AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 2002
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       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


                 
            /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934


                  For the fiscal year ended December 31, 2001

                                       OR


                 
            / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934


                       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)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


                                                         
                                                                        NAME OF EACH EXCHANGE
                    TITLE OF EACH CLASS                                  ON WHICH REGISTERED
----------------------------------------------------------- ---------------------------------------------
                AMERICAN DEPOSITARY SHARES,                            NEW YORK STOCK EXCHANGE
          EACH REPRESENTING ONE REGISTERED SHARE

           REGISTERED SHARES, PAR VALUE CHF 2.50                      NEW YORK STOCK EXCHANGE*


------------------------------

*   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.

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.

 The number of outstanding shares of each of the issuer's classes of capital or
     common stock as of December 31, 2001: 1,113,133,816 Registered Shares
                            ------------------------

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  /X/    No  / /

Indicate by check mark which financial statement item the registrant has elected
to follow.

                          Item 17  / /    Item 18  /X/

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                               TABLE OF CONTENTS



                                                                          PAGE
                                                                        --------
                                                                  
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..................................     16

Item 5.   Operating and Financial Review and Prospects................     49

Item 6.   Directors, Senior Management and Employees..................     86

Item 7.   Major Shareholders and Related Party Transactions...........     95

Item 8.   Financial Information.......................................     97

Item 9.   The Offer and Listing.......................................    100

Item 10.  Additional Information......................................    102

Item 11.  Quantitative and Qualitative Disclosures About Market
            Risk......................................................    114

Item 12.  Description of Securities Other than Equity Securities......    117

Item 13.  Defaults, Dividend Arrearages and Delinquencies.............    117

Item 14.  Material Modifications to the Rights of Security Holders and
            Use of Proceeds...........................................    117

Item 15.  Reserved....................................................    117

Item 16.  Reserved....................................................    117

Item 17.  Financial Statements........................................    117

Item 18.  Financial Statements........................................    117

Item 19.  Exhibits....................................................    118


                                  INTRODUCTION

    ABB Ltd is a corporation organized under the laws of Switzerland. In this
annual report, "the ABB Group," "ABB," "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 1999 exchange offers 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 of our registered shares) are
referred to as "ADSs." Our registered shares are referred to as "shares."

    We have prepared this annual report on the basis of information that we have
or that we have obtained from sources we believe to be reliable. Summary
discussions of documents referred to in this annual report may not be complete
and we refer you to the actual documents for more complete information.

    Our principal corporate offices are located at Affolternstrasse 44, CH-8050
Zurich, Switzerland, telephone number 011-41-43-317-7111.

                                BUSINESS OF ABB

    We are a global provider of products and systems incorporating advanced
technologies and innovative applications of those products and systems,
specializing in automation and power technologies for a broad range of
industrial and commercial customers. We work with our customers to engineer and
install networks, facilities and plants with particular emphasis on enhancing
efficiency and productivity for customers that source, refine, transmit and
distribute energy. We provide comprehensive market and product support services,
as well as creative financing and risk management options to enable our
customers to buy and use our products and services. We increasingly focus on
high value-added, high return businesses that capitalize on our market and
technical expertise and offer innovative products incorporating sophisticated
software applications. We apply our expertise to develop creative ways of
integrating our products and systems with our customers' business processes to
enhance their productivity and efficiency. We refer to this integration as
industrial information technology or "Industrial IT." Our commitment to
Industrial IT has been supported by our recent strategic initiatives and our
research and development efforts.

                        FINANCIAL AND OTHER INFORMATION

    All references herein to "U.S. dollars," and "$" are to United States
dollars. All references to "CHF" are to Swiss francs. All references to "E" are
to euro.

    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. These translations have been
made using the noon buying rate in the City of New York for cable transfers as
certified for customs purposes by the Federal Reserve Bank of New York as of the
date indicated for each amount. The noon buying rate for Swiss francs on
December 31, 2001 was $1.00 = CHF 1.6598. The noon buying rate for Swiss francs
on June 26, 2002 was $1.00 = CHF 1.4940.

    On May 7, 2001, we effected a share split in a four-for-one ratio to reduce
the nominal value of our shares from CHF 10 each to CHF 2.50 each. For more
information about the share split, see "Item 10. Additional Information--The
Share Split." Unless otherwise noted, all share figures in this annual report
reflect the share split.

                                       2

                           FORWARD-LOOKING STATEMENTS

    This annual report includes forward-looking statements, principally in "Item
4. Information on the Company--Description of Business Divisions" and "Item 5.
Operating and Financial Review and Prospects." We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting our business. These forward-
looking statements are subject to risks, uncertainties and assumptions
including, among other things, the factors discussed in this registration
statement under "Item 3. Key Information--Risk Factors" and factors described in
documents that we may furnish from time to time to the Securities and Exchange
Commission.

    The words "believe," "may," "will," "estimate," "continue," "anticipate,"
"intend," "expect" and similar words are intended to identify forward-looking
statements. In light of these risks and uncertainties, the forward-looking
information, events and circumstances discussed in this annual report might not
occur. Our actual results and performance could differ substantially from those
anticipated in our forward-looking statements. We undertake no obligation to
update publicly or revise any forward-looking statements because of new
information, future events or otherwise.

                                       3

                                     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. 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.

    Our selected financial data are presented in the following tables in
accordance with United States generally accepted accounting principles (U.S.
GAAP). This selected information has been extracted from our consolidated
financial statements. Our financial statements as of and for the year ended
December 31, 2001 were audited by Ernst & Young AG, and our financial statements
as of December 31, 2000 and 1999 and for the years ended December 31, 2000, 1999
and 1998 were audited by Ernst & Young AG and KPMG Klynveld Peat Marwick
Goerdeler SA, which have expressed unqualified opinions thereon.

                                       4




                                                              YEAR ENDED DECEMBER 31,
                                                     -----------------------------------------
                                                       2001       2000       1999       1998
                                                     --------   --------   --------   --------
                                                        (IN MILLIONS EXCEPT PER SHARE DATA)
                                                                          
INCOME STATEMENT DATA(1)
Revenues...........................................  $ 23,726   $ 22,967   $ 24,356   $ 22,944
Cost of sales(2)...................................   (18,708)   (17,222)   (18,457)   (17,204)
                                                     --------   --------   --------   --------
Gross profit.......................................     5,018      5,745      5,899      5,740
Selling, general and administrative expenses.......    (4,397)    (4,417)    (4,682)    (4,297)
Amortization expense(3)............................      (236)      (219)      (189)       (75)
Other income (expense), net(4).....................      (106)       276         94        (42)
                                                     --------   --------   --------   --------
Earnings before interest and taxes.................       279      1,385      1,122      1,326
Interest and dividend income.......................       568        565        608        608
Interest and other finance expense.................      (802)      (644)      (708)      (659)
                                                     --------   --------   --------   --------
Income from continuing operations before taxes and
  minority interest................................        45      1,306      1,022      1,275
Provision for taxes................................      (105)      (377)      (343)      (337)
Minority interest..................................       (70)       (48)       (36)       (15)
                                                     --------   --------   --------   --------
Income (loss) from continuing operations...........      (130)       881        643        923
Income (loss) from discontinued operations, net of
  tax(5)...........................................      (510)       562        717       (441)
Extraordinary gain on debt extinguishment, net of
  tax(6)...........................................        12         --         --         --
Cumulative effect of change in accounting
  principles (SFAS 133), net of tax(7).............       (63)        --         --         --
                                                     --------   --------   --------   --------
Net income (loss)..................................  $   (691)  $  1,443   $  1,360   $    482
                                                     ========   ========   ========   ========

Weighted average shares outstanding(8).............     1,132      1,180      1,184      1,190
Dilutive potential shares(8).......................         3          5          3          1
                                                     --------   --------   --------   --------
Diluted weighted average shares outstanding(8).....     1,135      1,185      1,187      1,191
                                                     ========   ========   ========   ========
Basic earnings (loss) per share:(8)
  Income (loss) from continuing operations.........  $  (0.11)  $   0.74   $   0.54   $   0.77
  Net income (loss)................................  $  (0.61)  $   1.22   $   1.15   $   0.40
                                                     ========   ========   ========   ========
Diluted earnings (loss) per share:(8)
  Income (loss) from continuing operations.........  $  (0.11)  $   0.74   $   0.54   $   0.77
  Net income (loss)................................  $  (0.61)  $   1.22   $   1.15   $   0.40
                                                     ========   ========   ========   ========


--------------------------

(1)  In June 1999, ABB Ltd issued approximately 1,180 million registered shares
    to the stockholders of ABB AB, a Swedish publicly listed company, and ABB
    AG, a Swiss publicly listed company. Preparatory to this transaction, ABB AG
    declared a special dividend such that, as a result, neither ABB AB nor ABB
    AG had operations or assets other than their respective 50% ownership
    interests in ABB Asea Brown Boveri Ltd. In exchange, the stockholders of ABB
    AB and ABB AG tendered all issued shares of the two companies except for 3%
    of total issued ABB AB stock. The stockholders of ABB AB who did not tender
    their shares for ABB Ltd shares received cash of $438 million in return for
    their shares of ABB AB and the equivalent number of registered shares of
    ABB Ltd (approximately 20 million) were sold to third parties, resulting in
    a total of approximately 1,200 million issued shares of ABB Ltd as of
    June 28, 1999. These transactions resulted in ABB Ltd being the single
    parent entity for the ABB Group.

     The Consolidated Financial Statements included elsewhere in this annual
     report include the accounts and subsidiaries of ABB Ltd on a consolidated
     basis since June 28, 1999 and the accounts and subsidiaries of ABB Asea
     Brown Boveri Ltd on a consolidated basis for periods prior thereto. For
     additional information, see "Item 5. Operating and Financial Review and
     Prospects" and Note 1 to the Consolidated Financial Statements.

                                       5

(2) Prior to 2001, we estimated certain reserves for unpaid claims and expenses
    in our Insurance business by calculating the present value of funds required
    to pay losses at future dates. In the United States, where we underwrite
    many claims, the timing and amount of future claims payments have become
    more uncertain. Therefore, the discounted value can no longer be reliably
    estimated. Instead, we now show the expected future claims at full face
    value, resulting in a net charge of $295 million to cost of sales in the
    2001 Consolidated Income Statement. This is a non-cash charge, which will be
    recovered through higher earnings over the life of the insurance contracts.
    For additional information, see "Item 5. Operating and Financial Review and
    Prospects" and Note 14 to the Consolidated Financial Statements.

(3) Includes goodwill amortization of $191 million, $174 million, $155 million
    and $74 million in 2001, 2000, 1999 and 1998, respectively. In accordance
    with the adoption of Statement of Financial Accounting Standards No. 142,
    GOODWILL AND OTHER INTANGIBLE ASSETS, after January 1, 2002, goodwill will
    no longer be amortized but will be charged to operations when specified
    tests indicate that the goodwill is impaired. For additional information,
    see Note 2 to the Consolidated Financial Statements.

(4) During 2001, 2000 and 1999, we incurred restructuring charges and related
    asset write-downs of $231 million, $195 million and $141 million,
    respectively, relating to a number of restructuring initiatives throughout
    the world. During 1998, we incurred $278 million in restructuring costs, of
    which $146 million related to additional employee terminations and severance
    actions in conjunction with a major restructuring plan announced in 1997.
    These restructuring costs were accrued in the respective periods pursuant to
    the requirements of EITF 94-3, LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE
    TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN
    COSTS INCURRED IN A RESTRUCTURING).

(5) In 2001, we recorded a charge of $470 million related to the retained
    asbestos liability of our disposed power generation segment. During 2000, we
    recorded gains on the disposal of our power generation segment, which
    included our investment in ABB ALSTOM POWER and our nuclear business, which
    were partly offset by a $70 million provision related to our retained
    asbestos liability, a $300 million provision for estimated environmental
    remediation costs, $136 million of accumulated foreign currency translation
    losses and operating losses associated with these businesses. In 1999, we
    recorded a gain on the formation of a joint venture with ALSTOM, ABB ALSTOM
    POWER, as well as a gain on the disposal of our transportation segment,
    offset by a $300 million provision related to our retained asbestos
    liability and contract loss provisions of $560 million. As a result, our
    Consolidated Financial Statements present the net assets and results of
    operations of these segments, including charges incurred subsequent to the
    disposals, as discontinued operations. For additional information, see "Item
    5. Operating and Financial Review and Prospects" and Notes 4 and 16 to the
    Consolidated Financial Statements.

(6) In 2001, we repurchased outstanding bonds which resulted in an extraordinary
    gain on extinguishment of debt. For additional information, see Note 13 to
    the Consolidated Financial Statements.

(7) We accounted for the adoption of Statement of Financial Accounting Standards
    No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
    (SFAS 133), as a change in accounting principle. Based on our outstanding
    derivatives at January 1, 2001, we recognized the cumulative effect of the
    accounting change as a loss in the Consolidated Income Statement. For
    additional information, see Note 2 to the Consolidated Financial Statements.

(8) The number of shares and earnings per share data in the Consolidated
    Financial Statements have been presented as if ABB Ltd shares had been
    issued for all periods presented and as if the four-for-one split of
    ABB Ltd shares in May 2001 had occurred as of the earliest period presented.

     Basic earnings per share is calculated by dividing income by the weighted
     average number of shares outstanding during the year. Diluted earnings per
     share is calculated by dividing income by the weighted average number of
     shares outstanding during the year, assuming that all potentially dilutive
     securities were exercised and that any proceeds from such exercises were
     used to acquire shares of our stock at the average market price during the
     year or the period the securities were outstanding, if shorter. Potentially
     dilutive securities comprise outstanding written put options, for which net
     share settlement at average market price of our stock was assumed, if
     dilutive, and outstanding written call options and the securities issued
     under our management incentive plan, to the extent the average market price
     of our stock exceeded the exercise prices of such instruments. For
     additional information, see Notes 2, 20 and 21 to the Consolidated
     Financial Statements.

                                       6




                                                                       DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                     ($ IN MILLIONS)
                                                                           
BALANCE SHEET DATA(1)
Cash and equivalents........................................  $ 2,767    $ 1,397    $ 1,615
Total assets................................................   32,344     30,962     30,578
Long-term borrowings........................................    5,043      3,776      3,586
Capital stock and additional paid-in capital................    2,028      2,082      2,071
Total stockholders' equity..................................    2,014      5,171      4,271
Net operating assets(9).....................................   13,778     14,632     13,144




                                                                   YEAR ENDED DECEMBER 31,
                                                          -----------------------------------------
                                                            2001       2000       1999       1998
                                                          --------   --------   --------   --------
                                                                       ($ IN MILLIONS)
                                                                               
CASH FLOW DATA(1)
Net cash provided by operating activities...............  $ 2,193    $ 1,022    $ 1,575    $   800
Net cash used in investing activities...................   (1,218)    (1,713)    (2,036)    (1,017)
Net cash provided by (used in) financing activities.....      677       (392)    (1,187)       587
Net cash provided by (used in) discontinued
  operations............................................     (210)       949        723        741

OTHER DATA(1)
Purchases of property, plant and equipment..............  $  (761)   $  (553)   $  (839)   $  (768)
Depreciation and amortization(3)........................      787        836        795        648
Research and development................................      654        703        865        819
Order-related development(10)...........................      916        985      1,212      1,126


--------------------------

(9) Net operating assets is calculated based upon total assets (excluding cash
    and equivalents, marketable securities, current loans receivable, taxes and
    deferred charges) less current liabilities (excluding borrowings, taxes,
    provisions and pension-related liabilities).

(10) Order-related development activities are customer- and project-specific
    development efforts that we undertake to develop or adapt equipment and
    systems to the unique needs of our customers in connection with specific
    orders or projects. Order-related development amounts are initially recorded
    in inventories as part of the work in progress of a contract and then are
    reflected in cost of sales at the time revenue is recognized in accordance
    with our accounting policies.

                         DIVIDENDS AND DIVIDEND POLICY

    Payment of dividends is subject to general business conditions, our current
and expected financial condition and performance and other relevant factors
including growth opportunities. Our ability to pay dividends is subject to a
recommendation by our board of directors and a vote of our shareholders at their
annual general meeting.

    Because we pay cash dividends, if any, in Swiss francs, exchange rate
fluctuations will affect the U.S. dollar amounts received by holders of ADSs
upon conversion by Citibank, N.A., the depositary, of those cash dividends.

    The following table sets forth in Swiss francs and in U.S. dollars
(translated at the noon buying rate on December 31, 2001) the dividend paid per
share with respect to the years ended December 31, 2001, 2000 and 1999. At our
annual general meeting in March 2002, our shareholders approved the proposal of
our board of directors that no dividend be paid with respect to the year ended
December 31, 2001.



                                                              DIVIDEND PER SHARE
                                                          ---------------------------
YEAR ENDED DECEMBER 31,                                   SWISS FRANCS   U.S. DOLLARS
-----------------------                                   ------------   ------------
                                                                   
2001...................................................         --             --
2000...................................................       0.75           0.45
1999...................................................       0.75           0.45


                                       7

                                  RISK FACTORS

    Our business, financial condition or results of operations could suffer
material adverse effects due to any of the following risks.

WE OPERATE IN VERY COMPETITIVE MARKETS AND COULD BE ADVERSELY AFFECTED IF WE
  FAIL TO KEEP PACE WITH TECHNOLOGICAL CHANGES.

    We operate in very competitive environments in several specific respects,
including product performance, developing integrated systems and applications
that address the business challenges faced by our customers, pricing, new
product introduction time and customer service. The relative importance of these
factors differs across the geographic markets and product areas that we serve.
The markets for our products and services are characterized by evolving industry
standards (particularly for our automation technology products and systems and
for products and systems provided by our Oil, Gas and Petrochemicals business),
rapidly changing technology (in all of our industrial divisions) and increased
competition as a result of deregulation (particularly for our power technology
products and systems). For example, for a number of years power transmission and
distribution providers throughout the world have been undergoing substantial
deregulation and privatization. This has increased their need for timely product
and service innovations that increase efficiency and allow them to compete in a
deregulated environment. Additionally, the continual development of advanced
technologies for new products and product enhancements is an important way in
which we maintain acceptable pricing levels. If we fail to keep pace with
technological changes in the industrial sectors that we serve, we may experience
price erosion and lower margins.

    We are increasingly asked by our customers to provide an overall solution to
a particular business challenge. Our success is dependent in large part on our
ability to:

    - anticipate our customers' needs and provide products, systems and related
      applications to meet those needs;

    - develop new products, systems and related applications that are accepted
      by our customers;

    - differentiate our product and service offerings from our competitors'
      offerings;

    - enhance and upgrade our existing products and services; and

    - price our products and services competitively.

    The principal competitors for our automation technology products and
services include Emerson, General Electric, Honeywell, Invensys and Siemens. We
primarily compete with ALSTOM, Schneider and Siemens in sales of our power
technology products and systems to our utilities customers. Similarly, our
building automation products and services compete with Schneider and Siemens.
The principal competitors with our Oil, Gas and Petrochemicals business include
Bechtel, Cooper Cameron, Halliburton, Kvaerner, Samsung and Technip. All of our
competitors are sophisticated companies with many 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. Our failure to anticipate or respond adequately to
technological developments or customer requirements, and any delay in
accomplishing these goals, could adversely affect our business, results of
operations and financial condition. Our ability to maintain margins depends to a
large extent on our ability to integrate products and systems with our industry
and technical expertise to enhance productivity and efficiency, and therefore
add value for our customers.

                                       8

IF WE DO NOT SUCCESSFULLY MANAGE THE TRANSFORMATION OF OUR BUSINESS TO
  TECHNOLOGY INTENSIVE AREAS, WE MAY INCUR LOSSES.

    We are increasingly asked by our customers and potential customers to
integrate the equipment that we manufacture with our industry expertise and
technical know-how to develop applications for our products and systems that
address the business challenges that our customers face. We believe that the
best strategy for us to pursue in response to these customer demands is to
emphasize technology intensive areas in which we can apply this expertise and
know-how and to focus on research and development for innovation. We have also
disposed of asset intensive businesses, such as our former power generation and
rail transportation businesses, which were not consistent with this strategy.

    As we change our business focus to emphasize the application of our
expertise, we demand more creativity and innovation from our businesses and
personnel. If we cannot provide appropriate resources, training and motivation
to our employees to respond to these challenges, we may not be able to provide
acceptable solutions to the problems faced by our clients and we may not compete
successfully in the businesses that we target. Competition for personnel with
the expertise we require is intense, and if we cannot recruit and retain such
personnel, it will be difficult to implement the change in our business focus.

    To advance our business strategy, we have made acquisitions for total
consideration (including assumed debt related to the Elsag Bailey acquisition in
1999) of $597 million, $896 million and $2,428 million in 2001, 2000 and 1999,
respectively. We intend to continue to review potential acquisitions and
investments in the ordinary course of our business. Acquisitions, particularly
cross-border acquisitions, involve numerous risks, including:

    - integration of the businesses we acquire, including new services or
      products, into our existing offerings;

    - assimilation and retention of personnel; and

    - diversion of management's attention from other business concerns.

    We incurred $90 million of restructuring charges in 2000 and $38 million in
fiscal 1999 in connection with restructuring certain of our operations to
integrate them with the acquired Elsag Bailey operations. These charges
primarily related to severance costs and early retirement payments. If we make
additional acquisitions as part of the transformation of our business, we could
incur similar integration costs.

IF WE ARE UNABLE TO REDUCE OUR INDEBTEDNESS, OUR FINANCIAL POSITION COULD BE
  ADVERSELY AFFECTED.

    As of March 31, 2002 our aggregate gross indebtedness was $11,070 million
and our aggregate net debt was $4,487 million. Net debt is short-, medium- and
long-term debt less cash and marketable securities. In the first quarter of
2002, our level of indebtedness and the downgrading of our credit ratings
limited our access to the commercial paper market. Consequently, we renegotiated
our $3 billion credit facility with our lenders. In March 2002, we announced our
intention to reduce our net debt by at least $1.5 billion by the end of 2002,
partially through a series of disposals of non-core businesses. We cannot offer
any assurance as to the timing or the successful completion of the announced
dispositions or the proceeds we may receive from the dispositions. Delays in the
implementation of our disposal program may adversely affect our ability to
reduce our level of debt. Our elevated debt level means we must allocate more of
our available cash to pay interest on the debt. It also could affect our
competitiveness by limiting our ability to respond to changing market
conditions, expand through acquisitions or invest in new products and
technologies or other strategic investments.

                                       9

INDUSTRY CONSOLIDATION COULD RESULT IN MORE POWERFUL COMPETITORS AND FEWER
  CUSTOMERS.

    Our competitors in all of our business divisions are consolidating. In
particular, the automation and oil and gas industries are 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 among our
customers' industries (such as the oil and gas industry, the marine and cruise
industry and the automotive, aluminum, steel, pulp and paper and pharmaceutical
industries) could affect our customers and their relationships with us. If one
of our competitors' customers acquires any of our customers, we may lose its
business. Additionally, as our customers become larger and more concentrated,
they could exert pricing pressure on all suppliers, including ABB. For example,
in an industry such as power transmission which historically has consisted of
large and concentrated customers such as utilities, price competition can be a
factor in determining which products and services will be selected by a
customer.

SOME OF OUR CUSTOMERS' INDUSTRIES HAVE EXPERIENCED PERIODIC DOWNTURNS IN THE
  PAST. IF SUCH DOWNTURNS OCCUR, OUR RESULTS OF OPERATIONS COULD BE MATERIALLY
  AND ADVERSELY AFFECTED.

    Several of the industries that we serve have experienced cyclical periods of
slow growth or decline in the past. For example, the automotive and pulp and
paper industries, the oil, gas and petrochemicals industry and the power supply
industries have experienced such cyclical downturns in the past. These downturns
have often been linked to general economic conditions in the markets that we
serve. In periods of slow growth or decline, our customers are more likely to
decrease expenditures on the types of products and systems that our businesses
in these divisions supply and we are more likely to experience decreased
revenues as a result. These cyclical downturns have affected our customers'
industries in the past and are likely to affect them in the future.

THE REVENUES AND FINANCIAL RESULTS OF OUR UTILITIES AND POWER TECHNOLOGY
  PRODUCTS BUSINESSES WILL DECLINE UNLESS WE CAN EFFECTIVELY RESPOND TO
  DEREGULATION AND PRIVATIZATION IN THE POWER-RELATED INDUSTRIES THAT THEY
  SERVE.

    Our Utilities and Power Technology Products businesses depend on trends in
the power supply, transmission and distribution businesses that we serve. In
particular, we have witnessed a trend toward deregulation and privatization in
the transmission and distribution industries on a worldwide basis. This
deregulation has resulted in downward pressure on the prices charged for
electricity. This trend increasingly challenges us to provide products and
applications for those products which address the challenges faced by our
customers quickly and on a cost-effective basis. If we do not do so, our
revenues and margins in these businesses will be adversely affected. In 2001,
the Utilities and Power Technology Products business divisions together
represented approximately 29% of external revenues; therefore, an adverse effect
on the financial results of these divisions could have a material adverse effect
on our consolidated results of operations.

OUR OIL, GAS AND PETROCHEMICALS BUSINESS MAY EXPERIENCE LOSSES IF THE OIL AND
  GAS INDUSTRY GENERALLY EXPERIENCES A DOWNTURN.

    Our Oil, Gas and Petrochemicals business depends on the condition of the oil
and gas industry and particularly on capital expenditure budgets of the
companies engaged in the exploration, development and production of oil and gas.
Our upstream oil and gas activities are substantially dependent on the condition
of the offshore exploration and development market. For example, in the first
half of 1999 our Oil, Gas and Petrochemicals orders were adversely affected by
low oil prices. The prices of oil and gas and their uncertainty in the future,
along with forecasted growth in world oil and gas demand, will strongly
influence the extent of offshore exploration and

                                       10

development activities. Offshore oil and gas field capital expenditures also are
influenced by the sale and expiration dates of offshore leases, the discovery
rate of new oil and gas reserves in offshore areas, local and international
political and economic conditions, environmental regulation, coordination by the
Organization of Petroleum Exporting Countries, the ability of oil and gas
companies to access or generate capital and the cost of such capital. Similarly,
our businesses that provide products, systems and services to the downstream
refining and petrochemical industry are affected by capital expenditure budgets
of our customers, which are, in turn, affected by refinery margins and prices
for petrochemical products such as ethylene and polypropylene. In 2001, the Oil,
Gas and Petrochemicals division represented approximately 15% of external
revenues. An adverse effect on the financial results of this division could have
a material adverse effect on our consolidated results of operations.

BIDDING ON LARGE, LONG-TERM FIXED-PRICE PROJECTS EXPOSES OUR INDUSTRIAL
  BUSINESSES TO RISK OF LOSS.

    Approximately 13% of our total orders booked in 2001 were "large orders,"
which we define as orders from third parties involving at least $15 million
worth of products or systems. Portions of our business, particularly in our Oil,
Gas and Petrochemicals, Utilities and Industries divisions, involve orders
related to long-term projects that can take many months or even years to
complete. Additionally, such projects are typically performed on a fixed-price
or turnkey basis and are awarded on a competitive bidding basis. We may expend
significant resources, both in management time as well as money, on bidding for
projects that we are not awarded.

    Additionally, even if we do win a bid, fixed-priced contracts are inherently
risky because of the possibility of underbidding and the fact that we assume
substantially all of the risks associated with completing the project and the
post-completion warranty obligations. We also assume the project's technical
risk, meaning that we must tailor our products and systems to satisfy the
technical requirements of a project even though, at the time we are awarded the
project, we may not have previously produced such a product or system. The
revenue, cost and gross profit realized on such contracts can vary, sometimes
substantially, from our original projections because of changes in conditions,
including but not limited to:

    - unanticipated technical problems with the equipment being supplied or
      developed by us which may require that we spend our own money to remedy
      the problem;

    - changes in the cost of components, materials or labor;

    - difficulties in obtaining required governmental permits or approvals;

    - project modifications creating unanticipated costs;

    - delays caused by local weather conditions; and

    - suppliers' or subcontractors' failure to perform.

    These risks are exacerbated if the duration of the project is long-term
because there is an increased risk that, the circumstances upon which we
originally bid and developed a price will change in a manner that increases our
costs. In addition, we sometimes bear the risk of delays caused by unexpected
conditions or events. Our long-term, fixed-price projects often make us subject
to penalties if we cannot complete portions of the project in accordance with
agreed-upon time limits. Therefore, losses can result from performing large,
long-term projects on a fixed-price or turnkey basis. For example, in 2001 the
operating income of our Oil, Gas and Petrochemicals division was adversely
affected by provisions for major cost overruns and project delays, the majority
of which related to two large, long-term projects.

    In connection with large, long-term projects, we routinely undertake
substantial customer- and project-specific development efforts. In 2001 and
2000, we incurred order-related development expenditures of approximately
$916 million and $985 million, respectively. Order-related

                                       11

development amounts are initially recorded in inventories as part of the work in
progress of a contract and then are reflected in cost of sales at the time
revenue is recognized in accordance with our accounting policies. To the extent
that revenues on these projects cannot be recognized, we would not recover the
order-related development expenditures. Additionally, to the extent that
order-related development expenditures in a specific project exceed
expectations, the profit margin on that project will be adversely affected.

WE ARE SUBJECT TO LIABILITIES ARISING OUT OF OUR DISCONTINUED OPERATIONS AND WE
  COULD BE REQUIRED TO MAKE PAYMENTS IN RESPECT OF THESE RETAINED LIABILITIES IN
  EXCESS OF ESTABLISHED RESERVES.

    We retain ownership of Combustion Engineering, Inc., a subsidiary that
formerly conducted part of the power generation business contributed to the ABB
ALSTOM POWER joint venture in June 1999 and which now owns commercial real
estate that it leases to third parties. Combustion Engineering is a
co-defendant, together with third parties, in numerous lawsuits pending in the
United States in which the plaintiffs claim damages for personal injury arising
from exposure to or use of equipment that contained asbestos that Combustion
Engineering supplied, primarily during the 1970s and before. As of December 31,
2001 and 2000, we had reserved $940 million and $590 million, respectively, in
respect of asbestos claims and related defense costs. We also recorded
receivables of approximately $150 million and $160 million at December 31, 2001
and 2000, respectively, for probable insurance recoveries with respect to the
claims reserved against. Resolution of asbestos claims is subject to many
uncertainties, including the availability of insurance, and the outcome of
individual matters is not predictable. During 2001, we experienced an increase
in the level of new claims and higher settlement costs as compared to recent
years. It is possible that we could be required to make expenditures in excess
of established reserves, in a range of amounts that cannot reasonably be
estimated. For more information, see "Item 8. Financial Information--Legal
Proceedings."

    We retained liability for environmental remediation costs at two sites in
the United States that were operated by our nuclear business, which has been
sold to British Nuclear Fuels. We have retained all environmental liabilities
associated with Combustion Engineering's Windsor, Connecticut facility and a
portion of the liabilities associated with our ABB CE Nuclear subsidiary's
Hematite, Missouri facility. The primary environmental liabilities associated
with these sites relate to the costs of remediating radiological contamination
upon decommissioning the facilities. Based on the information that British
Nuclear Fuels has made publicly available, we believe it may take approximately
6 years for remediation at the Hematite site, from the time of decommissioning.
The Windsor site was decommissioned in 2001, and we believe the remediation may
take until 2008. At the Windsor site, we believe that a significant portion of
such remediation costs will be the responsibility of the United States
government pursuant to federal law, although the exact amount of such
responsibility cannot reasonably be estimated. In connection with the sale of
the nuclear business in April 2000 we established a reserve of $300 million in
connection with estimated remediation costs related to these facilities. During
2001, we expended approximately $6 million on remediation of the Windsor site.
It is possible that we could be required to make expenditures in excess of the
reserve, in a range of amounts that cannot reasonably be estimated.

    We have retained guarantees related to our divested power generation and
nuclear businesses referred to above. The purchasers of these businesses have
undertaken to indemnify us from and against claims that may be made against us
pursuant to these guarantees. No material claims have been made against us under
any of these guarantees. We are dependent, however, on the undertakings by the
purchasers to indemnify us if we are ever required to fund payments under these
guarantees following failures of the businesses sold to perform their
obligations.

                                       12

WE ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS IN THE COUNTRIES IN WHICH
  WE OPERATE. WE INCUR COSTS TO COMPLY WITH SUCH REGULATIONS AND OUR ONGOING
  OPERATIONS MAY EXPOSE US TO ENVIRONMENTAL LIABILITIES.

    Our operations are subject to U.S., European and other laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. Our manufacturing facilities use and produce paint
residues, solvents, metals, oils and related residues. We use petroleum-based
insulation in transformers, PVC resin to manufacture PVC cable and
chloroparafine as a flame retardant. We use inorganic lead as a counterweight in
robots that we produce. These are considered to be hazardous substances in many
jurisdictions in which we operate. We may be subject to liabilities for
environmental contamination if we do not comply with applicable laws regulating
such hazardous substances, and such liabilities can be substantial. All of our
manufacturing operations are subject to ongoing compliance costs and capital
expenditure requirements.

    In addition, we may be subject to significant fines and penalties if we do
not comply with environmental laws and regulations including those referred to
above. Some environmental laws provide for joint and several strict liability
for remediation of releases of hazardous substances which could result in our
liability for environmental damage without regard to our negligence or fault.
Such laws and regulations could expose us to liability arising out of the
conduct of operations or conditions caused by others, or for our acts which were
in compliance with all applicable laws at the time the acts were performed.
Additionally, we may be subject to claims alleging personal injury or property
damage as a result of alleged exposure to hazardous substances. Changes in the
environmental laws and regulations, or claims for damages to persons, property,
natural resources or the environment, could result in substantial costs and
liabilities to us. See "Item 5. Operating and Financial Review and
Prospects--Liquidity and Capital Resources--Environmental Contingencies and
Retained Liabilities."

WE MAY BE THE SUBJECT OF PRODUCT LIABILITY CLAIMS.

    A malfunction in or the inadequate design of products systems and services
that we design and manufacture could result in product liability claims.

    Additionally, we may be subject to product liability claims for the improper
installation of products and systems designed and manufactured by others. These
claims are more likely to occur in our Oil, Gas and Petrochemicals, Utilities
and Industries divisions, whose projects often include the installation of
products and systems manufactured by third parties.

    Product liability claims against us typically involve claims of personal
injury or property damage. If the claimant runs a commercial business, claims
are often made also for financial losses arising from interruption of operations
consequential to property damage. Because of our broad offering of products,
these claims arise in different contexts, including the following:

    - Our Oil, Gas and Petrochemicals division makes and installs equipment and
      systems used in oil and gas exploration, production and refining. These
      products handle petroleum-based substances which can be highly combustible
      and which can result in significant fires or explosions if we improperly
      design, manufacture or install equipment.

    - If our power technology products and systems are defective, there is a
      substantial risk of fires, explosions and power surges and significant
      damage to electricity generating, transmission and distribution
      facilities.

    - If our automation technology products and systems are defective, our
      customers could suffer significant damage to facilities that rely on these
      products and systems to properly monitor and control their manufacturing
      processes.

    Although we maintain insurance against product liability claims in amounts
that we believe to be adequate, if a very large product liability claim were
sustained, our insurance protection might

                                       13

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. 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 or results of
operations. Additionally, a well-publicized actual or perceived problem could
adversely affect our market reputation which could result in a decline in demand
for our products.

OUR OPERATIONS IN EMERGING MARKETS EXPOSE US TO RISKS ASSOCIATED WITH CONDITIONS
  IN THOSE MARKETS.

    We operate in the emerging markets of Latin America, Asia, the Middle East
and Africa. In 2001, approximately 38% of external revenues of the Oil, Gas and
Petrochemicals division, approximately 35% of external revenues of the Utilities
division and approximately 33% of external revenues of the Power Technology
Products division were generated from these emerging markets. Operations in
emerging markets 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 markets;

    - political instability, which makes our customers less willing to make
      investments in such regions and complicates our dealings with governments
      regarding permits or other regulatory matters;

    - boycotts and embargoes that may be imposed by the international community
      on countries in which we operate, which 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;

    - significant fluctuations in interest rates and currency exchange rates;

    - the imposition of unexpected taxes or other payments on our revenues in
      these markets; and

    - the introduction of exchange controls and other restrictions by foreign
      governments.

    In addition, the legal and regulatory systems of the emerging markets
identified above are less developed and less well enforced than in
industrialized countries. Therefore, our ability to protect our contractual and
other legal rights in those regions could be limited. We cannot offer any
assurance that our exposure to conditions in emerging markets will not adversely
affect our financial condition and results of operations.

OUR INTERNATIONAL OPERATIONS EXPOSE US TO THE RISK OF FLUCTUATIONS IN CURRENCY
  EXCHANGE RATES.

    CURRENCY TRANSLATION RISK.  The results of operations and financial position
of most of our non-U.S. subsidiaries are reported in the currencies of countries
in which those subsidiaries reside. That financial information is then
translated into U.S. dollars at the applicable exchange rates for inclusion in
our Consolidated Financial Statements. In 2001, approximately 76% of our
consolidated revenues were generated in local currencies and translated into
U.S. dollars. Of that amount the following percentages were reported in the
following local currencies:

    - Euro, approximately 32%;

    - Swedish krona, approximately 9%;

    - Swiss franc, approximately 5%;

    - Norwegian krona, approximately 6%; and

    - British pound, approximately 5%.

    The exchange rate between these currencies and the U.S. dollar fluctuates
substantially, which has a significant translation effect on our reported
consolidated results of operations and financial

                                       14

position. In 2001 and 2000, the U.S. dollar appreciated against most of the
currencies in which our subsidiaries reported results of operations. In
particular, in 2001 and 2000 the U.S. dollar strengthened by approximately:

    - 4% in 2001 and 13% in 2000 against the Euro;

    - nil in 2001 and 11% in 2000 against the Swiss franc;

    - 3% in 2001 and 11% in 2000 against the Norwegian krona; and

    - 11% in 2001 and 10% in 2000 against the Swedish krona.

    This resulted in the reduction of reported revenues and earnings before
interest and taxes when consolidated and translated into U.S. dollars, based on
average annual exchange rates, of approximately 4% and 7%, respectively, in 2001
and 8% and 10%, respectively, in 2000.

    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 costs are incurred. In this case, if after the
time that the parties agree on a price, the value of the currency in which the
purchase price is to be paid weakens relative to the currency in which we incur
manufacturing costs, there would be a negative impact on the profit margin for
any such transaction. This transaction risk may exist regardless of whether or
not there is also a translation risk as described above.

    Currency exchange rate fluctuations in those currencies in which we incur
our principal manufacturing expenses (the Euro, Swedish krona and Swiss franc)
may distort competition between us and our competitors whose costs are incurred
in other currencies. If our principal currencies appreciate in value against
such other currencies, our competitiveness may be weakened.

WE MAY ENCOUNTER DIFFICULTY IN MANAGING OUR BUSINESS DUE TO THE GLOBAL NATURE OF
  OUR OPERATIONS.

    We operate in more than 100 countries around the world, with approximately
65% of our employees located in Europe, approximately 17% in the Americas,
approximately 11% in Asia and approximately 7% in the Middle East and Africa. In
order to manage our day-to-day operations, we must overcome cultural and
language barriers and assimilate different business practices. 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 and monitor group-wide standards and directives across our
global network. Our failure to successfully manage 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.

    In 2000, our internal audit group discovered during a regular compliance
follow-up that several employees in the London region of our Manufacturing and
Consumer Industries division had intentionally concealed losses in 1999 and part
of 2000 arising from contracts for which revenues were insufficient to cover
costs. We believe that these activities were isolated in the London region of
this division and did not extend to other operations. As a result of our
investigation, we terminated the individuals involved and replaced the local
management in the London region. If we had not discovered these activities, our
net income for 1999 and 2000 would have been overstated by $30 million and
$10 million, respectively. In 2001, we identified and recorded additional costs
amounting to approximately $25 million relating to these activities. We cannot
ensure compliance on a global basis by all of our employees with our internal
control policies and procedures.

                                       15

ITEM 4.  INFORMATION ON THE COMPANY

                                  INTRODUCTION

HISTORY OF THE ABB GROUP

    Initially founded in 1883, Asea AB was a major participant in the
introduction of electricity into Swedish homes and businesses and in the
development of Sweden's railway network. In the 1940s and 1950s, Asea AB
expanded into the power, mining and steel industries and by 1980 was among the
world's ten largest electrical engineering groups.

    Brown Boveri & Cie. (later renamed BBC Brown Boveri AG) was formed in
Switzerland in 1891 and initially specialized in power generation and turbines.
In the early to mid-1900s, Brown Boveri expanded its operations throughout
Europe and broadened its business operations to include a wide range of
electrical engineering activities. By 1980, Brown Boveri had more than 100,000
employees.

    In January 1988, Asea AB and BBC Brown Boveri AG each contributed almost all
of their businesses to newly formed ABB Asea Brown Boveri Ltd, of which they
each owned 50%. Between 1988 and 1990, ABB made acquisitions totaling
$5.2 billion, including the purchase of Westinghouse Electric Corp.'s worldwide
power transmission and distribution operations. During the 1990s, the ABB Group
further expanded its operations in Central and Eastern Europe, North America,
South America and Asia. In 1996, Asea AB was renamed ABB AB and BBC Brown Boveri
AG was renamed ABB AG.

    In February 1999, the ABB Group announced a group reconfiguration designed
to establish a single parent holding company and a single class of shares.
ABB Ltd was incorporated on March 5, 1999 under the laws of Switzerland. In
June 1999, ABB Ltd became the holding company for the entire ABB Group. This was
accomplished by having ABB Ltd issue its shares to the shareholders of ABB AG
and ABB AB, the two publicly traded companies that formerly owned the ABB Group.
The ABB Ltd shares were exchanged for the shares of those two companies which,
as a result of the share exchange and certain related transactions, are now
wholly owned subsidiaries of ABB Ltd and are no longer publicly traded. ABB Ltd
shares are currently traded on the SWX Swiss Exchange (virt-x), the Stockholm
Stock Exchange, the London Stock Exchange, the Frankfurt Stock Exchange and the
New York Stock Exchange (in the form of American Depositary Shares).

    In 2001, we further realigned the ABB Group, as discussed below under
"--Description of Business Divisions--Organizational Realignment," to simplify
the way we work and better develop our relationship with customers.

    In April 2002, we announced our intention to divest the Building Systems
business area, which is part of the Manufacturing and Consumer Industries
division. The other three business areas comprising the Manufacturing and
Consumer Industries division will be combined with the Process Industries
division in a newly created Industries division.

    Our principal corporate offices are located at Affolternstrasse 44, CH-8050
Zurich, Switzerland, telephone number 011-41-43-317-7111. Our agent for U.S.
federal securities law purposes is ABB Holdings Inc., located at 501 Merritt 7,
Norwalk, Connecticut 06851.

RECENT ACQUISITIONS AND DISPOSALS

    We have engaged in acquisitions and divestitures to implement our strategy
of expanding into more technology-intensive businesses. In 2001, 2000 and 1999,
we made the strategic acquisitions described below to strengthen our position in
the process automation industry. In addition, in those years we made other
acquisitions to enhance our service and technology offerings across our business
areas.

                                       16

    We paid aggregate consideration of $597 million in the acquisitions that we
completed during 2001, $896 million in 2000 and $2,428 million in 1999. Of the
62 acquisitions we made in 2001, 11 represented acquisitions accounted for as
purchases and accordingly the results of the acquired businesses have been
included in our Consolidated Financial Statements from the respective
acquisition dates. The aggregate purchase price of these acquisitions during
2001 was $329 million.

    In 2000 and 1999, we sold the businesses that formerly constituted our power
generation segment. We also divested non-core businesses and property, plant and
equipment.

    SIGNIFICANT ACQUISITIONS

    In June 2001, we completed the acquisition of Entrelec Group, a France-based
supplier of industrial automation and control products with operations in 17
countries. The acquisition diversified our product range and expanded our
customer base in high growth markets.

    In January 2001, we acquired Eutech Engineering Solutions Ltd., the
international engineering consultancy subsidiary of ICI Group. The acquisition
of Eutech, with its expertise in the chemicals, petrochemicals and
pharmaceuticals industries, contributed substantially to our knowledge and
market strength in these industries.

    In June 2000, we acquired Umoe ASA, a Norwegian service company in the oil
and gas industry with a focus on modification and maintenance services,
including electrical installations. The acquisition furthered our strategy to
expand our service activities in the oil and gas market.

    In January 1999, we completed the acquisition of Elsag Bailey Process
Automation N.V., an industrial process automation company. We purchased Elsag
Bailey for cash of approximately $2,210 million (including assumed debt). Elsag
Bailey has been integrated into our business and significantly complemented our
automation activities in terms of geographic scope, customer base and
technology. It strengthened our presence in the key automation markets of the
United States, Germany, Japan, Italy, France and Canada and has enabled us to
achieve a leading market position in each of our core automation products,
systems and services. Elsag Bailey had approximately 11,000 employees at the
time of the acquisition, of which approximately 1,000 were terminated through
restructuring after the acquisition.

    In 1999, we also acquired Kemper Europe Reassurances S.A., which allowed us
to expand our reinsurance services beyond the Nordic region.

    SIGNIFICANT DIVESTITURES

    In the first quarter of 2002, we announced our intention to engage in a
series of planned disposals as part of our strategy to reduce our net debt. In
April 2002, we announced our intention to divest our Building Systems business
area. Also in April 2002, we announced that we were in negotiations with a
number of parties with respect to the sale of our Structured Finance business
area, which accounts for about one-third of the assets of the Financial Services
division. These negotiations are ongoing.

    In January 2002, Global Air Movement (Luxembourg) SARL purchased our
worldwide air handling business for approximately $225 million, which is subject
to adjustment based on the balance sheet of the air handling business at the
time of the closing of the sale. This divestiture reinforced our strategy to
focus on our expertise in power and automation technology.

    In April 2000, British Nuclear Fuels purchased our worldwide nuclear
business for approximately $485 million. The divested businesses also include
nuclear control systems. We have retained liability for certain specific
environmental remediation costs at two sites in the United States that were
operated by our nuclear business. See "Item 5. Operating and Financial Review
and Prospects--Environmental Contingencies and Retained Liabilities."

                                       17

    In connection with the sale, one of our subsidiaries retained obligations
under surety bonds relating to the performance by the nuclear business under
certain contracts entered into prior to the sale to British Nuclear Fuels, and
British Nuclear Fuels agreed to indemnify us against payments under those surety
bonds. See "Item 5. Operating and Financial Review and Prospects--Related and
Certain Other Parties."

    In June 1999, we contributed substantially all of our power generation
businesses to ABB ALSTOM POWER N.V., a 50-50 joint venture with ALSTOM.
Subsequently, in May 2000, we sold our 50% interest in ABB ALSTOM POWER N.V. to
ALSTOM. We received cash proceeds of approximately $1,197 million from ALSTOM in
exchange for our 50% interest. As part of the sale, we transferred additional
assets and liabilities related to our former power generation segment to ABB
ALSTOM POWER N.V.

    We retain ownership of Combustion Engineering, a subsidiary in the United
States that conducted part of the power generation business contributed to the
ABB ALSTOM POWER joint venture in June 1999, and its asbestos liabilities. See
"Item 8. Financial Information--Legal Proceedings." Additionally, we continue to
be obligated as a guarantor under letters of credit and other performance and
financial guarantees in connection with major projects for the power generation
businesses sold to ALSTOM. Upon the sale of these businesses to ALSTOM in
May 2000, however, ALSTOM agreed to indemnify us against payments under those
guarantees. See "Item 5. Operating and Financial Review and Prospects--Related
and Certain Other Parties."

    In the first quarter of 1999, we completed the sale of our 50% share in ABB
Daimler-Benz Transportation GmbH (ADtranz), the rail transportation joint
venture, to DaimlerChrysler.

    The total level of proceeds from divestitures amounted to $283 million for
2001, $1,963 million for 2000 and $2,283 million for 1999. We have used the
proceeds from these divestitures for new investments and to reduce our net debt
position.

INDUSTRIAL IT

    The modern industrial enterprise consists of numerous information
systems--control, maintenance, procurement, production, sales and
management--all full of vital information but often working in isolation. The
concept behind Industrial IT is to integrate these systems into a seamless,
easily navigated framework from which information can be selected, retrieved and
acted upon rapidly. The integration of Industrial IT-enabled products into our
customers' business processes provides our customers with increased information
flow about their business systems in a useful form. Industrial IT allows our
customers to make intelligent decisions based on the most current and accurate
information and to react quickly to changing conditions. Additionally, by
incorporating advanced technology into our products and systems, we can increase
the speed of our customers' manufacturing and information processes without
exceeding manufacturing constraints.

    Our goal is to ensure that the products and systems that we offer across our
various businesses will be easy to use, compatible with each other, and will fit
within our Industrial IT concept. We are developing a common architecture across
the range of our products and systems so that they can be easily combined with
each other and with our customers' systems using software to link our various
technical platforms together. We intend to improve compatibility in succeeding
generations of each of our products and systems.

    As of March 31, 2002, approximately 1,100 ABB products had been certified as
meeting Industrial IT standards. Each certified product is assigned to a product
suite and is named according to what it does and how it fits into the Industrial
IT system.

                                       18

                       DESCRIPTION OF BUSINESS DIVISIONS

ORGANIZATIONAL REALIGNMENT

    In 2001, we realigned our worldwide business operations to increase our
responsiveness to our customers' needs. Our new customer-focused structure is
intended to capitalize on our extensive knowledge of our customers' industries
and their business processes. It is based on the premise that our primary growth
opportunity lies in our existing customer base. Our new business structure is
intended to enhance our ability to expand our existing customer relationships
into additional sales of products, systems and services. Our focus on customer
groups should also facilitate the building of new customer relationships.

    We replaced our six former business segments with seven business divisions
structured along customer groups. 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.
Two divisions, Power Technology Products and Automation Technology Products,
serve the four end-user divisions and the wholesalers, distributors, original
equipment manufacturers and system integrators that we refer to as "external
channel partners." The Financial Services division continues to serve the ABB
Group and external customers. Additionally, the Group Processes division is
responsible for shared services, common processes and infrastructure within ABB.

    Dedicated account managers work with specialists, such as systems and
application engineers, within our end-user divisions to provide customers with
customized products and systems that meet their specific needs. The end-user
divisions draw on the products, services and technical expertise offered by our
two channel partner divisions. Instead of multiple ABB product units serving the
same customer, our end-user customers are served by one dedicated team
representing our total offering of products, systems and services on the basis
of common terms and conditions.

                                       19

    The following chart illustrates our current business structure:

                                     [LOGO]

    In April 2002, we announced our intention to divest our Building Systems
business area and to combine the three remaining business areas in the
Manufacturing and Consumer Industries division with the Process Industries
division in a newly created Industries division. We are in the process of
implementing this combination, and we will begin reporting our financial results
to reflect this new structure starting with our June 30, 2002 results. The
following discussion reflects our current business structure.

UTILITIES

    OVERVIEW

    The ABB Utilities division serves electric, gas and water utilities--whether
state-owned or private, global or local, operating in liberalized or regulated
markets--through a portfolio of capabilities, including products, services and
systems.

    The Utilities division's principal customers are generators of power, owners
and operators of power transmission systems, energy traders and local
distribution companies. Power transmission systems deliver high-voltage
electricity from power plants to distribution networks, which provide electrical
power to end users.

    In addition, the Utilities division offers a range of products, systems and
services to water and gas utilities. Gas utilities are companies engaged in the
transmission, storage, distribution and trading of natural gas for sale to
residential and commercial end users. Water utilities are companies engaged in
the processing, distributing for sale and recycling of water. Sales to customers
in the gas and water industries accounted for a minor portion of the Utilities
division's revenues in 2001.

                                       20

    The following table sets forth financial and other data regarding the
Utilities division (see Note 23 to the Consolidated Financial Statements):



                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                     ($ IN MILLIONS)
                                                                           
Revenues (1)................................................    5,649      5,473      5,875
Earnings before interest and taxes (operating income).......      148        250        182
Operating margin (%)........................................      2.6%       4.6%       3.1%
Capital expenditures (2)....................................       27         26         42
Number of employees.........................................   15,745     15,826     17,390


--------------------------

(1) See Note 2 to our Consolidated Financial Statements, included elsewhere in
    this annual report, for a description of our revenue recognition policies.

(2) Excludes purchased intangible assets.

    ELECTRICITY

    The portions of an electricity grid that operate at highest voltages are
"transmission" systems, while those at lower voltages are "distribution"
systems. Transmission systems link power generation sources to distribution
systems. Distribution networks then branch out over shorter distances to carry
electricity from the transmission system to end-users. These electricity
networks incorporate sophisticated devices to monitor operations and to prevent
damage from failures or stresses.

    Electricity is transformed at different stages in the delivery process
between the source and the ultimate end user. For example, electrical power is
often generated in large power plants at 10 to 20 kilovolts. This voltage is too
low to be transmitted efficiently but too high for use in households and
businesses. By transmitting electricity at high-voltages, losses are minimized
and the power lines can carry more power per line. Transformers are used to
increase the voltage of generated electricity for long-distance transmission (up
to as high as 1,100 kilovolts). Transformers are then used to decrease the
voltage at the local end for distribution to consumers.

    Power distribution networks carry electricity from high-voltage transmission
grids to the lower voltage point of power usage such as residential, commercial
or industrial consumers, stepping down the voltages along the way to meet
consumers' requirements. An electric utility distribution system comprises
distribution substations and networks, both overhead and underground. Some large
industrial and commercial facilities receive electricity at higher voltage
levels from the transmission or distribution network, while most industrial,
commercial and residential users receive electricity from distribution network
feeders on lower voltages.

    There is an accelerating global trend toward deregulation and privatization
of the power industry, which is creating a more competitive environment for our
customers. This trend is well-established in the United States, parts of Latin
America and Western Europe, particularly in the United Kingdom and the
Scandinavian countries. It is accelerating elsewhere in Europe and is developing
in other regions. The creation of a free market for electricity requires our
customers to become more cost-efficient and reliable to compete as a lowest-cost
provider among power suppliers. Grid operators must be able to deliver power to
customers hundreds, even thousands, of miles away within a few minutes. As more
disturbance-sensitive loads (E.G., computers and telecommunications systems)
have been added to a network, demand for reliable, high-quality

                                       21

electricity is increasing. Power suppliers can achieve this efficiency and
reliability in a number of ways, including the following:

    - Replacing and modernizing assets and investing in information
      technology-based control and monitoring equipment, metering systems and
      communications networks to control and supervise power networks based on
      instantaneous access to information.

    - Upgrading current technologies and introducing new technologies to improve
      the reliability, increase the power rating and control the flow through
      existing transmission and distribution assets.

    - Outsourcing non-core activities, such as engineering, construction,
      service, maintenance and operations and giving manufacturers such as ABB
      greater flexibility to define the detailed specifications and design of
      systems.

    GAS

    Natural gas is extracted at the wellhead and gathered into a central
collection point, where it is processed before entering a pipeline transmission
system. The pipeline is composed of high strength steel pipe, which moves large
amounts of gas thousands of miles from production sites to local natural gas
utilities. Compressor stations located along pipelines boost pressure to move
the gas through the lines. Many compressor stations are operated from a
pipeline's central control room.

    Pipelines are connected in a grid with other pipelines of other utility
systems, which provide system operators flexibility in moving gas. Gas pressure
is reduced when it reaches local gas utilities. It is metered and an odorant is
added to help leak detection. The natural gas then moves into smaller
distribution pipes that form a network that delivers it to residences and
businesses. Regulator technologies control the flow of the distribution system,
which operates at a different pressure in different segments, and is lower as it
reaches the customer. The gas utility continuously monitors flow rates and
pressures throughout the distribution system from a central control center.

    WATER

    Water comes from ground water and surface water, such as rivers and lakes.
Large scale water supply systems tend to rely on surface water resources, and
smaller water systems tend to use ground water. Water is pumped from its source
to a water treatment plant, where it is purified and chemicals can be added.

    In most water distribution systems, water is transported under pressure
through a network of underground pipes. Smaller pipes, called service lines,
connect end users to the main water lines. After it has been used, it travels
through sewer systems to treatment plants where impurities are removed and can
be returned to the water supply.

    PRODUCTS AND SERVICES

    For electric utilities, the Utilities division provides power equipment and
power management systems based on advanced technology designed to make
electricity transmission more flexible, more reliable and more profitable for
our customers. We integrate our recognized industry and technical expertise with
the Automation Technology Products and Power Technology Products divisions'
product offerings, as well as those of third parties, to provide solutions to
the technical and commercial challenges faced by our customers.

    For gas utilities, the Utilities division provides automation and
electrification products and systems for gas transmission and distribution
companies. For water utilities, the Utilities division

                                       22

provides medium and low-voltage products for plant and system power
requirements. The Utilities division offers optimized solutions including
process control systems and services, complete electrical equipment for water
supply and wastewater treatment plants, and total electromechanical packaged
systems for water pumping stations.

    As an end-user division, part of the Utilities division's role within the
ABB Group is to serve as a channel for products manufactured by the Power
Technology Products and Automation Technology Products divisions. In 2001,
approximately 38% of the revenue of the Utilities division was derived from the
resale of products manufactured by the Power Technology Products and Automation
Technology Products divisions, without any additional work performed by the
Utilities division.

    UTILITY AUTOMATION SYSTEMS

    Our Utility Automation Systems business area applies its engineering
expertise to the products manufactured by the Automation Technology Products
division, as well as those of third parties, to provide customers with
automation systems using sophisticated instrumentation, control systems and
relay protection devices tailored for their generating plants or transmission
and distribution networks. Its scope of supply also includes automation system
architecture, control stations, data network and communication systems, and
instrumentation.

    Utility Automation Systems provides energy information software and systems
that enable power generators to plan unit commitment strategy, schedule
generation assets for optimum efficiency, forecast generation needs, and share
data within their organizations. It provides software that integrates
operational information covering several aspects of their business, from outage
control and meter data management to billing.

    Utility Automation Systems provides automation systems for water supply and
treatment and gas and energy trading operations in wholesale and retail markets,
as well as central markets that have access to transmission grids. It supports a
wide range of products for the real-time management of energy trading, including
wholesale and derivatives trading, gas and electricity retailing, customer
billing and pooling and settlement systems, as well as management of network
access and meter data management systems.

    UTILITY PARTNER

    Our Utility Partner business area offers full service and support for
management of existing power transmission and distribution assets, including
both ABB products and those manufactured by third parties. In addition to
providing maintenance and repair services, it offers consulting services that
enable customers to improve the performance of their transmission and
distribution equipment and systems, to gauge how cost effectively their networks
are functioning, and to find and correct problems quickly. Specifically, Utility
Partner offers asset management services including technical consulting (system
diagnostics, network analysis, planning and optimization), commercial consulting
(cost reduction programs, investment strategies, reengineering of business
processes) and execution (maintenance strategies, logistics).

                                       23

    UTILITY POWER SYSTEMS

    Our Utility Power Systems business area undertakes turnkey contracts to
install and upgrade transmission and distribution systems incorporating
components manufactured by the Power Technology Products and Automation
Technology Products divisions, as well as those of third parties. High-voltage
direct current (HVDC) transmission is a leading technology for transporting
electricity over long distances because it reduces power losses, increases
system stability and provides a more controllable flow than high-voltage
alternating current. An HVDC transmission system typically includes: converters
that change alternating current to direct current and then back to alternating
current when it reaches the terminal point; transmission lines, which could be
above or below ground; and switchgear and substations that perform functions
similar to that described above.

    Advances in converter and cable technology have enabled us to introduce a
system called HVDC Light-TM-. Converter stations for HVDC Light-TM- are
approximately one-fifth the size of conventional HVDC technology for the same
rated power. HVDC Light-TM- extends the benefits of high-voltage direct current
to low-power applications, down to 5 megawatts. The HVDC Light-TM- system can
connect remote small power stations such as wind, hydro, solar and bio-mass
plants to national grids. It can also supply electricity from a national grid to
remote areas and islands, which might otherwise require local power plants. This
business area also offers static var compensation, or SVC, technology, which
improves power quality, voltage stability and power capacity of transmission
systems.

    The Utility Power Systems business area also supplies substations to
interconnect electricity grids operating on different voltage levels, to
sectionalize portions of the grid and to protect the electrical system against
damage from outside sources such as lightning and overload. By sectionalizing
the grid, power can be rerouted from portions of the transmission system that
are experiencing problems to sections that are functioning properly, thereby
enhancing the overall reliability of the power supply. This business area
delivers complete alternating current air and gas insulated substations for
power transmission. Substations are also necessary in a power distribution
network to sectionalize and reduce the voltage of the main power lines and
cables to the lower voltages required for efficient distribution and
consumption. For power distribution, this business area sells traditional
custom-engineered substations as well as compact, modular substations, which
require less space than a conventional substation and thus are particularly well
suited for urban settings. It also offers prefabricated secondary substations
that can be installed more quickly than traditional substations, and which
transform electricity to consumer-level voltages.

    CUSTOMERS

    The Utilities division's principal customers are electric, gas and water
utilities, owners and operators of power transmission systems, utilities that
own or operate networks, owners and operators of power generating plants, and
energy traders. Other customers include gas transmission companies, local
distribution companies and multi-utilities, which are involved in the
transmission or distribution of more than one commodity.

    COMPETITION

    The Utilities division's principal competitors in the supply of power
transmission and distribution equipment and services are ALSTOM, Mitsubishi,
Schneider and Siemens. In the utility automation area, the division's principal
competitors are ALSTOM, Emerson, GE Harris, Honeywell, Invensys and Siemens.

                                       24

    RESEARCH AND DEVELOPMENT

    Research and development expenses for the Utilities division amounted to
approximately $53 million, or 0.9% of its revenues, for 2001. The research and
development activities of the division during 2001 were primarily related to
developing information technology systems for network management and systems for
optimization of power plant operations.

    CAPITAL EXPENDITURES

    The Utilities division's capital expenditures for property, plant and
equipment were $27 million, $26 million and $42 million in 2001, 2000 and 1999,
respectively. In 2001, ABB sold the division's railway project business,
primarily located in Italy. In 2000, ABB divested the nuclear automation
business located in the United States, Sweden and Germany, and land and
buildings, primarily in Sweden and Italy. As the division is not involved in
manufacturing, capital expenditures are not related to major investments and are
geographically dispersed.

PROCESS INDUSTRIES

    OVERVIEW

    The Process Industries division serves the chemical, life sciences, marine,
turbocharging, metals, minerals, mining, cement, paper, petroleum and printing
industries with process-specific products and services combined with ABB's power
and automation technology. The division creates industry-specific products and
services that help to improve the efficiency and competitive strength of our
customers.

    In April 2002, we announced our intention to divest the Building Systems
business area, which currently is part of the Manufacturing and Consumer
Industries division. The other three business areas comprising the Manufacturing
and Consumer Industries division will be combined with the Process Industries
division in a newly created Industries division.

    The following table sets forth financial and other data regarding the
Process Industries division (see Note 23 to the Consolidated Financial
Statements):



                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                     ($ IN MILLIONS)
                                                                           
Revenues (1)................................................    3,377      3,339      3,485
Earnings before interest and taxes (operating income).......      116         88        123
Operating margin (%)........................................      3.4%       2.6%       3.5%
Capital expenditures (2)....................................       24         27         40
Number of employees.........................................   15,937     15,997     16,237


--------------------------

(1) See Note 2 to our Consolidated Financial Statements, included elsewhere in
    this annual report, for a description of our revenue recognition policies.

(2) Excludes purchased intangible assets.

    The customers of the Process Industries division have been affected by a
number of trends over the past several years, including the following:

    - increased concentration on improving shareholder return through better
      asset management rather than relying on increased production;

    - stronger focus on energy management;

                                       25

    - ongoing sustainable development regulation and awareness;

    - slow, stable growth in North America and Europe, with high Asian growth
      possibilities, especially in chemicals and steel;

    - a stable oil and chemical market, and a growing pharmaceuticals market;

    - consolidating metal industry, with strong demand in Asia and Eastern
      Europe;

    - a stable pulp and paper market as a result of better inventory management
      by producers; and

    - in 2001, continued high demand for oil and gas vessels due to continued
      new field exploration and a depressed cruise industry partially resulting
      from the acts of terrorism on September 11, 2001.

    The Process Industries division addresses these trends by providing products
and services that increase production efficiency, improve product quality,
optimize assets, and minimize raw material and energy use.

    PRODUCTS AND SERVICES

    Most businesses served by the Process Industries division use batch and
continuous production, such as chemicals and paper. The division also serves the
marine industry, including oil and gas vessels and cruise ships. Offerings to
these customers include standard power and automation technologies developed by
the Automation Technology Products and Power Technology Products divisions, as
well as value-added systems, software and services designed, manufactured and
delivered by Process Industries.

    The Process Industries division also focuses on developing synergies and
efficiencies among its units, such as common marketing, software re-use, and
streamlined geographic sales and service networks. Synergies exist in the marine
and petroleum businesses, as many vessels are also floating oil and gas
production units. Additionally, product tracking software can be applied both to
rolls of paper and steel and common sales and service personnel can interface
with customers with diverse petroleum, metals, mining and/or paper holdings.

    As an end-user division, part of the Process Industries division's role
within the ABB Group is to serve as a channel for products manufactured by the
Power Technology Products and Automation Technology Products divisions. In 2001,
approximately 20% of the gross revenue of the Process Industries division was
derived from the resale of products manufactured by the Power Technology
Products and Automation Technology Products divisions, without any additional
work performed by the Process Industries division.

    PETROLEUM, CHEMICAL AND LIFE SCIENCES

    The Petroleum, Chemical and Life Sciences business area provides products
and services to enhance efficiency, safety, reliability, environmental
compliance and flexibility in operations where a few basic elements may yield
hundreds of varied end products. In the petroleum sector, this business area
provides onshore, offshore and subsea production technology, gas gathering and
processing, refining, transportation and distribution applications. At the oil
wellhead, it monitors and controls production from Alaska's North Slope to the
Middle East to the North Sea. Its technologies manage the movement of
hydrocarbons through the world's network of pipelines, tankers and terminals,
eliminating losses and meeting strict government regulations. This business
area's specific value-added offerings, which it designs, develops and delivers,
include oilfield production enhancement software, chemical process plant design
services, and pharmaceutical production

                                       26

validation services. Our Full Service offering, in which we take over in-house
maintenance activities for customers and apply strategies to reduce overall
maintenance costs, helps optimize these investments.

    PAPER, PRINTING, METALS AND MINERALS

    The Paper, Printing, Metals and Minerals business area supplies power and
automation technologies that improve quality and reduce costs in cement, metals,
minerals, mining, pulp, paper and printing operations. Its offerings include
quality control systems; drive systems; online sensors, analyzers and actuators;
machine health monitoring; production planning and product tracking software;
drying systems; induction furnaces; and mine hoists. Online sensors, analyzers
and actuators measure and control production processes by measuring product
parameters, analyzing data and providing instantaneous input to automatic
control systems. Online actuators make automatic adjustments during production
to improve product quality and consistency. Online machine health monitoring
measures production machinery parameters and alerts operators to impending
failures while helping them maximize maintenance scheduling. Collaborative
production management software provides web-enabled interaction between
producers and customers to optimize production planning, quality management and
product tracking. Drying systems provide technology to dry pulp and paper more
quickly and evenly. This business area's induction furnaces and inductive
heating systems bring new capacity to foundry and melt shop operations.
Extensive domain expertise in these industries allows it to provide a variety of
asset optimization services. Because of the process industries-specific aspects
of these products, all of these products and systems are developed, manufactured
and delivered by the Process Industries division.

    MARINE AND TURBOCHARGING

    The Marine and Turbocharging business area provides global shipbuilders with
power and automation technologies for luxury cruise liners, ferries, tankers,
offshore oilrigs and special purpose vessels. It designs, engineers, builds,
supplies and commissions electrical systems and software for marine power
generation, power distribution and diesel electric propulsion, as well as
turbocharging products and services for diesel and gasoline engines. A key
value-added product is the Azipod-Registered Trademark- (azimuthing podded)
propulsion system, developed by ABB along with leading shipbuilders. The
Azipod-Registered Trademark- system improves vessel maneuverability at low
speeds, resulting in faster docking and embarkation, lower operating costs and
increased vessel capacity. The Azipod-Registered Trademark- system has proven
very attractive for cruise liners and offshore supply ships. As a result of its
success, in 2001 this business area introduced a Compact Azipod product for use
on smaller vessels. Other applications include propulsion control, power
management, cargo and ballast control and dynamic positioning. This business
area particularly focuses on providing turbocharging products and services for
diesel and gas engines in the 500 kW-plus power range. These products are
developed in close cooperation with the world's top diesel engine makers. A
global network of more than 70 ABB service stations ensures close proximity to
customers as well as fast service.

    CUSTOMERS

    The Process Industries division's customers are primarily companies in the
chemical, life sciences, marine, turbocharging, metals, minerals, mining,
cement, paper, petroleum and printing industries.

    COMPETITION

    The Process Industries division's principal competitors are Aspentech,
Emerson Electric, GE, Honeywell, Invensys, Metso Automation, Rockwell, Siemens,
Voith Automation and Yokogawa.

                                       27

    RESEARCH AND DEVELOPMENT

    Research and development expenses for the division amounted to approximately
$40 million, or 1.2% of its revenues, for 2001. The research and development
activities of the division in 2001 primarily related to developing specific
products and software to control the customer processes of the industries served
by the division, including new online measurement instruments for quality
parameters of paper, software to control the flow of oil through pipelines and
new forms of propulsion systems for large ocean-going vessels such as oil
tankers.

    CAPITAL EXPENDITURES

    The Process Industries division's capital expenditures for property, plant
and equipment were $24 million, $27 million and $40 million in 2001, 2000 and
1999, respectively. Principal investments in 2001 included several types of
equipment for a turbocharger plant in Germany.

MANUFACTURING AND CONSUMER INDUSTRIES

    OVERVIEW

    The Manufacturing and Consumer Industries division sells products and
services to improve customer productivity and competitiveness in areas such as
automotive industries, telecom, product manufacturing, electronics
manufacturing, airports, parcel and cargo distribution as well as public,
industrial and commercial buildings.

    In April 2002, we announced our intention to divest the Building Systems
business area, which currently is part of the Manufacturing and Consumer
Industries division. The other three business areas comprising the Manufacturing
and Consumer Industries division will be combined with the Process Industries
division in a newly created Industries Division.

    The following table sets forth financial and other data for the
Manufacturing and Consumer Industries division (see Note 23 to the Consolidated
Financial Statements):



                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                     ($ IN MILLIONS)
                                                                           
Revenues (1)................................................    4,780      5,225      5,697
Earnings before interest and taxes (operating income).......       87        205        147
Operating margin (%)........................................      1.8%       3.9%       2.6%
Capital expenditures (2)....................................       27         33         43
Number of employees.........................................   29,455     33,449     34,027


--------------------------

(1) See Note 2 to our Consolidated Financial Statements, included elsewhere in
    this annual report, for a description of our revenue recognition policies.

(2) Excludes purchased intangible assets.

    Our customers are increasingly under pressure to deliver their products more
quickly to their customers and to respond rapidly to changing customer
preferences. At the same time, constant price pressure requires them to find
ways to decrease production costs. Furthermore, as the quality of products
becomes more equalized among our customers' competitors, our customers
increasingly focus on design and branding to distinguish their products from
those of their competitors. This change in focus means that much of the
manufacturing and production activities are outsourced to sub-suppliers, which
may manufacture products for a number of different companies in a given
industry. The consolidation in the manufacturing role enables the

                                       28

sub-suppliers to provide products at a lower cost and presents further
opportunities for ABB to provide flexible solutions for automation, financing
and energy supply.

    PRODUCTS AND SERVICES

    The Manufacturing and Consumer Industries division works to maximize
flexibility and efficiency in the entire value chain, which includes product
design, engineering, production, storage and distribution, to help our customers
identify and satisfy customer demands. The division provides to its customers
the full range of ABB's products on a stand-alone basis, or as part of systems
involving conceptual design, detailed engineering, project management,
installation and commissioning, as well as after sales services and system
optimization during the full life span of the system to ensure optimal benefits
for its customers.

    As an end-user division, part of the Manufacturing and Consumer Industries
division's role within the ABB Group is to serve as a channel for products
manufactured by the Power Technology Products and Automation Technology Products
divisions. In 2001, approximately 5% of the gross revenue of the Manufacturing
and Consumer Industries division was derived from the resale of products
manufactured by the Power Technology Products and Automation Technology Products
divisions, without any additional work performed by the Manufacturing and
Consumer Industries division.

    In January 2002, this division sold its air handling equipment business to
Global Air Movement (Luxembourg) for approximately $225 million, reinforcing the
ABB Group's strategy to focus on its expertise in power and automation
technology.

    AUTOMOTIVE INDUSTRIES

    The Automotive Industries business area designs, installs and commissions
automation systems for customers in the automotive industry and their
sub-suppliers, incorporating software developed by its engineers into the range
of products manufactured by the Power Technology Products and Automation
Technology Products divisions. The products and systems are used in such areas
as press shop, body shop, paint shop, power train assembly, trim and final
assembly.

    TELECOM AND PRODUCT MANUFACTURING INDUSTRIES

    The Telecom and Product Manufacturing Industries business area provides
life-cycle services and automation systems, including products and services to
maximize energy efficiency and provide a secure power supply as well as process
automation and robot-based manufacturing, painting, packing, palletizing and
picking, for customers in the telecom and manufacturing industries. The business
area incorporates software developed by its engineers into the power and
automation products manufactured by the Power Technology Products and Automation
Technology Products divisions. For example, it provides painting systems for
mobile phones, as well as robot cells to produce base stations for telecom
companies. For food and beverage companies, it provides robotized picking and
packing systems. It also provides systems for handling material in the glass
industry.

    LOGISTICS SYSTEMS

    The Logistics Systems business area provides information technology packages
and automation services to airports for baggage and material handling and air
traffic management, as well as turnkey electromechanical systems and airfield
lighting systems. It provides power and automation systems for crane
manufacturers for container terminals and harbors. The business area

                                       29

also delivers software and automation systems to optimize the flow of inventory
in warehouses, from receiving to shipping.

    BUILDING SYSTEMS

    The Building Systems business area designs, builds and maintains complete
installations for industrial, infrastructure and commercial facilities
integrating products manufactured by the Power Technology Products and
Automation Technology Products divisions as well as those from third-party
suppliers.

    Customers increasingly demand complete systems and related applications that
cover a wide range of essential functions, from lighting and ventilation systems
to monitoring, control and communication systems that ensure the most efficient
use of electricity throughout an entire building. This business area has
developed a "Total Technical Solutions" concept that bundles together
electrical, mechanical and other technical installations, eliminating the need
to coordinate the work of several suppliers with specific applications for
facilities with high technical content such as arenas, hospitals, data centers
and "clean rooms." Building Systems incorporates software and voice and data
communications networks into building systems that monitor their own performance
to achieve the best balance between energy consumption on the one hand and
comfort and security on the other.

    In April 2002, we announced our intention to divest the building systems
business area.

    CUSTOMERS

    The Manufacturing and Consumer Industries division serves a wide range of
customers, primarily engaged in discrete manufacturing in areas such as
automotive industries, telecom, electronics manufacturing, food and beverages,
and home and personal care. In addition, the division serves customers requiring
technical infrastructure and management within commercial, public or industrial
buildings ranging from public authorities to real estate developers and
industrial clients.

    COMPETITION

    The competitive landscape for this business division is fragmented, with
each market segment having a separate set of competitors. Examples of our
principal competitors include Cegelec, Fluor Daniel, GE Fanuc, KUKA, Siemens,
Skanska, Suez/Groupe Fabricom and Vivendi.

    RESEARCH AND DEVELOPMENT

    Research and development expenses for the division amounted to approximately
$17 million, or 0.4% of its revenues, for 2001. The research and development
activities of the division in 2001 primarily related to the further development
of fans within the air handling equipment business area and research into the
integration of systems for people movement, energy consumption and communication
in buildings.

                                       30

    CAPITAL EXPENDITURES

    The Manufacturing and Consumer Industries division's capital expenditures
for property, plant and equipment were $27 million, $33 million and $43 million
in 2001, 2000 and 1999, respectively. Principal investments in 2001 included
equipment for the Building Systems business area.

OIL, GAS AND PETROCHEMICALS

    OVERVIEW

    The Oil, Gas and Petrochemicals division supplies a comprehensive range of
products, systems and services to the global oil, gas and petrochemicals
industries, from the development of onshore and offshore exploration
technologies to the design and supply of production facilities, refineries and
petrochemicals plants.

    The following table sets forth financial and other data regarding the Oil,
Gas and Petrochemicals division (see Note 23 to the Consolidated Financial
Statements):



                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                     ($ IN MILLIONS)
                                                                           
Revenues (1)................................................    3,489      2,796     3,086
Earnings before interest and taxes (operating income).......       79        157       165
Operating margin (%)........................................      2.3%       5.6%      5.3%
Capital expenditures (2)....................................       38         30        48
Number of employees.........................................   13,471     11,549     8,941


--------------------------

(1) See Note 2 to our Consolidated Financial Statements, included elsewhere in
    this annual report, for a description of our revenue recognition policies.

(2) Excludes purchased intangible assets.

    The oil, gas and petrochemicals industry is typically divided into two
markets:

    - UPSTREAM MARKETS: Equipment, systems and services for onshore and offshore
      oil and gas exploration and production, including our areas of principal
      focus, subsea production and floating production systems.

    - DOWNSTREAM MARKETS: Processing of hydrocarbon raw materials, including:
      refineries; petrochemical and chemical plants; gas processing; and
      pipelines.

    Our activities in this business division are relatively evenly split between
the upstream market and the downstream market, although large projects may shift
the balance from year to year. Our upstream business focuses principally on the
subsea and floating production market. Our activities in the downstream markets
range from engineering, procurement and construction (or EPC) projects,
engineering and project management services to licensing of technology to the
refining and petrochemical industries.

    One of the division's strengths is its ability to access the research and
development capabilities of the ABB Group. Upstream, the division continues to
focus on making oil and gas exploration and production more economical, no
matter where the natural resources are found. Downstream, it is improving oil
and gas conversion technology so refineries can manufacture fuels to stringent
environmental specifications.

                                       31

    PRODUCTS AND SERVICES

    The Oil, Gas and Petrochemicals division's services, products and systems to
the global oil, gas, refinery and petrochemicals industry include:

    - engineering, procurement and construction projects: refineries and
      petrochemical plants; subsea and floating production; compressor stations;

    - production and assembly of offshore production equipment, including
      specialized subsea equipment for production, controls and power
      distribution;

    - production of onshore and offshore pressure-containing equipment;

    - assembly of gas treatment and processing systems and heat transfer
      equipment;

    - provision of project management and procurement services;

    - licensing of process technologies; and

    - modification and maintenance services for both offshore and onshore
      facilities.

    In the upstream market, the division is a global producer of equipment and
services for oil and gas exploration and production.

    The division designs and develops subsea oil and gas production equipment
for conventional subsea development as well as for development in difficult
conditions such as deep waters. It offers a broad range of services, with
particular expertise in offshore production, including:

    - front-end engineering and design studies, employing the division's
      technical and market expertise to develop a plan for building all or a
      portion of a production facility;

    - procurement of materials and equipment to be used in oil and gas
      production facilities, including equipment from the Oil, Gas and
      Petrochemicals division and other ABB business divisions;

    - management of projects for the development of a production facility; and

    - modification and maintenance, in which we apply our expertise to
      troubleshoot and make repairs and/or make proposals about enhancing
      productivity and efficiency.

    The division has particular expertise in turnkey engineering, procurement
and construction projects in which it is responsible for managing all aspects of
the development of a production facility.

    In the downstream market, the Oil, Gas and Petrochemicals division is a full
service engineering company. In addition to expertise in engineering,
procurement and construction projects, it licenses more than 40 process
technologies in the refining, chemical, petrochemical and polymer fields. It has
particular expertise in ethylene process technologies through ABB Lummus Global,
which is part of the ABB Group. Ethylene is used as a raw material in a wide
variety of plastics. The division also provides modernization and maintenance
services for refining and petrochemical facilities in the downstream market.

    Contracts for the Oil, Gas and Petrochemicals division's products and
projects in both the upstream and downstream markets include both turnkey
contracts and contracts providing for reimbursement of design, procurement,
project management, construction management and commissioning. The division
seeks to integrate its planning and project management expertise with the
equipment that it produces, particularly in the turnkey engineering, procurement
and construction projects. Almost all of the projects to which the division
provides design, engineering, procurement, management or maintenance services
include the division's products and systems.

                                       32

The division, therefore, is able to leverage its industry and technical
expertise to sell both its own products and those of other ABB divisions.

    The Oil, Gas and Petrochemicals division works with other ABB divisions to
provide products and services tailored to its customers' needs. For example, the
Power Technology Products and Utilities divisions worked closely with the Oil,
Gas and Petrochemicals division to solve the problem of transporting power to
equipment in deep water far away from offshore facilities. Unlike the other
end-user divisions, however, the Oil, Gas and Petrochemicals division does not
resell products manufactured by other divisions without any additional work
performed within the division.

    In 2001, ABB and Schlumberger created Syntheseas, a new joint venture
company targeted at improving the efficiencies and economics of subsea oil and
gas development. The company combines the expertise of ABB and Schlumberger to
create upstream solutions that integrate reservoir management and development,
from subsea production to topside facilities. ABB holds a 50% interest in the
joint venture. Also in 2001, the Oil, Gas and Petrochemicals division
established a new service business in Macae, the principal hub for oil and gas
business in Brazil. Additionally, ABB and Petroleum Equipment Industries Company
(PEIC) established a new company in Iran, with ABB holding a 60% interest. ABB
acquired FIP S.A. in August 2001. In addition to being a leading supplier of
pressure containing equipment for oil and gas production in Mexico, FIP supplies
wellheads and gate valves used in oil and gas wells to customers around the
world.

    In 2000, ABB acquired an 80% interest in a company jointly owned with
Equistar Chemicals to purchase the Novolen-Registered Trademark- polypropylene
technology from Targor GmbH and to acquire the rights to market Targor's
metallocene polypropylene technology, used in the production of a new generation
of high performance plastics. In 2000, ABB also acquired the oil and gas
activities of Umoe ASA, a Norwegian service company in the oil and gas industry,
to support the division's further growth in that market.

    The Oil, Gas and Petrochemicals division is also active in the design and
fabrication of a wide variety of gas treatment systems. It produces equipment
that cleanses (tail gas clean-up) and neutralizes (acid gas sweetening) the
hazardous components of gasses that result from the petrochemical refining
process before those gasses are released into the atmosphere. The division's
services in this area and in the area of gas processing for producing products
such as ethylene and propane include project definition, installation, training
and technical assistance.

    CUSTOMERS

    The Oil, Gas and Petrochemicals division serves a range of customers,
including multinational integrated oil and gas companies, national oil companies
and independent exploration and production companies, as well as petrochemical
companies.

                                       33

    COMPETITION

    The Oil, Gas and Petrochemicals division's competitors include the
following:



UPSTREAM MARKET                        DOWNSTREAM MARKET
---------------                        -----------------
                                    
- Cooper Cameron                       - Bechtel Group
- FMC Technologies                     - Fluor
- Halliburton                          - Foster Wheeler
- Kvaerner                             - Haldor Topsoe
- Technip-Coflexip                     - IFP
                                       - Kellog Brown & Root (KBR)
                                        (Halliburton)
                                       - Snamprogetti
                                       - Technip
                                       - UOP


    RESEARCH AND DEVELOPMENT

    Research and development expenses for the Oil, Gas and Petrochemicals
division amounted to approximately $41 million, or 1.2% of the division's
revenues, for 2001.

    In the upstream market, the division launched SEPDIS, the world's first full
size subsea electrical power distribution system, in 2001. The project combined
ABB's extensive knowledge and experience in electrical systems and total subsea
solutions with external specialist knowledge. Additionally, the division was
awarded the engineering, procurement and construction contract for the Kizomba
deep-water floater for ExxonMobil. The contract is based on a new floater
technology concept that is expected to substantially increase the payload of a
deep-water tension leg platform. In the downstream market, Avantium Technologies
of Amsterdam and ABB Lummus Global have entered into a research agreement to
exploit the opportunity to use combinatorial techniques and high-throughput
experimentation for catalyst synthesis. The Chevron Lummus Global partnership, a
50-50 owned joint venture between Chevron Research and Technology Company and
ABB Lummus Global, has expanded the scope of cooperation to include a wider
range of hydroprocessing technologies and catalysts. Chevron Lummus Global
commercialized a new zeolite hydrocracking catalyst at Petrocanada. The first
cracking furnaces designed by the ABB and China Petrochemical Technology Company
(SINOPEC TECH) strategic alliance were successfully commissioned at the Beijing
Yanshan Petrochemical Group Co. ethylene complex in Beijing, China in 2001. The
two new 100,000 metric ton per annum furnaces were started up in record time.

    CAPITAL EXPENDITURES

    The Oil, Gas and Petrochemicals division's capital expenditures for
property, plant and equipment were $38 million, $30 million and $48 million in
2001, 2000 and 1999, respectively. The capital expenditures during these periods
related primarily to purchases of machinery and equipment in the United States,
Great Britain, Italy and Norway.

                                       34

POWER TECHNOLOGY PRODUCTS

    OVERVIEW

    The Power Technology Products division produces transformers, switchgear,
breakers, capacitors, cables and other products and technologies for high and
medium-voltage applications. The products are used in industrial, commercial and
utility applications and are sold through the end-user divisions as well as
through external channel partners such as wholesalers, distributors, original
equipment manufacturers and system integrators.

    The following table sets forth financial and other data regarding the Power
Technology Products division (see Note 23 to the Consolidated Financial
Statements):



                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                     ($ IN MILLIONS)
                                                                           
Revenues (1)................................................    4,042      3,662      3,862
Earnings before interest and taxes (operating income).......      234        244        282
Operating margin (%)........................................      5.8%       6.7%       7.3%
Capital expenditures (2)....................................      105        105        162
Number of employees.........................................   27,555     27,785     27,871


--------------------------

(1) See Note 2 to our Consolidated Financial Statements, included elsewhere in
    this annual report, for a description of our revenue recognition policies.

(2) Excludes purchased intangible assets.

    PRODUCTS AND SERVICES

    HIGH-VOLTAGE TECHNOLOGY

    The High-Voltage Technology business area manufactures the principal
components of power transmission systems, including transmission switchgear
products in air- and gas-insulated technology, cables, capacitors, high-voltage
and generator circuit breakers, disconnectors, grounding switches, instrument
transformers, surge arrestors, power lines and transmission towers. Its products
and components also include polymer insulators for lines and switchgear, circuit
breaker drives, cable accessories and fittings for overhead lines. Its products
follow a modular platform design to achieve maximum flexibility at a low cost.
In particular, the High-Voltage Technology business area has focused on
developing Industrial IT-enabled products that can be seamlessly integrated into
complete automation systems.

    MEDIUM-VOLTAGE TECHNOLOGY

    The Medium-Voltage Technology business area supplies switching equipment for
utilities and industrial customers both directly and through distributors and
original equipment manufacturers. It produces a comprehensive line of
medium-voltage equipment, including products such as indoor and outdoor switch
disconnectors, breakers, reclosers, fuses, contactors, instrument transformers
and sensors as well as air and gas insulated switchgear, motor control centers,
and ring main units for primary and secondary distribution. It also produces
indoor and outdoor modular systems, modular solutions for specific applications,
compact substations and power distribution centers. Most of these products
provide connections between higher voltage substations and lower voltage uses.
The Medium-Voltage Technology business area has developed products and systems
that reduce outage times and improve power quality and control.

                                       35

    POWER TRANSFORMERS

    The transformers manufactured by the Power Transformers business area are
based on a modular set of common technologies for its factories and provide a
competitive advantage in terms of reliability and efficiency. Its products cover
most applications from standard to highly complex and customized. In 1999, this
business area launched a new high-voltage transformer that uses advanced cable
technology and does not require oil to cool and insulate the transformer. The
new product, called the Dryformer-TM-, is safer and better suited to urban areas
because it eliminates the hazards of oil fires. This advanced cable technology
is also used in the Powerformer-TM-, a new type of generator feeding directly
into the transmission grid without step-up transformers.

    DISTRIBUTION TRANSFORMERS

    Distribution transformers are used in industrial facilities, commercial
buildings and utility distribution networks to step down electrical voltage to
the levels needed by end users. The Distribution Transformers business area
manufactures and sells a full range of power distribution transformers,
including oil-type, dry-type and special application distribution transformers.
While oil-type transformers are more commonly used, demand for dry-type
transformers is growing because they minimize fire hazards and have applications
in high-density office buildings, nuclear power plants, offshore drilling
platforms, naval vessels and high-volume industrial plants.

    CUSTOMERS

    The Power Technology Products division supplies power transmission and
distribution products to external channel partners, as well as to the end-user
divisions for resale to end-user customers or for integration into a system. In
2001, approximately 59% of the division's gross revenues were attributable to
sales to ABB end-user divisions, primarily the Utilities division.

    COMPETITION

    On a global basis, the Power Technology Products division's principal
competitors are ALSTOM, Schneider and Siemens. In North American markets, the
division's principal competitors are Cooper Industries and General Electric. In
Asia, the division's competitors include Hitachi, Mitsubishi Electric and
Toshiba. In niche markets such as distribution transformers, the division also
competes with companies such as Howard Industries.

    RESEARCH AND DEVELOPMENT

    Research and development expenses for the Power Technology Products division
amounted to approximately $103 million, or 2.6% of its revenues, for 2001. The
division's research and development activities in 2001 primarily related to the
ongoing renewal of technology platforms and the implementation of the Industrial
IT concept into the division's products and production processes. The new
technology platforms enable the creation of streamlined product portfolios, mass
customization of products and production in fewer factories. The division's
research and development activities in electric arc physics led to the creation
in 2001 of a new generation of generator breakers for use with high currents at
a lower cost.

    CAPITAL EXPENDITURES

    The Power Technology Products division's capital expenditures for property,
plant and equipment were $105 million in each of 2001 and 2000 and $162 million
in 1999. Principal investments in 2001 included investments to replace existing
equipment, particularly in Europe and the United States, as well as expansion
investments in the Distribution Transformers and Power Transformers business
areas.

                                       36

AUTOMATION TECHNOLOGY PRODUCTS

    OVERVIEW

    The Automation Technology Products division provides products, systems,
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. 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 following table sets forth financial and other data regarding the
Automation Technology Products division (see Note 23 to the Consolidated
Financial Statements):



                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                     ($ IN MILLIONS)
                                                                           
Revenues (1)................................................    5,246      5,175      5,550
Earnings before interest and taxes (operating income).......      380        464        392
Operating margin (%)........................................      7.2%       9.0%       7.1%
Capital expenditures (2)....................................      126        139        190
Number of employees.........................................   39,834     41,332     43,874


--------------------------

(1) See Note 2 to our Consolidated Financial Statements, included elsewhere in
    this annual report, for a description of our revenue recognition policies.

(2) Excludes purchased intangible assets.

    ABB customers use automation technologies primarily to improve product
quality, productivity and consistency in industrial and manufacturing
applications. The automation market can be divided into three sectors:

    - FACTORY AUTOMATION refers to discrete operations, manufacturing individual
      items used mainly within the automotive, packaging and consumer goods
      industries. Product lines for this market include robots and robot cells
      which include standardized and tailored systems for discrete applications
      such as painting, picking, packing and palletizing. ABB provides a
      comprehensive set of systems using these technologies. For example, the
      Automation Technology Products division works with the Manufacturing and
      Consumer Industries division to supply complete production systems for the
      consumer products industry as well as software applications for warehouse
      and supply chain management and other business processes.

    - PROCESS AUTOMATION refers to control systems applied in processes where
      the main objective is continuous production, such as oil and gas,
      electricity, chemicals and pulp and paper. Product lines for this market
      include instrumentation, analytical measurement and control products and
      systems, as well as motors and drives. This division offers complete
      process automation systems that incorporate medium and low-voltage
      switchgear, synchronized drive systems, instrument and control and
      advanced diagnostic packages. Its products also include software to
      optimize the manufacturing and business processes.

    - BUILDING AUTOMATION comprises product lines and applications particularly
      targeted at the building industry. Product lines for this market include
      heating, ventilating, air handling and access control systems. Customers
      also require software for optimal management of the energy cost of
      buildings.

                                       37

    The Automation Technology Products division manufactures products relating
to all three areas, primarily focusing on process automation products and
systems, as well as robotics technologies for factory automation.

    The Automation Technology Products offering has been enhanced through a
number of strategic acquisitions in recent years. In early 1999, ABB acquired
Elsag Bailey Process Automation, a leading global provider of control,
instrumentation and process analytical products whose offering significantly
extended our reach both in terms of automation technology and geography. In
mid-2001, we acquired Entrelec, a French supplier of industrial automation and
control products, including electrical connecting devices, time relays,
signaling and safety devices and wiring accessories for the housing market. This
acquisition further diversified our product range and expanded our customer base
in European and American markets.

    In mid-2001, this division entered into a ten-year strategic alliance (in
cooperation with the Manufacturing and Consumer Industries division) with Dow
Chemical Company in which Dow agreed to use its Industrial IT automation systems
in nearly all of its new automation projects, as well as in retrofits of
existing systems. Another significant strategic cooperation was forged in 2001
through a framework agreement with the original equipment manufacturer York
International, a long-time customer, for simplified account service, pricing and
joint development spanning multiple product lines.

    In keeping with the Automation Technology Products division's implementation
of the Industrial IT concept, the division has sought in 2001 to simplify and
streamline its product portfolio by eliminating product overlaps, which often
resulted from the acquisition of new automation businesses, and to certify an
increasing number of automation products as Industrial IT compliant.

    PRODUCTS AND SERVICES

    We are a recognized market leader in our core automation products and
systems, with particular strength in process automation systems (including
supervisory control and data acquisition, or SCADA, systems), quality control
systems, advanced robotics, process instrumentation (including analytical
measurement devices) and alternating current, or AC, drives.

    INSTRUMENTATION AND METERING

    The process instrumentation products manufactured by the Instrumentation and
Metering business area interact with the division's Open Control System products
and include products for the measurement of process variables such as pressure,
temperature, volume and flow. The increasing sophistication of many process
automation systems often requires thousands of measurement points for such
variables. These instrumentation products are sold separately or in combination
with control systems. The various analytical measurement devices produced by
this business area form an important part of the instrumentation and control
system. These devices measure chemical characteristics while process
instrumentation products measure physical characteristics. This business area's
analytical product offerings include gas analyzers, chromatographs,
spectrometers and paper quality control systems which perform either sample
based or continuous measurement of properties such as chemical or physical
composition (for example, the water and fiber content of paper or the
composition of gas), energy content and environmental emissions. These products
are sold separately or through the end-user divisions as part of complete
systems.

    The Instrumentation and Metering business area's metering products include
electricity, water, energy, and gas meters, metering systems and load control
systems. The innovative products and systems produced by this business area
reflect the wealth of knowledge and experience gained from more than a century
of dedication to the electricity, water, energy, and gas industries.

                                       38

    CONTROL AND FORCE MEASUREMENT

    The Control and Force Measurement business area develops, markets and sells
products and systems within the Industrial IT architecture. The business area
emphasizes Open Control Systems, including batch control systems, supervisory
control and data acquisition systems, and, to a lesser but increasing extent,
programmable logic controls (known as "PLCs") and remote terminal units (known
as "RTUs"). Control systems are the hubs that link instrumentation, devices and
systems for control and supervision of an industrial process. One primary
advantage of using products and systems that conform to the Industrial IT
architecture (which we refer to as Industrial IT Control Systems) instead of
traditional Open Control Systems is that information is rendered accessible by
parties across an organization at any point in the manufacturing process.

    Control systems also enable customers to integrate their production systems
with their enterprise, resource and planning systems, providing a link to
ordering, billing and shipping. This linkage combined with the connection of
Open Control Systems to field instrumentation and automation power products
allows customers to manage their entire manufacturing and business process based
on instantaneous access to useful information. Additionally, this coordination
allows customers to employ information received from instrumentation and
measurement products to increase production efficiency, optimize their assets
and reduce environmental waste. These features of Industrial IT Control Systems
enable customers to react quickly to changing circumstances based on accurate
information while decreasing the possibility of errors, human or otherwise.

    The Control and Force Measurement business area also offers batch control
and supervisory control and data acquisition systems. Batch control systems
control the production of a variety of products in shorter runs based on recipes
such as pharmaceuticals. Supervisory control and data acquisition systems are
used for supervision and data acquisition needs over wide areas or long
distances.

    In 2000 and 2001 we introduced new control products based on the Industrial
IT architecture. These products take full advantage of the ABB Aspect
Integrator-TM---a powerful, object-based platform which allows organization of
plant devices in easy-to-navigate structures tailored to the needs of
operations, maintenance or management personnel--for configuration, support or
evaluation of each component within the context of its larger system. The Aspect
Integrator facilitates real-time interaction between the characteristics
(Aspects) of system components and allows easy "copy-and-paste" configuration of
new systems by moving or adding components in the same way that users can
manipulate the file structure on a personal computer.

    This business area also provides a comprehensive range of force measurement
products designed to improve control, productivity and quality in a wide variety
of processes and industries--including measurement of flatness, roll force,
strip and web tension, strip width, position, and torque. These technologies are
sold to the metal fabrication, paper, and other industries.

    ELECTRICAL MACHINES

    The Electrical Machines business area supplies a comprehensive range of AC
and DC motors and generators, including high-efficiency motors that conform to
leading environmental and efficiency standards. Efficiency is an important
criterion for selection by customers, because electric motors account for nearly
two-thirds of the electricity consumed by industrial plants. This business area
manufactures synchronous motors for the most demanding applications, and a full
range of low and high-voltage induction motors. Each motor is designed
individually to meet all requirements of the specific application.

                                       39

    DRIVES AND POWER ELECTRONICS

    The Drives and Power Electronics business area focuses on the ongoing
development of low-voltage and medium-voltage AC drive products and systems for
industrial, commercial and residential applications for the pulp and paper,
metals, marine, water, food and beverage, chemical, oil and gas and heating,
ventilation and air conditioning industries. Drives provide motion and torque,
and they control equipment such as fans, pumps, compressors, conveyors, kilns,
centrifuges, mixers, hoists, cranes, extruders, printing machinery and textile
machines.

    This business area also covers several areas of power electronics products.
It produces static excitation and synchronizing systems that provide stability
for power stations, as well as high power rectifiers that convert AC power to DC
power for very high-amperage applications such as furnaces in zinc plants and
aluminum and magnesium smelters. The business area also manufactures frequency
converters that use state-of-the-art semiconductor technology to convert
electrical power into the correct type and frequency required by individual
customers.

    ROBOTICS

    Manufacturers use the Robotics business area's flexible automation and
advanced robotics products for applications involving multiple tasks such as
welding, material handling, painting, picking, packing and palletizing. The
business area provides complex, multi-axis robots used in advanced manufacturing
and service applications, including a heavy-duty robot capable of precision
lifting of loads up to 500 kilograms, which was introduced in 2001. The ABB
end-user divisions provide complete production automation systems for industry
segments ranging from automotive, metal fabrication and plastics to food
products, pharmaceuticals and consumer goods. Services, including design and
project management, engineering, installation, training and life-cycle care of
the complete production line, are also provided, typically in cooperation with
the Manufacturing and Consumer Industries division.

    LOW-VOLTAGE PRODUCTS

    The Low-Voltage Products business area manufactures circuit breakers,
controls, switches and fuse gear that are used in industrial electrical
applications to protect, switch and control industrial equipment. In addition,
our acquisition of Entrelec provided us with a range of connectors, terminal
blocks and protection and monitoring devices that are used primarily in
industrial applications. The business area also makes line protection products,
wiring accessories and enclosures and cable systems that are primarily used for
control and protection in building installations.

    Customers increasingly require low-voltage products with built-in
intelligence, self-regulation and energy efficiency capabilities. To meet these
requirements, we have recently launched a number of product families, such as
INSUM, a motor protection, monitoring and communication system that uses
advanced electronic sensoring and feedback systems to control power distribution
to industrial motors, ensuring that they run at optimal efficiency with minimal
downtime. We also introduced the European Installation Bus/Powernet system,
which integrates and automates a building's electrical installations,
ventilation, security and data communications networks. The Powernet system can
be built into existing electrical installations without installing new
communication busses.

                                       40

    The world market for low-voltage products and systems can be divided
according to which standard is used. The products made by the Low-Voltage
Products business area follow the IEC (International Electrotechnical Committee)
standard, a leading global standard.

    CUSTOMERS

    The Automation Technology Products division sells its products to ABB's
end-user divisions for resale or for integration into a system, as well as to
external channel partners. In 2001, approximately 40% of the division's gross
revenues were attributable to sales to ABB end-user divisions, primarily the
Utilities and Process Industries divisions.

    COMPETITION

    The Automation Technology Products division's principal competitors vary by
product line. For most businesses, they include Emerson Electric, Fanuc, General
Electric, Honeywell, Invensys, KUKA Roboter, Metso, Rockwell, Siemens and
Yokogawa. In the low-voltage products area, the division's principal competitors
include General Electric, Legrand, Schneider and Siemens.

    RESEARCH AND DEVELOPMENT

    Research and development expenses for the division amounted to approximately
$269 million, or 5.1% of its revenues, for 2001. Research and development in the
Automation Technology Products division in 2001 focused on innovations that
improve customer productivity, coupled with a strong awareness of ABB's large
installed base and the need to evolve the division's technologies while
protecting the customer's installed investment. In the control systems area, for
example, an estimated 30,000 systems produced by ABB and our predecessor
companies are installed worldwide. Recognizing the value of supporting this
installed base, the division adheres to a philosophy of forward and backward
compatibility, allowing incremental enhancements to be added to installed
systems without making existing components obsolete.

    An important focus of the division's research programs is the group-wide
commitment to Industrial IT. The Automation Technology Products division is
responsible for the development of the Industrial IT architecture and the base
Industrial IT control products and systems. As a result, the division's research
is heavily focused on intelligent, "information enabled" products and devices
that may be integrated easily to provide better access to real-time information
across the business enterprise. Increasing "productization" of automation
technologies is intended to yield a growing portfolio of reusable building
blocks that may be easily deployed and bundled by customers, channel partners
and the ABB end-user divisions.

    CAPITAL EXPENDITURES

    The Automation Technology Products division's capital expenditures for
property, plant and equipment were $126 million, $139 million and $190 million
in 2001, 2000 and 1999, respectively. Approximately 65% of the expenditures in
2001 were related to replacement of existing investments, geared toward
maintaining and improving productivity, and the remainder represented
investments in new products and businesses.

FINANCIAL SERVICES

    OVERVIEW

    The Financial Services division supports the ABB Group's businesses and
customers with innovative financial solutions in structured finance, leasing,
project development and ownership,

                                       41

financial consulting and insurance. The following table sets forth certain
financial and other data regarding the Financial Services business division for
each of the years indicated (see Note 23 to the Consolidated Financial
Statements):



                                                                    YEAR ENDED DECEMBER 31,
                                                              ------------------------------------
                                                                2001          2000          1999
                                                              --------      --------      --------
                                                                        ($ IN MILLIONS)
                                                                                 
Revenues (1)................................................   2,133         1,966         1,687
Earnings (loss) before interest and taxes (operating
  income)...................................................     (32)          349           337
Number of employees.........................................   1,120         1,125         1,049


--------------------------

(1) Financial Services' revenues include interest income, trading income, fee
    income, insurance premiums, dividends and capital gains.

    PRODUCTS AND SERVICES

    The Financial Services business division is comprised of four business
areas:

    - Structured Finance;

    - Equity Ventures;

    - Insurance; and

    - Treasury Centers.

    STRUCTURED FINANCE

    The Structured Finance business area provides debt capital for projects and
equipment. It also provides asset-based financing such as leasing to customers,
as well as financial advisory services. Leasing is a flexible finance option
that can benefit a client through competitive pricing, long-term financing,
off-balance sheet financing and flexible rental arrangements to optimize cash
flows. By combining leasing with other financing options, such as hire purchase
(which allows a lessor to purchase the equipment at a later stage), lending,
securitization or other capital market products, this business area can tailor
financing to each client's requirements.

    The Structured Finance business area generates stand-alone profits through
four business lines: medium to large transactions on its own account;
asset-based sales support financing for ABB customers and other clients;
advisory services for cross-border leasing and other asset-based financing
options; vendor leasing for "small ticket" investments such as office equipment,
personal computers and vending machines.

    ABB Export Bank, a Swiss commercial bank with extensive experience in
export, trade and project finance, is a key part of the Structured Finance
business area. It arranges medium-term export financing for capital goods.
Covered by national export credit agencies or bilateral and multilateral
institutions such as the World Bank, ABB Export Bank grants buyer's credits in
all currencies accepted by the agency involved. In support of ABB equipment
supply, ABB Export Bank has financed exports from all countries with an ABB
manufacturing base, using those countries' export credit agencies.

    Structured Finance also acts as financial advisor and lender for
infrastructure and industrial projects to expedite the closing process. This
financing is often structured as trade, export or limited recourse project
financing. Structured Finance has relationships with a wide range of
multilateral, bilateral and export credit agencies, local and global capital
market financing sources, government support programs and various forms of
financial structures based on commodity

                                       42

trading. Structured Finance also provides debt financing and underwriting
capacity to projects, focusing on global infrastructure and industrial projects.
Financing options can include senior debt, subordinated debt, bridge financing
and special tailored financing structures.

    In June 2000, ABB Financial Services acquired a 35% share of the Swedish
Export Credit Corporation for aggregate consideration of approximately
$136 million, thereby strengthening our position in structured finance and
leasing. The remaining 65% share of the Swedish Export Credit Corporation is
owned by the Government of Sweden. The Swedish Export Credit Corporation, with
assets of approximately $20 billion, specializes in long-term export finance to
sectors such as telecommunications, automotive, transportation, energy, and
process industries like pulp and paper and petrochemicals.

    In 2001, ABB Financial Services acquired Xerox's small ticket leasing
portfolio in Northern Europe. The total volume comprised some $362 million in
lease assets and 15,000 customers who will be integrated into Structured
Finance's existing leasing activities.

    In April 2002, we announced that we were in negotiations with a number of
parties with respect to the sale of our Structured Finance business area, which
accounts for about one-third of the assets of the Financial Services division.
The negotiations are ongoing.

    EQUITY VENTURES

    Our Equity Ventures business area originates, develops, finances, owns and
operates infrastructure projects on a global basis. We invest equity in these
projects and manage the portfolio of equity investments.

    Equity Ventures currently focuses on the following main areas where ABB has
domain competence and a strong market presence: private power generation (power
projects that are not government sponsored); renewable power; power and gas
transmission and distribution; water; airport and logistic systems; oil, gas and
petrochemicals; and selected telecommunication industries.

    At the end of 2001, Equity Ventures' portfolio consisted of investments in
power generation and transmission projects and an airport development project.

    Our Equity Ventures business area combines commercial, technical, financial
and legal expertise. A commercial group sets the goals for the project and
ensures that they are followed through to financial closing and commercial
operation. The technical group consists of experienced engineers who can help
the project fit into the big picture, using advanced technology to interface
with existing infrastructure. Our financial experts determine the appropriate
means of financing projects, ranging from public and private, local and
international, equity and debt funding sources. Our legal professionals balance
the legal demands of infrastructure construction, technology and financing.

    INSURANCE

    Our Insurance business area provides international reinsurance and insurance
underwriting through Sirius International, financial reinsurance and insurance
through Scandinavian Re and Sirius International, and specialized program
insurance in the United States through Sirius America. In reinsurance, the
reinsurer, in return for a premium payment, provides coverage to a primary
insurance company for all or a specific portion of the primary insurer's
obligation to its customer. The business area's brokerage companies Komposit in
Germany and ABB Insurance Brokers in Switzerland provide services to ABB
companies and third-party clients. Our network of branches

                                       43

and local companies comprises locations in Sweden, Germany, Belgium,
Switzerland, Singapore and the United States.

    An important and growing part of the reinsurance portfolio are the excess of
loss accounts, mainly in the property, marine, aviation, oil and energy sectors.
This type of insurance provides coverage against all or a specified portion of
losses on underlying insurance contracts to the extent they exceed an agreed
level of losses.

    Our Financial Risks unit applies sophisticated techniques to handling risk
in commercial contracts, larger export projects and other complex risks within a
company's operations. For example, the unit structures, prices and underwrites
certain credit risk portfolios, whose benefit can include increased return on
capital for customers. It also structures complex insurance and reinsurance
deals for reinsurance customers.

    Investment income provides a substantial amount of insurance and reinsurance
business profits. We pursue prudent policies in managing our own funds and
cooperate with investment managers to maximize returns within set guidelines.

    TREASURY CENTERS

    ABB's Treasury Centers manage the ABB Group's liquid assets and borrowings,
execute foreign exchange transactions, borrow funds and offer financial
consulting services. Each year, Treasury Centers raise the equivalent of several
billion U.S. dollars for ABB Group companies through medium-term debt and
commercial paper programs.

    A primary task for the Treasury Centers is to assist in managing the
financial risk arising in the companies within the ABB Group. The ABB companies
rely on Treasury Centers for cash pooling, netting of intercompany payments,
foreign exchange and interest rate management services, borrowing and investment
of excess liquidity and financial advisory services.

    Effective June 19, 2002, the Treasury Centers halted proprietary trading
activities. Subsequent to that date, treasury operations will focus primarily on
treasury services and execution for companies within the ABB Group.

    The Treasury Centers are incorporating the rapid development of eBusiness
into our operations. We provide treasury services online, including a web-based
cash management process for our subsidiaries and real-time, 24-hour access to
financial data.

                                       44

                            SIGNIFICANT SUBSIDIARIES

    ABB Ltd is the parent company of the ABB Group. The ABB Group is comprised
of over 800 subsidiaries worldwide.

    The following table sets forth, as of May 31, 2002, the name, jurisdiction
of incorporation and ownership interest held in our significant subsidiaries:



                                                                 OWNERSHIP
NAME                                    JURISDICTION           INTEREST (%)
----                                    ------------         -----------------
                                                       
ABB Australia Pty Limited.............  Australia                 100
ABB AG................................  Austria                   100
ABB Ltda..............................  Brazil                    100
ABB Inc...............................  Canada                    100
ABB (China) Ltd.......................  China                     100
ABB s.r.o.............................  Czech Republic            100
ABB A/S...............................  Denmark                   100
Asea Brown Boveri S.A.E...............  Egypt                     100
ABB Oy................................  Finland                   100
ABB S.A...............................  France                    100
Asea Brown Boveri                       Germany
  Aktiengesellschaft..................                             98.5
ABB Engineering Trading and             Hungary
  Service Ltd.........................                            100
Asea Brown Boveri Ltd.................  India                      59.3
ABB S.p.A.............................  Italy                     100
ABB K.K...............................  Japan                     100
ABB Holdings Sdn. Bhd.................  Malaysia                  100
Asea Brown Boveri S.A. de C.V.........  Mexico                    100
ABB BV................................  Netherlands               100
ABB Holdings BV.......................  Netherlands               100
ABB Holdings AS.......................  Norway                    100
ABB Sp.zo.o...........................  Poland                    100
ABB S.G.P.S., S.A.....................  Portugal                  100
Asea Brown Boveri Ltd.................  Russia                    100
ABB Contracting Company Ltd...........  Saudi Arabia               49
ABB Holdings (Pty) Ltd................  South Africa              100
Asea Brown Boveri S.A.................  Spain                     100
ABB AB................................  Sweden                    100
ABB Asea Brown Boveri Ltd.............  Switzerland               100
ABB Ltd...............................  United Kingdom            100
Asea Brown Boveri Inc.................  United States             100
ABB Holdings Inc......................  United States             100
Asea Brown Boveri S.A.................  Venezuela                 100


                           SUPPLIES AND RAW MATERIALS

    We purchase a variety of raw materials for use in our production processes.
We enter into long-term supply agreements with selected key suppliers for the
purchase of significant raw materials and components required in our operations.

    We operate a worldwide Supply Chain Management network with employees
dedicated to this function in key countries. The Supply Chain Management network
uses the scale of the ABB Group to maximize the efficiency of supply networks.
In 2001, we expanded our eBusiness activities, including e-procurement for
materials and services, and further developed advanced supplier collaboration
tools and a supplier information system.

                                       45

    A strong increase in demand for specialty steel beyond industry capacity
caused the price of this material to increase by approximately 4% in 2001. In
addition, aluminum, copper and oil prices rose by approximately 2% in 2001 due
to cost pressures and refining and capacity constraints. Capacity constraints in
non-ferrous metals fabrication and specialty steel production led to minor
material shortages and delays in delivery during the first half of 2001.

    Prices on electronic components rose between 3% and 4% in 2001. Shortages in
supplies, such as those for memories and capacitors, caused extended lead times
during the first three quarters of 2001. Lead times and prices for electronic
components returned to normal levels during the fourth quarter of 2001.

    There can be no assurance that our ability to obtain sufficient raw
materials will not be adversely affected by unforeseen developments. In
addition, the price of raw materials may vary, perhaps substantially, from year
to year.

                            RESEARCH AND DEVELOPMENT

    Each year, we invest significantly in research and development. Our research
and development area focuses on developing and commercializing the core
technologies of our businesses that are of strategic importance to our future
growth. In 2001, 2000 and 1999, we invested $654 million, $703 million and
$865 million, or approximately 2.8%, 3.1% and 3.6% of annual revenues,
respectively, on research and development activities. We also had expenditures
of $916 million, $985 million and $1,212 million, respectively, or approximately
3.9%, 4.3% and 5.0%, respectively, of annual revenues in 2001, 2000 and 1999, on
order-related development activities. These are customer- and project-specific
development efforts that we undertake to develop or adapt equipment and systems
to the unique needs of our customers in connection with specific orders or
projects. Order-related development amounts are initially recorded in
inventories as part of the work in progress of a contract and then are reflected
in cost of sales at the time revenue is recognized in accordance with our
accounting policies.

    In addition to continuous product development, our research and development
program also engages in high-impact projects which are market-specific projects
with more ambitious payback goals but which face more challenges on the
technical side in commercialization than conventional product development.
Through active management of these investments, we seek to maintain a balance
between short-term and long-term research and development programs and optimize
our return on investment.

    Our global computer network links our engineers and scientists to facilitate
the exchange of ideas and foster the development of new products and systems. A
significant part of our research and development activities is carried out in
our ten research and development centers in the United States and Europe.

    In 2001, we streamlined our portfolio of projects and sharpened the focus of
our corporate research programs considerably, by shifting resources toward new
technologies such as Industrial IT and wireless applications. We estimate that
this new focus will lead to a reduction in the number of employees working in
corporate research and development by approximately 135.

    We are building up new research and development activities in the United
States and Asia, while moving away from mature technologies in Europe.

    We created four networked laboratories in 2001, which we call global virtual
laboratories. The global virtual laboratories are strategically focused on four
key areas of research: automation, power, engineering and manufacturing, and oil
and gas technologies. The four focal points were chosen to better support our
core areas of expertise in power and automation technologies. They

                                       46

coordinate their research and link up--in a fully networked, online
environment--our scientists and engineers with one another, and with
universities, research institutes and partner organizations.

    Recent developments include:

    - a broad campaign to introduce more distributed control and communication
      in ABB products in order to integrate them into the Industrial IT
      architecture;

    - a set of innovations relating to robots, software for easy programming of
      robot applications as well as high precision robots for consumer products
      and manufacturing applications;

    - comprehensive software packages to serve the deregulated energy markets,
      design optimized grids and facilitate the business processes of energy
      providers;

    - new products for the electrical power market to increase the efficiency,
      power quality and safety of the power transmission and distribution
      systems;

    - applications of power electronics in powerful drives for use in marine
      vessels together with innovative propulsion concepts;

    - subsea technology such as separation systems and electrical distribution
      systems that we believe will contribute to significant cost savings in
      subsea oil and gas production; and

    - exploration of nanotechnologies, the design of material on a molecular
      base, for a variety of applications in our industry as well as
      micro-electromechanical systems in automation and power applications.

                            ENVIRONMENTAL ACTIVITIES

    We have based our environmental policy directly on the principles of the ICC
Business Charter for Sustainable Development, a set of principles for
environmental management based on the idea that sustained economic growth should
be achieved on a basis consistent with protection of the environment. Our
commitment to sustainable development comprises five key elements:

    - to develop and design ecoefficient products and systems;

    - to share state-of-the-art technologies with emerging markets;

    - to contribute to common efforts;

    - to apply our social policy, including occupational health and safety
      policy, throughout the Group and to develop procedures and indicators to
      improve social performance continuously; and

    - to continuously improve our own environmental performance.

    Our research and development program includes significant efforts related to
improving the environmental impact of our products and systems. Through the
development and application of advanced technologies, we seek to improve the
operating efficiency of our products, reduce their emissions, and minimize their
use of resources and energy. For example, our drive systems significantly reduce
energy consumption and ensure optimum operation of customers' equipment. In the
Oil, Gas and Petrochemicals division, we have fully integrated environmental
controls into our subsea systems, resulting in less need for materials and
energy, reduced pollution and easy decommissioning.

    To continuously improve the environmental performance of our own operations,
we are implementing environmental management systems according to the ISO 14001
standard on all our sites. We have implemented the ISO 14001 standard at almost
all of our manufacturing facilities and service workshops (approximately 550
sites). We are now expanding our scope by

                                       47

implementing an adapted environmental management system in our non-manufacturing
organizations.

    Commencing in 1999, we introduced the concept of Environmental Product
Declarations to improve the environmental performance of our core products.
These describe the salient environmental aspects and impacts of a product line,
viewed over its complete life cycle, and include relevant environmental goals
and improvement programs. Declarations are based on Life Cycle Assessment
studies, created according to the international standard ISO 14025. To date, 43
declarations have been produced for major product lines, 9 of which have been
externally certified.

    We have retained liability for environmental remediation costs at two sites
in the United States that were operated by our former nuclear business, which we
have sold to British Nuclear Fuels. The primary environmental liabilities
associated with these sites relate to the costs of remediating radiological
contamination upon decommissioning the facilities. In connection with the sale
of the nuclear business, in April 2000 we established a reserve of $300 million
in connection with estimated remediation costs related to these facilities. For
further information, see "Item 3. Key Information--Risk Factors--We are subject
to liabilities from discontinued operations and we could be required to make
payments in respect of these retained liabilities in excess of established
reserves" and "Item 5. Operating and Financial Review and
Prospects--Environmental Contingencies and Retained Liabilities."

                             PATENTS AND TRADEMARKS

    We believe that intellectual property has become as important as tangible
assets for a technology group such as ABB. Over the past ten years we have
almost doubled our total number of first patent filings, and we intend to
continue our aggressive approach to seeking patent protection. Currently we have
over 10,000 patent registrations and approximately 8,000 pending applications.
In 2001, we filed patent applications for more than 600 inventions. Based on our
existing intellectual property strategy, we believe that we have adequate
control over our core technologies.

    The ABB trademark and trade name is well known throughout the world and
represents a very significant value for the ABB Group. The ABB trademark is
registered in more than 200 countries. We have protection for over 900 product
marks.

                               REGULATORY MATTERS

    Our operations are also subject to numerous other governmental laws and
regulations including those governing currency conversions and repatriation,
taxation of foreign earnings and earnings of expatriate personnel, and use of
local employees and suppliers.

    As a reporting company under Section 12 of the U.S. Securities Exchange Act
of 1934, we are subject to the U.S. Foreign Corrupt Practices Act's antibribery
provisions with respect to our conduct around the world.

    Our operations are also subject to the 1997 Organization of Economic
Cooperation and Development Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions as implemented by the 34
signatory countries. The 1997 OECD Convention on Combating Bribery of Foreign
Public Officials in International Business Transactions obliges signatories to
adopt national legislation that makes it a crime to bribe foreign public
officials. As of December 31, 2001, those countries which have adopted
implementing legislation and have ratified the OECD Convention include the
United States, Switzerland and several European nations in which we have
significant operations.

                                       48

    We and our subsidiaries conduct business in certain countries known to
experience governmental corruption. While we and our subsidiaries are committed
to conducting business in a legal and ethical manner, there is a risk that our
employees or agents may take actions that violate either the U.S. Foreign
Corrupt Practices Act or legislation promulgated pursuant to the 1997 OECD
Convention on Combating Bribery of Foreign Public Officials in International
Business Transactions. These actions could result in monetary penalties against
us or our subsidiaries and could damage our reputation and, therefore, our
ability to do business.

                            DESCRIPTION OF PROPERTY

    As of December 31, 2001, the ABB Group had approximately 100 manufacturing,
production and development facilities of over 10,000 square meters each
throughout the world. A substantial portion of our production and development
activities is conducted in Germany, the United States, Sweden, Switzerland,
Finland, Norway and Italy. We also own or lease other properties, including
office buildings, warehouses, research and development facilities and sales
offices in approximately 96 countries. We own approximately 60% of the
properties on which our facilities are located and lease the remainder.

    We own most of the properties on which our production is conducted and
essentially all of the machinery and equipment used in the manufacturing
operations. In certain countries, we have entered into sale-leaseback
agreements, notably in Sweden and Switzerland. Those arrangements mainly pertain
to administrative buildings and partly to manufacturing facilities. From time to
time we have a surplus of space arising from acquisitions, production
efficiencies and/or restructuring of operations. Normally we seek to sell such
surplus space or, to a lesser extent, lease it to third parties.

    It is our general policy to maintain facilities and equipment at quality
levels assuring continuous production at good efficiency and safety standards.
The net book value of our property, plant and equipment at December 31, 2001,
was $3,003 million of which machinery and equipment represented $1,377 million
and land and buildings represented $1,438 million. We believe that our current
facilities are in good condition and are adequate to meet the requirements of
our present and foreseeable future operations.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

    PLEASE REFER TO "FORWARD-LOOKING STATEMENTS" AND "ITEM 3. KEY
INFORMATION--RISK FACTORS" FOR A DISCUSSION OF THE FACTORS RELEVANT TO THIS
DISCUSSION AND OTHER FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT.

                                    OVERVIEW

    We are a global provider of power and automation technologies that enable
utility and industry customers to improve performance while lowering
environmental impact. In January 2001, we announced the transformation of our
worldwide enterprise around customer groups, aiming to boost growth by helping
our customers become more successful in a business environment of accelerating
globalization, deregulation, consolidation and eBusiness.

    We replaced our former business segments with seven business divisions
structured along customer groups. 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.
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

                                       49

the end-user divisions. The Financial Services division provides services and
project support for the ABB Group as well as for external customers.

    The ABB 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. Our principal
customers are generators of power, owners and operators of power transmission
systems, energy traders and local distribution companies. The division has
approximately 16,000 employees.

    The ABB Process Industries division serves the chemical, life sciences, oil
and gas, refining, petrochemicals, marine, turbocharging, metals, minerals,
mining, cement, pulp, paper and printing industries with process-specific
products and services combined with ABB's power and automation technologies. ABB
is the leading supplier in many of these markets, and we use our industry and
process knowledge to create Industrial IT solutions that improve the efficiency
and competitive strength of customers. The division has approximately 16,000
employees.

    The ABB Manufacturing and Consumer Industries division sells products,
systems and services that improve customer productivity and competitiveness in
areas such as automotive industries, telecommunications, consumer goods, food
and beverage, product and electronics manufacturing, airports, parcel and cargo
distribution, and public, industrial and commercial buildings. In April 2002, we
announced our intention to divest our Building Systems business area and to
combine the three remaining business areas in the Manufacturing and Consumer
Industries division with the Process Industries division in a newly created
Industries division. The division has approximately 25,000 employees.

    The ABB Oil, Gas and Petrochemicals division supplies a comprehensive range
of products, systems and services to the global oil, gas and petrochemicals
industries, from the development of onshore and offshore exploration
technologies to the design and supply of production facilities, refineries and
petrochemicals plants. The division has approximately 13,000 employees.

    The ABB Power Technology Products division covers the entire spectrum of
technology for power transmission and power distribution. It includes
transformers, switchgear, breakers, capacitors, 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 end-user divisions, as well as through
external channel partners such as distributors, contractors, original equipment
manufacturers and system integrators. The division has approximately 28,000
employees.

    The ABB Automation Technology Products division provides products, systems,
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. 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 division has approximately 39,000 employees.

    The ABB Financial Services division supports the ABB Group's businesses and
customers with innovative financial solutions in structured finance, leasing,
project development and ownership, financial consulting, insurance and treasury
activities. The division has approximately 1,200 employees.

                                       50

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

    GENERAL

    Our discussion and analysis of our financial condition and results of
operations are based upon our Consolidated Financial Statements included
elsewhere in this annual report, which have been prepared in accordance with
accounting principles generally accepted in the United States. As described in
Note 2 to the Consolidated Financial Statements, the preparation of our
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to costs expected to be incurred
to complete projects, product guarantees and warranties, bad debts, inventories,
investments, intangible assets, income taxes, financing operations,
restructuring, long-term service contracts, pensions and other post-retirement
benefits, and contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

    We believe changes in the following judgments, assumptions and estimates
involved in the application of our most critical accounting policies could
materially affect the amounts reported in our consolidated financial statements.

    REVENUE AND COST OF SALES RECOGNITION

    Short-term contract revenues are generally recognized upon completion of
services or delivery of goods. These revenue recognition methods assume
collectibility of the revenues recognized. When recording the respective
accounts receivable, loss reserves are calculated to estimate those receivables
that will not be collected. These reserves assume a level of default based on
historical information, as well as knowledge about specific invoices and
customers. There remains the risk that greater defaults will occur than
estimated. As such, revenues recognized might exceed that which will be
collected, resulting in a deterioration of earnings in the future. This risk is
likely to increase in a period of significant negative industry or economic
trends.

    Long-term contract revenues are generally recognized under the percentage of
completion method. The percentage of completion method of accounting involves
the use of various assumptions and projections, including future material costs,
overhead costs and labor performance and rates. As a result there remains the
risk that total contract costs will exceed those which have been originally
estimated. These risks are exacerbated if the duration of the project is
long-term, because there is a higher probability that the circumstances upon
which we originally developed the estimates will change in a manner that
increases our costs. Factors that could cause costs to increase include:

    - delays caused by unexpected conditions or events;

    - unanticipated technical problems with the equipment being supplied or
      developed by us which may require that we spend our own money to remedy
      the problem;

    - changes in the cost of components, materials or labor;

    - difficulties in obtaining required governmental permits or approvals;

    - project modifications creating unanticipated costs;

    - suppliers' or subcontractors' failure to perform; and

                                       51

    - penalties incurred as a result of not completing portions of the project
      in accordance with agreed upon time limits.

    Changes in the initial assumptions may result in revisions to total
estimated costs, current income and anticipated income. These changes are
recognized in the period in which the information is determined. We believe,
that this approach, referred to as the catch-up approach, produces more relevant
information because the cumulative revenue-to-date reflects the current
estimates of the stage of completion. Additionally, at any time an overall loss
on a contract becomes known, the full amount of the loss is recognized within
the calculations as an excess on contract costs over related contract sales and
reflected as such on the income statement.

    Anticipated costs for warranties on products are accrued upon sales
recognition on the related contracts. Warranty costs include calculated costs
arising from design imperfections, material and workmanship, performance
guarantees (technical risks) and delays in contract fulfillment. General
assessment is made on an overall, statistical basis whereas orders with risks
resulting from order-specific conditions/guarantees, E.G. plants/installations,
are assessed individually. There remains the risk that actual warranty costs
will exceed that which has been provided, the result of which would be a
deterioration of earnings in the future when these actual costs are determined.

    GOODWILL AND OTHER INTANGIBLE ASSETS IMPAIRMENT

    We have assessed the impairment of goodwill and other identifiable
intangible assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Some factors we consider important which
could trigger an impairment review include the following:

    - significant underperformance relative to historical or projected future
      operating results;

    - significant changes in the manner of our use of the acquired assets or the
      strategy for our overall business; and

    - significant negative industry or economic trends.

    When we have determined the carrying value of goodwill and other identified
intangible assets may not be recoverable based upon the existence of one or more
of the above indicators of impairment, we measured any impairment based on a
projected discounted cash flow method using a discount rate commensurate with
the risk inherent in our current business model. In assessing the recoverability
of our goodwill and other intangible assets we must make assumptions regarding
estimated future cash flows, discount rates and other factors to determine the
fair value of the respective assets. If our experience results in decreases to
our forecasted cash flows or increases to the discount rate used, we may be
required to record impairment charges for these assets.

    Our accounting policies for accounting for goodwill and other intangible
assets changed on January 1, 2002. In accordance with Statement of Financial
Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, we ceased to
amortize goodwill on that date. In lieu of amortization, we are required to
perform an initial impairment review of our goodwill in 2002 and an annual
impairment review thereafter. This impairment review requires a fair value
estimate applied to the reporting entity to which the goodwill is applicable, as
opposed to the respective assets of the acquired company as before. This expands
the impairment analysis to include the future cash flows of the business owned
before an acquisition that has benefited from an acquisition. As in the previous
impairment model, if we determine through the impairment review process that
goodwill has been impaired, we will record the impairment charge in our
Consolidated Income Statement.

                                       52

    RESTRUCTURING

    During fiscal year 2001, we recorded significant reserves in connection with
our restructuring program. These reserves include estimates pertaining to
employee separation costs and the settlements of contractual obligations
resulting from our actions. Although we do not anticipate significant changes,
the actual costs may differ from these estimates.

    TAXES

    In preparing our consolidated financial statements we are required to
estimate income taxes in each of the jurisdictions in which we operate. We
account for deferred taxes by using the asset and liability method. Under this
method, we determine deferred tax assets and liabilities based on temporary
differences between the financial reporting and the tax bases of assets and
liabilities. They are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse. We
recognize a deferred tax asset when we determine that it is more likely than not
that the asset will be realized. We regularly review our deferred tax assets for
recoverability and establish a valuation allowance based upon historical losses,
projected future taxable income and the expected timing of the reversals of
existing temporary differences. To the extent we establish a valuation allowance
or increase this allowance in a period, we must expense the allowance within the
tax provision in the Consolidated Income Statement. Unforeseen changes in tax
rates and tax laws may impact these estimates, as well as differences in the
projected taxable income versus the actual taxable income.

    CONTINGENCIES

    We are subject to proceedings, lawsuits and other claims related to
environmental, labor, product and other matters. We are required to assess the
likelihood of any adverse judgments or outcomes to these matters as well as
potential ranges of probable losses. A determination of the amount of reserves
required, if any, for these contingencies is made after careful analysis of each
individual issue often with assistance from both internal and external counsel
and technical experts. The required reserves may change in the future due to new
developments in each matter or changes in approach such as a change in
settlement strategy in dealing with these matters.

    PENSION AND POSTRETIREMENT BENEFITS

    We have significant pension and postretirement benefit costs and credits
that are determined from actuarial valuations. Inherent in these valuations are
key assumptions including discount rates and expected return on plan assets. We
are required to consider current market conditions, including changes in
interest rates, in selecting these assumptions. The discount rate is adjusted
annually based on changes in long-term, highly rated corporate bond yields.
Decreases in the discount rate result in an increase in the projected benefit
obligation and to pension costs (as shown in Note 19 to the Consolidated
Financial Statements). The expected return on plan assets represents a long-term
rate and is not often adjusted. Decreases in the expected return on plan assets
result in an increase to pension costs.

    At December 31, 2001, the unfunded balance of the pension benefits was
$1,825 million. In accordance with Statement of Financial Accounting Standards
No. 87 (SFAS 87), EMPLOYERS' ACCOUNTING FOR PENSIONS, we have recorded only a
net liability of $908 million on the balance sheet. The difference is primarily
due to an unrecognized actuarial loss of $835 million, which is amortized using
the "minimum corridor" approach as defined by SFAS 87. The unfunded balance can
increase or decrease based on the performance of the financial markets or
changes in our assumption rates and the unfunded amount does not represent a
mandatory short-term cash obligation. We are in full compliance with all
appropriate statutory funding requirements.

                                       53

    INSURANCE

    Premiums are generally recognized in earnings on a pro rata basis over the
period coverage is provided. Premiums earned include estimates of certain
premiums not yet paid. These premium receivables include premiums relating to
retrospectively rated contracts. For such contracts, a provisional premium is
paid that will eventually be adjusted. An estimated value of the actual premium
is included in receivables. Unearned premiums represent the portion of premiums
written that is applicable to the unexpired terms of reinsurance contracts or
certificates in force. These unearned premiums are calculated by the monthly pro
rata method or are based on reports from ceding companies.

    Insurance liabilities are reflected in accrued liabilities and other, on the
Consolidated Balance Sheet and are determined on the basis of reports from
ceding companies and underwriting associations, as well as on management's,
including in-house actuaries', estimates including those for incurred but not
reported losses, salvage and subrogation recoveries. Changes to these estimated
liabilities are recognized as an increase or decrease to cost of sales in the
period in which they are identified. Inherent in the estimates of losses are
expected trends of frequency, severity and other factors that could vary
significantly as claims are settled. Accordingly, ultimate losses could vary
significantly from the amounts currently provided for.

    We seek to reduce the loss from our underwriting liabilities by reinsuring
certain levels of risks with other insurance enterprises or reinsurers.
Recoverable amounts are recorded for both paid and unpaid losses and are
estimated in a manner consistent with the claim liability associated with the
reinsurance policy. The risk of collectibility of these reinsurance receivables
arises from disputes relating to the policy terms and the ability of the
reinsurer to pay.

NEW ACCOUNTING STANDARDS

    On January 1, 2001, we adopted Statement of Financial Accounting Standards
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as
amended by the Statement of Financial Accounting Standards No. 137, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE
DATE OF FASB STATEMENT NO. 133 and the Statement of Financial Accounting
Standards No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN
HEDGING ACTIVITIES, collectively referred to as SFAS 133. These Statements
require the recognition of all derivatives, other than certain derivatives
indexed to our own stock, on the balance sheet at fair value. Derivatives that
are not designated as hedges must be adjusted to fair value through income. If
the derivative is designated as a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in accumulated other comprehensive loss until the
hedged item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. Based on our
outstanding derivatives on January 1, 2001, we recognized a loss in the
consolidated income statement of approximately $63 million, net of tax, and a
reduction to equity of $41 million, net of tax, in accumulated other
comprehensive loss.

    In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS, which modifies the financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
associated asset retirement costs. We will adopt this Statement effective
January 1, 2003. We have not yet determined the impact, if any, that this
Statement will have on our financial position or results of operations.

    In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, BUSINESS COMBINATIONS, and Statement of Financial Accounting Standards
No. 142, GOODWILL AND OTHER

                                       54

INTANGIBLE ASSETS, which modify 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 will not be 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 must be
tested for impairment as of January 1, 2002, and a transition adjustment must be
recognized for any impairment found. All goodwill amortization also ceased at
that date. We recognized goodwill amortization expense of $191 million,
$174 million and $155 million in 2001, 2000 and 1999, respectively. We do not
expect to record a material transition adjustment in connection with such
impairment testing in 2002.

    In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 (SFAS 144), ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED
Assets. This Statement modifies the discontinued operations guidance of
Accounting Principles Board Opinion 30, REPORTING THE RESULTS OF
OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND
EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, and
supersedes Statement of Financial Accounting Standards No. 121 (SFAS 121),
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, while retaining certain requirements of SFAS No. 121 regarding
impairment loss recognition and measurement. In addition, SFAS 144 provides
additional accounting and reporting guidance for long-lived assets to be
disposed of by sale and broadens the presentation of discontinued operations to
include more disposal transactions. We adopted this statement on January 1,
2002, and we expect to present more disposals as discontinued operations
subsequent to adoption of SFAS 144.

    On April 30, 2002, the FASB issued Statement 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. We have elected to adopt the
new standard effective April 1, 2002 and, as a result, the gains from
extinguishment of debt recorded prior to that date will be reclassified and will
not be presented as extraordinary items when these historical periods are
presented for purposes of comparison with later periods. Therefore, when results
for 2001 are presented for purposes of comparison with 2002 results, income from
continuing operations will include the gain on debt extinguishment currently
reflected as extraordinary.

RESTRUCTURING EXPENSES

    During the first quarter of 1999, we acquired Elsag Bailey Process
Automation N.V. in a business combination accounted for as a purchase. We
implemented a restructuring plan in connection with the acquisition that
included reorganizing operations predominantly in Germany and the United States
and called for workforce reductions of approximately 1,500 salaried employees,
of which approximately 1,000 were Elsag Bailey employees. In conjunction with
our completed assessment of our post-merger strategy related to the Elsag Bailey
acquisition, we recorded a $141 million restructuring liability in our purchase
price allocation, principally related to employee terminations and severance. In
conjunction with the acquisition of Elsag Bailey, a $38 million expense charge
was incurred in 1999 related to restructuring activities of ABB's businesses
primarily related to employee termination and severance costs associated with
the integration of the Elsag Bailey businesses.

    Restructuring charges of $195 million were included in other income
(expense), net, during 2000, of which approximately $90 million related to the
continued integration of Elsag Bailey. The Elsag Bailey restructuring was
substantially complete at the end of 2000. The remainder related

                                       55

primarily to the consolidation of manufacturing operations in our former Power
Transmission segment and other actions to improve efficiency throughout the ABB
Group.

    In July 2001, we announced a restructuring program anticipated to extend
over 18 months. This initiative is expected to lead to one-time costs of
$500 million over the 18-month period and, when completed, to produce cost
benefits amounting to $500 million annually. The primary component of the
restructuring, and the cost benefit, will be a reduction in headcount of
approximately 12,000 employees, including through natural attrition. This
restructuring program was initiated in an effort to simplify product lines,
reduce multiple location activities and respond to the economic conditions in
our major markets.

    As of December 31, 2001, we recorded charges of $114 million relating to
workforce reductions and $73 million relating to lease terminations and other
exit costs associated with the restructuring program. These costs are included
in other income (expense), net. Termination benefits of $35 million were paid in
2001 to approximately 2,300 employees and $33 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,
2001, accrued liabilities include $79 million for termination benefits and
$40 million for lease terminations and other exit costs.

    As a result of the restructuring, certain assets have been identified as
impaired or will no longer be used in continuing operations. We have recorded
$44 million to write down these assets to fair value. These costs are included
in other income (expense), net.

ACQUISITIONS, INVESTMENTS AND DIVESTITURES

    In 2001, 2000 and 1999, we paid aggregate consideration of $597 million,
$896 million and $2,428 million, respectively, related to acquisitions and
investments in joint ventures and affiliated companies completed in those years.
In 2001, we completed the acquisition of Entrelec Group, a France-based supplier
of automation and control products, for a total aggregate consideration of
$284 million. In 2000, we acquired for aggregate consideration of $130 million
the oil and gas service activities of Umoe ASA, a Norwegian service company in
the oil and gas industry, to support our further growth in that market. In 1999,
we acquired Kemper Europe Reassurances for aggregate considerations of
$120 million. We also completed the acquisition of Elsag Bailey for total
consideration of $2,210 million (including assumed debt of $648 million).

    In June 2000, we entered into a share subscription agreement to acquire a
42% interest in b-business partners B.V. Pursuant to the terms of the agreement,
we committed to invest a total of $278 million, of which $69 million was paid in
2000 and $134 million was paid during the first half of 2001. In December 2001,
Investor AB acquired 90% of our investment and capital commitments for
approximately book value, or $166 million in cash. After this initial
transaction, b-business partners B.V. repurchased 50% of its outstanding shares,
which resulted in a return of capital to us of $10 million. After these
transactions, we retain a 4% investment in b-business partners B.V. and we are
committed to provide additional capital to b-business partners B.V. of
$3 million. Further, b-business partners B.V. retains a put right to cause us to
repurchase 150,000 shares of b-business partners B.V. at a cost of approximately
$13 million. The 2001 transactions are reflected in the Consolidated Statements
of Cash Flows and included in the aggregate total amounts of investments
($578 million net of cash acquired) and divestment ($283 million net of cash
disposed).

    In 2001, 2000 and 1999, we received aggregate cash consideration of
$283 million, $1,963 million and $2,283 million, respectively, from dispositions
and recognized net gains of $34 million, $931 million and $1,935 million,
respectively. The material dispositions are described below. In addition, we
received cash consideration of $77 million in 1999 from the disposition of our
two standard power cable businesses in Norway and Sweden.

                                       56

    In 2000, we disposed of our power generation businesses, which included our
investment in the ABB ALSTOM POWER joint venture described below and our nuclear
power business. We received cash proceeds of $1,197 million from ALSTOM in
exchange for our joint venture interest and recognized a net gain of
$713 million. We received proceeds of $485 million from the sale of the nuclear
power business and recognized a net gain of $17 million. Our Consolidated
Financial Statements reflect our former power generation segment as discontinued
operations.

    Effective June 30, 1999, we formed the ABB ALSTOM POWER joint venture with
ALSTOM by contributing our power generation business and assets. Upon the
formation of the joint venture, we received $1,500 million cash boot and
recognized a corresponding net gain of $1,339 million.

    In the first quarter of 1999, we sold our 50% interest in the ABB
Daimler-Benz Transportation GmbH joint venture to DaimlerChrysler AG for cash
consideration of $472 million. Upon the disposal of our investment, we realized
a net gain of $464 million. Our Consolidated Financial Statements reflect our
equity in the earnings of this joint venture, together with the gain from its
sale, as a discontinued operation.

SUMMARY FINANCIAL DATA

    The following table demonstrates the amount and percentage of ABB Group
revenues derived from each of our business divisions (see Note 23 to the
Consolidated Financial Statements):



                                                         REVENUES                   PERCENT OF REVENUES
                                              ------------------------------   ------------------------------
                                                 YEAR ENDED DECEMBER 31,          YEAR ENDED DECEMBER 31,
                                              ------------------------------   ------------------------------
                                                2001       2000       1999       2001       2000       1999
                                              --------   --------   --------   --------   --------   --------
                                                     ($ IN MILLIONS)                        (%)
                                                                                   
Utilities...................................    5,649      5,473      5,875      19.7       19.8       20.1
Process Industries..........................    3,377      3,339      3,485      11.8       12.1       11.9
Manufacturing and Consumer Industries.......    4,780      5,225      5,697      16.6       18.9       19.5
Oil, Gas and Petrochemicals.................    3,489      2,796      3,086      12.1       10.1       10.5
Power Technology Products...................    4,042      3,662      3,862      14.1       13.3       13.2
Automation Technology Products..............    5,246      5,175      5,550      18.3       18.7       19.0
Financial Services..........................    2,133      1,966      1,687       7.4        7.1        5.8
                                               ------     ------     ------     -----      -----      -----
Subtotal....................................   28,716     27,636     29,242     100.0      100.0      100.0
                                                                                =====      =====      =====
Corporate and Eliminations..................   (4,990)    (4,669)    (4,886)
                                               ------     ------     ------
Consolidated Revenues.......................   23,726     22,967     24,356
                                               ======     ======     ======


    We conduct business in more than 100 countries around the world. The
following table demonstrates the amount and percentage of our consolidated
revenues derived from each geographic region (based on the location of the
customer) in which we operate:



                                                         REVENUES                   PERCENT OF REVENUES
                                              ------------------------------   ------------------------------
                                                 YEAR ENDED DECEMBER 31,          YEAR ENDED DECEMBER 31,
                                              ------------------------------   ------------------------------
                                                2001       2000       1999       2001       2000       1999
                                              --------   --------   --------   --------   --------   --------
                                                     ($ IN MILLIONS)                        (%)
                                                                                   
Europe......................................   12,780     12,570     13,893      53.9       54.7       57.0
The Americas................................    5,944      5,702      5,675      25.0       24.8       23.3
Asia........................................    2,686      2,770      2,763      11.3       12.1       11.4
Middle East and Africa......................    2,316      1,925      2,025       9.8        8.4        8.3
                                               ------     ------     ------     -----      -----      -----
Total.......................................   23,726     22,967     24,356     100.0      100.0      100.0
                                               ======     ======     ======     =====      =====      =====


                                       57

ORDERS AND PERCENTAGE OF COMPLETION ACCOUNTING

    We book an order when a binding contractual agreement has been concluded
with the customer covering, at a minimum, the price and the scope of products or
services to be supplied. Approximately 13% of our total orders booked in 2001
were large orders. We define large orders as orders from third parties involving
at least $15 million worth of products or systems. Portions of our business,
particularly in our Oil, Gas and Petrochemicals, Utilities and Power Technology
Products divisions, involve orders related to long-term projects which can take
many months or even years to complete. Revenues related to these orders are
typically recognized on a percentage of completion basis over a period, ranging
from several months to several years.

    The level of orders can fluctuate from year-to-year. Arrangements included
in particular orders can be extremely complex and non-recurring. Some contracts
do not provide for a fixed amount of work to be performed and are subject to
modification or termination by the customer. Although large orders are more
likely to result in revenues in future periods, the level of large orders, and
orders generally, cannot be used to predict accurately future revenues or
operating performance. Orders that are placed can be cancelled, delayed or
modified by the customer. These actions can have the effect of reducing or
eliminating the level of expected revenues or delaying the realization of
revenues. Both the Utilities and the Oil, Gas and Petrochemicals divisions'
total orders contain a significant number of large orders. The Utilities
division often receives large third party orders and in turn places internal
orders for products with the Power Technology Products division. Internal orders
may be considerably larger than $15 million.

    Orders for the ABB Group decreased $1,661 million, or 7%, to
$23,779 million in 2001 from a high order intake level in 2000 of
$25,440 million. As reported in local currencies, orders declined by 2% in 2001
compared to 2000. The level of orders declined significantly in the
Manufacturing and Consumer Industries, Oil, Gas and Petrochemicals, and
Automation Technology Products divisions.

    Large orders often arise in connection with long-term, fixed price projects.
When we undertake a long-term, fixed-price project, we recognize costs, revenues
and profit margin from that project in each period based on the percentage of
the project completed. Profit margin is based on our estimate of the amount by
which total contract revenues will exceed total contract costs at completion.
The nature of this accounting method is such that refinements of the estimating
process for changing conditions and new developments are continuous.
Accordingly, as work progresses or as change orders are approved and estimates
are revised, contract margins may be increased, reduced or, on contracts for
which a loss has become apparent, eliminated. In addition to the elimination of
previously recognized margins, expected losses on loss contracts are recognized
in full immediately.

                                       58

                       ANALYSIS OF RESULTS OF OPERATIONS

CONSOLIDATED

    YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

    REVENUES

    Revenues for the ABB Group increased by $759 million, or 3%, to
$23,726 million in 2001 from $22,967 million in 2000. As reported in local
currencies, revenues increased 8% in 2001 compared to 2000. This reflects the
significant effect of translating revenues generated in local currencies into
the U.S. dollar, which strengthened against most of our local currencies.

    Revenues for the Utilities division increased by $176 million, or 3%, in
2001 compared to 2000 (a 7% increase as reported in local currencies). The
increase in revenues was primarily due to revenue increases in our Power Systems
and Modular Substations business areas. The Process Industries division
increased revenues by $38 million, or 1%, in 2001 compared to 2000 (a 5%
increase as reported in local currencies). Our Marine and Turbocharging business
area was the primary contributor to this revenue increase. Manufacturing and
Consumer Industries experienced a $445 million, or 9%, decrease in revenues for
2001 compared to 2000 (a 4% decrease as reported in local currencies), due
primarily to the negative impact of the economic slowdown in the automotive
industry. Revenues from Oil, Gas and Petrochemicals increased by $693 million,
or 25%, in 2001 compared to 2000 (a 28% increase as reported in local
currencies). The increase primarily reflected the large order intake of 2000, a
significant portion of which was converted into revenues in 2001, and a full
year of revenues from Umoe ASA, the oil and gas company acquired in the second
half of 2000. This improvement was driven by upstream exploration markets, while
downstream ended flat. Power Technology Products revenues increased by
$380 million, or 10%, in 2001 compared to 2000 (a 15% increase as reported in
local currencies). Revenues increased in most of the business areas, with our
High-Voltage Products business area being the main contributor to the revenue
increase. Revenues for the Automation Technology Products division increased by
$71 million, or 1%, in 2001 compared to 2000 (a 6% increase as reported in local
currencies). Revenue growth was strongest in our Drives and Power Electronics
business area, offset in part by declines in our Robotics business area.
Revenues from Financial Services increased by $167 million, or 8%, in 2001
compared to 2000 (a 13% increase as reported in local currencies). This increase
primarily reflected improved revenues from our Insurance business area,
primarily from acquisitions, and our Structured Finance business area.

    For a more detailed discussion of the individual divisions, see "Business
Divisions" below.

    COST OF SALES

    Cost of sales for the ABB Group increased by $1,486 million, or 9%, to
$18,708 million in 2001 from $17,222 million in 2000. As a percentage of
revenues, cost of sales increased from 75.0% in 2000 to 78.9% in 2001. The
increase in actual cost of sales was primarily attributable to the increase in
revenues from the divisions, in particular the Utilities and the Oil, Gas and
Petrochemicals divisions. Cost of sales increased in the Financial Services
division mainly reflecting a $295 million non-cash charge from a change in
accounting estimate for reinsurance reserves. Prior to 2001, we presented a
portion of our insurance reserves on a discounted basis, which estimated the
present value of funds required to pay losses at future dates. During 2001, the
timing and amount of claims payments being ceded to us in respect of prior
years' finite risk reinsurance contracts has changed and cannot be reliably
determined at December 31, 2001. Therefore, we have not discounted our loss
reserves, resulting in a charge to losses and loss adjustment expenses in 2001
of $295 million. In addition, our Insurance business area booked provisions for
$138 million in underwriting losses, including $48 million in provisions for
expected claims arising from the events of September 11, 2001. Additionally,
costs and provisions for alternative energy projects of $55 million in New
Ventures business area and project cost overruns in Oil, Gas and

                                       59

Petrochemicals division of $140 million also contributed to the higher cost of
sales during 2001. Our cost of sales consists primarily of labor, raw materials
and related components. Cost of sales also includes provisions for warranty
claims, contract losses and project penalties, as well as order-related
development expenses related to projects for which we have recognized
corresponding revenues. Order-related development expenditures amounted to
$916 million and $985 million, in 2001 and 2000, respectively. In these periods,
$499 million and $423 million, respectively, of order-related development
expenditures were related to the Oil, Gas and Petrochemicals division. Order-
related development amounts are initially recorded in inventories as part of the
work in progress of a contract, and then reflected in cost of sales at the time
revenue is recognized.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

    Selling, general and administrative expenses decreased by $20 million, to
$4,397 million in 2001 from $4,417 million in 2000. The decrease reflects
group-wide cost reduction and efficiency improvement initiatives. As a
percentage of revenues, selling, general and administrative expenses declined to
18.5% in 2001 from 19.2% in 2000. Selling, general and administrative expenses
included research and development costs of $654 million in 2001 and
$703 million in 2000. For the year 2001, the Automation Technology Products and
the Power Technology Products divisions incurred research and development costs
of $269 million and $103 million, respectively. The other industrial divisions
shared the remaining cost in approximately equal proportions.

    AMORTIZATION EXPENSE

    Amortization expense increased by $17 million, or 8%, to $236 million in
2001 from $219 million in 2000, attributable to slightly higher amortization of
purchased goodwill and intangibles, in particular from the Umoe acquisition
completed in June 2000 and the acquisition of Entrelec Group in June 2001. In
accordance with Statement of Financial Accounting Standards No. 142, GOODWILL
AND OTHER INTANGIBLE ASSETS, goodwill is no longer amortized as of January 1,
2002.

    OTHER INCOME (EXPENSE), NET

    Other income (expense), net, typically consists of our share of income or
loss on investments, principally from our Equity Ventures business area, as well
as gains or losses from sales of businesses, investments and property, plant and
equipment, license income and restructuring charges. Other income (expense),
net, decreased by $382 million, to an expense of $106 million in 2001 from an
income of $276 million in 2000. The change was primarily related to the benefit
in 2000 of $447 million from capital gains, which was not repeated, as against
$57 million in 2001. The significant capital gains in 2000 primarily resulted
from the sale of non-core property and businesses. Also included were asset
write-downs of mainly intangible assets ($93 million in 2001, $17 million in
2000), and income from equity accounted companies, license income and other of
$161 million in 2001 and $41 million in 2000.

    EARNINGS BEFORE INTEREST AND TAXES

    Earnings before interest and taxes, or operating income, decreased
$1,106 million, or 80%, to $279 million in 2001 from $1,385 million in 2000. As
reported in local currencies, earnings before interest and taxes declined by 78%
in 2001 compared to 2000. The decrease is primarily attributable to the higher
cost of sales in 2001, and the significantly lower capital gains recorded in
2001 compared to 2000. When adjusted for capital gains of $57 million in 2001
and $447 million in 2000, operating income decreased by 76% in 2001 compared to
2000. As a percentage of revenues, reported operating income decreased from 6.0%
in 2000 to 1.2% in 2001.

                                       60

    NET INTEREST AND OTHER FINANCE EXPENSE

    Interest and other finance expense increased by $158 million, or 25%, to
$802 million in 2001 from $644 million in 2000. Net interest expense was
primarily affected by a higher net debt position, which arose to fund our share
repurchases in 2001, as well as costs associated with the listing of our shares
in the United States and costs to hedge our management incentive plan. See
Note 20 to the Consolidated Financial Statements. Interest expense reflects
fluctuations, which may be substantial, in the level of borrowings throughout
the year as required by the operating needs of our business. The level of
interest and dividend income earned remained flat at $568 million in 2001 from
$565 million in 2000.

    PROVISION FOR TAXES

    Provision for taxes decreased by $272 million, or 72%, to $105 million in
2001 from $377 million in 2000. The decrease in the provision reflects primarily
the reduction in income from continuing operations before taxes and minority
interests, which declined from $1,306 million to $45 million. As a percentage of
income from continuing operations before taxes and minority interest, the
development led to a higher tax rate of 234% in 2001 compared to 28.9% in 2000.
The higher effective rate reflects the inclusion of the provision for our
reinsurance business located in a low tax jurisdiction. The tax rate applicable
for income from continuing operations without the insurance provision would have
been 30.9%. We generally conduct our tax planning activities to achieve a tax
structure for ABB that provides for an effective tax rate of approximately 30%
on our operations.

    INCOME (LOSS) FROM CONTINUING OPERATIONS

    Income (loss) from continuing operations decreased $1,011 million to a loss
of $130 million in 2001 from an income of $881 million in 2000. The decrease
reflects the impact of the items discussed above.

    INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX

    Loss from discontinued operations, net of tax, was $510 million in 2001,
compared to an income, net of tax, of $562 million in 2000. The loss from
discontinued operations reflects significant reduction in gains from the sale of
discontinued operations and an additional provision taken for the asbestos
liabilities relating to our discontinued power generation business. In 2000, we
recorded gains on the sale of our interest in the ABB ALSTOM POWER joint venture
and our nuclear power business, which were not repeated in 2001. During 2001, we
experienced a substantial increase in the level of new asbestos claims as well
as an increase in settlement costs per claim. In light of this, we recorded a
charge of $470 million. See "--Environmental Contingencies and Retained
Liabilities."

    NET INCOME (LOSS)

    As a result of the factors discussed above, net income decreased to a loss
of $691 million in 2001 from an income of $1,443 million in 2000. The net loss
in 2001 primarily reflects the significantly lower level of gains from sales of
businesses, including discontinued business, and higher cost of sales, which
includes the non-cash charge related to our reinsurance business. We also
recorded a $12 million extraordinary gain on the repurchase of our own bonds and
a one-time after tax charge of $63 million, due to cumulative effect of change
in accounting principles upon adoption of the Statement of Financial Accounting
Standards No. 133 (SFAS 133) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. See "New accounting standards" above.

                                       61

    EARNINGS (LOSS) PER SHARE

    Diluted earnings (loss) per share was a loss per share of $0.61 in 2001
compared to an income per share of $1.22 in 2000, largely resulting from the
factors mentioned above which negatively impacted net income. Diluted loss per
share from discontinued operations were $0.45 compared to diluted earnings per
share of $0.48 in 2000, reflecting the loss from discontinued operations
discussed above as opposed to a gain in 2000. Diluted earnings (loss) per share
from continuing operations decreased to a loss of $0.11 in 2001 from earnings of
$0.74 per share in 2000, primarily as a result of the decreases in the gross
margin and in capital gains and higher interest expense in 2001.

    YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

    REVENUES

    Revenues for the ABB Group decreased by $1,389 million, or 6%, to
$22,967 million in 2000 from $24,356 million in 1999. This includes the
significant effect of translating revenues generated in local currencies into
the U.S. dollar, which strengthened against most of our local currencies. As
reported in local currencies, revenues increased by 2% in 2000 compared to 1999.
The divisional revenues were also impacted by this translation effect. In four
of our divisions the translation effect changed the local currency revenue
increases into revenue decreases.

    Utilities revenues decreased by $402 million, or 7%, in 2000 compared to
1999 (a 2% decrease as reported in local currencies). The decrease in revenues
was primarily due to reductions in Power Systems. Orders for the division,
however, increased by 4%, as compared to 1999. Process Industries division
decreased revenues by $146 million, or 4%, in 2000 compared to 1999 (a 2%
increase as reported in local currencies). The revenues performance reflected
weakness in our Petroleum, Chemical and Life Sciences business area, which was
affected by the low backlog from year-end 1999. Manufacturing and Consumer
Industries experienced a $472 million, or 8%, decrease in revenues for 2000
compared to 1999 (a flat development as reported in local currencies). The
reported reduction primarily arose from our Building Systems business area.
Revenues from Oil, Gas and Petrochemicals decreased by $290 million, or 9%, in
2000 compared to 1999 (a 3% decrease as reported in local currencies). The
decrease in 2000 primarily reflected both a strong order backlog at the end of
1998, which positively affected early 1999 revenues, and generally weak market
conditions in 1999. Power Technology Products revenues decreased by
$200 million, or 5%, in 2000 compared to 1999 (a 2% increase as reported in
local currencies). Our High-Voltage Products business area experienced a
considerable reduction in 2000 as a result of lower volumes from a low order
intake in 1999. Automation Technology Products division revenues decreased by
$375 million, or 7%, in 2000 compared to 1999 (a 2% increase as reported in
local currencies). The reported decrease primarily reflected weakness in sales
of larger automation systems. Revenues from Financial Services increased by
$279 million, or 17%, in 2000 compared to 1999. This increase primarily
reflected increased revenues from our Insurance business area mainly through
acquisitions.

    For a more detailed discussion on the individual divisions, see "Business
Divisions" below.

    COST OF SALES

    Cost of sales for the ABB Group decreased $1,235 million, or 7%, to
$17,222 million in 2000 from $18,457 million in 1999. As a percentage of
revenues, cost of sales was 75.0% in 2000 compared to 75.8% in 1999. The
reduction in actual cost of sales was primarily attributable to the reduced
level of revenues and the improvement in the gross margin was mainly a result of
cost reduction efforts. Order-related development expenses amounted to
$985 million and $1,212 million in 2000 and 1999 respectively. The reduction in
these costs was mainly a result of the streamlining of research and development
activities. This streamlining reflects the significant progress that we

                                       62

made towards common ABB platforms and products. Order-related development
amounts are initially recorded in inventories as part of the work in progress of
a contract, and then reflected in cost of sales at the time revenue is
recognized, in accordance with our accounting policies.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

    Selling, general and administrative expenses decreased by $265 million, or
6%, to $4,417 million in 2000 from $4,682 million in 1999. The decreased
selling, general and administrative costs reflect reductions resulting from the
restructuring in connection with the integration of the Elsag Bailey operations,
which initially had higher selling, general and administrative expenses than our
existing related businesses. The decrease also reflects group-wide cost
reduction and efficiency improvement initiatives as well as expenditures to
prepare for the Year 2000 issues in 1999, which were not repeated in 2000.
Selling, general and administrative expenses included $703 million and
$865 million of research and development costs in 2000 and 1999 respectively.

    AMORTIZATION EXPENSE

    Amortization expense was $219 million in 2000 and $189 million in 1999.
There were no material acquisitions that affected the level of amortization
expense in 2000.

    OTHER INCOME (EXPENSE), NET

    Other income, net, increased by $182 million to $276 million in 2000 from
$94 million in 1999. The improvement was primarily attributable to an increase
in net gains from sales of non-core property, plant and equipment and improved
earnings from investments made by Equity Ventures, offset by an increase in
restructuring costs.

    EARNINGS BEFORE INTEREST AND TAXES

    Earnings before interest and taxes, or operating income, increased by
$263 million, or 23%, to $1,385 million in 2000 from $1,122 million in 1999. As
reported in local currencies, earnings before interest and taxes increased 38%
in 2000 compared to 1999. As a percentage of revenues, operating income
increased to 6.0% in 2000 from 4.6% in 1999. The increase is primarily
attributable to the benefit from the 6% reduction in selling, general and
administrative expenses and the increased level of other income, net. The
improvements in other income, net, reflected primarily significant capital gains
in 2000 of $447 million as compared to $180 million in 1999. As adjusted for
capital gains, operating income remained flat for 2000 compared to 1999.
Significant capital gains in 1999 relate to gains from the sale of shares and
participations and from the sale of non-core property.

    NET INTEREST AND OTHER FINANCE EXPENSE

    Interest expense decreased by $64 million, or 9%, to $644 million in 2000
from $708 million in 1999. The decrease primarily reflects a lower level of
borrowings during 2000 compared to 1999, resulting from the use of cash
generated by operations and divestitures to reduce borrowings during the period.
The level of interest and dividend income earned decreased by $43 million, to
$565 million in 2000 from $608 million in 1999.

    PROVISION FOR TAXES

    Provision for taxes increased by $34 million, or 10%, to $377 million in
2000 from $343 million in 1999, primarily reflecting taxes on an increased level
of income from continuing operations. As a percentage of income from continuing
operations before taxes and minority interest, however, we incurred a lower
effective tax rate of 28.9% in 2000 compared to 33.6% in 1999. The lower
effective tax rate can be attributed to a change in the financing of our
operations in a number of

                                       63

countries throughout 2000, including financing related to the Elsag Bailey
operations, as well as earnings in countries with tax rates lower than the
weighted average rate.

    INCOME FROM CONTINUING OPERATIONS

    Income from continuing operations increased by $238 million, or 37%, to
$881 million in 2000 from $643 million in 1999. As a percentage of revenues,
income from continuing operations increased to 3.8% in 2000 from 2.6% in 1999.
The increase reflects the impact of the items discussed above.

    INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX

    Income from discontinued operations, net of tax, decreased by $155 million,
or 22%, to $562 million in 2000 from $717 million in 1999. The 1999 amount
reflected both the net gain on the contribution of our power generation business
to the ABB ALSTOM POWER joint venture of $1,339 million and the gain on the sale
of ADtranz of $464 million, partially offset by operating losses from the
divested businesses. The 2000 amount includes a net gain of $713 million on the
sale of our remaining 50% share in ABB ALSTOM POWER and a net gain of
$17 million on the sale of our nuclear power business. The net gain from the
sale of our nuclear power business includes a $300 million provision for
estimated environmental remediation.

    NET INCOME

    As a result of the factors discussed above, net income increased by
$83 million, or 6%, to $1,443 million in 2000 from $1,360 million in 1999. The
increase in net income reflects the 37% improvement in income from continuing
operations. This improvement more than offset the 22% decrease in income from
discontinued operations resulting from the lower level of gains on sales of
non-core businesses.

    EARNINGS PER SHARE

    Diluted earnings per share increased by $0.07 to $1.22 in 2000 from $1.15 in
1999. The increase primarily reflected the significant increase in income from
continuing operations. Diluted earnings per share from continuing operations
increased by $0.20 to $0.74 in 2000, from $0.54 in 1999, reflecting the increase
in income from continuing operations discussed above. This increase was only
partially offset by a decrease in diluted earnings per share from discontinued
operations of $0.13 to $0.48 in 2000 from $0.61 in 1999. This decrease reflected
the lower level of income from discontinued operations discussed above.

BUSINESS DIVISIONS

    In April 2002, we announced our intention to divest our Building Systems
business area, which is part of the Manufacturing and Consumer Industries
division, and to combine the three remaining business areas in the Manufacturing
and Consumer Industries division with the Process Industries division in a newly
created Industries division. We are in the process of implementing this
combination, and we will begin reporting our financial results to reflect this
new structure starting with our June 30, 2002 financial results. The discussion
of the various divisions set forth below does not reflect this new division
reporting.

                                       64

    OVERVIEW

    Revenues, earnings before interest and taxes (or operating income) and
operating margins by division for the fiscal year 2001, 2000 and 1999 and net
operating assets as of December 31, 2001, 2000 and 1999 are as follows (see
Note 23 to the Consolidated Financial Statements):



                                                           REVENUES                   NET OPERATING ASSETS
                                                ------------------------------   ------------------------------
                                                   YEAR ENDED DECEMBER 31,                DECEMBER 31,
                                                ------------------------------   ------------------------------
                                                  2001       2000       1999       2001       2000       1999
                                                --------   --------   --------   --------   --------   --------
                                                       ($ IN MILLIONS)                  ($ IN MILLIONS)
                                                                                     
Utilities.....................................    5,649      5,473      5,875        795      1,018        912
Process Industries............................    3,377      3,339      3,485        738        839        795
Manufacturing and Consumer Industries.........    4,780      5,225      5,697        249        411        634
Oil, Gas and Petrochemicals...................    3,489      2,796      3,086        315        893        554
Power Technology Products.....................    4,042      3,662      3,862      1,311      1,328      1,483
Automation Technology Products................    5,246      5,175      5,550      2,558      3,215      3,388
Financial Services............................    2,133      1,966      1,687     10,926      9,098      7,750
Corporate and Eliminations....................   (4,990)    (4,669)    (4,886)    (3,114)    (2,170)    (2,372)
                                                 ------     ------     ------     ------     ------     ------
Consolidated figures..........................   23,726     22,967     24,356     13,778     14,632     13,144
                                                 ======     ======     ======     ======     ======     ======




                                                       EARNINGS BEFORE
                                                      INTEREST AND TAXES                OPERATING MARGIN
                                                ------------------------------   ------------------------------
                                                   YEAR ENDED DECEMBER 31,          YEAR ENDED DECEMBER 31,
                                                ------------------------------   ------------------------------
                                                  2001       2000       1999       2001       2000       1999
                                                --------   --------   --------   --------   --------   --------
                                                       ($ IN MILLIONS)                        (%)
                                                                                     
Utilities.....................................      148        250        182        2.6        4.6        3.1
Process Industries............................      116         88        123        3.4        2.6        3.5
Manufacturing and Consumer Industries.........       87        205        147        1.8        3.9        2.6
Oil, Gas and Petrochemicals...................       79        157        165        2.3        5.6        5.3
Power Technology Products.....................      234        244        282        5.8        6.7        7.3
Automation Technology Products................      380        464        392        7.2        9.0        7.1
Financial Services............................      (32)       349        337        n/a        n/a        n/a
Corporate and Eliminations....................     (733)      (372)      (506)       n/a        n/a        n/a
                                                 ------     ------     ------     ------     ------     ------
Consolidated operating income/margins.........      279      1,385      1,122        1.2        6.0        4.6
                                                 ------     ------     ------     ------     ------     ------


    DIVISION COSTS

    Cost of sales and selling, general and administrative expenses comprise the
most significant part of operating expenses for all divisions. Cost of sales
includes costs related to the sale of products and services, which comprise,
among other things, the cost of raw materials, components, order-related
research and development and procurement costs. Cost of sales for the Financial
Services division includes insurance claims, acquisition costs and direct costs
incurred to obtain revenues and income from third parties and related parties.
Selling, general and administrative expenses include the overhead related to the
sales force and all costs related to general management, human resources,
financial control, corporate finance and non order-related research and
development. As a percentage of revenues, cost of sales is approximately equal
for all industrial divisions, except that it is slightly lower for the
Automation Technology Products division as a result of the higher gross margins
typical in the automation industry. Selling, general and administrative expenses
as a percentage of revenues are typically higher in the Automation Technology
Products division compared to our other industrial divisions, due to relatively
higher volumes attributable to smaller units of sales. The Oil, Gas and
Petrochemicals division, in contrast, has a higher level of cost of sales (a
lower gross margin) than the other industrial divisions but significantly lower
selling, general and administrative expenses as a percentage of revenues, due to
relatively higher volumes attributable to large projects.

                                       65

    UTILITIES

    Demand in the Americas remained strong throughout 2001. The slowdown in the
U.S. economy and the events of September 11, 2001, did not significantly affect
utilities markets in 2001, as utility investments primarily are
infrastructure-related and generally have long lead times. Market activities in
the United States and Europe were stable while in China and Brazil, the positive
market trend from large project investments continued from the year 2000. In the
Middle East and Africa, political instability has slowed investments in large
projects. The Utilities division strengthened its focus on core utility
customers through the sale of its railway electrification project business to
Balfour Beatty in the fourth quarter of 2001. The divested business employed
approximately 350 people. A shift in customer investments from power sources to
power networks continues to drive the market. Driven by need for reliable power,
demand for new systems and improvements in existing systems are foreseen.

    YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

    Orders increased by $201 million, or 3%, to $6,436 million in 2001 from
$6,235 million in 2000. As reported in local currencies, orders increased 7% in
2001 compared to 2000. This order improvement included a $360 million order in
China for the Power Systems business area, announced in the fourth quarter of
2001. This order relates to a project involving the construction of a HVDC power
transmission system linking hydropower plants in central China to the Guangdong
province. In 2001, large orders represented approximately 17% of the division's
total orders.

    Revenues increased by $176 million, or 3%, to $5,649 million in 2001 from
$5,473 million in 2000. As reported in local currencies, revenues increased 7%
in 2001 compared to 2000. All business areas reported higher revenues in 2001
compared to 2000 due to strong order intake in 2000, with the exception of the
Utility Services business area, where the 2000 results reflected a period of
heightened revenues from the invoicing of the ComEd project in Chicago.

    Earnings before interest and taxes, or operating income, decreased by
$102 million, or 41%, to $148 million in 2001 from $250 million in 2000. There
was no significant effect from translating local currency earnings into U.S.
dollars. Operating income included capital gains of $54 million in 2000. When
adjusted for capital gains, earnings before interest and taxes decreased by 24%.
The reduction primarily related to the Power Systems business area, where
competition-driven price deterioration reduced margins, and fixed costs related
to projects that were deferred negatively impacted profitability.

    YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

    Orders increased $254 million, or 4%, to $6,235 million in 2000 from
$5,981 million in 1999. As reported in local currencies, orders increased 10% in
2000 compared to 1999. A number of significant orders were received by the Power
Systems business area for an interconnection between Brazil and Argentina and
HVDC projects in the United States and Australia. The strongest improvement came
from the Modular Substations business area, which improved orders significantly
through the booking of large projects, primarily in western Europe.

    Revenues decreased $402 million, or 7%, to $5,473 million in 2000 from
$5,875 million in 1999. As reported in local currencies, revenues decreased 2%
in 2000 compared to 1999. All business areas contributed to the negative revenue
development, except our Utility Services business area, which increased revenues
significantly by invoicing several large projects and benefited from full
service contracts signed in 1999 and early 2000. Full service contracts
typically last for several years and revenue is recognized throughout the
contract period. The decrease in revenues primarily resulted from investment
uncertainty in Latin America in 1999, which resulted in order deferrals,
particularly in our Power Systems business area.

                                       66

    Earnings before interest and taxes, or operating income, increased by
$68 million, or 37%, to $250 million in 2000 from $182 million in 1999. As
reported in local currencies, operating income increased by 46% in 2000 compared
to 1999. Operating income included capital gains of $54 million in 2000.
Adjusted for capital gains, earnings before interest and taxes increased
$14 million, or 8%. In general, the improvement reflected the benefits of cost
base reduction and improved internal efficiency, productivity and quality
management on a global basis. These efforts included the restructuring of our
Utility Automation business area. For our Utility Services business area, the
higher volumes largely contributed to the strong increase in earnings before
interest and taxes.

    PROCESS INDUSTRIES

    Throughout 2001, many industries served by the Process Industries division
consolidated, in particular the paper, aluminum and steel industries.
Consolidation has diverted attention toward integration and has led to reduced
capital spending by customers in those industries. The overall economic slowdown
in the United States, exacerbated by the events of September 11, 2001,
negatively affected the cruise industry, and contributed to a consolidation
trend in the marine industry. The poor economic environment also had a negative
effect on the metal, pulp and paper and mining businesses. In contrast, oil and
gas vessel demand remained high in 2001 due to the continued exploration of new
oil fields. The chemical and life sciences industries experienced growth in
2001.

    YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

    Orders decreased by $121 million, or 3%, to $3,376 million in 2001 from
$3,497 million in 2000. As reported in local currencies, orders remained flat.
Orders increased significantly in the Petroleum, Chemical and Life Sciences
business area offsetting decreases in our Paper, Printing, Metals and Minerals
and Marine and Turbocharging business areas.

    Revenues increased by $38 million, or 1%, to $3,377 million in 2001 from
$3,339 million in 2000. As reported in local currencies, revenues increased 5%
in 2001 compared to 2000. Revenue increases were primarily attributable to
increased volumes in our Marine and Turbocharging business area as a result of
the high order backlog from 2000. Additionally, our Petroleum, Chemical and Life
Sciences business area contributed to the revenue improvement.

    Earnings before interest and taxes, or operating income, increased by
$28 million, or 32%, to $116 million in 2001 from $88 million in 2000. As
reported in local currencies, earnings before interest and taxes rose 35% in
2001 compared to 2000. This increase primarily resulted from improvements in
cost controls and project management in our Petroleum, Chemical and Life
Sciences business area, as well as revenue growth in our Marine and
Turbocharging business area.

    YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

    Orders decreased slightly by $28 million, or 1%, to $3,497 million in 2000
from orders of $3,525 million in 1999. As reported in local currencies, however,
orders increased by 6% in 2000 compared to 1999. The reported decrease primarily
reflects the impact of translating local currencies into U.S. dollars for
reporting purposes. Our Petroleum, Chemical and Life Sciences business area
experienced decreased orders, while orders improved in our Marine and
Turbocharging business area.

    Revenues decreased by $146 million, or 4%, to $3,339 million in 2000 from
$3,485 million in 1999. As reported in local currencies, however, revenues
increased by 2% in 2000 compared to 1999. The reported decrease reflects the
significant effect of translating revenues generated in local currencies into
U.S. dollars for reporting purposes. Revenues in our Paper, Printing, Metals and
Minerals and our Marine and Turbocharging business areas declined due to adverse
market

                                       67

conditions. Revenues from our Petroleum, Chemical and Life Sciences business
area decreased significantly due primarily to the low order backlog from the end
of 1999 in the oil and gas industry.

    Earnings before interest and taxes, or operating income, in 2000 decreased
by $35 million, or 28%, to $88 million from $123 million in 1999. As reported in
local currencies, operating income decreased 17% in 2000 compared to 1999.
Operating income in our Paper, Printing, Metals and Minerals business area
remained unchanged from 1999, but operating income in our Marine and
Turbocharging and Petroleum, Chemical and Life Sciences business areas
experienced significant decreases from the 1999 levels. These two business areas
were both negatively affected by significant losses from large projects due to
cost overruns.

    MANUFACTURING AND CONSUMER INDUSTRIES

    Most of our markets--automotive, telecom, air handling and building
construction--were negatively influenced by general economic uncertainty in
2001. In the second half of 2000, automotive industry customers reduced spending
and postponed investments. As this continued in 2001, large order intake
decreased and toward the middle of 2001, base orders also slowed significantly.
In the telecom industry, the repositioning of the major operators and the
uncertainty about new UMTS mobile communication network technology postponed
rollout projects, while investments in traditional GSM communication networks
have been at a minimum. After the events of September 11, 2001, a number of
airport expansion projects have been delayed and scaled back. The European
construction market for buildings weakened in 2001 with a marked drop in
applications for building permits, whereas the retrofit and building service
market is expected to improve.

    YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

    Orders decreased by $1,097 million, or 20%, to $4,388 million in 2001 from
$5,485 million in 2000. As reported in local currencies, orders decreased by 16%
in 2001 compared to 2000. The reduction in orders was primarily attributed to
our Automotive Industries and Building Systems business areas, particularly in
the United States, Germany and Sweden. Additionally, large order intake
decreased, as well as orders for standard products, primarily robots supplied by
the Automation Technology Products division.

    Revenues decreased by $445 million, or 9%, to $4,780 million in 2001 from
$5,225 million in 2000. As reported in local currencies, revenues declined 4% in
2001 compared to 2000. The decrease in revenues mainly arose from the impact of
the global economic slowdown in our Automotive Industries business area. This
was partly offset by moderate revenue increases in our Building Systems business
area, due to good order backlog carried over from 2000.

    Earnings before interest and taxes, or operating income, decreased by
$118 million, or 58%, to $87 million in 2001 from $205 million in 2000. As
reported in local currencies, earnings before interest and taxes decreased 56%
in 2001 compared to 2000. Operating income includes capital gains of
$41 million in 2000. Adjusted for capital gains, earnings before interest and
taxes decreased 47%. Our cost cutting efforts, although significant, lagged
behind the sharp downturn in our markets. Our Automotive Industries business
area in Germany was impacted by a number of project losses and initiated
restructuring to improve the efficiency of project execution. In the United
States, repositioning of selected activities within our Telecom and Product
Manufacturing Industries business area led to lower operating margins. In
addition, our Building Systems business area experienced project losses and
higher costs related to over-capacity in the United Kingdom, Australia, Poland
and Germany. Our Logistics Systems business area also experienced lower volumes
in 2001. The division reduced the number of employees by more than 10% during
2001.

                                       68

    YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

    Orders decreased by $561 million, or 9%, to $5,485 million in 2000 from
$6,046 million in 1999. As reported in local currencies, orders decreased by 1%
in 2000 compared to 1999. A large order was booked in 2000 in our Telecom and
Product Manufacturing Industries business area for the maintenance and upgrade
of a telecommunications access network. This improvement was, however, more than
offset by reductions in other business areas, primarily in our Building Systems
business area.

    Revenues decreased by $472 million, or 8%, to $5,225 million in 2000 from
$5,697 million in 1999. As reported in local currencies, however, revenues
increased by 1% in 2000 compared to 1999. Increased revenues in our Telecom and
Product Manufacturing Industries business area resulted from higher volumes in
our full service business. This improvement was offset by reductions in other
business areas, primarily in our Building Systems business area as a result of
the discontinuation of the rail service and contracting business in Australia.

    Earnings before interest and taxes, or operating income, increased by
$58 million, or 39%, to $205 million in 2000 from $147 million in 1999. As
reported in local currencies, operating income increased by 51% in 2000 compared
to 1999. Operating income includes capital gains of $41 million in 2000.
Adjusted for capital gains, earnings before interest and taxes increased 12%.
The increase was driven by improvements in our Automotive Industries and Telecom
and Product Manufacturing business areas, particularly in the United States,
reflecting the favorable market conditions at the end of 1999 and the beginning
of 2000. Additionally, the earnings improvement can be attributed to efficient
execution of projects, favorable product mix and savings in general and
administration costs following active cost management. Operating income in our
Building Systems business area remained relatively unchanged as losses in the
United Kingdom offset operational improvements achieved in other markets.

    OIL, GAS AND PETROCHEMICALS

    Capital expenditures by customers of the Oil, Gas and Petrochemicals
division are influenced by oil company expectations about the supply and demand
for crude oil and natural gas products, the energy price environment that
results from supply and demand imbalances and consolidation of the oil and gas
markets. Key factors that may influence the worldwide oil and gas market include
production restraint of OPEC nations and other oil-producing countries, global
economic growth, technological progress in oil exploration and production and
the maturity of the resource base. The downstream markets are influenced by
factors such as economic growth, substitution of products and demand for more
environmentally friendly products.

    Crude oil prices dropped in the fourth quarter of 2001 to below the OPEC
band of $22 to $28 per barrel, with the average price for 2001 below that of
2000. The upstream business (from the well or bore hole to the refinery)
continued to see high activity levels in 2001. The activity in West Africa
continued its strong 2000 level throughout 2001, with some softening of demand
in the fourth quarter due to the economic slowdown. Oil exploration activities
in the Gulf of Mexico were robust while there was a shortfall in the gas
exploration and production market, due to lower gas prices in the United States.
The high order levels in the downstream market in 2000 did not continue through
2001. Demand in the petrochemicals industry decreased, subsequently leading to
reduced investments in new capacity, while investments in refineries and
gas-processing plants remained stable, driven by environmental regulations. The
deterioration of the world economy had a negative impact on the downstream
business, resulting in reduced activities in the process technology market in
2001. We expect this challenging downstream environment to continue in 2002.

                                       69

    YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

    Orders decreased by $520 million, or 13%, to $3,403 million in 2001 from
$3,923 million in 2000. As reported in local currencies, orders decreased 12% in
2001 compared to 2000. In 2001, approximately half of the total order volume in
the Oil, Gas and Petrochemicals division was composed of large orders. From the
particularly high level of large orders in 2000, the upstream business continued
to grow, but was offset by reductions in the downstream business. We experienced
high tendering activity in the Oil, Gas and Petrochemicals division in 2001.
This is expected to affect orders positively going into 2002.

    Revenues increased by $693 million, or 25%, to $3,489 million in 2001 from
$2,796 million for 2000. As reported in local currencies, revenues increased 28%
in 2001 compared to 2000. This growth was primarily generated by the large order
intake in 2000 and also by a full year of revenues from Umoe, the oil and gas
company acquired in the second half of 2000. Revenues improved in our Upstream
business area, but the Downstream business area remained flat in 2001 compared
to 2000.

    Earnings before interest and taxes, or operating income, decreased by
$78 million, or 50%, to $79 million in 2001 from $157 million in 2000. As
reported in local currencies, earnings before interest and taxes decreased 49%
in 2001 compared to 2000. Earnings before interest and taxes were adversely
affected by provisions for major cost overruns and project delays, the majority
of which related to two large projects. The remaining underlying business
developed positively, benefiting from the higher level of revenues.

    YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

    As oil prices recovered during 2000, demand in both the upstream market and
the downstream markets increased in 2000, reflecting renewed investments by
companies in the oil, gas and petrochemical-related industries. This resulted in
an increase in orders of $893 million, or 29%, to $3,923 million in 2000 from
$3,030 million in 1999. As reported in local currencies, orders increased by 40%
in 2000 compared to 1999. A considerable part of the increase in orders was
attributable to additional large orders booked in 2000. Large orders are by
nature longer-term and do not immediately affect revenues.

    Revenues decreased by $290 million, or 9%, to $2,796 million in 2000 from
$3,086 million in 1999. As reported in local currencies, revenues decreased 3%
in 2000 compared to 1999. The decrease resulted from the low level of orders in
1999 reflecting the drop in overall market volume, both upstream and downstream,
in 1999. Additionally, the improved levels of orders in late 1999 and 2000 were
only reflected in revenues in late 2000.

    Earnings before interest and taxes, or operating income, decreased by
$8 million, or 5%, to $157 million in 2000 from $165 million in 1999. As
reported in local currencies, earnings before interest and taxes remained flat
in 2000 compared to 1999. A capital gain of $15 million arising from non-core
divestitures was included in 2000 operating income. Cost of sales showed a
favorable development, but was offset by selling, general and administrative
expenses, which did not keep pace with the revenue decrease.

    POWER TECHNOLOGY PRODUCTS

    Demand in the Americas remained high during 2001, particularly for power
transmission products. The U.S. market in particular showed good demand and a
higher level of investments in our High-Voltage Technology business area, which
primarily serves the utilities market. The market in China continued to grow
with a strong fourth quarter of 2001, while the majority of the Southeast Asian
market remained stable with respect to infrastructure and industrial
investments. Markets in Europe were mixed, with moderate growth in the German,
Italian and Swedish markets, offset by flat or declining investments in other
European countries. Demand in Middle Eastern and African

                                       70

markets, in particular Saudi Arabia and the United Arab Emirates, showed
improved momentum during the second half of 2001. Generally, we expect the
positive developments to continue and weaker markets to recover during 2002.

    YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

    Orders increased by $150 million, or 4%, to $4,221 million in 2001 from
$4,071 million in 2000. As reported in local currencies, orders increased 9% in
2001 compared to 2000. Our Power Transformers business area recorded strong
order growth mainly due to a considerable large order booked for the Chinese
power link project. Our High-Voltage Technology business area increased orders
substantially in the United States, Brazil, China and Russia. Orders in our
Distribution Transformers and Medium-Voltage Technology business areas showed
more modest growth as a result of the economic slowdown in North America, which
affected the building and infrastructure markets.

    Revenues increased by $380 million, or 10%, to $4,042 million in 2001 from
$3,662 million in 2000. As reported in local currencies, revenues increased 15%
in 2001 compared to 2000. Our High-Voltage Technology business area showed a
substantial revenue increase, generated in the Americas and Europe through
increased volumes in high-voltage breakers and systems activities. Other
distribution and transmission products recorded high single-digit or low
double-digit growth in local currencies.

    Earnings before interest and taxes, or operating income, decreased by
$10 million, or 4%, to $234 million in 2001 from $244 million in 2000. As
reported in local currencies, earnings before interest and taxes remained
unchanged in 2001 compared to 2000. Excluding the effect of increased
restructuring charges in 2001, earnings before interest and taxes showed a
slight improvement as a result of revenue growth and operational improvements.
The higher level of revenues and operational improvements, however, were offset
in part by lower product prices and the postponement of certain orders.

    YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

    Orders increased by $230 million, or 6%, to $4,071 million in 2000 from
$3,841 million in 1999. As reported in local currencies, orders increased by 14%
in 2000 compared to 1999. The main contributor was our High-Voltage Technology
business area, which represented approximately one third of total division
orders. In particular, significant orders were received from the Utilities
division for an interconnection between Brazil and Argentina and HVDC projects
in the United States and Australia.

    Revenues decreased $200 million, or 5%, to $3,662 million in 2000 from
$3,862 million in 1999. As reported in local currencies, however, revenues
increased by 2% in 2000 compared to 1999. The level of revenues reflected the
weakness of orders from Latin America in 1999 that affected revenues in 2000,
particularly in our High-Voltage Technology business area, which experienced a
significant revenue decrease. The Latin American market has been an important
market for this business area. The decrease was offset by an improvement in
revenues from our Power Transformers business area. Revenues from our
Distribution Transformers business area increased as a result of an improved
business climate, primarily in North America, where the business area performed
well.

    Earnings before interest and taxes, or operating income, decreased by
$38 million, or 13%, to $244 million in 2000 from $282 million in 1999. As
reported in local currencies, however, operating income decreased by 9% in 2000
compared to 1999. Excluding capital gains of $30 million in 1999, operating
income decreased 3% in 2000. The decrease in operating income was mainly the
result of weak revenues and higher costs associated with restructuring charges
in our Power Transformers and High-Voltage Technology business areas. Efforts to
increase production efficiency include

                                       71

reducing product overlaps and increasing the standardization of products where
appropriate. Particularly in our Medium-Voltage Technology business area these
efforts have lowered our cost base and improved the level of operating income
already in 2000. These positive developments were offset by added development
costs for the new technology within the area of distributed generation.

    AUTOMATION TECHNOLOGY PRODUCTS

    The 2001 economic downturn, first in the United States and later in Europe,
negatively impacted demand. Asia generally remained stable. The automotive
industry experienced significant reductions in investments due to generally
weaker economic conditions across our major markets. The events of
September 11, 2001, negatively affected the cruise industry in particular.
Continuing consolidation in the pulp and paper industry depressed demand as
customers focused on integration issues. The weakened construction market,
especially in Germany, adversely affected our Low-Voltage Products business
area.

    YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

    Orders decreased by $251 million, or 5%, to $5,170 million in 2001 from
$5,421 million in 2000. As reported in local currencies, orders were flat in
2001 compared to 2000. Our Drives and Power Electronics business area increased
orders in 2001 and improved market share, while our Robotics business area was
negatively affected by the decline in the automotive industry. Order levels in
all other business areas decreased as they were impacted by increasingly
difficult market conditions. Despite difficult conditions, our Instrumentation
and Metering and Low-Voltage Products business areas maintained their market
shares.

    Revenues increased by $71 million, or 1%, to $5,246 million in 2001 from
$5,175 million in 2000. As reported in local currencies, revenues increased by
6% in 2001 compared to 2000. Revenue growth was especially strong in our Drives
and Power Electronics business area. Supported by the strong order backlog at
the end of 2000, our Electrical Machines and Low-Voltage Products business areas
increased revenues. Offsetting in part the revenue increase were a significant
decline in our Robotics and Control and Force Measurement business areas due to
the downturn in the automotive industry and ongoing consolidation in the pulp,
paper and metals industries, respectively.

    Earnings before interest and taxes, or operating income, decreased by
$84 million, or 18%, to $380 million in 2001 from $464 million in 2000. As
reported in local currencies, earnings before interest and taxes decreased 14%
in 2001 compared to 2000. In our Robotics business area, reduced revenues
resulted in significantly reduced operating income. Operating income in our
Low-Voltage Products business area declined in 2001 reflecting the divestiture
of certain profitable, but non-core, businesses. Earnings before interest and
taxes in our Drives and Power Electronics business area increased due to good
volume development; however, this development did not fully offset reductions in
other business areas. Ongoing efforts to simplify product lines and multiple
manufacturing locations should help to counteract the difficult market
conditions going forward. Additionally, the division reduced personnel by
approximately 3,000 in the second half of 2001.

    YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

    Orders decreased by $201 million, or 4%, to $5,421 million in 2000 from
$5,622 million in 1999. As reported in local currencies, however, orders
increased by 6% in 2000 compared to 1999. Growth was especially strong in our
Drives and Power Electronics, Electrical Machines, Robotics and Low-Voltage
Products business areas, due to strong markets.

    Revenues decreased by $375 million, or 7%, to $5,175 million in 2000 from
revenues of $5,550 million in 1999. As reported in local currencies, however,
revenues increased by 2% in 2000

                                       72

compared to 1999. The revenue level reflected the weakness in sales of larger
automation systems sold through the Manufacturing and Consumer Industries
division. Increased sales volumes, particularly in Europe, Asia and Latin
America, partially offset pricing pressure on our automation products. Our
Robotics business area significantly increased revenues, largely as a result of
higher volumes from large automotive orders.

    Earnings before interest and taxes, or operating income, in 2000 increased
by $72 million, or 18%, to $464 million in 2000 from $392 million in 1999. As
reported in local currencies, earnings before interest and taxes increased by
32% in 2000 compared to 1999. In general, the improvement in earnings before
interest and taxes reflects the division's substantial efforts to reduce its
cost base and improve internal efficiency, productivity and quality management.
In particular, our Drives and Power Electronics business area experienced
operational improvements and healthy market conditions. Increased sales volumes
and improved efficiency moderately increased operating income in the Low-Voltage
Products business area. Our Robotics business area significantly increased
operating income due to higher volumes. Efficiency improvements in our
Electrical Machines business area also contributed to significantly higher
operating income.

    FINANCIAL SERVICES

    The Financial Services division is impacted by interest rate movements in
various currencies, mainly the U.S. dollar, the Euro and the Swiss franc, as
well as exchange rate movements. The level of investment income generated from
the investments in our Insurance business area and the income from the
division's lease portfolio are affected by movements in interest rates, while
the trading results of the Treasury Centers have been affected by movements in
interest rates and exchange rates. Effective June 19, 2002, the Treasury Centers
halted proprietary trading activities. Additionally, movements in the equity
markets affect the ability to realize investment results in our Insurance
business area.

    The events of September 11, 2001 negatively affected financial markets but
had a mixed impact on the global insurance market. As a consequence, the
worldwide insurance business is experiencing rising demand for insurance and
reinsurance while facing reduced capacity, substantially higher premium rates, a
flight to quality, rethinking of risk assessments, and more restrictive terms
and conditions. At the same time the insurance industry was impacted by lower
investment results, reflecting generally declining equity markets compared to
the beginning of 2001. During 2001, there was a global trend toward lower
interest rates, resulting in higher market values of bond portfolios.

    YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

    Revenues increased by $167 million, or 8%, to $2,133 million in 2001 from
$1,966 million in 2000. As reported in local currencies, revenues increased 13%
in 2001 compared to 2000. The main contributors to the increase in revenues were
our Insurance business area, due to a higher level of insurance premiums
resulting from increased volumes, and our Structured Finance business area,
resulting from the acquisition of a portfolio of small, mainly standardized
leases and increased revenues from its growing financial receivables portfolio.
The majority of income in our Equity Ventures business area derives from
equity-accounted investments, which do not appear as revenue but are instead
recognized in other income.

    Earnings before interest and taxes, or operating income, decreased by
$381 million, to a loss of $32 million in 2001 from $349 million in 2000. The
reduction in operating income is principally the result of a $295 million
non-cash charge in 2001 relating to our reinsurance business. Prior to 2001, we
presented a portion of our insurance reserves on a discounted basis, which
estimated the present value of funds required to pay losses at future dates.
During 2001, the timing and amount of claims payments being ceded to us in
respect of prior years' finite risk reinsurance contracts has changed and cannot
be reliably determined at December 31, 2001. Therefore, we have not

                                       73

discounted our loss reserves resulting in a charge to losses and loss adjustment
expenses in 2001 of $295 million. For further information, see Note 14 to the
Consolidated Financial Statements.

    Our Structured Finance business area reported an increase in profitability
as a consequence of higher income from its expanded financial receivables
portfolio, and also due to its 35% stake in Swedish Export Credit Corporation,
which was acquired in June 2000. Our Structured Finance business area
successfully sold various lease transactions during 2001.

    Our Equity Ventures business area achieved higher earnings before interest
and taxes through successful refinancing, improved performance and achievement
of milestones in infrastructure projects. During 2001, our Equity Ventures
business area reduced its stakes in certain projects.

    Results for our Insurance business area were negatively impacted by
insurance losses, mainly through a non-cash charge of $295 million following the
change in estimation of insurance loss reserves described above. In addition,
our Insurance business area recorded provisions for $138 million in underwriting
losses, including provisions totaling $48 million relating to the events of
September 11, 2001, leading to substantial additional negative insurance
results. A lower level of capital gains on the equity investment portfolio was
realized during 2001, which was partly offset by realized gains in the bond
portfolio due to lower interest rates, particularly in the United States.

    Weakened economic conditions and the monetary policy following the events of
September 11, 2001 exacerbated the trend of lower U.S. interest rates.
Benefiting from such trends and other price movements, our Treasury Centers
business area increased earnings mainly by improvements in its trading results
in financial markets.

    Total assets of Financial Services amounted to approximately $15 billion as
of December 31, 2001, representing marketable securities held by Treasury
Centers and Insurance, financial leases held by Structured Finance, equity
participations held by Equity Ventures, lending to infrastructure projects by
Structured Finance and to ABB companies by Treasury Centers.

    YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

    Financial Services revenues increased by $279 million, or 17%, to
$1,966 million in 2000 from $1,687 million in 1999. As reported in local
currencies, revenues increased 23% in 2000 compared to 1999. The revenue
increase primarily related to improved revenues in our Insurance business area,
which arose mainly from the acquisition of Kemper Europe Reassurances and a
higher level of insurance premiums.

    Earnings before interest and taxes, or operating income, increased by
$12 million, or 4%, to $349 million in 2000 from $337 million in 1999. As
reported in local currencies, operating income increased 12% in 2000 compared to
1999.

    Our Structured Finance business area posted higher earnings for 2000, mainly
reflecting higher net interest income from the growing lease and loan portfolio.
Structured Finance earnings also included ABB's share in the results of Swedish
Export Credit Corporation amounting to $16 million following our acquisition of
a 35% interest in that institution in June 2000.

    Our Equity Ventures business area increased its earnings as a result of
higher income from its investment in special purpose infrastructure companies.
New investments during 2000 included a stake in a high-voltage power
transmission line in Australia.

    Earnings in our Insurance business area decreased in 2000 compared to 1999
as a consequence of reduced investment and underwriting results. The reduced
investment income reflects both the unusually strong equity markets in 1999 and
the volatile markets in 2000. The decrease also reflected the costs of
integrating Kemper Europe Reassurances into our Insurance business area.

                                       74

    Treasury Centers posted earnings higher in 2000 than in 1999, mainly due to
a stronger trading result.

    Total assets of Financial Services amounted to approximately $12 billion as
of December 31, 2000, representing marketable securities held by Treasury
Centers and Insurance, financial leases held by Structured Finance, equity
participations held by Equity Ventures, lending to infrastructure projects by
Structured Finance and to ABB companies by Treasury Centers.

CORPORATE

    The corporate and elimination line item includes our New Venture activities,
Corporate Research and Development, the Group Processes Division, costs for
other corporate functions such as for our holding companies, and elimination of
intra-company interest from the Financial Services division. Total operating
cost from corporate and elimination increased by $361 million, to $733 million
in 2001 from $372 million in 2000. The loss in our New Venture activities
increased by $107 million to a loss of $119 million, from a loss of $12 million
in 2000, and reflects both the negative operating results of consolidated or
equity accounted units, as well as the write-down of intangible assets and some
participations in non consolidated New Venture units. Corporate research and
development cost increased by $7 million to $103 million in 2001, from
$96 million in 2000, due to higher research activities during 2001, mainly in
the area of Industrial IT. Expenses for our Group Processes division decreased
slightly by $2 million to $55 million, from $57 million in 2000. Intra-company
elimination of interest income of our Financial Services division increased by
$20 million to $171 million, from $151 million in 2000, due to higher corporate
borrowings in the market through the Financial Services division, mainly to
finance treasury shares purchases and corporate acquisitions. Costs for other
corporate decreased by $50 million to $315 million, from $365 million in 2000,
mainly due to cost reduction activities in the context of the new organizational
structure. The main reason for the lower result in 2001 was the significant drop
in capital gains of $279 million to $30 million, down from $309 million in 2000.

                        LIQUIDITY AND CAPITAL RESOURCES

    Liquidity and capital resources have been drawn from three primary sources:
cash from operations, proceeds from the issuance of debt securities, and bank
borrowings.

    We believe that our ability to generate cash flow through our operating
activities, our access to both domestic and international capital markets, as
well as our credit lines with banks, will continue to provide the cash flows
necessary to satisfy our working capital requirements as well as meet our
financial commitments for at least the next 12 months. Due to the nature of our
operations, our cash flow from operations generally tends to be weaker in the
first half of the year than in the second half of the year.

    On April 23, 2002, Standard & Poor's Rating Services lowered our short-term
debt rating to A-2 and affirmed our long-term debt rating at A, with a negative
outlook. On April 26, 2002, Moody's Investors Service confirmed our short-term
debt rating at Prime-3 and our long-term debt rating at Baa2, also with a
negative outlook. Any further ratings change will affect our funding cost.

    ABB Ltd and certain finance subsidiaries serve as the primary vehicles for
the issuance of publicly traded and privately placed debt securities and bank
borrowings. Debt securities are issued within amount, maturity, currency and
price guidelines set each year and reviewed periodically by ABB Ltd. We have a
number of commercial paper programs giving us access to short-term liquidity
throughout the world. Our current short-term debt ratings, however,
significantly limit our success in issuing new commercial paper.

                                       75

    Our commercial paper programs are reflected in the table below:



                                                    PROGRAM SIZE (IN LOCAL   PROGRAM SIZE ($ IN
PROGRAM DESCRIPTION                                   CURRENCY MILLIONS)        MILLIONS)(1)
-------------------                                 ----------------------   ------------------
                                                                                         
Nordic and Baltic commercial paper program........  SEK 6,000                        568
European commercial paper program.................  USD 3,000                      3,000
German commercial paper program...................  EUR 1,000                        880
U.S. commercial paper program.....................  USD 2,000                      2,000
Australian commercial paper program...............  AUD 250                          127


------------------------

(1) Translated using year-end exchange rates.

    At March 31, 2002, December 31, 2001 and 2000, a total of $1,760 million,
$3,297 million and $1,923 million respectively, was outstanding under these
programs with a weighted average interest rate of 3.2%, 2.7% and 5.9%,
respectively. The weighted average interest rate on our other short-term debt of
$983 million and $1,163 million was 4.6% and 6.0% at December 31, 2001 and 2000,
respectively. Other short-term debt amounted to $4,295 million at March 31,
2002.

    We have access to long-term funding through both public debt issuances and
private placements. These debt securities are issued both under our existing
medium term note program (with a program size of $5,250 million) and as separate
issuances outside of the program. At March 31, 2002, December 31, 2001 and 2000,
$3,381 million, $3,575 million and $2,502 million, respectively, was outstanding
under our medium term note program and $1,693 million, $1,768 million and
$1,405 million, respectively, outside of the program.

    Depending on market opportunities, we fund ourselves in a range of
currencies and maturities and on various interest rate terms. We use derivatives
to reduce the exposures created by such debt issuances. For example, to reduce
our exposure to interest rates, we use interest rate swaps to effectively
convert fixed rate borrowings into floating rate liabilities and we use cross
currency swaps to effectively convert foreign currency denominated bonds into
U.S. dollar liabilities. After considering the effect of interest rate swaps,
the effective average interest rate on our floating rate long-term borrowings of
$4,422 million and our fixed rate long-term borrowings of $1,017 million at
December 31, 2001 was 2.7% and 5.3%, respectively. This compares with an
effective rate of 5.4% for floating rate long-term borrowings and 4.6% for fixed
rate long-term borrowings as of December 31, 2000.

    In mid-December 2001, as support for our commercial paper issuance, as well
as for general corporate purposes, we entered into a syndicated $3,000 million,
364-day unsecured revolving credit facility, with the option to convert up to
$1,000 million of any outstanding amounts at the end of the period into a
one-year term facility.

    During the first three months in 2002, we experienced increased difficulties
in issuing new commercial paper, which partly was due to the increased negative
sentiment of investors against corporate borrowers as well as a series of rating
downgrades by Moody's Investors Service and Standard & Poor's Rating Services
during the same period. In March 2002, we drew down $2,845 million under the
credit facility to ensure that we would satisfy our commercial paper obligations
maturing during 2002. In April 2002, we amended the credit facility to remove
terms that required renegotiation of the credit facility if our credit ratings
fell below specified levels. Instead, certain covenants were introduced. At the
same time, we reduced our outstanding amount under the credit facility to
$2,750 million. The interest rate on amounts borrowed under the credit agreement
will range between 0.60% and 2.50% over LIBOR, depending on our credit ratings.
For further information regarding the credit facility, see "Item 10. Additional
Information" and Note 24 to the Consolidated Financial Statements.

                                       76

    During 2001, we succeeded in broadening our sources of funding. We raised
the equivalent of $417 million through the first Japanese yen denominated bond
by a Swiss corporate and a further equivalent of $215 million resulted from an
overnight index-linked bond targeted at the French investor base. Both of these
bonds were issued under our medium term note program. Furthermore, we raised
$350 million through our first Rule 144A private placement into the United
States market.

    In May 2002, we 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 ABB shares
at a conversion price of CHF 18.48 (converted into U.S. dollars at a fixed
conversion rate of 1.6216 Swiss francs per U.S. dollar). The conversion price is
subject to adjustment provisions to protect against dilution or a change in
control. Based upon the conversion price in effect at issuance, conversion of
the bonds would enable the holders to receive an aggregate of approximately
85 million of our shares. The bonds may be converted into ABB shares at any time
on or after June 26, 2002, up to and including May 2, 2007. We may elect to
deliver a cash payment in lieu of delivering some or all of the shares otherwise
deliverable on conversion. We may redeem the bonds, in whole, but not in part,
(1) from and after May 16, 2005, if the trading price of the shares on the SWX
Swiss Exchange exceeds certain thresholds or (2) at any time, if at least 85% in
aggregate principal amount of the bonds originally issued have been exchanged,
redeemed or purchased and cancelled. Unless previously redeemed, converted or
purchased and cancelled, we will redeem the bonds at par value on May 16, 2007.
We may elect to redeem the bonds in cash, shares, or by a combination of cash
and shares.

    In May 2002, we issued bonds with an aggregate principal amount of
L200 million, or approximately $292 million, which pay interest semi-annually in
arrears at 10% per annum and mature on May 29, 2009. Also in May 2002, we issued
bonds with an aggregate principal amount of E500 million, or approximately
$466 million, which pay interest annually in arrears at 9.5% per annum and
mature on January 15, 2008. The annual rate of interest on both of these bonds
will increase by 150 basis points if our credit rating decreases to a level
below Baa3 by Moody's or below BBB- by Standards & Poor's. As of May 31, 2002,
our credit rating was Baa2 by Moody's and A by Standard & Poor's. Aggregate
proceeds from issuance of these bonds, before commissions and other issue costs,
was approximately $747 million.

    Pursuant to the terms of our amended revolving credit facility, the issuance
of the convertible bonds, the euro-denominated bonds and the
sterling-denominated bonds reduced the amount available under the credit
facility to $1,315 million. As a result, on May 29, 2002, we utilized a portion
of the proceeds from these bond offerings to reduce our borrowings under the
credit facility to $1,315 million. Proceeds from future disposals of assets or
certain other offerings in the capital markets may further reduce the amount
available under the credit facility to a minimum of $1,000 million.

    In addition to the aforementioned primary sources of liquidity and capital
resources, we also sold certain trade receivables to Qualifying Special Purpose
Entities (QSPEs) unrelated to us, in revolving-period securitizations during
2001 and 2000. The net cash received from QSPEs during 2001 and 2000 was
$86 million and $208 million, respectively. We retain servicing responsibility
relating to the sold receivables.

    Solely for the purpose of credit enhancement from the perspective of the
QSPEs, we retained an interest in the sold receivables. Pursuant to the
requirements of the revolving-period securitization, we effectively bear the
risk of potential delinquency or default associated with trade receivables sold
or interests retained. The fair value of the retained interests at December 31,
2001, and December 31, 2000, was approximately $264 million and $214 million,
respectively.

                                       77

    Cash settlement with the QSPEs takes place monthly on a net basis. The total
cost of $33 million and $26 million in 2001 and 2000, respectively, related to
the securitization of trade receivables, is included in the determination of
current earnings.

    At December 31, 2001 and 2000, of the gross trade receivables sold, the
total outstanding trade receivables amounted to $1,058 million and
$918 million, respectively. At December 31, 2001 and 2000, an amount of
$65 million and $49 million, respectively, was more than 90 days past due, which
according to the terms of the programs, is deemed to be delinquent. For more
information regarding our securitization programs, see Note 7 to the
Consolidated Financial Statements.

    Our debt and operating lease obligations as of December 31, 2001 are
summarized in the table below:

OBLIGATIONS



                                                                     PAYMENTS DUE BY PERIOD
                                                                         ($ IN MILLIONS)
                                                      -----------------------------------------------------
                                                                 LESS THAN     1-3        4-5      AFTER 5
                                                       TOTAL      1 YEAR      YEARS      YEARS      YEARS
                                                      --------   ---------   --------   --------   --------
                                                                                    
Long-term debt......................................   5,510         467      2,679      1,815       549
Commercial paper....................................   3,297       3,297         --         --        --
Short-term loans and repurchase agreements..........     983         983         --         --        --
Operating leases....................................   1,340         269        414        293       364


    It is industry practice to use letters of credit, surety bonds and other
performance guarantees on major projects, including long-term operation and
maintenance contracts. Such guarantees may include guarantees that a project
will be completed or that a project or particular equipment will achieve defined
performance criteria. The guarantors may include subsidiaries of ABB Ltd and/or
ABB Ltd. Because such guarantees may not state a fixed or maximum amount, the
aggregate amount of our potential exposure under the guarantees cannot
reasonably be estimated. Provisions are recorded in the consolidated financial
statements at the time it becomes probable we will incur losses pursuant to a
performance guarantee. We do not expect to incur significant losses under these
guarantees in excess of our provisions. However, such losses, if incurred, could
have a material impact on our consolidated financial position, liquidity or
results of operations.

    Our financial services business has guaranteed the obligations of certain
third parties in return for a commission. These financial guarantees represent
irrevocable assurances that we will make payment in the event that the third
party fails to fulfill its obligations and the beneficiary under the guarantee
records a loss under the terms of the guarantee agreement. The commissions
collected are recognized as income over the life of the guarantee and we record
a provision when we become aware of an event of default or a potential event of
default occurs. At December 31, 2001, we had issued approximately $270 million
of financial guarantees with maturity dates ranging from one to nineteen years.
We do not expect to incur significant losses under these contracts.

FINANCIAL POSITION

    Our operating assets, excluding cash and equivalents, decreased to
$16,747 million at December 31, 2001, from $17,314 million at December 31, 2000.
Operating assets include marketable securities, receivables, inventories and
prepaid expenses. The decrease in 2001 partially reflects the impact of
translating balance sheet amounts from local currencies to U.S. dollars for
reporting purposes. The decrease also reflects a $1,263 million decrease in
marketable securities and a reduction in inventories of $117 million, partially
offset by a $773 million increase in prepaid expenses. This increase is mainly
due to increases in the fair value of derivatives recorded on the balance sheet
as required by SFAS 133.

                                       78

    Current operating liabilities include accounts payable, short-term
borrowings, accrued liabilities and insurance reserves (which form part of the
normal operations of our insurance business), among other items. The
$3,583 million increase in current operating liabilities from December 31, 2000
to December 31, 2001 is principally the result of the increase of trade and
other accounts payable of $963 million, of short-term borrowings of
$1,160 million and accrued liabilities and other of $1,460 million. This
increase is due to an increase in insurance reserve, as well as the application
of SFAS 133, which requires derivative assets and liabilities to be reported on
the balance sheet.

    Financing receivables, which includes receivables from leases and loans
receivable, increased to $4,263 million at December 31, 2001, from
$3,875 million at December 31, 2000. The increase is principally due to a higher
level of project financing activity throughout the year that was only partially
offset by our cash generation activity late in the year.

    Property, plant and equipment decreased to $3,003 million at December 31,
2001, from $3,243 million at December 31, 2000, primarily reflecting the effect
of translating balance sheet amounts into U.S. dollars and normal levels of
depreciation and disposition of non-core property, plant and equipment.

    Intangible assets increased to $3,299 million at December 31, 2001, from
$3,155 million at December 31, 2000 reflecting an increase in software
capitalization and goodwill from acquisitions, which was only partially offset
by the amortization expense.

    Investments and other assets increased to $2,265 million at December 31,
2001, from $1,978 million at December 31, 2000. The increase primarily resulted
from a higher amount of prepaid pension assets ($162 million contribution to our
U.S. pension plan), improved returns on investments in projects with ABB equity
participation and a higher amount of deferred tax assets. This increase was
partially offset by the sale of most of our interest in b-business partners.

    Our net debt position (defined as borrowings minus cash and equivalents and
marketable securities) amounted to $4,077 million at December 31, 2001, compared
to $1,757 million at December 31, 2000. The increase in net debt during the year
arose due to the need to fund the acquisition of Entrelec, significant
investments in Financial Services assets and the purchase of treasury shares.

    At December 31, 2001 and 2000, we had total borrowings, including short-,
medium- and long-term borrowings, outstanding of $9,790 million and
$7,363 million, respectively. During 2001, our level of borrowings increased
significantly during the first nine months mainly due to the financing of the
repurchase of our own shares as well as a higher level of activity in project
financing. Toward year-end, we decreased our borrowings significantly through a
strong increase in our operating cash flow.

    Short-term borrowings, including current maturities of long-term debt,
increased by $1,160 million, or 32%, to $4,747 million outstanding at
December 31, 2001 from $3,587 million outstanding at December 31, 2000.
Long-term borrowings increased by $1,267 million, or 34%, in 2001 to
$5,043 million at December 31, 2001 from $3,776 million at December 31, 2000.

                                       79

    The consolidated statement of cash flows can be summarized into main
activities as follows:



                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                     ($ IN MILLIONS)
                                                                           
Cash flows provided by (used in):
Operations..................................................  $ 2,193     $1,022    $ 1,575
Acquisitions, investments, divestitures and discontinued
  operations, net...........................................     (505)       331       (641)
Asset purchases, net of disposals...........................     (609)      (315)      (351)
Other investing activities..................................     (314)      (780)      (321)
Borrowings, net of repayments...............................    2,639        (44)      (525)
Treasury and capital stock transactions.....................   (1,393)       244       (165)
Other financing activities..................................     (569)      (592)      (497)
Effects of exchange rate changes............................      (72)       (84)      (100)
                                                              -------     ------    -------
Increase (decrease) in cash.................................  $ 1,370     $ (218)   $(1,025)
                                                              =======     ======    =======


CASH FLOW FROM OPERATING ACTIVITIES

    Net cash provided by operating activities in 2001 increased by
$1,171 million to $2,193 million from $1,022 million in 2000. Income from
continuing operations, net of adjustments for non-cash items, decreased by
$623 million in 2001, from $1,323 million in 2000 to $700 million in 2001. This
was more than offset by net cash provided related to the decrease in net
operating assets of $1,493 million in 2001 as compared to the cash outflow
related to the increase in net operating assets and liabilities of $301 million
in 2000. The increase in net cash provided by operating activities in 2001 was
primarily due to the increase in trade payables and non-trade payables. The
increase also reflected an increase in insurance reserves (which is a non-cash
charge to the income statement), related to our re-insurance business (which
form part of the normal operations of our insurance business). Net operating
assets include marketable securities held for trading purposes, receivables,
inventories, payables and other assets and liabilities. Marketable securities
are classified as either trading or available-for-sale. Debt and equity
securities that are bought and held principally for the purpose of sale in the
near term are classified as trading securities.

    Net cash provided by operating activities decreased by $553 million to
$1,022 million at December 31, 2000 from $1,575 million at December 31, 1999.
Income from continuing operations, net of adjustments for non-cash items,
increased by $159 million from $1,164 million in 1999. This was more than offset
by cash outflows related to the increase in net operating assets of
$301 million in 2000 as compared to cash provided by the decrease in net
operating assets of $411 million in 1999. The increase in net operating assets
in 2000 was primarily due to the increase in cash tied up in ongoing customer
projects where unbilled receivables and inventories, after consideration of
advances from customers, exceeded the level experienced in 1999.

CASH FLOW FROM INVESTING ACTIVITIES

    Investing activities include: acquisitions of, investments in and
divestitures of businesses; purchases of property, plant and equipment, net of
disposals; net investments in marketable securities that are not held for
trading purposes; and accounts receivable from leases and third-party loans
(financing receivables). Net investments in marketable securities that are not
held for trading purposes and financing receivables are summarized in the table
above as "other investing activities" and increases in these amounts reflect
cash outflows. Net cash used in investing activities decreased by $495 million
to $1,218 million in 2001 from $1,713 million in 2000. Net cash used in
investing activities decreased by $323 million to $1,713 million in 2000 from
$2,036 million in 1999.

                                       80

    Net cash flow resulting from purchases of, investments in, and divestitures
of businesses, and discontinued operations ("business combinations") changed by
$836 million to $505 million used in 2001 from $331 million provided in 2000. In
2001, cash used for acquisitions of new businesses totaled $578 million
(including $284 million, related to the acquisition of Entrelec) and cash used
for discontinued operations totaled $210 million, mainly in the settlement of
claims resulting from the asbestos litigation. These cash outflows were only
partially offset by disposals of businesses for an amount of $283 million. In
2000, cash used for acquisitions totaling $893 million was more than offset by
cash from discontinued operations ($949 million, primarily relating to the
divestiture of our remaining interest in ABB ALSTOM POWER and our nuclear power
business) and disposals ($275 million, primarily relating to the disposal of our
50% shareholding in ABB ALSTOM POWER), which amounted to $1,224 million.

    Purchases of property, plant and equipment, net of disposals, increased by
$294 million to $609 million in 2001 from $315 million in 2000. This increase
resulted from reduced proceeds from property, plant and equipment disposals and
a return to historical acquisition levels. Purchases of property, plant and
equipment, net of disposals, decreased by $36 million in 2000 from $351 million
in 1999.

    Cash used in other investing activities decreased by $466 million to
$314 million in 2001 as compared to $780 million in 2000. This decrease
primarily resulted from a higher level of net proceeds from the sale of
marketable securities that are not held for trading purposes, which amounted to
$593 million from $53 million in 2000. The increase more than offset a higher
level of investments in financing receivables, which increased to $907 million
in 2001 from $833 million in 2000 due to a higher level of project financing
activity during most of the year.

    Cash used in other investing activities increased by $459 million to
$780 million in 2000 as compared to $321 million in 1999. This increase
primarily resulted from a lower level of net proceeds from sales of marketable
securities that are not held for trading purposes, which decreased by
$281 million from $334 million in 1999 to $53 million in 2000. The increase also
reflects a higher level of investment in financing receivables, which increased
to $833 million in 2000 from $655 million in 1999.

CASH FLOW FROM FINANCING ACTIVITIES

    Our financing activities primarily include net borrowings, both from the
issuance of debt securities and directly from banks, treasury and capital stock
transactions, and payment of dividends. Net cash provided by financing
activities increased by $1,069 million to $677 million provided in 2001 as
compared to $392 million used in 2000. Cash provided by long-term borrowings,
net of repayments, increased by $3,361 million to $2,708 million provided in
2001 as compared to $653 million repaid in 2000. This was partially offset by a
decrease of $678 million in cash flow from borrowings with maturities of
90 days or less from $609 million cash provided in 2000 to $69 million cash used
in 2001. During 2001, we used $1,393 million of cash for the purchase of our
shares for treasury, offset by proceeds of options to purchase our shares. In
April 2001, we paid dividends of $502 million with respect to 2000.

    Net cash used in financing activities decreased by $795 million in 2000 to
$392 million from $1,187 million in 1999. The decrease was primarily due to a
decrease in the level of net repayments of other borrowings to $653 million in
2000 from $908 million in 1999. The net decrease also reflects a higher level of
borrowings, particularly borrowings with a maturity of 90 days or less, at
year-end 2000 as compared to year-end 1999.

    During 2000, our net sales of treasury shares and put options provided net
cash of $244 million. We hold some of our shares in treasury to provide shares
for delivery upon exercise of warrants in future years under our management
incentive plan. We used $165 million in cash in

                                       81

1999 to purchase our shares for this purpose. We paid dividends of $531 million
and $503 million in 2000 and 1999, respectively.

RELATED AND CERTAIN OTHER PARTIES

    ABB has participations in joint ventures and affiliated companies, which are
accounted for using the equity method. Many of these entities have been
established to perform specific functions, such as constructing, operating and
maintaining a power plant. In addition to our investment, we may provide
products to the project, may act as contractor of the project and may operate
the finished product. The entity created generally would receive revenues either
from the sale of the final product or from selling the output generated by the
product. The revenue usually is defined by a long-term contract with the end
user of the output.

    Our risk with respect to these entities is substantially limited to the
carrying value of the companies on our consolidated balance sheet. The balance
sheet carrying value for the equity accounted companies at December 31, 2001 and
2000 was $718 million and $682 million, respectively.

    Included in financing receivables is notes receivable from related parties
at December 31, 2001 and 2000 of $234 million and $239 million, respectively.
Notes receivable from related parties amounted to $198 million at March 31,
2002. Loans granted to equity accounted companies are contained in these
amounts.

    We retained obligations for performance and other guarantees related to the
power generation businesses we contributed to the ABB ALSTOM POWER joint
venture. In addition, in connection with a power plant construction project in a
business sold to ALSTOM POWER N.V., one of our subsidiaries has issued an
advance payment guarantee towards a bank holding funds which are to be drawn
down by a consortium led by a subsidiary of ALSTOM POWER. The guarantee was
approximately $370 million at December 31, 2001. ALSTOM and its subsidiaries
have primary responsibility for performing the obligations that are the subject
of the guarantees. In connection with the sale to ALSTOM of our interest in the
joint venture in May 2000, ALSTOM and ALSTOM POWER have undertaken to fully
indemnify us against any claims arising under such guarantees. As of May 31,
2002, there have been no material claims made under these guarantees.

    In connection with the sale of our nuclear business to British Nuclear Fuels
("BNFL") in 2000, one of our subsidiaries retained obligations under surety
bonds relating to the performance by the nuclear business under certain
contracts entered into prior to the sale to BNFL. Pursuant to the purchase
agreement under which the nuclear business was sold, BNFL is required to
indemnify us for any costs and liabilities incurred by us with respect to such
bonds. Our total liability under these bonds at December 31, 2001 is
approximately $700 million. As of May 31, 2002, there have been no material
claims made under these surety bonds. We do not expect to incur significant
losses under these surety bonds.

EXCHANGE

    All our local subsidiaries report their financial results in their
respective local currencies, and our Consolidated Financial Statements are
reported in U.S. dollars. Accordingly, balance sheet items are translated into
U.S. dollars using year-end exchange rates, while income statement and cash flow
items are translated using average exchange rates for the year.

    We have commercial activities denominated in all major currencies, in
particular U.S. dollars, Swiss francs, Euro, Scandinavian currencies, and
Japanese yen. In 2001, the Euro continued to weaken against the U.S. dollar,
reaching an exchange rate of 0.88 at the end of 2001, with the deterioration in
the first half recovering in part in the second half of 2001. The average
exchange

                                       82

rate for the year was 0.89. The Swiss franc also declined versus the U.S. dollar
in the first half of the year, reaching a low of 0.55 in May and June 2001, with
a recovery in the fourth quarter of 2001 reaching an exchange rate of 0.62.
However, the Swiss franc declined slightly, closing the year at 0.59. The
average Swiss franc exchange rate for 2001 was 0.59. In 2000, the Euro weakened
against the U.S. dollar from its opening level of 1.00 to a closing exchange
rate of 0.93. The average exchange rate for 2000 was also 0.93. The Swiss franc
also declined versus the U.S. dollar in 2000, from an opening level of 0.63 to a
year-end closing exchange rate of 0.61. Exchange gains (losses), net, amounted
to losses of $5 million, $3 million and $28 million in 2001, 2000 and 1999,
respectively, and were recorded as interest expense. Exchange gains (losses),
net, includes the re-measurement of certain currencies into functional
currencies and the costs of hedging certain balance sheet exposures.

    With respect to cash flows, exchange differences recorded are the result of
translating cash and equivalents from year-end to average exchange rates. In
2001 and 2000, this translation resulted in a reduction of $72 million and
$84 million, respectively, to our total cash flow.

IMPACT OF INFLATION AND CHANGING PRICES

    Inflation affects our operations in some markets. However, the majority of
our revenues, costs and income are derived from economies which have been
characterized by low inflation in recent years.

    In high-inflation environments, we are generally able to increase prices to
counteract the inflationary effects of increasing costs and to generate
sufficient cash flows to maintain our productive capability.

ENVIRONMENTAL CONTINGENCIES AND RETAINED LIABILITIES

    All of our operations, but particularly our manufacturing operations, are
subject to comprehensive environmental laws and regulations. Violations of these
laws could result in fines, injunctions (including orders to cease the violating
operations and to improve the condition of the environment in the affected area
or to pay for such improvements) or other penalties. In addition, environmental
permits are required for our manufacturing facilities (for example, with respect
to wastewater discharge). In most countries in which we operate, environmental
permits must be renewed on a regular basis and we must submit reports to
environmental authorities. These permits may be revoked, renewed or modified by
the issuing authorities at their discretion and in compliance with applicable
laws. We have implemented formal environmental management systems at nearly all
of our manufacturing sites in accordance with the international environmental
management standard ISO 14001, and we believe that we are in substantial
compliance with environmental laws, regulations and permits in the various
jurisdictions in which we operate, except for such instances of non-compliance
that, in the aggregate, are not reasonably likely to be material.

    In a number of jurisdictions, including the United States, we may be liable
for environmental contamination at our present or former facilities, or at sites
at which hazardous substances generated by our operations were disposed of. In
the United States, the Environmental Protection Agency and various state
agencies are responsible for regulating environmental matters. These agencies
have identified companies in the ABB Group as potentially responsible parties
for the costs of cleaning up hazardous substances at a number of sites pursuant
to the Comprehensive Environmental Response, Compensation, and Liability Act,
the Resource Conservation and Recovery Act and other federal and state
environmental laws. As of December 31, 2001, companies within the ABB Group had
been named as potentially responsible parties with respect to seven

                                       83

locations, primarily involving soil and groundwater contamination. We do not
believe that our aggregate liability in connection with these sites will be
material.

    Generally, our liability with regard to any specific site will depend on the
number of potentially responsible parties, their relative contributions of
hazardous substances or wastes to the site and their financial viability, as
well as on the nature and extent of the contamination. Nevertheless, such laws
commonly impose liability that is strict, joint and several, so that any one
party may be liable for the entire cost of cleaning up a contaminated site.

    In addition, we have retained liability for certain specific environmental
remediation costs at two sites in the United States that were operated by our
nuclear business, which has been sold to British Nuclear Fuels. Pursuant to the
purchase agreement with British Nuclear Fuels, we have retained all of the
environmental liabilities associated with our Combustion Engineering
subsidiary's Windsor, Connecticut facility and a portion of the environmental
liabilities associated with our ABB CE Nuclear subsidiary's Hematite, Missouri
facility. The primary environmental liabilities associated with these sites
relate to the costs of remediating radiological contamination upon
decommissioning the facilities. Such costs are not payable until a facility is
taken out of use and generally are incurred over a number of years. Although it
is difficult to predict with accuracy the amount of time it may take to
remediate radiological contamination upon decommissioning, based on information
that British Nuclear Fuels has made publicly available, we believe that it may
take approximately six years for this remediation at the Hematite site, from the
time of decommissioning. With regard to the Windsor site, we believe the
remediation may take until 2008. British Nuclear Fuels has notified the Nuclear
Regulatory Commission of its intention to decommission the Hematite facility in
2003. British Nuclear Fuels decommissioned the Windsor facility in 2001 and the
process of remediation has begun. At the Windsor site, we believe that a
significant portion of such remediation costs will be the responsibility of the
U.S. government pursuant to the Atomic Energy Act and the Formerly Used Site
Environmental Remediation Action Program because such costs relate to materials
used by Combustion Engineering in its research and development work on, and
fabrication of, nuclear fuel for the United States Navy. As a result of the sale
of the nuclear business, in April 2000 we established a reserve of $300 million
in connection with estimated remediation costs related to these facilities.
During 2001, approximately $6 million was expended on remediation of the Windsor
site.

    Estimates of the future costs of environmental compliance and liabilities
are imprecise due to numerous uncertainties. Such costs are affected by the
enactment of new laws and regulations, the development and application of new
technologies, the identification of new sites for which we may have remediation
responsibility and the apportionment of remediation costs among, and the
financial viability of, responsible parties. In particular, the exact amount of
the responsibility of the U.S. government for the Windsor site cannot reasonably
be estimated. It is possible that final resolution of environmental matters may
require us to make expenditures in excess of our expectations, over an extended
period of time and in a range of amounts that cannot be reasonably estimated.
Although final resolution of such matters could have a material effect on our
consolidated results of operations in a particular reporting period in which the
expenditure is incurred, we believe that these expenditures should not have a
material adverse effect on our consolidated financial position.

    We retain ownership of Combustion Engineering, Inc., a subsidiary that
formerly conducted part of our divested power generation business and which now
owns commercial real estate which it leases to third parties. Combustion
Engineering is a co-defendant, together with third parties, in numerous lawsuits
pending in the United States in which the plaintiffs claim damages for personal
injury arising from exposure to or use of equipment which contained asbestos
that Combustion Engineering supplied, primarily during the 1970s and before.
Other ABB Group entities are sometimes named as defendants in asbestos claims.
These claims, however, are insignificant

                                       84

compared to the Combustion Engineering claims and have not had, and are not
expected to have, a material impact on our consolidated financial position or
consolidated results of operations. As of December 31, 2001 and 2000, reserves
of $940 million and $590 million, respectively, were recorded in respect of
asbestos claims and related defense costs. These reserves do not reflect
probable insurance recoveries on those claims. We also recorded assets of
approximately $150 million and $160 million at December 31, 2001 and 2000,
respectively, for probable insurance recoveries, which were established with
respect to the claims reserved against. During 2001, Combustion Engineering
experienced a significant increase in the level of new claims and higher total
and per-claim settlement costs as compared to recent years. This resulted in an
increase in the reserves for potential asbestos liabilities by $470 million.
Cash payments to resolve Combustion Engineering's asbestos claims were
$136 million, $125 million and $67 million in 2001, 2000 and 1999, respectively.

    During the first quarter of 2002, approximately 14,300 new claims were filed
against Combustion Engineering, a decrease of 5 percent compared to the fourth
quarter of 2001. Approximately 13,500 claims were settled during the period, of
which more than 50 percent were settled without payment. Settlement costs prior
to reimbursement were approximately $51 million, up from $37 million in the
first quarter of 2001. As a result of intensified efforts to identify and settle
valid claims and dispute claims that appear baseless, despite the number of new
claims filed, the number of pending claims remained at approximately 94,000 at
March 31, 2002.

    The ultimate cost of asbestos claims is difficult to estimate with any
degree of certainty due to the nature and number of variables associated with
asbestos claims. Future consolidated operating results will continue to reflect
the effect of changes in estimated claims settlement costs resulting from actual
claim activity as well as changes in available insurance coverage. It is
reasonably possible that expenditures could be made in excess of established
reserves, in a range of amounts that cannot reasonably be estimated. Although
the final resolution of any such matters could have a material impact on our
reported consolidated results for a particular reporting period, we believe it
should not have a material adverse effect on our consolidated financial
condition or liquidity. Please see Note 16 to the Consolidated Financial
Statements contained elsewhere in this annual report.

                                       85

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

                               BOARD OF DIRECTORS

    In accordance with Swiss law, the board of directors of a Swiss corporation
is ultimately responsible for the policies and management of the corporation.
The board also appoints the executive officers and authorized signatories of the
corporation and supervises the management of the corporation. The board of
directors may delegate the conduct of day-to-day business operations to
individual directors or to third persons, such as an executive committee.

    Our articles of incorporation stipulate that the board of directors must
consist of not fewer than seven and no more than 13 members at any time. Swiss
law and our articles of incorporation also provide that each director must be a
shareholder of ABB. Directors are elected for terms of one year by the
shareholders in a shareholders' meeting. Members of the board of directors whose
terms of office have expired are immediately eligible for reelection. The board
of directors appoints its Chairman and one or more Vice Chairmen as well as the
persons entrusted with our management and representation, whom the board of
directors is also responsible for removing.

    The following table sets forth the names and the years of birth of our
directors and their current positions with ABB.



NAME                                             BORN     CURRENT POSITION
----                                           --------   ----------------
                                                    
Jurgen Dormann...............................    1940     Chairman
Jorgen Centerman.............................    1951     Director; President and Chief Executive
                                                          Officer
Roger Agnelli................................    1958     Director
Martin Ebner.................................    1945     Director
Hans Ulrich Maerki...........................    1946     Director
Michel de Rosen..............................    1951     Director
Dr. Bernd W. Voss............................    1939     Director
Jacob Wallenberg.............................    1956     Director


    In connection with our group reconfiguration in 1999, a new board of
directors was elected on June 26, 1999 to serve the newly created ABB Ltd. The
following biographical information regarding our board members refers to
June 26, 1999, the beginning of their service for ABB Ltd. Where applicable,
these biographies also note the years of service our board members provided to
ABB Asea Brown Boveri Ltd, the former parent company of the ABB Group.

    JURGEN DORMANN has been the Chairman of ABB's board of directors since
November 2001 and has been a member of ABB's board of directors since June 26,
1999. From 1998 to 1999, he served as a member of the board of directors of ABB
Asea Brown Boveri Ltd. He is the chairman of the supervisory board of Aventis.
Mr. Dormann is also a member of the boards of directors of Allianz and IBM
Corporation. Mr. Dormann is a German citizen.

    JORGEN CENTERMAN has been a member of ABB's board of directors since
March 20, 2001. He has been our President and Chief Executive Officer since
January 1, 2001. From September 1998, he was our Executive Vice President
responsible for our Automation Segment. From 1993 to 1998, he was Business Area
Manager for our global Automation and Drives operations. Previously, he headed
the Process Automation business area, headquartered in Stamford, Connecticut. He
joined Asea AB in 1976. He is a member of the board of directors of b-business
partners B.V. Mr. Centerman is a Swedish citizen.

    ROGER AGNELLI was elected to ABB's board of directors at the annual general
meeting of shareholders on March 12, 2002. He is the President and Chief
Executive Officer of Companhia Vale do Rio Doce. Mr. Agnelli is a Brazilian
citizen.

    MARTIN EBNER has been a member of ABB's board of directors since June 26,
1999. From March 1999 to June 1999, he served as a member of the board of
directors of ABB Asea Brown

                                       86

Boveri Ltd. He is also chairman of the board of directors of BZ Group Holding
and Lonza Group. Mr. Ebner is a Swiss citizen.

    MICHEL DE ROSEN was elected to ABB's board of directors at the annual
general meeting of shareholders on March 12, 2002. He is chairman of the
supervisory board of Paul Capital Partners Royalty Fund, and is a member of the
board of directors of Innaphase and Ursinus College. He is the President and
Chief Executive Officer of ViroPharma, Inc. Mr. de Rosen is a French citizen.

    HANS ULRICH MAERKI was elected to ABB's board of directors at the annual
general meeting of shareholders on March 12, 2002. He is the chairman of IBM
Europe/Middle East/Africa and is chairman of the board of directors of Mikron
Holding AG. Mr. Maerki is a Swiss citizen.

    DR. BERND W. VOSS was elected to ABB's board of directors at the annual
general meeting of shareholders on March 12, 2002. He is a member of the
supervisory boards of Dresdner Bank AG, Continental AG, E.ON AG, KarstadtQuelle
AG, Preussag AG, Quelle AG, Wacker Chemie GmbH and Allianz AG, and chairman of
the board of directors of Bankhaus Reuschel & Co. Dr. Voss is a German citizen.

    JACOB WALLENBERG has been a member of ABB's board of directors since
June 26, 1999. From March 1999 to June 1999, he served as a member of the board
of directors of ABB Asea Brown Boveri Ltd. He is also a chairman of the board of
directors of Skandinaviska Enskilda Banken, vice-chairman of Investor AB, the
Knut and Alice Wallenberg Foundation, Atlas Copco, SAS and Electrolux, and a
member of the boards of directors of the Confederation of Swedish Enterprise and
the Nobel Foundation. Mr. Wallenberg is a Swedish citizen.

    Messrs. Gerhard Cromme, Robert A. Jeker and Edwin Somm, members of the board
of directors during 2001, did not stand for re-election at the Annual General
Meeting of Shareholders on March 12, 2002.

                                SENIOR OFFICERS

EXECUTIVE COMMITTEE

    The executive committee is responsible for our day-to-day management and for
the formulation of major strategic and commercial decisions. The members of the
executive committee are appointed and removed by the board of directors. The
following table sets forth the names and the years of birth of the members of
the executive committee, their current positions with us and the dates of their
initial appointment to their current positions.



                                                                                              YEAR OF
NAME                               BORN                    CURRENT POSITION                 APPOINTMENT
----                             --------   ----------------------------------------------  -----------
                                                                                   
Jorgen Centerman...............    1951     President and Chief Executive Officer              2001
Gorm Gundersen.................    1944     Executive Vice President, Head of Oil, Gas and     1998
                                            Petrochemicals Division
Bernhard Jucker................    1954     Executive Vice President, Head of Automation       2002
                                            Technology Products Division
Dinesh C. Paliwal..............    1957     Executive Vice President, Head of Industries       2001
                                            Division
Jan Secher.....................    1957     Executive Vice President, Head of Group            2002
                                            Processes Division
Richard Siudek.................    1946     Executive Vice President, Head of Utilities        2001
                                            Division
Peter Smits....................    1951     Executive Vice President, Head of Power            2001
                                            Technology Products Division
Peter Voser....................    1958     Executive Vice President and Chief Financial       2002
                                            Officer


    JORGEN CENTERMAN.  For Mr. Centerman's biography, see above under "--Board
of Directors."

                                       87

    GORM GUNDERSEN has been our Executive Vice President responsible for our
Oil, Gas and Petrochemicals Division since September 1998. From 1990 to
September 1998, he served as an Executive Vice President at Asea Brown Boveri
A/S, a Norwegian subsidiary. Mr. Gundersen is a Norwegian citizen.

    BERNHARD JUCKER has been our Executive Vice President responsible for our
Automation Technology Products Division since April 2002. From 2000 to
April 2002, he was the head of the Drives and Power Electronics business area
within the Automation Technology Products Division. From 1998 to 2000, he was
the Business Unit Manager for our global electrical low-voltage motors and
machines. From 1991 to 1998, he was the Business Unit Manager for our global
electrical machines business. Mr. Jucker is a Swiss citizen.

    DINESH C. PALIWAL has been our Executive Vice President responsible for our
Industries Division since April 2002. Between January 1, 2001 and April 2002, he
was our Executive Vice President responsible for our Process Industries
division. From 1999, he was responsible for our worldwide activities in the
Automation Segment for the paper, printing, metals, mining and cement
industries. From 1998 to 1999, he was responsible for our worldwide activities
in the Automation Segment for the pulp, paper and printing industries. From 1994
to 1998, he was Vice-President responsible for our automation activities in
process industries in China and Northeast Asia. From 1990 to 1994, he was
Director of Marketing and Sales for our automation activities for the paper
industry in Asia. Prior to 1990, he held several positions in sales and project
management. Mr. Paliwal is an Indian citizen.

    JAN SECHER has been our Executive Vice President responsible for our Group
Processes Division since April 2002. From January 2001 to April 2002, he was our
Executive Vice President responsible for our Manufacturing and Consumer
Industries Division. From 2000, he was President of our Flexible Automation
business area. In 1999, he was Executive Vice President at ABB AB. From
July 1998 to April 1999, he was President at ABB Satt AB. From April 1998 to
December 1999, he was President at ABB Automation Systems AB. From July 1997 to
March 1998, he was Vice President and Division Manager at ABB Industrial Systems
AB. From 1994 to 1997, he was Vice President and Division Manager at ABB
Industry K.K. From 1991 to 1994, he was General Manager at ABB Automation AB.
Mr. Secher is a Swedish citizen.

    RICHARD SIUDEK has been our Executive Vice President responsible for our
Utilities Division since January 1, 2001. From 1998, he was Country Segment
Manager in the United States for the Transmission and Distribution Segments.
From 1996 to 1998, he was Business Area Manager responsible for our worldwide
activities in nuclear power. From 1991 to 1996, he was President and Vice
President of ABB Combustion Engineering. Prior to joining us in 1991, he served
as Marketing Manager at Westinghouse Electric Corporation, served various
positions in marketing and sales at Westinghouse Nuclear Europe, SA, and served
as a Scientific Officer at United Kingdom Atomic Energy Authority. Mr. Siudek is
a citizen of the United States.

    PETER SMITS has been our Executive Vice President responsible for the Power
Technology Products Division since January 1, 2001. From 1998, he was Senior
Vice President, Business Area Manager Distribution Transformers, at ABB
T&D Ltd. From 1994 to 1998, he was President and Country Manager at Asea Brown
Boveri SA. From 1990 to 1994, he served as President at Pfleiderer
Verkehrstechnik GmbH. From 1988 to 1990, he held several positions at Asea Brown
Boveri AG, was Vice-President at ABB Schaltanlagen GmbH and was Business Unit
Manager for worldwide substations activities in the our High-Voltage Switchgear
business area. From 1980 to 1988, he held several positions at Asea Lepper GmbH.
From 1979 to 1980, he served as Divisional Export Sales Manager at Vossen GmbH.
From 1978 to 1979, he served as Assistant Accountant in Auditing at Peat,
Marwick, Mitchell & Co. (KPMG). Mr. Smits is a German citizen.

                                       88

    PETER VOSER was appointed our Executive Vice President and Chief Financial
Officer in March 2002. Mr. Voser was Chief Financial Officer of Shell Europe Oil
Products from 1999 until early 2001, when he became Chief Financial Officer of
Shell Oil Products. Mr. Voser is a Swiss citizen.

GROUP SENIOR OFFICERS

    The following table sets forth the names of our Group senior officers, their
current positions with us and the dates of their initial appointment to their
current positions.



                                                                                          YEAR OF
NAME                             CURRENT POSITION                                       APPOINTMENT
----                             ----------------                                       -----------
                                                                                  
Markus Bayegan.................  Chief Technology Officer                                  2001
Beat Hess......................  General Counsel, Head of Group Function Legal and         2001
                                 Compliance
Sune Karlsson..................  Head of Group Function Large Projects                     2001
Alfred Storck..................  Head of Group Function Corporate Finance and Taxes        2001


    MARKUS BAYEGAN has been our Chief Technology Officer since January 2001.
From 2000 until our realignment in January 2001, he was Executive Vice President
responsible for our research and development activities worldwide. From 1998 to
2000, he served as Senior Corporate Officer for our group research and
development activities worldwide. From 1994 to 1998, he served as Senior Vice
President of Technology for our Building Technologies Segment. From 1987 to
1998, he served as president of ABB Corporate Research, A/S, a Norwegian
subsidiary. From 1985 to 1998, he was Professor in Electronics Manufacturing at
the Norwegian Institute of Technology. Prior to joining us, he was employed by
EB Corporation, a Norwegian electromechanical and telecommunication company that
we acquired. Mr. Bayegan is a Norwegian citizen.

    BEAT HESS has been our General Counsel since 1988. He assumed his position
after the merger of BBC Brown Boveri AG and Asea AB in 1988. In January 2001, he
was appointed Head of Group Function Legal and Compliance and has acted as the
Secretary of the ABB Ltd Board of Directors since 1998. Mr. Hess is a Swiss
citizen.

    SUNE KARLSSON has been our Head of Group Function Large Projects since
January 2001. From 1997 until 2000, he was our Executive Vice President and
Member of the Group Executive Committee responsible for the Power Transmission
and Distribution Segments. From 1992 until 1996, he was Executive Vice President
of Power Transmission ABB Germany and responsible for Customer Focus Program ABB
worldwide. From 1988 until 1992, he was Executive Vice President of Power
Transmission ABB Germany and Business Area Manager of ABB Power Transformers. In
1988, he was President of ABB Transformers, Ludvika and Business Area Manager of
ABB Power Transformers. From 1985 until 1988, he was President of Transformer
Operations and Business Area Manager of Asea Transformers in Asea Ludvika. From
1983 until 1985, he was General Manager of Transformer Operations in Asea
Lepper, Bad Honnef. Previously, from 1980 until 1983, he was Production Manager
of Transformers Division in Asea Ludvika. From 1972 until 1980, he worked for
Asea Vasteras as Project, Planning and Workshop Manager. Mr. Karlsson is a
Swedish citizen.

    ALFRED STORCK has been our Group Tax Officer since 1988 (merger of BBC Brown
Boveri AG and Asea AB). In 1997, Alfred Storck assumed in addition the position
as head of Corporate Finance. In January 2001, he was appointed Head of Group
Function Corporate Finance and Taxes. Mr. Storck is a German citizen.

                                       89

                        DUTIES OF DIRECTORS AND OFFICERS

    The directors and officers of a Swiss corporation are bound, as specified in
the Swiss Federal Code of Obligations, to perform their duties with all due
care, to safeguard the interests of the corporation in good faith, and to extend
equal treatment to shareholders in like circumstances.

    The Swiss Federal Code of Obligations does not specify what standard of due
care is required of the directors of a corporate board. However, it is generally
held in Swiss doctrine and jurisprudence that the directors must have the
requisite capability and skill to fulfill their function, and must devote the
necessary time to the discharge of their duties. Moreover, the directors must
exercise all due care that a prudent and diligent director would have taken in
like circumstances. Finally, the directors may not take any actions that may be
harmful to the corporation. Our articles of incorporation do not provide for the
retirement or non-retirement of directors under an age-limit requirement.

EXERCISE OF POWERS

    The directors as well as other persons authorized to act on behalf of a
Swiss corporation may perform all legal acts on behalf of the corporation which
the business purpose may entail. Pursuant to court practice, the directors may
take any action that is not outright excluded by the business purpose of the
corporation. In so doing, however, the directors must still pursue the duty of
due care and the duty of good faith described above. The board of directors must
extend equal treatment to its shareholders in like circumstances. Our articles
of incorporation do not contain provisions concerning a director's power, in the
absence of an independent quorum, to vote compensation to themselves or any
members of their body.

CONFLICTS OF INTEREST

    Swiss law does not have a general provision on conflicts of interest.
However, the Swiss Federal Code of Obligations requires directors and officers
to safeguard the interests of the corporation and, in this connection, imposes a
duty of care and good faith on directors and officers. This rule is generally
understood as disqualifying directors and officers from participating in
decisions, other than in the shareholders' meeting, that directly affect them.
However, our articles of incorporation do not limit our directors' power to vote
on a proposal, arrangement or contract in which the director is materially
interested. Directors and officers are personally liable to the corporation for
any breach of these provisions. In addition, Swiss law contains provisions under
which the members of the board of directors and all persons engaged in the
management of ABB are liable to the company, to each shareholder and to the
company's creditors for damages caused by any intentional or negligent violation
of their duties.

CONFIDENTIALITY

    Confidential information obtained by directors and officers of a corporation
in such capacity must be kept confidential during and after their term of
office.

SANCTIONS

    If directors and officers transact on behalf of the corporation with BONA
FIDE third parties in violation of their statutory duties, the transaction is
nevertheless valid as long as it is not outright excluded by the corporation's
business purpose. Directors and officers acting in violation of their statutory
duties--whether transacting with BONA FIDE third parties or performing any other
acts on behalf of the company--may, however, become liable to the corporation,
its shareholders and (in bankruptcy) the creditors for damages. The liability is
joint and several, but the courts may apportion the liability among the
directors in accordance with their degree of culpability.

                                       90

    In addition, Swiss law contains a provision under which payments made to a
shareholder or a director or any person(s) associated therewith other than at
arm's length must be repaid to the company if the shareholder or director was
acting in bad faith.

    If the board of directors lawfully delegated the power to carry out
day-to-day management to a different corporate body, E.G., the executive board,
it is not liable for the acts of the members of that different corporate body.
Instead, the directors can only be held liable for their failure to properly
select, instruct and supervise the members of that different corporate body.

                                  COMPENSATION

    For the year ended December 31, 2001, the persons who served as members of
our board of directors and executive committee received an aggregate amount of
CHF 20,848,500 ($12,560,851 at December 31, 2001) as compensation for services
in all capacities. This includes compensation accrued with respect to the 2001
fiscal year but paid during the 2002 fiscal year, and excludes the pension and
other benefits paid to our former chief executive officer, Goran Lindahl, in
2001 described below under "Recent Developments."

BOARD OF DIRECTORS

    For the period from the Annual General Meeting in 2001 to the Annual General
Meeting in 2002, board members' compensation was fixed as follows:

    - Chairman: CHF 1,500,000 (reduced in November 2001 to CHF 1,000,000)

    - Vice Chairman: CHF 400,000

    - Member: CHF 250,000

    - Committee Member: CHF 50,000

Payments to board members are made in May and November of each year.

    Board members receive at least 50% (and may elect to receive a higher ratio)
of their compensation in shares. In 2001, over 90% of the compensation received
by directors was received in shares and as of December 31, 2001, a total of
247,887 shares were held for the account of active board members. The aggregate
annual gross compensation paid to board members in shares and cash amounted to
CHF 3,150,000 ($1,897,819 at December 31, 2001). Board members do not receive
pension benefits and are not eligible to participate in our management incentive
plan.

EXECUTIVE COMMITTEE

    Members of the executive committee receive annual base compensation. In
addition, they are eligible for annual bonus compensation, which depends on the
performance of the individual area of responsibility of each executive committee
member and of the ABB Group and, in certain cases, on a qualitative appreciation
of a member's achievements. In 2001, the persons who served on the executive
committee received an aggregate of CHF 17,698,500 ($10,663,032 at December 31,
2001) in base compensation and bonus. For 2001, compensation to our president
and chief executive officer consisted of a base salary of CHF 1,500,000 and a
bonus amount of CHF 1,500,000, and total compensation to the other members of
the executive committee amounted to CHF 14,698,500 ($8,855,585 at December 31,
2001), including bonus amounts relating to 2001 performance that were paid in
2002.

    In addition to receiving annual base and bonus compensation, members of the
executive committee may participate in a management incentive plan providing for
subscription to warrants or warrant appreciation rights. In 2001, members of the
executive committee received warrants

                                       91

representing the future right to acquire 1,000,000 shares and warrant
appreciation rights representing the future right to receive the cash equivalent
to the market price of 7,500,000 warrants.

    Executive committee members also enjoy pension benefits in accordance with
Swiss social security legislation and, depending on seniority, certain
additional benefits under supplementary benefit programs. More than 75% of our
pension obligations with respect to executive committee members are funded, and
we have reserved for the remaining obligations on our balance sheet. On average,
yearly pension payments to members of the executive committee do not exceed 50%
of their remuneration when retiring from their position with ABB at pension age.
In 2001, we incurred costs for pension contributions of CHF 12,099,517
($7,195,583 at December 31, 2001) with respect to pension benefits for executive
committee members.

    Executive committee members receive customary additional benefits such as a
company car and health insurance compensation, which are not material in the
aggregate.

RECENT DEVELOPMENTS

    In February 2002, our board of directors completed a reassessment of certain
pension and other benefits of former chief executive officers Percy Barnevik and
Goran Lindahl. Mr. Barnevik received approximately CHF 148 million
(approximately $88 million) of pension benefits following his resignation as
chief executive officer in 1996, and Mr. Lindahl was to receive approximately
CHF 85 million (approximately $51 million) of pension and other benefits
following his resignation as chief executive officer in 2000. The board's
reassessment followed a detailed review of these payments, and the board
determined that restitution should be sought of amounts paid and amounts still
payable should be withheld. In March 2002, we reached agreements with
Mr. Barnevik who agreed to return CHF 90 million (approximately $54 million) to
us, and with Mr. Lindahl who agreed that his pension and other benefits would be
reduced by CHF 47 million (approximately $28 million). These amounts will be
recorded in our earnings during the year ended December 31, 2002 and were
determined through actuarial calculations, external benchmarking of European
chief executive officer compensation and negotiations. In this paragraph,
amounts in Swiss francs have been translated into U.S. dollars at a rate of
$1.00 = CHF 1.6743, the average of the noon buying rates for Swiss francs in
March 2002.

    We believe that the compensation and pension levels of our current ABB Group
executives comply with prevailing European practices, and we have recently
established a Nomination and Compensation Committee to monitor our compensation
practices. See "--Board Practices."

                                       92

                           MANAGEMENT INCENTIVE PLAN

    We have a management incentive plan under which approximately 1,000 key
employees received warrants and warrant appreciation rights for no consideration
over the course of six launches from 1998 to 2001. The warrants are exercisable
for shares at a predetermined price, not less than the fair market value as of
the date of grant.

    Participants may also sell the warrants rather than exercise the right to
purchase shares. Equivalent warrants are listed on the SWX Swiss Exchange, which
facilitates valuation and transferability of warrants granted under the
management incentive plan.

    Each warrant appreciation right entitles the holder to an amount in cash
equal to the market price of one equivalent warrant on the SWX Swiss Exchange.
Warrant appreciation rights are not transferable. Participants may exercise or
sell warrants or exercise warrant appreciation rights only during the 30 days
immediately following publication of our interim or annual results. No exercise
or sale is permitted until after the vesting period, which is three years from
date of grant, although vesting restrictions can be waived in the event of
death, disability or divorce. All warrants and warrant appreciation rights
expire six years from the date of grant.

    As of May 31, 2002, the warrants outstanding represented the participants'
future right to acquire 19,642,951 of our shares, including the future right of
the current members of our executive committee to acquire an aggregate of
1,877,562 shares. Also on that date, the warrant appreciation rights represented
the participants' future right to receive the cash equivalent to the market
price of 100,792,320 warrants, including the future right of the current members
of our executive committee to receive the cash equivalent to the market price of
7,281,250 warrants. In order to meet our obligations under outstanding and
exercisable warrants, we held 1,507,870 shares in treasury as of May 31, 2002.
In addition, as of May 31, 2002, the board of directors has allocated 40,000,000
contingent shares in support of the management incentive plan. We generally hold
sufficient cash settled call options to meet our obligations under outstanding
warrant appreciation rights. We held 100,792,320 cash settled call options as of
May 31, 2002, in connection with the exercise of warrant appreciation rights
outstanding under the management incentive plan.

    The amounts of warrants outstanding include those instruments held by
employees of ABB ALSTOM POWER, a discontinued operation. Under the terms and
conditions of the management incentive program, employees of ABB ALSTOM POWER
retain their entitlements in the management incentive plan.

    Currently 10,538,000 warrants representing the right to purchase 6,832,839
shares and 8,520,000 warrant appreciation rights are exercisable.

    The following table sets forth the number of warrants outstanding under the
management incentive plan as of May 31, 2002.



                         WARRANTS      EXERCISE RATIO      NUMBER OF SHARES
LAUNCH (YEAR)           OUTSTANDING   (WARRANTS:SHARES)   UNDERLYING WARRANTS   EXERCISE PRICE (CHF)   EXPIRATION DATE
-------------           -----------   -----------------   -------------------   --------------------   ---------------
                                                                                        
       1 (1998)           4,743,000(1)     1:0.6484             3,075,361(1)            30.89             01/15/04
       2 (1998)           5,795,000(1)     1:0.6484             3,757,478(1)            25.54             12/10/04
       3 (1999)           4,648,060       1:0.2000                929,612               37.50             06/10/05
       4 (1999)          15,115,000       1:0.2000              3,023,000               41.25             11/11/05
       5 (2000)          21,150,000       1:0.2000              4,230,000               53.00             06/13/06
       6 (2001)          23,137,500       1:0.2000              4,627,500               17.00             12/10/07


------------------------

(1) All of the warrants from Launch 1 and 2, representing the right to purchase
    6,832,839 shares, are currently exercisable.

                                       93

    The following table sets forth the number of warrant appreciation rights
outstanding under the management incentive plan as of May 31, 2002.



                        WARRANTS APPRECIATION RIGHTS
LAUNCH (YEAR)                  OUTSTANDING(1)          EXPIRATION DATE
-------------           ----------------------------   ---------------
                                                 
       1 (1998)                   3,542,000               01/14/04
       2 (1998)                   4,978,000               12/09/04
       3 (1999)                     592,320               06/09/05
       4 (1999)                  19,150,000               11/10/05
       5 (2000)                  33,895,000               06/12/06
       6 (2001)                  38,635,000               12/09/07


------------------------

(1) Each warrant appreciation right represents a participant's future right to
    receive the cash equivalent of the equivalent market price of warrants
    exercisable at the following exercise ratios and prices:



                            EXERCISE RATIO        EXERCISE PRICE
LAUNCH (YEAR)             (WARRANTS: SHARES)          (CHF)
-------------           -----------------------   --------------
                                            
       1 (1998)                 1:0.6484              30.89
       2 (1998)                 1:0.6484              25.54
       3 (1999)                 1:0.2000              37.50
       4 (1999)                 1:0.2000              41.25
       5 (2000)                 1:0.2000              53.00
       6 (2001)                 1:0.2000              17.00


                                SHARE OWNERSHIP

    As of May 31, 2002, the current members of our board of directors and
executive committee owned an aggregate of 141,906 shares, representing less than
1% of our total shares outstanding. As discussed above, the current members of
our executive committee own warrants representing the future right to acquire an
aggregate of 1,877,562 shares, representing the right to acquire less than 1% of
our total shares outstanding. The members of our board of directors are not
entitled to participate in our management incentive plan.

    Share amounts provided in this section do not include the shares
beneficially owned by BZ Group Holding Limited, of which Mr. Ebner is chairman.
See "Item 7. Major Shareholders and Related Party Transactions--Major
Shareholders."

                                BOARD PRACTICES

    Scheduled board meetings take place five times per year. Extraordinary
meetings are held each year as necessary. During 2001, six board meetings were
held. Written documentation covering the various items of the agenda for each
board meeting is sent out in advance to each board member in order to allow the
member time to study the respective matters prior to the meetings. Decisions
made at the board meetings are recorded in written minutes of the meetings.

    In the first quarter of 2002, our board of directors established two
committees, the Finance and Audit Committee and the Nomination and Compensation
Committee. The committees are to present their findings to the board.

    The Finance and Audit Committee oversees the financial reporting processes
and accounting practices, evaluates the independence, objectivity and
effectiveness of external and internal auditors, reviews audit results and
monitors compliance with the laws and regulations governing the preparation of
our financial statements, and assesses the processes relating to our risk
management and internal control systems. Mr. Voss is the Chairman of the Finance
and Audit Committee, and Messrs. Wallenberg and Agnelli are members.

                                       94

    The Nomination and Compensation Committee develops and maintains a regular
succession scheme for board membership and the Chief Executive Officer position
and nominates candidates for these positions. It further develops compensation
guidelines and reviews benefit plans for the members of the executive committee
and for senior staff and assesses the specific compensation received by the
members of the board of directors and the executive committee. Mr. Dormann is
the Chairman of the Nomination and Compensation Committee, and Messrs. Ebner and
Maerki are members.

    Mr. Centerman has an agreement with ABB that provides for benefits upon
termination of his employment. Under the terms of the agreement, either
Mr. Centerman or ABB may terminate his employment by giving 12 months' written
notice. If Mr. Centerman's employment is terminated by ABB, he will continue to
receive compensation for a period of two years from the date on which notice is
given, amounting to his base salary at the time of the notice and a yearly
incentive bonus based on his average incentive bonus for the two years preceding
the year in which notice is given.

    Except as described above, no director has a service contract with us
providing for benefits upon termination of employment.

                                   EMPLOYEES

    A breakdown of employees by geographic region for the years ended
December 31, 2001, 2000 and 1999 is as follows:



REGION                                                     2001       2000       1999
------                                                   --------   --------   --------
                                                                      
Europe.................................................  102,500    105,500    104,500
The Americas...........................................   27,000     27,500     28,500
Asia...................................................   16,500     17,500     18,500
Middle East and Africa.................................   10,500     10,500     10,000
                                                         -------    -------    -------
Total..................................................  156,500    161,000    161,500
                                                         =======    =======    =======


    As of March 31, 2002, we employed approximately 151,800 people. Some of our
employees are represented by labor unions or are the subject of collective
bargaining agreements. We believe that our employee relations are good.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

                               MAJOR SHAREHOLDERS

    To our knowledge, as of June 1, 2002, the following person held 5% or more
of our total share capital:



                                                                     TOTAL
                                                                 PERCENTAGE OF
NAME                                              AMOUNT OWNED   SHARE CAPITAL
----                                              ------------   -------------
                                                           
BZ Group Holding Limited(1).....................  133,777,434         11.1%


------------------------

(1) BZ Group Holding Limited filed a Schedule 13G on February 14, 2002,
    reporting ownership of the number of shares indicated above. Mr. Ebner, a
    member of our board of directors, is the Chairman of BZ Group Holding
    Limited. This does not include 32,223 shares owned by Mr. Ebner as an
    individual and earned as compensation for services as a member of our board
    of directors. See "Item 8. Directors, Senior Management and Employees--Board
    of Directors--Compensation."

    Under the articles of incorporation of ABB Ltd, each registered share
represents one vote. Major shareholders do not have different voting rights.

    To our knowledge, we are not directly or indirectly owned or controlled by
any government or by any other corporation or person.

                                       95

    Under the Swiss Stock Exchange Act, shareholders and groups of shareholders
acting in concert who reach, exceed or fall below the thresholds of 5%, 10%,
20%, 33 1/3%, 50% or 66 2/3% of the voting rights of a Swiss listed corporation
must notify the corporation and the exchange(s) in Switzerland on which such
shares are listed of such holdings in writing within four trading days, whether
or not the voting rights can be exercised. Following receipt of such a
notification, the corporation must inform the public within two trading days.

    An additional disclosure requirement exists under the Swiss Federal Code of
Obligations, according to which we must disclose individual shareholders and
groups of shareholders and their shareholdings if they hold more than 5% of all
voting rights and we know or have reason to know of such major shareholders.
Such disclosures must be made once a year in the notes to the financial
statements as published in our annual report.

    At May 15, 2002, we had approximately 241,000 shareholders. Approximately
800 were U.S. holders, of which approximately 600 were record holders. Based on
the share register, U.S. record holders (including holders of American
Depositary Shares) held approximately 1.6% of the total number of shares issued,
including treasury shares, at that date.

                           RELATED PARTY TRANSACTIONS

    In the normal course of our industrial activities, we sell products and
derive certain other revenues from companies in which we hold an equity
interest. The revenues derived from these transactions are not material for
ABB Ltd. In addition, in the normal course of our industrial activities, we
purchase products from companies in which we hold an equity interest. The
amounts involved in these transactions are not material for ABB Ltd. Also, in
the normal course of our industrial activities, we will engage in transactions
with businesses that we have divested. We believe that the terms of the
transactions we conduct with these companies are negotiated on an arm's length
basis.

    At December 31, 2001, ABB Ltd had granted loans to unconsolidated related
parties amounting to approximately $234 million. Notes receivable from related
parties amounted to $198 million at March 31, 2002. At March 31, 2002, ABB had a
note receivable of $42 million with Termobarranquilla S.A. Empresa de Servicios
Publicos, Colombia, an equity accounted company in which ABB holds a 29%
interest. All other loans with related parties amounted to less than
$30 million at that date.

    In June 2000, we entered into a share subscription agreement to acquire a
42% interest in b-business partners B.V., a venture capital fund formed to
invest in and develop business-to-business e-commerce companies across Europe.
Pursuant to the terms of the agreement, we committed to invest a total of
$278 million, of which $69 million was paid in 2000 and $134 million was paid
during the first half of 2001. In December 2001, Investor AB, another founding
shareholder of the fund, acquired 90% of our investment and capital commitments
for approximately book value, or $166 million in cash. After this transaction,
b-business partners repurchased 50% of all its outstanding shares, which
resulted in a return of capital to us of $10 million. After these transactions,
we retain a 4% investment in b-business partners and we are committed to provide
additional capital to it of $3 million. Further, b-business partners retains a
put right to cause us to repurchase 150,000 shares of b-business partners at a
cost of approximately $13 million. At the time of these transactions, Percy
Barnevik, the former chairman of the board of directors of ABB, was the chairman
of Investor AB. Jorgen Centerman, our President and Chief Executive Officer, is
a member of the board of directors of b-business partners.

    In December 2001 we entered into, and in April 2002 we amended and restated,
a $3,000 million 364-day revolving credit facility. Skandinaviska Enskilda
Banken is one of the lenders under the credit facility with a $155 million
commitment representing approximately 5% of the total commitment available to us
under the credit facility. Mr. Jacob Wallenberg, a member of our board of
directors, is the chairman of the board of directors of Skandinaviska Enskilda
Banken.

                                       96

ITEM 8.  FINANCIAL INFORMATION

            CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

    See "Item 18. Financial Statements" for a list of financial statements
contained in this annual report.

                               LEGAL PROCEEDINGS

    We are involved in legal proceedings from time to time incidental to the
ordinary conduct of our business. These proceedings principally involve matters
relating to warranties, personal injury, damage to property, environmental
liabilities and intellectual property rights.

    We retain ownership of Combustion Engineering, Inc., a subsidiary that
formerly conducted part of our divested power generation business and which now
owns commercial real estate which it leases to third parties. Combustion
Engineering is a co-defendant, together with third parties, in numerous lawsuits
pending in the United States in which the plaintiffs claim damages for personal
injury arising from exposure to or use of equipment which contained asbestos
that Combustion Engineering supplied, primarily during the 1970s and before.

    It can be expected that additional asbestos-related claims will continue to
be asserted. The ultimate cost of these claims is difficult to estimate with any
degree of certainty due to the nature and number of variables associated with
these claims. Some of the factors affecting the reliability of estimating the
potential cost of claims are the rate at which new claims are filed, the impact
of court rulings and legislative action, the extent of the claimants'
association with Combustion Engineering's or other defendants' products,
equipment or operations, the type and severity of the disease suffered by the
claimant, the method of resolution of such cases, the financial condition of
other defendants and the availability of insurance to recover the costs, until
the policy limits are exhausted. As of December 31, 2001, there were
approximately 94,000 cases pending (2000: 66,000) against Combustion
Engineering, which amount includes 15,000 claims that we treat as settled but
under which there are continuing payments (2000: 8,500). Approximately 55,000
new claims were made in 2001 (2000: 39,000) and approximately 27,000 claims were
resolved in 2001 (2000: 34,000). In 2001, the average payment per claim in which
a payment was made was $6,069 which represented a 26% increase in the average
payment per claim of $4,833 in 2000. Approximately $12.8 million, $10.5 million
and $8.2 million in administration and defense costs were incurred in 2001, 2000
and 1999, respectively.

    In response to the increase in asbestos claims, Combustion Engineering has
intensified its efforts to identify the claims that are valid and the claims
that appear to be invalid. Combustion Engineering generally settles valid claims
and, increasingly, will challenge claims that appear to be invalid. The level of
invalid claims appears to be increasing. This change in approach, in part,
explains the reasons for the decrease in claims settled in 2001 and the increase
in the per claim settlement amount.

    Other ABB Group entities are sometimes named as defendants in asbestos
claims. These claims are insignificant compared to the Combustion Engineering
claims and have not had, and are not expected to have, a material impact on our
financial position or results of operations. Based on information provided by
our insurance carriers, as of December 31, 2001, there were approximately 7,500
cases pending (2000: 6,000) against these entities. Approximately 1,900 new
claims were made against these entities in 2001 (2000: 700) and approximately
200 such claims were resolved in 2001 (2000: 150).

    A reserve is maintained to cover estimated costs for the asbestos claims and
an asset is recorded representing estimated insurance reimbursement. The reserve
represents management's estimate of the costs associated with asbestos claims,
including defense costs, based on historical claims trends, available industry
information and incidence rates of new claims. As a result of changes in
management's expectations regarding the foreseeable future that claims would
continue

                                       97

to be incurred, the estimates were modified in 1999 to extend the period over
which current and future claims were expected to be settled from 7 to 11 years.
This revision better reflected anticipated claim settlement costs in light of
the number and type of claims being filed at that time and the allocation of
such claims to all available insurance policies. As a result of that revision,
an additional accrual of approximately $300 million was recorded in 1999 which
is included in the results of discontinued operations. During 2000, the level of
new claims and settlement costs increased as compared to previous levels.
Consequently, a charge of approximately $70 million was recorded in 2000, which
is included in the results of discontinued operations, related to higher costs
than were expected during that period. Based on the significant increase in new
claims and settlement costs experienced in 2001 described above, an additional
charge of $470 million was recorded in 2001, which is included in the results of
discontinued operations. Because of the uncertainty as to the causes of the
substantial increase in claims filed against Combustion Engineering in recent
periods, the estimation of future claims to be resolved is subject to
substantially greater uncertainty.

    At December 31, 2001 and 2000, reserves of approximately $940 million and
$590 million, respectively, were recorded for all asbestos-related claims.
Receivables of $150 million and $160 million at December 31, 2001 and 2000,
respectively, were recorded for probable insurance recoveries with respect to
such claims. Allowances against the insurance receivables are established at
such time as it becomes likely that insurance recoveries are not probable.

    Cash payments to resolve Combustion Engineering's asbestos claims were
$136 million, $125 million and $67 million in 2001, 2000 and 1999, respectively.

    It is expected that Combustion Engineering's insurers will reimburse
approximately $43 million and $48 million, respectively, of payments made to
resolve Combustion Engineering's asbestos claims in 2001 and 2000, respectively.

    During the first quarter of 2002, approximately 14,300 new claims were filed
against Combustion Engineering, a decrease of 5 percent compared to the fourth
quarter of 2001. Approximately, 13,500 claims were settled during the period, of
which more than 50 percent were settled without payment. Settlement costs prior
to reimbursement were approximately $51 million, up from $37 million in the
first quarter of 2001. As a result of intensified efforts to identify and settle
valid claims and dispute claims that appear baseless, despite the number of new
claims filed, the number of pending claims remained at approximately 94,000 at
March 31, 2002.

    Estimating the insurance recovery is inherently uncertain and depends on a
number of factors, including the potential for disputes over coverage issues
with the insurance carriers, the principles of law which would be likely to
apply in resolving such disputes, the amount which will be received under
agreements which settled such disputes in prior periods, the timing and amount
of asbestos claims which may be made in the future, the financial solvency of
the underlying insurance providers and the amount which may be paid to settle or
otherwise dispose of those claims. These factors are beyond our control and
changes in these factors could materially affect Combustion Engineering's
insurance recoveries.

    Our management has considered the financial viability and legal obligations
of Combustion Engineering's insurance carriers and concluded that, except for
those insurers that have become or may become insolvent, the insurers will
continue to fund their portion of the claims costs relating to asbestos
litigation settlements. Accordingly, the expected amounts of insurance
recoveries are recognized on an undiscounted basis. Combustion Engineering will
fund defense costs. Over time, as available coverage under Combustion
Engineering's insurance policies is utilized against asbestos claims payments,
the portion of the cost of resolving asbestos claims that will be recovered
under Combustion Engineering's insurance policies will be reduced.

    Future operating results will continue to reflect the effect of changes in
estimated claims costs resulting from actual claim activity as well as changes
in available insurance coverage. It is reasonably possible that expenditures
could be made, in excess of established reserves, in a range

                                       98

of amounts that cannot reasonably be estimated. Although the final resolution of
any such matters could have a material impact on our reported results for a
particular reporting period, we believe the litigation should not have a
material adverse effect on our consolidated financial condition or liquidity.

    ABB Barranquilla, a subsidiary of our Equity Ventures subsidiary, is an
equity investor in Termobarranquilla S.A., Empresa de Servicios Publicos
(TEBSA), which owns a Colombian independent power generation project known as
Termobarranquilla. The other shareholders of TEBSA include Corporacion Electrica
de la Costa Atlantica (CORELCA), a government-owned Colombian electric utility.
CORELCA also purchases the electricity produced from the Termobarranquilla
project. In addition to our equity investment, our former power generation
business was engineering, procurement and construction contractor for
Termobarranquilla. The project was awarded to us and another company, as joint
bidders, after a competitive bidding process in 1994. The co-bidder manages the
operation and maintenance of the facility. We entered into agreements with the
co-bidder for a sharing and reallocation of a portion of the amounts paid to us
and to the co-bidder under the engineering, procurement and construction
contract and the operation and maintenance contract. These agreements were not
disclosed at the time to CORELCA. They also were not disclosed at the time to
the lenders who provided financing to TEBSA for the project, including U.S.
Overseas Private Investment Corporation and U.S. Export Import Bank, as required
pursuant to the lending documents.

    We have been engaged in ongoing discussions of this matter with the project
lenders and the other shareholders of TEBSA since September 2000. Although we
cannot yet be certain what the outcome of the discussions will be, to date there
has been no indication that this matter will lead to a significant dispute
between us and CORELCA or the project lenders. To date, TEBSA has met its
payment obligations to the project lenders. ABB Barranquilla has invested
$67.7 million in TEBSA and has a contingent commitment to invest up to an
additional $21 million if TEBSA cannot meet its obligations.

    In April 2001, pursuant to an agreement with the Antitrust Division of the
U.S. Department of Justice, one of our subsidiaries, ABB Middle East and Africa
Participations AG entered a guilty plea in the Federal District Court for the
Northern District of Alabama to violating the antitrust laws by agreeing with
other contractors to the coordination of bids on, and allocation among
themselves of, a number of construction projects in Egypt, primarily in the late
1980s and early 1990s, that were financed by agencies of the U.S. government. We
cooperated fully in this investigation and provided information to the Antitrust
Division. Our subsidiary ABB SUSA, which bid on a number of the projects in
question, concluded an agreement with the Civil Division of the Department of
Justice to resolve civil claims related to this matter. In connection with these
resolutions, we agreed to pay a fine and civil damages in a total amount of
approximately $63 million. In accordance with Accounting Principles Board
Opinion No. 21, INTEREST ON RECEIVABLES AND PAYABLES, the discounted present
value of this settlement amount of approximately $57 million was recognized in
our financial statements for the period ended December 31, 2000. These matters
did not have a material adverse effect on our consolidated financial position.

                         DIVIDENDS AND DIVIDEND POLICY

    See "Item 3. Key Information--Dividends and Dividend Policy."

                              SIGNIFICANT CHANGES

    Except as otherwise described in this annual report, there has been no
significant change in our financial position since December 31, 2001.

                                       99

ITEM 9. THE OFFER AND LISTING

                                    MARKETS

    The shares of the newly created ABB Ltd have been listed on the SWX Swiss
Exchange, the London Stock Exchange and the Frankfurt Stock Exchange since
June 28, 1999, the Stockholm Stock Exchange since June 22, 1999 and the New York
Stock Exchange (in the form of American Depositary Shares, or ADSs) since
April 6, 2001.

    Our ADSs are issued under a deposit agreement with Citibank, N.A. as
depositary. Each ADS represents one share.

                                TRADING HISTORY

    The principal market for our shares is virt-x, where our shares are traded
under the symbol "ABBN." Our ADSs are traded on the New York Stock Exchange
under the symbol "ABB." The table below sets forth, for the periods indicated,
the reported high and low closing sale prices for the shares on virt-x and for
the ADSs on the New York Stock Exchange.



                                                                                                                 NEW YORK
                                                                                      VIRT-X                  STOCK EXCHANGE
                                                                              ----------------------      ----------------------
                                                                                HIGH          LOW           HIGH          LOW
                                                                              --------      --------      --------      --------
                                                                                      (CHF)                      (U.S. $)
                                                                                                         
ANNUAL HIGHS AND LOWS
1999 (from June 28, 1999)...................................................   48.69         33.94
2000........................................................................   54.50         37.94
2001........................................................................   44.38         10.00         18.95(1)       6.48(1)

QUARTERLY HIGHS AND LOWS
2000
                        First Quarter.......................................   54.50         43.00
                        Second Quarter......................................   54.00         44.50
                        Third Quarter.......................................   52.56         40.38
                        Fourth Quarter......................................   43.56         37.94

2001
                        First Quarter.......................................   44.38         28.63
                        Second Quarter......................................   33.10         25.00         18.95(1)      14.20(1)
                        Third Quarter.......................................   27.60         10.20         15.33          6.91
                        Fourth Quarter......................................   19.05         10.00         11.45          6.48

2002                    First Quarter.......................................   18.30         11.00         11.11          6.60

MONTHLY HIGHS AND LOWS
2001
                        December............................................   19.05         15.00         11.33          9.40

2002
                        January.............................................   18.30         14.75         11.11          8.65
                        February............................................   14.50         11.00          8.50          6.60
                        March...............................................   14.75         12.00          8.85          7.34
                        April...............................................   15.75         12.60          9.50          7.84
                        May.................................................   15.35         14.10          9.77          8.86
                        June (through June 25)..............................   14.25         12.15          9.04          8.30


------------------------

(1) From April 6, 2001.

                                      100

            LISTING ON THE SWX SWISS EXCHANGE AND TRADING ON VIRT-X

    Our shares are listed on the main board of the SWX Swiss Exchange and are
included in the Swiss Market Index, a capitalization-weighted index of the
shares of 27 large Swiss corporations currently traded on virt-x. We are subject
to the regulations and listing rules of the SWX Swiss Exchange.

    The SWX Swiss Exchange was founded in 1993 as the successor to the local
stock exchanges of Zurich, Basel and Geneva. Trading in foreign equities and
derivatives began in December 1995. In August 1996, the SWX Swiss Exchange
introduced full electronic trading in Swiss equities, derivatives and bonds. The
aggregate value of trading activity of Swiss shares, investment funds, warrants,
and bonds as well as other non-Swiss shares, warrants and bonds on the SWX Swiss
Exchange was in excess of CHF 1,000 billion in 2001. As of December 31, 2001,
the equity securities of 412 corporations, including 149 foreign corporations,
were listed and traded on the SWX Swiss Exchange.

    virt-x plc (formerly Tradepoint Financial Networks plc), a pan-European blue
chip trading platform based in London, was created in 2001 as a collaboration
among the SWX Swiss Exchange and a consortium of internationally active
investment banks and financial services companies (called the TP Consortium) to
provide an efficient and cost effective pan-European equities market. virt-x is
a Recognized Investment Exchange supervised by the Financial Services Authority
in the United Kingdom. The SWX Swiss Exchange and the TP Consortium each hold
38.9% of the issued share capital of virt-x plc, the remaining 22.2% are
publicly held.

    All trading in the 27 stocks included in the Swiss Market Index, including
ABB, has been transferred to virt-x. The trading of these stocks is conducted in
Swiss francs. virt-x uses the SWX Swiss Exchange trading platform and network
under a facilities management agreement. Most of the systems operation and
development capability is outsourced to the SWX Swiss Exchange in Switzerland.

    Trading begins each business day at 9:00 a.m. (CET) and continues until
5:30 p.m. (CET). At 5:20 p.m. (CET) the exchange moves into "Closing Auction"
status. The closing auction stops at 5:30 p.m. (CET). Orders can be placed up to
10:00 p.m. (CET) and again from 6:00 a.m. (CET) onwards.

    Members register incoming orders from their customers in their trading
system. These orders are forwarded to the relevant trader and checked, or fed
directly into the trading system by the trader. From here they are submitted to
the central exchange system of virt-x, which acknowledges receipt of the order,
assigns a time stamp to it and verifies its formal correctness.

    Depending on the type of transaction, the orders are also transmitted to
data vendors (such as Reuters, Bloomberg and Telekurs). In the fully automated
exchange system in use at virt-x, buy and sell orders are matched according to
clearly defined matching rules.

    Regardless of their size or origin, incoming orders are executed in the
order of price (first priority) and time received (second priority).

    Transactions take place through the automatic matching of orders. Each valid
order of at least one share is entered and listed according to its price. In
general, orders placed at the best price (known as "market orders") are executed
first followed by orders placed with a price limit (known as "limit orders"). If
several orders are listed at the same price, they are executed in the order of
the time they were entered.

    Any transaction executed under the rules of virt-x must be reported. On
order book executions are automatically and immediately reported by the trading
system. There are separate provisions for the delayed reporting of certain
qualifying trades. Individual elements of portfolio trades must be reported
within one hour while block trades and enlarged risk trades must be reported
when the business is substantially (80%) completed, or by 5:30 p.m. (CET) on the
day of trade, unless the

                                      101

trade is agreed after 4:30 p.m. (CET), when the trade must be reported by
5:30 p.m. (CET) the following business day. Block trades and enlarged risk
trades are subject to minimum trade size criteria. All other transactions must
be reported within three minutes except when the transaction is conducted in a
SWX Swiss Exchange listed security, where the trade must be reported within 30
minutes.

    virt-x trades can be settled by CREST, SIS SegaInterSettle AG or Euroclear.
Members may employ one, two or a combination of all three depositories to settle
their virt-x transactions. Each depository maintains its unique service offering
and facilitates settlements between each other by real time links. Exchange
transactions are usually settled on a T+3 basis, meaning that delivery against
payment of exchange transactions occurs three days after the trade date. Where
any settlement is due to take place on a day on which the central bank for the
currency in which the transaction is conducted is closed, the settlement due
date is adjusted to be the next business day after the currency holiday.

    The traded prices of all securities are constantly monitored. As soon as the
difference between two successive trade prices is greater than a specific
predefined value, a brief trading suspension, called "stop trading," is
automatically triggered. The triggering parameters and length of a stop trading
differ according to the security.

ITEM 10. ADDITIONAL INFORMATION

           DESCRIPTION OF SHARE CAPITAL AND ARTICLES OF INCORPORATION

    This section summarizes the material provisions of our articles of
incorporation and the Swiss Code of Obligations relating to our shares. The
description is only a summary and is qualified in its entirety by our articles
of incorporation, a copy of which has been filed with the Securities and
Exchange Commission, and by Swiss statutory law.

REGISTRATION AND BUSINESS PURPOSE

    We were registered as a corporation (AKTIENGESELLSCHAFT) in the commercial
register of the Canton of Zurich (Switzerland) on March 5, 1999, under the name
of "New ABB Ltd."

    Our business purpose as set forth in Article 2 of our articles of
incorporation is to hold interests in business enterprises, particularly in
enterprises active in the area of industry, trade and services. We may acquire,
encumber and exploit real estate and intellectual property rights in Switzerland
and abroad and may also finance other companies. We may engage in all types of
transactions and may take all measures that appear appropriate to promote, or
that are related to, our purpose.

THE SHARES

    Our shares are registered shares with a par value of CHF 2.50 each. The
shares are fully paid and non-assessable.

    Each share carries one vote in our general shareholders' meeting. Voting
rights may be exercised only after a shareholder has been recorded in our share
register (AKTIENBUCH) as a shareholder with voting rights, or with
Vardepapperscentralen VPC AB (which we refer to as "VPC") in Sweden, which
maintains a subregister of our share register. Registration with voting rights
is subject to the restrictions described under "--Transfer of Shares."

    The shares are not issued in certificated form and are held in collective
custody at SIS SegaInterSettle AG. Shareholders do not have the right to request
printing and delivery of share certificates (AUFGEHOBENER TITELDRUCK), but may
at any time request us to issue a confirmation of the number of registered
shares held.

                                      102

THE SHARE SPLIT

    In 2001, the Swiss Code of Obligations was amended to enable Swiss companies
to reduce the former minimal par value of shares from CHF 10 to CHF .01. At our
annual general meeting held on March 20, 2001, our shareholders approved a share
split in a four-for-one ratio to reduce the nominal value of our shares from CHF
10 each to CHF 2.50 each. We effected the share split on May 7, 2001.

CAPITAL STRUCTURE

    ISSUED AND OUTSTANDING SHARES

    Our current issued and outstanding share capital (including, in accordance
with Swiss law, our treasury shares) is CHF 3,000,023,580 divided into
1,200,009,432 fully paid registered shares, par value CHF 2.50 per share.

    CONDITIONAL CAPITAL

    Our share capital may be increased in an amount not to exceed CHF
100,000,000 by the issuance of up to 40,000,000 fully paid registered shares
with a par value of CHF 2.50 per share (a) through the exercise of conversion
rights and/or warrants granted in connection with the issuance on national or
international capital markets of bonds or similar debt instruments by ABB or one
of our group companies and/or (b) through the exercise of warrant rights granted
to our shareholders. The increase in our share capital referred to in
clause (a) is limited to an amount of up to CHF 75,000,000 and the increase
referred to in clause (b) is limited to an amount of up to CHF 25,000,000. The
preemptive rights of the shareholders will be excluded in connection with the
issuance of convertible or warrant-bearing bonds or similar debt instruments.
The then current owners of conversion rights and/or warrants will be entitled to
subscribe for the new shares. The conditions of the conversion rights and /or
warrants will be determined by the board of directors.

    The acquisition of shares through the exercise of conversion rights and/or
warrants and each subsequent transfer of the shares will be subject to the
transfer restrictions of the articles of incorporation.

    In connection with the issue of convertible or warrant-bearing bonds or
similar debt instruments, the board of directors will be authorized to restrict
or deny the advance subscription rights of shareholders if those debt issues are
for the purpose of financing the acquisition of an enterprise, parts of an
enterprise or participations. If the board of directors denies advance
subscription rights, the convertible bond or warrant issues will be made at the
then prevailing market conditions (including the standard dilution protection
provisions in accordance with market practice) and the new shares will be issued
pursuant to the relevant convertible bond or warrant issue conditions.
Conversion rights may be exercised during a maximum 10-year period, and warrants
may be exercised during a maximum 7-year period, in each case from the date of
the respective debt issue. The conversion or warrant price must at least equal
the average of the most recent price for the shares on the SWX Swiss Exchange
during the five business days preceding determination of the definitive issue
conditions for the relevant convertible bond or warrant issues.

    Our share capital may be increased in an amount not to exceed CHF
100,000,000 by the issuance of up to 40,000,000 fully paid registered shares
with a par value of CHF 2.50 per share by the issuance of new shares to
employees of ABB and our group companies. The preemptive and advance
subscription rights of our shareholders will be excluded. The shares or rights
to subscribe for shares will be issued to employees pursuant to one or more
regulations to be issued by the board of directors, taking into account
performance, functions, levels of responsibility and profitability criteria. We
may issue shares or subscription rights to employees at a price lower than that
quoted on the stock exchange. The acquisition of shares within the context of
employee share

                                      103

ownership and each subsequent transfer of the shares will be subject to the
transfer restrictions of our articles of incorporation.

TRANSFER OF SHARES

    The transfer of shares is effected by corresponding entry in the books of a
bank or depository institution following an assignment in writing by the selling
shareholder and notification of such assignment to us by the bank or depository
institution. The transfer of shares also requires that the purchaser file a
share registration form in order to be registered in our share register
(AKTIENBUCH) as a shareholder with voting rights. Failing such registration, the
purchaser may not be able to participate in or vote at shareholders' meetings,
but will be entitled to dividends and liquidation proceeds. Shares and
associated pecuniary rights may only be pledged to the depository institution
that administers the book entries of those shares for the account of the
shareholder.

    A purchaser of shares will be recorded in our share register with voting
rights upon disclosure of its name and address. However, we may decline a
registration with voting rights if the shareholder does not declare that it has
acquired the shares in its own name and for its own account. If the shareholder
refuses to make such declaration, it will be registered as a shareholder without
voting rights. If persons fail to expressly declare in their registration
application that they hold the shares for their own accounts (the "nominees"),
the board of directors may still enter such persons in the share register with
the right to vote, provided that the nominee has entered into an agreement with
the board of directors concerning his status, and further provided the nominee
is subject to a recognized bank or financial market supervision.

    After having given the registered shareholder or nominee the right to be
heard, the board of directors may cancel registrations in the share register
retroactive to the date of registration if such registrations were made on the
basis of incorrect information. The relevant shareholder or nominee will be
informed immediately as to the cancellation. The board of directors will
regulate the details and issue the instructions necessary for compliance with
the preceding regulations. In special cases, it may grant exemptions from the
rule concerning nominees.

    Acquirors of registered shares who have chosen to have their shares
registered in the share register with VPC do not have to present any written
assignment from the selling shareholder nor may they be requested to file a
share registration form or declare that they have acquired the shares in their
own name and for their own account in order to be registered as a shareholder
with voting rights. However, in order to be entitled to vote at a shareholders'
meeting those acquirors need to be entered in the VPC share register in their
own name no later than 10 calendar days prior to the meeting. Uncertificated
shares registered with VPC may be pledged in accordance with Swedish law.

SHAREHOLDERS' MEETINGS

    Under Swiss law, the annual general meeting of shareholders must be held
within six months after the end of our fiscal year, December 31. Annual general
meetings are convened by the board of directors or, if necessary, by the
statutory auditors. The board of directors is further required to convene an
extraordinary general meeting if so resolved by the shareholders in an annual
general meeting or if so requested by shareholders holding in aggregate at least
10% of our nominal share capital. A shareholders' meeting is convened by
publishing a notice in the Swiss Official Gazette of Commerce (SCHWEIZERISCHES
HANDELSAMTSBLATT) at least 20 days prior to the meeting.

    One or more shareholders whose combined holdings represent an aggregate par
value of at least CHF 1,000,000 may request in writing 40 calendar days prior to
a general meeting of shareholders that specific items and proposals be included
on the agenda and voted on at the next shareholders' meeting.

                                      104

    There is no provision in our articles of incorporation requiring a quorum
for the holding of shareholders' meetings.

    Resolutions generally require the approval of an "absolute majority" of the
shares represented at a shareholders' meeting (i.e., a majority of the shares
represented at the shareholders' meeting with abstentions having the effect of
votes against the resolution). Shareholders' resolutions requiring a vote by
absolute majority include:

    - adoption and amendment of the articles of incorporation;

    - election of members of the board of directors, the auditors, the group
      auditors and the special auditors referred to below;

    - approval of the annual report and the consolidated financial statements;

    - approval of the annual financial statements and decision on the allocation
      of profits shown on the balance sheet, in particular with regard to
      dividends;

    - granting discharge to the members of the board of directors and the
      persons entrusted with management; and

    - passing resolutions as to all matters reserved to the authority of the
      shareholders' meeting by law or under the articles of incorporation or
      that are submitted to the shareholders' meeting by the board of directors
      to the extent permitted by law.

    A resolution passed with a qualified majority of at least two-thirds of the
shares represented at a shareholders' meeting is required for:

    - a modification of the purpose of ABB Ltd;

    - the creation of shares with increased voting powers;

    - restrictions on the transfer of registered shares and the removal of those
      restrictions;

    - restrictions on the exercise of the right to vote and the removal of those
      restrictions;

    - an authorized or conditional increase in share capital;

    - an increase in share capital through the conversion of capital surplus,
      through an in-kind contribution or in exchange for an acquisition of
      property, and the grant of special benefits;

    - the restriction or denial of preemptive rights;

    - a transfer of our place of incorporation; and

    - our dissolution without liquidation.

    In addition, the introduction or abolition of any provision in the articles
of incorporation providing for a qualified majority must be resolved in
accordance with such qualified majority voting requirements.

    At shareholders' meetings, shareholders can be represented by proxy, but
only by their legal representative; another shareholder with the right to vote,
a corporate body (ORGANVERTRETER), an independent proxy (UNABHANGIGER
STIMMRECHTSVERTRETER) or a depository institution (DEPOTVERTRETER). All shares
held by one shareholder may be represented by only one representative. Votes are
taken on a show of hands unless a secret ballot is required by the general
meeting of shareholders or the presiding officer. The presiding officer may
arrange for resolutions and elections to be carried out by electronic means. As
a result, resolutions and elections carried out by electronic means will be
deemed to have the same effect as secret ballots.

                                      105

NET PROFITS AND DIVIDENDS

    Swiss law requires that we retain at least 5% of our annual net profits as
general reserves for so long as these reserves amount to less than 20% of our
nominal share capital. Any net profits remaining in excess of those reserves are
at the disposal of the shareholders' meeting.

    Under Swiss law, we may pay dividends only if we have sufficient
distributable profits from previous business years, or if our reserves are
sufficient to allow distribution of a dividend. In either event, dividends may
be paid out only after approval by the shareholders' meeting. The board of
directors may propose that a dividend be paid out, but cannot itself set the
dividend. The auditors must confirm that the dividend proposal of the board of
directors conforms with statutory law. In practice, the shareholders' meeting
usually approves the dividend proposal of the board of directors.

    Dividends are usually due and payable after the shareholders' resolution
relating to the allocation of profits has been passed in accordance with
announcements by ABB and the resolutions of the shareholders' meeting. Under
Swiss law, the statute of limitations in respect of dividend payments is five
years. Dividends not collected within five years after their due date accrue to
ABB and will be allocated to our general reserves.

PREEMPTIVE RIGHTS

    Shareholders of a Swiss corporation have certain preemptive rights to
subscribe for new shares issued in connection with capital increases in
proportion to the nominal amount of their shares held. A resolution adopted at a
shareholders' meeting with a supermajority of two-thirds of the shares
represented may, however, repeal, limit or suspend (or authorize the board of
directors to repeal, limit or suspend) preemptive rights for cause or may
delegate such resolution to the board of directors. Cause includes an
acquisition of a business or a part thereof, an acquisition of a participation
in a company or the grant of shares to employees.

BORROWING POWER

    Neither Swiss law nor our articles of incorporation restrict in any way our
power to borrow and raise funds. The decision to borrow funds is taken by or
under the direction of the board of directors, and no shareholders' resolution
is required. Our articles of incorporation do not contain provisions concerning
borrowing powers exercisable by our directors or how such borrowings could be
varied.

REPURCHASE OF SHARES

    Swiss law limits a corporation's ability to hold or repurchase its own
shares. We and our subsidiaries may only repurchase shares if we have sufficient
free reserves to pay the purchase price, and if the aggregate nominal value of
such shares does not exceed 10% of our nominal share capital. Furthermore, we
must create a special reserve on our balance sheet in the amount of the purchase
price of the acquired shares. Such shares held by us or our subsidiaries do not
carry any rights to vote at shareholders' meetings, but are entitled to the
economic benefits applicable to the shares generally and are considered to be
"outstanding" under Swiss law.

    At our annual general meeting held on March 20, 2001, our shareholders
approved a share repurchase in the amount of CHF 60,000,000, corresponding to
6,000,000 shares (24,000,000 shares after implementation of the share split),
which corresponds to approximately 2% of our nominal share capital. This share
repurchase took place exclusively on the SWX Swiss Exchange and was completed in
May 2001. At our annual general meeting held on March 12, 2002, our shareholders
took notice that such shares will not be cancelled and become treasury shares.

                                      106

    Our board of directors has resolved that our treasury shares may be used for
delivery upon conversion of the 4.625% convertible unsubordinated bonds issued
in May 2002.

    We may make additional purchases of shares for treasury from time to time in
the future. Treasury shares are available for issuance to satisfy obligations
under the Management Incentive Plan and for other corporate purposes.

NOTICES

    Written communication by us to our shareholders will be sent by ordinary
mail to the last address of the shareholder or authorized recipient entered in
the share register. To the extent that personal notification is not mandated by
law, all communications to the shareholders are validly made by publication in
the Swiss Official Gazette of Commerce (SCHWEIZERISCHES HANDELSAMTSBLATT).

    Notices required under the Listing Rules of the SWX Swiss Exchange will be
published in two Swiss newspapers in German and French. We or the SWX Swiss
Exchange may also disseminate the relevant information on the online exchange
information systems.

DURATION, LIQUIDATION AND MERGER

    Our duration is unlimited. We may be dissolved at any time by a
shareholders' resolution which must be passed by (1) an absolute majority of the
shares represented at the meeting in the event we are to be dissolved by way of
liquidation, or (2) a supermajority of two-thirds of the shares represented at
the meeting in other events (E.G., in a merger where we are not the surviving
entity). Dissolution by court order is possible if we become bankrupt, or if
shareholders holding at least 10% of the share capital can establish cause for
dissolution.

    Under Swiss law, any surplus arising out of a liquidation of a corporation
(after the settlement of all claims of all creditors) is distributed to the
shareholders in proportion to the paid-up nominal value of shares held.

DISCLOSURE OF PRINCIPAL SHAREHOLDERS

    Under the Swiss Stock Exchange Act, shareholders and groups of shareholders
acting in concert who reach, exceed or fall below the thresholds of 5%, 10%,
20%, 33 1/3%, 50% or 66 2/3% of the voting rights of a Swiss listed corporation
must notify the corporation and the exchange(s) in Switzerland on which such
shares are listed of such holdings in writing within four trading days, whether
or not the voting rights can be exercised. Following receipt of such a
notification, the corporation must inform the public within two trading days.

    An additional disclosure requirement exists under the Swiss Federal Code of
Obligations, according to which we must disclose individual shareholders and
groups of shareholders and their shareholdings if they hold more than 5% of all
voting rights and we know or have reason to know of such major shareholders.
Such disclosures must be made once a year in the notes to the financial
statements as published in our annual report.

MANDATORY OFFERING RULES

    Under the Swiss Stock Exchange Act, shareholders and groups of shareholders
acting in concert who acquire more than 33 1/3% of the voting rights of a listed
Swiss company have to submit a takeover bid to all remaining shareholders. This
mandatory offer obligation may be waived under certain circumstances, in
particular if another shareholder owns a higher percentage of voting rights than
the acquiror. A waiver from the mandatory bid rules is granted by the Swiss
Takeover Board or the Swiss Federal Banking Commission. If no waiver is granted,
the mandatory takeover bid must be made pursuant to the procedural rules set
forth in the Swiss Stock Exchange Act and the implementing ordinances.

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    Our articles of incorporation do not provide for any alterations of the
bidder's obligations under the Swiss Stock Exchange Act.

CANCELLATION OF REMAINING EQUITY SECURITIES

    Under Swiss law, any offeror who has made a tender offer for the shares of a
Swiss target company and who, as a result of such offer, holds more than 98% of
the voting rights of the target company, may petition the court to cancel the
remaining equity securities. The corresponding petition must be filed against
the target company within three months after the lapse of the exchange offer
period. The remaining shareholders may join in the proceedings. If the court
orders cancellation of the remaining equity securities, the target company will
reissue the equity securities and deliver such securities to the offeror against
performance of the exchange offer for the benefit of the holders of the
cancelled equity securities.

DIRECTORS AND OFFICERS

    For further information regarding the material provisions of our articles of
incorporation and the Swiss Code of Obligations regarding directors and
officers, see "Item 6. Directors, Senior Management and Employees--Duties of
Directors and Officers."

AUDITORS

    The auditors are subject to confirmation by the shareholders at the annual
general meeting on an annual basis. Ernst & Young AG, Zurich and KPMG Klynveld
Peat Marwick Goerdeler SA, Zurich were appointed jointly as independent auditors
for the years ended December 31, 2000 and 1999. At our annual general meeting
held on March 20, 2001, our shareholders elected Ernst & Young AG as independent
auditors for the year ended December 31, 2001. At the annual general meeting
held on March 12, 2002, our shareholders reelected Ernst & Young AG as auditors.

    In addition, at the annual general meetings held in 2001 and 2002, our
shareholders elected OBT Treuhand AG as special auditors to issue special review
reports required in connection with capital increases (if any). The special
auditors are subject to confirmation by the shareholders at the annual general
meeting on an annual basis.

                               MATERIAL CONTRACTS

    $3 BILLION REVOLVING CREDIT FACILITY.  On December 18, 2001, we and certain
of our principal finance subsidiaries entered into a revolving credit agreement
with Barclays Capital, Credit Suisse First Boston and Salomon Brothers
International Limited as Mandated Lead Managers, CSFB as Facility Agent and
certain financial institutions acting as lenders. On April 30, 2002, we amended
and restated the credit agreement pursuant to an amendment agreement dated
April 25, 2002. Under the credit agreement, the lenders have made available to
us a $3 billion committed 364-day multicurrency revolving credit facility to be
used for general corporate purposes, including to pay down commercial paper
maturing in 2002. Our principal finance subsidiaries have guaranteed the
indebtedness under the credit facility. The amendment to the credit agreement
removed a credit rating trigger that required renegotiation of the credit
facility if our credit ratings were downgraded below certain levels. The
interest rate on amounts borrowed under the credit agreement will range between
0.60% and 2.50% over LIBOR, depending on our credit ratings. The credit
agreement contains affirmative and negative covenants including financial
covenants addressing gross indebtedness, minimum interest coverage and minimum
net worth. The credit agreement also includes events of default, pursuant to
which the amount made available under the credit facility could be declared
immediately due and payable. These events of default include non-payment of
interest, principal or fees, certain uncured breaches of the credit agreement,
cross default to other

                                      108

indebtedness, bankruptcy or insolvency and material adverse changes. For more
information, see Note 24 to the Consolidated Financial Statements.

    ALSTOM SETTLEMENT.  Pursuant to a Share Purchase and Settlement Agreement,
dated as of March 31, 2000, among ABB Ltd, ALSTOM and ABB ALSTOM Power N.V., as
amended by the Amendment to Share Purchase and Settlement Agreement, dated as of
May 11, 2000 (which we refer to collectively as the Settlement Agreement),
ALSTOM purchased our 50% interest in the joint venture ABB ALSTOM Power N.V. for
a cash payment of E1.25 billion. The Settlement Agreement provided for the
termination of various joint venture agreements, the execution of various
releases, the settlement of certain disputed items in relation to the joint
venture, the unwinding of various financial arrangements between ABB ALSTOM
Power N.V. and the ABB Group, the prospective transfer to the joint venture of
various assets and liabilities required to have been transferred to the joint
venture under the original joint venture agreements, the transfer to us of
certain subsidiaries of the joint venture, various payments among members of the
ALSTOM group and the ABB Group in connection with the foregoing transactions
(separate from the purchase price mentioned above), indemnification and the
execution of various ancillary documents. The transaction was consummated on
May 11, 2000.

    SALE AGREEMENT FOR NUCLEAR BUSINESS.  On December 21, 1999, our subsidiary,
ABB Handels-Und Verwaltungs AG, entered into an agreement to sell our nuclear
business to British Nuclear Fuels plc for $485 million. Under the agreement, we
have undertaken not to compete with the divested business during a 7-year period
ending April 28, 2007. We have agreed to indemnify British Nuclear Fuels
against, among other things, certain environmental and other liabilities arising
from specific sites operated by the nuclear business and certain tax liabilities
of the nuclear business. These potential liabilities are described under "Item
3. Key Information--Risk Factors--We are subject to liabilities arising out of
our discontinued operations and we could be required to make payments in respect
of these retained liabilities in excess of established reserves." The
transaction was consummated on April 28, 2000.

    The above descriptions of the material provisions of the referenced
agreements do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the agreements which have been filed as Exhibits
4.1, 4.2 and 4.3 to this annual report.

                               EXCHANGE CONTROLS

    Other than in connection with government sanctions imposed on Iraq,
Yugoslavia, UNITA (Angola), Myanmar, Afghanistan and Libya (currently suspended)
there are currently no government laws, decrees or regulations in Switzerland
that restrict the export or import of capital, including, but not limited to,
Swiss foreign exchange controls on payments of dividends, interest or
liquidation procedures, if any, to non-resident holders of shares. In addition,
there are no limitations imposed by Swiss law or our articles of association on
the right of non-residents or non-citizens of Switzerland to hold or vote our
shares. For further information on limitations on being entered into ABB's share
register as a shareholder with voting rights, see "--Description of Share
Capital and Articles of Incorporation--Transfer of Shares."

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                                    TAXATION

    The following is a summary of the material Swiss and United States federal
income tax consequences of the purchase, ownership and disposition of our shares
or American Depositary Shares.

SWISS TAXES

    WITHHOLDING TAX ON DIVIDENDS AND DISTRIBUTIONS

    Dividends paid and similar cash or in-kind distributions that we make to a
holder of shares or ADSs (including dividends on liquidation proceeds and stock
dividends) are subject to a Swiss federal withholding tax at a rate of 35%. We
must withhold the tax from the gross distribution and pay it to the Swiss
Federal Tax Administration.

    OBTAINING A REFUND OF SWISS WITHHOLDING TAX FOR U.S. RESIDENTS

    The Convention Between the United States of America and the Swiss
Confederation for the Avoidance of Double Taxation with Respect to Taxes on
Income, which entered into force on December 19, 1997 and which we will refer to
in the following discussion as the Treaty, allows U.S. resident individuals or
U.S. corporations to seek a refund of the Swiss withholding tax paid on
dividends in respect of our shares. U.S. resident individuals and U.S.
corporations holding less than 10% of the voting rights in respect of our shares
are entitled to seek a refund of withholding tax to the extent the tax withheld
exceeds 15% of the gross dividend. U.S. corporations holding 10% or more of the
voting rights of our shares are entitled to seek a refund of withholding tax to
the extent the tax withheld exceeds 5% of the gross dividend.

    Claims for refunds must be filed with the Swiss Federal Tax Administration,
Eigerstrasse 65, 3003 Bern, Switzerland. The form used for obtaining a refund is
Swiss Tax Form 82 (82C for companies; 82E for other entities; 82I for
individuals). This form may be obtained from any Swiss Consulate General in the
United States or from the Swiss Federal Tax Administration at the address above.
The form must be filled out in triplicate with each copy duly completed and
signed before a notary public in the United States. The form must be accompanied
by evidence of the deduction of withholding tax withheld at the source.

    STAMP DUTIES UPON TRANSFER OF SECURITIES

    The sale of shares, whether by Swiss resident or non-resident holders, may
be subject to a Swiss securities transfer stamp duty of up to 0.15% calculated
on the sale proceeds if it occurs through or with a Swiss bank or other Swiss
securities dealer as defined in the Swiss Federal Stamp Tax Act. In addition to
the stamp duty, the sale of shares by or through a member of the SWX Swiss
Exchange may be subject to a stock exchange levy equal to 0.02%.

UNITED STATES TAXES

    The following is a summary of the material U.S. federal income tax
consequences of the ownership of shares or ADSs. This summary does not purport
to address all of the tax considerations that may be relevant to a decision to
purchase, own or dispose of shares or ADSs. This summary assumes that holders
are initial purchasers of shares or ADSs and will hold shares or ADSs as capital
assets. This summary does not address tax considerations applicable to holders
that may be subject to special tax rules, such as dealers or traders in
securities or currencies, partnerships owning shares or ADSs, tax-exempt
entities, banks, insurance companies, holders that own (or are deemed to own) at
least 10% or more (by voting power or value) of the stock of ABB, investors
whose functional currency is not the U.S. dollar, and persons that will hold
shares or ADSs as part of a position in a straddle or as part of a hedging or
conversion transaction for U.S. tax purposes. This discussion does not address
aspects of U.S. taxation other than U.S. federal

                                      110

income taxation, nor does it address state, local or foreign tax consequences of
an investment in shares or ADSs.

    This summary is based (1) on the Internal Revenue Code of 1986, as amended,
U.S. Treasury Regulations and judicial and administrative interpretations
thereof, in each case as in effect and available on the date of this
registration statement and (2) in part, on representations of the depositary and
the assumption that each obligation in the deposit agreement and any related
agreement will be performed in accordance with its terms. The U.S. tax laws and
the interpretation thereof are subject to change, which change could apply
retroactively and could affect the tax consequences described below.

    For purposes of this summary, a U.S. holder is a beneficial owner of shares
or ADSs that, for U.S. federal income tax purposes, is:

    - a citizen or resident of the United States;

    - a corporation created or organized in or under the laws of the United
      States or any state, including the District of Columbia;

    - an estate if its income is subject to U.S. federal income taxation
      regardless of its source; or

    - a trust if such trust validly has elected to be treated as a U.S. person
      for U.S. federal income tax purposes or if (1) a U.S. court can exercise
      primary supervision over its administration and (2) one or more U.S.
      persons have the authority to control all of its substantial decisions.

    A non-U.S. holder is a beneficial owner of shares or ADSs that is not a U.S.
holder.

    EACH PROSPECTIVE PURCHASER SHOULD CONSULT THE PURCHASER'S TAX ADVISOR WITH
RESPECT TO THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
ACQUIRING, OWNING OR DISPOSING OF SHARES OR ADSS.

    OWNERSHIP OF ADSS IN GENERAL

    For U.S. federal income tax purposes, a holder of ADSs generally will be
treated as the owner of the shares represented by the ADSs.

    The U.S. Treasury Department has expressed concern that depositaries for
American depositary receipts, or other intermediaries between the holders of
shares of an issuer and the issuer, may be taking actions that are inconsistent
with the claiming of U.S. foreign tax credits by U.S. holders of those receipts
or shares. Accordingly, the analysis regarding the availability of a U.S.
foreign tax credit for Swiss taxes and sourcing rules described below could be
affected by future actions that may be taken by the U.S. Treasury Department.

    DISTRIBUTIONS

    If you are a U.S. holder, for U.S. federal income tax purposes, the gross
amount of any distribution (other than certain distributions, if any, of shares
distributed to all shareholders of ABB, including holders of ADSs) made to you
with respect to shares or ADSs, including the amount of any Swiss taxes withheld
from the distribution, will constitute dividends to the extent of ABB's current
and accumulated earnings and profits (as determined under U.S. federal income
tax principles), and will be included in your gross income as ordinary income.
These dividends will not be eligible for the dividends received deduction
generally allowed to corporate U.S. holders. If distributions with respect to
shares or ADSs exceed ABB's current and accumulated earnings and profits as
determined under U.S. federal income tax principles, the excess would be treated
first as a tax-free return of capital to the extent of your adjusted tax basis
in the shares or ADSs. Any amount in excess of the amount of the dividend and
the return of capital would be treated as capital gain. ABB does not maintain
calculations of its earnings and profits under U.S. federal income tax
principles.

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    If you are a U.S. holder, dividends paid in Swiss francs, including the
amount of any Swiss taxes withheld from the dividends, will be included in your
gross income in an amount equal to the U.S. dollar value of the Swiss francs
calculated by reference to the spot exchange rate in effect on the day the
dividends are includible in income. In the case of ADSs, dividends generally are
includible in income on the date they are received by the depositary, regardless
of whether the payment is in fact converted into U.S. dollars at that time. If
dividends paid in Swiss francs are converted into U.S. dollars on the day they
are includible in income, you generally should not be required to recognize
foreign currency gain or loss with respect to the conversion, if you are a U.S.
holder. However, any gains or losses resulting from the conversion of Swiss
francs between the time of the receipt of dividends paid in Swiss francs and the
time the Swiss francs are converted into U.S. dollars will be treated as
ordinary income or loss to you, as the case may be, if you are a U.S. holder.
The amount of any distribution of property other than cash will be the fair
market value of the property on the date of distribution.

    If you are a U.S. holder, you will have a basis in any Swiss francs received
as a refund of Swiss withholding taxes equal to a U.S. dollar amount calculated
by reference to the exchange rate in effect on the date of receipt of the
dividend on which the tax was withheld. (See "--Obtaining a Refund of Swiss
Withholding Tax for U.S. Residents" above).

    If you are a U.S. holder, dividends received by you with respect to shares
or ADSs will be treated as foreign source income, which may be relevant in
calculating your foreign tax credit limitation. The limitation on foreign taxes
eligible for credit is calculated separately with respect to specific classes of
income. For this purpose, dividends distributed by ABB generally will constitute
passive income, or, in the case of certain U.S. holders, financial services
income. The rules relating to the determination of the U.S. foreign tax credit
are complex, and, if you are a U.S. holder, you should consult your tax advisor
to determine whether and to what extent you would be entitled to this credit.
Alternatively, if you are a U.S. holder, you may elect to claim a U.S. tax
deduction, instead of a foreign tax credit, for such Swiss tax, but only for a
year in which you elect to do so with respect to all foreign income taxes.

    Subject to the discussion below under "Backup Withholding and Information
Reporting," if you are a non-U.S. holder of shares or ADSs, you generally will
not be subject to U.S. federal income or withholding tax on dividends received
on shares or ADSs, unless the dividends are effectively connected with the
conduct by you of a trade or business in the United States, or the dividends are
attributable to a permanent establishment or fixed base that is maintained in
the United States if that is required by an applicable income tax treaty as a
condition for subjecting a non-U.S. holder to U.S. taxation on a net income
basis. In such cases, you will be taxed in the same manner as a U.S. holder.
Moreover, if you are a corporate non-U.S. holder, you may be subject, under
certain circumstances, to an additional branch profits tax on any effectively
connected dividends at a 30% rate, or at a lower rate if you are eligible for
the benefits of an income tax treaty that provides for a lower rate.

    SALE OR EXCHANGE OF SHARES OR ADSS

    If you are a U.S. holder that holds shares or ADSs as capital assets, you
generally will recognize capital gain or loss for U.S. federal income tax
purposes upon a sale or exchange of your shares or ADSs in an amount equal to
the difference between your adjusted tax basis in the shares or ADSs and the
amount realized on their disposition. If you are a noncorporate U.S. holder, the
maximum marginal U.S. federal income tax rate applicable to the gain will be
lower than the maximum marginal U.S. federal income tax rate applicable to
ordinary income if your holding period for the shares or ADSs exceeds one year
and, in the case of shares or ADSs acquired on or after January 1, 2001, will be
further reduced if your holding period exceeds five years. If you are a U.S.
holder, the gain or loss, if any, recognized by you generally will be treated as
U.S. source income or

                                      112

loss, as the case may be, for U.S. foreign tax credit purposes. Certain
limitations exist on the deductibility of capital losses for U.S. federal income
tax purposes.

    If you are a U.S. holder and you receive any foreign currency on the sale of
shares or ADSs, you may recognize U.S. source ordinary income or loss as a
result of currency fluctuations between the date of the sale of the shares or
ADS, as the case may be, and the date the sales proceeds are converted into U.S.
dollars.

    Subject to the discussion below under "Backup Withholding and Information
Reporting," if you are a non-U.S. holder of shares or ADSs, you generally will
not be subject to U.S. federal income or withholding tax on gain realized on the
sale or exchange of your shares or ADSs unless (1) the gain is effectively
connected with the conduct by you of a trade or business in the United States,
or the gain is attributable to a permanent establishment or fixed base that is
maintained in the United States if that is required by an applicable income tax
treaty as a condition for subjecting a non-U.S. holder to U.S. taxation on a net
income basis, or (2) if you are an individual non-U.S. holder, you are present
in the United States for 183 days or more in the taxable year of the sale or
exchange and certain other conditions are met. Moreover, if you are a corporate
non-U.S. holder, you may be subject, under certain circumstances, to an
additional branch profits tax on any effectively connected gains at a 30% rate,
or at a lower rate if you are eligible for the benefits of an income tax treaty
that provides for a lower rate.

    BACKUP WITHHOLDING AND INFORMATION REPORTING

    U.S. backup withholding tax and information reporting requirements generally
apply to certain payments to certain noncorporate holders of stock. Information
reporting generally will apply to payments of dividends on, and to proceeds from
the sale or redemption of, shares or ADSs made within the United States to a
holder of shares or ADSs (other than an exempt recipient, including a
corporation, a payee that is a non-U.S. holder that provides an appropriate
certification, and certain other persons).

    A payor will be required to withhold backup withholding tax from any
payments of dividends on, or the proceeds from the sale or redemption of, shares
or ADSs within the United States to you, unless you are an exempt recipient, if
you fail to furnish your correct taxpayer identification number or otherwise
fail to establish an exception from backup withholding tax requirements or
otherwise fail to establish an exception from backup withholding. The amount of
any backup withholding from a payment to you will be allowed as a credit against
your U.S. federal income tax liability and may entitle you to a refund, provided
that the required information is furnished to the U.S. Internal Revenue Service.
The backup withholding tax rate is 30% for years 2002 and 2003, 29% for years
2004 and 2005 and 28% for years 2006 through 2010.

    In the case of payments made within the United States to a foreign simple
trust, foreign grantor trust, or foreign partnership (other than payments to a
foreign simple trust, foreign grantor trust, or foreign partnership that
qualifies as a withholding foreign trust or withholding foreign partnership
within the meaning of the income tax regulations and payments to a foreign
simple trust, foreign grantor trust, or foreign partnership that are effectively
connected with the conduct of a trade or business in the United States), the
beneficiaries of the foreign simple trust, the persons treated as the owners of
the foreign grantor trust or the partners of the foreign partnership, as the
case may be, will be required to provide the certification discussed above in
order to establish an exemption from backup withholding tax and information
reporting requirements. Moreover, if you are a non-U.S. holder, a payor or
middleman may rely on a certification provided by you only if the payor or
middleman does not have actual knowledge or a reason to know that any
information or certification stated in the certificate is incorrect.

    THE ABOVE SUMMARIES ARE NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF
ALL TAX CONSEQUENCES RELATING TO THE OWNERSHIP OF SHARES OR ADSS. PROSPECTIVE
PURCHASERS OF SHARES OR ADSS SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE
TAX CONSEQUENCES OF THEIR PARTICULAR SITUATIONS.

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                              DOCUMENTS ON DISPLAY

    We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. In accordance with these requirements, we file reports
and other information with the Securities and Exchange Commission. These
materials, including this annual report and the exhibits thereto, may be
inspected and copied at prescribed rates at the Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. Further information on
the operation of the public reference room may be obtained by calling the
Commission at 1-800-SEC-0330. The Commission also maintains a web site at
http://www.sec.gov that contains reports and other information regarding
registrants that file electronically with the Commission. Our annual reports and
some of the other information we submit to the Commission may be accessed
through this web site. In addition, material that we file can be inspected at
the offices of the New York Stock Exchange at 20 Broad Street, New York, New
York 10005.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK DISCLOSURE

    The continuously evolving financial markets and the dynamic business
environment expose us to changes in foreign exchange, interest rate, and other
market price risks. We have developed and implemented comprehensive policies,
procedures, and controls to identify, mitigate and monitor financial risk on a
firm-wide basis. To efficiently aggregate and manage financial risk that could
impact our financial performance, we operate a system of Treasury Centers, which
are part of ABB Financial Services. Our Treasury Centers provide an efficient
source of liquidity, financing, risk management, and other global financial
services to our industrial companies. Prior to the halting of proprietary
trading activities on June 19, 2002, the Treasury Centers had the authority to
accept a limited degree of market risk in order to benefit from favorable market
price movements. Any acceptance of market risk by the Treasury Centers is
subject to clearly defined exposure and risk limits that we monitor in real-time
and document in written policies approved by senior management of ABB Ltd.

    The Treasury Centers maintain risk management control systems to monitor
foreign exchange, interest rate, equity, and other financial risks and related
financial positions. Positions are monitored using a number of analytical
techniques including market value, sensitivity analysis, and Value-at-Risk. The
following quantitative analyses are based on sensitivity analysis tests, which
assume simultaneous shifts in exchange rates against ABB's positions, as well as
parallel shifts in interest rate yield curves.

CURRENCY FLUCTUATIONS AND FOREIGN EXCHANGE RISK

    It is our policy to identify and manage all transactional foreign exchange
exposures to minimize risk. With the exception of some ABB Financial Services
subsidiaries and to the extent certain operating subsidiaries are domiciled in
high inflation environments, the functional currency of each of our companies is
considered to be its local currency and our companies are required to hedge all
contracted foreign exchange exposures against their local currency. These
transactions are undertaken mainly with ABB Treasury Centers.

    We have foreign exchange transaction exposures related to our global
operating and financing activities in currencies other than the functional
currency in which our entities operate. Specifically, we are exposed to foreign
currency risk related to future earnings, assets, or liabilities denominated in
foreign currencies. The most significant currency exposures relate to operations
in Sweden, Switzerland and Germany. In addition, the Group is exposed to the
currency risk associated with translating its functional currency financial
statements into its reporting currency, which is the U.S. dollar.

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    Our industrial companies are responsible for identifying their foreign
currency exposures and entering into intercompany hedge contracts with the
Treasury Centers, where legally possible, or external transactions to hedge this
risk. The intercompany transactions have the effect of transferring the
industrial companies' currency risk to the Treasury Centers, but create no
additional market risk to our consolidated results. According to our policy,
material net currency exposures are hedged. Exposures are primarily hedged with
forward foreign exchange contracts. The majority of the foreign exchange hedge
instruments have, on average, a maturity of less than twelve months. The
Treasury Centers also hedge currency risks associated with their financing of
other ABB companies.

    As of December 31, 2001 and December 31, 2000, the net fair value of
financial instruments with exposure to foreign currency rate movements was
$497 million and $480 million, respectively. The potential loss in fair value
for such financial instruments from a hypothetical 10% move in foreign exchange
rates against our position would be approximately $416 million and $515 million
for December 31, 2001 and December 31, 2000, respectively. The analysis reflects
the aggregate adverse foreign exchange impact associated with transaction
exposures, as well as translation exposures where appropriate. Our sensitivity
analysis assumes a simultaneous shift in exchange rates against the position and
as such assumes an unlikely adverse case scenario. Exchange rates rarely move in
the same direction. Therefore, the assumption made may overstate the impact of
changing rates on assets and liabilities denominated in a foreign currency. The
underlying trade-related transaction exposures of the industrial companies are
not included in the quantitative analysis. This represents a significant
limitation of the quantitative risk analysis. If these underlying transaction
exposures were included, they would tend to have an offsetting effect on the
potential loss in fair value detailed above.

INTEREST RATE RISK

    We are exposed to interest rate risk due to our financing, investing and
liquidity management activities. Our industrial companies primarily invest
excess cash with and receive funding from our Treasury Centers on an arm's
length basis. It is our policy that the primary third party funding and
investing activities, as well as the monitoring and management of the resulting
interest rate risk, are the responsibility of the Treasury Centers. The Treasury
Centers adjust the duration of their overall funding portfolio through
derivative instruments in order to better match underlying assets and
liabilities, as well as minimize the cost of capital. The Treasury Centers also
actively support the management of the interest sensitive investments and
customer-financing portfolios, which may include the use of derivatives, to
provide the industrial companies and our external customers with access to
necessary liquidity, as well as maximize interest income. As of December 31,
2001 and December 31, 2000, the net fair value of interest rate sensitive
instruments was $(2,801) million and $(1,933) million, respectively. The
potential loss in fair value for such financial instruments from a hypothetical
100 basis point parallel shift in interest rates against ABB's position (or a
multiple of 100 basis points where 100 basis points is less than 10% of the
applicable interest rate) would be approximately $30 million and $82 million for
December 31, 2001 and December 31, 2000, respectively.

    Leases are not included as part of the sensitivity analysis. This represents
a material limitation of the analysis. While the sensitivity analysis reflects
interest rate sensitivity of the funding for the lease portfolio held by ABB
Financial Services, a corresponding change in the lease portfolio was not
considered in the sensitivity analysis model. As a result, the overall impact on
the fair value of financial instruments from a hypothetical change in interest
rates may be overstated.

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TRADING ACTIVITIES

    Prior to June 19, 2002, our financial policies permitted ABB Financial
Services, through its system of Treasury Centers, to engage in a limited degree
of proprietary trading activities. Our policies do not permit any trading
activities outside of these Treasury Centers. Trading is conducted in financial
instruments that are actively traded in global financial markets such as forward
foreign exchange contracts, swap transactions, options, as well as futures
traded on regulated exchanges. As discussed above, the Treasury Centers had the
authority to accept a limited degree of market risk subject to clearly defined
risk management polices and trading limits. Each Treasury Center had dedicated
capital associated with its trading activities, which was approved by its board
of directors or supervisory board. Financial risks are measured and monitored
real-time and reported daily to senior management. All Treasury Centers have
transaction tracking, valuation, and risk measurement systems, as well as
dedicated risk managers, to monitor and control the proprietary trading
activities.

    Our internal audit function, which is independent of ABB Financial Services
and reports directly to the head of the Group internal audit, perform regular
reviews of trading activities to ensure that trading is performed within
established policies and limits and that there are appropriate internal control
procedures in place.

    The level of exposure accepted by the Treasury Centers is impacted by the
market environment and expectation for future market price movements but our
policy provides that it can never exceed the clearly defined limits. In
addition, the Treasury Centers' stop loss policies require liquidation of
positions when the mark-to-market loss arising from changes in market conditions
exceeds those pre-defined limits.

    The table below details the net fair value of market price sensitive
instruments, as well as the potential loss in fair value for such financial
instruments from a hypothetical 10% adverse change in market rates:



                                         DECEMBER 31, 2001                    DECEMBER 31, 2000
                                 ----------------------------------   ----------------------------------
                                                    LOSS FROM 10%                        LOSS FROM 10%
                                                  ADVERSE CHANGE IN                    ADVERSE CHANGE IN
                                 NET FAIR VALUE     MARKET PRICES     NET FAIR VALUE     MARKET PRICES
                                 --------------   -----------------   --------------   -----------------
                                          ($ IN MILLIONS)                      ($ IN MILLIONS)
                                                                           
Foreign exchange...............      $126.7              $3.8             $294.0             $45.2
Interest rates.................       135.6              25.5              (83.0)              2.3


                                      116

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

    Not applicable.

                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

    Not applicable.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
  PROCEEDS

    Not applicable.

ITEM 15.  [RESERVED]

ITEM 16.  [RESERVED]

                                    PART III

ITEM 17.  FINANCIAL STATEMENTS

    We have elected to provide financial statements and the related information
pursuant to Item 18.

ITEM 18.  FINANCIAL STATEMENTS

    See pages F-1 to F-54 and pages S-1 to S-3, which are incorporated herein by
reference.

    (a) Independent Auditors' Reports.

    (b) Consolidated Income Statements for the years ended December 31, 2001,
       2000 and 1999.

    (c) Consolidated Balance Sheets as of December 31, 2001 and 2000.

    (d) Consolidated Statements of Cash Flows for the years ended December 31,
       2001, 2000 and 1999.

    (e) Consolidated Statements of Changes in Stockholders' Equity for the years
       ended December 31, 2001, 2000 and 1999.

    (f)  Notes to Consolidated Financial Statements.

    (g) Independent Auditors' Reports on Financial Statement Schedule.

    (h) Schedule II--Valuation and Qualifying Accounts.

                                      117

ITEM 19.  EXHIBITS


                     
         1.1            Articles of Incorporation of ABB Ltd as amended to date.

         2.1            Form of Amended and Restated Deposit Agreement, by and among
                        ABB Ltd, Citibank, N.A., as Depositary, and the holders and
                        beneficial owners from time to time of the American
                        Depositary Shares issued thereunder (including as an exhibit
                        the form of American Depositary Receipt). Incorporated by
                        reference to Exhibit (a)(i) to Post-Effective Amendment
                        No. 1 on Form F-6 (File No. 333-13346) filed by ABB Ltd on
                        May 7, 2001.

         2.2            Form of American Depositary Receipt (included in
                        Exhibit 2.1).

         2.3            EMTN Amended and Restated Fiscal Agency Agreement, dated
                        May 30, 2001, between ABB International Finance Limited, ABB
                        Finance Inc., ABB Capital B.V., Banque Generale du
                        Luxembourg S.A., The Chase Manhattan Bank and Banque
                        Generale du Luxembourg (Suisse) S.A.

         2.4            EMTN Deed of Covenant, dated March 10, 1993 by ABB
                        International Finance N.V.

         2.5            EMTN Deed of Covenant, dated March 10, 1993 by ABB
                        Finance Inc.

         2.6            EMTN Deed of Covenant, dated March 10, 1993 by ABB Capital
                        B.V.

                        The total amount of long-term debt securities of ABB Ltd
                        authorized under any other instrument does not exceed 10% of
                        the total assets of the ABB Group on a consolidated basis.
                        ABB Ltd hereby agrees to furnish to the Commission, upon its
                        request, a copy of any instrument defining the rights of
                        holders of long-term debt of ABB Ltd or of its subsidiaries
                        for which consolidated or unconsolidated financial
                        statements are required to be filed.

         4.1            Share Purchase and Settlement Agreement dated as of
                        March 31, 2000 among ABB Ltd, ALSTOM and ABB ALSTOM POWER
                        N.V., as amended.

         4.2            Purchase Agreement, dated as of December 21, 1999, between
                        ABB Handels-Und Verwaltungs AG, as Seller, and British
                        Nuclear Fuels plc, as Purchaser, as amended.

         4.3            $3,000,000,000 Multicurrency Revolving Credit Agreement
                        dated December 18, 2001, as amended and restated on
                        April 30, 2002, pursuant to an amendment agreement dated
                        April 25, 2002 for ABB Ltd. and Certain Subsidiaries of
                        ABB Ltd., as Borrowers and Guarantors, with Barclays
                        Capital, Credit Suisse First Boston and Salomon Brothers
                        International Limited, as Mandated Lead Arrangers, and
                        Credit Suisse First Boston as Facility Agent.

         8.1            Subsidiaries of ABB Ltd as of December 31, 2001.


                                      118

                                   SIGNATURES

    The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.


                                                      
                                                       ABB LTD

                                                       By:  /s/ PETER VOSER
                                                            -----------------------------------------
                                                            Name: Peter Voser
                                                            Title:  Executive Vice President
                                                                  and Chief Financial Officer

                                                       By:  /s/ HANS ENHORNING
                                                            -----------------------------------------
                                                            Name: Hans Enhorning
                                                            Title:  Group Vice President


Date: June 27, 2002

                                      119

                                    ABB LTD

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                           
Independent Auditors' Reports...............................     F-2

Consolidated Income Statements for the years ended
  December 31, 2001, 2000 and 1999..........................     F-6

Consolidated Balance Sheets as of December 31, 2001 and
  2000......................................................     F-7

Consolidated Statements of Cash Flows for the years ended
  December 31, 2001, 2000
  and 1999..................................................     F-8

Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2001, 2000 and 1999......     F-9

Notes to Consolidated Financial Statements..................    F-10


                                      F-1

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of ABB Ltd:

We have audited the accompanying consolidated balance sheet of ABB Ltd as of
December 31, 2001, and the related consolidated income statement, statement of
cash flows and statement of changes in stockholders' equity, for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We did not audit the financial statements of
certain of the Company's wholly-owned subsidiaries located in the United States
and Bermuda, which statements reflect total assets constituting 23% and total
revenues constituting 20% of the related consolidated totals as of and for the
year ended December 31, 2001. Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to amounts included for these subsidiaries, is based solely on the reports of
the other auditors.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit and the reports of other auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of ABB Ltd at December 31, 2001, and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States.

As discussed in Note 2 to the consolidated financial statements, in 2001 the
Company changed its method of accounting for derivative financial instruments.

                                          /S/ ERNST & YOUNG AG

Zurich, Switzerland
February 11, 2002, except as to Note 24, as
to which the date is May 31, 2002

                                      F-2

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
ABB Holdings Inc.:

We have audited the accompanying consolidated balance sheet of ABB
Holdings Inc. and subsidiaries (a direct wholly-owned subsidiary of ABB Asea
Brown Boveri Ltd.) as of December 31, 2001, and the related consolidated
statements of operations, stockholder's equity, and cash flows for the year then
ended (not presented separately herein). These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ABB
Holdings Inc. and subsidiaries as of December 31, 2001, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

/s/ KPMG LLP
Stamford, Connecticut
February 1, 2002

                                      F-3

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Scandinavian Reinsurance Company Limited:

We have audited the accompanying balance sheet of Scandinavian Reinsurance
Company Limited at December 31, 2001 and the related statements of loss and
comprehensive loss, changes in shareholder's deficit and cash flows for the year
then ended (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Scandinavian Reinsurance
Company Limited at December 31, 2001 and the results of its operations and cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.

The Company restated retained earnings at the beginning of the current year to
reflect the change discussed in Note 2 (d) to the financial statements (not
presented separately herein).

/s/ KPMG
Chartered Accountants
Hamilton, Bermuda
January 31, 2002

                                      F-4

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of ABB Ltd:

We have audited the accompanying consolidated balance sheet of ABB Ltd as of
December 31, 2000, and the related consolidated income statements, statements of
cash flows and statements of changes in stockholders' equity, for each of the
two years in the period ended December 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ABB Ltd at
December 31, 2000, and the consolidated results of its operations and its cash
flows for each of the two years in the period ended December 31, 2000, in
conformity with United States generally accepted accounting principles.


                                            
/S/ KPMG KLYNVELD PEAT                         /s/ ERNST & YOUNG AG
   MARWICK GOERDELER SA
Zurich, Switzerland                            Zurich, Switzerland
February 11, 2001                              February 11, 2001


                                      F-5

                                    ABB LTD
                         CONSOLIDATED INCOME STATEMENTS



                                                                    YEAR ENDED DECEMBER 31,
                                                              ------------------------------------
                                                                2001          2000          1999
                                                              --------      --------      --------
                                                              (IN MILLIONS, EXCEPT PER SHARE DATA)
                                                                                 
Revenues....................................................  $23,726       $22,967       $24,356
Cost of sales...............................................  (18,708)      (17,222)      (18,457)
                                                              -------       -------       -------
Gross profit................................................    5,018         5,745         5,899
Selling, general and administrative expenses................   (4,397)       (4,417)       (4,682)
Amortization expense........................................     (236)         (219)         (189)
Other income (expense), net.................................     (106)          276            94
                                                              -------       -------       -------
Earnings before interest and taxes..........................      279         1,385         1,122
Interest and dividend income................................      568           565           608
Interest and other finance expense..........................     (802)         (644)         (708)
                                                              -------       -------       -------
Income from continuing operations before taxes and
  minority interest.........................................       45         1,306         1,022
Provision for taxes.........................................     (105)         (377)         (343)
Minority interest...........................................      (70)          (48)          (36)
                                                              -------       -------       -------
Income (loss) from continuing operations....................     (130)          881           643
Income (loss) from discontinued operations, net of tax......     (510)          562           717
Extraordinary gain on debt extinguishment, net of tax.......       12            --            --
Cumulative effect of change in accounting principles
  (SFAS 133), net of tax....................................      (63)           --            --
                                                              -------       -------       -------
Net income (loss)...........................................  $  (691)      $ 1,443       $ 1,360
                                                              =======       =======       =======

Weighted average shares outstanding.........................    1,132         1,180         1,184
Dilutive potential shares...................................        3             5             3
                                                              -------       -------       -------
Diluted weighted average shares outstanding.................    1,135         1,185         1,187
                                                              =======       =======       =======

Basic earnings (loss) per share:
  Income (loss) from continuing operations..................  $ (0.11)      $  0.74       $  0.54
  Net income (loss).........................................  $ (0.61)      $  1.22       $  1.15

Diluted earnings (loss) per share:
  Income (loss) from continuing operations..................  $ (0.11)      $  0.74       $  0.54
  Net income (loss).........................................  $ (0.61)      $  1.22       $  1.15


          See accompanying notes to consolidated financial statements.

                                      F-6

                                    ABB LTD
                          CONSOLIDATED BALANCE SHEETS



                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2001        2000
                                                              ---------   ---------
                                                                  (IN MILLIONS,
                                                               EXCEPT SHARE DATA)
                                                                    
Cash and equivalents........................................   $ 2,767     $ 1,397
Marketable securities.......................................     2,946       4,209
Receivables, net............................................     8,368       8,328
Inventories, net............................................     3,075       3,192
Prepaid expenses and other..................................     2,358       1,585
                                                               -------     -------
Total current assets........................................    19,514      18,711
Financing receivables, non-current..........................     4,263       3,875
Property, plant and equipment, net..........................     3,003       3,243
Goodwill and other intangible assets, net...................     3,299       3,155
Investments and other.......................................     2,265       1,978
                                                               -------     -------
Total assets................................................   $32,344     $30,962
                                                               =======     =======

Accounts payable, trade.....................................   $ 3,991     $ 3,375
Accounts payable, other.....................................     2,710       2,363
Short-term borrowings and current maturities of long-term
  borrowings................................................     4,747       3,587
Accrued liabilities and other...............................     7,587       6,127
                                                               -------     -------
Total current liabilities...................................    19,035      15,452
Long-term borrowings........................................     5,043       3,776
Pension and other related benefits..........................     1,688       1,790
Deferred taxes..............................................     1,360       1,528
Other liabilities...........................................     2,989       2,924
                                                               -------     -------
Total liabilities...........................................    30,115      25,470
Minority interest...........................................       215         321
Stockholders' equity:
  Capital stock and additional paid-in capital, par value
    CHF 2.50, 1,280,009,432 shares authorized, 1,200,009,432
    shares issued...........................................     2,028       2,082
  Retained earnings.........................................     3,435       4,628
  Accumulated other comprehensive loss......................    (1,699)     (1,122)
  Less: Treasury stock, at cost (86,875,616 and 16,532,932
    shares at December 31, 2001 and 2000, respectively).....    (1,750)       (417)
                                                               -------     -------
Total stockholders' equity..................................     2,014       5,171
                                                               -------     -------
Total liabilities and stockholders' equity..................   $32,344     $30,962
                                                               =======     =======


          See accompanying notes to consolidated financial statements.

                                      F-7

                                    ABB LTD
                     CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                      (IN MILLIONS)
                                                                           
OPERATING ACTIVITIES
Income (loss) from continuing operations....................  $  (130)   $   881    $   643
ADJUSTMENTS TO RECONCILE INCOME (LOSS) FROM CONTINUING
  OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
  Depreciation and amortization.............................      787        836        795
  Restructuring provisions..................................       45        (73)       (52)
  Pension and post-retirement benefits......................        1        (57)       (38)
  Deferred taxes............................................      (89)       102         10
  Net gain from sale of property, plant and equipment.......      (23)      (247)       (47)
  Other.....................................................      109       (119)      (147)
  Changes in operating assets and liabilities:
    Marketable securities (trading).........................       72         10        151
    Trade receivables.......................................       65         77       (328)
    Inventories.............................................     (106)      (136)        (7)
    Trade payables..........................................      736        266        433
    Other assets and liabilities, net.......................      726       (518)       162
                                                              -------    -------    -------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................    2,193      1,022      1,575
                                                              -------    -------    -------
INVESTING ACTIVITIES
Changes in financing receivables............................     (907)      (833)      (655)
Purchases of marketable securities (other than trading).....   (3,280)    (2,239)      (973)
Purchases of property, plant and equipment..................     (761)      (553)      (839)
Acquisitions of businesses (net of cash acquired)...........     (578)      (893)    (1,720)
Proceeds from sales of marketable securities (other than
  trading)..................................................    3,873      2,292      1,307
Proceeds from sales of property, plant and equipment........      152        238        488
Proceeds from sales of businesses (net of cash disposed)....      283        275        356
                                                              -------    -------    -------
NET CASH USED IN INVESTING ACTIVITIES.......................   (1,218)    (1,713)    (2,036)
                                                              -------    -------    -------
FINANCING ACTIVITIES
Changes in borrowings with maturities of 90 days or less....      (69)       609        383
Increases in other borrowings...............................    9,357      3,626      3,570
Repayment of other borrowings...............................   (6,649)    (4,279)    (4,478)
Treasury and capital stock transactions.....................   (1,393)       244       (165)
Dividends paid..............................................     (502)      (531)      (503)
Other.......................................................      (67)       (61)         6
                                                              -------    -------    -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.........      677       (392)    (1,187)
                                                              -------    -------    -------
Net cash provided by (used in) discontinued operations......     (210)       949        723
Effects of exchange rate changes on cash and equivalents....      (72)       (84)      (100)
                                                              -------    -------    -------
NET CHANGE IN CASH AND EQUIVALENTS..........................    1,370       (218)    (1,025)
Cash and equivalents--beginning of year.....................    1,397      1,615      2,640
                                                              -------    -------    -------
Cash and equivalents--end of year...........................  $ 2,767    $ 1,397    $ 1,615
                                                              =======    =======    =======
Interest paid...............................................  $   702    $   647    $   793
Taxes paid..................................................      273        273        251


          See accompanying notes to consolidated financial statements.

                                      F-8

                                    ABB LTD
         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY(1)
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


                                                                ACCUMULATED OTHER COMPREHENSIVE LOSS
                                                               ---------------------------------------
                                        CAPITAL                              UNREALIZED
                                         STOCK                               GAIN (LOSS)
                                          AND                    FOREIGN         ON          MINIMUM
                                       ADDITIONAL               CURRENCY     AVAILABLE-      PENSION
                                        PAID-IN     RETAINED   TRANSLATION    FOR-SALE      LIABILITY
                                        CAPITAL     EARNINGS   ADJUSTMENT    SECURITIES    ADJUSTMENT
                                       ----------   --------   -----------   -----------   -----------
                                                                (IN MILLIONS)
                                                                            
Balance at January 1, 1999...........   $ 2,037     $ 2,859     $   (779)       $157          $(283)
Comprehensive income:
  Net income.........................                 1,360
  Foreign currency translation
    adjustments......................                               (226)
  Effect of change in fair value of
    available-for-sale securities,
    net of tax of $39................                                            (90)
  Minimum pension liability
    adjustments, net of tax of $7....                                                           190
  Total comprehensive income.........
Dividends paid.......................                  (503)
Purchase of treasury stock...........
Purchase of non-tendered ABB AB
  stock(2)...........................
Issuance of ABB Ltd stock(3).........        34
                                        -------     -------     --------        ----          -----
Balance at December 31, 1999.........     2,071       3,716       (1,005)         67            (93)
Comprehensive income:
  Net income.........................                 1,443
  Foreign currency translation
    adjustments......................                               (152)
  Effect of change in fair value of
    available-for-sale securities,
    net of tax of $7.................                                             20
  Minimum pension liability
    adjustments, net of tax of $21...                                                            41
Total comprehensive income...........
Dividends paid.......................                  (531)
Purchase of treasury stock...........
Sale of treasury stock and put
  options............................        11
                                        -------     -------     --------        ----          -----
Balance at December 31, 2000.........     2,082       4,628       (1,157)         87            (52)
COMPREHENSIVE LOSS:
  NET LOSS...........................                  (691)
  FOREIGN CURRENCY TRANSLATION
    ADJUSTMENTS......................                               (365)
  EFFECT OF CHANGE IN FAIR VALUE OF
    AVAILABLE-FOR-SALE SECURITIES,
    NET OF TAX OF $16................                                           (128)
  MINIMUM PENSION LIABILITY
    ADJUSTMENTS, NET OF TAX OF $1....                                                             3
  CUMULATIVE EFFECT OF CHANGE IN
    ACCOUNTING PRINCIPLES, NET OF TAX
    OF $17...........................
  CHANGE IN DERIVATIVES QUALIFYING AS
    CASH FLOW HEDGES, NET OF TAX
    OF $18...........................
  TOTAL COMPREHENSIVE LOSS:..........
DIVIDENDS PAID.......................                  (502)
PURCHASE OF TREASURY STOCK...........
SALE OF TREASURY STOCK...............      (101)
CALL OPTIONS.........................        47
                                        -------     -------     --------        ----          -----
BALANCE AT DECEMBER 31, 2001.........   $ 2,028     $ 3,435     $ (1,522)       $(41)         $ (49)


                                            ACCUMULATED OTHER COMPREHENSIVE LOSS
                                            --------------------------------
                                                UNREALIZED
                                                   GAIN           TOTAL
                                                 (LOSS) OF     ACCUMULATED
                                                 CASH-FLOW        OTHER                       TOTAL
                                                   HEDGE      COMPREHENSIVE    TREASURY   STOCKHOLDERS'
                                                DERIVATIVES        LOSS         STOCK        EQUITY
                                            -   -----------   --------------   --------   -------------
                                                                   (IN MILLIONS)
                                                                              
Balance at January 1, 1999...........              $  --         $   (905)     $  (286)      $ 3,705
Comprehensive income:
  Net income.........................                                                          1,360
  Foreign currency translation
    adjustments......................                                (226)                      (226)
  Effect of change in fair value of
    available-for-sale securities,
    net of tax of $39................                                 (90)                       (90)
  Minimum pension liability
    adjustments, net of tax of $7....                                 190                        190
                                                                                             -------
  Total comprehensive income.........                                                          1,234
Dividends paid.......................                                                           (503)
Purchase of treasury stock...........                                             (199)         (199)
Purchase of non-tendered ABB AB
  stock(2)...........................                                             (438)         (438)
Issuance of ABB Ltd stock(3).........                                              438           472
                                                   -----         --------      --------      -------
Balance at December 31, 1999.........                 --           (1,031)        (485)        4,271
Comprehensive income:
  Net income.........................                                                          1,443
  Foreign currency translation
    adjustments......................                                (152)                      (152)
  Effect of change in fair value of
    available-for-sale securities,
    net of tax of $7.................                                  20                         20
  Minimum pension liability
    adjustments, net of tax of $21...                                  41                         41
                                                                                             -------
Total comprehensive income...........                                                          1,352
Dividends paid.......................                                                           (531)
Purchase of treasury stock...........                                             (400)         (400)
Sale of treasury stock and put
  options............................                                              468           479
                                                   -----         --------      --------      -------
Balance at December 31, 2000.........                 --           (1,122)        (417)        5,171
COMPREHENSIVE LOSS:
  NET LOSS...........................                                                           (691)
  FOREIGN CURRENCY TRANSLATION
    ADJUSTMENTS......................                                (365)                      (365)
  EFFECT OF CHANGE IN FAIR VALUE OF
    AVAILABLE-FOR-SALE SECURITIES,
    NET OF TAX OF $16................                                (128)                      (128)
  MINIMUM PENSION LIABILITY
    ADJUSTMENTS, NET OF TAX OF $1....                                   3                          3
                                                                                             -------
  CUMULATIVE EFFECT OF CHANGE IN
    ACCOUNTING PRINCIPLES, NET OF TAX
    OF $17...........................                (41)             (41)                       (41)
  CHANGE IN DERIVATIVES QUALIFYING AS
    CASH FLOW HEDGES, NET OF TAX
    OF $18...........................                (46)             (46)                       (46)
                                                                                             -------
  TOTAL COMPREHENSIVE LOSS:..........                                                         (1,268)
DIVIDENDS PAID.......................                                                           (502)
PURCHASE OF TREASURY STOCK...........                                           (1,615)       (1,615)
SALE OF TREASURY STOCK...............                                              282           181
CALL OPTIONS.........................                                                             47
                                                   -----         --------      --------      -------
BALANCE AT DECEMBER 31, 2001.........              $ (87)        $ (1,699)     $(1,750)      $ 2,014


----------------------------------
(1) Retroactively restated to reflect the issuance of ABB Ltd shares in exchange
    for all issued shares of ABB AB and ABB AG in June 1999.

(2) Purchase of 3% of issued stock of ABB AB (See Note 1).

(3) Issuance of approximately 20 million shares of ABB Ltd, representing the
    equivalent number of shares purchased in (2) above (See Note 1).

          See accompanying notes to consolidated financial statements.

                                      F-9

                                    ABB LTD
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 1 THE COMPANY

    ABB Ltd is a leading global company in power and automation technologies
organized in seven business divisions structured along customer groups, with
each division having global responsibility for its business strategies and its
manufacturing and product development activities, as applicable. Four end-user
divisions serve end-user customers with systems, products and services. Two
channel partner divisions serve external channel partners such as wholesalers,
distributors, original equipment manufacturers and system integrators directly
and the end-user customers indirectly through the end-user customer divisions.
They are also responsible for all generic products in ABB. A financial services
division provides services and project support for the other divisions as well
as for external customers.

    In June 1999, ABB Ltd, a newly incorporated Swiss company, issued
approximately 1,180 million registered shares to the stockholders of ABB AB, a
Swedish publicly listed company, and ABB AG, a Swiss publicly listed company. As
of that date, neither ABB AB nor ABB AG had operations or assets other than
their respective 50% ownership interests in ABB Asea Brown Boveri Ltd. In
exchange, the stockholders of ABB AB and ABB AG tendered all issued shares of
the two companies except for 3% of total issued ABB AB stock. The stockholders
of ABB AB who did not tender their shares for ABB Ltd shares received cash of
$438 million in return for their shares of ABB AB and the equivalent number of
registered shares of ABB Ltd (approximately 20 million) were sold to third
parties, resulting in a total of 1,200 million issued shares of ABB Ltd as of
June 28, 1999.

    The capital transaction to form ABB Ltd and create a single class of capital
voting stock for the stockholders of ABB AB and ABB AG resulted in the
following:

  BEFORE JUNE 28, 1999                                    AFTER JUNE 28, 1999

                                     [LOGO]

    As of and for the six months ended June 28, 1999, the combined selected
financial information of ABB AG and ABB AB included cash and marketable
securities of $28 million, total liabilities of $1 million, interest and other
income, net, of $9 million, and a special dividend by ABB AG of $179 million,
excluding each company's respective ownership interest and equity in earnings of
ABB Asea Brown Boveri Ltd. The combined assets and liabilities exclude
$62 million related to the special dividend which was not yet able to be
distributed to ABB AG stockholders.

                                      F-10

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

    The following is a summary of significant accounting policies followed in
the preparation of these consolidated financial statements.

BASIS OF PRESENTATION

    The consolidated financial statements are prepared on the basis of United
States (U.S.) generally accepted accounting principles and are presented in U.S.
dollars ($) unless otherwise stated. Par value of capital stock is denominated
in Swiss francs (CHF).

    The number of shares and earnings per share data in the consolidated
financial statements have been presented as if ABB Ltd shares had been issued
for all periods presented and as if the four-for-one split of ABB Ltd shares in
May 2001 had occurred as of the earliest period presented.

PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include the accounts and subsidiaries
of ABB Ltd and ABB Asea Brown Boveri Ltd (collectively, the "Company"). All
significant intercompany balances have been eliminated in consolidation.

    The Company's investments in joint ventures and affiliated companies, which
generally include companies that are 20% to 50% owned, are accounted for using
the equity method. Accordingly, the Company's share of earnings of these
companies is included in the determination of consolidated net income. Other
investments are recorded at cost.

USE OF ESTIMATES

    The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates.

RECLASSIFICATIONS

    Certain amounts reported for prior years in the notes to the consolidated
financial statements have been reclassified to conform to the current year
presentation.

CONCENTRATIONS OF CREDIT RISK

    The Company sells a broad range of products, systems and services to a wide
range of industrial and commercial customers throughout the world.
Concentrations of credit risk with respect to trade receivables are limited due
to a large number of customers comprising the Company's customer base. Ongoing
credit evaluations of customers' financial position are performed and,
generally, no collateral is required.

    The Company, as part of its financial services activities, offers a broad
range of financial products. To monitor credit risk, such activities are
regulated by specific policies and procedures including those for the
identification, evaluation and mitigation of credit risks. Such policies and
procedures also include measurements to develop and ensure the maintenance of a
diversified portfolio through the active monitoring of counterparty, country and
industry exposure. The concentration of credit risk is limited due to the large
number of customers comprising the Company's portfolio. In general, for leasing
and lending activities collateral is required. The nature of such collateral
depends on the type of financial product that is offered but includes, for
example,

                                      F-11

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
retention of title or mortgage on the equipment financed, or the assignment of
rights under contracts. In the case of leasing, ownership of the equipment
normally constitutes the main collateral.

    The Company maintains reserves for potential credit losses and such losses,
in the aggregate, have not exceeded management's expectations.

    The Company invests excess cash in deposits with banks throughout the world
and in other high quality, liquid marketable securities (such as commercial
paper, government agency notes and asset-backed securities). The Company
actively monitors its credit risk by routinely reviewing the credit worthiness
of the investments held and by maintaining such investments in deposits or
liquid securities. The Company has not incurred any credit losses related to
such investments.

    The Company's exposure to credit risk on derivative financial instruments is
the risk that a counterparty will fail to meet its obligations. To reduce this
risk, the Company has credit policies which require the establishment and review
of credit limits for individual counterparties. In addition, close-out netting
agreements have been entered into with most counterparties. Close-out netting
agreements are agreements which provide for the termination, valuation and net
settlement of some or all outstanding transactions between two counterparties on
the occurrence of one or more pre-defined trigger events.

CASH AND EQUIVALENTS

    Cash and equivalents include highly liquid investments with original
maturities of three months or less.

MARKETABLE SECURITIES

    Debt and equity securities are classified as either trading or
available-for-sale at the time of purchase and are carried at fair value. Debt
and equity securities that are bought and held principally for the purpose of
sale in the near term are classified as trading securities and unrealized gains
and losses are included in the determination of net income. Unrealized gains and
losses on available-for-sale securities are excluded from the determination of
net income and are accumulated as a component of other comprehensive loss until
realized. Realized gains and losses on available-for-sale securities are
computed based upon historical cost of these securities applied using the
specific identification method. Declines in fair values of available-for-sale
investments that are other than temporary are included in the determination of
net income.

REVENUE RECOGNITION

    The Company has recognized revenues in accordance with the Securities and
Exchange Commission's Staff Accounting Bulletin No. 101 (SAB 101), REVENUE
RECOGNITION IN FINANCIAL STATEMENTS, since adoption on October 1, 2000. SAB 101
provides additional guidance on the application of previously existing U.S.
generally accepted accounting principles to revenue recognition in financial
statements.

    The Company recognizes substantially all revenues from the sale of
manufactured products upon transfer of title including the risks and rewards of
ownership to the customer which generally occurs upon shipment of products. On
contracts for sale of manufactured products requiring installation which can
only be performed by the Company, revenues are deferred until installation of

                                      F-12

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the products is complete. Revenues from short-term fixed-price contracts to
deliver services are recognized upon completion of required services to the
customer. Revenues from contracts which contain customer acceptance provisions
are deferred until customer acceptance occurs or the contractual acceptance
period has lapsed.

    Sales under long-term fixed-price contracts are recognized using the
percentage-of-completion method of accounting. The Company principally uses the
cost-to-cost or delivery events method to measure progress towards completion on
contracts. Management determines the method to be used for each contract based
on its judgment as to which method best measures actual progress towards
completion.

    Anticipated costs for warranties on products are accrued upon sales
recognition on the related contracts. Losses on fixed-price contracts are
recognized in the period when they are identified and are based upon the
anticipated excess of contract costs over the related contract sales.

    Sales under cost-reimbursement contracts are recognized as costs are
incurred. Shipping and handling costs are recorded as a component of cost of
sales.

RECEIVABLES

    The Company accounts for the securitization of trade receivables in
accordance with Statement of Financial Accounting Standards No. 140 (SFAS 140),
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES, which was issued in September 2000 and replaced, in its
entirety, Statement of Financial Accounting Standards No. 125, ACCOUNTING FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES.
SFAS 140 requires an entity to recognize the financial and servicing assets it
controls and the liabilities it has incurred and to derecognize financial assets
when control has been surrendered in accordance with the criteria provided in
SFAS 140. The Company adopted the disclosure requirements of SFAS 140 effective
December 2000, and has applied the new accounting rules to transactions
beginning in the second quarter of 2001, with no significant impact to the
Company's financial position or results of operations.

    The Company accounts for the transfer of its receivables to Qualifying
Special Purpose Entities (QSPEs) as a sale of those receivables to the extent
that consideration other than beneficial interests in the transferred accounts
receivable is received. The Company does not recognize the transfer as a sale
unless the receivables have been put presumptively beyond the reach of the
Company and its creditors, even in bankruptcy or other receivership. In
addition, the QSPEs must obtain the right to pledge or exchange the transferred
receivables, and the Company cannot retain the ability or obligation to
repurchase or redeem the transferred receivables.

    At the time the receivables are sold, the balances are removed from trade
receivables and a retained interest or deferred purchase price component is
recorded in other receivables. The retained interest is recorded at its
estimated fair value. Costs associated with the sale of receivables are included
in the determination of current earnings.

    From time to time, the Company may, in its normal course of business, sell
receivables outside the securitization programs with or without recourse. Sales
and transfers that do not meet the requirements of SFAS 140 are accounted for as
secured borrowings.

                                      F-13

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES

    Inventories are stated at the lower of cost (determined using either the
first-in, first-out or the weighted average cost method) or market. Inventoried
costs relating to percentage-of-completion contracts are stated at actual
production costs, including overhead incurred to date, reduced by amounts
identified with sales recognized.

IMPAIRMENT OF LONG-LIVED ASSETS

    Long-lived tangible and intangible assets are reviewed for impairment in
accordance with Statement of Financial Accounting Standards No. 121 (SFAS 121),
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, when events or circumstances indicate the carrying amount of a
long-lived asset may not be recoverable. Impairment is assessed by comparing an
asset's net undiscounted cash flows expected to be generated over its remaining
useful life to the asset's net carrying value. If impairment is indicated, the
carrying amount of the asset is reduced to its estimated fair value.

GOODWILL AND OTHER INTANGIBLE ASSETS

    The excess of cost over the fair value of net assets of acquired businesses
is recorded as goodwill and has been amortized on a straight-line basis over
periods ranging from 3 to 20 years. The cost of other acquired intangibles is
amortized on a straight-line basis over their estimated useful lives, typically
ranging from 3 to 10 years. In accordance with Statement of Financial Accounting
Standards No. 142 (SFAS 142), GOODWILL AND OTHER INTANGIBLE ASSETS, issued in
June 2001, goodwill from acquisitions completed after June 30, 2001, is not
amortized (see Note 2--New accounting standards). The total amount of goodwill
recognized on acquisitions completed after June 30, 2001, was not significant.

CAPITALIZED SOFTWARE COSTS

    The Company expenses costs incurred in the preliminary project stage, and
thereafter capitalizes costs incurred in developing or obtaining software.
Capitalized costs of software for internal use are accounted for in accordance
with Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE, and are amortized on a straight-line
basis over the estimated useful life of the software, typically ranging from 3
to 5 years. Capitalized costs of a software product to be sold are accounted for
in accordance with Statement of Financial Accounting Standards No. 86,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE
MARKETED, and are carried at the lower of unamortized cost or net realizable
value until the product is released to customers, at which time capitalization
ceases and costs are amortized on a straight-line basis over the estimated life
of the product.

PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment is stated at cost, less accumulated
depreciation, using the straight-line method over the estimated useful lives of
the assets as follows: 10 to 50 years for buildings and leasehold improvements,
3 to 15 years for machinery and equipment and 3 to 5 years for furniture and
fixtures.

                                      F-14

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS

    The Company uses derivative financial instruments to manage interest rate
and currency exposures, and to a lesser extent commodity exposures, arising from
its global operating, financing and investing activities. The Company's policies
require that the industrial entities economically hedge all contracted foreign
exposures, as well as at least fifty percent of the anticipated sales volume of
standard products over the next twelve months. In addition, within limits
determined by the Company's Board of Directors, derivative financial instruments
are also used for proprietary trading purposes within the Company's Financial
Services division.

CHANGE IN ACCOUNTING PRINCIPLES

    On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
as amended by Statement of Financial Accounting Standards No. 137, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE
DATE OF FASB STATEMENT NO. 133 and Statement of Financial Accounting Standards
No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING
ACTIVITIES, collectively referred to as "SFAS 133". These Statements require the
Company to recognize all derivatives, other than certain derivatives indexed to
the Company's own stock, on the balance sheet at fair value. Derivatives that
are not designated as hedges must be adjusted to fair value through income. If
the derivative is designated as a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in accumulated other comprehensive loss until the
hedged item is recognized in earnings. The ineffective portion of a derivative's
change in fair value is immediately recognized in earnings.

    The Company accounted for the adoption of SFAS 133 as a change in accounting
principle. Based on the Company's outstanding derivatives at January 1, 2001,
the Company recognized the cumulative effect of the accounting change as a loss
in the consolidated income statement of approximately $63 million, net of tax,
(basic and diluted per share loss of $0.06) and a reduction to equity of
$41 million, net of tax, in accumulated other comprehensive loss.

    Forward foreign exchange contracts are the primary instrument used to manage
foreign exchange risk. Where forward foreign exchange contracts are designated
as cash flow hedges under SFAS 133, changes in their fair value are recorded in
the accumulated other comprehensive loss component of stockholders' equity, net
of tax, until the hedged item is recognized in earnings. The Company also enters
into forward foreign exchange contracts that serve as economic hedges of
existing assets and liabilities. These are not designated as accounting hedges
under SFAS 133 and, consequently, changes in their fair value are reported in
earnings where they offset the gain or loss on the foreign currency denominated
asset or liability.

    To reduce its interest rate and currency exposure arising from its funding
activities and to hedge specific assets, the Company uses interest rate and
currency swaps. Where interest rate swaps are designated as fair value hedges,
the changes in value of the swaps are recognized in earnings, as are the changes
in the value of the underlying assets or liabilities. Where such interest rate
swaps do not qualify for the short cut method as defined under SFAS 133, any
ineffectiveness is therefore included in earnings. Where interest rate swaps are
designated as cash flow hedges,

                                      F-15

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
their change in value is recognized in the accumulated other comprehensive loss
component of stockholders' equity, net of tax, until the hedged item is
recognized in earnings.

    All other swaps, futures, options and forwards which are designated as
effective hedges of specific assets, liabilities or committed or forecasted
transactions are recognized in earnings consistent with the effects of hedged
transactions.

    If the underlying hedged transaction is terminated early, the hedging
derivative financial instrument is terminated simultaneously, with any gains or
losses recognized immediately. Where derivative financial instruments have been
designated as hedges of forecasted transactions, and such forecasted
transactions become no longer probable of occurring, hedge accounting ceases and
any derivative gain or loss previously included in the accumulated other
comprehensive loss component of stockholders' equity is reclassified into
earnings.

PRIOR TO IMPLEMENTATION OF SFAS 133--YEARS 2000 AND 1999

    Prior to January 1, 2001, instruments which were used as hedges had to be
effective at reducing the risk associated with the exposure being hedged and had
to be designated as a hedge at the inception of the contract. Accordingly,
changes in market values of hedge instruments had to be highly correlated with
changes in the market values of the underlying hedged items, both at inception
of the hedge and over the life of the hedge contract. Any derivative that was
not designated as a hedge, or was so designated but was ineffective, or was in
connection with anticipated transactions, was marked to market and recognized in
earnings.

    Gains and losses on foreign currency hedges of existing assets or
liabilities were recognized in income consistent with the hedged item. Gains and
losses on foreign currency hedges of firm commitments were deferred and
recognized in income as part of the hedged transaction. Other foreign exchange
contracts were marked to market and recognized in earnings.

    Interest rate and currency swaps that were designated as hedges of
borrowings or specific assets were accounted for on an accrual basis and were
recorded as an adjustment to the interest income or expense of the underlying
asset or liability over its life.

    All other swaps, futures, options and forwards which were designated and
effective hedges of specific assets, liabilities, or committed transactions,
were recognized consistent with the effects of hedged transactions.

    If the underlying hedged transaction was terminated early, the hedging
derivative financial instrument was terminated simultaneously, with any gains or
losses recognized immediately. Gains or losses arising from early termination of
a derivative financial instrument of an effective hedge were accounted for as
adjustments to the basis of the hedged transaction.

    Derivative financial instruments used in the Company's trading activities
were marked to market and recognized in earnings.

BORROWINGS

    From time to time, the Company may, in the normal course of business, buy
back portions of its debt securities. Such repurchases are accounted for as debt
extinguishments in accordance with Statement of Financial Accounting Standards
No. 4, REPORTING GAINS AND LOSSES FROM EXTINGUISHMENT OF DEBT--AN AMENDMENT OF
APB OPINION NO. 30, irrespective of whether the securities are canceled or held
as treasury securities. Gains or losses on extinguishment of debt which are
material to the earnings of the Company are disclosed as extraordinary items,
net of tax. If subsequently reissued, the reissue price becomes the new cost
basis of the securities.

INSURANCE

    The following accounting policies apply specifically to the Insurance
business area.

                                      F-16

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PREMIUMS AND ACQUISITION COSTS

    Premiums are generally earned pro rata over the period coverage is provided
and are reflected in revenues in the Consolidated Income Statement. Premiums
earned include estimates of certain premiums due, including adjustments on
retrospectively rated contracts. Premium receivables include premiums relating
to retrospectively rated contracts that represent the estimate of the difference
between provisional premiums received and the ultimate premiums due. Unearned
premiums represent the portion of premiums written that is applicable to the
unexpired terms of reinsurance contracts or certificates in force. These
unearned premiums are calculated by the monthly pro rata method or are based on
reports from ceding companies. Acquisition costs are costs related to the
acquisition of new business and renewals. These costs are deferred and charged
against earnings ratably over the terms of the related policy.

PROFIT COMMISSION

    Certain contracts carry terms and conditions that result in the payment of
profit commissions. Estimates of profit commissions are reviewed based on
underwriting experience to date and, as adjustments become necessary, such
adjustments are reflected in current operations.

LOSS AND LOSS ADJUSTMENT EXPENSES

    Loss and loss adjustment expenses are charged to operations as incurred and
are reflected in cost of sales in the Consolidated Income Statement. The
liabilities for unpaid loss and loss adjustment expenses, reflected in accrued
liabilities, other, are determined on the basis of reports from ceding companies
and underwriting associations, as well as on management's, including in-house
actuaries', estimates including those for incurred but not reported losses,
salvage and subrogation recoveries. Inherent in the estimates of losses are
expected trends of frequency, severity and other factors that could vary
significantly as claims are settled. Accordingly, ultimate losses could vary
from the amounts provided for in these consolidated financial statements.

FEES

    Contracts that neither result in the transfer of insurance risk nor the
reasonable possibility of significant loss to the reinsurer are accounted for as
financing arrangements rather than reinsurance. Consideration received for such
contracts is reflected as accounts payable, other, and are amortized on a pro
rata basis over the life of the contract.

FUNDS WITHHELD

    Under the terms of certain reinsurance agreements, the ceding reinsurer
retains a portion of the premium to provide security for expected loss payments.
The funds withheld are generally invested by the ceding reinsurer and earn an
investment return that becomes additional funds withheld.

REINSURANCE

    The Company seeks to reduce the loss that may arise from catastrophes and
other events that may cause unfavorable underwriting results by reinsuring
certain levels of risks with other insurance enterprises or reinsurers.
Reinsurance contracts are accounted for by reducing premiums earned by

                                      F-17

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amounts paid to the reinsurers. Recoverable amounts are established for paid and
unpaid losses and loss adjustment expense ceded to the reinsurer. Amounts
recoverable from the reinsurer are estimated in a manner consistent with the
claim liability associated with the reinsurance policy. Contracts where it is
not reasonably possible that the reinsurer may realize a significant loss from
the insurance risk generally do not meet the conditions for reinsurance
accounting and are recorded as deposits.

TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS

    The functional currency for most of the Company's operations is the
applicable local currency. The translation from the applicable functional
currencies into the Company's reporting currency is performed for balance sheet
accounts using exchange rates in effect at the balance sheet date, and for
income statement accounts using average rates of exchange prevailing during the
year. The resulting translation adjustments are excluded from the determination
of net income and are accumulated as a component of other comprehensive loss
until the entity is sold or substantially liquidated.

    Foreign currency transactions, such as those resulting from the settlement
of foreign currency denominated receivables or payables, are included in the
determination of net income, except as related to intra-Company loans that are
equity-like in nature with no reasonable expectation of repayment which are
accumulated as a component of other comprehensive loss.

    In highly inflationary countries, monetary balance sheet positions in local
currencies are converted into U.S. dollars at the year-end rate. Fixed assets
are kept at historical U.S. dollar values from acquisition dates. Sales and
expenses are converted at the exchange rates prevailing upon the date of the
transaction. All translation gains and losses from restatement of balance sheet
positions are included in the determination of net income.

TAXES

    Deferred taxes are accounted for by using the asset and liability method.
Under this method, deferred tax assets and liabilities are determined based on
temporary differences between the financial reporting and the tax bases of
assets and liabilities. They are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that the deferred tax assets will be realizable.

    Generally, deferred taxes are not provided on the unremitted earnings of
subsidiaries as it is expected that these earnings are permanently reinvested.
Such earnings may become taxable upon the sale or liquidation of these
subsidiaries or upon the remittance of dividends. Deferred taxes are provided in
situations where the Company's subsidiaries plan to make future dividend
distributions.

RESEARCH AND DEVELOPMENT

    Research and development costs were $654 million, $703 million and
$865 million in 2001, 2000 and 1999, respectively. These costs are included in
selling, general and administrative expenses as incurred.

                                      F-18

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE

    Basic earnings per share is calculated by dividing income by the
weighted-average number of shares outstanding during the year. Diluted earnings
per share is calculated by dividing income by the weighted-average number of
shares outstanding during the year, assuming that all potentially dilutive
securities were exercised and that any proceeds from such exercises were used to
acquire shares of the Company's stock at the average market price during the
year or the period the securities were outstanding, if shorter. Potentially
dilutive securities comprise outstanding written put options, for which net
share settlement at average market price of the Company's stock was assumed, if
dilutive, and outstanding written call options and the securities issued under
the Company's management incentive plan, to the extent the average market price
of the Company's stock exceeded the exercise prices of such instruments (see
Notes 20 and 21).

NEW ACCOUNTING STANDARDS

    In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS,
which, together with SFAS 142 modify the accounting for business combinations,
goodwill and identifiable intangible assets. SFAS 141 requires the Company to
account for all business combinations initiated after June 30, 2001, under the
purchase method. Under SFAS 142, certain intangible assets will be recognized
separately from goodwill, and will be amortized over their useful lives. The
Company is required to test all goodwill for impairment as of January 1, 2002,
and record a transition adjustment if impairment exists. The Company does not
expect to record a material transition adjustment in connection with such
impairment testing in 2002. After January 1, 2002, goodwill will no longer be
amortized but will be charged to operations when specified tests indicate that
the goodwill is impaired. The Company recognized goodwill amortization expense
of $191 million, $174 million and $155 million in 2001, 2000 and 1999,
respectively.

    In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, which modifies the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and associated asset retirement costs.
The Company will adopt this Statement effective January 1, 2003. The Company has
not yet determined the impact, if any, that this Statement will have on its
financial position or results of operations.

    In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 (SFAS 144), ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED
ASSETS. This Statement modifies the discontinued operations guidance of
Accounting Principles Board Opinion 30, REPORTING THE RESULTS OF
OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND
EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, and
supersedes SFAS No. 121, while retaining certain requirements of SFAS No. 121
regarding impairment loss recognition and measurement. In addition, SFAS 144
provides additional accounting and reporting guidance for long-lived assets to
be disposed of by sale and broadens the presentation of discontinued operations
to include more disposal transactions. The Company will adopt this Statement on
January 1, 2002. The Company has not yet determined the impact, if any, this
Statement will have on its financial position or results of operations, although
the Company expects to present more disposals as discontinued operations
subsequent to adoption of SFAS 144.

                                      F-19

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 3 BUSINESS COMBINATIONS

ELSAG BAILEY

    In October 1998, the Company entered into an agreement to acquire all of the
outstanding shares of Elsag Bailey Process Automation N.V. ("Elsag Bailey"). The
transaction has been accounted for as a purchase. The Company's consolidated
financial statements include Elsag Bailey's results of operations since
January 14, 1999, the transaction closing date. The cash purchase price of
$1,562 million was allocated to the identified assets acquired and liabilities
assumed based upon their estimated fair values as follows:


                                                           
Tangible assets acquired....................................   $1,260
Liabilities assumed.........................................   (1,767)
Identified intangible assets................................      379
Goodwill....................................................    1,690
                                                               ------
                                                               $1,562
                                                               ======


    The Company recorded a $141 million liability in its purchase price
allocation for restructuring costs, comprised of involuntary employee
terminations and severance. The Elsag Bailey integration restructuring was
substantially complete at the end of 2000.

    In August 1999, the Company sold certain business operations of Elsag Bailey
involved in the manufacture and sale of gas chromatograph and mass spectrometer
products. The net gain on disposal of $41 million has been recorded as an
adjustment to the allocation of the original purchase price.

B-BUSINESS PARTNERS B.V.

    In June 2000, the Company entered into a share subscription agreement to
acquire 42% interest in b-business partners B.V. Pursuant to the terms of the
agreement, the Company committed to invest a total of $278 million, of which
$69 million was paid in 2000 and $134 million was paid during the first half of
2001. In December 2001, Investor AB acquired 90 percent of the Company's
investment in b-business partners B.V. for approximately book value, or
$166 million in cash. Immediately after this transaction, b-business partners
B.V. repurchased 50% of its outstanding shares from all investors, which
resulted in a return of capital to the Company of $10 million. As of
December 31, 2001, the Company retains a 4% investment in b-business partners
B.V. and is committed to provide additional capital to b-business partners B.V.
of $3 million. Further, b-business partners B.V. retains a put right to compel
the Company to repurchase 150,000 shares of b-business partners B.V. at a cost
of approximately $13 million.

ENTRELEC GROUP

    In June 2001, the Company completed the acquisition, through an open-market
tender, of Entrelec Group, a France-based supplier of industrial automation and
control products operating in 17 countries. The cash purchase price of the
acquisition was approximately $284 million. The excess of the purchase price
over the fair value of the assets acquired totaled to $294 million and has been
recorded as goodwill. The transaction has been accounted for as a purchase.
Included in the purchase price allocation was an amount of $21 million for a
restructuring of the business. The

                                      F-20

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 3 BUSINESS COMBINATIONS (CONTINUED)
Company's consolidated financial statements include Entrelec's result of
operations since June 20, 2001, the transaction closing date.

OTHER ACQUISITIONS AND INVESTMENTS

    During 2001, 2000 and 1999, the Company invested $179 million, $896 million
and $218 million, respectively, in 60, 61 and 74 new businesses, joint ventures
and affiliated companies. Of these transactions, 10, 24 and 24, respectively,
represented acquisitions accounted for as purchases and accordingly, the results
of operations of the acquired businesses have been included in the Company's
consolidated financial statements from the respective acquisition dates. The
aggregate purchase price of these acquisitions during 2001, 2000 and 1999 was
$45 million, $416 million and $190 million, respectively. The aggregate excess
of the purchase price over the fair value of the net assets acquired totaled
$29 million, $447 million and $137 million, respectively, and has been recorded
as goodwill. Assuming these acquisitions had occurred on the first day of the
year prior to their purchase, the pro forma consolidated results of operations
for those years would not have materially differed from reported amounts either
on an individual or an aggregate basis.

OTHER DIVESTITURES

    In the ordinary course of business, the Company periodically divests
businesses and investments not considered by management to be aligned with its
focus on activities with high growth potential. The results of operations of the
divested businesses are included in the Company's consolidated results of
operations through the date of disposition. During 2001, 2000 and 1999, the
Company sold several operating units and investments for total proceeds of
$117 million, $281 million and $311 million, respectively, and recognized a net
gain of $34 million, $201 million and $132 million, respectively. Such amounts
are included in other income (expense), net. Income from continuing operations
before taxes and minority interest from these operations was not material in
2001, 2000 and 1999.

NOTE 4 DISCONTINUED OPERATIONS

    In a series of transactions during 2000, the Company disposed of its Power
Generation segment, which included its investment in ABB ALSTOM POWER NV (the
"Joint Venture") and its nuclear technology business. The Company sold its
nuclear technology business to British Nuclear Fuels PLC in April 2000 and its
50% interest in the Joint Venture to ALSTOM SA (ALSTOM) in May 2000. The Company
disposed of its Transportation segment in the first quarter of 1999. As a result
of these transactions, the Company's consolidated financial statements present
the net assets and results of operations of these segments as discontinued
operations.

    In connection with the sale of its 50% interest in the Joint Venture to
ALSTOM in May 2000, the Company received cash proceeds of $1,197 million and
recognized a gain of $734 million ($713 million, net of tax), which includes
$136 million of accumulated foreign currency translation losses. In connection
with the sale of the nuclear technology business to British Nuclear Fuels PLC in
April 2000, the Company received cash proceeds of $485 million and recognized a
gain of $55 million ($17 million, net of tax). The net gain from the sale of the
nuclear technology business reflects a $300 million provision for estimated
environmental remediation. These gains were also offset by operating losses
associated with these businesses.

                                      F-21

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 4 DISCONTINUED OPERATIONS (CONTINUED)
    Effective June 30, 1999, the Company formed the Joint Venture with ALSTOM by
contributing certain assets and businesses of its power generation business.
Upon formation of the Joint Venture, the Company received cash boot and
recognized a corresponding gross gain of $1,500 million ($1,339 million, net of
tax). The Company accounted for its 50% ownership in the Joint Venture as an
equity investment through the date of disposal. For the six-month period ended
December 31, 1999, the Company recognized net losses of $99 million for its
share of the results of the Joint Venture's operations.

    In the first quarter of 1999, the Company sold its 50% interest in ABB
Daimler-Benz Transportation GmbH (ADtranz), a rail transportation joint venture,
to DaimlerChrysler for cash consideration of $472 million. Upon disposal of its
investment, the Company realized a net gain of $464 million.

    Operating results of the discontinued businesses are summarized as follows:



                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                           
Revenues....................................................   $  --      $ 120     $ 3,813
Costs and expenses..........................................    (496)      (258)     (4,889)
Loss before taxes...........................................    (496)      (138)     (1,076)
Tax benefit (expense).......................................     (14)        (7)        157
                                                               -----      -----     -------
Net loss from discontinued operations.......................    (510)      (145)       (919)
Net loss from equity accounted investments, net of tax
  benefit of $15 million and tax expense of $51 million in
  2000 and 1999, respectively...............................      --        (23)       (168)
Gain from dispositions of discontinued operations, net of
  tax expense of $59 million and $161 million in 2000 and
  1999, respectively........................................      --        730       1,804
                                                               -----      -----     -------
Income (loss) from discontinued operations, net of tax......   $(510)     $ 562     $   717
                                                               =====      =====     =======


    The loss before taxes in 2001 includes a charge of $470 million related to
the increase in management's estimate of future asbestos-related claims (see
Note 16).

    The loss before taxes in 1999 includes charges for contract loss provisions
recorded in accordance with the Company's periodic review of such provisions of
approximately $560 million, primarily related to technical difficulties with a
new model of gas turbine. The loss before taxes in 1999 also includes other
costs of approximately $300 million principally related to the increase in
management's estimate of future asbestos-related claims (see Note 16).

    Basic and diluted per share loss from discontinued operations were both
$0.45 in 2001, compared to basic and diluted per share income from discontinued
operations of $0.48 and $0.61 in 2000 and 1999, respectively.

                                      F-22

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 5 MARKETABLE SECURITIES

    Marketable securities consist of the following:



                                                                DECEMBER 31,
                                                             -------------------
                                                               2001       2000
                                                             --------   --------
                                                                  
Trading....................................................   $  545     $  676
Available-for-sale.........................................    2,401      3,533
                                                              ------     ------
Total......................................................   $2,946     $4,209
                                                              ======     ======


    Available-for-sale securities classified as marketable securities consist of
the following:



                                                 UNREALIZED   UNREALIZED
                                        COST       GAINS        LOSSES     FAIR VALUE
                                      --------   ----------   ----------   ----------
                                                               
At December 31, 2001:
Equity securities...................   $  681       $ 22        $(276)       $  427
                                       ------       ----        -----        ------
Debt securities:
  U.S. government obligations.......      655         12          (12)          655
  European government obligations...      437          1           (2)          436
  Corporate.........................      388          4           (2)          390
  Asset-backed......................        3         --           --             3
  Other.............................      450         41           (1)          490
                                       ------       ----        -----        ------
  Total debt securities.............    1,933         58          (17)        1,974
                                       ------       ----        -----        ------
                                       $2,614       $ 80        $(293)       $2,401
                                       ======       ====        =====        ======
At December 31, 2000:
Equity securities...................   $  593       $ 53        $(139)       $  507
                                       ------       ----        -----        ------
Debt securities:
  U.S. government obligations.......      800         21           (3)          818
  European government obligations...      549          8           (4)          553
  Corporate.........................      231          3           (1)          233
  Asset-backed......................      667          1           (1)          667
  Other.............................      723         32           --           755
                                       ------       ----        -----        ------
  Total debt securities.............    2,970         65           (9)        3,026
                                       ------       ----        -----        ------
                                       $3,563       $118        $(148)       $3,533
                                       ======       ====        =====        ======


                                      F-23

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 5 MARKETABLE SECURITIES (CONTINUED)
    At December 31, 2001, contractual maturities of the above available-for-sale
debt securities consist of the following:



                                                                          FAIR
                                                               COST      VALUE
                                                             --------   --------
                                                                  
Less than one year.........................................   $  454     $  459
One to five years..........................................    1,032      1,044
Six to ten years...........................................      299        313
Due after ten years........................................      148        158
                                                              ------     ------
Total......................................................   $1,933     $1,974
                                                              ======     ======


    Gross realized gains on available-for-sale securities were $78 million,
$39 million and $87 million in 2001, 2000 and 1999, respectively. Gross realized
losses on available-for-sale securities were $39 million, $27 million and
$32 million in 2001, 2000 and 1999, respectively.

    The net change in unrealized gains and losses in fair values of trading
securities was not significant in 2001 or 2000.

    At December 31, 2001 and 2000, the Company pledged $848 million and
$1,099 million, respectively, of marketable securities as collateral for certain
bank borrowings, issued letters of credit, insurance contracts or other security
arrangements.

    At December 31, 2001 and 2000, investments and other in the consolidated
balance sheet includes $236 million and $263 million, respectively, of
available-for-sale securities that are pledged in connection with the Company's
pension plan in Sweden. These securities are comprised of European government
and other debt securities recorded at their fair value of $161 million and
$192 million, respectively, (including $3 million and $5 million, respectively,
of unrealized gains) and equity securities recorded at their fair value of
$75 million and $71 million, respectively (net of unrealized losses of
$13 million and $9 million, respectively).

NOTE 6 FINANCIAL INSTRUMENTS

CASH FLOW HEDGES

    The Company enters into forward foreign exchange contracts to manage the
foreign exchange risk of its operations. To a lesser extent the Company also
uses commodity contracts to manage its commodity risks. Where such instruments
are designated and qualify as cash flow hedges, the changes in their fair value
are recorded in the accumulated other comprehensive loss component of
stockholders' equity, until the hedged item is recognized in earnings. At such
time, the respective amount in accumulated other comprehensive loss is released
to earnings and is shown in either revenues or cost of sales consistent with the
classification of the earnings impact of the underlying transaction being
hedged. Any hedge ineffectiveness is therefore included in revenues and cost of
sales but is not material for 2001.

    During 2001, the amount reclassified from accumulated other comprehensive
loss to earnings, which represented derivative financial instrument losses,
amounted to $130 million, net of taxes, of which $31 million, net of taxes, was
associated with the transition adjustment at January 1, 2001. It is anticipated
that during 2002, $67 million, net of taxes, of the amount included in
accumulated

                                      F-24

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 6 FINANCIAL INSTRUMENTS (CONTINUED)
other comprehensive loss at December 31, 2001, which represents derivative
financial instrument losses, will be reclassified to earnings. Derivative
financial instrument losses reclassified to earnings offset the gains on the
items being hedged.

    While the Company's cash flow hedges are primarily hedges of exposures over
the next eighteen months, the amount included in accumulated other comprehensive
loss at December 31, 2001 includes hedges of certain exposures maturing up to
2007.

FAIR VALUE HEDGES

    To reduce its interest rate and currency exposure arising from its funding
activities and to hedge specific assets, the Company uses interest rate and
currency swaps. Where such instruments are designated as fair value hedges, the
changes in fair value of these instruments, as well as the changes in fair value
of the underlying liabilities or assets, are recorded as offsetting gains and
losses in the determination of earnings. The amount of hedge ineffectiveness for
2001 is not material.

DISCLOSURE ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

    The Company uses the following methods and assumptions in estimating fair
values for financial instruments:

    CASH AND EQUIVALENTS, RECEIVABLES, ACCOUNTS PAYABLE, SHORT-TERM BORROWINGS
AND CURRENT MATURITIES OF LONG-TERM BORROWINGS: The carrying amounts reported in
the balance sheet approximate the fair values.

    MARKETABLE SECURITIES (INCLUDING TRADING AND AVAILABLE-FOR-SALE SECURITIES):
Fair values are based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market prices of
comparable instruments.

    FINANCING RECEIVABLES AND LOANS:  Fair values are determined using
discounted cash flow methodology based upon loan rates of similar instruments.
The carrying values and estimated fair values of long-term loans granted at
December 31, 2001 were $1,724 million and $1,745 million, respectively, and at
December 31, 2000 were $1,469 million and $1,456 million, respectively.

    LONG-TERM BORROWINGS:  Fair values are based on the present value of future
cash flows discounted at estimated borrowing rates for similar debt instruments.
The carrying values and estimated fair values of long-term borrowings at
December 31, 2001 were $5,043 million and $5,056 million, respectively, and at
December 31, 2000 were $3,776 million and $3,861 million, respectively.

    DERIVATIVE FINANCIAL INSTRUMENTS:  Fair values are the amounts by which the
contracts could be settled. These fair values are estimated by using discounted
cash flow methodology based on available market data, option pricing models or
by obtaining quotes from brokers. At December 31, 2001, the carrying values
equal fair values. The fair values are disclosed in Note 9 and Note 14. At
December 31, 2000, the total carrying value of derivatives used for both risk
management and trading purposes amounted to a net liability of $72 million
compared to a fair value of $165 million unrealized loss.

                                      F-25

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 6 FINANCIAL INSTRUMENTS (CONTINUED)

NOTIONAL AMOUNTS AS OF DECEMBER 31, 2000

    The notional values of outstanding derivative financial instruments as of
December 31, 2000 for interest rate and currency swaps, and other fixed income
contracts was $48,261 million, and for foreign exchange forward contracts and
options was $38,129 million.

    The gross notional values indicated the extent of the Company's use of
derivatives but did not reflect the Company's exposure to market or credit risk
arising from such transactions.

NOTE 7 RECEIVABLES

    Receivables consist of the following:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Trade receivables...........................................  $ 4,120     $4,289
Other receivables...........................................    3,435      3,168
Allowance...................................................     (258)      (234)
                                                              -------     ------
                                                                7,297      7,223
Unbilled receivables, net:
  Costs and estimated profits in excess of billings.........    2,082      1,769
  Advance payments received.................................   (1,011)      (664)
                                                              -------     ------
                                                                1,071      1,105
                                                              -------     ------
                                                              $ 8,368     $8,328
                                                              =======     ======


    Trade receivables include contractual retention amounts billed to customers
of $135 million and $140 million at December 31, 2001 and 2000, respectively.
Management expects the majority of related contracts will be completed and
substantially all of the billed amounts retained by the customer will be
collected within one year of the respective balance sheet date. Other
receivables consist of V.A.T., claims, employee and customer-related advances,
the current portion of direct finance and sales-type leases and other non-trade
receivables.

    Costs and estimated profits in excess of billings represent sales earned and
recognized under the percentage-of-completion method. Amounts are expected to be
collected within one year of the respective balance sheet date.

    During 2001 and 2000, the Company sold trade receivables, to QSPEs unrelated
to the Company, in revolving-period securitizations. The Company retains
servicing responsibility relating to the sold receivables. Solely for the
purpose of credit enhancement from the perspective of the QSPEs, the Company
retains an interest in the sold receivables (retained interest). These retained
interests are initially measured at estimated fair values, which the Company
believes approximate historical carrying values, and are subsequently measured
based on a periodic evaluation of collections and delinquencies.

    Given the short-term, lower-risk nature of the assets securitized, market
movements in interest rates would not impact the carrying value of the Company's
retained interests. An adverse

                                      F-26

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 7 RECEIVABLES (CONTINUED)
movement in foreign currency rates could have an impact on the carrying value of
these retained interests as the retained interest is denominated in the original
currencies underlying the sold receivables. Due to the short-term nature of the
receivables and economic hedges in place relating to currency movement risk, the
impact has historically not been significant.

    The Company routinely evaluates its portfolio of trade receivables for risk
of non-collection and records an allowance for doubtful debts to reflect the
carrying value of its trade receivables at estimated net realizable value.
Pursuant to the requirements of the revolving-period securitizations through
which the Company securitizes certain of its trade receivables, the Company
effectively bears the risk of potential delinquency or default associated with
trade receivables sold or interests retained. Accordingly, in the normal course
of servicing the assets sold, the Company evaluates potential collection losses
and delinquencies and updates the estimated fair value of the Company's retained
interests. The fair value of the retained interests at December 31, 2001, and
December 31, 2000, was approximately $264 million and $214 million,
respectively.

    In accordance with SFAS 140, ABB has not recorded a servicing asset as the
Company believes it is not practicable to estimate this value given that
verifiable data as to the fair value of the compensation and or cost related to
servicing the types of the assets sold is not readily obtainable nor reliably
estimable for the multiple geographic markets in which the entities selling
receivables operate.

    During 2001 and 2000, the following cash flows were received from and paid
to QSPEs:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Gross trade receivables sold to QSPEs.......................  $ 5,515    $ 3,708
Collections made on behalf of and paid to QSPEs.............   (5,343)    (3,324)
Loss on sale, liquidity and program fees....................      (33)       (26)
Increase in retained interests..............................      (53)      (150)
                                                              -------    -------
Net cash received from QSPEs during the year................  $    86    $   208
                                                              =======    =======


    Cash settlement with the QSPEs takes place monthly on a net basis. Gross
trade receivables sold represent the face value of all invoices sold during the
year to the QSPEs. As the Company services the receivables, collection of the
receivables previously sold is made on behalf of the QSPEs. The Company records
a loss on sale, liquidity and program fees at the point of sale to the QSPEs.
The total cost of $33 million and $26 million in 2001 and 2000, respectively,
related to the securitization of trade receivables is included in the
determination of current earnings. Changes in retained interests of $53 million
and $150 million in 2001 and 2000, respectively, primarily result from increases
in the volume of receivables sold during the year and changes in default and
delinquency rates, offset by collections of the underlying receivables.

                                      F-27

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 7 RECEIVABLES (CONTINUED)
    The following table presents amounts associated with assets securitized at
December 31, 2001 and 2000:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Total trade receivables.....................................   $5,178     $5,207
Portion derecognized........................................     (789)      (702)
Gross retained interests, included in other receivables.....     (269)      (216)
                                                               ------     ------
Trade receivables...........................................   $4,120     $4,289
                                                               ======     ======


    At December 31, 2001 and 2000, of the gross trade receivables sold, the
total outstanding trade receivables amounted to $1,058 million and
$918 million, respectively. At December 31, 2001 and 2000 an amount of
$65 million and $49 million, respectively, was more than 90 days past due which,
according to the terms of the programs, is deemed to be delinquent.

    In addition, during 2001, the Company sold or transferred to banks trade
receivables outside of the above described securitization programs. Total
receivables sold or transferred and derecognized from the balance sheet in
accordance with SFAS 140 included in these transactions totaled approximately
$71 million. The related costs, including the associated gains and losses, were
not significant.

NOTES 8 INVENTORIES

    Inventories, including inventories related to long-term contracts, consist
of the following:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Commercial inventories, net:
  Raw materials.............................................   $1,063     $1,074
  Work in process...........................................    1,483      1,471
  Finished goods............................................      386        373
                                                               ------     ------
                                                                2,932      2,918
                                                               ------     ------

Contract inventories, net:
  Inventoried costs.........................................      380        387
  Contract costs subject to future negotiation..............       16         53
  Advance payments received related to contracts............     (253)      (166)
                                                               ------     ------
                                                                  143        274
                                                               ------     ------
                                                               $3,075     $3,192
                                                               ======     ======


    Contract costs subject to future negotiation represent pending claims for
additional contract costs that management believes will be collectible.

                                      F-28

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 9 PREPAID EXPENSES AND OTHER

    Prepaid expenses and other current assets consist of the following:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Prepaid expenses............................................   $  520     $  496
Deferred taxes..............................................      517        530
Advances to suppliers and contractors.......................      242        221
Derivatives.................................................      865        225
Other.......................................................      214        113
                                                               ------     ------
                                                               $2,358     $1,585
                                                               ======     ======


NOTE 10 FINANCING RECEIVABLES

    Financing receivables consist of the following:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Third-party loans receivable................................   $1,489     $1,230
Finance leases (see Note 15)................................    2,072      1,895
Other.......................................................      702        750
                                                               ------     ------
                                                               $4,263     $3,875
                                                               ======     ======


    Third-party loans receivable primarily represent financing arrangements
provided to customers under long-term construction contracts as well as export
financing and other activities. Not included in this balance at December 31,
2001 and 2000 are $113 million and $173 million, respectively, of assets pledged
as security for financing arrangements.

    Included in finance leases at December 31, 2001 and 2000 are $445 million
and $495 million, respectively, of assets pledged as security for other
liabilities. Additionally, $114 million of assets were pledged as security for
long-term borrowings at December 31, 2001.

    Other financing receivables at December 31, 2001 and 2000 include
$355 million and $357 million, respectively, of assets pledged as security for
other liabilities. Of these amounts, $53 million in each year are marketable
securities. In addition, other financing receivables include notes receivable
from affiliates of $234 million and $239 million at December 31, 2001 and 2000,
respectively.

    During 2001, the Company sold or transferred to financial institutions
financing receivables. These transfers included sales of finance lease
receivables and sales of loan receivables. Total financing receivables sold or
transferred and derecognized from the balance sheet in accordance with SFAS 140
included in these transactions totaled approximately $329 million, of which
$70 million were sold to an affiliated company. The related costs of these
transactions, including the associated gains and losses, were not significant.

                                      F-29

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 10 FINANCING RECEIVABLES (CONTINUED)
    The Company, in the normal course of its commercial lending business, has
outstanding credit commitments which have not yet been drawn down by customers.
The unused amount as of December 31, 2001, is approximately $208 million.

NOTE 11 PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment consist of the following:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Land and buildings..........................................  $ 2,303     $2,513
Machinery and equipment.....................................    4,534      4,683
Construction in progress....................................      188        130
                                                              -------     ------
                                                                7,025      7,326
Accumulated depreciation....................................   (4,022)    (4,083)
                                                              -------     ------
                                                              $ 3,003     $3,243
                                                              =======     ======


NOTE 12 GOODWILL AND OTHER INTANGIBLE ASSETS

    Goodwill and other intangible assets consist of the following:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Goodwill....................................................  $ 3,588    $ 3,222
Other intangible assets.....................................    1,065        974
                                                              -------    -------
                                                                4,653      4,196
Accumulated amortization....................................   (1,354)    (1,041)
                                                              -------    -------
                                                              $ 3,299    $ 3,155
                                                              =======    =======


    Other intangible assets primarily include intangibles created through
acquisitions, as well as capitalized software to be sold and for internal use,
trademarks and patents.

    Consistent with the Company's policy of reassessing the carrying value of
acquired intangible assets, a write-down of $40 million was recorded during 2001
in relation to goodwill of one of the Company's investments. The Company also
recorded a write-down of $26 million related to software developed for internal
use in 2001.

NOTE 13 BORROWINGS

    The Company actively uses the capital markets to meet liquidity needs.
Furthermore, the Company maintains credit lines with various banks worldwide for
borrowing funds on a short or long-term basis.

                                      F-30

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 13 BORROWINGS (CONTINUED)
SHORT-TERM BORROWINGS

    The Company's commercial paper and short-term debt financing consist of the
following:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Commercial paper
(weighted-average interest rate of 2.7% and 5.9%)...........   $3,297     $1,923
Other short-term debt
(weighted-average interest rate of 4.6% and 6.0%)...........      983      1,163
Current portion of long-term borrowings
(weighted-average interest rate of 4.6% and 5.0%)...........      467        501
                                                               ------     ------
                                                               $4,747     $3,587
                                                               ======     ======


    Other short-term debt primarily represents short-term loans from various
banks and repurchase agreements. Of the commercial paper outstanding at
December 31, 2001, $2,050 million had maturities of less than 3 months,
$913 million had maturities of 3 to 6 months and $334 million had maturities
over 6 months. Commercial paper outstanding at December 31, 2000 had maturities
of mainly less than 3 months.

    In mid December 2001, the Company entered into a syndicated $3 billion
364-day revolving credit facility, with the option to convert up to $1 billion
of any outstanding amounts at the end of the period into one year term
borrowings. The facility is for general corporate purposes including support for
the Company's commercial paper issuance. In the event that the Company's
long-term debt rating falls below either A3 or A- from Moody's and Standard &
Poor's, respectively, the terms of the facility are required to be renegotiated.
If, after such negotiations, the banks and the Company are unable to reach
agreement on revised terms, the facility will be terminated. Commitment fees are
paid on the unutilized portion of the facility and their level is dependent on
the credit rating of the Company's long-term debt. At December 31, 2001, no
amounts were outstanding under this facility.

LONG-TERM BORROWINGS

    The Company utilizes a variety of derivative products to modify the
characteristics of its long-term borrowings. The Company uses interest rate
swaps to effectively convert certain fixed-rate long-term borrowings into
floating rate obligations. For certain non-U.S. dollar denominated borrowings,
the Company utilizes cross-currency swaps to effectively convert the borrowings
into U.S. dollar obligations. As of January 1, 2001, upon the introduction of
SFAS 133, the derivative instruments (primarily interest rate and cross-currency
swaps), designated and qualifying as fair value hedges of the Company's
borrowings have been recorded at their fair values under other assets and other
liabilities together with other outstanding derivatives. At December 31, 2000,
cross-currency swaps hedging borrowings were shown as part of the underlying
transaction being hedged. As required by SFAS 133, borrowings which have been
designated as being hedged by fair value hedges are stated at their respective
fair values at December 31, 2001.

                                      F-31

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 13 BORROWINGS (CONTINUED)
    The following table summarizes the Company's long-term borrowings
considering the effect of interest rate, currency and equity swaps:



                                               DECEMBER 31, 2001                 DECEMBER 31, 2000
                                        -------------------------------   -------------------------------
                                                   NOMINAL    EFFECTIVE              NOMINAL    EFFECTIVE
                                        BALANCE      RATE       RATE      BALANCE      RATE       RATE
                                        --------   --------   ---------   --------   --------   ---------
                                                                              
Floating rate.........................   $4,422        4.0%      2.7%      $3,444      5.3%        5.4%
Fixed rate............................    1,017        5.3%      5.3%         611      4.6%        4.6%
Putable bonds.........................       --         --        --          139      6.5%        6.5%
Other.................................       71        1.5%      2.3%          83      6.7%        7.1%
                                         ------                            ------
                                         $5,510                            $4,277
Current portion of long-term
  borrowings..........................     (467)       4.6%      2.9%        (501)     5.0%        6.5%
                                         ------                            ------
                                         $5,043                            $3,776
                                         ======                            ======


    At December 31, 2001, maturities of long-term borrowings were as follows:


                                                           
Due in 2002.................................................   $  467
Due in 2003.................................................    1,492
Due in 2004.................................................    1,187
Due in 2005.................................................    1,299
Due in 2006.................................................      516
Thereafter..................................................      549
                                                               ------
                                                               $5,510
                                                               ======


At December 31, 2001, approximately $1,800 million of the Company's long-term
borrowings were denominated in U.S. dollars.

    During 2001, the Company repurchased, but did not cancel, outstanding bonds
with a face value of $322 million. In connection with these repurchases, the
Company recorded an extraordinary gain on extinguishment of debt of
$12 million, which was not subject to tax effect, representing basic and diluted
earnings per share of $0.01. In the period up to December 31, 2001, the Company
subsequently reissued a portion of the repurchased bonds with a face value of
$248 million. The reissue price has become the new cost basis of the bonds.

                                      F-32

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 14 ACCRUED LIABILITIES AND OTHER

    Accrued liabilities and other consists of the following:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Insurance reserves..........................................   $2,175     $1,399
Contract-related reserves...................................      566        538
Accrued personnel costs.....................................      736        791
Taxes payable...............................................      506        471
Provisions for warranties...................................      409        413
Deferred taxes..............................................      198        235
Interest....................................................      380        445
Provisions for restructuring................................      170        102
Derivatives.................................................      803        297
Other.......................................................    1,644      1,436
                                                               ------     ------
                                                               $7,587     $6,127
                                                               ======     ======


    The Company's insurance reserves for unpaid claims and claim adjustment
expenses are determined on the basis of reports from ceding companies,
underwriting associations and management estimates. The Company continually
reviews reserves for claims and claim adjustment expenses during the year and
changes in estimates are reflected in net income. In addition, reserves are
routinely reviewed by independent actuarial consultants. Prior to 2001, the
Company presented a portion of its insurance reserves on a discounted basis,
which estimated the present value of funds required to pay losses at future
dates. The effect of the discounting was to decrease outstanding losses and loss
adjustment reserves by $223 million at December 31, 2000. The reserves were
discounted where anticipated future investment income was an integral part of
the premium pricing for a particular product. During 2001, the timing and amount
of premiums and claims payments being ceded to the Company in respect of prior
years finite risk reinsurance contracts has changed. As the amount and timing of
ceded claims payments cannot be reliably determined at December 31, 2001, the
Company has not discounted its loss reserves. The Company believes that this
variability in ceded loss payments will preclude the Company from discounting
its loss reserves in the future until reliably determinable amounts and timing
of these payments can be reestablished. Accordingly, at December 31, 2001 the
insurance reserves have not been presented on a discounted basis, resulting in a
charge to losses and loss adjustment expenses in the fourth quarter of 2001 of
$295 million for the elimination of the effect of discounting.

NOTE 15 LEASES

LEASE OBLIGATIONS

    The Company's lease obligations primarily relate to real estate and office
equipment. In the normal course of business, management expects most leases to
be renewed or replaced by other leases. Minimum rent expense under operating
leases was $242 million, $252 million and $275 million in 2001, 2000 and 1999,
respectively.

                                      F-33

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 15 LEASES (CONTINUED)
    At December 31, 2001, future net minimum lease payments for operating leases
having initial or remaining non-cancelable lease terms in excess of one year
consist of the following:


                                                           
2002........................................................   $  269
2003........................................................      225
2004........................................................      189
2005........................................................      152
2006........................................................      141
Thereafter..................................................      364
                                                               ------
                                                               $1,340
Sublease income.............................................      (58)
                                                               ------
                                                               $1,282
                                                               ======


INVESTMENTS IN LEASES

    The Financial Services division provides sales support to the Company's
industrial entities' customers by means of lease financing and credit
arrangements as well as other direct third-party lease financing. Investments in
sales-type leases, leveraged leases and direct financing leases are included in
financing receivables.

    The allowance for losses on lease financing receivables is determined based
on loss experience and assessment of inherent risk. Adjustments to the allowance
for losses are made to adjust the net investment in finance leases to the
estimated collectible amount.

    The Company's non-current investments in direct financing, sales-type and
leveraged leases consist of the following:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Minimum lease payments receivable...........................  $ 3,400    $ 2,972
Residual values.............................................       72        186
Unearned income.............................................   (1,105)    (1,050)
                                                              -------    -------
                                                                2,367      2,108
Leveraged leases............................................       49         28
Allowance for losses........................................       (5)        (6)
                                                              -------    -------
                                                                2,411      2,130
Current portion.............................................     (339)      (235)
                                                              -------    -------
                                                              $ 2,072    $ 1,895
                                                              =======    =======


                                      F-34

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 15 LEASES (CONTINUED)
    At December 31, 2001, minimum lease payments under direct financing and
sales-type lease payments are scheduled to be received as follows:


                                                           
2002........................................................   $  594
2003........................................................      537
2004........................................................      394
2005........................................................      408
2006........................................................      219
Thereafter..................................................    1,248
                                                               ------
                                                               $3,400
                                                               ======


NOTE 16 COMMITMENTS AND CONTINGENCIES

    GENERAL

    The Company is subject to various legal proceedings and claims which have
arisen in the ordinary course of business that have not been finally
adjudicated. It is not possible at this time for the Company to predict with any
certainty the outcome of such litigation. However, except as stated below,
management is of the opinion, based upon information presently available, that
it is unlikely that any such liability, to the extent not provided for through
insurance or otherwise, would have a material adverse effect in relation to the
Company's consolidated financial position, liquidity or results of operations.

    ENVIRONMENTAL

    The Company is a participant in several legal and regulatory actions, which
result from various U.S. and other federal, state and local environmental
protection legislation as well as agreements with third parties. Provisions for
such actions are accrued when the events are probable and the related costs can
be reasonably estimated. Changes in estimates of such costs are recognized in
the period determined. While the Company cannot estimate the impact of future
regulations affecting these actions, management believes that the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, liquidity or results of operations.

    The Company records accruals for environmental matters based on its
estimated share of costs in the accounting period in which responsibility is
established and costs can be reasonably estimated. Environmental liabilities are
recorded based on the most probable cost, if known, or on the estimated minimum
cost, determined on a site-by-site basis. Revisions to the accruals are made in
the period the estimated costs of remediation change.

    Costs of future expenditures for environmental remediation obligations are
not discounted to their present value. The Company records a receivable if the
estimated recoveries from insurers or other third parties are determined to be
probable.

    PERFORMANCE GUARANTEES

    It is industry practice to use letters of credit, surety bonds and other
performance guarantees on major projects, including long-term operation and
maintenance contracts. Such guarantees may

                                      F-35

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 16 COMMITMENTS AND CONTINGENCIES (CONTINUED)
include guarantees that a project will be completed or that a project or
particular equipment will achieve defined performance criteria. The guarantors
may include subsidiaries of ABB Ltd and/or ABB Ltd. Because such guarantees may
not state a fixed or maximum amount, the aggregate amount of the Company's
potential exposure under the guarantees cannot reasonably be estimated.
Provisions are recorded in the consolidated financial statements at the time it
becomes probable the Company will incur losses pursuant to a performance
guarantee. Management does not expect to incur significant losses under these
guarantees in excess of the Company's provisions. However, such losses, if
incurred, could have a material impact on the Company's consolidated financial
position, liquidity or results of operations.

    The Company retained obligations for guarantees of the type described above
related to the power generation businesses contributed to the Joint Venture with
ALSTOM. In addition, in connection with a power plant construction project in a
business sold to ALSTOM POWER N.V. ("ALSTOM Power"), one of the Company's
subsidiaries has issued an advance payment guarantee towards a bank holding
funds which are to be drawn down by a consortium led by a subsidiary of ALSTOM
Power. The guarantee is approximately $370 million at December 31, 2001. ALSTOM
and its subsidiaries have primary responsibility for performing the obligations
that are the subject of the guarantees. In connection with the sale to ALSTOM of
the Company's interest in the Joint Venture in May 2000, ALSTOM and ALSTOM Power
have undertaken to fully indemnify the Company against any claims arising under
such guarantees. As of December 31, 2001, there have been no material claims
made under these guarantees.

    In connection with the sale of its nuclear business to British Nuclear Fuels
("BNFL") in 2000, a subsidiary of the Company retained obligations under surety
bonds relating to the performance by the nuclear business under certain
contracts entered into prior to the sale to BNFL. Pursuant to the purchase
agreement under which the nuclear business was sold, BNFL is required to
indemnify the Company for any costs and liabilities incurred by the Company with
respect to such bonds. The Company's total liability under these bonds at
December 31, 2001 is approximately $700 million. As of December 31, 2001, there
have been no material claims made under these surety bonds. Management does not
expect to incur significant losses under these surety bonds.

    FINANCIAL GUARANTEES

    The Company's financial services business has guaranteed the obligations of
certain third parties in return for a commission. These financial guarantees
represent irrevocable assurances that the Company will make payment in the event
that the third party fails to fulfill its obligations and the beneficiary under
the guarantee records a loss under the terms of the guarantee agreement. The
commissions collected are recognized as income over the life of the guarantee
and the Company records a provision when it becomes aware of an event of default
or a potential event of default occurs. At December 31, 2001, the Company has
issued approximately $270 million of financial guarantees with maturity dates
ranging from one to nineteen years. Management does not expect to incur
significant losses under these contracts.

    CONTINGENCIES RELATED TO FORMER POWER GENERATION BUSINESSES

    The Company retains ownership of Combustion Engineering, Inc. ("Combustion
Engineering"), a subsidiary that formerly conducted part of the divested power
generation business and which now owns commercial real estate which it leases to
third parties. Combustion Engineering is a

                                      F-36

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 16 COMMITMENTS AND CONTINGENCIES (CONTINUED)
co-defendant, together with third parties, in numerous lawsuits pending in the
United States in which the plaintiffs claim damages for personal injury arising
from exposure to or use of equipment which contained asbestos that Combustion
Engineering supplied, primarily during the 1970s and before.

    It can be expected that additional asbestos-related claims will continue to
be asserted. The ultimate cost of these claims is difficult to estimate with any
degree of certainty due to the nature and number of variables associated with
unasserted claims. Some of the factors affecting the reliability of estimating
the potential cost of claims are the rate at which new claims are filed, the
impact of court rulings and legislative action, the extent of the claimants'
association with Combustion Engineering's or other defendants' products,
equipment or operations, the type and severity of the disease suffered by the
claimant, the method of resolution of such cases, the financial condition of
other defendants and the availability of insurance to recover the costs, until
the policy limits are exhausted. As of December 31, 2001, there were
approximately 94,000 cases pending (2000: 66,000) against Combustion
Engineering. Approximately 55,000 new claims were made in 2001 (2000: 39,000)
and approximately 27,000 claims were resolved in 2001 (2000: 34,000). In 2001,
the average payment per claim in which a payment was made increased by 26% over
2000. Approximately $12.8 million, $10.5 million and $8.2 million in
administration and defense costs were incurred in 2001, 2000 and 1999,
respectively.

    Other ABB Group entities are sometimes named as defendants in asbestos
claims. These claims are insignificant compared to the Combustion Engineering
claims and have not had, and are not expected to have, a material impact on the
Company's financial position or results of operations.

    A reserve is maintained to cover estimated costs for the asbestos claims and
an asset is recorded representing estimated insurance reimbursement. The reserve
represents management's estimate of the costs associated with asbestos claims,
including defense costs, based upon historical claims trends, available industry
information and incidence rates of new claims. As a result of changes in
management's expectations regarding the foreseeable future over which claims
would continue to be incurred, the estimates were modified in 1999 to extend the
period over which current and future claims were expected to be settled from 7
to 11 years. This revision better reflected anticipated claim settlement costs
in light of the number and type of claims being filed at that time and the
allocation of such claims to all available insurance policies. As a result of
the revision, an additional accrual of approximately $300 million was recorded
in 1999 which is included in the results of discontinued operations. During
2000, the level of new claims and settlement costs increased as compared to
previous levels. Consequently, a charge of approximately $70 million was
recorded in 2000, which is included in the results of discontinued operations,
related to higher costs than were expected during the period. Based on the
significant increase in new claims and settlement costs experienced in 2001
described above, an additional charge of $470 million was recorded in 2001,
which is included in the results of discontinued operations. Because of the
uncertainty as to the causes of the increase in claims filed against Combustion
Engineering in recent periods, the estimation of future claims to be resolved is
subject to substantially greater uncertainty.

    At December 31, 2001 and 2000, reserves of approximately $940 million and
$590 million, respectively, were recorded for all asbestos-related claims.
Receivables of $150 million and

                                      F-37

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 16 COMMITMENTS AND CONTINGENCIES (CONTINUED)
$160 million were recorded at December 31, 2001 and 2000, respectively, for
probable insurance recoveries with respect to such claims. Allowances against
the insurance receivables are established at such time as it becomes likely that
insurance recoveries are not probable. Cash payments to resolve Combustion
Engineering's asbestos claims were $136 million, $125 million and $67 million in
2001, 2000 and 1999, respectively.

    Future operating results will continue to reflect the effect of changes in
estimated claims costs resulting from actual claim activity as well as changes
in available insurance coverage. It is reasonably possible that expenditures
could be made, in excess of established reserves, in a range of amounts that
cannot reasonably be estimated. Although the final resolution of any such
matters could have a material impact on the Company's reported results for a
particular reporting period, management believes the litigation should not have
a material adverse effect on the Company's consolidated financial condition or
liquidity.

    CONTINGENCIES RELATED TO FORMER NUCLEAR POWER BUSINESS

    The Company retained liability for certain specific environmental
remediation costs at two sites in the U.S. that were operated by its nuclear
business, which has been sold to British Nuclear Fuels. Pursuant to the purchase
agreement with British Nuclear Fuels, the Company has retained all of the
environmental liabilities associated with its Combustion Engineering
subsidiary's Windsor, Connecticut facility and a portion of the environmental
liabilities associated with its ABB CE Nuclear subsidiary's Hematite, Missouri
facility. The primary environmental liabilities associated with these sites
relate to the costs of remediating radiological contamination upon
decommissioning the facilities. Such costs are not payable until a facility is
taken out of use and generally are incurred over a number of years. Although it
is difficult to predict with accuracy the amount of time it may take to
remediate radiological contamination upon decommissioning, based on information
that British Nuclear Fuels has made publicly available, the Company believes
that it may take approximately six years for remediation at the Hematite site,
from the time of decommissioning. With respect to the Windsor site, the Company
believes the remediation may take until 2008. British Nuclear Fuels has notified
the Nuclear Regulatory Commission of its intention to decommission the Hematite
facility in 2003. British Nuclear Fuels decommissioned the Windsor facility in
2001 and the process of remediation has begun. At the Windsor site, the Company
believes that a significant portion of such remediation costs will be the
responsibility of the U.S. government pursuant to the Atomic Energy Act and the
Formerly Used Site Environmental Remediation Action Program because such costs
relate to materials used by Combustion Engineering in its research and
development work on, and fabrication of, nuclear fuel for the United States
Navy. As a result of the sale of the nuclear business, in April 2000 the Company
established a reserve of $300 million in connection with estimated remediation
costs related to these facilities. During 2001, approximately $6 million was
expended on remediation of the Windsor site.

    Prior to the sale of the nuclear businesses, the Company conducted and had
intended to continue conducting activities at these two sites which would
require maintaining the appropriate licenses from the U.S. Nuclear Regulatory
Commission ("NRC"). As long as the NRC licenses were in force, the Company was
not obligated, nor was it necessary, to remediate those sites. At the time of
the sale of the nuclear business, there was substantial likelihood that the NRC
licenses would be discontinued. These events would trigger the remediation for
which the Company is liable. Therefore, the Company established the reserve at
the time of such sale.

                                      F-38

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 16 COMMITMENTS AND CONTINGENCIES (CONTINUED)
    Estimates of the future costs of environmental compliance and liabilities
are imprecise due to numerous uncertainties. Such costs are affected by the
enactment of new laws and regulations, the development and application of new
technologies, the identification of new sites for which the Company may have
remediation responsibility and the apportionment of remediation costs among, and
the financial viability of, responsible parties. In particular, the exact amount
of the responsibility of the U.S. government for the Windsor site cannot
reasonably be estimated. It is possible that final resolution of environmental
matters may require the Company to make expenditures in excess of its
expectations, over an extended period of time and in a range of amounts that
cannot be reasonably estimated. Although final resolution of such matters could
have a material effect on the Company's consolidated results of operations in a
particular reporting period in which the expenditure is incurred, the Company
believes that these expenditures should not have a material adverse effect on
its consolidated financial position.

NOTE 17 TAXES

    Provision for taxes consists of the following:



                                                                      YEAR ENDED DECEMBER 31,
                                                               --------------------------------------
                                                                 2001           2000           1999
                                                               --------       --------       --------
                                                                                    
Current taxes on income.................................         $171           $263           $333
Deferred taxes..........................................          (66)           114             10
Tax expense from continuing operations..................          105            377            343
Tax (benefit) expense from discontinued operations......           14             51            (47)
                                                                 ----           ----           ----
                                                                 $119           $428           $296
                                                                 ====           ====           ====


    The Company operates in countries that have differing tax laws and rates.
Consequently, the consolidated weighted-average effective rate will vary from
year to year according to the source of earnings or losses by country.



                                                                YEAR ENDED DECEMBER 31,
                                                             ------------------------------
                                                               2001       2000       1999
                                                             --------   --------   --------
                                                                          
Reconciliation of taxes:
Income from continuing operations before taxes and minority
  interest.................................................   $  45      $1,306     $1,022
Weighted-average tax rate..................................    38.2%       37.2%      39.1%

Taxes at weighted-average tax rate.........................      17         486        400
Items taxed at rates other than the weighted-average tax
  rate.....................................................     104         (67)         1
Non-deductible goodwill amortization.......................      59          55         58
Changes in valuation allowance.............................     (30)        (67)      (144)
Changes in enacted tax rates...............................       4         (42)        18
Other, net.................................................     (49)         12         10
                                                              -----      ------     ------
Tax expense of continuing operations.......................   $ 105      $  377     $  343
Effective tax rate for the year (see comment below)........   233.6%       28.9%      33.6%


                                      F-39

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 17 TAXES (CONTINUED)

    In 2001, the reconciling item "Other, net" of $49 million includes an amount
of $50 million relating to adjustments with respect to the resolution of certain
prior year tax matters.

    In 2001, the income from continuing operations before taxes and minority
interest of $45 million includes an additional provision for insurance
liabilities in an insurance subsidiary, located in a low tax jurisdiction (see
Note 14). The above item "Items taxed at rates other than the weighted average
tax rate" includes the tax effect of this provision when comparing the weighted
average tax rate to the effective tax rate for the year.

    The effective tax rate applicable to income from continuing operations
excluding the tax effect of this provision would be 30.9%.

    Deferred income tax assets and liabilities consist of the following:



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Deferred tax liabilities:
  Financing receivables.....................................  $  (480)   $  (512)
  Property, plant and equipment.............................     (476)      (282)
  Pension and other accrued liabilities.....................     (264)      (438)
  Insurance reserves........................................     (190)      (233)
  Other.....................................................     (148)      (298)
                                                              -------    -------
Total deferred tax liability................................   (1,558)    (1,763)
                                                              -------    -------
Deferred tax assets:
  Investments and other.....................................       14         19
  Property, plant and equipment.............................      207         79
  Pension and other accrued liabilities.....................    1,013      1,059
  Unused tax losses and credits.............................      753        453
  Other.....................................................      248        162
                                                              -------    -------
Total deferred tax asset....................................    2,235      1,772
Valuation allowance.........................................   (1,176)      (777)
                                                              -------    -------
Deferred tax asset, net of valuation allowance..............    1,059        995
                                                              -------    -------
Net deferred tax liability..................................  $  (499)   $  (768)
                                                              =======    =======


    Deferred tax assets and deferred tax liabilities can be allocated between
current and non-current as follows:



                                                               DECEMBER 31,
                                              -----------------------------------------------
                                                       2001                     2000
                                              ----------------------   ----------------------
                                              CURRENT    NON-CURRENT   CURRENT    NON-CURRENT
                                              --------   -----------   --------   -----------
                                                                      
Deferred tax liability......................   $(198)      $(1,360)     $(235)      $(1,528)
Deferred tax asset, net.....................     517           542        530           465
                                               -----       -------      -----       -------
Net deferred tax asset (liability)..........   $ 319       $  (818)     $ 295       $(1,063)
                                               =====       =======      =====       =======


    The non-current deferred tax asset, net, is recorded in the balance sheet
position "Investments and other".

                                      F-40

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 17 TAXES (CONTINUED)
    Certain entities of the group have deferred tax assets related to net
operating loss carry-forwards and other items. Because recognition of these
assets is uncertain, the group has established valuation allowances of $1,176
and $777 million as at December 31, 2001 and 2000, respectively.

    At December 31, 2001, net operating loss carry-forwards of $1,790 million
and tax credits of $127 million are available to reduce future taxable income of
certain subsidiaries, of which $1,216 million loss carry-forwards and
$98 million tax credits expire in varying amounts through 2021 and the remainder
do not expire. These carry-forwards are predominately related to the Company's
U.S. and German operations.

NOTE 18 OTHER LIABILITIES

    Other liabilities include advances from customers relating to long-term
construction contracts of $789 million and $862 million at December 31, 2001 and
2000, respectively.

    The Company entered into tax advantaged leasing transactions with U.S.
investors prior to 1999. Prepaid rents that have been received on these
transactions are $355 million and $357 million at December 31, 2001 and 2000,
respectively, and have been recorded as deposit liabilities. Net gains on these
transactions are being recognized over the lease terms.

    In prior years, the Company entered into certain lease transactions which
resulted in the recognition of a long-term liability of $445 million and
$495 million at December 31, 2001 and 2000, respectively, and a corresponding
receivable reflected in finance receivables for similar amounts. Under these
lease structures, certain lessee payments have been assigned to banks which have
financed these lease transactions.

NOTE 19 EMPLOYEE BENEFITS

    The Company operates several pension plans, including defined benefit,
defined contribution and termination indemnity, in accordance with local
regulations and practices. These plans cover the majority of the Company's
employees and provide benefits to employees in the event of death, disability,
retirement or termination of employment. Certain of these plans are
multi-employer plans.

    Some of these plans require employees to make contributions and enable
employees to earn matching or other contributions from the Company. The funding
policy of these plans is consistent with the local government and tax
requirements. The Company has several pension plans which are not funded
pursuant to local government and tax requirements.

    Defined benefit plans provide benefits primarily based on employees' years
of service, age and salary. The cost and obligations from sponsoring defined
benefit plans are determined on an actuarial basis using the projected unit
credit method. This method reflects service rendered by the employees to the
date of valuation and incorporates assumptions concerning employees' projected
salaries.

                                      F-41

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 19 EMPLOYEE BENEFITS (CONTINUED)
    For the years ended December 31, 2001, 2000 and 1999, net periodic pension
cost consists of the following:



                                                            PENSION BENEFITS                  OTHER BENEFITS
                                                     ------------------------------   ------------------------------
                                                       2001       2000       1999       2001       2000       1999
                                                     --------   --------   --------   --------   --------   --------
                                                                                          
Service cost.......................................   $ 186      $ 212      $ 254       $ 5        $ 5        $ 6
Interest cost......................................     329        328        348        29         26         27
Expected return on plan assets.....................    (308)      (320)      (319)       --         --         --
Amortization of transition liability...............       9         11         16         8          8         11
Amortization of prior service cost.................      14         38          7        --         --         --
Recognized net actuarial (gain) loss...............       4         (1)        18         3          1          1
Other..............................................     (18)        10         11        --         --          7
                                                      -----      -----      -----       ---        ---        ---
                                                      $ 216      $ 278      $ 335       $45        $40        $52
                                                      =====      =====      =====       ===        ===        ===


    The following tables set forth the change in benefit obligations, the change
in plan assets and the funded status recognized in the consolidated financial
statements at December 31, 2001 and 2000, for the Company's principal benefit
plans:



                                                       PENSION BENEFITS       OTHER BENEFITS
                                                      -------------------   -------------------
                                                        2001       2000       2001       2000
                                                      --------   --------   --------   --------
                                                                           
Benefit obligation at the beginning of year.........   $6,312     $6,328     $ 390       $328
  Service cost......................................      186        212         5          5
  Interest cost.....................................      329        328        29         26
  Contributions from plan participants..............       39         38         2          1
  Benefit payments..................................     (394)      (426)      (36)       (42)
  Benefit obligations of businesses acquired........        9         58        --         --
  Benefit obligations of businesses disposed........       (5)       (81)       --        (12)
  Actuarial (gain) loss.............................       45        123        51         78
  Plan amendments and other.........................       (3)        27         1          6
  Exchange rate differences.........................     (221)      (295)       (1)        --
                                                       ------     ------     -----       ----
Benefit obligation at the end of year...............    6,297      6,312       441        390
                                                       ------     ------     -----       ----
Fair value of plan assets at the beginning of
  year..............................................    4,843      4,788        --         --
  Actual return on plan assets......................     (312)       276        --         --
  Contributions from employer.......................      409        391        34         41
  Contributions from plan participants..............       39         38         2          1
  Benefit payments..................................     (394)      (426)      (36)       (42)
  Plan assets of businesses acquired................        6         48        --         --
  Plan assets of businesses disposed................       (1)       (17)       --         --
  Other.............................................       15        (78)       --         --
  Exchange rate differences.........................     (133)      (177)       --         --
                                                       ------     ------     -----       ----
Fair value of plan assets at the end of year........    4,472      4,843        --         --
                                                       ------     ------     -----       ----
Unfunded amount.....................................    1,825      1,469       441        390
Unrecognized transition liability...................      (10)       (24)      (86)       (95)
Unrecognized actuarial loss.........................     (835)      (199)     (140)       (91)
Unrecognized prior service cost.....................      (72)       (87)       (3)        (3)
                                                       ------     ------     -----       ----
Net amount recognized...............................   $  908     $1,159     $ 212       $201
                                                       ======     ======     =====       ====


                                      F-42

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 19 EMPLOYEE BENEFITS (CONTINUED)
    The following amounts have been recognized in the Company's consolidated
balance sheets at December 31, 2001 and 2000:



                                                        PENSION BENEFITS       OTHER BENEFITS
                                                       -------------------   -------------------
                                                         2001       2000       2001       2000
                                                       --------   --------   --------   --------
                                                                            
Prepaid pension cost.................................   $ (415)    $ (242)     $ --       $ --
Accrued pension cost.................................    1,410      1,505       212        201
Intangible assets....................................      (14)       (13)       --         --
Accumulated other comprehensive loss.................      (73)       (91)       --         --
                                                        ------     ------      ----       ----
Net amount recognized................................   $  908     $1,159      $212       $201
                                                        ======     ======      ====       ====


    The pension and other related benefits liability reported in the
consolidated balance sheet contains an accrual of $66 million and $84 million at
December 31, 2001 and 2000, respectively, for employee benefits that do not meet
the criteria of Statement of Financial Accounting Standards No. 87, EMPLOYERS'
ACCOUNTING FOR PENSIONS or Statement of Financial Accounting Standards No. 106,
EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.

    There were no significant changes in the minimum pension liability in 2001.
The changes in the minimum pension liability in 2000 and 1999 were primarily
attributable to changes in the discount rate and the fair value of plan assets
in the German and U.S. pension plans.

    During 2001, the Company contributed $162 million of available-for-sale debt
securities to certain of the Company's pension plans in the United States.

    The projected benefit obligation and fair value of plan assets for pension
plans with benefit obligations in excess of plan assets were $6,201 million and
$4,367 million, respectively, at December 31, 2001 and $5,806 million and
$4,267 million, respectively, at December 31, 2000. The accumulated benefit
obligation and fair value of plan assets for pension plans with accumulated
benefit obligations in excess of plan assets were $2,428 million and
$1,200 million, respectively, at December 31, 2001 and $1,739 million and
$533 million, respectively, at December 31, 2000.

    At December 31, 2001 and 2000, the assets of the plans were comprised of:



                                                                    PENSION
                                                                   BENEFITS
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Equity securities...........................................     35%        43%
Debt securities.............................................     48%        40%
Other.......................................................     17%        17%


    At December 31, 2001 and 2000, plan assets included $6 million and
$16 million, respectively, of the Company's capital stock.

                                      F-43

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 19 EMPLOYEE BENEFITS (CONTINUED)
    The following weighted-average assumptions were used in accounting for
defined benefit pension plans, for the years ended December 31, 2001 and 2000:



                                                                 PENSION                   OTHER
                                                                BENEFITS                 BENEFITS
                                                           -------------------      -------------------
                                                             2001       2000          2001       2000
                                                           --------   --------      --------   --------
                                                                                   
Discount rate............................................    5.38%      5.45%         7.24%      7.72%
Expected return on plan assets...........................    6.81%      6.81%           --         --
Rate of compensation increase............................    3.09%      3.16%           --         --


    The Company has multiple non-pension post-retirement benefit plans. The
Company's health care plans are generally contributory with participants'
contributions adjusted annually. The health care trend rate was assumed to be
9.65% for 2001, then gradually declining to 5.78% in 2007, and to remain at that
level thereafter.

    Assumed health care cost trends have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects at December 31,
2001:



                                                         ONE-PERCENTAGE-   ONE-PERCENTAGE-
                                                         POINT INCREASE    POINT DECREASE
                                                         ---------------   ---------------
                                                                     
Effect on total of service and interest cost
  components...........................................        $3               $ (3)
Effect on accumulated post-retirement benefit
  obligation...........................................        31                (26)


    The Company also maintains several defined contribution plans. The expense
for these plans was $27 million, $29 million and $32 million in 2001, 2000 and
1999, respectively. The Company also contributed $135 million, $108 million and
$118 million to multi-employer plans in 2001, 2000 and 1999, respectively.

NOTE 20 MANAGEMENT INCENTIVE PLAN

    The Company has a management incentive plan under which it offers stock
warrants and warrant appreciation rights (WARs) to key employees, for no
consideration.

    Warrants granted under this plan allow participants to purchase shares of
the Company at predetermined prices. Participants may sell the warrants rather
than exercise the right to purchase shares. Equivalent warrants are listed on
the SWX Swiss Exchange (virt-x), which facilitates valuation and transferability
of warrants granted under this plan.

    Each WAR gives the participant the right to receive, in cash, the market
price of a warrant on the date of exercise of the WAR. The WARs are
non-transferable.

    Participants may exercise or sell warrants and exercise WARs after the
vesting period, which is three years from the date of grant. Vesting
restrictions can be waived in the event of death, disability or divorce. All
warrants and WARs expire six years from the date of grant. The terms and
conditions of the plan allow the employees of subsidiaries that have been
divested to retain their warrants and WARs. As the primary trading market for
shares of ABB Ltd is the SWX Swiss Exchange (virt-x), the exercise prices of
warrants and the trading prices of equivalent warrants

                                      F-44

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 20 MANAGEMENT INCENTIVE PLAN (CONTINUED)
listed on the SWX Swiss Exchange (virt-x) are denominated in Swiss Francs (CHF).
Accordingly, exercise prices are presented below in CHF. Fair values have been
presented in U.S. dollars based upon exchange rates in effect as of the
applicable period.

WARRANTS

    The Company accounts for the warrants using the intrinsic value method of
APB Opinion No. 25 (APB 25), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, as
permitted by Statement of Financial Accounting Standards No. 123 (SFAS 123),
ACCOUNTING FOR STOCK BASED COMPENSATION. All warrants were issued with exercise
prices greater than the market prices of the stock on the dates of grant.
Accordingly, the Company has recorded no compensation expense related to the
warrants, except in circumstances when a participant ceased to be employed by a
consolidated subsidiary, such as after a divestment by the Company. In
accordance with FASB Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS
INVOLVING STOCK COMPENSATION, the Company recorded compensation expense based on
the fair value of warrants retained by participants on the date their employment
ceased, with an offset to additional paid in capital. The impact of such expense
is not material.

    Had the Company accounted for all the warrants under the fair value method
of SFAS 123, the effect would have been to reduce net income by $11 million
($0.01 per share), $19 million ($0.02 per share) and $8 million ($0.01 per
share) in 2001, 2000 and 1999, respectively. Fair value of the warrants was
determined on the date of grant by using the Binomial option model and
thereafter by the trading price of equivalent warrants listed on the Swiss Stock
Exchange.

    Presented below is a summary of warrant activity for the years shown:



                                                                           WEIGHTED-AVERAGE
                                                                               EXERCISE
                                             NUMBER OF      NUMBER OF     PRICE (PRESENTED IN
                                             WARRANTS     SHARES(1) (3)         CHF)(4)
                                            -----------   -------------   -------------------
                                                                 
Outstanding at January 1, 1999............  10,926,935       7,658,576           27.09
Granted(5)................................  17,156,040       3,431,208           41.10
Exercised.................................      (8,935)       (579,344)          16.19
Forfeited.................................    (375,000)       (243,152)          28.75
Outstanding at December 31, 1999..........  27,699,040      10,267,288           32.34
Granted(2)(6).............................  28,128,360       5,625,672           53.00
Forfeited.................................    (385,000)        (65,789)          38.42
Outstanding at December 31, 2000..........  55,442,400      15,827,171           38.75
GRANTED(2)(7).............................  23,293,750       4,658,750           17.00
FORFEITED.................................  (2,240,000)       (461,452)          48.53
OUTSTANDING AT DECEMBER 31, 2001..........  76,496,150      20,024,469           33.46
Exercisable at December 31, 1999..........      60,000          38,904           28.22
Exercisable at December 31, 2000..........      60,000          38,904           28.22
EXERCISABLE AT DECEMBER 31, 2001..........  10,538,000       6,832,839           27.95


------------------------------
(1) All warrants granted prior to 1999, and still outstanding at June 28, 1999,
    required the exercise of 100 warrants to one bearer share of ABB AG at a
    weighted average exercise price of CHF 1,859.26 per bearer share of ABB AG.
    The warrants were subsequently modified to keep the warrant holders in the
    same economic position after the payment of a

                                      F-45

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 20 MANAGEMENT INCENTIVE PLAN (CONTINUED)
    special dividend by ABB AG and the issuance of ABB Ltd shares for all issued
    shares of ABB AG in June 1999 (see Note 1). As a result, these warrants now
    require the exercise of 100 warrants for 64.84 registered shares of ABB Ltd
    at a weighted average exercise price of CHF 27.98. In accordance with EITF
    90-9, CHANGES TO FIXED EMPLOYEE STOCK OPTION PLANS AS A RESULT OF EQUITY
    RESTRUCTURING, the modifications to outstanding warrants did not result in a
    new measurement date for the determination of compensation expense under APB
    25. Amounts in the table have been restated to show the effects of these
    modifications to the warrants, as well as the four-for-one share split in
    May 2001.

(2) All warrants granted in 1999, 2000 and 2001 require the exercise of five
    warrants for one registered share of ABB Ltd.

(3) Information presented reflects the number of registered shares of ABB Ltd
    that warrant holders can receive upon exercise.

(4) Information presented reflects the exercise price per registered share of
    ABB Ltd.

(5) The aggregate fair value at date of grant of warrants issued in 1999 was
    $25 million, assuming, depending on the date of grant, a dividend yield of
    1.8% to 1.9%, expected volatility of 31% to 34%, risk-free interest rate of
    2.5% to 3.6%, and an expected life of six years.

(6) The aggregate fair value at date of grant of warrants issued in 2000 was
    $54 million, assuming a dividend yield of 1.7%, expected volatility of 33%,
    risk-free interest rate of 4.4%, and an expected life of six years.

(7) The aggregate fair value at date of grant of warrants issued in 2001 was
    $16 million, assuming a dividend yield of 1.25%, expected volatility of 47%,
    risk-free interest rate of 3.5%, and an expected life of six years.

    Presented below is a summary of warrants outstanding at December 31, 2001:



   EXERCISE PRICE                                                  WEIGHTED-AVERAGE
(PRESENTED IN CHF)(2)   NUMBER OF WARRANTS   NUMBER OF SHARES(1)    REMAINING LIFE
---------------------   ------------------   -------------------   ----------------
                                                          
        17.00               23,293,750            4,658,750          5.9 years
        25.54                5,795,000            3,757,478          2.9 years
        30.89                4,743,000            3,075,361          2.0 years
        37.50                5,059,400            1,011,880          3.4 years
        41.25               15,615,000            3,123,000          3.9 years
        53.00               21,990,000            4,398,000          4.5 years


------------------------------
(1) Information presented reflects the number of registered shares of ABB Ltd
    that warrant holders can receive upon exercise of warrants.

(2) Information presented reflects the exercise price per registered share of
    ABB Ltd.

                                      F-46

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 20 MANAGEMENT INCENTIVE PLAN (CONTINUED)

WARS

    As each WAR gives the holder the right to receive cash equal to the market
price of a warrant on date of exercise, the Company is required by APB 25 to
record a liability based upon the fair value of outstanding WARs at each period
end, amortized on a straight-line basis over the three-year vesting period. In
selling, general and administrative expenses, the Company recorded income of
$59 million for 2001, and expense of $31 million and $42 million in 2000 and
1999, respectively, excluding amounts charged to discontinued operations, as a
result of changes in the fair value of the outstanding WARs and the vested
portion. In June 2000, to hedge its exposure to fluctuations in fair value of
outstanding WARs, the Company purchased cash-settled call options from a bank,
which entitle the Company to receive amounts equivalent to its obligations under
the outstanding WARs. In accordance with EITF 00-19, ACCOUNTING FOR DERIVATIVE
FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN A COMPANY'S OWN
STOCK, the cash-settled call options have been recorded as assets measured at
fair value, with subsequent changes in fair value recorded through earnings as
an offset to the compensation expense recorded in connection with the WARs.
During 2001 and 2000, the Company recognized expense of $55 million and
$4 million, respectively, in interest and other finance expense, related to the
cash-settled call options.

    The aggregate fair value of outstanding WARs was $53 million and
$148 million at December 31, 2001 and 2000, respectively. Fair value of WARs was
determined based upon the trading price of equivalent warrants listed on the SWX
Swiss Exchange (virt-x).

    Presented below is a summary of WAR activity for the years shown.



                                                              NUMBER OF WARS
                                                               OUTSTANDING
                                                              --------------
                                                           
Outstanding at January 1, 1999..............................    10,585,000
Granted.....................................................    25,269,400
Forfeited...................................................      (605,000)
Outstanding at December 31, 1999............................    35,249,400
Granted.....................................................    30,846,640
Exercised...................................................       (25,000)
Forfeited...................................................      (710,000)
Outstanding at December 31, 2000............................    65,361,040
GRANTED.....................................................    39,978,750
EXERCISED...................................................      (548,000)
FORFEITED...................................................    (1,238,720)
OUTSTANDING AT DECEMBER 31, 2001............................   103,553,070


    At December 31, 2001, 9,087,000 of the WARs were exercisable and at
December 31, 2000, none of the WARs was exercisable. The aggregate fair value at
date of grant of WARs issued in 2001, 2000 and 1999 was $28 million,
$80 million and $36 million, respectively.

NOTE 21 STOCKHOLDERS' EQUITY

    At December 31, 2001, including the warrants issued under the management
incentive plan and call options sold to a bank at fair value during 2001, the
Company has outstanding obligations

                                      F-47

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 21 STOCKHOLDERS' EQUITY (CONTINUED)
to deliver 43 million shares at exercise prices ranging from CHF 17.00 to CHF
53.00. Of this amount, warrants and options to purchase 35 million shares were
not included in the computation of diluted earnings per share for 2001 because
the exercise prices were greater than the average market price of the Company's
shares during the period the instruments were outstanding. The call options
expire in periods ranging from 2004 to 2007 and were recorded as equity
instruments in accordance with EITF 00-19.

    During 2000, the Company sold 18 million shares of its treasury stock to a
bank at fair market value and sold put options which enabled the bank to sell up
to 18 million shares to the Company at exercise prices ranging from CHF 25.54 to
CHF 53.00 per share. The put options were recorded as equity instruments in
accordance with EITF 00-19, as the terms of the put options allowed the Company
to choose a net share settlement. In 2001, the Company settled the outstanding
written put options by purchasing the 18 million shares at a weighted average
exercise price of CHF 40.93 per share.

    At December 31, 2001, retained earnings of $357 million were restricted
under Swiss law and not available for distribution as dividends to the Company's
stockholders.

NOTE 22 RESTRUCTURING CHARGES

    During the first quarter of 1999 and in connection with its purchase of
Elsag Bailey, the Company implemented a restructuring plan intended to
consolidate operations and gain operational efficiencies. The plan called for
workforce reductions of approximately 1,500 salaried employees primarily in
Germany and the United States (EB Restructuring). The Company recorded a
$141 million liability in its purchase price allocation principally related to
these costs.

    Restructuring charges of $195 million were included in other income
(expense), net, during 2000, of which approximately $90 million related to the
continued integration of Elsag Bailey. The EB Restructuring was substantially
complete at the end of 2000.

    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.

    As of December 31, 2001, the Company recorded charges of $114 million
relating to workforce reductions and $73 million relating to lease terminations
and other exit costs associated with the restructuring program. These costs are
included in other income (expense), net. Termination benefits of $35 million
were paid in 2001 to approximately 2,300 employees and $33 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, 2001, accrued liabilities includes $79 million for termination
benefits and $40 million for lease terminations and other exit costs.

    As a result of the Company's restructuring, certain assets have been
identified as impaired or will no longer be used in continuing operations. The
Company recorded $44 million to write down these assets to fair value. These
costs are included in other income (expense), net.

                                      F-48

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 23 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.

    - 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. Our
      principal customers are generators of power, owners and operators of power
      transmission systems, energy traders and local distribution companies.

    - The Process Industries division serves the chemical, gas, life sciences,
      marine, metals, minerals, mining, cement, paper, petroleum, printing and
      turbocharging industries with process-specific products and services
      combined with the Company's power and automation technologies.

    - The Manufacturing and Consumer Industries division sells products,
      solutions and services that improve customer productivity and
      competitiveness in areas such as automotive industries,
      telecommunications, consumer goods, food and beverage, product and
      electronics manufacturing, airports, parcel and cargo distribution, and
      public, industrial and commercial buildings.

    - The Oil, Gas and Petrochemicals division supplies a comprehensive range of
      products, systems and services to the global oil, gas and petrochemicals
      industries, from the development of onshore and offshore exploration
      technologies to the design and supply of production facilities, refineries
      and petrochemicals plants.

    - 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.

                                      F-49

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 23 SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
    - The Financial Services division supports the Company's businesses and
      customers with financial solutions in structured finance, leasing, project
      development and ownership, financial consulting, insurance and treasury
      activities.

    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, restructuring charges and related asset write-downs, EBIT, net
operating assets and capital expenditures, all of which have been restated to
reflect the changes to the Company's internal structure, including the effect of
increased inter-division transactions. Accordingly, 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 as they would have
been under the new customer-centric structure. Management has restated
historical division financial information in this way to allow analysis of
trends in division revenues and margins on a basis consistent with the Company's
new internal structure and transaction flow.

    The Company also presents additional balance sheet information specific to
its Financial Services division to allow a better understanding of the Company's
industrial and financial activities.

    The following tables summarize information for each reportable division:


                                                              MANUFACTURING
                                                                   AND           OIL, GAS         POWER      AUTOMATION
                                                  PROCESS       CONSUMER           AND         TECHNOLOGY    TECHNOLOGY
                                     UTILITIES   INDUSTRIES    INDUSTRIES     PETROCHEMICALS    PRODUCTS      PRODUCTS
                                     ---------   ----------   -------------   --------------   -----------   -----------
                                                                                           
2001
Revenues(1)(3).....................   $5,649       $3,377        $4,780           $3,489         $4,042        $5,246
Depreciation and amortization......       73           72            49               77            119           224
Restructuring charge and related
  asset write-downs(7).............       24           29            15                8             52            46
EBIT(2)(4)(6)......................      148          116            87               79            234           380
Net operating assets(5)............      795          738           249              315          1,311         2,558
Capital expenditures...............       27           24            27               38            105           126

2000
Revenues(1)(3).....................   $5,473       $3,339        $5,225           $2,796         $3,662        $5,175
Depreciation and amortization......       75           73            59               69            123           264
Restructuring charge and related
  asset write-downs(7).............       39           25            17                3             38            45
EBIT(2)(4).........................      250           88           205              157            244           464
Net operating assets(5)............    1,018          839           411              893          1,328         3,215
Capital expenditures...............       26           27            33               30            105           139

1999
Revenues(1)(3).....................   $5,875       $3,485        $5,697           $3,086         $3,862        $5,550
Depreciation and amortization......       68           59            66               55            121           279
EBIT(2)(4).........................      182          123           147              165            282           392
Net operating assets(5)............      912          795           634              554          1,483         3,388
Capital expenditures...............       42           40            43               48            162           190



                                     FINANCIAL   CORPORATE/
                                     SERVICES      OTHER      CONSOLIDATED
                                     ---------   ----------   ------------
                                                     
2001
Revenues(1)(3).....................   $2,133      $(4,990)      $23,726
Depreciation and amortization......       23          150           787
Restructuring charge and related
  asset write-downs(7).............       --           57           231
EBIT(2)(4)(6)......................      (32)        (733)          279
Net operating assets(5)............   10,926       (3,114)       13,778
Capital expenditures...............       42          256           645
2000
Revenues(1)(3).....................   $1,966      $(4,669)      $22,967
Depreciation and amortization......       23          150           836
Restructuring charge and related
  asset write-downs(7).............        1           27           195
EBIT(2)(4).........................      349         (372)        1,385
Net operating assets(5)............    9,098       (2,170)       14,632
Capital expenditures...............       25          100           485
1999
Revenues(1)(3).....................   $1,687      $(4,886)      $24,356
Depreciation and amortization......       17          130           795
EBIT(2)(4).........................      337         (506)        1,122
Net operating assets(5)............    7,750       (2,372)       13,144
Capital expenditures...............       47           94           666


----------------------------------

1.  Revenues have been restated for the four end-user divisions, Utilities,
    Process Industries, Manufacturing and Consumer Industries, and Oil, Gas and
    Petrochemicals, to retroactively reflect the increase in inter-division
    sales that would have occurred if the Company's new internal structure and
    transaction flow had been in place for all periods presented. The effect of
    assuming that certain historical sales by the product divisions would have
    been routed through an end-user division before final sale to an

                                      F-50

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 23 SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
    external customer, as they would have been if the new customer-centric
    structure had been in place, was to increase division revenues for 2001,
    2000 and 1999, respectively, by $2,119 million, $2,139 million and
    $2,161 million for the Utilities division; by $674 million, $745 million and
    $729 million for the Process Industries division; and by $253 million,
    $356 million and $404 million for the Manufacturing and Consumer Industries
    division. The Company assumed that new internal transfer pricing structures
    for these inter-division sales were also in place for all periods presented,
    resulting in a reduction to division revenues for 2001, 2000 and 1999,
    respectively, of $99 million, $211 million, and $212 million for the Power
    Technology Products division; and of $153 million, $200 million and
    $221 million for the Automation Technology Products division. The
    elimination of the effects of these assumed inter-division transactions is
    included in the Corporate/Other column.

2.  Consistent with the assumptions described in (1) above, division EBIT
    reflects the retroactive transfer of profits of $41 million, $46 million,
    and $49 million in 2001, 2000 and 1999, respectively, from the channel
    partner divisions, Power Technology Products and Automation Technology
    Products, to three customer divisions, Utilities, Process Industries and
    Manufacturing and Consumer Industries, in order to reflect the impact that
    these inter-division sales would have had on historical results.

3.  Amounts included in the Corporate/Other column primarily represent
    adjustments to eliminate inter-division transactions.

4.  Amounts included in the Corporate/Other column primarily represent local
    businesses in several countries, internal services such as information
    management, consulting, corporate research, shared services, corporate
    management as well as development and management of the Company's real
    estate. Amounts also include the elimination of inter-division net interest
    income of Financial Services.

5.  Net operating assets is calculated based upon total assets (excluding cash
    and equivalents, marketable securities, current loans receivable, taxes and
    deferred charges) less current liabilities (excluding borrowings, taxes,
    provisions and pension-related liabilities).

6.  The write-downs of goodwill and other intangibles of approximately
    $66 million disclosed in Note 12 are recorded in the Corporate/Other column.

7.  Includes certain specifically related asset write-downs, consistent with the
    basis on which the Company evaluates restructuring charges for internal
    management purposes. See Note 22.

GEOGRAPHIC INFORMATION



                                                           REVENUES               LONG-LIVED ASSETS
                                                ------------------------------   -------------------
                                                   YEAR ENDED DECEMBER 31,          DECEMBER 31,
                                                ------------------------------   -------------------
                                                  2001       2000       1999       2001       2000
                                                --------   --------   --------   --------   --------
                                                                             
Europe........................................  $12,780    $12,570    $13,893     $2,196     $2,403
The Americas..................................    5,944      5,702      5,675        467        485
Asia..........................................    2,686      2,770      2,763        271        281
Middle East and Africa........................    2,316      1,925      2,025         69         74
                                                -------    -------    -------     ------     ------
                                                $23,726    $22,967    $24,356     $3,003     $3,243
                                                =======    =======    =======     ======     ======


    Revenues have been reflected in the regions based on the location of the
customer. Long-lived assets primarily represent property, plant and equipment,
net, and are shown by the location of the assets.

    The Company does not segregate revenues derived from transactions with
external customers for each type or group of products and services. Accordingly,
it is not practicable for the Company to present revenues from external
customers by product and service type.

ADDITIONAL INFORMATION

    The balance sheet data appearing under the heading "ABB Ltd Consolidated" is
derived from the ABB Ltd consolidated balance sheets for December 31, 2001 and
2000. The balance sheet

                                      F-51

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 23 SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
data for "Financial Services" and "ABB Group" is reported on the same basis as
management uses to evaluate division performance, which includes the following
adjustments:

    - "Financial Services" represents the accounts of all subsidiaries in the
      Company's Financial Services division, with net intercompany balances and
      certain capital contributions received from other subsidiaries of the
      Company presented on a one-line basis.

    - "ABB Group" represents the accounts of ABB Ltd and all its subsidiaries
      other than those in the Company's Financial Services division, with net
      intercompany balances and the Company's investment in its Financial
      Services division presented on a one-line basis. For the purposes of this
      presentation, the Company's investment in its Financial Services division
      is accounted for under the equity method of accounting.



                                                            ABB LTD                                  ABB FINANCIAL
                                                         CONSOLIDATED            ABB GROUP             SERVICES
                                                      -------------------   -------------------   -------------------
                                                         DECEMBER 31,          DECEMBER 31,          DECEMBER 31,
                                                        2001       2000       2001       2000       2001       2000
                                                      --------   --------   --------   --------   --------   --------
                                                                                           
Cash, cash equivalents and marketable securities....  $ 5,713    $ 5,606    $ 1,667    $ 1,285    $ 4,046    $  4,321
Receivables, net....................................    8,368      8,328      5,810      6,652      2,558       1,676
Inventories, net....................................    3,075      3,192      3,074      3,192          1          --
Prepaid expenses and other..........................    2,358      1,585      1,169      1,067      1,189         518
                                                      -------    -------    -------    -------    -------    --------
Total current assets................................   19,514     18,711     11,720     12,196      7,794       6,515
Financing receivables, non-current..................    4,263      3,875        452        541      3,811       3,334
Property, plant and equipment, net..................    3,003      3,243      2,938      3,177         65          66
Goodwill and other intangible assets, net...........    3,299      3,155      3,217      3,067         82          88
Investments and other...............................    2,265      1,978      1,601      1,350        664         628
Net intercompany balances...........................       --         --         --         --      2,106       1,778
                                                      -------    -------    -------    -------    -------    --------
Total assets........................................  $32,344    $30,962    $19,928    $20,331    $14,522    $ 12,409
                                                      =======    =======    =======    =======    =======    ========
Accounts payable, trade.............................  $ 3,991    $ 3,375    $ 3,956    $ 3,347    $    35    $     28
Accounts payable, other.............................    2,710      2,363      1,641      1,512      1,069         851
Short-term borrowings and current maturities of
  long-term borrowings..............................    4,747      3,587        240        397      4,507       3,190
Accrued liabilities and other.......................    7,587      6,127      4,285      4,303      3,302       1,824
                                                      -------    -------    -------    -------    -------    --------
Total current liabilities...........................   19,035     15,452     10,122      9,559      8,913       5,893
Long-term borrowings................................    5,043      3,776      2,020        509      3,023       3,267
Pensions and other related benefits.................    1,688      1,790      1,681      1,783          7           7
Deferred taxes......................................    1,360      1,528        575        694        785         834
Other liabilities...................................    2,989      2,924      2,529      2,350        460         574
Net intercompany balances...........................       --         --        773         44         --          --
                                                      -------    -------    -------    -------    -------    --------
Total liabilities...................................   30,115     25,470     17,700     14,939     13,188      10,575
Minority interest...................................      215        321        214        221          1         100
Total stockholders' equity..........................    2,014      5,171      2,014      5,171      1,333       1,734
                                                      -------    -------    -------    -------    -------    --------
Total liabilities and stockholders' equity..........  $32,344    $30,962    $19,928    $20,331    $14,522    $ 12,409
                                                      =======    =======    =======    =======    =======    ========


                                      F-52

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 24 SUBSEQUENT EVENTS

BORROWINGS

    In March 2002, to ensure that it would satisfy commercial paper obligations
maturing during 2002, the Company drew down $2,845 million under the December
2001 syndicated $3 billion 364-day revolving credit facility, expiring December
19, 2002 (see Note 13). In response to a series of credit rating downgrades by
Standard & Poor's Rating Services and Moody's Investors Service in late 2001 and
early 2002, the Company amended the revolving credit facility in April 2002 to
remove terms that required negotiation of the credit facility if the Company's
credit ratings fell below specified levels. Pursuant to the amended terms, the
Company will pay interest ranging between 60 and 250 basis points over LIBOR on
amounts borrowed under the revolving credit facility and will pay a commitment
fee ranging between 0.18% and 0.75% on any unused portion of the credit
facility, depending on the Company's credit ratings. As of May 31, 2002, based
on the Company's credit ratings at that date, the interest rate in effect for
borrowings under the credit facility was LIBOR plus 125 basis points, or 3.15%,
and the commitment fee was 0.375%. The new terms of the revolving credit
facility contain restrictive covenants including, among others, minimum net
worth and interest coverage requirements as well as limitations to the Company's
indebtedness. The agreement also includes events of default, pursuant to which
the amount outstanding under the credit facility could be declared immediately
due and payable. These events of default include non-payment of interest,
principal or fees, certain uncured breaches of the credit agreement, cross
default to other indebtedness or other material adverse changes.

    In May 2002, the Company issued convertible unsubordinated bonds with an
aggregate principal amount of $968 million. The bonds pay interest semi-annually
in arrears at a fixed annual rate of 4.625% and are convertible into shares of
ABB at a conversion price of CHF 18.48 (converted into U.S. dollars at a fixed
conversion rate of 1.6216 Swiss francs per U.S. dollar). The conversion price is
subject to adjustment provisions to protect against dilution or change in
control of the Company. Based upon the conversion price in effect at issuance,
conversion of the bonds would enable the holders to receive an aggregate of
approximately 85 million shares of ABB. The bonds may be converted into ABB
shares at any time on or after June 26, 2002, up to and including May 2, 2007.
ABB may elect to deliver a cash payment in lieu of delivering some or all of the
shares otherwise deliverable on conversion. ABB may at any time after May 16,
2005 redeem the bonds for the principal amount plus accrued interest, provided
that on 20 days within a preceding 30 day period the Company's share price as
listed in Swiss francs on the virt-x exceeded 130% of the conversion price. ABB
can elect to redeem the bonds in cash, by delivery of shares or by a combination
of cash and shares. Aggregate proceeds from issuance of the bonds was
approximately $968 million, before commissions and other issue costs. The bonds
mature on May 16, 2007.

    In May 2002, the Company issued bonds with an aggregate principal amount of
L200 million, or approximately $292 million, which pay interest semi-annually in
arrears at 10% per annum and mature on May 29, 2009. Also in May 2002, the
Company issued bonds with an aggregate principal amount of E500 million, or
approximately $466 million, which pay interest annually in arrears at 9.5% per
annum and mature on January 15, 2008. The annual rate of interest on both of
these bonds will increase by 150 basis points if the Company's credit rating
decreases to a level below Baa3 by Moody's or below BBB- by Standards & Poor's.
As of May 31, 2002, the Company's credit

                                      F-53

                                    ABB LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

NOTE 24 SUBSEQUENT EVENTS (CONTINUED)
rating was Baa2 by Moody's and A by Standard & Poor's. Aggregate proceeds from
issuance of these bonds, before commissions and other issue costs, was
approximately $747 million.

    Pursuant to the terms of the Company's amended revolving credit facility,
the issuance of the convertible bonds, the euro-denominated bonds and the
sterling-denominated bonds reduced the amount available under the credit
facility to $1,315 million. As a result, on May 29, 2002, the Company utilized a
portion of the proceeds from these bond offerings to reduce its borrowings under
the credit facility to $1,315 million. Proceeds from future disposals of assets
or certain other offerings in the capital markets may further reduce the amount
available under the credit facility to a minimum of $1,000 million.

PENSION AND OTHER BENEFITS OF FORMER CHIEF EXECUTIVES

    In February 2002, the Company's board of directors completed a reassessment
of certain pension and other benefits of former chief executive officers Percy
Barnevik and Goran Lindahl. Mr. Barnevik received approximately CHF 148 million
(approximately $88 million) of pension benefits following his resignation as
chief executive officer in 1996 and Mr. Lindahl was to receive approximately CHF
85 million (approximately $51 million) of pension and other benefits following
his resignation as chief executive officer in 2000. The board's reassessment
followed a detailed review of these payments, and the board determined that
restitution should be sought of amounts paid and amounts still payable should be
withheld. In March 2002, the Company reached agreements with Mr. Barnevik who
agreed to return CHF 90 million (approximately $54 million) to the Company and
with Mr. Lindahl who agreed that his pension and other benefits would be reduced
by CHF 47 million (approximately $28 million). These amounts will be recorded in
the Company's earnings during the year ended December 31, 2002 and were
determined through actuarial calculations, external benchmarking of European
chief executive officer compensation and negotiations. In this paragraph,
amounts in Swiss francs have been translated into U.S. dollars at a rate of
$1.00=CHF 1.6743, the average of the noon buying rates for Swiss francs in
March 2002.

SEGMENT DATA

    In April 2002, the Company announced its intention to divest the Building
Systems business area and to combine the other three business areas in the
Manufacturing and Consumer Industries division with the Process Industries
division in a newly created Industries division. The Company is currently in the
process of implementing this realignment and will begin reporting financial
results in accordance with this new structure in 2002.

                                      F-54

          INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

The Board of Directors and Stockholders of ABB Ltd:

We have audited the consolidated financial statements of ABB Ltd as of
December 31, 2001, and for the year then ended, and have issued our report
thereon dated February 11, 2002, except as to Note 24, as to which the date is
May 31, 2002 (included elsewhere in this annual report on Form 20-F). Our audit
also included the financial statement schedule included in the annual report.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.


                                                      
                                                       /s/ ERNST & YOUNG AG


Zurich, Switzerland
May 31, 2002

                                      S-1

          INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

The Board of Directors and Stockholders of ABB Ltd:

We have audited the consolidated financial statements of ABB Ltd as of
December 31, 2000, and for each of the two years in the period ended
December 31, 2000, and have issued our report thereon dated February 11, 2001
(included elsewhere in this annual report on Form 20-F). Our audits also
included the financial statement schedule included in the annual report. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.


                                             
/s/  KPMG KLYNVELD PEAT                          /s/  ERNST & YOUNG AG
     MARWICK GOERDELER SA

Zurich, Switzerland                              Zurich, Switzerland
February 11, 2001                                February 11, 2001


                                      S-2

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS



                                             BALANCE AT THE                              BALANCE AT THE
DESCRIPTION                                 BEGINNING OF YEAR   ADDITIONS   DEDUCTIONS    END OF YEAR
-----------                                 -----------------   ---------   ----------   --------------
                                                                             
Accounts Receivable--allowance for
  doubtful accounts:

Year ending December 31,
  2001....................................        $234            $113        $ (89)          $258
  2000....................................        $236            $107        $(109)          $234
  1999....................................        $218            $ 99        $ (81)          $236


------------------------

Note:  Amounts in millions.

                                      S-3