Final Results - Part 1

ABB Ltd 27 February 2003 ABB Group 2002: Strong performance by core businesses Core businesses: Q4 2002 EBIT up 38 percent; full-year 2002 EBIT up 4.3 percent; 2003 EBIT expected to increase more than 20 percent Discontinued operations, asbestos provisions result in net loss Q4 02 Q4 01 Change US$ millions 2002 20011 Change Nominal Local Nominal Local currencies currencies 4,501 4,893 -8% -14% Orders 18,112 19,672 -8% -10% 5,268 5,530 -5% -10% Revenues 18,295 19,382 -6% -8% 0 -438 n.a. n.a. EBIT* 336 179 88% 82% -838 -980 n.a. n.a Net income -787 -691 n.a. n.a. * Earnings before interest and taxes 1 Restated to reflect the move of businesses to discontinued operations, which do not contribute to revenues or EBIT • Net debt reduced by US$ 1.5 billion - on target • Group EBIT margin at 1.8 percent - above 1.5 percent target • Full-year loss (US$ 787 million) and weaker cash flow (US$ 126 million) on asbestos provisions and losses in discontinued operations Zurich, Switzerland, February 27, 2003 - ABB's core divisions, Power Technologies and Automation Technologies, showed a strong performance in 2002, but the ABB Group reported a net loss for the full-year today as a result of asbestos charges and losses in discontinued operations. The core divisions, created last year to sharpen the company's focus, showed astrong fourth quarter, with combined earnings before interest and taxes (EBIT) growing 38 percent. For the full-year 2002, the ABB Group posted EBIT of US$ 336 million, up from US$ 179 million the year before. As a percentage of revenue, the EBIT margin reached 1.8 percent, above the target of 1.5 percent for the year. On a comparable basis, the company cut its net debt by US$ 1.5 billion in 2002. 'It has been a difficult year, but we've put the worst behind us,' said Jurgen Dormann, ABB chairman and CEO. 'In 2002, we secured a new credit facility that gives us financial flexibility until the end of 2004. We are putting the asbestos issue to rest and divesting non-core businesses. Our core businesses are performing well. I'm confident we can deliver on our growth targets and return to profitability in 2003.' For the full-year 2002, the core divisions' orders were down 2 percent, while revenues edged 1 percent higher. The two divisions reported full-year revenues of US$ 15.6 billion and EBIT of US$ 946 million. Power Technologies division increased revenues 3 percent and EBIT 9 percent. Automation Technologies division had flat revenues and saw a slight rise in EBIT (up 1 percent). ABB Group orders for the full year, including non-core activities and corporate, were down 8 percent in nominal terms, at US$ 18.1 billion, and revenues decreased 6 percent to US$ 18.3 billion. Losses in ABB's non-core businesses and discontinued operations offset the core divisions' improved performance, resulting in a net loss for the Group of US$ 787 million. Interest and other finance expense for 2002 included a gain of US$ 215 million, arising from the accounting treatment of the convertible bonds that ABB issued in May 2002. The net loss was mainly due to asbestos provisions, the disposal loss on the sale of Structured Finance in 2002, and operational losses in businesses to be sold in 2003, including the Oil, Gas and Petrochemicals division (all included in discontinued operations). The Building Systems business (reported in non-core activities) also showed a loss. Net debt ABB cut net debt by US$ 1.5 billion on an adjusted 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. Divestments ABB sold most of its Structured Finance business in 2002 to GE Commercial Finance and realized cash proceeds of about US$ 2.3 billion. The company also sold its metering business and a number of other smaller operations. Dormann said ABB was in talks with several potential buyers to sell the Oil, Gas and Petrochemicals division and remained on target to sell most of the Building Systems business in 2003. The company has also said it plans to sell its Equity Ventures participations and the remaining parts of the Structured Finance business. The businesses to be divested employ some 30,000 people. Cost reduction ABB said more than 1,300 projects to reduce costs had been identified in its 'Step Change' program to lower the cost base by an amount equivalent to 4 percent of revenues - about US$ 800 million - by mid-year 2004. The cost savings projects, including 10,000-12,000 job reductions, are underway in all countries. As a result of these job reductions and 30,000 employees leaving ABB in connection with divestments, ABB is expected to employ fewer than 100,000 people by mid-2004, down from 139,000 today. Cash flow and equity For the full-year 2002, cash flow from operations was US$ 126 million, as strong cash flow in the core businesses was offset by asbestos payments and weaker cash flow from businesses in discontinued operations. Equity was down to US$ 1,052 million, mainly as a result of fourth quarter asbestos provisions and other losses from discontinued operations. The company expects a small decrease in under-funded pension liabilities for 2002. Group outlook From 2002 through 2005, ABB expects a compound average annual revenue growth of about 4 percent. For 2003, ABB aims to achieve an EBIT margin of 4 percent. By December 31, 2003, total debt is expected to be reduced to about US$ 6.5 billion, and gearing (total debt divided by total debt plus stockholders equity) to be about 70 percent. For 2005, the Group's target EBIT margin is 8 percent. Total debt is expected to be reduced to about US$ 4 billion, and gearing to be approximately 50 percent. All targets exclude major acquisitions and divestments, as well as foreign currency movements. More information A presentation of ABB's results will take place today at ABB's Corporate Research Center in Daettwil, Switzerland starting at 1000 CET. Journalists can call in at +1 412 858 4600 (U.S.), +44 207 866 4111 (U.K.), or +41 91 610 5600 (other countries). The company will also present the results to analysts and investors at the same location starting at 1500 CET. Participants can join by phone by calling the above numbers. Lines will be open 15 minutes before the start of the conferences. Both events will be Webcast on www.abb.com. Where to look Page Summary of key reporting changes 4 Discussion of ABB Group 2002 Q4 results 9-10 Discussion of ABB Group 2002 full-year results 14-15 Divisional targets 2002-2005 16 Division results for 2002 Q4 16-19 Discontinued operations (incl. Oil, Gas and Petrochemicals) 19 Non-core activities and Corporate 19-20 Summary financial information year-ended December 2002 21 Appendix 1: Key financial figures by division (new structure) Q1-Q4 2002 35 Appendix 2: Summary Consolidated Income Statement Q1-Q4 2002 38 Summary Consolidated Balance Sheet Q1-Q4 2002 39 Summary Consolidated Statement of Cash Flows Q1-Q4 2002 41 Changes in reporting and additional information As a result of recent changes in ABB's divisional structure and the qualification of its Oil, Gas and Petrochemicals division as discontinued operations, ABB has modified the way it presents some financial information and included some additional comparative information in this press release. The intention is to allow comparisons and set the stage for the reporting structure that ABB will implement for its first quarter 2003 results, due for release in April. New and former divisions ABB announced in its 2002 third-quarter results that it streamlined its divisional structure. Two new core divisions were created: Power Technologies, which combined the former Power Technology Products and Utilities divisions, and Automation Technologies, which combined the former Automation Technology Products and Industries divisions. In addition to showing its 2002 results according to the old structure, ABB provides both full-year and fourth-quarter 2002 results using the new division structure on a pro forma basis (see tables from page 35 onward). The company will report its first quarter 2003 results using only data from the new division structure. Following the sale of most of its Structured Finance activities to GE Commercial Finance of the U.S. last year, ABB will no longer report the Financial Services business as a separate division nor provide a separate balance sheet for these activities. Discontinued operations During the preparation of year-end accounts, ABB's Oil, Gas and Petrochemicals (OGP) activities have qualified to be reported as discontinued operations following ABB's decision to divest this business in 2003. Discontinued operations also includes losses of ABB's U.S. subsidiary Combustion Engineering (CE), the Structured Finance activities sold to GE Commercial Finance, the divested metering business and other smaller abandoned and sold units. Combustion Engineering is now treated for accounting purposes as though it already had filed for the pre-packaged Chapter 11 in the U.S. bankruptcy court by December 31, 2002. Non-core activities and Corporate Non-core activities comprise Equity Ventures, the remaining parts of Structured Finance not sold to GE Commercial Finance, Insurance, Building Systems and Other activities (mainly Group Processes and New Ventures). Corporate consists of Headquarters/Stewardship, Research and Development and Other (Consolidation, treasury services and real estate). EBIT figures covering the full years 2001, 2002, and the four quarterly results for 2002 are presented in the Appendix (page 37). Fourth quarter performance - key figures in detail US$ in millions Oct.-Dec. Oct.-Dec Change Change in local currencies (except where indicated) 2002 2001 Group orders 4,501 4,893 -8% -14% Utilities 805 1,620 -50% -52% Industries 1,166 1,071 9% 2% Power Technology Products 1,064 949 12% 6% Automation Technology Products 1,339 1,073 25% 15% Non-core activities 1,091 1,340 -19% -27% Corporate -964 -1,160 Group revenues 5,268 5,530 -5% -10% Utilities 1,288 1,672 -23% -25% Industries 1,339 1,406 -5% -10% Power Technology Products 1,179 1,140 3% -1% Automation Technology Products 1,394 1,196 17% 8% Non-core activities 1,166 1,560 -25% -32% Corporate -1,098 -1,444 Group earnings before interest and taxes (EBIT) 0 -438 n.a. n.a. Utilities -10 36 n.a. n.a. Industries 16 20 -20% -32% Power Technology Products 101 44 130% 123% Automation Technology Products 91 44 107% 85% Non-core activities -110 -480 n.a. n.a. Corporate -88 -102 Group EBIT margin (%) 0.0% -7.9% Utilities -0.8% 2.2% Industries 1.2% 1.4% Power Technology Products 8.6% 3.9% Automation Technology Products 6.5% 3.7% Non-core activities -9.4% -30.8% Corporate n.a. n.a. Net income -838 -980 n.a. n.a. Earnings per share (US$ basic) -Income from continuing operations (0.12) (0.41) -Net income (loss) (0.75) (0.88) Earnings per share (US$ diluted) -Income from continuing operations (0.12) (0.41) -Net income (loss) (0.75) (0.88) Net cash provided by operating activities 361 1,796 Oil, Gas and Petrochemicals (for comparison*) US$ in millions Oct.-Dec. 2002 Oct.-Dec. 2001 Change Change in local currencies Orders 1,153 801 44% 34% Revenues 982 1,039 -5% -11% EBIT -69 -40 n.a. n.a. * 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. Fourth quarter performance - key figures in detail (Unaudited based on new division structure) US$ in millions Oct-Dec Oct-Dec Change Change in local currencies (except where indicated) 2002 2001 Group orders 4,501 4,893 -8% -14% Automation Technologies 2,177 1,958 11% Power Technologies 1,589 1,844 -14% Non-core activities 1,091 1,340 Corporate -356 -249 Group revenues 5,268 5,530 -5% -10% Automation Technologies 2,386 2,354 1% Power Technologies 2,047 2,051 0% Non-core activities 1,166 1,560 Corporate -331 -435 Group earnings before interest and taxes (EBIT) 0 -438 n.a. n.a. Automation Technologies 107 64 67% Power Technologies 91 80 14% Non-core activities -110 -480 Corporate -88 -102 Group EBIT margin (%) 0.0% -7.9% Automation Technologies 4.5% 2.7% Power Technologies 4.4% 3.9% Non-core activities -9.4% -30.8% Corporate n.a. n.a. Net income -838 -980 n.a. n.a. Net cash provided by operating activities 361 1,796 Fourth quarter 2002 (Discussion based on previous division structure) Income statement Fourth quarter orders decreased 14 percent in local currencies and 8 percent in nominal currencies to US$ 4,501 million, compared to Q4 2001. Divisions reporting increased orders expressed in local currencies included Industries (+2 percent), Power Technology Products (+6 percent) and Automation Technology Products (+15 percent). Growth was offset, however, by fewer large orders and deferred bid awards in the Utilities division, resulting in a 52 percent order drop, and a 27 percent order reduction in non-core activities. Base orders (orders below US$ 15 million) amounted to US$ 4,317 million, slightly below last year (2001: US$ 4,439 million). In Q4 2002, base orders represented 96 percent of fourth quarter orders, up from 91 percent for Q4 2001. Fourth quarter revenues declined 10 percent in local currencies and 5 percent in nominal terms to US$ 5,268 million, compared to Q4 2001. All divisions reported lower revenues in local currency terms except Automation Technology Products, which increased by 8 percent. The order backlog was US$ 13,408 million, down about 6 percent from September 30, 2002. EBIT for the fourth quarter was zero compared to a loss of US$ 438 million in the fourth quarter of 2001. Utilities and non-core activities recorded losses, and EBIT fell in the Industries division. These were offset by EBIT increases in Power Technology Products and Automation Technology Products, combined with lower restructuring charges and reduced asset write-downs. Fourth quarter EBIT for the core operational businesses (before non-core activities and Corporate) increased to US$ 198 million (Q4 2001: US$ 144 million). Power Technology Products and Automation Technology Products both posted significant margin increases - to 8.6 percent and 6.5 percent, respectively - as cost-cutting and productivity improvements began to show. Industries' margin declined to 1.2 percent. Losses in non-core activities were sharply reduced to US$ 110 million (Q4 2001 loss: US$ 480 million), as were costs for Corporate, which were US$ 88 million (Q4 2001 costs: US$ 102 million). EBIT included Other Expense of US$ 83 million (Q4 2001: US$ 206 million), comprised of: - Restructuring charges of US$ 116 million (Q4 2001: US$ 193 million) - Capital gains of US$ 37 million (Q4 2001: US$ 50 million) - Write-downs of assets US$ 30 million (Q4 2001: US$ 87 million) - Income from equity accounted companies, licenses and other of US$ 26 million (Q4 2001: US$ 24 million). Finance net was US$ 161 million compared to US$ 57 million in the fourth quarter of 2001. Discontinued operations reported a loss of US$ 710 million compared to a loss of US$ 525 million in the fourth quarter of 2001. This amount mainly comprises US$ 420 million in asbestos-related provisions, operational losses after provisions for Downstream projects in the former Oil, Gas and Petrochemicals division (US$ 93 million), as well as a disposal loss on the divestment of Structured Finance). As a result, ABB reported a fourth quarter net loss of US$ 838 million, compared to a loss of US$ 980 million for the same period in 2001. Cash flow and balance sheet Net cash provided by operating activities was US$ 361 million in the fourth quarter, after asbestos cash payments of US$ 45 million. Cash flow was lifted by working capital (net operating assets and liabilities) of US$ 587 million. Cash and marketable securities totalled US$ 4,690 million at December 31, 2002 (US$ 3,493 million at the end of the previous quarter, September 30, 2002). After the reclassification of the former Oil, Gas and Petrochemicals division to discontinued operations, and the asbestos settlement, net debt (defined as short, medium and long-term debt less cash and marketable securities) amounted to US$ 3,262 million compared to US$ 5,623 million three months previously. Net debt was mainly reduced by proceeds from the divestments of the Structured Finance and Metering businesses that were cash-effective in the fourth quarter. Long-term debt at December 31, 2002 as a percentage of total debt was 68 percent compared to 60 percent at the end of September 2002. Mainly as a result of the fourth quarter net income loss, stockholders' equity was reduced to US$ 1,052 million at December 31, 2002 from US$ 1,932 million three months previously. Full-year 2002 performance - key figures in detail US$ in millions Full year Full year Change Change in local currencies (except where indicated) 2002 2001 Group orders 18,112 19,672 -8% -10% Utilities 4,458 6,436 -31% -31% Industries 4,614 4,865 -5% -7% Power Technology Products 4,387 4,221 4% 3% Automation Technology Products 5,074 4,669 9% 5% Non-core activities 4,161 5,072 Corporate -4,582 -5,591 Group revenues 18,295 19,382 -6% -8% Utilities 4,826 5,634 -14% -15% Industries 4,412 4,995 -12% -14% Power Technology Products 4,355 3,961 10% 9% Automation Technology Products 5,035 4,756 6% 3% Non-core activities 4,186 5,130 Corporate -4,519 -5,094 Group earnings before interest and taxes (EBIT) 336 179 88% 82% Utilities 75 158 -53% -49% Industries 145 151 -4% -6% Power Technology Products 353 234 51% 50% Automation Technology Products 373 364 2% -1% Non-core activities -217 -397 Corporate -393 -331 Group EBIT margin (%) 1.8% 0.9% Utilities 1.6% 2.8% Industries 3.3% 3.0% Power Technology Products 8.1% 5.9% Automation Technology Products 7.4% 7.7% Non-core activities Corporate n.a. n.a. Net income -787 -691 n.a. n.a. Earnings per share (US$ basic) -Income (loss) from continuing operations 0.06 (0.11) -Net income (loss) (0.71) (0.61) Earnings per share (US$ diluted) -Income (loss) from continuing operations (0.10) (0.11) -Net income (loss) (0.84) (0.61) Net cash provided by operating activities Oil, Gas and Petrochemicals (for comparison*) US$ in millions 2002 2001 Change Change in local currencies Orders 3,625 3,403 7% 3% Revenues 3,869 3,489 11% 7% EBIT 40 79 -49% -49% * 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) US$ in millions Full year Full year Change Change in local currencies (except where indicated) 2002 2001 Group orders 18,112 19,672 -8% -10% Automation Technologies 8,699 8,319 5% 1% Power Technologies 6,843 7,474 -8% -10% Non-core activities 4,161 5,072 Corporate -1,591 -1,193 Group revenues 18,295 19,382 -6% -8% Automation Technologies 8,482 8,508 0% -3% Power Technologies 7,103 6,873 3% 2% Non-core activities 4,186 5,130 Corporate -1,476 -1,129 Group earnings before interest and taxes (EBIT) 336 179 88% 82% Automation Technologies 518 515 1% -3% Power Technologies 428 392 9% 10% Non-core activities -217 -397 Corporate -393 -331 Group EBIT margin (%) 1.8% 0.9% Automation Technologies 6.1% 6.1% Power Technologies 6.0% 5.7% Non-core activities -5.2% -7.7% Corporate n.a. n.a. Net income -787 -691 n.a. n.a. Net cash provided by operating activities 126 1,983 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. Asbestos 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. Note on new division structure, targets ABB announced in its 2002 third-quarter results that it streamlined its divisional structure. Two new core divisions were created: Power Technologies, which combines the former Power Technology Products and Utilities divisions, and Automation Technologies, which combines the former Automation Technology Products and Industries divisions. ABB's full-year 2002 results are shown for the new division structure on a pro forma basis on pages X and Y. For purposes of comparison, results for the new divisions for each quarter of 2002 and for the full year 2001 are provided in Appendix 2, page 41. Divisional targets Power Technologies: The division maintains its targets for compound average annual revenue growth of 5.3 percent from 2002 through 2005, and an EBIT margin of 10 percent for 2005. For 2003, divisional revenues are expected to grow by 5.3 percent, with an EBIT margin of 7 percent. Automation Technologies: The division aims to achieve compound average annual revenue growth of 3.3 percent from 2002 through 2005, and an EBIT margin target of 10.7 percent for 2005. For 2003, divisional revenues are expected to grow by 3 percent with an EBIT margin of 7.1 percent. Divisional performance Q4 2002 The Power Technology Products and Automation Technology Products divisions serve their customers through external channel partners and ABB's end-user divisions. More customers are being served directly by channel partners such as wholesalers, systems integrators and distributors. Orders, revenues and earnings associated with these customers are accordingly no longer reflected in the end-user divisions. As a result, in the end-user divisions, orders and revenues from these 'pull-through' products are decreasing correspondingly. Unless otherwise stated, there is no material impact on the EBIT of the end-user divisions. Overall, there is no impact on the Group's consolidated results, since the pull-through effects are offset by reduced internal eliminations (currently presented in Corporate). There is no impact on the product divisions, since for them it remains a sale to the same customer whether products are sold via external channel partners or internal end-user divisions. For all figures except for EBIT margins, comments refer to the fourth quarter results expressed in local currencies. EBIT excluding capital gains is shown only if the aggregate of such gains for the division is material (in any case, if capital gains represent more than 10 percent of divisional EBIT). Utilities US$ in millions Oct.-Dec. Oct.-Dec. Change Change in local currencies (except where indicated) 2002 2001 Orders 805 1,620 -50% -52% Revenues 1,288 1,672 -23% -25% EBIT -10 36 n.a. n.a. EBIT margin -0.8% 2.2% Restructuring costs -19 -26 Orders dropped by 52 percent compared to the fourth quarter of 2001, mainly due to weak demand in the Americas and delays of some large project awards into 2003. Europe was mixed. A more selective bidding approach to secure future earnings quality also influenced order levels. Orders were down 38 percent, excluding product sales handled via channel partners. Revenues were 25 percent lower. Excluding the pull-through effect, revenues decreased by 6 percent. EBIT for the quarter was negative and the EBIT margin for the underlying operational performance (excluding pull-through, restructuring, capital gains in 2001 and 2002, and non-recurring amortization) decreased to 0.6 percent from 3.8 percent. The lower earnings were mainly due to the execution of low-margin systems projects (pre-2001) in Utility Power Systems. Steps have since been taken to improve project management and support higher project margins. In the fourth quarter, Utilities reported a capital gain of US$ 7 million. Industries US$ in millions Oct.-Dec. Oct.-Dec. Change Change in local currencies (except where indicated) 2002 2001 Orders 1,166 1,071 9% 2% Revenues 1,339 1,406 -5% -10% EBIT 16 20 -20% -32% EBIT margin 1.2% 1.4% Restructuring costs -44 -36 In spite of weak markets, orders increased slightly, driven by demand in two business areas: Petroleum, Chemical and Life Sciences, and Paper Printing, Metals and Minerals. Excluding product sales now handled via channel partners, orders increased by 32 percent. Revenues were 10 percent lower but up 8 percent excluding the pull-through effect. Revenues were down except in the Petroleum, Chemical and Life Sciences business area. EBIT decreased primarily as a result of lower revenues and one-time charges. The EBIT margin for the underlying operational performance (excluding restructuring, capital gains, non-recurring amortization and one-time charges) increased from 5.3 percent to 5.8 percent. Oil, Gas and Petrochemicals Please refer to the section discontinued operations on page 18. Power Technology Products US$ in millions Oct.-Dec. Oct.-Dec. Change Change in local currencies (except where indicated) 2002 2001 Orders 1,064 949 12% 6% Revenues 1,179 1,140 3% -1% EBIT 101 44 130% 123% EBIT margin 8.6% 3.9% Restructuring costs 0 -41 Orders rose by 6 percent compared to the same quarter of 2001, driven mainly by continuing strong demand in Asia, especially China. Higher demand in the Power Distribution business area also contributed to the improvement. Demand in North America was weak but stable. The European market remained mixed. Revenues in the quarter were flat. Continuing operational improvements and productivity gains significantly lowered the cost base. As a result of this and in the absence of restructuring charges, EBIT more than doubled (up 123 percent) and the EBIT margin for the underlying operational performance (excluding restructuring, capital gains and non-recurring amortization) rose to 8.6 percent from 6.7 percent. The number of employees decreased by 9 percent (excluding acquisitions and divestments). Automation Technology Products US$ in millions Oct.-Dec. Oct.-Dec. Change Change in local currencies (except where indicated) 2002 2001 Orders 1,339 1,073 25% 15% Revenues 1,394 1,196 17% 8% EBIT 91 44 107% 85% EBIT margin 6.5% 3.7% Restructuring costs -41 -39 Orders increased by 15 percent. All business areas contributed to the positive development. Robotics reported a double-digit increase in orders driven by demand in North America and Europe. Low-Voltage Products and Drives and Power Electronics benefited from the high demand in Asia, especially China. Overall, the American and European markets were mixed while Asia showed strong demand. The process automation market stabilized at a low level. Revenues increased by 8 percent. Lower revenues in Control and Force Measurement and Electrical Machines were more than offset by the positive development in the other business areas. EBIT increased by 85 percent, reflecting operational improvements and productivity gains from restructuring. The number of employees decreased by 6 percent (excluding acquisitions and divestments). The EBIT margin for the underlying operational performance (excluding restructuring, capital gains and non-recurring amortization) increased from 7.6 percent to 9.5 percent. Financial Services ABB divested a large part of its Financial Services division in 2002. In addition, ABB has announced its intention to divest other financial business activities. Therefore, the Financial Services division has been wound down and its results will no longer be separately reported. The fourth quarter 2002 results from the part of Structured Finance sold to GE Commercial Finance can be found in the breakdown of items for discontinued operations on page 19. The EBIT for the remainder of Structured Finance, as well as Equity Ventures and Insurance is shown in Non-core activities, also on page 19. Discontinued operations During the preparation of year-end accounts, ABB's Oil, Gas and Petrochemicals (OGP) activities have qualified to be reported as discontinued operations following ABB's decision to divest this business in 2003. For comparison, fourth-quarter 2002 orders, revenues, EBIT and EBIT margin are shown below: Oil, Gas and Petrochemicals US$ in millions Oct.-Dec. Oct.-Dec. Change Change in local currencies (except where indicated) 2002 2001 Orders 1,153 801 44% 34% Revenues 982 1,039 -5% -11% EBIT -69 -40 n.a. n.a. Orders in the quarter increased by 34 percent, driven mainly by several large orders in the Upstream market where demand strengthened. Downstream markets remained flat. Revenues decreased as a result of lower order intake in the previous quarters. Cost overruns and project write-downs of approximately US$ 104 million in the fourth quarter led to a loss. Discontinued operations US$ in millions Oct.-Dec. Oct.-Dec. Full year 2002 Full year 2001 (except where indicated) 2002 2001 Income/(Loss)* -710 -525 -853 -501 Oil, Gas and Petrochemicals -93 -26 -86 -4 Structured Finance -78 12 -190 8 Combustion Engineering -420 -470 -420 -470 Other divested businesses -119 -41 -157 -35 * including taxes For the fourth quarter 2002, losses from discontinued operations increased to US$ 710 million following US$ 420 million in provisions for Combustion Engineering, project losses in Oil, Gas and Petrochemicals, and the final divestment costs for Structured Finance. Of Structured Finance's fourth quarter US$ 78 million divestment cost, US$ 55 million was for currency translation adjustments that were already reflected in stockholders' equity. Other divested businesses posted losses of US$ 119 million, mainly due to goodwill write-down. For the full year 2002, the loss from discontinued operations was US$ 853 million, up from US$ 501 million in 2001. The main items were asbestos provisions, the US$ 135 million divestment loss (excluding the currency translation adjustment) for Structured Finance, and US$ 86 million in losses for the full year for Oil, Gas and Petrochemicals. The OGP loss was after project provisions of US$ 167 million for the year. Non-core activities US$ in millions Oct.-Dec Oct.-Dec. (except where indicated) 2002 2001 EBIT -110 -480 Equity Ventures/Remaining Structured Finance -6 50 Insurance -3 -354 Building Systems -42 -6 Other activities* -59 -170 * Comprises mainly Group Processes and New Ventures The EBIT loss for the fourth quarter was US$ 110 million, sharply down from the US$ 480 million loss reported for the fourth quarter in 2001. The main reason for reduced losses was the inclusion of a US$ 295 million charge for a change in accounting for reserves in Scandinavian Re, part of Insurance, together with US$ 90 million in portfolio write-downs that were booked in the fourth quarter of 2001. For the fourth quarter 2002, good premium income was offset by a write-down in marketable securities, resulting in a small loss. Equity Ventures and the remaining Structured Finance businesses reported lower EBIT, as no new business is being written in either unit. Building Systems posted a loss for the quarter of US$ 42 million, following further project write-downs and restructuring. The loss from other activities was sharply reduced to US$ 59 million, mainly due to reduced write-downs in New Ventures. Corporate US$ in millions Oct.-Dec. Oct.-Dec. (except where indicated) 2002 2001 EBIT -88 -102 Headquarters/Stewardship 7 25 Research and development -24 -39 Other* -71 -88 * includes consolidation, real estate and Treasury Services. Costs for Corporate decreased to US$ 88 million for the fourth quarter 2002. Reduced infrastructure costs and a one-time rebate on previously booked costs led to a small positive income for Headquarters/Stewardship. Research and development costs decreased following the successful reorganization of ABB's global research centers earlier in the year. Further information The 2002 Q4 and full-year results press release and presentation slides are available from February 27, 2003 on the ABB Investor Relations homepage at www.abb.com/investorrelations. The audio playback of the conference call will be available for 72 hours after the call. Further reporting dates in 2003 are April 29 (Q1), July 29 (Q2), and October 28 (Q3). The annual general meeting will be held on Friday, May 16 in Switzerland with an information meeting for shareholders in Sweden on Monday, May 19. ABB (www.abb.com) is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impacts. The ABB Group of companies operates in more than 100 countries and employs about 139,000 people. This press release includes forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ. These statements are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for ABB Ltd and ABB Ltd's lines of business. These expectations, estimates and projections are generally identifiable by statements containing words such as 'expects,' 'believes,' 'estimates' or similar expressions. Important factors that could cause actual results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are major markets for ABB's businesses, market acceptance of new products and services, changes in governmental regulations, interest rates, fluctuations in currency exchange rates and such other factors as may be discussed from time to time in ABB's filings with the U.S. Securities and Exchange Commission. Although ABB Ltd believes that its expectations reflected in any such forward-looking statement are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved Summary Financial Information Year Ended December 2002 ABB Ltd Summary Consolidated Income Statements (unaudited) Amounts in prior periods have been reclassified to conform to the Company's current presentation. ABB Ltd Summary Consolidated Balance Sheets (unaudited) Amounts in prior periods have been reclassified to conform to the Company's current presentation. ABB Ltd Summary Consolidated Statements of Cash Flows (unaudited) * Restated to reflect the change in all provisions (previously this line comprised of restructuring provisions only) Amounts in prior periods have been reclassified to conform to the Company's current presentation. ABB Ltd notes to summary consolidated financial statements (unaudited) (US$ in millions, except per share amounts) Note 1 Developments in the year ended December 31, 2002: * Annual general meeting At the Company's annual general meeting held on March 12, 2002, the Company's shareholders approved the resolution to not pay a dividend in 2002. In addition, shareholders approved the resolution to not effect a capital reduction of 24 million shares purchased during the first half of 2001, as a result of changed market conditions. * Restructuring program 2001 program In July 2001, the Company announced a restructuring program anticipated to extend over 18 months. This restructuring program was initiated in an effort to simplify product lines, reduce multiple location activities and perform other downsizing in response to consolidation of major customers in certain industries. In 2002, the Company recognized total restructuring charges and related asset write-downs of $187 million. Charges of $166 million were related to workforce reductions and charges of $38 million were related to lease terminations and other exit costs associated with this restructuring program. These costs are included in other income (expense), net. Based on analysis, Management's estimate has been revised resulting in a $31 million reduction in the amounts accrued for workforce reductions, lease terminations and other exit costs. This revision is recognized as a component of other income (expense), net. Termination benefits of $176 million were paid to approximately 4,000 employees and $29 million was paid to cover costs associated with lease terminations and other exit costs. Workforce reductions include production, managerial and administrative employees. At December 31, 2002, accrued liabilities included $78 million for termination benefits and $49 million for lease terminations and other exit costs. As a result of the 2001 restructuring program, certain assets have been identified as impaired or will no longer be used in continuing operations. The company recorded $14 million to write down these assets to fair value. These costs are included in other income (expense), net. Step Change Program In October 2002 the company announced The Step Change program to reduce ABB's cost base and increase competitiveness, and pave the way for a change of culture. It is scheduled to cut at least $800 million over an 18-month period. In 2002, the Company recognized total restructuring charges and related asset write-downs of $79 million. Charges of $51 million were related to workforce reductions and charges of $26 million were related to lease terminations and other exit costs associated with this restructuring program. These costs are included in other income (expense), net. Termination benefits of $13 million were paid to approximately 200 employees and $1 million was paid to cover costs associated with lease terminations and other exit costs. Workforce reductions include production, managerial and administrative employees. At December 31, 2002, accrued liabilities included $38 million for termination benefits and $25 million for lease terminations and other exit costs. As a result of Step Change program, certain assets have been identified as impaired or will no longer be used in continuing operations. The company recorded $2 million to write down these assets to fair value. These costs are included in other income (expense), net. * Borrowings The Company's total borrowings outstanding at December 31, 2002 and 2001, amounted to $7,952 million and $9,704 million respectively (after reclassification to liabilities in discontinued operations of $86 million at December 31, 2001 in connection with the discontinuation of certain businesses). Of the total outstanding, $478 million at December 31, 2002 and $3,297 million at December 31, 2001 was in the form of commercial paper with an average interest rate of 4.8% and 2.7% respectively. In March 2002, the Company drew down $2,845 million of a $3 billion committed bank facility established in December 2001. A portion of these proceeds was used to repay commercial paper borrowings, which were reduced to $1,760 million at March 31, 2002. In the second quarter of 2002, primarily as a result of amounts maturing, the outstanding commercial paper borrowings were further reduced to $349 million at June 30, 2002. Following the issuance of additional commercial paper in the third quarter of 2002, there was a net increase in commercial paper outstanding to $674 million at September 30, 2002. In May 2002, the Company issued $968 million aggregate principal amount of convertible unsubordinated bonds due 2007. The bonds pay interest semi-annually in arrears at a fixed annual rate of 4.625% and are convertible into approximately 85 million shares of the Company. Also in May 2002, the Company issued bonds due in 2009 with an aggregate principal amount of 200 million pound sterling, or approximately $292 million, which pay interest semi-annually in arrears at 10% per annum. In addition, the Company issued in May 2002, bonds due 2008 with an aggregate principal amount of 500 million euro, or approximately $466 million, which pay interest annually in arrears at 9.5% per annum. In line with the Company's policy of reducing its interest rate and currency exposure, a cross currency and an interest rate swap, respectively, have been used to modify the characteristics of these bonds. Pursuant to the terms of the Company's $3 billion committed bank facility, amended in April 2002, the proceeds from the convertible bonds, the sterling-denominated bonds and the euro-denominated bonds were used to repay and reduce the amount available under the facility to $1,315 million at June 30, 2002. Also in line with the terms of the facility, the proceeds from the sale of the Company's Swedish real estate property announced in the second quarter of 2002, were used to repay and further reduce the amount available and outstanding under the facility to $1,000 million by September 30, 2002. This amount was repaid in the fourth quarter of 2002 and the facility closed. In December 2002, the Company established a new $1.5 billion 364-day revolving credit facility. As of December 31, 2002, nothing had been drawn under this new facility. Up to a maximum amount of $750 million may be extended for up to a further 364 days in the form of term loans. The facility is secured by a package of ABB assets, including a portion of the Oil, Gas and Petrochemicals division, which is earmarked for divestment in 2003 and is included in assets and liabilities in discontinued operations. The facility also contains certain financial covenants,including minimum interest coverage, maximum gross debt level, a minimum level of consolidated net worth as well as minimum levels of disposal proceeds for specified assets and businesses during 2003. * Accounting for the convertible bonds As described above, in May 2002, the Company issued $968 million aggregate principal amount of convertible unsubordinated bonds due 2007. The Company's shares to be issued if the bonds are converted are denominated and traded in Swiss francs while the bonds are denominated in U.S. dollars. Therefore, under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, a component of the convertible bonds must be accounted for as a derivative, with changes in fair value recorded through earnings. As a result of the decline in the Company's share price since issuance of the bonds, the Company has recorded a net gain of $215 million in interest and other finance expense from the decrease in fair value of the derivative liability, with a corresponding reduction in long-term borrowings on the balance sheet. * Discontinued operations In November 2002, the Company sold the majority of its Structured Finance business to GE Commercial Finance for total cash proceeds of approximately $2.3 billion. The Structured Finance portfolio divested includes global infrastructure financing, equipment leasing and financing businesses. The Company recognized losses of approximately $190 million on the disposal of the Structured Finance business. The divestment of this activity is in line with the Company's strategy to focus on power and automation technologies for industry and utility customers. In addition, the sale of Structured Finance was an important step in the Company's ongoing program to strengthen the balance sheet and reduce net debt. Also in December 2002, the Company sold its Metering business to Ruhrgas Industries GmbH of Germany, for approximately $244 million on a cash and debt free basis. The Company recognized losses of approximately $54 million on the disposal of the Metering business. Water and electricity metering is no longer a core business for the Company, and its divestment was part of the Company's strategy to focus on power and automation technologies for industry and utility customers. In addition, the Company has discontinued a minor operation in its Power Technology Products division and another minor operation in the New Ventures business area. In the fourth quarter of 2002, the Company committed to sell its Oil, Gas and Petrochemical business which has been reflected as discontinued operations as of December 31, 2002. In addition, the Company has also discontinued certain other minor operations and projects. These divestments and discontinuations are treated as discontinued operations pursuant to Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets, issued in August 2001 by the Financial Accounting Standards Board. The balance sheet and income statement data for all periods presented have been restated to present the financial position and results of operations of the businesses meeting the criteria of SFAS 144 as assets and liabilities in discontinued operations and as discontinued operations. In the statement of cash flows the effects of the discontinued operations are not segregated, as permitted by Statement of Financial Accounting Standards No. 95, Statement of Cash Flows. The loss from discontinued operations, including taxes, of $853 million recorded in 2002 includes revenues of $3,947 million. At December 31, 2002, the major classes of assets in discontinued operations are: cash, cash equivalents and marketable securities for $300 million; receivables for $1,285 million; inventories for $397 million; prepaid expenses and other for $152 million; financing receivables for $41 million; goodwill for $502 million, other intangible assets for $59 million; property, plant and equipment for $121 million; and investments and other for $238 million. At December 31, 2002, the major classes of liabilities in discontinued operations are: accounts payable for $1,677 million; borrowings for $45 million; accrued liabilities and other for $315 million; pension and post-retirement benefits for $90 million; deferred tax liabilities for $40 million; and other liabilities for $129 million. * Earnings per share The potential common shares from the warrants and options outstanding in connection with the Company's management incentive plan, were excluded from the computation of diluted earnings (loss) per share in the 2002 and 2001 periods presented, as their inclusion would have been antidilutive. In the full year 2002 period, the potential common shares from the convertible bonds were included in the computation of diluted earnings (loss) per share for the period they were outstanding, while they were excluded from the computation of diluted earning (loss) per share in the fourth quarter of 2002, as their inclusion would have been antidilutive. * Commitments and contingencies Asbestos related claims In 2002, 34,568 claims against U.S. subsidiary Combustion Engineering (CE) were settled, 26 percent more than in the same period in 2001.More than 33 percent were settled without payment. Around 79,200 new claims were filed in 2002, compared to 2001. Settlement costs prior to insurance reimbursement were US$ 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 February 17, 2003, ABB announced that CE has 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. Note 2 Significant Accounting Policies The summary consolidated financial information is prepared on the basis of United States (US) generally accepted accounting principles (USGAAP) and is presented in U.S. dollars ($) unless otherwise stated. These figures are still subject to final audit clearance. Data for orders and number of employees are shown as additional information and are not a required disclosure under USGAAP. Par value of capital stock is denominated in Swiss francs. The summary financial information as of December 31, 2002, should be read in conjunction with the December 31, 2001, financial statements contained in the Company's Annual Report and the Form 20-F. New accounting standards In 2001, the Company accounted for the adoption of Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, as amended, as a change in accounting principle. Based on the Company's derivative positions at January 1, 2001, the Company recognized the cumulative effect of the accounting change as a loss of $63 million, net of tax, in the consolidated income statement and a reduction of $41 million, net of tax, in accumulated other comprehensive income (loss). In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations, and Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets, which modified the accounting for business combinations, goodwill and identifiable intangible assets. All business combinations initiated after June 30, 2001, must be accounted for by the purchase method. Goodwill from acquisitions completed after that date is not amortized, but will be charged to operations when specified tests indicate that the goodwill is impaired, that is, when the goodwill's fair value is lower than its carrying value. Certain intangible assets will be recognized separately from goodwill, and will be amortized over their useful lives. During 2002, all goodwill was required to be tested for impairment as of January 1, 2002, with a transition adjustment recognized for any impairment found. The Company completed this test in the second quarter of 2002 and determined that no impairment of goodwill existed at January 1, 2002. All goodwill amortization also ceased at that date. The Company recognized goodwill amortization expense of $191 million and $55 million in the year and three months ended December 31, 2001, respectively. Accordingly, income from continuing operations and net loss would have been $28 million ($0.02 per share) and $500 million ($0.44 per share), respectively, in the year ended December 31, 2001, and loss from continuing operations and net loss would have been $411 million ($0.37 per share) and $925 million ($0.83 per share), respectively, in the three months ended December 31, 2001, if the Company had not recognized amortization expense for goodwill that is no longer being amortized in accordance with SFAS 142. In June 2001, the Financial Accounting Standards Board issued SFAS 143 (SFAS 143), Accounting for Asset Retirement Obligations, which is effective for fiscal years beginning after June 15, 2002, and requires that the fair value of a legal obligation associated with the retirement of tangible long-lived assets be recognized in the period in which it is incurred. The associated asset retirement costs are capitalized as part of the carrying amount of the asset and allocated to expense over its useful life. The Company adopted SFAS 143 effective January 1, 2003. After management review of existing third party contracts, lease agreements and other similar agreements and initial estimation of the fair value of identified asset retirement obligations, the Company came to a conclusion that application of the new rules will not result in any material increase in property and equipment or increase in liabilities, and a cumulative effect on net income and stockholder's equity in not expected to be significant. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement supersedes Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-lived Assets to Be Disposed Of, while retaining many of its requirements regarding impairment loss recognition and measurement. In addition, the new Statement broadens the presentation of discontinued operations to include more sold and abandoned businesses. The Company adopted this statement effective January 1, 2002, and, as a result, reflected the assets, liabilities and results of operations of several businesses and group of assets as discontinued operations for all periods presented. In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections, which rescinds previous requirements to reflect all gains and losses from debt extinguishment as extraordinary. The Company elected to early adopt the new standard effective April 1, 2002, and, as a result, the gains from extinguishment of debt of $12 million and of $6 million, net of tax, recorded as extraordinary items in the fourth quarter of 2001 and in the first quarter of 2002, respectively, have been reclassified and included in income from continuing operations. In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The standard is effective January 1, 2003 and is to be applied to restructuring plans initiated after that date. The Company does not expect SFAS 146 to have a material impact on its results of operations. Note 3 Summary of Consolidated Stockholders' Equity Note 4 Segment and Geographic Data During 2001, the Company realigned its worldwide enterprise around customer groups, replacing its former business segments with four end-user divisions, two channel partner divisions, and a financial services division. The four end-user divisions - Utilities, Process Industries, Manufacturing and Consumer Industries, and Oil, Gas and Petrochemicals - serve end-user customers with products, systems and services. The two channel partner divisions - Power Technology Products and Automation Technology Products - serve external channel partners such as wholesalers, distributors, original equipment manufacturers and system integrators directly and end-user customers indirectly through the end-user divisions. The Financial Services division provides services and project support for the Company as well as for external customers. In April 2002, the Company merged its Process Industries division and its Manufacturing and Consumer Industries division to form a new Industries division, consisting of the following business areas: Automotive Industries; Manufacturing; Electronics and Consumer Industries; Marine and Turbocharging; Paper, Printing, Metals and Minerals; and Petroleum, Chemicals and Life Sciences. Segment data are presented below to reflect this change and prior period data have been restated accordingly. * The Utilities division serves electric, gas and water utilities - whether state-owned or private, global or local, operating in liberalized or regulated markets - with a portfolio of products, services and systems. The division's principal customers are generators of power, owners and operators of power transmission systems, energy traders and local distribution companies. * The Industries division serves the automotive, cement, chemical, distribution, electronics, food and beverage, life sciences, marine, metals, mining, paper, petroleum, printing and telecommunications industries with application-specific power and automation technology. * The Power Technology Products division covers the entire spectrum of technology for power transmission and power distribution including transformers, switchgear, breakers, capacitors and cables as well as other products, platforms and technologies for high- and medium-voltage applications. Power technology products are used in industrial, commercial and utility applications. They are sold through the Company's end user divisions as well as through external channel partners, such as distributors, contractors and original equipment manufacturers and system integrators. * The Automation Technology Products division provides products, software and services for the automation and optimization of industrial and commercial processes. Key technologies include measurement and control, instrumentation, process analysis, drives and motors, power electronics, robots, and low voltage products, all geared toward one common industrial IT architecture for real-time automation and information solutions throughout a business. These technologies are sold to customers through the end-user divisions as well as through external channel partners such as wholesalers, distributors, original equipment manufacturers and system integrators. * The Non-core activities division was created to group the following activities of the Company: Equity Ventures, Insurance, the remaining Structured Finance business, Building Systems, Semiconductors, Customer Service, Group Processes, Air Handling, Logistic Systems, and New Ventures. In order to streamline the Company's structure and improve operational performance, the Company is, as of January 1, 2003, putting into place two divisions: Power Technologies, which will combine the Power Technology Products and Utilities divisions; and Automation Technologies, which will combine the Automation Technology Products and Industries divisions. The Company evaluates performance of its divisions based on earnings before interest and taxes (EBIT), which excludes interest and dividend income, interest expense, provision for taxes, minority interest, and income from discontinued operations, net of tax. In accordance with Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company presents division revenues, depreciation and amortization, and EBIT, all of which have been restated to reflect the changes to the Company's internal structure. For the 2001 periods presented, division revenues and EBIT are presented as if certain historical third-party sales by subsidiaries in the product divisions had been routed through other divisions. Segment data (1) Includes adjustments to eliminate inter-company transactions. (2) The Company recognized, in its operating segments, the following amortization expense for goodwill in 2001 and the fourth quarter of 2001, respectively: Utilities, $24 million and $6 million; Industries, $41 million and $11 million; Power Technology Products, $6 million and $2 million; Automation Technology Products, $58 million and $16 million. The Company's total amortization expense for goodwill in 2001 and the fourth quarter of 2001 was $191 million and $55 million, respectively. (3) Includes businesses in discontinued operations. Geographic Information (4) Orders received and revenues have been reflected in the regions based on the location of the customer. Appendix Key financial figures by division (new structure) Q1-Q4 2002, full-year 2001 Unaudited Please note that this is a preliminary restatement. The figures may change depending on adjustments to the scope of activities within each division. Orders Received US$ in millions Oct.-Dec. 2002 July-Sep. 2002 April-June 2002 Jan.-Mar. 2002 Full year 2001 Automation Technologies 2,177 2,036 2,322 2,164 8,319 Power Technologies 1,589 1,514 1,809 1,931 7,474 Non-core activities 1,091 1,105 1,023 942 5,072 Corporate -356 -406 -487 -342 -1,193 Total 4,501 4,249 4,667 4,695 19,672 Revenues US$ in millions Oct.-Dec. 2002 July-Sep. 2002 April-June 2002 Jan.-Mar. 2002 Full year 2001 Automation Technologies 2,386 2,064 2,171 1,861 8,508 Power Technologies 2,047 1,743 1,786 1,527 6,873 Non-core activities 1,166 1,113 1,040 867 5,130 Corporate -331 -395 -440 -310 -1,129 Total 5,268 4,525 4,557 3,945 19,382 Earnings before interest and taxes US$ in millions Oct.-Dec. 2002 July-Sep. 2002 April-June 2002 Jan.-Mar. 2002 Full year 2001 Automation Technologies 107 141 162 108 515 Power Technologies 91 97 130 110 392 Non-core activities1) -110 -72 -12 -23 -397 Corporate1) -88 -154 -166 15 -331 Total 0 12 114 210 179 1) See next page for detailed breakdown of EBIT for these activities Depreciation and amortization US$ in millions Oct.-Dec. 2002 July-Sep. 2002 April-June 2002 Jan.-Mar. 2002 Full year 2001 Automation Technologies 55 52 54 53 312 Power Technologies 45 42 38 44 192 Non-core activities 34 31 24 24 120 Corporate 25 17 15 20 86 Total 159 142 131 141 710 Restructuring US$ in millions Full year 2002 Full year 2001 Automation Technologies -129 -81 Power Technologies -60 -76 Non-core activities -52 -22 Corporate -20 -41 Total -261 -220 Restructuring and related asset write-downs US$ in millions Oct.-Dec. 2002 July-Sep. 2002 April-June 2002 Jan.-Mar. 2002 Full year 2001 Automation Technologies -89 -10 -16 -18 -83 Power Technologies -24 -12 -5 -24 -76 Non-core activities -30 -45 -7 -17 -91 Corporate -3 -9 -54 9 -61 Total -146 -76 -82 -50 -311 Capital expenditure US$ in millions Full year 2002 Full year 2001 Automation Technologies 146 157 Power Technologies 117 132 Non-core activities 54 145 Corporate 143 173 Total 460 607 Number of Employees Full year 2002 Full year 2001 Automation Technologies 56,600 62,854 Power Technologies 41,166 43,300 Non-core activities 26,441 33,953 Corporate 2,929 3,287 Oil, Gas and Petrochemicals 11,915 13,471 Total 139,051 156,865 Earnings before interest and taxes (EBIT) for Non-core activities, Corporate US$ in millions Oct.-Dec. 2002 July-Sep. 2002 April-June 2002 Jan.-Mar. 2002 Full year 2001 Non-core activities -110 -72 -12 -23 -397 Equity Ventures 8 -1 17 14 76 Remaining Structured Finances -14 43 19 10 82 Insurance -3 12 14 17 -342 Building Systems -42 -42 -22 -8 20 Other activities -59 -84 -40 -56 -233 Corporate -88 -154 -166 15 -331 HQ/Stewardship 7 -115 -77 29 -137 Research & development -24 -24 -27 -18 -103 Other -71 -15 -62 4 -91 Summary Consolidated Income Statements (unaudited) US$ in millions Oct.-Dec. 2002 July-Sep. 2002 April-June 2002 Jan.-Mar. 2002 Full year 2001 Revenues 5,268 4,525 4,557 3,945 19,382 Cost of sales (4,122) (3,478) (3,326) (2,843) (14,910) Gross profit 1,146 1,047 1,231 1,102 4,472 Selling, general and (1,052) (984) (1,090) (907) (3,993) administrative expenses Amortization expense (11) (10) (10) (10) (195) Other income (expense), net (83) (41) (17) 25 (105) Earnings (loss) before 0 12 114 210 179 interest and taxes Finance, net (161) 177 (87) (58) (190) Income (loss) from continuing (161) 189 27 152 (11) operations before taxes and minority interest Provision for taxes 55 (64) (9) (52) (80) Minority interest (22) (22) (14) (13) (36) Income (loss) from continuing (128) 103 4 87 (127) operations Income (loss) from (710) (173) 3 27 (501) discontinued operations, net of tax Cumulative effect of change -- -- -- -- (63) in accounting principles (SFAS 133), net of tax Net income (loss) (838) (70) 7 114 (691) FULL TABLES TO FOLLOW This information is provided by RNS The company news service from the London Stock Exchange FR EAKAXADSDEEE

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