Discussion of ABB Group 2002 full-year results

Full-year 2002 performance - key figures in detail

Oil, Gas and Petrochemicals (for comparison *)

* Results from the Oil, Gas and Petrochemicals division are reported under discontinued operations and do not contribute to ABB’s 2002 full-year orders, revenues and EBIT.

Full-year 2002 performance - key figures in detail

(Unaudited based on new division structure)

Full year 2002

Income statement
Orders for 2002 were US$ 18,112 million, down 10 percent in local currencies and 8 percent in nominal terms from US$ 19,672 for the full year 2001. Lower orders were mainly due to fewer large project orders in Utilities, as well as difficult market conditions for businesses in non-core activities, particularly Building Systems. Both Power Technology Products and Automation Technology Products grew orders in local currency terms (+ 3 percent and +5 percent, respectively) compared to 2001, while Industries recorded a 7 percent drop.

Revenues amounted to US$ 18,295 million, down 8 percent in local currencies and 6 percent in nominal terms compared to the year before (2001: US$ 19,382 million). Utilities, Industries and non-core activities reported lower revenues, while Power Technology Products and Automation Technology Products grew by 9 percent and 3 percent, respectively.

EBIT margin was 1.8 percent versus 0.9 percent in 2001. Industries and Power Technology Products reported higher margins as productivity and cost-cutting programs started to positively impact EBIT, while Automation Technology Products’ margin was down due to higher restructuring costs. Utilities’ margin was negatively impacted as a result of the execution of low-margin projects taken in 1999 and 2000.

EBIT was US$ 336 million, almost doubling compared to 2001 (US$ 179 million). Losses from non-core activities were sharply reduced to US$ 217 million from US$ 397 million in 2001 (EBIT 2001 included a one-time US$ 295 million charge for Insurance, following a change in accounting for reserves). Costs were higher in Corporate, at US$ 393 million (2001: US$ 331 million).

EBIT includes Other Expense of US$ 116 million, comprising:
· Restructuring charges of US$ 261 million (2001: US$ 220 million)
· Capital gains of US$ 119 million (2001: US$ 57 million)
· Write-downs of assets of US$ 93 million (2001: US$ 92 million)
· Income from equity accounted companies, licenses and other of US$ 119 million (2001: US$ 150 million)

Finance net was US$ 129 million, (2001: US$ 190 million). Interest expense for 2002 was reduced by a gain of US$ 215 million, arising from the accounting treatment of the convertible bonds that ABB issued in May 2002. This is an unrealized, mark-to-market gain on the equity conversion option on the convertible bond, which may fluctuate in future with market prices and be amortized during the life of the bond.

The loss from discontinued operations amounted to US$ 853 million for the full-year 2002, up from US$ 501 million in 2001. This was a result of asbestos-related provisions, the disposal loss on the 2002 divestment of Structured Finance (US$ 135 million, excluding currency translation adjustments), as well as losses associated with units in discontinued operations (including the former Oil, Gas and Petrochemicals division at a US$ 86 million loss) or abandonment.

ABB posted a net loss of US$ 787 million for the full-year 2002 (2001 loss: US$ 691 million).

Cash flow and balance sheet
Net cash provided by operating activities amounted to US$ 126 million (2001: US$ 1,983 million), after asbestos cash payments of US$ 206 million (US$ 136 million in 2001). Operating assets and liabilities provided a net US$ 419 million in cash, notwithstanding a negative impact of US$ 1,130 million from other assets and liabilities. This was mainly due to higher sales in excess of invoicing (arising from percentage of completion accounting), and lower advances from customers, non-trade payables and accrued expenses.

Cash and marketable securities totalled US$ 4,690 million at December 31, 2002 (US$ 5,366 million at December 31, 2001). ABB cut net debt by US$ 1.5 billion on a comparative basis. Before adjusting for the transfer of Oil, Gas and Petrochemicals to discontinued operations, and accounting for the asbestos settlement, net debt was cut to about US$ 2.6 billion from the previously reported US$ 4.1 billion at the end of 2001. After these adjustments, net debt was US$ 3.3 billion at December 31, 2002, compared to US$ 4.3 billion a year earlier.

Long-term debt at December 31, 2002 as a percentage of total debt was 68 percent compared to 52 percent at the end of December 2001. ABB has achieved its target to extend the maturity of its debt to two-thirds long-term and one-third short-term debt.

Stockholders’ equity was US$ 1.1 billion at December 31, 2002.

In 2002, 34,568 claims against U.S. subsidiary Combustion Engineering (CE) were settled, 26 percent more than in the same period in 2001.More than 33 percent were settled without payment. Around 79,200 new claims were filed in 2002, compared to 2001. Settlement costs prior to insurance reimbursement were US$ 206 million (US$ 136 million in 2001).

In the fourth quarter of 2002, new asbestos claims (33,880) increased by 114 percent over the third quarter of 2002, while claims settled (8,332) went up by 10 percent. At the end of December 2002, 136,648 claims were pending (111,052 end of September 2002). All of these claims are covered in the pre-packaged Chapter 11 proceedings.

On Feb. 17, 2003, ABB announced that CE had filed for a pre-packaged Chapter 11 in the U.S. bankruptcy courts. Voting on the pre-packaged plan ended on Feb. 19. Although the vote is subject to review and confirmation by the court, CE has confirmed that it has received more than 75 percent of claimant votes in favor of the plan, representing more than two-thirds of the total value of claims as required for approval by eligible claimants.

ABB remains confident the court will approve the plan.

Last edited 2005-04-18
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