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Saab Annual Report 2010
 

Saab Annual Report 2010

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Saab Annual Report 2010

Saab Annual Report 2010

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    Saab Annual Report 2010 Saab Annual Report 2010 Document Transcript

    • ANNUAL REPORT 2010SECURITY IN A CHANGING WORLD
    • CONTENTS THIS IS SAABChanging conditions for the defence industry 2 Saab serves the global market with world-leading solutions,Market dimensions 4The CEO and Chairman in a conversation 6 products and services ranging from military defence to civilBusiness concept, vision and mission 9 security. With operations and employees on every continent,Driving forces and trends in the market 10 Saab continuously develops, adapts and improves new tech-Long-term goals 12 nology to meet customers’ changing needs. Its most importantGoal attainment in 2010 13Saab’s starting position 14 markets are Europe, South Africa, Australia and North America.Employees 15Profitable growth 16 Saab has around 12,500 employees. Annual sales amount toMore efficient operations 18 around SEK 24 billion, of which about 20 per cent is related toFocused portfolio 20 research and development.Product development 22Saab’s core competence 24 Saab’s operations are divided into five business areas: Aero-Market segments 26 nautics, Dynamics, Electronic Defence Systems, Security andMarkets by region 28 Defence Solutions, and Support and Services.Financial review 2010 32Business areas 34Sustainability at Saab 44Risks and risk management 56Financial statements 60Notes 72Corporate governance report 126The Saab share 138Financial information 2011 and contact details 144While every care has been taken in the translation of this annual report,readers are reminded that the original annual report, signed by theBoard of Directors, is in Swedish.ORGANISATION CEO, EVPS & COO MARKET- GROUP STAFFS ORGANISATION Shared Marketing & Business functions Development Aeronautics Dynamics Electronic Security and Support and Combitech* Defence Defence Services Systems Solutions * Combitech is reported as part of Corporate. STRATEGIC PRIORITIES Profitable growth Evaluate current positioning and identify growth opportunities. PERFORMANCE Performance PROFITABLE PORTFOLIO GROWTH Work with efficiencies and continuous improvements. Focused portfolio Adapt the portfolio to areas with strong competitive advantages and growth opportunities. People PEOPLE To be an employer of choice in the global market. Our employees are the backbone of our offering and our growth.
    • A HISTORY OF ADVANCED TECHNOLOGY AND INNOVATION1941 1948 1979 1990 1993 2002 2005 2006 2008First B17 delivered Tunnan – first flight First order – RBS 15 First laser simulator BT46 First Gripen delivered First contract NLAW Contract for Neuron Saab 2000™ AEW&C First flight for Gripen Demo Saab Automobile Saab acquires Saab acquires Saab acquires • 1937 Saab is founded • 1990 independent company • 2000 Celsius • 2005 Grintek • 2006 Ericsson Mircowave Radar (EMW) 1646 1894 1948 1998 1950– 1970– 1980– 1990– Bofors Järnbruk is founded Alfred Nobel acquires Bofors First order for Carl Gustaf StriC in operation Development of fighter radar Development of GIRAFFE Development of ARTHUR Sea Giraffe AMB is launched Sweden: 38% of sales (31) Number of employees: 10,372 (10,916) Rest of Europe: 21% of sales (24) Number of employees: 432 (408) Africa: 12% of sales (14) Number of employees: 1,141 (1,171) Asia: 15% of sales (19) Number of employees: 31 (14) Americas: 9% of sales (8) Number of employees: 211 (272) Australia and other countries: 5% of sales (4) Number of employees: 349 (378)
    • SAAB 2010IMPORTANT EVENTS IN 2010• In March, Saab received an order from the Swedish Defence Key financial ratios (MSEK) 2010 2009 Materiel Administration (FMV) for the development of the exist- Sales 24,434 24,647 ing Gripen fleet. The order value amounted to SEK 2 billion, split EBITDA 2,187 2,598 over four years. EBITDA margin, % 9.0 10.5• During the second quarter, the Board of Directors received Operating income 975 1,374 requests from shareholders to convert 3,347,180 Series A shares in Operating margin, % 4.0 5.6 Saab AB to Series B shares. As a result of the conversion, the total Adjusted operating margin, % 6.5 5.4 number of votes in the company was reduced from 156,439,071 to Non-recurring items -602 50 126,314,451. The total number of registered shares in Saab AB is Income after financial items 776 976 109,150,344, of which 1,907,123 are Series A shares and 107,243,221 Net income 454 699 are Series B shares. Earnings per share, SEK (after dilution) 3.97 6.28• The contract between Saab and OKG Aktiebolag on the delivery Dividend per share, SEK 3.501) 2.25 of perimeter security for the Oskarshamn nuclear power plant Return on equity, % 4.1 7.0 was terminated during the first half-year. Saab’s income was Equity/assets ratio, % 39.1 35.1 charged with MSEK 290 in costs related to the contract.• In September, Håkan Buskhe took office as the new President and Order bookings Order backlog at year-end 26,278 41,459 18,428 39,389 CEO of Saab. He was previously President of E.ON Sweden and CEO of E.ON Nordic. The previous President and CEO, Åke Total research and development (R&D) expenditures 5,008 4,820 Svensson, remains a member of Saab’s Board of Directors.• In October, Saab received an order for an airborne surveillance Internally financed R&D No. of employees at year-end 1,203 12,536 1,194 13,159 system worth more than SEK 4.5 billion. The order comprises the delivery of the Saab 2000 AEW&C (Airborne Early Warning & Share of women, % 22.0 22.4 Control) system, which comprises a Saab 2000 aircraft equipped Academic degree, % 51.4 48.5 with the advanced ERIEYE radar system. The order also includes Sick leave2), % 2.1 2.3 ground equipment, logistics and support services. 1) Proposal by Board of Directors 2) Saab in Sweden• As a part of a long-term strategic adjustment to changing market conditions, Saab decided in November to reorganise the opera- OUTLOOK 2011 tions of the Dynamics business area. Notice was served to more than 200 employees. Moreover, efficiency improvements were In 2011, we estimate that sales will decline slightly compared to 2010. launched in the Electronic Defence Systems business area and in We expect the operating margin to increase slightly in 2011 compared to the Corporate functions. Costs of MSEK 519 related to these meas- adjusted operating margin in 2010. ures were charged against operating income in the fourth quarter 2010. The measures are expected to positively affect operating income by about MSEK 200 on an annual basis with a full effect from 2012.• At the end of the year, Saab received an order from FMV for six Gripen aircraft intended for the Royal Thai Air Force. The order is worth about SEK 2.2 billion.SAAB B, 1 JANUARY 2006-31 DECEMBER 2010 EARNINGS AND DIVIDEND PER SHARE, SEK250 20200 15150 10 8,000100 6,000 5 4,000 0 2,000 50 -5 2006 2007 2008 2009 2010 2006 2007 2008 2009 20101) 1) Proposal by Board of Directors Series B share OMX Stockholm_PI, SEK Earnings after dilution Thousands of shares traded, incl. off-floor trading Dividend per share
    • OUTLOOKCHANGING CONDITIONS FORTHE DEFENCE AND SECURITYINDUSTRYThe long-term geopolitical trend toward supranational A world of alliances requires intergrationstructures where governments work together and a In terms of security policy, these changes have essentially made indi-security doctrine based on common interests and re- vidual governments less autonomous and increasingly forced them to collaborate strategically and operationally. This has major impli-sponsibilities are fundamentally changing conditions for cations for the defence industry in terms of both where developmentthe defence industry. Financially strapped governments work is focused and how it is financed. Unique, solitary weapon sys-and growing civil security needs favour flexible, cost- tems are becoming less relevant in a world of alliances that demandseffective enterprises like Saab. integration and coordination. Global defence contractors cannot expect to fund their develop-In the last 50 years, the world order and political system have incor- ment to the same extent with defence appropriations from individ-porated greater diversity and larger network structures and seen a ual governments and instead will have to finance more of the workshift in power and initiative to new players. International alliances – on their own or through international collaborations. To participatepolitical, economic and military – increasingly focus on protecting in international projects, it is vital to have cutting-edge world-classcommon interests and the functions in a global flow-based society, technology, making this one of the defence industry’s biggest chal-that we are all dependent on. Multilateral civil and military coalitions lenges. This requires a well-focused portfolio and a large externalare becoming more common – within, outside and between the network. No one can be the best at everything.major political, economic and military blocs. To a growing degree, welive by a security doctrine where common interests outweigh individ- Need for cost-effective solutionsual interests and where we share responsibility for defending these In the former Western world, financial struggles are forcing manyinterests. Globalisation and economic integration are generally lead- countries to slash their defence spending and be more efficient ining to a shift in political power and economic resources from the their purchases. This is reinforcing the current trend of buying fullynational level upward to the supranational and downward to the local developed, proven weapon systems with documented performance,level. Far-reaching economic alliances between countries, major cit- which others also use and can be incorporated into larger co-ordi-ies, NGOs and transnational companies today are considered impor- nated efforts. For the defence industry, this makes it necessary thattant actors in the international political system. new programmes are commercially viable in multiple markets, Technological developments are also creating change, and not which in turn requires open markets with fair competition. Theonly in traditional armed conflicts where information and commu- defence market is the only one in the EU that has not fully adoptednication systems have long been of critical importance. To a growing the Treaty of Rome’s principle of free movement of goods, services,extent, information and information systems are becoming weapons capital and people, although progress is steadily being made. Eco-and targets. The digitalisation of our world is creating new conflict nomic development is also driving this trend in the right direction.zones and patterns that go beyond traditional antagonists. Conflicts Complex, advanced defence systems are also becoming morecan arise between nations and companies, as was the case between expensive to develop. Even the US, which has by far the world’s larg-China and Google in early 2010, or between nations and organisa- est defence budget, has recently announced that it may mothball ations, which happened at the end of the year between the US and number of costly weapons projects and instead utilise existing tech-WikiLeaks. In both cases, the conflict revolved around transparency nologies and systems to cut spending. It will buy more proven prod-and the extent to which it benefits common interests. Both cases also ucts and systems and may consider dealing more with internationalillustrate how technology is erasing traditional borders. suppliers if they offer better value for money.2 SAAB ANNUAL REPORT 2010
    • OUTLOOKToday we have to be able to protect national borders as well as global and regional trade as well as securing functions in the society and flows of people,goods, services, information and capital.A growing number of countries and international alliances simply KFOR) and the African Union (Darfur and Somalia). The EU alsowant more bang for the buck. The demand for co-ordination and maintains two battle groups, ready to deploy to crises anywhere incost effectiveness favours flexible, cost-effective industrial compa- the world. During the first half of 2011, the Nordic Battle Groupnies like Saab. The same applies to the expanding security needs of (NBG) is one of them. Under Swedish leadership, 2,000 troops fromcivil society. The gray zone between civil and military security is also Sweden, Finland, Norway, Estonia and Ireland will be available togrowing as “inside” threats in the form of terrorism and sabotage as the EU on short notice for everything from humanitarian actions towell as overloaded critical systems become more apparent and more military offenses. The Nordic defence forces also have a stated aim toreal than traditional “outside” threats. collaborate more as part of the Nordic Defence Co-operation. In January 2011, the Swedish defence had a total of 673 troops (againstInternational joint forces given a broad mandate 735 at year-end 2009) in international joint forces, of which KFORThe shift toward net-centric defence and international joint forces (Kosovo) and ISAF (Afghanistan) were clearly the largest.is best achieved when emergency preparedness is co-ordinated Defence and protection of joint forces – military, police and civilthrough as broad an international mandate as possible. Preparedness – has become an important new development area and market seg-applies to a variety of emergencies: threats to the economy and the ment in the defence industry.hubs it is based on, but also threats to public health, the environment In the final analysis, it is a question of developing and supportingand our common values. Joint efforts require not only that the sys- the ever-present and ever-important mission of protecting peopletems used can be co-ordinated, but also controlled centrally. and society from various threats and risks. This has been Saab’s mis- The UN currently has 17 peacekeeping missions around the sion since it was founded nearly 75 years ago.world, including those led by regional players such as the EU (Chad,Congo, Bosnia, Herzegovina, and Macedonia), NATO (ISAF and SAAB ANNUAL REPORT 2010 3
    • MARKET DIMENSIONSMARKET DIMENSIONSUnderstanding the development of, and overlap between, points such as ports, airports, train stations, banks, computer serv-the two main dimensions of security policy is essential to ers, distribution centres and loading terminals are centered.understanding the opportunities, breadth and potential in Cities cannot be allowed to become too vulnerable to disruptions and breakdowns caused, for example, by insufficient capacity andSaab’s market. maintenance of critical systems, natural disasters, criminality, sabo-The purpose of traditional security policy is to maintain national tage or terror. Urban security, efficiency and sustainability are vital tosovereignty by defending borders, a market Saab is well-positioned society’s functionality. The three operating areas unify and constitutein. The purpose of the new dimension, which stresses the vulnerabil- the lowest common denominator between the two security dimensions.ity of civil society, is to safeguard society’s essential functions by pro- The areas of training, command and control, and maintenancetecting critical flows and infrastructure. are shown as “links” between the circles in the schematic figure The two market dimensions face different conditions and work in below. For Saab, the links originate in a traditional border-protectingdifferent ways. military context, where Saab has proven its innovative capabilities. The first market is dominated by national governments and mili- But they are just as relevant and applicable in an urban-centeredtary organisations, while the second is dominated by cities, compa- flow-protecting context. Aeronautics and defence as well as urbannies, organisations and individuals. Cities are the most flow-inten- development and security fit well together, and Saab’s experiencesive locations on the planet, and it is there that key infrastructure working with complex systems is a big advantage in both markets.4 SAAB ANNUAL REPORT 2010
    • The new market structure – macro development leads to a broad security concept DEFENDING TERRITORY There are three lowest common denominators between the two security concepts. This creates momentum between markets and technology . TRAINING C4I SUPPORT & SERVICES SECURING FUNCTIONS IN THE SOCIETY SAAB ANNUAL REPORT 2010 5
    • THE CEO AND CHAIRMAN IN A CONVERSATIONConversation between Chairman Marcus Wallenberg (MW) and CEO Håkan Buskhe (HB).ADVANTAGES UNDER NEWCOMPETITIVE CONDITIONSThe conditions Saab faces in its operations continue to HB: A growing number of customers in the defence market want tochange, as they do for other defence companies. Fiscal buy the best solutions available regardless of the country of origin. Smaller national budgets mean that more companies that previouslychallenges are forcing many governments to cut their de- relied on the defence authorities in their homelands now have to gofence spending. At the same time, international defence out and compete in the international market. This requires, however,alliances and civil security needs are increasing. Chair- that their defence systems can be integrated into larger systems andman Marcus Wallenberg and CEO Håkan Buskhe work in international alliances. This is leading to tougher competi-discuss what this means for Saab. tion and changing the competitive landscape. MW: At the same time that we are seeing greater competition, thereMW: The global economy improved in many respects in 2010, but is a risk of protectionism when governments have to explain to theirthere are still major structural problems that directly and indirectly citizens how their tax money is being spent. This is one of the bigaffect Saab’s ability to conduct business. Many countries in the West, unresolved questions.especially in Europe, have large debts and fiscal deficits, which is HB: The overarching, long-term change that is affecting Saab’sincreasingly affecting how they think strategically about their opportunities internationally is the growing importance of emergingdefence investments. In an effort to get their budget deficits under economies. Traditionally we have focused on the West, but defencecontrol, it is inevitable that more nations will start to reassess their spending there is shrinking. We are therefore turning to countriesdefence budgets. such as India and Brazil, where budgets are expected to increase.HB: One current trend that is becoming more prevalent is the coor- MW: To a growing extent, the global economy is being driven bydination of defence resources between countries and political alli- demand from emerging economies, which is leading to more com-ances in order to maintain capabilities at the same level without petition for natural assets from a global perspective. This is creatingincreasing costs. In Europe, the extensive military alliance entered new conflicts of interest and of course affects defence needs as well.into by the UK and France in 2010 and the Nordic cooperation pre- HB: The world’s oceans are playing a greater strategic role in main-viously established through NORDEFCO are examples of collabora- taining production, trade and demand from growing populations.tive initiatives. This has changed threat scenarios and placed more emphasis onMW: Shrinking investments are forcing countries to buy cost- maritime security.effective solutions that offer value for the money – in this case, MW: Global security conditions have become more complex, espe-defence capabilities. cially considering developments in North Africa and the Middle6 SAAB ANNUAL REPORT 2010
    • THE CEO AND CHAIRMAN IN A CONVERSATIONMarcus Wallenberg, Chairman of the Board, and Håkan Buskhe, President and CEO.East. It is easy to forget that both are key regionsnot only to the world’s energy supplies but also to “From an historical perspective, Saabglobal trade. The Suez Canal remains the world’s has been an innovation powerhouse formost important trade route, carrying around tenper cent of seaborne trade. Developments in these advanced Swedish technology, and it isregions are critical to the global economy goingforward. High oil prices may drive inflation, important that this capacity remains inwhich in turn is raising interest rates. Serious dis- place – for both Saab and Sweden.”ruptions to energy supplies and global trade couldlead to new crises. MW: Our aim is to significantly strengthen our international marketHB: It is clear that we live in a globalized world. As security condi- coverage during the next five-year period and gain a leading positiontions change, our customers’ needs change as well. Consequently, we in terms of how customers feel about our local connection and presence.have to strengthen our local and regional presence and continue the HB: Growth may be supported by acquisitions. Increased competi-international expansion. tion is leading to consolidation pressures, and we may take an activeMW: We have a goal of five per cent organic growth per year from role in this process if the right opportunities arise. Our portfolio2011, and this means that Saab will grow primarily outside Sweden. strategy and strong balance sheet give us enough room for selectedWhile we anticipate a larger share of our growth opportunities in acquisitions in the years ahead. They will strengthen our core offer-developing regions such as India, Asia and South America, we also ings and international presence. We acquire basically sound unitsbelieve that we can gain market share in the West thanks to our com- that can improve our market position and will eventually contributepetitive offerings. to organic growth.HB: One of our main strategic priorities is to organise marketing MW: To maintain such investments, Saab must increase its profitability.and sales regionally and locally. We have been operating in the US HB: Saab’s strategy has been carefully reviewed and lies firm. Sincefor many years. Saab is currently one of the twenty-five largest defence September we have defined the main features in order to concentrateand security companies in the world, and probably one of the three or on implementation. It is important to keep momentum going andfour top in terms of international market coverage. We have sales in drive and implement on our strategy. We will create profitablearound 90 countries and our own presence in around 30. growth through a focused portfolio and by implementing efficien- SAAB ANNUAL REPORT 2010 7
    • THE CEO AND CHAIRMAN IN A CONVERSATION“ We have lived with cost constraints for some time, and today it isn’t only the performance of our products that is world class. Few, if any, our of competitors can beat us in terms of cost effectiveness.”cies at every level with committed, qualified employees. We have to since the Berlin wall fell. Today many of our competitors find them-create a culture of execution, where we trust each other. This requires selves in a situation where their countries are spending less ona common vision of where we are going and an understanding of defence, and they have to compete internationally more than before.what we have to do. This gives us a head start in terms of both presence and efficiency.MW: Focusing is critical, since it is so hard to get an overview of this We have lived with cost constraints for some time, and today it isn’tcomplex industry. only the performance of our products that is world class. Few, if any, of our competitors can beat us in terms of cost effectiveness.HB: We are clearly focused on the regions and selected marketswhere we want to expand our local presence. In addition, we are MW: Gripen is a good example of this. In addition to its operatingworking continuously to develop our portfolio in a way that capabilities, which are just as good as if not better than the competi-strengthens areas where we have leading technology and invest in tion, we are far more cost-effective throughout the supply chain: innew areas that we feel can improve our offerings and core competen- development, production, delivery and operations. This is morecies. Our systems know-how is unique, and the ability of our obvious from a lifecycle perspective.employees to integrate solutions is our core competency. This can HB: The implementation of our efficiency programme – the Billion+never be compromised. On the contrary, we have to keep our cutting programme – has led to further improvements, and underlying prof-edge, which we can do by always listening to and working with cus- itability continued to rise in 2010. We will not lose our focus on con-tomers to create value for them and, by extension, for our sharehold- tinuous efficiency. This will be decisive to compete going forward.ers and our own organisation. We must constantly increase efficiencies in our core business.MW: Saab is a pioneer in many respects. From an historical perspec- MW: This strong focus on efficiencies has improved our underlyingtive, it has been an innovation powerhouse for advanced Swedish profitability and generated very strong cash flow. As we look ahead,technology, and it is important that this capacity remains in place – we have to keep our eye on market developments – at the same timefor both Saab and Sweden. Many innovations generated here have that delivering on our financial objectives and Saab’s strategic priori-later been further developed outside Saab and today employ tens ties is crucial in order to remain competitive.of thousands of people. It is important to keep this in mind when HB: Our core competence is the ability to integrate our own andlooking at Saab from an overarching perspective. others’ systems and components in complex, cost-effective solutions.HB: Innovation means not only coming up with new ideas but This drives Saab’s employees every day. I look forward to workingapplying them in practice. Our strength is that we have both techni- together to improve our competitive strength in 2011 and deliver oncal and social capabilities. Social systems and co-operation between the goals we have set.different cultures are extremely important and contribute toimproved efficiency. Personal relationships are an important part insucceeding with complex development projects.MW: This is especially true of international industrial alliances, whichare critical in order to deliver on large, complex systems orders in thebest way, and then get them to work on an operating level. To a largeextent it involves co-operation and social engineering.HB: We started going international many years ago, when we real- Marcus Wallenberg Håkan Buskheized that our growth opportunities were outside Sweden, especially Chairman President and CEO8 SAAB ANNUAL REPORT 2010
    • SAAB’S MISSIONOUR MISSION ESSENTIALLYIS TO PROVIDE SECURITYThe demand for security on the part of people, society and companies is the ultimate drivingforce in our business.Security needs and threat scenarios have changed in significant respects as our globalsociety develops new structures and trade patterns. Our business concept Saab constantly develops, adopts and improves new technology to meet changing customer needs. Saab serves the global market of governments, authorities and corporations with prod- ucts, services and solutions ranging from military defence to civil security. Our vision It is a human right to feel safe. Since Saab was started, we have strived to keep society and people safe. It is a basic human need to feel safe and, as we see it, a human right. Through systems and solutions that increase security, we can make this possible. Our mission To make people safe by pushing intellectual and technological boundaries. Our mission describes how we work to achieve our vision. By improving and updating technolog- ical systems and solutions, we increase security in society, for its citizens and for those whose job it is to maintain security. We also contribute insight into how threats to our security change and develop innovative new solutions that make society secure. SAAB ANNUAL REPORT 2010 9
    • DRIVING FORCES AND TRENDSDRIVING FORCES AND TRENDSIN THE MARKETThreat scenarios and changing security needs, more than The civil market is directly dependent on the economy. Fluctuationsanything else, are driving development in Saab’s markets. in the economy affect the size of trade volumes and the overall flowThis applies to the defence sector and civil society, as well of goods, people, capital and data around the world – as well as the need for security. The civil aviation market is highly dependent onas the growing gray zone between them. the economy, but also extremely sensitive to security threats.Macroeconomic factors and geopolitical developments ultimately DEFENCE SPENDING 2009create the framework for Saab’s business. The defence market tradi- Defencetionally has little co-variation with the global economy. Instead, spendingpolitical developments are the decisive factor globally, regionally and Rank Country (USD billion) Global share (%)locally. Fiscal constraints are obviously affecting defence spending, 1 USA 661.0 43.2however. 2 China 100.0 1) 6.5 1) A new economic world order is taking shape in which the BRIC 3 France 63.9 4.2countries (Brazil, Russia, India and China) in particular are gaining 4 UK 58.3 3.8strength. This has not been reflected to a great extent in the distribu- 5 Russia 53.3 1) 3.5 1)tion of defence spending in recent years. In 2009, total defence 6 Japan 51.0 3.3spending increased the most in Asia and the Pacific Rim. Neverthe- 7 Germany 45.6 3.0less, the US still accounted for the largest share (43 per cent) of the 8 Saudi Arabia 2) 41.3 2.7global total defence spending in 2009. On the other hand, there is 9 India 36.3 2.4 10 Italy 35.8 2.3expected to be a shift going forward from traditional to emerging 11 Brazil 26.1 1.7markets in terms of total global expenditures, although this will level 12 South Korea 24.1 1.6off in the long term, according to SIPRI. 13 Canada 19.2 1.3 Growing imbalances in international trade are creating complex 14 Australia 19.0 1.2new dependencies and conflicts. At the same time, the long-term trend 15 Spain 18.3 1.2is toward stronger alliances for peacekeeping and economic develop- 16 Others 277.8 18.1ment purposes, which is increasing security-oriented demand. Joint Total 1,531.0 100.0commitments to keep conflict zones under control are having a similar Defence spending at constant prices and exchange rates Source: SIPRI Yearbook 2010effect. Many of the world’s conflicts have lasted for long periods. A large 1) Estimates. 2) Figures for Saudi Arabia include costs for civil security..percentage of all armed activities is in these regions, as are preparationsfor armed conflict by both regional and international players. The US has retained its role as a geopolitical leader and its impact Supranational initiatives by the UN, the EU and the African Unionon the global security arena. Ideologies have declined in importance (AU), among others, and other political alliances steer and govern aas a driver of global conflict scenarios, while religious fundamental- large part of the defence and security-oriented civil market. Climateism has grown. change is an area where the EU has taken important initiatives. The EU- As the world’s population continues to grow along with demand for financed research project Clean Sky, which is designed to promotea higher standard of living, global competition for commodities and greener air transports, and SESAR, whose purpose is to modernise traf-resources, especially fossil fuels, could become an increasingly impor- fic in the European airspace and reduce its environmental impact, aretant driver of conflicts (see, e.g., “A Strong Britain in an Age of Uncer- two examples. A number of initiatives have also been launched at thetainty: The National Security Strategy”, October 2010). In the long run, nation state level within the EU. In November 2010, France and Englandaccess to food and fresh water could also potentially lead to conflicts. signed an ambitious defence and security treaty, which entails a far-10 SAAB ANNUAL REPORT 2010
    • reaching defence co-operation. Sweden and Germany have launched a defence business is also limited by export restrictions in a numberjoint initiative to distinguish between defence areas which should of markets.remain strictly national within the EU and areas where alliances and Public opinion influences security policy in Sweden and many othershared resources can increase the efficacy and cost-effectiveness of the countries. Sweden’s participation in peacekeeping missions has receivedEuropean civil and military defence. greater attention due to the deaths of a number of Swedish soldiers in Nation state activity on a governmental level also has a major 2010. Terrorist activities in Sweden have also raised awareness abouteffect on the volume of defence business, especially for large strategic civil security. Another aspect that has impacted security policy in recentsystems such as fighter jets. At the same time, the trend in the tactical years is that public acceptance of civil security measures has come intoarea is toward increased commercialisation, including the further conflict with the need to protect personal privacy.development of proven products and systems. In Saab’s case, its MEGATRENDS – A WORLD IN CHANGENew security needs in a transaction society country of origin and want it delivered on short notice. As a result, a largerThe development of a global transaction society requires the protection of share of research and development must be self-financed by the defence in-critical flows and hubs. The latter include major facilities and systems: air- dustry. This is a worldwide trend.ports, harbours, railways, highways and energy systems. The focus is on Need for broad, deep, long-term solutionsfunctionality, efficiency and security, which requires advanced monitoring of Customers in both the military and civil markets increasingly want broad-operations and external threats. based, integrated solutions with more service content. The trend is shiftingNew forms of co-operation toward full operational and functional commitments covering the entire life-Continued global integration and new international structures have led to cycle, where solutions are evaluated not only based on performance but alsomore cross-border and supranational (UN, EU, etc.) co-operation with a shift in terms of the cost to own and operate. Outsourcing of activities that hadtoward net-centric defence and international joint forces. Civil and military previously been performed internally is becoming increasingly common,alliances are becoming more common – within, outside and between the in-cluding in the military field. This also increases demand for education,major political, economic and military blocs – and require open systems and training, support and maintenance.coordination, where a larger share of development work is done collabora- Local presence is decisivetively. At the same time, it is becoming more common that large develop- Despite the trend toward international alliances, the need for a strong localment projects are conducted as part of public-private partnerships. presence is crucial to success in both the military and civil markets. Custom-Higher percentage of self-financed R&D ers want integrated solutions from companies that understand local condi-The increase in international alliances and system coordination at the same tions. This significantly increases opportunities to be selected as a suppliertime means that the defence industry can expect to finance less of its devel- and, no less importantly, have a portion of their development financed throughopment work through national defence budgets. Defence authorities in- defence appropriations or gain access to local product development.creasingly want access to the best the market has to offer regardless of SAAB ANNUAL REPORT 2010 11
    • SAAB’S LONG-TERM GOALSLONG-TERM STRATEGIC ANDFINANCIAL GOALSSaab’s strategy is focused on four Portfolioareas: profitable growth, efficient oper- To achieve our growth target, we have to invest partly in productations, a focused portfolio and our peo- innovation and partly in renewal and upgrades of existing products PERFORMANCE PROFITABLE PORTFOLIO and systems. Investments in the portfolio will be prioritised in areas GROWTHple. We create long-term value by where we already have competitive technology and/or a competitiveworking to accomplish our strategic market position and our aim is to strengthen or retain our uniquepriorities, delivering sales growth and systems expertise. PEOPLEprofitability, and maintaining a solid bal-ance sheet. Our focus on capital efficiency and generat- Peopleing strong cash flow also contribute to this. Our employees are the foundation that enables us to implement our strategy and achieve our strategic and financial goals. Our market is changing, and successful changes require confidence in the future.LONG-TERM STRATEGIC GOALS We want to be an employer of choice for current and future employ-In 2010, an analysis was made of Saab’s long-term goals. In light of ees who seek development opportunities and continuous change.the strategic priorities, the long-term financial goals communicatedexternally were revised slightly. LONG-TERM FINANCIAL GOALS The long-term financial goals now consist of goals for organic Growthsales growth, operating margin after depreciation and amortisation Over a business cycle, our organic sales growth will average 5 per(EBIT) and the equity/assets ratio. cent per year. The previous targets for the operating margin before depreciation/ It is possible that growth will also be achieved through acquisi-amortisation (EBITDA) and return on equity will not be reported as tions if value-creating opportunities arise within our priority areasof 2011. in the years ahead.Profitable growth Operating marginIn order to achieve our long-term sales growth goal, we will stay The operating margin after depreciation/amortisation (EBIT) will befocused in coming years on markets where we are already estab- at least 10 per cent.lished: the Nordic region, many European countries, South Africaand Australia. In addition, we will establish a stronger local presence Equity/asset ratioin selected markets such as North America, the UK, South America The equity/assets ratio shall exceed 30 per cent.(Brazil) and Asia (Thailand and India). Dividend policyPerformance Saab’s long-term dividend objective is to distribute 20–40 per cent ofOur efficiency improvement program was successfully finalised in net income over a business cycle to shareholders.2010. We have now reduced Saab’s cost base by SEK 1.5 billion overa three-year period. The market is constantly changing, whichrequires that we keep up with developments and in many cases thatwe stay on the forefront of change. This is why we continue toimprove efficiencies in operations, focus on capital efficiency andgenerate strong cash flow.12 SAAB ANNUAL REPORT 2010
    • SAAB’S PERFORMANCEATTAINMENT OF LONG-TERMSTRATEGIC AND FINANCIALGOALS FOR 2010Despite a continued challenging business environment, Peopleour order bookings increased in 2010 and the order back- In 2010, we worked on harmonising overarching HR processes inlog grew. Underlying profitability improved throughout the order to better address business-critical HR-related issues. We have also focused on our change process with the goal of strengtheningyear, we improved the level of capital employed and gener- the communicative leadership abilities of our managers. In 2010, 22ated strong cash flow. In addition, measures were taken to per cent (22) of employees in the organisation were women, and therestructure operations and improve efficiencies as an ele- share of female managers is 19 per cent (17). Saab was named Swe-ment in a long-term strategic adjustment to changing mar- den’s best workplace during the year by the business magazine Veck-ket conditions. ans Affärer, which made gender equality an important part of its evaluation.STRATEGIC PRIORITIESProfitable growth LONG-TERM FINANCIAL GOAL PERFORMANCE IN 2010In 2010, we received major orders for both the Gripen system and Growthairborne surveillance systems, which consolidated our strong posi- Goal: This goal was previously the same as in the new long-term goaltion in the area. We also took measures to strengthen our local pres- formulation. Our organic sales growth will average 5 per cent perence in markets such as Thailand, Brazil and the US. In South Africa, year over a business cycle.we entered into a collaboration with Sekunjalo Investment Ltd – a Result 2010: In 2010, organic sales growth was -1 per cent (4).step to further strengthen position in South Africa and in the sub-Saharan region. Operating margin Goal: We had two margin goals in 2010, both formulated as an aver-Performance age over a business cycle.Our efficiency improvement programme was successfully finalised in The goal for operating margin after depreciation/amortisation2010. In addition to this programme, we took measures to improve was at least 10 per cent and it remains the same in the new long-termefficiencies. We decided to reduce the number of operating locations goal formulation. The goal for the operating margin before deprecia-and improve efficiencies in areas with high administrative costs. This tion/amortisation is at least 15 per cent.means that the Dynamics business area’s operations in Eskilstuna will Result 2010: The operating margin after depreciation/amortisa-be terminated in 2012 and that the underwater vehicles operations in tion (EBIT) in 2010 was 4.0 per cent (5.6). Adjusted for non-recur-Motala will be restructured. All employees in Motala were served ring items, the operating margin was 6.5 per cent (5.4).notice. In addition, efficiencies were achieved in the Electronic The operating margin before depreciation/amortisationDefence Systems business area and in Corporate functions. (EBITDA) was 9.0 per cent (10.5).Portfolio Return on equityIn 2010, we continue to focus the portfolio through structural meas- The ROI goal in 2010 was an average 15 per cent. In 2010, we reached aures. We decided to integrate the Motala-based underwater vehicles return of 4.1 per cent (7.0).operations with UK-based Saab Seaeye Ltd. The launch of SAFE (Sit-uational Awareness for Enhanced Security) illustrates the progress Equity/assets ratiowe have made in civil security and product innovation. Based on a Our goal in 2010 was an equity/assets ratio exceeding 30 per cent,powerful command and control system and an advanced and inte- which still remains in the new goal formulation. At year-end 2010,grated platform, SAFE serves as a core to monitor and oversee safety the equity/assets ratio was 39.1 per cent (35.1).and security in daily operations. SAAB ANNUAL REPORT 2010 13
    • SAAB’S STRATEGIC PRIORITIES PERFORMANCE PROFITABLE PORTFOLIO GROWTHSAAB’S STARTINGPOSITION PEOPLE Saab’s four strategic prioritiesSaab operates in the global market for defence and secu- Organisation and culturerity solutions and develops world-leading solutions and As of 1 January 2010, Saab’s operations are divided into five businesssystems with broad-based military and civil applications. areas: Aeronautics, Dynamics, Electronic Defence Systems, Security and Defence Solutions, and Support and Services. A large part ofAs one of Sweden’s most R&D intensive companies, business operations are conducted by the Parent Company and thedevelopment co-operations are an important pillar of rest by the Group’s wholly and partly owned companies.our future. Four strategic prioritiesCore competence Looking ahead, our aim is to continue to work toward our strategic pri-Systems engineering – understanding and being able to integrate orities: profitable growth, performance, the portfolio and our people.complex systems, our own and others’ – is Saab’s core competence. The following pages present our work in each of these four areas. At the same time that we have world-leading technology in anumber of important areas, we work today with open systems as far STRENGTHS, WEAKNESSES, OPPORTUNITIES AND CHALLENGES FOR SAABas possible. Multiple applications and the ability to coordinate sys-tems are the keys to our product development, making it possible to • Saab has a well-positioned product portfolio based on world-leading technology. We have unique systems expertise and the capability to sup-integrate products into larger military and civil operations. ply complex systems. • Our strong balance sheet gives us a solid platform to implement our strat-Market position egy. Cash flow generation is good as well. Our management and controlWe address traditional defence needs with a core offering consisting systems ensure a business focus and continuous efficiency improvements.of products and systems to safeguard national borders. To a growing • Although we created cost efficiencies in 2010, further improving operatingextent, we also address the functional and security needs of the glo- efficiency and productivity is critical.bal flow society, which includes the civil security market. • International competition is increasing, partly due to lower defence spend- The large market segments where we have a strong position and ing in Western democracies, where many leading defence companies aregood growth opportunities are fighter aircraft and command and con- based.trol systems, reconnaissance and surveillance systems, including Air- • Our dependency on customer-financed R&D is a challenge. Around two-borne Early Warning (AEW) systems, tactical weapon and missile sys- thirds of customer financing currently comes from Sweden. Our growthtems, and Command, Control, Computing Intelligence, Surveillance opportunities are primarily in other countries, including selected marketsand Reconnaissance (C4ISR) systems. We also have a strong niche where we are working to increase customer financing.position in civil aeronautics as a supplier to Airbus and Boeing. • The reliance on major orders such as Gripen, AEW and Bamse is a challenge. We have very strong positions in selected regions in the growth seg- Saab’s advantage is that our Swedish base makes us a neutral choice.ments of civil security, support and service, training and underwater • Finding the right civil applications for our core technologies is both a chal-systems, as well as niche segments such as signals intelligence. lenge and an opportunity. We have the ability to supply systems that main- In the military field, we sell to defence authorities as well as other tain various flows in society, in defence and civil security.defence companies as a subcontractor. Geographically, we have a • One of our strengths is that we have about 80 per cent of our employeesstrong position in Sweden and good positions in South Africa and in Sweden at the same time that our growth potential is primarily outside the country, which enables us to create interesting job opportunities inAustralia. Our goal is to consolidate and strengthen our position in the other markets, create greater diversity and attract talent from markets out-other Nordic countries and selected countries in Europe, while build- side Sweden.ing strong positions primarily in North America, Brazil, India and • We have a unique industrial co-operation offering and a large network ofSoutheast Asia. contacts around the world. Our commitment to the community and focus on sustainable business (social engagement and business ethics) give us a stable platform to build on.14 SAAB ANNUAL REPORT 2010
    • SAAB’S STRATEGIC PRIORITIES > EMPLOYEES PERFORMANCE PROFITABLE PORTFOLIO GROWTHOUR EMPLOYEES ARECONSTANTLY DEVELOPING PEOPLE Saab’s four strategic prioritiesAt Saab, our employees are the key to everything we do Diversity creates valueand a critical factor in order to implement the strategy and At Saab, we regard differences as an asset and strategic resource. Wereach our strategic and financial goals. Technology is con- encourage diversity and have challenging gender equality goals. Diversity and gender equality are critical to our profitability and howstantly changing, and we at Saab are naturally along for the we are seen by the public. This requires management by objectivesexciting journey to the technology of the future. and continuous oversight to succeed. At Saab, we have clearly defined values, which we believe make usOur core business is our unique technology and ability to integrate a better employer for current and future employees. We are a com-products and systems in advanced solutions. We have been one of pany distinguished by openness, cooperation and mutual respect.the leading technology companies in Sweden for over 70 years. It is Successful changes are the result of confidence in the future and are anot so strange, therefore, that around 50 per cent of our employees vital element to succeed in business.has a college degree and that over 7,000 are engineers. This is why we want to be a company of opportunities and take Staying on top of technological advancements requires that we responsibility for offering personal development tied to our businesshave employees who are interested in, take responsibility for and challenges. We are the natural choice for talented people who arelead this development. looking to grow and want to embrace change in a stimulating work This places tough demands on us as an employer. We look for top environment.talents in the global market and cannot limit ourselves by intellectual Learn more about Saab’s employees on pages 50–51.and national borders. SAAB ANNUAL REPORT 2010 15
    • SAAB’S STRATEGIC PRIORITIES > PROFITABLE GROWTH PERFORMANCE PROFITABLE PORTFOLIO GROWTHPROFITABLE GROWTH PEOPLE Saab’s four strategic prioritiesHow we drive our growth is our fundamental strategic account for over slightly over 59 per cent of our sales. In addition tochallenge. Our business must focus to a growing extent on the Gripen system, we see other significant business opportunitiesmarkets with strong demand and areas where our technol- and growth potential in these markets. In the future, we will also focus our investments on selected mar-ogies and solutions can meet existing security needs to a kets with good growth opportunities in a number of regions.higher degree. A large share of our growth will have to be found in markets with significant, stable defence spending and otherwise favourable condi-One of Saab’s main strategies in the last decade has been to transition tions. These especially attractive growth markets include Northfrom a dominant home market and reliance on a single customer, America, Brazil, India and a number of countries in Southeast Asia.the Swedish defence forces, to more international operations. Sales Another example of a new and growing customer is the Unitedoutside Sweden gradually increased during the latest ten years. Nations, to which we established ourselves in 2010 as a supplier withToday we address not only traditional defense needs, but increasingly a local presence in East Africa. The UN is expected to procure prod-the security needs of society as a whole. This represents a shift in ucts and services for a total of around USD 15 billion (approx. SEKfocus for our operations and further expansion in the civil security 100 billion), with a focus on services central to our offering: camp,area, which increases business potential at the same time as it diver- medical and security solutions, vehicle maintenance, training andsifies our risks. 3D mapping. While we have a high market share in Sweden, our future growthmust come in large part outside the country, especially in markets Local presence is criticalwhere conditions are more favourable. At present, slightly over 83 per cent of our employees work in Swe- den and about 12 per cent in South Africa and Australia.Clearer regional focus Our goal is annual organic sales growth of 5 per cent. This willWe continuously evaluate our market potential and analyse how our require that we establish a stronger position locally in the marketstechnologies and solutions can meet demand in the around 90 markets, where we see growth potential in the future .both traditional and emerging, where we sold our products in 2010. To succeed in a market requires that we establish ourselves locally In markets where we have a good position, we are working to con- in the best way possible. How we establish ourselves in varioussolidate it while at the same time investing in selected areas where we regions depends on an array of factors, including political, regula-see good opportunities. Today Sweden and the rest of Europe tory, competitive and industrial conditions, local business models SALES BY REGION 2010 SALES BY MARKET SEGMENT 2010 38% (31%) Sweden 42% (44%) Military aeronautics 19% (23%) EU excl. Sweden 31% (29%) Land 2% (1%) Rest of Europe 9% (9%) Naval 9% (8%) North and South America 6% (7%) Civil security 15% (19%) Asia and Middle East 6% (6%) Commercial aeronautics 12% (14%) Africa 6% (5%) Other markets 5% (4 %) Australia16 SAAB ANNUAL REPORT 2010
    • SAAB’S STRATEGIC PRIORITIES > PROFITABLE GROWTHand financial arrangements, and how our technologies meet local HISTORIC PERSPECTIVEneeds. The strategies in each market in turn include everything from 25,000 14an increased market presence and marketing to joint ventures andpartnerships, industrial cooperations, technology transfers and re- 12 20,000exports. 10 We may also strengthen our local presence through acquisitions 15,000 8in selected markets if opportunities arise within our prioritized areas. 6 10,000 4 5,000 2 0 0 99 00 01 02 03 04 05 06 07 08 09 10 Sales in Sweden, MSEK Operating income margin Sales in markets outside of (EBIT),% Sweden, MSEK 2000 Acquisition of Celsius 2006 Acquisition of EMW 2005 Acquisition of Grintek 2008 Divestment of Saab SpaceSTRATEGIC INVESTMENT IN THE U.S. The American continent represents half the global defence and civil security market. Saab has been represented here for many years through Saab Barracuda, which produces camouflage products. Moreover, Saab supplies training systems as well as support and services to the U.S. and command and control systems to the Canadian Navy through a partnership with Lock- heed Martin. North America is also home to the large part of Saab Aircraft Leasing, a business that owns and manages the more than 100 Saab 340 and Saab 2000 aircraft. With a goal to strengthen our presence in North America, we opened a new office in April 2010 in Washington, DC, where all our US and Canadian oper- ations are now managed. In the near future, Saab’s goal is that all five busi- ness areas will be represented on the continent. Growth in North America will be achieved organically as well as through part- nerships with the industry. We also anticipate acquisitions if they provide the opportunity to strengthen our offering within prioritized areas.North America is becoming an increasingly important market for Saab. SAAB ANNUAL REPORT 2010 17
    • SAAB’S STRATEGIC PRIORITIES > EFFICIENT OPERATIONS PERFORMANCE PROFITABLE PORTFOLIO GROWTHMORE EFFICIENTOPERATIONS PEOPLE Saab’s four strategic prioritiesTo be more competitive, we have to continuously develop, Five prioritiesmanage and realise the most effective ways of working. In our efficiency improvements, we focus on five strategic areas toIncreasing the degree of standardisation is one way of become a more cost-effective organisation. They can be summarised as follows:raising efficiency. • Standardise and harmonise operations in order to drive cost effi-Higher efficiency to us primarily means working in a structured ciencies through functional synergies.manner, so that the costs of reaching our goals in various areas are as • Optimise R&D efficiency through standardised product manage-low as possible. Initially, have to ensure that standardised and har- ment and development processes.monised work methods are in place and to prioritise among our • Focus on contract quality, project implementation and risk man-activities. The next step is to measure the results of our work and agement to improve project results and forecasting abilities.make the progress we have made visible in the organisation. For this • Increase flexibility in our cost structure to adapt to variations into succeed, we have to promote a culture that puts our common volume.good ahead of what might be best locally. • Ensure we can maintain a stable cash flow to facilitate invest- ments for growth in acquisitions, R&D and marketing.An efficient SaabSaab has been working for some time to be a more integrated com- In each of these areas, we are working on a number of activities. Inpany in terms of goals, priorities and processes. The reorganisation terms of standardisation and harmonisation, this includes every-into five distinct business areas at the start of 2010 was an important thing from maintaining efficient enterprise systems with the beststep. It makes it easier for us to capitalise on functional synergies and industry standards and co-ordinating sourcing (higher volumes andfinancial resources, develop new, standardised processes and fewer suppliers) to optimising our assets.develop a more focused product portfolio. In addition to the reor- To improve R&D efficiency, we are trying to adopt a uniform life-ganisation, we have established a number of functions to support cycle process for our products and to increase modularity. We alsoour collective efforts and internal efficiency, including centres of need to have clearly defined criteria in order to prioritise R&Dexcellence in research and development. For more information, see investments. Learn more about our research and development onnext page. pages 22–23. At the end of 2010, we completed a SEK 1.5 billion cost-cutting With the help of a well-defined business and management model,programme on schedule. This work has now become an integral part as well as a uniform project model, we can improve our earningsof our day-to-day operations, where we continue to reduce our costs potential through contract formulations and effective project imple-through improvements. mentation in all our business areas. We are also reassessing our cost structure to better adapt it to our We are increasing the flexibility of our cost structure by continu-long-term strategy. This includes structural changes beyond those to ously evaluating the size of the organisation’s workforce, buyingimprove efficiencies in internal processes. For example, we have expertise that falls outside our core competencies and conduct costtaken measures to reduce our administrative costs. benchmarking. We also have to maintain a stable cash flow to facilitate growth- driving investments. We achieve this by focusing on payment plans in tenders/contracts and resource-efficient project implementation, while reducing capital tied up in account receivables and inventories.18 SAAB ANNUAL REPORT 2010
    • SAAB’S STRATEGIC PRIORITIES > EFFICIENT OPERATIONSCost reductions from efficiency programme 2008–2010 (MSEK) > 1,500 650 The efficiency improvement programme launched in early 2008 was con- > cluded in 2010. The programme accomplished its goal of reducing Saab’s annual costs by a total of SEK 1.5 billion. 600 A large part of the cost reductions was achieved by adapting and standard- > ising the development process within the company, increasing production efficiency and reducing the number of production locations as well as 250 sourcing and travel costs. 2007 2008 2009 2010 2011 Our efforts to create efficiencies will continue.CENTRES OF EXCELLENCE CREATE SYNERGIES The new centres of excellence work cross-functionally between business areas. This helps to erase any borders within Saab and further unify the company, which is important to stay competitive. Four centres of excellence to date In 2010, Saab created its first four centres of excellence, which are currently in different stages of development. The result is better co-ordination of spe- cialised expertise from various parts of the Group. The centres have gotten off to a good start, and several are already fully operational. Around ten addi- tional centres of excellence are currently being considered. The first four are: – Optics Design Centre Provides design solutions and supports all of Saab’s business areas. The centre’s staff and equipment are located in Huskvarna and it is part of the Security and Defence Solutions business area. – Common Component Sourcing CentreCentres of excellence create operating efficiencies. Provides electronic component specifications for all of Saab’s business areas. The aim is to co-ordinate component operations in the Group. Lo- cated in Göteborg, the centre is part of the Security and Defence SolutionsTo increase efficiency and further raise the level of competence in technolog- business area.ical and business-critical areas, as well as make important competence moreaccessible, we have established centres of excellence. Eventually, efficiency – Geo Data Centreimprovements will free up resources that instead can be invested in Saab’s Collects geodata (digital maps) in a portal, a central geodata library where anyfuture. employee can search and order data. Part of the Aeronautics business area.“By working in this way, we increase the chances of successfully retaining – Power Electronics Design Centrecompetencies and experience within the company,” said Göran Johansson, Provides design solutions, promotes reuse and reviews designs for all busi-who is leading the effort to create Saab’s centres of excellence. “Sometimes ness areas. Located in Göteborg and part of the Electronic Defence Systemsit’s even a question of avoiding becoming undercritical. By working with oth- business area.ers who have expertise in similar areas, our employees can sharpen theirskills. In addition, there is great potential for savings.” SAAB ANNUAL REPORT 2010 19
    • SAAB’S STRATEGIC PRIORITIES > PORTFOLIO PERFORMANCE PROFITABLE PORTFOLIO GROWTHFOCUSED PORTFOLIO PEOPLE Saab’s four strategic prioritiesActive management of Saab’s portfolio is the fourth of our Develop the right productsfour overarching strategic challenges. This means improv- Despite lower defence spending, there are a number of product areasing existing products and solutions and developing ad- where we see great growth potential, especially for our principal niche products. One example is our electric unmanned underwatervanced new ones in order to maintain a well-positioned vehicles, which can be used at deep depths in both military and civilcore portfolio. applications. Civil security solutions and training systems are other areas with large growth potential.Saab’s challenge is to balance its offering in order to ensure sustainable Another area where we anticipate major growth opportunities isgrowth. This requires that our growth comes from both new products Rapid 3D Mapping , a real-time system that create three-dimensionaland solutions and the further development of our current products and images from aerial photos. This is a new technology for the militarysolutions as well as certain niche products. We must have a strong port- market, and interest is very high for its various applications. Thefolio of standardised products and solutions at the same time that we information generated can be used for precise location in specificsecure Gripen’s position as a next-generation fighter jet in Sweden and areas. The technology is based on Saab’s more than 40 years of expe-abroad. We have to be able to sell standardised products individually or rience in image processing for digital target seekers and expertise inoffer full-service solutions to serve the customer at every turn. For navigation systems. For more information, see pages 23 and 31.more information on our core competencies, see page 14. Going forward, we will strengthen product content based on Saab’s core areas. We see opportunities to create new solutions basedFocus on our core areas on existing platforms in order to expand them to other areas ofIn trying to shape our product portfolio, we are focused on developing application and to create greater openness in our systems, i.e., thatoperations where we today have leading technological expertise, i.e., they can operate together with those of other suppliers.products that are – or potentially could be – market leaders. An Developing product areas where we currently have critical cut-important part of our product strategy is to have a clear plan which ting-edge technology may also mean various types of acquisitions toproducts and solutions to offer in each market. strengthen our core portfolio in key markets. In the same way, we Sustainable product innovation – by increasing our own invest- may divest products or product areas that do not support our corements and in collaboration with customers, universities and industrial operations.partners – is a key if Saab is to maintain a focused portfolio. To furtherimprove our position in areas where we are already a leader requires To balance the product portfolio, we continuously work on:that R&D investment is clearly targeted on our core competencies. • Active risk assessment and management In some cases, it is critical that product innovation is achieved • Active portfolio management (acquisitions and divestments)through customer-ordered development projects, although we see that • An optimal capital structure and continuous operatingin the long term these projects are trending lower due to stagnating efficiencies.public defence spending. For more information on our core compe-tencies, see page 14, and for more on our R&D, see pages 22–23. Our long-term goal is to achieve annual organic sales growth of 5 per cent. In addition, we may grow through acquisitions in prioritised areas.20 SAAB ANNUAL REPORT 2010
    • SAAB’S STRATEGIC PRIORITIES > PORTFOLIOSaab’s offering MILITARY COMMERCIAL LAND NAVAL CIVIL SECURITY AERONAUTICS AERONAUTICSSOLUTIONS INTEGRATED SOLUTIONS, INCLUDING C4ISR 1), TRAINING & SIMULATION Aeronautical C4ISR 1) systems Support weapons platformsPRODUCTS Aeronautical Training and Missile systemsAND SYSTEMS Civil security systems sub-systems simulation systems Radar and electronic Underwater Camouflage solutions warfare productsSERVICES TECHNICAL CONSULTANCY AND SUPPORT AND SERVICE1) Command, Control, Computing, Communication, Intelligence, Surveillance and ReconnaissanceSECURITY BELOW THE SURFACE Since the terrorist attack in 2001, interest in underwater security has grown around the world. It is now estimated that half of all global threats lie hidden below the surface. To ensure that port authorities in various countries take this threat scenario seriously, the International Ship and Port Security Code has been established. Historically, port security has mainly been carried out on land, but with requirements now in place for security screening and reporting on threats at sea, there is good potential for both the military and civil segments of the underwater security market. Saab has a strong offer in naval security for both defence and civil purposes. The operations are part of the Dynamics business area and are run by UK-based Saab Seaeye, which was integrated into Saab Underwater Systems in 2010. The combined operations now have a goal to become a world leader in underwater security in both the civil and military markets.Underwater security is an important emerging market. SAAB ANNUAL REPORT 2010 21
    • SAAB’S RESEARCH AND DEVELOPMENTSTRONGER PORTFOLIOTHROUGH FOCUSEDPRODUCT DEVELOPMENTOne of Saab’s biggest strategic challenges is to ensure tions, we have to develop solutions that meet the needs of many cus-that we continue to develop products that customers tomers. This means that we have to be better at understanding thewant. By being clear and transparent about our research needs of not only the Swedish defence forces but also our most im- portant international customers.and development (R&D) investments and how the proc- Project management work also involves reducing the number ofess works, we can optimise our future product portfolio. product areas and prioritising those where we invest in R&D. The emphasis is on innovating and further developing products only inSaab’s product development has traditionally been driven through areas where we are currently a leader with cutting-edge technologyvarious business units and individual projects, largely based on and are internationally competitive, or where have excellent pros-orders from the Swedish defence. During 2010, an updated project pects. In this way, R&D investment will improve our positions inmanagement process for the entire lifecycle of each product was core areas. By also modularising whenever possible, we can reuseintroduced, where we have clarified responsibility for product devel- product solutions in our offerings.opment between and across business areas. The aim is to ensure that Moreover, we are focused on raising efficiencies in developmentpotential products are technologically feasible and meet the needs of processes and utilising model-based development and various frame-the international market. Before a product development decision is works to effectively manage complex processes, such as the develop-made, a detailed profit analysis is conducted taking product’s entire ment of software and open source code. The trend toward open sys-lifecycle into consideration. tems is especially evident, and the ability to integrate systems, our own and others’, is one of Saab’s biggest competitive advantages.Changing customer behaviour These measures help us to cut the cost to develop systems andOur customers around the world are changing the way they act. In customised solutions, while at the same time reducing our risk expo-Sweden, for example, the state (through the Armed Forces and sure. In addition, lead times are reduced, allowing us to better adaptFMV) is increasingly focused on various types of international alli- to customers’ desire to quickly access materiel.ances. An invasion defence has largely been replaced by an opera-tional defence, i.e., smaller but more specialised troops that can be Leader in many areascalled up for missions around the world on short notice – often in Advanced technology and world-class engineering have been – andco-operation with other nations. As a result, the Armed Forces and are – the foundation for Saab’s success.FMV have altered their procurement processes and made it more In terms of the complex systems we offer the market, the key technol-important to quickly obtain new equipment, which makes buying ogies in the Gripen system and ERIEYE radar system – and their furtherfinished products a priority. development – are the two main examples. Also, we continuously update For Saab, this change means that we will have to fund a larger our time-critical and tactical command and control systems.share of our product development going forward. Naturally, there At the same time, we invest in other types of niche products thatare still areas where product development largely remains customer- we sell individually or as part of less complex systems. Examples offinanced, but it is becoming increasingly important that we can our leading niche products are the Carl-Gustaf, AT4, NLAW, thefinance our own product innovation. This requires a clear focus RBS 70 ground based air defence system, the ARTHUR andon our part. GIRAFFE radar systems, and our unmanned underwater vehicles. They also include combat training, where we have a leading position.Investments in cutting-edge technology Among our niche innovations, is the development of theA clearer strategic focus on product development, as well as the unmanned helicopter Skeldar a good example. In electronic warfare,highest possible efficiency in this regard, is critical for us. As cus- Land Electronic Defence Systems (LEDS), which provide active pro-tomer habits change in terms of purchasing and product applica- tection for combat vehicles, are an important investment area. For22 SAAB ANNUAL REPORT 2010
    • SAAB’S RESEARCH AND DEVELOPMENTour security systems, we are developing a common integration plat- Core portfolioform called Situation Awareness For Enhanced Security (SAFE). Ownership Company Specialisation interest, %Aside from our investments in Remotely Operated Towers, we arealso participating in a European programme, Single European Sky Coldcut Systems AB Cutting fire extinguishers 29Air Traffic Management Research (SESAR), to improve efficiency Saab Perform IT AB Mobile information systems 100and safety in the airspace over Europe. Opax AS Intelligent video surveillance 100 Protaurius AB Mobile ballistic protection 8 R3DM Military 3D mapping 100 1)Future choices 1) The unit is managed by the Dynamics business area.In line with our emphasis on technologies where we are a leader, orare strongly positioned to become one, we continuously evaluateexisting products and new opportunities. Which products support Spin-offsour core operations and which don’t? Which can help us to Ownership Company Specialisation interest, %strengthen our cutting-edge technology and how will our continuedproduct development be financed? These are never-ending ques- Wrap International AB Spectrum management software 22.6tions, which lead to various choices for our five business areas. C3 Technologies AB 3D mapping technology 63 We also create innovations and products that work in unexpected Minesto AB Tidal energy solution 13 Svenska Tracab AB Digitizing sports 15applications, but which fall outside Saab’s core operations and strate- Image Systems Motion analysis systems 36 2)gies. In 2006, the Group created Saab Ventures, whose purpose is to 2) On 30 December 2010 Saab Ventures reahed an agreement to sell its holding in Imagecreate and initially run companies outside Saab with new products Systems to Digital Vision. The sale is expected to close during the first half of 2011.for new applications. This applies to military technology with appli-cations outside Saab’s core areas, spin-offs, and when Saab Ventures’goal is to develop the company before divesting it. Since 2001, Saab Companies that originated from Saab:has spun off 13 companies. It also applies to technologies that could • Saab Automobile ABbecome a new Saab offering but that Saab Ventures manages initially. • Marine Electronics ABRapid 3D Mapping is typical of such innovations. The venture is • Airborne Hydrography ABbeing developed together with the Dynamics business area. • MX Composites AB The other purpose of Saab Ventures is to invest in small, rapidly • Efield ABemerging companies that fit Saab’s core operations. The goal is to • Sanguistech ABhelp to develop and complement Saab’s product portfolio through • SMM Medical ABnew key technologies. • HS Memory AB • Linus AB • Saab IRS AB • Traffic Systems AB • A2 Acoustics AB R&D AS PERCENT OF SALES 20 20 17 2010 2009 2008 Of which 24 per cent Of which 25 per cent Of which 35 per cent (MSEK 1,203) is financed internally (MSEK 1,194) is financed internally (MSEK 1,439) is financed internally SAAB ANNUAL REPORT 2010 23
    • SAAB’S CORE COMPETENCEOUR CORE COMPETENCE IS THEABILITY TO INTEGRATE OUR OWN ANDOTHERS’ SYSTEMS AND COMPONENTS Command and control system with Multi Sensor Tracking (MST) C3 Technologies Navigation system (3D Rapid Mapping) Tracab Target seeking system Tactical data transfers through data links (Saab was the first in the world to develop this and equip a fighter, Gripen, with it)Warning system Tactical signals intelligence Active jamming system Passive jamming system Countermeasure system Air-to-air/air-to-surface radar Existing Saab technologies The illustration above depicts some of the technologies, components and systems that Saab integrates into the complex systems and solutions it supplies to customers around the world. Many of the products have been developed to stand on their own or to be supplied as part of a larger solution. Support and service as part of the system and solution The advanced maintenance systems that Saab has developed and supplies to its customers are an important factor for Gripen customers, for example. As a result, support and service costs can be maintained at a highly compeitive level throughout the product lifecycle.24 SAAB ANNUAL REPORT 2010
    • SAAB’S CORE COMPETENCE Minesto Aerodynamics (Minesto’s technology was named one of the top innova- tions of 2010 by Time magazine) Presentation system Saab Marine Electronics Radar altimeter Saab Marine (Development of world leading level- gauging technology for oil tankers, sold to Emerson) Advanced composite technology (Supplier to Boeing and Airbus) Missile navigation system Missile data links Missile Missile protection system Radio frequency technology and signal processing (mobile technology) Spin-off technologies from Saab Saab is constantly creating innovations and products that find applications not only in but also outside our core businesses. This is the reason for Saab Ventures, whose purpose is to create and initially run companies with new products for new applications. Saab has spun off 13 companies since 2001. For more information, see page 23. SAAB ANNUAL REPORT 2010 25
    • SAAB’S MARKET SEGMENTSMarket segmentsSaab operates in five different market segments, where needs differ even thoughthe solutions are partly based on the same technologies. AIR LANDTrends Growth in military aeronautics is driven by nations Land combat is a broad segment and one of the – with air forces of various size – that want to re- fastest growing area of the military market in re- place older generations of fighter aircraft with new cent years. The total market is estimated at SEK ones offering better performance, more flexibility 550–580 billion. Based on projected operational and better overall economic efficiency. A large needs, we expect the market to grow at a slower number of procurements have been postponed rate in the next five-year period. Ongoing and new due to economic turbulence in the world. Alli- conflicts, complex conflict zones, the multina- ances and political factors play a big role in this tional element and a growing need to operate in market, but requirements to keep defence costs urban areas require new strategies, materiel sys- down are likely to make performance and lifecycle tems and technology. costs more important. We continue to see an increase in multinational mis- Military aeronautics is increasingly used in multi- sions in foreign territory. This requires co-operation national operations on extended flights over long between different types of forces and different distances. This requires systems that use open countries’ forces, which in turn increases the im- architecture. They also have to work with older portance of system integration, interoperability, systems and be upgradeable. Sensors, commu- and command and control capabilities. As security nications and precision weaponry are important. threats grow, the need for training does as well. Intelligence systems must be able to integrate large volumes of information from multiple sources and provide effective decision guidance. New types of military operations and technology are also driving demand for training and educa- tion. A growing number of countries are procuring support and service for materiel through multi- year, full-service commitments. Annual sales in the market segment for unmanned aerial vehicles are expected to grow from around SEK 270 billion to over SEK 340 billion in the next ten years. In the UAV market, sales growth is currently estimated at SEK 25–27 billion per year.Saab’s Saab offers fighter systems, air C4I solutions, un- Saab has leading positions in many segments manned aerial vehicles, countermeasures and of this market, where it offers tactical weaponposition electronic warfare, avionics solutions, weapon systems and highly sophisticated surveillance systems, sensors, training solutions and aftermar- and command and control systems (C4I) as well ket services. Saab is one of very few companies in as solutions for troop protection. The offering the world capable of developing advanced fighter includes sensors, signature management and systems. Gripen is a competitive single-engine countermeasures, reconnaissance and air fighter currently in service in five countries. Gripen defence systems, and training solutions. contracts are highly complex and involve extended Saab’s sales in the area amounted to MSEK commitments, usually with multi-party industrial 7,611 (7,239) in 2010. alliances. Saab’s sales in the area amounted to MSEK 10,393 (10,940) in 2010.26 SAAB ANNUAL REPORT 2010
    • SAAB’S MARKET SEGMENTS NAVAL CIVIL SECURITY CIVIL AERONAUTICSThe naval market is generally stable with growing Investments to protect people, critical facilities The civil aeronautics market is generating long-demand for expeditionary and coastal capabilities. and large flows from terrorism and sabotage is on term growth of about 5 per cent, although thisMore than 90 per cent of global trade is trans- the rise worldwide, which makes civil security one fluctuates greatly with the economy. Commercialported by sea, which has made the protection of of Saab’s most dynamic market segments. The carriers have struggled through a very difficult pe-trade flows a higher priority, including for naval continued growth and increased complexity of riod, but are now in a recovery phase. This hasunits. For navies and coast guards, the trend is large cities is placing tougher demands on sus- somewhat delayed orders for aircraft manufactur-toward broader-based industrial commitments tainability, flow efficiency and interoperability. ers. The total market for new commercial aircraftwith greater demand for integration and is estimated at SEK 600 billion a year. The industry Homeland security spending has skyrocketed inlifecycle solutions. At the same time, the growing is capital-intensive with long development cycles the last decade, and is estimated at SEK 360number of international alliances makes the ability and has consolidated into oligopolistic structures. billion in 2011 in the US alone. This is in additionto act far from home – e.g., with advanced am- to spending on surveillance and control as part of The market consists of four segments: businessphibious assault ships – more important. Public- municipal and corporate security budgets. Pro- jets, regional aircraft, single aisle aircraft and wideprivate partnerships are also becoming more tection of critical infrastructure mainly involves bodies/large aircraft. The market for large singlecommon. Moreover, there is growing interest in ports, airports and energy facilities. The market aisle and wide body aircraft is dominated by Boeinglong-endurance ships with smaller crews, where currently generates about SEK 225 billion a year of the US and Europe’s Airbus, although they aresensors and combat management are the highest and is anticipating annual growth of 10–11 per now being challenged by new players from Chinapriority. cent per year, divided equally between protection in particular. The major manufacturers are integra-The total naval market is estimated at SEK 300– for borders, ports, energy systems and airports. tors, i.e., they are responsible for specifying and370 billion per year. Growth is driven by new laws and the realisation supplying the aircraft. The aircraft themselves are of how costly disruptions to society’s various developed and produced in large part by interna-An extensive naval build-up has begun in the flows can be. tional partners. The new aircraft models alsoMiddle East and Southeast Asia, where China’s contain larger modules than before, with systemsgrowing fleet is a driving force. content integrated into the structure. Aircraft capacity utilisation is again on the rise, and high fuel prices and new environmental requirements are strengthening demand for fuel- efficient models. Delivery volumes are increasing significantly as new aircraft such as the B787 and A350 are introduced on the market.Saab’s offering includes sensors, command and Saab’s civil security offering is focused on moni- Saab is a supplier to the world’s leading aircraftcontrol, weapon and communication systems, toring and situational control as well as ensuring manufacturers, including Boeing and Airbus,underwater and infrastructure security, counter- efficient flows, with an emphasis on airports and mainly of durable, lightweight aerostructures,measures and electronic warfare, and simulation air travel, ports and shipping, and emergency re- avionics, operating systems, structure and sys-and training. We have a strong position in radar sponse planning. The offering is based on Saab’s tem integration, and support solutions. With aand early warning, command, control and com- core competence as a systems integrator. track record of having built more than 4,000 air-munication systems (C4ISR), tactical weapons Though still small in size, its positions are good craft, Saab has experience with the entire devel-and underwater systems. in Sweden, Central Europe, South Africa and opment cycle, from concept studies to certified Australia. products.Saab’s sales in the area amounted to MSEK2,278 (2,181) in 2010. Saab’s invoicing in the area totalled MSEK 1,427 Saab’s sales in the area amounted to MSEK (1,718) in 2010. 1,348 (1,374) in 2010. SAAB ANNUAL REPORT 2010 27
    • SAAB’S MARKETS BY REGIONMarkets by regionSaab has operations on every continent, but its scope and presence differ. In the same way, we prioritise variousparts of our offering depending on political and market conditions. EUROPE MIDDLE EAST AND AFRICATrends Defence spending is expected to decrease or The Middle East is among the regions with the remain stable in the next five-year period. Most biggest increases in military spending during the European governments are slashing spending to last decade, and this is expected to continue. meet the EU’s limits on budget deficits and debt Saudi Arabia is the region’s biggest military levels, which is placing tight pressure on defence power, with about 3 per cent of total global mili- appropriations. Greece, Spain and Italy are ex- tary spending in 2009. Southern Africa is ex- amples of such countries. Even the UK, Germany pected to have a slower growth rate than the rest and France, which together account for about of the continent. 10 per cent of global military spending, are The civil security market in the Middle East in adapting their defence budgets in various ways particular is growing, including in areas such as to fiscal constraints. Another country that is reas- coastal and maritime security. There is also a sessing its defence budget is our largest market, large potential for 3D Mapping as a result of new- Sweden. found interest in mapping the region. Civil security spending is expected to continue to rise at the same rate as in previous years, i.e., by more than 10 per cent per year.Saab’s position Sweden is Saab’s largest and most important Saab has a solid market position in the Middle market, accounting for 38 per cent (31) of total East as a supplier of naval command and control sales in 2010. Saab’s largest markets in Europe systems, among other things, to several south- in the last five-year period are then the UK, ern Gulf states. Germany, Finland and France. Saab is a world leader in automated 3-D map- Europe accounted for about 59 per cent (55) of ping, and work is under way to market these total sales. products in the Middle East. The African continent accounted for about 12 per cent (14) of total sales in 2010.THE UN – A NEW AND GROWING CUSTOMERWithin the framework of its Global Field Support Strategy, the United Nations (UN) is working to make its missions around the world more sus-tainable from an economic, ecological and security standpoint. This is being done with standardised modules for camps that can quickly beassembled. Saab is seeking a close co-operation with Swedish authorities and local partners to develop these modules and expand capacityprimarily in East Africa. The key components in Saab’s offering are preventive maintenance of equipment and training for engineering troops,which it provided in 2010.“With growing procurement budgets and a clearer focus on sustainable solutions with detailed maintenance agreements, the UN and othermultilateral organisations represent a growth niche for Saab,” said, Marie Trogstam, who is responsible for developing Saab’s UN relations.28 SAAB ANNUAL REPORT 2010
    • SAAB’S MARKETS BY REGION ASIA AUSTRALIA NORTH AND SOUTH AMERICA After China, Japan is the country in the region Australia ranked 14th in defence expenditure in The US accounts for nearly half of global defence with the highest defence spending, followed by 2009, or 1.2 per cent of the global total. The spending, or about USD 661 billion. US defence India and South Korea. The region is expected to country is expected to remain at this level, or spending is expected to continue to rise in the increase its military spending in the next five-year possibly decline slightly, in the next five-year short term, but decrease overall in the next five period. This is partly due to the financial stability period. The civil security market, on the other years. This will depend on developments in of a number of countries and partly to China’s hand, is expected to grow. Afghanistan and Iraq as well as the conse- conspicuous efforts to become a military super- quences of the financial crisis, which continue to power. affect the US fiscal situation. Homeland security spending has increased sharply in the last dec- Spending on civil security has also increased ade today. With threats still looming against civil dramatically as the economies in the region and society, this market is expected to continue to their infrastructure needs have grown. This trend grow at a rapid pace. is also expected to continue. In South America, Brazil spent the most on its defence in the region, accounting for 1.7 per cent of the global total in 2009. Canada accounted for 1.2 per cent of the global total in the same year. India and Thailand are two of Saab’s most impor- Saab has had a strong local position in the Aus- North America is one of Saab’s key markets with tant markets in Asia. In 2010, Saab signed a co- tralian market for many years with sales in several high growth potential. During the last year, Saab operation agreement with Mahindra Tech of India different segments. Australia and other countries has therefore invested in further strengthening its and a letter of intent to become a part owner and accounted for 5 per cent (4) of total sales in 2010. position and presence in the region. North Amer- strategic partner of the Thai company Aviasat- ica currently accounts for about 9 per cent (8) of com, which develops and supplies products for Saab’s sales. In South America, Brazil is Saab’s the Thai Armed Forces. Through the agree- most important growth market. ments, Saab has consolidated its position in these two markets. Asia accounted for about 15 per cent (19) of total sales in 2010.SOUTH AMERICA IS A FUTURE MARKETSaab has good references in Brazil, including having sold five ERIEYE aircraft that are being used for surveillance and to fight the drug trade inAmazonas State. The economy is growing, and today Brazil is a strong, stable country leading the way for the entire Latin American region. Thisis underscored by the fact that it will play host to both the World Cup in 2014 and the Olympics in 2016. Mexico, Peru, Chile and Colombia areother countries with stable economies – and are potentially important future markets for Saab.“Interest in various Saab systems is strong here, especially for various types of surveillance solutions such as the ERIEYE system that Brazil hastoday,” said Bo Torrestedt, Vice President and Head of Region Latin America & Sub Saharan Africa. SAAB ANNUAL REPORT 2010 29
    • SAAB’S NEW TECHNOLOGIESNEW TECHNOLOGY CREATESGROWTH OPPORTUNITIESFIRST IN THE WORLD TO INTRODUCE REMOTE AIR TRAFFIC CONTROLTraffic control is more efficient with Remotely Operated Towers.FIRST IN THE WORLD TO OFFER REMOTE AIR TRAFFIC CONTROLSaab is the first company in the world to supply a remote air traffic control Basically, remote air traffic control uses cameras and sensors installedsystem, which will be installed at the Sundsvall and Örnsköldsvik airports around an airport. Everything they record is linked in real time to the air trafficin Sweden. control centre and projected onto a 360-degree view. The controller there monitors and guides air traffic just as he would if he were sitting in a normal“This represents a paradigm shift for air traffic control. It is fantastic that we are air traffic control tower.the first in the world to offer this. It demonstrates our ability to bring the industryand users together to create change in a global operating environment,” said The system is scheduled to be installed and tested in 2011 before being placedPer Ahl, sales manager for Saab’s air traffic control solutions. in operation later in the year or in 2012. At that point, air traffic in Sundsvall and Örnsköldsvik will be controlled from a single control centre in Sundsvall.30 SAAB ANNUAL REPORT 2010
    • SAAB’S nEW TECHnOlOGIESSWEDISH DEFENCE FORCES USE SAAB’S THREE-DIMENSIONAL MAPS ONNATIONAL AND INTERNATIONAL MISSIONSThe technology in Rapid 3D Mapping is based on Saab’s more than 40 years access and use. All data are metrically correct, which means that the userof experience in image processing for target seekers and expertise in naviga- receives immediate information and can, for example, measure distancestion systems. Through its close co-operation with business area Dynamics directly in an updated map with the help of the graphic user interface.involving other image processing companies, Saab Ventures created an early The technology is disruptive compared with current options and has excel-version of the technology and in 2008 formed C3 Technologies (C3). C3 is a lent market potential. Today’s market for commercial 2-D maps is valued insubsidiary of Saab, which in turn licenses the capability to C3 for applications the range of SEK 10 billion annually.in the civil market. In autumn 2010, the Swedish Defence Materiel Administration (FMV) orderedC3 focuses on consumer markets and quickly proved successful with Internet 3-D maps, which demonstrates that Saab’s Rapid 3D Mapping meets theyellow pages such as hitta.se, Eniro.se, Finns.no, Yell.com. operational needs of defence authorities today and in the future.C3 has quickly transformed the technology based on actual customer Today over 100 cities around the world and large military areas of interestrequirements. In early 2010, a new business development team with a have been mapped using the technology.focus on military applications, R3DM, was established. By year-end 2010, C3 and R3DM together had received orders of aboutMapping is done with a technology which generates detailed, realistic 3-D MSEK 200.models from aerial photographs. Each pixel of every 3-D model containsgeographically accurate information in terms of longitude, latitude and height. For more information, see pages 20 and 23.The models are then stored in a geographical database, which is easy toINTELLIGENT VIDEO SURVEILLANCEIntelligent video monitoring is another area Saab Ventures is investing in, with perimeter surveillance. Opax’s technology originated from military applica-an emphasis on the security and traffic monitoring markets. In spring 2010, tions and is being used in demanding outdoor environments around theSaab purchased the remaining shares in video analysis specialist Opax AS, world. In 2009, Opax received the best CCTV product of the year award bywhose employees and technology were transferred to the Dynamics business the trade journal Detektor International in connection with the prestigiousarea last autumn. Opax is still a small company, but with a strong product Detektor International Awards ceremony in Stockholm.portfolio and a world-class technical expertise. It is developing an intelligent In 2011, the focus will remain on commercialising the technology.video analysis system that secures critical infrastructure through reliable SAAB AnnuAl REpORT 2010 31
    • ADMINISTRATION REPORT > FINANCIAL REVIEW 2010FINANCIAL REVIEW 2010Saab AB (publ.), corporate identity no. 556036-0793, with its regis- consist of goals for organic sales growth, operating margin after de-tered address in Linköping, Sweden. The address of the company’s preciation and amortisation (EBIT) and the equity/assets ratio.head office is Kungsbron 1, Stockholm, with the mailing address Box The previous goals for the operating margin before depreciation/70 363, SE-107 24 Stockholm, Sweden, and the telephone number amortisation (EBITDA) and the return on equity will not be+46 8 463 00 00. reported as of 2011. Saab has been listed on NASDAQ OMX Stockholm since 1998and on the Large Cap list since October 2006. The principal owner is LONG-TERM FINANCIAL GOAL PERFORMANCE IN 2010Investor AB, with 30 per cent of the shares, corresponding to 39.5 per Growthcent of the votes. Goal: This goal was previously the same as in the new long-term goal The total number of shares in the company is 109,150,344, distri- formulation. Our organic sales growth will average 5 per cent perbuted between 1,907,123 Series A shares with ten votes each and year over a business cycle.107,243,221 Series B shares with the one vote. At year-end, a total of Result 2010: In 2010, organic sales growth was -1 per cent (4).4,432,615 Series B shares had been repurchased to guarantee theGroup’s share matching plan. The repurchased shares are held as Operating margintreasury shares. Goal: We had two margin goals in 2010, both formulated as an aver- In accordance with the Swedish Annual Accounts Act, Saab has age over a business cycle. The goal for operating margin after depre-prepared a corporate governance report separate from the annual ciation/amortisation was at least 10 per cent and it remains the samereport. It can be found in this document on pages 126–132. The cor- in the new long-term goal formulation. The goal for the operatingporate governance report contains the Board of Directors’ report on margin before depreciation/amortisation is at least 15 per cent.internal control of financial reporting, which includes information Result 2010: The operating margin after depreciation/amortisa-for both the Parent Company and the Group. See pages 131–132 in tion (EBIT) in 2010 was 4.0 per cent (5.6). Adjusted for non-recur-this document. ring items, the operating margin was 6.5 per cent (5.4). The operating margin before depreciation/amortisation (EBITDA) was 9.0OPERATIONS per cent (10.5).One of the world’s leading high technology companies, Saab offersproducts, solutions and services for military defence and civil secu- Return on equityrity. In 2010, we had customers in over 90 countries, while research The ROI goal in 2010 was an average 15 per cent. In 2010, we reached aand development are principally carried out in Sweden. We are pri- return of 4.1 per cent (7.0).marily active in Europe, South Africa, Australia and the US. Since1 January 2010, we are organised in five business areas: Aeronautics, Equity/assets ratioDynamics, Electronic Defence Systems, Security and Defence Solu- Our goal in 2010: was an equity/assets ratio exceeding 30 per cent,tions, and Support and Services. which still remains in the new goal formulation. At year-end 2010, In addition to the business areas, Corporate comprises Group the equity/assets ratio was 39.1 per cent (35.1).staff and departments and secondary operations. It also includesCombitech and the leasing fleet of Saab 340 and Saab 2000 aircraft. Comment on the 2010 results Saab’s order bookings increased in 2010 by 43 per cent til MSEKLONG-TERM FINANCIAL OBJECTIVES 26,278 (18,428). The increase was due in large part to several ordersIn 2010, an analysis was made of Saab’s long-term goals. In light of for the further development of the Gripen system received fromthe strategic priorities, the long-term financial goals communicated FMV and a major order for an airborne surveillance system. Interna-externally were revised slightly. The long-term financial goals now tional customers accounted for 66 per cent (62)of order bookings.32 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORT > FINANCIAL REVIEW 2010 IMPORTANT EVENTS IN 2010The order backlog amounted to MSEK 41,459 (39,389). Sales fell by1 per cent, amounting to MSEK 24,434 (24,647). Operating income • In March, Saab received an order from the Swedish Defence Materiel Administration (FMV) for the development of the existing Gripen fleet.amounted to MSEK 975 (1,374), corresponding to a margin of 4.0 per The order value amounts to SEK 2 billion, split over four years.cent (5.6). Adjusted for non-recurring items of MSEK -602 (50), • During the second quarter, the Board of Directors received requests fromoperating income amounted to MSEK 1,577 (1,324), corresponding shareholders to convert 3,347,180 Series A shares in Saab AB to Series Bto an adjusted operating margin of 6.5 per cent (5.4). shares. As a result of the conversion, the total number of votes in the com- pany was reduced from 156,439,071 to 126,314,451. The total numberDIVIDEND AND DIVIDEND POLICY of registered shares in Saab AB is 109,150,344, of which 1,907,123 areProposal for 2011 dividend and dividend policy Series A shares and 107,243,221 are Series B shares.Saab’s long-term dividend objective is to distribute 20–40 per cent of • The contract between Saab and OKG Aktiebolag on the delivery of perim-net income over a business cycle to shareholders. For 2010, the Board eter security for the Oskarshamn nuclear power plant was terminated.of Directors proposes a dividend of SEK 3.50 per share (2.25). Saab’s 2010 earnings were charged with expenses of MSEK 150 related to the terminated contract.OUTLOOK 2011 • In September, Håkan Bushke took office as the new President and CEO of Saab. He was previously President of E.ON Sweden and CEO of E.ONIn 2011, we estimate that sales will decline slightly compared to 2010. Nordic. The previous President and CEO, Åke Svensson, remains a mem- The operating margin is expected to increase slightly in 2011 ber of Saab’s Board of Directors.compared to the adjusted operating margin in 2010. • In October, Saab received an order for an airborne surveillance system worth more than SEK 4.5 billion. The order concerns the delivery of theLONG-TERM FINANCIAL GOALS AS OF 2011 Saab 2000 AEW&C (Airborne Early Warning & Control) system, whichGrowth comprises a Saab 2000 aircraft equipped with the advanced ERIEYE• Over a business cycle, our organic sales growth will average 5 per radar system. The contract also includes ground equipment, logistics and support services. cent per year. • As a part of a long-term strategic adjustment to changing market condi- tions, Saab decided in November to reorganise the operations of theOperating margin Dynamics business area. Notice was served to more than 200 employ-• The operating margin after depreciation/amortisation (EBIT) ees. Moreover, efficiency improvements were launched in the Electronic will be at least 10 per cent. Defence Systems business area and in Corporate functions. Costs of MSEK 519 related to these measures was charged against operatingEquity/assets ratio income in the fourth quarter 2010.• The equity/assets ratio will exceed 30 per cent. • At the end of the year, Saab received an order from FMV for six Gripen air- craft intended for the Royal Thai Air Force. The order is worth about SEK 2.2 billion. SAAB ANNUAL REPORT 2010 33
    • ADMINISTRATION REPORT > SAAB’S BUSINESS AREASBUSINESS AREASSince 2010, Saab’s operations are divided into five busi- that the Group’s competencies are utilised as effectivelyness areas: Aeronautics, Dynamics, Electronic Defence as possible. In addition, the subsidiary Combitech pro-Systems, Security and Defence Solutions, and Support vides consulting services.and Services. The five business areas work together, so Description of business area Key figures MSEK 2010 2009 Aeronautics Sales 6,741 7,571 These operations include the development of civil and military aviation technology at a high level. The product portfolio includes the Gripen Operating income 191 6 fighter and Unmanned Aerial Systems (UAS). Aeronautics also manufac- Adjusted operating margin, % 4.3 1.4 tures aircraft components for Saab’s own aircraft as well as passenger Order bookings 6,901 3,417 aircraft produced by others. Order backlog at year-end 15,636 15,476 Operating cash flow 30 -434 MSEK 2010 2009 Dynamics Sales 4,741 4,580 These operations comprise a product portfolio of various types of advanced weapon systems such as support weapons, missiles, torpe- Operating income 322 269 does, Remotely Operated Vehicles (ROVs) and signature management Adjusted operating margin, % 12.4 9.8 systems that make it more difficult for various types of sensors to detect Order bookings 3,312 3,133 and identify people or objects. Order backlog at year-end 5,546 6,980 Operating cash flow 1,044 369 MSEK 2010 2009 Electronic Defence Systems The purpose of these operations, which are based on Saab’s extensive Sales 4,354 4,670 expertise and expertise in radar, electronic warfare and avionics, is to Operating income 99 24 provide solutions to detect, localise and protect against various types of Adjusted operating margin, % 4.3 0.5 threats. The product portfolio includes air, naval and land-based sensor Order bookings 5,494 2,625 and radar systems, self-protection systems for aircraft, helicopters, Order backlog at year-end 8,240 7,159 ships and vehicles, and defence electronics. Operating cash flow 594 506 MSEK 2010 2009 Security and Defence Solutions Sales 6,210 5,800 These operations address both the military and civil security market with a product portfolio of C4ISR (computerized command, control, commu- Operating income 137 278 nications and intelligence) systems, airborne early warning systems, civil Adjusted operating margin, % 2.8 4.8 security solutions, training and simulation systems, and solutions for Order bookings 6,647 6,045 telecom operators. Order backlog at year-end 8,434 7,746 Operating cash flow 1,066 -217 MSEK 2010 2009 Support and Services Sales 3,403 3,564 These operations offer reliable, cost-effective service and support for all of Saab’s markets. This primarily includes integrated support solutions, Operating income 351 410 technical maintenance and logistics, and products, solutions and serv- Adjusted operating margin, % 11.8 12.1 ices for military and civil missions in locations with limited infrastructure. Order bookings 4,124 4,057 Order backlog at year-end 4,743 4,011 Operating cash flow 894 81 Combitech* Combitech is a wholly owned subsidiary of Saab and a leading technology and operations consultancy. By combining technology with environmental and security thinking, Combitech offers its customers unique and effective solutions. *Combitech is reported as part of Corporate34 SAAB ANNUAL REPORT 2010
    • SAAB’S BUSINESS AREAS > SAAB’S BUSINESS AREASAERONAUTICSOperations include the development of civil and militaryaviation technology at a high level. The product portfolioincludes the Gripen fighter and Unmanned Aerial Systems(UAS). Aeronautics also manufactures aircraft componentsfor Saab’s own aircraft as well as passenger aircraft pro-duced by others. Markets outside Sweden accounted for 44 per cent (60) of sales in 2010.SALES, INCOME AND ORDERSOrders received Income and marginOrders received in 2010 included an order from FMV for six Gripen Profitability in 2010 improved compared to 2009 due the effectsaircraft intended for the Royal Thai Air Force and several orders of the reorganisation of Aeronautics, announced lay-offs and theconcerning development of the Gripen system, including an order Billion+ programme.for the integration of the active radar-guided Beyond Visual Range Total restructuring charges of MSEK 98 were taken in 2010.(BVR) missile, Meteor. An order for a Tactical Unmanned AerialVehicle system (TUAV) was also received from FMV. Airbus re- Operating cash flowceived orders related to the A380 programme that resulted in an Operating cash flow in 2010 improved mainly as a result of advancesincrease in order bookings of MSEK 480 for Aeronautics in 2010. received in major projects. Orders received where the order sum was more than MSEK 100 Some projects entered the final stages of completion in 2010.represented 89 per cent (79) of total order bookings. When they are completed, it will lead to a reduction in customer advances and a lower cash flow generation.SalesSales decreased by 11 per cent compared to 2009. The decrease ismainly related to lower project activity levels in major contracts,such as the Gripen aircraft deliveries to Thailand and South Africa,compared to last year. SALES, OPERATING INCOME SHARE OF SALES MSEK AND MARGIN 2010, %8,000 500 10 0 3 26%6,000 -500 -44,000 -1,000 -112,000 -1,500 -18 0 -2,000 -25 2007 2008 2009 2010 2007 2008 2009 2010 Operating income, MSEK Margin, % SAAB ANNUAL REPORT 2010 35
    • ADMINISTRATION REPORT > SAAB’S BUSINESS AREASDYNAMICSOperations comprise a product portfolio of various types ofadvanced weapon systems such as support weapons,missiles, torpedoes, Remotely Operated Vehicles (ROVs)and signature management systems that make it moredifficult for various types of sensors to detect and identifypeople or objects. Income and margin Profitability in 2010 increased mainly as a result of the effects fromSALES, INCOME AND ORDERS the Billion+ programme. Due to an increased level of deliveries atOrders received the end of the year, the adjusted profitability increased in the fourthOrders received in 2010 included an order for the air defence system quarter. In the fourth quarter, a restructuring charge of MSEK 278RBS 70 from Finland. Contracts were signed for components to the was recorded related to the restructuring measures announced on 10Carl-Gustaf man-portable weapon system, and France placed an November 2010, where Dynamics will terminate its operations inorder for the anti-tank weapon AT4CS. Saab also received a signifi- Eskilstuna, Sweden, in 2012 and part of the remaining production willcant order for multispectral camouflage products and services. An be moved to Karlskoga in 2011. At the same time it was announcedorder was received from FMV for the generation and subsequent that the underwater vehicles operations, based in Motala, Sweden,delivery of 3-dimensional (3D) maps to the Swedish Armed Forces will be integrated with UK-based Saab Seaeye Ltd. Under the condi-for use in national as well as international operations. tion that the ongoing discussions with potential clients lead to a long- Orders received where the order sum was more than MSEK 100 term agreement, remaining parts of the operations will be integratedrepresented 61 per cent (20) of total order bookings. with Dynamics in Linköping. As a consequence of this change all employees in Motala were served notice in December 2010.Sales A property holding company was divested in 2010 for MSEK 133,Sales increased mainly as a result of a higher activity level within the which impacted cash flow positively. The transaction generated aweapons system area. Markets outside Sweden accounted for 81 per capital gain of MSEK 12.cent (86) of sales in 2010. Operating cash flow Operating cash flow in 2010 was positive due to deliveries and major milestone payments. SALES, OPERATING INCOME SHARE OF SALES MSEK AND MARGIN 2010, %5,000 500 124,000 400 10 18%3,000 300 82,000 200 61,000 100 4 0 0 2 2007 2008 2009 2010 2007 2008 2009 2010 Operating income, MSEK Margin, %36 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORT > SAAB’S BUSINESS AREASELECTRONICDEFENCESYSTEMSThe purpose of these operations, which are based onSaab’s extensive expertise and experience in radar, elec-tronic warfare and avionics, is to provide solutions to detect,localise and protect against various types of threats. Theproduct portfolio includes air, naval and land-based sensorand radar systems, self-protection systems for aircraft, heli- Income and margincopters, ships and vehicles, and defence electronics. Despite structural costs, profitability improved in 2010. A major part of the improvement resulted from a claim related to a finalisedSALES, INCOME AND ORDERS project where Saab has reduced its estimated risk share.Orders received In the fourth quarter, a restructuring charge of MSEK 89 wasOrders received in 2010 increased strongly as a result of the orders recorded for restructuring measures announced on 10 Novemberfrom FMV for the development of the Gripen system and strong 2010. In connection with this, Electronic Defence Systemsdemand in the radar business, where several orders were received for announced that its sites in Gothenburg will be consolidated in 2010the GIRAFFE system (e.g., from Lockheed Martin and the Austral- and 2011. Microwave and antenna construction in Järfälla will alsoian Defence Material Organisation). Orders were also received for be terminated, while component construction and productionthe weapon locating system ARTHUR, which has been delivered to within the microwave area are consolidated in Gothenburg and Cen-Czech Republic, Denmark, Greece, Norway, Spain, Sweden and the turion, South Africa. In addition, all operations in the StockholmUK. The increase was also due to an order received for an airborne area will be merged in Järfälla.surveillance system, including the advanced ERIEYE radar system. Orders received where the order sum was more than MSEK 100 Operating cash flowrepresented 58 per cent (49) of total order bookings. Operating cash flow improved in 2010 due to project milestone deliveries.SalesSales in 2010 decreased mainly as a result of delays in major projectscompared to 2009. Markets outside Sweden accounted for 62 percent (67) of sales in 2010. SALES, OPERATING INCOME SHARE OF SALES MSEK AND MARGIN 2010, %6,000 600 124,800 500 10 16% 400 83,600 300 62,400 200 41,200 100 2 0 0 0 2007 2008 2009 2010 2007 2008 2009 2010 Operating income, MSEK Margin, % SAAB ANNUAL REPORT 2010 37
    • ADMINISTRATION REPORT > SAAB’S BUSINESS AREASSECURITY ANDDEFENCESOLUTIONSThese operations address both the military and civil secu-rity market with a competitive product portfolio of C4ISR(computerized command, control, communications andintelligence) systems, airborne early warning systems, civilsecurity solutions, training and simulation systems, andsolutions for telecom operators. Income and margin In 2010, profitability was negatively impacted by costs of aboutSALES, INCOME AND ORDERS MSEK 310 mainly related to a terminated contract with OKG Aktie-Orders received bolag. The charges included a write-down of capitalised develop-Orders received in 2010 included a billion-kronor order for delivery ment costs of MSEK 20.of the Saab 2000 AEW&C (Airborne Early Warning & Control) The Maritime and Commercial Court in Copenhagen issued asystem, including the advanced ERIEYE radar system. judgment dismissing the Danish Defence Acquisition and Logistics An order was received within the civil security area from the Organization’s (DALO) claim against Saab in September 2010.Prague Transport Company (PTC) for the upgrade of the security DALO was instead ordered to pay Saab damages plus interest andsystem in Prague’s subway. Furthermore, Saab and the Swedish com- cover Saab’s court costs. Income of approximately MSEK 50 waspany LFV signed a contract for remote air traffic control. recorded as a result. DALO has filed an appeal against the judgment. Orders of about MSEK 220 were cancelled as a result of the In the fourth quarter, a restructuring charge of MSEK 21 wasterminated contract with OKG Aktiebolag. recorded for the restructuring measures announced on 10 Novem- Orders received where the order sum was more than MSEK 100 ber 2010 related to initiatives aimed at lowering overhead costs.represented 40 per cent (41) of total order bookings. Operating cash flowSales Operating cash flow improved due to milestone payments received,Sales increased in 2010 as a result of higher project activity levels and a mainly related to major airborne surveillance system orders.good order intake, especially in Training and Simulation. Lower reve-nue recognition for the terminated contract with OKG Aktiebolagreduced sales by about MSEK 100 in 2010 compared to 2009. Marketsoutside Sweden accounted for 77 per cent (74) of sales in 2010. SALES, OPERATING INCOME SHARE OF SALES MSEK AND MARGIN 2010, %6,000 800 124,800 640 10 23%3,600 480 82,400 320 61,200 160 4 0 0 2 2007 2008 2009 2010 2007 2008 2009 2010 Operating income, MSEK Margin, %38 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORT > SAAB’S BUSINESS AREASSUPPORT ANDSERVICESThese operations offer reliable, cost-effective service andsupport for all of Saab’s markets. This primarily includesintegrated support solutions, technical maintenance andlogistics, and products, solutions and services for militaryand civil missions in locations with limited infrastructure. Income and marginSALES, INCOME AND ORDERS Profitability decreased in 2010 compared to 2009 mainly as a resultOrders received of a restructuring charge of MSEK 50 recorded in the fourth quarter.Orders received increased in 2010 driven by orders for the Gripen This is related to initiatives aimed at lowering overhead costs as partsystem and airborne surveillance systems within Saab and by smaller of the restructuring measures announced on 10 November 2010.orders received mainly in Sweden. An eight-year agreement was also signed with Scandinavian Air Operating cash flowAmbulance Holding AB, where Saab will take over responsibility for Operating cash flow improved significantly due to milestone pay-for its helicopter and aircraft operations starting 2011. ments received from large projects and an improved level of working Orders received where the order sum was more than MSEK 100 capital.represented 32 per cent (25) of total order bookings.SalesSales in 2010 decreased as a result of lower demand in the regionalcommercial aviation market and delays in some major projects com-pared to 2009. Markets outside Sweden accounted for 26 per cent (28) of salesduring 2010. SALES, OPERATING INCOME SHARE OF SALES MSEK AND MARGIN 2010, %4,000 500 133,200 400 13% 122,400 3001,600 200 11 800 100 0 0 10 2007 2008 2009 2010 2007 2008 2009 2010 Operating income, MSEK Margin, % SAAB ANNUAL REPORT 2010 39
    • ADMINISTRATION REPORTCOMBITECH*Combitech is a wholly owned subsidiary of Saab and a lead-ing technology and operations consultancy. By combiningtechnology with environmental and security thinking, Combi-tech offers its customers unique and effective solutions.CORE COMPETENCIES AND OFFERING HISTORYCombitech’s consultants have cutting-edge competence in informa- Combitech AB was formed in 2006 through a merger of Combitechtion security, systems security, logistics, systems integration, systems Systems and parts of AerotechTelub, both wholly owned by Saabdevelopment, communication and mechanics. By combining them, since the early 2000’s. In 2007, Saab acquired Caran Saab Engineer-Combitech can offer knowledge and expertise in a number of high- ing, which was incorporated into Combitech.tech areas. In addition, Combitech provides a wide range of skills-based courses for its customers. COMPANY FACTS Combitech currently has around 800 employees, over 20 percent ofCUSTOMERS whom are women. The company has grown strongly in recent yearsCombitech’s customers are companies in need of complex security largely as a result of acquisitions and in 2010 had sales of aboutsolutions, government agencies responsible for protecting society’s MSEK 900.flows and enterprises in aviation, defence, telecom and other indus- Combitech operates in around 20 locations in Sweden. It also hastrial segments. offices in Norway and Germany and is represented in Brussels.*Combitech is reported as part of Corporate. SALES BY SEGMENT 2010, % THE HISTORY OF COMBITECH Caran Saab Engineering – Combitech CSE Combitech Software – Combitech Systems Combitech AB Enator Communications Enator Telub AerotechTelub Celsius Aerotech Defence, 31% Defence industry, 13% Aerospace industry, 25% Public authorities, 8% Telecom, 13% Other industry, 10% 1999 2001 2003 2005 2007 200940 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORTOTHER INFORMATIONCORPORATE prises the President and CEO and other members of GroupCorporate reported operating income of MSEK -125 (387). In 2009, Management and is identified on Saab’s website, www.saabgroup.com.operating income was positively impacted by a revaluation of the Saab offers market terms, enabling it to recruit and retain seniorremaining risks associated with the regional aircraft portfolio of executives. To the extent possible, remuneration structures are charac-MSEK 350. terised by predictability with respect to the cost for the company and Operating income includes restructuring costs of MSEK 65 the benefits of the employee and are based on factors such as position,related to efforts to lower the Group’s administrative and overhead competence, experience and performance. Benchmarking is used rela-costs announced on 10 November 2010. tive to comparable industries and markets. It also includes a capital loss of MSEK 22 from June 2010 when The Board has the right to deviate from the guidelines, if there areSaab divested 25 per cent of the votes, corresponding to five per cent reasonable rounds in an individual case.of the capital, in Saab South Africa (Pty) Ltd to the South African The Board’s proposal is based mainly on agreements in effect betweenholding company Sekunjalo Investment Ltd. Operating income also Saab AB and each executive. No Board fees are paid for participation byincludes a capital gain of MSEK 24 from the divestment of 16 per cent members of Group Management on the boards of the business units.of the capital in Hawker Pacific in December 2010. The Remuneration Committee is responsible for development and review of remuneration and other employment terms for GroupTHE BILLION+ PROGRAMME Management.At the start of 2008, Saab initiated a programme aimed at improvinginternal efficiency called the “Billion+ programme”. This was expan- Remunerationded in 2009 to include a programme where additional costs cuts of Cash remuneration consists of fixed and variable salary. Fixed sala-MSEK 500 would be achieved through a reduction in the workforce ries are reviewed annually as per 1 January for the entire Group Man-of about 500 employees, mainly through attrition. These two meas- agement, while the variable component is governed by an agreementures were initiated to ensure that Saab will have the capability to make reached annually with each executive.the necessary investments going forward to sustain its competitive- The variable salary for the President is based on the extent to whichness. The target was to reduce the cost base by about SEK 1.5 billion pre-determined quantitative and qualitative goals are reached. Quanti-over a three-year period, 2008–2010. To deliver on this target, Saab tative goals primarily apply to the rest of Group Management. The vari-aimed at reducing its cost base by about MSEK 650 in 2010, which able component is maximised at 50 per cent of the fixed salary of thewas achieved. In 2010, the cost reductions contributed about 3 per- President and between 25 per cent and 35 per cent of the fixed salary ofcentage points to the reported operating margin. the rest of Group Management. About 70 per cent of the cost reduction over the three year 2008– All senior executives are entitled to participate in the Performance2010 has been generated by reducing the cost of goods sold. Share Plan approved by the 2010 Annual General Meeting. Participants A major part of the cost reductions have been achieved through in this program are not covered by the general Share Matching Planan aligned and improved development process, increased produc- approved by the 2010 Annual General Meeting.tion efficiency and reduction of sites as well as lower sourcing and All executives in Group Management have the right to a companytravel costs. car according to Saab’s regulations.GUIDELINES FOR REMUNERATION AND OTHER BENEFITS TO PensionMEMBERS OF SENIOR MANAGEMENT For pension agreements entered into after 1 January 2005, the pensionSenior management remuneration age is 62. In addition to the ITP agreement, the pension is part of aBy Swedish law, the Board of Directors must prepare guidelines prior defined contribution plan where provisions are made annually. Forto the Annual General Meeting for determining the salaries and other the President, the provision is equivalent to 35 per cent of his fixedremuneration to the President and CEO and other members of the salary. For other executives, the percentage is based on the regula-senior management of the company. The 2010 Annual General Meet- tions of the so-called Saab plan. The percentage is dependent on theing adopted the proposal presented by the Board containing guide- number of years remaining until retirement upon joining the plan.lines for such remuneration to Group Management. This group com- SAAB ANNUAL REPORT 2010 41
    • ADMINISTRATION REPORTOther terms one matching share without performance requirement. The savingsAll executives in Group Management, including the President, may amount allowed in the Performance Share Plan is maximized to 7.5 perterminate their employment with six months’ notice. If the employ- cent of the gross salary. However, of the 7.5 per cent, only an amount ofment ends at Saab’s initiative, the notice period is also six months, maximum 5 per cent of the gross salary can be the basis for allocationafter which severance is paid for one year. One additional annual of matching shares. Technically this revision is accomplished by partici-salary may be payable if no new employment has been obtained in pants in the Performance Share Plan also enrolling in the Share Match-the first 18 months. ing Plan that is open to all employees. The total savings amount how- For employment agreements entered into after 1 January 2005, if ever can never exceed 7.5 per cent of the gross salary.employment terminates at Saab’s initiative the maximum severance pay The Remuneration Committee further proposes that the fixedis 18 months, in addition to the six-month notice period. salary for senior executives is adjusted in such a way that the adjust- In both cases, termination pay and severance pay will be deducted ment will constitute reasonable compensation for the future loss ofagainst income from other employment during the corresponding time. remuneration from the STI considering the historical outcome of Saab had no other incentive programs during 2010 for the Group such remuneration.Managment other than those described above. Proposal for guidelinesTHE BOARD OF DIRECTORS’ PROPOSAL FOR GUIDELINES In light of the above background and reasons, the Board of DirectorsFOR REMUNERATION OF SENIOR EXECUTIVES TO APPLY AS therefore proposes that the guidelines for remuneration of seniorOF THE NEXT ANNUAL GENERAL MEETING executives are changed.Background and reasons In respect of pensions, other benefits and miscellaneous terms,The Remuneration Committee has evaluated the application of the the guidelines are unchanged from 2010 except for minor linguisticguidelines for remuneration for senior executives of Saab that were adjustments.resolved at the Annual General Meeting in 2010 and the current The new guidelines are proposed to have the following wordingremuneration structures and remuneration levels in the company. regarding fixed and variable remuneration, remuneration to mem- The Remuneration Committee has thereby analyzed and evaluated bers of the Board of Directors and Long-Term Incentive Programsthe effectiveness and relevance of the short-term variable remunera- 2011. The guidelines are proposed to apply from the Annual Generaltion (Short Term Incentive, “STI”) for senior executives. Saab’s oper- Meeting 2011. In terms of fixed salary, the guidelines shall apply fromations are mainly characterized by technically advanced products 1 January 2011.and systems. They are marketed, further developed, produced andmaintained during long periods of time, in some cases three to four Fixed remunerationdecades, and generally entail substantial investments and long-term Cash remuneration shall consist of fixed salary. The fixed salary shallcustomer relations all over the world. The Remuneration Commit- be reviewed annually as per 1 January for all members of the Grouptee’s evaluation shows that short-term quantitative and qualitative Management. The fixed salary shall be at market terms and based ontargets in Saab’s operations are difficult to evaluate and measure. factors such as position, competence, experience and performance.Long-term projects can only to a very limited degree be affected byan individual in the short term. The Remuneration Committee Variable remunerationconsiders that it is important that senior executives have a long-term It is important that senior executives have a long-term view and aview and a long-term commitment in the company’s operations and long-term commitment in the company’s operations and profits.profits, and that therefore a long-term incentive (“LTI”) is especially Therefore a long-term incentives are especially well suited to Saabwell suited to Saab and its shareholders. and its shareholders. The evaluation of the Long-Term Performance Share Plan has The President and CEO and senior executives are entitled toshown that the level of enrollment has decreased in the most recent participate in the long-term incentive programs as resolved by theprograms. The conclusion of the evaluation is that the Performance Annual General Meeting.Share Plan should be amended in order to achieve its purpose and In extraordinary cases, agreements of a one-time nature for vari-have a positive effect on business and thus counterbalance the costs able cash remuneration may be made provided that such agreementsof the program. are made solely on an individual base for recruitment or retention As a result of the evaluation of the total compensation package purposes only, or as compensation for extraordinary efforts beyondfor senior executives, the Remuneration Committee proposes to dis- the individual’s ordinary assignment. Such remuneration shall nevercontinue with the STI and replace them with revised long-term exceed the amount of the fixed annual salary and shall not be paidincentive programs together with an adjusted fixed salary. more than once a year per individual. Resolutions on such cash The suggested revision of the long-term incentive programs in remuneration shall be made by the Board based on a proposal fromprincipal means that the number of shares that can be earned in the the Remuneration Committee.Performance Share Plan is reduced by one share and is replaced with Variable cash remuneration shall not be paid in other cases.42 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORTRemuneration to Board Members working with the company’s capital structure and enable acquisi-Board Members, elected by Saab’s Shareholders’ Meeting, may in tions when considered appropriate, as well as to secure the Group’sspecial cases receive a fee for services performed within their respec- share matching plan. The mandate applied until the next Annualtive areas of expertise, separately from their Board duties and for a General Meeting.limited period of time. Compensation for these services shall be paid Repurchases may be effected over the stock exchange or throughat market terms. offerings to shareholders. It was also proposed that the Board’s man- date include the possibility to transfer repurchased shares as allowedIncentive programs proposed to the Annual by law. Repurchased shares can also be transferred in connectionGeneral Meeting 2011 with the company’s share matching plan and performance share plan.The Board of Directors proposes that the Annual General Meeting Saab announced on 16 June 2010 that the Board has decided toresolves on the implementation of a Share Matching Plan 2011 and a utilise its authorisation for repurchases to hedge the company’s sharePerformance Share Plan 2011. matching plan and performance share plan. Between 26 July and 28 The terms and estimated costs for the Share Matching Plan 2011 August 2010, 838,131 shares were acquired on NASDAQ OMX Stock-and the Performance Share Plan 2011 will be presented in the Board’s holm at a total cost of MSEK 80. On 31 December 2010, Saab heldcomplete proposal to the Annual General Meeting. 4,432,615 shares as treasury stock, which was 793,395 more shares than at year-end 2009.Deviation from the guidelines for remuneration forsenior executives 2010 DIVIDENDOn one occasion, the Board of Directors resolved to pay an extra The Board of Directors proposes that shareholders receive a divi-variable remuneration with a total amount of SEK 940,000 before dend of SEK 3.50 per share (2.25), or a total of MSEK 367 (237). 12tax to two members of the Group Management to show appreciation April has been proposed as the record day for the dividend, which isof their extraordinary efforts during 2010. expected to be paid on 15 April 2011.SHARE REPURCHASE EVENTS AFTER THE BALANCE SHEET DATEShare repurchase • An order was received from FMV regarding development of the existingIn April 2007, Saab’s Annual General Meeting resolved to offer materiel system in Gripen C/D 39 (edition 19). The order amount is MSEKemployees the opportunity to participate in a voluntary share match- 127. The work will be carried out in 2011 and 2012.ing plan where they can purchase Series B shares in Saab during a • An order was received for the weapon locating system ARTHUR from LIG12-month period. Purchases are made through withdrawals of Nex1 which is the prime contractor for the Defence Acquisition Program Administration, Republic of Korea. The order sum is MSEK 450.between 1 and 5 per cent of the employee’s monthly salary. If theemployee retains the purchased shares for three years after the • Saab announced that the Nomination Committee proposes Håkan Buskhe and Michael O’Callaghan for election to the Saab Board of Direc-investment date and is still employed by the Saab Group, the tors. Marcus Wallenberg, Johan Forssell, Sten Jakobsson, Per-Arneemployee will be allotted a corresponding number of Series B shares. Sandström, Cecilia Stegö Chilò, Åke Svensson, Lena Treschow Torell and The plan was introduced in autumn 2007 in Sweden and Norway. Joakim Westh are proposed for re-election. Marcus Wallenberg is pro-In 2008, it was expanded to include employees in Denmark, Germany, posed as Chairman of the Board. Erik Belfrage and George Rose havethe UK, the U.S., Switzerland and Australia, and in 2009 it was declined re-election. The Nomination Committee also proposes that the accounting firm PricewaterhouseCoopers AB is elected as new auditorexpanded again to cover employees in South Africa. In April 2008, for a term of four years.Saab’s Annual General Meeting resolved to introduce a performance-based plan for senior executives and key employees entitling them to • Saab announced it had signed an agreement to acquire assets from the Czech company E-COM, whose main operations are in the development2–5 matching shares depending on the category the employee belongs and production of virtual simulators. The acquisition strengthens Saab’sto. In addition to the requirement that the employee remain employed product portfolio in training and simulation with a number of new capabili-by Saab after three years, there is a requirement that earnings per ties and services within the virtual domain. The acquisition of assets fromshare grow in the range of 5 to 15 per cent. E-COM is expected to have no material effect on Saab’s consolidated The Annual General Meetings in 2009 and 2010 resolved to financial statements in 2011.renew the share matching plan and performance share plan. In 2007, Saab repurchased 1 million shares and in 2008 and 2009 No other significant events have occurred after the balance sheetit repurchased 1,340,000 shares per year to hedge the plans. date that affect Saab’s results of operations and financial position. The Annual General Meeting on 15 April 2010 resolved to renewthe Board of Directors’ mandate to decide to repurchase up to 10 percent of the company’s shares, of which 1,340,000 shares to hedge theyear’s share matching plan and performance share plan. The purposeof the authorisation was to provide the Board with greater scope in SAAB ANNUAL REPORT 2010 43
    • ADMINISTRATION REPORT > SAAB’S RESPONSIBILITIESSAFE AND SUSTAINABLESOCIETIESSaab’s operations contribute to security and stability in the We are convinced that earning trust in our company and operations isworld. In accordance with our vision, we work every day to largely based on acting responsibly in these areas. Without this trust, itmake people feel safe. is hard for us to continue to develop cutting-edge technology at the rate we do today. This in turn requires continuous dialogue, positiveThe United Nations Charter gives every nation the right to protect relationships with our stakeholders and responsible decisions.itself and its citizens. This right applies regardless of whether thenation has its own defence industry. Saab’s vision is based on an SAAB’S CORE STAKEHOLDERSeffort to keep society and those of us who live here safe. By improv- Customers and business partnersing and upgrading technological systems and solutions, we increase Through research, development and production, Saab supplies products,security in society and for its citizens, including those whose job it is solutions and services that meet the expectations customers place on qual- ity, safety, economics and protection of the environment. We are committedto maintain security. We also provide insight into how threats to free trade, fair competition and legal compliance. We act fairly and impar-against security change and develop innovative solutions to keep tially vis-à-vis our suppliers and other partners and do not tolerate corruptionsociety safe. or other improper business practices. Saab’s vision and core values – expertise, trust and ambition – are Employeesthe guiding principles in our operations and how we take responsibil- Saab’s aim is to provide shareholders with a consistently high return. Weity. They are fundamental to our existence. keep our shareholders continuously informed on our operations as well as our activities and results.Saab’s values are: ShareholdersEXPERTISE – We combine a strong history of knowledge with con- Saab’s aim is to provide shareholders with a consistently high return. We keep our shareholders informed on our operations as well as our activitiestinuous learning. and results.TRUST – We are honest and reliable citizens of the world and we Society Saab is a responsible member of society and acts in accordance with appli-keep our promises. cable laws. We are committed in various ways to supporting our local com- munities, protecting the environment and contributing to research and devel-AMBITION – We have a passion for innovation, we are open to opment that benefits the entire society. We do not take political sides.change and are committed to being fast and flexible.Success demands responsibilityTo be as successful as possible – and help to make people feel safe –we have identified four areas that are, and must be, integral to ourbusiness operations:• Business ethics – There should be no question that we act ethi- cally in our business operations.• Society – Our operations will contribute to society as a whole as well as specifically to the local communities where we operate.• Employees – We will take responsibility for our employees and their opportunities to develop and thrive in our organisation.• Environmental – We will minimise the environmental impact of our operations and contribute to ecological sustainability.44 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORT > SAAB’S RESPONSIBILITIES TAKING RESPONSIBILITY Management of sustainability work Overall responsibility for sustainability work BOARD OF DIRECTORS rests with Saab’s Board of Directors, which, through the CEO and other members of Group Management, ensures that sustaina- ble development is incorporated into day- MANAGEMENT to-day operations. Group Management has assigned individuals responsible for each of the four areas mentioned above. Electronic Security and Support Aeronautics Dynamics Defence Defence and Combitech* Systems Solutions Services SUSTAINABILITY AT SAAB Business Employees Society Environment ethics * Combitech is reported as part of Corporate. BUSINESS ETHICS SOCIETY High ethical standards in our Contribute to society as a business operations whole and specifically in our communities VISION It is a human right to feel safe EMPLOYEES ENVIRONMENT Responsibility for employees Reduce our environmental impact and their opportunities and contribute to ecological to develop sustainability SAAB ANNUAL REPORT 2010 45
    • ADMINISTRATION REPORT > SAAB’S ETHICAL COMMITMENTETHICAL BEHAVIOUR EXTENDS TOEVERY BUSINESS RELATIONSHIPSaab works continuously with business ethics issues to Activities 2010ensure that we live by our values in our marketing and There should be no question that we will win and deliver on con-every business relationship. This requires an uncompro- tracts according to the highest possible ethical standards and that it should benefit the industry and society as a whole. To reinforce this,mising commitment to compliance with rules and laws, in 2010 we continued the development of the existing group-wideand it contributes to sustainable development. training on Saab’s Code of Conduct. During the year, we also centralised the process and the organisa- OVERALL OBJECTIVE tion for handling marketing consultants. In connection with this weTo be a trustworthy and reliable partner that promotes an open and transpar- revised the directive that describes how marketing consultants areent market. handled, and we also continued the training for all employees who work with marketing consultants. PRIORITY AREAS Joint efforts to fight corruptionWe at Saab are committed to maintaining high ethical standards in every- Saab has played an active role in establishing a code of conduct forthing we do, in every contact and every collaboration. We are therefore con-stantly working with business ethics and ensuring that we live by our values. the Aerospace and Defence Industry Association. The code is designed to fight corruption and contains a toolbox to facilitate the introduction of, and compliance with, the rules. A majority of Euro-Management pean defence exporters has committed to the code.Saab’s Code of Conduct governs our actions. While reinforcing our Saab has also continued to work internationally to fight corrup-values, it establishes a general way of working and rules on individ- tion by participating in the establishment of the Global Principles ofual and collective responsibilities. Business Ethics for the Aerospace and Defence Industry together The General Counsel has overarching responsibility for establish- with other European and US defence contractors. These principlesing a code of conduct and raising business ethics issues in the organ- establish zero tolerance of corruption and treat the use of marketingisation. If an individual employee has issues or problems of any kind, consultants, conflicts of interest and confidential information. Saabthey should be discussed with their immediate supervisor. If this is has pledged to implement them in its operations.not possible, the employee can instead utilise a whistleblower func- The co-operation between the US and European defence indus-tion and contact a special helpdesk. try has led to the creation of the International Forum on Business With regard to marketing consultants, we have established a rule Ethical Conduct (IFBEC), which provides information on the globalthat senior management must approve arrangements that are entered principles and encourages companies to share best practices. Saabinto with consultants on large contracts. Every relationship with a participates actively in IFBEC’s operations.marketing consultant must be approved by the business area managerand marketing manager. Moreover, a special Ethics and Complianceunit has been established in the legal department to ensure that ruleson marketing consultants are effective and to provide regular updates.46 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORT > SAAB’S ETHICAL COMMITMENTEthical commitments over and above the law SAAB’S CODE OF CONDUCTGeneral rules and guidelines are naturally in place in our industry to Saab’s Code of Conduct provides clearly defined rules and routines to en-regulate contracts. In Sweden, for example, the production and export sure that accepted business practices are applied in day-to-day operations.of materiel are governed by laws, ordinances and guidelines adopted The code is based on the OECD’s guidelines for multinational companies and the ten principles of the UN’s Global Compact.by parliament. In the same way, we abide by the laws and the regula-tions in every country where we operate and sign business agree-ments. In addition, we are committed to maintaining high standardsin everything we do. That is how we earn the trust of our stakeholders.Our business ethics guide us in everything we do. SAAB ANNUAL REPORT 2010 47
    • ADMINISTRATION REPORT > SAAB IN SOCIETYTRAINING IS IMPORTANT TO USAND SOCIETYFor 73 years, Saab has created job opportunities and eco- nation. Saab’s technology has also produced a number of new compa-nomic growth in Sweden. We are still doing so today, but in nies over the years. Since 2001, 13 companies have been spun off.far more countries. The biggest facilitator is our employees’ As we become more international, we take on a similar role in the countries where we operate such as South Africa and Australia.knowledge, especially with regard to technology. Today we Every time we sign a major international contract, industrial co-invest heavily in educational activities to the benefit of our operations are generally involved. For example, we may agree withoperations and society as a whole. the customer to outsource some production or development work to the country or enter into industrial, commercial or research-related OVERALL OBJECTIVE alliances. This often helps Saab to build a strong local presence in theTo contribute to knowledge and society as a whole. buying country, at the same time that the local economy benefits and skilled jobs are created. PRIORITY AREAS Education is essentialIn carrying out our corporate responsibility, we give priority to educational activi- Saab works with a number of institutes of technology and universi-ties, especially for young people. This includes everything from getting Swedish ties on various types of research and development. But to ensure ourstudents interested in engineering to ensuring that young people in countrieslike South Africa get an education. Our competence and products also make it future technological development, we also try to get young peoplepossible for us to help provide humanitarian aid to crisis areas. interested in the natural sciences and engineering and encourage them to choose these subjects in school. One example of our educational investments is Saab TechnicalManagement High School, which we started in Arboga in 2009. The curriculumOur efforts are guided by our values and our sponsorship policy. includes aeronautics, radar technology and logistics. We also offerEach business area is responsible for implementing and following students a summer course abroad in English as well as summer jobs.up its activities, which are co-ordinated at the group level through Saab also sponsors the Order of the Teaspoon, founded in 2006specific project steering groups. in Sweden by the magazine Vi. It is striving to resist fanaticism and promote increased tolerance among people. Israeli author Amos OzBenefitting society and his book ”How to Cure a Fanatic” were the inspiration for theOur investments in technology have been important to Sweden’s foundation.industrial development. As one of the country’s most research- Our global corporate responsibility is based on a conviction thatintensive companies, we have contributed to society’s technological education provides the foundation for social progress. In Southdevelopment, often in collaboration with leading universities and Africa, we participate in a number of educational projects where weinstitutes of technology. This has generated job opportunities in and donate educational material and other equipment, assist in teachingoutside our company and substantial export revenues for Sweden. and take our own educational initiatives. We work most closely with Last year, Gunnar Eliasson, Professor of Industrial Economics at schools in impoverished areas and help children in need to receivethe Royal Institute of Technology, conducted a study on the spillover an education. As part of the iLab Classroom project, for example, weeffects from advanced technological development. Using Gripen as a sponsor mobile computer labs that can easily be transported to chil-case study, he showed that the original R&D investment in the project dren in schools that currently do not have access to computers andhas been repaid to Swedish society at least 2.6 times over. So instead IT. For years, we have also offered educational grants to promisingof costing society money, it has given far more back. Other compa- engineering students from impoverished areas.nies have also been able to benefit, at the same time that Gripen hascontributed to Sweden’s standing position as a high-tech industrial48 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORT > SAAB IN SOCIETYIn fall 2010, Saab delivered a water treatment system to Pakistan with the capacity to supply water to 20,000 people a day.Sponsoring education Supporting people in needOur sponsorship-related activities are largely focused on education In addition to supporting educational projects, we provide humani-and technology. Examples include Venture Cup, the Royal Swedish tarian aid to people and communities in need, especially to relieveAcademy of Science’s “Natural Science and Technology for All” pro- human suffering due to natural disasters. With the help of our prod-gramme, Kunskapsskolan and Saab’s annual Women in Technology uct portfolio, local presence and technology, we can quickly supplyaward. We also support the Swedish Championship in Technology flexible, customised solutions to alleviate crises.and “Technology Days” events, which are designed to draw attentionto the importance of technology and engineering in Sweden. When Saab’s water treatment plant in Pakistanour previous CEO, Åke Svensson, stepped down in August 2010, we One example of an action in fall 2010 was in Pakistan in connectionestablished a research grant in his honour to be awarded to a promi- with the huge floods last fall. Saab supplied a water treatment systemnent researcher at Linköping University in the areas of civil security, to the city of Jamshoro, in Sindh province. The system has the capac-aeronautics and defence. The goal is to draw attention to the impor- ity to provide water to around 20,000 people a day. In addition totance of technology and engineering to Sweden’s growth and eco- delivering and installing the equipment, our employees trained localnomic development. staff how to maintain and support the plant. SAAB ANNUAL REPORT 2010 49
    • ADMINISTRATION REPORT > SAAB’S EMPLOYEESEMPLOYEES ACCOMPLISHOUR GOALSOur work with human resource issues supports the Saab Right place – Harmonising HR workGroup’s goals and strategies. With the right employees in During the last year, we have continued to co-ordinate and introducethe right places at the right time, we can be an efficient, uniform routines and processes within the Group. Everything from training and leadership development programmes to administrativeunified and competitive company. routines, system support and branding is now managed from a holis- tic perspective. The goal is even better quality in our mission-critical OVERALL OBJECTIVE HR issues.To be an employer of choice for current and future employees in our home We have developed an HR strategy with priority areas, a uniformmarkets. process of working and Group-wide system solutions, for example, for recruiting and HR data. All Group processes and policy docu-Management ments are drafted and currently managed by the HR staff in close co-Overarching responsibility for Saab’s HR work rests with the Senior operation with the business areas.Vice President and Head of Group Human Resources, who is a Harmonisation work in 2010 also included areas such as employ-member of Group Management. Co-operation and joint develop- ment conditions and principles, the launch of a uniform introduc-ment take place through the function areas by representatives of the tory programme for all new employees, the level of service we offerbusiness areas under the leadership of the HR staff. Together with and a review of wage-setting and wage analysis.function managers on the HR staff and HR managers in the business In addition to co-ordination, we have also focused on savings andareas, they form HR council, which meet four to six times a year to efficiency improvements as well as organisational changes, layoffsdecide on key HR issues. and resource adjustments.Activities 2010 Right things – Supportive culture and behavioursThe basis assumption in our HR work is that Saab, as a company of Measures to strengthen the communicative leadership of our man-opportunities, is constantly developing. We take responsibility for offer- agers have been successful. The impact is evident in the 2010ing continuous development opportunities tied to our business chal- employee survey. Our employees are satisfied with their managers’lenges. Our employees should be active and committed and take leadership, and there was an increase in all areas related to leader-responsibility for their own competence and continued employability. ship. This work is important in that it shows our employees often In 2010, we worked on harmonising HR processes, further devel- have more confidence in their manager than those higher in theoping our culture and actions, and long-term talent management. organisation. This makes front-line managers the most important ambassadors for future efforts to change our culture. HR goals Results 2010 Goal 2015 Employer of choice – internally (total satisfaction) 69 75 Employer of choice – externally (Universum) 10th 5th place or better Communicative leadership – Index 67 73 Employee reviews , % 83 100 Development plans, % 71 100 Wellness ratio, % 79 80 Percentage of female wage-setting managers 19 3050 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORT > SAAB’S EMPLOYEESLennart Sindahl has held several positions within missiles and military and commercial aeronautics since he began his employment at Saab AB in 1986. His current position isExecutive Vice President and Head of Business Area Aeronautics. Outside Saab, Lennart Sindahl is chairman of the Aircraft Sectorial Group within the AeroSpace and DefenceIndustries Association of Europe (ASD) and a board member of Vingtech Saab A/S.Based on the results of the employee survey, every business area has ers, they represent 19 per cent (17). The goal is that 30 per cent of ourdrafted action plans, although they handle their improvement needs wage-setting managers will be female by the end of 2015. The reasondifferently depending on where they are at this point. Clear, measur- for this goal is that we understand that diversity among employeesable goals are set at both an overarching and more detailed level. can benefit the company’s profitability. Based on the results of the 2010 survey, Saab will focus primarily At the same time, we were named Sweden’s best workplace duringon three areas: an open, trusting climate, openness to change, and the year by the business weekly “Veckans Affärer,” where genderpride and confidence in the future. It is also important employees equality was the decisive factor. In the 2010 Corporate Barometer,understand their role in the big picture. The response rate to the sur- where nearly 15,000 engineers, economists and computer science/ITvey was 86 per cent. students ranked Sweden’s most popular employer’s, Saab finished in tenth place. Although we consider this a good ranking, our goal is toRight employees – Attractive employer place among the top five.Saab wants to be an employer of choice for current and futureemployees. We want to attract current and future employees in theglobal talent market. In addition, we have to retain our employeesand help them to develop. During the year, we continued to improve long-term talent man-agement, especially in terms of diversity. By treating differences as anasset, we create opportunities for better business. The 30/70 project,whose goal is to increase the number of female managers, continuedwith a number of activities. In 2010, women accounted for 22 percent of managers in the organisation. Among wage-setting manag- SAAB ANNUAL REPORT 2010 51
    • ADMINISTRATION REPORT > SAAB AND THE ENVIRONMENTENVIRONMENTAL WORK IS ANATURAL PART OF OUR BUSINESSSaab supports environmental sustainability. We work with • Reduce use and emissions of hazardous substances/materials andcontinuous improvements to reduce our own and our cus- efficiently consume energy and natural resourcestomers’ environmental impacts, and ensure that we comply • Comply with applicable regulations and other requirements in the environmental fieldwith requirements stipulated by law and from our custom-ers. Environmental issues are an integral part of our opera- • Affirm an attitude of openness in communicating our environ- mental work.tions and a strategic area in our core business. Environmental goals OVERALL OBJECTIVE Saab has established Group-level goals for greenhouse gas emissionsTo contribute to and promote environmental sustainability. and hazardous substances. Climate goal PRIORITY AREAS Greenhouse gas emissions will be reduced by 20 per cent by 2020,Our environmental priority issues are climate change, aviation’s environmental compared to 2007. The measurement will be normalised to Saab’s totalimpact, hazardous substances, demands on suppliers and environmental risks. annual turnover in MSEK. On an annual basis, the goal is a two per cent reduction.ManagementSaab’s environmental work is organised at the Group level, where Group Chemical management goalQuality & Environment, which reports to our COO, is responsible for To clarify the environmental policy in the area of hazardous chemi-strategic development and overseeing environmental work, and at the cals, we will work actively with needs analyses, knowledge and com-business area level, where environmental issues are addressed in opera- munication.tions. Business area managers are responsible for compliance with envi- Saab’s business areas have around 50 environmental targets andronmental requirements and are supported by environmental managers action plans that involve handling chemicals, replacing hazardousor coordinators. Co-operation between the Group and the business chemicals and substances, waste sorting and recycling, energy andareas is facilitated by the Council on the Environment. water savings, reducing the need for personnel transports, and ISO 14001 certified environmental management systems are reducing air and water emissions.used by Aeronautics (with few exceptions), Combitech, Corporate,Dynamics, Electronic Defence Systems, Security and Defence Solu- Activities 2010tions and Support and Services. The priority during the year was developing a common global man- agement system, which will be in place in 2011 and help us to improveSaab’s environmental policy co-ordination and efficiency at the operating level. The integration ofThrough well-structured environmental work and continuous environmental requirements in the product development processimprovements, we reduce the impact of our plants, products and and the development of various forms of support for environmentalservices as far as technically possible and economically reasonable. issues have been an important concern in the new system. The workTo achieve this we: also provides us with the opportunity to review our environmental• Implement environmental management systems that fulfil ISO management procedures and improve efficiencies. 14001 requirements The Group-level goals we established in 2010 are an extension of• Identify and minimise the environmental risks associated with Saab’s environmental policy and climate work. With uniform goals, our products, systems and operations we can provide better feedback to the business areas in their efforts52 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORT > SAAB AND THE ENVIRONMENTto reduce Saab’s environmental impact and simplify communication Total CO2 emissions from Saab’s operations increased from 47,500with outside stakeholders. tonnes in 2008 to 54,500 tonnes in 2009. This was mainly due to cor- When environmental requirements are introduced in operations, rections in reported consumption figures in certain areas. Excludingtraining is an important element. We therefore developed a web- these adjustments, emissions have remained fairly constant,based environmental training programme in 2010 that all Group although the percentages have changed slightly. Aviation operationsemployees will attend. During the year, we also revised the training increased in 2009, at the same time that emissions from businessfor employees with legal liability and other key decision-makers. travel have declined. Measured in tonnes per MSEK in turnover, emissions have decreased.Climate change In 2010, we reduced energy and fuel consumption in a number ofSaab impacts the climate through use of energy for electricity and ways. For example:heating and fuel for business travel, goods transports, and test and • Emissions from business travel have been reduced, primarily duetarget flights. We work actively to report CO2 emissions and improve to increased use of videoconferencingenergy efficiency in our operations and products. Saab’s goal is to • Electricity consumption has been reduced by 3,000 MWhreduce greenhouse gas emissions. This includes emissions from the • The share of green rental cars increased from 41 per cent in 2009use of electricity, heating and cooling, freight, flights, motor vehicles to 63 per cent in 2010.and business travel. Saab’s total CO2 emissions in 2009 from various sectors are indi- Our fleet of company cars in Sweden includes only vehicles that meetcated in the following diagram: Folksam’s safety and environmental requirements. Saab has an extensive co-operation with municipalities and other stakeholders in Sweden to reduce the use of electricity, heating energy CO2 EMISSIONS BY SOURCE WITHIN SAAB IN 2009*, % and water. We are analysing all the buildings in our main production locations to find sources of wasted energy. These areas are in Tanne- Group-owned boilers and accidents, 6% fors and Malmslätt in Linköping municipality. During the year, we Group-owned vehicles and aircraft, 21% launched similar energy savings projects in Järfälla and Göteborg. Purchased electricity, 30% Purchased district heating, 10% The analysis measures ventilation, water and electricity consumption, Purchased business travel, 27% Purchased freight, 5% and how well the systems are adapted to our operations. Leased properties, 1% The diagram below shows the total consumption of electricity and heat energy. CONSUMPTION OF ELECTRICITY* Figures for 2010 were not available at the time this annual report was produced. AND HEATING ENERGY, GWh GWh Electricity 200 The diagram below shows CO2 emissions relative to our climate Heatingtargets: 160 EMISSIONS OF CO2 120 Saab works actively to improve WITHIN THE SAAB GROUP efficiency in its use of electricity 80 and heating energy. The reduc- 60 000 3,6 tion in electricity consumption is due to the coordination of 40 50 000 3,0 operations and energy savings tonnes CO2/MSEK sales measures. The increase in 40 000 2,4 0 heating energy consumption is 2006 2007 2008 2009 2010 due to the cold winter in 2010. tonnes CO2 30 000 1,8 20 000 1,2 Carbon Disclosure Project 10 000 0,6 Since 2006, Saab participates in the international Carbon Disclosure 0 0,0 Project (CDP), whose goal is to encourage private and public sector 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 organisations to measure, manage and reduce global climate change Total Emsissions tonnes CO 2) impacts. Relative Target for GHG-emissions – 20% decrease between 2007 and 2020 CDP’s Carbon Disclosure Leadership Index (CDLI) lists the 20 com- Relative Emissions (tonnes CO 2/MSEK sales) panies that have most professionally managed climate issues. For the fourth consecutive year, Saab received a very high rating for its climate SAAB ANNUAL REPORT 2010 53
    • ADMINISTRATION REPORT > SAAB AND THE ENVIRONMENTwork and awareness of how climate change affects the company and its ardous Substances in electrical and electronic equipment). Since RoHSbusiness. Saab’s long-term climate change work and investments in new is creating market pressure to replace lead, cadmium, hexavalent chro-environmental technology are the reason for the high ranking. For more mium and bromated flame retardants in electronic products, Saab isinformation on CDP, visit www.cdproject.net. working actively to reduce its use of these substances. To monitor and control chemical products, we use a Group-wiseAviation’s climate impact chemical data system.Launched in 2008, the Clean Sky Joint Technology Initiative is Saab also works actively to interpret and meet the requirementsscheduled to continue until 2014. Clear Sky is a new form of alliance of the EU’s chemicals law, REACH (Registration, Evaluation andwithin the EU, where organisations, government authorities and Authorisation of Chemicals). This is being done through participa-companies share responsibility for large, strategically important tion in the trade groups Teknikföretagen i Sverige and the AeroSpaceprojects. Clean Sky is the industry’s response to the Advisory Coun- and Defence Industries Association of Europe (ASD) at a Europeancil for Aeronautical Research in Europe’s (ACARE) 2020 goals to level. For more information on ASD’s work with REACH, visit www.reduce European aviation’s carbon dioxide emissions by 50 per cent asd-europe.org. Management systems have been updated against(measured per passenger km), nitrogen oxide by 80 per cent and cut the backdrop of the new requirement. Compliance with REACH isnoise levels in half. Other emissions such as carbon monoxide, greatly facilitated because Saab systematised its work with chemicalhydrocarbons and particles will be substantially reduced as well. If products early on.these targets are reached, the European aeronautics industry will be In 2010, preparations were made to acquire a computer system towell-prepared for a future market with tougher environmental manage environmental data for products. The system will be intro-requirements. duced beginning in 2011. Saab is one of the main suppliers to Clean Sky and is investingaround MEUR 14 in the programme. We develop innovative techno- EMISSIONS OF VOLATILE ORGANIC SOLVENTS (VOCs), TONNESlogy based on our expertise in military and civil aeronautics as wellas the entire air transport system. At present, it is mainly the Aero- 60nautics and Electronic Defence Systems business areas that are par- 50ticipating in Clean Sky. For their part, this includes developing a new The reduction in VOC emis- 40 sions from 2009 to 2010 is duesmart wing with innovative, fuel-saving technology for the next to the coordination of painting 30 processes and variations ingeneration of large commercial aircraft and a system for “green production volume. From aapproaches” for the future air transportation system. Eventually, 20 long-term perspective (>10 years), VOC emissions haveother business areas will become involved as well. For more informa- 10 been reduced substantially. Aeronautics and Saab Barra-tion, visit www.cleansky.eu and www.asd-europe.org. cuda AB account for the larg- 0 Since June 2009, Saab also participates in the Single European 2006 2007 2008 2009 2010 est share of emissions.Sky ATM Research Programme (SESAR), whose aim is to bring effi-ciency to the air space over Europe while improving safety and CONSUMPTION OF CHLORINATED VOLATILEreducing environmental impacts. ORGANIC SOLVENTS, TONNESHazardous substances 20To meet security and technical performance requirements, Saab and 16other companies in the aerospace and defence field still use certainsubstances that are classified as hazardous to humans and the envi- 12 Chlorinated VOCs consist of trichloroethylene, which isronment. Saab has initiated several national and international devel- 8 used almost exclusively withinopment projects to replace hazardous substances. Aeronautics. The substantial reduction in consumption is In the efforts to replace hazardous substances, priority has been 4 due to Aeronautics’ investment in late 2009 in a new enclosedgiven to volatile organic solvents (VOC), trichloroethylene, ozone- 0 system to clean aircraft parts,depleting refrigerants, brominated flame retardants, chromates, lead, 2006 2007 2008 2009 2010 among other things.cadmium and their compounds. During the last ten years, we have sub-stantially reduced our use of hazardous substances. To meet surface Demands on supplierstreatment requirements for its components, Saab has received an The majority of the high-tech components and equipment in Saab’sexemption from the Swedish National Chemicals Inspectorate to use products are purchased from subcontractors around the world. Totrichloroethylene at the facilities in Tannefors and Järfälla. In 2010, reduce the environmental impact of our products and solutions, wemeasures were taken to greatly reduce trichloroethylene consumption. set environmental requirements for our suppliers, e.g., which sub-We have replaced three older facilities that used trichloroethylene to stances may be used. REACH’s requirements are an important partdegrease metals with a modern plant that is essentially self-contained. of the communication with suppliers. The types of products developed and marketed by Saab are not gov- Our suppliers’ environmental work is critical to the environmen-erned by the EU’s RoHS directive (Restriction of the use of certain Haz- tal performance of our products. In 2010, we continued to introduce54 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORT > SAAB AND THE ENVIRONMENTthe Group-wide environmental supplier requirements that were As Saab increasingly helps to protect various flows in society andestablished in 2008. The Group’s environmental management sys- improve their efficiency, including energy and supply chains, we aretem, which centralises the procurement process, will make it easier also doing more to reduce environmental impacts. Together withto set requirements on suppliers. our partners, we offer technologies and support that contribute to sustainable cities. Listed below are several areas where our solutionsSaab and the green market reduce environmental impacts or improve decision guidance forEnvironmental aspects are increasingly part of the product develop- important environmental issues:ment process at Saab. Several current and potential customer-coun- • Intelligent transport solutions for air, land and seatries face major challenges in terms of energy and the environment • Solutions that improving logistical and maintenance efficiencyand must meet stringent requirements to quickly adapt. • Communication and decision-making systems Energy efficiency is a key issue with regard to climate change and • Surveillance systems for land and seacosts. Regardless of the energy source used as fuel or for energy pro- • Data processing and visualisation for better decision guidanceduction, it will become increasing important to use it as efficiently as • Waste and energypossible. As part of its business development, Saab continuouslyidentifies how its expertise, products and systems can be used to For information on legal environmental issues, see note 49 onimprove energy efficiency in the production, distribution and con- page 121–122.sumption of energy and fuels. We can also offer a growing number ofproducts and solutions that reduce CO2 emissions, ranging fromsolutions that improve efficiency in transport flows at sea and onland to our work in the EU’s previously mentioned Clean Sky pro-gramme to reduce aircraft emissions.
    • ADMINISTRATION REPORT > RISKS AND RISK MANAGEMENTRISKS AND RISK MANAGEMENTRISKS AND RISK MANAGEMENT Focus 2011All businesses entail risk. A risk can be specific to the company or Beginning in 2011, each business area will submit monthly reports torelated to a certain industry or market. Certain risks can be fully Group Management on the risks it has identified based on theirmanaged by the company, while others are out of its control. impact and likely outcome. Saab’s operations primarily involve the development, production In addition, work has begun to further improve the risk manage-and supply of technologically advanced hardware and software to ment process for the group in general and specifically for long-termcustomers around the world. The international part of the business customer projects, which will result in updated processes in 2011.is growing. The assessment of all of the company’s financial controls in 2010 Projects generally entail significant investments, long periods of has resulted in changes in the reporting process for financial con-time and product development or refinement. In addition to customer trols. Beginning in 2011, the business areas will report them on aand supplier relations, international operations involve joint ven- monthly basis to Group Management. For more information relatedtures and other collaborations as well as the establishment of opera- to financial controls, see the corporate governance report, page 131.tions abroad. Operations entail significant risk-taking in various The following provides a general description of risk areas withrespects. references to relevant notes to the financial statements. The key risk areas are political, operating and financial risks. POLITICAL RISKSMANAGING RISKS Saab provides systems and equipment that are classified as strategicSignificant risks that are identified are managed continuously at all products. Sales are regulated by national laws and ordinances thatlevels of the organisation and in strategic planning. include international agreements. Access to vital components and Various policies and instruments govern the management of sig- systems may also be subject to export restrictions and regulations ofnificant risks. In addition, Saab has an independent audit unit that various kinds.serves as a dedicated resource to independently audit the effective- Amendments to these rules are made periodically and affectness of internal control processes. Saab’s business opportunities. The ability to create and maintain Risks are also managed by procuring insurance. Saab has a long-term customer relations is a critical issue for Saab, since someGroup-wide programme where insurance is obtained on the market projects stretch over decades. Sweden’s defence policy stronglyor through the Group’s own insurer, Lansen Försäkrings AB. affects Saab’s operations, since the Swedish state, through the Armed Forces and FMV, has historically accounted for a large share of ourRisk analysis and activities 2010 product innovation.In 2010, extensive work was done in the business areas and the Another type of political risk entails the customer’s ability to fulfilGroup to analyse and evalute major business risks. The objective was current contracts due to economic, political or other circumstancesto assess all major strategic, operating and financial risks in each area such as natural disasters, an economic crisis, a shift in power or anand at the group level. This has resulted in a clearer picture of Saab’s embargo.major risks. We worked at the same time to analyse various aspects of the risk Managing political risksprocesses used by the business areas and divisions. The goal is to Saab manages political risks through various types of export guaran-introduce a uniform risk reporting process in 2011 in line with selected tees, insurance solutions and other instruments. It is impossible,international standards. however, to avoid losing business opportunities or incurring damage We also conducted a review of financial controls within Saab in if political risks are realised.2010. For more information, see the corporate governance report,page 131.56 SAAB ANNUAL REPORT 2010
    • ADMINISTRATION REPORT > RISKS AND RISK MANAGEMENTOPERATING RISKS ess. Periodic reviews are subsequently made of the project during itsA number of significant areas have been identified with respect to implementation stage using the same process. An important aspect isoperating risks, which are important in assessing the Group’s results to identify and assess risks, then take the measures needed to mitigateand financial position. them with the help of a risk assessment method. The Group applies the percentage-of-completion method to rec-Develop and introduce new systems and products ognise revenue from long-term customer projects. An estimation ofThe Group invests heavily in the research and development of its total costs is critical to revenue recognition and provisions for lossown products and systems as well as acquisitions of technology. Its contracts as well as valuating inventories. The outcome of technicalbiggest systems are the export version of Gripen, missile systems and and commercial risks may affect income.electronic warfare systems. One example of acquired technology is Work was begun in 2010 to further improve the risk managementthe world-leading radar technology obtained through the acquisi- process for long-term customer projects, which will be updated in 2011.tion of Ericsson Microwave Systems AB in 2006. Investments in newsystems and products are made after a strategic and financial analysis Environmental risks and liabilitiesand assessment of future business opportunities. The most important environmental risks involve hazardous chemi- The risk in developing and introducing new systems is that Saab cals, building and plant fires, and soil contamination.could be unsuccessful in its product launches and not achieve the levelsof business required to make these products profitable. Managing environmental risks and liabilities A number of different chemical products used in Saab’s operationsManaging development and introduction of new systems and products are classified as harmful to humans and the environment. The opera-The Group takes an active approach to product management. A high tions in Tannefors and Malmslätt, in Linköping, and the operationsdegree of modularisation in project management allows Saab to in Karlskoga are subject to Sweden’s so-called Seveso law, which isreuse product solutions in its offerings. In 2010, the introduction designed to reduce risks in connection with the large-scale use ofof a new product management process was completed and various chemicals and includes measures to prevent and limit the conse-measures were launched to further improve efficiencies in develop- quences of serious chemical accidents. The Malmslätt plant was shutment processes, e.g., centres of excellence were established for vari- down at mid-year 2010.ous aspects of Saab’s development work. As a result, all development Against this backdrop, we have introduced strict routines for riskin the same area is being consolidated in a single location. assessment, supervision and control of chemicals. Strict routines are Certain development costs are capitalised in accordance with also applied to purchases of chemical products. Health and environ-established accounting principles. Amortisation of capitalised devel- mental information on chemical products is available in the Group’sopment costs is scheduled over the estimated production volume or chemical data system.an estimated period of use, though not more than five to ten years. If Saab works actively to assess and minimise fire risks in its opera-the estimated period of use is shorter than five years, the costs are tions. Since a fire in a production facility can cause extensive envi-amortised over the shorter period. Future business opportunities are ronmental damage to the local area, effective fire prevention is anperiodically reassessed, which can lead to impairment losses. Capi- important part of the efforts to reduce environmental risks.talised development costs are shown in Note 16. We analyse our operations and properties to assess Saab’s risk exposure resulting from soil contamination. When a contaminatedLong-term customer projects area is identified, liability is determined and an overall risk assess-As one of the world’s leading high-technology companies, Saab’s ment is made. Information on contaminated areas is documented asoperations entail complex development projects on the leading edge it is received. An insurance solution was created in 2009 to manageof technology. The competitive situation is complex, and success soil contamination cases. In 2010, costs for remediation measuresdepends on the ability to offer cost-effective high technology solu- were less than MSEK 1.tions, though also in some cases on participation in the customer- Overall risk assessments are made to determine how operationscountry’s economy through various forms of industrial co-operation. are affected by climate change.Managing long-term customer projects Liquidation of leasing operationsA majority of all long-term customer projects contains significant Saab decided in 1997 to discontinue the manufacture of turbopropdevelopment work, which is associated with risks. Before a contract is aircraft.entered into with a customer to supply a product, solution or service, Like other manufacturers, Saab had a business model thata thorough analysis is always done of the conditions and risks associ- included lease financing in connection with aircraft sales on theated with the delivery using an established project management proc- market. The risk in the portfolio is that Saab is unable to lease out the SAAB ANNUAL REPORT 2010 57
    • ADMINISTRATION REPORT > RISKS AND RISK MANAGEMENTaircraft. The impact on Saab’s profitability could be negative if the The risks that are actively managed are:aircraft are not being used. • Foreign currency • Interest rateManaging risks in connection with the leasing operations • RefinancingSaab’s direct risk-taking in the leasing fleet has been managed prima- • Credit and counterpartiesrily through various types of insurance. The leasing fleet is expected • Commoditiesto be liquidated by 2015. Until then, Saab will carry out these opera-tions in accordance with the terms and conditions of its insurance. Financial risk management is described in more detail in Note 41. As of 31 December 2010, Saab’s leasing portfolio consisted of 106turboprop Saab 340 and Saab 2000 aircraft. Of the fleet, 42 are Pension obligationsfinanced through US leverage leases. Rents from these leases are The Group’s pension obligations are substantial, as indicated in Noteinsured through the Export Credits Guarantee Board (EKN) in 37. In the calculation of pension obligations, future pension obliga-Sweden. Sixty-four aircraft are financed internally and recognized as tions are discounted to present value. The size of the liability isassets in the balance sheet. dependent on the choice of discount rate: a low interest rate pro- Provisions on the balance sheet related to the leasing portfolio duces a high liability, and vice versa. To manage the pension liability,are deemed as sufficient for the remaining risks. the Saab Pension Fund was established in 2006 and capitalised with the corresponding PRI liability. The Group’s obligations are calcu-FINANCIAL RISKS lated on an actuarial basis each year, after which a comparison isIn its operations, Saab is exposed to various financial risks such as drawn with the fund’s assets. Deficits according to such calculationsforeign currency, interest rate, refinancing, credit and commodity may require Saab to contribute additional funds. The Saab Pensionrisks. Management of financial risks is governed by the Group Treasury Fund’s objective is a real annual return of at least 4 per cent onPolicy established by the Board of Directors. Moreover, detailed invested capital. The fund invests in interest-bearing securities,directives and processes are in place for operating management of equities and hedge funds.each area. Overarching responsibility for managing financial riskslies with Group Treasury. Pictures on the right side: Ports are important hubs in a flow society and require innovative security solutions.58 SAAB ANNUAL REPORT 2010
    • SAAB ANNUAL REPORT 2010 59
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSCONSOLIDATEDINCOME STATEMENT 1 January – 31 December ORDERS Order bookings for 2010 increased by 43 per cent compared toMSEK Note 2010 2009 2009 to MSEK 26,278 (18,428). The order backlog at the end of the year amounted to MSEK 41,459 (39,389).Sales 3, 4 24,434 24,647 During 2010 index and price changes had a positive effect onCost of goods sold -18,843 -18,510 order bookings of MSEK 377 (621).Gross income 5,591 6,137 In all, 86 per cent (76) of order bookings were attributable to defence-related operations and 66 per cent (62) of order book-Other operating income 5 222 149 ings are from customers outside Sweden.Marketing expenses -1,727 -1,776 Orders received where the order sum was larger than MSEK 100Administrative expenses -1,235 -1,198 represented 58 per cent (43) of total order bookings.Research and development costs -1,820 -1,813Other operating expenses 6 -70 -82 Order backlog duration :Share in income of associated companies 21 14 -43 2011: SEK 16.8 billionOperating income 10, 11 ,12 975 1,374 2012: SEK 10.4 billionShare in income of associated companies 21 26 2 2013: SEK 6.3 billionFinancial income 116 50 2014: SEK 3.7 billionFinancial expenses -341 -450 After 2014: SEK 4.3 billionNet financial items 13 -199 -398 The order backlog primarily includes :Income before taxes 776 976 • Gripen to Sweden and on exportTaxes 15 -322 -277 • Structures and subsystems for the aircraft producers AirbusNet income for the year 454 699 and Boeing • Airborne early warning systemsAttributable to: • Active and passive countermeasure systems Parent Company’s shareholders 433 686 • Missile systems for air, sea and land • Anti-tank systems Non-controlling interest 21 13 • Command and control, avionics and fire control systems • Radar systemsEarnings per share before dilution, (SEK) 34 4.12 6.45 • Training systemsEarnings per share after dilution, (SEK) 34 3.97 6.28 • Civil security solutionsSALES BY REGION SALES BY MARKET SEGMENTS SALES Sales decreased by one per cent to MSEK 24,434 (24,647). Jan-Dec Jan-Dec Jan-Dec Jan-Dec Exchange rate effects were marginal during 2010.MSEK 2010 2009 MSEK 2010 2009 Sales decreased by approximately MSEK 100 in 2010 com-Sweden 9,223 7,714 Air 10,393 10,940 pared to 2009 as an effect of lower revenue recognition for aEU excluding Land 7,611 7,239 terminated contract in Security and Defence Solutions.Sweden 4,737 5,675 Naval 2,278 2,181 Sales in markets outside Sweden amounted to MSEK 15,211Rest of Europe 368 280 Civil Security 1,427 1,718 (16,933), or 62 per cent (69) of total sales. Of sales, 83 perAmericas 2,199 1,918 Commercial cent (83) was related to the defence market.Asia 3,937 4,568 Aeronautics 1,348 1,374Africa 2,833 3,477 Other 1,377 1,195Rest of the World 1,137 1,015 Total 24,434 24,647Total 24,434 24,647 As of 1 January 2010, Joint Operations are no longer reported as a separate market area.60 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSCONSOLIDATEDSTATEMENT OF COMPREHENSIVEINCOME 1 January – 31 DecemberMSEK 2010 2009Net income for the year 454 699Other comprehensive income: Translation differences for the year 16 215 Net gain/loss on cash flow hedges Change in value 658 799 Reversed through profit and/or loss 108 145 Tax attributable to net gain/loss on cash flow hedges -201 -247 Share of other comprehensive income in associated companies 2 31Other comprehensive income 583 943Net comprehensive income for the year 1,037 1,642 of which Parent Company’s shareholders’ interest 1,006 1,583 of which non-controlling interest 31 59INCOME, MARGIN AND PROFITABILITYThe gross margin amounted to 22.9 per cent (24.9). Adjusted for non-recur- Total expenditure for research and development amounted to MSEK 5,008ring items, the gross margin was 25.0 per cent (24.6). Non-recurring items (4,820). The expenditures in research and development that are internallyincluded restructuring costs of MSEK 616 with the majority, MSEK 512, funded amounted to MSEK 1,203 (1,194), of which a total of MSEK 47 (67)impacting cost of goods sold. has been capitalised.Total depreciation and amortisation amounted to MSEK 1,358 (1,400). De- The Billion+ programme progressed according to plan during 2010 and waspreciation and write-down of tangible fixed assets amounted to MSEK 382 finalized at the end of the year. The cost reductions contributed about 3 per-(351), while depreciation of the leasing fleet amounted to MSEK 146 (176). centage points to the reported operating margin in 2010.Amortization and write-down of intangible fixed assets amounted to The share of income in associated companies, MSEK 14 (-43), primarilyMSEK 830 (873), of which amortization and write-down of capitalised devel- relates to net income in Taurus GmbH and Hawker Pacific.opment costs amounted to MSEK 664 (686). Net financial income and expenses amounted to MSEK -199 (-398), ofOperating income amounted to MSEK 975 (1,374), corresponding to an which project interest from unutilised advance payments reduced financialoperating margin of 4.0 per cent (5.6). Adjusted for non-recurring items, the income by MSEK -17 (-36), while also reducing the cost of goods sold cor-operating margin was 6.5 per cent (5.4). respondingly. Net interest items for the Group amounted to MSEK -40 (-80).Operating income included expenses of MSEK 290 that were not reported Currency gains of MSEK 57 (-85) related to the tender portfolio where theas a non-recurring item related to projects in Security and Defence Solutions hedged part of the portfolio was valued at market value that was relativelywhich impacted profitability negatively in the year. higher due to an appreciation of SEK. Other net interest items amounted to MSEK -199 (-197) and mainly consisted of amortisation of actuarial lossesWithin Electronic Defence Systems a claim related to a finalized project for pensions of MSEK -168 (-136), other exchange rate effects and share inwhere Saab reduced its estimated risk share impacted profitability positively. income of associated companies.On September 10, the Maritime and Commercial Court in Copenhagen in- Current and deferred taxes during the year amounted to MSEK -322 (-277),formed that it in a judgement dismissed the Danish Defence Acquisition and or an effective tax rate of 41 per cent (28). The effective tax rate was affectedLogistics Organization’s (DALO) claim against Saab. DALO therefore should by revaluation of deferred tax receivables relating to the leasing operations,pay Saab damages plus interest on damages and cover Saab’s court costs. differences between tax rate in Sweden and the US and tax related to previ-An income of approximately MSEK 50 was recorded during the third quarter ous years.as a result of this. DALO has filed an appeal against the judgement. The pre-tax return on capital employed was 7.9 per cent (10.3) and the after-tax return on equity was 4.1 per cent (7.0). SAAB ANNUAL REPORT 2010 61
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSCONSOLIDATEDSTATEMENT OF FINANCIAL POSITION as of 31 December STATEMENT OF FINANCIAL POSITION Since the start of 2010, the net cash position has increasedMSEK Note 2010 2009 by MSEK 3,925 to MSEK 3,291 at the end of 2010. The in- crease is mainly related to major milestone payments receivedAssets and increased level of sold trade receivables. Intangible fixed assets 16 6,413 7,108 Intangible assets have decreased due to amortisation of capit- alised product development. As of 1 January, 2009, Saab Tangible fixed assets 17 3,052 3,174 changed its view on the application of the accounting princi- Lease assets 18 1,154 1,464 ples for development costs. As a result of this more conserva- tive view, development costs are capitalised at a later stage in Biological assets 19 299 256 all projects and all capitalised development costs are amor- Investment properties 20 236 25 tised over maximum ten years. Shares in associated companies 21 251 356 Inventories decreased due to deliveries in major projects dur- Financial investments 25 203 116 ing the fourth quarter. Inventories are recognised after deduct- ing utilised advances. Other receivables decreased due to the Long-term receivables 27 856 1,327 reduction of accrued revenues (after deducting utilised ad- Deferred tax assets 15 - 284 vances) and other receivables.Total fixed assets 12,464 14,110 Inventories 28 4,100 4,698 Derivatives 41 1,105 1,002 Tax assets 46 43 Accounts receivable 29 3,052 2,837 Other receivables 27 3,630 4,696 Prepaid expenses and accrued income 30 680 705 Short-term investments 25 1,544 551 Liquid assets 31 2,544 1,463Total current assets 16,701 15,995Assets held for sale 32 113 325TOTAL ASSETS 29,278 30,43062 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSCONSOLIDATEDSTATEMENT OF FINANCIAL POSITION as of 31 December Short-term interest-bearing liabilities decreased by MSEK 1,930 from the beginning of the year to MSEK 589 atMSEK Note 2010 2009 31 December. Provisions for pensions amounted to MSEK 5 (4). DuringEquity 33 2010, the Saab Pension Fund was capitalised with a total of Capital stock 1,746 1,746 MSEK 108 (157). The fund was set up in 2006 with the overall objective to secure the Group’s defined-benefit pension plans Other capital contributions and other reserves 1,230 657 and at the same time hedge the interest rate volatility of the Retained earnings 8,298 8,139 pension liability and reduce the overall cost of pensions.Equity attributable to Parent Company’s Saab decided in 1997 to discontinue the manufacture of turbo-shareholders 11,274 10,542 prop aircraft. As with other manufacturers, Saab had a busi- ness model that included lease financing in connection with aircraft sales on the market. Saab’s lease assets at 31 Decem-Non-controlling interest 170 140 ber 2010 consisted of 106 turboprop Saab 340 and Saab 2000 aircraft.Total equity 11,444 10,682 Of the fleet, 42 are financed through US leverage leases. Rents from these leases are insured through The Swedish Export Credits Guarantee Board (EKN). 64 aircraft are financed inter-Liabilities nally and recognised as assets in the statement of financial Long-term interest-bearing liabilities 35 1,117 1,126 position. Other liabilities 39 294 287 Provisions related to the leasing portfolio and provisions for commitments with respect to regional aircraft on the statement Provisions for pensions 37 5 4 of financial position are deemed sufficient for the remaining Other provisions 38 2,207 2,146 risks. Deferred tax liabilities 15 803 905 Saab estimates that the leasing portfolio will be phased outTotal long-term liabilities 4,426 4,468 by 2015. Short-term interest-bearing liabilities 35 589 2,519 Advance payments from customers 643 442 Accounts payable 1,799 1,730 Derivatives 41 750 1,181 Tax liabilities 265 212 Other liabilities 39 819 746 Accrued expenses and deferred income 40 7,751 7,668 Provisions 38 792 753Total current liabilities 13,408 15,251Liabilities attributable to assets held for sale 32 - 29Total liabilities 17,834 19,748TOTAL EQUITY AND LIABILITIES 29,278 30,430For information on the Group’s assets pledged and contingent liabilities,see Note 42. SAAB ANNUAL REPORT 2010 63
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSCONSOLIDATEDSTATEMENT OF CHANGES IN EQUITY Other reserves Total equity Net result attributable of cash to Parent Non- Capital Other capital flow Translation Revaluation Retained Company’s controlling Total MSEK stock contributions hedges reserve reserve earnings shareholders interest equity Opening balance, 1 January 2009 1,746 543 -612 -222 51 7,734 9,240 90 9,330 Net comprehensive income for the year - - 696 201 - 686 1,583 59 1,642 Transactions with shareholders: Repurchase of shares - - - - - -110 -110 - -110 Share matching plan - - - - - 35 35 - 35 Dividend - - - - - -187 -187 - -187 Acquisition and sale of non-controlling interest - - - - - -19 -19 -9 -28 Closing balance, 31 December 2009 1,746 543 84 -21 51 8,139 10,542 140 10,682 Opening balance, 1 January 2010 1,746 543 84 -21 51 8,139 10,542 140 10,682 Net comprehensive income for the year - - 564 9 - 433 1,006 31 1,037 Transactions with shareholders: Repurchase of shares - - - - - -80 -80 - -80 Share matching plan - - - - - 43 43 - 43 Dividend - - - - - -237 -237 - -237 Acquisition and sale of non-controlling interest - - - - - - - -1 -1 Closing balance, 31 December 2010 1,746 543 648 -12 51 8,298 11,274 170 11,444For a definition of other reserves, see Note 33.64 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSCONSOLIDATEDSTATEMENT OF CASH FLOWS 1 January – 31 December CAPITAL EXPENDITURES Gross capital expenditures in property, plant and equipment,MSEK Note 2010 2009 excluding lease assets, amounted to MSEK 262 (197). Investments in intangible assets amounted to MSEK 117 (81)Operating activities of which MSEK 47 (67) are related to capitalised product Income after financial items 776 976 development and MSEK 70 (14) to other intangible assets. Transferred to pension fund -147 -190 CASH FLOW Operating cash flow amounted to MSEK 4,349 (1,447) in Adjustments for items not affecting cash flow 47 2,317 1,835 2010. The increase was driven by significant improvements in Income tax paid -196 -183 working capital, larger milestone payments and increasedCash flow from operating activities before changes amount of accounts receivable sold. It was distributed be-in working capital 2,750 2,438 tween cash flow from core operating activities of MSEK 4,043 (1,088), acquisitions and divestments of subsidiaries and as-Cash flow from changes in working capital sociated companies of MSEK 161 (-57) and the leasing aircraft Increase(–)/Decrease(+) in inventories 586 -401 business of MSEK 145 (416). Increase(–)/Decrease(+) in current receivables 855 1,927 In 2009, Saab launched an accounts receivable sales pro- Increase(+)/Decrease(–) in advance payments from gramme to strengthen its financial position and increase finan- customers 194 -485 cial flexibility. The accounts receivable sold are in most cases related to customers with high credit worthiness and one Increase(+)/Decrease(–) in other current liabilities 399 -1,522 hundred per cent of the value of the receivables is sold at Increase(+)/Decrease(–) in provisions -297 -261 attractive funding levels. As per 31 December, receivables of MSEK 1,409 were sold, compared to MSEK 789 at 31Cash flow from operating activities 4,487 1,696 December 2009.Investing activities In Aeronautics, some projects entered into final stages of com- Investments in intangible fixed assets -70 -14 pletion in 2010. This will lead to a reduction in customer ad- Capitalised development costs -47 -67 vances and a lower cash flow generation as these projects are finalised. Investments in tangible fixed assets -262 -197 Investments in lease assets -2 -3 Sale of tangible fixed assets 11 9 Sale of lease assets 65 130 Investments in and sale of short-term investments -993 -551 Investments in and sale of other financial assets -6 224 Investments in subsidiaries, net effect on liquidity 8, 47 - -68 Sale of subsidiaries and associated companies, net effect on liquidity 8, 47 161 11Cash flow from investing activities -1,143 -526Financing activities Repayment of loans -1,950 -279 Repurchase of shares -80 -110 Dividend paid to Parent Company’s shareholders -237 -187 Contributions from non-controlling interest - 6Cash flow from financing activities -2,267 -570CASH FLOW FOR THE YEAR 47 1,077 600 Liquid assets at beginning of year 1,463 822 Exchange rate difference in liquid assets 4 41Liquid assets at year-end 47 2,544 1,463For Saab’s operating cash flow, see Note 47 and page 66. SAAB ANNUAL REPORT 2010 65
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSSpecification of operating cash flow 2010 Saab excl acquisi- Total Total tions /divest- Acquisitions and Saab Aircraft Group GroupMSEK ments and SAL divestments Leasing 2010 2009Cash flow from operating activities before changes inworking capital 2,676 - 74 2,750 2,438CASH FLOW FROM CHANGES IN WORKING CAPITALInventories 541 - 45 586 -401Current receivables 838 - 17 855 1,927Advance payments from customers 194 - - 194 -485Other current liabilities 548 - -149 399 -1,522Provisions -391 - 94 -297 -261Change in working capital 1,730 - 7 1,737 -742Cash flow from operating activities 4,406 - 81 4,487 1,696INVESTING ACTIVITIESInvestments in intangible fixed assets -117 - - -117 -81Investments in tangible fixed assets -262 - - -262 -197Investments in lease assets -2 - - -2 -3Sale of tangible fixed assets 11 - - 11 9Sale of lease assets - - 65 65 130Sale of and investment in financial assets, etc. 7 - -1 6 -50Investments in subsidiaries, net effect on liquidity - - - - -68Sale of subsidiaries and associated companies, net ef-fect on liquidity - 161 - 161 11Cash flow from investing activities excluding changein short-term investments and other interest-bearingfinancial assets -363 161 64 -138 -249OPERATING CASH FLOW 4,043 161 145 4,349 1,44766 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSPARENT COMPANYINCOME STATEMENT 1 January – 31 DecemberMSEK Note 2010 2009Sales 3, 4 14,745 15,385Cost of goods sold -11,523 -11,276Gross income 3,222 4,109Marketing expenses -1,114 -1,138Administrative expenses -727 -675Research and development costs -824 -811Other operating income 5 82 68Other operating expenses 6 -16 -68Operating income 623 1,485Result from financial items: 13 Result from shares in Group companies 1,199 1,178 Result from shares in associated companies/joint ventures 32 7 Result from other securities and receivables held as fixed assets 107 -238 Other interest income and similar items 114 109 Interest expenses and similar items -173 -309Income after financial items 1,902 2,232Appropriations 14 -83 3Income before taxes 1,819 2,235Taxes 15 -430 -560Net income for the year 1,389 1,675SALES AND INCOMEThe Parent Company’s sales in 2010 amounted to MSEK 14,745 (15,385). Net financial income and expenses amounted to MSEK 1,279 (747). TheOperating income was MSEK 623 (1,485) and included provisions of deviation between the result for 2010 and 2009 is explained by currencyMSEK 290 related to projects in Security and Defence Solutions that im- gains in the tender portfolio, positive currency differences, increased net inter-pacted profitability negatively. A total of MSEK 338 in restructuring costs est and internal dividends. After appropriations of MSEK -83 (3) and taxes ofimpacted operating income negatively. MSEK -430 (-560), net income for the year amounted to MSEK 1,389 (1,675).PARENT COMPANYCOMPREHENSIVE INCOME 1 January – 31 DecemberMSEK Note 2010 2009Net income for the year 1,389 1,675Other comprehensive income - -Net comprehensive income for the year 1,389 1,675 SAAB ANNUAL REPORT 2010 67
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSPARENT COMPANYBALANCE SHEET as of 31 DecemberMSEK Note 2010 2009ASSETSFixed assetsIntangible fixed assets 16 127 96Tangible fixed assets 17 2,205 2,280Financial fixed assets Shares in Group companies 45 9,405 9,520 Receivables from Group companies 24 557 760 Shares in associated companies and joint ventures 23 491 430 Receivables from associated companies and joint ventures 24 32 116 Other long-term securities holdings 26 1,457 1,495 Other long-term receivables 27 10 44 Deferred tax assets 15 417 689Total financial fixed assets 12,369 13,054Total fixed assets 14,701 15,430Current assetsInventories, etc. 28 2,782 3,310Current receivables Accounts receivable 29 1,338 990 Receivables from Group companies 2,107 2,828 Receivables from associated companies and joint ventures 26 100 Tax assets - 2 Other receivables 27 1,991 6,403 Prepaid expenses and accrued income 30 512 558Total current receivables 5,974 10,881Short-term investments 1,544 551Cash and bank balances 1,935 788Total current assets 12,235 15,530TOTAL ASSETS 26,936 30,960LIQUIDITY, FINANCE, CAPITAL EXPENDITUREAND NUMBER OF EMPLOYEESThe Parent Company’s net debt amounted to MSEK 2,395(6,369).Gross capital expenditures in property, plant and equipmentamounted to MSEK 150 (126).At the end of 2010, the Parent Company had 7,915 employ-ees, compared to 8,337 at the beginning of the year.68 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSPARENT COMPANYBALANCE SHEET as of 31 DecemberMSEK Note 2010 2009EQUITY AND LIABILITIESEquity 33Restricted equity Capital stock 1,746 1,746 Revaluation reserve 718 724 Statutory reserve 543 543Unrestricted equity Retained earnings 2,814 1,428 Net income for the year 1,389 1,675Total equity 7,210 6,116Untaxed reserves 46 502 419Provisions Provisions for pensions and similar commitments 37 192 379 Other provisions 38 1,465 1,513Total provisions 1,657 1,892Liabilities Liabilities to credit institutions 36 2,223 4,112 Liabilities to Group companies 7,084 7,913 Advance payments from customers 98 3,182 Accounts payable 1,034 1,131 Liabilities to associated companies and joint ventures 69 139 Tax liabilities 83 - Other liabilities 39 671 371 Accrued expenses and deferred income 40 6,305 5,685Total liabilities 17,567 22,533TOTAL EQUITY AND LIABILITIES 26,936 30,960Assets pledged 42 110 210Contingent liabilities 42 5,918 4,970 SAAB ANNUAL REPORT 2010 69
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSSTATEMENT OF CHANGES IN EQUITYFOR THE PARENT COMPANY Restricted equity Unrestricted equity Net compre- Revaluation Statutory Retained hensiveMSEK Capital stock reserve reserve earnings income Total equityOpening balance, 1 January 2009 1,746 731 543 1,804 - 4,824Items reported directly in equity:Group contributions - - - -164 - -164Tax attributable to Group contributions - - - 43 - 43Change in revaluation reserve - -7 - 7 - -Net comprehensive income for the year - - - - 1,675 1,675Transactions with shareholders:Dividend to shareholders - - - -187 - -187Repurchase of shares - - - -110 - -110Share matching plan - - - 35 - 35Closing balance, 31 December 2009 1,746 724 543 1,428 1,675 6,116Opening balance, 1 January 2010 1,746 724 543 3,103 - 6,116Items reported directly in equity:Group contributions - - - -28 - -28Tax attributable to Group contributions - - - 7 - 7Change in revaluation reserve - -6 - 6 - -Net comprehensive income for the year - - - - 1,389 1,389Transactions with shareholders:Dividend to shareholders - - - -237 - -237Repurchase of shares - - - -80 - -80Share matching plan - - - 43 - 43Closing balance, 31 December 2010 1,746 718 543 2,814 1,389 7,21070 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > FINANCIAL STATEMENTSPARENT COMPANYSTATEMENT OF CASH FLOWS 1 January – 31 DecemberMSEK Note 2010 2009Operating activities Income after financial items 1,902 2,232 Adjustments for items not affecting cash flow 47 -651 -1,203 Income tax received - 1Cash flow from operating activities before changes in working capital 1,251 1,030Cash flow from changes in working capital Increase(–)/Decrease(+) in inventories 441 -865 Increase(–)/Decrease(+) in current receivables 1,149 2,023 Increase(+)/Decrease(–) in advance payments from customers -93 -128 Increase(+)/Decrease(–) in other current liabilities 553 -1,187 Increase(+)/Decrease(–) in provisions -324 -239Cash flow from operating activities 2,977 634Investing activities Shareholders’ contributions paid -25 -37 Investments in intangible fixed assets -68 -11 Investments in tangible fixed assets -151 -126 Sale of tangible fixed assets 2 8 Investments in and sale of short-term investments -993 -551 Investments in and sale of financial assets 223 -650 Investments in subsidiaries -2 - Sale of subsidiaries - 570Cash flow from investing activities -1,014 -797Financing activities Change in receivables/liabilities, Group companies 857 2,176 Repurchase of shares -80 -110 Repaymnet of loans -2,415 -42 Dividend paid to shareholders -237 -187 Group contributions received 1,223 378 Group contributions paid -164 -1,501Cash flow from financing activities -816 714CASH FLOW FOR THE YEAR 1,147 551Liquid assets at beginning of year 788 237Liquid assets at year-end 47 1,935 788 SAAB ANNUAL REPORT 2010 71
    • FINANCIAL INFORMATION > NOTESNOTESTO THE FINANCIAL STATEMENTS 1 Accounting principles ....................................................................................................................... 73 26 Other long-term securities holdings ........................................................ 100 2 Assumptions in the application of the 27 Long-term receivables and other receivables ............... 100 accounting principles ......................................................................................................................... 81 28 Inventories ................................................................................................................................................................. 101 3 Revenue distribution ............................................................................................................................. 81 29 Accounts receivable ...................................................................................................................... 102 4 Segment reporting ................................................................................................................................. 82 30 Prepaid expenses and accrued income ...................................... 102 5 Other operating income ............................................................................................................ 84 31 Liquid assets ....................................................................................................................................................... 102 6 Other operating expenses ................................................................................................... 84 32 Assets held for sale ............................................................................................................................ 102 7 Leasing operations ................................................................................................................................ 84 33 Shareholders’ equity ......................................................................................................................... 102 8 Acquisitions and divestments of operations ............................ 85 34 Earnings per share .............................................................................................................................. 103 9 Employees and staff costs ................................................................................................. 85 35 Interest-bearing liabilities ....................................................................................................... 103 10 Auditors’ fees and compensation ...................................................................... 87 36 Liabilities to credit institutions ..................................................................................... 104 11 Operating expenses ............................................................................................................................ 87 37 Employee benefits ............................................................................................................................... 104 12 Depreciation/amortisation and impairments .......................... 87 38 Provisions .................................................................................................................................................................. 108 13 Financial income and expenses ............................................................................ 88 39 Other liabilities .................................................................................................................................................. 109 14 Appropriations ................................................................................................................................................... 88 40 Accrued expenses and deferred income ................................... 110 15 Taxes ......................................................................................................................................................................................... 89 41 Financial risk management and financial 16 Intangible fixed assets ..................................................................................................................... 92 instruments ............................................................................................................................................................. 110 17 Tangible fixed assets .......................................................................................................................... 94 42 Assets pledged and contingent liabilities ......................................... 117 18 Lease assets and lease agreements ....................................................... 95 43 Government grants ........................................................................................................................... 118 19 Biological assets ........................................................................................................................................... 96 44 Transactions with related parties ....................................................................... 118 20 Investment properties ........................................................................................................................97 45 Group companies ................................................................................................................................... 118 21 Shares in associated companies consolidated 46 Untaxed reserves .................................................................................................................................... 119 according to the equity method .............................................................................. 97 47 Statement of cash flows, 22 Shares in joint ventures consolidated supplemental information .................................................................................................. 120 according to the proportional method ................................................... 99 48 Information on Parent Company ........................................................................ 121 23 Parent Company’s shares in associated 49 Environmental report ...................................................................................................................... 121 companies and joint ventures .................................................................................... 99 50 Exchange rates 24 Receivables from Group companies, used in financial statements ........................................................................................ 122 associated companies and joint ventures ............................... 100 51 Definitions of key ratios ............................................................................................................... 122 25 Financial investments .................................................................................................................... 10072 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTES NOTE 1 significant adjustments in financial reports in subsequent years are described in more detail in Note 2.ACCOUNTING PRINCIPLES The accounting principles described below for the Group have beenOperations applied consistently for all periods presented in the Group’s financial reports,Saab AB is a Swedish limited company with its registered address in unless otherwise indicated below.Linköping. The company’s shares are listed on the nasdaq omx Stockholm’slarge cap list. The operations of Saab AB with its subsidiaries, joint ventures Application of new and revised accounting rulesand associated companies (jointly referred to as Saab or the Group) have The International Accounting Standards Board (iasb) and the Internationalbeen divided since 1 January 2010 into five business areas: Aeronautics, Financial Reporting Interpretations Committee (IFRIC) have issued and the euDynamics, Electronic Defence Systems, Security and Defence Solutions, and has adopted the following new and revised standards, which apply as of theSupport and Services. The operations in each business area are described in financial year 2010:Note 4. Segment information for 2009 has been restated for comparability in • Revised IFRS 1 First-time Adoption of IFRS is appliedaccordance with the new distribution. • Amendment to IFRS 2 Share-based Payment (Cash-settled share-based Saab has a strong position in Sweden and the large part of its sales are payment transactions that can be settled by other group companies)generated in Europe, in addition to which Saab has a local presence in South • Revised IFRS 3 Business CombinationsAfrica, Australia, the U.S. and other selected countries. • Amendment to IAS 27 Consolidated and Separate Financial State- On 16 February 2011, the Board of Directors and the President approved mentsthis annual report and consolidated accounts for publication, and they will be • Amendments to IAS 39 Financial Instruments: Recognition andpresented to the Annual General Meeting on 7 April 2011 for adoption. Measurement (Clarification what can be considered hedged items) • Improvements to IFRS 2009Conformity to standards and laws • IFRIC 15 Agreements for the Construction of Real EstateThe consolidated accounts have been prepared in accordance with the Interna- • IFRIC 17 Distributions of Non-cash Assets to Ownerstional Financial Reporting Standards (ifrs) issued by the International Account- • IFRIC 18 Transfers of Assets from Customers.ing Standards Board (iasb) and the interpretations of the International Financial Of these, only the revised IFRS 3 Business Combinations and theReporting Interpretations Committee (ifric) as approved by the eu. The consol- amended IAS 27 Consolidated and Separate Financial Statements areidated accounts have also been prepared in accordance with the Swedish Finan- expected to have a material effect on the consolidated financial statements,cial Reporting Board’s recommendation rfr 1 (December 2010) Supplementary though not in 2010.Accounting Rules for Groups, which contains certain additional disclosurerequirements for Swedish consolidated accounts prepared in accordance with IFRS 3 and IAS 27 apply to business combinations and divestments. The newifrs. rules can be summarised as follows: The annual report for Saab AB has been prepared according to the • Transaction costs are not included in cost and instead are treated asAnnual Accounts Act, the Swedish Financial Reporting Board’s recommen- overhead and recognised in profit or loss when they arise.dation rfr 2 (December 2010) Reporting by Legal Entities and the pro- • Contingent consideration is measured at fair value on the acquisitionnouncements of the Swedish Financial Reporting Board. Differences date and effects of revaluations are recognised in profit or loss.between the accounting principles applied by Saab AB and the Group are the • An acquisition analysis according to IFRS 3 is done only when deci-result of limitations on opportunities to apply ifrs by the Parent Company sive influence is obtained. In the case of step acquisitions, previouslyowing to the Annual Accounts Act, the Act on Safeguarding Pension Com- owned interests are revalued at fair value once decisive influence ismitments and in certain cases current tax rules. Significant differences are obtained. Any gain or loss on the previously owned interest is recog-described below under “Significant differences between the Group’s and the nised in profit or loss.Parent Company’s accounting principles.” • Transactions that result in a change in ownership interest after deci- sive influence has been obtained are recognised as transactions affect-Assumptions in the preparation of the financial reports ing the owners’ equity.The Parent Company’s functional currency is Swedish kronor (sek), which is • Non-controlling interests are recognised on the acquisition date ei-also the reporting currency for the Parent Company and for the Group. The ther at fair value or their proportionate share of the fair value of thefinancial reports are presented in sek. All amounts, unless indicated other- acquired operations’ identified assets and liabilities.wise, are rounded off to the nearest million. • The definition of operations has changed. Assets and liabilities are carried at historical cost, with the exception ofcertain financial assets and liabilities, investment properties and biological The amendments are applied prospectively as of 1 January 2010.assets, which are carried at fair value or amortised cost. Derivatives are car- Other new and amended standards and interpretations have not had anried at fair value. effect on the Group’s 2010 financial reports. Non-current assets and disposal groups held for sale are carried at thelower of their carrying amount and fair value less selling expenses at the time New and amended standards and interpretations that have not yetthey were classified as held for sale. entered into force The preparation of the financial reports in accordance with ifrs requires The International Accounting Standards Board (iasb) has issued the follow-the Board of Directors and Management to make estimates and assumptions ing new and amended standards that have not yet entered into force and thethat affect the application of the accounting principles and the carrying International Financial Reporting Interpretations Committee (ifric) hasamounts of assets, liabilities, revenue and expenses. Estimates and assump- published the following new and amended interpretations that have not yettions are based on historical experience and knowledge of the industry that entered into force:Saab operates in, and under current circumstances seem reasonable. Theresult of these estimates and assumptions is then used to determine the carry-ing amounts of assets and liabilities that otherwise are not clearly indicatedby other sources. Actual outcomes may deviate from these estimates andassumptions. Estimates and assumptions are reviewed regularly, and the effect ofchanged estimates is recognised in profit or loss. Estimates made by the Board of Directors and Management in applyingthe accounting principles in compliance with ifrs that may have a significantimpact on the financial reports as well as estimates that may necessitate SAAB ANNUAL REPORT 2010 73
    • FINANCIAL INFORMATION > NOTES Will apply to financial Subsidiaries and acquired operations (business combinations) are recog-Standards years beginning: nised according to the purchase accounting method. This means that a busi- ness combination is treated as a transaction whereby the Group indirectlyImprovements to ifrs 2010* Varies, earliest acquires the business’s assets and takes over its liabilities and contingent liabil- 1 July 2010 ities. The Group’s cost is determined through an acquisition analysis with regard to the acquisition of operating entities. Cost is comprised of the sum ofAmendment to ifrs 1 First-time Adoption of the fair value of what of is paid in cash on the acquisition date through theIFRS applies (Restructured version) on or after 1 July 2010 assumption of liabilities or shares issued. Contingent consideration isAmendment to ifrs 7 Disclosures: Transfers of included in cost and recognised at its fair value on the acquisition date. TheFinancial Assets* on or after 1 July 2011 subsequent effects of revaluations of contingent consideration are recognised in profit or loss. Acquired identifiable assets and assumed liabilities are ini-ifrs 9 Financial Instruments (new standard)* 1 January 2013 tially recognised at their acquisition-date fair value. The exceptions to thisAmendment to ias 24 Related Party Disclosures on or after 1 January 2011 principle are acquired tax assets/liabilities, employee benefits, share-basedAmendment to ias 32 Financial Instruments: payment and assets held for sale, which are valued in accordance with thePresentation (Presentation of subscription on or after 1 February principles described in the sections below for each item. Exceptions are alsorights) 2010 made for indemnification assets and repurchased rights. Indemnification assets are valued according to the same principle as the indemnified item.Interpretations from IFRIC Repurchased rights are valued based on the remaining contractual periodAmendment to ifric 14 The Limit on a Defined regardless of whether other market players might consider opportunities forBenefit Asset, Minimum Funding Requirements contract extensions in connection with valuations. Recognised goodwill con-and their Interaction 1 January 2011 sists of the difference between, on the one hand, the cost of Group company’s interests, the value of non-controlling interests in the acquired company andifric 19 Extinguishing Financial Liabilities with the fair value of the previously owned interest and, on the other, the carryingEquity Instruments on or after 1 July 2010 amount of the acquired assets and assumed liabilities in the acquisition analy-*) Not yet approved for application within the EU. sis. Goodwill is recognised according to the section on intangible fixed assets. Non-controlling interests are recognised on the acquisition date either at fairThe effect on Saab of the application of IFRS 9 has not yet been determined. value or their proportionate share of the carrying amount of the acquiredOther standards and interpretations are not expected to have a material effect company’s identified assets and liabilities. Acquisitions of non-controllingon the Group’s financial reports. interests are recognised as transactions affecting the owners’ equity. The financial reports of Group companies are included in the consoli-Operating segments dated accounts from the point in time when a decisive influence arisesSegment information is presented based on management’s view, and operat- (acquisition date) until this influence ceases. When decisive influence overing segments are identified based on internal reporting to the company’s the Group company ceases but the Group retains an interest in the company,chief operating decision maker. Saab has identified the Chief Executive the remaining shares are initially recognised at fair value. The gain or loss thatOfficer as its chief operating decision maker, while the internal reports used arises is recognised in profit or loss.by the ceo to oversee operations and make decisions on allocating resourcesserve as the basis of the information presented. The accounting principles for Associated companiesreportable segments conform to the principles applied by the Group as a Associated companies are companies over which the Group has a significantwhole. (but not decisive) influence over operating and financial controls, usually through a shareholding of between 20 and 50 per cent of the votes. From the The Group had five reportable segments in 2010: point in time when the significant influence arises, the shares in the associ- • Aeronautics ated company are recognised according to the equity method in the consoli- • Dynamics dated accounts. The equity method is applied until the point in time when the • Electronic Defence Systems significant influence ceases. The equity method means that the carrying • Security and Defence Solutions amount of the shares in the associated company corresponds to the Group’s • Support and Services share of the company’s equity based on an application of the Group’s account- ing principles as well as Group goodwill and any remaining Group surplus orSales of goods and services between segments are made on market terms. deficit values. “Share in income of associated companies” in the income state- A detailed description of the segments, together with the factors used to ment comprises the Group’s share of the net income after tax and the non-identify segments, can be found in note 4 and on pages 36–39. controlling interest in associated companies adjusted for any depreciation, impairment loss or dissolution of acquired surplus and deficit values deter-Classification of assets and liabilities mined in the same way as for operating acquisitions. Dividends receivedCurrent assets and current liabilities generally consist of amounts that can be from the associated company reduce the carrying amount of the investment.recovered or paid within twelve months of the closing day. Other assets and If the Group’s share of the accumulated deficit in an associated companyliabilities are recognised as fixed assets or long-term liabilities. exceeds the carrying amount of the shares in the Group, the value of the shares is reduced to nil. Losses are also offset against long-term uncollateralised finan-Consolidation principles cial balances that in their economic significance represent part of the owner-Group companies company’s net investment in the associated company. Subsequent losses are notGroup companies are companies in which Saab AB has a decisive influence recognised as a liability in the consolidated accounts as long as the Group hasthrough a direct or indirect shareholding amounting to more than 50 per not issued any guarantees to cover losses arising in the associated company.cent of the votes, other than in exceptional circumstances where it can be When decisive inflluence over the associated company ceases but the Groupclearly demonstrated that such ownership does not constitute a decisive retains an interest in the company, the remaining shares are initially recog-influence. Decisive influence also exists when the parent owns not more than nised at fair value. The gain or loss that arises is recognised in profit or loss.half of the voting power of an entity but otherwise has a decisive influenceover more than half the voting rights or the power to govern the financial and Joint venturesoperating policies of the entity under a statute or agreement. When deter- Companies in which the Group, through a cooperative agreement with onemining whether a decisive influence exists, potential voting shares that can be of more parties, shares a decisive influence over operating and financial con-exercised or converted without delay are taken into account. trols are recognised in the consolidated accounts according to the propor-74 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTEStional method. For joint ventures, this means that the Group’s share of the assignment, including interest on advance payments, the portion corre-companies’ revenue and expenses and their assets and liabilities is recognised sponding to the stage of completion is recognised in each period. The stage ofin the consolidated income statement and statement of financial position completion can also be determined in certain cases based on milestones orbased on application of the Group’s accounting principles. This is done by deliveries. With regard to orders that are financed to a significant extent withcombining Saab’s share of revenue and expenses and assets and liabilities in advance payment from customers, the effect on interest of advance financingthe joint venture with the corresponding items in the consolidated accounts. is recognised in gross income. The interest amount that affected gross incomeWhen a joint venture is terminated but the Group retains an interest in the is indicated in Note 13.company, the remaining shares are initially recognised at fair value. The gain An anticipated loss is recognised in profit or loss as soon as it is identified.or loss that arises is recognised in profit or loss. Recognised subcontracting revenue for which the customer has not yet been invoiced is recognised as a receivable from that customer.Eliminated transactionsIntra-Group receivables and liabilities, revenue or expenses, and gains or Operating expenseslosses that arise from transactions between Group companies are eliminated The income statement is classified according to function as follows:in their entirety in the preparation of the consolidated accounts. • Cost of goods sold comprises costs for material handling and manufac- Gains that arise from transactions with associated companies and joint turing costs, including salary and material costs, purchased services,ventures are eliminated to an extent corresponding to the Group’s ownership premises, and the depreciation/amortisation and impairment of intan-interest in the company. Losses are eliminated in the same way as gains, but gible and tangible fixed assets.only to the extent there that is no impairment loss. • Administrative expenses relate to expenses for the Board of Directors, Group Management and staff functions.Foreign currency • Marketing expenses comprise expenses for the in-house marketing andFunctional currencies are the currencies in each primary economic environ- sales organisation.ment where units of the Group conduct their operations. • Research and development costs are recognised separately and com- prise the cost of new and continued product development as well as am-Transactions and assets and liabilities in foreign currency ortisation of capitalised development costs; see below.Transactions in foreign currency are recognised in the functional currency at • Other operating revenue and expenses relate to secondary activities, ex-the exchange rate on the transaction day. Monetary assets and liabilities are change rate differences on items of an operating nature, changes in thetranslated to the functional currency on the closing day at the exchange rate value of derivatives of an operating nature and capital gains/losses onthen in effect. Exchange rate differences that arise through these translations the sale of tangible fixed assets. Also included at the Group level are cap-are recognised in profit and loss. Non-monetary assets and liabilities recog- ital gains/losses on the sale of subsidiaries and associated companies.nised at fair value are translated to the functional currency at the rate in effectat the time of valuation at fair value. Changes in exchange rates are then rec- Government grantsognised in the same way as other changes in value of the asset or liability. Government grants are recognised in the statement of financial position as prepaid or accrued income when there is reasonable certainty that the grantTranslation of financial reports of foreign operations to sek will be received and that the Group will meet the conditions associated withAssets and liabilities in operations with a functional currency other than sek the grant. Grants are systematically recognised in the income statement inare translated to sek at the closing day exchange rate. Revenue and expenses the same way and over the same periods as the expenses for which the grantsin foreign operations are translated to sek at the average rate. Translation dif- are intended to compensate. Government grants related to assets are recog-ferences that arise through currency translations are recognised directly in nised in the statement of financial position as a reduction in the asset’s carry-the comprehensive income. The amount is recognised separately as a transla- ing amount.tion reserve in equity. Financial revenue and expensesRevenue Financial revenue and expenses consist of interest income on bank balances,Revenue is measured at the fair value of what is received or will be received receivables and marketable securities, interest expenses on loans, dividends,after deducting sales tax, returns, discounts or other similar deductions. exchange rate differences, unrealised and realised gains on financial invest- ments and derivatives used in financial operations.Sales of goodsRevenue from the sale of goods is recognised in profit or loss when the signifi- Intangible fixed assetscant risks and benefits associated with ownership have transferred to the buyer, Goodwillwhen it is considered likely that payment will be received and the revenue and Goodwill is distributed among cash-generating units and tested annually forrelated expenses can be calculated reliably. impairment. Goodwill arising through the acquisition of associated companies is included in the carrying amount of the shares in the associated company.Service assignments In acquisitions where the cost is less than, on the one hand, the net of theRevenue from service assignments is recognised when the services are ren- cost of the Group company’s shares, the value of non-controlling interests indered. Revenue from services rendered as part of fixed-price contracts is rec- the acquired company and the fair value of the previously owned interest and,ognised in accordance with the principles that apply to long-term customer on the other, the carrying amount of the acquired assets and assumed liabilitiesagreements; see below. Revenue is recognised only if it is likely that the eco- in the acquisition analysis, the difference is recognised directly through profitnomic benefits will accrue to the Group. or loss.Long-term customer agreements Research and developmentA large part of the Group’s operations comprises long-term customer agree- Expenditures for research undertaken in an effort to gain new scientific orments. When such agreements concern development and hardware that can technological knowledge are expensed when incurred.be reliably calculated, revenue and expenditures attributable to the assign- Expenditures for development, where the research results or other knowl-ment are recognised in the consolidated income statement in relation to the edge is applied to new or improved products or processes, are recognised asassignment’s stage of completion, i.e., according to the percentage of comple- an asset in the statement of financial position from the time when the prod-tion method. uct or process in the future is expected to be technically and commercially The stage of completion is based on a determination of the relationship usable, the company has sufficient resources to complete development andbetween expenditures incurred for services rendered as of the closing day subsequently use or sell the intangible asset, and the product or process isand estimated total expenditures. Of the estimated total revenue for an likely to generate future economic benefits. The carrying amount includes SAAB ANNUAL REPORT 2010 75
    • FINANCIAL INFORMATION > NOTESexpenditures for material, direct expenditures for salaries and, if applicable, it is likely that they will lead to future economic benefits for the Group andother expenditures that are considered directly attributable to the asset. the expenditures can be measured reliably. Other borrowing costs areOther expenditures for development are recognised in profit for loss as an expensed in the period in which they arise.expense when they arise. Development expenditures are recognised in thestatement of financial position at cost less accumulated amortisation and any Depreciationimpairment losses. Depreciation is booked on a straight-line basis based on the asset’s cost less estimated residual value at the end of the period of use, over the asset’s esti-Other intangible fixed assets mated period of use. Land is not depreciated. Component depreciation isOther acquired intangible fixed assets are recognised at cost less accumulated applied, which means that fixed assets consisting of various components oramortisation and any impairment losses. where significant parts have different periods of use are depreciated as sepa- rate assets based on their periods of use.AmortisationAmortisation is recognised in profit or loss over the intangible fixed assets’ Estimated periods of use:estimated periods of use, provided such periods can be determined. Intangi- • Operating properties: 20–90 yearsble fixed assets, excluding goodwill and other intangible fixed assets with • Property, plant and equipment: 5–10 yearsindeterminate periods of use, are amortised from the day they are available • Equipment, tools, installations and computers: 3–10 yearsfor use. Estimated periods of use and amortisation methods are as follows: • Aircraft: 20–25 years• technical rights: 5–10 years, on a straight line basis• capitalised development expenditures: Amortised in connection with Each asset’s residual value and period of use are estimated annually. Periods production based on estimated production volume, for a maximum of use are unchanged compared with the previous year. of 10 years or on a straight-line basis over the estimated period of use of 5–10 years. Lease assets Lease assets mainly refer to 64 aircraft owned by legal entities within SaabPeriods of use are tested annually and unfinished development work is tested Aircraft Leasing and leased out via operating leases. Saab Aircraft Leasing’sfor impairment at least once a year regardless of any indications of dimin- fleet consists of 106 Saab 340 and Saab 2000, of which 42 aircraft are leased inished value. through operating leases and leased out through operating leases. Leasing is classified in the consolidated accounts as either finance orTangible fixed assets operating leasing. Finance leasing exists when the economic risks and bene-Tangible fixed assets are recognised as an asset in the statement of financial fits tied to ownership are essentially transferred to the lessee; otherwise it isposition if it is likely that the future economic benefits will accrue to the operating leasing.Group and the cost of the asset can be reliably estimated. For anticipated or established deficits according to current leases with Tangible fixed assets are recognised at cost after deducting accumulated respect to aircraft financing in Saab Aircraft Leasing, provisions are allocateddepreciation and any impairment. Cost includes the purchase price and costs at an amount corresponding to the obligation. See also Note 7.directly attributable to putting the asset into place and condition to be uti-lised in accordance with the purpose of the purchase. Examples of directly Saab as lessorattributable expenditures included in cost are delivery and handling, installa- At year-end 2010, Saab only had operating leases. Leasing revenue is recog-tion, title and consulting services. nised on a straight-line basis over the leasing period. Direct expenditures that The cost of fixed assets produced by Saab includes expenditures for mate- arise by entering into an operating lease are expensed on a straight-line basisrial, expenditures for employee benefits and, where applicable, other produc- over the leasing period.tion costs considered directly attributable to the fixed asset. The cost of tangible fixed assets includes estimated costs for disassembly Saab as lesseeand removal of the assets as well as restoration of the location or area where At year-end 2010, Saab only had operating leases. Leasing fees for operatingthese assets are found. leases are expensed on a straight-line basis over the leasing period. The carrying amount of a tangible fixed asset is excluded from the state-ment of financial position when the asset is sold or disposed of or when no Biological assetsfuture economic benefits are expected from its use. The gain or loss that arises Biological assets in the form of forests are carried at fair value after deductingon the sale or disposal is comprised of the difference between the sales price estimated selling expenses. Fair value is based on the valuation of an inde-and the asset’s carrying amount less direct selling expenses. Such gains and pendent appraiser.losses are recognised as other operating income/expenses. Investment propertiesIncremental expenditures Investment properties are properties held to earn rental income, for capitalIncremental expenditures are added to cost only if it is likely that the future appreciation or a combination of both. Investment properties are carried ineconomic benefits tied to the incremental expenditures will accrue to the the statement of financial position at fair value. Fair value is based on the val-Group and the expenditures can be reliably estimated. All other incremental uation of an independent appraiser with recognised qualifications and ade-expenditures are recognised as costs in the period they arise. quate experience with properties in the location and category in question. As The determining factor whether an incremental expenditure is added to an alternative, the valuation is made by calculating net rental income, whichcost is whether it relates to the replacement of identifiable components, or then serves as the basis of a determination of fair value.parts thereof. If so, the cost is capitalised. Even in cases where a new com-ponent is created, the expenditure is added to cost. Any undepreciated car- Assets held for salerying amount of replaced components, or parts of components, is disposed When an asset is classified as held for sale, it means that its carrying amountof and expensed in connection with the replacement. Repairs are expensed will be recovered primarily through a sale rather than through use.as incurred. Immediately before classification as held for sale, the recognised value of the assets is determined according to the Group’s accounting principles.Borrowing costs Upon initial classification as held for sale, assets are recognised at the lower ofBorrowing costs that are directly attributable to the acquisition, construc- their carrying amount and fair value less selling expenses.tion or production of an asset and takes a substantial period of time to pre- Assets are not depreciated/amortised after they are classified as held for sale.pare for its intended use or sale is capitalised as part of the asset’s cost when76 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESImpairment Financial assets and liabilities are classified in one of the followingThe carrying amount of fixed assets, with the exception of assets stated at fair categories:value, is tested on each closing day for any indication of impairment. If an Financial assets and liabilities at fair value through profit or lossindication exists, the asset’s recoverable amount is calculated. A description of Assets and liabilities in this category are carried at fair value with changes inimpairment principles for available-for-sale financial assets is provided below. value recognised in profit or loss. This category consists of two subgroups: For goodwill and other intangible fixed assets with an indeterminate financial assets and liabilities held for trading and other financial assets andperiod of use and intangible fixed assets not yet ready for use, recoverable val- liabilities that the company initially chose to recognise at fair value throughues are calculated at least annually. profit or loss. A financial asset is classified as held for trading if it is acquired The recoverable amount of an asset is the higher of its fair value less sell- for the purpose of selling in the near term. Derivatives are always recogniseding expenses and value in use. Value in use is measured by discounting future at fair value through profit or loss, unless hedge accounting is applied.cash flows using a discounting factor that takes into account the risk-free rateof interest plus supplemental interest corresponding to the risk associated Held-to-maturity investmentswith the specific asset. Financial assets in this category relate to non-derivative assets with predeter- If essentially independent cash flows cannot be isolated for individual mined or determinable payments and scheduled maturities that the companyassets, the assets are grouped at the lowest levels where essentially independ- intends and has the ability to hold to maturity. They are valued at amortised cost.ent cash flows can be identified (cash-generating units). An impairment lossis recognised when the carrying amount of an asset or cash-generating unit Loans receivable and accounts receivableexceeds its recoverable value. Impairment losses are charged against the Loans receivable and accounts receivable are non-derivative financial assetsincome statement. with fixed payments which are not listed on an active market. Receivables Impairment losses attributable to a cash-generating unit (pool of units) arise when the company provides money, goods or services directly to theare mainly allocated to goodwill, after which they are divided proportionately debtor without the intent to trade its claim. The category also includesamong other assets in the unit (pool of units). acquired receivables. Assets in this category are recognised after acquisition Impairment of goodwill is not reversed. at amortised cost. Impairment losses from other assets are reversed if a change has occurred Accounts receivable are recognised at the amount expected to be receivedin the assumptions that served as the basis for determining recoverable value. based on an individual valuation. Accounts receivable have a short maturity,Impairment is reversed only to the extent the carrying amount of the assets due to which they are recognised at their nominal amount without discount-following the reversal does not exceed the carrying amount that the asset ing. Impairment losses on accounts receivable are recognised in operatingwould have had if the impairment had not been recognised, taking into expenses.account the depreciation or amortisation that would have been recognised. Other receivables are receivables that arise when the company provides money without the intent to trade its claim.Financial assets and liabilities and other financial instrumentsFinancial instruments recognised in the statement of financial position Other financial liabilitiesinclude, on the asset side, liquid assets, accounts receivable, shares, loans Liabilities classified as other financial liabilities are initially recognised at thereceivable, bonds receivable, derivatives and part of accrued income and amount received after deducting transaction expenses. After acquisition, theother receivables. Liabilities include trade accounts payable, loans payable, loans are carried at amortised cost, according to the effective rate method.derivatives and part of accrued expenses and other liabilities. Trade accounts payable are classified in the category other financial liabil- Financial instruments are initially recognised at cost, corresponding to ities. Trade accounts payable have a short expected maturity and are carriedthe instrument’s fair value plus transaction expenses for all financial instru- without discounting at their nominal amount.ments with the exception of those in the category financial assets at fair valuethrough profit or loss. The instruments are subsequently recognised at fair Calculation of recoverable valuevalue or amortised cost, depending on how they have been classified as fol- The recoverable value of financial assets in the categories held-to-maturitylows. The fair value of listed financial assets and liabilities is determined using investments, loans receivable and accounts receivable measured at amortisedmarket prices. Saab also applies various valuation methods to determine the cost is calculated using the present value of future cash flows discounted byfair value of financial assets and liabilities traded on an inactive market. These the effective interest rate in effect when the asset was initially recognised.valuation methods are based on the valuation of similar instruments, dis- Assets with a maturity of less than one year are not discounted.counted cash flows or accepted valuation models such as Black and Scholes. Impairment of held-to-maturity investments and loans receivable andAmortised cost is determined based on the effective interest rate calculated accounts receivable recognised at amortised cost is reversed if a subsequenton the acquisition date. increase in recoverable value can objectively be attributed to an event occur- A financial asset or financial liability is recognised in the statement of ring after the impairmentfinancial position when the company becomes party to the instrument’s con-tractual terms. Accounts receivable are recognised in the statement of finan- Liquid assetscial position when an invoice has been sent. Liabilities are recognised when Liquid assets consist of cash and cash equivalents, immediately accessiblethe counterparty has performed and there is a contractual obligation to pay, balances with banks and similar institutions, and short-term liquid invest-even if an invoice has not yet been received. Accounts payable are recognised ments with a maturity from acquisition date of less than three months, whichwhen an invoice is received. are exposed to no more than an insignificant risk of fluctuation in value. A financial asset is removed from the statement of financial positionwhen the rights in the agreement are realised, expire or the company loses Financial investmentscontrol over them. The same applies to part of a financial asset. A financial Financial investments comprise either financial fixed assets or short-termliability is removed from the statement of financial position when the obliga- investments, depending on the intent of the holding. If the maturity or thetion in the agreement has been discharged or otherwise extinguished. The anticipated holding period is longer than one year, they are considered finan-same applies to part of a financial liability. cial fixed assets, and if it is shorter than one year they are short-term invest- On each reporting date, Saab evaluates whether there are objective indi- ments.cations that a financial asset or pool of financial assets is in need of impair- With recognition at fair value through profit or loss, changes in value arement. Financial assets and liabilities are offset and recognised as a net amount stated in financial revenue and expenses.in the statement of financial position when the there is a legal right to a set-offand when the intent is to settle the items with a net amount or to realise theasset and settle the liability at the same time. SAAB ANNUAL REPORT 2010 77
    • FINANCIAL INFORMATION > NOTESDerivatives and hedge accounting Valuation principlesDerivatives include forward exchange contracts, options and swaps utilised The fair value of listed financial assets is determined using market prices.to cover risks associated with changes in exchange rates and exposure to Furthermore, Saab applies various valuation methods to determine the fairinterest rate risks. Derivatives are recognised at fair value upon acquisition value of financial assets that are traded on an inactive market. These methodsand subsequently. are based on the valuation of similar instruments, discounted cash flows or Derivatives with positive values are recognised as assets and derivatives customary valuation methods such as Black and Scholes. See Note 41.with negative values are recognised as liabilities under the heading deriva-tives in the statement of financial position. Gains and losses on a derivative Inventoriesarising due to a change in fair value are recognised in profit or loss if the Inventories are valued at the lower of cost and net realisable value. Net realis-derivative is classified among financial assets and liabilities at fair value able value is the estimated selling price in continuing operations after deduct-through profit or loss. ing estimated expenses for completion and expenses incurred in selling. In hedge accounting, derivatives are classified as fair value hedges or cash Cost is calculated by applying the first-in first-out method (fifo) andflow hedges. The recognition of these hedging transactions is described below. includes expenses to acquire inventory assets and bring them to their present location and condition. For finished and semifinished goods, cost consists ofCash flow hedges direct manufacturing expenses and a reasonable share of indirect manufac-Certain forward exchange contracts and currency swaps (hedge instruments) turing expenses as well as expenses to customise products for individual cus-entered into to hedge future receipts and disbursements against currency tomers. Calculations take into account normal capacity utilisation.risks are accounted for according to the rules for cash flow hedging. Deriva-tives that protect future receipts and disbursements are recognised in the Dividendsstatement of financial position at fair value. Changes in value are recognised The dividend proposed by the Board of Directors reduces earnings availablein other comprehensive income and separately recognised in the hedge for distribution and is recognised as a liability when the Annual Generalreserve in equity until the hedged cash flow meets the operating profit or loss, Meeting has approved the dividend.at which point the cumulative changes in value of the hedging instrument are Employee benefitstransferred to profit or loss to meet and match the effects on earnings of the The Group has two types of pension plans: defined-contribution and defined-hedged transaction. benefit pension plans. Interest rate exposure from future variable-rate liabilities is hedged withinterest rate swaps. In its reporting, Saab applies cash flow hedging, which Defined-contribution plansmeans that the change in value of the interest rate swap is recognised in other In defined-contribution plans, pensions are based on the premiums paid.comprehensive income and separately recognised in the hedge reserve in Obligations with regard to defined-contribution plans are expensed in theequity. The change in value is recognised in financial revenue and expenses income statement.when transferred to profit or loss. When the hedged future cash flow refers to a transaction that will be capi- Defined-benefit planstalised in the statement of financial position, the net gain or loss on cash flow In defined-benefit plans, pensions are based on a percentage of the recipient’shedges in equity is dissolved when the hedged item is recognised in the state- salary. Saab has around ten different types of defined-benefit plans. The pre-ment of financial position. If the hedged item is a non-financial asset or a non- dominant plan is the itp plan, which accounts for approximately 5/6 of thefinancial liability, the reversal from the net gain or loss on cash flow hedges in total obligation. The second largest plan refers to the state-funded retirementequity is included in the original cost of the asset or liability. If the hedged item pension and vested pensions in Affärsverket ffv when it was incorporated onis a financial asset or financial liability, the net gain or loss on cash flow hedges 1 January 1991.in equity is gradually reversed through profit or loss at the same rate that the The Group’s net obligation for defined-benefit plans is calculated sepa-hedged item affects earnings. rately for each plan by estimating the future compensation that employees When a hedging instrument expires, is sold or is exercised, or the com- have earned through employment in present and previous periods. This com-pany revokes the designation as a hedging relationship before the hedged pensation is discounted to present value. Saab has secured main part of thetransaction occurs and the projected transaction is still expected to occur, the obligation through provisions to a pension fund, and the fair value of therecognised cumulative gain or loss remains in the net gain or loss on cash fund’s assets is offset against the provision for the pension obligation atflow hedges in equity and is recognised in the same way as above when the present value in the statement of financial position. The discount rate to cal-transaction occurs. culate the commitment at present value has been determined based on the If the hedged transaction is no longer expected to occur, the hedging interest rate on the closing day for a first-class corporate bond with a maturityinstrument’s cumulative gains and losses are immediately recognised in profit corresponding to the pension obligation. When there is no active market foror loss in accordance with principles described above for derivatives. such corporate bonds, the market interest rate on government bonds with a similar maturity is used instead. The calculation is made by a qualified actu-Fair value hedges ary using the projected unit credit method.Certain forward exchange contracts and currency swaps (hedge instruments) When the compensation terms in a plan improve, the portion of theentered into to hedge future receipts and disbursements for currency and increased compensation attributable to the employees’ services in previousinterest rate risk are accounted for according to the rules for fair value hedg- periods is expensed through the income statement on a straight-line basising. These hedges are recognised at fair value in the statement of financial over the average period until the compensation is fully vested. If the compen-position with regard both to the derivative itself and the future receipt or dis- sation is fully vested, an expense is recognised directly through profit or loss.bursement (hedge item) for the risk being hedged. The change in fair value of The obligation is estimated on the closing day, and if the calculatedthe derivative is recognised in the profit and loss together with the change in amount deviates from the estimated commitment an actuarial gain or lossvalue of the hedged item. arises. All actuarial gains and losses as of 1 January 2004, the date of transi- tion to ifrs, are recognised in equity and other items in the statement ofHedge of currency exposure in assets and liabilities financial position. For actuarial gains and losses that arise from the calcula-Currency exposure from an asset or liability is hedged with forward exchange tion of the Group’s obligation for different plans after 1 January 2004, the so-contracts. No hedge accounting is applied, due to which both the hedged called corridor rule is applied. This means that the portion of the cumulativeitem and hedging instrument are recognised with respect to currency risk at actuarial gains and losses exceeding 10 per cent of the higher of the commit-fair value with changes in value through profit or loss. Changes in the value of ments’ present value and the fair value of assets under management is recog-operations-related receivables and liabilities are recognised in operating nised over the expected average remaining period of employment of theincome, while changes in the value of financial receivables and liabilities arerecognised in financial revenue and expenses.78 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESemployees covered by the plan. Actuarial gains and losses otherwise are not Loss contractstaken into account. A provision for a loss contract is recognised when anticipated benefits are If pension obligations are lower than assets under management and actu- lessthan the unavoidable costs to fulfil the obligations as set out in the con-arial losses, this amount is recognised as an asset. tract. When there is a difference in how the pension cost is determined for alegal entity and the Group, a liability or receivable for the special employer’s Guaranteescontribution arises based on this difference. A provision for guarantees is normally recognised when the underlying products or services are sold if a reliable calculation of the provision can beSeverance made. The provision is based on historical data on guarantees for the prod-A provision is recognised in connection with termination of personnel only if ucts or similar products and an overall appraisal of possible outcomes in rela-the company is obligated to terminate an employment before the customary tion to the likelihood associated with these outcomes.time, e.g., when compensation is paid in connection with a voluntary termi-nation offer. In cases where the company terminates personnel, a detailed Soil remediationplan is drafted containing at the minimum the workplaces, positions and In accordance with the Group’s publicly announced environmental policyapproximate number of individuals affected as well as compensation for each and applicable legal requirements, periodic estimates are made of Saab’s obli-personnel category or position and a schedule for the plan’s implementation. gations to restore contaminated soil. Anticipated future payments are dis- counted to present value and recognised as a provision.Share-based paymentShare-based payment refers solely to remuneration to employees, including Contingent liabilitiessenior executives. Share-based payment settled with the company’s shares or A contingent liability exists if there is a possible commitment stemming fromother equity instruments is comprised of the difference between the fair value events whose occurrence is dependent on one or more uncertain futureat the time these plans were issued and the consideration received. This events and there is a commitment that is not recognised as a liability or provi-remuneration is recognised as staff costs during the vesting period. To the sion because it is unlikely that an outflow of resources will be required or theextent the vesting conditions in the plan are tied to market factors (such as size of the obligation cannot be estimated with sufficient reliability. Informa-the price of the company’s shares), they are taken into consideration in deter- tion is provided as long as the likelihood of an outflow of resources is notmining the fair value of the plan. Other conditions (such as earnings per extremely small.share) affect staff costs during the vesting period by changing the number ofshares or share-related instruments that are expected to be paid. Taxes Income taxes consist of current tax and deferred tax. Income taxes are recog-Share matching plan for employees nised in profit or loss unless the underlying transaction is recognised in netSaab has a Global Share Matching Plan where all employees are entitled to comprehensive income or loss, in which case the related tax effect is also rec-participate. The payroll expenses for matching shares in the plan are recog- ognised in net comprehensive income or loss.nised during the vesting period based on the fair value of the shares. The Current tax is the tax paid or received for the current year, applying theemployees pay a price for the share that corresponds to the share price on the tax rates that have been set or essentially set as of the closing day to taxableinvestment date. Three years after the investment date, employees are allotted income and adjusting for current tax attributable to previous periods.as many shares as they purchased three years earlier provided that they are Deferred tax is calculated according to the balance sheet method based onstill employees of the Saab Group and that the shares have not been sold. In temporary differences that constitute the difference between the carryingcertain countries, social security expenses are paid on the value of the amount of assets and liabilities and their value for tax purposes. Deductibleemployee’s benefit when matching takes place. During the vesting period, temporary differences are not taken into account in the initial reporting ofprovisions are allocated for these estimated social security expenses. Share assets and liabilities in a transaction other than a business combination andrepurchases to fulfil the commitments of Saab’s share matching plans are rec- which, at the time of the transaction, do not affect either the recognised or tax-ognised in equity. able result. Moreover, temporary differences are not taken into account if they In addition, a plan was introduced for senior executives entitling them to are attributable to shares in subsidiaries and associated companies that are not2–5 matching shares depending on the category the employee belongs to. In expected to be reversed within the foreseeable future. The valuation ofaddition to the requirement that the employee remain employed by Saab after deferred tax is based on how the carrying amounts of assets or liabilities arethree years, there is also a requirement that earnings per share grow in the expected to be realised or settled. Deferred tax is calculated by applying the taxrange of 5 to 15 per cent. See also, Note 37. rates and tax rules that have been set or essentially are set as of the closing day. Deferred tax assets from deductible temporary differences and tax lossProvisions carry forwards are only recognised to the extent it is likely that they will beA provision is recognised in the statement of financial position when the utilised. The value of deferred tax assets is reduced when it is no longer con-Group has a legal or informal obligation owing to an event that has occurred sidered likely that they can be utilised.and it is likely that an outflow of economic resources will be required to settlethe obligation and a reliable estimate of the amount can be made. Where it is Significant differences between the Group’s and the Parent Company’simportant when in time payment will be made, provisions are estimated by accounting principlesdiscounting projected cash flow at a pre-tax interest rate that reflects current The Parent Company follows the same accounting principles as the Groupmarket estimates of the time value of money and, where appropriate, the risks with the following exceptions.associated with the liability. Business combinationsRegional aircraft Transaction costs are included in the cost of business combinations.A provision for an aircraft lease is recognised when future lease receipts areless than unavoidable lease disbursements. Associated companies and joint ventures Shares in associated companies and joint ventures are recognised by the Par-Restructuring ent Company according to the acquisition value method. Revenue includesA provision for restructuring is recognised when a detailed, formal restruc- dividends received.turing plan has been established and the restructuring has either begun orbeen publicly announced. No provision is made for future operating losses. Intangible fixed assets All development costs are recognised in profit or loss. SAAB ANNUAL REPORT 2010 79
    • FINANCIAL INFORMATION > NOTESTangible fixed assets Employee benefitsTangible fixed assets are recognised after revaluation, if necessary. All leases The Parent Company complies with the provisions of the Law on Safeguardingare recognised according to the rules for operating leasing. of Pension Commitments and the regulations of the Swedish Financial Supervisory Authority, since this is a condition for tax deductibility.Borrowing costsThe Parent Company recognises borrowing costs as an expense in the period Untaxed reservesin which they arise. The amounts allocated to untaxed reserves constitute taxable temporary dif- ferences. Due to the connection between reporting and taxation, the deferredInvestment properties tax liability is recognised in the Parent Company as part of untaxed reserves.Investment properties are recognised according to acquisition cost method. Group contributions and shareholders’ contributions for legal entitiesFinancial assets and liabilities and other financial instruments Shareholders’ contributions are recognised directly in the equity of the recipi-The Parent Company carries financial fixed assets at cost less impairment and ent and capitalised in the shares and participating interests of the contributor,financial current assets according to the lowest value principle. If the reason to the extent impairment is not required.for impairment has ceased, it is reversed. Group contributions are recognised based on their economic intent. This The Parent Company does not apply the rules for setting off financial means that Group contributions paid in order to minimise the Group’s totalassets and liabilities. taxes are recognised directly against retained earnings after deducting the current tax effect. Group contributions equated with dividends are recog-Derivatives and hedge accounting nised as a dividend. This means that Group contributions received and theDerivatives that are not used for hedging are carried by the Parent Company effect on current tax are recognised in profit or loss. Group contributionsaccording to the lowest value principle. For derivatives used for hedging, rec- paid and effect on current tax are recognised directly in retained earnings.ognition is determined by the hedged item. This means that the derivative is Group contributions equated with shareholders’ contributions are recog-treated as an off balance sheet item as long as the hedged item is recognised at nised by the recipient directly in retained earnings taking into account thecost or is not included on the balance sheet. Receivables and liabilities in for- effect on current tax. The contributor recognises Group contributions andeign currency hedged with forward contracts are valued at the forward rate. the effect on current tax as an investment in shares in Group companies with subsequent impairment testing.80 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTES NOTE 2 NOTE 3ASSUMPTIONS IN THE APPLICATION OF THE ACCOUNTING PRINCIPLES REVENUE DISTRIBUTIONThe Board of Directors and Group Management together have identified the Revenue by significant sourcefollowing areas where estimates and assumptions in the application of the Group Parent Companyaccounting principles may have a siginificant impact on the accounting of the MSEK 2010 2009 2010 2009Group’s results of operations and financial position and may result in signifi-cant adjustments in subsequent financial reports. Developments in these Sale of goods 4,359 4,959 1,670 1,930areas are monitored continuously by Group Management and the Board of Long-term customerDirectors’ audit committee. contracts 13,826 14,217 8,836 9,724 Service assignments 6,246 5,462 4,237 3,725UNCERTAINTIES IN ESTIMATES AND ASSUMPTIONS Royalties 3 9 2 6Long-term customer projectsA majority of all long-term customer projects contain significant develop- Total 24,434 24,647 14,745 15,385ment aspects, which are associated with risks. Before a contract is signedwith a customer on delivery of a product, solution or service, a thorough Sale of goodsanalysis is always made of the prerequisites and risks of the delivery through The sale of goods includes sales of goods manufactured by Saab and goodsa project management process established within Saab. In the execution purchased for resale, e.g., spare parts and other equipment which is soldstage, continuous reviews are then made of the work in the project accord- separately.ing to the same process. An important aspect is to identify risks and assessthem and the measures that are taken to mitigate the risks with the help of a Long-term customer contractsrisk assessment method. Long-term customer contracts relate to the development and manufacture of The Group applies the percentage of completion method to recognise complex systems that stretch across several accounting periods.revenue from long-term customer projects. An estimation of total costs is For long-term customer contracts on development and hardware thatcritical in revenue recognition and provisions for loss contracts as well as can be calculated reliably, revenue and expenditures attributable to theinventory valuations, and the outcome of technical and commercial risks assignment are recognised as income and expenses in the consolidatedmay affect income. income statement in relation to the assignment’s stage of completion, i.e., according to the percentage of completion method.Recovery of value of development costsThe Group has invested significant amounts in research and development. The Service assignmentsreported amounts in the statement of financial position are primarily due to Service assignments refer to the performance of a service on behalf of a cus-development projects relating to exports of Gripen, electronic warfare sys- tomer during a contractual period, e.g., consulting and support services.tems, missile systems, radar and sensors. Capitalised development costsamount to msek 2,428 (3,038). The recognition of development expenditures Royaltiesas an asset on the statement of financial position requires an assumption that Royalties include revenue from outside parties for the use of Saab’s assetsthe product is expected to be technically and comercially usable in the future such as patents, trademarks and software.and that future economic benefits are likely. Capitalised development costs areamortised over the estimated production volume or period of use, up to amaximum of 5 years, with the exception of acquired development costs, wherethe maximum period of use is 10 years. Projected production volumes andperiods of use may later be reassessed, which could necessitate impairment.Impairment testing of goodwillIn the calculation of cash-generating units to determine whether there hasbeen an impairment of goodwill, assumptions have been made with regardto the calculation of value in use, which is based on discounted cash flowprojections. A significant deviation in the conditions will affect the value ofgoodwill. The carrying amount for goodwill amounts to msek 3,470 (3,457).Leasing fleetThe portfolio consists of 106 aircraft, of which 64 are recognised as leaseassets. Of the 106 aircraft, 42 are covered by insurance from the SwedishExport Credits Guarantee Board. As of year-end, there were 25 unleased air-craft, of which 9 aircraft are allocated to customers for delivery during 2011.Provisions for obligations have been made based on estimates and assump-tions of future lease levels and a discount rate corresponding to a market-ratereturn, including risk-free interest. Changes in conditions may necessitate animpairment or a higher provision. The extent of leasing operations is indi-cated in Notes 7 and 18. SAAB ANNUAL REPORT 2010 81
    • FINANCIAL INFORMATION > NOTES NOTE 4 Security and Defence Solutions These operations comprise both the military and civil security market with aSEGMENT REPORTING competitive product portfolio consisting of c4isr (computerized command,Saab is one of the world’s leading high technology companies, operating control, communications and intelligence) systems, airborne early warningprincipally in the areas of defence, aeronautics and civil security. Operations systems, solutions for civil security, training and simulation systems, andprimarily comprise well-defined areas in defence electronics and missile sys- solutions for telecom operators.tems as well as military and civil aeronautics. Saab is also active in technicalservices and maintenance. Saab has a strong position in Sweden and the Support and Serviceslarge part of sales is generated in Europe. In addition, Saab has a local These operations offer reliable, cost-effective service and support in all mar-presence in South Africa, Australia, the us and other selected countries. As a kets where Saab is active. This primarily includes integrated support solu-result of a reorganisation as of 1 January 2010, Saab is divided into five busi- tions, technical maintenance and logistics, and products, solutions and serv-ness areas, which also represent operating segments, Aeronautics, Dynamics, ices for military and civil missions in locations with limited infrastructure.Electronic Defence Systems, Security and Defence Solutions, and Support Significant items not affecting cash flowand Services. The business areas are described below. Significant items that do not affect cash flow relate in 2010 to restructuringAeronautics expenses of msek 477 (300), which are divided by operating segment as fol-These operations include the development of civil and military aviation tech- lows: Aeronautics msek 31 (100) , Dynamics msek 240 (180), Electronicnology at a high level. The product portfolio includes the Gripen fighter and Defence Systems msek 55 (0), Security and Defence Solutions msek 36 (0),Unmanned Aerial Systems (uas). Aeronautics also manufactures aircraft Support and Services msek 50 (20) and Corporate msek 65 (0).components for Saab’s own aircraft as well as passenger aircraft produced byothers. In 2009, a revaluation of remaining risks in the regional aircraft portfolio affected income positively by msek 350 without affecting cash flow and wasDynamics reported within Corporate.The product portfolio comprises advanced weapon systems such as supportweapons, missiles, torpedoes, Remotely Operated Vehicles (rovs) and signa- Information on major customersture management systems that are used to make it more difficult for various Saab has one customer, the Swedish Defence Materiel Administration (fmv),types of sensors to detect and identify people or objects. which accounts for 10 per cent or more of the Group’s revenue. fmv is a cus- tomer of every business area, generating total revenue of msek 6,404 (5,499)Electronic Defence Systems in 2010.These operations, which are based on Saab’s extensive expertise in radar andelectronic warfare, develop sophisticated solutions for detection, localisation and Information on geographical areasprotection. The product portfolio includes air and land-based sensor and radar External sales are distributed to the market where the customer is domiciled,systems, systems for electronic warfare, defence electronics and aeronautics. while fixed assets are distributed to the market where the asset is geographi- cally located.82 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 4, CONT. Electronic Security and Support and Group Aeronautics Dynamics Defence Systems Defence Solutions Services Corporate Eliminations Group MSEK 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 External revenue 6,482 7,297 4,648 4,460 3,366 3,725 6,086 5,621 3,084 2,903 768 641 - - 24,434 24,647 Internal revenue 259 274 93 120 988 945 124 179 319 661 317 363 -2,100 -2,542 - - Total revenue 6,741 7,571 4,741 4,580 4,354 4,670 6,210 5,800 3,403 3,564 1,085 1,004 -2,100 -2,542 24,434 24,647 Operating income before share in income of associated companies 191 66 300 246 90 18 137 278 351 410 -108 399 - - 961 1,417 Share in income of associated companies - -60 22 23 9 6 - - - - -17 -12 - - 14 -43 Operating income 191 6 322 269 99 24 137 278 351 410 -125 387 - - 975 1,374 Share in income of associated companies - - 3 3 - - - -1 - - 23 - - - 26 2 Financial income 18 56 7 7 - 8 28 16 3 3 200 196 -140 -236 116 50 Financial expenses -111 -165 -43 -50 -40 -53 -72 -80 -31 -31 -184 -307 140 236 -341 -450 Income before taxes 98 -103 289 229 59 -21 93 213 323 382 -86 276 - - 776 976 Taxes -67 -90 -72 -62 72 108 -107 -41 -3 -12 -145 -180 - - -322 -277 Net income for the year 31 -193 217 167 131 87 -14 172 320 370 -231 96 - - 454 699 Assets 7,303 7,286 4,117 4,337 7,970 9,474 5,131 6,456 2,250 2,573 16,134 18,538 -13,627 -18,234 29,278 30,430 Of which shares in associated companies - - 53 27 124 113 - 2 - - 74 214 - - 251 356 Liabilities 7,214 7,354 2,575 2,786 3,852 4,922 4,064 5,207 1,541 1,830 8,009 10,935 -9,421 -13,286 17,834 19,748 Operating cash flow 30 -434 1,044 369 594 506 1,066 -217 894 81 721 1,142 - - 4,349 1,447 Capital employed 2,118 2,146 2,496 2,880 4,584 5,621 2,282 3,159 1,248 1,807 5,083 3,508 -4,656 -4,790 13,155 14,331 Investments 63 62 53 58 70 59 33 47 15 7 147 48 - - 381 281 Depreciation and amortisation 247 249 156 189 490 527 108 104 15 16 279 292 - - 1,295 1,377 Impairments - - 38 8 - - 20 15 - - 5 - - - 63 23Geographical areas Group Sweden Rest of EU Rest of Europe North America Latin America MSEK 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 External revenue 1) 9,223 7,714 4,737 5,675 368 280 2,083 1,764 116 154 as % of revenue 38 31 19 23 2 1 9 7 - 1 Fixed assets 10,066 11,490 139 167 34 37 1,088 1,287 5 - Group Asia Africa Australia, etc. Total MSEK 2010 2009 2010 2009 2010 2009 2010 2009 1) External revenue 3,937 4,568 2,833 3,477 1,137 1,015 24,434 24,647 as % of revenue 15 19 12 14 5 4 100 100 Fixed assets 17 14 825 828 290 287 12,464 14,1101) External sales are distributed according to the market where the customer is domiciled. SAAB ANNUAL REPORT 2010 83
    • FINANCIAL INFORMATION > NOTESNOTE 4, CONT.Revenue by operating segment NOTE 6Parent Company OTHER OPERATING EXPENSESMSEK 2010 2009 Group Parent CompanyAeronautics 6,401 7,179 MSEK 2010 2009 2010 2009Electronic Defense Systems 2,534 3,006 Loss from other operatingSecurity and Defence Solutions 2,846 2,434 activities -33 -8 -8 -7Support and Services 2,964 2,766 Loss on sale of GroupTotal 14,745 15,385 companies -22 - - - Loss on sale of tangible fixed assets -7 -1 -7 -1Revenue by geographical market Impairment of buildings - -8 - -Parent Company Exchange rate losses onMSEK 2010 2009 operating receivables/ liabilities - -56 - -55Sweden 7,623 6,938 Other -8 -9 -1 -5Rest of EU 1,997 2,402 Subtotal -70 -82 -16 -68Rest of Europe 54 190 Change in value of deriva-North America 832 538 tives 50 -18 - -Latin America 51 15 Change in value ofAsia 2,490 2,829 contracted flows -50 18 - -Africa 1,380 2,225 Subtotal - - - -Australia, etc. 318 248Total 14,745 15,385 Total -70 -82 -16 -68 Other operating activities consist of results from subsidiaries that fall outside NOTE 5 core operations.OTHER OPERATING INCOME NOTE 7 Group Parent CompanyMSEK 2010 2009 2010 2009 LEASING OPERATIONSChange in fair value of As the former manufacturer of the regional aircraft Saab 340 and Saab 2000,biological assets 43 13 - - Saab has a major interest in ensuring that these aircraft maintain high capac-Trading result 35 43 35 43 ity utilisation. Over 500 aircraft have been delivered and 106 are included in Saab’s leasing fleet. Income from leasing operations (Saab Aircraft Leasing) isGain from other operating recognised net through profit and loss on the lines other operating income oractivities 29 46 2 - other operating expenses after offsetting the loss risk reserve. Saab AircraftExchange rate gains Leasing’s income statement and balance sheet are largely usd-related, sinceon operating receivables/liabilities and change in its agreements on the sale and lease of aircraft are in usd, which is its func-value of derivatives 27 3 11 - tional currency. The exchange rates used for translation of the financial state- ments are indicated in Note 50.Government grants 26 25 26 25Gain on sale of associatedcompanies 24 - - - Income statement Saab Aircraft LeasingGain on sale of Group MSEK 2010 2009companies 13 4 - - Leasing revenue 328 363Other 25 15 8 - Interest income 40 64Total 222 149 82 68 Other revenue 216 331Other operating activities consist of results from subsidiaries that fall outside Total revenue 584 758core operations and net rental income from property rentals. Leasing expenses -239 -258 Interest expenses -31 -63 Depreciation -146 -176 Other expenses -227 -372 Total expenses -643 -869 Utilisation of loss risk reserve 84 139 Operating income 25 2884 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 7, CONT.Financial position Saab Aircraft Leasing NOTE 9MSEK 31-12-2010 31-12-2009 EMPLOYEES AND STAFF COSTSAssets Average number of employeesLease assets 1,150 1,460 of whom of whomReceivables from Group companies 1,575 1,597 2010 men 2009 menExternal receivables 297 277 Parent Company Sweden 7,656 80% 8,238 79%Inventories 16 12 United Arab Emirates 14 93% 2 100%Liquid assets 11 16 South Africa 6 100% 21 100%Total assets 3,049 3,362 USA 5 100% 2 100% India 3 67% 2 100%Equity and liabilities Belgium 2 50% 2 50%Equity 1,414 1,588 Canada 2 100% - -Provisions 851 797 Thailand 1 100% 1 100%Other liabilities 784 977 Chile 1 100% 1 100%Total equity and liabilities 3,049 3,362 South Korea 1 100% 1 100% Poland 1 100% - -Security pledged for lease obligations amounted to msek 0 (0). Australia 1 100% - - Saudi Arabia 1 100% - - Czech Republic 1 100% - - NOTE 8 France 1 100% - -ACQUISITIONS AND DIVESTMENTS OF OPERATIONS Brazil 1 100% - -In May 2010, Saab divested a property holding company, Saab Bofors Indu- Parent Company, total 7,697 80% 8,270 79%strier ab, to the associated company Kontorsbolaget i Karlskoga ab. The sales Group companiesprice was msek 133. The transaction generated a capital gain of msek 12. The Sweden 2,498 78% 2,533 78%divestment has a marginal effect on future sales and income. South Africa 1,115 71% 1,159 71% In May 2010, Saab acquired the remaining 66.7 per cent of the shares inthe associated company Opax as in Norway. The purchase price was mnok Australia 354 78% 334 75%0.1. The purchase agreement contains a supplemental purchase price estimated USA 233 55% 251 51%at mnok 15. The surplus value of mnok 15 is allocated to goodwill. The acquisi- UK 115 79% 122 81%tion has a marginal effect on future sales and income. Denmark 76 86% 92 86% In June 2010, Saab divested 25 per cent of the votes, corresponding to fiveper cent of the capital, in Saab South Africa (Pty) Ltd to the South African Finland 74 76% 72 75%holding company Sekunjalo Investment Ltd. Based on the company’s per- Norway 50 88% 44 86%formance, the buyer will over time be entitled to increase its share of the capi- Switzerland 49 100% 34 94%tal up to maximum 25 per cent. The transaction generated a loss of msek 22. Germany 33 91% 34 88% In June 2010, Saab divested all the shares in the associated company Kenya 31 100% - -Eurenco S.A. (19.9 per cent) to the majority owner. The transaction generatedno capital gain or loss and had no effect on net liquidity. Nigeria 24 71% 32 81% On 14 December 2010, Saab announced the signing of an eight-year Czech Republic 14 64% 6 50%agreement with Scandinavian Air Ambulance Holding ab. Starting in 2011, Canada 11 91% 8 88%Saab will take over responsibility for the group’s technical and maintenance India 6 83% 6 83%personnel and operations for their helicopter and aircraft. South Korea 4 75% 4 75% On 15 December 2010, Saab reduced its ownership share in the associatedcompany Hawker Pacific Ltd from 49 per cent to 33 per cent when seacor Netherlands 4 100% 2 100%Capital (Asia) Limited acquired a shareholder position by investing musd 25 France 3 100% 5 100%in cash in Hawker Pacific Ltd in exchange for newly issued common stock. Hungary 2 50% 3 67%The transaction increased the book value of the shares in the associated com- Chile 2 50% 2 50%pany through a capital gain of msek 24. On 23 December 2010, Hawker Slovenia 2 100% 1 100%Pacific also partially redeemed msek 28 in Saab AB’s preference shares formsek 28 in cash. United Arab Emirates 1 - 1 - No other significant acquisitions or divestments were made during the year. Japan 1 100% 1 100% Singapore 1 - 1 - Greece 1 100% - - Algeria - - 1 100% Group companies, total 4,704 76% 4,748 75% Joint ventures Sweden 25 88% 27 85% Joint ventures, total 25 88% 27 85% Group total 12,426 79% 13,045 78% SAAB ANNUAL REPORT 2010 85
    • FINANCIAL INFORMATION > NOTESNOTE 9, CONT.The average number of employees has been calculated as the average of the Salaries and other remuneration by country and betweennumber of full-time equivalents. The term full-time equivalents excludes Board members, President and Vice Presidents and other employeeslong-term absentees and consultants. Part-time employees and probationers 2010 2009are included in the calculation, however. Board, Board, President PresidentGender distribution of corporate management and Vice Other and Vice Other MSEK Presidents employees Presidents employees Share of women, per cent 2010 2009 Parent Company Parent Company Sweden 27 3,802 28 3,773 Board of Directors 20 15 of which variable compensation 2 - 1 - Other senior executives 23 30 South Africa - 7 - 10 United Arab Emirates - 6 - 2 USA - 6 - -Salaries, other remuneration and social security expenses Belgien - 4 - 2 2010 2009 India - 2 - 1 Salaries and Social Salaries and Social Canada - 2 - - other remu- security other remu- security MSEK neration expenses neration expenses Saudi Arabia - 2 - - Parent Company 3,861 1,689 3,817 1,599 Thailand - 1 - 1 Czech Republic - 1 - - of which pension costs - 509 1) - 3811) Poland - 1 - - Parent Company, total 27 3,834 28 3,789 Group companies 2,355 885 2,254 901 of which variable compensation 2 - 1 - of which pension costs3) - 503 - 528 Group companies Sweden 14 1,148 18 1,179 Joint ventures 11 4 22 13 of which variable compensation 2 - 2 - of which pension costs - 2 - 4 South Africa 3 484 4 404 of which variable compensation 1 - 1 - Group, total 6,227 2,578 6,093 2,513 Australia 18 247 12 209 of which pension costs - 1,0142) - 9132) of which variable compensation 2 - 1 - USA 6 157 7 1361) Of the Parent Company’s pension costs, MSEK 6 (11) refers to the Board and President, including deputies and of which variable compensation 1 - 2 - Executive Vice Presidents. The company’s outstanding pension obligations for these individuals amount to MSEK 47 (49), of which MSEK 47 (47) refers to former Board members and Presidents, including deputies and UK 3 48 1 43 Executive Vice Presidents. Denmark 3 47 3 682) Of the Group’s pension costs, MSEK 15 (20) refers to the Group’s boards and Presidents, including Group com- panies. The Group’s outstanding pension obligations for these individuals amount to MSEK 49 (51), of which Finland 2 44 1 39 MSEK 47 (47) refers to former board members and Presidents.3) Adjustment according to different accounting principles regarding defined-benefit plans between Parent Norway 4 38 4 42 Company and Group. See also note 1 on pages 78 and 80. Switzerland - 27 - 23 Germany - 26 - 31 Nigeria - 6 - 5 Czech Republic 1 5 1 3 Canada - 5 - 3 France - 3 - 5 South Korea - 3 - 2 Japan - 2 - 2 Slovenia - 2 - 2 Kenya - 2 - - Hungary 1 1 1 1 Singapore - 1 1 - Chile 2 - 1 - India 1 - 1 - Netherlands - 1 - 2 Group companies, total 58 2,297 55 2,199 of which variable compensation 6 - 6 - Joint ventures Sweden 1 10 - 22 Joint ventures, total 1 10 - 22 Group total 86 6,141 83 6,010 of which variable compensation 8 - 7 -86 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 9, CONT.Of the salaries and remuneration paid to other employees in the Group, msek 38 Audit assignments involve examination of the annual report and financial(27) refers to senior executives other than Board members and the President. accounting as well as the administration by the Board and the President, other tasks related to the duties of the company’s auditors and consultation orFor information on post-employment compensation and share-related other services that may result from observations noted during such examina-compensation, see Note 37. tions or implementation of such other tasks. Audit work in excess of the audit assignment relates to expenses for qual-Sick leave in Parent Company ity controls. Other services relate to expenses that are not classified as auditPer cent 2010 2009 assignments, audit work in excess of the audit assignment and tax advice.Total sick leave as a percentage of normal working hours 2 2Percentage of total sick leave related to extended NOTE 11absences of 60 days or more 33 39 OPERATING EXPENSESSick leave absences by gender as a percentage of normal working hours: GroupMen 2 2 MSEK 2010 2009Women 3 3 Raw materials and consumables 6,390 6,508 Subsystems and equipment 2,305 2,254Sick leave absences by age as a percentage of normal working hours: Purchased services 2,691 3,30529 years or younger 1 2 Change in inventory of finished goods and work30-49 years 2 2 in progress, excluding write down -21 -22650 years or older 2 3 Personnel costs 8,805 8,606 Depreciation and amortisation 1,149 1,201Saab has an ambitious occupational health and rehabilitation programme. Impairments 193 130Management’s responsibility for rehabilitation is underscored in a directive. Other expenses 2,113 1,519Occupational health reviews and inspections are conducted on a regular Total 23,625 23,297basis, and a systematic programme with current plans is in place at all levels ofthe organisation. Sick leave is monitored carefully, and areas with high absen-teeism are given special attention. All Saab employees have access to profes- Operating expenses refer to cost of goods sold, marketing expenses, adminis-sional occupational health services, including technical, medical and psycho- trative expenses and research and development costs. Leasing operationssocial expertise. Rehabilitation is conducted internally and obtained from (Saab Aircraft Leasing) are recognised through profit or loss on the linesoutside providers. All Saab employees have access to wellness programmes other operating income or other operating expenses, due to which deprecia-that include individual or group exercise options. tion of lease assets is not included in depreciation and amortisation above. NOTE 10 NOTE 12AUDITORS’ FEES AND COMPENSATION DEPRECIATION/AMORTISATION AND IMPAIRMENTS Group Parent Company GroupMSEK 2010 2009 2010 2009 MSEK 2010 2009Ernst & Young Depreciation/amortisationAudit assignments 10 13 4 8 Capitalised development costs -644 -671Audit work in excess of the Other intangible fixed assets -161 -187audit assignment 1 1 1 1 Operating properties -83 -86Tax advice 2 1 1 - Property, plant and equipment -145 -152Other services 2 1 1 - Equipment, tools and installations -114 -103 Leasing aircraft (see Note 7) -146 -176Deloitte Other lease assets -2 -2Audit assignments 3 4 - 1 Total -1,295 -1,377Audit work in excess of theaudit assignment 1 1 1 -Tax advice - 1 - 1 ImpairmentsOther services 1 - 1 - Goodwill -5 - Capitalised development costs -20 -15Other Operating properties -33 -8Audit assignments 2 3 - - Property, plant and equipment -2 -Total 22 25 9 11 Equipment, tools and installations -3 - Total -63 -23 SAAB ANNUAL REPORT 2010 87
    • FINANCIAL INFORMATION > NOTESNOTE 12, CONT.In 2010, impairments of msek 38 were recognised on buildings, machinery Result from shares inand equipment in connection with the restructuring of the underwater oper- Result from shares in associated compa-ations in Dynamics. Impairments of capitalised development costs of Parent Company Group companies nies/joint venturesmsek 20 were recognised for projects in Security and Defence Solutions, MSEK 2010 2009 2010 2009while goodwill impairments amounted to msek 5 for companies in the ven- Dividends 419 1,776 5 9ture portfolio. In 2009, impairments of msek 15 were recognised for a projectin Security and Defence Solutions and msek 8 for buildings. Group contributions received 1,039 987 - -Parent Company Capital gain on sale of shares 1 134 20 -1MSEK 2010 2009 Impairments -283 -1,743 - -19Depreciation/amortisation Other 23 24 7 18Other intangible fixed assets -37 -33 Total 1,199 1,178 32 7Buildings -60 -58Property, plant and equipment -110 -121 Last year’s dividend and impairments relate to liquidated dormant groupEquipment, tools and installations -48 -50 companies and amounts to msek 941 and msek -941, respectively.Total -255 -262 Result from other securities and Other interest income NOTE 13 receivables held as and similar profit/loss Parent Company fixed assets itemsFINANCIAL INCOME AND EXPENSES MSEK 2010 2009 2010 2009Group Interest income, Group companies - - 114 125MSEK 2010 2009 Other interest income - - 16 16Interest income on loans receivable 61 80 Impairment -23 -14 - -Financial income from revaluation of financial assets andliabilities measured at fair value through profit or loss 65 - Dividends 27 18 - -Dividends 6 2 Translation differences 113 -176 - -Other financial income 1 4 Net change in value from revaluation of financialLess project interest applied to gross income -17 -36 assets/liabilities 15 -44 - -Financial income 116 50 Less project interest applied to gross income - - -16 -32 Other -25 -22 - -Financial expenses related to pensions -169 -136 Total 107 -238 114 109Interest expenses on loans and financial liabilities -104 -148Financial expenses from revaluation and disposal offinancial assets and liabilities measured at fair value Interest expenses andthrough profit or loss -52 -150 Parent Company similar profit/loss itemsOther financial expenses -16 -16 MSEK 2010 2009Financial expenses -341 -450 Interest expenses, Group companies -53 -77 Other interest expenses -120 -232Share in income of associated companies 26 2 Total -173 -309Net financial income and expenses -199 -398 NOTE 14 APPROPRIATIONS Difference between book depreciation and depreciation according to plan Parent Company MSEK 2010 2009 Buildings and land 19 21 Property, plant and equipment as well as tools and installations -102 -18 Total -83 388 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTES NOTE 15 Reconciliation of effective tax GroupTAXESTax recognised through profit or loss MSEK 2010 (%) 2010 2009 (%) 2009Group Income before taxes - 776 - 976MSEK 2010 2009 Tax according to current tax rate for Parent Company -26.3 -204 -26.3 -257Current tax expense (-)/tax income (+) Effect of other tax rates forTaxes for the year -350 -185 foreign Group companies -2.7 -21 -4.3 -42Adjustment for taxes related to previous years 2 2 Non-deductible expenses -8.4 -65 -3.9 -38Total -348 -183 Tax-exempt income 5.8 45 8.2 80 Revaluation of deferred tax assets from the leasingDeferred tax expense (-)/tax income (+) portfolio -5.0 -39 - -Deferred tax related to temporary differences 312 411 Tax on additional, uncapital-Deferred tax related to value of tax loss ised tax loss carry forwards -2.3 -18 -0.8 -7carry forwards capitalised during the year 9 5 Tax on reduced tax lossDeferred tax expense due to utilisation of previously carry forwards due to taxcapitalised tax value in tax loss carry forwards -276 -515 audit - - -2.8 -28Deferred tax related to previous years -19 5 Tax related to previous years -2.1 -16 0.8 8 Other -0.5 -4 0.7 7Total 26 -94 Reported effective tax rate -41.5 -322 -28.4 -277Total recognised tax in Group -322 -277 Parent CompanyOf the deferred tax related to previous years, msek -26 relates to deferred taxexpenses from tax loss carry forwards and msek 7 to deferred tax income MSEK 2010 (%) 2010 2009 (%) 2009from temporary differences. Income before taxes - 1,819 - 2,235 The Group’s table, “Change in deferred tax in temporary differences and Tax according to current taxtax loss carry forwards”, on page 91 specifies how deferred tax affects income. rate for Parent Company -26.3 -478 -26.3 -588The net change in the tax loss carry forwards for the year amounts tomsek -293, which is the sum of the deferred tax on the capitalised tax value of Tax related to previous years 0.6 11 0.2 4tax loss carry forwards, msek 9, and the deferred tax expense resulting from Non-deductible expenses -5.0 -92 -22.1 -486the utilisation of the previously capitalised value of tax loss carry forwards, Tax-exempt income 7.1 129 23.3 511msek -302. The remaining amount in the table’s column, “Recognisedthrough profit or loss”, amounts to msek 319, which is the sum of deferred tax Other - - -0.1 -1related to temporary differences. In total, the Group’s deferred tax amounts to Reported effective tax rate -23.6 -430 -25.0 -560msek 26 (-94) and current tax expense for the year to msek -348 (-183) whichproduce a total reported tax of msek -322 (-277) in the consolidated income Operations divested during the year have generated tax-exempt capital gainsstatement. totaling msek 13 (4). In connection with distributions from Group companies in certain non-European countries, taxation may exceed normal companyParent Company tax. The dividend paid to shareholders has no tax consequences.MSEK 2010 2009Current tax expense (-)/tax income (+)Taxes for the year -175 -43Adjustment for taxes related to previous years 17 1Total -158 -42Deferred tax expense (-)/tax income (+)Deferred tax related to temporary differences 8 -161Deferred tax expense due to utilisation of previouslycapitalised tax value in tax loss carry forwards -274 -361Deferred tax related to previous years -6 4Total -272 -518Total recognised tax expense in Parent Company -430 -560Of the deferred tax attributable to previous years, msek -26 relates to deferredtax expenses from tax loss carry forwards and msek 20 deferred tax related totemporary differences. The net change in tax loss carry forwards amounts tomsek -300 (-359) and is specified in the Parent Company’s table on page 91,“Change in deferred tax in temporary differences and tax loss carry for-wards”. SAAB ANNUAL REPORT 2010 89
    • FINANCIAL INFORMATION > NOTESNOTE 15, CONT.Deferred tax assets and liabilities Deferred Deferred Deferred tax Deferred tax Parent Company tax assets liabilities NetGroup tax assets liabilities Net MSEK 31-12-2010 31-12-2010MSEK 31-12-2010 31-12-2010 Tangible fixed assets - -242 -242Intangible fixed assets 11 -745 -734 Inventories 77 - 77Tangible fixed assets 23 -465 -442 Accounts receivable 2 - 2Lease assets 19 -189 -170 Long-term receivables 22 - 22Biological assets - -51 -51 Prepaid expenses and accrued income 13 - 13Long-term receivables 22 -52 -30 Provisions for pensions 92 - 92Inventories 193 -16 177 Other provisions 383 - 383Accounts receivable 5 - 5 Accrued expenses and deferred income 70 - 70Prepaid expenses and accrued income 15 -2 13 Tax assets/liabilities 659 -242 417Long-term liabilities 82 -22 60 Set-off -242 242 -Provisions for pensions 152 -279 -127 Tax assets/liabilities, net 417 - 417Other provisions 800 -19 781Tax allocation reserves - -2 -2 DeferredContingency reserve - -357 -357 Deferred tax Parent Company tax assets liabilities NetAccrued expenses and deferred income 229 -12 217 MSEK 31-12-2009 31-12-2009Other 67 -243 -176 Tangible fixed assets - -245 -245Tax loss carry forwards 33 - 33 Inventories 55 - 55Tax assets/liabilities 1,651 -2,454 -803 Accounts receivable 4 - 4Set-off -1,651 1,651 - Prepaid expenses and accrued income 6 - 6Tax assets /liabilities, net - -803 -803 Provisions for pensions 92 - 92 Other provisions 411 - 411 Deferred Accrued expenses and deferred income 65 - 65 Deferred taxGroup tax assets liabilities Net Tax loss carry forwards 300 - 300MSEK 31-12-2009 31-12-2009 Other 1 - 1Intangible fixed assets 36 -965 -929 Tax assets/liabilities 934 -245 689Tangible fixed assets 44 -461 -417 Set-off -245 245 -Lease assets 20 -260 -240 Tax assets/liabilities, net 689 - 689Biological assets - -39 -39 The company expects the tax value of future taxable earnings to exceed rec-Long-term receivables - -10 -10 ognised deferred tax assets.Inventories 153 -30 123 Tax deficits in foreign subsidiaries for which tax assets have not beenAccounts receivable 9 - 9 recognised through profit or loss or in the balance sheet amount to msek 68 (76) and relate to operations in the us.Prepaid expenses and accrued income 6 -5 1 Deferred tax assets have not been recognised on these items since it isLong-term liabilities 94 -11 83 uncertain whether the Group will utilise them against future taxable gains.Provisions for pensions 149 -348 -199 Maturity dates of recognised deferred tax assetsOther provisions 765 -8 757 MSEK Group Parent CompanyAccrued expenses and deferred income - -7 -7 Deferred tax assets expected to beTax allocation reserves - -357 -357 recovered within one year 46 12Contingency reserve 267 - 267 Deferred tax assets expected to beOther 56 -45 11 recovered after one year 1,605 647Tax loss carry forwards 326 - 326 Maturity dates of recognised deferred tax liabilitiesTax assets/liabilities 1,925 -2,546 -621 MSEK Group Parent CompanySet-off -1,641 1,641 - Deferred tax liabilities due for payment withinTax assets /liabilities, net 284 -905 -621 one year 30 6 Deferred tax liabilities due for payment after one year 2,424 236 Tax loss carry forwards attributable to us operations can be utilised through 2029, but partly expire as of 2021.90 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 15, CONT.Change in deferred tax in temporary differences and tax loss The Group’s total deferred tax expense in 2009 amounted to msek -94 in thecarry forwards income statement and msek -267 in the statement of comprehensive income. Recog- The closing balance on 31 December 2009, msek -621, consisted of deferred nised in Acquisi- tax assets of msek 284 and tax liabilities of msek -905; see table on page 90. Opening Recog- the com- tion/di- Closing balance nised in prehen- vestment balance Tax items recognised directly against other comprehensive incomeGroup 1 Jan. profit or sive of opera- 31 Dec.MSEK 2010 loss income tions 2010 GroupIntangible fixed assets -929 195 - - -734 MSEK 2010 2009Tangible fixed assets -417 -25 - - -442 Net gain/loss on cash flow hedges -201 -247Lease assets -240 70 - - -170 Translation differences -7 -20Biological assets -39 -12 - - -51 Total -208 -267Long-term receivables -10 -20 - - -30Inventories 123 54 - - 177 Change in deferred tax in temporary differences and tax loss carry forwardsAccounts receivable 9 -4 - - 5 Opening Recog- ClosingPrepaid expenses and balance nised in balanceaccrued income 1 12 - - 13 Parent Company 1 Jan. profit or 31 Dec. MSEK 2010 loss 2010Long-term liabilities 83 -23 - - 60Provisions for pensions -199 72 - - -127 Tangible fixed assets -245 3 -242Other provisions 757 24 - - 781 Inventories 55 22 77Tax allocation reserves -7 5 - - -2 Accounts receivable 4 -2 2Contingency reserve -357 - - - -357 Long-term receivables - 22 22Accrued expenses and Prepaid expenses anddeferred income 267 -50 - - 217 accrued income 6 7 13Other 11 21 -208 - -176 Provisions for pensions 92 - 92Tax loss carry forwards 326 -293 - - 33 Other provisions 411 -28 383Total -621 26 -208 - -803 Accrued expenses and deferred income 65 5 70 Tax loss carry forwards 300 -300 -The Group’s total deferred tax income in 2010 amounted to msek 26 in theincome statement and msek -208 in the statement of comprehensive income. Other 1 -1 -The closing balance on 31 December 2010, msek -803, consisted of deferred Total 689 -272 417tax assets of msek 0 and tax liabilities of msek -803; see table on page 90. Recog- nised in Acquisi- Opening Recog- Closing Opening Recog- the com- tion/di- Closing balance nised in balance balance nised in prehen- vestment balance Parent Company 1 Jan. profit or 31 Dec.Group 1 Jan. profit or sive of opera- 31 Dec. MSEK 2009 loss 2009MSEK 2009 loss income tions 2009 Tangible fixed assets -235 -10 -245Intangible fixed assets -1,096 188 - -21 -929 Inventories 29 26 55Tangible fixed assets -427 -15 - 25 -417 Accounts receivable 5 -1 4Lease assets -386 157 -11 - -240 Prepaid expenses andBiological assets -36 -3 - - -39 accrued income 7 -1 6Long-term receivables -15 5 - - -10 Provisions for pensions 95 -3 92Inventories 108 15 - - 123 Other provisions 535 -124 411Accounts receivable 7 2 - - 9 Accrued expenses and deferred income 99 -34 65Prepaid expenses andaccrued income -2 3 - - 1 Tax loss carry forwards 659 -359 300Long-term liabilities 138 -55 - - 83 Other 13 -12 1Provisions for pensions -301 102 - - -199 Total 1,207 -518 689Other provisions 896 -139 - - 757Tax allocation reserves -8 1 - - -7Contingency reserve -357 - - - -357Accrued expenses anddeferred income 131 136 - - 267Other 248 19 -256 - 11Tax loss carry forwards 836 -510 - - 326Total -264 -94 -267 4 -621 SAAB ANNUAL REPORT 2010 91
    • FINANCIAL INFORMATION > NOTES NOTE 16 Capitalised development costs, continued Group Parent CompanyINTANGIBLE FIXED ASSETS MSEK 2010 2009 2010 2009 Group Parent Company Amortisation andMSEK 31-12-2010 31-12-2009 31-12-2010 31-12-2009 impairments Opening balance, 1 January -2,368 -1,714 - -Goodwill 3,470 3,457 - - Amortisation for the year -644 -671 - -Capitalised developmentcosts 2,428 3,038 - - Impairments for the year -20 -15 - -Other intangible assets 515 613 127 96 Disposals and reclassifications 3 41 - -Total 6,413 7,108 127 96 Translation differences - -9 - - Closing balance, 31 December -3,029 -2,368 - -Goodwill Group Parent Company Carrying amount,MSEK 2010 2009 2010 2009 31 December 2,428 3,038 - -Acquisition valueOpening balance, Capitalised development costs of msek 20(15) in 2010 related to a project in1 January 4,128 4,111 - - Security and Defense Solutions.Acquired through businessacquisitions 19 - - - Other intangible assetsReclassification 8 - - - Group Parent Company MSEK 2010 2009 2010 2009Translation differences -9 17 - -Closing balance, Acquisition value31 December 4,146 4,128 - - Opening balance, 1 January 1,500 1,463 458 359 Acquired through businessAmortisation and impairments acquisitions 1 79 - -Opening balance, Investments 70 14 68 111 January -671 -673 - - Disposals and reclassifications -9 -63 -2 88Impairments for the year -5 - - - Translation differences -11 7 - -Translation differences - 2 - - Closing balance, 31 December 1,551 1,500 524 458Closing balance,31 December -676 -671 - - Amortisation and impairments Opening balance, 1 January -887 -839 -362 -308Carrying amount,31 December 3,470 3,457 - - Amortisation for the year -161 -187 -37 -33 Disposals and reclassifications 9 139 2 -21Goodwill impairments of msek 5 in 2010 related to companies in the venture Translation differences 3 - - -portfolio. Closing balance, 31 December -1,036 -887 -397 -362Capitalised development costs Group Parent Company Carrying amount, 31 December 515 613 127 96MSEK 2010 2009 2010 2009Acquisition valueOpening balance, Amortisation is included in the following lines in income statement1 January 5,406 5,342 - - Group Parent CompanyInternally developed assets 47 67 - - MSEK 2010 2009 2010 2009Disposals andreclassifications -3 -41 - - Cost of goods sold 161 187 37 33Translation differences 7 38 - - Research and development costs 644 671 - -Closing balance,31 December 5,457 5,406 - - Impairments are included in the following lines in income statement Group Parent Company MSEK 2010 2009 2010 2009 Other operating expenses 5 - - - Research and development costs 20 15 - -92 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 16, CONT.Development costs VARIABLES USED TO CALCULATE VALUE IN USECapitalised development costs are amortised over the estimated production Volume/growthvolume or period of use, up to a maximum of 5 years, with the exception of Growth in the cash-generating units’ business plans is based on Saab’s expec-acquired development costs, where the maximum period of use is 10 years. tations with regard to development in each market area and previous experi-The production volume or period of use is set using projected future sales ence. The first five years are based on the five-year business plan formulatedaccording to a business plan based on identified business opportunities. The by Group Management and approved by the Board. For cash flows after fivesignificant items in total capitalisation are development costs for radar and years, the annual growth rate has been assumed to be 0 per cent.sensors, electronic warfare systems, the export version of Gripen and theanti-ship missile rbs15 mk3. Operating margin Development costs are capitalised only in the consolidated accounts. In The operating margin is comprised of the units’ operating income afterlegal units, all costs for development work are expensed, which means that the depreciation and amortisation. The units’ operating margin is calculatedParent Company does not report any capitalised costs for development work. against the backdrop of historical results and Saab’s expectations with regard to the future development of markets where the units are active. The busi-Other intangible fixed assets ness areas Dynamics, Electronic Defence Systems and Security and DefenceAmortisation is recognised through profit or loss over the estimated periods Solutions have a substantial order backlog of projects that stretches over aof use for intangible fixed assets, i.e., 5 to 10 years. number of years. The risks and opportunities affecting the operating margin Significant items in the carrying amount are attributable to the acquisi- are managed through continuous cost forecasts for all significant projects.tion of Ericsson Microwave Systems and relate to expenses incurred for cus-tomer relations and values in the order backlog. Of the carrying amount, Capitalised development costsmsek 515, msek 379 is attributable to acquired values and msek 136 to licenses In the five-year business plans, consideration is given to additional invest-for operating systems etc. ments in development considered necessary for certain units to reach the growth targets in their respective markets.Impairment tests for goodwillGoodwill attributable to cash-generating units is tested for impairment Discount rateannually or when there is an indication of an impairment loss. Goodwill is Discount rates are based on the weighted average cost of capital (wacc). Thenot amortised. wacc rate that is used is based on a risk-free rate of interest in five years In connection with business combinations, goodwill is allocated to the adjusted for operational and market risks. The discount rate is in line with thecash-generating units that are expected to obtain future economic benefits in external requirements placed on Saab and similar companies in the market.the form, for example, of synergies from the acquisition. Saab’s business All units have sales of defence materiel, unique systems, products and sup-areas, Combitech and companies in the venture portfolio have been identi- port solutions in the international market as their primary activity, and theirfied as separate cash-generating units. The following cash-generating units business risk in this respect is considered equivalent. However, units with ahave significant recognised goodwill values in relation to the Group’s total significant share of the business plan’s invoicing in the order backlog haverecognised goodwill value. Goodwill in every cash-generating unit has been been discounted at an interest rate that is slightly lower units with a shorttested for impairment. order backlog. The following discount rates have been used (pre-tax):MSEK 31-12-2010 31-12-2009 Pretax discount rate (WACC)Dynamics 571 577 Per cent 2010 2009Electronic Defence Systems 1,988 1,980 Dynamics 11 11Security and Defence Solutions 491 501 Electronic Defence Systems 11 11Support and Services 240 240 Security and Defence Solutions 11 11Combitech 159 159 Support and Services 13 13Units without significant goodwill values, aggregate 21 - Combitech 13 13Total goodwill 3,470 3,457 Sensitivity analysisImpairment testing for cash-generating units is based on the calculation of Group Management believes that reasonable possible changes in the abovevalue in use. This value is based on discounted cash flow forecasts according variables would not have such a large impact that any individually wouldto the units’ business plans. reduce the recoverable amount to less than the carrying amount. SAAB ANNUAL REPORT 2010 93
    • FINANCIAL INFORMATION > NOTES NOTE 17 Tax assessment values Group Parent CompanyTANGIBLE FIXED ASSETS MSEK 31-12-2010 31-12-2009 31-12-2010 31-12-2009 Group Parent Company Tax assessment value,MSEK 31-12-2010 31-12-2009 31-12-2010 31-12-2009 buildings (in Sweden) 839 976 610 610Operating properties/ Tax assessment value, landbuildings and land1) 2,033 2,105 1,464 1,496 (in Sweden) 268 287 232 232Property, plant andequipment 636 693 531 579 Tax assessment values exclude tax assessment values for investment proper-Equipment, tools and ties and biological assets, which are reported in notes 19 and 20.installations 315 308 158 156Construction in progress 68 68 52 49 Property, plant and equipmentTotal 3,052 3,174 2,205 2,280 Group Parent Company1) In the Group, the reported amount refers to operating properties. In the Parent Company, the reported MSEK 2010 2009 2010 2009 amount refers to buildings and land. Acquisition value Opening balance,Operating properties/buildings and land 1) 1 January 2,465 2,223 1,897 1,693 Group Parent Company Investments 77 92 61 69MSEK 2010 2009 2010 2009 Other reclassifications 35 180 23 174Acquisition value Sales -78 -47 -72 -39Opening balance, Translation differences 5 17 - -1 January 4,824 4,913 1,853 1,841 Closing balance,Investments 35 19 28 15 31 December 2,504 2,465 1,909 1,897Reclassification to assetsheld for sale - -29 - - Depreciation andOther reclassifications -46 -100 - - impairmentsSales - -3 - -3 Opening balance, 1 January -1,772 -1,600 -1,318 -1,184Translation differences 9 24 - - Depreciation for the year -145 -152 -110 -121Closing balance,31 December 4,822 4,824 1,881 1,853 Impairments for the year -2 - - - Other reclassifications -13 -50 -13 -47 Sales 66 41 63 34Depreciation andimpairments Translation differences -2 -11 - -Opening balance, Closing balance,1 January -2,719 -2,726 -1,254 -1,196 31 December -1,868 -1,772 -1,378 -1,318Depreciation for the year -83 -86 -60 -58Impairments for the year -33 -8 - - Carrying amount, 31 December 636 693 531 579Reclassifications 46 101 - -Closing balance,31 December -2,789 -2,719 -1,314 -1,254 Equipment impairments of msek 2 were recognised in 2010 in connection with the restructuring of the underwater operations in Dynamics.RevaluationsOpening balance, 1 January - - 897 897Closing balance,31 December - - 897 897Carrying amount,31 December 2,033 2,105 1,464 1,4961) In the Group, the reported amount refers to operating properties. In the Parent Company, the reported amount refers to buildings and land.During 2010 impairments of msek 33 related to buildings were recognisedin the Group as a consequense of the reorganisation of the underwateroperations in Dynamics. The impairment of msek 8 during 2009 related tobuildings.94 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 17, CONT.Equipment, tools and installations NOTE 18 Group Parent Company LEASE ASSETS AND LEASE AGREEMENTSMSEK 2010 2009 2010 2009 As the former manufacturer of the regional aircraft Saab 340 and Saab 2000,Acquisition value Saab has a great interest in ensuring that these aircraft maintain high capacityOpening balance, 1 January 2,092 2,277 1,271 1,442 utilisation. Over 500 aircraft have been delivered and 106 are included in Saab’s leasing fleet, of which 64 aircraft are owned by Saab. Leasing operationsInvestments 125 83 46 30 are carried out in the global market. Operating lease terms conform to cus-Acquisitions from compa- tomary terms in the international aircraft leasing market, which may entail thenies within the Group - - 8 - right to early termination, purchases and extensions, as well as security, geo-Other reclassifications -11 -168 -11 -136 graphical and tax-related limitations on the allocation of the aircraft in ques-Sales -72 -128 -24 -65 tion. No aircraft are held via finance leases, nor is Saab the lessor in any finance leases. The operations are carried out in usd.Translation differences - 28 - - Owned aircraft are depreciated on a straight-line basis over 20–25 years.Closing balance, The result from leasing operations including depreciation is reported in the31 December 2,134 2,092 1,290 1,271 income statement on the lines other operating income and other operating expenses.Depreciation and impairments The leasing fleet is expected to be divested around 2015.Opening balance, 1 January -1,784 -1,866 -1,115 -1,200Depreciation for the year -114 -103 -48 -50 Leasing aircraft obtained for leasing purposesImpairments for the year -3 - - - MSEK 2010 2009Acquisitions from compa- Acquisition valuenies within the Group - - -7 - Opening balance, 1 January 4,224 4,712Other reclassifications 14 80 14 70 Sales -158 -299Sales 68 128 24 65 Reclassifications -145 -Translation differences - -23 - - Translation differences -129 -189Closing balance,31 December -1,819 -1,784 -1,132 -1,115 Closing balance, 31 December 3,792 4,224Carrying amount, Depreciation31 December 315 308 158 156 Opening balance, 1 January -2,337 -2,413 Sales 93 169Impairments Reclassifications 89 -Equipment impairments amounted to msek 3 in connection with the restruc-turing of the underwater operations in Dynamics. Depreciation for the year -146 -176 Translation differences 63 83 Closing balance, 31 December -2,238 -2,337Construction in progress Group Parent Company ImpairmentsMSEK 2010 2009 2010 2009 Opening balance, 1 January -427 -465Acquisition value Sales and revaluations 22 36Opening balance,1 January 68 186 49 185 Translation differences 1 2Investments 25 3 15 12 Closing balance, 31 December -404 -427Reclassifications -25 -123 -12 -148Translation differences - 2 - - Total 1,150 1,460Carrying amount,31 December 68 68 52 49 Other lease assets Opening balance, 1 January 4 1CollateralOn 31 December 2010, property with a carrying amount of msek 0 (0) was Acquisitions 2 3pledged as collateral for bank loans. Depreciation for the year -2 -2 Reclassifications - 2 Closing balance, 31 December 4 4 Carrying amount, 31 December 1,154 1,464 SAAB ANNUAL REPORT 2010 95
    • FINANCIAL INFORMATION > NOTESNOTE 18, CONT.Leasing fees for aircraft obtained/leased via operating leases Parent Company Premises Machinery Payments Payments and and equip- Payments from from MSEK buildings ment MSEK to lessors airlines1) airlines2) Outcome Outcome 2009 176 52 2009 287 93 247 2010 172 62 2010 264 59 199 Contracted Contracted 2011 155 58 2011 249 54 118 2012 143 46 2012 249 56 52 2013 130 7 2013 245 49 34 2014 127 23 2014 98 11 19 2015 127 3 2015 - - 9 2016 and forward 481 - 2016 and forward - - - Total contracted 1,163 137 Total contracted 841 170 2321) Receipts from airlines for aircraft held via operating leases and leased out via operating leases.2) Receipts from airlines for owned aircraft leased out via operating leases. NOTE 19 BIOLOGICAL ASSETSThe leasing fleet is periodically valuated in terms of the present value of thefuture payments it is expected to generate. The inflow is represented by pro- Groupjected receipts from customers and the Export Credits Guarantee Board MSEK 2010 2009(ekn) in Sweden. Disbursements consist of fees to the lessee and for technical,legal and administrative activities directly related to management of the fleet. Living forest Insurance protection limits Saab’s risk. However, the internal distribution Carrying amount, 1 January 256 243between expected receipts from customers and those from ekn will be Change in fair value less selling expenses 43 13affected in each instance by current projections. Carrying amount, 31 December 299 256 Of which fixed assets 299 256Leasing fees for other assets obtained via operating leasesOther leasing fees refer to premises, computers and cars. Group Group Premises Machinery MSEK 31-12-2010 31-12-2009 and and equip- MSEK buildings ment Tax assessment value, forest assets (in Sweden) 265 163 Outcome On 31 December 2010, biological assets consisted of approximately 398,000 2009 238 57 m³ of spruce, 624,000 m³ of pine and 69,000 m³ of hardwood. Forest growth 2010 239 83 is estimated at 35,000–40,000 m³ timber per year. During the year, approxi- mately 24,300 m³ of timber was felled, which had a fair value in the Group, Contracted after deducting selling expenses, of msek 10 on the felling date. The valuation of forests has been done with the help of independent 2011 219 74 appraisers. The property has been valued according to the market compari- 2012 194 59 son method. In the valuation according to the market comparison method, 2013 168 15 the environmental impact on the firing range has not been taken into account. An adjustment for the environmental impact has been made by 2014 153 28 reducing fair value by an amount corresponding to the market value of the 2015 153 6 size of the firing range (4,457 hectares) less the value of the timber. 2016 and forward 499 2 Total contracted 1,386 18496 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTES NOTE 20 Information on carrying amount of investment properties in Parent CompanyINVESTMENT PROPERTIES Parent CompanyInformation on fair value of investment properties in the Group MSEK 2010 2009In the Group, investment properties are reported according to the fair valuemethod. Accumulated acquisition value Opening balance, 1 January 127 127Group Closing balance, 31 December 127 127MSEK 2010 2009Carrying amount, 1 January 25 239 Accumulated depreciation according to planReclassification from/to asset held for sale 211 -214 Opening balance, 1 January -83 -78Carrying amount, 31 December 236 25 Depreciation according to plan for the year -4 -5 Closing balance, 31 December -87 -83Investment properties are recognised in the statement of financial positionat fair value, while changes in the value of these properties are recognised in Accumulated revaluationsthe income statement; see also Note 1. Opening balance, 1 January 73 73 Investment properties comprise a number of rental properties leased tooutside tenants. Leases on offices and production space are normally signed Closing balance, 31 December 73 73for an initial period of 2–6 years. Prior to expiration, renegotiations are heldwith the tenant on the rent level and other terms of the agreement, provided Carrying amount, 31 December 113 117the lease has not been terminated. Fair values have been determined by analysing rental income andexpenses for each property, thereby producing a net rental income figure. Net Tax assessment valuerental income has then served as the basis of a valuation of fair value with a Group Parent Companyyield of 8 per cent. The yield requirements corresponds to the risk in net MSEK 31-12-2010 31-12-2009 31-12-2010 31-12-2009rental income. Fair value is not based on the valuation of an independentappraiser. Tax assessment value of buildings 66 8 48 48 Tax assessment valueGroup of land 7 - - -MSEK 2010 2009Effect on net income/net rental incomeRental income 4 4 NOTE 21Direct costs for investment properties that generated SHARES IN ASSOCIATED COMPANIES CONSOLIDATED ACCORDING TO THErental income during the year -2 -2 EQUITY METHODEffect on net income /net rental income 2 2 Group MSEK 2010 2009Information on fair value of investment properties in Parent CompanyIn the Parent Company, investment properties are recognised as buildings Carrying amount, 1 January 356 334according to the acquisition cost method. Investment properties in the Parent Acquisition of associated companies - 19Company are leased out to other companies in the Group and are thereforeclassified as operating properties in the Group. Sale of associated companies -25 -1 1) Share in associated companies’ income 40 -41Parent Company Hedge reserve 2 31MSEK 2010 2009 Reclassifications to assets held for sale -113 -Accumulated fair value Other reclassifications -4 -17Opening fair value, 1 January 159 159 Translation differences and internal gains 1 44Closing fair value, 31 December 159 159 Dividends -6 -13 Carrying amount, 31 December 251 356Parent Company 1) Share in associated companies’ income after tax and non-controlling interests.MSEK 2010 2009 Results from Eurenco sa, Wah Nobel (Pvt) Ltd. and Sörman Intressenter abEffect on net income/net rental income are recognised as financial income and expenses through profit or loss. OtherRental income 24 24 associated companies are held for operating purposes, i.e., they are related toDirect costs for investment properties that generated operations of the business units or in the venture portfolio and are thereforerental income during the year -11 -24 recognised in operating income. During the first half of 2010, Saab sold all its shares in the associated com-Effect on net income /net rental income 13 - pany Eurenco sa (19.9 per cent) to the company’s majority shareholder. The hedge reserve relates to cash flow hedges in Grintek Ewation (Pty) Ltd. Shares in associated companies as of 31 December 2010 include goodwill of msek 0 (0). The reclassification from associated company to asset held for sale refers to Grintek Ewation (Pty) Ltd within Electronic Defence Systems. The Group’s share of sales, income, assets, liabilities and the carrying amount of shares in associated companies is as follows. SAAB ANNUAL REPORT 2010 97
    • FINANCIAL INFORMATION > NOTESNOTE 21, CONT. Booked Share in value, associated shares in 2010 companies 31-12-2010 associated Ownership MSEK Country Sales income MSEK Assets Liabilities companies interest, % Associated companies Associated companies Hawker Pacific Airservices Ltd Australia 638 -16 Hawker Pacific Airservices Ltd 310 152 158 33.0 Wah Nobel (Pvt) Ltd Pakistan 17 3 Wah Nobel (Pvt) Ltd 28 6 22 27.2 Taurus Systems GmbH Germany 163 12 Taurus Systems GmbH 91 76 15 33.0 S.N. Technologies SA Switzerland 19 8 S.N. Technologies SA 20 9 11 50.0 Industrikompetens i Östergötland AB Sweden 44 1 Industrikompetens i Östergötland AB 21 11 10 33.0 Omnigo (Pty) Ltd South Africa 21 -2 Omnigo (Pty) Ltd 15 6 9 40.0 Kontorsbolaget i Karlskoga AB Sweden 15 2 Kontorsbolaget i Karlskoga Sörman Intressenter AB Sweden 36 - AB 124 119 5 50.0 Grintek Ewation (Pty) Ltd South Africa 247 9 Sörman Intressenter AB 16 14 2 25.3 Denel Saab Aerostructures (Pty) Ltd 1) South Africa 49 - Denel Saab Aerostructures (Pty) Ltd 2) 88 172 - 20.0 Other associated companies in the venture portfolio 25 - Other associated companies in the venture portfolio 24 5 19 - Reversal provision related to Eurenco SA - 23 Total 737 570 251 - Total 1,274 40 2) Saab is confident that the negative equity will not affect its results and liquidity.1) Our share of the company’s result amounted to MSEK -61. Booked Share in value, associated shares in 2009 companies 31-12-2009 associated Ownership MSEK Country Sales income MSEK Assets Liabilities companies interest, % Associated companies Associated companies Hawker Pacific Airservices Ltd Australia 1,215 8 Hawker Pacific Airservices Ltd 514 337 177 49.0 Wah Nobel (Pvt) Ltd Pakistan 19 3 Wah Nobel (Pvt) Ltd 28 7 21 27.2 Taurus Systems GmbH Germany 391 20 Taurus Systems GmbH 179 176 3 33.0 S.N. Technologies SA Switzerland 19 3 S.N. Technologies SA 11 8 3 50.0 Industrikompetens i Östergötland AB Sweden 33 2 Industrikompetens i Östergöt- land AB 20 11 9 33.0 Omnigo (Pty) Ltd South Africa 28 - Omnigo (Pty) Ltd 15 5 10 40.0 Sörman Intressenter AB Sweden 41 -1 Sörman Intressenter AB 21 19 2 26.6 Grintek Ewation (Pty) Ltd South Africa 189 4 Grintek Ewation (Pty) Ltd 216 114 102 42.4 Denel Saab Aerostructures (Pty) Ltd South Africa 68 -60 Denel Saab Aerostructures Eurenco SA France 334 - (Pty) Ltd 131 131 - 20.0 Other associated companies in the Eurenco SA 311 311 - 19.9 venture portfolio 28 -20 Other associated companies Total 2,365 -41 in the venture portfolio 42 13 29 - Total 1,488 1,132 356 -98 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTES NOTE 22 Specification of Parent Company’s (co-owner’s) directly owned holdings of shares in associated companies and joint ventures.SHARES IN JOINT VENTURES CONSOLIDATED ACCORDING TO PROPORTIONAL METHOD 2010 % of votes CarryingThe Group has a 50 per cent holding in the joint venture Gripen International MSEK and capital amountKB, whose principal activity is to offer, market and provide services for air- Associated companiescraft, military materiel and related equipment. The Group’s remaining hold- Hawker Pacific Airservices Ltd, Australia 33.0 22ings in joint ventures are of an insignificant amount. Industrikompetens i Östergötland AB, The Group’s financial reports include the following items that constitute 556060-5478, Linköping 33.0 2the Group’s ownership interest in the joint venture’s assets and liabilities. Sörman Intressenter AB, 556741-2233, Stockholm 25.3 3 Denel Saab Aerostructures (Pty) Ltd, South Africa 20.0 64Gripen International KB Vingtec Saab AS, Norway 49.0 -MSEK 31-12-2010 31-12-2009 Image Systems AB, 556550-5400, Linköping 35.8 4Fixed assets 6 16Current assets 793 1,286 Joint venturesTotal assets 799 1,302 Saab Natech AB, 556627-5003, Jönköping 51.0 7 Gripen International KB, 969679-8231, Linköping 50.0 365 Gripen Venture Capital AB, 556298-6629, Linköping 50.0 12Current liabilities 435 1,048 SAAB-BAE SYSTEMS Gripen AB,Total liabilities 435 1,048 556527-6721, Linköping 50.0 - Saab Ericsson NBD Innovation AB, 556628-6406, Stockholm 60.0 -Net assets 364 254 Industrigruppen JAS AB, 556147-5921, Stockholm 80.0 3 Avia Saab Technologies Co. Ltd., Thailand 40.0 9 Total 491 NOTE 23PARENT COMPANY’S SHARES IN ASSOCIATED COMPANIES AND JOINT VENTURES 2009 % of votes Carrying MSEK and capital amountParent Company Associated companiesMSEK 2010 2009 Hawker Pacific Airservices Ltd, Australia 49.0 22Accumulated acquisition value Industrikompetens i Östergötland AB,Opening balance, 1 January 528 415 556060-5478, Linköping 33.0 2 Eurenco SA, France 19.9 -Acquisitions 7 21 Sörman Intressenter AB, 556741-2233, Stockholm 26.6 3Divestments -56 -19 Cold Cut Systems Svenska AB, 556351-4081,Reclassifications - 16 Kungsbacka 37.3 18Share of net income for the year in limited partnerships 110 95 Denel Saab Aerostructures (Pty) Ltd, South Africa 20.0 64Closing balance, 31 December 589 528 Wrap International AB, 556627-6217, Linköping 22.6 - Vingtec Saab AS, Norway 49.0 - Opax AS, Norway 32.7 13Accumulated impairments Image Systems AB, 556550-5400, Linköping 35.8 6Opening balance, 1 January -98 -98 Usitall AB, 556506-6734, Linköping 30.0 5Closing balance, 31 December -98 -98 Joint venturesCarrying amount, 31 December 491 430 C3 Technologies AB, 556628-6414, Linköping 59.0 18 Saab Natech AB, 556627-5003, Jönköping 51.0 7 Gripen International KB, 969679-8231, Linköping 50.0 254 Gripen Venture Capital AB, 556298-6629, Linköping 50.0 12 SAAB-BAE SYSTEMS Gripen AB, 556527-6721, Linköping 50.0 1 Saab Ericsson NBD Innovation AB, 556628-6406, Stockholm 60.0 - Industrigruppen JAS AB, 556147-5921, Stockholm 80.0 3 Avia Saab Technologies Co. Ltd., Thailand 40.0 2 Total 430 SAAB ANNUAL REPORT 2010 99
    • FINANCIAL INFORMATION > NOTES NOTE 24 NOTE 26RECEIVABLES FROM GROUP COMPANIES, ASSOCIATED COMPANIES OTHER LONG-TERM SECURITIES HOLDINGSAND JOINT VENTURES Parent Company Receivables from MSEK 2010 2009 Receivables from associated companiesParent Company Group companies and joint ventures Accumulated acquisition valueMSEK 2010 2009 2010 2009 Opening balance, 1 January 1,529 1,546Accumulated acquisition Acquisitions 2 4value Sales -22 -21Opening balance,1 January 760 140 116 31 Closing balance, 31 December 1,509 1,529Acquisitions 2 620 - 85Sales -205 - -84 - Accumulated impairmentsClosing balance, Opening balance, 1 January -34 -3431 December 557 760 32 116 Impairments for the year -18 - Closing balance, 31 December -52 -34 NOTE 25 Carrying amount, 31 December 1,457 1,495FINANCIAL INVESTMENTSGroup Other long-term security holdings primarily relate to the investment in Aker Holding as of mnok 1,205, corresponding to msek 1,431, of which approxi-MSEK 31-12-2010 31-12-2009 mately 80 per cent has been financed with loans whose risk has been reducedFinancial investments held as fixed assets through agreements that hedge this part of the invested capital, due to whichFinancial assets measured at fair value through the transactions are recognised net as a receivable in the Group’s statement ofprofit or loss: financial position; see Note 27. Shares and participations 56 84Investments held to maturity: NOTE 27 Interest-bearing securities 147 32 LONG-TERM RECEIVABLES AND OTHER RECEIVABLESTotal 203 116 GroupShort-term investments classified as current assets MSEK 31-12-2010 31-12-2009Financial assets measured at fair value through Long-term receivables held as fixed assetsprofit or loss: Receivables from associated companies, interest-bearing 130 85 Interest-bearing securities 1,544 551 Receivables from associated companies, non interest-Total 1,544 551 bearing 2 76 Receivables from joint ventures, interest-bearing 8 8Investments in interest-bearing securities consist of government, mortgage Other interest-bearing receivables 12 301and corporate bonds and commercial paper as well as Floating Rate Notes. Other non interest-bearing receivables 704 857The fair value of interest-bearing securities held to maturity amounts tomsek 147 (32). Total 856 1,327 Other non interest-bearing receivables primarily consist of unrecognised actuarial losses on pensions according to ias 19. Saab does not consider there to be a significant difference between book and fair value.100 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 27, CONT. Group Parent Company MSEK 31-12-2010 31-12-2009 MSEK 2010 2009 Other receivables held as current assets Long-term receivables Receivables from associated companies, non interest- Accumulated acquisition value bearing 43 110 Opening balance, 1 January 44 44 Receivables from joint ventures, non interest-bearing 3 47 Incremental receivables 1 8 Advance payments to suppliers 80 154 Deductible receivables -35 -8 Other interest-bearing receivables 617 575 Closing balance, 31 December 10 44 Other non interest-bearing receivables 415 799 Subtotal 1,158 1,685 NOTE 28 Receivables from customers INVENTORIES Assignment revenue 4,153 7,453 Group Less utilised advance payments -1,681 -4,442 MSEK 31-12-2010 31-12-2009 Subtotal 2,472 3,011 Raw materials and consumables 1,780 2,379 Work in progress 1,534 1,711 Total 3,630 4,696 Finished goods and goods for resale 885 822Other receivables include receivables related to the acquisition of Less utilised advances from customers1) -99 -214Aker Holding as. Total 4,100 4,698 Assignment revenue refer to assignment costs incurred plus reported 1) Expenses incurred on contracts with a legal right of set-off.gross income less any losses attributable to the work performed. Unutilisedadvance payments amount to msek 643 (442). Costs attributable to assignment revenue amounted to msek 3,150 (5,529). Saab and the swedish Ministry of Enterprise, Energy and CommunicationsReported gross income amounted to msek 1,003 (1,924). have reached agreement with the National Debt Office to co-finance Saab’s participation in the Airbus A380 project. The co-financing is in the form of a royalty loan maximised at msek 350. Repayment will take the form of a roy- alty on each delivery to Airbus. Through 2010, the National Debt Office has Parent Company paid out a net of msek 263 (263), which reduces inventory in the financial MSEK 31-12-2010 31-12-2009 statements. Other long-term receivables The Group’s cost of goods sold includes inventory impairments of msek 145 (154). The reversal of previous impairments amounts to msek 0 Interest-bearing receivables 1 35 (47). The value of inventories measured at fair value less selling expenses Non interest-bearing receivables 9 9 amounts to msek 59 (69). Of inventories, msek 434 is expected to be realised Total 10 44 more than twelve months after the closing day. Parent Company Parent Company MSEK 31-12-2010 31-12-2009 MSEK 31-12-2010 31-12-2009 Raw materials and consumables 1,323 1,543 Other receivables held as current assets Work in progress 948 1,199 Interest-bearing receivables - 13 Finished goods and goods for resale 540 513 Non interest-bearing receivables 126 558 Advance payments to suppliers 124 381 Subtotal 126 571 Less utilised advances from customers1) -153 -326 Total 2,782 3,310 Receivables from customers 1) Expenses incurred on contracts with a legal right of set-off. Assignment revenue 2,741 6,484 Less utilised advance payments -876 -652 Cost of goods sold for the Parent Company includes inventory impairments Subtotal 1,865 5,832 of msek 66 (121) after the reversal of previous impairments of msek 0 (9). The value of inventories measured at fair value less selling expenses amounts to msek 59 (69). Of the Parent Company’s inventories, msek 334 is expected to Total 1) 1,991 6,403 be realised more than twelve months after the closing day.1) The previous year is reported gross. The comparable amount is MSEK 3,412.Assignment revenue refer to assignment costs incurred plus reported grossincome less any losses attributable to the work performed. Unutilisedadvance payments amount to msek 98 (3,182). Costs attributable to assignment revenue amounted to msek 2,100(4,805). Reported gross income amounted to msek 641 (1,679). SAAB ANNUAL REPORT 2010 101
    • FINANCIAL INFORMATION > NOTES NOTE 29 NOTE 32ACCOUNTS RECEIVABLE ASSETS HELD FOR SALEAccounts receivable in the Group amount to msek 3,052 (2,837). In 2010, Saab Assets held for sale comprise an associated company within Electronic Defencesold receivables as part of the sales programme arranged in the third quarter Systems. The sale is expected to take place during the first half of 2011. Assetsof 2009 to strengthen its financial position and increase financial flexibility. held for sale in 2009 consisted of investment and operating properties in theCustomers in most cases are nations with high credit worthiness. Dynamics business area and a real estate company in Corporate. The invest- The receivables were sold in their entirety at an attractive funding level. ment and operating properties were sold in the second quarter of 2010; seeThis reduced accounts receivable at year-end by msek 1,409 (789) and also Note 8. In addition, a decision was made not to sell the real estate company thathas a positive effect on cash flow of msek 620 (789). During the year, accounts was previously for sale due to a change in financial circumstances. The assets ofreceivable were written down by msek 12 (19). Reversals of previous write- the real estate company have now been classified as investment properties, anddowns amounted to msek 15 (12). the reclassification has not necessitated a change in financial reporting. Accounts receivable in the Parent Company amount to msek 1,338 (990).During the year, receivables were written down by msek 3 (6). Reversals of Groupprevious write-downs amounted to msek 8 (8). See also Note 41. MSEK 31-12-2010 31-12-2009 Assets classified as held for sale NOTE 30 Tangible fixed assets - 33PREPAID EXPENSES AND ACCRUED INCOME Investment properties - 287 Shares in associated companies 113 - Group Parent Company Accounts receivable - 5MSEK 31-12-2010 31-12-2009 31-12-2010 31-12-2009 Total 113 325Prepaid expenses 399 430 347 398Accrued leasing fees SaabAircraft Leasing 7 11 - - Liabilities classified as held for saleAccrued service income 148 114 87 62 Deferred tax liabilities - 24Other accrued income 126 150 78 98 Other liabilities - 1Total 680 705 512 558 Accrued expenses and deferred income - 4 Total - 29Prepaid expenses relate to pension premiums, rents, licenses and insurance,among other things. NOTE 33 NOTE 31 SHAREHOLDERS’ EQUITY The shares in the Parent Company are divided into two series, a and b. BothLIQUID ASSETS classes of shares carry equal rights, with the exception that each Series a shareGroup is entitled to ten votes and each Series b share one vote. The shares have aMSEK 31-12-2010 31-12-2009 quota value of sek 16.Cash and bank balances 703 747 Outstanding shares as of Number of Per cent of Per cent ofBank deposits 1,830 700 31 December 2010 shares shares votesDeposits held on behalf of customers 11 16 Series A 1,907,123 1.8 15.6Total according to statement of financial position 2,544 1,463 Series B 102,810,606 98.2 84.4 Total 104,717,729 100.0 100.0Total according to statement of cash flows 2,544 1,463Bank deposits refer to short-term investments with a maturity of up to one Outstanding shares as of Number of Per cent of Per cent ofmonth. The Group’s unutilised account overdraft facility amounted to msek 31 December 2009 shares shares votes131 (124) at year end. With regard to the Group’s other loan facilities, refer to Series A 5,254,303 5.0 34.4Notes 36 and 41. Series B 100,256,821 95.0 65.6 Total 105,511,124 100.0 100.0 Change in number of outstand- ing shares 2010 Series A Series B Total Number of outstanding shares as of 1 January 2010 5,254,303 100,256,821 105,511,124 Conversion of A shares to B shares -3,347,180 3,347,180 - Repurchase of shares - -838,131 -838,131 Early share matching - 44,736 44,736 Number of outstanding shares as of 31 December 2010 1,907,123 102,810,606 104,717,729102 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 33, CONT.In 2010, 838,131 Series b shares were repurchased on the market to secure NOTE 34Saab’s Share Matching Plan and Performance Share Plan. Following the EARNINGS PER SHAREyear’s repurchase, 4,432,615 shares are held in treasury. The Board of Directors of Saab have received requests from shareholders 2010 2009to convert 3,347,180 Series a shares in Saab ab to Series b shares. As a result Net income for the year attributable to Parent Company’sof these conversions, the total number of votes in the company decreased shareholders (MSEK) 433 686from 156,439,071 to 126,314,451. The total number of registered shares inSaab ab is 109,150,344, of which 1,907,123 are Series a shares and 107,243,221 Weighted average number of common shares outstanding:are Series b shares. The dividend to shareholders amounted to msek 237 (187), or sek 2.25 before dilution (thousands) 105,218 106,336(1.75) per share. after dilution (thousands) 109,150 109,150 Earnings per share, before dilution (SEK) 4.12 6.45Management of the Group’s capitalThe Group’s capital under management consists of equity. The Group’s capital Earnings per share, after dilution (SEK) 3.97 6.28management goal is to facilitate continued operating growth and to remainprepared to capitalise on business opportunities. The long-term equity/asset The weighted average number of shares outstanding before dilution refers togoal is at least 30 per cent. the total number of shares in issue less the average number of repurchased treasury shares. The weighted average number of shares outstanding afterNet result of cash flow hedges dilution refers to the total number of shares in issue.The net result of cash flow hedges comprises the effective share of the cumu-lative net change in fair value of a cash flow hedging instrument attributableto hedge transactions that have not yet taken place. NOTE 35Translation reserve INTEREST-BEARING LIABILITIESThe translation reserve comprises exchange rate differences that arise fromthe translation of financial reports from operations that have prepared their Groupreports in a currency other than the currency that the Group’s financial MSEK 31-12-2010 31-12-2009reports are presented in. The Parent Company and the Group present theirfinancial reports in sek. The translation reserve at year-end amounts to Long-term liabilitiesmsek -12 (-21). Of the translation reserve msek 2 (2) has been reclassified to Liabilities to credit institutions 1,103 1,101earnings. Other interest-bearing liabilities 14 25Revaluation reserve Total 1,117 1,126The revaluation reserve comprises the difference between the fair value and car-rying amount of operating properties reclassified as investment properties. Current liabilitiesPARENT COMPANY Liabilities to credit institutions 78 1,869Restricted reserves Liabilities to joint ventures 428 632Restricted reserves may not be reduced through profit distributions. Other interest-bearing liabilities 83 18 Total 589 2,519Revaluation reserveWhen a tangible or financial fixed asset is revaluated, the revaluation amountis allocated to a revaluation reserve. Total interest-bearing liabilities 1,706 3,645Legal reserve Terms and repayment schedulesProvisions to the legal reserve has previously amounted to at least 10 per cent Collateral for bank loans amounts to msek 0 (0) for the company’s land andof net income for the year, until the legal reserve corresponded to 20 per cent buildings (see Note 42). Of the long-term liabilities, msek 1,110 (1,118) fallsof the Parent Company’s capital stock. From 2006, provisions are voluntary due between one and five years of the closing day and msek 7 (8) later thanand the Parent Company makes no provisions to the statutory reserve. five years of the closing day. Liabilities to credit institutions largely consist of Medium Term NotesUnrestricted equity (mtn), and in the previous year of commercial paper as well. For more infor-Retained earnings mation on financial risk management, refer to Note 41.Consists of previous year’s unrestricted equity after profit distribution and The fair value of mtns and commercial paper exceeds book value byGroup contributions paid. Retained earnings together with net income for msek 8 (21). Saab otherwise does not consider there to be a significant differ-the year comprise unrestricted equity, i.e. the amount available for distribu- ence between book and fair value.tion to the shareholders. SAAB ANNUAL REPORT 2010 103
    • FINANCIAL INFORMATION > NOTES NOTE 36 GroupLIABILITIES TO CREDIT INSTITUTIONS MSEK 31-12-2010 31-12-2009 Wholly or partially funded obligationsParent Company Present value of defined-benefit obligations 4,969 5,372MSEK 31-12-2010 31-12-2009 Fair value of assets under management -4,298 -3,907Current liabilities Net wholly or partially funded obligations 671 1,465Overdraft facilities: Available credit/limit 1,254 2,222Short-term portion of bank loans: Unutilised portion -131 -2,222 Present value of unfunded defined-benefit obligations 264 205Utilised credit amount 1,123 - Present value of net obligation 935 1,670Short-term borrowing from credit institutions - 1,800Total 1,123 1,800 Unreported actuarial losses -1,404 -2,145 Net obligation employee benefits -469 -475Long-term liabilitiesOverdraft facilities: Available credit/limit 4,000 5,212 The net amount is reported in the following items in the statement of financialLong-term portion of bank loans: Unutilised portion -4,000 -4,000 positionUtilised credit amount - 1,212 Provisions for pensions 5 4Long-term borrowing from credit institutions 1,100 1,100 Long-term receivables 474 479Total 1,100 2,312 The net amount is divided among plans in theTotal liabilities to credit institutions 2,223 4,112 following countries Sweden -413 -435In December 2009, Saab established a mtn programme of sek 3 billion in USA -61 -44order to enable the issuance of long-term loans on the capital market. Under Germany 5 4the terms of this programme, Saab has issued bonds and Floating Rate Notes Net amount in the statement of financial position -469 -475for msek 1,100. The Parent Company has mnok 975 in financing arranged in connectionwith the acquisition of 7.5 per cent of the shares in Aker Holding as in 2007. Unreported actuarial losses amount to msek 1,404 (2,145). Actuarial lossesThe loan amounts to msek 1,123. Saab’s investment amounted to approximately are calculated as the difference between pension obligations and the liabilitynok 1.2 billion, of which about 80 per cent was financed through the above according to the statement of financial position. If the actuarial losses arementioned loans. The risk associated with the loans has been reduced through more than 10 per cent of the pension obligation, the portion exceeding 10 peragreements that secure this part of the invested amount, because of which the cent is amortised over the remaining period of employment for employeestransactions in the financial position for the Group are netted as a receivable. covered by defined-benefit plans. According to the above table, the actuarial The current liability in the previous year also included a commercial paper losses exceed the pension obligation for 2010 by more than 10 per cent. Thisprogramme of msek 1,800. The liabilities are valued at amortised cost. means that the difference between msek 523 and msek 1,404 will be distrib- uted over anticipated remaining years in service. During 2011, amortisation will be msek 68. NOTE 37 Unreported actuarial lossesEMPLOYEE BENEFITS Group 31 DecemberSaab has two types of pension plans: defined-benefit and defined-contribu- MSEK 2010 2009 2008 2007 2006tion. In defined-benefit plans, post-employment compensation is based on apercentage of the recipient’s salary. Saab has around ten types of defined-ben- Present value of defined-benefit obligations -5,233 -5,577 -5,004 -4,679 -4,449efit plans. The predominant plan is the itp plan, and the second largest planrefers to state-funded retirement pension. Saab’s defined-benefit plans are Fair value of assets under man- agement 4,298 3,907 3,356 3,565 3,481secured in three ways: as a liability in the balance sheet, in pension funds orfunded through insurance with Alecta. The Saab Pension Fund, that secured Net obligation in the statement ofpart of the itp plan, had assets of msek 3,969 (3,609) as of 31 December 2010, financial position -469 -475 -424 101 412compared to an obligation of msek 4,675 (5,002) according to ias 19, or a sol- Losses -1,404 -2,145 -2,072 -1,013 -556vency margin of 85 per cent (72). The portion secured through insurance with Alecta refers to a defined- The decrease in the unreported actuarial loss of msek 597 in 2010 was prima-benefit plan that comprises several employers and is reported according to a rily the result of two positive factors. The return on assets under managementpronouncement by the Swedish Financial Reporting Board, ufr 3. For fiscal was higher than expected, 6.6 per cent compared to an anticipated 5.0 peryear 2010, the Group did not have access to the information that would make cent, which produced an actuarial gain of msek 68. The actuarial gain onit possible to report this plan as a defined-benefit plan. The itp pension plan, pension commitments amounted to msek 523, which was due to a 80 bpwhich is secured through insurance with Alecta, is therefore reported as a higher discount rate. The actuarial loss was amortised by msek 144 during thedefined-contribution plan. Alecta’s surplus can be distributed to policyhold- year, as a result of which the loss decreased by a net of msek 741.ers and/or insureds. At year-end 2010, Alecta’s surplus in the form of the col-lective funding ratio amounted to 146 per cent (141). The collective fundingratio is the market value of Alecta’s assets as a percentage of the insuranceobligations calculated according to Alecta’s actuarial assumptions, whichdoes not conform to ias 19. In defined-contribution plans, pensions are based on the premiums paid.104 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 37, CONT.Changes in net obligation for defined-benefit plans reported The cost is reported on the following lines in the income statement:in the statement of financial position GroupGroup MSEK 2010 2009MSEK 2010 2009 Cost of goods sold 685 641Net obligation for defined-benefit plans, 1 January -475 -424 Marketing expenses 59 45Compensation paid -189 -159 Administrative expenses 56 48Deposits to pension fund and other funding -170 -190 Research and development costs 45 43Cost reported in income statement 339 291 Financial expenses 169 136Settlement/Translation difference 3 7 Total cost of post-employment compensation 1,014 913Withdrawals from pension fund 23 -Net obligation for defined-benefit plans, 31 December -469 -475 Interest expense and amortisation of actuarial losses less the assumed return on assets under management is classified as financial expense. Other pensionChange in pension obligation costs are divided by function in the income statement in relation to howGroup payroll expenses are charged to the various functions.MSEK 2010 2009 Return on assets under managementOpening fair value, 1 January 5,577 5,004 GroupBenefits vested during the year 170 155 MSEK 2010 2009Interest expense 226 213 Actual return on assets under management 269 392Pension disbursements -189 -159 Assumed return on assets under management -201 -173Settlement -14 -18 Actuarial result from assets under managementActuarial gain/loss -523 395 during the year 68 219Translation differences -14 -13Closing fair value, 31 December 5,233 5,577 Assumptions for defined-benefit obligations GroupChange in assets under management Per cent 2010 2009 2008 2007 2006Group Significant actuarial assumptionsMSEK 2010 2009 as of closing day (expressed as weighted averages)Opening fair value, 1 January 3,907 3,356 Discount rate, 31 December 4.80 4.00 4.25 4.50 4.00Assumed return 201 173 Assumed return on assets underWithdrawals -23 -4 management, 31 December 6.00 5.00 5.00 5.00 5.00Settlement -14 -18 Future salary increase 3.00 3.00 3.00 3.00 3.00Contributions 170 190 Future increase in pensions 2.00 2.00 2.00 2.00 2.00 Employee turnover 3.00 5.00 5.00 5.00 5.00Actuarial gain/loss 68 219 Anticipated remaining years in service 13.0 11.2 11.2 11.3 11.3Translation differences -11 -9Closing fair value, 31 December 4,298 3,907 The following assumptions serve as the basis of the valuation of Saab’s pension liability:Cost reported in income statementGroup Discount rate: The valuation is based on covered Swedish mortgage bondsMSEK 2010 2009 (aaa). Each assumed cash flow is discounted using an interest rate for theCosts for employment during current year 170 155 corresponding maturity. Assumed return on investment assets: Of the assets managed by the Saab Pen-Interest expense for obligation 226 213 sion Fund, 50 per cent is invested in interest-bearing bonds and 50 per cent inAssumed return on assets under management -201 -173 equities and hedge funds. The risk premium above current interest rate levels,Amortised actuarial losses 144 96 which has historical support and is used by many companies for shares, isCost of defined-benefit plans in income statement 339 291 approximately 3-6 per cent above interest rates. For bonds, the interest rate used is the same as the discount rate less a risk premium for mortgage bonds. The assumed rate of return is 4 per cent (3) on the interest-bearing bonds andCost of defined-contribution plans 490 453 8 per cent (7) on equities and hedge funds. Saab’s pension fund does not ownPayroll tax 185 169 any Saab shares.Total cost of post-employment compensation 1,014 913 Long-term salary increase assumption: Assumed to be as high as the increase in the basic income amount. This means that Saab expects the same salary increases as the national average. Long-term increase in basic income: Data from Statistics Sweden on current wage increases in the private sector provide an historical average during the period 1974–2000 of approximately 1 per cent above inflation. Long-term rate of inflation: Based on the Riksbank’s inflation target of 2 per cent, which mirrors the market’s implicit expectations as measured by the difference between nominal and real bonds. It should be stressed that the sensitivity of the valuation to inflation assumptions is limited, since the dis- count rate is based on the real interest rate curve. SAAB ANNUAL REPORT 2010 105
    • FINANCIAL INFORMATION > NOTESNOTE 37, CONT.Mortality: Mortality is the same assumption recommended by the Financial 2009 Performance Share PlanSupervisory Authority (fffs 2007:31), based on Makeham formulas for men In the second Performance Share Plan, the 138 participating employees pur-and women. chased 62,633 shares in 2010. The maximum number of matching shares isMarriage: Marriage is the same assumption recommended by the Financial about 140,000.Supervisory Authority (fffs 2001:13).Employee turnover: The likelihood that an individual ends his/her employ- 2010 Share Matching Plan and Performance Share Planment is assumed to be 3 per cent per year. In April 2010, Saab’s Annual General Meeting resolved to offer employees a new Share Matching Plan and a new Performance Share Plan with similarParent Company’s pension obligations terms as the previous years’ plans. The plans start in January 2011 and continueFunds allocated for pensions according to the balance sheet correspond to through the calender year 2011. The maximum number of matching shares inthe net present value of existing pension obligations less funds that are these two plans is 1,040,000.secured by Saab’s pension fund. Share Matching Plan 2007 plan 2008 plan 2009 plan 2010 plan TotalParent Company Number of matching shares at beginning of the year 628,148 667,142 - - 1,295,290MSEK 31-12-2010 31-12-2009 Allotted during the yearFPG/PRI pensions 75 257 (treasury shares) - - 462,877 - 462,877Other pensions 44 62 Less early matching -22,228 -17,650 -4,858 - -44,736Other provisions for pensions 73 60 Forfeited matching shares -23,539 -20,579 -1,963 - -46,081Total 192 379 Number of matching sharesOf which credit guarantees via FPG/PRI 107 287 eligible at year-end 582,381 628,913 456,056 - 1,667,350 Number of participants, Group Parent Company 31 Dec. 2010 4,353 3,218 2,717 2,066 -MSEK 2010 2009 2010 2009 % of total number of employees 35 26 22 16 -Amount of provision Average remaining maturity,expected to be settled after years 0.4 1.4 2.7 3.7 -more than 12 months 5 4 67 263 Performance Share Plan 2008 plan 2009 plan 2010 plan TotalShare Matching Plan Number of matching shares at beginningIn April 2007, Saab’s Annual General Meeting resolved to offer employees the of the year 116,140 - - 116,140opportunity to participate in a Global Share Matching Plan. The Board consid- Allotted during the year (treasury shares) - 62,663 - 62,663ers it important that Saab’s employees share a long-term interest in the appre-ciation of the company’s shares. Employees who participate in the plan can Less early matching - - - -have up to 5 per cent of their gross base salary withheld to purchase shares on Forfeited matching shares -7,376 -1,640 - -9,016the nasdaq omx Stockholm during a twelve-month period. If the employee Number of matchingretains the purchased shares for three years after the investment date and is shares eligible at year-end 108,764 61,023 - 169,787still employed by the Saab Group, the employee will be allotted a correspond- Number of participants, 31 Dec. 2010 187 126 99 -ing number of Series b shares. Average remaining maturity, years 1.4 2.7 3.7 - In April 2008, Saab’s Annual General Meeting resolved to introduce a per-formance-based plan for senior executives and key employees entitling them Recognised expense for above-mentioned plan,to 2–5 matching shares depending on the category the employee belongs to. including social security expenses 2010 2009In addition to the requirement that the employee remain employed by Saab Share Matching Plan 2007 33 32after three years, there is a requirement that earnings per share grow in the Share Matching Plan 2008 23 12range of 5 to 15 per cent. Share Matching Plan 2009 8 -2007 Share Matching Plan Performance Share Plan 2008 -4 4In 2008, employees purchased 673,235 Series b shares, corresponding to the total Performance Share Plan 2009 2 -number of matching shares. The number of participants from the start was Total 62 485,104. Matching shares will be allotted four times in 2011, beginning in January. The fair value of the services rendered is based on the share price of the2008 Share Matching Plan matching shares that are expected to be allotted. The share price is deter-In April 2008, Saab’s Annual General Meeting resolved to offer employees a mined at the time of the participants’ investment adjusted by the dividendnew Share Matching Plan with similar terms as the 2007 plan. In 2009, employ- that does not accrue to the employee during the vesting period.ees purchased 680,267 Series b shares, corresponding to the maximum number The company’s expense is recognised in the balance sheet as equity andof matching shares. The number of participants from the start was 3,194. accrued expenses (social security fees). Administrative expenses for the share matching plans amounted to msek 4 (3) in 2010.2009 Share Matching PlanIn April 2009 Saab’s Annual General Meeting resolved to offer a third Share SENIOR EXECUTIVES’ BENEFITSMatching Plan with similar terms as the previous years’ plans. In 2009, partici-pants purchased 462,877 Series b shares, corresponding to the total number of Remuneration to Board membersmatching shares. The number of participants from the start was 2,841. In accordance with the resolution of the Annual General Meeting, the fees paid to the members of the Board amount to sek 4,075,000 (3,650,000), con-2008 Performance Share Plan sisting of sek 1,100,000 (1,100,000) to the Chairman and sek 425,000In the first Performance Share Plan, around 280 senior executives and key (425,000) to each of the other members elected by the Annual General Meet-employees were invited to participate. The number of participants from the ing, with the exception of the President. The member nominated by bae Sys-start was 193. Participants in the plan purchased 123,590 shares, corresponding tems, George Rose, is an employee of bae Systems and has declined his feesto about 275,000 matching shares. with reference to bae Systems’ policy. For audit committee work, committee chairman Per-Arne Sandström also received fees of sek 150,000 (150,000) and committee members Johan Forssell and Joakim Westh sek 100,000 (100,000) each.106 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 37, CONT. For compensation committee work, committee chairman Lena Treschow Remuneration to other senior executivesTorell also received fees of sek 135,000 (135,000) and committee member The group of other senior executives included 13 individuals (11) in 2010, con-Marcus Wallenberg sek 80,000 (80,000). George Rose has declined his fees sisting of the Executive Vice Presidents, heads of the business areas and headswith reference to bae Systems’ policy. of Group staffs. Cecilia Schön-Jansson stepped down from Group Manage- In his capacity as a consultant, Board member Per-Arne Sandström ment on 26 November. Marketing officer Jonas Hjelm was appointed actingreceived sek 125,000 from Saab ab through 31 March 2010 for consulting Head of Communications. At the turn of 2010/2011, Group Managementservices related to organisational development, and hence the assignment has therefore consisted of 13 persons, including the ceo.been completed. The salaries paid to other senior executives consist of a fixed portion and a variable portion. The variable portion is based on the Group’s order bookings,Remuneration to the President operating income and cash flow. The variable compensation normallyThe salary paid to President and ceo consists of a fixed portion and a variable amounts to a maximum of 25 per cent of each executive’s fixed salary, and inportion. The variable portion is based on predetermined quantitative and some cases to 35 per cent of fixed salary. A variable compensation agreement isqualitative objectives each year. The variable compensation can amount to a drafted annually and signed by the President. The rules for variable compensa-maximum of 50 per cent of the President’s fixed salary. The preparation proc- tion are stipulated in a document issued by the President. Compensationess for compensation issues regarding the President is handled by the Board’s issues regarding the other senior executives are prepared by the head of humanRemuneration Committee according to the principles laid down by the resources and presented to the President, who makes a decision pending theAnnual General Meeting and then voted on by the Board. approval of the Compensation Committee and the Board. During the period On 31 August 2010, President and ceo Åke Svensson decided to leave the November 2007 through October 2008, other senior executives participatedcompany. in the Saab Share Matching Plan approved by the 2007 Annual General Meet- During the period November 2007 through October 2008, Åke Svensson ing for all company employees. From November 2008, all eligible executivesparticipated in the Saab Share Matching Plan approved by the 2007 Annual participate in the Saab Global Performance Share Plan approved by the 2008General Meeting for all company employees. From November 2008, Åke Annual General Meeting. Accumulated outstanding matching rights in SaabSvensson participated in the Saab Global Performance Share Plan approved Share Matching Plan 2007 amount to sek 622,213 (381,211) as of 31 Decemberby the 2008 and 2009 Annual General Meetings. Since Åke Svensson stepped 2010. The Saab Global Performance Share Plan 2008 amounts to sek 0down from his position with the company on his own initiative, he has relin- (971,099) as of 31 December 2010, while the Saab Global Performance Shareguished his right to matching shares as part of the plans. Plan 2009 amounts to sek 587,843 in the event of a maximum outcome. During the period 1 January through 31 August 2010, Åke Svensson In 2010, the other senior executives received salaries, variable compensa-received salary, variable compensation and other benefits totalling tion and other benefits totalling sek 37,880,302 (31,407,483), of which variablesek 7,071,915 (6,293,894), of which the variable compensation for 2009 compensation for 2009 accounted for sek 2,661,160 (1,619,100) and otheraccounted for sek 1,123,200 (588,600) and paid outstanding holiday benefits, including housing and car allowances, for sek 684,594 (785,780).sek 1,557,900 and other benefits, including a car allowance, for sek15,178 (19,024). During a transition period from 1 September 2010 through Pension terms1 April 2011, after his employment as President and ceo concluded, Åke Sven- As of 1 January 2005, a pension age of 62 years applies to new executives.sson has undertaken to assist the new ceo and Group Management for a total Among other senior executives, three individuals have a pension age offee of sek 248,000. During the period 1 September through 31 December 60 years.2010, Åke Svensson received consulting fees from Saab ab of sek 141,666 for In addition to itp or its equivalent, 13 members of the group (11) are affili-these services. The assignment will be completed in April 2011. ated with the Saab plan, which is defined-contribution and vested. The Saab On 1 September 2010, Håkan Buskhe took over as President and ceo. He plan provides pensions benefits over and above itp or its equivalent on salaryreceives a salary and pension benefits as of 1 August 2010. levels between 20 and 30 basic amounts as well as on salary segments over 30 The President participates as of 1 September 2010 in the Saab Global Per- basic amounts. The individuals themselves can decide on the payment term,formance Share Plan approved by the 2009 Annual General Meeting. Out- though within the provisions of Swedish income tax law. Moreover, an insur-standing matching rights in the Saab Global Performance Share Plan 2009 ance policy finances the period between the ages of 60 or 62 years and 65 years.amount as of 31 December 2010 to sek 14,237. The pension cost for Saab consists of pension premiums, which are based During the period 1 August through 31 December 2010, the President on a percentage of qualifying salaries. The percentage rate is determined byreceived salary and other benefits totalling sek 2,958,466, of which other ben- each executive’s time remaining until the pension age, 60 or 62 years, whenefits, including a car allowance, amounted to sek 31,326. joining the plan. The aggregate insurance balance should cover a targeted pension from 65 years of approximately 32.5 per cent of salary levels betweenPension terms 20 and 30 basic amounts and approximately 50 per cent of segments over 30The retirement age for the President is 62. The President has a defined-contri- basic amounts of qualifying salaries. Premium payments continue as long asbution pension plan. He may decide himself on the payment term, though the individuals remain in their positions or as employees of the company.within the provisions of Swedish income tax law. The pension cost for Saab Pension obligations are vested. In 2010, pension costs for other seniorconsists of pension premiums amounting to 30 per cent of fixed salary as long executives, including itp and its equivalent, amounted to sek 14,076,215as the President remains an employee of the company. To this is added the (10,511,594). Other senior executives are entitled, or obliged if the company socost of pension premiums according to the itp plan. The pension commit- requests, to retire on pension as of the age of 60 or 62 years.ment is vested. For 2010, the cost of Åke Svensson’s pension, including itp, was Severance termssek 1,626,631 (2,444,434). If terminated by the company, the group of other senior executives will receive For 2010, the cost of President Håkan Buskhe’s pension, including itp, was a salary and pension benefits for six months (period of notice). Thereaftersek 1,391,089. they will receive severance pay equivalent to 18 months of salary, based on their fixed salary. Severance is paid monthly with the first payment in theSeverance terms month after employment has ended. Severance is not paid for the period thatIf terminated by the company, the President will receive a salary and pension falls after the contractual pension age. Employees hired before 1 January 2005benefits for a period of six months (period of notice). Thereafter he will receive who have reached the age of 55 are entitled to another six months of severance.severance pay equivalent to one year of salary, based on his current fixed sal- The salary during the period of notice and severance will be deductedary. If the President does not obtain new employment, he will receive an addi- from income received from other employment during the same period. Iftional six months of severance pay. The salary during the period of notice and they resign voluntarily, there is a six-month period of notice with salary andseverance will be deducted from income received from other employment pension benefits, but no severance pay.during the same period. If the President resigns voluntarily, there is a six-month period of notice with salary and pension benefits, but no severance pay. SAAB ANNUAL REPORT 2010 107
    • FINANCIAL INFORMATION > NOTESNOTE 37 CONT.Summary of compensation and other benefits during 2010 Provisions 2010 for long-term variable Variable compensation at SEK Base salary/Board fee compensation Other benefits Pension cost Total estimated outcome Chairman of the Board 1,100,000 - 80,000 - 1,180,000 - Other Board members 2,975,000 - 485,0001) - 3,460,000 - President and CEO Åke Svensson 5,933,537 1,123,200 15,178 1,626,631 8,698,546 - President and CEO Håkan Buskhe 2,927,140 - 31,326 1,391,089 4,349,555 14,237 Other senior executives 34,534,548 2,661,160 684,594 14,076,215 51,956,517 1,210,056 Total 47,470,225 3,784,360 1,296,098 17,093,935 69,644,618 1,224,2931) Excluding consultant’s fee payed to member of the Board.Guidelines for remuneration and other benefits for senior executives are described in the financial review.Summary of compensation and other benefits during 2009 Provisions 2009 for long-term variable Variable compensation at SEK Base salary/Board fee compensation Other benefits Pension cost Total estimated outcome Chairman of the Board 1,100,000 - 80,000 - 1,180,000 - Other Board members 2,550,000 - 485,0001) - 3,035,000 - President and CEO Åke Svensson 5,686,270 588,600 19,024 2,444,434 8,738,328 380,324 Other senior executives 29,002,603 1,619,100 785,780 10,511,594 41,919,077 1,225,455 Total 38,338,873 2,207,700 1,369,804 12,956,028 54,872,405 1,605,7791) Excluding consultant’s fee paid to Board member. NOTE 38 Obligations related to regional aircraft ParentPROVISIONS MSEK Group Company Group Opening balance, 1 January 2010 1,277 480 MSEK 31-12-2010 31-12-2009 Amount utilised during the year -29 -29 Provisions that are long-term liabilities Translation differences and other 53 - Obligations related to regional aircraft 1,199 1,169 Closing balance, 31 December 2010 1,301 451 Expenditures for restructuring measures 290 141 Loss contracts 401 541 Expenditures for restructuring measures Other 317 295 Parent MSEK Group Company Total 2,207 2,146 Opening balance, 1 January 2010 299 69 Provisions during the year 432 244 Provisions that are current liabilities Amount utilised during the year -254 -149 Obligations related to regional aircraft 102 108 Reversal of unutilised amount -14 -1 Expenditures for restructuring measures 254 158 Reclassification 81 85 Loss contracts 97 176 Closing balance, 31 December 2010 544 248 Other 339 311 Total 792 753 Loss contracts Parent MSEK Group Company Parent Company MSEK 31-12-2010 31-12-2009 Opening balance, 1 January 2010 717 680 Obligations related to regional aircraft 451 480 Provisions allocated during the year 111 121 Expenditures for restructuring measures 248 69 Amount utilised during the year -313 -293 Loss contracts 490 680 Reversal of unutilised amount -13 -13 Other 276 284 Reclassification -6 -5 Total 1,465 1,513 Translation differences and other 2 - Closing balance, 31 December 2010 498 490108 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 38, CONT.Other provisions NOTE 39 Parent OTHER LIABILITIESMSEK Group CompanyOpening balance, 1 January 2010 606 284 GroupProvisions allocated during the year 216 66 MSEK 31-12-2010 31-12-2009Amount utilised during the year -156 -74 Other long-term liabilitiesReversal of unutilised amount -33 - Long-term prepaid revenue 82 114Reclassification 15 - Other 212 173Translation differences and other 8 - Total 294 287Closing balance, 31 December 2010 656 276 Other current liabilities Liabilities to associated companies 21 100Total provisions Liabilities to joint ventures - 6 ParentMSEK Group Company Value-added tax 358 206Opening balance, 1 January 2010 2,899 1,513 Withholding tax 163 157Provisions allocated during the year 759 431 Deposits in leasing operations 17 23Amount utilised during the year -752 -545 Other 260 254Reversal of unutilised amount -60 -14 Total 819 746Reclassification 90 80Translation differences and other 63 - Liabilities due for payment more than five years after closing day 133 121Closing balance, 31 December 2010 2,999 1,465 Parent CompanyRegional aircraftCommitments regarding regional aircraft refer to anticipated deficits related MSEK 31-12-2010 31-12-2009to lease agreements. Saab expects the leasing portfolio to be divested around Value-added tax 297 1202015. Withholding tax 110 96Restructuring Other 264 155Structural costs primarily relate to the costs to adapt resources and change- Total 671 371over costs. About half of the expenditure is expected to fall in 2011 and therest in 2012-2015. Liabilities due for payment more than five yearsProject losses after closing day - -Provisions for project losses primarily relate to Helicopter 14 and civilianaircraft programmes. The provisions are utilised in pace with the project’s Other liabilities in the Parent Company include both interest-bearing andcompletion. non-interest-bearing liabilities. For a comparison with the Group, see also Note 35.Other provisions Saab does not consider there to be a significant difference between book andOther provisions relate to provisions for guarantees and remaining costs in fair value.projects as well as for environmental commitments. SAAB ANNUAL REPORT 2010 109
    • FINANCIAL INFORMATION > NOTES NOTE 40 NOTE 41ACCRUED EXPENSES AND DEFERRED INCOME FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS Group Parent Company Saab’s financial assets and liabilities and contractual obligations give rise to financial risks. These risks are managed to a large extent with various finan- MSEK 31-12-2010 31-12-2009 31-12-2010 31-12-2009 cial instruments. Accrued expenses Financial risk management Vacation pay liability 807 847 607 634 The Board of Directors of Saab has approved a Group Treasury Policy, which Accrued project costs 782 989 451 548 provides an overall description of the management of financial risks and Social security expenses 475 447 357 337 treasury operations. The goal is to identify and actively manage financial risks Expected invoices 382 468 296 354 in order to reduce the negative impact on the Group’s results, competitive strength and financial flexibility. Personnel liabilities 239 211 186 163 Accrued leasing costs 135 174 - - The financial risks are defined as follows: Cost of customer commit- • Foreign currency risk ments in regional aircraft 108 142 108 142 • Interest rate risk Claims reserve 67 75 4 1 • Liquidity and financing risk • Commodity risk Accrued interest 37 119 56 119 • Credit and counterparty risk Royalties and commissions 28 23 16 13 Early retirement and Saab uses derivatives primarily to: redundancies 7 107 - 103 • Convert anticipated commercial cash flows in foreign currency to sek • Convert borrowings in sek, or surpluses in sek, to the currencies in Other 228 133 111 34 which assets are denominated (primarily relates to aircraft that Saab Total accrued expenses 3,295 3,735 2,192 2,448 owns in its leasing fleet) • Convert the fixed interest periods in leases to coincide with leasing reve- Deferred income nue and the desired fixed interest rates for financing of other assets and liabilities Advance invoicing 3,883 3,064 3,437 2,513 Prepaid insurance Responsibility for managing the Group’s financial risks and developing meth- compensation1) 486 565 - - ods and principles to manage financial risks is centralised in Group Treasury. Capitalised project interest 27 43 27 43 The operating business areas have directives and processes that describe how financial risks are managed. Furthermore, Group Management has issued Capitalised changes in value related to forward detailed directives and guidelines for Group Treasury’s operations. contract rollovers - 232 598 618 Management of insurance is centralised in the Group’s insurance com- Other 60 29 51 63 pany, Lansen Försäkrings ab, where external transactions are handled as well. Customer finance, guaranty and finance issues are also managed by Total deferred income 4,456 3,933 4,113 3,237 Group Treasury. The Group’s internal bank, Saab Treasury, is responsible for the Group’s Total 7,751 7,668 6,305 5,685 cash management, financing, management of interest rate and currency risks and also electricity risks. Saab has an agreement with an external party to1) Insurance consideration from insurance companies for aircraft leasing operations. manage the Group’s electricity risks through discretionary management. Other commodity risk is managed primarily through contractual clauses.Saab does not consider there to be a significant difference between book and To a limited extent the Group Treasury Policy allows proprietary tradingfair value. in currency and money market instruments. The main purpose of this trad- ing is to gain access to qualitative market information and maintain a high level of market expertise. Saab Treasury has a risk mandate expressed as VaR (Value at Risk) of msek 50 (50), which is divided between trading and man- agement of economic risks, expressed primarily in the Tender to Contract portfolio. During the year, msek 10 was allocated to the trading portfolio and msek 40 to the Tender to Contract portfolio.VaR is a probability-based method based on historical price fluctuations and correlations and is consid- ered a standard in the financial industry. The method provides a measure of the probability of the maximum loss over a specific number of days. Saab uses three days and a 99-per cent probability. The Treasury Risk Analysis unit reports each portfolio’s risk defined according to established risk measures to Group Management on a daily basis. Financial instruments Financial assets in the Group mainly comprise accounts receivable, accrued income, interest-bearing receivables, liquid assets, fixed income investments and derivatives with positive market values. Saab’s financial liabilities mainly comprise interest-bearing liabilities, accounts payable, accrued expenses and derivatives with negative market values. The following tables show a sub- divided statement of financial position categorised and classified according to ias 39. A more detailed description of the categories can be found in note 1, Accounting principles.110 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 41, CONT. Fair value Fair value Loans Derivatives Derivatives through through Held-to- receivable identified identified profit and profit and maturity and as cash as fair Total financialClassification and categorisation of loss for loss for invest- accounts Financial flow value assets Measured atfinancial assets and liabilities trading other ments receivable liabilities hedges hedges and liabilities fair value2010Financial assetsFinancial investments - 56 147 - - - - 203 203Long-term receivables - - - 856 - - - 856 856DerivativesForward exchange contracts 88 - - - - 801 21 910 910Currency options 24 - - - - - - 24 24Interest rate swaps 80 - - - - - - 80 80Electricity derivatives - - - - - 74 - 74 74Other derivatives 17 - - - - - - 17 17Total derivatives 209 - - - - 875 21 1,105 1,105Accounts receivable and other receivables - - - 6,883 - - - 6,883 6,883Short-term investments - 1,544 - - - - - 1,544 1,544Liquid assets - - - 2,544 - - - 2,544 2,544Total financial assets 209 1,600 147 10,283 - 875 21 13,135 13,135Financial liabilitiesInterest-bearing liabilities - - - - 1,706 - - 1,706 1,714Derivatives Forward exchange contracts 57 - - - - 504 14 575 575 Currency options 8 - - - - - - 8 8 Interest rate swaps 84 - - - - 39 - 123 123 Electricity derivatives - - - - - 44 - 44 44Total derivatives 149 - - - - 587 14 750 750Other liabilities - - - - 5,078 - - 5,078 5,078Total financial liabilities 149 - - - 6,784 587 14 7,534 7,5422009Financial assetsFinancial investments - 84 32 - - - - 116 116Long-term receivables - - - 1,327 - - - 1,327 1,327Derivatives Forward exchange contracts 141 - - - - 683 51 875 875 Currency options 6 - - - - - - 6 6 Interest rate swaps 105 - - - - - - 105 105 Electricity derivatives 16 - - - - - - 16 16Total derivatives 268 - - - - 683 51 1,002 1,002Accounts receivable and other receivables - - - 7,654 - - - 7,654 7,654Short-term investments - 551 - - - - - 551 551Liquid assets - - - 1,463 - - - 1,463 1,463Total financial assets 268 635 32 10,444 - 683 51 12,113 12,113Financial liabilitiesInterest-bearing liabilities - - - - 3,645 - - 3,645 3,666Derivatives Forward exchange contracts 135 - - - - 801 94 1,030 1,030 Currency options 10 - - - - - - 10 10 Interest rate swaps 73 - - - - 44 - 117 117 Electricity derivatives 20 - - - - - - 20 20 Other derivatives 4 - - - - - - 4 4Total derivatives 242 - - - - 845 94 1,181 1,181Other liabilities - - - - 5,574 - - 5,574 5,574Total financial liabilities 242 - - - 9,219 845 94 10,400 10,421 SAAB ANNUAL REPORT 2010 111
    • FINANCIAL INFORMATION > NOTESNOTE 41, CONT.Outstanding derivativesCurrency derivatives Fair value 2010 Fair value 2009 Cur- Nominal Liability Nominal LiabilityMillion rency currency Asset SEK SEK Net currency Asset SEK SEK NetMaturity up to one year EUR -255 224 87 137 -520 117 154 -37 USD -310 202 126 76 -158 307 218 89 Other - 166 80 86 - 108 67 41Outstanding currency derivatives with maturitiesup to one year, total 592 293 299 532 439 93Maturity one to three years EUR -160 149 37 112 -118 51 84 -33 USD -142 59 125 -66 -105 152 248 -96 Other - 57 45 12 - 59 53 6Outstanding currency derivatives with maturitiesof one to three years, total 265 207 58 262 385 -123Maturity three to five years EUR -36 28 17 11 -19 28 51 -23 USD -143 27 48 -21 -122 42 95 -53 Other - - - - - 4 7 -3Outstanding currency derivatives with maturitiesof three to five years, total 55 65 -10 74 153 -79Maturity over five years EUR -19 18 3 15 -27 7 21 -14 USD -139 24 21 3 -124 13 44 -31Outstanding currency derivatives with maturities overfive years, total 42 24 18 20 65 -45Currency derivatives, total1) 954 589 365 888 1,042 -1541) Retained premiums on open contracts amount to MSEK 13 (5).Interest derivatives Fair value 2010 Fair value 2009 Cur- Nominal Liability Nominal LiabilityMillion rency currency Asset SEK SEK Net currency Asset SEK SEK NetMaturity up to one year SEK 200 - 3 -3 300 1 11 -10Outstanding interest derivatives with maturitiesup to one year, total - 3 -3 1 11 -10Maturity one to three years SEK 1,256 2 5 -3 750 1 13 -12 NOK 500 104 111 -7 USD 10 - 9 -9 29 - 22 -22Outstanding interest derivatives with maturitiesof one to three years, total 106 125 -19 1 35 -34Maturity three to five years SEK 150 1 1 - 756 - 6 -6 NOK - - - - 500 162 145 17 USD 25 - 24 -24 - - - -Outstanding interest derivatives with maturitiesof three to five years, total 1 25 -24 162 151 11Maturity over five years SEK 30 1 - 1 - - - - USD - - - - 26 - 29 -29Outstanding interest derivatives with maturities overfive years, total 1 - 1 - 29 -29Interest derivatives, total2) 108 153 -45 164 226 -622) Market value includes accrued interest of MSEK -17 (-46) and retained premiums on open contracts MSEK -1 (0).Electricity derivatives Fair value 2010 Fair value 2009 Mega- Liability Mega- LiabilityMillion watt Asset SEK SEK Net watt Asset SEK SEK NetMaturity up to one year 17 66 42 24 17 13 17 -4Outstanding electricity derivatives with maturitiesup to one year, total 66 42 24 13 17 -4Maturity one to three years 16 8 2 6 17 3 3 -Outstanding electricity derivatives with maturitiesof one to three years, total 8 2 6 3 3 -Electricity derivatives, total 74 44 30 16 20 -4DERIVATIVES, TOTAL 1,136 786 350 1,068 1,288 -220(of which derivatives used for cash flow hedges) - - 288 - - -162Accrued interest and retained premiums, see Notes 1 and 2 above - -5 5 - -41 41Netting accrued interest and premiums -31 -31 - -66 -66 -DERIVATIVES ACCORDING TO GROUP’S FINANCIAL POSITION 1,105 750 355 1,002 1,181 -179112 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 41, CONT.Foreign currency risk transaction exposure. The predominant contract currencies in the orderThe Group hedges the entire order backlog with the help of currency deriva- backlog of sek 41.5 billion (39.4) are sek, usd, eur and gbp. Of the total ordertives. As a result, changes in exchange rates do not affect the Group’s future backlog, 70 per cent (74) is in fixed prices with or without indexing, while theresults with respect to the current order backlog. Future order bookings are remaining 30 per cent (26) contains variable prices with index and/or cur-exposed to fluctuations in exchange rates in terms of competitive strength. rency clauses.This is managed partly by Group Treasury, which hedges the economic expo- Netting is applied at the Group level to minimise the transaction expo-sure in fixed price tenders. Other future order bookings are not hedged. sure in foreign currencies, i.e., incoming currency is utilised to pay for pur- chases in the same currency. Currency clauses or transactions in the cur-Definitions rency market with forward exchange contracts as hedging instruments areForeign currency risk refers to the risk that fluctuations in exchange rates will used as well. Hedges are normally arranged for each specific contract. Thenegatively affect income. Exchange rate fluctuations affect Saab’s income and average forward rate is then used as the contract’s rate of revenue recogni-equity in various ways: tion.• Income is affected when sales revenue and the cost of goods and services An analysis has been made of the currency sensitivity of the market sold are in different currencies (economic and transaction exposure) value of outstanding external hedges for the order backlog and framework• Income is affected when the income of foreign Group companies is agreements. The effect of a change in exchange rates where the sek depre- translated to sek (translation exposure) ciates (making foreign currency more expensive) or appreciates is shown in• Income or equity is affected when the assets and liabilities of foreign the following table. Group companies are translated to sek (translation exposure)• Income can be affected by impairment tests of non-hedged future cash Market value SEK depreciation SEK appreciation flows in foreign currency in unprofitable contracts (impairment testing) 31-12-2010 of 10% of 10% Market value in MSEK 323 -531 1,177Saab distinguishes between the above-mentioned types of exposure. Policydescriptions are provided under each exposure. Change -854 +854 Framework agreements, which contain both transaction and economicexposures, are in place mainly for various civil aeronautics programmes. The currency sensitivity in the order backlog is shown in the table below, i.e., the effects of a changes in exchange rates when the krona depreciates orEconomic exposure appreciates in value.Fixed-price tenders in foreign currency entail a foreign currency risk thatconsitutes an economic exposure. The risk is limited primarily through con- Order backlog SEK depreciation SEK appreciationtract formulations (foreign currency clauses) or by bidding in the same cur- 31-12-2010 of 10% of 10%rency as the Group unit’s expenses. In cases where fixed-price tenders are issued in foreign currency, the net Order backlog, MSEK 41,459 41,783 41,135exposure is hedged with financial instruments. The foreign currency risk thatarises for tenders are managed by Saab Treasury within the framework of the Change +324 -324Tender to Contract portfolio. The purpose of the portfolio is to minimise theGroup’s foreign currency risk during the tender period and reduce hedging Hedge accounting according to ias 39 is applied to derivatives intended tocosts. The following table shows outstanding nominal net hedges by currency hedge the transaction exposure.as of year-end. Hedge accounting to fair value is applied to foreign exchange contracts and currency swaps, primarily for derivatives entered into before 31 Decem- Forward contracts1) Options2) Total hedge ber 2006. The market value of currency derivatives accounted for as fairNet hedges value hedges and the market value of hedged items are indicated in the table(million) 2010 2009 2010 2009 2010 2009 below. For information on the impact on net income for the year of gains andUSD -79 -33 -63 -35 -142 -68 losses on derivatives accounted for as fair value hedges, see Note 6 OtherEUR -43 -216 -49 -90 -92 -306 operating expenses.GBP -20 -1 -29 - -49 -1 Hedge accouting to fair value, MSEK 2010 2009DKK - 14 - 14 - 28 Foreign currency risk in order backlog (hedged item) -7 43THB -1,060 - -500 - -1,560 - Currency derivatives (hedging instrument) 7 -431) Also contains sold call and put options.2) Refers to the net of purchased call and put options. Cash flow hedges are applied to forward exchange contracts and currencyThe Tender to Contract portfolio is managed by a risk measure based on a swaps entered into after 31 December 2006.probability-weighted VaR comprised of two parts. One is VaR for the internal Cash flows hedges are expected to affect profit and loss in the periodhedges multiplied by the estimated weighted probability of being awarded hedged cash flows occur, with the exception of those related to the manufac-the tenders. The other part is VaR for the external hedges. Risk neutrality turing of inventory, which affect profit and loss on the day delivery is made tohere means that the above two VaR measures add up to zero, i.e., the proba- the customer. The hedge reserve before tax amounted to msek 872 (113), ofbility-weighted amount is hedged externally. which the value of derivatives is msek 288 (-162) and the effects arising from The VaR for tender hedges amounted to msek 23 (14) at year-end. Hedge rollovers of derivatives and items removed from hedge accounting wereaccounting is not applied to the portfolio’s hedges, due to which the Group’s msek 584 (275).results are affected by the outcome of the tenders and the exchange rate for Of the amount recognised in the hedge reserve in 2009, msek 108 wasthe underlying currency pair. The portfolio’s effect on the Group’s result in reversed through profit or loss. The current year’s change in the value of2010 was msek 57 (-85). existing derivatives was msek 212 and the market value of hedges entered into in 2010 was msek 142. For information on the amount recognised in otherTransaction exposure comprehensive income, see consolidated net comprehensive income.Future cash flows in foreign currency from the order backlog and framework The inefficiency in cash flow hedges that affected net income for the yearagreements are hedged to safeguard gross margins. In 2010, countries outside amounted to msek 4 (2).Sweden accounted for 62 per cent (69) of Saab’s sales. Since a large part of The table below shows the cash flows corresponding to the derivativesproduction takes place in Sweden with expenses denominated in sek, Saab recognised as cash flow hedges in 2010 and 2009 expressed in millions inhas large net flows in foreign currency. local currency. The order backlog contains contracted flows and therefore constitutes a SAAB ANNUAL REPORT 2010 113
    • FINANCIAL INFORMATION > NOTESNOTE 41, CONT.Cash flow hedges by currency CZK EUR GBP NOK THB USD ZAR Out- In- Out- In- Out- In- Out- In- Out- In- Out- In- Out- In-Million flow flow Net flow flow Net flow flow Net flow flow Net flow flow Net flow flow Net flow flow Net< 90 days -12 35 23 -83 116 33 -35 48 13 -2 1 -1 - - - -99 235 136 -43 32 -1191-180 days -26 25 -1 -18 90 72 -18 38 20 - 2 2 - - - -45 82 37 -80 38 -42181-210 days -4 12 8 -13 41 28 -7 19 12 -7 - -7 - - - -50 85 35 -1 - -1211-360 days -4 27 23 -15 59 44 -24 50 26 - 1 1 - - - -57 95 38 -27 - -272012 -15 45 30 -50 154 104 -26 61 35 -6 2 -4 - - - -117 197 80 -3 - -32013 - 8 8 -22 63 41 -4 14 10 - - - - - - -56 122 66 - - -2014 - 6 6 -18 36 18 - 2 2 - - - - - - -13 86 73 - - -2015 - 3 3 -7 14 7 - - - - - - - - - -2 76 74 - - -2016 and forward - - - -4 12 8 - - - - - - - - - - 142 142 - - -Total flows 2010 -61 161 100 -230 585 355 -114 232 118 -15 6 -9 - - - -439 1,120 681 -154 70 -84Total flows 2009 - 57 57 -38 206 168 -41 95 54 -2 8 6 - 87 87 -194 639 445 -119 - -119Translation exposure Impairment testsThe translation exposure in the Group relates to the operations of foreign Long-term contracts in commercial aircraft programs consist of an ordersubsidiaries. Saab Aircraft Leasing’s operations in Sweden have their eco- backlog and estimated future orders (business case) with cash flows primarilynomic environments in usd (functional currency) and are translated from in usd. Cash flows from the latter are normally hedged when they becomethe functional currency to sek. The translation exposure comprises net assets confirmed orders. In connection with impairment tests of loss contracts, in-in foreign currency and arises in connection with acquisitions and divest- come is affected by the revaluation of future cash flows at spot rates. Largerments. The value of equity subject to translation exposure amounted to changes in exchange rates, primarily in usd against sek, have a significantmsek 2,247 (2,179) at year-end; see the table below: impact on income. This exposure is not hedged.Net assets translated to SEK Interest rate risksMSEK 31-12-2010 31-12-2009 Interest rate risk refers to the risk that Saab will be negatively affected by changes in interest rate levels.USD 727 607EUR 56 82 Interest rate risk has been identified in the following areas:AUD 465 422 • Saab is exposed to interest rate risk when the market value of certain items in the statement of financial position is affected by changes inZAR 664 653 underlying interest rates. Large such items refer to pension obligationsOther currencies 335 415 and leasing operations.Total 2,247 2,179 • Saab’s net financial items are affected by changes in market rates. Interest rate effects on advance financing affect gross income.The effect on net assets of a change in exchange rates where the krona depre- Interest rate risks in the Group’s financial investments are managed based onciates or appreciates is shown in the table below. a short duration and high liquidity. Interest rate risks in the Group’s fundingSensitivity analysis of net assets are managed based on a benchmark with an 18-month duration, with the option of deviating by +/–18 months. As of year-end, the duration for financ- Net assets SEK appreciation SEK depreciationMSEK 31-12-2010 of 10% of 10% ing was 18 months (15). Interest rate futures and swaps are used for interest risk management toUSD 727 655 800 achieve the desired duration in the financing. For a sensitivity analysis, seeEUR 56 50 61 also under liquidity and financing risk. Lending to subsidiaries in foreignAUD 465 419 512 currency is normally financed in sek, which is converted to the subsidiary’s currency through swaps. Interest rate swaps in usd are used mainly for inter-ZAR 664 598 730 est risk management in the leasing portfolio, where the interest rate risk isOther currencies 335 301 369 fully matched.Total 2,247 2,023 2,472 The pension liability, the present value of future pension obligations, is the largest interest rate risk due to the liability’s long duration; see also the Saab Pension Fund.The foreign currency risk to the Group’s income and equity from translationeffects – the translation exposure – is not hedged according to the GroupTreasury Policy.114 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 41, CONT.Liquidity and financing risks Net liquidityLiquidity and financing risk refers to the risk that the company will not be MSEK Note 31-12-2010 31-12-2009able to meet its payment obligations due to insufficient liquidity or difficultyraising external loans on acceptable terms. Assets According to the Group Treasury Policy, Saab must always maintain unu- Liquid assets 31 2,544 1,463tilised credit facilities or liquid assets corresponding to the higher of (but not Short-term investments 25 1,544 551less than msek 3,000): • 10 per cent of sales Total liquid investments 4,088 2,014 • 50 per cent of outstanding on-demand guarantees for the three largest commitments Short-term interest-bearing receivables 27 617 575 Long-term interest-bearing receivables 27 150 394Liquidity and financing risks are minimised by diversifying financing Long-term interest-bearing financial investments 25 147 32sources and maturities. Saab’s policy is to insure on-demand guarantees for major projects Total interest-bearing assets 5,002 3,015against unauthorised use. This applies to contracts where the counterparty isclassified as a developing country according to the definition of the Export LiabilitiesCredits Guarantee Board (ekn). Insurance can be obtained from state guar- Short-term interest-bearing liabilities 35 589 2,519antee institutions or the private insurance market. Long-term interest-bearing liabilities 35 1,117 1,126Saab has access to the following credit facilities: Provisions for pensions 37 5 4Loan facilities Total interest-bearing liabilities 1,711 3,649MSEK Facility Utilised AvailableClub loan (matures 2012) 4,000 - 4,000 NET LIQUIDITY/DEBT (-) 3,291 -634Total confirmed credit facilities 4,000 - 4,000Commercial paper 5,000 - 5,000 As of 31 December 2010, net liquidity amounted to msek 3,291 (-634) with anMedium Term Notes (MTN) 3,000 1,100 1,900 average during the year of msek 890 (-1,721). The net of interest expenses paid and interest income received amounted to msek -43 (-68). Of the liquidReceivables financing 1,475 1,409 66 investments of msek 4,088 (2,014), msek 10 (10) was pledged as trading secu-Total loan programmes 9,475 2,509 6,966 rity to omx. The sensitivity analysis below shows the effect on income of an increase in market interest rates and the credit margin of 1 basis point for Saab’s investments.Total loan facilities 13,475 2,509 10,966 Placements in interest-bearing securities and bank depositsThe club loan is a credit facility with an equivalent value of msek 4,000 from Sensitivity analysis of financial riskseven banks that expires in 2012. No financial covenants are attached to the Effect of Effect ofclub loan or the other credit facilities. market in- credit Effect on A commercial paper programme with a limit of msek 5,000 is available as MSEK Fixed terest rate, Tied-up spread, financialwell. Neither the commercial paper programme nor the club loan were used Maturities interest 1% capital 1% costsin 2010. 1 year 2,745 27 2,745 27 54 In 2009, Saab established a Medium Term Note programme (mtn) with a 2 years 600 6 600 6 12limit of msek 3,000 or an equivalent value in eur. The mtn programme pro-vides access to financing for up to 15 years, which is an element in diversifying Total 3,345 33 3,345 33 66loan maturities. Adjustments The Parent Company also has mnok 975 in financing arranged in connec- Adjustment of booktion with the acquisition of 7.5 per cent of the shares inAker Holding as in value compared to2007. Saab’s investment amounted to approximately nok 1.2 billion, of which nominal value 29 - 29 - -about 80 per cent was financed through the above-mentioned loans. The risk Total 3,374 - 3,374 - -associated with the loans has been reduced through agreements that securethis part of the invested amount, because of which the transactions in the con-solidated statement of financial position are netted as a receivable according Current interest-bearing liabilities mainly consist of liabilities to joint ven-to Note 27. The interest on part of the above-mentioned loans is hedged with tures of msek 428 (632). Long-term interest-bearing liabilities amount toan interest rate swap that has been identified as a hedging instrument and is msek 1,117 (1,126) and mainly consist of mtns in issue. Of the long-termtherefore recognised according to hedge accounting. No inefficiency has interest-bearing liabilities, msek 1,100 (1,118) matures within 1-5 years andarisen in connection with this hedge. msek 7 (8) in more than 5 years. The maturity structure of liabilities to credit institutions is indicated inNet liquidity/debt the tied-up capital column of the “Sensitivity analysis of financial risk” table.Net liquidity excluding interest-bearing receivables and provisions for The volume of tied-up capital includes interest rate swaps. The interest ratepensions amounted to msek 2,382 (-1,631) on 31 December 2010. Liquidity risk in the loans given a 1 basis point parallel shift in the yield curve wasvaried during the year, and surplus liquidity was placed as per the Group msek 25 (13) as of 31 December 2010. The sensitivity analysis below shows theTreasury Policy. At year-end, placements in interest-bearing securities and impact on results of an increase in market interest rates and an equally largebank deposits amounted to msek 3,374 (1,251). increase in the credit margin of 1 basis point for Saab’s refinancing of credits. SAAB ANNUAL REPORT 2010 115
    • FINANCIAL INFORMATION > NOTESNOTE 41, CONT.Financing (refers to utilised credit facilities) MSEK 2010 2009Sensitivity analysis of financial risk Write-downs, 1 January -32 -27 Effect of Effect of market in- credit Effect on Write-downs for calculated losses -12 -19MSEK Fixed terest rate, Tied-up spread, financialMaturities interest 1% capital 1% costs Reversal of previous write-downs 15 121 year -1,709 -17 -1,409 -14 -31 Actual credit losses 7 22 years -400 -4 - - -4 Write-downs, 31 December -22 -323 years -250 -3 -1,100 -11 -14 The following table shows an age analysis of the Group’s overdue receivables:4 years -100 -1 - - -1 MSEK 31-12-2010 31-12-20095 years and for-ward -50 - - - -1 <30 days 265 466Total -2,509 -25 -2,509 -25 -51 30 to 90 days 225 194 91 to 180 days 52 87Commodity risks >181 days 102 147Price risks are divided into two parts:• Commodity price risk refers to the risk that purchasing costs for Accounts receivable overdue 644 894 material will rise. Accounts receivable not overdue 2,408 1,943• Electricity price risk refers to the risk that Saab could be negatively Total accounts receivable 3,052 2,837 affected by changes in electricity prices . Since accounts receivable are either secured via bank and/or insurance com-According to the Group’s policy, commodity risk is minimised and managed pany guarantees or receivables from states, the commercial credit risk is lowprimarily through contract clauses with customers/suppliers. To minimise despite overdue receivables.the risk to Saab’s operating margin, future electricity consumption is hedged.This is done by hedging projected consumption according to a model where Advances paid to suppliers100 per cent of the next quarter’s consumption is hedged. The hedging level Advances paid to suppliers constitute a credit risk, since the counterparty’sthen drops on a straight-line basis to 0 per cent in quarter 13. Swedish units services have not been fully rendered. As of 31 December 2010, the Group hadconsume around 150 GWh per year with a spot price risk of msek 1.5 per paid its suppliers advances of msek 282 (546). As the Group’s policy is toevery time the price of electricity changes by sek 0.01. Electricity directives maintain bank-guaranteed security for any advances it pays, the commercialare managed through a discretionary management mandate, where the man- supplier credit risk is considered low.ager has the mandate to accept risks in relation to benchmarks (hedgingstrategy) at the equivalent of msek 1 (1) expressed in VaR. The market value of Financial credit riskselectricity derivatives as of year-end was msek 30 (-4). Since 1 January 2010, Financial credit risk consists of exposures to banks through deposits, securi-electricity derivatives are used as cash flow hedges for the Stockholm price ties investments and/ or the market value of outstanding derivatives.area. The ineffectiveness that affected net income for the year amounted tomsek -1. The Group’s policy for managing financial credit risks is to: • Ensure that all financial counterparties have a long-term credit ratingCredit and counterparty risks of no lower than A from Standard and Poor’s or A3 from Moody’sCredit risk is the risk that the counterparty in a transaction will not be able to • Assign each financial counterparty a credit limit based on its long-fulfill the financial obligations of a contract. In the course of its day-to-day term credit ratingoperations, Saab is exposed to credit risks related to counterparties in the • Enter into isda master agreements with financial counterparties toform of customers, suppliers and financial players. The Group’s aggregate net the positive and negative market values of outstanding derivativescredit risks consist of commercial credit risks and financial credit risks. Credit risk is calculated on established and anticipated risks according to theCommercial credit risks recommendations of the Bank of International Settlements (bis I). On 31According to the Group’s policy, commercial credit risks are identified and December 2010, counterparty risks amounted to msek 4,100 (1,500), of whichactively managed on a case-by-case basis. Credit risks that arise in customer deposits with banks, mortgage institutions, companies and the Swedish statecontracts with lengthy terms are managed by utilising available banking, totalled msek 3,300 (1,200).insurance or export credit institutions. According to the policy, credit risksthat arise through advances paid to suppliers are managed by always main- Tradingtaining bank-guaranteed security for any advances. Commercial credit risks The Board has given Saab Treasury a risk mandate for trading in currencyconsist of outstanding accounts receivable and advances paid to suppliers. and money market instruments. During the year, msek 10 was allocated to trading expressed according to VaR. If the cumulative result for the year isAccounts receivable negative, the mandate is reduced correspondingly. In 2010, trading incomeOn 31 December 2010, the Group’s outstanding accounts receivable amounted was msek 35 (43), which is reported as other operating income. The averageto msek 3,052 (2,837). The Receivables Financing Programme reduced utilised risk mandate (VaR) during the year was msek 1 (1).accounts receivable at year-end by approximately msek 1,409 (789). Defence-related sales accounted for 83 per cent (83) of total sales, where the counterpar- Valuation methods for financial assets and liabilitiesties in most accounts receivable are nations with high creditworthiness. The The fair value of listed financial assets is determined using market prices.Group’s receivables are mainly in the EU, which accounted for 51 per cent (55) Furthermore, Saab applies various valuation methods to determine the fairof the total. Where counterparties’ creditworthiness is deemed unsatisfactory, value of financial assets that are managed on an inactive market. These valua-bank and/or insurance guarantees or guarantees from ekn are secured. tion methods are based on the valuation of similar instruments, discounted In connection with cash transactions, Saab generally requires that a letter cash flows or customary valuation methods such as Black-Scholes.of credit is opened in its name to ensure that payment is received. Write-downs of accounts receivable amounted to msek 22 (32), corre-sponding to 0.5 per cent (0.9) of total accounts receivable. Write-downs ofaccounts receivable have changed as follows.116 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 41, CONT.The following instruments were valued at fair value (unadjusted) on an active MSEK 31-12-2010 31-12-2009 31-12-2008 31-12-2007market on the closing date (Level 1): Fair value of assets under• Bonds management 3,969 3,609 3,082 3,304• Electricity derivatives• Interest derivatives Present value of defined- benefit obligations1) 4,675 5,002 4,432 3,923The following instruments are valued at fair value according to accepted valu- Solvency margin 85% 72% 70% 84%ation models based on observable market data (Level 2): Pension obligation accord-• Forward exchange contracts: Future payment flows in each cur- ing to PRI 4,042 3,844 3,678 3,427 rency are discounted by current market rates to the valuation day and Solvency margin 98% 94% 84% 96% valued to sek at year-end exchange rates 1) Refers to the pension obligation that the assets under management are designed to cover.• Options: The Black-Scholes option pricing model is used in the mar- ket valuation of all options• Interest swaps: Future variable interest rates are calculated with the NOTE 42 help of current forward rates. These implicit interest payments are dis- counted on the valuation date using current market rates. The market ASSETS PLEDGED AND CONTINGENT LIABILITIES value of interest rate swaps is obtained by contrasting the discounted Group Parent Company variable interest payments with the discounted present value of fixed MSEK 31-12-2010 31-12-2009 31-12-2010 31-12-2009 interest payments Assets pledged for own liabilities and provisionsUnlisted shares and participations: Valued according to accepted principles, Chattel mortgages 100 200 100 200e.g., for venture capital firms (Level 3). Bonds and other securities 10 10 10 10 As of 31 December 2010, the Group had the following financial assets andliabilities at fair value: Total 110 210 110 210Assets at fair value Contingent liabilitiesMSEK 2010 Level 1 Level 2 Level 3 Guarantees to insuranceBonds and interest-bearing company, FPG/PRI 81 77 81 77securities 1,544 1,544 - - Guarantees for GroupForward exchange contracts 910 - 910 - companies’ commitmentsCurrency options 24 - 24 - to customers - - 5,164 4,470Interest rate swaps 80 - 80 - Contingent liabilities related to legal dispute1) 302 - 302 -Electricity derivatives 74 74 - - Sureties for joint ventures 6 511 - -Other derivatives 17 - 17 - Sureties for associatedShares and participations 56 - - 56 companies 2 76 371 423Total 2,705 1,618 1,031 56 Total 391 664 5,918 4,970Liabilities at fair value 1) Saab has an ongoing legal dispute in Denmark with the Danish Defence Acquisition and Logistics Organization (DALO). The Maritime and Commercial Court in Copenhagen issued a judgment dismissing DALO’s claim againstMSEK 2010 Level 1 Level 2 Level 3 Saab. DALO has filed an appeal against the judgment. DALO’s counterclaim amounts to approximately MDKK 250.Forward exchange contracts 575 - 575 - The table below shows the total sum of guarantees that do not represent con-Currency options 8 - 8 - tingent liabilities and a distribution by category and issuer.Interest rate swaps 123 - 123 - MSEK 31-12-2010 % of total 31-12-2009 % of totalElectricity derivatives 44 44 - - Parent Company guarantees 2,275 21 2,011 19Total 750 44 706 - Bank guarantees 8,407 79 8,507 81 Total guarantees 10,682 100 10,518 100Pension fundThe Saab Pension Fund was established in 2006 to secure the main part of the Bank guarantees:Group’s pension obligation and is not consolidated in the Group. On demand 5,700 68 5,013 59 The fund has a long-term real yield requirement of 4 per cent per year. Proprietary 2,707 32 3,494 41The investment policy requires an asset distribution of a maximum of 50 per Total bank guarantees 8,407 100 8,507 100cent equities/alternative investments (hedge funds) and 50-100 per centinterest-bearing instruments. Investments are made in interest-bearing secu- Type of guarantee:rities from issuers with a credit rating of no lower than bbb(Baa) according toStandard & Poor’s and Moody’s. Of the fund’s capital at year-end, 50 per cent Advances 4,127 39 4,046 38(61) was invested in interest-bearing assets and the remaining 50 per cent (39) Completion 3,666 34 2,866 27in equity and alternative investments. The market value of the fund’s assets as Milestone payments 2,558 24 2,697 26of 31 December 2010 was msek 3,969 (3,609) and the annual return was 7 per Tenders, credits and other 331 3 909 9cent (12). In 2010, the fund was capitalised by msek 124 (157) and msek 16 (2) Total guarantees 10,682 100 10,518 100in refunds were paid. The table below shows the solvency margin for the pen-sion fund. With regard to the Group’s so-called fulfilment guarantees for commitments to customers, the likelihood of an outflow of resources is extremely small and, as a result, no value is recognised. SAAB ANNUAL REPORT 2010 117
    • FINANCIAL INFORMATION > NOTES NOTE 43 NOTE 45GOVERNMENT GRANTS GROUP COMPANIESSaab receives government grants, mainly various grants from the eu related Significant Group company holdingsto research and development projects. For 2010, msek 112 has been received. Group Ownership share,msek 91 has been recognised through profit or loss by reducing research and company’s per centdevelopment expenditures and as operating income. In the statement of Group company registered office, country 2010 2009financial position at year-end, msek 64 (43) is recognised as prepaid income. Saab and the Ministry of Enterprise, Energy and Communications have Combitech AB Växjö, Sweden 100 100reached agreement with the National Debt Office to co-finance Saab’s partici- Saab Barracuda AB Västervik, Sweden 100 100pation in the Airbus A380 project. The co-financing is in the form of a royalty Saab Barracuda LLC USA 100 100loan maximised at msek 351. Repayment will take the form of a royalty on Saab Dynamics AB Karlskoga, Sweden 100 100each delivery to Airbus. Through 2010, the National Debt Office has paid outa net of msek 263 (263), which reduces inventory in the financial statements. Saab Danmark A/S Denmark 100 100 No contingent liabilities or contingent assets are reported. Saab Grintek Defence (Pty) Ltd South Africa 75 75 Saab Seaeye Ltd UK 100 100 NOTE 44 Saab Systems Oy Finland 100 100 Saab Systems Pty Ltd Australia 100 100TRANSACTIONS WITH RELATED PARTIES Saab Training Systems AB Jönköping, Sweden 100 100Related parties with which the Group has transactions mainly consist of baeSystems, which holds 10 per cent of the capital and 9 per cent of the votes in Saab Underwater Systems AB Motala, Sweden 100 100Saab, and half of the jointly owned company Gripen International kb. Sales toand purchases from bae Systems amounted to msek 162 and msek 59, respec- Parent Companytively. Interest-bearing liabilities include a loan from bae Systems of msek 7. The Group’s financial agreements conform to market principles. Saab MSEK 2010 2009does not have any transactions of importance with Investor. Neither does Accumulated acquisition valueSaab have any significant transactions with Board members or members of Opening balance, 1 January 19,997 21,344Group Management. For information on remuneration, see Note 37. Transactions with bae Systems, Gripen International and other related New issues/shareholders’ contributions 20 42parties are conducted in accordance with commercial principles. Acquisitions 14 - Of the Parent Company’s sales, 3 per cent referred to sales to Group com- Sales and liquidations -3 -1,382panies, while 14 per cent of the Parent Company’s purchases were from Reduction of purchase price -72 -Group companies. Sales to and purchases from the Group’s associated companies amounted Reclassifications - -7to approximately msek 26 and msek 127, respectively. Closing balance, 31 December 19,956 19,997 Accumulated impairments Opening balance, 1 January -10,477 -9,682 Impairments for the year -74 -795 Closing balance, 31 December -10,551 -10,477 Carrying amount, 31 December 9,405 9,520 Impairment reversals and impairments for the year are reported in the income statement on the line “Result from shares in Group companies.”118 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 45, CONT.Specification of Parent Company’s holdings of shares NOTE 46in Group companies UNTAXED RESERVES 31-12-2010 Carrying Parent Company No. of Share, amount, MSEK 2010 2009Group company/Corp. ID no./Reg. office shares per cent MSEK Accumulated accelerated depreciationCelsius AB, 556194-4652, Linköping 5,000 100.0% 144 Buildings and land:Celsius Invest AB, 556164-6588, Stockholm 1,720,000 100.0% 155 Opening balance, 1 January 84 105Combitech AB, 556218-6790, Växjö 100,000 100.0% 964 Under depreciation for the year -19 -21EMC Services Elmiljöteknik AB, 556315-6636,Mölndal 2,000 100.0% 3 Closing balance, 31 December 65 84Fastighets AB Linköping Malmen 27, 556354-6349,Linköping 20,000 100.0% 4 Machinery and equipment:Fastighets AB Odengatan Jönköping, 556378-6226,Järfälla 2,000 100.0% - Opening balance, 1 January 335 317Fastighets AB Solhusgatan, 556230-7404, Göteborg 1,000 100.0% 67 Accelerated depreciation for the year 102 18FFV Ordnance AB, 556414-8194, Eskilstuna 100,000 100.0% 10 Closing balance, 31 December 437 335Gripen International AB, 556628-6380, Linköping 1,000 100.0% 5Kockums Holdings AB, 556036-4100, Linköping 48,000 100.0% 5 Total untaxed reserves, 31 December 502 419Lansen Försäkrings AB, 516401-8656, Linköping 500,000 100.0% 51Linköping City Airport AB, 556366-8333, Linköping 5,000 100.0% 3Saab d.o.o., Slovenia - 100.0% -Saab Aerospace Overseas AB, 556628-6448,Linköping 1,000 100.0% 3Saab Aircraft Leasing Holdings AB, 556124-3170,Stockholm 30,000 100.0% 1,500Saab Barracuda AB, 556045-7391, Västervik 200,000 100.0% 77Saab Danmark A/S, Denmark - 100.0% 103Saab Dynamics AB, 556264-6074, Karlskoga 500,000 100.0% 357Saab Czech s.r.o, Czech Republic - 100.0% 15Saab Facilities Stockholm AB, 556244-5683, Järfälla 170,000 100.0% 17Saab International AB, 556267-8994, Stockholm 50,000 100.0% 11Saab Microwave Systems AB, 556028-1627,Mölndal 300,000 100.0% 3,685Saab North America, Inc., USA - 100.0% 623Saab PerformIT AB, 556569-2919, Karlstad 2,250 100.0% 23Saab Security Systems AB, 556627-4998, Järfälla 200,000 100.0% 100Saab South Africa (Pty) Ltd, South Africa - 95.0% 443Saab Systems Oy, Finland - 100.0% 103Saab Supporter Ett AB, 556121-2597, Linköping 1,000 100.0% 95Saab Surveillance Systems AB, 556577-4600,Stockholm 1 000 100,0% -SaabTech AB, 556460-1655, Järfälla 3,000,000 100.0% 363Saab Training Systems AB, 556030-2746, Jönköping 150,000 100.0% 42Saab Training Systems B.V., Netherlands - 100.0% 6Saab Underwater Systems AB, 556439-6884, Motala 250,000 100.0% 30Dormand companies etc. - - 398Carrying amount at year-end 9,405 SAAB ANNUAL REPORT 2010 119
    • FINANCIAL INFORMATION > NOTES NOTE 47 OPERATING CASH FLOW VS. CASH FLOW FOR THE YEAR IN STATEMENT OF CASH FLOWSSTATEMENT OF CASH FLOWS, SUPPLEMENTAL INFORMATION MSEK 2010 2009The Group’s operating cash flow and a reconciliation between operating cashflow and cash flow for the year are shown below. Operating cash flow differs Operating cash flow 4,349 1,447in the following respect from the statement of cash flows on page 65: Investing activities – interest-bearing:• Investments in or sales of short-term investments and other interest- Short-term investments -993 -551 bearing financial investments as well as interest-bearing receivables are not included in investing activities Other financial investments and receivables -12 274 Financing activities:OPERATING CASH FLOW Repayment of loans -1,950 -279Group Repurchase of shares -80 -110MSEK 2010 2009 Dividend paid to the Parent Company’s shareholders -237 -187Cash flow from operating activities Contribution from non-controlling interest - 6Income after financial items 776 976 Cash flow for the year 1,077 600Transferred to pension fund -147 -190Adjustments for items not affecting cash flow 2,317 1,835 SUPPLEMENTAL INFORMATION ON STATEMENT OF CASH FLOWSIncome tax paid -196 -183 Liquid assetsCash flow from operating activities before changes in Groupworking capital 2,750 2,438 MSEK 31-12-2010 31-12-2009 The following components are includedWorking capital in liquid assets:Inventories 586 -401 Cash and bank 703 747Current receivables 855 1,927 Bank deposits 1,830 700Advance payments from customers 194 -485 Deposits on behalf of customers 11 16Other current liabilities 399 -1,522 Total according to the statement of financial position 2,544 1,463Provisions -297 -261Change in working capital 1,737 -742 Total according to statement of cash flows 2,544 1,463Cash flow from operating activities 4,487 1,696 Parent Company MSEK 31-12-2010 31-12-2009Investing activities The following components are included in liquid assets:Investments in intangible fixed assets -117 -81 Cash and bank balances 105 88Investments in tangible fixed assets -262 -197 Bank deposits 1,830 700Investments in lease assets -2 -3 Total according to balance sheet 1,935 788Sale of tangible fixed assets 11 9Sale of lease assets 65 130 Total according to statement of cash flows 1,935 788Investments in subsidiaries, net effect on liquidity - -68Sale of subsidiaries and associated companies, net effecton liquidity 161 11 Interest paid and dividends receivedSale of and investments in financial assets 6 -50 Group Parent CompanyCash flow from investing activities excluding change inshort-term investments and other interest-bearing MSEK 2010 2009 2010 2009financial assets -138 -249 Dividends received 12 15 236 61 Interest received 49 80 130 141Operating cash flow 4,349 1,447 Interest paid -87 -142 -165 -293 Total -26 -47 201 -91120 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > NOTESNOTE 47, CONT.Adjustments for items not affecting in cash flow Sale of subsidiaries and associated companies Group Parent Company GroupMSEK 2010 2009 2010 2009 MSEK 2010 2009Depreciation and Divested assets and liabilitiesamortisation 1,295 1,377 255 262 Inventories - 3Impairments 63 23 - - Current receivables 6 3Changes in the value Assets held for sale 107 -of biological assets -43 -13 - - Total assets 113 6Profit shares in associatedcompanies -40 41 - -Dividends from associated Current liabilities 12 1companies 6 13 - - Total liabilities 12 1Dividends and Groupcontributions from Groupcompanies - - -1,485 -2,763 Sales price 161 11Capital gains/losses from Purchase price received 161 11sales of Group companiesand assossiated companies -15 -4 -9 -134Capital gains/losses on Less: Liquid assets in divested operations - -sales of tangible assets 7 1 7 1 Effect on the Groups net liquidity 161 11Inventory impairment 60 - - - where of Interest-bearing receivables 130 -Impairment of shares andreceivables 26 47 290 1,776 where of liquid assets 31 11Provisions 717 108 541 -73Provisions for pensions 213 140 -187 -227 The divestment in 2010 relates to Saab Bofors Industrier ab and 16 per cent of the associated company Hawker Pacific Ltd. See also Note 8.Other 28 102 -63 -45Total 2,317 1,835 -651 -1,203 NOTE 48Investments in subsidiaries INFORMATION ON PARENT COMPANYGroup Saab ab (publ) is a limited company registered in Sweden, with its registeredMSEK 2010 2009 office in Linköping. The Parent Company’s shares are registered on theAcquired assets and liabilities nasdaq omx Stockholm. The address of the head office is Saab ab, Box 70363, se-107 24 Stockholm, Sweden.Intangible assets 1 - The consolidated accounts for 2010 comprise the Parent Company and itsCurrent receivables 1 14 Group companies, together referred to as the Group. The Group also includesLiquid assets - 7 the holdings in associated companies and joint ventures.Total assets 2 21 NOTE 49Current liabilities 2 8 ENVIRONMENTAL REPORTTotal liabilities 2 8 Legal environmental issues Operations subject to permit requirements in the Parent CompanyPurchase price paid - 75 Production of aircraft and aircraft components by the Parent Company, SaabLess: Liquid assets in acquired operations - -7 ab, in the Tannefors industrial zone in the municipality of Linköping is sub- ject to licensing according to the Swedish Environment Code due to aeronau-Effect on the Groups net liquidity - 68 tics operations, surface treatment processes, manufacturing of compositewhere of liquid assets - 68 materials, handling of chemical substances and the size of the manufacturing facilities. The environmental impact of these operations primarily arises fromThe acquisition in 2010 relates to the remaining 66.7 per cent of the shares in emissions of volatile organic compounds (vocs) and aircraft emissions intothe associated company Opax as in Norway. The acquisition in 2009 relates to the atmosphere and of metals into waterways, the generation of industrialthe remaining 60 per cent of the joint venture TietoSaab Systems in Finland. wastes and noise disturbing local surroundings. The operations subject to licensing predominantly entail manufacturing. The National Licensing Board for Environmental Protection granted the license for aircraft manufacture in 1990. The supervisory authorities have decided on additional terms for these operations against the backdrop of the eu’s ippc directive. In Järfälla, Saab ab has operations involving the manufacture of advanced command and control systems, among other things, which are also subject to licensing according to the Environment Code. The licensing requirement is due to surface treatment processes and the size of the manufacturing facili- ties. The environmental impact of these operations primarily arises from voc emissions into the atmosphere and of metals into waterways. The National Licensing Board for Environmental Protection granted the license in 1990. SAAB ANNUAL REPORT 2010 121
    • FINANCIAL INFORMATION > NOTES In Malmslätt, Saab had surface treatment operations which were subject NOTE 51to licensing until the summer of 2010, when the operations were terminated. DEFINITIONS OF KEY RATIOSA review of the future classification of operations according to the Environ-ment Code is under way. With the exception of a few exceeded limits, Saab Gross marginab did not exceed any conditions in its permits or injunctions in 2010. Gross income as a percentage of sales.Operations subject to permit requirements in subsidiaries Adjusted gross marginThe operations carried on by Linköping City Airport ab are subject to licens- Gross income adjusted for the result from divestments and non-ing according to the Environment Code and are covered by the permit issued recurring income/expenses as a percentage of sales.by the National Licensing Board for Environmental Protection in 1990 for Operating marginSaab ab’s collective operations in the Tannefors industrial zone in the munic- Operating income as a percentage of sales.ipality of Linköping. This permit also covers the operations of Saab Dynamicsab in the area, despite that they are not subject to licensing and notification Adjusted operating marginrequirements according to the Environment Code. Operating income adjusted for the result from divestments and non- Saab Dynamics ab and Saab Bofors Test Center ab carry on operations in recurring income/expenses as a percentage of sales.Karlskoga which are subject to licensing according to the Environment Code.Saab Dynamics ab carries on similar operations in Eskilstuna. In addition, EBITDA marginSaab Barracuda ab carries on operations subject to licensing in Gamleby. Operating income before depreciation, amortisation and impairments less The environmental impact from subsidiaries subject to licensing prima- depreciation and impairments of lease aircrafts as a percentage of sales.rily consists of emissions of vocs and emissions from aircraft into the atmos-phere, emissions of metals and deicing solvents into waterways, generation of Capital employedindustrial wastes and noise disturbing local surroundings. Total capital less non-interest-bearing liabilities.In 2010, none of Saab’s subsidiaries exceeded any conditions of their permitsor injunctions. Return on capital employed Operating income plus financial income as a percentage of average capitalOperations subject to notification requirements employed.Saab ab has operations in Arboga, Gothenburg, Ljungbyhed, Nyköping andÖstersund which are subject to notification requirements in accordance with Return on equitythe Swedish Environment Code. The Group also has operations subject to Net income for the year as a percentage of average equity.notification requirements in the subsidiaries Saab Underwater Systems ab in Profit marginMotala, Saab Training Systems ab in Huskvarna and Saab Natech ab in Operating income plus financial income as a percentage of sales.Jönköping. The environmental impact of these operations is very limited. For further information related to Saab’s environmental report, see the Capital turnoverAdministration report, pages 52–55. Sales divided by average capital employed. Net liquidity/net debt NOTE 50 Liquid assets, short-term investments and interest-bearing receivables less interest-bearing liabilities and provisions for pensions.EXCHANGE RATES USED IN FINANCIAL STATEMENTS Equity/assets ratio Year-end rate Average rate Equity in relation to total assets.Country 2010 2009 2010 2009 Interest coverage ratioAustralia AUD 1 6.92 6.43 6.61 6.01 Operating income plus financial income divided by financial expenses.Denmark DKK 100 120.75 139.15 128.13 142.64Euro EUR 1 9.00 10.35 9.54 10.62 Earnings per share Net income for the year attributable to Parent Company shareholders’Japan JPY 100 8.34 7.84 8.22 8.18 interest, divided by the average number of shares before and after fullCanada CAD 1 6.81 6.89 6.99 6.70 dilution. There is no dilution impact if the result is negative.Norway NOK 100 115.20 124.30 119.16 121.62 Equity per shareUK GBP 1 10.55 11.49 11.13 11.93 Equity attributable to the Parent Company’s shareholders divided by theSouth Africa ZAR 100 103.00 97.00 98.41 91.20 number of shares, excluding treasury shares, at the end of the year.USA USD 1 6.80 7.21 7.20 7.65 Operating cash flow per share Operating cash flow divided by the average number of shares after dilution.122 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > DIVIDEND MOTIVATIONDIVIDEND MOTIVATIONThe Board of Directors’ statement according to chapter 18, § 4 of the Companies Act with regard to the proposeddividend – Saab ABSaab is one of the world’s leading high-technology companies, ments in tangible fixed assets. Investments are also made in researchbecause of which its operations are distinguished by complex devel- and development, which in 2010 amounted to msek 1,203, of whichopment assignments on the cutting edge of technology. Over the msek 47 was capitalised in the balance sheet.years, Saab has conducted significant development projects and At year-end, Saab had a net cash position, which, together withmanaged the associated risks with great success. See also risks and liquid assets, short-term investments and interest-bearing receiv-uncertainties in the annual report. ables less interest-bearing liabilities, including provisions for pen- The Board of Directors’ proposed dividend amounts to sek 3.50 per sions, amounted to msek 3,291. Saab’s ability to carry out its commit-share, corresponding to a total dividend of msek 367. Unrestricted ments is not affected by the proposed dividend either on a short- orequity amounts to msek 4,203 in Saab ab and profit carried forward in a long-term basis.the Group before the dividend paid amounts to msek 8,298. Net income for the year attributable to Parent Company’s share- The proposed dividend is considered justifiable with regard to what isholders amounted to msek 433 for the Group and msek 1,389 for the stated in chapter 17, § 3, paragraphs two and three of the CompaniesParent Company. Act (2005:551): After paying the dividend to the shareholders, the Group’s 1. The demands that the company’s nature, scope and risks place onequity/assets ratio amounts to 38.3 per cent, compared to the long- the size of its equity, andterm objective of 30 per cent. Since the ipo in 1998, the equity/assets 2. The company’s consolidation needs, liquidity or financial positionratio has risen from 22 per cent to 38 per cent in 2010. in other respects. Saab’s gross capital expenditure in 2010 amounted to msek 262,which is considered a good approximation of annual future invest- The Board of Directors of Saab ab SAAB ANNUAL REPORT 2010 123
    • FINANCIAL INFORMATION > DIVIDEND MOTIVATIONPROPOSEDDISPOSITION OF EARNINGSThe Board of Directors and the President propose that the unappro- After the proposed disposition, equity in the Parent Company willpriated earnings in the Parent Company at disposal of the Annual be as follows:General Meeting, amounting to:SEK SEKRetained earnings 2,813,836,892 Capital stock 1,746,405,504Net income for the year 1,388,787,916 Statutory reserve 542,471,135Total 4,202,624,808 Revaluation reserve 718,175,600 Retained earnings 3,836,112,756Be disposed as follows: Total 6,843,164,995To the shareholders, a dividend of SEK 3.50 per share 366,512,052Funds to be carried forward 3,836,112,756 The company’s policy is to issue a dividend of 20–40 per cent of netTotal 4,202,624,808 income over a business cycle. The Board of Directors and the President propose that msek 367 (237), or sek 3.50 per share (2.25) be issued as a dividend. Saab’s equity/assets ratio is currently 39.1 per cent (35.1) and after the proposed disposition of earnings will be 38.3 per cent (34.6).The undersigned certify that the consolidated accounts and the annual report have been prepared in accordance with International Financial Reporting Standards(IFRS), as adopted for use in the European Union, and generally accepted accounting principles, and give a true and fair view of the financial positions and resultsof the Group and the Parent Company, and that the management report gives a fair review of the development of the operations, financial positions and results ofthe Group and the Parent Company and describes substantial risks and uncertainties that the Group companies faces. Linköping, 16 February 2011 Marcus Wallenberg Chairman Erik Belfrage Johan Forssell Sten Jakobsson George Rose Board member Board member Board member Board member Per-Arne Sandström Cecilia Stegö Chilò Åke Svensson Lena Treschow Torell Board member Board member Board member Board member Joakim Westh Catarina Carlqvist Stefan Andersson Conny Holm Board member Board member Board member Board member Håkan Buskhe President and Chief Executive Officer (CEO) Our audit report was submitted on 16 February 2011 Erik Åström Tommy Mårtensson Authorised Public Accountant Authorised Public Accountant124 SAAB ANNUAL REPORT 2010
    • FINANCIAL INFORMATION > DIVIDEND MOTIVATIONAUDIT REPORTTo the Annual General Meeting of the shareholders of Saab AB (publ)Corporate identity number 556036-0793We have audited the annual accounts, the consolidated accounts, the our opinion concerning discharge from liability, we examined signif-accountiv ng records and the administration of the board of direc- icant decisions, actions taken and circumstances of the company intors and the managing director of Saab ab (publ) for the year 2010. order to be able to determine the liability, if any, to the company ofThe annual accounts and the consolidated accounts are included on any board member or the managing director. We also examinedpages 32–124 in this document. The board of directors and the man- whether any board member or the managing director has, in anyaging director are responsible for these accounts and the administra- other way, acted in contravention of the Companies Act, the Annualtion of the company as well as for the application of the Annual Accounts Act or the Articles of Association. We believe that our auditAccounts Act when preparing the annual accounts and the applica- provides a reasonable basis for our opinion set out below.tion of international financial reporting standards ifrss as adopted The annual accounts have been prepared in accordance with theby the eu and the Annual Accounts Act when preparing the consoli- Annual Accounts Act and give a true and fair view of the company’sdated accounts. Our responsibility is to express an opinion on the financial position and results of operations in accordance with gener-annual accounts, the consolidated accounts and the administration ally accepted accounting principles in Sweden. The consolidatedbased on our audit. accounts have been prepared in accordance with the international We conducted our audit in accordance with generally accepted financial reporting standards ifrss as adopted by the eu and theauditing standards in Sweden. Those standards require that we plan Annual Accounts Act and give a true and fair view of the group’sand perform the audit to obtain reasonable assurance that the annual financial position and results of operations. The statutory adminis-accounts and the consolidated accounts are free of material misstate- tration report is consistent with the other parts of the annualment. An audit includes examining, on a test basis, evidence support- accounts and the consolidated accounts.ing the amounts and disclosures in the accounts. An audit also We recommend to the annual meeting of shareholders that theincludes assessing the accounting principles used and their applica- income statements and balance sheets of the parent company and thetion by the board of directors and the managing director and signifi- income statement and the statement of financial position for thecant estimates made by the board of directors and the managing group be adopted, that the profit loss of the parent company be dealtdirector when preparing the annual accounts and consolidated with in accordance with the proposal in the administration reportaccounts as well as evaluating the overall presentation of information and that the members of the board of directors and the managingin the annual accounts and the consolidated accounts. As a basis for director be discharged from liability for the financial year. Linköping,16 February 2011 Ernst & Young AB Deloitte AB Erik Åström Tommy Mårtensson Authorised Public Accountant Authorised Public Accountant SAAB ANNUAL REPORT 2010 125
    • SHAREHOLDER INFORMATION > CORPORATE GOVERNANCE REPORTCORPORATE GOVERNANCE REPORTIntroduction of Corporate Governance (“the Code”). The Code is available atSaab ab is a Swedish public limited liability company listed on www.bolagsstyrning.senasdaq omx Stockholm. Saab applies the Code and strives to maintain a high standard in Saab’s corporate governance is based on Swedish legislation, prima- its corporate governance. This corporate governance report is inrily the Swedish Companies Act, the Swedish Annual Accounts Act, accordance with the Annual Accounts Act and the Code, andnasdaq omx Stockholm Rules – which also includes the Swedish Code describes how Saab applied the Code during the financial year 2010.of Corporate Governance – and other relevant Swedish and foreign laws Moreover, the Annual General Meeting 2010 was carried out inand guidelines. accordance with the Code and the Annual General Meeting 2011 will also be planned and carried out pursuant to the provisions of theSwedish Code of Corporate Governance Code. Saab’s website has a special area for corporate governanceThe Saab shares are admitted to trading at nasdaq omx Stockholm issues, which is updated in accordance with the Code.and Saab must therefore follow good practices in the securities mar- The Board annually issues a report on how the internal control ofket, which includes an obligation to comply with the Swedish Code financial reporting is organised, which can be found at the end of this report.Organisation 2010 Nomination Commitee Annual General Meeting External Auditors Remuneration Committee Board of Directors Audit Committee Internal Audit President and CEO Internal boards * Group Management Finance Board Operational Excellence Board Strategy Board Ethics and Compliance Board Human Resources Board Communications Board* The internal boards handle and resolve issues within their respective areas on a Group level. They also prepare certain issues to be resolved by the Group Management.126 SAAB ANNUAL REPORT 2010
    • SHAREHOLDER INFORMATION > CORPORATE GOVERNANCE REPORTThis corporate governance report has been reviewed by the compa- According to a resolution by the Annual General Meeting 2010, theny’s auditors pursuant to the Annual Accounts Act; see the auditors’ Nomination Committee shall provide proposals regarding the followingreport attached to the corporate governance report. issues, to be presented to the Annual General Meeting 2011 for resolution: Saab has not deviated from the provisions of the Code during2010 and hence does not report any deviations from the Code. (a) the Chairman of the meeting, (b) the Board of Directors,Ownership structure and number of shares (c) the Chairman of the Board,Saab’s share capital amounted to sek 1,746,405,504 on 31 December (d) the remuneration to the members of the Board, allocated2010 and consisted of 1,907,123 series a shares and 107,243,221 series b between the Chairman and other members of the Board, andshares. Series a shares have ten votes each, while series b shares have remuneration for committee work,one vote each. One series a share may, on demand of the owner, be (e) election of the auditorsconverted into one series b share. The Saab shares are registered with (f) audit fees, andEuroclear Sweden ab. The quota value per share is sek 16. The series (g) appointment of a new Nomination Committee for the Annualb shares are listed on nasdaq omx Stockholm on the large cap list. General Meeting 2012.The series a shares are not listed. A round lot consists of 100 shares.All series a shares are owned by Investor ab. Before the Annual General Meeting of Saab ab on 7 April 2011, it was announced through a press release on 4 October 2010 that, in addi-Largest shareholders, 31 December 2010 tion to Chairman of the Board Marcus Wallenberg, the following Share of Share of shareholder representatives had been appointed to Saab’s Nomina-According to SIX Ägarservice capital, % votes, % tion Committee (shareholder’s name in parentheses): Petra Heden- gran (Investor ab), Peter Wallenberg Jr (Knut and Alice WallenbergInvestor AB, Sweden 30.0 39.5 Foundation), Erik Feldt (Nordea Funds), and Thomas ErikssonBAE Systems, UK 10.2 8.8 (Swedbank Robur Funds). Petra Hedengran is the Chairman of theWallenberg Foundations, Sweden 8.7 7.5 Nomination Committee.Nordea funds, Sweden 5.4 4.7 These persons represent in the aggregate approximately 50 perSwedbank Robur funds, Sweden 4.3 3.7 cent of the votes in Saab based on the ownership structure as ofFourth AP Fund, Sweden 1.9 1.6 31 August 2010. bae Systems has waived the right to representation on the Nomination Committee.Länsförsäkringar funds, Sweden 1.8 1.6 The proposals of the Nomination Committee will be presentedSEB Funds, Sweden 1.7 1.5 not later than in connection with the notice of the Annual GeneralOrkla ASA, Norway 1.5 1.3 Meeting 2011.SHB funds, Sweden 1.4 1.2Total 66.9 71.4 Members of the Nomination Committee for Annual General Meeting 2011At the end of December 2010, Saab held 4,432,615 series b shares, cor- % of votes % of capitalresponding to 4.1 per cent of the capital as treasury shares. For addi- Member Representing 31-8-2010 31-8-2010tional information about the ownership structure, see page 139 and Petra Hedengran Investor AB 39.5 30.0141. The Board of Directors has an authorisation from the Annual Peter Wallenberg Jr Knut and Alice WallenbergGeneral Meeting to repurchase shares; see page 43 for further infor- Foundation 7.5 8.7mation. Erik Feldt Nordea Funds 3.8 4.4 Thomas Eriksson Swedbank Robur Funds 2.5 2.9Nomination Committee Marcus Wallenberg Chairman of the Board,The Annual General Meeting in April 2010 resolved that Saab shall Saab AB - -have a Nomination Committee consisting of one representative ofeach of the four shareholders or groups of shareholders with the great- Board of Directorsest number of votes, along with the Chairman of the Board. The names Composition of the Boardof the four owners’ representatives and the shareholders they represent According to Saab’s articles of association, the Board of Directorsshall be announced at least six months prior to the Annual General shall, in addition to the employee representatives, consist of at leastMeeting 2011 based on known voting rights as per 31 August 2010. The six and not more than twelve members. Members of the Board shallresolution includes procedures, where necessary, to replace a member be elected each year by the Shareholders’ Meeting. Saab’s Board ofwho leaves the committee before its work has been completed. Directors consists of ten members elected by the Shareholders’ SAAB ANNUAL REPORT 2010 127
    • The Board of Directors, the Secretary of the Board of Directors and the President and CEO.Meeting, with no deputies, and three members, with an equal Independence requirementnumber of deputies, appointed by the employee organisations. The following table sets forth the members of the Board elected by the At the Annual General Meeting on 15 April 2010, Erik Belfrage, Shareholders’ Meeting who, according to the provisions of the Code,Sten Jakobsson, George Rose, Per-Arne Sandström, Lena Treschow are considered independent in relation to the company and the man-Torell, Marcus Wallenberg and Åke Svensson were re-elected. Johan agement, as well as in relation to the company’s major shareholders.Forssell, Cecilia Stegö Chilò and Joakim Westh were elected as newboard members at the Annual General Meeting. Composition and independence of the Board in 2010 Marcus Wallenberg was elected Chairman of the Board of Direc- Independenttors. Åke Svensson was President and ceo of Saab, and employed by of the Independentthe company until 31 August 2010. company/ of major Board member Elected management shareholders Information on the remuneration to the members of the Boardresolved by the Annual General Meeting 2010 is set forth in the Marcus Wallenberg 1992 Yes No 1)annual report, note 37. Åke Svensson 2003 No 2) Yes Erik Belfrage 1991 Yes No 3)Members of the Board elected by the Shareholders’ Meeting Johan Forssell 2010 Yes No 4) Marcus Wallenberg George Rose Sten Jakobsson 2008 Yes Yes Åke Svensson Per-Arne Sandström George Rose 1998 Yes No 5) Erik Belfrage Cecilia Stegö Chilò Per-Arne Sandström 2005 Yes Yes Johan Forssell Lena Treschow Torell Cecilia Stegö Chilò 2010 Yes Yes Sten Jakobsson Joakim Westh Lena Treschow Torell 2005 Yes No 6) Joakim Westh 2010 Yes YesOther significant professional commitments, work experience, etc. 1) Former President and CEO of Investor ABare set forth in the presentation of the Board of Directors; see pages 2) President and CEO of Saab until 31 August 2010 3) Former member of Investor AB’s board134 and 135. 4) Employed by Investor AB 5) Employed by BAE Systems 6) Member of Investor AB’s boardEmployee representatives Regulars Deputies Stefan Andersson Göran Gustavsson Accordingly, the company fulfils the requirements of the Code that a Catarina Carlqvist Jan Kovacs majority of the Board members appointed by the Shareholders’ Conny Holm Nils Lindskog Meeting are independent of the company and the management, and that at least two of them are independent of the major shareholders.128 SAAB ANNUAL REPORT 2010
    • SHAREHOLDER INFORMATION > CORPORATE GOVERNANCE REPORTWork of the Board tember 2010. The Board has also followed up on significant exportAccording to the Board’s rules of procedure, five ordinary meetings opportunities and related marketing investments. The efficiency of theshall normally be held each year, in addition to the statutory meet- cost-savings programme is continuously monitored at every boarding. The Board may also meet whenever the circumstances demand. meeting.During 2010, the Board held one statutory meeting, five ordinary Committee work represents an important part of the Board’s work.meetings and six extraordinary meetings, totalling twelve meetings. After meetings of the Audit and Remuneration Committees, the issues The Board annually adopts rules of procedure and an instruction that have been handled are reported to the Board, and resolutions areon the allocation of work between the Board and the ceo, as well as an adopted on issues where the committees have made recommendations.instruction on financial reporting to the Board. The rules of procedure contain, i.a., provisions on the number of Board of Directors’ committee workboard meetings to be held, a list of matters to be considered at the Audit Committeemeetings, reporting from the auditors and special decisions to be The Board of Directors has in accordance with principles set out intaken at the statutory meeting. The rules of procedure and special the Swedish Companies Act and the Code appointed an Audit Com-instruction for the ceo set forth the delegation of responsibilities mittee consisting of three members. The work of the Audit Commit-between the Board and its two committees, the Remuneration Com- tee is mainly of a preparatory nature, i.e., it prepares matters for themittee and the Audit Committee, as well as between the Board and ultimate resolution by the Board. However, the Audit Committee hasthe ceo. The instruction for the ceo sets out the ceo’s duties and decision-making power on some issues in limited areas. The Auditauthority. The instruction also includes policies on investments, Committee has e.g. established guidelines for the services other thanfinancing and reporting. auditing that the company may procure from the auditors. During the course of the year, the Board was assisted by the Secre- Since the Annual General Meeting in April 2010, the Audit Com-tary of the Board of Directors, General Counsel Anne Gynnerstedt, mittee has consisted of the following members: Per-Arne Sandströmwho is not a member of the Board. (Chairman), Johan Forssell and Joakim Westh, of whom Per-Arne In 2010, the Board of Directors worked with the establishment of a Sandström and Joakim Westh are independent of the company andbudget and business plan. Financial reports are prepared monthly and the management as well as of the major shareholders. All members ofsubmitted to the Board. The reports are presented at each Board meet- the committee have accounting- and auditing competence. The Gen-ing and before the quarterly reports and year-end report. During the eral Counsel, Anne Gynnerstedt, is secretary to the Audit Committee.year, the Board has followed up on the reorganisation decided on in The Audit Committee’s assignment is set forth in the Board’s2009 and the company’s strategy. The Board has also had several extra rules of procedure. Among other things, the Audit Committee shallmeetings in order to appoint a new President and ceo. The former monitor the company’s financial reporting, monitor the efficiency ofPresident and ceo Åke Svensson left the company to become Director the company’s internal control, internal audit and risk control inGeneral of the Association of Swedish Engineering Industries. He was respect of the financial reporting, keep the committee informedreplaced by the new President and ceo Håkan Buskhe as from 1 Sep- about the audit of the annual report and the group accounts, reviewATTENDANCE AND BOARD REMUNERATION IN 2010 Total Remu- Attendance Attendance Audit Com- Remuneration remu- Audit neration Board- Committee Board fees, mittee fees, Committee neration,Name Committee Committee meetings1) meetings 2) kSEK 3) kSEK fees, kSEK kSEKMarcus Wallenberg x 12 3 1,100 80 1,180 4)Åke Svensson 10 - -Erik Belfrage 12 425 425Johan Forssell5) x 9 5 425 100 525Sten Jakobsson 12 425 425George Rose x 9 2 - -Per-Arne Sandström x 12 6 425 150 575Cecilia Stegö Chilò5) 9 425 425Lena Treschow Torell x 12 3 425 135 560Joakim Westh5) x 8 4 425 100 5251) Of a total of 12 meetings2) Of a total of 6 meetings for Audit Committee and 3 meetings for Remuneration Committee3) BAE Systems’ board member does not receive a fee, nor former President and CEO Åke Svensson4) Did not participate during appointment of the new President and CEO (2 meetings)5) Elected April 2010, after which 9 Board meetings and 5 meetings of the Audit Committee were held SAAB ANNUAL REPORT 2010 129
    • SHAREHOLDER INFORMATION > CORPORATE GOVERNANCE REPORTand monitor the auditor’s neutrality and independence, and assist The Board continuously evaluates the ceo’s work by monitoringthe Nomination Committee in preparing proposal for the Share- business results in relation to established objectives.holders’ Meeting’s decision on election of auditors. The company’sinternal and external auditors are both co-opted to the meetings of President and CEOthe Audit Committee. During 2010, the Audit Committee focused Åke Svensson, who also is a member of the Board of Directors, wasparticularly on the financial reporting, Saab’s cost-savings pro- President and ceo of Saab until 31 August 2010. He was succeeded bygramme and the proposal for election of new auditors. Håkan Buskhe. Their significant professional commitments outside The Audit Committee keeps minutes of its meetings, which are the company, work experience, etc. are set forth in the presentationpromptly distributed to the other members of the Board. of the Board and the Group Management; see pages 135 and 136. In 2010, the Committee held six meetings. Håkan Buskhe does not own shares in any company with which Saab has material business ties.Remuneration CommitteeThe Board of Directors has in accordance with principles set out in Auditorsthe Code appointed a Remuneration Committee consisting of three On behalf of the shareholders and in accordance with current lawsmembers: Marcus Wallenberg, George Rose and Lena Treschow and regulations, the external auditors examine the financial state-Torell. Lena Treschow Torell is Chairman of the committee. All of the ments, group accounts, annual report, administration and manage-members are independent of the company and the management. The ment of the company by the Board of Directors and the ceo and alsoGeneral Counsel, Anne Gynnerstedt, is secretary to the committee. the corporate governance report. In addition, the half-year report has The Remuneration Committee is responsible for preparing mat- been reviewed by the auditors. The auditor in charge also presents anters concerning remuneration principles, including programmes for auditors’ report to the Annual General Meeting.variable compensation and pension terms for Group Management, The Shareholders’ Meeting elects the auditors. The auditorsand preparing the design and proposal of Saab’s share matching elected by the Shareholders’ Meeting are the registered accountingplans. As of 2006, all decisions regarding such principles shall be firms Ernst & Young and Deloitte.made by the Annual General Meeting in accordance with the recom-mendation by the Board. Ernst & Young ab Matters concerning employment terms, compensation and other • Re-elected in 2007 for the term 2007–2010benefits for the ceo are prepared by the Remuneration Committee • Member of Ernst & Young’s global organisation with operationsand adopted by the Board, which is responsible for interpretation in around 140 countriesand application of the principles. The Remuneration Committee has • Auditor in charge since 2007, Erik Åströmno decision-making powers of its own. During the year, the Remu- • Other audit engagements: Apoteket, Hakon Invest, Hennes &neration Committee was particularly involved in a review of fixed Mauritz, Modern Times Group and Svenska Handelsbankenand variable salaries and the creation of a performance share plan forsenior executives and strategic key employees. Deloitte ab The Remuneration Committee keeps minutes of its meetings, • Elected in 2009 for a term not exceeding three yearswhich are promptly distributed to the other members of the Board. • Member of Deloitte’s global organisation with operations in aroundIn 2010, the Committee held three meetings. 140 countries • Auditor in charge since 2005, Tommy MårtenssonEvaluation • Other audit engagements: Björn Borg, FastPartner, Fortum, Industri-The Chairman of the Board annually performs an evaluation of the fonden and Svevia. Also experience as auditor for SJ and Tele2quality of the Board’s work and possible improvements to the formsand efficiency of its work. This is done by having members fill out a Ernst & Young and Deloitte both have competence and experiencequestionnaire on their opinions of how well the Board is function- in areas important to Saab: auditing of large and listed companies,ing. The results are then compared to previous years. The question- accounting issues, industry experience and experience in interna-naire consists of five parts covering the breadth of competence repre- tional businesses.sented in the Board, the manner in which its work is performed, the The Audit Committee is responsible for ensuring that the inde-Chairman, the Board’s composition and the co-operative atmos- pendent position of the auditors is maintained, i.a., by stayingphere. The purpose of the evaluation is to understand how members informed of ongoing consulting assignments. The Audit Committeefeel about the Board’s work. The results are then discussed by the has also established guidelines for the services other than auditingBoard. No external consultants are involved in the evaluation. that the company may procure from its auditors. The Nomination Committee is also informed of the results of theevaluation in connection with its analysis, evaluation and appoint-ment of Board members.130 SAAB ANNUAL REPORT 2010
    • SHAREHOLDER INFORMATION > CORPORATE GOVERNANCE REPORTGuidelines for remuneration and other benefits to members Internal control over financial reportingof the senior management Saab’s system of internal control is designed to assist the businessDetails about the guidelines can be found in the administration report. achieve its goals and manage the associated risks. Internal control over financial reporting is a part of all internal control processesAudit fees within Saab, the framework for which is developed by the CommitteeSaab’s auditors receive a fee according to approved invoices as of Sponsoring Organizations of the Treadway Commission (coso).resolved by the Shareholders’ Meeting. Internal control over financial reporting aims to provide reason- Ernst & Young and Deloitte have in the past four years carried able assurance of the reliability of external financial reporting and toout services on behalf of the company in addition to their audit ensure that it is prepared in accordance with legislation, applicableassignment, including auditing activities over and above the audit accounting standards and other requirements on listed companies.assignment, consultations closely associated with the audit involvingaccounting and tax issues in connection with acquisitions and Control environmentrestructurings, and with regard to the structure and implementation The delegation of responsibilities is based on the Board’s rules ofof Saab’s share matching plans for the employees. procedure and an instruction, which sets forth the roles, responsibil- ities and activities of the Board and the ceo.Auditors’ fees 2008–2010, the Group Internal control is based on Saab’s organisation, where operating responsibilities and powers are delegated to business areas and sup-MSEK 2010 2009 2008 port units, which also receive support and are supervised by GroupAudit assignments: functions with specific competencies. These Group functions issueErnst & Young AB 10 13 14 Group guidelines that clarify responsibilities and powers and consti- tute part of the internal control in specific areas such as finance,Deloitte AB 3 4 4 accounting, investments and tenders.Other assignments:Ernst & Young AB 5 3 2 Risk assessmentDeloitte AB 2 2 3 Saab’s operations are mainly characterised by the development, pro- duction and supply of technologically advanced hardware and soft-Financial reporting ware for customers around the world. The major part of the produc-The Board documents the manner in which it ensures the quality of the tion, business assets and employees are based in Sweden, whereasfinancial reports and how it communicates with the company’s auditors. the majority of sales are generated from countries outside of Sweden. The Board ensures the quality of financial accounting through its As a rule, projects entail considerable sums of money, stretch overAudit Committee, according to the report submitted above. The Audit long periods of time and involve technological development orCommittee considers not only critical accounting questions and the refinement of products.financial reports presented by the company, but also matters of internal Based on Saab’s operations, the material risk areas in financialcontrol, regulatory compliance, potential material uncertainty in reporting are project accounting, acquisitions and goodwill, devel-reported values, post-statement events, changes in assessments and opment costs, hedging and other financial transactions, leasingevaluations and other circumstances that may affect the quality of the operations, taxes and accounting for pensions. In addition to busi-financial statements. The auditors have participated in three regular ness risks, the processes are also assessed on the basis of the risk ofmeetings of the Audit Committee. They have not participated in meet- exposure to any improprieties.ings when the election of external auditors is discussed. Group Finance continuously co-ordinates an overall risk assess- The entire Board reviews the interim reports before they are pub- ment of the financial reporting. This process involves self-assess-lished. ments by the Group functions and business areas. The current risk The company’s auditors attend the Board meeting when the annual assessment is reviewed with Saab’s Internal Audit, which adjusts itsaccounts are approved. annual audit plan accordingly. Information on developments in The Board has met with the auditors to discuss their review of the essential risk areas as well as a report on planned and executed activ-company for the financial year 2010. The Board has also met on one ities in these areas are communicated regularly to Saab’s Audit Com-occasion with the auditors without the presence of the ceo or any other mittee. Saab’s risk assessment is also communicated regularly tomembers of Group Management. Saab’s external auditors.The Board’s report on internal control of financial reporting Information, communication and control activitiesAccording to the Swedish Companies Act and the Code, the Board is Internal control within Saab is based on clearly defined areas of respon-responsible for internal control. This report on internal control of the sibility and authority, issued Group guidelines, processes and controls.financial reporting has been drafted on the basis of the SwedishAnnual Accounts Act. SAAB ANNUAL REPORT 2010 131
    • SHAREHOLDER INFORMATION > CORPORATE GOVERNANCE REPORTUniform handling of financial reporting is assured by adopting and The Internal Audit department, which is part of the internal controlissuing Group guidelines approved by the ceo or by function man- structure, is a dedicated resource for independent review of the effi-agers appointed by the ceo. All Group directives are updated on an ciency of internal control processes. At the same time, Internal Auditongoing basis, are clearly communicated and are available on the supports locally applied internal controls and the central controllerinternal website. staff. Together they serve as a resource to monitor financial reporting Each business area designs its risk management routines and routines. Internal Audit’s assignments are initiated by the Auditstructure for internal control based on overall routines and Group Committee, Group Management and its members, and on its ownguidelines. initiative. The most significant risks identified as regards financial report-ing are managed through control structures within the business Activities in 2010areas and Group functions and are based on Saab’s minimum During 2010 an extensive review was made of Saab’s internal finan-requirements for good internal control in significant processes. cial control system. The goal was to analyse and identify existing con- trols and to identify areas of improvement and strengthen the report-Monitoring and evaluation ing and evaluation of the internal control over financial reporting.All operating units report monthly and quarterly according to a The process started with an assessment on the group level that cas-standardised routine. Quarterly reports serve as the basis of Saab’s caded down to the business areas. Based on the risk assessment, con-external financial reporting. In operating reports, each business trols mitigating identified risks where identified and evaluated.area’s measures of profitablity and financial position are consolidated An independent assessment of all identified controls was initi-to measure the Group’s total profitablity and financial position. ated at the end of 2010 and will be finalised in 2011. Accounting managers and controllers are continuously in con-tact with Group Finance concerning any questions related to finance Focus in 2011and accounting. The review of the internal control over financial reporting has To assist in evaluating internal control in each business area, Saab resulted in changes in the reporting process. As of 2011, the status ofuses an annual self assessment. In addition to the processes that serve all financial controls by business area will be reported on a monthlyas a basis for the financial reporting, these assessments cover operat- basis to Group Management compared to once per year previously.ing risks, reputational risks and compliance with laws, regulationsand internal rules. This is also reported to the Audit Committee.The annual assessment process of internal financial controls as of 2011 January 1 Preparation of Corporate Governance Report Independent review of self assessment results Q1 Self Assessment