Saab 2013 Annual Report Download - page 82

NOTE 2 Assumptions in the Application of the
Accounting Principles
e Board of Directors and Group Management together have identied the
following areas where estimates and assumptions in the application of the
accounting principles may have a siginicant impact on the accounting of the
Group’s results of operations and nancial position and may result in signi-
cant adjustments in subsequent nancial 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 signicant develop-
ment aspects, which are associated with risks. Before a contract is signed
with a customer 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 then made of the work in the project accord-
ing 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.
e 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 aect income.
In February , an agreement was signed with  regarding develop-
ment and production of Gripen E for Sweden and Switzerland. e total
value of possible orders under the agreement amounts to  . billion, of
which Saab has received orders of  . billion. e agreement includes
rights for  to, conditional to certain prerequisites, to make cancellations.
If so, Saab has, to a certain extent, the right to compensation for costs
incurred and costs for discontinuation.
Recovery of value of development costs
e Group has invested signicant amounts in research and development. e
reported amounts in the statement of nancial position are primarily due to
development projects relating to Gripen, electronic warfare systems, Air Traf-
c Management (), radar and sensors. Capitalised development costs
amount to  , (,). e recognition of development expenditures as
an asset on the statement of nancial position requires an assumption that the
product is expected to be technically and comercially usable in the future and
that future economic benets are likely. 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. 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 for impairment of goodwill, assumptions have been made with regard
to the calculation of value in use, based on discounted cash ow projections.
A signicant deviation in the conditions could necessitate impairment of
goodwill. e carrying amount for goodwill amounts to  , (,).
Pensions
Saab has two types of pension plans: dened-benet and dened-contribu-
tion. In dened-benet plans, post-employment compensation is based on a
percentage of the recipient’s salary. e present value of dened-benet obli-
gations amounts to  , (,). e value of the pension obligation is
determined through a number of actuarial assumptions, because of which
the obligation can signicantly increase or decrease if the actuarial assump-
tions change. Due to the revisions to the reporting standard  , which
entered into force in , the possibility to use the so-called corridor
approach will be removed. is means that changes in actuarial gains and
losses directly aect the pension obligation and hence the Group’s nancial
position. See Note  for further information.
NOTE 3 Revenue Distribution
Revenue by significant source
Group Parent Company
MSEK 2013 2012 2013 2012
Sale of goods 3,964 4,147 2,221 2,412
Long-term customer contracts 13,891 13,965 10,231 8,764
Service assignments 5,891 5,893 4,068 4,162
Royalties 4 5 1 -
Total 23,750 24,010 16,521 15,338
Sale of goods
e sale of goods includes sales of goods manufactured by Saab and goods
purchased for resale, e.g., spare parts and other equipment which is 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 assign-
ment 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 cus-
tomer 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 soware.
FINANCIAL INFORMATION > NOTES
78 SAAB ANNUAL REPORT 2013