Saab 2014 Annual Report Download - page 89

FINANCIAL INFORMATION – NOTES
NOTE 2 ASSUMPTIONS IN THE APPLICATION
OF THE ACCOUNTING PRINCIPLES
The Board of Directors and Group Management together have identified the follo-
wing areas where estimates and assumptions in the application of the accounting
principles may have a significant impact on the accounting of the Group’s results of
operations and financial position and may result in significant adjustments in sub-
sequent financial reports. Developments in these areas are monitored continuously
by Group Management and the Board of Directors’ audit committee.
UNCERTAINTIES IN ESTIMATES AND ASSUMPTIONS
Long-term customer contracts
A majority of all long-term customer contracts contain significant development
aspects, which are associated with risks. Before a contract is signed with a custo-
mer on delivery of a product, solution or service, a thorough analysis is always
made of the prerequisites and risks of the delivery through a project management
process established within Saab. In the execution stage, continuous reviews are
made of the work in the project according to the same process. An important
aspect is to identify risks and assess them and the measures that are taken to
mitigate the risks with the help of a risk assessment method.
The Group applies the percentage of completion method to recognise revenue
from long-term customer contracts. An estimation of total costs is critical in revenue
recognition and provisions for onerous contracts as well as inventory valuations, and
the outcome of technical and commercial risks may affect income and cash flow.
Payments are made upon achievement of milestones in projects, making delivery
according to project plan and milestones important for the cash flow.
Recovery of value of development costs
The Group has invested significant amounts in research and development. The
reported amounts in the statement of financial position are primarily due to deve-
lopment projects relating to radar and sensors, electronic warfare systems and Air
Traffic Management (ATM). Capitalised development costs amount to MSEK952
(1,338). The recognition of development expenditures as an asset on the state-
ment of financial position requires an assumption that the product is expected to
be technically and commercially usable in the future and that future economic
benefits are likely. Capitalised development costs are amortised over the estimated
production volume or period of use, up to a maximum of 5 years, with the excep-
tion of acquired development costs, where the maximum period of use is 10 years.
Projected production volumes and periods of use may later be reassessed, which
could necessitate impairment.
Impairment testing of goodwill
In the calculation of cash-generating units to determine whether there is a need
or impairment of goodwill, assumptions have been made with regard to the cal-
culation of value in use, based on discounted cash flow projections. A significant
deviation in the conditions could necessitate impairment of goodwill. The carrying
amount for goodwill amounts to MSEK 5,015 (4,605), see note 16.
Pensions
Saab has two types of pension plans: defined-benefit and defined-contribution. In
defined-benefit plans, post-employment compensation is based on a percentage
of the recipient’s salary. The present value of defined-benefit obligations amounts
to MSEK8,153 (6 413). The value of the pension obligation is determined through
a number of actuarial assumptions, because of which the obligation can signifi-
cantly increase or decrease if the actuarial assumptions change. Changes in actua-
rial gains and losses directly affect the pension obligation and hence the Group’s
financial position. See note 37 for further information.
NOTE 3 REVENUE DISTRIBUTION
Revenue by significant source
Group Parent Company
MSEK 2014 2013 2014 2013
Sale of goods 3,569 3,964 2,422 2,221
Long-term customer
contracts 14,137 13,891 10,259 10,231
Service assignments 5,796 5,891 3,492 4,068
Royalties 25 4 2 1
Total 23,527 23,750 16,175 16,521
Sale of goods
The sale of goods includes sales of goods manufactured by Saab and goods
purchased for resale, e.g., spare parts and other equipment that are sold
separately.
Long-term customer contracts
Long-term customer contracts relate to the development and manufacture of
complex systems that stretch across several accounting periods.
For long-term customer contracts on development and hardware that can be
calculated reliably, income and expenditures attributable to the assignment are
recognised as revenue and expenses in the consolidated income statement in
relation to the assignment’s stage of completion, i.e., according to the percentage
of completion method.
Service assignments
Service assignments refer to the performance of a service on behalf of a customer
during a contractual period, e.g., consulting and support services.
Royalties
Royalties include revenue from outside parties for the use of Saab’s assets such
as patents, trademarks and software.
SAAB ANNUAL REPORT 2014 – 85