Saab 2010 Annual Report Download - page 96

Development costs
Capitalised development costs are amortised over the estimated production
volume or period of use, up to a maximum of  years, with the exception of
acquired development costs, where the maximum period of use is  years.
e production volume or period of use is set using projected future sales
according to a business plan based on identied business opportunities. e
signicant items in total capitalisation are development costs for radar and
sensors, electronic warfare systems, the export version of Gripen and the
anti-ship missile  k.
Development costs are capitalised only in the consolidated accounts. In
legal units, all costs for development work are expensed, which means that the
Parent Company does not report any capitalised costs for development work.
Other intangible fixed assets
Amortisation is recognised through prot or loss over the estimated periods
of use for intangible xed assets, i.e.,  to  years.
Signicant items in the carrying amount are attributable to the acquisi-
tion of Ericsson Microwave Systems and relate to expenses incurred for cus-
tomer relations and values in the order backlog. Of the carrying amount,
 ,   is attributable to acquired values and   to licenses
for operating systems etc.
Impairment tests for goodwill
Goodwill attributable to cash-generating units is tested for impairment
annually or when there is an indication of an impairment loss. Goodwill is
not amortised.
In connection with business combinations, goodwill is allocated to the
cash-generating units that are expected to obtain future economic benets in
the form, for example, of synergies from the acquisition. Saab’s business
areas, Combitech and companies in the venture portfolio have been identi-
ed as separate cash-generating units. e following cash-generating units
have signicant recognised goodwill values in relation to the Group’s total
recognised goodwill value. Goodwill in every cash-generating unit has been
tested for impairment.
MSEK 31-12-2010 31-12-2009
Dynamics 571 577
Electronic Defence Systems 1,988 1,980
Security and Defence Solutions 491 501
Support and Services 240 240
Combitech 159 159
Units without significant goodwill values, aggregate 21 -
Total goodwill 3,470 3,457
Impairment testing for cash-generating units is based on the calculation of
value in use. is value is based on discounted cash ow forecasts according
to the units’ business plans.
VARIABLES USED TO CALCULATE VALUE IN USE
Volume/growth
Growth in the cash-generating units’ business plans is based on Saab’s expec-
tations with regard to development in each market area and previous experi-
ence. e rst ve years are based on the ve-year business plan formulated
by Group Management and approved by the Board. For cash ows aer ve
years, the annual growth rate has been assumed to be  per cent.
Operating margin
e operating margin is comprised of the units’ operating income aer
depreciation and amortisation. e units’ operating margin is calculated
against the backdrop of historical results and Saab’s expectations with regard
to the future development of markets where the units are active. e busi-
ness areas Dynamics, Electronic Defence Systems and Security and Defence
Solutions have a substantial order backlog of projects that stretches over a
number of years. e risks and opportunities aecting the operating margin
are managed through continuous cost forecasts for all signicant projects.
Capitalised development costs
In the ve-year business plans, consideration is given to additional invest-
ments in development considered necessary for certain units to reach the
growth targets in their respective markets.
Discount rate
Discount rates are based on the weighted average cost of capital (). e
 rate that is used is based on a risk-free rate of interest in ve years
adjusted for operational and market risks. e discount rate is in line with the
external requirements placed on Saab and similar companies in the market.
All units have sales of defence materiel, unique systems, products and sup-
port solutions in the international market as their primary activity, and their
business risk in this respect is considered equivalent. However, units with a
signicant share of the business plan’s invoicing in the order backlog have
been discounted at an interest rate that is slightly lower units with a short
order backlog. e following discount rates have been used (pre-tax):
Pretax discount rate (WACC)
Per cent 2010 2009
Dynamics 11 11
Electronic Defence Systems 11 11
Security and Defence Solutions 11 11
Support and Services 13 13
Combitech 13 13
Sensitivity analysis
Group Management believes that reasonable possible changes in the above
variables would not have such a large impact that any individually would
reduce the recoverable amount to less than the carrying amount.
NOTE 16, CONT.
FINANCIAL INFORMATION > NOTES
SAAB ANNUAL REPORT 2010 93