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CONTENTS

1 The SKF Group

2 The SKF Group Divisions

4 Letter from the President

6 Board of Directors’ report

– Environment

10 Awards

11 World bearing market

12 SKF – the knowledge engineering company

18 Industrial Division

20 Automotive Division

22 Electrical Division

24 Service Division

26 Seals Division

28 Steel Division

30 Aerospace and other businesses

32 Financial objectives and dividend policy

33 Financial risk management

34 Sensitivity analysis

34 EMU

FINANCIAL INFORMATION

36 Consolidated income statements

38 Consolidated balance sheets

40 Consolidated statements of cash flow

42 Notes to the consolidated financial statements

55 U.S. GAAP

64 Parent Company income statements

65 Parent Company balance sheets

66 Parent Company statements of cash flow

67 Notes to the financial statements for

the Parent Company

73 Proposed distribution of surplus

73 Auditors’ report

74 Shares and shareholders

76 Board of Directors

78 Management

80 Seven-year review of the SKF Group

81 Words in SKF’s world

82 Financial glossary

83 Three-year review of SKF’s Divisions

Mission

SKF’s mission is to enhance and develop global

leadership in bearings, seals, related products,

systems and services.

The aim is to be the best in the industry at:

• providing customer value

• developing our employees

• creating shareholder value

Drivers

• Profitability

• Quality

• Innovation

• Speed

Values

• Empowerment

• High ethics

• Openness

• Teamwork

KEY DATA 2001 2000 1999

Net Sales, MSEK 43 370 39 848 36 693Operating profit, MSEK 3 634 3 674 2 520Profit before taxes, MSEK 3 120 3 002 1 769Additions to tangible assets, MSEK 1 403 1 388 1 230Earnings per share, SEK 19.04 17.23 9.76Dividend per share, SEK 6.00* 5.25 4.00Cash flow after investments, before financing per share, SEK 37.52 25.30 19.49Return on capital employed, % 14.9 16.2 11.2Equity/assets ratio, % 41.1 37.1 33.5Registered number of employees 38 091 40 401 40 637

* Dividend according to the Board’s proposed distribution of surplus.

1

•SKF is the leading global supplier of products, customer solutions and services in therolling bearing and seals business. SKF also has an increasingly important position inthe market for Linear Motion products, as well as high precision bearings, spindles,spindle services for the machine tool industry, electrical actuators and actuation systems.

• The solutions SKF offers its customers vary from high value-added sophisticated sys-tems with integrated electronic components to the right bearing, seal or actuator thatmeets the demands of a specific application. It also includes programmes that willimprove plant efficiency, and, with the help of advanced technology and maintenancemanagement, increase the customer's competitiveness.

• SKF has 79 manufacturing sites distributed all over the world. With its own sales com-panies in 70 countries, some 7 000 authorized distributors and dealers worldwide, itse-business marketplace and global distribution system, SKF is always close to its cus-tomers for the supply of both products and services.

• This truly global network, combined with the accumulated, deep and thorough knowledge of all the different applications and the expertise of SKF’s highly skilledemployees, places the Group in a unique position to supply all its customers with thebest possible solutions.

• From its very beginnings in 1907, SKF focused intensively on quality, technical development and marketing. It soon became the leading manufacturer in the bearingindustry, and has maintained this position ever since.

• The results of the Group’s efforts in the area of research and development have led to agrowing number of innovations that have created new standards and new products inthe bearing world. In 2001, 171 patent applications were filed by SKF.

• In 2001, SKF presented its by-wire technology to the automotive industry, demonstrat-ing its advantages for future generations of vehicles. By-wire engineering eliminatesthe need of hydraulic systems and offers designers cleaner, lighter, simpler and safersolutions. SKF has already been supplying the aircraft industry with this technologyfor almost two decades.

• Through its US-based oil seals company Chicago Rawhide (CR), SKF is a leadingsupplier of elastomeric seals to the North American market. CR has expanded its activities in recent years into Asia and Europe.

• The Group includes specialty steels operations, i e the manufacture and sale of bearingsteel and other high-quality steel grades.

• The Group has a global ISO 14001 environmental certification. The various Divisionsin the SKF Group have been approved for quality certification in accordance witheither ISO 9000 or QS 9000.

2

Business

Achievements

in 2001

In focus

Industrial Division

• Product development and productionof a wide range of bearings andrelated products.

• Development of special products andsystems for selected customer appli-cations.

• Sales to industrial OEM customers. • Operation of business areas for Rail-

ways, Linear Motion, Machine Toolsand Couplings. This includes productdevelopment, production and salesof high-precision bearings, railwaybearings, spindles and a wide rangeof linear products and couplings.

• Acquisition of Gamfior S.p.A. • Orders received for a new generation

of axle boxes for Siemens’ new trainconcept, ”Desiro”.

• The joint venture in Nankou, Chinareinforced its position as China’sleading supplier of taper roller bear-ing units to the Chinese railway OEMindustry.

• The CARB® toroidal bearing becamethe standard solution in the world’scontinuous slab-casting machines forsteel production.

• Sales to the windmill industry contin-ued to grow strongly.

• Roller Bearing Industries Inc receivedthe SECO award from TTX, the lead-ing freight car leasing company inthe USA, for outstanding quality andcustomer service.

• Launch of Engineering Services inEurope and in the USA.

• Higher frequencies and shorter leadtimes in manufacturing.

• Positive development of e-business.

• To continue to grow the business ofcustomized solutions, systems andsmart products integrating electron-ics etc.

• To reinforce the front line by recruit-ment of sales engineers.

• To lower the capital tied up in inven-tories and improve delivery servicesthrough flexible manufacturing.

• To continue the expansion of spindleservices and repair.

• To grow the business for linear actuators.

• To penetrate the market for SKF’srailway monitoring systems.

• To support the growth strategythrough selected acquisitions.

Electrical Division

• Product development and productionof all deep groove ball bearings with-in SKF.

• Sales of bearings and related products to manufacturers of electricmotors, household appliances, electric components for cars, powertools, office machinery and two-wheelers.

• Joint-venture agreement concludedto build a new factory manufacturingdeep groove ball bearings in China.

• Increased penetration of the marketfor two-wheelers in Asia. Sales grewby some 30%, well above the marketgrowth.

• Launch of new standard seals forsmall deep groove ball bearings.

• Implementation of new technologyfor cleaning rings that is environ-mentally compatible.

• To continue sales of sensor-bearingunits for electric vehicles.

• To increase business based on theDivision’s expertise in numerical simulation and advanced vibrationstudies.

• To develop, in partnership with cus-tomers, bearings for very high-speedapplications, mainly intended forhousehold appliances and auto-motive electrical components.

• To further expand the business inAsia.

Automotive Division

• Product development, productionand sales of bearings and relatedproducts to the global car, lighttruck, heavy truck, bus and vehiclecomponent industries.

• Development of kits for the globalvehicle service market.

• Sales to the vehicle service market in Europe, Brazil and India.

• To continue to expand the range ofvehicle service market parts andservices.

• To introduce the car-diagnostic prod-uct for the vehicle service market,built on SKF’s partnership with Infocar of Sweden.

• To develop supply and partnershiprelations for by-wire applications.

• To continue to develop and sellvalue-added products and serviceswhich benefit both customers andSKF.

• To continue the drive for greater flexibility in manufacturing.

• To continue to drive Zero Defect inall business processes.

• The FILO Drive-by-Wire concept car, developed in collaboration withBertone, was presented to the market.

• Increased flexibility in manufacturing,"Resetting at Formula One Speed".

• Introduction of new value-addedproducts such as the wheel hubbearing units HBU6, with integratedbrake disc rotor; HBU1R, a com-bined unit and integrated aluminumknuckle; and HBU ”Air Bearing”, aunit allowing compressed air to flowthrough the bearing to regulate tyrepressure.

• A newly developed car-diagnosticproduct for the vehicle service market.

• New businesses including bearingson Volvo Cars’ new SUV XC90, theJaguar X-Type, Ford Fiesta, Peugeot307 and the Honda Fit.

• SKF is a technical partner of Ferrari –winner of both the F1 world con-structor’s championship and the F1world driver’s championship in 2001.

3

Service Division

• Providing industrial end-users with afull range of bearings and relatedproducts and services through a net-work of authorized distributors.

• Development of knowledge-basedservice solutions to optimize plantasset efficiency through mechanicalservices, predictive and preventivemaintenance, condition monitoring,decision-support systems and performance-based contracts.

• Logistics services for internal andexternal customers.

• Expanded distributor e-commercewith endorsia.com™ andPTplace.com™.

• Formed the SKF Reliability Systemsbusiness unit.

• Signed maintenance service contractswith several major new customers.

• Extended the range of precision laseralignment instruments with SKFBeltAlign and SKF ShaftAlign. Intro-duced SKF System Multipoint, a centralized automatic lubricator.

• Opened a new and larger high-techdistribution centre in Singapore.

• Three new customers were added tothe external logistics services busi-ness.

• Acquired Nåiden Teknik AB, a condition-monitoring company.

• Formed an alliance with Vibro-MeterIndustrial and the Marine Division ofMeggitt PLC to develop new on-lineprotection systems with DYMAC.

• Formed an alliance with Goodyear toprovide value-added service for theindustrial power transmission marketin Brazil.

• To continue supporting distributorsthrough efficient logistics andincreased value-added product andservice solutions.

• To continue developing "smart"products, "smart" integrated sys-tems, mechatronic capability, andwireless technology.

• To launch the next generation ofWindows CE®-based, portable condition-monitoring equipment.

• To expand performance-based main-tenance management competence.

• To acquire additional maintenanceservice companies.

• To expand third-party contracts forlogistics operations.

Seals Division

• Product development, production,and sales of seals and sealing sys-tems for the automotive, industrialand electrical markets. The Divisiondevelops and markets seals for usein bearings both for SKF and exter-nal customers.

• Sales of bearings, seals and relatedproducts to the vehicle service mar-ket in North America.

• Development of a fully-automated,single-step magnetization process inthe production of a magnetic impulsering integrated into cassette seals.

• Introduction of SEALPOOL hydraulicsealing products via the SKF Euro-pean Distribution Centre to completethe sealing range for the aftermarket.

• At the Hanover Fair, SKF introducedmaintenance-free hydraulic cylinderkits combining CARB® toroidal bear-ings, plain bearings, rod ends andbushings.

• Launch of a new computerizedselection method for the optimumbearing and seal arrangement forhydraulic cylinders.

• Selected by Ford to supply wheeland axle seals for use by the Forddealer service departments asreplacements parts on Ford passen-ger cars and light-duty trucks inNorth America.

• Major awards received, e g Auto-motive Industries Magazine ”Questfor Excellence Award”.

• To exploit more synergies betweenbearings and seals for all marketsand to develop application-focusedsolutions by integrating the sealsbusiness within other Divisions.

• To continue to drive Zero Defect inall business processes.

Steel Division

• Product development, production,and sales of special steels and steelcomponents to the bearing industryand to other industries with demand-ing applications.

• Continued strong customer interest inthe cost-efficient and environment-ally-compatible air-hardening steelgrades. A third variant of thesegrades was introduced.

• Improved efficiency and economy inthe steel-making process from a newpower-supply equipment installation.

• The restructuring project in the de-partment for cold-worked tubes wascompleted, resulting in shorter leadtimes and increased productivity.

• Several new contracts were conclud-ed with external customers.

• To ensure SKF’s position as theleader in bearing steel and high-quality steel grades.

• To enlarge the European customerbase.

• To strengthen the sales organizationto give all customers better localservice.

• To increase the number of applica-tion engineers.

• To establish the air-hardening steelgrades with a defined number ofcustomers.

• To increase the share of cut andmachined components.

• To take measures for improved productivity and cost reduction.

Aerospace and other businesses

• Development, production and salesof bearings, seals and componentsfor aircraft engines, gearboxes andairframes.

• Services and repair of bearings forthe aerospace industry.

• Development, production and salesof forgings and rings.

• Five-year contract signed with GEAircraft Engines for the supply ofmain-shaft engine bearings.

• Agreement concluded with RollsRoyce to provide all the bearings forthe lift fan for the Joint Strike Fighterto be built by Lockheed-Martin.

• Contract for engine and gearboxbearing repair with Pratt and Whitneyfor their PW4000 programme.

• Launch of a new generation of com-posite rods for airframe applications.

• To establish new partnerships tostrengthen product and servicedevelopment.

• To remain the technical leader withinaero-engine bearings (polymeric,ceramic, sensors), rods (composite,sensors) and fly-by-wire.

• To strengthen SKF’s position withindifferent geographical areas.

• To increase the service performed atSKF´s service units in the USA and inEurope.

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In spite of the downturn in globaldemand, the SKF Group achieved agood result in 2001. Earnings per

share increased by 10.5% to SEK 19.04.The cash flow was MSEK 4 271,a record high. The operating margindecreased slightly to 8.4%.

The Board of Directors has decided topropose to the Annual General Meetingthat a dividend of SEK 6.00 be paid forthe year. It represents an increase of 14%and reflects the robust performance andsolid financial position of the Group.

Total sales, recorded in local currencies,were fairly flat for the full year. Sales inEurope had good growth at the beginningof last year but decreased in the fourthquarter. In North America, salesdecreased considerably, although in thefourth quarter they were slightly higher,mainly for seasonal reasons. The annualsales in Asia increased and good growthwas noted in the fourth quarter.

The Group’s production levels and thenumber of employees were graduallyreduced during the year to adapt to thelower market demand and to continue thereduction of inventories.

There are signs that a recovery in marketdemand could start already during thecourse of this year. The first quarter,however, is expected to be weak and theproduction volume will be considerablylower than that recorded for the sameperiod last year.

The strategy to reshape the SKF Groupfor long-term profitable growth continuedand major progress was made in a num-ber of areas last year.

The price level was further improvedthrough the strong focus on businesseswith higher customer value and bettermargins.

The work to improve the balance sheetresulted in a major reduction of net bor-rowings, a higher equity/assets ratio andlower cost for the financing of the Group.

SKF’s aftermarket business generatedgood results. The vehicle service busi-ness continued to grow and SKF’s net-work of industrial distributors in Centraland Eastern Europe and Asia was furtherexpanded. The number of long-termmaintenance contracts in the processindustry also increased substantially.

The improvement of SKF’s global logis-tic system and the enhancement of Inter-net trading secured world-class perform-ance in serving customers promptly andefficiently with the maximum of reliability.

Comprehensive efforts were made inbringing new technology and customizedproducts and solutions to the market.Good results were achieved in a numberof application areas in the printing, steel,marine, railway and windmill industries.Important long-term contracts were alsosecured in the automotive and aerospacefield.

The redesigning of SKF’s factories andprocesses for fast and reliable deliveriesof a wide range of high-quality productscontinued. The resetting times for themanufacturing channels were reduced forefficient manufacturing of smaller batch-es with shorter lead times and with lowerinventory levels. The total inventories toannual sales ratio was decreased to 21%at the end of the year, in line with theobjective.

A comprehensive cost reduction and out-sourcing programme was carried out during the year. SKF’s IT activities weretransferred to EDS during the autumn.The use of flexible working hours, short-time work and the reduction of the number of employees contributed to afavourable productivity development.

A number of acquisitions were made inorder to support the growth strategy inselected areas. Adding the Gamfior andMagnetic companies to the business areaSKF Linear Motion and Precision Tech-nologies has created excellent marketpositions in the machine tool spindle andactuator businesses.

The ambition is to make acquisitions thatcan contribute to the growth of profit pershare and add some 2-3% extra sales volume to the Group annually.

As an addition to SKF’s R&D pro-gramme, which aims to improve quality,technical performance and reduce thecosts of its core products, new intelligentproducts and systems with electrical,electronic and software content are beingdeveloped. The engineering capacity inthis field comprises some 300 engineersat present.

The development of drive-by-wire prod-ucts and systems for the next generationof cars and trucks is a good example ofSKF’s new direction. Last year, a conceptcar with SKF’s drive-by-wire technology,developed together with the Italian de-sign company Bertone, was presented tothe market.

Last year, SKF also continued its workon contributing to a sustainable develop-ment in the world. The global ISO 14001certification has been renewed for

5

another three years. New products aimingat reduced energy consumption and newprocesses for cleaner environment werelaunched. The zero-accident programmeresulted in a 35% reduction of the acci-dent rate and 39 manufacturing unitsachieved one year of zero accidents.

The robust performance last year indic-ates that the present target, an operatingmargin of 10% for the Group, is withinreach. It may require somewhat moretime than originally anticipated due tothe prevailing business climate.

Developing the competence of SKF’semployees is a key success factor. Prior-ity is being given to programmes whichfocus on delivering value to customersand also to those which aim to furtherimprove the leadership skills of our managers.

It is also important for the Group to addnew competencies. Consequently, a further reinforcement of the sales andengineering capacity through recruitmentis also being planned.

On behalf of the Board and Group Man-agement, I would like to thank all SKF’semployees most sincerely for their dedi-cated work and strong contribution toanother successful year.

Göteborg, January 29, 2002

Sune Carlsson President and CEO

The SKF Group’s operating profitin 2001 amounted to MSEK3 634 (3 674). Profit before taxes

rose to MSEK 3 120 (3 002). For theyear 2000, a non-recurring profit ofMSEK 100 was included. The Group’snet sales increased by 8.8%, from MSEK39 848 to MSEK 43 370.

The increase in net sales of 8.8% wasattributable to volume -2.0%, price/mix+1.8%, structure +0.5% and currencyeffects +8.5%.

The new Group strategy, introduced in1998, to change SKF by focusing onprofit before volume, reducing assets,exiting non-core businesses and develop-ing the service and the mechatronic busi-nesses, is now creating results. In spite ofthe drop in volume, SKF managed tomaintain its profit and margin at satisfac-tory levels.

The decline in volume was due toweaker market demand. Total sales,recorded in local currencies were fairlyflat for the full year.

The Group’s production levels and thenumber of employees were graduallyreduced during the year to adapt to thelower market demand and to continue thereduction of inventories. During the year,inventories in percent of annual saleswere reduced from 23.2% to 21.0%.

The number of registered employeeswas reduced during the year by 2 310.

SKF continued to prioritize profitabil-ity. Non-profitable businesses were dis-continued and every effort was made toadd to the range of value-added products.Some of the new products launched on themarket during the year were a new seal-bearing unit, a ceramic-coated, self-lubri-cating plain bearing and a new generationof compact taper roller bearing units forrailways. The drive-by-wire system forcars was also presented to the market.

SKF’s efforts to offer its customerssolutions that contribute to improvingtheir profitability are starting to pay off.A large number of new service contracts

were concluded during the year. Themajority of these contracts were withcustomers within the pulp and paperindustry, but customers in the petro-chemicals, mining, food and textiles segments, are now also signing contractswith SKF.

SKF increased its volumes to the Cent-ral and Eastern European markets. This positive development is the result of thedetermined efforts to establish SKF as aleading supplier to these markets.

In Central and Eastern Europe, SKFhas established a network of its own salescompanies and authorized distributorsthat is the most comprehensive in themarket.

Volumes in China continue to growfollowing five years of steadily increasingbusiness for SKF. A decision was takenduring the year to establish a new jointventure in Shanghai for the manufactureof high-quality deep groove ball bear-ings. Production is expected to start inlate 2002.

The Group also continued to grow inthe Linear business area through theacquisition of the Italian company, Gam-fior, a leading European manufacturer ofmachine tool spindles and ball screws.With this acquisition, SKF has positioneditself as one of the leading global suppli-ers of machine tool spindles as well as aservice provider.

SKF has also acquired the MagneticGroup (in January 2002), a Swiss-based,leading manufacturer of electromechani-cal actuators, motors, and complete actu-ation systems. Magnetic’s product range reinforces SKF’s position in the fast- growing market for electromechanicalactuators, and actuation systems.

SKF’s programme to reduce assets con-tinued and the company manufacturingsteel sheet components in Italy was soldto an Italian company. The Group’s inter-nal IT services were outsourced to EDSand some 700 employees were transferredduring the third quarter to EDS.

’

6

Net sales by customer segment 2001

■ Cars 18%

■ Trucks 5%

■ Vehicle replacement 9%

■ General machinery 13%

■ Specialized industry 8%

■ Customized engineering 7%

■ Electrical industry 4%

■ Aerospace 5%

■ Industrial distribution 31%

Net sales by geographical area 2001

■ Western Europe excl Sweden 47%

■ Sweden 4%

■ Central and Eastern Europe 3%

■ North America 26%

■ Latin America 5%

■ Asia 13%

■ Middle East and Africa 2%

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To further broaden and strengthen thee-business marketplace endorsia.com™,SKF signed an agreement with Sandvik,Rockwell Automation, INA and Timkenby which these companies share the own-ership and use of the e-business market-place. The five companies are equal own-ers of Endorsia.com International AB.

The same companies, except for Sand-vik, set up a new company for the NorthAmerican market. It is called CoLinx andoperates the portal PTplace.com™ forthe industrial aftermarket.

SKF Logistics Services opened its newAsian distribution centre in Singapore atthe beginning of the year.

The Group’s financial net was MSEK-514 (-672). Earnings per share amount-ed to SEK 19.04 (17.23). The Group’sequity/assets ratio improved further dur-ing the year to 41.1% from 37.1% atyear-end 2000. During the year, MSEK 1 563 of the interest-bearing loans were

amortized. At year-end, the Group’sinterest-bearing loans totalled MSEK 3 541 (4 968) while pension liabilitiesamounted to MSEK 7 044 (6 746). Atyear-end, the Group had financial assetsof MSEK 6 797 (4 557), including short-term financial assets of MSEK 5 387 (3 481).

SKF’s capital expenditure in tangibleassets amounted to MSEK 1 403 (1 388).Depreciation according to plan wasMSEK 1 714 (1 572).

Of the Group’s total capital expendi-ture, MSEK 43 (47) were attributable toenvironmental investments, the aim of

which is to improve SKF’s environmentboth internally and externally.

Expenditure in research and develop-ment amounted to MSEK 871 (710), corresponding to 2.0% (1.8) of annualsales. Development expenditure for ITsolutions and customized designs is notincluded. The number of first-time patentapplications in 2001 was 171. The num-ber in 2000 was 144.

Geographical distribution of net sales, average number of

employees and tangible assets (percent)

26

1422

5 5 3 36 3 2 2 0

13 13 9

51

6063

■ Net sales ■ Average number of employees ■ Tangible assets

AsiaMiddle East and Africa

Central and Eastern Europe

Western EuropeLatin AmericaNorth America

A new solution for a seal/bearingunit for personal water craft hascontributed to a new generationof environmentally friendly high-performance engines for the SKFcustomer Bombardier-ROTAX inAustria.

ENVIRONMENT

SKF’s performance in the fields of en-vironmental care and sustainable devel-opment were recognized in 2001 by theGroup’s inclusion in the FTSE 4 Goodethical investment index, and by approvalfor the second year running by the DowJones Sustainability Group Index.

More units gain ISO 14001

SKF has a multi-site certificate to ISO14001, the international standard forenvironmental management. This certifi-cate covers the Group’s manufacturing,logistics and technical facilities. Six unitsrecently acquired by SKF were approvedto ISO 14001 in 2001, including the newSKF distribution centre in Singapore.The Group environmental certificate nowincludes 76 companies in 21 countries,and demonstrates SKF’s ambition towork to the highest standards in all thecountries in which it operates.

Towards zero accidents

SKF introduced a new health and safetyinitiative, ”Zero Accidents”, in 2000,which completed its first full year ofimplementation in 2001. The initiative isfocused on the attainment of zero work-related (recordable) injuries at all units,rather than the setting of annual targetsfor reduced injury levels.

A total of 39 SKF units completed atleast one year with zero accidents in2001. Employees in these units worked atotal of 3.6 million hours during 2000-2001 without any reported injury.

Environmental permits

The SKF Group has environmental per-mits and consents for all operations inevery country in which it has manufac-turing facilities. This includes the opera-tions at five units in Sweden, comprisingSKF Sverige AB and Ovako Steel ABand subsidiaries. The permits cover

SKF’s production of bearings, steel androlled bars.

The environmental impact of theGroup’s operations is mainly in the areasof waste disposal, emissions to air andwater, and noise. All impacts are con-trolled to ensure strict compliance withnational and local regulations.

SKF Environmental Report 2001

The Environmental Report, which is distributed with the Annual Report, is acomprehensive description of the Group’sactivities related to environmental man-agement, health and safety, and sustain-able development. SKF has adopted theSustainability Reporting Guidelines pub-lished by the Global Reporting Initiative(GRI) for its annual environmentalreport. The 2001 report complies closelywith the guidance on reporting of environmental, health and safety para-meters.

B o a r d o f D i r e c t o r s ’ r e p o r t

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SKF Österreich at Steyr, Austria uses virtualreality simulators to train their fork-lift drivers.Trainees can learn to respond correctly to dan-gerous situations, without endangering them-selves or their fellow workers while they learn.

9

B o a r d o f D i r e c t o r s ’ r e p o r t

BOARD OF DIRECTORS

Activities of the Board of Directors of AB

SKF in 2001

The Annual General Meeting of AB SKF,held in the spring of 2001, elected eightBoard members. In addition hereto twomembers and two deputy members havebeen appointed by the employees.

The Board held seven meetings in2001. The Board adopted written rules ofprocedure for its internal work. Theserules prescribe i a

• the number of Board meetings andwhen they are to be held,

• the items normally included in theBoard agenda,

• the presentation to the Board ofreports from the external auditors.

The Board also issued written instruc-tions as to

• when and how information requiredfor the Board’s assessment of theCompany’s and the Group’s financialposition shall be collected andreported to the Board,

• the allocation of the tasks betweenthe Board and the President,

• the order in which the deputy Presi-dents shall act in the President’sabsence.

The Board has established a Remuner-ation Committee.

Issues dealt with by the Board duringthe year include i a acquisitions anddivestments of companies and the stra-tegic direction of the SKF Group.

Nomination of Board members

The following applied regarding thenomination process of the Board mem-bers who will be proposed by a group ofmajor shareholders for election at theAnnual General Meeting in 2002.

In November/December 2001, theChairman made an assessment of thework of the Board and its members dur-ing the year. He then met with represen-tatives of the Knut and Alice WallenbergFoundation and the Marianne and Mar-cus Wallenberg Foundation (together the”Foundations”) and presented his assess-ment of the need of special Board com-petence and compared such needs withavailable resources in the Board. Thenext step in the nomination process wasthat the Foundations conferred with agroup of major shareholders includingAlecta pensionsförsäkring, ömsesidigt, inthis question.

SKF supplies tailor-made solutions to ABB’s Compact Azipod® units that include thrust bearings, complete with housing on the thrust end. SKF also supplies the bearing on the propeller end of the shaft. On the larger podded propulsion units, SKF’s CARB® toroidal bearings have become the standard.

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The quality of SKF’s products and services is highly esteemed.

Below is a list of some of the awards received by the Group in 2001.

Quest for Excellence Award

Automotive Industries Magazine, USA

Excellent Supplier Performance

BMW Munich, Germany

Supplier Award

Bosch, Germany

”Camillo” Award

Cecauto, Italy

Approved Supplier - 2001

Dana Spicer Axle Division, USA

Preferred Supplier Award for 2001

Dana Spicer Driveshaft Division, USA

Contribution to the victory in 2001

Superbike World Championship

Ducati Corse, Italy

Quality and Service Award 2000

Ducati Motor Holding, Italy

Good Supplier Performance - 2001

Ejes Tractivos, Mexico

Export - Ar Award

Export.Ar Foundation, Argentina

Q1 Quality Award Renewal 2001

Ford Engine, USA

Certificate of Merit, Best Supplier

Ford Engine Plant Cologne, Germany

Supplier Quality Award - 2001

Ford Essex Engine Plant, USA

Q1 Quality Award

Ford, Mexico

Frost & Sullivan 2001 Market Engineering

Awards in X-by-wire Technologies

Frost & Sullivan, USA

Best Banner 2000

German Industrial Press Association,Germany

Recognition Certificate 100% On-time 2001

GM Service Parts Operations, USA

Partner Award

Iskra Avroelektrika d.d., Slovenia

Top Supplier Performance Award

ITT/Goulds Pumps, Industrial Pump Group, Seneca Falls Operation, USA


John Deere, Mexico

Supplier of the Year

John Deere, USA

’JIT - DELIVERIES’

Lucas-TVS Limited, India

Top Five - the best industrial bearing brand in

Brazil

Lund Group, Brazil

The Supplier of the Year 2000

Magneton, Czech Republic

Mazda Zero Defect Award – Recognition of

Outstanding Quality Performance

Mazda, Japan

NAPA Excellence Award for Outstanding 95+

Delivery Performance

NAPA, USA

Approved Supplier

NASA Space Shuttle Program, USA

Outstanding Supplier Award

National Machine, USA

Autop of Mind 2001 - the best automotive

bearing brand in Brazil

Novo Meio, Brazil

Product of the Year 2000 - Silver Award

Plant Engineering Magazine, USA

The Clean Industry Award

PROFEPA (the Federal Attorney forEnvironmental Protection), Mexico

Certified Supplier Status - 2001

Rolls Royce Allison, USA

Bearing Supplier of the Year Award

Siemens Automotive AG, Germany

Approved Supplier List

Stewart & Stevenson Tactical VehicleSystems, USA

Gold performance as call center in Brazil -

CRM Grand Prix 2001

Teleperformance Group, France

Certificate of Achievement

in Import Quality Performance

Toyota, Japan

SECO Award

Trailer Train Company (TTX), USA


Tremec, Mexico

Certified Supplier - 2001

Tuthill Pneumatics, USA

100% Supplier Quality Rating

Whirlpool of India Ltd., India

Preferred Supplier

Whirlpool of India Ltd., India

11

The world bearing market

By tradition, the size of the world bear-ing market has been defined by the globalsales of bearings. Measured as such, SKFestimates the market to be worth someSEK 200 billion per year.

The West European market has some-what less than 30% and the North Ameri-can slightly more than 30% of the mar-ket. The third largest market is Japanwith somewhat less than 20% of the mar-ket. Other markets that have a sizeablelocal production of bearings are Brazil,China, India and Russia.

SKF is today the world-leading bear-ing company and the largest supplier tothe markets in Europe, Latin America,Africa and the Middle East. SKF also

leads in Asia (excluding Japan). Theother major international bearing com-panies are INA (including the recentlyacquired FAG) in Europe, Timken andTorrington (which is part of IngersollRand) in the USA, and NSK, NTN andKoyo in Japan.

The bearing business is to a largedegree regional. Most of what is sold inEurope is manufactured in Europe, andmost of what is sold in North America isalso manufactured within that region.The same applies to the business inJapan. This means that SKF’s main competitors vary between the differentregions.

SKF is now making inroads into theservice market and introducing new

concepts to the bearing world. It is notpossible at the moment to determine theexact size of this growing bearing servicemarket, or its boundaries. Companies aretoday focusing more and more on theircore business, and the outsourcing ofmaintenance activities to specialists is agrowing trend in many industries. SKF’ssales of services grew rapidly in 2001.

At the same time, SKF is supplyingthe world market with increasinglysophisticated products, many in whichelectronics are integrated into themechanical components.

Consequently, the SKF Group’s saleswill increasingly reflect the value that isadded and the service offering.

At W.H. Malcolm’s site, Glasgow, Scotland, an SKF Copperhead periodic condition monitoring sys-tem has been in use on a Powerscreen Chieftain 1800 mobile vibration screen since early 2001.

The SKF Copperhead system solution is installed worldwide on vibrating screens and crushersin the mining and mineral processing industries. The system - which is a unique combination ofExplorer bearings and/or CARB®toroidal bearings, and a fault-detection system - eliminatesunplanned downtime, reduces maintenance costs, and extends machine performance.

12

-

To successfully create value forcustomers, demands a deepunderstanding of what cus-

tomers specifically require and needwith regard to products and services.Original equipment manufacturers valuehow SKF’s knowledge can make theirproducts more competitive. For end-users, the aim is to ensure the maximumutilization of their assets in order toincrease their productivity and profit-ability. In the aftermarket, the key factoris to know what kind of products thecustomer needs, and to have these prod-ucts readily available.

The common denominator is know-ledge. Learning and the development ofcompetence is a never-ending processand SKF’s competitive advantage isdirectly linked to the know-how accu-mulated in the Group over decades.

SKF is continuously investing in pro-moting the competence of its employees

SKF’s leadership in the bearing business and the very strong position of its brand in the

bearing world are due to its competence in providing products and services that create

value for the customer.

Anticipating automotive customers’ demands drives SKF engineers to seek new value-added solu-tions, like the wheel hub bearing unit HBU6, shown here. This new and unique bearing design com-bines the weight advantage of a flanged bearing unit with an improved interface to brake disc rotors.

in order to ensure sustainable develop-ment for the company.

Some new, innovative and value-added products and services are present-ed in the text of the different Divisionsand some are described in the following:

SKF SensorMount system

Large SKF spherical roller bearings andCARB® toroidal bearings with taperedbore can now be delivered with an intel-ligent sensor that knows precisely howmuch the internal clearance has beenreduced. The newly patented methodhelps to ensure correct mounting, thusavoiding damage to the shaft/bearinghousing or reduced bearing service lifecaused by mounting errors. Since themounting can be done very simply, thetime for mounting can be reduced andthe bearing function guaranteed.

The information from the integralsensor - factory-fitted to the bearing - isprocessed in a hand-held SKF Sensor-Mount indicator that displays the actualvalue of the interference fit. The maincustomer groups benefiting from theSKF SensorMount system can be foundin the heavy process industries such asthe paper industry, mining and mineralprocessing.

ON0FF

CLR MAX

0,450

TMEM 1500SensorMount Indicator

SKF SensorMount system helps to ensurecorrect mounting of bearings.

13

Condition-monitoring software

The next generation of condition-moni-toring software, called the SKF MachineAnalyst - a support for reliability tech-nology - was released in 2001. The SKFMachine Analyst is the core componentin a suite of complementary softwareapplications with extensive customizedfeatures that give users complete controlover condition-monitoring data, as wellas analysis and reporting.

SKF Machine Analyst is built uponMicrosoft’s® platform (Windows 2000and NT 4.0), and takes full advantage ofthe MS Windows® functionality and features. It can easily and effectively beintegrated with third party plug-ins.

SKF Machine Analyst also offers anumber of time saving features. TheScheduler allows a user to automaticallyschedule key operations. An Alarm Wiz-ard automatically calculates, with mini-mal effort, a reliable set of alarm criteriatailored to specific machinery. Anadvanced report generation function pro-vides Internet ready, HTML output filesfor easy and effective communicationand decision-making throughout theplant.

Decision-support system for selecting

bearing lubricants

Selecting the correct lubricant for anapplication is critical to obtaining thelife expectancy of bearings in operationin the field. SKF’s customers and thecompany’s own application engineersneed fast reference systems that remainupdated in order to continually make thecorrect selection for the many thousandsof applications where SKF’s products areused.

SKF has developed a new method forselecting the correct greases. LubeSelectis an expert system that combines SKF’sdeep understanding of greases and theirlubrication mechanisms.

The SKF Speed Tracker

SKF’s products for in-line skates havebeen developed to include a sensorisedbearing that is combined with a com-plete wireless radio transmission systemplus an electronic wrist-worn display.The system, called the SKF SpeedTracker, gives the skater details of thespeed, the distance covered and the skat-ing time, and also provides a stopwatchand a training programme with targetzones.

New hybrid bearings

A significant breakthrough made by SKFAeroengine, through its partnershipswith key customers, was the develop-ment of a process to manufacture ceram-ic (silicon nitride) rollers in productionquantities. These hybrid roller bearingswith their combination of ceramicrolling elements in traditional bearingconfigurations offer many advantagesand are expected to constitute a signific-ant proportion of SKF Aeroengine’sfuture products.

New knowledge about bearing fatigue

Fatigue phenomena of engineering mate-rials often limit the performance of high-ly loaded bearings made of hardened

bearing steel. A new approach in under-standing the fatigue mechanism, theThermo-Mechanical Response (TMR)technology, has been developed at SKF.TMR is based on a fundamental metal-

The LubeSelect system can be accessed bySKF's application engineers via the SKFIntranet 24 hours a day.

The SKF Speed Tracker provides the inlineskater with information of speed, distance andskating time.

SKF Aeroengine has developed a process to manufacture ceramic rollers in industrial quantities.

14

S K F - t h e k n o w l e d g e e n g i n e e r i n g c o m p a n y

lurgical view of the response of the mate-rial to the operating conditions where, inaddition to the bearing load, the operat-ing temperature, in particular, plays animportant role in the fatigue process.

One application of TMR is in the‘Remaining Life’ model for bearings. Bymonitoring the micro structural changes,using X-ray diffraction, the remaininglife of the bearing can be determined.This approach leads to improved recom-mendations, either for the bearing steeland heat treatment combination or for theapplication conditions of the bearing.

New materials to meet new challenges

Aerospace bearings, used in criticalapplications and often hostile environ-ments, are required to operate at highspeeds and at elevated temperatures forprolonged periods of time. As applica-tions have become more demanding, sohave aeroengine bearing designs andcomponent materials. Research by SKFAeroengine has led to a whole new gen-eration of high-performance bearings,

Pictured is the Pratt & Whitney PW4000 112-inch fan engine, used in the Boeing 777 commercialtransport. The SKF company, MRC Bearings manufactures all five of the main engine bearings,which take thrust loads of up to 500 kN in this critical application.

Ball Bearing

Roller Bearing

Roller Bearing

Roller Bearing

To meet the specific requirements of customers, customer groups or specific applications,

SKF is developing customized solutions for a special product or service. Some examples follow below.

Ball Bearing

Wind energy is a fast-growing and interesting industry for SKF. Market growth is reaching morethan 20% per year, and SKF’s sales to this industry doubled in 2001. The picture shows a numberof wind turbines from Vestas at Vancycle Ridge, Oregon, USA.

coatings, seals and lubricants. Today,researchers at MRC Bearings and SKFAvio are studying the key attributes ofpotential steel alloys for aero-enginebearing applications and their mechani-cal/physical properties, including hothardness, fracture toughness, corrosion

and wear resistance, structural fatiguestrength and rolling contact fatigue life.Research and engineering resources arecommitted to meeting the challenges ofthe aerospace industry today, and toanticipating customer needs well into thefuture.

Wind energy

SKF has cooperated closely with leadingwind turbine manufacturers for severalyears, and supplies a great number ofbearings such as main bearings, bearingsfor the transmissions, generators andblade pitch systems. SKF also supplieshydraulic coupling systems, lubricantsand other items. Specially developedtools, the SKF proprietary computer pro-grams BEAST and Orpheus, for example,are used for improving the design of thewind turbine’s complex dynamic system.

During the year, SKF signed multiple-year contracts with two of the world’slargest manufacturers of wind turbines,the Vestas Group in Denmark andGamesa Eolica in Spain.

15


Condition monitoring of NASA Crawler

To move the 8.6-million kilogram NASA Space Shuttle from its 160-metrehigh Vehicle Assembly Building to thelaunch pad four kilometers away at CapeKennedy requires the power of an enormous vehicle, the NASA Crawler.

In 2001, SKF designed and installed,on a demand from NASA, an on-linecondition monitoring system for thecrawler. The system included eight SKFLocal Monitoring Units, 220 accelero-meters and the PRISM4 monitoring soft-ware along with systems engineering,installation supervision and system commissioning.

The NASA contract exemplifies SKF’sexpansion beyond its traditional bearingbusiness and resulted in SKF beingawarded ”Approved Supplier” by theNASA Space Shuttle program.

NASA has chosen an on-line SKF monitoringsystem for its huge Crawler.

16


Deepwater piping

A new pipe-laying vessel from Technip-Coflexip, the CSO Deep Blue, is extend-ing the limits of what is possible in deep-water pipelaying. It has the capacity tolay more pipes deeper than any previousvessel from a pair of huge reels. Thedesign of the reels enables pipes to be welded onshore and then continuouslylaid at sea in lengths of up to 12.5 kilo-metres of 400-millimetre pipes or 333kilometres of 60-millimetre pipes. Thebearings and their housing had to bedesigned to allow the rotation of thereels in seas with up to a four-metre sig-nificant wave height, and to withstandextreme static survival load conditions.

SKF’s solution consisted of one spher-ical roller bearing weighing 5.5 tonnesand another 9.5 tonnes – the heaviestspherical roller bearing ever made bySKF. The housings, the largest ever builtby SKF, consisted of one pair, eachweighing 34 tonnes, and another pair,each weighing 26 tonnes. Special greasewas developed to lubricate the bearings.

Kenneth Berkenäs is reading the test resultsfrom the rod seal test equipment at Sealpool'slaboratory in Landskrona, Sweden.

Total system approach - hydraulic

cylinders

The acquisition of Sealpool AB enabledSKF to add an important complement toits Chicago Rawhide range of sealingproducts. The Sealpool hydraulic sealingproducts, with over 2 800 part numbers,were made available through the SKFEuropean Distribution Centre in June2001. During the Hanover Fair, SKFintroduced maintenance-free hydraulic

cylinders based on the systems-solutionapproach combining CARB® toroidalbearings, plain bearings, rod ends andbushings together with Sealpool sealingproducts. This launch has featured acomputerized selection and applicationtool for selecting the optimum bearingand seal arrangement for hydrauliccylinders, and is just one example of the synergies available through moreintegrated bearing and sealing solutions.

The CSO Deep Blue from Technip-Coflexip is equipped with the heaviest bearings and bearinghousings ever built by SKF. The two spherical roller bearings and the four housings have acombined weight of over 130 tonnes.

17


Extending the limits of the possible with

NoWear™

Today’s high-speed newsprint papermachines feed out paper at a speed of1.5 km per minute, or more. The fasterthe rolls of a paper machine turn, thehigher the output. With SKF’sNoWear™ solution, machine speed,paper output and productivity haveincreased significantly.

NoWear™ bearings contain a low-friction ceramic coating to prevent

failure. Stora Enso’s German Maxau high-speed newsprint mill has used NoWear™ bearings in the calender/finishing section for some years withincreased productivity as the very suc-cessful result. The year 2001 is consid-ered by SKF as a customer breakthroughyear and orders have been received frommills all around the world.

Continuous running with NoWear™ in the cal-ender section at Stora Enso Maxau. KarlheinzSinn, maintenance manager Stora EnsoMaxau, is discussing the importance of a highutilization rate with Thomas Metz, SKF distrib-utor, and Udo Schubert, application engineer.

Victoria Wikström, product manager NoWear™and Rickard Gåhlin, Balzers Sandvik Coating,in discussion over a new bearing range. Thepartnership between SKF and Balzers SandvikCoating AB has been successful in the market-place.

The SKF Group established a new Manufacturing Development Centre(MDC) in Göteborg, Sweden in 2001.The MDC is designed to be a modernworkplace for the future which offers achallenging working environment, andwhich stimulates creativity and interdisci-plinary teamwork. It is divided up into anoffice area and a laboratory where newand rebuilt machines will be evaluated

and tested. This new centre is today homefor some 55 researchers. High-perform-ance machines and equipment have beentransferred from Italy, Austria, the Net-herlands and Sweden. The new centrewill focus on the development of newadvanced technologies. These will thenbe the base for creating new efficient processes enabling SKF to develop andmanufacture products in response to

tomorrow’s market demands. The R&Dincludes the 7entire manufacturing process from the raw material to an as-sembled and packed bearing. Simulationtechnology will be deployed to facilitatea quick reply to customers’ requests,including the optimisation of customerapplications.

New Group Manufacturing Development Centre

18

External sales in 2001 amountedto MSEK 9 852 (8 727), anincrease of 12.9%. Total sales

(sales to external and internal customers)were MSEK 16 027 (14 544). The oper-ating result was MSEK 1 670 (1 665)with an operating margin of 10.4%(11.4).

Despite the slowdown in sales andlower manufacturing volumes, the operat-ing result remained on a satisfactorylevel, comparable to the level in 2000.

Sales in Europe started the year on ahigh level but declined during theautumn. Sales were low throughout theyear in North America. The business inAsia developed well, especially in China.The joint-venture factory for railwaybearings in Nankou achieved a recordoutput for the second year running.

Excellence in product quality, deliveryservice and attention to customers headedthe Division’s agenda last year. The

numerous ”Excellent Supplier” awardsreceived confirm how well these goalswere achieved.

Improved flexibility in manufacturing,the further reduction of lead times,increased production frequencies plusmore robust manufacturing processesallowed the Division to simultaneouslyreduce the capital tied up in inventoriesand improve its delivery service.

In anticipation of slower sales, a reduc-tion in the capacity was already startedduring the fourth quarter of 2000. Thisearly reaction, in combination with flexibleworking-time contracts, enabled SKF to be well prepared to meet with the reducedmarket demand.

The outsourcing of non-critical activ-ities and indirect services is ongoing witha positive effect on the fixed costs. All thelogistic and transport activities at the fac-tory in Steyr, Austria, for example, havebeen outsourced to an external partner.

The work to build up the competenceto become a solution provider continuedand contributed to the improvements insales and price development. Cross- geographical and cross-functional teamsare being formed to focus on specificcustomers’ segments and/or large cus-tomers.

In 1999, a special Wind Energy groupwas set up, comprising people from manufacturing to sales, and with skillsranging from theoretical calculations tofield-testing. A large number of orderscontributed to a doubled growth withinthis segment. For example, SKF secureda major order from the world's biggestwind turbine producer, the Vestas Groupof Denmark. The two-year agreementcovers deliveries of bearings to Vestas’plants worldwide.

A similar approach has been taken formany other industries. A ConCast team isworking with all manufacturers and users

The Industrial Division is responsible for product development and production of a

wide range of bearings (in particular spherical, cylindrical and angular contact bearings)

and related products, and also for sales to industrial OEM customers. The Division

also operates business areas for Railways, Linear Motion, Machine Tools and Couplings.

In addition, the Division develops special products and systems for selected customer

applications to enhance the competitiveness of SKF’s customers.

Christer GybergPresident, Industrial Division

Hu HuiLi at work in the SKF Nankou factorywhere he and his colleagues achieved a recordhigh output in 2001 - more than 40% abovewhat was previously considered a full-capacitylevel - thanks to more efficient and flexibleworking methods.

This channel in the Steyr factory in Austria isan example of SKF’s ambition to increasemanufacturing flexibility. The result was a 50%reduction in the stock of finished goods,thanks to faster resetting and increased fre-quency, and even better service for customers.

Maurizio Marioni at work at the SKF Massafactory in Italy. In 2001, this Y-bearing channelreceived the SKF Gold award for running withzero defects for three years.

19

of continuous casters in the metal industry.During the year, they managed to establishthe CARB® toroidal bearing as the indus-try standard. The Division today offers awide range of tailored products and solu-tions ranging from separate bearings to”intelligent” roller assemblies includingstate-of-the-art sensors and electronicstechnology.

SKF’s team for the printing industrysecured breakthrough orders from theleading Japanese manufacturers of printing machines. SKF’s position as the main supplier to pod manufacturerswithin the marine world area was furtherreinforced.

The integration of sensors and elec-tronics into the products and systems isaccelerating. The first order was received

from the fork-lift truck industry for by-wire steering modules from Raymond inthe USA, and for sensor bearings fromCrown in the USA.

SKF is today the leading full-rangesupplier to the railway industry. Follow-ing close cooperation between Siemensand SKF, orders for SKF’s axle boxeswere received during the year as well asan order for a complete special axle forlow-floor street cars fitted with bearings,wheels, brakes, couplings, earth-returnsystems, and delivered as a ready-to-mount component.

The French manufacturer of cementequipment, FCB Ciment, chose SKF asits partner for the development of theoptimal bearing arrangements for theirnew, flexible cement grinder, ”Horomill”.

8 11

5

8 72

713 1

90

14 5

44

16 0

279

852

0

500

1 000

1 500

2 000

010099

1 02

9 1 67

0

1 66

5

0

100

200

300

400

500

010099

382

299

429

0

3 000

6 000

9 000

12 000

010099

10 3

30

10 2

46

10 5

55

0

5 000

10 000

15 000

20 000

010099

■ External sales

■ Total sales






■ Cars 1%

■ Trucks 1%

Sales, MSEK* Operating

result, MSEK*

Additions to

tangible

assets, MSEK*

Registered

number of

employees*

External sales by customer segment 2001

Mounting an SKF spherical roller bearing on the main shaft of a wind turbine at the VestasWind Systems A/S, Denmark. SKF is the main supplier of bearings for Vestas wind turbines.The wind energy market grew strongly throughout 2001 and SKF sales doubled the same year.

During the year, the Division laun-ched a new Engineering ConsultancyBusiness Unit, which offers advancedengineering support to customers. In the startup phase, SKF focused on thesegments of industrial gearboxes and thefast growing wind turbine industry.

Linear Motion and Precision Techno-logies enjoyed increased sales to thefood, health care, medical and ergonomicsegments, while sales in the electronics-related segments and the machine toolindustry slowed down. The negative trendwas offset, however, by the developmentof new products and a growing serviceand repair business.

Two new companies were added to thebusiness area Linear Motion and Preci-sion Technologies. The first was GamfiorS.p.A. in Italy, a leading manufacturer ofhigh-precision motorized spindles, andhigh-precision ball screws for machinetools. Magnetic Elektromotoren AG inSwitzerland, was acquired at the begin-ning of 2002. The company develops,manufactures and markets electrical actu-ation products and systems for medical,industrial, health care, ergonomics andbuilding automation applications.

Major new functions were introducedin e-business. US customers can checkavailability, delivery status and the priceof their items via the marketplace,PTplace.comTM. The endorsia.comTM Lin-ear Webshop allows customers to easilyconfigure special products, for example,with automatic order-processing linkeddirectly to the manufacturing units.

*Previously published amounts have been restated to conform to current Group structure.

20


(sales to external and internal customers)were MSEK 11 155 (10 162). The oper-ating result was MSEK 305 (338) withan operating margin of 2.7% (3.3).

The result was on too low a level andwas slightly weaker than for the previousyear due to lower volumes in the truckbusiness.

Sales to the car and light truck indus-try in Europe started to develop positive-ly for the year but weakened as the yearprogressed. In North America, the levelwas lower than last year due to the reduc-tion in production and inventories ofvehicles.

The heavy truck market in Europedeclined. In North America, sales fellsharply for the second year running.

Sales in India, mainly of wheel hubbearing units, increased substantially tothe car segment, in spite of a relativelyflat level of car production in the country.Truck production in India and SKF’ssales to this segment declined during theyear.

Sales in Brazil developed positively inthe first half of the year, but as a result ofthe energy crisis in the summer the mar-ket decreased, and growth in the secondhalf of the year was not as strong.

SKF was very successful in gainingcontracts for the supply of bearings for a

number of important car models such asFord’s new Fiesta and Jaguar’s X-Type. Inthe heavy truck segment, SKF started tosupply new unitized wheel end bearingsin Europe to Scania for the front axle andin North America to Hendrickson for atrailer axle.

SKF supplies the Car of the Year inEurope - the Peugeot 307 - and the Carof the Year in Japan - the Honda Fit - andwill be the major bearing supplier for theVolvo Cars’ SUV XC90, which will gointo production in 2002.

The vehicle service market developedvery positively during the year owing toboth the addition of new and improvedproducts and to an expanded distributornetwork. An agreement with the Swedishsoftware company Infocar was concludedto develop and market a unique dia-gnostic software for repair and servicesfor cars. A cooperation was initiated with

Tenneco, TRW and Valeo to developimproved services for the European mar-ket. The focus is on training, technicalsupport services and logistics, particular-ly in transportation.

The FILO Drive-by-Wire concept car,developed jointly by SKF and the designcompany Bertone, was presented at theGeneva Motor Show. The car is the firstand only car featuring brake-by-wire,steer-by-wire, clutch-by-wire andgearshift-by-wire functions, all of whichwere developed by SKF. The brake-by-wire system was the result of SKF’s part-nership with Brembo, which wasannounced last year. There has been sig-nificant interest in SKF’s patented tech-nology in this area and discussions arebeing held with a number of manufactur-ers. SKF was selected by GM as thedrive-by-wire partner for their new versa-tile fuel cell concept car – Autonomy –

The Automotive Division is responsible for product development, production and

sales of bearings and related products to the global car, light truck, heavy truck,

bus and vehicle component industries and for sales to the vehicle service market in

Europe, Brazil and India. The product range includes wheel hub bearing units, taper

roller bearings, special automotive products and the specific kits for the vehicle

service market.

In the SKF factory in Cajamar, Brazil, produc-tivity increased by 30% in 2001 in the channelproducing taper roller bearings. This was achieved by combining SKF Reliability Systems’ technology and methodology withoperator-managed maintenance.

Fabrizio Sola at work at a new wheel hub bear-ing unit channel in Airasca, Italy. This channelis using new technology that provides fasterresetting and increased productivity.

Tom JohnstonePresident, Automotive Division

21

which was shown at the North AmericanInternational Motor Show in January2002.

During the year, 2000 people attended”The Value Leadership programme”. Theaim of the training is to further developvalue-added solutions for customers.

During the year, SKF launched a num-ber of new value-added wheel hub bear-ing units. The HBU6 is a unique wheelhub bearing design that combines theweight advantage of a flanged hub bear-ing unit with an improved interface to thebrake disc rotor. This hub unit can haveeither a normal steel disc rotor or a car-bon composite rotor. The HBU1R is anew innovative solution, which allows forsignificant weight saving by using a pro-

prietary closing technique to enable theunit to be fitted into a lightweight alu-minum knuckle. SKF also developed anew wheel hub bearing unit, HBU ”AirBearing”, for active tyre-pressure man-agement. It enables air to pass throughthe bearing to the wheel and tyre assem-bly. This new unit is a crucial element inthe development of the new MichelinWabco air-management system.

During the year, SKF and the Timkencompany formed a joint venture in Brazil,named International Component SupplyLtda, to produce forged and turned bear-ing rings. SKF also reached an agree-ment with SNR on the exchange and useof patents for the sealing of wheel hubbearing units.

Flexibility in production was verymuch in focus for SKF during the year.One example was an aggressive pro-gramme called ”Resetting at FormulaOne Speed”. The intention was todramatically reduce set-up times, therebyimproving the response to customerdemands and reducing capital tied up inthe business. One example of flexibilityis the new wheel hub bearing unit line inthe Airasca plant in Italy, where the adop-tion of simple modular equipment notonly enabled the line to produce moredemanding and tighter tolerances for theproduct but also to accommodate a number of different products on the samechannel.

The use of e-business was also infocus during the year, particularly in theaftermarket where the websitewww.vsm.skf.com was further developed,allowing customers to identify productsquickly and easily from a vehicle makeand model, and to find an authorizedSKF dealer of these products.

8 55

2

8 93

2

9 62

7

10 1

62

11 1

559

719

0

100

200

300

400

010099

172

30533

8

0

100

200

300

400

500

010099

329 42

6

379

0

2 000

4 000

6 000

8 000

010099

7 84

3

7 39

4

7 86

0

0

5 000

10 000

15 000

010099

■ External sales

■ Total sales

■ Cars 61%

■ Trucks 18%





result, MSEK*

Additions to

tangible

assets, MSEK*

Registered

number of

employees*


The SKF-Bertone FILO concept car is the first vehicle demonstrating thefreedom offered by drive-by-wire technology in the interior design. Steer-ing, brake, clutch and gearshift are all by-wire developments by SKF.Brake-by-wire has been developed in partnership with Brembo.


22


(sales to external and internal customers)were MSEK 6 246 (6 268). The operatingresult was MSEK 372 (504) with anoperating margin of 6.0% (8.0).

Substantial falls in volume in Europeand the USA had a negative impact onthe Division’s results.

In Europe, sales were affected by theweakening of the economy and the two-wheeler segment suffered most. Saleswere more stable in the electrical seg-ment, owing to new businesses.

Sales in Asia increased strongly in2001 thanks to the introduction ofadvanced technical solutions. The training of customers and the offering of advanced calculation and simulationsoftware played an important role in thegrowing business in this market.

A joint-venture agreement was con-cluded with Shanghai Bearing (Group)Co. Ltd. to build a deep groove ball bearing factory in Shanghai to serve thefast-growing Chinese market with high-quality products.

One of the products introduced in2001 was a new standard range of smalldeep groove ball bearings. It has seals of

a new design that allow for better dustexclusion, grease retention and low friction, advantages that will benefit theenvironment and reduce energy con-sumption. In addition, a new bearingsolution, mainly for automotive, electri-cal and household-appliance applications,has been developed to cope with extremeconditions as regards speed and tempera-ture.

Sales of sensor-bearing units for elec-tric motor control, forklift steering, etc.,developed well. The business in Europeis expanding rapidly, and the Divisionalso gained an order from India for bear-ings for electric vehicle applications.

The Electrical Division is responsible for the product development and the production of

all deep groove ball bearings within SKF, as well as for sales to manufacturers of electric

motors, household appliances, electrical components for cars, power tools, office

machinery and two-wheelers. Of the Division’s total sales, 75% are made through other

Divisions.

This deep groove ball bearing channel in the Cassino factory in Italyimproved its productivity substantially during 2001, achieving a recordlevel of 2 800 bearings per hour.

Working closely with the customer Vorwerk in Germany, SKF developed a special type of high-speed ball bearing in 2001 for Vorwerk’s Kobold vacuumcleaner. The picture shows an assembly line at Vorwerk.

Giuseppe DonatoPresident, Electrical Division

23

1 47

5

1 57

5

6 06

6

6 26

8

6 24

61

726

0

200

400

600

010099

246 37

2

504

0

100

200

300

010099

203 221

193

0

2 000

4 000

6 000

8 000

010099

6 44

9

5 66

7

6 00

2

0

2 000

4 000

6 000

8 000

010099

■ External sales

■ Total sales


■ Two-wheelers 22%



■ Cars 2%



result, MSEK*

Additions to

tangible

assets, MSEK*

Registered

number of

employees*


During the year, SKF implemented anew, environmentally-compatible clean-ing technology for bearing rings. Thismeans less pollution in the factories,which is of benefit for both working conditions and the global environment.

SKF sold its Italian-based productionof sheet-metal components such as cagesand shields to an Italian company specializing in sheet-metal pressing.

SKF is a technical partner for the two-wheeler racing teams of Ducati, Aprilia,Betamotor and Caltex Yamaha Indonesia.SKF engineers are working side by sidewith the racing teams’ technicians todevelop advanced solutions for increasedperformance and weight reduction.

As a technical partner for several two-wheeler racing teams, SKF is developing special technicalsolutions contributing to the success of the motorbikes.


24


(sales to external and internal customers)were MSEK 15 497 (14 034). The oper-ating result was MSEK 1 291 (1 013)with an operating margin of 8.3% (7.2).

Efficient logistics, cost-effective opera-tions, and revenues from acquired com-panies, together with price increases andthe currency effect, contributed to animproved result.

Sales were strong in Western Europeduring the first half of the year, but thenweakened in the second half. In NorthAmerica, sales remained weak, buttowards the end of the year sales werehigher, mainly for seasonal reasons. Cen-

tral and Eastern Europe grew stronglywhilst the Middle East and Africa wereweaker than 2000. In Asia, there wasagain some solid growth, particularly inChina and South East Asia, whereasLatin America sales remained on the2000 level, but with demand weakeningduring the year.

Industrial Distribution

The core of the Division’s sales is com-posed of the business done primarilythrough its global network of authorizeddistributors and dealers. This highly efficient supply chain handles the dailyneeds of end-user customers requiringbearings and other products for mainten-ance and repair operations (MRO).

Greater efficiency in the supply chainwas achieved during the year through theexpanded use of endorsia.com™ andPTplace.com™ web-based marketplaces.These all-in-one service networks featurebranded industrial goods and endorsedmanufacturer know-how. Users can accessprice and availability, check order status,gain product knowledge, and place orders.

Order lines at the rate of approximate-ly one million per year are placedthrough endorsia.com™ andPTplace.com™. E-business in 2001 hasgrown tenfold since 2000. The globalimplementation continues and some 650distributor companies in 44 countries arenow registered.

Logistics Services

SKF Logistics Services operates a globaltime-phased delivery network, which provides excellent delivery servicearound the world. This is utilized by bothinternal SKF operations and a growingnumber of external customers.

SKF enhanced its global network inAsia with the move into a new and largerhigh-tech distribution centre in Singa-pore. A fully integrated tracking and tracing capability was also added to thenetwork during the year, enabling cus-tomers to keep track of their goods up tofinal delivery.

SKF Logistics Services gained threenew external customers in 2001. JohnsonPump contracted SKF to handle deliver-ies in Europe and its overseas cargos andairfreight activities. AvestaPolarit Weld-ing also turned to SKF Logistic Servicesto manage the company’s central stockkeeping and goods flow in Europe. ForJungheinrich, SKF set up and is runningtheir new Asia Pacific Parts Centre inSingapore.

Reliability Systems

During the year, the Service Divisionorganized its maintenance service opera-tions to form a new business unit called”SKF Reliability Systems”. The new unitincludes SKF Condition Monitoring,Dymac, SKF Decision Support Systems,and the SKF Industrial Service Centresaround the world. Also included are SKF’s

The Service Division is responsible for sales to the industrial aftermarket via a network of

some 7 000 authorized distributors and dealers. The Division also supports industrial

customers with knowledge-based service solutions to optimize plant asset efficiency

through its SKF Reliability Systems business unit which offers mechanical services,

predictive and preventive maintenance, condition monitoring, decision-support systems

and performance-based contracts. SKF Logistics Services, which is part of the Division,

deals with logistics and distribution both for the SKF Group and external customers.

Phil KnightsPresident, Service Division

Located in Havlickuv Brod and Brno in theCzech Repulic, the distributor Mateza utilizesendorsia.com™ e-commerce to manage its SKFbusiness activities. Besides supplying the com-plete range of SKF and CR products, it alsoprovides complementary products such as beltsand chains to meet customer needs.

recent acquisitions in the reliability andmaintenance field: Development Engineer-ing International, Diagnostic Instruments,Machine Support and Nåiden Teknik.

In order to provide a comprehensiveplant asset efficiency programme, theseservices are now organized into four sections:

• Electronics - hardware and software forcondition monitoring and machineryprotection systems.

• Technologies - new ventures, includingknowledge-based decision support sys-tems.

• Mechanical - supportive maintenanceengineering services including re-engineering projects, bearing mountingand repair.

• Reliability Services - reliability consul-tancy and on-site reliability services.

The total sales of SKF Reliability Sys-tems increased by approximately 40% onthe 2000 figure as a result of an increas-ing base of maintenance service agree-ments and performance-based contracts.Sappi Gratkorn, Kappa SSK, ASSI Frövi,Sonoco Hong Wen Paper Co. Ltd., Buck-eye Paper and the Shell Malampaya Off-shore/Onshore project were just a few ofthe new companies utilizing many of theunit’s resources in 2001.

The Service Division increased thescope of its technology and strengthenedits position in the Reliability Systems business in 2001 with the acquisition of Nåiden Teknik AB. This condition-monitoring company, which is a marketleader in Sweden, develops and marketscustomer-specific condition-monitoringhardware and software for applications

in hydropower, steam and gas turbines,marine and railway applications.

The DYMAC on-line protection sys-tems, part of SKF’s condition-monitoring products, has been teamed up with Vibro-Meter Industrial and the Marine Divisionof Meggitt PLC to produce a comprehen-sive range of machinery managementsolutions and services for industriesemploying critical applications.

SKF and Goodyear formed an allianceto provide value-added service for theindustrial power transmission market inBrazil. The agreement covers joint activities in products and services, sales,training, logistics and marketing.

25

11 3

80

12 8

44

12 3

41

14 0

34

15 4

9713

920

0

500

1 000

1 500

010099

848

1 29

1

1 01

3

0

20

40

60

010099

35

58

38

0

1 000

2 000

3 000

4 000

5 000

010099

4 18

9

4 43

7

4 50

7

0

5 000

10 000

15 000

20 000

010099

■ External sales

■ Total sales






■ Cars 2%



result, MSEK*

Additions to

tangible

assets, MSEK*

Registered

number of

employees*


SKF has developed special trucks that have been equipped to offertraining in bearing maintenance. In Europe, these trucks travelledapproximately 250 000 km and visited approximately 14 000 cus-tomers in 2001. SKF crews demonstrated various maintenance

methods in bearing mounting and dismounting, machine alignment,lubrication and vibration monitoring. SKF offers the customers allthe tools required to carry out proper maintenance.


26

The Seals Division is responsible for product development, production and sales of seals

and sealing solutions for bearing arrangements and automotive and industrial applications.

The Division is also responsible for sales of bearings, seals and related products to the

vehicle service market in North America. Of the Division’s sales, 70% are in the North

American market. Automotive customers account for approximately the same percentage

of sales.

Tom JohnstonePresident, Seals Division

This concept for mobile hydraulic cylinders waslaunched in 2001. The unit has been developedwith the help of the new computerized system.

SKF has equipped the steering cylinder of the Volvo dump truck A25D with CARB® toroidalbearings and specially developed hydraulic seals to reduce maintenance operations.

The Seals Division’s aerospace busi-ness was transferred to the Aerospaceand other businesses unit at the begin-ning of 2001.

Over 700 people were trained duringthe year in ”The Value Leadership pro-gramme”, in order to further developvalue-added solutions for SKF’s cus-tomers.

In the strategy to restore the Division'sprofitability, the development of new andvalue-added products is a key compo-nent.

In the industrial seals area, CARB®

developed a system-solution approachduring the year. This combines CARB®

toroidal bearings, plain bearings, rodends and bushings together with SKF’shydraulic seals for off-highway equip-ment. This launch also featured a newcomputerized selection method for theoptimum bearing and seal arrangementfor hydraulic cylinders. It shows the

External sales in 2001 amounted toMSEK 4 068 (3 990), an increaseof 2.0%. Total sales (sales to

external and internal customers) wereMSEK 4 732 (4 618). The Division’soperating result was MSEK 57 (114)with an operating margin of 1.2% (2.5).

Sales and production in the NorthAmerican operations were significantlydown in 2001 owing to the market situ-ation and the lower production of bothlight and heavy vehicles. This affectedthe margin despite the measures toreduce the workforce and costs. Theaftermarket, while still down, developedbetter than the OEM business thanks tothe very good level of service and the

launch of new products such as timingbelt kits.

The European business was also sig-nificantly down owing to lower overalldemand. The sales in the Asian opera-tions developed positively during theyear, but they are still only a fraction ofthe overall business.

The seals business started deliveriesduring the year for a number of newbusinesses such as the new Ford Fiestaand the Jaguar X-Type. Ford selectedChicago Rawhide (CR) to supply wheeland axle seals for use by Ford dealerservice departments as replacement partson Ford passenger cars and light trucksin North America.

27

strength of the system-solution approachcombining both bearings and seals to thebenefit of SKF’s customers.

SKF also developed a new specialhybrid valve cover for passenger-cardiesel engines. The cover is a combinednon-metallic and metallic cover to whichis added a moulded-in-place gasket. Thiscover combines the noise-dampeningproperties of the thermoplastic covermaterial with the excellent sealing of the bonded-in-place metallic mountingflange. The result is less noise, longer life and an easier, more reliable assembly.This is now being worked on togetherwith a major car manufacturer.

SKF has developed a new, fully auto-mated system for the magnetization, con-trol and packing of wheel hub bearingunit seals that includes integral impulserings for ABS wheel sensoring. The new

production system applies each magneticfield individually to provide high levelsof signal strength and improved signaldistribution and is in operation now forthe seals used in SKF’s wheel hub bearing units.

A new concept of injection mouldingwas also developed during the year inSKF’s facility in Villanova, Italy. The newprocess incorporates a fully automaticdouble-shuttle loading and unloadingsystem which, combined with the video-guidance system, significantly improvesboth production output and quality. Thiscell is used to manufacture shock-absorber seals.

CR in America has also developed twonew important products for heavy trucks.The advanced elastomeric compoundused in the new SCOTSEAL® XL offersextended life, has better compatibility

with the different types of lubricationbeing used in these applications andworks at higher temperatures. It is beingintroduced at the beginning of 2002 asthe premium-performance seal in theScotseal family.

The second product is a newly patent-ed grease seal, Enduro™, for use prima-rily in the more popular grease-lubricatedwheel ends found on the European market. It will also be introduced at thebeginning of 2002.

CR also secured business from Fiat forPTFE engine crankshaft seals. Theseseals significantly reduce oil leakage andare made in a new special plasma activa-tion process, which eliminates the use ofacid etching commonly used in thisindustry.

3 60

2

3 99

0

4 15

7

4 61

8

4 73

24

068

0

30

60

90

120

010099

61 57

114

0

50

100

150

200

010099

178

175

162

0

1 000

2 000

3 000

4 000

5 000

010099

4 30

1

3 65

0

4 16

2

01 000

2 000

3 000

4 000

5 000

010099

■ External sales

■ Total sales

■ Cars 35%

■ Trucks 6%






result, MSEK*

Additions to

tangible

assets, MSEK*

Registered

number of

employees*


A double-shuttle process at the CR plant inElgin, Illinois, USA. The cell in the picture manufactures bonded pistons for the carindustry. Since the start-up in August 2001,productivity has doubled and zero-defects output has been achieved.

A specially developed camera has beeninstalled at the CR plant in Seneca, Kansas,USA. It automatically detects defects in theproducts during the manufacturing process.The number of zero-defects channelsincreased from five to eight in Seneca in 2001.

Carin Wallgren at the Sealpool facility in Land-skrona, Sweden, is carrying out the inspectionof CUT, the new hydraulic piston seal devel-oped by Sealpool. The advantage of this sealis that it is cut, which means much easiermounting, especially in heavy duty applica-tions.


28


(sales to external and internal cus-tomers) were MSEK 2 991 (3 093). Theoperating result was MSEK -80 (-14)with an operating margin of -2.7% (-0.4).

Although the results were unsatisfac-tory, the cash flow in the Divisionremained positive. Extensive cost-reduc-tion activities were implemented torestore profitability.

The market peaked in Europe in mid-year and there was a major drop indemand during the latter half of 2001.The biggest drop in sales volumes wasin the US market.

The Steel Division was negativelyaffected by the high dollar rate as thisinfluences the price of scrap, alloys, oil,LPG and other input materials. As aresult of lower demand, the workforcewas reduced by 7.6%

Produced volume was some 15%lower than the figure for 2000. The effi-ciency of the steel-making operations,however, reached record levels duringthe second half of 2001 thanks to a num-ber of factors. One important one waspreventive maintenance throughout theentire production process. Previousyears’ investments in the steel mill inHofors, Sweden, such as a new trans-former and new burners, have improved

The Steel Division is responsible for product development, production, and sales of

special steels and steel components to the bearing industry and also to other industries

with demanding applications. The Steel Division is one of the world’s leading manufactur-

ers of bearing steel and other high-quality steel grades. A large part of its production is

delivered as cut and machined components. The Division has production facilities for

steel products in Sweden, France and the USA.

Tubes are hot rolled in the Assel process. This technology gives very close tolerances also inthe smaller dimension range, like in the new rolling mill No 6 in Hofors, Sweden. Smallermachining tolerances, less machining and improved material yield contribute to lower produc-tion and product costs.

29

the efficiency of the process as well asthe capacity in the steel mill.

Since the introduction of the cost-saving and environmentally-compatiblenew grades of air-hardening steels twoyears ago, many customers are now test-ing and evaluating these steels. Deliveriesare expected to start in 2002. The thirdvariant of the new steel range was intro-duced in 2001. This makes a full range ofvariants for component production avail-able. The first variant comprises a steelfor bearings and other heavily loadedapplications, the second variant is a steelfor quenching and tempering, and thethird new variant, a case-hardening steel.The air-hardening steels developed by

Ovako Steel are expected to improvemargins on existing business and also toattract new customers.

Sales of the super-clean steel for high-pressure fuel-injection pumps is develop-ing positively as the production of dieselengines increases. This application con-tributes to a reduction of harmful emis-sions and less fuel consumption.

The share of sales to external cus-tomers increased during the year.

1 44

8

1 68

92 71

7

3 09

3

2 99

11

708

-100

-50

0

50

100

010099

-73

-80

-14

0

50

100

150

010099

107

61

122

0

1 000

2 000

3 000

010099

2 47

2

2 38

5

2 58

0

0

1 000

2 000

3 000

4 000

010099

■ External sales

■ Total sales





■ Cars 15%

■ Trucks 9%


result, MSEK*

Additions to

tangible

assets, MSEK*

Registered

number of

employees*


The production in flow lines allows for shorterlead times and improved productivity as hereat the ground bar section at Hällefors, Sweden.

The deliveries of tubes and bars in the form of components are increasing steadily.The picture on the left shows the production of rings for rolling bearings at Hofors, Sweden.The picture on the right shows production of shaft blanks at Hällefors, Sweden.


30

Aerospace and other businesses is responsible for product development and the produc-

tion of bearings, components and seals for aircraft engines, gearboxes and airframes,

and for offering various services and the repair of bearings. SKF Aerospace is one of the

world’s leading bearing and components suppliers to the aerospace industry. Aerospace

and other businesses also includes SKF Forgings and Rings.

The main rotor head of the helicopter aboveuses self-lubricating bearings designed andmanufactured by AMPEP, SKF’s British aero-space unit. AMPEP’s new ceramic bearingtechnology confirms its leading position in thisspecialist market.

Kaj ThorénPresident, Aerospaceand other businesses


(sales to external and internal customers)were MSEK 4 054 (3 730). The operatingresult was MSEK 274 (259) with anoperating margin of 6.8% (7.0).

Sales in the Aerospace business weregood throughout the year, in both Europeand North America. The operating resultremained strong during the year.

The result for the forging operations,however, was affected by a majormachine overhaul and lower volumes.

SKF’s Aerospace business consists ofAeroengine, Airframe and Seals. Aero-engine comprises MRC Bearings in theUSA and SKF Avio in Italy. Airframecomprises SARMA in France andAMPEP in the UK. Seals is CR Aero-space in the USA.

In 2001, MRC Bearings signed a five-year contract to supply main-shaft enginebearings to GE Aircraft Engines. MRCBearings has also signed an agreementwith Rolls Royce to provide all the bear-ings for the lift fan for the Joint StrikeFighter to be built by Lockheed-Martin.

There was a steady growth in businessin 2001 for the MRC Bearings servicecentre opened in Charleston, South Carolina, USA, in 2000. The service centre also initiated an engine and gear-box bearing repair programme for Prattand Whitney.

SARMA has developed a new genera-tion of composite rods for airframe appli-cations, which is being delivered todayfor the Airbus A340. Because of thecomposite properties, weight savings perrod range from 25%-45% compared withaluminum. This is a key factor for thedevelopment of any new large aircraft.SARMA will supply the composite rodsreinforcing the wing box on the new Airbus A380.

In 2001, CR Aerospace won a numberof sealing systems contracts for newmajor aircraft programmes. These are for

Lockheed-Martin’s Joint Strike Fighter,Bell Helicopter’s H-1, and Boeing’s LMR.

SKF Forging and Ring business consists of two units, one in Lüchow, Germany and one in Villar Perosa, Italy.SKF is the main customer. The focus,however, is on increasing sales to external customers who require verylarge quantities of precise, circular-

shaped forgings, and who have exactingdemands with regard to tolerances andmaterial quality. External sales grew during 2001.

31

1 86

0

1 94

3

3 70

2

3 73

0

4 05

42

311

0

100

200

300

010099

196

274

259

0

50

100

150

200

010099

85

163

107

0

1 000

2 000

3 000

4 000

010099

3 22

3

2 95

3

3 00

7

0

1 500

3 000

4 500

010099

■ External sales

■ Total sales

■ Aerospace 96%





result, MSEK*

Additions to

tangible

assets, MSEK*

Registered

number of

employees*


Alexandre Minsberghe is working on themoulding of a future Airbus rod at SARMA’sLons-le-Saunier plant in France.

The picture shows the Airbus centre wing box, reinforced by the rods delivered by SARMA.These rods are designed to support bendings and torsions of the wings. SKF is the leadingsupplier of these products to the European aircraft industry.


32

Overall objective

SKF’s overall financial objective is to create value for its shareholders. Overtime, the return on the shareholders’investment in SKF should exceed therisk-free interest rate by some five percentage points. This is the basis forSKF’s financial objectives and SKF’sfinancial performance managementmodel.

Financial targets

Early in 1999, SKF announced a finan-cial target of an operating margin of 8%,and a comprehensive asset-reduction pro-gramme. This target was reached in thefirst quarter 2000, and the next target waslaunched at the Annual General Meetingin April, 2000. This target comprises:

• an operating profit of MSEK 4 000,

• an operating margin of 10%,

• earnings per share of SEK 20,

• a return on capital employed of 18%.The financial targets are cascaded

down to the Divisions and operating unitsthrough SKF’s financial performancemanagement model.

Performance management model

SKF’s performance management modelis a simplified economic value-addedmodel. This model, called TVA, promotesimproved margins, capital reduction andprofitable growth. TVA is the operatingprofit, less the pre-tax cost of capital inthe currency in which the business isconducted. The TVA result developmentfor the Group correlates well with thetrend of the share price over a longerperiod of time. The SKF Group’s bonusand option programmes are based onthis model.

Financial position

SKF’s equity/assets ratio is currently at41.1%, which is somewhat above theaverage objective for this ratio to be 35%.

Dividend policy

SKF’s dividend policy is based on theprinciple that the dividend should beadapted to the trend of earnings and cashflow, taking into account the Group’sdevelopment potential and financial posi-tion. The Board of Directors’ view is that

the dividend should amount to approx-imately one third of SKF’s average netresult, calculated over a business cycle.

Financing

SKF’s policy is that the financing of theGroup’s operations should be long-term.The objective is that the loans required tofinance anticipated needs should havematurities exceeding three years. As ofDecember 2001, the average maturity ofSKF’s loans was just below four years.

The Group’s financial policy is that, inaddition to this loan financing, SKFshould have a payment capacity in theform of surplus liquidity and/or long-term credit facilities amounting toapproximately MUSD 300. On December31, 2001, the Parent Company had long-term loan commitments totalling MUSD300 from nine banks.

The Group has been assigned a”BBB+” rating for long-term credits byStandard and Poor’s and a ”Baa1” ratingby Moody’s Investors Service.

0

500

1000

1500

2000

Later0706050403

Maturity year for interest-bearing loans, MSEK

33

Financial risks

SKF’s operations are exposed to variousfinancial risks. The Group’s financial pol-icy defines currency, interest rate andcredit risks and establishes responsibilityand authority for the management ofthese risks. The policy states that theobjective is to eliminate or minimize riskand to contribute to a better returnthrough the active management of risks.

The management of the risks and theresponsibility for all treasury operationsare largely centralized in SKF TreasuryCentre, the Group’s internal bank.

Currency risks

The SKF Group is exposed to changes inexchange rates in the future flows of pay-ments, transaction exposure.

The Group’s principal commercialflows of foreign currencies pertain toexports from Europe to North Americaand Asia, and to flows of currencies with-in Europe. The introduction of the eurohas reduced the currency risks.

SKF’s policy is to hedge currencyflows for three to six months on average.This is the length of time deemed to berequired to adjust to new conditions.Within the framework of established risklimits, it is possible for SKF TreasuryCentre to deviate from this average peri-od. Risks are managed, based on a risk-evaluation system that takes into accountthe volatility of currencies as well astheir mutual relationship. As of year-end,the lengths of the actual forward con-tracts conformed with the basic policy.

The Group’s accounts are also affectedby the effect of translating the results and net assets of foreign subsidiaries toSwedish kronor. These currency expo-sures are not hedged.

SKF’s principal competitors have thegreater part of their production capacityin Germany, the USA or Japan. SKF’smanufacturing is wider spread geograph-ically, but with a concentration to conti-nental Europe, the USA and Sweden.

More details about the hedging of foreign currency, financial instrumentsand credit risks will be found in Note 27 to the Consolidated Financial Statements.

NET CURRENCY FLOWS IN 2001

Flows in Exchange rate

Currency 2001, MSEK in 2002*

USD 2 600 10.71

EUR 800 9.36

CAD 370 6.67

GBP 190 15.03

Other** 1 270

SEK -5 230

* Average exchange rate used for the hedging for the first 3-4 months 2002.

** ”Other” is a sum comprising some 10 different currencies.

-6 000 -3 000 0 3 000

SEK

Other

GBP

CAD

EUR

USD

MSEK

34

• An increase of 1% in the cost of wagesand salaries (incl. social security con-tributions) reduces profit before taxesby MSEK 145, and a 1% increase inthe cost of direct material and compo-nents reduces profit before taxes byMSEK 81.

• In 2001, the Group had net short-termfinancial assets (short-term financialassets less total loans) of MSEK 1 846(In 2000, the company had a net debtof MSEK 1 487). A change of one per-centage point in interest rates influencesprofit before taxes by approximatelyMSEK 20.

• A weakening of 10% of the SEKagainst the USD or against the EUR,has a positive effect from net currencyflows on profit before taxes of MSEK260 and MSEK 80 respectively.

SKF operates extensively in the 12 mem-ber countries of the European MonetaryUnion, particularly in Germany, Franceand Italy. In 2001, the EMU countriesaccounted for approximately 40% of theGroup’s net sales, and for more than 50%of the Group’s total production.

The introduction of a single currencyin Europe has not brought about anychange in the Group’s strategic direction.SKF has treated Europe as a single mar-ket for a number of years. However, in2000 and in 2001, system adaptationswere made. The SKF companies gradual-ly converted from local currencies to theeuro in 2001. The migration from localcurrencies to the euro was successfullycompleted before January 1, 2002.

In 2000, the Swedish Parliamentapproved legislation allowing financialresults to be reported in euros forSwedish companies. SKF has not yetdecided if and when a conversion to theeuro should be made. The Group’s finan-cial accounts for 2002 will be preparedin SEK.

The following shows the magnitude of changes in respect of a number of major factors

influencing the Group’s profit before taxes. The assessment has been made on the year-

end figures. All the calculations have been made on the basis that everything else is

equal.

36

C O N S O L I D AT E D I N C O M E S TAT E M E N T S

Millions of Swedish kronor 2001 2000 1999

Net sales 43 370 39 848 36 693Cost of goods sold Note 2, 3 - 32 677 - 30 143 - 28 822

Gross profit 10 693 9 705 7 871

Selling expenses Note 3 - 6 637 - 5 840 - 5 362Administrative expenses Note 3 - 538 - 380 - 392Other operating revenues 434 827 715Other operating expenses - 330 - 645 - 312Profit from Associated Companies 12 7 –

Operating profit 3 634 3 674 2 520

Financial income and expense, net Note 4 - 514 - 672 - 751

Profit before taxes 3 120 3 002 1 769

Taxes Note 5 - 909 - 1 001 - 650

Profit after taxes 2 211 2 001 1 119

Minority interests’ share in profit for the year - 44 - 39 - 8

Net profit 2 167 1 962 1 111

Values by quarterly reports, 2001

Millions of Swedish kronor Quarter 1 Quarter 2 Quarter 3 Quarter 4 Full yearunless otherwise stated 2001

Net sales 10 906 11 148 10 228 11 088 43 370Operating profit 908 979 816 931 3 634Profit before taxes 791 820 685 824 3 120Earnings per share, SEK 4.94 4.56 4.30 5.24 19.04

Profit before taxes

In 2001, the SKF Group’s profit before taxes amounted to MSEK 3 120 (3 002 and 1 769)*. Compared to year 2000, exchange ratesfor the full year 2001, including translation effects and flows fromtransactions had a positive effect on SKF´s profit before taxes toan estimated amount to MSEK 425.

The financial income and expense, net for the SKF Groupamounted to MSEK -514 (-672 and -751)* and was positivelyaffected by decreased borrowings and lower interest rates.

Profit after taxes

In 2001, the SKF Group’s profit after taxes amounted to MSEK 2 211 (2 001 and 1 119)*.

The actual tax rate in 2001 was 29% percent (33 and 37)*.

* Amounts in parentheses refer to comparable figures for 2000 and 1999respectively.

COMMENTS ON THE CONSOLIDATED INCOME STATEMENTS

37

Net sales

The SKF Group’s sales in 2001 amounted to MSEK 43 370 (39 848and 36 693)*.

The +8.8% increase in net sales, compared to 2000, was attrib-utable to structure by +0.5%, to exchange-rate effects by +8.5%,to price and mix1) by +1.8%, and to volumes by -2.0%. Net sales,recorded in local currencies, were fairly flat for 2001 compared to2000.

1) Mix refers to volume shifts between various customer segments and prod-ucts with different price levels.

Operating profit

The SKF Group’s operating profit in 2001 amounted to MSEK 3 634 (3 674 and 2 520)*.

The operating margin for 2001 amounted to 8.4% (9.2 and6.9)*. Operating profit in 2000 and 1999 was positively affected bynon-recurring earnings of MSEK 100 and 388. Excluding non-recurring items, the margin in 2000 was 9% and 1999 5.8%.

Other operating revenues and Other operating expensesinclude items such as gains and losses on sales of non-productionrelated capital assets, gains and losses on sales or closures ofcompanies and operations, rental revenues and exchange gainsand losses arising on operating assets and liabilities.

In 2001, other operating revenues included gain on sales of realestate and businesses. Other operating expenses includedexpenses for close-down of businesses.

In 2000, other operating revenues included a bonus distributionof MSEK 250 allocated by the Swedish insurance company Alectapensionsförsäkring and sales of real estates. Other operatingexpenses included a provision of MSEK 367 with the purpose ofwriting down assets in the Steel Division.

In 1999, other operating revenues and expenses included acapital gain of MSEK 133 for the sale of the head office building inGöteborg, sales of other capital assets and MSEK 150 of releasedexcess restructuring provisions.

The profit from Associated Companies includes the SKFGroup’s share of profit in these companies, mainly MomentumIndustrial Maintenance Supply AB And NN Euroball ApS.

0

10 000

20 000

30 000

40 000

50 000

010099

36 6

93

39 8

48

43 3

70

Net sales, MSEK

0

1 000

2 000

3 000

4 000

010099

1 76

9

3 00

2

3 12

0

Profit before taxes, MSEK

38


ASSETSCapital assetsIntangible assets Note 6 1 270 1 119 944Long-term deferred tax assets Note 5 408 426 885Tangible assets Note 7 13 599 13 089 13 074Investments Note 28 404 328 196Long-term financial assets Note 8 1 410 1 076 918

17 091 16 038 16 017

Short-term assetsInventories Note 9 9 113 9 262 8 640Accounts receivable – trade Note 10 7 442 7 091 6 563Short-term tax assets Note 5 669 684 885Other short-term assets Note 11 1 195 1 341 1 035Short-term financial assets Note 12 5 387 3 481 1 976

23 806 21 859 19 099

Total assets 40 897 37 897 35 116

EQUITY, PROVISIONS AND LIABILITIESShareholders’ equity Note 13Restricted equityShare capital 1 423 1 423 1 423Restricted reserves 6 765 6 781 6 524Unrestricted equityUnrestricted reserves 5 869 3 428 2 309Profit for the year 2 167 1 962 1 111

16 224 13 594 11 367

Minority interest 591 467 398

ProvisionsProvisions for pensions and other postretirement benefits Note 14 7 044 6 746 6 478Provisions for deferred taxes Note 5 1 893 1 596 1 509Other provisions Note 15 3 429 3 046 2 795

12 366 11 388 10 782Long-term liabilitiesLong-term loans Note 16 2 830 4 263 4 753Other long-term liabilities Note 17 76 94 79

2 906 4 357 4 832Short-term liabilitiesShort-term loans Note 19 711 705 1 223Accounts payable – trade Note 20 3 226 3 099 2 785Short-term tax liabilities Note 5 343 377 293Other short-term liabilities Note 21 4 530 3 910 3 436

8 810 8 091 7 737

Total equity, provisions and liabilities 40 897 37 897 35 116

Assets pledged Note 22 418 490 639Contingent liabilities Note 23 110 147 65

C O N S O L I D AT E D B A L A N C E S H E E T S D E C E M B E R 3 1

COMMENTS ON THE CONSOLIDATED BALANCE SHEETS

39

Previously published consolidated balance sheets for December2000 and 1999 have been restated for tax asset reclassification.

Assets and liabilities

The SKF Group’s inventories at December 31, 2001 amounted toMSEK 9 113 (9 262 and 8 640)*. The Groups production levels andnumber of employees were gradually reduced during the year toadapt to the lower market demand and to continue reduction ofinventories. The production level for 2001 was some 5.9% belowthe level for 2000. Inventories as a percentage of annual salestotalled 21.0% (23.2 and 23.5)*. This is in line with the plan toreduce inventory by 2% per year and to reach the level of 20%.

The SKF Group’s trade accounts receivable at December 31,2001 amounted to MSEK 7 442 (7 091 and 6 563)*. Trade accountsreceivable as a percentage of annual net sales totalled 17.2%(17.8 and 17.9)*.

During the year the SKF Group continued to reduce tangibleassets through sale. However, during 2001 the net book value fortangible assets in Swedish kronor increased by MSEK 870 due totranslation effects caused by a weaker Swedish krona. The valueof total assets increased in 2001 by approximately 5%, comparedwith 2000, due to a weaker Swedish krona.

The Group´s equity/assets ratio improved further during theyear to 41.1% (37.1 and 33.5)*.

During 2001 the Group’s shareholders’ equity increased byMSEK 1 061 (720 and –448)* due to translation effects caused bya weaker Swedish krona.

During 2001, MSEK 598 (455 and 228)* were distributed to theshareholders from shareholders’ equity.

Inventories,

% of annual

net sales

Equity/Assets

ratio, %

Financing

At year-end, the SKF Group’s total interest-bearing loansamounted to MSEK 3 541 (4 968 and 5 976)*. Provisions for pen-sions and other postretirement benefits totalled MSEK 7 044(6 746 and 6 478)*. At the same time, financial assets totalledMSEK 6 797 (4 557 and 2 894)*, of which MSEK 5 387 (3 481 and1 976)* consisted of short-term financial assets. Change in netinterest-bearing liabilities during 2001 is disclosed in the Group’sconsolidated statements of cash flow.


0

10

20

30

010099

23.5

23.2

21.0

0

10

20

30

40

50

010099

33.5 37

.1 41.1

40


Profit before taxes 3 120 3 002 1 769Depreciation on tangible assets and goodwill amortization 1 794 1 633 1 873Net gain(-) on sales of tangible assets and businesses - 62 - 227 - 248Profit from Associated Companies - 12 - 7 –Taxes - 636 - 166 - 355Changes in working capital:Inventories 734 - 244 1 381Accounts receivable – trade 330 - 59 - 187Accounts payable – trade - 292 - 2 123Other operating assets, liabilities and provisions – net 767 6 - 1 391

Cash flow from operations 5 743 3 936 2 965

Investments in tangible assets and businesses - 1 696 - 1 551 - 1 303Sales of tangible assets and businesses 245 551 554Change in equity securities - 21 - 56 3Cash flow after investments before financing 4 271 2 880 2 219

Change in loans - 1 563 - 986 - 1 994Change in pensions - 146 17 - 323Change in long-term financial assets - 204 - 62 - 12Cash dividends, AB SKF shareholders - 598 - 455 - 228Cash effect on short-term financial assets 1 760 1 394 - 338

Change in short-term financial assetsOpening balance, January 1 3 481 1 976 2 353Cash effect 1 760 1 394 - 338Exchange rate effect 146 111 - 39Closing balance, December 31 5 387 3 481 1 976

Change in net interest-bearing liabilities in 2001Opening balance Exchange rate Change in Acquired and Closing balanceJanuary 1, 2001 effect items sold businesses December 31, 2001

Loans, long- and short-term 4 968 130 - 1 563 6 3 541Provisions for pensions 6 746 442 - 146 2 7 044Financial assets, long-term - 1 076 - 129 - 204 - 1 - 1 410

short-term - 3 481 - 146 - 1 760 – - 5 387Net interest-bearing liabilities 7 157 297 - 3 673 7 3 788

The consolidated statements of cash flow presented above have been adjusted for acquired and sold businesses with the following net amounts:Millions of Swedish kronor 2001 2000 1999

Net gain(-) on sold businesses - 86 - 70 - 31Adjustment of Changes in working capital due to acquired and sold businesses:Inventories 79 - 95 - 40Accounts receivable – trade 71 - 23 - 14Accounts payable – trade - 76 - 12 39Other operating assets, liabilities and provisions – net 175 - 72 84

Cash flow effect from operations in acquired and sold businesses 163 - 272 38

Cash paid for acquired businesses - 293 - 163 - 70Settlement in other forms – – - 3

Cash received for sold businesses 137 230 20Settlement in other forms – 73 –

Cash flow effect from acquired and sold businesses after investments before financing 7 - 132 - 15

Adjustment of Change in loans due to acquired and sold businesses - 6 64 6Adjustment of Change in pensions due to acquired and sold businesses - 2 71 9Adjustment of Change in long-term financial assets due to acquired and sold businesses 1 - 3 –Cash effect in acquired and sold businesses 0 0 0

C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W

COMMENTS ON THE CONSOLIDATED STATEMENTS OF CASH FLOW

41

Cash flow from operations

The SKF Group’s Earnings before Income taxes, Depreciation andAmortization, (EBITDA) defined as operating profit plus deprecia-tion according to plan and one-time write-downs, amounted toMSEK 5 428 (5 307 and 4 393)*. The gross cash flow was 12.5%(13.3 and 12.0)* of annual sales. A continued good operatingprofit, which in 2001 amounted to MSEK 3 634 (3 674 and 2 520)*,contributed to the strong cash flow.

Cash flow after investments before financing

The SKF Group’s capital expenditure in tangible assets amountedto MSEK 1 403 (1 388 and 1 230)*. Of the Group's total additionsto tangible assets approximately MSEK 43 (47 and 98)* wereinvested in measures to improve the environment, both internallyand externally.

In 2001, the SKF Group paid MSEK 293 (163 and 70)* for newbusinesses, primarily:• Roller Bearing Industries; in the U.S., a service company supply-ing reconditioned wheel set bearings to the North American rail-roads;• Equipmen C.A, in Venezuela, a service company supplying prod-ucts and services for condition monitoring and maintenance;• Gamfior S.p.A, in Italy, a leading manufacturer of high-precisionmotorized spindles and high-precision ball screws for machinetools;• Nåiden Teknik AB, in Sweden, a service company which devel-ops and markets customer-specific condition-montoring hardwareand software.

Above businesses were included in the SKF Group’s consolidatedfinancial statements in 2001.

Sales of businesses related principally to 80% of the shares inEndorsia.com International AB, operating the e-business market-place endorsia.com™ and a company which comprised realestates located close to the Group´s head office in Sweden.

The statements of cash flow have been adjusted for acquiredand sold businesses as specified in the footnote to the consoli-dated statement of cash flow.

Cash flow after

investments, before

financing, MSEK

Additions to tangible

assets, MSEK

Cash effect on short-term financial assets

The SKF Group’s loans were amortized by MSEK 1 563 (986and 1 994)*. Interest-bearing loans totalled MSEK 3 541 at yearend (4 968 and 5 976)*, while pension liabilities amounted toMSEK 7 044 (6 746 and 6 478)*. Interest payments amounted toMSEK 645 (719 and 759)* and interest received to MSEK 271 (262and 254)* (see Note 4).

Short-term financial assets increased by MSEK 1 906 (1 505and -377)*. The SKF Group considers short-time financial assetsto be cash and cash equivalents (see Note 12). In 2001, short-termfinancial assets were affected positively by MSEK 146 (111 and -39)* owing to changes in exchange rates, mainly USD and Euro.The consolidated statements of cash flow have been adjusted forchanges in exchange rates as translation effects arising fromchanges in foreign currency exchange rates do not represent cashflow.


0

1 000

2 000

3 000

4 000

5 000

010099

2 21

9 2 88

0

4 27

1

0

500

1 000

1 500

010099

1 23

0 1 38

8

1 40

3

N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Amounts in millions of Swedish kronor (MSEK) unless otherwise stated. Amounts in parentheses refer to comparable figures for 2000 and 1999, respectively.

42

1. ACCOUNTING PRINCIPLES

General

All companies within the SKF Group apply the accounting rules asstated in the ”SKF Accounting and Financial Reporting Manuals”.These rules are based on generally accepted accounting principlesin Sweden (Swedish GAAP). The SKF Group is required to recon-cile its financial statements to generally accepted accounting prin-ciples in the United States (U.S.GAAP) since the Group is listed onNASDAQ in the U.S. Significant differences between SwedishGAAP and U.S. GAAP are described in Note 27.

Consolidation – subsidiaries

The consolidated financial statements include the Parent Com-pany, AB SKF, and all companies in which AB SKF, directly or indi-rectly, owns shares representing more than 50% of the votingrights. AB SKF and its subsidiaries are referred to as ”the SKFGroup” or ”the Group”.

The consolidated financial statements are prepared using thepurchase method. Consolidated shareholders’ equity includes theParent Company’s equity and the part of the equity in subsidiarieswhich has arisen after the acquisition. The difference between thecost of acquiring the shares in a subsidiary and the shareholders’equity of that subsidiary at the time of acquisition, adjusted inaccordance with the Group’s accounting principles using the fairvalue for assets and liabilities, is accounted for:- as goodwill in the consolidated balance sheets, if the cost of

acquiring the subsidiary is higher than the shareholders’ equity,or

- as a decrease in the value of acquired capital assets, if the costof acquiring the subsidiary is lower than the shareholders’ equity.

Intercompany accounts, transactions and unrealized profits havebeen eliminated in the consolidated financial statements.

Investments in Associated Companies

Companies, in which the Group owns 20 to 50% of the votingrights and where the SKF Group has a significant influence, arereferred to as ”Associated Companies” (see Note 28).

Investments in Associated Companies are reported in accor-dance with the equity method. The value of the investments isequal to the Group’s share of shareholders’ equity in these compa-nies, determined in accordance with the accounting rules of theGroup. The Group’s share in the results of these companies isbased on their profit/loss after taxes.

Translation of foreign financial statements

The current rate method is used for translating the income state-ments and balance sheets into Swedish kronor as the majority ofthe subsidiaries are considered independent. All balance sheetitems in foreign subsidiaries have been translated in Swedish kro-nor based on the year-end exchange rates. Income statementitems are translated at average exchange rates. The translationadjustments that arise as a result of the current rate method aretransferred directly to shareholders’ equity.

For the translation of financial statements of subsidiaries oper-ating in highly inflationary economies, the Group applies the mon-etary/non-monetary method (MNM-method). Monetary balancesheet items are translated at year-end exchange rates and non-monetary balance sheet items, as well as related income andexpense items, are translated at rates in effect at the time ofacquisition (historical rates). Other income and expense items aretranslated at average exchange rates. Translation differences thatarise are included in the related lines in the income statement.

Translation of items denominated in foreign currency

Transactions in foreign currencies during the year have been trans-lated at the exchange rate prevailing at the respective transactionsdate.

Accounts receivable and payable and other receivables/payables denominated i foreign currency have been translated atthe exchange rates prevailing at the balance sheet date. Suchexchange gains and losses are included in other operating rev-enues and other operating expense. Other foreign currency itemshave been included in financial income and expense-net.

Financial derivative instruments

For hedging of fluctuations in foreign currency exchange ratesrelated to certain revenues and expenses for flow of goods andservices between countries (firm commitments as well as antici-pated transactions) forward exchange contracts and currencyoptions are used. Exchange differences related to these financialderivative contracts are not reflected in the income statement untilthe related transactions occur.

Cross currency swaps and interest rate swaps are used tomanage the interest rate exposure on certain foreign currency bor-rowings. These financial derivative instruments are valued at clos-ing day rate and exchange differences as well as accrued interestreflected per closing day.

The Group also uses financial derivative instruments for tradingpurposes, limited according to Group’s risk management policy.These financial derivative instruments are marked-to-market andexchange differences recognized in the period they arise.Exchange differences arising from financial derivative instrumentsare included in Financial income and expense, net.

N O T E S , G R O U P

43

Exchange rates

The following exchange rates have been used when translating the financial statements of foreign subsidiaries operating in the countriesshown below into SEK:Country Unit Currency Average rate Year-end rate

2001 2000 1999 2001 2000 1999EMU-countries* 1 EUR 9.27 8.45 8.85 9.37 8.85 8.55India 100 INR 22.04 20.38 19.28 21.99 20.37 19.57Japan 100 JPY 8.57 8.49 7.25 8.08 8.27 8.33United Kingdom 1 GBP 14.97 13.88 13.42 15.37 14.20 13.75USA 1 USD 10.40 9.16 8.31 10.61 9.51 8.51Canada 1 CAD 6.71 6.15 5.58 6.64 6.33 5.86* Belgium, Finland, France, Germany, Ireland,

Italy, the Netherlands, Spain, Portugal and Austria

Debt and marketable equity securities

There are no marketable equity securities held. Debt securitiesclassified as held to maturity are recorded at amortized cost. Debtsecurities which are bought and held principally for selling them inthe near term are classified as short-tem financial assets and arerecorded at fair value with gains and losses recorded in theIncome statement.

Inventories

Inventories are stated at the lower of cost (first-in, first-out basis)or market (net realizable value). Net realizable value is defined asthe lower of current replacement cost or market value less sellingcost. Cost includes material, labour and manufacturing overheads.

Depreciation of tangible and intangible assets

Depreciation is provided on a straight-line basis and is calculatedbased on the cost of the asset. In some countries, legal revalua-tions are made in addition to cost, and depreciation is then basedon the revalued amounts.

The rates of depreciation are based on the estimated economiclives of the assets, generally 33 years for buildings, 10-17 years formachines and 4-5 years for tools, office equipment and vehicles.

Depreciations are included in cost of goods sold or sellingexpenses depending on where the assets have been used.

Goodwill is amortized on a straight-line basis, normally over 10years, but in some cases over 20 years. Goodwill is amortized overmore than 5 years (10 or 20 years) in those cases where theacquired company has an established knowledge within its busi-ness, developed customer relations and a strategic relation to theGroup’s business.

Patents and similar rights are stated at cost and are amortizedon a straight-line basis over their legal lives.

Leases

The Group applies the Swedish accounting recommendation RR 6”Accounting for leasing agreements”. A lease agreement that

transfers substantially all the benefits and risks of ownership to theGroup is defined as a capital lease. Capital leases are recognizedas fixed asset (and the associated obligation) initially recorded atan amount equal to the present value of minimum lease paymentsduring the lease term, less certain executory costs. Capital leasesare amortized in a manner consistent with the Group’s normaldepreciation policy for owned tangible assets. Lease payments areapportioned between the finance charge and the reduction of theoutstanding liability. The finance charge is allocated to periodsduring the lease term as to produce a constant periodic rate ofinterest on the remaining balance of liability for each period.

Other leases are accounted for as operating leases. Such rentalexpenses are recognized in the income statement, on a straightline basis, over the lease term.

Revenue recognition

Revenues are recognized when realized or realizable and earned.Revenue from the sale of goods and services is generally recog-nized when (1) an arrangement with a customer exists, (2) deliveryhas occurred or services have been rendered, (3) the price isdeterminable and (4) collection of the amount due is reasonablyassured.

Revenues from service and/or maintenance contracts wherethe service is delivered to the customer at a fixed price is accoun-ted for on a straightline basis over the duration of the contract.

Other operating revenue and other operating expense

Other operating revenue and Other operating expense includeitems such as gains and losses on sales of non-production relatedcapital assets, gains and losses on sales or closures of companiesand operations, rental revenues and exchange gains and lossesarising on operating assets and liabilities.

The concept of non-comparative items is not used by theGroup. Comparative information is found in comments to the con-solidated income statement.

44

Research and development

Research and development expenditures are charged againstearnings as incurred and accounted for as cost of goods sold inthe consolidated income statement.

Income taxes

All the companies within the Group compute current income taxesin accordance with the tax rules and regulations of the countrieswhere the income is taxable.

Deferred taxes are accounted for according to the Swedishaccounting recommendation RR 9 ”Income Taxes”. The group uti-lizes a liability approach for measuring deferred taxes, whichrequires deferred tax assets and liabilities to be recorded based onenacted tax rates for the expected future tax consequences ofexisting differences between financial reporting and tax reportingbases of assets and liabilities, and loss and tax credit carry for-wards. Such losses and tax credit carry forwards can be used tooffset future income. Valuation allowances are recorded to reducedeferred tax assets when it is more likely than not that a tax benefitwill not be realised. Tax assets and provisions of taxes are classi-fied as long-term and short-term based on the nature of the under-lying asset and liability.

Other taxes, in Note 5, refer to taxes other than income taxeswhich should not, according to GAAP, be included elsewhere inthe income statements.

Provisions have been made in the consolidated financial state-ments for estimated taxes on earnings of subsidiaries expected tobe remitted in the following year, but not for tax liabilities whichmay arise on distribution of the remaining unrestricted earnings offoreign subsidiaries.

Provisions

Provisions are made when the Group has an obligation arising outof a past event and, at the balance sheet date, the obligation isknown and reasonably estimatable, even though the exact amountor timing of the settlement is uncertain.

Pensions and other postretirement benefits, deferred taxes,restructuring reserves and similar items such as warranty reservesand benefits to employees, other than pensions, are classified asprovisions in the balance sheet.

Provisions for pensions

Pension obligations are calculated as the discounted value of thefuture pension benefits at year-end, to which employees are en-titled based on their earnings during the time of their employment.

Provisions for pensions are calculated and provided for basedon local legislation and rules in each country except in cases whena true and fair view would not be reflected.

Provisions for postretirement benefits other than pensions

Provisions for Post-retirement benefits other than Pensions aremade during the years of service when an employee earns thebenefits, even if the benefits will not be paid out until after retire-ment. Provisions are based on the estimated cost of providing thebenefit to the individuals concerned.

Changes in accounting principles

Beginning in 2000, operating expenses for the Group are classifiedas cost of goods sold and/or selling and administrative expensesbased on the type of operation rather than the type of expense.

Other current recommendations issued by the Swedish FinancialAccounting Standard Council in 2001 have been adopted by theGroup without any effect on the consolidated financial statement.

Previous years have been restated in accordance with the newprinciples.

Beginning in 2001, the parent company implemented in itsfinancial statements the recommendation RR 9 ”Income Taxes”.For 2001 and onwards the parent company reports received andpaid Group contributions directly against sharholders equity.

For 2002 the following recommendations, issued by theSwedish Financial Accounting Standard Council, becomes effec-tive; Consolidation (RR 1), Immaterial Assets (RR 15), Pensionsand Contingent liabilities (RR 16), Impairment of fixed assets (RR17), Discontinuing operations (RR 19), Costs for Loans (RR 21) andRelated Party Disclosures (RR 23). The Group has not yetassessed the impact of implementing these recommendations in2002 but does not expect any material effect.

Definitions of key figures

The majority of the subsidiaries within the SKF Group report theresults of their operations and financial position eleven times ayear (ten for 1995 to 1996). The key figures presented in theAnnual Report have been calculated using average values basedon these interim reports. Consequently, the calculation of thesekey figures using the year-end values presented, may give slightly different results.

1. Portion of risk-bearing capitalShareholders’ equity plus minority interest and provisions fordeferred taxes, as a percentage of total assets at year end.

2. Equity/assets ratioShareholders’ equity plus minority interest, as a percentageof total assets at year end.

3. Return on total assetsOperating profit/loss plus interest income, as a percentageof average total assets.

4. Return on capital employedOperating profit/loss plus interest income, as a percentage ofaverage total assets less the average of non-interest bearingliabilities.


45

5. Return on shareholders’ equityProfit/loss after taxes, as a percentage of average share-holders’ equity.

6. Operating marginOperating profit/loss, as a percentage of net sales.

7. Profit marginOperating profit/loss plus interest income, as a percentage of net sales.

8. Turnover of total assetsNet sales in relation to average total assets.

9. Earnings/loss per share in Swedish kronorProfit/loss after taxes and minority interest divided by the num-ber of shares.

10.YieldDividend as a percentage of share price at year end.

11. P/E ratioShare price at year end divided by earnings per share.

12. Average number of employeesTotal number of working hours of all employees, divided by thenormal total working time during the year.

2. RESEARCH AND DEVELOPMENT

Research and development expenditure charged against earningstotalled 871 (710 and 756). Additionally, the Group enters intoexternal research and development contracts where, the Groupdevelops or produces prototypes of various products on behalf ofa third party. Expenses under such contracts were 17 (10 and 11).

3. DEPRECIATION AND AMORTIZATION

2001 2000 1999Land improvements 8 6 7Buildings 134 117 185Machinery, supply systems, machinetools, tooling and factory fittings 1 559 1 437 1 620

Goodwill 80 61 48Revaluations 13 12 13

1 794 1 633 1 873

Depreciations and amortizations according to plan accounted for as:2001 2000 1999

Cost of goods sold 1 571 1 421 1 645Selling expenses 205 189 195Administrative expenses 18 23 33

1 794 1 633 1 873

Write-down of 0 (0 and 100) was included in depreciation accord-ing to plan.

4. FINANCIAL INCOME AND EXPENSE

2001 2000 1999Income from equity securities andlong-term financial investments 144 120 61

Other financial incomeand similar items 515 475 402

Interest expense and similar items - 1 173 - 1 267 - 1 214

- 514 - 672 - 751

Specification of financial income and expense, net2001 2000 1999

Dividends related to- income from equity securites

and long-term financial investments 16 10 9Total dividends 16 10 9

Interest income related to- income from equity securities

and long-term financial investments 15 9 20- other financial income

and similar items 317 323 225Total interest income 332 332 245

Interest expense for- financial liabilities related to

interest expense and similar items - 504 - 561 - 620- pensions and other post-

retirement benefits (see Note 14) related to interest expense and similar items - 382 - 358 - 372

Total interest expense - 886 - 919 - 992

Financial exchange gains and losses related to- income from equity securities

and long-term financial investments 113 101 32- other financial income and

similar items 198 152 177- interest expense and similar items - 287 - 348 - 222Total financial exchange gains

and losses 24 - 95 - 13

Financial income and expense, net - 514 - 672 - 751

Adjustment to market value of short-term financial assets affectedfinancial income and expense by -5 (-3 and -15).

Interest received amounted to 271 (262 and 254). Interest pay-ments amounted to 645 (719 and 759).



46

5. TAXES

2001 2000 1999Taxes on profit before taxes- current taxes - 661 - 510 - 185- deferred taxes, net - 237 - 460 - 453Other taxes - 11 - 31 - 12

- 909 - 1 001 - 650

Deferred taxes for 2001 included a cost of 56 related to the netchange in the valuation allowance. Of this cost, 21 represented anadjustment of the opening balance of the valuation allowance stillexisting at year-end. The adjustment was due to a change in cir-cumstances which affected the judgement on the realizability of therelated deferred tax asset in future years.

2001 2000 1999Deferred tax assets:- long-term 408 426 885- short-term 595* 601* 577*

1 003 1 027 1 462

Provisions for deferred taxes:- long-term 1 616 1 323 1 254- short-term 277 273 255

1 893 1 596 1 509

Provisions for deferred taxes/deferred tax assets – net - 890 - 569 - 47

Short-term income taxes receivable 74* 83* 308*Short-term income taxes payable - 343 - 377 - 293

- 269 - 294 15

Gross deferred tax assets and provisions were related to the following items:

2001 2000 1999Provisions for pensions and other postretirement benefits 528 514 488

Tax loss carry-forwards 919 1 143 1 646Inventories 312 347 282Tangible capital assets 311 349 364Other 823 666 690Gross deferred tax assets 2 893 3 019 3 470Valuation allowance - 968 - 912 - 992Net deferred tax assets after valuation reserve 1 925 2 107 2 478

* Classified as Short-term tax assets in the Consolidated Balance Sheet.

2001 2000 1999Provisions for pensions and other postretirement benefits 24 18 18

Inventories 430 482 414Tangible capital assets 2 041 1 987 1 905Other 320 189 188Gross provision for deferred taxes 2 815 2 676 2 525

Provisions for deferred taxes/deferred tax assets – net - 890 - 569 - 47

Corporate income taxThe corporate nominal income tax rate in Sweden was 28% in2001, 2000 and 1999. The actual tax rate on profit before taxeswas 29% (33 and 37). A reconciliation of the statutory tax in Swe-den to the actual tax is outlined below:

2001 2000 1999Tax calculated on statutory tax rate in Sweden - 874 - 841 - 495

Difference between statutory tax ratein Sweden and foreign subsidiaries’weighted statutory tax rate - 141 - 194 - 47

Other taxes - 11 - 31 - 12Permanent differences 26 - 39 6Tax loss carry-forwards, net of changes in valuation allowance 50 101 - 92

Other, including translation adjustments 41 3 - 10

Actual tax - 909 - 1 001 - 650

Tax loss carry-forwardsAt December 31, 2001, the Parent Company and certain sub-sidiaries, principally in Germany, had tax loss carry-forwardsamounting to 2 726 (3 379 and 4 791). Such tax loss carry-for-wards expire as follows:

2002 1182003 1632004 2662005 842006 422007 and thereafter 2 053

At December 31, 2001, the total tax loss carry-forwards haveresulted in deferred tax assets of 276, net of valuation allowances,which are included in gross deferred tax assets above. Losses canbe used to reduce future taxable income, but since their benefithas already been recorded, their future use will not reduce the totaltax charge for the Group with the exception for release of valuationallowance.


47

6. INTANGIBLE ASSETS

Acquisition cost:Translation

2001 Additions Disposals Other* effects 2000 1999Goodwill 1 547 133 - 4 – 135 1 283 1 031Patents and similar rights 29 1 - 1 – 1 28 11Leaseholds 30 – – - 1 2 29 26Deferred charges 537 48 – - 42 22 509 463

2 143 182 - 5 - 43 160 1 849 1 531

Accumulated depreciation according to plan:Translation

2001 Depreciations Disposals Other* effects 2000 1999Goodwill 704 80 - 4 – 62 566 453Patent and similar rights 13 3 – – – 10 8Leaseholds 2 – – - 1 – 3 2Deferred charges 154 35 – - 37 5 151 124

873 118 - 4 - 38 67 730 587

Net book value 1 270 64 - 1 - 5 93 1 119 944

7. TANGIBLE ASSETS

Acquisition cost:Translation

2001 Additions Disposals Other* effects 2000 1999Land, land improvements and buildings 5 941 115 - 187 14 356 5 643 5 666

- Revaluations 499 – – - 31 25 505 482Machinery and supply systems 24 337 980 - 582 662 1 512 21 765 20 594- Revaluations 22 – - 13 9 3 23 28Machine tools, tooling, factory fittings, etc 3 355 235 - 345 - 192 212 3 445 3 308

Construction in process including advances 881 73 - 2 - 272 55 1 027 1 009

35 035 1 403 - 1 129 190 2 163 32 408 31 087

Accumulated depreciation according to plan:Translation

2001 Depreciations Disposals Other* effects 2000 1999Land improvements and buildings 3 126 142 - 92 - 12 170 2 918 2 858- Revaluations 270 13 – - 13 15 255 231Machinery and supply systems 15 353 1 319 - 534 - 20 947 13 641 12 585- Revaluations 57 – - 4 – 4 57 62Machine tools, tooling, factory fittings, etc 2 630 240 - 307 92 157 2 448 2 277

21 436 1 714 - 937 47 1 293 19 319 18 013

Net book value 13 599 - 311 - 192 143 870 13 089 13 074

* The net book value in the column Other mainly consists of divested and acquired companies.


48

Capital leases included in tangible assets consisted of thefollowing:

Acquisition value:2001 2000 1999

Land, land improvements and buildings 84 76 70

Machinery and supply systems 16 3 1Machine tools, tooling, factory fittings, etc 55 68 48

155 147 119

Accumulated depreciation according to plan:2001 2000 1999

Land, land improvements and buildings 60 53 46

Machinery and supply systems 4 2 1Machine tools, tooling, factory fittings, etc 28 28 19

92 83 66

Tax value of Swedish real estate:2001 2000 1999

Land 130 128 108Buildings 526 576 595

656 704 703

8. LONG-TERM FINANCIAL ASSETS

2001 2000 1999Long-term financial receivables 1 383 1 052 895- Associated companies – – 1Debt securities 27 24 22

1 410 1 076 918Substantially all the long-term financial receivables comprise ofprepaid pensions and deposits.

9. INVENTORIES

Inventories, net of allowance for obsolescence, consist of the following:

2001 2000 1999Raw materials and supplies 2 083 1 821 1 542Work in process 1 694 1 781 1 650Finished goods 5 336 5 660 5 448

9 113 9 262 8 640

10. ACCOUNTS RECEIVABLE – TRADE

2001 2000 1999Accounts receivable 7 294 6 941 6 408Acceptances receivable 449 436 423

7 743 7 377 6 831Allowance for doubtful accounts - 301 - 286 - 268

7 442 7 091 6 563

The change in allowance for doubtful accounts charged againstprofit amounted to 50 (57 and 54).

11. OTHER SHORT-TERM ASSETS

2001 2000 1999Other short-term receivables 685 701 673- Associated Companies 5 – 1Prepaid expenses 274 461 219Accrued income 162 140 100Advances to suppliers 69 39 42

1 195 1 341 1 035

12. SHORT-TERM FINANCIAL ASSETS

2001 2000 1999Short-term investmentsin bonds and other securities 699 425 557- in treasury bills and

government bonds 2 281 1 250 96- with banks 470 443 314- other 821 520 417Cash and bank accounts 1 116 843 592

5 387 3 481 1 976

Unrealized holding loss on short-term financial assets as perDecember 31, included in financial income and expense amountedto 5 (3 and 15).


49

13. SHAREHOLDERS’ EQUITY

Share capital

The share capital at December 31, 2001, consisted of the followingshares (par value SEK 12.50 per share):

Number of sharesauthorized and Aggregate

outstanding par valueA shares 49 256 332 616B shares 64 581 435 807

113 837 767 1 423

An A share has one vote and a B share has one-tenth of one vote.

Restricted reserves

In accordance with statutory requirements in Sweden and certainother countries in which the Group operates, the Parent Companyand its subsidiaries maintain restricted reserves which are notavailable for distribution as dividends.

The Swedish Companies Act requires that 10% of net profit betransferred to the legal reserve (part of restricted reserves) until thelegal reserve together with the premium reserve amounts to 20%of the share capital. As of 1997, premiums paid on new shareissues must be transferred to the premium reserve. Premiums onnew share issues prior to 1997 have been transferred to the legalreserve. Differences between statutory reporting and reporting forGroup purposes are also treated as restricted reserves.

In countries where legal revaluations of assets are made, anamount corresponding to the net revaluation must be transferredto legal reserves.

Tax laws in Sweden and certain other countries permit alloca-tions to reserves that are deductible for tax purposes. To a certainextent, companies can thus allocate profit so that it remains in thecompanies without being taxed immediately. In the balance sheetthe cumulative value of these allocations, less the related provi-sions for deferred tax, is shown under restricted reserves.

Unrestricted equity

Unrestricted earnings include earnings distributable by the ParentCompany and those net earnings that may be remitted from sub-sidiaries to the Parent Company within one year. The unrestrictedequity has been reduced by accumulated losses in other sub-sidiaries. In determining the remittable amounts, consideration hasbeen given to legal and exchange restrictions, but not to thefinancial position of the remitting subsidiaries.

Changes in shareholders’ equityRe- Unre-

Share stricted stricted

capital reserves equity Total

Opening balance 1999-01-01 1 423 7 029 2 480 10 932

Cash dividend – – - 228 - 228Net profit – – 1 111 1 111Transfer between restricted andunrestricted reserves – - 200 200 –

Translation effects – - 305 - 143 - 448Closing balance 1999-12-31 1 423 6 524 3 420 11 367


Translation effects – 598 122 720Closing balance 2000-12-31 1 423 6 781 5 390 13 594


Translation effects – 793 268 1 061Closing balance 2001-12-31 1 423 6 765 8 036 16 224

As described in Note 1, translation effects arising from the applica-tion of the current rate method were transferred directly to share-holders’ equity. Changes in cumulative translation effects includedin shareholders’ equity, were as follows:

2001 2000 1999Balance at beginning of year 627 - 93 355Translation effects 1 061 720 - 448Balance at end of year 1 688 627 - 93

50

14. PROVISIONS FOR PENSIONS AND OTHERPOSTRETIREMENT BENEFITS

2001 2000 1999Provisions for pensions 5 365 5 261 5 177Provisions for other postretirement benefits 1 679 1 485 1 301

7 044 6 746 6 478

Provisions for pensions

Charges against profit for pensions were 614 (478 and 654), whichinclude an interest cost calculated at 258 (243 and 274). The inter-est arose mainly on obligations for pensions in Sweden, Germanyand the U.S.

Interest rates used vary by country, and the average were 3.7%(4.2 and 3.6) for indexed Swedish pensions and 3.0% (3.5 and 3.5)for fixed Swedish pensions. An interest rate of 6.0% (6.0 and 6.0)was used for the German companies, which represented in aver-age 75% of the Group’s total pension obligation.

Provisions for other postretirement benefits

The Group sponsors several defined postretirement benefit planscovering most salaried and hourly employees in the United States.The plans, which are fully provided for but unfunded, provide certain health care and life insurance benefits for eligible retiredemployees. Net periodic postretirement benefit costs were 154(136 and 121), which include an interest cost calculated at 124(115 and 98).

For more information, see reconciliation to U.S. GAAP in Note 27.9Provisions for pensions and postretirement benefits.

15. OTHER PROVISIONS

2001 2000 1999Provisions for employee benefitsother than pensions 1 010 924 891

Other provisions 2 419 2 122 1 9043 429 3 046 2 795

Provisions for employee benefits other than pensions include anemployee’s right to certain benefits when leaving the companyeither before or on the retirement. The benefit is paid out in alumpsum and not during the remaining lifetime of the employee.The Groups business in Italy accounted for approximately 73% ofthe provision.

16. LONG-TERM LOANS

Long-term loans at the end of the year, excluding the short-termportion were:

2001 2000 1999Debentures (maturing from 2002to 2008) bearing interest from 6.6 to 14.5%* 2 507 2 945 3 118

Bank loans (maturing from 2002to 2007) bearing interest from 4.0 to 21.4%* 69 1 098 1 122

Other loans (maturing from 2002to 2019) bearing interest from 3.2 to 8.5%* 254 220 513

2 830 4 263 4 753* December 31, 2001.

The short-term portion of long-term loans is included in short-termloans (see Note 19).

Maturities of long-term loans outstanding at December 31, 2001are as follows:2003 5602004 3392005 802006 212007 1 7102008 and thereafter 120

Long-term loans outstanding at December 31, 2001 per currencyare as follows:USD 2 250SEK 352EUR 2INR (Indian rupies) 192IDR (Indonesian rupies) 13Other currencies 21

The terms of certain loan agreements in the subsidiaries containvarious restrictions, relating principally to the further pledging ofassets, additional borrowing and payment of intercompany divi-dends.

Of the long-term loans 180 (283 and 370) were secured atDecember 31, 2001.

The market value of long-term loans was approximately thesame as the book value after taking related interest rate swapsinto account. The market value was calculated by discounting thefuture cash flows of the loans using the interest rates currentlyavailable.

17. OTHER LONG-TERM LIABILITIES

2001 2000 1999Long-term portion of capitalleases (see Note 18) 29 30 25

Other 47 64 5476 94 79



51

18. LEASES

Future minimum rental commitments at December 31, 2001, forcapital leases and non-cancellable (within one year) operatingleases were as follows:

Capital Operatingleases leases

2002 16 2132003 14 1622004 11 1182005 6 962006 2 802007 and thereafter – 359

Less: Interest and executory costs - 6Present value of minimum leasepayments under capital leases 43

Less: Current portion - 14Long-term portion (see Note 17) 29

Net rental expense related to operating leases was 227 (220 and186). Contingent rentals and sub-lease revenues were not signifi-cant in any of the years presented.

19. SHORT-TERM LOANS

2001 2000 1999Bank loans 324 377 751Other short-term loans 124 188 206

448 565 957Short-term portion of long-term loans 263 140 266

711 705 1 223

The maximum of the monthly short-term loans outstanding, exclud-ing the short-term portion of long-term loans, was 915 (1 787 and2 100). The average of monthly short-term loans outstanding duringthe year was 779 (1 201 and 1 654). The weighted average interestrate was 5.4% (5.7 and 5.7). Average amounts outstanding andweighted average interest rates have been computed based on theamounts outstanding at the end of each month and related interestexpense. The interest rate at December 31, 2001 was 5.9%.

At December 31, 2001, the Group had unutilized long-termlines of credit of 3 183 expiring in 2006. Commitment fees of0.2025% are required on these lines of credit.

20. ACCOUNTS PAYABLE – TRADE

2001 2000 1999Accounts payable 2 947 2 837 2 546Acceptances payable 279 262 239

3 226 3 099 2 785

21. OTHER SHORT-TERM LIABILITIES

2001 2000 1999Other short-term liabilities 891 790 838Accrued expenses and deferred income 3 639 3 120 2 598

4 530 3 910 3 436Accrued expenses and deferred income included accrued vaca-tion pay of 657 (669 and 605). Accrued social charges (includingpayroll taxes) of 418 (394 and 417) were also included.

22. ASSETS PLEDGED

Assets that have been pledged to secure loans and other obligations:2001 2000 1999

Mortgages on real estate 260 307 345Chattel mortgages 116 141 294Other mortgages 42 42 –

418 490 639Mortgages are stated at the nominal value of the mortgage deedsand other pledged assets are stated at net book value. Thepledged assets secured loans and other obligations of 319 atDecember 31, 2001, (430 and 580).

23. CONTINGENT LIABILITIES

2001 2000 1999Discounted bills 21 12 11Other guarantees and contingent liabilities 89 135 54

110 147 65

24. GEOGRAPHIC INFORMATION

Net sales per geographic area were as follows:2001 2000 1999

Sweden 1 793 1 850 1 674Europe (excluding Sweden) 21 520 19 295 18 351North America 11 444 10 795 9 643Other countries 8 613 7 908 7 025

43 370 39 848 36 693

Identifiable assets (total assets excluding cash, bank accounts,short-term investments, intercompany receivables and sharehold-ings, but before consolidation eliminations), amounted at Decem-ber 31 to 37 624 (36 424 and 34 533). The geographic location ofthese assets were as follows:

2001 2000 1999Sweden 6 207 6 346 6 033Europe (excluding Sweden) 16 573 15 634 15 340North America 9 058 8 690 7 703Other countries 5 786 5 754 5 457

37 624 36 424 34 533


52

25. SPECIFICATION OF SALARIES, WAGES AND REMUNERATIONS FOR EMPLOYEES

2001 2001 2000 2000 1999 1999Salaries, wages Social charges1) Salaries, wages Social charges Salaries, wages Social charges

and other (whereof and other (whereof and other (whereofremunerations1) pension cost) remunerations pension cost) remunerations pension cost)

Parent Company in Sweden 91 65 83 65 102 77(50) (52) (61)

Subsidiaries in Sweden 1 417 802 1 529 683 1 503 635(255) (145) (141)

Subsidiaries abroad 9 615 2 822 8 741 2 507 8 281 2 470(309) (281) (452)

11 123 3 689 10 353 3 255 9 886 3 182(614) (478) (654)

1) Including one-time items of MSEK 327.

Specification of salaries, wages and remunerations:2001 2001 2000 2000 1999 1999

Board and Other Board and Other Board and OtherPresident employees President employees President employees(whereof (whereof (whereof

bonus, etc) bonus, etc) bonus, etc)

Parent Company in Sweden 17 (5) 74 18 (6) 65 9 (5) 93Total Parent Company in Sweden 91 83 102

Subsidiaries in Sweden 18 (2) 1 399 17 (2) 1 512 13 1 490Total subsidiaries in Sweden 1 417 1 529 1 503

Subsidiaries abroad 89 (8) 9 526 86 (3) 8 655 82 (2) 8 199Total subsidiaries abroad 9 615 8 741 8 281

Group 124 (15) 10 999 121 (11) 10 232 104 (7) 9 782Total Group 11 123 10 353 9 886

Geographic specification of salaries, wages and remunerations in subsidiaries abroad:2)

2001 2001 2000 2000 1999 1999Board and Other Board and Other Board and OtherPresident employees President employees President employees(whereof (whereof (whereof

bonus, etc) bonus, etc) bonus, etc)

France 6 1 193 10 1 063 7 986Germany 12 (3) 2 375 12 (1) 2 179 11 2 195Italy 8 (1) 1 406 6 (1) 1 240 6 (1) 1 277Western Europe excluding Sweden 22 (1) 1 199 16 1 053 16 951Central and Eastern Europe 4 112 2 94 3 92USA 6 (1) 2 360 4 2 221 7 2 018North America – 64 – 46 – 42Latin America 7 (1) 290 15 249 9 192Asia 22 (1) 440 21 (1) 416 22 (1) 359Africa 2 87 – 94 1 87

89 9 526 86 8 655 82 8 199Total subsidiaries abroad 9 615 8 741 8 281

2) A complete list of geograhic specification of Salaries, wages and remunerations for employees abroad by country is available at Patent- och Registreringsverket and at the Parent company.


53

Salaries, Wages and other Remunerations for SKF Board ofDirectors, Chief Executive Officer and Group Management

At the Annual General Meeting held in 2001 it was decided that theBoard shall be entitled to an allotment of SEK 2 350 000. At theStatutory Board Meeting it was decided that this allotment shouldbe divided among the Board Members elected by the Annual Gen-eral Meeting as follows. SEK 700 000 should be distributed to theChairman of the Board and SEK 275 000 to each elected BoardMember who is not employed by AB SKF.

Sune Carlsson, Chief Executive Officer (CEO) and President ofAB SKF, received as salary and other remunerations SEK 10 549 070,of which SEK 3 900 000 was a bonus. Sune Carlsson’s fixed annualsalary for 2001 amounted to SEK 6 500 000. AB SKF made premiumpayments in 2001 corresponding to 35% of Sune Carlsson’s fixedannual salary for the future pension benefit of Sune Carlsson. In theevent of termination at the request of AB SKF, Sune Carlsson willreceive a severance payment amounting to maximum two years’salary.

The SKF Group’s Swedish pension plan for senior managerscomprises 14 persons. The CEO is not embraced by the said pen-sion plan. The plan entitles the senior managers concerned to anadditional pension over and above the ordinary plan. This addi-tional pension amounts to a yearly compensation from the age of65 maximised to 32.5% of the pensionable salary above 20 basicamounts, provided the senior manager has been employed by theSKF Group for 30 years. This benefit was provided for in the Groupaccounts and amounted to MSEK 20 as at December 31, 2001.

In the event of termination at the request of AB SKF, GroupManagement members will receive severance payments amount-ing to maximum two year’s salary.

SKF´s Stock Option ProgrammeIn 2000, a Stock Option Programme on SKF shares already issuedreplaced the call option programme instituted in 1996.

The purpose of SKF´s Stock Option Programme is to attractand retain the best available personnel, to provide additionalincentive to these key individuals and to promote the success ofthe company´s business by aligning employee financial interestswith a long-term shareholder value.

The allocation of options is based on financial performancedefined as SKF´s management model using a simplified economicvalue-added-model called Total Value Added; TVA (see "FinancialObjectives and Dividend Policy" for description). The optionsunder SKF´s Stock Option Programme become exercisable twoyears from the date of grant provided the option holder is stillemployed with SKF.

In 2002, 271 managers have been granted stock options entitling them to buy totally 589 950 existing SKF B shares. Thegrant, which is free of charge, is based on the SKF Group TVA per-formance for 2001. Each option gives the right to purchase exist-ing SKF B shares at the exercise price of 246 SEK per share dur-ing a period of six years. The stock options can be exercised toacquire shares two years from the date of grant at the earliest, pro-vided the employment with SKF still exists.

Based on the SKF Group TVA performance for 2002, 339 man-agers may be granted, free of charge, stock options entitling themto buy totally a maximum of 813 000 SKF B shares. Each optionwould give the right to purchase existing B shares at an exerciseprice per share of 110% of the average of the market value of theB share during the three days following the announcement of thefull year result 2002 at the beginning of 2003. The options that maybe allocated during 2003 would be exercisable during six yearsstarting two years from the date of grant provided the employmentwith SKF still exists.

The stock options allocated in year 2001 and 2002 have beenpartly hedged to reduce the cost for SKF in case of an increase ora decrease in the SKF B share price.

The hedging costs for stock options allocated year 2001 and2002 amount to approximately 2 MSEK per year.

The decisions relating to the SKF Stock Option Programmewere taken by the Board of Directors of AB SKF and were preparedby the Remuneration Committee of the Board of AB SKF.

Specification of yearly allocation according to the Group´s option programmesYear of allocation No of No of Exercise Exercise

options people Price Period

1996 Call Option Programme1997 28 545 18 190 1997-20031998 14 935 18 205 1998-20041999* – – – –2000 110 000 122 236 2000-20052000 Stock Option Programme2001 402 000 183 174 2003-20072002 589 950 271 246 2004-2008

* no options granted

Fee to the Auditors

Fee to Group statutory auditor, Arthur Andersen AB, regardingaudit amounted to MSEK 21 (17 and 17) for 2001. Fees for otherassignments than audit amounted to MSEK 15 (10 and 10). Theparent company’s share of the Group’s audit fee amounted toTSEK 130 (127 and 126) and fee for other assignments amountedto TSEK 1 156 (3 072 and 816).

54

26. AVERAGE NUMBER OF EMPLOYEES

2001 2001 2000 2000 1999 1999Number of Whereof Number of Whereof Number of Whereofemployees men employees men employees men

Parent Company in Sweden 112 59% 115 62% 124 65%Subsidiaries in Sweden 4 772 82% 5 104 81% 5 229 82%Subsidiaries abroad 32 752 81% 34 338 82% 35 394 80%

37 636 81% 39 557 82% 40 747 81%

Geographic specification of average number of employees in subsidiaries abroad:*2001 2001 2000 2000 1999 1999

Number of Whereof Number of Whereof Number of Whereofemployees men employees men employees men

France 3 902 83% 3 968 84% 3 833 84%Italy 5 076 83% 4 995 83% 5 522 85%Germany 5 721 89% 5 935 89% 5 725 89%Western Europe excluding Sweden 3 116 84% 3 162 85% 3 048 85%Central/Eastern Europe 2 194 64% 2 368 66% 3 427 64%USA 5 062 72% 5 874 74% 5 902 70%North America 185 78% 191 83% 168 79%Latin America 1 667 85% 1 872 85% 1 896 86%Asia 5 068 84% 5 198 84% 5 103 83%Africa 761 75% 775 78% 770 68%

32 752 81% 34 338 82% 35 394 81%

* A complete list of geograhic specification of Average number of employees by country is available at Patent- och Registreringsverket and at the Parent Company.


U . S . G A A P

55

27. SUMMARY OF MAJOR DIFFERENCES BETWEEN SWEDISH AND U.S. GENERALLYACCEPTED ACCOUNTING PRINCIPLES

An annual report, Form 20-F, is submitted to the Securities andExchange Commission (SEC) in the U.S. The accounting principlesof the Group are based on generally accepted accounting princip-les in Sweden, which differ from U.S. GAAP in the cases describedbelow.

1. Deferred income taxesAdjustments for deferred income taxes in the reconciliation to U.S.GAAP are attributable to the differences described below (seeitems 27.2 to 27.12) with the exception of a deferred tax liabilityamounting to MSEK 155 per December 31, 2001, which has beenrecorded for U.S. GAAP reconciliation purposes only. According toSwedish GAAP there is no requirement to record this deferred taxliability, which arose in the local books of an Italian subsidiary dueto revaluation of fixed assets, since in reality no taxation will occurunless the subsidiary is liquidated or the equity portion in questiondistributed to the shareholders. However, according to U.S. GAAPsuch deferred tax liabilities should be recorded.

2. GoodwillThe SKF Group amortizes goodwill based on the estimated eco-nomic lifetime. For U.S. GAAP purposes goodwill generated inacquisitions made prior to July 1, 2001, is amortized based on its estimated useful life. For acquisitions after July 1, 2001, good-will arising will not be amortized during 2001. From January 1,2002, goodwill will no longer be amortized annually, but will betested for impairment for U.S. GAAP purposes.

3. Revaluation of tangible assetsIn certain countries, tangible assets have been revalued at anamount in excess of cost. U.S. GAAP does not permit the revalua-tion of tangible assets in the financial statements.

4. Capitalization of interest expenditureIn accordance with Swedish GAAP, the SKF Group has not capital-ized interest expenditure incurred in connection with the financingof expenditures for construction of tangible assets.

Under U.S. GAAP interest costs should be capitalized as partof the cost of the qualifying asset. The capitalized interest shouldbe amortized over the estimated useful life of the asset as part ofthe depreciation charge.

5. Capitalization of internally developed software costsIn accordance with Swedish GAAP the SKF Group has not capital-ized costs associated with developing or acquiring computer soft-ware intended for internal use.

According to U.S. GAAP certain directly related costs incurredduring the application development stage are required to be capi-talized and amortized on a straight line basis over the estimateduseful lifetime of the system.

6. Provisions for restructuringProvisions for restructuring have been made based on SwedishGAAP. U.S. GAAP is more restrictive as to when provisions forrestructuring plans can be recorded. For example, provisions forinvoluntary employee termination costs cannot be made unlessthe terms of such restructuring plans are communicated to theemployees concerned before year-end. Voluntary employee termi-nation costs are not recognized until the employee has acceptedand signed the contract of retirement. Those provisions whichhave been reversed for U.S. GAAP purposes are mainly reversedsince the above mentioned criteria are not fulfilled.

Certain provisions have in accordance with U.S. GAAP beenclassified as impairment of fixed assets. A deduction amounting toMSEK 282, net, has been made from the net book value of the rel-evant assets per December 31, 2001.

7. Gains on sale of real estateGains on sale of real estate leased back in the form of operationalleases are realised at the date of transaction according to SwedishGAAP but should be deferred and amortized over the lifetime ofthe lease contract according to U.S. GAAP. Gains on sales of realestate in Spain, Sweden and the Netherlands have been deferredin accordance with these principles.

8. Non-recurring bonus distributionAs a result of overconsolidation, the Swedish insurance companyAlecta pensionsförsäkring decided on a non-recurring bonus dis-tribution to its client companies. The Group received in cashMSEK 15 and MSEK 227 in 2001 and 2000, respectively out of thedecided distribution of MSEK 250. According to U.S. GAAP onlythe cash amount should be recognized in earnings while SwedishGAAP allows the full amount to be recognized.

9. Provisions for pensions and postretirement benefitsPeriodic pension cost and liability and postretirement benefits arecalculated by the Group according to local laws and accountingprinciples.Provisions for pensionsUnder U.S. GAAP, the annual pension cost comprises the esti-mated future compensation levels, retirement age and other factors, depending on the plan adjusted for any surplus or deficitarising at the time SFAS 87 was adopted.

The Group sponsors benefit plans, defined according to SFAS87, in several countries, principally Sweden, Germany, France, theUnited States and Spain. The Swedish plan supplements statutorypensions where benefits are established by national organizations.The subsidiaries in France sponsor a retirement indemnity plan inaccordance with French National Employer/Employee agreements.Plans in Germany, Spain and the United States are designed tosupplement these countries’ social security pensions.

The U.S. and French plans are funded. Benefits are based on acombination of age, salary and service and are available to allemployees meeting age, service and other requirements.

SFAS 132 requires a reconciliation of beginning and endingbalances of the benefit obligation, the fair value of plan assets,assumptions used in the accounting for the plans, the fundedstatus of the plan and certain other disclosures.

56

The following tables summarize disclosures under SFAS 132.2001 2000 1999

Change in benefit obligation (PBO)Benefit obligation at beginning of year 9 855 9 289 9 146Service cost 165 153 162Interest cost 663 608 571Transfers to external pension insurance companies - 191 - 65 - 298

Plan amendments 64 19 19Adjustments* - 46 - 101 52Actuarial gain(-)/loss 37 - 63 96Benefits paid - 651 - 597 - 549Other - 11 - 2 - 3Currency translation adjustment 778 614 93Benefit obligation (PBO) at end of year 10 663 9 855 9 289

* Adjustments made for new/sold companies and businesses.

2001 2000 1999Change in plan assetsFair value of plan assetsat beginning of year 5 644 5 055 4 054

Actual return on plan assets - 236 318 950Employer contribution 29 24 20Benefits paid - 326 - 286 - 252Other – - 55 –Currency translation adjustment 651 588 283Fair value of plan assets at end of year 5 762 5 644 5 055

Funded status - 4 901 - 4 210 - 4 234Unrecognized transition amountat introduction of SFAS 87 36 44 125

Unrecognized prior service cost 149 126 124Unrecognized actuarial gain(-)/loss 442 - 278 - 358Net amount recognized - 4 274 - 4 318 - 4 343

Weighted average assumptions as of December 31Discount rate 6.4 6.4 6.4Expected return on plan assets 9.9 9.9 9.9Rate of compensation increase 3.6 3.6 3.5

Components of net periodic benefit costService cost 165 153 162Interest cost 663 608 571Expected return on plan assets - 564 - 459 - 368Amortization of- unrecognized transition amount 14 12 15- prior service cost 25 22 19- recognized losses 11 11 7Other* - 2 9 93Net periodic benefit cost 312 356 499

* Incl. cost of 72 in 1999 due to close-down of operations.

PBO = Projected Benefit Obligation

Adjustment required torecognize minimum liability 532 551 463

Amount included within other com-prehensive income from a change in minimum pension liability 19 - 88 43

Plan assets are invested primarily in securities and bonds.

Provisions for postretirement benefitsSKF sponsors several postretirement benefit plans, definedaccording to SFAS 106, and covering most salaried and hourlyemployees in the United States. The plans provide certain healthcare and life insurance benefits for eligible retired employees.There is no difference between Swedish and U.S. GAAP forpostretirement benefits.

2001 2000 1999Change in benefit obligationBenefit obligationat beginning of year 1 810 1 501 1 380

Service cost 22 19 16Interest cost 124 115 98Participant contribution 7 4 2Actuarial gain(-)/loss - 158 91 8Benefits paid - 140 - 108 - 103Other 8 12 26Currency translation adjustment 210 176 74Benefit obligation at end of year 1 883 1 810 1 501

Change in plan assetsEmployer contribution 132 104 101Participant contribution 7 3 2Benefits paid - 139 - 107 - 103Fair value of plan assetat end of year – – –

Funded status - 1 883 - 1 810 - 1 501Unrecognized prior service cost 3 1 - 11Unrecognized actuarial loss 200 324 210Net amount recognized - 1 680 - 1 485 - 1 302

Weighted-average assumptions as of December 31Discount rate 7.00 7.00 7.00Health care cost trend rate for retirees- under the age of 65 9.50 7.00 7.50- 65 and older 9.50 6.75 7.00

The assumed medical care cost trend rates for 2001 for partici-pants whose benefits are not capped was 9.5%, declining by0.5% per year to an ultimate rate of 5.5%.

An increase in the assumed health care cost trend rates by onepercentage point would affect the accumulated postretirementbenefit obligation as of December 31 by 120 (114 and 105) and the


57


aggregate of the service and interest cost components of the netperiodic postretirement benefit by 11 (10 and 9).

A corresponding one percentage point decrease would affectthe accumulated postretirement benefit obligation as of December31 by -103 (-100 and -92) and the aggregate of the service andinterest cost components of the net periodic postretirement bene-fit by -9 (-9 and -8).

Components of net periodic postretirement benefit cost2001 2000 1999

Service cost 22 19 16Interest cost 124 115 98Amortization of- prior service cost - 2 - 11 -13- recognized losses 2 9 9Other 8 4 11Net periodic postretirement benefit cost 154 136 121

10. Statements of cash flowUnder Swedish GAAP, the cash effect of changes in pensions pro-visions is treated as a financing cash flow. Under U.S. GAAP thecash flow arising from pensions provisions should be classified as operational cash flow. Therefore, at December 31, 2001, anamount of MSEK -146 (17 and -323) should be reclassified fromfinancial to operational cash flow. Additionally, under U.S. GAAPamounts in the cash flow statements regarding financing andinvestment activities are presented gross, while the Group pre-sents them net. Under U.S. GAAP supplemental cash flow infor-mation regarding taxes are presented while the Group presentstaxes as a part of cash flow from operations.

The cash flows under U.S. GAAP would be as follows:2001 2000 1999

Cash flow from operations 5 597 3 953 2 642Cash flow from investment activities - 1 472 - 1 056 - 746Cash flow from financing activities - 2 365 - 1 503 - 2 234

11. Derivative Instruments and Hedging ActivitiesDerivative InstrumentsThe Group has a policy for the management of financial risks,including currency, interest rate and credit risks. This policy is discussed in the Annual Report in the section ”Financial Risk Management”. The policy sets forth the financial risk mandatesand the financial instruments authorized for use in the manage-ment of financial risks. Derivative financial instruments are usedprimarily to hedge the Group’s exposure to fluctuations in foreigncurrency exchange rates and interest rates. The Group also usesderivative financial instruments for trading purposes, limitedaccording to Group policy.

During 2001, forward exchange contracts, cross currencyswaps and currency options were the derivative financial instru-ments used by the Group to hedge foreign currency rate exposure,including the hedging of firm commitments, anticipated transac-tions and internal bank activities. Cross currency swaps and inter-

est rate swaps were used to manage the interest rate exposure onforeign currency borrowings, by swapping fixed interest rates tofloating interest rates.

The table below summarizes the derivative financial instru-ments of the Group per December 31, 2001.

Financial derivative instrumentsType of instruments 2001 2000 1999Forward exchange contracts 15 606 15 785 12 869Currency options 4 370 914 425Interest rate swaps 2 158 3 133 3 528Others 160 – –

22 294 19 832 16 822

Hedge AccountingThe table below summarizes the gross contactual amountsof the Group’s derivative financial instruments by purpose.

Purpose 2001 2000 1999Hedging of- firm commitments 4 414 4 584 4 239- anticipated transactions 7 070 3 233 1 822- other internal bank activities 8 556 8 165 7 094Trading 493 717 139Interest rate management 1 761 3 133 3 528

22 294 19 832 16 822

The Group applies hedge accounting in accordance with SwedishGAAP. The accounting policies for financial derivative instrumentsaccording to Swedish GAAP are described in Note 1.

As from 2001, the new U.S. GAAP rules for hedge accountingare applicable for the Group and financial derivatives can only beused as hedging instruments according to U.S. GAAP if the rulesfor hedge accounting according to SFAS 133 ”Accounting forDerviative Instruments and Hedging Activities” are met. The SKFGroup has decided not to apply such hedge accounting and there-fore all outstanding financial derivative instruments are recognizedat fair value in the U.S. GAAP Balance Sheets and all changes infair value are recognized in earnings.

At December 31, 2001, the total carrying amounts recognizedin the Group result according to Swedish GAAP for all outstandingfinancial derivative instruments were MSEK –97 (57 for 2000 and–149 for 1999, respectively). The corresponding fair value accord-ing to U.S. GAAP for all financial derivative instruments was MSEK–34 (MSEK 98 at January 1, 2001). The adjustment for U.S. GAAPwas MSEK 63 (MSEK 41 as at January 1, 2001). The transitionamount when implementing SFAS 133 per January 1 amounted toMSEK 15, net of taxes.

Market quotes were obtained for all financial derivative instru-ments. All forward contracts, cross currency swaps and currencyoptions used to hedge the Group’s exposure to fluctuations in for-eign currency as well as trading contracts will mature in 2002. Forinterest rate swaps the maturity dates vary from 2002 to 2007.

58


Contracts with embedded derivativesAccording to definitions set out in SFAS 133, certain business contracts may include embedded derivatives. Such embeddedderivatives should also be valued at fair value and recognized aseither assets or liabilities in the balance sheet to correctly reflectthe Group financial postition.

At December 31, 2001, the fair value of such embedded derivatives amounted to MSEK - 56 (MSEK - 35 at January 1, 2001).These amounts are only recognized in the U.S. GAAP reconcilia-tion. The transition amount when implementing SFAS 133 per January 1 amounted to MSEK -23, net of taxes.

The table below summarizes the amounts of the Group’s out-standing contracts with embedded derivatives.

Contracts with embedded derivativesType of contracts 2001-12-31 2001-01-01Exchange risk insurancecontracts 475 506Sales/purchases in third-party-currency 10 1

485 507

Credit risksThe Group’s concentration of operational credit risk is limited pri-marily because of its many geographically and industrially diversecustomers.

The Group is exposed to credit losses in the event of non-performance by the counterparties to its financial instruments butdoes not expect any counterparties to fail to meet their obliga-tions. The Group deals only with well-established internationalfinancial institutions. The Group does not obtain collateral or othersecurity to support financial derivative instruments subject tocredit risk.

12. Hedging of anticipated transactions before implementationof SFAS 133Prior to the introduction of SFAS 133, forward exchange contractswere recognized as a hedge only when there was a firm commit-ment. Contracts hedging anticipated transactions, not covered byfirm commitments, were accounted for as the difference betweenthe agreed forward rate and the market forward rate on the closingday, according to U.S. GAAP.

According to Swedish GAAP, contracts hedging anticipatedtransactions, not covered by firm commitments, are also reportedas hedges. In these cases a valuation of the contract is not made.

At December 31, 2000, a net unrealized gain of 28 (loss of 13 in1999) was deferred with respect to hedges of anticipated transac-tions. The accounting for this amount represented a differencebetween U.S. GAAP and Swedish GAAP prior to the introductionof SFAS 133 in 2001.

13. Comprehensive income according to SFAS 130Swedish GAAP does not require the presentation of comprehen-sive income in addition to profit for the year. The comprehensiveincome required to be presented under U.S. GAAP was as follows:

2001 2000 1999Net profit in accordance withU.S. GAAP 1 947 1 874 826

Translation adjustments 1 061 720 - 448Change in minimum pension liability 19 - 88 43

Comprehensive incomein accordance with U.S. GAAP 3 027 2 506 421Accumulated OCI effect from implementation of SFAS 133* 30 – –

Part of Accumulated OCI transitionamount recognized in earnings afterimplementation of SFAS 133 1 – –

Comprehensive income in accordance with U.S. GAAP after implementation of SFAS 133 3 058 2 506 421

* Expected to be reclassified into earnings through 2007.

14. Diluted earnings per shareThe diluted earnings per share as of December 31, 2001, havebeen calculated according to U.S. GAAP, SFAS 128. The sharesequivalent to the options allocated in 2001 based on the TVA result of the Group for 2000 did not affect diluted earnings pershare, since the exercise price of these options approximates theaverage price of the SKF B share during 2001.

The Group believes it has economically hedged the StockOption Program and the resulting financial derivative instrumentused has been measured at fair value as of December 31, 2001,and reflected in the financial statements according to U.S. GAAP.

15. New accounting principles to be adopted 2002 for U.S. GAAPEffective from 2002 the following new accounting recommenda-tions from FASB become effective; SFAS 141 Business Combina-tions, SFAS 142 Goodwill and Other Intangible Assets, SFAS 143Accounting for Asset Retirement and SFAS 144 Accounting for theImpairment of Disposal of Long-Lived Assets Obligations.

The impact of these Statements on the Group has not yet beenassessed. However, they are not expected to have a materialimpact on the results of operations or the financial position.


59

16. SummaryThe application of U.S. GAAP would have the following effect onconsolidated net profit, shareholders’ equity and earnings per share:Net profit:

2001 2000 1999As reported in the consolidated income statements 2 167 1 962 1 111

Items increasing/decreasing net profit:27.1 Deferred income taxes - 154 7 11227.2 Goodwill 1 – –27.3 Depreciation on revaluation of assets including effect in connection with sale 31 14 21

27.4 Capitalization of interest expense - 5 6 1827.5 Capitalization of internally developed software costs 15 52 90

27.6 Provisions for restructuring - 86 - 64 - 35327.7 Gains on sale of real estate 2 - 80 - 14827.8 Non-recurring bonus distribution 15 -23 –27.9 Pensions - 32 - 28 - 1227.11 Derivative instruments and hedgingactivities 1 – –27.12 Hedging of anticipated transactionsbefore implementation of SFAS 133 – 28 - 13Net change in net profit: - 212 - 88 - 285Net profit in accordance with U.S. GAAPbefore implementation of SFAS 133 1 955 1 874 826Accumulated result effect from imple-mentation of SFAS 133, net of taxes - 8 – –Net profit in accordance with U.S. GAAPafter implementation of SFAS 133 1 947 1 874 826

Shareholders’ equity:2001 2000 1999

As reported in the consolidatedbalance sheets 16 224 13 594 11 367

Items increasing/decreasing shareholders’ equity:

27.1 Deferred income taxes - 106 45 3827.2 Goodwill 1 – –27.3 Reversal of revaluation of assets - 195 - 214 - 21727.4 Capitalization of interest expense 236 241 23527.5 Capitalization of internally developed software costs 157 142 90

27.6 Provisions for restructuring 197 283 34727.7 Gains on sale of real estate - 226 - 228 - 14827.8 Non-recurring bonus distribution - 8 - 23 –27.9 Pensions - 265 - 233 - 20527.11 Derivative instruments and hedgingactivities 7 – –27.12 Hedging of anticipated transactionsbefore implementation of SFAS 133 – 18 - 10Net change in shareholders’ equity - 202 31 130Shareholders’ equity in accordancewith U.S. GAAP 16 022 13 625 11 497

Earnings per share, in SEK:2001 2000 1999

Basic earnings per share in accordance with U.S. GAAP before implementation of FASB 133 17.17 16.46 7.26

Basic earnings per share inaccordance with U.S. GAAP after implementation of FASB 133 17.10 17.21 7.26

Weighted average number of shares outstanding 113 837 767 113 837 767 113 837 767

60

Summary comparing the reported consolidated balance sheets with the balance sheets after adjustments to U.S. GAAP:As reported in the Amounts after

consolidated balance sheets adjustments to U.S. GAAP2001 2000 1999 2001 2000 1999

Intangible assets 1 270 1 119 944 1 678 1 704 1 237Long-term deferred tax assets 408 426 885 498 507 933Tangible assets 13 599 13 089 13 074 13 358 12 748 13 092Long-term financial assets 1 814 1 404 1 114 1 814 1 404 1 114Inventories 9 113 9 262 8 640 9 113 9 262 8 640Short-term tax assets 669 684 885 681 698 893Other short-term assets 8 637 8 432 7 598 8 637 8 427 7 598Short-term financial assets 5 387 3 481 1 976 5 387 3 481 1 976Total assets 40 897 37 897 35 116 41 166 38 231 35 483

Shareholders’ equity 16 224 13 594 11 367 16 022 13 625 11 497Minority interest 591 467 398 591 467 398Provisions for pensions and otherpostretirement benefits 7 044 6 746 6 478 7 691 7 561 7 006

Provision for deferred taxes, long-term 1 616 1 323 1 254 1 824 1 369 1 272Provision for deferred taxes, short-term 277 273 255 279 277 255Other provisions 3 429 3 046 2 795 2 817 2 256 2 328Long-term loans 2 830 4 263 4 753 2 830 4 263 4 753Other long-term liabilities 76 94 79 269 297 211Short-term loans 711 705 1 223 711 705 1 223Other short-term liabilities 8 099 7 386 6 514 8 132 7 411 6 540Total equity, provisions and liabilities 40 897 37 897 35 116 41 166 38 231 35 483


61

28. INVESTMENTS

2001 2000 1999Investments in Associated Companies 185 125 0Other investments 219 203 196

404 328 196Investments in Associated Companies

Nominal Book valueHolding Number value in in SEK

Name and location in percent of shares Currency thousands thousandsHeld by Parent Company:Endorsia.com International AB, Göteborg, Sweden 20.0 34 000 SEK 3 400 8 880Momentum Industrial Maintenance Supply AB, Göteborg, Sweden 33.1 3 313 SEK 331 41 500NN Euroball ApS, Denmark 23.0 – EUR 26 210 515Total 260 895Adjustment to Group book value - 128 470

Held by subsidiaries:Sealpool A/S, Denmark 50.00 100 DKK 100 1 069Sealpool Ltd., U.K. 50.00 117 GBP 65 806RC DEI a/s, Norway 50.00 25 000 NOK 25 2 044DEI Services Sdn. Bhd., Malaysia 30.00 30 000 MYR 30 –DEI Services Ltd., U.K. 50.00 2 GBP 1 –CoLinx LLC, USA 25.00 1 USD 1 451 15 397International Component Supply, Ltda, Brazil 50.00 9 249 BRL 8 945 40 728Gamfior India Service Centre, India 74.00 74 INR 2 922 660 637Adjustment to Group book value - 8 075Investments in Associated Companies 185 031


62


Other investments


Name and location in percent of shares Currency thousands thousandsHeld by Parent CompanyBostadsrättsföreningen Kristinelundsgatan nr 5, Göteborg, Sweden 1 SEK – 2 884Prästgårdsmarkens villaägare, ek. fören., Göteborg, Sweden 30 SEK 30 30FlexLink AB, Göteborg, Sweden 9.4 2 304 409 SEK 2 304 26 700Hofors Energi AB, Hofors, Sweden 49.0 2 000 SEK 2 000 2 000AEC Japan Co. Ltd., Japan 50.0 400 JPY 20 000 820ADELA Investment Company, Luxemburg 2 080 USD 208 0b-business partners B.V., The Netherlands 1.0 35 000 EUR 35 31 298S2M, France 11.9 153 093 FRF 2 570 8 681The Swedish-American Chamber of Commerce, USA 50 USD 50 318Wafangdian Bearing Company Limited, Peoples Republic of China 19.7 65 000 000 CNY 65 000 120 009Société Immobilière de l’Ecole Scandinave, Belgium 20 BEF 400 0Other shares and securities 5Total held by Parent Company 192 745


Name and location in percent of shares Currency thousands thousandsHeld by subsidiariesJernkontoret, Stockholm, Sweden 0.8 8 SEK 187 187Gävle Sjöfarts AB, Gävle, Sweden 2.5 270 SEK 27 54AB Järnbruksförnödenheter, Stockholm, Sweden 20.0 300 SEK 30 69Företagshälsovården i Hofors, Hofors, Sweden 50.0 500 SEK 50 50Tågåkeriet i Bergslagen AB, Kristinehamn, Sweden 10.0 2 SEK 60 60IUC Sandviken AB, Sandviken, Sweden 12.5 500 SEK 50 50Industrikompetens i Östergötland AB, Linköping, Sweden 2.0 180 SEK 18 160Suomen Voimansiirto Oy, Finland 1.0 1 EUR 33 309Voimansiirto Oy, Finland 10.0 60 FIM 60 82Société Immobilière de l’Ecole Scandinave, Belgium 12.0 150 EUR 74 693Gemeinnützige Wohnungsbaugesellschaft Schweinfurt GmbH, Germany 25.0 1 EUR 128 1 199Gesellschaft z. Entsorgung v. Sondermüll in Bayern mbH, Germany 0.4 1 EUR 41 384GKS Gemeinschaftskraftwerk Schweinfurt GmbH, Germany 16.5 1 EUR 1 687 15 802IPO, France 0.1 1 EUR 29 300SKF Reamur, s.a.s, France 0.1 1 EUR 38 356United Trust of India, India 0.01 2 150 000 INR 21 500 4 728Skefko Bearings Newcastle, Australia 30.0 12 000 AUD 12 65Other 1 294Total held by subsidiaries 25 842

Total investments Held by subsidiaries 25 842Held by Parent Company 192 745Total investments SKF Group 218 587


63

Holding in Owned by Name and location percent subsidiary in:Investments in major SKF subsidiaries held by other subsidiaries*SKF GmbH, Schweinfurt, Germany 99.9 The NetherlandsSKF Industrie S.p.A, Turin, Italy 100 The NetherlandsSKF France S.A., Clamart, France 100 FranceSKF (U.K.) Ltd., Luton, U.K. 100 U.K.SKF Española, S.A., Madrid, Spain 100 ItalySKF Bearings India Ltd., Bombay, India 0.47 SwedenSKF Bearings India Ltd., Bombay, India 7.52 U.K.SKF do Brasil Ltda., Guarulhos-São Paulo, Brazil 0.1 SwedenRFT S.p.A., Turin, Italy 100 ItalySKF Argentina S.A., Buenos Aires, Argentina 0.1 The NetherlandsSKF Japan Ltd., Tokyo, Japan 100 The NetherlandsCR Elastomere GmbH, Leverkusen-Opladen,Germany 100 GermanyOvako Ajax Inc., York, USA 100 USASKF Canada Ltd., Scarborough, Canada 37.5 The NetherlandsSKF Gleitlager GmbH, Püttlingen (Saar) Germany 100 GermanySKF B.V., Veenendaal, The Netherlands 100 The NetherlandsSKF Bearing Industries (Malaysia) Sdn.Bhd., Nilai, Malaysia 26.8 GermanySKF Bearing Industries (Malaysia) Sdn.Bhd., Nilai, Malaysia 73.2 The NetherlandsSARMA, Saint Vallier s/Rhone Cedex, France 100 FranceSKF China Ltd., Hong Kong, China 100 Hong KongOvako Stahl GmbH, Germany 100 SwedenSKF Linearsysteme GmbH, Schweinfurt, Germany 100 GermanyOfficine Meccaniche di Villar Perosa S.r.l., Villar Perosa, Italy 100 Italy

* A complete list of all SKF subsidiaries is available at Patent- och Registreringsverket in Sweden and at the Parent Company.

For investments in subsidiaries held by the Parent Company, see Note 5 in footnotes to the Parent Company.

64

PA R E N T C O M PA N Y I N C O M E S TAT E M E N T S

Millions of Swedish kronor 2001 2000 1999Administrative expenses Note 4 - 136 - 134 - 192Other operating revenues 16 132 14Other operating expenses - 7 - 12 - 8

Operating loss - 127 - 14 - 186

Financial income and expense - net Note 1 545 251 171

Profit/loss before provisions to untaxed reserves and taxes 418 237 - 15

Provisions Note 2 1 657 304Taxes Note 3 95 - 235 24

Net profit/loss 514 659 - 313

65

PA R E N T C O M PA N Y B A L A N C E S H E E T S D E C E M B E R 3 1


ASSETSCapital assetsIntangible assets 33 – –Long-term deferred tax assets Note 3 52 104 339Tangible assets Note 4 11 13 25Investments in consolidated subsidiaries Note 5 8 976 8 889 8 563Long-term receivables from consolidated subsidiaries 2 616 3 625 4 041Investments in Associated Companies Note 5 261 261 0Other investments Note 5 193 171 155

12 142 13 063 13 123Short-term assetsShort-term receivables from consolidated subsidiaries 1 246 1 055 884Short-term tax assets Note 3 13 13 13Other short-term assets Note 6 152 80 45Short-term financial assets Note 7 3 1 1

1 414 1 149 943

Total assets 13 556 14 212 14 066

EQUITY, PROVISIONS AND LIABILITIESShareholders’ equity Note 8Restricted equityShare capital (113 837 767 shares, nominal valueSEK 12.50 per share) 1 423 1 423 1 423

Legal reserve 633 633 633Unrestricted equityRetained earnings 4 046 3 416 3 558Net profit 514 659 313

6 616 6 131 5 927

Untaxed reserves Note 2 1 2 12

ProvisionsProvisions for pensions and similar commitments Note 9 229 239 244Other provisions 7 7 6

236 246 250Long-term liabilitiesLong-term loans Note 10 2 549 3 606 4 026Long-term liabilities to consolidated subsidiaries 1 824 2 024 1 732

4 373 5 630 5 758Short-term liabilitiesShort-term loans Note 11 163 14 14Accounts payable - trade 18 10 11Short-term liabilities to consolidated subsidiaries 1 937 1 971 1 873Other short-term liabilities Note 12 212 208 221

2 330 2 203 2 119

Total equity, provisions and liabilities 13 556 14 212 14 066

Assets pledged Note 13 42 42 –Contingent liabilities Note 14 122 175 95

66

PA R E N T C O M PA N Y S TAT E M E N T S O F C A S H F L O W


Profit/loss before provisions to untaxed reserves and taxes 418 237 - 15Depreciation on tangible assets 2 3 3Write-downs of equity securities 270 32 446Net gain(-)/loss on sales of tangible assets and equity securities - 81 - 96 6Exchange rate effects on short-term financial assets 1 – 0Changes in working capital:Accounts payable 8 - 1 4Other operating assets, liabilities and provisions – net 85 524 854

Cash flow from operations 703 699 1 298

Investments in tangible assets and equity securities - 114 - 644 - 717Sales of tangible assets and equity securities 154 117 16Cash flow after investments before financing 743 172 597

Change in loans - 1 180 - 756 - 1 026Change in pensions - 10 - 5 - 150Change in other long-term assets and liabilities – net 1 048 1 044 803Cash dividends to shareholders - 598 - 455 - 228Cash effect on short-term financial assets 3 0 - 4

Change in short-term financial assetsOpening balance, January 1 1 1 5Cash effect 3 0 - 4Exchange rate effect - 1 0 0Closing balance, December 31 3 1 1

Change in net interest-bearing liabilities during 2001Opening balance Exchange rate Change in Closing balance

January 1, effect loans/assets December 31,2001 2001

Loans, long- and short-term 3 620 272 - 1 180 2 712Loans from subsidiaries, long- and short-term 2 594 – - 301 2 293Provisions for pensions 239 – - 10 229Receivables from subsidiaries, long- and short-term - 3 613 - 274 1 287 - 2 600Financial assets, short-term - 1 1 - 3 - 3Net interest-bearing liabilities 2 839 - 1 - 207 2 631

Interest received amounted to 233 (292 and 353). Interest payments amounted to 354 (400 and 400).

AB SKF considers short-term financial assets to be cash and cash equivalents (see Note 7).

67

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S F O R T H E PA R E N T C O M PA N YAmounts in millions of Swedish kronor (MSEK) unless otherwise stated.

For description of accounting principles, see Note 1 to the Consol-idated Financial Statements.

1. FINANCIAL INCOME AND EXPENSE

2001 2000 1999Income from investments inconsolidated subsidiaries 712 371 247Income from investmentsin associated companies 1 – –

Income from other equity securitiesand long-term financial investments 523 634 516

Other financial income andsimilar items 0 1 3

Interest expense and similar items - 691 - 755 - 595545 251 171

Specification of financial income and expense, net2001 2000 1999

Dividends related to- investments in consolidated

subsidiaries 684 298 693Income from investementsin associated companies 1 – –

- income from other equity securities and long-term financial investments 4 4 4

Total dividends 689 302 697

Interest income related to- income from other equity securities

and long-term financial investments - consolidated subsidiaries 236 291 327

- other financial income and similar items - consolidated subsidiaries 1 0 1- other 0 1 2

Total interest income 237 292 330

Interest expense for- financial liabilities related to

interest expense and similar items - consolidated subsidiaries - 154 - 112 - 68- other - 249 - 296 - 331

- pensions and other postretirement benefits related to interest expense and similar items - 9 - 10 - 10

- interest expense and similar items 0 0 - 3Total interest expense - 412 - 418 - 412

2001 2000 1999Financial exchange gains and losses related to- income from other equity securities

and long term financial investments - consolidated subsidiaries 281 339 184

- other financial income and similar items - other - 1 – –

- interest expense and similar items - other - 279 - 337 - 183

Total financial exchange gainsand losses 1 2 1

Capital gains and losses from sales related to- investments in consolidated

subsidiaries 298 105 0- other equity securities and

long-term financial assets 2 0 1Total capital gains and losses

from sales 300 105 1

Write-downs related to- income from investments in - consolidated subsidiaries - 270 - 32 - 446

Total write-downs - 270 - 32 - 446

Financial income and expense, net 545 251 171

2. PROVISIONS AND UNTAXED RESERVES

Provisions2001 2000 1999

Change in accelerated depreciation reserve 1 9 3

Change in other reserves – 1 - 11 10 2

Group contribution received – 889 641Group contribution paid – - 180 - 191Allowance for shareholders’ contribution – - 62 - 148

– 647 3021 657 304

Untaxed reserves2001 2000 1999

Accelerated depreciation reserve 1 2 11

Other reserves – – 11 2 12

68

N O T E S , P A R E N T C O M P A N Y

3. TAXES

2001 2000 1999Taxes on profit before taxes- tax on Group contribution 147 – –- deferred taxes, net - 52 - 235 24

95 - 235 24

Deferred tax assets were related to the following items:2001 2000 1999

Provisions for pensions and other postretirement benefits 10 8 12

Tax loss carry-forwards 154 181 427Other 18 32 17Gross deferred tax assets 182 221 456Valuation allowance - 117 - 104 - 104Net deferred tax assets after valuation reserve 65 117 352

Corporate income tax and tax loss carry-forwardsThe corporate nominal income tax rate in Sweden was 28% in2001, 2000 and 1999. For 2001 the Parent Company had a taxincome of 95 (- 235 and 24) which refers to tax effect on paid andreceived Group contributions and changes in deferred tax assets.

The actual tax for 2001 amounts to 0 (0 and 0) as tax loss carry-forwards were used to reduce the taxable income of the year. AtDecember 31, 2001, the Parent Company had tax loss carry-for-wards amounting to 550 (646 and 1 523). Tax loss carry-forwardshave no time limit in Sweden. At December 31, 2001, the total tax loss carry-forwards haveresulted in deferred tax assets of 37 (77 and 323), net of valuationallowances, which are included in gross deferred tax assets above.Tax loss carry-forwards can be used to reduce future taxableincome, but since their benefit has already been recorded, theirfuture use will not reduce the total tax charge for the Companywith the exception for release of valuation allowance.


69

4. TANGIBLE ASSETS

Acquisition cost:Additions

2001 during the year Disposals 2000 1999Land, land improvements and buildings 12 1 - 2 13 15Machinery and supply systems 12 1 - 1 12 31

24 2 - 3 25 46

Accumulated depreciation according to plan:Depreciation

2001 during the year Disposals 2000 1999Land, land improvements and buildings 2 0 0 2 2Machinery and supply systems 11 2 - 1 10 19

13 2 - 1 12 21

Net book value 11 0 - 2 13 25

Depreciation according to plan is included in administrative expenses.

Tax value of tangible assets:2001 2000 1999

Land and land improvements 3 2 2Buildings 7 5 6

10 7 8

5. INVESTMENTS

Investments in subsidiaries are specified below. For specification of investments in Associated Companies and other investments held bythe Parent Company, see Note 28 to the Consolidated Financial Statements.

Investments in subsidiaries held by the Parent Company on December 31, 2001Nominal Book value

Holding Number of value in in SEKName and location in percent shares Currency thousands thousandsManufacturing companiesSKF Sverige AB, Göteborg, Sweden 100 2 650 000 SEK 265 000 363 300SKF USA Inc., Pa., USA 99.8 1 444 447 USD 72 222 770 617SKF Österreich AG, Austria 100 200 ATS 200 000 175 958SKF GmbH, Germany 0.1 – DEM 218 1 813SKF Poznan S.A., Poland 100 3 353 130 PLN 67 063 153 062Lutsk Bearing Plant, Ukraine 95.4 287 984 708 UAH 71 996 185 213SKF Actuators AB, Göteborg, Sweden 100 1 000 SEK 1 000 0SKF AutoBalance Systems AB, Göteborg, Sweden 91.0 9 100 SEK 910 912SKF de Mexico S.A. de C.V., Mexico 100 40 000 MXN 40 0SKF do Brasil Limitada, Brazil 99.9 99 327 664 BRL 99 328 164 191SKF Argentina S.A., Argentine (incl. share subscription) 99.9 500 259 ARP 500 51 537SKF Bearings India Ltd., India 46.0 20 806 258 INR 208 063 56 540 CR Seals India Private Limited, India 0.0 101 INR 1 0SKF Mekan AB, Katrineholm, Sweden 100 27 500 SEK 27 500 33 348Sealpool AB, Landskrona, Sweden 100 10 000 SEK 1 000 51 175Carried forward 2 007 666

70


Nominal Book value

Holding Number of value in in SEKName and location in percent shares Currency thousands thousandsCarried forward 2 007 666Anhui CR Seals Co. Ltd, Peoples Republic of China 60.0 25 212Beijing Nankou SKF Railway BearingsCompany Limited, Peoples Republic of China 51.0 – CNY 126 713 93 524

SKF Automotive Components Corporation, Republic of Korea 100 6 645 000 KRW 33 250 000 48 351CR Korea Co., Ltd., Republic of Korea 50.0 100 320 KRW 1 003 200 9 653PT. SKF Indonesia, Indonesia (incl. share subscription) 83.1 73 990 IDR 73 990 000 32 249

Sales companiesSKF Danmark A/S, Denmark 100 5 DKK 5 000 0SKF Norge A/S, Norway 100 50 000 NOK 5 000 0Oy SKF Ab, Finland 100 48 400 FIM 12 100 12 378SKF Portugal Rolamentos, Limitada, Portugal 95.0 – PTE 12 350 0SKF Loziska, a.s., Czech Republic 100 430 CZK 43 000 9 945SKF Svéd Golyóscsapágy Részvénytársaság, Hungary 100 3 000 HUF 600 14SKF Hellas S.A., Greece 100 2 000 GRD 45 320 0SKF Canada Limited, Canada 62.5 50 000 CAD – 0SKF del Peru S.A., Peru 100 1 806 122 PES 1 806 0SKF Chilena S.A.I.C., Chile 100 88 192 CLP 467 923 0SKF Venezolana S.A., Venezuela 2.4 4 758 VEB 4 758 0SKF Türk Sanayi ve Ticaret Limited Sirketi, Turkey 0.0 50 TRL 250 1SKF South East Asia (Pte) Ltd., Singapore 100 1 000 000 SGD 1 000 0SKF Australia Pty Ltd., Australia 100 96 500 AUD 193 0SKF New Zealand Limited, New Zealand 100 375 000 NZD 750 0SKF Zimbabwe (Private) Limited, Zimbabwe 0.0 1 ZWD 0 0SKF (Zambia) Ltd., Zambia 0.0 1 ZMK 0 0SKF Kenya Limited, Kenya 0.0 1 KES 0 0SKF Eurotrade AB, Göteborg, Sweden 100 83 500 SEK 8 350 10 169SKF Multitec AB, Helsingborg, Sweden 100 29 500 SEK 2 950 4 545SKF Service AB, Göteborg, Sweden 100 278 000 SEK 27 800 33 605

Other CompaniesSKF Bearings Ltd., United Kingdom 100 10 000 GBP 10 0Trelanoak Ltd., United Kingdom 20.0 6 965 000 GBP 6 965 119 817SKF Holding Maatschappij Holland B.V., The Netherlands 100 60 000 NLG 60 000 5 035 746SKF Engineering & Research Services B.V., The Netherlands 13.4 121 NLG 12 7 684SKF Verwaltungs AG, Switzerland 100 500 CHF 250 501 898SKF Bearings Bulgaria EOOD, Bulgaria 100 – BGL 5 24SKF Holding Mexicana, S.A. de C.V., Mexico 98.0 22 687 633 MXN 2 269 120 029SKF (China) Investment Co. Ltd., Peoples Republic of China 100 – USD 30 000 244 139Barseco (Pty) Ltd, South Africa 100 300 ZAR 0 61 619SKF Australia (Manufacturing) Pty. Ltd., Australia 100 1 000 000 AUD 2 000 0Revolve Magnetic Bearings Inc., Canada 100 1 395 495 CAD – 0Carried forward 8 378 268


71

8. SHAREHOLDERS’ EQUITY

The distribution of share capital between share types is shown inNote 13 to the Consolidated Financial Statements.

Changes in shareholders’ equityUn-

Share Legal restricted

capital reserve equity Total

Closing balance 1998-12-31 1 423 633 3 458 5 514Accumulated effect of implementation of RR 9 ”Income Taxes”. – – 328 328

Opening balance 1999-01-01 1 423 633 3 786 5 842Cash dividend – – - 228 - 228Net profit – – 313 313Closing balance 1999-12-31 1 423 633 3 871 5 927

Nominal Book value

Holding Number of value in in SEKName and location in percent shares Currency thousands thousandsCarried forward 8 378 268SKF Lager AB, Göteborg, Sweden 100 150 000 SEK 3 000 0SKF Vehicle Parts AB, Göteborg, Sweden 100 115 000 SEK 11 500 13 872Nordiska Kullager Aktiebolaget, Göteborg, Sweden 100 1 000 SEK 100 101AB SKF-Agenturer, Göteborg, Sweden 100 100 SEK 100 0SKF Logistics Services AB, Göteborg, Sweden 100 80 000 SEK 6 400 9 760AB Compania Sudamericana SKF, Göteborg, Sweden 100 300 SEK 300 0AB S.A. des Roulements à Billes Suédois SKF, Göteborg, Sweden 100 100 SEK 100 0SKF International AB, Göteborg, Sweden 100 20 000 SEK 20 000 319 908SKF Reinsurance Co. Ltd., Göteborg, Sweden 100 30 000 SEK 30 000 80 200SKF Fondförvaltning AB, Göteborg, Sweden 100 10 000 SEK 1 000 998AB Svenska Kullagerfabriken, Göteborg, Sweden 100 1 000 SEK 100 101SKF Dataservice AB, Göteborg, Sweden 100 1 000 SEK 100 0SKF Nova AB, Göteborg, Sweden 100 1 000 SEK 100 0Bagaregården 16:7 KB, Göteborg, Sweden 99.9 – SEK 250 103* 36 815KB Gamlestaden 1:10, Göteborg, Sweden 0.0 – SEK 1 1SKF Fastighetsförvaltning AB, Göteborg, Sweden 100 2 000 SEK 200 245Ovako Couplings Holding AB, Göteborg, Sweden 100 2 800 000 SEK 280 000 106 470 Ovako Tube AB, Göteborg, Sweden 100 5 000 SEK 500 600Ovako Steel Holding AB, Göteborg, Sweden 100 9 600 000 SEK 960 000 27James Askew Associates AB JAAAB, Luleå, Sweden 100 4 000 SEK 400 28 795

8 976 161

* As face value the original investment capital for the limited partnership company is disclosed.

6. OTHER SHORT-TERM ASSETS

2001 2000 1999Other short-term receivables 126 64 40Prepaid expenses 26 16 5

152 80 45

7. SHORT-TERM FINANCIAL ASSETS

2001 2000 1999Short-term financial receivables 2 – –Cash and bank accounts 1 1 1

3 1 1

72

Changes in shareholders’ equityUn-

Share Legal restricted

capital reserve equity Total

Closing balance 1999-12-31 1 423 633 3 871 5 927Cash dividend – – - 455 - 455Net profit – – 659 659Closing balance 2000-12-31 1 423 633 4 075 6 131Cash dividend – – - 598 - 598Net of received and paidGroup contributions – – 811 811

Tax on Group contributions net – – - 242 - 242

Net profit – – 514 514Closing balance 2001-12-31 1 423 633 4 560 6 616

Sale of fractions has during 2001 increased the legal reserve by249 TSEK.

9. PROVISIONS FOR PENSIONS AND SIMILARCOMMITMENTS

Charges against profit/loss for pensions and similar plans were 50 (52 and 61) which include an interest cost calculated at 9 (10and 10).

Provisions for pensions include pensions in the FPG - PRI(Pension Registration Institute) system by 203 (212 and 193).

10. LONG-TERM LOANS

Long-term loans at the end of the year, excluding the short-termportion:

2001 2000 1999Bonds 2 400 2 731 2 912Bank loans – 713 638Other borrowings 149 162 476

2 549 3 606 4 026

The above loans were denominated in the following currencies:2001 2000 1999

Swedish kronor 349 513 1 177United States dollars 2 200 3 093 2 849

2 549 3 606 4 026

Maturities of long-term loans as at December 31, 2001, were asfollows:

2003 5142004 2122005 112006 112007 1 7072008 and thereafter 94

The terms of certain loan agreements contain restrictions relatingto further pledging of assets.

11. SHORT-TERM LOANS

2001 2000 1999Current portion of long-term loans 163 14 14

163 14 14

12. OTHER SHORT-TERM LIABILITIES

2001 2000 1999Other short-term liabilities 11 6 2Accrued expenses and deferred income 201 202 219

212 208 221Accrued expenses and deferred income include accrued interestof 108 (130 and 144).

13. ASSETS PLEDGED

2001 2000 1999Shares 42 42 –

42 42 –

14. CONTINGENT LIABILITIES

2001 2000 1999Guarantees in respect of consolidatedsubsidiaries’ obligations 66 73 71

Other guarantees and contingentliabilities 56 102 24

122 175 95

15. AVERAGE NUMBER OF EMPLOYEES, WAGES,SALARIES AND REMUNERATIONS

For wages, salaries and other remunerations to employees – seeNote 25 to the Consolidated Financial Statements.

For the average number of employees – see Note 26 to theConsolidated Financial Statements.


73

P R O P O S E D D I S T R I B U T I O N O F S U R P L U S

Retained earnings SEK 4 046 635 103Profit for the year SEK 513 676 816Total surplus SEK 4 560 311 919

The Board of Directors and the President recommend,that a dividend of 6.00 Swedish kronor per share be paid to the shareholders SEK 683 026 602that the balance be carried forward SEK 3 877 285 317

SEK 4 560 311 919

The results of operations and the financial position of the Parent Company and the Group in 2001are given in the income statements and in the balance sheets together with related notes.

Stockholm, January 29, 2002

Anders Scharp Vito H Baumgartner Göran JohanssonSune Carlsson Ulla Litzén Hans-Åke RingströmSören Gyll Philip N Green Kennet CarlssonHelmut Werner Clas Åke Hedström Anders Olsson

A U D I T O R S ’ R E P O RT

To the general meeting of the shareholders of AB SKF, corporate identity number 556007-3495.

We have audited the annual accounts, the consolidated accounts,the accounting records and the administration of the Board ofDirectors and the President of AB SKF for the year 2001. Theseaccounts and the administration of the company are the responsi-bility of the Board of Directors and the President. Our responsibilityis to express an opinion on the annual accounts, the consolidatedaccounts and the administration based on our audit.

We conducted our audit in accordance with generally acceptedauditing standards in Sweden. Those standards require that weplan and perform the audit to obtain reasonable assurance that theannual accounts and the consolidated accounts are free of mater-ial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts.An audit also includes assessing the accounting principles usedand their application by the Board of Directors and the President,as well as evaluating the overall presentation of information in theannual accounts and the consolidated accounts. As a basis for ouropinion concerning discharge from liability, we examined signifi-cant decisions, actions taken and circumstances of the companyin order to be able to determine the liability, if any, to the companyof any Board Member or the President. We also examined whetherany Board Member or the President has, in any other way, acted incontravention of the Companies Act, the Annual Accounts Act or

the Articles of Association. We believe that our audit provides areasonable basis for our opinion set out below.

The annual accounts and the consolidated accounts have beenprepared in accordance with the Annual Accounts Act and,thereby, give a true and fair view of the company’s and the group’sfinancial position and results of operations in accordance withgenerally accepted accounting principles in Sweden

We recommend to the general meeting of shareholders that theincome statements and balance sheets of the parent company andthe group be adopted, that the profit for the parent company bedealt with in accordance with the proposal in the administrationreport and that the Members of the Board of Directors and thePresident be discharged from liability for the financial year.

Göteborg, March 1, 2002

Arthur Andersen AB

Hans PihlAuthorized public accountant

S H A R E S A N D S H A R E H O L D E R S

74

Exchange listing of SKF shares, location, year of introduction and distribution of shares as per December 31, 2001

Stockholm London Paris Zürich New York

(1914) (1928) (1929) (1930*) (1985)

A shares, unrestricted 49 256 332 •B shares, unrestricted 64 581 435 • • • • •Total 113 837 767

* Genève 1930, Basel 1985, Zürich 1985.

An A share has one vote and a B share has one-tenth of one vote.

The SKF share is traded in the USA through the NASDAQ system via American Depositary Receipts (ADR).

Changes in share capital 1982–2001

Amount paid Share capital Number of shares Par value

MSEK MSEK in millions SEK per share

1982 Bonus issue 1:4 1 350 27.0 50.00

1989 Split 4:1 1 350 108.0 12.50

1990 Conversion of debentures 62 1 412 113.0 12.50

1997 Conversion of bonds 11 1 423 113.8 12.50

SKF shares are mainly traded in Stockholm and London

Stockholm London

Year Number of shares MSEK Number of shares MSEK

1995 89 040 000 12 414 72 060 000 *

1996 76 636 130 11 281 70 224 523 10 267

1997 80 880 606 15 335 79 329 702 15 746

1998 114 360 493 16 070 72 421 778 10 841

1999 118 193 348 18 752 54 476 302 8 992

2000 184 190 098 29 327 108 613 511 17 605

2001 180 943 908 30 003 84 584 836 14 319

Source: Stockholm Stock Exchange, London Stock Exchange * No information available

Price development of the SKF B share

100

150

200

250

300

350

400

450

1996 1997 1998 1999 2000 200180

Stockholm Stock Exchange. All-share_PI(SAX) index

SKF B share, monthly closing rate

SEK

100

150

200

250

300

350

400

450

80

SEK

0

5

10

15

20

010099

9.76

17.2

3

19.0

4

0

50

100

150

010099

100

119

143

0

10

20

30

40

010099

19.4

9 25.3

0

37.5

2

Earnings per

share, SEK

Shareholders’

equity per share,

SEK

Cash flow after

investments,

before financing,

per share, SEK

S H A R E S A N D S H A R E H O L D E R S

75

Share savings fund for employees

SKF Allemansfond, a national security savings fund in which SKF employees in Sweden can save, was started

in April 1984. 50% of the fund has been invested in SKF shares on December 31, 2001. On December 31, 2001,

the SKF Allemansfond had 749 members and assets amounting to MSEK 64.

Distribution of shareholding

Shareholding Number of shareholders Percent Number of shares Percent

1 – 1 000 34 822 91.5 7 562 242 6.6

1 001 – 10 000 2 684 7.0 7 301 366 6.4

10 001 – 100 000 413 1.1 13 309 990 11.7

100 001 – 135 0.4 85 664 169 75.3

38 054 100.0 113 837 767 100.0

Source: VPC AB ( Securities Register Centre) as of 2001-12-28

The ten largest shareholders

Number of Number of In percent of In percent of

A-shares B-shares shares votes voting rights share capital

1) The Knut and Alice Wallenberg

Foundation 14 142 151 0 14 142 151 14 142 151 25.4 12.4

2) Alecta (pension funds) 4 556 546 166 069 4 722 615 4 573 153 8.2 4.1

3) Skandia (Insurance Group) 2 266 866 365 607 2 632 473 2 303 427 4.1 2.3

4) Banco savings funds 1 563 825 3 700 1 567 525 1 564 195 2.8 1.4

5) AMF (pension funds) 1 245 000 948 700 2 193 700 1 339 870 2.4 1.9

6) The National Insurance Fund,

Third Fund Managing Board 1 157 900 978 408 2 136 308 1 255 741 2.3 1.9

7) Investors Trading 1 246 700 0 1 246 700 1 246 700 2.2 1.1

8) The Marianne and Marcus Wallenberg

Foundation 1 144 501 0 1 144 501 1 144 501 2.1 1.0

9) Nordbanken savings funds 734 200 1 013 500 1 747 700 835 550 1.5 1.5

10) The National Insurance Fund

Fourth Fund Managing Board 506 000 2 183 160 2 689 160 724 316 1.3 2.4

52.3 30.0

Source: VPC AB’s public share register as of 2001-12-28.

As of December 31, 2001, about 28.8% of the share capital was owned by foreign investors, about 62.6% by Swedish

companies, institutions and mutual funds, and about 8.6% by private Swedish investors. Most of the shares owned by

foreign investors are registered through trustees, so that the actual shareholders are not officially registered.

Geographical ownership

Source: SIS Ägarservice AB

Per-share data (Definitions see note 1)

Swedish kronor/share 1995 1996 1997 1998 1999 2000 2001

Earnings/loss per share (1) 18.10 14.90 13.70 - 14.40 9.76 17.23 19.04

Dividend per A and B share 5.25 5.25 5.25 2.00 4.00 5.25 6.00(2)

Total dividends paid in millions of Swedish kronor 480 593 593 598 228 455 598

Purchase price of B shares at year-end on the

Stockholm Stock Exchange 127 160 169 94.50 207 142.50 206

Shareholders’ equity per share (1) 89 99 111 96 100 119 143

Yield in percent (B) (1) 4.1 3.3 3.1 2.1 1.9 3.7 2.9

P/E ratio, B (1) 7.0 10.8 12.3 neg 21.2 8.3 10.8

Cash flow after investments, before financing per share – – – - 10.73 19.49 25.30 37.52

1) Data per share has been recalculated due to changed accounting principles of the Group (see Note 1) and to take into account the

conversion of 838 211 shares in July 1997.

2) Dividend according to the Board’s proposed distribution of surplus.

Analysts who follow SKF

ABG Sundal CollierKlas Andersson

Alfred Berg FondkomissionGustaf Lindskog

Bankaktiebolaget JP NordiskaPeder Frölén

CAI Cheuvreux NordicPeter Karlsson

Commerzbank SecuritiesAndy Chambers

Credit Suisse First BostonPatrick Marshall

D. Carnegie ABOscar Stjerngren

Danske SecuritiesAnders W BruzeliusMikael Sens

Deutsche BankAndrew CarterKenneth Toll

Dresdner Kleinwort WassersteinFredrik Karlsson

Enskilda SecuritiesAnders Eriksson

Evli Bank plcPekka Spolander

Fischer Partners FKHenrik Moberg

Goldman Sachs Intern.Colin Gibson

Hagströmer & Qviberg FKOla Asplund

Handelsbanken SecuritiesOlof Jonasson

HSBCRoddy Bridge

JP Morgan SecuritiesMichael Clark

Julius BaerRoland Jonsson

Lehman BrothersPeter Lawrence

Merrill LynchMark Troman

Morgan StanleyDaniel CunliffeGideon Franklin

Nordea SecuritiesJohan Sivander

Oppenheim Research GmbHWinfried Becker

Schroder Salomon Smith BarneyTim Adams

SG SecuritiesSimon Fenwick

Swedbank MarketsMats LissHans Westerberg

UBS WarburgGraham Phillips

West LB PanmureRalf Dörper

Öhman FondkommissionAnders Roslund

■ Sweden

■ USA

■ Europe excl. Sweden

■ Rest of the world

1999 2000 2001

76

Anders Scharp*

Born 1934. Chairman.Board member since 1992.Chairman Saab AB, Atlas Copco ABand AB Nederman.Board member Investor AB.Shareholding in SKF: 25 000

Sune Carlsson

Born 1941. President and ChiefExecutive Officer.Board member since 1991.Board member Atlas Copco AB.Shareholding in SKF: 5 000 and 502 734 options

Vito H Baumgartner*

Born 1940. Board member since 1998.Group President Caterpillar Inc.Vice Chairman of the European-American Industrial Council (EAIC).Member of the Nomination Committeeof the Swiss-American Chamber ofCommerce.Member of the Management Board ofthe Federation des Syndicats Patronaux(Employers’ Federation).Board member Aeroport Internationalde Geneve.Member and past Chairman of theFoundation Board of International Insti-tute for Management Development(IMD).Member of the Russian Academy ofTransportation in St. Petersburg.Shareholding in SKF: 600

Philip N Green

Born 1953. Board member since 2000.Chief Operating Officer,Reuters Group PLC.Board member Reuters Group PLC.

Sören Gyll*

Born 1940. Board member since 1997.Chairman Genesis-IT AB, DHJ MediaAB, Capedal AB and The Confedera-tion of Swedish Enterprise.Board member Skanska AB, SCASvenska Cellulosa Aktiebolaget, AskusAB, Medicover S.A. (Belgium) and TheRoyal Swedish Academy ofEngineering Sciences (IVA).Shareholding in SKF: 2 000

Clas Åke Hedström

Born 1939. Board member since 2000.President and Chief Executive Officerof Sandvik AB.Board member Sandvik AB, Scania ABand The Association of SwedishEngineering Industries.Shareholding in SKF: 1 000

Ulla Litzén

Born 1956. Board member since 1998.Managing Director, WallenbergFoundations.Board member Atlas Copco AB.Shareholding in SKF: 6 000

Helmut Werner

Born 1936. Board member since 1998.Chairman of the Supervisory Boards ofmg technologies ag and F-LOG AG.Member of the Supervisory Boards ofAlcatel (Paris), BASF AG, Ernst &Young Deutsche Allgemeine TreuhandAG Wirtschaftsprüfungsgesellschaftand Gerling-Konzern Versicherungs-Beteiligungs AG.Shareholding in SKF: 670

Göran Johansson

Born 1945. Board member since 1975.Chairman Executive Committee of theCity Council of Göteborg.Chairman Liseberg AB.Board member Vattenfall.Shareholding in SKF: 100

Hans-Åke Ringström

Born 1945. Board member since 2001.Chairman SIF (The Swedish Union ofClerical and Technical Employees inIndustry), SKF, Göteborg.

Kennet Carlsson

Born 1962. Deputy board membersince 2001.Chairman Metalworkers’ Union, SKF,Göteborg.

Anders Olsson

Born 1952. Deputy board membersince 1998.Chairman SIF (The Swedish Union ofClerical and Technical Employees inIndustry) Ovako Steel AB, Hällefors.Shareholding in SKF: 33

Lennart Johansson

Honorary Chairman of the Board ofDirectors of AB SKF.

Hans Pihl

Authorized Public AccountantArthur Andersen AB.

* member of the Remuneration Committee

77

Anders Scharp Sune Carlsson

Sören Gyll Helmut Werner

Vito H Baumgartner

Ulla Litzén

Hans-Åke Ringström

Clas Åke Hedström

Kennet CarlssonGöran Johansson Anders Olsson

Lennart Johansson

Philip N Green

78

Sune Carlsson*President and Chief Executive OfficerBorn 1941Employed since 1998Shareholding in SKF:5 000 and 502 734 options1)

Board member AtlasCopco AB

Gunnar GremlinExecutive Vice President AB SKFand President SKF GmbH,Schweinfurt, GermanyBorn 1945Employed since 1969Shareholding in SKF: 300and 7 767 options1)

Board memberAB Ph Nederman & Co,Endorsia.com International ABand CoLinx, LLC

Tom Johnstone*Executive VicePresident AB SKFand President Automotive DivisionBorn 1955Employed since 1977Shareholding in SKF: 9 767 options1)

Christer Gyberg*Industrial DivisionBorn 1947Employed since 1972Shareholding in SKF:1 000 and 9 637 options1)

Board member CentaurUtveckling AB

Giuseppe Donato*Electrical DivisionBorn 1944Employed since 1979Shareholding in SKF:9 637 options1)

Phil Knights*Service DivisionBorn 1948 Employed 1987-1993and since 1996Shareholding in SKF:2 100 and6 000 options1)

Tore Bertilsson*Group Finance,Business Developmentand PurchasingBorn 1951Employed since 1989Shareholding in SKF: 2 000and 7 367 options1)

Board member SEBFondinvest, Ågrenska,Trygg-stiftelsenand Momentum Maintenance Supply AB

-- * member of the Group Executive Committee

79

Kaj Thorén*Aero and Steel DivisionBorn 1944Employed since 1975Shareholding in SKF:5 051 and 7 767 options1)

Board member FlexLink ABand Tradex Converting AB

Lars G MalmerGroup CommunicationBorn 1943Employed since 1974Shareholding in SKF:1 200 and 7 767 options1)

Board member International Council ofSwedish Industries andChalmers Teknikpark

Carina BergfeltGroup LegalBorn 1960Employed since 1990Shareholding in SKF: 6 702 options1)

Bengt Olof HanssonGroup Quality &Human ResourcesBorn 1947Employed since 1964Shareholding in SKF:5 367 options1)

Henning WittmeyerGroup TechnologyDevelopmentBorn 1942Employed since 1971Shareholding in SKF:3 000 and 7 767 options1)

Chairman SCEMMScandinavian Center ofMaintenance ManagementBoard member theAssociation for SurfaceChemistry Research

1)call and/or stock options

Sten MalmströmSKF USA Inc.Born 1943Employed since 1973Shareholding in SKF: 1 027 and 6 167 options1)

Managment changes during 2001

Martin Ivert, President Steel Division, left the company onDecember 31, 2001.

80

S E V E N - Y E A R R E V I E W O F T H E S K F G R O U P

Amounts in millions of Swedish kronor unless otherwise stated 1995 1996 1997 1998 1999 2000 2001

Income statements

Net sales 36 700 33 589 36 922 37 688 36 693 39 848 43 370

Sweden 2 202 1 869 1 967 1 983 1 674 1 850 1 793

Operating expenses - 32 775 - 31 122 - 34 717 - 37 648 - 34 576 - 36 363 - 39 852

Other operating revenue/expense - net 75 407 799 - 928 403 182 104

Profit/loss in associated companies – – - 55 - 111 – 7 12

Operating profit/loss 4 000 2 874 2 949 - 999 2 520 3 674 3 634

Financial income and expense, net - 611 - 462 - 843 - 1 064 - 751 - 672 - 514

Profit/loss before taxes 3 389 2 412 2 106 - 2 063 1 769 3 002 3 120

Taxes - 1 301 - 701 - 583 377 - 650 - 1 001 - 909

Profit/loss after taxes 2 088 1 711 1 523 - 1 686 1 119 2 001 2 211

Minority interest - 30 - 19 35 44 - 8 - 39 - 44

Net profit/loss for the year 2 058 1 692 1 558 - 1 642 1 111 1 962 2 167

Balance sheets

Intangible assets 1 374 1 261 1 291 2 239 1 829 1 545 1 678

Tangible assets 11 264 12 541 13 631 14 568 13 074 13 089 13 599

Long-term financial assets 1 212 1 063 1 185 1 084 1 114 1 404 1 814

Inventories 8 972 9 476 9 924 10 183 8 640 9 262 9 113

Short-term assets* 7 303 7 627 8 599 8 757 8 483 9 116 9 306

Short-term financial assets 2 897 2 091 3 931 2 353 1 976 3 481 5 387

Total assets 33 022 34 059 38 561 39 184 35 116 37 897 40 897

Shareholders’ equity 10 122 11 310 12 588 10 932 11 367 13 594 16 224

Provisions for pensions and other postretirement benefits 6 089 6 030 6 171 7 139 6 478 6 746 7 044

Provisions for taxes 1 420 1 701 1 642 1 488 1 509 1 596 1 893

Other provisions 2 377 2 130 2 981 4 095 2 795 3 046 3 429

Long-term loans (including convertible loans) 4 584 4 846 6 538 4 842 4 753 4 263 2 830

Other long-term liabilities, including minority interest 935 362 359 455 477 561 667

Short-term loans 1 715 1 693 1 853 3 337 1 223 705 711

Other short-term liabilities* 5 780 5 987 6 429 6 896 6 514 7 386 8 099

Total equity, provisions and liabilities 33 022 34 059 38 561 39 184 35 116 37 897 40 897

Key figures (in percentages unless otherwise stated)

Return on total assets 13.2 9.9 8.9 - 1.9 7.5 10.9 9.8

Return on capital employed 19.0 14.7 13.0 - 2.8 11.2 16.2 14.9

Return on shareholders’ equity 19.4 15.9 13.0 - 13.3 10.2 16.0 14.3

Operating margin 10.9 8.6 8.0 - 2.7 6.9 9.2 8.4

Profit margin 12.4 10.0 9.0 - 2.0 7.5 9.9 9.2

Turnover of total assets, times 1.07 0.99 1.00 0.97 0.98 1.08 1.07

Share of risk-bearing capital 35.5 39.0 37.7 32.6 37.8 41.3 45.7

Equity/assets ratio 31.2 34.1 33.4 28.8 33.5 37.1 41.1

Investments and employees

Additions to tangible assets 2 296 2 710 2 664 2 148 1 230 1 388 1 403

Sweden 427 655 918 434 211 304 233

Research and development expenses 598 751 757 702 756 710 871

Patents - number of first filings 65 130 146 145 129 144 171

Average number of employees 42 641 42 451 41 863 44 958 40 747 39 557 37 636

Sweden 6 418 6 348 6 290 6 144 5 353 5 219 4 884

Number of employees registered at December 31 43 754 43 123 43 241 45 436 40 637 40 401 38 091

Salaries, wages and social charges 13 744 13 066 13 681 14 497 13 068 13 608 14 812

Sweden 2 361 2 464 2 480 2 697 2 317 2 360 2 375

* Previously published consolidated balance sheets for 1995 to 2000 have been restated for tax asset reclassification.

T H R E E - Y E A R R E V I E W O F S K F ’ S D I V I S I O N S *

Amounts in millions of Swedish kronor Full year Full year Full yearunless otherwise stated 1999 2000 1/01 2/01 3/01 4/01 2001

Industrial DivisionExternal sales 8 115 8 727 2 579 2 518 2 329 2 426 9 852Total sales 13 190 14 544 4 128 3 984 3 784 4 131 16 027Operating result 1 029 1 665 412 430 366 462 1 670Operating margin, % 7.8 11.4 10.0 10.8 9.7 11.2 10.4Invested capital 6 300 6 711 7 071 7 139 7 086 6 854 6 854Registered number of employees 10 330 10 555 10 540 10 389 10 279 10 246 10 246

Automotive DivisionExternal sales 8 552 8 932 2 486 2 575 2 243 2 415 9 719Total sales 9 627 10 162 2 890 2 930 2 584 2 751 11 155Operating result 172 338 98 103 45 59 305Operating margin, % 1.8 3.3 3.4 3.5 1.7 2.1 2.7Invested capital 5 340 5 510 6 029 6 000 5 956 5 694 5 694Registered number of employees 7 843 7 860 7 733 7 604 7 537 7 394 7 394

Electrical DivisionExternal sales 1 475 1 575 451 457 408 410 1 726Total sales 6 066 6 268 1 601 1 619 1 469 1 557 6 246Operating result 246 504 107 113 74 78 372Operating margin, % 4.0 8.0 6.7 7.0 5.0 5.0 6.0Invested capital 3 492 3 367 3 577 3 593 3 574 3 340 3 340Registered number of employees 6 449 6 002 5 875 5 779 5 734 5 667 5 667

Service DivisionExternal sales 11 380 12 844 3 311 3 454 3 320 3 835 13 920Total sales 12 341 14 034 3 704 3 862 3 693 4 238 15 497Operating result 848 1 013 269 296 341 385 1 291Operating margin, % 6.9 7.2 7.3 7.7 9.2 9.1 8.3Invested capital 3 307 3 829 3 922 3 792 3 595 3 237 3 237Registered number of employees 4 189 4 507 4 544 4 517 4 465 4 437 4 437

Seals DivisionExternal sales 3 602 3 990 989 1 086 1 000 993 4 068Total sales 4 157 4 618 1 160 1 267 1 148 1 157 4 732Operating result 61 114 9 33 11 4 57Operating margin, % 1.5 2.5 0.8 2.6 1.0 0.3 1.2Invested capital 2 507 2 671 2 752 2 723 2 633 2 535 2 535Registered number of employees 4 301 4 162 3 882 3 784 3 731 3 650 3 650

Steel DivisionExternal sales 1 448 1 689 496 472 366 374 1 708Total sales 2 717 3 093 858 824 630 679 2 991Operating result - 73 - 14 - 9 6 - 30 - 47 - 80Operating margin, % - 2.7 - 0.4 - 1.0 0.7 - 4.8 - 6.9 - 2.7Invested capital 1 837 1 903 1 947 1 888 1 857 1 749 1 749Registered number of employees 2 472 2 580 2 550 2 447 2 390 2 385 2 385

Aerospace and other businesses**External sales 1 860 1 943 572 574 553 612 2 311Total sales 3 702 3 730 1 046 1 048 953 1 007 4 054Operating result 196 259 72 61 64 77 274Operating margin, % 5.3 7.0 6.9 5.8 6.7 7.6 6.8Invested capital 1 937 1 732 1 834 1 904 1 978 1 946 1 946Registered number of employees 3 223 3 007 3 001 2 995 2 963 2 953 2 953

* Previously published amounts have been restated to conform to current Group structure of 2001 and the new definition of invested capital.

** Aerospace and other businesses mainly include aerospace and forging operations.

The financial information per Division is based on SKF’s Management reporting, which in certain areas differs from the Group reporting. The sumof operating results and invested capital for the Divisions therefore differs from the reported Group figures. Total sales are sales and deliveries toexternal and internal customers. Invested capital is defined as the sum of Inventories, external Trade Accounts Receivable, other Short-termAssets and Tangible Assets less external Trade Accounts Payable and other Short-term Liabilities.

’

Bearing The function of a bearing is tominimize the friction between movingmachine parts and to carry a load. Themajority of bearings nowadays are rollingbearings consisting of an inner ring, anouter ring, rolling elements (balls or rollers)and a cage separating the rolling ele-ments. Most bearings are made of steel,but other materials are also used, such asceramics. In addition to rolling bearings,SKF produces spherical plain bearings,and magnetic bearings where friction iseliminated because the moving parts areseparated by a magnetic field.

Seal A seal is a steel or rubber compo-nent, which is used to separate a machineelement from the outside world, to preventcontamination from getting in and lubri-cants from leaking to the outside. In abearing, the seal is mounted between theouter and the inner ring, or around theshaft outside the bearing. In certain appli-cations, e g heavily contaminated environ-ments, the seal is crucial to the function of the bearing. Other kinds of seal includee g valve stem seals, shock absorberseals and crank shaft seals.

Steel The steel from which rolling bear-ings are produced is vital to the quality ofthe bearing. The precision of the analysisand freedom from inclusions are factorsthat are critical to the bearing’s operationallife. The SKF Steel Division producesamong the cleanest steels in the world.

Actuator Actuators are used for position-ing of linear motion and rotary motion.

Aftermarket Those customers, such asdistributors, who buy bearings for resaleas spare parts.

Angular contact ball bearing Bearing inwhich the raceways of the inner and outerring are displaced with respect to eachother in the direction of the bearing axis.This means that the bearing is particularlysuitable for the accommodation of simul-taneously acting radial and axial loads.

Axial load Load acting in the directionalong the shaft/axis.

Axlebox Bearing housing for railwayapplications.

Ball bearing Bearing with balls as rollingelements. May contain one or more rowsof balls. Has lower friction than a rollerbearing.

Ball screw Ball screws are used to con-vert rotary motion, or torque, into linearmotion.

Bearing housing Product in which arolling bearing is mounted for protectionand support. Usually made of cast metal

or plastic and used in many different applications, such as fans, paper-makingmachines, etc.

Bearing unit Product in which the bear-ing has been integrated with other compo-nents in a single unit. The bearing isgreased for its entire lifetime.

Bushing Bushings are sleeve bearingsthat are made of a material, or have a sur-face layer, that provides low friction per-formance.

By-Wire technology The integration ofelectronics into a system, such as thebrake, steering, gearshift and clutch in avehicle to provide new levels of safety, per-formance and environmental compatibility.

Cage Bearing component, which keepsthe balls or rollers separated from eachother when the bearing is rotating. Normallymade of steel, but sometimes of brass orpolyamide.

CARB® Toroidal bearing – compact bear-ing type that can accommodate misalign-ment and axial displacement of the shaft.

Composite material Artificial materialmade of several components.

Continuous caster A method of castingmolten steel into a long steel strand(called bloom, billet or slab), using awater-cooled mould. The casting is con-tinuously withdrawn from the mouldthrough the bottom of the caster whilstthe teeming of the metal is proceeding.The interior of the strand is at this pointstill liquid and solidifies gradually viaexternal cooling of the strand. When thestrand is fully solidified, it is cut into con-venient lengths for further processing inthe steel work.

Cylindrical roller bearing Roller bearingwith cylindrical rollers.

Deep groove ball bearing Ball bearingwhere the balls run in grooves in the innerand outer ring. The bearing is a radial bear-ing but can also take a certain axial load.

Elastomer Synthetic rubber.

endorsia.com™ e-commerce networkthat connects industrial customers, dis-tributors and suppliers via the Internet.

Explorer New generation of sphericalroller bearings that has set a new worldstandard by having up to three times thelife of existing spherical roller bearings.

Hybrid bearing Rolling bearing with ringsof steel and rolling elements of ceramicmaterial.

IMS contract (Integrated MaintenanceSolutions). A contract where the customer

depends on SKF and its distributors tomaintain machine uptime through mainte-nance and customized monitoring pro-grammes.

Kits Kits where the bearing is suppliedtogether with other components that thecustomer requires in order to perform agiven repair.

Linear products Precision manufacturedcomponents, units and systems for linearmovements.

LPG Liquefied petroleum gas.

Mechanical Actuator Unit SKF solutionthat converts rotational into linear motionin a high-power density unit, used in by-Wire applications.

Mechatronics The term is a blend of mechanics and electronics. A cross-disciplinary combination of mechanics,electronics, electrical engineering andcomputing - in essence the use of micro-electronics to control mechanical devices.

Needle roller bearing Bearing with long,thin cylindrical rollers. Used in applicationswhere space is limited, e g in gearboxes.

OEM customers (Original EquipmentManufacturers). Those customers who buybearings to use them in their own prod-ucts, e g manufacturers of cars, house-hold appliances, machines etc.

Pod propulsion Electromechanicalpropulsion containing an electric motor, ashaft and a propeller.

Precision bearing Bearing for machinetools designed for very high rotatingspeeds. Used in such applications asspindle units.

PTFE (Poly Tetra Fluoro Ethylene) PTFEdiesel engine crankshaft seals provide asignificant improved life over conventionalelastomer lip seals due to the special SKF design, the far greater resistance tochemical attack from the aggressive com-pounds used as additives in moderndiesel engine oil and the improved tem-perature stability. PTFE is also commonlyused as a grease thickener.

Quench To cool a component at a ratefaster than in still air.

Radial bearing Ball or roller bearing forradial loads.

Radial load Load acting perpendicular tothe shaft/axis.

Radial seal A type of oil seal.

Rod end Rod ends are e g spherical plainbearing units, which consist of a bearinghoused in an eye-shaped head with inte-gral shank.

Accounting Principles Principles for howspecific transactions should be accountedfor.

Associated company A company inwhich the SKF Group has an interest representing between 20 and 50% of thevoting rights, and where the SKF Grouphas a significant influence.

Break-even The sales volume whereincome and costs are equal, i e a zeroresult is achieved.

Capital employed The value of acompany’s total assets, minus non-interest bearing liabilities.

Cash management Control strategiesover the company’s cash flows, in additionto investment strategies on excess funds.

Cash Flow A company’s cash surplus/deficit from the ongoing operations.

Convertible Bonds An option to convert aloan for a predetermined number of com-mon shares.

Cost efficiency Within SKF there is anongoing effort to eliminate non-valueadded activities and to standardizeremaining activities to achieve highprofitability and efficiency.

Credit risk Risk that the borrower doesnot fulfil his obligations towards the lender.

Deferred tax Differences betweenaccounted and fiscal valuations of assetsand debts create deferred tax liabilitiesand deferred tax assets, representingfuture tax payment.

FIFO (First In First Out) The method usedby SKF to calculate which products arestill in stock, compared with LIFO (Last InFirst Out).

Financial derivatives An instrument whichis derived from, for example, an underlyingcurrency or interest rate. (See alsoForward exchange contracts.)

Financial year A financial year is theperiod in which the result of the opera-tions is measured. In SKF the financialyear is the same as the calendar year.

Forward exchange contracts A deriva-tive instrument where the company agreesto buy or sell a certain currency at a pre-determined rate and date. The agreementis obligatory for the company.

Hedge A financial contract made in orderto secure the value of an asset or liabilityor a future cash flow.

Interest-rate risk Risk for a loss in a fixinterest rate security due to changes in theinterest rate.

Issue A group of stocks or bonds that areoffered or sold at the same time.

Joint-venture company A company,formed by two or more companies, inwhich the risk is shared in relation to forexample capital input.

Operating income Result generated froma company’s operations, i e income minuscost of goods sold minus sales andadministrative expenses.

Price and mix Volume shifts between var-ious customer segments with differentprice levels.

Rating Official judgement of a company’sfinancial strength made by a financial insti-tute on behalf of potential lenders.

Return Yield, in the form of dividends orinterest payments, on invested capital.

Risk-bearing capital The invested capitalin a company, usually stock and equity asopposed to bonds and loans.

Risk limits The maximum acceptable riskof loss according to the predeterminedrisk policy.

Sale/lease back A transaction where anasset is sold, and then leased back by theoriginal owner.

SFAS Accounting recommendationsissued by the U.S. Financial AccountingStandards Board.

Solvency The part of the company’s totalfinancing that is not financed with loans orother liabilities, i e shareholders’ equity’spart of total assets.

TVA (Total Value Added) A simplifiedmanagement model, a so called value-added model used for financial perfor-mance follow-up.

Volatility A statistical function thatmeasures the speed of change of theprice of a commodity.

U.S. GAAP Generally AcceptedAccounting Principles in the USA.

Roller bearing Bearing with rollers asrolling elements. May contain one or morerows of rollers. Has higher load carryingcapacity than a ball bearing.

Rolling bearing steel Very clean specialsteel for rolling bearing production.

Rolling bearings Common name for balland roller bearings.

Rolling elements Common name for theballs and rollers in a bearing.

Rolling Method of processing steel toproduce the desired products (bar, wire,sheet and tube).

Sensor Electric transmitter that registersangular position, speed, temperature,vibration etc. Integrated in more and moreapplications.

Set-up time Time required to set up amachine or a process for a new produc-tion order.

SKF Engineering & Research Centre(ERC) SKF’s research centre in theNetherlands.

Slewing bearing Compact large-sizedbearings specifically designed to accommo-date oscillating movements. Mainly used inconstruction machinery, hoisting, mechani-cal handling equipment and steel industry.May be several meters in diameter.

Spherical plain bearing Spherical plainbearings have no rolling elements, but aninner ring with a sphered convex outsidediameter and an outer ring with a corre-spondingly sphered but concave insidesurface. They are self-aligning and enablemulti-directional alignment movement tobe made.

Spherical bearing Ball or roller bearingwhere the inside surface of the outer ringis part of a sphere, which means that thebearing is self-aligning, i e it can adaptitself to misalignment of the shaft. SKFwas founded on Sven Wingquist’s revolu-tionary invention of the self-aligning spher-ical ball bearing.

Spindle unit Complete bearing unit withprecision bearings for machine tools.

Structural rod Metallic or composite barused in air-frames.

Taper roller bearing Roller bearing withtapered rollers.

Temper A heat treatment applied toquench-hardened components to bringthe properties to the required levels.

Thrust bearing Ball or roller bearing foraxial loads.

Timing belt kit Repair/service kit for tim-ing and auxiliary belt drive systems oncars and light commercial vehicles. The kitcontains tensioner bearing units and idlerpulley bearing units packed with the rub-ber drive belt, plus essential linked com-ponents to complete the job.

Vehicle replacement market Automotiveaftermarket.

Wheel Hub Bearing Unit Easy-to-mount,compact bearing unit for car and truckwheels.

Aktiebolaget SKF, SE- Göteborg, Sweden

Telephone +-- , fax +--

www.skf.com

Financial information and reportingAB SKF will publish the following financial reports in 2002

Year-end report for 2001 . . . . . . . . . . . . . . . . . . . . . . .January 29

Annual Report 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . .March 15

First-quarter report 2002 . . . . . . . . . . . . . . . . . . . . . . . . . .April 18

Half-year report 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .July 15

Nine-months report 2002 . . . . . . . . . . . . . . . . . . . . . . .October 15

The reports are available in Swedish and English. They are sent

automatically to those shareholders who have informed the com-

pany that they wish to receive them. They can also be ordered

from

SKF Investor Relations

SE-415 50 Göteborg

Sweden

tel +46-31-337 19 88

fax +46-31-337 17 22

e-mail [email protected]

The financial reports are also published on SKF’s homepage on

the Internet, www.skf.com (Investor relations/Financial reports and

history). A subscription service for press releases and interim

reports is available on the homepage under News Centre/

Subscription.

An annual report, Form 20-F, is produced for the Securities and

Exchange Commission in the USA.

SKF Environmental Report 2001The Environmental Report, which is distributed together with the

Annual Report, is a comprehensive description of the SKF Group’s

environmental activities during the year.

Annual General MeetingThe Annual General Meeting will be held at SKF Kristinedal,

Byfogdegatan 4, Göteborg, Sweden, at 2.30 p.m. on Thursday,

April 18, 2002.

For the right to participate in the meeting, shareholders

must be recorded in the shareholders’ register kept by VPC AB by

Monday, April 8, 2002 and

must notify the company before 12 noon on Friday, April 12,

2002 by letter to AB SKF, Group Legal, SE-415 50

Göteborg, Sweden, or by fax +46 31 337 16 91, or by phone

+46-31-337 27 35.

When notifying the company, which preferably should be done in

writing, details of name, address, telephone number, registered

shareholding and possible advisors shall be given. Where repre-

sentation is being made by proxy, the original of the proxy form

shall be sent to the company before the date of the meeting.

Shareholders whose shares are registered in the name of a

trustee must have the shares registered temporarily in their own

name in order to take part in the meeting. Any such re-registration

for the purpose of establishing voting rights shall take place by

Monday April 8, 2002. This means that the shareholder should give

notice of his/her wish to be included in the shareholders’ register

to the trustee in plenty of time before that date. A re-registration

fee will normally be payable to the trustee.

Payment of dividendThe Board of Directors proposes a dividend of SEK 6.00 per share

for 2001. April 23, 2002, is proposed as the record date for share-

holders entitled to receive dividends for 2001. If this date is

accepted by the Annual General Meeting, it is expected that VPC

AB will send out notices of payment on April 26, 2002.

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