situations and
environments and may lead to premature failure or unplanned
 
degradation of products,
 
changes in the cost of components, materials or labor,
 
difficulties in obtaining required governmental
 
permits or approvals,
 
delays caused by customers, force majeure or local weather
 
and geological conditions, including the
ongoing COVID-19 pandemic and natural disasters,
 
shortages of construction equipment,
 
changes in law or government policy,
 
supply bottlenecks, especially of key components,
 
 
suppliers’, subcontractors’ or consortium partners’ failure
 
to perform or delay in performance,
 
 
diversion of management focus due to responding to
 
unforeseen issues, and
 
14
 
loss of follow-on work.
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 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 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
 
15
goodwill of our products, promote our product recogni
 
tion, protect our 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 could adversely affect our business. 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 def