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DEFENSEAVIATIONSPACEAnnual Report 2004

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Saab is one of the world’s

leading high-technology

companies, with its main

operations in defense,

aviation and space. Saab

covers a broad spectrum

of competencies and capabilities in systems

integration.

Saab develops, manufactures and delivers

advanced products and services for the

defense market, as well as for commercial

markets where its expertise creates business

opportunities.

Thanks to its strengths and strategic partner-

ships, Saab has the world as its market, but

research, development and production are

carried out principally in Sweden. Saab has a

total of 12,000 employees.Total annual sales are

SEK 17,848 million. Research and development

corresponds to about 20 percent of turnover.

President’s comment and key financial ratios . . . . . . . . . . 3

Business areas and highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Comment by the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

MANAGEMENT REPORT

Financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Transition to IFRS 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Accounting method for IAS 39 . . . . . . . . . . . . . . . . . . . . . . . . . 23

Financial risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

FINANCIAL INFORMATION

Income statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Quarterly information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Changes in shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . 35

Statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Accounting principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Notes to the financial statements. . . . . . . . . . . . . . . . . . . . . . . 41

Proposed disposition of earnings . . . . . . . . . . . . . . . . . . . . . . . 58

Auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Five-year overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

INVESTOR AND SHAREHOLDER INFORMATION

Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Board of Directors and Auditors . . . . . . . . . . . . . . . . . . . . . . . 66

Group Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

The Saab share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Shareholder information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Financial information dates 2005. . . . . . . . . . . . . . . . . . . . . . . . 75

ContentsSaab

SAAB del 2 eng 10 mars 05-03-11 08.41 Sida 2

3

Sales, SEK m. 17,848 17,250 16,538

Operating income, SEK m. 1,657 1,293 1,220

Operating margin, % 9.3 7.5 7.4

Income after financial items, SEK m. 1,511 1,073 993

Net income, SEK m. 1,091 746 732

Earnings per share, SEK 10.08 7.00 6.87

Dividend per share, SEK1) 3.75 3.50 3.50

Cash flow from operating activities, SEK m. 325 545 – 92

Return on capital employed, % 15.5 12.7 11.6

Return on shareholders’ equity, % 14.5 10.8 10.8

Equity/assets ratio, % 29.7 24.4 24.3

Order bookings, SEK m. 16,444 19,606 19,521

Order backlog at year-end, SEK m. 43,162 45,636 43,082

Capital expenditures for property,plant and equipment, SEK m. 348 472 623

Research and development,SEK m. 3,929 3,690 4,138

No. of employees at year-end 11,936 13,414 14,036

1) 2004 Board proposal.

For definitions, see page 40.

Key financial ratios 2004 2003 2002

Åke SvenssonPresident and CEO

“Through focused investmentsin research and development,we can offer world-leadingproducts, systems and servicesthat meet society’s changingneeds for protection andsecurity.”

Saab’s order bookings in 2004 reachedthe expected level, and the order backlogremains high, at SEK 43 billion. Orderswere booked mainly in the internationalmarket. The Gripen order from theCzech Republic, major orders for missileand anti-armor systems and the successof the ultra lightweight camouflage netsystem in the U.S. have helped to raisethe share of exports in the order backlog.

Sales amounted to SEK 17,848 m.Taking into account the deconsolidationof Nexplo, organic growth was 5.4 per-cent, in line with our expectations.

Consolidated income continued toimprove. Thanks to our underlyingearnings strength, we reached anoperating margin before structural costs of over 10 percent after a positivefourth quarter. The negative impact ofthe Brazilian torpedo contract was offsetby capital gains and positive contractsettlements, due to which income slightly exceeded our forecast. Includingstructural costs, the operating marginwas 9.3 percent. ”

“


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T H E S A A B G RO U P

Saab’s business areas

Highlights of 2004� Saab continued to report strong

results in 2004.The operating

margin amounted to 9.3 percent.

Order bookings were dominated

by export orders, in line with

expectations.

� The U.S. defense placed orders

for the Ultra Lightweight

Camouflage Net System for

slightly over SEK 1.2 bn.An initial

order for the AT4CS anti-tank

weapon was signed as well.

� The RBS70 air defense missile

was ordered by the Czech

Republic,Venezuela,Australia

and Latvia.The total order value

in 2004 is SEK 850 m.

� An order for the RBS15 Mk3

anti-ship missile for the German

Navy’s corvettes is valued at

SEK 120 m. A contract for series

preparation of the IRIS-T air-

to-air missile was signed with

a German partner.The order

value amounts to SEK 115 m.

� Saab received an order for the

data handling system for a new

generation of earth observation

satellites valued at SEK 120 m.

� The Czech Republic signed an

agreement to lease 14 Gripen

aircraft. Saab is responsible

for modification work and tech-

nical support during the 10-year

lease period.The order value

amounts to slightly over SEK

1.3 bn.

The Swedish defense is the single largest customer.Othermajor customers include the armed forces in the U.S.,Germany,Australia, the UK,Switzerland and the otherNordic countries.

Gripen competes in fighter aircraft procurements aroundthe world.The program involving Unmanned Aerial Vehicles,UAV’s, has attracted considerable international interest. Incommercial operations Airbus is the largest customer. SaabEricsson Space is Europe’s leading independent supplier tothe space industry.

SalesOperating income

Order backlogOrder bookings

00 01 02 03 04 00 01 02 03 040

2,000

4,000

6,000

8,000

10,000

0

1,000

2,000

3,000

4,000

5,000

6,000

SEK m. SEK m.SEK m.

0

100

200

300

400

500

600

00 01 02 03 04 00 01 02 03 040

1,000

2,000

3,000

4,000

5,000

6,000

0

10,000

20,000

30,000


SEK m. SEK m.SEK m.


0

100

200

300

400

500

600

2004 2003 2002 2001

Sales 5,223 4,677 4,499 3,964Operating income 462 327 311 260Operating margin, % 8,8 7,0 6,9 6,6Order bookings 4,481 4,293 5,327 4,262Order backlog 8,802 9,249 9,703 8,590Capital expenditures 88 80 109 118R&D 1,269 1,084 1,340 1,060No. of employees 2,699 2,651 3,026 2,744Depreciation/amortization 199 194 198 168

2004 2003 2002 2001

Sales 6,410 5,775 5,387 4,897Operating income 677 558 517 380Operating margin, % 10,6 9,7 9,6 7,8Order bookings 5,725 7,502 3,780 4,879Order backlog 26,142 27,388 25,411 27,894Capital expenditures 100 193 299 154R&D 1,459 1,476 1,779 1,667No. of employees 4,237 4,697 5,013 4,799Depreciation/amortization 208 180 178 190

SAAB SYSTEMS AND ELECTRONICS SAAB AEROSPACE

Saab Systemsand Electronics26%

Saab Aerospace35%

Saab TechnicalSupport andServices 15%

Saab BoforsDynamics 17%

Saab AviationServices 7%

Share of Saab’s total sales


5

T H E S A A B G RO U P

Major customers include the Swedish defense, governmentagencies in Sweden, the defense industry and other high-technology companies in Sweden and abroad.

Customers include armed forces around the world.Thesingle largest customer is the Swedish defense.Other majorcustomers include the British,U.S.,German, Finnish, French,Australian and Brazilian armed forces.

SEK m. SEK m.SEK m.

00 01 02 03 04 00 01 02 03 040

1,000

2,000

3,000

4,000

5,000

6,000

0

1,000

2,000

3,000

4,000



0

100

200

300

400

500

600

00 01 02 03 04 00 01 02 03 040

1,000

2,000

3,000

4,000

5,000

6,000

0

2,000

4,000

6,000

8,000

10,000

SEK m. SEK m.SEK m.



0

100

200

300

400

500

600

00 01 02 0403 00 01 02 04030

1,000

2,000

3,000

4,000

5,000

0

1,000

2,000

3,000

4,000

5,000

6,000


SEK m. SEK m.SEK m.


0

100

200

300

400

500

600

2004 2003 2002 2001

Sales 2,966 3,032 2,922 3,144Operating income 257 232 207 195Operating margin, % 8,7 7,7 7,1 6,2Order bookings 3,102 2,950 2,946 3,062Order backlog 1,115 868 1,006 1,046Capital expenditures 48 96 89 119R&D 33 45 119 123No. of employees 2,776 2,905 2,760 3,061Depreciation/amortization 120 120 113 116

2004 2003 2002 2001

Sales 3,073 3,113 2,825 2,493Operating income 150 172 102 85Operating margin, % 4,9 5,5 3,6 3,4Order bookings 2,836 4,574 7,000 2,280Order backlog 9,263 9,793 8,300 4,088Capital expenditures 71 65 63 62R&D 1,160 1,020 845 934No. of employees 1,655 1,718 1,904 1,903Depreciation/amortization 86 85 97 77

2004 2003 2002 2001

Sales 1,180 1,095 1,328 1,539Operating income 103 87 136 137Operating margin, % 8,7 7,9 10,2 8,9Order bookings 1,195 1,202 1,423 1,454Order backlog 0 340 210 139Capital expenditures 37 20 10 15R&D 0 0 0 0No. of employees 353 799 815 842Depreciation/amortization 488 541 543 540

Saab’s regional aircraft are leased to and operated by air car-riers around the world,with an emphasis on North America.Maintenance is provided wherever customers operate.Commercial aircraft maintenance for other operators isprovided primarily in Australia and Southeast Asia.

SAAB AVIATION SERVICESSAAB TECHNICAL SUPPORT AND SERVICES SAAB BOFORS DYNAMICS

� Saab received orders for the

tactical support and training

system PETRA for the Gripen

fighter. Deliveries will be made

to Sweden, Hungary and Czech

Republic.The order value is

slightly over SEK 500 m.

� Saab signed a contract with

Airbus to supply the A400M.

The order value could reach

SEK 400 m.

� The SHARC Unmanned Aerial

Vehicle (UAV) Technical Dem-

onstrator successfully performed

a fully autonomous flight.

� The Swedish Air Force ordered

an upgrade of the StriC

air defense system valued at SEK

250 m.

� Finland ordered a fire control

system for its CV9030 combat

vehicles.The order is valued at

SEK 150 m.

� Saab acquired 100 percent of

the shares in the Finnish defense

corporation Elesco.

� The consortium of Saab, Nokia

and Eltel won the procurement

contract for RAKEL, a shared

radio communication system

for Sweden’s safety and security

authorities. Saab’s share

amounts to approximately

SEK 500 m. Order booking

January 2005.


6

C H A I R M A N O F T H E B OA R D

Saab’s growth is increasingly interna-tional. During the year it played a part,for example, in creating one of Europe’sleading propellants and explosives com-panies, EURENCO.

Saab is actively seeking attractiveacquisitions that fit its areas of expertiseand can help it broaden its internationalpresence. Fulfilling this acquisitionstrategy is a priority for Saab’s board.Barracuda LLC, which has strengthenedits position as the sole supplier of theultra lightweight camouflage net system(ULCANS) to the U.S. Army through twomajor orders, is one of Saab’s successfulacquisitions in recent years.

Greater commitment to national defense

The traditional military threat scenariohas now been replaced by a more diffusepicture. In the process, threats have in-creasingly shifted toward the civilianpopulation and civil infrastructure. Thishas increased the focus on how we canmake our societies safer and more robust.

In these areas Saab has a great deal tooffer. It has experience in both civil anddefense operations as well as proven ex-pertise in getting complex systems towork together. The efforts to make oursocieties safer and help us better handlethreats of various types have just begun,but it is an area where Saab's expertisefits in well.

Spreading technology to create new companies

Through its longstanding cooperationwith the Swedish defense, where it hasassumed principal responsibility for large,technically demanding developmentprojects, Saab has built up its cutting-edge technological capabilities, which ithas then expanded through cooperativeprojects with universities and institutesof technology in Sweden and internation-ally. At the same time Saab has workedsystematically to broaden the applica-tions for its technological know-how. Inventions and business ideas that falloutside Saab’s core business are allowedto grow inside the company until theycan stand on their own and be spun-offinto new businesses. This has proven tobe a successful endeavor for Saab andfor society. By spreading technology inthis way, as well as through the researchand development projects with univer-sities in which it is the driving force,Saab serves as a technological engine forthe whole society.

A strategically important defense decision

The defense decision made by theSwedish Parliament in 2004 identified a number of strategic areas where theSwedish defense industry can be amongthe leaders and participate in prominentinternational development alliances.These areas largely overlap Saab’s areasof expertise. Saab will have to implementfurther structural changes in other areas,however, where development orders

from the Swedish defense will shrink.Unfortunately these changes will forceadditional personnel cutbacks.

Further investments in developmentprojects by the Swedish defense are crit-ical to the ability of Saab, and the entireSwedish defense industry, to participatein international cooperations. This isespecially important in the years aheadto retain the competence Saab has builtup in strategically important areas, andwhich has importantly spread to thecommercial sector. There is otherwise arisk that Saab, without enough advanceddevelopment projects, will be forced tocut back on the research and developmentthat has made Sweden a technologicalleader in several areas internationally.

Saab’s board work

The work of Saab’s Board is mainlyfocused on the long term. Day-to-dayoperations are the responsibility of thecompany’s management. The Boardessentially has five responsibilities:

� Set the company’s strategy anddirection together with management

� Formulate operating and financialobjectives together with management

� Make overall decisions on how thecompany’s assets are used – invest-ments, acquisitions, divestments,dividends, etc.

� Monitor the company’s operationaland financial development

Saab – an increasingly international companySince it was listed on the stock exchange in 1998, Saab has undergone a major internationalization.Even the research and development cooperations it participates in stretch far beyond Sweden’sborders. Gripen’s success in export markets, where there is a long-term commitment to the customer,is naturally important as well.


7

C H A I R M A N O F T H E B OA R D

� Ensure that management has thestrength and competence to developthe company, including the establish-ment of an overall organization.

I would especially like to emphasize theimportant work done by the Board’sAudit Committee on the scope anddirection of auditing work, not tomention its continuous contacts with the auditors and follow-ups on theirrecommendations.

Saab’s financial objectives

The Board has set as financial objectivesover a business cycle to generate anoperating margin (EBIT) of 10 percent, a return on shareholders’ equity of 15percent and an equity/assets ratio of 30

percent. The goal is to distribute 20–40percent of income to shareholders. TheBoard is proposing a dividend of SEK409 million, or SEK 3.75 per share.

Looking back and peering ahead

The uncertainty we faced whileawaiting the Swedish defense decisionin 2004 meant no new developmentorders, which forced Saab to lay off 350employees. On the other hand, we wereable to enhance our positions in theinternational arena and the new, growingarea of national security. This showsthat Saab’s know-how stacks up well tothe international competition and thatthe competence we have built up will bein growing demand in the future, partlyin new situations and applications. On

behalf of the Board, I would like to ex-press my thanks to Saab’s managementand employees for their enthusiasticefforts in 2004, which made it possibleto implement demanding structuralchanges.

Anders ScharpChairman of the board

Anders ScharpChairman of the Board


8

M A N AG E M E N T R E P O RT

Saab AB, Corporate Identity No. 556036-0793, registered office in Linköping, hasbeen listed on the O-list at the Stock-holm Stock Exchange since 1998 and onthe Attract 40 section of the O-list since2005. The principal owners are InvestorAB, with 20 percent of the shares, cor-responding to 36 percent of the votes,and BAE Systems, with 34 percent of theshares, corresponding to 34 percent ofthe votes. The remaining 46 percent ofthe shares are traded on the StockholmStock Exchange.

In a press release dated October 22,2004 BAE Systems announced that itintends to reduce its ownership toapproximately 20 percent of the shares,corresponding to approximately 20percent of the votes.

Saab Group

Saab is one of the world’s leading high-technology companies, with its mainoperations in defense, aviation and space.Saab has the world as its market, but re-search, development and production arecarried out principally in Sweden. Saabconsists of the business areas SaabSystems and Electronics, Saab Aero-space, Saab Technical Support andServices, Saab Bofors Dynamics andSaab Aviation Services.

STRUCTURAL CHANGESAcquisitions and divestments during the year

Saab has acquired 21 percent of theshares in South Africa’s Grintek, a man-ufacturer and supplier active in tele-communications, defense and controlsystems. Saab intends to acquire addi-tional shares in Grintek to increase itsholding to 70 percent.

During the year Saab acquired 100percent of Finnish defense corporationElesco, which specializes in systemsintegration for the Finnish defense.

Saab and Jernkontoret, the SwedishSteel Producers’ Association, jointly es-tablished the technical consulting com-pany CSM NDT Certification AB, whichfocuses on a niche of technical qualitycontrol known as non-destructive testing.

Work on divesting non-core opera-tions continues. On July 10, 2003 theFrench company SNPE Materiaux Ener-

gétiques signed a binding agreementwith Saab and Patria of Finland, whichjointly own Nexplo Industries AB, tomerge their propellant and explosivesoperations into a new company, EU-RENCO (European Energetics Corpora-tion). The merger, which created one ofEurope’s leading propellant and explo-sives companies, was finalized on Janu-ary 22, 2004. Saab owns 19.9 percent ofthe new company.

Saab divested Saab Communications,which is active in short-range radiocommunication.

Through a directed share issue to theminority shareholders, the ownershipinterest in Hawker Pacific was reducedfrom 75 percent to 49 percent.

During the autumn 2004 Saab estab-lished its own company in South Africa,Saab South Africa Ltd.

Internal restructurings

Effective January 1, 2005 the Group’sbusiness units will primarily be dividedinto three business segments, in addi-tion to Corporate. The three segmentsare Defense & Security Solutions, Sys-tems & Products and Aeronautics. Re-ports to Group Management, the Boardof Directors, the stock market and otheroutside stakeholders will reflect the neworganization. In connection with the re-lease of Saab’s report for the first quar-ter of 2005, comparative figures for pre-vious periods will be made available.

Management of the business seg-ments is executed by Group Management,which lays down its strategic directionand initiates implementation of plansthat have been drafted. Follow-ups aremade through Group Management’schairmanship of the business units, all ofwhich are part of one of the three businesssegments. Overall responsibility for eachsegment will be delegated within GroupManagement.

Defense & Security Solutions suppliestechnical support and services, combatmanagement system products, “system-of-system” solutions and lifecycle com-mitments for services and solutions. Inthis area, Saab has a strong position inits home market, where its focus is to

become a leader in net-centric defenseand national security. An expansion isalso under way in selected internationalmarkets based on a strong local presence.

The segment’s business units includeSaab Systems, AerotechTelub, SaabTranspondertech, Saab Contracting,Saab Metech and CSM Materialteknik.

The segment is expected to accountfor approximately 25 percent of consoli-dated sales, of which approximately 40percent will be generated in the exportmarket.

Systems & Products develops andmanufactures complete systems at var-ious levels, including further develop-ment and upgrades, studies and demon-strators, and often maintenance andcomponents. Lifecycle commitments, in-cluding operation of supplied systems,are also part of the offering. Operations,which are global, are developed throughacquisitions and effective internationalalliances and partnerships. Key productareas consist of electronic warfare sys-tems, avionic systems for training andsimulation, signature management, mis-sile and anti-armor systems, torpedoand underwater systems and equipmentfor the space industry.

The segment’s business units includeSaabTech, Saab Training Systems, SaabBarracuda, Saab Bofors Dynamics, SaabUnderwater Systems and Saab EricssonSpace.

The segment is expected to accountfor approximately 40 percent of consoli-dated sales, of which approximately 65percent will be generated in the exportmarket.

Aeronautics, which includes bothmilitary and commercial operations, isdominated by the advanced Gripen pro-gram. Commercial operations are ex-panding in the area of subsystems andcomponents for the major manufactur-ers of passenger and transport planes,Airbus and Boeing. Maintenance andsupport for the fleet of Saab 340 andSaab 2000 as well as certain other air-craft are also included in these opera-tions. Saab’s business model is to offerlifecycle commitments for the Gripenprogram in the home market and to

Financial review


9


support an effective export program. In-vestments in new programs are based inpart on Sweden’s participation in inter-national programs and risk-sharing incommercial programs.

The segment’s business units includeSaab Aerosystems, Gripen International,Saab Aerostructures, Saab Aviation Ser-vices, Saab Aviocomp and Saab NygeAero.

The segment is expected to accountfor approximately 40 percent of consoli-dated sales, of which approximately 40percent will be generated in the exportmarket. The strong home market isbased on deliveries of Gripen to Sweden.The order backlog is heavily weightedtoward exports of Gripen to South Afri-ca, Hungary and the Czech Republic.

Corporate comprises Group staffs anddepartments, certain central investmentsand peripheral operations being held forsale. The leasing fleet of approximately266 Saab 340 and Saab 2000 is also in-cluded in Corporate. Operational re-sponsibility for the leasing fleet lies withAeronautics. The elimination of internalsales corresponds to approximately 5 percent.

In 2004 approximately 350 employeeswere laid off, mainly due to reduced de-velopment orders from the Swedish de-fense. The lay-offs affected all businessareas focused on defense.

OPERATIONS

Business area Saab Systems and Elec-tronics focuses on information, com-mand and control and simulation sys-tems, as well as avionics, electronic war-fare and signature management systemsand commercial electronics. The busi-ness area, which accounted for 26 per-cent of the Group’s total sales, has goodprospects of playing a central part in thedevelopment of a modern net-centricdefense. Operations are characterizedby a high level of export activity, withproducts and systems delivered toabout 40 countries.

The business area includes the com-panies SaabTech in Sweden and theassociated company Grintron (49 percent)in South Africa, Saab Systems in Sweden

and Australia, Saab Training Systems, SaabBarracuda in Sweden and the US, SaabTransponderTech and the associated companyGrintek (21 percent) in South Africa.

The business area’s most importantproducts are naval combat managementsystems, electronic warfare systemssuch as radar warners, jammers, decoysand chaff dispensers (mainly for fighteraircraft), avionic systems, tactical com-mand systems, laser simulation systemsand combat training centers, signaturemanagement equipment and automaticidentification systems (AIS) for shipsand aircraft.

Business area Saab Aerospace, whichhas the systems integration capabilityneeded to design complete aircraft anddefense systems, develops and manu-factures military aircraft systems andacts as a partner and supplier of sub-systems to manufacturers of large com-mercial aircraft. The business area,which accounted for 35 percent of theGroup’s total sales, includes the busi-ness units Aerosystems, Aerostructures,Saab Ericsson Space and Saab Nyge Aero.

The single largest product in Aero-systems is the fighter Gripen, an inte-grated and flexible information, com-mand and control, and weapon systemthat will remain modern for many yearsto come. The world’s first fourth-gener-ation combat aircraft is operational inthe Swedish Air Force. South Africa hasordered 28 Gripen and the Swedishgovernment has leased 14 aircraft toHungary and 14 to the Czech Republic.Net sales for 2004 include 16 Gripen de-livered to the Swedish Air Force, whichmeans that 170 of the 204 ordered by theDefense Materiel Administration havenow been delivered.

Defense materiel decisions are bytheir nature political, due to which theyare subject to extensive, lengthy proces-ses. In addition, the investments in somecases are substantial. As a result, demandsare often placed on offsetting investments,technology transfers and industrialcollaborations over and above the actualproduct delivery. Saab has such commit-ments in several export contracts.

Saab Aerosystems is the systems co-ordinator for Saab’s role in the Swedishstandard helicopter program and willsupply 270 forward fuselages to themain supplier, NH Industries.

Gripen International, which is jointlyowned with BAE Systems, handles ex-port marketing and sales of Gripen.Saab and BAE Systems have agreed that as of 2005 Saab will take over re-sponsibility for Gripen’s business dev-elopment with respect to new business.The cooperation as regards existing bu-siness will continue in accordance withoutstanding contracts. In cooperationwith the Swedish government, there isalso the option of leasing Gripen to ex-port customers. As part of the long-termeffort to market Gripen internationally,information and tenders were suppliedto several countries during the year.Marketing and sales work can stretchover several years and is characterizedby a long-term approach where successleads to cooperation over several decades.

Aerostructures is a partner and sub-contractor to Airbus as well as an inter-nal supplier to Gripen and spares sup-plier to Saab Aircraft. As a partner in theAirbus consortium, Saab is responsiblefor the development and production ofthe leading edge of the wing of the A380superjumbo. Through the National DebtOffice, the Swedish state is supportingthe project with a conditional loan. In2003 Saab and Airbus signed an agree-ment on the development and produc-tion of the fixed leading edge of wing ofthe A380. The total contract value is esti-mated at USD 1 bn over a 20-year peri-od. As part of this contract, Airbusplaced orders for approximately SEK 1.3 bn during the year.

Saab Ericsson Space, which is 60 per-cent owned by Saab and 40 percent byEricsson, develops and manufacturescomputers, antennas, microwave elec-tronics and mechanical systems for thespace industry. About half its operationsinvolve commercial telecommunicationsprojects and the other half is focused onpublicly funded projects from, amongothers, the European Space Agency,ESA, as well as bilateral and national


10


programs. Publicly funded operationshave increased in importance, while theinternational market for commercialtelecommunication satellites remainsweak.

Saab Nyge Aero is active in targettowing, special flight operations andaircraft maintenance.

Business area Saab Technical Supportand Services focuses on the growingmarket for high-technology services inaviation, command and control, infor-mation, communications and sensors,and supplies these services to both mili-tary and commercial customers. Opera-tions also include component mainte-nance for commercial aircraft as well asmeasurement and materials technology.The business area accounted for 15 per-cent of the Group’s total sales. Twothirds of its sales are defense-related.Saab Technical Support and Services isdominated by AerotechTelub, which spe-cializes in advanced technical services,maintenance and customized systemssolutions in information technology,communications, electronics and medi-cal technology. The business area alsoincludes Saab Aviocomp, with operationsin component maintenance for regionalaircraft. Saab Metech, which is active inmeasurement technology, provides full-service solutions to large industrial com-panies. Also included is SaabContracting, which provides advancedtechnical infrastructure services and sys-tem deliveries in the fields of telecom-munications and electronics.

Saab’s operations in precision engage-ment have been gathered in businessarea Saab Bofors Dynamics, which de-velops and produces missile systems,portable anti-armor systems and under-water systems. Today the business areais a complete missile systems supplieroffering air-to-air, air defense, anti-armor,anti-ship and ground target missiles,portable anti-armor systems, torpedoesand underwater vessels. The businessarea, which maintains a presence inmany export markets around the world,accounted for 17 percent of the Group’s

total sales. In 2004 systems were deliver-ed to around 30 countries.

Saab Bofors Dynamics is taking partin several international collaborativemissile projects, such as the five-nationproject involving the IRIS-T short-rangeIR air-to-air missile and the six-nationcooperation on the METEOR medium-range air-to-air missile. Together withEADS-LFK, Saab is participating indevelopment work on Taurus, a cruisemissile also designed to be integratedwith Gripen. Among the products devel-oped internally are the RBS23 BAMSEand RBS70 air defense missiles, RBS15anti-ship missile, the next generationlight anti-armor system NLAW, BILL 2anti-armor missile, Carl-Gustaf mortarsystem and AT4 anti-armor munitions.

Saab Aviation Services’ core consists ofSaab’s leasing and customer supportoperations in regional aviation. As a for-mer manufacturer of regional aircraft –Saab 340 and Saab 2000 – Saab has agreat interest in ensuring that these air-craft are utilized in the best way possible.Over 500 of them are in service and 266are in Saab’s leasing portfolio. To reducerisk exposure in its leasing operations,Saab has obtained various forms of pro-tection for its leasing fleet. The 55 aircraftdelivered to AMR in the early 1990’shave non-recourse financing, which lim-its Saab’s risk to 7 percent of the air-crafts’ acquisition value. Another 42 air-craft are financed with guarantees fromthe Swedish Export Credits GuaranteeBoard, which limits Saab’s risk exposureto approximately 15 percent of the air-crafts’ market value. The insurance Saabobtained in 2000 covers 168 aircraft. Thispolicy covers the market risk in theportfolio and limits Saab’s exposure to10 percent of estimated future leasingrevenue. Through continued effectivemanagement, Saab can maximize leaserevenue and thereby minimize the firstloss in the insurance. Previous provi-sions cover Saab’s estimated risk.

At the end of 2004 the leasing fleetconsisted of 266 (282) Saab regional air-craft. At year-end 27 (37) aircraft werenot contracted to any operator.

The business area includes Saab AircraftLeasing, Saab Aircraft and the 49-percentinterest in the Australian companyHawker Pacific, which is active in themodification and maintenance of com-mercial aircraft.

Other operations comprise a number ofsmall niche companies. In order to realizevalues and place them in more appro-priate environments, Saab is seeking outstructural solutions for these operations.

THREE STRATEGICALLY IMPORTANT AREAS

Saab focuses its operations on thefollowing strategic areas:

Defense & Security Solutions

Saab has the competence to handlelarge, complex systems integrationprojects – to build systems of systems.Its capabilities include the developmentof command and control systems aswell as lifecycle responsibility for opera-tions, modifications and maintenance.

Saab conducts development work onnet-centric defense solutions to moreflexibly link sensors, information sys-tems, decision-makers and resourceswithin a network. This competence canalso be transferred to the commercialsector, where military and civil systemsare linked together to enhance safetyand security. The international dimen-sion is growing in importance. Multina-tional troops, who are frequently as-signed to peacekeeping missions, haveto be sure that the systems supplied byvarious nations’ militaries and civil au-thorities work together.

Saab can take responsibility for sys-tems integration services from an over-all level down to individual subsystems.Saab develops command and controlsystems for land, sea and air applica-tions. One example of the latter is com-mand and control systems with auto-matic air defense capabilities for multi-ple threats that are installed in the Visby,Göteborg and Stockholm class corvettesand the Australian ANZAC class frigate.Saab also has a world-leading positionin naval combat management systems


11


for small and medium-sized naval ves-sels and Universal Tank and Anti-Air-craft Systems (UTAAS).

Saab has a very competitive systemfor transponders for automatic identifi-cation, which are used to identify shipsand facilitate traffic management as wellas to support search and rescue missions.

Saab’s competence in tactical com-mand systems, in combination with itsadvanced technical and maintenanceservices and network know-how, allowsit to take responsibility not only for itsown products but also those of othermanufacturers, further refine them andensure functionality throughout theiruseful life. Specialized services and af-termarket solutions are offered to cus-tomers in both the military and commer-cial market. Most of Saab’s business inthis area comes from customers thatpurchase maintenance and testingequipment as well as integration, verifi-cation and validation support. Services are also provided in materials and mea-surement technology.

New threats to society have led to asharp focus on national security inmany countries. Although this is an areathat previously has not been especiallynoted for highly advanced technologicalsolutions, there is now a shift towardinternational structures with integratedsensors, networks, information distribu-tion and command functions. Saab’soverall expertise in defense solutionsprovides a good basis for meeting theincreasingly demanding needs in thearea of national security. One example isthe order for RAKEL, a digital radiocommunication system for public safetyand security. The commitment of Saaband its partners encompasses systemsand infrastructure built on the TETRAstandard and includes construction,operation, maintenance and training for all of Sweden’s safety and securityauthorities such as the police, municipalrescue services, customs, coast guardand armed forces.

Systems & Products

Saab develops systems and productsfor both the Swedish and internationalmarket.

AirSaab develops and manufactures ad-vanced electronic warfare systems suchas jammers, warners and countermeasu-re systems for aerial applications. BOL is a highly successful countermeasuredispenser to deceive incoming missiles.Saab also supplies avionic systems formission control and flight safety to bothmilitary and commercial customers.

Saab also has a wealth of experiencein missiles and is participating in co-operations to develop the IRIS-T short-range air-to-air missile and Meteor, amedium-range air-to-air missile beingdeveloped for Gripen and a number ofother fighter aircraft.

In air defense missiles, Saab offersseveral systems, from the RBS70 portableair defense missile and vehicle-mountedASRAD-R, to BAMSE, an advanced med-ium-range mobile system that defendsagainst aircraft, missiles and unmannedaerial vehicles.

SeaSaab develops systems to combat sea-based targets on or below the water’ssurface. RBS15 is a very powerful systemthat can operate in all types of light andweather conditions.

Saab has specialized expertise in under-water technology and has developedTorpedo 2000, which is effective againstsurface vessels and submarines in deepor shallow water. For mine hunting,Saab has developed remote controlledunderwater vehicles. In the future thesevehicles potentially have both civil andmilitary applications.

LandSaab is a leader in the development ofanti-armor, where Carl Gustaf, AT4 andAT4CS are world-leading systems. Forthe British military, Saab is developingNLAW, the next-generation portableanti-armor system, which meets strin-gent demands in terms of robust designand ease of use. Like AT4CS, NLAW canbe fired from confined spaces.

Signature management is another areawhere Saab is a world leader. Its productsprotect against detection across the elec-

tromagnetic spectrum, from visible toinfrared light, as well as against radarand guided weapons. Saab is the solesupplier of the ultra lightweight camou-flage net system (ULCANS) to the U.S.Army.

Saab develops world-leading militarytraining systems that are sold to a numberof countries. The systems are based onrealistic and robust simulators and com-prise everything from target equipmentto advanced combat training centers.

SpaceUtilizing its roots in defense technologyand civil telecommunications, Saab isthe majority owner of Saab EricssonSpace, Europe’s leading independentsupplier of highly sophisticated equip-ment for the space industry. Saab’s mainproducts are computer systems, micro-wave electronics and antennas for satel-lites as well as control and separationsystems for launchers. In the latter area,Saab has a dominant position in theglobal commercial market.

Aeronautics

Saab has extensive competence in avia-tion, an area with a long tradition forthe company, encompassing everythingfrom Gripen, the world’s most modernfighter aircraft, to service and mainte-nance, development and production ofsubsystems for commercial aircraft, in-cluding the aircraft in Saab’s leasingportfolio. With respect to Gripen, thisincludes continuous upgrades of the air-craft and service and support for the airforces that use it. Lifecycle responsibilityfor military and commercial aircraft sys-tems is an important business for Saab.Gripen has been selected by the airforces of Sweden, South Africa, the CzechRepublic and Hungary, a commitmentthat marks the start of a long-term rela-tionship between the procuring countryand Saab.

Intensive development work is underway on new, more advanced unmannedaerial vehicles (UAV), which already areused as sensor and weapons platforms.When they are integrated in a net-centricdefense, UAVs can be used for informa-


12


tion gathering in areas where conditionsare dangerous. They also have potentialcommercial applications in emergencyservices, the coast guard, medical trans-ports, etc. Saab is developing unmannedaerial vehicles such as SHARC (SwedishHighly Advanced Research Configura-tion) and Filur (Flying Innovative Low-Observable Unmanned Research), theformer of which has successfully con-ducted autonomous flights, includingtake-offs and landings.

Saab has applied its experience inmilitary aviation to its commercialoperations as a supplier of componentsand subsystems to commercial andmilitary aircraft manufacturers. Saab is a partner to both Boeing and Airbus.

The cooperation with Airbus has ledto a full business agreement to developand manufacture the mid and outer fix-ed leading edge of the wing of the Airbus A380 superjumbo.

Saab is also participating as a partnerin the Airbus A400M project to developand manufacture the next generation ofmilitary transport aircraft. To date 180aircraft have been ordered by sevencountries in Europe, with a marketpotential for around another 200 to 300aircraft.

By utilizing systems expertise fromGripen, together with its range of com-petencies in command systems, Saab hasbeen able to assume turn-key responsi-bility for the tactical system in Sweden’snew medium-weight helicopter, an im-portant new area of operations. Saab’scommitment also includes the manufac-ture of the helicopter’s forward fuselage.

Saab has a leasing portfolio of its pre-vious Saab 340 and Saab 2000 regionalaircraft. More than 500 aircraft are inoperational service, and Saab offersextensive support operations keep theaircraft attractive in the global market.

Saab has substantial experience andcompetence in the support and mainte-nance of its own as well as other manu-facturers’ aircraft. Maintenance andcomponent service are provided for air-craft manufactured by Embraer, Boeing,Bombardier and Fokker, among others.

Saab is also active in target towingand special flight operations.

THE SAAB GROUP IN 2004Orders

The Group’s order bookings amountedto SEK 16,444 m. (19,606). Approximately62 percent (60) of orders came from cus-tomers outside Sweden and 78 percent(76) were attributable to defense-relatedoperations. The order backlog at year-end amounted to SEK 43,162 m.(45,636).

Order bookings

SEK m. 2004 2003

Saab Systems & Electronics 4,481 4,293

Saab Aerospace 5,725 7,502

Saab Technical Support & Services 3,102 2,950

Saab Bofors Dynamics 2,836 4,574

Saab Aviation Services 1,195 1,202

Corporate/Other 37 439

Internal – 932 – 1,354

Saab Group 16,444 19,606

Order bookings for Saab Systems andElectronics rose by 4 percent to SEK 4.5bn (4.3). Saab Barracuda had very strongorder bookings in 2004, while Saab Train-ing Systems reported lower bookingsthan in 2003. Saab Systems and Saab-Tech reported order bookings in linewith the previous year.

A number of major orders were re-ceived during the year, including for thelightweight camouflage net system forthe U.S. Army valued at approximatelySEK 1.2 bn, the upgrade of the STRiC airdefense system for Swedish Air Forceworth approximately SEK 250 m., andthe fire control system for the FinnishArmy’s CV9030 combat vehicles valuedat approximately SEK 150 m. Otherorders were received for an upgradeAustralia’s ANZAC class frigates worthapproximately SEK 300 m., a supportcontract for a combat training facility inFinland for approximately SEK 170 m.,and deployable instrumentation trainingsystems for U.S. defense valued at SEK100 m.

Order bookings for Saab Aerospaceamounted to SEK 5.7 bn (7.5). The CzechRepublic ordered modification workand technical support for its 14 leasedGripen aircraft valued at SEK 1.3 bn. Inearly October an order was received

from the Swedish Defense MaterielAdministration (FMV) worth slightlyover SEK 500 m. for a new tactical sup-port and training system for Gripen.Saab Aerostructures received an orderfrom Airbus for deliveries for the newmilitary transport aircraft A400M worthSEK 150 m. The order value can potenti-ally rise to SEK 400 m. Saab EricssonSpace’s order bookings included a datahandling system for the new generationof Earth observation satellites.

Order bookings for Saab TechnicalSupport and Services amounted to SEK3.1 bn (3.0) and consist of numerous smallorders with short throughput times.AerotechTelub ranked highest in 2004among IT consultants that provide con-sulting services to city government au-thorities in Stockholm, which is expec-ted to lead to higher orders in thefuture.

Saab Bofors Dynamics’ order bookingsamounted to SEK 2.8 bn (4.6) and in-cluded orders for the RBS70 air defensemissile from the Czech Republic, Aus-tralia, Latvia and Venezuela valued atslightly over SEK 850 m., ammunitionfor Carl-Gustaf anti-armor systems forAustralia valued at SEK 307 m. and theRBS15 Mk3 anti-ship missile for theGerman Navy’s corvettes, worth SEK120 m.

Order bookings for Saab AviationServices remain in line with the previousyear, amounting to SEK 1.2 bn (1.2).Orders related mainly to spares andcustomer support for the fleet of Saab340 and Saab 2000 aircraft as well ascommercial aircraft maintenance inAustralia.

Order bookings for Other operationsdeclined because Nexplo is now part ofthe new company, EURENCO.

Order backlog

SEK m. 2004 2003



Saab Technical Support & Services 1,115 868


Saab Aviation Services – 340

Corporate/Other – 255

Internal – 2,160 – 2,257

Saab Group 43,162 45,636


13


Defense orders account for 92 percent(91) of the order backlog. Foreign ordersaccount for approximately 70 (65) percentof the backlog. The deconsolidation ofNexplo and Hawker Pacific has reducedthe order backlog in Saab Aviation Servicesand Other Operations, respectively.

Number of aircraft in order backlog

No. of aircraft 2004 2003

Gripen 62 78

The order backlog includes:� Gripen to Sweden and on export� tactical command systems, sonar sys-

tems, warner and countermeasureequipment, and forward fuselagesfor helicopters

� Airbus A380, A320/A340� command and control, avionics and

electronic warfare systems� combat training equipment and laser

simulator systems� air-defense and anti-tank systems� anti-ship missile systems

Sales

Group sales rose by 3.5 percent to SEK17,848 m. (17,250). The increase was theresult of organic growth. Taking intoaccount the deconsolidation of Nexplo,organic growth was 5.4 percent. As awhole, the year’s acquisitions anddivestments only marginally affectedsales. 80 percent (80) of sales was relatedto defense. Sales to foreign marketsamounted to SEK 8,583 m. (7,902), or 48percent (46) of total sales. Total exportsfrom the Group’s Swedish companieswere SEK 6,608 m. (6,235). The Group’sexports to the EU market amounted toSEK 4,319 m. (3,892) and total saleswithin the EU, excluding Sweden, wereSEK 4,604 m. (4,260).

Sales by geographic market

SEK m. 2004 2003 Change

Sweden 9,265 9,348 – 1%

Rest of EU 4,604 4,260 8%

Rest of Europe 474 455 4%

Total, Europe 14,343 14,063 2%

North America 1,335 1,013 32%

Latin America 106 175 – 39%

Asia 887 948 – 6%

Australia, etc. 1,171 1,039 13%

Africa 6 12 – 50%

Saab Group 17,848 17,250 3%

Sales by business area

SEK m. 2004 2003 Change

Saab Systems & Electronics 5,223 4,677 12%

Saab Aerospace 6,410 5,775 11%

Saab Technical Support & Services 2,966 3,032 – 2%

Saab Bofors Dynamics 3,073 3,113 – 1%

Saab Aviation Services 1,180 1,095 8%


Internal – 1,041 – 849

Saab Group 17,848 17,250 3%

Sales for Saab Systems and Electronicsrose by 12 percent compared with theprevious year, mainly due to higher ex-ports and higher sales by operationsoutside Sweden. The increase relatesmainly to command and control, trainingand signature management systems.The sales increase by Saab Aerospace of11 percent was attributable to the highersales value of batch 3 of Gripen andhigher invoicing in Aerostructure opera-tions. Sales include 16 (18) Gripen air-craft. The decrease compared with theprevious year for business area SaabTechnical Support and Services is due to a weak market in defense and telecom.Sales for Saab Bofors Dynamics wereslightly lower in 2004 than 2003. Lowersales for certain missile programs wereoffset in large part by higher sales inunderwater systems, especially remotecontrolled underwater vehicles.

Saab Aviation Services raised its salesby 8 percent in both the Australian andU.S. markets, the latter despite a declinein the dollar of 9 percent.

The sales decrease for Other operationsis due to divestments and structuralchanges.

Income

Operating income amounted to SEK1,657 m. (1,293), corresponding to amargin of 9.3 percent (7.5). The opera-ting margin before depreciation andamortization was 12.8 percent (11.1).

Operating income for defense-relatedoperations continued to improve com-pared with the previous year. Otheroperations also saw a positive trend.Income was affected by structuralcharges totaling SEK 183 m. (309) andtermination costs of SEK 160 m.

Income statement

SEK m. 2004 2003

Sales 17,848 17,250

Cost of goods sold – 13,776 –13,303

Gross income 4,072 3,947

Margin 22.8% 22.9%

Marketing expenses – 1,290 – 1,251

Administrative expenses – 948 – 985

Research and development costs – 388 – 414

Other operating income 175 157

Other operating expenses – 39 – 208

Share in income of associated cos. 75 47

Operating income1) 1,657 1,293

Margin 9.3% 7.5%

Financial income and expenses – 146 – 220

Income after financial items 1,511 1,073

Taxes – 385 – 315

Minority interest – 35 – 12

Net income for the year 1,091 746

Income per share, SEK2) 10.08 7.00

After dilution, SEK2,3) 10.08 6.91

1) Includes depreciation of – 1,109 – 1,147

of which depreciation of lease assets – 474 – 528

of which goodwill amortization –129 – 139

of which amortization of otherintangible assets – 29 – 30

2) Average number of shares 2004: 108,234,126 and 2003: 106,513,969.

3) Number of shares after completed conversion 109,150,344

The gross margin is in line with the pre-vious year. As a whole, administrativeand marketing expenses were unchang-ed. The period’s internally funded in-vestments in research and developmentamounted to SEK 758 m. (798), of whichSEK 419 m. (395) has been capitalizedand SEK 388 m. (414) has been charged


14


to operating income for the year, whichincludes depreciation of SEK 49 m. (11).

Other operating income during bothpresent and previous years includescapital gains, currency gains and resultsfrom secondary activities. Other opera-ting expenses consist of capital lossesand results from secondary activities.

Net financial income and expensesamounted to SEK –146 m. (– 220). Theaverage return on external investmentswas 4.28 percent (3.95). Compared withthe previous year the financial net hasbeen affected positively by higher re-turns on financial investments and low-er write-downs of financial assets. TheGroup’s income after financial itemsamounted to SEK 1,511 m. (1,073).

Current and deferred taxes amountedto SEK – 385 m. (– 315). See also Note 13Taxes. The minority interest in incomewas SEK 35 m. (12).

Net income for the period was SEK1,091 m., against SEK 746 m. in the pre-vious year, corresponding to earningsper share of SEK 10.08 (7.00). The pre-tax return on capital employed was 15.5percent (12.7). The after-tax return onshareholders’ equity was 14.5 percent(10.8). Definitions of key ratios can befound in Accounting principles.

To increase transparency in the re-porting, structural provisions totalingSEK 183 m. (309) are reported bothseparately by business area and at theaggregate level in the operating results.

Provisions for structural costs aredivided by line item in the income state-ment. Comparisons with the previousyear are adjusted according to the sameprinciples. Thus, restructuring costs ofSEK 178 m. (306) are included in grossincome and SEK 5 m. (3) in administrativeand marketing expenses.

Operating income by business area (EBIT)

% of % ofSEK m. 2004 sales 2003 sales

Saab Systems & Electronics 462 8.8% 327 7.0%

Saab Aerospace 677 10.6% 558 9.7%

Saab Technical Support & Services 257 8.7% 232 7.7%

Saab Bofors Dynamics 150 4.9% 172 5.5%

Saab Aviation Services 103 8.7% 87 7.9%

Corporate/Other 8 – 83

Saab Group 1,657 9.3% 1,293 7.5%

Operating income by business area (EBITDA/EBIT)


Saab Systems & Electronics 661 12.7% 521 11.1%

Saab Aerospace 885 13.8% 738 12.8%





Saab Group 2,292 12.8% 1,912 11.1%

Goodwill amortization – 129 – 139

Amortization of other intangible assets – 29 – 30

Depreciation of fixed assets excl. leasing – 477 – 450

Saab Group 1,657 9.3% 1,293 7.5%

Operating income by business area,with structural costs reported separately


Saab Systems & Electronic 591 11.3% 410 8.8%

Saab Aerospace 705 11.0% 694 12.0%





Total 1,840 10.3% 1,602 9.3%

Structural costs – 183 – 309

Saab Group 1,657 9.3% 1,293 7.5%

Operating income for Saab Systems andElectronics rose to SEK 462 m. (327). Theoperating margin rose to 8.8 percent(7.0), mainly due to higher volume anda more favorable product mix in defense-related business units.

Operating income for Saab Aerospacerose to SEK 677 m. (558) and the marginto 10.6 percent (9.7) as a result of a highervolumes and margins in Aerostructuresand lower structural costs. Saab EricssonSpace, which as of 2004 is reported in thebusiness area, also achieved a positiveresult.

Saab Technical Support and Servicesreported operating income of SEK 257 m.(232), with an operating margin of 8.7percent (7.7). Operating income was af-fected positively by higher capacity utili-zation at Saab Metech and CombitechSystems.

Operating income for Saab BoforsDynamics fell to SEK 150 m. (172) with amargin of 4.9 percent (5.5). The currentyear includes charges of SEK 160 m. toterminate the torpedo contract with theBrazilian Navy. The income improvementis otherwise due to a more favorableproduct mix.

Operating income for Saab AviationServices amounted to SEK 103 m. (87).The market for commercial regional air-craft remained weak, but during the yearwas compensated by a falling U.S. dollarand rise in sales of spares. Favorableresults from certain structural measuresand contract settlements contributed toimproved income.

Operating income for Corporate/Other Operations consists of shared Groupexpenses, trading results, results fromoperating companies and results in con-nection with liquidations. The improve-ment from the previous year is attribut-able in part to disposals of associatedcompanies and a property. Results fromoperating companies and trading resultsimproved.


15


Financing and liquidityBalance sheet

Dec. 31, Dec. 31,SEK m. 2004 2003

Assets

Goodwill and other intangible assets 2,693 2,497

Property, plant and equipment, etc. 3,772 4,230

Lease assets 4,230 5,038

Long-term interest-bearing receivables 459 765

Shares, etc. 770 415

Deferred taxes 690 981

Inventories, etc. 4,091 4,133

Short-term interest-bearing receivables 145 39

Other receivables 5,609 6,363

Cash and marketable securities 4,319 4,243

Total assets 26,778 28,704

Shareholders’ equity and liabilities

Shareholders’ equity 7,964 7,003

Minority interest in subsidiaries 93 147

Provisions for pensions 3,034 3,458

Provisions for deferred taxes 50 –

Other provisions 1,714 2,234

Liabilities to credit institutions 1,108 862

Convertible debenture loan – 232

Lease obligations 2,179 2,597

Advance payments from customers, net 2,860 3,990

Other liabilities 7,776 8,181

Total shareholders’ equity and liabilities 26,778 28,704

Advance payments from customers, gross 9,128 9,770

Utilized portion – 6,268 – 5,780


Of the total goodwill of SEK 1.5 bn, SEK1.3 bn is attributable to the acquisition ofCelsius. The remainder relates primarilyto SaabTech and Combitech Systems. All goodwill and other intangible assetsare divided by business area. The increasein the goodwill and intangible assetsitem compared with the previous yearrelates to the capitalization of productdevelopment. Property, plant and equip-ment are used primarily within the corebusiness. Lease assets relate mainly tothe lease portfolio of regional aircraft.Long-term interest-bearing receivablesmainly comprise receivables from assetsales. Shares, etc. include the shares inNammo, Grintek and Grintron, HawkerPacific reported as an associated companyas of the closing day and the share in

EURENCO. Receivables for deferredtaxes are reported net after deductingdeferred tax in untaxed reserves andrelate mainly to unutilized tax deductionsfor previous provisions and tax loss carry-forwards. Inventories, etc., includingwork in progress for third parties, arereported net after deducting advancepayments and amount to SEK 4.1 billion.Slightly over half of other receivablesconsists of accounts receivable, whilethe remainder includes VAT receivablesand interim items. Cash and marketablesecurities have increased due to a positiveoperating cash flow. The minority interestwas reduced through the divestment ofNexplo and the fact that Hawker Pacificis now an associated company. Sub-sequently the minority interest consistsmainly of the interest in Saab EricssonSpace. Provisions for pensions werereduced due to a payment to pensionfunds. Deferred tax provisions relate tonon-offsetable items in partly ownedand foreign companies. Other provisionsconsist mainly of future commitments forRegional Aircraft. The convertible deben-ture loan issued to employees was con-verted during the year. Lease commit-ments relate to the lease portfolio ofregional aircraft. Other liabilities includeaccounts payable, VAT liabilities andprepaid income.

Liquid funds, including interest-bearing receivables less liabilities tocredit institutions, have decreased bySEK 138 m. to SEK 3,815 m. (3,953). TheGroup’s net liquidity after deductingprovisions for pensions amounted toSEK 781 m. (495). The change is due topositive operating cash flow, the dividendpaid and the conversion of a convertibledebenture loan. In March an agreementwas signed with Carnegie’s joint pensionfund and SEK 504 m. was contributed.The fund’s assets as of December 31,2004 have been reported net against“Provisions for pensions”.

As of 2004 Saab reports its pensioncommitments according to RR29, whichmeans that the future commitment atthe time of retirement is reported as theliability. The pension commitment isclassified as either defined-benefit or

defined-contribution. Saab has bothdefined-benefit plans – primary the ITPplan – and defined-contribution plans.The reporting of defined-benefit plans is affected by a number of actuarialassumptions such as lifespan, employeeturnover, discount rate and future wageincreases. During 2004 Saab estimatedthe effect of the change in accountingprinciples for defined-benefit plans. The opening balance of “Provisions forpensions” amounts to SEK 3,375 m.when calculated according to RR29,compared with SEK 3,458 m. in theannual report for 2003. Provisions forpensions have therefore decreased bySEK 83 m. Deferred tax receivables haveincreased by SEK 51 m. and the receiva-ble related to the special employer’sdebt has risen by SEK 36 m. This meansthat unrestricted equity increased bySEK 98 m. from the start of the year. Seealso the consolidated balance sheet as ofJanuary 1, 2004.

The Group’s equity/assets ratio was29.7 percent, against 24.7 percent at thebeginning of the year. Shareholders’equity amounted to SEK 7,964 m.(7,003), or SEK 72.96 per share (65.75).


16


Subdivided balance sheet,December 31, 2004

SaabAircraft Elimina- Saab

SEK m. Saab Leasing tions Group

Assets

Goodwill and other intangible assets 2,693 2,693

Property, plant and equipment, etc 3,770 2 3,772

Lease assets 4,230 4,230


Shares, etc. 2,270 – 1,500 770

Deferred taxes 968 – 278 690

Inventories, etc. 4,087 4 4,091

Short-term interest-bearing receivables 145 145

Other receivables 4,925 684 5,609

Cash and marketable securities 3,925 394 4,319

Total assets 23,242 5,314 – 1,778 26,778


Shareholders’ equity 7,787 1,677 – 1,500 7,964

Minority interest 88 5 93


Provisions for deferred taxes 50 50

Other provisions 1,486 506 – 278 1,714

Liabilities to credit institutions 1,108 1,108


Advance payments from customers,net 2,860 2,860

Other liabilities 6,829 947 7,776

Total share-holders’ equity and liabilities 23,242 5,314 –1,778 26,778

Cash flow

Operating cash flow was positive duringthe year, amounting to SEK 325 m. (545).

The Group’s cash flow from opera-ting activities remained good, increasingto SEK 2,565 m. (2,186). Working capitaldeveloped negatively, mainly due to low-er advance payments from customersand disbursements of previous years’provisions. Cash flow from investing ac-tivities has been affected by the capitali-zation of product development, busi-ness acquisitions and sales of businessesand assets.

Operating cash flow of SEK 325 m.was distributed between cash flow from

operations SEK 259 m. (675), acquisi-tions and divestments SEK 71 m. (42),and the regional aircraft business SEK – 5 m. (–172).

Condensed statement of cash flows

SEK m. 2004 2003

Cash flow from operating activities

Income after financial items 1,511 1,073

Adjustments for items not affecting cash flow 1,080 1,170

Tax paid – 26 – 57

Cash flow from operating activities before changes in working capital 2,565 2,186

Working capital

Inventories etc. – 264 – 378

Receivables 573 – 855

Advance payments from customers, net – 1,126 215

Other liabilities – 135 875

Lease obligations – 418 – 329

Provisions – 330 – 366

Change in working capital – 1,700 – 838

Cash flow from operating activities 865 1 348

Investments in intangible fixed assets – 420 – 397

Investments in tangible fixed assets – 348 – 472

Sale of intangible and tangiblefixed assets 116 73

Sale of lease assets 41 – 37

Sale and acquisition of subsidiaries 184 –

Acquisition/sale of otherlong-term securities – 113 30

Cash flow from investing activities – 540 – 803

Operating cash flow 325 545

Financial objectives

Saab’s long-term objective is an averageoperating margin after depreciation andamortization of at least 10 percent. Theobjective for return on equity is 15 percent,based on current interest rate levels. Theequity/assets ratio objective is to exceed30 percent. In 2004 the operating marginwas 9.3 percent, the return on equitywas 14.5 percent and the equity/assetsratio was 29.7 percent.

Capital expenditures

The year’s gross capital expenditures inproperty, plant and equipment, exclud-ing leasing assets, amounted to SEK 348 m. (472). Net investments, includinglease assets and intangible fixed assets,amounted to SEK – 376 m. (– 597).

Gross capital expenditures

SEK m. 2004 2003

Saab Systems & Electronics 88 80

Saab Aerospace 100 193

Saab Technical Support & Services 48 96

Saab Bofors Dynamics 71 65

Saab Aviation Services 37 20


Saab Group 348 472

Research and development

To maintain a leading position in itsbusiness areas, the Group allocatesconsiderable resources to research anddevelopment, where approximately2,400 persons are employed. Investmentsin research and development are madeprimarily for customers in the businessareas Saab Systems and Electronics, SaabAerospace and Saab Bofors Dynamics.The year’s total expenditures for researchand development amounted to SEK3,929 m. (3,690), of which SEK 3,171 m.(2,892) relates to customer-fundeddevelopment.

Research and development expenditures

SEK m. 2004 2003



Saab Technical Support & Services 33 46


Saab Aviation Services –


Saab Group 3,929 3,690

as % of sales 22 21

Internally financed development relatedmainly to the export version of Gripenand the further development of instru-mentation training, electronic warfareand missile systems.

From 2002 part of the company-fundeddevelopment expenditures are capitalizedin the balance sheet due to a change in ac-counting principles. This applies primarilyto development expenditures for the exportversion of Gripen, but also to expendituresfor instrumentation training, electronicwarfare and missiles. Of the year’s devel-opment expenditures, a total of SEK 419 m.(395) was carried forward and SEK 388 m.(414) was charged against income for theyear, which includes amortization of


17


SEK 49 m. (11). After the year’s capital-ization and amortization, the closingbalance of capitalized product develop-ment amounts to SEK 1,148 m. (778).

Personnel

At the end of the period the Group had11,936 employees, against 13,414 at thebeginning of the year.

Number 2004 2003 Change

Saab Systems & Electronics 2,699 2,651 48

Saab Aerospace 4,237 4,697 – 460

Saab Technical Support & Services 2,776 3,003 – 227

Saab Bofors Dynamics 1,655 1,718 – 63

Saab Aviation Services 353 799 – 446

Corporate/Other 216 546 – 330

Saab Group 11,936 13,414 – 1,478

Outlook for 2005

For the full-year 2005 organic growth isestimated at 5 percent. Income for 2005,according to IFRS, is expected to gener-ate an operating margin before structu-ral costs below the previous year’s level.Income after structural charges will thusbe lower than in 2004, but Saab’s long-term objective of 10 percent remains un-changed. The costs to adapt resources,though uncertain in terms of volume andtiming, are estimated in the range ofSEK 250 m. in both 2005 and 2006, witha reduction of 1,000–1,500 employees inSweden during that period.

SHARE REPURCHASE

The Board of Directors will propose thatthe Annual General Meeting authorize itto decide to repurchase up to 10 percentof the company’s outstanding shares.The purpose of the authorization is toprovide the Board with increased scopefor action in working with the company’scapital structure and to enable acquisi-tions where considered appropriate. Asproposed, the mandate would applyuntil the following Annual GeneralMeeting. Repurchases may be madeover the stock exchange or through offer-ings to shareholders. It is also proposedthat the Board’s mandate include theoption to transfer repurchased shares inaccordance with current legislation.

Licensing requirements

Production of aircraft and aircraft com-ponents by the Parent Company, SaabAB in Linköping, is subject to licensingaccording to the Swedish EnvironmentCode due to the surface treatment pro-cesses, the manufacture of compositematerial, handling of chemical substanc-es, airport operation and size of themanufacturing facilities. The environ-mental impact of these operations arisesprimarily from emissions of organic sol-vents (VOCs) into the atmosphere andof metals and de-icing agents into water-ways, the generation of industrial wastesand noise disturbing local surroundings.The operations subject to licensingpredominantly entail manufacturing.

The National Licensing Board for En-vironmental Protection granted the li-cense for aircraft manufacture in 1990.Saab AB has been granted an exemptionfrom the Chemicals Inspectorate for useof trichloroethylene until 2006.

The operations carried on by SaabBofors Dynamics AB, Saab EricssonSpace AB and CSM Materialteknik ABin Linköping are not subject to licensingor notification according to the Environ-ment Code, but are covered by the licensegranted in 1990 for aircraft manufactureand the collective operations of Saab ABat Råberga-Tannefors in Linköping. Theoperations of Saab Aircraft AB in Lin-köping are subject to licensing accordingto the Environment Code and are coveredby the license for aircraft manufacture.

Saab Bofors Dynamics AB and SaabBofors Testcenter AB carry on operationsin Karlskoga which are subject to licensingaccording to the Environment Code.Saab Bofors Dynamics AB and SaabBofors Underwater Systems AB carry onoperations in Eskilstuna and Motala,respectively, which are subject to licens-ing. AerotechTelub AB carries on similaroperations in Arboga and Linköping. In addition, SaabTech AB and SaabBarracuda AB carry on operations subjectto licensing in Järfälla, Jönköping andGamleby.

The environmental impact from sub-sidiaries subject to licensing consistsprimarily of emissions of VOCs into the

atmosphere, emissions of metals, etc. intowater, generation of industrial wastesand noise disturbing local surroundings.

Operations subject to notification requirements

The Group has operations subject tonotification in accordance with theEnvironment Code at five Swedishsubsidiaries: Saab Ericsson Space AB(Göteborg), Saab Training Systems AB(Huskvarna), SaabTech AB (Kista), Aero-techTelub AB (Östersund) and Saab Avio-comp AB (Linköping). The environmentalimpact of these operations is very limited.

PARENT COMPANYSales and income

The Parent Company includes thebusiness units Aerosystems and Aero-structures. Sales of the Parent Companyamounted to SEK 5,715 m. (5,094).Operating income was SEK 535 m. (315).

Net financial income and expensesamounted to SEK 402 m. (552) and incomeafter financial items was SEK 937 m. (867).Of the financial net, SEK 491 m. (707)consists of Group contributions, dividendsand write-downs of shares in subsidiaries.After appropriations of SEK 215 m. (– 23)and paid tax of SEK – 324 m. (– 103), net income for the year amounted to SEK828 m. (741).

Liquidity, finance and investments

Liquid funds less liabilities to creditinstitutions amounted to SEK 1,318 m. (– 727). The year’s gross capital expend-itures in property, plant and equipmentamounted to SEK 81 m. (179). At year-end the Parent Company had 3,715employees, compared with 4,136 at thebeginning of the year.


18


As of January 1, 2005 Saab will applythe International Financial ReportingStandards approved by the EU in theconsolidated accounts. Reporting for2005 will include comparative figuresfor 2004 restated in accordance with IFRS,with certain exceptions as reported below.The recommendations of the SwedishFinancial Accounting Standards Council,which were applied through 2004, arebased largely on IFRS, due to which theconsolidated accounts already conformin large part to the new rules.

The transition to IFRS means thatcomparative figures for 2004 will haveto be restated with the exception of rec-ommendations IAS 32/IAS 39 FinancialInstruments and IFRS 5 Non-currentAssets Held for Sale. These recommen-dations will be applied from 2005, whichmeans that the opening balance for 2005will contain the effects of these recom-mendations. The rules on introductionof IFRS and restatements can be foundin IFRS 1, First-time Adoption of Inter-national Financial Reporting Standards.

According to the Stockholm StockExchange’s recommendation from No-vember 2004, listed companies mustprovide information on the most signifi-cant effects of the transition to IFRS intheir year-end reports for 2004, as Saabhas done below.

Quarterly information for 2004 restatedaccording to IFRS will be presented asregards the income statement in the firstinterim report for 2005. The balancesheet for each quarter will be publishedin each interim report.

IFRS project

The Annual Report for 2003 reportedthat a project organization had beenformed to identify the differences bet-ween IFRS and current reporting, esti-mate the transitional effects and assumeresponsibility for implementing IFRS.

In 2004 the project group reportedcontinuously to the CFO, who in turninformed the Audit Committee and theBoard of Directors.

Effects of transition to IFRS

The following recommendations haveaffected Saab’s reporting.

IFRS 3 Business CombinationsIFRS 5 Non-current Assets Held

for SaleIAS 7 Cash Flow StatementsIAS 16 Property, Plant and Equip-

mentIAS 19 Employee BenefitsIAS 21 The Effects of Changes in

Foreign Exchange RatesIAS 27 Consolidated and Separate

Financial StatementsIAS 36 Impairment of AssetsIAS 38 Intangible AssetsIAS 32/39 Financial Instruments

IFRS 1, First-time Adoption of Interna-tional Financial Reporting Standards,grants a number of voluntary exemptionswhen introducing IFRS. Saab has decidedto utilize the following exemptions:

� Only business combinations afterJanuary 1, 2004 will be restatedaccording to IFRS 3.

� Certain tangible fixed assets will berecognized at fair value as of January1, 2004, using it as their assumedacquisition value.

� Comparative figures for IAS 39Financial Instruments will not berestated.

Amendments to the rules are still apossibility, as are changes in their appli-cation due to differences in internationalinterpretations. Following are descriptionsof the most significant changes and pre-liminary effects on income and financialposition.

IFRS 3 Business Combinations

IFRS 3 creates changes in the way businessacquisitions are reported and eliminatesthe systematic amortization of goodwill.The purchase price of a business combi-nation must also be allocated acrossidentifiable intangible assets such astrademarks, customer relations, etc. In-

tangible assets are amortized over theirestimated useful lives, with the exceptionof those with an indeterminate economiclife, such as goodwill. Goodwill must betested annually to determine whetherthe asset has been impaired. Furthermore,allocations for restructuring measuresare not permitted in the acquisitionanalysis.

Saab has not restated any acquisi-tions prior to January 1, 2004. Impair-ment tests for goodwill will be done atleast once a year. The required write-down for 2004 amounts to SEK 21 m.Goodwill amortization according toSwedish accounting rules amounted toSEK 129 m. in 2004. This amortization isreversed in the IFRS accounts for thecomparative year 2004. No additionalamortization requirements were identi-fied when goodwill amortization for2004 was reversed. For acquisitions in2004, the application of IFRS 3 has notcaused any differences compared withthe previous accounting principles.

IFRS 5 Non-current Assets Held for Sale

IFRS 5 applies from 2005 and Saab willapply IFRS 5 for the first time in itsopening balance for 2005. IFRS 5 meansthat non-current assets held for sale arereported separately in the balance sheet.Assets held for sale are valued at thelower of reported value and net realizablevalue and are not depreciated.

IAS 7 Cash Flow Statements

According to IAS 7, Cash Flow State-ments, cash and cash equivalents with aremaining maturity of over threemonths on the closing date may not beclassified as liquid assets. According toSwedish practice, they are included inthe balance sheet item ”Cash and mar-ketable securities” despite that theywere exposed to a slight risk of a changein value and were intended for cash man-agement purposes. In the opening bal-ance for 2004, SEK 4,243 m. was report-ed as cash and marketable securities, ofwhich SEK 3,290 m. had a maturity oflonger than three months. In the closing

Transition to International Financial Reporting Standards, IFRS


19


balance for 2004, cash and marketablesecurities amounted to SEK 4,319 m., ofwhich SEK 3,925 m. had a maturity oflonger than three months.

IAS 16 Property, Plant and Equipment

IAS 16 requires that depreciation isapplied on a component basis if thecomponents have different useful lives.Generalized depreciation schedules arenot acceptable. In the case of certainassets, their book value does not agreewith a retroactive application of IAS 16.In accordance with the transitional rules,fair value has been used as the assumedacquisition value. This applies to around800 of Saab’s buildings.

This means that book value increasesby SEK 609 m. as of January 1, 2004, whichcreates a deferred tax liability of SEK170 m. As a result, shareholders’ equityincreases by SEK 439 m. Depreciation for2004 decreases by SEK 13 m. comparedwith the previous accounting principles.

IAS 19 Employee Benefits

As of January 1, 2004 Saab applies RR 29“Employee benefits,” which essentiallyagrees with IAS 19. According to thetransitional rules in IFRS 1, actuarialgains and losses prior to January 1, 2004can be set at zero and reported directlyagainst shareholders’ equity as per thetransition date. Since the timing of theintroduction of RR 29 agrees with the in-troduction of IAS 19, there is no transi-tional effect owing to IFRS. The effectsof the introduction of RR 29 include adecrease in provisions for pensions ofSEK 83 m., an increase in deferred taxreceivables of SEK 51 m. and an increasein the liability for the special employer’scontribution of SEK 36 m. This meansthat unrestricted shareholders’ equityrose by SEK 98 m.

IAS 21 The Effects of Changes in Foreign Exchange Rates

IAS 21 states that a company’s reportsmust be prepared in its functional cur-rency, which means that valuations aremade in this currency as well. According

to RR 8, foreign operations are eitherindependent or integrated, where inde-pendent subsidiaries are translated atthe closing rate and integrated subsidi-aries are translated according to themonetary method. The terms integratedand independent are not found in IAS21; the key is which currency is most im-portant to the operation (the functionalcurrency). Financial statements are pre-pared in the functional currency andtranslated to Swedish kronor at the clos-ing rate in terms of the balance sheetand the average rate for the incomestatement.

In 2004 Saab had subsidiaries classifiedas integrated, which were thereforetranslated to Saab’s reporting currencyaccording to the monetary method.Within Saab Aviation Services, certainoperations utilize USD as their functionalcurrency. This means that valuations aremade in the functional currency andtranslated according to the current method,in spite of the fact that the operationsare conducted primarily in Sweden. Thechange in reporting in the balance sheetfor opening balances for 2004 has thegreatest effect on lease assets SEK +410m., lease obligations SEK +255 m., pro-visions SEK +399 m., inventories SEK – 156 m. and shareholders’ equity SEK – 313 m., which are translated at theclosing rate, not historical acquisitionrates. Income for 2004 improves by SEK42 m. compared with the previous ac-counting principles.

Accumulated exchange rate differencesas of January 1, 2004 will not be set atzero.

IAS 27 Consolidated and Separate Financial Statements

According to IAS 27, the minority inter-est in net income does not reduce income.The minority interest in the balancesheet must be reported as a separateitem in shareholders’ equity. The effecton net income amounts to SEK 35 m.and in the opening balance shareholders’equity increases by SEK 93 m.

IAS 36 Impairment of Assets

According to the previously appliedprinciples, Saab tested whether revalua-tions were needed when there were in-dications of reduced value. According tothe new principles, an impairment testmust be done at least once a year for in-tangible assets with an indefinite usefullife, which therefore are not amortized.No need for revaluations was identifiedas of January 1 or December 31, 2004.

IAS 38 Intangible Assets

The Swedish Financial AccountingStandards Council’s recommendationRR15 Intangible Assets has been appliedas of 2002; the restatement of prior yearswas not permitted. IAS 38, on the otherhand, will be applied retroactively. IAS38 has not necessitated any changeswith regard to capitalized developmentexpenses during the period 2002 to 2004.For the period prior to 2002, no develop-ment expenses have been identified thatcould be capitalized.

IAS 32/39 Financial Instruments

Reporting and valuations according toIAS 32/39 will be applied from 2005without restating the comparative year2004.

IAS 39 requires that financial assetsand liabilities are classified in differentcategories and are then reported andvalued according to the principles thatapply to each category.

Financial derivatives such as forwardcontracts, options and swaps will be re-ported in the balance sheet at fair value.The change in the value of these instru-ments will be reported in the incomestatement, except in cases of hedginginstruments.

Refer to Balance sheet according toIFRS as of January 1, 2005 and to thesection on IAS 39 on pages 22 to 24.


20


According to Effects of AfterJanuary 1, 2004 – December 31, 2004 Annual harmonization harmonizationAmounts in SEK m. Note Accounts Act with IFRS with IFRS

Sales 17,848 – 17,848Cost of goods sold a – 13,776 180 – 13,596

Gross income 4,072 180 4,252Marketing expenses b – 1,290 4 – 1,286Administrative expenses – 948 – – 948Research and development costs – 388 – – 388Other operating income 175 – 175Other operating expenses e – 39 12 – 27Share of results of associates 75 – 75

Operating income 1,657 196 1,853

Operating margin 9,3 % 10,4 %

Financial income and expensesResult from securities and receivables

accounted for as fixed assets – 11 – – 11Other interest income and similar items 218 – 218Interest expenses and similar items c – 353 5 – 348

Income after financial items 1,511 201 1,712Taxes d – 385 – 17 – 402Minority interest e – 35 35 –

Net income for the year 1,091 219 1,310

Earnings per share, SEK1) 10.08 2.02 12.10

1) Number of shares, thousands 108,234 108,234 108,234

Income statement according to IFRS

Note aThe change in cost of goods sold consists of thefollowing:

Goodwill amortization 125Inventory revalued at closing day rate 42Lower depreciation of buildings 13

180

Note bRelates to goodwill amor tization

Note cRelates to the translation difference from theapplication of the monetar y method

Note d

Tax on income for the year consists of:

Revaluation of inventories – 12Lower depreciation/amortization – 4Higher net financial income and expenses – 1

– 17

Note eAccording to IAS 27, the minority interest does notadjust income. Transactions with the minority aretreated as ownership transactions.


21


As of January 1, 2004 According to Consolidatedprevious accounts and Effects of

accounting business Tangible fixed changes in According toSEK m. principles acquisitions assets exchange rates IFRS

AssetsGoodwill and other intangible assets 2,497 2,497Property, plant and equipment 4,230 609 1 4,840Lease assets 5,038 410 5,448Long-term interest-bearing receivables 765 765Shares, etc. 415 415Deferred taxes 1,032 – 170 233 1,095Inventories, etc. 4,133 – 156 3,977Short-term interest-bearing receivables 39 39Other receivables 6,383 – 6,383Cash and marketable securities 4,243 4,243

Total assets 28,775 439 488 29,702

Shareholders’ equity and liabilitiesShareholders’ equity 7,101 147 439 – 313 7,374Minority interest 147 – 147 –Provisions for pensions 3,375 3,375Other provisions 2,234 399 2,633Liabilities to credit institutions 862 862Convertible debenture loan 232 232Lease obligations 2,597 255 2,852Advance payments from customers, net 3,990 3,990Other liabilities 8,237 147 8,384

Total shareholders’ equity and liabilities 28,775 439 488 29,702

Balance sheets according to IFRS

As of December 31, 2004 According to Consolidatedprevious accounts and Effects of

accounting business Tangible fixed changes in According toSEK m. principles acquisitions assets exchange rates IFRS

AssetsGoodwill and other intangible assets 2,693 129 2,822Property, plant and equipment 3,772 656 4,428Lease assets 4,230 141 4,371Long-term interest-bearing receivables 459 459Shares, etc. 770 770Deferred taxes 690 – 184 221 727Inventories, etc. 4,091 – 171 3,920Short-term interest-bearing receivables 145 145Other receivables 5,609 – 136 5,473Cash and marketable securities 4,319 4,319

Total assets 26,778 129 472 55 27,434

Shareholders’ equity and liabilitiesShareholders’ equity 7,964 222 472 – 381 8,277Minority interest 93 – 93 –Provisions for pensions 3,034 3,034Provisions for deferred taxes 50 50Other provisions 1,714 491 2,205Liabilities to credit institutions 1,108 1,108Lease obligations 2,179 46 2,225Advance payments from customers, net 2,860 2,860Other liabilities 7,776 – 101 7,675

Total shareholders’ equity and liabilities 26,778 129 472 55 27,434


22


As of January 1, 2005 According Accordingto IFRS Financial Fixed assets to IFRS

SEK m. Dec. 31, 2004 instruments held for sale Jan. 1, 2005

AssetsGoodwill and other intangible assets 2,822 2,822Property, plant and equipment 4,428 – 39 4,389Lease assets 4,371 4,371Long-term interest-bearing receivables 459 459Shares, etc. 770 770Deferred taxes 727 727Inventories, etc. 3,920 – 1,038 2,882Short-term interest-bearing receivables 145 145Other receivables 5,473 – 58 – 143 5,272Receivables related to unrealized financial instruments 1,227 1,227Cash and marketable securities 4,319 4,319Fixed assets held for sale 182 182

Total assets 27,434 131 – 27,565


Shareholders’ equity 8,277 – 36 8,241


Provisions for deferred taxes 50 50

Other provisions 2,205 – 97 2,108

Liabilities to credit institutions 1,108 1,108



Liabilities related to unrealized financial instruments 266 266

Other liabilities 7,675 – 2 – 5 7,668

Liabilities related to fixed assets held for sale 5 5

Total shareholders’ equity and liabilities 27,434 131 – 27,565

Balance sheet according to IFRS


23


Accounting of financial instruments according to IAS 39

Recommendation IAS 39 covers thevaluation of financial instruments aswell as when and how they are reportedin the balance sheet and income state-ment. The term financial instrumentrefers to any form of contract that givesrise to a financial asset in one companyand a financial liability or equity instru-ment in another company.

Since 2003 Saab has had a projectgroup to prepare and adapt the organi-zation for the implementation of IAS 39.Saab has applied IAS 39 based on theconclusions of this project.

Trading & Netting Portfolio

The purpose of the portfolio is to gathertogether all the business units’ currencytransactions from the order backlog. Theportfolio also includes all trading opera-tions in the fixed income and currencymarkets with a risk mandate expressedas a VaR of SEK 20 m.

The Saab Group has decided not toapply hedge accounting to transactionsin this portfolio. There are two reasons:the cost savings obtained by netting andthe timing requirements of hedgeaccounting. The order backlog consistsof long-term contracts, which makes itimpossible to match flows in terms oftime, as hedge accounting stipulates.

Pursuant to the main rule in IFRS 39,derivatives attributable to this portfolioare reported at fair value and affect in-come for the period. As in the case ofhedging instruments, Saab’s model alsoaccounts for cash flows from the orderbacklog’s net flows, which are valuatedaccording to the same principles as for-ward currency contracts.

In terms of earnings, this is a zero-sumgame, since the change in value in theorder backlog’s net flows is offset by thechange in value of the derivatives, giventhat the hedge is hundred percent effective.

The revaluation of cash flow from theorder backlog’s net flows is considered a project-related item and thereby affectswork in progress for third parties. Net

flows in foreign currency are therebyassigned a value for accounting pur-poses that corresponds to the forwardrate used in the outstanding derivative.Follow-up routines are precisely formu-lated in the Group’s guidelines accordingto the same basis as the percentage ofcompletion method, according to IAS 11.

If there is a bank liability, total assetsare affected by a corresponding amount.

The cash flows included in the netorder backlog are as follows:

1. Contracted inflows in foreign currencyExisting contracts in the order back-log with fixed sales volumes at fixedprices in foreign currency.

2. Contracted outflows in foreign currencyExisting contracts with fixed purchasesat fixed prices in foreign currency.

3. Anticipated outflows in foreign currencyAnticipated and calculated purchasesin the order backlog.

4. Anticipated inflows in foreign currencyfrom general agreementsCorresponds to the portion of a spe-cific contract where production hasbegun, up to specific milestones. Themajority of these contracts are in theAerostructures unit and relate to theAirbus A380 and Airbus A340, amongother things. Pursuant to industrypractices, the specific milestones aretied to various contract dates, e.g.price negotiations.

Funding & Investment

The purpose of the portfolio is to manageall intra-Group funding in currenciesand invest surplus liquidity in the fixedincome market. Funding in foreigncurrency is normally financed with SEK through currency swaps. Surplusliquidity is invested in accordance withthe current investment policy.

The financial assets in this portfolio willbe reported at fair value with restatementsreflected in the income statement. Thismeans that changes in the value of deri-vatives and securities are marked to

market and affect the Group’s net finan-cial items.

Interest rate swaps used to eliminatethe interest rate risk in the leasing port-folio affect the Group’s operating income.The counter item is revaluation of theloss risk reserve.

Tender to contract Portfolio

Currency risk during the tender periodis managed in this portfolio.

The principle in IAS 39 is based onthe same principle as in the Trading andNetting Portfolio. The market value of thederivatives affects the Group’s operatingincome. The counter item is tendercosts, i.e. the costs associated with handling the individual tender.

Hedge Accounting

The purpose of the portfolio is to gathertogether all currency flows to whichhedge accounting will be applied.

Operations involving commercialaircraft maintenance in particular haverelatively short order backlogs in relationto sales. For these flows, hedge accountingwill be applied.

The portfolio also includes hedgingtransactions for specific project financingand real estate financing. Interest rateswaps are primarily used to manageinterest rate risk.

All of the above flows will be treatedas cash flow hedges in the accounts.Derivatives are valued at fair value andrestated via shareholders’ equity. Theyaffect income only after the underlyingcash flow occurs.

Pension Fund

The fund’s securities and any derivativeswill be marked to market and affect netfinancial items. The pension liability ismarked to market according to IAS 19and any changes in value are reportedin net financial items.


24


Impact of the Balance sheet The table shows the gross market value of derivatives distributed by portfolio.

Tender toTrading & Funding & contract Hedge Pension

Netting Investment portfolio Accounting Fund Total

Receivables from unrealized financial instruments 1,191 7 24 5 – 1,227

Liabilities from unrealized financial instruments 114 128 13 11 – 266

Net 1,077 – 121 11 – 6 – 961

Embedded derivatives

Many contracts contain embeddedderivatives in the form of currencyand/or index clauses. These embeddedderivatives are not reported separately,since they are valuated at fair value inthe order backlog in accordance withthe principles described in the sectionTrading and Netting Portfolio.

Classification of assets and liabilities

In accordance with the classification inIAS 39, financial assets and liabilities areclassified in five different groups andreported accordingly. The valuation andreporting of unrealized gains and lossesare done differently depending onwhich of the following groups theybelong to.

A Held for trading – Financial assetsintended for trading and derivatives(with the exception of derivativesthat are a component in a hedge).Changes in value are reported in theincome statement.

B Held to maturity – Financial assetswith a fixed maturity which the holderintends to retain until maturity. Valuedat accrued acquisition value takinginto account any amortization andwrite-downs.

C Loans & Receivables – Loans and otherreceivables that originated in thecompany or have been acquired andare not held for trading. Valued ataccrued acquisition value taking intoaccount amortization and write-downs.

D Available for sale – Financial assetsavailable for sale. Valued at fair valueand reported in shareholders’ equity.Reversed in the income statementwhen sold.

E Liabilities not held for sale – Liabilitiesnot held for trading. Valued at accruedacquisition value.

ClassificationThe table shows the classification according to IAS 39

Assets Classification

Other long-term receivables C

Accounts receivable C

Short-term investments A

Cash and bank balances A

Shareholders’ equity and liabilities Classification

Liabilities to credit institutions and other interest-bearing liabilities E

Accounts payable C


25


Organization and operations

The Group’s operations are continuouslyexposed to various financial risks invol-ving foreign currencies, interest rates,liquidity and credit. In addition, theseoperations consist to a large extent oflong-term projects, which increases thecomplexity of the financial structure.The Group has a financial policy, asestablished by the Board of Directors,with rules and guidelines for managingfinancial risks and financial operationsin general. The financial policy statesthat financial risks associated with normalbusiness operations should be minimi-zed, i.e. financial risk neutrality shouldbe sought.

To take advantage of economies ofscale and synergy effects and minimizemanagement risks, all external transac-tions are made through Saab Treasury,the Group’s internal bank. The businessunits are responsible for minimizing fi-nancial risks through transactions withthe internal bank. In the process Saabhas established a structure with decen-tralized hedging responsibility and cen-tralized trading responsibility.

Saab Treasury is responsible for theGroup’s liquidity management, internalbank, trading and pension fund as wellas external management of interest rateand foreign currency risks. Operations,which are carried out on the basis of thefinancial policy established by the Board,are divided into the following portfolios:liquidity management, internal banking,tender to contract, proprietary tradingand pension fund. The latter was estab-lished during the year.

In order to streamline and improvenetting and adapt risk management ac-cording to IAS 39, the portfolio structurewill be changed in 2005. The portion ofthe internal bank that entails manage-ment of currency flows will be mergedwith the trading portfolio under thename Trading & Netting. The portion ofthe internal bank that entails financingof foreign subsidiaries will be merged

with liquidity management under thename Funding & Investment. In addi-tion, a new portfolio will be established,Hedge Accounting, to manage all hedgeaccounting according to IAS 39. Thetender to contract and pension fundportfolios are unchanged.

Customer finance, guarantee andfinance issues and the development ofmethods and principles to managefinancial risks are decided on and ma-naged by the Corporate Treasury function.

Foreign currency risks

Foreign currency risk refers to the riskthat fluctuations in exchange rates willhave an effect on the income. Exchangerate fluctuations affect Saab’s incomeand shareholders’ equity in variousways:

� Income is affected when sales revenueand production costs are in differentcurrencies (transaction exposure).

� Income is affected when the incomeof foreign subsidiaries is translated toSwedish kronor (translation exposure).

� Income or shareholders’ equity is af-fected when the assets and liabilitiesof foreign subsidiaries are translatedto Swedish kronor (translation expo-sure).

Transaction exposure

Saab’s finance policy prescribes that theflow in foreign currency – the transac-tion exposure – for firm orders must behedged. The first hedge is always to ut-ilize incoming currency to pay for pur-chases in the same currency, i.e. netting.Moreover, foreign currency risk neutral-ity is achieved through either contractformulations or forward contract andoption transactions in the foreign ex-change market. The purpose of thesecurrency hedges is to ensure estimatedgross margins in order backlog.

Of the total order backlog, 35 percent isin fixed prices, while the remaining 65percent contains normal index and/orcurrency clauses. Fixed prices are morefrequent in foreign currencies accordingto the table below.

Financial risk management

EUR 10%

USD16%

GBP 11%Other 2%

SEK61%

Contract currenciesin the order backlog

0 20 40 60 80 100%

Fixed Variable

External order backlog,fixed or variable price

TotalOther

currGBP

EUR

USD

SEK

In 2004 currencies were sold for a netequivalent of SEK 4,293 m. (4,340). Of2004 sales, SEK 4,179 m. (2,420) consist-ed of forward exchange contracts thatexpired, which corresponds to 23 percent(14) of the year’s sales.

As of December 31, 2004 the nominalamount of forward exchange contractsand options was SEK 15,223 m. (19,247).

2004 2003 2002 2001 2000

Currency options 1,123 1,109 1,322 1,855 248

Forward exchange contracts 14,100 18,138 12,297 7,890 5,296

Total 15,223 19,247 13,619 9,745 5,544

The market value of the currency op-tions and forward exchange contractswas SEK 1,096 m. (759) as of December31, 2004.

Management of the foreign currencyrisk in bids at fixed prices in foreign cur-rencies is handled centrally within the


26


framework of Saab Treasury’s tender tocontract portfolio. The portfolio is aresult of a growing trend toward fixed-price bids in foreign currency and hasbeen in place since 2000. The purpose ofthe portfolio is to minimize the Group’sforeign currency risk during the tenderperiod and reduce hedging costs. Oper-ating units can sign tender insurancewith Saab Treasury when submitting afixed price bid. Tender insurance is ob-tained in USD, EUR and GBP, where theequivalent value in SEK is not morethan SEK 500 m. Larger fixed-price ten-ders are managed on an ad-hoc basis.

Saab Treasury manages the foreigncurrency risk by combining forwardcontracts and options based on thelikelihood of the deal. The operation iscontrolled by a policy and risk measurebased on probability-weighted VaR,which may not exceed SEK 5 m. Since2000, 142 tender hedges for the equiva-lent of SEK 8,600 m. have been managedin the portfolio. The average cost to man-age fixed-price tenders has been 0.37percent of the hedged amount. Duringthe year new tender hedges were ar-ranged for the equivalent of SEK 1,619 m.(1,152). The net of option premiumsduring the year was SEK 6.6 m. (2.2),corresponding to 0.4 percent (0.2) of thehedged amount. The tender portfolioaffects the Group’s income dependingon the outcome of the tenders and ex-change rates. Income from the tenderportfolio was SEK 10 m. (12).

Translation exposure

Only a small portion of the Group’soperations is conducted in operationswith a functional currency other thanSEK. The value of these operations’,shareholders’ equity amounted toapproximately SEK 1,160 m. at year-end.

Net assets translated to SEK 2004 2003

USD 791 1,190

EUR 66 469

AUD 150 186

Other currencies 153 93

1,160 1,938

The foreign currency risk to the Group’sincome and shareholders’ equity fromtranslation effects – the translation expo-sure – is normally not hedged.

Interest rate risks

Depending on the liquidity situation,Saab’s income is directly affected bychanges in market interest rates through achange in net financial items and throughthe impact on gross income of the inter-est rate effects on advance financing. In2004 average interest-bearing receiva-bles, cash and marketable securities lessliabilities to credit institutions and otherinterest-bearing liabilities amounted toSEK 3,430 m. (3,782).

Dec. 31, Dec. 31,Assets 2004 2003


Current interest-bearing receivables 145 39

Cash and marketable securities 4,319 4,243

4,923 5,047

Liabilities

Liabilities to credit institutions 690 395

Other borrowing and other interest-bearing liabilities 418 467

Convertible debenture loan 0 232

1,108 1,094

3,815 3,953

Pension liabilities 3,034 3,458

Net liquidity 781 495

Saab tries to achieve risk neutrality withregard to interest rate risks by seekingsimilar interest terms on the asset andliability sides of the balance sheet. Man-agement of the Group’s interest rateexposure is centralized, which means

that Saab Treasury is responsible foridentifying and managing this exposure.As a first step in managing the interestrate risk in the pension liability, a pensionfund of SEK 504 m. was establishedduring the year. The duration of thepension liability currently is approxi-mately 17 years (see also according toIAS 19).

Liquidity management and financial credit risks

Liquidity management is handled cen-trally within the framework of an invest-ment policy determined by the Board.The investment policy is based on abenchmark, from which the following de-viations are permitted in regard to dura-tion and credit risk:

Bench- Min. Max. Dec. 31, Dec. 31,mark risk risk 2004 2003

Government 80% 100% 40% 58% 58%

Mortgage (min A) 20% 40% 32% 36%

Corporate (min A) 20% 10% 6%

Duration 15 mos. 0 mos. 27 mos. 12 mos. 21 mos.

The interest rate risk in the investmentsgiven a 1 basis point parallel shift of theyield curve was SEK 0.68 m. (0.36) as ofDecember 31, 2004.

Investments are made in securitieswith minimum short- and long-termcredit ratings of A1/P1 and A-1/A orhigher according to Moody’s and Stand-ard & Poor’s. The credit risk calculationis based on actual and anticipated creditrisk, according to the recommendationsof the Bank of International Settlement(BIS). As of December 31, 2004 counter-party risks amounted to SEK 5,102 m.(4,333), of which mortgage institutionsand lending to banks was SEK 1,670 m.(1,224). In 2004 average invested capitalwas SEK 3,025 m. (2,989). The averagereturn on external investments was 4.28percent (3.95).


27


Refinancing risks

Refinancing risk refers to the risk thatthe company will not be able to meet itspayment liabilities due to insufficientliquidity or difficulties raising externalloans.

As of December 31, 2004 Saab hadnet liquidity of SEK 781 m. (495) afterdeducting liabilities to credit institutionsand other interest-bearing liabilities ofSEK 1,108 m. (1,094) and provisions forpensions of SEK 3,034 m. (3,458). Of theliquid investments of SEK 4,319 m.(4,243), SEK 1,960 m. (1,855) was pledgedto the Swedish Defence Materiel Admi-nistration (FMV).

Pledges can be substituted with bankand/or insurance guarantees.

Customer credit risk

Outstanding accounts receivable consti-tute a credit risk. As of December 31,2004 accounts receivable amounted toSEK 2,722 m. (3,071). The majority ofsales are defense-related, correspondingto 80 percent (80) of total sales, due towhich the counterparties in accountsreceivable are nations with high credit-worthiness. The Group’s receivables are mainly in Western Europe, whichaccounts for 81 percent (79) of the total,compared with the Group’s sales in thesame region of approximately 80 percent(81). In Western Europe the largestreceivables are in Sweden, the UK,France and Germany, representing 73percent (71) of the total.

Where counterparties’ creditworthinessis deemed unsatisfactory, guarantees aresecured.

Supplier credit risk

Advances paid to suppliers constitute acredit risk. As of December 31, 2004 theGroup had paid advances to suppliersof SEK 412 m (347). The Group’s policyis to always maintain bank-guaranteedsecurity for any advances it pays.

Customer finance

Customer finance provides an impor-tant tool for marketing the company’sproducts. Export customers are placingincreasing demands on finance. Nor-mally Saab works together with banksand guarantee institutions to find varioussolutions to meet customers’ needs. Thisis done primarily by the bank grantingthe buyer credit or through suppliercredits. To limit risk exposure, the risksare sold on the market to banks andgovernment guarantee institutions, suchas the Export Credits Guarantee Boardin Sweden.

Trading

The Board has issued a risk mandate forproprietary trading in foreign exchangeand money market instruments of SEK

20 m., expressed according to Value atRisk (VaR). VaR, a probability-basedmethod based on historic exchange ratefluctuations and correlations, is an estab-lished financial practice. The methodmeasures the maximum loss during aspecific number of days with a certainprobability. Within Saab, three days and99 percent probability are used. WithVaR, the risks for various types of assetscan be aggregated to a single measure. Ifthe accumulated result during the yearis negative, the mandate is reduced by acorresponding amount. In 2004 tradingincome was SEK 15 m. (3). The averageutilized risk mandate (VaR) during theyear was SEK 2.75 m. (3.1).

Pension fund

During the year Saab established a pen-sion fund of SEK 504 m. for its pensionliability in six of the Group’s companies.The fund is part of Carnegie’s “GeneralPension Fund.” The companies have arelatively high share of pensioners, dueto which the yield requirement over timecorresponds in principle to the long-term real rate of interest. The fund’sassets are managed by Saab Treasurywith a primary aim of reducing theinterest rate risk by matching the dura-tion of the liability against interest-bearing assets. Investments are made ininterest-bearing securities from issuerswith credit ratings of no lower than AA(Aa) according to Standard and Poorand Moody’s.

The market value of the fund’s assetsas of December 31, 2004 was SEK 530m., which corresponds to a nominalreturn of 5.0 percent. The solvencymargin was 104 percent.

Financial derivatives

Various financial derivatives such asforward contracts, options and swapsare frequently used to manage and con-trol financial risks. Forwards and interestrate swaps and options in SEK are usedfor interest risk management in the li-

0

200

400

600

800Liabilities to credit institutionsOther interest-bearing liabilities

Liabilities to credit institutions andother interest-bearing liabilities

’04 ’05 ’06 ’07 ’08 ’09 >’10

SEK m.

In addition to its net liquidity, Saab isable to obtain financing in part by exter-nally refinancing all or parts of its pro-perty portfolio and regional aircraft fleet,which at present is internally financed.During the year the property Veddestawas refinanced externally in the amountof SEK 573 m. with a 7-year facility.

As a back-up for short-term liquidityfluctuations, Saab – aside from its liquid-ity – is able to utilize committed anduncommitted lines of credit facilities. Atyear-end Saab had committed 364-daycredits of SEK 400 m. and correspondingaccount limits SEK 346 m.

The Group’s funding is managedcentrally. Saab currently does not have a rating.


28


quidity and trading portfolios. Interestrate swaps in foreign currency are usedfor interest risk management in the air-craft leasing portfolio. Currency forwardcontracts and options are used mainlyfor firm orders for the Group and out-standing bids in the tender to contractportfolio as well as foreign currency andinterest rate risk management for internalfinancing.

Saab Treasury’s holdings of derivativesas of December 31, 2004 amounted toSEK 19,685 m. (22,865) in nominalterms, distributed as follows:

2004 2003 2002 2001 2000

Interest rate swaps, SEK 587 1,252 884 2,029 2,250

Interest rate swaps, foreign currencies 1,575 2,366 2,384 3,232 3,340

Interest rate forwards, SEK 300 0 0 1,650 4,165

Interest rate options, SEK 2,000 0 0 2,000 0

Currency options 1,123 1,109 1,322 1,855 2,480

Forward currency contracts 14,100 18,138 12,297 7,890 5,296

Total 19,685 22,865 16,887 18,656 15,299

The equivalent value in SEK of forwardexchange contracts declined when newcontracts were arranged at lower prices.In addition, increased netting has reducedexternal contracts.

Risk Management – Insurance

Risk Management identifies, assessesand limits non-financial risks, preventsdamage and assumes responsibility forthe Group’s central purchases of risk,life and pension insurance. This insur-ance is purchased on the open market andfrom Saab’s own insurance company,Lansen Försäkrings AB.

All insurance signed with the Group’sown insurance company with risksexceeding the self-retention is reinsuredon the external market on an excess ofloss basis in order to limit the company’sexposure for each claim and in total.

In total, the Saab Group’s insurancepremiums in 2004 amounted to SEK 104 m.(105), of which SEK 67 m. (58) wasobtained from the Group’s own insurancecompany.


29

F I N A N C I A L I N F O R M AT I O N

Income statementGroup Parent Company

2004-01-01 2003-01-01 2004-01-01 2003-01-01SEK m. Note –2004-12-31 –2003-12-31 –2004-12-31 –2003-12-31

Sales 3 17,848 17,250 5,715 5,094

Cost of goods sold – 13,776 – 13,303 – 4,460 – 4,031

Gross income 4,072 3,947 1,255 1,063

Marketing expenses – 1,290 – 1,251 – 187 – 166

Administrative expenses – 948 – 985 – 348 – 316

Research and development costs – 388 – 414 – 213 – 272

Other operating income 5 175 157 31 12

Other operating expenses 6 – 39 – 208 – 3 – 6

Share in income of associated companies 75 47 – –

Operating income 8 1,657 1,293 535 315

Financial income and expenses

Result from securities and receivablesheld as fixed assets 9 – 11 – 47 526 707

Other interest income and similar items 10 218 225 286 288

Interest expenses and similar items 11 – 353 – 398 – 410 – 443

Income after financial items 1,511 1,073 937 867

Appropriations 12 – – 215 – 23

Income before taxes 1,511 1,073 1,152 844

Taxes 13 – 385 – 315 – 324 – 103

Minority interest – 35 – 12 – –

Net income for the year 1,091 746 828 741

Earnings per share, SEK1) 35 10.08 7.00

After dilution2) 35 10.08 6.91

Operating income includes depreciation of 8 – 1,109 – 1,147 – 138 – 134

of which depreciation of lease assets – 474 – 528 – –

of which goodwill amortization – 129 – 139 – –

of which amortization of other intangible assets – 29 – 30 – –

1) Average number of shares 2004: 108,234,126 and 2003: 106,513,969

2) Average number of shares 2004: 108,234,126, after dilution 2003: 109,247,175. Conversion of the convertible debenture loan concluded on July 15, 2004.


30


Quarterly informationJanuary – March April – June

SEK m. 2004 margin 2003 margin 2004 margin 2003 margin

SalesSaab Systems & Electronics 959 925 1,423 1,264Saab Aerospace 1,272 1,294 1,552 1,291Saab Technical Support & Services 719 732 757 778Saab Bofors Dynamics 795 882 816 723Saab Aviation Services 276 267 294 264Corporate/Other 5 98 5 103Internal sales – 213 – 165 – 290 – 183

3,813 4,033 4,557 4,240

Operating incomeSaab Systems & Electronics 33 3.4% 55 5.9% 136 9.6% – 7 neg.Saab Aerospace 138 10.8% 158 12.2% 138 8.9% 132 10.2%Saab Technical Support & Services 60 8.3% 55 7.5% 43 5.7% 64 8.2%Saab Bofors Dynamics 69 8.7% – 36 neg 68 8.3% 49 6.8%Saab Aviation Services 18 6.5% 19 7.1% 9 3.1% 29 11.0%Corporate/Other – 13 – 25 – 26 – 52

305 8.0% 226 5.6% 368 8.1% 215 5.1%

Net financial items – 2 – 48 – 33 – 31

Income after financial net 303 178 335 184

Net income for the period 205 119 222 121

Earnings per share 1.92 1.12 2.08 1.13

Number of shares, thousands 106,523 106,510 107,229 106,510

July – September October – December

SEK m. 2004 margin 2003 margin 2004 margin 2003 margin

SalesSaab Systems & Electronics 1,164 968 1,677 1,520Saab Aerospace 1,364 1,136 2,222 2,054Saab Technical Support & Services 585 618 905 904Saab Bofors Dynamics 478 574 984 934Saab Aviation Services 295 275 315 289Corporate/Other 6 105 21 101Internal sales – 173 – 227 – 365 – 274

3,719 3,449 5,759 5,528

Operating incomeSaab Systems & Electronics 152 13.1% 58 6.0% 141 8.4% 221 14.5%Saab Aerospace 145 10.6% 55 4.8% 256 11.5% 213 10.4%Saab Technical Support & Services 34 5.8% 45 7.3% 120 13.3% 68 7.5%Saab Bofors Dynamics – 121 neg. 37 6.4% 134 13.6% 122 13.1%Saab Aviation Services 23 7.8% 24 8.7% 53 16.8% 15 5.2%Corporate/Other 25 – 35 22 29

258 6.8% 184 5.3% 726 12.6% 668 12.1%

Net financial items – 57 – 39 – 54 – 102

Income after financial net 201 145 672 566

Net income for the period 133 87 531 419

Earnings per share 1.22 0.82 4.86 3.93

Number of shares, thousands 109,150 106,510 109,150 106,514


31


Balance sheetGroup Parent Company

2004-12-31 2004-01-01 1) 2003-12-31 2004-12-31 2003-12-31

ASSETS

Fixed assets

Intangible fixed assets

Capitalized development expenditures 14 1,148 778 778 – –

Goodwill 15 1,489 1,627 1,627 – –

Other intangible assets 16 56 92 92 – –

2,693 2,497 2,497 – –

Tangible fixed assets

Buildings and land 17 2,747 3,037 3,037 1,026 1,209

Plant and machinery 18 632 714 714 264 225

Equipment and tools 19 365 415 415 162 186

Lease assets 20 4,230 5,038 5,038 – –

Construction in progress and advancepayments for tangible fixed assets 21 28 64 64 2 32

8,002 9,268 9,268 1,454 1,652

Financial fixed assets

Participations in Group companies 22 – – – 8,724 11,246

Receivables from Group companies 23 – – – 188 148

Participations in associated companies 24 540 275 275 255 81

Receivables from associated companies, interest-bearing 25 – 7 7 – –

Participations in joint ventures 26 – – – 85 32

Other securities held as fixed assets 27 230 139 139 131 60

Deferred tax receivables 28 690 1,032 981 703 1,032

Other long-term receivables, interest-bearing 29 459 758 758 70 –

Other long-term receivables, non-interest-bearing 29 580 758 758 – –

2,499 2,969 2,918 10,156 12,599

Total fixed assets 13,194 14,734 14,683 11,610 14,251

Current assets

Inventories, etc. 30

Inventories, etc. 6,942 6,541 6,541 3,456 3,076

Advance payments to suppliers 412 347 347 212 100

Less utilized advance payments from customers – 3,263 – 2,755 – 2,755 – 2,205 – 2,302

4,091 4,133 4,133 1,463 874

1) Balance sheet according to amended accounting principles , RR29. Employee benefits; see also the section on the balance sheet on page 15.


32


Group Parent Company

2004-12-31 2004-01-01 1) 2003-12-31 2004-12-31 2003-12-31

Current receivables

Accounts receivable 2,722 3,071 3,071 432 605

Receivables from Group companies – – – 3,690 5,301

Receivables from associated companies, non-interest-bearing 154 477 477 117 476

Receivables from joint ventures, non-interest-bearing 52 – – 85 –

Tax receivables 108 122 122 2 –

Other receivables, interest-bearing 145 39 39 11 –

Other receivables, non-interest-bearing 221 359 359 42 37

Prepaid expenses and accrued income 31 1,772 1,597 1,577 308 165

5,174 5,665 5,645 4,687 6,584

Cash and marketable securities

Short-term investments 32 3,925 3,290 3,290 3,925 3,290

Cash and bank balances 394 953 953 183 501

4,319 4,243 4,243 4,108 3,791

Total current assets 13,584 14,041 14,021 10,258 11,249

TOTAL ASSETS 26,778 28,775 28,704 21,868 25,500

ASSETS PLEDGED

Assets pledged 45

For own liabilities and provisions

Property mortgages 683 388 388 388 388

Chattel mortgages 2,177 2,177 2,177 2,101 2,101

Lease assets 1) 1,560 1,744 1,744 – –

Other long-term receivables 440 464 464 – –

Accrued income 58 58 58 – –

Bonds and other securities 1,985 1,898 1,898 1,985 1,880

Other assets – 166 166 – –

Total assets pledged 6,903 6,895 6,895 4,474 4,369


Balance sheet, cont.


33



2004-12-31 2004-01-01 1) 2003-12-31 2004-12-31 2003-12-31

SHAREHOLDERS' EQUITY AND LIABILITIES

Equity 34

Restricted equity

Capital stock (109,150,344 shares with a par value of SEK 16) 1,746 1,704 1,704 1,746 1,704

Share premium reserve 202 6 6 202 6

Revaluation reserve 500 500 500 500 500

Statutory reserve 358 360 360 341 341

Other restricted reserves 978 586 586 – –

3,784 3,156 3,156 2,789 2,551

Unrestricted equity

Non-restricted reserves 3,089 3,945 3,101 2,938 2,758

Net income for the year 1,091 0 746 828 741

4,180 3,945 3,847 3,766 3,499

7,964 7,101 7,003 6,555 6,050

Minority interest 93 147 147 – –

Untaxed reserves 36

Accumulated accelerated depreciation – – – 402 418

Tax allocation reserves – – – – 234

– – – 402 652

Provisions

Provisions for pensions and similar commitments 37 3,034 3,375 3,458 1,835 1,764

Provisions for deferred taxes 28 50 – – – –

Other provisions 38 1,714 2,234 2,234 1,102 1,248

4,798 5,609 5,692 2,937 3,012

Long-term liabilities

Liabilities to credit institutions 39 597 72 72 – –

Other liabilities, interest-bearing 39 196 201 201 171 180

Liabilities to Group companies – – – 464 1,843

Convertible debenture loan 40 – 232 232 – 247

Lease obligations 41 1,311 2,179 2,179 – –

Other liabilities, non-interest-bearing 41 344 433 433 – –

2,448 3,117 3,117 635 2 270



34



2004-12-31 2004-01-01 1) 2003-12-31 2004-12-31 2003-12-31

Current liabilities

Liabilities to credit institutions 42 93 323 323 59 13

Other liabilities, interest-bearing 42 56 189 189 47 –

Advance payments from customers 2,860 3,990 3,990 2,389 2,438

Accounts payable 1,175 996 996 389 292

Liabilities to Group companies – – – 5,842 8,014

Liabilities to associated companies, non-interest-bearing 9 4 4 4 4

Liabilities to joint ventures, interest-bearing 166 77 77 339 155

Tax liabilities 92 194 194 20 87

Other liabilities, non-interest-bearing 43 703 1,101 1,101 177 523

Lease obligations 868 418 418 – –

Accrued expenses and deferred income 44 5,453 5,509 5,453 2,073 1,990

11,475 12,801 12,745 11,339 13,516

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 26,778 28,775 28,704 21,868 25,500

CONTINGENT LIABILITIES

Guarantees to the insurance company, FPG 65 62 62 66 62

Guarantees for subsidiaries' commitments to customers2) – – – 6,126 6,760

Fulfillment guarantees, other 647 838 838 3 66

Sureties for associated companies 537 246 246 513 211

Total contingent liabilities 1,249 1,146 1,146 6,708 7,099


2) Of which USD 229 m. (344) comprises guarantees for sureties of leases on 111 (138) Saab 340 and Saab 2000; see also Note 7.

Balance sheet, cont.


35


Changes in shareholders’ equityCapital Restricted Unrestricted

SEK m. stock reserves equity Total

GROUP

Closing balance according to balance sheet as of December 31, 2002 1,704 1,619 3,510 6,833

Exchange rate differences – – 30 – 149 – 179Other changes – 2 – 22 – 24

Total changes in shareholders' equity not reported in the income statement – 32 – 171 – 203

Transfers between unrestricted and restricted shareholders' equity – 135 135 –Net income for the year 746 746Dividend – 373 – 373

– 135 508 373

Shareholders' equity on December 31, 2003 1,704 1,452 3,847 7,003

Effect of change in accounting principle1) – – 98 98

Adjusted opening balance on January 1, 2004 1,704 1,452 3,945 7,101

Exchange rate differences – 199 129 – 70

Conversion of convertible debenture loan 42 198 – 240Other changes – 2 – 23 – 25

Total changes in shareholders' equity not reported in the income statement 42 – 3 106 145

Transfers between unrestricted and restricted shareholders' equity 589 – 589 –Net income for the year 1 091 1 091Dividend – 373 – 373

– 589 129 718


PARENT COMPANY

Closing balance according to balance sheet as of December 31, 2002 1,704 849 2,807 5,360

Other changes – – 2 4 2

Total changes in shareholders' equity not reported in the income statement – – 2 4 2

Net income for the year 741 741Dividend – 373 – 373Group contributions 444 444Tax effect on Group contributions – 124 – 124

– – 688 688

Shareholders' equity on December 31, 2003 1,704 847 3,499 6,050

Conversion of convertible debenture loan 42 198 – 240Other changes – – 2 2 –

Total changes in shareholders' equity not reported in the income statement 42 196 2 240

Net income for the year 828 828Dividend – 373 – 373Group contributions – 264 – 264Tax effect on Group contributions 74 74

– – 265 265


Note 34 on page 54 provides further information on shareholders' equity.

1) The change in accounting principles to comply with RR29 reduced provisions for pensions by SEK 83 m., increased deferred tax receivables by SEK 51 m. and increased the receivable related to the special employer’s debt bySEK 36 m.As a result, unrestricted equity increased by SEK 98 m.


36


Statement of cash flowsGroup Parent Company

2004-01-01 2003-01-01 2004-01-01 2003-01-01SEK m. –2004-12-31 –2003-12-31 –2004-12-31 –2003-12-31

Operating activitiesIncome after financial items 1,511 1,073 937 867Adjustments for items not affecting cash flow

Depreciation and write-downs charged against income 1,172 1,210 5,684 327Capital gains/losses – 51 – 18 – 2 – 11Dividends from associated companies 7 – – –Share in income of associated companies – 75 – 47 – –Minority interests – 11 25 – –Dividends and Group contributions – – – 5,115 – 353Other adjustments 38 – – 52 –

Tax paid – 26 – 57 – –

Cash flow from operating activities beforechanges in working capital 2,565 2,186 1,452 830

Cash flow from changes in working capitalIncrease(–)/Decrease(+) in inventories, etc. – 264 – 378 – 589 – 118Increase(–)/Decrease(+) in current receivables 573 – 855 297 – 325Increase(+)/Decrease(–) in customer advances – 1,126 215 – 49 – 47Increase(+)/Decrease(–) in other current liabilities – 135 875 – 132 371Increase(+)/Decrease(–) in lease obligations – 418 – 329 – –Increase(+)/Decrease(–) in provisions – 330 – 366 – 146 – 308

Change in working capital – 1,700 – 838 – 619 – 427

Cash flow from operating activities 865 1,348 833 403

Investing activitiesInvestments in intangible fixed assets – 420 – 397 – –Investments in tangible fixed assets – 348 – 472 – 82 – 179Sales of/investments in lease assets 41 – 37 – –Sale/acquisition of subsidiaries 184 – – –Investments in/sales of other long-term securities – 113 30 – 3,265 – 937Sales of intangible and tangible fixed assets 116 73 1 58

Cash flow from investing activities – 540 – 803 – 3,346 – 1,058

Operating cash flow 325 545 – 2,513 – 655

Financing activitiesChanges in interest-bearing receivables 216 233 – –Change in receivables and liabilities to Group companies – – 3,111 1,344Dividend to shareholders – 373 – 373 – 373 – 373Amortization of liability – – 110 – –Loans raised 238 – 21 12Provisions for pensions – 341 47 71 27

Cash flow from financing activities – 260 – 203 2,830 1,010

Cash flow for the year 65 342 317 355Liquid assets at beginning of year 4,243 3,857 3,791 3,436Exchange rate difference in liquid assets 11 44 – –

Liquid assets at year-end 4,319 4,243 4,108 3,791

Liquid assetsThe following components are included in liquid assets:Cash and bank balances 394 953 183 501Short-term investments 3,925 3,290 3,925 3,290

4,319 4,243 4,108 3,791


37


SEK m. 2004 2003

Interest paid and dividends received

Dividends received 25 –

Interest received 294 339

Interest paid – 154 – 173

Acquisitions of subsidiaries and other business units

Acquired assets and liabilities:

Intangible fixed assets 1 –

Tangible fixed assets – –

Financial assets 9 –

Inventories – –

Operating receivables 7 –

Liquid assets – –

Total assets 17 –

Provisions 1 –

Loans – –

Operating liabilities 27 –

Total provisions and liabilities 28 –

Purchase price paid 6 –

Less: Liquid assets in acquired operations – –

Effect on liquid assets (plus = decrease) 6 –

Divestments of subsidiaries and other business units

Divested assets and liabilities:

Intangible fixed assets 12 –

Tangible fixed assets 225 –

Financial assets 15 –

Inventories 306 –

Operating receivables 177 –

Liquid assets – –

Total assets 735 –

Provisions 13 –

Loans, net debt 113 –

Operating liabilities 254 –

Total provisions and liabilities 380 –

Sales price 163 –

Less: Shares received as payment – 86 –

Sales price received 77 –

Less: Liquid assets in divested operations – –

Effect on liquid assets 77 –

Supplemental disclosures to statement of cash flows – Group


38


ACCOUNTING PRINCIPLES AND COMMENTS ON THE FINANCIAL STATEMENTSAmounts in millions of Swedish kronor (SEK m.)unless otherwise stated. Amounts in parenthesesrefer to the previous year.

General accounting principlesSaab’s annual report is prepared in accordancewith the Annual Accounts Act and the SwedishFinancial Accounting Council’s recommendationsand pronouncements. In conformance with theAnnual Accounts Act, the income statement isclassified according to function, pursuant tointernal reporting. The functions are as follows:Cost of goods sold comprises costs for goodshandling and manufacturing (including payrolland materials), purchased services, premisesand depreciation of fixed assets. Administrativeexpenses relate to costs for the Board, companymanagement and corporate staff functions.Marketing costs comprise the costs for thecompany’s sales organization, including salessubsidiaries, as well as advertising and exhibitions.Research and development costs are reportedseparately and comprise costs for new and fur-ther development of products; see below. Otheroperating income and expenses relate to secondaryactivities, exchange rate differences on items of anoperating character and capital gains/losses onsales of tangible fixed assets. Also included at theGroup level are capital gains/losses from thedivestment of subsidiaries.

Change in accounting principlesIn 2004 the Swedish Financial AccountingStandards Council’s Recommendation RR 29,Employee Benefits, took effect. The new recom-mendation is described below.

Consolidated accountsThe consolidated accounts comprise the ParentCompany and all subsidiaries, associated com-panies and joint ventures in Sweden and abroad.Subsidiaries are companies in which the ParentCompany has a decisive influence on the votingrights of the shares, companies in which theParent Company owns shares and is entitled toappoint or dismiss more than half the membersof the board, or companies in which the ParentCompany otherwise has a decisive influenceand a significant share in the income generatedfrom their operations. Associated companies arecompanies in which the Parent Company directlyor indirectly has a signifficant influence. Jointventures are companies in which the ParentCompany directly or indirectly has a long-termownership interest and which are operated bytwo or more parties under an agreement thatstipulates shared control of the business.

The consolidated financial statements areprepared in accordance with Recommendation ofthe Swedish Financial Accounting StandardsCouncil and by applying the purchase method.This means that a subsidiary’s assets and liabili-ties are accounted for at market value according

to an analysis of the acquisition. If the acquisi-tion value of the shares in the subsidiary exceedsthe estimated market value of the company’s netassets, after analysis, the difference is consideredGroup goodwill. Depending on the degree ofrestructuring required in the acquired company,provision is made in the acquisition analysis foranticipated allocations to the structural reserveaccording to criteria for provisions.

Associated companies are accounted for inaccordance with the equity accounting method.This means that the book value of the shares andparticipations in associated companies is valuedin the consolidated balance sheet at the Group’sshare of the equity of those companies after ad-justing for its share of surplus or deficit values.Thus, consolidated income includes only Saab’sshare in the income of associated companies,provided this does not result in a negative bookvalue of the shares.

Joint ventures are accounted for in accordancewith the proportional method. This means thatthe Group’s share of the assets, liabilities, incomeand costs in a jointly controlled company is addeditem by item to the corresponding items in theconsolidated income statement and balancesheet.

Minority interest comprises the minorityshare in net income and shareholders’ equity.

Companies acquired during the year are in-cluded in consolidated income for the periodfollowing their acquisition. Revenues and costsof companies sold during the year are includedin consolidated income until their date of sale.

Internal transactions and unrealized intra-Group profits are eliminated. Prices of intra-Groupsupplies of goods are determined by applyingcommercial principles.

GoodwillAcquisitions within Saab’s core areas are animportant component of the Group’s expansion.In acquisitions of well-established companiesactive in an international environment, theacquisition price normally exceeds the tangiblenet worth by a substantial amount. The marketprice is determined primarily by future expecta-tions, which are based on the company’s marketposition and know-how.

An acquisition in which the purchase priceexceeds the market value of the company’s netassets generates goodwill, which is amortized ona straight-line basis over each asset’s estimateduseful life. Normally goodwill is amortized over5 to 10 years, while goodwill arising from strategic,long-term acquisitions is amortized over 20 years.Saab applies an amortization period of 20 yearsfor the goodwill that arose from the strategicacquisition of Celsius and the step-by-stepacquisition of AerotechTelub. Goodwill is evaluated for impairment on aregular basis; see the principles under theheading Write-downs.

Translation of foreign subsidiaries and associated companiesIntegrated operations refer to foreign salescompanies and companies that broker servicesfor the Swedish operations. Independent opera-tions are companies that primarily operate intheir own markets with their own products.Independent companies are generally self-financed, and the local currency is normallyused for the company’s business transactions.

The financial statements of integrated foreignoperations, subsidiaries and associated compa-nies are translated to Swedish kronor using themonetary method. The financial statements ofindependent foreign subsidiaries are translatedto Swedish kronor using the current method.

With the monetary method, monetary itemsare translated at the year-end rate, while non-monetary items are translated at the rate ineffect on the acquisition date. Inventories, prop-erty, plant and equipment, and shareholders’equity are translated at the acquisition date rateand other assets and liabilities at year-end rate.With the exception of consumption of goods anddepreciation of property, plant and equipment,which are translated at the acquisition date rate,income and expenses are translated at a weightedaverage exchange rate for the year. The translationdifference on monetary assets and liabilities isincluded in net income for the year and reportedin the income statement as follows. The portionof the translation difference attributable to oper-ating items, primarily trade accounts receivableand payable, is included in operating income. Theportion of the translation difference attributableto interest-bearing items is included in financialincome and expenses.

With the current rate method, assets and lia-bilities are translated at the year-end exchangerate, while income and expenses are translatedat the average exchange rate for the year. Thetranslation difference, which arises in part whentranslating the net assets of foreign companies ata different rate at the beginning of the year thanat year-end and in part when net income istranslated at other than the year-end rate, isreported directly in shareholders’ equity in thebalance sheet.

Revenue and income recognitionSales are generated primarily from project activ-ities, where hardware, software and consultingwork are integrated in the delivered product. Itis not possible to divide sales between goods andservices in accordance with RecommendationRR 11, since the contracts are not specified atthat level.

Income from long-term contracts for thedevelopment and delivery of hardware is recog-nized by percentage of completion, which isdetermined based on when a milestone is reachedor delivery is made, or based on the relationshipbetween the costs incurred on the project and es-timated total costs. From the calculated totalrevenue from a project, including interest on ad-vances, a deduction is made during each period

Accounting principles


39


in an amount corresponding to the incurredcosts’ share of total calculated costs at the end of the period. Interest included in total revenueis indicated in Note 10.

Sales and income on the sale of goods andshort-term projects are reported when deliveryis made and essentially all the risks and rightsare transferred to the buyer. Sales exclude VAT(value-added tax), specific sales taxes, returnsand trade discounts.

Changes in anticipated total revenues andcosts per contract are reported in the same periodas they are noticed.

Gross marginFor orders whose manufacturing cost is financedto a significant extent by advances from customers,the effect of advance-payment financing oninterest is reported in the gross margin; see Note10.

Amortization and depreciation of intangible and tangible fixed assetsAmortization and depreciation are based on thehistorical cost and estimated useful life of eachasset. Write-downs are applied on a straight-linebasis to the calculated residual value and aredistributed by function in the income statementaccording to how the asset is used.

Period of use:Intangible fixed assetsCapitalized costs Depreciated over the for R&D, etc. estimated production volumeComputer software, non-standard 5 yearsGoodwill and other intangible assets 5–20 years

Tangible fixed assetsProperty 20–25 yearsAircraft 20–25 yearsRevaluation of property 20 yearsLand improvements 20 yearsMachinery and other technical installations 5–10 yearsComputers, equipment, tools and installations 3–10 years

The difference between the above depreciationand fiscal depreciation is reported in individualcompanies as accumulated accelerated deprecia-tion, which is included in untaxed reserves.

Write-downsThe book value of the Group’s assets, excludinginventories, subcontracting assignments anddeferred taxes, is examined on a regular basis todetermine whether write-downs are necessary.If there is an indication that a writedown isneeded, the asset’s recovery value is estimated.Recovery value is the higher of sales value anduseful value. In estimating useful value, futurecash flows are discounted to present value withthe use of a discounting factor before tax toreflect the current market estimate of the timevalue of money and the specific risks associatedwith the asset.

A write-down is reported whenever the reportedvalue of the asset or its cash-generating unitexceeds the recovery value. Write-downs arereported in the income statement.

Research and development costsCosts for company-funded research anddevelopment in an effort to gain new scientificand technological knowledge are expensedwhen incurred and shown under the heading“Research and development costs” in the incomestatement. From 2002 the Group applies Recom-mendation of the Swedish Financial AccountingStandards Council on Intangible Assets. Accord-ing to this recommendation, development costsare capitalized if the product in question is con-sidered to have a future economic value. Coststhat are capitalized include the cost of materials,direct labor costs and a reasonable share of indi-rect costs. Capitalized development costs arereported at acquisition value less accumulatedamortization and write-downs. Amortization ofcapitalized development costs is booked after theasset can be used and over its estimated produc-tion volume. Production volumes are set basedon estimated future sales. Amortization for theyear is reported in the income statement on theline Research and development costs.Capitalized development costs are reported onlyin the consolidated financial statements, not bylegal unit.

Guarantee costsCalculated costs for product guarantees arecharged against cost of goods sold and accountedfor when the products are invoiced.

Lending costsLending costs are reported as costs in the periodthey arise, regardless of how the borrowedfunds are used.

Hedging commercial flowsThe Group uses commercial flow hedges forcontracted future currency flows. Unrealizedgains and losses on such hedges are reportedagainst income at the same time as the result ofthe hedged flow rather than on an ongoing basis.

Non-contracted flows related to provisionsfor restructuring costs where settlement is madein foreign currency are hedged so that no exchangerate difference occurs upon settlement.

Valuation principles, etc.Assets, provisions and liabilities have beenvalued at acquisition value unless otherwisestated below.

Intangible and tangible fixed assetsFixed assets are reported at acquisition valueless accumulated amortization/depreciationand write-downs.

Inventories etc.Inventories are valued at the lower of acquisitionvalue according to the first in, first out (FIFO)

principle and net realizable value. Net realizablevalue is estimated sales value less the estimatedcost of completion and estimated marketing costs.Inventories include acquisition, repatriation andcompletion costs and where appropriateexpenditures for order-related development andare reported net after deducting obsolescenceand intra-Group gains. For internally producedsemi-manufactured and finished goods, acquisi-tion value consists of direct manufacturing costsplus a reasonable markup for indirect manufac-turing costs. Inventories include advances tosuppliers. From 1999 inventories are reportednet, which means that advances from customersare offset against incurred costs in each project.

ReceivablesReceivables have been valued in the amountsthat are expected to be received after individualvaluation.

Convertible debenture loanDuring the autumn of 1998 a convertible deben-ture loan was issued to the Group’s employees.The loan bears below-market interest, whichmeans that it is a liability with implicit interest.The convertible debenture loan is gradually in-dexed over its duration to account for interest,so that the reported liability at maturity corre-sponds to the nominal loan amount. The presentvalue of the difference between the reportedliability and the nominal loan amount is reportedas a share premium reserve.

The last day for conversion of the convertibledebenture loan was July 15, 2004, at which timeSEK 245 m. of the total loan amount of SEK 254 m.was converted to shares.

LeasingAccording to the Recommendation of the Swe-dish Financial Accounting Standards Councilleases are classified as financial or operating.

A financial lease implies that the lessee, evenif he does not receive the legal rights of owner-ship of an object, in all significant respects enjoysthe financial rewards and accepts the risks asso-ciated with the object. Objects held as part of afinancial lease are reported in the lessee’s balancesheet as fixed assets, and the future commitmentto pay leasing charges is reported as a liability.The lessor reports the net investment in the lease,i.e. the present value of future leasing charges,as a receivable in its balance sheet.

In an operating lease, the financial rewardsand risks associated with ownership mainlyaffect the lessor, who reports the object as a fixedasset.

For anticipated or real deficits according toleases related to aircraft financing carried on bySaab Aircraft Leasing, provisions are made usingthe discounted present value of the calculateddeficit.

Other rented assets are capitalized andaccounted for as assets (leasing assets), while thefuture commitment to pay leasing charges isreported as a liability (leasing obligations) if the


40


lease transfers virtually all benefits and risks tothe Group. Other rentals are charged againstincome over their term.

Receivables and liabilities in foreign currencyReceivables and liabilities in foreign currencyhave been valued at the year-end exchange rate.Exchange rate differences in short-term receivablesand liabilities are included in operating income,while differences in financial receivables andliabilities are reported among financial items.Receivables and liabilities hedged by forwardcontracts are valued at the current forward rate.

Short-term investmentsIn accordance with the Annual Accounts Act,short-term investments are valued at the lowerof acquisition value and fair value (market value).

Liquid assetsLiquid assets consist of cash and bank balancesas well as short-term investments that can beeasily converted to cash equivalents at a knownamount.

TaxesThe Group’s total taxes consist of current tax anddeferred tax. Current tax is calculated on taxableincome for the year. Deferred tax represents thedifference between the fiscal valuation of assetsand liabilities and their valuation in the accounts,but only if the difference is of a temporary nature.Deferred tax is also calculated on unutilized taxloss carryforwards. If the calculations result in adeferred tax receivable, it is accounted for as anasset only if it is likely that a sufficient taxablesurplus will be available. Deferred tax is calculatedin accordance with the tax rates in each countrythat have been set or announced as of the closingday. For income taxes, Saab applies Recommen-dation of the Swedish Financial Accounting Stan-dards Council, in accordance with which deferredtax related to untaxed reserves has not beenreported in individual companies due to theconnection between accounting and taxation.

Untaxed reservesTax regulations in Sweden and certain othercountries permit allocations to special reservesand funds in legal entities. In this manner, com-panies, within certain limits, can apportion andretain earnings in their business without subject-ing them to immediate taxation. Untaxed reser-ves are not subject to taxation until they are dis-solved. However, in the event the businessshould incur a loss, the reserves, sometimes wit-hin certain limits, may be utilized to cover theloss without taxation. The total value of the un-taxed reserves can therefore be considered riskcapital, because any losses can be covered to asignificant extent through dissolution of thereserves.

In the consolidated balance sheet, untaxedreserves in legal entities are divided into share-holders’ equity (restricted reserves) and deferredtax liability. In the income statement, tax attribut-able to the year’s change in untaxed reserves isreported as deferred tax.

ProvisionsProvisions are defined as obligations related to thecurrent or previous fiscal years that as of year-end are known or likely as to their origin butuncertain as to their final amount or settlementdate. Pensions, deferred taxes, restructuringreserves and similar items are classified as pro-visions in the balance sheet.

Post-employment compensation, pension allocationsThe Saab Group has both defined-benefit anddefined-contribution pension plans. Only theSwedish companies have the defined-benefitplans, primarily include the ITP plan, in whichthe employee is guaranteed a pension correspond-ing to a specific percentage of his/her salary.Defined-benefit plans are secured mainly throughprovisions in the balance sheet, though alsothrough provisions to pension funds and throughinsurance premiums and by pledging endowmentinsurance. In legal units, the commitments arereported according to the rules in the law safe-guarding pension commitments (tryggandelagen),while the Group reports the commitments accord-ing to the rules in the Swedish Financial Account-ing Council’s Recommendation RR 29 on thereporting of post-employment benefits. Thereporting of defined-benefit plans requires actu-arial assumptions to compute the commitment andcost, in addition to which the commitments arecalculated at discounted present values. Premiumspaid to Alecta for defined-benefit plans are classi-fied as defined-contribution plans in accordancewith the Swedish Financial Accounting Council’sStatement URA 42. See also Note 37.

Transactions with related partiesRelated parties that Saab has transactions withconsist mainly of BAE Systems, which holds 34 percent of the capital in Saab and half of thejointly owned marketing company Gripen Inter-national. Since 1995 Saab has a cooperation withBAE Systems on Gripen’s development andmarketing for the export. Transactions with BAESystems, Gripen International and other relatedparties, if any, are conducted in accordance withcommercial principles. For remuneration toBoard members see Note 2.

Earnings per shareEarnings per share before dilution are calculatedby dividing net income by the average number ofshares outstanding during the year. Earningsper share after dilution are calculated by divid-ing net income adjusted for the interest on out-standing convertibles by the number of sharesafter full conversion, i.e. if all convertibles areexercised.

Intra-Group transactionsOf the Parent Company’s sales, 10 percent (7)were to Group companies, while 26 percent (25)of the Parent Company’s purchases were fromsubsidiaries.

Exchange rates for SEK used in the financial statements

Year-end rate Average rateCountry Currency 2004 2003 2004 2003Australia AUD 1 5.12 5.43 5.41 5.26

Canada CAD 1 5.46 5.56 5.65 5.77

Denmark DKK 100 121.15 122.15 122.67 122.80

Euro EUR 1 9.01 9.09 9.13 9.13Japan JPY 100 6.38 6.80 6.79 6.98

Norway NOK 100 108.80 108.05 109.05 114.18

UK GBP 1 12.71 12.91 13.46 13.19

USA USD 1 6.61 7.28 7.35 8.09

Estimates and assumptionsPreparation of the annual report in accordancewith generally accepted accounting principlesrequires that the company’s management makeestimates and assumptions that affect assets andliabilities, revenue and expenses, and contingentliabilities. Actual outcomes may deviate fromthese estimates.

Definitions

Operating margin Operating income as a percentageof sales.

Capital employedTotal capital less non-interest-bearingliabilities, other provisions and deferred tax liability.

Pre-tax return on capital employed Operating in-come plus financial income as a percentage of averagecapital employed.

After-tax return on equity Net income for the year as a percentage of average shareholders’ equity.

Profit margin Operating income plus financial incomeas a percentage of sales.

Capital turnover Sales divided by average capitalemployed.

Net liquidity Short- and long-term interest-bearingreceivables, short-term investments and cash and bankbalances less short- and long-term liabilities to creditinstitutions as well as convertible debenture loans andother interest-bearing liabilities.

Equity/assets ratio Shareholders’ equity in relation tototal assets.

Interest coverage ratio Operating income plusfinancial income divided by financial expenses.

Earnings per share Net income divided by averagenumber of shares.

Equity per share Shareholders’ equity divided by thenumber of shares at the end of the period.


41


NOTE 1EMPLOYEES AND STAFF COSTS

Average no. of employees04-01-01 of whom 03-01-01 of whom

–04-12-31 men –03-12-31 men

Parent CompanySweden 3,795 82% 4,163 81%South Africa 2 100% – –United Arab Emirates 1 100% – –Thailand 1 100% 1 100%

Parent Company, total 3,799 82% 4,164 81%

SubsidiariesSweden 6,945 82% 7,579 81%Australia 629 81% 604 81%USA 309 47% 204 57%Austria 116 81% 116 81%Singapore 71 77% 63 79%Denmark 70 81% 74 82%Germany 37 86% 31 87%UK 26 77% 21 76%Finland 24 83% 174 70%New Zealand 21 86% 18 11%Norway 14 100% 13 100%Netherlands 11 82% 12 100%India 7 71% 11 73%United Arab Emirates 6 67% 6 67%Philippines 5 100% 1 100%Hungary 4 75% 3 67%Canada 4 75% 2 50%Japan 1 100% 1 100%France 1 100% 1 100%South Africa – 0% 10 40%

Subsidiaries, total 8,301 81% 8,944 80%

Joint venturesSweden 15 53% 18 61%South Africa – 0% 1 100%

Joint ventures, total 15 53% 19 63%

Group, total 12,115 81% 13,127 80%

Gender distribution of corporate management04-12-31 03-12-31

% of women % of women

Parent CompanyBoard of Directors 8% 8%Other senior executives 20% 8%

GroupBoard of Directors 4% 5%Other senior executives 18% 13%

Salaries, other remuneration and social security expenses

04-01-01–04-12-31 03-01-01–03-12-31Salaries Social Salaries Social

and other security and other securityremuneration expenses remuneration expenses

Parent Company 1,357 691 1,432 694of which pension costs 1) 248 1) 223Subsidiaries 3,436 1,616 3,475 1,757of which pension costs – 621 – 647Joint ventures 10 6 9 5of which pension costs – 3 – –

Group, total 4,803 2,313 4,916 2,456of which pension costs 2) 872 2) 870

1) Of the Parent Company's pension costs, SEK 8 m. (6) relates to the board and president, including deputies and the executive vice president.The company's outstanding pension obligations for these individuals amount toSEK 62 m. (63), of which SEK 60 m. (59) relates to former board members and presidents.

2) Of the Group's pension costs, SEK 18 m. (31) relates to boards, presidents, deputies and executive vice presi-dents of the Group and its subsidiaries.The Group's outstanding pension obligations for these individualsamount to SEK 91 m. (87), of which SEK 60 m. (59) relates to former board members and presidents.

Salaries and other remuneration distributed by country and between Board members, etc. and other employees

04-01-01–04-12-31 03-01-01–03-12-31Board Other Board Other

and President empl. and President empl.Parent CompanySweden1) 17 1,336 13 1,418of which bonuses, etc. 1 – 2 –South Africa – 2 – –United Arab Emirates – 1 – –Thailand – 1 – 1

Parent Company total 17 1,340 13 1,419of which bonuses, etc. 1 – 2 –

Subsidiaries in Sweden 33 2,845 40 2,914of which bonuses, etc. 4 – 3 –

Subsidiaries outside SwedenAustralia 8 243 6 210of which bonuses, etc. 2 – – –USA 7 104 8 89of which bonuses, etc. 1 – – –Austria 2 66 2 60Denmark 2 28 2 29Germany 2 27 3 20Singapore – 16 – 14UK 1 14 1 11Finland 1 8 2 44Norway 1 7 2 5New Zealand – 6 – –Netherlands 1 4 1 4United Arab Emirates – 4 – 3Canada – 3 – 2Japan – 1 – 1Philippines – 1 – –Hungary – 1 – 1France – – – 1

Subsidiaries, total 58 3,378 67 3,408of which bonuses, etc. 7 – 3 –

Joint ventures in Sweden – 10 – 9of which bonuses, etc. – – – –

Group, total 75 4,728 80 4,836of which bonuses, etc. 8 – 5 –

1) Relates to the salaries paid to the CEO and 4 Executive Vice Presidents (1 EVP).

Sick leave absences 04-01-01–04-12-31 03-01-01–03-12-31

Parent CompanyTotal sick leave as a percentage of normal working hours 3% 4%Percentage of total sick leave that relates to extended

absences of 60 days or more 53% 54%

Sick leave absences by gender as a percentage of normal working hours:

Men 3% 3%Women 4% 6%

Sick leave absences by age as a percentage of normal working hours:

29 years or younger 3% 2%30-49 years 3% 3%50 years or older 4% 5%

Saab has an ambitious occupational health and rehabilitation program.Management’s responsibility for rehabilitation is underscored in a directive.Occupational health reviews and inspections are conducted on a regularbasis, and a systematic program with current plans is in place at all levelsof the organization. Sick leave is monitored carefully, and areas with highabsenteeism are given special attention. All Saab employees have access toprofessional occupational health services, including technical, medical andpsychosocial expertise, through in-house resources in Linköping . Rehabili-tation is conducted internally and purchased from outside providers suchas Svenska Re, Rygginstitutet (“The Back Institute”) and psychotherapyproviders. All Saab employees have access to wellness programs thatinclude exercise in groups or individually.

Notes to the financial statements


42


NOTE 2INFORMATION ON REMUNERATION TO SENIOR EXECUTIVES

Remuneration to Board membersIn accordance with the resolution of the Annual General Meeting, the feespaid to the members of the Board amount to SEK 1,800,000 (1,800,000),consisting of SEK 700,000 (700,000) to the Chairman and SEK 275,000(275,000) to each of the other members elected by the Annual GeneralMeeting, with the exception of the President. The Members of the Boardnominated by BAE Systems – Stephen Henwood, George Rose and AlisonWood – all of whom are employees of BAE Systems, have declined theirfees with respect to BAE Systems’ policy. The Chairman and Board mem-bers Peter Nygårds and Björn Svedberg also received fees of SEK50,000 for services rendered for committee work.

Remuneration to the PresidentThe salary paid to President and CEO Åke Svensson consists of a fixedportion and a variable portion. The variable portion is based on a perfor-mance bonus with predetermined quantitative and qualitative objectiveseach year. A performance bonus agreement is drafted annually and signedby the Chairman. The bonus can amount to a maximum of 50 percent ofthe President’s fixed salary. The preparation and decision-making processfor compensation issues regarding the President is handled by the Board’sCompensation Committee. In 2004 the President received salary, bonusand other benefits totaling SEK 4,835,521, of which the bonus for 2003 ac-counted for SEK 500,000 and other benefits, including a car allowance, forSEK 43,334.

Pension termsThe retirement age for the President is 60. The President has a premium-based pension plan. He may decide himself on the payment term, thoughwithin the provisions of Swedish income tax law. The pension cost forSaab AB consists of pension premiums amounting to 35 percent of thefixed salary as long as the President remains an employee of the company.To this is added the cost of pension premiums according to the ITP plan.The pension commitment is vested. For 2004 the cost of the President ÅkeSvensson’s pension, including ITP, was SEK 1,838,164.

Severance termsIf terminated by the company, the President will receive a salary and pen-sion benefits for a period of six months (period of notice). Thereafter hewill receive severance pay equivalent to one year of salary, based on hiscurrent fixed salary. If the President does not obtain new employment, hewill receive an additional one year of severance pay. The salary during theperiod of notice and severance will be deducted from income received fromother employers during the same period. If the President resigns voluntarily,there is a six-month period of notice with salary and pension benefits, butno severance.

Remuneration to other senior executivesOther senior executives included 12 (11) individuals in 2004, consisting ofthe executive vice presidents, heads of corporate functions, etc. During theyear Per Erlandsson, Göran Sjöblom and Hans Krüger left Group Manage-ment. Per Erlandsson, who stepped down on July 31, was replaced byAnne Gynnerstedt from October 4. Göran Sjöblom stepped down on Sep-tember 30 and Hans Krüger on December 31. The salaries paid to othersenior executives consist of a fixed portion and a variable portion. Thevariable portion is a performance bonus based on the Group’s order bookings,sales growth, operating income and operating margin. The performancebonus normally amounts to a maximum of 25 percent of each executive’sfixed salary. A performance bonus agreement is drafted annually andsigned by the President. The rules for performance bonuses are stipulatedin a document issued by the President. Compensation issues regarding theother senior executives are prepared by the head of human resources andpresented to the President, who makes a decision pending the approval ofthe Board’s Compensation Committee.

In 2004 the other senior executives received salaries, bonuses and otherbenefits totaling SEK 26,689,875 (30,143,381), of which bonuses for 2003accounted for SEK 1,125,875 (3,840,800) and other benefits, including hous-ing and car allowances, for SEK 601,879 (1,010,296).

Pension termsThe pension age for all other senior executives is 60.

In addition to ITP, ten members of the group (8) are affiliated with theSaab plan, which is premium-based and vested. The Saab plan providespensions benefits over and above ITP on salary segments between 20 and30 basic amounts as well as on salary segments over 30 basic amounts. Theindividuals themselves can decide on the payment term, though within theprovisions of Swedish income tax law. Moreover, an insurance policy financesthe period between the ages of 60 and 65.

The pension cost for Saab AB consists of pension premiums, which arebased on a percentage of qualifying salaries. The percentage rate is deter-mined by each executive’s time remaining until age 60 when joining theplan. The aggregate insurance balance should cover a targeted pension ofapproximately 32.5 percent of salary segments between 20 and 30 basicamounts and approximately 50 percent of segments over 30 basic amountsof qualifying salaries. Premium payments continue as long as the individ-uals remain employees of the company.

One senior executive (2) is entitled to pension benefits from age 65 inaccordance with the ITP plan. The pension benefits paid on salary segmentsbetween 20 and 30 basic amounts according to the ITP plan will also bepaid on salary segments over 30 basic amounts. Between the ages of 60 and65, the pension is 70 percent of the salary at the time of retirement. The costof this is financed with insurance or is booked as a liability.

Pension obligations are vested. In 2004 pension costs for other seniorexecutives, including ITP and its equivalent, amounted to SEK 13,350,618(12,230,460), of which SEK 2,313,140 relates to the final payment for seniorexecutives who retired in 2004.

Other senior executives are entitled, or obliged if the company so re-quests, to retire on pension as of the age of 60. Their retirement pension upto the ordinary pension age of 65 follows the Saab plan, with the exceptionof one individual.

New pension agreements are drafted according to Saab’s premium-basedpension plan.

Severance termsEssentially the same termination and severance rules apply to other seniorexecutives as to the President.

Summary of compensation and other benefits during the year

Base salary/ Variable Other Amounts in SEK Directors’ fees compensation benefitsChairman of the Board 700,000 – 50,000Other Board members 1,100,000 – 100,000President and CEO Åke Svensson 4,292,187 500,000 43,334Other senior executives (12) 24,962,121 1,125,875 601,879

Total 31,054,308 1,625,875 795,213

PensionAmounts in SEK cost TotalChairman of the Board – 750,000Other Board members – 1,200,000President and CEO Åke Svensson 1,838,164 6,673,685Other senior executives (12) 13,350,618 40,040,493

Total 15,188,782 48,664,178


43


NOTE 3 SALES BY OPERATING AREA AND GEOGRAPHIC MARKET

Group Parent Company04-01-01 03-01-01 04-01-01 03-01-01

–04-12-31 –03-12-31 –04-12-31 –03-12-31

Sales by operating areaSaab Systems & Electronics 5,223 4,677 – –Saab Aerospace 6,410 5,775 5,715 5,094Saab Technical Support & Services 2,966 3,032 – –Saab Bofors Dynamics 3,073 3,113 – –Saab Aviation Services 1,180 1,095 – –Corporate/Other 37 407 – –Internal sales – 1,041 – 849 – –

Total 17,848 17,250 5,715 5,094

Sales by geographic marketSweden 9,265 9,348 4,685 4,615Rest of EU 4,604 4,260 971 479Rest of Europe 474 455 5 –

Total, Europe 14,343 14,063 5,661 5,094North America 1,335 1,013 19 –Latin America 106 175 5 –Asia 887 948 30 –Australia, etc. 1,171 1,039 – –Africa 6 12 – –

Total 17,848 17,250 5,715 5,094

NOTE 4INFORMATION ON OPERATING AREAS/GEOGRAPHIC MARKETS

Primary segments (operating areas)Saab Systems Saab Technical& Electronics Saab Aerospace Support&Services

2004 2003 2004 2003 2004 2003

RevenueExternal sales 4,711 4,369 6,322 5,701 2,656 2,739Internal sales 512 308 88 74 310 293

Total revenue 5,223 4,677 6,410 5,775 2,966 3,032

Operating income1) 462 327 677 558 257 232of which share in income

of associated companies 30 10 – – 3 5

Saab Bofors Saab Aviation Corporate/Dynamics Services Other

2004 2003 2004 2003 2004 2003

RevenueExternal sales 2,963 2,992 1,159 1,078 37 371Internal sales 110 121 21 17 – 36

Total revenue 3,073 3,113 1,180 1,095 37 407

Operating income 150 172 103 87 8 – 83of which share in income

of associated companies 1 – – – 41 32

Elimination Total2004 2003 2004 2003

RevenueExternal sales – – 17,848 17,250Internal sales – 1,041 – 849 – –

Total revenue – 1,041 – 849 17,848 17,250

Operating income – – 1,657 1,293of which share in income

of associated companies – – 75 47

1) Operating income with structural costs distributed by business area.The previous year’s figures are distributed accordingly.

Saab Systems Saab Technical& Electronics Saab Aerospace Support&Services

2004 2003 2004 2003 2004 2003

Other disclosuresAssets 6,580 7,195 8,972 9,112 2,202 2,258Equity interests 217 74 – – 14 11

Total assets 6,797 7,269 8,972 9,112 2,216 2,269Liabilities 5,048 5,285 8,350 8,570 1,187 1,176Capital employed 3,249 3,501 3,833 3,514 1,620 1,628Investments 266 261 235 399 48 96Depreciation 199 194 208 180 120 120

Saab Bofors Saab AviationDynamics Services

2004 2003 2004 2003

Other disclosuresAssets 3,029 3,213 8,403 10,105Equity interests 2 12 117 9

Total assets 3,031 3,225 8,520 10,114Liabilities 2,202 2,482 6,288 7,822Capital employed 1,709 1,614 2,791 3,106Investments 176 72 37 20Depreciation 86 85 488 541

Corporate/Other TotalElimination Saab-Group

2004 2003 2004 2003Other disclosuresAssets – 2,948 – 3,454 26,238 28,429Equity interests 190 169 540 275

Total assets – 2,758 – 3,285 26,778 28,704Liabilities – 4,261 – 3,634 18,814 21,701Capital employed – 1,003 – 1,661 12,199 11,702Investments 4 18 766 866Depreciation 8 27 1,109 1,147

Secondary segments 2004 (geographic markets)

Rest of Rest of Total Sweden EU Europe Europe

External sales 9,265 4,604 474 14,343Assets 23,125 392 148 23,665Investments 676 21 – 697

North Latin Australiaamerica America Asia etc.

External sales 1,335 106 887 1,171Assets 2,618 – 2 444Investments 29 – – 40

TotalAfrica Saab Group

External sales 6 17,848Assets 49 26,778Investments – 766

Internal prices between the Group's various segments are set based on the "arm's length" principle. Each segment's income, assets and liabilities(including provisions) include both directly attributable items and itemsthat can be allocated by segment in a reasonable and reliable manner. Eachsegment's investments in tangible and intangible fixed assets include allinvestments other than those in short-term equipment and equipment of lesser value. In the Group, there are no significant costs, other thandepreciation, that do not correspond to disbursements.

Operating areasOperating areas are the Group's primary basis of classification. The busi-ness activities of the various operating areas are described on page 9–10.

Geographic marketsGeographic markets are the Group's secondary basis of classification.


44


The information presented on the segments' revenue refers to geographicmarkets grouped on the basis of the customer's location. Information onthe segments' assets and investments during the period in tangible and in-tangible fixed assets refers to geographic markets grouped on the basis ofthe asset's location.

The Group's segments are divided into the following geographicmarkets:

EU: Sales to EU member states relate primarily to deliveries fromSwedish subsidiaries. In Austria the development and manufacture ofspace equipment is also carried out by a partly owned subsidiary.

North America: In the U.S. aircraft leasing operations and sales ofspares for the regional aircraft Saab 340 and Saab 2000 are carried out bywholly owned subsidiaries, whose customers comprise a number of largeU.S. airlines. Further, a wholly owned subsidiary manufactures and sellssignature management systems, for which the U.S. Army is a customer.

Australia: Sales of combat management systems for the AustralianNavy and Army are made primarily through the wholly owned subsidiarySaab Systems Pty Ltd. Hawker Pacific Pty, which is 49 percent owned,provides maintenance for regional aircraft. During the year Hawker PacificPty was 75 percent owned. The change in ownership took effect on Decem-ber 31, 2004 and means it is now an associated company.

NOTE 5 OTHER OPERATING INCOME


–04-12-31 –03-12-31 –04-12-31 –03-12-31

Result from secondary operations 43 45 – –Reversal of structural reserves – 50 – –Capital gains on sales of subsidiaries 37 13 – –Capital gains on sales of associated

companies 14 – – –Capital gains on sales of tangible

fixed assets 18 8 – –Trading income 15 3 15 3Guarantee fees – – 1 –Revaluation of liabilities 10 – 10 8Exchange rate differences 7 – 5 1Other 31 38 – –

Total 175 157 31 12

NOTE 6 OTHER OPERATING EXPENSES


–04-12-31 –03-12-31 –04-12-31 –03-12-31

Write-down of receivables – – 38 – –Exchange rate differences – – 15 – 1 –Write-down of shares – – 10 – –Disposal of tangible fixed assets – 3 – 10 – 2 – 2Capital loss on sales of subsidiary1) – 15 – – –Result from secondary operations – 7 – 8 – –Other – 14 – 127 – – 4

Total – 39 – 208 – 3 – 6

1) SEK 12 m. relates to reduced share in a subsidiary's income after directed issue to the minority owners.

NOTE 7LEASES

Through wholly owned subsidiaries, Saab leases commercial aircraft itpreviously manufactured – Saab 340 and Saab 2000 – along with spares for these aircraft. These leasing operations are carried out in the globalmarket, with an emphasis on North American and European customers.The terms of both operating and financial leases conform with customaryterms in the international aircraft leasing market, which may entail theright to early termination, purchases and extensions, as well as security,

geographic and tax-related limitations on the allocation of the aircraft inquestion. The operations are carried out in USD.

Leasing fees for assets obtained via operating leases

Group Parent CompanyPremises Machinery Premises Machinery

and and and andbuildings equipment buildings equipment

Outcome2003 49 60 17 312004 73 77 13 55

Contracted2005 61 63 10 452006 55 40 8 282007 40 5 – –2008 34 – – –2009 33 – – –2010 and onwards – – – –

Total, contracted 223 108 18 73

Leased aircraft obtained viaoperating leases

Payments Payments Paymentsto lessors from airlines1) from airlines2)

Outcome2003 528 404 7102004 480 363 637

Contracted2005 350 282 5112006 373 269 3022007 332 198 1702008 298 134 1582009 248 79 1562010 and onwards 1,061 368 842

Total, contracted 2,662 1,330 2,139

1) Receipts from airlines for aircraft held and leased out via operating leases.

2) Receipts from airlines for owned aircraft leased out via operating leases.

The above obligations relate mainly to the lease of Saab 340 to U.S. inves-tors and operators. Depreciation for the year on owned aircraft leased outthrough operating leases amounted to SEK 366 m. (408).

Leased aircraft obtained viafinancial leases

2004 2003

Accumulated acquisition valueAt beginning of year 1,917 1,988Terminated financial leases – 632 – 71Sales and revaluations – –

Residual value at year-end 1,285 1,917

Accumulated depreciationAt beginning of year – 900 – 838Terminated financial leases 384 42Sales and revaluations – –Depreciation for the year – 93 – 104

Total – 609 – 900

Accumulated write-downsAt beginning of year – 567 – 627Sales and revaluations 96 60Total – 471 – 567

Residual value at year-end 205 450

Leasing fees for the year 136 147Contracted future leasing fees1) 449 618

1) The above financial leases relate to 22 (28) Saab 340 and Saab 2000.


45


Nominal value Present valuePayments Payments Payments Payments

to from to fomlessors airlines2) lessors airlines2)

Outcome2003 147 138 – –2004 136 118 – –

Contracted2005 125 82 97 772006 116 32 84 262007 76 8 44 52008 61 1 32 –2009 49 – 30 –2010 and onwards 22 – 10 –

Total, contracted 449 123 297 108

2) Receipts from airlines for aircraft held via financial leases that have been leased out via operating leases.

Saab is not the lessor in financial leases.

Aircraft financingIncome statement Saab Aircraft Leasing

Group04-01-01 03-01-01

–04-12-31 –03-12-31

Leasing revenue 1,203 1,298Interest revenue 166 207Other revenue 283 164

Total revenue 1,652 1,669

Leasing expenses – 537 – 585Interest expenses – 340 – 426Depreciation – 474 – 528Other expenses – 301 – 400

Total expenses – 1,652 – 1,939Utilization of loss risk reserve – 270

Operating income – –

Condensed balance sheet Saab Aircraft Leasing

Group04-12-31 03-12-31

AssetsLease assets 4,231 5,040Receivables from Group companies 23 –Receivables 980 1,133Inventories 4 4Liquid assets 29 35


Shareholders' equity and liabilitiesEquity 1,682 1,743Provisions 506 582Lease obligations1) 2,179 2,597Liabilities to Group companies – 31Other liabilities 900 1,259

Total equity and liabilities 5,267 6,212

1) of which long-term obligations 1,311 2,178

Saab Aircraft Leasing's income statement and balance sheet are mainlydollar-related, since current aircraft sales and leases are always in USD.The exchange rates used in the financial statements are shown on page 40.

The leasing fleet is periodically valuated in terms of the present value of the future payments the fleet is expected to generate. The inflow is repre-sented by contracted and projected leasing revenue and estimated residualvalues. Disbursements consist of fees for technical, legal and administrativeactivities directly related to the management of the fleet. For aircraft leasedby Saab, lease payments account for a significant share of the valuation.The 55 (55) aircraft with non-recourse funding are not included in thevaluation of the aircraft fleet.

Guarantees from the Swedish Export Credits Guarantee Board and insuranceprotection limits Saab's risk. The internal distribution between expectedreceipts from customers and insurers will be affected in each instance,however, by current projections.

Lease assets reported in the balance sheet are tested for impairmentthrough a comparison between residual value and the current value ofprojected payment flows. For lease assets not reported in the balance sheet,any deficits are reported as allocations.

NOTE 8DEPRECIATION/WRITE-DOWNS OF TANGIBLE AND INTANGIBLE FIXED ASSETS


–04-12-31 –03-12-31 –04-12-31 –03-12-31

Depreciation/amortizationby asset

Capitalized development costs – 49 – 11 – –Goodwill – 129 – 139 – –Other intangible assets – 29 – 30 – –Buildings and land – 138 – 136 – 50 – 51Plant and machinery – 165 – 191 – 47 – 44Equipment, tools, fixtures and fittings – 125 – 112 – 41 – 39Lease assets – 474 – 528 – –

– 1,109 – 1,147 – 138 – 134Write-downsGoodwill – 21 – – –Equipment, tools, fixtures and fittings – 4 – – –Other intangible assets – 5 – 4 – –

Total – 1,139 – 1,151 – 138 – 134

Depreciation and amortization are based on each asset’s acquisition valueand estimated useful life as stated in the accounting principles on page 38.

NOTE 9INCOME FROM SECURITIES AND RECEIVABLES HELD AS FIXED ASSETS


–04-12-31 –03-12-31 –04-12-31 –03-12-31

Capital gains on sales of Group companies – – 27 –

Capital gains on sales of other securitiesheld as fixed assets – 13 20 4 13

Dividends and contributions received fromGroup companies – – 6,015 900

Other dividends received 21 – 22 –Write-down of participations in

Group companies – – – 5,530 – 193Write-down of other securities

held as fixed assets – 23 – 59 – 16 –Exchange rate differences, etc. 4 – 8 4 – 13

Total – 11 – 47 526 707

NOTE 10OTHER INTEREST INCOME AND SIMILAR ITEMS


–04-12-31 –03-12-31 –04-12-31 –03-12-31

Interest income, Group companies – – 169 210Interest income, other 259 339 126 138Exchange rate differences 35 – 35 –Less project interest accounted for ingross margin – 76 – 114 – 44 – 60

Total 218 225 286 288


46


NOTE 11 INTEREST EXPENSES AND SIMILAR ITEMS


–04-12-31 –03-12-31 –04-12-31 –03-12-31

Interest expenses, Group companies – – – 165 – 199Interest expenses, convertible debenture loan – 5 – 13 – 5 – 13Translation and exchange rate differences – 8 – 11 – –Interest expenses, other – 188 – 198 – 157 – 146Interest on the year's pension expenses – 152 – 176 – 83 – 85

Total – 353 – 398 – 410 – 443

NOTE 12APPROPRIATIONS

Parent Company04-01-01 03-01-01

–04-12-31 –03-12-31

Difference between book depreciation and depreciation according to plan– Buildings and land – 35 – 10– Plant and machinery 16 – 13Tax allocation reserve, dissolution during the year 234 –

Total 215 – 23

NOTE 13TAXES

Group04-01-01 03-01-01

–04-12-31 –03-12-31

Current tax expense (–)/tax recoverable (+)Tax expense for the year – 26 – 57Taxes related to previous years 73 49

Total 47 – 8

Deferred tax expense (–)/tax recoverable (+)Deferred tax related to temporary differences 62 24Deferred tax related to capitalized tax amount

in tax loss carryforwards 20 9Deferred tax attributable to previous years – 9 –Deferred tax expense related to utilization of previously

capitalized tax amount in tax loss carryforwards – 483 – 332

Total – 410 – 299

Tax on share in associated companies' income – 22 – 8

Total reported tax expense in Group – 385 – 315

Due to the utilization of tax loss carryforwards, no tax is paid by Saab ABand and its wholly owned Swedish subsidiaries. The current tax charge isattributable primarily to the U.S. (38 percent tax) and Australia (30 percenttax), and Saab Ericsson Space.


–04-12-31 –03-12-31

Current tax expense (-)/tax recoverable (+)Tax expense/tax recoverable for the year – 74 124Taxes related to previous years 79 14

Total 5 138

Deferred tax expense (-)/tax recoverable (+)Deferred tax related to temporary differences 77 – 69Deferred tax related to capitalized tax amount

in tax loss carryforwards – 79 –Deferred tax expense related to utilization of previously

capitalized tax amount in tax loss carryforwards – 327 – 172

Total – 329 – 241

Total reported tax expense in Parent Company – 324 – 103

The current tax for the year relates in its entirety to tax on Groupcontributions received.

Reconciliation of effective tax rate Group04-01-01 03-01-01

–04-12-31 –03-12-31Percent Amount Percent Amount

Income before taxes 1,511 1,073Tax according to current tax rate for

Parent Company 28,0% – 423 28,0% – 300Effect of other tax rates for

foreign subsidiaries 0,7% – 11 – 0,4% 4Amortization of Group goodwill 2,7% – 41 3,5% – 38Other non-deductible expenses 3,0% – 45 5,4% – 58Tax-exempt income – 2,9% 44 – 1,8% 19Utilization of tax loss carryforwards

previously not capitalized – 2,6% 40 – 0,8% 9Revaluation of deferred tax in

foreign subsidiaries – 4,2% 64 – 4,6% 49Other 0,9% – 13 0,0% –

Reported effective tax rate 25,5% – 385 29,4% – 315


–04-12-31 –03-12-31Percent Amount Percent Amount

Income before taxes 1,152 844Tax according to current tax rate for

Parent Company 28.0% – 323 28.0% – 236Non-deductible expenses 7.4% – 86 8.1% – 68Tax-exempt income – 1.0% 12 – 22.6% 191Tax related to previous years 0.0% – – 1.7% 14Utilization of tax loss carryforwards

previously not capitalized – 0.7% 8 – 0.4% 3Tax related to pension provisions –5.6% 65 0.8% – 7

Reported effective tax rate 28.1% – 324 12.2% – 103

Tax items reported directly against Group Parent Companyshareholders' equity 04-12-31 03-12-31 04-12-31 03-12-31

Deferred tax attributable to changein accounting principles 51 – – –

Deferred tax attributable to revaluation 9 9 – –

Total 60 9 – –

NOTE 14CAPITALIZED DEVELOPMENT COSTS

Gruppen04-12-31 03-12-31

Accumulated acquisition valueAt beginning of year 794 399Internally developed assets 419 394Reclassification – 1

Total 1,213 794

Accumulated amortizationAt beginning of year – 16 – 5Amortization for the year – 49 – 11Total – 65 – 16Residual value carried forward 1,148 778

Amortization of capitalized development costs begins after the asset canbe used and continues over its estimated production volume. Productionvolumes are set based on estimated future sales. Amortization for the yearis reported in the income statement on the line Research and developmentcosts. Development costs are capitalized only in the consolidated financialstatements. In legal units, on the other hand, all expenditures for develop-ment work are expensed. This means that the Parent Company does notcarry forward any expenditures for development work.


47


NOTE 15GOODWILL

Group04-12-31 03-12-31

Accumulated acquisition valueAt beginning of year 2,224 2,230Purchases 22 – 3Sales and disposals of business operations – 68 –Translation differences for the year – 1 – 3

Total 2,177 2,224

Accumulated amortizationAt beginning of year – 542 – 403Sales and disposals of business operations 14 –Amortization for the year – 129 – 139

Total – 657 – 542

Accumulated write-downsAt beginning of year – 55 – 55Sales and disposals of business operations 45 –Write-downs for the year – 21 –Total – 31 – 55Residual value carried forward 1,489 1,627

Amortization for the year is reported on the following lines in the income statement:Cost of goods sold – 125 – 135Marketing expenses – 4 – 4

Goodwill is normally amortized on a straight-line basis over 5 –10 years,while goodwill arising from strategic, long-term acquisitions is amortizedover 20 years.

Of the reported goodwill value, SEK 1,331 m. relates to the acquisitionsof Celsius and AerotechTelub and is mainly amortized over 20 years. Theremaining amortization period is 15 –16 years. The acquisitions are consid-ered long-term and strategic, since the acquired companies had establishedcompetencies, longstanding customer relationships and high-tech productranges in the defense area.

Write-down requirements for goodwill are estimated regularly througha calculation of discounted future cash flows for the business operations towhich the goodwill is attributable, based on future business plans.

The current year's purchases include a write-down of a previouslyestimated supplemental purchase price.

NOTE 16 OTHER INTANGIBLE ASSETS


Accumulated acquisition valueAt beginning of year 451 456 – –Purchases 1 6 – –Sales and reclassification – 15 – 11 – –

Total 437 451 – –

Accumulated amortizationAt beginning of year – 274 – 244 – –Sales and reclassification 12 – – –Amortization for the year – 29 – 30 – –

Total – 291 – 274 – –

Accumulated write-downsAt beginning of year – 85 – 81 – –Write-downs for the year – 5 – 4 – –Total – 90 – 85 – –Residual value carried forward 56 92 – –

Amortization is booked on a straight-line basis over 5–10 years and reportedin the income statement on the line Cost of goods sold.

Of the reported value, SEK 55 m. refers to product and technologyrights that are amortized over 10 years. The remaining amortization periodis 2– 3 years. The amortization period is based on estimated future revenues.

Write-down needs are estimated regularly through a calculation of dis-counted future cash flows for the business operations to which the good-will is attributable, based on future business plans.

NOTE 17 BUILDINGS AND LAND


Accumulated acquisition value1)

At beginning of year 4,429 4,323 1,422 1,311Purchases 63 218 4 126Sales and disposals – 558 – 120 – 9 – 15Reclassifications – – – 98 –Translation differences for the year – 6 8 – –

Total 3,928 4,429 1,319 1,422

Accumulated depreciation At beginning of year – 1,894 – 1,804 – 707 – 669Sales and disposals 383 48 5 13Depreciation for the year – 138 – 136 – 50 – 51Translation differences for the year 1 – 2 – –

Total – 1,648 – 1,894 – 752 – 707

Accumulated net revaluationAt beginning of year 502 538 494 530Depreciation for the year on

revalued amount – 35 – 36 – 35 – 36Total 467 502 459 494Residual value carried forward 2,747 3,037 1,026 1,209

Tax assessment value, buildings (in Sweden) 1,058 1,491 510 516Tax assessment value, land (in Sweden) 419 483 191 1931) Acquisition value includes capitalized interest of 11 11 – –

Group Parent CompanyOf which land 04-12-31 03-12-31 04-12-31 03-12-31Accumulated acquisition value 279 296 23 23Accumulated depreciation – – – –Accumulated revaluations 17 16 6 7

Residual value carried forward 296 312 29 30

Buildings are depreciated on a straight-line basis over 20 – 25 years.Depreciation for the year is allocated by function in the income statementaccording to each asset’s use.

No properties are possessed via financial leases.

NOTE 18 PLANT AND MACHINERY


Accumulated acquisition valueAt beginning of year 2,874 3,160 855 1,009Purchases 173 164 47 55Acquisitions of companies – – – –Sales, disposals and intra-Group sales – 685 – 179 – 48 – 22Reclassifications 20 – 277 33 – 187Translation differences for the year – 7 6 – –

Total 2,375 2,874 887 855

Accumulated depreciation At beginning of year – 2,160 – 2,354 – 630 – 745Sales, disposals and intra-Group sales 551 153 46 21Depreciation for the year – 165 – 191 – 47 – 44Depreciation of reclassification 27 236 8 138Translation differences for the year 4 – 4 – –Total – 1,743 – 2,160 – 623 – 630Residual value carried forward 632 714 264 225

Plant and machinery are depreciated on a straight-line basis over 5 –10years and allocated by function in the income statement according to eachasset's use.

No assets are possessed via financial leases.


48


NOTE 19EQUIPMENT, TOOLS, FIXTURES AND FITTINGS


Accumulated acquisition valueAt beginning of year 1,698 1,381 605 683Purchases 99 154 29 84Acquisitions of companies 1 – 10 – 2Sales and disposals – 174 – 148 – 25 – 347Reclassifications – 2 314 – 9 187Translation differences for the year – 4 – 3 – –

Total 1,618 1,698 610 605

Accumulated depreciation At beginning of year – 1,283 – 1,072 – 419 – 591Acquisitions of companies – 1 – – 4 2Sales and disposals 162 135 24 347Depreciation for the year – 125 – 112 – 41 – 39Depreciation of reclassification – 5 – 236 – 8 – 138Translation differences for the year 3 2 – –

Total – 1,249 – 1,283 – 448 – 419

Accumulated net revaluationAt beginning of year – – – –Revaluation for the year – 4 – – –Total – 4 – – –Residual value carried forward 365 415 162 186

Equipment, tools, fixtures and fittings are depreciated on a straight-linebasis over 3 –10 years and allocated by function in the income statementaccording to each asset's use.

No assets are possessed via financial leases.

NOTE 20LEASE ASSETS


Accumulated acquisition valueAt beginning of year 9,622 10,027 – –Purchases 7 37 – –Sales – 94 – 154 – –Translation differences for the year – 156 – 288 – –

Total 9,379 9,622 – –

Accumulated depreciation At beginning of year – 3,479 – 3,150 – –Sales 15 73 – –Depreciation for the year – 474 – 528 – –Translation differences for the year 69 126 – –

Total – 3,869 – 3,479 – –

Accumulated net revaluationAt beginning of year – 1,105 – 1,205 – –Sales and revaluation for the year – 175 100 – –Total – 1,280 – 1,105 – –Residual value carried forward 4,230 5,038 – –

Of which lease assets possessedvia financial leases

Estimated acquisition value of assets 1,285 1,917 – –Leasing fees paid during the fiscal year 136 147 – –Contracted future leasing fees 449 618 – –

Lease assets are depreciated on a straight-line basis over 20–25 years. The results from leasing operations including depreciation are reported in the income statement on the lines Other operating expenses or Otheroperating income.

NOTE 21

CONSTRUCTION IN PROGRESS AND ADVANCE PAYMENTS FOR TANGIBLE FIXED ASSETS


At beginning of year 64 153 32 119Purchases and transfers to purchases

of other asset classes 13 – 64 2 – 87Sales and disposals – 11 – 11 – – Reclassifications – 38 – 14 – 32 –Translation differences for the year – – – –

Residual value carried forward 28 64 2 32

NOTE 22PARTICIPATIONS IN GROUP COMPANIES


Accumulated acquisition valueAt beginning of year 11,824 10,184New issues/shareholders' contributions 50 1,054Purchases 3,070 631Sales – 104 – 35Reclassifications – 8 – 10

Total 14,832 11,824

Accumulated write-downsAt beginning of year and end – 578 – 385Write-downs for the year – 5,530 – 193Total – 6,108 – 578Closing book value 8,724 11,246

Write-downs for the year are reported in the income statement on the lineResult from securities and receivables held as fixed assets.

Acquisitions relate in large part to intra-group share acquisitions.Of the year's write-downs, SEK 4,510 m. relates to dividends received

from subsidiaries. The remaining amount, SEK 1,020 m., relates to restruc-turings within the Group.


49


Note 22, cont.Specification of Parent Company's and Group's participations in Group companies

No. of Share BookSubsidiary/Corp. ID no./Reg. office shares %1) value

AB Celsius Finance, 556284-6047, Stockholm 25,000 100.0% 3AerotechTelub Holding AB, 556206-7131,Arboga 500,000 100.0% 1,326

AerotechTelub AB, 556218-6790,Arboga 500,000 100.0% –Saab Metech AB, 556080-0210,Arboga 60,000 100.0% –

Saab Metech Oy, Finland 1,200 100.0% –Saab Metech A/S, Denmark 5,000 100.0% –Saab Metech GmbH, Germany – 100.0% –

Telub Holding AB, 556153-9924, Stockholm 9,152,108 100.0% –Saab Contracting AB, 556246-0419,Arboga 5,000 100.0% –

Bofors Anti Armour Systems AB, 556439-6876, Karlskoga 250,000 100.0% 30Celsius AB, 556194-4652, Stockholm 28,066,038 100.0% 953

Saab Pacific Pty Ltd,Australia 48,000,045 100.0% –Saab Pacific Development Pty Ltd,Australia 4,050,000 100.0% –Saab Systems Pty Ltd,Australia 1,512,002 100.0% –

Saab Professional Pty Ltd,Australia 2 100.0% –Saab ITS Pty Ltd,Australia 740 74.0% –

Saab Bofors Dynamics Australia Pty Ltd,Australia 2,000 100.0% –Saab Pacific Investment Holdings Pty Ltd,Australia 2 100.0% –

Celsius Fastighets AB, 556274-5090, Stockholm 1,000 100.0% 39Celsius Invest AB, 556164-6588, Stockholm 1,720,000 100.0% 155

Fastighets AB Elektra, 556042-4102, Stockholm 200,000 100.0% –Fastighets AB Geväret, 556291-8424, Stockholm 1,000 100.0% –

Celsius Materialteknik CMT AB, 556354-6349, Linköping 20,000 100.0% 9Celsius Weapon Systems AB, 556258-2352, Stockholm 10,000 100.0% 1Combitech Systems AB, 556258-8862, Jönköping 5,000 100.0% 109Cromarty Ltd, Ireland 2 100.0% 16

Servanda Co Ltd, Cayman Islands 2,000,000 100.0% –CSM Materialteknik AB, 556517-3951, Linköping 40,000 100.0% 7CSM NDT Certification AB, 556528-1259, Linköping 800 80.0% 1Elesco Holding Oy, Finland 6,528 100.0% 6

Elesco Oy, Finland – 100.0% –FFV Ordnance AB, 556414-8194, Eskilstuna 100,000 100.0% 10Glasnamanagh Holdings Ltd, Ireland 10,000 100.0% 99

Redstone Management Ltd, Jersey 11,000 100.0% –Scaraden Ltd, Jersey 11,000 100.0% –

AB Götaverken, 556205-5615, Göteborg 3,000,000 100.0% 360Götaverken Regalia AB, 556249-8583, Göteborg 1,000 100.0% –Götaverken Rig AB, 556292-3044, Göteborg 1,000,000 100.0% –Kockums Holdings AB, 556036-4100, Malmö 48,000 100.0% –

Kockums Engineering AB, 556277-1658, Malmö 2,000 100.0% –Alpha Thames Engineering Ltd, United Kingdom 202,500 100.0% –

Alpha Thames Ltd, United Kingdom 12,000 100.0% –Götaverken International N.V., Curacao – 100.0% 5HS Memory AB, 556165-9326, Linköping 1,000 100.0% 2Lansen Försäkrings AB, 516401-8656, Linköping 100,000 100.0% 50MX Composites AB, 556291-6857, Linköping 545 54.5% 12Saab Aircraft AB, 556062-7647, Linköping 100,000 100.0% 10Saab Aircraft Leasing Holding AB, 556124-3170, Stockholm 30,000 100.0% 2,203

Saab-Scania Rental AB, 556056-9807, Stockholm 1,000 100.0% –Fairbrook Inc., USA 100 100.0% –

Fairbrook Leasing Inc., USA 100 100.0% –Lambert Leasing Inc., USA 100 100.0% –Saab Aircraft Leasing Inc., USA 100 100.0% –

2000 Aircraft Credit AB, 556464-6031, Stockholm 787,000 100.0% –SF340 Leasing AB, 556258-8847, Linköping 1,000 100.0% –

Aero Three AB, 556258-8920, Linköping 1,000 100.0% –Swedish Aircraft Two KB, 916691-8194, Stockholm – 50.3% –Swedish Aircraft Three KB, 916694-4384, Linköping – 100.0% –Swedish Aircraft Four KB, 916694-4372, Stockholm – 50.3% –

Swedish Aircraft Holdings AB, 556573-7805, Stockholm 1,000 100.0% –Saab Aviocomp AB, 556347-9251, Linköping 163,000 100.0% 60

Saab Aviocomp R.I.A.S. B.V., the Netherlands 100 100.0% –Saab Barracuda AB, 556045-7391,Västervik 200,000 100.0% 71

Barracuda Canada Inc., Canada 100 100.0% –Barracuda Camoflage (P) Ltd, India 133,000 95.0% –Saab Barracuda Pty Ltd,Australia 75,000 100.0% –Saab Barracuda S.A., France 4,996 99.9% –

Saab Bofors Dynamics AB, 556264-6074, Karlskoga 500,000 100.0% 357Saab Bofors AB, 556267-9455, Karlskoga 2,000,500 100.0% –

Saab Bofors Industrier AB, 556331-5463, Karlskoga 22,250 100.0% –Wikers AB, 556014-2126, Karlskoga 5,900 100.0% –

Saab Bofors Support AB, 556016-3247, Karlskoga 176 66.0% –Bofors Personalbutiker AB, 556338-1564, Karlskoga 1,000 100.0% –

Saab Bofors Test Center AB, 556035-3558, Karlskoga 48,800 61.0% –Saab Bofors Dynamics Deutschland GmbH, Germany 500 100.0% –

No. of Share BookSubsidiary/Corp. ID no./Reg. office shares %1) value

Bofors (UK) Ltd, United Kingdom 10,000 100.0% –Saab Combitech AB, 556108-8799, Linköping 500,000 100.0% 60Saab Communication AB, 556181-4418, Stockholm 21,000 100.0% 3Saab Dynamics AB, 556055-9691, Linköping 1,000,000 100.0% 120Saab Ericsson Space AB, 556134-2204, Göteborg 90,000 60.0% 9

Saab Ericsson Space Fastighets AB, 556230-7404, Göteborg 1,000 100.0% –Saab Ericsson Space Inc., USA 100 100.0% –Austrian Aerospace GmbH,Austria – 100.0% –

Saab Facilities Stockholm AB, 556244-5683, Järfälla 170,000 100.0% 17Saab Hangaren Förvaltning AB, 556047-0873, Linköping 20,000 100.0% 2Saab Holding B.V., the Netherlands 180 100.0% 420

Saab Finance B.V., the Netherlands – 100.0% –Saab Training System B.V., the Netherlands – 100.0% –Götaverken Netherlands B.V., the Netherlands – 100.0% –

Saab Holding U.S. Inc., USA 10 100.0% 822Saab Aircraft of America LLC, USA 100 100.0% –Saab Barracuda LLC, USA 100 100.0% –Saab International USA LLC, USA 100 100.0% –Saab Training LLC, USA 100 100.0% –Celsius Holding Florida Corp., USA 10 100.0% –

Celsius Holding Delaware Corp., USA 100 100.0% –Saab TransponderTech USA LLC – 100.0% –Saab Aquisition LLC, USA – 100.0% –

Saab International (Thailand) AB, 556378-6275,Linköping 2,000 100.0% –Saab International AB, 556267-8994, Stockholm 50,000 100.0% 6

Saab International Chile S.A., Chile 999 99.9% –Saab International Canada Ltd, Canada 25,765 100.0% –Saab International Danmark A/S, Denmark 5,000 100.0% –Saab International Deutschland GmbH, Germany – 100.0% –Saab International Finland Oy, Finland 50 100.0% –Saab International Middle East,The United Arab Emirates 1,000 100.0% –Saab International Norge A/S, Norway 50 100.0% –Saab International Singapore Pte Ltd, Singapore 25,000 100.0% –

Saab IRS AB, 556055-0773, Linköping 120 60.0% 6Saab Military Aircraft Ltd., United Kingdom 100,000 100.0% –Saab Nyge Aero Holding AB, 556036-0207, Linköping 1,100,000 100.0% 120

Saab Nyge Aero AB, 556043-5413, Nyköping 5,000 100.0% –Norsk Flytjenste A/S, Norway 1 100.0% –

Saab South Africa Ltd, South Africa – 100.0% –Saab Supporter Ett AB, 556121-2597, Linköping 1,000 100.0% 95Saab Technologies Inc., USA – 100.0% 1Saab Training Systems AB, 556030-2746, Jönköping 150,000 100.0% 42

Saab Training Systems Canada Ltd, Canada 300,000 100.0% –Saab Training Systems GmbH, Germany 4,000 100.0% –Saab Training Systems UK Ltd, United Kingdom 100,000 100.0% –Saab Training Systems Oy, Finland 100 100.0% –

Saab TransponderTech AB, 556535-9790, Solna 1,000 100.0% 32Saab Treasury AB, 556147-5939, Linköping 30,000 100.0% 3SaabTech AB, 556460-1655, Stockholm 3,000,000 100.0% 673

EMC Service Elmiljöteknik AB, 556315-6636, Mölndal 400 100.0% –Fastighets AB, Järfälla Veddesta 2:81, 556475-4785, Järfälla 5,000 100.0% –SaabTech Electronics AB, 556017-4848, Linköping 150,600 100.0% 18SaabTech Systems AB, 556363-6785 Linköping 2,051,230 100.0% 248Saab Underwater Systems AB, 556439-6884, Karlskoga 250,000 100:0% 69Sanguistech AB, 556090-7213, Eskilstuna 20,000 100.0% 2Shipknow AG, Switzerland 240 100.0% 7SMM Medical AB, 556123-6414, Linköping 600 60.0% 5Saab Aerospace Overseas AB, 556628-6448, Linköping 1,000 100.0% 3

Saab-Gripen Hungary Industrial Cooperation and Consulting Ltd, Hungary – 96.7% –

Dormant companies, real estate companies, etc. – – 47

Book value at year-end 8,724

1) Ownership interest refers to the share of capital, which also coincides with the share of votes for total numberof shares.


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NOTE 23 RECEIVABLES FROM GROUP COMPANIES


Accumulated acquisition valueAt beginning of year 148 144Additional receivables 52 12Cleared receivables – 12 – 8

Reported value at year-end 188 148

NOTE 24PARTICIPATIONS IN ASSOCIATED COMPANIES


Accumulated acquisition valueAt beginning of year 275 256 81 4Purchases 111 – 166 77Dividends – 7 – – –Sales – 8 – – –Reclassifications 117 – 8 8 –Translation differences and internal

gains for the year – 1 – 12 – –Net income for the year 53 39 – –

Reported value at year-end 540 275 255 81

Specification of Parent Company and Group's participations in associated companies

Share of BookAdjusted equity value for

Associated company/ equity/ Share, for ParentCorp. ID no./Reg. office net inome1) % 2) Group CompanyA2 Acoustics AB, 556052-5601, Linköping 0/ 0 40.0 – –Booforsen Fastighets AB,

556381-0539, Karlskoga 13/ 1 50.0 2 11Caran Saab Engineering AB,

556615-7581, Linköping 4/ 1 50.0 4 2Grintek Ltd, South Africa 112/12 21.4 134 111Grintron (Pty) Ltd, South Africa 83/ 9 49.0 83 77Hawker Pacific Airservices Ltd,Australia3) 117/ 0 49.0 117 8Industrikompetens i Östergötland AB,

556060-5478, Linköping 3/ 1 33.0 3 1Nammo A/S, Norway 183/27 27.5 183 56Sörman Information AB,

556221-2034,Växjö 14/ 3 25.3 14 6


1) Adjusted equity refers to the owned share of the company's equity, including equity in untaxed reserves. Netincome refers to the owned proportion of the company's income after tax, including the portion of equity inthe year's change in untaxed reserves.

2) Ownership interest refers to the share of capital, which coincides with the share of votes for total number ofshares.

3) During the year the company was consolidated as a subsidiary.The change in ownership that made it anassociated company took effect on December 31, 2004.

NOTE 25RECEIVABLES FROM ASSOCIATED COMPANIES


Accumulated acquisition valueAt beginning of year 7 13 – –Additional receivables – – – –Cleared receivables – 7 – 6 – –

Reported value at year-end – 7 – –

NOTE 26PARTICIPATIONS IN JOINT VENTURES


Accumulated acquisition valueAt beginning of year 32 22Reclassification – 10Other changes 1 –Share of net income for the year 52 –


Specification of Parent Company and Group's participations in joint venturesShare, Book value for

Company/Corp. ID no./Reg. office % Parent CompanyGripen International KB,

969679-8231, Linköping 50.0 75Gripen Venture Capital AB,

556298-6629, Linköping 50.0 10SAAB-BAE SYSTEMS Gripen AB,

556527-6721, Linköping 50.0 –Saab Ericsson NBD Innovation AB,556628-6406, Linköping1) 60.0 –

Reported value at year-end 85

Joint ventures are accounted for in accordance with the proportional meth-od. This means that the Group’s share of the assets, liabilities, income andcosts in a jointly controlled company is added item by item to the corr-esponding items in the consolidated income statement and balance sheet. 1) In a joint venture agreement, co-owners Saab AB (publ) and Telefonaktiebolaget LM Ericsson (publ) have

agreed to share the decisive influence over the company's financial operations.The company is thereforereported according to the proportional method.

NOTE 27OTHER SECURITIES HELD AS FIXED ASSETS


Accumulated acquisition valueAt beginning of year 139 157 60 97Purchases 113 33 87 1Sales – 6 – 43 – – 38Write-downs – 16 – 16 – 16 –Reclassifications – 8 – –


The reported value at year-end relates to unlisted shares.


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Specification of the Group's other securities held as fixed assetsNo. of share, Book

Company shares % valueAriane Space Participation 1,621,745 0.8 –b-business partners B.V. 108,000 0.0 17Biological Control Products No 1 (Pty) Ltd – 28.4 13Caviditech AB 127,017 18.0 20Ecoship Engineeering AB 1,905 15.8 –Ericsson Saab Surveillance Systems AB 500 50.0 –EURENCO – 19.9 86Fastighets AB Inedal 1,575 10.5 4Fusion Lighting Inc. 625,000 7.5 –Global Geo Services A/S 795,486 0.0 7Industriellt Utvecklingscentrum i Karlskoga AB 100 15.0 –Industriellt Utvecklingscentrum i Skåne AB 750 26.8 –Iteksa Venture AB – 20.0 19

Länsteknikcentrum AB 300 1.8 –MI Factory Latin America S.A. 375,000 12.5 7Micro Z Sweden AB 110 9.9 –Silplat (Pty) Ltd 120 11.0 16Smaaland Project Venture AB 330 33.0 –Småföretagarinvest AB 23,377 2.0 5SN Technologies S.A. 100 50.0 1Societe Ariane Space 3,862 0.8 –Stiftelsen Alfred Nobels Björkborn 1 25.0 –Swiss International Airlines 6 0.0 –Taurus System GmbH 1 33.0 –Wah Nobel (Pvt) Ltd 122,515 27.2 23Österreichische Gesällschaft für Weltraumfragen GmbH – 6.0 –Tenant-owner rights, etc. – – 12

Reported value att year-end 230

NOTE 28DEFERRED TAX RECEIVABLES

Deferred tax consists of tax on temporary differences between reportedand fiscal valuations of assets and liabilities. The Group's temporary dif-ferences have resulted in receivables and liabilities related to the followingitems:

Group, Dec. 31, 2004Deferred tax Deferred

receivables tax liabilities NetCapitalized development work – – 318 – 318Buildings and land 10 – 212 – 202Machinery and equipment, etc. 24 – 1,121 – 1,097Inventories 271 – 5 266Accounts receivable 14 – 1 13Long-term receivables/liabilities 223 – 12 211Provisions for pensions 201 – 32 169Other provisions 616 – 127 489Tax allocation reserve – – 11 – 11Other 123 – 84 39Tax loss carryforwards 1,081 – 1,081

2,563 – 1,923 640Net accounting – 1,873 1,873 –

Net deferred tax receivables 690 – 50 640

Group, Dec. 31, 2003Deferred tax Deferred

receivables tax liabilities Net

Capitalized development work – – 218 – 218

Buildings and land 12 – 229 – 217

Machinery and equipment, etc. 2 – 1,090 – 1,088

Inventories 105 – 105

Accounts receivable 18 – 18

Provisions for pensions 60 – 60

Other provisions 961 – 169 792

Tax allocation reserve – – 106 – 106

Other 71 – 71Tax loss carryforwards 1,564 – 1,564

2,793 – 1,812 981Net accounting – 1,812 1,812 –

Net deferred tax receivables 981 – 981

Parent Company, Dec. 31, 2004Deferred tax Deferred

receivables tax liabilities NetBuildings and land – – 126 – 126Provisions for pensions 122 – 122Inventories, etc. 132 – 132Other provisions 332 – 332Tax loss carryforwards 243 – 243

829 – 126 703Net accounting – 126 126 –

Net deferred tax receivables 703 – 703

Parent Company, Dec. 31, 2003Deferred tax Deferred

receivables tax liabilities Net

Buildings and land – – 136 – 136Provisions for pensions 41 – 41Other provisions 557 – 557Tax loss carryforwards 570 – 570

1,168 – 136 1,032Net accounting – 136 136 –

Net deferred tax receivables 1,032 – 1,032

The change between the years is reported as a deferred tax expense ordeferred tax recoverable, except for amounts reported directly againstshareholders’ equity.

Deferred tax liabilities in the Group amount to SEK 1,923 m. (1,812), ofwhich SEK 766 m. (1,183) relates to accumulated accelerated depreciationand SEK 126 m. (136) to the revaluation of property.

Of the Parent Company’s deferred tax liabilities, SEK 126 m. (136)relates between the revaluation of property.

Of the tax loss carryforwards of SEK 3,489 m. (5,200), SEK 2,460 m.(4,080) has no time limit, while SEK 1,029 m. (1,120) has a limit of 20 yearsand expires between the years 2018 and 2024.

Net accounting is applied when there is a legal right of offset andbetween Swedish Group companies where there is the possibility of Groupcontributions.


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NOTE 29OTHER LONG-TERM RECEIVABLES


Interest-bearingAt beginning of year 758 1,040 – –Additional receivables 56 99 70 –Cleared receivables – 355 – 381 – –

Reported value at year-end 459 758 70 –

Interest-bearing receivables within the Group relate mainly to receivablesfrom the sale of assets. The previous year included an installment receivablefor the oil rig Petrobras XXIII (SEK 322 m.). The oil rig was sold during theyear.

Non-interest-bearingAt beginning of year 758 851 – 34Additional receivables 23 15 – –Cleared receivables – 201 – 108 – – 34

Reported value at year-end 580 758 – –

Non-interest-bearing receivables consist mainly of deposits for SaabAircraft Leasing.

NOTE 30INVENTORIES, ETC.


Raw materials and consumables 1,465 1,813 186 382Work in progress 47 20 33 28Finished goods and goods for resale 840 948 75 7Work in progress for third parties 4,590 3,760 3,162 2,659Advance payments to suppliers 412 347 212 100Less utilized advances from customers – 3,263 – 2,755 – 2,205 – 2,302

Reported value at year-end 4,091 4,133 1,463 874

The value of the inventory reported at net realizable value is SEK 699 m.(875).

Saab has reached agreement with the Ministry of Industry and Com-merce that the National Debt Office will co-finance Saab's participation inthe Airbus 380 project. The co-financing is a royalty loan maximized atSEK 350 m. Repayment will take the form of a royalty on each delivery toAirbus. In 2004 the National Debt Office paid out SEK 197 m. (150), whichreduces inventory in the financial statements.

NOTE 31PREPAID EXPENSES AND ACCRUED INCOME

Prepaid expenses and accrued income amounted to SEK 1,722 m. (1,577) in the Group and SEK 308 m. (165) in the Parent Company. Project incomereported as accrued income on a percentage-of-completion basis amountedto SEK 1,133 m. (967), net, after deducting advance payments. When reportedgross, project income was SEK 5,839 m. and advance payments SEK 4,706 m.Expenses attributable to project income amounted to SEK 4,730 m. Reportedgross income amounted to SEK 1,109 m. Prepaid expenses in the Groupamounted to SEK 403 m. (282) and SEK 1,133 m. (967). Accrued leasingfees in Saab Aircraft Leasing were SEK 94 m. (102).

NOTE 32 SHORT-TERM INVESTMENTS

Financial investments are made in Swedish government bonds, mortgagebonds and commercial paper. The investment policy calls for fixed interestterms of 0 – 27 months to avoid excessive fluctuations due to interest ratechanges. At year-end, the average interest term was 21 months (12).

Group and Parent Company 2004-12-31 2003-12-31Market Reported Market Reported

Specification of securities value value value value

Government bonds 1,103 1,100 – –Mortgage bonds 1,446 1,437 1,224 1,218Treasury bills 1,237 1,237 2,073 2,072Floating rate notes 151 151 – –

Total 3,937 3,925 3,297 3,290

Market value consists of the current listing on the financial market on theclosing day.

Group and Parent Company 04-12-31 03-12-31

Amount of asset item expected to be recovered after more than twelve months from the closing day. 1,523 1,211

NOTE 33FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

Foreign currency risksForeign currency risk refers to the risk fluctuations in exchange rates willhave a negative effect on Group income. Exchange rate fluctuations affectthe income and shareholders’ equity in various ways:• Income is affected when sales revenue and production costs are in dif-

ferent currencies (transaction exposure). • Income is affected when the income of foreign subsidiaries is translated

to Swedish kronor (translation exposure).• Income or shareholders’ equity is affected when the assets and liabilities

of foreign subsidiaries are translated to Swedish kronor (translation ex-posure).

Transaction exposure In 2004 currencies were sold for a net of SEK 4,293 m. (4,340). Of sales in2004, SEK 4,179 m. (2,420) was expiring forward contracts, correspondingto 23 percent (14) of sales for the year.

Translation exposure Only a small portion of the Group’s operations is conducted by foreignsubsidiaries. The value of foreign subsidiaries’ shareholders’ equityamounted to approximately SEK 1,160 m. at year-end.

OtherNet assets translated to SEK USD EUR AUD currencies

SEK m. 791 66 150 153

The foreign currency risk to the Group’s income and shareholders’ equityfrom translation effects – the translation exposure – is normally not hedged.

Interest rate risksDepending on the liquidity situation, Saab’s income is directly affected bychanges in market interest rates through a change in net financial itemsand through the impact on gross income of the interest rate effects of ad-vance financing. In 2004 the average of interest-bearing receivables cashand marketable securities less liabilities to credit institutions and otherinterest-bearing liabilities was SEK 3,430 m. (3,782). Saab tries to achieverisk neutrality with regard to interest rate risks by seeking similar interestterms on the assets and liabilities sides of the balance sheet. Managementof the Group’s interest rate exposure is centralized, which means that SaabTreasury is responsible for identifying and managing this exposure.


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Assets 04-12-31 03-12-31

Long-term interest-bearing receivables 459 765Current interest-bearing receivables 145 39Cash and marketable securities 4,319 4,243


LiabilitiesLiabilities to credit institutions 690 395Other borrowing and other

interest-bearing liabilities 418 467Convertible debenture loan – 232Total liabilities 1,108 1,094Net liquidity 3,815 3,953Pension liabilities 3,034 3,458Net liquidity after pension liabilities 781 495

Liquidity management and financial credit risksLiquidity management is handled centrally within the framework of an in-vestment policy determined by the Board of Saab AB. The investment poli-cy is based on a benchmark, from which the following deviations are per-mitted in regard to duration and credit risk:

Min. Max. Dec. 31, Dec. 31,Benchmark Risk Risk 2004 2003

Government 80% 100% 40% 58% 58%Mortgage (min A) 20% 40% 36% 32%Corporate (min A) 20% 6% 10%Duration 15 mos. 0 mos. 27 mos. 21 mos. 12 mos.The interest rate risk in the investments given a 1 bp parallel shift in theyield curve was SEK 0.68 m. (0.36) as of December 31, 2004.

Investments are made in securities with minimum short- and long-termcredit ratings of A1/P1 from Moody’s and A-1/A from S&P. The credit riskcalculation is based on actual and anticipated credit risk, according to therecommendations of the Bank of International Settlement (BIS). As ofDecember 31, 2004 counterparty risks amounted to SEK 5,102 m. (4,333), ofwhich mortgage institutions and bank lending SEK 1,670 m. (1,224). In2004 average invested capital was SEK 3,025 m. (2,989). The average returnon external investments was 4.28 percent (3.95). The average return includ-ing changes in market value amounted to 3.96 percent (4.11).

Refinancing risksRefinancing risk refers to the risk that the company will not be able to meetits payment liabilities due to insufficient liquidity or difficulties raisingexternal loans.

As of December 31, 2004 Saab had net liquidity of SEK 781 m. (495) afterdeducting liabilities to credit institutions and other interest-bearing liabili-ties of SEK 1,108 m. (1,094) and provisions for pensions of SEK 3,034 m.(3,458). In addition to the net liquidity, there is a possibility to obtain finan-cing in part by externally refinancing all or parts of the regional aircraftfleet, which at present is internally financed, as well as by utilizing bindingcredit facilities. Saab centralizes management of the Group’s financing. Ithas no rating at present.

Customer credit riskOutstanding accounts receivable constitute a credit risk. As of December31, 2004 accounts receivable amounted to SEK 2,722 m. (3,071). Defense-related sales account for 80 percent (80) of total sales, and as such the coun-terparties in accounts receivable are primarily nations with high creditwor-thiness. The Group’s receivables are mainly in Western Europe, which ac-counts for 81 percent (79) of the total, compared with the Group’s sales inthe same region of approximately 80 percent (81). In Western Europe, thelargest receivables are in Sweden, the UK, France and Germany, representing73 percent (71) of the total.

Where counterparties’ creditworthiness is deemed unsatisfactory,guarantees are secured.

Supplier credit riskAdvances paid to suppliers constitute a credit risk. As of December 31,2004 the Group had paid advances to suppliers of SEK 412 m. (347). TheGroup’s policy is to always maintain bank-guaranteed security for anyadvances it pays.

Customer financingCustomer financing provides an important tool for marketing the company’sproducts. Export customers are placing increasing demands on finance.Normally Saab works together with banks and guarantee institutions tofind various solutions to meet customers’ requirements. This is doneprimarily by the bank giving the buyer credit or by providing suppliercredits. To limit risk exposure, the risks are sold on the market to banksand government guarantee institutions, such as the Export CreditsGuarantee Board in Sweden.

TradingThe Board has issued a risk mandate for proprietary trading in foreign ex-change and money market instruments of SEK 20 m., expressed accordingto Value at Risk (VaR). VaR, a probability-based method based on historicexchange rate fluctuations and correlations, is an established practice inthe financial field. The method measures the maximum loss during a spe-cific number of days with a certain probability. Within Saab, three daysand 99 percent probability are used. With VaR, the risks for various typesof assets can be aggregated to a single measure. If the accumulated resultduring the year is negative, the mandate is reduced by a correspondingamount. In 2004 trading income was SEK 15 m. (3). The average utilizedrisk mandate (VaR) during the year was SEK 2.75 m. (3.1).

Financial derivativesVarious financial derivatives such as forward contracts, options and swapsare frequently used to manage and control financial risks. Futures andinterest rate swaps and options in SEK are used for interest risk manage-ment in the liquidity and trading portfolios. Interest rate swaps in foreigncurrency are used for interest risk management in the aircraft leasing port-folio. Currency forward contracts and options are used mainly for firm or-ders for Gripen and outstanding bids in the tender to contract portfolio.The large increase in currency forward contracts in 2004 is primarily attrib-utable to new business in the Saab Bofors Dynamics and Saab Aerospacebusiness areas.

Saab Treasury’s holdings of derivatives as of December 31, 2004amounted to SEK 19,685 (22,865) in nominal terms, distributed as follows:

2004 2003 2002 2001 2000

Interest rate swaps, SEK 587 1,252 884 2,029 2,250Interest rate swaps, foreign

currencies 1,575 2,366 2,384 3,232 3,340Interest rate futures, SEK 300 – – 1,650 4,165Interest rate options, SEK 2,000 – – 2,000 –Currency options 1,123 1,109 1,322 1,855 248Forward currency contracts 14,100 18,138 12,297 7,890 5,296

Total 19,685 22,865 16,887 18,656 15,299

Unrealized market value of financial instrumentsThe table shows unrealized market values not included in each year’sbalance sheet. The following valuation principles have been applied:Forward currency contracts: Future payment flows in each currency are dis-counted at current market interest rates to valuation date and valued inSEK at year-end exchange rates.Options: Accepted valuation models (Black and Scholes) are used to calcu-late market value.Interest rate swaps: In the floating leg, the next interest payment is discount-ed to valuation date together with underlying capital using current marketinterest rates. In the fixed leg, the entire payment flow, including under-lying capital, is discounted to valuation date using current market interestrates. Interest rate swaps in foreign currency relate to the aircraft leasingportfolio. The purpose of interest rate swaps is to protect the financing ofcontracts with fixed rent. The result from interest rate swaps is therebyneutralized by the leasing contract.Other interest rate derivatives: Other interest rate derivatives are valued atmarket rates and included in the reported result.Bonds: Bonds are valued at current market prices and reported at the lowerof acquisition value and replacement cost. This means that they are writtendown to market value if it is lower than acquisition value. On the otherhand, if market value is higher than acquisition value, the holding is re-ported at the latter value.


54


Unrealized result 04-12-31 03-12-31 02-12-31 01-12-31

Forward currency contracts 1,089 752 203 – 386Options 7 7 34 – 41Interest rate swaps, SEK – 36 16 15 13Interest rate swaps, foreign currency – 97 –186 –283 –116Treasury bonds 3 – 6 –Mortgage bonds 9 5 6 –

Total unrealized result 975 594 –19 –530

NOTE 34SHAREHOLDERS' EQUITY

The shares in the Parent Company are divided into two series, A and B. Bothclasses of shares carry equal rights, with the exception that each Series Ashare is entitled to ten votes and each share of Series B one vote. Each sharehas a par value of SEK 16.

Number of shares as of Number % of % of December 31, 2004 of shares shares votes

Series A 6,454,303 6% 39%Series B 102,696,041 94% 61%

Total 109,150,344 100% 100%

In 1998 the Parent Company issued a convertible debenture loan with anominal value of SEK 254 m. Conversions to Series B shares were permittedduring the period December 4, 2001 to July 15, 2004 at a conversion price of SEK 91. Through July 15, 2004, 2,690,669 shares were converted at a parvalue of SEK 16 per share. In 2004, 2,632,781 shares were converted. Afterthe conversion, the capital stock rose by SEK 43 m.

Series A Series B TotalNumber of shares outstanding

at beginning of period 6,454,303 100,063,260 106,517,563Conversion to shares – 2,632,781 2,632,781Number of shares outstanding

at end of period 6,454,303 102,696,041 109,150,344

Change in shareholders' equityA specification of changes in shareholders' equity compared with theprevious year's balance sheet is covered on page 35.

Description of shareholders' equity itemsRestricted reserves: Restricted reserves may not be reduced through profitdistribution.Revaluation reserve: When a tangible or financial fixed asset is revaluated,the revaluation amount is allocated to a revaluation reserve.Legal reserve: The allocation to the legal reserve is at least 10 percent of netincome for the year until the legal reserve amounts to 20 percent of thecapital stock in the Parent Company.Share premium reserve: When shares are issued at a premium, the amountcorresponding to the amount received in excess of par value is transferredto the share premium reserve.Unrestricted equity / Retained earnings: Consists of last year's unrestrictedequity after profit distribution.

Specification of the year's exchange Grouprate difference in shareholders' equity: 04-12-31 03-12-31

The year's exchange rate difference difference in foreign subsidiaries – 85 – 179

The year's realization of accumulated exchange rate differences through sale of foreign business operations 15 –

Total exchange rate difference for the period – 70 – 179

Specification of accumulated exchangerate difference in shareholders' equity: 04-12-31 03-12-31

Accumulated exchange rate difference at beginning of year 157 336

The year's exchange rate difference in foreign subsidiaries – 85 – 179

The year's realization of accumulated exchange ratedifferences through sale of foreign business operations 15 –

Accumulated exchange rate difference at year-end 87 157

Separate disclosure of accumulated exchange rate differences in foreignbusiness operations has begun after acquisition of the subsidiary.

The Board of Directors and the President propose that SEK 409,313,790from disposable earnings be distributed to shareholders.

NOTE 35EARNINGS PER SHARE

04-01-01 03-01-01–04-12-31 –03-12-31

Earnings per share before dilutionIncome for the period, SEK m. 1,091 746Weighted number of common shares outstanding 108,234,126 106,513,969

Earnings per share before dilution, SEK 10.08 7.00

Earnings per share after dilutionIncome for the period, SEK m. 1,091 746Interest expense on convertible debentures, SEK m. – 12Tax attributable to interest expense, SEK m. – – 3

Adjusted earnings, SEK m. 1,091 755

Weighted number of common shares outstanding 108,234,126 106,513,969Adjustment for assumed conversion of

convertible debentures – 2,733,206Adjustment for options – –

Number of shares used in calculation of earnings per share 108,234,126 109,247,175

Earnings per share after dilution, SEK 10.08 6.91

NOTE 36UNTAXED RESERVES


Accumulated accelerated depreciationBuildings and land 356 333 204 231Machinery and equipment 216 396 198 187Lease assets 194 987 – –

Tax allocation reservesAllocated 1998 – 82 – 56Allocated 1999 13 70 – 39Allocated 2000 12 173 – 139Allocated 2001 7 52 – –Allocated 2002 – 2 – –Allocated 2003 – – – –Allocated 2004 9 – – –

Contingency reserve 19 17 – –

Reported value at year-end 826 2,112 402 652


55


NOTE 37PROVISIONS FOR PENSIONS AND SIMILAR COMMITMENTS

Saab has two types of pension plans: defined-benefit and defined-contri-bution. In defined-benefit plans, post-employment compensation is basedon a percentage of the recipient's salary. In defined-contribution plans,compensation is based on an agreed-upon amount.

Group 04-12-31

Defined-benefit commitments and the value of assets under management

Wholly or partially funded commitments:Present value of defined-benefit commitments 530Fair value of assets under management – 577

Total, wholly or partially funded commitments – 47

Present value of unfunded defined-benefit commitments 3,324

Net commitments before adjustments 3,277

Adjustments:Cumulative unreported actuarial gains(+)

and losses(–) – 243Unreported costs for previous years' employment –

Net amount in balance sheet (commitment +, asset –) 3,034

The net amount is reported in the following balance sheet items:Financial fixed assets –Provisions for pensions and similar commitments 3,034


The net amount is divided among plans in the following countries:Sweden 3,034


Saab has has around ten types of defined-benefit plans. The predominantplan is the ITP plan, where the commitment in the balance sheet amountsto SEK 2,562 m. of a total of SEK 3,034 m. The second largest plan relates tostate-funded retirement pension, retirement pension where the commitmentis SEK 150 m. All the defined-benefit plans are in Sweden.

Pension cost 04-12-31

Defined-benefit plansCost of pensions earned during the year 83Cost attributable to previous years' employment –Interest expense 172Anticipated return on assets under management – 20Actuarial gains (–) and losses (+) reported during the year –

Cost of defined-benefit plans 235

Cost of defined-contribution plans 490Payroll tax 147

Total cost of post-employment compensation 872

The cost is reported on the following lines in the income statementCost of goods sold 490Marketing expenses 110Administrative expenses 106Research and development costs 14Financial expenses 152

Total cost of post-employment compensation 872

Interest expense less the anticipated return on assets under management isclassified as a financial expense. Other pension costs are divided by functionin the income statement in relation to how payroll expenses are charged tothe various functions.

Saab's defined-benefit plans are secured in three ways: as a liability inthe balance sheet, in pension funds or funded through insurance withAlecta. The portion secured through insurance with Alecta relates to adefined-benefit plan that comprises several employers and is reportedaccording to the main rule in the Swedish Financial Accounting StandardsCouncil's recommendation RR29, point 29. At present not enough informa-

tion is available to report the plan as defined-benefit. Any surplus or deficitAlecta generates will affect the future fee.

Reconciliation of net amount for pensions in the balance sheet

The following table explains how the net amount in the balance sheet has changed duringthe period

Net amount in balance sheet as of Dec. 31, 2003 3,458Effect of change in accounting principle to RR 29, Jan. 1, 2004 – 83

Net amount as of Jan. 1, 2004 3,375

Cost of defined-benefit plans 235Payment of compensation – 126Payments of fees by company – 550Effects of acquired/divested operations 100Net amount in balance sheet as of Dec. 31, 2004 3,034

Return on assets under management 04-12-31

Actual return on assets under management 27Anticipated return on assets under management – 20

Actuarial result from assets under management during the period 7

Assets under management include none of Saab's own financial instruments.

Actuarial assumptionsThe following significant actuarial assumptions have been applied in calculating the commitments: (weighted average values)

04-12-31 03-12-31

Discount rate 4.51% 4.90%Anticipated return on assets under management 3.97% 4.35%Future salary increases 3.00% 3.00%Future increases in pensions 2.00% 2.00%Employee turnover 5.00% 5.00%Anticipated remaining years of service 11.5 years 11.5 yearsChange in healthcare costs n/a n/a

The following assumptions serve as the basis of the valuation of Saab’spension liability:Discount rate: The valuation is based on an interest rate curve estimatedusing the Kingdom of Sweden’s inflation-indexed bonds according to theNelson-Siegel method. Each anticipated cash flow is discounted using aninterest rate for the corresponding maturity. To obtain an anticipated nomi-nal return, inflation expectations are added in.

Anticipated return on investment assets: The majority of the funds are in-vested in Saab’s pension fund, which currently invests in interest-bearingbonds with a duration to that of the liability. The return is set near thediscount rate less the anticipated tax on the return.

Long-term salary increases: Assumed to be as high as the increase in thebasic amount of income. This means that Saab is expects the same salaryincreases as the national average.

Long-term increase in basic income:Data from Statistics Sweden on currentwage increases in the private sector provide an historical average duringthe period 1974-2000 of approximately 1 percent above inflation.

Long-term rate of inflation: Based on the Riskbank’s inflation target of 2percent, which mirrors the market’s implicit expectations as measured bythe difference between nominal and real bonds. It should be stressed thatthe sensitivity of the valuation to inflation assumptions is limited, since thediscount rate is based on the real interest rate curve.

Demographic assumptions: Mortality is the same assumption recommended by the Financial Super-

visory Authority (FFFS 2001:13), based on Makeham formulas for men andwomen.

Marriage is the same assumption recommended by the Financial Super-visory Authority (FFFS 2001:13).

Employee turnover: The likelihood that an individual ends his/her em-ployment is assumed to be 5 percent per year.


56


Parent CompanyProvisions for pensions in the balance sheet correspond toequivalent actuarially computed pension obligations.


Allocated for pensions according to the lawon safeguarding pension commitments

FPG/PRI pensions 1,662 1,612Other pensions 118 77Other provisions for pensions 55 75Reported value at year-end 1,835 1,764

Of which credit guarantees via FPG/PRI 1,692 1,642

04-12-31 03-12-31

GroupAssets pledged for pension commitmentsProperty mortgages 388 388Chattel mortgages 396 396

784 784

Parent CompanyAssets pledged for pension commitmentsProperty mortgages 388 388Chattel mortgages 350 350

738 738

GroupAmount of provision expected to be paid

after more than twelve months. 2,865 3,250

Parent CompanyAmount of provision expected to be paid

after more than twelve months. 1,761 1,689

NOTE 38 OTHER PROVISION


Anticipated deficit in futurecommitments for Regional Aircraft1) 1,189 1,450 1,092 1,157

Other provisions for restructuringsand project losses 336 550 82 87

Other provisions 189 234 – 72 4

Reported value at year-end 1,714 2,234 1,102 1,248

1) The commitment to maintain the airworthiness of Saab 340 and Saab 2000 regional aircraft stretchesapproximately 20 years into the future.

Anticipated deficit in future Group Parent Companycommitments for Regional Aircraft 04-12-31 03-12-31 04-12-31 03-12-31

Reported value at beginning of year 1,450 1,954 1,157 1,442Amount utilized during the period – 140 – 422 – 103 – 134

Utilized for write-down – – 189 – – 189Unutilized amount reversed

during the period – 90 – – –Increase in discounted amount

during the period 38 38 38 38Reclassification and translation effects – 69 69 – –


Provisions for restructurings, Group Parent Companyproject losses and other provisions 04-12-31 03-12-31 04-12-31 03-12-31

Reported value at beginning of year 784 646 91 114Provisions allocated during the period 332 513 41 87Amount utilized during the period – 346 – 260 – 45 – 3Unutilized amount reversed

during the period – 36 – 173 – – 107Reclassifications – 209 58 – 77 –


NOTE 39LIABILITIES TO CREDIT INSTITUTIONS ANDOTHER INTEREST-BEARING LIABILITIES, LONG-TERM


Liabilities to credit institutionsDue date 1– 5 years from closing day 69 72 – –Due date more than 5 years

from closing day 528 – – –

Other interest-bearing liabilitiesDue date 1-5 years from closing day 61 69 52 65Due date more than 5 years

from closing day 135 132 119 115


NOTE 40CONVERTIBLE DEBENTURE LOAN

In 1998 the Parent Company issued a convertible debenture loan with anominal value of SEK 254 m. Of the total loan, debentures amounting toSEK 231 m. were sold to employees, while SEK 23 m. was sold to the whollyowned subsidiary Saab Hangaren Förvaltning AB. The convertible deben-ture loan, which carried a fixed annual interest rate equal to the 12-monthSTIBOR rate less 0.45 bps, was convertible to Saab Series B shares fromDecember 4, 2001 to July 15, 2004 at a conversion price of SEK 91. In 2003and 2004, SEK 245 m. was converted to 2,690,669 shares with a par value ofSEK 16 per share. SEK 43 m.increased the capital stock and SEK 202 m. in-creased the share premium reserve. SEK 9 m. of the loan has been repaid.


Convertible debenture loan – 254 – 254Capital discount – – 2 – – 2Redemptions – – 5 – – 5Holdings within the Group – – 15 – –

Total – 232 – 247

NOTE 41OTHER LONG-TERM LIABILITIES, NON-INTEREST-BEARING


Lease obligations 1,311 2,179 – –Other liabilities 344 433 – –

Reported value at year-end 1,655 2,612 – –

Liabilities with due dates more than 5 years from the closing day amountto SEK 131 m. (177). Security pledged for leasing obligations amounted toSEK 2,000 m. (2,208); see Note 45.

NOTE 42LIABILITIES TO CREDIT INSTITUTIONS AND OTHER INTEREST-BEARING LIABILITIES, SHORT-TERM


Approved credit limit 746 671 746 671Unutilized portion – 740 – 671 – 740 – 671Utilized portion 6 – 6 –Short-term borrowing 87 323 53 13Other interest-bearing liabilities 56 189 47 –



57


NOTE 43OTHER CURRENT LIABILITIES, NON-INTEREST-BEARING


Value-added tax 232 526 115 445Payroll withholding 192 208 – 41Deposits for leasing operations 152 155 – –Other 127 212 62 37

Total 703 1,101 177 523

NOTE 44ACCRUED EXPENSES AND DEFERRED INCOME


Accrued expensesCost of customer commitments

in Regional Aircraft 537 641 481 572Vacation pay liability 612 600 199 200Accrued exchange rate differences 230 433 123 18Social security expenses 336 334 128 122Expected invoices 386 293 74 62Accrued interest 303 244 302 239Personnel liabilities 185 242 53 47Accrued leasing costs 218 212 – –Royalties and commissions 40 67 15 –Early retirement and redundancies 25 54 25 54Reserve for remaining costs

in military business 32 54 – 13Claims reserve 89 49 – –Warranty provision 69 27 16 –Other 489 218 70 1

Deferred incomeAdvance invoicing 1,743 1,858 569 628Leasing fees 101 75 – –Other 58 52 18 34


NOTE 45ASSETS PLEDGED FOR OWN LIABILITIES AND PROVISIONS


For pension provisions:Chattel mortgages 396 396 350 350Real estate mortgages 388 388 388 388

To credit institutions:Chattel mortgages 30 30 – –Real estate mortgages 295 – – –Other assets – 166 – –

For lease obligations:Lease assets 2,000 2,208 – –

For other long-term liabilities:Bank deposits – 18 – –

For accrued expenses:Accrued income 58 58 – –

For advance payments from customers:Chattel mortgages 1,751 1,751 1,751 1,751Bonds and other securities 1,985 1,880 1,985 1,880

Total 6,903 6,895 4,474 4,369

NOTE 46 TRANSACTIONS WITH RELATED PARTIES

Related parties that the Group has transactions with consist mainly of BAE Systems, which holds 35 percent of the capital and votes in Saab, andthe jointly owned company Gripen International. Since 1995 Saab has acooperation with BAE Systems on Gripen’s development and marketing forthe export market.

Transactions with BAE Systems, Gripen International and other relatedparties are conducted in accordance with commercial principles.

In a press release dated October 22, 2004 BAE Systems announced that it intends to reduce its ownership to approximately 20 percent of theshares, corresponding to approximately 20 percent of the votes. Sales toand purchases from BAE Systems amounted to SEK 160 m. and SEK 75 m.,respectively.

Of the Parent Company's sales, 10 percent (7) related to sales to Groupcompanies, while 26 percent (25) of the Parent Company's purchases werefrom subsidiaries.

Sales to and purchases from the Group's associated companies amountto approximately SEK 10 m. and SEK 110 m., respectively.

NOTE 47AUDITORS' FEES AND COMPENSATION


Ernst & YoungAudit assignments 9 8 3 3Other assignments 1 3 1 –

KPMGAudit assignments 2 2 1 –Other assignments 1 1 – 1

PricewaterhouseCoopersAudit assignments 2 2 – –Other assignments 1 1 – –

OtherAudit assignments 1 – – –Other assignments 3 2 – –

Total 20 19 5 4Audit assignments 14 12 4 3Other assignments 6 7 1 1

Audit assignments involve examination of the annual report and financialaccounting as well as the administration by the Board and the President,other tasks related to the duties of the company's auditors and consultationor other services that may result from observations noted during suchexaminations or implementation of such other tasks. All other tasks aredefined as other assignments.


58


Proposed disposition of earnings

Linköping, February 17, 2005

Anders ScharpChairman

Marcus Wallenberg Erik Belfrage Stephen Henwood Peter Nygårds

George Rose Björn Svedberg Alison Wood Ragnar Ludvigsson

Lars Höök Claes Trolle Åke SvenssonPresident and CEO

The Board of Directors and the Presidentpropose that the unappropriated earningsat disposal of the Annual General Meetingin the Parent Company, amounting to:

SEKRetained earnings 2,937,931,357

Income for the year 828,276,929

Total 3,766,208,286

To be disposed as follows:

To the shareholders, a dividend of SEK 3.75 per share 409,313,790

Funds to be carried forward 3,356,894,496

Total 3,766,208,286

After the proposed disposition, share-holders’ equity in the Parent Companywill be as follows:

SEKCapital stock 1,746,405,504

Premium reserve 201,800,175

Revaluation reserve 500,000,000

Legal reserve 340,670,960

Retained earnings 3,356,894,496

Total 6,145,771,135

The company’s policy is to issue a divi-dend of 20–40 percent of net incomeover a business cycle. The Board ofDirectors and the President propose that SEK 409 m. (373), or SEK 3.75 pershare (3.50), corresponding to 38 percent(50) of the Group’s net income for theyear, be issued as a dividend. Saab’sequity/assets ratio is currently 29.7 percent (24.4) and after the proposeddisposition of earnings will be 28.7percent (23.4).


59


Auditors’ report

We have audited the annual accounts, the consolidatedaccounts, the accounting records and the administration of the Board of Directors and the President of Saab AB for theyear 2004. These accounts, the administration of the companyand the application with the Annual Accounts Act in the pre-paration of the annual accounts and the consolidated accountsare the responsibility of the Board of Directors and the President.Our responsibility is to express an opinion on the annualaccounts, the consolidated accounts and the administrationbased on our audit.

We conducted our audit in accordance with generallyaccepted auditing standards in Sweden. Those standardsrequire that we plan and perform the audit to obtain reason-able assurance that the annual accounts and the consolidatedaccounts are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amountsand disclosures in the accounts. An audit also includes asses-sing the accounting principles used and their application bythe Board of Directors and the President and significantestimates made by the Board of Directors and the President in preparation of the annual accounts and the consolidatedaccounts, as well as evaluating the overall presentation ofinformation in the annual accounts and the consolidated

accounts. As a basis for our opinion concerning dischargefrom liability, we examined significant decisions, actions takenand circumstances of the company in order to be able to deter-mine the liability, if any, to the company of any Board memberor the President. We also examined whether any Board memberor the President has in any other way acted in contraventionof the Companies Act, the Annual Accounts Act or the Articlesof Association. We believe that our audit provides a reasonablebasis for our opinion set out below.

The annual accounts and the consolidated accounts havebeen prepared in accordance with the Annual Accounts Actand, thereby, give a true and fair view of the company’s andthe Group’s results of operations and financial position inaccordance with generally accepted accounting principles inSweden. The statutory administration report is consistent withthe other sections of the annual accounts and the consolidatedaccounts.

We recommend that the general meeting adopt the incomestatements and the balance sheets of the Parent Company andthe Group, that the profit in the Parent Company be dealt within accordance with the proposal in the administration reportand that the members of the Board of Directors and the Presidentbe discharged from liability for the financial year.

Linköping, February 17, 2005

Ernst & Young AB Caj NackstadBjörn Fernström Authorized Public Accountant

Authorized Public Accountant KPMG Bohlins AB

To the general meeting of the shareholders of Saab AB (publ) Corporate Identity No. 556036-0793


60

F I V E - Y E A R OV E RV I E W

Five-year overviewSEK m. unless otherwise indicated1) 2004 2003 2002 2001 2000

Order bookings 16,444 19,606 19,521 15,274 28,141

Order backlog at year-end 43,162 45,636 43,082 40,034 41,091

Net sales 17,848 17,250 16,538 15,689 17,840

Foreign market sales, % 48 46 41 40 48

Defence sales, % 80 80 76 70 62

Operating income 1,657 1,293 1,220 1,594 1,533

Operating margin, % 9.3 7.5 7.4 10.2 8.6

Operating margin before depreciation excluding leasing, % 12.8 11.1 11.2 14.4 13.5

Operating income excluding capital gains 1,657 1,293 1,220 944 895

Operating margin excluding capital gains, % 9.3 7.5 7.4 6.0 5.0

Income after financial items 1,511 1,073 993 1,554 1,448

Net income for the year 1,091 746 732 1,127 1,038

Total assets 26,778 28,704 28,109 29,901 31,119

of which Saab Aircraft Leasing 5,314 6,181 4,869 5,445 6,456

of which advance payments, net 2,860 3,990 3,775 4,194 3,619

of which shareholders’ equity 7,964 7,003 6,833 6,679 5,670

equity per share, SEK 2) 72,96 65,75 64,17 62,74 53,26

Net liquidity after provisions for pensions 781 495 352 885 415

Cash flow from operating activities 865 1,348 1,060 1,973 –1,406

Operating cash flow 325 545 – 92 1,642 –1,908

Average capital employed 11,959 11,629 11,926 12,253 12,183

Return on capital employed, % 15.5 12.7 11.6 15.5 14.6

Return on equity, % 14.5 10.8 10.8 18.3 20.0

Profit margin, % 10.4 8.5 8.4 12.1 10.0

Capital turnover rate, multiple 1.49 1.48 1.39 1.28 1.46

Equity/assets ratio, % 29.7 24.4 24.3 22.3 18.2

Interest coverage ratio, % 5.38 3.70 3.55 5.50 5.32

Earnings per share, SEK 3) 10.08 7.00 6.87 10.59 9.75

Earnings per share after dilution, SEK 4) 10.08 6.91 6.78 10.40 9.58

Earnings per share before amortization of goodwill, SEK 3) 11.53 8.59 8.52 12.11 11.47

Dividend, SEK 5) 3.75 3.50 3.50 3.25 3.00

Capital expenditures for plant and equipment, gross 348 472 623 532 1,077

Net capital expenditures, total 376 597 1,002 331 502

of which shares and intangible fixed assets 731 342 472 62 16

of which lease assets – 334 –106 97 120 –476

Research and development costs 3,929 3,690 4,138 3,819 3,808

Number of employees at year-end 11,936 13,414 14,036 14,028 15,453

1) For definitions see page 40.

2) Number of shares as of December 2004: 109.150.344, 2003: 106.517.563, 2002: 106.510.374 och 1998–2001: 106.459.675

3) Average number of shares 2004: 108.234.126, 2003: 106.513.969, 2002: 106.487.407 och 1998–2001: 106.459.675

4) Average number of shares 2004: 108,234,126, after dilution 2000–2003: 109,247,175. Conversion of debenture loan concluded July 15, 2004.

5) 2004 proposed dividend.


61

I N V E S TO R A N D S H A R E H O L D E R I N F O R M AT I O N

BOARD OF DIRECTORS

Saab’s Board of Directors consists of ninemembers elected at the Annual GeneralMeeting and three members with depu-ties appointed by employee unions.

The Annual General Meeting onMarch 30, 2004 reelected Anders Scharp,Erik Belfrage, Stephen Henwood, PeterNygårds, George Rose, Björn Svedberg,Marcus Wallenberg, Alison Wood andÅke Svensson. At the statutory Boardmeeting in connection with the AnnualGeneral Meeting, Anders Scharp wasreelected Chairman of Saab.

Board work

The Board’s work is regulated by rulesof procedure that are revised annually.The rules of procedure and special Pres-ident’s Instruction govern the delega-tion of responsibilities between the Boardand its two committees – the Compen-sation Committee and the Audit Com-mittee – and between the Board and thePresident. According to the working in-structions adopted by the Board, fiveordinary meetings are normally heldeach year, in addition to the statutorymeeting. The Board may also meet when-ever circumstances demand. Accordingto the rules of procedure, the company’sauditors shall be present at the meetingheld in conjunction with the approval ofthe company’s annual report.

The rules of procedure also set out theitems to be treated at every Board meetingand the special decisions to be taken atthe statutory meeting. The President’sInstruction sets out his duties and au-thority and includes policies for invest-ments, financing and reporting.

During the year the Board held onestatutory meeting, two telephone meet-

ings, one meeting per capsulam and fiveordinary meetings. On these occasionsthe Board treated, among other things,Saab’s strategic direction, structural andacquisition issues, and key operatingobjectives.

Evaluation

The Chairman of the Board annuallyevaluates the Board’s work following aspecific template. In his evaluation, heconsiders, among other things, thequality of the Board’s work, the open-ness of discussions, etc. The NominationCommittee is informed by the Chairmanof the results of the evaluation.

The Board’s Compensation Committee

The Board of Directors’ CompensationCommittee is responsible for ensuringthat Executive Management receivescompetitive and reasonable compensa-tion in terms of both level and the splitbetween fixed and variable components.

The Compensation Committee in-cludes Anders Scharp, Marcus Wallen-berg and George Rose. The committee’swork is preparatory. Saab’s Board ofDirectors makes the ultimate decisions.

Compensation

Compensation paid to Saab’s seniorexecutives is indicated in Note 2.

The Board’s Audit Committee

The Audit Committee consists of threenon-employee Board members appointedby the Board. The current committeemembers are Björn Svedberg (Chairman),Peter Nygårds and Anders Scharp.

The Audit Committee participates inprocuring auditing services and prepar-ing proposals for auditors’ elections,

handles issues regarding the scope andfocus of the audit, maintains continuouscontact with the auditors and is respon-sible for ensuring that the auditors’proposals and recommendations areimplemented.

Audits

Audits are performed by the accountingfirms and accountant elected by theAnnual General Meeting.

Auditing entails the review of theannual report of the Parent Companyand the Group as well as the adminis-tration by the Board of Directors and thePresident. The scope of this review istied to generally accepted auditing stand-ards within the framework of the audi-tors’ determination of the scope anddirection needed to fulfill their assign-ment. Auditing assignments also in-clude reviewing and suggesting improve-ments to the company’s organization,accounting, calculations, etc. Emphasisis placed in this regard on ensuring thatsatisfactory routines for internal controlare used by both the Parent Companyand subsidiaries.

Nomination work

According to the decision of the AnnualGeneral Meeting in 2004, the nominationprocess begins during the fourth quarter,when the largest owners appoint fourrepresentatives, who may not be mem-bers of the Board, with the Chairmanserving as convenor. The representativesdraft a proposal for the Board’s members– and the auditors when necessary –which is presented to the Annual Gener-al Meeting for approval. BAE Systemshas decided not to appoint representatives,due to which the owners’ representa-

Corporate GovernanceThe duties and responsibilities of Saab’s governing bodies and executives are regulated by Saab’sinternal rules of procedure, Saab’s articles of association and Swedish law. Saab’s Board of Directors,Chief Executive Officer and Group Management are responsible for managing the company.


tives consist of Adine Grate Axén (Inves-tor), Pia Rudengren (Knut and AliceWallenberg Foundation), Mats Lager-qvist (Robur) and Olof Neiglick (Nordeafunds).

SAAB’S ROLE IN SOCIETY

The right of every nation to defend itself is written into the United Nations’Charter. Self-defense requires militarymateriel. It is therefore important froman ethical and moral perspective that acompany like Saab, based in a parlia-mentary democracy like Sweden, cancontribute to global security and stabilitythrough controlled exports.

In Sweden, the production and ex-port of military materiel are governedby laws, ordinances and guidelinesadopted by parliament. Supervision ishandled by the National Inspectorate ofStrategic Products. All transactions madeby Saab outside Sweden and which fallunder this legislation therefore must beapproved by the Swedish state.

Ethical and social responsibility

Saab has a flat organization, and itsemployees are given considerableresponsibility. This makes it vital thatSaab has clear, consistent guidelineshow all our employees should act. Highethical and moral standards are of greatimportance to Saab.

Saab supports and strives to complywith the nine principles of the UN’sGlobal Compact and the OECD’s guide-lines for multinational companies.

Saab’s own guidelines can be sum-marized in four key areas:

� Responsibility to customers

Through research, development andproduction, Saab supplies products,services and systems solutions that meetour customers’ expectations in terms offunction, quality, safety, economy andenvironmental requirements.

� Responsibility to employees

Saab respects its employees and theirrights, offers safe, pleasant workingconditions, actively discourages discrim-ination and helps to develop profes-sional skills and competence in order toensure the job satisfaction and personaldevelopment of each employee.

� Responsibility to shareholders

Saab protects its shareholders’ invest-ments and strives for consistent, growingreturns. It complies with generally ac-cepted accounting principles and stockexchange rules.

� Responsibility to the community

Saab acts in accordance with the laws ofthe countries in which it conducts busi-ness, helps to protect human rights andpays heed to considerations of health,safety and the environment.

Saab defends free and fair trade, pro-motes free competition and good busi-ness ethics, and supports transparencyand openness. Compensation paid toagents, suppliers and partners must bebased solely on the products and servicesprocured.

Saab’s aim is to ensure that everyemployee, while on the job, is aware ofthese guidelines and that the companyis distinguished by human respect,shared responsibility and considerationfor the environment.

62


Saab’s own guidelines can be summarized in four key areas:

Responsibility to customers, employees, shareholders and community.

EmployeesCustomers

Shareholders Community


63


‘01‘00 ‘02 ‘03 ‘04

%

WomenMen

Share of men and women

0

25

50

75

100

<5 5–10 10–25 >25

No.

Blue collar

White collar

Years of employment

0

1,000

2,000

3,000

4,000

5,000

<2425

–2930

–3435

–3940

–4445

–4950

–5455

–59

>59

No. WomenMen

Age distribution

0

500

1,000

1,500

2,000

2,500

Blue collar

White collar

Categories

‘01‘00 ‘02 ‘03 ‘04

%

0

25

50

75

100

‘01‘00 ‘02 ‘03 ‘04

EmployeesNo.

0

5,000

10,000

15,000

20,000

%

Professor, PhDMaster of ScienceOther academicCollege level engineeringOther engineeringUpper secondary schoolOther

Education level

‘00 ‘01 ‘02 ‘03 ‘040

25

50

75

100

Group personnel

Distribution between the number of women and men.

Saab strives to develop and retain qualifiedemployees and encourages job rotation withinthe Group; about 55 percent of employees haveworked at Saab for more than 10 years.

The age distribution among Saab’s employees is relatively even, which ensures access to keycompetencies in the future.

The share of white collar employees has risen in relation to blue collar employees in recent years, primarily because of an increase in research and development work.

The decrease in the number of employees in2004 is due to lay-offs caused by lower develop-ment orders from the Swedish defense amongother things.

Of Saab’s employees, about 35 percent havecollege degrees, in addition to about 20 percentwith other engineering education.

For Saab to conduct research and development of the highestinternational caliber, it must have highly skilled employees.

HUMAN RESOURCE POLICY

In a knowledge company like Saab, the

collective competencies of the em-

ployees are our main competitive

advantage. In addition to continuous

competence development, it is impor-

tant that improvements are made in

work environments, attitudes and

routines. Every day at Saab is dis-

tinguished by stimulating responsibili-

ties, commitment, teamwork, mutual

respect and good leadership.A good

working environment also includes

diversity, high ethical standards and

morals, and a balance between work

and leisure.This, as well as leadership

and relationships between employees,

is spelled out in Saab’s human resource

policy.

Competent employees – a key to success

The company places great emphasis onattracting, developing and retainingqualified employees. Five percent of allcivil engineers at Saab have research trai-ning, a high figure it is trying to raiseeven more.

Saab’s fundamental values can besummarized by the words expertise,trust and drive. This reflects the goals ofprofessionalism and world-class techno-logical expertise, an open working climate,and persistence, commitment and pride inSaab during good times and bad. Thisapproach has created a positive climatefor cooperation with union representatives.

To ensure access to future leaders andfurther development of its currentleadership corps, Saab offers a range ofdevelopment programs.

For more information visit www.saab.se


64


In 2004 the environmental policy wasupdated to be clearer and better suitedto the nature of Saab’s operations. Thepurpose of the policy is to ensure thatcustomers’ requirements and environ-mental laws are met and that Saab con-tributes to society’s sustainable develop-ment. The policy focuses on environ-mental areas of importance to Saab.

Integrated environmental work

The environmental impact from Saab’sbusiness units and support departmentsvaries greatly depending on the type ofproduct, service and business. An ISO

14001 environmental management sys-tem is therefore being introduced inunits and departments as needed. Evenwithin a unit or department, the needfor a thorough environmental manage-ment system may vary. In some cases itmay be enough to introduce routines toensure that legal requirements are metand environmental considerations aretaken into account in purchases.

Management systems for quality andthe environment must be integrated as anatural part of processes and methods.

ISO 14001 certified environmentalmanagement systems are used by SaabBofors Dynamics, Saab UnderwaterSystems, Saab Ericsson Space, AustrianAerospace, Saab Training Systems, CSMMaterialteknik and Saab Bofors TestCenter.

Environmental management systemsthat basically meet the ISO 14001 stand-ard are used by Saab Aerosystems, SaabAerostructures, AerotechTelub, Saab-Tech, Saab Barracuda and Saab Supportin Linköping and Järfälla. To be effecti-ve, an environmental management sys-tem must not be allowed to become sta-tic. The units are therefore working con-stantly to further develop their systems.

Organization of environmental issues

The head of each business unit or supportdepartment is responsible for ensuringthat its operations comply with Saab’senvironmental policy. Several units haveprograms for environmental trainingthat are offered as soon as needed.

Business units have one or moreenvironmental coordinators who worktogether in various networks. Someunits and support departments haveconsultants who can offer environmental

services externally or internally withinSaab.

The Group’s Environmental Council isresponsible for developing and monitor-ing the environmental policy, support-ing the business units in their environ-mental work and managing Group-wideenvironmental issues. The council alsoarranges annual in-house seminars thatfocus on current environmental issues.

Managing environmental risks

Saab audits its operations to assess therisk of soil contaminants. Where risksare identified, an investigation is doneto clarify responsibility, along with anoverall risk assessment. The costs asso-ciated with soil remediation are borneby the responsible unit. This work led to one soil remediation project in 2004,in Gothenburg.

Preparedness for environmentalaccidents is maintained by the businessunits and support departments thatneed to given the nature of their busi-ness. This includes the Björkborn indus-trial zone and Karlskoga firing range aswell as the industrial area for aviationoperations in Linköping.

To reduce risks to humans and theenvironment, many business units havedeveloped and introduced strict routinesto monitor the chemicals they use. Theseroutines are refined and improved con-tinuously. Health and environmental in-formation on chemical products is pro-vided through a shared system that wasmade available on the Group’s intranetduring the year. Accessible informationon hazardous materials is critical to re-ducing health and environmental risksfrom the use of chemical products.

Environment

ENVIRONMENTAL POLICY

Through continuous improvements,

Saab will reduce the environmental

impact of its plants, products and

services as far as technically possible

and financially reasonable.

Saab will therefore:

– Identify the environmental impact

of its products and operations;

– Reduce the use and emission of

hazardous materials, and make efficient

use of energy and natural resources;

– Show openness and cooperate with

customers, authorities and other

stakeholders with an interest in

environmental issues;

– Inform employees and provide

them the necessary competence in

environmental issues.

In a policy document entitled “Saab’s role in society,” Group Management has laiddown the overall guidelines for environmental and ethical issues. Saab supports,and strives to comply with, the principles of the UN Global Compact and OECD’sGuidelines for Multinational Enterprises.


65


Priority environmental areas

SuppliersA large part of the components andequipment used in Saab’s products arepurchased from subcontractors inSweden and abroad. It is important thatthey, too, abide by the same environ-mental demands. Saab’s business unitsevaluate their environmental work andset demands. Naturally the focus is on thework these suppliers devote to compo-nents and equipment that are includedin Saab’s products.

During the year an environmentaldemand specification was drafted foruse in the Group’s purchases of equip-ment and services.

Environmental improvementsEnvironmental improvements are madeon a continuous basis through manage-ment by objectives. Many business unitshave targets to reduce energy consump-tion and use of hazardous chemicals.Several are introducing routines to takeenvironmental aspects into considera-tion in their development processes andto identify and reduce the share of haz-ardous substances in the products theymarket.

Energy consumption

GWh

’01’00 ’02 ’03 ’04

Electricity Heat

0

50

100

150

200

250

Consumption of chlorinatedvolatile organic solvents (chlorinated VOC)

Tonnes

’01’00 ’02 ’03 ’040

10

20

30

40

50

Emissions of volatileorganic solvents (VOC)

Tonnes

’01’00 ’02 ’03 ’040

100

200

300

400

500

The decrease in energy consumption from 2003to 2004 is mainly due to divested companies.Several business units are working very activelyto reduce their energy consumption.

Saab Aerostructures accounts for 81% of con-sumption of chlorinated VOC (trichloroethyleneused for degreasing).The reduction comparedwith the previous year is the result of efforts bybusiness units to eliminate chlorinated VOC.

The substantial decrease in VOC emissions from 2003 to 2004 is mainly due to divestedcompanies. Saab Aerostructures, which reducedits VOC emissions during the year, accounts for47% of the Group’s overall emissions.

There are also goals to improve trans-port and travel efficiency in order to re-duce the contribution to the greenhouseeffect, as well as to slash wastes andemissions into the air and water. Theseemissions are primarily organic solventsreleased into the air and metals and de-icing agents released into the water. Thesystems used for sorting wastes arecontinuously being improved in orderto increase the recycling of materialsand energy.

During the year more effort wasdevoted to finding ways to replace thelead and other hazardous materialsused in electronics during their develop-ment. A special Group-wide workinggroup was appointed to formulate stra-tegies for meeting future environmentalrequirements for electronic equipment.In 2004 Saab also joined a research pro-ject on lead-free soldering conducted bythe Swedish Institute for Metals Research.

Safety and technical performanceTo meet high safety and technical per-formance requirements, companies indefense, aviation and space industrieshave to use substances that are classifiedas hazardous to humans and the environ-

ment. Saab has initiated several nationaland international development projectsto replace hazardous substances.

The substances with the highestpriority are volatile organic solvents(VOCs), trichloroethylene (chlorinatedVOCs), lead, chromates and cadmium.Over a ten-year period use of hazardoussubstances has been reduced drastically.

Climate issuesSaab participates in the so-called Envi-ronmental Index compiled by the insur-ance company Folksam. In the 2003 in-dex Saab received a grade of four on ascale of five for climate impact. Its con-tribution to the greenhouse effect in2003 was similar in size to 2002.

For the last several years Saab haslimited its company cars to those thatmeet environmental classification re-quirements for 2005. Beginning in 2005biogas or ethanol vehicles will also beavailable. Saab’s business travel agree-ments give a preference to environmen-tally friendly vehicles.



66


Board of Directors and Auditors

Anders ScharpChairman since 1990,born 1934,M.Sc.Chairman of AB SKF and AB Nederman.Board member of Investor AB.Shares in Saab: 31,000

Marcus WallenbergDeputy Chairman since 1993 andBoard member since 1992, born1956, Bachelor of Science of ForeignService, Lieutenant in Royal SwedishNaval Academy.Deputy Chairman of Telefonaktie-bolaget L M Ericsson and SEB. Boardmember of AstraZeneca PLC, Inves-tor AB, Scania AB, Stora Enso Oyjand the Knut and Alice WallenbergFoundation.Shares in Saab: 67,827

Åke SvenssonPresident, CEO and Board membersince 2003, born 1952, M.Sc.Board member of Teknikföretagen(the Association of Swedish Eng-ineering Industries) and member ofthe Royal Swedish Academy of WarSciences.Shares in Saab: 2,145

Erik BelfrageBoard member since 1991, born1946, MBA.Director of SEB. Chairman of theSwedish Institute of InternationalAffairs (UI) and Sigtuna Skolstiftelse.Board member of Eramet Steel,BIAC (OECD), the InternationalCouncil of Swedish Industry (NIR)and the Centre for European PolicyStudies (CEPS). Member of theTrilateral Commission.Shares in Saab: 100

Stephen HenwoodBoard member since 2002, born1953, B.A.Group Managing Director, Interna-tional Partnerships of BAE Systems.Shares in Saab: –

Peter NygårdsBoard member since 2000, born1950, B.A.Director of FöreningsSparbanken.Board member of the SwedishEnvironmental Research Instituteand the Swedish Touring Club (STF).Shares in Saab: 1,000

A n d e r s S c h a r p M a rc u s Wa l l e n b e r g Å ke S ve n s s o n

E r i k B e l f r a g e S t e p h e n H e n wo o d Pe t e r N y g å rd s


67


Björn SvedbergBoard member since 1998, born1937, M.Sc.Board member of Investor AB andthe Knut and Alice WallenbergFoundation.Shares in Saab: 1,100

George RoseBoard member since 1998, born1952, B.A.Finance Director of BAE Systemsand Non Executive Director ofNational Grid Transco Plc.Shares in Saab: –

Alison WoodBoard member since 2002, born1963, MA and MBA.Group Strategic DevelopmentDirector of BAE Systems.Shares in Saab: –

Lars HöökBoard member since 2001 and de-puty since 2000, born 1944, B.Sc.E.E.Representative of the IndustrialSalaried Employees’ Association,AerotechTelub AB,Arboga.Shares in Saab: 400

Ragnar LudvigssonBoard member since 1995, born1946, technical vocational school.Chairman of the EngineeringWorkers’ Union local at Saab AB,Linköping.Shares in Saab: 60

Claes TrolleBoard member since 2001, born1940, Royal Institute of Technologyand Swedish National DefenseCollege.Chairman of the Swedish Associa-tion of Graduate Engineers’ local,SaabTech Systems AB, Järfälla. Boardmember of European Federation ofNational Engineering Associations(FEANI), Brussels.Shares in Saab: 120

DEPUTY BOARD MEMBERSConny HolmDeputy since 1995, born 1947,upper secondary engineeringeducation.Chairman of the EngineeringWorkers’ Union local at SaabTech in Jönköping.Shares in Saab: 100

Lars KarlssonDeputy since 2002, born 1945,upper secondary engineeringeducation.Chairman of the Union for Serviceand Communication Employees’local at Saab Underwater SystemsAB, Motala. Board member of SaabUnderwater Systems.Shares in Saab: –

Johan LöflingDeputy since 2001, born 1962,technical upper secondary school.Chairman of the Industrial SalariedEmployees’ Association local at SaabAB, Linköping.Shares in Saab: –

AUDITORSBjörn FernströmAuditor since 1993, born 1950.Authorized Public AccountantErnst & Young AB

Caj NackstadAuditor since 1991, born 1945.Authorized Public AccountantKPMG Bohlins AB

Deputy AuditorBo RibersAuditor since 1993, born 1942.Authorized Public AccountantKPMG Bohlins AB

A l i s o n Wo o dB j ö r n S ve d b e r g G e o r g e R o s e

L a r s H ö ö k R a g n a r L u d v i g s s o n C l a e s Tro l l e


68


Group Management

Åke SvenssonPresident and CEO.Born 1952, M.Sc.Employed 1976.Shares in Saab: 2,145

Ingemar AnderssonExecutive Vice President and DeputyCEO.Born 1951, Military Academy.Employed 1982.Shares in Saab: 3,000

Jan NygrenExecutive Vice President, Business Group Chairman.Born 1950, upper secondary schoolgraduate.Employed 2000.Shares in Saab: –

Anne GynnerstedtGroup Senior Vice President, Legal Affairs and Secretary of the Board ofDirectors (from October 1, 2004).Born 1957, LLB.Employed 2004.Shares in Saab:–

Dan JangbladGroup Senior Vice President, Strategyand Business Development.Born 1958, M.Sc.Employed 2000.Shares in Saab: –

Kenth-Åke JönssonExecutive Vice President, Business Group Chairman.Born 1951, M.Sc.Employed 2002.Shares in Saab: –

J a n N y g re nÅ ke S ve n s s o n I n g e m a r A n d e r s s o n

A n n e G y n n e r s t e d t D a n J a n g b l a d Ke n t h - Å ke J ö n s s o n


69


Lars WahlundGroup Senior Vice President,Financial Control.Born 1953, MBA.Employed 1983.Shares in Saab: 2,100

Mats LindmanGroup Senior Vice President,Human Resources.Born 1945, MA.Employed 1986.Shares in Saab: 2,000

Iréne SvenssonGroup Senior Vice President,Communication(new post from April 1, 2005).Born 1950, M.Sc.Employed 1993.Shares in Saab: 1,000

Peter SandehedGroup Senior Vice President,Treasury.Born 1952, MBA.Employed 1981.Shares in Saab: 4,000

Hans KrügerGroup Senior Vice President,Business Group Chairman(retired December 31, 2004).Born 1944, M.Sc.Employed 1994.Shares in Saab: 75

Not pictured

Göran Sjöblom Executive Vice President(retired September 30, 2004).Born 1943, M.Sc. and MBA.Employed 1995.Shares in Saab: 9,500

Per ErlandssonGroup Senior Vice President, LegalAffairs, Secretary of the Board ofDirectors (new post from Aug. 1, 2004).Born 1947, LLB.Employed 1980.Shares in Saab: 2,247

L a r s Wa h l u n d M a t s L i n d m a n

H a n s K r ü g e r

I r é n e S ve n s s o n

Pe t e r S a n d e h e d


70


Share capital and number of shares

On December 31, 2004 Saab’s share capi-tal amounted to SEK 1,746,405,504 andconsisted of 102,696,041 listed Series Bshares and 6,454,303 unlisted Series Ashares. Series A shares have ten voteseach, while Series B shares have onevote each. The par value per share isSEK 16. The Series B share has been list-ed on the Stockholm Exchange’s O-listsince 1998 and on the Attract 40 sectionof the O-list since January 2004. Approx-imately 50,100,000 Series B shares,corresponding to 46 percent of the sharecapital and 29 percent of the votes, areavailable via the stock market. A roundlot consists of 100 shares. Of the company’sSeries A shares, 4,207,123 are owned byInvestor and 2,247,180 by BAE Systems.

Trading volume and statistics

In 2004 a total of 28,294,185 Serie Bshares were traded, corresponding to 56percent of the shares available. The shareprice reached a high of SEK 118.50 onDecember 27 and a low of SEK 97.75 onSeptember 28.

Beta shows how much a share fluctu-ates in relation to the market as a whole.A low beta (<1) indicates a low risk inrelation to other stocks in the market. A high beta (>1) means a higher risk.According to the Delphi Economics’calculations, the beta for Saab’s Series Bshare was 0.33, indicating that it fluctu-ated by an average of 67 percent lessthan the market average measuredaccording to the Affärsvärlden GeneralIndex over a 48-month period. Saab’sstock covariance was 0.13, which meansthat 13 percent of the share’s price

performance is due to the market’sdevelopment as a whole.

Ownership structure

As of year-end Saab had around 36,000shareholders. Swedish and internationalinstitutional investors owned approxi-mately 77 percent of the share capitaland 85 percent of the votes. Swedishmutual funds owned 16 percent of theshare capital and 11 percent of the votes.Individual Swedish investors held 7percent of the share capital and 5 percentof the votes.

Dividend and dividend policy

The Board of Directors is recommendingthat the Annual General Meeting approvea raise in the dividend to SEK 3.75 (3.50)per share, corresponding to 37 percent(50) of net income. Saab’s long-termdividend policy is to distribute 20–40percent of income after tax over abusiness cycle.

Convertible debenture and option program

In 1998 a convertible debenture loanwas issued to Saab’s employees. The last

day for conversions was July 15, 2004.The loan amounted to SEK 254 m.,which means that if fully converted itwould raise the number of Series Bshares by 2,787,500. The conversionprice was SEK 91. When the conversionperiod ended on July 15, 2004, 2,690,671Series B shares, corresponding to a SEK245 m., had been converted, which cor-responds to a dilution of 2.53 percent ofthe capital and 1.67 percent of the votes.

Share repurchase program

The Board of Directors received authori-zation from the 2004 Annual GeneralMeeting to decide, until the followingAnnual General Meeting, to acquire andtransfer up to 10 percent of the compa-ny’s outstanding shares. The authoriza-tion was not utilized during the year.

The Saab shareSaab’s market capitalization was SEK 12.6 billion at year-end 2004, which corresponds to 0.5 percentof the total capitalization of the Stockholm Exchange (Stockholmsbörsen).The price of the Series Bshare rose by 6 percent during the year, compared with an increase of 18 percent for the StockholmExchange’s general index.The total return on Saab’s Series B share – i.e. the dividend plus appreciationin the share price – has been 60 percent over the last five years.

Swedish and foreign ownersShare of capital, %

Foreign ownersSwedish owners

BAE SYSTEMS

Odin fund

J P Morgan Chase Bank

Nordea Bank Finland Abp

Mellon Aam Omnibus

Other foreign

InvestorWallenbergfoundationsRobur fundNordea fundEikos fundAMF PensionSEB fundOther Swedish


Ticker symbols:

Reuters SAABb.ST Bloomberg SAABB SS


71


SX All-Share Index Thousands of share traded(incl. off-floor trading)

B share

©SIX

J F M A M J J A S O N D J JF M A M J J A S O N DJ F M A M J J A S O N DJ F M A M J J A S O N DJ F M A M J J A S O N D

40

60

80

100

120

140

30

2000 2001 2002 2003 2004 2005

Saab B, January 1, 2000 – January 31, 2005

2,000

4,000

6,000

8,000

Earning and dividend per share

SEK

‘00 ‘01 ‘02 ‘03 ‘04

ProfitDividend

0

2

4

6

8

10

12

Equity per share

SEK

‘00 ‘01 ‘02 ‘03 ‘040

25

50

75

100

Series per B share 2000–20042004 2003 2002 2001 2000

Closing pricesat year-end, SEK 115.5 109.00 96.00 99.50 78.00

high for the year, SEK 118.6 117.00 130.50 112.00 94.50

low for the year, SEK 97.75 82.00 81.00 71.00 64.50

Average daily turnover,no. of shares1) 112,278 121,787 113,068 133,705 81,959

Yield, % 3.2 3.2 3.6 3.3 3.8

Price/equity, % 159 164 150 159 146

P/E ratio 11.5 14.5 14.0 9.4 8.0

P/EBIT, multiple 7.6 8.9 8.4 6.6 5.4

Sales before conversion, SEK 164.90 161.95 155.30 147.37 167.60after full conversion, SEK 163.52 157.90 151.38 143.61 163.30

Net income before conversion, SEK 10.08 7.00 6.87 10.59 9.75after full conversion, SEK 10.08 6.91 6.78 10.40 9.58

Equity before conversion, SEK 72.96 65.75 64.17 62.74 53.26after full conversion, SEK 72,96 66.89 64.83 63.46 54.22

Cash flow from operating activitiesbefore conversion, SEK 7.99 12.08 10.27 18.53 –13.20after full conversion, SEK 7.92 11.78 10.01 18.06 –12.85

Dividend (Board’s proposal), SEK 3.75 3.50 3.50 3.25 3.00

Dividend /net income, % 37 50 51 31 31

Total dividend. SEK m. 409 373 373 346 319

Dividend growth. % 7 0 8 8 20

No. of shareholders 36,069 37,688 38,062 38,932 40,987

Share of foreign ownership, capital, % 45 39 43 51 54

Share of foreign ownership, votes, % 41 37 40 45 47

Average number of shares 108,234,126 106,513,969 106,487,407 106,459,675 106,459,675Number of shares at year-end 109,150,344 106,517,563 106,510,374 106,459,675 106,459,675Number of shares after full conversion 109,150,344 109,247,175 109,247,175 109,247,175 109,247,175

1) Saab B on Stockholm Exchange.


72


Largest shareholders

As of December 30, 2004according to Swedish Central No. of shares % of share % of Securities Depository thousands capital votes

BAE SYSTEMS, UK 37,367 34.2 34.4Investor 21,612 19.8 35.6Wallenberg foundations 9,469 8.7 5.7Robur funds 6,231 5.7 3.7Nordea funds 2,603 2.4 1.6Eikos fund 2,419 2.2 1.4AMF Pension 2,319 2.1 1.4SEB funds 2,264 2.1 1.4AMF Pension funds 1,995 1.8 1.2SHB/SPP funds 1,178 1.1 0.7Odin funds, Norway 1,157 1.1 0.7JP Morgan Chase Bank, USA 1,074 1.0 0.6Nordea Bank Finland Abp 1,071 1.0 0.6Skandia Liv 790 0.7 0.5Mellon Aam Omnibus, USA 588 0.5 0.4SEB-Trygg Försäkring 511 0.5 0.3Catella funds 482 0.4 0.3Second Nat’l Pension Fund 400 0.4 0.2FPG/AMFK 339 0.3 0.2Camelot fund 336 0.3 0.2

Subtotal, 20 largest shareholders 94,205 86.3 91.1

Other Swedish shareholders 7,507 6.9 4.5Other international shareholders 7,438 6.8 4.4

Total 109,150 100.0 100.0

Distribution of shareholders

Number of Number of % of share- Number of % of shareshares shareholders holders shares capital

1–500 33,455 92.7 2,608,865 2.5501–1,000 1,370 3.8 1,136,296 1.01,001–5,000 950 2.7 2,045,768 1.95,001–10,000 102 0.3 770,447 0.710,001–50,000 95 0.2 2,248,024 2.150,001–100,000 28 <0.1 2,035,537 1.9100,001–10,000,000 67 0.2 39,326,136 36.010,000,001– 2 <0.1 58,979,271 53.9

Total 36,069 100.0 109,150,344 100.0

Shares and votes, December 31, 2004

Number of % of total Number of % of totalShare class shares shares votes votes

Series A 6,454,303 5.9 64,543,030 38.6Series B 102,696,041 94.1 102,696,041 61.4

Total 109,150,344 100.0 167,239,071 100.0

Share issues, etc.Increase in share Paid-in amount

capital, SEK m. SEK m.

2002, Conversion1) 50,699 shares 0.8 4.62003, Conversion1) 7,189 shares 0.1 0.72004, Conversion1) 2,632,781 shares 42.1 239.6

1) 1998 convertible debenture loan

ABN Amro, LondonSandy [email protected]

Carnegie, StockholmBjörn [email protected]

CDC Ixis Securities,ParisPierre-Antony [email protected]

Crédit Agricole Indosuez Cheuvreux,ParisAntoine [email protected]

Credit Suisse First Boston, LondonSteve [email protected]

Deutsche Bank, LondonGeorges [email protected]

Enskilda Securities, StockholmStefan [email protected]

Goldman Sachs International, LondonSash [email protected]

Merrill Lynch, LondonCharles [email protected]

Swedbank, StockholmMats [email protected]

UBS Warburg, LondonColin [email protected] [email protected]

Analysts who cover Saab


73


74


75

Annual General MeetingThe Annual General Meeting will be held at 6:00 p.m. (CET)on Wednesday, April 6, 2005 at Kungliga Tennishallen inStockholm.

NotificationShareholders must notify the company of their intention toparticipate in the meeting not later than 12:00 noon on Thurs-day, March 31, 2005:

� by telephone: +46-13-18 20 55

� by fax: +46-13-18 33 50

� by mail with separate invitation

� by mail: Saab AB, Avd CJ-MG, SE-581 88 Linköping, Sweden

� online: www.saab.se (follow the instructions on the homepage)

Please indicate your name, personal or corporate registrationnumber (Swedish citizens or companies), address and tele-phone number. If you are attending by power of proxy, regis-tration certificate or other authorization, please submit yourdocumentation well in advance of the meeting. The informa-tion you provide will be used only for the Annual GeneralMeeting.

Shareholders or their proxies may be accompanied at theAnnual General Meeting by a maximum of two people. Theymay only attend, however, if the shareholder has notified SaabAB as indicated above.

Right to participateOnly shareholders recorded in the share register maintainedby VPC AB (the Swedish Securities Register Center) on Sun-day, March 27, 2005 are entitled to participate in the meeting.

Shareholders registered in the names of nominees throughthe trust department of a bank or a brokerage firm must tem-porarily re-register their shares in their own names to partici-pate in the meeting. To ensure that this re-registration is recor-ded in the share register by Thursday, March 24, 2005, theymust request re-registration with their nominees seveal busi-ness days in advance.

DividendThe Board of Directors is recommending a dividend of SEK 3.75 per share and Monday, April 11, 2005 as the record dayfor the dividend. With this record day, VPC is expected to dis-tribute the dividend on Thursday, April 14, 2005.

Shareholder information

Financial informationThe following financial information will be released in 2005:April 21 Interim report January–MarchJuly 12 Interim report January–JuneOctober 21 Interim report January–September

Financial information can be ordered by telephone +46-13-18 17 28 or accessed online at www.saab.se

ContactGöran Wedholm, Manager of Investor Relations, Telephone +46-13-18 17 21, [email protected]


Saab’s Annual Report 2004, is

accompanied by the brochure

“Technology for a Changing World”

– a presentation of Saab.

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Saab AB (publ)

SE-581 88 Linköping, Sweden

Tel +46-13-18 00 00

www.saab.se

Head offi ce

Saab AB

Box 70 363

SE-107 24 Stockholm, Sweden

Tel +46-8-463 00 00

The brochure can be ordered

from www.saab.se/ir or by

telephone +46-13-18 17 28.

For more information on Saab,

visit www.saab.se

DEFENSEAVIATIONSPACETechnology for a Changing World

defense annual report 2004 space aviation€¦ · saab continued to report strong results in...

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