SAAB ANNUAL REPORT 1999

CompetenciesSaab is a knowledge company with a broad base of competenciesin a number of high-technology areas.The level of education of theemployees is very high, and for many years Saab has been one ofthe most popular workplaces by far among students at Sweden’sinstitutes of technology.

The ability to develop military and commercial systems thatutilize and coordinate various competencies is Saab’s primarystrength.The company is a leader in advanced systems integration– getting a variety of complex subsystems to work together. Inadvanced defense systems such as Gripen, a multitude of complexstudies interact – all of them essential for the system as a wholeto work properly.

Continuing to bring together employees with all these compe-tencies is a major challenge for Saab.

Saab 1999 2

Business operations

Comment by the Chairman of the Board 6

Interview with the Chief Executive Officer 7

Military Aerospace 10

Space 16

Training Systems 19

Commercial Aircraft 23

Combitech 26

Environmental report 29

Employees 32

The Saab share 34

Formal Annual Report 1999

Financial review 36

Financial statements 47

Notes with accounting principles and

comments on the financial statements 52

Board of Directors and Auditors 66

Corporate management 68

Addresses 69

Financial informationThe following financial information will be released in the financial year 2000:April 27 Interim report January–March July 13 Interim report January–June October 25 Interim report January–September February, 2001 Full year report 2000

Financial information can be ordered from:Petra Svensson, telephone +46 13 18 70 70www.saab.se

ContactsLars Jagerfelt,Vice President, Corporate Communications and Public AffairsTelephone +46 13 18 71 65e-mail lars.jagerfelt@saab.seAgneta Kammeby, Investor Relations Telephone +46 13 18 71 25e-mail agneta.kammeby@saab.se

CONTENTS

ANNUAL GENERAL MEETINGThe Annual General Meeting will be held at 6:00 p.m.on Monday,April 10, 2000 at Saab in Linköping.

NotificationShareholders must notify the company of theirintention to participate in the meeting not laterthan 12:00 noon on Wednesday,April 5, 2000:• by telephone: +46 13 18 20 55 or• by fax: +46 13 18 33 50 or• by mail: Saab AB,Avd CU-MV, SE-581 88 Linköping,

Sweden, or• by e-mail: www.saab.se (following the instructions

on the home page)

When notifying the company, please indicate yourname, personal or corporate registration number(in the case of Swedish citizens or companies),address and telephone number.Those attending bypower of proxy, registration certificate or otherauthorization must submit their documentationwell in advance of the meeting.

Shareholders or their proxies may be accompa-nied at the Annual General Meeting by a maximumof two advisers.Advisers may only attend if theshareholder has notified the company in the mannerdescribed above.

Right to participateOnly shareholders recorded in the share registermaintained by VPC AB (the Swedish SecuritiesRegister Center) on Friday, March 31, 2000 areentitled to participate in the meeting.

Shareholders whose shares are registered in thenames of nominees through the trust departmentof a bank or other party must temporarily re-reg-ister their shares in their own names in order toparticipate in the meeting. For this re-registrationto be recorded in the share register by March 31,2000, shareholders must notify their nominees sev-eral business days in advance of this date.

DividendThe Board of Directors is recommending a dividendof SEK 2.50 per share and Thursday,April 13, 2000as the record day for the dividend.With this recordday,VPC is expected to distribute the dividend onTuesday, April 18, 2000.

• Offer to acquire Celsius

• South Africa decides to purchase 28 Gripen aircraft

• Acquisitions of Nyge Aero, Barracuda Technologies and Saab Celsius TransponderTech

• Continued restructuring of Combitech – Pronesto,Electronics and Survey Systems divested.Traffic Systems divested in January 2000

• First delivery to the Airbus A340-500/600 program

• Training Systems’ roll-out of two new products

• The last regional aircraft delivered

• Swedish Defence Materiel Administration ordersnew electronic warfare system for Gripen

2

SAAB 1999

'99'98'97'96'95

SalesSEK m.

0

2,500

5,000

7,500

10,000Regional AircraftSaab

Sales bybusiness area1)

MilitaryAerospace 56%

Space 7%

TrainingSystems 8%

CommercialAircraft 8%

Combitech 13%

RegionalAircraft 8%

Total SEK 9,053 m.

1) incl. internal sales

'99'98'97'96'95

neg.neg.neg.0

250

500

750

1,000

Operating incomeand margin

SEK m. %

0

5

10

15

20

Commercialelectronicsand IT 13%

Space electronics 7%

Commercial aircraft 13%Military servicesand support 3%

Military aircraft 36%

Defense electronics 23%Missiles 5%

Sales bybusiness content

Key figures 1999 1998

Saab GroupSales, SEK m. 9,053 8,248

Operating income, SEK m. 1,104 875

Operating margin, % 12.2 10.6

Income after financial items, SEK m. 1,377 1,218

Net income, SEK m. 939 912

Return on capital employed, % 21.3 21.4

Return on shareholders’ equity, % 21.5 25.6

Equity to assets ratio, % 16.8 13.6

Order bookings, SEK m. 6,849 5,797

Order backlog, December 31, SEK m. 23,637 23,132

Earnings per share, SEK 8.82 8.55

Dividend per share, SEK 1) 2.50 2.00

Average no. of employees 8,092 7,742

Saab, excl. Regional Aircraft andSaab Aircraft Leasing

Sales, SEK m. 8,581 7,539

Operating income, SEK m. 849 675

Operating margin, % 9.9 9.0

Operating margin before depreciation, % 15.1 13.4

Equity to assets ratio, % 29.7 26.51) 1999 Board’s proposal

Sales rose by 10 percent in1999 to SEK 9,053 m.The increase is due to theconsolidation of Avionics inSaab in 1999, acquisitionsof companies and organicgrowth.At the same time,Combitech companies weredivested.Sales excluding RegionalAircraft grew by 14 percent.

The operations of allbusiness areas developedwell in 1999. Projects areprogressing according to planand efforts to reduce costsare producing results.Operating income improvedby 26 percent to SEK 1,104m, corresponding to anoperating margin of 12.2percent.

Military Aerospace hasgrown in relative size byfour percentage pointssince last year due to theconsolidation of Avionics in Saab in 1999 and thephase-out of regional aircraft production.

Information technology,systems and electronicshave become increasing-ly important for Saab. In1999 these operationsaccounted for 48 percentof sales, in addition tothe substantial electron-ics content in Gripen.

Financial development 1999

The operations of all the business areasdeveloped well in 1999. Projects are pro-gressing according to plan and cost-effi-ciency measures are producing results.The streamlining of Combitech, with anincreased focus and improved profitabil-ity, continued during the year, conclud-ing in January 2000 with the sale ofTraffic Systems. The phase-out of region-al aircraft production was also effective-ly implemented, which had a positiveimpact on income. As a whole, thismeant that 1999 was an improvementover the previous year in terms of salesand income, with income per share ris-ing to SEK 8.82. The Board of Directorsis recommending that SEK 2.50 be dis-tributed to the shareholders, correspond-ing to a yield of 3.0 percent.

Sales rose by 10 percent to SEK 9,053million on the strength of acquisitionsand organic growth. During the yearSaab acquired the majority shareholdingin Avionics and all the shares in NygeAero and Barracuda Technologies.Growth in Space and Combitech’s ITcompanies, for example, has been good

for several years. Combitech Systems’growth exceeded 60 percent a year inboth 1998 and 1999. Sales in the Swedishmarket dominate, although sales inother markets accounted for approxi-mately 40 percent of the total.

Operating income rose by 26 percentto SEK 1,104 million, or an operatingmargin of 12.2 percent. All the businessareas raised their income with the excep-tion of Military Aerospace, which,according to plan, reported higher devel-opment costs for the export version ofGripen. Space improved its incomethrough higher volumes while maintain-ing its margins. Combitech’s incomeimproved significantly now that thebusiness area includes only profitableniche companies and a developmentcompany. The year’s losses by RegionalAircraft and Saab Aircraft Leasing werecharged against their respective reserves.

Net financial income and expensesdeclined to SEK 273 million, primarilydue to lower liquid funds and lowerinterest rates. Income after financialincome and expenses amounted to SEK1,377 million, while net income was SEK

3

MILITARY AEROSPACE

SPACE TRAININGSYSTEMS

COMMERCIALAIRCRAFT

COMBITECH

Executive managementand corporate functions

Gripen

Ericsson SaabAvionics

Saab Dynamics

FutureProducts &Technology

GeneralMilitary

Programs

Saab Nyge Aero

CSM Material-teknik

SaabEricssonSpace

SaabTrainingSystems

BarracudaTechnologies

CollaborativePrograms

Saab Aircraft

Saab AircraftLeasing

Saab MarineElectronics

CombitechSystems

CombitechNetwork

Saab CelsiusTransponderTech

’99’98’97’96’95

EmployeesNo. of

0

2,500

5,000

7,500

10,000

'99'98'97'96'95

Research andDevelopment

SEK m.

0

1,000

2,000

3,000

'99'98'97'96'950

5,000

10,000

15,000

20,000

25,000

Order backlogSEK m.

Sales by market area

Sweden 62%

Other EU 16%

Other Europe 6%

North America 7%Asia 6%

Others 3%

Total SEK 9,053 m.

The Group’s operational structure, with the Parent Company’sbusiness units, subsidiaries and subgroups organized into fivebusiness areas. For the Group’s legal structure and the completelegal names of each unit, see Note 22 on page 60.

Order bookings rose by 18percent to SEK 6,849 m.during the year.The singlelargest order was for a newelectronic warfare system forGripen for SEK 1.2 billion.Order bookings for the ITcompanies CombitechSystems and CombitechNetwork rose by over 60percent during the year.

The Swedish market domi-nates sales, although foreignmarkets contributed 38 per-cent (41) of total turnover.

Measured as a share ofsales, R&D expendituresrose from 26 percent to 34percent during the year.Theincrease is mainly due to theconsolidation of Avionics –which is very research-inten-sive – as well as to develop-ment costs for the exportversion of Gripen and workon the Airbus A3XX andA340-500/600 by Collabo-rative Programs.

The number of employeeswas 8,031 at year-end.

Largest shareholders

As of December 31, 1999 Percentage of Percentageaccording to Securities Register Center share capital of votes

BAE SYSTEMS, UK 35.1 35.0Investor 20.3 36.1Wallenberg foundations 8.7 5.6Chase Manhattan Bank, USA 1) 8.6 5.6State Street Bank & Trust Co. USA 1) 3.4 2.2AMF 3.0 1.9Fifth National Pension Insurance Fund 2.7 1.8MFS funds, USA 1.4 0.9Skandia 1.2 0.7The Bank of New York Europe Ltd, UK1) 1.1 0.7UBS Switzerland, Stockholm 0.9 0.6Meridian funds, USA 0.7 0.5

Subtotal 12 largest shareholders 87.1 91.6Swedish shareholders 45.8 52.5International shareholders 54.2 47.5

1) Nominee-registered, primarily U.S. funds.

Financial objectivesLong-term

Percent 1999 1998 objective

Saab GroupReturn on capital employed 21.3 21.4Return on shareholders’ equity 21.5 25.6 15Dividend percentage 28.0 23.0 20–40

Saab excl. Regional Aircraft and Saab Aircraft LeasingOperating margin before depreciation 15.1 13.4 15Operating margin after depreciation 9.9 9.0 10Equity/assets ratio 29.7 26.5 30

History in brief

1937 Saab founded1941 First aircraft, B171946 First passenger aircraft,

Saab 90 Scandia1947 Jet age starts with J21R1950 Car manufacture starts, Saab 921951 J29 Tunnan1955 J32 Lansen1960 J35 Draken1965 Saab 105/SK 601969 Saab-Scania founded1971 J37 Viggen1984 Saab 340, first delivery1990 Saab Automobile founded with GM1991 Saab-Scania delisted from the

Stockholm Stock Exchangeand becomes a subsidiary ofInvestor AB

1992 Space founded, in present form,together with Ericsson

1993 Gripen, first delivery1994 Saab 2000, first delivery1995 Saab-Scania split into Saab AB and

Scania ABJoint Venture with BritishAerospace

1997 Avionics founded through mergerwith Ericsson’s avionics business

1998 Saab listed on the StockholmStock Exchange, June 18British Aerospace acquires 35%stake in Saab

1999 First export order on GripenOffer to acquire Celsius

4

939 million, for a net income margin of10.4 percent.

Order bookings rose by 18 percent toSEK 6,849 million during the year andincluded orders for a new electronic war-fare suite for Gripen; on-board comput-ers, data and antenna systems, and sen-sors for various space projects, and thefirst orders for Training Systems’ twonew products, the GAMER, Gunnery andManeuver Exercise System, and the BT47small arms simulator. Order bookings bythe IT companies Combitech Systemsand Combitech Network rose by slightlyover 60 percent during the year.

An important milestone was achievedin early December when South Africabecame the first export country to buythe multi-role Gripen fighter, ordering 28aircraft and related equipment, training,etc. The contract value is approximatelySEK 13 billion, with Saab’s share estimat-

ed at about 75 percent, or approximatelySEK 10 billion. The order will be bookedduring 2000, when the final breakdownis determined between Saab and BAESYSTEMS. The order backlog amountedto SEK 23,637 million at year-end 1999.

Saab’s financial objective is to attain anaverage operating margin before depreci-ation of at least 15 percent, an operatingmargin after depreciation of at least 10percent and an equity/assets ratio ex-ceeding 30 percent excluding the regionalaircraft operations. These objectives wereachieved in 1999, when the margins were15.1 and 9.9 percent, respectively, and theequity/assets ratio was 29.7 percent.

The financial objective for the Groupas a whole is a return on shareholders’equity of 15 percent at current interestrate levels.

5

Offer to shareholders of Celsius

On November 15, 1999 the Board ofDirectors of Saab AB decided to issue apublic offer to the shareholders ofCelsius AB to tender their shares for acash payment of SEK 179 per share.The total value of the offer amountedto SEK 5,024 million. The acquisition isbeing financed through Saab’s existingbanking facilities.

Status on February 23, 2000

The Swedish Government has decided to accept the offer regarding the A and B shares it owns in Celsius, which meansthat the Swedish Government sells intotal 3,000,000 A shares and 4,000,000B shares representing 24.9 percent of thecapital and 61.7 percent of the votes inCelsius. This decision follows a vote bythe Swedish Parliament on February 16,2000 in favor of a sale of the SwedishGovernment’s shares.

On February 4, 2000, after havingreviewed the notification, the EuropeanCommission decided not to launch a fullprobe into the transaction, which meansthat the European Commission now hasapproved Saab’s acquisition of Celsius.

The last day to accept Saab’s offerwas February 23. As of that date Saabhad acquired 99 percent of the votesand 99 percent of the share capital.

Background to and

benefits of the offer

The European defense industry is char-acterized by intense competition and rising research and development costs.This has led to a consolidation and inter-nationalization of the industry and thecreation of large multinational defensecompanies active in a global market.

Celsius is an international advancedtechnology and knowledge-based com-pany that manufactures and supportsadvanced systems, products and serviceswithin the core areas Defense andAviation Services.

In recent years Saab and Celsiushave each undergone strategic changes,through acquisitions, divestments anda concentration on essentially the samemarkets, to such an extent that bothcompanies’ strategies have converged.

Together, Saab and Celsius will createNorthern Europe’s leading high-tech-nology company. The ”new” company,Saab, will be based on the current corebusinesses of Saab and Celsius, with afocus on systems and electronics, mili-tary aircraft and guided weapons. Thecompany will also strengthen its posi-tion in the growing support servicesmarket. Saab will become a strongplayer in these areas, with a strongproduct portfolio, enhanced technologi-

cal capabilities and extensive researchand development. The total number ofemployees will be approximately17,000.

Saab will have a base of core tech-nologies and competencies in the mostattractive areas of the defense market,thereby improving its position for thefuture. The company will also havebetter opportunities to actively partici-pate in international collaborations.

The new company will also benefitfrom the established relationship withBAE SYSTEMS, with its 35 percent stakein Saab. BAE SYSTEMS’ acquisition ofMarconi Electronic Systems offers furtherpotential for international collaborations.

The company’s defense businesseswill be supported by profitable com-mercial businesses.

The combination of Saab and Celsiuswill generate synergies through betteruse of resources and economies of scale,among other things. Annual pre-taxcost savings are estimated at SEK 400million within three years of the merger.The nonrecurring pre-tax costs toachieve these savings are estimated atSEK 600 million.

The value of the offer to Celsius’shareholders amounts to approximatelySEK 5 billion and will generate good-will of approximately SEK 700 million.

SAAB ACQUIRES CELSIUS

Space Commercial aviation services

Systems and electronics

Military aircraft

Guided weapons

Support services

Strategic developments Celsius

New Group structure

Aerotech and TietoEnatorjoint venture

Expansion fo CelsiusAviation Services

Kockums into HDW

Non-core asset divestment

Strategic developments Saab

Strategic link with British Aerospace(j/v and equity)

Ericsson Saab Avionicsformed

Acquisition of electroopticaloperations

Withdrawal from regional aircraft production

Nyge Aero and Barracuda acquired

Non-core asset divestment

“New” Saab is created by converging strategies.

The new Saab will be a stronger compa-ny industrially, but most importantly wegain a more prominent position in anumber of areas where the defense market is anticipating good growthpotential.

The focus on systems integration anddefense electronics will become stronger,at the same time that the Swedish mis-sile industry becomes more efficientlystructured with better prospects of tak-ing part in large-scale European missileprograms.

The acquisition of Celsius shows thatSaab is taking an active role in therestructuring of the defense industrythat continued in 1999. The mergerbetween Germany’s DASA and France’sAérospatiale Matra as well as BAE SYSTEMS’ (formerly British Aerospace)acquisition of defense electronics suppli-er Marconi are changing the structure ofthe defense market. We are seeing twocenters of power take shape in theEuropean defense industry.

Throughout the 1990’s Saab was pre-pared for the consequences of changingdefense policy. This applied to both ouropportunities in new export marketsand to demands for more efficient andin some areas lower production capacity.The reshaping of the internationaldefense industry will continue, and forSaab to become stronger in the longterm, we have to take an active part inthese developments.

BAE SYSTEMS’ ownership keepsSaab closely involved in Europeandevelopments, while Investor’s long-term ownership anchors the company ina strong, international industrial andfinancial network.

The breakthrough for Gripen in theexport market was naturally the othermajor event in 1999. In the tightest pos-sible competition, Saab and BAE

SYSTEMS were awarded an order for 28Gripen and, as a result, responsibility fora key element in the modernization ofthe South African defense forces. Gripenhas significant export opportunities, andthe order from South Africa gives us anadditional reference customer, whichwill be important to our future efforts.

In 2000 the integration work betweenthe Saab and Celsius organizations willbe critical. It will take time and demandresources, but within the year Saab willbe a company with a clearer focus onfuture defense systems.

In line with Saab’s policy to distribute

a dividend of 20-40 percent of incomeafter tax, the Board of Directors isproposing a dividend for 1999 of SEK2.50, or 28 percent of income after tax.

As a representative of the Board, Iwould lastly like to express our collec-tive thanks to Saab’s employees. It wasan eventful year, and without yourexceptional efforts Saab would not bewhere it is today.

Anders ScharpChairman Saab AB

6

“THE NEW SAAB – A COMPANY FORTHE FUTURE DEFENSE”

Through the acquisition of Celsius, Saab is creating a defense company focused on the industry’s future markets.Celsius and Saab complement and strengthen each other in a number of key areas.

Through theacquisition of Celsius,Saab is creating adefense companyfocused on theindustry’s future markets.

“

”

7

The year’s biggest event had to be theoffer for Celsius. How will it makeSaab a stronger company?

I am convinced that this is a very gooddeal for Saab and for our shareholders.Celsius’ competencies complement oursin a number of strategic areas, andtogether we create a formidable centerof intellectual excellence. Even thoughwe have major competitors, in my opin-ion there are few companies so well-suited to the trends we are seeing inmodern defense thinking. We alsoexpect considerable synergy potentialfrom the merger in terms of both rev-enues and expenses.

Your focus on information technologyand defense electronics is reinforcedby the transaction with Celsius. Is afurther concentration on these areas tobe expected?

The new Saab will have an even sharperfocus on defense systems and electronics.When you look at the defense debatehere in Sweden and internationally, itis obvious that developments are head-ed in this direction. We are seeing moreand more information and IT and lessbullets and gunpowder.

From the standpoint of the future ofmilitary defense – with such terms asdominant battlespace awareness andinformation superiority – we have verystrong products and competencies. Thisis true of Sweden as a whole and Saab inparticular – especially after the mergerwith Celsius.

We have the resources to developadvanced information, command andcontrol, and weapon systems, where

demand will increase despite that over-all defense spending is being trimmed.And these are skills we can use for otherapplications.

Is there a role for Saab when the trendis toward battlespace awareness andprecision engagement?

Definitely. Even before the offer forCelsius, we were strong in these areas.

Gripen, for example, is often mis-understood as merely an aircraft. Thepoint for those who have ordered or

are interested in Gripen is that it is anintegrated information, command andcontrol, and weapon system. Gripencan handle tasks that are broader inscope than those the air force is tradi-tionally associated with.

The acquisition of Celsius strengthensus even more as a systems supplier withthe know-how and ability to designadvanced defense systems utilizing ourown and others’ expertise.

Is there any advantage to this being awholly Swedish merger?

Saab has an international outlook, so we keep the door open to the rest of the world. We are in an industry that isundergoing a major transformation andthrough our cooperation with BAE SYSTEMS we have demonstrated thatwe are focusing on an international market. This will continue, but obviouslyit is positive that the merger has the support of our largest customer.

1999 was a year of major changes for Saab. In additionto the offer for Celsius, it was awarded its first exportorder for Gripen, by South Africa. In the following interview, Saab President and CEO Bengt Halse gives his view of these and other events in 1999, and of thefocus Saab will take in the years ahead.

“A CENTER OF INTELLECTUAL EXCELLENCE”

The acquisition of Celsiusstrengthens us even more as a systems supplier with the know-how and ability to designadvanced defense systems utilizing our own and others’expertise.

“

”

8

Saab and Celsius have been cooperatingextensively for years. For example, wehave collaborated successfully todevelop Gripen, the most comprehen-sive and complex industrial project inSwedish history. That certainly gives usa solid foundation to stand on.

In areas that offer the biggest synergypotential, we are already very familiarwith each other. This obviously appliesto the missile development work byDynamics and Celsius, though it is alsotrue of other areas, such as electronicsand systems.

The most exciting potential lies in ourability to utilize the combination of ourcomplementary competencies. Celsius’strong position in technical support andservice, for example, is very interesting.

How does BAE SYSTEMS fit into thepicture?

I am very pleased that we have BAESYSTEMS as a partner and owner, and I am convinced that the new Saab nowtaking shape will benefit even morefrom this link to Europe. BAE SYSTEMSand our other principal owner, Investor,are convinced that this is a positivemove for all Saab shareholders.

In our efforts to export Gripen, BAESYSTEMS, and what it represents, is avery valuable partner. In a more long-term, broader perspective, they are also,in my opinion, our best possible partnerin the continued restructuring of thedefense industry. Their structure andfocus is clearer and more in line withour own compared with other Europeanalternatives. In addition, the acquisitionof Marconi Electronic Systems strength-ens them in a way that opens newopportunities for the new Saab as well.

Another major event for Saab is theexport of Gripen to South Africa.Would you give us your comment.

Gripen’s selection by South Africa is an important breakthrough. Gaining a so-called launch customer outsideSweden gives us a critical platform forour continued export work.

South Africa is buying 28 aircraft andmaking Gripen the core of its defensemodernization. With this order, we cannow say that Gripen is not only flyingin Sweden, but that it will be the focalpoint of a modern military in anotherpart of the world as well.

The competition in South Africa wasfierce, and we won the order againstthe strongest aircraft manufacturers inthe business and against the world’smost highly skilled sales organizationsfor defense materiel. Obviously, thiswas an important show of strength forour product, own organization and ourcollaboration with BAE SYSTEMS.

What role did the industrial coopera-tion play in the South African order?

South Africa selected the aircraft thatbest suits its national security anddefense priorities. An order of thismagnitude is motivated first and fore-most by fundamental security issues.But it is not uncommon that a countrythat implements a major upgrade of itsdefense capabilities also wants the maxi-mum economic and social benefit fromits investment.

Considering that such offsets are a part of the reality we live in, we haveresolved this in the best conceivableway. Being able to offer serious com-mitments and long-term contacts isconsiderably better for all the partiesinvolved than forcing through dealsthat lack commercial appeal.

What are the prospects of exports to other markets?

There are a number of countries thathave expressed interest in Gripen, andwe have submitted a number of bids ortheir equivalent. We know approxi-mately how many aircraft have to bereplaced in the decades ahead andwhat the total demand will be. We arein a good position to take a significantshare of our available market.

Gripen is a unique information,command and control, and weaponsystem and will stand strong in itsniche for years to come.

The competition in SouthAfrica was fierce, and we won theorder against the strongest aircraftmanufacturers in the business andagainst the world’s most highlyskilled sales organizations fordefense materiel.

“

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9

Aside from the acquisition of Celsius,Saab completed a number of othertransactions in 1999. Companies weresold and others acquired. What wasyour strategy behind these moves?

The strategy is to acquire companiesthat strengthen Saab’s core and com-plement our current business.

Nyge Aero and Barracuda Tech-nologies are both active in what wehave identified as growth areas.

Nyge has a strong position in theSwedish service and support market,and has good prospects in a Europeanmarket that is being deregulated andopening up. Nyge also offers attractivesynergy opportunities with other partsof Saab – for example, the develop-ment and testing of electronic warfareequipment.

Barracuda is the world leader in theimportant defensive dimension ofinformation warfare. It has a strongposition in so-called signature man-agement, which together with other countermeasures helps to protectagainst an enemy’s electronic warfaresystems.

The part of our operations outsidethe core is constantly under review sothat we can realize values for our own-ers. For example, we divested a num-ber of companies from Combitech in1999 and in previous years.

Also, the last regional aircraft wasdelivered in 1999.

That is correct. To me, it was gratifyingthat we were able to phase out produc-tion at a lower cost than we expected,but also that we were able to maintainthe highest possible quality and deliveryprecision to the very end. Those whoworked on Saab 340 and Saab 2000have every reason to be proud of theway this was accomplished.

In addition to the traditional break-down by business area, in 1999 youalso decided to present Saab’s opera-tions by business content.

Yes, we want to give a clearer, moreaccurate picture of the focus of ouroperations, half of which involve infor-mation technology, systems and elec-tronics. The breakdown by businessarea does not accurately capture thisdimension of the company. Moreover,these are areas where our activity willincrease in the years ahead, partlybecause of the acquisition of Celsius.

How do you see the future? Where isthe growth potential for Saab?

Continued export sales of Gripen andrelated products will be an importantgrowth area for the foreseeable future,and following the breakthrough inSouth Africa I am very confident aboutour opportunities.

The Celsius merger, not to mentionthe smaller acquisitions during theyear, shows that acquisitions are animportant avenue for growth and tobuild a better structure for the future.

With Celsius, we create a number ofbusiness areas with attractive growthopportunities. We now have a businessinvolving guided weapons that has amodern, internationally competitiveproduct range, in part thanks to severalinternational collaborations. In systemsand electronics, we also see majorgrowth potential.

With CelsiusTech Systems andCelsiusTech Electronics, we becomestronger in electronic warfare and in a good way complement what we have at Saab today. Together with Barracuda’s expertise in signaturemanagement and Nyge’s special targettowing service with electronic jamming

capabilities, we have a broad range ofproducts and services in this high-pri-ority area.

Service and support offer attractiveopportunities. For example, there is adefinite international trend toward theoutsourcing of technical support andservice. In several of our businessareas, we are working with customersthat pay for a product’s availability, notfor the product itself.

In space operations, we anticipatestrong development in commercialsatellite systems. The failure of theIridium project in the U.S. has put adamper on the market, but it will prob-ably only mean slightly slower growththan we previously expected.

Marine Electronics is an example ofa commercial business that originatedwith military technology and hasdeveloped strongly in the Saab family.Today it is the world leader in its nich-es and offers good opportunities forfurther growth.

Combitech Systems – an IT consul-tancy – is growing at a rate of 60percent per annum with very goodprofitability.

As a whole, 1999 was a year inwhich Saab more clearly focused onthe areas we expect to have thestrongest future prospects.

Sales by businesscontent

Commercialelectronicsand IT 13%

Space electronics 7%

Commercial aircraft 13%Military servicesand support 3%

Militaryaircraft 36%

Defense electronics 23%Missiles 5%

Electronics 48%

The Gripen fighter is a unique productwhich gives Saab a strong position onthe market. Military Aerospace alsocomprises Saab’s expertise used in thedevelopment of aircraft systems as wellas in guided weapons, defense systemsand defense electronics.

Fighter aircraft are playing an expand-ing role in military defense – from effec-tive weapon platforms to integratedinformation, decision support andweapon systems. A modern air force isbecoming increasingly important, notonly in terms of firepower, but evenmore importantly in reconnaisance andcommand and control, and as a resourcefor the total military defense.

In times of shrinking defense spend-ing, air power including advanced tech-nology for guided weapons and elec-tronic warfare are given priority. Mili-tary Aerospace has a strong positionwhen considering the developments thatare expected in the defense area in theforeseeable future.

MILITARY AIRCRAFT

Gripen is the world’sonly fourth-generationmulti-role fighter aircraft

in operational service and already anintegral part of the Swedish defense. Asof year-end 1999 Saab had delivered 81of the total of 204 aircraft ordered by theSwedish Defence Materiel Administra-tion (FMV).

The requirements originally stipulatedby the Swedish customer have been sur-passed in every area. Gripen has forexample better turn rate, higher maxi-mum speed and longer range than thespecification. Moreover, Gripen’s operat-ing costs are already 40 percent lowerthan its predecessor’s, Viggen.

Advanced computer and electronicscapacity is playing an increasing role inmilitary aviation and is decisive to thecombat effectiveness of a modern fighteraircraft.

Gripen is a systems aircraft with aninfrastructure on a digital design togeth-er with fully integrated computerized

10

MILITARY AEROSPACE

INFORMATION SYSTEMS IN THE AIR

Military Aerospace develops integrated information,decision support and weapon systems. Its core productsare fighter aircraft, guided weapons, avionics andelectronic warfare equipment.

In 1999 Gripen achieved a breakthrough in the exportmarket with an order for 28 aircraft from South Africa.

MILITARY AEROSPACE

MilitaryAerospace 56%

Total SEK 9,053 m.

1) incl. internal sales

Share of sales1)

'99'98'97'96'95

Research andDevelopment

SEK m.

0

1,000

2,000

3,000

’99’98’97’96’950

250

500

750

1,000

Operating incomeand margin

SEK m. %

0

5

10

15

20

0

2,500

5,000

7,500

'99'98'97'96'95

SalesSEK m.

SEK m., unless other-wise stated 1999 1998 1997Order backlog 21,181 19,954 21,969Order bookings 4,059 2,544 11,411Sales 5,383 4,572 4,480Operating income 523 628 899Operating margin, % 9.7 13.7 20.1Investments 301 269 153R&D 2,511 1,713 1,327No. of employees 4,585 3,991 3,879

GRIPEN

Sales rose by 18percent, primarilydue to the consoli-dation of Avionicsin 1999 and theacquisition of NygeAero which con-tributed SEK 141m.

Military Aerospace'operating incomedeclined, accordingto plan, due to high-er developmentcosts for the exportversion of Gripen.The operating mar-gin was 9.7 percent.

R&D expendituresrose by 47 percentfrom the previousyear, primarily dueto the consolidationof Avionics – whichis very research-intensive – in Saab in1999 as well as todevelopment costsfor the export version of Gripen.The business areaaccounts for 81 per-cent of total R&Dexpenditures.

systems using a mutual database withstandard interfaces. This means thatsensors, weapons, control surfaces, inputdevices, displays etc. can be used asinformation providers and informationcarriers, theoretically in an endless num-ber of combinations. Only the physicallaws and the human being puts thelimits. In addition, its design allowsGripen to be continually upgraded andmodernized.

Unique information, command and

control, and weapon system

Gripen plays a considerably broader rolein the military defense than its predeces-sors. The Gripen system can not only flytraditional intercept and attack missions,but also play a role in intelligence gath-ering and tactical command. Gripen canalso handle reconnaissance and com-mand and control assignments for otherweapon systems and it partially erasesthe boundaries between the branches ofthe military.

The difference in flexibility comparedwith older systems is remarkable. AGripen can be used on missions thatpreviously required three different air-craft. By literally pressing a button, thepilot can configure Gripen for intercept,attack or reconnaissance while in flight.Each aircraft becomes more effective, atthe same time that the total number ofunits can be limited.

Through continuous developmentand upgrades, the Gripen system canserve as the basis of an advanced mili-tary defense system for decades tocome. Essentially any new technologi-cal advance can be integrated into thesystem. The Gripen aircraft beingdelivered to the Swedish Air Forcetoday, for example, have considerablyhigher computer capacity than the firstaircraft delivered in 1993–1995.

Export breakthrough

On December 3, 1999 representatives ofSouth Africa, Saab and BAE SYSTEMSsigned an agreement on the delivery of28 Gripen, including nine two-seaters.The first aircraft will be delivered in2007, with final delivery scheduled for2012.

The total value of the South Africanorder is SEK 13 billion, of which approx-

imately SEK 10 billion is Saab’s share.South Africa’s choice of Gripen tomodernize its air force and defense isan important reference for futureexport efforts.

In the decades ahead an estimated2,000 fighters will have to be replacedin the 50 or so markets that are avail-able to Gripen.

Industrial cooperation: competitive

advantage for Saab – development

opportunities for the customer

In connection with the export ofdefense materiel, the buyer almostalways demands an offset, which mayinclude counter trade. As an alterna-tive, Saab has developed a commercialprogram of industrial cooperation thatincreases development opportunitiesfor the customer and gives Saab a com-petitive advantage. One of the factorsbehind this program is that both buy-ers and sellers tend to regard tradition-al counter trading as overly short-term.Unless they are commercially viable,such cooperations fade when there areno longer any formal commitments.

By paving the way for commercialundertakings, Saab has developed analternative that will facilitate a lastingcollaboration. Saab’s role is to mediate

11

EMGY

MGCS

WNG

MS

Information fromsensors on ownaircraft

SN

LINK

FIX

EWS

XXXXXXXXXXXX

A5,4 M0,6

9040L0

RDRR23

LP

WPN

LDG

CPOL

INFO

PP

CHKL

Data link informationfrom ground control

Data link informationfrom other aircraft

123

400

25

55

5

5 5

5

66

What is a data link?A data link is a radio communica-tion system for transfer of real timeinformation, concerning for exampletarget information and aircraft posi-tion and status, between aircraft andbetween aircraft and ground controlcentres. Individual aircraft or groundcontrol centres have simultaneousaccess to the same informationfrom radar and sensors.

A Gripen can fly “silently” with thehelp of other units' radar and sen-sor information, reducing the likeli-hood of detection.

Gripen currently has the world'smost advanced data link, making it aworld leader in terms of situationawareness.

SAAB NYGE AERO

In April 1999 Saab acquiredthe aviation service companyNyge Aero. Nyge is active inthe maintenance and modifi-cation of military and com-mercial aircraft and heli-copters, special flight opera-tions services and agencysales of aircraft, helicoptersand spares.

Although the company’sbase is Nyge Aero of Sweden,its wholly owned Norwegiansubsidiary, Norsk FlytjenesteA/S, allows Nyge to sell spe-cial flight operations servicesto the NATO market. Exportsgrew during the 1990’s andtoday account for approxi-mately 10 percent of Nyge’stotal sales of SEK 180 million.

The acquisition of Nygestrengthens Saab’s compe-tence in the maintenance and modification of military and commercial aircraft.

Nyge is an efficient service

organization with low fixedcosts that can cost effectivelytake on projects in the grow-ing market for military serviceand maintenance work.

Service and maintenanceAs defense spending shrinks,interest in outsourcing themaintenance of defense sys-tems has risen. Sweden standsat the forefront in this area.Nyge has maintenance andservice responsibility for theSwedish Air Force’s fleet of106 SK60 aircraft, which it hasbeen handling in Ljungbyhed,in Skåne province, for the pasttwo years. Since 1990 Nygehas also had maintenance responsibility for the SwedishCoast Guard’s fleet of CASA-212 aircraft.

The service and mainte-nance division represents just over half of Nyge’s totaloperations.

In 1999 Nyge further enhanc-ed its quality assurance sys-tem to comply with commer-cial aviation’s JAR145 require-ments and the recentlyadopted requirements ofRMLV1/V6 (Rules for MilitaryAviation). As a result, Nyge isone of the first Swedish avia-tion service companies to beable to maintain both com-mercial and military aircraftand helicopters.

Special flight operationsservicesSpecial flight operations ser-vices contribute nearly half ofNyge’s sales and are handledby a fleet of 15 aircraft. Nygeis currently a European leader in aerial target towing.TheSwedish military is the largestcustomer. Export operations have grown in recent years,with long-term projects fordefense authorities in

12

contacts between interested parties inthe purchasing country and companiesin Sweden and other countries. As partof the broad-based international net-works of our owners, Saab has verygood prospects of meeting customercountries’ requirements in this respect.

Window of opportunity on

export market

Saab’s experience from 60 years ofmanufacturing and selling military air-craft has been complemented since 1995by BAE SYSTEMS’ broad-rangingexperience and extensive network ofcontacts in the international market. Inaddition to support from the SwedishGovernment, Saab can now add sup-port from the UK Government.

When Gripen today competes on theexport market, the alternatives are usu-ally third-generation aircraft, such asthe F16, F18 and Mirage, which are in

the latter stages of their life cycles andtherefore lack Gripen’s upgrade anddevelopment capabilities. In addition,competing systems in the fourth gener-ation that are scheduled to reach themarket in the next decade are heavier,more expensive and more costly tooperate. This is true of the U.S. F22,French Rafale and Eurofighter.

As a single-engine, fourth-generationfighter, Gripen has a unique positionuntil 2010-2015 at the earliest, when theAmerican Joint Strike Fighter is expect-ed to join in the lightweight, single-engine segment of the market.

Each and everyone of the aircraftSaab has devel-oped has incor-porated techno-

logically breakthrough solutions.Future Products and Technology is re-

sponsible for the long-term research anddevelopment that will help Saab main-tain and enhance its position in futuredefense systems. This business unit is onthe cutting edge in developments instrategic defense thinking and in thedefense industry, in addition to studyingand developing new, more efficientdevelopment and production methods.

Much of today’s research work isfocused on facilitating the integration ofsystems for battlespace awareness, deci-sion support and precision engagement.

International research and devel-opment collaborations play a prominentrole. Saab participates, for example, withFrench, German and British companiesin ETAP (European Technology Acquisi-tion Program). ETAP is working withnew technology for future aerospacesystems, both manned and unmanned,as well as technology to integrate com-plex systems.

FUTURE

PRODUCTS AND

TECHNOLOGY

The Swedish Coast Guard’s CASA 212 aircraft are main-tained at Saab Nyge Aero’s facilities in Ljungbyhed.

The General MilitaryPrograms business unitperforms development,support and modifica-tion work on Saab’s

older military aircraft. As a result, itsoperations are limited to markets wherethese aircraft are used – primarily Swe-den, though also Austria and Finland.Demand for the business unit’s servicesare declining, mainly as the Swedish AirForce removes Viggen from service.

An important future development istaking place in the military helicopteroperations. Helicopters are already animportant element in many modernmilitaries, and they are expected to beeven more so in the future. Sweden,Finland, Norway and Denmark are inthe process of cooperatively acquiringnearly 100 helicopters, of which 25-30are for Sweden. Eventually, attack heli-copters will be procured as well.

General Military Programs has manyyears of experience in adapting Saab air-craft to Swedish and Nordic conditions.In close cooperation with other Saabunits, this know-how is applied in themodification of helicopters.

Together with Celsius,Saab owns CSM Materialteknik, Scan-dinavia’s leading mate-rials technology com-

pany. It is primarily active in analyses,support and the development of materialand process technology, propellant andlubricant technology, product andmaterial testing, and chemical, surfaceand environmental technology.

DEFENSE ELECTRONICS

Although all weapon systems are usingmore and more electronics and soft-

ware, this trend is most apparent in mil-itary aviation.

Important aspects of Saab’s expertisein defense electronics are devoted to thedevelopment of display and counter-measure systems in Avionics and guid-ed weapons and electro-optical systemsin Dynamics.

The majority of theavionics systems inGripen are developed

and manufactured by the Avionics busi-ness unit. The systems and productsrange across a wide area, from displaysystems, electronic warfare systems andcomputers of various types to hydraulicand mechanical systems, such as accel-eration sensors, servo-actuators, etc.

Avionics’ strategic competencies con-sist in part of display technology for theman-machine interface and in part ofelectronic warfare (EW) systems. More-over, Avionics is a center of competencefor the entire Group in the area of elec-tromagnetic technology, i.e. the abilityto design electronic devices so that theydo not affect each other adversely.

Joint venture with Ericsson

Operations are currently dominated bydeliveries for Gripen and are carriedout in a company jointly owned withEricsson. Cooperation with Ericssonand other units within Saab – primarilyDynamics – provide access to broad,extensive expertise in sensors, electro-optics, information technology andhardware.

Slightly over 40 percent of sales isattributable to display systems and justover a fourth to EW systems. Industrial-scale production of advanced electronicand mechanical devices accounts foranother fourth. The remaining opera-tions involve electromagnetic technologyfor military and commercial applications.

Display systems

Gripen’s EP-17 display system, whichshows information on four displaysfacing the pilot, was developed byAvionics. A great deal of work has beendevoted to ergonomic research, in order

13

CSM

MATERIAL-

TEKNIK AVIONICS

Norway, Denmark,Austria,Greece and Switzerland.

During the past threeyears, Nyge has built up abase of expertise in electronicwarfare (EW) training andtesting, the most importantcustomers for which are alsoin the defense industry.This isthe fastest-growing segmentof special flight operations,and Nyge is involved in colla-borations with Dynamics andAvionics, among others.

Due to the breakup of theSwedish Civil Aviation

Administration’s monopoly onthe calibration of radio naviga-tion equipment at commercialairfields, the Special flightoperations has also been ableto boost commercial invoicingin recent years.

Future outlookThe market for military main-tenance is expected to growin the years ahead, creatingopportunities for Nyge.TheSwedish military’s efforts tofind more efficient mainte-nance solutions and thedefense industry’s need forcost-effective flight testing ofdevices and systems provideimportant developmentopportunities.

The European aerial targetmarket is undergoing arestructuring, and a growingnumber of national marketsare opening to foreign com-petition. Nyge’s goal is to be

one of the three or four aeri-al target towing services thatare still in business in theEuropean market by the mid-dle of next decade.

Helicopters are expectedto account for a graduallyhigher share of sales, andNyge is participating in theongoing Nordic standard heli-copter program.The creationof a collective base of heli-copter expertise within Saabwill mean attractive collabora-tive opportunities.

Collaborations with otherparts of Saab progressed in1999. Synergy potential liesprimarily in Nyge’s core com-petencies, maintenance andmodification of aircraft as wellas resources in special flightoperations services for EWtesting.

GENERAL

MILITARY

PROGRAMS

Aerial target testing of electronic warfareequipment is a growing market for Nyge Aero.

14

to provide the pilot with the rightinformation at the right time and inthe right way.

Work on the man-machine interfaceis taking on greater significance in mod-ern combat aircraft, although it is alsoplaying an increasingly important rolein other defense systems. Shorter deci-sion times and an increasing amount ofinformation are placing tighter demandson display systems. Avionics is in theforefront in this area. Its research projects on new technology for future displays include a system that projectsinformation directly onto the pilot’s retina. This system potentially has bothmilitary and commercial applications,primarily in virtual reality technology.

Electronic warfare

Avionics is developing Gripen’s newEWS39 electronic warfare system,which protects the aircraft against vari-ous forms of threats. In combinationwith other countermeasures, EWS39facilitates operations in hostile environ-ments and closer to enemies.

Work is also under way at Avionics ina development project for a new modu-lar EW system, whose modules can becombined in different ways dependingon whether the system is used on ships,aircraft or other platforms .

Market

Avionics’ most important market is thedelivery of systems for existing andfuture Gripen fighters in the SwedishAir Force. The most important event in1999 was an order from the SwedishDefence Materiel Administration inDecember for Gripen’s new EW systemvalued at SEK 1.2 billion.

On the export market, Avionics actsin concert with Saab and BAE SYSTEMS

with respect to Gripen. Avionics alsointernationally markets EW andweapon control systems as well as ser-vices in electromagnetic technology.There has been a lot of interest in theErijammer A110 jammer, and it is beingused with great success by the Swedish,Swiss and Canadian air forces.

Future outlook

Avionics is well-positioned for theongoing shift in defense priorities,where more emphasis is being placedon EW and the man-machine interface.Its current development work centerson display and EW systems and is wellin line with the high-tech approachthat distinguishes today’s military.

Missile systems that canhone in on selected tar-gets with a high degree

of precision have played a large, grow-ing role in military conflicts in the pastdecade. Together with battlespaceawareness, decision support and com-mand and control, precision engage-ment is a key concept in defense think-ing in Sweden and internationally.

Against this backdrop, Dynamics hasa strong position thanks to its technolog-ical and systems expertise as well as itsproducts.

Dynamics develops autonomousguided missile systems. Autonomymeans that in the final stages of itsflight, a missile is guided only with the help of target information from the target seeker.

The missile’s fuse locks on the targetand activates the missile warhead. Thecloser to the target the missile approach-es, the stronger the interference from thetarget or surrounding sources, whichmakes it imperative that target seekers

and rangefinders can handle difficultEW environments.

Expertise in various types of targetseekers, fuses and countermeasures isessential to designing missile systems.

A strong partner in international

collaborations

Dynamics has the technological andsystems know-how required to developand manufacture modern missile sys-tems. It also has the specialized know-how in the areas of guidance and navi-gation, along with sensors and signaland image processing, necessary todesign modern target-seeking missilesystems.

Due to the spiraling cost of newdefense systems, the trend in Europe istoward international cooperations,where development expenditures can beshared by several parties and produc-tion can be done in larger series. TheSwedish Government has clearly statedits objective to participate in such pro-jects. The know-how gained fromnational missile projects can be utilizedinternationally, at the same time thatSweden can build up its knowledge ofsystems as a whole. Sweden on its owncan then adapt the performance charac-teristics of missile systems to meet newthreats (e.g. new countermeasures) in acrisis situation.

Dynamics is currently active in twointernational collaborative projects,IRIS-T and METEOR. Internationalindustrial teams have been formed foreach project.

The IRIS-T air-to-air missile forGripen and other aircraft is beingdeveloped together with German,Italian, Norwegian, Greek andCanadian companies. IRIS-T’s targetseeker operates at infrared (IR) fre-quencies and is designed for short-range combat with other aircraft.

Development of IRIS-T began in 1998,and the missile is expected to be in ser-vice in 2002. German defense contractorBodenseewerk Gerätetechnik (BGT) isthe principal supplier.

The other team was formed to developMETEOR, a long-range air-to-air missile.

DYNAMICS

The cockpit display system in Gripen was developed by Avionics.

15

METEOR, which will be equipped witha target seeker that operates at radar fre-quencies, will be developed primarilyfor Eurofighter and Gripen but can alsobe integrated with other combat fighters.

METEOR is a collaborative projectbetween the UK, Germany, France, Italy,Spain and Sweden, with the French-British missile company Matra BAeDynamics as the principal supplier. Adecision to begin development work onMETEOR is expected in 2000.

Dynamics’ work on the IRIS-T projectis partly at the overall missile systemslevel and partly at the subsystems level,mainly with the IR seeker system. Thesame principles will apply to its involve-ment with METEOR.

High demand for air-to-air missiles

Demand for the classes of missiles repre-sented by IRIS-T and METEOR numbersin the tens of thousands of units. IRIS-Twill replace the American Sidewinder incountries participating in the project, inaddition to the large market it has out-side the cooperating countries. METEORwill replace older missile systems now

in service in the countries participatingin the project and compete with anenhanced version of the AMRAAM air-to-air missile developed in the U.S. Inthe autumn of 1999 the companies in theMETEOR project reached an agreementwith U.S. contractor Boeing, therebyopening an opportunity for METEOR onthe U.S. market.

The two missile systems that Dyna-mics currently markets internationallyare the RBS15 anti-ship missile and theSTRIX passive IR terminally guidedmortar. RBS15, which is equipped with aradar seeker, can be fired from ships, air-craft and trucks. Saab competes with theFrench Exocet and American Harpoonin a market estimated at SEK 20 billionover a ten-year period. In 1999 an agree-ment was reached with Germany’s BGTto cooperate in the German market.RBS15 is currently in service in Swedenand Finland. STRIX has an IR targetseeker and is marketed together withBofors Weapon Systems in several coun-tries. STRIX has been delivered toSweden and Switzerland.

Optronics and laser systems

Dynamics’ expertise in sensors and sig-nal and image processing has a broaderapplication than only missile systems.In optronics in particular, where exten-sive laser expertise complements thespecialized areas of expertise mentionedabove, Dynamics markets several mili-tary products at the system and sub-system level. One example is the EOS-450 naval air defense weapon controlsystem, which in 1999 was delivered toBrazil and which will be delivered toMexico as well.

Another optronics system is IR-OTIS,an infra-red search and track system(IRST) equipped with an IR sensor thatcan search for targets and lock on andfollow them.

The system can be used is so-calledsilent attacks, where the target isapproached with the radar turned off.Tests with Viggen in 1999 show that IR-OTIS meets the requirements necessaryto equip Gripen.

Future outlook

Dynamics is well-equipped for thefuture, when missile systems and otherguided weapons with built-in intelli-gence will play an increasing prominentrole in defense systems. Dynamics hasthe competence to meet the demands ofits most important customer, theSwedish military.

The implementation of IRIS-T andMETEOR and work to identify andimplement new international collabora-tive projects are of great importance tothe future of the missile industry andDynamics.

HIGHLIGHTS DURING THE YEAR● South Africa orders 28 Gripen, including

nine two-seaters● Saab acquires the aviation service com-

pany Nyge Aero● Avionics receives an order from the

Swedish Defence Materiel Admini-stration for electronic warfare systemsfor Gripen valued at SEK 1.2 billion

Air-to-air

Air-to-surface

Cruise

Air defense

Anti-ship

Anti-sub-marine

Segment Saab Celsius

IRIS-TMeteor

KEPD 350

RBS 70RBS 90

ASRAD-RRBS 23 Bamse

BILL 2MBT-LAW

STRIX

Hellfire ShoreDefence SystemBrimstone ShoreDefence System

Torpedo 90Torpedo 2000

RBS 15

STRIX

ASW-601Alecto

Anti-tank

Terminallyguided anti-armor

Missile market segments. Saab and Celsius complement each other well.

16

Saab Ericsson Space is jointly ownedwith Ericsson. Saab’s ownership stake is60 percent. With its roots in both aero-space and telecommunications, Spacehas a unique background in the spaceindustry.

The international space industry is ina mature stage marked by restructuring.The industry’s historical reliance onpublic financing and military operationsis being replaced by a more commercialindustrial structure. Growing commer-cial interest in space is the most impor-tant driving force behind this change.

The total market is estimated at USD40 billion a year and can be divided by

the type of financing into commercial,research-oriented and military sectors.

Commercial market

The commercial market for spaceequipment – primarily the launch andmanufacture of communication satel-lites for telephone, data and television– amounts to USD 5 billion a year.

Deregulation of the telecom markethas led to growing interest in satellite-based telecommunications, which isfacilitating a faster expansion of infra-structure and practically global cover-age. The next major development stepis expected in satellite-based broad-band communication, where majorinvestments are planned in the decadeahead.

In 1999 sales from commercial pro-jects rose by 30 percent, rounding off a500 percent increase since 1990. Com-mercial projects currently account forhalf the business area’s total sales.

Space’s largest order ever quantity-wise – for communication equipment,microwave electronics and antenna

SPACE

CUTTING EDGEELECTRONICS

The Space business area is a leader in the developmentand manufacture of computers, microwave electronicsand antennas, and separation systems for satellites,launchers and other spacecraft. In 1999 Space consoli-dated its position in a changing market and an industrythat finds itself in consolidation.

SPACE

Space 7%

Total SEK 9,053 m.

1) incl. internal sales

Share of sales1)

0

250

500

750

1,000

1,250

'99'98'97'96'95

SalesSEK m.

'99'98'97'96'95

Operating incomeand margin

SEK m. %

0

50

100

150

200

250

0

5

10

15

20

25

'99'98'97'96'95

Research andDevelopment

SEK m.

0

50

100

150

200

SEK m., unless other-wise stated 1999 1998 1997Order backlog 764 733 674Order bookings 706 667 605Sales 676 607 594Operating income 65 59 47Operating margin, % 9.6 9.7 7.9Investments 40 87 43R&D 187 171 171No. of employees 644 600 575

Military 15

Commercial 5

Research andinfrastructure 20

Total USD 40 bn

Space industry marketsegmentsUSD bn

Sales rose by 11percent.The commercialmarket accountedfor 45 percent.

Space improved itsincome by raisingvolumes while main-taining its margins.The operating mar-gin was 9.6 percent.

The business areaaccounts for 6 per-cent of total R&Dexpenditures.

elements for the international ICO project’s 12 mobile telecommunicationsatellites – was completed in 1999.

For many years Space has suppliedcomputers, antennas and separationsystems for the European Ariane project. The Ariane launcher has adominant position in the global marketfor commercial telecommunicationsatellites. The first commercial Ariane 5launcher, the latest and most powerfulversion in the Ariane family, was suc-cessfully launched in December.

Space research market

Research-oriented space investmentsby Western governments are estimatedat USD 20 billion a year. The U.S. is theleader, investing three to four timesmore than Europe. Major institutionssuch as NASA and its European coun-terpart, ESA, are responsible for the largepart of these investments. Researchgrants are expected to remain at thesame high level in the future, at thesame time that international collabora-tions will increase in importance.

Meteorological and environmentalresearch with earth observation satel-lites dominates this market. Among themajor projects are the U.S. Mission toPlanet Earth and Europe’s The LivingPlanet.

ESA’s budget in 1999 was 2.7 billioneuros. Business opportunities for spacecompanies are directly proportionate toeach member country’s contributionsto ESA. Sweden contributes 2-3 percentof ESA’s budget.

Because of its Swedish identity andthe Austrian subsidiary that wasacquired in 1995-1997, Space can com-pete for a total of approximately SEK700 million of ESA’s budget. In recentyears Space has maintained a stableshare of approximately 40 percent ofthe available market.

The procurement process for nation-

al space programs is often steered byrigid rules. If there is a local manufac-turer, which is often the case, it is diffi-cult to compete.

Sweden’s national space researchbudget amounts to approximately SEK130 million a year, and Space has amarket share of about 10 percent. In1999 Swedish space research wasfocused on, among other things, theastronomical research satellite Odin.

In its efforts to reach the U.S.research market, Space has been repre-

sented in Washington, DC, since 1993.Against mainly U.S. competitors, Saabwas able to secure sales of SEK 22 mil-lion from NASA in 1999. Among otherthings, Saab participated in the devel-opment of a meteorological instrumentand control equipment for scientificsounding rockets.

An important part of the publiclyfinanced space operations consists ofinfrastructure investments in position-ing and telecommunication systems. Inthe spring of 1999 ESA and the EUbegan a preliminary study on thedevelopment of Galileo, a Europeanalternative to the GPS positioning sys-tem pioneered in the U.S. Space wouldhave considerable opportunities todeliver equipment for the 30 satellitesplanned for Galileo. The project has anestimated cost of 3 billion euros.Space’s hope is to secure a share ofSEK 500 million.

In 1999 Space participated in ESA’sRosetta scientific project, assisting in thedevelopment and design of the space-craft’s computer and antenna systems.

Space also has total responsibilityfor a computer-based sensor, GRAS, forEurope’s new METOP meteorological

Sales by customer segmentSEK m.

'99'98'97'96'950

250

500

750

Commercial

ESA

Governmental

Growth is entirely within the commercial segment which in four years has grown from 27 percent to 45 percent of net sales.

17

Odin is an atmospherical and astronomical satellite thatis studying the interstellar medium and the mechanismsbehind changes in the ozone layer. Saab has taken part inthe development of its computer and antenna systems.

In 1999 Space participated in the development of thespacecraft Rosetta, which will rendezvous with and researchComet Wirtanen when it enters the inner reaches of oursolar system. Rosetta’s launch is scheduled for 2003, andSaab is developing and designing computer, memory andantenna systems.

18

satellite program. A correspondinginstrument, GPSOS, is being developedfor U.S. meteorological satellites.

Military market

Investments in military space tech-nology in the Western world amount tonearly USD 15 billion a year, with theU.S. military by far the dominant play-er. Changes in security policy haveresulted in the cancellation or cutbacksin investments in certain speculativeprograms, at the same time that theneed for information and intelligenceby modern military forces is expectedto rise.

There is no growth potential indefense-related space equipment, butin absolute terms the market willremain significant. Western Europe’smilitaries are highly dependent on U.S.satellites and have an interest in build-ing up their own capacity, however.

As with other sectors of defensemateriel, the military space market islimited by significant restrictions interms of accessibility and competition.As a result, Space’s sales in this areaare marginal at present.

Future outlook

Over 95 percent of Space’s sales areoutside Sweden, which is where growthopportunities also lie. Space’s aim is tobe a leading independent Europeanmanufacturer of space equipment andto sell its products in the entire avail-able international market.

An important part of the strategy inthe years ahead is to participate in thedevelopment of the commercial mar-ket, where Space’s international experi-ence and leading position in variousareas of expertise give it a strong posi-

tion. Space also is working to raise itsmarket shares in the public market,particularly in the U.S. The opportunityto reach a limited share of the hugeAmerican market is of major importance.

HIGHLIGHTS DURING THE YEAR

• The first commercial Ariane 5 launcherswas launched. Space supplied comprehen-sive equipment

• Order for sensor equipment for newU.S. meteorological satellite system

• Order for on-board computer systemfor the unmanned supply spacecraft beingdeveloped for the new InternationalSpace Station, ISS

• In early 1999 the 200th satellite with aseparation system from Space wasplaced in orbit

Leader in three areas

Space has extensive exper-tise in space technology andis a leader primarily in themanufacture of computersystems, microwave elec-tronics, antennas and separa-tion systems. In each ofthese areas, Space offersworld-leading technologyand quality at competitiveprices.

The pressures associatedwith space travel place uniquedemands on the equipmenton-board. Powerful vibrations,cosmic radiation and largedifferences in temperatureplace stringent requirements

on stability and safety.Space’ computer systemsare designed to control andnavigate satellites and rock-ets, as well as control andmonitor a satellite’s varioussubsystems. In addition tohigh stability, the systems areable to “correct” them-selves, adding to their relia-bility in the event of serious

disturbances.In antenna technology andmicrowave electronics, Spacehas spent years developingvarious solutions for com-munication between sate-llites and the earth.The growing market for com-mercial satellite communica-tion is raising demand inthese areas.

Market potentialNo. of

satellites per year

0

50

100

150

Geostationary

Telecommunications

Broad band

'07'06'05'04'03'02'01'00

The number of geostationary – primarily research andinfrastructure – satellites to be launched during the nexteight years is expected to remain the same. Simultaneouslythe number of tele and data communications satellites tobe launched is expected to be tenfold already in six years.

19

The need for readiness and increasedinterest in rapid international militaryactions – along with greater cost con-sciousness and environmental aware-ness – are driving demand for simula-tor solutions.

During the year Training Systemsstrengthened its position and was able tomaintain good margins and profitability.Declining defense budgets are limitingdemand, though to a lesser extent in seg-ments where Training Systems is active.

In 1999 deliveries were made toaround 15 countries. Exports remaineda priority, with several important break-throughs during the year, including forthe GAMER in the U.S. and new BT47small arms simulator in Austria.

Growing Western interest in out-sourcing is an important driving forcein the simulation business. For example,Training Systems has been contractedby the British Army to issue and receiptof simulation systems during exercises,as well as maintenance, service andstock-keeping.

Simulator market

The market for military simulators andtraining spans from simple mechanicalprocedure trainers to advanced net-works comprising various systems thatsimultaneously simulate air, naval and

army units. Large parts of the marketconsist of resource-demanding devel-opment projects.

Training Systems utilizes its tech-nology to develop leading positions inglobal niches where it can obtain agood repetability of the products.Gunnery and tactical training forground forces are its focus.

World leader in target materiel

In traditional gunnery training withtarget materiel, real weapons fire liveammunition at moving or stationarydummy targets. Modern targetmateriel utilizes advanced electronicsand can be integrated with laser detec-tors, thereby eliminating the need forlive ammunition and allowing formore complicated exercises.

A growing need for modernizationand the ability to complement live fir-ing with laser simulation are drivingdevelopment in a largely mature mar-ket. The industry is fragmented, withmany international suppliers and alarge number of local companies. The value of the total market for advancedtarget materiel is estimated at USD 30-50 million and Training Systems’ shareis approximately 15 percent.

Because of its extensive experienceand strong position in integrating

IN TOUCH WITH REALITY

Training Systems develops and manufactures laser simulator systems, virtual simulators and range equip-ment for military training. Electronics, lasers and softwareare combined to make exercises as realistic as possible.

TRAINING SYSTEMS

TRAINING SYSTEMS1) incl. internal sales

TrainingSystems 8%

Total SEK 9,053 m.

Share of sales1)

'99'98'97'96'95

Research andDevelopment

SEK m.

0

50

100

150

200

'99'98'97'96'95

Operating incomeand margin

SEK m. %

0

50

100

150

200

250

0

5

10

15

20

25

0

250

500

750

1,000

1,250

'99'98'97'96'95

SalesSEK m.

SEK m., unless other-wise stated 1999 1998 1997Order backlog 897 969 1.007Order bookings 631 583 677Sales 735 621 668Operating income 165 167 156Operating margin, % 22.4 26.9 23.4Investments 24 65 51R&D 76 69 94No. of employees 369 257 258

Sales rose by 18percent. BarracudaTechnologies ac-counted for SEK 40m. of the increase.

The operating mar-gin remained highat 22.4 percent, butfell slightly from theexceptionally highlevel of 1998.

The business areaaccounts for 2.5percent of totalR&D expenditures.

20

electronics and mechanics, mobileradio communication, and hydraulicsand control systems, Training Systemsis the world leader in this segment.

During the year major deliverieswere made to Denmark and Norway,among other countries. A large contractwas signed with the Spanish Ministryof Defense for the delivery of mobiletank targets, portable tank targets andradio control systems. The order alsoincludes laser target interfaces, whichallow the BT46 laser simulator to beused against targets.

Laser simulators – largest market

Training Systems’ most important

market is systems for laser-based simu-lation of direct fire weapons. Ammuni-tion is replaced with lasers, making itpossible to train with real targets andreal equipment. The need to train andevaluate new tactics – as well as agrowing environmental awareness – is driving development.

A handful of international suppliersare active in the laser simulator market,which has a total value of USD 150-250million. Training Systems’ marketshare is estimated at 30 percent, but issignificantly higher in two-way sim-ulators (see sidebar). In essence, thecompany’s BT46 system has set theglobal standard in this market.

In 1999 Training Systems received itsfirst order – from Austria - for the BT47small arms simulator. The AustrianMinistry of Defense has also orderedthe BT46 lightweight personnel detec-tion device, at the same time that siz-able deliveries of the BT46 laser simu-lator systems have been made for theLeopard tank.

An order was received from theFrench Ministry of Defense for the BT46laser simulator for the AT4 anti-tankweapon, a breakthrough order for lasersimulator systems in the French market.

The U.S. military also placed a num-ber of orders for the BT46 in 1999.

Enemy replaced by dummy targetsFunctionGunnery training with live ammunition or lasers against target mechanisms for small arms, antitank weapons and tanks.

PurposeTraining for individual soldiers and squads.

Laser replaces live ammunitionFunctionGunnery training with laser simulators against “real”, moving targets. Hits are registered when the laser beam reflects from the struck tank/soldier. Computer programs calculate ballistics, movements, ammunition use, etc. to achieve a high degree of realism.

PurposeGunnery training and tactical training with small arms, tanks and antitank weapons for individual soldiers, squads and platoons – from individual soldier to brigades.

Terrain, enemy and ammunition can be simulatedFunctionGunnery training in virtual environment. Display in combination with real weapon.

PurposeWeapon training with machine guns and anti-aircraft guns for individual soldiers and squads.

Integration of real and virtual environmentsFunctionSystem for combat exercises that makes it possible to combine different training levels, from laser firing against target mechanisms to the BT46, in the same exercise. Indirect fire from artillery can also be simulated.

PurposeTrain individual soldiers, squads, co-train and evaluate exercises from platoon to brigade size with a high degree of realism.

Market USD 30–50 million

Market shareapprox 15%

Market USD 150–250 million

Market share approx 30%

Market cannotbe estimated

New market

From reality to realism

Graphic simulation

Laser simulation

Targetmaterial

Laser simulatorSensor

Display in sight

Electronics unit

BT 61

BT 46

Target mechanisms

GAMER

BT47

Instrumented training centers

21

In July 1999 Saab acquired sig-nature management specialistBarracuda Technologies, whichis active at the defensive end ofinformation warfare – wherethe key is to avoid being seen,heard or detected.

Operations are concentratedin Gamleby, outside Västervik,with subsidiaries in France,Canada,Australia and India.

Sales amounted to SEK 80million in 1999, of which 65percent was exports. Barracuda’sproducts are represented inaround 40 countries.

Undetected by the eye,IR, UV or radarBarracuda’s business idea is to develop solutions that counter every advance in sensor tech-

nology and make it possible to avoid detection.Today’s productrange covers a large part of theelectromagnetic spectrum, fromultraviolet light to radar. R&Dinvestments amount to 5 per-cent of sales.

Growing interest in information warfareThe value of the total marketis estimated at SEK 1 billion,but the potential market forsignature management may be3-5 times larger. Demand isexpected to rise in pace withgrowing interest in informationwarfare and the developmentof modern sensor technology.

The U.S. is the world’s single largest market and for all intentsand purposes has prohibited

imports for decades. However,the technology Barracuda pos-sesses is manufactured underlicense there.

Synergy possibilities withother Saab business units areconsidered significant.The acqui-sition of Barracuda gives Saabtechnological expertise in detec-tion and protection againstdetection. Sales synergies withother business units are goodas well. Barracuda has largelythe same customers as TrainingSystems, and through Saab,Barracuda gains access to abroader marketing and distri-bution network.

In December 1999 Barracudawas awarded an order fromthe Swedish Defence MaterielAdministration for multispectral

camouflage screens.The ordervalue is approximately SEK 40million.

Future outlookAn important part of Barra-cuda’s strategy is to spreadawareness of the technologyits products represent. Con-sidering the opportunitiesavailable, modern signaturemanagement equipment is inrelatively limited use, even bymodern military forces. Con-sequently, an international market presence is importantin order to capitalize on theexisting potential.

BARRACUDA TECHNOLOGIES

10m 1m 0.01m 0.1m 1mm 0.01mm0.1mm 1 mh 0.1 mh 0.01 mh 0.001 mh 0.0001 mh

The human eyeis a fantastic sensor,and hiding fromthe naked eye is the basic task of allsignature management.

Near infrared imaging captures reflected light just beyond visual light.

In snow white, materialsstand out black througha UV filter when an inappropriate signature management is applied.

Protection againstground radar, airborneradar as well as millimeter radar in terminally guided systems .

Wave length

Radar

Thermal infrared is the main sensor threat today. Signature management includes protection againstall types of thermal sensors.

Without Without Visual light

UV light

Barracuda Competitor

Nearinfrared Visual Ultraviolet light

Thermalinfrared

Signature management

Without

Protection againstground radar, airborneradar as well as millimeter radar in terminally guided systems.

Barracuda Competitor

22

Graphic simulation – standardization

or specialized solutions

Graphic simulators, which project asimulated reality on a real weapon’ssights, are often used in firing practiceby individual soldiers or small units.This market sector is characterized by adiversity of local players with no clear-cut global market leader.

In this area, Training Systems hasdeveloped the BT61, which utilizesauthentic photographic environmentsand can simulate moving three-dimen-sional targets, ammunition trajectoriesand weather conditions. By being amore general product, BT61 differs fromthe specialized solutions that dominatethe market. It offers significant costadvantages, but limits the opportunityto meet all the requirements customersmay have. BT61 also offers the advan-tage of being able to simulate differentweapon systems.

BT61 complements and strengthensthe rest of Training Systems’ productrange, allowing it to offer existing cus-tomers a turn-key solution for gunneryand tactical training.

GAMER – a new dimension in simulation

Modern computer, laser, communicationand positioning technology have madeit possible to combine several differentsimulation solutions in an overall system.Battle command, tactics and strategy canbe practiced, at the same time that theunits involved train with their weapons.

With the GAMER (Gunnery andManeuver Exercise) system, TrainingSystems has developed a concept thathas attracted great interest. The partici-pating units in GAMER exercises, whichcan range up to brigade size, areequipped with BT46 and BT47 lasersimulators. Wireless communication andGPS technology link the units with atraining center. Exercise commanderscan therefore change the conditions of anongoing exercise. All data is stored, andimmediately afterwards the participantscan analyze and evaluate each action.

GAMER is compact, mobile and canbe operated without fixed equipment

and contractor support. The units con-ducting the training can easily assembly,handle and adapt the system themselvesfor different exercises and needs. It iseasy to add new terrain data in order topractice in foreign environments. Thisallows for advanced exercises that pre-pare units for new situations and condi-tions, as well as continuous training forunits stationed offshore for long periods.Both of these situations are becomingincreasingly important in today’s moreinternationalized military forces.

Interest in GAMER and the potentialit offers are significant, and its successalso promotes the sale of the BT46 andBT47. In 1999 the first system wasdelivered to the U.S. army, an impor-tant breakthrough in the NATO market.

Future outlook

The BT46 and GAMER, in particular,give Training Systems a product rangewell-suited to the market’s expected

development, i.e. a broad-scale intro-duction of two-way simulators andinstrumented training systems.

The market for full Combat ManeuverTraining Centres (CMTC), where thesupplier takes on a full responsibility,delivers all simulation equipment andon site manages all technical supportduring exercises, is anticipating dra-matic growth. Training Systems is activein this segment of the market and is wellprepared for its future development.

HIGHLIGHTS DURING THE YEAR

• GAMER receives a breakthrough orderin the U.S. market

• Austria orders the BT47 small arms simulator

• BT46 receives a breakthrough order inthe French market

• Major contract with the Spanish army to supply mobile tank targets

• Acquisition of signature managementspecialist Barracuda Technologies

What is a two-way simulator?

Two-way simulators such as the BT46 solve this by combining laser technology with advanced optics and computer power to simulate real conditions. Participants have to take into account their weapon's behavior as well as the target's position and movements.

A laser is fired at the speed of light. A conventional one-way simulator registers hits or misses in the same instance as the shot is fired and therefore cannot simulate distances, trajectories, weather conditions or a target's movements.

SensorOne-way simulator Two-way simulator

Laser

Laser

Info

Computersimulatedtrajectory

Laser simulator

23

The commercial aviation market is anti-cipating good growth in the years ahead,with air traffic rising by 5 percent a year,according to some market experts.

Due to the very high costs of devel-oping large commercial aircraft, thereare only two manufacturers left in theworld, Boeing of the U.S. and Europe’sAirbus Industrie. Below them are anumber of levels of subcontractors thatto varying degrees share the risks andearnings potential of the projects theyare involved in.

AEROSTRUCTURES

The CollaborativePrograms business unitsupplies its productsboth internally andexternally. Collabora-

tive Programs represents part of Saab’soverall design and material expertise

and benefits from the experiencegained in the development of militaryand commercial aircraft.

Internal sales within Saab – primarilyto Gripen though also to Saab Aircraft– are significant, accounting for 80 per-cent of the business.

Sales to Airbus and Boeing, thelargest outside customers, amounted toSEK 115 million in 1999.

As of year-end 1999 CollaborativePrograms' outstanding contracts had avalue of SEK 1.6 billion. With its currentorder book, the business unit expectsexternal sales to grow organically by15–20 percent a year.

Subsystems supplier

Collaborative Programs’ strategy is to bea leading supplier of systems solutionsused in the development of new aircraft.While this gives it design and produc-tion responsibility for subsystems, it also

COMMERCIAL AIRCRAFT

PARTNER IN THE COMMERCIALAIRCRAFT MARKET

The Collaborative Programs business unit is a partner and subcontractor to aircraft manufacturers. In 1999 the first floor structures for the Airbus A340-500/600were delivered.

The Saab Aircraft business unit is responsible for customer support for the approximately 500 Saab 340 and Saab 2000 regional aircraft that Saab has manufactured.The Saab Aircraft Leasing business unitmanages a leasing portfolio of 309 of these aircraft.

COMMERCIAL AIRCRAFT

Share of sales1)

1) incl. internal sales

CommercialAircraft 8%

Total SEK 9,053 m.

'99'98'97'96'95

Research andDevelopment

SEK m.

0

50

100

150

200

'98neg.

'99neg.

'97'96'95

Operating incomeand margin

SEK m. %

0

50

100

150

200

250

0

5

10

15

20

25

'99'98'97'96'95

SalesSEK m.

0

250

500

750

1,000

1,250

COLLA-

BORATIVE

PROGRAMS

SEK m., unless other-wise stated 1999 1998 1997Order backlog 386 350 102Order bookings 836 1,167 804Sales 812 908 757Operating income -2 -15 3Operating margin, % neg neg 0.4Investments 29 35 45R&D 181 49 5No. of employees 1,629 1,575 1,439

Sales to Airbus andBoeing accountedfor SEK 115 m.Sales to RegionalAircraft declinedsubstantially duringthe year due to the phase-out ofregional aircraftmanufacturing.

The loss is attribut-able strictly toexternal sales.

R&D expendituresnearly quadrupledcompared with theprevious year, prima-rily due to Collabo-rative Programs’ de-velopment work onthe Airbus A3XXand A340-500/600.The business areaaccounts for 6 per-cent of total R&Dexpenditures.

makes Saab a risk-sharing partner insuch projects.

The higher up in the production hierarchy a manufacturer is, the higherits margins and risks. CollaborativePrograms is a so-called tier II subcon-tractor, which puts it at a level justbelow the companies that are responsi-ble for the entire aircraft. The competi-tion in this area consists of other aircraftmanufacturers that share Saab’s techno-logical capability to design entire aircraftor major sections of a plane.

The ability to constructively cooper-ate with other companies is essential to success in this market. Saab haswell-established relationships withboth Airbus and Boeing.

Design and material know-how

Saab has 60 years of experience in air-craft design, and the development ofGripen has given it a leading positionin modern materials technology. Thecomposites used in Gripen also haveapplications in the commercial market.The large part of the main landing geardoors on the Airbus A340–500/600 ismade of the most advanced compositedesign ever produced by Saab. It is evenmore complex, for example, than thewings on Gripen.

The development of Airbus’ newsuperjumbo A3XX, which will be able to transport over 650 passengers, givesCollaborative Programs the opportunityto assume responsibility for even largerunits. In December 1999 the board ofdirectors of Airbus decided to continuethe work on A3XX and evaluate poten-tial commercial interest among major air-lines. A decision on the production startis expected during the first half of 2000.

Future outlook

In the years ahead Gripen’s relativeimportance to the business unit willdiminish as the growth opportunitiesincrease in commercial aircraft manu-facturing.

REGIONAL AIRCRAFT

A milestone was reached in 1999 withthe delivery of the last Saab 340 andSaab 2000. Over 500 of these regionalaircraft are in service with around 40carriers around the world.

International production of regionalaircraft has declined in recent years, atthe same time that traffic demand is onthe rise. As a result, continued demandfor used regional aircraft is expected inthe years ahead.

Although there is a trend towardregional jet aircraft, Saab 340 remains ahighly competitive alternative forshorter flights of 300-450 km. Demandis expected to continue, and with its35-percent market share Saab 340 is theleading regional aircraft in its class.

Saab 2000 has a strong position asa niche aircraft for 50 passengers. InEurope, it is well-established as a high-performance aircraft that can alsooperate out of small airports.

Both Saab 340 and Saab 2000 arebacked by the Saab Aircraft customersupport organization. According to a1999 survey by the Professional Pilotmagazine, Saab still ranks by far as oneof the best customer support organi-zations on the market.

Both aircraft are expected to maintaingood demand and thus retain a highvalue in the future, which still makesthem very attractive for leasingpurposes.

Saab Aircraft is theholder of type certifi-cates for Saab 340and Saab 2000 and

is responsible for the continued air-worthiness for these two aircraft types.

In addition to the normal supportservices – spares, technical services,training, manuals, etc. – there is also adedicated development group with thecapacity to develop new options andmodifications. In addition, a JAR145-approved maintenance center has beenestablished in Linköping. This workshopalready works to nearly full capacity,and the associated paint shop has had

24

Parts manufacture

Small subassemblies, sealants, composites (e.g. mechanism in wing flaps)

Smaller subassemblies (e.g. wing flaps)

Major subassemblies (e.g. wings, tails)

Entire aircraft

No. of subcontractors

20-odd

2

700

Value-added pyramid for commercial aircraft

V

IV

III

II

I

100

SAAB

AIRCRAFT

In August Saab delivered the first pair of pressurizedlateral floor structures for Airbus’ largest aircraft, theA340-500/600.

requests for the painting of aircraft typesother than Saab 340 and Saab 2000.

During 1999 flight test resourceswere transferred to the customer sup-port department, bringing the numberof employees to about 400, of whomabout 320 work in Linköping andabout 70 for the subsidiary SaabAircraft of America, in Washington,DC, which supports operators in theAmericas. In addition, there are fieldservice representatives stationed with a number of customers.

Spares sales account for about twothirds of the turnover, with the remain-ing third consisting of maintenance workin Linköping, on-site assistance, salesof options and modifications, etc.

A new, computerized distributionand financial system was implementedin 1999, simplifying and streamliningroutines and in the process furtherenhancing service to customers.

The customer support organizationnaturally works very closely with SaabAircraft Leasing when it comes to sup-porting “own” lease customers.

With a significant shareof the existing fleet ofSaab 340 and Saab 2000in its leasing portfolio,Saab has a direct finan-

cial interest in maintaining the value ofthese aircraft.

27 airlines in 15 countries

As of year-end 1999 Saab AircraftLeasing managed 309 of the 522 totalregional aircraft manufactured by Saab.The portfolio included 280 Saab 340 and29 Saab 2000 leased to 27 airlines in 15countries; 222 of the leased Saab 340 areoperated by six airlines in the U.S.

When the decision was made toterminate the production of regional aircraft, the value of Saab’s leasing port-folio was adjusted to its estimated mar-ket value and provisions were allocat-ed to cover the estimated deficit.

The total value of the portfolio onand off balance, excluding the 61 air-craft that are financed with non-recourse funding, amounted to SEK 9.4billion at year-end. The reserve thatadjusts the portfolio to market valueamounted to SEK 2.7 billion at year-end, corresponding to approximately30 percent of the value.

Developing according

to expectations

During the year leases of five yearsor more on 52 (10) Saab 340 and 0 (10)Saab 2000 were signed with existing andnew customers. 4 (1) aircraft were sold,and at year-end 6 (8) were not contract-ed to any operator. Due to contract vio-lations, 7 (1) aircraft were repossessed.

The value of the lease portfolio fallswithin the valuations and provisions reported in the financial accounts for1997. Alternative funding solutions forthe portfolio are continuously beingevaluated.

HIGHLIGHTS DURING THE YEAR

• The last Saab 340 and Saab 2000 weredelivered and regional aircraft productionwas discontinued

• The first pair of floor structures wasdelivered to Airbus’ French partner,Aérospatiale Matra.The total order valueamounts to USD 75 million

SAAB

AIRCRAFT

LEASING

Saab was ranked the second best in regional aircraftsupport in a survey by Professional Pilot.

Saab Aircraft Leasing’s portfolio December 31, 1999

Saab Saab Saab Total TotalOperator 340A 340B 2000 Dec. ’99 Dec. ’98

USA American Eagle – 88 – 86 83USA Business Express 10 20 – 30 34USA Chautauqua Airlines 12 – – 12 11USA Express Airlines 8 11 – 19 19USA Mesaba 23 50 – 73 74USA Peninsula Airways – 2 – 2 2Canada Calm air – 4 – 4 3Argentina KAIKEN – – – – 3Argentina TAN 2 – – 2 2Argentina TAPSA 1 – – 1 1Mexico Aerolitoral – 2 – 2 –Colombia Aero Taca – – – – 2Americas and Canada 56 175 – 231 234

Ireland City Jet – – 2 2 2Latvia Air Baltic 1 – – 1 1Czech Republic Air Ostrava 4 – – 4 4Rep. of Slovakia Tatra Air – – – 2 2France Regional – 1 8 9 13UK British Midland 6 3 – 9 10UK Loganair – 2 – 2 –UK Aurigny 1 – – 1 –Switzerland Crossair – – 10 10 10Lithuania Lithuanian Airlines – 2 2 4 4Italy Med Airlines – – 2 2 2Sweden SAS – – 5 5 6Sweden Skyways – 4 – 4 4Sweden Flying Enterprise – 1 – 1 –Europe 12 13 29 54 58

New Zealand Air Nelson 1 – – 1 1Australia Hazelton Air Service – 3 – 3 6Australia Macair – 2 – 2 2Australia Kendell 1 4 – 5 5Rest of the world 2 9 – 11 14

Allocated (Colgan Air) – 3 – 3 2Allocated (Aerolitoral) – 1 – 1 –Allocated (Chautauqua) 2 – – 2 –Allocated (Loganair) 1 – – 1 –Available 3 3 – 6 8Total portfolio 75 205 29 309 316

25

26

Major research efforts are essential ifSaab is to maintain and develop a lead-ing position in its core businesses. In theprocess, knowledge and ideas are gen-erated that may also have commercialapplications. The spin-offs that are notimmediately divested to other ownersserve as the base for the Combitechbusiness area.

The objective for Combitech’s com-panies is to generate the highest possiblevalue for Saab. Whether this is accom-plished by keeping a business as part ofSaab or having another owner take overis determined on a case-to-case basis.

In 1999 several businesses weredivested to more suitable owners. Insome cases, losses were realized, whileother divestments resulted in capitalgains. The divestments and positivedevelopment by the remaining compa-nies explain the strong income improve-ment by the business area.

During the year Saab also became apart-owner of Norway’s Kitron, whichwill be an important partner in helping torationalize Saab’s electronics production.

The head office in Jönköping was dis-solved during the year, and the opera-tions are now managed from Linköping.

In January 2000 Traffic Systems wasdivested with a capital gain of SEK 55million.

Saab Marine Electron-ics is a world-leadinggrowth company inlevel gauging tech-nology. It develops,

manufactures and markets radar-basedtank gauging systems for tankers andthe petrochemical and processindustries.

Operations were established inthe 1970’s using technology originallydeveloped by Saab for altimeters inadvanced missile systems. The companyis highly international, with exportsaccounting for 98 percent of sales.Growth is good, and for the eleventhconsecutive year both sales and incomeincreased. Sales amounted to SEK 488(443) million and operating income wasSEK 68 (37) million.

Leader onboard tankers

Marine applications account for half ofsales. The company’s global marketshare for tankers exceeds 50 percent,and its products are often specified byshipowners when ordering a vesselfrom a shipyard.

A new level gauge for ships thatcarry liquefied natural gas (LNG) was introduced in 1999, and a number of important initial deliveries were made.Development opportunities in this

COMBITECH

MILITARY TECHNOLOGY INCOMMERCIAL APPLICATIONS

Through divestments and improved income, theCombitech business area made a strong contributionto the positive income trend in 1999.

COMBITECH1) incl. internal sales

Combitech 13%

Total SEK 9,053 m.

Share of sales1)

'99'98'97'96'95

SalesSEK m.

0

250

500

750

1,000

1,250

'99'98'97'96'95

Operating incomeand margin

SEK m. %

0

50

100

150

200

250

neg.neg.neg.neg.0

5

10

15

20

25

'99'98'97'96'95

Research andDevelopment

SEK m.

0

50

100

150

200

MARINE

ELEC-

TRONICS

SEK m., unless other-wise stated 1999 1998 1997Order backlog 635 693 781Order bookings 1,270 1,001 1,356Sales 1,273 1,057 1,073Operating income 80 -166 -338Operating margin, % 6.3 neg. neg.Investments 53 63 91R&D 126 123 137No. of employees 804 858 878

Sales rose by 64percent after adjusting for thethree companiesdivested in 1999.Combitech Systemsgrew by over 60percent a year in1998 and 1999.

Combitech’s in-come improvedsignificantly due tothe fact that thebusiness area nowincludes only profit-able niche companiesand a developmentcompany.The operating mar-gin was 6.3 percent.

The business areaaccounts for 4 per-cent of total R&Dexpenditures.

27

market are considered good. Equipmentfor small tankers is another importantgrowth market.

A well-established sales network hasmade it profitable for Saab MarineElectronics to acquire companies withcomplementary equipment for themarine market but which lack a largesales organization. Investments werealso made in sales and service compa-nies in Singapore and the UK.

Other important developmentsinclude the integration of a growingnumber of system functions and theefforts by the company to become amore complete systems supplier.

Leader on land as well

A number of companies compete inthe market for land-based tank gaugingequipment. Marine Electronics is activein this field under the name Saab TankControl. The market share in the oilindustry is approximately 30 percentand growing, particulary with respectto refineries and tank terminals.

The product range was strengthenedduring the year through Saab TankRadarRex, a new gauge that measures levels

to a precision of a half-millimeter and can even be integrated into com-petitors’ systems.

The sales organization was strength-ened through the addition of subsidiariesin India and the UK. Local technical andcommercial support in the form of strongsubsidiaries and distributors have provento be an important way to increase cus-tomer benefit and profitability.

Asia is a key growth market. Eco-nomic development in the region, incombination with increased safety andenvironmental demands, offer signifi-cant potential.

Growing interest in

process industry

The process industry is a new segmentfor the company. The specially design-ed Saab TankRadar Pro has since theintroduction in 1997 gained marketshares. In order to further strengthenits position in this area, the company in 1999 launched a new product, SaabLoopRadar, which is simpler to installand strengthens the product range.

Radar-based level gauging is attract-ing growing interest from the chemicalindustry as well as the food and otherprocess industries.

Combitech Systems is aprofitable IT companywith cutting-edge exper-

tise in technical real-time systems.

Operations consist of advanced systemsdesign and software development com-bined with electronic and mechanicalengineering, process optimization andtraining. Of approximately 200 employ-ees, nearly 190 are consultants.

In 1999 sales rose by 60 percent, toSEK 159 (99) million, and operating in-come was SEK 25 (15) million. Orders in1999 increased by more than 60 percent.

Sixty-five percent of sales are outsideSaab. Within the Group, CombitechSystems has developed central real-timesystems for Gripen, among other things.

The development of systems that cancommunicate over the Internet offerssignificant potential. Greater communi-cation possibilities are making built-inreal-time systems increasingly importantin the automotive and telecommunica-tion sectors, for example.

For Ericsson Microwave Systems,the company has developed a so-calledWAP (Wireless Application Protocol)solution for motor vehicles. The systemmonitors a vehicle’s functions andsends service updates and error infor-mation to a central computer server.

Combitech Systems signed a newcooperation agreement with Nokia onthe development of a software platformfor digital television boxes. The cooper-ation is expected to generate consider-able surplus value.

During the year a new contract wasalso signed with Sweden’s Rymdbolaget

SYSTEMS

Micro waves

Radarecho

Antenna

Electronics

What is a radar-based level gauge?A radar-based level gauge measures liquidlevels with the help of radar waves projectedagainst the surface of the content in a tank.In addition to reliability and precision, radar-based level gauges are simpler and lessexpensive to maintain than mechanical levelgauges.

Level gauges are integrated in large informa-tion and presentation systems, for example,on tankers and in oil depots. Measurementdata can be complemented with informationon tank pressure and temperature.

28

for support in the development ofarchitecture and software for Smart 1,a European research satellite.

Combitech Networkoffers a complete rangeof products and services

for IT security. Its expertise stretches fromanalyses and products to operations,support, maintenance and monitoring.

An important part of the operations isthe responsibility for Saab’s computersecurity. In an environment with unique-ly high demands in terms of confiden-tiality, accessibility and data integrity,Combitech Network has carved out acompetitive, efficient organization.

The Swedish National Police Board, Teliaand Ericsson are among the customersthat currently buy security services fromCombitech Network. Sales grew by morethan 30 percent in 1999 to SEK 351 mil-lion. Operating income increased by 47percent to SEK 25 million. Orders grewmore than 60 percent.

In 1999 the company introduced anApplication Service Provider (ASP)concept called SECURemote. The ser-vice offers companies and organiza-tions remote access to complete ITenvironments, giving them high flexi-bility and security. The global market isexpected to grow to USD 5 billionwithin a few years.

HIGHLIGHTS DURING THE YEAR

• Marine Electronics received importantorders for level gauges for natural gastankers

• Systems supplied WAP solutions toEricsson

• Network introduced SECURemote forremote access to complete IT environ-ments

• Combitech acquired Saab Celsius Tran-sponderTech, for satellite-based posi-tioning technology for ships and aircraft

• The head office in Jönköping was dis-solved and operations are managedfrom Linköping

• Combitech Electronics, Pronesto andSurvey Systems were divested in 1999and Traffic Systems in January 2000

NETWORK

SAAB CELSIUSTRANSPONDERTECH

Since 1999 Saab has been work-ing together with Celsius on adevelopment project in satellite-based positioning technology forships and aircraft.

Saab Celsius TransponderTechdevelops transponders that com-bine positioning from GPS satel-lites with a VHF computer link.

Greater security and higher traffic flowsWith the help of transpondertechnology, ship captains and oth-ers have access to real-time navi-gation data on other ships andaircraft. In addition to directcommunication between partiesand the identification of foreignvessels, the technology can beused to transfer information oncargoes, final destinations, etc.

Consequently, the system im-proves the security and efficiency oftraffic flows.The United Nations’International Maritime Organization(IMO) has set the system as a stan-dard for ships above 300 tonnes.

TransponderTech, which already

offers finished products, is in astrong position for future growth.Infrastructure investments arebeing made in the marine marketin terms of ports and busy ship-ping lanes, where shipping andport authorities are major cus-tomer groups.

Growth in national and inter-national air traffic is creating sub-stantial demand for solutions thatincrease security.The technologythat TransponderTech representsis not yet the standard, but thelikelihood of a global or regionalstandard is high.The aviationmarket is developing just asstrongly as the marine market.

Strong sales organizationTransponderTech benefits frombeing part of a large, recognizedindustrial group.The wealth oftechnical know-how within bothSaab and Celsius is utilized in anumber of areas. Marine Elec-tronics’ sales organization in certain parts of the marine market is used as well.

Saab Celsius TransponderTech has developed an advancedsystem for positioning and identifying aircraft, ships andother vessels.The system is the international standard forships over 300 tons and has strong potential in both themaritime market and aviation.

Ships equipped with Universal Ship-borne Automatic Identifica-tion System – Universal AIS – automatically identify other ships withing VHF range.With a click on a ship the systems calulates and presents the exact position of a meeting, minimum distance at a bow crossing as well as changes in course over ground, heading and speed,almost at real time.The captains can communicate with each other via e mail-type messages over the data link.

29

Environmental management

Work is under way within the SaabGroup to adapt operations to the ISO14001 environmental management stan-dard. Saab Marine Electronics AB hasbeen certified according to ISO 14001. Inmost cases, other affected business unitsand subsidiaries within Saab’s businessareas have built up systems that areadapted to ISO 14001. The introductionof the systems has progressed to differ-ent degrees, however, within the varioussubsidiaries and business units. TheGroup’s largest, most comprehensiveindustrial operations from an environ-mental standpoint are carried out at theplants in Linköping, where a sharedenvironmental management systemadapted to ISO 14001 is applied. Duringthe year two companies were added tothe Saab Group – Barracuda Technolo-gies and Saab Nyge Aero – which willgradually adapt their operations toSaab’s environmental policy and overallenvironmental objectives.

In 1999 several training programswere held in order to increase the environmental awareness of theemployees and facilitate the introduc-tion of environmental managementsystems. As far as possible, the environ-mental management systems are beingintegrated into the quality systemsused by subsidiaries and businessunits. Around 50 quality auditors havereceived specialized training in envi-ronmental issues and environmentalaudits. Environmental audits are con-ducted as part of frequent qualityaudits and are an important element in the introduction of environmentalmanagement systems.

Objectives and responsibilities

The overall objectives of Saab’s envi-ronmental work were revised in 1999.Accordingly, the subsidiaries and busi-ness units must:• have thorough knowledge of envi-

ronmental risks and environmentalimpacts

• document hazardous materials intheir operations and products andwork actively to replace them

• take into consideration possible envi-ronment impacts throughout thedevelopment process for new products

• work actively to reduce the consump-tion of raw materials and energy

• sort wastes at the source and mini-mize them wherever possible

• units and subsidiaries with opera-tions or products that have a signifi-cant impact on the environment mustadapt their environmental manage-ment systems to ISO 14001; each sub-sidiary and business unit determineswhether to certify its operationsaccording to ISO 14001.Responsibility for implementation of

the policy and overall objectives restswith the manager of each subsidiaryand business unit.

Research and development

In order to meet their requirements forsafety and technical performance, com-panies in the aerospace industry haveto use chemical substances that are clas-sified as hazardous to humans and theenvironment. Saab has long applied ahighly detailed process to monitor andfollow up hazardous chemicals.

Efforts to introduce environmentalconsiderations in the development anddesign stage continued during the year.

In accordance with the overall objectives,these initiatives vary for ongoing andnew product programs. Several of Saab’sproducts currently being marketed,including Gripen, were developed in theeighties and will continue to be market-ed for years to come. In these ongoingproduct programs, environmental workis concentrated on the identification anddocumentation of hazardous substances.As indicated below, projects are alsounder way to replace hazardous sub-stances. In new product programs, envi-ronmental considerations are graduallyintegrated into the entire developmentand design process.

Saab has taken the initiative in sever-al projects to replace substances that arehazardous to human health and the en-vironment, e.g. trichloroethylene, VOCs,chromium/chromates and cadmium, aswell as in cleaning, surface treatment,pickling and anodizing processes and invarious paint systems. Several of theseprojects are conducted internationally incooperation with large parts of Europe’saircraft industry and within the frame-work of the EU’s research programs.During the period 1997-2001, total ex-penditures for these projects amounts toover SEK 80 million, of which Saab’sshare is approximately SEK 6 million.The company considers it a good invest-ment in the future to actively participatein the development work being done tofind long-term, sustainable materialsand processes.

Results of environment work

in production

The most significant environmentalimpact originates from Saab’s plants inLinköping. Operations are carried outin a number of workshops that manu-facture various types of aircraft, mis-siles, space equipment and compo-nents, as well as subcontracted produc-tion and retrofitting of older aircraft. Inadditon maintenance on aircraft is per-formed. The environmental work hereis concentrated on reducing the use ofhazardous substances, energy and rawmaterials as well as reductions in noiseand emissions. Environmentally haz-

ENVIRONMENTAL REPORT

The Saab Group is engaged in an active program to mini-mize the environmental impact of its manufacturing andproducts. Its policy is to maintain openness and cooperatewith customers, government authorities and others withan interest in environmental issues.The Group guidelinesfor environmental work are set out in the environmentalpolicy and overall environmental objectives.

30

ardous operations are also carried outin Gamleby, Gothenburg, Jönköpingand at Arlanda Airport.

Summarized below are the results ofsome of the environmental work atSaab’s plants in Linköping. The resultsare shown as totals.

Chemical substances hazardous to human health and the environmentAs part of Saab’s research project, workis continuously being done to find alter-natives to the degreasing agent trichlo-roethylene (tri) that primarily utilizewater-based solutions. The diagrambelow shows how the use of tri hasdecreased since 1990. Most of this progress has been achieved throughchanges in production processes, inpart by reducing the need for cleaning.Saab has received an exemption for theuse of tri until 2002. (Tri is tightly regu-lated due to its possible carcinogeniceffect on humans.)

Emissions of volatile organic solvents(VOCs) have been limited through theinstallation of cleaning equipment andby switching to paints containing lessVOCs. The diagram below shows the

reduction in emissions of VOCs fromSaab’s plants in Linköping since 1990.

Beginning in 2000, VOC emissionsmay not exceed 40 tonnes a year. Theinternational development projectsmentioned above, as well as a numberof internal projects, will eventuallylead to further decreases in emissions.VOCs contribute to the formation ofgreenhouse gases that are hazardous toboth humans and plants.

Saab has implemented comprehen-sive programs to reduce the use ofother hazardous substances.

The use of cadmium in aircraft pro-duction has decreased from about 200kg/year in the eighties to around 40 kgtoday. Since the early nineties the useof cyanide has decreased from over3,000 kg/year to around 60 kg today.Degreasing tanks containing environ-mentally hazardous tensides and chro-mates have been completely replacedby more environmentally friendlyalternatives. The use of surface treat-

ment chemicals, paints and sealingagents containing chromium remainswidespread throughout the aerospaceindustry, however. The ongoing R&Dprojects to a great degree focus onreplacing materials and processes con-taining cadmium and chromium.

Cyanide is a highly toxic substance.Chromium and cadmium in particularare extremely hazardous to humanhealth and the environment. The use ofcadmium is forbidden, but the aero-space industry has a general exemption,without time limits, for certain applica-tions. Cyanide and chromium currentlyare not regulated by licenses with timeconstraints. Those who use cadmium,cyanide and chromium are obligated toseek out alternatives or replace themwhen technically viable alternativesbecome available. Emissions of thesesubstances fall well within the licenselimitations that apply to Saab’s opera-tions in Linköping.

Emissions of the de-icing agent urea

Consumption of trichlorethyleneTonnes

'99'97'95'93'910

25

50

75

Vattenförbrukning1 000 kbm

-99-97-95-93-910

100

200

300

400

500

ENVIRONMENTAL POLICYSaab will comply with applicable environmental regulations and introduce continuous improvements in its operations to minimize the environmentalimpact of its plants, production and products as far as is technically possible and financially reasonable.

An efficient, well-documented environmental management system is appliedin design, production, product support and maintenance.The system is followedup with frequent audits.

Painting of Gripen in Saab's painting hangar in Linköping.Today waterbased paint is used for the final painting of Gripen.

Emissions of volatile organic solventsTonnes

0

50

100

150

200

'99'97'95'93'91

31

from Saab’s airfield amounted to 85tonnes in 1999. Urea causes a buildupof nitrogen, clogging waterways.Detailed objectives and programs havebeen established to reduce the use ofurea. The consumption of glycol,which is used to de-ice aircraft and cancause a lack of oxygen in water,amounted to 8.4 tonnes during theyear. Approximately 70 percent of theglycol is recovered and processed inpurification plants.

Cooling installations containing morethan 0.9 kg of CFC were eliminated in1999. During the years 1998-2002 allcooling installations at Saab’s plants inLinköping that contain ozone-depletingrefrigerants (CFC and HCFC) will bereplaced with a central cooling systemtogether with a smaller number of pro-duction units. During the same periodthe system will also reduce energy con-sumption by approximately 7,000 MWh,of about 8 percent of the total electricalenergy consumed by Saab in Linköping.

Water and energy consumptionIn 1999 an energy policy was formulat-ed and implemented. The policy con-tains objectives and programs for sav-ing heat energy, electrical energy andwater. The diagrams show the changein the consumption of water and ener-

gy at the Linköping plants during theperiod 1991-1999. Lower consumptionis the result of a dedicated programwith a large number of measuresaimed at reducing water and energyconsumption and, consequently, relat-ed costs.

RecyclingSaab has built up a very efficient sys-tem for sorting and recycling wastes.During the period 1995-1999 therecycling of office paper, corrugatedcardboard and plastics has beengradually expanded. The amount ofrecycled material has risen from 38percent in 1995 to 46 percent in 1999.During the same period the amountof discarded waste has decreasedfrom 5 to 2 percent. Remaining wastesthat can be incinerated are sent to theGärstad waste processing facility forenergy recovery. Practically 100 per-cent of metallic materials are sent forrecycling and all electronic scrap iscollected separately and sent forrecycling and destruction. Within theframework of the environmentalmanagement system, objectives havebeen established to increase materialrecovery and further reduce theamount of material that is discarded.With respect to hazardous wastes,Saab has very strict, well-establishedroutines for how they are handledand monitored.

Responsibility for packaging usedin the Swedish market is met throughan affiliation to Reparegistret AB,which coordinates the collection ofsuch materials.

Emissions and noise from

Saab’s products

The development of military aircraft isstrictly guided by technical perfor-mance, which limits the possibilities ofreducing their environmental impact.In terms of noise and emissions,Gripen is comparable to other modern,single-engine fighter aircraft. In com-parison with jet aircraft, regional turbo-prop aircraft such as the Saab 340 andSaab 2000 offer high performance in

terms of noise, fuel consumption andemissions. This is a benefit for opera-tors, since landing fees are partly basedon noise levels and emissions.

Saab Training Systems AB is a leaderin simulators and target material formilitary training. With these products,military forces can use less live ammu-nition and thereby reduce noise and theconsumption of metals. Lead and pow-der gas emissions are reduced as well.

Preparedness for accidents

Saab maintains excellent preparednessfor handling emergency situations caus-ed by fires and chemical emissions. Dur-ing the year there were no accidents witha negative impact on the environment.

Cost of the environmental work

In 1999 the cost of R&D operationsdirectly associated with replacing haz-ardous substances and processesamounted to SEK 1.2 million (1.2).During the period 1998-2002 SEK 110million is being invested in a new freon-free cooling system for Saab’s Linkö-ping plants. The cost of the projecttotaled SEK 23 million in 1999. Duringthe period 1999-2002 the Jönköpingproperty used by Avionics and Dyna-mics will be connected to a district cool-ing system that utilizes Lake Vättern.The investment during that periodamounts to SEK 6 million. In addition, alarge number of indirect environmentalinvestments are made each year, wherethe positive environmental effects are aresult of other investments.

Annual costs in the form of directcharges, such as inspection fees, pay-ments to Reparegistret and environ-mental damage insurance are estimat-ed at SEK 0.6 million (0.5) for 1999.

An abandoned waste dump is locatedon Saab’s property in Linköping. Sam-ples are regularly taken from the dumpto check for leaching of metals. Should asite remediation become necessary, thecost is estimated at a maximum of SEK10 million, depending significantly onthe actions required at the time.

Information on environmental licens-es is contained in the Financial Review.

Energy consumption1,000 MWh Electricity Heating

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25

50

75

100

Water consumption1,000 m3

'99'97'95'93'910

100

200

300

400

500

32

EMPLOYEES

'99'98'97'96'95

Share of menand women

%

MenWomen

0

25

50

75

100

At Saab Ericsson Space, you quicklybecome part of the company and parti-cipate in important decisions. The bestthing of all is probably that you get aholistic view on the company’s operationsand thus a good understanding of what ishappening in the different departments. Italso makes you realize that your work isoften an important contribution thatopens up new opportunities or paves theway for progress. There is a pleasantatmosphere that employees of all agescontribute to.

Jens Schönbeck, Saab Ericsson Space, since January 1999

In cooperation with Sweden’s institutes of technology, Saabarranges a national competition for engineering students.The purpose of Teknik-SM is tostrengthen the ties between business and education and toshow that high-level technology is interesting, exciting and fun.Thefinals take place in connection withAerospace Day in Linköping, andthe winners receive a trip to theU.S., including a visit to MIT Medialab.

Age distributionNo.

>6055

-59

50-5

445

-49

40-4

435

-39

30-3

425

-29

<240

250

500

750

1,000

1,250

1,500

A large part of Saab’s success lies in thespirit of cooperation and flexibility thatdistinguish the company’s employees.The work at Saab follows clearly estab-lished values and norms. Direct, opencommunication plays a major role inthe exchange of ideas within the com-pany and in the development of thebusiness. The organization and rela-tionship between the company’semployees are characterized by highethical and moral standards.

Saab’s human resource policy also hasthe goal that the personnel comprise arepresentative sample in terms of ageand gender. The reason is to promotediversity within the company as wellas an open, creative working environ-ment that enhances the development ofboth the employees and the companyas a whole.

In a knowledge company like Saab, the skills and commit-ment of the employees are an important factor for success.To fully benefit from the major resources that are invested in research and development requires thecontinuous development of human resources, the organization and work methods.

“

”

Saab Jobspace is a new Internet-based search service,which enables potential employees to see all available positions within Saab in an easy and time efficient way.A search can be carried out based on different criteria, forexample, by professional area or geographic location. It isalso possible for applicants to submit a search profile andreceive updates on employment opportunities.

'99'98'97'96'95

R&D as a shareof sales

%

0

25

50

75

100

HUMANRESOURCE POLICY

The skills and commitment ofour employees are the key to

Saab’s success.

33

The reason I chose Saab Training Systems isthat I enjoy the international environment the

company works in. In my job, I communicate ona daily basis with international customers and

partner companies. I really appreciate theclose contact with the international market,and I see it as an important part of my

work, especially with regard to the ongoingglobalization process.

Claes Pihl, Saab Training Systems, since August 1997

Recruitment of cutting-edge expertise

For Saab to maintain today’s strongposition in the market, it is vital thatthe company actively and determined-ly recruit and retain the top people inthe areas where it is active. This placeshigh demands on Saab as a companyand an employer.

In its efforts to recruit highly skilledemployees, Saab keeps in close contactwith colleges and universities. In coop-eration with Sweden’s institutes oftechnology, Saab arranges Teknik-SM, anational competition to select the coun-try’s brightest engineering students.Following a three-part selectionprocess during the spring, the finalistsmeet in Linköping on Aerospace Day,held the day after Saab’s AnnualGeneral Meeting in April. Studentsfrom institutes of technology in south-ern and central Sweden are invited toattend Aerospace Day and learn aboutSaab and the opportunities availablewithin the company. Around a thou-sand students usually attend.

Since 1942 Saab has been running anindustrially oriented school, Industri-gymnasiet, where the company, in cooperation with public high schools,offers training with a focus on aircraftand general workshop skills. The pur-

pose is to secure and to develop arecruitment base of production staffwith the required competencies.

The Saab Advanced Trainee pro-gram gives twelve people a year theopportunity for advanced training withthe ultimate goal of developing world-class technology. The trainee programhas a high priority at Saab, and it offersparticipants excellent opportunities foran exciting career.

Saab actively uses the Internet in itsrecruitment work. By using the Job-space search function on Saab’s webpage, job seekers can review availablepositions and apply for those that meettheir personal profile. Jobspace wasintroduced in September 1999 and isvisited by 5,000 people a month.

Human resource development

Retaining and developing the compe-tencies within the company is just asimportant as recruiting new employees.Saab therefore has to offer employeesan attractive, stimulating workingenvironment with a range of develop-ment opportunities.

Internal training and skills develop-ment are important to each employee’scareer at Saab. Many also take advan-tage of the international job opportuni-ties available within the Group.

Saab arranges management pro-grams to raise the overall level of lead-ership skills within the company andimprove the knowledge of qualifiedemployees in such areas as projectmanagement, change programs andinternational teamwork.

Continuous development of techni-cal competencies is carried out withinthe framework of Saab’s Industrigym-nasium. Production staff members arealso offered language training and theopportunity to study for a high schooldiploma.

The company’s human resource pol-icy and organizational developmentare continuously evaluated and mea-sured through employee surveys.

'99'98'97'96'95

Employee turnover%

0

2.5

5

7.5

10

12.5

”

Employee turnover is defined asthe number of employees thatduring the year have terminatedtheir employment or transferredto other operations within theSaab Group as a percentage ofthe total number of employeesduring the year.

'99'98'97'96'95

Categories%

Blue collarWhite collar

0

25

50

75

100

'99'98'97'96'95

Educational level%

PhDs/professorsMasters of engineeringOther engineersOther academicsOthers

0

25

50

75

100

It’s great to begin an engineering career as atrainee at Saab. In the first year you have theopportunity to gain so much important funda-mental knowledge. There are few companies withstronger technical expertise than Saab, and the people you work with are very talented.

Saab’s trainee program is a fantastic way tolearn about the different parts of the Group. Theprogram has been stimulating and rewarding, andby taking initiative and being prepared to assumeresponsibility, you can get a lot out of your year as a trainee.

Anna Efraimsson and Louise Henningsson, SaabCombitech trainees, 1998-1999

“

”

“

34

Share capital

The share capital of Saab on December31, 1999 amounted to SEK 1,703,354,800and consisted of 100,005,372 listedSeries B shares and 6,454,303 unlistedSeries A shares. Series A shares have tenvotes each, while Series B shares haveone vote each. In other respects, there areno differences between the share classes.The par value per share is SEK 16.

The Series B share has been listed onthe OM Stockholm Exchange’s O listsince 1998. A trading lot consists of 100shares. Approximately 47,500,000 SeriesB shares, corresponding to 45 percent ofthe share capital and 29 percent of thevotes, are available via the stock market.Of the company’s Series A shares,4,207,123 are owned by Investor and2,247,180 by BAE SYSTEMS.

Share performance 1999

Saab’s market capitalization amountedto SEK 8.7 billion at year-end 1999. Theprice of the Series B share declined by3.5 percent during the year, comparedwith a 66-percent gain by the Affärs-världen General Index. The share priceat year-end was SEK 82. The high pricefor the year, SEK 91.50, was noted onJanuary 8 and the low price, SEK 58,on October 18.

During 1999 a total of 27,148,559Series B shares were traded, corre-sponding to 57 percent of the numberof shares available. Average turnoverper trading day was 107,732 shares.

Ownership structure

The number of Saab shareholdersdecreased during the year to around45,300 at year-end. Swedish and inter-national institutional investors ownedapproximately 93 percent of the sharecapital and 96 percent of the votes.Individual Swedish investors account-ed for approximately 7 percent of theshare capital and 4 percent of the votes.

At year-end shareholders outsideSweden owned approximately 54 (57)percent of the share capital and 47 (49)percent of the votes. The share capitalwas divided among countries otherthan Sweden as follows: 37 (38) percent

in the UK, 16 (17) percent in the U.S.and 1 (2) percent in the rest of the world.

Dividend

The Board of Directors is recommendingthat the Annual General Meeting ap-prove an increase in the dividend to SEK2.50 (2.00) per share, corresponding to 28percent (23) of net income.

Saab’s long-term dividend policy isto distribute 20–40 percent of incomeafter tax.

Convertible debenture loan

In 1998 a convertible debenture loanwas issued to Saab’s employees. Theloan totals SEK 254 million, which,after full conversion, raises the numberof Series B shares by 2,787,500, corre-sponding to a dilution of 2.55 percentof the share capital and 1.67 percent ofthe total number of votes. Conversionsto Series B shares are permittedbetween December 4, 2001 and July 15,2004 at a conversion price of SEK 91.

THE SAAB SHARE

40

50

60

70

80

90

100110120130140150

J J A S O N D J F M A M J J A S O N D J F

1998 1999 2000

1,0002,0003,0004,0005,0006,0007,000

(c) SIX

SEKSaab B B share, last paid No. of shares traded

(incl. aftermarket)

Saab B, June 18, 1998 – February 25, 2000

Affärsvärlden General Index

Shares and votes, December 31, 1999

Percentage PercentageNumber of total Number of total

Share class of shares shares of votes votes

Series A 6,454,303 6.1 64,543,030 39.2Series B 100,005,372 93.9 100,005,372 60.8

Total 106,459,675 100.0 164,548,402 100.0

Distribution of shareholdings

Number Percentage Percentageof share- of share- Number of share

Number of shares holders holders of shares capital

1 – 500 42,653 94.2 3,100,810 2.9501 – 1,000 1,491 3.3 1,238,550 1.21,001 – 5,000 897 2.0 1,906,749 1.85,001 – 10,000 113 0.2 862,310 0.810,001 – 50,000 85 0.2 1,862,079 1.750,001 – 100,000 23 – 1,675,882 1.6100,001 – 10,000,000 32 0.1 36,839,799 34.610,000,001 – 2 – 58,973,496 55.4

Total 45,296 100.0 106,459,675 100.0

35

Share data

1999 1998

Price-related dataPrice at year-end, SEK 82.00 85.00Highest price during the year, SEK 91.50 90.50Lowest price during the year, SEK 58.00 57.00

Yield, % 3.0 2.4Price/equity, % 185 215

P/E ratio, multiple 9.3 9.9P/EBIT, multiple 7.9 10.0

Key ratios per shareSales,before conversion, SEK 85.00 77.50Sales,after full conversion, SEK 82.90 75.50

Net income,before conversion, SEK 8.82 8.55Net income,after full conversion, SEK 8.60 8.35

Equity,before conversion, SEK 44.23 37.90Equity,after full conversion, SEK 45.43 39.25

Cash flow from operating activities,before conversion, SEK -5.50 15.05Cash flow from operating activities,after full conversion, SEK -5.40 14.70

Dividend (Board’s 1999 proposal), SEK 2.50 2.00Dividend /net income, % 28 23

Largest shareholders

Number PercentageAs of December 31, 1999 according of shares, of share Percentageto Securities Register Center thousands capital of votes

BAE SYSTEMS, UK 37,367 35.1 35.0Investor 21,606 20.3 36.1Wallenberg foundations 9,255 8.7 5.6Chase Manhattan Bank, USA 1) 9,116 8.6 5.6State Street Bank And Trust Co., USA 1) 3,649 3.4 2.2AMF 3,200 3.0 1.9Fifth Nat’l Pension Insurance Fund 2,905 2.7 1.8MFS funds, USA 1,510 1.4 0.9Skandia 1,225 1.2 0.7The Bank of New York Europe Ltd, UK 1) 1,193 1.1 0.7UBS, Switzerland, Stockholm 979 0.9 0.6Meridian funds, USA 789 0.7 0.5

Subtotal, 12 largest shareholders 92,794 87.1 91.6Other Swedish shareholders 9,472 9.0 5.8Other international shareholders 4,194 3.9 2.6

Total 106,460 100.0 100.0

Maximum dilution, convertibles 2,787,500 2.6 1.71) Nominee-registered, primarily U.S. funds.

Analysts who follow Saab

Alfred Berg, StockholmPatric Lindqvistpatric.lindqvist@alfredberg.se

Aros Securities, StockholmTobias Henrikssontobias.henriksson@arossecurities.com

BNP Equities, ParisOlivier Brochetolivier.brochet@bnpgroup.com

Carnegie, StockholmGustaf von Essengusvon@carnegie.se

CAI Cheuvreux, ParisRémi Thomasrthomas@indocdv.comPierre-Antony Vastrapvastra@indocdv.com

Credit Suisse First Boston, LondonHarald Hendrikseharald.hendrikse@csfb.com

Credit Suisse First Boston, New YorkPierre A. Chaopierre.chao@csfb.com

Deutsche Bank, ParisVirginie Banetvirginie.banet@db.comFranck Bouvierfranck.bouvier@db.com

Donaldson, Lufkin & Jenrette, LondonNick FothergillHarry Breachhbreach@dlj.com

Dresdner Kleinwort Benson, LondonColin FellBen Fidlerfidlerb@kben.co.uk

Enskilda Securities, StockholmStefan Cederbergstefan.cederberg@enskilda.se

Erik Penser Fondkommission, StockholmJörgen Åvalljorgen.avall@penser.se

Goldman Sachs International, LondonSash Tusasash.tusa@gs.com

HSBC, StockholmClaes Rasmusonclaes.rasmuson@hsbcib.com

Lehman Brothers, LondonColin CrookDavid Perrydaperry@lehman.com

Morgan Stanley, LondonTim BennettAlex Hunterhuntera@ms.com

Nordiska Fondkommission, StockholmHenrik Alveskoghenrik.alveskog@nordiska.com

Salomon Smith Barney, LondonNick Cunninghamnick.cunningham@ssmb.com

Société Générale, ParisPhilippe Mouthonphilippe.mouthon@ota.fr.socgen.com

Swedebank Markets, StockholmPatric Naeslundpatric.naeslund@foreningssparbanken.se

Warburg Dillon Read, LondonPaul Ruddlepaul.ruddle@wdr.com

Warburg Dillon Read, StockholmAnders Fagerlundanders.fagerlund@wdr.com

Swedish and foreign ownersShare of capital, %

Chase ManhattanState Street Bank

MFS fundsThe Bank of New York

UBS Schweiz

Meridian fundsOther foreign

Investor

Swedish and foreign owners

Foreign owners

Wallenberg foundations

AMFFifth AP fund

Skandia

Other Swedish

BAE SYSTEMS

Saab AB, Corporate Identity No. 556036-0793, registered officeLinköping, has been listed on the O-list at the OM StockholmExchange since 1998. The principal owners are Investor AB with20 percent of the shares, corresponding to 36 percent of thevotes, and BAE SYSTEMS, with 35 percent of the shares, corres-ponding to 35 percent of the votes. The remaining 45 percent ofthe shares are traded on the OM Stockholm Exchange.

GroupSaab offers advanced products and systems based on sophis-ticated information technology. Applications include militaryand commercial aviation, defense electronics, industrial electronics and information technology, missile systems aswell as space applications.

The Saab Group consists of the business areas MilitaryAerospace, Space, Training Systems, Commercial Aircraftand Combitech. During 1999, the Group also included busi-ness area Regional Aircraft, which was phased out when civilaircraft production was terminated mid -99.

Offer to purchase all shares in CelsiusOn 16 November 1999, Saab AB stated in its offer to the share-holders in Celsius AB that the intention is to purchase all ous-tanding shares. Saab AB is offering SEK 179 in cash for each A- or B-share in Celsius AB. The value of the offer amounts toSEK 5 billion. After adjustments for among others Celsius’claim on SPP, provision for restructuring costs and the resultof decided structural deals, the offer results in a goodwill ofapproximately SEK 700 million, which is estimated to beamortized over 20 years. The offer is being financed fromSaab’s existing banking facilities. Since the offer was made,Saab has purchased Celsius shares on the Stock Exchange andat the end of 1999 owned 7,198,446 B shares, corresponding toabout 25.6 percent of the capital and 13.1 percent of the votes inCelsius. Saab owns no A shares in Celsius. On February 4, 2000after having reviewed the notification, the European Commis-sion has decided not to launch a full probe into the transac-tion, which means that the European Commission has approv-ed Saab’s acquisition of Celsius. The Swedish Governmenthas decided to accept the offer regarding the A- and B-sharesit owns in Celsius AB, which means that the Swedish Govern-ment sells in total 3,000,000 A-shares and 4,000,000 B-sharesrepresenting 24.9 percent of the shares and 61.7 percent of thevotes in Celsius. The decision follows a vote by the SwedishParliament on February 16, 2000 in favor of a sale. A detailedaccount of the offer is given in a separate prospectus issuedNovember 1999. A summary of the offer and a description ofthe “New Saab” is given on p. 4-5 of this Annual Report.

Acquisitions and divestments during the yearDuring the year, the companies Saab Nyge Aero, Saab CelsiusTranspondertech and Barracuda Technologies have been acquir-ed. In addition, Saab Marine Electronics has acquired twosmaller companies. On 1 January, the share majority inAvionics was purchased from Ericsson Microwave Systems.The company is thus owned to 50.1 percent by Saab and hasbeen consolidated in the Group since the beginning of 1999.

During the year, the streamlining of Combitech has contin-ued with the divestment of Saab Survey Systems, Pronesto,Combitech Electronics and the property company Strömö-gatan. In the sale of Combitech Electronics to the Norwegianlisted electronics manufacturer Kitron, Saab received the lar-

ger part of the payment in the form of shares in Kitron. Aftertaking part in a new share issue, Saab is now the largestowner in Kitron, with 11 percent of the capital and votes. 31 January 2000 saw the divestment of Combitech TrafficSystems with a capital gain of SEK 55 m.

First export contract for the Gripen and 22 HawkIn December, Saab and BAE SYSTEMS signed a contract withSouth Africa for 28 Gripen aircraft and 22 Hawk aircraft withrelated equipment, training, etc. The contract has a total valueof approximately SEK 22 bn, of which SEK 13 bn refer toGripen and comprises nine two-seater and 19 single-seateraircraft to be delivered during the period 2007-2012. TheGripen aircraft ordered by South Africa are very similar tothose in Series 3 ordered by the Defence MaterielAdministration in 1997. They include features such as colordisplays from Avionics, in-flight refueling equipment and awarning and countermeasures system for protection fromenemy missiles. The order will be booked in 2000 when thefinal work allocation has been made between Saab and BAESYSTEMS and the first advance payment has been received.Saab’s share of the contract is estimated at about 75 percent,equivalent to about SEK 10 bn. The agreement with SouthAfrica for the supply of Hawk and Gripen aircraft includesindustrial collaboration commitments by Saab and BAE SYS-TEMS valued at about SEK 60 bn and defense and aircraftindustry commitments totaling just under SEK 13 bn. Thesecommitments will be fulfilled over a period of 11 years andinclude sales and investments in South Africa, as well asexports from that country. The contract with South Africawill be a profitable venture for Saab, even after taking intoaccount a relevant share of the costs for developing theexport version of the Gripen.

OperationsBusiness area Military Aerospace comprises the businessunits Gripen, Dynamics, Avionics, General Military Programsand Future Products & Technology, together with the associatedcompany CSM Materialteknik.

Saab produces the Gripen, an integrated and flexible infor-mation, command and weapon system that will remainmodern for many years to come. Three aquadrons of the first ofthe world’s fourth generation combat aircraft are now operativein the Swedish defense. During 1999, 16 aircraft were delivered,bringing the total to 81 out of the 204 ordered by the DefenceMateriel Administration, FMV. After renegotiation of the deli-very contract for the Gripen to the Swedish defense during theyear, resulting among other things in a smoother delivery rateto the Swedish Defense up to the end of 2007, space was creat-ed for ordering warning and countermeasures systems and inDecember Saab received an order valued at SEK 1.2 bn, ofwhich about SEK 600 m. will be delivered from Celsius. Saab iscollaborating with BAE SYSTEMS as part of a joint venture forexporting the Gripen. With the cooperation of the SwedishGovernment, possibilities have also been opened up for rentingthe Gripen to export customers conditional on subsequentpurchase of new aircraft. During the year, considerable exportmarketing work has been carried on, at the same time as deve-lopment work on the export version of the Gripen has beenfurther intensified. In the long-term work of marketing theGripen for export, information has during the year been sent toa number of countries in reply to formal inquiries. Dynamics’

F INANCIAL REVIEW

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operations comprise high technology products, mainly guidedweapons, optronic systems and related subsystems and equip-ment. The company is involved in international projects for theIRIS-T short-range air-to-air missile and is a member of theindustrial team responsible for the European beyond visualrange air-to-air missile project, the Meteor, offered to the UK in1999. During the year, several countries have shown an interestin the RBS15 anti-ship missile and in September Dynamicssigned an agreement with the German BGT covering exportcooperation on the missile. Avionics, which is owned jointlyby Saab and Ericsson, develops and manufactures display andreconnaissance equipment and electronic warfare systems, andis a major supplier of electronics to the Gripen.

Space, which is owned to 60 percent by Saab and 40 percentby Ericsson, develops and produces on-board computers, an-tennas and other electronic and mechanic equipment for thespace industry. The share of sales generated from commercialtelecommunications projects has continued to grow and in1999 accounted for 45 percent of the total. Other operationsfocused on publicly financed projects, such as work for theEuropean Space Agency (ESA). During 1999, the most impor-tant projects in the institutional market were SPOT, a bilateralcollaboration project between France and Sweden concerningglobal observation satellites, and the ESA projects METOP,related to meteorological satellites and ROSETTA, a scientificsatellite. The principal projects in the commercial marketduring the year comprised participation in Spacebus 3000,Alcatel’s platform for telecommunications satellites, deliveriesto the ICO mobile communications system, and deliveries ofseparation systems for a number of launch rockets.

Training Systems is a world leader in simulator equipmentbased on laser technology for direct fire weapons. Almost allsales go to export, the major markets being the UK, the USand Germany. During the year, initial orders were received intwo new product areas, GAMER (Gunnery and ManeuverExercise System) and the BT47 small arms simulator.

Commercial Aircraft consists of Collaborative Programs, SaabAircraft AB (Customer Support) and Saab Aircraft Leasing (SAL).Collaborative Programs is a direct supplier of components andsubassemblies to external customers such as Airbus Industrieand Boeing, and also an internal supplier to Gripen and spareparts supplier to Saab Aircraft. In August, CollaborativePrograms delivered the first pair of floor structures to Aéro-spatiale Matra for Airbus A340-500/600. Saab Aircraft isresponsible for providing support and spare parts for the fleetof over 500 Saab 340 and Saab 2000 aircraft in use throughoutthe world. Saab Aircraft Leasing (SAL) manages a leasing port-folio which at year-end consisted of 309 regional aircraft: 280Saab 340 and 29 Saab 2000.

Combitech carries on operations in commercial high tech-nology niches developed from Saab’s military programs.During 1999, several companies were divested and the headoffice in Jönköping phased out. Combitech now consists ofthe profitable niche companies Saab Marine Electronics,Combitech Systems and Combitech Network, together with thedevelopment company Saab Celsius Transpondertech. CombitechTraffic Systems was also part of Combitech during 1999, butwas divested January 31, 2000.

During the year, Regional Aircraft was phased out follow-ing delivery of the last regional aircraft. A total of 459 Saab340 and 63 Saab 2000 aircraft have thus been delivered sincethe start in 1984. All in all 522 aircraft.

FUTURE DEVELOPMENTCreating the leading Nordic defense companyThe European defense industry is characterized by intensivecompetition and rising research and development costs. Thishas resulted in increased consolidation and internationalizationof the industry and the creation of large multinational defensecompanies active in a global market. Celsius is an advanced-technology and knowledge-based company which develops,manufactures and supports advanced systems, products andservices within the core areas Defense and Aviation Services.Together, Saab and Celsius aim at creating the leading Nordicdefense company. The “new” Saab will be based on existing coreactivities of Saab and Celsius, with focus on systems and elec-tronics, aircraft and guided weapons. The “new” Saab will alsostrengthen its position in the growing support services market.

Products and systemsThe order backlog for Gripen provides an important platformfor future operations. Deliveries to the Swedish Air Force aretaking place as agreed, in the renegotiated contract, at a rate of 16-17 aircraft a year in parallel with development of the air-craft system, routine maintenance and add-on orders. Exportactivities for the Gripen are continuing in collaboration withBAE SYSTEMS in South America, Central Europe and otherareas. The marketing and sales process may occupy severalyears and is characterized by a long-term approach in whichsuccessful results form the foundation for collaboration exten-ding over several decades. Although the defense electronicsoperations in Dynamics and Avionics are linked to the Gripen,they also develop high technology products used in other sys-tems. An example is Dynamics’ participation in internationalmissile projects. The space operation continues to develop wellin areas such as the growing commercial market for telecom-munications satellites. Training Systems has a market leadingposition as a base and will continue to develop existing andnew products, while processing new markets. CollaborativePrograms is continuing to build up a new operation orientedtowards cooperation with the major aircraft manufacturersAirbus and Boeing, including an evaluation of the A3XX.Operations in Saab Aircraft Leasing and Saab Aircraft are focu-sed on supplying the fleet of Saab 340 and Saab 2000 aircraftwith finance solutions and support. The work of realizingvalues in the niche companies within Combitech will continuein accordance with the company’s strategy.

RestructuringIn December 1997, Saab made the decision to end productionof regional aircraft and allocated a reserve of SEK 4,079 m. forrestructuring the industrial operation. The reserve covers esti-mated losses for production of the remaining order backlog,redeployment or retirement of personnel, commitments tosuppliers and customers, continued support activities for theaircraft fleet, and underabsorption of shared costs and over-heads. Restructuring is proceeding according to plan andregular checks are being made of the reserve. During 1999, a number of structural measures were completed, mainly inregard to production and related commitments. This hasenabled a more reliable assessment of the costs and a decisionhas therefore been made on reversal of the reserve of SEK 255m. (200) in the 1999 financial statements. At year-end 1999,the restructuring reserve amounted to SEK 2,376 m. after

37

38

utilization and reversals of the reserve totaling SEK 1,248 m.and SEK 455 m. respectively during 1998 and 1999.

In connection with the decision to cease production ofregional aircraft, a decision was also made to put a marketvalue on the leasing portfolio of Saab Aircraft Leasing and tomake a provision in order to adjust the book value to a calcu-lated market value. At the end of 1997, the loss risk reserveamounted to SEK 2,728 m. During 1998 and 1999, utilizationof SEK 55 m. and SEK 35 m. respectively have been madefrom the reserve, which thus amounted to SEK 2,637 m. at theend of 1999. No reversals of the reserve has been made so far,since the leasing portfolio has a remaining life of 15-20 years.

SalesGroup sales increased by 10 percent to SEK 9.053 m. (8.248).Sales to foreign markets amounted to SEK 3.444 m. (3.403) or38 (41) percent of total sales. Total exports from the Group’sSwedish companies increased to SEK 3.235 m. (3.164). TheGroup’s export to the EU market amounted to SEK 1.395 m.(1.209) and total sales within the EU, excluding Sweden,were SEK 1.493 m. (1.301).

Sales by business area

SEK m. 1999 1998 ChangeMilitary Aerospace 5,383 4,572 18%Space 676 607 11%Training Systems 735 621 18%Commercial Aircraft 812 908 -11%Combitech 1,273 1,057 20%Internal sales -298 -226Saab 8,581 7,539 14%Regional Aircraft 746 2,698 –Internal sales -274 -1,989 –Saab Group 9,053 8,248 10%

The increase in sales is due both to acquisitions and organicgrowth. January 1 1999, the share majority in Avionics was purchased, after which the company has been included in theGroup’s sales. During 1999, Nyge Aero and BarracudaTechnologies were also acquired. The organic growth in Spaceand the Combitech IT companies, among others, has been verysatisfactory for several years. In Combitech Systems, growthexceeded 60 percent both in 1998 and 1999.

Sales of Military Aerospace increased 18 percent to SEK5,383 m. (4,572). The improvement is attributed mainly to the consolidation of Avionics, although Gripen sales alsoincreased. During the year, 16 Gripen aircraft were invoiced,compared with 17 in 1998. Of sales of Military Aerospace,sales of Dynamics amounted to SEK 851 m. (853). Sales ofAvionics amounted to SEK 1,044 m. (934), which is notincluded in Group Sales since Avionics was reported as anassociated company in 1998. Sales of Nyge Aero amounted toSEK 180 m., of which SEK 141 m. is included in Group sales.Sales by Space increased 11 percent to SEK 676 m. (607)through higher volumes. The commercial market accounted for45 percent of total sales.

Sales of Training Systems increased to SEK 735 m. (621)through higher volumes of laser simulators and the acquisitionof Barracuda Technologies. Of Barracuda Technologies’ sales of SEK80 m., SEK 40 m. is included in Group sales.

Sales of Commercial Aircraft decreased through considerablylower deliveries to regional aircraft production, which ceasedduring the year. SEK 115 m. (95) of sales related to deliveries toBoeing and Airbus, among others. Sales of customer support tothe fleet of Saab 340 and Saab 2000 increased to SEK 666 m. (587).

Sales of Combitech increased mainly through the volumeincrease in Traffic Systems, growth in the IT companies andacquisitions in Marine Electronics. Compared with the previousyear’s sales, adjusted for company divestments, sales increased64 percent. Of Combitech’s sales, Marine Electronics accountedfor SEK 488 m. (443) and the IT companies for SEK 510 m. (368).

Sales of Regional Aircraft decreased as a result of the termi-nation of civil aircraft production at mid-year. During the year,3 (25) aircraft were delivered: two Saab 340 to JAC in Japan andone Saab 340 AEW to FMV. In addition, a total of 4 (11) Saab2000 were delivered to Crossair in Switzerland.

Sales by market area

SEK m. 1999 1998 ChangeSweden 5,609 4,845 16%Other EU countries 1,493 1,301 15%Other European countries 512 470 9%Total Europe 7,614 6,616 15%North America 644 658 -2%Asia 546 862 -37%Australia, etc. 217 66 –Other markets 32 46 -30%Saab Group 9,053 8,248 10%

The decrease in sales in Asia was mainly due to fewer delive-ries of regional aircraft to Japan compared with 1998.

OrdersGroup order bookings amounted to SEK 6.849 m. (5.797). Theorder backlog at year end amounted to SEK 23.637 m. (23.132)and includes military orders worth SEK 22.100 m. (20.900).

Order bookings

SEK m. 1999 1998Military Aerospace 4,059 2,544Space 706 667Training Systems 631 583Commercial Aircraft 836 1,167Combitech 1,270 1,001Internal -653 -221Saab 6,849 5,741Regional Aircraft 0 474Internal 0 -418Saab Group 6,849 5,797

Order bookings for Military Aerospace amounted to SEK 4,059m. (2,544) and included further development, add-on ordersand spare parts for the Gripen. Dynamics received an order forthe EOS450 fire control system for Mexico. Avionics had verygood order bookings during the year: the largest order camefrom FMV for a new warning and countermeasures system forthe Gripen valued at SEK 1.2 bn, of which about SEK 600 m.will be delivered from Celsius.

Order bookings for Space amounted to SEK 706 m. (667)and included a new subseries of 20 on-board computers for the

Ariane 4 rocket, data systems for the unmanned cargo vehiclebeing developed for the new international space station and acomputerized sensor instrument for installation on board thenew US satellite system for weather monitoring. Other ordersduring the year included work for the ROSETTA project, ascientific program organized by the ESA (European SpaceAgency) in which Space is contributing computer, mass memo-ry and antenna systems. The share of the commercial market inrelation to total order bookings corresponds to the share ofsales, i.e. approximately 50 percent.

Order bookings for Training Systems increased to SEK 631m. (583) through the acquisition of Barracuda Technologies.During the year, orders for simulator equipment were receivedfrom Austria, France, the US, Germany, UK, Italy and Sweden.Orders were also received for target equipment from Spain,Denmark and Norway. In January 2000, a further order for la-ser simulators valued at SEK 160 m. was received from the US.

Order bookings for Commercial Aircraft amounted to SEK836 m. (1,167), of which Saab Aircraft, consisting of regional air-craft spares, accounted for SEK 666 m. (587). New orders werereceived from BAE SYSTEMS and Boeing, among others.During the year, orders for SEK 82 m. were received as part ofthe contract from Airbus in 1998, which carry an estimatedtotal contract value of about SEK 1,500 m. This means that deli-veries for a total of 63 A340-500/600 have now been recordedas order bookings.

Order bookings for Combitech amounted to SEK 1,270 m.(1,001). The increase was due to a heavy rise in order boo-kings among all the remaining companies during 1999. Orderbookings for the IT companies Combitech Systems andCombitech Network increased by over 60 percent.

Order backlog

SEK m. 1999 1998Military Aerospace 21,181 19,954Space 764 733Training Systems 897 969Commercial Aircraft 386 350Combitech 635 693Internal -226 -139Saab 23,637 22,560Regional Aircraft 0 572Saab Group 23,637 23,132

Number of aircraft in the order backlog

Number of aircraft 1999 1998Gripen 123 139Saab 340 – 3Saab 2000 – 4

The increase in the order backlog compared with the pre-vious year, despite the fact that sales exceeded order boo-kings, is mainly due to the consolidation of Avionics, as wellas to acquisitions.

Income and profitabilityIncome statement

SEK m. 1999 1998Sales 9,053 8,248Cost of goods sold -6,363 -6,105Gross margin 2,690 2,143Marketing expenses -798 -795Administrative expenses -550 -532Research and development costs -604 -378Items affecting comparability 255 200Other operating income 181 206Other operating expenses -71 -34Share in income of associated companies 1 65Operating income 1) 1,104 875Result from financial investments 273 343Income after financial items 1,377 1,218Taxes -391 -279Minority interest -47 -27Net income 939 912Earnings per share, SEK 2) 8,82 8,55Earnings per share after full conversion, SEK 3) 8,60 8,351) Includes depreciation of -918 -773

of which depreciation on leasing assets -511 -4392) Number of shares: 106,459,675 as per December 31, 19993) Number of shares after full conversion: 109,247,175

Operating income increased 26 percent to SEK 1,104 m. (875).All business areas showed improved income with the excep-tion of Military Aerospace, which, according to plan, repor-ted higher development costs for the export version of theGripen. During 1999, income was improved by the reversalof SEK 135 m. (100) of the loss risk reserve for the basic con-tract for the Gripen and SEK 255 m. (200) for the phase-out ofRegional Aircraft. The year’s loss in Regional Aircraft of SEK-771 m. (-477) has been charged against the termination reser-ve. Income of Saab Aircraft Leasing before reversal of the lossrisk reserve amounted to SEK -35 m. (-55).

The increase in research and development costs is mainlydue to planned higher development costs for the export ver-sion of the Gripen and work on Collaborative Programs,mainly in regard to the Airbus A3XX and A340-500/600.

Other operating income of SEK 181 m. (206) consists main-ly of capital gains from divesting operations, SEK 21 m. (75),reversal of provision corresponding to the loss in SaabAircraft, SEK 47 m. (60) and trading income from Treasurybusiness, capital gains and exchange rate gains, etc., of SEK113 m. (71). Other operating expenses of SEK -71 m. (-34)consists among others of the capital loss from divestingCombitech Electronics. Project interest on non-utilizedadvance payments amounted to SEK 218 m. (263).

Net financial income and expenses amounted to SEK 273 m.(343) , of which Saab Aircraft Leasing accounted for SEK 74 m. (91). The detoriation is mainly due to lower liquidfunds, a lower interest level a lower market value of thebonds portfolio. The average return on liquid funds was 4.75 (5.7) percent and the average liquidity was SEK 11,600 m.(13,300). Income after financial income and expenses amount-ed to SEK 1,377 m. (1,218).

Current and deferred taxes amounted to SEK -391 m. (-279), corresponding to an effective tax rate of 28 (23) per-cent on income after financial income and expenses. The

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effective tax rate sometimes differs from the Swedish rate of 28 percent due to permanent differences between bookand tax income and the fact that the Group has operations in certain countries, mainly the USA, with higher tax rates thanthose in Sweden. See Note 14 Taxes, page 58.

Net income for the year was SEK 939 m. (912), correspond-ing to income per share of SEK 8.82 (8.55).

Pre-tax return on capital employed was 21.3 (21.4) percent.Return on capital employed before items affecting compara-bility was 17.6 (18.2) percent. After-tax return on sharehol-ders’ equity was 21.5 (25.6) percent. For definitions of keyratios, see Note 42, page 63.

Operating income by business area

SEK m. 1999 1998Military Aerospace 1) 523 628Space 65 59Training Systems 165 167Commercial Aircraft -2 -15Combitech 80 -166Corporate 18 2Saab 849 675Regional Aircraft 0 0Saab Aircraft Leasing 0 0Items affecting comparability 255 200Saab Group 1,104 8751) Includes reversal of loss risk reserve of SEK 135 m. (100).

Operating income of Military Aerospace decreased to SEK523 m. (628), mainly due to higher marketing and develop-ment costs for the export version of the Gripen. Risks andguarantee commitments in the basic contract for the Gripenhave been lowered and the loss risk reserve has thus beenreduced by SEK 135 m. (100), so that it has now been elimi-nated. Project interest of SEK 212 m. (252) on non-utilized

advance payments is included in operating income. The ope-rating margin was 9.7 percent (13.7).

Operating income of Space improved to SEK 65 m. (59),due to higher volumes with maintained margins. The operat-ing margin was 9.6 percent (9.7).

Operating income of Training Systems was on the samelevel as the previous year, SEK 165 m. (167). The operatingmargin decreased somewhat to 22.4 percent (26.9), mainlydue to the acquisition of Barracuda Technologies and the factthat the previous year was on an exceptionally high level.

Operating income of Commercial Aircraft amounted toSEK -2 m. (-15) and consists of the income of CollaborativePrograms, which was affected by investments in new activiti-es connected with Airbus, Boeing and other projects.Development for Saab Aircraft and Saab Aircraft Leasing is fol-lowing the plans set up in 1997, when a write-down wasmade in the leasing portfolio together with provisions forfuture negative income in Saab Aircraft. For Saab Aircraft, theyear’s income before settlement against the loss risk reservewas -47 m. (-60) and for Saab Aircraft Leasing SEK -35 m. (-55).

Operating income of Combitech improved greatly to SEK80 m. (-166). The improvement was largely due to highervolumes and margins throughout the niche companies, andthe fact that there was no negative effect from Traffic Systemson income during the year, since provisions for the expecteddeficit had already been made in 1998. Operating income forMarine Electronics was SEK 68 m. (37), for Combitech SystemsSEK 25 m. (15) and for Combitech Network SEK 25 m. (17).Income for the development company Saab CelsiusTransponderTech was negative but within the framework forthis development venture. In addition to this, income includ-es structure costs for closing the Combitech head office andthe result of SEK -14 m. (75) from company divestments.

Income from Corporate activities improved, especially inregard to capital gains.

Subdivided summary of income statement, 1999 Regional Elimi-

SEK m. Saab Aircraft SAL nations Group

Sales 8,581 746 0 -274 9,053Cost of goods sold -5,836 -1,517 0 990 -6,363

Gross margin 2,745 -771 0 716 2,690Operating expenses -1,897 0 -35 90 -1,842Share in income of associated companies 1 0 0 0 1Settle of termination reserve 0 771 35 -806 0

Total 849 0 0 0 849Reversal of termination reserve 0 255 0 0 255

Operating income 849 255 0 0 1,104Income from financial items 199 0 74 0 273

Income after financial items 1,048 255 74 0 1,377Taxes -391Minority interest -47

Net income 939

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Five year overview 1)

Pro forma Pro formaSEK m., unless otherwise stated 1999 1998 1997 1996 1995

GroupSales 9,053 8,248 8,674 8,159 7,925Operating income 1,104 875 -5,316 -2,066 -399Operating margin, % 12.2 10.6 neg neg negOperating margin before depreciation, % 17.1 14.7 neg neg 5.7

Income after financial items 1,377 1,218 -4,845 -1,572 271before items affecting comparability 1,122 1,018 576 -353 271

Total assets 28,079 29,680 30,320 28,140 24,966of which aircraft leasing operation 8,877 9,119 9,604 8,817 6,711

Capital employed 6,866 6,352 6,440 8,975 8,719Return on capital employed, % 21.3 21.4 neg neg 5.0

before items affecting comparability, % 17.6 18.2 8.8 neg 5.0Return on shareholders’ equity, % 21.5 25.6 neg neg 2.5

before items affecting comparability, % 17.3 21.6 2.4 neg 2.5Profit margin before items affecting comparability, % 13.4 14.1 7.8 neg 5.5Capital turnover rate 1.32 1.29 1.13 0.92 0.91Equity / assets ratio, % 16.8 13.6 10.2 22.5 23.3Interest coverage ratio, before items affecting comparability, % 13.9 7.88 6.76 neg 2.64

Earnings per share, SEK 8.82 8.55 – – –Earnings per share after full conversion, SEK 8.60 8.35 – – –Dividend, SEK 2) 2.50 2.00 – – –

Average no. of employees 8,092 7,742 7,716 8,131 7,991

Group, excluding Regional Aircraft and Saab Aircraft LeasingSales 8,581 7,539 7,379 6,079 5,196Operating income 3) 849 675 870 910 618Operating margin, % 9.9 9.0 11.8 15.0 11.9Operating margin before depreciation, % 15.1 13.4 16.8 21.1 18.4

Equity / assets ratio 4), % 29.7 25.2 21.9 31.6 26.01) For definitions of key ratios, see Note 42 on page 63.2) 1999 proposed dividend.3) Includes reversal of loss risk reserve related to Gripen. 1999-1996 of SEK 135, 100, 313 and 300 m. respectively.4) 1998 shows January 1, 1999 and includes Avionics. December 31, 1998 the equity / assets ratio was 26.5%.

Financial objectivesIn the long term, Saab’s goal, excluding the regional aircraftactivities, is to achieve an average operating margin of at least15 percent before depreciation and at least 10 percent afterdepreciation. In 1999, the operating margin before deprecia-tion was 15.1 (13.4) percent and the operating margin afterdepreciation 9.9 (9.0) percent.

The aim for equity/assets ratio is to exceed 30 percent forSaab excluding regional aircraft activities. At the end of 1999,

the equity/assets ratio calculated accordingly amounted to29.7 percent.

The profitability goals, which refer to the Group includingregional aircraft activities, are a return of at least 15 percenton shareholders’ equity, based on the present interest level.In 1999, the return on shareholders’ equity was 21.5 (25.6)percent.

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Finance and liquidityBalance sheet

Dec. 31, Jan. 1, Dec. 31,SEK m. 1999 1999 2) 1998

AssetsGoodwill and other intangible assets 375 328 108Property, plant ane equipment, etc. 2,615 2,685 2,620Lease assets 8,236 8,664 8,664Shares 1,327 47 103Deferred tax receivables 507 707 734Inventories, etc 1,717 2,241 2,177Receivables 2,511 2,491 2,328Cash and marketable securities 10,791 13,270 12,946

Total assets 28,079 30,433 29,680

Shareholders’ equity and liabilitiesShareholders’ equity 4,708 4,033 4,033Minority interest in subsidiaries 206 148 92Provision for pensions 1,995 1,965 1,948Other provisions 5,042 6,226 6,226Liabilities to credit institutions 181 69 69Convertible debenture loan 217 210 210Lease obligations 4,591 4,953 4,953Advance payments from customers, net 1) 4,055 5,191 4,881Other liabilities 7,084 7,638 7,268

Total shareholders’ equity and liabilities 28,079 30,433 29,680

1) Advance payments from customers, gross 6,645 7,799 6,989

Less portion used, which has been deducted from inventories -2,590 -2,608 -2,108

Advance payments from customers, net 4,055 5,191 4,8812) Including Ericsson Saab Avionics, which is consolidated in

the Saab Group from January 1, 1999.

Subdivided summary of balance sheet, December 31, 1999

Regional Elimi-SEK m. Saab Aircraft SAL nations Group

Fixed assets 5,816 – 1 -1,500 4,317Lease assets 106 – 8,130 – 8,236Deferred tax receivables 319 665 – -477 507Inventories, etc 1,717 – – – 1,717Receivables 1,582 10 919 – 2,511Cash and marketable securities 5,955 3,032 1,804 – 10,791

Total assets 15,495 3,707 10,854 -1,977 28,079

Shareholders’ equity 4,609 – 1,599 -1,500 4,708Minority interest in subsidiaries 204 – 2 – 206Provision for pensions 1,995 – – – 1,995Other provisions 29 2,376 3,114 -477 5,042Liabilities to credit institutions 181 – – – 181Convertible debenture loan 217 – – – 217Lease obligations 109 – 4,482 – 4,591Advance payments from customers 4,055 – – – 4,055Other liabilities 4,096 1,331 1,657 – 7,084

Total shareholders’ equity and liabilities 15,495 3,707 10,854 -1,977 28,079

42

Liquid funds less deductions for external borrowing decreas-ed by SEK 2,274 m. to SEK 10,393 m. (12,667). The decrease ispartly due to the acquisition of shares in Celsius, loweradvance payments from customers and dividend payments.The Group has a strong financial position and net liquidityafter deduction for pensions amounted to SEK 8,398 m.(10,719). During 1999, shares in Celsius with a value of SEK1,267 m. were acquired.

In accordance with applicable accounting practice, Saabhas not reported the bonus from SPP as an asset in the finan-cial statements for 1999.

Group equity/assets ratio amounted to 16.8 (13.6) percentand the interest coverage ratio, excluding items affectingcomparability, was 13.9 (7.9). Equity/assets ratio excludingRegional Aircraft and Saab Aircraft Leasing was 29.7 (26.5) percent.

Shareholders’ equity amounted to SEK 4,708 m. (4,033),corresponding to SEK 44.23 (37.90) per share.

Cash flowThe cash flow analysis and following comments apply to theperiod 1 January – 31 December 1999, which means that theeffects of the consolidation of Avionics in the Group from thebeginning of 1999 are not included. The cash flow analysisfor the period 31 December 1998 - 31 December 1999 isshown on page 51.

Summary of cash flow statement

SEK m. 19991) 1998

Cash flow from operating activities

Income after financial items, excl. Sharein income of associated companies 1,380 1,154

Depreciation and write-down charged to income 918 773

Items affecting comparability,without cash effect -255 -200

Tax -182 -95

Cash flow from operating activities beforechanges in working capital 1,861 1,632

Working capitalInventories, etc. 524 819Receivables 8 -35Advance payments from customers -1,136 -657Other liabilities -554 541Lease obligations -362 -254Provisions -929 -442

Change in working capital -2,449 -28

Cash flow from operating activities -588 1,604Investments in intangible fixed assets -104 12Investments in shares -1,285 9Investments in tangible fixed assets -280 -357Investments in lease assets -83 -2,184Change in long-term receivables -28 -189

Cash flow from investments -1,780 -2,709

Operating cash flow -2,368 -1,105

1) From January 1 to December 31, as if Avionics had already been included in

the Group in 1998.

Group cash flow from operating activities amounted to SEK1,861 m. (1,632). Working capital decreased by SEK 2,449 m.(28). Higher utilization of payments for the Gripen and loweradvance payments for Regional Aircraft led to a decrease ofSEK 1,136 m. in advance payments from customers.Provisions have net decreased by SEK 929 m., of which theyear’s losses in Regional Aircraft and Saab Aircraft Leasinghave, in accordance with plans, led to a decrease in provi-sions of SEK 806 m. Inventories decreased by SEK 524 m.,mainly attributable to Regional Aircraft. The cash flow frominvestments amounted to SEK -1,780 m. (-2,709), of whichinvestments in Celsius AB shares accounted for SEK -1,267 m.in 1999 and investments in lease assets accounted for SEK-2,184 m. in 1998. The operating cash flow amounted to SEK-2,368 m. (-1,105), of which Regional Aircraft SEK -404 m.(-681) and Saab Aircraft Leasing SEK 218 m. (-1,813). Thedecrease is mainly due to the acquisition of shares in Celsius,continued higher utilization of payments for the Gripen, ter-mination of regional aircraft production and dividend pay-ments of SEK 213 m.

Subdivided summary of cash flow statement,January–December 1999

Regional SEK m. Saab Aircraft SAL Group

Cash flow from operating activities before changes inworking capital 1,383 0 478 1,861

Change in working capital -1,715 -408 -326 -2,449

Cash flow from operating activities -332 -408 152 -588Cash flow from investments -1,850 4 66 -1,780

Operating cash flow -2,182 -404 218 -2,368

Financial risk managementThe Group’s operations are always exposed to financial risksthrough fluctuations in exchange rates, interest levels, creditand liquidity. In addition, operations consist to a large extentof long-term projects, which increases the complexity of thefinancial structure. The overall policy for the operating unitsis to minimize the financial risks in routine business, in otherwords to achieve financial neutrality.

Exchange rate risks are defined as the risk that fluctuationsin exchange rates will have a negative effect on the Group’sincome. Risk neutrality on the exchange rate side is achievedthrough specific clauses in contracts or through implementingfutures or options transactions in the currency market.Exchange rate risks in military business are largely hedgedthrough the respective contract. In other business, the policyof the Group is to hedge the exchange rate risk continuouslywhen signing firm orders. Exchange rate risks during an offer period are managed according to special assessments in each case.

Interest risk is the risk of negative influence on the Group’sincome as a result of fluctuations in market rates. Risk neu-trality is achieved on the principle of seeking uniformity between interest fixing on the assets side and future com-mitments on the liabilities side.

43

44

Saab Treasury is responsible for the Group’s liquidity mana-gement, internal banking and trading, and the external mana-gement of interest and exchange rate risks. Operations areconducted on the basis of a finance policy set out by the Boardof Directors and are divided up into three portfolios: liquiditymanagement, internal banking and trading.

Liquidity management is handled centrally within theframework of an investment policy decided by the Board ofDirectors of Saab. The investment policy is based on a bench-mark, from which the following deviations are permitted inregard to duration and credit risk:

Benchmark Min. risk Max. riskGovernment 80% 100% 40%Housing (min A) 20% 0% 40%Corporate (min A) – 0% 20%Duration 15 mths 0 mths 27 mths

To minimize credit risks, it is necessary for the opposite parti-es to have a minimum credit rating of single A, according toMoody’s and/or S&P’s ratings. Calculations are made of theactual and anticipated credit risk in compliance with therecommendations of the Bank of International Settlement(BIS). At December 31, 1999, the risks of the opposite partiesamounted to SEK 4,646 m. (3,391), of which housing financeinstitutes accounted for SEK 3,623 m. (2,617).

To achieve the desired duration and return, interest optionssuch as swaps and futures are used. At the close of books, theduration was 11 months. During 1999, the average net liquiditywas SEK 11,600 m. (13,300). The average return on cash andmarketable securities in 1999 was 4.75 percent (5.7).

To optimize the Group’s external transactions and to moni-tor and overview the Group’s transactions, all transactionsare made through the internal bank. The internal bank takesno risks and all transactions made against internal companiesare made simultaneously against external parties.

The Board of Saab AB has issued a risk mandate of SEK 20 m.for trading in currencies and money market instruments,expressed according to Value at Risk (VaR). Value at Risk is aprobability method, based on historic exchange rate fluctua-tions. The method measures the maximum loss during a cer-tain number of days with a certain probability. Within Saab isused five days and 99 percent probability. Through Value atRisk can the risk in different assets be aggregated into onerisk assessment. If the accumulated result during the year isnegative, the mandate is reduced by the correspondingamount. In 1999, trading income amounted to SEK 12 m. (11).The average risk mandate utilization (VaR) during the yearwas SEK 3.6 m. (5.3).

Options held by Saab Treasurys per December 31, 1999 hada nominal value of SEK 15,695 m. (15,546). This amount canbe subdivided as follows:

Nominal amount in SEK m. 1999 1998

Interest swaps, SEK 3,750 5,050Interest swaps, foreign 4,056 4,556Futures, SEK 4,750 1,500Currency options 20 98Currency futures 3,119 4,342

Total 15,695 15,546

Futures and interest swaps in SEK are used for risk manage-ment of liquidity, while interest swaps in foreign currency aremade for the purpose of risk management of the leasing portfo-lio. Others are futures and options for the USD share of alloca-tions for Regional Aircraft and Saab Aircraft Leasing, togetherwith firm orders for other business in the Group.

Risk Management – InsuraceThe purpose of Risk Management is to identify, assess andlimit non-financial risks, prevent injury/damage and assumeresponsibility for the Group’s central insurance purchasing.Purchasing takes place both on the open market and in theGroup’s own insurance company. All insurance signed in theGroup’s own company is reinsured in the external market onan Excess of Loss basis in order to limit the company’s exposureper claim. The Saab Group’s total insurance premiums duringthe year amounted to SEK 27.5 m. (29.2), of which SEK 18.3 m.(19.5) was signed in the Group’s own insurance company.

Customer financeCustomer finance is an important form of support for marke-ting the company’s products. Export customers are increa-singly setting demands on finance. Normally, Saab acts toget-her with various banks and guarantee institutes in findingvarious solutions to the customer’s requirements. Primarily,purchaser credits or supplier credits are used. To limit riskexposure, the risks are sold on the market to banks and state-owned guarantee institutes, such as the Export CreditsGuarantee Board in Sweden.

Capital expendituresThe year’s capital expenditures in property, plant and equip-ment, excluding lease assets, amounted to SEK 447 m. (521).Net investments including lease assets and intangible fixedassets amounted to SEK 466 m. (2.529), including lease assetsof SEK 83 m. (2.184).

SEK m. 1999 1998

Military Aerospace 301 269Space 40 87Training Systems 24 65Commercial Aircraft 29 35Combitech 53 63Regional Aircraft – 2

Saab Group 447 521

The decrease compared to 1998, is mainly due to lowerinvestments in property. During 1998, Space and TrainingSystems built new houses at their respective premesis.

Research and developmentThe Group allocates considerable resources to research anddevelopment in order to maintain its position as a leadingproducer of military aircraft and defense materiel. Over 2,500people are employed in research and development. Invest-ments in research and development are made primarily forcustomers in business area Military Aerospace. Developmentis also carried on in the fields of laser simulation, radar-basedlevel-gauging, space, and development of military technolo-gy for commercial applications.

The year’s expenditure on research and developmentamounted to SEK 3,081 m. (2,128).

SEK m. 1999 1998

Military Aerospace 2,511 1,713Space 187 171Training Systems 76 69Commercial Aircraft 181 49Combitech 126 123Regional Aircraft – 3

Saab Group 3,081 2,128in percent of net sales 34.0 25.8

The increase compared with the previous year is mainly attri-butable to the consolidation of Avionics, which is a highlyresearch and development intensive operation, and to theplanned increases connected with the export version of theGripen and business ventures in Collaborative Programs. Of theyear’s expenditures for research and development, SEK 2,477 m.(1,750) relates to development paid for by customers.

The New MillenniumThe transition to the New Millennium passed smoothly.Extensive work had been carried out since autumn 1996 tosafeguard operations and was reported continuously to theBoard. The work was administered by management- appoin-ted project owners controlling four sub-projects: IS/IT app-lications, IS/IT infrastructure, embedded software in theCompany’s own products and embedded software in instal-lations and equipment. All the necessary preparations werecompleted in time.

The year’s expenditures amounted to SEK 23 m. (22) andthe year’s investments in plant and equipment to SEK 15 m.(2). The total costs for the project amount to SEK 48 m. andthe total investment is SEK 18 m.

Board of DirectorsDuring 1999, six ordinary and two extraordinary Board mee-tings have been held. At the Annual General Meeting onApril 27, all Board members were reelected. On 13 January2000, Kevin Smith asked to be relieved of his post as boardmember of Saab AB since he is no longer employed by BAESYSTEMS.

During the year, the Board has paid special attention to thefollowing issues:• Saab’s public offer to acquire Celsius• Exports of the Gripen with the focus on South Africa• Changes in the Swedish Armed Forces• Developments in the European aerospace industry• Business development of the Group• Leasing portfolio of Saab 340 and Saab 2000• Operations in Saab Training Systems and Saab Ericsson

Space

The Board has decided to issue working instructions for theBoard and for the distribution of work between the Boardand President. According to the working instructions adop-ted by the Board, normally six ordinary Board meetings inaddition to the Board meeting following election shall beheld each year. In addition, the Board may convene when cir-cumstances so require. The instructions for the President setout his duties and authorizations. Policies for investments,

finance and reporting are also linked to the instruction. Withone exception, the Board has avoided appointing subcommit-tees. According to a resolution passed by the Board meetingfollowing election, issues concerning remuneration to thePresident and certain leading officials shall be handled by asubcommittee consisting of Anders Scharp, MarcusWallenberg and Georg Rose.

Consequences of the EMU for Group exposureThe EMU has led to major structural changes, particularly inthe financial sphere. Within the EMU, the exchange rate riskfor member countries have been eliminated, thereby makingit unnecessary to manage exchange rate risks in connectionwith investments, offers and transactions. In the case of theSaab Group, the exchange rate risk has however remained,since the Swedish krona is floating against the Euro andother currencies.

For the Saab Group, the introduction of the Euro has redu-ced exposure to a smaller number of currencies. The Group’sexposure to the Euro is relatively low. The international avia-tion industry will continue to be dominated by trade in USD,which is the principal currency for the Group. The Group’sEMU policy means that new contracts will be written inEuros instead of the national currencies. The introduction ofthe Euro, however, has no effect on the Group’s preferencesregarding invoicing currencies since the USD and SEK are theGroup’s principal currencies for this purpose. The SaabGroup has successively replaced transactions in national cur-rencies with the Euro. For Saab AB and its Swedish subsidia-ries, the accounting currency will be the SEK as long asSweden remains outside the EMU.

ENVIRONMENTParent company, Saab ABSaab AB carries on industrial operations which must be licen-sed in accordance with the Environment Act. The operationsin question involve aircraft manufacture, which includes sur-face treatment, handling of chemical substances, airport ope-ration and size of the manufacturing facilities. The environ-mental impact of the operations subject to licensing arises pri-marily from emissions of organic solvents to the atmosphere,emissions of metals and deicing agents to water, and the genera-tion of waste products and noise. The main part of the manu-facturing operations are thus subject to environmental licensing.

Aircraft manufacture by Saab AB in Linköping is the only operation subject to licensing by the EnvironmentalCourt. The license was issued by the Licensing Board for Environmental Protection in 1990. Saab AB has beengranted exemption from the Chemicals Inspectorate for using trichloroethylene until 2002.

GroupThe operations carried on by Saab Dynamics AB and SaabEricsson Space in Linköping are exempt from the obligationto file reports or seek licensing according to the EnvironmentAct. However, their operations are subject to the licensingdecision issued in 1990 for aircraft manufacture and SaabAB’s general operations in Linköping.

The Group carries on environmentally notifiable opera-tions at four Swedish subsidiaries: Saab Ericsson Space(Gothenburg), Saab Aircraft AB (Arlanda) , Saab Training

45

Systems AB (Jönköping), and Saab Marine Electronics(Gothenburg).

The operations of Saab Aircraft AB in Linköping are sub-ject to environmental licensing according to the EnvironmentAct. The operations are included in the license issued in 1990for aircraft manufacture. Operations of Saab Aircraft AB inMalmö, which were licensed by the County Administration,were phased out during 1999 following the termination ofregional aircraft production.

The operations carried on by Ericsson Saab Avionics AB inJönköping have been granted exemption by the CountyAdministration regarding the obligation to apply for licen-sing according to the Environment Act. With the introductionof the new Environment Act, the operations will be subject tonotification or licensing. The matter is currently being discus-sed with the County Administration.

Barracuda Technologies AB in Gamleby possesses a licensefor its operations through a decision by the CountyAdministration in 1990.

The companies’ operations include surface treatment, inwhich organic solvents are used. The environmental impactarises through the emission of organic solvents to the atmos-phere and emissions of metals to water. Certain companiesare obliged to notify the authorities since they are engaged inmechanical processing of metals. The environmental impactin this case is very limited.

PersonnelAt year-end 1999, the Group had a total of 8,031 (7,891)employees.

Number 1999 1998 Change

Military Aerospace 4,585 3,991 594Space 644 600 44Training Systems 369 257 112Commercial Aircraft 1,629 1,575 54Combitech 804 858 -54Regional Aircraft – 610 -610

Saab Group 8,031 7,891 140

Parent Company Sales of the parent company amounted to SEK 4,933 m.(6,857). Operating income amounted to SEK 626 m. (677).Net financial income and expenses amounted to SEK 1,147 m.(798) and income after financial income and expenses wasSEK 1,773 m. (1,475). Of the financial net SEK 648 m. (549) aregroup contributions and dividends.

After appropriations of SEK -45 m. (-79) and paid anddeferred tax of SEK -321 m. (-319), net income for the yearamounted to SEK 1,407 m. (1,077).

The operations within Saab Aircraft AB and Saab TreasuryAB are, as earlier, conducted on commission on behalf ofSaab AB.

Proposed disposition of earningsAs shown in the consolidated balance sheet, unappropriatedearnings of the Group amount to SEK 1,445 m. (361), ofwhich SEK 939 m. (912) is income for the year. Allocations torestricted reserves are required in the parent company forSEK 22 m. (71).

The Board of Directors and the President propose that theunappropriated earnings at the disposal of the AnnualGeneral Meeting in the Parent Company, amounting to:

SEK m,Unappropriated earnings carried forward 481Income for the year 1,407Total 1,888

be disposed as follows:

Allocation to reserve fund 22Dividend, SEK 2.50 per share 266To be retained in the business 1,600Total 1,888

After the proposed disposition, shareholders’ equity in the parentcompany will be as follows:

SEK m,Capital stock 1,703Premium reserve 17Revaluation reseve 500Legal reserve 342Unappropriated earnings 1,600Total 4,162

The company’s policy is to issue a dividend of 20-40 percentof income for the year. The Board and President propose thatSEK 266 (213) m., or SEK 2.50 (2.00) per share, correspondingto 28 (23) percent of the Group’s income for the year be issu-ed as dividend. Equity/assets ratio of the Saab Group, exclu-ding Regional Aircraft and Saab Aircraft Leasing, is currently29.7 (26.5) percent and after the proposed disposition of ear-nings equity/assets ratio will be 28.5 (25.4) percent.

For the income and financial position of the Group andParent Company see the following income statements andbalance sheets, including notes with comments.

46

SEK million Note 1999 1998 1999 1998

Sales 3 9,053 8,248 4,933 6,857Cost of goods sold -6,363 -6,105 -3,700 -5,582

Gross margin 2,690 2,143 1,233 1,275

Marketing expenses -798 -795 -371 -409Administrative expenses -550 -532 -320 -352Research and development costs -604 -378 -292 -132Items affecting comparability 4 255 200 255 200Other operating income 5 181 206 136 146Other operating expenses 6 -71 -34 -15 -51Share in income of assocated companies 1 65 – –

Operating income 9 1,104 875 626 677

Result from financial investmentsResult from other securities and receivables

accounted for as fixed assets 10 4 – 965 557Other interest income and similar profit/loss items 11 356 492 271 385Interest expense and similar profit/loss items 12 -87 -149 -89 -144

Income after financial items 1,377 1,218 1,773 1,475

Appropriations 13 – – -45 -79

Income before tax 1,377 1,218 1,728 1,396

Taxes 14 -391 -279 -321 -319Minority interest -47 -27 – –

Net income for the year 939 912 1,407 1,077

F INANCIAL STATEMENTS

Group Parent Company

1999 1998

SEK million Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

SalesSaab, excl. Regional Aircraft 1,984 2,519 1,769 2,309 1,817 1,856 1,359 2,507Regional Aircraft 92 405 249 – 572 743 377 1,006Internal sales -81 -109 -95 11 -572 -495 -369 -553

1,995 2,815 1,923 2,320 1,817 2,104 1,367 2,960

Operating income 167 382 176 379 281 63 56 475of which items affecting comparability – 174 – 81 – – – 200

Operating margin for SAAB excl.decrease loss risk reservebefore depreciation, percent 13.1 12.6 16.1 18.7 19.8 7.6 9.9 14.5after depreciation, percent 8.4 8.3 9.9 12.9 15.5 3.4 4.1 11.0

Net financial income 60 112 67 34 68 63 84 128

Income after financial income and expenses 227 494 243 413 349 126 140 603Net income 150 336 154 299 245 87 95 485Earnings per share, SEK 1) 1,41 3,16 1,44 2,81 2,30 0,81 0,90 4,54

1) Number of shares 106,459,675 as per December 31, 1999.

SALES AND INCOME PER QUARTER

SAAB ANNUAL REPORT 1999 – FINANCIAL STATEMENTS 47

Openingbalance

SEK million Note 1999 1999 1) 1998 1999 1998

ASSETS

Fixed assets

Intangible fixed assetsOther intangible fixed assets 15 287 328 108 – –Goodwill 16 88 – – – –

375 328 108 – –

Tangible fixed assetsLand and buildings 17 1,711 1,715 1,715 1,246 1,253Plant and machinery 18 693 629 564 293 308Equipment, tools, fixtures and fittings 19 198 250 250 118 132Lease assets 20 8,236 8,664 8,664 – –Construction in progress and advance

payment for tangible fixed assets 21 13 91 91 9 23

10,851 11,349 11,284 1,666 1,716

Financial fixed assetsParticipations in Group companies 22 – – – 3,246 2,374Receivables from Group companies 23 – – – 1,019 162Participations in associated companies 24 12 23 79 5 17Other securities held as fixed assets 25 1,315 24 24 1,298 7Other long-term receivables 26 752 724 721 – –Deferred tax receivables 27 507 707 734 1,238 1,414

2,586 1,478 1,558 6,806 3,974

Total fixed asstes 13,812 13,155 12,950 8,472 5,690

Current assets

Inventories etc.Raw materials and consumables 680 1,184 974 294 774Work in progress 2,584 2,841 2,591 1,746 1,936Finished products and goods for resale 932 680 624 474 273Advance payments to suppliers 111 144 96 47 82Less utilized advance payments from customers -2,590 -2,608 -2,108 -1,787 -1,872

1,717 2,241 2,177 774 1,193

Current receivablesAccounts receivable 1,034 1,174 1,017 240 333Receivables from Group companies – – – 916 981Receivables from associated companies 263 141 151 247 134Other receivables 192 228 216 66 142Prepaid expenses and accrued income 28 270 224 223 90 54

1,759 1,767 1,607 1,559 1,644

Short-term investments 29 9,766 12,660 12,435 9,736 12,410Cash and bank 1,025 610 511 483 325

Total current assets 14,267 12,278 16,270 12,552 15,572

Total assets 28,079 30,433 29,680 21,024 21,262

1) Including Ericsson Saab Avionics which is consolidated in the Saab Group from January 1, 1999.

Group Parent Company

BALANCE SHEET

SAAB ANNUAL REPORT 1999 – BALANCE SHEET 48

Openingbalance

SEK million Note 1999 1999 1) 1998 1999 1998

EQUITY AND LIABILITIES

Equity 30

Restricted equityCapital stock

(106,459,675 shares with a par value of SEK 16 each) 1,703 1,703 1,703 1,703 1,703Restricted reserves 1,560 1,959 1,969 – –Share premium reserve – – – 17 21Revaluation reserve – – – 500 500Legal reserve – – – 320 249

3,263 3,662 3,672 2,540 2,473

Unrestricted equityProfit or loss brought forward 506 371 -551 481 -228Net income for the year 939 – 912 1,407 1,077

1,445 371 361 1,888 849

4,708 4,033 4,033 4,428 3,322

Minority interest in subsidiaries 206 148 92 – –

Untaxed reserve 31Accumulated excess depreciation – – – 478 510Tax allocation reserve – – – 95 56

– – – 573 566

ProvisionsProvisions for pensions and

similar commitments 32 1,995 1,965 1,948 1,583 1,574Other provisions 33 5,042 6,226 6,226 2,378 3,412

7,037 8,191 8,174 3,961 4,986

Long-term liabilitiesOther liabilities to credit institutions 34 101 17 17 60 –Liabilities to Group companies – – – 519 2,031Convertible debenture loan 35 217 210 210 237 233Lease obligations 36 4,197 4,618 4,618 – –Other long-term liabilities 36 947 995 995 – –

5,462 5,840 5,840 816 2,264

Current liabilitiesLiabilities to credit institutions 37 80 52 52 48 15Advance payments from customers 4,055 5,191 4,881 3,247 4,243Accounts payable 665 933 843 260 562Liabilities to Group companies – – – 4,289 2,823Liabilities to associated companies 10 25 60 10 47Income tax liability 462 486 479 394 454Other liabilities 38 575 494 468 389 300Lease obligations 394 335 335 – –Accrued expenses and deferred income 39 4,425 4,705 4,423 2,609 1,680

10,666 12,221 11,541 11,246 10,124

Total equity and liabilities 28,079 30,433 29,680 21,024 21,262

1) Including Ericsson Saab Avionics which is consolidated in the Saab Group from January 1, 1999.

Group Parent Company

SAAB ANNUAL REPORT 1999 – BALANCE SHEET 49

SAAB ANNUAL REPORT 1999 – PLEDGED ASSETS AND CONTINGENT LIABILITIES

Group Parent Company

PLEDGED ASSETS AND CONTINGENT LIABILITIES

50

SEK million Note 1999 1998 1999 1998

Assets pledged 40For own liabilities and provisions

Property mortgages 394 388 388 388Chattel mortgages 2,188 2,147 2,101 2,101Lease assets 1) 2,255 2,389 – –Other long-term receivables 616 571 – –Accrued income 61 61 – –Bonds and securities 5,191 5,280 5,191 5,280Other assets 16 – – –

Total assets pledged 10,721 10,836 7,680 7,769

Contigent liabilitiesGuarantees to the insurance company Pensionsgaranti (FPG) 36 35 28 27Sureties for Group companies – – 3,154 3,143Sureties for others 2) 5,194 5,271 2,566 2,732Sureties for associated companies – 8 – 8Less amount shown as liability

in the balance sheet 3) -3,034 -3,212 – –

Total contigent liabilities 2,196 2,102 5,748 5,910

1) In addition to the above lease assets pledged, the balance sheet contains assets reported in accordance with finance lease contracts. See note 20.2) Of this amount, USD 559 m. (609) comprises guarantees for sureties of lease agreements related to 162 (167) Saab 340 and Saab 2000 aircraft.3) Of the above sureties in the parent company, 41 aircraft (46) equivalent to USD 207 m. (239) have been accounted for as lease assets in the

Group. In the balance sheet, USD 183 m. (198) has been accounted for as liability related to a provision for future deficits according to valid leasing contracts.

SEK million 1999 1) 1999 1998 1999 1998

Cash flows from operating activitiesOperating income 1,104 1,104 875 626 677

Adjustments for items not affecting cash flowDepreciation and write-down 918 918 773 165 159Items affecting comparability -255 -255 -200 -255 -200Dividend from associated companies -1 -1 -65 – –

Total 1,766 1,766 1,383 536 636

Financial income 360 360 492 1,232 941Dividend from associated companies 4 4 1 4 1Financial expenses -87 -87 -149 -89 -144Tax paid -182 -182 -95 -111 -73

Cash flow from operating activities beforechanges in working capital 1,861 1,861 1,632 1,572 1,361

Change in working capitalDecrease in inventories etc. 524 460 819 419 1,084Decrease/ increase in current receivables 8 -152 -35 20 -18Decrease in advance payments -1,136 -826 -657 -996 -509Decrease/ increase in current liabilities -506 -136 306 619 276Decrease/ increase in other long-term liabilities -48 -48 235 – –Decrease in lease obligations -362 -362 -254 – –Decrease in provisions -929 -929 -442 -779 -467

Change in working capital -2,449 -1,993 -28 -717 366

Cash flow from operating activities -588 -132 1,604 855 1,727

Cash flow from investmentsInvestments in intangible fixed assets -104 -324 12 – –Investments in tangible fixed assets -280 -345 -357 -115 -151Investments in lease assets -83 -83 -2,184 – –Investments in financial fixed assets -1,285 -1,229 9 -2,151 39Increase in long-term receivables -28 -31 -189 – –

Cash flow from investments -1,780 -2,012 -2,709 -2,266 -112

Operating cash flow -2,368 -2,144 -1,105 -1,411 1,615Other itemsDividend to shareholders -213 -213 – -213 –Minority interest in subsidiaries 11 67 -93 – –Deferred tax -7 20 -35 – –Translation differences -51 -51 31 – –Change in equity – – – -37 -17Group contribution given – – – -123 -342

Total -260 -177 -97 -373 -359

Decrease in net liquidity -2,628 -2,321 -1,202 -1,784 1,256

FinancingRaised loans 119 119 210 97 233Amortization of liabilities – – -879 – -969Increase in provisions for pensions 30 47 -295 9 -74

Cash flow from financing 149 166 -964 106 -810Decrease in cash and bank, short-term investments,

receivables from Group companies -2,479 -2,155 -2,166 -1,678 446Cash and bank, short-term investments, receivables

from Group companies at the beginning of the year 13,270 12,946 15,112 9,024 8,578Cash and bank, short-term investments, receivables

from Group companies at year-end 10,791 10,791 12,946 7,346 9,024

1) From January 1 to December 31, as if Avionics had already been included in the Group in 1998.

SAAB ANNUAL REPORT 1999 – STATEMENT OF CASH FLOWS

Group Parent Company

STATEMENT OF CASH FLOWS

51

With accounting principles and comments on thefinancial statementsAmounts in SEK m. unless otherwise stated

Change in accounting principlesIn comparison to the previous year, the accounting principlesare unchanged, but with the exception that RecommendationNo. 8 of the Financial Accounting Standards Council has nowbeen applied from the 1999 half-year financial statements. Thechange consists of translating integrated foreign operations inaccordance with the monetary method. No restatement hasbeen made for earlier periods since the effect of the change ofaccounting method has been considered immaterial.

General accounting principlesThe company follows the recommendations issued by theSwedish Financial Accounting Standards Council (Redovis-ningsrådet) and the Swedish Accounting Standards Board(Bokföringsnämnden). The recommendations of the SwedishFinancial Accounting Standards Council comply in all mate-rial respects with the principles of the InternationalAccounting Standards Committee (IASC).

In conformance with the legislation on annual accounts, theincome statement is classified according to function, pursuantto internal reporting.

The functions are as follows: Cost of goods sold comprisescosts for goods handling and manufacturing, including salariesand material costs, purchased services and costs of premises,and depreciation on fixed assets. Administrative expenses relateto costs for the Board, company management and corporatestaff functions. Marketing expenses comprise costs for the com-pany’s own sales organization, including sales subsidiaries,advertising and exhibitions. Research and development costs arereported separately and comprise costs for new and furtherdevelopment of products, see below. Other operating income andexpenses relate to secondary activities, exchange rate differenceson items of an operating character and capital gains/lossesfrom sales of tangible fixed assets. Utilization of provision forcovering the loss in Saab Aircraft (Customer Support) is inclu-ded in other operating income. Also included is income fromSaab Aircraft Leasing, which however is zero for the years1998 and 1999 after utilization of provision, and at group levelalso capital gains/losses from divestment of subsidiaries andgoodwill depreciation are also included.

The financial statements of the Parent Company, Saab AB,includes the Swedish subsidiaries Saab Treasury AB and SaabAircraft AB, which operations are conducted on commissionon behalf of Saab AB.

Consolidated accounts statementsThe consolidated accounts comprise the Parent Company andall subsidiaries and associated companies in Sweden andabroad. Subsidiaries are companies in which the Parent Com-pany directly or indirectly owns more than 50 percent of thevoting rights of the shares, and companies where the ParentCompany owns shares and is entitled to appoint or dismissmore than half the members of the board or where the ParentCompany otherwise has a decisive influence and a significantshare in the income generated from their operations. Associat-ed companies are companies in which the Parent Companydirectly or indirectly has a long-term ownership interest andwhere the voting rights are between 20 and 50 percent.

The consolidated statements are prepared in accordance withthe purchase method of accounting. This means that a subsi-diary’s assets and liabilities are accounted for at market valueaccording to an analysis of the acquisition. If the acquisitionvalue of the shares in the subsidiary exceeds the estimatedmarket value of the company’s net assets, after analysis, thedifference is considered Group goodwill.

Associated companies are accounted for in accordancewith the equity accounting method. This means that the bookvalue of the shares and participations in associated companiesis valued in the consolidated balance sheet at the Group’s sharein the equity of the associated companies after adjusting forthe Group’s share of surplus or deficit value, respectively. Thus,consolidated income includes only Saab’s share in the incomeof the associated companies, provided this does not result ina negative book value of the shares. The holding in Celsius AB,which at year-end amounted to 25.6 percent, is reported asshares and participations at acquisition cost, because at year-end there was no approval for exercise influence.

Minority interest comprises the minority share in net incomeand shareholders’ equity.

Companies acquired during the year are included in con-solidated income for the period following their acquisition.Income of companies sold during the year is not included inconsolidated income, instead the result is included in thecapital gain or loss.

Unrealized intra-Group profits and internal transactions areeliminated. Prices of internal Group supplies of goods are deter-mined by applying commercial principles and market prices.

Foreign subsidiaries and associated companiesIntegrated foreign operations’, subsidiaries’ and associatedcompanies’ financial statements are translated to Swedish kronor using the monetary method. The financial statementsfor the independent foreign subsidiaries within Saab AircraftLeasing and Saab Ericsson Space are translated to Swedishkronor using the current method.

Under the monetary method, monetary items are translatedat the year-end rate, while non-monetary items are translatedat the rate in effect on the acquisition date. Inventories, proper-ty, plant and equipment and shareholders’ equity are translatedat the acquisition date rate and other assets and liabilities atyear-end rate. With the exception of consumption of goods anddepreciation of property, plant and equipment, which are trans-lated at the acquisition date rate, income and expenses aretranslated at a weighted average exchange rate for the year.The translation difference on monetary assets and liabilities isincluded in net income for the year and is reported in the inco-me statement as follows.

The portion of the translation difference attributable tooperating items, primarily trade accounts receivable and pay-able, is included in operating income. The portion of the trans-lation difference attributable to interest-bearing items is inclu-ded in financial income and expenses.

With the current rate method, assets and liabilities aretranslated at the year-end exchange rate, while income andexpenses are translated at the average exchange rate for theyear. The translation difference that arises in part when trans-lating the net assets of foreign companies at a different rate atthe beginning of the year than at year-end and in part whennet income is translated at other than the year-end rate, isreported directly in shareholders’ equity in the balance sheet.

NOTES

52

Sales and incomeSales and income are reported at delivery of products, and ser-vices at the time the majority of risks and rights are transferredto the purchaser. Sales include the sale value less VAT (Value-Added Tax), specific sales taxes, returns and trade discounts.For long-term development contracts, revenue is recognized inpace with completion according to the Percentage of comple-tion method. From the calculated total revenue for a project, adeduction is made during the respective period in an amountcorresponding to the incurred costs as a proportion of the cal-culated total costs at the end of the period. In lengthy deliverycontracts for military aircraft, revenue is recognized in pacewith deliveries. Changes in anticipated total revenues and costsper contract are reported in the same period as they are noticed.

Gross marginFor orders whose manufacturing cost is financed to a signifi-cant extent by advances from customers, the effect of advance-payment financing on interest is reported in gross margin.See Note 11.

Depreciation principles for fixed assetsDepreciation according to plan is based on the historical costand estimated useful life of an asset. Write-down is appliedin the case of a permanent fall in value. Depreciation accor-ding to plan is distributed by function, according to the waythe asset is used.

The following depreciation plan is used:

Intangible fixed assetsCapitalized expenditure on R&D, etc. 5 yearsComputer software, non-standard 5 yearsGoodwill and other intangible assets 5–20 years

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

The difference between the above depreciation and fiscaldepreciation is, in legal entities, reported as accumulatedexcess depreciation, which is included in untaxed reserves.

Research and development expendituresThe Group’s definition of expenditures for research anddevelopment conforms with that used by Statistics Sweden.

Expenditures on internal research and development arenormally booked as costs when they are incurred. Only deve-lopment costs directly attributable to completely new andimportant products for the Group are capitalized. Such capi-talized costs are amortized annually with a minimum of 20percent. No development costs carried forward remain onthe Group’s balance sheet.

For the development and manufacture of the Saab 340and Saab 2000 commercial aircraft, Saab AB and the Swedish

Government have reached special agreements whereby theGovernment participates in the projects on commercial terms.Saab has received a total of SEK 1,476 m. for the years 1980–94.The amounts received have been reported as income at thesame rate as expenditures were incurred for the projects.

According to the agreements, compensation for the Govern-ment’s risk-taking was to be paid by Saab in the form of royalties based on the projects’ revenues and income. In asupplementary agreement between Saab and the SwedishGovernment signed in December 1997, payment to theGovernment will instead be based on income from the custo-mer support operation after production has been terminated.Income of the year has not resulted in any payment accord-ing to the agreement during 1999.

Guarantee costsCalculated costs for product guarantees are accounted for inconnection with sales of a product.

Items affecting comparabilityRecommendation No. 4 of the Swedish Financial AccountingStandards Council implies that the effects on income of speci-al events and transactions of significance are specified withinthe respective income concept. Examples of such events andtransactions are capital gains/losses when divesting opera-ting areas and major fixed assets, write-downs and restructu-ring costs. As item affecting comparability is reported thereverse of part of the restructuring reserve for closing theproduction of regional aircraft.

Hedging commercial flowsExchange differences on forward contracts related to contractedfuture currency flows are reported in the same period as theunderlying flow.

Non-contracted flows concerning provisions for restructuringcosts where settlement is made in foreign currency are hedgedso that no exchange rate difference occurs upon settlement.

Valuation principles, etc.Assets, provisions and liabilities have been valued at the pur-chase value unless otherwise stated in the following.

InventoriesThe inventory is valued at the lower of acquisition valueaccording to the first in, first out principle and actual value.For internally produced semi-manufactured and finished goods,the acquisition value consists of direct manufacturing costsand a reasonable markup for indirect manufacturing costs.

Inventories include advances to suppliers. From 1999,inventories are reported net, less customer advances, whichmeans that advances from customers in each project are setoff against incurred costs. Earlier periods have been restatedand are reported net.

ReceivablesAfter individual valuation, receivables have been valued inthe amounts in which they are expected to be received.

Convertible debenture loanDuring the autumn 1998, a convertible debenture loan to theGroup’s employees was issued. The loan bears interest belowmarket interest, which means that the loan is a liability withimplicit interest. The convertible debenture loan has beenaccounted for in accordance with Recommendation No 3 ofthe Swedish Financial Accounting Standards Council.

LeasingRecommendation No. 6 of the Swedish Financial Accounting

53

Exchange rates for SEK used in the financial statements

Year-end rate Average rate

Country Currency 1999 1998 1999 1998

Australia AUD 1 5.56 4.94 5.33 5.01Austria ATS 100 62.23 68.64 64.04 64.31Belgium BEF 100 21.23 23.41 21.85 21.93Canada CAD 1 5.87 5.20 5.56 5.37Denmark DKK 100 115.05 126.85 118.52 118.81Euro EUR 1 8.56 – 8.81 –Finland FIM 100 144.03 158.85 148.22 148.92France FRF 100 130.55 144.00 134.35 134.96Germany DEM 100 437.84 482.95 450.59 452.46Italy ITL 100 0.44 0.49 0.4 0.46Japan JPY 100 8.34 7.00 7.29 6.10Malaysia MYR 1 2.24 2.12 2.18 2.04The Netherlands NLG 100 388.59 428.65 399.91 401.39Norway NOK 100 106.05 107.30 106.01 105.38Singapore SGD 1 5.12 4.90 4.87 4.77Spain ESP 100 5.15 5.68 5.30 5.33UK GBP 1 13.80 13.52 13.37 13.17USA USD 1 8.52 8.07 8.26 7.95

Standards Council implies a classification of the lease con-tracts into finance and operating categories.

A finance lease implies that the lessee, even if he does notreceive the legal rights of ownership of an object, in all signifi-cant respects enjoys the financial rewards and accepts the risksassociated with the object. Objects possessed in accordancewith a finance lease are reported in the lessee’s balance sheetas a fixed asset and the commitment to pay leasing chargesin the future is reported as a liability. The lessor’s balancesheet reports his net investment in the lease contract, i.e. thepresent value of future leasing charges, as a receivable.

In an operating lease, the financial rewards and risks lin-ked with ownership mainly affect the lessor, who reports theobject as a fixed asset.

For anticipated or real deficits according to lease contractsrelated to aircraft finance operation carried on by Saab AircraftLeasing, provisions are made with the discounted presentvalue of the calculated deficit. Since the leasing portfolio isregarded as a financial asset which in principle must bedivestable at a given point in time, a market valuation of thelease contracts is also made. Surpluses and deficits betweenlease contracts in the portfolio are thereby offset.

Other rented assets, for example cars and personal compu-ters, are capitalized and accounted for as assets (lease assets)and the commitment to pay leasing charges in the future isreported as a liability (lease obligations) if the leases transfervirtually all benefits and risks to the Group. Rentals for otherleases are charged against earnings over the lease term.

Receivables and liabilities in foreign currencyReceivables and liabilities in foreign currency have beenvalued at the year-end exchange rate. Exchange rate differen-ces in short-term receivables and liabilities are included inoperating income, while differences in financial receivablesand liabilities are reported among financial items.

Receivables and liabilities hedged by forward contracts arevalued at the current forward rate.

Short-term investmentsIn accordance with the Annual Accounts Act, short-terminvestments are valued at the lower of acquisition value andactual value.

TaxesTaxes as reported in the income statement consists of paidtax and deferred tax. Deferred tax represents the differencebetween fiscal valuation and the valuation in the accounts ofassets and liabilities, but only if the difference is of a tempo-rary nature. Deferred tax is also calculated on unutilized taxlosses to be carried forward.

If the calculations result in a deferred tax receivable, this isonly accounted for as an asset if it in all probability is expec-ted to be realized.

Deferred tax is calculated in accordance with the latestdecided tax rate.

For income taxes the Company applies RecommendationNo 9 of the Swedish Financial Accounting StandardsCouncil. For tax reasons, however, the recommendation hasnot been fully applied in the parent company.

Untaxed reservesTax regulations in Sweden and certain other countries permitallocations to special reserves. In this manner, companies,within certain limits, can apportion and retain earnings in theirbusiness without subjecting them to immediate taxation.

Untaxed reserves are not subject to taxation until they areutilized. However, in the event the business should incur aloss, the reserves, sometimes within certain limits, may beutilized to cover such a loss without the payment of tax. Thetotal value of the untaxed reserves can therefore be conside-red risk capital, because any losses to a significant extent canbe covered through use of the reserves.

In the Group’s balance sheet, untaxed reserves are dividedinto shareholders’ equity and the deferred tax liability. In theincome statement, tax attributable to the year’s change inuntaxed reserves is reported as deferred tax.

Transaction with related partiesTransaction with related parties are done by applying com-mercial principles.

Group informationOf the Parent Company’s sales, 4 percent (25) concernedsales to companies within the Saab Group, while 25 percent(9) of the Parent Company’s purchases were from subsidiaries.

54

NOTE 1 – EMPLOYEES AND PERSONNEL COSTS

Average no. of employees in the Group

of whom of whom1999 men 1998 men

Sweden 7,760 83% 7,475 86%Austria 121 83% 110 82%USA 102 75% 114 75%Norway 31 87%Singapore 15 73%Germany 12 92% 11 91%Russia 10 90%UK 10 90% 12 70%Australia 9 67% 3 67%Canada 4 100% 4 100%France 4 100% 2 100%South Africa 4 50% 3 50%Bahrain 3 100%Chile 2 50% 3 50%India 1 100%Japan 1 100% 1 100%Malaysia 1 100% 4 50%South Korea 1 100%Thailand 1 100%

Total 8,092 83% 7,742 83%

Average no. of employees in the Parent Company

of whom of whom1999 men 1998 men

Sweden 4,752 84% 5,259 84%France 4 100% 2 100%UK 2 100% 2 100%South Africa 1 100% 1 100%Austria 1 100% 1 100%Chile 1 100%

Total 4,760 84% 5,266 84%

Salaries, other emoluments and social security expenses

1999 1998Saleries Social Saleries Social

and other security and other securityemoluments expenses emoluments expenses

Parent company 1,359 642 1,469 680of which pension costs 107 128

Subsidaries 1,123 463 882 370of which pension costs 111 56

Saab Group 2,482 1,105 2,351 1,050of which pension costs 218 184

Of the Parent Company’s pension costs, SEK 4 m. (6) relates to theBoard of Directors and the President including deputies and executi-ve vice presidents. The company’s outstanding pension commit-ments to these amount to SEK 80 m. (110), of which SEK 70 m. (68)relates to previous board members and previous managing directors,including deputies.

Of the Group’s pension costs, SEK 9 m. (11) relates to the Boards ofDirectors and the Presidents, including deputies and executive vicepresidents. The Group’s outstanding pension commitments to theseamount to SEK 88 m. (116) of which SEK 70 m. (68) relates to previousboard members and previous managing directors, including deputies. Salaries and other emoluments distributed per country and betweenMembers of the Board etc. and other employees in the Group.

1999 1998

Board Other Board Other& President employees & President employees

Sweden 34 2,294 29 2,182(of which bonus, etc.) 4 3

USA 1 55 1 60Austria 3 48 2 47UK 7 6 3 12Germany 1 6 1 5Norway 1 5Australia 4 2South Africa 1 3Canada 2 1France 2 1Ryssland 2Singapore 1 2Bahrain 1Chile 1 1Japan 1 1Malaysia 1 1 1Hong Kong 1

Total 50 2,432 37 2,314(of which bonus, etc.) 4 3

Salaries and other emoluments distributed per country and betweenMembers of the Board etc. and other employees in the Parent Company

1999 1998

Board Other Board Other& President employees & President employees

Sweden 11 1,343 12 1,450(of which bonus, etc.) 1 1

France 2 1UK 1 4South Africa 2Austria 1 1Chile 1

Total 11 1,349 12 1,457(of which bonus, etc.) 1 1

NOTE 2 – INFORMATION ON REMUNERATIONTO LEADING COMPANY OFFICIALS

In accordance with a resolution of the Sharholder’s Meeting, the feesto the members of the Board amount to SEK 1,800,000, consisting ofSEK 700,000 to the Chairman and SEK 275,000 to each of the othermembers of the Board elected by the Shareholders’ Meeting, withthe exception of the President. The Members of the Board nominat-ed by BAe – Kevin Smith, Tony Rice and George Rose – all of whomare employees of BAe, have declined their Board fees with respect tothe BAe company policy applied.

The President and CEO has received salary, bonus and otherbenefits totaling SEK 5,529,843, of which bonus SEK 1,425,000.

In the event of termination of employment by the company, thePresident will receive a salary and pension benefits for a period ofsix months (period of notice). Subsequently, the President will recei-ve a termination payment amounting to two years’ salary, based onthe current fixed salary. If the President has not entered alternativeemployment within 18 months, he will recieve a further year’s ter-mination payment. Salary during the period of notice and termina-tion payment will be deducated from income received from anotheremployer during the same period.

The retirement age for the President is 60.The President has a bonus based pension plan. The pension cost

for Saab AB consists of pension bonuses amounting to 35 percent ofthe fixed salary as long as the President remains an employee of thecompany. To this must be added the cost of pension bonuses accor-

55

56

Note 2, cont.ding to the ITP plan. The pension plan for the President has beencomplemented with a personal warrant program. The President hasbeen allocated 370,000 personal warrants in Saab AB. The warrantsprovide entitlement to the acquisition of existing Series B shares at aredemption price of SEK 94 per share and may be utilized duringthe period 1 January 2003 to 31 December 2005. The costs of the pro-gram has reduced the income.

In the case of other leading officials, the benefits according to theITP plan are applicable after the age of 65. Subscribers to the ITPplan receive pension benefits based on salary segments between 30and 50 base amounts, in addition to benefits based on salary seg-ments between 20 and 30 base amounts.

Furthermore, certain leading officials are entitled, or obliged if thecompany so requests, to retire on pension at the age of 60, or in cer-tain cases 62. The retirement pension up to the ordinary pension ageof 65 is 70 percent of the salary at the time of retirement.

Certain other leading officials are covered by an earlier agreementon pensions according to a special pension regulation. The agree-ment implies an increased retirement pension and survivors’ benefitof 20 percent of the salary at the retirement age of 65.

NOTE 3 – SALES BY BUSINESS AREA AND MARKET

Group Parent Company

1999 1998 1999 1998

Sales by business areaMilitary Aerospace 5,383 4,572 3,742 3,752Space 676 607Training Systems 735 621Commercial Aircraft 812 908 704 766Combitech 1,273 1,057Less internal sales -298 -226

Saab 8,581 7,539 4,446 4,518Regional Aircraft 746 2,698 746 2,698Less internal sales -274 -1.989 -259 -359

Total 9,053 8,248 4,933 6,857

Sales by market

Sweden 5,609 4,845 3,854 4,279Other EU Countries 1,493 1,301 220 159Other European countries 512 470 345 331North America 644 658 176 1,381Asia 546 862 273 663Australia, etc 217 66 63 44Other markets 32 46 2

Total 9,053 8,248 4,933 6,857

NOTE 4 – ITEMS AFFECTING COMPARABILITY

Group Parent Company

1999 1998 1999 1998

Revaluation of leasing porfolio related to Regional Aircraft 255 200 255 200

Total 255 200 255 200

NOTE 5 – OTHER OPERATING INCOME

Group Parent Company

1999 1998 1999 1998

Utilization of reserve forCustomer Support 47 60 47 60

Income from secondary operations 44 14Capital gain from sale of subsidiary 21 75Trading income 12 13 12 13Exchange rate differences 10 10 13Guarantee fees 47 51Others 47 34 17 22

Total 181 206 136 146

NOTE 6 – OTHER OPERATING EXPENSES

Group Parent Company

1999 1998 1999 1998

Income from divestment of business –35Write-down of participation

in other companies –9Disposals of tangible fixed assets –5 -3Exchange rate differences -11Other -22 -34 -12 -40

Total -71 -34 -15 -51

Aircraft financeIncome statement Saab Aircraft Leasing

Group

1999 1998

Leasing revenue 1,707 1,672Interest revenue 278 284Other revenue 107 75

Total revenue 2,092 2,031

Leasing expenses -722 -724Interest expenses -660 -635Depreciation -469 -439Other expenses -276 -288

Total expenses -2,127 -2,086Utilization of loss risk reserve 35 55

Operating income 0 0

Balance sheet summary, Saab Aircraft Leasing1999 1998

AssetsLease assets 8,130 8,664Receivables, Group companies 1,800 1,527Receivables 920 915Liquid funds 4 3

Total assets 10,854 11,109

Equity and liabilitiesEquity 1,599 1,500Provisions 3,114 3,174Lease obligations1) 4,482 4,898Other liabilities 1,659 1,537

Total equity and liabilities 10,854 11,109

1) Of which long-term obligations 4,197 4,618

The income statement and balance sheet for SAL are mainly dollar-related since aircraft sales and leasing contracts are always made inUSD. The conversion rates used in the financial statements areshown on page 80.

57

NOTE 7 – LEASE CONTRACTS Operating lease contracts

Group

Premises and Machines andOutcome buildings equipment

1998 37 591999 29 18

Contracted

2000 22 142001 16 22002 14 12003 6 12004 6 12005 and onwards 3

Total contracted 67 19

Parent Company

Premises and Machines andOutcome buildings equipment

1998 16 381999 7 15

Contracted

2000 4 112001 12002 1200320042005 and onwards

Total contracted 6 11

Aircraft for lease

Payments PaymentsOutcome to lessors from airlines

1998 821 8111999 791 878

Contracted

2000 783 8172001 778 7612002 754 7172003 699 6672004 680 6292005 and onwards 3,642 3,713

Total contracted 7,336 7,304

The above commitments relate to lease of Saab 340 aircraft placedwith American investors and operators. The difference betweenincoming and outgoing payments is mainly due to the leasing peri-od in the sublease contracts normally being shorter than in headlease contracts. As contracts are extended and new contracts signed,further payments are received from airlines in addition to the con-tracted flows shown in the table.

Finance lease contractsAircraft for lease

1999 1998

Acquisition value 2,379 2,623Accumulated depreciation -677 -661

Residual value according to plan 1,702 1,962

Depreciation for the year 141 135Leasing fees for the year 268 253Contracted future leasing fees1) 1,993 2,2431) The above finance lease contracts relate to 35 (40) Saab 340.

USD m 188 227DEM m 52 57MJPY 1,915 1,929

The amounts are hedged through deposits and/or other financialinstruments in the respective currency.

NOTE 8 – DEPRECIATION ON TANGIBLE AND INTANGIBLE FIXED ASSETS

Group Parent company

1999 1998 1999 1998

Other intangible fixed assets -41 -14Goodwill -16Land and buildings -67 -60 -41 -38Plant and machinery -227 -201 -100 -100Equipment, tools, fixtures and fittings -56 -59 -24 -21Lease assets -511 -439

Total -918 -773 -165 -159

NOTE 9 – OPERATING INCOME BY BUSINESS AREA

Group Parent company

1999 1998 1999 1998

Operating income by business areaMilitary Aerospace 1) 523 628 433 508Space 65 59Training Systems 165 167Commercial Aircraft -2 -15 -2 -15Combitech 80 -166Corporate 18 2 -60 -16

Saab 849 675 371 477

Regional Aircraft 0 0 0 0Saab Aircraft Leasing 0 0 0 0Items affecting comparability 255 200 255 200

Total 1,104 875 626 677

1) Including reversal of loss risk reserve SEK 135 m. (100).

NOTE 10 – INCOME FROM SECURITIES ANDRECEIVABLES HELD AS FIXED ASSETS

Group Parent company

1999 1998 1999 1998

Capital gain from sale of subsidiary 23 70Capital gain from sale of

other participations 4 4Income from restructing

within the Group 388Dividend and Group contributions

received 644 548Dividend received from

associated companies 4 1Write-down of participations

in Group companies -98 -62

Total 4 0 965 557

NOTE 11 – OTHER INTEREST INCOME AND SIMILARPROFIT/LOSS ITEMS

Group Parent company

1999 1998 1999 1998

Interest income, Group companies 1 15Interest income, other 571 754 468 633Dividend from others 1Translation and currency differences 3Less project interest, accounted

for as a gross margin -218 -263 -198 -263

Total 356 492 271 385

58

NOTE 12 – INTEREST EXPENSE AND SIMILAR PROFIT/LOSS ITEMS

Group Parent company

1999 1998 1999 1998Interest expenses, Group companies -24 -26Interest expenses, convertible

debenture loan -11 -1 -11 -1Interest expenses, others -14 -54 -5 -49Interest on pension debt -62 -94 -49 -68

Total -87 -149 -89 -144

NOTE 13 – APPROPRIATIONS, OTHER

Parent company

1999 1998

Difference between book depreciation and depreciation according to plan

– Land and buildings -11 -12– Plant and machinery 5 -11

Tax allocation reserve -39 -56

Total -45 -79

NOTE 14 – TAXES

Group Parent company

1999 1998 1999 1998

Current tax expense -184 -114 -111 -73Deferred tax -207 -165 -175 -150Tax related to Group contribution given -35 -96

Total -391 -279 -321 -319

Percent 1999 1998

Swedish Income taxe rate 28 28Non-deductible expenses 5 6Non-taxable income -1 -4Utilized loss carry-forward 0 -7Restructuring within the Group -3 0Other -1 0

Group tax rate 28 23

NOTE 15 – OTHER INTANGIBLE FIXED ASSETS

Group Parent company

1999 1998 1999 1998

Accumulated acquisition valueAt beginning of year 136 136Purchases 220 –

Total 356 136

Accumulated depreciationAt beginning of year -28 -14Depreciation for the year -41 -14

Total -69 -28

Residual value according to plan carried forward 287 108

NOTE 16 – GOODWILL

Group

1999 1998

Accumulated acquisition valueAt beginning of year – 39Purchases 104 –Sales and disposals of business operations – -39

Total 104 –

Accumulated depreciationAt beginning of year – -18Sales and disposals of business operations – 18Depreciation for the year -16 –

Total -16 –

Accumulated write-downsAt beginning of year – -9Sales and disposals of business operation – 9

Total – –

Residual value according to plan carried forwards 88 –

NOTE 17 – LAND AND BUILDINGS

Group Parent company

1999 1998 1999 1998

Accumulated acquisition value1)

At beginning of year 1,691 1,576 1,084 1,043Purchases 146 117 71 43Acquisition of companies 38 – – –Sales and disposals -135 -2 -27 -2

Total 1,740 1,691 1,128 1,084

Accumulated depreciationAt beginning of year -650 -591 -505 -468Acquisition of companies -11Sales and disposals 61 1 26 1Depreciation for the year -67 -60 -41 -38

Total -667 -650 -520 -505

Accumulated net revaluationAt beginning of year 674 710 674 710Depreciation for the year -36 -36 -36 -36

Total 638 674 638 674Residual value according

to plan carried forward 1,711 1,715 1,246 1,253

Tax assessment value, buildings (Sweden) 759 801 555 536Tax assessment value, land (Sweden) 203 223 185 184

1) Acquisition value includes capitalized interest of 11 11

No property is possessed via finance ease contracts.

NOTE 18 – PLANT AND MACHINERY

Group Parent company

1999 1998 1999 1998

Accumulated acquisition valueAt beginning of year 1,893 2,031 1,056 1,103Purchases 331 195 88 102Acquisition of companies 279 – – –Sales and disposals -217 -333 -76 -149Reclassifications -66 – – –

Total 2,220 1,893 1,068 1,056

Accumulated depreciationAt beginning of year -1,329 -1,364 -748 -794Acquisition of companies -163 – – –Sales and disposals 180 236 73 146Reclassifications 12 – – –Depreciation for the year -227 -201 -100 -100

Total -1,527 -1,329 -775 -748

Residual value according to plan carried forward 693 564 293 308

Assets possessed via finance lease contracts none none none

Calculated aquisition value of the assets 60

Leasing fees paid during the fiscal year 13Contracted future leasing fees 59

NOTE 19 – EQUIPMENT, TOOLS, FIXTURES AND FITTINGS

Group Parent company

1999 1998 1999 1998

Accumulated acquisition valueAt beginning of year 1,014 957 771 788Purchases 52 153 10 43Sales and disposals -194 -96 -122 -60Reclassifications – – – –

Total 872 1,014 659 771

Accumulated depreciationAt beginning of year -764 -784 -639 -675Sales and disposals 146 79 122 57Depreciation for the year -56 -59 -24 -21

Total -674 -764 -541 -639

Residual value according to plan

carried forward 198 250 118 132

No assets are possessed via finance lease contracts.

NOTE 20 – LEASE ASSETS

Group Parent company

1999 1998 1999 1998

Accumulated acquisition valueAt beginning of year 10,681 8,626Purchases 202 2.107Exchange rate difference 149 25Sales and disposals -427 -77Reclassification 66 –

Total 10,671 10,681

Accumulated depreciationAt beginning of year -2,017 -1,707Exchange rate difference -7 -2Sales and disposals 112 131Reclassification -12 –Depreciation for the yearn -511 -439

Total -2,435 -2,017Residual value according to plan

carried forward 8,236 8,664

Assets possessed via finance lease contracts

Calculated acquisition value of the assets 2,559 2,623Leasing fees paid during the fiscal year 314 253Contracted future leasing fees 2,077 2,243

NOTE 21 – CONSTRUCTION IN PROGRESS ANDADVANCE PAYMENTS FOR TANGIBLE FIXED ASSETS

Group Parent company

1999 1998 1999 1998

At beginning of year 91 48 23 17Reclassified expediture for material

and own work -91 -13 -23 -13Accrued expenses during the year 13 56 9 19

At year-end 13 91 9 23

NOTE 22 – PARTICIPATIONS IN GROUP COMPANIESParent company

1999 1998

Accumulated acquisition valuesAt beginning of year 2,495 2,473New issues/shareholders’ contribution 801 47Purchases 192 –Sales -111 -25

Total 3,377 2,495

Accumulated write-downsAt beginning of year -121 -59Write-downs for the year -98 -62Divestments 88

Total -131 -121

Book value at year-end 3,246 2,374

59

60

Specification of Parent Company’s participations in Group companies

No. of Share BookSubsidiary/Corp. ID no. / Reg. Office shares in % value

Saab Dynamics AB, 556055-9691, Linköping 1,000,000 100.0 167Saab Ericsson Space AB, 556134-2204, Gothenburg 90,000 60.0 71

Saab Ericsson Space Fastighets AB, 556230-7404, Gothenburg 1,000 100.0 –Saab Ericsson Space Inc., USA 100 100.0 –Austrian Aerospace GmbH, Austria – 77.5 –

Saab Training Systems AB, 556030-2746, Huskvarna 150,000 100.0 42Saab Training Systems GmbH, Germany 4,000 100.0 –Saab Training Systems UK Ltd., United Kingdom 100,000 100.0 –Saab Training Inc., USA 200 100.0 –Saab Training Systems Canada Ltd, Canada 300,000 100.0 –

Barracuda Technologies AB, 556045-7391, Gamleby 200,000 100.0 70Barracuda Technologies PTY Ltd, Australia 75,000 100.0 –Barracuda Technologies S.A, France 4,996 99.9 –Barracuda Technologies Canada Inc., Canada 100 100.0 –Barracuda Camouflage (P) Ltd., India 37,000 74.0 –

Saab Aircraft AB, 556062-7647, Linköping 100,000 100.0 10Ericsson Saab Avionics AB, 556460-1655, Stockholm 501 50.1 12Nyge Aero Norden AB, 556496-1844, Nyköping 141,000 100.0 90Saab-Scania Combitech AB, 556036-0207, Jönköping 1,100,000 100 120

Saab Nyge Aero AB, 556043-5413, Nyköping 5,000 100 –Norsk Flytjeneste A/S, Norway 1 100.0 –

Saab Celsius Transponder Tech AB, 556535-9790, Stockholm 500 50.0 8Combitech Traffic Systems Holding AB, 556108-8799, Jönköping 500,000 100.0 60

Combitech Traffic Systems AB, 556042-6289, Jönköping 80,000 100.0 –Combitech Traffic Systems (H.K)Ltd., Hong Kong 98 98.0 –Combtech Traffic Systems Australia Pty, Australia 10 100.0 –Combitech Traffic Systems Sdn Bhd, Malaysia 60 60.0 –

Saab Marine Electronics AB, 556043-5124, Gothenburg 15,000 100.0 116Saab Tank Control Vertriebs GmbH, Germany 1 100.0 –Saab Marine (UK) Ltd., United Kingdom 1 80.0 –Scanjet Clean AB, 556291-2427, Sjöbo 2,000 51.0 –Saab Marine Electronics Singapore, Pte Ltd, Singapore 600,000 51.0 –Saab Tank Control (UK) Ltd, United Kingdom 1 58.0 –Saab Systems Inc., USA 300,000 100.0 –Saab Marine MEP AS, Norway 15,715 51.0 –Saab Marine RU, Russia 1 54.0 –

Combitech Innovation AB, 556055-1342, Jönköping 4,000 100.0 5Combitech Systems AB, 556258-8862, Jönköping 3,250 65.0 2Combitech Network AB, 556261-3942, Jönköping 8,000 100.0 6

Combitech Network Norge AS, Norway 1,000 100.0 –Saab Far East Sdn Bhd, Malaysia 100,000 100.0 –Fastighets AB Bataljonsgatan, 556378-6267, Jönköping 2,000 100.0 –Saab Holdings U.S. Inc., USA 1,000 100.0 168

Saab Aircraft of America Inc., USA 1,001,000 100.0 –Saab Military Aircraft Ltd., United Kingdom 100 100.0 –

Saab Aircraft International Ltd., United Kingdom 100,000 100.0 –Saab Aircraft Leasing Holdings AB, 556124-3170, Stockholm 30,000 100.0 2.203

Saab-Scania Rental AB, 556056-9807, Linköping 1,000 100.0 –Saab Aircraft Leasing AB, 556020-4231, Stockholm 11,000 100.0 –2000 Aircraft Credit AB, 556464-6031, Stockholm 787,000 100.0 –Swedish Aircraft Two KB, 916691-8194, Linköping – 50.3 –Swedish Aircraft Three KB, 916694-4364, Linköping – 100.0 –Swedish Aircraft Four KB, 916694-4372, Linköping – 50.3 –Swedish Aircraft Holdings Sweden AB, 556573-7805, Stockholm 1,000 100.0 –Fairbroock 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 –

Saab Aircraft Financings Inc., USA 10 100.0 –Saab Finance Inc., USA 100 100.0 –

Aero Three AB, 556258-8920, Linköping 1,000 100.0 –SF340 Leasing AB, 556258-8847, Linköping 1,000 100.0 –

Saab Helikopter AB, 556026-9945, Nyköping 40,000 100.0 4Saab Xperientia AB, 556147-5855, Linköping 1,000 100.0 5Lansen Försäkrings AB, 516401-8656, Linköping 100,000 100.0 10Saab Air AB, 556061-1732, Linköping 25,000 100.0 3Saab Hangaren Förvaltning AB, 556047-0873, Linköping 20,000 100.0 2Saab Treasury AB, 556147-5939, Linköping 30,000 100.0 3Saab Service Partner AB, 556083-5836, Linköping 100,000 100.0 12Saab Fond AB, 556025-1356, Linköping 10,000 100.0 1Saab International AB, 556378-6275, Linköping 2,000 100.0 –

Saab International AB (Chile) Ltda., Chile – 100.0 –Saab South Africa (Pty) Ltd, South Africa 200,000 100.0 –Saab Aerospace Marketingservice GmbH, Austria – 100.0 –

Dormant companies 0 0 56Book value at year-end 3,246

NOTE 23 – RECEIVABLES FROM GROUP COMPANIES

Group Parent company

1999 1998 1999 1998

Accumulated acquisition valueAt beginning of year 162 140Additional receivables 1,019 22Reclassification -162

Book value at year-end 1,019 162

NOTE 24 – PARTICIPATIONS IN ASSOCIATED COMPANIES

Group Parent company

1999 1998 1999 1998

Accumulated acquisition valueAt beginning of year 79 30 17 16Purchases 3 5 0 1Dividends -5 -1 – –Divestments -65 0 -12 –Net income of the year 0 45 0 0Book value at year-end 12 79 5 17

Specification of the Group’s participations in associated companiesAdjusted

equity/Associated company/ Share Net income BookCorp. ID No./Reg Office in %1) of the year2) value

CSM Materialteknik AB, 556517-3951, Linköping 49 5 / 2 5Industrikompetens i Östergötland AB, 556060-5478, Linköping 29 3 / 1 3Industrigruppen JAS AB, 556147-5921, Stockholm 40 2 / 0 2Internoc Scandinavia AB, 556552-9756, Jönköping 49 1 /-3 1Saab Bofors Missiles Corporation AB, 556147-5905, Linköping 50 1 / 0 1Saab-BAe Gripen AB, 556227-6721, Linköping 50 0 / 0Aviation Financial Services AG, Switzerland 20 0 / 0Transponder Tech i Skandinavien AB, 556168-6923, Järfälla 49 0 / 0Saab Smaaland Project Venture AB, 556509-1856, Jönköping 33 0 / 0

Bookvalue at year-end 12

1) Share in relates to equity.This is equal to the share of the votes of the total number of shares.

2) Adjusted equity relates to the owned share of the company’s equity, including equity in untaxedreserves. Net income of the year relates to the owned proportion of the company’s income aftertax, including the portion of equity in the year’s change in untaxed reserves.

NOTE 25 – OTHER SECURITIES HELD AS FIXED ASSETS

Group Parent company

1999 1998 1999 1998

Accumulated aquisition valueAt beginning of year 24 36 7 6Purchases 1,294 0 1,294 1Assets sold -3 -12 -3 –

Book value at year-end 1,315 24 1,298 7

Specification of the Group’s other securities held as fixed assetsNumber Share Book

Company of shares in % value

Celsius AB 1) 7,198,446 13.1 1,267Kitron ASA, Norway 50,524,800 11.2 27Ariane Space Participation, France 1,621,745 0.8 13Folkebolagen AB 99,202 3.1 4Trigon Blue Cross Blue Shield, USA 4,606 – 1Societe Ariane Space, France 3,862 0.8 0Intospace GmbH, Germany – 1 0Gesällschaft für Weltraumfragen

GmbH, Austria – 6.8 0Länsteknikcentrum AB 300 1.8 0Crossair Ltd Co, Switzerland 6 – 0Other long-term securities – – – 3

Book value at year-end 1,315

1) Share in percent relates to votes, which corresponds to 25.6 % of equity.

61

NOTE 26 – OTHER LONG-TERM RECEIVABLES

Group Parent company

1999 1998 1999 1998

Accumulated acquisition valueAt beginning of year 721 532Additional receivables 31 189

Book value at year-end 752 721

NOTE 27 – DEFERRED TAX RECEIVABLE/TAX LIABILITY

Deferred tax receivable/tax liability relates to the tax result arisingfrom the assumption that assets and liabilities are disposed of atbook residual values. The deferred tax relates to the following assetsand liabilities:

Group Parent company

1999 1998 1999 1998

Deferred tax receivablesInvestments in subsidiaries 625 353 625 353Reserves for future expenses 1,039 1,375 788 1,097Losses in leasing operation – 149 149Reclassification of leasing contracts 117 117Loss carry-forward 289 109Other 77 33

Total 2,147 2,136 1,413 1,599

Deferred tax liabilitiesRevaluation of building 175 185 175 185Fiscal excess depreciation 1,402 1,179Tax allocation reserves 59 33Other 4 5

Total 1,640 1,402 175 185

Deferred tax receivable net 507 734 1,238 1,414

Defered tax liability on untaxed reserves in the Parent Companyamounted to SEK 161 m. (158).

NOTE 28 – PREPAID EXPENSES AND ACCRUED INCOME

Prepaid expenses and accrued income in the Group amounted toSEK 270 m. (223) and in the Parent Company to SEK 90 m. (54). The amount for the Group is mainly attributable to SAL and relates to accrued leasing fees.

NOTE 29 – SHORT-TERM INVESTMENTS

Group Parent company

1999 1998 1999 1998Interest-bearing securities 9,766 12,435 9,736 12,410

9,766 12,435 9,736 12,410

The market value on interest-bearing securities amounted to SEK 9,766 m. (12,513) in the Group and SEK 9,736 m. (12,488) in the Parent Company.

Financial investments are made in Swedish Government bonds andhousing bonds. The investment policy means that the fixed interestterm must be 0–27 months to avoid excessive fluctuations as a resultof interest changes. At year-end, the average fixed interest term was11 months.

NOTE 30 – EQUITYThe shares in the Parent Company are divided into two series, class Aand class B. Both classes of shares carry equal rights, with the exceptionthat each class A share is entitled to ten votes and each share of class Bis entitled to one vote. Each share carry a nominal value of SEK 16.

Number of shares as per December 31, 1999:

Number Number of Number ofof shares shares in % votes in %

Shares class A 6,454,303 6 39Shares class B 100,005,372 94 61

106,459,675 100 100

During 1998, the Parent Company issued a convertible debenture loanwith a nominal value of 254 m. The conversion price is set to SEK 91and conversion to shares of class B possible from December 4, 2001 toJuly 15, 2004. After full conversion the number of class B shares willincrease by 2,787,500 and the capital stock will increase by SEK 45 m.

Equity in the Group has changed as follows during the year:

Profit NetRe- or loss income

Capital stricted brought for thestock reserves forward year Total

At beginning of year 1,703 1,969 361 4,033Dividend to shareholders -213 -213Allocation to statutory reserve 71 -71Utilization of premium reserve -4 4Change in equity in untaxed

reserves -389 389Utilization of equity method

reserve -46 46The years translation

differences etc. -41 -10 -51Net income for the year 939 939

Total at year-end 1,703 1,560 506 939 4,708

Specification of restricted reserves

Equity Transla-Share- Equity- Reva- share of tion dif-

premium- method- luation Legal untaxed ferencesreserve reserve reserve reserve reserves etc. Total

At beginning of year 21 51 500 267 940 190 1,969Allocation to statutory

reserve 71 71Utilization of premium

reserve -4 -4Utilization of equity

method reserve -46 -46Change in equity in untaxed

recerves -389 -389The year translation

differences etc. -41 -41

Total at year-end 17 5 500 338 551 149 1,560

Allocation to restricted reserves are required for SEK 22 m. A por-tion of unrestricted equity in foreign subsidiaries will be subjected totaxation in the event it is transfered to Sweden.

Equity in the Parent Company has changed as follows during the year:

Rest- Profit or loss Net in-Capital ricted brought come for

stock reserves forward the year TotalAt beginning of year 1,703 770 849 3,322Dividend to shareholders -213 -213Allocation to statutory

reserve 71 -71Utilization of premium

reserve -4 4Group contirbution given to

subsidiaries net after tax etc. -88 -88Net income for the year 1,407 1,407Total at year-end 1,703 837 481 1,407 4,428

62

NOTE 31 – UNTAXED RESERVES

Group Parent company

1999 1998 1999 1998

Accumulated excess depreciation Land and buildings 463 558 313 340Machinery and equipment 379 233 165 170Lease assets 2,729 2,653

Tax allocation reservesAllocated 1994 16 16Allocated 1995 24 23Allocated 1996 7 5Allocated 1997 11 8Allocated 1998 78 67 56 56Allocated 1999 75 39

Contingency reserve 15 16Foreign untaxed reserves 1 1

Total 3,798 3,580 573 566

Of the untaxed reserves, SEK 1,063 m. (1,002) consists of deferred tax.

NOTE 32 – PROVISIONS FOR PENSIONS AND SIMILARCOMMITMENTS

Provisions for pensions in the balance sheet correspond to the equivalentpension obligations actuarially computed.

Group Parent company

1999 1998 1999 1998

Provision for pensionsFPG/PRI pensions 1,774 1,701 1,370 1,333Other pensions 103 119 95 113

Other pension liabilities 118 128 118 128Total 1,995 1,948 1,583 1,574

Of which with credit guarantees FPG/PRI 1,810 1,739 1,406 1,371

Assets pledged for this liability amounted to SEK 831 m. (784). SeeNote 40. The Pensions Registration Institute (PRI) is a public organi-zation responsible for the administration of employee pensions.

Other pension liabilities relate to conditional commitments notcovered by social security legislation.

NOTE 33 – OTHER PROVISIONS

Group Parent company

1999 1998 1999 1998

Costs of restructuring 2,376 3,402 2,376 3,402Reserves for anticipated deficit

in future leasing operations 2,637 2,672Other 29 152 2 10

Total 5,042 6,226 2,378 3,412

In 1999, a decrease of SEK 1,026 m. has been made in the reserve forteminating production of regional aircraft. SEK 724 m. of the decreaserelates to losses in production, customer and supplier commitmentsand transfer of personnel. The loss in Customer Support amounted toSEK 47 m. A new assessment has been made with reference to remai-ning costs, which has meant a reverse of the reserve by SEK 255 m.

NOTE 34 – LONG -TERM LIABILITIES TO CREDIT INSTITUTES

Group Parent company

1999 1998 1999 1998

Due date 1–5 years from closing day 62 17 21

Due date more than 5 years from closing day 39 – 39

Total 101 17 60

NOTE 35 – CONVERTIBLE DEBENTURE LOAN

During 1998, the Parent Company issued a convertible debentureloan with a nominal value of SEK 254 m. Of the total loan, debenturesamounting to SEK 231 m. were sold to employees while SEK 23 m.were sold to the wholly owned subsidiary Saab Hangaren FörvaltningAB. This is to enable sale of convertible debentures at current marketvalue to new employees. The convertible debenture loan, which bearsa fixed annual interest rate equal to STIBOR less 0.45 percent, will bepossible to convert to Saab shares of class B from December 4, 2001to July 15. 2004 at a conversion price set to SEK 91. The loan will falldue on July 30, 2004 if not converted. A capital discount amountingto SEK 17 m. has been calculated compared to a fixed market rate of5 percent. The capital discount has in the financial statements of boththe Group and the Parent Company been accounted for as restrictedreserves, share premium reserve. The capital discount is expensedas interest during the term of the loan.

Group Parent company

1999 1998 1999 1998

Convertible debenture loan 254 254 254 254Capital discount -17 -21 -17 -21Holdings within the Group -20 -23

Total 217 210 237 233

NOTE 36 – OTHER LONG-TERM LIABILITIES

Group Parent company

1999 1998 1999 1998

Lease obligations 4,197 4,618Other long-term liabilities 947 995

Total 5,144 5,613

Liabilities with due date more than 5 years from closing day amountto SEK 3,203 m. (3,710). Security provided for leasing commitmentsamounted to SEK 2,255 m. (2,389) and for other liabilities SEK 616 m.(571). See Note 40. Other liabilities consist mainly of prepaid leasingfees.

NOTE 37 – SHORT-TERM LIABILITIES TO CREDIT INSTITUTES

Group Parent company

1999 1998 1999 1998

Approved credit limit 43 40 43 40Unutilized portion -43 -36 -43 -36

Utilized portion 0 4 0 4Short-term borrowing 80 48 48 11

Total 80 52 48 15

63

NOTE 38 – OTHER LIABILITIES

Group Parent company

1999 1998 1999 1998

Debt regarding acquired shares 292 292Value Added Tax (VAT) 74 259 51 252Personnel liabilities 91 89 43 46Spare parts credit 63 58Other 55 62 3 2

Total 575 468 389 300

NOTE 39 – ACCRUED EXPENSES AND DEFERRED INCOME

Group Parent company

1999 1998 1999 1998

Accrued expensesCost of customer commitments 1,234 1,095 1,234Losses on regional aircraft orders 555Reserve for remaining costs in

military business 438 443 188 240Vacation pay liability 316 276 165 165Social security expenses 248 187 117 103 Claims reserve 47 43Expected invoices 123 146 50 121Personnel liabilities 106 85 29 16Earlier redundancy 99 83 93 83Accrued interests 102 51 102 47Guarantee reserve 25 35 8 7Accrued currency differences 228 92Other 316 119 12 33

Deferred incomeLeasing fees 322 317Advance invoicing 821 896 611 865

Total 4,425 4,423 2,609 1,680

NOTE 40 – ASSETS PLEDGED

Group Parent company

1999 1998 1999 1998

Guarantees provided for own liabilitiesand provision

for pensions commitmentsChattel mortgages 437 396 350 350Real estate mortgages 394 388 388 388

to credit institutes none none none nonefor lease obligations

Lease assets 2,255 2,389for other liabilities

Long-term receivables 616 571Bank deposits 217 210 201 210

for accrued expensesAccrued income 61 61

for advance paymentsfrom customers

Chattel mortgages 1,751 1,751 1,751 1,751Bonds and other securities 4,990 5,070 4,990 5,070

Subtotal 6,741 6,821 6,741 6,821

Total 10,721 10,836 7,680 7,769

NOTE 41 – AUDITORS’ FEES

Group Parent company

1999 1998 1999 1998

Ernst & YoungAudit assignments 4 3 2 2Other assignments 1 1 1

KPMG BohlinsAudit assignments 1 1Other assignments 3 3

Price WaterhouseCoopersAudit assignments 2 1Other assignments 1

Total

Audit assignments 7 5 2 2

Other assignments 5 1 4 0

NOTE 42 – DEFINITIONS OF KEY RATIOS

Pre-tax return on capital employedOperating income increased by financial income as a percentage ofaverage total assets less non-interest-bearing liabilities and deferredtax liability.

After-tax return on equityNet income for the year as a percentage of average equity. Whencalculating return on equity before items affecting comparability, a tax rate of 28% has been used.

Profit marginOperating income before items affecting comparability increased with financial income as a percentage of sales.

Capital turnoverSales divided by average capital employed.

Equity/assets ratioEquity in relation to total assets.

Interest coverageOperating income before items affecting comparability increasedwith financial income, divided by financial expenses.

Earnings per shareNet income for the year divided by the number of shares.

Linköping February 18, 2000

Anders ScharpChairman

Marcus Wallenberg George Rose

Anthony Rice Björn Svedberg

Erik Belfrage Lars-Erik Englund

Lars Olsson Lennart Hedlund Ragnar Ludvigsson

Bengt Halse

President and CEO

Our auditors’ report was submitted on February 18, 2000

Gunnar Widhagen Caj NackstadAuthorized Public Accountant Authorized Public Accountant

Ernst & Young AB KPMG Bohlins AB

64

To the general meeting of the shareholders of Saab ABCorporate Identity No 556036-0793

We have audited the annual accounts, the consolidated accounts, the accountingrecords and the administration of the board of directors and the managing directorof Saab AB for the year 1999. These accounts and the administration of the com-pany are the responsibility of the board of directors and the managing director.Our responsibility is to express an opinion on the annual accounts, the consolidat-ed accounts and the administration based on our audit.

We conducted our audit in accordance with generally accepted auditing stan-dards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidatedaccounts are free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the accounts. An auditalso includes assessing the accounting principles used and their application bythe board of directors and the managing director, as well as evaluating the overallpresentation of information in the annual accounts and the consolidated accounts.As a basis for our opinion concerning discharge from liability, we examined signi-ficant decisions, actions taken and circumstances of the company in order to beable to determine the liability, if any, to the company of any board member or themanaging director. We also examined whether any board member or the manag-ing director has in any other way acted in contravention of the Companies Act,the Annual Accounts Act or the Articles of Association. We believe that our auditprovides a reasonable basis for our opinion set out below.

The annual accounts and the consolidated accounts have been prepared inaccordance with the Annual Accounts Act and, thereby, give a true and fair viewof the financial position of the company’s and the group’s financial position andof the results of operations in accordance with generally accepted accountingprinciples in Sweden.

We recommend to the general meeting of the shareholders that the income sta-tements and the balance sheets of the parent company and the group be adopted,that the profit for the parent company be dealt with in accordance with the pro-posal in the administration report and that the members of the board of directorsand the managing director be discharged from liability for the financial year.

Linköping, February 18, 2000

Gunnar Widhagen Caj Nackstad

Authorized Public Accountant Authorized Public AccountantErnst & Young AB KPMG Bohlins AB

AUDITORS’ REPORT

65

BOARD OF DIRECTORS AND AUDITORS

Lars-Erik Englund

Tony Rice

Lars Olsson

Lennart Hedlund

Ragnar Ludvigsson

Bengt HalsePer Erlandsson (secretary

of the Board)

Marcus WallenbergErik Belfrage

Björn Svedberg

George Rose

Kevin Smith

Anders Scharp

Björn SvedbergBoard member since 1998, born 1937.Board member of Gambro, Investor ABand Scania AB. Shares in Saab: 1,100Convertibles in Saab:–

Kevin SmithBoard member since 1998. On January13, requested to leave the Board as heis no longer employed by BAE SYS-TEMS.

George RoseBoard member since 1998, born 1952.Finance Director of BAE SYSTEMS.Shares in Saab:–Convertibles in Saab:–

Anthony (Tony) RiceBoard member since 1998, born 1952.Group Director of Supply ChainManagement of BAE SYSTEMS. NonExecutive Director of Telerent Plc.Shares in Saab.–Convertibles in Saab:–

Bengt HalsePresident and CEO and Board membersince 1995, born 1943. Board memberof Chalmers University of Technology. General Director of Försörjnings-kommissionen.Shares in Saab: 15,000Convertibles in Saab: SEK 182,000Options in Saab: 370,000

Lars OlssonBoard member since 1995, born 1937.Chairman of the Industrial SalariedEmployees' Association, Saab AB,Linköping. Shares in Saab: 2Convertibles in Saab: SEK 91,000

Ragnar LudvigssonBoard member since 1995, born 1946.Chairman of the Engineering Workers'Union, Saab AB, Linköping.Shares in Saab:–Convertibles in Saab: SEK 119,574

Lennart HedlundBoard member since 1995, born 1946.Chairman of the local section of theGraduate Staff Association, Saab,Jönköping. Shares in Saab:–Convertibles in Saab: SEK 119,574

Deputy Board membersGöran GustavssonDeputy since 1995, born 1953.Treasurer of the Engineering Workers'Union, Saab AB, Linköping.Shares in Saab: 6Convertibles in Saab: SEK 22,750

Conny HolmDeputy since 1995, born 1947.Chairman of the Engineering Workers'Union of the Saab units in Jönköping. Shares in Saab: 100Convertibles in Saab: SEK 91,000

Lars-Göran LarssonDeputy since 1995, born 1943.Chairman of the Industrial SalariedEmployees' Association, SaabDynamics AB and Saab MarineElectronics AB, Gothenburg.Shares in Saab: 40Convertibles in Saab: SEK 68,250

AuditorsGunnar WidhagenAuditor since 1993, born 1938.Authorized Public Accountant,Ernst & Young AB.

Caj NackstadAuditor since 1991, born 1945.Authorized Public Accountant,KPMG Bohlins AB.

Deputy auditorsBjörn FernströmAuditor since 1993, born 1950.Authorized Public Accountant,Ernst & Young AB.

Bo RibersAuditor since 1993, born 1942.Authorized Public Accountant,KPMG Bohlins AB.

Anders ScharpChairman since 1990, born 1934.Chairman of Atlas Copco AB, AB SKFand Scania AB. Chairman of SwedishEmployers' Confederation. Board member of Investor AB and theFederation of Swedish Industries. Shares in Saab: 30,000Convertibles in Saab:–

Marcus WallenbergDeputy Chairman since 1993 and Boardmember since 1992, born 1956. DeputyChairman of Telefonaktiebolaget L MEricsson. Board member of AstraZeneca, Volvo, Investor AB, Scania AB,SEB, Skandinaviska Enskilda Banken,Stora Enso Oyj, SAS Representantskapand the Knut and Alice WallenbergFoundation.Shares in Saab: 67,977Convertibles in Saab:–

Erik BelfrageBoard member since 1991, born 1946.Director of SEB, SkandinaviskaEnskilda Banken. Chairman of theInstitute of Corporate Management(IFL), The Swedish Institute ofInternational Affairs (UI) and theCentre for European Policy Studies(CEPS). Board member of SAS,SAS Sverige AB and the InternationalCouncil of Swedish Industry (NIR).Member of the Trilateral Commission.Shares in Saab: 7,242Convertibles in Saab:–

Lars-Erik EnglundBoard member since 1997, born 1934.Lieutenant General. Commander-in-Chief of the Swedish Air Force 1988-1994.Deputy Chairman of the Board of theUniversity of Linköping. Board mem-ber of SAS Flight Academy and StiftelsenSvenska Dagbladet. Member of theRoyal Academy of Military Sciences. Shares in Saab:–Convertibles in Saab:–

67

Executive managementBengt HalsePresident and CEO,born 1943. Shares in Saab: 15,000Convertibles in Saab: SEK 182,000Options in Saab: 370,000

Göran SjöblomExecutive Vice President,CFO, born 1943. Shares in Saab: 17,500Convertibles in Saab: SEK 182,000

Dave HewitsonGroup Senior Vice President,born 1948.Shares in Saab: –Convertibles in Saab: –

Gert SchyborgerGroup Senior Vice President,born 1940.Shares in Saab: 1,250Convertibles in Saab: SEK 182.000

Group functionsPer ErlandssonLegal, born 1947.Secretary to the Board of Directors.

Lars WahlundFinance, born 1953.

Peter SandehedTreasury, born 1952.

Tommy IvarssonStrategy, born 1939.

Lars JagerfeltInformation, born 1948.

Billy FredrikssonTechnology, born 1943.

Mats LindmanHuman Resources, born 1945.

Heads of businessareas/units/companiesHans KrügerGripen, born 1944.

Björn ErmanEricsson Saab Avionics AB,born 1949.

Anders A AnderssonSaab Dynamics AB, born 1939.

Åke SvenssonFuture Products andTechnology, born 1952.

Ingemar NycanderGeneral Military Program,born 1939.

Björn SundénSaab Nyge Aero AB, born 1944.

Göran LindströmCSM Materialteknik AB, born 1943.

Ivan ÖfverholmSaab Ericsson Space AB, born 1942.

Johan OhlsonSaab Training Systems AB,born 1959.

Göte NilssonBarracuda Technologies AB,born 1938.

Pontus KallénCollaborative Programs, born 1958.

Hans AlmérSaab Aircraft AB, born 1945.

Lars B FlodmanSaab Aircraft Leasing AB,born 1942.

Kurt IsakssonSaab Marine Electronics AB,born 1941.

Christer HobergCombitech Systems AB, född 1953.

Ove StåhlCombitech Network AB, born 1951.

Lars BergholtzSaab Celsius Transponder-Tech AB, born 1954.

Statements refer to year-end 1999.

CORPORATE MANAGEMENT

Dave Hewitson

Bengt Halse

Göran Sjöblom

Gert Schyborger

68

ADDRESSES

Saab AB Head officeSupport departmentsSE-581 88 Linköping, SwedenTelephone: +46 13 18 00 00 Fax: +46 13 18 18 02 Internet: www.saab.se

Stockholm officeSaab AB P. O. Box 70373, SE-107 24 StockholmSwedenTelephone: +46 8 700 67 77 Fax: +46 8 700 67 79

MILITARY AEROSPACE

Saab ABGripen, SE-581 88 Linköping, SwedenTelephone: +46 13 18 00 00 Fax: +46 13 18 18 02

Ericsson Saab Avionics AB Torshamnsgatan 32C, Kista SE-164 84 Stockholm, SwedenTelephone: +46 8 757 30 00 Fax: +46 8 752 81 72

Saab Dynamics AB SE-581 88 Linköping, SwedenTelephone: +46 13 28 60 00 Fax: +46 13 28 60 06

Saab ABFuture Products & Technology SE-581 88 Linköping, SwedenTelephone: +46 13 18 00 00 Fax: +46 13 18 18 02

Saab ABGeneral Military Programs SE-581 88 Linköping, SwedenTelephone: +46 1318 00 00 Fax: +46 13 18 18 02

Saab Nyge Aero ABBox 321, SE-611 27 Nyköping SwedenTelephone: +46 155 771 00 Fax: +46 155 26 72 52

CSM Materialteknik P.O. Box 13200, SE-580 13 Linköping SwedenTelephone: +46 13 16 90 00 Fax: +46 13 16 90 20

SPACE

Saab Ericsson Space AB SE-405 15 Gothenburg, SwedenTelephone: +46 31 735 00 00 Fax: +46 31 735 40 00

Austrian Aerospace GmbH Stachegasse 16 AT-1120 Vienna, Austria Telephone: +43 (1) 801 99 Fax: +43 (1) 801 996 95

Saab Ericsson Space Inc.1634 I Street, NW, Suite 600 Washington, DC 20006–4083, USA Telephone: +1 (202) 783 17 00 Fax: +1 (202) 783 26 25

TRAINING SYSTEMS

Saab Training Systems AB SE-561 85 Huskvarna, SwedenTelephone: +46 36 38 80 00 Fax: +46 36 38 80 80

Saab Training Systems GmbH In der Pützgewann 1DE-56218 Mülheim-Kärlich, Germany Telephone: +49 2630 95 82 71Fax: +49 2630 95 82 75

Saab Training Systems Canada Ltd.Building 539, Batus, Ralston,Alberta,TOJ 2NO, CanadaTelephone: +1 (403) 544 4258 Fax: +1 (403) 544 4259

Saab Training Systems (UK) Ltd.Lancaster House, P.O. Box 87,Farnborough Aerospace CentreFarnborough, Hants. GU14 6YU United KingdomTelephone: +44 1252 384 640/641Fax: +44 1252 384 642

Saab Training Inc.Suite 130303 50 Technology ParkwayOrlando, FL 32826, USA Telephone: +1 (407) 380 2425 Fax: +1 (407) 380 2356

Barracuda Technologies ABHammarsvägen 1SE-594 23 Gamleby, SwedenTelephone: +46 493 148 00Fax: +46 493 120 64

COMMERCIAL AIRCRAFT

Saab AB Collaborative Programs SE-581 88 Linköping, SwedenTelephone: +46 13 18 33 33 Fax: +46 13 18 27 06

Saab Aircraft AB SE-581 88 Linköping, SwedenTelephone: +46 13 18 26 16 Fax: +46 13 18 44 95

Saab Aircraft of America Inc.Loudoun Tech Center21300 Ridgetop CircleSterling,VA 20166, USATelephone: +1 (703) 406 72 00Fax: +1 (703) 406 73 09

Saab Aircraft Leasing AB Kungsbron 1G, 6 tr P.O. Box 70375, SE-107 24 StockholmSwedenTelephone: +46 8 700 67 60 Fax: +46 8 700 67 69

Saab Aircraft Leasing Inc.Loudoun Tech Center 21300, Ridgetop Circle Sterling,Virginia 20166, USA Telephone: +1 (703) 406 72 00 Fax: +1 (703) 406 73 09

COMBITECH

Saab Marine Electronics AB P. O. Box 13045, SE-402 51Gothenburg, SwedenTelephone: +46 31 337 00 00 Fax: +46 31 25 30 22

Saab Tank Control Deutschland Vertriebs GmbH Siemensstrasse 14 DE-63674 Altenstadt/HessenGermany Telephone: +49 60 47 679 90Fax: +49 60 47 683 26

Saab Marine (UK) Ltd.30/32 New Road, 2nd Floor Chatham Kent ME4 4QR,United KingdomTelephone: +44 16 34 83 11 00 Fax: +44 16 34 82 79 97

Saab Tank Control (UK) Ltd.Victoria Cottage, Grove LandWinkfield RowBracknell RG42 6ND,United KingdomTelephone: +44 118 973 6670Fax: +44 118 973 6671

Saab Tank Control Inc.10700 Hammerly Blvd., Suite 115 Houston,TX 77043, USA Telephone: +1 (713) 722 91 99 Fax: +1 (713) 722 91 15

Saab Tank Control (Middle East)Government AvenueP. O. Box 200 48Manama, Bahrain Telephone: +973 22 66 10 Fax: +973 22 77 71

Saab Tank Control (India) Pvt. Ltd.Kamanwala Chambers, 4th FloorSir P.M. RoadMumbai 400 001, IndiaTelephone: +91 22 270 0271Fax: +91 22 266 1789

Saab Marine Electronics Singapore Pte. Ltd.46 Tech Park Crescent (Tuas Tech Park)Singapore 638094Telephone: +65 8632 222Fax: +65 8632 383

Saab Marine RU c/o Concord Antonenko Lane 2, room 9 190 000 St Petersburg, RussiaTelephone: +7 81 23 11 33 44Fax: +7 81 23 12 61 92

Saab Marine MEP ASVarnaveien 27NO-1526 Moss, NorwayTelephone: +47 6926 6510Fax: +47 6926 6330

Scanjet Clean ABP. O. Box 2, SE-275 21 Sjöbo, SwedenTelephone: +46 416 109 16Fax: +46 416 511 656

Combitech Systems AB P. O. Box 1017, SE-551 11 Jönköping,SwedenTelephone: +46 36 19 47 50 Fax: +46 36 19 43 61

Combitech Network AB P. O. Box 1017, SE-551 11 Jönköping,SwedenTelephone: +46 36 19 47 00 Fax: +46 36 16 60 94

Combitech Network Norge AS P. O. Box 471, NO-1301 Sandvika,Norway Telephone: +47 67 52 30 50 Fax: +47 67 52 30 51

Saab Celsius TransponderTech ABP. O. Box 4207, SE-171 04 Solna,SwedenTelephone: +46 8 627 64 30Fax: +46 8 627 64 49

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Saab AB (publ)SE-581 88 LinköpingSwedenTel +46 13 18 00 00