ABB US Unit's Asbestos Claims May Exceed Total Assets ----------------------------------------------------- Published October 25, 2002 The US asbestos crisis looked to have claimed another victim on Monday as ABB, the Swiss-Swedish engineering giant, warned that mounting compensation payments could force its American subsidiary to seek bankruptcy protection. Combustion Engineering, a Connecticut boilermaker bought by ABB in 1990, has seen costs soar to more than $1bn as thousands of healthy victims have flooded US courts with claims for illnesses that may result from asbestos exposure. On Monday, ABB issued a group profits warning and threatened to seek Chapter 11 protection for the US arm after admitting that future asbestos liabilities were now greater than CE's total assets. The reduction in ABB's profit forecasts was also blamed on a deteriorating trading performance elsewhere in the group, but this was expected by analysts whereas the asbestos problems have recently been played down by the company. Only last month, ABB said it was satisfied with provisions for liabilities at CE, which it estimated at $470 million. On Monday, ABB said it was impossible to estimate exposure but said the total liabilities exceeded CE's book value of $812 million. Earlier this month, ABB revealed it had settled out of court for a large compensation case in West Virginia after failing to convince the US Supreme Court to block the trial. The threat of bankruptcy appears to be a direct response to this continued failure to find any political or judicial solution to the asbestos crisis and ABB hopes the tactic will ultimately reduce the parent group's liability. "It is ABB's position that CE's asbestos-related liability can only be asserted against CE," said Jurgen Dormann, ABB chairman and chief executive. "Some claimants have named other entities in connection with claims against CE, including ABB Inc and ABB Ltd, but there has been no adjudication that any other entity within the ABB group has liability for claims against CE." Nevertheless, similar tactics by other afflicted groups have failed to prevent claims spreading to the parent group. ABB employs 14,000 staff in the US. The group promised more guidance on profitability next month. The general warning, reducing the earnings outlook as a result of lingering market weakness and slower benefits from cost reductions, follows a profits warning in July 2001. Until Monday, ABB had hoped for flat revenues this year and a margin on earnings before interest and tax of between 4 and 5 per cent. ----------------------------------------------------------- LitigationDataSource.com